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Schultze v. Chevron Oil Co.

argued: April 24, 1978.



Aldisert and Adams, Circuit Judges, and Hannum, District Judge.*fn* Adams, Circuit Judge, dissenting.

Author: Aldisert

ALDISERT, Circuit Judge.

The major questions presented in this appeal by plaintiffs from a directed verdict in favor of the defendant in a diversity case require us to decide whether the district court erred in determinations relating to a right of first refusal clause in a lease between appellants, Robert and Edith Schultze, owners of a service station, and Chevron Oil Co. Appellants contend here, as they did in the district court, that Chevron, in refusing either to exercise or waive its right of first refusal, tortiously interfered with their attempts to sell the premises. They also argue that New Jersey law implies a covenant of fair dealing into every contract, and that Chevron violated its duty to deal in good faith. We believe that the district court properly directed a verdict in Chevron's favor and, accordingly, affirm.*fn1


The record discloses the following facts, none of which is seriously in dispute. Robert and Edith Schultze owned real estate on which a service station was erected. In 1963, they entered into a commercial arrangement with Morris Oil Company, Inc., containing these material terms: the Schultzes leased the property to Morris; Morris sublet the station back to the Schultzes; the Schultzes operated the station, purchasing supplies and inventory from Morris; and Morris was granted a "prior right to purchase" in the event the Schultzes received an offer to purchase during the 15-year term of their lease. On June 30, 1968, Morris assigned to the appellee, Chevron, all Morris' rights and duties under the agreement, including the prior right to purchase.

In late 1970, when the Schultzes decided to sell their business, Robert Schultze inquired of a Chevron sales representative whether Chevron would be interested in purchasing the station. After consulting with corporate officials, the sales representative informed Schultze that Chevron had no interest in making the purchase.

Schultze then advertised the property for sale and listed it with real estate brokers. As a result, several prospective buyers expressed interest in the property. Chevron's right of first refusal apparently impeded negotiations with the interested parties. Schultze therefore sought Chevron's written waiver of its right of first refusal; Chevron did not execute a written waiver, but in February 1972, after informing Schultze again that it would not buy the station, suggested the alternative of drafting a new long-term lease. Negotiations between Schultze and Chevron continued for six months before Chevron decided not to enter a new lease but to waive, in writing, its right of first refusal.

After receiving the waiver, the Schultzes sold the station for $85,000. They brought this action to recover the difference between the sale price and the highest "offer" received before Chevron's waiver of its prior right to purchase; to recover damages for injuries to their health, for pain and suffering and for mental anguish caused by Chevron's acts; and to collect exemplary damages for Chevron's actions.

In orally granting Chevron's motion for a directed verdict, the district judge concluded that Chevron had no obligation to waive its right of first refusal where the Schultzes failed to submit a written bona fide offer; that there was no evidence suggesting a reasonable probability that the Schultzes would have sold their station to a third party if Chevron had waived its right; and that, even if Chevron did impair the Schultzes' ability to obtain firm offers, there was no evidence upon which the jury could have awarded damages. The parties agree that the law of New Jersey controls this diversity case.


Chevron's prior right to purchase, contained in Clause 11 of the parties' lease, provides in pertinent part:

If Lessors receive from a third party an acceptable bona fide offer to buy such property, Lessors shall forthwith give Lessee written notice thereof together with a copy of such offer. Lessee or its nominee shall have 30 days from the receipt of such notice and offer to buy such property at the terms of such offer relating to such property. If Lessee or its nominee fails to exercise this option, Lessors may, within 90 days after receipt of such written notice by Lessee, sell such property but only for a price and upon terms of payment and upon other terms which are identical to those set forth in the notice to Lessee.


The primary requirements of this provision are unambiguous. In order to create any duty on Chevron's part, two conditions must have been met. The Schultzes must have received "an acceptable bona fide offer", and the offer must have been communicated to Chevron in writing. Neither condition was met.

Because there was no evidence that any of the parties interested in purchasing the property ever made an offer of sufficient specificity to fulfill the bona fide offer requirement, the district judge did not err in deciding as a matter of law that no bona fide offer was received by the Schultzes. More important, even if evidence had existed on this question which would have implicated the fact-finding role of the jury, the jury's consideration of the question was foreclosed by the fact that no written notice of such an offer was given to Chevron. We fail to see how a "copy" of an oral offer can be submitted in writing.


Apparently recognizing that the express terms of the quoted provision were unfulfilled by them, appellants argue that, in any event, Chevron violated its duty of fair dealing by not executing a written waiver of its prior right to purchase. They correctly state that New Jersey courts recognize the principle that

in every contract there is an implied covenant that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract; in other words, in every contract there exists an implied covenant of good faith and ...

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