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The interpretation of a contract is the determination of the common intent of the parties. La. Civ. Code Ann. art. 2045. When the words of the contract are clear and unambiguous and lead to no absurd consequences, no further inquiry may be made into the parties' intent. La. Civ. Code Ann. art. 2046. The fact that one party can, in hindsight, create a dispute about the meaning of a contractual provision does not render the provision ambiguous. The court must give effect to the ordinary meaning of the words and may not create an ambiguity where none exists.
Appellant Esplanada Oil & Gas, Inc. and appellee Templeton Energy Income Corporation negotiated a deal concerning certain oil and gas properties. One of the conditions for the fixed price purchase was that there would be no adverse material change to the property or to appellant's interest in it prior to closing. While the deal was pending, the price of oil plunged and appellee repudiated the agreement. Appellant filed an action for breach of contract. The trial court gave judgment to appellee on the basis that the drop in oil prices created an "adverse material change" in the property. The trial court ruled that the other conditions of sale were met, appellee's assertions to the contrary notwithstanding. Appellant challenged the judgment, contending that the phrase “adverse material change” referred to changes to the Properties themselves and not to a decline in the value of the Properties resulting from a drop in the market price of oil. Appellee cross-appealed, contending that the district court erroneously concluded that three other conditions precedent were fulfilled or should be deemed fulfilled.
The court noted that the interpretation of a contract was the determination of the common intent of the parties. When the words of the contract were clear and unambiguous, no further inquiry may be made into the parties’ intent. The court must give effect to the ordinary meaning of the words and may not create an ambiguity where none existed. In this case, the court held that the district court found an ambiguity where none existed. The letter agreement between the parties provided that there shall no occur adverse material change to the Properties prior to Closing; Properties were defined as consisting of a list of wells and mineral leases with Esplanade’s corresponding working interests and net revenue percentages. Hence, the "adverse material change" language referred to matters of title and the like and did not encompass a drop in oil prices. The essential purpose of the price agreement was to fix the value at which the trade would later be finalized. If increases or decreases in market value were to govern, the price term would have been redundant. Therefore, Templeton's attempt to pour new content into the language of the condition in an effort to avoid market fluctuations was unavailing. Anent the second issue, the court held that Templeton’s contention that the doctrine of force majeure relieved it of its obligation to comply with the letter agreement did not hold water. According to the court, the decline in the market price of oil did not make Templeton’s performance “impossible,” it merely made Templeton’s performance unprofitable. Hence, the letter agreement was binding, and Templeton’s refusal to close the transaction amounted to breach of contract. The court directed the trial court to determine damages and to enter judgment for Esplanade.