LaFond v. Rumler, Docket No. 194797

• Decision Date: 18 November 1997
• Docket Number: Docket No. 194797
• Parties: Lorraine LaFOND, Plaintiff-Appellee, v. James J. RUMLER, d/b/a Rumler-Chapparel Enterprises, Inc., LC Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 40

574 N.W.2d 40

226 Mich.App. 447

Lorraine LaFOND, Plaintiff-Appellee, v. James J. RUMLER, d/b/a Rumler-Chapparel Enterprises, Inc., LC Defendant-Appellant.

Docket No. 194797.

Court of Appeals of Michigan.

Submitted Sept. 9, 1997, at Grand Rapids.

Decided Nov. 18, 1997, at 9:15 a.m.

Released for Publication Feb. 10, 1998.

Jacobs & Engle, P.C. by Jerry M. Engle, Jackson, for plaintiff-appellee.

Richard D. Zaharie, Jackson, for defendant-appellant.

Before RICHARD ALLEN GRIFFIN, P.J., and WAHLS and GRIBBS, JJ.

RICHARD ALLEN GRIFFIN, Presiding Judge.

Defendant appeals as of right the trial court's order declaring that an addendum to a land contract was void because it constituted an unenforceable restraint on the right of alienation. We affirm.

I

Defendant agreed to sell to plaintiff, by means of a land contract, a parcel of property for $60,000. During negotiations over the terms of the contract, a third party offered to purchase the property for $80,000. However, defendant had an immediate need for the $20,000 down payment offered by plaintiff. Consequently, defendant and plaintiff agreed that plaintiff would purchase the property for $60,000, offering a $20,000 down payment and monthly installments of $400 on the $40,000 balance. Plaintiff agreed that she would then immediately resell the property to the third party for $80,000 and share the profit with defendant. This arrangement was set forth in a land contract and attached addendum, the latter being the subject of this appeal. The addendum, signed by both plaintiff and defendant, provides as follows:

In the event that this property is sold, bartered, transferred or otherwise disposed of, by the vendee within 15 years from the date of this land contract, it is agreed by the parties hereto that any sale over the amount of $60,000.00 plus taxes that are due on 1 December 1993, shall be divided equally between the vendor and vendee of this land contract.

Sale price will not be arbitrary. Purchaser [sic] must get written permission from sellers or their agent before accepting any offer. Sellers [sic] reserves the right to reject any offer in its entirety, subsequent dispute(s) will be settled by, (1) each party hires a licensed appraiser, costs are to be paid by respective parties; (2) each party submits an appraisal to the other party; (3) if an agreement cannot be reached, the appraisers select a third independent appraiser, costs are to be split equally between sellers and purchasers for the costs of the third independent appraiser; (4) the third appraiser shall settle all disputed issues; (5) all decisions of disputed issues shall be binding on all parties; (6) both parties realize that time is of essence, therefore, each party shall hire an appraiser within five (5) working days and each party shall instruct their individual appraisee [sic] to expedite its appraisal submittal; (7) each appraiser shall submit their appraisal simultaneously to sellers and purchaser.

As an example, if the property should be sold for $100K, the vendor and vendee would equally divide $30,000 or the excess of the $60K plus taxes stated above. This amendment shall be binding on any assignees or beneficiaries of the vendee.

After the land contract and addendum between plaintiff and defendant was signed, plaintiff attempted to sell the property to the third party. The third party indicated that it would purchase the property for $80,000 by means of a land contract. This mode of purchase was unacceptable to defendant because he wanted full payment in cash for the property. As a result, the subsequent resale never transpired.

Plaintiff filed a complaint seeking to eliminate the addendum to the land contract or, in the alternative, set aside the entire land contract. Plaintiff contended that the addendum constituted an unreasonable interference with plaintiff's right to use and enjoy the property. After a hearing on the matter, the trial court held that the addendum was part of the contract and that plaintiff knowingly entered into the agreement. However, although the addendum did not restrict plaintiff's right to sell the property, the court found that it unduly restricted her right to sell the property at her chosen price and therefore was an unreasonable restraint on alienation.

When reviewing equitable actions, this Court employs review de novo of the decision and review for clear error of the findings of fact in support of the equitable decision rendered. Webb v. Smith (After Remand), 204 Mich.App. 564, 516 N.W.2d 124 (1994). A trial court's findings are considered clearly erroneous where this Court is left with a definite and firm conviction that a mistake has been made. Id.

II

Michigan follows the common-law rule against unreasonable restraints on alienation of property. Braun v. Klug, 335 Mich. 691, 695, 57 N.W.2d 299 (1953); Moffit v. Sederlund, 145 Mich.App. 1, 12-13, 378 N.W.2d 491 (1985). A restraint on alienation of property is defined as an attempt by an otherwise effective conveyance or contract to cause a later conveyance (1) to be void (disabling restraint), (2) to impose a contractual liability upon the conveyance for conveying in breach of the agreement not to convey (promissory restraint), or (3) to terminate all or part of a conveyed property interest (forfeiture restraint). Stenke v. Masland Development Co., Inc., 152 Mich.App. 562, 567, 394 N.W.2d 418 (1986); Nichols v. Ann Arbor Federal Savings & Loan Ass'n, 73 Mich.App. 163, 165, 250 N.W.2d 804 (1977).

An important distinction exists between restraints imposed on the transfer of property held in fee simple and restraints on the conveyance or assignment of an interest in a land contract. In Sloman v. Cutler, 258 Mich. 372, 374-376, 242 N.W. 735 (1932), the Court considered whether a land contract provision against assignment by the purchaser without the written consent of the vendor was void as a restraint on alienation. The Court explained:

If one's interest in property is absolute, as a fee simple, restriction on his right of alienation is void as repugnant to the grant. This is because violation of the restriction affects no interest but his own.... Where the grantor retains an interest in the property granted, such as a reversionary interest to him as lessor, the interest generally will support the imposing of a restriction on alienation.

The interest remaining in a vendor in a land contract is not a reversion, but it is an important interest, commonly the greater interest and near the value of the property, and his imposing such restriction is sustainable as within his right to preserve his security under the contract....

* * * * * *

While the contract remains executory and the vendor has interest in preserving his security, the validity of the restriction as against the vendor is sustained by the great weight of authority, and in justice it ought to be sustained. [Id. (citations omitted).]

Cf. Jankowski v. Jankowski, 311 Mich. 340, 18 N.W.2d 848 (1945).

The Restatement, Property, § 416, p. 2448 (1944), likewise provides that

[a] promissory restraint or forfeiture restraint on alienation imposed by a vendor on the interest of a vendee under a contract for the sale of an interest in land is valid until the vendee shall have become entitled to receive a deed, unless the restraint violates the rule against perpetuities. [ ¹]

After Sloman, supra, the few cases dealing with the issue of restraints on alienation in land contract provisions have taken a more measured approach and have focused on the reasonableness of the restriction at issue. ² In Pellerito v. Weber, 22 Mich.App. 242, 177 N.W.2d 236 (1970), the Court considered the viability of a clause in a land contract that provided for forfeiture in the event of conveyance by the vendee without the written consent of the vendor. Questioning the broadness of the rule set forth in Sloman, supra, ³ the Court stated:

Restraints on alienation of property are strongly disfavored in Michigan.... Where they are permitted, they are strictly construed to prevent a forfeiture.... Here plaintiffs [vendors] have not made any allegations of waste or impairment or loss of security. They continue to enjoy the benefit of their 1953 contract. See Jankowski v. Jankowski [311 Mich. 340, 18 N.W.2d 848 (1945) ]. Under the facts of this case we will not require a forfeiture; to do so would be to impose an unreasonable restraint on the alienation of an equitable interest in real property. [Pellerito, supra at 245, 177 N.W.2d 236 (citations omitted).]

A similar forfeiture clause was considered in Lemon v. Nicolai, 33 Mich.App. 646, 648-649, 190 N.W.2d 549 (1971). The Court, following the lead of Pellerito, supra, held:

Defendants claim that the provision prohibiting the assignment of the land contract without plaintiffs' consent, coupled with plaintiffs' refusal to consider whether any change in their risk under the contract has occurred, operates in this instance as an unreasonable restraint on the alienation of property.... Defendants further ask that the plaintiffs be held, at a minimum, to the reasonable duty of considering whether or not the assignment has had any adverse effect on their rights under the contract.

* * * * * *

In the instant action, as in Pellerito, supra, plaintiffs make no allegations as to the possibilities of waste or impairment of [sic] loss of security. Assignees have indicated that they are in a position to continue to provide the benefit under the 1967 contract which plaintiffs bargained for, i.e., $80 or more per month.

Accordingly, we reverse the decision of the lower court and remand for a determination as to whether or not the contested assignment has resulted in "waste or impairment or loss of security" to plaintiffs, as required in Pellerito, supra. [Lemon, supra at 648-649, 190 N.W.2d 549.]

Cf. Moffit v. Sederlund, supra at 12-13, 378 N.W.2d 491. ⁴

The cases cited recognize the basic premise of the...