As applied to an option agreement, the rule against perpetuities requires that the option must be exercised, if at all, within the period fixed by the rule. If there exists at the time the agreement is entered into a possibility that exercise of the option might be postponed beyond the prescribed period, the agreement is invalid because it is in violation of the rule.
The land option agreement granted appellee optionee the right and option to purchase land owned by the deceased. The agreement specified that the option period was to begin when the city acquired the rights-of-way of proposed highways. Appellee optionee later assigned its rights to the appellee assignee. Appellant bank, as the executor and trustee under the last will and testament of the deceased, contended that the agreement violated the rule against perpetuities, and appellee assignee insisted that it did not. Appellant brought an action against appellees seeking a declaration that the agreement entered into between the deceased and appellee optionee was void and unenforceable. Appellant appealed the trial court’s finding that the agreement was valid and enforceable. The state supreme court reversed the trial court's judgment and entered a final judgment declaring the agreement void.
Was the option agreement entered into by the deceased during his lifetime void and unenforceable on the ground that it was in violation of the rule against perpetuities?
The rule against perpetuities applied to option contracts. It was clear that the parties intended that the appellee optionee would exercise the option, if at all, only upon occurrence of the specific contingency set up in the agreement, which was the acquisition of the rights-of-way. It was equally clear that on the date the agreement was executed, there existed the distinct possibility that the specified contingency would not occur until after expiration of a period of 21 years from the date of the agreement. Appellee assignee could not recover for breach of contract because the award of damages would compel performance of an invalid contract.