When does discharge by frustration occur?

Discharge by frustration occurs when an unforeseen external event makes the performance of a contract impossible, impractical, or fundamentally different from what was originally contemplated by the parties involved. In such cases, the contract cannot be fulfilled as intended due to circumstances beyond the control of either party, which fundamentally alters the obligations that were initially agreed upon. This principle is designed to address situations where adherence to the contract would be unreasonable or unjust because of significant changes in circumstances that were not anticipated at the time the contract was formed.

In contrast, the other options describe different scenarios. Mutual agreement to terminate a contract indicates a collaborative decision by both parties, but does not involve frustration caused by external factors. A breach by one party refers specifically to a failure to perform as agreed, which is a different legal concept. Lastly, renegotiation involves both parties reworking the terms of the contract, rather than an external event that would cause frustration. Thus, the focus in this context is on the external, unforeseen circumstances that lead to the discharge of contractual obligations.