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District Court of Appeal, First District, Division 1, California.


Civ. 13090.

Decided: July 19, 1946

Charles A. Christin and Everett H. Roan, both of San Francisco, for appellants. Rupert R. Ryan and Young, Ryan & Whitton, all of Oakland, for respondents.

Appellants brought an action against respondents asking specific performance of an option to purchase agreement contained in a written lease of certain residence property. The trial court found that appellants had not exercised the option within the time provided in the agreement and rendered judgment against appellants. From that judgment and an order denying a motion for a new trial, appellants appeal.

The facts are simple and not in dispute. Respondents, as lessors, made and entered into a lease in writing with the appellants, as lessees, for certain real property known as 962 69th Avenue, Oakland, California, which premises consisted of a residence. The lease provided that the total rental was $840, payable in monthly installments of $35 per month on the seventh day of each and every month, and acknowledged the receipt of $70 on account of the said rental, and which said lease was for the period commencing March 7, 1941, and ending March 6, 1943. The said lease further provided: ‘Should the parties of the second part [appellants herein] hold over the term herein created, such tenancy shall be from month to month only and be on the same terms and conditions as herein stated.’ The document hereinabove referred to, in addition to being the conventional lease for real property, also contained an option for the purchase of the premises by the lessees therein (appellants herein), which was set forth in the said document as follows, to wit:

‘It is further understood and agreed as part of the consideration for this lease, Lessors hereby give to the Lessees the option to purchase the real property herein leased for the sum of Thirty five Hundred and Fifty ($3550.00) Dollars, in lawful money of the United States, provided, however, that said Lessees shall have paid all of the rental due up to the time of the exercise of said option; upon the execution of the necessary documents in connection therewith and the consummation of said sale, this lease shall cease and determine; said purchase price may be payable in cash, or as follows:

‘Cash payment of Three Hundred and Fifty ($350.00) Dollars, upon which will be credited the total amount of rental paid to the date said option is exercised, after deduction, however, from said rental paid of the following items:

‘(1) The amount expended by Lessors for fire insurance on said premises.

‘(2) The amount expended by Lessors for taxes.

‘(3) Such interest as should normally have accrued to the Lessors in the event said sale had been made on the date of this lease agreement, and the payments of rental had been applied for the payment of insurance, taxes, interest and principal. To be more specific, from each monthly payment of rental, there would first be deducted the amount expended for insurance on said property, the amount of taxes due and paid, after which the balance would be applied as payment of interest and the principal on what would be considered the monthly decreasing principal balance.

‘The difference between said sum credited and the sum of Three Hundred and Fifty ($350.00) Dollars, if any, shall be payable in cash; upon said option being exercised, Lessors will execute a deed to said premises and Lessees shall assume any encumbrance which may then be existing against said premises, and further, execute to Lessors a note and Deed of Trust for the difference between said encumbrance and the balance which will be due said Lessors after payment of said Three Hundred and Fifty ($350.00) Dollars, it being understood that the required monthly payments on the balance shall not exceed Thirty-five ($35.00) Dollars per month, including interest at six (6%) per cent per annum on the monthly decreasing balances; * * *.’

The monthly rental payments of $35 were paid by appellants to a real estate agent who received a commission for procuring the lease, and who also was to receive a commission in the event of a sale of the property. The two year period set forth in the lease expired on March 6, 1943, but appellants continued in the possession of the property and continued to pay the monthly rental, and on October 7, 1943, appellants made known their election to exercise the option through the agent who had been collecting the rents and tendered to respondents the sum of $225, this amount apparently having been computed in accordance with provisions of the option. Respondents refused to accept this payment and rejected the tender with the statement that the time within which the option could be exercised had lapsed with the expiration of the two year period. The action for specific performance was then filed by appellants.

Both appellants and respondents agree that the single issue upon this appeal (as it was also stated to be by the trial court upon the trial) is whether the option granted to appellant lessees was exercised within the time of its life. It is contended by appellants that the option to purchase contained no limitations with respect to the time allotted for its exercise, and that it could validly be so exercised at any time while the relationship of landlord and tenant persisted. In this respect, appellants rely heavily upon the provision that any holding over was to be from month to month, and on the ‘same terms and conditions' stated in the lease for two years. They contend that the only ‘condition’ upon their right to exercise the option—during the month to month ‘term’—was that they ‘shall have paid all of the rental due up to the time of the exercise of said option,’ as provided by the lease contract.

Respondents' contention is that the option expired at the time that the two year lease ran out, and that it did not carry on into the ‘holding over’ period—even though the lease provided that the holding over was to be on a month to month basis, subject to the ‘same terms and conditions' set out for the two year term.

While there can be no doubt that there is sufficient ambiguity and uncertainty in the lease agreement to render admissible extrinsic evidence to aid in its interpretation, a reading of the reporter's transcript makes it clear that there was no extrinsic evidence before the trial court bearing on the question of the intention of the parties as to the question of the carrying over of the option into the month to month tenancy. Under such circumstances, the duty of interpreting the meaning and effect of the lease agreement and its provision herein involved, is a matter within the reviewing powers of this court unbound by any determination of the trial court on such issue of interpretation. In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825; Moffatt v. Tight, 44 Cal.App.2d 643, 112 P.2d 910.

There appears to be a dearth of authority upon the question involved upon this appeal. Appellants cite Abbott v. Seventy-Six Land & Water Co., 87 Cal. 323, 25 P. 693. However, the opinion shows the inapplicability of the case on its facts. In that case the original lease contained both an option to purchase and an option to renew the leasehold from year to year, not to exceed two years. In the exercise of the option for renewal, a new lease agreement was drawn for the additional term, and, as set out in the opinion, it was mutually understood and agreed between lessor and lessee that the option to purchase was to persist, but was to be left out of the new lease for the convenience of the lessor. On those facts, the court held that the option contained in the original lease would carry into the renewal lease and subsequent renewals made under the same circumstances. That is certainly not the instant case.

Appellants rely most strongly upon the English case of Rider v. Ford (decided in 1923) 1 Chancery Division 541. In that case the agreement was to the effect that the lessee take the premises for ‘3, 5, or 7 years at the rent of 147 pounds per annum, and to have the option of purchasing either the freehold for 2900 pounds or a lease of 97 years (ground rent 20 pounds) for 2400 pounds.’ The agreement was made in 1907, lessees went into occupation in 1908, and then, while still in possession, sought to exercise the option in 1922. The opinion shows that the court treated the original tenancy as having persisted for 7 years, and then stated that the lessee held (after 7 years) as a tenant from year to year. In considering the duration of the options, the court said (pp. 545, 546): ‘There are two options in the agreement before me, and I cannot read into it any limit in point of time except * * * that the option exists so long as the relationship of landlord and tenant continues, notwithstanding that the original term of seven years has run out. * * * The learned judge held that in 1919 the option was no longer exercisable. That decision has no application to a case such as this where the action is not limited in time. In such a case the true view is, as appears from the authorities to which I have referred, that an option unlimited in time exists so long as the relationship of landlord and tenant continues. In my opinion the defendant is entitled to exercise this option but subject to any effect which the rule against perpetuities may have.’

Other cases cited by the parties herein, while related in a general way to the issue here involved, are not authorities on the precise point to be decided. A reading of them will declose that they involve situations where there was set out in the original lease some limitation upon the time by which options to purchase were to be exercised. In the light of such provisions, the courts were called upon to interpret the effect of renewals, extensions and ‘holdovers' wherein the options were not specifically provided for. See 37 A.L.R. 1239 et seq.; 35 C.J. p. 1043, sec. 188.

Respondents contend also that an option is a distinct and severable agreement in the lease; that any renewal of said option would have to be supported by good and further consideration, and that there was no new and further consideration here. However, we think it must be held that an option to purchase is an integral part of a lease and is a substantial part of the whole contract. 35 C.J. 1038, sec. 182. It needs no new or additional consideration to support it.

The question that we must decide here is whether at the time that appellants admittedly sought to exercise the option to purchase, they still had a right to do so. As already indicated, there is a dearth of authority upon which to rely and we shall therefore analyze the provisions of the lease and option, because in our opinion the answer to the question will be found therein. As already pointed out, the lease provided that the lessors (respondents) gave to the lessees (appellants) an option to purchase the property provided that said lessees shall have paid all rental due up to the time of the exercise of the option. That appellants did pay all of said rental is not disputed. There was no precise time fixed within which the option must be exercised. However, there was the further provision in the lease that should the lessees ‘hold over the term [2 years] herein created, such tenancy shall be form month to month only and be on the same terms and conditions as herein stated.’ The lessees (appellants) did hold over with the consent of respondents, who continued to receive the rent, and, therefore, in our opinion, the right to exercise the option, being one of the ‘terms and conditions of the lease,’ continued.

Respondents argue that it was never the intention of the parties to extend the option beyond the expiration date of the original lease by the holdover clause, but we do not believe that this contention is supported by the record in this case, nor have we been able to find any authority to support it. Unless there is some evidence in the record to support a finding that the intention of the parties was something other than a fair and reasonable construction of the language of the agreement indicates that it was, we must follow the written agreement, for to do otherwise would be to make a new agreement for the parties. We conclude, therefore, that at the time appellants sought to exercise the option to purchase, their right to do so had not expired, and that the trial court erred in rendering judgment in favor of respondents.

The order denying appellants' motion for a new trial being nonappealable, the appeal from said order is dismissed.

The judgment is reversed.

SCHOTTKY, Justice pro tem.

PETERS, P. J., and WARD, J., concur.

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