Shell Oil Co. v. Stiffler , 87 Utah 176 ( 1935 )

I agree with the prevailing opinion that the so-called lease and consignment contract dated September 1, 1931, and the service station lease wherein the Stifflers leased to the oil company must be read together in order to penetrate into the real intent and purpose of the parties, but I confess that I cannot find in these instruments construed together, any express obligation on the part of the company to deliver to the Stifflers, its so-called agents, any gasoline or other motor fuel except as the company may determine. Paragraph 4 of the lease and consignment contract in part reads as follows:

"The Company shall maintain on consignment in the custody of the Agent at said service station such quantities of gasoline and other motor fuel as the Company may determine from time to time to be sufficient to meet the requirements for sales at said service station. All such gasoline and other motor fuel so maintained on consignment in the custody of the Agent is to be and remain the property of the Company until sold as hereinafter provided, and thereafter the proceeds of all such gasoline and other motor fuel are to be and remain the property of the Company until fully accounted for and paid as hereinafter provided."

Paragraph 6 provides:

"The Company shall deliver into the custody of the Agent, without cost to the Agent, all gasoline and other motor fuel consigned to the Agent."

Later, in said paragraph, it provides that the agent shall be recompensed for his expenditures as agent and as compensation to the agent certain commissions, to wit, 3 cents on each agllon of commercial gasoline sold and each gallon of the company's supershell or specially blended gasoline or motor fuel sold. In connection with this compensation, paragraph 3 of the service station lease should be read. It states:

"The rental for the said premises shall be thirty-five ($35.00) dollars per month, and one cent per gallon for each gallon of gasoline purchased from the Shell Oil Company, over and above 3500 gallons, during said month."

The lease and consignment contract requires the agent to take the risk of losses except those which are caused by accident without fault on the part of the agent. It requires the agent to maintain the service station solely for storing and dispensing gasoline and other motor fuels of the company and oils and greases supplied by the company and to maintain a sign displaying conspicuously the words "Authorized Filling Station for Shell Products." The company is given the right to inspect the said service station at all times. The agent is required to keep a careful and accurate record which shall be open to inspection showing the amounts of gasoline and other motor fuel consigned to the agent and all sales thereof and the agreement provides that the company may provide forms and books for such record and that "The Agent shall account to the Company for sales of all gasoline and other motor fuel and shall pay to the Company the total proceeds of sales, less commissions, on demand or at such regular intervals as may be indicated by the Company for that purpose." According to paragraph 5, "The Agent shall not dispose of any gasoline and other motor fuel of the Company except in strict accordance with the authority hereby conferred," although he is authorized to sell for cash to customers and make immediate delivery to them of "such gasoline and other motor fuel of the Company as may be in the custody of the Agent on consignment at said service station, but only at the retail price which may be established and specified by the Company from time to time therefor."

From what has been outlined above and from additional provisions not mentioned, the contract on the whole seems to be one of principal and agent rather than one for the purchase and sale of petroleum products, although it has some of the aspects of the latter, especially when we consider that the words "gasoline purchased" are used in paragraph 3 of the service station lease. However, construed altogether, I think these contracts do not give the company a free hand in determining just what petroleum products it shall deliver to its agent. In order to properly serve the public, the agent really has the right to require the company to deliver such of its products as the agent needs for such purpose; this for the reason that the agent's compensation and rent depends upon making sales of the company's products. Therefore, I think that it must be implied from the agreement that the company has an obligation to deliver as well as a right to deliver motor fuels. I think it can be implied on the whole that the company must keep the agent supplied with such of the company's products as are demanded by the public. This being so, I have very little doubt but that the agreement contemplated that the company should supply to its agent, subject to the commission of 3 cents on all gasoline sold, such motor fuel as it manufactured or marketed. This would include any new motor fuel, especially gasoline, which was not known at the time the agreement was entered into, but which came into being later. It would include third structure gasoline, the trade name for the company's product of that gasoline being "Green Streak." The contract did not hold down the commission or the rental to particular brands of the company's gasoline known or manufactured by the company on September 1, 1931. It provided for a commission of 3 cents on each gallon of motor fuel sold. While it may be doubtful whether this would cover some new and entirely different motor fuel than came from petroleum, yet the agreement must be construed as to have contemplated any type of motor fuel which would come under the name of gasoline to be used as fuel in a motor and which is made by the refining, cracking, or distillation of crude petroleum.

Having come to the conclusion that the company is obligated to furnish the agent as well as the agent is obligated to take, keep, and dispose of petroleum products, we come to the next question as to whether the so-called modification of the lease and consignment contract made on February 15, 1932, is valid. I hardly think it necessary in this case to determine whether a modification of an agreement in this jurisdiction needs consideration. The reason I so think is because even though we should hold that a modification of an existing agreement can be made by the bare consent of the parties to the modification regardless of whether there is consideration, I think such consent must be had in an atmosphere of free dealing. Where one party is so situated that his business is under the domination of another, or where he may be coerced, a consent obtained by such coercion is not a free consent. Thus, in the instant case the Stifflers were so situated that if the company did not choose to deliver them certain products according to its contract, they had the alternative of either going outside and buying such products or of resorting to the courts to make the company comply — itself a devious remedy when time would be of the essence of the preservation of their business — or of permitting the company to do in that regard as it pleased. If the consent to the modification of the agreement was obtained because the company imposed its will upon them against their own will through this economic situation and thus obtained a modification of the agreement which was detrimental to the Stifflers and beneficial to the company, I can hardly see how such compliance on the part of the Stifflers can be denominated a free consent. Therefore, even though we should hold that a modification can be considered as a waiver which only needs the intention to waive and no consideration, yet the waiver or the consent must not be accomplished by any coercion. It must be made in the atmosphere of a free choice.

I agree with the prevailing opinion, however, that in this case there was no consideration for the modification of the lease and consignment agreement. If a first party under an agreement is to do X acts in exchange for the doing by the second party of Y acts, a modification which permits the first party to do less than X acts when the second party must still do Y acts, has no consideration. In this case, as I study the modification agreement, it appears that the company was relieved of the obligation to deliver to the Stifflers all third structure gasoline except on terms much more favorable to the company than were provided by the original agreement. The Stifflers were not to obtain it as an agent, but were to pay cash on delivery and were to pay cash tank truck prices which would have given them a spread of about 2 cents instead of the 3 cents compensation, and furthermore, sales of third structure gasoline would not be taken into consideration in computing the amount of the rental due under the lease. That would make a difference in toto of 2 cents a gallon. If we should suppose a situation where the public practically cease buying the company's commercial gasoline or supershell or specially blended gasoline, then the Stifflers would have to depend upon the 2-cent margin in the third structure gasoline for all of their expenses and remuneration for their services. They could not have gone elsewhere under the original agreement or modification to purchase gasoline even though they might have gotten better terms. Moreover, the company was under no obligation under the modification to deliver them third structure gasoline. The Stifflers were compelled to pay the dealer net tank truck prices for such gasoline as "we may deliver to you." The modification almost completely changed the situation of the Stifflers.

The company argues that there is consideration moving from the Stifflers because they are not charged with the onerousness of handling products which they desire to handle for their own benefit. That is a specious argument. As suggested by the defendants in their brief, a person who is to receive $200 rent per month, of course relieves himself of the enerousness of having to deposit $100 in the bank or deal with it if he takes $100 instead of $200 as rental under a modification, but that is hardly to be thought of as consideration for the less rental. In this case, the benefit which the Stifflers received under the original contract in the obligation of the company to deliver to them all types of motor fuel contemplated by the contract was the very essence of the consideration for making the original contract and to say "We will take away the benefits of this contract from you, and the consideration for you surrendering such benefits will be that you do not have to perform the transactions which are necessary or incidental to the handling of those products from which you receive your benefits," is casuistry.

As to that part of the prevailing opinion which holds that the lease and consignment contract of September 1, 1931, cannot be modified except by the joint consent of both Ernest Stiffler and his wife, who were parties to that contract, and who are termed "Agent" under said contract, I express no definite opinion. The agency set up was joint and made the Stifflers a unit either in a partnership or joint venture; their obligation to take and dispose of products was a unit obligation. Ordinarily what one would do in the business such as ordering gasoline or employing service station attendants, or the like, would, under the joint venture or partnership theory, bind the other. This joint venture or partnership arises out of the contract made by both of them with the plaintiff. It may well be that a modification of this contract by one of the unit with the company without the signature or consent of the other would work a modification of the fundamental partnership or joint venture arrangement which the contract with the company gave rise to between the Stifflers. The reasoning of the prevailing opinion, therefore, seems reasonable that one could not so modify the fundamental agreement with the company so as to affect the contract between themselves which arose as a necessary concomitant of the contract between them and the company.

For the reasons above mentioned, I concur in the prevailing opinion.