Class: Contracts II

Date: 2/19/01

Case: Krell v. Henry (1903)

Justice: Vaughan

Facts:

• Henry (D) agreed to hire out Krell’s (P) third story flat for 75£ for two specific days with the intention of viewing the coronation of King Edward VII. (the flat overlooked the grounds where the procession would take place)
• Henry first became aware of the flat from an announcement in the window of the flat.
• After talking to P’s housekeeper and being shown the view, D reached an initial agreement to take the suite for two days for the sum of 75£.
• D wrote a letter to P’s solicitor outlining the agreement and paying a deposit of 25£.
• P’s solicitor wrote back confirming the agreement. (Neither letter discussed the possibility that the coronation would not occur on the scheduled date)
• When Edward VII became ill and the coronation was postponed D refused to pay the balance.
• P filed suit to recover the balance of 50£.
• D filed a counterclaim to recover his 25£ deposit.

Lower Court Decision: Found that there was an implied condition in the contract, that the procession should take place, citing Taylor v. Caldwell. Found for D on both the original claim and counterclaim.

• P appealed.

*Issue: The extent or limitations of the “implied condition” as described in Taylor v. Caldwell.

Rule: Appeal dismissed.

**Key Points**:

Implied conditions are not limited to cases in which the event causing impossibility of performance is the destruction or nonexistence of some condition or state or things expressly specified as a condition of it. To determine implied conditions it is necessary to:

1. Ascertain, not necessarily from the terms of the contract, but, if required from necessary inferences, drawn from surrounding circumstances recognized by both contracting parties
1. What is the substance of the contract?
2. Then ask whether the substantial contract needs for its foundation the assumption of the existence of a particular state of things.
1. If it does this will limit the operation of the general words, and if the contract becomes impossible to perform by reason of the nonexistence of the state of things assumed by both parties to be the foundation of the contract, there will be no breach and thus the contract will be limited.

Stated another way:

In each case one must ask?

1. What, having regard to all circumstances was the foundation of the contract?
2. Was the performance prevented?
3. Was the event, which prevented performance of the contract of such a character that it cannot reasonably be said to have been a contemplation of the parties at the date of the contract?

If all of these questions are answered in the affirmative, both parties are discharged from full performance