Lloyd v. Murphy – Case Brief
Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47 (1944).
Facts: Murphy (D) leased premises from Lloyd (P) to be used for the sale of new cars and gas unless Lloyd gave Murphy written permission to use it for other purposes. After the federal government restricted the sale of new cars due to WWII, Murphy informed Lloyd that he could not continue to operate his business and vacated the premises. P rented the property to others and sued for declaratory judgment to determine the rights under the contract and for unpaid rent. The trial court entered judgment for P, holding that war-time conditions did not excuse D’s performance. D appealed.
Issue: Do acts by the government that make performance under a contract unprofitable or more difficult excuse the duty to perform via frustration of purpose?
Holding and Rule: No. Acts by the government that make performance under a contract unprofitable or more difficult do not excuse the duty to perform via frustration of purpose.
Frustration of Purpose: To invoke the doctrine of frustration of purpose a party must show: 1) the change in circumstances has made performance different from what was reasonably expected; 2) the risk was unforeseeable; and 3) the underlying value of the bargained for exchange was destroyed by a supervening event.
A determination of whether performance may be excused requires an examination of the foreseeability of such governmental acts. In this case the National Public Defense Act had been approved almost a year and a half before this lease was entered into. It was common knowledge that the auto industry had been in the process of switching to war-time production. Furthermore, the sale of new cars had not been made impossible or illegal, it had merely been restricted. P had been willing to accommodate D by lowering the rent and permitting more diversified business activities. D was still selling new cars at two other locations. The court held that the government’s actions were foreseeable and D’s performance was not excused.
Judgment: Affirmed, for P.