## Facts

- Missouri Public Service Company (MPS), a regulated electric utility serving 28 Missouri counties, built a coal-fired generating plant in Sibley, Missouri, and sought long-term coal supply.
- In 1966, MPS and Peabody Coal Company entered a 10-year requirements contract for coal at a base price of \$5.40 per net ton.
- The contract included negotiated price-adjustment mechanisms, including adjustments for labor, taxes, compliance with governmental regulation, transportation costs reflected in railroad tariffs, and an index-based inflation escalator.
- In the early 1970s, Peabody’s costs increased substantially due to inflation, the 1973 oil embargo’s market effects, and additional governmental and safety regulations.
- Peabody sought higher contract prices; MPS refused to modify the agreement.
- Peabody announced it would stop shipping coal; MPS treated the announcement as anticipatory breach and sued for specific performance.
- Peabody conceded it had adequate coal and the ability to perform, but claimed performance would cause severe economic loss and was excused by commercial impracticability.

## Issues

1. Whether sharp cost increases and changed economic conditions excused Peabody’s performance under the doctrine of commercial impracticability.
2. Whether MPS acted in bad faith by refusing to renegotiate or modify the contract price after Peabody’s costs increased.

## Decision

- The Missouri Court of Appeals affirmed the decree ordering specific performance of the coal supply contract.
- The court held Peabody’s performance was not excused by commercial impracticability where performance remained possible and the asserted risks were foreseeable commercial risks.
- The court held MPS did not act in bad faith by insisting on enforcement of the contract as written and declining to renegotiate price terms.

## Legal Principles

- Commercial impracticability is a narrow doctrine; increased cost and reduced profitability, without a change that alters the essential nature of the promised performance, generally does not discharge a seller’s contractual duty.
- Foreseeable economic and regulatory changes are ordinarily treated as allocated commercial risks, particularly when the contract contains escalation and adjustment clauses addressing such contingencies.
- A buyer does not act in bad faith merely by enforcing an arm’s-length bargain and refusing to modify price terms absent a contractual or legal duty to renegotiate.
- Specific performance may be an appropriate remedy for a long-term supply obligation where continued performance is materially important to a public utility’s ability to provide essential service and damages are inadequate.

## Conclusion

The court required the coal supplier to continue performance under a long-term requirements contract, rejecting impracticability based on severe cost increases where the contract’s pricing structure contemplated changing conditions and the buyer’s insistence on the bargain did not constitute bad faith.


Missouri Public Serv. Co. v. Peabody Coal Co., 583 S.W.2d 721 (Mo. Ct. App. 1979), cert. denied, 444 U.S. 865 (1979)