Title: West Texas Utilities Co. v. Exxon Coal USA, Inc.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

West Texas Utilities Co. v. Exxon Coal USA, Inc.1991 WY 32807 P.2d 932Case Number: 90-190, 90-191Decided: 03/14/1991Supreme Court of Wyoming
WEST TEXAS UTILITIES CO., 
Appellant (Defendant),

v.

EXXON COAL USA, INC., 
Appellee (Plaintiff). EXXON COAL USA, INC., Appellant 
(Plaintiff),

v.

WEST TEXAS UTILITIES CO., 
Appellee (Defendant).

Appeal was taken from 
judgment of the District Court, Campbell County, Terrence L. O'Brien, 
J.

Affirmed in part 
and reversed in part. 

Lawrence A. 
Yonkee of Redle, Yonkee & Toner, Sheridan, Craig Newman of Brown & Drew, 
Casper, Orrin Harrison III and James E. Fisher of Locke Purnell Rain Harrell, 
Dallas, Tex., and Roy B. Longacre of Wagstaff, Alvis, Stubbeman, Seamster & 
Longacre, Abilene, Tex., for West Texas Utilities Co.

Marilyn S. Kite 
of Holland & Hart, Cheyenne, and David J. Beck, John M. Simpson, Robert A. 
Burgoyne, and Richard J. Wilson of Fulbright & Jaworski, Houston, Tex., 
for Exxon Coal USA, Inc.

Before 
URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

OPINION

MACY, Justice.

[¶1.]     West Texas Utilities 
Co. appeals from the district court's ruling that Exxon Coal USA, Inc. may 
select either of the remedies enumerated in the parties' contract if 
West Texas repudiates that 
contract.

[¶2.]     We affirm in part and 
reverse in part.

[¶3.]     West Texas raises the following issues:

     I. The District Court 
erred by misinterpreting the Coal Sale and Purchase Agreements (the "Contracts") 
to allow Exxon, upon a repudiation by [West Texas], to hold the Contract open 
for up to 20 years and to seek annual "Minor Breach" liquidated damages instead 
of "Major Breach" liquidated damages.

     II. The District Court 
erred by misinterpreting the Contract to allow Exxon to collect annual payments 
under Exhibit A, Part 6, even after Exxon cancels the Contract.

     III. The District 
Court erred by ruling that if the Minor Breach damages provision is declared to 
be unenforceable, then UCC § 2-708 (and not the Major Breach damages provision) 
would govern the measure of damages for repudiation.

     IV. The District Court 
erred by refusing to dismiss this anticipatory suit between citizens of Texas 
seeking only declaratory relief concerning the proper interpretation of 
contracts made in Texas, in which Texas law is controlling.

[¶4.]     West Texas, a public 
utility, provides electricity to consumers in the Abilene, Texas, area. Exxon, through its "operating 
division," Carter Mining Company, excavates coal from two open-pit mines in 
Campbell County, Wyoming. In 1979, West Texas decided to build 
two coal-fired power plants near Vernon, Texas. 
West Texas chose Exxon to supply the coal 
needed to fuel the proposed power plants. On May 15, 1981, after six months of 
negotiations, the parties signed a twenty-year agreement.1

[¶5.]     Under the contract, 
West Texas agreed to purchase a minimum quantity of coal each year from Exxon's 
mines which were located in Wyoming. In 1986, when West Texas received its first shipment of coal, the market 
price for coal was lower than the price set out in the contract. Consequently, 
the Texas Public Utility Commission, which regulates the rates charged by West 
Texas to its customers, directed West Texas to "reevaluate" and report on its 
attempts to "renegotiate, terminate, or litigate" the contract price in order to 
lower the cost of the coal it purchased from Exxon.

[¶6.]     After negotiations 
stalled, Exxon filed this declaratory action in the district court on March 9, 
1989, seeking a declaration of its remedies in the event that West Texas repudiated the contract.2 Both parties filed cross-motions 
for partial summary judgment on the issue of repudiation. Exxon argued that it 
has the right, if West Texas repudiates the 
contract, to pursue either of the contract's liquidated damages provisions. The 
contract provided for the following remedies in the event that West Texas failed to perform:

18.2 BUYER's Failure 
to Perform.

     (a) Minor 
Breach. If, in any calendar year during the term of this Agreement, BUYER 
fails to accept some or all of the coal for which BUYER is obligated hereunder, 
without excuse either by law or expressly hereunder, and with SELLER ready, 
willing, and able to mine and tender such coal, BUYER shall pay SELLER as 
liquidated damages within thirty (30) days after the end of said calendar year, 
for each ton of coal not taken, an amount equal to the average Price (as defined 
in Section 18.1(a)) applicable under this Agreement during said year, less an 
amount equal to the portions of the Price representing materials and supplies, 
power, royalty payments, and production taxes not paid.

      (b) Major Breach. If BUYER's 
default amounts to twenty per cent (20%) or more of the tonnage BUYER is 
required to take hereunder in any calendar year, such a default shall entitle 
SELLER to cancel this Agreement unless BUYER pays or tenders payment according 
to the preceding paragraph. If SELLER elects to cancel for this reason, or if 
BUYER specifically repudiates this Agreement, SELLER's remedy shall be an amount 
equal to the Price per ton applicable under this Agreement at the time SELLER 
cancels less an amount equal to the portion of the Price representing those 
costs of direct mine labor, black lung benefits, materials and supplies, power, 
royalty payments, and production taxes in that Price to the extent that said 
costs are not actually paid, multiplied by the minimum number of tons BUYER 
would have been required to take hereunder for the next three (3) years 
following SELLER's cancellation (or for the first three (3) full calendar years 
if performance has yet to begin when SELLER cancels). This amount shall not be 
reduced to present value at time of payment and shall be in addition to the 
payment to which SELLER is entitled at the time of cancellation under the 
preceding paragraph of this Article.[3]

West Texas 
countered by contending that the express terms of the contract limit Exxon's 
remedy for West Texas' repudiation to a single liquidated damages payment under 
the formula detailed in section 18.2(b) of the contract.

[¶7.]     In its decision letter 
granting Exxon's cross-motion for partial summary judgment, the district court 
ruled that, on the basis of Texas law, the parties' contract was 
unambiguous. The contract provided that it "shall be governed by and construed 
in accordance" with Texas law. The court interpreted the contract 
as being an "integrated and coherent whole" and ruled that the language of 
section 18.2(b) does not grant the right to West Texas to "unilaterally 
terminate the Contract at [West Texas'] election and thereby limit [West Texas'] 
liability for damages to the amounts specified in Section 18.2(b) of the 
Contract, unless Exxon cancels the Contract in response to a repudiation" by 
West Texas. The court further stated that "the proper interpretation of Section 
18.2 of the Contract is that, in the event [West 
Texas] specifically repudiates the Contract, Exxon may elect whether 
to cancel or seek annual liquidated damages, the alternate remedy to which the 
parties agreed in Section 18.2(a)."

[¶8.]     We first address 
West Texas' claim that the district court 
should have granted its motion to dismiss on the grounds of forum non 
conveniens. West Texas accuses Exxon of "forum shopping" in filing its 
declaratory action in Wyoming and asserts that 
a dispute between two Texas companies over a 
contract executed in Texas should be decided in 
Texas. Whether 
a case should be dismissed under the doctrine of forum non conveniens lies 
within the discretion of the district court. Booth v. Magee Carpet Company, 548 P.2d 1252 (Wyo. 1976). The district court reviewed the 
arguments for and against dismissing the action and found, inter alia, that 
Exxon based its suit on rational grounds; e.g., the coal mine is located in 
Wyoming, and the suit was not brought for purposes of harassment. The district 
court did not abuse its discretion when it denied West 
Texas' motion to dismiss for forum non conveniens.

[¶9.]     West Texas also asserts that Exxon's use of declaratory 
judgment was an improper anticipatory suit and, therefore, should have been 
dismissed. Wyoming's Uniform Declaratory Judgments Act 
recognizes, "A contract may be construed either before or after there has been a 
breach thereof." Wyo. Stat. § 1-37-104 (1988). The district 
court did not abuse its discretion in allowing this suit to proceed before 
West Texas breached the contract.4

[¶10.]  West 
Texas makes the additional claim that the declaratory judgment did 
not resolve the controversy. The district court has broad latitude to decide 
whether declaratory relief is appropriate.5 Here, the district court's ruling 
resolved the uncertainty of whether the contract gives Exxon the right to elect 
either of the liquidated damages remedies in the event West 
Texas repudiates the contract. We find there was no abuse of 
discretion.

[¶11.]  We now address the principal issue of 
this appeal: What remedies does the parties' contract give to Exxon, as seller, 
if West Texas repudiates that contract? The 
parties agree that the contract is unambiguous. They disagree, however, on the 
interpretation of that contract. West Texas asserts that section 18.2(b) grants 
to it the unilateral right to terminate the contract and to limit its liability 
to the liquidated damages measurement detailed in that same section. West Texas believes that the language, "if BUYER 
specifically repudiates this Agreement" in section 18.2(b), clearly shows the 
intent of the parties to create a single liquidated damages payment in the event 
of repudiation. Exxon disagrees and argues that the intent of the parties was 
for Exxon to have the right to elect either "minor" or "major" breach damages if 
West Texas repudiates the contract.

[¶12.]  Summary judgment is proper where the 
language of an agreement is plain and unambiguous. Sturman v. First National 
Bank, 729 P.2d 667 (Wyo. 1986).

[¶13.]  The Texas courts have enunciated the following 
rules of contract construction:

     In construing a 
written contract, the primary concern of the court is to ascertain the true 
intentions of the parties as expressed in the instrument. * * * The intention of 
the parties is discovered primarily by reference to the words used in the 
contract. Further, to determine the parties' actual intent, courts should 
examine and consider the entire writing in an effort to harmonize and 
give effect to all the provisions of the contract so that none will be 
rendered meaningless. No single provision taken alone will be given controlling 
effect; rather, all the provisions must be considered with reference to the 
whole instrument.

Preston Ridge 
Financial Services Corporation v. Tyler, 796 S.W.2d 772, 775 (Tex. App. 1990) 
(emphasis in original and citations omitted).

[¶14.]  West 
Texas' primary argument that the court should confine its 
interpretation of the contract to section 18.2(b) runs counter to the following 
rule:

[N]o single provision 
taken alone, much less a single cause in a sentence, has controlling effect. 
[The court] must consider and give effect to all the provisions of the contract 
so that none will be rendered meaningless.

Preston Ridge 
Financial Services Corporation, 796 S.W.2d  at 778 (court rejected interpretation 
which would render introductory language of the contract 
meaningless).

[¶15.]  It is clear from the contract that 
West Texas, in order to gain a guaranteed 
supply of coal at a fixed cost, wanted a long term agreement with Exxon. The 
contract states in its introduction that Exxon, "in reliance upon [West Texas'] 
firm, long-term commitment" to purchase coal for its power plants, agrees to 
make the "substantial investment of money, manpower and other resources needed 
to operate" its Wyoming mines. The contract provides in detail 
each party's rights and obligations under the contract - the contract includes 
twenty-eight separate articles and six exhibits. Neither party has the right, 
however, to repudiate the contract when the market price for coal rises or falls 
from that fixed in the contract. In fact, the parties specifically excluded 
price changes as grounds for obtaining relief under the provision of "Economic 
Hardship." Similarly, the parties did not include changes in the market price as 
part of their "Force Majeure" provisions, which permit either party to 
temporarily suspend its obligations under the contract. Nor do the parties list 
a change in the market price as one of the contingencies giving rise to either 
party's "Right to Terminate Agreement." There is simply no provision in the 
contract for renegotiating the price.6

[¶16.]  The district court's analysis, 
reconciling section 18.1 (West Texas' remedies) 
with section 18.2 (Exxon's remedies), illuminates the parties' intent to create 
a long term relationship:

In [section 18.1, West 
Texas] gave up its right to cancel under [the Texas] U.C.C. § 2-711. Even in the event of a 
major breach by Exxon the contract continues; [West 
Texas] has the right to liquidated damages or to cover but it must 
continue to accept the coal Exxon may supply for up to ten years. * * 
*

* * * It is inconceivable 
that the parties could intend, in a paragraph (§ 18.2) specifying seller's 
rights and remedies, to enlarge the buyer's remedies far beyond those expressed 
or implied in another paragraph (§ 18.1) which specifically details the buyer's 
remedies.

A review of the 
entire contract convinces us that the parties intended to create a long term 
contractual relationship which would not be contingent upon the rise and fall of 
the market.7 

[¶17.]  With the above in mind, we now focus on 
the section in dispute. The first thing to note about section 18.2 is that it 
enumerates Exxon's remedies. West Texas' 
remedies are found in the previous section (section 18.1). The language in this 
section is broad enough that West Texas' 
repudiation (failure to buy coal) could result in either a "minor" or a "major" 
breach of the contract.8 According to the language, "If 
SELLER elects to cancel," appearing in section 18.2(b), the contract gives the 
right to Exxon, and not to West Texas, to elect 
whether or not to treat that repudiation as a "major" breach and cancel the 
contract. If, however, Exxon elects not to cancel the contract, West Texas' repudiation would remain a "minor" breach. 
This interpretation is consistent with the provision limiting Exxon to those 
remedies enumerated in the contract:

     (c) The remedies 
[minor and major breaches] of this Section 18.2 shall be SELLER's sole remedies 
for any breach of this Agreement by BUYER which involves failure to accept 
quantities specified hereunder.[9]

Our holding is 
narrow: The contract is unambiguous, and the intent of the parties, as evinced 
from the entire writing, is for Exxon to have the right to pursue either remedy 
if West Texas repudiates the 
contract.

[¶18.]  There is also some dispute about whether 
the contract requires West Texas to make annual 
payments if it repudiates the contract. The contract states:

     Notwithstanding any 
other provision in this Agreement, to assure SELLER a minimum level of return on 
its adjusted investment, * * * the minimum charge to be paid by BUYER under this 
Agreement, including any payments pursuant to Section 18.2 [Exxon's remedies], 
shall in no calendar year, including years in which either party is in force 
majeure or breach, total less than the sum of SELLER's total costs incurred 
and/or accrued in its performance under this Agreement * * *.

This provision 
requires West Texas to make annual payments 
under the contract regardless of whether there is a breach by either party. It 
is too early, however, to address the issue of damages which may or may not 
arise under this provision. Similarly, West 
Texas' argument that the "minor" breach damages formula cannot be 
applied to future contract years is better left for another day.

[¶19.]  West Texas asserts that Exxon's 
interpretation of the contract is not enforceable because it violates the Texas 
Uniform Commercial Code on "commercially reasonable time" and Texas public policy 
against splitting a cause of action. These two issues require further factual 
development, and, therefore, it would have been premature for the district court 
to have included them in its ruling on summary judgment.10

[¶20.]  The district court also ruled that, if 
section 18.2(a) damages provisions should be declared to be unenforceable, 
U.C.C. § 2-708 would govern the measure of damages. We have already discussed 
why issues related to enforcement should not be decided at this time. The 
district court's ruling on this issue is reversed.

[¶21.]  Exxon claims the district court erred 
when it ruled that, in interpreting the contract, it would not consider the 
extrinsic evidence submitted by Exxon. The district court based its ruling on 
its determination that the contract was unambiguous and that extrinsic evidence 
was, therefore, unnecessary. Exxon has not demonstrated that this ruling 
constitutes an abuse of the district court's discretion to admit evidence. L.U. 
Sheep Company v. Board of CountyCommissioners of County of Hot 
Springs, 790 P.2d 663 (Wyo. 1990).

[¶22.]  We turn now to the issue raised in 
Exxon's cross-appeal:

     Whether the trial 
court erred by dismissing Counts II and III of plaintiff's complaint as 
nonjusticiable even though the parties had joined issue on those claims and even 
though the purportedly "mooting" events were the eleventh-hour concessions of 
the defendant, made for the apparent purpose of preserving the defendant's 
freedom to relitigate the same issues against the plaintiff in another 
forum.

[¶23.]  Exxon also sought a declaration that (1) 
West Texas' telephone calls did not comply with the contract's provisions for 
timely, sufficient written notice of force majeure and that (2) West Texas has 
no express, implied, or other contractual right to carry over a credit. The 
district court ruled that "there is presently no justiciable controversy between 
the parties" and granted West Texas' motion to 
dismiss.

[¶24.]  Before the district court may grant 
declaratory relief, a justiciable controversy must exist. See Wyo. Stat. §§ 1-37-102 to 
-103 (1988). In Police Protective Association of Casper v. City of Casper, 575 P.2d 1146, 1149-50 (Wyo. 1978), we 
stated:

[A] declaratory-judgment 
action will not lie unless there is an enforceable contract right - that is - 
the contract must be a valid agreement before a justiciable issue concerning its 
provisions may be framed for declaratory-judgment purposes.

[¶25.]  The facts reveal an ongoing justiciable 
controversy between the parties over their interpretation of the force majeure 
and carry over credit issues. In a 1988 letter agreement, the parties settled 
their previous dispute on the issues of force majeure and carry over credit. 
This agreement did not resolve any future disputes which may arise on these 
issues. According to a 1990 affidavit by Exxon's sales manager, West Texas continues to ignore the contractual requirement 
compelling it to send written notices and instead notifies Exxon of claimed 
force majeure events via telephone calls.

[¶26.]  Here, we have a binding contract which 
gives Exxon certain enforceable rights. Interpretation of the contract will 
terminate the controversy of whether telephone calls comply with the requirement 
for written notices. See § 1-37-103 (permits the court to resolve "questions" of 
contract construction and to declare the parties' rights). Interpretation of the 
contract will also promote the purpose of declaratory relief "to settle and to 
afford relief from uncertainty and insecurity with respect to legal relations, 
and [it] is to be liberally construed and administered." Wyo. Stat. § 1-37-114 
(1988). The parties' contract states that written notice is required when 
"either party is prevented, or is delayed, wholly or in part, from carrying out 
any of its obligations under this Agreement due to force majeure or its effects, 
and if such party gives the other party hereto written notice hereof." 
(Emphasis added.) The contract also requires that, "[e]xcept as otherwise 
provided herein, all notices required or permitted to be given hereunder shall 
be in writing." The contract states that, when the written notice is due, "BUYER 
shall immediately inform SELLER of the anticipated quantity of coal it will not 
be able to accept and the length of time during which BUYER reasonably 
anticipates it will be able to take only reduced quantities." There is no 
language in the contract giving a right to West 
Texas to carry over a credit. Thus, we hold that telephone calls do 
not comply with the above contract provisions requiring prompt written notice 
for claimed force majeure events and that West 
Texas does not have a right to carry over a credit.

[¶27.]  Affirmed in part and reversed in 
part.

FOOTNOTES

1 The agreement consists 
of two documents entitled "Coal Sale and Purchase Agreement." Each is directed 
at a separate power plant. One of the plants, Oklaunion Unit No. 1, is now in 
operation. The other plant, Oklaunion Unit No. 2, has not been built. Unless it 
is necessary to distinguish between the two agreements, we will refer to them 
collectively as the contract.

2 Wyo. Stat. § 1-37-103 
(1988) of the Uniform Declaratory Judgments Act provides, in part, "Any person 
interested under a * * * written contract * * * may have any question of 
construction or validity arising under the instrument determined and obtain a 
declaration of rights, status or other legal relations."

3 Apparently, liquidated 
damages for a "minor" breach of the contract would be calculated on an annual 
basis, whereas payment of liquidated damages for a "major" breach would be made 
in a single lump sum.

4 Wyo. Stat. § 1-37-114 
(1988) provides broad discretion to the district court:

     The Uniform 
Declaratory Judgments Act is remedial. Its purpose is to settle and to afford 
relief from uncertainty and insecurity with respect to legal relations, and is 
to be liberally construed and administered.

See Holly Sugar 
Corporation v. Fritzler, 42 Wyo. 446, 296 P. 206 (1931).

5 Wyo. Stat. § 1-37-108 
(1988) provides, "The court may refuse to render a declaratory judgment where 
the judgment would not terminate the uncertainty or controversy giving rise to 
the proceeding." See Wyoming Humane Society v. 
Port, 404 P.2d 834 (Wyo. 1965).

6 West Texas could have 
protected itself from the risk that the market price for coal would fall below 
the price set in the contract if it had inserted a "reopener" provision into the 
contract. A market price reopener provision allows either party to renegotiate 
the contract price of the coal when it and the market price begin to head in 
opposite directions. The parties' second agreement for Oklaunion Unit No. 2 does 
include a reopener provision.

7 The Seventh Circuit 
Court of Appeals discussed the risks inherent to these types of long term 
agreements:

The normal risk of a 
fixed-price contract is that the market price will change. If it rises, the 
buyer gains at the expense of the seller * * *; if it falls, * * * the seller 
gains at the expense of the buyer. The whole purpose of a fixed-price contract 
is to allocate risk in this way.

Northern Indiana 
Public Service Company v. Carbon County Coal Company, 799 F.2d 265, 275 (7th 
Cir. 1986). The court concluded that "to excuse the buyer from the consequences 
of the risk he expressly assumed would nullify a central term of the contract." 
Id.

8 Repudiation could be 
either a "minor" breach because "BUYER fails to accept some or all of the coal" 
or a "major" breach because "BUYER's default amounts to twenty per cent (20%) or 
more."

9 Tex.Bus. & Com.Code 
Ann. § 2.719 (Vernon 1968) permits the parties to 
"substitute" their own contractual remedies for those provided in the 
Code.

10 
For instance, what is a "commercially reasonable time" depends upon the 
surrounding circumstances of the repudiation. What is a "commercially reasonable 
time" is a factor used in measuring the aggrieved party's damages. See Cosden 
Oil & Chemical Company v. Karl O. Helm Aktiengesellschaft, 736 F.2d 1064 
(5th Cir. 1984). We have already stated that we will not address issues related 
to damages. Similarly, whether Exxon will seek annual damages if West Texas 
repudiates the contract and whether that would violate Texas public policy may 
also depend upon the particular facts.