The Restriction Agreement Was Not an Illegal Restraint on Alienation
In re Estate of Virgil F. Hoppert
Opinion Published: June 29, 2023 (Swartzle, PJ, Cavanaugh & Letica, JJ)
Monroe County Probate Court
Jennifer Alberts of the Speaker Law Firm represented the Appellant
Holding: The Restriction Agreement, which established specific terms for the signing parties to exercise a purchase option at the other parties’ death, was not an illegal restraint on alienation because it was reasonable under the circumstances. The time to exercise the option was not unreasonable, the length of the agreement’s expiration date is not unreasonable, and the Restriction Agreement did not give rise to overly frequent options. Therefore, the trial court correctly concluded that the Restriction Agreement was not an illegal restraint on alienation.
However, the trial court did err in allowing Glen to exercise his purchase option. Glen failed to exercise his purchase option within the terms of the Restriction Agreement, and the trial court erred in allowing him to exercise his purchase option after his option expired. Therefore, the Trial Court affirmed in part, vacated in part, and remanded to the trial court.
Facts: In 1989, Normal and Edith Barkenquast owned 86 acres of real property in Ida Township used for farmland. On January 3, 1989, they quitclaimed the property to themselves to retain a life estate and to their daughters Kathleen and Linda as joint tenants. The Barkenquasts also granted their grandson, Petitioner Glen Hoppert, the option to purchase the fee title interest within nine months of their death. In 2001, Glen exchanged this option for a one-third interest in the property with Kathleen, his mother, and Linda, his aunt, for $80,000. Glen, Kathleen, and Linda also entered into a “Real Estate Restriction Agreement” to “restrict and restrain” all transfers “except as otherwise specifically provided and allowed by this Agreement.”
The Restriction Agreement provided that, upon the death of Glen, Kathleen, or Linda, the survivors would have the option to purchase the deceased party’s interest according to a specified timeline. If both surviving parties elected to exercise their option, they were required to serve notice in writing of their election to purchase the property on the decedent’s personal representative within 60 days. If the survivors, as a group, do not elect to exercise the option but one survivor does, that surviving party would have an additional 30 days to exercise the option. If no party wished to exercise the option, the decedent’s personal representative may transfer the property to any non-party. The Restriction Agreement also provided that, in the event a party received an offer to purchase their interest through a voluntary or involuntary transfer, the other parties had 30 days to elect to purchase that interest. The Restriction Agreement further bound persons who were not original parties by limiting their and their spouse’s, if any, entitlement to notice or a purchase option. According to its terms, the Restriction Agreement would terminate when Glen, Kathleen, or Linda are the sole surviving original party.
In 2016, Kathleen executed a quitclaim deed to transfer her one-third ownership to herself and her husband, Virgil Hoppert. Kathleen died in 2017, and neither Glen nor Linda offered to buy her interest. On June 15, 2018, Virgil executed a quitclaim deed to transfer his interest to his other son, Respondent Dale Hoppert. Virgil also executed his will on June 15, 2018, naming Dale as his personal representative and leaving the residuary to all five of his children. Virgil died on January 31, 2021.
Glen learned that Dale had an interest in the property in February 2021, two weeks after Virgil’s death. Dale petitioned for informal probate on April 13, 2021. Glen did not attempt to exercise his option until May 21, 2021, when he filed a petition to compel the sale of the property to himself. Glen asked the trial court to declare the property an asset of Virgil’s estate and that he be allowed to exercise his option to buy the property. Dale, personally and as personal representative, opposed Glen’s request, arguing that the Restriction Agreement was an illegal restraint on alienation and that Glen failed to exercise his option within 60 days of Kathleen’s or Virgil’s death, so his request should be denied. The trial court concluded that the Restriction Agreement was not an illegal restraint on alienation. The trial court also voided the 2016 transfer from Kathleen to herself and Virgil as contrary to the Restriction Agreement, so it gave two options: reopen Kathleen’s estate and give Glen 60 days to exercise his purchase option, or validate the 2016 transfer, vest the property interest in Virgil’s estate, and allow Glen 60 days to exercise his purchase option. Dale appealed.
Key Appellate Rulings:
The Restriction Agreement was not an illegal restraint on alienation because it was reasonable under the circumstances.
Generally, a restraint on alienation is an attempt to cause an otherwise valid conveyance to be void, to impose a contractual liability for breach of contract to not convey, or to terminate all of part of the conveyed property interest. The Court of Appeals discussed the historical treatment of restraints on alienation between the Michigan Supreme Court and the Court of Appeals. Dating back to the late 1800s in Mandlebaum v McDonell, 29 Mich 78 (1874), the Michigan Supreme Court took a “firm stance against restraints on alienation.” This strong policy against restraints on alienation continued into the 1900s in, for example, Braun v Klug, 335 Mich 691; 57 NW2d 299 (1953), where the Supreme Court invalidated a deed which “restricts the number of potential buyers.” Id. at 695. Despite staunch language against restraints on alienation, the Court of Appeals acknowledged that many cases have upheld restraints. Lantis v Cook, 342 Mich 347; 69 NW2d 849 (1955). Thus, the Court of Appeals acknowledged that, although Michigan’s caselaw “is not the model of clarity on the issue,” restraints on alienation are reviewed for reasonableness.
The Court of Appeals held the Restriction Agreement in this case was reasonable for several reasons. First, the time to exercise the option is capped at 90 days after the death of a party, which is not unreasonable given that the prospective buyer must decide whether to exercise their option and secure financing. Second, the length of the agreement’s expiration date is not unreasonable because Kathleen and Linda were presumptively old enough so that the Restriction Agreement would expire within a reasonable period. Third, the Restriction Agreement did not give rise to overly frequent options. Therefore, the Restriction Agreement was not an illegal restraint on alienation, and the Court of Appeals held the trial court properly granted summary disposition to Glen on that issue.
Glen failed to exercise his purchase option, and the trial court erred in allowing him to exercise his purchase option after his option expired.
An option is a contract by which the owner of the property agrees with another person that the other person shall have a right to buy the property, and substantial compliance with the terms of the option is not sufficient to constitute acceptance of the option. Under the terms of the Restriction Agreement, Glen was able to exercise his option or object to a transfer at (1) Kathleen’s transfer to herself and Virgil on December 21, 2016, (2) Kathleen’s death on February 26, 2017, (3) Virgil’s transfer to Dale on June 15, 2018, and (4) Virgil’s death on January 31, 2021. Thus, the latest possible date Glen could exercise his option or object was May 1, 2021 - 60 days after Virgil’s death. However, he did not service written notice on Dale until May 21, 2021. Thus, the Court of Appeals held Glen missed the deadline to exercise his option.
The Court of Appeals also held that Glen’s excuse for missing the deadline - that formal notice would be pointless because Dale would contest it - was unavailing. Notice is necessary to preserve rights, even if disputes and litigation will follow, so he cannot merely assert futility as an excuse for failing to comply with the Restriction Agreement. The Court of Appeals also held the trial court’s remedy to allow Glen a new set of 60 days was also improper because restraints are viewed in light of reasonableness, and a new set of days to exercise the option would “remove[] the clear line and render[] nebulous the amount of time that an interest holder under the agreement might assert an option.” Therefore, because the Court of Appeals held Glen failed to exercise his option, the Court of Appeals also concluded the trial court erred in allowing him a fifth opportunity to exercise his option.
