## Facts

- Shell controlled a Fort Lee, New Jersey service-station site under a long-term lease and operated it through a dealer-franchise model rather than direct operation.
- In 1959, Shell leased the station to Frank Marinello and simultaneously entered a dealer (franchise) agreement requiring Marinello to sell Shell gasoline and related products.
- The lease and dealer agreement were renewed repeatedly on Shell’s standard forms so their terms coincided.
- The final lease (dated April 28, 1969) ran through May 31, 1972, and continued year-to-year thereafter; it allowed Marinello to terminate on 90 days’ notice and Shell to terminate at the end of the primary term or any renewal year on 30 days’ notice.
- The dealer agreement contained a short-notice termination provision (10 days) and was treated by the parties as part of the same ongoing relationship as the lease.
- In April 1972, Shell notified Marinello that it would terminate both the lease and the dealer agreement effective May 1972.
- The parties had experienced friction about Marinello’s operating practices and Shell’s marketing expectations, but the dispute centered on whether Shell could end the relationship based on the written termination clauses alone.

## Issues

1. Whether the lease and dealer agreement, read together in the service-station franchise context, impliedly limited Shell’s termination power so that termination or nonrenewal required good cause rather than Shell’s discretion.
2. If good cause was required, whether Marinello’s performance failures were sufficiently material (lack of substantial compliance) to constitute good cause.

## Decision

- The Supreme Court of New Jersey held that Shell could not terminate or refuse to renew the integrated franchise relationship except for good cause.
- The Court defined good cause as the dealer’s failure to substantially perform material obligations under the lease and dealer agreement, not minor or technical deviations.
- The Court upheld the finding that Marinello had substantially complied with his obligations and that Shell did not prove good cause on this record.
- The judgment in Marinello’s favor was affirmed.

## Legal Principles

- Contracts carry an implied covenant of good faith and fair dealing that limits discretionary contract powers when their exercise would defeat the other party’s reasonable contractual expectations.
- In a gasoline service-station franchise relationship formed through standard form lease and dealer agreements, termination provisions are construed in light of the practical dependence of the dealer and the integrated nature of the arrangements.
- A franchisor’s contractual power to terminate on short notice may be limited by an implied good-cause requirement to prevent arbitrary termination.
- “Good cause” for termination in this setting requires substantial nonperformance of material contractual duties; minor noncompliance does not justify termination.

## Conclusion

The court treated the lease and dealer agreement as a single franchise relationship and implied a good-cause limitation on Shell’s termination rights, affirming relief for the dealer because Shell failed to show material, substantial nonperformance that would justify ending the franchise.


Shell Oil Co. v. Marinello, 63 N.J. 402, 307 A.2d 598 (N.J. 1973)