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SHELL OIL CO. v. TRAILER & TRUCK REPAIR CO.

July 9, 1986

SHELL OIL COMPANY, Plaintiff,
v.
TRAILER AND TRUCK REPAIR CO., INC., and THE HOWARD SAVINGS BANK, Defendants, and HERB C. ENTERPRISES, INC., Defendant/Third Party Plaintiff, v. JOSEPH C. WOODCOCK, JR., Third Party Defendant



The opinion of the court was delivered by: STERN

 This matter is before the Court on motions for summary judgment by plaintiff Shell Oil Company, by defendant Trailer & Truck Repair Co., Inc. ("T&TR"), and by defendant Herb C. Enterprises, Inc. ("Herb C."). The case is here under the Court's diversity jurisdiction; New Jersey law applies.

 In 1970, Shell Oil signed a lease for a property at a busy corner in Secaucus, New Jersey, for use as a service station. The lease term runs from 1972 to 1987. Section 9 of the lease grants Shell the right of first refusal in the event that T&TR either makes a bona fide offer to sell or receives a bona fide offer to buy the property. The lease obligates T&TR to give Shell notice of such a bona fide offer. The lease also contains a separate clause giving Shell an option to purchase the property at any time for $400,000.

 In April 1984, T&TR executed a contract to sell the property to Herb C. Enterprises. On January 17, 1985, T&TR executed a deed transferring title to the property to Herb C. The deed relates that "the transfer is made for the sum of One hundred ninety-eight thousand two hundred fifty dollars ($198,250)." It is signed by Emily Buchmuller, President, and Eunice Buchmuller, Secretary of T&TR. An acknowledgment to the deed bears the sworn statement of Eunice Buchmuller that "the full and actual consideration paid or to be paid for the transfer of title is $198,250. (Such consideration is defined in N.J.S.A. 46:15-5.)"

 The deed's statement of consideration is the basis for the state's realty transfer fee, N.J.S.A. 46:15-7. Furthermore, deposition testimony of T&TR's accountant, Mark Weiss, and copies of certain of T&TR's filings with the Internal Revenue Service, show that T&TR's shareholders paid federal capital gains tax based on a sales price of $198,250.

 All parties agree that Shell was not given prior notice of the negotiations to sell or of the sale itself, and that the failure to give such notice violated Shell's rights under its lease. Shell's first notice was a letter from Herb C., postmarked March 7, 1985, informing Shell that rent in the future was to be paid to Herb C.

 Shell brought this suit to preserve its rights under the lease, and now moves for summary judgment and for an order directing Herb C. to convey the property to it in exchange for payment of $198,250.

 Defendants do not contest that Shell's rights should be honored. However, they contest both the power of the Court to award specific performance, and Shell's interpretation of the lease and its application to the events of this case.

 Specific Performance

 Both defendants rely on Guaclides v. Kruse, 67 N.J. Super. 348, 170 A.2d 488 (App. Div. 1961) for the proposition that a court may not compel specific performance to enforce a lessee's right of first refusal. This is a misreading of Guaclides. That case concerned a landowner of a tract of land who had agreed to sell the entire tract to a single buyer. A lessee of a small portion of the tract attempted to enforce his right of first refusal with regard either to his small leasehold or to the entire tract. The owner then decided not to sell any of the property. The court held that the lessee's right of first refusal could not be applied to the entire property, and it further held that, as the owner had never offered to sell the leasehold parcel alone, the court could not compel him to do so.

 In the present case, T&TR not only offered to sell the leasehold parcel; it actually did so, in violation of a right it had previously granted to Shell. There is thus no issue of compelling the owner to sell before us.

 This case is not governed by Guaclides but by another line of cases entirely, which explicitly hold that specific performance of a right of first refusal is available against a purchaser. Burleigh v. Mactier, 108 A. 84, 85 (N.J. Chancery, 1919); Schnakenberg v. Gibraltar Savings & Loan Ass'n, 37 N.J. Super. 150, 117 A.2d 191, 195 (1955); Abdallah v. Abdallah, 359 F.2d 170, 171 (3d Cir. 1966) (applying analogous Virgin Islands law).


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