For modification and affirmance -- Chief Justice Weintraub, Justices Jacobs, Proctor, Hall, Mountain, Sullivan and Garven. For reversal -- None. 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. Its products are sold in hundreds of Shell service stations through 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,*fn1 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.
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 that 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 ...