Paul and Donald were neighbors.  Many homes in their neighborhood were being bought up by a development company, and Paul and Donald, both of whom had grown up in the neighborhood and spent their entire lives there, were very concerned that development would dramatically affect their quality of life.

Paul and Donald executed a written agreement in which each promised the other that he (and his successors, heirs and assigns) would use his land for single-family residential purposes only.  When they had begun their discussions, Donald sought to have the agreement expire after twenty years.  Paul, however, convinced him that there should be no time limit.

Paul and Donald each had homes with fair market values of $100,000.  LandGrab Corp, which was planning an apartment complex, needed only another quarter-acre of land to begin its development.  LandGrab approached Paul, offering him fair market value for his parcel.  Paul declined the offer, citing the agreement he had executed with Donald.  LandGrab had been unaware of the Paul-Donald agreement, which was unrecorded.

LandGrab then approached Donald with the same offer, and Donald promptly sold his land to LandGrab.  The development will cause the value of Paul’s house to decline to $80,000.  As LandGrab began construction of its development, Paul sued LandGrab for $20,000, the diminution in the value of his home.

If Paul does not recover, it will most likely be due to

(a)     the nature of the relationship between Paul and Donald.
(b)     a violation of the Rule Against Perpetuities.
(c)     Paul’s failure to record the Paul-Donald agreement.
(d)     a finding that the Paul-Donald agreement is an unlawful restraint on alienation.

To see Professor Bamberger explain the answer in detail click here