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2004-UP-110 - Page v. Page

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Samuel D. Page,        Appellant,

v.

Willard G. Page, S. M. Page, Betsy Page Gilliam f/k/a Betsy Page Flinn, Carolyn Page Eaton, and Conway National Bank,        Respondents.


Appeal From Horry County
J. Stanton Cross, Jr., Master-In-Equity


Unpublished Opinion No. 2004-UP-110
Heard September 9, 2003 – Filed February 24, 2004


AFFIRMED


Richard N. Weldon and Janice A. Cannan, both of Conway, for Appellant.

James Thomas Young, of Conway, for Respondent Conway National Bank.

STILWELL, J.:  Samuel Page filed a complaint seeking to set aside a property transaction between S. M. Page and Willard Page.  Samuel argued the transaction was invalid because he was not offered a right of first refusal to the property.  The master refused to set aside the transfer.  We affirm.

FACTS

M. K. Page and Maude Page conveyed a parcel of real estate to S. M. Page, in fee simple absolute, reserving a life estate unto themselves.  In the deed, M. K. and Maude placed a restriction on S. M. Page’s right to dispose of the property.  The restriction created a right of first refusal as follows: 

In the event S. M. Page decides to sell all or any portion of this property, it shall first be offered to Betsy Page Flinn, Carolyn Page Eaton, and Samuel D. Page under the same terms and conditions as the proposed sale.  This restriction, on transfer, shall also apply to any heirs of S. M. Page.

The reserved life estate expired upon Maude’s death in 1993 and S. M. Page took possession of the property.  In 1995, S. M. Page conveyed the property to Willard Page without first offering the property to any of the persons identified in the deed from M. K. and Maude as having a right of first refusal.  There was no mention of the right of first refusal clause in the deed to Willard.  A little more than five years after that conveyance, Willard encumbered the property with a $10,000 mortgage in favor of Conway National Bank. 

Samuel, one of the individuals to whom the right of first refusal was granted, sued Willard, S. M. Page, and Conway National Bank seeking to set aside the conveyance, alleging he was not offered the opportunity to purchase the property before it was conveyed to Willard.  The matter was referred to the master in equity with finality.  The master declined to set aside the transaction, reasoning that the right of first refusal language contained in the deed from M. K. and Maude to S. M. Page was invalid because it was an attempt to cut down a fee simple with subsequent language in the deed. 

LAW/ANALYSIS

Samuel argues the master erred when he refused to set aside the conveyance from S. M. Page to Willard.  He asserts the right of first refusal language contained in the deed was a preemptive right that did not cut short a fee simple absolute estate.  Additionally, he contends the master failed to consider the deed as a whole.  We disagree.

One of the first canons of construction of a deed is that the intention of the grantor must be ascertained and effectuated if no settled rule of law is contravened.  In arriving at such intention, the deed must be construed as a whole, and effect given to every part, if such can be done consistently with law. 

Southern Ry. Co. v. Smoak, 243 S.C. 331, 336, 133 S.E.2d 806, 808 (1963).  However, when a granting clause in a deed purports to convey a fee simple absolute title, any subsequent provisions in the deed diminishing or depriving the grantee of rights incident to owning the property in fee simple are invalid.  Shealy v. South Carolina Elec. & Gas Co., 278 S.C. 132, 135, 293 S.E.2d 306, 308 (1982).  Thus we must decide whether the right of first refusal in the deed S. M. Page received diminished any of the rights attendant to the fee simple title conveyed in the deed’s granting clause. 

A right of first refusal is a pre-emptive right.  Webb v. Reames, 326 S.C. 444, 446, 485 S.E.2d 384, 385 (Ct. App. 1997).  The right of first refusal is a contingent nonvested interest because the grantee or the grantee’s heir might never choose to sell the property.  Id.  It is an interest predicated on an event which is not certain to occur.  Id.  Pre-emptive rights are subject to the rule against restraint of alienation of interest in land.  61 Am. Jur. 2d Perpetuities and Restraints on Alienation § 110 (2002).  Under some circumstances, a right of first refusal may not be an unreasonable restriction on alienation.  “A right of first refusal . . . is not a restraint on alienation, as long as both the price that the designated person must pay, and the time allowed for the exercise of the right of first refusal are reasonable.”  Id. 

“Whether a right of first refusal is valid depends on the legitimacy of the purpose, the price at which the holder may purchase the land, and the procedures for exercising the right.”  Restatement (Third) of Prop.:  Servitude § 3.4 cmt. (f) (2000).  According to the testimony, the purpose of the restriction in this case was primarily to retain the property in the family, which is a legitimate purpose.  Also, the language contained in the operative deed fixed the price that must be paid by requiring that it be the same as contained in the offer from a potential third party purchaser.  However, the procedures for exercising the right of first refusal are not specifically spelled out in the grant itself, leaving unanswered the question as to how long the right to exercise the right of first refusal must remain open and how long thereafter the holder of the right had to consummate the transaction. 

Lengthy periods for exercise of rights of first refusal will . . . substantially affect alienability of the property.  Potential buyers will be deterred by the possibility that they may not know for a lengthy period of time whether they will obtain the property or be obligated to pay the price.  The risks of change in their needs and in financial markets will be greater than most buyers will be willing to accept.

Id.  We are therefore constrained to conclude that the lack of specificity in the language of the right of first refusal creates an unreasonable restraint on the alienability of the property. 

We adopt a rule of strict construction in this case for two basic reasons.  The first is that South Carolina has a long line of cases strongly expressing disfavor for subsequent clauses in deeds that purport to cut down a fee simple estate contained in the granting clause.  See Sandford v. Sandford, 106 S.C. 304, 306, 91 S.E. 294, 295 (1917) (“It is . . . clear (and no citation of authorities is necessary) that an attempt to convey an estate in fee simple and deprive the purchaser of the incident of ownership is not effective in law.”); see also Douglas v. Medical Investors, Inc., 256 S.C. 440, 445, 182 S.E.2d 720, 722 (1971) (noting “the well established principle that when the granting clause in a deed conveys a fee simple title it cannot be reduced or cut down by subsequent language in the instrument”); Stylecraft, Inc. v. Thomas, 250 S.C. 495, 498, 159 S.E.2d 46, 47 (1968) (same); Batesburg-Leesville School Dist. No. 3 v. Tarrant, 293 S.C. 442, 444, 361 S.E.2d 343, 345 (Ct. App. 1987) (same).  The second is that any restraint on alienation in the form of a right of first refusal that is not specific in all required elements – legitimacy of purpose, price, and detailed procedures – runs counter to the commonly acknowledged concept in this state that one of the attributes of fee simple ownership is the ability to freely convey it with few if any restrictions.  Having held that the right of first refusal in this case constitutes an unreasonable limitation upon the power of alienation, it is therefore violative of the public policy of this state and has no force and effect.  McCravey v. Otts, 90 S.C. 447, 452, 74 S.E. 142, 143 (1912); Wise v. Poston, 281 S.C. 574, 579, 316 S.E.2d 412, 415 (Ct. App. 1984). 

AFFIRMED.

HOWARD and KITTREDGE, JJ., concur.