Legal Principles and Key Points:
- In the case of Krell v Henry  2 KB 740, it was established that where a contract is tailored to an event, a contract can be frustrated by the cancellation of that unique event. In this case, it did not matter that the event itself was not mentioned in the contract.
Facts of Krell v Henry  2 KB 740
- C, Krell, rented out his flat to D for the purpose of viewing the coronation processions
- The contract itself did not contain express terms pertaining the coronation, not mentioning it at all
- D paid a deposit, with the rest owed
- King Edward VII fell ill, and the coronation processions were rescheduled
- C sued the D for the remaining balance; D counterclaimed for the deposit as the coronation did not go ahead
Issues in Krell v Henry  2 KB 740
- The contract did not contain word of the coronation, could the D still succeed in his counterclaim for the deposit?
- Or as the contract was for a certain amount, did the D owe this to C, even where the event it was for (not mentioned) did not take place?
Held by the Court of Appeal
- Appeal dismissed, previous decision affirmed in the favour of the D. The contract had been frustrated, and therefore the D did not have to pay the remaining balance.
Lord Justice Vaughan Williams
Scope of the principle of frustration 
- “I do not think … is limited to cases in which the event causing the impossibility of performance is the destruction or non-existence of some thing which is the subject-matter of the contract or of some condition or state of things expressly specified as a condition of it”
- To establish the scope in a case, first “ascertain, not necessarily from the terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognised by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things.”
Foundation of the contract example [750 – 1]
- If a driver were to take passengers to the Epsom Derby, they are still liable to pay him as the race happening would not be the foundation of contract. The driver has “no special qualifications for the purpose which led to the selection of the cab for this particular occasion”
- If the driver refused under a contract, “he would have been guilty of a breach of contract, there being nothing to qualify his promise to drive the hirer to Epsom on a particular day”
In the present case, it was different :
- The contract to watch the coronation was “not merely the purpose of the hirer to see the coronation procession, but it is the coronation procession and the relative position of the rooms which is the basis of the contract as much for the lessor as the hirer”
- “if the King, before the coronation day and after the contract, had died, the hirer could not have insisted on having the rooms on the days named”
- “where the rooms were offered and taken, by reason of their peculiar suitability from the position of the rooms for a view of the coronation procession, surely the view of the coronation procession was the foundation of the contract, which is a very different thing from the purpose of the man who engaged the cab – namely, to see the race – being held to be the foundation of the contract”