Article by Jeffrey E. Stake
“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.”' Students have struggled with the Rule against Perpetuities, and scholars and practitioners urge simplification, but deep in the Rule lies a beauty, part of which stems from the very complexity and intricacy many bemoan. The Rule merits one more charitable look before rejection or reformation, lest that beauty be appreciated too late.
Though the Rule has attracted much scholarly attention, Professor Casner, the reporter for the Restatement, has noted that “[t]he basis or justification for the assumption that social welfare requires the imposition of restrictions upon the interference with the alienation of property has never been adequately explored and has been seldom discussed.”' The first goal of this Article is to extend that exploration, explaining how the Rule enhances economic well-being by improving the allocation of assets, collecting enjoyable packages of rights, and hastening the appreciation of interests. More generally, the primary purpose is to identify and explain the three types of economic benefits that might be generated when the Rule against Perpetuities changes an intended transfer of rights into a transfer different from that intended and to determine which of those three benefits accrues in each of the basic patterns in which the Rule may work a redistribution. This analysis takes the doctrine as a given, classifies the theoretical operation of the Rule into a few paradigms identified by use of examples, and examines each paradigm to determine what economic benefits might accrue in cases of that type. The attempt is to reach logical, rather than empirical, conclusions such as “In Example 1–type situations, such and such economic benefit obtains.”
In the course of identifying benefits of the Rule, this Article demonstrates that evolutionary theory provides reason to resist the presumption that transferors will attempt to divide their gifts so as to maximize the benefits derived by their donees. That Darwinian critique of donative behavior offers some theoretical basis for societal interference with the intent of transferors. In arguing that the law distributes rights more appropriately than do private parties, this Article takes a position disagreeable to many economists. This Article does not start with the common assumption that the donors' intended distributions of rights are the most efficient and then attempt to justify the Rule's regulation of donative dispositions on the basis of some externality, such as the high administrative costs paid by society in the process of honoring the intention of grantors. Instead, this Article attempts to undermine the initial assumption that the donors do what is best for society or, even, for their donees.
Identification of the ways in which the Rule's rejection of some intended dispositions works a benefit is the first, but not the only, objective of this Article. Acknowledging that few gains come without costs, a second goal must be to identify unhappinesses, inefficient incentives, and some of the unfairnesses caused by the Rule. A third goal of this Article is to point out that some of the very defects urged by critics as justifications for reform—the traps for the unwary, the complexity, and the Rule's remorseless operation—combine, perversely, to reduce the negative side effects that ordinarily accompany governmental redistributions of rights. Because of the circumstances in which the Rule often operates, it can redistribute rights and enhance efficiency without causing the usual damage resulting from governmental interference with private decisions regarding distribution.
In identifying potential costs and benefits of the Rule, this Article provides a framework for (1) analyzing the merit of particular applications of the Rule, (2) evaluating which modifications, if any, would work improvements, and (3) determining whether the Rule is worth keeping. Although the Article presents considerations for and against the Rule, it reaches no conclusion about the merit of the Rule or any of the proposed reforms. Following the discussion of economic effects, the penultimate section raises, without resolving, some of the ethical questions posed by the common-law Rule against Perpetuities.
In addition, the Article will make, by example rather than discussion, two broader points relating to donative transfers in general. One point is that market transactions can serve as a standard against which donative transfers can be compared or measured. The second point is that important differences between the results of donative and market transfers, unless explainable by market imperfections, ought to be considered to be consumption by the donors.
Four warnings are in order. Readers should be aware that the Article presents the issues lying at the heart of the Rule with a few fairly simple examples. These examples were not chosen because they represent the most common actual transfers, but rather because they illustrate the basic theoretical ways in which the Rule works. Furthermore, the discussion of the examples ignores many recent legislative and judicial modifications of the common-law Rule. Different results may obtain in many jurisdictions. The analysis also ignores some of the factual complications that can lead to different results even under the common-law Rule. Nevertheless, the discussion here should assist in the analysis of any variant, traditional or modern, of the Rule against Perpetuities. Third, the Article does not purport to determine the purposes for which the Rule was originally adopted. The inquiry here proceeds free of historical blinders, scanning broadly for any beneficial consequences of the Rule without regard to whether they were intended originally.
Fourth, and finally, this Article stops short of answering the ultimate question whether a common-law version of the Rule, a modified Rule, or no Rule against Perpetuities should constrict transfers of property. One reason for not reaching a bottom-line conclusion is that the magnitude of many of the positive and negative economic effects might be better guessed by persons having years of practical experience with donative dispositions than by those that understand the Rule only through appellate opinions and scholarly writings. Furthermore, because the economic theory helps to identify the potential costs and benefits, but not to determine their size, a conclusion even as to the economic advisability of the Rule is beyond the scope of this Article. Still another reason for inconclusiveness is that economic effects do not tell the whole story. The Article assumes that economic consequences ought to be considered in determining the fate of the Rule, but it does not presume to assign more weight to those considerations than to others, such as justice and liberty. In addition, though the Article touches briefly on a few ethical points, it does not attempt to analyze all such issues. Because the Article does not purport to discuss all important considerations and does not propose a system for balancing ethical losses against economic gains, it cannot claim a solution. Concerning the Rule against Perpetuities, the point here is only to further the economic analysis of the Rule and to make a few other comments, not to urge one program over another. Thus, unlike the traditional article proposing reform (or, less often, defending the status quo against reform), this Article does not reach or even attempt to reach that sort of normative conclusion.
About the Author
Jeffrey E. Stake. Professor, Indiana University—Bloomington School of Law; Visiting Associate Professor of Law, University of Illinois College of Law (Spring 1990). B.A. 1970, University of Illinois; J.D. 1981, Georgetown University Law Center.
Citation
64 Tul. L. Rev. 705 (1990)