Shell Oil Co. v. Marinello

• Decision Date: 11 July 1973
• Citation: 63 N.J. 402,307 A.2d 598
• Parties: , 67 A.L.R.3d 1291, 1973-2 Trade Cases P 74,604 SHELL OIL COMPANY, a corporation of the State of Delaware, Plaintiff-Appellant, v. Frank MARINELLO, doing business as Garden Shell Station, Plaintiff-Respondent. Frank MARINELLO, doing business as Garden Shell Station, Plaintiff-Respondent, v. SHELL OIL COMPANY, a corporation of the State of Delaware, Defendant- Appellant.
• Court: New Jersey Supreme Court

Page 402

63 N.J. 402

307 A.2d 598, 67 A.L.R.3d 1291,

1973-2 Trade Cases P 74,604

SHELL OIL COMPANY, a corporation of the State of Delaware, Plaintiff-Appellant, v. Frank MARINELLO, doing business as Garden Shell Station,

Plaintiff-Respondent.

Frank MARINELLO, doing business as Garden Shell Station, Plaintiff-Respondent, v. SHELL OIL COMPANY, a corporation of the State of Delaware,

Defendant- Appellant.

Supreme Court of New Jersey.

Argued June 4 and 5, 1973.

Decided July 11, 1973.

William Simon, Washington, D.C., of the District of Columbia bar, for appellant (Michael W. Graney, of the District of Columbia bar, and Andrew S. Polito, Newark, on the brief; Michael M. Levy, Howrey, Simon, Baker & Murchison, Washington, D.C., of the District of Columbia bar; Michael D. Loprete, Mattson, Madden, Polito & Loprete, Newark, attorneys).

Joseph R. Mariniello, Fort Lee, for respondent (Fierro, Fierro & Mariniello, Fort Lee, attorneys).

The opinion of the Court was delivered by

SULLIVAN, J.

This case involves the interpretation of a lease and a dealer agreement entered into between Shell Oil Company (Shell) and Frank Marinello (Marinello), one of its service station operators, and a determination of the extent of Shell's right to terminate such lease and agreement.

Shell, a major oil company, is a supplier of motor vehicle fuels and automotive lubricants under the trade name 'Shell.' It also supplies tires, batteries and accessories (TBA) to its dealers for resale. It products are sold in hundreds of Shell service stations throughout the State. Many of the service station locations are controlled by Shell through long-term leases. In the past, Shell's practice has been not to operate these stations itself, but to lease the station premises to an operator with whom it enters into a dealer or franchise agreement.

This is essentially the relationship before us for consideration. Shell controls a service station located at Route #5 and Anderson Avenue, Fort Lee, Bergen County. In 1959 it leased the station to Marinello, ¹ and at the same time entered into a written dealer agreement with the lessee. The original lease was for a one-year term and was regularly renewed in writing for fixed terms. The last lease between Shell and Marinello is dated April 28, 1969 and runs for a three-year term ending May 31, 1972, and from year-to-year thereafter, but is subject to termination by Marinello at any time by giving at least 90 days notice and by Shell at the end of the primary period or of any such subsequent year by giving at least 30 days notice.

The dealer agreement, also originally for a one-year term, was renewed in writing so as to coincide with the existing lease. Each agreement provided that Shell would supply its products to the dealer for resale at the Route #5 service station in question. The last dealer agreement is also dated April 28, 1969, and is for a three-year term ending May 31, 1972 and from year-to-year thereafter, but is subject to termination at any time by giving at least 10 days notice.

By letter dated April 14, 1972, Shell notified Marinello that it was terminating the aforesaid lease and the dealer agreement effective May 31, 1972. Marinello immediately filed suit in the Superior Court, Chancery Division, seeking to have Shell enjoined from taking its proposed action, and asking for reformation of the 'agreement between the parties so as to show a joint venture. Shell on its part, on June 1, 1972, filed a summary dispossess complaint in the District Court for possession of the service station premises alleging that Marinello was holding over and remaining in possession without the consent or permission of Shell.

On motion, the dispossess action was transferred to the Superior Court (N.J.S.A. 2A:18--60) where it was consolidated with and tried with the Chancery suit. After a nine-day trial a decision was rendered in favor of Marinello. The trial court's opinion is reported at 120 N.J.Super. 357, 294 A.2d 253.

In its decision the trial court dealt with three primary issues. It held (1) the newly enacted Franchise Practices Act, N.J.S.A. 56:10--1 et seq., effective December 21, 1971 did not apply to the previously executed renewals of the lease and dealer agreement between Shell and Marinello; (2) there was an implied covenant in said lease and agreement on the part of Shell not to terminate the relationship without good cause, and these instruments must be reformed to include such covenant; and (3) Marinello had substantially performed his obligations to Shell under these agreements.

Although not necessary to its decision, since it not only granted reformation, but also found that Shell did not have good cause to terminate the lease and dealer agreement, the trial court sustained Marinello's defense of unclean hands in the dispossess action by finding the Shell was guilty of improper and illegal marketing practices (a) by discriminating against Marinello in the tank-wagon prices it charged him, and (b) by tying in increased TBA sales on Marinello's part to a renewal of the lease. These practices were found by the trial court to be violations of the New Jersey Unfair Motor Fuels Act, N.J.S.A. 56:6--19 et seq., and the Robinson-Patman Price Discrimination Act, 15 U.S.C.A. § 13.

Shell appealed from the judgment entered in the consolidated actions. While the appeal was pending unheard in the Appellate Division we ordered direct certification to this Court. R. 2:12--1.

We are in full agreement with the basic determination of the trial court that Shell had no legal right to terminate its relationship with Marinello except for good cause, I.e., the failure of Marinello to substantially comply with his obligations under the lease and dealer agreement. However, we conclude that it was unnecessary to have granted specific reformation of the lease and dealer agreement. The same end result is reached from consideration of the instruments themselves, the relationship between Shell and Marinello created thereby, and the public policy of this State affecting such relationship.

For this reason it is unnecessary for us to deal with the question of reformation, as such, as well as the ancillary issues of parol evidence and the statute of frauds. By the same token, we need not review the trial court's finding that Marinello had established the defense of unclean hands in the dispossess suit filed by Shell. Since our conclusion is that Shell has not shown good cause to terminate its relationship with Marinello, we do not reach the question of equitable defense. See Vineland Shopping Center, Inc. v. DeMarco, 35 N.J. 459, 173 A.2d 270 (1961).

Shell argues that its lease of the service station premises to Marinello is independent of its dealer agreement with him, and that its legal rights as a landlord under the lease are absolute and cannot be restricted. This is pure sophistry. The two contractual documents are but part of an integrated business relationship. They were entered into simultaneously, have the same commencement and expiration dates, and expressly refer to the Route #5 service station premises.

These instruments, and the business relationship created thereby, cannot be viewed in the abstract. Shell is a major oil company. It not only controls the supply, but, in this case, the business site. The record shows that while the product itself and the location are prime factors in the profitability of a service station, the personality and efforts of the operator and the good will and clientele generated thereby are of major importance. The amount of fuel, lubricants and TBA a station will sell is directly related to courtesy, service, cleanliness and hours of operation, all dependent on the particular operator.

Marinello testified that when the station was offered to him in 1959 he was told by the Shell representative that the station was run down, but that a good operator could make money and that if he built up the business his future would be in the station. Shell's own witnesses admitted that it was...