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Lloyd v. Murphy - 25 Cal. 2d 48, 153 P.2d 47 (1944)

Rule:

The courts have required a promisor seeking to excuse himself from performance of his obligations to prove that the risk of the frustrating event was not reasonably foreseeable and that the value of counterperformance is totally or nearly totally destroyed, for frustration is no defense if it was foreseeable or controllable by the promisor, or if counterperformance remains valuable.

Facts:

On August 4, 1941, plaintiffs , Caroline Lloyd and others, leased to defendant William Murphy for a five-year term beginning September 15, 1941, certain premises located at Beverly Hills, Los Angeles County, for the sole purpose of selling new automobiles. On January 1, 1942, the federal government ordered that the sale of new automobiles be discontinued because of the war. Consequently, Murphy vacated the premises on March 15, 1942, giving oral notice of repudiation of the lease to plaintiffs, which was followed by a written notice on March 24, 1942. Plaintiffs then brought the present action praying for declaratory relief to determine their rights under the lease, and for judgment for unpaid rent. The trial court held that war conditions had not terminated Murpphy’s obligations under the lease and gave judgment for plaintiffs. Defendant Murphy appealed, contending that the purpose for which the premises were leased was frustrated by the restrictions placed on the sale of new automobiles by the federal government, thereby terminating his duties under the lease.

Issue:

Did the doctrine of frustration excuse a tenant'’s obligations under the lease?

Answer:

No.

Conclusion:

The appellate court affirmed the trial court’s judgment, noting that the doctrine of frustration was limited to cases where the frustrating event was unforeseeable and the value of the bargained-for item is totally destroyed. In 1941, defendant was able to foresee the war and its consequences for car production. The value of defendant's lease was not wholly destroyed by the government restrictions because defendant was still permitted to sell some cars and could use the premises for other purposes. Thus, defendant was not entitled to relief from his lease.

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