Canadian Industrial Alcohol Co. (buyer) entered into a contract with Dunbar Molasses Co. (seller) for delivery of substantial quantities of molasses over a defined period for use in producing industrial alcohol. Dunbar did not have the molasses in hand at the time of contracting but intended to obtain it from a customary third-party supplier. During performance, Dunbar's anticipated supplier failed to furnish the expected amounts, leading to a shortfall in Dunbar's deliveries to Canadian Industrial Alcohol. The contract between the parties did not state that Dunbar's performance was contingent on obtaining molasses from any particular refinery or crop, nor did it tie the obligation to the output of a specified facility. Dunbar argued that the unforeseen failure of its expected source and the scarcity in the market rendered performance impracticable and excused the shortfall. Canadian Industrial Alcohol sued for breach, asserting that Dunbar assumed the risk of procurement and could not avoid liability merely because its supplier failed.
Is a seller excused from performance due to impracticability when its anticipated source of supply fails, where the sales contract does not expressly or impliedly condition performance on procurement from that particular source?
A seller who undertakes to deliver goods generally assumes the risk of obtaining them and is not excused by the failure of an anticipated supplier unless the contract expressly or by clear implication conditions performance on a specific, identified source or output. Impossibility or impracticability may excuse performance when the contract is tied to a particular, destroyed, or unavailable source (e.g., the output of a named mill or a specified crop), but mere difficulty, shortage, or increased expense due to a supplier's nonperformance is insufficient to discharge a promisor who has not limited its obligation to that source.
No. The seller was not excused. Because the contract did not limit performance to a specific source of supply or make delivery contingent on that source, the seller assumed the risk of procuring the molasses and was liable for the shortfall in deliveries.
The court emphasized that the contract bound Dunbar to deliver molasses without conditioning its duty on the success of any particular upstream arrangement. While Dunbar expected to fulfill its promise through a customary supplier, that expectation was an internal procurement plan, not a contractual term. The parties could have, but did not, restrict the obligation to the output of a named refinery, a specific crop, or similar identifiable source. Absent such a limitation, the seller undertakes an absolute promise to deliver the specified goods and assumes the risk of supplier failure. The court contrasted cases where performance is tied to a unique or identified source—such as the output of a specified plant or a single crop—where destruction or failure of that source may excuse performance because the contract's subject matter has effectively vanished. Here, however, nothing in the contract transformed Dunbar's internal expectations about supply into a condition precedent to its duty. Nor did Dunbar show that performance was objectively impossible; it was at most more difficult or costly due to scarcity. Increased cost or difficulty, without more, does not discharge a promisor. The court thus allocated the procurement risk to the party in the best position to manage and insure against it—the seller that elected not to include source-contingent terms or force majeure protections in the contract.
The case is a classic on risk allocation and the limits of the impossibility/impracticability defense. It teaches that courts will enforce unconditional promises notwithstanding supply-chain disruptions unless the contract explicitly (or unmistakably by implication) conditions performance on a specific source. It also foreshadows UCC § 2-615 by distinguishing genuine source-destruction cases from mere supplier defaults or market shortages. For students and practitioners, it underscores the need to draft clear force majeure clauses, source-contingency language, and allocation provisions to manage procurement risk.
Canadian Industrial Alcohol v. Dunbar Molasses stands for the proposition that procurement risk ordinarily lies with the promisor who agrees to deliver goods without conditioning performance on a specific source. The failure of an expected supplier is, without more, the seller's problem—not a legal excuse.