Straley v. Osborne

Finan, J., delivered the opinion of the Court. In this appeal, we are concerned with an action by a lessee in which he seeks to have the sale of the leased premises to a third party for value set aside and also seeks to obtain specific performance of his first option to purchase that property. On December 14, 1956, Wilbur F. Haugh (Haugh) sold to Charles Straley (Straley) a junkyard business known as Harford County Auto Parts, Inc., which was located on Route 1 near Fallston, Maryland. On the same day, Haugh leased to Straley the property on which the junkyard business was being conducted.

The lease was for a five year period beginning December 1, 1956, and ending November 30, 1961, at a rental of $6,000 per year payable at the rate of $500 per month. The last two paragraphs of the lease provided for renewal of its terms for an additional five year period and also gave Straley the “first option of purchasing” the property. These two ⁵¹⁶ paragraphs are the source of most of the difficulty between Straley and the other parties, and deserve study in some detail: “8. It is further agreed by the parties hereto that the Lessee [Straley] is hereby given the privilege of renewing the aforesaid Lease within ninety (90) days of the termination of the term every five (5) years for an additional five year period at a rental commensurate with current market value; the Lessee shall notify the Lessor of any renewal of the Lease in writing, and, if the option is exercised by the Lessee, the renewal Lease shall be in writing for an additional term of five (5) years upon the same terms, conditions and covenants as are contained in this Lease. “9.

During the five-year term of this Lease and during any renewal term theréafter the Lessee shall have the first option of purchasing this property at current market value at the time of the exercise of the option should the Lessor, WILBUR HAUGH, his heirs, assigns or personal representatives, decide to sell said property. The terms and covenants of this Lease will be binding on the heirs, assigns and personal representatives of the parties hereto.” The lease contained no metes and bounds description of the property in question, but the testimony at trial indicated that Straley, as lessee, occupied approximately seven acres of a ten acre tract owned by Haugh. The other three acres contained a used car lot operated by Cadillac Jack Enterprises, Inc., a corporation solely owned by Haugh. 1 A high wooden fence separated the two businesses. ⁵¹⁷ By 1958, Haugh’s used car business was apparently failing, and on January 29, 1958, he conveyed the entire ten acre tract to his corporation, apparently without consideration and without Straley’s knowledge, although Straley admitted having paid the rent to Cadillac Jack Enterprises, Inc. from March 8, 1958, until December 9, 1958, at Haugh’s direction. 2 Straley continued possession under the lease for his initial term, and gave notice by registered mail -in August, 1961, of his intention to renew the lease for a five year period, pursuant to the provisions of paragraph 8 set out above. On October 18, 1963, Haugh listed the entire ten acre tract for sale at $135,000.

There was testimony by Mrs. Veri J. Edwards (Mrs. Edwards), the real estate agent handling the sale, that Haugh wanted to sell the property to “clear various indebtedness” and that there were judgment and mortgage liens in excess of $100,000 on the property at the time it was first listed. Her testimony further indicated that Straley was initially contacted about buying the property on October 25, 1963, at which time he informed her that he was “not interested in buying,” was “not making any money,” and that he felt that the asking price was “utterly ridiculous.” Straley denied this in his testimony. Mrs. Edwards also testified that during the eighteen months after October, 1963, her company advertised the entire ten acre tract by, means of posted signs and newspaper advertisements, showed the property at least 100 times, and that she called on Straley “no less than ten times in person,” but that “each and every time” he was “in no way interested in buying ⁵¹⁸ the property” because he “was not making any money” and “didn’t feel it was worth the money.” 3 On cross-examination, Mrs. Edwards admitted that she never offered to sell Straley the seven acres which he was occupying, that she “had no authority to offer anything but the entire property,” and that sale of the seven acres would have been a “human impossibility” and a “merry . mess,” apparently because of Haugh’s financial difficulties. On January 18, 1965, Winton B. Osborne (one of the appellees) made an offer to buy the entire ten acre tract for $80,000.

On January 28th or 29th, he signed a contract to purchase the property. The following day, Mrs. Edwards purportedly sent a letter to Straley advising him of a bona fide offer of $80,000 and informing him that “if he wished to exercise his first right of refusal, that he now had the opportunity.” She testified that the letter was sent by certified mail and that she had a receipt signed by either Straley or his son, but that she did not have it with her at trial. No copy of the letter was introduced into evidence. Not having received any reply to her letter, Mrs. Edwards telephoned Straley on the evening of March 1, 1965.

At this time, Straley notified her that he was not interested in buying from either her or Haugh, and that he would deal only through Haugh’s attorney. 4 In the interval between the time that Osborne signed the contract in late January and Mrs. Edwards made her telephone call to Straley on March 1st, matters did not lie dormant. Mrs. Edwards had presented Osborne’s offer of $80,000 to Haugh, who initially refused it. She also had gone to all of Haugh’s creditors and succeeded ⁵¹⁹ in getting them to reduce their claims (totalling over $100,000) so that clear title to the ten acres could be conveyed by a sale for $80,000. On February 10th, Haugh accepted the $80,000 offer and signed the contract.

Mrs. Edwards testified that Osborne knew of Straley’s rights in the leased portion of the property when he signed the contract, and that, had Straley indicated when she telephoned him on March 1st that he wanted to purchase the property, she would have refunded the deposit which Osborne had placed and drawn a contract for Straley. Upon learning that Osborne had placed a deposit on the property, Straley notified his attorney. On March 30, 1965, Straley’s attorney wrote to Haugh’s attorney and stated that Straley was prepared to offer $35,000 for “the property” (apparently referring to the leased portion) if he could get proper financing. Haugh’s attorney wrote back the next day, and in a somewhat abstruse letter, appeared to suggest that a price of $55,000 would be more appropriate. 5 On April 7th and 14th, Straley’s attorney sent rental checks to Haugh’s attorney and stated that he would like to get together “sometime next week” or “sometime soon” to discuss further the sale of the property and the purchase price, but made no further offers.

On April 14, 1965, settlement was held between Haugh and the Osbornes (Mr. and Mrs.). On two occasions subsequent to the closing, Straley’s attorney wrote to the Osbornes’ attorney and attempted to exercise Straley’s rights to purchase the leased portion, again making offers of $35,000. These were rejected. The appellants (Straley and his wife) brought suit in August, 1965.

In their amended bill of complaint filed November 7, 1966, they asked that the sale from Haugh to the Osbornes be set aside and that Haugh, or in the alternative the Osbornes, be required to specifically per ⁵²⁰ form the provisions of the lease and convey title to the leasehold property to the Straleys upon payment of the current market value. Judge Harry E. Dyer, Jr., after hearing testimony, rendered an opinion dated July 24, 1970, and ruled that Straley had the “first option of purchasing the property at current market value,” that he had the option of “matching the offer for the purchase of the property made by * * * Osborne, and that he had the right to take part in negotiations for the purchase of the property if he so desired.” Because Straley failed to do any of those things, Judge Dyer ruled that Straley “failed to prove his case,” and signed a decree August 17, 1970, dismissing the bill of complaint. For the reasons which follow, we affirm that decision. The first issue which must be discussed is whether Straley had any rights in the property in 1965.

Paragraph 8 of the lease gives Straley the right to renew for a five year period “at a rental commensurate with current market value” if he gives written notice of his intention to renew. The paragraph also provides that the renewal lease is to be in writing. Straley gave written notice of his intention to renew, but the renewal lease was never reduced to writing and there was never any new rental determined. Haugh and the subsequent lessors accepted the original rental throughout the years.

In such a situation, it is clear that Straley was at least a holdover tenant, and it has been held that the holdover tenancy is on all the terms and conditions of the original lease, including the option to purchase, which can be exercised during the holdover period, unless a contrary intention is shown. Caplan v. Goldstein, 232 Md. 552, 554 , 194 A. 2d 622 (1963); Bagley v. Clark, 190 Md. 223, 225 , 57 A. 2d 739 (1948); Gressitt v. Anderson, 187 Md. 586, 591 , 51 A. 2d 159 (1947). In the case at bar, paragraph 9 of the lease specifically provided that Straley’s “first option” was to continue “during any renewal term.” Accordingly, whatever rights Straley enjoyed under the terms of his lease continued during the period of the ⁵²¹ holdover tenancy, and were operative during the time period in question. Next comes the question of what rights or interest Straley possessed by virtue of the provisions of paragraph 9 of the lease.

That paragraph provides that Straley had the “first option of purchasing” the property “should the Lessor * * * decide to sell said property.” Judge Dyer termed his a “right of first refusal” rather than an option, relying on Westpark, Inc. v. Seaton Land Co., 225 Md. 433 , 171 A. 2d 736 (1960). An option has been defined by this Court as: “* * * a continuing offer to sell during the duration thereof which on being exercised by the optionee becomes a binding and enforceable contract. * * * And when the optionee indicates an intention to exercise the option and tenders the amount of the purchase price, he has performed under the option and is entitled to specific performance.” Diggs v. Siomporas, 248 Md. 677, 681 , 237 A. 2d 725 (1968). The distinguishing features of an option are that it is a continuing and irrevocable offer by the optionor, which cannot be withdrawn by him during the stated period. The optionee has what is usually termed a power of acceptance, and when he accepts the offer in the prescribed manner, the option is thereby exercised and creates a binding bilateral contract.

Diggs v. Siomporas, id.; Schlee v. Bryant, 247 Md. 689, 694 , 234 A. 2d 457 (1967); 1A Corbin on Contracts (1963 ed.), §§ 259, 260; 1 Williston on Contracts (3rd. ed.), §§ 61A, 61B, 61C, 61D. And, if the 9th paragraph of the lease in question had created a true option, Straley could have required Haugh to sell the property at any time during the period of the lease. However, in order to do this, he would have had to signify his acceptance in a timely and unequivocal fashion. Katz v. Pratt Street Realty