OUTLINE FOR PROPERTY I : PREPARED BY J. William Snyder, Jr. Text: Dukeminier & Krier, Property (2d ed. 1988). Professor: Patti Solari Term: Fall 1992 NOTE: This outline was originally prepared for my own private study, and it is based primarily on my own class notes, handouts, and excerpts from the textbook, either in paraphrase or direct quote. When possible, I tried to indicate material that has been directly quoted, but it is possible that some material from the textbook has been directly quoted without indication. I. Types of property 1. Real property: land 2. Personal property a. Tangible personal property (chattels) b. Intangible personal property (stocks, trusts, accounts) II. The Rule of Capture A. General rule: One acquires property rights in a wild animal [or something sufficiently analogous to a wild animal] if one captures, traps, or mortally wounds the animal (principle of first-in-time respected) (Pierson v. Post) Dissent: pursuit with reasonable expectation of capture confers property rights. B. Wild animals 1. General rule applies in most cases of capture 2. Property rights are VOIDED if animal escapes EXCEPTIONS: a. animal has animus revertendi (in the habit of returning) b. rare animal exception 3. Owners of land have constructive possession over all wild animals on their property, which generally voids the rights of capturers who trespass and capture game. 4. Those who make their livelihood off of hunting are generally protected from the unfair hindrance of other though not from fair competition (Keeble v. Hickeringill) C. Fugitive resources 1. Oil and Natural gas: split of authority a. analogize to wild animals and apply the rules applicable to wild animals (Hammonds v. CKNG) b. OR in other jurisdictions, labeled minerals and declared property of landowner. 2. Water a. Groundwater: split of authority (1) English rule: Absolute ownership- Draw as much water as you want, and the hell with your neighbor. (2) American rule: reasonable use- wasteful use that hurts neighbors is inappropriate. (3) Statutory and administrative regulations also may have something to say about water use. b. Surface waters: split of authority (1) Western states: first in time principle called "prior appropriation"; capture water an put it to reasonable use. (2) Eastern states: riparian rights- land along a source of water; owner get to draw and use the water subject to the rights of other riparians. III. Finders A. General Rule: finder has title to found property against all but the true owner and prior possessors (Armory v. Delamirie). B. Nature of the property 1. lost a. nature of the locus in quo (1) public- apply general rule (Bridges v. Hawkesworth) (2) private- owner/occupier gets it (McAvoy v. Medina) b. relationship between the parties (1) employer/employee relationship when employee is acting within his course of employment. (a) British Rule: servant finds for his master. (b) US 1. majority: reject British rule 2. minority: apply British rule 3. independent contractor exception 2. Mislaid property a. Definition- voluntarily placed but forgotten and left b. Rule- goes to the owner of the locus in quo 3. Abandoned property a. Definition- voluntarily left with no intent to recover b. Apply the general rule- except in cases of trespass 4. Treasure trove a. Definition: property concealed to be recovered at a later time. b. British rule: something of value hidden in the earth (coin, money, gold, jewels, etc.) c. Rules (1) British rule: goes to the crown (2) US rule: goes to the finder 5. Shipwrecks a. Definition: ship sunk in the ocean b. British rule: goes to the crown c. US rule: split (1) majority- goes to the finder (2) minority- goes to state if found in its territorial waters. C. Damages 1. Measure of value a. thing itself (replevin) b. value of the thing (trover) c. value of the finder's interest. 2. Responsibility of the finder to owner a. negligence- gross negligence b. misdelivery- split (1) majority rule: strict liability (2) minority rule: negligence 3. Liability between parties when a subsequent possessor pays the finder. a. Owner v. Finder: owner can recover b. Owner v. Subsequent possessor: split (1) majority rule- no cause of action (2) minority rule- SP liable even if he has already paid the finder, except in cases of subrogation [?] IV. Bailment A. Definitions 1. Justice Story: "A delivery of a thing in trust for some special object or purpose and upon a contract, express or implied, to conform to the object or purpose of the trust." 2. Professor Wileston: "The rightful possession [of goods] by one who is not the true owner for a limited purpose." 3. Possession, power, or control over an object with intent to exercise that control and exclude others from interfering with it. B. Types of bailments 1. Sole benefit for bailor. i.e. "Take care of this for me while I'm away." 2. Sole benefit for the bailee. i.e. Borrowing items. 3. Mutual benefit bailment. i.e. coat check 4. Some jurisdictions deem all bailments to be to some degree for the mutual benefit of both parties. C. Standard of care 1. B-1: slight care 2. B-2: extreme care 3. B-3: ordinary care D. Liabilities 1. B-1: only for gross negligence 2. B-2: only for slight negligence 3. B-3: only for ordinary negligence 4. Cases of misdelivery-split a. Majority- bailee strictly liable b. Minority- apply standard of care for the appropriate type of bailment. 5. Involuntary bailments and finders a. A finder can be deemed a bailee of an item he finds, but most of the time finders will not be regarded as involuntary "gratuitous" bailees. Even in the case of finders, there is probably some benefit to the finder. b. A potential finder has no obligation to take a found good into possession, but if she does, she becomes a bailee to the true owner. E. Goods damaged while bailed: Burden of proof- on the bailor 1. prima facie case a. Was there a surrendering of the goods? b. goods were undamaged before surrendering? c. goods were damaged upon return? 2. Elements (Questions to ask) a. Was there a bailment? (1) rightful possession of goods (2) intent to control b. If so, what type of bailment? (B) c. What was the standard of care? (C) d. Was the standard of care breached? Did the care fall below the standard? 3. Other considerations a. Value of the object b. Attractiveness to thieves c. Ease of theft from place of storage d. Special skills, abilities, knowledge on the part of the bailee. F. Misdelivery in those jurisdictions where bailees are held strictly liable for misdelivery. 1. Elements (Questions to ask) a. Was there a bailment? (1) rightful possession of goods (2) intent to control b. Was there misdelivery? G. Use of good by bailee 1. If there is an express agreement, then use may be pursuant to the agreement 2. If no express agreement--> rules of reason apply 3. Bailee may be sued if he converts, sells, or damages the goods. H. Bailee's rights 1. Bailee may acquire title to bailed goods by adverse possession should she meet the statutory conditions. 2. Other statutory provisions may afford bailees rights. V. Adverse Possession (AP) A. Definition: An unconventional means of acquiring title to land which occurs when a person occupies and possesses another's land under claim of right or color of title for a period of time set by the applicable statutes. AP is a mishmash of common and statutory law 1. Unconventional: as opposed to conventional methods of land transfer. a. deed b. inheritance (1) will (devise) (2) intestate succession 2. Claim of right a. an intent component b. person using land intends to use it to the exclusion of all others, especially the true owner c. claim to have the right to possess, occupy, and use the property d. minority of jurisdictions in boundary disputes: look at state of mind of the APer. 3. Color of title (COT) a. Definition: a written instrument that purports to transfer title but legally fails to do so (deed, will, judgment, inaccurate deed, no title to pass, etc.) b. COT usually shortens the SOL requirement c. Constructive possession can be invoked. 4. Applicable statutes a. Statute of limitations (SOL) b. Disabilities provisions c. AP against state SOL- usually the state has a longer SOL in which to bring an action for ejectment or quiet title. d. Failure to act (bring ejectment or quiet title action) within the statutory time period against an APer results in the land being awarded to APer. e. NC Statutory provisions regarding AP (1) Statutes of limitations (SOL) (a) 20 years for AP of private land w/o COT (b) 7 years for AP of private land w/t COT (c) 30 years for AP of State land w/o COT (d) 21 years for AP of State land w/t COT 5. Considerations a. Who owns/has record title to the land? a. State? (SOL is usually longer) b. Private owner (Shorter SOL) b. COT (Shorter SOL) c. What type of possession is required? States vary on this point. NY is very specific about the type of possession it requires. d. Character of the land in question: what is its normal use? B. Elements 1. Hostile/Claim of Right/Claim of Title - no permission to be on the land, but you claim it as your own. "Hostile" means "adverse to the interest of the true owner", and not "animosity" a. intent b. lack of permission c. Permission VOIDS any AP rights, unless the one given permission somehow puts the landowner on notice that he is occupying the land under claim of right. d. AP against landlord- 2 actions required (1) repudiate the lease (2) stop paying rent e. AP against other cotenants - Requires ouster: must actually tell other cotenants to "get lost" and that they are no longer welcome. f. Vendee or grantee (1) Under void deed satisfies hostile/claim of right [fraud, maybe?] (2) If no title to pass, its not so clear. g. Bearing of the claimant's state of mind on cases of AP, especially in the hostile/claim of right category (1) Majority rule in US and Britain: Objective standard- courts do not try to read minds. If all the elements are met, then if the claimant used the land as if he were the true owner, then he gets it by AP. States of mind are irrelevant (2) Minority rule- Subjective approach - state of claimant's mind is relevant (a) Good faith belief that land was his (rewards ignorance) (b) Larcenous intent- BAD faith is required- had to know the land was not his. (Rewards naughtiness/ hostility requirement taken literally) (c) Criticisms of the subjective approach (1) difficult to establish state of mind: very ambiguous and slippery. (2) protracted litigation- looks away from use of land (3) larcenous intent rewards aggressive trespassers and punishes good faith claimants. 2. Actual possession a. Real, physical possession of the land or some part of it. b. Making use of the land as (1) the true owner would, or (2) comports with the normal use of the land as recognized by the community. 3. Open & notorious possession a. Visible/Known to the public b. Put the owner on notice (though he need not actually know) that someone is occupying his land under claim of right (constructive notice). 4. Exclusive possession - possessor shows that no one has interfered with the claim, especially the true owner 5. Continuous and uninterrupted possession - Look at the character or kind of the land to determine what is required for continuous and uninterrupted possession. 6. O.C.H.E.A.N. Open Continuous Hostile Exclusive Actual Notorious 7. Successful APers may only get the interest the true owner had in the land at the time they began APing the land. a. If the true owner only possessed the land as a life estate, then the APer get only the life estate, not clear title to the land. b. If APer starts APing land when it is possessed by a person with clear title and that person later conveys the land into a life estate and a remainder, APer is not affected by this transfer. If he successfully APs for the SOL and other applicable statutes, he will get clear title. C. Color of title - if you have it, you have the property under claim of right 2 effects of COT 1. Shorter SOL time period (7 years in NC) 2. How the property must be possessed: may invoke constructive possession and avoid the pitfalls surrounding actual possession. 4 elements of constructive possession: a. COT b. SINGLE parcel or tract of land c. Tract must be under SINGLE ownership d. NO actual possession by another D. Lappage (interlocker) 1. This occurs when two deeds describe an area that overlaps on both tracts of land. 2. Who gets the lappage depends on possession a. neither is in actual possession of the lappage: law gives possession to the person who has better title (an application of first in time) b. Actual possession of any part of the lappage by one party and no actual possession by the other party: Actual possessor gets the entire disputed portion. c. When both are in actual possession of some part of the lappage, the party with better title gets all of the lappage (by constructive possession) except that portion actually possessed by the other party; the other party gets it. E. Tacking 1. Applying the time of occupation of other adverse possessors to one's own claim for adverse possession. 2. Requires "privity of estate": mutuality of interest/ interest derived from or dependent upon interest of previous owner/occupier; third parties not party to the conventional transfer cannot invade and have no interest in the privity. a. intestate succession (ancestor-heir) b. valid will (devisor-devisee) c. title by deed (grantor-grantee) d. Any other agreement, oral or written, where it can be inferred that the prior possessor intended to transfer title to subsequent possessor. 3. EXCEPTION: Trespassers may not tack the prior possession by other trespassers. (Trespasser SP ousts Trespasser PP: Trespasser SP cannot tack Trespasser PP's time of possession on to his own time of occupation for the purposes of AP. 4. Ousting, tacking, and the SOL: When an APer is ousted by another APer, and later the first APer ousts the subsequent APer: a. Majority rule: SOL is tolled (stopped) while A is out of actual possession, since he did not abandon the property b. Minority rule: SOL begins ticking and does not stop F. Improvements and Encroachments 1. Improvement: a modification to the land that has the effect of increasing its market value. It must be done entirely on the land in question. a. When APed land is improved, SOL has not run, and Owner takes legal action against APer who has improved the land, who gets the improvements or their value? (1) General Rule: According to the common law, the landowner gets ANY improvements (2) Minority rule: trend towards moderation of the harshness of the common law rule (a) Betterment statutes: AP gets fair market value (FMV) of the improvement (b) Court will permit removal of the improvement, if feasible (c) Landowner choice 1. Sell land to improver, or 2. Pay improver for the improvement 2. Encroachment: Improvement which overlaps partially onto the land of another. a. Innocent (good faith mistake) encroachment (1) The court will compare the hardship on the encroacher to remove the encroachment, and (2) The inconvenience to the landowner whose property has been encroached upon. b. Wilful encroachment - remove the encroachment, regardless of the hardship G. Disabilities 1. Definition: A legally recognized status which might excuse a landowner for failing to bring an action for recovery of land within the time set by the SOL. 2. Disabilities recognized a. By most states: (1) infancy/minority (2) mental incompetence/insanity b. By some states: (1) imprisonment (2) military service 3. Timing of the disability is CRITICAL: In most jurisdictions, the disability must have existed at the time the cause of action accrued. 4. NC disability provisions a. For the following disabilities, a landowner has three years from the date of removal of the disability to bring the cause of action: (1) Minority (under 18) (2) Insanity (3) Mental incompetence b. For incarcerated persons, the SOL starts ticking on January 1, 1976 and cannot be tolled again [disability by reason of incarceration is being phased out]. c. Coexisting/Supervening disabilities: When multiple disabilities exist concurrently at the time the COA accrues, or one disability supervenes another existing at the time of the cause of action accrued, the 3 year SOL does not start ticking until they are all removed. d. Subsequent or intervening disabilities: The disability must exist at the time the cause of action accrued in order to be availed of the disability provision. A landowner cannot invoke the statute for a disability arising after the cause of action accrued. 5. In some states, disability completely tolls the SOL, but in other states like NC the SOL is not completely tolled. 6. Disability provisions are NEVER punitive. When a person's disability is removed, that person gets either the time remaining on the full SOL or the disability SOL, whichever is greater. H. AP of chattels 1. Generally speaking, the same principles that apply to AP of real property also apply to AP of chattels- elements are the same 2. Void vs. Voidable title a. Void title: no title to begin with (thieves have no title to transfer) b. Voidable title (1) Definition: item voluntarily transferred by owner to subsequent possessor. (could be fraud, entrustment, etc.) (2) Holder of voidable title can pass good title to a good faith purchaser for value. (3) Procurement by fraud creates voidable title; perpetrator can transfer good title to a bona fide purchaser (4) Bona fide purchaser has to be on notice (actual or constructive) that the goods are stolen or fraudulently procured for the transfer of good title not to work. 3. O'Keefe v. Snyder - Case history-judgments a. trial court: COA/SOL accrued/started ticking at the time of the theft (6 yrs in NJ. b. Appellate Division: SOL did not begin ticking against O'Keefe until all elements of AP had been satisfied, especially the "open and notorious" requirement c. NJ Sup. Ct.: Discovery rule- SOL starts running at the time of the theft unless owner uses due diligence to locate the article: SOL starts running when the owner locates who has the article or should have known who has it. The rule rewards taking affirmative steps to locate one's property. A substitute for AP of chattels (but a minority rule) d. Running of the SOL bars action for recovery and vests good title in the possessor that relates back to the date of the dispossession from the true owner. VI. The Estate system A. 4 goals 1.What are the different names for the different possessory estates and future interests that make up the estate system? 2. With respect to each, what language is required to create it? a. At common law b. In a modern jurisdiction 3. What are the legal characteristics of each a. Duration b. Transferability (1) By deed (2) By will c. Inheritability 4. Are there any common law rules or statutes that have been applied to defeat the owner's/transferor's intentions to create a given estate? B. Feudalism and the rise of the estate system 1.In 1066, Edward the Confessor, King of England, died celibate and childless. In a controversy over whom was the heir to the throne of England, William of Normandy (aka. William the Bastard and William the Conqueror) invaded England. He defeated his opponents at the Battle of Hastings, claimed the English throne, and he subsequently expropriated all the nobles of their land. In the redistribution of the land, the estate system arose. 2. Reserved 3. Reserved 4. Reserved 5. A gradual enactment of statutes eroded feudalism and resulted in the basic concepts that exist today. a. Independent ownership of land b. Free alienability/transferability of land (1) Against: Parliament (2) For: Common law courts c. Inheritability C. Estate: an interest in land which is or may become possessory and which is ownership measured in terms of duration (Restatement). D. Words of Purchase Identify the grantee E. Words of limitation Identify the estate transferred F. Words of Duration/Condition Duration on the estate created G. Words of termination Describes the future interest in a defeasible estate H. When examining conveyances, examine the words in the order in which they appear. VII. Possessory Estates A. Six types of present (possessory) estates classified by duration (Also called "freehold estates"). 1. Fee Simple Absolute (FSA): The largest estate in land recognized in our system 2. Fee Simple Determinable (FSD) 3. Fee Simple Subject to Condition Subsequent (FSSCS) 4. Fee Simple Subject to Executory Limitation (FSSEL) 5. Fee Tail (FT) 6. Life Estate (LE) B. Fee Simple Absolute (FSA) 1. The largest, most substantial estate in land recognized by our system 2. Legal characteristics a. Potentially infinite/Exists indefinitely. It last until someone does something to break it up. b. Conveyable by deed c. Devisable by will d. Inheritable through the laws of intestate succession e. Escheats to the state if no transfer, devisement, or intestate heirs f. NO future interests associated with it (unlike other possessory estates) 3. How to create an FSA a. At common law: O -> A and his heirs [THE MAGIC WORDS!!!!] b. Modern jurisdiction O -> A Legal presumption that grantor intends to transfer his/her entire interest unless there is limiting language. c. The old language is no longer needed, but it is still used d. In older jurisdictions, the conveyance "O -> A" created a life estate, not an FSA. e. A's heirs take nothing from this conveyance. C. Fee Tail (FT) 1. The FT was an old common law estate used by landed families to keep land in the family by tying it up in a direct line of descent. 2. Language used to create O -> A and the heirs of his body 3. If A's line of descent runs out, then the land reverts to the grantor or his heirs. 4. The Common law courts did not like this estate at all, and they went through pains to work around it. a. Initial attempt to defeat grantor's intent: Interpret "of his body" as setting up merely a condition A must meet in order to convey an FSA (A must have heirs (children). A could then turn around and convey an FSA to a "strawman" and then have the "strawman" convey it back to him in FSA, b. The nobles did not like this circumvention, and so they went to Parliament and won passage of the De Donis Conditionalis (1285) which prohibited the Tenant in Tail from conveying an FSA after an heir was born (enacted the FT) c. DDC worked for awhile, but the common law courts eventually circumvented it too - Barring the Entail: Tenant in tail goes into a common law court and has the entail barred. This action was a complete sham, as the common law courts had no authority upon which to bar an entail. d. Eventually, parliament caved in and said that you can create and FT, but the grantee can convey it to another in FSA 5. Today, in most jurisdictions, the FT has been abolished EXCEPTIONS: (1) DE (2) ME (3) MA (4) RI 6. How do the modern jurisdictions that have eliminated the FT interpret a conveyance like the following: O -> A and the heir of his body, but if A dies without heirs, then to B a. Minority approach: A gets a life estate, A's issue take a remainder in FSA, and B takes nothing b. Majority split (1) A takes an FSA; gift over to B is void (This is how NC treats the FT (G.S. 41-1)) (2) A gets a fee simple, and limitation over to B takes effect iff A dies without issue at his death (FSSEL) Rule: definite failure of issue. If A is survived by issue, they take in FSA, and B is CUT OUT. c. At common law, this conveyance created a FT general with a contingent remainder in B. If there is indefinite failure of issue (A's line runs out), the estate goes to B. 7. Other fees tail a. O -> A and the heirs of his body (General FT) b. O -> A and the heirs if his body by his wife Sara (FT special) c. O -> A and the male heirs of his body (FT male) d. O -> A and the female heirs of his body by his wife Sara (FT female special) 8. At CL, the Ft lasted for the life of the tenant in tail, and then down the line of descent. 9. A could convey his interest to another, but only in a life estate pur autre vie (measured by A's life). 10. Axiomatically, the FT was not devisable by will, for upon the death of the tenant in tail, the possessory interest automatically terminated and vested in the next person in the line of descent, if there was such a person, else to the grantor or his heirs or assigns. D. Life Estate (LE) 1. 2 categories of life estates a. Conventional LE's b. Legal LE's (these have by and large been abolished) (1) Curtesy: A widower's right to possess for life any property owned by his wife during her coverture provided there were heirs who could inherit the property. (2) Dower: A widow's right to possess for life certain property owned by her husband during his life. 2. Language used to create - O -> A for life [, then to B] - A takes the life estate - O takes a reversion [or B takes the remainder] in FSA 3. Legal characteristics a. Conveyable by deed, but only the life interest b. Devisable by will iff pur autre vie of another who had not died yet. Otherwise, upon the death of the holder of the life estate, the estate terminates and vests in the grantor or the remaindermen. c. Inheritability: (1) At CL, if A had a LE pur autre vie of B, and B was still alive, the first person who could get on the land after A died got the use of the life estate pur autre vie (General occupant rule). [Also, take note of the special occupant rule] (2) In modern jurisdictions, a LEPAV is inheritable by the heirs of the grantee. 4. Disadvantages of life estates a. DO NOT CREATE A LIFE ESTATE IF YOU CAN HELP IT! In almost all situations a trust will be better than a life estate. Usually the intent in creating a life estate is to provide for someone during his or her lifetime. When land was the primary source of wealth an prestige, life estates made a lot of sense. But now that land is just another commodity whose value can change rapidly, the life estate is now essentially an anachronism. Invariably, a trust will be a much more effective and flexible means of providing for someone's welfare. b. A life tenant cannot sell a FS interest in the property without the consent of all the remaindermen, unless a court orders otherwise. c. Though the life tenant can lease the land, the lease cannot extend beyond the death of the life tenant. d. Most creditors will not accept life estates as collateral, and consequently the life tenant will not be able to mortgage the property. e. Though the life tenant may use the land in a reasonable fashion, the future interest holders have a remedy for wasteful use. f. The life tenant is under no duty to insure the property or the structures on it. g. The drafter can give the life tenant the power to sell a FS interest or lease beyond the duration of the life estate, but the drafter should consider what should be done with the proceeds if the property is sold in FS (give the proceeds to the life tenant outright or hold it in trust for the life tenant?) E. Restraints on alienation 1. White v. Brown and the dangers of ambiguous language a. Possible interpretations of Mrs. Jesse Lide's will (1) Life estate (with a remainder to the nieces & nephews) (2) Some sort of FS, probably an FSA (3) FS with a restraint on alienation b. Plaintiffs want the will construed as passing an FSA and to regard the "to live in" and "not to be sold" language as an invalid restraint on alienation. c. Defendants want the will construed as passing a life estate with a remainder vested in them. They argue the language "not to be sold" and "to live in" clearly manifests the testatrix's intent that the grantee take only a life interest. d. Rules of construction used to interpret written documents (1) Codified provision: A grantor passes all of his/her interest unless he/she intends to convey a lesser estate, either explicitly or implicitly (2) Statutory presumption: Wills should not be construed as creating partial intestacy unless intent to do so is clearly manifested. The testator/testatrix is presumed to have intended to dispose of the entire estate. This means that the interpretation of the will to create a LE requires that the remainder pass by partial intestacy, and the statutory presumption rejects that interpretation. e. Judge Harbison in his dissent invokes other rules of construction to find for the defendants. Testatrix knew how to leave her property in FSA, but she chose not to do so. Intent of the testatrix also indicated she intended to convey only a life interest in the property. 2. Objections to restraints on alienation a. Makes land unmarketable b. Perpetuates the concentration of wealth c. Discourages improvements d. Hardship to creditors 3. Three kinds of restraints a. Disabling restraint- Attempted transfer is VOID b. Forfeiture restraint- If transfer is attempted, the transferor's interest is forfeit c. Promissory restraint- A promise not to transfer interest in the property (use contract remedies if breached). 4. Validity of the restraints a. With regard to FSA's, NONE of the restraints is valid b. With regard to LE's, b. and c. are valid, while a. is not (if a. were valid, creditors could not reach the estate.) c. Exception: a partial restraint may be valid so long as it is reasonable in purpose, effect or duration. 5. See Mountain Brow Lodge v. Toscano for more on restraints. 6. Restraints on marriage usually void, depending on the intent of the grantor (see I.7. for broader treatment.) F. Law of Waste 1. Baker v. Weedon a. Plaintiff: Anna P. Weedon, third wife of the testator. Upon his death, John Weedon left his farm to his wife in a life estate with a contingent remainder to her children, and if she had no children, to his own grandchildren (He explicitly cut out his 2 surviving daughters.) b. Defendants: Grandchildren of John Weedon and contingent remaindermen of the farm. c. 1964: The state wants to build a highway through part of the property, and so it tracks down all those with interest and pays them off. Until that time, the grandchildren did not know of their potential inheritance. d. The income Anna has been receiving from the farm has been inadequate, and so she files suit to have most of it sold to pay for her living expenses under the doctrine of economic waste. The remaindermen object, but the court orders a sale. e. On appeal to the MS Supreme Court, the court finds that the law of waste does not apply solely to deterioration of the premises. Since the land was becoming valuable as commercial property, the court finds that the remaindermen have a substantial interest which they stood to lose were the land sold prematurely. The court thus articulates the necessity test and requires that the best interests of all parties be considered in a decision over whether or not to sell property with future interests attached. f. John Weedon's intent was to give his wife support during his life: were there other options besides creating a life estate? (1) FSA (He probably did not want to convey to her a FS interest) (2) Put the land in a trust. Then she could conceivably force the trustee to invade the principal, sell the land, and pay her the interest from the proceeds. She could also force the trustee to invest the land in such a way as to yield maximum return. g. Life estates are usually the result of poor or no legal advice. A trust is almost always better than a life estate. John's lawyer probably made the mistake of not suggesting a trust to John. 2. Most jurisdictions have statutes that authorize the sale of land with future interests to prevent economic waste. - In NC, the statute is G.S. 41-11 3. The law of waste can pit holders of interest against one another a. Life tenant vs. remaindermen b. Cotenant vs. Cotenant 4. Definition of waste: An unreasonable use of property by the owner of the possessory estate which unreasonably reduces the value of the future estate. It usually involves material use or neglect of the property that significantly reduces its value. The holder of a vested future interest can sue for injunctive relief. 5. Responsibilities of the life tenant a. The life tenant must pay property taxes (statutory) b. The life tenant is under a duty to keep the property in good repair. (case law) 6. Considerations - Balancing the rights of the holder of the possessory interest vs. the owner of the future interest. a. Nature of the property interests b. Conduct in question c. Remedy sought 7. Waste that harms those with contingent future interests: The more tenuous the claim is to the property and the less certain the interest is likely to become possessory, the less chance you have at maintaining a successful claim for waste against the possessory interest holder. On the other hand, the more likely the claim will vest, the more likely the court will be willing to grant relief. 8. 3 kinds of waste a. Voluntary waste: Affirmative action by the possessory interest holder which substantially reduces the value of the land (i.e. strip mining). EXCEPTION: Open mines rule: if the mine (or analogous operation) is operating at the time of the grant of the life estate, then it may be presumed the grantor intended that the operation may continue. b. Permissive waste: Passive action by the possessory interest holder whereby he fails to prevent substantial reduction in the value of the property. Relief for permissive waste is granted less often. It will depend on how the courts regard the obligations of the life tenant and where the jurisdiction draws the line between repair and improvements. c. Ameliorative waste: Affirmative act which substantially increases the value of the land, but which nevertheless a use to which the future interest holder objects (i.e. building condos on Grandma's farm which has been in the family for generations and has tremendous sentimental value) Split: (1) English rule: the future interest holder may seek a remedy for ameliorative waste. This is based on the old English assumption that the grantor intended the future interest holder to receive the property in the same condition as the holder of the possessory interest received it. (2) US rule: Almost universally, future interest holders may not recover for ameliorative waste, especially if the possessory estate is likely to last a long time. G. Seisin 1. The owner of a freehold estate has seisin in the property. Prior to 1536 (The year in which the Statute of Uses was passes), transfer of a freehold estate could only be made through a ceremony called "livery of seisin" in which the grantor handed the purchaser a twig, a clump of soil, etc. which symbolized the transfer of the property. 2. Who held seisin in feudal times was extremely important, for it determined who owed feudal incidents and to whom. Someone had to hold seisin of property at all times; seisin could never be in abeyance. Seisin was regarded as real in the medieval mind. 3. Today, seisin means ownership of a freehold estate. Lessees hold possession, not seisin. H. Leasehold estates 1. Leasehold estates are non-freehold possessory estates. They were regarded, and still are regarded, as personal and not real property. 2. Leaseholds did not affect seisin: it remained in the grantor of his designees. 3. Leaseholds are for a specific length of time, called a term of years. I. Defeasible fees - FS whereby the holder of the FS can be "de-feed" if the stated contingency occurs. 1. Generally a. Types of defeasible fees (1) FS determinable (FSD) (2) FS subject to/on condition subsequent (FSSCS) (3) FS subject to executory limitation (FSSEL) b. All are present, possessory estates c. The language used to create is CRITICAL! The correct language of duration, condition as well as language of termination must be employed in order to create the estate intended. d. Also, you must make the grantor's intent clear to avoid a possible adverse judicial construction. 2. FS determinable (FSD) a. Duration: indefinite/potentially infinite. b. Legal characteristics (1) Conveyable by deed (2) Devisable by deed (3) Inheritable by intestate succession - but the contingency does not disappear c. A conceptually smaller estate than and FSA: when an FSD is created, a future interest called a possibility of reverter (POR) vested in the grantor will be created. [The analogous future interest created in a grantee is called an executory interest (EI).] The fee is granted subject to the stated contingency, and if the contingency is breached or comes to pass, then title automatically revests in the grantor of his heirs, assigns, devisees, etc. d. Conveyance of an FSD must include language expressing the grantors intent that (1) The estate automatically terminates upon breach of the contingency, and (2) That title automatically revests in the grantor (or third party). e. Language used to create O -> A so long as the property is not used as offices for the Republican party, else title shall automatically revert to the grantor. O -> A until ... O -> A during such time as ... f. Drafting error: O -> A so long as the property is not used as offices for the Republican party. NO LANGUAGE OF TERMINATION!!!!!! Possible interpretations: (1) Some courts will infer the POR (2) Other courts will say that since no POR was stated, none will be implied 2 further possibilities (a) Imply a right of entry/power of termination (ROE/POT) and deem the estate created as an FSSCS (This interpretation requires that the grantor take affirmative steps to retake title: courts do not like the automatic termination and revestment feature of the FSD and will avoid such a construction if at all possible. conveyance. (The remedy for breach of the contingency is in contract.) (b) "Majority" rule: FSA, possibly with a covenant depending on the g. Alienability of the POR Split: (1) CL: POR is not transferable during the lifetime of the holder, but it is inheritable (Devisable by will? Until 1837, maybe, but after that, Parliament enacted a statute making the POR alienable.) (2) US - modern approach (a) Majority- The POR is freely alienable (N.C.G.S. 39-6.3) (b) Minority- Some states, like IL still follow the CL rule. 3. FS on/subject to condition subsequent (FSSCS) a. Similar to an FSD in that in this conveyance the grantor imposes a condition on the transfer, but unlike the FSD, the future interest is a right of entry/power of termination (ROE/POT), which requires that the grantor take affirmative steps in order to reclaim title, usually by filing an ejectment [?] or quiet title action. b. Language used to create: Language of condition O -> A but if the land is used as a landfill, then the grantor or his successors shall have the right to re- enter and take possession of the property. O -> A on the condition that... c. Drafting error: Language of condition appropriate to an FSSCS, but no stated ROE/POT - Majority rule (NC): Courts will not infer the ROE/POT (a) Some courts will interpret the conveyance as an FSA (b) Others will interpret the contingency as a covenant and restrict remedies for breach to contractual remedied (injunction, damages, etc). d. Duration - The estate exists indefinitely, and is potentially infinite. e. Legal characteristics (1) Conveyable by deed (2) Devisable by will (3) Inheritable by intestate succession - but the condition remains intact. f. The SOL for adverse possession starts to run as soon as the condition in the conveyance is breached. g. Alienability of the ROE/POT Split: (1) CL: ROE/POT is not transferable during the lifetime of the holder, but it is inheritable (Devisable by will? Until 1837, maybe, but after that, Parliament enacted a statute making the ROE/POT alienable.) (2) US - modern approach (a) Majority- The ROE/POT is freely alienable (N.C.G.S. 39-6.3) (b) Minority- Some states, like IL still follow the CL rule. 4. FS subject to executory limitation (FSSEL) a. Similar to an FSSCS/FSD, but the future interest is in a third party b. Language used to create O -> A but if A ever becomes a Republican, then to B. The same language of condition as an FSSCS, but no language of termination and the future interest is in a third party, B. c. When the condition is breached, title automatically vests in the third party (similar to FSD in this respect.) d. Duration - The estate can last indefinitely, and is potentially infinite, so long as the stated contingency does not come to pass. e. Legal characteristics (1) Conveyable by deed (2) Devisable by will (3) Inheritable by intestate succession - but the proviso remains intact. f. Future interest which follows an FSSEL: Executory interest (vested in the third party). 5. Marenholz v. County Board of School Trustees (see brief for more details) a. Plaintiffs: Deed created a FSD with POR, and in 1973 when classes ceased, title automatically vested in Harry Hutton, and then they got title through Harry Hutton's March conveyance. b. Defendants: Deed created an FSSCS with ROE/POT. Like the POR, the ROE/POT is not conveyable or devisable, but it is inheritable and can be released to the holder of the possessory interest. Harry Hutton was the sole heir of the grantors. Harry Hutton's September release thus gave the School Board FSA interest in the property. c. Court: Trial court was in error in concluding that the Marenholzs could not have gotten any interest from Harry Hutton. The conveyance smacks of a limited grant with a possibility of reverter (FSD), and so they might have gotten title in the March conveyance, though the court does not reach that issue. They also do not reach whether or not the property is no longer being used for school purposes or if Harry's September release sufficiently revoked the March conveyance. 6. Moutain Brow Lodge v. Toscano and use restrictions a. Plaintiffs: Both restrictions are restraints on alienation and are consequently void. b. Defendants: Deed created some sort of defeasible fee with some sort of reversionary interest in the grantor. c. Court's decision (1) The deed created an FSSCS followed by a POR. [The court gets its terminology wrong. The estate they mean is an FSD followed by POR.] (2) The explicit forfeiture restraint on alienation is invalid (3) The use restriction may indirectly interfere with alienation of the property, but it is nonetheless valid. d. Public policy considerations concerning use restrictions (1) Pro (a) Respect the intent of the testator to govern how his land is to be used (b) Courts have allowed transfers to churches and schools for church and school purposes, respectively. If use restrictions were banned, such conveyances would be impossible. Allowing use restrictions thus promotes charitable contributions. (2) Con (a) Effectively creates a restraint on alienation. It limits potential buyers. In Toscano, the only potential buyer would be someone who is willing to be a landlord for the lodge. (b) Inherently short sighted. Example: property over in RTP that cannot be developed because of a use restriction mandating that it only be used as a gun club. (c) Tracking down heirs after 100 years may be impossible [, though the heirs would probably be responsible for showing up to collect their cuts.] 7. Defeasible life estates a. Most common DefLE: Defeasible upon marriage of grantee. This restraint runs afoul of a CL policy to promote marriage and not discourage it. (1) If the intent of the grant is to discourage the grantee from getting married, the restraint is VOID. (2) If the intent of the grant is to provide support for the grantee until such time as the grantee gets married, then the court may honor it. (a) In this regard, the courts prefer the determinably form ("so long as" rather than conditional "but if".) (b) Courts reluctant to interpret cohabitation as "marriage" and more likely to interpret the restraint literally. b. If the condition on defeasment becomes impossible to meet, like if the grantee of a fee dies, then the estate becomes a de facto FSA, though a prudent lawyer would file a quiet title action to have the restriction adjudged unfulfillable and convert the estate into an FSA. 8. Precatory language: Grantor attempts to create a particular estate but fails to do because he did not use the "magic words". The desire of the grantor is not made legally binding. a. Language creating an FSD or FSSCS without the language of termination. A majority of jurisdiction are likely to rule that the grantee takes an FSA from such a conveyance. b. O -> A with the hope that A will always use the property as a house of prostitution. :-) Such a conveyance does not create an FSD, FSSCS, or even an FSA with a covenant. VIII. Future interests A. Definition: A non-possessory estate that is capable of becoming possessory. It is a present interest in that it exists now. Though it is not possessory, it does exist and is valuable. (Buying contingent remainders is a bit of a gamble, but you can do it.) B. Types of future interests 1. FI's retained in the grantor a. Reversion b. POR c. ROE/POT 2. FI's retained in a grantee a. Vested remainder (VR) (1) Indefeasibly vested (2) Subject to total defeasment (3) Subject to partial defeasment b. Contingent remainder (CR) c. Executory interest (1) Shifting executory interest (De-fees another grantee) (2) Springing executory interest (De-fees a grantor) C. FI's in grantor 1. Reversion: The future interest in an estate an owner of a present estate retains when he transfers a smaller estate, one that is conceptually shorter in duration than the one he started with. a. Types of possessory estates that have associated reversions (1) Limited FSA [O -> A for A] [?] (2) FT (3) LE w/o a vested remainder (4) Term for years b. Legal characteristics (1) Conveyable by deed (2) Devisable by will (3) Inheritable by intestate succession c. DO NOT talk about "possibility of reversion". That estate DOES NOT EXIST. d. Unless the conveyance creates a FS interest or a vested remainder in FS, there will be a reversion vested in the grantor. 2. POR: the future interest which follows an FSD 3. ROE/POT: the future interest which follows an FSSCS. D. FI's in grantee 1. Remainders a. Definition (1) A future interest (2) Created in someone other than the grantor (3) Which according to the terms of its creation will become a possessory estate, if ever, immediately upon and no sooner than the expiration of all [key difference from an executory interest.] (4) Prior estates (5) Created simultaneously with it (6) And cannot divest any interest except an interest left in the transferor. b. Holder of a remainder is called a "remainderman. c. EXCEPTION: The following conveyance does not create a remainder: O -> A so long as A never grows marijuana on the premises, and if he does, then to B. This conveyance creates an FSSEL with an EI in B. A remainder can NEVER follow an FS estate. This rule is a throwback to common law rule: once O transferred an FS estate, he had nothing left to convey. The Statute of Uses in 1536 allowed B's interest to be conveyed (a shifting executory interest). d. Vested remainders (VR) (1) A VR exists where a transferee is an ascertained party at the time of the transfer (2) VR's are not subject to conditions precedent. (3) Split on the future interest this conveyance creates: O -> A for life, then to B for life. (a) Modern majority: Indefeasibly vested remainder for life (b) Minority (Restatement): VR subject to total defeasance for life (4) Types of vested remainders (a) Indefeasibly vested remainder (VRI) - No condition precedent - No unascertained party - No condition subsequent (EI which could divest it) (b) Vested remainder subject to open/partial defeasance (VRSOD). (1) For those interests that can be partially cut down or where the persons who can take can increase along the way. They are created in a class of persons that is capable of increasing in size. Notable example: Conveyances to CHILDREN. (2) If at the time of the conveyance there are no grantee children to take, then the children have a CR and the grantor has a reversion (3) Once the person to whose children the grant is made has a child, that child takes a VRSOD. If that child dies, the child is NOT defeated; his interest will pass to his heirs or devisees. (4) When the VRSOD's become possessory, their holders take as tenants in common. (c) Vested remainder subject to total defeasance (VRSTD) - These VR's are subject to conditions subsequent/EI's (5) Legal characteristics (a) Conveyable by deed (b) Devisable by will (c) Inheritable through the laws of intestate succession. e. Contingent remainders (CR) (1) Rules of thumb regarding CR's (a) A CR exists where a transferee is an unascertained party at the time of the transfer. (b) CR's are subject to conditions precedent. (2) If the remainderman must survive the previous possessory estate holder simply because of the durational character of the estate, that is not a condition precedent. (3) CR's do not follow VR's (4) "If ever" language distinguishes a CR. (5) When the future interest holder must survive the life tenant in order to take solely because of the durational character of the preceding estate, the future interest is NOT a CR. (6) If the conveyance ends in a CR, the grantor will retain a reversion. (7) Alternate CR's set up a condition precedent which if satisfied vests interest in one person or persons and if not satisfied vests in another person or persons. (a) A reversion will follow alternate CR's despite the fact that it is a near conceptual impossibility for it to become possessory. (b) The reason for this is an old CL rule that a LT could forfeit his life estate for waste. It remains possible for a LT to forfeit his LE to the grantor for waste, thus the need for recognizing the grantor's reversion. (8) Legal characteristics (a) Majority rule: CR's are freely alienable (1) Conveyable by deed (2) Devisable by will (3) Inheritable through the laws of intestate succession (b) Minority rule: CR's are NOT transferable inter-vivos, though they can be inherited. ([Devisable?]) HOWEVER, the holder of a CR may relinquish it to the holder of the possessory estate (similar to release of POR and ROE/POT to holder of possessory estate.). (9) CR's cannot become possessory until any condition precedent is satisfied and the taking party is ascertained. (10) If the condition precedent can never be satisfied, then the CR becomes a nullity and is extinguished. (11) A CR cannot divest an interest in a transferee, but it can divest an interest in a transferor. (12) Doctrine of Destructibility of CR's (a) In jurisdictions where the rule is still recognized, a CR must vest in interest prior to or at the time of the termination of the previous estate. (b) The rule has been abolished in most jurisdictions. (13) Browning v. Sacrison (a) Plaintiff was the wife of a deceased son of the testatrix, Kate Webb. In making out her will, Kate expressed her desire that none of her property ever fall into the hands of her daughter's ex-husband Clyde. Since it was possible for her 2 minor grandsons, Robert and Frankie, to die intestate before their majority, she made out her will devising a certain tract of property to A for life, "with remainder over at the death of [A]...to my grandsons Francis...and Robert...,or if either of them be dead, then all to the other..." (b) After Franklin's death, Franklin's wife filed an action to have KW's will construed as to have created a vested remainder in her husband. She argued the preference for early vesting construction should control. Defendants argued that the remainder was conditional upon surviving the life tenant. (c) Though the court acknowledged the preference for early vesting rule of construction and retaining it despite signs of its erosion in the law, it invoked other rules of construction: (1) Use of construction commonly prevalent among similarly situated conveyors: Normally when a conveyor uses language requiring an "ambiguous form of survivorship," the testator's intent is presumed to be that the remaindermen survive the life tenant rather than the testator. (2) Apt language rule: By examining the other conveyances in the will, it is apparent that the testatrix knew how to create a given interest, and by not using the same language in the questioned conveyance, the court may presume she did not intend to create the same interest as she created in the other conveyances. "At the time of my death" language is absent from questioned conveyance. d. The Appellate Court affirmed the trial court's ruling that the conveyance created a CR in Franklin that required he survive the life tenant before the interest would vest. The court reasoned that this interpretation best comported with the testatrix's intent to cut out Clyde. f. Why is the distinction between vested and contingent remainders important? (1) Taxes: Vested remainders are subject to Federal Inheritance taxation upon vestment. If at all possible, make remainders conditional upon surviving to the death of the life tenant or until the end of the term of years (2) CL rule concerning the destruction of CR's des not apply to vested remainders (3) CR's are subject to the Rule against Perpetuities (4) Each has different legal characteristics (5) CR's have conditions precedent, not vested interest (6) Law of Waste: discounted influence of contingent remaindermen in pressing claims for waste. The less likely the interest is to vest, the less likely the court is likely to grant relief. g. Rules concerning class closing: Principally applicable to VRSOD's. (1) The class closes when the interest becomes possessory (Rule of convenience) or when no more members can be added to the class: Court prefer early vesting. EXCEPTION: If you are born within 10 lunar months of the closing of the class you are considered a member of the class. (This rule applies in NC) 2. Executory interests a. Definition: A future interest created in a third party which is not a remainder and which takes effect by springing into possession or by shifting from one person to another. EI's become possessory by divesting existing estates. b. Two types of executory interests: (1) Springing executory interest: divests an estate in the grantor. (2) Shifting executory interest: divests an estate in a grantee. - Why does the difference between EI's and POR's matter? - The Rule against Perpetuities requires that any future interest in a transferee become vested within the time of some life in being at the time of the conveyance plus 21 years in order to be valid. Future interests created in transferor are not subject to the RAP. c. Prior to 1536, three CL prohibitory rules existed (1) No springing future interests (freehold estate springing up from grantor) (2) No shifting future interests (cutting short a freehold estate) (3) Strict adherence to requirement of livery of seisin by CL courts. d. Prior to 1536, there were a few ways to avoid the stringent rules laid down by the common law courts, especially the requirement of livery of seisin. (1) "Use" or "Trust" device The grantor would create a legal estate by enfeoffment O -> X & his heirs to hold to the use of O's eldest son A & his heirs, but if A inherits the use of the family manor, then to the use of O's second son B & his heirs. X held seisin in trust for the beneficiary. (a) The use was a tax evasion device because is caused feudal incidents not to be paid. (Seisin passed by purchase and not through inheritance, and feudal incidents were collected only when seisin passed by inheritance.) (b) The CL courts refused to recognize such a transfer (X had an FSA) (c) However, the equity courts "did the right thing" and enforced the trust and required X to perform his fiduciary duties. Thus, the equity courts could be used to enforce "shifting" and "springing" uses in defiance of the CL courts. (d) Henry VIII began to run short of money after his break with Rome. Parliament did not want to raise taxes, nor did the king want to anger the public. So, he resolved to begin collecting feudal incidents that were being so cleverly avoided. In 1536, Henry VIII pushed the Statute of Uses through Parliament in order to dispense with the evasive devise of the use. The Statute of Uses "executed" a use by stripping the trustee of seisin and vesting it in the beneficiary, or the cestui que use, thus converting the use into a legal interest. (e) The Statute of Uses created two new future interests: shifting and springing executory interests. This made it legal to do what formerly could only be done equitably. (f) Though for a short time in the wake of the Statute of Uses primogeniture could not be avoided, Parliament passed the Statute of Wills in 1540 which permitted landowners to avoid primogeniture through devises of land. (2) Bargain and sale deeds (a) This device was used to avoid the need for livery of seisin ceremony. (b) The CL courts refused to acknowledge that seisin had transferred, but the equity courts held that the grantor held legal title for the benefit of the grantee in a sort of use. (c) The Statute of Uses made these deeds legally valid, and eventually the advantages of deeds over livery of seisin became clear. The SOF was enacted in 1677 abolishing livery of seisin and requiring a written instrument to pass title to land. 3. Trusts a. Trusts are a flexible form of property ownership and management where the benefits of property ownership are separated from the burdens of property management. b. Trusts split title (1) Legal title vests in the trustee (2) Equitable title vests in the beneficiary c. The trustee is a fiduciary who is held to the highest standard of conduct. Trustees hold the land for the benefit of the beneficiary subject to the terms of the trust. The trustee is under a duty to administer the property for the sole benefit of the beneficiary. He must invest it properly, preserve it, and dispose of income from the property according to the terms of the trust. Mismanagement of the trust give the beneficiary a cause of action against the trustee. 4. Valuation of future interests a. If the interest/estate is transmissible, then it is taxable. 5. Rules of construction: heuristic devices/ROT's courts use to give construction to conveyances where the grantor's intent is not clear. (From Browning v. Sacrison) a. Preference for early vesting of remainders. (1) Promotes alienability of land. Vested remainders are certain to vest in possession. Contingent remainders are analogous to lottery tickets. (2) Early CL courts were not fond of CR's b. Use construction commonly prevalent among similarly situated conveyors. c. Apt language rule of construction: look at other language in the will. If the testator knew how to create a given estate and she used that language elsewhere and did not use it in the questioned conveyance, then the court may presume that she did not intend to convey the same estate. 6. Seisin a. At CL, seisin represented who owned the land. It was the key characteristic of a freehold estate. b. Before 1536, seisin could only be transferred by a quaint ceremony known as "livery of seisin" where the grantor and grantee went upon the property being conveyed, and the grantor handed the grantee a clod of dirt, a twig, etc. before witnesses. This symbolized the transfer of seisin. c. Who held seisin was of fundamental importance in the feudal era, for seisin determined who owed feudal incidents. d. Seisin could NEVER be in abeyance. - Before 1536, this conveyance would have been invalid: O -> A for 10 years, then to B if B is living. Because a CR followed the term for years, seisin would have been in abeyance. Additionally, since seisin did not pass from O to B, and since A could not take seisin, this conveyance would mean a freehold estate would simply "spring up" in the future, and CL rules prohibited this. Most courts today would probably call B's interest a CR. e. Today, seisin means "possession of a freehold estate." Lessees do not have seisin. D. Rules furthering marketability of land/alienability of future interests 1. Overview a. Rule in Shelly's case (RSC) O -> A for life, then to the heirs of A b. Doctrine of Worthier Title (DWT) O -> A for life, then to the heirs of O c. Doctrine of Destructibility of CR's d. Rule Against Perpetuities (RAP) - When any of these operate, they obliterate future interests. 2. Rule in Shelly's Case a. Four elements (1) In the same instrument, and (2) A freehold estate (usually a LE) is granted to one person (NOT A LEASEHOLD!!!), and (3) A remainder in FS or FT is granted to the heirs (in the technical sense of intestate succession) of that same person, and (4) The interests are BOTH legal or BOTH equitable b. If all 4 elements are satisfied, then the limitation over to the heirs is VOID and the interest instead is given to the holder of the freeholder estate. c. Doctrine of Merger - After the application of RSC if one person holds both the present estate and the future interest and there is NO intervening estate, then the ancestor takes an FSA (or FT). d. RSC applies even where there are intervening estates, though the doctrine of merger may not apply. e. RSC is a rule of law: it applies regardless of the transferor's intent. f. NC abolished RSC by statute in 1987 (GS 41-6.3) g. Typical conveyance subject to RSC O -> A for life, then to the heirs of A After applying RSC, A would hold both the life estate and a VRI, which then merge under the doctrine of merger into an FSA. 3. Doctrine of Worthier Title a. This rule applies when a transferor attempts to convey a freehold estate to one person and a remainder to the grantor's own heirs. b. Two branches (1) Inter vivos branch (Deeds): This branch is still active where DWT is still recognized. (2) Testamentary branch (Wills): This branch is a quaint anachronism which made sure that the heirs of a grantor took not as purchasers but as heirs. For instance, suppose O devises Zagyo-So to A for life, then to the heirs of O. DWT would strike the limitation over to O's heirs leaving a reversion to pass to O's heirs by intestate succession (feudal incidents arose when land passed by inheritance but not by purchase). But since it no longer matters is the heirs take as purchasers or by intestate succession, this branch no longer serves a purpose in our property law. c. DWT is a rule of construction which can be abrogated by the manifestation of contrary intent by the transferor. d. NC abolished DWT in 1979 (GS 41-6.2) 4. Doctrine of Destructibility of Contingent Remainders a. At CL, someone had to be seised of land at all times. In addition, the CL courts favored free alienability of land. In order to further these two interests, the CL judges developed a rule: - Remainder in land is destroyed if it does not best prior to or at the destruction of the previous estate. b. A CR could be destroyed in 2 ways (1) Not having a condition set up for taking at the expiration of the previous estate (2) Artificial termination of the previous estate (a) Forfeiture of LE (1) Failure to perform feudal obligations (2) Tortious conveyance (purporting to transfer a greater estate than what you have.) (3) [Waste?] (b) Transfer/merger - CL courts did not treat CR's as intervening estates (It was not prestigious in the eyes of the CL courts to have a CR.) c. The doctrine did not apply to EI's d. In modern times, this doctrine has been abolished in England and in most of the US either by statute, judicial decision, or just plain atrophy. CR's are not covered by the RAP. e. In jurisdiction where the doctrine has been abolished, a CR that does not vest upon the expiration of the previous estate turns into an EI against the grantor's reversion, which is not a FSSEL. 5. Rule Against Perpetuities (RAP) a. This rule arose out of a desire of the CL courts to keep the landed aristocracy from exercising excessive dead hand control over their property by tying it up with contingent future interests and executory interests for inordinate periods of time. b. The rule arose out of the Duke of Norfolk's Case where a compromise was struck between the CL courts and the landed aristocracy who wished to exercise some dead hand control over their property. c. The rule is aimed at (1) CR's (2) EI's It does NOT apply to future interests created in the transferor, that is, POR's, ROE/POT's, or reversions. d. John Chipman Gray's articulation of the rule: "No interest is good unless it must vest [in interest], if at all, not later than [21] years after some life in being at the time of the creation of the interest." (a) The interest MUST vest within 21 years after some life in being (2) If it is possible for the interest to vest outside the perpetuities period, the interest is VOID from the time the conveyance is made. Probabilities are not relevant. e. Vesting in interest (no unascertained party or condition precedent) as opposed to vesting in possession: these two do not necessarily occur at the same time, but only the first matters as far as the RAP is concerned. f. The RAP applies to (1) Real property (2) Personal property (including trusts) g. The rule addresses vesting of future interests, not the number of future interests. h. Time limit = time of creation to time of vesting. = measuring life + 21 years g. The life in being may be a member of a class who survives the longest so long as that class is reasonable in size. (A class of 120 measuring lives has been found to be reasonable.) Limitations (1) Reasonably ascertainable persons (2) Can determine when they die. A conveyance can be invalidated for indefiniteness of either the above categories. h. The RAP is supplemented by the gestation period (10 lunar months) i. Common traps laid by the RAP (1) ***STRONG to conclusive presumption that a person can bear or beget children until the day she/he dies. Jee v. Audley: The case of the "fertile octogenarian" (a) T -> $1000 to W for life, then to Mary and the issue of her body, and in default of such issue to the daughters then living of John and Elizabeth Jee. (b) Mary is in her 40's and unmarried with no children. The Jee's are in their 70's. The daughters of the Jee's file a bill in equity to get Mary to post a bond of $1000 to make sure she does not spend the money (c) Lord Kenyon gets around the request by declaring the limitation to the daughters void under the RAP. (1) FT cannot be created in personal property, so Mary took a "FSA" in the money. (2) Lord Kenyon nonetheless interpreted the failure of issue language to mean indefinite failure of issue. (3) Under that interpretation, the interest could vest outside the perpetuities period. (This required Lord Kenyon to make the ludicrous assumption that the Jees could have children until the day they died. (d) Constructional escapes from Lord Kenyon's decision. (1) Definite failure of issue (2) Construe the will to mean daughters living at the time of T's death (T specified "daughters" as opposed to "children". Also, the Jees were 79 years old!) Lord Kenyon made no effort to carry out the testator's intent. (2) Case of the "unborn widow" O -> A for life, then to A's widow for her life, then to A's children who are then living. (3) Case of the "slothful executor" (Slack executor) T -> my issue living upon the distribution of my estate." (4) Case of the "magic gravel pits" T -> gravel pits to trustees to work out, and when they are worked out to sell them and divide the proceeds among T's issue. j. Effect of the RAP on an interest that is not in accordance with it. (1) Violating interest is stricken (2) Rest of conveyance reads as if invalid interest was not there. k. Ameliorative doctrines to the RAP (1) Wait and see doctrine: An ameliorative doctrine whereby an interest that can vest outside the perpetuities period is not automatically declared void, but rather "we" "wait and see" if the interest vests or not (usually within some time period like 90 years) (2) Cy pres: Under this doctrine, a court may reform a conveyance with an interest that violates the RAP to bring it into conformance with the RAP while respecting the intent of the transferor. (3) Statutory provisions taking care of the most common pitfalls the RAP lays. (4) Saving clauses in trusts ensuring that the trust will vest or terminate within the perpetuities period. l. Brown v. Independent Baptist Church of Woburn (1) T -> H for life, then to the church so long as the property is used for church purposes, if not, then to the 10 legatees. (2) Testatrix's husband died in 1864. The church ceased to continue as a church in 1939 when the last member died. (3) Everyone admits that the conveyance created an EI violative of the RAP in the legatees. After the rogue interest is struck, an FSD is left [Court here implies a POR while other courts would not.]. However, the parties are in disagreement about where the POR left by the remaining FSD. (4) Court holds that the POR passed under the residuary clause to the 10 legatees instead of the heirs of the testatrix outside the will. The court permits the simultaneous creation and transfer of a POR in the grantor to the legatees. (Same effect as the EI.) [This conclusion is silly as a matter of policy.] m. Certified Corp v. GTE Products (1) Defendant gave an option to purchase real estate to plaintiff's corporation. The option purported to be good for 25 years. (2) The court stamps it violative of the RAP, holding that since the option did not specify any measuring lives, the option could only be good for 21 years or it was void. n. Steps in solving an RAP problem: The RAP is a rule of logical proof. (1) Locate all persons capable of affecting vesting of the interest. All other lives are irrelevant. - The measuring lives need not be mentioned in the conveyance. (2) Test each life to see if the interest will vest or fail within that life of 21 years afterwards. If you find a life that meets the RAP requirement, you have found the measuring life. (3) If none of the lives meet the RAP requirement, then the contingent interest is void unless it must vest of fail within 21 years. E. NC statutes relating to future interests 1. GS 41-4: All contingent future interests made dependent on a person dying without heirs (or heirs of the body) or issue (or issue of the body) or without children or offspring, or descendant, or other relative shall be interpreted as definite failure of issue (at the time of the person's death or within 10 lunar months of person's death), unless the grantor clearly expresses a contrary intent. This is a rule of construction and does not apply to deeds or wills executed before 15-JAN- 1828. 2. GS 41-5: A gestating infant is deemed a person capable of taking by deed or other writing any estate just as if he were born. 3. GS 41-6: A limitation over to the heirs of a living (NOT dead) person shall be construed as to the children of that person, unless the grantor expresses a contrary intent. 4. GS 41-6.2: DWT is abolished a. As a rule of law b. As a rule of construction Effective 1979. 5. GS 41-6.3: RSC abolished; effective 1987. F. Steps in solving a future interest problem Is the future interest one in the grantor or grantee? If it is in the grantor, then it must be a POR if the preceding possessory estate is a FSD or a ROE/POT if the preceding estate is a FSSCS. If the future interest is in a grantee, then it must either be a Remainder or an Executory Interest If the interest stands ready to become possessory immediately upon the expiration of the natural termination of the preceding estate, then the interest is a remainder. If the interest tends to cut short a possessory estate (usually through a condition subsequent), then the interest is an EI. If it is a remainder, is it vested or contingent If there is an Unascertained party, or A condition precedent Then the interest is a CR. If there is an ascertained party in the interest and no condition precedent, then the interest is a VR. If the interest is a VR, then it is An indefeasibly vested remainder (VRI) if it cannot be terminated by an EI or decreased in size by the addition of members to the class. No condition precedent No unascertained party No condition subsequent A VR subject to open defeasance (VRSOD) if the takers' shares can be reduced by the addition of members to the class. A VR subject to total defeasance if it is subject to an EI. If the interest is an EI, then If it tends to divest an interest in a grantee, then it is a shifting EI. If it tends to divest an interest in a grantor, then it is a springing EI. G. Rules of construction for conveyances where the grantor's intent is ambiguous. 1. If the language of condition taken alone would create a VR and it looks like another future interest was just tacked on, then it is a VR subject to executory limitation (VRSTD) Ex: O -> A for life, then to B, but if B does not graduate from law school, then to C. B has a VRSTD C has an EI 2. If the language of condition appears to be part of the description of the remainderman, then its a CR. IX. Concurrent estates A. Three forms of concurrent ownership 1. Tenancy in common 2. Joint tenancy 3. Tenancy by the entirety B. Tenancy in Common 1. Legal characteristics a. Each cotenant has the right to possess the whole property. b. Each cotenant holds a fractional undivided interest in the property. c. It is possible for the TIC's to hold different shares of the interest. d. Each cotenant's interest is freely alienable. (1) Conveyable by deed (2) Devisable by will (3) Inheritable through the laws of intestate succession. 2. Modern Majority Rule: Preference for tenancy in common. Ambiguous conveyances are interpreted as tenancy in common with each cotenant taking a proportionate undivided interest 3. Cotenants who cannot work out their problems file an action for partition. (1) Partition by kind (physical partition) (2) Partition by sale (sell the land and divide the proceeds) 4. TIC requires only that the unity of possession remain intact. C. Joint Tenancy 1. JT was originally a common law device used to avoid taxation. By common law fiction, the joint tenants were treated as one party. 2. When one JT dies, the other(s) have automatic right of succession: the interest of the expired JT is extinguished in favor of the other cotenant(s). 2. The CL preferred joint tenancy over tenancy in common, so ambiguous conveyances were resolved in favor of joint tenancy. 3. Each JT has the right to possession of the entire property. 4. Each JT holds a equal undivided interest. 5. Four unities: For a joint tenancy to be created and to continue, the four unities must be intact. (P.I.T.T.) a. Possession: Each JT has the right to possess the whole of the property, though one JT may voluntarily give exclusive possession to another JT. b. Interest: All JT's must have equal, undivided shares and identical interests measured by duration. c. Time: The interest of each JT must be acquired or vest at the same time. d. Title: All JT must acquire title by the same instrument or by joint adverse possession. JT can never arise through intestate succession or other act of law. At CL, an owner of property could not create a JT in himself and others. He had to convey the property to a strawman and then have the strawman convey the property back to the grantor and his intended joint tenants. Otherwise, the unities of time and title would be missing. Severance by secret deed H and W own as JT's H -> H by secret deed (a) If H is the first to die and he has not recorded the deed, JT is not severed. (b) If W is the first to die, then the deed will be enforced and interest will pass to W's heirs or devisees. Riddle v. Harmon (1) In this case, a wife upon learning that she held property with her husband as a JT and that he would take the whole of the property upon her death, attempted to terminate JT by conveying to herself as a JT to herself as a TIC, thereby severing JT. She then executes a will devising her property. She died some 20 days later. (2) At CL, a strawman was required to do what she wanted to do. The husband argues on the basis of an App. Ct. decision that a strawman was required. (3) The Appeals Court reverses the trial court in holding that the unilateral "loopback" conveyance was sufficient to sever JT. Today, courts are not as strict about requiring a strawman to create or terminate a JT. In fact, many jurisdictions have abolished this requirement by statute or judicial decision. 6. In NC, JT with automatic right of survivorship is abolished (G.S. 41-2), but you can still create a JT, but the creation of JT must be explicit and unambiguous (and verbose!) in expressing a contrary intent of the grantor. O -> A and B as joint tenants with right of survivorship and not as tenants in common. 7. Legal characteristics (a) A JT can convey her interest, but once she does, JT is severed. At JT may convey her interest without notice to the other JT's, but in some jurisdictions the deed must be recorded in order to be enforceable against the non- transferring party. (b) The interest of a JT is NOT devisable or inheritable. Because of the automatic right of survivorship, once the JT dies, her interest is extinguished. (c) Liens may be attached to the interest of a JT, but it may sever JT in some jurisdictions. Harms v. Sprague (1) William and John Harms took a certain piece of property as JT's. Some years later, a friend of John's, Charles Sprague, asked John to cosign with him on a note and to give a mortgage to the owners, the Simmonses, of a piece of property Spague wished to buy. William knew nothing of these transactions. (2) John died testate, devising everything to Charles Sprague. William sued the Simmonses (holders of the mortgage) and Sprague (presumably to quiet title in him). (3) Does a mortgage by one JT sever joint tenancy? 2 theories of mortgages (A) Lien theory: Mortgagee takes no title to the property, only a lien. (B) Title theory: Mortgagee acquires title and retains it until debt is paid. - IL follows the lien theory of mortgages, so the mortgage did not affect JT. When John died, his interest was extinguished and William took title to the whole of the property through the automatic right of succession. (4) Did the mortgage survive John's death? Ct.: NO. Since John's interest is now extinguished, any lien against it has been extinguished as well. - On appeal, the Simmonses cited a statute that indicates a lien survives the death of a JT, and the other JT's take subject to that lien. However, the court weasels out of applying this statute by ruling that since the defendants did not bring up the issue at trial they waived the issue. But through specious reasoning they conclude that even if they did apply the statute, the lien still would have disappeared with the interest. They, in effect, applied the extinguishing doctrine with a vengeance. (5) Is it fair for lender's lien to be extinguished at the death of the JT whose interest the lien is against? As a lender, this does not seem fair. However, allowing 1 joint tenant to take out a mortgage is just as risky as allowing a life tenant to take out a mortgage. The moral is to make sure you have the signatures of all JT's before you give a mortgage. (c) Leases do not affect JT, and lease expires upon the death of the lessor JT. (d) In jurisdictions where TBE is not recognized Maj: Divorce does not sever JT. D. Tenancy by the entirety 1. Similar to JT, but with the addition of 5th unity: marriage. 2. TBE can be created only in a married couple. The husband and wife must be married at the time of the conveyance. 3. Legal characteristics a. Automatic right of survivorship b. Neither party may unilaterally convey his or her interest and thereby sever TBE. Both signatures are required to effect a transfer. c. Creditors cannot reach the interest of 1 tenant, but they can reach the interest of both (on a joint debt). d. Not conveyable inter vivos e. Not devisable or inheritable. 4. Termination of a TBE can be effected by a. Both parties signing to convey the interest. b. Divorce (converts TBE into TIC). 5. In NC, where TBE is still recognized, a conveyance to husband and wife is presumed to be in TBE unless a contrary intent is manifested. 6. TBE has been abolished in many jurisdictions. E. Partition 1. Cotenants who cannot work out their problems can file an action for partition. a. Partition in kind: the land is physically divided and doled out to the cotenants according to their proportionate shares. b. Partition by sale: The land is sold and the proceeds divided among the cotenants according to their proportionate shares. 2. Johnson v. Hendirckson a. Henry and Katie were a married couple with three children Grace, Arthur, and Vernon. Henry owned the parcel of land upon which they were living, and upon his death, the property passed by intestate succession to his wife (1/3) and to each of his children (2/9 each). Some years later, Katie married Karl Hendrickson and they had two children Kenneth and Karroll. Katie died testate, leaving her 1/3 to Karl (1/6 plus homestead rights), Kenneth (1/12), and Karroll (1/12). The three original children filed an action for partition by sale, and the Hendricksons objected. b. The Hendricksons preferred partition in kind, and though collectively they were entitled to a 1/3 of the property, they offered to settle for a 1/4 of the land adjacent to land they owned outright. Since this property was farmland, the whole of it was worth more than the sum of its parts. The court denies partition by kind: adjacent land is irrelevant in either type of partition action. c. Next, the Hendrickson's offered to pay owelty to the other cotenants in order to take the more valuable 1/4. However, since the court decided to deny partition in kind, and owelty can be paid only in those situations, owelty is not warranted. d. The Hendricksons then offer to buy out the other three children. Though the court would prefer these parties to settle and would not be adverse to a settlement under those terms, the court rules that it cannot make the parties settle on those terms, and so refuses to make the three children settle. Besides, the public auction would be more likely to fetch the true value of the land. e. The Hendricksons then argue that if there is to be a public sale, they are entitled to compensation for the improvements made to "their" 1/4. The court denies contribution, arguing that all lived there and all made improvements. f. Karl then asserts his homestead rights (life estate in a widow/widower) and demands partition in kind. In denying partition in kind, the court states that homestead rights cannot be asserted in a partition if it would prejudice the other cotenants (by breaking up valuable acreage.). However, he is entitled to the value of the homestead. F. Rights and duties among cotenants. 1. Right of possession a. In all forms of concurrent ownership, each cotenant had (1) An undivided interest in the entire property. (2) Right to possess the entire property subject to the rights of other cotenants. b. The right to possession of the entire property is ripe for disputes (over houses, for instance) c. Rights of dispossessed cotenant/ousted cotenant - Damages for time of dispossession (lost rental value) *** If ousted cotenant takes no action, he/she then runs the risk of adverse possession!!!! 2. Rents and profits a. If a cotenant receives profits and rents from third parties for use of the property, the cotenant is required to account to the other cotenants for the proceeds by giving them their cut. b. Cotenants do not have to pay rents to other cotenants (in absence of an agreement to the contrary). c. Cotenants do not have to account for profits from their own use of the property subject to the restrictions on waste. 4. Taxes, mortgage payments, and other carrying charges a. If no cotenants are in possession and 1 cotenant pays more than his share of taxes, he is entitled to contribution from the other cotenants. b. If a cotenant is in possession and pays taxes, no right of contribution from other cotenants. 5. Repairs a. As a general rule, A cotenant who makes necessary repairs is NOT entitled to contribution absent an agreement requiring otherwise. b. But if a cotenant makes repairs and then rents the property to a third party, then he may seek repair contribution from the other cotenants (Deduction from rents & profits accruing to other cotenants.) 6. Improvements a. If a cotenant makes improvements without agreement to share in the costs, there is no right to contribution. - This keeps rich cotenants from "improving out" other cotenants by making lavish improvements and then demanding contribution. b. If a cotenant makes an improvement and then rents the property, the improving cotenant may be entitled to contribution if he can prove the improvement raised the rental value of the property. c. Partition in kind: If 1 cotenant makes an improvement, the court will try to give that cotenant the chunk with the improvement if doing so will not prejudice the other cotenants. d. Partition by sale: Though the improving joint tenant cannot be compensated for the cost of the improvements through a partition by sale, he can be compensated for the increased value of the property as a result of the improvement. 7. Fiduciary duties a. Cotenants stand as fiduciaries or quasi-fiduciaries to the other cotenants, especially when the cotenants are relatives. They are thus under duties of trust and confidence imposed by law. b. Tax or foreclosure sale - If one cotenant buys it back, he buys it back for the other cotenants provided the other cotenants are willing to reimburse the purchasing cotenant for their shares. - Collusive attempts to evade the above procedure are prohibited. 8. Swartzbaugh v. Simpson a. Mr. and Mrs. Swartzbaugh owned a parcel of land covered with walnut trees as joint tenants. A boxing promotor showed up one day and expressed an interest in leasing a portion of the property to erect a boxing pavilion. While Mr. Swartzbaugh agreed to a lease of 4 acres, Mrs. Swartzbaugh flatly refused to give her blessing. A few months after Mr. Swartzbaugh and Sampson concluded the lease, Mrs. Swartzbaugh sued to have the lease nullified. The trial court held the lease to be valid, and the appellate court affirmed. b. As a JT, she is entitled to possess the entire property, and her husband's lease does not affect her right to possession. c. She would be entitled to collect rent from Sampson only if he prevented her from possessing the 4 acres. But if he allows her to exercise her right to possess the 4 acres, that is, not ousting her, she has no right to collects rents from him. d. However, her husband is required to account to his wife for 1/2 of the rents because of their status as joint tenants. e. She could also ask for partition by the court in a worst case scenario. f. If the two had owned the property as TBE, the lease would have been invalid unless both had signed it.