Libeau v. Fox

• Decision Date: 16 June 2005
• Docket Number: C.A. No. 2308.
• Citation: 880 A.2d 1049
• Parties: Vera Ann LIBEAU, Plaintiff, v. Janet Mary FOX, and Elena A. Vargas, Defendants.
• Court: Court of Chancery of Delaware

880 A.2d 1049

Vera Ann LIBEAU, Plaintiff, v. Janet Mary FOX, and Elena A. Vargas, Defendants.

C.A. No. 2308.

Court of Chancery of Delaware, New Castle County.

Submitted: May 31, 2005.

Decided: June 16, 2005.

Dean A. Campbell, Esquire, Hudson Jones Jaywork & Fisher, LLC, Georgetown, Delaware, Attorney for Plaintiff.

Mary Robin Schrider-Fox, Esquire, Tunnell & Raysor, P.A., Georgetown, Delaware, Attorney for Defendants.

OPINION

STRINE, Vice Chancellor.

I. Introduction

This dispute involves a falling out among three friends over their jointly owned beach house. The plaintiff, Vera A. Libeau, and the defendants, Janet M. Fox and Elena A. Vargas, purchased a property in Bethany Beach (the "Beach House"), in December 1986. Over the years, the Beach House's value has increased dramatically and Libeau now wishes to extract her pro rata share of that value by selling the Beach House, or her share in it. Fox and Vargas wish to retain the Beach House for their own enjoyment, realizing that they would likely be unable to replicate, at today's prices, the ability to spend time at the beach they secured through their investment with Libeau nearly twenty years ago.

The plaintiff and the defendants—whom I will define collectively as the Housemates—had anticipated that their mutual desire to use the Beach House as a summer retreat might someday erode, and that one or more of them might want to sell. To address this eventuality, the Housemates signed a contract (the "Agreement")¹ at the time they purchased that set forth the circumstances and conditions under which one or more of them could cause a sale of an interest in the Beach House or force the sale of the entire Beach House. Having lived with the Agreement since 1986, Libeau now seeks to avoid her obligations under it in order to more profitably cash in on her share of the Beach House's appreciated value. Libeau relies on two separate arguments to achieve that end.

Initially, Libeau claims that the Agreement, although it contains very specific and clear language limiting the ability of any one of the Housemates to sell her individual interest in the Beach House, does not constitute an effective, knowing waiver of the statutory right of partition. Therefore, she seeks to have this court order a partition sale of the Beach House, overriding the clear intention and terms of the Agreement.

In this opinion, I conclude that the Agreement's plain terms, which Libeau clearly understood, are flatly inconsistent with a claim for partition. Libeau knew when she signed the Agreement that she was giving up any right to force a sale of the Beach House unilaterally. Therefore, Libeau's demand for partition is a plea for her to be permitted to dishonor her long-standing contract with her Housemates. Under Delaware law, a contract may validly waive the right to seek partition; the Agreement is such a contract and Libeau is bound by it.

Second, Libeau claims that the Agreement constitutes an unreasonable, enduring restriction on the free alienation of land (i.e., the Beach House) and therefore is invalid under Delaware common law. As she interprets our common law, any contract that would inhibit a co-owner of residential property from exiting, at any time, on terms that allow her to sell to a party who could then immediately force a partition sale, is unreasonable. The unreasonableness supposedly stems from the co-owner's inability to promise any buyer that he will, through the threatened or actual exercise of partition rights immediately after purchase, be able to force a sale of the entire property, and monetize his pro rata share of the entire property's value. Because, by the Agreement's terms, any buyer of Libeau's interest would have to share the Beach House with Fox and Vargas, so long as that was Fox's and Vargas's joint wish, Libeau claims she is being unreasonably restricted from selling her interest in the Beach House for a pro rata share of the price the Beach House would sell for if it was sold in its entirety.

For reasons I explain, I largely reject Libeau's contention that the Agreement unreasonably restricts the alienability of land. Although the Housemates drafted the Agreement without legal assistance, it provides a rational exit mechanism for any single Housemate who desires to sell her interest. That exit is specifically designed—as Libeau knew and agreed—not to permit any single Housemate to disturb the others' continued right to enjoy the Beach House, but it does provide a Housemate who wishes to exit a reasonable and viable option to obtain cash liquidity. The mere fact that the exit is not equivalent to partition does not mean it is unreasonable. Nothing in Delaware public policy regarding the use of land renders unreasonable the clear objective of the Agreement—to permit three middle-class working professionals without great means to secure a seaside haven that each could use throughout her lifetime, so long as two of them continued to share that objective. Rather, what would be inconsistent with Delaware public policy would be to permit Libeau to flout her long-standing contractual obligations to her Housemates, thereby divesting them of the benefits of their Agreement and endangering their ability to enjoy the Beach House during their retirement.

In one comparatively minor respect, however, I conclude that the Agreement should be reformed. Although the Agreement's terms are reasonable during the lifetimes of the three Housemates, they are, as written, potentially perpetual. That potential is a modest one because it is more likely that, through intervening circumstances, the Agreement will expire. Nonetheless, the contract itself does not foreclose the continuation of the restrictions for generations. In this sense, even the defendants recognize that the Agreement might usefully be reformed. To address this unreasonable feature of the Agreement, I use my equitable powers to craft a fixed end date for the Agreement, protecting the Housemates' interest in continued use of the Beach House during their lifetimes, but phasing out the restrictions on alienation when all of the Housemates have died or sold their interests. This mild reworking avoids any unreasonably enduring restraint on alienation while retaining, as far as practicable, the contractual rights of the parties.

II. Factual Background²

The Housemates have known each other for a long time. Libeau first met Fox through a mutual friend approximately thirty years ago. In 1980, Libeau, Fox and Vargas began renting a beach house jointly with ten other people. That rental arrangement lasted through 1986. When it ended, several of the renters looked for a house to purchase jointly. By the time the Beach House was found, only Libeau, Fox, and Vargas were left in the search. On December 29, 1986 they jointly purchased the Beach House, which is located at Lot No. 7, Admiral Road, Tower Shores, North Bethany Beach, Delaware, each as a one-third owner. The purchase price was $162,500, and each of the Housemates contributed $13,000 towards the purchase, with the rest of the price coming from a mortgage loan.³

The Housemates' purpose for buying the Beach House was not to make a financial investment. Rather, they desired—as three working professionals earning the solid but hardly extravagant wages paid to civil servants who perform skilled jobs for the federal government in the nation's capital—to pool their funds and purchase a home that each could use as a vacation and weekend haven. To the extent that their objectives were in any way financial, it was only in the instrumental sense that by joining together, the Housemates could make possible an end that they, as individuals, could not secure.

Because the Housemates desired to acquire the Beach House for personal use, they crafted the Agreement to set forth and protect that expectation. The Agreement was not drafted by a lawyer but it reflects the fact that the Housemates were educated professionals who could capture complex thoughts in English sentences. As important, the Agreement reflects that the Housemates were close, personal friends who were not seeking to profit at the expense of one another. None of the Housemates, then or now, was married or had children. For that reason, the Housemates had more personal freedom to order their financial affairs in that they could be less concerned about leaving their share of any investment in the Beach House to a close relative who might expect (rightly or wrongly) to be an object of their testamentary beneficence.

Consistent with their objectives and close friendship, the Housemates decided, after discussion, to take possession of the Beach House as joint tenants with rights of survivorship. This form of ownership is both recorded in the deed⁴ and recited in the Agreement,⁵ and reflected their intention that no Housemates' relations or heirs would be entitled to force the remaining two out in the event of someone's death. Rather, if one of the Housemates died, the Beach House would continue to benefit and be used by the survivors. All the Housemates voluntarily and knowingly accepted this decision and signed both the deed and the Agreement that reflected this choice.⁶ The inclusion of this provision makes clear that the Housemates' primary objective was enjoying the use of the Beach House.

Likewise, the Housemates crafted provisions to address the possibility that one or more of them might, at a later time, desire to sell her interest in the Beach House. Fox drafted the Agreement, with input from both Vargas and Libeau, largely to address this concern. The design of those provisions was also consistent with the Housemates' goal of purchasing the Beach House as a haven that could be used during their lifetimes, but balanced that objective against the pragmatic fact that if one or two of the original Housemates wanted to get out, a mechanism was needed to provide that exit. The Agreement respects...