## Facts

- Subdivision grantors recorded restrictive covenants, including a right of first refusal requiring any owner who wished to sell to first offer the lot to the grantors (and successors) at a price no higher than the lowest price the owner would accept from any other purchaser.
- The covenant required the holder to accept or reject in writing within 14 days and remained effective for the grantor’s life plus 20 years after death (unless earlier rescinded).
- The plaintiff later became the grantors’ successor in interest and holder of the preemptive right.
- The plaintiff conveyed a lot (Lot 16) to the Mitchells by deed expressly subject to the restrictive covenants, including the right of first refusal.
- The Mitchells later sold Lot 16 to the Barbers without first offering it to the plaintiff, despite the plaintiff’s notice that he was willing and able to purchase under the covenant.
- The plaintiff sued for specific performance (conveyance of the lot) or, alternatively, damages for breach; defendants asserted counterclaims related to deed warranties and alleged title clouding.

## Issues

1. Whether a right of first refusal limited to a life in being plus 20 years and priced at no more than the lowest acceptable third-party price is an unlawful restraint on alienation and void as against public policy.
2. Whether reasonable, limited preemptive rights may be enforced under common-law restraints-on-alienation principles and temporal limits consistent with the rule against perpetuities.

## Decision

- The Supreme Court of North Carolina reversed the grant of summary judgment for defendants and remanded.
- The court held that not all restraints on alienation are void and that certain preemptive rights are enforceable when reasonable.
- The court concluded the covenant was a reasonable right of first refusal rather than an absolute restraint and was valid on its face.
- Because the covenant was not void as a matter of law, summary judgment for defendants was improper.

## Legal Principles

- A right of first refusal that only operates when the owner chooses to sell, and does not compel a sale or absolutely bar transfer, is generally treated as a preemptive right rather than an invalid absolute restraint.
- Restraints on alienation are evaluated for reasonableness; reasonable preemptive rights are not per se void.
- Temporal limits matter: a preemptive right limited to a life in being plus a defined period may be upheld as consistent with anti-perpetuity concerns.
- Pricing terms matter: tying the purchase price to an actual third-party offer (or the seller’s lowest acceptable price) may reasonably approximate market value and reduce the risk of oppressive pricing.
- A preemptive right that is narrowly limited in duration and price is more likely to be enforceable than one lacking clear limits.

## Conclusion

The court enforced a deed-based right of first refusal as a reasonable, limited restraint on alienation, holding it valid where its duration was finite and its price mechanism tracked third-party market offers, and it remanded for further proceedings on the plaintiff’s enforcement claims.


Smith v. Mitchell, 269 S.E.2d 608 (N.C. 1980)