Kanavos v. Hancock Bank & Trust Co.

Massachusetts Supreme Judicial Court · Contracts

Contractsright of first refusalrepudiationability to performburden of proofdamagesright of first refusaloption

Facts

The bank gave Kanavos a contractual right, supported by consideration, to match any future sale price for all stock of 1025 Hancock, Inc. within sixty days of notice, and separately agreed to pay him $40,000 for surrendering an earlier option. In November 1976, the bank agreed to sell the stock to a third person for $760,000 and in early December completed that sale without notifying Kanavos or giving him the chance to match the offer. At trial, damages were calculated from the jury's finding of the apartment complex's value, treating the stock's value as the equity in the property, and the judge ruled that Kanavos's financial ability to pay $760,000 was immaterial. The bank challenged only that ruling.

Issue

When a seller breaches a right of first refusal by selling to a third party without notice, must the holder prove that he would have been financially able to match the offer during the option period in order to recover damages? If so, does the burden of proving that ability rest on the plaintiff or on the repudiating seller?

Rule

Where a contract imposes concurrent obligations to convey property and pay the price, a plaintiff seeking damages for the defendant's repudiation must show that he would have been ready, willing, and able to perform his own payment obligation during the relevant performance period, unless the defendant's conduct substantially prevented that performance. In a right-of-first-refusal case that ripens into an option upon the seller's receipt of an acceptable third-party offer, the plaintiff bears the burden of proving financial ability to match the offer.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Portland, Maine, Harbor Crest Holdings granted Lena Ortiz a contractual right to buy all membership interests in a waterfront warehouse company on the same terms as any offer Harbor Crest decided to accept. Two months later, Harbor Crest accepted a $900,000 offer from Nolan Price and closed the sale without notifying Lena; Lena then sued for expectation damages but offered no evidence that she could have assembled the $900,000 within the 45-day matching period.

What is the strongest argument for Harbor Crest on Lena's damages claim?

Explanation. Once the owner received an offer it was prepared to accept, the right of first refusal ripened into the equivalent of an option on the same terms. Even though the seller's sale to a third party excused any useless tender, the plaintiff still had to prove she would have been ready, willing, and able to perform her concurrent payment obligation during the relevant option period. A repudiating seller is not automatically liable for substantial damages if the plaintiff could not have performed. (Derived from Kanavos v. Hancock Bank & Trust Co. (n.d.).)