Contractual Frustration of Purpose: What Is It?
Often, there is an overriding, essential purpose to entering into a business contract. If a developer and a construction company agree to build a retail shopping plaza, the creation of a revenue generating property is the purpose. If a business and an IT company enter into a contract, fixing or maintaining computer systems or technological infrastructure, is the purpose.
When the Purpose is Gone
But sometimes, something happens that ruins that purpose—that makes the purpose completely worthless, or even impossible to achieve. When that happens the parties may have a defense to the contract, called frustration of purpose.
There are defenses to a contract when the contract becomes impossible to perform. But when the purpose of a contract is only frustrated, but not impossible, it could still be performed—there is no actual impediment to both sides completing their obligations under a contract.
The problem when it comes to the frustration of purpose defense to performance of the contract is that performing the contract suddenly becomes, essentially, pointless.
To meet the defense, the thing that made the contract purposeless, or which frustrated the purpose, is something external; it cannot have been caused by any of the parties to the contract, and it cannot have been reasonably foreseen by the parties.
Examples of Frustration of Purpose
So, for example, assume that someone contracts to open a go kart racing park. While the facility is being built, go kart facing goes out of style.
That is not frustration of purpose; it is something that could have been foreseen; a downturn in business or something becoming more or less popular is always foreseeable, and thus, not a defense to the contract.
But now imagine that, while the go kart track is being built, the government passes a law that says that nobody under the age of 18 can ride a go cart. Or, imagine it is learned that the go carts that are primarily in use, are actually dangerous for humans to use and they are all forbidden from being used, or they create too much liability than what was first anticipated.
In both instances, the contract could still physically be performed. But the whole purpose of the contract is now frustrated.
A Real Impact
Whatever is frustrating the purpose of the contract must have a substantial material impact on the contract. It’s not that the business endeavor is just less profitable, it actually is near worthless.
Parties can eliminate the defense, by specifically naming frustrating events in the contract—for example, the contract could say that the parties have contemplated and accept the risk of possible law changes, or that they accept the risk of pandemics, or major weather events—things that could constitute frustration of purpose, normally.
Do you need help in your breach of contract case? Call the West Palm Beach business litigation attorneys at Pike & Lustig today for help with your contract case in or out of court.