Union Pacific Railroad\'s long-term coal-hauling contract with electric utility
ID: 394846 • Letter: U
Question
Union Pacific Railroad's long-term coal-hauling contract with electric utility WEPCO provided that if the railroad is prevented by "an event of Force Majeure" from reloading empty coal cars (after it has delivered coal to WEPCO) with iron ore destined for Geneva, Utah, it can charge the higher rate that the contract makes applicable to shipments that do not involve backhauling. The iron ore that the railroad's freight trains would have picked up in Minnesota was intended for a steel mill in Utah. The steel company was bankrupt in 1999 when the parties signed the contract. In November 2001 the steel mill shut down and closed for good February 2004. Thereafter, the railroad wrote WEPCO to declare "an event of Force Majeure," and that henceforth it would be charging WEPCO the higher rate applicable to shipments without a backhaul. WEPCO sued the railroad for breach of the force majeure provision in the contract, contending that the railroad waited over two plus years to increase rates. The railroad contends that the clause should be interpreted as written. Decide.
Explanation / Answer
In this case the court will rule in favor of the Union Pacific Railroad.
As per the doctrine of impossibility a party to a contract will be excused from performance when it becomes unreasonably costly to carry out the contractual obligations. As per this doctrine the contract can be rescinded without liability. This is because nonperformance will not be a breach if the nonperformance is caused by those circumstances whose non-occurrence was a basic assumption upon which the contract was made.
The force majeure clause specifies those failures that will excuse performance. The force majeure clause has to be interpreted as per the language and context of the clause. It should not be interpreted with reference to its name.
One thing that should be considered here is that the railroad did not attempt to make the rate change retroactive and had not invoked the force majeure clause when the steel mill first shut down. This shows that the shutting down of the steel mill did not prevent the railroad from charging a low rate. But the contract says that the railroad may charge a higher rate if it is prevented from reloading its cars. Thus the court will decide on favor of Union Pacific Railroad by interpreting as the language of the clause.
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