Has the pandemic frustrated the purpose of your contract or lease?

If you can’t perform your contract, you may have a defense due to the COVID-19 pandemic. It is possible that you do. In Texas, your duties under a contract are sometimes dischargeable due to “frustration of purpose,” among other defenses.

Frustration of purpose is similar to a force majeure defense, except that it doesn’t require your contract to contain a specific clause addressing the issue in question. Frustration of purpose is also commonly referred to as “commercial impracticability” or “impossibility of performance,” but there is no functional difference between the three.

Common law of contracts and the Uniform Commercial Code in Texas

The frustration of purpose defense comes from common law, as described in the treatise Restatement (Second) of Contracts, section 261:

“Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.”

The definition is similar in the Uniform Commercial Code (UCC), which is also Texas law:

“Delay in delivery or non-delivery in whole or part by a seller … is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.”

As you can see, the basic requirement is that some contingency has occurred that the contracting parties assumed would not occur.

Another requirement is that performance of the contract must be objectively impossible (it cannot be done) rather than subjectively impossible (I cannot do it).

Finally, in order to assert this defense, you must have used reasonable efforts to overcome the obstacle to your performance.

Whether under the common law or the UCC, there are at least three situations where frustration of purpose is generally a defense:

  • The death or incapacity of a person necessary for performance
  • The destruction or deterioration of a thing necessary for performance
  • Prevention by government regulation

Chances are, in the pandemic, governmental regulation is the likely frustrating event for your performance. This is the event that your contract presumably assumed would not happen.

Is performance of your contract objectively impossible, under the circumstances? Have you taken whatever steps would be reasonable to overcome the obstacle? If so, you may have a valid frustration of purpose defense.

If you are in breach of a contract and wonder if you have a defense, contact your business law attorney.