Court Opinion

ID: 3499202
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:06:29.704164+00
Date Added: 2024-06-11T13:44:48.151795
License: Public Domain

This is an action of ejectment.
Defendant claims right to possession of the premises by virtue of acceptance of an option right to purchase.
January 8, 1927, Percy Ray, then the owner, leased the premises, in the city of Holland, to defendant for a term of 10 years. The lease provided:
"It is further agreed that in case the said party of the first part desires to sell said property at the end of the term of this lease, that said party of the second part shall have the first chance to buy said property for a period of 90 days, by meeting the terms of any other previous offer. * * *
"The covenants, conditions and agreements, made and entered into by the several parties hereto, are declared binding on their respective heirs, representatives and assigns."
After execution of the lease and entry by defendant, the lessor, on November 11, 1927, mortgaged the premises to the First State Bank of Holland and, on July 16, 1930, deeded the premises to his wife. The mortgage was foreclosed and, upon sale, a circuit court commissioner's deed was issued to Paul E. Cholette on August 10, 1934, who took title merely as agent for the bank. The wife of the mortgagor gave Mr. Cholette a quitclaim deed on September 16, 1935. September 17, 1935, Mr. Cholette and wife deeded the premises to the trustees of the segregated assets of the First State Bank, such trustees having been appointed by the circuit court for the county of *Page 557 
Ottawa on May 3, 1935. October 27, 1936, the trustees sold the premises on land contract to plaintiff. That contract stated:
"Vandenberg Brothers Oil Company, existing lease payable $75 a month, cannot be located but should such lease be located and found to be valid and in force, same is to be terminated not later than April 10, 1937."
And the lease was therein assigned to the vendee.
January 27, 1937, defendant gave the trustees notice of election to exercise the mentioned option to purchase by meeting the terms and conditions of contract sale to plaintiff and tendered a land contract to such effect, executed by defendant. This was rejected. On March 8, 1937, this suit was brought by the land contract vendee and, upon trial before the court, plaintiff had judgment of ouster. Defendant reviews by appeal.
Defendant contends: (1) that the option in the lease was valid and binding upon all persons chargeable with knowledge thereof; (2) that the option was a covenant running with the land; (3) that the option was not rendered unenforceable by sale under land contract before expiration of the lease.
The option in the lease was valid, constituted a covenant running with possession of the land, estopped the optionor from executing any defeative instrument and rendered possession by the lessee and optionee constructive notice to third parties of rights thereunder.
After notice of acceptance of the terms of the option and tender of performance defendant, in equity and law, being in possession, holds with rights superior to the optionor and others claiming rights under indentures subsequent to, and with actual or constructive notice of, the option covenant. *Page 558 
Notice was had by the mortgagee and the purchaser under land contract and defendant had a right to accept the terms of the option when the sale was made to plaintiff. Such an option in a lease is not uncommon and is of value, both to lessor and lessee. It induces a long-time rental under which improvements may be made by the tenant with assurance of ultimately obtaining the title and not having to make removal.
In support of what we have said, we cite and quote from the following cases:
"An option is not an actual or existing contract, but merely a right reserved in subsisting agreement. It is a continuing offer of a contract, and if the offeree decides to exercise his right to demand the conveyance, he must signify that fact to the offerer. The option is not a sale. It is not even an agreement for a sale. At best, it is but a right of election in the party securing the same to exercise a privilege, and only when that privilege has been exercised by acceptance does it become a contract to sell. It is a continuing offer to sell which may or may not, within the time specified at the election of the optionee, be accepted. The owner parts with the right to sell to another for such time and gives to the optionee the exclusive privilege to buy on the terms set forth in the option." 5 Thompson on Real Property, p. 390, § 4287g.
In Garelik v. Rennard, 116 Misc. 352 (190 N.Y. Supp. 371), a five-year lease provided:
"That in the event of said landlord at any time during the term hereby granted desiring to sell said premises she shall first offer the same to said tenant, who shall have the preference over other parties, provided said landlord and tenant can agree upon a price and terms of sale." *Page 559 
Held —
"The covenant for a pre-emption is one running with the land, and is not merely a personal covenant. * * * The contract to give tenant a preference, should the landlord desire to sell, if the price and terms could be agreed upon, is valid and enforceable." Citing cases.
"A covenant in a lease for an option to purchase relates to and runs with the land." Chas. J. Smith Co., Inc., v. Anderson
(syllabus), 84 N.J. Eq. 681 (95 A. 358).
In Pearson v. Horne, 139 Ga. 453 (77 S.E. 387), the option provided:
"I hereby agree if I should decide to sell my half interest in the property corner of Second and Cherry streets, Macon, Ga., to give him the option of purchasing same for his clients, at any price that may be offered for the property by other parties."
Held — A valid and enforceable option.
In James on Option Contracts (1st Ed.), p. 81 et seq., § 211, it is said:
"An option recited that 'in consideration of $1,000 advanced to me by H, I hereby agree, if I should decide to sell my half interest in (certain lands), to give him the option of purchasing the same for his clients at any price that may be offered by other parties.' The optionor, without notice to the optionee, sold the property to a third person for a certain sum. The optionee thereupon brought suit to recover damages, alleging that the value of the option was the excess of the selling over the option price. It was urged as a defense that the price to be paid under the option was not stated and that the contract was, therefore, void, but the court ruled the contract must be construed as meaning that if any price was offered to the optionor for the property *Page 560 
which she would be willing to accept, it was her duty to give the optionee the privilege of purchasing at that price."
The same author continues:
"The same conclusion was reached in a Nebraska case where a provision in a lease of land gave the lessee an option to purchase the property during the term 'at any price offered by a third party satisfactory to' the lessor; and in a Texas case where an option in a lease gave the lessee 'the preference right to purchase said land at any bona fide offer made and acceptable (to the lessor) by any responsible party;' and in an Illinois case where a provision in a lease reserved the right to the lessor to sell the land at any time but provided that no sale should be made by him 'without first having given said second party (lessee) the privilege of purchasing said land upon such terms and at the same price per acre, as any other person or purchaser might have offered therefor;' and in another case, from the same State, where, by the provisions of a lease the lessee was given 'the first opportunity to purchase said premises provided he will pay as much as any other person.' "
In Waters v. Wambach, 140 Md. 253 (117 A. 751), it was said of an intervener:
"If she was not then actually aware of the option of purchase held by the plaintiff under the lease, it does not appear from any evidence in the case that she was without such information. At all events, she had knowledge of the plaintiff's possession, and as she could readily inform herself as to his rights and interests, it is proper that she should be chargeable with notice of their nature and extent. Engler v. Garrett,100 Md. 387 (59 A. 648); 16 R. C. L. p. 538." *Page 561 
In Gates v. Shannon, 200 Ky. 387 (255 S.W. 79), it was held, quoting syllabus:
"Notice of right of lessee under his lease to purchase the property will be imputed to a purchaser from the lessor by actual possession of the land by the lessee."
See, also, Kerr v. Day, 14 Pa. 112 (53 Am. Dec. 526); OhioRiver Junction R. Co. v. Pennsylvania Co., 222 Pa. 573
(72 A. 271).
Plaintiff has no more right to possession than its vendor, and its vendor's rights are subject to the option rights of the defendant.
The judgment should be reversed without a new trial, and, with costs to defendant.
BUTZEL and BUSHNELL, JJ., concurred with WIEST, C.J. FEAD, J., took no part in this decision.