Colby v. Colby

Annotate this Case


                                ENTRY ORDER

                      SUPREME COURT DOCKET NO. 89-024

                              MAY TERM, 1991


Margaret Colby                    }          APPEALED FROM:
                                  }
                                  }
     v.                           }          Orange Superior Court
                                  }
Phyllis Colby, David Matthews,    }
Kenneth and Anne Rawson, Thomas   }          DOCKET NO. S 29-88 OeC
and Vicki Matthews Eismeir, et al.}

             In the above entitled cause the Clerk will enter:

     Defendant's motion to reargue under V.R.A.P. 40 is denied.  The motion
does not state points of law or fact, overlooked or misapprehended by the
Court, which would affect the result.  We have, however, recalled and
revised the opinion to amend our discussion of the event triggering the
option.







                                   BY THE COURT:



                                   Frederic W. Allen, Chief Justice


                                   Louis P. Peck, Associate Justice


[ ]  Publish                       Ernest W. Gibson III, Associate Justice

[ ]  Do Not Publish
                                   John A. Dooley, Associate Justice


                                   James L. Morse, Associate Justice

-----------------------------------------------------------------------------



NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 89-024


Margaret Colby                               Supreme Court

     v.                                      On Appeal from
                                             Orange Superior Court
Phyllis Colby, David Matthews,
Kenneth and Anne Rawson, Thomas              October Term, 1989
and Vicki Matthews Eismeir, et al.


Linda Levitt, J.

Richard E. Mullaly, West Lebanon, New Hampshire, for plaintiff-appellee

Emily B. Tartter of Paterson & Walke, P.C., Montpelier, for defendants-
            appellants


PRESENT:  Allen, C.J., Peck, Gibson, Dooley and Morse, JJ.

     PECK, J.   This is an appeal from a decree establishing ownership of
certain property in plaintiff Margaret Colby and defendant Phyllis Colby,
descendants of the original grantee, as against the other defendants who are
descendants of the original grantor, and ordering sale of the property and
division of the proceeds between plaintiff Margaret Colby and defendant
Phyllis Colby.  We reverse and remand for further proceedings.
     This case began as an action for partition brought by Margaret Colby,
as plaintiff, against her sister, defendant Phyllis Colby.  The Colbys held
title to the subject property as joint tenants.  Thereafter, it appeared
that David Matthews, the Rawsons, and the Eismeirs, descendants of the orig-
inal grantor, might still have an interest in the Colby property, and they
were subsequently added as parties defendant.  For purposes of this appeal,
however, the last named defendants are appellants, while plaintiff Margaret
Colby and defendant Phyllis Colby are the appellees.
     Grantor Benjamin Matthews owned several hundred acres in Fairlee,
Vermont, including frontage on Lake Fairlee and a large summer residence.
Grantee Clifton Colby was caretaker of Matthews' Fairlee property, and on
October 10, 1963, Matthews conveyed to Colby an unimproved parcel of lake-
front property about forty-six feet deep with about sixty-five feet of lake
frontage.  The deed includes the reservation to grantor, his heirs and
assigns, of:
          the first option to repurchase the within conveyed
          premises in the event that Grantee, his heirs or
          assigns, shall desire to sell the same.

The reservation in the deed provides that the option price

          shall not exceed Five Hundred Dollars ($500) plus the cost,
          less reasonable depreciation, of any improvements made to
          such property, or the amount at which the Grantee, his heirs
          or assigns, are willing to sell to a third party, whichever
          is lower.

On October 11, 1967, grantor conveyed to Clifton Colby another parcel of
land, also sixty-five feet wide but 245 feet deep, across Route 113 from the
first parcel.  The deed contains the same reservation.  There was some
evidence that the first transaction was for consideration of $500, and that
the second was a gift.
     Grantee built a three-bedroom camp on the lakeshore lot, with heat and
running water.  The trial court found that the present value of the camp and
lot together was $90,000, but did not allocate the value between the lot and
the improvements.
     Defendants, other than Phyllis Colby, as the heirs of grantor, continue
to own a substantial amount of property next to the Colby lots.  Plaintiff
Margaret Colby and defendant Phyllis Colby received their interests in the
subject property by conveyances from their mother, who received it by a
decree of distribution upon the original grantee's death.  The trial court
found that they had actual knowledge of the deed restrictions.
     The trial court concluded that the right of first refusal contained in
the deed reservation was an unreasonable restraint on alienation, and hence
invalid.  The heart of the court's rationale was stated as follows:
           The purpose of the clauses was to insure that only
          friends and relatives would occupy the lands once owned
          by B.A. Matthews.  This purpose seems trivial when
          weighed against the larger public interest of allowing
          property to be freely marketable.  Additionally, the
          restraint was of unlimited duration and the person
          originally imposing the restraint, B.A. Matthews,
          presently has no interest in the land surrounding the
          Colby lots.  Under the Restatement, the presence of
          these factors mitigates against a finding of reason-
          ableness and, therefore, the preemption clauses are
          unenforceable.

               This conclusion is further supported by comparing
          the present fair market value of the camp and lot, that
          is $90,000, with its fixed sale price of $500 plus
          improvements under the preemptive clauses.

The court ruled that the lots should be sold in a commercially reasonable
manner, and that the proceeds should be divided between Margaret and Phyllis
after the latter was compensated out of the proceeds for certain expenses.
     In sum, the court considered four factors: (1) the unlimited duration
of the restriction, in violation of the rule against perpetuities; (2) the
low repurchase price; (3) the "public interest of allowing property to be
freely marketable"; and (4) the lack of a present interest in Benjamin
Matthews in the land surrounding the Colby lots.
     The trial court was correct that restraints on alienation are not
favored, and that the reasonableness of a restraint turns on a variety of
factors.  The court's own findings, however, do not support its conclusion
that the restrictions were invalid in this case.  First, 27 V.S.A. { 501 (FN1)
operates to reform documents drafted in violation of the rule against
perpetuities to carry out the grantor's wishes most closely without
violating the rule.  We explained the operation of { 501 in Burgess v. Howe,
134 Vt. 370, 372, 359 A.2d 652, 653 (1976):
            Vermont has, by passing 27 V.S.A. { 501, aligned
          itself in a group of states adopting what is known as a
          "wait and see" rule concerning perpetuities.  This rule
          says that if, at the time of the event, the common law
          measure given as "lives in being and twenty-one years"
          has not been violated, there is no violation of the
          rule.

Appellees argue that { 501 should be narrowly construed, since it is in
derogation of the common law and that no event has "triggered" operation of
the statute.  Whether narrowly or broadly construed, however, appellees fail
to offer any construction of { 501 that would make it inapplicable to the
instrument in question.  It is unclear what kind of "trigger" appellees
would require.  They themselves raised the issue of the rule against per-
petuities, and the dates of conveyance, the ages of lives in being, and the
present date are all matters that are clear or readily ascertainable.  The
"trigger" is the event raising the issue of the exercise of the preemptive
right.  Burgess v. Howe, 134 Vt. at 373, 359 A.2d  at 654; Gilbert v. Union
College, 343 S.W.2d 829, 830 (Ky. App. 1961).  Appellees' suggestion that we
must wait until twenty-one years after lives in being before determining
whether the subject instrument violates the rule is the very possibility
that { 501 was meant to address.
     The question of the enforceability of the covenants does not end with
the perpetuities issue, however.  The court's second, and perhaps central,
ground for declaring the option invalid was its low price.  The trial court
cites Restatement of Property { 406 (FN2) as a starting point in weighing the
validity of a fixed-price preemptive right, in the absence of specific
Vermont authority on the question.  The court did not consider fully the
Restatement criterion, however, and analyze whether the low price stated in
the preemptive right was "reasonable under the circumstances."  The court's
findings of fact reflect much of the background of the original conveyances
from appellants' predecessor to appellees' and provide the basis for such
analysis.  Clifton Colby was employed by Benjamin Matthews as caretaker of
the land and buildings owned by Matthews.  The court found, "[A] friendship
developed between the two families over the years," and "[t]he original
purpose of the preemptive rights clauses in the deeds was to insure that the
land originally owned by B.A. Matthews was occupied only by friends and
relatives of B.A. Matthews."  It appears from the amount of the
consideration for the original sales, the relationship of the parties, the
purpose of the rights, and the text of the clauses themselves, that the
transfer to Clifton Colby was designed to allow Colby to enjoy the property
conveyed for his lifetime and thereafter for the enjoyment of his descend-
ants, so long as the property remained in the family.
     There are numerous ways that this purpose could have been accomplished,
but Benjamin Matthews chose to make conveyances with the retention of
preemptive rights.  The preemptive right was an important precondition to
the original sale.  As the court said of a sale that uniquely served seller
and buyer in Lawson v. Redmoor Corp., 37 Wash. App. 351, 356 679 P.2d 972,
975 (1984):
          [T]he parties who made the contract had a definite
          purpose in mind and both benefited from the agreement.
          [Purchaser] purchased a parcel of land in reliance on
          the right to obtain the remainder of the parcel and paid
          valuable consideration for the preemptive right.  The
          [sellers] wanted to sell the initial parcel, which
          [purchaser] would not purchase without the preemptive
          right. . . . The agreement achieved the purpose of
          encouraging the sale of the original parcel, providing
          the [sellers] with cash from that sale, and enabling
          them to remain in their home.

     Based on the facts found by the trial court, it is doubtful that the
original transaction would have occurred but for the restraint.  As in
Lawson, the preemptive right clause was initially an encouragement to the
alienation of property, rather than a restraint on it. See Edgar v. Hunt,
706 P.2d 120, 122 (Mont. 1985) (fixed-price preemptive right not void as a
matter of law; court must determine reasonableness under the circumstances,
including whether the restraint promoted the original transfer of the
property); Emerson v. King, 394 A.2d 51, 54 (1978) (fixed-price repurchase
option was reasonable in that both parties benefited; grantor would not have
sold property without the provision).
     The current market value of the property is a proper factor to consider
in weighing the reasonableness of a repurchase option, but a great disparity
does not automatically invalidate such a repurchase option.  See Barnhart v.
McKinney, 235 Kan. 511, 523, 682 P.2d 112, 121 (1984) (option in purchasers
to purchase sellers' retained parcel at $200/acre plus "the cost of any
permanent improvements" held not unreasonable, despite "disparity in price
due to subsequent inflation or market conditions"); Randolph v. Terrell, 768 S.W.2d 736, 739-40 (Tex. Cir. App. 1987) (repurchase option for grantors'
lifetimes at purchase price plus "an additional fair amount for any
improvements" held not an unreasonable promissory restraint on alienation
under Restatement rule);  Wilson v. Whinery, 37 Wash. App. 24, 27, 678 P.2d 354, 356 (1984)  (disparity between purchase price provided in right of
first refusal and the subsequent market price of the property did not
invalidate the right of first refusal).
     In the present case, the disparity between the option price and the
fair market value is a natural consequence of the initial arrangement
between the parties.  The price for the original transfer was nominal, and
the option price restores the original nominal consideration and repays
appellees for the amounts spent on improvements during their tenure and
that of their predecessors.  No inequity is apparent.  See Tovrea v.
Umphress, 27 Ariz. App. 513, 518-20, 556 P.2d 814, 819-21 (1976)(first
refusal at small sum plus cost of improvements plus one-half market value
held valid where corporate grantor had conveyed estate for same small sum,
and land under option abutted optionee's place of business).  Appellees
could not reasonably have expected that the sums they spent on improvements
would mean they would be paid market value upon disposition because the
initiating agreement was clearly to the contrary.  Moreover, the agreement
served the interest of both grantor and grantee for many years by increasing
the access to and use of a large parcel of adjacent property.
     The trial court concluded that the grantor's purpose of insuring that
only friends and relatives would occupy the grantor's lands was "trivial
when weighed against the larger public interest of allowing property to be
freely marketable."  In assuming that there is a latent public right or
interest in the grantor's property, the court applied the wrong standard.
The grantor's purpose was sufficient if it transgressed no legal norms and
did not result in an unreasonable restraint on alienation.  Kershner v.
Hurlbert, 277 S.W.2d 619, 626 (Mo. 1955)(fixed-price repurchase option is
not per se invalid as long as it accomplishes "any desirable objective").
     Finally, the trial court erred in concluding that the option rights
should not be enforced because Benjamin Matthews "presently has no interest
in the land surrounding the Colby lots."  It is plain that Matthews' suc-
cessors in interest have an interest in the land surrounding the Colby lots
and clear beyond question that the "interest" intended by the Restatement
should not expire ipso facto with the death of the grantor.
     In sum, the repurchase options in the 1963 and 1967 conveyances by
Benjamin Matthews are valid and enforceable.  Whether the options have been
triggered, however, remains to be determined.  The trial court found that
Margaret and Phyllis Colby agreed to sell the property and ordered sale of
the property at fair market value.  Margaret Colby moved the court to amend
its finding and reconsider its order.  The trial court amended the finding
but ordered the sale nonetheless.  Margaret Colby did not appeal the order,
but the order was largely favorable to her.  The record on appeal is
insufficient to determine whether in these circumstances the options should
be deemed triggered or not.  We note that involuntary sales are not deemed
to trigger repurchase options where the language of the options state that
triggering occurs by a choice or a desire to sell.  See Henderson v. Millis,
373 N.W.2d 497, 502-03 (Iowa 1985) (where option triggered if parcel owners
"elect to sell" involuntary sale did not trigger option); cf. Hornsby v.
Holt, 257 Ga. 341, 343, 359 S.E.2d 646, 648 (1987) (where election to sell
triggered option, option deemed triggered because grantor of option "put
the wheel in motion for the sale").  Even an unequivocal desire to sell
under one circumstance, here a fair-market-value sale, is not always deemed
a desire to sell according to the terms of a valid option.  See Gyurkey v.
Babler, 103 Idaho 663, 668, 651 P.2d 928, 933 (1982) (owner should not be
compelled to sell property where never intended to sell on terms and
conditions of the option); Guaclides v. Kruse, 67 N. J. Super. 348, ___, 170 A.2d 488, 493 cert. denied 36 N.J. 32, 174 A.2d 658 (1961) (intent to sell
large plot may not be taken as manifestation of intent to sell smaller-
included parcel subject to option); Chapman v. Mutual Life Insurance Company
of New York, 800 P.2d 1147, 1150-51 (Wyo. 1990) (same).  Thus, the case is
remanded for determination of (a) whether the options were triggered and (b)
the appropriate remedy in light of our conclusion that the repurchase
options are valid.
     Reversed and remanded for proceedings consistent with this opinion.

                                        FOR THE COURT:


                                        ____________________________________
                                        Associate Justice



FN1.   27 V.S.A. { 501 states as follows:
               Any interest in real or personal property which
          would violate the rule against perpetuities shall be
          reformed, within the limits of that rule, to
          approximate most closely the intention of the creator of
          the interest.  In determining whether an interest would
          violate said rule and in reforming an interest the
          period of perpetuities shall be measured by actual
          rather than possible events.
     Appellants called the court's attention to this statute both in a trial
memorandum and in their motion to alter or amend judgment.

FN2.    Restatement of the Law of Property, { 406 (American Law Institute,
1944), states in relevant part:
               [A] restraint on the alienation of a legal
          possessory estate in fee simple which is, or but for the
          restraint would be, indefeasible is valid if, and only
          if,
               (a) the restraint is a promissory restraint or
               a forfeiture restraint, and
               (b) the restraint is qualified so as to permit
               alienation to some though not all possible
               alienees, and
               (c) the restraint is reasonable under the
               circumstances, and
               (d) if the restraint is a forfeiture
               restraint, the requirements of the rule
               against perpetuities are satisfied.