Braten v. Baker

323 P.2d 929, 78 Wyo. 273, 1958 Wyo. LEXIS 14

• Court: Wyoming Supreme Court
• Decided: April 8, 1958
• Docket: 2806
• Status: Published

Opinions

OPINION

Mr. Justice HARNSBERGER

delivered the opinion of this court.

Plaintiffs sought specific performance following their election to exercise a purchase option contained in a written lease of real estate dated February 11, 1950. The court denied plaintiffs relief and quieted defendant’s title to the property. Plaintiffs appeal.

It appears defendant owned lands which she leased to plaintiffs for a five-year period beginning the first day of March, 1950, and continuing during and until the first day of March, 1955. The lease instrument was partly printed and partly typewritten. It provided share rental for the leased term, restricted assignment of the lease without consent of the lessor in writing and in typewritten clauses gave plaintiffs a purchase option as follows:

“Party of the second part shall have the option of purchasing said real property at the end of five years for the sum of 86,000.00. Interest included. Payment to be made at the rate of $500.00 on March 1, 1955, and a like amount on the first day of March on each year thereafter until the full amount is paid.

$ $ * * * *

“It is further agreed by the parties hereto that this agreement shall be binding upon the heirs, assigns, executors or administrators of the parties hereto. In the event Party of the Second Part exercises (sic) the Option to purchase under this agreement, Party of the First Part hereby releases any and all rights under the Homestead Exemption Law of the State of Wyoming.”

The lease remained in full force and effect with plaintiffs in possession of the property until the expiration of the lease term provided, although at one time defendant notified plaintiffs she elected to cancel and terminate the lease because of plaintiffs’ alleged failure to fulfill their obligations under the lease. But defendant took no further steps to effect its cancellation, and she permitted the lease to endure and the plaintiffs to remain in possession for its entire period. The mere saying there had been a default was not enough to abrogate the lease. The plaintiffs were entitled to their day in court to have determined if a default had in fact occurred.

On February 2, 1955, plaintiffs notified defendant in writing that they desired to exercise their option to purchase the land and tendered a cashier’s check for 8500 as the original payment upon the purchase price in accordance with the terms of the option. The defendant, through her attorney, returned the check to plaintiffs, again advising them that the lease and option had been terminated.

It also appears that plaintiffs entered into a contract with a third person, bearing date the fourteenth of October, 1954, which set forth that plaintiffs

“ * * * do hereby sell, assign, set over and transfer unto the Purchaser herein [the third party], all rights to purchase the said property given by the said Farm Lease and Option to Purchase Agreement and, in particular, all rights to exercise said option agreement for the purchase of said property in the names of the Owners herein; and said Owners agree to sell and convey said property to the Purchaser for said consideration.” The contract also provided:

“ * * * the Owners shall remain in possession of said property and premises until their lease thereon expires and shall give possession thereof to the Purchaser on the 2nd of March, 1955. * * * ”

The defendant contended this contract was an assignment prohibited under the terms of the lease and option agreement, inasmuch as it was not consented to in writing by the defendant and, therefore, was a violation of the lease and option agreement which forfeited plaintiffs’ right to exercise the purchase option.

The trial court found the parties entered into the written farm lease and option to purchase agreement; that plaintiffs entered into possession, paid the required rental and were not in default on any rental payments; that on the second day of February, 1955, plaintiffs tendered and offered to pay defendant the first payment of $500 under the option agreement for the purchase of the property and offered to assume all obligations under the option, but that such tender and payment and offer was refused by defendant; that thereafter on February 2, 1955, plaintiffs again tendered the sum of $500 in the form of a cashier’s check and, in writing, agreed to make all payments required to be paid under the terms and provisions of the option agreement; that the written acceptance and cashier’s check for $500 were on that date sent by registered United States mail by plaintiffs to defendant, and that defendant thereafter received and returned the same to plaintiffs under date of February 10, 1955; that defendant on October 23, 1954, sent plaintiffs a notice of default, claiming plaintiffs’ failure to account to defendant for her share of the rentals, and notified plaintiffs she would not consent to any assignment of the lease or so-called option; that plaintiffs contended they had fully paid and accounted for the rentals and continued in possession and denied having defaulted under the terms of the lease and option agreement; that on February 2,1955, after defendant had refused plaintiffs’ tender for payment and settlement of rentals and of the $500 required to be paid on March 1, 1955, under the terms of the option agreement, plaintiffs entered into an agreement with the third party to sell and convey him the property; that the negotiations leading up to that agreement between plaintiffs and the third person had commenced about October 14, 1954, and were consummated and finally signed and agreed to on February 2,1955, and that the said assignment so made by plaintiffs to the third party was not consented to by defendant.

Following these findings, the court stated its conclusions as follows:

(a) That said agreement between plaintiffs and defendant was not an option agreement.

(b) And that the purported assignment thereof by plaintiffs to the third person was contrary to the proviso contained in the lease and option agreement and that by the making thereof, the plaintiffs’ right to purchase the property under the terms thereof terminated.

It seems so well settled that a purchase option contained in a lease is supported by consideration that elaboration should be unnecessary. See James, Law of Option Contracts, 1916 ed., § 101, p. 2; § 321, p. 135; 51 C.J.S. Landlord and Tenant § 81, p. 636; Bacon v. Kentucky Cent. Ry. Co., 95 Ky. 373, 379, 380, 16 Ky. Law Rep. 77, 80; 25 S.W. 747, 749; McCormick v. Stephany, 57 N.J.Eq. 257, 262, 41 A. 840, 842, 61 N.J.Eq. 208, 48 A. 25; Frank v. Stratford-Handcock, 13 Wyo. 37, 54, 55, 77 P. 134, 137; 32 Am.Jur., Landlord and Tenant, § 299, pp. 278, 279; 5 Williston, Contracts, Rev. ed. 1936, § 1441, p. 4026.

The essential of a valid option to purchase is the same as that of any other type of contract, notwithstanding it remains unilateral as an offer to sell until, within the time limited, there is an election by the op-tionee to purchase, when it then becomes bilateral and binding upon both parties. It differs from a mere offer to sell in that such an offer may be withdrawn at any time before its acceptance, even though a time has been fixed within which the offer may be accepted and even > though it has been expressly stipulated that it may not be withdrawn within that time. On the other hand, an option being supported by consideration the optionor may not withdraw or revoke the offer during its time limit. For the period fixed by the option, the optionor has parted with the right to sell to any other person and is committed to make sale to the optionee at his election. See generally James, Law of Option Contracts, 1916 ed., § 201, p. 66, § 703, pp. 268, 264; 51 C.J.S. Landlord and Tenant §§ 81, 82, pp. 634-640; 91 C.J.S. Vendor & Purchaser § 4, p. 832; 2 Thompson on Real Property, 1924 ed., § 1291, pp. 387, 388.

We do not know what the learned trial court had in mind when it concluded the agreement was not an option. Perhaps it considered that the absence of provision for making conveyance was fatal to the option. However, we do not think that made any difference. Where there is no provision for conveyance it follows as a matter of course that the conveyance must await the completion of the specified purchase price. There is nothing uncertain, indefinite or incomplete in the provisions granting plaintiffs the option to purchase. These provisions expressly and exactly state the time for the exercise of the option; the total purchase price to be paid inclusive of the interest; the amount and time for making of installment payments to complete payment of the purchase price; that the agreement was binding upon the heirs, assigns, etc. of the owner and they contain her release of homestead rights. All that was necessary to transform that option from an unambiguous and certain offer to sell within the time limited was the acceptance of the offer by plaintiffs’ election within that time to exercise the option to purchase, whereupon it immediately became a firm contract of purchase and sale. This is clearly set forth in 91 C.J. S. Vendor & Purchaser § 13, p. 864, as follows:

“More precisely, acceptance, within the time specified, of an option to purchase land and compliance with the conditions, if any, change the option into a contract of sale binding on both parties, governed by the laws applicable to contracts for the purchase and sale of property; and this is true of acceptance of an option to sell. Acceptance converts the option into a binding contract even if made before the time for acceptance has expired. * * * ” (Emphasis supplied.)

And in 51 C.J.S. Landlord and Tenant § 82, p. 641, it is said:

“ * * * all that is required is that the lessee notify the lessor, prior to the date of the expiration of the option, of the lessee’s decision to exercise the option. * * * ” Similarly in 5 Thompson on Keal Property, 1924 ed. § 4287i, at page 394, it is stated, with respect to an option:

“ * *_* It is a continuing offer until the expiration of the time mentioned, and its acceptance by the other party during the, interval completes the contract and exhausts the option. * * * ” (Emphasis supplied.)

We must, therefore, hold the agreement for the option was a valid and subsisting agreement and as stated in the case of Frank v. Stratford-Handcock, 13 Wyo. 37, 55, 77 P. 134, 138:

“ * * * Such an agreement — that is, an optional agreement to convey made upon proper consideration, or forming part of a lease or other contract that is in fact the consideration for it — cannot be revoked by the vendor within the period granted for the exercise of the option. * * * ”

The court’s further finding that plaintiffs’ agreement with the third party violated the proviso limiting the right of assignment and terminated the plaintiffs’ right to purchase the property presumably interprets the limiting clause as being applicable to assignment of the option as well as to an assignment of the leasehold, and it also implies the agreement with the third party to be such a prohibited assignment of the option, although that is not completely clear. If, however, the finding refers to a “purported assignment” of the leasehold, even such an attempted assignment without the lessor’s written consent would not of itself vitiate the option nor even the lease, but would only serve to leave the “purported” assignee without any enforceable right as against the defendant. We need not determine whether such a purported assignee of an option may exercise it, although it has been so held in many cases. In this litigation it is not the purported assignee who seeks specific performance from the defendant but the optionees themselves. Nor need we decide whether an attempted assignment in violation of a covenant to the contrary will warrant the forfeiture of a lease or of the option or both, although the law seems clear that it will not.

It is said in 51 C.J.S. Landlord and Tenant § 105, p. 684:

“ * * * neither intent nor purpose to assign or sublease, however manifest, nor a mere agreement to do so, nor the taking of initial steps therefor will work a forfeiture.”

It is also said in 51 C.J.S. Landlord and Tenant § 86, p. 646: • - !ipfj

“ * * * The mere fact that the lessee has contracted with a third person for the transfer of the property to such third person does not deprive the lessee of his rights under the option. * * * ”

The text is supported by Coles v. Denslow, 8 Cir., 270 Fed. 22, where the holders of an option for the purchase of land, which was not assignable without consent of the owner, had contracted without such consent for the resale of the land at a profit. The court said at page 25:

“The optionees had the right to sell the land without telling appellants. It was no concern of theirs. They had agreed to take the amount mentioned in the option, without being induced to do so by any fraud or unfair dealing, and could not complain if the optionees sold the land for a higher price. The object of taking these options in most cases is to sell the land again at a profit. The optionees did not know what they could get for the land when they received the option, and the matter all rested in uncertainty and speculation until the contract with Denslow was made. * * * ”

In Leegar Realty Corporation v. Electromatic Mfg. Corporation, 272 App.Div. 1069, 74 N.Y.S.2d 766, it was held that upon receipt of a tenant’s notice of election to exercise option to purchase as granted by the lease, the landlord was bound to convey in compliance with the option agreement, and tenant thereafter could assign its rights under the option agreement without landlord’s consent.

Let us test the correctness of these holdings. Suppose there were no negotiations between the third party and plaintiffs prior to the first day of March, 1955. In that event, it is very clear that plaintiffs would have had a right to exercise the option upon payment of $500 to defendant and thereafter to have consummated the purchase in accordance with the specified terms. Suppose also that even on the very next day plaintiffs entered into a contract for the sale of the property to a third person. In such a case, could it be said defendant would have the right to cancel the contract of sale? It is clear defendant would have no such right.

The situation in this case, where the commitment to sell to the third party was made but a short time prior to completion of the lease period, does not make the situation essentially different. This is especially true because the contract to sell to the third party expressly provided for its deferment until after the expiration of the leasehold. The difference is too insignificant to be taken into account by the law.

A ease which goes even further than is necessary for us to go here is Forest Hill Masonic Guild, Inc. v. Boulevard Bank, 78 N.Y.S.2d 352. There the tenant, under a lease which contained an option to purchase, subsequently sold its business including the lease to a third party and the landlord refused to consent to the proposed assignment of the lease. Thereupon the tenant elected to exercise its option to purchase the premises. The court held the tenant was entitled to specific performance of the purchase contract. In that case the lease contained covenants against assignment without the landlord’s written prior consent. The lessee had agreed with the third party that if the landlord refused to consent to assignment of the lease the lessee would exercise its option to purchase and would then convey to the third party. When the consent to assignment was refused, the lessee elected to exercise its option to purchase, and the court decreed specific performance against the owner and lessor. This was a plain case where the option to purchase was exercised for the express purpose of circumventing the landlord’s refusal to consent to the assignment of the lease, yet the binding force of the option agreement was upheld.

Counsel for defendant argues that the option could not be exercised before March 1, 1955, and that its premature exercise on February 2, 1955, was void and of no effect. We may concede plaintiffs were without right to terminate their lease tenancy prior to March 1, 1955, or to substitute their assignee for themselves as defendant’s tenant. We may also agree that plaintiffs’ relationship with defendant as landlord and tenant continued until March 1, 1955. But there is no indication in this case that the plaintiffs intended to, or did in fact, sever or disturb that relationship prior to the date of expiration of the lease on March 1, 1955. Plaintiffs simply gave notice of their election to exercise the option contained in the agreement of February 11, 1950. That agreement provided for the exercise of the option as of March 1, 1955.

It should be borne in mind that there is a difference between the making of an election under a granted option and the exercise of that option. Election refers to the acceptance of the optionor’s offer of sale and transforms the option into a binding contract of purchase. The exercise of that purchase occurs only at the time and in the manner and upon the terms specified in the option agreement and the completion or consummation of that exercise may be continued over whatever period of time it takes to complete the purchase in accordance with the terms of the option.

After giving the notice of their election, the plaintiffs continued to remain in possession of the property as tenants of the defendant until the expiration of the lease which occurred on the first day of March, 1955. In giving notice that they elected to exercise the option, plaintiffs plainly indicated by express reference to the lease and option agreement that it was their intention that the option was to be exercised and to come into force and effect at the end of the five-year period as was provided in that agreement, and not before.

The contract with the third party, although received in evidence, was irrelevant to any proper issue in the case. This is so because by its own terms the third party was not given any right of possession or any other right which could affect the leasehold. The only right affecting possession or use to which the third party became entitled did not attach until March 2, 1955, a date subsequent to the termination of the leasehold and at a time when plaintiffs’ status as lessees had been changed to that of purchasers, possessed of all rights incident to that capacity.

We may dispose of this appeal by confining ourselves to the inquiry whether an assignment to the third party was actually made. It is true that the contract between plaintiffs and that party speaks of an “assignment” of the option, but it also provides the “ * * * Owners agree to sell and convey said property to the Purchaser for said consideration.” Furthermore, the election to exercise the option was, in fact, made by plaintiffs befpre this contract with the third party went into effect. Under these circumstances what the court possibly considered as an assignment of option was wholly ineffectual for that purpose and consequently was without bearing upon any issue in this case. The only effectual thing in the contract with the third party was the clause where the “ * * * Owners agree to sell and convey said property to the Purchaser for said consideration”, and that covenant is of no importance here.

Aside from what has been said, we see no reason for holding that the notice of election to exercise the option, although given on February 2, 1955, some twenty-six days before the end of the five-year lease term, did not serve as a valid election to exercise the option at the end of five years as provided in the lease. The giving of notice of such election within less than a month preceding the date of the lease’s expiration was proper in order to signify the plaintiffs’ purpose to exercise the option at the end of the five years specified in the instrument. The word “at” as used in the phrase “at the end of five years” does not necessarily mean just a few moments before or at the exact instant of the specified date, but should be construed as meaning reasonable “nearness in time” to the expiration indicated. See 4 Words and Phrases, Perm, ed., p. 652. Without intending to indicate our entire agreement, we call attention to the holding in LaDow v. E. Bement & Sons, 119 Mich. 685, 79 N.W. 1048, 45 L.R.A. 479, where it was held that an option exercisable at the end of two years from May 1, 1895, could be exercisable on May 26, 1897, thus finding the election was made within a reasonable time. Similar in effect is Rogers v. Burr, 97 Ga. 10, 25 S.E. 339. If an option is exercisable within a reasonable time after the date fixed, it certainly should be exercisable within a reasonable time before expiration, particularly when, as in the case at bar, it was clearly stated the exercise would be in accordance with the very agreement which made provision therefor and that the lease should remain in force and effect until its expiration. Needless to say had there been an independent cause for forfeiture of the lease arising between February 2 and March 1, an entirely different question might present itself, but no such problem is present in this appeal.

In the view of this matter which we have taken, it is unnecessary to discuss the suggested question of sev-erability of the lease and the option. There was no disturbance of the lease by plaintiffs’ election to exercise their option to purchase. There was no change in plaintiffs’ possession and use of the leased premises. The lease continued in full force and effect until its completion by expiration of its term. No right or enjoyment reserved to defendant under the lease was denied, or in any way affected, because the election which was made merely provided for exercise of the right to purchase at the termination of the lease period.

Questions of severability become important when the exercise of rights under one of the contracts will be in derogation of rights under another, or possibly when there are questions as to the applicability of clauses in the instrument to either one or the other or both of the contracts. The latter question is eliminated here because, as we have pointed out, the applicability of the restriction against the assignment of the lease without written consent to the alleged purported assignment of the purchase option disappeared with our holding that the purported assignment was completely ineffective as such. The former is not present either because the exercise of the purchase right did not occur until after the termination of all rights under the lease and, therefore, it cannot be said to have been in derogation of the leasehold. Furthermore, there is no proper question in this law suit involving the purported assignment. The action here is brought by the option-ees themselves. It is not brought by the purported as-signee, the third party, by virtue of the purported assignment. Whatever rights there may be between the plaintiffs and the third person claiming as their as-signee are extraneous to this proceeding and cannot affect in any way the rights and obligations of these parties to each other.

As found by the court, the plaintiffs have fulfilled every obligation and covenant undertaken by their contract of lease and, by their giving notice of election to purchase the property, they have converted their option right into a firm contract of purchase and sale. The plain fact seems to be that although the defendant has accepted and enjoyed all the benefits provided for her as a lessor of the premises, she now seeks to avoid the fulfillment of her obligations under the purchase option. To permit this would be inequitable and unjust and would sanction her repudiation and violation of her valid contractual covenant.

The appellants also call attention to the exact wording of the option clause and invite its careful reading. They seemingly suggest that the phrase “at the end of five years” fixes the time for exercise of the option to be five years from the date of the execution of the “Lease and Option to Purchase” agreement which was February 11, 1950. While it is not necessary to accept this view in order to make proper disposition of this case, we may say that it is not without merit, and it would not be illogical to conclude that the period “at the end of five years” speaks from the date of the instrument granting the option rather than from the date of commencement of the lease period. However, as adoption of this meaning would only serve to shorten the time between the giving of notice of election to purchase and the expiration of the time limited therefor, we need not determine the point. On the other hand, it may explain that plaintiffs felt unsafe in longer deferring the giving of the notice of election to exercise the option to the possible jeopardy of their right to buy the property.

To conclude we must hold that there was a valid and subsisting option to purchase contained in the agreement between the parties bearing date and executed February 11, 1950; that the notice of election to exercise the option of purchase given on February 2, 1955, accompanied by a cashier’s check for §500, the amount to be paid as a first installment on a purchase price of §8,000, as provided in the option agreement, was a proper and timely notice of election to exercise the option given; and that the plaintiffs are entitled to a decree requiring specific performance of the purchase and sale agreement resulting from plaintiffs’ exercise of the option, but that a conveyance of the properties from the defendant to the plaintiffs shall await the completion of the payment of the purchase price in accordance with the terms of the agreement of February 11, 1950. The judgment of the district court is, therefore, reversed and remanded with direction to enter its proper judgment in accordance with this opinion.

REVERSED AND REMANDED.

Mr. Chief Justice Blume joins, concurring.

Mr. Justice Parker dissenting.