Also known as:frustration of purpose defense · frustration of purpose · frustration doctrine
Written by attorneys · grounded in primary & secondary sources — see below
A doctrine discharging a party's remaining contractual duties when that party's principal purpose is substantially frustrated without its fault by an event the non-occurrence of which was a basic assumption on which the contract was made, unless the contract language or surrounding circumstances indicate the contrary.
Sources & Authorities
How it applies
Common Examples
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Temporary Road Closure Delays Delivery
Flagship Logistics contracted to deliver goods to Frontier Capital over a route that became temporarily impassable due to a bridge repair lasting six weeks. The repair ended before the delivery deadline, and Flagship could complete the shipment on the original schedule with only minor added cost. Because the frustration was temporary and performance after the event was not materially more burdensome, Flagship's duty to perform was merely suspended during the closure and not discharged.
Canal Closure Raises Shipping Costs
Transatlantic Financing agreed to carry wheat from the United States to India on a vessel that normally used the Suez Canal. When the canal closed, the ship rerouted around the Cape of Good Hope at substantially higher expense. The court held that the increased cost alone did not frustrate the principal purpose of delivering the cargo, so the carrier remained obligated to perform.
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Cases
Restatements
Casebooks
Transatlantic Financing Corp. v. United States363 F.2d 312 (D.C. Cir. 1966)
Price Escalation Clause Dispute
Aluminum Company of America contracted to supply molten aluminum to Essex Group under a long-term agreement containing a fixed-price formula. Sharp increases in energy costs made the formula unprofitable for ALCOA. The court reformed the price term rather than discharging the contract, finding that the parties' basic assumption about stable production costs had been frustrated but that equitable adjustment, not outright excuse, was the appropriate remedy.
Aluminum Company of America v. Essex Group, Inc.499 F. Supp. 53 (W.D. Pa. 1980)
Common questions
Frequently Asked
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What elements must a party prove to establish the frustration-of-purpose defense?+
The party must show that its principal purpose was substantially frustrated by an unforeseen event, that the non-occurrence of the event was a basic assumption of the contract, and that the frustration occurred without its fault. The contract language or circumstances must not indicate that the party assumed the risk.
Does contract language allocating risk of regulatory changes prevent discharge under existing frustration of purpose?+
Yes. When the contract expressly assigns regulatory risk to one party, that allocation indicates the parties intended performance to proceed even if an adverse regulatory fact existed at formation, defeating the defense.
How does temporary frustration differ from permanent frustration?+
Temporary frustration suspends the duty to perform only while the frustrating condition lasts. The duty is discharged only if resuming performance after the condition ends would be materially more burdensome than originally contemplated.
Can a party claim frustration of purpose when the contract still retains some commercial value after the event?+
No. Courts require substantial frustration of the principal purpose. Residual value or alternative uses that still allow the contract to serve a meaningful function usually defeat the defense.
363 F.2d 312 (D.C. Cir. 1966)Contracts
…the House of Lords (see Lord Denning’s admirable treatment, [1964] 2 Q.B. at 233), “swallowing” the difficulty of applying the frustration doctrine to hypothetical facts, reversed, holding that the contract had to be performed. Especially relevant is the fact that the case expressly overruled Societe Franco Tunisienne D’Armement v.…