Texaco, Inc. v. Creel, 381PA82

Docket NºNo. 381PA82
Citation310 N.C. 695, 314 S.E.2d 506
Case DateApril 30, 1984
CourtUnited States State Supreme Court of North Carolina

Newitt, Bruny & Koch by John G. Newitt, Jr., and Roger H. Bruny, Charlotte, for defendants-appellants.

Newsom, Graham, Hedrick, Murray, Bryson, Kennon & Faison by Josiah S. Murray, III and Joel M. Craig, Durham, for plaintiff-appellee.

EXUM, Justice.

This is an action for specific performance of a fixed price option provision in a lease. The determinative issue is whether plaintiff, as defendants' lessee, is entitled to specific performance. We conclude plaintiff is so entitled and affirm the Court of Appeals.

On 9 September 1949, the Texaco Company, plaintiff's predecessor in interest, leased from Thomas and Inez Pendergraft, defendants' predecessors in interest, a lot located next to Fowler's Food Store in Chapel Hill. The lease was to begin on 1 February 1950 and run for ten years with the lessee given the option to extend the term for four additional five-year terms. The rent for the duration of the lease, including any extensions, was set at $100 per month.

Plaintiff apparently elected to extend the lease for all four extensions so the lease was due to expire on 31 January 1980. The lease contained the following language which gives rise to the instant suit:

(11)--Option to Purchase. Lessor hereby grants to lessee the exclusive right, at lessee's option, to purchase the demised premises, free and clear of all liens and encumbrances, including leases, (which were not on the premises at the date of this lease) at any time during the term of this lease or any extension or renewal thereof,

(a) for the sum of Fifty Thousand dollars; it being understood that if any part of said premises be condemned, the amount of damages awarded to or accepted by lessor as a result thereof shall be deducted from such price,

(b) On the same terms and at the same price as any bona fide offer for said premises received by lessor and which offer lessor desires to accept. Upon receipt of a bona fide offer, and each time any such offer is received, lessor (or his assigns) shall immediately notify lessee, in writing, of the full details of such offer, including the name and address of any offeror, whereupon lessee shall have thirty (30) days after receipt of such notice in which to elect to exercise lessee's prior right to purchase. No sale of or transfer of title to said premises shall be binding on lessee unless and until these requirements are fully complied with.

Any option herein granted shall be continuing and pre-emptive, binding on the lessor's heirs, devisees, administrators, executors, or assigns, and the failure of lessee to exercise same in any one case shall not affect lessee's right to exercise such option in other cases thereafter arising during the term of this lease or any extension or renewal thereof.

Upon receipt of lessee's notice of election to exercise any option granted herein, which notice shall be given in accordance with the Notice Clause of this lease, lessee shall have a reasonable time in which to examine title and, upon completion of such examination if title is found satisfactory, shall tender the purchase price to lessor, and lessor shall thereupon deliver to lessee a good and sufficient Warranty Deed conveying the premises to the lessee free and clear of all encumbrances (including without limiting the foregoing the rights of dower and/or curtesy). All rentals and taxes shall be prorated between grantor and grantee to the date of delivery of the aforesaid deed.

Lessee's notice of election to purchase pursuant to either of the options granted in this clause shall be sufficient if deposited in the mail addressed to lessor at or before midnight of the day on which option period expires.

There is evidence in the record that defendants Creel received several offers from third parties to purchase the property for more than $50,000 in January 1980. There is also evidence that plaintiff gave written notice of its intention to exercise the fixed price option to defendants on 17 January 1980 and to counsel for defendants Creel on 31 January 1980. We will assume for purposes of analysis that all the offers received by defendants were bona fide, and were promptly communicated to plaintiff in the manner required under the lease. We will also assume that defendants would have accepted the highest offer of $217,000 (made by two children of defendants Creel) had it not been for plaintiff's intention to exercise its fixed price option and to seek specific performance of the contract to convey created by such exercise. Plaintiff actually attempted to tender the fifty-thousand-dollar purchase price, set forth in the fixed price option, by check to defendants on 1 February 1980. Because defendants, believing the contract required plaintiff to meet its highest offer, refused to convey title to the property, plaintiff filed suit on 4 February 1980 for specific performance and also filed a notice of lis pendens on the property. Defendants counterclaimed, asserting it had been damaged in the amount of $217,000 when the younger Creels withdrew their offer because of reluctance to "buy a lawsuit." Defendants also asserted they were entitled to treble damages because the filing of lis pendens was an unfair and deceptive trade practice.

Both parties moved for summary judgment. The trial court denied plaintiff's motion, concluding plaintiff was not entitled to specific performance. A jury trial was held on defendants' counterclaims, and the trial court directed a verdict in favor of plaintiff on its motion at the close of defendants' evidence. Both sides appealed.

The Court of Appeals, in a well-reasoned opinion by Judge Becton, correctly recognized the case involves only a question of law--the interpretation of the option clauses in the lease. The Court of Appeals summarized the split of authority in other jurisdictions involving leases substantially similar to the instant one, adopted that view which it thought was most faithful to the language of the lease, and concluded plaintiff properly conformed to the option requirements. It reversed the trial court and remanded the case for entry of summary judgment for plaintiff and for an order directing specific performance of the fixed option agreement. 57 N.C.App. at 619, 292 S.E.2d at 135.

This appeal raises a question of first impression in North Carolina--the interpretation of a fixed price option accompanied by a "right of first refusal" option. Because no genuine issue of material fact has been presented, summary judgment is an appropriate vehicle for determining the contentions of the parties. As summarized in Kidd v. Early, 289 N.C. 343, 352, 222 S.E.2d 392, 399 (1976), by former Chief Justice Sharp writing for the Court:

Upon motion a summary judgment must be entered 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to judgment as a matter of law.' G.S. 1A-1, Rule 56(c). The party moving for summary judgment has the burden of establishing the lack of any triable issue of fact. His papers are carefully scrutinized and all inferences are resolved against him. Caldwell v. Deese, 288 N.C. 375, 218 S.E.2d 379 (1975); Railway Co. v. Werner Industries, 286 N.C. 89, 209 S.E.2d 734 (1974); Page v. Sloan, 281 N.C. 697, 190 S.E.2d 189 (1972). The court should never resolve an issue of fact. 'However, summary judgments should be looked upon with favor where no genuine issue of material fact is presented.' Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823, 830 (1971).

In order to discern the effect the parties intended the option clauses to have, we must, as in any contract, examine "the language of the contract, the purposes of the contract, the subject matter and the situation of the parties at the time the contract is executed." Adder v. Holman & Moody, Inc., 288 N.C. 484, 492, 219 S.E.2d 190, 196 (1975).

The plain language of the lease gives plaintiff the right to purchase the property for fifty thousand dollars "at any time during the term of this lease or any extension or renewal thereof." It also gives plaintiff the right to purchase the property "[o]n the same terms and at the same price as any bona fide offer" for the premises which the lessor desires to accept. If the lessor receives a bona fide offer he must immediately notify the lessee in writing of the "full details of such offer." The lessee then has thirty days after receiving the notice to exercise his right to purchase. Significantly, the lease further provides:

Any option herein granted shall be continuing and pre-emptive, binding on the lessor's heirs, devisees, administrators, executors, or assigns, and the failure of lessee to exercise same in any one case shall not affect lessee's right to exercise such option in other cases thereafter arising during the term of this lease or any extension or renewal thereof. [Emphasis added.]

Defendants argue we should construe this language to mean that failure to exercise the right of first refusal in one case terminates forever the right to exercise the fixed price option. They further argue that to construe the fixed price option as continuing would mean that it would be

enforceable against lessor and against all third parties who purchased the property from lessor regardless of the fact that the lessee had refused to exercise its right of first refusal. As a practical matter this would place a ceiling of $50,000.00 on the price which the lessor could obtain for the property during the entire thirty years that the lease and its renewals were in effect thus depriving lessor of all appreciation in value.

Plaintiff, on the other hand, argues the two

provisions are separate alternatives, and the pre-emptive rights...

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