Newport Terminals, Inc. v. Sunset Terminals, Inc.

• Decision Date: 11 July 1977
• Parties: , 1977-2 Trade Cases P 61,694 NEWPORT TERMINALS, INC., Respondent, v. SUNSET TERMINALS, INC. and Northwest Natural Gas Company, Appellants.
• Court: Oregon Supreme Court

Page 1181

566 P.2d 1181

279 Or. 93, 1977-2 Trade Cases P 61,694

NEWPORT TERMINALS, INC., Respondent, v. SUNSET TERMINALS, INC. and Northwest Natural Gas Company, Appellants.

Supreme Court of Oregon, In Banc.

Argued and Submitted April 5, 1977.

Decided July 11, 1977.

James H. Clarke, Portland, argued the cause for appellants. With him on the briefs for Northwest Natural Gas Co. were John P. Bledsoe, and Dezendorf, Spears, Lubersky & Campbell, Portland. Maynard Wilson, Cottage Grove, and James H. Lewelling, Newport, filed a brief for Sunset Terminals, Inc.

John E. Frohnmayer, Portland, argued the cause and filed a brief for respondent.

LENT, Justice.

Defendants appeal from a declaratory judgment. The trial court upheld a provision in a lease between plaintiff-lessee and defendants' predecessor in interest and held that the provision operates against defendants.

On February 16, 1967, Yaquina Bay Dock & Dredge Co., defendants' predecessor in interest, entered into a lease with plaintiff, Newport Terminals, Inc. The lease conveyed an interest in 22 acres of land with two existing docks on Yaquina Bay in the city of Newport and was for a term of 20 years. This land was part of a larger tract owned by Yaquina on the north shore of the bay. Newport Terminals uses the leased property to operate the docks. Users of the docks are primarily exporters of log and paper products.

Contemporaneously, Newport's parent company (Brady-Hamilton) advanced funds for the construction of a dike on Yaquina's land which was south of the leased property. This was necessary to salvage dredgings from operations being conducted by the Army Corps of Engineers. New landfill was thereby created which increased the amount of Yaquina's land suitable for industrial use. The loans for this development were later repaid.

The present dispute concerns the interpretation of paragraph 6 of the lease:

"6. This lease shall extend to any additional dock or warehouse facilities which may hereafter be developed for use in the loading or unloading of deep water ships or barges upon land or property now owned by Lessor in Lincoln County, Oregon, whether then held by Lessor or its successors or assigns, and this covenant shall run with the land."

In 1968 Yaquina was dissolved, and its property passed to Sunset Terminals, Inc. In 1974 defendant Northwest Natural Gas Company purchased 20 acres of waterfront property from Sunset. This parcel was part of the land held by Yaquina in 1967 and included much of the landfill development. Northwest intends to construct a dock and receiving facility to import and store liquefied natural gas on this site. At issue is whether Newport Terminals will have some right in this facility upon its completion by operation of paragraph 6 of the lease.

Newport filed this proceeding for a declaratory judgment in April 1974, seeking a declaration of its rights under the lease. Northwest by affirmative defenses asserted that: (1) the lease covenant did not run with the land and bind successors of the original lessor; (2) the agreement to lease is vague and indefinite and therefore unenforceable; (3) the provision operates as an unreasonable restraint of trade in violation of Section 1 of the Sherman Act; and (4) plaintiff and its parent company intended by the provision to monopolize the port facilities in Newport and that the provision is void under Section 2 of the Sherman Act as an attempt to monopolize. Other affirmative defenses raised are no longer at issue. Sunset pleaded the same defenses.

After a trial, the circuit court entered findings and conclusions, and a judgment declaring that the lease provision is:

" * * * valid, subsisting, enforceable and binding upon the defendants and plaintiff herein in accordance with its terms as to any dock or warehouse facility developed after February 16, 1967 for use in the loading or unloading of deep water ships or barges * * * "

and that Northwest's land is subject to its terms.

In its appeal Northwest renews its four arguments against the lease. Sunset contends that the lease, construed as a whole, should not apply by its terms to Northwest's proposed facility. ¹

Enforceability of the Lease Provision Against Northwest

Paragraph 6 of the lease can be construed as either an agreement to make a lease or as a present demise with the right of possession to begin in the future upon erection of a warehouse or dock facility for deep water ships. As has been recognized:

"A contract to make a lease of realty differs from a lease of realty in nature, effects and consequences, much as a contract to sell realty does from a conveyance of realty. Whether a writing constitutes a contract to lease or a lease is a matter of the real intention of the parties. Language which almost always would import a present demise may be found in light of the context and surrounding circumstances to constitute a personal contract to thereafter make a lease. On the other hand, language which almost always would be understood as a promise later to make a lease has been construed as constituting words of present demise, that is to say, a lease. * * * A writing may be a lease though it does not give a right to immediate possession since a lease for years may create an estate to commence in futuro. 1 Tiffany, Landlord and Tenant, §§ 62 and 63 (1912); 1 American Law of Property, § 3.17 (Casner ed. 1952); 51 C.J.S. Landlord and Tenant, §§ 184 and 185; 32 Am.Jur., Landlord and Tenant § 28." Motels of Maryland, Inc. v. Baltimore County, 244 Md. 306, 223 A.2d 609, 612 (1966).

In Wright v. Baumann, 239 Or. 410, 398 P.2d 119 (1965), the distinction between an agreement to make a lease and a lease was recognized. As noted in Wright, the intent as shown in the agreement is one of the primary criteria for differentiating between the two types of agreements. (239 Or. at 416, n.8, 398 P.2d 119.) There the contract was to lease an office in a building to be constructed by the lessor.

We said:

" * * * Conceding that one may make a present demise of a term to begin in the future, it is difficult to conceive of the present transfer of the title (or a part of it in the case of a lease) when that which is to be transferred has no existence." (footnotes omitted.) (239 Or. at 416, 398 P.2d at 122.) ²

Here the lessee's rights are contingent upon a future event, the erection of port facilities. Under the rationale of Baumann, it would seem that no present transfer was intended. On the other hand, it is suggested in Riedel v. Plymouth Redevelopment Authority, 354 Mass. 664, 241 N.E.2d 852, 853 (Mass.1968), that:

"Whether an instrument is a lease or an agreement for a lease depends on the intention of the parties to the instrument as ascertained from the instrument as a whole. (Citing cases.) The determination is whether 'the instrument, upon its face, purports to be the contract upon which the occupation is to be enjoyed, and the relations and rights of the parties to be defined, and it contains apt words to operate as a present demise.' (Citing cases.)"

The instrument in question here does "purport to be the contract upon which the occupation is to be enjoyed." ("This lease shall extend * * *.") Rent payments are calculated in the lease under a percentage of gross income formula. ³ This calculation can be readily applied to additional income-producing properties. The other key elements of a lease, description of the property and the duration of the term ⁴ are likewise certain as to additional property to be let. The property covered is that owned by Yaquina in Lincoln County as of February 16, 1967, upon which port facilities are developed. ⁵ The term of the lease expires on February 28, 1987. This agreement is either a present leasehold conveyance or a contract to lease. Regardless of its denomination, its terms are binding upon successors to the lessor, including Northwest. Characterized as a present transfer, the lessor would have only a reversionary interest in the land. A successor to the lessor would hold that reversion but no more and would take subject to the lease. ⁶

On the other hand, if the provision operates as an agreement to lease, it conveys an equitable interest in the land to Newport. In Motels of Maryland, Inc. v. Baltimore County, supra, the court noted:

"That equity treats a contract of sale of real estate as transferring an equitable estate or interest to the vendee, leaving the vendor the holder of the bare legal title, is firmly established in Maryland. (Citing cases.) It is equally firmly established of course that equity ordinarily will transform the equitable interest of a vendee into a legal estate by granting specific performance of the contract to sell and convey. (Citing cases.)

"That a contract to convey a lesser estate than a fee creates an equitable interest which equity ordinarily will transform into an equivalent legal estate seems logically inescapable."

Quoting from Williston on Contracts, § 945, the court concluded:

" 'It is also true, though it is not clearly admitted in the cases, that a contract to make a lease should stand on the same footing as a contract to convey a freehold estate. If one who contracts to purchase a fee immediately becomes owner thereof in equity, one who contracts for the conveyance of a lesser estate should become the owner in equity of that estate.' " (223 A.2d at 613, 614.)

In Oregon the vendee of a contract to convey real property is the holder of an equitable interest in the land, and a purchaser with notice of this equitable right takes subject to it. Bloech v. Hyland Homes Co. et al, 128 Or. 292, 300, 274 P. 318 (1929). An agreement to lease likewise creates an equitable interest in real property. Cf., Wallace v. Scoggins, 18 Or. 502, 21 P. 558 (1889). Construing this provision as an agreement to lease to Newport which created an equitable property interest in the remaining land of the lessor, it follows that Northwest, as a purchaser with...