Atlantic Richfield Co. v. Whiting Oil & Gas Corp.

Colorado passed a statute intended to supersede the common-law rule against perpetuities. The statute stated that any donative conveyances of property interests made after the effective date of the law would be valid as long as the conveyed interest vested or terminated within 90 years. Thus, while the common-law rule against perpetuities rendered certain transfers invalid at the outset, the Colorado statute did not invalidate a transfer until it actually failed to vest within the time period. The statute contained a provision that permitted parties to petition a court to reform a non-vested interest created prior to the statute’s effective date in 1991. The reformation section of the statute applied only to non-vested interests judicially determined to violate the common-law rule against perpetuities. In 1968, Atlantic Richfield Company (ARCO) (defendant) and Whiting Oil & Gas Corporation (Whiting) (plaintiff) had signed a research-and-development agreement under which ARCO acquired an interest in Whiting’s land. Subsequently, in 1983, ARCO had signed an option contract with Whiting, granting Whiting the option to buy back the interest that ARCO had obtained. The option was to expire in 2008. ARCO retained the exclusive right to revoke the option at any time. Whiting sued ARCO for specific performance of the option. ARCO claimed that the option was invalid under the rule against perpetuities, and that Colorado’s reformation statute did not apply to commercial transactions. The trial court found that the option violated the common-law rule against perpetuities. The trial court thus reformed the option by inserting a savings clause so that the option would no longer violate the rule. The trial court then ordered specific performance of the option. The court of appeals affirmed. ARCO appealed.