Case Name: Robert K. SCHULTZE and Edith Georgianna Schultze, his wife, Appellants, v. CHEVRON OIL CO., a California Corporation
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1978-06-12
Citations: 579 F.2d 776
Docket Number: No. 77-1152
Parties: Robert K. SCHULTZE and Edith Georgi-anna Schultze, his wife, Appellants, v. CHEVRON OIL CO., a California Corporation.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 579
Pages: 776–786

Head Matter:
Robert K. SCHULTZE and Edith Georgi-anna Schultze, his wife, Appellants, v. CHEVRON OIL CO., a California Corporation.
No. 77-1152.
United States Court of Appeals, Third Circuit.
Argued April 24, 1978.
Decided June 12, 1978.
Miller & Lookhoff, East Brunswick, N. J., for appellants; Conboy, Hewitt, O’Brien & Boardman, Myron D. Cohen and David R. Davies, New York City, Irving G. Schleimer, Robert S. Miller and Harmon H. Look-hoff, East Brunswick, N. J., on the brief.
Wilentz, Goldman & Spitzer, Woodbridge, N. J., for appellee; Francis X. Journick, Woodbridge, N. J., of counsel, Marvin J. Brauth, Woodbridge, N. J., on the brief.
Before ALDISERT and ADAMS, Circuit Judges, and HANNUM, District Judge.
Honorable John B. Hannum, of the United States District Court for the Eastern District of Pennsylvania, sitting by designation.

Opinion:
OPINION OF THE COURT
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.
I.
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 appel-lee, 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 Sehultze that Chevron had no interest in making the purchase.
Sehultze 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. Sehultze 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 Sehultze again that it would not buy the station, suggested the alternative of drafting a new long-term lease. Negotiations between Sehultze 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 pri- or 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.
II.
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.
A.
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.
B.
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
[i]n 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 eyery contract there exists an implied covenant of good faith and fair dealing." 5 Williston on Contracts § 670, pp. 159-160 (3d ed. 1961).
Palisades Properties, Inc. v. Brunetti, 44 N.J. 117, 130, 207 A.2d 522, 531 (1965); Association Group Life, Inc. v. Catholic War Veterans, 61 N.J. 150, 153, 293 A.2d 382, 384 (1972); Bak-A-Lum Corp. of America v. Alcoa Building Products, Inc., 69 N.J. 123, 129-30, 351 A.2d 349, 352 (1976). Such a broad principle, however, is of little assistance in the present factual situation.
Appellants rely primarily on Fitt v. Schneidewind Realty Corp., 81 N.J.Super. 497, 196 A.2d 26 (1963), the leading case on unlawful interference with prospective economic advantage. There, the Superior Court of New Jersey stated:
In order for the plaintiff to prevail in an action such as this, the court must find from the evidence that but for defendants' wrongful acts it is reasonably probable that plaintiff would have effected the sale of the property . . . . A wrongful act is one which in the ordinary course of events will infringe upon the rights of another to his damage, or one which is done with the purpose of benefiting the acting party at the other's expense and is not done in the exercise of an equal or superior right.
Id. at 504, 196 A.2d at 30.
The Schultzes failed to sustain their dual burden of establishing both a wrongful act, an act "not done in the exercise of an equal or superior right", and a reasonable probability of effecting a sale. The record establishes that Chevron merely awaited written notice of an acceptable bona fide offer. An implied covenant of fair dealing does not vitiate Chevron's contractual right to such notice, and we consider that right to be at least equal to any alleged "right" in the Schultzes to demand a waiver. Nor can we say that the record establishes a reasonable probability of a sale but for Chevron's acts. "Feelers", or mere expressions of interest in the property are insufficient to support the requirement of reasonable probability. We think a bona fide offer would be necessary to establish anything more than a possibility.
Appellants also rely on Shell Oil Co. v. Marinello, 63 N.J. 402, 307 A.2d 598 (1973), a case which is superficially related to the facts before us. Shell involved a lease and dealership agreement between a major oil company and a service station operator who sought to avoid enforcement of one of the terms of the lease. The lease could be terminated by Shell upon 30 days' notice, and the dealership agreement upon 10 days' notice. Shell gave the dealer six weeks' notice of termination of both the lease and the dealership agreements, without stating any reasons for its action. The dealer was granted equitable relief upon the trial court's holding that "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; . . . " Id. at 406, 307 A.2d at 600. Citing "the public policy of this State affecting such [a] relationship," the Supreme Court of New Jersey indicated
full agreement with the basic determination of the trial court that Shell had no legal right to terminate its relationship with Marinello except for good cause, i. e., the failure of Marinello to substantially comply with his obligations under the lease and dealer agreement.
Id.
Facts deemed significant by the Shell court in reaching its decision included the gross disparity in bargaining power between Shell and Marinello, resulting in Shell's ability to dictate the terms of the agreements; the grossly unfair contractual provisions at issue; and the clear tendency to injure the public. The absence of these factors clearly distinguishes Shell from the case before us. First, the record does not substantiate disparity in bargaining power between the Schultzes and Morris, the original parties to the lease. Even assuming the supérior resources of an oil company vis-a-vis a typical dealer, we are not apprised of appellants' position as owner-dealers vis-a-vis the typical dealer-franchisee. Second, we see no reason to compare a unilateral right to terminate a dealership with a right of first refusal. The New Jersey court characterized the former as "grossly unfair", noting that the dealer has "everything to lose". Id. at 409, 307 A.2d at 602. In contrast, a lessee's right of first refusal is a means of protecting him without placing a burden on the lessor; it has the effect of creating two prospective purchasers for every offer received by the owner. Finally, we see nothing inherent in the lease provision which clearly tends to the injury of the public in any way comparable to the provision in the Shell agreement.
In short, we do not believe that the Supreme Court of New Jersey would declare Chevron's prior right to purchase "void as against the public policy of [New Jersey]", id. at 410, 307 A.2d at 603, as it did the termination provision in Shell.
III.
Having accepted the validity of the lease provision granting a prior right to purchase, we think that on any theory of liability, a prerequisite to recovery is a showing that appellants received a bona fide offer. We have examined record evidence of the "offers" received by Schultze and conclude that the district judge correctly held as a matter of law that none constituted a bona fide offer. Accordingly, the judgment of the district court will be affirmed.
. Our disposition precludes consideration of the appellants' additional contention that compensatory and exemplary damages are appropriate.