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Lawletter No. 162 Court says dealer shouldn’t have believed Exxon A federal appeals court has ruled that a retailer was not legally entitled to believe an oil company’s promise it would not open a competing station nearby in the case of Childers Oil Co. v. Exxon Corp. (4th Cir. 1992), CCH Bus. Fran. Guide Para. 10,052. Facts: Childers Oil Co. owned a service station in West Virginia. Childers lost Amoco as a supplier when it left the state. In 1982, Exxon approached Childers about supplying the location. Childers was concerned because Exxon owned a tract of land about 400 yards from its station. Exxon personnel orally promised Childers that it would not build a station on its nearby property if Childers would sign a supply contract. Childers then signed a supply contract. The written agreement said nothing about Exxon’s promise not to build a station on its vacant land. The contract contained the following provision: Ò25. Entire Agreement: This writing is intended by the parties to be the final, complete and exclusive statement of their agreement about the matters covered herein. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR WARRANTIES AFFECTING IT.Ó Childers asked that Exxon’s promise not to compete be included in the agreement, but was told that no changes could be made in the form. In 1984, Exxon started building a station on its nearby property. Childers signed another supply contract with Exxon. Childers then spent $700,000 improving its station, adding a convenience store, ice cream store and delicatessen, and increasing gasoline capacity. The station’s revenue could not keep up with the increased debt burden. In 1986, Childers’ Exxon account became delinquent by $100,000. Childers started buying gasoline from Pennzoil. Exxon started demanding payment by cashier’s check. Childers sold some of the Pennzoil gasoline under Exxon’s trademark, a clear violation of the branding laws.
Exxon terminated the franchise. Childers sued Exxon for fraud, breach of contract and interference with its business. The trial court dismissed the case, and Childers appealed. Ruling: The appeals court affirmed the trial court’s dismissal of the retailer’s suit. More specifically, the court held that: (1) Childers was not entitled to rely on Exxon’s promise not to build a competing station because the written agreement specifically stated that there were no oral promises or representations. (2) Childers waited too long to sue. It could have filed suit in 1984, when it first realized that Exxon was going to build a station nearby.
Recommended procedures: We recommend the following: (1) It is almost always a mistake to rely on oral promises or representations from franchisor personnel. We realize that in many cases, all the dealer can do is to hope that the company will do what its employees say it will. But most franchise agreements contain clauses which invalidate such promises. The time to ask that something be put in writing or to consult with your lawyer is when you are may incur substantial expenses in reliance on what you are told; (2) As we have frequently stressed in these pages, keep a record in writing of any important promises or representations that oil company personnel make to you; (3) Anytime that you are signing a new lease you may want to carefully consider whether or not there are any outstanding promises that have been made to you that have not been kept. If this is the case, you may want to consider talking to your lawyer before signing. Otherwise you may lose any right to enforce the promise; and (4) Any steps to market "outside" product should only be taken with the greatest of care and after obtaining legal advice. |
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