770 F.2d 879 (10th Cir. 1985)
International Minerals and Chemical Corporation (IMC), a New York corporation operating a potash mine and processing facility near Carlsbad, New Mexico, entered into a natural gas supply contract with Llano, Inc., a New Mexico corporation, in 1972.1 The contract remained in effect until June 30, 1982, after a single amendment in 1975 concerning pricing, and obligated IMC to take or pay for a minimum daily average of 4800 million BTU's of gas pursuant to paragraphs 6 and 7.2
At the time the contract was made, IMC operated nine submerged combustion evaporators (Ozarks) at its plant.3 These Ozarks were fitted with stacks that emitted large amounts of fine particulates, resulting in air pollution.4 The Ozarks, when they had been in operation, had consumed approximately 60% of IMC's natural gas requirements.5
In December 1978 the New Mexico Environmental Improvement Board promulgated Regulation 508 limiting emissions from potash processing equipment to 30 pounds per hour by December 31, 1982, with alternative technology options allowing phased compliance.6 IMC participated with the EIB in the Rule 508 rulemaking process, and was especially instrumental in getting the alternative provisions of paragraphs D and E included.7 A timely statement of intent to adopt the solar evaporation process and petition for compliance schedule were filed with the EIB on March 30, 1979.8 The EIB adopted a schedule of compliance for IMC on July 13, 1979.9 IMC experimented with the solar evaporation process for about a year, and eventually concluded that this process, too, was technically infeasible.10 In May, 1980, IMC sought from EIB an amended compliance schedule to give IMC a chance to experiment with a "salting out process" (SOP), whereby the potassium sulphate would be extracted from solution by chemical precipitation.11 An amended compliance schedule for IMC was adopted by EIB on July 11, 1980.12
IMC notified Llano by telephone on May 21, 1980 that testing would begin on June 2 and that gas consumption would be 50-60% of normal usage during that time.13 This was followed by a second telephone call in August, informing Llano that testing would continue.14 IMC's tests of the SOP were successful, and on March 20, 1981, IMC advised the EIB that the SOP was commercially operational.15 The result of IMC's change to the SOP in response to Rule 508 was that the Ozarks were shut down and IMC did not take its minimum obligation of natural gas during the last eighteen months that the contract was in effect (January, 1981-June, 1982).16
The district court granted judgment in favor of Llano and against IMC.17 The court found that IMC had no legal excuse for non-performance.18 It ordered IMC to pay Llano $3,441,869.79.19
IMC appealed the judgment to the United States Court of Appeals for the Tenth Circuit.20
Whether the force majeure clause in paragraph 15 excused IMC from its take-or-pay obligations after the promulgation of Regulation 508?21
The force majeure provision in paragraph 15 excuses a party from performance when failure or delay is occasioned by events such as interference of civil and/or military authorities.22 The party must give immediate notice of all pertinent facts and take reasonable steps to prevent the causes.23 When a promisor can perform a contract in either of two alternative ways, the impracticability of one alternative does not excuse the promisor if performance by means of the other alternative is still practicable.24
No. IMC's notice to Llano was inadequate in that no reasons were given as to why gas consumption would be decreased.25 Even if we assume arguendo that Rule 508 prevented IMC from taking the gas, Rule 508 would still pose no obstacle to IMC's ability to pay.26 Since this is a take or pay contract, the buyer can perform in either of two ways by taking the gas and paying or by paying the minimum bill.27
The force majeure clause in paragraph 15 did not excuse IMC from its take-or-pay obligations after the promulgation of Regulation 508.28
Whether the adjustment of minimum bill clause in paragraph 16 required an adjustment to IMC's minimum purchase requirements because IMC was unable to receive gas due to the environmental regulation?29
Paragraph 16 provides that if the buyer is unable to receive gas as provided in the contract for any reason beyond the reasonable control of the parties, an appropriate adjustment in the minimum purchase requirements specified in paragraph 7 shall be made.30 The term 'unable' is synonymous with 'impracticable' as that term is used in the common law and in Section 2-615.31
Yes. Inasmuch as there was no technically suitable way for IMC to comply with the EIB's Regulation 508 without shutting down the Ozarks and changing to the SOP, with the concomitant decrease in natural gas consumption, the adjustment provision of paragraph 16 of the contract was triggered.32 IMC was unable, for reasons beyond its reasonable control, to receive its minimum purchase obligation of natural gas between January 1, 1981 and June 30, 1982; thus, the minimum bill should have been adjusted appropriately.33
The adjustment of minimum bill clause in paragraph 16 required an adjustment to IMC's minimum purchase requirements because IMC was unable to receive gas due to the environmental regulation.34
Whether IMC provided adequate notice to Llano to invoke the protections of the force majeure provision?35
To invoke the protections of the force majeure provision in paragraph 15, the party whose performance is affected must immediately notify the other party of all pertinent facts.36
No. IMC notified Llano by telephone on May 21, 1980 that testing would begin and gas consumption would be reduced.37 This was followed by a second telephone call in August, informing Llano that testing would continue. In neither of these calls was Llano informed that the testing was in response to environmental problems, or that the reduced gas consumption might be permanent because of a force majeure situation.38 Adequate notice was required to trigger the protections of the provision.39
IMC did not provide adequate notice to Llano to invoke the protections of the force majeure provision.40