--- title: "Transatlantic Financing Corp. v. United States" type: Landmark Case source: https://casebriefly.com/landmark-cases/transatlantic-financing-corp-v-united-states --- # Transatlantic Financing Corp. v. United States Transatlantic Financing Corp. v. United States is a leading case on the doctrine of commercial impracticability, establishing a rigorous three-part test for when a party may be excused from performance due to unforeseen circumstances that make performance commercially impractical. The case demonstrated that mere increase in cost or difficulty of performance is generally insufficient to excuse a party under the impracticability doctrine, and significantly shaped modern impracticability analysis. ## Citation 363 F.2d 312 (D.C. Cir. 1966) ## Year 1966 ## Court United States Court of Appeals for the District of Columbia Circuit ## Facts Transatlantic Financing Corp. contracted with the United States to ship wheat from Texas to Iran. The customary and expected route was through the Suez Canal. After the contract was formed, the Egyptian government nationalized the canal and it was closed during the Suez Crisis of 1956. Transatlantic was forced to reroute the shipment around the Cape of Good Hope, which increased the voyage distance by approximately one-third and the cost of performance by approximately 14 percent. Transatlantic completed the delivery and then sued the United States for the additional costs incurred. ## Procedural History Transatlantic filed suit in the U.S. Court of Claims, which denied recovery. Transatlantic appealed to the D.C. Circuit Court of Appeals, which affirmed the denial of recovery. ## Issue Whether a shipping company is excused from its contractual obligation, or entitled to additional compensation, when closure of the customary shipping route forces it to use a longer and more expensive alternative route. ## Holding The court held that Transatlantic was not excused from performance and was not entitled to additional compensation. Applying a three-part test, Judge Skelly Wright found that while the closure of the Suez Canal was an unforeseen contingency, it did not render performance impracticable because an alternative route existed and the additional cost (approximately 14%) was not sufficiently extreme to excuse performance. The court also found that the risk of route closures was more properly allocated to the carrier. ## Reasoning Judge Wright articulated three requirements for the defense of impracticability: (1) an unexpected contingency must occur, (2) the risk of the contingency must not have been allocated to either party by agreement or custom, and (3) the occurrence of the contingency must render performance commercially impracticable. While the closure of the Suez Canal was unexpected, the court found that the risk was reasonably allocated to the shipping company, which was in the best position to insure against such risks. Moreover, the increased cost of approximately 14% did not rise to the level of commercial impracticability. The court emphasized that the impracticability doctrine requires something far more than mere increase in expense; it requires an alteration in the essential nature of the performance. Mere cost increases, even substantial ones, do not excuse performance unless they are extreme and unreasonable. ## Impact Transatlantic Financing established the dominant test for commercial impracticability in American law and has been widely cited and applied. The three-part framework influenced the drafting of UCC Section 2-615 and the Restatement (Second) of Contracts Section 261. The case set a high bar for impracticability claims, making it clear that courts will not easily excuse performance merely because it has become more expensive or difficult. The decision has been applied in numerous commercial disputes involving supply chain disruptions, energy crises, and government actions. ## Key Quotes - The doctrine of impossibility of performance has gradually been freed from the earlier fictional and unrealistic strictures of such combatting doctrines as combating doctrines as the implied combating condition. - Transatlantic's case essentially comes down to the argument that the Suez route is generally regarded as the customary route. The evidence was that the weights of the costs of the two routes were about the same... and that the Suez route was preferred only because it was shorter. - The argument that the risk of a closure of the Canal was not allocable to Transatlantic does not withstand scrutiny. We know or may safely assume that the shipping industry in general was aware... of the possibility that the Canal might become unavailable. ## Related Cases - taylor-v-caldwell - krell-v-henry - alaska-packers-association-v-domenico - angel-v-murray ## Exam Relevance Transatlantic Financing is commonly tested on the doctrines of impracticability and impossibility. Students are often presented with scenarios where performance has become more expensive or difficult and must determine whether the increase rises to the level of impracticability. Key analytical points include the foreseeability of the contingency, risk allocation, and whether the cost increase is sufficiently extreme. ## Study Tips - Memorize the three-part test: (1) unexpected contingency, (2) risk not allocated by agreement or custom, and (3) performance rendered commercially impracticable. - Understand the high bar: a 14% cost increase was insufficient for impracticability. Courts generally require extreme and unreasonable cost increases, often measured in multiples rather than percentages. - Compare with Taylor v. Caldwell (true impossibility) and Krell v. Henry (frustration of purpose) to understand the spectrum of excuse doctrines: impossibility, impracticability, and frustration. - Note the risk allocation analysis: the shipping company was in a better position to anticipate and insure against route closures, which weighed against excuse. ## Doctrine Established Commercial Impracticability (Three-Part Test) --- Source: [Transatlantic Financing Corp. v. United States — CaseBriefly](https://casebriefly.com/landmark-cases/transatlantic-financing-corp-v-united-states)