McCoy v. McCallum

#29611-a-SPM
2022 S.D. 42

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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TERESA A. MCCOY and
K.S. CLARK, Plaintiffs and Appellants,

v.

SANDRA K. MCCALLUM, as
trustee of the SANDRA K.
MCCALLUM LIVING TRUST, and
SANDRA K. MCCALLUM, in her
personal capacity, Defendants and Appellees.
****

APPEAL FROM THE CIRCUIT COURT OF
THE FOURTH JUDICIAL CIRCUIT
LAWRENCE COUNTY, SOUTH DAKOTA

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THE HONORABLE ERIC J. STRAWN
Judge

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SARAH BARON HOUY
MARK F. MARSHALL of
Bangs, McCullen, Butler,
Foye & Simmons, LLP
Rapid City, South Dakota Attorneys for plaintiffs and
appellants.

TIMOTHY R. JOHNS of
Johns & Kosel, Prof. LLC
Lead, South Dakota

ROGER A. TELLINGHUISEN of
DeMersseman, Jensen, Tellinghuisen
& Huffman, LLP
Rapid City, South Dakota Attorneys for defendants and
appellees.

****
CONSIDERED ON BRIEFS
NOVEMBER 8, 2021
OPINION FILED 07/27/22
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MYREN, Justice

[¶1.] Sandra McCallum (McCallum) entered into a lease agreement (Lease)

with Teresa McCoy and K.S. Clark (collectively referred to as McCoy). The Lease

gave McCoy a right of first refusal to purchase the leased property at the same price

and terms of any bona fide offer. McCallum received an offer from Dakota Legends

Properties, LLP (DLP) and notified McCoy of the offer. McCoy made two offers on

the property. McCallum rejected both of McCoy’s offers and accepted DLP’s offer.

McCoy sued, and McCallum answered and counterclaimed. The parties filed cross-

motions for partial summary judgment about whether DLP’s offer was “bona fide.”

McCallum also requested partial summary judgment about whether McCoy had

been offered the right to purchase on the same terms. The circuit court determined

that DLP’s offer was bona fide, McCoy had been offered the right of first refusal,

and McCoy did not exercise that right. The circuit court granted McCallum’s

motion to expunge McCoy’s lis pendens. McCoy appeals, and we affirm.

Facts and Procedural History

[¶2.] McCallum is the Trustee of the Sandra K. McCallum Living Trust

(Trust). The Trust owns a property at 675 Main Street, Deadwood, South Dakota

(Leased Premises). This property is used to operate the Gold Nugget Trading Post

(Gold Nugget), a retail store for gift and tourist items. On August 27, 2020,

McCallum, as Trustee, entered into two agreements with McCoy: 1) a purchase

agreement for the inventory and supplies of the Gold Nugget remaining as of March

31, 2020, and 2) the Lease for the Leased Premises.

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[¶3.] The Lease was for five years commencing on April 1, 2020, at $3,500

per month. Section IX of the Lease, titled Right of First Refusal to Purchase, reads

in relevant part:

In the event Landlord should decide to sell the lease premises
herein to another party or parties during the term of this Lease,
and if Landlord receives a bonafide [sic] offer which is
satisfactory to the Landlord before the expiration of the term of
this Lease, then Landlord agrees to give the Tenant the privilege
of buying the leased premises at the same price and on the same
terms of the bonafide [sic] offer so made.

(Emphasis added.)

[¶4.] On October 5, 2020, McCallum entered into a real estate purchase

agreement for the Leased Premises with DLP for $840,000 with a closing date of

December 1, 2020. This agreement was contingent on several conditions.

Paragraph three stated:

[T]his offer is contingent upon Purchaser obtaining a new loan,
Purchaser agrees to immediately make application for and
diligently endeavor to procure such loan without delay, and to
sign the note and mortgage within five (5) days after they are
ready.

Paragraph five contained several contingencies providing:

1) Buyer reserves the right to have the property inspected
within 14 business days after the first right of refusal is
removed[.]
2) If buyer would inherit any active legal proceedings
regarding the lease the buyer would like to reserve the
right to review the documentation with the attorney prior
to closing[.]
3) This offer is contingent on the buyer viewing and
approving the easement with Midnight Star and the
stairway within 10 business days of receipt of the title
work.

Should the results of any inspections not be satisfactory to
Purchaser, then, within this same period, Purchaser shall notify
Seller or Listing Broker in writing of the specific dissatisfaction
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and at which time parties may renegotiate or terminate this
contract. If Purchaser fails to specifically approve or disapprove
any inspections within the time specified, then Purchaser shall
be deemed to have approved and accepted the property in its
present condition and any real estate licensee having anything
to do with this transaction does not have any further obligation
to Purchaser as to such inspections or agreement.

Paragraph seven, titled “Other Provisions,” stated:

1) This offer is contingent on the 1st right of refusal by
Clark/McCoy being released within 30 calendar days of
acceptance of this offer[.]
2) Buyer and seller to agree on which seller owned items will
remain with the property[.]
3) This offer is contingent on the buyer obtaining a new
Conventional Loan and the pre-approval letter will be
presented to the seller within 1 week of acceptance[.]
4) [T]his offer is subject to the property appraising for at
least the purchase price and the appraisal will not be
ordered until the inspection contingency is removed[.]
5) This offer is subject to the first right of refusal by the
Midnight Star being released on the Chinese tunnel
within 2 weeks of acceptance[.]
6) In the event that the tunnel cannot be included in this
offer the purchase price will be $800,000, Valuing the
Tunnel easement at $40,000[.]

[¶5.] On October 6, 2020, McCallum sent McCoy a certified letter informing

McCoy that she had received a bona fide offer to purchase the Leased Premises for a

total amount of $840,000. The letter told McCoy that she had 14 calendar days

from the date of the letter to exercise her right of first refusal with “proof

satisfactory to Landlord that you can have the ability to meet the cash price term at

this time.” This letter did not include the purchase agreement as an attachment.

McCoy responded with a letter dated October 15, 2020, noting that McCallum had

not provided a copy of the offer, including all of its terms. McCoy explained that

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once she received that information, a thirty-day period would provide her

reasonable time to decide whether to exercise her right of first refusal.

[¶6.] On October 18, 2020, McCallum notified McCoy that Midnight Star

LLC (Midnight Star) opted to exercise their right of first refusal to purchase the

tunnel easement of the Leased Premises for $40,000. McCallum included a copy of

the purchase agreement, updated to reflect Midnight Star’s exercise of its right of

first refusal, with DLP’s name redacted. McCallum informed McCoy that she had

until October 20, 2020, to exercise the option to purchase the property for $800,000

and provide proof of ability to pay. On October 20, 2020, McCoy responded and

indicated that she intended to exercise her right of first refusal but asserted that

McCallum had not provided her adequate information to satisfy her bank’s

questions. McCoy raised questions regarding asbestos in the building, leaks in the

roof drains, structural issues with the brick chases, whether DLP would inherit

pending litigation, whether DLP had been informed that McCoy was opting to

extend the Lease for five years and subletting to another party, and other questions

about Midnight Star and the basement space.

[¶7.] The same day, McCallum responded and asserted that McCoy had not

exercised the right of first refusal because she had not agreed to pay $800,000 and

failed to provide proof of ability to pay. Nevertheless, on October 22, 2020,

McCallum sent McCoy an email extending the deadline to exercise the right of first

refusal to October 26, 2020.

[¶8.] On October 25, 2020, McCoy made two offers to McCallum. The first

offer proposed a contract for deed for $941,236. This offer also envisioned McCallum

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forfeiting a $149,000 claim she had asserted against McCoy in a separate lawsuit

regarding the inventory purchase agreement. The second offer was a cash offer for

$644,000. 1 McCallum rejected both proposals because they did not match DLP’s

purchase price of $800,000, and McCoy did not provide proof of ability to pay.

McCallum informed McCoy that she would proceed to close with DLP on December

1, 2020.

[¶9.] On November 4, 2020, McCallum sent McCoy an email she had

received from the inspector hired by DLP that identified several issues with the

building. Despite these identified concerns, McCallum and DLP did not renegotiate

the terms of the original purchase agreement, and McCallum informed McCoy that

the sale to DLP would proceed. McCoy filed a complaint against McCallum,

seeking, among other things, declaratory relief that DLP’s offer was not a bona fide

offer because it contained contingencies. McCoy recorded a notice of lis pendens

against the property on November 6, 2020. McCallum answered the complaint and

asserted three counterclaims. McCallum also filed a motion to expunge the notice of

lis pendens, claiming it was filed in bad faith to stop the pending sale.

[¶10.] On November 25, 2020, McCoy filed a summary judgment motion

asserting DLP’s offer was not a bona fide offer because its contingencies allowed

DLP the “unqualified ability to renegotiate or terminate the contract.” McCoy also

1. Although the offer price was identified as $800,000, the offer also provided
that, from that offer price, McCallum would pay the real estate commission
and closing costs ($56,000) as well as $80,000 toward resolving issues like
roofing repair and asbestos removal. The DLP purchase agreement did not
include any deductions from the purchase price for roofing, asbestos removal,
or commissions.
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argued that there was not a meeting of the minds on price because DLP could

renegotiate the contract based on the inspection results, and therefore, the right of

first refusal had not been triggered.

[¶11.] On December 8, 2020, McCallum filed a motion for partial summary

judgment requesting the circuit court to rule as a matter of law that DLP’s offer was

“bona fide.” McCallum acknowledged that DLP’s offer required the buyer to provide

proof of ability to pay and was contingent on a property inspection and an appraisal

at least equal to the purchase price. In her statement of undisputed material facts,

McCallum asserted that: “Each of these contingencies were previously met and the

parties were prepared to close the sale as of December 1, 2020 the date set forth in

[the purchase agreement].” McCoy did not dispute this factual assertion.

[¶12.] The circuit court heard the parties’ cross-motions for summary

judgment on December 16, 2020. McCoy’s counsel argued that the DLP offer was

not a bona fide offer because it “was an offer contingent on financing and contingent

on inspections and contingent upon further negotiations.” The court inquired why

having contingencies would make the offer not bona fide. McCoy’s counsel replied,

“What makes it not bona fide is that it’s contingent on matters that are outside the

control of [McCoy].” McCoy’s counsel further claimed that the structure of the offer

“deprived [McCoy] of the ability to meet that offer at the same price and [on] the

same terms.” The circuit court inquired whether anything in the record would show

that McCoy requested the same offer with the same contingencies. McCoy’s counsel

acknowledged McCoy’s receipt of the “real estate purchase agreement with all of the

terms that were being offered by the buyer to the trust” but insisted that McCoy

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had never been extended the opportunity to exercise her right of first refusal on the

same terms as offered by DLP. The circuit court again inquired: “Do we—again, I’m

looking for a correspondence from your client to the Trust that states, ‘We accept

the same terms that are provided in the real estate sales agreement point by point.’

We don’t have that, do we?” McCoy’s counsel responded: “I’m not going to answer

that question directly at this point, Your Honor. What I’m going to say is that the

defendants never extended the opportunity to meet that at that time.”

[¶13.] In a memorandum decision issued later, the circuit court denied

McCoy’s motion for partial summary judgment, granted McCallum’s motion for

partial summary judgment, and granted McCallum’s motion to expunge the lis

pendens. The circuit court defined “bona fide offer” as “a sincere or genuine display

of willingness to enter into a contract on specified terms made in good faith without

fraud or deceit.” Noting that McCoy had not produced evidence demonstrating that

DLP’s offer was made in bad faith, the circuit court concluded that DLP’s offer was

a bona fide offer under the lease terms. The circuit court noted that it was

undisputed that McCoy had been provided with a copy of the purchase agreement

between McCallum and DLP, although DLP’s name was redacted. The circuit court

concluded that McCallum’s redaction of the purchaser’s name did not alter the bona

fide nature of DLP’s offer. The circuit court noted that contingencies are a routine

part of real estate contracts, and their inclusion in the purchase agreement did not

create an indefinite term. The circuit court concluded that the purchase agreement

was a bona fide offer, the undisputed facts showed that McCallum provided McCoy

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the opportunity to exercise her right of first refusal, and McCoy had not done so.

The circuit court also granted McCallum’s motion to expunge McCoy’s lis pendens.

[¶14.] The circuit court entered an order and judgment granting McCallum

“judgment as a matter of law” on the declaratory relief claim regarding the right of

first refusal and certified the judgment as final under SDCL 15-6-54(b).

Analysis and Decision

1. Whether the circuit court erred when it determined
that McCallum received a bona fide offer.

[¶15.] This Court has established:

In reviewing a grant or a denial of summary judgment under
SDCL 15-6-56(c), we must determine whether the moving party
demonstrated the absence of any genuine issue of material fact
and [established] entitlement to judgment on the merits as a
matter of law. The evidence must be viewed most favorably to
the nonmoving party[,] and reasonable doubts should be
resolved against the moving party . . . . Our task on appeal is to
determine only whether a genuine issue of material fact exists
and whether the law was correctly applied.

Citibank (S.D.), N.A. v. Hauff, 2003 S.D. 99, ¶ 10, 668 N.W.2d 528, 532 (quoting

Braun v. New Hope Twp., 2002 S.D. 67, ¶ 8, 646 N.W.2d 737, 739).

[¶16.] We review contract interpretation de novo. Charlson v. Charlson, 2017

S.D. 11, ¶ 16, 892 N.W.2d 903, 907. “When interpreting a contract, this Court looks

to the language that the parties used in the contract to determine their intention.”

Id. ¶ 16, 892 N.W.2d at 908 (citation omitted). “In order to ascertain the terms and

conditions of a contract, we examine the contract as a whole and give words their

plain and ordinary meaning.” Id. (citation omitted).

[¶17.] The Lease gave McCoy a right of first refusal to purchase the Leased

Premises at “the same price and on the same terms” of a bona fide offer accepted by

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McCallum. A right of first refusal is “a conditional right that ripens into an

enforceable option contract when the owner receives a third-party offer to purchase

or lease the property subject to the right and manifests an intention to sell or lease

on those terms.” Laska v. Barr, 2016 S.D. 13, ¶ 6, 876 N.W.2d 50, 53 (citation and

internal quotation marks omitted). An offer “is the manifestation of willingness to

enter into a bargain, so made as to justify another person in understanding that his

assent to that bargain is invited and will conclude it.” Restatement (Second) of

Contracts § 24 (1981). Bona fide is defined as “done or made in good faith” or

“authentic or genuine.” The American Heritage Dictionary (2d ed. 1985); see also

Uno Rests., Inc. v. Boston Kenmore Realty Corp., 805 N.E.2d 957, 963 (Mass. 2004)

(“A third-party offer is bona fide if it was made ‘honestly and with serious intent[.]’”

(citation omitted)).

[¶18.] McCoy did not claim that DLP’s offer was not genuine or not made

honestly and with serious intent. Instead, McCoy contends that there was no bona

fide offer because the inspection contingencies in the offer made the price indefinite.

She notes that DLP was entitled to renegotiate the purchase agreement based on

the inspector’s email reporting various concerns with the building. Further, McCoy

argues the DLP offer was not bona fide because McCallum initially withheld DLP’s

identity.

[¶19.] Initially, McCallum was reluctant to provide McCoy with the

prospective buyer’s name over concerns that McCoy would attempt to interfere with

the purchase. The record establishes that McCoy authorized McCallum to redact

the purchaser’s name before forwarding a copy of the purchase agreement.

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[¶20.] The Lease between these parties did not specify that an offer must be

unconditional to be considered bona fide. See Mucci v. Brockton Bocce Club, Inc.,

472 N.E.2d 966, 968 (Mass. App. Ct. 1985) (offer was bona fide even though

conditioned on buyer’s ability to obtain financing and licensing). “Conditions of this

type are certainly not uncommon in agreements for the sale of commercial real

estate. Their presence, apart from anything else, does not prevent a finding that

the agreements were entered into honestly and with serious intent.” Id. Similarly,

the price component of a purchase agreement does not become indefinite merely

because the purchase agreement is conditioned on a satisfactory inspection. See

ABCDW LLC v. Banning, 388 P.3d 821, 833 (Ariz. Ct. App. 2016) (rejecting an

argument that an “offer was not a bona fide offer because it was indefinite as to

price; specifically, the Lease permitted the parties to renegotiate the price per acre

in the event the alfalfa was destroyed”). Inspection clauses are common in real

estate purchase agreements. This purchase agreement permitted the parties to

renegotiate if the inspection revealed problems. It was undisputed that there was

no renegotiation of the purchase agreement after completing DLP’s inspection.

There was no uncertainty on price, and both McCallum and DLP stood ready to

close the sale. The circuit court correctly determined that the DLP offer was a

“bona fide offer” under the terms of the right of first refusal.

2. Whether the circuit court erred when it determined
that McCoy had not exercised her right of first
refusal.

[¶21.] McCoy contends that she was not offered the same opportunity to

purchase the Leased Premises at the same price and on the same terms as DLP

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because she was required to make a cash purchase and was not allowed the same

contingencies. Additionally, McCoy challenges the adequacy of the notice she

received, claiming it omitted material terms found in the offer.

[¶22.] “Adequate notice is notice sufficient to enable the holder of the right of

first refusal (the right-holder) to decide whether to attempt to match the terms.”

Roeland v. Trucano, 214 P.3d 343, 348 (Alaska 2009). “Most courts that have

considered the issue have adopted the rule that adequacy of notice of a proposed

sale to a right of first refusal holder is sufficient if it provides actual notice of a

potential sale and sufficient information for the right-holder to determine if he or

she is interested in exercising the right.” Id.

[¶23.] “When the agreement is silent as to notice, however, most courts agree

that any method that gives the right-holder notice of a potential sale and

reasonably discloses the terms of the sale is sufficient to trigger the right of first

refusal.” Dyrdal v. Golden Nuggets, Inc., 672 N.W.2d 578, 584 (Minn. Ct. App.

2003), aff’d, 689 N.W.2d 779 (Minn. 2004). “In most cases, a copy of the purchase

agreement provides reasonable notice of a bona fide offer, even if the agreement

does not disclose all of the terms of the sale.” Id.

[¶24.] McCoy first received notice of the existence of the $840,000 offer on

October 6, 2020. On October 18, 2020, McCoy received a copy of the purchase

agreement (with the buyer’s name redacted). Consequently, it is undisputed that

she knew the exact terms she needed to match to exercise her right of first refusal

and that neither of her two offers met the DLP offer. The circuit court did not err

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when it determined that McCoy had been provided the opportunity to exercise her

right of first refusal and had not done so. 2

3. Whether the circuit court abused its discretion when
it granted McCallum’s motion to expunge the notice
of lis pendens.

[¶25.] McCoy argues that the circuit court erred when it granted McCallum’s

motion to expunge the notice of lis pendens. In their reply brief, McCoy concedes

that the disposition of the lis pendens issue follows the disposition of the right of

first refusal. Consequently, it is unnecessary to address this issue.

Conclusion

[¶26.] We affirm the circuit court’s entry of summary judgment in favor of

McCallum on Count III of McCoy’s complaint, determining that McCallum received

a bona fide offer to purchase from DLP and that McCoy was given the same

opportunity to purchase the Leased Premises at the same price and on the same

terms as DLP and failed to exercise the option to purchase. We remand the case to

the circuit court for further proceedings on the remaining claims in the complaint

and counterclaim.

[¶27.] JENSEN, Chief Justice, and KERN, SALTER, and DEVANEY,
Justices, concur.

2. McCoy further argues in this appeal that “[t]he circuit court failed to
acknowledge or consider that the lease did not contain a timeframe for
[McCoy] to exercise the right of first refusal.” In McCoy’s view, it was an
error of law for the circuit court to accept the deadline unilaterally imposed
by McCallum. McCoy did not present this argument to the circuit court.
Because the question of the reasonableness of the deadline was not before the
circuit court, this Court will not examine it on appeal. See Wyman v.
Bruckner, 2018 S.D. 17, ¶ 16, 908 N.W.2d 170, 176 (noting the general rule
that, even on summary judgment, “this Court may not review theories argued
for the first time on appeal” (citation and internal quotation marks omitted)).
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