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Farber v. Shell Oil Co.

Decided: October 14, 1957.


Clapp, Jayne and Hughes. The opinion of the court was delivered by Hughes, J.s.c.


We consider here an appeal from a judgment entered in the Chancery Division (in the formal litigation frame of a suit for an accounting of rent) dealing with the construction of a contract deemed by it, in law, to be ambiguous of meaning, and determining, as trier of the fact, a pattern of surrounding circumstance requiring the interpretation reached by that court. Not only these legal and factual findings, but also the bulk of evidence rulings made at the trial, are the targets of this appellate challenge.

The defendant-appellant, Shell Oil Company, a Delaware corporation, to be referred to for brevity as "Shell," was lessee, and the plaintiffs-respondents, husband and wife, were lessors, of a certain lot owned by them on the corner of Springfield and Morris Avenues in Springfield, Union County, New Jersey. With deference to Mrs. Farber but for the purpose of brevity, we shall refer to this domestic unit as "Farber." The premises involved adjoined other land owned by Farber, on which the latter operated a lumber yard. In February of 1950 the parties entered into a lease whereby Shell rented this corner from Farber, to be used by it as a gasoline station, and this leasehold was for a

five-year term to commence on June 1, 1950. The clause reserving the rent under the lease is of such significance to the controversy that it is reproduced in full:

"Second. Shell shall pay, as rent for the leased premises for each calendar month during the term of this lease, in cash to, or by check to the order of Keevic Farber: (a) the sum of Two Hundred and Five Dollars ($205.00) on or before the fifteenth day of such month; and (b) an additional sum equal to one and one-half cents (1 1/2 cents) for each gallon, if any, in excess of thirteen thousand (13,000) gallons of gasoline sold on said premises during such month, as shown by Shell's records, payable on or before the fifteenth day of the following calendar month. Rent accruing under the preceding clause (a), for any period less than a calendar month shall be prorated on a per diem basis."

The conjoining of the "overriding gallonage" stipulation, as sometimes it is called, to the fixed amount of monthly rental, is not uncommon in such leases nor in subleases whereby a corporate lessee such as Shell arranges for the actual operation of the station by another. (Such a sublease of the instant property by Shell to another was in evidence here.) In 1953 the parties entered into an agreement extending the term of such lease for a period of two years from June 1, 1955, providing relevantly as follows:

"* * * shall be and the same hereby are extended for a period of Two (2) years , beginning on the 1st day of June, 1955 , and ending on the 31st day of May, 1957 , upon the same terms and conditions as set forth in said lease (as heretofore amended) except that, (1) during such extended period, Shell shall pay rent at the rate of Two Hundred and Thirty Dollars ($230.00) per month and, (2) Lessor shall have the right at lessor's option to terminate this extension at any time by giving Shell at least thirty (30) days' notice provided that, Lessor pays to Shell, as consideration therefor a sum equal to the cost to Shell of the improvements, to be completed by Shell prior to March 1, 1953 and not to exceed Eighteen Hundred Dollars ($1800.00) less a deduction therefrom for depreciation computed at the rate of two per cent per month on said amount from the month of March 1953 to the effective date of termination, and, as so amended and extended, said lease is hereby ratified and confirmed in all respects."

Under such extension, and after it came into operation on June 1, 1955, although gasoline was sold in quantities

over the monthly gallonage figure of 13,000 gallons provided in the original lease, Shell declined to pay (as it had been paying at the time the term under the original lease ended) amounts based on this excess monthly gallonage. This it did in reliance upon the provision in the extension agreement reserving rent "* * * at the rate of Two Hundred and Thirty Dollars ($230.00) per month * * *," and on the postulate that such reservation of rent was an integrated whole, and in substitution of all that the primary lease had provided for by way of rent. Farber, on the other hand, contending that the gallonage provision in the original lease carried over into the extension agreement, sought and obtained the judgment sub judice , accounting to him and awarding the amounts found therein to be due, based on the net monthly gallonage over 13,000 gallons.

It is immediately obvious that the core of validity of the judgment appealed from, embracing most of the rulings admitting the evidence on which it was based, is the propriety of the view of the learned court that the extension agreement was ambiguous in its setting, i.e. , in relationship to the primary lease, most of the terms and conditions of which had been incorporated therein by reference, as noted above.

We perceive in the case before us no real dispute as to the fundamental law of contract interpretation, but rather conflicting views as to the propriety of its application to this agreement of extension. Shell insists that the extension agreement, in its quoted reference to the payment of rent, was, as stated, an integrated whole fully memorializing the compact of the parties in this respect. As forcibly, Farber contends that extension of the term of the primary lease "* * * upon the same terms and conditions as set forth" therein, as qualified by the language following such excerpt, incorporates in the extension compact, as one of such terms and conditions, the overriding gallonage stipulation therein ...

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