Laska v. Barr

#27386, #27402-rev & rem-GAS
2016 S.D. 13

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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MARLEN J. LASKA and
PATRICIA A. LASKA, Plaintiffs and Appellees,

v.

JERRY BARR, PAT COLE
and GERRIT JUFFER, Defendants and Appellants.

****
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
CHARLES MIX COUNTY, SOUTH DAKOTA

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THE HONORABLE PATRICK SMITH
Judge

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TIMOTHY R. WHALEN
Lake Andes, South Dakota Attorney for plaintiffs
and appellees.

THOMAS H. FRIEBERG of
Frieberg, Nelson & Ask, LLP
Beresford, South Dakota

and

MEGHANN M. JOYCE of
Boyce Law Firm, LLP
Sioux Falls, South Dakota Attorneys for defendants
and appellants.

****

CONSIDERED ON BRIEFS
ON JANUARY 11, 2016
OPINION FILED 02/10/16
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SEVERSON, Justice

[¶1.] Marlen and Patricia Laska entered into a contract, involving real

property owned by them, with Jerry Barr, Pat Cole, and Gerrit Juffer (the Barr

Partners). The Barr Partners, believing the contract created an option, attempted

to buy the property listed in the contract. The Laskas did not want to sell and

brought this action seeking to declare the contract void; the Barr Partners

counterclaimed, seeking specific performance of the agreement. The circuit court

determined that the contract granted the Barr Partners a right of first refusal and

limited their rights under the contract, determining that the preemptive right

expired at the later death of Marlen or Patricia. On appeal, the Barr Partners

allege that the contract creates both an option and a right of first refusal. Through

notice of review, the Laskas contend that the agreement is void for lack of a definite

time within which the parties may exercise rights under the contract and for lack of

mutual assent. We reverse and remand.

Background

[¶2.] The Laskas first sold real property to the Barr Partners in 2000. The

sale is referred to as Juffer 1 by the parties and circuit court. At the time of closing

on Juffer 1, the parties entered into an agreement entitled First Right of Refusal,

which granted the Barr Partners certain rights to purchase additional land that is

adjacent to Juffer 1. In late 2004, the Barr Partners bought the real property listed

in the First Right of Refusal, referred to as Juffer 2. However, they paid $500 more

per acre than the price listed in the agreement. As part of the Juffer 2 sale, the

parties entered into another agreement, again entitled First Right of Refusal. The

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second agreement is substantially similar to the initial First Right of Refusal that

the parties executed and involves real property that is adjacent to the Juffer 2

property. The meaning of the second agreement is the main dispute of this case.

[¶3.] The “First Right of Refusal” in dispute provides in relevant parts:

In consideration of the receipt of One dollar ($1.00) and
other good and valuable consideration paid to Marlin [sic] and
Patricia Laska . . . SELLER, receipt of which is hereby
acknowledged, SELLER hereby gives and grants to Jerry Barr
or, Pat Cole or, Gerrit Juffer, BUYER, their heirs and assigns, a
right of first refusal to purchase the real property owned by
SELLER situated in Charles Mix County, South Dakota, and
more particularly described as follows:
....
Section I
Price and Terms of Payment

The purchase price for the property shall be Ten thousand
Dollars Five hundred and no/100 ($10,500) per acre purchased
pursuant to this right of first refusal, or portion thereof Upon
exercise of this right of first refusal by BUYER as provided for
herein, BUYER shall pay SELLER the sum of One dollar,
($1.00) as and for down payment to be applied towards the total
purchase price, which sum shall be non-refundable except
should SELLER be unable to provide BUYER with marketable
title as required herein.
Section II
Period of Right and Extension

Should SELLER receive a bona fide third party offer to
purchase all or a portion of the above-described property,
SELLER shall give BUYER written notice of the offer including
its material terms within ten (10) days of receiving the offer.
BUYER may then exercise this right of first refusal by giving
SELLER written notice thereof within ten (10) days of receiving
said notice by SELLER of said third party offer.
....
Section VI
Assignment and Succession

This right and the contract resulting from the exercise
thereof shall bind to the benefit of the heirs, successors,
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administrators, and executors of the respective parties. Buyer
may not assign any rights under this right of first refusal
without the express written consent of SELLER, which consent
may not be unreasonably withheld. One of the buyers is a Real
Estate Broker.
Section VII
Lapse

Should BUYER fail to exercise this right by giving the
appropriate notice, said right shall lapse and be in no further
force or effect whatsoever.

[¶4.] At trial, the Barr Partners contended that the agreement above

created a “dual option” wherein they have both the option to buy the property at

any time for $10,500 per acre and they have the right to meet the price of any bona

fide third-party offer. Additionally, the Barr Partners asserted that this right

extends beyond the lives of the contracting parties. The Laskas contended that the

contract is ambiguous and void for lack of a time of performance and lack of mutual

assent.* The circuit court determined that the contract was unambiguous. It found

that the contract created only a right of first refusal at the fixed price of $10,500 per

acre and that it terminated at the later death of Marlen or Patricia. On appeal, the

Barr Partners contend that the circuit court erred by finding that the contract only

created a right of first refusal and by limiting the contract to the later death of

Marlen or Patricia. By way of notice of review, the Laskas contend that the

agreement is void for lack of mutual assent and failure to include a time for

performance.

* The Laskas argued at trial that the agreement also lacked consideration.
However, it does not appear that they are still making that argument on
appeal.

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Analysis

[¶5.] “Contract interpretation is a question of law reviewable de novo.”

Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 2006 S.D. 6, ¶ 14, 709 N.W.2d

350, 354. “When the meaning of contractual language is plain and unambiguous,

construction is not necessary. If a contract is found to be ambiguous the rules of

construction apply.” Id. (quoting Pesicka v. Pesicka, 2000 S.D. 137, ¶ 6, 618 N.W.2d

725, 726). “A contract is ambiguous when application of rules of interpretation

leaves a genuine uncertainty as to which of two or more meanings is correct.”

Dowling Family P’ship v. Midland Farms, 2015 S.D. 50, ¶ 13, 865 N.W.2d 854, 860

(quoting Ziegler, 2006 S.D. 6, ¶ 16, 709 N.W.2d at 355). “[A] contract is ambiguous

only when it is capable of more than one meaning when viewed objectively by a

reasonably intelligent person who has examined the context of the entire integrated

agreement.” Id. (quoting Pesicka, 2000 S.D. 137, ¶ 10, 618 N.W.2d at 727).

[¶6.] The parties dispute whether this agreement constitutes a right of first

refusal, an option, or both. “An option to purchase real property may be defined as

a contract by which an owner of real property agrees with another person that the

latter shall have the privilege of buying the property at a specified price within a

specified time, or within a reasonable time.” Ziegler, 2006 S.D. 6, ¶ 17, 709 N.W.2d

at 355 (quoting Kuhfeld v. Kuhfeld, 292 N.W.2d 312, 314 (S.D. 1980)). “In contrast

to an option, 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.’” Dowling Family P’ship, 2015 S.D. 50, ¶ 16, 865 N.W.2d at 861

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(quoting Advanced Recycling Sys., LLC v. Se. Props. Ltd. P’ship, 2010 S.D. 70, ¶ 15,

787 N.W.2d 778, 784).

[¶7.] Unlike the circuit court, we determine that the agreement executed by

the parties is an ambiguous one. The parties consistently refer to the right created

by the agreement as a “right of first refusal,” however, the agreement provides that

the “purchase price . . . shall be Ten thousand Dollars Five hundred[.]” It does not

provide for the Barr Partners to match any third-party offer. On its own, a

stipulated or fixed price does not necessarily render a right of first refusal

ambiguous. See Old Port Cove Holdings, Inc. v. Old Port Cove Condo. Ass’n One,

Inc., 986 So. 2d 1279, 1285 (Fl. 2008) (citations omitted) (“Rights of first refusal are

also known as preemptive rights. Such rights vary in form: some require offering

the property at a fixed price (or some price below market value), while others . . .

simply allow the holder to purchase the property on the same terms as a third

party.”); Stuart v. D’ascenz, 22 P.3d 540, 542 (Colo. App. 2000) (citations omitted)

(“Although options are often linked to stipulated prices, and rights of first refusals

(or pre-emptive rights) to third party offers, neither stipulated prices nor third

party considerations determine whether a particular clause is an option or a right of

first refusal.”). However, this contract is unclear as to whether it creates a right of

first refusal, even at a stipulated price. Although it provides that the Laskas must

inform the Barr Partners of a third-party offer, it does not provide that the Laskas

must be willing to sell the property to the third-party. It provides: “Should

SELLER receive a bona fide third party offer to purchase . . . SELLER shall give

BUYER written notice of the offer . . . . BUYER may then exercise this right of first

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refusal . . . within ten (10) days[.]” Under Section II of the contract, the right of the

Barr Partners to purchase the property is conditioned solely on the receipt of a bona

fide third-party offer, regardless of the Laskas’ intent to sell. This is neither

consistent with a right of first refusal nor an option contract. While conditioning

the Barr Partners’ rights on a third-party offer is akin to a preemptive right, forcing

the Laskas to sell, regardless of intent to sell, is more consistent with an option

contract. Because of this language, if this contract would be construed as a right of

first refusal, we cannot determine whether the price is $10,500 per acre or whether

the Barr Partners may match a third-party offer.

[¶8.] The Barr Partners contend that the agreement created a “dual option”

as we recognized in Crowley v. Texaco, Inc., 306 N.W.2d 871 (S.D. 1981). According

to the Barr Partners, if the Laskas receive a third-party offer, the Barr Partners can

match that price; if the Laskas do not receive an offer before the Barr Partners want

to buy the property, then the Barr Partners can buy it at $10,500 per acre.

However, the contract in this case does not refer to multiple rights granted to the

Barr Partners. It repeatedly refers to a singular right created under the contract as

“this right.” See, e.g., Sections VI, VII (emphasis added) (“This right . . . shall bind

to the benefit of the heirs . . . . Buyer may not assign any rights under this

right . . . . Should BUYER fail to exercise this right by giving the appropriate

notice[.]”). Moreover, nothing within the contract provides that the Barr Partners

may purchase the property “at any time,” as they contend. The contract simply

grants them “a right of first refusal to purchase the real property” and conditions

such right to purchase the property on the receipt of a bona fide third-party offer.

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Lastly, although the Barr Partners maintain that the contract allows them to match

any price of a bona fide third-party offer, no provision gives them the right to do so,

as would be consistent with a right of first refusal. Consequently, it is unclear what

right this contract is meant to give the Barr Partners. The parties may have

misunderstood the term “right of first refusal,” and this Court cannot declare what

rights exist under this contract.

[¶9.] The circuit court found the contract to be unambiguous. Consequently,

it did not consider parol evidence or make findings thereon. We have previously

explained that “when there is an ambiguous contract, evidence must be introduced

to determine what the intentions of the parties were and . . . such evidence creates a

question of fact[.]” Gail M. Benson Living Tr. v. Physicians Office Bldg., Inc., 2011

S.D. 30, ¶ 16, 800 N.W.2d 340, 344 (quoting Vollmer v. Akerson, 2004 S.D. 111, ¶ 9,

688 N.W.2d 225, 229). Therefore, we remand to the circuit court to consider

extrinsic evidence and determine the parties’ intent. See id. (finding a contract

ambiguous and remanding “to allow the introduction of evidence regarding the

intentions of the parties”).

[¶10.] Regardless of its nature as an option or right of first refusal, the

Laskas contend that the contract is void for failure to include a time of performance.

They contend that the contract continues indefinitely because it survives the death

of the contracting parties. The Barr Partners maintain that the parties clearly

intended for the contract to survive the parties’ deaths because the contract

provides: “This right and the contract resulting from the exercise thereof shall bind

to the benefit of the heirs, successors, administrators, and executors of the

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respective parties.” Therefore, the parties agree that the contract is meant to

survive the deaths of all the parties. They disagree on the result of such a contract.

In support of their contention that failure to provide for a time of performance voids

the contract, the Laskas rely on Kuhfeld, where we said: “An option which is

intended by its parties to run for an unlimited time is void; however, an option

which is to remain open for a limited time, but in which no time is stated, is valid.”

292 N.W.2d at 314. We also explained that “[t]here is a strong tendency to construe

an option or preemption right to be limited to the lives of the parties, unless there is

clear evidence of a contrary intent.” Id. at 315 (citing Old Mission Peninsula Sch.

Dist. v. French, 107 N.W.2d 758 (Mich. 1961)). See also 92 C.J.S. Vendor and

Purchaser § 166 (2015) (“An option for an indefinite term is not enforceable.”).

[¶11.] We agree that the contract clearly provides that it is meant to survive

the parties’ death. However, the authority we cited in Kuhfeld in support of our

position—a strong tendency to construe an option or preemption right to be limited

to the lives of the parties, unless there is clear evidence of a contrary intent—does

not provide that a clear intention to the contrary saves such an agreement. Instead,

the authority we relied on explained that, if the parties clearly make the right of

preemption descendible, “the right would have to be weighed against the common-

law prohibition on restraints on alienation and the rule against perpetuities[.]” Old

Mission Peninsula Sch. Dist., 107 N.W.2d at 760 (citations omitted). South Dakota

has abolished the common law rule against perpetuities. See SDCL 43-5-8.

However, SDCL 43-3-5 provides: “Conditions restraining alienation, when

repugnant to the interest created, are void.” Therefore, it must be determined

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whether the agreement constitutes an unreasonable restraint against alienation.

See Edgar v. Hunt, 706 P.2d 120, 122 (Mont. 1985) (citations omitted) (construing

statute identical to SDCL 43-3-5 “as a statement of the majority common law rule

that restraints on alienation, when reasonable, are valid. The question is whether

the particular restraint is reasonable under the circumstances.”). SDCL 43-5-1 also

provides:

The absolute power of alienation may not be suspended by any
limitation or condition whatever for a longer period than during
the continuance of the lives of persons in being plus a period of
thirty years at the creation of the limitation or condition, except
in the single case mentioned in § 43-9-5 relating to contingent
fee remainder on a prior fee remainder.

[¶12.] Neither the parties nor the circuit court considered whether this

agreement constitutes an unreasonable restraint against alienation or whether it

may constitute a suspension of the absolute power of alienation. See SDCL 43-3-5,

SDCL 43-5-1 to -2. Nor have they briefed the issue and presented it to us.

Therefore, on remand, the parties and the court must also address whether the

parties may bind the respective heirs of the contracting parties to this contract.

[¶13.] We remand to the circuit court to consider extrinsic evidence and to

determine the parties’ intent.

[¶14.] GILBERTSON, Chief Justice, and ZINTER, WILBUR, and KERN,

Justices, concur.

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