Also known as: frustrated purpose · frustration of contract · doctrine of frustration · commercial frustration
Written by attorneys · grounded in primary & secondary sources — see below
A contract doctrine that discharges a party's remaining duties to perform when that party's principal purpose is substantially frustrated without its fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made, unless the language or the circumstances indicate the contrary.
Flagship Logistics leased rooftop space from Falcon Dynamics to install a cellular antenna primarily to serve crowds at a nearby sports stadium. An earthquake damaged the stadium, forcing its temporary closure for repairs that lasted six months. Flagship suspended rent payments during the closure but resumed once the stadium reopened and crowds returned.
Franklin Foundry contracted with Fusion Power to convert alumina into aluminum at a fixed price formula for a decade-long term. Unforeseen spikes in energy and labor costs made the conversion process far more expensive than either party anticipated at formation. Franklin sought judicial modification of the price term on frustration grounds.
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Eastern Air Lines contracted with Gulf Oil for jet fuel at a set price tied to posted rates. A sudden global oil crisis drove market prices dramatically higher than the contract formula anticipated. Eastern claimed the price surge frustrated the economic purpose of the long-term supply agreement.
A car manufacturer and a parts supplier entered a supply contract premised on compliance with a specific state safety standard. Federal law later preempted that standard, eliminating the regulatory premise both parties had assumed would govern the parts. The supplier argued the preemption frustrated the contract's core purpose.
A divorcing couple incorporated a non-modifiable maintenance agreement into their decree. Years later, one spouse sought to avoid payments after changed financial circumstances allegedly destroyed the agreement's original purpose. The court examined whether the changed circumstances triggered frustration of purpose under contract principles.
The party must show that its principal purpose was substantially frustrated without its fault by an event whose nonoccurrence was a basic assumption of the contract, and that the contract language or circumstances do not indicate a contrary risk allocation.
No. Loss of profitability due to adverse market conditions does not constitute frustration of purpose because the primary commercial purpose of the contract may remain capable of being achieved.
Temporary frustration suspends the obligor's duty to perform while the frustration exists but does not discharge the duty unless performance after the frustration ceases would be materially more burdensome than originally contemplated.
Yes. Under Restatement (Second) of Contracts § 266(2), a party's duties may be discharged for existing frustration when a principal purpose is substantially frustrated at formation by a fact of which the party had no reason to know and whose nonexistence was a basic assumption.
…non-existence of the “fact”, Id. § 286, causing the impracticability be a basic assumption on which the contract is made. The doctrine of frustration of purpose similarly rests on the same “non-occurrence” or “non-existence”, “basic assumption” equation. Id. §§ 285,[^maj-12] 286.[^maj-13] The three doctrines further overlap in time.…