Condition Subsequent; Undue Restraint Upon Right of Alienation

Subject:

Requested By: Lucas, Rand, Rose, Meyer, Jones and Orcutt Attorneys for the Wilson County Board of Education

Questions: (1)

Whether the language contained in a deed to the Wilson County Board of Education (as it appears below), restricting the use of land for school purposes and giving to the grantor, his heirs or assigns the right to repurchase at a set price if said condition is breached, constitutes a condition subsequent??

(2)

Whether said language, by attempting to vest a right to repurchase the subject property in the grantor, his heirs or assigns at a set price if the land is no longer used for school purposes, constitutes an undue restraint upon the right of alienation?

(3)

Whether the heirs or assigns of the grantor may assert a valid contract to repurchase or may the School Board, if it chooses to dispose of the property, follow the public auction procedures of

N.C.G.S. 115-126?

Conclusions: (1)

No.

(2)

Yes.

(3)

The School Board may follow the public auction procedures of N.C.G.S. 115-126 if it should choose to dispose of the property.

The following facts have been provided: On 20 April, 1922, "H" and his wife, "W", did convey by warranty deed approximately five acres of land to Wilson County Board of Education. The consideration recited in the deed was $750. The following language appears in the deed after the metes and bounds description:

"It is agreed by the County Board of Education that if this site is ever abandoned for school purposes that the site shall be offered for sale first to (the grantor) or his heirs or assigns at the purchase price herein named; then in case said (grantor) or his heirs or assigns do not care to purchase this school site at the price above named, then the County Board of Education may sell the same to any other person or persons at such price as they may consider reasonable and just."

As to the Conclusion (1), the North Carolina courts have held that despite the other language used in an instrument, a condition subsequent is not created unless the grantor expressly reserves the right to re-enter, or provides for a forfeiture or for a revision, or that the instrument shall be null and void. First Presbyterian Church v. Sinclair Refining Company, 200 NC 469 (1931); Lassiter v. Jones, 215 NC 198 (1939). The clause in question here fails to reserve any of these rights in the grantor, his heirs or assigns. It instead attempts to reserve an option to repurchase the land upon the discontinued use of the land for school purposes and at the price of $750. Thus, it would seem that technically such a clause falls short of creating a fee simple or condition subsequent. As is pointed out in Webster, Real Estate Law in North Carolina, § 345, p. 434 (1971) "(very) clear language of condition, indicating that title is subject to revert upon the occurrence of a specified event, must be used. While express language of reverter is not required, anything less may cause the court to construe the language to create simply a covenant, charge or trust, or to be mere surplusage".

As to Conclusion (2), the general rule seems to be that there is a policy in favor of the free alienation of land. As a result, any provision in a conveyance which unduly restricts the right of transfer of the title in any way has been held to be void. Webster, Real Estate Law in North Carolina, § 346(f)(2) (1971).

The North Carolina court was faced with a similar fact situation in the case of Hardy v. Galloway, 111 NC 519 (1892). There the deed that was conveyed provided that upon a decision by the grantee to sell, the grantor would have the first change to repurchase. There was no reservation as to the exact time for the performance of the provision or for the price that was to be paid. The court held that the restriction to reconvey to the grantor upon a decision to sell the property not only was void for uncertainty in fixing no price for the repurchase and no time for the performance of the provision, but also as an unlawful restraint upon alienation. The Court stated that:

"(the) restriction is certainly inconsistent with the ownership of the fee as well, it would seem, as against public policy . . . In other words, we have an estate in fee without the power to dispose of or encumber it, unless first offering it for no definite price to the grantors, their heirs and assigns. The condition is repugnant to the grant, and therefore void." 111 NC at 524.

The principle of Hardy v. Galloway was reaffirmed by the Court of Appeals in Jenkins v. Coombs, 21 NC App. 683 (1974).

The first situation here is similar to the Hardy case in that there is no definite time set for the performance of the option to repurchase. Although there is a set price, there is precedent that a fixed price set below the present fair-market value is also an undue restraint on the fee simple estate and should be held void. Simes, The Law of Future Interest, § 114 (2d Ed. 1966).

Since there is no condition subsequent created by the language in question (as is discussed under Conclusion (1)), the opinion of this Office is that the attempt to create an option to repurchase the property in the grantor, his heirs or assigns at a set price upon the condition that the land is no longer used for estate granted. Not only is there no time set that such an option will remain open but also there is a set price that would fall substantially below the present fair-market value of the land.

As to Conclusion (3), it would be suggested that the grantor’s heirs or assigns be notified as to any actions taken by the School Board, but it would be the opinion of this Office that there is no obligation encumbent upon the Wilson County School Board to offer the land in question to the grantor’s heirs or assigns should the School Board decide to no longer use said land for school purposes (for the above stated reasons). The School Board may proceed to dispose of the property if it so chooses by the normal public auction procedures of North Carolina General Statute 115-126.

Rufus L. Edmisten Attorney General

T. Buie Costen Special Deputy Attorney General