Definition
Frustration of Contract occurs when a contractual obligation cannot be performed due to an unforeseen event, making the performance impossible, illegal, or radically different from what was originally contemplated by the parties. This unforeseeable event must not be the fault of any party to the contract.
Examples
Aircraft Crash: A contract for the sale of an aircraft would be frustrated if the aircraft crashes and is destroyed before the sale can be completed. The seller is no longer in a position to deliver the aircraft, and the buyer cannot take delivery and pay for it as per the contract terms.
War Declaration: If a country declares war on another, an existing export contract between businesses in these countries can be frustrated. The actions of war may make fulfilling the contract illegal due to new sanctions or impossible because of logistical disruptions.
Natural Disasters: A lease agreement for a building can be frustrated if the building is destroyed by an earthquake, rendering the premises unusable.
Frequently Asked Questions (FAQs)
Q1: What is the legal doctrine of frustration of contract?
A1: The legal doctrine of frustration of contract discharges parties from their contractual obligations when an unforeseen event fundamentally changes the nature of the contract, making it impossible or illegal to perform.
Q2: Can financial hardship be considered frustration of contract?
A2: Typically, financial hardship or changes in market conditions do not constitute frustration of contract as these are foreseeable risks. The event must significantly change the nature of the obligations originally agreed upon.
Q3: How is frustration of contract determined by courts?
A3: Courts assess whether the frustrating event renders the performance of the contract radically different or impossible/illegal. They will also consider whether the event was foreseeable and if the contract allocated risk for such events.
Q4: Can parties include terms to address frustration of contract in their agreement?
A4: Yes, parties can include force majeure or hardship clauses in their contracts, outlining specific events and consequences that cover unforeseen circumstances similar to frustration of contract.
Q5: What are the consequences of a contract being frustrated?
A5: When a contract is determined to be frustrated, the parties are excused from further performance, and any obligations already performed may be subject to restitution to place the parties in a position as if the contract had never been made.
Related Terms
- Force Majeure: A contractual clause that frees parties from obligations due to events beyond their control.
- Impossibility: Situations where fulfilling the contract cannot be done; a principle closely related to frustration.
- Illegality: Contracts that become illegal to perform due to changes in law.
- Hardship Clause: A provision that allows contract renegotiation if performance becomes excessively burdensome but not impossible.
Online References to Resources
- Investopedia: Force Majeure Definition
- The Free Dictionary: Contract Frustration
- LawTeacher: Doctrine of Frustration
Suggested Books for Further Studies
- “Contract Law: Text, Cases, and Materials” by Ewan McKendrick
- “Frustrated Contracts and Legal Reasoning” by Solene Rowan
- “The Law of Contract” by Hugh Beale
- “Anson’s Law of Contract” by Jack Beatson, Andrew Burrows, and John Cartwright
Accounting Basics: “Frustration of Contract” Fundamentals Quiz
Thank you for learning about the intricate concept of “Frustration of Contract.” Your attention to legal nuances will undoubtedly aid in mastering contractual relationships and their potential pitfalls.