## Facts

- In 1971, Otto Teller owned about 280 acres and agreed to sell 270 acres to Robert and Evelyn Urquhart under a contract for deed, while retaining a separate 10-acre parcel.
- The parties’ agreement gave Urquhart a fixed-price preemptive right (often described as an “option” or right of first refusal) to acquire Teller’s retained 10 acres for \$12,000 if Teller decided to sell it, or upon Teller’s death.
- The contract for deed also contained restrictions affecting the 270 acres Urquhart was buying, including limits on use and limitations on subdividing or transferring portions without Teller’s consent.
- After Urquhart completed the purchase, Teller delivered and recorded an unrestricted warranty deed conveying the 270 acres; the deed did not restate the earlier contract restrictions.
- In 1982, Urquhart transferred the 270 acres to the Urquhart Living Trust, and the property was later sold to Spring Creek Investments.
- Urquhart attempted to transfer the preemptive right relating to the 10-acre parcel to Spring Creek; he also agreed that, if the preemptive right could not be assigned, he would exercise it on Spring Creek’s behalf.
- In 1993, Teller conveyed the retained 10-acre parcel to The Cinnabar Foundation, a nonprofit organization, as a charitable donation. By then, the parcel was worth nearly \$400,000.
- Urquhart sued to enforce the preemptive right against Teller and Cinnabar. Teller and Cinnabar counterclaimed to enforce the contract-for-deed restrictions against Urquhart (and his successors).
- The district court granted summary judgment against Urquhart on the preemptive right, concluding it was an unreasonable restraint on alienation and inequitable to enforce, and granted summary judgment against Teller and Cinnabar on the counterclaim, concluding the contract restrictions did not survive the later unrestricted deed. Both sides appealed.

## Issues

1. Whether the fixed-price preemptive right to purchase the retained 10-acre parcel was unenforceable as an unreasonable restraint on alienation (and, as argued, under the Rule Against Perpetuities), particularly where the land’s value increased dramatically and the owner transferred it by donation.
2. Whether restrictive provisions contained in the original contract for deed remained enforceable after Teller later delivered an unrestricted warranty deed for the 270 acres, or instead were extinguished by merger absent a clear intent that they survive.

## Decision

- The Montana Supreme Court affirmed summary judgment that the fixed-price preemptive right was void and unenforceable as an unreasonable restraint on alienation.
- The Court also agreed that enforcing the decades-old fixed price under the circumstances would be inequitable.
- The Court affirmed summary judgment that the restrictive provisions contained only in the contract for deed were unenforceable because they merged into the later unrestricted warranty deed and were not shown to be collateral obligations intended to survive.
- The judgment was affirmed on both Urquhart’s claim and Teller and Cinnabar’s counterclaim.

## Legal Principles

- A preemptive right/right of first refusal can be void as an unreasonable restraint on alienation when its practical effect materially limits an owner’s ability to transfer property, including where a fixed price becomes grossly disconnected from market value over time.
- A preemptive right drafted to reach broadly (including transfers not made for value) and without a meaningful temporal limit can raise validity problems under the Rule Against Perpetuities.
- Under the doctrine of merger, when an executory land contract is fully performed and a deed is delivered and accepted, the contract’s provisions relating to title and the conveyed estate generally merge into the deed unless the parties clearly intended a separate, surviving agreement.
- Use and transfer restrictions that are not carried into the deed (or otherwise preserved as a surviving obligation) are generally not enforceable after delivery of an unrestricted deed.

## Conclusion

In *Urquhart v. Teller*, the Montana Supreme Court affirmed summary judgment that a decades-old, fixed-price preemptive right to buy a retained 10-acre parcel was unenforceable because it operated as an unreasonable restraint on alienation (and was inequitable to enforce after extreme appreciation), and it also affirmed that restrictive provisions found only in the parties’ contract for deed did not survive the later delivery of an unrestricted warranty deed due to merger.


Urquhart v. Teller, 958 P.2d 714 (1998)