Fullington v. M. Penn Phillips Co.

• Jurisdiction: Oregon
• Parties: , 12 A.L.R.3d 1121 Ralph R. FULLINGTON, Appellant, v. M. PENN PHILLIPS COMPANY, a California corporation, Respondent.
• Citation: 395 P.2d 124,238 Or. 321
• Court: Oregon Supreme Court
• Decision Date: 10 September 1964

Page 124

395 P.2d 124

238 Or. 321, 12 A.L.R.3d 1121

Ralph R. FULLINGTON, Appellant, v.M. PENN PHILLIPS COMPANY, a California corporation, Respondent.

Supreme Court of Oregon, In Banc.

Argued and Submitted April 2, 1964.

Reargued June 29, 1964.

Decided Sept. 10, 1964.

Ronald L. Marceau, Bend, argued and reargued the cause and filed briefs for appellant.With him on the briefs were Lyman C. Johnson and McKay, Panner & Johnson, Bend.

Theodore R. Conn, Lakeview, argued and reargued the cause and filed a brief for respondent.

Before McALLISTER, C. J., and ROSSMAN, PERRY, SLOAN, O'CONNELL, GOODWIN and DENECKE, JJ.

O'CONNELL, Justice.

Plaintiff lessee appeals from a judgment of involuntary nonsuit in an action brought against defendant lessor for damages arising out of the alleged repudiation of a lease containing an option to purchase.

In December, 1961plaintiff and defendant signed a letter memorandum of agreement which provided that defendant would lease to plaintiff certain property which plaintiff was to operate as a dude ranch.The lease was to run for three years at a rental of one dollar a year and contained an option to purchase the property for $25,000.The complaint alleges that in July, 1962defendant repudiated the lease including the option to purchase and requested plaintiff to vacate the premises.Plaintiff brought this action in September, 1962 to recover $75,000 on the theory that he was entitled to recover the difference between the option price of $25,000 and the market value of the land (alleged to be $100,000).

At the trial defendant objected to the admission of evidence of the market value of the land on the ground that plaintiff was not entitled to damages without proof that he had elected to exercise the option to purchase.The objection was sustained, whereupon plaintiff made an offer of proof to establish the fair market value of the land.In this offer of proof the property was appraised at $78,750.

When plaintiff had rested defendant moved for a judgment of involuntary nonsuit which the trial court granted on the ground that since plaintiff had not exercised the option to purchase there was not a breach of contract and, therefore, there was no damage.¹

We have found little authority upon the question as to whether an option holder may recover damages for breach of an option contract without a tender of the purchase price agreed upon in the option contract.²

We are of the opinion, however, that the accepted principles of contract law compel us to recognize the right of the option holder to recover damages upon breach of the option contract.The rule applied by the lower court would require the option holder to make his election to purchase the property prior to the expiration of the option period.But this would deprive the option holder of the very privilege for which he has bargained, that is, the assurance that he will have the entire option period in which to make his decision.

We recognize that the rule we have adopted may permit the recovery of damages even though the option holder might not have exercised his option within the period and, therefore, would not have been damaged.Having repudiated the option contract and created this element of speculation, the option giver should not be permitted to deprive the option holder of damages on the ground that they are speculative.

Defendant relies upon cases holding, in effect, that an option to purchase land does not create an interest in the land but is merely an agreement designating the manner in which an interest in the land may be acquired.³These cases are not helpful.Since the option holder seeks damages for breach of contract, it is immaterial whether the option creates an interest in land.The fact that the option is regarded as not creating an interest in land may be important in other respects.Thus in Strong et al. v. Moore et al., 105 Or. 12, 207 P. 179, 23 A.L.R. 1217(1922) it was held that the option holder did not have a sufficient estate in the land to entitle him to insurance proceeds upon a destruction of the premises by fire.

Nor are we concerned here with the cases in which the option holder seeks specific performance, because in such cases the exercise of the option may be required as a condition of enforcement.⁴

Support for our position can be found by analogy in the cases holding that upon a taking by condemnation the option holder is entitled to compensation for his option interest where the property is taken prior to the exercise of the option.⁵

Defendant argues that even if the rule relied upon by plaintiff is adopted, nevertheless the motion for nonsuit was properly granted because plaintiff did not accept defendant's renunciation of the contract but continued to insist upon performance.⁶Assuming, without deciding, that the question is timely raised, we are of the opinion that the evidence did not conclusively establish that plaintiff continued to insist upon defendant's performance and declined to accept the repudiation of the contract.

The judgment is reversed and the cause is remanded for a new trial.

GOODWIN, Justice (dissenting).

Although conceding the speculative nature of the damages sought by the option holder, the majority holds that the speculative nature of the damages is insufficient reason to deny them.There are several reasons why I cannot agree.

The majority assumes that the option holder has been deprived of the right to wait until the end of the option period to make up his mind whether or not to exercise the option.In the case at bar, this assumption is unwarranted.

If all of the plaintiff's evidence is credible, the lessor-optionor may have committed an anticipatory breach of the lease agreement.Although they are not sought in this action, damages for the breach of the lease might be available.It does not follow, however, that a breach of the lease would automatically terminate the option.Mathews Slate Co. v. New Empire Slate Co., 122 F. 972(C.C.N.D.N.Y.1903);Holmes v. Harris, 33 N.J.Supp. 395, 403, 110 A.2d 329, 334(1954);Bado Realty Co. v. Oetjen, 5 Misc.2d 914, 161 N.Y.S.2d 780(Sup.Ct.1957);51 C.J.S.Landlord and Tenant§ 87, p. 647.See also cases noted in Annotation, 10 A.L.R.2d 884, 894(1950).

This court could, and I believe that it should, hold that the option continues to exist, and that the plaintiff has been, and still is, entitled to exercise it if he so desires (assuming, of course, that he has not breached the agreement).In Gwaltney v. Pioneer Trust Company, 184 Or. 459, 199 P.2d 250(1948), we held that when a lease was terminated by the lessor because of a default by the lessee the option died with the lease.But it does not follow that when the lessor terminates, or attempts to terminate, the lease wrongfully, the option should be deemed terminated also.The more equitable rule would be to treat the interest created by the option as a separate interest, and to preserve it according to its terms, at least until it appeared that the lessee had abandoned it.SeeThompson v. Coe, 96 Conn. 644, 115 A. 219, 17 A.L.R. 1233(1921).

The option should be held open, at the lessee's request, pending the option period.51 C.J.S.Landlord and Tenant§ 81, p. 635.This is all the optionee bargained for.He did not buy the right to sue for damages in the absence of any showing that he has suffered damage.The option can be enforced in equity, or, if it eventually turns out that specific performance is impossible, damages can be allowed for nonperformance.

Only after the plaintiff has elected to exercise his option can he be heard to say that he has been damaged.Until such time as he elects to exercise the option, he has suffered no damage.(The case of Boyd v. De Lancey, 17 App.Div. 567, 45 N.Y.S. 693(1897), discussed the problem of damages and awarded the purchaser nominal damages after an election to purchase.)

This is not a case in which the lessor has put it beyond his power to perform.There is nothing in the record to show that the lessor will not be able to honor the option when and if the plaintiff elects to exercise it.Even if this were a case in which the optionor had seemingly put it beyond his power to perform, I believe the preferable ruled would require the plaintiff to allege that he had elected to exercise the option and had made demand upon the defendant.

I would affirm the judgment.

PERRY, J., concurs in this dissent.

1The trial court explained its position as follows: 'My ruling is that you cannot bring an action for damages upon an...