In re Smith Trust
| Citation | 480 Mich. 19,745 N.W.2d 754 |
| Decision Date | 19 March 2008 |
| Docket Number | Docket No. 133462. (Calendar No. 5) |
| Parties | In re Egbert R. SMITH TRUST. Glen Phillips and Dale Phillips, Petitioners-Appellees, v. Betty Homer, Successor Trustee, Respondent-Appellant. |
| Court | Supreme Court of Michigan |
We granted leave to appeal to consider whether a right of first refusal is revocable once the holder of the right receives notice of a third party's offer and whether the petitioners-tenants are entitled to summary disposition and specific performance of the right of first refusal.
We affirm the judgment of the Court of Appeals and hold that, under the lease agreement in this case, the petitioners had an irrevocable option to buy the leased property after the respondent presented to the petitioners a bona fide purchase offer from a third party (giving the petitioners the right of first refusal) and that the respondent breached the lease agreement by failing to honor the option. Furthermore, because real property is unique, and the petitioners timely exercised their option to purchase the property, specific performance is the proper remedy in this case.
This case arises out of a residential lease agreement for a 75-acre tract of land between the respondent-successor trustee and the petitioners-tenants. In the early 1980s, Egbert Smith died owning a 75-acre tract of farmland. By the terms of his will, the property became an asset of Smith's testamentary trust. In May 1982, Donna Sutton qualified as the trustee of Smith's trust.
As trustee, Sutton entered into a lease agreement with Glen and Dale Phillips, the petitioners. The lease was for a period of five years, with an option to renew under the same terms for an additional five years. The petitioners timely renewed the lease for a second term. On March 27, 2001, the petitioners and Sutton executed an additional five-year extension of the lease. As extended, the lease was to expire by its terms in 2005.
Paragraph 15 of the lease contained the following right of first refusal:
Landlord hereby grants to Tenant the option to purchase the leased premises upon the following terms:
Tenant shall have the right of first refusal to match any bona fida [sic] offer to purchase made with regard to the subject property. In the event Tenant fails to exercise his option within 30 days following presentment of said bona fida [sic] offer to purchase the option herein granted shall terminate.
This option to purchase shall continue through the primary term of this lease and any extensions thereof. Upon Tenant notifying Landlord in writing of his intent to exercise his option to purchase closing for said purchase shall be scheduled at a reasonable time mutually agreeable to the parties.
Upon Tenant's exercising his offer to purchase, Tenant shall pay to Landlord in cash the purchase price less the deposit herein specified and less any and all rental payments made during the lease term.
The respondent, Betty Homer, was appointed successor trustee of the Egbert R. Smith Trust in 2001. In 2004, the respondent received an offer to purchase the property for $225,000. She asserts that she never accepted the offer. However, on July 28, 2004, the respondent's attorney sent a letter to the petitioners stating in pertinent part:
Pursuant to the Lease, it is required that you have the right to match any bona fide offer presented. This letter is to inform you that Ms. Homer has a signed purchase agreement with the offer of $225,000 for the farm. You must notify our office of your decision to exercise your option within 30 days. The thirty days will expire on August 30, 2004. Your offer will be referred to Ms. Homer for her review and final decision. Upon the expiration of that time period, Ms. Homer will be selling the farm.
On August 9, 2004, the respondent's counsel wrote to the petitioners stating that Ms. Homer had declined the original offer and was not selling the farm at that time.
On August 13, 2004, within the 30-day period set forth in the lease and the July 24, 2004, letter, but after the August 9, 2004, letter informing the petitioners that the offer to sell had been rejected, the petitioners gave written notice that they were exercising their option to purchase the property.
The respondent refused to sell the property to the petitioners. The petitioners filed a petition in the Sanilac County Probate Court, seeking to compel the sale of the land pursuant to the lease agreement. The probate court heard oral argument on the parties' cross-motions for summary disposition on December 16, 2005, and granted the respondent's motion for summary disposition. The probate court ruled that the respondent's July 28, 2004, letter triggered the petitioners' opportunity to exercise their option to purchase the property. However, the court determined that the respondent's August 9, 2004, letter had countermanded the July 28 notice before the petitioners exercised their right of first refusal and therefore precluded the petitioners from exercising their right of first refusal. As a result, the probate court held that no enforceable agreement existed. The probate court entered an order to that effect on January 12, 2006.
The petitioners appealed. On February 15, 2007, the Court of Appeals issued an opinion reversing the judgment of the probate court.1 The Court of Appeals reasoned that after petitioners received notice of the original offer on the property from the respondent, the right of first refusal became an option contract that was not revocable by the respondent during the 30-day period specified in the lease.
The respondent filed an application for leave to appeal in this Court. This Court granted leave to appeal and ordered the parties to brief, among other issues, (1) whether a right of first refusal is revocable once the holder of the right receives notice of a third party's offer and (2) whether the petitioners are entitled to summary disposition and specific performance of the right of first refusal.2
This Court reviews de novo rulings on summary disposition motions, viewing the evidence in the light most favorable to the nonmoving party.3 Additionally, this case involves an issue concerning the proper interpretation of contracts, which is a question of law that is subject to review de novo by this Court.4
The resolution of this case involves interpretation of the contractual lease agreement between the petitioners and the respondent. In interpreting a contract, it is a court's obligation to determine the intent of the parties by examining the language of the contract according to its plain and ordinary meaning.5 If the contractual language is unambiguous, courts must interpret and enforce the contract as written because an unambiguous contract reflects the parties' intent as a matter of law.6 However, if the contractual language is ambiguous, extrinsic evidence can be presented to determine the intent of the parties.7
In this case, the plain language of the parties' lease agreement characterized the petitioners' right of first refusal as an option. The lease agreement stated:
Landlord hereby grants to Tenant the option to purchase the leased premises upon the following terms:
Tenant shall have the right of first refusal to match any bona fida [sic] offer to purchase made with regard to the subject property. In the event Tenant fails to exercise his option within 30 days following presentment of said bona fida [sic] offer to purchase the option herein granted shall terminate.
This option to purchase shall continue through the primary term of this lease and any extensions thereof. Upon Tenant notifying Landlord in writing of his intent to exercise his option to purchase closing for said purchase shall be scheduled at a reasonable time mutually agreeable to the parties.
Upon Tenant's exercising his offer to purchase, Tenant shall pay to Landlord in cash the purchase price less the deposit herein specified and less any and all rental payments made during the lease term. [Emphasis added.]
This section of the lease agreement expressly granted the petitioners an option to purchase the leased premises in the event that the respondent decided to sell the land. The plain language of the lease agreement demonstrates that the parties intended that when a third party made a bona fide offer to purchase the property and the respondent presented the offer to the petitioners, the petitioners had the irrevocable option to purchase the property for the purchase price within 30 days of the notice.
"An option is basically an agreement by which the owner of the property agrees with another that he shall have a right to buy the property at a fixed price within a specified time."8 As stated in 17 CJS, Contracts, § 55, p. 502:
An option contract is an enforceable promise not to revoke an offer. It is a continuing offer or agreement to keep an offer open and irrevocable for a specified period. It is a contract right, and the optionor must keep the offer open. Until an option is exercised, the optionor has the duty not to revoke the offer during the life of the option.
An option is an enforceable promise not to revoke an offer for a specified time, in this case 30 days.
The respondent's July 28, 2004, letter triggered the petitioners' right to exercise their option under the lease agreement to purchase the property. The letter expressly stated that the respondent had received a bona fide offer for the property and would be selling the property at the expiration of the petitioners' option period. Furthermore, the letter informed the petitioners that they "must...
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