Reference no: EM131917323

Problem: Transatlantic Financing Corporation v. United States 363 F.2d 312 (D.C. Cir. 1966)

Judge J. Skelly Wright

[In 1956, Transatlantic Financing, a steamship operator, contracted with the United States to ship wheat from Texas to Iran. Six days after the ship left port for Iran, the Egyptian government was at war with Israel and blocked the Suez Canal to shipping. The steamer therefore was forced to sail around the Cape of Good Hope. Transatlantic accordingly sued the United States for its added expenses as a result of this change of circumstances. Transatlantic contended that it had contracted only to travel the "usual and customary" route to Iran and that the United States had received a greater benefit than that for which it contracted. The district court held for the United States; Transatlantic appealed.] Transatlantic's claim is based on the following train of argument. The charter was a contract for a voyage from a Gulf port to Iran. Admiralty principles and practices, especially stemming from the doctrine of deviation, require us to [infer] into the contract the term that the voyage was to be performed by the "usual and customary" route. The usual and customary route from Texas to Iran was, at the time of contract, via Suez, so the contract was for a voyage from Texas to Iran via Suez. When Suez was closed this contract became impossible to perform. Consequently, appellant's argument continues, when Transatlantic delivered the cargo by going around the Cape of Good Hope, in compliance with the Government's demand under claim of right, it conferred a benefit upon the United States for which it should be paid on quantum meruit.

The contract in this case does not expressly condition performance upon availability of the Suez route. Nor does it specify "via Suez" or, on the other hand, "via Suez or Cape of Good Hope." Nor are there provisions in the contract from which we may properly [infer] that the continued availability of Suez was a condition of performance. Nor is there anything in custom or trade usage, or in the surrounding circumstances generally, which would support our constructing a condition of performance. The numerous cases requiring performance around the Cape when Suez was closed indicate that the Cape route is generally regarded as an alternative means of performance. So the implied expectation that the route would be via Suez is hardly adequate proof of an allocation to the promisee of the risk of closure. In some cases, even an express expectation may not amount to a condition of performance. The doctrine of deviation supports our assumption that parties normally expect performance by the usual and customary route, but it adds nothing beyond this that is probative of an allocation of the risk. If anything, the circumstances surrounding this contract indicate that the risk of the Canal's closure may be deemed to have been allocated to Transatlantic.

We know or may safely assume that the parties were aware, as were most commercial men with interest affected by the Suez situation, that the Canal might become a dangerous area. No doubt the tension affected freight rates, and it is arguable that the risk of closure became part of the dickered terms. We do not deem the risk of closure so allocated, however. Foreseeability or even recognition of a risk does not necessarily prove its allocation. Parties to a contract are not always able to provide for all the possibilities of which they are aware, sometimes because they cannot agree, often simply because they are too busy. Moreover, that some abnormal risk was contemplated is probative but does not necessarily establish an allocation of the risk of the contingency which actually occurs. In this case, for example, nationalization by Egypt of the Canal Corporation and formation of the Suez Users Group did not necessarily indicate that the Canal would be blocked even if a confrontation resulted. The surrounding circumstances do indicate, however, a willingness by Transatlantic to assume abnormal risks, and this fact should legitimately cause us to judge the impracticability of performance by an alternative route in stricter terms than we would were the contingency unforeseen. We turn then to the question whether occurrence of the contingency rendered performance commercially impracticable under the circumstances of this case.

The goods shipped were not subject to harm from the longer, less temperate Southern route. The vessel and crew were fit to proceed around the Cape. Transatlantic was no less able than the United States to purchase insurance to cover the contingency's occurrence. If anything, it is more reasonable to expect owner-operators of vessels to insure against the hazards of war. They are in the best position to calculate the cost of performance by alternative routes (and therefore to estimate the amount of insurance required), and are undoubtedly sensitive to international troubles that uniquely affect the demand for and cost of their services. The only factor operating here in appellant's favor is the added expense, allegedly $43,972.00 above and beyond the contract price of $305,842.92, of extending a 10,000-mile voyage by approximately 3,000 miles. While it may be an overstatement to say that increased cost and difficulty of performance never constitute impracticability, to justify relief there must be more of a variation between expected cost and the cost of performing by an available alternative than is present in this case, where the promisor can legitimately be presumed to have accepted some degree of abnormal risk, and where impracticability is urged on

Questions

1. a. What did the court find with respect to the private law of the parties?

b. What did it find with respect to the application of custom?

2. Would the result in this case be different if the shipment had been tomatoes as opposed to wheat? Explain.

3. Would the result in this case be different if the United States and Transatlantic agreed by contract that shipment was to arrive in Iran within a period of time that was only possible if the shipper used the canal route? Explain.

4. What do you think it would take for a court to render a contract commercially impracticable? In this case, the shipper was forced to spend almost $44,000 more than it had expected to spend in performing the $306,000 contract. What if the added cost had amounted to $100,000? Would you be persuaded that the contract was then commercially impracticable? What if the closing of the canal doubled the price of the contract? Explain.