Court Opinion

ID: 9757389
Source: CourtListenerOpinion
Date Created: 2023-08-28 22:38:31.509537+00
Date Added: 2024-06-11T07:28:38.905192
License: Public Domain

*579COLE, Judge,
dissenting.
Because the policies underlying the Rule Against Perpetuities are not furthered by its application in this case and because the right of first refusal in this case is not violative of the Rule Against Unreasonable Restraints on Alienation, I respectfully dissent.
The most commonly recognized definition of the Rule Against Perpetuities, which we have previously adopted, was set forth by Professor Gray: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” J. Gray, The Rule Against Perpetuities § 201 (4th ed. 1942); see also Commonwealth Realty Corp. v. Bowers, 261 Md. 285, 296, 274 A.2d 353, 358 (1971). The Rule Against Perpetuities, judicially created in Duke of Norfolk’s Case, 3 Ch.Cas. 1, 22 Eng.Rep. 931 (1681), has survived several centuries notwithstanding that it often frustrates and annoys both lawyers and their clients. This frustration occurs because the rule voids all contingent interests in property that do not vest within the time period provided by the rule. Therefore, when the rule is applied, it purposefully thwarts the express intent of the testator, settlor, donor, or contracting parties by destroying the contingent property right created. Murphy v. Mercantile-Safe Deposit & Trust Co., 236 Md. 282, 290, 203 A.2d 889, 893 (1964). Recognizing this problem this Court should hesitate to invalidate interests in property, especially those that have evolved from a bargained-for exchange, for no better reason than that the Rule Against Perpetuities dictates such a result. Accordingly, I decline to endorse the majority approach which mechanically applies the rule. Instead, I believe the Court should apply the rule only when necessary to preserve its underlying policies.
The underlying policies of the Rule Against Perpetuities are to “preserve the freedom of alienation, and to prevent restrictions on the circulation of property.” Ryan v. Ward, 192 Md. 342, 348, 64 A.2d 258, 260 (1949). In other words, if a remotely vesting property interest hinders a property’s *580alienability, marketability, or development, the interest should be subject to the Rule Against Perpetuities.
In determining if the Rule applies, it is important to distinguish rights of first refusal from options, and to recognize that different types of rights of first refusal exist. The majority suggests that a right of first refusal is a type of option. An option, however, gives the holder the immediate right to tender the purchase price and force the owner to sell. A right of first refusal, on the other hand, does not give the holder the power to require the owner to sell at any time, but instead only requires the owner to offer the property to the holder once the owner has decided to sell. See Straley v. Osborne, 262 Md. 514, 521-22, 278 A.2d 64, 68-69 (1971); 6 American Law of Property § 26.64 (1952). In addition, the operative document creating a right of first refusal normally dictates whether the holder will exercise the right at a fixed price or a price which reflects true market value. While a fixed price will normally have a negative impact on the alienability of the land, a price reflecting true market value will not.
In this case, the right of first refusal could be exercised only if Rourke agreed to match an acceptable third party offer for the land. As this price should reflect true market value, the alienability and marketability of land is unaffected. Accordingly, although the right may not vest within the time constraints of the Rule Against Perpetuities, there is no need to void the right because such action does not further the policies of the Rule.
The majority argues that the policies underlying the Rule Against Perpetuities are furthered by voiding this right of first refusal. It asserts that although one of the purposes of the Rule Against Perpetuities is to facilitate the alienability of property, the Rule is also concerned with any restrictions that render title uncertain and unmarketable. However, the majority fails to distinguish between these two concerns and does not provide any evidence as to how this right of first refusal renders Ferrero’s title uncertain or unmarketable.
*581The majority states that the great majority of American jurisdictions have applied the Rule Against Perpetuities to rights of first refusal. I believe that several of the cases cited to support this position are distinguishable. In particular, no less than eight1 of the cases cited involve rights to purchase at a fixed price.'2 As previously stated, when the price is fixed, the alienability of the land is clearly affected. However, when the price to be paid is the market value of the land, alienability is no longer affected. Since this case arises from a granting clause which mandates that the selling price shall be equivalent to an acceptable offer from a third party, cases where the selling price is fixed are inapposite.
The majority cites Barnhart v. McKinney, 235 Kan. 511, 682 P.2d 112 (1984) to support its argument. In that case the court interpreted the clause granting a right to purchase at a fixed price to vest within the time limits prescribed by the Rule Against Perpetuities. However, before engaging in its interpretation of the pertinent language, the court noted that the modern trend is to limit application of the Rule Against Perpetuities, particularly in commercial transactions.
Lives in being have no significance in commercial transactions, nor has the period of twenty-one years. Moreover, *582in accordance with standard perpetuities doctrine, when an option is held to be too remote the entire option is struck down, instead of only the excess beyond some permissible shorter period. This is unduly punitive on one party to the advantage of another who may be equally at fault. The usual case involves an option which the option-holder attempts to exercise within a very short period; the Rule Against Perpetuities is seized upon by the owner to escape from his contract on the ground that the option-holder might have exercised the option too remotely—a situation which does not appeal to the common sense of business men or the ethical sense of anyone. Like the late lamented Statute of Frauds, the Rule becomes a destroyer of bargains which in all conscience ought to be performed. Morris and Leach, The Rule Against Perpetuities, p. 217 (1956).
Barnhart, 235 Kan. at 517, 682 P.2d at 117. See also Metropolitan Transp. Auth. v. Bruken Realty Corp., 67 N.Y.2d 156, 501 N.Y.S.2d 306, 492 N.E.2d 379 (1986). The fair inference to be raised from this quotation is that the court’s interpretation of the granting language was influenced by this policy. This is particularly so where the agreements in the controlling document extended to the “heirs, executors, administrators and assigns of the respective parties.” Barnhart, 235 Kan. at 513, 682 P.2d at 114.
The approach in Barnhart was similar to that utilized in North Bay Council, Inc. v. Grinnell, 123 N.H. 321, 461 A.2d 114 (1983), also cited by the majority. In North Bay, the granting clause provided: “[T]he Grantee and its successors herein shall not sell any part of the property herein conveyed until it shall have first offered it for purchase to the grantor, his heirs or assigns, at the highest price at which they have received a bona fide offer.” Id. at 322-23, 461 A.2d at 115. After concluding that preemptive rights are subject to the Rule Against Perpetuities the court noted that “the Rule has never been ‘remorselessly applied’ in this State. Instead, we have been more concerned with carrying out the intent of the testator or grantor in any given case.” *583Id. at 324, 461 A.2d at 116 (citations omitted). Accordingly, the court limited the time period in which the preemptive right could be exercised so that the Rule Against Perpetuities was not violated.
Beets v. Tyler, 365 Mo. 895, 290 S.W.2d 76 (1956) is another case cited by the majority which is not completely supportive of the majority position. While the court held that the operative granting provision would not violate the Rule Against Perpetuities, the Court also cited Weber v. Texas, 83 F.2d 807 (5th Cir.), cert. denied, 299 U.S. 561, 57 S.Ct. 23, 81 L.Ed. 413 (1936), with approval. The majority also cites to several cases from intermediate appellate courts which are not entitled to precedential value before this Court.
There is substantial authority supporting the proposition that the Rule Against Perpetuities should not apply to void rights of first refusal. The leading case in this area is Weber v. Texas Co., supra, where the lessee attempted to exercise his preemptive right to purchase the lessor’s reserved royalty interest in an oil and gas lease. The lessee’s right extended to his heirs and assigns and lasted as long as oil or gas could be produced on the subject land. The lessor refused to honor the lessee’s preemptive right and argued that the preemptive right violated the Rule Against Perpetuities. The Fifth Circuit Court of Appeals rejected the lessor’s argument and provided the following analysis:
The rule against perpetuities springs from considerations of public policy. The underlying reason for and purpose of the rule is to avoid fettering real property with future interests dependent upon contingencies unduly remote which isolate the property and exclude it from commerce and development for long periods of time, thus working an indirect restraint upon alienation, which is regarded at common law as a public evil.
The option under consideration is within neither the purpose of nor the reason for the rule. This is not an exclusive option to the lessee to buy at a fixed price which may be exercised at some remote time beyond the limit of *584the rule against perpetuities, meanwhile forestalling alienation. The option simply gives the lessee the prior right to take the lessor’s royalty interest at the same price the lessor could secure from another purchaser whenever the lessor desires to sell. It amounts to no more than a continuing and preferred right to buy at the market price whenever the lessor desires to sell. This does not restrain free alienation by the lessor. He may sell at any time, but must afford the lessee the prior right to buy. The lessee cannot prevent a sale. His sole right is to accept or reject as a preferred purchaser when the lessor is ready to sell. The option is therefore not objectionable as a perpetuity.
Weber, 83 F.2d at 808 (citations omitted).
Several courts have recently adopted the approach set forth in Weber. See Cambridge Co. v. East Slope Inv. Corp., 700 P.2d 537 (Colo.1985) (en banc); Shiver v. Benton, 251 Ga. 284, 304 S.E.2d 903 (1983); Metropolitan Transp. Auth. v. Bruken Realty Corp., 67 N.Y.2d 156, 501 N.Y.S.2d 306, 492 N.E.2d 379 (1986); Producers Oil Co. v. Gore, 610 P.2d 772 (Okla.1980); Forderhause v. Cherokee Water Co., 623 S.W.2d 435 (Tex.Civ.App.1981); aff'd in pertinent part and rev’d on other grounds, 641 S.W.2d 522 (Tex.1982); Robroy Land Co. v. Prather, 95 Wash.2d 66, 622 P.2d 367 (1980); Hartnett v. Jones, 629 P.2d 1357 (Wyo.1981); see also 6 American Law of Property § 26.67 (1952).
I similarly find the rationale in Weber to be persuasive. A right of first refusal is impotent to put property outside the stream of commerce. The holder of a right of first refusal cannot force the owner to sell the property. Nor can the holder prevent a sale once the owner has decided to sell. The holder of the right is limited to either accepting or rejecting the offer when the owner desires to sell. Moreover, because the right of first refusal in this case is not to be exercised at a fixed price, but is instead based on a price the owner is willing to accept from a third party, the right does not discourage the owner from placing improvements *585on the property, and the owner is assured of getting the fair market value for his land and added improvements.
Ferrero argues, and the majority agrees, that the outstanding right of first refusal “could discourage prospective developer purchasers from spending time and money for architectural and engineering services, to arrange financing and to negotiate a complicated real estate sales contract, knowing that preemption is possible.”3 The majority concludes that the right restrains the alienability of the land. I disagree.
Prospective buyers always face the risk that their investigatory efforts will be wasted due to unavoidable market forces. A prospective developer might study the property and then conclude that a purchase would not be wise. The prospective buyer might also make an offer that the owner finds too low. Finally, another buyer may come along and offer a higher price. Thus, the risk of investigatory costs being wasted is present in every property acquisition. To the extent that a right of first refusal heightens this risk, I find it to be de minimis.
The majority attempts to distinguish the Weber line of cases on the grounds that those cases usually involve unique interests in land. The majority, however, does not provide any analysis to buttress the proposition that these cases mandate a result any different than the result required in the case sub judice. Something more than a recitation of the facts and conclusory statement by the majority is required in this regard.
In sum, I believe that a right of first refusal does not hinder the alienability, marketability, or development of *586property and therefore conclude that the rule against perpetuities should not apply. I therefore dissent.
Judge McAULIFFE has authorized me to state that he concurs with the views expressed herein.

. See Weitzmann v. Weitzmann, 87 Ind. App. 236, 242, 161 N.E. 385, 387 (1928); Barnhart v. McKinney, 235 Kan. 511, 516-17, 682 P.2d 112, 117 (1984); Three Rivers Rock Co. v. Reed Crushed Stone Co., 530 S.W.2d 202, 205 (Ky.1975); Old Mission Peninsula School Dist. v. French, 362 Mich. 546, 548, 107 N.W.2d 758, 759 (1961); Ross v. Ponemon, 109 N.J. Super. 363, 366, 263 A.2d 195, 198 (1970); Peele v. Wilson Co. Bd. of Educ., 56 N.C.App. 555, 557, 289 S.E.2d 890, 891, cert. denied, 306 N.C. 386, 294 S.E.2d 210 (1982); Hale v. Scanlon, 88 Pa. D & C 506, 507 (1953); Clark v. Shelton, 584 P.2d 875, 876 (Utah 1978).

. In some of the cases relied upon by the majority, the courts imply that one element distinguishing options from rights of first refusal is whether the holder of the right can purchase the property at a fixed price or a price at which the owner is willing to sell to a third person. The latter formula would indicate a right of first refusal. See Smith v. VanVoorhis, 296 S.E.2d 851, 853 (W.Va.1982) and cases cited therein.

. Ferrero also argues that the Court should not create a new exception to the rule against perpetuities because the legislature has codified the rule and created its own exceptions. Maryland Code (1974), § 11-102 of the Estates and Trust Article. The Code section cited by Ferrero, however, is limited to cases involving estates and trusts. Rourke’s right of first refusal is unrelated to an estate or trust, and § 11-102 therefore does not apply. Thus, I need not address Ferrero’s argument.