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AMOCO OIL COMPANY v. ROBERT F. BURNS (07/02/81)

SUPREME COURT OF PENNSYLVANIA


decided: July 2, 1981.

THE AMOCO OIL COMPANY
v.
ROBERT F. BURNS, APPELLANT

No. 80-3-566, Appeal from the Order of the Superior Court at Nos. 8 and 59.

COUNSEL

Norman P. Zarwin, Philadelphia, for appellant.

William A. DeStefano, Philadelphia, for appellee.

Kauffman, Justice. O'Brien, C.j., did not participate in the consideration or decision of this case.

Author: Kauffman

[ 496 Pa. Page 338]

OPINION OF THE COURT

After a non-jury trial in the Bucks County Court of Common Pleas, appellee, Amoco Oil Company ("Amoco"), was awarded possession of a gasoline service station by judgment in ejectment against appellant, Robert F. Burns ("Burns"), an Amoco dealer who had refused to vacate the property after the expiration of his lease. Burns' exceptions to the adjudication were overruled by the Common Pleas Court en banc and the Superior Court affirmed, 268 Pa. Super. 390, 408 A.2d 521 (1979).*fn1

Appellant contends here, as he did in the courts below, that Amoco was precluded from terminating his franchise either by this Court's decision in Atlantic Richfield Co. v. Razumic, 480 Pa. 366, 390 A.2d 736 (1978),*fn2 or by the Pennsylvania Gasoline Act.*fn3 We disagree and affirm the judgment of the Superior Court.*fn4

Amoco purchased the land in question in 1966 and thereupon constructed a two bay gasoline service station at a total cost in excess of $125,000. The property was then

[ 496 Pa. Page 339]

    leased to Burns as an Amoco dealership which was maintained pursuant to a series of written leases, the last of which was for a one-year term ending September 10, 1976, with automatic renewals for two successive one-year terms unless either party gave written notice of cancellation prior to the end of the initial or renewal term.*fn5 The lease automatically renewed itself for the first additional term, but on June 8, 1977, Amoco gave written notice of non-renewal, and directed Burns to vacate the premises effective September 10, 1977.*fn6

At trial, Amoco officials testified that they decided not to renew Burns' lease and to divest themselves of the property because Burns' steadily decreasing sales volume had made it unprofitable for Amoco to maintain the station.*fn7 In response, Burns contended that the diminishing sales volume of the station and its resultant unprofitability were due to

[ 496 Pa. Page 340]

Amoco's failure to take the affirmative steps which he had requested, and not to any dereliction on his part.*fn8 He thus argued that Amoco's claim of unprofitability as a justification for termination of the franchise was neither commercially reasonable nor made in good faith, and, therefore, that termination was in violation of the Razumic principles, supra, n.3; he further contended that termination was illegal because of the absence of any of the specific grounds for cancellation enumerated in Section 202-3(b) of the Gasoline Act.*fn9

The trial court, however, held that Amoco's decisions in connection with the operation of Burns' station were made in accordance with good faith business judgment; that, in any event, the evidence showed that compliance with Burns' requests would not demonstrably have improved the station's sales volume; and, therefore, that the unprofitability of Burns' franchise was a commercially reasonable justification for termination under Razumic.*fn10 The court also concluded that Amoco's decision to cancel Burns' lease was proper under the Gasoline Act because unprofitability was sufficient cause for termination under Section 202-3(c), which provides:

(c) Nothing . . . shall prohibit termination, cancellation, or failure to renew:

[ 496 Pa. Page 341]

(3) where there is such cause for termination as a court of competent jurisdiction might find to be reasonable and just under all the circumstances.

The Superior Court concluded: (1) that the evidence was sufficient to sustain the trial court's findings; (2) that it need not decide whether the termination here was in accord with the Razumic standard of good faith and commercial reasonableness, because, unlike Razumic, the right to terminate the relationship without cause was reserved by the parties in their written agreement; and (3) that unprofitability of the franchise was a reasonable and just cause for termination under Section 202-3(c) of the Gasoline Act.*fn11 We agree.

I

In Razumic, the Atlantic Richfield Company ("Arco") sought to terminate its dealership agreement without cause at the end of a three year lease term. Arco contended that the parties had contemplated an ordinary landlord and tenant relationship, terminable by either party upon expiration of the term of occupancy; Razumic argued that his "Dealer

[ 496 Pa. Page 342]

Lease," which did not confer upon Arco the right to terminate the relationship without cause, embodied a franchise agreement which Arco could not terminate at will. In agreeing with Razumic, we emphasized that although the writing expressly authorized him to terminate without reason upon proper notice at the end of a term, Arco expressly was given the right to terminate only for limited business reasons.*fn12 Under all the circumstances, we found the absence of a provision authorizing Arco to terminate without reason to be "striking," 480 Pa. at 377, 390 A.2d at 741, and held that the terms of Razumic's leasehold established a right of occupancy which could be terminated by Arco only if consistent with principles of good faith and commercial reasonableness. We specifically declined, however, to decide whether our holding would extend to those cases where petroleum suppliers have reserved the right to terminate franchise agreements with their dealers without cause. 480 Pa. at 379, n.8, 390 A.2d at 742, n.8.

In the present case, Burns' lease contained a clear and unambiguous provision permitting termination by either party without cause on proper notice at the end of the original or renewal term. We conclude that this provision renders the Razumic standard inapplicable, and that the Superior Court thus correctly noted, ". . . the duty of good faith and commercial reasonableness is used to define the franchisor's power to terminate the franchise only when it is not explicitly described in the parties' written agreements." 268 Pa. Super. 390, 408 A.2d at 524.

II

Although the lease provision here would not in itself be adequate to satisfy the termination or non-renewal requirements

[ 496 Pa. Page 343]

    of Section 202-3 of the Gasoline Act, we conclude, as did both the trial court and the Superior Court, that a franchisor's good faith decision to divest itself of an unprofitable property may be a "reasonable and just" cause for termination, cancellation or failure to renew as contemplated in Section 202-3(c)(3), supra.*fn13 Burns argues that non-renewal would be "reasonable and just" under the Gasoline Act only if it had been shown that the station's unprofitability was caused by his own mismanagement, rather than by other factors. We disagree.*fn14 In adopting the Gasoline Act, the Legislature did not intend to preclude oil companies from disposing of business ventures found in good faith to be unprofitable through no fault of their own.*fn15

Our view is strongly supported by the federal statute controlling in this area, the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. ("the Petroleum Act") which, while not directly applicable to this case, is instructive in revealing Congress' view as to what would be considered reasonable and just causes for termination of a service station franchise.*fn16 Section § 2802(b)(3) of the Petroleum Act provides:

(3) . . . the following are grounds for non-renewal of a franchise relationship:

[ 496 Pa. Page 344]

. . . .

(D) . . . a determination made by the franchisor in good faith and in the normal course of business, if --

(i) such determination is --

(I) to convert the leased marketing premises to a use other than the sale or distribution of motor fuel,

(III) to sell such premises, or

(IV) that renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonable changes or reasonable additions to the provisions of the franchise which may be acceptable to the franchisee . . . (Emphasis supplied)

We conclude that Amoco's refusal to renew Burns' lease was reasonable and just under all the circumstances. Accordingly, the judgment of the Superior Court is affirmed.


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