Gateway Trading Co. v. Children's Hospital of Pittsburgh

• Decision Date: 22 April 1970
• Citation: 438 Pa. 329,265 A.2d 115
• Parties: GATEWAY TRADING CO., Inc. v. CHILDREN'S HOSPITAL OF PITTSBURGH, a Corporation, and Fourth Allegheny Corporation, a Corporation, Appellants.
• Court: Pennsylvania Supreme Court

Page 115

265 A.2d 115

438 Pa. 329

GATEWAY TRADING CO., Inc. v. CHILDREN'S HOSPITAL OF PITTSBURGH, a Corporation, and Fourth Allegheny Corporation, a Corporation, Appellants.

Supreme Court of Pennsylvania.

April 22, 1970.

Rehearing Denied June 2, 1970.

Greenlee, Richman, Derrico & Posa, Stephen I. Richman, Washington, for appellants.

Richard DiSalle, Canonsburg, for appellee.

Before BELL, C.J., and JONES, COHEN, EAGEN, O'BRIEN, ROBERTS and POMEROY, JJ.

OPINION OF THE COURT

POMEROY, Justice.

This is an appeal from a final decree of the Washington County Court of Common Pleas, sitting in equity, granting plaintiff-appellee's prayer for specific performance of an alleged obligation of defendant Children's Hospital of Pittsburgh to convey to plaintiff certain property situate in Peters Township and declaring invalid a sales agreement for said property which was entered into by the Hospital and the Fourth Allegheny Corporation, defendants-appellants herein.

The facts of the case are as follows: In 1964 one Edith Dawson owned certain land fronting on Route 19 in Peters Township (hereinafter the property) and a building which had been erected thereon. On September 29, 1964 Mrs. Dawson sold the building in question to Gateway Trading Co., Inc. (hereinafter Gateway), the bill of sale giving to Gateway the right to remove the building from the property. Contemporaneously with that sale, Mrs. Dawson leased the property to Gateway for a term of five years at a monthly rental of $150. Attached to the lease was a rider which in pertinent part provided as follows:

'(I)t is expressly understood and agreed that if the Tenant be not in default under the terms of this Lease or any renewal thereof, and if the Lessor during the term of this Lease or any renewal thereof receives a bona fide offer acceptable to the Lessor from any person desiring to purchase the demised premises, the Lessor agreed (sic) to give the Tenant ten (10) days notice in writing addressed to the Tenant at the demised premises, by registered mail, setting forth the terms of such offer and the name of the offeror and the lessor's willingness to accept an offer from the Tenant for the purchase of the demised premises for the same amount and in accordance with the same terms as the other offer.'

On January 16, 1966, during the term of the lease, Mrs. Dawson died testate. Her will named Adolph L. Zeman, Esq. as Executor of her estate and Children's Hospital (hereinafter Hospital) as residuary devisee. On September 29, 1966, while settlement of the estate was still pending. Gateway by its President, Paul G. Secoy, transmitted to Mr. Zeman as Executor a check in the amount of $150 in payment of the September rent for the property, then overdue; Secoy further informed Zeman that Gateway was unable to make monthly rental payments of more than $50 to $75 rent in the future, and asked his advise as to the amount of future rental payments. As both Secoy and Zeman testified at trial, Zeman instructed Secoy to suspend further rental payments until arrangements could be made with the Hospital, the devisee. In the following nine months no further rental payments were made or tendered by Gateway.

On December 22, 1966, the Orphans' Court of Washington County by its decree of distribution in Mrs. Dawson's estate awarded the property to the Hospital, which succeeded to all of decedent's rights and obligations under the lease. By a memorandum to the Hospital dated February 2, 1967, Mr. Zeman outlined the situation then existing as to this and other properties devised by Mrs. Dawson. This memorandum stated as follows:

'We enclose a letter from Mr. Secoy in which he advises that he is unable to continue to pay the rental at the rate of $150.00 per month as provided for in said lease and offering '50.00 not to exceed $75.00 per month.' He should be contacted immediately and some understanding reached relative to any reduction in rent, if you are inclined to grant such reduction. Gateway Trading Company, Inc. is delinquent in rent for the month of October, 1966, through February, 1967, at the rate of $150.00 per month.'

According to the testimony of John A. Byerly, the Treasurer of the Hospital, he and one William Halboth, a real estate appraiser, visited the property on March 14, 1967, intending to speak with Secoy and inspect the premises. As to their interview with Secoy, Byerly testified that 'we asked him about the rent, he said he couldn't pay that rent; we asked him if he was interested in buying the property, he said no he wasn't.' Following the meeting with Secoy, Byerly, on behalf of the Hospital, engaged a local real estate agency with authority to manage the property and arrange for its sale. Thereafter, the real estate agency informed Secoy that it was charged with the responsibility of managing the property and stated that 'all future rental payments, as well as any discussion regarding the property' were to be directed to its rental manager. There is no evidence that Secoy approached either the Hospital or the agency concerning a reduction of the rent, and the Hospital did not thereafter attempt to collect the rent then owed.

On April 11, 1967, the Fourth Allegheny Corporation (hereinafter Allegheny) offered to purchase the property at a price of $15,000, hand money of $500 being paid on the date of the agreement, the balance of $14,500 being payable within thirty days upon delivery of the deed. The Hospital accepted Allegheny's offer on April 20; through its agent, it informed Gateway (that Allegheny had purchased the property) by a letter dated May 1, 1967. The letter reads as follows:

'As per our conversation of April 20, 1967, we apprised you of the fact that the purchase price would be $15,000.00, and as per agreement we offered you this property for the same number of dollars, and you rejected same.' ¹

On May 2, 1967, Mr. Zeman, on behalf of Gateway, wrote to the Hospital as follows:

'We also hastily disclaim that our client (Gateway) rejected an offer of the sale of the property to it. * * * You are advised that the Tenant does hereby exercise its option to purchase the demised premises at the price of $15,000.00 and is prepared to enter into immediate negotiations for the conveyance of the demised premises to the Tenant. Will you please take steps to consummate this transaction in accordance with the terms of the lease and as herein stated.'

The instant action was initiated when Gateway filed a complaint in equity in December, 1967. Gateway therein prayed that the defendants specifically perform the agreement contained in the rider to the lease by conveying to Gateway a marketable title to the property and that they be enjoined from conveying the property to any other party or encumbering it in any way. Defendants filed an answer with new matter and a counterclaim for rent allegedly owing. ² Trial was held, and the Chancellor found for Gateway, entering a decree nisi which ordered conveyance of the property to it for $15,000 and declared the sales agreement between the Hospital and Allegheny invalid. Exceptions were filed by the defendants and overruled by the court En banc which entered the Chancellor's decree nisi as a final decree. This appeal followed.

Appellants have presented to this Court four arguments in the alternative: that Gateway never had an option to purchase; that Gateway was in default of its lease and the Hospital was thereby released from any obligation it may have had to convey to Gateway; that Gateway waived any option which it may have had; and that Gateway failed to exercise effectively any such option.

As to the first issue, appellants contend that the lease rider was not a valid option to purchase. Under an option, the optionholder has acquired the power to accept an offer (irrevocable during the option period) by an appropriate means, thereby effecting a binding contract. See Corbin, Contracts (1952), Chap. 11; Restatement (Second) of Contracts, § 24A (Tent. Draft No. 1, 1964). It is true, as appellants point out, that the lease provision here involved gave Gateway no power to effect a contract for purchase, and strictly speaking was not therefore an option.

It is obvious, nevertheless, that the lease rider did constitute a promise by the decedent Dawson, the lessor, binding on her successors in title, the before accepting any offer to purchase made by one not a party to the lease, the...