Wood v. Bartolino Et. Al.

• Decision Date: 02 March 1944
• Docket Number: No. 4805.,4805.
• Citation: 48 N.M. 175,146 P.2d 883
• Parties: WOODv.BARTOLINO et. al.
• Court: New Mexico Supreme Court

48 N.M. 175

146 P.2d 883

WOOD

v.BARTOLINO et. al.

No. 4805.

Supreme Court of New Mexico.

March 2, 1944.

Appeal from District Court, Colfax County; Livingston N. Taylor, Judge.

Action by Lena Rohr Wood against Andrew Bartolino and Miss Mary Bartolino to enforce a covenant to pay rent under a lease of a gasoline filling station. Judgment for defendants, and plaintiff appeals.

Reversed and remanded, with directions.

Where federal war-time regulations pertaining to sale of gasoline, oil, tires, tubes and other merchandise ordinarily sold at gasoline filling stations made operation of station unprofitable but did not prohibit their sale or deprive tenant of use of premises as a filling station, “commercial frustration” doctrine did not apply to relieve tenant from obligation under covenant to pay rent.

H. M. Rodrick, of Raton, for appellant.

G. W. Robertson (of Crampton & Robertson), of Raton, for appellees.

BRICE, Justice.

The appellant leased a building to appellees “for use solely as a filling station and not for restaurant or lunch counter purposes,” at a rental of $100 per month for a term of five years commencing June 1, 1939. It was operated by sub-lessees until February 1, 1941, and thereafter until July 1, 1942 by appellees, when the latter ceased its operation and offered to restore possession of the premises upon the alleged ground that the lease contract had been terminated because of “commercial frustration” resulting from government rules, regulations, and orders freezing automobiles, tires and tubes and rationing the sale of gasoline, so that it was “impossible and impracticable to use or operate the leased premises as a filling station” at any time after the first of December, 1942; and that such “impossibility and impracticability” still continued and would continue throughout the term of the lease.

The findings of the trial court are unnecessarily voluminous, and are replete with findings of evidentiary facts. Of the facts found by the court, which we deem necessary to a decision, the following is the substance:

The filling station in question is located near the center of the business district of Raton, New Mexico, on the main highway passing through that city. Appellees' customers were mainly tourists and commercial travellers who used this highway. Ordinarily tourist travel is heavy, beginning in May and continuing through the summer and autumn. The Federal rules and regulations which limited and restricted the sale of tires, tubes and automobiles became effective about the first of 1942 and have since continued in effect. These regulations so seriously reduced the operation of motor vehicles that the travel of tourists and commercial travellers practically and abruptly ceased.

As a direct and proximate consequence of the governmental rules, regulations and orders concerning the “freezing” of tires, tubes and automobiles, it became and was impossible and impracticable to use or operate the leased premises as a filling station during the months of July, August, September, October and November, 1942, and by reason thereof, and of the rationing of gasoline, it became and was impossible and impracticable to use or operate the leased premises as a filling station during the months of December, 1942, January 1943, or any time thereafter, and that such impossibility and impracticability still continues and will continue throughout the term of the lease contract.

[1] We, of course, take judicial notice of the Federal laws, rules and regulations mentioned, and of the general public knowledge that such laws, rules and regulations have limited and restricted the sale of tires, tubes, automobiles and gasoline so that the income from such businesses, where not operated in conjunction with garages, lunch counters, etc., have been seriously reduced.

The parties, at the time the lease contract was entered into, did not contemplate, and could not reasonably have contemplated, that such laws, rules and regulations would be enacted, promulgated or enforced, or that they would materially and substantially change the conditions of the business operated in the leased premises.

Appellees' evidence shows that the total income for the eleven months during which the filling station was operated by them in 1941 was $1,568.93, and that during the same time the expense of operation was $2,096.69, leaving a deficit of $527.76, or an average deficit of $47.98 per month. The average monthly deficit for the five month period from February 1st to July 1st, 1941, and for the same period in 1942 (the only months for which figures are available for comparison) is $69.39 and $124.22 respectively. For the six months (January 1 to July 1) during which the station was operated in 1942 the earnings were $608.12 and the expense of operation $1164.86, leaving a deficit of $556.74, which was an average of $92.79 per month. During the months of May and June 1942 the deficit was respectively $135.71 and $121.08.

It would appear from the facts just stated that it was not impossible to operate the filling station prior or subsequent to the effective dates of the laws, orders and regulations of the Federal Government to which reference has been made; but that from the beginning of its operation by appellees, it was impracticable in the sense that it could only be operated at a loss, and that the effect of the enforcement of the Federal rules, laws and regulations only made bad matters worse by increasing the deficit of a worthless business.

[2] The doctrine of “commercial frustration,” or, as more often called by the courts of this country, the doctrine of “implied condition,” has been developed by a process of evolution from the rules: (1) A party to a contract is excused from performance if it depends upon the existence of a given person or thing, if that person or thing perishes. The Tornado, 108 U.S. 342, 2 S.Ct. 746, 27 L.Ed. 747. (2) A party to a contract is excused from performance if it is rendered impossible by act of God, the law, or the other party. Dermott v. Jones, 69 U.S. 1, 2 Wall. 1, 17 L.Ed. 762. The rules are otherwise stated, as follows:

“(1) Impossibility due to domestic law;

“(2) Impossibility due to the death or illness of one who by the terms of the contract was to do an act requiring his personal performance.

“(3) Impossibility due to fortuitous destruction or change in character of something to which the contract related, or which by the terms of the contract was made a necessary means of performance.” 6 Williston on Contracts, Sec. 1935.

Regarding a fourth and a fifth class, Williston states:

“The fourth class of cases, to which allusion was made above as standing on more debatable ground, comprises cases where impossibility is due to the failure of some means of performance, contemplated but not contracted for.

“The fifth class does not strictly fall within the boundaries of impossibility. Performance remains entirely possible, but the whole value of the performance to one of the parties at least, and the basic reason recognized as such by both parties, for entering into the contract has been destroyed by a supervening and unforeseen event. This does not operate primarily as an excuse for the promisor, the performance of whose promise has lost its value, but as a failure of consideration for the promise of the other party, not in a literal sense it is true, since the performance bargained for can be given, but in substance, because the performance has lost its value. The name ‘frustration’ has been given to this situation. Until recently, it had received little clear recognition, but its adoption seems involved in some decisions, and their justice is plain.” Id. Sec. 1935.

[3] Regarding the meaning of “impossibility” as used in the rules that excuse the non-performance of contracts, it is stated:

“As pointed out in the Restatement of Contracts, the essence of the modern defense of impossibility is that the promised performance was at the making of the contract, or thereafter became, impracticable owing to some extreme or unreasonable difficulty, expense, injury, or loss involved, rather than that it is scientifically or actually impossible. *** The important question is whether an unanticipated circumstance has made performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into the contract. If so, the risk should not fairly be thrown upon the promisor.” Id. Sec. 1931.

We need not determine whether the doctrine of “commercial frustration” can, under the circumstances, apply to a worthless business, as we have concluded that ordinarily it does not apply to demises of real estate, and if at all, then only as limited hereinafter.

The courts of this country, Federal and State, have cited with approval, and generally followed, the decisions of the English courts on the doctrine of “commercial frustration,” involving commercial transactions. It is held by the English courts that the doctrine has no application to an ordinary lease of real property. The question was decided in Leightons Investment Trust, Lt., v. Cricklewood Property & Investment Trust, Lt., K.B.Oct. 1942, 167 L. T.Rep. 348, affirmed by the Court of Appeal (1943, not yet published).

The action, as here, was to recover rent for demised real property. Justice Asquith of the Court of Kings Bench, stated:

“The defence is that the obligation to pay rent under the lease and indeed all outstanding obligations thereunder, have been excused or discharged by frustration owing to the supervention of the war, which has practically put an end to private building; and the sole issue in this case is whether the doctrine of frustration applies to a building lease such as that involved in this case. If it does so apply then upon the facts of the present case I should decide that the contract had been discharged. There is no question that, if it does not...