Brief Fact Summary.
Plaintiffs leased space to Defendant for a five year term, beginning September 15, 1941, to sell new automobiles and the occasional used automobile. On January 1, 1942 the federal government ordered that the sale of new automobiles be discontinued, and Defendant vacated the premises and repudiated the lease.
Synopsis of Rule of Law.
If it was foreseeable that there should have been provision for a risk in a contract, the absence of such a provision gives rise to the inference that the risk was assumed, and frustration of purpose cannot be claimed.
Before Defendant left, it told Plaintiffs the negative impact the government’s prohibition had on business. Plaintiffs orally waived restrictions in the lease as to use and subleasing, and offered to reduce the rent if it would enable Defendant to operate profitably. However, Defendant vacated anyway, and Plaintiff mitigated its damages by finding a new tenant.
Plaintiffs sued for declaratory relief to determine its rights under the lease, and for a judgment for unpaid rent. The trial court found that the war conditions had not terminated Defendant’s obligations under the lease, and awarded Plaintiff unpaid rent plus interest, less the amount it received from re-renting. On appeal, the Defendant urged that its duties were terminated under the lease because its purpose was frustrated by the restrictions placed on the sale of automobiles by the federal government.
Could Defendant invoke the doctrine of frustration of purpose to excuse its performance under the lease?
· The National Defense Act, authorizing the President to allocate materials and mobilize industry for national defense, had been the law for over a year when the lease was executed. Automobile sales were soaring because the public anticipated that production would soon be restricted, and this was common knowledge at the time. The Defendant should have accounted for it when negotiating the lease.
· The Defendant’s purpose was not truly frustrated, as the sale of automobiles was not made impossible, but merely restricted.
The Defendant’s purpose was not truly frustrated, as he should have been aware at the time he entered the lease that new car sales would likely be restricted, and they were merely restricted, not prohibited to the extent that the value of the lease had been destroyed