Hawthorne's, Inc. v. Warrenton Realty, Inc.

• Decision Date: 25 January 1993
• Citation: 414 Mass. 200,606 N.E.2d 908
• Parties: HAWTHORNE'S, INC. v. WARRENTON REALTY, INC. & others 1 .
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 908

606 N.E.2d 908

414 Mass. 200

HAWTHORNE'S, INC. v. WARRENTON REALTY, INC. & others ¹.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Oct. 5, 1992.

Decided Jan. 25, 1993.

Robert M. Bonin, Boston (Gerald P. Stewart, with him) for plaintiff.

Gordon T. Walker, Boston (James J. Haggerty, with him) for defendants.

Before ABRAMS, NOLAN, LYNCH and GREANEY, JJ.

GREANEY, Justice.

This case involves a commercial real estate lease granting the plaintiff lessee, Hawthorne's, Inc. (Hawthorne's), both a right of first refusal and an option to purchase the premises at a fixed price. Hawthorne's brought suit in the Superior Court against the lessor, Warrenton Realty, Inc. (Warrenton), and subsequent owners of the premises, following its unsuccessful attempt to exercise its option to purchase. After a nonjury trial, a judge of the Superior Court concluded that Hawthorne's had lost its rights under the lease and rejected its claims for specific performance and damages. ² Hawthorne's appealed, and we transferred the case to this court on our own initiative. We affirm the judgment.

1. The decision below. The judge made sixteen pages of meticulous and comprehensive findings of fact, based principally on oral testimony which was at times contradictory. Having heard the testimony, the judge was in the best position to evaluate the credibility of the witnesses. See Simon v. Weymouth Agric. & Indus. Soc., 389 Mass. 146, 148, 449 N.E.2d 371 (1983). The record supports the judge's findings. See Mass.R.Civ.P. 52(a), 365 Mass. 816 (1974).

We summarize the relevant facts. The premises at issue, 100 Warrenton Street, Boston, were the sole asset of Warrenton Realty, Inc., a corporation wholly owned by Stuart W. Pratt, a licensed real estate broker. Hawthorne's had owned and conducted a restaurant business at the premises prior to the execution of the subject lease. The lease, executed on May 23, 1980, and commencing on June 1, 1980, was for a ten-year period with two five-year options to extend. At the time the lease was being negotiated, the principals of Hawthorne's, Felix Paige, Jackson Gateman, and Louis Rosen, had numerous discussions with Pratt concerning their desire to purchase the premises. Hawthorne's, however, lacked the financial ability to purchase the premises at that time. Paige indicated that Hawthorne's intended to purchase the premises for $650,000 within the first eighteen months of the lease. Based on these discussions, the parties included the following two clauses in the lease:

"ARTICLE XXVI--Right of First Refusal. If Landlord receives a bona fide offer to sell the Premises, Landlord shall convey the business terms thereof, including any financing contingencies by written notice to Tenant. Tenant shall have fifteen (15) days after such notice is sent by certified mail, return receipt requested, to exercise a right of first refusal to acquire the Premises upon the same terms and conditions, Tenant's acceptance being given by forwarding to Landlord within such period, written acceptance of the offer and the deposit required thereby by bank or certified check. The sale will consummate in the time period set forth in the terms of the sale, and the parties shall enter into the standard Greater Boston Real Estate Board form reflecting the transaction, but providing for liquidated damages if Tenant defaults.

"If Tenant is in default hereunder (utilizing allowed grace periods) in the payment of moneys when such offer is forwarded to Tenant, Tenant shall have no right of first refusal hereunder. If the Premises [are] sold, Tenant's right of first refusal and its option to purchase is thereby void.

"ARTICLE XXVII--Option to Purchase. The Tenant shall have an option to purchase the Premises at any time during the first two years of the term for the sum of $650,000, or at any time during the next three years of the term for the sum of $675,000, provided Tenant is not in default of any of the provisions of this Lease, by notifying the Landlord in writing, certified mail, return receipt requested, of its intention to exercise said option. Notice to the Landlord shall be accompanied by a deposit of a bank or certified check in the amount of 10% of said purchase price and a standard Greater Boston Real Estate Board form reflecting the transaction, but providing for liquidated damages in the amount of the deposit if Tenant default. Tenant shall have thirty (30) days after said notice is sent to consummate the sale."

After the lease commenced, Pratt began to experience financial difficulties and decided to sell the premises. He made contact with Paige and Rosen and explained that he would place the premises on the market if Hawthorne's could not purchase them. In January, 1981, Paige told Pratt not to market the premises because Hawthorne's would be purchasing them. Hawthorne's, however, did not attempt to exercise its purchase rights under the lease, but continued to negotiate with Pratt concerning the terms of its purchase.

During the next months, Pratt conducted discussions with other interested parties and negotiated two separate potential deals, both with a purchase price of $665,000, which were evidenced by written offers signed in May, 1981. The first offer was from Alan Lewis, a successful and experienced real estate businessman. The written offer, including a $65,000 deposit, was good until June, 1981, and contemplated execution of a purchase and sale agreement on or before July 15, 1981. Since Lewis, however, was aware of the purchase rights of Hawthorne's under the lease and of Pratt's ongoing negotiations with Hawthorne's, he orally agreed to leave the offer open for an indefinite period. The judge specifically found that the Lewis offer was bona fide.

The second, and less appealing offer, resulted from Pratt's negotiations with Frederic N. Halstrom, an attorney with no prior experience in real estate ventures. Although Pratt wished to sell his entire interest in the premises, Halstrom wanted to share the risk of ownership and also wanted to keep Pratt involved in the management of the premises. They orally agreed to form a trust to purchase the premises, with each of them holding a fifty per cent beneficial interest. The written offer was signed by Pratt and Halstrom (Pratt-Halstrom offer), as trustees of the 100 Warrenton Street Real Estate Trust (100 Warrenton Trust). Halstrom provided a $65,000 check as a deposit. By its terms, the offer was good until October 15, 1981, and contemplated execution of a purchase and sale agreement on or before October 25, 1981.

Warrenton notified Hawthorne's of the offer from Lewis by a letter dated May 20, 1981, sent registered mail. The letter stated that Warrenton had "received a written offer to purchase (the premises) in the amount of $665,000 of which $65,000 has been made as a deposit, to be closed on or before July 15, 1981." Upon receipt of the letter, Gateman made contact with Pratt and asked for the name of the offeror. Pratt identified Lewis. Gateman did not believe that Lewis's offer was bona fide and called Lewis, who responded that his offer was indeed genuine. Gateman then attempted to dissuade Lewis from purchasing the premises by informing him of alleged problems with the building. ³ Gateman also warned Lewis that he would not let Lewis purchase the premises.

Despite the existence of the two offers and Gateman's conduct with Lewis, Pratt continued to negotiate with Hawthorne's. At a meeting held in late May or early June, 1981, Pratt showed both outstanding offers to Paige and Rosen and discussed the offers in great detail. It became clear at this meeting that the three principals of Hawthorne's were not in agreement concerning the purchase of the premises. Paige stated that Gateman, who was not present, did not believe that the Lewis offer was bona fide and was not interested in purchasing the premises. Paige and Rosen, however, discussed price and various ways of structuring a deal with Pratt. Pratt informed them that Warrenton was not interested in a sale to Hawthorne's unless Gateman joined or provided a release.

Following this meeting, Pratt received a draft of a proposed agreement from Paige and Rosen. Pursuant to this agreement, Paige and Rosen would purchase the stock of Warrenton and assume the mortgage liability outstanding on the premises. Under these terms, the premises would be purchased for approximately $425,000. Pratt notified Hawthorne's that the agreement was not acceptable because it was not worth as much as the $665,000 offer from Lewis and did not contain a release from Gateman.

In July, 1981, Pratt and Gateman met at Gateman's suggestion because Gateman was concerned that Paige and Rosen were attempting to purchase the premises individually. The proposed stock sale agreement was produced and shown to Gateman. It was clarified that any sale of the premises would be through Hawthorne's and not Paige and Rosen individually. Pratt explained that there were two outstanding offers to purchase the premises for $665,000, one from Lewis and one from Pratt-Halstrom. Gateman again expressed his belief that the Lewis offer was not bona fide. Following this meeting, however, Gateman called Pratt and told him that Hawthorne's would be purchasing the premises and would send a confirming letter. Pratt was led to believe that Hawthorne's would pay either $650,000 or $665,000 for the premises.

Following Gateman's call, Pratt made contact with Lewis to inform him that their deal was dead because Hawthorne's was going through with the purchase. Pratt then received the confirmation letter from Hawthorne's. The August 7, 1981 letter purported to be "notice from Hawthorne's, Inc. of its exercise of its right to purchase the property on the same terms as had been agreed to with Messrs. Paige and Rosen." It stated, "If you will redo the papers, we can have an immediate closing." This letter raised confusion since Pratt had not...