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Culture War Roundup for the week of February 17, 2025

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Another case I was peripherally involved with during my time in oil and gas involved a contractual dispute between Warren Steel and a coal company whose name I can't remember. (This is a grossly oversimplified version) Warren had an ongoing contract with the company that required them to deliver coal to the mill a few times a week. They were way behind on payments and owed hundreds of thousands of dollars. The coal company said they weren't getting any more shipments until they paid what was overdue. Warren sued the coal company for breach of contract arguing that future deliveries weren't conditioned on payment for prior deliveries. From here it gets a bit complicated. The typical remedy here would be for Warren to buy coal on the spot market and collect the price difference from the breaching coal company. Warren argued that their financial position was precarious (there was no denying this based on their payment history) and that they would be unable to secure credit to buy at sharply inflated spot market prices. If the coal company didn't make their next scheduled shipment, they wouldn't be able to make any steel, would have to shut down the mill, and any hope of them remaining operational would be gone. the court issued the TRO and told the coal company to make the delivery. In any event, Warren Steel filed for bankruptcy a few days later.

Am I alone in thinking this was pretty unfair to the coal company? I mean, there was clearly a serious risk that Warren wouldn't ever be able to pay, even upon bankruptcy liquidation, meaning the coal company was essentially being ordered to give them coal for free.

Like I said, this case was significantly more complicated than I made it out to be in the post. What the case actually turned on was a provision in the Uniform Commercial Code meant to address situations such as this. A complicating factor was that Warren wasn't even technically in arrears. The terms IIRC called for something like payment within 30 days plus escalating late fees after that, with breach not occurring until the bill was 6 months overdue. Warren had never once paid "on time" but had waited until the last minute and withheld the late fee. There was some argument about whether the coal company had waived that contract provision by accepting payment without protest, and the coal company was arguing that this was evidence that they were juggling their payments to see what they could get away with, and there were rumors of an impending bankruptcy, and that yes, an order requiring them to comply with the contract terms would essentially mean giving away something like $400,000 worth of coal for free.

The case boiled down to the UCC provision allowing the request for reasonable assurances of performance. The judge was sympathetic to the coal company, but he said that if they had concerns they could have requested reasonable assurances at any time, and that anticipatory repudiation of the contract wasn't proper. Then the argument became how long Warren had to provide the assurances and whether the coal company could suspend performance until it received assurances. This is where the whole irreparable harm thing came in, with Warren saying that if they didn't get the Friday shipment that over a thousand employees would be laid off by the end of the weekend and the mill would be idled indefinitely. The final ruling was that the coal company had to make the shipment but that Warren had to make reasonable assurance before the next shipment, and he would dismiss the breach of contract suit as soon as the shipment had been received.

In a general sense, no, it isn't fair, which is why the UCC has provisions for dealing with that kind of situation. If the coal company had concerns it could have asked for assurances a week prior. In any business transaction, there's always some chance that the other party isn't going to hold up his end of the bargain, and that's the risk you take doing any business. The coal company could have protected itself with a condition requiring prepayment back at the formation stage, but they didn't, even though Warren was only a few years removed from coming out of a previous bankruptcy. Up to this point, Warren had held up their end of the deal, just not in a way that inspired much confidence, and there were rumors that they were insolvent. Furthermore, if Warren had already filed for bankruptcy this question wouldn't have even come up, because suppliers have to keep honoring contracts during a bankruptcy.

Warren had never once paid "on time" but had waited until the last minute and withheld the late fee.

How come they hadn't repudiated the contract if they didn't pay the late fees?