Daily Development for Friday, February 26, 2010
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
OPTIONS; RIGHTS OF FIRST REFUSAL; RULE AGAINST PERPETUITIES: A right of first refusal purporting to benefit heirs and successors and assigns of optionee and optionor is void due to the Rule Against Perpetuities.
Hensley-O]Neal v. Metropolitan Nat. Bank, 297 S.W. 3d 610 (Mo. App. S.D. 2009)
Once again, the RAP proves a trap for the unwary in a “quasi commercial” transaction. The optionee and optionor in the original agreement had the same last name, but the court gives no other information about their relationship. Four years after executing and recording the refusal right the optionor mortgaged the property, and two years later there was a private foreclosure through a trustee.. The Lender bid in what apparently was the whole debt, and thereafter the Trustee tendered the property to the holder of the first refusal right at the same price. She counteroffered a much lower number, which was refused.
Two years after that, the bank sold the property for a price close to its foreclosure bid, and the holder of the first refusal right demanded to exercise her right. The Bank, of course, took the position that she’d had one bite of the apple. We are not told why the holder of the refusal right felt otherwise. (Foreclosure sales have been held to trigger a right of refusal in other cases.)
When litigation commenced, however, the bank’s lawyers found an easy way to finesse any argument about the continued existence of the right. They noted that, since the right was stated to continue to bind successors, heirs and assigns into the future, it could be exercised by its terms beyond the period of a life in being plus 21 years and thus was void from the outset.
Court said: “That’s right.” Missouri has the common law RAP with some statutory adjustment for trusts with a power of sale, but the Rule clearly applies to commercial transactions.
Comment 1: The objectives of the parties in this case likely could easily have been realized through use of a “perpetuities savings clause,” but it is likely that the lawyers involved didn’t even understand the Rule, much less the clause. One wonders whether, if they held themselves out as competent to write up this deal, they should be viewed as liable for malpractice. What about their first year Property professor? (Since this case is out of Springfield - it might have been me.)
Comment 2: Many other states have statutes that limit the application of the Rule to family wealth transactions and eliminate its coverage for regular property deals. Is it a good idea to permit perpetual refusal options in any event?
Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters. The same is true of all
commentary provided by contributors to the DIRT
list. Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor or
individual contributors and are in no sense the
publication of the ABA.
Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 to 15 messages per work day.
DIRT Developments are posted periodically, as supply dictates.
To subscribe, send the message
subscribe Dirt [your name]
To cancel your subscription, send the message
signoff DIRT to the address:
for information on other commands, send the message
Help to the listserv address.
DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically upon
residential real estate matters. Because real estate brokers generally find
this service more valuable, it is named “BrokerDIRT.” But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list. If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:
DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, any substitute reporters, DIRT, and its sponsors.
All DIRT Developments, and scores of other cases, arranged topically, are reported in hardcopy form in the ABA Quarterly Report. This is a limited subscription service, available to ABA Section Members, ACMA members and members of the NAR. Qualified subscribers may Subscribe to this Report ($30 for Two Years) by Sending a Check to Ms. Bunny Lee, ABA Section on Real Property, Trust & Estate Law, 321 N. Clark Street, Chicago, Il 60610. Contact Bunny Lee at (312) 988-5651, Leeb@staff.abanet.org ABA members also can access prior and current editions of this report on the ABA RPTE section website.
DIRT has a WebPage at: