25 Cal. 2d 48, 153 P.2d 47 (1944)
On August 4, 1941, the plaintiffs leased premises located at the corner of Almont Drive and Wilshire Boulevard in Beverly Hills to the defendant for a five-year term beginning September 15, 1941.1 The lease specified that the premises were to be used solely for displaying and selling new automobiles, including servicing and repairing them and selling petroleum products of a major oil company, with only occasional sales of used automobiles permitted without the lessor's written consent. The defendant also agreed not to sublease or assign the premises without the plaintiffs' written consent.2
On January 1, 1942, the federal government ordered that the sale of new automobiles be discontinued, with subsequent modifications on January 8 and January 20, 1942, permitting limited sales to those in military activities and under a priorities system.3 On March 10, 1942, the defendant informed one of the plaintiffs about the impact of these restrictions, leading to an oral waiver of the lease restrictions regarding use and subleasing, along with an offer to reduce rent if operations were unprofitable.4 The defendant vacated the premises on March 15, 1942, providing oral notice of repudiation followed by written notice on March 24, 1942.5
The plaintiffs affirmed their waiver in writing on March 26, 1942, and after failing to persuade the defendant to perform, they re-rented the property to other tenants to mitigate damages.6 On May 11, 1942, the plaintiffs initiated an action seeking declaratory relief regarding their rights under the lease and judgment for unpaid rent.7 At trial, the court found that the premises were on a main traffic artery, equipped for an automobile service station, adaptable for many commercial purposes, that the plaintiffs had waived the restrictions, and that the defendant continued operating automobile businesses at two other locations.8
The defendant testified that he sold new automobiles exclusively at one location and estimated that 90 percent of his gross business volume came from new car sales.9 The trial court determined that war conditions had not terminated the defendant's obligations and entered judgment for the plaintiffs, declaring the lease in full force and ordering payment of unpaid rent less amounts from re-renting.10
Whether the federal government's restrictions on the sale of new automobiles frustrated the purpose of the lease so as to terminate the defendant's obligations under the lease?11
The doctrine of frustration excuses performance only if an unanticipated circumstance, the risk of which should not fairly be thrown on the promisor, has made performance vitally different from what was reasonably expected and has totally or nearly totally destroyed the value of counterperformance.12 If the risk was foreseeable at contracting or if governmental restrictions merely limit profitability without totally prohibiting the business or destroying lease value, the defense fails.13
No. The lease was executed on August 4, 1941, more than a year after the National Defense Act authorized material allocation, at a time when the automotive industry was converting to military needs and sales were rising in anticipation of restrictions, so the risk of war-related limits on new car sales was reasonably foreseeable to the experienced defendant dealer and the absence of any protective lease provision supports the inference that the risk was assumed.14 The federal orders restricted but did not prohibit or render illegal the sale of new automobiles, as limited sales to military buyers and priority holders remained possible, and the defendant in fact continued selling new automobiles exclusively at another location in the same county.15 Plaintiffs' oral and written waiver removed all use and sublease restrictions, the premises stood on a main traffic artery and were readily adaptable to many commercial purposes as shown by their prompt re-rental, and plaintiffs offered to reduce rent if needed, confirming that the lease retained substantial value to the defendant rather than suffering total or near-total destruction.16
The federal government's restrictions on the sale of new automobiles did not frustrate the purpose of the lease so as to terminate the defendant's obligations under the lease.17