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Henry v. Ballard & Cordell Corp.

Louisiana Supreme Court
418 So. 2d 1334 (La. 1982)


Facts

W. F. Henry (plaintiff) was the lessor in a series of oil and gas leases, under which Ballard & Cordell Corporation (Ballard) (defendant) was the lessee. The leases provided that Henry would be entitled to a royalty calculated as a percentage of the market value of any gas sold from the leaseholds. In 1961, Ballard signed a 20-year gas-sales contract with American Louisiana Pipeline Company (ALPC). The sales contract contained a price-escalation clause, allowing the sales price to increase over the course of the contract, and was negotiated at arm’s length and in good faith. ALPC was the only purchaser available to Ballard at this time. Ballard paid Henry royalties calculated based on the price of gas sold under the sales contract. In 1976, the price under the sales contract fell below the market value for gas on the open market. In 1978, Henry brought suit for unpaid royalties, arguing that “market value” as contained in the lease referred to the current market value on the open market, and should be determined each day gas was produced. Ballard presented evidence that 20-year sales contracts were industry custom and that the long-term sales contract had been insisted upon by ALPC. The trial court agreed with Henry’s interpretation. The court of appeal reversed. Henry appealed.

Rule of Law

Issue

Holding and Reasoning (Blanche, J.)

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