First National Bank v. Roanoke Oil Co.

Supreme Court of Appeals of Virginia · Contracts

ContractsSpecific performanceOption contractsContract interpretationspecific performancesale of landlease optionright of first refusal

Facts

The executors leased one parcel of the Massie estate to the oil company for a filling station, and clause eight of the lease required that if the lessors received a bona fide offer of sale of the premises free of the lease and wished to accept it, they had to notify the lessee and give it five days to purchase at that price and on those terms. On July 6, 1936, the executors sent the oil company a letter stating they had received an offer of $20,000 cash for the property occupied by the steam laundry and the oil company, referred to clause eight, said they were willing to accept the offer, and requested a reply within five days. The oil company then arranged financing and, within the five-day period, sent a July 9 letter accepting the proposal to buy the entire property for $20,000 cash. Only after that acceptance did the executors assert that the July 6 letter was not an offer to sell the whole property and instead tendered a separate offer for only the leased parcel.

Issue

Did the executors' July 6 letter, read in light of clause eight of the lease and the parties' conduct, constitute a definite offer to sell the entire two-parcel property that the oil company validly accepted within the stated time, thereby creating a specifically enforceable contract? If so, was specific performance an appropriate remedy?

Rule

A court determines contractual intent from the reasonable meaning of a party's words and acts, not from secret, unexpressed intention. Where a lease provision protecting a lessee's investment is fairly construed to require notice of an acceptable offer affecting the leased premises, whether separately or with other property, and the lessor gives definite notice of subject matter, price, and terms that is accepted without modification within the specified time, a binding contract arises. Specific performance of such a land-sale contract lies in the sound discretion of equity and will be granted when the contract is proven by competent and satisfactory evidence, enforcement is not inequitable to the defendant, and refusal would cause injury to the plaintiff, absent fraud, misapprehension, or mistake.

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In Richmond, Virginia, Harbor Square Properties leased a corner lot to Maya Ortiz for a coffee kiosk. The lease gave Maya five days to buy the premises if Harbor Square received and wished to accept a bona fide offer to sell the premises free of the lease. Harbor Square later sent Maya a letter stating that it had received a $1,200,000 cash offer for the kiosk lot and the adjacent warehouse parcel, that it was willing to accept that offer, and that unless Maya replied within five days the lease would terminate; Maya sent an unconditional written acceptance on day four, and only afterward Harbor Square claimed it had merely meant to give notice, not make an offer.

If Maya sues for specific performance of both parcels, what is the strongest argument that a binding contract was formed?

Explanation. The governing rule looks to the reasonable meaning of the party's words and acts, not undisclosed subjective intent. A definite written communication identifying the property, price, and cash terms, coupled with a statement that the sender is willing to accept and a time for reply, can constitute an offer. Because Maya accepted without change within the five-day period, a binding land-sale contract arose. (Derived from First National Bank v. Roanoke Oil Co. (n.d.).)