from the Clark Circuit Court. The Honorable Andrew Adams,
Judge. The Honorable William A. Dawkins, Jr., Magistrate.
Cause No. 10C01-1402-CC-272
ATTORNEYS FOR APPELLANT J. Christopher Janak Bradley M. Dick
Paul D. Vink Bose McKinney & Evans LLP Indianapolis,
ATTORNEYS FOR APPELLEE Mark J. Crandley Bart A. Karwath
Nicholas K. Kile Barnes & Thornburg, LLP Indianapolis,
Shepard, Senior Judge
Watson Water Company, Inc., and Indiana-American Water
Company, Inc., are water utility companies serving customers
in Clark County. Watson and IAWC executed an agreement in
1997, later amended in 2003, for the construction of a water
main, and then, additionally, for the purchase of a certain
volume of water. When Watson stopped performing under the
terms of the contract, IAWC sued Watson for breach and for
failure to properly exercise a right-of-first-refusal clause
in the contract. Watson counterclaimed, arguing that it was
due a refund of payments made to IAWC beyond the cost of
construction of the water main.
After a two-day bench trial, the court issued findings and
conclusions, holding Watson liable under the contract and
issuing declaratory relief. It concluded that the agreement
should remain in place and that Watson was obligated to
purchase water from IAWC under the terms of the contract.
Watson now appeals.
The parties raise numerous issues, which we consolidate and
restate as follows:
I. Whether the findings and conclusions support a judgment
against Watson for breach of contract;
II. Whether the prior-breach doctrine applies and whether the
trial court correctly interpreted the right-of-first-refusal
III. Whether the Uniform Commercial Code applies to this
and Procedural History
On April 28, 1997, Watson and IAWC executed a water supply
agreement. Appellee's App. Vol. II, pp. 3-7. IAWC agreed
to provide to Watson during the term of the contract, or any
renewal or extension periods, "potable water in such
quantity as may be required by [Watson]." Id.
at 3. IAWC also agreed to provide all of Watson's
"future water supply requirements above and beyond the
capacity of its present well fields." Id. at 4.
The term of the agreement was for forty years, or until 2037,
with automatic ten-year renewals, unless notice was provided
within a time set forth by contract. Id. at 6.
Watson agreed to pay IAWC for all water used, and IAWC agreed
to submit monthly bills for water delivered. Id. at
5. The agreement set forth when payment was due and made
provisions for additional fees if the bills became
A right-of-first-refusal clause was included and reads as
In the event [Watson] determines either to sell its entire
water system or any part thereof or to arrange for the
operation of part or all of the system by a third party under
contract, or contemplates a new or revised water purchase
agreement, [Watson] agrees that [IAWC] shall have a right of
first refusal to purchase, or provide contract operations, or
to sell water to [Watson] on the same terms and conditions
offered by any third party. [IAWC] shall have thirty (30)
days from the receipt of notice from [Watson] to
exercise its refusal right and agree to purchase or to
provide contract operations pursuant to such terms and
conditions. If [IAWC] fails to exercise its refusal right,
then such refusal right will terminate. For purposes
of this paragraph, a transaction with a third party excludes
a reorganization or change in the type of Corporation or
Company through which the Corporation or Company, which is to
be reorganized, remains in effective control of the
Id. at 6 (emphasis added).
In late 2003, Watson and IAWC executed an amendment, which
explicitly stated it "shall amend the Water Supply
Agreement executed between the same parties effective April
28, 1997 (the "Agreement")." Id. at
9. As a joint competitive matter, the parties agreed to allow
Watson to purchase water temporarily from Water One, Inc., to
serve the Quarry Bluff Subdivision in Clark County. IAWC did
so to allow it "to plan, construct, and make operational
a new water main to serve the Quarry Bluff Subdivision in
Clark County." Id. IAWC was to make all
reasonable efforts to have the main operational within one
year of the amendment's execution. Watson agreed to
perform certain other tasks as respects that joint venture,
but these are not points of contention in this appeal.
Once the main was operational, Watson agreed to purchase from
IAWC a minimum annual volume of water of 77, 300, 000 at the
tariff rate established by the Indiana Utility Regulatory
Commission. The amendment explained that the parties arrived
at that volume based on the assumption that IAWC would have
made a capital investment of $600, 000. The parties agreed
that if the actual cost varied from the assumed cost, the
minimum purchase volume would be adjusted. In 2007, the
minimum volume was increased to 108, 300, 000 gallons per
year because IAWC's actual capital investment was $921,
The parties also set forth the following addition to the 1997
Agreement's right- of-first-refusal clause:
[If] Paragraph #14 of the Agreement is invoked, and [IAWC]
either fails to exercise its refusal rights and/or does not
become the purchaser, contract operations provider, or seller
of water to [Watson] as provided in Paragraph #14, [Watson]
agrees to immediately pay to [IAWC] its actual cost to plan
and construct the main and make it operational.
Id. at 10. The amendment explicitly stated,
"All other terms and conditions of the Agreement between
the parties shall remain in full force and effect."
In 2005, the water main extension became operational. As
respects the minimum volume purchase requirement, the
parties' course of performance was inconsistent. In 2006
and 2009, Watson did not take and pay for the minimum volume,
and IAWC did not bill full price for the difference. In 2007
and 2008, Watson took the minimum volume. In 2010 and 2011,
Watson did not take the minimum volume, IAWC billed for the
difference, and Watson paid the difference. Beginning in 2012
to 2015, Watson did not take the minimum volume and IAWC
billed for the difference, but Watson refused to pay full
price for the difference.
On January 17, 2012, Watson and River Ridge Development
Authority executed a reciprocal water supply agreement.
Appellant's App. Vol. II, pp. 84-86. Put simply, both
Watson and RRDA were willing, in "cases of emergency
from time to time to buy water" and sell it to each
other on an "'as needed' basis."
Id. at 84. On October 26, 2012, the parties executed
an addendum to the reciprocal water supply agreement to
document the cost of the construction and installation of a
connection point. Appellant's Br. at 14.
About July 23, 2013, Watson and RRDA executed a first
amendment to the reciprocal water supply agreement. Tr. Vol.
XII. The amendment resolved a conflict in the differing rates
each party charged for water such that when water was needed,
the lowest rate charged by either party at that time, after
documentation was exchanged, would reflect the rate billed.
IAWC sued Watson on February 27, 2014. As amended, the
complaint alleged breach of contract by Watson's failure
to purchase the required annual minimum amount of water from
IAWC. IAWC sought damages for Watson's breach and a
declaratory judgment that the contract remained in force.
Watson counterclaimed arguing that it should be repaid all
money above the cost of the construction of the main. IAWC
alleged that Watson's outstanding balance by the end of
2015, excluding late charges and attorneys' fees was
$813, 271.66. Watson, on the other hand, alleged under its
theory that it was only required to pay for construction of
the water main, and that it had overpaid IAWC $376, 592.87.
Sometime in 2014,  after IAWC had filed suit, RRDA and Watson
executed a second amendment to their reciprocal water supply
agreement. Appellee's App. Vol. II, pp. 20-24. The
parties agreed as follows:
RRDA as Exclusive Provider of Watson Water's Future
Needs. Subject to the terms of the Agreement and any
rulings, orders, and/or decisions by administrative agencies
or courts with legal jurisdiction (including, but not limited
to, any settlement reached by Watson Water in its pending
litigation with Indiana-American Water Co., Inc., Cause No.
10C01-1402-CC-272), which may overrule, invalidate,
supplement, or otherwise modify the Agreement, including this
Second Amendment, Watson Water agrees that RRDA shall be the
exclusive source of Watson Water's future water purchases
when it is unable to internally provide for the water needs
of its customers. In the event Watson Water contemplates a
new or revised water supply agreement, Watson Water agrees
that RRDA shall have a right ...