A cost increase brought on by regulatory changes was held sufficient to invoke a commercial impracticability defense in Aluminum Company of America v Essex Group Inc. The buyer and the seller entered into a toll conversion service contract under which the buyer would supply the seller with alumina. The seller would convert the alumina by a smelting process into molten aluminum that would then be picked up by the buyer for further processing. In the mid-1970s, new regulations for oil and pollution control dramatically increased the seller’s smelting costs and would have caused the seller to lose more than $75 million during the life of the contract, while the buyer conversely stood to gain a windfall profit. The court found that regulatory changes of this sort were an unforeseen supervening circumstance, not within the contemplation of the parties at the time of contracting. To the relief of the seller, the court found that the seller’s performance became commercially impracticable.
Source: Commercial Impracticability and Fair Allocation Under UCC 2-615by John R. Trentacosta http://www.michbar.org/journal/pdf/pdf4article1767.pdf
All of the following were fulfilled in order to achieve a defense of commercial impracticability:
(1) The seller must not have assumed the risk of some un-
known contingency;
(2) The nonoccurrence of the contingency must have been a
basic assumption underlying the contract; and
(3) The occurrence of that contingency must have made per-
formance commercially impracticable.
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