Phillips v. Hill

• Citation: 555 P.2d 1043
• Decision Date: 27 July 1976
• Docket Number: No. 47364,47364
• Court: Oklahoma Supreme Court
• Parties: Howard PHILLIPS and Bess Phillips, Appellees, v. W. A. HILL, Appellant.

Page 1043

555 P.2d 1043

Howard PHILLIPS and Bess Phillips, Appellees, v. W. A. HILL, Appellant.

No. 47364.

Supreme Court of Oklahoma.

July 27, 1976.

Rehearing Denied Nov. 8, 1976.

Certiorari to the Court of Appeals, Division No. 2. Howard and Bess Phillips commenced proceedings against Appellant, W. A. Hill, to cancel a written lease and option to purchase contract on approximately 1,400 acres of land. Appellant, W. A. Hill, cross-petitioned for specific performance the lease and option contract. The District Court, McCurtain County, Honorable Neal Merriott, District Judge, resolved the issues generally in favor of Appellees and rendered judgment accordingly. Appellant Hill appealed.

The Court of Appeals, Division No. 2, affirmed the judgment of the trial court. Appellant petitioned this Court for Writ of Certiorari.

CERTIORARI GRANTED; DECISION OF COURT OF APPEALS VACATED; AND JUDGMENT OF THE TRIAL COURT REVERSED AND REMANDED WITH INSTRUCTIONS TO ENTER JUDGMENT FOR APPELLANT.

Vester Songer, Hugo, for appellees.

John Shipp, Shipp & DeWitt, Idabel, for appellant.

IRWIN, Justice:

Appellees, Howard and Bess Phillips (plaintiffs) commenced proceedings to cancel a lease-rental and option to purchase contract wherein plaintiffs were the lessors-optionors and appellant W. A. Hill (defendant) was the lessee-optionee. The trial court determined all factual issues in favor of plaintiffs; cancelled the lease-rental and option to purchase contract; quieted plaintiffs' title; and ordered defendant to surrender immediate possession. Defendant appealed. The Court of Appeals, Division No. 2, affirmed the judgment of the trial court. Defendant seeks certiorari.

The lease-rental and option contract covered approximately 1,400 acres and was for a term of five years. The annual rental of $5,000.00 was payable on January 1 of each year. The option to purchase proviso provided that plaintiffs 'do hereby extend and grant unto (defendant) an option and right to purchase said premises for the gross sum of $150.00 per acre delivered; said option to be exercisable at the end of the term; notice of the exercise of said option shall be given in writing * * * prior to the expiration of the end of the lease term.'

Plaintiffs' action is predicated on certain alleged breaches of covenants in the lease not to permit or commit waste of the leasehold estate. The lease-rental agreement reserved to plaintiffs a right of re-entry in the event of a breach of covenants concerning waste or the payment of rent when due. Plaintiffs' theory in the trial court was that the defendant, having permitted or committed waste, breached the lease covenants and gave rise to plaintiffs' right to re-enter and to cancel the lease. Contending that the option to purchase was dependent upon the continuation of the lease, plaintiffs asserted that the option to purchase would be forfeited and cancelled were there a valid right of re-entry by the plaintiffs as lessors.

Defendant demurred, and later filed a general denial followed by an answer and cross-petition. Defendant's answer asserted that plaintiffs, should they desire, could accelerate the provisions of the option to purchase. Defendant also alleged that he was ready, willing and able to exercise the option to purchase and would pay plaintiffs the option price including all rentals. Defendant tendered the balance of the rental payments owing for the remainder of the lease term and the full agreed purchase price. Defendant, in his cross-petition, alleged that plaintiffs were attempting to cancel the lease-rental and option to purchase contract in order to take advantage of the rising land values in the area, and that plaintiffs have not and will not suffer any damage by reason of any alleged breach on defendant's part. Defendant sought judgment upholding the contract and quieting title in himself.

The evidence was highly contradictory, much of it centered on a difference of opinion as to what constituted proper management and use of property. Defendant testified (as alleged in his answer) that he was ready, willing and able to exercise his option to purchase at any time that would be most advantageous to plaintiffs and would pay all the unaccrued rentals under the lease. Defendant also introduced a copy of a letter addressed and mailed to plaintiffs seven days after plaintiffs commenced this action to the same effect.

The trial court determined all factual issues in favor of plaintiffs and applied plaintiffs' legal theories in rendering judgment for plaintiffs. In the journal entry of judgment the trial court found that defendant had:

'* * * breached covenants of the agreement between the parties and that said breaches are material and are such as to effect a forfeiture of said lease agreement and that pursuant to the provisions in the lease, plaintiffs did declare the lease agreement and the entire contract forfeited.

'The court further finds that the provisions for option to purchase said real estate by defendant from the plaintiffs was dependent upon the lease and that the performance of the covenants in the lease by the defendant was the consideration for the option and that by reason of the breaches of the covenants by the defendant, the consideration for the option failed and that the option was terminated with the lease.'

The general language of the trial court's journal entry renders it impossible to ascertain from the judgment the specific covenants the trial court found that defendant had breached. However, in view of our conclusions hereafter discussed, we find it unnecessary to consider defendant's contention that the trial court's factual determination in favor of plaintiffs was against the clear weight of the evidence. We will assume arguendo that such finding was not against the clear weight of the evidence.

Whether a breach of lease covenants constitutes grounds for forfeiture of an option to purchase depends on the contract, the facts and circumstances surrounding the breach and the facts and circumstances surrounding the exercise of the option to purchase.

49 Am.Jur.2d, Landlord and Tenant, § 385, states in part:

'The determination of whether a breach of the lease by the lessee renders an option to purchase nugatory depends on whether the option and lease are one agreement or are independent. This resolves itself into a problem of construction of the instrument and of determining the intent of the parties. It has been held in some cases that the lease and option provisions were not independent, but constituted parts of one entire contract, and that the breach of the lease amounted to a failure of consideration for an accompanying option to purchase, so that such option was lost, the consideration for the option being the fulfillment of the covenants...