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The three doctrines considered in this chapter have common themes that make it useful to consider them together. They are each concerned with a situation in which the exchange between the parties turns out to be very different from what was expected. In the case of mistake, this is caused by a serious factual error made by one or both parties at the time of contracting, so that the contract is premised on incorrect information. By contrast, impracticability and frustration arise when there is no false premise at the time of contracting, but events change drastically enough after formation to belie the original expectation of the parties. An issue of mistake, impracticability, or frustration may be raised at various stages after formation of the contract and for the purpose of achieving different ends. For example, before performance is due, it may be used to excuse the prospective performance. After performance has been rendered, it could be used as a defense to a claim that the performance fell short of that called for by the contract. Most commonly, its effect is termination of the contract, but sometimes adjustment of the contract terms is the more appropriate remedy.
Each doctrine poses two central questions that will be constant themes in our discussion:
Materiality—How fundamental is the discrepancy between the expected and the actual exchange? This question is concerned with the impact of the mistake or altered circumstances on the bargain reasonably anticipated by the parties. Relief is only available when the impact is so material that it changes the very basis of their bargain.
Risk—Which party should be made to bear the consequences of this defeat of the original expectations? The fact that original expectations have been fundamentally upset only justifies relief if the party seeking it does not bear the risk of this upset. The allocation of risk may be clear from the terms of the contract, or it may have to be established by interpretation from the circumstances of the transaction. The determination of risk allocation is a crucial aspect of the judicial inquiry in all these cases.