Opinion ID: 1942787
Heading Depth: 1
Heading Rank: 2

Heading: T-M Oil's Exercise of Option

Text: Upon receipt of Fortunato's, Inc.'s offer to lease, Mrs. Pasquale was required by paragraph 7(e) of the original Pasquale-Sun lease to submit a photostatic copy of the proposed Fortunato's lease to T-M Oil, successor to Sun's interest as the original lessee. After receiving that copy, T-M Oil had thirty days in which to elect to lease said premises upon the said terms and conditions contained in such offer. The parties to this action do not dispute that Mrs. Pasquale gave T-M Oil the requisite notice of the proffered Fortunato's lease on April 26, 1977, and that T-M Oil responded by letter of May 2. What is disputed is the effectiveness of T-M Oil's May 2 letter to exercise its option within the prescribed thirty days. The referee found that Mrs. Pasquale's offer was seasonably and effectively accepted by T-M and both parties are now obligated to execute a lease incorporating all the terms and conditions of the lease proffered by Fortunato's. We agree. In the opening paragraphs of its May 2 letter, T-M Oil asserted its legal position respecting the proper construction of paragraph 7(e), namely, that it did not grant the lessor a right to terminate the existing lease, and further stated that said T-M Oil Co., Inc. will continue to occupy the premises upon the same terms and conditions of the assigned lease. In addition to those declarations, however, the letter closed with the following paragraph: Should you decide to litigate this issue and should this issue be decided in your favor, please consider this an offer to lease in accordance with our right of first refusal on the same rental terms as those set forth by Mr. John P. Fortunato, Jr., to wit: Four Thousand Eight Hundred Dollars ($4,800.00) per annum for the initial five (5) year term and for the exercise of said renewal at the rate of Five Thousand Seven Hundred Dollars ($5,700.00) per annum for the first five (5) year period and at the rate of Six Thousand Six Hundred Dollars ($6,600.00) per annum for the second five (5) year period. Clearly, T-M Oil intended its May 2 letter to operate as an election to lease on the same terms proffered by Fortunato's, [10] but only in the event that litigation proved the lessor, Mrs. Pasquale, entitled under paragraph 7(e) to terminate T-M Oil's existing lease. Significantly, within two weeks of sending its May 2 letter, T-M Oil itself initiated the present action seeking an adjudication of the meaning of paragraph 7(e). By its own actions, it therefore eliminated the burden of commencing litigation which its letter appeared to impose upon Mrs. Pasquale as a condition of its election. At that point, the sole remaining condition on T-M Oil's election was a judicial determination favorable to Mrs. Pasquale. As of the date it commenced the present action, T-M Oil evinced its intent to exercise its election to lease on the same terms offered the lessor by Fortunato's, subject only to the outcome of the present litigation. Its position was sufficiently unequivocal to constitute a valid exercise of the option. See, e. g., Russell v. Hill, 237 Ark. 712, 375 S.W.2d 661 (1964); Milner v. Dudrey, 77 Nev. 256, 362 P.2d 439 (1961); Humble Oil & Refining Co. v. Westside Invest. Corp., 428 S.W.2d 92 (Tex.1968). The referee correctly determined that T-M Oil and Mrs. Pasquale had formed a contract to make a lease on the same terms and conditions offered by Fortunato's, and, in keeping with our holding in the first part of this opinion, those parties are now bound to fulfill their contractual obligations. [11]