Dorado Ltd. Partnership v. Broadneck Development Corp.

¹⁵⁰ ELDRIDGE, Judge. This case involves the question of whether a contract for the sale of land, under which title may not be transferred until an indefinite date, is enforceable. Because the buyer’s interest may vest too remotely, we hold that the contract in the case at bar violates the Rule Against Perpetuities. On June 23,1981, Dorado Limited Partnership and Broad-neck Development Company entered into a contract to sell real property located in Anne Arundel County.

Under the contract Broadneck agreed to sell 70 lots to Dorado for $280,000. In addition, Broadneck granted Dorado an option to purchase an additional 252 lots. The option on the first 126 lots remained open until one year after settlement on the original 70 lots. The option on the final 126 lots remained open for an additional year.

Settlement was reached on the original 70 lots on May 12, 1983. On February 16, 1984, the parties amended the contract. This amended agreement provided, inter alia, that the option on the additional 252 lots would expire unless Dorado exercised its option on at least 120 lots by April 15. On April 13, 1984, the parties settled on an additional 140 lots.

On April 16, 1984, they amended the contract for the second time. This second amendment, which is the subject of the present litigation, provided in its relevant part as follows: “1. Buyer agrees to purchase and settle on all remaining lots covered by the Contract of Sale by payment of the purchase price in cash not later than ninety (90) days after the Seller has delivered to Buyer evidence of sewer allocations for such lots. Time is of the essence of all the provisions of the Contract of Sale.” In essence, this second amendment was a contract for the sale of the remaining 112 lots.

The actual purchase of these units, however, would not occur until after Broadneck obtained a sewer allocation. ¹⁵¹ As a result of a county moratorium on sewer allocations, Broadneck has been unable to procure the sewer allocation, and thus the sale has never been consummated. Finally, Broadneck brought this declaratory judgment action in the Circuit Court for Anne Arundel County seeking an adjudication of the rights and obligations of the parties, a declaration that the contract for the sale of the remaining 112 lots was void, and any other appropriate relief. Broadneck relied on three alternate theories why the contract was void. Each theory is premised on the fact that the settlement date could be extended indefinitely because it is uncertain when sewer service will be allocated.

Broadneck asserted that the contract was unenforceable because it: (1) violates the Rule Against Perpetuities; (2) imposes an unreasonable restraint on alienation; or (3) is vague and uncertain. The circuit court rejected each of Broadneck’s contentions and held that the contract “remains in full force and effect and is binding upon the parties.” Broadneck appealed to the Court of Special Appeals. In the intermediate appellate court, Broadneck made the same three arguments which it had made in circuit court. The Court of Special Appeals, in an unreported opinion, reversed, holding that the contract was void as an unreasonable restraint on alienation.

The intermediate appellant court did not reach either of Broad-neck’s other two assertions. Thereafter, Dorado petitioned this Court for a writ of certiorari, raising the issue of whether the contract violated the rule against unreasonable restraints on alienation. Broadneck filed a conditional cross-petition for a writ of certiorari, raising the other two arguments which Broadneck had advanced below. We granted both the petition and the cross-petition.

In our view, the contract for the sale of the remaining 112 lots violates the Rule Against Perpetuities. Consequently, we do not reach the issues of whether the contract is an unreasonable restraint on alienation or is fatally vague. We shall affirm. ¹⁵² Except for a few statutory modifications, 1 Maryland retains the common law Rule Against Perpetuities. Ferrero Constr. v. Dennis Rourke Corp., 311 Md. 560, 564 , 536 A.2d 1137, 1139 (1988).

While generally the Rule does not apply to contracts, nevertheless if a contract creates an equitable right in real property, enforceable by specific performance, the contract is subject to the Rule. Gray, The Rule Against Perpetuities, § 329 (4th ed.1942); Thompson, Real Property, § 2020 (1979). Thus, this Court has previously held that the Rule applies to an option contract to purchase land, Commonwealth Realty v. Bowers, 261 Md. 285 , 274 A.2d 353 (1971), and to a right of first refusal to purchase an interest in property, Ferrero Constr. v. Dennis Rourke Corp., supra. As a formulation of the Rule Against Perpetuities, our cases have adopted Professor Gray’s statement that “[n]o 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.” Fitzpatrick v. Mer.-Safe, Etc.

Co., 220 Md. 534, 541 , 155 A.2d 702, 705 (1959), quoting Gray, supra, § 201. The Court pointed out in Fitzpatrick, 220 Md. at 541 , 155 A.2d at 705 , that the Rule does not invalidate “interests which last too long, but interests which vest too remotely; in other words the Rule is not concerned with the duration of estates, but the time of their vesting.” See also Ferrero Constr., supra, 311 Md. at 565 , 536 A.2d at 1139 ; Commonwealth Realty v. Bowers, supra, 261 Md. at 296 , 274 A.2d at 358-359 . “Vested” was defined in Chism v. Reese, 190 Md. 311, 320-321 , 58 A.2d 643, 647 (1948), as follows: “The term ‘vested’ as used in the law of property, signifies that there has been the fixation of a present right to either the immediate or future enjoyment of property. Curtis v. Maryland Baptist Union Ass’n, 176 Md. 430, 438, 439 , 5 A.2d 836 , 121 A.L.R. 1516 . The term ¹⁵³ ‘vested’ has also another meaning, which is so frequently given to it that it cannot be styled improper.

This other meaning is ‘transmissible.’ As Professor Gray of Harvard has said, ‘Such double meaning is, however, very unfortunate, as it has led to much confusion.’ Gray, Rule Against Perpetuities, 4th Ed., § 118. Vesting in that secondary sense is not sufficient to escape the rule against perpetuities. The interest must vest in the sense of becoming a vested remainder. “The event, upon the happening of which the remainder is to vest, must be one that is certain to happen within the prescribed period, otherwise the limitation is void.” The purposes of the rule include the facilitation of alienation of property and maintaining certainty of title. Ferrero Constr., supra, 311 Md. at 572 , 536 A.2d at 1143 .

Broadneck argues that the contract violates the Rule Against Perpetuities because Dorado’s interest might never fully vest. Broadneck points out that legal title can not vest until there is a sewer allocation. There is no certainty, however, that Broadneck will ever obtain a sewer allocation. Therefore, Broadneck concludes, it is possible that Dorado’s interest will not vest within a life in being and 21 years.

According to Dorado, the Rule Against Perpetuities does not require that legal title must vest, if at all, within the perpetuities period. In Dorado’s view, the proper question is “whether each interest in the land has vested.” Dorado reasons that, under the contract, each interest has vested. On the one hand, it obtained an equitable interest in the property at the signing of the contract. On the other hand, Broadneck retained legal interest or title.

In essence, Dora-do maintains that a land sales contract can never violate the Rule Against Perpetuities. In our view, when the purpose of a contract is to transfer legal title in land, then legal title must vest within the period of the Rule Against Perpetuities. Otherwise, there would be the distinct possibility that a contract would ¹⁵⁴ render title uncertain. After the signing of the contract, the seller retains legal title until the deed is properly executed and delivered.

Childs v. Ragonese, 296 Md. 130 , 139 n. 8, 460 A.2d 1031 , 1036 n. 8 (1983). Until that point, the seller’s interest is fettered by the possibility that it will be required to relinquish title to the purchaser. Between the signing and execution of the contract, the owner of legal title would be reluctant to make the most effective use of the property. See Ferrero Constr., supra, 311 Md. at 572 , 536 A.2d at 1143 .

The parties’ interests could remain in this state forever, if, as Dorado argues, the Rule does not require legal title to vest in the purchaser. Consequently, the purchaser’s immediate acquisition of equitable interest alone is not sufficient to guarantee that the Rule Against Perpetuities has not been transgressed. For a land sales contract to be valid under the Rule, therefore, legal title must vest in the purchaser within a life in being plus 21 years. The Court expressed the same position in Commonwealth Realty v. Bowers, supra.

That case presented the issue of whether an option contract violated the Rule Against Perpetuities. Like Dorado, the holder of the option, Commonwealth, argued that the option did not violate the Rule because the right to exercise the option is a present vested right. In rejecting Commonwealth’s