Say What You Mean, and Mean What You Say



The Indiana Court of Appeals has again weighed in on the issue of contract interpretation.  In a recent case involving a “right of first refusal”, the Court was again asked to try to determine the intent of the parties from the plain language of the contract.  Interestingly, although all three judges on the Court of Appeals agreed that the “plain meaning” of the contract was “unambiguous”, the judges disagreed on what was that plain meaning.

            In the case, individuals had leased several parcels of real estate from an oil company to operate gas stations.  As part of those leases, they negotiated a “right of first refusal” to purchase the parcels of real estate on which they operated their gas stations.

            Years later, the oil company entered into a proposed agreement to sell all of its assets, including the real estate, for a combined price of $80,000,000.  The oil company did notify the individuals of the proposed sale and offered them the right to exercise their right of first refusal to purchase those properties.  Of course, the “offer” that they needed to match was for $80,000,000.

            The individuals filed the lawsuit saying that it was never the intent of the parties that their right of first refusal would be tied to an offer that also involved all of the other assets of the oil company.  While the plain language of the contract simply says that the individuals had the right to match any offer to purchase their leased real estate, the individuals believed that it was not a reasonable interpretation to say that such an offer included all of the assets of the oil company (apparently worth nearly $80,000,000), but instead was focused simply on the individual pieces of real estate.

Two of the judges agreed with the individuals, while one agreed with the oil company.  This type of situation has been evaluated by other states, and the Court of Appeals noted that 21 other states agreed with the individuals’ interpretation of the contract, i.e. that a right of first refusal cannot be part of a larger sale agreement because it would essentially negate the right of first refusal.

            Once again, it is always interesting to see how people can read the exact same contract, and in this case even agree that the “plain meaning” was “unambiguous”, yet disagree as to what that “plain meaning” is.   In this case, the individuals were successful in bringing their action and therefore it will be interesting to see how exactly their individual parcels of real estate are valued, given that they were not individually sold.  There are always practical implications from these court decisions, many of which the Courts of Appeal never have to deal with.

            The oil company did attempt to appeal this decision to the Indiana Supreme Court, but the Indiana Supreme Court refused to hear the case and therefore this decision is now final.