Buck v. Banks

Court of Appeals of Indiana
668 N.E.2d 1259 (1996)

ELI5:

Rule of Law:

A right of first refusal that is contractually binding on the parties' heirs and assigns, without a specified time limit, is void from its inception because it violates the common law Rule Against Perpetuities. A statutory provision allowing for the reformation of contracts that violate the Rule does not apply if the statute itself expressly excludes the type of property interest in question.

Facts:

On November 28, 1958, Donald and Margaret Buck entered into a contract with Lillian E. Allen to purchase a 500-acre parcel of land.
The contract included a provision granting the Bucks a right of first refusal to purchase an additional 14-acre parcel should Allen decide to sell it.
The contract also contained a clause stating that all of its covenants and agreements were obligatory upon the heirs, executors, administrators, and assigns of the respective parties.
On March 30, 1964, the Bucks completed their purchase of the 500-acre parcel.
On March 26, 1993, Allen entered into an agreement to sell the 14-acre parcel to Carolyn K. Banks.
On June 28, 1998, Allen died before the sale to Banks was completed.

Procedural Posture:

The Bucks filed a claim against Allen's estate and Banks in an Indiana trial court, seeking specific performance for breach of the right of first refusal.
Allen's estate filed a motion for summary judgment, arguing the contract provision was void for violating the Rule Against Perpetuities.
The Bucks filed a response, a cross-motion for summary judgment, and a motion to reform the contract.
The trial court granted summary judgment in favor of Allen's estate, finding the provision violated the Rule Against Perpetuities, and denied the Bucks' motions.
The Bucks (appellants) appealed the trial court's decision to the Indiana Court of Appeals.

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Issue:

Does a right of first refusal in a real estate contract, which is explicitly made binding on the parties' heirs, executors, administrators, and assigns, violate the common law Rule Against Perpetuities?

Opinions:

Majority - Baker, Judge

Yes. A right of first refusal that is explicitly made binding on the parties' heirs and assigns violates the common law Rule Against Perpetuities. The court found that the unambiguous language of the contract extended all provisions, including the right of first refusal, to the parties' heirs. Because this right could potentially be exercised by the Bucks' heirs against Allen's heirs at a remote, indefinite point in the future—well beyond the period of a life in being plus 21 years—it is void from its creation. The court also held that the Bucks could not reform the contract under a modern statute, because that statute and its reformation provision explicitly do not apply to this type of commercial (nondonative) transaction, leaving it subject to the unforgiving common law rule.

Analysis:

This decision illustrates the strict application of the common law Rule Against Perpetuities to commercial transactions like rights of first refusal. It highlights the danger of including boilerplate 'heirs and assigns' clauses in contracts creating future interests without also including a specific time limit. The case clarifies that statutory reforms to the Rule, such as 'wait-and-see' doctrines or judicial reformation powers, may not save an agreement if the statute carves out exceptions for certain types of transfers. This ruling forces contract drafters to be vigilant about the duration of future interests, as the ancient common law rule remains a potent trap for the unwary in specific contexts.

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