In November 2003 William Earl Norris and Martha Sue
Norris decided to sell their farm to Eleanor Fox Davis. William and Martha
signed not one, not two, but three – count
‘em three – contracts, all with Eleanor.
In the
first contract M/M Norris agreed to sell 215 acres to Ms. Davis. Davis also had
the right to acquire more acreage from M/M Norris, being the remainder of the
545-acre farm. In the second, Davis agreed to purchase 10 acres from Norris.
The third contract was for approximately 210 acres. The parties closed on the
second and third contracts, but left the first pending.
In 2006
Davis sent M/M Norris a letter announcing her intention to exercise the option
in the first contract. Counsel for the Norris’ did not agree that Davis was
entitled to purchase more property, and consequently M/M Norris did not appear
at the time and place designated by Davis for closing.
Davis
sued M/M Norris for specific performance or damages. Davis lost. Davis
appealed.
The Texarkana
Court of Appeals first stated that options must be clearly drafted and the
purchaser must strictly comply. The Appellate Court concluded that the contract
was unclear as to what, exactly, is required to exercise the option. This
conclusion was based primarily on the handwritten statement in the contract
that: “SELLER WILL HAVE 9 MONTHS NOTICE BEFORE BUYER WILL CLOSE,” coupled with
some additional unclear provisions.
The
handwritten clause followed a provision granting Davis “. . . an Option and
First Right of Refusal until January 1, 2007 to purchase [the property].” But
what is the correlation between the January 1, 2007 deadline and the 9-month
notice provision? Must nine-month notice be issued before January 1, 2007, or
must the closing be completed by January 1, 2007?
At the
trial court M/M Norris won a summary judgment based on the single theory that
Davis did not timely exercise the option. The Court of Appeals reversed the
decision of the trial court, and remanded the case back to Wood County to
figure out what the parties had contemplated to properly and timely exercise
the purchase option.
See Davis v. Norris, 06-10-00093-CV,
6th Court of Appeals, Texarkana; October 27, 2011.
Lessons
learned:
1. It appears that no brokers were involved. Thank
goodness, since clearly all brokers and agents would have been sued.
2. Option contracts are tricky. Do not draft option
contracts, rights of first refusal, rights of first offer or anything
similar, in contracts or leases. Or anywhere else for that matter. Even
seasoned lawyers often make mistakes in this area.
3. Review option language closely. Everything in an
option provision must be spelled out with great particularity – timing,
property description, pricing, review and due diligence periods, earnest
monies or additional deposits, means by which notice must be furnished,
title companies, closing documents, prorations, taxes, etc. Tricky stuff.
Seriously.
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
