David A. Bramble, Inc. v. Thomas

HARRELL, J. The sole issue in this case concerns the propriety of the Court of Special Appeals’s affirmance of summary judgment in favor of third-party purchasers of certain real property and against the holder of a preemptive right of first refusal as to the property. David A. Bramble, Inc. (“Petitioner” or “Bramble”), the holder of the right of first refusal, attempted to exercise its preemptive right, but omitted in the purported exercise a non-price term contained in the third-parties’ triggering offer. The Circuit Court for Caroline County, in granting summary judgment to the third parties, declared that Bramble had not exercised effectively its right of first refusal. The Court of Special Appeals affirmed.

For reasons we shall explain, we conclude that there was generated a genuine dispute as to a material fact whether the non-price term was added to the triggering offer in bad faith. Therefore, we shall reverse. ⁴⁴⁷ I. FACTUAL BACKGROUND With the notable exception identified supra, the facts, material and otherwise, of this case were otherwise largely undisputed. John 0. Lane and Rose T. Lane (“Lanes”), husband and wife, own a 25.99 acre parcel of unimproved real property located on Cherry Lane near Ridgely in Caroline County, Maryland (the “Property”).

On 3 January 2004, Respondents here, Merrill F. Thomas and Nancy R. Thomas (“Thomases”), entered into an Unimproved Land Contract of Sale (“Thomas Offer”) whereby the Lanes agreed to sell to the Thomases the Property for a purchase price of $105,000.00. Respondents tendered with the contract a $1,000.00 earnest money deposit. Closing was to occur on or before 16 February 2004. The Thomas Offer contained a hand-written Addendum which provided the following: 1.

Nancy Thomas is a licensed Real Estate Agent in the State of Maryland. 2. This contract is contingent upon the release of David Bramble’s first right of refusal within 30 days of ratification. 3. Buyers agree that they will not mine the above referenced property. The “right of first refusal” to which Paragraph 2 of the Addendum referred was originally granted by the Lanes to RWL Development Company (“RWL”) on 20 February 1992, 1 and provided, in pertinent part: In the event John Owens Lane and Rose T. Lane, his wife, shall receive an offer to purchase their property located in the Second Election District of Caroline County, Maryland, described in a deed from RWL Development Company, a Maryland Corporation, to John Owens Lane and Rose T. Lane, his wife, dated November 20, 1991, recorded in Liber 247, Folio 375, a Land Record Book for Caroline County, Maryland, and decide to accept the same, ⁴⁴⁸ they shall first offer the property to RWL Development Company, its successors and/or assigns, for the price and on the terms of the intended sale.

RWL Development Company, its successors and/or assigns, shall have thirty (30) days from the date of such offer in which to accept or reject the same. Nothing hereinbefore contained shall in any way delay or limit the right of any mortgagee to foreclose under a valid mortgage or deed of trust, in accordance with the terms of such instrument, or to accept a deed in lieu of foreclosure from the grantors[ 2 ] (emphasis added). On 7 May 1993, RWL Development Company conveyed by Deed 3 to Petitioner 4 its right of first refusal. Counsel for the Lanes wrote a letter to Bramble on 6 January 2004 notifying it that the Lanes had accepted the Thomas Offer, contingent upon Bramble’s release of its right of first refusal.

Attached to the letter was a copy of the Thomas Offer, with the “no mining” clause. Bramble executed and delivered to the Lanes on 19 January 2004 an “Agreement of Sale,” which purported to exercise its right of first ⁴⁴⁹ refusal (“Bramble Offer”). 5 Petitioner’s offer matched all the terms of the Thomas Offer, except that it omitted the prohibition against mining included in Paragraph 3 of the Thomas Offer’s Addendum. Respondents agreed on 4 February 2004 to amend certain terms in the Thomas Offer, increasing the purchase price to $120,000.00, with settlement to occur on 31 March 2004. The following day, counsel for Respondents faxed to the Lanes a revised offer (“Second Thomas Offer”), which reflected the amended price and settlement terms.

By letter dated 6 February 2004, the Lanes’ attorney informed Petitioner of the new offer and requested advice as to whether Bramble would be willing to meet the increased sale price of $120,000.00. On 17 February 2004, counsel for Petitioner responded that, because Bramble previously had exercised its preemptive right, a binding land sale contract had been formed. According to counsel, “the Thomases [were] not at liberty to make additional offers nor [were] the Lanes at liberty to accept them” in connection with the sale of the Property. The next day, counsel for the Lanes advised Bramble that it was the Lanes’ view that the offer tendered by Petitioner was not an effective exercise of its right of first refusal.

Specifically, counsel informed Bramble that if it wished to exercise its preemptive right, “[it] must do so by accepting all the terms of the offer, including the restriction that the property would not be mined.” Because the Bramble Offer, as signed and delivered, did not mirror exactly the terms of the Thomas Offer ratified by Respondents, it was neither an effective exercise of the right of first refusal, nor a valid acceptance. According to the Lanes, the Bramble Offer was instead a counter-offer which the Lanes were free to accept or reject. ⁴⁵⁰ Bramble agreed to revise his offer to include a prohibition against mining, and submitted a new offer (“Second Bramble Offer”) which purported to be a valid exercise of its preemptive right. Although the Second Bramble Offer included the “no mining” provision, it contained the original sales price of $105,000.00. In other words, the Second Bramble Offer mirrored the provisions of the initial triggering Thomas Offer.

The Second Bramble Offer was tendered on 19 February 2004, forty-four days after Bramble was first notified of the Lanes’ acceptance of the Thomas Offer. Citing the controversy concerning the validity of Bramble’s exercise of its right of first refusal, and because of the fear of being sued by Bramble, the Lanes refused to convey the property to either suitor. Mr. Lane, on 7 March 2004, attempted instead to return the $1,000.00 earnest money tendered by the Thomases with the Thomas Offer. Respondents answered by filing suit against both the Lanes and Petitioner in the Circuit Court for Caroline County in order to determine and enforce their asserted rights with respect to the Property.

Respondents sought in Count I a declaratory judgment that the right of first refusal was void because it violated the Rule against Perpetuities. Specifically, Respondents argued, under Ferrero Construction Co. v. Dennis Rourke Corp., 311 Md. 560, 575-76 , 536 A.2d 1137, 1144-45 (1988), that because Bramble was a corporation with a theoretically perpetual existence, the right of first refusal might vest well beyond some life in being plus twenty one years. In Count II, Respondents sought specific performance of the Second Thomas Offer. The Thomases requested further, in Count III, damages in the amount of $25,000.00, for the anticipatory breach that occurred when the Lanes refused t o convey the property.

The Lanes moved for summary judgment. Respondents answered and filed their own motion for summary judgment. Neither the Lanes nor Petitioner filed a response to Respondents’ motion for summary judgment. The parties appeared for oral argument on the motions, represented by counsel. ⁴⁵¹ The Circuit Court filed its written opinion on the motions on 23 February 2005.

The trial judge declared first that the right of first refusal did not violate the rule against perpetuities: The right of first refusal granted to David A. Bramble does not violate the Rule Against Perpetuities. In the original conveyance of the right to RWL Corporation, the Right was stated to be applicable “[i]n the event John Owens and Rose T. Lane, his wife, shall receive an offer to purchase their property.” The right thus would vest, if at all, within a life or lives in being, i.e., when the last of the two Lanes die. Cf. Park Station Ltd. Partnership LLLP v. Bosse, 378 Md. 122, 135 , 835 A.2d 646 (2003). 6 ⁴⁵² The trial court continued, however, that the purported exercise of the right of first refusal was ineffectual: Although it does not violate the Rule Against Perpetuities, Bramble’s right of first refusal is void for the following reasons.

Bramble had the option to accept the terms of any other offer to buy the property and thereby purchase it himself within thirty days of the offer of another. When Bramble learned of a contract between the Lanes and the Thomases, he submitted a proposed contract to the Lanes that had different terms than the contract between the Thomases and Lanes. Specifically, the contract between the Lanes and Thomases stated that the “[bjuyers agree that they will not mine the above referenced property.” Bramble’s first proposed contract to the Lanes lacked this provision. An acceptance with terms that vary from those in an offer constitutes a rejection and counter-offer.

Post v. Gillespie, 219 Md. 378 , 149 A.2d 391 (1959). The court, thus, granted summary judgment on Respondents’ Count I claim. It denied summary judgment as to Counts II and III of the complaints, however, because there were “disputes as to material facts.” The Circuit Court denied the Lanes’ motion for summary judgment. On 24 March 2005, the Lanes and Respondents reached a settlement agreement as to all unresolved claims in the action.

Respondents filed on 25 April 2005 a motion for voluntary dismissal as to Counts II and III, pursuant to Maryland Rule 2—506(b), which the Circuit Court granted with prejudice two days later. Bramble noted a timely appeal to the Court of Special Appeals. Bramble argued exclusively on appeal that the Circuit Court erred in declaring that the corporation had not exercised effectively its right of first refusal when it failed to include the “no mining” clause in the Bramble Offer. The Court of ⁴⁵³ Special Appeals, in an unreported opinion, affirmed the judgment of the Circuit Court.

The intermediate appellate court reasoned that, because the “no mining” provision was a material term in the triggering offer, Petitioner’s “matching” offer, which omitted the use restriction, was an ineffective exercise of the corporation’s right of first refusal. Even in the absence of language indicating that the Bramble Offer was a conditional exercise of Petitioner’s right of refusal, according to the court, the absence of the “no mining” clause rendered Bramble’s alleged exercise insufficient because Bramble, in effect, was attempting to purchase, at the same price, more rights in the property than contained in the triggering offer. On Bramble’s petition, we issued a writ of certiorari. 393 Md. 244 , 900 A.2d 751 (2006). 7 II. STANDARD OF REVIEW Summary judgment is proper when “the motion [for summary judgment] and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” Md. Rule 2—501(f).

Because a trial court decides only questions of law when considering a motion for summary judgment under Rule 2—501(f), this Court reviews a grant of summary judgment de novo in order to determine whether the trial court was legally correct. Walk v. Hartford Cas., 382 Md. 1, 14 , 852 A.2d 98, 105 (2004); Todd v. Mass Transit Admin., 373 Md. 149, 154 , 816 A.2d 930, 933 (2003); Sadler v. Dimensions Healthcare Corp., 378 Md. 509, 533 , 836 A.2d 655, 669 (2003); Southland Corp. v. Griffith, 332 Md. 704, 712 , 633 A.2d 84, 87-88 (1993). In doing so, we review independently the factual record in a light most favorable to ⁴⁵⁴ the non-moving party and construe in favor of the non-moving party any reasonable inferences which may be drawn from the pleadings, admissions, and affidavits. Jurgensen v. New Phoenix Atl.

Condo. Council of Unit Owners, 380 Md. 106, 114 , 843 A.2d 865, 869 (2004).

III

DISCUSSION Respondents maintain 8 that [t]he trial court properly determined that the failure of Bramble to submit a timely offer that included a prohibition against mining constituted a counter offer. A reply to an offer that differs from the suggested method of performance is a conditional acceptance or counter offer. Baltimore County v. Archway Motors, 35 Md.App. 158, 163 , 370 A.2d 113 (1977). Bramble’s deviation from the terms of the Thomas Offer was not an unqualified acceptance of this offer “for the price and on the terms of the intended sale.” As such, it did not comply and the trial court was correct in determining that it had not properly exercised its right of first refusal in a timely manner.

Respondents argue further that, because the prohibition against mining was a material term of the Thomas Offer, its exclusion from the Bramble Offer improperly would have entitled Bramble to more rights in the subject property than granted by the triggering offer. 9 Petitioner counters that even if Maryland law requires exact matching of the terms of the triggering offer when exercising a right of first refusal, neither the property owner nor the proposed third-party purchaser may act in bad faith to discourage or frustrate the ⁴⁵⁵ exercise of the preemptive right, or include terms which they know the preemptive rightholder will not accept. A. Options to Purchase and Rights of First Refusal Generally. In order to consider properly whether Petitioner’s omission of the no-mining clause rendered ineffective the exercise of its preemptive right, it is necessary first to refresh our recollection of the conceptual underpinnings of option contracts and rights of first refusal. An option is a “continuing offer to sell during the duration [of the option agreement] which on being exercised by the optionee becomes a binding and enforceable contract.” Straley v. Osborne, 262 Md. 514, 521 , 278 A.2d 64, 68 (1971) (quoting Diggs v. Siomporas, 248 Md. 677, 681 , 237 A.2d 725, 727 (1968)).

It is well settled-law in Maryland that to be an effective exercise of an option, the exercise of that option “must be unequivocal and in accordance with the terms of the option.” Katz v. Pratt St. Realty Co., 257 Md. 103, 118 , 262 A.2d 540, 547 (1970) (citing Simpers v. Clark, 239 Md. 395, 401 , 211 A.2d 753 (1965)); Foard v. Snider, 205 Md. 435, 446 , 109 A.2d 101, 105-06 (1954) (“Whatever the option requires must be done. As in the case of all offers, revocable or irrevocable, the exercise must be unconditional and in exact accord with the terms of the option.”) (emphasis added); 1 Williston on Contracts § 5:18 (4th ed. 1990) (“When the optionee decides to exercise [its] option, [it] must act unconditionally and according to the terms of the option.”); see also Post v. Gillespie, 219 Md. 378, 385-86 , 149 A.2d 391, 395-96 (1959). Indeed, Maryland applies generally this objective rule of offer and acceptance to the formation of any contract underlying the alienation of real property. See Peoples Drug Stores v. Fenton Realty Corp., 191 Md. 489, 494 , 62 A.2d 273, 276 (1948) (“To constitute a valid contract, the offer of one party must be certain and definite, and the acceptance of the other party must correspond with the offer in its entirety.

A contract, to be final, must extend to all the terms which the parties intend to introduce, and material terms cannot be left for future settlement.”). ⁴⁵⁶ A right of first refusal, or “preemptive right,” is a type of option, Ferrero Construction Co., 311 Md. at 567 , 536 A.2d at 1140 . The purposes for which rights of first refusal are utilized are “closely related to the purposes of [traditional] option contracts.” 3 Corbin on Contracts § 11.3 (rev. ed.1996). The two types of agreements are dissimilar, however, in terms of the legal relationships of the parties who enter them. Id.

A right of first refusal is an agreement between the property owner (“grantor”) and a holder (“preemptioner”) whereby the receipt of an offer from a third-party purchaser to buy the subject property “triggers” the right of first refusal which, in turn, “ripens” into an option to buy on part of the preemptioner. Id.; see also Straley, 262 Md. at 521-22 , 278 A.2d at 68-69 (referring to a preemptive right as a “conditional option, or first privilege of purchase”); Westpark, Inc. v. Seaton Land Co., 225 Md. 433, 449-50 , 171 A.2d 736 (1961); Iglehart v. Jenifer, 35 Md.App. 450 , 451 n. 1, 371 A.2d 453 (1977) (differentiating between the legal effect of a traditional option and an option of first refusal). In sum, [preemptive] rights of the [holder] are contingent upon the desire of the owner to sell. [Unlike a true option] the [holder of a right of first refusal] has no unqualified power to compel a sale to him or to a third person.... These provisions are, consequently, analogous to options upon a condition precedent, and subject to many of the same rules [as an option agreement].

Restatement of Property § 413, cmt. b (1944) (emphasis added) (internal cross-references omitted); see Straley, 262 Md. at 521-22 , 278 A.2d 64 at 68-69 . Thus, despite the differences in the legal effects of the two types of agreements, the rules relating to options are applicable, for the most part, to rights of first refusal. B. Materiality of an Omitted Provision. Respondents ask this Court to apply the objective theory of contracts followed generally in Maryland, i.e., that in order to exercise effectively the right of first refusal, Bramble’s exercise must have been unequivocal and in accordance with the ⁴⁵⁷ exact terms of the triggering offer.

Katz, 257 Md. at 118 , 262 A.2d at 547 ; Foard, 205 Md. at 446 , 109 A.2d at 105-06 . There is some social and legal utility in applying, to the purported exercise of a pre-emptive right, the requirement that the rightholder duplicate exactly the terms of the triggering offer because it tends to avoid a situation where the preemptioner otherwise may impede the alienability of real property. As the U.S. Court of Appeals for the Seventh Circuit stated, the holder of a preemptive right should not be enabled to justify its failure to match a term in the third-party’s triggering offer on the ground that the omitted non-price term is immaterial: [without [an exact matching requirement], the right [of first refusal] is an impediment to the marketability of property, because it gives the holder of the right a practical power to impede a sale to a third party by refusing to match the third party’s offer exactly and then arguing that the discrepancy was immaterial. Miller v. LeSea Broadcasting, 87 F.3d 224, 226 (7th Cir.1996).

Other courts likewise have extended to the exercise of a preemptive right the mirror image rule employed in determining whether an option was exercised effectively. West Texas Transmission, L.P., v. Enron Corp., 907 F.2d 1554, 1565 (5th Cir.1990) (“Whether or not a particular contract term is material is not the standard by which we judge whether an acceptance which rejects that term is a valid exercise of the right of first refusal. Like the acceptance of any other offer, the exercise of an option, must be unqualified, absolute, unconditional, unequivocal, unambiguous, positive, without reservation and according to the terms or conditions of the option.”) (citations omitted); 10 Weber Meadow-View Coup. v. Wilde, 575 P.2d 1058 , 1055 (Utah 1978) (implying that when terms ⁴⁵⁸ are added in good faith to a triggering offer, and not with the ulterior purpose of defeating a right of first refusal in the property, the terms of the triggering offer must be matched exactly). 11 Many jurisdictions, on the other hand, do not require a preemptioner to match immaterial terms found in a triggering offer. See, e.g., Prince v. Elm Inv.

Co., 649 P.2d 820, 825 (Utah 1982) (quoting Brownies Creek Collieries, Inc. v. Asher Coal Mining Co., 417 S.W.2d 249, 252 (Ky.1967) (“[I]f the holder of the right of first refusal cannot meet exactly the terms of the conditions of the third person’s offer, minor variations which obviously constitute no substantial departure should be allowed. And defeat of the right of refusal should not be allowed by use of special, peculiar terms or conditions not made in good faith____”) (emphasis added)); Coastal Bay Golf Club, Inc. v. Holbein, 231 So.2d 854, 858 (Fla.Dist.Ct.App.1970) (“One offer to purchase matches another only if the essential terms of the offers are identical.”) (emphasis added) (internal citations omitted); Northwest Television Club, Inc. v. Gross Seattle, Inc., 96 Wash.2d 973 , 634 P.2d 837 , 840 (1981) (“[A]n acceptance of an offer must always be identical with the terms of the offer, or there is no meeting of the minds and no contract. A purported acceptance that changed the terms of an offer in any material respect may ⁴⁵⁹ operate as a counteroffer....”) (emphasis added); Matson v. Emory, 36 Wash.App. 681 , 676 P.2d 1029, 1031, 1033 (1984) (holding that the exercise of a preemptive right constitutes a counter-offer, not an acceptance, when the offer differs materially from the triggering offer) (emphasis added); John D. Stump & Assoc., Inc. v. Cunningham Mem’l Park, Inc., 187 W.Va. 438 , 419 S.E.2d 699, 705 (1992) (“[W]here the acceptance of a pre-emptive rightholder varies materially from the terms of the third party’s offer, it is viewed as a rejection of the seller’s offer and terminates the option right.”) (emphasis added). Existing Maryland law is not particularly instructive regarding the protocols for the proper exercise of a right of refusal, especially in light of the rather unique factual circumstances of this case. 12 The Court of Special Appeals, however, ⁴⁶⁰ quoting Coastal Bay Golf Club, Inc. and Matson , in its unreported opinion in the present case held that “[i]f the preemptioner wishes to exercise his rights, his offer must not vary materially from the offer received by the landowner.” (emphasis in original).

Reported Maryland cases, at least in passing, have commented upon the contents of the purported exercise of a right of first refusal. In Ferrero Construction Co., for example, while outlining the factual background of the case, the Court stated that the preemptioner “submitted a contract that in its essential terms conformed to the third party’s offer.” 311 Md. at 563 , 536 A.2d at 1138 (emphasis added). The primary dispute in Ferrero Construction Co., however, involved not the contents of the preemptioner’s exercise of its right of first refusal, but rather whether the preemptive right violated the Rule Against Perpetuities. Thus, while Maryland requires generally the literal matching of terms in cases involving the formation of binding contracts, the cases focusing specifically on rights of first refusal are ambiguous at best in this regard.

C. Good Faith Requirement. We need not decide, in the posture of the present case, whether a holder of a right of first refusal must match literally all the terms in the triggering offer in order to exercise its right because there is generated on this record a genuine dispute of material fact as to whether the Lanes and the Thomases (or one o f them) inserted, in bad faith, the “no mining” clause as a “poison pill” in order to discourage or frustrate Bramble from exercising its right of first refusal. In considering whether Petitioner exercised effectively its right of first refusal, there are several countervailing interests to be considered. On one hand, there is a significant interest in promoting the free alienability and marketability of land.

A person or entity generally should have primary control over the disposition of property he, she, or it owns. ⁴⁶¹ West Texas Transmission, L.P., 907 F.2d at 1563 (holding that when a property owner receives an offer to purchase a piece of property encumbered by a preemptive right, “the owner of [the] property subject to a right of first refusal remains master of the conditions under which he will relinquish