Keller v. Rudolph Buildings Limited Partnership (Cir. Ct. for Mont. Co.)

Filed: January 20, 2010
Opinion by Judge Ronald B. Rubin

Held: A right of first refusal given in an agreement affecting real property was, by law, perpetual where the parties omitted to state that it was not. Accordingly, the promise violated the Rule Against Perpetuities. The legal inability of the promissor to fulfill the promise constituted a complete failure of performance. As a consequence, the counterparty was relieved of its obligation to perform under the agreement.

Facts: Neighboring owners of property made an agreement by which one, the Grantor, gave the other, the Grantee, easements to use the Grantor's property. In exchange, the Grantee gave a right of first refusal to purchase his property.

Years later, the Grantee sued to quiet title. He sought a declaration that the right of first refusal bound only him, and that it would not encumber the property after a sale. The Grantee had received offers to buy the property, and the Grantor had declined to purchase the property on the offered terms or to sign a release expressly terminating its right. The Grantee was having trouble disposing of the property given the concern that the right of first refusal would continue to encumber the property.

Analysis: The Rule Against Perpetuities does apply to rights of first refusal. Ferraro Constr. Co. v. Dennis Rourke Corp., 311 Md. 560 (1988). In addition, section 1-103 of the Real Property Article provides:

Unless otherwise expressly provided, any obligation imposed on or right granted to any person automatically is binding on or inures to the benefit of his assigns, successors, heirs, legatees, and personal representatives.

Because the parties did not expressly provide that the right would not bind the Grantee's successors and assigns, it did so bind them. Accordingly, the right was perpetual and thus violated the Rule Against Perpetuities.

The inability of the Grantee to fulfill his promise constituted a complete failure of performance. The failure relieved the Grantor from its reciprocal obligations under the agreement.

Practice Tip: A mutual mistake of law is not grounds for rescinding a contract, Janusz v. Gilliam, 404 Md. 524 (2008). The Court, however, held that the problem did not relate to formation of the agreement. The problem was a failure to perform. The failure to perform warranted the Court, in equity, to relieve the counterparty of its own promises.

The full opinion is available in PDF.