CORNELL ECON 4040 - Transatlantic (3 pages)

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lecture 16

Lecture number:
Lecture Note
Cornell University
Econ 4040 - Economics and the Law

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Econ 4040 1st Edition Lecture 16 Outline of Last Lecture I Walker II Fiege Outline of Current Lecture I Transatlantic II Shirley Maclaine Transatlantic Brief Fact Summary The Plaintiff Transatlantic Financing Corporation Plaintiff sued the Defendant the United States Defendant in quantum meruit after it was forced to take the longer route from Texas to Iran around the Cape of Good Hope rather than the shorter route through the Suez Canal Synopsis of Rule of Law A legal impossibility which renders a contract voidable is defined as a thing that is not practicable or in other words only done at an excessive and unreasonable cost Facts The Plaintiff contracted with the Defendant to ship wheat from Texas to Iran The contract specified the destination but not the route The ordinary route would take the Plaintiff through the Suez Canal However due to armed conflict the Suez Canal had been blocked by Egypt The Plaintiff therefore proceeded along the route around the Cape of Good Hope The Plaintiff then sued to recover the additional costs of taking the longer route Issue Were the Plaintiff s duties impossible to perform thereby permitting rescission of the agreement Held No The D C Circuit Court of Appeals sets forth a three part test for impossibility 1 something unexpected must have occurred 2 the risk of the unexpected occurrence must not have been allocated by contract or custom and 3 the unexpected occurrence must have rendered performance commercially impracticable Here the first requirement is met The usual route from Texas to Iran would be through the Suez Canal and its closure would be unexpected Second the risk does not appear to have been allocated in the agreement or by custom to one party over the other Finally the performance was not rendered commercially impracticable While the cost of going around the Cape of Good Hope was greater than going through the Suez Canal there was no increased risk to the crew or goods It is not always the case that cost alone may

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