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Esso Standard Oil Co. v. Cunningham

Court of Chancery of Delaware, New Castle County

June 2, 1955

ESSO STANDARD OIL COMPANY, a corporation of the State of Delaware, Plaintiff,
John C. CUNNINGHAM, Jr., and Lydia Cunningham, his wife, Defendants.

Action for specific performance of contract to convey filling station. The Court of Chancery, Marvel, Vice Chancellor, held that where contract, where under purchaser was given option to purchase land, was unambiguous and fair at time it was entered into, and purchaser was not guilty of laches or bad faith, specific performance would not be denied merely on ground that value of land had increased after date of contract.

Judgment for plaintiff.

Page 381

[35 Del.Ch. 211] Thomas Herlihy, Jr., and Morris Cohen, Wilmington, for plaintiff.

C. Edward Duffy and J. Pearce Cann, Wilmington, for defendants.

[35 Del.Ch. 212] MARVEL, Vice Chancellor.

Plaintiff seeks an order directing specific performance of a unilateral agreement made on August 8, 1940, by[1] defendant, John C. Cunningham, Jr., then a single man. Plaintiff contends that having exercised its rights under the agreement, defendant and his wife must convey to plaintiff property consisting of a gasoline service station and designated equipment used in the operation of the station in return for payment of $20,000. The agreement or option which plaintiff seeks to enforce is set forth in paragraph 13 of a general[2] agreement concerning the leasing of premises owned by defendant in Newark, Delaware, for a term of ten years ending November 30, 1950. The agreement also provided for a renewal of the lease for five additional periods of one year each at the option of the tenant, which renewals occurred. Accordingly the lease will not expire until November 30, 1955, if specific performance is not granted.

Paragraph 13 purportedly gave plaintiff the right on notice in return for payment of $20,000 to purchase the demised premises and the gasoline service station equipment set forth on a list attached to the lease ‘ at any time during the original term or any renewal thereof’ . Defendant was given the right on six months notice to terminate the option unless it should be exercised within six months after notice. Such notice was not given by defendant. Paragraph 13 specifically provided that defendant would convey title free and clear of encumbrances upon receipt of notice in writing at least thirty days before the date fixed in said notice for conveyance of title and payment of the agreed purchase price.

On March 1, 1955, plaintiff gave defendant written notice of its intention to exercise the option. Mr. Cunningham by letter of March 30, declined to convey title and later refused to accept the tendered purchase price. Suit was then promptly instituted.

[35 Del.Ch. 213] Defendant and his wife, to whom he was married after August 8, 1940, and who has been joined as a defendant have answered, charging that the complaint fails to state a claim upon which relief can be granted and that the option to purchase may not be specifically enforced in this Court because its terms are ‘ unfair and unconscionable to defendants in that the stated purchase price of $20,000 is so grossly inadequate as to amount to hardship and fraud’ .

The fact that Mr. Cunningham married after entering into the agreement of August 8, 1940, does not affect his undertaking if plaintiff is entitled to specific performance. The wife, however, has been properly joined as a party, Ardito v. Howell, 29 Del.Ch. 467, 51 A.2d 859. Furthermore, no showing was made at trial that the option clause had been cancelled or otherwise had become inoperative at any time prior to

Page 382

March 1, 1955. Paragraph 13 clearly provides that the option was to be exercisable at any time during the original term or any renewal thereof. Compare Ardito v. Howell, supra.

Defendants' entire case therefore rests on the defense that it would be inequitable under the facts and circumstances of the case to grant specific performance. Defendants' position on this score is broken down into three charges. The first is that plaintiff made misrepresentations which induced defendant to enter into the agreement. Defendants next contend (assuming there to have been no actual misrepresentation) that Mr. Cunningham having mistakenly relied on what he considered plaintiff's assurances that the option would not be exercised, plaintiff may not have the bargain enforced. Finally defendants assert that the contract is so grossly unfair not only on its face but also because of changed conditions in the Newark area that it would be unjust to uphold it.

Considering this last defense first, it appears from the facts adduced at trial that Walter F. Spath, plaintiff's agent, came to John C. Cunningham, Jr., in 1940 with the proposition that he give up his gasoline service station rental arrangement with Sinclair Refining Company in Newark and purchase a nearby site where plaintiff would furnish him Esso products. Defendant was interested in the proposal and told Mr. Spath of an available property on which Spath [35 Del.Ch. 214] on Cunningham's behalf took an option to purchase. Mr. Spath actively assisted in the purchase arrangements including the obtaining of mortgage money from the Elkton Banking and Trust Company. In making the purchase defendant invested $2,000 of his own and in all borrowed $13,000 from the bank for the purchase of the land and construction of the gasoline service station. Defendant then rented the premises to plaintiff at a rental of $138 per month, which rentals were assigned to Elkton Banking and Trust Company until defendant's borrowings were paid in full and the mortgage satisfied on April 3, 1951. The bank records disclose that the property as improved was appraised at $18,000, and although the actual appraisers did not testify, the reasonableness of this appraisal is supported by ...

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