Title: Chapman v. Mutual Life Ins. Co. of New York

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Chapman v. Mutual Life Ins. Co. of New York1990 WY 127800 P.2d 1147Case Number: 89-224Decided: 11/20/1990Supreme Court of Wyoming
FRANK R. CHAPMAN AND 
SHARON CHAPMAN, 

APPELLANTS 
(PLAINTIFFS),

v.

MUTUAL LIFE INSURANCE 
COMPANY OF NEW YORK, 

APPELLEE 
(DEFENDANT).

Appeal from the District 
Court, Natrona County, William A. Taylor, J.

Les Bowron and 
Michael D. Zwickl of Beech Street Law Offices, Casper, for 
appellants.

Jerry A. Yaap of 
Bishop, Bishop & Yaap, Casper, for appellee.

Before 
URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, 
JJ.

GOLDEN, 
Justice.

[¶1]      Frank R. Chapman 
and Sharon Chapman appeal from a district court judgment rejecting their suit 
for specific performance of a real estate transaction. Their claim is based on a 
preemptive right they hold over a 22.6 acre tract owned by defendant Mutual Life 
Insurance Company of New York (MONY). MONY had sought to convey the 22.6 acres 
to a third party buyer, Truda Siefers, in the sale of a 273 acre block which 
included the smaller tract. Because this court finds that the district court 
committed clear error in finding that an offer had been made on the 22.6 acre 
tract which required exercise of Chapmans' preemptive right, we reverse the 
dismissal of Chapmans' suit against MONY. However, for the same reason, the 
absence of an offer, we decline to grant specific performance to the Chapmans. 
Instead, MONY will be enjoined from selling the 22.6 acre tract until such time 
as it receives a bona fide offer on that specific parcel of land and has 
properly given the Chapmans an opportunity to exercise their right of first 
refusal.

FACTS

[¶2]      On July 31, 1984, 
the Chapmans entered into a contract for deed with J. Mark Fullerton for 
approximately 20 acres of land with improvements, as particularly described in 
the agreement. The agreement also gave the Chapmans a right of first refusal for 
purchase of an adjacent parcel of approximately 20 acres, which is referred to 
in this case as "Tract B." MONY, holder of a mortgage from Fullerton on real 
estate that included Tract B, also signed the contract. Fullerton defaulted on 
his mortgage in August, 1987, and MONY accepted a deed in lieu of foreclosure. 
MONY then assumed Fullerton's position as owner and seller to the 
Chapmans.

[¶3]      Through its local 
real estate agent John W. Phillips, MONY subsequently advertised a large parcel 
of land broken out into several tracts, including Tract B, for sale. On April 8, 
1988, Truda Siefers submitted an offer to purchase approximately 273 acres of 
the advertised real estate, including Tract B, for $75,000. MONY accepted the 
offer on April 11, 1988.

[¶4]      Phillips then 
learned of the Chapmans' preemptive right on the 22.6 acre Tract B in a 
conversation with Fullerton. He informed MONY of the Chapmans' right of first 
refusal and was told to contact the Chapmans and offer them the opportunity to 
buy the property at the offered price. Phillips then called the Chapmans on 
April 24, 1988, and told them that they possibly had a right of first refusal on 
Tract B, that Siefers had made an offer, that the offer was for $700 per acre on 
the irrigated land, and that MONY was giving them an opportunity to buy the 
land. The Chapmans' response was that at the price of $75,000 for 273 acres 
Siefers was paying only about $260 or $270 per acre, and that was what they 
should have to pay. Phillips then contacted Siefers, told her of the Chapmans' 
preemptive right on Tract B, and asked her to give him a statement of how she 
arrived at the values in her offer for the entire 273 acre 
parcel.

[¶5]      Siefers informed 
Phillips that she had valued the irrigated land at $696.07 per acre and dry land 
at $105.00 per acre. She considered Tract B irrigated. Consequently, on April 
25, 1988, Phillips prepared a Purchase Offer, Acceptance and Agreement on Tract 
B for the Chapmans' signatures at a price of $15,731.18 (22.6 acres x $696) and 
sent it to them, together with a cover letter and a copy of Siefers' offer for 
the larger parcel. The Chapmans were given until 5:00 p.m. on April 28, 1988, to 
respond.

[¶6]      On April 26, 
1988, the Chapmans responded with a letter offering to exercise their preemptive 
right for $5,992.58. They based this offer on Siefers' lump sum offer of 
$75,000.00 for 273 acres, which they interpreted as an offer of $265.00 per 
acre. MONY, through Phillips, sent a letter to the Chapmans on April 28, 1988, 
which again stated the purchase price as $15,731.18, and gave them until noon 
that same date to execute the purchase offer they had received from Phillips on 
April 25. The Chapmans responded immediately with a letter stating their 
intention to exercise their preemptive right and memorializing a telephone 
conversation between the parties in which they apparently agreed that MONY would 
prepare a new proposal with a response time of at least 72 hours. On April 29, 
MONY sent Chapmans another letter, again stating the $15,731.18 price and giving 
them until May 3, 1988, to exercise their preemptive right. The Chapmans did not 
respond to this offer. Instead, on May 6, 1988, they filed suit against MONY 
seeking specific performance by MONY at their price of $5,992.58, or $265.00 per 
acre. On May 10, 1988, MONY sent the Chapmans a letter stating that the purchase 
offer from Siefers had been voided, but that MONY believed the Chapmans had 
failed to exercise their right of first refusal and would market Tract B without 
further notice to them.

[¶7]      A bench trial was 
held on July 27, 1989. The district court found that Siefers had offered 
$15,731.18 for the 22.6 acre tract and concluded that the Chapmans had failed to 
exercise their right of first refusal although the offer was presented to them 
three times. Consequently, it dismissed the Chapmans' 
complaint.

ARGUMENTS

[¶8]      The Chapmans 
argue that:

I. The trial court 
committed reversible error by receiving into evidence, matters which were parol 
and extrinsic to the written agreement entered into between Appellee and 
Siefers.

II. The trial court erred 
below by allowing Appellee and Siefers to reform their 
agreement.

III. The trial court 
erred in failing to recognize the strength and validity of Appellants' right of 
preemption over the sale of tract "B".

MONY responds 
that:

I. The specific findings 
of the trial court are presumed correct.

II. Answering arguments 
[I] and [II] of Appellants' brief, Appellee contends that the trial court 
committed no error in receiving parol evidence as to the MONY/Siefers contract. 

A. The parol evidence 
rule does not exclude evidence which does not tend to vary or contradict the 
written instrument.

B. The parol evidence 
rule is inapplicable where the writing referred to is not relied upon as the 
basis of the action, but is a mere collateral instrument of 
evidence.

C. The parol evidence 
rule applies only where the controversy is between parties to the instrument 
sued upon.

III. The trial court 
recognized the appellants' right of first refusal.

STANDARD OF 
REVIEW

[¶9]      This court has 
often stated its standard for reviewing cases on appeal. At the standard's crux, 
the trial court's findings are presumed correct and will stand unless clearly 
erroneous or inconsistent with the evidence or contrary to the great weight of 
the evidence. Roberts v. Vilos, 776 P.2d 216, 217 (Wyo. 
1989).

DISCUSSION

[¶10]   The parties go to great though 
unnecessary lengths to inform this court on the subject of parol evidence. We 
need not, and do not, consider these issues. The trial court committed clear 
error in finding that MONY received an offer on the 22.6 acre tract. There was 
no offer. Without an offer at a fixed price the preemptive right holders had no 
occasion to exercise their right of first refusal. Consequently, they could not 
and did not waive that right. However, for the same reason, it is also true that 
the Chapmans cannot require specific performance by MONY. By entertaining 
Siefers' offer for the larger parcel, MONY did not express an intention to sell 
Tract B, which intention is the stimulus that would breathe life into the 
Chapmans' preemptive right and provide grounds for specific 
performance.

Preemptive 
Right, or Right of First Refusal

[¶11]   It is clear from the language of 
the 1984 Contract for Deed executed by Fullerton, the Chapmans and MONY that the 
Chapmans hold a right of first refusal, or preemptive right, on Tract B. 
Paragraph 10. Additional Covenants, sub f. states, "[a]s part of this 
agreement, and for the consideration received herewith, Seller will give Buyers 
the first option to buyer [sic] and first right of refusal to match any future 
offers on the approximately 20 acres of irrigated farm land that was part of the 
original 40 acre tract with the farm house, more particularly described as 
follows: [Tract B]." This language expresses a right of first refusal as we 
characterized it in Hartnett v. Jones, 629 P.2d 1357, 1362 n. 1 (Wyo. 1981): "A 
presumptive right gives a privilege to purchase on a condition precedent which 
is the formulated desire of the owner to sell, and frequently the holder of the 
right must purchase at a price established by negotiations with a third party." 
As applied to these facts, MONY's formulated desire to sell would be its intent 
to sell Tract B at a price fixed by a third party offer and expressed by its 
delivery of the complete terms of the offer to the 
Chapmans.

[¶12]   We agree with the view that when 
the condition precedent of the owner's intention to sell is met the right of 
first refusal "ripens" into an option and contract law pertaining to options 
applies. Myers v. Lovetinsky, 189 N.W.2d 571, 576 (Iowa 1971); Note, 
Protecting the Preemptor: Real Property Right of First Refusal in Light of 
Gyurkey v. Babler, 19 Idaho L.Rev. 277, 278 (1983). This ripening has 
important consequences for the preemptive right holder. When properly notified 
of an offer, the right holder must exercise its option or it waives its right of 
first refusal. Ripening also permits the right holder to enforce its right by 
requiring specific performance. Note, supra, at 278. However, until the right 
has been transformed into an option, there can be no waiver, and specific 
performance is not available.

Waiver or 
Defeat of Preemptive Right

[¶13]   MONY's assertion, adopted by the 
trial court, that the Chapmans waived their preemptive right by failing to 
exercise it in response to Siefers' "offer" is incorrect. Siefers' only offer 
was for 273 acres, of which Tract B was a small part. Siefers and MONY tried to 
reform their agreement to place a value on Tract B, but did not generate a new 
bona fide offer in the process. The condition precedent triggering exercise or 
waiver of the Chapmans' right did not occur because no price was ever set for 
that property by third party negotiation and, as a result, there was no offer 
for Tract B for the Chapmans to match. Consequently, their right is still valid, 
remaining in a sort of suspended animation until occurrence of the condition 
precedent, MONY's intention to accept a bona fide offer for the 22.6 acre 
tract.

[¶14]   It is not sufficient that an offer 
was made on a larger tract including the burdened property. The great majority 
of courts that have addressed this issue have held a preemptive right may not be 
defeated by a sale of the property burdened by the right as part of a larger 
tract. Thomas & Son Transfer Line, Inc. v. Kenyon, Inc., 40 Colo. App. 150, 
574 P.2d 107, 112 (1977); Gyurkey v. Babler, 103 Idaho 663, 667, 651 P.2d 928, 
932, 34 A.L.R.4th 1199 (1982) and citations therein; Saab Enterprises v. 
Wladislaw Wunderbar, App. Div., 554 N.Y.S.2d 657, 658 (1990). Contra, 
Crow-Speiker No. 23 v. Robert Helms Construction, 103 Nev. 1, 731 P.2d 348, 350 
(1987). Any other result is necessarily unacceptable because "[t]o allow the 
owner of the whole to by-pass the optionee merely by attaching additional land 
to the part under option would render nugatory a substantial right which the 
optionee had bargained for and obtained." Guaclides v. Kruse, 67 N.J. Super. 
348, 170 A.2d 488, 495 (1961). Agreeing that the preemptor's right should be 
secured against this maneuver, we endorse the general 
rule.

Specific 
Performance

[¶15]   The absence of an offer cuts both 
ways, so that the Chapmans' complaint seeking specific performance must fail as 
well. Siefers made one offer to purchase 273 acres for $75,000.00. There is no 
evidence that Siefers or anyone else made an offer specifically for Tract B, 
much less one at the proportional price the Chapmans contend for. Phillips' 
letter to the Chapmans simply describes the values Siefers placed on irrigated 
land and on dry pasture in arriving at her $75,000.00 offer for the larger 
parcel. It says nothing about a price she was willing to pay for Tract B. There 
was no third party offer that established a definite price for Tract B. 
Consequently the Chapmans' right has not been converted into an option and they 
cannot obtain specific performance. See Lovetinsky, 189 N.W.2d  at 
576.

[¶16]   The general rule here is that "[a]n 
attempt to sell the whole may not be taken as a manifestation of an intention or 
desire on the part of the owner to sell the smaller optioned part so as to give 
the optionee the right to purchase the same." Guaclides, 170 A.2d  at 493. This 
protects the owner from making a sale he did not desire and from problems and 
potential inequities which may result from deriving a value for the smaller 
burdened tract by allocation, either proportionally as the Chapmans desire, or 
by some sort of judicial determination of market value. Pantry Pride 
Enterprises, Inc. v. The Stop & Shop Companies, 806 F.2d 1227, 1230 (4th 
Cir. 1986); and Guaclides, 170 A.2d  at 494.

[¶17]   Beyond the question of offer, there 
is also no evidence that MONY intended to sell Tract B at the Chapmans' 
proportional price. To require specific performance on the 22.6 acre tract for 
$5,992.58 would compel disposal of the preempted tract though MONY never 
expressed the intent to sell it for that amount. It would require judicial 
reconstruction of the parties' contract. Lovetinsky, 189 N.W.2d  at 576; and 
Guaclides, 170 A.2d  at 493. Until MONY evidences its intention to accept an 
offer made specifically for Tract B at a fixed price, the Chapmans' preemptive 
right has not ripened into an option and they are not entitled to specific 
performance.

Remedies

[¶18]   We are left with the question of an 
equitable remedy. Although this court has not addressed possible solutions to 
this problem, other jurisdictions have, and we take guidance from those 
decisions. Annotation, Option to Purchase Real Property as Affected by 
Optionor's Receipt of Offer For, or Sale of, Larger Tract Which Includes the 
Optioned Parcel, 34 A.L.R. 4th 1217 (1984). The decisions have discussed 
three remedies for preemptive right holders in the Chapmans' 
circumstances:

1) Some have granted 
specific performance at values set by the courts; Thomas & Son Transfer, 574 P.2d 107; Berry-Iverson Co. of North Dakota, Inc. v. Johnson, 242 N.W.2d 126 
(N.D. 1976); Brenner v. Duncan, 318 Mich. 1, 27 N.W.2d 320 
(1947).

2) The majority have 
elected to return the parties to the status quo ante and require a bona fide 
offer on the smaller tract before the right may be exercised or considered 
waived; Gyurkey, 651 P.2d 928; Lovetinsky, 189 N.W.2d 571; Guaclides, 170 A.2d 488.

3) At least one has 
granted monetary damages. Anderson v. Armour & Co., 205 Kan. 801, 473 P.2d 84 (1970).

[¶19]   In light of our preceding 
discussion we align ourselves with the majority of jurisdictions as a matter of 
both logic and equity. It is undesirable for a court to reform the contract by 
placing a value on the property. If at all possible that should be left to the 
parties and the market they choose to contract in. Monetary damages are not 
necessary where the parties may be readily restored to their former positions 
without suffering irreparable harm. Returning the parties to the positions they 
occupied before attempted sale of the larger parcel recognizes their agreement 
and provides the opportunity for its performance without judicial intrusion into 
establishment of the price term of any desired sale.

CONCLUSION

[¶20]   The parties will be returned to 
their respective positions before the attempted sale to Siefers. The Chapmans' 
right of first refusal has not been waived, but remains in an unripened or 
suspended state, awaiting the energizing spark provided when the condition 
precedent of intent and offer is met. MONY is contractually bound to honor the 
right when it does receive an offer it wishes to accept for Tract B. On the 
other hand, until their preemptive right is transformed into an option as the 
result of a bona fide offer the Chapmans cannot compel specific 
performance.

[¶21]   Reversed and remanded, with 
direction that MONY be enjoined from selling Tract B except in response to a 
bona fide offer for that 22.6 acres, and only after presenting the complete 
terms of the offer to the Chapmans and giving them adequate opportunity to 
exercise their preemptive right.