In regard to whether a contract obligation is conditional, the inquiry is merely whether the continuance of a special group of circumstances appears from the terms of the contract, interpreted in the setting of the occasion, to have been a tacit or implied presupposition in the minds of the contracting parties, conditioning their belief in a continued obligation.
Canadian Industrial Alcohol Co. (plaintiff) ordered 1,500,000 gallons of molasses from Dunbar Molasses Co. (defendant). After a few deliveries, the defendant decided not to deliver to the plaintiff, which was primarily caused by the lack of willingness by the defendant’s supplier, the National Sugar Refinery. Canadian sued Dunbar for damages because of the failure to deliver the contracted amount of molasses. In its defense, Dunbar alleged that its duty to deliver was conditioned upon the production by the refinery of a sufficient amount to fulfill Canadian’s order, and that its duty to supply was extinguished when the refinery reduced its output. The lower court ruled in favor of Canadian.
May a supplier be held to a delivery contract after diminishing its output to below that of its contractual obligations?
The court affirmed, ruling that because the defendant could have assured itself of a sufficient supply for its needs, and because the plaintiff was not informed that performance was conditioned upon defendant obtaining such a contract with its supplier, the defendant's duty to perform under the contract was thus not discharged. When the risk was forseeable and under the control of one of the parties, then a defense of impossibility cannot be availed of. However, here, the plaintiff was not aware of the agreement between the defendant and its supplier. A middleman cannot use the defense of impossibility where the supplier is unwilling to contract to sell items to the seller.