Texaco, Inc. v. Rogow

• Decision Date: 08 March 1963
• Citation: 190 A.2d 48,150 Conn. 401
• Court: Connecticut Supreme Court
• Parties: TEXACO, INC. v. Louis B. ROGOW. Supreme Court of Errors of Connecticut

Page 48

190 A.2d 48

150 Conn. 401

TEXACO, INC. v. Louis B. ROGOW.

Supreme Court of Errors of Connecticut.

March 8, 1963.

Charles B. Milliken, Hartford, with whom, on the brief, was John R. Horan, Falls Village, for the appellant-appellee (plaintiff).

Harry L. Nair, Hartford, with whom were William W. Bernstein, Hartford, and, on the brief, Jonathan S. Cohen, Hartford, for the appellee-appellant (defendant).

Before BALDWIN, C. J., and KING, MURPHY, SHEA and ALCORN, JJ.

KING, Associate Justice.

The plaintiff, Texaco, Inc., sought specific performance of a contract to sell certain premises leased to it by the defendant. It claimed to have exercised, at a price of $16,000, an option to purchase which was contained in the lease. The defendant, in his answer and counterclaim, denied that the plaintiff had any right to exercise any option at $16,000, alleged that the plaintiff had in fact exercised an option to purchase the premises for $44,000, and sought, by way of counterclaim, specific performance of the plaintiff's alleged agreement to purchase the property at the latter figure. Judgment was rendered for the defendant on the complaint and for the plaintiff on the counterclaim, and each party has appealed.

On March 14, 1940, the defendant, through a corporation controlled by him, leased to the Texas Company, a forerunner of the plaintiff, certain premises in East Hartford on which the lessor, in accordance with the provisions of the lease, built a gasoline service station at a cost of about $12,000. The 1940 lease ran for a term of ten years beginning May 1, 1940, and gave the lessee an option to purchase the premises for $16,000. The present parties, on September 27, 1950, entered into a new lease of the same premises, then owned by the defendant, to run for a term of ten years begining May 1, 1950. Paragraph nine of the lease contained certain provisions as to the lessee's rights to purchase the property, the meaning and effect of which are the main source of controversy in this action. ¹ Although the lease, as set out in the footnote, was on a printed form prepared by the plaintiff, the words, '[i]t being agreed however that said option will not be exercised before the end of the ninth year,' which would be a period inclusive of April 30, 1959, were added to the lease, in typewriting. The parties agreed that this typewritten insertion applied only to the option, hereinafter referred to as the fixed price option, contained in paragraph 9(a).

In April, 1959, the defendant decided to accept an offer which had been made to him by Albert N. Spaien to purchase the leased premises for $44,000, a price which the court found was not less than the fair market value of the property. Spaien was, and is now, ready, willing and able to buy the property, subject to the lease, and it is not disputed that his offer was bona fide. On April 29, 1959, the defendant mailed a notice to the plaintiff, setting forth the terms of the Spaien offer and stating that he desired to accept it, all pursuant to paragraph 9(b) of the lease, which contained a provision according a right of first refusal, sometimes, for convenience, referred to as a first refusal option. ² This notice was received by the plaintiff the next day, April 30. The plaintiff claims that in a letter written by it to the defendant on May 4, 1959, it exercised the fixed price option. After a formal demand on the defendant for a conveyance, at the price of $16,000, made on May 14, 1959, and a formal tender of $16,000, made on September 3, 1959, both of which were refused by the defendant, the plaintiff, on September 23, 1959, instituted this action.

The court concluded that the plaintiff lost its right to purchase at the fixed price when it failed to exercise its first refusal option within thirty days after receipt of the notice of April 29, 1959. It should be observed that the fixed price option could not have been exercised until May 1, 1959. By then, the Spaien offer had been made and notice of it had been given to the plaintiff. The decisive inquiry is whether the plaintiff, after receipt of notice of the Spaien offer, could exercise its fixed price option.

The plaintiff claims that, at any time after the first nine years, it could exercise its fixed price option without regard to what, if any, proceedings had been taken by the lessor under the first refusal provision. A collection of cases involving the interpretation and construction of contracts containing provisions embodying a fixed price option and a right of first refusal may be found in 8 A.L.R.2d 604. See also Texas Co. v. Crown Petroleum Corporation, 137 Conn. 217, 224, 75 A.2d 499 (which involved the predecessor of the plaintiff and was concerned with a similar lease). Since such contracts, although often generally similar, are worded differently and executed under varying circumstances, a decision interpreting and construing one contract is far from controlling in a case involving another.

The plaintiff, in support of its claims, relies on the clause of the lease which provides that '[a]ny 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.' In connection with the clause quoted above, the plaintiff makes the following argument: (1) Only a third party purchaser can become an 'assign.' (2) One could not be a third party purchaser, under the terms of the lease, unless a first refusal option had been given the plaintiff and had been rejected by it. (3) If the first refusal option was rejected and a sale was consummated, the only option which would be left outstanding to affect the rights of the third party purchaser would be the fixed price option. (4) As a consequence, the phrase 'any option' must refer to the fixed price option, and only to that option. On that basis, the plaintiff claims that the fixed price option can be exercised at any time against a third party purchaser of the property, regardless of any prior notice being given the lessee pursuant to the first refusal clause. In support of this construction, the plaintiff cites Sinclair Refining Co. v. Clay, 102 F.Supp. 732 (E.D. Ohio), aff'd, 194 F.2d 532 (6th Cir.); Adams v. Willis, 225 S.C. 518, 83 S.E.2d 171; and Butler v. Richardson, 74 R.I. 344, 349, 60 A.2d 718.

This argument is ingenious rather than persuasive. A more reasonable interpretation is that the word 'assigns' was inserted, immediately after the words 'heirs, devisees, administrators [and] executors,' not as a recondite method of according complete priority to the fixed price option but rather as a means of making sure that the option obligations of the lessor, whatever they might be, would persist throughout the life of the lease and would be binding on any successors in interest of the lessor. Obviously, the word 'assigns' could embrace persons who are not purchasers, for example, donees. The plaintiff's construction would result in the following: (1) After the close of the ninth year, the maximum price for which the defendant could sell the property to any third party would in all practicality have to be less than $16,000. (2) Even before the close of the ninth year, although the fixed price option, under the express terms of the lease, could not be exercised by the plaintiff, it would necessarily control the price at which the property could be sold to a third party during that period because of the obligation of any purchaser, upon demand, to convey it to the plaintiff, after the nine-year period, at the price of $16,000. Indeed, it is this factual situation which in effect is now before us.

The plaintiff's interpretation of the provisions in question would, solely by implication, wholly subordinate the first refusal provision to the fixed price option. This interpretation is reached in the absence of any language in the lease expressive of any such intention and would render virtually inoperative the provision expressly according the defendant the unrestricted opportunity to attempt to obtain the fair value of the property during the first nine years. There is no language whatever in the lease indicative of any intention other than that the first refusal provision was the only one under which the plaintiff could purchase the property during the first nine years and that, after that period, the first refusal provision was one of two option provisions, each of which was on a parity with the other. Under the circumstances, it would be unreasonable to hold that, if a lessee is given notice of an offer and refuses to exercise a first refusal option under paragraph 9(b), it can thereafter, at any time after the first nine years, purchase the property at $16,000 despite a prior sale of it to the offeror named in the notice.

A term not expressly included will not be read into a contract unless it arises by necessary implication from the provisions of the instrument. Ives v. Willimantic, 121 Conn. 408, 411, 185 A. 427; ...