Case Name: JOE R. LEE and FLOIE N. LEE, Plaintiffs and Appellants, v. O. M. SHAW, Personal Representative of the Estate of Fred Pelzman, Deceased, Defendant and Respondent
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1991-12-12
Citations: 251 Mont. 118
Docket Number: No. 91-132
Parties: JOE R. LEE and FLOIE N. LEE, Plaintiffs and Appellants, v. O. M. SHAW, Personal Representative of the Estate of Fred Pelzman, Deceased, Defendant and Respondent.
Judges: CHIEF JUSTICE TURNAGE and JUSTICES GRAY, HUNT, and McDonough concur.
Reporter: Montana Reports
Volume: 251
Pages: 118–127

Head Matter:
JOE R. LEE and FLOIE N. LEE, Plaintiffs and Appellants, v. O. M. SHAW, Personal Representative of the Estate of Fred Pelzman, Deceased, Defendant and Respondent.
No. 91-132.
Submitted on briefs July 25, 1991.
Decided December 12, 1991.
Rehearing Denied Jan. 16, 1992.
48 St.Rep. 1110.
251 Mont. 118.
822 P.2d 1061.
For Appellant: Patrick F. Hooks, Hooks Law Firm, Townsend.
For Respondent: John P. Wuerthner, Wuerthner & Wuerthner; Kenneth R. Olson, Baiz & Olson, Great Falls.

Opinion:
JUSTICE 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 "a 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 market value "when it becomes available for sale". The agreement provided that "[o]ther offers being considered at that time must be 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, Lees 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?"
Lees contend that the February 15, 1978, document comprised a "right of first refusal" and that the March 20, 1978, document constituted a valid "option" 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 deter mined 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 related to an option, but "very dissimilar in the legal relations of the parties . ." 1A Corbin on Contracts sec. 261, at 468 (1963). Aright 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 party"); 1A Corbin on Contracts § 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 being considered at that time must be in writing, signed by the party 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).
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:
"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.
CHIEF JUSTICE TURNAGE and JUSTICES GRAY, HUNT, and McDonough concur.