Krell v. Henry

Facts

• Krell owned a flat at 56A Pall Mall with windows overlooking the route of King Edward VII's coronation procession, scheduled for 26 to 27 June 1902
• Henry agreed to hire the flat for those two days for £75 (£25 deposit paid, £50 balance due)
• The contract did not expressly mention the coronation, but the flat was advertised with reference to the procession and both parties understood the purpose
• The King fell ill; the coronation procession was cancelled
• Henry refused to pay the £50 balance; Krell sued for it
• Henry counterclaimed for return of the £25 deposit

Issue

1. Whether cancellation of the coronation procession, which formed the foundation of the contract though not expressly stated in it, discharged the parties from their obligations?

Held

• The Court of Appeal held for Henry: the contract was frustrated
• Although the flat physically existed and Henry could technically have used it, the foundation of the contract (viewing the coronation) had ceased to exist
• The cancellation of the procession destroyed the purpose for which both parties entered the contract
• The contract was discharged; Henry did not have to pay the £50 balance
• However, the £25 deposit was not recoverable (the loss lay where it fell: later reformed by Law Reform (Frustrated Contracts) Act, 1943)

Ratio Decidendi

A contract is frustrated not only when performance is physically impossible (Taylor v. Caldwell) but also when the purpose or foundation on which both parties contracted ceases to exist. The court looks at the purpose for which the contract was entered into as gathered from the surrounding circumstances known to both parties. If that purpose is destroyed by a supervening event that neither party caused, the contract is discharged even though literal performance remains possible.