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The term "frustration of purpose" in contract law refers to a situation where an unforeseen event undermines a party's principal purpose for entering into a contract, making the performance of the contract virtually meaningless. This legal doctrine allows a party to seek discharge from their contractual obligations when an event occurs that significantly changes the circumstances under which the contract was made, such that the value of the contract or the reason for its existence has been destroyed.

For instance, if two parties enter into a contract for a venue rental for an event, and that venue becomes unusable due to a natural disaster, the fundamental purpose of the contract is frustrated because the event cannot take place as planned. This means that the obligations originally assumed by the parties can be discharged due to the unforeseen event that has impacted the heart of the agreement.

This concept does not involve renegotiating the terms of the contract (which is more about mutual agreement and modification), nor does it create new obligations or allow termination at will, as "frustration of purpose" specifically addresses situations of unforeseen circumstances affecting the contract's validity rather than the parties' discretionary rights to terminate the contract.