Texas Co. v. Butler

• Jurisdiction: Oregon
• Parties: TEXAS CO. v. BUTLER et al.
• Citation: Texas Co. v. Butler, 198 Or. 368, 256 P.2d 259 (Or. 1953)
• Court: Oregon Supreme Court
• Decision Date: 29 April 1953

Page 259

256 P.2d 259

198 Or. 368

TEXAS CO. v. BUTLER et al.

Supreme Court of Oregon.

Argued March 31, 1953.

Decided April 29, 1953.

Richard D. Sanders, of Pittsburg, Cal. (Marsh, Marsh & Dashney, of McMinnville, on the brief), for appellants.

Arthur S. Vosburg, of Portland (Flegel, Vosburg, Joss & Hedlund, of Portland, on the brief), for respondent.

Before LATOURETTE, C. J., and ROSSMAN, LUSK, TOOZE and PERRY, JJ.

PERRY, Justice.

This is a suit for specific performance, brought by the plaintiff against the defendants. The plaintiff prevailed and the defendants appeal.

The facts in this case are that plaintiff, on June 10, 1940, entered into contract with Herbert T. Hacker and his wife, Henrietta M. Hacker, whereby it leased from the Hackers for a monthly cash rental certain real premises situated in the city of Astoria, Clatsop county, Oregon, upon which the lessor agreed to construct a building, for a period of ten years, commencing on September 1, 1940, which lease contained an option to purchase, in words and figures as follows:

'Option. Lessor hereby gives the lessee the right and option to purchase the demised premises and all structures and improvements thereon at any time during the term of this lease or any extension or renewal thereof for the sum of Fifteen Thousand No/100 Dollars ($15,000.00).

'In event a part of the premises herein demised is condemned, the amount of damages awarded to the lessor in consequence thereof shall be deducted from the purchase price upon exercise of this option by the lessee.

'Lessee's notice of election to purchase shall be sufficient if deposited in the mail addressed to lessor at or before midnight of the day on which option term expires. Lessor agrees upon receipt of such notice, (a) to deposit in escrow with such bank or title company as may be designated by lessee, a good and sufficient warranty deed conveying the premises to lessee, free of encumbrances, (b) to authorize such escrow holder to deliver said deed to lessee whenever lessee shall pay said price to said escrow holder and make the same subject to the order of lessor, and (c) to authorize said escrow holder to order the title report and title insurance policy or guaranty hereinafter referred to and pay the cost thereof and charge same to lessor. Lessee agrees upon receipt of notice that such deed has been deposited, to deposit said price with said escrow holder with instructions to accept said deed and immediately upon acceptance to record the same and pay said price to lessor, but only upon condition that a responsible title company shall first have given its assurance that after such recording it will on demand, issue a title insurance policy in an amount equal to the said purchase price or a certificate of title guarantee with liability limited to that amount, showing title to said premises vested in lessee free of encumbrances; provided, however, that if said premises are situated in a county where title insurance or title certificates are not customary, lessor may in lieu of such title report and policy or certificate, furnish lessee with full and complete abstracts of title to said premises, certified by a reputable searcher, as soon as possible after notice of the exercise of said option; and lessee agrees to cause the same to be examined by its attorney and to cause a report of such examination to be made to said escrow holder, and in that event lessee when depositing said money, will authorize said escrow holder to pay the same to lessor whenever it receives the report of such attorney stating that title is free and clear. If said title shall prove defective and such defects are not corrected or removed within ninety (90) days from the date when the escrow holder is notified of such defects, lessee at its option may withdraw the money deposited by it, in which event the said deed shall be returned to lessor. Rentals shall cease as of the date of deposit of said price in escrow and taxes shall be prorated as of the same date.

* * *

* * *

'Successors and Assigns. This agreement shall be binding upon and shall enure to the benefit of the parties hereto and their respective successors or assigns.'

Subsequent to the making of the lease and during the occupation of the premises by the lessee, the lessors, Herbert T. Hacker and wife, conveyed the property to the defendants John A. Butler and Therese K. Butler.

On March 20, 1946, defendants John A. Butler and Therese K. Butler, retaining a life estate in the property, conveyed the remainder to their daughter, the defendant Bonnie A. Sanders, nee Bonnie A. Butler.

The plaintiff was duly notified of the conveyance of the property from the Hackers to John A. Butler and Therese K. Butler, and from and after March 6, 1942, paid the monthly rental to the Butlers.

Plaintiff, on August 29, 1950, by written notice, notified the defendants John A. Butler and wife of the plaintiff's election to purchase the said property in accordance with the terms of the option provided in the lease agreement, designated the escrow holder and deposited the $15,000 to be paid for the purchase of the property.

The lease entered into between Herbert T. Hacker and wife and plaintiff required the payment of a monthly rental, and such a lease containing an option to purchase, setting forth fully the obligations of the lessor and lessee, both as to the terms of the lease and the covenants and conditions of the sale, should the lessee exercise his option to purchase, is an agreement upon sufficient consideration and forms a binding contract as to each of the parties. House v. Jackson, 24 Or. 89, 32 P. 1027; 3 Thompson, Real Property, Perm. ed., 483, § 1325; Note, 137 A.L.R. 375.

Such a contract does not pass to the optionee, so far as the option alone is concerned, any interest in the land until a valid election to buy has been made, in accordance with the terms of the option which then changes the character of the parties from optionor and optionee to vendor and purchaser. Herndon v. Armstrong, 148 Or. 602, 608, 36 P.2d 184, 38 P.2d 44; Richanbach v. Ruby, 127 Or. 612, 630, 271 P. 600, 61 A.L.R. 1441; Strong v. Moore, 118 Or. 649, 245 P. 505.

However, such an option in a lease is 'a continual obligation, running with the lease', House v. Jackson, supra, 24 Or. at page 96, 32 P. at page 1028, and 'any words in a writing under the hand, whether sealed or unsealed, of a person importing an agreement, is a covenant'. Guild v. Wallis, 130 Or. 148, 153, 279 P. 546, 548.

While in England a contrary view is taken, the majority rule in this country, based upon what we believe is sound reasoning, is that although the option contained in a lease, of itself, until exercised by the optionee, grants no interest in the land, the right to purchase the property, based upon a valuable consideration, is a covenant that runs with the land, unless there is appropriate language used to make that covenant purely personal between the parties. 32 Am.Jur. 283, Landlord and Tenant, § 304; 51 C.J.S., Landlord and Tenant, § 81, page 635.

While the option itself is not effective as conveying the land or an interest therein, it is a conveyance in praesenti of a right to acquire the fee at a future time. Elliott v. Delaney, 217 Mo. 14, 116 S.W. 494; McCormick v. Stephany, 61 N.J.Eq. 208, 48 A. 25.

We have said covenants running with the land are those 'which have for their object something annexed to, or inherent in, or connected with land, or other real property.' First Nat. Bank v. Hazelwood Co., 85 Or. 403, 413, ...