Ellis

Facts

On February 1, 1966, appellant Richard Ellis leased a 16,250 square-foot parcel of land he owned in Calexico, California, to respondent Chevron, U. S. A., Inc.’s (Chevron) predecessor in interest Standard Oil Company of California (Standard). The lease was on a printed form supplied by Standard. The initial term was for 10 years. In addition the lessee was given the option to extend the lease for two additional five-year periods. Standard and Chevron thereafter operated a gasoline station on the leased premises.

The parties’ dispute is over paragraph 7 of the form. With respect to the period after termination of any extension, paragraph 7 gives the lessee the right to lease the property on the same terms set forth in any acceptable bona fide offer Ellis received from a third party. Paragraph 7 required Ellis to provide the lessee with a copy of any third-party offer he planned to accept and 60 days in which to lease the property on the terms set forth in the offer “or at such lesser terms as Lessor and Lessee may agree upon.”

In 1976 and again in 1981 Chevron exercised its five-year options. In 1985 Chevron offered to renew its lease of the 16,250 square feet for…