Face Challenges Confidently

050 Esplanade Oil & Gas, Inc. v. Templeton Energy Income Corp.

Tuesday, September 1st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of some significance to you.
Esplanade Oil & Gas v. Templeton Energy, 889 F.2d 621 (5th Cir. 1989), construes the effect of a typical condition found in an agreement to sell producing properties. As a condition to closing, the agreement provided that “[t]here shall occur no adverse material change to the properties . . . prior to Closing.” There was a precipitous drop in the price of oil prior to closing, and purchaser refused to close.
Held: The risk of a change in the price of the commodity was on the purchaser, and there was no material change in the properties. Hence, there was no failure of condition and purchaser was obligated to close.
The significance of the case is that the market risk of price fluctuations will burden the purchaser of producing properties, unless the purchase contract expressly provides otherwise.