The Franchise Memorandum

The Appellate Division of the New Jersey Superior Court recently held that a former Gulf Oil franchisee must comply with the terms of a settlement agreement and affirmed the denial of the franchisee’s motion to vacate the agreement. S&M Gulf Inc. v. Gulf Oil, LP, 2019 WL 333055 (N.J. Super. Ct. App. Div. Jan. 28, 2019). The dispute initially arose after the franchisee, Gulf Express, sued to enforce its right to purchase the franchise premises pursuant to a right of first refusal clause in its franchise agreement with Gulf Oil. The parties then entered into a settlement agreement granting Gulf Express the option to purchase the property at a certain price, employing a two-step valuation model to set the price of the “franchise premises.” The parties first obtained separate appraisals of the property, but their experts differed in price by more than 10 percent. Under the terms of the settlement agreement, this gap triggered the appointment of a court-selected appraiser, whose valuation would set the purchase price. After the court-appointed appraiser valued the property significantly higher than Gulf Express’s own valuation, Gulf Express moved to vacate the settlement agreement and reinstate its complaint, arguing that the settlement agreement was void because there was a mutual mistake regarding the meaning of “franchise premises.”

The Appellate Division affirmed the denial of Gulf Express’s motion to vacate, finding that its arguments regarding a lack of common intent and mutuality of mistake were meritless. Gulf Express argued the term “franchise premises” was ambiguous because it was not defined, but the court found no facts to support that claim. All appraisals, including Gulf Express’s, used the same methodology to value the property—each specifically appraised the property interest, and none included a valuation of the business as a going concern, as Gulf Express alleged. Because there was no evidence that the parties had a different understanding of the term “franchise premises,” the settlement agreement was enforceable and Gulf Express was obligated to comply with its terms.