MS Real Estate Holdings, LLC v. Donald P. Fox Family Trust

2015 WI 49
SUPREME COURT OF WISCONSIN
CASE NO.: 2013AP679
COMPLETE TITLE: MS Real Estate Holdings, LLC,
Plaintiff-Appellant,
v.
Donald P. Fox Family Trust, Jean A. Fox
Revocable Living
Trust, Jean A. Fox, Michael J. Fox, Thomas P.
Fox, Karen
L. Brazee, Carol L. Brewer, Ellen J. Fox and Amy
J. Alaniz,
Defendants-Respondents-Petitioners.
REVIEW OF A DECISION OF THE COURT OF APPEALS
(Reported at 356 Wis. 2d 307, 853 N.W.2d 627)
(Ct. App. 2014 – Published)
PDC No: 2014 WI App 84
OPINION FILED: May 15, 2015
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: March 3, 3015
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Outagamie
JUDGE: Michael W. Gage
JUSTICES:
CONCURRED:
DISSENTED:
NOT PARTICIPATING:
ATTORNEYS:
For the defendants-respondents-petitioners, there were
briefs by Charles D. Koehler, Michael C. Menghini, and Herrling
Clark Law Firm, Ltd., and oral argument by Charles D. Koehler.
For the plaintiff-appellant, there was a brief by Jordan J.
Hemaidan, Michael P. Screnock, and Michael Best & Friedrich LLP,
Madison. Oral argument by Jordan Hemaidan.
There was an amicus curiae brief by Cori Moore Lamont and
Wisconsin Realtors Association, Madison, on behalf of the
Wisconsin Realtors Association.
2
2015 WI 49
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2013AP679
(L.C. No. 2012CV214)
STATE OF WISCONSIN : IN SUPREME COURT
MS Real Estate Holdings, LLC,
Plaintiff-Appellant,
v.
Donald P. Fox Family Trust, Jean A. Fox FILED
Revocable Living
Trust, Jean A. Fox, Michael J. Fox, Thomas P. MAY 15, 2015
Fox, Karen
Diane M. Fremgen
Clerk of Supreme Court
L. Brazee, Carol L. Brewer, Ellen J. Fox and
Amy J. Alaniz,
Defendants-Respondents-Petitioners.
REVIEW of a decision of the Court of Appeals. Affirmed.
¶1 MICHAEL J. GABLEMAN, J. We review a published
decision of the court of appeals1 reversing the Outagamie County
1
MS Real Estate Holdings, LLC v. Donald P. Fox Family
Trust, 2014 WI App 84, 356 Wis. 2d 307, 853 N.W.2d 627.
No. 2013AP679
circuit court's order2 granting summary judgment in favor of
Donald P. Fox Family Trust, Jean A. Fox Revocable Living Trust,
Jean A. Fox, Michael J. Fox, Thomas P. Fox, Karen L. Brazee,
Carol L. Brewer, Ellen J. Fox, and Amy J. Alniz ("the Foxes").
The Foxes moved for summary judgment, arguing that the right of
first refusal contract between the Foxes and MS Real Estate
Holdings, LLC ("MS Real Estate")3 was (1) indefinite and (2)
terminable at will. The circuit court concluded that the right
of first refusal contract was indefinite and subject to
termination at will, by either party, after a reasonable period
of time. This was so, the circuit court reasoned, because the
right of first refusal contract identified neither a specific
duration for the contract, nor an event terminating the contract
that was certain to occur.
¶2 The court of appeals reversed, concluding that the
right of first refusal contract is not indefinite. MS Real
Estate Holdings, LLC v. Donald P. Fox Family Trust, 2014 WI App
84, ¶23, 356 Wis. 2d 307, 853 N.W.2d 627. The court of appeals
concluded that the right of first refusal contract is not
indefinite because in the event MS Real Estate fails to exercise
the right of first refusal to purchase, such failure would
necessarily constitute a waiver of the right to lease. Id.
Therefore, the court of appeals concluded the entire right of
2
The Honorable Michael W. Gage, presiding.
3
Formerly known as Tidy View Dairy, Inc.
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No. 2013AP679
first refusal contract (that is, both the purchase and lease
provisions) expires only when MS Real Estate either exercises,
or declines to exercise, its right to purchase. Id., ¶¶29-31.
¶3 The sole issue presented for our consideration is
whether a triggering event uncertain to occur renders a right of
first refusal contract indefinite, thereby allowing a party to
terminate the contract at will after a reasonable period of
time.
¶4 We hold that a right of first refusal contract is
definite as to duration when it specifies an event that triggers
the right and requires the right holder to either exercise or
waive the right within a specified period of time thereafter,
even if the triggering event is not certain to occur.
Therefore, the right of first refusal contract at issue here is
not terminable at will after a reasonable period of time.
Rather, by the terms of the contract, the right of first refusal
continues until there is a sale of the property, either to MS
Real Estate or to a third party in the event that MS Real Estate
declines to exercise its right of first refusal to purchase,
thereby waiving its right. Accordingly, the decision of the
court of appeals is affirmed.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
¶5 MS Real Estate operates a dairy farm that adjoins
approximately 450 acres of farmland in the Town of Freedom in
Outagamie County, Wisconsin, owned by the Foxes ("the Fox
Land"). On January 16, 1998, MS Real Estate, as Tidy View
Dairy, Inc., contracted with Donald P. Fox and Jean A. Fox for a
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No. 2013AP679
right of first refusal to purchase or lease the Fox Land. MS
Real Estate paid Donald and Jean Fox $4,0004 for the right of
first refusal to purchase the Fox Land and the right of first
refusal to lease the Fox Land.
¶6 The purchase provision of the right of first refusal
contract states:
Section 1: Right of First Refusal to Purchase
Fox grants and conveys to Tidy-View a first right to
purchase the Property, or any part thereof, for the
same price and on the same terms which Fox is willing
to transfer such Property to another party. Prior to
such transfer, Fox shall deliver to Tidy-View a
written copy of the Offer, which Fox is willing to
accept. Tidy-View shall then have 15 (fifteen) days
in which to accept or reject the Offer according to
its price, terms and conditions. If the Offer is
accepted, the transfer shall be closed in accordance
with the Offer with Tidy-View as purchaser. If the
Offer is rejected, Fox may complete the sale in strict
compliance with the Offer. If the sale is not closed,
this first right of refusal shall again take effect.
¶7 Under the Right of First Refusal to Purchase
provision, should the Foxes receive an acceptable offer to
purchase, they must submit the offer to MS Real Estate—the
successor to Tidy-View, see supra n.3. MS Real Estate would
then have 15 days to accept or reject the offer. If MS Real
Estate rejects the offer, the Foxes may complete the sale with
the third-party that made the initial offer, but only on the
4
There is some dispute in the record as to whether MS Real
Estate paid $4,000 or $4,500 for the right of first refusal. In
either event, the consideration paid by MS Real Estate is not a
factor in our analysis.
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No. 2013AP679
terms of the initial offer accepted by the Foxes. The contract
also provides that the right of first refusal to purchase
reattaches if the third-party sale does not close.
¶8 The Right to Lease provision states:
Section 2: Right to Lease
2.1 Leasing Rights. Fox grants and conveys to Tidy-
View a first right to lease the Property, or any part
thereof, for the same price and on the same terms
which Fox is wiling to Lease such Property to another
party. Prior to execution of any Lease, Fox shall
deliver to Tidy-View a written copy of the Lease,
which Fox is willing to accept. Tidy-View shall then
have 15 (fifteen) days in which to accept or reject
the Lease according to its price, terms and
conditions. If the Lease is accepted, Tidy-View shall
be obligated to make all payments in accordance with
the Lease with Tidy-View as Lessee. If the Lease is
rejected, Fox may execute the Lease as Lessor with the
other party as Lessee. If the Lease is not executed,
the first right to lease shall again take effect.
¶9 The Right to Lease provision provides that MS Real
Estate has a first right to lease the Fox Land which operates in
a manner similar to the Right of First Refusal to Purchase
provision. If the Foxes receive a lease offer they would
accept, they must forward the offer to MS Real Estate. MS Real
Estate must either accept or reject the lease offer within 15
days. If MS Real Estate rejects the lease, the Foxes may
execute the lease with the third-party. If the Foxes do not
execute the lease, then MS Real Estate's first right to lease
reattaches.
¶10 The lease provision also includes a Continuing Rights
provision under Section 2.2, which states that the right to
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No. 2013AP679
lease "shall continue for any subsequent renewal of a Lease with
another party or upon entering into a new Lease with any other
party. It is specifically intended that this leasing right
shall not extinguish unless waived by [MS Real Estate]."
¶11 The right of first refusal contract also contains a
Binding Effect provision under Section 4, which states that
"[t]his Agreement shall be binding upon the respective parties,
their heirs, personal representatives, successors in interest
and assigns."
¶12 The Foxes leased the Fox Land to MS Real Estate in
2001. On October 4, 2006, Donald Fox sent MS Real Estate a
commercial offer to purchase 37.4 acres of the Fox Land, putting
MS Real Estate on notice that it had 15 days to accept or reject
the offer. MS Real Estate declined to exercise its right to
purchase the 37.4 acres. MS Real Estate notified the Foxes by
letter and attached an agreement entitled "Release of Parcel
From Right of First Refusal." The letter stated that the
attached agreement constituted waiver of the right of first
refusal as to the 37.4 acres in question and reasserted MS Real
Estate's right to the remainder of the Fox Land. However, the
sale did not close, and, under the terms of the right of first
refusal contract, the right of first refusal to purchase
reattached.
¶13 On January 11, 2007, the parties executed a five-year
land use agreement, which expired on January 11, 2012. The
agreement contained a handwritten provision that stated MS Real
Estate had the right of first refusal to purchase the land and
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No. 2013AP679
that if the Foxes sold any portion of the Fox Land, the rent
would be adjusted accordingly.
¶14 On July 29, 2011, the Foxes sent a notice to MS Real
Estate which noted that their lease agreement would expire in
January. In that notice, the Foxes invited MS Real Estate to
submit a bid to lease the property beginning in 2012. The Foxes
sent a second notice on October 26, 2011, which again requested
that MS Real Estate present a bid on a 2012 lease of the Fox
land. The notice also acknowledged MS Real Estate's right to
first lease and that the Foxes would follow the procedure for
allowing MS Real Estate to exercise its right should they
receive other bids to lease the property.
¶15 MS Real Estate responded on November 8, 2011, by
proposing two leases for the Foxes to choose between: a one-year
lease and a three-year lease. The lease proposals also
referenced MS Real Estate's right of first refusal and its
intent to abide by the contract's provisions.
¶16 On December 1, 2011, the Foxes notified MS Real Estate
that it was soliciting alternate lease proposals. On December
5, 2011, the Foxes sent MS Real Estate a proposal from Tinedale
Cropping to lease the property from January 1, 2012, to December
31, 2016, at an initial price of $200 per acre ("the Tinedale
Proposal"). MS Real Estate, believing that the Tinedale
Proposal was acceptable to the Foxes, attempted to exercise its
right of first lease on December 16, 2011, by notifying the
Foxes that it accepted the terms of the Tinedale Proposal. MS
Real Estate included a signed lease agreement for the Fox Land
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No. 2013AP679
under the terms of the Tinedale Proposal. The Foxes refused to
execute the lease.
¶17 On February 8, 2012, the Foxes delivered a second
lease to MS Real Estate pursuant to the right of first refusal
contract which Kavanaugh Farms and the Foxes had executed on
February 6, 2012 ("the Kavanaugh Lease"). The Kavanaugh Lease
ran from 2012 through 2016 and provided for a rent of $225 per
acre in the first year, with a two percent annual increase in
the cost per acre. The Foxes did not provide MS Real Estate
with a copy of the Kavanaugh Lease prior to its execution, but
communicated to MS Real Estate that it retained the right of
first lease and could accept the terms of the Kavanaugh Lease.
¶18 On February 12, 2012, MS Real Estate filed suit in
Outagamie County circuit court seeking declaratory judgment that
the Tinedale Proposal constituted an offer to lease which had
been accepted by MS Real Estate under the right of first refusal
contract, and seeking damages for breach of contract. In
response, the Foxes sent a letter to MS Real Estate on March 6,
2012, purportedly terminating the right of first refusal
contract. The Foxes' letter indicated that the right of first
refusal contract failed to specify the duration of the contract
and did not expressly state that it was intended to be
perpetual. Thus, according to the Foxes, either party could
terminate the contract after a reasonable time.
¶19 On April 5, 2012, the parties resolved their dispute
regarding whether it was the Tinedale Proposal or the Kavanaugh
Lease which constituted an acceptable offer subject to MS Real
8
No. 2013AP679
Estate's right to first lease. They did so by entering into a
lease under the terms of the Kavanaugh Lease. The Foxes moved
for summary judgment on their remaining counterclaim, arguing
that the March 6 revocation of the right of first refusal
contract was valid because the contract was indefinite and
lacked the express language needed to indicate an intent it
should endure in perpetuity. The circuit court granted summary
judgment in favor of the Foxes, concluding that the right of
first refusal contract was indefinite as to duration and that
the revocation by the Foxes was reasonable.
¶20 The court of appeals reversed, concluding that "a
right of first refusal to purchase . . . is not amenable to the
general rule of indefiniteness applied by the circuit court."
MS Real Estate Holdings, 356 Wis. 2d 307, ¶13. The court of
appeals also determined MS Real Estate's failure to exercise the
right of first refusal to purchase would constitute a waiver of
the right of first lease under the contract. Id., ¶¶30-31.
Thus, the court concluded that the duration of the right of
first refusal contract is not indefinite because the contract
terminates, in its entirety, upon the sale of the Fox Land.
Id., ¶32.
¶21 The Foxes petitioned this court for review, which we
granted on November 13, 2014.
II. STANDARD OF REVIEW
¶22 This case requires us to review a grant of summary
judgment. "'We review the grant of a motion for summary
judgment de novo, and apply the methodology specified in Wis.
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No. 2013AP679
Stat. § 802.08. That is, we determine whether there is any
genuine issue as to any material fact, and if not, which party
is entitled to judgment as a matter of law.'" E-Z Roll Off, LLC
v. Cnty. of Oneida, 2011 WI 71, ¶15, 335 Wis. 2d 720, 800
N.W.2d 421 (citation omitted).
¶23 In doing so, we must interpret the right of first
refusal contract between the Foxes and MS Real Estate and
determine whether it is ambiguous as to its duration. "Whether
a contract is ambiguous is . . . a question of law which we
review de novo." Mitchell Bank v. Schanke, 2004 WI 13, ¶46, 268
Wis. 2d 571, 676 N.W.2d 849 (quoting Schmitz v. Grudzinski, 141
Wis. 2d 867, 871, 416 N.W.2d 639 (Ct. App. 1987)).
III. DISCUSSION
A. Rights of First Refusal Defined
¶24 A right of first refusal is a contractual right to be
first in line should the opportunity to purchase or lease a
property arise. "The right of first refusal 'remains in an
unripened or suspended state, awaiting the energizing spark
provided when the condition precedent of intent and offer is
met.'" Wilber Lime Prods., Inc. v. Ahrndt, 2003 WI App 259,
¶10, 268 Wis. 2d 650, 673 N.W.2d 339 (quoting Chapman v. Mut.
Life Ins. Co, 800 P.2d 1147, 1152 (Wyo. 1990)). It is
"essentially a conditional option dependent upon the decision or
the desire of the landlord to sell [or lease]." Last v.
Puehler, 19 Wis. 2d 291, 297, 120 N.W.2d 120 (1963). Like an
option contract, a right of first refusal must be supported by
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No. 2013AP679
consideration. 3 E.M. Holmes, Corbin on Contracts § 11.3 (rev.
ed. 1996) (hereinafter Corbin).
¶25 However, a right of first refusal is not an option
contract. A right of first refusal is
a right to buy before or ahead of others, thus, a pre-
emptive right contract is an agreement containing all
the essential elements of a contract, the provisions
of which give to the prospective purchaser the right
to buy upon specified terms, but, and this is the
important point, only if the seller decides to sell.
It does not give the pre-emptioner the power to compel
an unwilling owner to sell, and therefore is
distinguishable from an ordinary option.
Edlin v. Soderstrom, 83 Wis. 2d 58, 68, 264 N.W.2d 275 (1978)
(citing J.A. Bryant, Jr, Annotation, Pre-emptive Rights to
Realty as Violation of Rule Against Perpetuities or Rule
Concerning Restraints on Alienation, 40 A.L.R. 3d, 920, 924
(1971)). "The holder of an option can compel a sale by an
unwilling owner. The holder of a right of first refusal on a
piece of land only has the right to receive an offer to buy the
land." Corbin, supra, § 11.3.
¶26 Further, a right of first refusal to purchase or lease
land may be a servitude.5 A servitude is "a legal device that
creates a right or obligation that runs either with land or with
an interest in land." Nature Conservancy of Wis., Inc. v.
Altnau, 2008 WI App 115, ¶7, 313 Wis. 2d 382, 756 N.W.2d 641
5
While it is unnecessary for the outcome of this case to
determine whether the right of first refusal contract between
the Foxes and MS Real Estate is a servitude, we nonetheless find
the rules governing servitudes useful to our analysis.
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No. 2013AP679
(citing Restatement (Third) of Prop.: Servitudes § 1.1(1)
(2000)). Servitudes are subject to the rules against restraints
on alienation. Restatement (Third) of Prop.: Servitudes § 3.3.
¶27 A restraint on alienation occurs when a property owner
contracts not to sell the property for a specified amount of
time. Corbin, supra, § 11.3. Generally, a right of first
refusal is not a restraint on alienation if the procedure for
exercising the right is reasonable. Id. To determine whether a
right of first refusal imposes a restraint on alienation, one
must look to the provisions governing the exercise of the right.
Restatement (Third) of Prop.: Servitudes § 3.4 cmt. f.
Lack of clarity may cause substantial harm by making
it difficult to obtain financing and exposing
potential buyers to threats of litigation. Lengthy
periods for exercise of rights of first refusal will
also substantially affect alienability of the
property. Potential buyers will be deterred by the
possibility that they may not know for a lengthy
period of time whether they will obtain the property
or be obligated to pay the price. The risks of change
in their needs and in financial markets will be
greater than most buyers will be willing to accept.
Id. However, where the right of first refusal provides for
purchase on the same terms and conditions as the owner receives
from a third party, the procedure for exercising the right is
clear, and the time for exercising the right when it arises is
reasonably short, its practical effect on alienation is de
minimus. Id. Thus, to determine whether the time for
exercising the right of first refusal is reasonable, one must
look to when the right is triggered. A right of first refusal
is triggered when "the energizing spark" of "intent and offer is
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No. 2013AP679
met," not when the contract is first created. Wilber Lime
Prods., 268 Wis. 2d 650, ¶10 (citation and quotation omitted).
¶28 When a right of first refusal provides for purchase on
the same terms and conditions as an acceptable offer, provides a
clear procedure for exercising the right, and provides a
reasonable time for exercising the right, it does not operate to
prohibit or restrain the sale of property. Rather, the right of
first refusal contract bestows on the holder the right to
preempt a third party’s purchase when that third party has made
an offer the owner will accept. Corbin, supra, § 11.3. Where
the procedure is clear and the time to exercise the right is
reasonable, a right of first refusal "provides a possible buyer
who is constantly available." Bruns v. Rennebohm Drug Stores,
Inc., 151 Wis. 2d 88, 99, 442 N.W.2d 591 (Ct. App. 1989).
¶29 If the property owner receives an acceptable offer,
the owner "has the power to create a privilege to sell by merely
offering to sell to [the holder of the right of first refusal]."
Corbin, supra, § 11.3. If the holder accepts, he purchases the
property. If the holder declines, the owner may accept the
buyer’s offer. Accordingly, "a transaction exclusively
contractual in character, such as a right of first refusal,"
cannot realistically be said to encumber specific property. 10
Powell on Real Property § 72.07 (Michael Allan Wolf ed.,
LexisNexis Matthew Bender). This discussion makes clear that,
under a right of first refusal contract, landowners such as the
Foxes remain free to do with their property as they wish. The
holder of a right of first refusal cannot force landowners to
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No. 2013AP679
sell or lease their property unless they freely choose to do so.
Even then, landowners may condition such sale or lease on terms
that are acceptable to them. In other words, landowners such as
the Foxes remain in total control of their property and cannot
be forced to act against their will under a right of first
refusal contract.
B. Right of First Refusal Contracts That Use a Triggering Event
That is Uncertain to Occur Are Not Indefinite as to Duration.
¶30 By their nature, right of first refusal contracts
often contemplate a level of uncertainty because such contracts
rely on triggering events——usually a landowner’s decision to
sell——which may or may not occur. See Wilber Lime Prods., 268
Wis. 2d 650, ¶10. The use of an event to determine the duration
of a right of first refusal contract renders the duration of the
contract sufficiently definite under Wisconsin law. Schneider
v. Schneider, 132 Wis. 2d 171, 176, 389 N.W.2d 835 (Ct. App.
1986). The Foxes do not argue that the procedures for MS Real
Estate to exercise its rights are unreasonable, but rather that
the duration of the entire contract is indefinite. Thus, the
question here is whether the uncertainty of when—or even if—the
triggering event will occur offends Wisconsin’s policy
disfavoring perpetual contracts. It does not.
¶31 We begin our analysis, as we must, by noting that
Wisconsin courts do not favor perpetual contracts. We are
"reluctant to interpret a contract as providing for a perpetual
contractual right unless the intention of the contracting
parties to provide for the same is clearly stated." Capital
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No. 2013AP679
Invs., Inc. v. Whitehall Packing Co., 91 Wis. 2d 178, 193, 280
N.W.2d 254 (1979). When the time that a contract is to endure
is indefinite, this court will imply a reasonable time for the
duration of the contract. Farley v. Salow, 67 Wis. 2d 393, 402,
227 N.W.2d 76 (1975). However, we do not require parties to
express duration in temporal terms in order to avoid
indefiniteness. Rather, parties are free to identify triggering
events that give rise to termination of the contract in one form
or another. Schneider, 132 Wis. 2d at 176.
¶32 The Foxes argue that the uncertainty of a triggering
event, in this case the sale of the Fox Land, renders the
duration for which the right of first refusal contract is to
endure indefinite, and therefore violates Wisconsin’s policy
disfavoring perpetual contracts. The Foxes assert that (a)
because the duration of the contract is indefinite, and (b) it
contains no express language stating that it is intended to be
perpetual, we should imply a reasonable time for performance,
after which, the contract is terminable at will by either party.
Accordingly, in the Foxes view, the court of appeals exceeded
its authority by concluding the contract terminated upon sale.
¶33 We disagree. A specified triggering event, though
uncertain to occur, may render a right of first refusal contract
sufficiently definite and establish the duration of the right.
Id. In Schneider, the court of appeals considered whether an
agreement between two brothers that restricted the sale of
property held by them as tenants in common was indefinite as to
duration because it contained no express amount of time it was
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No. 2013AP679
to endure, thereby violating the restriction on partition
agreements that exceed thirty years under Wis. Stat.
§ 842.02(1). Id. at 175. The court concluded that the
agreement was not indefinite because either of two events——the
death of one of the brothers or operation of a right of first
refusal provision in the agreement——would allow the land to be
partitioned. Id. at 176.
¶34 The Foxes argue that, in Schneider, it is the first
event the court listed, death, that made the duration of the
contract definite because death is an event certain to occur.
The Foxes' reading of Schneider does not persuade us. The court
in Schneider provided two independent reasons for concluding
that the duration of the contract was sufficiently definite.
Schneider, 132 Wis. 2d at 176. The first, death, was certain to
occur, though impossible to predict. Id. The second, the
exercise of the right of first refusal, though uncertain to
occur, depended on one of the brothers seeking to sell his
interest in the land. Id. The brothers had signed an agreement
that required the sibling who wished to sell his interest in the
land to offer it to his brother first. Id. Through the
operation of the right of first refusal agreement, either
brother could sell his interest in the property at any time.
Id. Thus, either death or the sale of the property was
sufficient to establish the definiteness of the contract.
¶35 The court’s conclusion in Schneider is consistent with
the form and function of rights of first refusal. As we
explained above, a right of first refusal contract operates in a
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No. 2013AP679
manner similar to a conditional option contract, though it is
not an option contract. See Last, 19 Wis. 2d at 297; Nature
Conservancy of Wis., 313 Wis. 2d 382, ¶7; Corbin, supra, § 11.3.
Under a right of first refusal contract, the right to purchase
property lies dormant until it is awakened by the occurrence of
a specified triggering event. Wilber Lime Prods., 268
Wis. 2d 650, ¶10. Unless otherwise specified by the parties, a
right of first refusal expires when the triggering event occurs
and the holder chooses to either exercise or waive the right.
See Cipriano v. Glen Cove Lodge #1458, B.P.O.E., 801 N.E.2d 388,
392 (N.Y. 2003) ("The holder of a right of first refusal must be
given the opportunity to exercise the preemptive right, but the
right is extinguished when the contract with the third party
expires or is abandoned."); Corbin, supra, § 11.3. Accordingly,
so long as the right of first refusal clearly identifies a
triggering event, whether certain or uncertain to occur, it is
definite as to duration.
¶36 Because we hold that a right of first refusal contract
is definite as to duration when it specifies an event that
triggers the right, even when the triggering event is not
certain to occur, we must now interpret the right of first
refusal contract between the Foxes and MS Real Estate to
determine the triggering event.
C. The Right of First Refusal Contract Terminates Upon Sale of
the Fox Land.
¶37 To determine whether the right of first refusal
contract between the Foxes and MS Real Estate is indefinite, we
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No. 2013AP679
must interpret the document. Our goal in interpreting contracts
is to determine and carry out the parties' intentions. See
Wilson Mut. Ins. Co. v. Falk, 2014 WI 136, ¶23, 360 Wis. 2d 67,
857 N.W.2d 156. "Contract language is construed according to
its plain or ordinary meaning, . . . consistent with 'what a
reasonable person would understand the words to mean under the
circumstances.'" Tufail v. Midwest Hospitality, LLC, 2013 WI
62, ¶28, 348 Wis. 2d 631, 833 N.W.2d 586 (internal citations
omitted). If the terms of a contract are plain and unambiguous,
we construe it as it stands. Gottsacker v. Monnier, 2005 WI 69,
¶22, 281 Wis. 2d 361, 697 N.W.2d 436. "However, where
contractual language is reasonably susceptible to more than one
meaning, that language is ambiguous." Nature Conservancy of
Wis., 313 Wis. 2d 382, ¶6.
¶38 "The general rule as to construction of contracts is
that the meaning of particular provisions in the contract is to
be ascertained with reference to the contract as a whole."
Tempelis v. Aetna Cas. & Sur. Co., 169 Wis. 2d 1, 9, 485
N.W.2d 217 (1992). "When interpreting an ambiguous contract
provision, we must reject a construction that renders an unfair
or unreasonable result." Gottsacker, 281 Wis. 2d 361, ¶24. We
"interpret contracts to give them 'common sense' and 'realistic'
meaning." Betz v. Diamond Jim's Auto Sales, 2014 WI 66, ¶68,
355 Wis. 2d 301, 849 N.W.2d 292 (Abrahamson, C.J., dissenting).
"[A]mbiguities are resolved against the drafter." Marlowe v.
IDS Prop. Cas. Ins. Co., 2013 WI 29, ¶48, 346 Wis. 2d 450, 828
N.W.2d 812.
18
No. 2013AP679
¶39 Read in isolation, the two right of first refusal
provisions in the contract between the Foxes and MS Real Estate
are not ambiguous. Section one of the contract, which contains
the Right of First Refusal to Purchase provision, states:
Fox grants and conveys to Tidy-View a first right to
purchase the Property, or any part thereof, for the
same price and on the same terms which Fox is willing
to transfer such Property to another party. Prior to
transfer, Fox shall deliver to Tidy-View a written
copy of the Offer, which Fox is willing to accept.
Tidy-View shall then have 15 (fifteen) days in which
to accept or reject the Offer according to its price,
terms and conditions. If the Offer is accepted, the
transfer shall be closed in accordance with the Offer
with Tidy-View as purchaser. If the Offer is
rejected, Fox may complete the sale in strict
compliance with the Offer. If the sale is not closed,
this first right of refusal shall again take effect.
(Emphasis added).
¶40 By its terms, this provision terminates upon the sale
of the Fox Land. There is no other reasonable interpretation.
If the Fox Land is sold to MS Real Estate, then there is no
longer a need for the provision. If the Fox Land is sold to a
third-party, the right of first refusal to purchase does not
reattach. MS Real Estate would waive its right of first refusal
to purchase if and when the Fox Land is sold to a third-party,
thus extinguishing the right.
¶41 Similarly, the Right of First Lease provision is
unambiguous when read in isolation. The section contains two
provisions, which read:
2.1 Leasing Rights. Fox grants and conveys to Tidy-
View a first right to lease the Property or any part
thereof, for the same price and on the same terms
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No. 2013AP679
which Fox is willing to Lease such Property to another
party. Prior to execution of any Lease, Fox shall
deliver to Tidy-View a written copy of the Lease,
which Fox is willing to accept. Tidy-View shall then
have 15 (fifteen) days in which to accept or reject
the Lease according to its price, terms and
conditions. If the Lease is accepted, Tidy-View shall
be obligated to make all payments in accordance with
the Lease with Tidy-View as Lessee. If the Lease is
rejected, Fox may execute the Lease as Lessor with the
other party as Lessee. If the Lease is not executed,
the first right to lease shall again take effect.
2.2 Continuing Rights. This section 2 right shall
continue for any subsequent renewal of a Lease with
another party or upon the entering into of a new Lease
with any other party. It is specifically intended
that this leasing right shall not extinguish unless
waived by Tidy-View.
¶42 Standing alone, the plain language of the right of
first lease is amenable to only one reasonable interpretation:
if the Foxes desire to lease their land, MS Real Estate must be
given the first opportunity. Further, this right is expressly
intended to continue beyond the provisions of any single lease
term and terminates only upon waiver by MS Real Estate.
¶43 The fact that the right of first refusal provisions of
the contract are unambiguous when read in isolation does not end
the inquiry. Contractual provisions must be interpreted within
the context of the contract as a whole. Tempelis, 169
Wis. 2d at 9. As we have noted within the context of insurance
policies, provisions that are unambiguous standing alone may be
ambiguous in the context of the whole contract. See Md. Arms
Ltd. P'ship v. Connell, 2010 WI 64, ¶39, 326 Wis. 2d 300, 786
N.W.2d 15. Here, the fourth section of the contract, titled
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No. 2013AP679
Binding Effect, creates ambiguity as to the duration of the
contract.
¶44 The Binding Effect provision states that the agreement
"shall be binding upon the respective parties, their heirs,
personal representatives, successors in interest and assigns."
This section creates at least two reasonable interpretations
regarding the duration of the contract. The first is that the
contract is intended to be perpetual. The second is that a sale
under the Right of First Refusal to Purchase provision
constitutes waiver under the Right of First Lease provision,
thus terminating the contract.
¶45 We are reluctant to find a perpetual contractual right
unless the contract language evidences that the parties clearly
intended the contract to be perpetual. Capital Investments, 91
Wis. 2d at 193. However, the intent to create a perpetual
contract does not require the parties to use magic words. If
the contract language indicates that they intend the contract to
be continual, a court may find a perpetual contract. Here, the
Binding Effect provision can be read to create a perpetual
contract. The use of the term "successors in interest" suggests
that the parties intended the contract to be perpetual. This is
so because if the right of first refusal contract is binding on
all of the Foxes' successors in interest, then it would be
binding on any third-party who purchased the Fox Land. Such an
interpretation would give MS Real Estate a permanent right of
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first refusal to lease regardless of who owns the Fox Land.6
Thus, MS Real Estate would have a right of first lease to the
Fox Land that is enforceable against future owners of the
property, assuming it did not exercise its right of first
refusal to purchase under section one and did not separately
waive its right of first lease under section two.
¶46 This is not the only reasonable interpretation of the
contract, however. The contract can also be read to terminate
upon the sale of the Fox Land to a third-party. Under this
reading, the extent of the Binding Effect provision is limited
by the terms of the right of first refusal provisions. As we
have explained, under the Right of First Refusal to Purchase
provision, MS Real Estate's right to purchase terminates upon
sale of the Fox Land, whether the sale is to MS Real Estate or a
third-party. In addition, according to Section 2.2 of the Right
of First Lease provision, MS Real Estate's lease rights "shall
not extinguish unless waived." The contract does not define
what constitutes waiver, and because waiver is not defined
within the contract, we give the term is its plain or ordinary
meaning. Tufail, 348 Wis. 2d 631, ¶28.
¶47 Waiver is defined as "the voluntary relinquishment or
abandonment——express or implied——of a legal right or advantage."
6
This interpretation would not create a perpetual right of
first refusal to purchase, however. This is because that
provision in the contract clearly states that the "first right
of refusal shall again take effect" only in the event a sale to
a third-party does not close.
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Black’s Law Dictionary 1717 (9th ed. 2009). Thus, the terms of
the contract provide that the right of first lease is waived
when MS Real Estate abandons a legal right or advantage under
the contract. In this case, that can mean only abandonment of
the right to purchase. As the court of appeals correctly noted,
if waiver applied solely to the right to lease, then the Right
of First Lease provision would be internally inconsistent. MS
Real Estate Holdings, 356 Wis. 2d 307, ¶30. This is so because
Section 2.2 explicitly states that the right of first lease
continues for any subsequent lease, whether entered into by MS
Real Estate or a third-party. For such a situation to occur, MS
Real Estate would have declined, or "voluntarily relinquished,"
its first right to lease under Section 2.1. Thus, waiver must
mean the relinquishment of a different right under the contract,
and the only other right granted to MS Real Estate is the first
right to purchase. Accordingly, Section 2.2, read in the
context of the contract as a whole, indicates that waiver occurs
when MS Real Estate refuses to exercise its right to purchase
the Fox Land and allows a third-party to purchase the property.7
7
Another reason that "waiver" in Section 2.2 cannot refer
to the first right to lease is that it would be redundant. It
is well-settled that "[a] construction which gives reasonable
meaning to every provision of a contract is preferable to one
leaving part of the language useless or meaningless." Maas by
Grant v. Ziegler, 172 Wis. 2d 70, 79, 492 N.W.2d 621 (1992).
The first sentence of Section 2.2 states that the first right to
lease "shall continue for any subsequent renewal of a Lease with
another party or upon the entering into of a new Lease with any
other party." The plain meaning of this provision is that the
first right to lease is recurring, unlike the first right to
purchase. In essence, MS Real Estate can waive its first right
(continued)
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¶48 We conclude that the second "waiver interpretation" is
the more reasonable and commonsense reading of the document as a
whole. See Betz, 355 Wis. 2d 301, ¶68. By concluding that
waiver under the Right of First Lease provision occurs when MS
Real Estate declines to exercise the right of first refusal to
purchase, the waiver interpretation gives full effect to each
provision of the contract. Under this waiver interpretation,
the right of first refusal to purchase remains in effect until
the consummation of a sale of the Fox Land. Further, the right
of first lease continues, arising each time a lease expires,
until it is waived by MS Real Estate's choice not to exercise
its right of first refusal to purchase. Finally, under the
waiver interpretation, the Binding Effect provision remains
enforceable, binding subsequent generations of the Fox family
that will inherit the Fox Land until the property is sold.
¶49 The parties' actions also indicate that the waiver
interpretation is consistent with their intent. When a contract
is ambiguous, the court may look beyond the four corners of the
document and consider extrinsic evidence that demonstrates the
parties' intent. Betz, 355 Wis. 2d 301, ¶39. Here, the
parties' behavior under the contract provides additional support
to lease for every lease as long as the contract is in force.
There is no need for MS Real Estate to affirmatively waive this
right because it will not suffer any ill-effects for failure to
do so. Thus, if we were to read the waiver provision in Section
2.2 as applying only to the right of first lease, the waiver
provision would be superfluous.
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No. 2013AP679
for this waiver interpretation. When the Foxes sent MS Real
Estate notice that it had received an offer to purchase 37.4
acres of the Fox Land on October 4, 2006, MS Real Estate
notified the Foxes by letter that it did not wish to purchase
the land. Enclosed with the letter was an agreement entitled
"Release of Parcel From Right of First Refusal." MS Real Estate
indicated that the enclosed agreement was a waiver of all its
rights to the 37.4 acres under the right of first refusal
contract. The following January, when executing a new five year
lease, the parties indicated, by hand written addendum, that if
any part of the Fox Land was sold during the lease term, the
rent would be adjusted accordingly. This addendum also
demonstrates that the parties intended a sale executed under the
Right of First Refusal to Purchase provision to constitute
waiver under the Right of First Lease provision.
¶50 The waiver interpretation also satisfies the rule that
we construe any ambiguities in the document against the drafting
party. Marlowe, 346 Wis. 2d 450, ¶48. A perpetual
interpretation of the contract would give MS Real Estate a right
of first lease that ran with the land. Under the perpetual
interpretation, MS Real Estate, the drafter of the document,
would benefit from a perpetual right of first lease. If we
adopted such a reading, it would place MS Real Estate first in
line anytime the land would be leased, giving it a clear
advantage over any other interested third-party. Construing the
contract against MS Real Estate requires us to adopt the waiver
interpretation.
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No. 2013AP679
¶51 Finally, the right of first refusal contract at issue
here is not a restraint on the Foxes' ability to alienate the
property. A restraint on alienation occurs when a property
owner contracts not to sell the property for a specified amount
of time. Corbin, supra, § 11.3; see also Wis. Stat. § 700.16(2)
(2014-15) ("The power of alienation is suspended when there are
no persons in being who, alone or in combination with others,
can convey an absolute fee in possession of land, or full
ownership of personalty."). As discussed above, where the right
of first refusal provides for purchase on the same terms and
conditions as the owner receives from a third party, the
procedure for exercising the right is clear, and the time for
exercising the option when it arises is reasonably short, its
practical effect on alienation is de minimus. Corbin, supra,
§ 11.3. If MS Real Estate desires to purchase the Fox Land, it
must be willing to meet the terms and conditions of an offer the
Foxes deem acceptable. The procedure for exercising the first
right to purchase is clear under the contract. If the Foxes
receive an offer they will accept, they must deliver a written
copy of the offer to MS Real Estate. MS Real Estate then has 15
days to determine whether to purchase the property on those same
terms. We conclude that 15 days is reasonably short such that
potential buyers will not be deterred by the possibility that
they may not know for a lengthy period whether they will obtain
the property.
¶52 MS Real Estate's opportunity to exercise its right of
first refusal is completely dependent upon the actions of the
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No. 2013AP679
Foxes. The Foxes hold all the cards because they are not
required to sell or lease their land, and they may use their
land however they wish. They could entertain a thousand offers
to sell or lease the Fox Land, and cast each one aside without
consequence under the contract. In the event an offer for sale
or lease is made that they are willing to accept, all that is
required is that they give MS Real Estate the opportunity to
accept or reject the terms of the offer that they find
acceptable. MS Real Estate may not negotiate for more favorable
terms. The Foxes alone determine what offer is or is not
acceptable. Thus, the right of first refusal contract is not a
restriction on alienation and continues to be enforceable.
IV. CONCLUSION
¶53 We hold that a right of first refusal contract is
definite as to duration when it specifies an event that triggers
the right and requires the right holder to either exercise or
waive the right within a specified period of time thereafter,
even if the triggering event is not certain to occur.
Therefore, the right of first refusal contract at issue here is
not terminable at will after a reasonable period of time.
Rather, by the terms of the contract, the right of first refusal
continues until there is a sale of the property, either to MS
Real Estate or to a third party in the event that MS Real Estate
declines to exercise its right of first refusal, thereby waiving
the right. Accordingly, the decision of the court of appeals is
affirmed.
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No. 2013AP679
By the Court.-The decision of the court of appeals is
affirmed.
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No. 2013AP679
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