In contract cases concerning nonperformance of the promise, the problem of events of very low probability is dealt with mainly under the doctrines of frustration, impossibility, and common mistake. The law of contract also has a doctrine called remoteness of damage, the rule in Hadley v. Baxendale. Where nonperformance of the contractual promise is in question, this contract doctrine of remoteness of damage deals most importantly with the adverse selection problem rather than with the problem of low probability events.

Where an event of very low prior probability occurs, should courts hold a promisor to his promise? Performance may have become very expensive or impossible, or the consequences of nonperformance may be very much more expensive than was contemplated when the contract was made. In general a promisor is excused performance where an uncontemplated event of very low prior probability having expensive consequences has occurred, as noted, chiefly under the headings of common mistake and frustration (or impossibility). The main distinction between frustration and common mistake is a formal one. Common mistake deals with cases where both parties make and act on an incorrect assumption about facts existing at the time the contract is made; the usual consequence is that such a contract cannot be enforced. Frustration deals with events arising subsequent to the time of contracting; the usual consequence here is that a contract is discharged from the time of frustration. Unilateral mistake, as we shall see, deals with a different problem, with adverse selection and not with events of low probability.