Sinclair Refining Co. v. Allbritton , 213 S.W.2d 139 ( 1948 )

This suit hinges upon the meaning and effect of certain optional provisions contained in an extensive indenture of lease. The indenture was written by Sinclair Refining Company, was dated September 20, 1935 and was signed by C. B. Allbritton and wife as Lessors and by the Company as Lessee. It consists of twenty-three related Articles, each dealing rather minutely with an appropriate sub-heading. Under the provisions contained in Arts. I, II, III and VIII thereof, Lessors agreed in substance to erect a service station, in accordance with plans and specifications therein referred to, upon a described tract of land situated in the City of Waco and to demise and lease said premises to Lessee for a term of ten years at a rental of $80 per month.

By the provisions of Art. XIII, under the sub-heading of "Extension Option," Lessors granted to Lessee the exclusive option of extending the term of the lease for five years, "to commence, if said option is exercised, at the expiration of the term herein granted. Lessee shall give written notice to Lessors of its election to exercise this option not less than thirty (30) days before the expiration of the original term of this lease." Arts. XIV and XV, hereafter set forth in full, relate to "Purchase Option" and "Purchase Refusal," respectively. By the former, Lessors granted to Lessee the exclusive option of purchasing the demised premises at any time during the original or extended term of the lease for the sum of $12,000, "provided Lessee shall give Lessors not less than thirty (30) days' notice of Lessee's exercise of this option." By the latter, it was provided that if Lessors should receive from a third party "at any time during the term of this lease" a bona fide offer to purchase the leased premises and should decide to sell the same for the amount named in the offer, Lessors should promptly give written notice thereof to Lessee and thereupon Lessee should have the option of purchasing the premises for said price and that Lessee should notify Lessors in writing within ten days after receipt of such notice whether it would exercise such purchase option. Art. XVI relates to "Breach or Default" and provides in effect that if Lessee should default in the payment of rentals, or otherwise, and should remain in default for a period of 30 days after notice thereof, Lessors should have the right of terminating the lease and declaring the same at an end.

In due time Lessee entered into possession of the demised premises and prior to the expiration of the original term of the lease it properly exercised its option to extend the term thereof for five additional years, in accordance with the provisions of Art. XIII of the indenture. On November 13, 1946, Lessee prepared written notice to Lessors that it had elected to exercise its option to purchase the leased premises for the sum of $12,000, in accordance with the provisions of Art. XIV of the indenture. This notice was duly deposited in the United States mails at Lessee's New York office and was received by Lessors on November 21, 1946. Thereafter, on November 25, 1946, while the extended term of the lease was in full force and effect, Lessors duly deposited in the mail at Waco, written notice to Lessee that they had received a bona fide offer from one Jim Clark of Waco to purchase the premises for the sum of $17,500, that they had decided to sell the same for that amount and that they were ready and willing to convey the premises to Lessee for such amount, in accordance with the provisions contained in Art. XV of the indenture. After receiving the latter notice, Lessee notified Lessors by letter dated November 29, 1946, that it was standing upon its asserted right to purchase the property for the sum of $12,000.

On February 12, 1947, Lessors instituted this suit against Lessee and its sub-tenants as a formal action in trespass to try title to the property described in the indenture of lease, alleging as ground therefor a breach and repudiation by Lessee of the terms of the lease contract. Lessee answered with a plea of not guilty, and by cross action sought specific performance of its asserted contract of purchase and sale of the demised premises for the sum of $12,000 by reason of its alleged exercise of its option to purchase for that amount. The case was tried before the court without a jury and resulted in judgment for Lessors and against Lessee on its cross action. Lessee has appealed.

By the six points upon which its appeal is predicated, appellant says the court below erred (1) "in refusing to give effect to its purchase option as contained in Article XIV of the lease contract"; (2) "in refusing to enforce the binding executory contract for the sale of the land in dispute, which contract came into existence immediately upon the giving to appellees by appellant of notice of appellant's exercise of the purchase option"; (3) "in giving effect to the purchase refusal clause (Article XV) after there had come into existence a valid and enforceable contract for the sale of the land at $12,000.00"; (4) "in failing and refusing to construe Article XIV of the lease contract as a separate and distinct entity, apart from Article XV"; (5) "in construing Article XIV (purchase option) of the lease contract in connection with Article XV (purchase refusal) of the lease contract, so as to deprive appellant of its right to purchase the land for $12,000.00"; and (6) "in terminating appellant's lease, together with its purchase option, on the land in dispute and in holding that appellant had breached and repudiated the lease contract by reason of appellant's insistence on its rights to purchase the property for $12,000.00 in accordance with its purchase option."

It is elemental that the intention of the parties to a contract controls its interpretation. Barber v. Herring, Tex.Com.App.,229 S.W. 472, pt. 3; Reconstruction Finance Corp. v. Gossett, 130 Tex. 535,111 S.W.2d 1066, pt. 4 and authorities, In arriving at such intention, it is the duty of the courts to consider the contract as a whole and to give reasonable meaning and harmonious effect to all related provisions thereof where that can be legally done. Swisher v. Grumbles, 18 Tex. 164; Davenport v. Sparkman, Tex.Com.App., 208 S.W. 658, pt. 1; Sun Oil Co. v. Burns, 125 Tex. 549, 84 S.W.2d 442, pt. 2 and authorities; Nevels v. Harris, 129 Tex. 190, 102 S.W.2d 1046, pt. 7, 109 A.L.R. 1464; Citizens Nat. Bank v. Texas P. R. Co., 136 Tex. 333, 150 S.W.2d 1003, 1006. As said by the court in the last case above cited: "It is not usually proper to consider a single paragraph, clause, or provision by itself, to ascertain its meaning. To the contrary, each and every part of the contract must be construed and considered with every other part, so that the effect or meaning of one part on any other part may be determined."

Arts. XIV and XV of the contract here involved are in full as follows:

"Article XIV. "Purchase Option:

"In consideration of the premises and further considerations herein specified, Lessors hereby give and grant to Lessee the exclusive option and privilege of purchasing the demised premises and Lessors' right, title and interest in any facilities connected with said property at any time during the original or extended term of this lease for the sum of Twelve Thousand and No/100 ($12,000.00) Dollars in cash, provided Lessee shall give Lessors not less than thirty (30) days' notice of Lessee's exercise of this option. Upon Lessee's giving such notice, Lessors agree to furnish free of expense to Lessee abstract of title prepared by a competent abstractor and certified from title in the Government to the date of conveyance, showing good merchantable title to said premises vested in Lessors; and upon the payment of the purchase price herein specified, Lessors shall convey to Lessee or its nominee by general warranty deed a fee simple title in and to said premises and improvements and appurtenances thereunto belonging, free and clear of all liens, encumbrances and charges of whatsoever character, with release of dower, curtesy, homestead, and all statutory rights, and shall convey to Lessee or its nominee by bill of sale or other appropriate instrument with like covenants of warranty, all personal property embraced herein not ordinarily conveyed by deed.

"The giving of such notice by Lessee shall fix and determine the right of Lessee to purchase said premises and property and the obligation of Lessors to sell the same, and a reasonable time thereafter will be allowed Lessors to furnish abstract of title and to cure defects, if any, in said title preparatory to the delivery of the deed and other instruments of conveyance, and the payment of the purchase price. Such purchase shall serve to cancel the within lease in all particulars, and if Lessors shall have been paid rents subsequent to the date of delivery of deed, such payment shall be applied on and constitute a part of the purchase price of said properties.

"If at the time of purchase there shall be a valid mortgage, trust deed or like encumbrance against said premises, Lessee shall have the right to deduct from the purchase price and pay to the proper party the amount of the indebtedness evidenced by such instrument if such payment can then be made without having to pay a premium or bonus. If said indebtedness cannot be paid off or fully satisfied without premium or bonus, Lessee shall have the right to deduct from the purchase price and retain the amount of such indebtedness as of the date of delivery of the deed, and conveyance of said premises and property shall be made subject to said indebtedness, Lessee assuming the payment thereof.

"Article XV. "Purchase Refusal:

"In the event Lessors shall receive from a third party at any time during the term of this lease a bona fide offer to purchase the leased premises, and shall decide to sell the same for the amount named in said offer, Lessors shall promptly give to Lessee written notice of the terms of such offer and Lessors' willingness to sell for the price offered, and Lessee shall have the option and privilege of purchasing said premises at said price and shall notify Lessors in writing within ten (10) days after the date it receives notice from Lessors whether it will purchase said premises for the amount specified in said offer. In the event Lessee shall not elect within said ten-day period to purchase for the amount specified in said offer, Lessors may thereafter sell said premises to the party making the offer, subject, however, to the leasehold estate herein granted to Lessee. If for any reason said premises are not sold to such party, notice of any subsequent bona fide offers acceptable to Lessors shall be given to Lessee upon the same terms and conditions for acceptance or refusal as hereinabove provided.

"If Lessee elects to purchase said premises under this purchase refusal, Lessors shall furnish abstract of title and shall perfect title and shall convey as provided in the preceding Article upon the exercise of the option to purchase."

It is readily apparent from the contract as a whole that the parties thereto intended by Arts. XIV and XV thereof to set forth the covenants, conditions and limitations under which appellant might purchase and appellees might sell, either to appellant or to a third party, the demised premises at any time during the term of the lease. In our opinion the conditional right of appellees to sell must be regarded as of equal importance with the conditional right of appellant to purchase the property. All of the related provisions in both quoted: articles pertain to the same general subject matter, viz: the permissive and reciprocal rights of purchase and sale of the demised premises at any time during the term of the lease. Therefore, we do not think the court below erred in failing or refusing to construe Art. XIV of the lease contract as a separate and distinct entity, apart from Art. XV, or in construing both articles together in such manner as to give proper meaning and effect to all of the provisions contained in each and both.

The grant of a valid and exclusive option to purchase realty constitutes an irrevocable covenant on the part of the optionor to sell and convey the land to the optionee upon the terms and conditions set forth in the agreements relating thereto. However, the mere grant of such option is only a continuing offer on the part of the optionor and it does not constitute a bilateral or enforceable contract of purchase and sale between the parties unless or until such option is exercised by the optionee through an unconditional acceptance of the offer within the time and in the manner specified in the agreement. Tex.Jur. Vol. 10, p. 56, Sec. 31, and authorities; Landlord and Tenant, § 82, C.J.S. Vol. 51, page 639 and authorities; Moore Bros. v. Kirkpatrick, Tex. Civ. App. 172 S.W.2d 135, pt. 3; Gambill v. Snow, Tex. Civ. App.189 S.W.2d 33, pt. 8 (er. ref. Wm.) and authorities.

The option here granted to appellant of purchasing the demised premises at any time during the term of the lease for the sum of $12,000 was expressly conditioned upon the proviso that "Lessee shall give Lessors not less than thirty (30) days' notice of Lessee's exercise of this option." Appellant suggests in its brief that such proviso was inserted in the contract merely as "a period of convenience to Lessors, during which the Lessor could prepare and furnish an abstract of title to the premises." It is also suggested that such proviso was intended to mean that the option must be exercised not less than 30 days before the expiration of the original or extended term of the lease. We cannot agree with either of these suggestions. If such proviso was inserted for the purpose of specifying the time within which appellees were required to furnish an abstract, then there would have been no occasion to insert in the second paragraph of Art. XIV the conflicting provision that "a reasonable time" would be allowed appellees to furnish abstract after the giving of such notice. If such proviso was intended to mean that the option must be exercised not less than 30 days before the expiration of the original or extended term of the lease, then we see no reason why appellant did not clearly express such intention in the language used in Art. XIII with reference to the exercise of its extension option. Although the intended purpose of such clause is not free from doubt when considered by itself or in its immediate context only, we think when such clause is considered in connection with all the provisions contained in the contract as a whole its true meaning and necessary effect was thereby to provide that appellant could not completely accept the option to purchase for $12,000 until it had given appellees at least 30 days' notice of its exercise of the option so granted.

Upon appellant's giving such notice, that is to say, not less than 30 days' notice of its acceptance or exercise of the option therein granted, appellees agreed to furnish an abstract of title and in due time to convey the premises to appellant. This agreement, however, was subject to the the further provisions, conditions and limitations contained in the contract as a whole. While it was provided in the second paragraph of Art. XIV that the giving of such notice, that is, not less than 30 days' notice, "shall fix and determine the right of Lessee to purchase said premises and property and the obligation of Lessors to sell the same," there was no provision in said paragraph or in any subsequent article of the contract as to the amount which should be paid and received for the right of appellant to purchase and the obligation of appellees to sell the property, as thereby fixed and determined, nor was appellant thereby obligated to purchase the property for any amount greater than $12,000, if indeed it thereby became obligated to purchase for that amount even upon the expiration of 30 days after the giving of notice. Consequently, we hold that a binding and enforceable contract of purchase and sale for the sum of $12,000 did not come into existence immediately upon the giving of notice to appellees of appellant's exercise of the purchase option granted in Art. XIV.

After duly considering the contract from its four corners and applying all of its material provisions to the controlling facts before us, we interpret the language actually used in Arts. XIV and XV thereof, together with the implications necessarily resulting therefrom, to mean in substance and effect that appellees thereby granted to appellant the exclusive option to purchase the demised premises at any time during the term of the lease for the sum of $12,000 upon the express condition that 30 days' notice thereof be given to them, with the further limitation that if they should receive from a third party during such 30 day period an offer to purchase the property for a greater amount then, in that event, the exclusive option so granted to appellant of purchasing the demised premises would lapse and abate unless it should exercise its further option to purchase for the greater amount. Shell Oil Co. v. Blumberg, 5 Cir., 154 F.2d 251.

Such interpretation gives reasonable and harmonious meaning and effect to all the related provisions contained in both articles. Not only so, but, in our opinion, the interpretation or construction thereof, as contended for by appellant, would inject irreconcilable conflicts into the contract as a whole, would render the proviso for 30 days' notice of appellant's exercise of the option to buy for $12,000 entirely meaningless and of no legal force or effect whatsoever, would greatly impair, if not completely destroy, the valuable right of appellees to sell the property to a third party under the terms and conditions set forth in Art. XV of the indenture, and would wrongfully result in the substitution of a new contract under the guise of construing that which the parties signed.

If the interpretation which we have thus placed upon Arts. XIV and XV is not the clear and unambiguous meaning of the language actually employed therein, the provisions thereof are undoubtedly susceptible of that fair and reasonable construction and since appellant selected the language used in the contract the same should be construed most favorably to appellees. Armory Mfg. Co. v. Gulf, C. S. F. R. Co., 89 Tex. 419,37 S.W. 856, 59 Am. St. Rep. 65; Whittington v. Cameron Compress Co., Tex. Civ. App. 268 S.W. 216; Id., Tex.Com.App., 280 S.W. 527; Magnolia Petroleum Co. v. Aiken, Tex. Civ. App. 289 S.W. 152; Powers v. Sunylan Co., Tex.Com.App., 25 S.W.2d 808; Holt v. Wilson, Tex. Civ. App.55 S.W.2d 580; Hinson v. Noble, Tex. Civ. App. 122 S.W.2d 1082.

From what has been said it necessarily follows that in our opinion appellant was not warranted in continuing to assert the right to purchase the demised premises for the sum of $12,000, and thereby to cancel the lease, after it had received written notice from appellees dated November 25, 1946, that they had been offered $17,500 for the property. By persisting in the unwarranted assertion of that right for more than 30 days after receiving such notice, it is clear to us that appellant thereby disavowed the title of appellees as landlord breached the contract which it now seeks to enforce, and matured the optional right of appellees to terminate the lease and declare the same at an end within the purview and meaning of Art. XVI of the indenture. Vol. 52 C.J.S., Landlord and Tenant, § 758, sub. b (3) page 632; Wildey Lodge No. 21 v. City of Paris, 31 Tex. Civ. App. 632, 73 S.W. 69; Rice v. Schertz, Tex. Civ. App. 187 S.W. 245.

Finding no reversible error in the record, all of appellant's points are overruled and the judgment of the trial court is affirmed.