Alby v. Banc One Financial
128 P.3d 81 (2006)
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Rule of Law:
A restraint on the alienation of real property is valid if it is reasonable and justified by the legitimate interests of the parties, which is determined by balancing the utility of the purpose served by the restraint against the injurious consequences likely to flow from its enforcement.
Facts:
- In 1992, Eugene and Susan Alby sold a portion of their family farm to their niece, Lorri Brashler, and her husband.
- The property, valued at $100,000, was sold for a substantially reduced price of $15,000.
- The Albys included a clause in the deed stating the property would automatically revert to them if the Brashlers mortgaged or otherwise encumbered it during either of the Albys' lifetimes.
- The stated purpose of this restriction was to ensure the property remained within the Alby family.
- After the deed was recorded in 1996, the Brashlers executed two deeds of trust (a form of mortgage) on the property in 1999 to secure loans totaling over $109,000.
- The Brashlers subsequently defaulted on the first loan, leading to a foreclosure.
- Banc One Financial purchased the property at the resulting trustee's sale.
Procedural Posture:
- Susan Alby filed a quiet title action against Banc One Financial in Stevens County Superior Court, a court of first instance.
- Both parties filed cross-motions for summary judgment.
- The trial court granted summary judgment in favor of Banc One, ruling that the reverter clause was void as an unreasonable restraint on alienation.
- Susan Alby, as appellant, appealed to the Washington Court of Appeals, an intermediate appellate court.
- The Court of Appeals reversed the trial court's decision, holding that the clause was valid.
- Banc One, as petitioner, was granted review by the Supreme Court of Washington.
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Issue:
Does a clause in a deed providing for automatic reverter to the grantor if the property is mortgaged or encumbered during the grantor's lifetime constitute a valid and enforceable restraint on alienation?
Opinions:
Majority - Johnson, J.
Yes, the reverter clause is a valid and enforceable restraint on alienation. Although the clause is a restraint on alienation, it is reasonable under the circumstances. The court must balance the utility of the restraint against its potential harm. Here, the restraint served the legitimate purpose of keeping property within the family, was limited in duration to the grantors' lifetimes, was limited in scope to only preventing encumbrances, and was supported by significant consideration in the form of a heavily discounted purchase price. These factors outweigh the injurious consequences of limiting the property's marketability, making the bargained-for restraint reasonable and valid.
Dissenting - Alexander, C.J.
No, the reverter clause is an unreasonable and invalid restraint on alienation. The strong public policy favoring the free alienability of property outweighs the Albys' private interest in maintaining family ownership. The restraint effectively rendered the property unalienable for an unknown and potentially significant period of time, depriving the Brashlers of a fundamental attribute of property ownership. Furthermore, the record suggests the discounted price was a gift rather than a bargained-for exchange for accepting the restraint, and the economic consequences of removing property from the marketplace are injurious to society as a whole.
Dissenting - Chambers, J.
No, the reverter clause is an unreasonable restraint on alienation. Rather than applying a case-by-case balancing test, the court should hold that a direct forfeiture restraint, which causes property to automatically revert upon an attempt to encumber it after the purchase price has been fully paid and title has vested, is per se unreasonable as a matter of law. This approach would provide greater clarity and predictability in property law, avoiding the uncertainty inherent in reasonableness balancing for such a direct and significant restraint.
Analysis:
This decision solidifies Washington's adoption of a flexible reasonableness test for restraints on alienation, rejecting a more rigid, formalistic approach. It establishes that courts will uphold purpose-driven restraints that are limited in scope and duration, particularly in family transactions where there is clear consideration for the restriction. The ruling signals that the freedom of contract and the specific intent of the parties can, in certain circumstances, override the general public policy against restraining the alienability of land. This case will guide future decisions by requiring lower courts to conduct a fact-intensive balancing of the restraint's utility against its potential harm, rather than invalidating such clauses automatically.
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