Transatlantic Financing Corp. v. United States

United States Court of Appeals for the District of Columbia Circuit · 1966 · Contracts

ContractsimpracticabilitySuez Canalalternative routeexcuseSuez Canal closurevoyage charterusual and customary route

Facts

Transatlantic and the United States entered a voyage charter for carriage of wheat from a United States Gulf port to Bandar Shapur, Iran, but the charter specified only the termini and not any route. After the charter was executed and the ship sailed on a course that would have taken it through Suez, Egypt closed the Suez Canal by obstructing it with sunken vessels. Transatlantic asked an unauthorized government employee for instructions and additional compensation to proceed around the Cape of Good Hope; he said Transatlantic was expected to perform under the charter and could later file a claim. The ship then proceeded around the Cape and delivered the cargo, after which Transatlantic sought the additional expense of that longer route.

Issue

Did closure of the Suez Canal render Transatlantic's performance under the voyage charter legally impossible or commercially impracticable so that it was excused from performance or entitled to recover additional compensation for performing by the alternative Cape route? If not, could Transatlantic recover the added costs in quantum meruit?

Rule

A plea of impossibility or commercial impracticability requires at least three elements: an unexpected contingency must have occurred, the risk of that contingency must not have been allocated by agreement, custom, or surrounding circumstances, and the contingency must have made performance commercially impracticable. Where the expected method of performance becomes unavailable, performance is not excused if a commercially reasonable alternative remains available and the added expense alone is not sufficiently excessive and unreasonable under the circumstances.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lake Meridian Shipping agreed to carry a cargo of fertilizer from New Orleans to Aqaba for Redstone Grain Agency. The charter named only the loading and discharge ports, and both parties expected the vessel would use the usual route through a major canal. After departure, the canal was suddenly closed by military action, but the vessel could still reach Aqaba by sailing around southern Africa.

Which is the best analysis of the carrier's argument that the canal closure automatically discharged the contract?

Explanation. The majority treated closure of the usual route as enough to establish an unexpected contingency affecting the expected method of performance, but not enough by itself to excuse performance. The court required three elements: unexpected contingency, no allocation of the risk, and commercial impracticability. A missing route term does not make the usual route irrelevant, but neither does it automatically create a condition excusing performance.