United Virginia Bank v. Union Oil Co. of California
66 A.L.R. 3d 1286, 214 Va. 48, 197 S.E.2d 174 (1973)
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Rule of Law:
An option contract that may not be exercised within 21 years from the date of its creation because it is contingent upon an event that may not happen within that time period is void from its inception for violating the Rule Against Perpetuities.
Facts:
- On April 7, 1966, William Jonathan Abbitt granted Union Oil Company of California an option to purchase a parcel of land.
- The agreement stipulated that the 120-day option period would only begin once the City of Newport News acquired the rights-of-way for two proposed highways, 'Boxley Boulevard Extension and new U.S. 60'.
- At the time the agreement was made, these highways were part of a long-term city plan with a target completion date of 1985 or 1987, but a city engineer testified that it was impossible to know when, if ever, they would be completed.
- The plan for 'new U.S. 60' was a public project, but the 'Boxley Boulevard Extension' was to be constructed by private landowners on an uncertain timeline.
- Union Oil later assigned its rights under the option agreement to Sanford & Charles, Inc.
Procedural Posture:
- United Virginia Bank, as executor of William Jonathan Abbitt's estate, filed a declaratory judgment action in a Virginia trial court against Union Oil Company and its assignee, Sanford & Charles, Inc.
- The Bank sought a declaration from the court that the option agreement was void because it violated the Rule Against Perpetuities.
- The trial court ruled in favor of Sanford, holding that the agreement was valid and enforceable.
- The Bank, as appellant, appealed the trial court's decision to the Supreme Court of Virginia.
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Issue:
Does a land option agreement, which is exercisable only upon the city's acquisition of rights-of-way for proposed highways—an event uncertain to occur within 21 years—violate the Rule Against Perpetuities?
Opinions:
Majority - Carrico, J.
Yes, the land option agreement violates the Rule Against Perpetuities. An interest must vest within a period measured by a life in being plus 21 years, or, as in this case with a corporate entity, within a gross period of 21 years. The validity of the interest is determined based on possibilities existing at the time of its creation, not on subsequent events. Here, the option was contingent on the city acquiring rights-of-way for two highways. On the day the agreement was executed, it was distinctly possible that this contingency might not occur for more than 21 years. The court rejected arguments to imply a 'reasonable time' for performance or to adopt the 'wait and see' doctrine, adhering to Virginia's traditional rule that the mere possibility of the interest vesting too late renders the agreement void ab initio.
Analysis:
This decision reaffirms Virginia's strict and traditional application of the Rule Against Perpetuities to commercial option contracts. The court explicitly rejects modern reform doctrines such as 'wait and see' or the judicial application of 'cy pres' to save an instrument from the rule's invalidating effect. This holding solidifies the 'what-might-happen' approach, where the validity of an interest is judged solely on possibilities existing at the time of its creation. The case serves as a critical warning to contract drafters to include a specific perpetuities savings clause or a definite time limit when an option's exercisability is tied to an uncertain future event.
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