The City of Klamath Falls v. Bell

Brief Fact Summary.

In 1925 a corporation gift deeded land to the City of Klamath Falls “as long as” the city used the land for a library, and thereafter unto Fred Schallock and Floyd Daggett, their heirs and assigns. The city closed the library in 1969 when the books were moved to another library.

Synopsis of Rule of Law.

Even though the gift over of the property to the heirs and assigns is void under the rule against perpetuities, there is a possibility of reverter to the grantor which, under Oregon law, cannot be gifted over, and is thus retained in the grantor.

Facts.

In 1925 a corporation gift deeded land to the City of Klamath Falls “as long as” the city used the land for a library, and thereafter unto Fred Schallock and Floyd Daggett, their heirs and assigns. The city closed the library in 1969 when the books were moved to another library. Thereafter, the city sued to quiet title in fee as to the land. The Defendants were all of the heirs of Schallock and Daggett. The grantor corporation, Daggett-Schallock Investment Company had been dissolved and the assets (including any interest in the property) were transferred to Fred Schallock and Floyd Daggett. Thereafter, all of the remaining heirs transferred their interest, if any, in the property to Defendant Marijane Flitcraft. The trial court found for the city based on its finding that the gift over to Fred Schallock and Floyd Daggett was void under the rule against perpetuities. The Defendants appealed.

Issue.

Did a possibility of reverter remain in the grantor corporation under the deed, which by law in Oregon cannot be alienated, and would therefore remain in the corporation or its successors and heirs of successors?

Held.

Yes. Reversed.
The language of the deed passed to the city a fee simple determinable in the land. That is true due to the use of the “magic words” of “as long as.” The Court found that the breach of the condition causes the fee simple to terminate automatically.
The language of the deed which called for the gift over in case of breach of the condition of use to be made to Fred Schallock or Floyd Daggett or their heirs and assigns was an attempt to convey an executory interest. The Court found that only an executory interest can follow a grant in fee simple. The rule against perpetuities applies to executory interests. “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.” [citing Gray, The Rule Against Perpetuities 191 Section:201 (4th ed. 1942)]. In this case the city might have used the land for a library indefinitely which would make the gift over to Fred Schallock and Floyd Daggett void ab initio. The trial court was right to rule that the rule against perpetuities was violated, but that did not dispose of the entire case.
The Court found that a possibility of reverter was retained by the grantor corporation. The Court found that Oregon had a law against the alienation of possibilities of reverter. The Court found that the grantor corporation did attempt to alienate the possibility of reverter through its abortive gift over the Schallock and Daggett. The Court then found that the question of whether an attempt to alienate a possibility of reverter causes its destruction was a new question of law in Oregon.
The Court found that an attempt of a grantor to transfer a possibility of reverter does not cause its destruction. Therefore, the possibility of reverter was retained in the grantor, the corporation which was dissolved.
The Court found that the corporation was lawfully dissolved and that all the remaining assets went to the sole shareholders, Fred Schallock and Floyd Daggett, and then, of course to their heirs and assigns. The possibility of reverter was then in the heirs who conveyed their rights to Flitcraft.

Discussion.

The fee simple determinable, when the condition of limitation is indefinite, creates a circumstance where any gift over is going to violate the terms of the rule against perpetuities.