Cities Service Oil Co. v. Estes
| Decision Date | 12 June 1967 |
| Court | Virginia Supreme Court |
| Parties | CITIES SERVICE OIL COMPANY v. C. E. ESTES et al. |
R. Harvey Chappell, Jr., Richmond (Frank C. Bedinger, Jr., Bedinger & Bedinger, Boydton Christian, Barton, Parker, Epps & Brent, Richmond, on brief), for appellant.
Ivy P. Blue, Jr., N. Leslie Saunders, Jr., Richmond (A. G. Hutcheson, Chase City, Blue Gordon, Saunders & Neblett, Richmond, on brief), for appellees.
Before EGGLESTON, C.J., and SPRATLEY, BUCHANAN, SNEAD, I'ANSON, CARRICO and GORDON, JJ.
I'ANSON, Justice.
The issue presented in this case is whether the right of first refusal to purchase certain property granted to Cities Service Oil Company under a lease applies to a public judicial sale so that Cities Service may acquire the property at the price offered by the highest bidder.
On October 5, 1954, O. H. Mull and Elsie H. Mull, his wife, leased certain property in Chase City, Virginia, to Cities Service for use as a gasoline filling station for a term of fifteen years with an option to renew the lease for an additional five years. The lease was duly recorded in the clerk's office of the Circuit Court of Mecklenburg County.
The first paragraph of section 13 of the lease granted Cities Service an option during the original term of the lease or any extension thereof to purchase the property for $45,000. The second paragraph of the section granted Cities Service a right of first refusal, and reads in part as follows:
O. H. Mull died intestate on January 13, 1962, survived by his wife, Elsie H. Mull (now Elsie M. Bagley), five adult children and an infant child, Herman R. Mull. At his death Mull owned several parcels of real estate, including the piece which is the subject of the lease with Cities Service.
On May 28, 1965, Elsie M. Bagley, as guardian of Herman R. Mull and in her own right, filed a bill of complaint in the court below praying among other things for a decree authorizing and directing a sale of the real estate Mull died seized and possessed of, and that the property under lease to Cities Service he sold subject to the terms of the lease. In their answer, the adult defendants joined in the prayer of the bill, and a guardian an litem was appointed to represent the interest of the infant.
The cause was referred to a commissioner in chancery who, after hearing the evidence recommended that the property be sold. The chancellor, by his decree, confirmed the commissioner's report, appointed special commissioners to sell the property at public auction, and directed that the Cities Service property be sold 'subject to any leases existing against * * * subject property.' The notices of sale of the Cities Service property similarly stated that the property was to be sold subject to all provisions contained in the recorded lease between O. H. Mull and Cities Service.
The special commissioners reported to the court on December 6, 1965, that the parcels were offered for sale at public auction on November 27, 1965; that the sale was well attended and the bidding was spirited; and that the highest and last bid on the property under lease to Cities Service was made by C. E. Estes in the amount of $31,100.
Cities Service, which had not been made a party to the suit, filed a petition on December 7, 1965, praying that the sale to Estes not be confirmed. It asserted that under the second paragraph of section 13 of the lease it had a right of first refusal to purchase the leased premises, and that it had thirty days from November 27, 1965, in which to exercise its right and purchase the property for the amount of the highest bid. Within the thirty-day period, Cities Service notified the court and all parties in interest that it exercised its right to purchase the property for $31,100.
In a written opinion, the chancellor held that the lessee's rights under section 13 of the lease ran with the land and were binding upon the heirs; that the first paragraph of section 13 gave Cities Service an option to purchase the property at any time during the original term or extension of the lease for $45,000; that the lessee's right to purchase under the second paragraph was conditioned upon the happening of certain events; and that a judicial sale was not one of the events which rendered the right of first refusal exercisable.
The heirs of O. H. Mull, being satisfied with the price the leased property brought at the sale, have not filed a brief in this appeal.
Cities Service assigns as error the chancellor's interpretation of the second paragraph of section 13 as not applicable to a judicial sale.
Estes, the only other party to this appeal, does not question that the Mull heirs are bound by the terms of the subject lease. See Code §§ 8--682, 8--701, 1957 Repl. Vol.; 32 Am.Jur., Landlord & Tenant, §§ 301, 304, pp. 281, 283. His position on this appeal is that a judicial sale is not within the terms of the second paragraph of section 13.
The chancellor correctly viewed the right of first refusal in paragraph 2 of section 13 of the lease as different from the option to purchase in the first paragraph. A right of first refusal is distinguished from an absolute option in that the former does not entitle the lessee to compel an unwilling owner to sell. Instead it requires the owner, when and if he decides to sell, to offer the property first to the person entitled to the right of first refusal. Barling v. Horn, 296 S.W.2d 94, 98 (Mo., 1956). See generally, Annot., 8 A.L.R.2d 604 (1949); Annot., 34 A.L.R.2d 1158 (1954); 32 Am.Jur., Landlord & Tenant, § 299, pp. 278, 279; 91 C.J.S. Vendor & Purchaser (1967 Cum.Supp., § 19.1, p. 113).
The question whether a judicial sale is the occasion for the exercise of a right of first refusal is one of first impression in Virginia and has been considered by few other courts.
Cities Service relies on the case of Price v. Town of Ruston, 171 La. 985, 132 So. 653 (1931), which held that the right of first refusal does apply to a judicial sale. There Arilla A. Price permitted the Elks' Lodge to construct a third floor on her building. The lodge agreed that in the event it 'shall desire to sell' the third story, Mrs. Price 'shall be given the option and preference of purchasing the same at the price at which it shall be offered.' The lodge borrowed construction money and secured the loan by a mortgage on the third floor. Upon default on the loan, suit was instituted to...
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