Missouri Public Service Co. v. Peabody Coal Co., KCD

• Decision Date: 29 January 1979
• Docket Number: No. KCD,KCD
• Parties: 27 UCC Rep.Serv. 103 MISSOURI PUBLIC SERVICE COMPANY, Respondent, v. PEABODY COAL COMPANY, Appellant. 29611.
• Court: Missouri Court of Appeals

Page 721

583 S.W.2d 721

27 UCC Rep.Serv. 103

MISSOURI PUBLIC SERVICE COMPANY, Respondent, v. PEABODY COAL COMPANY, Appellant.

No. KCD 29611.

Missouri Court of Appeals, Western District.

Jan. 29, 1979.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Feb. 26, 1979.

Application to Transfer Denied April 10, 1979.

Thompson & Mitchell, William G. Guerri, Edwin G. Akers, Jr. and John H. Stroh, St. Louis, and Dietrich, Davis, Dicus, Rowlands & Schmitt, Edward E. Schmitt, Kansas City, for appellant.

William H. Sanders, Sr., Charles A. Schliebs, Blackwell, Sanders, Matheny, Weary & Lombardi, Judith P. Rea, Kansas City, for respondent.

Before SHANGLER, P. J., SWOFFORD, C. J., and TURNAGE, J.

SWOFFORD, Chief Judge.

This is an appeal from a decree of specific performance involving a contract between the parties wherein the appellant (Peabody) agreed to supply the respondent (Public Service) with coal for the production of electricity at the power plants of Public Service in Jackson County, Missouri over a long term. Faced with escalating costs, Peabody unsuccessfully attempted to negotiate a higher price per ton for coal furnished under the contract, and failing in such attempts, declared its intention to discontinue coal shipments. Public Service thereupon elected to consider this position of Peabody to be an anticipatory breach of the contract and thereafter instituted this action to require specific performance of the contract as it was written.

The resolution of this appeal depends upon the underlying basic facts concerning the contractual relationship of the parties. Public Service is a state-regulated public utility supplying electricity and serving the consumers in 28 Missouri counties. In anticipation of need for expanded capacity, it constructed a large coal burning power plant at Sibley, Missouri in Jackson County, and simultaneously undertook negotiations with several coal suppliers, including Peabody, for a 10-year coal supply agreement to meet the requirements of the plant. Letters of intent were signed in 1966 with Peabody and one other coal supplier. At that time, the supply of coal was described as a "buyers market" in which coal suppliers and natural gas companies competed vigorously for the business of energy producers.

Negotiations progressed between the parties to the point where Peabody made an offer to Public Service to supply its coal needs at the Sibley plant for a period of ten years at a base price of $5.40 per net ton, subject to certain price adjustments from time to time relating to costs of labor, taxes, compliance with government regulations, and increase in transportation costs, as reflected in railroad tariffs. Peabody's offer also contained an inflation escalator clause based upon the Consumer Price Index published by the United States Department of Labor. Public Service rejected this offer because of the price adjustment features, but negotiations continued and ultimately resulted in the drafting by Peabody of an agreement essentially the same as the original offer in the area of price adjustments except that the inflation escalator clause was changed so that it would be based upon the Industrial Commodities Index, also published by the United States Department of Labor, but unlike the Consumer Price Index, based, in large part, upon material production costs. This final agreement was formally executed by the parties on December 22, 1967.

Performance under the agreement was profitable for Peabody during the first two years of operation thereunder. Thereafter, production costs began to outpace the price adjustment features of the contract to the extent that in 1974, Peabody requested modification of the price adjustment features. Public Service rejected all proposed modifications in this area but did offer a modification to provide for an increase of $1.00 in the original cost per net ton. This proposal was rejected by Peabody.

On September 16, 1974, a meeting was held between officials of Public Service and Peabody at the Jackson County, Missouri home office of Public Service. At this meeting Public Service again flatly rejected Peabody's proposed modifications of the contract. Peabody thereupon declared that unless these proposed modifications were met, coal shipments to Public Service would cease and the contract would be considered by Peabody to be inoperative. Contact and negotiations continued during which Public Service adamantly refused to agree to the proposed modifications and declared its intentions to hold Peabody to the terms of the original contract. Peabody, by letter dated May 6, 1975, mailed from its principal office in St. Louis, Missouri, advised Public Service that upon the expiration of 60 days all coal shipments under the contract would cease, if the contract modifications were not agreed to by Public Service.

It is undisputed that Peabody possessed adequate coal supplies and ability to perform the contract. Rather, excuse from performance is claimed upon the basis of excessive economic loss under the agreement, absent modification; that excuse from performance was lawful upon the doctrine of "commercial impracticability" under Section 400.2-615 RSMo 1969.

Peabody claimed and the evidence tended to establish that the loss was occasioned largely because the escalation clause in the contract was based upon the Industrial Commodities Index which in years prior to the execution of the contract had been an accurate measure of inflation but had ceased to be an effective measure due to the 1973 oil embargo, runaway inflation and the enactment of new and costly mine safety regulations. Public Service conceded a weakening of this significant function of the Industrial Commodities Index but introduced evidence, including admissions by Peabody, that the events bringing this about were foreseeable at the time of the execution of the contract.

Peabody introduced evidence that its losses under the contract were in excess of 3.4 million dollars at the time of the trial. Peabody's evidence showed that 60% Of these claimed losses were not due to inadequacy of the price adjustment features of the contract to track inflation, but rather to reduction in price caused by lower calorific and higher waste content of the coal received than that originally contemplated under the terms of the contract. It is apparently not disputed that had the escalation clause been based upon the Consumer Price Index, Peabody's purported losses would have been substantially reduced.

That Peabody sustained loss under the contract seems clear, although the extent and cause thereof was in sharp dispute. Public Service, over objection, was permitted to show that since performance of the contract began, Peabody had experienced an approximate three-fold increase in the value of its coal reserves, presumably brought about by the same inflationary trend and other causes to which it ascribes its loss under the contract.

This cause was tried without a jury and the court entered its decree of specific performance, from which judgment Peabody appealed. Under such circumstances, the judgment must be affirmed unless there is no substantial evidence to support it, or it is against the weight of the evidence, or erroneously declares or applies the law. Rule 73.01; Murphy v. Carron, 536 S.W.2d 30, 32(1) (Mo. banc 1976). The issues upon this appeal are essentially legal in nature, and are, in part at least, issues of first impression in Missouri. These legal issues are governed by the terms and provisions of Chapter 400, Uniform Commercial Code, RSMo 1969 (effective July 1, 1965) (U.C.C.) and in force at the time of the execution of the sales contract here involved.

At the outset, the position of Peabody as to venue in this case must be resolved. Peabody asserts that the Circuit Court of Jackson County was an improper venue for the institution of this action since it was neither present in that county nor did it breach its contract with Public Service in that county. Section 508.040 RSMo 1969. The trial court found, however, that Peabody had been guilty of an anticipatory breach of its contract with Public Service at the September 16, 1974 meeting of officials of both companies held in Jackson County, Missouri, and by reason thereof the venue was proper.

The decisional law of Missouri has long recognized the doctrine of anticipatory repudiation. Eddington v. Cockrell, 221 Mo.App. 52, 286 S.W. 405, 406(2) (1926); Ewing v. Miller, 335 S.W.2d 154, 158(6) (Mo.1955) and cases cited therein. Section 400.2-610 RSMo 1969 (U.C.C.) gives this doctrine statutory definition and provides, in part:

"Anticipatory repudiation

When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may

(Here the statute sets out the options available to the injured party.)

The comments accompanying this section further elaborate on this definition by stating that anticipatory repudiation "centers upon an overt communication of intention" which demonstrates "a clear determination not to continue with performance". There was ample competent evidence to support the trial court's finding that this repudiation of the contract within these definitions occurred at the meeting of September 16, 1974, giving due regard to the opportunity of the trial court to judge the credibility of the witnesses as to what occurred at that meeting where the testimony conflicted. Rule 73.01.3(b).

Peabody's assertion that the breach of its contract, if any, occurred in St. Louis upon posting of the May 6, 1975 letter under the so-called "mail box rule" is not persuasive. Under Section 400.2-610, supra, where an anticipatory repudiation occurs, the party whose contract has thus been breached may wait a commercially reasonable time for the offending party to perform the contract or retract the repudiation thereof. It...