The COVID-19 pandemic has impacted the ability of many businesses in the United States and across the globe to fulfill their contractual obligations. As a result, increase discussions continue to occur regarding the intersection between COVID and frustration of purpose and force majeure clauses.
The coronavirus crisis upended the operations of countless businesses in New Jersey and across the country. Many individuals and companies unable to meet their contractual obligations due to the pandemic, shutdowns, cancellation of events, and other government-mandated restrictions wonder if they can use the frustration of purpose doctrine to excuse or delay performance.
If your business has been impacted by the pandemic and the resulting restrictions mandated by the government, consider speaking with a lawyer to discuss the applicability of the frustration of purpose doctrine in your specific case. Contact our attorney at The Law Offices of Jonathan Fleisher, Esq. to receive a free case evaluation. Call 732.360.6409 today to ensure your legal and financial rights remain protected.
What Is Frustration of Purpose?
Legally speaking, “frustration of purpose” is used as a defense to enforcement of a contractual agreement. The frustration of purpose refers to a situation in which an unforeseen event undermines a contractual party’s principal purpose for entering into the agreement with the other party.
The frustration of purpose arises when an unforeseen event makes one party’s performance worthless, frustrating the primary purpose in making the contract. Thus, even though a party’s performance of contractual obligations is still possible, an unforeseen change in circumstances must frustrate the main purpose of the contract for the doctrine to apply.
In order for the legal doctrine to be applicable, the frustration of the contract’s primary purpose must not be the fault of the party seeking an excuse or delay of performance.
Examples of a Contractual Frustration of Purpose
The frustration of purpose is a situation in which one party’s performance of contractual obligations is worthless to the other party due to an unexpected event, such as COVID. An example of such a situation is a company that rents a concert venue for an upcoming concert, but the concert is canceled due to government-mandated restrictions. As a result, the renter refuses to pay rent because the purpose of using the concert venue was frustrated.
Elements of the Frustration of Purpose
Under the Restatement Second of Contracts § 265, the frustration of purpose doctrine contains three elements as indicated in Facto v. Pantagis, 390 N.J. Super. 227, 232, 915 A.2d 59, 62 (App. Div. 2007) (quoting Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282, 633 A.2d 531 (1993)).
- The purpose frustrated by an unexpected event was a principal purpose of making the contract;
- The frustration of the purpose is substantial; and
- The event that frustrated the purpose of the contract was not reasonably foreseeable at the time of making the contract.
The party invoking the frustration of purpose has the burden of proof and must provide clear and convincing evidence.
COVID and Frustration of Purpose
The spread of the coronavirus disease and the accompanying restrictions imposed by governments left many businesses unable to meet their contractual obligations. As a result, many contracts have been breached during the COVID-19 pandemic.
In most cases, the breaching party does not wish to breach their contractual obligations, but the financial burdens caused by their performance leave no other option. In terms of COVID and frustration of purpose, government-mandated restrictions, business closures, and other disruptions may frustrate the purpose of contractual agreements.
In most cases, the frustration of purpose doctrine is not applicable if:
- The unexpected event merely renders the performance more difficult or expensive, rather than frustrates the main purpose of the contract;
- There are alternative methods of performance available to the parties; or
- The frustrating event was the fault of one of the parties to the contract.
The unprecedented nature of the COVID crisis and the accompanying restrictions may support the application of the frustration of purpose doctrine in certain cases.
Do New Jersey Courts Recognize the Frustration of Purpose Doctrine?
New Jersey courts recognize the frustration of purpose doctrine and use the definition under the Restatement Second of Contracts § 265. However, courts in New Jersey have previously ruled that relief from the performance of contractual obligations due to the frustration of purpose “will not be lightly granted,” which means the party seeking relief faces a high burden of proof (JB Pool Mgmt., LLC v. Four Seasons, Inc.).
New Jersey courts recognize the doctrine under common law. In 2019, the Superior Court of New Jersey Appellate Division ruled that the frustration of purpose doctrine is applicable when the party’s performance of contractual obligations can still be carried out, but the frustrating event “fundamentally” changed the nature of the “overall bargain” (Capparelli v. Lopatin).
Review the Frustration of Purpose Provision in Your Contract
Parties that consider invoking the frustration of purpose doctrine to excuse or delay performance of their contractual obligations under a contract should review their existing contract to check the precise language of any provisions related to force majeure, frustration of purpose, impossibility, impracticability, and other clauses.
In the wake of the COVID-19 pandemic, parties entering into new contracts may want to consider adding force majeure, frustration of purpose, and other provisions to protect themselves in the event of unforeseen events such as a pandemic.
Parties may also be able to modify their existing contracts to add frustration of purpose and other provisions to protect them in the event of unexpected events. If you wish to add the frustration of purpose provision to your contract, consider contacting an attorney to assist you in drafting an enforceable and valid contract.
Schedule a Free Consultation with a New Jersey Lawyer
The outbreak of the coronavirus disease and ensuing government-mandated restrictions caused major disruption to businesses in New Jersey, the United States, and around the world. As parties were unable to meet their contractual obligations due to the COVID-19 pandemic, many wondered if they could use force majeure, frustration of purpose, and other clauses to seek relief from performance.
The applicability of the frustration of purpose doctrine in the COVID era depends on the specific language of the contract and the parties’ circumstances. Consider speaking with a lawyer to discuss COVID and frustration of purpose in your specific case. At The Law Offices of Jonathan Fleisher, Esq., we assist clients in New Jersey with drafting enforceable contracts and understanding their legal remedies for non-performance. Contact us today for a free case review by calling 732.360.6409.