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When could frustration of purpose apply to my contract?

| May 10, 2021 | Firm News

Not every contract sees completion. In some cases, you and the other party may agree to modify your terms or that the contract is no longer in your mutual interest.

In other situations, parties disagree about the possibility of completing the contract, and there is a dispute. For these situations, one party may have a defense, like impossibility or frustration of purpose, that could help them avoid liability.

Here’s what you should know about the frustration of purpose defense and when it could come into play for one of your contracts.

What is the frustration of purpose defense?

The frustration of purpose defense is often paired with impossibility because both arise from circumstances out of the control of the person who cannot fulfill their end of the contract. Unlike impossibility, however, when the purpose of a contract is frustrated, the new result of completing the contract would be substantially different from what the parties intended when they agreed in the first place.

The frustration of purpose defense has to do with more than fulfillment becoming costly or complicated. Parties use this defense when a circumstance out of their control adds an extra roadblock to fulfilling the contract.

What types of circumstances fit under the frustration of purpose defense?

Over the last year, circumstances caused by the pandemic have led to situations where contracts were either impossible or frustrated.

For example, when governments ordered a ban on public gatherings, many events could not occur, causing the contracts for those events to become impossible. The frustration of purpose defense, on the other hand, would come in when the bans were removed, but there were still strict limitations on gathering capacity.

In the first example, the contract simply cannot be fulfilled because an outside action made it impossible to fulfill. In the second, however, it is still possible to have the event, but the severely decreased capacity would drastically diminish the event’s profitability, which was the purpose in the first place.

When you are making an agreement with another party, it can be challenging to anticipate extreme events, like a pandemic. It is essential to know your options if you (or the other party) cannot complete a contract.