What happens when a contract is terminated due to 'Frustration'?

When a contract is terminated due to 'Frustration,' it occurs because of an unforeseen event that fundamentally alters the nature of the contractual obligations, making it impossible for the parties to fulfill their original agreement. This could happen due to circumstances like natural disasters, changes in law, or other unexpected situations that were not anticipated when the contract was formed.

In such cases, the law recognizes that it would be unreasonable to hold the parties to the original terms of the contract, as the foundational basis for their agreement has been undermined. Therefore, the contract is deemed to be automatically terminated, and the parties are released from their obligations, without either party being at fault for the disruption.

This understanding of frustration emphasizes the concept of mutual consent and fairness in contractual relationships, which are significant in business practice. Other response choices either mischaracterize the nature of frustration or present scenarios that do not apply to the principle of frustration in contract law.