Sinclair Refining Co. v. Clay, Civ. No. 26158.

• Decision Date: 04 January 1951
• Docket Number: Civ. No. 26158.
• Citation: 102 F. Supp. 732
• Parties: SINCLAIR REFINING CO. v. CLAY et al.
• Court: U.S. District Court — Northern District of Ohio

102 F. Supp. 732

SINCLAIR REFINING CO. v. CLAY et al.

Civ. No. 26158.

United States District Court N. D. Ohio, E. D.

January 4, 1951.

Hubert B. Fuller, Cleveland, Ohio, for plaintiff.

Carpenter & Carpenter, Tiffin, Ohio, for defendant.

JONES, Chief Judge.

This is an action for specific performance of a purchase option in a lease.

A Mr. Robertson leased the property in question to plaintiff Sinclair Refining Company in 1937 although he did not acquire title to the property until July 8, 1938 This lease, prepared by Sinclair, was for a ten year term and included a provision for a five year extension. In the lease Sinclair also was given a purchase option and a first refusal option. In 1943 Robertson sold the property to defendant Ada M. Clay and while it could be assumed that Sinclair at the time had been given first refusal, and declined to exercise this option, yet the evidence of notice to lessee as required was not conclusive. On November 4, 1948, Sinclair notified Mrs. Clay that it was exercising its option to purchase the property for $8,500. A few days thereafter Mrs. Clay secured an offer, which it may be assumed was bona fide, to purchase the property for $18,500, and on November 18th she offered Sinclair first refusal at that price.

Sinclair contends that its exercise of the option fixed the rights and duties of the respective parties, and that no subsequent action on the part of Mrs. Clay could release her from her obligation to convey the property for $8,500. Mrs. Clay on the other hand claims (1) that Sinclair's purchase option was lost when it refused to purchase from Robertson and (2) if it was not lost, the purchase option and first refusal option must be construed together in such a way as to give Mrs. Clay thirty days from notice of the exercise of the purchase option to secure a purchaser who would pay a higher price for the property, and Sinclair would be given first refusal at that price. The important question thus concerns the construction and interpretation to be given to the purchase and first refusal options, Articles XIV and XV of the lease which are as follows:

"Article XIV

"Purchase Option:

"For the considerations herein named, Lessor hereby gives and grants to Lessee the exclusive option and privilege of purchasing the leased premises, including all, if any, of Lessor's improvements and property thereon, whether real, personal or mixed, free and clear of all liens and encumbrances, for the sum of Eighty Five Hundred and no/100 Dollars ($8500.00) in cash at any time during the last five (5) years of the lease term, or any extension or renewal thereof;

"Provided Lessee shall give Lessor not less than thirty (30) days' notice of Lessee's election to exercise this purchase option. Upon Lessee's giving such notice, Lessor shall comply with the requirements of the second succeeding Article, entitled `Conveyance Requirements.'

"Article XV

"Purchase Refusal:

"In the event Lessor shall receive from a third party at any time during the term of this lease a bona fide offer to purchase the leased premises at a specified price, whether such price be first fixed by Lessor or the third party, and Lessor shall decide to sell the same for such amount, Lessor shall promptly give to Lessee notice of the terms of such offer, and of Lessor's willingness to sell for the price offered, and Lessee shall have the first refusal and privilege (which will hereafter be referred to as an `option') of purchasing said premises at such price; such option to be exercised within ten (10) days after Lessee receives notice from Lessor, by Lessee's notifying Lessor that it will purchase said premises for the amount specified in said offer. In the event Lessee shall not give Lessor notice, within said ten-day period, of its election to purchase for the amount specified in said offer, Lessee shall not be obligated to purchase, and Lessor may thereafter sell said premises to the party making the offer; subject, however, to this lease and to the leasehold estate herein granted, and to the extension and/or additional purchase options, if any, herein granted to Lessee. If for any reason said premises are not sold to such party, notice of any subsequent bona fide offers acceptable to Lessor, shall be given to Lessee upon the same terms and conditions for acceptance or rejection as hereinabove provided."

Purchase option agreements in leases are not separate and distinct offers which can be withdrawn before acceptance. The giving and acceptance of an option to buy is enforceable and the landlord does not have the right to refuse to carry out his agreement after the lessee exercises his option in accordance with the terms of the lease. Furthermore, such option is a covenant which runs with the land and a grantee of the lessor is bound by the terms of the covenant. Thompson on Real Property, Sec. 1325-1330. This seems to be the general law on this subject, and indeed the parties to the lease intended that any grantee should take the property subject to Sinclair's purchase option (Article 15). Mrs. Clay admittedly knew of the terms of the lease and she accepted such terms in writing (Plaintiff's Exhibit 5). No other conclusion can be reached than that the purchase option...