Daily Development for Wednesday, September 27, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

OPTIONS; FIRST REFUSAL; GIFT OF PROPERTY: A right of first refusal reserved in a deed "for the best price of any bona fide offer" is not triggered by the grantees' subsequent conveyance of the subject property to third parties as a gift and without consideration, absent evidence that the third party was a 'straw man'.

Cottrell v. Beard, 9 S.W.3d 568 (Ark. Ct. App. 2000)

A fighting relatives case, this matter stems from a reservation in a 1961deed from eight siblings to two other siblings of each sibling's 1/16th undivided interest in a large parcel of land. The grantee siblings subsequently made several conveyances of portions of the land during the period 1967 to 1976 without the grantor siblings exercising their right of first refusal.

In 1990, one of the grantee siblings conveyed all of her interest in the land to her brother, the other grantee sibling, and his spouse.

The grantee brother and his spouse then conveyed, as a gift and without consideration, six acres to a third party without giving prior notice of the transfer to the original grantor siblings. This case ensued, with the grantor siblings alternately claiming that they should be able to exercise their right of first refusal for free (for the 'best price', same consideration as the third party paid) or that the deed to the third party should be canceled.

The Court did not address the grantor siblings' first two arguments, that the lower court erred in (i) holding that the instant right of first refusal was extinguished with the deaths of the grantees, and (ii) the reservation of the right of first refusal for a large number of small, undivided interests was an unreasonable restraint on alienation, and instead analyzed the case under the appellants' third argument, that the holding that the right of first refusal was never triggered due to the gift status of the transaction.

In reviewing the 1961 deed reservation on a plain language, four corners basis, the Court held that no intent was expressed by the grantor siblings for the right of first refusal reservation to apply to a gift, limiting the concept of "sale" as a contract by which one party transfers the ownership of property to another for a price. The full language of the reservation is as follows: "also reserving the right of opportunity to purchase said lands in case Grantees desire to sell the same at and for the best price of any bona fide offer." More careful drafting would likely have led to a different result for this sibling group.

Comment: The editor believes that the court never really concluded that the right of first refusal has been extinguished, but only that the trial court was correct in refusing either to set aside the sale or to order the property conveyed to the siblings. The court simply said that the right does not apply to the instant transfer. Arguably, the right of first refusal still inheres in the property, and the current owners remain subject to it.

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