|
|
|
Lawletter 225 Mobil case illustrates dangers of supply-loan deals A recent case illustrates the dangers that retailers who try to avoid the legal obligations they incur under major brand contract dealer agreements. In Mobil Oil Corp. v. Dade County Esoil Management Co., Inc. et al. (2-98 S.D. Fla.) CCH Bus. Fran. Guide, 11,322 the refiner sued two marketers who violated the applicable disclosure provisions for fraud. Facts: In 1992, Mobil entered into a franchise agreement with a contract dealer (i.e., a dealer who owns the station property), Bamco IV, Inc. (“Bamco”). Under the Bamco franchise, Mobil advanced $265,000, to be repaid at the rate of 1.767 cents per gallon. The Bamco agreements also provided that: (a) Upon termination or assignment of the agreement, any unpaid balance would be immediately due and payable to Mobil. (b) There could be no sale or assignment of the franchise without Mobil’s approval. (c) Mobil had a right of first refusal on any offer to purchase the station premises or the business. Mobil alleged that in 1994, Bamco told the company that it had contracted to sell the station premises to Esoil, Inc. (“Esoil”) for $1,650,000.00, when the real price was $751,333.27. In 1994, Mobil entered into another franchise agreement for another station (the “Sunshine station”) with a contract dealer Sunshine Energy & Innovation Inc. (“Sunshine”). Mobil advanced Sunshine the sum of $194,808.00, which was to be paid back at a rate of 1.412 cents per gallon. Mobil’s agreement with Sunshine contained the same basic provisions regarding termination or assignment of the franchise and any sale of the premises. Mobil claimed that Esoil promised to pay Sunshine’s debts of $335,110 if the company would approve the sale of the Sunshine station and the Bamco station to it. Mobil did so. Esoil subsequently refused to take responsibility for Sunshine’s debts. Mobil sued Bamco and Sunshine for fraud and misrepresentation. Ruling: The federal district court held that Mobil had stated a valid claim and was entitled to a trial. The judge ruled that: (1) Mobil justifiably relied on the oral promises made by Esoil, and sustained damages as a direct result of the falsehoods; (2) Its release of Sunshine from its debts to Mobil was fraudulently obtained; and (3) Mobil had a legal right to know the exact purchase price for the Bamco station, since the franchise agreement so provided. Analysis and recommended procedures: This case illustrates that a party to a contract does not have the right to evade its provisions by lying, even if he believes that agreement is unfair or unreasonable. The dealer should review any such proposed agreement with his lawyer before signing. In particular, note the following: (1) Competitive allowances: Most of the agreements we have seen provide that the oil company can revoke, withdraw or change any competitive allowance at any time. But the dealer must usually comply with all other provisions of the contract. (2) Minimum purchase provisions: These contracts almost always contain minimum volume requirements. The dealer usually pays back the loan on the basis of a stated amount per gallon. In some cases, the dealer will be given a credit against the loan for each gallon purchased, even without paying any additional sum. (3) Failure to make minimum purchases: The agreement may provide that if you fall below the minimum volume requirement during any given period, you may have to make up the difference of the loan amortization for that period in cash. There may be even more serious consequences. (4) Due on sale: Such contracts usually provide that the entire loan becomes due if the dealer sells the business and/or the property. (5) Liquidated damages: The agreements we have seen usually contain “liquidated damages” clauses, requiring the dealer to pay a six-figure sum if he wrongfully terminates. Such contracts also typically provide that the dealer must pay the entire remaining loan balance upon termination. (6) First refusal right on sale of business or property: The franchisor usually includes provisions granting it a first-refusal right on any sale of the property or the business. |
|
|