Daily Development for Monday, February 19, 2001

OPTIONS; THIRD PARTY INTERFERENCE: Grantor of an option to purchase land cannot repudiate or make performance impossible or more difficult by conveying land to third person or conveying growing timber, which is an interest in real property, to a third party. Third party, if it has notice of the option, may be liable for waste if it cuts the timber.

McCorkle v. LouMiss Timber Co., 760 So.2d 845 (Miss.App. 2000).

Father executed an option to his sons for the purchase of undivided remainder interests in his property. The sons recorded the option. There was no exercise date stipulated, and no indication that there was consideration for the option. Twenty years later, the sons recorded their option. But before these options were exercised, Father sold timber rights to third parties, who cut the timber. One of the sons tried to exercise his option, and father refused. Son brought an action, and an equity court in a prior case upheld the validity of the option agreement. Thus the validity of the option was not at issue in this action.

Son then sued the third parties for the lost timber.

The Mississippi court, commenting that this was a case of first impression, first found that an option, even one without specific duration and without consideration, does vest some rights in the optionee as against third parties. In order for a third party to acquire rights in the face of the option, the third party must communicate with the option to determine whether the optionee intends to exercise its option. The court found this to be true even where there is no time limit on the option and no consideration has been paid, even though it earlier stated that an unexercised option without consideration can be repudiated by the optionor.

The court found that timber rights were real property interests in Mississippi, and were subject to the same rule. But the court had some difficulty identifying when an optionor is limited in his harvesting of timber. It noted that an optionor could plant and harvest ordinary growing crops, which go through an annual cycle, without concern about the rights of optionees, because such activity does not interfere with the basic value of the land. Timber, however, it found to be different.

With respect to timber, the court analogized to the law of waste, in which a life tenant is restrained from harvesting timber to the injury of the remander interests. The court stated that, similarly, an optionor must refrain from substantial reduction in the value of the property subject to the option.

The court concluded that the son potentially had rights against the third parties for waste. But it denied what would have been a much more expensive statutory claim for trespass in connection with wrongful timber cutting. Although the timber company had constructive notice of the son's option, the nature of the son's interest was not sufficient to support a trespass action. Later in the opinion, however, the court ultimately concluded that the son was barred by res judicata from pursing the claim, since the chancellor in the earlier action had denied the father's liability for the cutting of the same timber. Note that this court likely would not have concurred in that conclusion, but the issue was res judicata in this case.

The court dismissed a number of other theories of the son, primarily because they were duplicative of the waste claim.

Comment: A cute little puzzle. Does a party holding an unexercised option have a reasonable expectation that the owner of the optioned property will preserve its value? Yes sir, says the Mississippi court, even if the option was exercised twenty years before and has no clear expiration date. (The court does not discuss the Rule Against Perpetuities does Mississippi follow the "wait and see" exception?) Note that here the son had an option to acquire a remainder interest only. That was good enough.

There are some problems with the result. Even with growing timber, it would seem inappropriate to bind the hands of the optionor indefinitely should the optionor desire to alter the character of the property in some way of critical value to him. It is one thing to protect a "real" remainderperson. It seems quite another to vest rights in a remainderperson that may never come to be.

But there are many cases in which, indeed, a contingent remainderperson's interest are protected by the waste doctrine. Here, we have the same basic notion. Note that the court did hold that the optionees could be cut off by the optionor tendering the opportunity to exercise the option a sort of estoppel.

The editor would have liked to see more discussion of the fact that the parties executed the option long, long before, and under these special facts one might view it to be their expectation that the optionor did have more discretion with the property, so long as he didn't significantly devalue it from its condition as of the time of the option. But the process of the case really didn't get us to that kind of analysis.

The court also found that there might be an action for tortious interference if the third parties had taken a part in inducing the father to repudiate the son's interests. This action was not barred by the res judicata argument, and was the only claim really left standing. But the record was not clear on this issue, so the court made no final pronouncement, other than to say that facts might later be adduced to support such a claim.

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