Opinion ID: 2362881
Heading Depth: 2
Heading Rank: 3

Heading: Good Faith Requirement.

Text: We need not decide, in the posture of the present case, whether a holder of a right of first refusal must match literally all the terms in the triggering offer in order to exercise its right because there is generated on this record a genuine dispute of material fact as to whether the Lanes and the Thomases (or one of them) inserted, in bad faith, the no mining clause as a poison pill in order to discourage or frustrate Bramble from exercising its right of first refusal. In considering whether Petitioner exercised effectively its right of first refusal, there are several countervailing interests to be considered. On one hand, there is a significant interest in promoting the free alienability and marketability of land. A person or entity generally should have primary control over the disposition of property he, she, or it owns. West Texas Transmission, L.P., 907 F.2d at 1563 (holding that when a property owner receives an offer to purchase a piece of property encumbered by a preemptive right, the owner of [the] property subject to a right of first refusal remains master of the conditions under which he will relinquish his interest. . . .); Coastal Bay Golf Club, Inc., 231 So.2d at 858 (One who owns property has a right to dispose of that property in any lawful way he chooses.); Matson, 676 P.2d at 1033 (holding that in the context of a preemptive right, the property owner should retain primary control over disposition of the property); see also Selig v. State Highway Admin., 383 Md. 655, 861 A.2d 710 (2004) (applying the Rule Against Perpetuities to a right of refusal, because such a right poses a restraint on the free alienation of property when improperly executed) (quoting Ferrero Constr. Co., 311 Md. at 573-74, 536 A.2d at 1142-43). On the other hand, we must consider the fact that Petitioner acquired, at the time RWL conveyed its preemptive right in the Property, an equitable property interest in the Property. Ayres v. Townsend, 324 Md. 666, 674-75, 598 A.2d 470, 474 (1991) ([A preemptive right] is an interest in property, and not merely a contractual right, whereby the preemptioner acquires an equitable right in the property, which vests only when the property owner decides to sell.); Westpark, Inc., 225 Md. at 449-50, 171 A.2d at 743. When the Lanes granted initially the right of first refusal to RWL, the preemptive right was the product of a bargained-for exchange voluntarily entered by the Lanes. As such, one who enters into a contract must cooperate in good faith to carry out the intention the parties had in mind when it was made; and that he should not be permitted to engage in any subterfuge or devious means to prevent the other party from performing, and then use that as an excuse for failing to keep his own commitment. Weber Meadow-View Corp., 575 P.2d at 1055. With that in mind, even jurisdictions which require a preemptioner to match exactly the terms of a triggering offer (i.e., a lack of materiality of the omitted terms is no defense) recognize the following three exceptions to that rule: (1) the property owner may waive exact matching, either through actions or express waiver; (2) proper names need not be matched because to hold otherwise would require the preemptioner to change its name in order to exercise the first option of purchase; and (3) the property owner, for the purpose of discouraging the holder of the preemptive right from exercising its right of first refusal, may not insert into the triggering offer terms which its knows will be repugnant to the holder. [13] Miller, 87 F.3d at 227-28. In other words, the property owner, and possibly the third-party purchaser, must not be allowed to add in bad faith terms to the triggering offer which are intended to nullify the right of first refusal. West Texas Transmission, L.P., 907 F.2d at 1563 (holding that the owner of property subject to a right of first refusal remains master of the conditions under which he will relinquish his interest, as long as those conditions are commercially reasonable, imposed in good faith, and not specifically designed to defeat the preemptive rights.) (citations omitted); Weber Meadow-View Corp., 575 P.2d at 1055 (Utah 1978) ([T]he decision as to . . . the terms of upon which the optioner 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 the optionee.). [14] Even the cases upon which Respondents rely impose a duty of good faith in forming a triggering offer. Respondents rely specifically on Oregon RSA No. 6, Inc. v. Castle Rock Cellular of Oregon L.P., 76 F.3d 1003, 1007 (9th Cir.1996) for the proposition that [u]nder Oregon law, an acceptance of an offer must be `positive, unconditional, unequivocal, and unambiguous'. The U.S. Court of Appeals for the Ninth Circuit indeed interpreted Oregon law to require a definite response in order effectively to form a contract. The Ninth Circuit, however, concluded ultimately that there is an implied covenant of good faith and fair dealing in every contract formed under Oregon law, and that the grantor of the preemptive right had violated this covenant through its actions. Specifically, the court held that [t]o permit the transfer of a shell company as a way around the first refusal provisions was `an artifice intended to thwart plaintiff's legitimate contractual expectation.' Thus, even in states which require positive, unconditional, and unequivocal acceptance, there is an implied covenant that a party will act in good faith not to defeat improperly a bargained-for preemptive right. Finally, and most importantly, our case law supports the imposition of an implied duty on the part of the property owner and third-party purchaser to act in good faith. In Straley v. Osborne , we addressed whether a lessee, who held a first option to purchase leased land, was able to set aside the sale of the premises to a third-party after the lessee failed to make any attempt to exercise its right. The property owner sold to Straley a junkyard business, and on the same day, leased to Straley the premises upon which the business was located. Straley, 262 Md. at 515, 278 A.2d at 65. The junkyard was located on approximately seven acres of a ten-acre tract owned by the property owner. [15] Included in the lease agreement was a first option of purchase whereby Straley would have the first option of buying the property should the property owner decide to sell. Straley, 262 Md. at 516, 278 A.2d at 66. After some time, the property owner's used car business began to fail, and he listed for sale the entire ten-acre tract in order to raise money. Osborne, a third-party purchaser, made an offer to buy the entire ten-acre piece of land. The owner's real estate agent contacted Straley soon thereafter, informing the preemptioner that he now had the opportunity to exercise his right of first refusal. Straley, 262 Md. at 517-18, 278 A.2d at 66-67. Straley failed to exercise timely his preemptive right, [16] but subsequently brought suit in order to set aside the sale of the property to Osborne. Even though we ultimately concluded that Straley had failed to exercise effectively his right of first refusal, we reasoned that the [property owner-lessor] cannot act in derogation of the [holder-lessee's] `first option' rights in the leased premises. Straley, 262 Md. at 524, 278 A.2d at 70. Specifically, the Court considered carefully the circumstances of the case in order to ensure that the lessor would not be able to render the lessee's bargained for `first option' a nullity by merely including it in a larger tract being offered for sale. Despite the preemptive rightholder's equitable interest in the property, his inaction after being notified of the sale rendered ineffective his after-the-fact attempt to exercise the first option of purchase. We believe that imposing upon the property owner and third-party purchaser an implied duty of good faith and fair dealing strikes the proper balance. A good faith requirement preserves a property owner's right to dispose of property as he, she, or it deems appropriate, thus maintaining marketability of the property. This approach protects, at the same time, the equitable property interest that the preemptioner holds in the encumbered property. Imposing this duty of good faith on the parties comports additionally with the laws of offer and acceptance followed generally in Maryland. Port East Transfer, Inc. v. Liberty Mut. Ins. Co., 330 Md. 376, 385, 624 A.2d 520, 524 (1993) (Even when the parties are silent on the issue, the law will impose an implied promise of good faith.); Am. Trading & Prod. Corp. v. United States, 172 F.Supp. 165, 167 (D.Md.1959) ([T]here is an implied provision of every contract . . . that neither party to the contract will do anything to prevent performance thereof by the other party. . . .) (applying Maryland law) (quoting George A. Fuller Co. v. United States, 108 Ct.Cl. 70, 69 F.Supp. 409, 411 (1947)). We conclude, therefore, that the `terms upon which the [property owner] would sell her property remains her prerogative so long as she acts in good faith.' Matson, 676 P.2d at 1032 (quoting Weber Meadow-View Corp., 575 P.2d at 1055 ([T]he decision as to . . . the terms upon which the [owner] 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 the [preemptioner].)).