Commonwealth Realty Corp. v. Bowers

Barnes, J., delivered the opinion of the Court. The principal question in this appeal concerns the validity of an option dated October 13, 1965, between Commonwealth Realty Company, one of the plaintiffs below and one of the appellants in this Court (Commonwealth), as “Buyer” and Garman L. Bowers and Wahneta Bowers, his wife, two of the defendants below and two of the appellees in this Court, as “Seller” whereby Commonwealth for a consideration of $100.00 was given the “privilege of purchasing” from the Bowers for $18,000.00 a parcel of land located along the Sharpsburg Pike in Washington County. Chief Judge McLaughlin in a specific performance suit filed by Commonwealth in the Circuit Court for Washington County on October 29', 1968 (Commonwealth Realty Corporation, the parent Company of Commonwealth being joined as a party plaintiff as the real party in interest in accordance with Maryland Rule 203 a, and the other appellant in this Court), against Mr. and Mrs. Bowers and the Sun Oil Company (Sun) (the remaining defendant below and appellee in this Court) to enforce specifically the contract of October 13, 1965, or, in the alternative, for damages, and for other relief, dismissed the bill of complaint on July 29, 1970, upon a number of grounds including laches, abandonment of the contract ²⁸⁷ by Commonwealth and vagueness in the contractual language. We are of the opinion that the provision of the option contract relied upon by Commonwealth is void and unenforceable as violating the rule against perpetuities, and, in any event, even upon the construction urged upon us by Commonwealth, would be an -unreasonable restraint on alienation.

We will affirm the decree for these reasons, finding it unnecessary to rule upon the additional reasons assigned by the Chancellor for dismissing the bill of complaint. The option contract (which was a printed form amended as indicated below), which bound and inured to the heirs, personal representatives and assigns of the respective parties, after reciting in paragraph 1 the $100.-00 consideration and the ultimate purchase price of $18,-000.00, provided in relevant part, as follows: “2. This Agreement shall extend for 180 days; or, if the requisite zoning and permits, described in Article 4 hereof have not been finally issued or denied beyond appeal, until 15 days after such final action thereon. Buyer may renew it for an additional period of 180 days from the later of the above dates by paying as consideration therefor, monthly in advance, the sum of $2.00 for each day so renewed. “3.

Upon at least 4 months notice from Buyer of election to exercise the privilege herein granted and appointment of time and place of settlement,* Seller shall promptly clear the title of all liens, encumbrances, tenancies, and applicable special assessments due or about to become due, and, thereafter, deliver the premises to Buyer by recordable deed conveying a good and marketable title with the usual covenants of warranty in return for Buyer’s certified check for the purchase price hereunder less consideration paid for this agreement. Settlement ex- *which shall not be prior to July 1,1966 ²⁸⁸ penses shall be shared according to local custom. Stamps and transfer charges shall be divided equally between the parties. Taxes and public charges shall be prorated to date of settlement. “4.

It is understood that Buyer intends to use the premises for a drive-in business and/or commercial purposes generally; that Seller shall sign all applications necessary to zoning ap proval and special or usual permits for such use to Buyer’s plans; that -Seller on request of Buyer shall thereafter process such applications through cognizant governmental departments. If zoning and/or permits are refused, or if title is not in order (as above or because any restrictions therein shall prohibit construction or operation according to Buyer’s plans), then this Agreement shall terminate at the option of Buyer and all monies paid hereunder shall be returned. If, however, this Agreement is terminated by Buyer for any other reason there shall be no return of monies paid hereunder. “5. Notices hereunder shall be given by certified mail to the above addresses. “6.

W. Paul Settles is acknowledged as the procuring broker in this transaction, with brokerage to be paid by buyer.” The agreement is under seal, signed by both Mr. and Mrs. Bowers (but not by Commonwealth on the copy in the record), and is witnessed as to both by “Lee Downey.” The following appears at the end of the agreement: “State of Maryland, County of Washington; Set: “Subscribed and sworn this 13th day of October, 1965 “My commission expires 7-1-67 James C. Stevens” ²⁸⁹ A notarial seal for “James C. Stevens” is affixed on the document. 1 Commonwealth had obtained on January 25, 1966, a contract of sale on the Smith property which immediately adjoins the Bowers property on the south. In order to obtain a health department permit for a sewerage system for the Smith property (there being no public sewer available), Commonwealth sometime in March, 1966, made application to the Washington County Health Department for a percolation test and permit. First, small test holes were dug, some fifteen by thirty inches, but the Health Department did not find that the use of these holes passed the percolation tests. The Supervisor of the Sanitarians of the Health Department, Frank H. War-field, then indicated that the Smith property would have to be retested by use of deeper and larger holes dug by a back hoe.

Commonwealth then employed a local contractor, James Short, to dig the larger and deeper holes. Mr. Bowers, who could easily see from his property — where he and his wife resided — the digging of the holes by the back hoe on adjacent Smith property, testified, without contradiction, that these holes were approximately four or five feet wide by four or five feet long and about four or five feet deep. Mr. Warfield, after inspecting the Smith property after the large holes were dug by the back hoe, wrote Commonwealth on March 23,1966, as follows: “In response to your request I visited the premises of the Lee L. Smith property on Maryland Rt. 65 near Interstate Route 70 to evaluate the suitability of the ground for the installation of a private sewage disposal system for the ²⁹⁰ planned Drive-In service station. Mr. James Short had dug holes in an effort for this department to determine the availability of ground suitable for a private sewage disposal system. “On March 22, 1966, the visit indicated that due to the degree of rockiness and the limited space for a private sewage disposal system, we cannot issue a permit at this time. “We would recommend that you engage a professional engineer to design a sewage system for your Drive-In service station based on the regulations of the Maryland State Department of Health. “Our evaluation of the land indicates that more ground which is suitable for a private sewage disposal system is required.” Commonwealth then requested Lee Downey, of the Settles Real Estate Agency, the real estate broker who had assisted in the obtention of the option contract of October 13, 1965, to obtain permission from the Bowers to allow the same testing on their property as had been done on the Smith Property.

Downey went to the Bowers property on March 31, 1966, and talked with Mr. Bowers, this being the first contact the Bowers had had with any one from Commonwealth since October 13, 1965, when the option contract was signed. Mr. Downey talked with Mr. Bowers and Bowers refused permission to bring a back hoe on the property because, as he testified, the Health Department had told him over the telephone that this was not necessary and Bowers was apprehensive that harm would result to his children and his ponies from the digging of large holes on the property. Bowers did say that he would allow the usual tests which had been described'to him by the Health Department. On April 9, 1966, Carl G. Wittig, another representative of Commonwealth, called on Mr. and Mrs. Bowers to talk to them about their refusal to allow a back hoe ²⁹¹ on the property.

Mr. Bowers again refused but stated that he would sign the necessary applications for the necessary tests. Mr. Wittig, on April 11, sent a letter to the Bowers as follows: “Your recent refusal to allow us to perform percolation tests on your Sharpsburg Pike property renders it impossible for us to procure permits as contemplated in the Agreement of October 13, 1966 [5]. Of course it also extends the period of that Agreement. “Since you refuse us permission to accomplish such tests, at our expense we will expect you to undertake them at your expense and advise us the results and we will treat such period as elapses between 11 April and full completion of such tests as an extension of the basic 180 day period. “Herewith you will find our check for $60.00 for the first 30 days of the 180 day extension period. As above, the 30 day portion and the 180 day period will not start upon completion of percolation tests and issuancé of Health Department report instead of 11 April 1966.” Counsel for the Bowers on April 12 replied to the Wittig letter of April 11, in relevant part, as follows: “Please be advised the option signed by the Bowers made no provision for any entry by optionee upon the land of the Bowers for any purposes.

Paragraph #4 of said option required of the Bowers, only to sign any application forms, etc., that optionee requested. No applications were ever presented to the Bowers for signatures. No request to perform percolation tests were made or refused. “On March 31, when a representative of your company requested permission to enter upon the ²⁹² property of the Bowers with a backhoe digger to dig holes which were described to them to be of the size of 4 by 5 feet, permission was refused as holes this size are not necessary for percolation tests. When a representative from your company visited them on April 9, he was informed that if he would bring the necessary application from the Health Department for percolation tests, they would sign.

No application was presented to them before expiration of this option. “Am returning your check in the amount of $60 and we consider the option, dated October 13, 1965, as having expired; and, have advised the Bowers that they are now free to deal with the property as they see fit.” Commonwealth, as we have indicated, recorded the option contract of October 13, 1965, on April 19, 1966, and Commonwealth wrote the Bowers on April 27 that it had received the letter from their counsel of April 12, regretted the position taken by them and observed that the advice given them by their counsel “may be correct” but that Commonwealth thought that it was not. The letter of April 27 then continued: “The Washington County Health Department indicated that deep test holes are a prerequisite to percolation test for commercial usage. As described to you by both Messrs. Downey and Wittig, these test holes would be refilled the same day they were dug.

While open, they would have been guarded. “Accordingly, we reiterate the advice of our letter of April 11, 1966 and advise you that we consider the Agreement of October 13, 1965 to be in continuing force and effect and that we intend to reserve our rights thereunder.” The Health Department, on May 3, advised Common ²⁹³ wealth that a permit for the Smith property would be issued subject to certain conditions. Commonwealth took title to the Smith property on May 6, 1966, and thereafter conveyed it to Humble Oil Company. Commonwealth, however, did nothing in regard to the Bowers property until the present case arose in 1968. In October 1967, Sun became interested in the Bowers property.

After negotiations, study of the matter and the conclusion of a survey and title examination, took title to the property by deed on May 8, 1968, paying $50,-000.00 for the property to the Bowers. A representative of Sun — after the Bowers had signed the contract of sale with Sun, but prior to Sun’s signing — learned that there had been a prior option on the property but was advised by counsel for t]ie Bowers that it was no longer in effect. Sun had acquired the property to the north of the Bowers property and began construction on that property. In June 1968 as a result of a casual conversation at luncheon, Commonwealth learned that Sun had purchased the Bowers property.

A letter, on behalf of Commonwealth, was written Sun on June 26, which stated, in part: “My clients [Commonwealth] have presented me with sufficient papers to indicate to me that this option is still operable through breach by Bowers after due and proper notification. I have no objection to a full discussion of this cause and would prefer to resolve it without litigation and before involving local Washington County, Maryland co-counsel. “I await your advice.” Later Commonwealth tried unsuccessfully to get Sun to transfer the Bowers’ property to Commonwealth for $18,000.00. After the Bowers moved on July 25, 1968, Sun began work on the Bowers property, and has completed its service station on the Bowers and adjoining property to the north. ²⁹⁴ Commonwealth, on October 29, 1968, filed the bill of complaint, already mentioned. As we have stated, the Chancellor filed a written opinion and a decree dismissing the bill of complaint for a variety of reasons.

In his opinion he found as a fact that the Bowers “had no objection to tests being made and that their real objection was to the use of a backhoe digging large holes.” He also found as a fact that Commonwealth had not made any application for a permit from the Health Department “in spite of the fact that the sole bone of contention was the digging of large holes” and that Commonwealth had recorded the option contract and “rested its case on the theory” that the $100.00 payment “tied up the property until someone called to make a deal” —paraphrasing a portion of the testimony of Benjamin Vinton, Jr., President of Commonwealth. The Chancellor concluded that there had been no breach by the Bowers of the option contract. In construing the option contract, it will be observed that, by paragraph 2 it had a term of 180 days or if the permits mentioned in paragraph 4 “have not been finally issued or denied beyond appeal, until 15 days after such final action thereon.” Then follows a provision that Commonwealth could renew the option contract for an additional period of 180 days “from the later of the above dates” by paying an additional consideration of $2.00 for each day of renewal. Paragraph 4 recites the intended use of the premises for “a drive-in business” or for commercial purposes generally and provides the Bowers “shall sign all applications necessary to special or usual permits for such use to Buyer’s [Commonwealth’s] plans.” Commonwealth “shall thereafter process such applications through the cognizant governmental departments.” If the permits are refused or if title is not in order, the option agreement shall terminate at Commonwealth’s option and all monies paid under the agreement returned.

If terminated for any other reason by Commonwealth, no monies would be returned. ²⁹⁵ It will be observed that zoning approval and permits were not included in paragraph 4 but provisions in regard to them were stricken out by typewriting a line through those provisions. The obligation of the Bowers was to sign necessary applications, but, as the Chancellor found, no Health Department application was ever presented to them for signature, so that there was no breach of this provision of the option contract by the Bowers. Commonwealth maintains that there is no provision of the contract requiring it to present any application to the Bowers for their signatures and that it properly used an alternative method of obtaining Health Department approval by employing a recognized and qualified engineering firm to go forward with the percolation tests without previously obtaining a signed application by the Bowers, who breached the' option contract by refusing permission for entry and use by the engineering company of the back hoe. But as we have seen, the Chancellor found against Commonwealth on this issue and we do not think that he was in error in his conclusion.

Commonwealth contends, however, that, in any event, it properly recorded the option agreement and there could be no effective transfer of the Bowers’ property until the permits had been issued, 15 days had elapsed or, if the 180 day additional period was renewed by Commonwealth, until the expiration of that period. The Bowers, on the other hand, contend that the alternative period is subject to an implied condition precedent that Commonwealth must within the original 180 day term make application to the Health Department for a permit, but this was never done. They contend further that Commonwealth abandoned the option contract, was guilty of laches but, in any event, the alternative provision for duration of the contract — as construed by Commonwealth — is an unreasonable restraint on alienation and violates the rule against perpetuities. As we have already indicated, we are of the opinion that assuming, arguendo, that there is no implied condi ²⁹⁶ tion precedent, nevertheless, the alternative provision for duration of the option contract as construed by Commonwealth does violate the rule against perpetuities, and that even upon the contention of Commonwealth that the rule against perpetuities does not apply, the option contract is an unreasonable restraint on alienation and hence is unenforceable.

The Bowers and Sun, as we have stated, contend that the provisions of the option contract upon which Commonwealth relies and as construed by it, violates the rule against perpetuities and, in any event, is an unreasonable restraint on alienation. We have concluded that this contention is correct and we shall affirm the decree of the lower court. Judge (later Chief Judge) Prescott, for the Court, in Fitzpatrick v. Mercantile-Safe Deposit & Trust Co., 220 Md. 534, 540-41 , 155 A. 2d 702 (1959)