What does the term "frustration" refer to in contract law?

In contract law, "frustration" specifically refers to a situation where unforeseen circumstances arise, making it impossible for one or both parties to fulfill their contractual obligations. This phenomenon typically occurs when an event takes place that fundamentally changes the nature of the contract, thus rendering it unachievable or significantly different from what both parties originally intended. Examples might include natural disasters, changes in legislation, or other significant events that could not have been anticipated at the time of the contract's creation.

This concept allows for the contract to be discharged without liability on either party because neither party is to blame for the inability to perform. Consequently, it serves to protect both parties involved from the repercussions of unforeseen events affecting their ability to comply with the contract.

The other options reflect different contractual concepts but do not encapsulate the notion of frustration accurately. Voluntary termination implies a mutual decision to end the contract, while a change in terms requires both parties' agreement, and an agreement to reduce obligations suggests negotiation, which are different from the involuntary nature of frustration.