Of the many ways to legally terminate a contract, CPCU 530 discusses the concept of impossibility and how that differs from frustration and impracticality. This tip will explore the differences between the three in more detail and provide examples to help improve your understanding.

Impossibility

Impossibility means exactly what it sounds like: that something has happened which makes it impossible for the contract to be fulfilled. For example, let’s say you have a contract to fix someone’s car for $1000. If the car gets stolen, there is no way for you to be able to do the repairs, so you are no longer contractually obligated to fix the car.  Keep in mind, impossibility only applies if it is basically impossible for anyone to fulfill the contract – you can’t say something like “It’s impossible for me to pay you in accordance with our contract because I’m broke, so I’m not legally obligated to.” That won’t fly!

Frustration

Frustration refers to situations where both parties knew that one of them had a particular purpose they wanted the contract to serve, but something has come up that makes it impossible to serve that purpose. Let’s say your friend agrees to rent a retail space from you because they want to open an exotic snake pet shop. After signing the lease, a law comes into effect that makes it illegal to sell exotic snakes. The only reason your friend rented the space was because he specifically wanted to have a snake shop, so now your friend can get out of finishing the contract by declaring frustration. The main difference between impossibility and frustration is that with the latter, it is not necessarily impossible for the parties to honor their obligations under the contract. In the impossibility example from the last paragraph, you couldn’t fix the car no matter how badly you wanted to because it is gone, but in this case with your friend’s lease, it is still possible for him to keep up his end of the lease agreement and continue paying rent if he were so inclined. Thanks to the concept of frustration, though, the law gives him an out if you both were aware that the contract was intended to help serve a purpose that it no longer can.

Impracticality

Impracticality applies to situations where something has happened that makes it extremely more difficult or expensive to complete the contract. An example of this is if a contractor is hired to lay foundation, but then there is a bad mudslide and the area now sits under several feet of mud. Could the contractor get specialized equipment & hire more guys to build a temporary wall to shore up the mud, remove the several feet of mud from inside the perimeter, and then figure out a way to get their cement truck through the mud to the actual job site to pour? Sure! Isn’t that way more expensive? You bet! And wouldn’t that take way more time and effort than original thought when the contract was first drawn up? Absolutely! The law recognizes that just because something isn’t absolutely impossible to work around, that doesn’t mean it is exactly fair. All of contract law theory is intended to achieve fairness, so the law accounts for situations of impracticality. 

A key thing to remember about these three concepts is that the circumstance which creates the impossibility, frustration, or impracticality has to be something that wasn’t the fault of either party. If either party was the cause of the problem, then they still could be liable.

Now you know the difference between these three concepts. If you encounter any questions about these terms on your exam, just ask yourself: Is it objectively impossible for anyone to do (impossibility)? Did someone have a purpose they were trying to serve with the contract that they can’t anymore (frustration)? Or, is it just simply way more expensive or difficult to complete the contract terms because of some outside circumstance (impracticality)?

Gain a strong foundation for CPCU 530!

These are only three of the many, many concepts you need to know for your CPCU 530 exam. Use our CPCU 530 study materials to make sure you’ve got everything covered!