NO. 91-132 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

JOE R. LEE and FLOIE N. LEE, 

Plaintiffs and Appellants, 

-vs0. M. SHAW, Personal Representative of 

the Estate of Fred Pelzman, Deceased, 

APPEAL FROM: District Court of the Ninth Judicial District, 

In and for the County of Teton, 

The Honorable R. D. McPhillips, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Patrick F. Hooks; Hooks Law Firm, Townsend, Montana 

For Respondent : 

John P. Wuerthner; Wuerthner & Wuerthner, Great 

Falls, Montana 

Kenneth R. Olson; Baiz & Olson, Great Falls, Montana 

Filed: 

Submitted on Briefs: July 25, 1991 

Decided: December 12, 1991 

Clerk 
Justice Fred J. Weber delivered the Opinion of the Court. 

Joe R. and Floie N. Lee appeal from the judgment of the 

District Court of the Ninth Judicial District, Teton County, which 

followed a bench trial in which the court concluded that the March 

20, 1978 document was not an option but probably a right of 

refusal, and that because no notice of intent to sell was ever 

given to the plaintiffs, the right of first refusal did not come 

into effect. we affirm. 

All parties concede that no notification of intent to sell was 

given by Fred Pelzman, or his estate, to the Lees. As a result, 

the sole issue is whether the March 20, 1978 document constituted 

an "option contract" or Ita right of first refusal". 

Joe R. Lee and Floie N. Lee (the Lees) moved to the Teton 

County area in 1977 and became acquainted with Fred Pelzman (Mr. 

Pelzman) , owner of an 800-acre ranch near Choteau. Mr. Pelzman, 79 

years old at the time, had suffered a stroke and was unable to 

operate the ranch. In September of 1977, Lees began operating the 

ranch under a work-share agreement. Subsequently they operated 

under written leases, with the last lease ending on December 31, 

1985. 

This action for specific performance concerns two documents 

entered into by the parties in 1978. As found by the District 

Court, on February 15, 1978, Mr. Pelzman signed an agreement with 

Lees giving them "first option" to purchase the ranch for fair 

marRet value "when it becomes available for sale". The agreement 

provided that It [o] ther offers being considered at that time must be 

2 
in writing, signed by the party making the offer and presented to 

Joe R. and Floie N. Lee for final consideration". The February 15, 

1978, agreement was not recorded. 

The District Court also found that on March 20, 1978, Mr. 

Pelzman and Lees entered into a second agreement, recorded in Teton 

County, giving Lees "first option" to purchase the ranch for 

$120,000 "upon or before my passing", and omitting the language 

about other offers. According to Joe Lee, he gave Mr. Pelzman 

$10.00 nominal consideration at the time the agreement was signed. 

The agreement contained the condition that "the option holders 

will reside and maintain the said property until time of sale." 

The agreement also stated that a "ledger of time and improvements 

will be kept for the purpose of reimbursement by the landowner.** 

Lees testified that the reason for the second agreement was that 

they wanted credit for capital improvements on the ranch paid for 

with their own funds. Lees also testified that Joe R. Lee drafted 

and dictated the March 20, 1978 document and Floie N. Lee typed it, 

using the February 15, 1978 document as a guide. 

Following Mr. Pelzman's death on May 18, 1986, Lees notified 

the attorney for the estate of their intent to exercise their 

option to purchase the ranch. Their offer was refused. On 

September 20, 1986, Lee's filed this action to compel specific 

performance of the March 10, 1978 agreement. 

I 

Did the March 20, 1978 document constitute an "option 

contract" or "a right of first refusal"? 

3 
Lees contend that the February 15, 1978, document comprised a 

"right of first refusal" and that the March 20, 1978, document 

constituted a valid lloptionll contract. The Pelzman estate 

maintains that the second document is not an option contract. 

The District Court concluded that whether the second document 

was a right of first refusal or an option contract could not be 

determined from the face of the document because the wording was 

ambiguous. Employing the basic rule of construction that 

ambiguities are to be construed against the party who drafted the 

document, the District Court ruled that the document was a right of 

first refusal. The District Court reasoned that because neither 

Mr. Pelzman nor the Pelzman estate had ever given notice of intent 

to sell, the second document, as a right of first refusal, did not 

come into effect. 

An option is a right acquired by contract by which the owner 

of property agrees with another person that he shall have the right 

to buy his property at a fixed price within a certain time. Miller 

v. Meredith (1967), 149 Mont. 125, 128-29, 423 P.2d 595, 597. The 

offer is continuing and irrevocable by the optionor, creating in 

the optionee a power to compel the owner to sell property at a 

stipulated price whether or not the owner wishes to sell. Klein v. 

Brodie (1975), 167 Mont. 47, 49, 534 P.2d 1251, 1252-53. When the 

optionee accepts the offer, a binding bilateral contract results 

which can be enforced by specific performance. Naylor v. Hall 

(1981), 201 Mont. 59, 67, 651 P.2d 1010, 1015. 

A right of first refusal or "preemptive right" is closely 

4 
related to an option, but "very dissimilar in the legal relations 

of the parties . . . .I1 1A Corbin on Contracts 5 261, at 468 

(1963). A right of first refusal or preemptive right '*does not 

give to the preemptioner the power to compel an unwilling owner to 

sell; it merely requires the owner, when and if he decides to sell, 

to offer the property first to the person entitled to the preemption, at the stipulated price." Tribble v. Reely (1976), 171 

Mont. 201, 206, 557 P.2d 813, 816 (emphasis added) (citation 

omitted). 

Property subject to a preemptive right should adequately 

describe the property and the price must be stated or otherwise 

ascertainable. Klein, 167 Mont. at 50, 534 P.2d at 1253. Often 

the agreement requires the property owner to offer the property to 

the party holding the preemptive right at the same price agreed 

upon by the third party. See, e.g., Tribble, 171 Mont. at 204, 557 

P.2d at 815 (lease provided that "in the event of sale, the Lessees 

shall have the first refusal under terms similar to that offered 

any third partyn1) : 1A Corbin on Contracts 5 261A, at 136-37 (Supp. 

1991). 

The language of the first agreement clearly indicated a right 

of first refusal, rather than an option contract: 

I, Fred Pelzman, Sr. agree to give Joe R. and Floie N. 

Lee first option to purchase property I own in the above 

Legal Description for fair market value when it becomes 

available for sale. Other offers beina considered at 

that time must be in writinq, siqned by the partv making 

the offer and presented to Joe R. and Floie N. Lee for 

final consideration. Upon notification of intent to 

sell, a period of 45 days will be allowed for payment. 

(Emphasis added). 

5 
Although this document contains the term "first option", courts 

have generally read the instrument as a whole to determine whether 

the parties intended an option or a right of first refusal. See 

Straley v. Osborne (Md. App. 1971), 278 A.2d 64, 69. By indicating 

that the property would be offered to Lees "when it becomes 

available for sale," by stipulating that the property would be sold 

at the current fair market value, and in supplying a legal 

description of the property, the first agreement satisfied the 

criteria for a right of first refusal. 

The second agreement of March 20, 1978, provided in pertinent 

part: 

I, Fred Pelzman, Sr., agree to give Joe R. and Floie N. 

Lee first option to purchase property I own in the above 

Legal Description upon or before my passing for the sum 

of one hundred and twenty thousand dollars. It is agreed 

by the undersigned that the option holders will reside 

and maintain the said property until time of sale. A 

ledger of time and improvements will be kept for the 

purpose of reimbursement by the landowner. Upon 

notification of intent to sell, a period of 45 days will 

be allowed for payment. 

Lees' attorney conceded that the insertion of the notification of 

intent to sell sentence at the end of the agreement admittedly 

created an ambiguity. The District Court concluded that the 

agreement was ambiguous on its face as it could be argued to be 

either an option or a right of first refusal and that because the 

Lees drafted the agreement, any ambiguity must be interpreted 

against them and in favor of the defendants. The rules of 

construction of a contract where ambiguity exists are summarized in 

Rumph v. Dale Edwards, Inc. (1979), 183 Mont. 359, 367, 600 P.2d 

163, 168: 

6 
An ambiguity exists when, taken as a whole, the 

contract's wording or phraseology is reasonably subject 

to two different interpretations. Where the terms of an 

agreement are uncertain and ambiguous, parol evidence is 

admissible to prove the interpretation meant by the 

parties. (Citation omitted.) 

This agreement gives the legal description of the property and the 

purchase price which fulfills the first two requirements of both an 

option contract and a right of first refusal. In addition, the 

agreement sets a certain time, "upon or before my passing," for the 

offer to be held open as required by an option. In contrast, the 

last sentence requires the giving of a notification of intent to 

sell and grants a period of 45 days for payment. In analyzing this 

agreement, we conclude that in substance it may be interpreted as 

follows: 

(a) At any time during his lifetime, Mr. Pelzman 

could have notified the Lees of his intent to sell - at 

that point, the Lees had an immediate right to purchase 

the property for $120,000 less elements under the ledger 

which may be deductible, with payment to be made within 

a period of 45 days. 

(b) In a similar manner, if Mr. Pelzman failed to 

give any such notification of intent to sell during his 

lifetime, there still was the opportunity for the legal 

representative of his estate to give notification to the 

Lees of intent to sell effective upon the date of Mr. 

Pelzman's death. Again, had such notification of intent 

been given by the P.R. to the Lees, they had the right to 

purchase the property for the $120,000 less any credits 

as indicated by the agreement from the ledger, with 

payment to be made within 45 days from notification. 

As a result, we agree with the determination by the District Court 

that this agreement was not an option which was entitled to be 

enforced. Since no notice was given to the Lees either before or 

at the time of Mr. Pelzman's death, and because 45 days elapsed 

following the death of Mr. Pelzman, we agree with the determination 
of the District Court that any right of first refusal did not come 

into effect. 

We hold that the District Court's conclusion that the second 

agreement constitutes a right of first refusal was correct for the 

above reasons. 

Affirmed. 

vuktice 

We Concur: / 

Justices 

8 
Justice John Conway Harrison, dissenting. 

I dissent. The issue in this case is whether the District 

Court erred in determining that the March 20, 1978, agreement was 

ambiguous on its face and constituted right of first refusal" 

rather than an option contract. 

The Lees contend that the first agreement of February 15, 

1978, comprised a "right of first refusalr1 and that the second 

agreement of March 20, 1978, was a valid "option" contract. In the 

view of the District Court, whether the second agreement was a 

right of first refusal or an option contract could not be 

determined from the face of the document because the wording was 

ambiguous. Employing the basic rule of construction that 

ambiguities are to be construed against the party who drafted the 

document, the District Court ruled that the document was a right of 

first refusal. The District Court reasoned that since neither Mr. 

Pelzman nor the Pelzman estate had ever given notice of intent to 

sell, the second agreement, as a right of first refusal, did not 

come into effect. 

An option is a right acquired by contract "by which the owner 

of property agrees with another person that he shall have the right 

to buy his property, at a fixed price, within a certain time." 

Miller v. Meredith (1967), 149 Mont. 125, 128-29, 423 P.2d 595, 

597. The offer is continuing and irrevocable by the optionor, 

creating in the optionee a power to compel the owner to sell 

9 
property at a stipulated price whether or not the owner wishes to 

sell. Klein v. Brodie (1975), 167 Mont. 47, 49, 534 P.2d 1251, 

1252-53. When the optionee accepts the offer, a binding bilateral 

contract results which can be enforced by specific performance. 

Naylor V. Hall (1982), 201 MOnt. 59, 67, 651 P.2d 1010, 1015. 

A "right of first refusal" or "preemptive right" is closely 

related to an option, but Very dissimilar in the legal relations 

of the parties . . . . 'I 1A Corbin on Contracts 5 261, at 468 

(1963). A right of first refusal requires the owner of property, 

when he or she decides to sell, to offer the property to the person 

holding the preemptive right. If the holder of the preemptive 

right declines the offer to buy the property, the owner may sell to 

anyone. Tribble v. Reely (1976), 171Mont. 201, 206, 557 P.2d 813, 

816. 

Property subject to a preemptive right should adequately 

describe the property and the price must be stated or otherwise 

ascertainable. Klein, 167 Mont. at 50, 534 P.2d at 1253. Often 

the agreement requires the property owner to offer the property to 

the party holding the preemptive right at the same price agreed 

upon by the third party. See, e.g., Tribble, 171 Mont. at 204, 557 

P.2d at 815 (lease provided that "in the event of sale, the Lessees 

shall have the first refusal under terms similar to that offered 

any third party"); 1A Corbin on Contracts 5 261A, at 136-37 (Supp. 

1991). 

I feel the language of the first agreement clearly indicated 

10 
a right of first refusal, rather than an option contract: 

I, Fred Pelzman, Sr. agree to give Joe R. and Floie N. 

Lee first option to purchase property I own in the above 

Legal Description for fair market value when it becomes 

available for sale. other offers beinq considered at 

that time must be in writinq, siqned by the ?Jartv makinq 

the offer and nresented to Joe R. and Floie N. -Lee for 

final consideration. Upon notification of intent to 

sell, a period of 45 days will be allowed for payment. 

[Emphasis added.] 

By indicating that the property would be offered to the Lees "when 

it becomes available for sale," by stipulating that the property 

would be sold at the current fair market value, and in supplying a 

legal description of the property, the first agreement satisfied 

the criteria for a right of first refusal. 

The second agreement of March 20, 1978, provided: 

I, Fred Pelzman, Sr., agree to give Joe R. and Floie N. 

Lee first option to purchase property I own in the above 

Legal Description upon or before my passing for the sum 

of one hundred and twenty thousand dollars. It is agreed 

by the undersigned that the option holders will reside 

and maintain the said property until time of sale. A 

ledger of time and improvements will be kept for the 

purpose of reimbursement by the landowner. Upon 

notification of intent to sell, a period of 45 days will 

be allowed for payment. 

The second agreement fulfilled the first two requirements of both 

an option contract and a right of first refusal in that a legal 

description of the property was given and the price of $120,000 was 

fixed. In addition, the agreement revealed a certain time, "upon 

or before my passing," for the offer to be held open as required by 

an option. 

Although the second agreement meets the criteria for an 

option, the use of the term "first option" and the inclusion of the 

11 
sentence requiring a period of 45 days after notification for 

payment creates an ambiguity. Mr. and Mrs. Lee each testified that 

the sentence requiring a 45-day waiting period was inadvertently 

included in the second agreement by Mrs. Lee. An ambiguity exists 

when the wording of the contract is subject to two different 

interpretations. Parol evidence is admissible to prove the 

interpretation the parties intended. Proctor v. Werk (1986), 220 

Mont. 246, 248, 714 P.2d 171, 172. "[Iln the construction of 

contracts, the courts may look not only to the language employed 

but to the subject matter and the surrounding circumstances and may 

avail themselves of the same light which the parties possessed when 

the contract was made." Morning Star Enterprises v. R.H. Grover 

(1991), 247 Mont. 105, 111, 805 P.2d 553, 557. 

When confronted with the term "first option," courts have 

generally read the instrument as a whole to determine whether the 

parties intended an option or a right of first refusal. See 

Straley v. Osborne (Md. App. 1971), 278 A.2d 64, 69; but see BlauPar Corp. v. Reliance Chemical Corp. (N.Y. App. Div. 3 1991), 565 

N.Y.S.2d 910 ("first option" constitutes option; otherwise, 

adjective "first" rendered meaningless). For example, in Steen v. 

Rustad (1957), 132 Mont. 96, 313 P.2d 1014, this Court, relying on 

the intent of the parties as revealed by the "light of the entire 

instrument," interpreted the words "first option to buy" as giving 

the holder an option rather than a right of first refusal. Steen, 

132 Mont. at 102, 313 P.2d at 1018. 

12 
According to Pruner v. Brown (Va. 1976), 223 S.E.2d 890, 

although courts are evenly divided, the better view when the terms 

of the lease or agreement specify the purchase price and legal 

description of the property is that an absolute option is created 

by use of the word "first" with "right, option, or privilege." 

Pruner, 223 S.E.2d at 892. Generally, the interpretation of the 

instrument as an option is more likely when the words "first 

option" are utilized than when the expressions "first privilege" or 

"first right" are employed. 1A Corbin on Contracts 5 261A, at 486- 

89. 

Instructive in interpreting the second agreement in the 

context of surrounding circumstances is a comparison with the terms 

of the first agreement, drafted about a month before the second 

agreement. In the second agreement we note the addition of a 

specific amount as the sale price, which according to Pruner is an 

indication of an option, rather than a right of first refusal. 

Moreover, had the parties intended the second agreement as a right 

of first refusal, it would seem reasonable that the parties would 

have included the identical phrase, "when it becomes available for 

sale," to establish their intent to negotiate a right of first 

refusal. Instead, this phrase was omitted. Similarly, omission in 

the second agreement of the sentence requiring other offers to be 

presented to the Lees indicates that the parties did not intend the 

second agreement to comprise a right of first refusal. 

Even though construction of the second agreement as an option 

13 
is warranted, the contract contains a unique clause about the 

duration of the agreement, giving the Lees "first option to 

purchase property I own in the above Legal Description upon or 

before my passing." As I read this passage, whether the second 

agreement is deemed a right of first refusal or an option, Mr. 

Pelzman's death constituted an event giving the Lees the right to 

purchase the 800-acre ranch. 

Taking into consideration the variations in wording of the 

first and second agreements and the phrasing of the second 

agreement, I would hold that upon the death of Mr. Pelzman, the 

Lees had the right to buy the 800-acre ranch property at the agreed 

upon price. The estate presents a number of arguments regarding 

contract and estate law to support its position. I will briefly 

address two of the more significant theories. 

The estate asserts that the Lees are not entitled to specific 

performance because they failed to tender the purchase price and 

breached the option by failing to submit a ledger for reimbursement 

purposes as required by the contract. The second agreement stated 

that 45 days was allowed for payment after notification. The Lees 

promptly attempted to exercise the option on June 5, 1986, two and 

a half weeks after Mr. Pelzman's death, by a letter to Mr. 

Pelzman's attorney. The attorney refused to recognize the validity 

of the option and denied the Lees' second request to exercise their 

option to buy the property later that same month. It is my view 

that in light of the adamant refusal to recognize the Lees' right 

14 
to buy the property, neither the Lees’ failure to tender the 

purchase price nor their failure to present a ledger affects their 

right to specific performance since such actions on the Lees’ part 

would have been futile. 

The estate also contends the second agreement failed to recite 

consideration for the option. Consideration is “[alny benefit 

conferred or agreed to be conferred upon the promisor by any other 

person, to which the promisor is not lawfully entitled, or any 

prejudice suffered or agreed to be suffered by such person . . . as 

an inducement to the promisor. . . .I1 Section 28-2-801, MCA. Mr. 

Lee testified that he gave Mr. Pelzman $10.00 as consideration for 

the option. We have held that nominal consideration is sufficient 

to create a valid contract and allow the equitable remedy of 

specific performance. Keaster v. Bozilc (1981), 191 Mont. 293, 299, 

623 P.2d 1376, 1380 (five dollars sufficient consideration). 

Although the $10.00 consideration was not recited in the contract 

as is preferable, the Lees’ promise in the second agreement to 

reside on and maintain the property until time of sale, as a 

detriment suffered by the Lees and a benefit to Mr. Pelzman, 

comprised adequate consideration. See Naylor v. Hall (1982), 201 

Mont. 59, 651 P.2d 1010. In addition, “[a] written instrument is 

presumptive evidence of a consideration.I’ Section 28-2-804, MCA. 

The fact that some terms in the option contract were not 

specifically expressed does not render it unenforceable. Absolute 

certainty in every detail is not a prerequisite for specific 

15 
performance. Keaster, 191 Mont. at 302, 623 P.2d at 1381. I would 

hold that the Lees provided sufficient consideration for the option 

contract. 

The judgment of the District Court should be reversed. 

W Justice Terry N. Trieweiler Joins in the foregoing dissent of 

Justice John C. Harrison. 

/ justice 

16 
December 12, 1991 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the following 

named: 

Patrick F. Hooks 

HOOKS & BUDEWITZ 

P.O. Box 1289 

Townsend. MT 59644 

John P. Wuerthner 

WUERTHNER & WUERTHNER 

P.O. Box 2503 

Great Falls, MT 59403 

Kenneth R. Olson 

BAIZ & OLSON 

Suite 316, 600 Central Plaza 

Great Falls, MT 59401 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA 

BY: