Young v. Cities Service Oil Co., 135

• Decision Date: 11 October 1976
• Docket Number: No. 135,135
• Citation: 364 A.2d 603,33 Md.App. 315
• Parties: Kendall A. YOUNG v. CITIES SERVICE OIL COMPANY etc.
• Court: Court of Special Appeals of Maryland

Page 315

33 Md.App. 315

364 A.2d 603

Kendall A. YOUNG v. CITIES SERVICE OIL COMPANY etc.

No. 135.

Court of Special Appeals of Maryland.

Oct. 11, 1976.

William F. Mosner, Towson, for appellant.

T. Bruce Hanley, Towson, with whom were Wright & Parks, Baltimore, on the brief, for appellee.

Argued before GILBERT, C. J., and MOORE and MELVIN, JJ.

GILBERT, Chief Judge.

Distressed by a decree of the Circuit Court for Baltimore County ordering him specifically to convey real property to Cities Service Oil Company (Cities) and charging rental paid to him, from the time of the exercise of an option by Cities to the date of trial, as an adjustment in the purchase price, Kendall Young has appealed to this Court.

The instant litigation arose out of a lease entered into between Young and Cities in August, 1957. The lease was for a term of twenty (20) years and called for the payment to Young of a fixed monthly rental ¹ '. . . plus two cents ($.02) per gallon on each gallon of gasoline delivered to the underground tanks of the demised premises over and above the amount of 27,500 gallons per month.'

Aside from Young's claim that he was unable to ascertain the correct 'gallonage' payment due him, the bone of contention in this case is embodied in number paragraph 13 of the lease. That section provides:

'Tenant shall have the option during the term of this lease, or any extension or renewal thereof, to purchase the demised premises and all buildings, improvements, fixtures, tanks and equipment thereon owned by the Landlord for the sum of One Hundred Thousand and No/100 . . . ($100,000.00) Dollars payable as follows, $10,000.00 on notice of intention to exercise this option and $90,000.00 on delivery of deed. This option shall be exercised by the Tenant giving to the Landlord written notice of its intention to purchase, and title shall be closed at the earliest date subsequent to such notice after Tenant shall have completed its examination of title and found same to be satisfactory. On closing of title the Landlord shall execute and deliver to the Tenant a full covenant and warranty deed conveying to the Tenant or its nominee, in fee simple, free and clear of all liens, encumbrances and restrictions, the lands, buildings, improvements, fixtures, tanks and equipment herein demised. If prior to the exercise of the option herein provided, any portion of the demised premises shall be taken by any public or private authority having the right to take same by condemnation or eminent domain, such option or purchase shall thereafter apply to the remaining portion of the demised premises, except that the purchase price shall then be the amount remaining after deducting the amount awarded in such condemnation proceeding from the amount of the purchase price herein before provided and the down payment shall be reduced proportionately.'

Cities, under date of September 10, 1974, wrote a letter to Young that it was exercising its option and purportedly enclosed the specified $10,000 deposit. Young acknowledged receipt of the letter but steadfastly denied that the $10,000 check was ever transmitted to him. In any event, Young, on October 13, 1974, responded to Cities' letter of September 27, 1974, ² and he complained regarding the exercise of the option. At the same time, Young demanded verification of the amount of gasoline actually delivered to the demised premises. ³

Cities notified Young by letter dated January 6, 1975, of the date and place of settlement, and in its letter, asserted it was entitled to an adjustment of $3,340. That sum represented a payment to Young as the result of the State's widening of Maryland State Highway 26. ⁴ Needless to say Young did not settle, and Cities, on February 7, 1975, filed a 'Suit for Specific Performance.'

During the period from September 10, 1974 through November, 1975, Cities continued to pay rental to Young. In its suit, Cities prayed reimbursement 'for all rent paid by . . . (it) to . . . (Young) subsequent to September 10, 1974.'

The chancellor, as we have previously indicated, decided that Cities was, indeed, entitled to specific performance, and he further decreed that the rental payments made to Young from October 1, 1974, aggregating $15,587.02, should be deducted from the purchase price.

Young poses to this Court two questions, the answer to which he suggests, collectively or individually, require reversal. He asks:

'1. Does the record reflect that the option was properly exercised by tender of the required payment of $10,000.00 to Young when the notice of intent was given?

2. If the option was properly exercised, is Cities entitled to a credit for the rents that it voluntarily paid to Young from October 1, 1974, until the time of trial?'

Young's first question is easily answered; the second, however, is not so readily resolved.

I.

The record reflects that Young, by his own admission, received Cities' letter of September 10, 1974, although he denied receipt of the $10,000 check. Notwithstanding that the check was not, as he says, enclosed, he did not point that out in his letter of October 13, 1974 to Cities. In fact, he did not even mention it, although its absence would certainly have been of some material significance. The question put to us is answered, not by what we may or may not have concluded from the same factual presentation, but rather the reasonableness of the judge's findings, not the rightness. Snowden v. City Council of Balto., 224 Md. 443, 448, 168 A.2d 390, 392 (1961). This is so because we may have drawn different inferences from the evidence, but that is not to say that the trial judge erred in his conclusions. He had the opportunity, not afforded us, of observing the witness's demeanor on the stand, assessing his credibility, and determining how much weight to assign to the witness's narration.

The chancellor found as a fact that the $10,000 check was received by Young, and we think that based upon the evidence as recounted above, together with rational inferences properly drawable therefrom, his finding of fact was not clearly erroneous. Md. Rule 1086.

Young's second and obviously alternative issue is bimanous. The one hand poses the question whether Cities was obligated to pay rent after the exercise of its option. The other hand, to which we need only answer if the first response is negative, asks if, having voluntarily undertaken to make rental payments, Cities may recover the rents so paid?

For the reasons set forth infra, we are required to respond to both questions.

The lease between Cities and Young is silent as to the treatment of the rental by the parties once the option to purchase was invoked. The courts, in such a situation, would ordinarily apply the rule that has evolved out of similar circumstances. The general view with respect to the effect upon rental after the exercise of any option to buy is stated in 3 G. Thompson, Commentaries on the Modern Law of Real Property § 1155 (1959 Replacement). (Hereinafter cited as Thompson on Real Property.) There it is said:

'If the lessee exercises his right to purchase within the time given by the lease, he then becomes an occupant of the premises as owner, subject to his compliance with the contract, which can be enforced by the lessor. Upon such acceptance the relationship of lessor-lessee becomes that of vendor-vendee.' Footnotes omitted). ⁵

The same source concludes his discussion of the subject with the statement:

'When the lessee exercises his right to purchase within the time given by the lease, the relation of landlord and tenant ceases and that of vendor and purchaser arises, and equitable title passes to the vendee.' (Footnotes omitted).

1 American Law of Property § 3.84 (1952 ed.) contains a concurring standpoint, stating:

'When the tenant exercises his option to purchase the property, it is said that the relation of landlord and tenant ends and the relation of vendor and purchaser is created. The lessor may not thereafter avoid his duty to convey by declaring a forfeiture of the lease, and the lessee is no longer liable for rent. (Footnotes omitted) (Emphasis added).

While we have been directed to no Maryland case that has considered the issue here presented, the rule has been followed in United States v. Bethlehem Steel Company, 215 F.Supp. 62 (D.Md.1962). In that case, Bethlehem ceased paying rent after it had asserted its right to purchase pursuant to the option contained in the lease with the government. The United States then brought a declaratory action to construe the contract and to recover rent. Judge Winter, in deciding the matter adversely to the government, wrote:

'There can be little question that if Bethlehem validly exercised its option . . ., it would have ceased to be a tenant and would have become a contract purchaser without liability for further payment of rent, because its leasehold interest would have merged into the greater estate, 3 Thompson, Real Property (Perm.Ed.1940) § 1332.' ⁶ 215 F.Supp. at 70.

The Supreme Court of Illinois in Cities Service Oil Co. v. Viering, 404 Ill. 538, 89 N.E.2d 392, 1o A.L.R.2d 1448 (1949) held that:

'Where the relation of landlord and tenant exists under the terms of a written lease, containing an option to purchase which the lessee exercises, he is no longer in possession as a tenant, but his possession is that of vendee. Bakaitis v. Fink, 340 Ill. 440, 172 N.E. 923, 51 C.J.S. Landlord and Tenant § 82 a.' 404 Ill. at 554, 89 N.E.2d at 402, 13 A.L.R.2d at 1460.

See also Cowart v. Prater, 247 Ala. 401, 24 So.2d 753 (1946); Lewis v. Lockhart, 379 P.2d 618 (Alaska, 1963); Capital Land Co. v. Zorn, 134 Ind.App. 431, 184 N.E.2d 152 (1952); Gassert v. Anderson, 201 Minn. 515, 276 N.W. 808 (1937).

We hold that a lessor is not entitled to rent after the lessee has validly exercised his option to purchase unless there is an express agreement in the lease to the contrary. We, thus, align ourselves with the prevailing...