Opinion
No. COA00-96
Filed 19 June 2001
Vendor and Purchaser — real estate sale contract — availability fee after lots sold — rule against perpetuities
The trial court erred by awarding plaintiff specific performance of the obligations under the addendum of the parties' real estate sale contract requiring defendant to pay plaintiff an availability fee of $600.00 on each of the thirty seven lots, into which the parcel of land may or may not ultimately be divided, after each lot was sold because: (1) the purported lien was not a vested interest since at the time of its creation plaintiff's right to payment did not amount to an immediate right of present enjoyment or a present fixed right of future enjoyment; and (2) plaintiff's interest in the property is void since it violates the rule against perpetuities by failing to set a time limit when these conditions must be met.
Judge TYSON dissenting.
Appeal by defendant from judgment entered 31 August 1999 by Judge Cy A. Grant in Superior Court, Pasquotank County. Heard in the Court of Appeals 15 February 2001.
Trimpi, Nash Harman, L.L.P., by John G. Trimpi, for plaintiff-appellee.
The Twiford Law Firm, L.L.P., by Branch W. Vincent, III, for defendant-appellant.
Rich, Rich Nance (plaintiff) instituted this action on 15 June 1998 seeking specific performance of an agreement set forth in an addendum to a real estate sale contract.
Plaintiff owned a parcel of land consisting of 11.89 acres commonly known as "Walking Horse Subdivision," which had preliminary, but not final plat approval. Plaintiff entered into a contract with LFM Properties (LFM) on 5 August 1994, wherein LFM agreed to purchase the property at a price of $75,000.00. Pursuant to discussions of the parties regarding the ultimate use of the property, plaintiff anticipated that at some date in the future, LFM would convey the property to Carolina Construction Corporation (defendant), which would ultimately develop and subdivide the property into thirty-seven lots for single-family residences. Accordingly, on 29 August 1994, the parties executed the following addendum to the contract between plaintiff and LFM:
At the close of each of the 37 (thirty seven) lots of Walking Horse subdivision, LFM Properties and or Carolina Construction Corporation, whomever is owner, agrees to pay to Rich, Rich and Nance the sum of $600.00 (Six Hundred Dollars) per lot as an availability fee. These fees shall survive any and all listing agreements and shall remain as a lien against the lots until they are paid. The sale or transfer of these lots from LFM Properties to Carolina Construction Corporation is exempt from the fee until such time as Carolina Construction Corporation sells the property improved or unimproved.
The addendum further provided that:
Upon the subject property being developed by LFM Properties, or its successor in interest, a Declaration of Restrictive Covenants shall be recorded with the subdivision plat. The Declaration shall refer to the above-mentioned fee agreement and provide record notice thereof.
Lucien O. Morrisette, a principal stockholder of LFM and defendant, signed the addendum on behalf of each corporation.
Plaintiff and LFM subsequently modified the sale contract in terms of the acreage conveyed and responsibilities in connection with the drainage. The $75,000.00 purchase price and the $600.00 per lot availability fee remained unchanged. Plaintiff and LFM closed the sale of the property on 28 April 1995.
LFM conveyed the property to defendant on 30 May 1997. Defendant subdivided the property into thirty-eight lots and changed the name of the development to Carolina Village. On 22 April 1998, defendant sold one of the lots in the subdivision, but failed to pay plaintiff the $600.00 availability fee, as required by the addendum. When plaintiff thereafter demanded the fee payment, defendant refused, indicating that it was not bound, and therefore, would not honor the agreement contained in the addendum.
Plaintiff filed an action against defendant for specific performance of the obligations under the addendum. The matter was tried before the trial judge on 2 August 1999. At the time of trial, defendant had sold nine lots in the subdivision without paying any of the availability fees. The trial court, after considering all the evidence, entered a judgment awarding plaintiff $5,400.00, the fees due for the nine lots sold. The court further ordered defendant to "pay the balance of $16,800.00 when and as each of the 28 additional lots in Carolina Village are sold by paying to plaintiff the sum of $600.00 upon the closing of each lot sale[.]" Additionally, the judgment provided that "[i]n the event defendant sells the entire tract without selling each of the 28 remaining lots, then the entire balance then due would become immediately payable." Defendant moved pursuant to Rules 59 and 60 of the Rules of Civil Procedure for reconsideration and for relief from the court's decision, which motions the court denied. Defendant gave timely notice of appeal to this Court.
Defendant contends that the fee arrangement contained in the addendum is unenforceable for several reasons. However, because we believe that plaintiff's interest in the property is void, in that it violates the rule against perpetuities, we limit our discussion to this dispositive issue.
The rule against perpetuities provides that:
[N]o devise or grant of a future interest in property is valid unless title thereto must vest, if at all, not less than twenty-one years, plus the period of gestation, after some life or lives in being at the time of the creation of the interest.
Coble v. Patterson, 114 N.C. App. 447, 452, 442 S.E.2d 119, 121 (1994). Where the interest or right does not refer or relate to a "life in being," also known as a "validating life," the perpetuities period is said to be "in gross," which means the period is simply twenty-one years. Rodin v. Merritt, 48 N.C. App. 64, 67, 268 S.E.2d 539, 541 (1980). The validity of the interest is measured from the execution of the contract. Id. at 68, 268 S.E.2d at 542. Thus, if at the moment of conveyance, there is any possibility that the interest will neither vest nor fail within the perpetuities period, the interest is void. Coble, 114 N.C. App. at 452, 442 S.E.2d at 121.
The rule against perpetuities applies only to non-vested or contingent future interests. Thornhill v. Riegg, 95 N.C. App. 532, 536, 383 S.E.2d 447, 449 (1989). "A future interest is vested `when there is either an immediate right of present enjoyment or a present fixed right of future enjoyment.'" Id. (quoting Joyner v. Duncan, 299 N.C. 565, 569, 264 S.E.2d 76, 82 (1980)). A future interest is contingent, or has yet to vest, when it is " either subject to a condition precedent (in addition to the natural expiration of prior estates), or owned by unascertainable persons, or both." Rawls v. Early, 94 N.C. App. 677, 680, 381 S.E.2d 166, 168 (1989) (quoting T. Bergin P. Haskell, Preface to Estate in Land and Future Interests at 73 (1984) (emphasis in original)).
In the instant case, plaintiff purports to retain a lien in the amount of $600.00 on each of the thirty-seven lots into which the parcel may or may not ultimately be divided. We conclude that the purported "lien" was not a vested interest, because at the time of their creation, plaintiff's right to payment did not amount to an "immediate right of present enjoyment or a present fixed right of future enjoyment." Thornhill, 95 N.C. App. at 536, 383 S.E.2d at 449 (quoting Joyner, 299 N.C. at 569, 264 S.E.2d at 82). The liens were subject to several conditions precedent: (1) LFM had to convey the property to defendant; (2) Defendant had to develop the property and divide it into thirty-seven individual lots (and construct houses on each); and (3) Defendant had to convey each of the thirty-seven lots to a subsequent purchaser. The agreement sets no time within which these conditions must be met, and thus, creates a right that is perpetual in nature. Moreover, while the law imposes a reasonable time for performance of the obligations under a contract, see Metals Corp. v. Weinstein, 236 N.C. 558, 73 S.E.2d 472 (1952), a reasonable time for performing the obligations under the present agreement is not necessarily within the twenty-one year perpetuities period. Rodin, 48 N.C. App. at 68, 268 S.E.2d at 541.
In Village of Pinehurst v. Regional Investments of Moore, 330 N.C. 725, 412 S.E.2d 645 (1992), our Supreme Court held that a right of first refusal to purchase sewage and water systems, which right was not limited in duration, violated the rule against perpetuities. In response to plaintiff's contention that the rule had no place in business transactions, the Court noted:
We do not believe we should make an exception to the rule because the real property which the plaintiff desires to purchase is used in the operation of a business. If a restraint on alienation is bad, we see no reason why it is made good because it is part of a commercial transaction or the property is used for business purposes.
Id. at 729, 412 S.E.2d at 646-47. The underlying purpose of the rule being to prevent the restraint on alienation, we believe that the perpetual encumbrance on the property which plaintiff seeks to enforce is the sort of impediment to marketability that the rule was meant to prevent. Therefore, we hold that plaintiff's interest under the addendum must fail, and entry of judgment in plaintiff's favor was error.
For the foregoing reasons, we reverse the judgment of the trial court and remand this matter for entry of judgment in favor of defendant.
Reversed and remanded.
Judge MARTIN concurs.
Judge TYSON dissents.