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Note: Marathon Canada Corp. (Seller) terminated the remainder of a contract to sell gas to Enron Canada Corp. (Buyer), after Buyer's credit status was downgraded below the level stipulated in the contract. Buyer's junk credit status was a Triggering Event of Material Adverse Change under the contract allowing for termination. However, section 9.3 of the contract stated:

Such Material Adverse Change shall not be considered to be a Triggering Event if the Affected Party establishes, and maintains throughout the term hereof, a Letter of Credit (naming the Notifying Party as the beneficiary thereof) in an amount equal to the greater of (i) the Notifying Party's Liquidated Damages or (ii) if the Notifying Party is the Seller, the aggregate of the amounts Seller is entitled to receive during the sixty-Day period preceding the Material Adverse Change.

Buyer did not attempt to secure a letter of credit, and Seller terminated the contract and sued Buyer for outstanding payments. Buyer counterclaimed for breach of contract. The trial court ruled that since Buyer failed to secure a letter of credit either before the downgrade of credit status or within two business days afterward, a Triggering Event of Material Adverse Change had occurred and awarded $560,007.94 in damages to Seller. The trial court entered judgment for Seller and dismissed Buyer's counterclaim. On appeal, the Alberta Court of Appeal, in a Per Curium decision, affirmed.

The appellate court dismissed Buyer's attempt to interpret the contract to include "(a) industry custom and practice or 'commercial context', (b) good faith, (c) the knowledge or motives of Robert Shepherd, Marathon's president in 2001, who did not testify and (d) alleged unjust enrichment of Marathon due to the 'one-way agreement'." The court ruled that the trial judge did not misdirect himself on law in interpreting the agreement, because the terms were unambiguous and did not require consideration of commercial context to understand the meaning and because there was no basis to interpret a "good faith" clause into the agreement post-facto.

[JEB/mcb]

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