Frustration of Purpose

The doctrine of frustration of purpose discharges a party's contractual obligations when an unforeseen supervening event substantially destroys the principal purpose for which the contract was made, even though performance by both parties remains entirely possible. The doctrine originated in Krell v. Henry, the famous Coronation Cases, where the cancellation of Edward VII's coronation procession frustrated the purpose of renting rooms overlooking the parade route, even though the rooms could still have been occupied.

Frustration of purpose differs fundamentally from impossibility and impracticability. In those doctrines, the party cannot perform or finds performance extremely burdensome. In frustration of purpose, the party can still perform—but the value of the performance to one party has been virtually destroyed by an unforeseen event. The frustrated party is relieved because the very reason for entering the contract no longer exists. The frustration must be substantial, not merely a diminution in value or a partial disappointment of expectations.

For the doctrine to apply, the principal purpose of the contract must be substantially frustrated, the frustrating event must have been unforeseen, the risk must not have been allocated to the party seeking discharge, and both parties must have been aware that the frustrated purpose was the basis of the agreement. Courts apply the doctrine narrowly to prevent parties from using it to escape contracts that have merely become less profitable or less desirable. Partial frustration may entitle the affected party to an adjustment rather than total discharge.