Amoco Oil Co. v. Snyder

478 A.2d 795, 505 Pa. 214, 1984 Pa. LEXIS 285

• Court: Supreme Court of Pennsylvania
• Decided: June 28, 1984
• Docket: 12 W.D. Appeal Docket 1983
• Status: Published

Opinions

OPINION OF THE COURT

FLAHERTY, Justice.

This is a case of first impression in this jurisdiction involving the interpretation of a lease for commercial property which contains two purchase option provisions, one in which the lessee may initiate a purchase of the property at any time during the lease for a fixed price, and the other in which the lessee, after notice of an offer made by a third party, may purchase the property at the same price and on the same terms and conditions as the third party. The question is whether the lessee who has not exercised his fixed price option prior to notice of a third party offer, may purchase the property for the fixed price, after he has been notified of a third party offer for an amount greater than the fixed price, or whether he must purchase — if he is to purchase at all — by matching the offer of the third party.

Appellants (hereafter the “Snyders”) own a lot measuring 90' x 100' in Greenville, Pennsylvania, on which is located a service station, which they, with others then having. an interest in the property, leased to American Oil Company in 1968. This lease superseded a previous lease between the same parties executed in 1948. After execution of the 1968 lease, American Oil Company was purchased by Amoco Oil Company (hereafter “Amoco”), which is the successor in interest of American Oil Company, the drafter of the lease in question. The term of the lease was ten years, with the lessee having two optional five year renewal periods.

The purchase option provisions of the lease at issue are as follows:

3. (a) Lessee shall have, and is hereby given, the option of purchasing said demised premises for the sum of FORTY-FIVE THOUSAND DOLLARS ($45,000), provided Lessee shall give Lessor notice in writing of its election to exercise said option to purchase at any time during the original term or any extension or renewal thereof. If any part of the demised premises or any interest therein shall be taken by right of eminent domain or by any conveyance in lieu thereof or in connection therewith, the purchase price set forth herein, if the purchase option is exercised, shall be reduced in the same proportion that the area immediately prior to such taking is reduced by the taking.

(b) It is further agreed that should Lessor, or Lessor’s heirs, executors, grantees, successors or assigns, at any time during the term of this lease or any extension thereof, receive an offer to purchase the demised premises, or any part thereof, or any premises which includes the demised premises, and desires to accept said offer, or should Lessor during any such time make an offer to sell the demised premises, or any part thereof, or any premises which includes the demised premises, Lessor shall give Lessee ninety (90) days notice in writing of such offer, setting forth the name and address of the proposed purchaser, the amount of the proposed purchase price, and all other terms and conditions of such offer, and Lessee shall have the first option to purchase the premises which are the subject of the offer by giving written notice to Lessor of its intention to purchase within said ninety (90) day period at the same price and on the same terms of any such offer, it being understood that in the event Lessee does not give notice of its intention to exercise said option to purchase within said period, this lease and all of its terms and conditions shall nevertheless remain in full force and effect and Lessor and any purchaser or purchasers of the demised premises, or any part thereof, or any premises which includes the demised premises, shall be bound thereby, and in the event that the premises set forth in the offer are not sold for any reason, Lessee shall have, upon the same conditions and notice, the continuing first option to purchase the demised premises, or any part thereof, or any premises which includes the demised premises, upon the terms of any subsequent offer or offers to purchase.

(c) In the event any of said options is exercised, Lessor will convey a merchantable title in fee simple to said real estate by good and sufficient warranty deed, with release of dower, homestead, curtesy and other rights of the respective spouses, if any, and free from all encumbrances whatsoevér.

In November of 1978, while Amoco continued to pay rent under the lease, but after it had closed its service station, Snyders entered into an agreement with a third party to sell the property, subject to the terms and conditions of the lease, including lessee’s right to purchase the property, as stated in the third-party sales agreement, “under the same terms and conditions set forth in this agreement.” Snyders gave notice to Amoco, as required by paragraph 3(b) of the lease, of the third party offer to purchase the property for $75,000, a price $30,000 more than Amoco’s fixed price option of $45,000. Amoco did not give notice of its intention to purchase the property at the same price and under the same terms and conditions as those agreed to by the third party, but instead, in January of 1979, prior to the expiration of the original term of the lease, gave notice of its intention to purchase the property under the fixed price option provision of the lease, for $45,000. When Snyders refused to convey the property to Amoco under the terms of the fixed price option, Amoco filed an equity action against Snyders seeking specific performance of the fixed price option.

The Court of Common Pleas of Mercer County granted specific performance of the fixed price option. Snyders’ petition for rehearing was denied, and on appeal to Superior Court, 302 Pa.Super. 472, 448 A.2d 1139, the trial court was affirmed. We granted allocatur.

Amoco’s position is that neither the agreement as a whole nor the specific language of the lease qualifies or modifies Amoco’s rights under the fixed price option. Further, Amoco, citing Bobali Corporation v. Tamapa Company, 235 Pa.Super. 1, 340 A.2d 485 (1975), observes that since it made substantial improvements to the leasehold, if it were not permitted to exercise the fixed price option, it would be forced to repurchase its own improvements, the value of which are reflected in the higher price offered by the third party.

Snyder, on the other hand, argues that if the fixed price option were not terminated by notice of a third party offer which they are willing to accept, the fixed price option would place a ceiling on the amount for which the lessor could sell his reversionary interest in the property, for no buyer would pay more than he could recover from the lessee under the fixed price option. Secondly, when paragraph 3(b) states that if lessee does not exercise its right of first refusal, the lease and all of the terms and conditions remain in effect against any purchaser, this must be understood to mean all of the terms and conditions except the fixed price option, for otherwise the provision would be mere surplusage, since lessor had the right to sell subject to the terms of the lease anyway. Thirdly, a reasonable interpretation of the lease would protect lessor’s right to sell their reversionary interest for its fair market value during the twenty years which the lease might run. Finally, Snyders argue that any ambiguity or uncertainty in the lease should be resolved against the lessee, who drafted the lease, and that in any event, an option must be strictly construed against the optionee and in favor of the optionor, here the Snyders.

Study of the problems raised by this case confirms the wisdom of Superior Court’s observation in Bobali Corporation v. Tamapa Company, supra, to the effect that a decision construing one instrument containing both a fixed price option and a right of first refusal option will not necessarily control a case involving a different instrument. 235 Pa.Super. at 9, 340 A.2d at 490. In Bobali the instrument provided that the lessee could exercise its fixed price option for a certain period of time “unless earlier terminated as hereinafter provided.” Thereinafter appeared a right of first refusal option, which the court interpreted as terminating the fixed price option. There is no provision in the lease at bar which terminates the fixed price option, and so the rationale of Bobali is not applicable to this case. Similarly unhelpful is the case law of other jurisdictions, which, like Bobali, often concerns instruments different from the lease in this case, and which in any case is split on the question of whether notice of an offer under the right of first refusal clause in a lease terminates a fixed price option. See Annot. 8 A.L.R.2d 604, 22 A.L.R.4th 1293.

This Court, however, has held that a lease is in the nature of a contract and is controlled by principles of contract law, Ezy Parks v. Larson, 499 Pa. 615, 626, 454 A.2d 928, 934 (1982), and has articulated standards for the interpretation and construction of contracts which are applicable to this case:

[W]here language is clear and unambiguous, the focus of interpretation is upon the terms of the agreement as manifestly expressed, rather than as, perhaps, silently intended.

“[T]his Court long ago emphasized that ‘[t]he parties [have] the right to make their own contract, and it is not the function of this Court to re-write it, or to give it a construction in conflict with ... the accepted and plain meaning of the language used.’ Hagarty v. William Akers, Jr. Co., 342 Pa. 236, 20 A.2d 317 (1941).” Felte v. White [Global Franchise], 451 Pa. [137] at 144, 302 A.2d [347] at 351. “ ‘It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly.’ [13 C.J. § 485, p. 524]” Moore v. Stevens Coal Co., 315 Pa. 564, 568, 173 A. 661, 662 (1934).

Steuart v. McChesney, 498 Pa. 45, 49-51, 444 A.2d 659, 661-62 (1982).

Amoco asserts, and we agree, that the provisions of paragraph 3(a) are plainly written and must be enforced in accord with that plain meaning. Paragraph 3(a) provides expressly that the fixed price option may be exercised “at any time” during the lease, and nowhere is there a provision in the lease that expressly terminates the fixed price option upon the occurrence of an event or lapse of time.

Moreover, paragraph 3(b) does not in any manner contradict 3(a). Rather, it is a provision drawn for Amoco’s benefit which would allow Amoco the preemptive right to purchase the property at a lower price than its fixed price option, should the lessor produce a third-party offer to buy at a lower price. Thus, the lease, for all practical purposes, sets a ceiling on the value of the property, protecting Amoco’s right to initiate a purchase (pursuant to the fixed price option). It also protects Amoco’s right to match an offer made at a lower figure (pursuant to the first refusal option). In sum, paragraphs 3(a) and 3(b) are neither unclear, contradictory, inconsistent nor ambiguous, but are designed to protect Amoco’s interests in different situations.

Furthermore, paragraph 3(b) provides that if Amoco does not purchase the property within the allowed 90 day period, the lease and all of its terms and conditions remain in full force and effect against the Lessor and any purchaser. The plain meaning of this provision is that if a third party were to purchase the property, Amoco would retain the right to exercise its fixed price option against the new owner,

* and in any event, the lease and all its terms and conditions — including the fixed price option — remain in full force and effect against the Lessor. Nowhere is there additional language which restricts the applicability of the fixed price option. In the absence of such restriction, the fixed price option, by its terms, remains generally applicable.

It may be that it was unwise for Snyders to have entered into this agreement, but it is not our function to rewrite agreements for the parties and to strike a better bargain than they themselves were able to accomplish. Courts are not super-negotiators. Where the language of the instrument is clear, as it is in this case, we are constrained to give effect to what the parties have agreed to.

Affirmed.

ZAPPALA, J., filed a dissenting opinion which McDER-MOTT, J., joined.

Snyders argue that language in a lease which preserves the terms and conditions of the lease will not preserve an option to purchase agreement, for such is not an essential covenant of the lease. See Pettit v. Tourison, 283 Pa. 529, 129 A. 587 (1925). Even so, the agreement expressly preserves the option to purchase in paragraph 10:

Lessor covenants that no conveyance, assignment by, or other change of interest of Lessor in the premises hereby demised whether recorded or unrecorded, shall be binding upon Lessee unless Lessee shall be actually notified thereof by U.S. Certified Mail and in no event shall such conveyance, assignment or other change of interest affect this lease or the renewal or purchase option rights of Lessee hereunder.

This is adequate to preserve Amoco’s purchase option rights, even in the event of a sale of the property.