Court Opinion

ID: 3116873
Source: CourtListenerOpinion
Date Created: 2015-10-16 07:45:56.324001+00
Date Added: 2024-06-11T12:33:02.246930
License: Public Domain

NO. 07-09-00095-CV

                                       IN THE COURT OF APPEALS

                                  FOR THE SEVENTH DISTRICT OF TEXAS

                                             AT AMARILLO

                                               PANEL A

                                            APRIL 12, 2010

                                        CECIL HICKS, APPELLANT

                                                  v.

                                        TIM CASTILLE, APPELLEE

                            FROM THE 31ST DISTRICT COURT OF WHEELER COUNTY;

                            NO. 12,172; HONORABLE STEVEN RAY EMMERT, JUDGE

Before CAMPBELL and HANCOCK and PIRTLE, JJ.

                                               OPINION

      Cecil Hicks appeals from the trial court’s summary judgment in favor of Tim Castille.  At issue
is the precise nature of Castille’s right of first refusal as to certain property.  The  trial  court
held that Castille has a contractual right to purchase an entire four-acre tract intact, rather  than
just a fraction of the tract, if he has the opportunity to exercise his right of first refusal.   The
trial court also concluded that Castille has a contractual right to the benefits of the  tower  lease
in effect on the four-acre tract and that Hicks’s contemplated sale of  approximately  .28  acre  and
cancellation of the tower lease for $50,000.00 would constitute a material  breach  of  the  parties’
agreement.  Hicks complains that the trial court erred by so concluding  and  contends  that  he  was
entitled to summary judgment that he complied with the terms of their agreement  by  giving  Castille
notice of the terms of the contemplated sale of the .28 acre.

      We reverse, render in part, and remand in part.

                                    Factual and Procedural History

      Castille purchased from Hicks ninety-six acres of a 100-acre tract of land in  Wheeler  County.
The remaining four acres included a parcel of approximately .28 acre subject  to  a  lease  agreement
between American Tower, L.P. and Hicks.  Castille and Hicks agreed that Castille would hold  a  right
of first refusal as to the four acres (the Agreement).  The Agreement provides as follows:

      For and in consideration of the sum of TEN AND NO/100 ($10.00) DOLLARS, the purchase of certain
      real estate located in Wheeler County, Texas, owned by CECIL HICKS, hereinafter referred to  as
      “Hicks,” by TIM CASTILLE, hereinafter referred to as “Castille,”  that  the  said  Hicks  gives
      Castille the right of first refusal to purchase a four (4) acre tract of land and the  American
      Tower Lease currently in effect on said land, said four acres more fully described by metes and
      bounds on Exhibit “A” attached hereto and incorporated herein for all purposes.

      Such right of first refusal shall be exercised within sixty (60) days  of  receipt  of  written
      notice via certified mail, return receipt requested, from Hicks  to  Castille,  that  Hicks  no
      longer desires to use such real estate or desires to sell same.  In the event Castille does not
      exercise the right to purchase within sixty (60)  days,  this  right  of  first  refusal  shall
      terminate and be of no further force and effect.

      DATED this 30 day of May, 2006.

Both Hicks and Castille signed the Agreement.   The  issue  in  this  case  centers  on  whether  the
Agreement would permit the sale of the .28 acre subject to the lease or whether the  four-acre  tract
must remain intact.

      The parties agree that, on April 21, 2008, Hicks sent Castille a notice of  intent  to  sell  a
.28-acre tract included in the four-acre tract on which Castille  held  a  right  of  first  refusal.
According to Hicks, Castille then had sixty days to exercise his then-matured option to purchase  the
.28 tract on the same terms to which American Tower and Hicks had agreed:  $50,000.00.  Castille  did
not exercise his option to purchase the .28 acre.  Instead, on June  18,  2008,  he  filed  suit  for
declaratory relief.  On competing motions for summary judgment, the trial  court  granted  Castille’s
motion, denied Hicks’s motion, and awarded Castille $5,200.00 in attorney’s fees.

                                          Standard of Review

      By twelve issues, Hicks contends that the trial court  erroneously  granted  Castille’s  motion
for summary judgment and erroneously denied his motion for summary judgment.  Both  parties'  motions
sought summary judgments that would declare the parties' rights under the agreement, and  each  party
requested attorney’s fees.

      We look to the procedure used to resolve the issue below to determine the  standard  of  review
on appeal.  City of Galveston v. Tex. Gen. Land Office, 196 S.W.3d 218,  221  (Tex.App.—Houston  [1st
Dist.] 2006, pet. denied).  When a trial court resolves a declaratory judgment  action  on  competing
motions for summary judgment, "we review the propriety of the declaratory  judgment  under  the  same
standards that we apply in reviewing a summary judgment."  Id.

      We review a trial court's decision to grant or to deny a motion for summary judgment  de  novo.
See Tex. Mun. Power Agency v. Pub. Util. Comm'n of Tex., 253 S.W.3d 184, 192 (Tex.  2007).   Although
the denial of summary judgment is ordinarily not appealable, we may review such a  denial  when  both
parties moved for summary judgment and the trial court granted one and denied the other.   Id.   When
reviewing competing motions for summary judgment, we review the summary judgment  evidence  presented
by each party, determine all questions presented, and  render  the  judgment  that  the  trial  court
should have rendered.  Id.; FWT, Inc. v. Haskin Wallace Mason Prop. Mgmt., L.L.P.,  301 S.W.3d 787,
792 (Tex.App.—Fort Worth 2009, pet. filed).

                                               Analysis

A.    Rules of Construction

      The trial court’s judgment adopted Castille’s construction of the  Agreement.   Castille  reads
the Agreement as allowing Hicks to sell the four-acre tract subject to the  right  of  first  refusal
only as one entire parcel.[1]  In other words, he reads the Agreement as  one  which  would  prohibit
Hicks from selling a portion, rather than the entirety, of the four-acre tract.  Hicks, on the  other
hand, reads the Agreement without such restriction and maintains that the Agreement  permits  such  a
sale of a portion of the four-acre tract so long as he  notifies  Castille  in  accordance  with  the
terms of the Agreement.

      In construing a written contract, our primary concerns are to ascertain and to give  effect  to
the parties' intentions as expressed in the document.  Frost Nat'l Bank v. L&F Distribs.,  Ltd.,  165
S.W.3d 310, 311–12 (Tex. 2005).  In  doing  so,  we  consider  the  entire  writing  and  attempt  to
harmonize and give effect to all of the provisions of the contract by analyzing the  provisions  with
reference to the whole agreement.  Id. at 312.  We do  not  give  any  single  provision  controlling
effect.  J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).   We  construe  a  contract
“from a utilitarian standpoint bearing in mind the particular business activity sought to be  served”
and “will avoid[,] when possible and proper[,] a construction  which  is  unreasonable,  inequitable,
and oppressive.”  Frost Nat'l Bank, 165 S.W.3d at 312 (quoting Reilly v.  Rangers  Mgmt.,  Inc.,  727
S.W.2d 527, 530 (Tex. 1987)).  If, after we apply the relevant rules of construction, we can  give  a
contract a definite or certain legal meaning, the contract is unambiguous, and we construe  it  as  a
matter of law.  Id.  A contract is not  ambiguous  simply  because  the  parties  disagree  over  its
interpretation.[2]  Markert v. Williams, 874 S.W.2d 353,  355  (Tex.App.—Houston  [1st  Dist.]  1994,
writ denied).  If a contract may be construed in two ways, one of which validates  the  contract  and
the other of which invalidates it, we must  adopt  the  construction  that  validates  the  contract.
Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1980); Hackberry Creek  Country  Club,  Inc.  v.  Hackberry
Creek Home Owners Ass'n, 205 S.W.3d 46, 56 (Tex.App.—Dallas 2006, pet. denied).

B.    Rights of First Refusal

      1.    What a holder of a right of first refusal can do

      A right of first refusal, also called a preferential right or a preemptive right,  is  a  right
granted to a party giving him or her the first opportunity to purchase property if an  owner  decides
to sell it.  Mandell v. Mandell, 214 S.W.3d 682, 688 (Tex.App.—Houston [14th Dist.] 2007,  no  pet.);
Abraham Inv. Co. v. Payne Ranch, Inc., 968 S.W.2d 518, 524  (Tex.App.—Amarillo  1998,  pet.  denied).
Sister courts have described a preferential right as a dormant option.  Mandell, 214 S.W.3d  at  688;
A.G.E., Inc. v. Buford, 105 S.W.3d 667, 673 (Tex.App.—Austin 2003, pet. denied).  A  right  of  first
refusal is generally well understood in the business world to  mean  that  the  rightholder  must  be
given an opportunity to purchase the property from the property owner on the  terms  offered  by  any
third party.  Abraham Inv. Co., 968 S.W.2d at 524.

      Once the property owner provides the terms of that third-party offer to  the  rightholder,  the
rightholder then has the power to accept or reject the offer.  City of Brownsville v.  Golden  Spread
Elec. Coop., Inc., 192 S.W.3d 876, 880 (Tex.App.—Dallas 2006, pet. denied);  Abraham  Inv.  Co., 968
S.W.2d at 524.  Indeed, when a property owner expresses the  intention  to  sell  the  property,  the
rightholder is obligated to elect to either purchase the property or permit  the  property  owner  to
sell it.  Mandell, 214 S.W.3d at 688; A.G.E., 105 S.W.3d at 673.  So, generally,  when  the  property
owner gives notice of his intent to  sell,  the  preferential  right  matures  or  "ripens"  into  an
enforceable option.  Golden Spread Elec. Coop., 192 S.W.3d at 880; Abraham Inv. Co., 968 S.W.2d  at
524.  The terms of the option are formed by both the provisions granting the preferential  right  and
the terms and conditions of the third-party offer presented to the rightholder.   Abraham  Inv.  Co.,
968 S.W.2d at 524–25.

      The rightholder's exercise of the option to  purchase  must  be  positive,  unconditional,  and
unequivocal.  Tex. State Optical, Inc. v. Wiggins, 882 S.W.2d 8, 10–11 (Tex.App.—Houston [1st  Dist.]
1994, no writ).  If the rightholder proposes a new demand, condition, or modification of  the  terms,
he is treated as having rejected the offer.  See Golden Spread Elec. Coop., 192 S.W.3d at  880;  Tex.
State Optical, 882 S.W.2d at 11.  When the rightholder notifies the property  owner  of  his  or  her
acceptance of the offer, a contract between the  rightholder  and  the  property  owner  is  created.
Golden Spread Elec. Coop., 192 S.W.3d at 880.

      2.    What the holder of a right of first refusal cannot do

      Though a right of first refusal may mature into an option, it remains distinct from  an  option
in that the holder of the option purchases the right to compel a  sale  of  property  on  the  stated
terms before the expiration  of  the  option.   See  Comeaux  v.  Suderman,  93 S.W.3d 215,  219–20
(Tex.App.—Houston [14th Dist.] 2002, no pet.); see also Sinclair Ref. Co.  v.  Allbritton,  147 Tex.
468, 475, 218 S.W.2d 185, 188–89 (Tex. 1949).  The holder of a right of first refusal  has  no  right
to compel a sale or to prevent a sale; he or she has only the right to be offered the property  at  a
fixed price or at a price offered by a bona fide purchaser if and when the  owner  decides  to  sell.
Abraham  Inv.  Co., 968 S.W.2d  at  525;  Riley  v.  Campeau  Homes,  Inc.,  808 S.W.2d 184,  187
(Tex.App.—Houston [14th Dist.] 1991, writ dism'd).  The holder of a right  of  first  refusal  cannot
compel an unwilling owner to convey the property.  Riley, 808 S.W.2d at 187.

      Unless the property owner and the rightholder have agreed to terms on  price,  the  rightholder
cannot fix the price because the price is  determinable  only  when  a  willing  seller  receives  an
acceptable offer from a bona fide purchaser. See Forderhause v. Cherokee Water Co., 623 S.W.2d 435,
439 (Tex.Civ.App.—Texarkana 1981),  rev'd  on  other  grounds,  641 S.W.2d 522  (Tex.  1982).   The
rightholder does not have the privilege to negotiate with the  seller  regarding  the  terms  of  the
third-party offer.  See Abraham Inv. Co., 968 S.W.2d at 525.  The owner  of  property  subject  to  a
right of first refusal remains the master of the conditions under which he  or  she  will  relinquish
interest in the property so long as those conditions are commercially  reasonable,  imposed  in  good
faith, and not specifically designed to defeat the  right  of  first  refusal.[3]   See  McMillan  v.
Dooley, 144 S.W.3d 159, 176 (Tex.App.—Eastland 2004, pet.  denied)  (quoting  W.  Tex.  Transmission,
L.P. v. Enron Corp., 907 F.2d 1554, 1563 (5th Cir. 1990)).

C.    Construing the Agreement

      Having reviewed the rules we must employ to construe agreements  in  general  and  the  general
principles concerning rights of first refusal,  we  now  examine  the  Agreement  between  Hicks  and
Castille.

      We begin by observing that alienability  is  a  legal  incident  of  property,  and  restraints
against it are generally contrary to public policy.  See  Trustees  of  Casa  View  Assembly  of  God
Church v. Williams,  414 S.W.2d 697,  702  (Tex.Civ.App.—Austin  1967,  no  writ).   The  right  of
alienation is an inherent and inseparable quality of an estate in fee simple.  Potter v.  Couch,  141
U.S. 296, 315 11 S. Ct. 1005,  35 L. Ed. 721  (1890);  Williams  v.  Williams,  73 S.W.3d 376,  379
(Tex.App.—Houston [1st Dist.] 2002, no pet.).  A  restraint  on  alienation  is  “an  attempt  by  an
otherwise effective conveyance or contract to cause a later conveyance . . .  to  impose  contractual
liability on the one who makes the later conveyance when such liability results from a breach  of  an
agreement not to convey; or . . . to terminate or subject to termination all or part of the  property
interest conveyed.”  Navasota Res., L.P.  v.  First  Source  Tex.,  Inc.,  249 S.W.3d 526,  537-538
(Tex.App.—Waco  2008,  pet.  denied)  (adopting,  as  have  other  Texas  courts,  the  Restatement’s
definition of restraint on alienation and quoting Restatement of Property § 404(1)(b),  (c)).[4]   “A
restriction . . . not forbidding alienation to particular persons or for  particular  purposes  only,
but against any and all alienation whatever during a limited time, of an estate in fee,  is  likewise
void, as repugnant to the estate devised to the first taker, by depriving him  during  that  time  of
the inherent power of alienation.”  Williams, 73 S.W.3d at 379–80 (quoting Potter, 141 U.S. at  315);
see also O'Connor v. Thetford, 174 S.W. 680, 681, 682 (Tex.Civ.App.—San  Antonio  1915,  writ  ref’d)
(observing that “[h]e would certainly be a poor owner who was required to hold property all his  life
without the power to sell it”).

      Were we to adopt Castille’s construction of the Agreement, we would be enforcing  what  appears
to be an unreasonable restraint on alienation: an  outright  prohibition  of  indeterminate  duration
from selling any portion of the land in question less than four acres.  See Reagan  Nat'l  Adver.  of
Austin v. Capital Outdoors, 96 S.W.3d 490,  494–95  (Tex.App.—Austin  2002,  pet.  granted,  judgmn’t
vacated w.r.m.) (concluding that “appellant’s construction of the  lease  clause  is  too  broad  and
would create an unreasonable restraint on alienation were we to adopt it”).

      Castille has not directed this Court to  a  case  which  would  support  the  position  that  a
landowner may not partition or sell portions of the property described in an agreement  conferring  a
right of first refusal.[5]  And we have  found  but  one  that  briefly  addresses  this  issue;  it,
however, does so in a slightly different context and supports the position  contrary  to  Castille’s.
See Barrows v. Ezer, 668 S.W.2d 854, 855 (Tex.App.—Houston [14th Dist.]  1984,  writ  ref’d  n.r.e.).
At issue in Barrows was the enforceability of a provision in a will that  required  the  devisees  to
keep the bequeathed ranch intact for twenty-five years and also maintain the name of  the  ranch  and
make certain that the livestock on the ranch bore  the  testator’s  recorded  brand  for  twenty-five
years.  Id.  The appellate court affirmed the trial court’s conclusion that this attempted  restraint
on alienation was void.  Id. at 856.  Of course, the will provision in Barrows attempted to  do  more
than simply keep the ranch intact,  but  the  case  remains  instructive  in  its  treatment  of  the
restraint on alienation as it relates to an attempt to prohibit a transfer of a portion of  the  land
at issue.

      Similarly, here, the Agreement, as Castille would have  us  read  it,  would  serve  to  wholly
prohibit Hicks – regardless of his compliance with the notice requirements – from selling  .28  acre,
one acre, two acres, or any portion of the land less  than  four  acres.   This  construction,  then,
would amount to a nearly absolute prohibition against conveying  any  of  the  land  less  than  four
acres, and we have no concrete indication of the duration from which we could  determine  whether  it
is reasonable.[6]  Such a restraint on alienation of property has long been disfavored.

      Although the Agreement does refer to “the four-acre tract,” it does  not  specifically  provide
that the right of first refusal is limited to only the four-acre tract  intact.   The  parties  could
have negotiated more specific terms but did not do so.  We will not read terms  into  the  Agreement,
especially not when those terms would lead to an unreasonable construction.

      Adhering to the relevant  rules  of  construction,  we  have  examined  the  Agreement  from  a
utilitarian perspective, bearing in mind the purposes and restrictions associated  with  a  right  of
first refusal, and have construed the Agreement in such a way as to not  invalidate  it.   See  Frost
Nat'l Bank, 165 S.W.3d at 312; Hackberry Creek Country Club, 205 S.W.3d at 56.  Having  done  so,  we
conclude that the Agreement permits the sale of a portion of the four acres so long  as  Hicks  gives
proper notice in accordance with the Agreement.  To hold otherwise would cause  the  right  of  first
refusal to represent an unreasonable restraint on alienation by prohibiting Hicks  from  selling  any
portion of the tract less than four acres.  The converse  application  would  also  be  unreasonable,
permitting the right of refusal to do something it must not do; to hold that Castille has a right  to
buy all four remaining acres intact would run afoul of the well-established rule that a holder  of  a
right of first refusal cannot compel the owner to sell the property at issue.  That is, to  read  the
Agreement to mean that Hicks can only sell  the  entire  four-acre  tract  of  land  could  have  the
practical effect of forcing him to sell land that he does not wish to sell.   We  will  not  construe
the Agreement to create a right of first refusal that is inconsistent with the principles  concerning
such rights.

                                              Conclusion

      In order to conclude, as did the  trial  court,  that  the  contemplated  sale  from  Hicks  to
American Tower constituted a breach of the Agreement, one must read the Agreement as permitting  sale
of only the four-acre tract in  its  entirety.   This  all-or-nothing  construction  is  problematic;
either it disallows Hicks to sell a portion of his  property  infringing  on  his  ownership  of  the
property or it compels him to sell the land in its entirety which may be and, in  this  instance,  is
more than he desired to sell.[7]

      The trial court erred by concluding that Castille has  a  contractual  right  to  purchase  the
entire four-acre tract intact, that Castille  also  had  a  contractual  right  to  the  tower  lease
benefits, and that the contemplated sale between Hicks and American Tower would represent a  material
breach of the Agreement.  Application of the rules of construction  lead  us  to  conclude  that  the
Agreement permitted the sale of a portion of the four acres so long as Hicks gave proper  notice  and
the third-party offer was commercially reasonable,  imposed  in  good  faith,  and  not  specifically
designed to defeat the right of first refusal.   Since the  parties  agree  that  Hicks  gave  proper
notice and that Castille did nothing to exercise his then-matured option to  purchase  the  .28  acre
and since there is no evidence before this Court to indicate that  the  terms  of  the  sale  between
Hicks and American Tower were commercially unreasonable, not imposed in good faith,  or  specifically
designed to defeat Castille’s right of first refusal, we render the judgment  that  the  trial  court
should have rendered:  The evidence establishes that Hicks gave the requisite notice  of  his  intent
to sell .28 acre of the four acres and provided  the  terms  on  which  he  contemplated  selling  to
American Tower; that, upon such notice, Castille’s right of first refusal as to the .28 acre  matured
into an option to purchase the .28 acre on  those  terms;  that  Castille  failed  to  exercise  such
option; and that, due to such failure, Castille’s right to purchase the .28 acre expired.

      Because we so hold, we reverse the trial court's summary judgment  in  favor  of  Castille  and
render judgment in favor of Hicks that Castille’s right of first  refusal  was  invoked  and,  having
remained unexercised, lapsed.  We also  reverse  the  trial  court’s  award  of  attorney’s  fees  to
Castille and remand the cause to the trial court to  reconsider  the  equitable  and  just  award  of
reasonable and necessary attorney’s fees.  See Tex. Civ. Prac. & Rem. Code  Ann.   §  37.009  (Vernon
2008); Nw. Austin Mun. Util. Dist. No. 1 v. City of Austin,  274 S.W.3d 820,  840  (Tex.App.—Austin
2008, pet. denied).

                                             Mackey K. Hancock
                                                   Justice

-----------------------
      [1] Alternatively, Castille argues that the terms of the contemplated sale of the .28 acre from
Hicks to American Tower for $50,000.00 was not commercially reasonable.  We have no  evidence  before
us that the terms of the contemplated sale were unreasonable.  Assuming we  may  consider  Castille’s
affidavit for the proposition that the terms of the sale were commercially unreasonable, we  conclude
that his general statements regarding the fair market value  per  acre  of  farm  land  (specifically
excluding conveyance of mineral rights) in Wheeler County do not directly address the price per  acre
on which improvements have been made.  That is to say, to the  extent  Castille’s  affidavit  can  be
considered, it is not relevant to the fair market value of land in Wheeler County on  which  a  tower
structure has been erected.

      [2] We add that a party may not introduce parol evidence to vary the terms  of  an  unambiguous
contract.  Markert, 874 S.W.2d at 355.   For  this  reason,  we  do  not  consider  the  contents  of
Castille’s affidavit concerning the negotiations surrounding the Agreement.
      [3] Castille points to no evidence that the contemplated  sale  was  specifically  designed  to
defeat his rights to the tower lease.  Though the sale may have ultimately done  so,  to  the  extent
the Agreement conferred any  rights  to  the  lease  to  Castille,  we  have  no  evidence  that  the
contemplated sale was designed with that specific purpose in mind.  Since he was not a party  to  the
lease between Hicks and American Tower, Castille could not have agreed  to  the  termination  of  the
lease.  Had Castille exercised the option to purchase when it matured, he may have  then  been  in  a
position to negotiate with American Tower regarding the status of the lease.
      [4] See Procter v. Foxmeyer Drug Co., 884 S.W.2d 853, 858–59 (Tex.App.—Dallas  1994,  no  writ)
(providing a thorough discussion of the applicability of the Restatement (Second)  to  restraints  on
alienation in the commercial transaction context as opposed to the donative  transfer  context);  see
also Sonny Arnold, Inc. v. Sentry Sav. Ass'n, 633 S.W.2d 811, 814 (Tex.  1982);  Mattern  v.  Herzog,
367 S.W.2d 312, 319 (Tex. 1963); Deviney v. Nationsbank, 993 S.W.2d 443, 449  (Tex.  App.—Waco  1999,
pet. denied); Randolph v. Terrell, 768 S.W.2d 736, 738–39 (Tex. App.—Tyler 1987, writ denied).

      [5] We note the distinction between the instant case and the situations examined in such  cases
as FWT, Inc., 301 S.W.3d at 792–93, McMillan, 144 S.W.3d at 178–79, and Riley, 808 S.W.2d  at  189.
In these cases, the terms of the contemplated sale went beyond  the  scope  of  the  right  of  first
refusal.  As a general rule, the holder of a preferential  right  cannot  be  compelled  to  purchase
assets beyond those included within the scope of the agreement subject to the preferential  right  in
order to exercise that right.   See Navasota Res., 249 S.W.3d at 535.   Unlike  the  rightholders  in
these cases, Castille is not faced with an offer that goes beyond the scope  of  the  agreement.   To
the contrary, American Tower offered to purchase from Hicks only .28 acre of the four acres on  which
Castille holds a right of first refusal.

      [6] O’Connor and a number of other cases suggest that  even  restrictions  that  amount  to  an
outright prohibition of transfer may be valid if those restrictions are of reasonable duration. 174
S.W. at 681.  Here, there is no express duration of the Agreement.
      [7] Taken to its logical conclusion, Castille’s construction of the agreement that  Hicks  must
sell the four-acre parcel in its entirety and with the tower lease in effect would vest  in  Castille
the power to force Hicks and American Tower to remain in the lease agreement.  We  will  not  read  a
contract in such a way as to lead to an absurd result.