Court Opinion

ID: 9666308
Source: CourtListenerOpinion
Date Created: 2023-08-24 01:10:51.480066+00
Date Added: 2024-06-11T18:15:26.493469
License: Public Domain

Steele Hays, Justice, dissenting. While I am tempted to join the majority and avoid the labyrinth of the Rule Against Perpetuities, I think it is a mistake to mechanically apply the Rule on the basis of a perfunctory examination of the option agreement to see if the magic words are there, i.e., “the interest will vest within a life or lives in being plus twenty-one years.” By so doing, the majority opinion ignores pronounced equities present in the case and misses the opportunity to review current trends in the law and, if warranted, adopt improvements to a Rule that has produced considerable criticism.1  Why should we think ourselves powerless to do that? As the majority concedes, we are not faced with a specific precedent. Nor are we bound by statutory restraints. The Rule was created by judges and judges have shaped it. Our legislature has never acted on perpetuities. It has been left to the judicial branch to hold the law of perpetuities within the framework of Article 2, § 19 of our Constitution: “Perpetuities . . .are contrary to the genius of a republic, and shall not be allowed. . . .” Thus we are free to apply it literally or modify it as common sense and justice dictate. We did exactly that in Broach v. City of Hampton, 283 Ark. 496, 677 S.W.2d 851 (1984), to which I will refer in a moment. While there is, I concede, an aura surrounding the Rule Against Perpetuities that seems to render it immune from all but rigid application, it is not as though it has not come under fire, particularly in cases where it is applied blindly and irrespective of the equities. In Haggerty v. City of Oakland, 161 Cal. App. 2d 407, 326 P.2d 957 (1958), for example, a ten year lease to commence upon completion of a building on the premises was declared void under the Rule. The lessor, the City of Oakland, covenanted to proceed immediately with construction and the lease was to commence on the first day of the second month after completion of the building. The court held that completion of the building was uncertain and could conceivably occur later than twenty-one years after a life in being. Professor Barton Leach characterizes the decision as “absurd.” “This result will be considered a reflection on the practical wisdom of courts by all laymen and also by lawyers whose thinking is not dominated by the mystique of the Rule.2 Editorialists of the California Law Review termed the decision “a startling precedent.”3  We are not dealing here with a contingent interest arising gratuitously from a bequest or a testamentary trust, or as a rider to a conveyance of some kind. The option in this case was negotiated at arm’s length between knowledgeable and experienced real estate developers. Both had the benefit of competent legal counsel. More importantly, the appellant corporation, which, by this decision, is now freed of its obligations under the option, sought out the appellee to bargain for the agreement. The appellee, we are told, had an option from Kerr Properties on six acres on U.S. Highway 1-30, a quarter of a mile from the tract now involved, with a major bank as lead tenant for part of that development. The appellant, in order to develop its own holdings adjacent to 1-30, needed to acquire the tract held by the appellee to meet certain requirements of the Arkansas Highway Department for the construction of an exit ramp, essential to the plans of the appellant. Appellant’s general partner approached appellee to release the Kerr option in exchange for the option now before us. Appellee agreed after considerable negotiations and the option agreement was signed by the appellee and the appellant. It called for a purchase price of as much as $40,000 per acre, depending on when the option was exercised.4 In addition to the surrender of the Kerr option, appellee has paid appellant a total of $20,000 ($5,000 annually for 1981, 1982, 1983 and 1984) and $100 for 1985. The $100 due for 1986 was refused by appellant and appellee filed this suit for declaratory judgment and specific performance. The agreement provides that the option would terminate if not exercised within ninety days after receipt of notice from the appellant that a building permit was available from the City of Little Rock. It is clear these parties assumed the conditions of the option would occur within a reasonable time. Neither had any other thought in mind, and some indication of the immediacy with which both sides regarded the agreement is evidenced by the fact that this suit had been pending for a full year before it occurred to appellant to raise the issue of perpetuities as a defense. The principle of estoppel ought to apply to this situation, though I confess I find no precedent for that view. In Broach v. City of Hampton, supra, we upheld an option given to the City of Hampton by Charles and Ann Broach to purchase all or any part of some forty acres of land sold to the Broaches by the city. The option made no attempt to comply with the Rule Against Perpetuities.5 We hadn’t the faintest knowledge of what the parties intended beyond the naked language of the option, yet here there is a wealth of testimony as to what was intended. Granted, in Broach there was no provision that the option ran to the heirs or assignees of the optionees, whereas here the agreement contains a clause binding the heirs, successors and assigns of the parties. But we can infer that the parties in this case intended that this option, if not sooner exercised, would lapse within twenty-one years from the death of the appellee. In reality it would have been exercised or lapsed long before that. Such an interpretation would be entirely consistent with what was done in Broach, and would be in harmony with the rule that we strive to interpret instruments so as to sustain their validity rather than to render them void. Interpretations which sustain the validity of instruments are preferred over those which cause them to fail. J. Gray, The Rule Against Perpetuities, § 633 (1915); Boyer, supra § 811 [6] at 75-22; Roemhield v. Jones, 239 F.2d 492 (8th Cir. 1957); Campbell v. Campbell, 313 Ky. 249, 230 S.W.2d 918 (1950), cited with favor in Broach. Furthermore, such an interpretation has support in a growing trend of cases to use less rigidity in the application of the Rule. A number of states, perhaps ten in all, in an effort to relieve the harsh effects of the Rule, have adopted a “wait-and-see” approach. Its policy is not to alter the length of the period of perpetuities, but to provide that the interest shall be valid if it does in fact vest within the Rule rather than be void if it might possibly vest outside the Rule. The Rule itself remains unchanged. See Dukeminier, A Modern Guide to Perpetuities, 74 Calif. L. Rev. 1867 (1986). Another innovation employs the doctrine of cy pres, which authorizes judicial reform of an instrument that violates the Rule. See Boyer, supra, § 827 A. Some states use a combination of the two. Id. § 827 C. The American Law Institute in 1978 adopted a form of both. Restatement (Second) of Property, § 1.5 (1983); Jacobs, Rule Against Perpetuities, 19 Santa Clara L. Rev. 1063. By whatever labels, or by none at all, other courts have followed the lead of California in Wong v. DiGrazia, 60 Cal. 2d 525, 386 P.2d 817, 35 Cal. Rptr. 241 (1963), where the court was willing to look below the surface of an agreement such as the one before us, and determine from a considered, practical standpoint that today’s sophisticated, arms-length commercial real estate transactions ought not to be examined vis-a-vis the Rule Against Perpetuities in the same light as family dispositions of property, which spawned the Rule. See Rodin v. Merritt, 48 N.C. App. 64, 268 S.E.2d 539 (1980); Ryland Group, Inc. v. Wills, 229 Va. 459, 331 S.E.2d 399 (1985). Still others have followed Wong in cases where there was no commercial setting, but rather, the courts made use of Wong’s emphasis on the intent of the parties. See, Byke Const. Co., Inc. v. Miller, 140 Ariz. 57, 680 P.2d 193 (1984); Smerchek v. Hamilton, 4 Kan. App. 2d 346, 606 P.2d 491 (1980). The case against applying the Rule to options was summed up recently by Prof. Dukeminier, Professor of Law at the University of California: Subjecting options to the Rule Against Perpetuities has been sharply criticized. Applying the Rule to options permits optionors to escape bad bargains when the land value rises by claiming a Rule violation, and subjects lawyers who draft options to malpractice claims if they do not limit the option’s exercise to the perpetuities period. Because options are commercial transactions, they seldom endure, or are intended to endure, for many years. Options reasonably limited in time pose no threat to the public welfare; in fact, they are useful in facilitating the development of land. No good reason appears why a court should not save an unlimited option to purchase by holding that the parties intended the option to be exercised within a reasonable time, which is necessarily less than twenty-one years. 750 S.W.2d 411 Dukeminier, supra, at 1909. We should, I believe, construe the agreement as the parties themselves undeniably contemplated and intended, that the option would either be exercised or would lapse within a reasonable time. By so doing we would effectuate the agreement and avoid a construction which violates the Rule. The rule of property, cited by the majority, has little relevance to this case as I see it. It could hardly be supposed the rule of property gives a party the right to pursue and obtain an option agreement, reap the benefits derived from it, and then successfully repudiate it on the premise that the other party failed to include a provision on the Rule Against Perpetuities. For obvious reasons, the appellant made no such contention here or below. Hickman, J., joins. Purtle, J., not participating.   Leach, “Perpetuities in Perspective: Ending the Rule’s Reign of Terror,” 65 Harv. L. Rev. 721 (1952). See Boyer, Perpetuities Trend: "Wait and See," "Cy Pres," and Other Modifications, in 5A R. Powell, The Law of Real Property § 827G at 75A-40 (rev. P. Rohan 1987) (Bibliography).    Leach, supra note 1, at 1318.    Note, Rule against Perpetuities: Application to a Lease to Commence Upon Completion of a Building, 47 Calif. L. Rev. 197 (1959).    $30,000 per acre if exercised during 1981, $35,000 if exercised during 1982, $40,000 if exercised during 1983 or thereafter.    The option was given to the city without limitation to buy “all or any part of the above-described 43.15 acre tract that [it] might use in the future for the city sewer system.” [Our italics].