Castrucci v. Young

• Decision Date: 04 August 1986
• Docket Number: No. 85-CV-0854,85-CV-0854
• Citation: 515 N.E.2d 658,33 Ohio Misc.2d 41
• Parties: CASTRUCCI et al. v. YOUNG et al. *
• Court: Ohio Court of Common Pleas

Page 41

33 Ohio Misc.2d 41

515 N.E.2d 658

CASTRUCCI et al. v. YOUNG et al. ^*

No. 85-CV-0854.

Court of Common Pleas of Ohio Clermont County.

Aug. 4, 1986.

Syllabus by the Court

1. The failure of a lessee to exercise its right afforded by the lease agreement of first refusal of a bona-fide third-party offer to purchase the property does not extinguish the lessee's additional right afforded by the lease agreement to purchase the property at its reasonable market value.

2. An option in a lease agreement which affords a lessee the right to purchase property for its "reasonable market value" is not too indefinite for lack of certainty of contract price since that value can be readily ascertained by obtaining offers for sale.

3. Where the terms of financing of an option to purchase property are omitted, the contract is enforceable only if cash or other financing suitable to the seller was offered for the property, making the financing terms unimportant.

4. Parties to an executory contract can modify that contract as they wish, and their mutual waiver of rights thereunder is sufficient consideration for the change.

Thomas R. Schuck, Cincinnati, for plaintiffs.

Allen Burreson, Batavia, for defendant Young.

Flach Douglas, Milford, Frost & Jacobs and Gary L. Herfel, Fort Wright, Ky., for defendant Frazier-Williams.

RINGLAND, Judge.

This matter came before the court on motions for summary judgment filed by plaintiffs, Al and Faye Castrucci, and the defendant corporation known as Frazier-Williams. This action came originally before the court as an action for declaratory judgment, injunctive relief and damages with respect to the purchase and sale of property owned by defendant Beulah Huff Young and presently used by Frazier-Williams as a used car lot.

The facts as shown in the deposition and affidavits are undisputed. On January 8, 1980, Frazier-Williams entered into a lease with Young. Young agreed to rent, for a maximum of eight years, two acres of property to be used by Frazier-Williams for the business of selling used cars. The lease at paragraph 16(b) provided that in the event Young should elect to sell all or any portion of the leased property during the term of the lease that Frazier-Williams had (1) the right to purchase the property at a reasonable market value and (2) the right of first refusal to meet any bona-fide offer of sale on the same terms and conditions of such offer, provided it was required to purchase on or meet such bona-fide offer within thirty days after notice thereof. If Frazier-Williams failed to do so, Young "shall be free to sell the premises or portion thereof to such third person in accordance with the terms and condition of his offer."

On or about August 9, 1985, Young contracted with Al and Faye Castrucci to sell the property to them for purposes of an auto dealership. The contract to purchase provided that the plaintiffs would pay Young $200,000, plus a Crown Victoria automobile valued at $14,400, and a 1985 Ford F150 Pickup truck valued at $15,000, for a total of $229,399. The purchase price for these two acres of land was to be paid in the following terms: $1,000 advanced as earnest money, an additional $49,000 paid at closing and the delivery of the motor vehicles and balance to be paid under the terms of a note from plaintiffs. The note was to be secured by a mortgage and a pledge by plaintiffs of $150,000 worth of unencumbered bonds. The earnest money was delivered to Young at the time the contract was executed and the plaintiffs held themselves out as ready, willing and able to close the sale of the property according to the terms of the contract.

Young notified Frazier-Williams of the contract, provided an officer of the corporation with a copy of the contract, and gave further written notice to the defendant corporation on or about August 22, 1985 of her intention to sell the property to plaintiffs in accordance with paragraph 16(b) of the lease.

On or about September 6, 1985, an attorney for Frazier-Williams wrote to Young acknowledging her August 22 letter and asking for additional information concerning the terms of the contract. Young replied on September 13, 1985 and again provided a copy of the contract and further informed Frazier-Williams that she expected the corporation to inform her of its decision whether or not to exercise its rights under paragraph 16(b) of the lease within thirty days of its receipt of her August 22 letter. Frazier-Williams responded to plaintiffs' offer by correspondence from its attorney setting forth a counteroffer to purchase the property. In this letter, Frazier-Williams acknowledged the fair market value of the property to be the purchase price specified in plaintiffs' contract and proposed to purchase the property essentially on the terms set forth in that contract but with certain enumerated exceptions: (1) a down payment on the purchase price in the range of "a minimum of $80,000 to a maximum of $100,000," (2) the substitution of an automobile and a truck, while of different makes, of comparable value to the vehicles specified in the contract, and (3) the exclusion of the security of the unencumbered bonds which plaintiffs had agreed to pledge to Young to secure the balance of the purchase price in addition to the note and mortgage. Young never signed the agreement to sell the property to Frazier-Williams nor did she sign anything accepting the terms offered in that letter. The counteroffer never became more specific than to pay a minimum of $80,000 to a maximum of $100,000 down with a balance to be secured by note and mortgage. Nevertheless, Young and Frazier-Williams proceeded to set a closing for October 4, 1985. Three days before the closing date plaintiffs filed a motion for temporary restraining order and preliminary injunction. This court granted a temporary order restraining defendants from closing until further hearing. The matter was heard before another judge of this court who granted the preliminary injunction further restraining the parties from closing until the final hearing on the merits or a motion for summary judgment. This matter came before the court, therefore, on or about June 11, 1986, after the taking of depositions and affidavits submitted on both plaintiffs' and defendants' motions for summary judgment.

There is a paucity of relevant Ohio case law on the specific issues before the court. Both movants have thus cited authority from other jurisdictions in support of their respective views. Although option clauses in leases are drawn similarly, they are different enough to make these cases merely illustrative. The principles behind them and the specific clause in question must be closely analyzed to reach a decision on the exact meaning of the option, which is equitable to both parties. Shell Oil Co. v. Prescott (C.A.6, 1968), 398 F.2d 592, certiorari denied (1969), 393 U.S. 1017, 89 S.Ct. 621, 21 L.Ed.2d 562.

It is agreed that the defendants entered into a lease agreement on January 8, 1980. Paragraph 16(b) of that lease reads as follows:

"(b) Should Lessor, during the lease term, or any extension thereof, elect to sell all or any portion of the leased property, whether separately or as a part of the larger parcel of which the leased property is a part, Lessee shall have the right to purchase the property at a reasonable market value. Lessee shall also have the right of first refusal to meet any bona fide offer of sale on the same terms and conditions of such offer. Upon Lessee's failure to purchase or to meet such bona fide offer within 30 days after notice thereof from Lessor, Lessor shall be free to sell the premises or portion thereof to such third person in accordance with the terms and conditions of his offer."

The point of contention between the parties is how the two rights afforded the lessee in the lease, the option to purchase at a reasonable market value and the right of first refusal of a bona-fide third-party offer, are to be construed.

Plaintiffs argue that the two rights are conjunctive and essentially one option, which can be exercised by the lessee in only one of the two ways spelled out above, depending upon the circumstances. They urge that the right to purchase at a reasonable market value can only be exercised in the absence of a bona-fide offer by a third party. When such a third-party offer exists, they contend, the lessee must meet such offer on the same terms and conditions or all the lessee's rights to purchase the property are lost.

Plaintiffs urge that since defendant-lessee failed to exercise its right of first refusal by not meeting plaintiffs' offer on its same terms and conditions, such failure extinguished its option to purchase the property at its reasonable market value; such option not having been expressly reserved in the lease in the event of sale. There are cases supporting such a position. See Shell Oil Co. v. Blumberg (C.A.5, 1946), 154 F.2d 251; Texaco, Inc. v. Rogow (1963), 150 Conn. 401, 190 A.2d 48; Amoco Oil Co. v. Kraft (1979), 89 Mich.App. 270, 280 N.W.2d 505; Adams v. Helburn (1923), 198 Ky. 546, 249 S.W. 543. In Shell, the lessee's failure to exercise a first-refusal right was held to have extinguished a right to purchase at a fixed price, due to the clause's language which expressly reserved to the lessee its rights under the former but not the latter right in event of sale. In Texaco, Amoco and Adams, the fixed-price options were also said to have been extinguished by failure to exercise first-refusal rights. In those cases, however, the prices to be paid under the fixed-price options were far below the actual market value of the properties in question, and the reasoning of those courts was based on the premise that it would be inequitable to allow a lessee who would not bargain to purchase at a price representative of market value to benefit from the exercise of an option with a price set unrealistically low. Such a decision,...