Must courts apply contract construction before the rule against perpetuities? Coulter & Smith v. Russell Explained

Background and Facts

In 1991, Coulter & Smith, Ltd. entered into a letter agreement with Dr. Roger Russell for joint development of their adjacent properties. The agreement granted Coulter an option to purchase Russell’s lots after completing initial development stages. The option was to terminate “2 years from the date of completion of the subdivision,” but no specific completion deadline was established. Development proceeded slowly due to disputed causes, and Russell eventually sought to sell to another buyer. When Russell’s property was annexed and zoned in September 1994, Coulter filed suit claiming breach of the option contract.

Key Legal Issues

The primary issues were whether the option violated the rule against perpetuities and whether adequate consideration supported the option. The district court granted summary judgment against Coulter on multiple grounds. The court of appeals reversed on consideration but invalidated the option under the rule against perpetuities because the agreement didn’t expressly require completion within the perpetuities period.

Court’s Analysis and Holding

The Utah Supreme Court established that courts must apply ordinary rules of contract construction before applying the rule against perpetuities. The Court reasoned that commercial parties expect contract construction principles to govern their agreements and rarely intend remote vesting prohibited by the rule. Applying these principles, the Court found that Coulter’s promise to “proceed posthaste” implied a reasonable time constraint for completion and option exercise. The Court affirmed that adequate consideration existed through Coulter’s promises to develop the property and enter into the accompanying work exchange agreement.

Practice Implications

This decision provides important guidance for commercial option drafting. While the Court didn’t exempt commercial transactions entirely from the rule against perpetuities, it emphasized that contract construction must precede perpetuities analysis. Practitioners should include express time limits in option agreements, but can rely on implied reasonable time constraints where the agreement demonstrates intent for timely performance. The decision also clarifies that consideration for options can be found in the entire dealing between parties, not just the specific option terms.