The Comparative Law and Economics of Frustration in Contracts

23 Pages Posted: 11 Jun 2009  

Marta Cenini

University of Milan - Faculty of Law

Barbara Luppi

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; University of St. Thomas School of Law

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: June 11, 2009

Abstract

In this article we study the related doctrines of frustration of purpose and practical and economic impossibility. Frustration of purpose is a defense to the enforcement of a contractual obligation that becomes available when an unforeseen event undermines the purpose for entering into a contract. The rules governing frustration of purpose share a common logic with the related doctrines of practical impossibility and economic impossibility. In this paper we consider the solutions adopted by European legal systems in a comparative law and economics perspective. From an economic point of view the issues that acquire relevance in the face of impossibility of performance can be grouped in three main categories, namely: (a) risk-allocation function, (b) information harvesting function, (c) incentive function. We examine the ability of alternative legal rules to fulfill one or more of these economic functions. We further observe that the choice of rules in this area of the law should be particularly attentive to the impact of transaction costs. Frustration and impossibility in contracts are rare occurrences. It is inefficient and often impractical to allocate the risk of unexpected contingency at the time the contract is made, and the remedy of discharge seems to be a desirable default allocation of the risk between the parties, where renegotiation of the contract remains a viable ex post option to capture the benefits of the original contract.

Keywords: frustration of purpose, practical impossibility, economic impossibility, risk-allocation

JEL Classification: K12, K41

Suggested Citation

Cenini, Marta and Luppi, Barbara and Parisi, Francesco, The Comparative Law and Economics of Frustration in Contracts (June 11, 2009). Minnesota Legal Studies Research Paper No. 09-20. Available at SSRN: https://ssrn.com/abstract=1418035 or http://dx.doi.org/10.2139/ssrn.1418035

Marta Cenini

University of Milan - Faculty of Law ( email )

Via Festa del Perdono, 7
20122 Milano
Italy

Barbara Luppi

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics ( email )

Viale Berengario 51
41100 Modena, Modena 41100
Italy

University of St. Thomas School of Law

2115 Summit Avenue
Saint Paul, MN 55105
United States

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Paper statistics

Downloads
777
Rank
24,430
Abstract Views
3,230