Missouri Public Service Co. v. Peabody Coal Co.

583 S.W.2d 721, cert. denied, 444 U.S. 865 (1979)

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Nature of the Case

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Facts

P constructed a large coal-burning power plant and undertook negotiations with several suppliers for a ten-year supply of coal. Letters of intent were signed in 1966 with D and one other supplier. At that time coal was a buyer’s market. Peabody (D) agreed to supply P with coal for the production of electricity at $5.40 per ton subject to certain price adjustments relating to costs of labor, taxes, compliance with government regulations, and increased transportation costs and an inflation escalator based on the ICI index. A final agreement was reached December 22, 1967. The contract was for a ten-year period. Performance was profitable for D under the first two years but thereafter production costs began to outpace price adjustments. D unsuccessfully attempted to renegotiate the price per ton. P rejected all modifications but did offer an increase of $1 in the original cost per ton. This proposal was rejected by D. D mailed a letter to P advising them that shipments would stop in 60 days if contract modifications were not agreed to. P sued considering D to be in anticipatory repudiation and asked for a decree of specific performance. D possessed adequate coal supplies and the ability to perform the contract. D contends it is excused from performance based on excessive economic loss and that its excuse was lawful under the doctrine of commercial impracticability (2-615). D contends that the ICI index used to be an accurate measure of inflation but had ceased to be effective due to the 1973 oil embargo, runaway inflation and the enactment of new mine safety laws. P conceded the issue relating to the Index but produced evidence that the events bringing about D’s problems were foreseeable when the contract was executed. D showed that its losses under the contract were in excess of $3.4 million and that 60% of them were not due to the inadequacy of the price adjustment features but from a reduction in price caused by lower quality coal than originally contemplated under the terms of the contract. At trial, P showed that D had experienced a 3x increase in the value of its coal reserves. The court rendered a decree of specific performance. D appealed.