First Right Refusal - Essay Example

Case Study Analysis A First Right Refusal is a contract between a buyer and a seller allowing the potential buyer some time to decide what to do while not losing the deal to another seller. In the contract that includes the clause for First Refusal Right, the seller gives the buyer the right to purchase the seller’s property by matching any other offers (Anderson 2011). In the given case, Bert has a historic speed boat which he decided to sell at $ 50,000. As James was interested in getting the first right to buy, Bert gave him the first right to buy the boat. It is not clear from the case as to whether there was a time period set in the contract for the exercise of the right. However, after informing James, Bert advertised the sale at $ 60,000 or near. Also, the advertisement was made on the notice board of the Historic Speed Boat Club. As a response, there was one more buyer; Alphonse. Bert duly informed the new buyer about the existing right of first refusal and claimed that he would be selling only at $ 60,000 or near. Alphonse inspected the boat and offered $ 60,000 as he came to know that someone has the right of first refusal if the amount is $50,000. Bert rang James and communicated this information and James agreed to buy the boat at the agreed price of $ 50,000. However, Alphonse claims that the speed boat was originally sold before the discussion. In the case AstraZenaca UK Limited v. Albemarle International Corporation and Albemarle Corporation (2011) EWHC 1574 (Comm), (as cited in Howell 2011), the English High Court made certain findings which reduced the ambiguity surrounding the right to first refusal. According to the terms of the rights of first refusal, if one party grants a right of first refusal to another party, the former still has the right to find a third party buyer, and before signing an agreement with the third party, the same terms should be offered to the right holder; and if the right holder accepts the terms, it should be given preference (ibid). In other words, in the given case, the seller has the right to accept any third party offer, but it has the obligation to disclose the full details of the offer to the first refusal right holder and give the chance to match the offer. If the right holder fails to match the new offer from the third party, the seller has the right to sell it to the third party Silverthorne (2006). Here, one can see that Bert had properly informed James about the advertisement for a higher price. Also, he had duly communicated with James about the new offer when Alphonse offered a higher price. In fact, as already seen, giving the right of first refusal does not entitle the right holder to buy the speed boat at a lower price. Instead, it only gives James the opportunity to be given priority if his offer ‘matches’ the offer from third party. In the given case, it can be seen that the amount James agreed to pay was $ 50,000 but that offered by Alphonse was $ 60,000. In such a situation, the obligation of Bert is to inform James about the new third party offer and give an opportunity to match the offer. Admittedly, James was planning to purchase the boat at $ 50,000 which is lower than the $ 60,000 offered by Alphonse. Thus, the right of first refusal does not force Bert to sell his boat to James if he fails to match the offer. However, it is for Bert to allow James adequate opportunity to math the offer made by the third party. In other words, it is necessary for Bert to ensure that James declines to use his right of first refusal in the case before selling the property to Alphonse. Admittedly, Alphonse does not have the right to claim that the sale took place before the discussion with James. This is so because if one party holds the rights of first refusal, the property cannot be sold to a third party without communicating the offer made by the third party to the right holder and without allowing the right holder adequate opportunities to match the offer made by the third party. If the right holder matches the offer, the seller has to sell the property to him; and if the right holder fails to match the offer, the property can be given to the third party (Walker 1999). In the given case, James should be given a chance to offer $ 60,000 as the price of the boat. If he fails to do so, Bert can sell the boat to Alphonse at $,60,000. 2. In the second case, it is evident that Jean who leased the shop was just 17 years old while taking the shop on lease. Thus, it becomes evident that the contract will not be considered valid and enforceable. According to the general rule, contracts entered into by a child cannot be considered binding unless the child ratifies the same after reaching the age of majority, that is 18. Though it is possible for the child to claim unenforceability, it is not possible for the adult to claim so (Wishart 2005, p. 5). It is seen in the case Cowern v. Nield (1912) that a child’s trading contracts are not binding even if they are beneficial. However, as it is seen in Edwards v. carter (1893), there are some cases in which a child will be bound unless he repudiates the contract within a reasonable time after attaining maturity. They are; buying or leasing land, marriage settlements, buying shares in a company, and entering in a partnership (The Law Reform Commission 1985). Another interesting information is that according to the decisions in Blake v. Concannon (1870), a child is liable for rent until the lease is given up. Similarly, in Paget v. Paget 11L R. Ir. 26(C.A 1882), it is held that where a contract made by a minor involves the acquisition of an interest in property of a permanent nature with continuing obligations attached to it, the minor may, at his option, avoid the contract either before or within a reasonable time after he attains majority. Until he avoids it, he is bound by the obligations under it (ibid). In the present case, one can see that while leasing, Jean was a minor and even before attaining majority, he had informed Sol that he would have to close. Though the minor had the legal right to avoid the contract, Sol suggested him to continue with the contract. However, within a month of Jean’s attaining majority, the developer sent him letter requesting full rental payment and arrears of rent. In fact, this was a breach of the promise of 60% reduction in rent. Moreover, it is seen that Sol relet the shop to another person for a higher rent for the next four years. Admittedly, Jean had paid the reduced rent for the months October to March based on the oral contract. However, Sol is planning to sue Jean based on the belief that the oral contract would not be legally enforceable. However, from cases like Noel Edmonds v. Ulrik Lawson, BVM Management Ltd v. Yeomans, and Sharma v. Simposh, it is clear that the English Court will give proper attention to oral agreements (Palmer 2011). First of all, Jean can prove that he was paying the reduced rent as per the oral agreement of 60% reduction. Secondly, he is unlikely to be held liable for the breach of the five year leas contract as it becomes evident from the various cases that the minor has the right to avoid any contract within a reasonable time after reaching majority. Moreover, it can be proved that Sol violated the oral agreement by unnecessarily sending notice to Jean. Thus, in the present case, the possibility is that Jean will not be punished for the breach of the five year lease contract. This is so because according to law, a minor has the right to avoid any law any time. Secondly, Jean cannot be sued for the balance of the rent because it is possible for Jean to prove that there was an oral agreement between him and the developer regarding the reduced rent. Thus, it becomes evident that Sol is likely to fail in his attempt to sue Jean for failing to pay the rent. This is so because for a considerable period of time from the contract, Jean was a minor. Also, all the time Jean paid the rent too. Also, it is possible for Jean to argue that Sol had agreed to receive 60% reduced rent for six month period. Moreover, Jean had paid the reduced rent for the whole period. Furthermore, Jean has the legal right to get enough time even after attaining majority to decide whether to continue with the contract. So, Sol will fail in his attempt to sue Jean. References Anderson,M. (2011) Right of first refusal: the wrong solution. IP Draughts. [online] available at http://ipdraughts.wordpress.com/2011/06/25/right-of-first-refusal-the-wrong-solution/ [accessed 21 Dec 2012]. Howell, A. (2011), Clause with teeth: rights of first refusal and liability caps. TaylorWessing. [online] available at http://www.taylorwessing.com/news-insights/details/clause-with-teeth-rights-of-first-refusal-and-liability-caps-2011-06-22.html [accessed 21 Dec 2012]. The Law Reform Commission (1985), Report on minor’s contract. [online] available at http://www.lawreform.ie/_fileupload/Reports/rMinorsContracts.htm [accessed 21 Dec 2012]. Palmer, E. W. (2012), Contractual formalities and oral contracts. The In-House Lawyers.co.uk. [online] available at http://www.inhouselawyer.co.uk/index.php/contract/9777-contractual-formalities-and-oral-contracts [accessed 21 Dec 2012]. Silverthorne, S. (2006), When rights of first refusal are a bad deal. Harvard Business School. [online] available at http://hbswk.hbs.edu/item/5228.html [accessed 21 Dec 2012]. Walker, D. I. (1999), Rethinking rights of first refusal. Forthcoming, 5 Stanford Journal of Law, Business & Finance, pp.1-22. [online] available at http://www.law.harvard.edu/programs/corp_gov/papers/No261.99.Walker.pdf [accessed 21 Dec 2012]. Wishart, M. C. (2005), Contract Law. Oxford University Press. US. Read More