Brown v. Parran

EYLER, Judge. This case requires us to decide whether a contract for the sale of real property violates the Rule Against Perpetuities. We hold that it does not and reverse the judgment of the trial court. Facts On August 29, 1995, Melvin Brown, appellant, met with Thomas Parran, III, appellee, at appellee’s house to discuss the purchase of certain real property owned by appellee.

At the conclusion of those discussions, an agreement was prepared, handwritten by Virginia Brown, appellant’s wife, also in attendance at the meeting, 1 and appellant and appellee signed it. The document provided for the sale of 25 acres of land by appellee to appellant at $10,000 per acre for a total price of $250,000. It provided for a down payment by January 19, 1996, in the amount of $150,000, with the remaining $100,000 to be “financed” over a 10-year period at 6% interest. The ⁶⁵⁶ document also stated that the sale was subject to “percolation tests 21 bldg, sites & permits approval.” 2 Subsequently, appellant proceeded with arrangements for percolation tests and surveying, with the concurrence of appel-lee.

Appellant also consulted with a bank with respect to obtaining a loan in the amount of $150,000. Appellant testified that, as a result of discussions with the bank, he requested his lawyer to prepare a typewritten document in lieu of the handwritten document. Appellant and appellee met in October, 1995, to review that typewritten document. Appellee stated that he wanted to consult with his lawyer.

The typed document was never signed. On October 21, 1996, appellant filed a complaint in the Circuit Court for Calvert County, alleging breach of a contract to convey real property. The case was tried non-jury on March 27, 1997. By agreement of the parties, the case was bifurcated, and on March 27, the issue of whether a valid contract existed was tried.

The issue of damages was deferred to a later date. ⁶⁵⁷ The parties take a different view as to the meaning and effect of the August 29 document. Appellant asserted below and on appeal that the document was a contract and that he requested a typewritten document only for the convenience and use of his bank. Appellee asserted below and on appeal that the August 29th document was a letter of understanding and that the parties agreed that, subsequent to the meeting on August 29, they would consult with their respective lawyers with the intention to enter into a contract at a later date. The parties also disagree with respect to certain events that occurred subsequent to August 29, 1995.

Appellee maintains that the contract was contingent on approval for 21 building sites and that appellant learned that approval could only be obtained for a lesser number of sites. Appellant then offered a reduced purchase price, according to appellee, which he rejected. Appellant maintains that he offered to waive the condition. The transcript of the hearing reveals that, after evidence and arguments by both sides, the trial court delivered an “oral opinion.” The trial court found that all terms necessary to give rise to a contract were present and that the contract satisfied the Statute of Frauds.

With respect to provision No. 5 in the contract, the trial court observed that there was no time stated within which approval had to be obtained, and as a result, it was unenforceable because it violated the rule against perpetuities. Alternatively, the trial court stated that the condition had not been met because it was learned that 21 building sites could not be approved and that the contract terminated at that time. The trial court observed that a new offer of $220,000 was made by appellant but rejected by appellee. The trial court then permitted counsel to present further argument with respect to the court’s alternative holdings applicable to provision No. 5.

After further argument, the court permitted additional testimony to be offered by both parties relating to the issue of whether it had been ascertained that the condition could not be met and that the contract had ⁶⁵⁸ terminated. Upon close of that evidence, the court again entertained argument from counsel on that limited point and, in addition, requested memoranda on the applicability of the rule against perpetuities. The trial court filed an Opinion and Order on May 1, 1997, pursuant to which it entered judgment in favor of appellee. The written Opinion and Order contains the following sentence: “At the close of all the evidence, the court ruled that the parties did in fact enter into a contract.” The court then proceeded to discuss the rule against perpetuities, found it applicable, and declared the August 29, 1995 contract unenforceable.

Appellant appealed to this court, and appellee cross-appealed. On appeal, appellant inquires whether the trial court erred in holding that the August 29, 1995 contract violated the rule against perpetuities. Appellee agrees with the trial court’s ruling on that issue but also inquires whether the trial court erred in finding the existence of a valid contract in the first instance. Additionally, appellee contends that, if a valid contract existed, the trial court determined that it terminated when it became clear that the condition would not occur, a finding which is not clearly erroneous.

Discussion The rule against perpetuities is a limitation on contingent future interests in property. The rule prevents property interests from vesting too remotely, so that current owners will not be discouraged from making the most effective uses of their properties. Ferrero Construction v. Dennis Rourke Corp., 311 Md. 560, 572 , 536 A.2d 1137 (1988). The rule is concerned with restrictions that render title uncertain as well as restraints on alienation.

Id. at 572-73 , 536 A.2d 1137 . Under the traditional rule adhered to in Maryland, the future interest, at the effective date of the instrument creating it, must vest within the period of the rule (life in being plus 21 years). Id. at 564-65 , 536 A.2d 1137 ; Ringgold v. Carvel, 196 Md. 262, 269 , 76 A.2d 327 (1950). ⁶⁵⁹ Under the traditional rule, a court must construe the conveyance in question independent of the rule and then apply the rule. Bowerman v. Taylor, 126 Md. 203, 209 , 94 A. 652 (1915).

See also Ferrero Constr., 311 Md. at 565 , 536 A.2d 1137 (quoting Fitzpatrick v. Mer.Safe, Etc. Co., 220 Md. 534, 541 , 155 A.2d 702 (1959)) (it is a rule of law, not one of construction). The rule against perpetuities applies to contracts for the sale of real property such as the one before us. See Dorado Ltd. Partnership v. Broadneck Development Corp., 317 Md. 148, 153-54 , 562 A.2d 757 (1989).

If a condition of the contract possibly may cause legal title to vest in the purchaser outside the period of the rule, the contract violates the rule and is not enforceable. Id. In this case, the trial court found that settlement was conditioned upon the completion of percolation tests and the issuance of permits for 21 building sites. It further found that the contract did not contain a time period within which the condition had to be satisfied.

The trial court concluded that the condition may not be satisfied within 21 years, and thus, the contract violated the rule against perpetuities. Appellant contends that, when the time for complying with a condition precedent is not specified by the contract, a reasonable time period is implied. Relying upon Stewart v. Tuli, 82 Md.App. 726 , 573 A.2d 109 (1990), appellant argues that a reasonable time for completing the percolation tests and obtaining permits for 21 building sites cannot possibly exceed the 21 year period of perpetuities. Relying upon Dorado, supra, appellee argues, and the trial court held, that, when the occurrence of the condition precedent is beyond the control of the parties, a reasonable time for performance, less than the perpetuities period, cannot be implied.

As we explain below, the instant case is controlled by Stewart rather than Dorado. In Dorado, the contract for sale of real property provided that the parties would settle on the lots covered by the contract “not later than ninety (90) days after the Seller has delivered to the Buyer evidence of sewer allocations for such lots.” 317 Md. at 150 , 562 A.2d 757 . At the time the contract ⁶⁶⁰ was created, a county sewer moratorium was in effect. The Court of Appeals observed that, due to the moratorium, it was uncertain when, if ever, the seller would obtain a sewer allocation.

Id. at 156 , 562 A.2d 757 . It was conceivable that the allocations, and thus settlement, could occur after the period of the rule against perpetuities. Id. The Court acknowledged that other courts, addressing contracts for sale of land which did not expressly provide a time for performance of conditions, had implied a reasonable time for performance within the period of perpetuities.

Id. at 157 , 562 A.2d 757 . It declined to imply a reasonable time period, however, because the occurrence of the condition precedent to the conveyance was beyond the control of the parties. Id. at 158 , 562 A.2d 757 . At the time of suit in Dorado, the purchaser had fulfilled its obligation under the contract by applying for a sewer allocation.

Id. Settlement, however, was completely within the hands of a third party, Anne Arundel County. Id. at 158-59 , 562 A.2d 757 . Because it was unknown whether the County would grant a sewer allocation within the perpetuities period, the contract was unenforceable.

Id. This Court decided Stewart, supra, less than a year after Dorado. In Stewart , the Novaks, sellers, entered into a contract for sale of real property with Tuli (the “Tuli Contract”). Under the Tuli Contract, the Novaks were entitled to examine certain financial information provided by Tuli.

Upon such examination, the Novaks declared the information to be unsatisfactory and the contract to be null and void. Thereafter, the Novaks entered into a contract for sale of the same property to the Stewarts (the “Stewart Contract”). An addendum to the Stewart Contract provided that if Tuli attempted to keep “his contract alive,” the Stewarts did not have to go to settlement until such time as clear title could be granted by the Novaks. One of the issues we decided was whether, due to the addendum, the Stewart Contract violated the rule against perpetuities.

We held that it did not. It is beyond question that the [Novaks], as sellers, were obliged to transfer good and merchantable title to the Stewarts, or, obliged to return the deposit which was in the ⁶⁶¹ substantial amount of $100,000.00, unless any title defects could be remedied by legal action “within a reasonable time.” It is equally clear that the parties were aware of a potential cloud on the title, i.e., the Tuli contract, but in any event the parties contemplated and the contract mandated that any title clearing litigation be completed within a reasonable period of time. It would be ridiculous to suggest that a reasonable period of time would exceed a life in being and 21 years. Id. at 736 , 573 A.2d 109 .

We distinguished Dorado on the basis that, in Dorado, the contract settlement was dependent upon the actions of a third party rather than upon the actions of one of the parties to the contract. Id. at 734 , 573 A.2d 109 . The grant or denial of sewer allocations could not occur during the pendency of a sewer moratorium, and the suspension of the moratorium was an occurrence beyond the control of the parties. Id.

We, by contrast, viewed the judicial determination of the validity of the Tuli Contract to be within the control of the parties. Id. While, technically, the completion of title clearing litigation is dependent upon the actions of a third party, the particular court wherein such litigation is filed, it is not beyond the control of the parties in the same manner as are sewer allocations during the pendency of a moratorium. Additionally, the imposition or suspension of a moratorium involves complex policy issues outside of normal administrative or regulatory channels.

In Dorado, there was nothing that the parties could have done to further the process. In Stewart , unlike in the present case, there was language in the addendum specifically providing that title defects would be remedied by legal action “within a reasonable time.” Id. As Judge Diana Motz, speaking for this Court in Hays v. Coe, 88 Md.App. 491, 505 , 595 A.2d 484 (1991), observed, however, the presence of such language was not critical to our reasoning in Stewart . In Hays , we considered whether a contract for sale of land violated the rule against perpetuities by virtue of the following clause included in an addendum to the contract: ⁶⁶² Because a title problem has arisen and a complete survey is necessary, we hereby extend this contract until a good and marketable title can be transferred.