June 16, 2019

Colorado Supreme Court: Reformation Not Necessary for Commercial Option Entered Into Prior to Enactment of Statutory Rule Against Perpetuities Act

The Colorado Supreme Court issued its opinion in Atlantic Richfield Co. v. Whiting Oil & Gas Corp. on Monday, March 3, 2014.

Equity Oil Company—Reformation of Future Interests in Property—Statutory Rule Against Perpetuities Act—Common Law Rule Against Perpetuities—Nondonative Transfers

In this case, the Supreme Court considered whether a nondonative, commercial option entered into before the passage of the Statutory Rule Against Perpetuities Act is subject to reformation under CRS § 15-11-1106(2). As a threshold matter, the Court examined whether the option violated the common law rule against perpetuities, and concluded that it does not. Because the commercial option negotiated by the parties was fully revocable, it posed no practical restraint on alienation, and did not violate the common law rule against perpetuities as that rule was construed in Supreme Court case law before passage of the Statutory Rule Against Perpetuities Act.

The Court held that because the option did not violate the common law rule against perpetuities, no reformation was necessary. Accordingly, the Supreme Court affirmed the judgment of the court of appeals on different grounds, and did not reach the questions of whether § 15-11-1106(2) provides for reformation of nondonative, commercial instruments, or whether the lower courts’ application of that section to the option here was unconstitutionally retrospective.

Summary and full case available here.

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