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Simple English definitions for legal terms
commercial frustration
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A quick definition of commercial frustration:
Commercial frustration is when something unexpected happens after making a contract that makes it impossible or financially unreasonable to follow through with the agreement. This is different from impossibility, which means it is physically impossible to fulfill the contract. To use commercial frustration as an excuse for breaking a contract, the event must have destroyed the value or purpose of the contract for one party, and that party could not have caused or predicted the event. However, it can be difficult to determine when an event is unforeseeable, and the rules vary by state. For example, if someone signed a lease for a car lot and then the government restricted car sales due to World War II, the court might not consider this commercial frustration because it was foreseeable, even though it was an extraordinary event.
A more thorough explanation:
Commercial frustration is a legal term used to describe a situation where a contract becomes impossible or impractical to perform due to unforeseeable events that occur after the contract is made. It is also known as frustration of purpose or impracticability.
Unlike impossibility, which applies when performance is actually impossible, commercial frustration applies when intervening circumstances make the contract useless or financially absurd to perform for one party.
For commercial frustration to apply, the event must 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. Additionally, the party claiming commercial frustration could not be the cause of or have any warning of the event.
For example, if a company contracts with a supplier to provide a specific type of raw material for a product, but a natural disaster destroys the supplier's factory and makes it impossible to provide the material, the company may be able to claim commercial frustration and be released from the contract.
However, if a car lot owner signs a lease for a lot during World War II, when the public feared government restrictions on car sales, and the restrictions are actually implemented, the court may not find commercial frustration applies because the event was foreseeable, even though it was extraordinary. This was the case in Lloyd v. Murphy.