DocketNumber： 85-2150
Judges： Murnaghan, Wilkinson, Haynsworth
Filed Date： 11/3/1986
Status： Precedential
Modified Date： 10/19/2024
This is an action in the diversity jurisdiction for the specific performance of a purchase option contained in the lease of an automobile service station. Upon consideration of cross motions for summary judgment, the district court granted the defendant’s motion, holding that the fixed price purchase option was extinguished by the lessee’s failure to exercise another option of first refusal after the lessor informed it of the receipt from a third party of an offer to purchase for an amount much higher than the fixed price option figure.
We conclude the judgment should have gone the other way.
I.
In October 1965, Mrs. Chiodo and her late husband entered into a lease agreement with American Oil Company upon a printed form prepared by American Oil. The lease was for a term of five years with three five-year renewal options at increasing rental rates. Each of the three renewal options was exercised, and the ultimate expiration date became October 31, 1985.
In June 1982, Gulf Oil acquired American Oil’s operations in West Virginia, and succeeded to its rights as lessee of the Chiodo property.
The lease contained a “dual-option” provision, the full text of which, in relevant part, is printed in the margin.
In November 1984, the defendant notified Gulf that she had received, and intended to accept, an offer to purchase the property for $121,000. Gulf responded with a notice purporting to exercise its fixed price purchase option and was prepared to pay Mrs. Chiodo $40,000. Upon her behalf, her attorney took the position that the fixed price option had been rendered “null and void” by her earlier notice that she had received and intended to accept an offer to buy the property for $121,000.
II.
There is no case in West Virginia construing a comparable “dual-option” provision. The courts of that state do apply the usual, general rules of construction. The overriding objective of the court, of course, is to ascertain the intent of the parties. See Bowlby-Harman Lumber Co. v. Commodore Services, Inc., 144 W.Va. 239, 107 S.E.2d 602, 607 (1959). If the language of the contract is unambiguous, it must be enforced according to its terms. See Orteza v. Monongalia County General Hospital, 318 S.E.2d 40, 43 (W.Va.1984). When the bargain made by the parties is clearly apparent, each is entitled to have it performed without alteration. See Wheeling Mold & Foundry Co. v. Wheeling Steel & Iron Co., 62 W.Va. 288, 57 S.E. 826, 832 (1907).
The district court reasoned that the parties had intended to create alternative options “of equal stature, each viable until one of them became vested.” Applying this reasoning, the court held that when Gulf received Mrs. Chiodo’s notice in November 1984 that she had received and intended to accept a third person’s offer, Gulf’s first refusal purchase option became vested, and its vesting extinguished the fixed price purchase option. We cannot agree that the conclusion flows from the premise. Gulf’s fixed price purchase option was “vested” from the moment the lease was signed in 1965, but the defendant does not suggest that because the fixed price purchase option was unconditionally exercisable at any time it divested the first refusal purchase option. Notions of vesting have no place in the resolution of this controversy, but if one should pursue that distraction, one would think that preference should be given to the fixed price purchase option which was “vested” from the very beginning.
The language of American Oil’s lease form is not the most felicitous, but it un
No unfairness appears in the enforcement of the lease as written. The case was decided upon cross motions for summary judgment, so the record of surrounding circumstances is sparse, but it is common knowledge that fixed price purchase options in leases are usually at prices substantially higher than the lessor’s notion of the present value of his land. We do know that the lessees in this case did erect substantial improvements upon the land, and a lessee would hardly be expected to erect substantial improvements upon leased land increasing the market value of the entire property above the fixed option price if that option could be extinguished by notice, late in the term, of the lessor’s receipt of an offer from a third person at a much higher figure.
In the early days of a long term commercial lease, there is a real possibility that the lessor may wish to sell the property for a price substantially less than the fixed price option. At that time, the flow of rental income, as stipulated in the lease, may be a substantial limitation upon what would otherwise be the market value of the improved real estate unencumbered by a long term lease. There is no reason that the parties to a lease should not be allowed to deal with that situation by giving the lessee a right of first refusal if the lessor wishes to sell for an amount less than the fixed price option. There is no inconsistency between the two options, and the fixed price option remains exercisable notwithstanding that the circumstances contemplated by the first refusal option may arise.
The purpose of the inclusion of purchase options in a lease is entirely for the benefit of the lessee. That purpose might enlighten the construction of even an ambiguous document. Crowley v. Texaco, Inc., 306 N.W.2d 871, 874 (S.D.1981); Texaco, Inc. v. Creel, 310 N.C. 695, 314 S.E.2d 506, 510 (1984).
III.
There are a number of cases construing dual option provisions somewhat resembling this one, but any division in their legal constructions is generally “more apparent than real.” Green v. Sprague Ranches, 170 Cal.App.2d 687, 339 P.2d 607, 610 (1959). The result seems to turn upon “the particular language used in the leases and the circumstances in which enforcement is sought.” See Conroy v. Amoco Oil Co., 374 So.2d 561, 564 n. 2 (Fla.Dist.Ct.App.1979).
There are three cases construing leases with identical provisions to this one.
In Amoco Oil Co. v. Snyder, 505 Pa. 214, 478 A.2d 795 (1984), and American Oil Co. v. Ross, 390 So.2d 90 (Fla.Dist.Ct. App.1980), the courts construed the dual option provision as we do. In Amoco Oil Co. v. Kraft, 89 Mich.App. 270, 280 N.W.2d, 505, 507 (1979), the court’s conclusion is seemingly different. We disagree with its analysis, but there were present in Kraft extraordinary equitable considerations militating against enforcement of the fixed price option. In Kraft, the third person had actually purchased the property for a price considerably greater than the fixed purchase option price, and the lessee waited a number of years before attempting to exercise its option. In this case, no innocent third party stands to suffer a loss, and Gulf Oil was prompt in its attempt to exercise its fixed price option.
The court may feel some sympathy for Mrs. Chiodo who now is to receive less for her property than its present market value appears to be. To some extent at least, that may be a consequence of improvements erected by the lessees. To what extent that is so, one cannot say on this record, but there is no suggestion of overreaching by American Oil in the negotiation of the lease in 1965. Mrs. Chiodo and her husband made their bargain and now must abide by it.
REVERSED.
Lessee shall have ... the option of purchasing [the] ... premises for the sum of [$40,000], provided Lessee shall give Lessor notice in writing of its election to exercise said option ... any time during the original term or any extension or renewal therecf. If any part of the demised premises ... shall be taken by the right of eminent domain ... the purchase price set forth herein, if the purchase option is exercised, shall be reduced in the same proportion____