While the central concern in the business community seems to be whether or not the coronavirus outbreak fits into force majeure clauses (FBFK does have an article dedicated to force majeure), there is an alternative option worth exploring: frustration of purpose.

In states like Texas, frustration of purpose is just one alias for impossibility and impracticability, all of which are different ways for saying that a failure to perform is excused.[1] To raise a frustration of purpose defense, three elements generally must be established: 1) substantial frustration of the principal purpose of the contract, 2) the nonoccurrence or occurrence of the frustrating event was a basic assumption upon which the contract was made, and 3) no fault on the part of the defendant.[2]

In order to satisfy the first element, the frustrated purpose must be the principal purpose in making the contract. Both parties need to be aware that this was the central focus of the contract, and not merely an ancillary objective. Secondly, the frustration must be substantial rather than merely giving rise to a pecuniary loss or making the contract moderately less profitable. In fact, the Restatement of Contracts states that the “frustration must be so severe that it is not fairly to be regarded as within the risks…assumed under the contract.”[3] Finally, the frustrated event must be foundational to the contract. For example, if the contract was to advertise during March Madness but then March Madness is completely canceled, that would likely be a frustration of the event on which the contract was premised.

Further, under Texas law, changes in the law that render performance illegal also typically render that performance impracticable.[4] In times when laws and ordinances are changing almost daily, looking at contracts under a lens of frustrated purpose might be a helpful analysis.

In short, although force majeure clauses are a hot button issue right now, there are other legal doctrines that are especially relevant during this unprecedented time.


[1] See, e.g., Ramirez Co. v. Hous. Auth. of City of Houston, 777 S.W.2d 167, 173 n. 11 (Tex. App.—Houston [14th Dist.] 1989).

[2] Restatement (Second) of Contracts § 261 (1981).

[3] Id.

[4] Tractebel Energy Mktg., Inc. v. E.I. Du Pont de Nemours & Co., 118 S.W.3d 60, 64 n. 6 (Tex. App.—Houston [14th Dist.] 2003, pet. denied).

John O’Connor is a business minded, first chair litigator that works hand-in-hand with his clients to develop dispute resolution strategies that make sense in both the court room and the board room. His litigation practice focuses on resolving complex commercial disputes across a broad spectrum of industries and has significant involvement representing clients in the financial services industry, including private equity firms, insurance companies, and financial institutions.

Raylee’s practice as an attorney with FBFK primarily consists of complex business litigation throughout a variety of industries. She has worked on matters involving breach of contract, trademark cancellation, and a variety of litigation in the real estate sector.

Tweet
Share
Share