Frustration of Purpose

The COVID-19 (“coronavirus”) public health crisis has caused unprecedented business disruptions and uncertainty for existing contractual obligations.  While many are focused on whether a force majeure clause will be triggered by the recent events, contracting parties should also consider the doctrine of “Frustration of Purpose.” Under California law, the frustration of purpose doctrine may be invoked where:

  1. Performance remains possible;
  2. but the fundamental reason of both parties for entering into the contract has been frustrated by an unanticipated supervening circumstance; and
  3. it destroys substantially the value of performance by the party standing on the contract.[1]

However, to excuse nonperformance of a contract on the ground of commercial frustration, the frustration must be so severe or substantial that it is not fairly to be regarded as within the risks that were assumed under the contract.[2]
Continue Reading Frustration of Purpose – Do I Have a Defense?