Facts
- L.C. Jacobson and Resorco, Inc. held interests in land in the Pinetop Lakes subdivision in Arizona and retained surrounding acreage after the transaction at issue.
- In 1980, acting through a trustee, Jacobson and Resorco sold approximately fifteen acres in the subdivision to Robert V. Kerley.
- The deal was memorialized in two separate but related documents: an Agreement of Sale and an Architectural Planning and Consulting Agreement.
- The Agreement of Sale described its purpose as the purchase and sale of the fifteen-acre parcel “together with assurances for its development and resale.”
- The Agreement of Sale set a total price of 26,000 per acre). Kerley paid $40,000 at execution, with the remaining balance payable in increments as portions of the property were selected and conveyed to him.
- The Agreement of Sale recited that part of the consideration was Kerley’s undertaking to develop, improve, and resell the property, which would increase the value of the surrounding land still held by Jacobson and Resorco.
- Under the Architectural Planning and Consulting Agreement, before Kerley could sell any portion of the property, he was required to prepare an architectural plan and obtain approval from Jacobson.
- The consulting agreement also required Kerley to pay Resorco 10% of the sales price for each improved portion of the property that Kerley sold.
- The consulting agreement granted Resorco a right to buy back all land that had not been developed by 1988.
- Kerley later sued Jacobson, Resorco, and Nu-West, Inc. (Resorco’s successor in interest), seeking rescission and cancellation of the agreements on the grounds that the arrangement imposed an unreasonable restraint on alienation and violated the rule against perpetuities.
- The trial court granted summary judgment against Kerley, and he appealed.
Issues
- Did the sale and related consulting/plan-approval provisions constitute an unreasonable restraint on alienation, rendering the agreements void?
- Did any rights created by the agreements (including the 1988 repurchase right and the resale-payment provision) violate the rule against perpetuities?
Decision
- The Court of Appeals of Arizona affirmed summary judgment for Nu-West and Jacobson.
- The court held that the interrelated agreements were valid and did not impose an unreasonable restraint on alienation.
- The court held that the agreements did not violate the rule against perpetuities.
Legal Principles
- A contractual limitation connected to development and resale of land is not void per se as a restraint on alienation; the restraint is evaluated for reasonableness in light of the transaction’s purpose and operation.
- Provisions requiring architectural planning and approval before resale can be enforceable when they function as development controls tied to the parties’ bargain, rather than as devices meant to block transfer.
- A resale-payment provision (such as a requirement to pay a percentage of the sales price upon resale of improved parcels) may be enforced as part of the negotiated consideration in a commercial land transaction and is not automatically an invalid penalty on transfer.
- A repurchase right that is limited to a definite termination date (here, 1988) is less likely to be treated as an impermissible restraint because it is time-bounded and connected to a defined development timetable.
- The rule against perpetuities targets remote vesting of contingent property interests; time-limited commercial rights and contractual payment obligations tied to contemplated development and resale do not necessarily create future interests that vest outside the perpetuities period.
Conclusion
Kerley’s purchase of fifteen acres in Pinetop Lakes was conditioned on coordinated development terms: plan preparation and Jacobson’s approval before resale, a 10% payment to Resorco upon resale of improved portions, and a right for Resorco (later Nu-West) to buy back undeveloped land by 1988. The Arizona Court of Appeals upheld the agreements, concluding they were commercially reasonable development-and-resale arrangements rather than unlawful restraints on alienation, and that their time-limited and contractual features did not offend the rule against perpetuities.