Delaware Case Law

(Del.Ch. 2005) Heritage Homes of De La Warr, Inc. v.
Alexander, et al. C.A. No. 1399-K. Court of Chancery of
Delaware. Date Submitted: May 5, 2005. September 1, 2005.

David N. Rutt, Esquire, Moore & Rutt, P.A., Georgetown, DE.

Eric C. Howard, Esquire, Wilson, Halbrook & Bayard,
Georgetown, DE.

JOHN W. NOBLE, Vice Chancellor.

Dear Counsel:


Petitioner Heritage Homes of De La Warr, Inc. (“Heritage
Homes”) sold two adjacent lots to Respondents Barbara H.
Alexander and M. Kevin Sartell (the “Sartells”) in a
subdivision known as Lexington Mill that it was developing
in Kent County, Delaware. The Sartells agreed, without
plans and specifications or pricing, that Heritage Homes
would build a home for them. Heritage Homes held an option
to repurchase the lots if the Sartells did not build within
three years.[fn1] The Sales Agreement, under the heading of
“Additional Terms,” provided: “It is agreed and understood
by the sellers that purchasers have three years from the
date of settlement to begin construction of their home.”
Other terms governing the construction of a dwelling by
Heritage Homes were set forth in paragraph 2 of the
Lexington Contract:

The parties agree that Seller shall build and construct
and furnish all labor and materials for a single family
residence to be erected in accordance with the plans and
specifications to be provided as soon as practical, which
plans and specifications shall be incorporated herein. It
is further agreed:

a. A detailed construction agreement shall be executed at
a later time, as soon as practical, and shall be
incorporated herein as part of this agreement.

b. The price for the construction of the residence shall
be to be determined, to be paid out in accordance with the
construction agreement, and/or the construction loan
agreement, to be incorporated herein.[fn2]

The Lexington Contract, at paragraph 3, reads as follows:
“Buyer agrees that in the event Buyer is unable to commence
construction for any reason not attributable to Seller,
Buyer agrees [sic] to re-convey the subject lot at the same
price as sold to Buyer, within 30 days of receipt of
Seller’s request to re-convey.”

The Sartells, six months after acquiring the lots, offered
to re-convey them to Heritage Homes. Heritage Homes took
the position, a position consistent with the terms of the
Lexington Contract, that it was under no obligation to
repurchase the lots; it simply would hold an option after
three years that could be exercised in its discretion to
reacquire the lots. The Sartells attempted to sell the
lots. In the interim, Heritage Homes filed this action and
lodged a notice of lis pendens. This Court ordered
cancellation of the notice of lis pendens and both lots
were sold. The buyers of one lot (Lot 36) contracted with
Heritage Homes for the construction of a dwelling. The other
lot (Lot 37) remains vacant. The Sartells sold the two lots
for a total of $91,750, $6,750 more than the $85,000 they
had paid to Heritage Homes for the two lots. Heritage Homes
contends that the Sartells were unjustly enriched by that


Heritage Homes has moved for partial summary judgment.
Summary judgment is appropriate if the material facts are
not in dispute and the moving party is entitled to judgment
as a matter of law.[fn4] Where entitlement to comparable
relief is clear, the non-moving party may also obtain
summary judgment in its favor.[fn5]


Heritage Homes’ right to recover under the option
agreement depends, of course, upon its enforceability.[fn6]
By reading the two agreements in concert, one can conclude
that the option to repurchase vested in Heritage Homes
after the Sartells had not erected a dwelling on Lot 37
within three years of their acquisition of that
parcel.[fn7] The option held by Heritage Homes, by its
terms, may be exercised at any time, i.e., there is no
period within which the option must be exercised. The
Sartells assert that this indeterminate exercise period
causes the option provision to contravene the rule against

The rule against perpetuities provides that:

no interest is good unless it must vest, if at all, not
later than 21 years after some life in being at the
creation of the interest. The purpose of the rule is to
promote free alienation of land and therefore it should be
rigidly enforced. The rule is not concerned with the
duration of an interest in land, but rather the time of
vesting of that interest. It is not enough that the
contingent event may happen or even probably will happen
within the time limit of the rule; if it can possibly
happen beyond a permissible period, the grant is

The rule, part of the common law, carries the command of law
and is not merely a rule of contract construction.[fn9]
This matter, of course, involves application of the rule to
an option which has no limit on the period within which it
can be exercised.

Options are regarded as having the effect of creating a
future interest, depending upon the contingency of the
exercise of the option. If it is possible that the option
might not be exercised within the limits of the time
allowed by the Rule Against Perpetuities, the option is
void. Since in this case no time is given for the
expiration of the option, it is void as against the Rule
Against Perpetuities.[fn10]

Because Heritage Homes, as a corporation, has an existence
of unlimited duration[fn11] and because the Lexington
Contract is binding upon the Sartells’ “heirs, executors,
administrators, successors or assigns” without any time
limitation in which the option must be exercised, it is
“impossible to determine that this option might not be
exercised, if at all, within the period prescribed by the
rule against perpetuities.”[fn12] The failure of the
option’s drafter to account for the rule against
perpetuities renders the option unenforceable. Accordingly,
the Sartells are entitled to partial summary judgment
establishing that they are not bound by Heritage Homes’
option to reacquire the lots and that Heritage Homes has no
claim for damages under the option.


Heritage Homes also argues that it was damaged when the
Sartells decided not to contract with it to erect a dwelling
on the parcel. When the parties entered into their
agreement, they clearly understood that Heritage Homes
would be building a single-family dwelling for the
Sartells. The Lexington Contract sought to assure that
Heritage Homes would build the dwelling by (1) an express
agreement between the Sartells and Heritage Homes requiring
the Sartells to use Heritage Homes as their contractor, and
(2) allowing Heritage Homes to reacquire the property if
the dwelling had not been built within three years.[fn13]
The question is whether the obligation of the Sartells to
contract later with Heritage Homes for construction of the
dwelling is defined with sufficient specificity as to
provide an independent and additional basis for an award of
money damages.[fn14]

The Lexington Contract provides, in part, that Heritage
Homes will build a residence “in accordance with the plans
and specifications to be provided as soon as practical. .
. .”[fn15] The parties also agreed that “[a] detailed
construction agreement shall be executed at a later time,
as soon as practical . . .,” and that “[t]he price for the
construction of the residence shall be `to be determined’ to
be paid out in accordance with the construction agreement,
and/or the construction loan agreement. . . .”[fn16]

Clearly, these provisions reflect nothing more than a bare
agreement to agree, one whose terms are so indefinite as to
make the entire effort nugatory. It is a well-settled
principle of Delaware law that “an agreement to agree in
the future without any reasonably objective controlling
standards” is unenforceable.[fn17] Here, the provision does
no more than merely memorialize the parties’ intent to come
to an agreement for the construction of a residence,
leaving negotiation of all material terms for a later date.
Delaware law requires that, “to be enforceable, a contract
to enter into a future contract must specify all its
material and essential terms, and leave none to be agreed
upon as the result of future negotiations. . . .”[fn18]
Among its flaws is the failure to specify with any
reasonable certainty the type of house to be built,[fn19]
the material terms to govern construction, or, most
importantly, the price of such construction. No reasonable
person could find this provision a sufficient delineation
of material terms,[fn20] and, thus, it is not definite
enough to be enforceable.[fn21] Accordingly, the Sartells
are entitled to partial summary judgment as to any claim
asserted by Heritage Homes based on the failure of the
Sartells to use the services of Heritage Homes for the
construction of a dwelling.[fn22]


[fn1] The parties executed two agreements: (1) the Agreement
of Sale, dated August 16, 1997 (the “Sales Agreement”),
Pet’r’s Op. Br. Ex. 1; and (2) the Lexington Mill Agreement
of Sale and Construction Agreement, dated August 17 (with
no year specified but, presumably, 1997) (the “Lexington
Contract”), Pet’r’s Op. Br. Ex. 2. The two agreements to
the extent possible will be interpreted in harmony.

[fn2] The phrase “to be determined” was handwritten.

[fn3] After the filing of this action, Heritage Homes
offered to reacquire the lots for the original purchase

[fn4] See, e.g., Daisy Const. Co. v. Mumford & Miller
Concrete, Inc., 2005 WL 1653943, at *2 (Del.Ch. June 30,

[fn5] See Continental Ins. Co. v. Rutledge & Co., Inc., 2000
WL 268297, at *1 (Del.Ch. Feb. 15, 2000) (citing Stroud v.
Grace, 606 A.2d 75, 81 (Del. 1992)).

[fn6] With the transfer of title to the lots to others,
equitable relief is no longer available because the
transferees are not parties. A similar problem confronts
Heritage Homes with respect to its efforts to obtain a
declaration that Lots 36 and 37 are subject either to the
terms of the Sales Agreement/Lexington Contract or to the
Declaration of Restrictions governing Lexington Mills.
Pet’r’s Op. Br. Ex. 4. The current owners of those lots are
necessary parties to any proceeding focused on determining
their responsibilities and duties as lot owners. Thus, any
relief sought by Heritage Homes in the nature of a
declaration establishing its rights as against the current
lot owners, who are fairly characterized as indispensable
parties, is precluded by Court of Chancery Rule 19. These
claims will be dismissed, under Court of Chancery Rule 19,
thirty (30) days from the date of this letter opinion,
unless Heritage Homes has sought to add them as parties. It
should be noted that it is not clear that there is a
justiciable controversy between Heritage Homes and the
current lot owners, especially with respect to the owner of
Lot 36 for whom Heritage Homes has built a dwelling.

[fn7] The time within which the Sartells were obligated to
initiate construction was firmly fixed by the Sales
Agreement at three years from closing. But see, e.g.,
Ryland Group, Inc. v. Wills, 331 S.E.2d 399, 402 (Va. 1985)
(“An option contract creates no present vested interest;
instead the holder of an option has an executory interest
by virtue of the possibility that he may obtain a future
right to purchase certain real property.” (citations
omitted)); Cent. Delaware County Auth. v. Greyhound Corp.,
588 A.2d 485, 488 (Pa. 1991). As discussed below, the
resolution of this claim does not depend on when the option
right vested; instead, it depends on the unlimited period
during which the option may be exercised.

[fn8] Robinson v. Carriage House Assocs., Inc., 1990 WL
212278, at *3 (Del.Ch. Dec. 18, 1990) (citations and
internal punctuation omitted), aff’d, 596 A.2d 1378 (Del.
1991); see also Smith v. Smith, 747 A.2d 85, 88 (Del.Ch.

[fn9] Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378,
1383 (Del. 1991).

[fn10] Emerson v. Campbell, 84 A.2d 148, 153 (Del.Ch.
1951). Cf. Pathmark Stores, Inc. v. 3821 Assocs., L.P., 663
A.2d 1189, 1191-92 (Del.Ch. 1995).

The Court in Pathmark Stores drew no distinction between
rights of first refusal and options to purchase for purposes
of rule against perpetuities analysis. Thus, the Court in
Pathmark Stores concluded that the ruling in Stuart
Kingston, that “a purported right of first refusal which
could be exercised indefinitely violate[s] the rule against
perpetuities,” is equally applicable to options to
purchase. Pathmark Stores, 663 A.2d at 1192 (citing Stuart
Kingston, 596 A.2d at 1385).

[fn11] “Because it exists perpetually, a corporation cannot
be used as a measuring life for purposes of the rule.”
Stuart Kingston, Inc., 596 A.2d at 1383.

[fn12] Emerson, 84 A.2d at 153. In voiding the option at
issue in Emerson, the Court observed that “options are
usually considered as `property’ and are therefore
assignable.” Id.

[fn13] This approach, if properly implemented, would have
enabled Heritage Homes to obtain the economic benefits of
constructing a dwelling for either the Sartells or, if they
did not build, for the subsequent owners of the lot, after
repurchase and resale.

[fn14] Implicit in this contract, as in any contract
governed by Delaware law, is the covenant of good faith and
fair dealing. See Frontier Oil Corp. v. Holly Corp., 2005
WL 1039027, at *28 (Del.Ch. Apr. 29, 2005). Although
Heritage Homes noted its belief that the Sartells never
seriously sought to negotiate a construction agreement with
it, Heritage Homes has not pursued a claim under the theory
of breach of the implied covenant of good faith and fair

[fn15] Pet’r’s Op. Br. Ex. 2, at § 12.

[fn16] Id.

[fn17] Hammond & Taylor, Inc. v. Duffy Tingue Co., 161 A.2d
238, 239 (Del.Ch. 1960); see alsodes v. Wilmington Poetry
Soc’y, 138 A.2d 501, 504 (Del.Ch. 1958) (holding “that the
provision with respect to the payment of royalties is
legally indefinite because it is nothing more than an
agreement to agree at a later time and no agreement or
implied standards are operative to make such future action

[fn18] Raisler Sprinkler Co. v. Automatic Sprinkler Co. of
Am., 171 A. 214, 219 (Del.Super. 1934).

An equally troubling prospect confronting this Court is
the uncertainty inherent in calculating Heritage Homes’
damages were the Court to find the provision enforceable.
Under Delaware law, “[t]he material terms of a contract
will be deemed fatally vague or indefinite if they fail to
provide a reasonable standard for determining whether a
breach has occurred and the appropriate remedy.”
Independent Cellular Telephone, Inc. v. Barker, 1997 WL
153816 (Del.Ch. Mar. 21, 1997) (citing Restatement (Second)
of Contracts, § 33(2), at 92 (1981) (emphasis
added)). Unlike the agreement in Independent Cellular, the
provision at issue in the present case affords Heritage
Homes a shaky foundation, at best, on which to base its
claim for monetary damages. This Court knows of no
reasonably reliable method of calculating damages based on
a hypothetical house to be built in accordance with
non-existent construction plans and no agreed upon price.
The only provision that could conceivably serve as a basis
for an award — the interlineation specifying that
“minimum house size [is] to be 3,000 [square feet] total
living space” — is made with reference to the first
dwelling Heritage Homes built. Pet’r’s Op. Br. Ex. 1, at
“Additional Terms.” The sentence preceding this term
clearly states the parties’ original understanding and
agreement that only one dwelling would erected by Heritage
Homes, which did in fact occur. As for serving as a means
of calculating damages for the failure to construct a
second dwelling, this would constitute an impermissible
extension of the parties’ bargained-for terms to a
hypothetical second dwelling whose specifications were not
negotiated, much less anticipated, by the parties. Thus, in
addition to presenting no reasonably objective controlling
standards, this contract provision has been drafted in such
a way as to offer no reasonable means of redress even if
breach could be proved.

[fn19] The Preamble of the Lexington Contract provides that
the development is “designed to be a quality subdivision in
which all of the homes are esthetically homogeneous. . . .”
This, however, not only is a mere statement of intent which
is non-binding, but also it fails to delineate with any
reasonable certainty the type of house which would satisfy
this requirement.

[fn20] See Litle v. Waters, 1992 WL 25758 (Del.Ch. Feb. 11,
1992) (holding that “[a]lthough vagueness and indefiniteness
are matters of degree, no reasonable person could find that
the alleged agreement at issue contains a sufficient
delineation of the material terms . . .” (citations

But see Echols v. Pelullo, 377 F.3d 272 (3rd Cir. 2004)
(applying Delaware law). The Third Circuit in Echols held
enforceable a contract for exclusive-promotion rights for a
boxer with an open price term. The boxer could choose
whether to participate in contests proposed by the
promoter. The majority in Echols concluded that, with
respect to that particular contract defining an ongoing
relationship, the Delaware Supreme Court would not hold
price (or compensation) a material term such that its
absence would render the otherwise valid contract
unenforceable. The facts presented here clearly do not
implicate Echols’ reasoning. Heritage Homes and the
Sartells entered into a “one-shot” agreement for
construction services that does not warrant the policy
exception recognized in Echols. Unlike in Echols, price is
a material term here because, if the Lexington Contract
were enforceable, the parties would have been obligated to
perform, and there existed no history of a commercial
relationship between the parties. Moreover, the
agreement-to-agree sponsored by Heritage Homes lacks the
requisite specificity with respect to several material terms
in addition to price.

[fn21] It may well be that the parties did not intend for
damages to be a remedy in the event the Sartells did not go
forward with their plans for construction of a home.
Instead, the consequences of abandoning that course would
to be a simple reconveyance of the lots at cost. Thus, the
only reason the issue of damages ever arose is the failure
of the parties’ agreed-upon remedy, the option provision,
under the rule against perpetuities.

[fn22] These conclusions obviate the need to resolve
several other questions posed by Heritage Homes’ motion:
(1) whether the option survived delivery of the deeds for
the lots under the doctrine of merger and (2) whether
Heritage Homes’ building of one dwelling on Lot 36
satisfied any right to build an additional dwelling on Lot