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Urquhart v. Teller

    Brief Fact Summary.

    Plaintiff bought 270 of Defendant’s 280 acres. Twenty-two years later, Plaintiff donated the remaining ten acres to a non-profit organization. Plaintiff sued Defendant to enforce an option where Plaintiff could buy the remaining ten acres for $12,000. The district court held that the option, a preemptive right of first refusal, was an unreasonable restraint on alienation and that it would be inequitable to enforce the terms of the right of first refusal. Plaintiff appealed.

    Synopsis of Rule of Law.

    Parties’ intentions should be considered in determining whether a right of first refusal is an unreasonable restraint on alienation.

    Facts.

    In 1971, Teller (Defendant) sold 270 of his 280 acres to Urquhart (Plaintiff). The parties agreed that when Defendant died or if and when he wanted to sell his remaining ten acres, Plaintiff would have the option to buy that land for $12,000. In 1982, Plaintiff transferred the 270 acres to the Plaintiff Living Trust, which sold the property to Spring Creek Investments. Plaintiff assigned the option but also agreed to exercise the option on Spring Creek’s behalf if the option was unassignable. In 1993, Defendant donated his ten acres to Cinnabar, a non-profit organization. The ten acres had become worth nearly $400,000. Plaintiff then sued to enforce the option. The district court held that the option, a preemptive right of first refusal, was an unreasonable restraint on alienation and that it would be inequitable to enforce the terms of the right of first refusal. Plaintiff appealed.

     

    Issue.

    Whether parties’ intentions are relevant in determining whether a right of first refusal is an unreasonable restraint on alienation.

    Held.

    Yes. The trial court’s ruling is affirmed. Parties’ intentions should be considered in determining whether a right of first refusal is an unreasonable restraint on alienation.

    Discussion.

    A right of first refusal is more likely to be reasonable if the right holder has some interest in the land and the restraint serves a worthwhile purpose. A right of first refusal that seeks to protect adjacent land or to keep land under unified ownership would be an example of a reasonable restraint. Here, the evidence suggests that, rather than trying to prevent Defendant from transferring his property, Plaintiff wanted to ensure that he would be able to buy the land adjoining his own, which Defendant had reserved in his transfer to Plaintiff. However, the right of first refusal at issue in this case can no longer serve this purpose because Plaintiff has transferred his interest in the property, and the property now belongs to several different owners. Moreover, the right of first refusal is at a fixed price. The fixed-price right of refusal is nearly always unreasonable because they generally force the owner to sell at a discount. Therefore, the preemptive right before this court is an unreasonable restraint on alienation.

     


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