Whitner Reade Milner v. Willis Latimer Milner

FOURTH DIVISION
DILLARD, P. J.,
MERCIER and PINSON, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
March 8, 2022
In the Court of Appeals of Georgia
A21A1275. MILNER v. MILNER.
PINSON, Judge.
Two brothers, Whit and Lat Milner, owned shares in a closely held insurance
company. The shareholders’ agreement required any shareholder who wanted to
transfer his shares to notify the company and offer a first right of refusal to the
company and other shareholders. Whit, however, agreed to sell his shares to his
nephew, Chad, without notifying the company. After the company and Lat learned of
the sale from Chad, Whit rescinded his agreement with Chad. Lat then tried to
exercise his right of first refusal, but Whit refused to sell, and so Lat sued him to
enforce his right. The trial court granted summary judgment and ordered Whit to sell
his shares to Lat on the same terms he had given to Chad.
We affirm. Based on the language of the contract and settled contract law, Lat’s
right of first refusal was triggered when the company received notice of Whit’s
intention to sell his shares to Chad. That right endured even after Whit rescinded his
agreement with Chad, because a right of first refusal ripens into an option when it is
triggered, and options are irrevocable for the duration of the option. So the trial court
properly granted specific performance to enforce Lat’s right to buy the shares.
Background
In 1982, four brothers and their father formed British American Insurance
Intermediaries, Inc. (“BAII”) to sell and broker insurance. The four brothers, BAII’s
original shareholders, signed a shareholders’ agreement.
Most relevant here, that shareholders’ agreement includes a section titled
“Restriction on Sale, Transfer, or Encumbrance of Company Shares.” In paragraph
2 (a) of that section, the shareholders “agree[d] that the Shares shall neither be sold,
transferred, pledged, encumbered, nor otherwise disposed of without first giving
written notice of the transaction and then offering a first right of refusal to the
Company and to the other Shareholders.” Paragraphs 2 (b) and 2 (c) then explain the
procedure for when a shareholder desires to transfer his shares, which requires the
shareholder to give “written notice of his intent to transfer” and then gives the
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company and the other shareholders, “upon receipt” of that notice, a 30-day “option”
to elect to purchase the shares at issue:
b) Any Shareholder desiring to make a transfer of his Shares . . . shall
give a written notice to the Company of his intent to transfer the Shares.
That notice must state the identity of the proposed transferee, the terms
of the transfer, the price, if any, offered by the transferee for the Shares,
and other facts relevant to the transfer. . . .
c) Upon receipt of such notification by the Company, the Company shall
have an option for thirty (30) days, from the date of such receipt, to elect
to purchase all, but not less than all, of the Shares the Transferor
proposes to transfer. If the option is not exercised by the Company, then
the other Shareholders shall have a similar option to purchase the
Shares. . . .
Finally, section 7 of the shareholders’ agreement, titled “Notices,” requires that “[a]ny
and all notices, . . . or any other communication herein provided for shall be in
writing and hand delivered or given by registered or certified mail, postage pre-paid,
addressed to the Company and its principal office, at to each Shareholder at his
address[.]”
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Over time, two of the brothers transferred their stock back to BAII, leaving the
other two, hitner Reade Milner (“Whit”) and Willis L. Milner (“Lat”) as the
remaining shareholders.
In 2017, Whit executed a stock purchase agreement to sell his shares in BAII
to the parties’ nephew, Sexias Milner, III (“Chad”) for $10,000. The stock purchase
agreement stated that Whit “agrees to sell the Shares” to Chad, set a closing date, and
provided that the agreement “will constitute the valid and legally binding agreement.”
Whit did not give notice of the stock purchase agreement or the intended closing date
to either BAII or Lat before executing the agreement. Seven days after Whit and Chad
executed the agreement, Chad sent Lat an email notifying him of the stock purchase
agreement and asking him to call a shareholders’ meeting.
Later that month, BAII’s counsel informed Whit by letter that BAII considered
the stock purchase agreement to be written notice of his intent to transfer his shares,
thus triggering BAII’s 30-day option to purchase the shares under the right-of-first-
refusal provision in the shareholders’ agreement. BAII’s counsel asked Whit, as a
voting member of the board, to sign and return a corporate resolution allowing BAII
to purchase the shares. Counsel further noted that if the board could not agree to such
a purchase, the shareholders’ agreement required Whit to extend the right of first
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refusal to Lat, the remaining shareholder. Once notified of this requirement in the
shareholders’ agreement, Whit and Chad executed a rescission agreement, but Whit
did not then execute the necessary corporate resolution to allow BAI to purchase the
shares within 30 days, so BAII did not purchase the shares.
After BAII’s 30-day option expired, Lat then sent Whit a letter seeking to buy
the shares on the same terms set forth in the stock purchase agreement. During a
conversation later that day, Whit accepted Lat’s offer, and followed up with a few
days later with text message to Lat stating his intent to transfer the stock to Lat. Whit
did not, however, respond to Lat’s later request to close.
As a result, Lat sued to enforce the terms of his agreement with Whit and raised
claims for breach of contract, declaratory judgment, and specific performance. Lat
moved for summary judgment, and the trial court granted the motion. The court found
that Whit’s execution of the purchase agreement qualified as a “shareholder desiring
to make a transfer of his Shares,” which “trigger[ed] the notice and option provisions
of the Shareholders’ Agreement, thereby vesting [Lat] with an irrevocable right to
acquire such stock on the same terms within a specified time.” Whit thus breached the
shareholders’ agreement by failing to notify BAII and Lat of his intent to sell and
offer the shares to them on the same terms, and Lat had timely attempted to exercise
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his option to buy the shares. The court went on to conclude that specific performance
was an appropriate remedy for the breach because the stock was in a closely held
corporation, and so the court ordered Whit to convey his BAII shares to Lat on the
same terms he had accepted from his nephew. Whit appealed.
Discussion
We review the trial court’s grant of summary judgment de novo, viewing the
evidence in the light most favorable to the nonmoving party. Cowart v. Widener, 287
Ga. 622, 624 (697 SE2d 779) (2010).
Whit contends that the trial court erred in granting Lat’s motion for summary
judgment and ordering specific performance for three reasons. First, he argues that
Lat’s right of first refusal was never triggered because Whit never gave BAII written
notice of his intent to sell. Second, he argues that his rescission of the stock purchase
agreement with Chad precluded Lat from exercising his right of first refusal. And
third, he argues that Lat failed to strictly comply with the notice requirement for
exercising his right of first refusal. Applying settled principles of contract law, we
conclude that the first two arguments lack merit. The third argument is waived.
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1. Whit first contends that the trial court erred in granting specific performance
because Lat’s right of first refusal under Section 2 of the shareholders’ agreement was
never triggered. We disagree.
(a) As a threshold matter, we agree that the specific performance the trial court
ordered was appropriate only if the right of first refusal had been triggered. Until a
right of first refusal is triggered by whatever event or circumstances the contract
specifies, it is “[e]ssentially a dormant option,” Walters v. Sporer, 298 Neb. 536, 471
(1) (905 NW2d 70) (2017), or as our courts have described it, a “preemptive right.”
Hasty v. Health Serv. Ctrs., Inc., 258 Ga. 625, 626 (373 SE2d 356) (1988). In that
state, the right holder cannot force the owner to sell; he has a contingent right only.
This changes “when the owner decides to sell.” Hasty, 258 Ga. at 626(emphasis omitted). When that happens—and once whatever evidence of that
intention that the contract requires (here, “notice”) is established—the right of first
refusal is “trigger[ed],” or “ripens” into an enforceable option. 25 Williston on
Contracts § 67:89 (4th ed. 2021); see, e. g., Walters, 298 Neb. at 547–48 (1) (a)
(2017) (“Essentially a dormant option, a right of first refusal is merely contingent
until the condition precedent is met, at which point the preemptive right ripens into
a full option.”); Chapman v. Mut. Life Ins. Co. of New York, 800 P.2d 1147, 1150
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(Wyo. 1990) (“We agree with the view that when the condition precedent of the
owner’s intention to sell is met the right of first refusal ‘ripens’ into an option and
contract law pertaining to options applies.”); see also Hasty, 258 Ga. at 626(explaining that the person holding the right of first refusal “must be offered the
opportunity to buy” “when the owner decides to sell”) (emphasis in original). At that
point (and only then), a right-of-first-refusal holder who has exercised the “ripened”
option is generally entitled to specific performance of the new contract formed by
acceptance of the option—that is, the right holder can compel the owner to sell on
whatever terms the option provided. See Hasty, 258 Ga. at 626 (affirming grant of
specific performance requiring sale to right holder after right of first refusal was
triggered); Walters, 298 Neb. at 549 (1) (a) (stating that a right of first refusal “may
be enforced by specific performance when it can be proved that the condition
triggering the right has occurred and the option holder was ready, able, and willing
to buy during the period”); 25 Williston on Contracts § 67:89 (4th ed.) (“It is
sometimes stated that a right of first refusal ripens into an option upon the owner’s
intention to sell, entitling the right holder to specific performance, though that remedy
is not available before the option ripens.”); id. § 67:87 (explaining that an accepted
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option is enforced by requiring specific performance of “the contract which arises
upon acceptance of the option”).
Here, there is no question that the trial court ordered specific performance of
the new contract formed when Lat exercised his option under the shareholders’
agreement. In other words, by ordering Whit to convey his shares to Lat on the same
terms as the purchase agreement he had with Chad, which was precisely what the
option set out in the shareholders’ agreement provided. Because Lat is only entitled
to such specific performance if his right of first refusal was triggered—thus giving
him an enforceable option—we must determine whether that right was triggered in
the first place.
(b) The question whether the right of first refusal was triggered requires
construction of the BAII shareholders’ agreement. See, e. g., Hewatt v. Leppert, 259
Ga. 112, 114, 376 SE2d 883) (1989) (construing the “language of the first refusal
clause” to determine that a right of first refusal was not triggered). Contract
construction is ordinarily a question of law for the court, Simpson v. Pendergast, 290
Ga. App. 293, 296 (1) (659 SE2d 716) (2008), and the steps are familiar: If the
relevant contract language is “clear and unambiguous,” we “enforce[] the contract
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according to its clear terms.” Langley v. MP Spring Lake, LLC, 307 Ga. 321, 323 (834
SE2d 800) (2019). If, on the other hand, the language is “ambiguous in some
respect,” we “apply the rules of contract construction to resolve the ambiguity.” Id.Finally, “if the ambiguity remains after applying the rules of construction, the issue
of what the ambiguous language means and what the parties intended must be
resolved by a jury.” Id.As we understand it, the best version of Whit’s argument goes something like
this: Paragraph 2 (b) of the agreement requires “[a]ny Shareholder desiring to make
a transfer of his Shares” to “give a written notice to the Company of his intent to
transfer the Shares” that states the identity of the transferee, the terms and offer price,
and “other facts relevant to the transfer.” Paragraph 2 (c) then explains that, “[u]pon
receipt of such notification,” BAII “shall have an option for thirty (30) days, from the
date of such receipt, to elect to purchase” the shares. (If, as here, BAII does not
exercise its option, “the other Shareholders shall have a similar option” beginning on
the last day of BAII’s option period.) In Whit’s view, this language indicates that only
written notice from the shareholder that he intends to transfer his shares can trigger
the “option clause” of Paragraph 2 (c). Because Whit never sent the notice
contemplated by these paragraphs, he argues that the option clause, which ultimately
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would give Lat the right to buy Whit’s shares on the terms offered to Chad, was never
triggered.
We are not persuaded. It is true that the option clause is triggered when BAII
receives notice of a shareholder’s intent to transfer shares. The agreement specifies
that BAII’s option is triggered “upon receipt of such notification.” By using the
phrase “such notification,” the agreement points back to the just described “written
notice to the Company of [the Shareholder’s] intent to transfer the Shares.” See Bryan
A. Garner, Modern English Usage 873 (explaining that “such is a pointing word that
must refer to a clear antecedent” and is used “when reference has previously been
made to a category of people or things”). Thus, the option clause here is not triggered
until BAII receives written notice of a shareholder’s intent to transfer shares.
But the agreement does not narrow the triggering event to only the receipt of
a notice sent by the shareholder himself, as Whit suggests. Instead, the best reading
is that the option clause is triggered when the company receives notice of the
shareholder’s intent to sell, regardless of whether the shareholder himself complied
with his obligation to send that notice himself. The text of this agreement, legal
context, and common sense together compel this construction.
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Start with the text itself. Paragraph 2 (c) explains that BAII’s option right arises
“[u]pon receipt of such notification by the Company.” This language makes clear that
the trigger for the option right is BAII’s “receipt” of the notification about the
shareholder’s intent to sell, not the shareholder’s (or anyone’s) act of sending a
notice. To be sure, the previous paragraph, Paragraph 2 (b), says the “Shareholder .
. . shall give a written notice to the Company of his intent to transfer the Shares.” But
that separate language is imposing an obligation on the shareholder, not specifying
the trigger for the right of first refusal. That role is handled by Paragraph 2 (c) alone.
Paragraph 2 (c) could have easily specified that the triggering event is the receipt of
the notice sent by the shareholder by including a clause along those lines. That it
instead identifies as the trigger only the “receipt” of the previously described
notification is at least some evidence that the option clause is triggered as long as the
company receives notice of the intent to sell—regardless of who sent, or how the
company got, the notice the company “recei[ves].” Accord Hasty, 258 Ga. at 626(where operative agreement similarly required owner to give written notice of intent
to sell to right-of-first-refusal holder, right of first refusal was triggered despite
owner’s failure to give such notice after owner granted option to third party to buy
the property).
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This reading makes even more sense in light of established law on rights of
first refusal. As a general matter, a right of first refusal is a right to buy property
“when the owner decides to sell.” Hasty, 258 Ga. at 626 (emphasis omitted); IH
Riverdale, LLC v. McChesney Capital Partners, 280 Ga. App. 9, 12 (1) (b) (633 SE2d
382) (2006). It is thus well understood that such intent or “willingness of the owner
to sell” is the basic condition that triggers a “right of first refusal.” 25 Williston on
Contracts § 67:89 (4th ed.); see, e.g., Booker v. Hall, 248 Ga. App. 639, 641 (1) (a)
(548 SE2d 391) (2001) (Right of first refusal “sets a requirement that when the owner
decides to sell the person holding the preemptive right must be offered the
opportunity to buy”). And our courts have concluded that the owner’s willingness to
sell may be proved—and the right thus triggered—by a showing that the owner
“committed himself to sell” the property on specific terms by entering into a contract
to that effect. Hasty, 258 Ga. at 626; see also Phoenix Tower, Inc. v. Shaffer, 254 Ga.
App. 394, 395 (562 SE2d 788) (2002) (lessor’s “receipt and acceptance of an offer
to purchase the property” triggered right of first refusal). This settled understanding
of what triggers a right of first refusal is part of the legal backdrop that parties bring
in when they contract for such a right by using that well-known term. Archer W.
Contractors, Ltd. v. Estate of Pitts, 292 Ga. 219, 224 (735 SE2d 772) (2012) (“[T]he
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context in which a contractual term appears always must be considered in determining
the meaning of the term.”) (emphasis omitted). Whit’s interpretation, already a stretch
in light of the agreement’s language, departs from that settled understanding by
deeming clear proof of an intent to sell—execution of a sale contract for the
shares—insufficient to trigger the right. Our reading, on the other hand, is consistent
with the ordinary understanding of how a right of refusal operates. All else equal, we
favor a construction that is consistent with the ordinary understanding of a right of
first refusal over one that rejects that understanding. Id.; see also OCGA § 13-2-2 (2).
Finally, common sense bolsters this conclusion. The whole point of a right of
first refusal is to prevent an owner from selling property without first giving the right
holder a chance to buy it. See Hewatt v. Leppert, 259 Ga. 112, 113 (376 SE2d 883)
(1989) (quoting 1A Corbin on Contracts § 261 at p. 471 (1963)) (“When a lease
contains a right of first refusal clause the [owner] ‘is under a legal duty to [the right
holder] not to sell to anybody at any price until after he has made an offer to sell to
[the right holder] at that price and [the right holder] has failed to accept it.’”)
(emphasis in original.); 25 Williston on Contracts § 67:89 (4th ed.) (right of first
refusal “limits the right of the owner to dispose freely of its property by compelling
the owner to offer it first to the party who has the first right to buy”). That singular
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purpose would be completely defeated by Whit’s interpretation. In his view, a
shareholder can avoid triggering this right of first refusal at will by breaching his
separate notice obligation. Simply put, that can’t be right. Cf. Ga. 20 Props. LLC v.
Tanner, 255 Ga. App. 6, 10 (2) (564 SE2d 459) (2002) (“A party cannot avoid the
obligations of a contract by frustrating the performance of a condition precedent”).
We generally presume that parties do not include meaningless or inoperative language
in contracts. See Am. Cas. Co. of Reading, Pa. v. Etowah Bank, 288 F.3d 1282, 1287
(11th Cir. 2002) (applying Georgia contract law, explaining that “a contract ought to
be interpreted so that every section of it has a function”); see also OCGA § 13-2-2(4)
(“The construction which will uphold a contract in whole and in every part is to be
preferred.”). We decline to adopt a construction of a right of first refusal that would
effectively destroy the right of first refusal that it expressly provides.
For all of these reasons, we conclude that the right of first refusal here is
triggered when the company receives notice of the shareholder’s intent to sell,
regardless of whether the shareholder himself complied with his obligation to send
that notice. Such intent to sell is established when an owner “commit[s] himself to
sell” the property on specific terms by entering into a contract to that effect. Hasty,
258 Ga. at 626. Thus, when BAII received notice from Chad that Whit executed a
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purchase agreement with Chad, it triggered the shareholders’ agreement’s right of
first refusal.
2. Whit next contends that the trial court erred in enforcing Lat’s right of first
refusal because Whit’s later rescission of the stock purchase agreement with Chad
precluded Lat from exercising his right. He grounds this argument in case law that
distinguishes rights of first refusal from options and says that only the option “gives
to the holder the power to compel a sale by an unwilling owner.” Hasty, 258 Ga. at
626.
This argument is mistaken. It is true that a right of first refusal is different from
a pure option before it is triggered. Before a right of first refusal is triggered, it is a
“preemptive right” that does not permit the right holder to force the owner to sell. Id.;
see also Hewatt, 259 Ga. at 113. But, as we explained above, once a right of first
refusal is triggered, it ripens into an option. And it is well settled that an option is
“irrevocable” for its duration. TST, Ltd., Inc. v. Houston, 256 Ga. 679, 680 (2) (353
SE2d 26) (1987); see 1 Williston on Contracts § 5:16 (4th ed.) (explaining that an
option “constitutes a continuing irrevocable offer” that “cannot be unilaterally
withdrawn”). So here, once BAII received notice of Whit’s purported sale of his
shares to Chad and its right of first refusal thus ripened into an option, Whit had no
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power to prevent BAII or Lat from exercising the option for its duration, whether by
rescinding the purchase agreement or otherwise. Pargar, LLC v. CP Summit Retail,
LLC, 316 Ga. App. 668, 671 (730 SE2d 136) (2012) (explaining that “an option
contract binds the offeror,” while “the holder of the option retains the discretion
whether to accept the offer”); Ga. Contracts Law and Litigation § 3:7 (2d ed.)
(defining an option as “a unilateral agreement binding on the optionor”).
3. Whit finally contends that the trial court erred in granting specific
performance because Lat failed to strictly comply with the notice requirement for
exercising his right of first refusal. Whit points out that the letters BAII and Lat sent
him asking to buy the shares were sent only by email or postal mail and did not
comply strictly with the notice requirements of the shareholders’ agreement.
This argument is waived. Whit did not attack Lat’s purported lack of
compliance with the terms for exercising his right of first refusal before the trial
court, and we will not consider it for the first time on appeal. See Pfeiffer v. Ga. Dept.
of Transp., 275 Ga. 827, 829 (2) (573 SE2d 389) (2002) (when reviewing a trial
court’s summary judgment order, “absent special circumstances, an appellate court
need not consider arguments raised for the first time on appeal”). Whit contends in
his reply brief that he preserved this argument below by arguing that “inaction
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constituted a waiver of the option to purchase” and that “no corporate formalities
have been exercised since BAII’s inception.” But even if we were inclined to address
an argument raised for the first time in a reply brief, Barron v. Wells Fargo Bank, N.
A., 332 Ga. App. 180, 187 (4) (769 SE2d 830) (2015), we do not think those
generalized statements sufficient to preserve this argument.
Judgment affirmed. Dillard, P. J., and Mercier, J., concur.
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