## Facts

- Paul Krell owned a flat at 56A Pall Mall, London, situated along the route for King Edward VII’s planned coronation procession.
- C. S. Henry agreed by correspondence to hire specified rooms in the flat for daytime use on June 26–27, 1902, for £75.
- Henry paid a £25 deposit, leaving £50 outstanding.
- The written terms did not mention the coronation, but the circumstances known to both parties indicated the hire was to view the coronation processions from the rooms.
- Shortly before the agreed dates, the King became ill and the coronation processions were postponed and did not occur on June 26–27.
- Henry refused to pay the £50 balance, asserting the basis of the bargain had failed; Krell sued for the balance, and Henry counterclaimed for return of the deposit.

## Issues

1. Whether the contract was subject to an implied condition that the coronation processions would occur on June 26–27, 1902.
2. Whether postponement of the coronation processions discharged the parties’ obligations under the doctrine of frustration, even though physical occupation of the rooms remained possible.
3. Whether the surrounding circumstances could be used to identify the contract’s foundation where the written terms were silent about the event.

## Decision

- The Court of Appeal dismissed Krell’s appeal and held the contract was discharged by frustration.
- The court found an implied condition, derived from the shared and recognized purpose of the transaction, that the coronation processions would occur as scheduled.
- Postponement of the processions destroyed the foundation of the bargain, making performance radically different from what both parties contemplated.
- Henry was excused from paying the remaining £50; Krell’s claim for the balance failed.

## Legal Principles

- A contract may be discharged where an unforeseen event, without fault of either party, defeats a basic assumption that constituted the bargain’s foundation (frustration of purpose).
- Frustration is not limited to destruction or nonexistence of a physical subject matter; it can arise from failure of an essential “state of things” that both parties assumed would exist.
- In determining whether such an assumed state of things was fundamental, a court may infer the contract’s substance from surrounding circumstances recognized by both parties, not solely from the written terms.
- The relevant inquiry is whether the event’s non-occurrence makes performance, though still physically possible, substantially different in character from what the parties contracted for, rather than merely less profitable or less desirable.

## Conclusion

Because both parties contracted on the shared assumption that the coronation processions would pass the flat on the specified days, the postponement of those processions frustrated the contract’s foundation and discharged further performance, relieving the hirer from paying the balance.


Krell v. Henry, [1903] 2 K.B. 740 (C.A.)