Morrison v. Piper

• Court: New York Court of Appeals Court of Appeals
• Writing for the Court: HANCOCK; WACHTLER
• Citation: Morrison v. Piper, 77 N.Y.2d 165, 565 N.Y.S.2d 444, 566 N.E.2d 643 (N.Y. 1990)
• Decision Date: 27 December 1990
• Parties: , 566 N.E.2d 643 Robert C. MORRISON, Appellant, v. Roger H. PIPER et al., Respondents.

Page 444

565 N.Y.S.2d 444

77 N.Y.2d 165, 566 N.E.2d 643

Robert C. MORRISON, Appellant, v. Roger H. PIPER et al., Respondents.

Court of Appeals of New York.

Dec. 27, 1990.

[77 N.Y.2d 166] [566 N.E.2d 644] Jeffrey J. Sherrin, Albany, for appellant.

[77 N.Y.2d 167] Mark A. Lebowitz, Glens Falls, for Roger H. Piper et al., respondents.

Edward S. Stewart, North Creek, for Mary T. Owens et al., respondents.

OPINION OF THE COURT

HANCOCK, Judge.

Two issues are presented on this appeal from an order of the Appellate Division dismissing plaintiff's claims seeking to enforce a right of first refusal: (1) whether New York's rule against remote vesting (EPTL 9-1.1 [b] is applicable to the type of first refusal right involved here: one created in a deed conveying noncommercial, residential property between private parties; and (2) if so, whether the specific provision at issue violates the rule. We agree with the Appellate Division that the rule was intended to apply in a transaction of the type before us. Contrary to the holding below, however, we conclude that the particular first refusal right here does not contravene the rule. Accordingly, we reverse the order of the Appellate Division. 160 A.D.2d 1066, 553 N.Y.S.2d 548.

In 1977, Lilian T. Maier conveyed a 2.3-acre parcel of residential land to her nephew, plaintiff Robert C. Morrison. Maier retained the contiguous 30-acre parcel. The parcels were part of 38 acres of lakefront property on Balfour Lake which had been family owned since 1904. The deed created mutual rights of first refusal to purchase ("preemptive rights") as follows:

"The party of the first part [Maier] and the party of the second part [Morrison] agree and covenant that during their life each shall have a right of first refusal to purchase the property conveyed and the property retained, respectively. The party of the first part shall have the right to meet, within sixty (60) days, any bona fide offer for the purchase of all or any part of the land herein conveyed and purchase the same. This right of first refusal is intended to bind the party of the second part, his heirs and assigns only during the life of Lilian Teresa Maier the party of the first part and those persons who directly take as a result of a gift by her or by her death. This right shall continue until the property is either conveyed or assigned by the donees or beneficiaries or until their death, whichever occurs first. The party of the second part shall have the right to meet, within sixty (60) days, any bona fide offer for the purchase of all or any part of the land retained and purchase the same. This right of refusal is intended to bind the party of the first part, her heirs and assigns, only during the life of Robert C. Morrison, the party of the second part and those persons who directly take as a result of a gift by him or by his death. This right shall continue until the property is either conveyed or assigned by the donees or beneficiaries or until their death, whichever occurs first." (Emphasis supplied.)

In 1979, Maier died, leaving the retained property to her sisters Elizabeth C. Brassel and defendants Mary T. Owens and Helen C. Whelehan as tenants in common. In 1984, the three sisters divided the property by partition. Each of the deeds effectuating the partition--signed by the sisters and Morrison--contained the following recognition of Morrison's first refusal rights:

"The above described parcel is subject to a 'right of first refusal' as set forth in the deed given by Lilian Teresa Maier to Robert C. Morrison * * *. Said deed is referred to for a more complete description of this right of first refusal.

"Robert C. Morrison hereby executed and acknowledged this deed for the purpose of consenting to this conveyance."

In 1987, defendants Owens and Whelehan received an offer from defendants Roger and Drusilla Piper to purchase their part of the retained property. Morrison was not given the opportunity to exercise a preemptive right, and in March 1988 title to both parcels was transferred to the Pipers. Thereafter, in July 1988, plaintiff commenced this action seeking to enforce his right. Supreme Court denied his summary judgment motion on the ground that it was unclear whether, in 1984, plaintiff's consent to the partition operated to terminate his right of first refusal. Supreme Court, however, went on to hold that the preemptive right violated the statute (EPTL 9-1.1[b]. Upon plaintiff's appeal, the Appellate Division modified, on the law, by granting summary judgment in favor of defendants, agreeing with Supreme Court that the first refusal right was invalid because it contravened the rule against remote vesting. This Court granted leave and we now reverse.

II

We agree with the Appellate Division that the rule against remote vesting generally applies to a first refusal right of the type in question here. This Court has recognized that the broad prohibition against remote vesting contained in the 1965 enactment of the rule (Real Property Law § 43 [L.1965, ch. 670, § 1], now EPTL 9-1.1[b] covers independent options to purchase real property (see, Buffalo Seminary v. McCarthy, 86 A.D.2d 435, 440-443, 451 N.Y.S.2d 457, affd. for reasons stated in parts I and II of opn. at App.Div. [Hancock, Jr., J.] 58 N.Y.2d 867, 460 N.Y.S.2d 528, 447 N.E.2d 76). It is true that an option is different from a right of first refusal. Unlike a typical option to purchase property, a right of first refusal or a preemptive right does not, at the time it is given, include an operative offer. The right of first refusal involves a future offer to be made if and when the owner decides to sell to a third party at an agreed price (see, LIN Broadcasting Corp. v. Metromedia, Inc., 74 N.Y.2d 54, 60-61, 544 N.Y.S.2d 316, 542 N.E.2d 629).

But, notwithstanding these distinctions, the holder of a right of first refusal, like the holder of any option, has an interest in land which is to vest, if at all, sometime in the future (see, Metropolitan Transp. Auth. v. Bruken Realty Corp., 67 N.Y.2d 156, 164-166, 501 N.Y.S.2d 306, 492 N.E.2d 379). Indeed, the right of first refusal effectively ripens into an option upon the happening of a contingency: the decision of the obligated party to accept a third-party's offer for the property. There is no analytical or logical reason, therefore, why first refusal options or preemptive rights--any less than ordinary options--cannot result in the vesting of interests beyond the permissible period; indeed, we have noted that preemptive rights are ordinarily covered by the rule against remote vesting (see, Metropolitan Transp. Auth. v. Bruken Realty Corp., supra, at 164-165, 501 N.Y.S.2d 306, 492 N.E.2d 379; see, e.g., Witt v. Disque, 79 A.D.2d 419, 424, 436 N.Y.S.2d 890; see generally, Annotation, Pre-emptive Rights to Realty as Violation of Rule Against Perpetuities or Rule Concerning Restraints on Alienation, 40 A.L.R.3d 920, 939-948).

In Bruken, however, the Court held that there are some situations where the application of EPTL 9-1.1(b) to preemptive rights would not serve the purpose of the statute and could not have been contemplated. In that case, we held that the statutory prohibition was not intended to apply to preemptive rights in a "commercial and governmental transaction" where giving effect to the rights would serve the public interest (id., at 168, 501 N.Y.S.2d 306, 492 N.E.2d 379). Bruken concerned a preemptive right covering certain freight yard property granted by the Metropolitan Transportation Authority to a national transportation corporation which already owned the air rights over the property. In holding that the rule against remote vesting did not apply, we observed that neither "lives in being" nor "twenty-one years" were time periods having relevance to commercial preemptive rights involving parties other than individuals (id., at 166, 501 N.Y.S.2d 306, 492 N.E.2d 379). With respect to the provision at issue, we noted that the maximum productive use of the property could be permitted by reuniting the air and ground rights (id.) and that the transaction was a matter of public knowledge between a governmental authority and a transportation corporation, not between "private citizens whose interest[s] might never be discovered with the passage of time" (id., at 167, 501 N.Y.S.2d 306, 492 N.E.2d 379).

Plaintiff Morrison urges the Court to apply the limited Bruken exception here, arguing that preemptive rights affect the rule against remote vesting "only marginally". But plaintiff identifies no ground for extending the Bruken exception to private, noncommercial transactions between individuals in which there is no governmental or public interest. Where the parties to the transactions are individuals the time limitations on vesting in EPTL 9-1.1(b)--i.e., "twenty-one years" and "lives in being"--have obvious relevance and no reason is suggested why they should not be fully applicable. To hold that the Bruken exception extends to the type of first refusal option employed in this residential transaction would transform the exception into the rule (see generally, Berg, Long-Term Options and the Rule Against Perpetuities, 37 Cal.L.Rev. 1, 21-22; Leach, Perpetuities in a Nutshell, 51 Harv.L.Rev. 638, 660; Simes and Smith, Future Interests §§ 1201-1221, 1224, at 88-105, 159 [2d ed.1956].

III

We turn to the issue of whether the first refusal rights created in the deed in question violate the rule against remote vesting. We conclude that they do not. In determining whether a particular provision violates the rule we, of course, are bound by the special rule of construction which the Legislature has enacted to govern "with respect to any matter affecting the rule against perpetuities" (EPTL 9-1.3[a]. The statute directs that "[u]nless a contrary intention appears" (EPTL 9-1.3[a], "[i]t shall be presumed that the creator intended the estate to be valid" (EPTL 9-1.3[b] [emphasis added]; see,...