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Monday, April 11, 2011

Contracts: Impossibility --- Suez Canal Case

Transatlantic Financing Corporation v. United States:
United States Court of Appeals District of Columbia Circuit
363 F.2d 312 (1966)
Issue: Should Transatlantic be compensated for the added expense of the alternate route?
Rule: Impossibility
-A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive or unreasonable cost
Application:  Plaintiff claims that admiralty principles and practices require the court to imply into the contract the term that the voyage was to be performed by the usual and customary route (Suez)
-Thus, when Suez was closed, this contract became impossible to perform.
-Therefore, completion of the contract by way of the alternate route, plaintiff should be paid in quantum meruit
-When impossibility is raised, the court is asked to construct a condtion of performance based on the changed circumstances, a process which involves at least three reasonably definable steps:
  1. A contingency-- something unexpected-- must have occurred
    1. Clearly met. Where no route is mentioned, the usual and customary route is assumed
  1. The risk of the unexpected occurrence must not have been allocated either by agreement or custom
    1. May be expressed or implied in the agreement, and found in surrounding circumstances, including custom and usage of trade.
      1. Circumstances surrounding the contract suggest that risk was allocated to the plaintiff. Can be assumed that the parties were aware of the situation at Suez
        1. The tension there likely affected freight rates
      1. These circumstances do not always indicate a willingness to accept the risk
  1. Occurrence of the contingency must have rendered performance commercially impracticable
    1. Transatlantic could have purchased insurance for such a contingency
    2. The goods could survive the extra distance, the crew was fit to travel the extra distance
    3. The owners of vessels are in the best position to calculate the cost of performance
    4. The only factor weighing in plaintiffs favor is the added expense
      1. $43,972 above the $305,842 contract price.
      2. To justify relief based solely upon added expense, there must be a larger variation in the expected cost and the cost of performance.
-Thus, performance of this contract was no rendered legally impossible
-If the contract is a nullity, plaintiff's theory of relief should have been quantum meruit for the entire trip, rather than for the added expense.

Conclusion: No

-Jul 26, 1956: Gov't of Egypt nationalized the Suez Canal Company, and took operation of the canal
-Oct 2: Voyage charter between the parties to transport wheat from the US gulf port to a safe port in Iran. Indicated the termini of the voyage, but not the route.
-Oct 27: SS CHRISTOS sailed from Galveston for Iran, on a course that would have taken it through the Suez canal.
-Oct 29: Israel invades Egypt
-Oct 31: Great Britain and France invade the Suez Canal Zone
-Nov 2: Egyptian government obstructed the Suez canal with sunken vessels
-Nov 7: Beckmann, representing plaintiff, contacted an employee of the US dept of Agriculture, seeking an agreement for payment of additional compensation for an alternate route.
-Was advised that he was free to file a claim. Employee didn't believe was entitled to compensation


  1. Keep up the good work, this is far more interesting then the junk I'm currently having to take!

  2. Interesting case, I had no idea something like this could spring up from the Suez Canal

  3. Great notes, hope you're enjoying yourself!

  4. Great work! I love the blog style!

  5. wish i went to law school so i could understand this more lol