What does frustration of purpose entail in contract law?

Frustration of purpose in contract law occurs when an unforeseen event undermines the primary reason for which a party entered into a contract, effectively frustrating the purpose of that agreement. In such cases, performance of the contract may be excused because the fundamental premise that induced the contract is no longer valid or achievable.

When evaluating the options, the correct response highlights that performance is excused specifically when the contract's purpose is substantially frustrated. This recognizes that the original intentions behind entering the contract cannot be fulfilled due to circumstances beyond the control of the parties involved, even though the performance itself may still be feasible.

In contrast, the other options do not accurately capture the essence of frustration of purpose. For example, mutual mistake pertains to situations where both parties are mistaken about a fundamental fact and differs significantly from frustration of purpose. Similarly, financial inability to perform reflects a different aspect of contract law surrounding breach or impossibility, rather than frustration of purpose. Lastly, the notion that a contract is deemed void by law does not apply to frustration of purpose, which merely suspends obligations rather than nullifying the contract entirely.