Transatlantic Financing Corp. v. United States

Case Analysis of Transatlantic Financing Corp. v. United States

A company may be required to cover the added expenses of performing a contract in a manner different from the usual and customary method if such usual and customary method becomes impossible subsequent to the signing of the contract. Although the exact parameters of the additional labor and expenses a company may be required to cover are not laid out in detail, the case indicates that labor amounting to 30 percent more than that contracted for and expenses amounting to almost 15 percent more than that contracted for will be the responsibility of the performing company in the absence of any contractual provision for its payment by the other contracting party.

Justification for Problem Definition

In the case of Transatlantic Financing Corporation v. United States, 363 F.2d 312 (1966), Transatlantic Financing Corporation (hereafter "Transatlantic") appealed to the United States Court of Appeals from a lower court decision. The lower court had denied Transatlantic's suit to recover the added expenses of shipping a cargo of wheat from Texas to Iran via the Cape of Good Hope rather than the usual route via the Suez Canal. Transatlantic had been unable to ship the goods via the usual route because Egypt was at war with Israel when the goods were being shipped and had blocked the Suez Canal to shipping.

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court stated: 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 the basis of added expense alon[e]. We conclude, therefore, as have most other courts considering related issues arising out of the Suez closure, that performance of this contract was not rendered legally impossible. Analysis The court's ruling in Transatlantic requires a company to consider and include in all contracts, as much as is possible, the cost and labor associated with any alternative methods of performing its contractual obligations. Fortunately, the court's ruling does not place the cost of unforeseeable events with the performing party. Alternative Course of Action Performing companies must be aware of all elements that may affect their performance and must condition the cost of performance under the contract based on these elements. A possible method of fulfilling these requi

Category: Government - T