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Commercial Frustration

DEFINITION

Term that describes the near impossible or impossible obligation of a party in a contract to perform the agreement, thereby relieving the party from their contractual obligation.

EXPLANATION

The performance of a contract can be discharged in certain circumstances.

The contract can be discharged if there are certain factors beyond the control of one or both parties that causes an impossibility of performance. For example, if a borrower no longer has the funds to purchase the house or cannot access any lending terms, it would be impossible to purchase the property. Another instance includes the buyer and/or spouse losing his or her job, for example, rendering the purchase impossible. Under these scenarios, the involved party can be excused.

The performance of a party can be excused when the impracticability of performance makes a task difficult or nearly impossible to fulfill. This is also called commercial frustration. If economic circumstances change for one or both parties, said parties can be excused for nonperformance. The most common instance of this is if the buyer can no longer afford to purchase the house, either because of lack of financing, or not possessing enough money to pay the required down payment. Another instance includes the scenario of a seller no longer wanting to sell the property because he or she cannot afford a switch property. The standard reasoning for one’s failure is due to a financial hardship.

A party may be excused from performing a certain provision within a contract if the provision is deemed dangerous.

For example, suppose Jenny employs Donald’s Construction for renovations on her coastal beach house. The contract states that the construction must be completed by May 15th. If a hurricane occurs and prevents Donald’s Construction from performing work on Jenny’s property, Donald is excused from the contract’s original completion date.

Commercial frustration refers to a situation in which an unforeseen, uncontrollable circumstance makes the fulfillment of a contract by one party impossible, or nearly impossible. Commercial frustration allows the party who suffered the unforeseen circumstance to be excused from a contract’s legal obligations and/or to rescind the contract entirely. This provision does not apply to situations that could have been reasonably predicted.

For example, assume a property owner contracts Mendoza Construction Services to remodel the property. If a wildfire breaks out in the area and burns down the property, the property owner would be excused for not meeting his or her portion of the contract.

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