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Lawletter No. 154 Court ruling shows importance of service station business sales law A recent California appeals court ruling illustrates the complex legal problems that can arise in service station business sales. The case, Dameshghi v. Texaco Refining and Marketing, Inc. 92 Daily Journal D.A.R. 2503 (2-27-92) also demonstrates the importance of complying with the letter of the California service station franchise assignment law. Facts: Gilbert Peet was a Texaco lessee-dealer in San Diego. He agreed to sell his business to Michael Dameshghi for $53,200. Peet and Dameshghi opened and escrow and notified Texaco. However, the notice sent to Texaco did not state that Texaco had a 30-day right of first refusal on the deal. Texaco approved the buyer as a new dealer. Dameshghi refused TexacoÕs request that he accept a one-year Ôtrial franchise.Ó Instead, he demanded an assignment of PeetÕs existing 3 year franchise. Texaco then refused to consent to the transfer, and purchased PeetÕs business itself. TexacoÕs purchased the business more than 30 days after it received written notification of the sale, i.e., 33 days. Dameshghi sued Texaco. The trial court dismissed his suit, and he appealed. Applicable law: California Business & Professions Code section 21148 authorizes a dealer to sell or assign his franchise if certain conditions are met. A key requirement is that the dealer must offer the franchisor a right-of-first-refusal on the deal of at least 30 days duration. Ruling: The appeals court upheld the trial courtÕs decision in TexacoÕs favor, ruling that: (1) No express written offer of a first-refusal right was ever made to Texaco. (2) Applicable laws are automatically part of any contract. Therefore, Texaco had a right of first refusal under the state service station franchise assignment law whether or not the dealer expressly offered it to the company. (3) The dealerÕs rights under the state assignment law are subject to waiver. Therefore, a buyer and a seller may, if they wish, provide in the contract that the franchisor does not have a right of first refusal. In such a case, however, the franchisor has no obligation to consent to the assignment. But in this case, the parties did not insert such a provision in the contract. (4) Since the seller never formally notified Texaco that it had a right-of-first-refusal, the 30-day ÒclockÓ never started running. Texaco therefore did not violate the state assignment law by buying the business more than 30 days after it received the notice. Recommended procedures: We suggest the following in this area: (1) In general: The sale or assignment of a service station business is not a simple matter. Next to PMPA lawsuits, a dealer is most likely to get involved in a court action in a case involving such a sale. Therefore, we suggest that you get good legal representation, regardless of whether you are the seller or the buyer. Do not depend on the broker to give you legal advice. That is not his job. (2) Formal notice to oil company: You do not start the Òclock runningÓ under the California service station assignment law until you send the required formal written notice. Oil companies know this. Therefore, make sure the proper notice is sent. (3) First refusal rights: We have repeatedly warned parties to these contracts to be wary of franchisor first-refusal rights. If the seller has some problem with the oil companyÕs taking the deal, he should discuss it in detail with his lawyer. Never assume that the franchisor will not exercise this right. In Lawletter No. 133, we noted that in some cases oil companies are assigning their first-refusal rights to favored dealers. If the parties understate the purchase price in the notification to the oil company, there may be a very serious problem. (4) Previous coverage: For more on service station franchise assignments, see Lawletter Nos. 144 (credit applications),145 (consent requirement), 147 (trial franchises), 148 (environmental problems), 149 (non-competition covenants), 150 (transfer fees), and 153 (escrows). (5) Present or former Chevron dealers: Present or former Chevron dealers are urged to review Lawletter Nos. 137, 145 and 150 on arbitrating transfer fees under the Chevron lease. |
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