Court Opinion

ID: 9752834
Source: CourtListenerOpinion
Date Created: 2023-08-28 18:36:45.075151+00
Date Added: 2024-06-11T09:46:51.255767
License: Public Domain

ZAPPALA, Justice,
dissenting.
I dissent from the majority’s decision affirming the court below.
Contrary to the majority, I would find that the presence of both the fixed price purchase option and the right of first refusal creates an ambiguity in the lease. Where, as here, there is a third party offer, either provision is arguably applicable. The terms on which the lessee must purchase *223differ according to which is applied. In the absence of language stating which takes precedence in such a situation, the lease must be considered ambiguous. The ambiguity cannot be resolved by considering each clause in isolation, as the majority does.
The ambiguities are resolved by principles of contract construction. Under such principles, the Appellee, Amoco Oil, should be required to meet the price offered by the prospective third party purchaser if it wishes to purchase the subject premises. A contract should be interpreted by ascertaining the intention of the parties, and in so doing, effect must be given to all provisions of the contract, Felte v. White Global Franchise, 451 Pa. 137, 302 A.2d 347 (1973). Where a contract is susceptible to two possible interpretations, one of which makes it fair, customary, and such as reasonable persons would be likely to enter into and the other of which makes it inequitable, unusual, or not such as reasonable persons would be likely to enter into, the interpretation that makes the contract fair and reasonable must be favored, Heidt v. Aughenbaugh Coal Co., 406 Pa. 188, 176 A.2d 400 (1962). A written instrument must be strictly construed against the party drafting it, Heidt, supra, Galligan v. Arovitch, 421 Pa. 301, 219 A.2d 463 (1966).
In the instant case, the interpretation of the contract depends on the reconciliation of the fixed price purchase option and the right of first refusal. The two clauses can be interpreted so as to give effect to both. This can be done by construing the fixed price purchase option as applicable only until there is a purchase offer by a third party. At that point, the fixed price option would be extinguished and could not be invoked against either the original lessor or a party purchasing from the original lessor. Otherwise, the right of first refusal would be meaningless. The lessee would never have to meet a higher price offered by a third party if the fixed price option could be invoked after the making of such offer. A third party would not make a higher offer if the fixed price option *224could be invoked so as to force a sale at a loss. I do not find such a result to be fair, reasonable, and likely to be bargained for by reasonable parties. Further, where an ambiguity exists, we must then look to the intent of the parties. I believe that the intent of the parties in including the fixed price option and right of first refusal was to protect Amoco’s leasehold interest, not the acquisition of a fee. Such interest is adequately protected by allowing Amoco to purchase at the price offered by the third party. I would find that the parties intended both provisions of the contract to be operative and did not intend to prevent Appellants from selling the property to a third party for more than the amount of the fixed price option. In so doing, we would reach a fair and reasonable result that gives effect to both of the clauses in question. The propriety of such a result is further indicated by the fact that Amoco’s predecessor, American Oil, drafted the lease. If we follow the established rule and construe the lease strictly against Amoco, we cannot permit Amoco to purchase the property without meeting the price offered by the third party.
In addition, there is a policy against restrictions on the alienability of real estate. We considered this policy in a different context in Mahoney v. Furches, 503 Pa. 60, 468 A.2d 458 (1983). In that case, a mortgagor entered into agreements to sell certain tracts of land she had mortgaged and attempted to prepay the mortgage. The mortgagee would not accept the prepayment. The mortgage note did not say whether prepayment was permissible. We found that inability to prepay would restrict the alienability of the property by preventing the mortgagor from conveying clear title. We held that our policy did not favor restrictions on alienability and that therefore, a mortgage could be prepaid in the absence of any provision to the contrary. That policy is applicable in the instant case. As pointed out supra, the majority’s interpretation of the lease would discourage a third party from purchasing the property. That would be a *225restriction on alienability and is not to be favored. In accordance with our policy, I would find that the fixed price option cannot be invoked after a third party offer in the absence of specific provision therefor.
We have not previously decided a case involving the construction of a lease with both a fixed price purchase option and a right of first refusal. Such cases have arisen in other jurisdictions. Amoco Oil Co. v. Kraft, 89 Mich. App. 270, 280 N.W.2d 505 (1979) involved a lease similar to that in question here. The court held that where the lessee did not invoke the right of first refusal when a third party offered to purchase for an amount greater than that of the fixed price option, the lessee could not thereafter invoke the fixed price option. The court found that result to be required by principles of equity and fair dealing and observed that otherwise, no one would purchase the property for more than the amount of the fixed price option. A lease that contains both a fixed price purchase option and a right of first refusal may contain a provision stating which of the two takes precedence, but in the absence of such provision, the fixed price option terminates on the making of an offer to purchase by a third party, M & M Oil Co. v. Finch, 7 Kan.App.2d 208, 640 P.2d 317 (1982), Tarrant v. Self, 180 Ind.App. 215, 387 N.E.2d 1349 (1979). Similar decisions were made in Shell Oil Co. v. Jolley, 130 Vt. 482, 269 A.2d 236 (1972) and Adams v. Helburn, 198 Ky. 546, 249 S.W. 543 (1923). See also Northwest Racing Association v. Hunt, 20 Ill.App.2d 393, 156 N.E.2d 285 (1959), where the lease provided that both the fixed price option and the right of first refusal would terminate if the lessee did not exercise the right of first refusal on notice of a proposed sale to a third party.
I find the reasoning of the above-cited cases persuasive and would follow it here. Accordingly, I would reverse.
McDERMOTT, J., joins in this dissenting opinion.