Frustration of purpose is a contract defense that may apply when an unforeseen event defeats the principal reason a party entered into an agreement. This lesson explains the doctrine, its main requirements, and how it differs from impossibility.
A party enters a contract for a reason, or principal purpose. Frustration of purpose may apply when an unforeseen event substantially undermines that purpose, even though the contract’s stated duties may still be physically possible to perform. The purpose must have been understood by both parties when they made the contract, and the event must make performance radically different from what they contemplated.
All flashcards
Frustration of purpose
A defense that may discharge remaining duties when an unforeseen, no-fault event substantially defeats a principal purpose known to both parties.
Impossibility and frustration of purpose
Impossibility concerns whether specified duties can be performed; frustration concerns whether a principal reason for the agreement has been defeated.
Shared principal purpose
The main reason for the agreement, generally understood by both parties when they contracted.
Discharge versus rescission
Discharge ends contractual duties; it does not necessarily reverse prior exchanges or restore all payments.
Codelfa tripartite approach
Australian frustration analysis asks whether performance is incapable, neither party is at fault, and circumstances make performance radically different.
Quiz questions
Under the Australian approach in Codelfa, which combination supports recognition of frustration?Answer: Performance is incapable, neither party is at fault, and circumstances make it radically different.
In Taylor v Caldwell, why was the concert-hall contract discharged?Answer: The hall burned down, and the court treated its continued existence as an implied condition.
Which situation is identified as a reason frustration will not be recognized under the Australian approach described?Answer: The contract allocated the risk of the event that occurred.
Under Restatement (Second) of Contracts § 265, what must be true of the event’s nonoccurrence?Answer: It must have been a basic assumption of the contract.
What did the result in Krell v Henry illustrate about discharge and rescission?Answer: Discharge did not restore every payment; the hirer lost the deposit and the owner lost the balance.