## Facts

- M & D Enterprises, Inc. (M & D) was a closely held Texas corporation that operated a Holiday Inn motel in Victoria, Texas.
- M & D was originally owned 50% by Dana and Laurella Milfeld (the Milfelds) and 50% by the Dodsons.
- With the Milfelds’ consent, the Dodsons sold their 50% interest to a father and son: R. S. Rainwater acquired 5% of the corporation’s shares, and his son, William Rainwater, acquired 45%.
- M & D experienced financial difficulty, and relations between the Milfelds and the Rainwaters were contentious.
- M & D’s bylaws restricted stock transfers: a shareholder wishing to sell was required to first offer the shares for sale in writing to the corporation; if the corporation declined, the shares then had to be offered to the other shareholders before any sale to an outsider.
- In 1970, the Milfelds decided to sell their stock and notified the corporation and the Rainwaters in writing, offering their shares on the same terms as an outside buyer’s offer for the Milfelds’ entire block.
- The corporation declined to purchase the Milfelds’ shares, and William Rainwater also declined.
- R. S. Rainwater responded that he would purchase only a fraction of the Milfelds’ shares, asserting that the bylaws entitled him to buy only his proportional part of the offered stock.
- The Milfelds refused to sell only part of their shares because the third-party purchaser was willing to buy only the Milfelds’ entire block, not a lesser amount.
- Rainwater sued the Milfelds seeking specific performance to compel transfer of the portion of shares he claimed he was entitled to buy.
- After a non-jury trial, the trial court rendered judgment that Rainwater take nothing. Rainwater appealed.

## Issues

1. Whether M & D’s stock-transfer bylaw gave Rainwater an enforceable right to compel the Milfelds to sell only Rainwater’s proportional fraction of the Milfelds’ stock when the outside offer was for the Milfelds’ entire block.
2. Whether Rainwater’s attempt to purchase only a portion of the offered shares created a contract enforceable by specific performance.

## Decision

- The Court of Civil Appeals of Texas (Corpus Christi) affirmed the take-nothing judgment for the Milfelds.
- The bylaw did not require the Milfelds to break up an all-or-nothing sale and transfer only a fraction of their shares to Rainwater.
- Rainwater’s response, seeking fewer shares than were offered on the stated terms, did not operate as an effective exercise of the right of first refusal and did not create an enforceable contract for a partial transfer.
- Because there was no definite agreement requiring a partial sale, Rainwater was not entitled to specific performance.

## Legal Principles

- A right of first refusal in corporate bylaws generally requires the holder to meet the material terms of the contemplated sale; a holder cannot compel a different transaction by changing a material term such as the number of shares to be purchased.
- Language calling for offers to shareholders “in proportion” is commonly read as an allocation method among shareholders if they elect to purchase, not as a mandate that a selling shareholder subdivide a unitary block that is being sold as a whole.
- An attempted acceptance that varies a material term (including quantity) is not an acceptance and will not form a binding contract on the offeror’s stated terms.
- Specific performance is available only when the agreement sought to be enforced is clear and definite; courts will not order compelled transfer where the asserted obligation depends on terms the parties did not mutually agree to.

## Conclusion

Rainwater v. Milfeld holds that a bylaw right of first refusal did not let a minority shareholder force a selling shareholder to carve out and sell only a proportional slice of an offered stock block where the contemplated transaction was an all-or-nothing sale of the seller’s entire interest; Rainwater’s partial “acceptance” did not create a definite contract, so specific performance was properly denied.


Rainwater v. Milfeld, 485 S.W.2d 831 (1972)