Opinion ID: 1318910
Heading Depth: 1
Heading Rank: 2

Heading: was the promisee precluded from matching the offer?

Text: Under the right of first refusal, Trolley had a right to purchase the leased property or an interest therein on terms that matched or exceeded those offered by the prospective purchaser. The second issue in this appeal is whether, as a matter of law, Trolley was incapable of matching the terms offered by Boyer-Gardner in exchange for an interest in the Partnership. Elm and its codefendants argue that [t]he bundle of consideration that [Elm] received from [Boyer-Gardner] is unique and cannot be duplicated as a matter of law. They cite numerous characteristics of Boyer and Gardner  their reputation, expertise and experience in developing office buildings, success in development of real estate, integrity, business history, business contacts, financial strength, effective organization, and personal compatibility with Elm  as material inducements for Elm to enter the Partnership. They conclude that because a partnership relationship is intensely personal, partners are not fungible and the right of first refusal provision in the lease should not be interpreted to permit Trolley to force itself upon Elm as an unwanted partner. Trolley answers by pointing to a provision in the Partnership Agreement between Elm and Boyer-Gardner which permits either partner to transfer its partnership interest to a third party who would then assume the obligations and liabilities of the Selling Partner.... Trolley argues that Elm cannot consistently maintain that Boyer-Gardner's attractions are uniquely desirable and at the same time execute an Agreement that allows Boyer-Gardner to sell its interest in the Partnership to another party. [6] Trolley contends that whether it can match Boyer-Gardner's offer presents a genuine issue of material fact, and urges that it is entitled to an opportunity to demonstrate that it possesses qualities equivalent to those of Boyer-Gardner. Both parties rely on Weber Meadow-View Corp. v. Wilde, Utah, 575 P.2d 1053 (1978). In that case, Wilde granted Weber Meadow-View a right of first refusal in a tract of land. Thereafter, a church offered to purchase the property from Wilde for $200,000, which was to be paid in part by the conveyance of a particular home in the town of Oakley, stated to be worth $48,000, with the balance in cash. When Wilde submitted that offer to Weber for its consideration, Weber offered to purchase the property for $200,000, to be paid in part by the conveyance of any piece of real property of Wilde's choice with a value of up to $50,000, and the balance in cash. Wilde then accepted the church's offer, and Weber sued to enforce its right of first refusal. In holding that Wilde, the promisor, was free to accept the church's offer notwithstanding the right of first refusal, this Court explained: [T]he decision as to both the time and the terms upon which [Wilde] would sell her property remains her exclusive prerogative so long as she acts in good faith and without any ulterior purpose to defeat the right of [Weber]. This freedom of choice of [Wilde] is not diminished or adversely affected because a substantial part of the consideration for which she decides to sell is some unique chattel or parcel of property. Id. at 1055. The Court characterized as not entirely without reason the argument that its holding would permit a property owner to demand one particular finger ring, an old hat, or any other unique item which the [promisee] could not obtain, and thus defeat the promisee's right of first refusal. Id. at 1054. On the other hand, the Court held the property owner's prerogative to insist on payment with a unique object is enforceable only so long as she acts in good faith and without any ulterior purpose to defeat the right of the [promisee]. Id. at 1055. The question of good faith was not an issue in Weber Meadow-View Corp. v. Wilde , as the Court was careful to observe: The significant fact here is that the plaintiff makes no claim that there was any such subterfuge or collusion. In response to the court's question, its counsel expressly stated that it did not claim any collusion or bad faith.... Id. In the instant case, Trolley does allege bad faith. In contrast to Wilde, who entertained and apparently weighed an offer from the promisee before rejecting it, Trolley alleges that Elm executed the Partnership Agreement without prior notice to Trolley and that, once Trolley learned of the Partnership, Elm refused to entertain a competing offer from Trolley. Trolley contends that these actions raise the possibility that Elm did not act in good faith and without any ulterior purpose to defeat the right of first refusal held by Trolley. We agree that this difference prevents Weber Meadow-View from automatically dictating a judgment in Elm's favor in this case. Where a contract provides that the matter of approval of performance is reserved to a party, he must act fairly and in good faith in exercising that right. He has no right to withhold arbitrarily his approval; there must be a reasonable justification for doing so. William G. Vandever & Co. v. Black, 645 P.2d 637 (1982); W.P. Harlin Construction Co. v. Utah State Road Commission, 19 Utah 2d 364, 366, 431 P.2d 792, 793 (1967). Similarly, once the promisee of a right of first refusal has challenged the seller's decision as arbitrary or lacking in good faith, the seller must articulate a reasonable justification for his actions. Merely asserting the uniqueness of the third party's offer is not a sufficient explanation since, except where both offers are for immediate payment in cash, no two offers are ever identical. A ruling that a property owner could establish a reasonable basis for accepting the third party's offer merely by asserting that it was unique or distinguishable would render illusory the good-faith requirement imposed in Weber Meadow-View and the other cases cited above. As stated by the Kentucky Supreme Court, [I]f the holder of the right of first refusal cannot meet exactly the terms and conditions of the third person's offer, minor variations which obviously constitute no substantial departure should be allowed. And defeat of the right of refusal should not be allowed by use of special, peculiar terms or conditions not made in good faith.... Brownies Creek Collieries, Inc. v. Asher Coal Mining Co., Ky., 417 S.W.2d 249, 252 (1967) (emphasis in original). [7] Thus, the inclusion of a finger ring or an old hat may be a sufficient basis to distinguish one offer from another, but only where the seller supplies a reasonable justification for the distinction. Whether a justification is reasonable must be determined in light of the circumstances of the particular case. For example, where the third-party offer includes a house that the seller intends to use as a personal residence, the seller's personal preference for that house as a basis for rejecting the promisee-rightholder's offer might be eminently reasonable. On the other hand, if the seller intended to use the offered house as a rental property, an explanation in commercial terms is probably required to meet the reasonableness standard. Where, as here, the consideration for the proposed sale is an interest in a commercial partnership, the decision whether to accept the third party's offer or the alternative offer from the promisee of the right of first refusal is not purely personal, as the dissent urges. Competing offers of this nature are commercial proposals, and can be evaluated against ascertainable commercial standards. The fact that this evaluation might force the seller either to enter into a partnership relationship with the promisee rather than the third party or to refrain from selling altogether is a foreseeable consequence of the seller's agreement to a right of first refusal. A rule permitting the seller to choose between competing offers on the basis of personal preference would allow the third party to nullify the right of first refusal merely by including a partnership element in its offer. In this and other ways, such a rule would render the court powerless to fulfill its obligation under Weber Meadow-View to prevent the seller from engaging in subterfuge or devious means in furtherance of an ulterior purpose to defeat the right of the [promisee]. Weber Meadow-View Corp. v. Wilde, 575 P.2d at 1055. In sum, in order to sell property burdened with a right of first refusal a seller must (1) give the promisee of the right of first refusal notice of the third party's offer and his intention to accept that offer; (2) allow the promisee to submit a competing offer; and (3) reject the promisee's offer, if any, only on the basis of a reasonable justification. Under the principles discussed in this opinion, it is clear that Trolley is not precluded as a matter of law from matching the terms offered to the seller by Boyer-Gardner. The summary judgment for Elm (seller) and its co-defendants is therefore reversed and the case is remanded for further proceedings consistent with this opinion. Costs to appellants. STEWART and HOWE, JJ., and JAMES S. SAWAYA, District Judge, concur. DURHAM, J., not participating.