363 F.2d 312 (D.C. Cir. 1966)
Transatlantic Financing Corporation, the operator of the SS CHRISTOS, entered into a voyage charter with the United States on October 2, 1956, for the carriage of a full cargo of wheat from a United States Gulf port to a safe port in Iran.1 The charter specified the points of origin and destination but did not indicate the route to be taken.2
On July 26, 1956, the Government of Egypt nationalized the Suez Canal Company.3 During the ensuing international crisis, on October 27, 1956, the SS CHRISTOS sailed from Galveston on a course that would have taken her through the Suez Canal.4 Israel invaded Egypt on October 29, 1956, followed by invasions of the Suez Canal Zone by Great Britain and France on October 31, 1956.5 On November 2, 1956, the Egyptian Government closed the Suez Canal to traffic by obstructing it with sunken vessels.6
After the closure, Transatlantic's representative contacted an employee of the United States Department of Agriculture on or about November 7, 1956, to request instructions on the cargo and to seek additional compensation for a voyage around the Cape of Good Hope.7 The ship changed course and arrived in Bandar Shapur, Iran, on December 30, 1956.8 Transatlantic later filed a libel against the United States in the District Court seeking recovery of the costs attributable to the diversion around the Cape of Good Hope.9
The District Court dismissed the libel, and Transatlantic appealed to the United States Court of Appeals for the District of Columbia Circuit.10
Whether the closure of the Suez Canal rendered performance of the voyage charter impossible?11
The doctrine of impossibility of performance requires three elements: a contingency must have occurred, the risk of that contingency must not have been allocated by agreement or custom, and the contingency must have rendered performance commercially impracticable.12
No. Transatlantic Financing Corporation and the United States executed a voyage charter on October 2, 1956, for carriage of wheat from a Gulf port to Iran without specifying any route.13 The SS CHRISTOS sailed from Galveston on October 27, 1956, on the usual Suez route.14 Egypt closed the Suez Canal on November 2, 1956, after invasions by Israel, Great Britain, and France.15 This closure was an unexpected contingency that prevented performance by the anticipated route.16
The risk of closure was not allocated by the charter terms or by custom, which treats the Cape route as an available alternative.17 Performance around the Cape of Good Hope remained commercially practicable because the vessel and cargo were suited to the longer voyage and the added cost of $43,972 represented only a modest increase over the $305,842.92 contract price.18 The court therefore holds that the contract was not rendered impossible.19
The closure of the Suez Canal did not render performance of the voyage charter impossible.20
Whether the risk of the Suez Canal's closure was allocated by the charter or by custom?21
Proof that the risk of a contingency has been allocated may be expressed in or implied from the agreement, or found in surrounding circumstances including custom and trade usage. An implied expectation that the usual route would be used does not by itself allocate the risk of its unavailability.22
No. The charter named only the termini of the voyage and contained no express condition that performance depend on an open Suez Canal.23 No provisions in the document or in trade custom implied that continued availability of the Suez route was a condition of performance.24 The surrounding circumstances showed that the parties were aware of tension in the region yet did not allocate the specific risk of closure.25 The court therefore treats the risk as unallocated by agreement or custom.26
The risk of the Suez Canal's closure was not allocated by the charter or by custom.27
Whether performance of the charter by the alternative Cape of Good Hope route was commercially impracticable?28
Commercial impracticability exists only when an unexpected contingency so increases the cost or difficulty of performance that it would be commercially senseless to require the promisor to proceed. Courts take into account any abnormal risks the promisor may fairly be presumed to have accepted.29
No. After the closure the SS CHRISTOS proceeded around the Cape of Good Hope and delivered the cargo at Bandar Shapur on December 30, 1956.30 The goods were not harmed by the longer southern route, the vessel and crew were fit for the voyage, and Transatlantic was positioned to insure against war hazards.31 The sole added expense of roughly $43,972 on a contract priced at $305,842.92 did not constitute a sufficient variation to excuse performance, especially where the parties had contemplated abnormal risks arising from the Suez crisis.32 The court therefore finds performance by the alternative route commercially practicable.33
Performance of the charter by the alternative Cape of Good Hope route was not commercially impracticable.34
Whether Transatlantic was entitled to quantum meruit recovery for the added costs of the Cape route?35
When a contract is not rendered impossible, the performing party remains bound by its terms and may not recover in quantum meruit for expenses incurred in completing performance by an alternative method.36
No. Because performance was not impossible, Transatlantic remained obligated to carry the cargo to Iran.37 It collected the full contract price yet sought additional compensation for the Cape voyage.38 Quantum meruit relief is unavailable when the contract remains enforceable and the promisor has already received the bargained-for payment.39 The court therefore denies any recovery beyond the original charter rate.40
Transatlantic was not entitled to quantum meruit recovery for the added costs of the Cape route.41