What Is The Difference Between Frustration Of Purpose in Contracts?

Frustration of purpose occurs when an unforeseen event undermines the primary reason for a contract, rendering one party unable to realize the intended benefit. This differs from frustration of performance, which relates to impossibility in fulfilling contractual duties.

Frustration of purpose is a legal doctrine in contract law that allows a party to be excused from performance due to an unforeseen event that substantially frustrates the principal purpose of the contract. This typically occurs when the event is not the fault of either party and was a basic assumption upon which the contract was based. The doctrine requires the frustrating event to render the purpose of the contract so different from that which was reasonably anticipated that it would be unjust to hold the parties to their original agreement.

Importance is often placed on the specific purpose for which the contract was entered into, which must be clearly communicated between the parties. If one party's primary reason for entering the contract is defeated, they may seek discharge from their obligations. For example, if someone contracts to rent a venue for a wedding, and the venue burns down prior to the event, the purpose of that contract is frustrated.

This differs from frustration of performance, where the impossibility of performing the contract arises, such as when a party can no longer fulfill their obligations due to physical or legal constraints. In other words, frustration of performance focuses on the inability to carry out the obligations outlined in the contract, while frustration of purpose emphasizes the loss of the intended benefit derived from the contract.

For a successful claim of frustration of purpose, the event causing the frustration must be unforeseeable and not due to the fault of either party. Both the nature of the event and how it alters the contractual purpose are critically examined by courts. Hence, clear communication of the purpose in the contract is essential to establishing a claim of frustration.

Courts will also analyze whether the frustrated purpose was a fundamental basis for the binding agreement. If it is determined that the specific purpose was well-known and relied upon, relief through frustration of purpose may be granted, allowing the affected party to be excused from their obligations under the contract, typically resulting in restitution or refund for any payments made.

• 1Krell v. Henry (1903) - established the doctrine of frustration of purpose when rental for a venue was intended specifically for a coronation parade that was canceled.
• 2Farnsworth v. Tocco (1996) - clarified conditions under which frustration might apply, particularly concerning unforeseeable events.
• 3Lloyd v. Murphy (1922) - highlighted that frustration of purpose requires a clear understanding of the contract's principal purpose.

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