1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-24-1999

Carter v. Exxon Company USA

Precedential or Non-Precedential:

Docket 97-5248,97-5272

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Recommended Citation

"Carter v. Exxon Company USA" (1999). 1999 Decisions. Paper 140.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/140
Filed May 24, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-5248 

RICHARD CARTER; CAROL CARTER, 

husband and wife, d/b/a Forsum, Inc.; 

FORSUM, INC., 

 Appellants 

v. 

EXXON COMPANY USA, a division of 

EXXON CORPORATION, 

EXXON CORPORATION, 

 Defendants/Third-Party Plaintiffs 

v. 

PETROLEUM TECHNOLOGIES, INC. 

 Third-Party Defendant 

No. 97-5272 

RICHARD CARTER; CAROL CARTER, 

husband and wife, d/b/a Forsum, Inc.; 

FORSUM, INC., 

v. 

EXXON COMPANY USA, a division of 

EXXON CORPORATION; EXXON CORPORATION, 

 Defendants/Third-Party Plaintiffs 

v. 
PETROLEUM TECHNOLOGIES, INC. 

 Third-Party Defendant 

EXXON CORPORATION, 

 Appellant 

On Appeal from the United States District Court 

for the District of New Jersey 

(D. C. Civil No. 93-0238) 

District Judge: Hon. Mary L. Cooper 

Argued: May 21, 1998 

Before: SLOVITER, GREENBERG, Circuit Judges, and 

GIBSON, Senior Circuit Judge.* 

(Filed: May 24, 1999) 

 Andrew J. Stern (ARGUED) 

 David A. Yanoff 

 Beasley, Casey & Erbstein 

 Philadelphia, PA 19107 

 Attorneys for Appellants in 

 No. 97-5248 

 Steven J. Fram (ARGUED) 

 Archer & Greiner 

 Haddonfield, New Jersey 08033 

 Attorney for Appellant in 

 No. 97-5272 

OPINION OF THE COURT 

JOHN R. GIBSON, Senior Circuit Judge. 

Richard Carter and his wife, Carol, appeal and argue that 

_________________________________________________________________ 

*The Honorable John R. Gibson, Senior United States Circuit Judge for 

the Eighth Circuit Court of Appeals, sitting by designation. 

 2 
the district court erred in granting summary judgment in 

favor of Exxon Company USA on their Petroleum Marketing 

Practices Act1 claim and on Exxon's state law counterclaim. 

They also contend, with respect to their state law contract 

claims, that the district court erred in instructing the jury, 

in interpreting and analyzing for unconscionability

disclaimers in their franchise agreement with Exxon, in 

barring recovery of any damages that accrued after their 

franchise agreement was not renewed, and in holding that 

a jury finding was not against the clear weight of the 

evidence. Exxon cross appeals, contending that the district 

court erred by applying the disclaimers to only one of the 

Carters' contract claims and abused its discretion by 

granting the Carters leave to amend their complaint. We 

reverse the grant of summary judgment on the Carters' 

Petroleum Marketing Practices Act claim and on Exxon's 

counterclaim. We conclude the district judge erred in 

instructing the jury on waiver and reverse the judgment on 

the Carters' state law contract claims. We affirm the district 

judge's holding that the contract disclaimers do not bar the 

Carters from recovering business loss on one of their 

contract claims and affirm the district judge's holding that 

the Carters may not recover, on their contract claim, 

business loss occurring after their franchise agreement was 

not renewed. We remand for further proceedings in 

accordance with this opinion. 

In 1986, the Carters began operating an Exxon service 

station in Wrightstown, New Jersey. Carter had previously 

been in the trucking business, but planned to make the 

service station his only business. The Carters formed a 

corporation, Forsum, Inc., for the purpose of operating the 

station. Because Exxon did not own the real property where 

the station was located, Carter entered into a lease with 

Thomas and Alma Davis, the owners of the real property. 

From the inception of the franchise, the Carters and Exxon 

discussed the possibility of upgrading the station or 

rebuilding the station (the "hi-grade" plan), but this never 

materialized. 

_________________________________________________________________ 

1. The relevant provisions of the Act are codified at 15 U.S.C. SS 2801- 

2806 (1994). 

 3 
Carter renewed the franchise on July 20, 1989, effective 

through August 1, 1992. The renewal was memorialized in 

a "Sales Agreement" and a "Rental Agreement." The Sales 

Agreement had a provision disclaiming consequential

damages, and the Rental Agreement had a provision 

disclaiming damages, including loss of business resulting 

from repairs performed on the loaned equipment. 

In late September 1990, the Carters reported a leak in 

the "plus" tank, one of three underground gasoline storage 

tanks. Exxon, which owned and was responsible for the 

tanks, confirmed the leak and sent out a work crew to 

perform the repairs. On October 15, 1990, the work crew 

emptied the "plus" tank to test the repair. On October 18, 

1990, the buoyant force of ground water forced the tank to 

emerge from the ground, which in turn caused the 

"supreme" tank to take on water.2 During the repair of the 

"supreme" tank, it too emerged from the ground causing 

damage to the "regular" tank. After two weeks in which the 

Carters were left with no operational tanks, Exxon repaired 

the "regular" tank, but the Carters were left with only one 

working tank for nine months, allowing them to sell only 

one type of gasoline. 

After the tanks surged, the Carters had several meetings 

with various Exxon employees including David O'Connor, 

business counselor for the Carters' account, Anthony 

Luciano, district manager for southern New Jersey, and 

Richard Biedrzycki, Exxon's outside counsel. In the

meetings, the parties discussed several issues. Carter 

expressed his desire that Exxon immediately replace his 

tanks, keeping them at their old site, while Exxon 

expressed renewed interest in the "hi-grade" plan, which 

would involve replacing the tanks in a new site to suit the 

larger facility. Exxon, unable to convince Carter to agree to 

_________________________________________________________________ 

2. Exxon engineers recognized the risk of the tanks emerging. Two 

methods of combating this risk are securing the tank with straps and 

filling it with liquid. Carter claimed that some straps were missing while 

others were broken. Also, failed communications between the work crew 

and the fire department resulted in the "plus" tank not being filled with 

water from October 16, 1990 to October 18, 1990. Carter used these 

occurrences as part of the basis for his state law claims, and the jury 

resolved these claims in favor of Carter. 

 4 
the "hi-grade" plan, eventually decided in mid-May to 

replace the tanks in their old site, and the work was 

completed in July 1991. In bringing all three tanks to 

working order, Exxon filled them with hold-down loads of 

gasoline. 

After the tanks were replaced, the parties continued to 

discuss variations of the "hi-grade" plan, but also discussed 

a franchise renewal, a covenant not to sue for damages 

arising out of the tank repair, and monies Exxon claimed 

were due for various items, one of which was a charge for 

the gasoline used to refill the tanks during the repairs. The 

discussions took a turn for the worse after a stormy 

meeting on June 3, 1992, abruptly terminated by the

Carters' attorney, Gerald Haughey. After meetings on June 

18 and July 8, 1992, the parties still could not resolve their 

differences. A critical point of dispute between the parties is 

whether Exxon, in the course of these meetings, ever 

offered the Carters a franchise renewal without conditioning 

it on their assent to other agreements including the 

covenant not to sue and investment and amortization

agreements related to the "hi-grade" plan. 

The parties ultimately did not agree on a renewal of the 

franchise, and Exxon sent the Carters a termination notice 

in late July 1992. The Carters vacated the premises by the 

end of September. Exxon entered a franchise agreement for 

the same premises with the Davises' son-in-law, Wayne 

Bird. The Carters filed this lawsuit. 

The Carters and Forsum asserted a violation of the 

Petroleum Marketing Practices Act ("Petroleum Act"), breach 

of contract, negligence, tortious interference with business 

relationship, and tortious interference with prospective 

economic advantage. Exxon filed a counterclaim alleging 

that Carter had failed to pay Exxon monies due under their 

franchise agreement. 

The district court dismissed the Carters' Petroleum Act 

claims on the grounds that only Forsum had standing to 

sue under the Petroleum Act, and dismissed Carol Carter 

and Forsum's tortious interference claims. The district 

court granted summary judgment in favor of Exxon on the 

claims of violation of the Petroleum Act, negligence, 

 5 
interference with business relationship, and interference 

with prospective economic advantage. The district court 

also granted summary judgment, as to liability only, in 

favor of Exxon on its counterclaim. 

The trial was bifurcated, and the case was submitted to 

the jury to resolve the Carters' breach of contract claim and 

the appropriate amount of damages on Exxon's 

counterclaim. The Carters' contract claim was two-fold. 

They alleged Exxon had breached its contractual duties by 

failing to make the tank repairs in a good and workmanlike 

manner and to make the repairs in a reasonable time. The 

jury returned a verdict on liability in favor of the Carters on 

both theories; however, the liability verdict was mitigated by 

the jury's finding that the Carters had waived Exxon's 

contractual duty to repair in a reasonable time for the 

period of October 18, 1990, to December 30, 1990. After 

the district judge made post-verdict rulings on damage 

issues based upon the disclaimers in the franchise 

agreement and accrual of damages after termination of the 

franchise agreement, the parties stipulated that the Carters' 

damages for breach of contract were $40,000 and Exxon's 

damages on its counterclaim were $40,000. This appeal 

and cross-appeal followed. 

The Carters argue the district court erred in granting 

summary judgment on the Petroleum Act claim and in 

granting summary judgment on Exxon's counterclaim. They 

further contend that the district court's jury instruction on 

waiver was erroneous, that the district court erred in 

applying the disclaimers to bar their claim for 

consequential damages for breach of duty to repair in a 

good and workmanlike manner, that the district court erred 

by barring the recovery of any damages for the time period 

after the franchise agreement was not renewed, and that 

the jury's finding that ninety days was a reasonable repair 

period was against the clear weight of the evidence. Exxon 

contends that the district court erred by applying the 

disclaimers to only one of the Carters' contract claims. It 

contends the disclaimers should also bar recovery of 

consequential damages on the Carters' claim for breach of 

duty to repair in a reasonable time. It also contends the 

district court abused its discretion by granting the Carters 

leave to amend their complaint. 

 6 
I. Summary Judgment on Petroleum Act 

The Carters3 argue that the non-renewal of their 

franchise agreement violated the Petroleum Act. Congress 

enacted the statute for the purpose of protecting 

franchisees, who generally have inferior bargaining power 

when dealing with franchisors, from unfair termination or 

nonrenewal of their franchises. See S. Rep. No. 95-731, at 

17-19, (1978), reprinted in 1978 U.S.C.C.A.N. 873, 875-77. 

However, Congress also provided franchisors with some 

flexibility to terminate franchise relationships by delineating 

specific provisions which indicate when a franchisor may 

permissibly terminate a franchise agreement. See 15 U.S.C. 

S 2802(b)(3). The district court granted summary judgment 

against the Carters based upon such a provision. 

Specifically, the district court relied upon section 2802(b)(3) 

of the Petroleum Act which states: 

 [T]he following are grounds for nonrenewal of a 

 franchise relationship: 

 (A) The failure of the franchisor and the franchisee to 

 agree to changes or additions to the provisions of the 

 franchise, if -- 

 (i) such changes or additions are the result of 

 determinations made by the franchisor in good faith 

 and in the normal course of business . . . .

15 U.S.C. S 2802(b)(3). 

When the franchisor terminates or does not renew a 

franchisee's contract, the burden falls upon the franchisor 

to prove that it declined to renew for one of the permissible 

reasons set forth in the Petroleum Act. See Lugar v. Texaco, 

Inc., 755 F.2d 53, 56 (3d Cir. 1985); Sun Refining and 

Marketing Co. v. Rago, 741 F.2d 670, 672 (3d Cir. 1984); 15 

U.S.C. S 2805(c). 

Summary judgment may only be granted "if the 

pleadings, depositions, answers to interrogatories, and 

admissions on file, together with the affidavits, if any, show 

_________________________________________________________________ 

3. The district court held that Forsum, the Carters' corporation, was the 

party with standing to bring the Petroleum Act claim; we refer to the 

Carters for simplicity. 

 7 
that there is no genuine issue as to any material fact and 

that the moving party is entitled to a judgment as a matter 

of law." Fed. R. Civ. P. 56(c). The moving party has the 

burden of demonstrating that the standards of Rule 56(c) 

have been satisfied. See Boyle v. County of Allegheny 

Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). When a 

court is deciding a motion for summary judgment, 

"inferences should be drawn in the light most favorable to 

the non-moving party, and where the non-moving party's 

evidence contradicts the movant's, then the non-movant's 

must be taken as true." Big Apple BMW, Inc. v. BMW of 

North America, Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), 

cert. denied, 507 U.S. 912 (1993). The judge's function is 

not to weigh the evidence and determine the truth of the 

matter, but to determine whether there is a genuine issue 

for trial. See id. (quotations omitted). If the non-movant has 

offered more than a "scintilla" of evidence, the judge may 

not discredit the non-movant's evidence even if the

movant's evidence far outweighs that of the non-movant. 

See id. Our review of the district court's decision is plenary, 

and we use the same standard the district court should use 

in the first instance. See Patel v. Sun Co., 141 F.3d 447, 

451 (3d Cir. 1998). 

The parties dispute whether there is a genuine issue of 

material fact as to whether Exxon offered the Carters an 

unconditional renewal of their franchise agreement. The 

Carters claim that the renewal of the franchise agreement 

was conditioned upon their assent to other agreements, 

including the covenant not to sue and investment and 

amortization agreements related to the "hi-grade" plan. 

Exxon claims that it offered the Carters a franchise 

agreement without any strings attached. If Exxon 

conditioned the renewal offer upon Carter's assent to these 

agreements, then the non-renewal did not comply with the 

Petroleum Act. See 15 U.S.C. SS 2802(b)(3) and 2805(f). The 

district court so stated the issue on the summary judgment 

motion. We must review the record in the light most

favorable to the Carters and determine if there is a genuine 

issue of material fact as to whether Exxon conditioned its 

renewal offer upon these agreements. We are persuaded 

that a genuine issue of material fact exists. 

 8 
Carter testified several times at deposition that Exxon's 

offer of a franchise renewal was conditioned upon his 

assent to other agreements. In Carter's words, "[A] sales 

agreement on its own, alone, was never offered to me," and 

"[T]he way it was offered was in a package . . . if I signed 

a full release, if I put $30,000 in the building . .. ." Carter 

addressed the June 1992 time period which was crucial to 

the district court's reasoning. When asked if Exxon had 

offered him a franchise agreement before July 2, 1992, 

Carter responded "[I]n some form of package form, I believe 

so . . . ." Carter specifically defined the package as a 

general release for claims arising from the tank damage, an 

agreement to upgrade the station with $30,000 of 

improvements, an amortization agreement, and an 

agreement to clear the debt Carter allegedly owed Exxon 

from past transactions, including the gasoline used to fill 

the tanks during repair. 

Other evidence on the record indicates that there is a 

genuine factual issue as to whether the offer was 

unconditional. Haughey, who was present at the meeting of 

June 3, 1992, testified that Exxon was "tying" the renewal 

of the sales agreement to the damage of the tanks and had 

been doing so "from the beginning." Carol Carter testified 

that every time Exxon made an offer, the Carters were not 

free to sign only the franchise agreement. In her words, 

"You couldn't pick up one so [sic] stack and say, okay, I'll 

take this and leave the other two. They were set in front of 

you as a whole and this is what you had to decide on. You 

had to sign all three." Exxon's own employees testified that 

before June 1992, Exxon offered package deals. O'Connor 

testified that in October 1991, he communicated with 

Exxon's attorneys regarding an offer to the Carters that 

contained a covenant not to sue and an amortization

agreement. Further, Luciano testified that Exxon offered 

Carter a deal in which Carter would receive a new franchise 

agreement, but also would have to sign a covenant not to 

sue. 

Moreover, the evidence cited by the district court and 

Exxon does not persuade us that there is no genuine issue 

of material fact. Both the district court and Exxon rely 

heavily on O'Connor's testimony that there were no 

 9 
conditions placed on the June 18, 1992, offer of a new 

franchise agreement. However, that testimony is in direct 

conflict with Carter's testimony that he was never offered a 

franchise renewal with no strings attached. When the nonmovant's evidence contradicts the movant's, the nonmovant's must be taken as true. See Big Apple BMW, Inc., 

974 F.2d at 1363. Instead, the district court accepted 

Exxon's, the movant's, evidence as true. The district court 

and Exxon also make much of Carter's admission that on 

June 3, 1992, Exxon never explicitly stated that the offer 

was conditioned upon his assent to other agreements. 

However, as Carter's testimony shows, Exxon certainly did 

not explicitly tell him that the offer was not conditioned 

upon other agreements, as Exxon had indicated in the past. 

Carter's statement at most represents an ambiguity in his 

testimony. Ambiguities in deposition testimony are for the 

jury to resolve. See Meinhardt v. Unisys Corp., 74 F.3d 420, 

433 n.10 (3d Cir.), cert. denied, 519 U.S. 810 (1996).4 The 

district court also relied on a letter Haughey wrote on 

January 2, 1992, requesting that Exxon handle the renewal 

of the franchise agreement and the damage to the tanks as 

two distinct issues and a letter Biedrzycki wrote in July of 

1992, indicating that Exxon was treating the matters 

separately. In the district court's opinion, the letters 

showed that both parties understood that the franchise 

renewal was distinct from discussions relating to the 

damaged tanks. However, the inference the district court 

drew from the correspondence is too broad and certainly 

not in the Carters' favor. The letter only directly shows that 

Haughey was asking for the issues to be treated separately, 

and at one point in July, Exxon indicated that they were. 

It does not directly show that Exxon made an unconditional 

offer, and inferring that it does is inappropriate on 

summary judgment. 

_________________________________________________________________ 

4. Exxon also relies upon on a statement that Carter made in a meeting 

in July 1992 indicating that he had no choice but to cease operations. 

Exxon claims that this amounts to a rejection of a franchise agreement. 

Carter's statement, however, does not show that Exxon made an 

unconditional offer. Read in a light most favorable to Carter, the 

statement only shows that Carter could not continue his operations if he 

was forced to agree to Exxon's package offer--including his waiver of 

claims arising out of the tank replacement. 

 10 
In short, the district court failed to place the events of 

June and July in context with the previous relations 

between the parties and only accepted Exxon's version of 

the events. The record, when viewed in the light most 

favorable to the Carters, reveals that a genuine issue of 

material fact exists as to whether the renewal offer was 

conditional. We therefore reverse the grant of summary 

judgment for Exxon. 

II. Summary Judgment on Counterclaim 

The district court entered summary judgment for Exxon 

on its counterclaim, which alleged that Carter owed Exxon 

for purchases of gasoline under the agreement.5 The district 

court held that Carter had not contested his liability as to 

the items in question. While the court lacked 

documentation as to amounts, it found it appropriate to 

grant Exxon's motion for summary judgment on the issue 

of liability. The parties later stipulated the amount of this 

debt as $40,000. 

The Carters argue the debt arose almost entirely from the 

loads of gasoline used to hold the tanks down during 

repair. Luciano, Exxon's employee, testified that the 

indebtedness arose from the hold-down gasoline used for 

the three tanks. The Carters further argue that they did not 

expressly or impliedly promise to pay for the hold-down 

loads as they did not order the gasoline; thus, Exxon could 

only recover in quasi-contract, a theory of recovery Exxon 

did not allege. The franchise agreement states that

"[Gasoline] shall be delivered by Seller to Buyer at the 

premises in the quantities ordered by Buyer." Carter 

testified that he did not order the hold-down loads. Luciano 

testified that the Carters disputed the amount of the debt. 

O'Connor testified that there was a dispute regarding 

monies allegedly due for fuel used in the tank replacement. 

Applying the standards stated above, we conclude this 

_________________________________________________________________ 

5. Exxon also asserts that the Carters' alleged failure to pay the debt is 

a basis for granting summary judgment in its favor on the Carters' 

Petroleum Act claim. The district court did not base its grant of 

summary judgment on the Petroleum Act claim upon this debt; thus, we 

do not address it in relation to the Petroleum Act claim. 

 11 
evidence compels the rejection of summary judgment on 

Exxon's counterclaim. 

III. Jury Instruction on Waiver 

The case went to the jury on the Carters' breach of

contract claims, and the jury found that the Carters waived 

performance of Exxon's contractual duty to repair the tanks 

from October 18, 1990, to December 30, 1990. The Carters 

argue that the court erred in instructing the jury that 

waiver could be found based upon "inaction or silence." The 

Carters timely objected to the instruction. We must

determine whether the jury instructions as a whole stated 

the correct legal standard. See Ryder v. Westinghouse Elec. 

Corp., 128 F.3d 128, 135 (3d Cir. 1997), cert. denied, 118 

S.Ct. 1052 (1998). "If, looking at the charge as a whole, the 

instructions were capable of confusing and thereby 

misleading the jury, we must reverse." Mosley v. Wilson, 

102 F.3d 85, 94 (3d Cir. 1996) (quotations omitted). 

The breach of contract claim was asserted under New

Jersey law, and we look to New Jersey law to determine the 

applicable definition of waiver. The Supreme Court of New 

Jersey in West Jersey Title & Guaranty Co. v. Industrial 

Trust Co., 141 A.2d 782 (N.J. 1958), held that waiver 

requires "a clear, unequivocal, and decisive act of the party 

showing such a purpose or acts amounting to an estoppel 

on his part . . . ." Id. at 787. See also Petrillo v. Bachenberg, 

623 A.2d 272, 276 (N.J. Super. Ct. App. Div. 1993), aff 'd, 

655 A.2d 1354 (N.J. 1995); Country Chevrolet, Inc. v. 

Township of North Brunswick Planning Bd., 463 A.2d 960, 

962 (N.J. Super. Ct. App. Div. 1983). New Jersey law thus 

requires a decisive act, rather than mere inaction, as a 

basis for waiver, and we conclude the district court's 

instruction was contrary to New Jersey law. 

Moreover, during closing argument, Exxon's counsel 

argued that the Carters' silence in the face of the

destruction of the tanks and Exxon's corresponding "higrade" proposal made it reasonable for Exxon to proceed on 

the proposals, rather than to start replacing the tanks. The 

district court instructed the jury that it mustfind a waiver 

if the Carters expressly agreed to or clearly acquiesced in a 

 12 
delay of performance under the contract which reasonably 

led Exxon to believe that the Carters would not insist the 

tanks be repaired or replaced. Introducing the issue of 

Exxon's reasonable belief is also contrary to New Jersey 

law, and further compounded the error. See Petrillo, 623 

A.2d at 272, 276 (holding that it is erroneous to define 

waiver as conduct causing an objective observer to believe 

party had relinquished her rights). Including inaction, 

silence, and reasonable belief in the definition of waiver 

creates an incorrect statement of the legal standard and 

could confuse the jury as to the basis for waiver. The 

district court's instruction is reversible error. 

IV. Damages 

A. 

The franchise relationship between Carter and Exxon was 

memorialized in the Sales Agreement and the Rental 

Agreement. Each had a provision disclaiming damages. 

Paragraph three of the Rental Agreement states: 

 Upon written notice from the Lessee, Lessor shall make 

 all repairs to the equipment leased hereunder which 

 are not Lessee's responsibility as described in Exhibit 

 A; provided, however, that such repairs are, in Lessor's 

 sole judgment, necessary in consideration of the 

 remaining term of this agreement or have not been 

 caused by negligence or misuse of Lessee or Lessee's 

 employees, agents, representatives or contractors. 

 Lessor and its designees shall have the right to enter 

 the premises at any time to inspect, repair, or replace 

 the equipment, and Lessor shall have no obligation to 

 reimburse Lessee for any loss of business by Lessee or 

 other damages resulting from these activities by Lessor. 

Paragraph twenty-six of the Sales Agreement states:

 DAMAGES: NO CLAIM SHALL BE MADE UNDER THIS 

 CONTRACT FOR SPECIAL, OR CONSEQUENTIAL 

 DAMAGES, EXCEPT AS PROVIDED OTHERWISE BY 

 LAW. 

 13 
The district court held that it did not need to look to 

paragraph twenty-six of the Sales Agreement because

paragraph three of the Rental Agreement was more 

applicable to tank replacement. After determining that 

paragraph three was not unconscionable, the district court 

held that it barred the Carters' recovery of consequential 

damages on their claim for breach of duty to repair in a 

good and workmanlike manner, but did not bar the Carters' 

recovery of consequential damages on their claim for breach 

of duty to repair in a reasonable time. Each party claims 

the district court's holding was erroneous. The Carters 

claim that both paragraph three and paragraph twenty-six 

are inapplicable, and, in the alternative, they are

unconscionable. Exxon disputes the Carters' claims and 

further contends that the district court erred by not 

applying paragraphs three and twenty-six to the Carters' 

claim for breach of duty to repair in a reasonable time. 

Thus, we must first determine whether the proper 

interpretation of the contract bars the Carters' recovery of 

consequential damages and then determine whether the 

contract, properly interpreted, is unconscionable. 

Franchise agreements governed by the Petroleum Act are 

to be interpreted according to state contract law.6 See Lippo 

v. Mobil Oil Corp., 776 F.2d 706, 712 (7th Cir. 1985). We 

thus look to New Jersey's law of contract interpretation. 

New Jersey's fundamental rule of contract interpretation is 

_________________________________________________________________ 

6. Rental agreements are interpreted and analyzed for unconscionability 

in the same way as contracts. We need not consider whether New 

Jersey's version of the Uniform Commercial Code applies to this rental 

agreement. On the state law issues before the court today--waiver, 

interpretation, unconscionability, and consequential damages--the 

U.C.C. analysis and the common law contract analysis lead to the same 

result. See N.J. Stat. Ann. SS 12A:2-209 (West 1962) (not defining waiver) 

and 12A:2-208 (West 1962) (New Jersey Study Comment). Compare N.J. 

Stat. Ann. S 12A:2-301 (West 1962) (U.C.C. Comment) with Jacobs v. 

Great Pacific Century Corp., 518 A.2d 223, 224, 227 (N.J. 1986) 

(interpretation). Compare Chatlos Systems, Inc. v. National Cash Register 

Corp., 635 F.2d 1081, 1086-87 (3d Cir. 1980) with Howard v. Diolosa, 

574 A.2d 995, 999 (N.J. Super. Ct. App. Div. 1990) (unconscionability), 

certification denied, 585 A.2d 409 (N.J. 1990). Compare N.J. Stat. Ann. 

S 12A:2-715 (West 1962) (New Jersey Study Comment) with Donovan v. 

Bachstadt, 453 A.2d 160, 165-66 (N.J. 1982) (consequential damages). 

 14 
that the court is to ascertain the parties' intent from what 

was written and the surrounding circumstances. See 

Jacobs v. Great Pacific Century Corp., 518 A.2d 223, 224, 

227 (N.J. 1986); Tessmar v. Grosner, 128 A.2d 467, 471 

(N.J. 1957). Our review of the district court's interpretation 

of the contract is plenary. See Smithkline Beecham Corp. v. 

Rohm and Hass Co., 89 F.3d 154, 159 (3d Cir. 1996);

Jumara v. State Farm Ins. Co., 55 F.3d 873, 880-81 (3d Cir. 

1995). 

The parties make much of whether the Sales Agreement 

and the Rental Agreement are one agreement or two. Exxon 

argues that they are one agreement; therefore, paragraph 

twenty-six of the Sales Agreement applies to losses

resulting from the repair of the tanks, and paragraph 

twenty-six is so broad that it does not leave room for the 

district court's distinction between manner and time of 

repair. The Sales Agreement refers to attachments, and its 

language makes evident that the Rental Agreement was an 

attachment to it. The Rental Agreement is not only entitled 

a "Rider to the Sales Agreement," but commences with 

reference to the buyer's purchase of products as defined in 

the Sales Agreement. However, whether the parties have 

one or two agreements is not determinative of the issue 

before us. 

Contract provisions are to be interpreted so as to give 

each provision meaning, rather than rendering some 

provisions superfluous. See, e.g., Ehnes v. Hronis, 23 A.2d 

592, 593 (N.J. 1942); United States v. Johnson Controls, 

Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983); Embassy

Moving & Storage Co. v. United States, 424 F.2d 602, 606 

(Ct. Cl. 1970). Exxon's reading of paragraph twenty-six of 

the Sales Agreement renders superfluous the disclaimer 

language in paragraph three of the Rental Agreement, 

which specifically addresses the parties' respective duties 

for the upkeep of the equipment and which disclaims

business loss resulting from repair of the equipment. The 

reading of the two agreements which gives independent 

meaning to paragraph three of the Rental Agreement is that 

paragraph twenty-six of the Sales Agreement does not apply 

to losses stemming from tank repair. The disclaimers in 

paragraph twenty-six of the Sales Agreement and 

 15 
paragraph three of the Rental Agreement apply to different 

aspects of the contractual relationship between the parties. 

The critical phrase of paragraph three of the Rental 

Agreement is: "[Lessor] shall have the right to enter the 

premises at any time to inspect, repair, or replace the 

equipment, and Lessor shall have no obligation to 

reimburse Lessee for any loss of business by Lessee or 

other damages resulting from these activities . . . ." The 

business loss on the breach of duty to repair in a good and 

workmanlike manner claim results from Exxon's repair of 

the equipment and is barred by the disclaimer. 

We believe, however, that New Jersey's contract 

interpretation principles lead to the conclusion that the 

Carters may recover business loss for breach of duty to 

repair in a reasonable time. 

"An agreement . . . must be accorded a rational meaning 

in keeping with the express general purpose." Tessmar v. 

Grosner, 128 A.2d 467, 471 (N. J. 1957). "[T]he most fair 

and reasonable construction, imputing the least hardship 

on either of the contracting parties should be adopted . . . 

so that neither will have an unfair or unreasonable

advantage over the other." Id. (citations omitted).

Paragraph three only bars damages "resulting from" 

repair and does not refer to failure to commence repairs or 

the timeliness of repairs. An interpretation of this language 

that allows Exxon to delay commencement of tank 

replacement and not make the replacement in a reasonable 

time is not the most reasonable or fair because it 

substantially undermines the right to repairs that Exxon 

gave Carter.7 Further, allowing Exxon an unlimited time to 

make the repairs gives it an unfair advantage in this case 

_________________________________________________________________ 

7. Exxon claims that it did not commence tank replacement because 

after the tanks surged, the Carters negotiated with them about making 

the "hi-grade" improvement. However, Carter testified that he told Exxon 

that he was not interested in the "hi-grade" improvement and wanted his 

tanks replaced in their old site. This factual dispute goes to the merits 

of Exxon's waiver defense, which the jury resolved by finding that Carter 

waived his right to have the tanks timely replaced from October 18, 1991 

to December 30, 1991. The waiver issue must be retried with the proper 

jury instruction. 

 16 
where the delay could have compelled Carter into assenting 

to the "hi-grade" improvement. It is also not in accord with 

the general purpose of the agreement, the sale of gasoline. 

If Exxon truly was bargaining for exculpation from damages 

regardless of the length of time it took them to make 

repairs, it should have drafted the contract explicitly 

excluding damages for untimely repair. 

While the exculpatory clause in a commercial lease was 

held not to exculpate a landlord from his own negligence 

unless the clause expressly so stated, see Carbone v. 

Cortlandt Realty Corp., 277 A.2d 542, 543 (N.J. 1971), the 

principle is also applicable in this case. Exxon's delay, like 

Cortlandt's negligence, was a subject that required an 

explicit disclaimer. 

Considering the stake Carter had in his franchise and the 

imprecise language of the disclaimer, we are not persuaded 

that Carter agreed to incur the risk that Exxon would delay 

the commencement of tank replacement and not perform 

the required repair or replacement in a reasonable time. 

B. 

Even if we were to interpret the disclaimer as Exxon 

proposes, we would conclude the contract is 

unconscionable to the extent that it shields Exxon from 

damages resulting from its failure to repair or replace the 

tanks in a reasonable time. Unconscionability is a question 

of law for the court to decide. N.J. Stat. Ann. S 12A:2-302 

(West 1962). In determining whether a contract is 

unconscionable, courts focus on the bargaining power of 

the parties, the conspicuousness of the putative unfair 

term, and the oppressiveness and unreasonableness of the 

term. See, e.g., Chatlos Systems, Inc. v. National Cash 

Register Corp., 635 F.2d 1081, 1086-87 (3d Cir. 1980); 

Gladden v. Cadillac Motor Car Division, 416 A.2d 394, 403 

(N.J. 1979) (concurring opinion). 

In this case, while we recognize that the Carters had 

discussions with other franchisors, there is no doubt that 

their bargaining power was substantially less than Exxon's. 

See S.Rep. No. 95-731, at 17-18, (1978), reprinted in 1978 

U.S.C.C.A.N. 873, 875-76. The Petroleum Act might protect 

 17 
the Carters from unfair renewal decisions, but there 

remains a wide disparity in bargaining power with regard to 

other aspects of the relationship. 

Furthermore, the disclaimer is not adequately 

conspicuous. The paragraph is not titled, and the critical 

language limiting Exxon's liability is not capitalized or 

highlighted. Thus, there is no indication that this farreaching disclaimer might be of greater importance than 

other provisions of the paragraph or the agreement. The 

lack of a title or highlighting is particularly disturbing 

because the disclaimer is buried in a paragraph which 

purports to confer the benefit of repairs made at Exxon's 

expense. Indeed, in a single-spaced paragraph, which for 

the first eight and one-half lines discusses only the duty to 

repair, it is not until the last clause of the third sentence 

beginning on the last half of the eighth line, that the 

disclaimer of liability is reached. In this respect, the case is 

similar to Jutta's Inc. v. Fireco Equipment Co., 375 A.2d 687 

(N.J. Super. Ct. App. Div. 1977), in which the court struck 

down a limitation on damages which appeared at the end of 

a paragraph conferring a guarantee. See id. at 690. While 

the paragraph in Jutta's was more deceiving because it was 

titled "Distributor's Guarantee," placing the disclaimer far 

down in a paragraph which otherwise seems to confer

benefits, without any demarcation at all, falls short of being 

conspicuous. See N.J. Stat. Ann. S 12A:1-201(10) (West 

Cum. Supp. 1998) (describing language as conspicuous if it 

is in larger or contrasting type). 

Finally, the disclaimer, as Exxon would have us interpret 

it, would be oppressive and unreasonable. In some 

respects, this case is similar to Kearney & Trecker Corp. v. 

Master Engraving Co., 527 A.2d 429 (N.J. 1987). There the 

New Jersey Supreme Court considered whether a seller's 

disclaimer of consequential damages was enforceable when 

the seller's repair warranty had failed of its essential 

purpose. 

Kearney adopted our reasoning in Chatlos Systems, Inc. 

v. National Cash Register Corp., 635 F.2d 1081 (3d Cir. 

1980), and held that the fact that the seller's repair 

warranty had failed of its essential purpose does not alone 

render the disclaimer of consequential damages 

 18 
unconscionable. See Kearney, 527 A.2d at 437-38. In the 

court's words: 

 [New Jersey Law] does not require the invalidation of 

 an exclusion of consequential damages when limited 

 contractual remedies fail of their essential purpose. It 

 is only when the circumstances of the transaction, 

 including the seller's breach, cause the consequential 

 damage exclusion to be inconsistent with the intent 

 and reasonable commercial expectations of the parties 

 that invalidation of the exclusionary clause would be 

 appropriate . . . . For example, although a buyer may 

 agree to the exclusion of consequential damages, a 

 seller's wrongful repudiation of a repair warranty may 

 expose a buyer to consequential damages not 

 contemplated by the contract . . . . 

 Id. at 438. 

Kearney held that the disclaimer in question was not 

unconscionable as applied, considering the wide range of 

repairs possible for the complex controlled machine at issue 

and the repeated service calls made by the seller. See id. at 

438-39. 

In this case, Exxon did not repudiate its duty to repair. 

But, under Kearney, the issue is whether, considering the 

circumstances of the transaction and the nature of Exxon's 

breach, it is consistent with reasonable commercial

expectations and the intent of the parties that the Carters 

bear the risk of loss of business stemming from Exxon's 

failure to repair or replace the tanks in a reasonable time. 

The disclaimer makes no reference to failure to 

commence repairs or the timeliness of repairs. Most

important is the nature of Exxon's breach. Even if the 

Carters waived their right to timely tank replacement 

through December 30, 1991, as the jury found, Exxon did 

not commence tank replacement until mid-May. The 

replacement of the tanks was not completed until mid-July, 

three and one-half months longer than the jury found to be 

a reasonable time for the replacement. Absent waiver or a 

similar defense, we conclude that the substantial delay in 

the commencement of tank replacement, with a resulting 

failure to replace in a reasonable time, is the kind of 

 19 
breach, which causes unforeseen damage, such as the New 

Jersey Supreme Court referred to in Kearney. 

Kearney relied on our decision in Chatlos Systems, Inc. v. 

National Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980). 

In Chatlos, the buyer bought a computer system from the 

seller. The contract included a repair warranty and a 

consequential damage disclaimer. A year and a half after 

the sale, the system was not working properly, despite 

repeated repair efforts by the seller. The buyer sued for 

consequential damages. See Chatlos, 635 F.2d at 1084. In 

upholding the validity of the damage disclaimer against a 

claim that it was unconscionable, we stated, "[I]t is worth 

mentioning that even though unsuccessful in correcting the 

problems within an appropriate time [the seller] continued 

in its efforts . . . . This is not a case where the seller acted 

unreasonably or in bad faith." Id. at 1087. In this case, as 

we observed above, we do not see the kind of continuing 

effort to repair present in Chatlos, and the jury specifically 

found that Exxon breached a contractual obligation to 

make the repair or replacement within a reasonable time. 

Even assuming Exxon's interpretation of the contract is 

correct, we conclude that the application of the disclaimer 

to damages resulting from Exxon's failure to repair or 

replace the tanks in a reasonable time is unconscionable. 

We reach this decision considering the precedent of

Kearney, Chatlos, and Jutta's, the disparity in bargaining 

power between the parties, the inconspicuousness and 

imprecision of the disclaimer, and the substantial delay in 

the commencement of the tank replacement, which, absent 

waiver or a similar defense, was inconsistent with the 

parties' intent and reasonable commercial expectations.8 

On their breach of duty to repair in a reasonable time 

claim, the Carters may recover business loss which, at the 

time the parties made the contract, was a reasonably 

foreseeable result of Exxon's breach and was a reasonably 

certain consequence of the breach. See Donovan v. 

_________________________________________________________________ 

8. The Carters' contention that it is unconscionable for the disclaimer to 

bar recovery on the breach of duty to repair in a good and workmanlike 

manner claim is without merit. That breach does not involve the kind of 

unforeseen damages to which Kearney refers. 

 20 
Bachstadt, 453 A.2d 160, 165 (N.J. 1982). However, we 

affirm the district court's holding that on this breach of 

contract claim the Carters may not recover business loss on 

a hypothetical franchise agreement that would have taken 

effect after the franchise agreement expired in July 1992. 

We are persuaded that, as a matter of law, the nonrenewal 

of the franchise agreement and the lost opportunity to 

make profit on a new agreement was not a reasonably

certain consequence of Exxon's delay in replacing the 

tanks. The delay and the ultimate tank replacement 

occurred more than a year before the franchise was not 

renewed, and during that year, the parties continuously 

negotiated for a renewal of the franchise. 

C. 

If they succeed on their Petroleum Act claim, the Carters 

can recover lost profits that would have accrued had they 

been able to continue to operate the station after July 1992.9 

See Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 

1388 (10th Cir. 1981), cert. denied, 455 U.S. 1019 (1982). 

The disclaimers do not shield Exxon from liability for 

consequential damages resulting from a violation of the 

Petroleum Act. In the first place, the language of the 

disclaimers does not apply to these damages. Paragraph 

three does not apply because these damages do not"result" 

from repair. Paragraph twenty-six does not apply because 

these damages are not based on a claim made "under" the 

contract. Alternatively, even if the damages were based on 

a claim made "under" the contract, 15 U.S.C.S 2805(d) 

provides for the recovery of actual damages. Thus, the 

damages would be "provided otherwise by law" in 

accordance with paragraph twenty-six's savings clause. 

Most importantly, even if the disclaimers did apply, we 

could not allow Exxon to contract away the protection 

Congress provided franchisees. See Graham Oil v. Arco 

Prod. Co., 43 F.3d 1244, 1248 (9th Cir. 1994), cert. denied, 

516 U.S. 907 (1995). If the Carters succeed on their 

_________________________________________________________________ 

9. The district court did not rule on the damages available to the Carters 

on the Petroleum Act claim because the court had granted Exxon 

summary judgment on this claim. 

 21 
Petroleum Act claim, they are entitled to actual damages 

resulting from the violation. See 15 U.S.C.S 2805(d). 

V. Conclusion 

We reverse the district court's entry of summary 

judgment on the Petroleum Act claim and Exxon's 

counterclaim. We conclude the district court erred in 

defining waiver for the jury and reverse the judgment on 

the Carters' state law contract claims. We affirm the district 

court's holding that the Rental Agreement disclaimer 

precludes the Carters from recovering business loss on 

their breach of duty to repair in a good and workmanlike 

manner claim and its holding that neither the Rental 

Agreement disclaimer nor the Sales Agreement disclaimer 

precludes recovery on the Carters' claim for breach of duty 

to repair in a reasonable time to the extent that business 

loss accrued before the franchise agreement expired in July 

1992. In view of our holdings on the waiver instruction, the 

damages for breach of contract, and the counterclaim, we 

believe it is appropriate that the entire case be retried, 

including the issue of the reasonable time to repair or 

replace the tanks. See Childers v. Joseph, 842 F.2d 689, 

699 (3d Cir. 1988); Heckmen v. Federal Press Co. , 587 F.2d 

612, 619 (3d Cir. 1978). We affirm the district court's 

holdings on all other issues raised. We remand for further 

proceedings consistent with this opinion. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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