Court Opinion

ID: 2777591
Source: CourtListenerOpinion
Date Created: 2015-02-06 16:27:05.582053+00
Date Added: 2024-06-11T11:28:05.664102
License: Public Domain

2015 VT 33

Ski, Ltd. V. Mountainside
Properties, Inc. (2014-001)
 
2015 VT 33
 
[Filed 06-Feb-2015]
 
NOTICE:  This opinion is
subject to motions for reargument under V.R.A.P. 40 as well as formal revision
before publication in the Vermont Reports.  Readers are requested to
notify the Reporter of Decisions by email at: JUD.Reporter@state.vt.us or by
mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont
05609-0801, of any errors in order that corrections may be made before this
opinion goes to press.
 
 

2015 VT 33

 

No. 2014-001

 

Ski, Ltd.

Supreme Court

 

 

 

On Appeal from

     v.

Superior Court, Rutland Unit,

 

Civil Division

 

 

Mountainside Properties, Inc.

May Term, 2014

 

 

 

 

Cortland
  Corsones, J.

 

Christopher D. Roy of Downs Rachlin Martin PLLC, Burlington,
for Plaintiff-Appellee/Cross-
  Appellant.
 
Peter H. Banse of Banse & Banse, P.C., Americus, Georgia,
for Defendant-Appellant/Cross-
  Appellee.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund, Robinson and
Crawford, JJ.[1]
 
 
¶ 1.            
ROBINSON, J.   This appeal concerns the parties’
respective rights and obligations arising from a contract for the sale of land
from SKI, Ltd.’s predecessor-in-interest to Mountainside Properties, Inc.
 The contract included a “right of first offer” (ROFO) with respect to an
adjacent parcel.  Mountainside appeals a declaratory judgment of the trial
court concluding that the terms of the ROFO provision constitute an unlawful
restraint on alienation.  SKI cross-appeals the trial court’s judgment
that the offer that it made to Mountainside pursuant to the ROFO violated the covenant
of good faith and fair dealing implied in the agreement, and that it therefore
was not free to sell the property to another buyer on the terms offered to
Mountainside upon Mountainside’s rejection of the
offer.  Both parties argue that the trial court erred in proposing an
offer by SKI to Mountainside on alternative terms which the court concluded
would satisfy the requirements of the ROFO while avoiding an unlawful restraint
on alienation.  We affirm in part and reverse in part.
¶ 2.            
The relevant facts, as found by the trial court, are as follows. 
This case begins with the 1988 purchase and sale agreement between Mountainside
(a Vermont corporation), and Killington, Ltd., a former subsidiary of and
predecessor-in-interest to SKI (a Delaware corporation).  At the time,
Killington, Ltd. owned the Killington Ski Area.  Mountainside purchased
thirty-three acres from Killington, Ltd. for the purpose of residential
development.  At the time, Mountainside also wanted to purchase the adjoining
sixty-two acre tract, but the Killington, Ltd.-owned sewage-treatment facility
which provided service to the area lacked sufficient capacity to serve the
homes that Mountainside intended to build on that parcel.[2]  Given the limited sewage capacity,
Mountainside purchased the thirty-three acres and negotiated a ROFO on the
remaining sixty-two acres; it hoped to be able to purchase the remaining
acreage when Killington, Ltd. had more sewage capacity. 
¶ 3.            
Accordingly, in § 6(e) of the 1988 purchase and sale agreement for
the thirty-three acres, the parties agreed, with respect to the sixty-two-acre
parcel, as follows:
 
Seller grants Purchaser the option to purchase, at market value as determined
by Killington, Ltd., the adjacent [sixty-two acre] parcel of land
. . . when and if Seller in its sole discretion decides to sell such
parcel, together with sufficient off-site sewage disposal rights to provide
sewage disposal to the designed number of dwelling units thereon as determined
by Killington, Ltd.  If Purchaser fails to exercise this option within
thirty days of receipt of a written offer, Seller may sell said land and sewage
disposal capacity to others at the stated price or more, but shall not
thereafter sell said land and sewage disposal capacity, or any part thereof, at
a lesser price without first extending to Purchaser the further opportunity and
time to purchase at the lower price.
 
The agreement provides
that the seller’s obligations under the agreement “shall be binding upon its
successors and assigns.”
¶ 4.            
Subsequently, Mountainside improved the thirty-three-acre parcel with
connector ski trails to the Killington Ski Area, new roads, and sewer and
electrical lines.  The connector trail crosses the sixty-two-acre parcel.
 Mountainside also drilled wells on the sixty-two acre parcel to benefit
the thirty-three acres, pursuant to an easement with Killington, Ltd.
¶ 5.            
In 2006, Mountainside entered into negotiations with Killington, Ltd. to
purchase the sixty-two acres, but the parties did not reach an agreement. 
Soon after these failed negotiations, Mountainside learned that Killington,
Ltd. was selling off its properties.  Mountainside reminded Killington,
Ltd. of the ROFO on the sixty-two acres.
¶ 6.            
In 2007, Killington, Ltd. sold the Killington Ski Resort to three
entities as tenants in common (TICs).[3] 
Killington, Ltd. sold the TICs all the real estate it owned—except for the sixty-two
acres subject to Mountainside’s ROFO.  At the same time, it sold its
sewage-treatment plant to the TICs.  In connection with these sales,
Killington did not take any steps to retain any rights for sewage capacity to
serve the sixty-two acres it retained; the trial court found that there was no
evidence presented as to whether there was sewage capacity available at that
time.  Killington, Ltd. merged into SKI, and SKI proceeded to sell or
otherwise divest itself of all its assets—except the sixty-two acres. 
After these transactions, the TICs owned the Killington Ski Resort and the
sewage-treatment plant, and SKI retained the sixty-two-acre parcel as its sole
remaining asset.
¶ 7.            
Mountainside, through its sole owner Stephen Durkee, has been actively
involved in land development in Killington since 1981.  After the 2007
sale, Mountainside became interested in the TICs’ development plans for the
area, including the 400-acre planned unit  development,
and actively opposed one of their development plans.  Mountainside’s
challenge reached this Court, and we ruled in its favor.  In re SP Land Co., 2011 VT 104, ¶ 28, 190 Vt. 418, 35
A.3d 1007.  At the time that the trial court issued its judgment,
Mountainside remained in litigation with the TICs over their development plans
for the Killington area.
¶ 8.            
In 2012, SKI decided to sell the sixty-two-acre parcel.  Because
any offer to Mountainside would have to include sewage disposal rights, SKI
contacted the TICs to obtain sewage rights.  The TICs agreed to provide
sewage capacity for eight single-family dwellings so that an offer could be
made to Mountainside, but only on the condition that Mountainside agree not to contest any permits for the development of land
by SP Land Co. or the TICs.  Accordingly, on August 30, 2012, SKI made a
written offer to Mountainside for the sale of the sixty-two acres.  The
accompanying purchase and sale agreement set the purchase price at $390,000 and
provided for sewage capacity for eight single-family dwellings.  The
agreement stated:
 
As consideration for the allocation of the [wastewater-treatment] Rights, TICs
have required the Seller, its subsidiaries and affiliates, successors and
assigns including Purchaser, its subsidiaries and affiliates to agree not to
contest, either directly or indirectly, any application for a federal, state or
local permit for the planning and construction of improvements to the lands
owned or leased by the TICs and/or SP Land Company, LLC,[4] their successors and assigns in the Town
of Killington, Vermont, including, without limitations, those improvements
contemplated by [four specific development projects].
 
In its letter, SKI indicated that
Mountainside had thirty days to “exercise its option” under § 6(e) of the
1988 agreement and that if Mountainside did not accept the offer, SKI would
sell the property to another party “at the stated price or more.”
¶ 9.            
Because Mountainside was already in litigation with the TICs, it was
unlikely that it would accept the “no contest” terms.  The TICs
represented to SKI that going forward it would be requiring the no-contest
terms in any contract to provide sewage capacity.
¶ 10.         Mountainside
did not accept the offer and advised that it did not believe the offer complied
with the ROFO because the no-contest terms were not contemplated by the
ROFO.  For that reason, Mountainside indicated that it would continue to
treat the ROFO as “an outstanding and enforceable right.”
¶ 11.         SKI
responded that another entity controlled the sewage capacity and that SKI
therefore did not control the no-contest provision.  SKI indicated that
because Mountainside declined its offer, Mountainside had failed to exercise
its right under § 6(e) of the agreement and SKI was free to sell the
property to a third party, provided that the ultimate purchase price was no
less than that offered to Mountainside, and the terms no less favorable.
¶ 12.         SKI
subsequently found an out-of-state buyer for the sixty-two acres who was
willing to purchase the property for $415,000, along with sewage capacity
subject to the no-contest provision.  SKI executed a purchase and sale
agreement with the buyer but was unable to close the deal because Mountainside
had filed a notice of its ROFO in the Killington land records and the title
insurance company was unwilling to issue title insurance without resolution of
the dispute over Mountainside’s rights.
¶ 13.         In
June 2013, SKI filed a complaint against Mountainside in the superior court
seeking, among other things, a declaratory judgment that SKI’s offer to
Mountainside had fully satisfied the terms of the ROFO.
¶ 14.         In a
judgment issued after a bench trial, the trial court concluded that SKI’s offer
to Mountainside, subject to the no-contest condition, violated the covenant of
good faith and fair dealing implied in the 1988 agreement.  The court
explained that, although the condition was imposed by the third-party TICs, and
not by SKI itself, SKI acted in bad faith by extending an offer that it knew
Mountainside would reject.  The court explained: 
It
was never anticipated in the ROFO that Mountainside would have to give up its
rights to oppose development within the Killington Ski Area, development that
could affect its property, in order to exercise its rights under the ROFO.
. . . There is no way Mountainside could have expected that it would
have to accept this type of clause in order to exercise its rights under the
ROFO.
 
¶ 15.         In
response to SKI’s suggestion that Mountainside could have made a counteroffer
that excluded the no-contest terms, the court responded that SKI misconstrued
the nature of a ROFO, and that “[a] ROFO is not a negotiation, because the
terms of the offer, itself, place[] the grantee on notice that it must accept
the offer as presented or lose its rights.”
¶ 16.         The
court went on to conclude that one consequence of its ruling on the question of
whether SKI’s offer complied with the ROFO is that Mountainside can effectively
prevent the sale of the property in perpetuity as long as the TICs insist on
the no-contest provision as a condition of providing sewage capacity and
Mountainside refuses to accept an offer that contains the no-contest
condition.  Since this would make the property indefinitely unsalable, the
court concluded that it violates the common-law doctrine against unreasonable
restraints on alienation.
¶ 17.         Excluding
the no-contest condition from SKI’s offer, the court explained, was not an
available remedy because the TICs were not parties to the action.  The
trial court concluded that SKI could satisfy § 6(e) by offering to
sell the property to Mountainside for the original offer price of $390,000
without any sewage capacity.  In this way, Mountainside could deal
directly with the TICs to negotiate sewage capacity and directly challenge the
validity of the condition.  Mountainside appealed, and SKI cross-appealed.
¶ 18.         Both
parties challenge the trial court’s legal conclusions and the scope of its
declaratory judgment on appeal.  Under Mountainside’s view, SKI’s offer
did not comply with § 6(e) of the 1988 agreement, but the trial court
erred in concluding that the requirement for sewage capacity is an invalid
restraint on alienation.  It argues that the sewage requirement of the
ROFO is not only a legitimate and lawful restraint but actually promotes
development of the sixty-two-acre parcel.  Further, Mountainside contends that
the requirement does not restrain alienability indefinitely and only delays or
suspends transfer of the parcel until SKI can comply with § 6(e), pointing
to the possibility that the sewage facility could again change hands or some
other source of sewage capacity could develop.
¶ 19.         Mountainside
also challenges the trial court’s conclusion that SKI could comply with
§ 6(e) by selling the parcel without sewage capacity for the original
offer price.  SKI had never made such an offer, and there was no testimony
or representation to the court at trial that it wanted or intended to do
so.  Mountainside claims that by reaching beyond the question presented
for resolution by declaratory judgment and offering an opinion on a different
issue not presented by the parties, the trial court exceeded its
authority.  Moreover, Mountainside argues, there is nothing in the record
to support the notion that the parcel would have the same market value without
sewage capacity, and the development potential and marketability that comes
with sewage capacity.
¶ 20.         In
its cross-appeal, SKI first argues that its offer complied with § 6(e) of
the 1988 agreement, which supplied only limited terms.  Second, SKI argues
that Mountainside did not raise the covenant of good faith and fair dealing
before the trial court and so waived the argument.  Even assuming that it
was raised below, SKI argues that there is nothing in the record to support
that its offer was in bad faith.  Further, SKI notes that the fact that it
has found a third party willing to purchase the parcel subject to the
no-contest provision demonstrates there is nothing implicitly bad-faith about
the condition.  Lastly, SKI agrees with Mountainside that the trial court
erred in concluding that SKI could comply with § 6(e) by selling the
parcel without sewage capacity.  SKI argues that this conclusion is an
improper advisory opinion and the court’s remedy
“would severely restrict SKI’s right to maximize the value of this asset by
selling it in the manner of its choosing designed to fetch the highest price
possible in the marketplace.”
I.
¶ 21.         The
first issue on appeal, raised by SKI’s cross-appeal, is whether SKI’s offer
complies with § 6(e) of the 1988 agreement.  We review the trial
court’s interpretation of the parties’ agreement de novo.  Dep’t of
Corr. v. Matrix Health Sys., P.C., 2008 VT 32,
¶ 11, 183 Vt. 348, 950 A.2d 1201.  The trial court’s factual findings
will stand so long as they are supported by reasonable and credible evidence;
we will set them aside only if clearly erroneous.  Harlow
v. Miller, 147 Vt. 480, 481-82, 520 A.2d 995, 997 (1986).
¶ 22.         Section
6(e) of the 1988 agreement—the ROFO—created a contractual right in Mountainside
to preempt another buyer in the event that SKI decided to sell the
sixty-two-acre parcel.  See 3 E. M. Holmes, Corbin on Contracts
§ 11.3, at 468-69 (rev. ed. 1996) [hereinafter Corbin] (explaining that
transactions under generic caption of “right of first refusal” create
contractual right to “preempt” another).  Such preemptive rights may be
triggered either when (1) an owner receives an offer from a third party and
decides to sell or (2) an owner decides to offer the property for sale without
first receiving an offer from a third party.  Lehn’s
Court Mgmt. LLC v. My Mouna Inc., 2003 Pa. Super. 439,
¶ 9, 837 A.2d 504, 507.  These rights can go
by many different names, but the first scenario is typically understood to be a
“right of first refusal,” while the second may be referred to as a “right of
first offer.”  Bill Signs Trucking, LLC v. Signs Family Ltd., 69
Cal. Rptr. 3d 589, 595 (Ct. App. 2008).  Both require, as a condition to
the right being triggered, that the owner decide to sell.[5]  Corbin, supra,
at 470.
¶ 23.         We apply
ordinary rules of construction when construing the terms of a right of first
offer.  See St. George’s Dragons, L.P. v. Newport Real Estate Grp.,
971 A.2d 1087, 1098 (N.J. Sup. Ct. App. Div. 2009)
(construing right of first refusal under standard rules of contract
interpretation).  “We interpret contracts to give effect to the parties’
intent, which we presume is reflected in the contract’s language when that
language is clear.”  R & G Props., Inc. v. Column Fin.,
Inc., 2008 VT 113, ¶ 17, 184 Vt. 494, 968 A.2d 286 (quotation
omitted).  When interpreting a contract, we “strive to give effect to
every part of the instrument and form a harmonious whole from the parts.” 
State v. Philip Morris USA Inc., 2008 VT 11, ¶ 13, 183 Vt. 176, 945
A.2d 887 (quotation omitted).
¶ 24.         Here,
§ 6(e) provides that “[Killington, Ltd.] grants [Mountainside] the option
to purchase . . . the adjacent parcel of land . . .
together with sufficient off-site sewage disposal rights to provide sewage
disposal to the designed number of dwelling units thereon as determined by
[SKI].”  The question is whether an offer to sell the parcel and
accompanying sewage capacity conditioned on Mountainside forfeiting its ability
to challenge any permit application made by the TICs or SP Land Co. complies
with this provision.  We conclude that it does not.
¶ 25.         At
the time that Mountainside entered into the contract with Killington, Ltd.
(SKI’s predecessor), Killington, Ltd. owned both the
parcel and the sewage-treatment facility.  As the trial court found,
Mountainside had originally wanted to purchase both the thirty-three-acre and
sixty-two-acre parcels and the only reason it could not purchase the
sixty-two-acre parcel was because Killington, Ltd. lacked the sewage capacity
to serve it at that time.  The record supports the trial court’s finding
that the ROFO did not anticipate that Mountainside would have to give up its
rights to oppose development within the Killington Ski Area in order to
exercise its rights.  As the trial court concluded, “[t]here is no way
Mountainside could have expected that it would have to accept this type of
clause in order to exercise its rights under the ROFO.”
¶ 26.         That
sewage capacity is no longer available from SKI as the successor to Killington,
Ltd. because SKI sold the sewage facility without retaining any capacity has no
bearing on what the parties intended at the time they entered into the
contract.  We will not rewrite the contract, nor graft conditions onto an
unambiguous contractual provision merely because the passage of time and the
course of development have led the parties to positions they had not
anticipated.  City of Montpelier v. Nat’l Sur. Co., 97 Vt. 111,
118, 122 A. 484, 487 (1923) (“The plain intention of the parties cannot be
nullified by construction.”).
¶ 27.         SKI
argues that § 6(e) supplies only limited terms and that it does not
preclude SKI from imposing commercially reasonable terms beyond price and the
provision of sewage capacity.  SKI argues that the no-contest condition
should therefore be treated like any contract term left open to determination
during the course of performance.  See Toys, Inc. v. F.M. Burlington
Co., 155 Vt. 44, 49, 582 A.2d 123, 126 (1990) (concluding that contract
provision was enforceable even though it did not contain price term because it
“set[] forth a definite, ascertainable method of
determining the price term”); Restatement (Second) of Contracts § 33 cmt.
a (1981) (“Terms may be supplied by factual implication, and in recurring
situations the law often supplies a term in the absence of agreement to the
contrary.”).
¶ 28.         We
recognize that an agreement creating a ROFO need not include all the terms that
will ultimately govern the details of its implementation and that certain terms
of implementation are often determined in the course of performance.  See
Corbin, supra, at 482 (stating that it is not necessary that terms of
promised offer be specified in advance); Restatement (Second) of Contracts
§ 34(1) (“The terms of a contract may be reasonably certain even though it
empowers one or both parties to make a selection of terms in the course of
performance.”).  When a contract does include specific terms, however,
they will be enforced according to contract principles.
¶ 29.         The
parties here left some terms of the offer to be determined during the course of
performance, including the ultimate sale price and the number of dwelling units
for which sewage capacity would be available.  The provision of
sewage-disposal rights was not, however, left to be determined by later
performance but was instead explicitly provided for in the agreement. 
Nothing in the ROFO suggests that the sewage rights, or the right to purchase
in general, could be conditioned on a general release of a broad range of legal
claims wholly unrelated to the sewage system itself and against non-parties to
the contract.  The provision should therefore be enforced according to its
terms.  See Downtown Barre Dev. v. C & S Wholesale
Grocers, Inc., 2004 VT 47, ¶ 9, 177 Vt. 70, 857 A.2d 263 (“Vaguely
implied conditions may not be inserted into an agreement, particularly when
those conditions are inconsistent with the express language of the agreement,
or when they impose a restraint on doing business.”  (citations omitted));
In re New Eng. Tel. & Tel. Co., 159 Vt. 459, 466, 621 A.2d 232, 237
(1993) (“Where the language of a contract is clear and unambiguous, the plain
meaning of the language applies.”).
¶ 30.         Most
importantly, there is a difference between supplying a term omitted from the
agreement but necessary for implementation and grafting a condition onto a
contractual term that changes the nature of the parties’ bargain.  Compare
Gade v. Chittenden Solid Waste Dist., 2009 VT 107, ¶¶ 23-26, 187 Vt. 7,
989 A.2d 491 (“[I]n the absence of contractual terms limiting the duration of
the contract, we will imply a ‘reasonable time’ ” (citation omitted)) with
Bramble, Inc., 914 A.2d at 149 (concluding that “poison pill” clause added
to offer under right of first refusal “would defeat [the] purpose of
Petitioner’s desire to own the Property, thereby frustrating Petitioner’s
bargained-for equitable interest in the Property”).  With some
limitations, the owner of property subject to a preemptive right “remains
master of the conditions under which he will relinquish his interest.”  Seessel Holdings, Inc. v. Fleming Cos., 949 F. Supp. 572,
577-78 (W.D. Tenn. 1996).  That principle does not, however,
empower the owner to retroactively amend the terms of the right.  St. George’s Dragons, 971 A.2d at 1100.  Here,
the no-contest provision extends to any land owned or leased by the TIC
and SP Land Co. (including land that was not connected in any way to the 1988
agreement) and extends to the waiver of claims against entities who were not
parties to that agreement.[6] 
Given the parties’ intent at the time the agreement was made and the explicit
provision for sewage capacity, we agree with the trial court that offering
sewage capacity conditioned on the no-contest provision does not provide
Mountainside with the benefit it reasonably expected under the 1988 agreement.
¶ 31.         We
therefore affirm the trial court’s judgment that SKI’s 2012 offer does not satisfy
the requirements of the ROFO such that Mountainside’s rejection of the offer
frees up SKI to sell the property to someone else—although we do so for a
slightly different reason.  See, e.g., In re Handy, 171 Vt. 336,
343-44, 764 A.2d 1226, 1234 (2000) (noting that we may affirm lower court
decision on any ground).  Because we reach our conclusion on the basis of
straightforward contract interpretation, we need not and do not consider
whether the 2012 offer ran afoul of the implied covenant of good faith and fair
dealing.[7]
II.
¶ 32.         Having
concluded that SKI’s offer with the no-contest condition does not satisfy its
obligations under § 6(e), we turn now to the question of whether the ROFO,
construed to require an offer that includes sewage capacity that is not
conditioned on Mountainside’s relinquishment of ancillary legal rights,
constitutes an unreasonable restraint on alienation.  The trial court
concluded that it does, explaining that Mountainside can prevent the sale of
the property indefinitely or for as long as the TICs insist on the no-contest
condition.  Our review of the trial court’s legal conclusions as to the
restraint on alienation is plenary.  Smith v. Desautels, 2008 VT
17, ¶ 8, 183 Vt. 255, 953 A.2d 620.
¶ 33.         Mountainside
argues that the trial court erred in concluding that requiring SKI to offer
sewage capacity pursuant to the ROFO would result in an unreasonable restraint
on alienation.  Citing this Court’s decision in R & G
Properties, Mountainside argues that the sewage requirement was a
legitimate and lawful restraint on the alienation of the sixty-two-acre parcel.
¶ 34.         We
agree that enforcement of the parties’ ROFO would not run afoul of the
common-law rule against unreasonable restraints on alienation.[8]  In Vermont, the reasonableness of a
restraint on alienation depends on whether alienation is permitted to some
alienees and whether the restraint has a “long-term effect on improvement and
marketability of property.”  R & G Props., 2008 VT
113, ¶ 23 (quoting Iglehart v. Phillips, 383 So. 2d 610, 614 (Fla.
1980)).  “Reasonableness is determined by weighing the utility of the
restraint against the injurious consequences of enforcing the restraint.” 
Restatement (Third) of Prop.: Servitudes § 3.4.  In assessing the
validity of a ROFO, we consider the purpose of the right, the price, and the
clarity of the procedures for exercising the right.  Id.
§ 3.4 cmt. f (explaining that rights of first refusal are valid
where price is not fixed, period to exercise right is relatively short, and
purpose of right is legitimate); Stephens, 475 F. Supp. 2d at 1312
(looking to right’s purpose, price, and duration to determine its validity).
¶ 35.         In R & G
Properties, this Court explained that “[r]estraints on alienation are not
favored, and courts determine the reasonableness of a restraint by considering
a number of factors.”  2008 VT 113, ¶ 23. 
In that case, the borrower under a mortgage agreement argued that the
mortgagor’s refusal to allow partial substitution of collateral, when combined
with a statute requiring notice and a waiting period before selling the
collateral at issue, constituted an unreasonable restraint on alienation. 
Id. ¶ 32.  This Court concluded that
although the statutory requirements made it more difficult to sell the
collateral, they did not render the sale impossible, and an interpretation of
the agreement that did not allow for partial substitution of collateral did not
therefore unreasonably restrain the collateral’s alienation.  Id. ¶ 33.
¶ 36.         To
begin, we note that while it is the no-contest condition that has caused the
current stalemate, the proper focus for determining the ROFO’s validity is on
the contractual provision itself.  The contract requires SKI to offer the
sixty-two acres to Mountainside, including appropriate sewage capacity, before
selling to another buyer at the same or a higher price.  That SKI no
longer controls the provision of sewage capacity may impact its remedies and
defenses in the context of a breach of contract action, but it does not
actually change the requirements of the ROFO.[9]
¶ 37.         From
that perspective, the ROFO is not an unreasonable restraint on
alienation.  First, the purpose of the ROFO itself was to encourage
development of the property.  See Edgar v. Hunt, 706 P.2d 120, 122
(Mont. 1985) (“[I]f the circumstances suggest that the restraint was freely
entered into by mutual consent as a normal incident of an equal bargaining
relationship in order to promote the original transfer of the property, the
scales will tip back towards the reasonableness of the restraint.”); see also Colby
v. Colby, 157 Vt. 233, 238-39, 596 A.2d 901, 903-04 (1990) (recognizing
that preemptive right initially encouraged alienation rather than restraining
it).  Both parties agree that sewage capacity is necessary to develop the
parcel and, as the trial court found, the ROFO was a valuable part of the
bargain for the purchase of the adjacent thirty-three acres.  Mountainside
purchased the thirty-three acres hoping to one day acquire the remaining
sixty-two, and it developed its property with that plan in mind.  In
exchange, SKI received the benefit of an immediate sale of the thirty-three
acres for development, and a potentially highly motivated buyer when it did
decide to sell the sixty-two acres.  See Watergate Corp. v. Reagan,
321 So. 2d 133, 136 (Fla. Dist. Ct. App. 1975) (explaining that right of first
refusal is not unlawful restraint because it provides multiple buyers when
there would otherwise be only one), overruled on other grounds by Old
Port Cover Holdings, Inc. v. Old Port Cove Condo. Ass’n One, 986 So. 2d 1279, 1285-86 (Fla. 2008).
¶ 38.         Second,
neither party suggests that the price term or the duration of the ROFO
unreasonably restrain alienation.  The price is set at “market value as
determined by [SKI]” and the right is triggered only “when and if [SKI] in its
sole discretion decides to sell” the parcel.  SKI therefore has control of
the price term and the decision to sell.  Section 6(e) establishes clear
procedures for exercising the right.  It gives Mountainside thirty days to
exercise its right once SKI has made a written offer.  This practical interference
with the alienability of the parcel is slight.  See Restatement (Third) of
Prop.: Servitudes § 3.4 cmt. c (“The standard against which the impact of
a restraint is to be measured is that of the property owner free to transfer
property at his or her convenience at a price determined by the market.”); see
also Low v. Spellman, 629 A.2d 57, 57 (Me. 1993) (concluding that
preemptive right exercisable at fixed price and perpetual in duration is
unreasonable restraint on alienation). 
¶ 39.         Here,
the trial court rested its conclusion that alienation of the sixty-two-acre
parcel is unreasonably restrained on the suggestion that, due to intervening
events since parties executed the ROFO, Mountainside can now, by refusing to
accept the no-contest provision, effectively prevent the sale of the property
in perpetuity.  The conclusion that the parties’ negotiating positions
will not change is, however, merely speculative and imputes an unnecessary
permanence into a flexible, commercial negotiation.  Moreover, the trial
court’s only finding with respect to the condition is that it is controlled by
the TICs and not by SKI.  There is nothing in the record to support the
conclusion that the no-contest condition is non-negotiable, or that the parties
may not agree to a sale that does not include sewage rights.  Like R & G
Properties, while the condition may have stalled the transfer of the
parcel, it does not definitively preclude alienation of the sixty-two-acre
parcel.
¶ 40.         Given
our holding that the offer containing a no-contest provision does not comply
with § 6(e) and that the rule against unreasonable restraints on
alienation is not violated, we reverse the trial court’s ruling that SKI could
comply with the ROFO by offering the parcel without sewage capacity at the
initial offer price.  We do so for several reasons.  First, we note
that both parties argue on appeal that the trial court’s ruling went beyond the
question presented in the declaratory judgment action.  The question of
whether the ROFO, under the circumstances, amounted to an unlawful restraint on
alienation was before the trial court, and the trial court offered this
alternative transaction as a potential way to avoid the unlawful restraint on
alienation that it had identified.  Whether or not the trial court’s
declaratory judgment went beyond the issues presented in the context of the
trial court’s finding of an unlawful restraint on alienation, our conclusion
that the ROFO does not constitute an improper restraint on alienation renders
it unnecessary to suggest a workaround at this time.
¶ 41.         Moreover,
the trial court made no findings and there is nothing in the record to support
the conclusion that the market value of the parcel would be the same with or
without sewage capacity.  If anything, the trial court’s findings with
respect to the limited availability of sewage capacity in the Killington area
and the need for such capacity to develop the parcel point the other way. 
A suggestion that Mountainside might be required to pay the full market
price  for developable property in order to exercise its rights under the
ROFO to acquire property with no sewage capacity effectively shortchanges
Mountainside under the ROFO agreement for its refusal to accept a condition the
court concluded it had no reason to expect when the contract was made. 
Because the court’s conclusion is not supported by the findings, we reverse
that aspect of the trial court’s declaratory judgment.
Affirmed in part, reversed
in part, and remanded with instructions to enter declaratory judgment that
SKI’s offer to Mountainside dated August 30, 2012 does not meet the
requirements of the ROFO executed by the parties in 1988.
 

 

 

FOR THE COURT:

 

 

 

 

 

 

 

 

 

 

 

Associate
  Justice

 

[1] 
Justice Crawford was present for oral argument, but did not participate in this
decision.

[2]
 The thirty-three acres and the sixty-two acres are part of a larger
400-acre planned unit development (PUD).

[3]
 The TICs are MTB Killington, LLC; AMSC Killington, LLC; and SP II Resort
LLC.  They are collectively known as Killington/Pico Ski Resort Partners,
LLC.

[4]
 SP Land was the actual entity that contracted to purchase the Killington
assets in 2007.  It then assigned its rights to the TICs, so the TICs
ended up purchasing the assets.  Although the trial court did not make a
finding that SP Land and the TICs are formally related, it did identify one
individual who is an officer of SP Land who has also been actively involved in
the TICs’ development projects.

[5] 
Preemptive rights of first refusal and first offer are distinguishable from
option contracts, which give the holder of the option power to compel an owner
to sell property.  A right of first refusal does not give the holder the
power to so compel the owner.  David A. Bramble, Inc. v. Thomas,
914 A.2d 136, 143-44 (Md. 2007) (stating that unlike an option, the holder of a
right of first refusal “has no unqualified power to compel a sale to him or to
a third person” (quoting Restatement (First) of Prop. § 413, cmt. b
(1944)).  Some courts have explained that a preemptive right “ripens” into
an option to purchase once the owner voluntarily decides to sell property, see Stephens
v. Trust for Pub. Land, 475 F. Supp. 2d 1299, 1302 n.4 (N.D. Ga. 2007), or
is analogous to an option subject to a condition precedent, Bramble, Inc.,
914 A.2d at 143.

[6] 
We do not reach the questions of whether a no-contest provision such as this
one is commercially reasonable or whether this particular condition is valid.
 

[7]
 Because we do not consider the implied covenant, we need not address
SKI’s arguments that the trial court erred in relying on the covenant because
the issue was not raised in the proceedings below, and that SKI acted in good
faith.

[8]
 The parties have not raised, and we do not
decide, whether the preemptive right here must also comply with the rule
against perpetuities.  Courts have divided over whether such preemptive
rights should be tested under the rule against perpetuities rather than the
common-law rule against unreasonable restraints, and disagree over the extent
to which the two rules overlap.  Compare, e.g., Ferrero Constr. Co. v.
Dennis Rourke Corp., 536 A.2d 1137, 1139-41 (Md. 1988) (choosing to follow
“vast majority of courts and commentators” in holding that rule against
perpetuities applies to rights of first refusal, rather than minority of courts
which hold rule inapplicable, and collecting cases) with Metro. Transp.
Auth. v. Bruken Realty Corp., 492 N.E.2d 379, 384-85 (N.Y. 1986) (holding
that “preemptive rights unlimited in duration” in “commercial and governmental
activities . . . are best regulated by the rule against unreasonable
restraints on alienation so that the utility of the restriction may be
considered, rather than by the inflexible” rule against perpetuities, “because
neither ‘lives in being’ nor ‘twenty one years’ are periods which are relevant
to business or government affairs”); see also Atl. Richfield Co. v. Whiting
Oil & Gas Corp., 2014 CO 16, ¶ 43, 320 P.3d 1179 (noting that “the
perpetuities period of lives in being plus twenty-one years” has “little
relevance in the commercial arena,” and focusing instead on “whether the
interest at issue unreasonably impact[s] the free alienability of the property
or threaten[s] to deter the owner from improving the property”); Restatement
(Third) of Prop.: Servitudes § 3.3 cmt. b (“In
. . . permitting the social utility of the particular arrangement to
avoid invalidation [under rule against perpetuities], courts in fact are
applying the rule against unreasonable restraints on alienation rather than the
rule against perpetuities.”).  Because this issue was not raised at trial
or on appeal, we do not reach it.

[9] 
SKI does not raise, and we do not reach, the question of whether current
circumstances would support affirmative defenses in a breach-of-contract
action, such as impossibility or frustration of purpose.  Such defenses
would force the exploration of the circumstances surrounding SKI’s conveyance
of the sewage plant and the impact of SKI’s failure to retain sewage capacity
when it sold the facility.  A party who created the circumstances that
brought about the impossibility or frustration of purpose cannot raise these
doctrines as defenses.  E.g., United States v. Winstar Corp., 518
U.S. 839, 895 (1996) (stating that “common-law defense of impossibility of
performance against [a] claim for breach . . .
is traditionally unavailable where the barrier to performance arises from the
act of the party seeking discharge”); Restatement (Second) of Contracts
§§ 261, 266 (duty to render performance will not be discharged unless
purpose is frustrated or made impracticable without fault of party seeking
discharge).