Lloyd v. Murphy

Facts

On August 4, 1941, the plaintiffs leased a corner property in Beverly Hills to Murphy for a five-year term beginning September 15, 1941. The lease limited use to displaying and selling new automobiles, with servicing, repairs and petroleum products, and barred any other purpose without the lessors' written consent, except an occasional sale of a used car. Murphy also agreed not to sublease or assign without written consent. On January 1, 1942, the federal government ordered that sales of new automobiles be discontinued. It modified the order on January 8, 1942, to permit sales to those engaged in military activities. On January 20, 1942, it set up a priority system limiting sales to buyers with preferential ratings. On March 10, 1942, Murphy explained the effect to one of the plaintiffs, who orally waived the use and subleasing restrictions and offered to reduce the rent if Murphy could not operate profitably. Murphy vacated on March 15, 1942, and repudiated the lease orally, then in writing on March 24, 1942. The plaintiffs affirmed their waiver in writing and re-rented the property to mitigate damages. The trial court found that the premises sat on a main traffic artery, were equipped as a service station, and had a storeroom suited to many commercial uses. Murphy kept selling and servicing cars at two other places.

Issues

1. Did the federal restrictions on selling new automobiles frustrate the purpose of the lease and excuse Murphy from paying rent for the rest of the term?
2. Did Murphy prove that the risk of war-related restrictions was not reasonably foreseeable when he signed the lease, and that the value of the lease was totally or nearly totally destroyed?

Holding

Murphy did not prove that war-related restrictions on new-car sales were unforeseeable, or that the lease lost its value. Sales were restricted, not prohibited, and the premises could still be used. The doctrine of frustration therefore did not excuse his duty to pay rent.