Opinion ID: 2612680
Heading Depth: 1
Heading Rank: 5

Heading: appellant's claim of breach

Text: The argument which appellant most strenuously relies upon is the claim that Christmann, Roden and Delgado breached paragraph number 6 of the contract, which paragraph gives the parties to the agreement a right of first refusal of any offer to purchase a party's ownership interest in the lease. Appellant argues that the several transfers which occurred were in fact sales, as that term is contemplated by paragraph 6, and, since Rainbow was never given the opportunity to exercise the rights of first refusal, it was therefore Christmann who breached the contract. The record reflects that initially appellee Christmann transferred a one-third interest in the farmout agreement to John Roden and a one-third interest to Vernon Delgado. Delgado then transferred his interest to Sublette Properties, Incorporated, and Roden transferred half of his interest to Roden Drilling Company with the other half to him and his wife jointly. Christmann also transferred a portion of his interest to his children. Thereafter, in 1979, appellee MGF Oil Corporation acquired the stock of Big Springs Exploration, Incorporated through a corporate merger and, in the process, acquired the Roden Drilling Company. Rainbow contends that at least one of the above transfers constituted a sale and thus paragraph 6 was breached. In making these contentions, appellant does not, nor did it below, contest the initial transfer by Christmann to Roden and Delgado. The reason that Rainbow did not object to these transfers was that, prior to formation of the actual agreement, Cailliez was aware of and had in no way objected to the participation of Roden and Delgado. Nor does Rainbow Oil contest the transfer by Delgado to Sublette Properties, Incorporated since Delgado is the chief executive officer of that entity. However, Rainbow vigorously argues that the transfer by Roden to Roden Drilling constituted a sale as did the subsequent acquisition of that company by MGF Oil. The trial court found that neither transfer was a sale and we agree. We note initially that the question of whether or not clause 6 was breached by the questioned transfers depends upon the meaning that is assigned to the word sell. This is so because the rights of first refusal which are reserved by the clause only come into play with respect to sales of the interests described in the farmout agreement. In Kroehnke v. Zimmerman, 171 Colo. 365, 467 P.2d 265, 267 (1970) the court defined the term sale in the following manner: Although the corporation issued its stock and a note as consideration for the transfer of title, there is nothing in the record to suggest arms' length dealing between an owner willing (but not forced) to sell, and a buyer willing (but not forced) to buy, which customarily characterizes a sale in the open market. A similar rule evolved in McLeod v. Sandy Island Corporation, 265 S.C. 1, 216 S.E.2d 746, 749 (1975) where the court, in distinguishing between a gift and a sale, said: A gift has been judicially defined as a voluntary transfer of property by one to another without any consideration or compensation therefor. [Citations omitted.] The chief distinction between a sale and a gift is that in the former a valuable consideration is necessary, whereas the latter need not rest for its support on any consideration or value. [Citations omitted.] It has also been said that the question which asks whether or not a transaction is a sale for the purpose of giving effect to a first right of refusal clause is not to be determined by the passing of consideration alone since the nature of the transaction must also be taken into account. Isaacson v. First Security Bank of Utah, 95 Idaho 452, 511 P.2d 269 (1973). These authorities establish a rule which holds that the term sale is to receive a narrower interpretation than is the term transfer. See also: Durkee v. Durkee-Mower, Inc., ___ Mass. ___, 428 N.E.2d 139 (1981). Given the above, we hold that the trial judge correctly decided that none of the transactions complained of violated the provisions of paragraph 6 of the agreement. The uncontroverted testimony of appellee Margaret Roden [6] established that no consideration was received by John Roden for the transfer of one-half of his interest to Roden Drilling Company and it therefore follows that no sale took place. The record shows that John Roden recognized the need to transfer an interest in the lease to Roden Drilling Company in order to carry out his fiduciary obligations as president and chief executive officer of that company. Voss Oil Company v. Voss, Wyo., 367 P.2d 977 (1962). As to the subsequent acquisition of Big Springs Exploration by MGF Oil through corporate merger, we further find that this transfer did not constitute a sale of an interest in the lease. MGF Oil was not purchasing specific assets such as Roden Drilling Company's interest in the farmout agreement but rather it was simply a corporate stock acquisition transaction. Purchasing corporate stock does not constitute the purchase of a corporation's individual assets for any purpose with which we are here concerned Cruising World, Inc. v. Westermeyer, Fla.App., 351 So.2d 371 (1977). With respect to Christmann's transfer of an overriding royalty to his children, that transfer is clearly a gift under the cases discussed above and all other relevant and applicable authority, and appellant does not strongly contend otherwise.