Henry v. Ballard & Cordell Corp.

W. F. Henry (plaintiff) leased land to Ballard & Cordell Corporation (Ballard) (defendant) for oil and gas production, with royalties set as a percentage of the market value of gas sold. Ballard signed a 20-year gas-sales contract with a price-escalation clause with the only available purchaser, negotiated at arm's length and in good faith, and paid Henry royalties based on that contract price. When the contract price fell below the open-market price in 1976, Henry sued for unpaid royalties, arguing "market value" meant the current open-market price on each day of production. Ballard showed that 20-year sales contracts were standard industry practice and that the long-term deal had been insisted upon by the buyer. The trial court sided with Henry, and the court of appeal reversed.