Citation. 518 P.2d 76 (Supreme Court of Alaska, 1974)
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Brief Fact Summary.
One party agreed to repair and protect a dam for another party. The party doing the repairs was obligated to procure the necessary rock to make the repairs at a certain site. That rocks in this site proved to be incompatible with the project and another site was chosen. However, it proved impossible to get the rock from that site to the dam site.
Synopsis of Rule of Law.
Pursuant to the doctrine of commercial impracticability, a contracting party is "discharged from his contract obligations, even if it is technically possible to perform them, if the costs of performance would be so disproportionate to that reasonably contemplated by the parties as to make the contract totally impractical in a commercial sense."
The Appellant, Northern Corp. (the "Appellant"), entered into a contract with the Appellee, Chugach Electric Association (the "Appellee"), on August 3, 1966. The Appellant was tasked to repair and protect a dam. The Appellant's bid to do the work was $63,655. The Appellant was given 60 days to complete the job, with time beginning to run from August 29, 1966. In its proposal, the Appellee indicated that the necessary rock to do the job was located near the dam. The Appellant began by using an alternate source of suitable rock, but that rock was soon exhausted. The Appellant then proceeded to the quarry designated by the Appellee, but learned that that rock was not suitable for the purposes of preparing and protecting the dam. The parties then reformed their agreement and the Appellant was allowed to take rock from the alternate side of the lake and transport it over the ice to the dam site. Specifically, the new agreement provided "[r]ock will be quarried in suitable sizes and quantities to complete the project and will be stockpiled in or near the quarry, or quarries, mentioned above for transport across Cooper Lake to the dam site when such lake is frozen to a sufficient depth to permit heavy vehicle traffic thereon." This agreement was memorialized in a letter from the Appellee to the Appellant dated September 27, 1966. The contract price was increased by $42,000 to cover these increased expenses. The Appellant attempted unsuccessfully for about two years to transport machinery and the necessary rock across the ice. The Appellant lost machinery and two truck drivers lost their lives after falling through the ice. On March 28, 1996, the Appellant informed the Appellee that the contract was terminated due to the impossibility of performance. The Appellant filed a lawsuit seeking damages for costs incurred while attempting to perform. The trial court discharged both parties from their obligations under the contract, but neither party was awarded damages.
Was the amended contract impossible of performance?
• Or, can the obligation to be performed be excused due to commercial impracticablity?
The September 27, 1966 agreement required that the rock be transported "across Cooper Lake to the dam site when such lake is frozen to a sufficient depth to permit heavy vehicle traffic thereon". Based on this language, the parties thought that the rocks would be transported over the ice by truck. The court agrees with the trial court that the Appellant's attempts over a two year period to move the rock over the ice, culminating in the death of two truck drivers, made performance of the contract impossible.
• The court observed "the parties contemplated that the rock would be hauled by truck once the ice froze to a sufficient depth to support the weight of the vehicles. The specification of this particular method of performance presupposed the existence of ice frozen to the requisite depth. Since this expectation of the parties was never fulfilled, and since the provisions relating to the means of performance was clearly material, Northern's duty to perform was discharged by reason of impossibility."
• The court then discusses the doctrine of commercial impracticability. A contracting party is "discharged from his contract obligations, even if it is technically possible to perform them, if the costs of performance would be so disproportionate to that reasonably contemplated by the parties as to make the contract totally impractical in a commercial sense." Additionally, serious risk to health or life will excuse performance.
• The court cites Professor Williston's views on impossibility: "The true distinction is not between difficulty and impossibility. As has been seen, a man may contract to do what is impossible, as well as what is difficult. The important question is whether an unanticipated circumstance, the risk of which should not fairly be thrown upon the promisor, has made performance of the promise vitally different from what was reasonably to be expected."
This case is very interesting to read alongside [American Trading and Production Corp. v. Shell Int'l Marine LTD] to see how two courts examine the doctrines of impossibility and commercial impracticability.