Ashland Oil, Inc. v. Donahue, CC897

Decision Date30 March 1976
Docket NumberNo. CC897,CC897
Citation159 W.Va. 463,223 S.E.2d 433
CourtWest Virginia Supreme Court
Parties, 18 UCC Rep.Serv. 1129 ASHLAND OIL, INC. v. Forrest Rex DONAHUE.

Syllabus by the Court

1. A lease agreement and a dealer contract between the same parties, relating to the operation of a gasoline station at identified premises, providing for the same initial term and automatic extensions from year to year, providing for the sale and delivery of gasoline, and with rental provisions directly relating to the sale and delivery of gasoline, will be construed together and considered as forming an agreement involving a transaction in goods which is governed by the Uniform Commercial Code--Sales.

2. Termination provisions of an agreement involving the sale of goods which, if applied strictly, are so one-sided as to lead to absurd results, will be declared unconscionable.

3. When a termination provision of an agreement involving the sale of goods is determined to be unconscionable, the court, under the provisions of W.Va.Code 46--2--302, must then determine whether to refuse to enforce the agreement or to enforce it without the unconscionable clause or to limit the unconscionable clause so as to avoid an unconscionable result, and for the purpose of making this determination, the court should afford a reasonable opportunity to both parties to present evidence as to its commercial setting, purpose and effect of the transaction.

4. When a termination clause of an agreement involving the sale of goods has been declared unconscionable, and the intention of the parties with reference to termination is thereby rendered vague and ambiguous, defenses raised in the pleadings regarding the issue of termination are proper, and parol evidence may be received in support thereof insofar as it may explain or supplement the writings forming the agreement with reference to a course of dealing or usage of trade or course of performance tending to eliminate the vagueness and ambiguity created by the unconscionability of the termination clause.

Jenkins, Schaub, Fenstermaker & Wood, Norman K. Fenstermaker, Huntington, for plaintiff.

Greene, Ketchum, Baker & Mills, Menis E. Ketchum, Huntington, for defendant.

WILSON, Justice:

The Circuit Court of Cabell County, West Virginia, on its own motion certified to this Court the question of the legal sufficiency of certain defenses asserted by the defendant, Forrest R. Donahue, in an action of unlawful detainer brought against him by the plaintiff, Ashland Oil, Inc., for the purpose of recovering possession of premises previously leased by Ashland to Donahue for the operation of a gasoline service station.

In his answer, Donahue asserted certain defenses which will be hereinafter set forth in detail. By order entered on April 28, 1975, the lower court granted Ashland's motion to strike those defenses. Thereupon, Ashland moved for summary judgment pursuant to Rule 56 of the West Virginia Rules of Civil Procedure. The lower court, finding no matters to be considered outside the pleadings, treated it as a motion for judgment on the pleadings under Rule 12(c) and on May 13, 1975, entered an order granting immediate possession of the premises to Ashland.

The course of dealing out of which this controversy arose began on October 28, 1968, when Ashland and Donahue entered into a lease agreement and a dealer contract, both of which provided for a term of one year from and after November 1, 1968, and thereafter from year to year subject to termination provisions which will be hereinafter more particularly described.

Both documents related to premises on Route 60 in Ona, Cabell County, West Virginia, which were to be used and operated as a gasoline station. The lease agreement provided that Donahue was required to pay as rental a sum of money equal to one cent per gallon on each gallon of Ashland A--Plus gasoline and one cent per gallon on each gallon of Ashland gasoline, but in no event was the rental to be less than $125 per month.

The term, renewal provisions and termination provisions of the lease agreement as set forth in Paragraph II thereof are as follows:

'This lease shall be for a term of one year beginning Nov. 1, 1968, and ending Oct. 31, 1969, and shall be extended from year to year unless either party shall notify the other party in writing not less than ten (10) days before the expiration of any yearly period that it has elected not to extend same; provided, however, in the event the Lessor holds said premises under lease, the term of this lease shall not extend beyond the term of the lease under which the Lessor holds same, and provided further that either party hereto may cancel and terminate this lease on ten (10) days' written notice to the other party at any time during the primary one (1) year term or during any extension thereof.'

The term, renewal provisions and some of the termination provisions of the dealer contract as set forth in Paragraph VII thereof are as follows:

'This agreement shall be in effect for a term of 1 years from and after Nov. 1, 68, (sic) and thereafter from year to year unless either party shall have given to the other party, not less than sixty (60) days prior to the expiration of any yearly period, notice of its election to terminate same at such expiration.'

However, the dealer contract provided for additional termination provisions, available only to Ashland (designated as Seller), and set forth in Paragraph VI of the dealer contract as follows:

'Buyer agrees to co-operate fully in maintaining the quality, good name and reputation of the products of the Seller, and if at any time Buyer shall default in any agreement herein or shall indulge in practices, which, in the opinion of Seller, will tend to impair the quality, good name or reputation of the products, or the good will which has been built up by the Seller, then this agreement, upon ten days' written notice to Buyer, may be terminated by the Seller, in which event Buyer shall surrender promptly to Seller all pump globes, signs, and other advertising matter displaying such trade names, as well as all of Seller's equipment for the storage, dispensing and sale of its products. . . .'

The record shows that on February 7, 1975, by separate letters, Ashland terminated both the dealer contract and the dealer lease agreement effective ten days from Donahue's receipt of said letters, and upon Donahue's refusal to vacate the premises, Ashland instituted this action to recover possession thereof.

In his answer to Ashland's complaint Donahue asserted the following defenses which were stricken by the court below as legally insufficient:

'5. Defendant alleges that there was an implied covenant in the lease agreement between the parties and there was an agreement upon the part of the plaintiff not to terminate the relationship between the parties without good cause and these instruments must be reformed to include such covenant and defendant further alleges that he has substantially performed his obligations to the plaintiff under these agreements and there is not good cause to cancel his lease.

'7. Defendant further alleges that the plaintiff also entered into a contract with him at the same time it entered into the agreement attached to the complaint, a copy of the dealer contract, being attached hereto, and that the 2 agreements together are part of an intergrated (sic) business relationship and that in fact that the parties were engaged in a joint venture and by said second agreement, and other representations, there was an implied covenant and relationship as above set forth in this answer.

'8. That the defendant has been a good operator and has built up his business, even with the opposition of the plaintiff, and that he was informed that it was not the plaintiff's policy to cancel dealer lease agreements or contracts except for good cause and based upon these representations he did enter into the agreement with the plaintiff and that they may not be cancelled unless they can show good cause for its termination.

'9. Defendant alleges that the 10 day cancellation clause contained in the agreement attached to the complaint is void as against public policy because it is grossly unfair, the plaintiff being in a grossly superior bargaining position and that said cancellation provision is void as against public policy of the State of West Virginia and that said plaintiff does not have the right to cancel said lease agreement in the absence of showing that the defendant has failed to substantially perform his obligations under the lease and dealer contract agreement for good cause.'

It is Ashland's contention that its action in unlawful detainer rests solely on the lease agreement which is clear and unambiguous in its terms, is not subject to interpretation and cannot be varied or contradicted by parol evidence in the absence of a showing of fraud or mistake. In support of its contention, it relies upon the cases of Nettles v. Imperial Distributors, 152 W.Va. 9, 159 S.E.2d 206 (1968); Berkeley Co. Pub. Ser. v. Vitro Corp., 152 W.Va. 252, 162 S.E.2d 189 (1968); International Nickel Co. v. Commonwealth Gas Co., 152 W.Va. 296, 163 S.E.2d 677 (1968); Wyckoff v. Painter, 145 W.Va. 310, 115 S.E.2d 80 (1960); Bischoff v. Francesa, 133 W.Va. 474, 56 S.E.2d 865 (1949); Hall v. Burns, 113 W.Va. 820, 169 S.E. 522 (1933); Leckie v. Bray, 91 W.Va. 456, 113 S.E. 746 (1922); Johnson v. Burns, 39 W.Va. 658, 20 S.E. 686 (1894); and Clator v. Otto, 38 W.Va. 89, 18 S.E. 378 (1893).

Donahue, however, contends that the lease and the dealer contract, executed by the same parties on the same date and involving the same subject matter, must be regarded not as separate and distinct documents but rather as documents which must be considered together as constituting an integrated business relationship.

Since the establishment of this integrated business relationship is critical to any review of the...

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