New York Law Review

Tag: Rule Against Perpetuities

  • Wildenstein & Co. v. Wallis, 79 N.Y.2d 642 (1992): Rule Against Perpetuities in Commercial Art Transactions

    Wildenstein & Co. v. Wallis, 79 N.Y.2d 642 (1992)

    The Rule Against Perpetuities does not apply to preemptive rights and exclusive consignment rights in commercial art transactions where such rights facilitate broader marketing and pose only a minimal limitation on alienability.

    Summary

    Wildenstein & Co., an art dealer, sought to enforce a settlement agreement granting it preemptive and exclusive consignment rights to paintings from Hal Wallis’s collection. The Wallis estate argued the agreement violated the Rule Against Perpetuities and the common-law rule against unreasonable restraints on alienation. The Second Circuit certified questions to the New York Court of Appeals, which held that neither rule invalidated Wildenstein’s rights because the agreement served commercial interests and only minimally affected alienability, distinguishing it from traditional family land transfers.

    Facts

    Hal Wallis, a film producer and art collector, entered into a settlement agreement with Wildenstein in 1982. Wildenstein returned two paintings to Wallis in exchange for $665,000 and the agreement granted Wildenstein: (1) a right of first refusal to purchase 15 named paintings in the Wallis collection; and (2) an exclusive right of consignment to auction those paintings. The first refusal right required the Wallises to give Wildenstein 30 days’ notice of any proposed sale, allowing Wildenstein 20 days to match the offer. The exclusive consignment right stipulated that if the Wallises decided to sell at auction, Wildenstein would have exclusive consignment for six months. The agreement applied to the parties’ executors, successors, and assigns, but excluded paintings given to tax-exempt charities. After Wallis died, his son sold a Renoir painting covered by the agreement. Later, the Hal B. Wallis Foundation planned to sell other paintings at auction. Wildenstein sued to enforce its rights.

    Procedural History

    Wildenstein sued in the United States District Court for the Southern District of New York. The District Court dismissed the complaint, granting summary judgment to the Wallis defendants, based on the common-law rule against unreasonable restraints on alienation. The Second Circuit Court of Appeals then certified four questions to the New York Court of Appeals regarding the applicability of the Rule Against Perpetuities and the rule against unreasonable restraints on alienation, as well as potential remedies if the agreement was invalidated.

    Issue(s)

    1. Whether the New York Rule Against Perpetuities applies to preemptive rights and future consignment interests in personal property?

    2. Whether the New York common law rule against unreasonable restraints on alienation invalidates preemptive rights and future consignment interests in personal property?

    Holding

    1. No, because the Rule Against Perpetuities does not apply to preemptive rights and exclusive consignment rights in the context of commercial art transactions.

    2. No, because the common-law rule against unreasonable restraints on alienation does not invalidate the preemptive rights and exclusive consignment rights in this case.

    Court’s Reasoning

    The Court reasoned that the Rule Against Perpetuities, designed to prevent undue restrictions on property alienation, should not be rigidly applied to commercial transactions. The court distinguished this case from donative family transfers, noting the agreement served significant commercial interests by facilitating broader marketing of art treasures. The Court emphasized that Wildenstein’s rights were triggered only by a decision to sell, allowing the Wallises to realize the highest possible price. Referencing its prior holding in Metropolitan Transp. Auth. v Bruken Realty Corp., the court noted the inapplicability of the rule to preemptive rights in commercial transactions that promote property use and development.

    Regarding the rule against unreasonable restraints on alienation, the Court considered the duration, price, and purpose of Wildenstein’s rights. The 30-day first refusal period and six-month consignment period were deemed reasonable. The first refusal right required Wildenstein to match a third party’s offer, ensuring the Wallises received fair market value. The Court deferred to the parties’ arm’s-length agreement, concluding that the rights did not constitute an effective prohibition against transferability.

    The court highlighted an expert affidavit attesting to the widespread use of these rights in the art world and the short duration of the consignment period. Because Wildenstein’s preemptive and exclusive consignment rights serve significant commercial interests and pose minimal limitations on alienability, neither the Rule Against Perpetuities nor the rule against unreasonable restraints on alienation applied. The court emphasized the importance of the commercial context, differentiating it from purely donative family transfers where the traditional concerns of the Rule Against Perpetuities are more directly implicated. The court stated, “Inasmuch as Wildenstein’s preemptive and exclusive consignment rights serve significant commercial interests by facilitating broader marketing of world-renowned art treasures while posing, at the most, only a minimal limitation on the alienability of the works, we conclude that they are not subject to the Rule against Perpetuities.”

  • In re Estate of Read, 41 N.Y.2d 946 (1977): Rule Against Perpetuities and “Second Look” Doctrine

    In re Estate of Read, 41 N.Y.2d 946 (1977)

    The New York Court of Appeals affirmed the Appellate Division’s application of the ‘second look’ doctrine to a trust, determining that the validity of a remainder interest under the Rule Against Perpetuities should be assessed based on facts existing at the trust’s creation and at the termination of the measuring life, rather than solely on the possibilities existing at the time of creation.

    Summary

    This case addresses the application of the Rule Against Perpetuities to a trust established in a will. The core issue revolved around whether a remainder interest created in the trust violated the rule. The Surrogate’s Court initially found a violation. However, the Appellate Division reversed, applying the “second look” doctrine, which allows courts to consider events that actually occurred after the trust’s creation when assessing the validity of the remainder interest. The Court of Appeals affirmed the Appellate Division’s decision, holding that the remainder interest did not violate the Rule Against Perpetuities because, when taking a “second look” at the facts as they existed at the end of the measuring life, the interest would necessarily vest within the perpetuities period.

    Facts

    A testator created a trust in their will, with income payable to the testator’s daughter, Dorothy, for life. Upon Dorothy’s death, the principal was to be divided into shares for Dorothy’s surviving children. If a child of Dorothy died before reaching age 25, their share would be divided among Dorothy’s surviving children. The will also stipulated that if Dorothy died without any children surviving her who reached 25, the remainder would go to a charity. At the testator’s death, Dorothy was alive and had one child, Michele. Dorothy later had another child, Carl. Dorothy died. Both Michele and Carl survived her, although Carl was under 25 at the time of Dorothy’s death.

    Procedural History

    The Surrogate’s Court initially ruled that the remainder interest violated the Rule Against Perpetuities. The Appellate Division reversed this decision, applying the “second look” doctrine and finding no violation. The case then went to the New York Court of Appeals.

    Issue(s)

    Whether the remainder interest created in the will’s trust violated the Rule Against Perpetuities, considering the facts and circumstances existing both at the time of the will’s creation and at the termination of the life estate (Dorothy’s death).

    Holding

    No, because the “second look” doctrine allows courts to consider events that actually occurred after the trust’s creation, and in this case, the remainder interest vested indefeasibly at Dorothy’s death when her two children were living and thus any interest would vest, if at all, within 21 years of her death, which is within the perpetuities period.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s decision, agreeing with its application of the “second look” doctrine. The court reasoned that while the traditional approach to the Rule Against Perpetuities considers only possibilities existing at the time the interest is created, the “second look” doctrine allows courts to assess the validity of the remainder interest in light of events that have actually occurred by the end of the measuring life. In this instance, because Dorothy was alive at the testator’s death and also had children at the time of her death, the court was able to ‘look’ at the facts as they existed at the end of Dorothy’s life and measure the interest from that point. Because Dorothy had two living children at the time of her death, the interest would necessarily vest within 21 years of her death (the perpetuities period). The court emphasized the importance of considering actual events to avoid unnecessarily invalidating testamentary dispositions and prevent unintended consequences. The Court of Appeals explicitly adopted the reasoning outlined in the Appellate Division opinion by Justice Simons, which highlighted that the “second look” doctrine strikes a balance between the rigid application of the Rule Against Perpetuities and the testator’s intent.

  • In re Acheson’s Trust, 28 N.Y.2d 155 (1971): Full Faith and Credit to Domiciliary’s Will Construction

    In re Acheson’s Trust, 28 N.Y.2d 155 (1971)

    A New York court must give full faith and credit to a California court’s construction of a will executed by a California domiciliary, especially when the interested parties have submitted to the California court’s jurisdiction, even if the will exercises a power of appointment over a New York trust.

    Summary

    This case concerns the application of full faith and credit to a California court order construing the will of a California domiciliary, Acheson, which exercised a power of appointment over a trust located in New York. Acheson’s will created a trust for his daughter, Linda Belle, potentially violating the rule against perpetuities. The California court construed the will to avoid this violation. Acheson’s other children challenged this in New York. The New York Court of Appeals held that the California court’s construction was entitled to full faith and credit because the California court had personal jurisdiction over the contesting parties, and its interpretation of the testator’s intent was binding.

    Facts

    Margaret Maher Acheson created a trust in New York with Morgan Guaranty as trustee, providing a life interest for her son, Edward Jr., then a share for her grandson, Acheson, with a power of appointment to Acheson. Acheson, domiciled in California, died in 1965, exercising the power of appointment in his will to create trusts for his wife, Helen, and daughter, Linda Belle. Linda Belle’s trust was to last for 21 years after the death of the last survivor of his wife, daughter, and the daughter’s children living at his death, potentially violating the rule against perpetuities.

    Procedural History

    Morgan Guaranty initiated a proceeding in New York to settle its account. Acheson’s executor, Bank of America, started an heirship proceeding in California to construe the will to avoid violating the rule against perpetuities. The New York court stayed its proceeding pending the California decision. The California court construed the will to terminate Linda Belle’s trust 21 years after Helen’s death. Acheson’s other children sought relief from the California order, which was denied. The New York Special Term gave full faith and credit to the California order, which the Appellate Division affirmed.

    Issue(s)

    Whether a California court order construing the will of a California domiciliary, which exercises a power of appointment over a New York trust, is entitled to full faith and credit in New York, where the construction avoids a potential violation of the rule against perpetuities and the interested parties submitted to the California court’s jurisdiction.

    Holding

    Yes, because the California court had personal jurisdiction over the appellants, and the full faith and credit clause requires New York to respect the California court’s interpretation of the testator’s intent under California law.

    Court’s Reasoning

    The court reasoned that New York law dictates that the law of the testator’s domicile governs the interpretation of their will regarding personal property. Since Acheson was domiciled in California, California law controls the interpretation of his will. The California Superior Court, with full authority to interpret wills of California domiciliaries, construed Acheson’s will to terminate the trust for Linda Belle within 21 years after Helen’s death, thus avoiding the rule against perpetuities.

    The court emphasized that the appellants, Acheson’s other children, had submitted to the California court’s jurisdiction by seeking to vacate the instruction order, constituting a general appearance. This barred them from re-litigating the issue in New York. The court quoted Milliken v. Meyer, 311 U.S. 457, 462, stating that courts in other states are precluded from “any inquiry into the merits of the cause of action, the logic or consistency of the decision, or the validity of the legal principles on which the judgment is based.”

    The court also addressed the argument that Morgan Guaranty, the New York trustee, was an indispensable party in the California proceeding. It stated that the California court did not rule on the validity of the trust indenture itself or Acheson’s exercise of his power of appointment, so the trustee was not a necessary party. The California court merely directed the California executor to receive the trust corpus if and when the New York court ordered the turnover.

    In conclusion, the court found that the California instruction order, to the extent it interprets the will by finding an intention to limit the duration of the trusts to avoid violating the rule against perpetuities, is entitled to full faith and credit concerning all appellants in the New York proceeding. The court noted, “[P]arties may not a second time challenge the validity of their adversaries’ right which has ripened into a judgment.”

  • Matter of Wilcox, 194 N.Y. 288 (1909): Rule Against Perpetuities and Contingent Life Estates

    Matter of Wilcox, 194 N.Y. 288 (1909)

    A trust is invalid if, under any possible contingency, it could suspend the absolute power of alienation for longer than two lives in being at the creation of the trust.

    Summary

    This case addresses the application of the rule against perpetuities to testamentary trusts. The testator created a trust that, depending on various contingencies, could potentially extend beyond two lives in being at the time of his death. The court found that the possibility of such an extension rendered the entire trust invalid, emphasizing that the validity of a trust is determined not by what actually happens, but by what could possibly happen under its terms. This ruling underscores the strict interpretation and application of the rule against perpetuities to prevent prolonged restrictions on property alienation.

    Facts

    The testator’s will established a trust for the benefit of his wife, son, and daughter. After the wife’s death, the will divided the estate into two independent trusts for the son and daughter. The son’s trust was to last for his life or until he reached 30 years of age. The will specified different contingencies: if the son died before the wife, his income share would be split between the wife and daughter; if the son survived the wife, his trust would be bounded by his life or reaching age 30.

    Procedural History

    The lower court initially upheld the validity of the trust but deemed the accumulation of income provision void. The General Term reversed this decision. The Court of Appeals reviewed the case to determine the trust’s validity under the rule against perpetuities.

    Issue(s)

    Whether a trust is valid if, under any possible contingency, it could suspend the absolute power of alienation for a period longer than two lives in being at the time of the trust’s creation.

    Holding

    No, because New York’s rule against perpetuities prohibits any trust that, under any circumstance outlined in the will, could suspend the power of alienation beyond two lives in being at the testator’s death.

    Court’s Reasoning

    The court emphasized that the validity of a trust under the rule against perpetuities is determined by possible, not actual, events. The court stated, “Where a trust is created which by no possibility and in no contingency can endure longer than during the existence of two lives in being, of what consequence can it be that if one contingency happen, the estate is to be measured by two named lives, and if the other contingency happen, the estate is still to be measured by two named lives, but one of them is different from the one named in the other contingency?” The court determined that the will’s provisions, particularly those related to the son’s potential death before the wife, created a scenario where the trust term was limited by the lives of the wife and daughter. However, if the wife died first, the trust was limited by the lives of the wife and son (or until the son reached 30). Since the two lives measuring the duration of the trust differed based on the contingency, the court had to determine if this arrangement violated the rule. The Court of Appeals reversed the General Term and affirmed the Special Term, holding the trust valid.