Commercial Frustration

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Commercial frustration (also referred to as frustration of purpose or sometimes as impracticability) is an excuse for breaking a contract when an unforeseeable event occurs after making the contract. Contrasting with impossibility which applies when performance is actually impossible, commercial frustration applies when intervening circumstances render the contract useless or financially absurd to perform for one party. Applying commercial frustration is difficult because determining when the contract is useless or the event was unforeseeable is not clear and varies by state. However, most states require the event to essentially destroy all value or purpose of the contract for one party; an event that only causes major loss to one party would not suffice. Also, the party claiming commercial frustration could not be the cause of or have any warning of the event. For example, in the famous case of Lloyd v. Murphy, a car lot owner signed a lease for the lot when the public feared government restrictions on car sales because of World War II, and the court found commercial frustration did not apply when the restrictions were actually implemented because the event was foreseeable, even though it was extraordinary. 

[Last updated in June of 2021 by the Wex Definitions Team]