Amoco Oil Co. v. Kraft, Docket No. 78-783
| Decision Date | 20 March 1979 |
| Docket Number | Docket No. 78-783 |
| Citation | 89 Mich.App. 270,280 N.W.2d 505 |
| Parties | AMOCO OIL COMPANY, a Maryland Corporation, Plaintiff-Appellant, v. Edmund T. KRAFT and Margaret Kraft, his wife, and Richard A. Yezbick and Lynn Yezbick, his wife, Defendants-Appellees. |
| Court | Court of Appeal of Michigan — District of US |
Nunneley, Nunneley, Hirt & Rinehart, P. C. by Stanley Hirt, Mount Clemens, for plaintiff-appellant.
Donald E. Mather, Mount Clemens, for defendants-appellees.
Before RILEY, P. J., and BRONSON and GILLESPIE, * JJ.
The sole issue in this case is the construction to be given a dual option lease granting the lessee a fixed price option and a first refusal option.
On May 1, 1957, defendants Edmund and Margaret Kraft entered into a lease arrangement with plaintiff Amoco Oil Company's predecessor in interest, Standard Oil. The lease gave the lessee, Standard Oil a fixed price option to buy the leased premises for $60,000 and a right of first refusal to buy the property for the amount contained in any bona fide offer made by a third party. The lease was for a ten-year term commencing December 13, 1957, and could be renewed at the lessee's option for two additional terms of five years each.
In 1970, after Standard Oil had previously extended the lease for an additional five-year term, the Krafts notified plaintiff that they had received a bona fide offer from defendants Richard and Lynn Yezbick to purchase the leased premises for $165,000. Plaintiff declined to exercise its right of first refusal, and the property was sold to the Yezbicks. After having extended the lease for its final five-year term, plaintiff in 1977 notified defendants that it intended to exercise its fixed price option and purchase the property for $60,000. Defendants refused to convey the property and plaintiff commenced this action for specific performance.
Defendants claim that the fixed price option was extinguished when plaintiff received notification of a bona fide purchase offer higher than the fixed price but refused to exercise its first refusal option and thus allowed the property to be sold to a third party for a price in excess of the fixed price. Plaintiff contends that the two options remained independently operative throughout the entire term of the lease and the failure to exercise the first refusal option upon receiving notice of a third party's bona fide purchase offer in excess of the fixed prior had no effect on and did not extinguish plaintiff's rights under the fixed price option. The trial court agreed with defendants' interpretation of the contract and granted their motion for summary judgment. Plaintiff appeals as of right.
In construing contracts, the primary rule of construction is to ascertain the intent of the parties. Klever v. Klever, 333 Mich. 179, 52 N.W.2d 653 (1952); McIntosh v. Groomes, 227 Mich. 215, 198 N.W. 954 (1924). The language of the lease 1 clearly indicates that the parties intended to create alternative options of equal stature. Under plaintiff's interpretation of the contract, however, the first refusal option would cease to be an independent option and instead be transformed into a secondary option subordinate to the fixed price option. Plaintiff's interpretation would freeze the value of the leasehold at the amount of the fixed price option. No one would be willing to purchase the property for a higher price than the fixed price with the knowledge that he could lose his investment and be divested of the property if plaintiff decided to purchase the property at the lower fixed price. This being the case, plaintiff would never have occasion to exercise its first refusal option, and it would be rendered virtually meaningless. 2 We find nothing in the contract to show that the parties intended to make the first refusal option dependent on the fixed price option or to fix a ceiling price on the value of the leasehold. Therefore, plaintiff's interpretation of the contract cannot stand. See Manasse v. Ford, 58 Cal.App. 312, 208 P. 354 (1922), Texaco, Inc. v. Rogow, 150 Conn. 401, 190 A.2d 48 (1963).
Conversely, under defendants' interpretation of the contract, both options continue to be viable until one of them ceases to be merely a contingent interest and instead becomes a vested right, 3 at which time the nonvested option is extinguished. Since defendants' interpretation of the contract keeps both options independent and viable, it is the more reasonable interpretation of the contract.
There is another factor which militates against plaintiff's position. Plaintiff seeks specific...
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