Opinion issued April 3,=20
2008
In =
The
Court of=20
Appeals
For =
The
First =
District of=20
Texas
NO. =
01=E2=80=9306=E2=80=9301042=E2=80=93CV
NATIONAL ADVERTISING COMPANY,=20
Appellant
V.
LARRY E. POTTER,=20
Appellee
On Appeal from the 270th District =
Court=20
Harris County, =
Texas
Trial Court Cause No.=20
2005-60481
MEMORANDUM =
OPINION
=
Appellant,=20
National Advertising Company (=E2=80=9CNational=E2=80=9D), =
![3DFootnote](3D"")
leased ground space, pursuant to =
three=20
identical lease agreements (=E2=80=9CLease(s)=E2=80=9D), to place =
billboard signs on three=20
tracts of land of appellee, Larry E. Potter. When the common lease =
period=20
expired, a dispute arose concerning renewal of the Leases and the =
rights=20
to the billboard structures. Potter sought a declaratory judgment =
that=20
National exercised its right of first refusal, as afforded in the =
Leases,=20
when it rejected Potter=E2=80=99s renewal terms and that, because =
the Leases were=20
not renewed, Potter was entitled to purchase the billboard =
structures and=20
permits from National. The trial court rendered judgment in favor =
of=20
Potter on these points, and National appealed.
<=
/SPAN>In=20
two issues, National contends that the trial court erred by =
misconstruing=20
certain terms of the Leases. National asks this court to find as a =
matter=20
of law that National is entitled to renew the Leases or, =
alternatively, to=20
remove its billboard structures from Potter=E2=80=99s =
land.
<=
/SPAN>We=20
affirm.
Background
=
On August 1, 1995, =
National=20
and Potter executed the three identical
ground Leases at =
issue.=20
Pursuant to=20
each Lease, National was permitted to erect billboard signs on =
each of=20
three tracts of land belonging to Potter in exchange for the =
greater of a=20
fixed monthly rental or a percentage of the gross income National =
derived=20
from selling advertising space on the billboard signs. The Leases =
were for=20
a 10-year term, and, pursuant to paragraph nine of the Leases, at =
the end=20
of that term, if Potter chose to further rent or use his land for =
outdoor=20
advertising, National would have a right of first refusal with =
respect to=20
leasing the land.
=
The=20
Leases expired on July 31, 2005. National contacted Potter, =
offered to=20
renew the Leases, and included a proposed new holdover provision. =
Potter=20
refused to renew under such terms and, instead, =
sent=20
a=20
counter-offer. National refused to renew the Leases under the =
terms=20
proposed by Potter.
=
Subsequently,=20
Potter sought to exercise a right to purchase the billboard sign=20
structures, pursuant to paragraph three of the Leases, which =
provides as=20
follows:
3. Lose [sic] of Use of Sign=20
Structures. If at any time the highway view of =
[National=E2=80=99s]=20
displays is obstructed or obscured, or the use or installation of =
such=20
displays is prevented or restricted by law or by =
[National=E2=80=99s] inability to=20
obtain or maintain any necessary permits or licenses, or if there =
occurs a=20
diversion of traffic from, or a change in the direction of traffic =
on=20
highways leading past [National=E2=80=99s] displays, [National] =
may, at its=20
option, terminate this lease as to such specific location by =
giving 30=20
days written notice to [Potter]. In the event of such cancellation =
or in=20
the event this lease is terminated for any reason and the parties =
have not=20
executed a new lease or renewal of this Lease, [Potter] shall have =
the=20
option to purchase the entire sign structure and permits from =
[National]=20
for the then current market value of an installed fabricated =
structure,=20
such value to be determined by the average of three (3) bids to be =
obtained from three (3) major sign fabricators.
=
National=20
sought to enter and remove its billboard signs from =
Potter=E2=80=99s land,=20
pursuant to paragraph four of the Leases, which provides as=20
follows:
4. Ownership of Displays. =
All=20
structures, displays and materials placed on the said property are =
[National=E2=80=99s] trade fixtures and equipment and shall be and =
remain=20
[National=E2=80=99s] property, and may be removed by [National] at =
any time prior=20
to or within a reasonable time (not to exceed 120 days) after the=20
termination of this lease, or any extension thereof. [Potter] =
agrees to=20
allow [National] full access to the property occupied by the =
displays for=20
the purpose of erecting, maintaining, changing or removing the =
displays at=20
any reasonable time.
=
Potter=20
sued National, seeking a declaratory judgment that National had =
exercised=20
its right of first refusal under paragraph nine by rejecting =
Potter=E2=80=99s=20
proposed renewal terms and that Potter =
was=20
entitled to purchase the sign structures and permits from National =
under=20
paragraph three. In addition, the parties filed an agreed motion =
for=20
partial judgment, pursuant to Texas Rule of Civil Procedure 263, =
asking=20
the trial court to determine whether paragraphs three, four, and =
nine of=20
the Leases were ambiguous and, if so, to declare that a fact issue =
exists=20
that must be tried to a jury and, if not, to order relief =
consistent with=20
the trial court=E2=80=99s interpretation of the Leases. =
=
Ultimately,=20
in its final judgment, the trial court declared that the Leases =
are not=20
ambiguous; that =E2=80=9CNational exercised its right of first =
refusal as=20
evidenced by the correspondence submitted by the parties as part =
of the=20
agreed facts=E2=80=9D;=20
that the word =E2=80=9Ctermination=E2=80=9D as used in the Leases =
includes the expiration=20
of the lease term; and that =E2=80=9CPotter had the right to =
purchase the sign=20
structures and permits from [National] for the current market =
value of an=20
installed fabricated structure pursuant to the [Leases] upon =
termination=20
of the [Leases] for any reason, including expiration.=E2=80=9D The =
trial court=20
awarded attorney=E2=80=99s fees and costs to Potter. National =
appealed, contending=20
that the trial court misconstrued the terms and provisions of the=20
Leases.=20
Standard of =
Review
=
Declaratory=20
judgments are reviewed under the same standards as other =
judgments. See=20
Tex. Civ. Prac. & =
Rem. Code=20
Ann. =C2=A7 37.010 (Vernon 1997).
=
In=20
construing a written contract, the primary concern is to ascertain =
and=20
give effect to the parties=E2=80=99 intentions as expressed in the =
document.=20
Frost Nat=E2=80=99l Bank v. L&F Distribs., Ltd., 165 =
S.W.3d 310, 311=E2=80=9312=20
(Tex. 2005). We consider the entire writing and attempt to =
harmonize and=20
give effect to all the provisions of the contract by analyzing the =
provisions with reference to the whole agreement. Id. at =
312. No=20
single provision is given controlling effect. J.M. Davidson, =
Inc. v.=20
Webster,=20
128 S.W.3d 223, 229 (Tex. 2003). =E2=80=9CIn harmonizing these =
provisions, terms=20
stated earlier in an agreement must be favored over subsequent =
terms.=E2=80=9D=20
Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983). We =
construe=20
contracts =E2=80=9Cfrom a utilitarian standpoint bearing in mind =
the particular=20
business activity sought to be served,=E2=80=9D and =E2=80=9Cwill =
avoid when possible and=20
proper a construction which is unreasonable, inequitable, and =
oppressive.=E2=80=9D=20
Frost Nat=E2=80=99l Bank, 165 S.W.3d at 312 (quoting =
Reilly v. Rangers=20
Mgmt., Inc., 727 S.W.2d 527, 530 (Tex. 1987)).
=
If,=20
after the pertinent rules of construction are applied, the =
contract can be=20
given a definite or certain legal meaning, it is unambiguous, and =
we=20
construe it as a matter of law. Id. However, if the =
meaning of=20
the contract remains uncertain or is susceptible to more than one=20
reasonable interpretation, it is ambiguous. Nat=E2=80=99l =
Union Fire Ins.=20
Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995);=20
Coker, 650 S.W.2d at 393=E2=80=9394. =
=
Whether=20
a contract is ambiguous is a question of law to be determined =
=E2=80=9Cby looking=20
at the contract as a whole in light of the circumstances present =
when the=20
contract was entered.=E2=80=9D Coker, 650 S.W.2d at 394. A =
court may=20
conclude that a contract is ambiguous even in the absence of such =
a=20
pleading by either party. Sage St. Assocs. v. Northdale Constr. =
Co., 863 S.W.2d 438, 445 (Tex. 1993).
Renewal of the =
Leases
<=
/SPAN>In=20
its second issue, National contends that the trial court erred by=20
declaring that National exercised its contractual right of first =
refusal=20
when it declined to accept the terms of Potter=E2=80=99s renewal =
offer. We=20
construe National=E2=80=99s contention to be that it possessed the =
right to renew=20
the Leases on their original terms.
<=
/SPAN>Paragraph=20
nine of the Leases provides that
[a]t the termination =
of this=20
lease, [Potter] does hereby grant [National] the right of first =
refusal to=20
continue to rent the demised property for advertising purposes if =
[Potter]=20
elects to rent or use the demised premises for outdoor advertising =
purposes. The right of first refusal shall expire one (1) month =
after the=20
lease expires.
<=
/SPAN>The=20
Leases expired July 31, 2005. The record shows that National =
informed=20
Potter, by letter dated August 10, 2005, that it wished to renew =
the=20
Leases for a 10-year term. National proposed that the terms remain =
the=20
same, except that any holdover at the end of the new term would be =
on a=20
month-to-month basis until a new agreement was entered. By letter =
dated=20
August 25, 2005, Potter declined to renew the Leases with =
National=E2=80=99s=20
proposed holdover provision. Instead, Potter offered to renew the =
Leases=20
on his proposed renewal terms, the substance of which are not in =
the=20
record. National declined to accept renewal on Potter=E2=80=99s =
terms.
<=
/SPAN>National=20
contends, and Potter does not dispute, that the correspondence =
between the=20
parties demonstrates that Potter did =E2=80=9Celect[] to rent or =
use the demised=20
premises for outdoor advertising purposes=E2=80=9D=E2=80=94whether =
through renewing=20
National=E2=80=99s leases or through buying the signs for his own =
use. National=20
contends that it =E2=80=9C[t]herefore, had a =E2=80=98right of =
first refusal=E2=80=99 to re-lease=20
the property.=E2=80=9D National also contends that =E2=80=9Cthe =
right of first refusal=20
[was] triggered at the time the Leases [were] terminated.=E2=80=9D =
<=
/SPAN>Generally,=20
a right of first refusal, also known as a pre-emptive right or a=20
preferential right of purchase, is a right granted to a party =
giving it=20
the first opportunity to purchase property if the owner decides to =
sell=20
it. Abraham Inv. Co. v. Payne Ranch, Inc., 968 S.W.2d 518, =
524=20
(Tex. App.=E2=80=94Amarillo 1998, pet. denied) (citing Holland =
v. Fleming,=20
728 S.W.2d 820, 822 (Tex. App.=E2=80=94Houston [1st Dist.] 1987, =
writ ref=E2=80=99d=20
n.r.e.)). This concept has, however, been used in the context of a =
lease=20
renewal. See, e.g., Kaplan v. Floeter, 657 S.W.2d 1, =
2=E2=80=933 (Tex.=20
App.=E2=80=94Houston [1st Dist.] 1983, no writ). A right of =
first refusal=20
has a generally well-established meaning in the business world as =
giving=20
the holder of such a right the first opportunity to purchase =
property from=20
the owner on the same terms offered by any third party. Abraham =
Inv.=20
Co., 968 S.W.2d at 524; Palmer v. Liles, 677 S.W.2d =
661, 665=20
(Tex. App.=E2=80=94Houston [1st Dist.] 1984, writ denied). Once =
the property owner=20
conveys the terms of the offer to the holder of the right of first =
refusal, he then has the power to accept or reject the offer. =
Abraham=20
Inv. Co., 968 S.W.2d at 524. In addition, upon the =
notification=20
of the owner=E2=80=99s election to convey an interest in the =
property and the=20
terms of the offer, the holder=E2=80=99s right matures into an =
enforceable option.=20
See id.; Riley v. Campeau Homes (Texas) Inc., 808 =
S.W.2d=20
184, 188 (Tex. App.=E2=80=94Houston [14th Dist.] 1991, writ =
dism=E2=80=99d);=20
Holland, 728 S.W.2d at 822=E2=80=9323. The terms of the =
option are formed=20
by the provision granting the preferential right and by the =
provisions=20
contained within the notice of intent given to the holder. =
Abraham Inv.=20
Co., 968 S.W.2d at 524=E2=80=9325. Once the owner gives notice =
of his intent=20
he cannot change the terms of the offer as long as the option is =
binding.=20
Id. at 525; Holland, 728 S.W.2d at 822=E2=80=9323. =
When the holder=20
gives notice to the owner of his acceptance of the offer, a =
contract is=20
formed. Abraham Inv. Co., 968 S.W.2d at 525.
<=
/SPAN>Here,=20
by the express terms of paragraph nine, National=E2=80=99s right =
of first refusal=20
was triggered if Potter manifested his intent =E2=80=9Cto rent =
or use the demised=20
premises for outdoor advertising purposes.=E2=80=9D =
Specifically, as Potter=20
contends, National=E2=80=99s first right of refusal was triggered =
by Potter=E2=80=99s=20
August 25, 2005 correspondence notifying National that Potter =
would=20
re-lease the properties for outdoor advertising and specifying the =
terms.=20
<=
/SPAN> Once=20
Potter gave notice of his intent, National=E2=80=99s right of =
first refusal=20
ripened into an option. See Riley, 808 S.W.2d at 188;=20
Holland, 728 S.W.2d at 822. Before its option could ripen =
into an=20
enforceable contract, however, National had to manifest its =
acceptance in=20
strict compliance with the terms that Potter offered. See =
Probus Props.=20
v. Kirby, 200 S.W.3d 258, 262 (Tex. App.=E2=80=94Dallas 2006, =
pet. denied).=20
Acceptance of an option must be unqualified, unambiguous, and =
strictly in=20
accordance with the terms of the offer. Crown Constr. Co., Inc. =
v.=20
Huddleston, 961 S.W.2d 552, 558 (Tex. App.=E2=80=94San Antonio =
1997, no writ).=20
A failure to exercise an option according to its terms is simply=20
ineffectual, and legally amounts to nothing more than a rejection. =
Id.=20
Never has a right of first refusal been understood to mean =
that the=20
holder has a privilege to first negotiate with the seller. =
Abraham Inv.=20
Co., 968 S.W.2d at 525.
&nbs=
p;Here,=20
National declined to renew the Leases on the terms offered by =
Potter in=20
his August 25, 2005 correspondence. Hence, National exercised its =
right of=20
first refusal when it rejected Potter=E2=80=99s offer.
<=
/SPAN>National=20
contends that its right of first refusal constituted a contractual =
right=20
to renew the Leases on their original terms.
National contends that because =
the renewal=20
terms governing the right-of-first-refusal provision are =
=E2=80=9Cnot clarified in=20
the Leases,=E2=80=9D the provision simply operates as a =
=E2=80=9Cgeneral extension or=20
renewal clause=E2=80=9D and it is implied that the renewal terms =
would be the same=20
as those agreed to in the original Leases, relying on Aldridge =
v.=20
Young, 689 S.W.2d 342 (Tex. App.=E2=80=94Fort Worth 1985, no =
writ).=20
<=
/SPAN>In=20
Aldridge, the court examined a provision which stated that =
=E2=80=9C[t]he=20
lease shall be renegotiated=E2=80=9D within a certain period =
surrounding the=20
expiration date of each lease and that =E2=80=9C[t]he lessee has =
the option to=20
extend this lease.=E2=80=9D Id. at 345=E2=80=9346. There, =
the appellees argued that=20
any extension or option to extend the lease was invalid because =
the lease=20
failed to specify the amount of rent applicable to the extended =
term.=20
Id. at 347. In concluding that the renewal terms =
would be=20
the same as that in the original lease, the court explained that =
=E2=80=9C[i]t is=20
an established rule that a general covenant to renew or extend a =
lease=20
which is silent as to the terms of the renewal or extension =
implies a=20
renewal or extension upon the same terms and conditions as =
provided in the=20
original lease. . . .=E2=80=9D Id.
<=
/SPAN>There=20
is an important distinction between Aldridge and the case =
at hand.=20
In Aldridge, the lessee was granted an =
=E2=80=9Coption,=E2=80=9D which the court=20
considered =E2=80=9Ca general covenant to renew or extend=E2=80=9D =
the lease. The holder=20
of an option has purchased the right to compel a transfer =
of=20
property on stated terms, prior to the expiration of the option.=20
Riley, 808 S.W.2d at 187. Option contracts have two =
components: (1)=20
an underlying contract that is not binding until accepted and (2) =
a=20
=E2=80=9Ccovenant=E2=80=9D to hold open to the optionee the =
opportunity to accept.=20
Id.
<=
/SPAN>Unlike=20
an option contract, a right of first refusal is merely a =
pre-emptive right=20
that does not grant the holder the power to compel an unwilling =
owner to=20
transfer his property. See ACS Inv. Inc. v. McLaughlin, 943 =
S.W.2d=20
426, 428 n.2 (Tex. 1997); Riley, 808 S.W.2d at 187. Here, =
Potter=20
did not make a general promise or covenant to renew the Leases. To =
the=20
contrary, the Leases expressly provide that Potter merely granted =
National=20
=E2=80=9Cthe right of first refusal to continue to rent the =
demised=20
property for advertising purposes if [Potter] elects =
to rent or=20
use the demised premises for outdoor advertising =
purposes.=E2=80=9D (Emphasis=20
added.) Once Potter elected to lease the property, National =
was=20
granted the right to accept or reject the terms. National was =
given the=20
first right of refusal and refused Potter=E2=80=99s offer. =
<=
/SPAN>Accordingly,=20
National=E2=80=99s second issue is overruled.
The Billboard =
Signs
<=
/SPAN>In=20
its first issue, National contends that the trial court erred by =
failing=20
to give effect to all of the provisions of the Leases. =
Specifically,=20
National contends that the trial court erred by declaring that =
Potter had=20
the right to purchase the billboard signs, rather than declaring =
that=20
National had the right to remove the signs, because the trial =
court=20
misconstrued paragraphs three and four of the Leases.
=
After=20
the parties failed to reach an agreement regarding the renewal of =
the=20
Leases, Potter informed National, by letter dated September 1, =
2005, that=20
he would exercise his right under the Leases to purchase the =
billboard=20
sign structures and permits.
=
Pursuant to =
paragraph=20
three:
3. Lose [sic] of Use of Sign=20
Structures. If at any time the highway view of =
[National=E2=80=99s]=20
displays is obstructed or obscured, or the use or installation of =
such=20
displays is prevented or restricted by law or by =
[National=E2=80=99s] inability to=20
obtain or maintain any necessary permits or licenses, or if there =
occurs a=20
diversion of traffic from, or a change in the direction of traffic =
on=20
highways leading past [National=E2=80=99s] displays, [National] =
may, at its=20
option, terminate this lease as to such specific location by =
giving 30=20
days written notice to [Potter]. In the event of such cancellation =
or=20
in the event this lease is terminated for any reason and =
the parties=20
have not executed a new lease or renewal of this Lease, =
[Potter] shall=20
have the option to purchase the entire sign structure and permits =
from=20
[National] for the then current market value of an installed =
fabricated=20
structure, such value to be determined by the average of three (3) =
bids to=20
be obtained from three (3) major sign =
fabricators.
(Emphasis=20
added.)
=
The=20
word =E2=80=9Cterminated,=E2=80=9D emphasized above, is not =
defined in the Leases. The=20
trial court construed the term =E2=80=9Cterminated,=E2=80=9D as =
used in the Leases, to=20
mean =E2=80=9Cany time the lease agreements come to an end for any =
reason,=20
including expiration of the lease terms.=E2=80=9D The trial court =
declared=20
that =E2=80=9CPotter had the right to purchase the sign structures =
and permits=20
from [National] for the current market value of an installed =
fabricated=20
structure pursuant to the [Leases] upon termination of the =
[Leases] for=20
any reason, including expiration.=E2=80=9D Hence, the trial =
court=20
concluded that, once the Leases expired on July 31, 2005, Potter =
had the=20
right to purchase them under the terms specified in the=20
Leases.
=
National=20
challenges the trial court=E2=80=99s interpretation of the word =
=E2=80=9Cterminated=E2=80=9D to=20
include expiration of the Leases. National contends =
that such=20
interpretation renders paragraph four meaningless. Paragraph four =
permits=20
National to remove its trade fixtures, as =
follows:
4. Ownership of Displays. =
All=20
structures, displays and materials placed on the said property are =
[National=E2=80=99s] trade fixtures and equipment and shall be and =
remain=20
[National=E2=80=99s] property, and may be removed by [National] =
at any time=20
prior to or within a reasonable time (not to exceed 120 =
days) after=20
the termination of this =
lease,=20
or any extension thereof. [Potter] agrees to allow [National] full =
access=20
to the property occupied by the displays for the purpose of =
erecting,=20
maintaining, changing or removing the displays at any reasonable=20
time.
=
National contends =
that the=20
words =E2=80=9Cterminated=E2=80=9D and =
=E2=80=9Ctermination=E2=80=9D are used differently in paragraphs=20
three and four. National contends that, in paragraph three, =
=E2=80=9Cterminated=E2=80=9D=20
is used in the context of circumstances which effectively =
terminate the=20
usefulness of the signs as an advertising medium. In paragraph =
four,=20
=E2=80=9Ctermination=E2=80=9D means the expiration of the Leases =
by their own terms, as=20
occurred herein. Hence, National contends that paragraph four =
governs and=20
permits it to remove the signs.
=
Examining=20
paragraph three and giving its terms their generally accepted =
meaning, it=20
is clear that the parties intended that, in the event that a =
specific sign=20
or location became useless by the occurrence of one of various =
specified=20
situations, National was granted the right to immediately =
terminate its=20
Lease of the specific location. Paragraph three grants Potter the =
option=20
to purchase the sign structures and permits from National, =
=E2=80=9C[i]n the =
event of such=20
cancellation.=E2=80=9D (Emphasis added.)
=
However,=20
paragraph three contemplates a second situation in which Potter is =
granted=20
the option to purchase the signs and permits from =
National: =E2=80=9Cin the =
event this lease=20
is terminated for any reason and the parties have not executed =
a new=20
lease or renewal of this Lease.=E2=80=9D Paragraph three =
also=20
governs in the event that the Leases are terminated =E2=80=9Cfor =
any=20
reason=E2=80=9D and the parties do not execute a new lease or a =
=E2=80=9Crenewal.=E2=80=9D Use of=20
the term =E2=80=9Crenewal=E2=80=9D naturally contemplates an =
expiration. That the parties=20
could have intended the circumstance in which one party =
prematurely=20
terminates the Lease and then =E2=80=9Crenews=E2=80=9D it is not a =
reasonable=20
interpretation. Hence, the parties must have intended =
=E2=80=9Cterminated,=E2=80=9D as=20
used within the Leases, to include expiration.
=
Pursuant=20
to paragraph four, the parties agreed that the billboard =
structures=20
constitute trade fixtures, that they belong to National, and that =
they=20
=E2=80=9Cmay be removed by [National] at any time prior to or =
within a=20
reasonable time (not to exceed 120 days) after the termination of this lease, =
or any=20
extension thereof.=E2=80=9D Having determined =
that the=20
parties intended =E2=80=9Ctermination,=E2=80=9D as used in the =
Leases, to includes=20
expiration of the lease period, then, pursuant to paragraph four, =
National=20
retained the right to remove the signs upon the expiration of the =
Leases.=20
This interpretation is reasonable in light of the rest of the =
provisions=20
in the Leases because there is no other provision in the Leases =
that=20
affords National the opportunity the remove the signs upon the =
expiration=20
of the lease period. To interpret =E2=80=9Ctermination=E2=80=9D in =
paragraph four as not=20
to include expiration of the Leases would leave National without =
any right=20
to remove the billboard signs once the Leases =
expired.
=
The=20
terms =E2=80=9Cterminated=E2=80=9D and =
=E2=80=9Ctermination,=E2=80=9D as used in paragraphs three and four=20
of the Leases, mean the same thing and include the expiration of =
the=20
Leases on their natural terms. Because the Leases have been =
drafted so=20
that each party has a right to the signs upon the expiration of =
the lease=20
period, the issue becomes what the parties intended with regard to =
the=20
nature and timing of those rights.
=
Unlike=20
National=E2=80=99s right to remove the signs in paragraph four, =
Potter=E2=80=99s option to=20
purchase the signs in paragraph three does not have a time limit.=20
The =
issue is=20
whether the parties intended that Potter be given the option to =
purchase=20
the signs if, and only if, National does not remove them within =
120 days=20
after the Leases expire and are not renewed, or if National =
retains the=20
right to remove the signs if, and only if, Potter does not =
exercise his=20
option to purchase them.
=
In=20
harmonizing provisions of a contract, =E2=80=9Cterms stated =
earlier in an=20
agreement must be favored over subsequent terms.=E2=80=9D =
Coker, 650 S.W.2d at =
394.=20
Potter=E2=80=99s option to purchase the signs appears in paragraph =
three and=20
National=E2=80=99s right to remove the signs appears later, in =
paragraph four.=20
Potter=E2=80=99s option comes first in the agreement and therefore =
must be=20
favored.
=
However,=20
we also must construe a contract =E2=80=9Cfrom a utilitarian =
standpoint bearing in=20
mind the particular business activity sought to be served. . . =
.=E2=80=9D Frost=20
Nat=E2=80=99l Bank, 165 S.W.3d at 312. Because, in =
paragraph three,=20
Potter=E2=80=99s right to purchase the signs immediately follows =
language=20
concerning situations in which the signs became useless to =
National for a=20
variety of stated reasons, it follows that paragraph three =
generally=20
contemplates that, under such circumstances, National would allow =
the=20
Leases to expire and would not renew them. Hence, it is =
still=20
reasonable to construe paragraph three as first granting Potter =
the option=20
to purchase the signs before National incurs the costs to remove =
them.=20
Indeed, paragraph four allows, but does not require, National to =
remove=20
the billboards from Potter=E2=80=99s property if the Leases are =
terminated.=20
=
In=20
addition,=20
pursuant to paragraph three, National granted Potter an =
=E2=80=9Coption=E2=80=9D to=20
purchase the signs in the event that the Leases are terminated for =
any=20
reason and the parties do not execute a renewal. By definition, =
the=20
holder of an =E2=80=9Coption=E2=80=9D has the right to compel =
a transfer of=20
property. Riley, 808 S.W.2d at 188. As we have said, option =
contracts have two components: (1) an underlying contract that is =
not=20
binding until accepted and (2) a covenant to hold open to the =
optionee the=20
opportunity to accept. See Riley, 808 S.W.2d at 187. Here, =
the=20
parties stipulated in paragraph three the means by which the =
purchase=20
price of the signs would be calculated, and National promised to =
hold open=20
the opportunity for Potter to purchase the signs if and when the =
Leases=20
were terminated, which we have concluded includes their =
expiration.
=
We=20
conclude that the Leases are not ambiguous and that the word =
=E2=80=9Cterminate,=E2=80=9D=20
as used in the Leases, includes the expiration of the lease term. =
Applying=20
the same definition of =E2=80=9Cterminate=E2=80=9D throughout the =
provisions of the=20
Leases, paragraph four grants National the right to remove its =
signs=20
within 120 days after the Leases expire. However, such right is =
subject to=20
the option that National granted to Potter to first purchase the =
signs.=20
Should Potter decline to exercise his option, National has the =
right to=20
remove the signs.
=
National=20
contends that to construe the Leases as we have operates as a =
forfeiture=20
of the signs, as to National. We disagree. As the parties agreed =
under=20
paragraph three, if, at the end of the 10-year-lease term, Potter=20
exercised his option to purchase the signs, he must pay =
=E2=80=9Cthe then current=20
market value of an installed fabricated structure, such value to =
be=20
determined by the average of three (3) bids to be obtained from =
three (3)=20
major sign fabricators.=E2=80=9D Thus, the parties agreed that =
Potter would have=20
to buy National=E2=80=99s 10-year-old signs at the price of brand =
new signs,=20
installed, at current prices. The exercise of Potter=E2=80=99s =
option fully=20
compensates National for the cost of erecting brand new signs on =
another=20
property.
=
We=20
overrule National=E2=80=99s first issue.
Conclusion
<=
/SPAN>We=20
affirm the judgment of the trial court.
=
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; Laura=20
Carter Higley
=
&=
nbsp; &n=
bsp; &nb=
sp; &nbs=
p; Justice
Panel consists of =
Justices=20
Taft, Hanks, and=20
Higley. |