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No. 2--04--0015

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

Plaintiff, Crestview Builders, Inc., entered into a real estate sale contract with The NoggleFamily Limited Partnership (NFLP). Under the contract, NFLP was to provide plaintiff with a rightof first refusal on the sale of a portion of the land. The parties were ultimately unable to agree on theterms of the right of first refusal, and plaintiff filed a complaint for declaratory judgment and specificperformance against defendants, NFLP and Robert Noggle and Fern Noggle, two partners of NFLP. Plaintiff moved for summary judgment and defendants moved for judgment on the pleadings. Thecourt denied defendants' motion and granted summary judgment to plaintiff. Defendants appeal,arguing that the right-of-first-refusal provision is unenforceable. We agree, and thus we reverse.

On March 19, 1997, plaintiff entered into a contract with NFLP, whereby NFLP agreed tosell plaintiff 220 acres of land. NFLP retained possession of a homestead property located on theland. Under the contract, three closings were to take place, with a portion of the land being sold ateach closing. Paragraph "R-5" of the rider to the contract provided:

"At the first closing ***, [NFLP] agrees to execute and deliver to [plaintiff] a recordable rightof first refusal on [NFLP's] retained homestead."

On December 10, 1997, NFLP, without first informing plaintiff, transferred the homesteadproperty to Robert Noggle and Fern Noggle. The parties did not discuss the right of first refusal ateither the first or the second closing, and NFLP did not execute and deliver a right of first refusal toplaintiff. At the third closing, on December 15, 2000, the parties inserted the following language atthe bottom of the closing statement:

"[NFLP] agrees to comply with the requirements of paragraph R-5 of the rider to the RealEstate Sales Contract by delivering a signed and recordable right of first refusal to [plaintiff]by 12/30/00 for the homestead."

Following the third closing, during December 2000 and January 2001, the parties negotiatedthe terms of the right of first refusal. Plaintiff suggested that the term of the right of first refusalshould be 10 years, but NFLP sought a term of 3 years. The parties apparently were unable to agreeon a final draft. In April 2001, plaintiff filed a complaint for declaratory judgment and specificperformance against defendants. Plaintiff ultimately filed a second amended complaint seeking thecourt to declare that the right-of-first-refusal agreement was valid and binding and that its durationwas unlimited. Plaintiff later moved for summary judgment and defendants moved for judgment onthe pleadings. The trial court granted plaintiff's motion and denied defendants' motion. The courtfound that the agreement set forth in the closing statement was valid and binding and that plaintiff hada right of first refusal on the retained homestead for the lives of the parties. The court denieddefendants' motion to reconsider, and defendants appealed.

On appeal, defendants assert that the court erred in granting plaintiff's motion for summaryjudgment and denying its motion for judgment on the pleadings, arguing that the right of first refusalwas not valid because it was missing essential terms. A motion for summary judgment is properlygranted only when the pleadings, depositions, admissions, and affidavits on file reveal that there isno genuine issue as to any material fact and that the moving party is entitled to judgment as a matterof law. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292 (2001). Inconsidering a summary judgment motion, the court has a duty to construe the evidence strictly againstthe movant and liberally in favor of the nonmoving party. Travelers Insurance, 197 Ill. 2d at 292. A motion for judgment on the pleadings requires the trial court to examine the pleadings anddetermine whether there is an issue of fact or whether the controversy can be resolved as a matter oflaw. Pekin Insurance Co. v. Allstate Insurance Co., 329 Ill. App. 3d 46, 49 (2002). On appeal, thereviewing court must ascertain whether the trial court correctly determined that the pleadingspresented no issue of material fact and, if there was no such issue, whether the court correctly enteredthe judgment. Pekin Insurance Co., 329 Ill. App. 3d at 49. We review de novo both the grant ofsummary judgment and the denial of the motion for judgment on the pleadings. Travelers Insurance,197 Ill. 2d at 292; Pekin Insurance Co., 329 Ill. App. 3d at 49.

In order for a contract to be enforceable, its terms and provisions must enable the court toascertain what the parties have agreed to do. Pritchett v. Asbestos Claims Management Corp., 332Ill. App. 3d 890, 896 (2002). Price is an essential element of every contract for the transfer ofproperty and must be sufficiently definite or capable of being ascertained from the parties' contract. Universal Scrap Metals, Inc. v. J. Sandman & Sons, Inc., 337 Ill. App. 3d 501, 505 (2003). However, a right of first refusal need not specify the price, as long as it provides a method wherebythe price may be ascertained. Universal Scrap Metals, 337 Ill. App. 3d at 505; Kellner v. Bartman,250 Ill. App. 3d 1030, 1035 (1993).

Defendants argue that the right of first refusal in the parties' contract did not specify a methodwhereby the price of the homestead could be ascertained because it contained no terms other thanthe phrase "right of first refusal." Plaintiff responds that the use of the term "right of first refusal" issufficient in itself to provide a method whereby the price and other terms may be ascertained. Weagree with defendants.

In Folsom v. Harr, 218 Ill. 369 (1905), the parties entered into a lease agreement that includedthe following provision:

" 'Should [the defendant] conclude to sell this property, then [the plaintiff] is to have the firstchance to buy the same.' " Folsom, 218 Ill. at 370.

The defendant sold the property without first offering it to the plaintiff and the plaintiff brought suit. The court held that the contract was unenforceable because it was uncertain and incomplete,reasoning that the contract provided no method for determining the price of the property. Folsom,218 Ill. at 372-73. The court noted that the agreement would have been enforceable if it had statedthat the plaintiff had the right to purchase the property under the terms offered by a third party. Folsom, 218 Ill. at 373.

In Universal Scrap Metals, a case upon which defendants rely, the parties entered into a scrapmetal sales agreement that contained a right-of-first-refusal provision. The provision provided:

" 'If at some future time [the defendant] decide[s] to sell, relinquish or limit participation inthe business, it is agreed that [the plaintiff] will have the 'right of first refusal' to purchase,manage, or otherwise operate [the defendant's] business under mutually agreed uponconditions.' " Universal Scrap Metals, 337 Ill. App. 3d at 503.

After the defendant sold its assets to a third party without offering a right of first refusal to theplaintiff, the plaintiff brought a breach of contract action. At issue was whether the right-of-first-refusal provision contained a method to determine the price and other terms of the sale of thedefendant's business. The court first "strongly reject[ed]" the plaintiff's contention that "theplacement of 'right of first refusal' in quotation marks 'was an express means of indicating that [theparties] intended to define that phrase as a term of art as it is known and used in the business world,' "reasoning that the use of the term "right of first refusal" did not inherently mean that the right couldbe exercised under the terms of a third-party offer. Universal Scrap Metals, 337 Ill. App. 3d at 505.

The court also declined to follow decisions of other jurisdictions holding that "a right of firstrefusal implicitly means that the holder of the right is obligated to pay the price offered by a thirdparty," and instead followed our supreme court's holding in Folsom. Universal Scrap Metals, 337 Ill.App. 3d at 505-06. The court noted that not every right of first refusal involves a third-party buyer. Although a right of first refusal often does involve a third-party buyer, the right may also arise whena seller notifies the right-holder of his desire to sell. Universal Scrap Metals, 337 Ill. App. 3d at 507. The court stated that "[h]ad the parties intended to expressly base their selling price on a third-partyoffer, they could have provided so in the agreement." Universal Scrap Metals, 337 Ill. App. 3d at506. The court ultimately held that the agreement was not sufficiently definite and was thereforeunenforceable.

In Kellner, the parties entered into a real estate contract that contained a right-of-first-refusalprovision. The agreement provided, in pertinent part:

" 'In the event [the defendant] shall decide to sell his remaining farm land ***, he shall firstoffer the farm land to [the plaintiff] for the price and on the terms of the intended sale, by aninstrument in writing, delivered or mailed to [the plaintiff].' " Kellner, 250 Ill. App. 3d at1032.

The defendants sold the farm land to a third party without first offering it to the plaintiff, and theplaintiff sued. The court held that the agreement was enforceable. Because the agreement stated thatthe defendant had to offer the land to the plaintiff " 'for the price and on the terms of the intendedsale,' " the right of first refusal contained a method whereby the price could be determined. Kellner,250 Ill. App. 3d at 1036.

Based on Folsom, Universal Scrap Metals, and Kellner, we hold that the right of first refusalon NFLP's retained homestead is unenforceable. The right-of-first-refusal provision contains nomethod whereby the price of the retained homestead may be determined. In fact, the provisioncontains no terms whatsoever. It merely states that the plaintiff is to be given a "right of first refusalon [NFLP's] retained homestead." Like the right-of-first-refusal provisions in Folsom and UniversalScrap Metals, this provision is indefinite, and hence unenforceable.

Plaintiff first responds that the use of the term "right of first refusal" is sufficient in itself toprovide a method whereby the price and other terms may be ascertained. Plaintiff notes that the term"right of first refusal" is defined in Black's Law Dictionary as a "potential buyer's contractual rightto meet the terms of a third party's offer if the seller intends to accept that offer." Black's LawDictionary 1325 (7th ed. 1999). Therefore, plaintiff argues, the definition of the term "right of firstrefusal" provides the method whereby the price may be ascertained, and thus, the right of first refusalin the contract is enforceable. We disagree. As discussed previously, the court in Universal ScrapMetals rejected a very similar argument, reasoning that not every right of first refusal involves a third-party buyer. Universal Scrap Metals, 337 Ill. App. 3d at 505-07; see also Kellner, 250 Ill. App. 3dat 1034-35 (recognizing that a right of first refusal is not always based on a third-party offer). Thesame reasoning applies here. Although a right of first refusal often involves a third-party offer (seeKellner, 250 Ill. App. 3d at 1034-35), this is not always so. Thus, the term "right of first refusal" doesnot, in itself, provide a method of determining the price.

Plaintiff next responds that Universal Scrap Metals is distinguishable in that the right of firstrefusal there involved the management and operation of a business as well as the purchase of assets,and included the term "under mutually agreed upon conditions." We note initially that we would havesufficient authority to reach our decision, even in the absence of Universal Scrap Metals. See Folsom,218 Ill. at 372-73; Kellner, 250 Ill. App. 3d at 1035-36. In any event, we reject plaintiff's argument. Although it is true that Universal Scrap Metals is factually distinguishable, and that the court reliedin part on those specific facts in reaching its decision, the court's ultimate holding was that the rightof first refusal was indefinite because it did not provide a method of ascertaining the price of theproperty. Universal Scrap Metals, 337 Ill. App. 3d at 505-07. In reaching that holding, the courtrelied on the general legal principles governing rights of first refusal enunciated in Folsom andKellner. Universal Scrap Metals, 337 Ill. App. 3d at 505-07. Thus, while plaintiff correctly pointsout the factual distinctions in Universal Scrap Metals, the rationale of the case still applies.

The judgment of the circuit court of Du Page County is reversed.

Reversed.

BOWMAN and CALLUM, JJ., concur.