Stenke v. Masland Development Co., Inc.

• Decision Date: 16 October 1986
• Docket Number: Docket Nos. 84803,84804
• Citation: 152 Mich.App. 562,394 N.W.2d 418
• Parties: Larry E. STENKE, Plaintiff-Counter-Defendant-Appellee, v. MASLAND DEVELOPMENT CO., INC., Defendant-Counter-Plaintiff-Appellant. MASLAND DEVELOPMENT CO., INC., Plaintiff-Appellant, v. AMOCO OIL CO. and Larry E. STENKE, Defendants-Appellees. 152 Mich.App. 562, 394 N.W.2d 418
• Court: Court of Appeal of Michigan — District of US

Page 418

394 N.W.2d 418

Larry E. STENKE, Plaintiff-Counter-Defendant-Appellee, v. MASLAND DEVELOPMENT CO., INC.,

Defendant-Counter-Plaintiff-Appellant.

MASLAND DEVELOPMENT CO., INC., Plaintiff-Appellant, v. AMOCO OIL CO. and Larry E. STENKE, Defendants-Appellees.

Docket Nos. 84803, 84804.

152 Mich.App. 562, 394 N.W.2d 418

Court of Appeals of Michigan.

Submitted March 5, 1986.

Decided April 22, 1986.

Released for Publication Oct. 16, 1986.

[152 MICHAPP 564] Dobson, Griffin and Westerman, P.C. by Harvey W. Berman, Ann Arbor, for Larry E. Stenke.

Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, P.C. by Ernest R. Bazzana and Mary Ellen Darin, Detroit, for Amoco Oil Co.

[152 MICHAPP 565] Brimacombe & Schlecte, P.C. by Judith A. Ward, Ann Arbor, for Masland Development Co., Inc.

Before KELLY, P.J., and SHEPHERD and TAHVONEN ^*, JJ.

PER CURIAM.

The subject of this dispute is a lease with an option to purchase involving commercial property located on West Stadium Boulevard in Ann Arbor. Defendant-counterplaintiff Masland Development Company (hereinafter Masland or defendant), the owner of the property, entered into a lease with Standard Oil Company, the predecessor in interest of defendant Amoco Oil Company (Amoco), on February 14, 1958. Renewals of the lease effectuated continuance of the lease through July 17, 1983. On February 2, 1983, the tenant Amoco exercised its option to purchase the property, which was being used as a retail gas station. On May 12, 1983, Amoco assigned the lease including the exercised option to purchase to plaintiff-counterdefendant Larry Stenke who operated the gas station on the premises. Stenke subsequently commenced this action against Masland in the circuit court, seeking specific performance of conveyance of the property pursuant to the option to purchase. Masland filed affirmative defenses and a counterclaim against Stenke, contending that the option provisions of the lease are invalid and unenforceable as a matter of law. Masland also initiated summary proceedings in the district court for possession of the property and unpaid rent. By stipulation of the parties, Masland's district court action was removed to the circuit court and consolidated with Stenke's action.

The parties filed opposing motions for summary judgment. The trial court granted summary disposition in favor of Amoco and Stenke and against [152 MICHAPP 566] Masland pursuant to MCR 2.116(C)(9) and (10). Masland appeals from that order, claiming that the trial court erred in finding that the lease which is the subject of the parties' dispute was assignable, did not constitute an unreasonable restraint on alienation, did not violate the rule against perpetuities, and was not unconscionable. Masland also asserts that the trial court erred in granting summary disposition on Masland's claim that the appellees waived the right to exercise an option to purchase the subject property, because genuine issues of material fact exist. We affirm the trial court's order.

I

Masland first argues that the option provision of the lease constitutes an unreasonable restraint on alienation since, according to Masland, it effectively placed an $85,000 ceiling on the value of the leased premises during the term of the lease.

Paragraph 9 of the lease gave the lessee a fixed price option to buy the leased premises for $85,000 and a right of first refusal to buy the property for the amount contained in any bona fide offer made by a third party. Paragraph 9 provides in pertinent part:

"Lessee shall have, and is hereby given, the option of purchasing said premises, buildings, fixtures, equipment, machinery and appliances included in this lease, for the sum of EIGHTY FIVE THOUSAND AND NO/100 - - - DOLLARS ($85,000.00), provided Lessee shall give Lessor notice in writing of its election to exercise said option of purchase at least thirty (30) days prior to the expiration of this lease, or at least thirty (30) days prior to the expiration of any extension period, if this lease be extended, it being understood [152 MICHAPP 567] that in no event may this option be exercised prior to end of first year original term. * * * It is further understood that if the Lessor or the Lessor's heirs, executors, grantees, or assigns, or successors or assigns at any time during the term of this lease or any extension thereof, receives a bona fide offer to purchase said premises or any property which includes the premises, and said buildings, fixtures, equipment, machinery and appliances and desires to sell said premises, buildings, fixtures, equipment, machinery and appliances, or any part thereof under the terms of said offer, Lessor agrees to give Lessee (90) days notice in writing of such bona fide offer, setting forth the name and address of the proposed purchaser who has made the offer, the amount of the proposed purchase price, and all other terms and conditions of such offer, and the Lessee shall have the first option to purchase the demised premises by giving written notice to the Lessor of its intention to purchase within said (90) day period at the same price and on the same terms of any such proposal."

Michigan follows the common-law rule against unreasonable restraints on alienation of property. Moffit v. Sederlund, 145 Mich.App. 1, 12-13, 378 N.W.2d 491 (1985). The Restatement, Property, Sec. 404, p. 2381 defines a restraint on alienation of property as an attempt by an otherwise effective conveyance or contract to cause a later conveyance (1) to be void, (2) to impose a contractual liability upon the conveyor for conveying in breach of the agreement not to convey, or (3) to terminate all or part of a conveyed property interest. Nichols v. Ann Arbor Federal Savings & Loan Ass'n, 73 Mich.App. 163, 165, 250 N.W.2d 804, lv. den. 400 Mich. 844 (1977).

While Masland apparently concedes that the dual option is not technically a restraint on alienation since it did not prevent alienation, Masland argues that the practical effect of the option provision[152 MICHAPP 568] effectively restricts alienation by placing an $85,000 limit on the purchase price. Masland relies on Nichols, supra, as authority that contractual provisions that restrict alienation as a practical matter constitute unlawful restraint. In Nichols, a due-on-sale clause in a mortgage contract was challenged. While this Court recognized that the clause was not within the classical definition of restraint on alienation, it held that "the due on sale clause directly and fundamentally burdens a mortgagor's ability to alienate as surely and directly as the classical promissory restraint". 73 Mich.App. 166, 250 N.W.2d 804. Masland asks this Court to expand the Nichols rationale to the dual-option provision which is the subject of this appeal.

However, Masland's reliance upon Nichols is misplaced because the dual-option provision in the parties' lease does not restrict alienation even as a practical matter. Masland's position is premised upon an interpretation of the option clause that the option to purchase at a fixed price can intervene in a circumstance in which the lessee has already been notified of a third-party offer. This Court rejected such an interpretation of an identical option provision in Amoco Oil Co. v. Kraft, 89 Mich.App. 270, 280 N.W.2d 505 (1979). In Kraft, the lessee was notified of a bona fide purchase offer and declined to exercise its first-refusal option. The sale was made to the third party, and several years later the lessee sought to exercise its fixed-price option. This Court held:

"The language of the lease clearly indicates that the parties intended to create alternative options of equal stature. Under plaintiff's interpretation of the contract, however, the first refusal option would cease to be an independent option and instead be transformed into a secondary option subordinate to the fixed price option. Plaintiff's [152 MICHAPP 569] interpretation would freeze the value of the leasehold at the amount of the fixed price option. No one would be willing to purchase the property for a higher price than the fixed price with the knowledge that he could lose his investment and be divested of the property if plaintiff decided to purchase the property at the lower fixed price. This being the case, plaintiff would never have occasion to exercise its first refusal option, and it would be rendered virtually meaningless. We find nothing in the contract to show that the parties intended to make the first refusal option dependent on the fixed price option or to fix a ceiling price on the value of the leasehold. Therefore, plaintiff's interpretation of the contract cannot stand. See Manasse v. Ford, 58 Cal App 312; 208 P 354 (1922), Texaco, Inc v. Rogow, 150 Conn 401; 190 A2d 48 (1963).

"Conversely, under defendants' interpretation of the contract, both options continue to be viable until one of them ceases to be merely a contingent interest and instead becomes a vested right, at which time the nonvested option is extinguished. Since defendants' interpretation of the contract keeps both options independent and viable, it is the more reasonable interpretation of the contract." 89 Mich.App. 273-275, 280 N.W.2d 505 (footnotes omitted).

Thus, according to the language of the contract, if Masland had ever received a bona fide offer to purchase from a third party, upon notification as prescribed by the lease the first-refusal option would have vested and the fixed-price option would have been inoperative. We conclude, as did the trial court, that the lease did not limit the price of the property and thus did not effectively constitute an unreasonable restraint on alienation.

II

Masland next argues that the dual-option provision[152 MICHAPP 570] of the lease violates the rule against perpetuities by creating an estate in property which might not vest during the 25-year term of the lease. More properly stated, the argument is that the option could remain "contingent",...