No. 93-587
IN THE SUPREME COURT OF THE STATE OF MONTANA
1994
KENNETH H. WILLSON,
Plaintiff and Appellant,
-v-
HELEN M. COLLINS TERRY, and
MAY 2 0 1994
FLOYD TERRY,
CLGAK OF WFI?Ci-?ECOURT
Defendants and Respondents. STAT& QF MUiVTANA
APPEAL FROM: District Court of the Twelfth Judicial District,
In and for the County of Chouteau,
The Honorable John Warner, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Robert C. Melcher, Billings, Montana
For Respondents:
Gorham E. Swanberg, Ray F.Koby, Swanberg, Koby &
Swanberg, Great Falls, Montana
Submitted on Briefs: March 24, 1994
Decided: May 20, 1994
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
This is an appeal from the dismissal of an action in the
Twelfth Judicial District Court of Chouteau County. We affirm.
We consider the following issue on appeal:
Did the District Court err when it granted defendantsv motion
to dismiss based upon the courtvs conclusion that the option to
purchase within the original lease agreement ended at the
expiration of the written lease term?
Appellant Kenneth Willson (Willson) leased land from
respondent Helen Collins Terry (Terry) for the purpose of farming.
The original lease was written and was signed on or about February
8, 1985 and lasted for three years until 1988. The lease provided:
"This FARM LEASE shall be for a period of three (3) years, or
longer if mutually agreed to by both parties."
After the expiration of the written lease, Willson continued
on the property following yearly oral agreements between the
parties. In January of 1990, respondents offered to sell the farm
to Willson for $325 per acre. Willson believed this price to be
inflated and informed the Terrys that he would not buy it at this
price, but would like to buy it at a more representative price.
Willson claims that Mr. Terry agreed that he would notify him if
they lowered the price. However, in July of 1990, the Terrys sold
the farm to a third party for $265 per acre while Willson was in
possession of the land and without notifying Willson that the price
had been dropped.
Willson filed a complaint in Chouteau County alleging breach
2
of contract, breach of implied covenant of good faith and fair
dealing, failure to disclose, negligent misrepresentation and
breach of promise. Defendants filed a motion to dismiss pursuant
to Rule 12 (b)(6) M.R.Civ.P. The court granted dismissal on October
19, 1993, finding that the renewal clause in the written lease was
inadequate to continue the option to buy beyond the original
written lease term.
Did the District Court err when it granted defendantsf motion
to dismiss based upon the court's conclusion that the option to
purchase within the original lease agreement ended at the
expiration of the written lease term?
Willson argues that in making its determination to dismiss,
the court based its decision on an issue of law not placed in
contention by the parties. Willson claims that the courtfs
interjection of legal theory without providing him an opportunity
to respond to the theory denies him due process. Further, Willson
argues that he was not a holdover tenant as determined by the
court, but was instead a lessee in possession of the land by virtue
of an oral agreement. Because he was not a holdover tenant,
Willson contends that he was entitled to a carryover of the option
to purchase from the original written lease. Willson further
argues that his possession of the land entitles him to an automatic
renewal of his lease on the same terms as the original lease
pursuant to 5 70-26-204, MCA.
Terry argues that the issue of the renewal clause and its
viability was thoroughly discussed by both parties and that the
court did not interject a new issue. Further, Terry contends that
Willson incorrectly states the problem when he argues that the
court acted improperly to characterize him as a holdover tenant.
~ccording to Terry, the court's determination springs from
established Montana law stating that in order for a renewal of an
option to purchase to continue beyond the written lease, that
clause must be specific; the clause in question here was not
specific and the court did not err in so finding.
This Court will only affirm a district court's dismissal of an
action if it finds that the plaintiff is not entitled to relief
under any set of facts which could be proven in support of the
claim. King v. State (l993), 259 Mont. 393, 856 P.2d 954.
Therefore, the District Court can only be affirmed if Willson could
not recover under any set of circumstances.
Willson's argument that the court decided the action based
upon a new issue is not well taken. Willson cites Nentwig v.
United Industry (1992), 256 Mont. 134, 845 P.2d 99, for the
proposition that the District Court was required to allow him an
opportunity to address the new issue. However, we do not believe
that the issue of whether the renewal clause was void for vagueness
as so described by the court was a new issue. Such a consideration
was implied within the context of the pertinent legal question.
The record indicates that one of the main issues briefed by
counsel concerned whether the written lease was renewed together
with all of its terms. Because this is the fundamental legal
question the court had to answer, it was within its jurisdiction to
consider all relevant law pertaining to resolution of the question
and interpretation of the original written lease. Thus, the court
did not err by citing a relevant case, Riis v. Day (1980), 188
Mont. 253, 613 P.2d 696, which was not cited by either counsel and
which dealt with the void for vagueness theory.
The written instrument interpreted by the District Court and
which we must also review is a written lease executed in 1985.
Willson argues that this lease contains an "option to pur~hase.*~
It reads:
Tenant shall be granted an owtion to ~urchase said
property, in the event it should be offered for sale
durinu this lease ueriod, at the same price and terms as
may be offered by a bona fide prospective purchaser ..
.. (Emphasis added.)
Despite the use of the word vloptionv' this sentence, the drafters
in
intent must be determined from the entire instrument itself. Lee
v. Shaw (1992), 251 Mont. 118, 822 P.2d 1061. Having considered
the entire contract, we determine that the above sentence indicates
Willson had a "right of first refusal" as opposed to an option
contract.
The legal distinction is very important. An option is a right
acquired by which an owner of property agrees with another person
that he shall have the right to buy the property at a fixed price
within a certain time. Lee, 251 Mont. at 121, 822 P.2d at 1063.
The wording of the contract before us does not indicate a fixed
price, although it does indicate a fixed term--during this lease
period--which is three years.
A right of first refusal means that when the owners decide to
sell the property, the person named has the first chance to buy it.
A right of first refusal or preemptive right does not
give to the preemptioner the power to compel an unwilling
owner to sell; it merely requires the owner, when and if
he decides to sell, to offer the property first to the
person entitled to the preemption. . . (Emphasis in
original.)
Lee, 251 Mont. at 121, 822 P.2d at 1063. The wording in the lease
states "in the event that it should be offered for sale." This
indicates that no decision to sell has been made; the intent of the
drafters, therefore, was to create a right of first refusal and not
an option contract.
The written lease also contains the disputed "renewal" clause:
This FARM LEASE shall be for a period of three (3) years,
or longer if mutuallv asreed to bv both ~arties.
(Emphasis added.)
The District Court found that this clause was void for vagueness.
Thus, the court reasoned that any agreement beyond the expiration
of the original written lease was a new agreement between the
parties and did not represent an extension of the original written
lease with its attendant ambiguous renewal clause.
Where vagueness or imprecision exist in a contract, the
contract as a whole must be considered. Barrett v. Ballard (1980),
191 Mont. 39, 622 P.2d 180. The language of the above alleged
renewal clause is made totally nebulous because of the word "if."
We agree with the District Court that neither this clause, nor any
other language in the written lease, can renew the lease unless
more specific language is used; the lease itself only mentions that
such a course of action is possible if the parties agree to it.
The clause above does nothing but alert the parties to the
possibility that any renewal beyond the three year term of the
written lease will require a future separate agreement.
We know from the record that an oral yearly agreement of some
kind existed, but such agreement existed totally apart from any
renewal of the original lease. There is nothing in the record to
indicate that the year-to-year tenancy created by oral agreement
and under which Willson stayed upon the land contained a right of
first refusal.
Willson cites Nevala v. McKay (1978), 178 Mont. 327, 583 P.2d
1065, and Rumph v. Dale Edwards, Inc. (1979), 183 Mont. 359, 600
P.2d 163, for the proposition that when a lease is extended, an
option to purchase is likewise extended. These cases do not
bolster his argument. Rumwh involved a written extension of a
lease. The document extending the lease, a rider to the original
lease, contained specific terms and the following language: "That
the lessee, Hubert C. Rumph and/or Margery Rumph has the option to
renew this lease as well as the option to buy." Rumwh, 183 Mont.
at 363, 600 P.2d at 165. The rider provided a specific provision
for extension of the lease and renewal of the option to buy. It is
because of the explicitness of the rider that we affirmed the
district court stating that the option to purchase was continued.
Rumph, 183 Mont. at 370, 600 P.2d at 169. Were, no such specific
written rider exists which continues the right of first refusal.
Unlike the present case, the original lease in Nevala
contained a specific clause extending the lease by "written1'one-
year lease extensions. The original lease ended on October 4,
1971. Instead of executing the written one-year extensions, the
parties wrote a three-year handwritten extension to December 1,
1974 by writing on the back of the original lease. After 1974, the
Nevalas stayed on the farm until 1975 with no written lease
extensions.
During September of 1975, the owner of the ranch told Nevala
that he was going to sell the ranch. Before Nevala could obtain
financing, the owner called and said that he would retain the
ranch. However, the owner sold the ranch to a third party. We
held that no right of first refusal had been passed on because the
parties had stmodified"
the original lease by writing on the back of
it instead of adhering to the original lease provision of one-year
"writtents
extensions. Nevala, 178 Mont. at 331, 583 P.2d at 1069.
This modification, occurring without inclusion of a written option
or right of first refusal, effectively ended the terms under which
the original lease operated, and therefore, ended the original
option to buy.
While the present case does not present a situation in which
the original written lease was tsmodifiedts does present a similar
it
situation in which the terms of the written lease ended. In
Nevala, the written lease was modified and then expired. In the
present case, the written lease was not renewed because the renewal
clause was inadequate to renew. In either case, the terms of the
written lease ended with the term expiration of the written lease.
Another difference between Nevala and the present case is that
the tenant in Nevala became a holdover tenant when the period of
the modified lease under which the tenant lived, ended. Here, we
have a situation in which the tenants lived on the land with a
yearly oral agreement. Willson argues that he was a lessee in
possession as opposed to a holdover tenant. The distinction is
immaterial for the purposes of this opinion. Given either
nomenclature, Willson still has not retained a right of first
refusal springing from the written lease.
Finally, Willson argues that § 70-26-204, MCA, gives him an
automatic lease renewal by virtue of his possession of the land:
Renewal of lease by lesseels continued possession. If a
lessee of real property leased under an arrangement not
governed by chapter 24 of this title remains in
possession thereof after the expiration of the hiring and
the lessor accepts a rent from him, the parties are
presumed to have renewed the hiring on the same terms and
for the same time, not exceeding 1 month when the rent is
payable monthly, or in anv case 1 vear. (Emphasis
added. )
Section 70-26-204, MCA. The record reveals that Willson was on the
land several years past the expiration of the term of the written
lease. If the written lease expired in 1988, then according to
this statute, any oral agreement extending the "hiringu or lease
could only last until 1989.
We construed the forerunner of the aforementioned statute,
that consists of identical wording, in Roseneau Foods, Inc. v.
Coleman (1962), 140 Mont. 572, 374 P.2d 87. We stated there that:
As pointed out, section 42-203 as applied here created a
tenancy for one year. Section 42-205 applied with
section 42-203 created a presumption that the tenancy was
renewed on a year to year basis. While it is true that
section 42-205 presumes a renewal on the basis of a
monthly rental period, it is also clear that the section
provides that the imwlied renewal weriod may be resumed
to be for a vear. but not in excess of that weriod.
(Emphasis added.)
Roseneau, 140 Mont. at 578, 374 P.2d at 90. Therefore, any oral
agreement made after a renewal of one year, cannot be presumed to
contain all of the terms of the initial written agreement. We
conclude that an oral agreement made after the first year's oral
renewal pursuant to § 70-26-204, MCA, constitutes a brand new
agreement and must contain its own terms. The plain words of the
statute indicate this. Therefore, this statute does not support
v7illscm's aroumcnt.
We finally conclude that the right of first refusal was not
renewed pursuant to the renewal clause in the original written
lease because that renewal clause was inadequate to renew the
written lease. Therefore, we hold that the District Court did not
err in dismissing the action based upon the court's conclusion that
the right of first refusal (option to purchase) located in the
original lease agreement ended at the conclusion of the written
lease.
Aff inned.
iid'<
<
- Justice 4
May 20, 1994
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ing certified order was sent by United States mail, prepaid, to the
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA