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Contracts • Excuse of Non-Performance
K#145
Legal Definition
Frustration of purpose occurs when the purpose of the contract has become valueless due to a supervening event through no fault of the party seeking discharge. It requires the party seeking discharge to show: (1) there is some supervening act or event; (2) at the time of contracting, the parties did not reasonably foresee the event; (3) the purpose of the contract has been completely or almost destroyed; and (4) both parties realized the purpose of the contract at the time of contracting.
Plain English Explanation
It's best to discuss this card with a group of other cards, as they are similar but unique. The three often confused rules in contract law are: (1) impossibility, (2) impracticability, and (3) frustration of purpose.
Impossibility means exactly what it sounds like: it is objectively impossible for the parties to perform under the contract. The most common type of impossibility happens when something is destroyed and it is impossible for the party to un-destroy the thing in question. But another example would be when parties agree to something that is later made illegal. Since you cannot contract to do something illegal, then it is now impossible to perform the contract even if, at the time it was made, it was fine.
Impracticability means that it is possible to still perform, but the circumstances have changed and now cause an unreasonable burden on the party trying to avoid the contract. For example, if Bob hires Sam to dig him a pool in his backyard and, while digging the pool, Sam's shovel hits a metal UFO that unexpectedly crash landed there thousands of years ago, the cost to dig the pool would now substantially increase (after all, now Sam needs to dig up a UFO instead of just dig a hole in the ground). It would be extreme and unreasonable to force Sam to incur the costs of digging up a UFO since the contract never included the possibility of there being a UFO in Bob's backyard. As such, though it isn't impossible to perform on the contract, it is arguably impracticable, which would relieve Sam of his obligation to perform.
Frustration of Purpose means that the purpose for the contract no longer exists, which was the sole reason of the contract to begin with. For example, if you rented a hotel room next to Disneyland because you and your family were planning a trip, but then Disneyland is shut down due to the COVID-19 pandemic. The point wasn't to visit a hotel room, it was to visit Disneyland. However, unexpectedly, Disneyland has shut down which makes traveling to the hotel room pointless, even though it isn't impossible. Your purpose has been frustrated.
Impossibility means exactly what it sounds like: it is objectively impossible for the parties to perform under the contract. The most common type of impossibility happens when something is destroyed and it is impossible for the party to un-destroy the thing in question. But another example would be when parties agree to something that is later made illegal. Since you cannot contract to do something illegal, then it is now impossible to perform the contract even if, at the time it was made, it was fine.
Impracticability means that it is possible to still perform, but the circumstances have changed and now cause an unreasonable burden on the party trying to avoid the contract. For example, if Bob hires Sam to dig him a pool in his backyard and, while digging the pool, Sam's shovel hits a metal UFO that unexpectedly crash landed there thousands of years ago, the cost to dig the pool would now substantially increase (after all, now Sam needs to dig up a UFO instead of just dig a hole in the ground). It would be extreme and unreasonable to force Sam to incur the costs of digging up a UFO since the contract never included the possibility of there being a UFO in Bob's backyard. As such, though it isn't impossible to perform on the contract, it is arguably impracticable, which would relieve Sam of his obligation to perform.
Frustration of Purpose means that the purpose for the contract no longer exists, which was the sole reason of the contract to begin with. For example, if you rented a hotel room next to Disneyland because you and your family were planning a trip, but then Disneyland is shut down due to the COVID-19 pandemic. The point wasn't to visit a hotel room, it was to visit Disneyland. However, unexpectedly, Disneyland has shut down which makes traveling to the hotel room pointless, even though it isn't impossible. Your purpose has been frustrated.
Hypothetical
Hypo 1: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. It so-happens that his neighbor, Sam, has recently bought the exact car that Bob wants for his wife. Bob offers Sam $500,000 for his car. Sam accepts. Unexpectedly, a meteor flies into Earth's orbit and lands on Sam's car, exploding it to a million pieces. Result: It is now impossible for Sam to sell Bob his car, because his car is now a crater.
Hypo 2: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. Bob orders the Ferrari directly from the manufacturer in Italy. Right as Bob's custom, $500,000 Ferrari is rolling out of the manufacturing facility, a meteor flies into Earth's orbit and lands on Bob's car, exploding it into a million pieces. Result: This may seem like the same as Hypo 1, but remember -- for something to be impossible it must be objectively impossible. In Hypo 1, Sam is just a normal guy who so-happened to own a Ferrari. When his Ferrari got hit with a meteor, he no longer has the power to give Bob another one, so it is impossible. However, in this example, Bob contracted with the Ferrari manufacturer directly. Thus, even though it will be expensive to build him another one, it's not impossible. You may be able to argue that it is impracticable, but even that is a bit of a stretch since it's not that extreme to require a car manufacturer to manufacture another car.
Hypo 3: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. He contacts Ferrari and discusses his plan to create a special, birthday-themed Ferrari with his wife's face painted on the hood of the car. Ferrari offers to deliver it in a large bow to make it look even more like a gift. Unfortunately, before Ferrari can begin building the car, Bob's wife dies. Result: This is an example of frustration of purpose. The whole reason Bob and Ferrari were contracting was to create a surprise birthday gift for Bob's wife. Now that Bob's wife is dead, there is no longer a purpose to continue with the contract.
Hypo 2: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. Bob orders the Ferrari directly from the manufacturer in Italy. Right as Bob's custom, $500,000 Ferrari is rolling out of the manufacturing facility, a meteor flies into Earth's orbit and lands on Bob's car, exploding it into a million pieces. Result: This may seem like the same as Hypo 1, but remember -- for something to be impossible it must be objectively impossible. In Hypo 1, Sam is just a normal guy who so-happened to own a Ferrari. When his Ferrari got hit with a meteor, he no longer has the power to give Bob another one, so it is impossible. However, in this example, Bob contracted with the Ferrari manufacturer directly. Thus, even though it will be expensive to build him another one, it's not impossible. You may be able to argue that it is impracticable, but even that is a bit of a stretch since it's not that extreme to require a car manufacturer to manufacture another car.
Hypo 3: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. He contacts Ferrari and discusses his plan to create a special, birthday-themed Ferrari with his wife's face painted on the hood of the car. Ferrari offers to deliver it in a large bow to make it look even more like a gift. Unfortunately, before Ferrari can begin building the car, Bob's wife dies. Result: This is an example of frustration of purpose. The whole reason Bob and Ferrari were contracting was to create a surprise birthday gift for Bob's wife. Now that Bob's wife is dead, there is no longer a purpose to continue with the contract.
Visual Aids
Related Concepts
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What is excuse due to improper performance?
What is excuse due to insecurity about other party's performance?
What is excuse due to other party's non-performance?
What is impracticability?
What is required to retract an anticipatory repudiation?
What is rescission?
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