WEEK 1
Professor Hicks
Hicks: Understand what is important and which facts the court would focus on and why – see the analogies.
The law of Finders: Not element driven but issue driven. The way in which we resolve finders’ questions depends upon the nature of the way in which we characterize the property found – was it lost, misplaced, or abandoned?
LAW OF CAPTURE: FERAE NATUREAE
Pierson v. Post
Supreme Court of NY, 1805
Post, a hunter, found and pursued a fox over vacant land. Pierson, fully aware that Post was chasing the fox, killed it himself. When Post sued Pierson for the value of the fox, the court held that Pierson was the true owner, because he had been the first to actually kill or capture the fox, however rude his action may have been. The question becomes, who owns the fox?
Issue: Was it sufficient to have the fox in sight while chasing it in order to achieve occupancy or first possession of a wild creature? The court applies first in time, first in right.
No one owns wild animals in their natural habitats. Under the common law capture rule, property rights in such animals are acquired only through physical possession. The first person to kill or capture a wild animal acquires title to it.
Majority view: The way you achieve ownership of a wild creature is to achieve first possession of it. In order to achieve first possession of a wild creature, you have to capture it, and kill it.
In order to achieve occupancy, you have to kill capture and mortally wound. The tools the majority used were:
1. Precedent: The rule of actual possession would promote certainty and peace, and would spur people to kill foxes; and
2. Policy: Minimize quarrels and preserve the peace. They wanted certainty – a rule that was going to let everyone know who owned the beast.
Dissent view: It is enough to be in hot pursuit with your hounds and have the wild animal in sight.
The tools the dissent used were:
1. Precedent: It was better to adopt the customs of sportsman to determine ownership of the fox; and
2. Policy: Recognition of a property right in wild animals when there is a reasonable likelihood of capture would conduce to more rapid extermination of foxes. In other words, killing as many foxes as possible
Both views talk about first possession, the difference is in the activities they believe you need to complete to achieve first possession.
Trespassing Policy: We don’t want to reward trespassers. If you want more of something, reward it. If you want less of something, sanction it. It cannot trump first in time, first in right.
Under the majority view, what if the fox had a tag? Would Pierson be the person to whom we give the fox after he shot it or would Post be the person we give it to because he had hounds of imperial stature and hot pursuit? Someone else has already established first ownership. Remember context – are you in open and uninhabited land when you mortally wounded the creature? If not, it isn’t yours. If there already is a collar on the animal then you have not achieved first possession. You might be first after the true owner but not first in absolute terms. Possession does not always mean ownership.
In order to achieve occupancy, first in time is first in right.
Ghen v. Rich
US District Court, MA, 1881
This case is an example of how policy concerns can incorporate custom into the law.
NATURE OF THE CASE: This was a libel action to recover the value of a whale.
FACTS: The custom and usage in Cape Cod had been that a person who kills a whale with a specially marked bomb lance owns it. When a lost whale is found on a beach the killer is then notified of the discovery and a payment of a finder's fee is given over. The business and custom of killing whales required special equipment and skills. Ghen (P) killed a whale, leaving his identifying bomb-lance in the whale. The whale was lost and carried away by the tide and found by Ellis 17 miles from the place of the kill on the beach. Ellis knew of or should have known of the custom and usage of the industry. Ellis decided to sell the whale at auction. Rich (D) bought the whale and shipped off the blubber and tried out the oil. P discovered that existence three days later and sent one of his boat crewmen to claim the whale. P sued D for the value of the whale.
ISSUE: May the custom and usage of an industry determine possession of property?
HOLDING: The court held that custom determined ownership because the nature of the fin-back whale industry was that the animals could only be killed without acquiring immediate possession, and that a first physical possession rule of ownership would eliminate all incentive to hunt fin-back whales, thus depriving the society of the benefits of a continued supply of whale oil and blubber.
If the court rewarded Rich, it would be rewarding luck over effort and that would not be productive for society because no one would risk their life to go whaling.
We still apply first in time, first in right but we take the concept and shape it to the context of the situation – the facts, the needs, the setting. We also see in this case another reoccurring theme we see in property generally – we will reward productive effort over luck or fortuitousness. We will also generally protect an activity engaged in for business over an activity that is luck or one that is engaged in for recreation.
When and where should custom matter?
What if Greenpeace scares away whales from a Russian whaling ship? Assuming the whaling activity was legal, the whalers bring an action against Greenpeace for the value of the whales. Under Pierson v. Post, the whalers cannot win because they never achieved first possession (kill, capture or mortally wound). Under Ghen v. Rich (custom of wounding the creature and being allowed to redeem it) the whalers still cannot achieve possession.
The key is not that they achieved occupancy under Pierson or Ghen, but what Greenpeace did could be characterized as malicious interference with the business of the whalers.
Keeble v. Hickeringill
Queens Bench, 1701
Keeble maintained an elaborate decoy pond designed to trap large quantities of ducks. Hickeringill, his neighbor, frightened the ducks away from Keeble’s pond by discharging a shotgun nearby.
The court ruled that such conduct was actionable on the theory that Hickeringill was maliciously interfering with Keeble’s lawful activity. The court distinguished this case from fair competition, noting that it would be perfectly proper for a schoolmaster to lure students away from another school by offering better instruction but unlawful to frighten them away. Policy: Fair competition improves society (e.g. better schools). Hickeringill’s conduct was a dead-weight drag on societal improvement (e.g. fewer ducks for the table).
In a society in which killing wild ducks for food is regarded as inappropriate (e.g. to preserve biodiversity), Hickeringill’s conduct might be lawful. It depends on the public policies that law is supposed to serve.
Under Pierson v. Post: no occupancy. No tendency to return to you. The ducks are free to fly away – no constructive possession. Analyze this as business. The court did not go through a title. Not all harms are going to be actionable
Hypos: Person A captures a wild animal and the animal escapes to open and uninhabited land. B captures the wild animal and it escapes to open and uninhabited land. C captures wild animal and puts it in a cage.
B vs. C
B finds out that C is holding the beast and sues. Although A was first, you don’t have to beat out the entire world in litigation, you only have to beat the person you are up against. If A finds out and intervenes in the lawsuit, A would be the person who would prevail but B would beat C.
A vs. C (but A trespasses)
A finds out the beast is on C’s property. A grabs the beast and takes it home therefore trespassing on C’s land. If A would have simply gone to court and brought an action against C, A would win but since A trespassed, C wins. A was the first possessor but we will not reward the socially undesired activity of trespassing – it leads to quarrels and violence.
THE LAW OF CAPTURE: NATURAL RESOURCES
Underground migrating resources: water, gas, oil, etc. You don’t own all of the land but rather a series of rights – surface rights vs. mineral rights.
Pure law of capture: If you own both surface rights and mineral rights, you can sink a well on your property and even though that deposit may be under the property of your neighbors and theoretically they would have a right to sink wells and extract as well, there is no limit on how much you can extract if you are first or can do it more efficiently.
Bass Brothers example: The Bass brothers bought land above aquifers and were going to pump water out of aquifers and pipe to Houston but it would have jeopardized the farmers in the area and the state intervened. We are starting to see a change in the law of capture but the rule still is the pure law of capture (first or more efficient).
The Riparian rule: For surface waters (lakes, streams, rivers, etc.), everyone along the body of water has riparian rights, meaning: They can use as much water as they wish unless they interfere unreasonably with the right of somebody downstream.
Southwest: The government did not apply the riparian rule because it is really dry and cannot take the risk of someone upstream siphoning all the water. The Southwest applies pure law of capture – pure application of first in time is first in right. If you establish a historic level of water use, you are entitled to continue to use that historic level of water use into the future and no one upstream of you may use water under any circumstances to the degree that they will reduce your ability to continue your historic level of usage and no one downstream who is later in time than you has a claim to that water even if your historical level of use leaves them with too little or none at all. This rule encouraged people to stake a claim and make the land useful and not get the rug pulled from underneath them later on upstream or downstream.
The way in which we implement the rules at the level of the common law may change at any given time.
THE LAW OF FINDERS
The law of finders is concept driven, not element driven. The rule of first in time, first in right keeps coming back and we see it here in the general rule of finders: The first person to find something has good title as against all the world but the true owner.
Who we determine to be the first possessor after the true owner is going to depend upon context and policy. The policy will be driven by societal needs and utility.
We want to reward effort over luck. If a true owner happens to misplace something and another person happens to find it, we wish to reward the true owner because they did something productive to get it in the first place and that is the greatest good for society. We need a system that imposes order.
The most important step necessary to getting a found item back to the true owner is to advertise it. If the true owner does not claim it within a reasonable amount of time, we give the finder good title against all the world including the true owner. That’s the way the law of founders arose and it is an incentive to do the right thing. The downside is if you find something and don’t report it, you never achieve good title. 20 years later, if the true owner discovers that you have the item, he or she can still recover it from you if you didn’t report it. The SOL doesn’t begin to run until the true owner knows of should have known where it is. If you report it and they do not claim it within a reasonable amount of time, you get good title even against the true owner.
Armory v. Delamirie
King’s Bench, 1722
A chimney sweep found a gem in a setting and took it to a jeweler for appraisal. The jeweler’s apprentice removed the jewel and refused to return it. The sweep was awarded damages, measured by the value of the finest stone that would fit the setting, unless the master produced the stone (writ of trover instead of replevin – good lawyering by the plaintiff)
If the jeweler had been the true owner of the jewel, the sweep would have lost. A finder only has relative title. He doesn’t have to have title as against all the world, he just has to have better rights than Delamirie and he did – first in time is first in right.
The true owner would not have a claim against Delamirie because he has already paid for the conversion. The true owner would have a claim against Armory for the value of the stone and could possibly buy the stone from Delamirie theoretically.
Watch example: True Owner loses his watch, which is found by First Finder. First Finder then loses the watch, which is found by Second Finder. First Finder prevails over Second Finder on the basis of his prior possession – first in time is first in right. First Finder had good title as against all the world but True Owner. True Owner would of course prevail over First Finder.
LAW OF FINDERS: STRUCTURE
Today in Michigan you take lost property to a central clearing house and it is governed by statutes. You can check the records online. If the true owner doesn’t show up, not only do you get possession but also now you get legal title ownership.
Found property can be classified in one of three ways: Lost, Misplaced, or Abandoned.
Lost: The finder has good title as against all the world but the true owner. Exception: If the lost property is found in the private area of someone’s private property, we let the owner of the private property have possession.
Misplaced: The owner of the place where the misplaced item is found is the first possessor after the true owner and they have good title as against the whole world but the true owner.
Abandoned: The finder gets to keep it outright unless he or she finds it in the private area of private property.
DEFINITIONS:
Lost Property: Property that is unintentionally set down. When an owner of a chattel accidentally and involuntarily parts with it and does not know where to find it, the chattel is considered lost.
Misplaced Property: Property that is intentionally set down, but unintentionally left (determined by the context of the find). When an owner of a chattel intentionally puts the chattel in a certain place but forgets to retrieve it, it is considered misplaced.
Abandoned Property: The true owner gave up or abandoned any claim to the title. (This is judged from the circumstances).The person we classify as the finder has good title period. When the owner of a chattel intentionally and voluntarily relinquishes both title and possession it is considered abandoned.
The law of Finders: Not element driven but issue driven. The way in which we resolve finders’ questions depends upon the nature of the way in which we characterize the property found – was it lost, misplaced, or abandoned?
LAW OF CAPTURE: FERAE NATUREAE
Pierson v. Post
Supreme Court of NY, 1805
Post, a hunter, found and pursued a fox over vacant land. Pierson, fully aware that Post was chasing the fox, killed it himself. When Post sued Pierson for the value of the fox, the court held that Pierson was the true owner, because he had been the first to actually kill or capture the fox, however rude his action may have been. The question becomes, who owns the fox?
Issue: Was it sufficient to have the fox in sight while chasing it in order to achieve occupancy or first possession of a wild creature? The court applies first in time, first in right.
No one owns wild animals in their natural habitats. Under the common law capture rule, property rights in such animals are acquired only through physical possession. The first person to kill or capture a wild animal acquires title to it.
Majority view: The way you achieve ownership of a wild creature is to achieve first possession of it. In order to achieve first possession of a wild creature, you have to capture it, and kill it.
In order to achieve occupancy, you have to kill capture and mortally wound. The tools the majority used were:
1. Precedent: The rule of actual possession would promote certainty and peace, and would spur people to kill foxes; and
2. Policy: Minimize quarrels and preserve the peace. They wanted certainty – a rule that was going to let everyone know who owned the beast.
Dissent view: It is enough to be in hot pursuit with your hounds and have the wild animal in sight.
The tools the dissent used were:
1. Precedent: It was better to adopt the customs of sportsman to determine ownership of the fox; and
2. Policy: Recognition of a property right in wild animals when there is a reasonable likelihood of capture would conduce to more rapid extermination of foxes. In other words, killing as many foxes as possible
Both views talk about first possession, the difference is in the activities they believe you need to complete to achieve first possession.
Trespassing Policy: We don’t want to reward trespassers. If you want more of something, reward it. If you want less of something, sanction it. It cannot trump first in time, first in right.
Under the majority view, what if the fox had a tag? Would Pierson be the person to whom we give the fox after he shot it or would Post be the person we give it to because he had hounds of imperial stature and hot pursuit? Someone else has already established first ownership. Remember context – are you in open and uninhabited land when you mortally wounded the creature? If not, it isn’t yours. If there already is a collar on the animal then you have not achieved first possession. You might be first after the true owner but not first in absolute terms. Possession does not always mean ownership.
In order to achieve occupancy, first in time is first in right.
Ghen v. Rich
US District Court, MA, 1881
This case is an example of how policy concerns can incorporate custom into the law.
NATURE OF THE CASE: This was a libel action to recover the value of a whale.
FACTS: The custom and usage in Cape Cod had been that a person who kills a whale with a specially marked bomb lance owns it. When a lost whale is found on a beach the killer is then notified of the discovery and a payment of a finder's fee is given over. The business and custom of killing whales required special equipment and skills. Ghen (P) killed a whale, leaving his identifying bomb-lance in the whale. The whale was lost and carried away by the tide and found by Ellis 17 miles from the place of the kill on the beach. Ellis knew of or should have known of the custom and usage of the industry. Ellis decided to sell the whale at auction. Rich (D) bought the whale and shipped off the blubber and tried out the oil. P discovered that existence three days later and sent one of his boat crewmen to claim the whale. P sued D for the value of the whale.
ISSUE: May the custom and usage of an industry determine possession of property?
HOLDING: The court held that custom determined ownership because the nature of the fin-back whale industry was that the animals could only be killed without acquiring immediate possession, and that a first physical possession rule of ownership would eliminate all incentive to hunt fin-back whales, thus depriving the society of the benefits of a continued supply of whale oil and blubber.
If the court rewarded Rich, it would be rewarding luck over effort and that would not be productive for society because no one would risk their life to go whaling.
We still apply first in time, first in right but we take the concept and shape it to the context of the situation – the facts, the needs, the setting. We also see in this case another reoccurring theme we see in property generally – we will reward productive effort over luck or fortuitousness. We will also generally protect an activity engaged in for business over an activity that is luck or one that is engaged in for recreation.
When and where should custom matter?
What if Greenpeace scares away whales from a Russian whaling ship? Assuming the whaling activity was legal, the whalers bring an action against Greenpeace for the value of the whales. Under Pierson v. Post, the whalers cannot win because they never achieved first possession (kill, capture or mortally wound). Under Ghen v. Rich (custom of wounding the creature and being allowed to redeem it) the whalers still cannot achieve possession.
The key is not that they achieved occupancy under Pierson or Ghen, but what Greenpeace did could be characterized as malicious interference with the business of the whalers.
Keeble v. Hickeringill
Queens Bench, 1701
Keeble maintained an elaborate decoy pond designed to trap large quantities of ducks. Hickeringill, his neighbor, frightened the ducks away from Keeble’s pond by discharging a shotgun nearby.
The court ruled that such conduct was actionable on the theory that Hickeringill was maliciously interfering with Keeble’s lawful activity. The court distinguished this case from fair competition, noting that it would be perfectly proper for a schoolmaster to lure students away from another school by offering better instruction but unlawful to frighten them away. Policy: Fair competition improves society (e.g. better schools). Hickeringill’s conduct was a dead-weight drag on societal improvement (e.g. fewer ducks for the table).
In a society in which killing wild ducks for food is regarded as inappropriate (e.g. to preserve biodiversity), Hickeringill’s conduct might be lawful. It depends on the public policies that law is supposed to serve.
Under Pierson v. Post: no occupancy. No tendency to return to you. The ducks are free to fly away – no constructive possession. Analyze this as business. The court did not go through a title. Not all harms are going to be actionable
Hypos: Person A captures a wild animal and the animal escapes to open and uninhabited land. B captures the wild animal and it escapes to open and uninhabited land. C captures wild animal and puts it in a cage.
B vs. C
B finds out that C is holding the beast and sues. Although A was first, you don’t have to beat out the entire world in litigation, you only have to beat the person you are up against. If A finds out and intervenes in the lawsuit, A would be the person who would prevail but B would beat C.
A vs. C (but A trespasses)
A finds out the beast is on C’s property. A grabs the beast and takes it home therefore trespassing on C’s land. If A would have simply gone to court and brought an action against C, A would win but since A trespassed, C wins. A was the first possessor but we will not reward the socially undesired activity of trespassing – it leads to quarrels and violence.
THE LAW OF CAPTURE: NATURAL RESOURCES
Underground migrating resources: water, gas, oil, etc. You don’t own all of the land but rather a series of rights – surface rights vs. mineral rights.
Pure law of capture: If you own both surface rights and mineral rights, you can sink a well on your property and even though that deposit may be under the property of your neighbors and theoretically they would have a right to sink wells and extract as well, there is no limit on how much you can extract if you are first or can do it more efficiently.
Bass Brothers example: The Bass brothers bought land above aquifers and were going to pump water out of aquifers and pipe to Houston but it would have jeopardized the farmers in the area and the state intervened. We are starting to see a change in the law of capture but the rule still is the pure law of capture (first or more efficient).
The Riparian rule: For surface waters (lakes, streams, rivers, etc.), everyone along the body of water has riparian rights, meaning: They can use as much water as they wish unless they interfere unreasonably with the right of somebody downstream.
Southwest: The government did not apply the riparian rule because it is really dry and cannot take the risk of someone upstream siphoning all the water. The Southwest applies pure law of capture – pure application of first in time is first in right. If you establish a historic level of water use, you are entitled to continue to use that historic level of water use into the future and no one upstream of you may use water under any circumstances to the degree that they will reduce your ability to continue your historic level of usage and no one downstream who is later in time than you has a claim to that water even if your historical level of use leaves them with too little or none at all. This rule encouraged people to stake a claim and make the land useful and not get the rug pulled from underneath them later on upstream or downstream.
The way in which we implement the rules at the level of the common law may change at any given time.
THE LAW OF FINDERS
The law of finders is concept driven, not element driven. The rule of first in time, first in right keeps coming back and we see it here in the general rule of finders: The first person to find something has good title as against all the world but the true owner.
Who we determine to be the first possessor after the true owner is going to depend upon context and policy. The policy will be driven by societal needs and utility.
We want to reward effort over luck. If a true owner happens to misplace something and another person happens to find it, we wish to reward the true owner because they did something productive to get it in the first place and that is the greatest good for society. We need a system that imposes order.
The most important step necessary to getting a found item back to the true owner is to advertise it. If the true owner does not claim it within a reasonable amount of time, we give the finder good title against all the world including the true owner. That’s the way the law of founders arose and it is an incentive to do the right thing. The downside is if you find something and don’t report it, you never achieve good title. 20 years later, if the true owner discovers that you have the item, he or she can still recover it from you if you didn’t report it. The SOL doesn’t begin to run until the true owner knows of should have known where it is. If you report it and they do not claim it within a reasonable amount of time, you get good title even against the true owner.
Armory v. Delamirie
King’s Bench, 1722
A chimney sweep found a gem in a setting and took it to a jeweler for appraisal. The jeweler’s apprentice removed the jewel and refused to return it. The sweep was awarded damages, measured by the value of the finest stone that would fit the setting, unless the master produced the stone (writ of trover instead of replevin – good lawyering by the plaintiff)
If the jeweler had been the true owner of the jewel, the sweep would have lost. A finder only has relative title. He doesn’t have to have title as against all the world, he just has to have better rights than Delamirie and he did – first in time is first in right.
The true owner would not have a claim against Delamirie because he has already paid for the conversion. The true owner would have a claim against Armory for the value of the stone and could possibly buy the stone from Delamirie theoretically.
Watch example: True Owner loses his watch, which is found by First Finder. First Finder then loses the watch, which is found by Second Finder. First Finder prevails over Second Finder on the basis of his prior possession – first in time is first in right. First Finder had good title as against all the world but True Owner. True Owner would of course prevail over First Finder.
LAW OF FINDERS: STRUCTURE
Today in Michigan you take lost property to a central clearing house and it is governed by statutes. You can check the records online. If the true owner doesn’t show up, not only do you get possession but also now you get legal title ownership.
Found property can be classified in one of three ways: Lost, Misplaced, or Abandoned.
Lost: The finder has good title as against all the world but the true owner. Exception: If the lost property is found in the private area of someone’s private property, we let the owner of the private property have possession.
Misplaced: The owner of the place where the misplaced item is found is the first possessor after the true owner and they have good title as against the whole world but the true owner.
Abandoned: The finder gets to keep it outright unless he or she finds it in the private area of private property.
DEFINITIONS:
Lost Property: Property that is unintentionally set down. When an owner of a chattel accidentally and involuntarily parts with it and does not know where to find it, the chattel is considered lost.
Misplaced Property: Property that is intentionally set down, but unintentionally left (determined by the context of the find). When an owner of a chattel intentionally puts the chattel in a certain place but forgets to retrieve it, it is considered misplaced.
Abandoned Property: The true owner gave up or abandoned any claim to the title. (This is judged from the circumstances).The person we classify as the finder has good title period. When the owner of a chattel intentionally and voluntarily relinquishes both title and possession it is considered abandoned.
WEEK 2
LAW OF FINDERS (CONTINUED)
The first principal in property law: First in time is first in right.
The principal objective is to get the item back to the true owner. How do we do that? We reward hard work over luck as we do business over recreation – the greatest good for the greatest number of people.
We structure a system of finder’s law to make sure the true owner has some way of finding out where the item is. If the true owner doesn’t know where it is, true owner doesn’t know where to get it back. In order to encourage people to do that, we give an incentive to the finder to turn the item in make a report. If the finder does that, he or she will get an opportunity to get good title to the item if the true owner doesn’t show up after a reasonable period to recover it.
If the finder doesn’t report the item, we treat it as a conversion and the true owner will still be able to recover the item years later because the finder didn’t do the right thing.
CONTEXT:
We don’t know how an item got there so we decide from context – we look at the nature of the item that was found, where it was found and how long it’s been there.
Lost: Finder has good title as against all the world and the person we classify as finder is the finder in most circumstances. Unless something is found in the private area of private property, we say that lost property goes to the finder.
Mislaid: We treat the owner of the place it was found as the finder – even if someone finds it and reports it because the person who intentionally set it down but unintentionally left it there may recall where he or she left it or retrace their steps.
Abandoned: Finder has good title except if the item was found in private area of private property.
Hanna v. Peel
King’s Bench, 1945
Major Peel purchased a country estate but never moved in. When WW II broke out, the Crown requisitioned the home to soldier quarters. Corporal Hannah found a valuable brooch while adjusting the blackout curtains in his room. He gave it to the police. Two years later after the true owner never claimed the item, the brooch was turned over to Peel who then sold it. Hannah demanded the sale proceeds and won. Because Peel had never moved in, he never had constructive possession of the estate’s unknown lost contents.
The fact that Peel never took possession of the house would not necessarily be relevant to a finder’s analysis in the United States. Since it was Peel’s bedroom it was a private place in private property and Peel would have constructive possession of everything in the room. An owner will have constructive possession of everything attached and beneath the land.
The court treated the brooch as lost property because of the condition (context) of the brooch was dirty. Treating the brooch as lost property made it easier for the court to determine the best way to get the brooch back to the original owner. Since it had been there a very long time, it’s not the same impetus to treat it as mislaid. If Peel got to keep the brooch waiting for the true owner and he gets title, it would not encourage Hanna to come forward.
McAvoy v. Medina
93 Mass. (11 Allen) 548 (1866)
NATURE OF THE CASE: This was an action to recover money found in a shop.
FACTS: Apparently a customer of a shop placed his wallet on the counter but forgot to take it with him. McAvoy (P) saw and took the pocketbook which was lying on a table in Medina's (D) barbershop. He gave it to D to hold for the true owner. D promised to attempt to find the true owner, but that person was never found. P demanded the pocketbook from D, who refused, asserting ownership over the pocketbook. P sued. The judge ruled that P could not maintain an action to recover money. P appealed.
RULE OF LAW: There is a distinction between property that is lost and mislaid with respect to finder rights in that property.
HOLDING AND DECISION: (Dewey, J.) Is there a distinction between property that is lost and mislaid with respect to finder rights in that property? Yes. This property was not lost. This property is not to be treated as lost property in the sense in which a finder has a valid claim to hold the same until called for by the true owner. This property was voluntarily placed upon the table in D's shop by a customer who accidentally left it there. P did not acquire the right to take that property from the shop. It was the duty of D to use reasonable care for the safe keeping of the property until the true owner should call for it. Mislaid goods are considered a bailment that the owner of the land holds for the true owner. Mislaid goods are those that have been placed voluntarily, and then forgotten. A finder acquires no rights in property that was mislaid. Judgment affirmed.
LEGAL ANALYSIS: This case sets forth the general rules regarding lost and mislaid property.
Note: Abandoned property belongs to the finder. Lost property would go to the finder. Mislaid property goes to a person who has a duty to hold the property in case the party who mislaid it comes back to claim it. This ruling promotes the public policy of aiding the person who has had the misfortune to get the opportunity to have a fruitful search. Of course you are smarter than this author if you can figure out the bright line difference between the characterizations that are used in this context.
Public Places
Lost property found in public places goes to the finder. Mislaid property found in public places goes to the landowner.
Treasure Trove
When property is embedded in or under the soil it is awarded to the landowner on the rationale that the landowner’s expectations of owning things in the dirt itself are especially strong. In England, treasure trove belongs to the Crown.
Employee Finders
Employee finders must surrender the find to their employer if the employee has a contractual duty to report finds or is likely to find things in the course of your employment i.e., housekeeper in a hotel. Policy: The goal is not to benefit the employer but the employer is going to be in the best position to get the item back to the true owner. A carpenter working in a hotel who finds property would be able to keep find because carpentry duties do not include reporting found property.
Michigan Statute
If you find something whether it is lost or mislaid, you bring it the Central Property Depository for the county, they put it in a directory and the person who either lost or mislaid the property can go there and check the directory and if they can identify it, the true owner can get it back. Because of modern transportation, the Depository is easy to get to and it is also online. The waiting period for some goods is 90 days. Certain more valuable goods have a waiting period of 180 days.
First Objective: Get item back to true owner. We structure a system to encourage reporting by giving an incentive – that if the finder reports it and turns it in to the repository and if the true owner doesn’t show up, the finder will get good title. At common law, a shopkeeper is required to advertise a lost or misplaced item. Today it is governed by statute and items are taken to depositories.
ADVERSE POSSESSION
Hicks: Legalized theft over time. The doctrine of adverse possession obligates the title holder of land to eject, within a statutorily prescribed period, a wrongful possessor of the land. Provided certain other elements are satisfied, a title holder who fails this obligation will lose title to the land in question to the adverse possessor.
Sleeping Theory: Slothful or lax owners, who ignore people using their land in brazen violation of legal right, deserve to be penalized. By failing to bring a timely action to recover possession they create a problem: adjudicating stale claims is very difficult – witnesses die and disappear, memories fade, documents are lost. The slothful owner ought to bear the risk of losing his property if he does not care enough to assert his ownership. Some argue that stripping the slothful owner comports with his reasonable expectations. In a sense, use it or lose it.
Earnings Theory: Have to develop the land and not just own it. People who use land productively and beneficially for a long time ought to be rewarded. Even though the land is owned by someone else, the actual possessor has invested time and effort in making it productive. After a long enough period, the adverse possessor has earned some interest in the land. When coupled with the sleeping theory, the justice of cutting off the true owner’s claim seems even stronger. Psychologically if not legally the adverse possessor develops expectations of continued possession, which expectations are met by the doctrine of adverse possession.
Stability Theory: Adverse possession enables disputes or doubts about land titles to be cleared expeditiously by delivering title to the person who has occupied the land as if she were the owner for a long time without objection.
ELEMENTS AND REQUIREMENTS (in italics)
Adverse possession is dealt with today primarily by statute. Whether it’s common law or by statutes, the usual elements are: Exception: time periods for occupancy.
1. Actual Entry Actually on the land to claim it and it puts true owner on notice that his land is at risk. Which gives;
2. Exclusive Possession Cannot have two competing groups for same piece of land, must be exclusive. You have to be there;
3. Adverse under the claim of right (hostility to the title) Must be clear to the true owner that you are not there with permission and that you are there to take the land. If you have permission to be there, you are no longer hostile to the title and cannot adversely possess the title. Staying over lease period is not hostile because your original entry was not hostile. .
4. Open (not hiding, readily visible) and Notorious (a more aggressive assertion of the claim – not just a fence but a brick wall, ejectment of trespassers, etc.) Must give true owner the opportunity to know that someone is on his or her land. And be there;
5. Continuous for statutory of limitations period. We don’t want people losing their property right away and we want the adverse possessor to have to work for it.
OCEAN + Adverse possession
Van Valkenburgh v. Lutz
Court of Appeals, NY 1952
Interplay between the common law rule for adverse possession and the statutory gloss of New York’s requirements of one or two elements that you have to satisfy in order to achieve possession.
Hicks: Case flawed, screwy and inconsistent.
1912 Lutz buys lots 14 & 15
1920 Lutz is gardening on the property
1937 Van Valkenburgh’s buy lots 19-22
1948 Oral statement irrelevant
FACTS: In 1912, Lutz (D) bought lots 14-15 in a large subdivision. Instead of climbing a steep grade to access their lots, D crossed lots 19-22. D cleared a travel way near the northern boundary of the tract to reach his own land. D eventually cleared lots 14-15 and built a house for his family on them. They also cleared part of the land on lots 19-22 and built a house for D's brother on lot 19. D made improvements, including building a shed, and maintaining a garden and selling its produce in the local neighborhood. D used the land that did not belong to him to grow vegetables. In 1937, Van Valkenburgh (P) bought lots and built a home in the same subdivision as D. Some nine years later bad blood developed between P and D. D was actually arrested, jailed, and then released on bail for criminal assault against P's children. In 1947, P then bought the lots 19-22 at a foreclosure sale for nonpayment of taxes and ordered D to leave. D claimed a prescriptive right to use the traveled way to reach his property. P erected a fence across the traveled way and D sued and won a judgment in June 1948 that held he had a right of way over P's land. But D in fact removed all his buildings etc. from the lots. Another action was commenced against D in April 1948. That suit was tried in 1950 and D prevailed again. The counterclaim was that D had acquired title to the property by adverse possession. The judgment was affirmed by the Appellate Division and P appealed.
Lutz created an interest of an easement by prescription. Prescription is adverse possession. When you acquire an easement by prescription, you acquire it because for the statutory period you have used that property in a certain way – you might cross it every day. You can loose an easement by adverse possession by blocking entrance to the easement for the statutory period.
If Lutz has already acquired the land by adverse possession, would his oral statement that he did not own the land have made a difference? No, you can only transfer or convey real property by deed or by will. You can lose it by adverse possession, tax sale, foreclosure, etc., but you can’t disclaim it away orally.
Majority: Under the New York statute, Lutz never proved that he substantially cultivated the entire parcel and he had not shown that he enclosed the parcel. He couldn’t show that he occupied under a claim of title (the screwy part) and Lutz waived title in the previous action. Hicks: wrong, wrong, wrong and wrong.
Dissent: Lutz did cultivate property as much as reasonable and possible. He asserted title without any written instrument intending to make the land his own. Statement of title is irrelevant.
Law in New York when claiming title without a written instrument:
1. Show property has been cultivated or improved;
2. That it’s been protected by a substantial enclosure; and
3. The land has been used for the supply of fuel or timber for the use of husbandry or use by the occupant.
If you build a fence around an area and you occupy the area within the enclosure, even if you are not regularly using all of it, we will treat all of the area you have enclosed and thus separated off from other people as being subject to adverse possession if you otherwise satisfy the requirements with regard to some portion of the property.
The state of mind of the adverse possessor is irrelevant. He or she doesn’t have to know the land is not theirs but they want to make it theirs. They don’t have to mistakenly believe it is theirs to make it theirs. All they have to do is be there without the permission of the true owner and that will satisfy the adverse and with the claim of right, hostile to the title of the true owner requirement today.
The Modern Rule
For this class: Your mere presence on the land without the permission of the true owner is satisfaction of the element of hostility.
In Michigan if property taxes are not paid for three years, the property is put of for auction and sold to highest bidder. The amount of unpaid taxes and penalties is kept by the county, anything over and above that goes to the owner of the property but the buyer gets title. You can redeem the property within the statutory period (180 days in most places). You may have to pay redemption interest to the title owner.
Two types of people at tax sales:
1. People who wish to own the property; and
2. People who want the statutory interest.
Giving someone permission to be on your land stops the running period for continuous occupancy. That person is no longer there hostile to the title.
COLOR OF TITLE
A concept that the court referred to in Lutz when it talked about the standard for adverse possession when you have some document that purports to give you title either when you don’t have title to enter the land or you have title to some of it but not all of it is described. The description may exceed that which you actually own – you have color of title to that part of the deed that you have not really purchased.
A possessor who enters under color of title is one who has a defective deed, or a will, or other writing that purports to deliver title to the possessor, but which the possessor does not know to be invalid. The deed might be improperly executed, or forged, or signed by somebody who doesn’t own the land. Note: possessors who enter under color of title satisfy the adversity element. On the other hand, only a few states require color of title to satisfy hostility, or adversity. Color of title has other implications concerning how much land the occupier is deemed to have adversely possessed.
The way to think about is to consider the issue of exclusivity. Title owners who actually occupy some portion of their property are considered to be in constructive possession of the rest. That means that if a title owner is on some portion of the property described in a deed which gives an adverse possessor color of title, there are competing claims for constructive possession (rightful and adverse to that portion not actually occupied by the adverse possessor. The title owner keeps everything the adverse possessor does not actually occupy.
The two remedies for color of title are: retroactive reformation for a proper deed to be prepared, or bring a quiet title action to establish which part an owner owns.
If you have color of title and if you satisfy the requirements for adverse possession, you can constructively adverse possess the land under color of title the area which was defectively purported on the deed.
If there are competing claims of constructive adverse possession with the title owner, you may not be able to adversely possess that part which you are not occupying even though your deed says you have it.
Mannillo v. Gorski
54 N.J. 378, 255 A.2d 258 (1969)
NATURE OF THE CASE: This was an action in injunction against an alleged trespass and a counterclaim for a declaratory judgment under adverse possession.
FACTS: In 1946, Gorski (D) and her husband entered into possession of premises located in Keansburg Lot No. 1007 Block 42 under an agreement to purchase. Upon compliance with the purchase agreement, the seller conveyed the lands on April 16, 1952. D's husband died thereafter. Mannillo (P) were the owners of an adjacent lot (#1008) and they acquired title to that lot in 1953. In 1953 D made improvements, which entailed the installation of a concrete walkway that extended toward both the front and rear of the property. D admits that this addition encroached upon P's land to the extent of 15 inches. D contends that she has possession to that land by adverse possession under a local statute (20 years). P contends that the possession was not hostile and was merely done under a mistaken belief of ownership and that a mere encroachment onto the land of another must be accompanied by an intent to invade the rights of another. D was not aware the path and steps encroached onto the P's land but D operated under a mistake belief that the land was hers. P sued D in trespass and D counterclaimed for adverse possession. The trial court ruled for D and P appealed. The trial court ruled that such possession was exclusive, continuous, uninterrupted, visible, notorious and against the rights and interest of the true owners.
RULE OF LAW: The possession required under adverse possession may be satisfied by a mistaken belief that the possessor has title to the lands involved. The mere encroachment of 15 inches on the land of another is not visible and notorious.
LEGAL ANALYSIS: One key element of the possession must be such that the true owner has notice or constructive notice of the possession. Constructive notice occurs only when the encroachment is significant and can be determined by sight.
Hicks: This encroachment does not satisfy the requirement that it be sufficiently open and notorious. The defendants were never put on notice that they were at risk of losing their land – that’s the key in this case – it’s wasn’t open or notorious. The court applies all of the elements of adverse possession. They don’t own it – it’s a trespass.
Some jurisdictions hold that encroachments by one neighbor onto the land of another are not open and notorious if the encroachment is of a small area and is not “clearly and self-evidently” an encroachment. In such situations the limitations statute does not begin to run until and unless the owner has actual knowledge of the encroachment.
Encroachments
Here’s how we handle encroachments under the modern rule:
1. If it would be relatively easy to take down, we simply have the encroaching person take down the encroachment at his or her own expense.
2. If the encroachment is substantial and would be difficult or expensive to take down, and it does confer some value on the person who is the true owner of the property, we simply require the owner of the property to pay the encroacher the amount by which the value of the true owner’s land has increased.
3. Forced sale – order the encroacher to buy the land. This is un-favored by the courts but most appropriate remedy in certain circumstances. The problem is some lots are just big enough to build on for zoning purposes and problems may arise if part of a lot is sold and then becomes too small for a permit.
The first principal in property law: First in time is first in right.
The principal objective is to get the item back to the true owner. How do we do that? We reward hard work over luck as we do business over recreation – the greatest good for the greatest number of people.
We structure a system of finder’s law to make sure the true owner has some way of finding out where the item is. If the true owner doesn’t know where it is, true owner doesn’t know where to get it back. In order to encourage people to do that, we give an incentive to the finder to turn the item in make a report. If the finder does that, he or she will get an opportunity to get good title to the item if the true owner doesn’t show up after a reasonable period to recover it.
If the finder doesn’t report the item, we treat it as a conversion and the true owner will still be able to recover the item years later because the finder didn’t do the right thing.
CONTEXT:
We don’t know how an item got there so we decide from context – we look at the nature of the item that was found, where it was found and how long it’s been there.
Lost: Finder has good title as against all the world and the person we classify as finder is the finder in most circumstances. Unless something is found in the private area of private property, we say that lost property goes to the finder.
Mislaid: We treat the owner of the place it was found as the finder – even if someone finds it and reports it because the person who intentionally set it down but unintentionally left it there may recall where he or she left it or retrace their steps.
Abandoned: Finder has good title except if the item was found in private area of private property.
Hanna v. Peel
King’s Bench, 1945
Major Peel purchased a country estate but never moved in. When WW II broke out, the Crown requisitioned the home to soldier quarters. Corporal Hannah found a valuable brooch while adjusting the blackout curtains in his room. He gave it to the police. Two years later after the true owner never claimed the item, the brooch was turned over to Peel who then sold it. Hannah demanded the sale proceeds and won. Because Peel had never moved in, he never had constructive possession of the estate’s unknown lost contents.
The fact that Peel never took possession of the house would not necessarily be relevant to a finder’s analysis in the United States. Since it was Peel’s bedroom it was a private place in private property and Peel would have constructive possession of everything in the room. An owner will have constructive possession of everything attached and beneath the land.
The court treated the brooch as lost property because of the condition (context) of the brooch was dirty. Treating the brooch as lost property made it easier for the court to determine the best way to get the brooch back to the original owner. Since it had been there a very long time, it’s not the same impetus to treat it as mislaid. If Peel got to keep the brooch waiting for the true owner and he gets title, it would not encourage Hanna to come forward.
McAvoy v. Medina
93 Mass. (11 Allen) 548 (1866)
NATURE OF THE CASE: This was an action to recover money found in a shop.
FACTS: Apparently a customer of a shop placed his wallet on the counter but forgot to take it with him. McAvoy (P) saw and took the pocketbook which was lying on a table in Medina's (D) barbershop. He gave it to D to hold for the true owner. D promised to attempt to find the true owner, but that person was never found. P demanded the pocketbook from D, who refused, asserting ownership over the pocketbook. P sued. The judge ruled that P could not maintain an action to recover money. P appealed.
RULE OF LAW: There is a distinction between property that is lost and mislaid with respect to finder rights in that property.
HOLDING AND DECISION: (Dewey, J.) Is there a distinction between property that is lost and mislaid with respect to finder rights in that property? Yes. This property was not lost. This property is not to be treated as lost property in the sense in which a finder has a valid claim to hold the same until called for by the true owner. This property was voluntarily placed upon the table in D's shop by a customer who accidentally left it there. P did not acquire the right to take that property from the shop. It was the duty of D to use reasonable care for the safe keeping of the property until the true owner should call for it. Mislaid goods are considered a bailment that the owner of the land holds for the true owner. Mislaid goods are those that have been placed voluntarily, and then forgotten. A finder acquires no rights in property that was mislaid. Judgment affirmed.
LEGAL ANALYSIS: This case sets forth the general rules regarding lost and mislaid property.
Note: Abandoned property belongs to the finder. Lost property would go to the finder. Mislaid property goes to a person who has a duty to hold the property in case the party who mislaid it comes back to claim it. This ruling promotes the public policy of aiding the person who has had the misfortune to get the opportunity to have a fruitful search. Of course you are smarter than this author if you can figure out the bright line difference between the characterizations that are used in this context.
Public Places
Lost property found in public places goes to the finder. Mislaid property found in public places goes to the landowner.
Treasure Trove
When property is embedded in or under the soil it is awarded to the landowner on the rationale that the landowner’s expectations of owning things in the dirt itself are especially strong. In England, treasure trove belongs to the Crown.
Employee Finders
Employee finders must surrender the find to their employer if the employee has a contractual duty to report finds or is likely to find things in the course of your employment i.e., housekeeper in a hotel. Policy: The goal is not to benefit the employer but the employer is going to be in the best position to get the item back to the true owner. A carpenter working in a hotel who finds property would be able to keep find because carpentry duties do not include reporting found property.
Michigan Statute
If you find something whether it is lost or mislaid, you bring it the Central Property Depository for the county, they put it in a directory and the person who either lost or mislaid the property can go there and check the directory and if they can identify it, the true owner can get it back. Because of modern transportation, the Depository is easy to get to and it is also online. The waiting period for some goods is 90 days. Certain more valuable goods have a waiting period of 180 days.
First Objective: Get item back to true owner. We structure a system to encourage reporting by giving an incentive – that if the finder reports it and turns it in to the repository and if the true owner doesn’t show up, the finder will get good title. At common law, a shopkeeper is required to advertise a lost or misplaced item. Today it is governed by statute and items are taken to depositories.
ADVERSE POSSESSION
Hicks: Legalized theft over time. The doctrine of adverse possession obligates the title holder of land to eject, within a statutorily prescribed period, a wrongful possessor of the land. Provided certain other elements are satisfied, a title holder who fails this obligation will lose title to the land in question to the adverse possessor.
Sleeping Theory: Slothful or lax owners, who ignore people using their land in brazen violation of legal right, deserve to be penalized. By failing to bring a timely action to recover possession they create a problem: adjudicating stale claims is very difficult – witnesses die and disappear, memories fade, documents are lost. The slothful owner ought to bear the risk of losing his property if he does not care enough to assert his ownership. Some argue that stripping the slothful owner comports with his reasonable expectations. In a sense, use it or lose it.
Earnings Theory: Have to develop the land and not just own it. People who use land productively and beneficially for a long time ought to be rewarded. Even though the land is owned by someone else, the actual possessor has invested time and effort in making it productive. After a long enough period, the adverse possessor has earned some interest in the land. When coupled with the sleeping theory, the justice of cutting off the true owner’s claim seems even stronger. Psychologically if not legally the adverse possessor develops expectations of continued possession, which expectations are met by the doctrine of adverse possession.
Stability Theory: Adverse possession enables disputes or doubts about land titles to be cleared expeditiously by delivering title to the person who has occupied the land as if she were the owner for a long time without objection.
ELEMENTS AND REQUIREMENTS (in italics)
Adverse possession is dealt with today primarily by statute. Whether it’s common law or by statutes, the usual elements are: Exception: time periods for occupancy.
1. Actual Entry Actually on the land to claim it and it puts true owner on notice that his land is at risk. Which gives;
2. Exclusive Possession Cannot have two competing groups for same piece of land, must be exclusive. You have to be there;
3. Adverse under the claim of right (hostility to the title) Must be clear to the true owner that you are not there with permission and that you are there to take the land. If you have permission to be there, you are no longer hostile to the title and cannot adversely possess the title. Staying over lease period is not hostile because your original entry was not hostile. .
4. Open (not hiding, readily visible) and Notorious (a more aggressive assertion of the claim – not just a fence but a brick wall, ejectment of trespassers, etc.) Must give true owner the opportunity to know that someone is on his or her land. And be there;
5. Continuous for statutory of limitations period. We don’t want people losing their property right away and we want the adverse possessor to have to work for it.
OCEAN + Adverse possession
Van Valkenburgh v. Lutz
Court of Appeals, NY 1952
Interplay between the common law rule for adverse possession and the statutory gloss of New York’s requirements of one or two elements that you have to satisfy in order to achieve possession.
Hicks: Case flawed, screwy and inconsistent.
1912 Lutz buys lots 14 & 15
1920 Lutz is gardening on the property
1937 Van Valkenburgh’s buy lots 19-22
1948 Oral statement irrelevant
FACTS: In 1912, Lutz (D) bought lots 14-15 in a large subdivision. Instead of climbing a steep grade to access their lots, D crossed lots 19-22. D cleared a travel way near the northern boundary of the tract to reach his own land. D eventually cleared lots 14-15 and built a house for his family on them. They also cleared part of the land on lots 19-22 and built a house for D's brother on lot 19. D made improvements, including building a shed, and maintaining a garden and selling its produce in the local neighborhood. D used the land that did not belong to him to grow vegetables. In 1937, Van Valkenburgh (P) bought lots and built a home in the same subdivision as D. Some nine years later bad blood developed between P and D. D was actually arrested, jailed, and then released on bail for criminal assault against P's children. In 1947, P then bought the lots 19-22 at a foreclosure sale for nonpayment of taxes and ordered D to leave. D claimed a prescriptive right to use the traveled way to reach his property. P erected a fence across the traveled way and D sued and won a judgment in June 1948 that held he had a right of way over P's land. But D in fact removed all his buildings etc. from the lots. Another action was commenced against D in April 1948. That suit was tried in 1950 and D prevailed again. The counterclaim was that D had acquired title to the property by adverse possession. The judgment was affirmed by the Appellate Division and P appealed.
Lutz created an interest of an easement by prescription. Prescription is adverse possession. When you acquire an easement by prescription, you acquire it because for the statutory period you have used that property in a certain way – you might cross it every day. You can loose an easement by adverse possession by blocking entrance to the easement for the statutory period.
If Lutz has already acquired the land by adverse possession, would his oral statement that he did not own the land have made a difference? No, you can only transfer or convey real property by deed or by will. You can lose it by adverse possession, tax sale, foreclosure, etc., but you can’t disclaim it away orally.
Majority: Under the New York statute, Lutz never proved that he substantially cultivated the entire parcel and he had not shown that he enclosed the parcel. He couldn’t show that he occupied under a claim of title (the screwy part) and Lutz waived title in the previous action. Hicks: wrong, wrong, wrong and wrong.
Dissent: Lutz did cultivate property as much as reasonable and possible. He asserted title without any written instrument intending to make the land his own. Statement of title is irrelevant.
Law in New York when claiming title without a written instrument:
1. Show property has been cultivated or improved;
2. That it’s been protected by a substantial enclosure; and
3. The land has been used for the supply of fuel or timber for the use of husbandry or use by the occupant.
If you build a fence around an area and you occupy the area within the enclosure, even if you are not regularly using all of it, we will treat all of the area you have enclosed and thus separated off from other people as being subject to adverse possession if you otherwise satisfy the requirements with regard to some portion of the property.
The state of mind of the adverse possessor is irrelevant. He or she doesn’t have to know the land is not theirs but they want to make it theirs. They don’t have to mistakenly believe it is theirs to make it theirs. All they have to do is be there without the permission of the true owner and that will satisfy the adverse and with the claim of right, hostile to the title of the true owner requirement today.
The Modern Rule
For this class: Your mere presence on the land without the permission of the true owner is satisfaction of the element of hostility.
In Michigan if property taxes are not paid for three years, the property is put of for auction and sold to highest bidder. The amount of unpaid taxes and penalties is kept by the county, anything over and above that goes to the owner of the property but the buyer gets title. You can redeem the property within the statutory period (180 days in most places). You may have to pay redemption interest to the title owner.
Two types of people at tax sales:
1. People who wish to own the property; and
2. People who want the statutory interest.
Giving someone permission to be on your land stops the running period for continuous occupancy. That person is no longer there hostile to the title.
COLOR OF TITLE
A concept that the court referred to in Lutz when it talked about the standard for adverse possession when you have some document that purports to give you title either when you don’t have title to enter the land or you have title to some of it but not all of it is described. The description may exceed that which you actually own – you have color of title to that part of the deed that you have not really purchased.
A possessor who enters under color of title is one who has a defective deed, or a will, or other writing that purports to deliver title to the possessor, but which the possessor does not know to be invalid. The deed might be improperly executed, or forged, or signed by somebody who doesn’t own the land. Note: possessors who enter under color of title satisfy the adversity element. On the other hand, only a few states require color of title to satisfy hostility, or adversity. Color of title has other implications concerning how much land the occupier is deemed to have adversely possessed.
The way to think about is to consider the issue of exclusivity. Title owners who actually occupy some portion of their property are considered to be in constructive possession of the rest. That means that if a title owner is on some portion of the property described in a deed which gives an adverse possessor color of title, there are competing claims for constructive possession (rightful and adverse to that portion not actually occupied by the adverse possessor. The title owner keeps everything the adverse possessor does not actually occupy.
The two remedies for color of title are: retroactive reformation for a proper deed to be prepared, or bring a quiet title action to establish which part an owner owns.
If you have color of title and if you satisfy the requirements for adverse possession, you can constructively adverse possess the land under color of title the area which was defectively purported on the deed.
If there are competing claims of constructive adverse possession with the title owner, you may not be able to adversely possess that part which you are not occupying even though your deed says you have it.
Mannillo v. Gorski
54 N.J. 378, 255 A.2d 258 (1969)
NATURE OF THE CASE: This was an action in injunction against an alleged trespass and a counterclaim for a declaratory judgment under adverse possession.
FACTS: In 1946, Gorski (D) and her husband entered into possession of premises located in Keansburg Lot No. 1007 Block 42 under an agreement to purchase. Upon compliance with the purchase agreement, the seller conveyed the lands on April 16, 1952. D's husband died thereafter. Mannillo (P) were the owners of an adjacent lot (#1008) and they acquired title to that lot in 1953. In 1953 D made improvements, which entailed the installation of a concrete walkway that extended toward both the front and rear of the property. D admits that this addition encroached upon P's land to the extent of 15 inches. D contends that she has possession to that land by adverse possession under a local statute (20 years). P contends that the possession was not hostile and was merely done under a mistaken belief of ownership and that a mere encroachment onto the land of another must be accompanied by an intent to invade the rights of another. D was not aware the path and steps encroached onto the P's land but D operated under a mistake belief that the land was hers. P sued D in trespass and D counterclaimed for adverse possession. The trial court ruled for D and P appealed. The trial court ruled that such possession was exclusive, continuous, uninterrupted, visible, notorious and against the rights and interest of the true owners.
RULE OF LAW: The possession required under adverse possession may be satisfied by a mistaken belief that the possessor has title to the lands involved. The mere encroachment of 15 inches on the land of another is not visible and notorious.
LEGAL ANALYSIS: One key element of the possession must be such that the true owner has notice or constructive notice of the possession. Constructive notice occurs only when the encroachment is significant and can be determined by sight.
Hicks: This encroachment does not satisfy the requirement that it be sufficiently open and notorious. The defendants were never put on notice that they were at risk of losing their land – that’s the key in this case – it’s wasn’t open or notorious. The court applies all of the elements of adverse possession. They don’t own it – it’s a trespass.
Some jurisdictions hold that encroachments by one neighbor onto the land of another are not open and notorious if the encroachment is of a small area and is not “clearly and self-evidently” an encroachment. In such situations the limitations statute does not begin to run until and unless the owner has actual knowledge of the encroachment.
Encroachments
Here’s how we handle encroachments under the modern rule:
1. If it would be relatively easy to take down, we simply have the encroaching person take down the encroachment at his or her own expense.
2. If the encroachment is substantial and would be difficult or expensive to take down, and it does confer some value on the person who is the true owner of the property, we simply require the owner of the property to pay the encroacher the amount by which the value of the true owner’s land has increased.
3. Forced sale – order the encroacher to buy the land. This is un-favored by the courts but most appropriate remedy in certain circumstances. The problem is some lots are just big enough to build on for zoning purposes and problems may arise if part of a lot is sold and then becomes too small for a permit.
WEEK 3
Howard v. Kunto
3 Wash. App. 393, 477 P.2d 210 (1970)
NATURE OF THE CASE: This was a quiet title action.
FACTS: Howard (P) and Kunto (D) had homes in a summer resort area under deeds that did not match the land that each was occupying. One of the houses stood on one lot and his deed described the adjacent lot. The error was discovered 28 years after it was made. P conveyed his deed to the occupant of the adjacent lot in exchange for their deed, which was the lot occupied by D. P now had in his possession a deed describing the land occupied by D. D claimed that the land was his, arguing that he had achieved adverse possession by tacking. D and his successors had adversely possessed the land for the required time period. P sued and obtained a judgment quieting title in the land. Until P obtained the conveyance from Moyer, neither Moyer nor any of his predecessors ever asserted any right to ownership of the property actually being possessed by D and his predecessors. At the time that this action was commenced, D has been in occupancy of the disputed land less than a year. The trial court said that D had failed to prove by a preponderance of the evidence a continuity of possession to permit tacking of the adverse possession of defendants to the possession of their predecessors. D appealed.
ISSUES:
1. Is a claim of adverse possession defeated because the physical use of the premises was restricted to summer occupancy? In other words, was there an interruption in the statutory period by virtue of 8 months of the land sitting unused?
2. Is tacking of possession by subsequent occupants permitted if the land is occupied under a mistake of fact? In other words, can they add their time so they can reach the statutory period?
RULE OF LAW: Tacking of adverse possession is permitted if the successive occupants are in "privity." A claim of adverse possession is not defeated because the physical use of the premises was restricted to summer occupancy (continuity).
The court said, it was being possessed such as ordinarily would mark the conduct of an owner in general in holding, managing, and caring for property of like nature and condition. The key: The property is being used essentially as the typical true owner reasonably would use it – as a summer property as the other surrounding properties.
For Privity: There was an agreement between the Kuntos and their successors that the Kuntos would come onto this property and take over whatever rights they purchased – whatever rights to this land their predecessors may have had. The key: There was an agreement between them and that qualifies for privity.
The property was intended for summer occupancy, as were the surrounding properties. A reasonable owner would use the property during the summer and not other times. The key is to decide what the normal use of the property is. If the adverse possessor makes that use, she has likely occupied continuously. But intermittent use that is not sufficient to satisfy continuity may be enough to create a prescriptive easement – a right to another’s property for a limited purpose (but not to acquire ownership).
Tacking – Adverse Possessors: A common problem with continuity is whether one possessor can add – tack – the possession of a prior possessor to his own. If privity of estate exists between the prior possessor and the present possessor tacking is permitted. Privity of estate means the voluntary transfer from the first possessor to the second possessor of either an estate in the land or actual possession of it. (Caution: In the context of servitudes, privity of estate has a different meaning).
Justin’s Outline: Tacking
When possession is continuous, and the parties are in privity (i.e., a blood relation, oral or written transfer, will or intestacy), the time in possession of successive adverse possessors may be added together to fulfill the statutory period.
State of mind is irrelevant. As long as you are on the property, it doesn’t matter whether you think it’s yours or whether you know it’s not yours but you want to make it yours.
DISABILITY STATUTES
Refer to Rachelle’s Outline – It’s really good.
Disability statutes protect persons who are under a disability when an adverse possessor enters their property from having to risk loss of that property while they are still under a disability or for a reasonable time thereafter.
Typical protected disabilities under common law:
1. Under the age of majority (a minor);
2. Mentally incompetent;
3. Imprisoned; and
4. Active duty military overseas.
The key: Only protected if you are under the disability at the time the adverse possessor enters.
How it works: If you are under a disability at the time the adverse possessor enters, you get the greater of:
1. The time left on the period for continuous occupancy (whatever is left on the 21 year SOL); or
2. The disability extension period (usually 10 years after the SOL has run).
A typical statute provides that if the owner is disabled at the time the cause of action accrues the owner may bring suit for some specified period after the disability ceases, even though the normal limitations period has expired.
Hicks: We do not permit, however, the tacking of disabilities. If a person is under multiple disabilities at the moment the adverse possessor entered, then he gets the benefit of whichever disability lasts longer, but you only get the benefit of the disability that you are already under at the time the adverse possessor enters. If a person was in prison at the time the adverse possessor entered the property and subsequently develops a mental disability, we will not give a benefit for the mental disability because it occurred after the adverse possessor entered.
Removal of Disability
Disability is removed if you are: deemed mentally competent, reaching the age of majority, being released from prison, and returning from overseas active military duty. Also, any alienation of the property removes the disability from the property, i.e. sale of the property, gifting of the property, or death if the property passes through your will or through intestate succession.
If a successor owner is under a disability at the time of a purchased property and title owner is under a disability, the successor owner does not get the benefit of a disability because they were not the true owner of that property at the time the adverse possessor entered. But, they do get some benefit – we put them in the shoes of the true owner. We treat them as we would treat the true owner as if the disability is removed at that moment.
In the event that a minor takes real property and the disability period ends (the greater of time left or 10 years) and that minor is still under the age of majority after the disability period, the court will appoint a guardian or conservator depending on the state and they have to act to protect the interests of the minor until he or she reaches the age of majority.
Booby traps: Don’t be fooled by successor owners who are imprisoned or mentally incompetent or minors that take from the true owner after the adverse possessor occupied the property – they don’t get any benefit for their own disability. Unless you are the true owner of that property at the moment the adverse possessor enters, you don’t get any benefit for your disability and you only get a benefit for disabilities you are under at the moment the adverse possessor enters.
ADVERSE POSSESSION OF CHATTELS
O'KEEFFE V. SNYDER
83 N.J. 478, 416 A.2d 862 (1980)
NATURE OF THE CASE: This was an appeal from a reversal of an order granting summary judgment.
FACTS: O'Keeffe (P) claimed that she owned three paintings, and that they had been stolen from her thirty years earlier in 1946 from a New York art gallery. Snyder (D) claimed he bought the three paintings for value, that the six-year statute of limitations for replevin had run, and that the paintings were his through adverse possession. D impleaded third party defendant, Frank, from whom D purchased the paintings from in 1975 for $35,000. The trial court granted summary judgment for D on the ground that the six-year statute of limitations had run. The appellate court reversed; the defenses of expiration of the statute of limitations and title by adverse possession were identical and D had not established adverse possession and thus P could still enforce her right to possession of the paintings. A majority of the court determined that the paintings were in fact stolen. D appealed.
ISSUE: Will a cause of action accrue when an injured party discovers or by exercise of reasonable diligence and intelligence should have discovered facts, which form the basis of a cause of action?
RULE OF LAW: A cause of action will accrue when an injured party discovers or by exercise of reasonable diligence and intelligence should have discovered facts, which form the basis of a cause of action.
Fraud
Snyder is a good faith purchaser for value, also known as bona fide purchaser for value. If the Franks obtained the paintings by fraud and then sold the paintings to Snyder, Snyder wouldn’t have any reason to know that they obtained them by fraud, Snyder would still own the paintings. The Franks would not be able to get good title by committing fraud, but someone who commits fraud can transfer good title to a good faith purchaser for value.
The policy behind the rule: We cannot protect both the person who has been defrauded and the person who paid value. The person who was defrauded has the opportunity to perform due diligence and verify documents.
Theft
A thief cannot acquire good title nor transfer good title.
Forged Deed
A forged deed is like stolen property and is no good to anyone. We protect the true owner as opposed to the victim of the forgery.
Policy: There is no opportunity for discovery. The only way to check for fraud is to check the signature at the recorder’s office to verify signature.
Snyder, the gallery owner, argued that this predecessor in interest had acquired title by adverse possession. The answer hinges on whether the possessor’s exhibition of the painting in his own home was sufficiently open and notorious. But the New Jersey Supreme Court ruled that the law of adverse possession ought not to apply. Instead, the court ruled that the limitations period for recovery of personal property starts to run at the earlier of:
1. When the loss occurs (except where there is fraud or concealment);
2. When the owner first discovers, or through reasonable effort should have discovered, the cause of action (including the identity of the possessor)
This turns the focus onto the owner’s conduct, rather than the possessor’s conduct, and encourages owners to report their losses and undertake reasonable investigation.
Hicks: The modern rule is: we are going to wait until either you know or reasonably should know where your property is located before the period starts to run against you to recover it or lose it. In order to get the benefit of the discovery rule you have to:
1. Show due diligence to find item;
2. Show an effective method of alert; and
3. Give notice (reasonable steps under the circumstances to put the world on notice that your item is missing and take reasonable steps to get the item back).
We still are going to have a statute of limitations for personal property whether we apply the discovery rule or not. Policy: we want to stimulate people to be actively protecting their goods. We basically punish sleeping on your rights.
The parties settled before a retrial. O’Keefe got a painting, Snyder got a painting and a third painting was sold at auction to pay for attorneys’ fees.
GIFTS
What Is a Gift?
A gift is a voluntary, immediate transfer of property without consideration from one person (the donor) to another person (the donee). The law recognizes two categories of gifts: the gift inter vivos (between two living persons) and the gift a causa mortis (contemplation of death).
Three elements for gifts inter vivos:
1. Intent to make a gift “now” or present donative intent. If you say, I’ll give you my house someday, that is not a gift but a gratuitous promise. You must feel the “wrench of delivery.
2. Delivery;
a) Manual delivery (physical delivery). RULE: if an item can be hand delivered it MUST be hand delivered.
b) Constructive delivery. This applies to items that lock and manual delivery is not possible. You are giving access to items that generally are not possible to delivery manually or are impracticable to deliver manually. Things inside of locked items are not gifts.
c) Symbolic delivery. Not recognized at common law. Some things can only be delivered symbolically, i.e. a deed – giving the key is not enough.
d) Delivery can precede the intent to give a gift. Ex.: You leave a ring at someone’s house, he or she calls you and you then give it to the person already in possession/delivery. You loan someone your iPod and you subsequently give it to him or her.
e) Once a gift is given to the donee’s agent, the delivery is complete. I have removed the object from my ability to recall it.
f) Until the item is delivered it is revocable. Until the item is beyond the donor’s ability to recall it is revocable. You can recall your own agent but you cannot not recall the agents of others.
3. Acceptance. If there is value to the donee, we will presume acceptance even if there is no expression of thanks. If you argue that you never accepted, it will be considered an evidentiary issue. If there is silence we presume acceptance if the gift is valuable to the recipient.
Checks
If I write a check to you and I die before the check is cashed, it’s not cashable. The idea behind the rule is that a check can be cancelled before it’s deposited. If you can show that there would not have been a revocation, some jurisdiction will honor the check especially in family situations for tax purposes.
Newman v. Bost
Supreme Court of NC, 1898
On his deathbed, Jack gives to Julia all the keys to the household furniture, saying that he intends for her to have everything in the house. Delivery of the keys constitutes constructive delivery for the furniture because it is impractical to make physical delivery under the circumstances. But delivery of the keys does not constitute constructive delivery of a life insurance policy locked inside a bureau drawer, because it was not impractical to deliver the tangible evidence of the life insurance right – the policy itself. Constructive delivery cases often raise the problem of whether delivery is an independent element or merely a double check on donative intent.
Gifts a causa mortis
Jack makes a gift a causa mortis – gifts in anticipation of death. A gift a causa mortis is a gift of personal property in anticipation of the donor’s imminently approaching death. It requires all three gift inter vivos elements, plus a fourth element: the donor’s anticipation of imminent death. Courts disfavor gifts a causa mortis because they are a substitute for a will without the legal safeguards a will requires, i.e. witnesses, notarization, certification of capacity, etc.
If the donor doesn’t die, the donor gets the gift back, it is revoked automatically. If the donor wants the person to have it, he or she has to re-gift it.
Safes
If you get the combination to safe it may only be for the safe itself because there is inherent value in owning a safe. If manual delivery is possible, the gift was only for the safe when the combination was given, not for the contents. But if the gift is safe deposit box, then you get the contents because a safe deposit box doesn’t have inherent value. Policy: Courts do not want gifts a causa mortis to be a substitute for a will.
WEEK 4
GIFTS (CONTINUED)
A combination to a floor safe (not a wall safe) will not necessarily give you all the contents – it might depending upon the court and the nature of the gift.
Symbolic Delivery
Symbolic delivery—physically transferring to the donee an object that represents or symbolizes the object—is permitted in many jurisdictions if manual delivery is difficult.
If you wanted to loan out your condo in Cancun, how would you deliver the right to use it? The only way you could do it is symbolically – you deliver a piece of paper that says, I hereby convey my right to use the condo to X.
Gruen v. Gruen
Court of Appeals of NY, 1986
Symbolic Delivery
The elements of an inter vivos gift are nicely combined in Gruen v. Gruen, 68 N.Y. 2d 48 (1986), in which Gruen wrote a letter to his son (an undergraduate student at Harvard) telling him that for his twenty-first birthday he was giving his son a valuable Klimt painting that was displayed in Gruen's home, but that he wished to retain possession for the remainder of his life. The New York Court of Appeals held that the letter constituted a completed and valid gift to Gruen's son of a remainder interest in the painting, a property right that would automatically become possessory upon the elder Gruen's death. Father Gruen retained a life estate in the painting.
The elder Gruen manifested his donative intent at the time of the gift because the remainder interest was a presently existing property right (even though not one that entitled the younger Gruen to immediate possession). The letter was sufficient to constitute delivery because it ('would be illogical for the law to require the donor to part with possession of the painting when that is exactly what he intends to retain." Acceptance of a gift by a donee is essential to a completed, valid gift. While the law presumes acceptance where the other elements of a gift are present, the younger Gruen manifested acceptance by acknowledging the gift to his friends and retaining for 17 years (until the elder Gruen's death) the letter evidencing the gift.
The statements and actions of the donor usually provide the best evidence of intent. But if the donor intends the gift to take effect in the future, it is ineffective. The younger Gruen wins because he retained the letters as evidence.
The court talked about the fact that the elder Gruen insured the painting. Insuring a painting is consistent with a life estate because it ensures the value of your own interest and also it ensures that there will be value there for the remaindermen – it’s consistent with preventing waste.
Hypo: A fire destroyed the painting and elder Gruen receives insurance money. He would be able to keep the money until his death. He would not be able to spend any of it but he could invest it.
In a life estate if the property is converted into one form of an asset to another, the life estate holder doesn’t lose the life estate but can enjoy the life estate asset in different form for the rest of his life.
This case turns on delivery. The symbolic delivery was the letter. The court gave three reasons on why the symbolic delivery was adequate:
1. Victor did give only title, no immediate right to possession
2. Illogical to hand over painting because he didn’t have the right to possess during lifetime
3. Inconvenient and silly to re-hang the painting
The letter was appropriate and the only way to accurately reflect the intangible rights that Michael received for this gift.
LIFE ESTATE
Life Estate: The right to possess and enjoy property for life but it is different than outright title ownership. The life estate is a freehold estate whose duration is measured by the lives of one or more specified persons. For example, a grant “to A for A’s life” creates a life estate in A for as long as he lives. Alternatively, the duration may be measured by the life of a person other than the grantee (e.g., “to A for B’s life”); this is called a life estate pur autre vie.
Life Estate holders can enter into trusts with the remaindermen if a well, for example, is being drilled by other people and the well will be dry by the time the life estate is over. The Life Estate holder would accelerate production and if the oil runs out, they would continue to draw interest income for the rest of his or her life from the trust and there would be something left over for the remaindermen.
Affirmative waste: A person who holds an estate subject to a future interest may not commit waste. Affirmative waste occurs when the voluntary acts of the present estate owner significantly reduce the value of the property (e.g., destroying a valuable house or planting tobacco year after year diminishing the ability to grow productive crops). The central idea of the waste concept is that A should not be able to use the property in a manner that unreasonably interferes with the expectation of B.
Non-renewable Resources – finite and can be exhausted
Life estate coal mine example: If coal is already being mined, you will be able to continue to mine coal on that property. You cannot increase or accelerate the taking of that coal so that you could push forward into your life estate all of the value or a disproportionate part of the value that the property can produce. It would be waste on the remaindermen if you mined all the coal from the property.
If it were a timber forest, you couldn’t clear cut the entire timer today. It is waste to unreasonably accelerate the value of particularly non-renewable resources in your life estate. Take a little bit every year, derive an income from it but you can’t grab it all.
Permissive Waste or Inaction: Permissive waste stems from inaction: the failure of the estate owner to exercise reasonable care to protect the estate (e.g., failing to fix a leaky roof).
Example: Suppose you had a life estate with a nice piece of property and a small house was on it. If there is a mortgage on it and property taxes are due every year, then you have to pay the mortgage and the property taxes. If you lose the house to the bank or the government, the remaindermen lose their interest too and that would be waste by inaction.
Cap on Expenses:
Your duty to pay the mortgage, taxes, etc. is capped. The cap on a life estate holder’s duty to pay is the reasonable income derived or which you reasonably could derive.
Example: Life estate holder with 1000 acres of rich farm land in Iowa and property tax is $4000 every year. Whether you are deriving income or not from the property, we will say, what could a reasonable person derive from property of this nature – and that’s how we’ll determine how much you will be obligated to pay every year for mortgage, taxes, maintenance, etc. Your obligation is capped. If you do have a property that has fallen on hard times and taxes are $5000 per year, mortgage is $6000 a year and maintenance is $1000 totaling $12000. But the house doesn’t rent for more than $600 per month. You are not obligated to take in $7200 and payout $4800. Your obligation is capped at $7200 if you are the life estate holder. If the remaindermen want to pay the rest so that the life estate is not lost, they are free to do that but you as the life estate holder is not obligated to pay more than you reasonably are deriving or could derive.
Back to the farm land example: You can’t let the land sit and do nothing to claim that you are not deriving income and therefore not going to pay the taxes because a reasonable farmer could farm the land and get $7000 a year in income. The remaindermen could sue you for waste and force you to pay the money because the court would impute to you $7000 in income whether you chose to take advantage of it or not.
If you continue to waste after the remaindermen have demanded that you make things right, the remaindermen can come in and terminate your life estate for extreme waste.
A life estate holder gets all the benefits of possession but you can’t sell or gift more than you have and courts favor younger Life Estate holders.
FEE SIMPLE
A life estate holder cannot do what a title Fee Simple owner can do. A Fee Simple owner could cut the top off the mountain and strip mine all the coal, clear-cut all the trees, etc.
Fee Simple: The biggest estate in land. You don’t own the land per se, you own the estate which is a series of rights against other people. Fee simple is a freehold estate whose duration is potentially infinite. It roughly corresponds to the layperson’s understanding of “ownership.” The most common form is fee simple absolute, the largest aggregation of property rights recognized under American law. At one time, it was necessary to use special language to create a fee simple (e.g., “to A and his heirs”), but today informal language such as “to A” will suffice in most states.
Fee Simple Absolute: The king could give away Fee Simple to pass onto your heirs but if the king was going to give Fee Simple Absolute, he had to say “to A and his heirs” which are words of inheritance. It doesn’t give the heirs anything; all it does is describe the nature of the estate that A has taken – Fee Simple Absolute.
Page 183 Problems:
1. To A for life, then to B forever.
a) 1600: Life estate
b) Today: FSA. You have to say, to be for life. Otherwise if you say something ambiguous that is not definitively something less than FS and you own in FS, you’ve given in FS (White v. Brown)
If Grantor has FSA and only gives away some combination of life estates and terms of years, Grantor by definition is always going to have a reversion.
Reversion: The interest a Grantor retains when Grantor gives away less than all of his or her estate. When an owner conveys a vested estate smaller than the estate he owns, he retains a future interest called a reversion. For instance, if O holds fee simple absolute, but conveys merely a life estate to A, O retains a reversion.
Primogeniture: First-born male. Everything goes to the oldest living son.
O--------LE/--------LE/-------LE/-------LE/-------Ã O had an interest that lasts indefinitely unless:
O grants to A for life, then to B for life, then to C for life, then to D and her heirs. Once O has said, to D and her heirs or even today just D. – O has given away a remainder in FSA and O will not have a remainder in that conveyance – O has given somebody else FSA.
Intestate: To die without a will. Hicks: The good news is, somebody has made out a will for you – the state – and is done by statute. Many Americans die intestate—without a valid will—and their property is distributed according to the state law of intestate succession. In general, the decedent’s property is transferred to the closest living relatives, with a strong preference for the surviving spouse and issue (lineal descendants of the decedent, such as children, grandchildren, etc.). If the decedent leaves no spouse or issue, the estate goes to the surviving natural parents or other ancestors. Where no spouse, issue, or ancestors survive, the estate goes to collaterals (other blood relatives of the decedent, e.g., siblings). If no siblings, aunts or uncles come next then first cousins, etc. Some states cut off at fourth cousins. The people who take are heirs. If no at law relatives exist, the state becomes your heir and your estate escheats.
Most states will say that if you die and have one spouse and one child – 50/50. More than one child and a surviving spouse – 1/3 to the spouse and the children split 2/3 – even if there are 12 of them, they all still split the 2/3 amongst them carving up 2/3 into 12 equal shares.
Escheat: If one dies intestate without heirs, his estate passes to the state in which the property is located; this process is called escheat.
Heirs: People who take under intestate succession. You have heirs the moment you die, before you die you have heirs apparent. Heirs at law must be blood relatives or a legally adopted siblings.
Beneficiary: someone who takes under a will. It means the same thing as a devisee
Will: A document that specifies the distribution your estate upon your death. A will is also called a devise. Will formalities: In general, a will is effective if it is (1) in writing and (2) signed by the testator at the end, (3) in the presence of two witnesses who themselves sign the will to attest to its execution. An exception to these requirements is the holographic will—one entirely in the handwriting of the testator—which is valid in most states without witnesses.
Devise: To make a gift under a will. O devises to A, is not an inter vivos gift – it is in a will. A gift made in a will becomes effective at the moment of death. The transfer of real property by will is known as a devise, and the recipient is a devisee. In contrast, the transfer of personal property by will is known as a legacy, and the recipient is a legatee.
Life Estate per autre vie: A Life Estate for the life of another. It is a Life Estate where the measuring life is someone else. To A for the life of B. A life estate "per autre vie" is created because the life that is used to measure the duration of possession is not that of the party actually in possession. Possession only terminates at the death of the measuring life. If the party in possession (i.e., A) dies first, the estate goes to his heirs, devisees, purchasers, or even by escheat, until the death of the measuring life. Example of why you might do that: You are 90 years old and you are leaving an 88 year old spouse who’s already incapacitated. You might say, to my son A for the life of my spouse meaning, your son is going to hold this money theoretically so that your son will take care of mom.
Testator: A person who makes a will. The person making the will is called a testator (if male) or a testatrix (if female). The testator has every right to sell or give away a house that they own in fee simple. Just because you are in the will doesn’t mean you will get the house unless the testator still owns it at the time of death.
White v. Brown
559 S.W. 2d 938 (Tenn. 1977)
Jessie Lide's handwritten will (a holographic will) stated: "I wish Evelyn White to have my home to live in and not to be sold," The Tennessee Supreme Court relied on three Tennessee statutes to presume that Jessie meant to give Evelyn fee simple absolute, there being no "clear evidence" to the contrary. One statute stated a common presumption that every grant or devise of real estate shall pass the entire interest of the grantor or testator unless there is clear evidence to the contrary. The second statute stated a presumption that a will conveys the entire interest of the testator in the testator's real property unless there is a contrary intention in the will. The third statute created a presumption against partial intestacy, which is what would happen if Jessie Lide's will was read creating a life estate in Evelyn White, because Lide did not devise the remainder that would then exist; such remainder would pass to her heirs in intestacy. The court treated the “no sale” restriction as an invalid attempt to restrain alienation of a fee simple absolute rather than clear evidence of a life estate.
Evelyn White is claiming a right in the house as well as the evil nieces and nephews. The nieces and nephews have standing to contest the will because they are heirs at law – consanguinity under the intestate succession statute.
If Jessie gave Evelyn a Life Estate and she dies and Jessie is dead, it goes through intestate succession to the nieces and nephews.
The Supreme Court comes in and says the conveyance is ambiguous because we cannot tell is Jessie definitively gave away Fee Simple. When we have ambiguity, we look at the rules of construction. In construing a will the court’s number one objective is to follow your intent.
Rules of Construction:
1. Where we have an ambiguous conveyance, every grant or devise of real estate, or any interest therein, shall pass all the estate or interest of the grantor or devisor, unless the intent to pass a less estate or interest shall appear by express terms, or be necessarily implied in the terms of the instrument.
If you wish to pass a Life Estate when you own Fee Simple, you must be specific. Jessie did not specify that Evelyn would take only a Life Estate or term of years; therefore, we presume that Jessie intended to give Evelyn FSA.
2. We will construe all conveyances of real property, unless the decedent clearly intended to pass some of their interest, in real property intestate.
The rule says that if you knew how to make a will and passed some of your interests in real property through the will, we are going to presume you intended to pass all the interest you had through the will unless you specifically said, you wanted some of your interests in that real property to pass intestate.
We construe, if possible, that everything passes through the will and not intestate. That means that where the bequest to Evelyn was ambiguous, if we construe it as a Life Estate then we’ve created partial intestacy meaning the reversion of Jessie would have to pass through intestate succession to the nieces and nephews. But if we construe Evelyn’s interests as FSA, we don’t need anything to pass intestate.
So, two possible constructions – one that passes a portion intestate and one that doesn’t. We opt for the one that doesn’t. When added together, it gives Evelyn FSA. Presume that if the grantor didn’t specifically give away less than all of his or her estate, that they gave away all. No specific reference to term of years – presume Fee Simple.
Presume that if grantor passes some of his or her property through the will, they intended to pass all of it through the will and not let it go through partial intestacy.
In order to avoid partial intestacy Evelyn has Fee Simple, otherwise at the end of her Life Estate, the rest of Jessie reversion would have to pass through intestate succession because she didn’t name anyone to take it. Add them together and Evelyn has Fee Simple Absolute.
The language: Not to be sold, is a restraint on alienation which is a limit upon a grantee’s ability to alienate the property – you can’t pass it or it’s really difficult to do it. We will allow conditions to be put on use of property but if you ever see this language, not to be sold or so long as it is never sold, O has conveyed FSA to A. The court looks at that as a restraint on alimentation and will strike it down. No court will enforce the condition: so long as the property is never sold – it’s too restrictive.
WEEK 5
GLOSSARY
Fee Simple Absolute: The highest and best stake in land.
Life Estate: A freehold estate whose duration is measured by the lives of one or more specified persons
Life Estate per autre vie: Life estate whose duration is measured by the life of a third party
Waste: A person who holds an estate subject to a future interest may not commit waste. Affirmative waste occurs when the voluntary acts of the present estate owner significantly reduce the value of the property (e.g., destroying a valuable house or planting tobacco year after year diminishing the ability to grow productive crops). The central idea of the waste concept is that A should not be able to use the property in a manner that unreasonably interferes with the expectation of B.
Intestate: Many Americans die intestate—without a valid will—and their property is distributed according to the state law of intestate succession. In general, the decedent’s property is transferred to the closest living relatives, with a strong preference for the surviving spouse and issue (lineal descendants of the decedent, such as children, grandchildren, etc.). If the decedent leaves no spouse or issue, the estate goes to the surviving parents or other ancestors. Where no spouse, issue, or ancestors survive, the estate goes to collaterals (other blood relatives of the decedent, e.g., siblings).
Heirs: The people who the intestate succession statute of the state says take your property. They are ascertained at the moment death.
Heirs Apparent:
Will: The document you draft that specifies who will take your property after you die. The will is a written instrument, effective only upon death, by which an owner disposes of property.
In general, a will is effective if it is (1) in writing and (2) signed by the testator at the end, (3) in the presence of two witnesses who themselves sign the will to attest to its execution. An exception to these requirements is the holographic will—one entirely in the handwriting of the testator—which is valid in most states without witnesses.
Testator: The person making the will is called a testator (if male) or a testatrix (if female).
Executor: The person named in the will to oversee the distribution of assets under the supervision of the probate court.
Administrator: The person the court appoints to oversee the distribution of assets when you die intestate or without a will.
Devise or Bequest: A gift made in a will. If you see, “Joan devised to Thomas” then you know that the gift was made by a will. If you see, “Joan conveyed to Thomas” then you know the gift was made inter vivos. The transfer of real property by will is known as a devise, and the recipient is a devisee. In contrast, the transfer of personal property by will is known as a legacy, and the recipient is a legatee.
Conveyed: Inter vivos or while the person was alive.
Remainder: A remainder is a future interest created in a transferee that is capable of becoming possessory upon the natural termination of a prior estate created by the same instrument. For example, if A conveys “to B for life, and then to C,” C’s interest is capable of becoming possessory when the prior estate (B’s life estate) naturally terminates; C holds a remainder. A Vested Remainder is you are sure to take when the life estate is over. All you have to do is wait for the end of the life estate. Courts will favor vested remainder over contingent remainder (someone who may or may not take).
Reversion: The future interest in grantor. The interest grantor retains when grantor gives away less than all of his or her estate. (and has not given away one of the defeaseable fees?)
DEFEASABLE FEES
Defeasable Fees: Collectively known as the two Reversionary Interests
1. Fee Simple Determinable: A Fee Simple so limited that it will end automatically when a stated event happens. The fee simple determinable automatically expires at a stated time, immediately giving the holder the right to possession. For example, if O grants land “to A for so long as used as a park,” and the park use ceases, then title immediately revests in O.
Hicks: Grantor retains the possibility of reverter.
Gee’s Interest Grantor’s Interest
FSD------------------------------Possibility of reverter
FSSCS-------------------------- Right of entry/power of termination
2. Fee Simple Subject to Condition Subsequent: A fee simple that does not automatically terminate but may cut short or divested at the transferor’s election when a stated condition happens. Page 207. The fee simple subject to a condition subsequent does not automatically expire when the triggering condition occurs; rather, the future interest holder must take affirmative action to end the estate. For instance, if O grants land “to A, but if not used as a park, then the land shall return to me,” and the park use ceases, O must take action to end A’s estate, such as by filing suit against A. A retains right of entry/power of termination. Transferor must exercise right.
Hicks: Grantor retains a right of entry or power of termination.
Hicks: The condition must first occur, that gives grantor right to exercise. If Grantor does not choose to act, the transferee still owns the property. Time Limit: equitable concept, most states have statutes. Reasonably know or should have known – active concealment.
Functional difference between Fee Simple Absolute and Defeasable Fees: When grantor gives away FSD, and a condition occurs, the fee simple will end automatically or will end if grantor then acts. With FSA you own indefinitely.
FSD
If the condition occurs, bang! The present possessory interest – the transferee’s FSD ends automatically. Grantor does not have to act and he owns the estate again whether they know it or not. The transferee becomes a trespasser at that point and they begin to accumulate time for the statutory time period for continuous occupancy to adversely possess the property. If a grantor has given away FSD, grantor has not retained a right of entry or power of termination.
FSSCS
Also subject to loss upon the occurrence of a condition but you do not lose it automatically as the transferee when the condition occurs. The condition must first occur, that then gives grantor the opportunity or the right to exercise the right of entry or the power of termination but, if grantor does not chose to act or is ignoring what’s going on with the property, even though the condition has occurred, the transferee still has title to the property. There is a discovery rule with active concealment; however if a reasonable person paying attention to the property would know that the condition had been broken, we charge them with knowledge and the SOL begins to run. It’s not whether you know or not, it’s whether a reasonable person exercising due diligence would know what is going on. If marijuana is observable from the street, now whether or not the grantor sees it we charge him with knowledge the moment the marijuana plants became discernable to the average person. With the meth lab in the basement, we don’t charge with knowledge until it hits the newspapers. When we have an ambiguity the law prefers FSSCS because the law prefers people having to act.
When to know which defeaseable fee to use
Hypo: Your parents own an office building, but want to give you an incentive to keep practicing law.
1. FSD. O conveys: To my beloved daughter so long as she uses the property as a law office.
2. FSSCS. O conveys: To my beloved daughter but if she shall ever use the property for anything but a law office, O may re-enter and re-take.
Both limit the office to law office purposes.
The daughter opens a law practice but since she is an entrepreneur, she opens a coffee shop. It’s a success so she opens a second, third, and fourth coffee shop. She makes more money with the coffee shops. The minute she closes the law practice, the parents get back the property automatically.
The parents die, leaving their interest in real property, now she has to share with evil younger brother.
FSD:
1. To my beloved daughter [clue 1: language of gift + bound up with condition] so long as [clue 2: condition preceded + description by words of duration]. [clue 3 no reference to O having to act]
There is no logical breaking point between the language of gift and the language of condition – they are generally bound up together.
FSSCS:
2. To my beloved daughter, [clue 1: unconditional gift, followed by a condition] but if she shall ever use the property for anything as a law office [clue 2: condition is preceded + description by words of limitation], O may reenter and retake [clue 3: ref. to having to act].
How to decipher which of the two we are dealing with:
1. FSD
a) Language of gift and condition will be bound up together, no logical breaking point between gift and condition
b) Words of duration (so long as, as long as, while, until)
c) No reference to grantor having to act
2. FSSCS
a) Unconditional gift followed by a subsequent condition
b) Condition is precedent and described by words of limitation (if, however, but if)
c) Reference to grantor having to act
Pure Restraint on Alienation
We will never enforce in any conveyance language which forbids the grantee from transferring the property. For example, to A so long has he never conveys away the property. A owns Fee Simple Absolute. That would be a pure restraint on alienation.
Some conditions can be so restrictive that courts will not enforce because they restrain the alienability or marketability of the property too dramatically.
As in the Toscano case, when we are dealing with conveyances to charitable institutions for the public good or to local or state governmental agencies for the public good, we will allow for grantors to put incredibly restrictive conditions on those gifts. The reason for that is that even though alienability is one of the first principals of property law and it’s something that we really want to preserve, we want to encourage people to make gifts to institutions that serve the public benefit. We will not allow the enforcement of those restrictions if the gift is between some combination of individuals and for-profit entities. There we want to keep marketability and alienability well preserved.
Humans are vain and if we want our name on something and we give it as a gift for the public good and the entity changes the name, the property goes back because they gave it on a defeaseable fee.
Courts prefer FSSCS if it is ambiguous because 1) the law prefers that people have to take action; 2) It is more certain to have FSSCS because with FSD the day after the condition occurs, the grantor has title but the land record will still reflect the grantee as title owner. With FSD it’s easy to have land records that do not accurately reflect who owns the property. With FSSCS the land record will show grantee as title owner. The land records are more likely to be reflecting who does own the property with FSSCS than FSD; and 3) Flexibility – FSSCS does give more flexibility to the grantor.
Hicks Story: A great, great, great grandfather had a reversionary interest in land so long as it was to be used for agriculture. The youngest farmer wanted to sell the property to a developer. A sign was posted and the SOL started to run until the right of entry period ended.
Baker v. Weedon
Supreme Court of MS, 1972
FACTS: John Weedon was married three times. He had two children with his first wife. One of those children had three children who are the appellants herein and Ds at trial. His next marriage produced one child who is now dead. Subsequent to those two marriages, Weedon bought Oakland farm in 1905. In 1915 he at 55, married 17 year old Anna (P) and the marriage had no children. P was not in it just for the money as there was significant evidence that she was there in both good and bad times, very bad times. The relationship between Weedon and his daughters from his first marriage was distant and strained. With an obvious intent to exclude his daughters and to provide for his wife, Weedon left his house and land to his last wife, P for life. The remainder was left to P's children if any and Weedon's grandchildren (D) were the designated beneficiaries if P died without issue. Weedon expressly failed to provide for his own children from his previous marriages. Weedon died in 1932. P remarried, but did not have any children.
Eventually P could not longer farm the land and in 1955 she ceased doing so but rented the property. It is undisputed that this rental income and her other income was not enough to support her. In 1964 the Department of Highways of Mississippi sought a right of way through the property just as the land was increasing dramatically in value. The surviving grandchildren were made aware of their remainder interests in the property. Until this notice the grandchildren were unaware of their possible inheritance. The grandchildren were sympathetic to the plight of P. A settlement of $20,000 was negotiated and P received $7,500 to construct a new home and all the legal and administrative expenses were deducted from the shares of the three grandchildren and not taxed to the life tenant. A soil sale from the property resulted in proceeds of $2,500 with $1,000 going to completion of the home payments. The value of the property at time of trial was $168,500 and its estimated appreciation in the four years following would set the value at $336,000. P eventually got sick in her old age, and wanted to sell the land to help her condition. P then sought a court order to sell the remainder of the property for living expenses. Ds opposed this sale. The lower court ordered the sale on grounds of economic waste based on the negligible value of the land for use in agriculture. D appealed.
RULE OF LAW: Deterioration and waste of the property is proper but is not the exclusive and ultimate test to be used in determining whether a sale of land affected by a future interest is proper. A trial court should include the best interests of all parties in that determination of what should be done.
John Weedon wanted the land to go to Anna for life, and then to her children if she had any. It would then pass through her line without issue. Issue means your direct linear descendents. If Anna doesn’t have any linear descendents (which she didn’t) then it would go to the grandchildren of John Weedon.
There are two types of remainders:
1. Vested: All you have to do is wait for the natural expiration of the preceding estate
2. Contingent: Two things have to happen – the preceding estate has to end and one or more conditions have to be satisfied.
In this case it is a contingent remainder – contingent upon her leaving issue and the grandchildren’s remainder was contingent upon Anna not leaving issue.
The court later changes the remainder to vested for the grandchildren because Anna was 73 years old and not likely to have or adopt children. Is this correct? We presume, as a matter of law, if you are alive, no matter how old you are, even if you are in a coma, or have been “fixed,” we presume as a matter of law that you can still have children. Otherwise, how do we decide how old is too old?
Despite the logic of the court, it was legally wrong. This was a contingent remainder.
Anna was asking the court if she could sell the property. Anna earns $1300 per year. Fair Market Value of land was $168,500.
The trial court said she could sell the land because of economic waste. A property only generating $1300 a year was considered waste by the trial court. That’s not waste as we’ve discussed it. It’s not harming the property or putting the property at risk. The majority is not using the term correctly. The grandchildren appeal. The Supreme Court did not agree that the property should be sold because it would compromise the vested interest (Hicks: They ain’t vested) of the remaindermen. Liberally construed, the court says that in four years the property will be worth $336,000. The court treats the interest as vested because it is incredibly unlikely that Anna will have a child or adopt a child at her age. Adopting an adult is not considered a child for all lawful purposes. The court did allow her to sell a portion of the land and live off the proceeds.
The Rule of 72
Given an interest rate, how many years it will take to double our money? Divide the interest rate into 72. Or if we know in how many years we want to double our money, we can calculate what interest rate we need to do that.
This case teaches us how courts deal with balancing the interests of life estate holders and remaindermen with regard to taking action on property. In this case it was a sale. It might have been, cutting timber, or mining more coal. The point is, at common law, a contingent remainderman would not be able to interfere short of the life estate holder committing extreme waste. Today courts will give even contingent remaindermen a say in what the life estate holder can do and they weigh how likely is it that the remainder will ever vest and they also weigh how long is the life estate holder likely to continue to hold the property. If the remainder is not very likely to vest, and the life estate holder is likely to enjoy a very long life estate, we don’t give the remaindermen much say at all. But, if the remainder is vested, or extremely likely to vest, as in this case, and the life estate is not likely to last very much longer, then we give the remaindermen quite a bit more say in what the life estate holder can do.
A young person with a vested interest will be favored over an older person.
Mahrenholz v. County Board of Trustees
Appellate Court of IL, 1981
1941: Huttons give 1.5 acres in defeaseable fee to the school district
1941: Huttons sell the remaining 38.5 to the Jacqmains and purport to transfer the reversionary interest.
1951: Mr. Hutton dies intestate. Splits interest between wife and son
1959: Jacqmains sell to the Mahrenholzes
1969: Mrs. Hutton dies. Son holds all reversionary interests
1973: School uses property for storage purposes only
1977: Hutton son conveys all interest in school property to Mahrenholzes but later disclaims any interest he has to school district.
The Hutton family has conveyed 1.5 acres to the school district and retained 38.5 acres plus one of the two reversionary interests. We are not sure whether the Huttons have given FSD or FSSCS.
The deed provided that “this land is to be used for school purpose only; otherwise to revert to grantors herein.”
The question becomes, which defeaseable fee was created here?
Two issues:
1. Was the trial court was correct in concluding that the Mahrenholtz’ could not have acquired any interest from the school property either from the Jacqmains or the Huttons; and
2. Which defeaseable fee is this? FSD or FSSCS?
If all the Hutton son owned was a reversionary interest, he couldn’t have transferred it to the Mahrenholzes in 1977 and the Jacqmains couldn’t have transferred it in 1941. The key then is if all Harry owned in 1977 was still the reversionary interest, the Mahrenholzes took nothing from Harry.
If this was FSD and storage is not school purposes, then who owned property as of 1973? Harry owns FSA and something to give away.
If FSSCS and storage is not school purposes, then as of 1973 the school held title to property and Harry has yet to reenter. It doesn’t matter if it is not for school purposes. Harry is confused.
The court decided FSD because the condition was bound up and the reversion was automatic. “Otherwise to revert” is passive it is not implied.
If a client wants to give away property, but only if they use it in the way your clients wants them to.
You can do that two ways:
1. We set it up so that if they violate the condition, the property will come back to you automatically – FSD.
Or
2. We can set it up that if they violate the condition, if you can change your mind you can still let them keep it – FSSCS.
Case precedent in your jurisdiction would indicate which words to use for FSD or FSSCS.
Mountain Brow Lodge, Independent Order of Odd Fellows v. Toscano
Court of Appeals of CA, 1967
Toscano gave to the Lodge a lot adjacent to its existing building. By the deed he restricted its uses to the Odd Fellows Lodge only, and stipulated that in the event of a sale or transfer of the property or a failure by the Odd Fellows to use the property title would revert back to Toscano.
It wasn’t crystal clear and if it’s ambiguous we default to FSSCS.
Toscano argument: Live by the rules or it reverts.
Lodge Arguments: 1) the language about not selling it makes the whole condition void. The court agreed and the court struck the words – it’s an absolute restraint on alienation but the court upheld the use restriction on the theory that because Toscano meant to convey a determinable fee to the Odd Fellows rather than merely restrict alienability the use restriction was valid.
We do allow restrictive conditions on nonprofits because we want to encourage gifts for the good for society.
3 Wash. App. 393, 477 P.2d 210 (1970)
NATURE OF THE CASE: This was a quiet title action.
FACTS: Howard (P) and Kunto (D) had homes in a summer resort area under deeds that did not match the land that each was occupying. One of the houses stood on one lot and his deed described the adjacent lot. The error was discovered 28 years after it was made. P conveyed his deed to the occupant of the adjacent lot in exchange for their deed, which was the lot occupied by D. P now had in his possession a deed describing the land occupied by D. D claimed that the land was his, arguing that he had achieved adverse possession by tacking. D and his successors had adversely possessed the land for the required time period. P sued and obtained a judgment quieting title in the land. Until P obtained the conveyance from Moyer, neither Moyer nor any of his predecessors ever asserted any right to ownership of the property actually being possessed by D and his predecessors. At the time that this action was commenced, D has been in occupancy of the disputed land less than a year. The trial court said that D had failed to prove by a preponderance of the evidence a continuity of possession to permit tacking of the adverse possession of defendants to the possession of their predecessors. D appealed.
ISSUES:
1. Is a claim of adverse possession defeated because the physical use of the premises was restricted to summer occupancy? In other words, was there an interruption in the statutory period by virtue of 8 months of the land sitting unused?
2. Is tacking of possession by subsequent occupants permitted if the land is occupied under a mistake of fact? In other words, can they add their time so they can reach the statutory period?
RULE OF LAW: Tacking of adverse possession is permitted if the successive occupants are in "privity." A claim of adverse possession is not defeated because the physical use of the premises was restricted to summer occupancy (continuity).
The court said, it was being possessed such as ordinarily would mark the conduct of an owner in general in holding, managing, and caring for property of like nature and condition. The key: The property is being used essentially as the typical true owner reasonably would use it – as a summer property as the other surrounding properties.
For Privity: There was an agreement between the Kuntos and their successors that the Kuntos would come onto this property and take over whatever rights they purchased – whatever rights to this land their predecessors may have had. The key: There was an agreement between them and that qualifies for privity.
The property was intended for summer occupancy, as were the surrounding properties. A reasonable owner would use the property during the summer and not other times. The key is to decide what the normal use of the property is. If the adverse possessor makes that use, she has likely occupied continuously. But intermittent use that is not sufficient to satisfy continuity may be enough to create a prescriptive easement – a right to another’s property for a limited purpose (but not to acquire ownership).
Tacking – Adverse Possessors: A common problem with continuity is whether one possessor can add – tack – the possession of a prior possessor to his own. If privity of estate exists between the prior possessor and the present possessor tacking is permitted. Privity of estate means the voluntary transfer from the first possessor to the second possessor of either an estate in the land or actual possession of it. (Caution: In the context of servitudes, privity of estate has a different meaning).
Justin’s Outline: Tacking
When possession is continuous, and the parties are in privity (i.e., a blood relation, oral or written transfer, will or intestacy), the time in possession of successive adverse possessors may be added together to fulfill the statutory period.
State of mind is irrelevant. As long as you are on the property, it doesn’t matter whether you think it’s yours or whether you know it’s not yours but you want to make it yours.
DISABILITY STATUTES
Refer to Rachelle’s Outline – It’s really good.
Disability statutes protect persons who are under a disability when an adverse possessor enters their property from having to risk loss of that property while they are still under a disability or for a reasonable time thereafter.
Typical protected disabilities under common law:
1. Under the age of majority (a minor);
2. Mentally incompetent;
3. Imprisoned; and
4. Active duty military overseas.
The key: Only protected if you are under the disability at the time the adverse possessor enters.
How it works: If you are under a disability at the time the adverse possessor enters, you get the greater of:
1. The time left on the period for continuous occupancy (whatever is left on the 21 year SOL); or
2. The disability extension period (usually 10 years after the SOL has run).
A typical statute provides that if the owner is disabled at the time the cause of action accrues the owner may bring suit for some specified period after the disability ceases, even though the normal limitations period has expired.
Hicks: We do not permit, however, the tacking of disabilities. If a person is under multiple disabilities at the moment the adverse possessor entered, then he gets the benefit of whichever disability lasts longer, but you only get the benefit of the disability that you are already under at the time the adverse possessor enters. If a person was in prison at the time the adverse possessor entered the property and subsequently develops a mental disability, we will not give a benefit for the mental disability because it occurred after the adverse possessor entered.
Removal of Disability
Disability is removed if you are: deemed mentally competent, reaching the age of majority, being released from prison, and returning from overseas active military duty. Also, any alienation of the property removes the disability from the property, i.e. sale of the property, gifting of the property, or death if the property passes through your will or through intestate succession.
If a successor owner is under a disability at the time of a purchased property and title owner is under a disability, the successor owner does not get the benefit of a disability because they were not the true owner of that property at the time the adverse possessor entered. But, they do get some benefit – we put them in the shoes of the true owner. We treat them as we would treat the true owner as if the disability is removed at that moment.
In the event that a minor takes real property and the disability period ends (the greater of time left or 10 years) and that minor is still under the age of majority after the disability period, the court will appoint a guardian or conservator depending on the state and they have to act to protect the interests of the minor until he or she reaches the age of majority.
Booby traps: Don’t be fooled by successor owners who are imprisoned or mentally incompetent or minors that take from the true owner after the adverse possessor occupied the property – they don’t get any benefit for their own disability. Unless you are the true owner of that property at the moment the adverse possessor enters, you don’t get any benefit for your disability and you only get a benefit for disabilities you are under at the moment the adverse possessor enters.
ADVERSE POSSESSION OF CHATTELS
O'KEEFFE V. SNYDER
83 N.J. 478, 416 A.2d 862 (1980)
NATURE OF THE CASE: This was an appeal from a reversal of an order granting summary judgment.
FACTS: O'Keeffe (P) claimed that she owned three paintings, and that they had been stolen from her thirty years earlier in 1946 from a New York art gallery. Snyder (D) claimed he bought the three paintings for value, that the six-year statute of limitations for replevin had run, and that the paintings were his through adverse possession. D impleaded third party defendant, Frank, from whom D purchased the paintings from in 1975 for $35,000. The trial court granted summary judgment for D on the ground that the six-year statute of limitations had run. The appellate court reversed; the defenses of expiration of the statute of limitations and title by adverse possession were identical and D had not established adverse possession and thus P could still enforce her right to possession of the paintings. A majority of the court determined that the paintings were in fact stolen. D appealed.
ISSUE: Will a cause of action accrue when an injured party discovers or by exercise of reasonable diligence and intelligence should have discovered facts, which form the basis of a cause of action?
RULE OF LAW: A cause of action will accrue when an injured party discovers or by exercise of reasonable diligence and intelligence should have discovered facts, which form the basis of a cause of action.
Fraud
Snyder is a good faith purchaser for value, also known as bona fide purchaser for value. If the Franks obtained the paintings by fraud and then sold the paintings to Snyder, Snyder wouldn’t have any reason to know that they obtained them by fraud, Snyder would still own the paintings. The Franks would not be able to get good title by committing fraud, but someone who commits fraud can transfer good title to a good faith purchaser for value.
The policy behind the rule: We cannot protect both the person who has been defrauded and the person who paid value. The person who was defrauded has the opportunity to perform due diligence and verify documents.
Theft
A thief cannot acquire good title nor transfer good title.
Forged Deed
A forged deed is like stolen property and is no good to anyone. We protect the true owner as opposed to the victim of the forgery.
Policy: There is no opportunity for discovery. The only way to check for fraud is to check the signature at the recorder’s office to verify signature.
Snyder, the gallery owner, argued that this predecessor in interest had acquired title by adverse possession. The answer hinges on whether the possessor’s exhibition of the painting in his own home was sufficiently open and notorious. But the New Jersey Supreme Court ruled that the law of adverse possession ought not to apply. Instead, the court ruled that the limitations period for recovery of personal property starts to run at the earlier of:
1. When the loss occurs (except where there is fraud or concealment);
2. When the owner first discovers, or through reasonable effort should have discovered, the cause of action (including the identity of the possessor)
This turns the focus onto the owner’s conduct, rather than the possessor’s conduct, and encourages owners to report their losses and undertake reasonable investigation.
Hicks: The modern rule is: we are going to wait until either you know or reasonably should know where your property is located before the period starts to run against you to recover it or lose it. In order to get the benefit of the discovery rule you have to:
1. Show due diligence to find item;
2. Show an effective method of alert; and
3. Give notice (reasonable steps under the circumstances to put the world on notice that your item is missing and take reasonable steps to get the item back).
We still are going to have a statute of limitations for personal property whether we apply the discovery rule or not. Policy: we want to stimulate people to be actively protecting their goods. We basically punish sleeping on your rights.
The parties settled before a retrial. O’Keefe got a painting, Snyder got a painting and a third painting was sold at auction to pay for attorneys’ fees.
GIFTS
What Is a Gift?
A gift is a voluntary, immediate transfer of property without consideration from one person (the donor) to another person (the donee). The law recognizes two categories of gifts: the gift inter vivos (between two living persons) and the gift a causa mortis (contemplation of death).
Three elements for gifts inter vivos:
1. Intent to make a gift “now” or present donative intent. If you say, I’ll give you my house someday, that is not a gift but a gratuitous promise. You must feel the “wrench of delivery.
2. Delivery;
a) Manual delivery (physical delivery). RULE: if an item can be hand delivered it MUST be hand delivered.
b) Constructive delivery. This applies to items that lock and manual delivery is not possible. You are giving access to items that generally are not possible to delivery manually or are impracticable to deliver manually. Things inside of locked items are not gifts.
c) Symbolic delivery. Not recognized at common law. Some things can only be delivered symbolically, i.e. a deed – giving the key is not enough.
d) Delivery can precede the intent to give a gift. Ex.: You leave a ring at someone’s house, he or she calls you and you then give it to the person already in possession/delivery. You loan someone your iPod and you subsequently give it to him or her.
e) Once a gift is given to the donee’s agent, the delivery is complete. I have removed the object from my ability to recall it.
f) Until the item is delivered it is revocable. Until the item is beyond the donor’s ability to recall it is revocable. You can recall your own agent but you cannot not recall the agents of others.
3. Acceptance. If there is value to the donee, we will presume acceptance even if there is no expression of thanks. If you argue that you never accepted, it will be considered an evidentiary issue. If there is silence we presume acceptance if the gift is valuable to the recipient.
Checks
If I write a check to you and I die before the check is cashed, it’s not cashable. The idea behind the rule is that a check can be cancelled before it’s deposited. If you can show that there would not have been a revocation, some jurisdiction will honor the check especially in family situations for tax purposes.
Newman v. Bost
Supreme Court of NC, 1898
On his deathbed, Jack gives to Julia all the keys to the household furniture, saying that he intends for her to have everything in the house. Delivery of the keys constitutes constructive delivery for the furniture because it is impractical to make physical delivery under the circumstances. But delivery of the keys does not constitute constructive delivery of a life insurance policy locked inside a bureau drawer, because it was not impractical to deliver the tangible evidence of the life insurance right – the policy itself. Constructive delivery cases often raise the problem of whether delivery is an independent element or merely a double check on donative intent.
Gifts a causa mortis
Jack makes a gift a causa mortis – gifts in anticipation of death. A gift a causa mortis is a gift of personal property in anticipation of the donor’s imminently approaching death. It requires all three gift inter vivos elements, plus a fourth element: the donor’s anticipation of imminent death. Courts disfavor gifts a causa mortis because they are a substitute for a will without the legal safeguards a will requires, i.e. witnesses, notarization, certification of capacity, etc.
If the donor doesn’t die, the donor gets the gift back, it is revoked automatically. If the donor wants the person to have it, he or she has to re-gift it.
Safes
If you get the combination to safe it may only be for the safe itself because there is inherent value in owning a safe. If manual delivery is possible, the gift was only for the safe when the combination was given, not for the contents. But if the gift is safe deposit box, then you get the contents because a safe deposit box doesn’t have inherent value. Policy: Courts do not want gifts a causa mortis to be a substitute for a will.
WEEK 4
GIFTS (CONTINUED)
A combination to a floor safe (not a wall safe) will not necessarily give you all the contents – it might depending upon the court and the nature of the gift.
Symbolic Delivery
Symbolic delivery—physically transferring to the donee an object that represents or symbolizes the object—is permitted in many jurisdictions if manual delivery is difficult.
If you wanted to loan out your condo in Cancun, how would you deliver the right to use it? The only way you could do it is symbolically – you deliver a piece of paper that says, I hereby convey my right to use the condo to X.
Gruen v. Gruen
Court of Appeals of NY, 1986
Symbolic Delivery
The elements of an inter vivos gift are nicely combined in Gruen v. Gruen, 68 N.Y. 2d 48 (1986), in which Gruen wrote a letter to his son (an undergraduate student at Harvard) telling him that for his twenty-first birthday he was giving his son a valuable Klimt painting that was displayed in Gruen's home, but that he wished to retain possession for the remainder of his life. The New York Court of Appeals held that the letter constituted a completed and valid gift to Gruen's son of a remainder interest in the painting, a property right that would automatically become possessory upon the elder Gruen's death. Father Gruen retained a life estate in the painting.
The elder Gruen manifested his donative intent at the time of the gift because the remainder interest was a presently existing property right (even though not one that entitled the younger Gruen to immediate possession). The letter was sufficient to constitute delivery because it ('would be illogical for the law to require the donor to part with possession of the painting when that is exactly what he intends to retain." Acceptance of a gift by a donee is essential to a completed, valid gift. While the law presumes acceptance where the other elements of a gift are present, the younger Gruen manifested acceptance by acknowledging the gift to his friends and retaining for 17 years (until the elder Gruen's death) the letter evidencing the gift.
The statements and actions of the donor usually provide the best evidence of intent. But if the donor intends the gift to take effect in the future, it is ineffective. The younger Gruen wins because he retained the letters as evidence.
The court talked about the fact that the elder Gruen insured the painting. Insuring a painting is consistent with a life estate because it ensures the value of your own interest and also it ensures that there will be value there for the remaindermen – it’s consistent with preventing waste.
Hypo: A fire destroyed the painting and elder Gruen receives insurance money. He would be able to keep the money until his death. He would not be able to spend any of it but he could invest it.
In a life estate if the property is converted into one form of an asset to another, the life estate holder doesn’t lose the life estate but can enjoy the life estate asset in different form for the rest of his life.
This case turns on delivery. The symbolic delivery was the letter. The court gave three reasons on why the symbolic delivery was adequate:
1. Victor did give only title, no immediate right to possession
2. Illogical to hand over painting because he didn’t have the right to possess during lifetime
3. Inconvenient and silly to re-hang the painting
The letter was appropriate and the only way to accurately reflect the intangible rights that Michael received for this gift.
LIFE ESTATE
Life Estate: The right to possess and enjoy property for life but it is different than outright title ownership. The life estate is a freehold estate whose duration is measured by the lives of one or more specified persons. For example, a grant “to A for A’s life” creates a life estate in A for as long as he lives. Alternatively, the duration may be measured by the life of a person other than the grantee (e.g., “to A for B’s life”); this is called a life estate pur autre vie.
Life Estate holders can enter into trusts with the remaindermen if a well, for example, is being drilled by other people and the well will be dry by the time the life estate is over. The Life Estate holder would accelerate production and if the oil runs out, they would continue to draw interest income for the rest of his or her life from the trust and there would be something left over for the remaindermen.
Affirmative waste: A person who holds an estate subject to a future interest may not commit waste. Affirmative waste occurs when the voluntary acts of the present estate owner significantly reduce the value of the property (e.g., destroying a valuable house or planting tobacco year after year diminishing the ability to grow productive crops). The central idea of the waste concept is that A should not be able to use the property in a manner that unreasonably interferes with the expectation of B.
Non-renewable Resources – finite and can be exhausted
Life estate coal mine example: If coal is already being mined, you will be able to continue to mine coal on that property. You cannot increase or accelerate the taking of that coal so that you could push forward into your life estate all of the value or a disproportionate part of the value that the property can produce. It would be waste on the remaindermen if you mined all the coal from the property.
If it were a timber forest, you couldn’t clear cut the entire timer today. It is waste to unreasonably accelerate the value of particularly non-renewable resources in your life estate. Take a little bit every year, derive an income from it but you can’t grab it all.
Permissive Waste or Inaction: Permissive waste stems from inaction: the failure of the estate owner to exercise reasonable care to protect the estate (e.g., failing to fix a leaky roof).
Example: Suppose you had a life estate with a nice piece of property and a small house was on it. If there is a mortgage on it and property taxes are due every year, then you have to pay the mortgage and the property taxes. If you lose the house to the bank or the government, the remaindermen lose their interest too and that would be waste by inaction.
Cap on Expenses:
Your duty to pay the mortgage, taxes, etc. is capped. The cap on a life estate holder’s duty to pay is the reasonable income derived or which you reasonably could derive.
Example: Life estate holder with 1000 acres of rich farm land in Iowa and property tax is $4000 every year. Whether you are deriving income or not from the property, we will say, what could a reasonable person derive from property of this nature – and that’s how we’ll determine how much you will be obligated to pay every year for mortgage, taxes, maintenance, etc. Your obligation is capped. If you do have a property that has fallen on hard times and taxes are $5000 per year, mortgage is $6000 a year and maintenance is $1000 totaling $12000. But the house doesn’t rent for more than $600 per month. You are not obligated to take in $7200 and payout $4800. Your obligation is capped at $7200 if you are the life estate holder. If the remaindermen want to pay the rest so that the life estate is not lost, they are free to do that but you as the life estate holder is not obligated to pay more than you reasonably are deriving or could derive.
Back to the farm land example: You can’t let the land sit and do nothing to claim that you are not deriving income and therefore not going to pay the taxes because a reasonable farmer could farm the land and get $7000 a year in income. The remaindermen could sue you for waste and force you to pay the money because the court would impute to you $7000 in income whether you chose to take advantage of it or not.
If you continue to waste after the remaindermen have demanded that you make things right, the remaindermen can come in and terminate your life estate for extreme waste.
A life estate holder gets all the benefits of possession but you can’t sell or gift more than you have and courts favor younger Life Estate holders.
FEE SIMPLE
A life estate holder cannot do what a title Fee Simple owner can do. A Fee Simple owner could cut the top off the mountain and strip mine all the coal, clear-cut all the trees, etc.
Fee Simple: The biggest estate in land. You don’t own the land per se, you own the estate which is a series of rights against other people. Fee simple is a freehold estate whose duration is potentially infinite. It roughly corresponds to the layperson’s understanding of “ownership.” The most common form is fee simple absolute, the largest aggregation of property rights recognized under American law. At one time, it was necessary to use special language to create a fee simple (e.g., “to A and his heirs”), but today informal language such as “to A” will suffice in most states.
Fee Simple Absolute: The king could give away Fee Simple to pass onto your heirs but if the king was going to give Fee Simple Absolute, he had to say “to A and his heirs” which are words of inheritance. It doesn’t give the heirs anything; all it does is describe the nature of the estate that A has taken – Fee Simple Absolute.
Page 183 Problems:
1. To A for life, then to B forever.
a) 1600: Life estate
b) Today: FSA. You have to say, to be for life. Otherwise if you say something ambiguous that is not definitively something less than FS and you own in FS, you’ve given in FS (White v. Brown)
If Grantor has FSA and only gives away some combination of life estates and terms of years, Grantor by definition is always going to have a reversion.
Reversion: The interest a Grantor retains when Grantor gives away less than all of his or her estate. When an owner conveys a vested estate smaller than the estate he owns, he retains a future interest called a reversion. For instance, if O holds fee simple absolute, but conveys merely a life estate to A, O retains a reversion.
Primogeniture: First-born male. Everything goes to the oldest living son.
O--------LE/--------LE/-------LE/-------LE/-------Ã O had an interest that lasts indefinitely unless:
O grants to A for life, then to B for life, then to C for life, then to D and her heirs. Once O has said, to D and her heirs or even today just D. – O has given away a remainder in FSA and O will not have a remainder in that conveyance – O has given somebody else FSA.
Intestate: To die without a will. Hicks: The good news is, somebody has made out a will for you – the state – and is done by statute. Many Americans die intestate—without a valid will—and their property is distributed according to the state law of intestate succession. In general, the decedent’s property is transferred to the closest living relatives, with a strong preference for the surviving spouse and issue (lineal descendants of the decedent, such as children, grandchildren, etc.). If the decedent leaves no spouse or issue, the estate goes to the surviving natural parents or other ancestors. Where no spouse, issue, or ancestors survive, the estate goes to collaterals (other blood relatives of the decedent, e.g., siblings). If no siblings, aunts or uncles come next then first cousins, etc. Some states cut off at fourth cousins. The people who take are heirs. If no at law relatives exist, the state becomes your heir and your estate escheats.
Most states will say that if you die and have one spouse and one child – 50/50. More than one child and a surviving spouse – 1/3 to the spouse and the children split 2/3 – even if there are 12 of them, they all still split the 2/3 amongst them carving up 2/3 into 12 equal shares.
Escheat: If one dies intestate without heirs, his estate passes to the state in which the property is located; this process is called escheat.
Heirs: People who take under intestate succession. You have heirs the moment you die, before you die you have heirs apparent. Heirs at law must be blood relatives or a legally adopted siblings.
Beneficiary: someone who takes under a will. It means the same thing as a devisee
Will: A document that specifies the distribution your estate upon your death. A will is also called a devise. Will formalities: In general, a will is effective if it is (1) in writing and (2) signed by the testator at the end, (3) in the presence of two witnesses who themselves sign the will to attest to its execution. An exception to these requirements is the holographic will—one entirely in the handwriting of the testator—which is valid in most states without witnesses.
Devise: To make a gift under a will. O devises to A, is not an inter vivos gift – it is in a will. A gift made in a will becomes effective at the moment of death. The transfer of real property by will is known as a devise, and the recipient is a devisee. In contrast, the transfer of personal property by will is known as a legacy, and the recipient is a legatee.
Life Estate per autre vie: A Life Estate for the life of another. It is a Life Estate where the measuring life is someone else. To A for the life of B. A life estate "per autre vie" is created because the life that is used to measure the duration of possession is not that of the party actually in possession. Possession only terminates at the death of the measuring life. If the party in possession (i.e., A) dies first, the estate goes to his heirs, devisees, purchasers, or even by escheat, until the death of the measuring life. Example of why you might do that: You are 90 years old and you are leaving an 88 year old spouse who’s already incapacitated. You might say, to my son A for the life of my spouse meaning, your son is going to hold this money theoretically so that your son will take care of mom.
Testator: A person who makes a will. The person making the will is called a testator (if male) or a testatrix (if female). The testator has every right to sell or give away a house that they own in fee simple. Just because you are in the will doesn’t mean you will get the house unless the testator still owns it at the time of death.
White v. Brown
559 S.W. 2d 938 (Tenn. 1977)
Jessie Lide's handwritten will (a holographic will) stated: "I wish Evelyn White to have my home to live in and not to be sold," The Tennessee Supreme Court relied on three Tennessee statutes to presume that Jessie meant to give Evelyn fee simple absolute, there being no "clear evidence" to the contrary. One statute stated a common presumption that every grant or devise of real estate shall pass the entire interest of the grantor or testator unless there is clear evidence to the contrary. The second statute stated a presumption that a will conveys the entire interest of the testator in the testator's real property unless there is a contrary intention in the will. The third statute created a presumption against partial intestacy, which is what would happen if Jessie Lide's will was read creating a life estate in Evelyn White, because Lide did not devise the remainder that would then exist; such remainder would pass to her heirs in intestacy. The court treated the “no sale” restriction as an invalid attempt to restrain alienation of a fee simple absolute rather than clear evidence of a life estate.
Evelyn White is claiming a right in the house as well as the evil nieces and nephews. The nieces and nephews have standing to contest the will because they are heirs at law – consanguinity under the intestate succession statute.
If Jessie gave Evelyn a Life Estate and she dies and Jessie is dead, it goes through intestate succession to the nieces and nephews.
The Supreme Court comes in and says the conveyance is ambiguous because we cannot tell is Jessie definitively gave away Fee Simple. When we have ambiguity, we look at the rules of construction. In construing a will the court’s number one objective is to follow your intent.
Rules of Construction:
1. Where we have an ambiguous conveyance, every grant or devise of real estate, or any interest therein, shall pass all the estate or interest of the grantor or devisor, unless the intent to pass a less estate or interest shall appear by express terms, or be necessarily implied in the terms of the instrument.
If you wish to pass a Life Estate when you own Fee Simple, you must be specific. Jessie did not specify that Evelyn would take only a Life Estate or term of years; therefore, we presume that Jessie intended to give Evelyn FSA.
2. We will construe all conveyances of real property, unless the decedent clearly intended to pass some of their interest, in real property intestate.
The rule says that if you knew how to make a will and passed some of your interests in real property through the will, we are going to presume you intended to pass all the interest you had through the will unless you specifically said, you wanted some of your interests in that real property to pass intestate.
We construe, if possible, that everything passes through the will and not intestate. That means that where the bequest to Evelyn was ambiguous, if we construe it as a Life Estate then we’ve created partial intestacy meaning the reversion of Jessie would have to pass through intestate succession to the nieces and nephews. But if we construe Evelyn’s interests as FSA, we don’t need anything to pass intestate.
So, two possible constructions – one that passes a portion intestate and one that doesn’t. We opt for the one that doesn’t. When added together, it gives Evelyn FSA. Presume that if the grantor didn’t specifically give away less than all of his or her estate, that they gave away all. No specific reference to term of years – presume Fee Simple.
Presume that if grantor passes some of his or her property through the will, they intended to pass all of it through the will and not let it go through partial intestacy.
In order to avoid partial intestacy Evelyn has Fee Simple, otherwise at the end of her Life Estate, the rest of Jessie reversion would have to pass through intestate succession because she didn’t name anyone to take it. Add them together and Evelyn has Fee Simple Absolute.
The language: Not to be sold, is a restraint on alienation which is a limit upon a grantee’s ability to alienate the property – you can’t pass it or it’s really difficult to do it. We will allow conditions to be put on use of property but if you ever see this language, not to be sold or so long as it is never sold, O has conveyed FSA to A. The court looks at that as a restraint on alimentation and will strike it down. No court will enforce the condition: so long as the property is never sold – it’s too restrictive.
WEEK 5
GLOSSARY
Fee Simple Absolute: The highest and best stake in land.
Life Estate: A freehold estate whose duration is measured by the lives of one or more specified persons
Life Estate per autre vie: Life estate whose duration is measured by the life of a third party
Waste: A person who holds an estate subject to a future interest may not commit waste. Affirmative waste occurs when the voluntary acts of the present estate owner significantly reduce the value of the property (e.g., destroying a valuable house or planting tobacco year after year diminishing the ability to grow productive crops). The central idea of the waste concept is that A should not be able to use the property in a manner that unreasonably interferes with the expectation of B.
Intestate: Many Americans die intestate—without a valid will—and their property is distributed according to the state law of intestate succession. In general, the decedent’s property is transferred to the closest living relatives, with a strong preference for the surviving spouse and issue (lineal descendants of the decedent, such as children, grandchildren, etc.). If the decedent leaves no spouse or issue, the estate goes to the surviving parents or other ancestors. Where no spouse, issue, or ancestors survive, the estate goes to collaterals (other blood relatives of the decedent, e.g., siblings).
Heirs: The people who the intestate succession statute of the state says take your property. They are ascertained at the moment death.
Heirs Apparent:
Will: The document you draft that specifies who will take your property after you die. The will is a written instrument, effective only upon death, by which an owner disposes of property.
In general, a will is effective if it is (1) in writing and (2) signed by the testator at the end, (3) in the presence of two witnesses who themselves sign the will to attest to its execution. An exception to these requirements is the holographic will—one entirely in the handwriting of the testator—which is valid in most states without witnesses.
Testator: The person making the will is called a testator (if male) or a testatrix (if female).
Executor: The person named in the will to oversee the distribution of assets under the supervision of the probate court.
Administrator: The person the court appoints to oversee the distribution of assets when you die intestate or without a will.
Devise or Bequest: A gift made in a will. If you see, “Joan devised to Thomas” then you know that the gift was made by a will. If you see, “Joan conveyed to Thomas” then you know the gift was made inter vivos. The transfer of real property by will is known as a devise, and the recipient is a devisee. In contrast, the transfer of personal property by will is known as a legacy, and the recipient is a legatee.
Conveyed: Inter vivos or while the person was alive.
Remainder: A remainder is a future interest created in a transferee that is capable of becoming possessory upon the natural termination of a prior estate created by the same instrument. For example, if A conveys “to B for life, and then to C,” C’s interest is capable of becoming possessory when the prior estate (B’s life estate) naturally terminates; C holds a remainder. A Vested Remainder is you are sure to take when the life estate is over. All you have to do is wait for the end of the life estate. Courts will favor vested remainder over contingent remainder (someone who may or may not take).
Reversion: The future interest in grantor. The interest grantor retains when grantor gives away less than all of his or her estate. (and has not given away one of the defeaseable fees?)
DEFEASABLE FEES
Defeasable Fees: Collectively known as the two Reversionary Interests
1. Fee Simple Determinable: A Fee Simple so limited that it will end automatically when a stated event happens. The fee simple determinable automatically expires at a stated time, immediately giving the holder the right to possession. For example, if O grants land “to A for so long as used as a park,” and the park use ceases, then title immediately revests in O.
Hicks: Grantor retains the possibility of reverter.
Gee’s Interest Grantor’s Interest
FSD------------------------------Possibility of reverter
FSSCS-------------------------- Right of entry/power of termination
2. Fee Simple Subject to Condition Subsequent: A fee simple that does not automatically terminate but may cut short or divested at the transferor’s election when a stated condition happens. Page 207. The fee simple subject to a condition subsequent does not automatically expire when the triggering condition occurs; rather, the future interest holder must take affirmative action to end the estate. For instance, if O grants land “to A, but if not used as a park, then the land shall return to me,” and the park use ceases, O must take action to end A’s estate, such as by filing suit against A. A retains right of entry/power of termination. Transferor must exercise right.
Hicks: Grantor retains a right of entry or power of termination.
Hicks: The condition must first occur, that gives grantor right to exercise. If Grantor does not choose to act, the transferee still owns the property. Time Limit: equitable concept, most states have statutes. Reasonably know or should have known – active concealment.
Functional difference between Fee Simple Absolute and Defeasable Fees: When grantor gives away FSD, and a condition occurs, the fee simple will end automatically or will end if grantor then acts. With FSA you own indefinitely.
FSD
If the condition occurs, bang! The present possessory interest – the transferee’s FSD ends automatically. Grantor does not have to act and he owns the estate again whether they know it or not. The transferee becomes a trespasser at that point and they begin to accumulate time for the statutory time period for continuous occupancy to adversely possess the property. If a grantor has given away FSD, grantor has not retained a right of entry or power of termination.
FSSCS
Also subject to loss upon the occurrence of a condition but you do not lose it automatically as the transferee when the condition occurs. The condition must first occur, that then gives grantor the opportunity or the right to exercise the right of entry or the power of termination but, if grantor does not chose to act or is ignoring what’s going on with the property, even though the condition has occurred, the transferee still has title to the property. There is a discovery rule with active concealment; however if a reasonable person paying attention to the property would know that the condition had been broken, we charge them with knowledge and the SOL begins to run. It’s not whether you know or not, it’s whether a reasonable person exercising due diligence would know what is going on. If marijuana is observable from the street, now whether or not the grantor sees it we charge him with knowledge the moment the marijuana plants became discernable to the average person. With the meth lab in the basement, we don’t charge with knowledge until it hits the newspapers. When we have an ambiguity the law prefers FSSCS because the law prefers people having to act.
When to know which defeaseable fee to use
Hypo: Your parents own an office building, but want to give you an incentive to keep practicing law.
1. FSD. O conveys: To my beloved daughter so long as she uses the property as a law office.
2. FSSCS. O conveys: To my beloved daughter but if she shall ever use the property for anything but a law office, O may re-enter and re-take.
Both limit the office to law office purposes.
The daughter opens a law practice but since she is an entrepreneur, she opens a coffee shop. It’s a success so she opens a second, third, and fourth coffee shop. She makes more money with the coffee shops. The minute she closes the law practice, the parents get back the property automatically.
The parents die, leaving their interest in real property, now she has to share with evil younger brother.
FSD:
1. To my beloved daughter [clue 1: language of gift + bound up with condition] so long as [clue 2: condition preceded + description by words of duration]. [clue 3 no reference to O having to act]
There is no logical breaking point between the language of gift and the language of condition – they are generally bound up together.
FSSCS:
2. To my beloved daughter, [clue 1: unconditional gift, followed by a condition] but if she shall ever use the property for anything as a law office [clue 2: condition is preceded + description by words of limitation], O may reenter and retake [clue 3: ref. to having to act].
How to decipher which of the two we are dealing with:
1. FSD
a) Language of gift and condition will be bound up together, no logical breaking point between gift and condition
b) Words of duration (so long as, as long as, while, until)
c) No reference to grantor having to act
2. FSSCS
a) Unconditional gift followed by a subsequent condition
b) Condition is precedent and described by words of limitation (if, however, but if)
c) Reference to grantor having to act
Pure Restraint on Alienation
We will never enforce in any conveyance language which forbids the grantee from transferring the property. For example, to A so long has he never conveys away the property. A owns Fee Simple Absolute. That would be a pure restraint on alienation.
Some conditions can be so restrictive that courts will not enforce because they restrain the alienability or marketability of the property too dramatically.
As in the Toscano case, when we are dealing with conveyances to charitable institutions for the public good or to local or state governmental agencies for the public good, we will allow for grantors to put incredibly restrictive conditions on those gifts. The reason for that is that even though alienability is one of the first principals of property law and it’s something that we really want to preserve, we want to encourage people to make gifts to institutions that serve the public benefit. We will not allow the enforcement of those restrictions if the gift is between some combination of individuals and for-profit entities. There we want to keep marketability and alienability well preserved.
Humans are vain and if we want our name on something and we give it as a gift for the public good and the entity changes the name, the property goes back because they gave it on a defeaseable fee.
Courts prefer FSSCS if it is ambiguous because 1) the law prefers that people have to take action; 2) It is more certain to have FSSCS because with FSD the day after the condition occurs, the grantor has title but the land record will still reflect the grantee as title owner. With FSD it’s easy to have land records that do not accurately reflect who owns the property. With FSSCS the land record will show grantee as title owner. The land records are more likely to be reflecting who does own the property with FSSCS than FSD; and 3) Flexibility – FSSCS does give more flexibility to the grantor.
Hicks Story: A great, great, great grandfather had a reversionary interest in land so long as it was to be used for agriculture. The youngest farmer wanted to sell the property to a developer. A sign was posted and the SOL started to run until the right of entry period ended.
Baker v. Weedon
Supreme Court of MS, 1972
FACTS: John Weedon was married three times. He had two children with his first wife. One of those children had three children who are the appellants herein and Ds at trial. His next marriage produced one child who is now dead. Subsequent to those two marriages, Weedon bought Oakland farm in 1905. In 1915 he at 55, married 17 year old Anna (P) and the marriage had no children. P was not in it just for the money as there was significant evidence that she was there in both good and bad times, very bad times. The relationship between Weedon and his daughters from his first marriage was distant and strained. With an obvious intent to exclude his daughters and to provide for his wife, Weedon left his house and land to his last wife, P for life. The remainder was left to P's children if any and Weedon's grandchildren (D) were the designated beneficiaries if P died without issue. Weedon expressly failed to provide for his own children from his previous marriages. Weedon died in 1932. P remarried, but did not have any children.
Eventually P could not longer farm the land and in 1955 she ceased doing so but rented the property. It is undisputed that this rental income and her other income was not enough to support her. In 1964 the Department of Highways of Mississippi sought a right of way through the property just as the land was increasing dramatically in value. The surviving grandchildren were made aware of their remainder interests in the property. Until this notice the grandchildren were unaware of their possible inheritance. The grandchildren were sympathetic to the plight of P. A settlement of $20,000 was negotiated and P received $7,500 to construct a new home and all the legal and administrative expenses were deducted from the shares of the three grandchildren and not taxed to the life tenant. A soil sale from the property resulted in proceeds of $2,500 with $1,000 going to completion of the home payments. The value of the property at time of trial was $168,500 and its estimated appreciation in the four years following would set the value at $336,000. P eventually got sick in her old age, and wanted to sell the land to help her condition. P then sought a court order to sell the remainder of the property for living expenses. Ds opposed this sale. The lower court ordered the sale on grounds of economic waste based on the negligible value of the land for use in agriculture. D appealed.
RULE OF LAW: Deterioration and waste of the property is proper but is not the exclusive and ultimate test to be used in determining whether a sale of land affected by a future interest is proper. A trial court should include the best interests of all parties in that determination of what should be done.
John Weedon wanted the land to go to Anna for life, and then to her children if she had any. It would then pass through her line without issue. Issue means your direct linear descendents. If Anna doesn’t have any linear descendents (which she didn’t) then it would go to the grandchildren of John Weedon.
There are two types of remainders:
1. Vested: All you have to do is wait for the natural expiration of the preceding estate
2. Contingent: Two things have to happen – the preceding estate has to end and one or more conditions have to be satisfied.
In this case it is a contingent remainder – contingent upon her leaving issue and the grandchildren’s remainder was contingent upon Anna not leaving issue.
The court later changes the remainder to vested for the grandchildren because Anna was 73 years old and not likely to have or adopt children. Is this correct? We presume, as a matter of law, if you are alive, no matter how old you are, even if you are in a coma, or have been “fixed,” we presume as a matter of law that you can still have children. Otherwise, how do we decide how old is too old?
Despite the logic of the court, it was legally wrong. This was a contingent remainder.
Anna was asking the court if she could sell the property. Anna earns $1300 per year. Fair Market Value of land was $168,500.
The trial court said she could sell the land because of economic waste. A property only generating $1300 a year was considered waste by the trial court. That’s not waste as we’ve discussed it. It’s not harming the property or putting the property at risk. The majority is not using the term correctly. The grandchildren appeal. The Supreme Court did not agree that the property should be sold because it would compromise the vested interest (Hicks: They ain’t vested) of the remaindermen. Liberally construed, the court says that in four years the property will be worth $336,000. The court treats the interest as vested because it is incredibly unlikely that Anna will have a child or adopt a child at her age. Adopting an adult is not considered a child for all lawful purposes. The court did allow her to sell a portion of the land and live off the proceeds.
The Rule of 72
Given an interest rate, how many years it will take to double our money? Divide the interest rate into 72. Or if we know in how many years we want to double our money, we can calculate what interest rate we need to do that.
This case teaches us how courts deal with balancing the interests of life estate holders and remaindermen with regard to taking action on property. In this case it was a sale. It might have been, cutting timber, or mining more coal. The point is, at common law, a contingent remainderman would not be able to interfere short of the life estate holder committing extreme waste. Today courts will give even contingent remaindermen a say in what the life estate holder can do and they weigh how likely is it that the remainder will ever vest and they also weigh how long is the life estate holder likely to continue to hold the property. If the remainder is not very likely to vest, and the life estate holder is likely to enjoy a very long life estate, we don’t give the remaindermen much say at all. But, if the remainder is vested, or extremely likely to vest, as in this case, and the life estate is not likely to last very much longer, then we give the remaindermen quite a bit more say in what the life estate holder can do.
A young person with a vested interest will be favored over an older person.
Mahrenholz v. County Board of Trustees
Appellate Court of IL, 1981
1941: Huttons give 1.5 acres in defeaseable fee to the school district
1941: Huttons sell the remaining 38.5 to the Jacqmains and purport to transfer the reversionary interest.
1951: Mr. Hutton dies intestate. Splits interest between wife and son
1959: Jacqmains sell to the Mahrenholzes
1969: Mrs. Hutton dies. Son holds all reversionary interests
1973: School uses property for storage purposes only
1977: Hutton son conveys all interest in school property to Mahrenholzes but later disclaims any interest he has to school district.
The Hutton family has conveyed 1.5 acres to the school district and retained 38.5 acres plus one of the two reversionary interests. We are not sure whether the Huttons have given FSD or FSSCS.
The deed provided that “this land is to be used for school purpose only; otherwise to revert to grantors herein.”
The question becomes, which defeaseable fee was created here?
Two issues:
1. Was the trial court was correct in concluding that the Mahrenholtz’ could not have acquired any interest from the school property either from the Jacqmains or the Huttons; and
2. Which defeaseable fee is this? FSD or FSSCS?
If all the Hutton son owned was a reversionary interest, he couldn’t have transferred it to the Mahrenholzes in 1977 and the Jacqmains couldn’t have transferred it in 1941. The key then is if all Harry owned in 1977 was still the reversionary interest, the Mahrenholzes took nothing from Harry.
If this was FSD and storage is not school purposes, then who owned property as of 1973? Harry owns FSA and something to give away.
If FSSCS and storage is not school purposes, then as of 1973 the school held title to property and Harry has yet to reenter. It doesn’t matter if it is not for school purposes. Harry is confused.
The court decided FSD because the condition was bound up and the reversion was automatic. “Otherwise to revert” is passive it is not implied.
If a client wants to give away property, but only if they use it in the way your clients wants them to.
You can do that two ways:
1. We set it up so that if they violate the condition, the property will come back to you automatically – FSD.
Or
2. We can set it up that if they violate the condition, if you can change your mind you can still let them keep it – FSSCS.
Case precedent in your jurisdiction would indicate which words to use for FSD or FSSCS.
Mountain Brow Lodge, Independent Order of Odd Fellows v. Toscano
Court of Appeals of CA, 1967
Toscano gave to the Lodge a lot adjacent to its existing building. By the deed he restricted its uses to the Odd Fellows Lodge only, and stipulated that in the event of a sale or transfer of the property or a failure by the Odd Fellows to use the property title would revert back to Toscano.
It wasn’t crystal clear and if it’s ambiguous we default to FSSCS.
Toscano argument: Live by the rules or it reverts.
Lodge Arguments: 1) the language about not selling it makes the whole condition void. The court agreed and the court struck the words – it’s an absolute restraint on alienation but the court upheld the use restriction on the theory that because Toscano meant to convey a determinable fee to the Odd Fellows rather than merely restrict alienability the use restriction was valid.
We do allow restrictive conditions on nonprofits because we want to encourage gifts for the good for society.
WEEK 6
The key to future interest is:
1. Know the definitions
2. You must read with more and care than ever before
3. A three-part analysis to determine
FSD and FSSCS
1. Is the language of gift bound up with the condition which militates in the favor of FSD or is the language of gift unconditional followed by a subsequent condition which militates in favor of FSSCS?
2. What are the words that precede and describe the condition? If they are words of duration – as long as, so long as, until – that militates in favor of the court finding FSD but if they are words of limitation – but if, if, however – that militates in favor of FSSCS.
3. Is there any reference in grantor having to act? If there is no reference to grantor having to act, obviously that militates in favor of FSD with its automatic possibility of reverter in grantor. If there is reference of grantor having to act, to reenter and retake, obviously that militates in favor of FSSCS
Many courts have found, even though we prefer folks to act, that these ambiguous defeaseable fees conveyed by grantor have been FSD simply because there’s been no reference to grantor having to act. Courts are not generally going to read into conveyances language that is not there. On the other hand, they are going to try to give effect to every word that is there.
FUTURE INTEREST
Estates in Land and Future Interests: A step by step guide By Professor Linda Edwards
We are not going to worry about the Fee Tail.
Three Types of Future Interests Retained by the Grantor
1. Reversion: The interest grantor retains when giving away less than all of his or her estate and grantor has not given away FSD or FSSCS. It will follow a: (a) life estate or (b) a term of years.
Following the Defeaseable Fees
2. Possibility of Reverter: Always follows a FSD and operates automatically.
3. Right of Entry or Power of Termination: Always follows a FSSCS and grantor must act.
DETERMINING FUTURE INTERESTS OUTLINE
1. Who holds the Future Interest?
a. Grantor
i. Reversion
ii. Possibility of Reverter
iii. The Right of Entry/Power of Termination (Collectively these two are Reversionary Interests)
b. Transferee
i. Remainders
- Contingent (may or may not vest)
- Vested
ii. Executory Interest
Three-part Test
2. If the FI is in a Tee, we ask is it a remainder? A FI in a Tee is a Remainder if all three of the following are satisfied:
a. It can follow a LE or a Term of Years
AND
b. The interest was created at the same time as the LE or Term of Years
AND
c. The interest waits then takes it does not take away: a remainder divests a preceding interest.
Then we know that it is a Remainder. If it is not a remainder, it must be an Executory Interest.
Test for Contingency
3. If the FI is a Remainder, ask: is it contingent? If not contingent, must be vested.
a. A Remainder is contingent if either of the following are true:
i. It is given to an unascertained person or unascertained people. Children of A (and A doesn’t have any children yet – they are unascertained). That is a class gift – you’ve made a gift to a class of people.
b. Subject to some condition precedent (must happen before someone can take) To A for life then to the children of A till 21, they are 15, cannot take.
Test for Vested
4. Grantor has given to an ascertained person or has given to ascertained people.
i. Not subject to some condition precedent. We can determine one of the exact individuals to whom the property will go. Nothing else has to happen.
Reversion Situations
Grantor (O) holding FSA: indefinitely
1. O gives away a series of Life Estates and Terms of Years. When your interest goes on indefinitely, then you are going to retain a reversion unless and until you give away all of the time remaining to someone.
FSA---------LE----------LE---------LE
We may not know the day, but we know that every one of those life estates is going to end – same thing with terms of years – it will be short of indefinitely. Grantor will have a reversion because he has not definitively given away all of grantor’s time.
2. Grantor has given away a life estate or a term of years followed by some remainder but it is not a vested remainder – it’s iffy, it’s chancy – it is what we call contingent. Maybe grantor gave away all of his or her estate but until that condition is satisfied we cannot say definitively that grantor has given away all of his or her estate. It might vest and it might not vest.
FSA-----------LE-----------Contingent Remainder
Example:
O to A for life, then to B if she graduates from Cooley by age 30
Grantor gave away a life estate followed by a remainder that might have vested eventually in FSA if the condition precedent was satisfied, but at the time grantor gave it away, the condition had not yet been satisfied; therefore, grantor had a reversion because it was not certain that anyone held or would hold eventually in FSA.
3. O gives away a LE or a term of years, then some interest in FSA, which looks certain to vest, provides for some gap in time between the end of the LE and the satisfaction of the condition or the qualification of the next interest holder to take.
FSA-------LE-------[ ]
Transferees
The only other possibility for a Future Interest other than grantor is some Transferee. Anybody other than O is a transferee. If anybody else holds a future interest, that future interest must by definition by only one of the following two:
1. Remainders. Either (a) Contingent or (b) Vested.
2. Executory Interest (if it’s not a remainder, it must be executory interest)
We calculate whether grantor has a reversion last and we do it by process of elimination.
Problems Page 227
1a. O to A for life, then to B and her heirs (words of inheritance)
O=No reversion
A=LE
B=Vested Remainder in FSA
B is a transferee so it can only be a remainder or an executory interest. It is a vested remainder because all B has to do is simply wait for the natural expiration of the LE and then take. If B dies during the LE holders LE, B’s estate will eventually B’s interest. B has a vested remainder in FSA. The default estate today is we presume that grantor is giving away all of his or her estate unless grantor has specifically given away less. O has no reversion because of a remainder or gift over to B in FSA.
1c. O to A for life, then to B and her heirs if B attains the age of 21 before A dies. At the time of the conveyance, B is 15 years old.
O=Reversion if B dies before 21
A=LE
B=CR
B’s interest is capable of immediately following a LE or TOY, and B is simply going to wait for the natural expiration of the preceding estate and then take assuming that the condition precedent of B turning 21 is satisfied. One of the things we look for when determining whether a condition in a conveyance is a condition precedent that makes a remainder contingent or a condition subsequent that can take away someone’s vested interest. B has a CR because the condition must be satisfied before B qualifies to take. That leaves a reversion for O if B dies before retaining the age of 21.
Someone will always be holding the estate.
If A dies tomorrow and B is not yet 21 it will go back to O. Today O will hold Fee Simple Subject to Executory Limitation. B would now have an Executory Interest because if B does satisfy the condition, B would no longer simply be waiting and then taking, B would be taking away from grantor.
2. O conveys Blackacre to A for life, then to B for life. O subsequently dies with a will devising all of O’s property to C. Then A dies and B dies. Who owns Blackacre?
C owns Blackacre. There is always going to be a reversion when grantor gives away a LE followed by vested remainders or contingent remainders it’s not going to add up to indefinitely. Reversions can be gifted or sold during your life as well as pass through your estate. Grantor conveyed grantor’s reversion to C. The mere fact that grantor conveyed his reversion to C and that C is not grantor but is a transferee, does not mean that C now has a remainder. We do not change the name of the interest when it is conveyed, we still call it what it was when it was created. So, grantor conveyed grantor’s reversion to C, that means C owned grantor’s reversion. C did not then have a remainder.
The three-part test to determine when a Future Interest is in a Transferee, whether it is a Remainder or an Executory Interest
Assuming grantor holds the FI, we will determine by using our tools of construction whether grantor retains one of the two reversionary interests because grantor has given away FSD or FSSCS, we will determine whether grantor has a reversion by process of elimination. If a FI is in a transferee, we move on to the second step. We know that it can only be one of two.
If the FI is in a transferee, we ask, is it a remainder? A FI in a transferee is a remainder if all 3 of the following are satisfied (if you flunk one, it’s not a remainder):
a. It can follow a LE or a Term of Years. It is not guaranteed to follow without interruption but simply that there is at least one set of facts, which if those set of facts come to pass will allow this interest to follow immediately. Remainders can only follow LE’s or a TOY
AND
b. The interest was created at the same time as the LE or Term of Years
AND
c. The interest waits then takes. It does not take away: a remainder never divests a preceding interest.
If a transferee satisfies all 3 of these factors, then we know that it is a Remainder. For Executory interest: If it is not one, it must be the other.
Future Interest in a Transferee Example
O to A for life, then to B for life.
Here, A has the present possessory interest of a LE. B has a remainder in a LE or a remainder for life. O still has a reversion. This is a FI in a Tee which means we know it can’t be a reversion, a possibility of reverter or a right of entry/power of termination. This interest can only be a remainder or an executory interest.
Let’s walk through the test for B:
a. Yes, it will follow immediately A’s LE
b. Yes, it was created at the same time – it was the same conveyance
c. Yes, B will wait for A’s death then take. B is not going to divest anybody
The natural expiration of a LE is the end of the measuring life.
Contingent
The First Way a Remainder Can Be Contingent: A Class Gift
You are ascertained when we can point to you and name you. If the gift to the class (the children of A) and A has already given birth to a daughter, then we have someone ascertained. If true, the remainder is contingent.
The Second Way Remainder Can Be Contingent: Condition Precedent
Something must happen before a person can vest with the right to take or vest in the possession of the estate eventually.
Examples:
To A for life, then to my children who graduate from Cooley.
To A for life then to B if she shall graduate from Cooley. B is ascertained but she hasn’t graduated yet, that remainder is contingent.
To A for life, then to B if he gets married (and B is still single).
You only need one to make it contingent.
Vested
Nothing else has to happen in order for the property to go to the person except for the natural expiration of the preceding interest – the preceding LE or TOY. When you hold a vested remainder you are waiting for the natural expiration of the preceding interest – the death of the measuring life.
Condition Precedent vs. Condition Subsequent
FSSCS:
O to A but if (words of limitation) she ever grows marijuana on Blackacre, O can reenter and retake.
Grantor has given a present possessory interest to A but it’s followed by a condition.
CP
O to A for life, then to B if she graduates from Cooley by age 30.
A=LE
B=CR
Step 1: As a Tee, B’s interest can be either a remainder or executive interest
Step 2: B is 26 and in second year of law school.
a. Can follow a LE or TOY
b. Was created at the same time
c. B will not cut short A’s LE, it will wait and take
This is a Remainder.
Step 3: Is it Vested or Contingent Remainder?
B is ascertained, it’s not contingent on that basis but is there a condition precedent that B must satisfy before she qualifies to take or is the condition a subsequent condition that might take away B’s interest?
The language of gift is bound up with the condition such that the condition must be satisfied in order for B to have the right to take. We don’t have unconditional language of gift followed by a subsequent condition that could take away. We have a pre-condition that must be satisfied before B vests the right to take. B has a remainder but since it is subject to a condition precedent it is only a contingent remainder.
Look for punctuation or grammatical clues.
Conveyance and Executory Interest
A vested remainder in a transferee but followed by a subsequent condition that can take away that vested interest.
O to A for life, (gift stops after the comma) then to B, but if (a subsequent condition) B fails to graduate from Cooley by 30, then to C.
Step 1 for B: Remainder or Executory Interest
Passes 3 part test – it’s a remainder
Step 2: Contingent or Vested Remainder
Passes – Ascertainable person
Step 3: Condition Subsequent
B must satisfy condition
If A dies prior to B graduating from Cooley by 30, O will hold FSSEL. If B satisfies condition, B will take from O.
O=Reversion (Fee Simple Subject to Executory Limitation)
A=LE
B=CR (takes away from O if condition is satisfied)
C=EI
C’s Interest
C is a Tee so it’s either a remainder or executory interest. Is it possible for C’s interest to follow immediately a LE or TOY? Yes, the moment B turns 30 without graduating, C gets it. Does C wait and take or divest? Divest – Executory Interest.
Problem page 228
O to A for life, then to B if B gives A a proper funeral.
B’s interest cannot immediately follow A’s LE (even if it’s 20 minutes). There’s a gap – the time between A’s death and the funeral by B. The moment A dies, O’s reversion becomes possessory. By definition it cannot follow a life estate, therefore not a remainder.
O=Reversion in Fee Simple Subject to Executory Limitation
A=LE
B=EI
If B gives A a proper funeral, we will hold in FSA at that point.
Example 4, Page 229: Concept of Open
To A for life, then to A’s children and their heirs. A has one child, B. The remainder is vested in B subject to open to let in later-born children. B’s exact share cannot be known until A dies. If A has not child at the time of the conveyance, the remainder is contingent because no taker is ascertained.
The transferees pass the 3 part test.
No condition precedent other than being born.
O=Reversion before A had a child, otherwise nothing.
A=LE
B=Vested Remainder Subject to Open (the class can expand with the birth of new members or other children being born to A) or subject to partial divestment.
The moment A has a child eliminates O reversion
Important Rule: If you conceive a child in life and then die, and that child is later born alive, it is deemed to have been alive as of your death. (no gap in time, no reversion for Grantor)
Children are natural born children and legally adopted children. Step children get zippo unless the conveyance specifically says, “to step children.”
Example 5
O=Reversion (until B dies during the lifetime of A)
A=LE
B=0
B’s heirs=Contingent Remainder
Example 6 - alternative contingent remainders
Whether a reversion is sure to take or only might take, we still call it a reversion. If it becomes possessory, I will ask you to tell me what the nature of the possessory interest is.
The identity of the remaindermen who will take in this case depends upon the occurrence or nonoccurrence of the same condition. When we have two contingent remainders where the identity of the remaindermen who will take depends upon the occurrence or nonoccurrence of the same condition, we say that the two remaindermen hold alternative contingent remainders.
Yes No
Bbbb
B C
B survives A
THEORETICAL REVERSION
Hicks’ favorite Reversion
Two-part Test for Theoretical Reversion in Grantor
O has a theoretical reversion when O has given away alternative contingent remainders and we can’t necessarily determine which contingent remainder will take until the death of the life estate measuring life. The LE ends but the LE holder is still alive. We don’t know until the LE holder dies which will take, A or B. The LE could end for extreme waste but the LE holder and the contingent remaindermen are both still alive. We don’t know whether B is going to survive A or not. It goes back to O on a theoretical reversion and he hold in FSSEL and the two contingent remaindermen now hold alternative executory interests.
If the condition is B surviving A, but the LE can be terminated, while both B and A are still alive, somebody’s got to hold that interest until either A dies first or B dies first. Grantor is going to take but grantor does not have a true reversion under those circumstances only the theoretical reversion.
1. Know the definitions
2. You must read with more and care than ever before
3. A three-part analysis to determine
FSD and FSSCS
1. Is the language of gift bound up with the condition which militates in the favor of FSD or is the language of gift unconditional followed by a subsequent condition which militates in favor of FSSCS?
2. What are the words that precede and describe the condition? If they are words of duration – as long as, so long as, until – that militates in favor of the court finding FSD but if they are words of limitation – but if, if, however – that militates in favor of FSSCS.
3. Is there any reference in grantor having to act? If there is no reference to grantor having to act, obviously that militates in favor of FSD with its automatic possibility of reverter in grantor. If there is reference of grantor having to act, to reenter and retake, obviously that militates in favor of FSSCS
Many courts have found, even though we prefer folks to act, that these ambiguous defeaseable fees conveyed by grantor have been FSD simply because there’s been no reference to grantor having to act. Courts are not generally going to read into conveyances language that is not there. On the other hand, they are going to try to give effect to every word that is there.
FUTURE INTEREST
Estates in Land and Future Interests: A step by step guide By Professor Linda Edwards
We are not going to worry about the Fee Tail.
Three Types of Future Interests Retained by the Grantor
1. Reversion: The interest grantor retains when giving away less than all of his or her estate and grantor has not given away FSD or FSSCS. It will follow a: (a) life estate or (b) a term of years.
Following the Defeaseable Fees
2. Possibility of Reverter: Always follows a FSD and operates automatically.
3. Right of Entry or Power of Termination: Always follows a FSSCS and grantor must act.
DETERMINING FUTURE INTERESTS OUTLINE
1. Who holds the Future Interest?
a. Grantor
i. Reversion
ii. Possibility of Reverter
iii. The Right of Entry/Power of Termination (Collectively these two are Reversionary Interests)
b. Transferee
i. Remainders
- Contingent (may or may not vest)
- Vested
ii. Executory Interest
Three-part Test
2. If the FI is in a Tee, we ask is it a remainder? A FI in a Tee is a Remainder if all three of the following are satisfied:
a. It can follow a LE or a Term of Years
AND
b. The interest was created at the same time as the LE or Term of Years
AND
c. The interest waits then takes it does not take away: a remainder divests a preceding interest.
Then we know that it is a Remainder. If it is not a remainder, it must be an Executory Interest.
Test for Contingency
3. If the FI is a Remainder, ask: is it contingent? If not contingent, must be vested.
a. A Remainder is contingent if either of the following are true:
i. It is given to an unascertained person or unascertained people. Children of A (and A doesn’t have any children yet – they are unascertained). That is a class gift – you’ve made a gift to a class of people.
b. Subject to some condition precedent (must happen before someone can take) To A for life then to the children of A till 21, they are 15, cannot take.
Test for Vested
4. Grantor has given to an ascertained person or has given to ascertained people.
i. Not subject to some condition precedent. We can determine one of the exact individuals to whom the property will go. Nothing else has to happen.
Reversion Situations
Grantor (O) holding FSA: indefinitely
1. O gives away a series of Life Estates and Terms of Years. When your interest goes on indefinitely, then you are going to retain a reversion unless and until you give away all of the time remaining to someone.
FSA---------LE----------LE---------LE
We may not know the day, but we know that every one of those life estates is going to end – same thing with terms of years – it will be short of indefinitely. Grantor will have a reversion because he has not definitively given away all of grantor’s time.
2. Grantor has given away a life estate or a term of years followed by some remainder but it is not a vested remainder – it’s iffy, it’s chancy – it is what we call contingent. Maybe grantor gave away all of his or her estate but until that condition is satisfied we cannot say definitively that grantor has given away all of his or her estate. It might vest and it might not vest.
FSA-----------LE-----------Contingent Remainder
Example:
O to A for life, then to B if she graduates from Cooley by age 30
Grantor gave away a life estate followed by a remainder that might have vested eventually in FSA if the condition precedent was satisfied, but at the time grantor gave it away, the condition had not yet been satisfied; therefore, grantor had a reversion because it was not certain that anyone held or would hold eventually in FSA.
3. O gives away a LE or a term of years, then some interest in FSA, which looks certain to vest, provides for some gap in time between the end of the LE and the satisfaction of the condition or the qualification of the next interest holder to take.
FSA-------LE-------[ ]
Transferees
The only other possibility for a Future Interest other than grantor is some Transferee. Anybody other than O is a transferee. If anybody else holds a future interest, that future interest must by definition by only one of the following two:
1. Remainders. Either (a) Contingent or (b) Vested.
2. Executory Interest (if it’s not a remainder, it must be executory interest)
We calculate whether grantor has a reversion last and we do it by process of elimination.
Problems Page 227
1a. O to A for life, then to B and her heirs (words of inheritance)
O=No reversion
A=LE
B=Vested Remainder in FSA
B is a transferee so it can only be a remainder or an executory interest. It is a vested remainder because all B has to do is simply wait for the natural expiration of the LE and then take. If B dies during the LE holders LE, B’s estate will eventually B’s interest. B has a vested remainder in FSA. The default estate today is we presume that grantor is giving away all of his or her estate unless grantor has specifically given away less. O has no reversion because of a remainder or gift over to B in FSA.
1c. O to A for life, then to B and her heirs if B attains the age of 21 before A dies. At the time of the conveyance, B is 15 years old.
O=Reversion if B dies before 21
A=LE
B=CR
B’s interest is capable of immediately following a LE or TOY, and B is simply going to wait for the natural expiration of the preceding estate and then take assuming that the condition precedent of B turning 21 is satisfied. One of the things we look for when determining whether a condition in a conveyance is a condition precedent that makes a remainder contingent or a condition subsequent that can take away someone’s vested interest. B has a CR because the condition must be satisfied before B qualifies to take. That leaves a reversion for O if B dies before retaining the age of 21.
Someone will always be holding the estate.
If A dies tomorrow and B is not yet 21 it will go back to O. Today O will hold Fee Simple Subject to Executory Limitation. B would now have an Executory Interest because if B does satisfy the condition, B would no longer simply be waiting and then taking, B would be taking away from grantor.
2. O conveys Blackacre to A for life, then to B for life. O subsequently dies with a will devising all of O’s property to C. Then A dies and B dies. Who owns Blackacre?
C owns Blackacre. There is always going to be a reversion when grantor gives away a LE followed by vested remainders or contingent remainders it’s not going to add up to indefinitely. Reversions can be gifted or sold during your life as well as pass through your estate. Grantor conveyed grantor’s reversion to C. The mere fact that grantor conveyed his reversion to C and that C is not grantor but is a transferee, does not mean that C now has a remainder. We do not change the name of the interest when it is conveyed, we still call it what it was when it was created. So, grantor conveyed grantor’s reversion to C, that means C owned grantor’s reversion. C did not then have a remainder.
The three-part test to determine when a Future Interest is in a Transferee, whether it is a Remainder or an Executory Interest
Assuming grantor holds the FI, we will determine by using our tools of construction whether grantor retains one of the two reversionary interests because grantor has given away FSD or FSSCS, we will determine whether grantor has a reversion by process of elimination. If a FI is in a transferee, we move on to the second step. We know that it can only be one of two.
If the FI is in a transferee, we ask, is it a remainder? A FI in a transferee is a remainder if all 3 of the following are satisfied (if you flunk one, it’s not a remainder):
a. It can follow a LE or a Term of Years. It is not guaranteed to follow without interruption but simply that there is at least one set of facts, which if those set of facts come to pass will allow this interest to follow immediately. Remainders can only follow LE’s or a TOY
AND
b. The interest was created at the same time as the LE or Term of Years
AND
c. The interest waits then takes. It does not take away: a remainder never divests a preceding interest.
If a transferee satisfies all 3 of these factors, then we know that it is a Remainder. For Executory interest: If it is not one, it must be the other.
Future Interest in a Transferee Example
O to A for life, then to B for life.
Here, A has the present possessory interest of a LE. B has a remainder in a LE or a remainder for life. O still has a reversion. This is a FI in a Tee which means we know it can’t be a reversion, a possibility of reverter or a right of entry/power of termination. This interest can only be a remainder or an executory interest.
Let’s walk through the test for B:
a. Yes, it will follow immediately A’s LE
b. Yes, it was created at the same time – it was the same conveyance
c. Yes, B will wait for A’s death then take. B is not going to divest anybody
The natural expiration of a LE is the end of the measuring life.
Contingent
The First Way a Remainder Can Be Contingent: A Class Gift
You are ascertained when we can point to you and name you. If the gift to the class (the children of A) and A has already given birth to a daughter, then we have someone ascertained. If true, the remainder is contingent.
The Second Way Remainder Can Be Contingent: Condition Precedent
Something must happen before a person can vest with the right to take or vest in the possession of the estate eventually.
Examples:
To A for life, then to my children who graduate from Cooley.
To A for life then to B if she shall graduate from Cooley. B is ascertained but she hasn’t graduated yet, that remainder is contingent.
To A for life, then to B if he gets married (and B is still single).
You only need one to make it contingent.
Vested
Nothing else has to happen in order for the property to go to the person except for the natural expiration of the preceding interest – the preceding LE or TOY. When you hold a vested remainder you are waiting for the natural expiration of the preceding interest – the death of the measuring life.
Condition Precedent vs. Condition Subsequent
FSSCS:
O to A but if (words of limitation) she ever grows marijuana on Blackacre, O can reenter and retake.
Grantor has given a present possessory interest to A but it’s followed by a condition.
CP
O to A for life, then to B if she graduates from Cooley by age 30.
A=LE
B=CR
Step 1: As a Tee, B’s interest can be either a remainder or executive interest
Step 2: B is 26 and in second year of law school.
a. Can follow a LE or TOY
b. Was created at the same time
c. B will not cut short A’s LE, it will wait and take
This is a Remainder.
Step 3: Is it Vested or Contingent Remainder?
B is ascertained, it’s not contingent on that basis but is there a condition precedent that B must satisfy before she qualifies to take or is the condition a subsequent condition that might take away B’s interest?
The language of gift is bound up with the condition such that the condition must be satisfied in order for B to have the right to take. We don’t have unconditional language of gift followed by a subsequent condition that could take away. We have a pre-condition that must be satisfied before B vests the right to take. B has a remainder but since it is subject to a condition precedent it is only a contingent remainder.
Look for punctuation or grammatical clues.
Conveyance and Executory Interest
A vested remainder in a transferee but followed by a subsequent condition that can take away that vested interest.
O to A for life, (gift stops after the comma) then to B, but if (a subsequent condition) B fails to graduate from Cooley by 30, then to C.
Step 1 for B: Remainder or Executory Interest
Passes 3 part test – it’s a remainder
Step 2: Contingent or Vested Remainder
Passes – Ascertainable person
Step 3: Condition Subsequent
B must satisfy condition
If A dies prior to B graduating from Cooley by 30, O will hold FSSEL. If B satisfies condition, B will take from O.
O=Reversion (Fee Simple Subject to Executory Limitation)
A=LE
B=CR (takes away from O if condition is satisfied)
C=EI
C’s Interest
C is a Tee so it’s either a remainder or executory interest. Is it possible for C’s interest to follow immediately a LE or TOY? Yes, the moment B turns 30 without graduating, C gets it. Does C wait and take or divest? Divest – Executory Interest.
Problem page 228
O to A for life, then to B if B gives A a proper funeral.
B’s interest cannot immediately follow A’s LE (even if it’s 20 minutes). There’s a gap – the time between A’s death and the funeral by B. The moment A dies, O’s reversion becomes possessory. By definition it cannot follow a life estate, therefore not a remainder.
O=Reversion in Fee Simple Subject to Executory Limitation
A=LE
B=EI
If B gives A a proper funeral, we will hold in FSA at that point.
Example 4, Page 229: Concept of Open
To A for life, then to A’s children and their heirs. A has one child, B. The remainder is vested in B subject to open to let in later-born children. B’s exact share cannot be known until A dies. If A has not child at the time of the conveyance, the remainder is contingent because no taker is ascertained.
The transferees pass the 3 part test.
No condition precedent other than being born.
O=Reversion before A had a child, otherwise nothing.
A=LE
B=Vested Remainder Subject to Open (the class can expand with the birth of new members or other children being born to A) or subject to partial divestment.
The moment A has a child eliminates O reversion
Important Rule: If you conceive a child in life and then die, and that child is later born alive, it is deemed to have been alive as of your death. (no gap in time, no reversion for Grantor)
Children are natural born children and legally adopted children. Step children get zippo unless the conveyance specifically says, “to step children.”
Example 5
O=Reversion (until B dies during the lifetime of A)
A=LE
B=0
B’s heirs=Contingent Remainder
Example 6 - alternative contingent remainders
Whether a reversion is sure to take or only might take, we still call it a reversion. If it becomes possessory, I will ask you to tell me what the nature of the possessory interest is.
The identity of the remaindermen who will take in this case depends upon the occurrence or nonoccurrence of the same condition. When we have two contingent remainders where the identity of the remaindermen who will take depends upon the occurrence or nonoccurrence of the same condition, we say that the two remaindermen hold alternative contingent remainders.
Yes No
Bbbb
B C
B survives A
THEORETICAL REVERSION
Hicks’ favorite Reversion
Two-part Test for Theoretical Reversion in Grantor
O has a theoretical reversion when O has given away alternative contingent remainders and we can’t necessarily determine which contingent remainder will take until the death of the life estate measuring life. The LE ends but the LE holder is still alive. We don’t know until the LE holder dies which will take, A or B. The LE could end for extreme waste but the LE holder and the contingent remaindermen are both still alive. We don’t know whether B is going to survive A or not. It goes back to O on a theoretical reversion and he hold in FSSEL and the two contingent remaindermen now hold alternative executory interests.
If the condition is B surviving A, but the LE can be terminated, while both B and A are still alive, somebody’s got to hold that interest until either A dies first or B dies first. Grantor is going to take but grantor does not have a true reversion under those circumstances only the theoretical reversion.
WEEK 7
M04 Exam Question 1:
Oscar makes the following conveyance: to Al for the life of Betty, but if Al shall ever manufacture illegal drugs on the premises, then Oscar shall have the right to reenter and retake the property, then to Cathy if she shall survive Betty, but if Cathy shall not survive Betty, then to Dan.
At the time of the conveyance, what is the interest of each of the following:
1. Oscar:
2. Al:
3. Betty:
4. Cathy:
5. Dan:
First let’s characterize the interest. What’s the interest of Al? A life estate per autre vie (the life of Betty) but also subject to condition subsequent (reentry). Cathy and Dan have contingent remainders.
Second, we have to ask ourselves, what is the standard under which grantor has a theoretical reversion. That is where grantor has created alternative contingent remainders and we cannot determine which one will vest until the end of the measuring life and in fact that is the case here.
Review
The first question we ask is who holds the future interest? There are only two possibilities:
1. Grantor
a) Reversion
b) Possibility of Reverter (FSD)
c) Right of Entry / Power of Termination (FSSCS)
OR
2. Transferee
a) Remainders
i. Contingent
ii. Vested
If the interest is in the grantor we are going to characterize that by characterizing everybody else’s interest first and then figuring out if there is anything left for grantor.
Follow the Three-Part Test…
Problems:
1. Assume FSA unless otherwise stated. If grantor has FSA and gives away only a LE, by definition he has retained a Reversion.
2. A has a present possessory interest of a LE, B has a Future Interest, not a present possessory interest. B is a Transferee so we ask if this is a Remainder or an Executory Interest. Will it follow a LE or TOY? Yes. Was it created at the same time as the LE or TOY? Yes. Will it wait and take or will it take away? Wait for the natural expiration of the LE, that is the end of the measuring life, and then it is going to take. This is a Remainder. Contingent or Vested? Is it given to an ascertained person? Yes, B. We can name and point at B. Any Condition Precedent? No, so it’s a Vested Remainder, but you have to characterize the nature of the interest in which the person will hold if it ever becomes possessory unless it’s going to be Fee Simple. If it’s FS you can just say they have a Remainder, but that’s not the case here. This is not going to be an interest in FS, this is an interest in which the Transferee is only going to hold for life exactly. This is a Vested Remainder in a LE or you could say a Vested Remainder for Life.
3. An example of a poorly written defeaseable fee. If I were to give this kind of question on an exam I would expect a little explanation in addition to the answer in the conveyance section of the exam.
“Here are the three ways in which we distinguish between the two types of defeaseable fees…” and make the argument. The points would be less dependent upon getting the answer right than it would be making the argument and recognizing that:
1. With FSD we usually have a condition bound up with the language of gift. The condition precedent is described with words of duration and no reference for grantor having to act.
2. For FSSCS we usually have an unconditional gift followed by the subsequent condition that the condition is preceded and described by words of limitation.
3. If there is no reference for grantor having to act, that militates in favor FSD with its automatic possibility of reverter in grantor. If there is a reference of grantor having to act, reenter and retake, that militates in favor of FSSCS.
4. We never presume that anybody is going to survive. There is no right to take yet. You’ve got to survive your parent in order to take.
5. Words of inheritance simply describe the nature of the estate that the parent will enjoy if and when he or she will take. It means that A’s children will take in FSA if and when the parent does take. It doesn’t give the heirs the right to anything.
5(b). Subject to open – as long as A is alive we will presume that A could have more children. Subject to open because the class can expand by the birth of new members. A’s unborn children have contingent remainders of being born. O has no reversion.
6(a) Condition bound up with the language of gift is a condition precedent that has to be satisfied before they vest – they must first turn 21. They have a contingent remainder as would any unborn children.
7. There must be someone vested ahead of you before you can have an executory interest. You cannot divest someone if there is nobody vested ahead of you. So even though it may look like an interest is expressed as an executory interest, unless there is someone yet vested for you to divest, you don’t yet have an executory interest.
If any child of A survives A, then A’s surviving children vest. But if no, the balance tips the other way – if no child of A survives A, then B vests. Contingent remainders that depend upon the occurrence or nonoccurrence of the same condition are alternative contingent remainders. We have to decide whether grantor has any interest here.
At A’s death we will determine which of the two contingent remainders will take. If A has surviving children they take, if not B takes. It is possible for A’s LE to end before A’s life ends due to waste. If the two contingent remaindermen terminate the LE which of the two remaindermen would be qualified to hold? Neither one of them would yet be vested so O would have to hold at that point and the nature of that reversion is not a true reversion but a theoretical reversion because the only way it will ever come back to O is if the LE ends before the end of the measuring life.
Grantor has a theoretical reversion when two things are true:
1. Grantor has given away alternative contingent remainders; and
2. We cannot determine which remainderman will vest until the end of the measuring life.
8(a). There is no condition precedent. The language of gift is unconditional, however, it is followed by a subsequent condition that might divest or take away the interest of a child of A. A’s unborn children have a contingent remainder.
B: Executory Interest in a Contingent Remainder
Grenade Analogy – two step process.
1. In order for B to take, A has to have children – someone has to vest.
2. In order for B to vest with some right to take that child’s share, that child has to die under 21
10
(b) C is subject to executory limitation because what is going to happen if C dies and then A dies without ever having another child – that’s the divesting condition, now the children of B will take. They have an executory interest and C has a vested remainder subject to open and subject to executory limitation.
The unborn children of A have contingent remainders and O has nothing. The minute someone vested as a child of A, now we know that this estate is going to go to the children of A or to the children of B. There is no possibility it can go back to grantor.
(c) There must at least, at some time have been someone in the class of people who would take upon the occurrence of the divesting event. That means that now that B has died, there never has been nor will there ever be a child of B and so if A dies without having other children but C dies first, that’s the divesting event.
In order to have divestment:
1. The divestment has to occur; and
2. Someone in the class of people had to be capable of divesting
WEEK 8
Oscar makes the following conveyance: to Al for the life of Betty, but if Al shall ever manufacture illegal drugs on the premises, then Oscar shall have the right to reenter and retake the property, then to Cathy if she shall survive Betty, but if Cathy shall not survive Betty, then to Dan.
At the time of the conveyance, what is the interest of each of the following:
1. Oscar:
2. Al:
3. Betty:
4. Cathy:
5. Dan:
First let’s characterize the interest. What’s the interest of Al? A life estate per autre vie (the life of Betty) but also subject to condition subsequent (reentry). Cathy and Dan have contingent remainders.
Second, we have to ask ourselves, what is the standard under which grantor has a theoretical reversion. That is where grantor has created alternative contingent remainders and we cannot determine which one will vest until the end of the measuring life and in fact that is the case here.
Review
The first question we ask is who holds the future interest? There are only two possibilities:
1. Grantor
a) Reversion
b) Possibility of Reverter (FSD)
c) Right of Entry / Power of Termination (FSSCS)
OR
2. Transferee
a) Remainders
i. Contingent
ii. Vested
If the interest is in the grantor we are going to characterize that by characterizing everybody else’s interest first and then figuring out if there is anything left for grantor.
Follow the Three-Part Test…
Problems:
1. Assume FSA unless otherwise stated. If grantor has FSA and gives away only a LE, by definition he has retained a Reversion.
2. A has a present possessory interest of a LE, B has a Future Interest, not a present possessory interest. B is a Transferee so we ask if this is a Remainder or an Executory Interest. Will it follow a LE or TOY? Yes. Was it created at the same time as the LE or TOY? Yes. Will it wait and take or will it take away? Wait for the natural expiration of the LE, that is the end of the measuring life, and then it is going to take. This is a Remainder. Contingent or Vested? Is it given to an ascertained person? Yes, B. We can name and point at B. Any Condition Precedent? No, so it’s a Vested Remainder, but you have to characterize the nature of the interest in which the person will hold if it ever becomes possessory unless it’s going to be Fee Simple. If it’s FS you can just say they have a Remainder, but that’s not the case here. This is not going to be an interest in FS, this is an interest in which the Transferee is only going to hold for life exactly. This is a Vested Remainder in a LE or you could say a Vested Remainder for Life.
3. An example of a poorly written defeaseable fee. If I were to give this kind of question on an exam I would expect a little explanation in addition to the answer in the conveyance section of the exam.
“Here are the three ways in which we distinguish between the two types of defeaseable fees…” and make the argument. The points would be less dependent upon getting the answer right than it would be making the argument and recognizing that:
1. With FSD we usually have a condition bound up with the language of gift. The condition precedent is described with words of duration and no reference for grantor having to act.
2. For FSSCS we usually have an unconditional gift followed by the subsequent condition that the condition is preceded and described by words of limitation.
3. If there is no reference for grantor having to act, that militates in favor FSD with its automatic possibility of reverter in grantor. If there is a reference of grantor having to act, reenter and retake, that militates in favor of FSSCS.
4. We never presume that anybody is going to survive. There is no right to take yet. You’ve got to survive your parent in order to take.
5. Words of inheritance simply describe the nature of the estate that the parent will enjoy if and when he or she will take. It means that A’s children will take in FSA if and when the parent does take. It doesn’t give the heirs the right to anything.
5(b). Subject to open – as long as A is alive we will presume that A could have more children. Subject to open because the class can expand by the birth of new members. A’s unborn children have contingent remainders of being born. O has no reversion.
6(a) Condition bound up with the language of gift is a condition precedent that has to be satisfied before they vest – they must first turn 21. They have a contingent remainder as would any unborn children.
7. There must be someone vested ahead of you before you can have an executory interest. You cannot divest someone if there is nobody vested ahead of you. So even though it may look like an interest is expressed as an executory interest, unless there is someone yet vested for you to divest, you don’t yet have an executory interest.
If any child of A survives A, then A’s surviving children vest. But if no, the balance tips the other way – if no child of A survives A, then B vests. Contingent remainders that depend upon the occurrence or nonoccurrence of the same condition are alternative contingent remainders. We have to decide whether grantor has any interest here.
At A’s death we will determine which of the two contingent remainders will take. If A has surviving children they take, if not B takes. It is possible for A’s LE to end before A’s life ends due to waste. If the two contingent remaindermen terminate the LE which of the two remaindermen would be qualified to hold? Neither one of them would yet be vested so O would have to hold at that point and the nature of that reversion is not a true reversion but a theoretical reversion because the only way it will ever come back to O is if the LE ends before the end of the measuring life.
Grantor has a theoretical reversion when two things are true:
1. Grantor has given away alternative contingent remainders; and
2. We cannot determine which remainderman will vest until the end of the measuring life.
8(a). There is no condition precedent. The language of gift is unconditional, however, it is followed by a subsequent condition that might divest or take away the interest of a child of A. A’s unborn children have a contingent remainder.
B: Executory Interest in a Contingent Remainder
Grenade Analogy – two step process.
1. In order for B to take, A has to have children – someone has to vest.
2. In order for B to vest with some right to take that child’s share, that child has to die under 21
10
(b) C is subject to executory limitation because what is going to happen if C dies and then A dies without ever having another child – that’s the divesting condition, now the children of B will take. They have an executory interest and C has a vested remainder subject to open and subject to executory limitation.
The unborn children of A have contingent remainders and O has nothing. The minute someone vested as a child of A, now we know that this estate is going to go to the children of A or to the children of B. There is no possibility it can go back to grantor.
(c) There must at least, at some time have been someone in the class of people who would take upon the occurrence of the divesting event. That means that now that B has died, there never has been nor will there ever be a child of B and so if A dies without having other children but C dies first, that’s the divesting event.
In order to have divestment:
1. The divestment has to occur; and
2. Someone in the class of people had to be capable of divesting
WEEK 8
THE TRUST
Important for inter vivos and estate planning. It has rendered the law of perpetuities obsolete.
An attorney, the Great Conveyancer, came up with the idea of trusts. The idea is based upon the concept that we can take legal and beneficial ownership which usually are unified.
For example, if you own an estate in land (FSA), you are the legal title holder, you also are the beneficial owner of that estate which means you have the legal right to control it, have title in it but you are also entitled to receive the benefit of that estate. What a trust does is it separates legal ownership and beneficial ownership of the trust assets into two separate entities or groups.
Legal
Beneficial
Trust Beneficiaries
Legal Ownership Income Beneficial Ownership
The settlor (grantor) of the trust draws up a trust document. The trust document provides that legal ownership of the trust assets is given to the trust (legal fiction). That is something that exists only on paper. The assets exist, but the trust is like a corporation, it is an entity set up to hold property.
The trust document gives legal ownership to the trust. The trust document will also identify the trustee. The trustee manages the trust assets in accordance with the instructions (or direction) of the trust document.
The trustee does not own the trust assets and is not entitled to access for his or benefit any of the trust assets. A trustee is entitled to a fee for being the trustee, and managing the trust. The trustee also distributes income (principal) to the trust beneficiaries according to the specifications of the trust document.
Beneficiaries: People who have beneficial ownership. They are entitled to receive whatever is specified in the trust document. They don’t have legal ownership of the assets of the trust, they have beneficial ownership.
Protection against creditors example: You have a $100,000 trust from which you take $5000 per year on. If you only take out the specified amount each year, your creditors cannot get to the assets of the trust; however they can get to what is allotted to you, in this case the $5000 per year.
The trustee can speak from the grave on how the trust is to be distributed.
MERGER
A doctrine very much alive today
If one person owns both the LE and the next vested interest we combine the smaller interest or merge the smaller interest into the larger interest.
O to A for life. A has a life estate and O has a reversion in FSA.
O conveys my right, title, and interest in Greenacre to A. A owns LE + Reversion. We apply the merger doctrine to say A immediately owns FSA.
O to A for life then to B. Then A conveys my right, title, and interest in the property to B. At the time of conveyance B’s interest was contingent. B is ascertained, no condition precedent. B owns a LE plus a vested remainder in FSA. We combine the smaller into the larger and say B immediately owns FSA.
RULE IN SHELLEYS CASE
Fading in time
Preserve the alienability or doctrinabillity
The rule says:
1. If one instrument (deed, will, etc.);
2. creates a LE in A; and
3. purports to create a remainder in persons identified as A’s heirs; and
4. the LE and the remainder are both legal (the same person would hold both legal and beneficial ownership) or both equitable, meaning for both to be equitable the LE wasn’t a LE per se, it was a benefit for life. The remainder was benefit to the remainder. If both equitable then the remainder becomes a remainder in A in FS.
O to A for life, remainder to A’s heirs. A has a LE, A’s heirs have a CR, if don’t apply the rule, O has a reversion. If apply Shelley’s rule, A gets FSA immediately.
THE DOCTRINE OF WORTHIER TITLE
1. An inter vivos conveyance of land (doesn’t apply wills)
2. to a person (doesn’t apply to conveyances)
3. with a Remainder or EI in persons identified as grantor’s own heirs
4. does not create a future interest in those heirs but creates a reversion in grantor.
Originally applied only to conveyances of land at common law. Later to personal property
If O conveyed to A for life, remainder to the heirs of O.
Applying the doctrine of worthier title, grantor created a reversion in FSA, not to his heirs.
O=reversion in FSA
A=LE
THE RULE AGAINST PERPETUITIES
A rule to further marketability and protect assets in the future
I don’t give a crap!
SYMPHONY SPACE, INC. V. PERGOLA PROPERTIES, INC.
669 N.E. 2d 799 (1996)
Hicks: If the rule against perpetuities applies, it applies not only to conveyances of land made in a will but also to option agreements where an option to purchase real estate may not vest within the life plus 21 years.
The majority in the United States applies the Uniform Statutory Rule Against Perpetuities. It is essentially a wait-and-see doctrine codified by statute. It says that any interest that actually does vest within 90 years from the date of a gift is good and any interest that still has not vested at that point is extinguished. So we don’t strike down gifts to classes anymore the way we did under the common law rule against perpetuities.
NATURE OF THE CASE: This was a dispute over whether options on commercial property were subject to the rule against perpetuities.
FACTS: Broadwest Realty Corporation owned a building in New York and had been unable to secure a permanent tenant for the building's theater which was 58% of the total building space. Symphony Space, Inc. (P) was a not-for-profit entity devoted to the arts. P had previously rented space from Broadwest for one-night engagements. Broadwest also owned two adjacent properties and had been operating its properties at a net loss.
In 1978, Broadwest sold the building to P for a below market price of $10,010 and leased back the income producing commercial property excluding the theater for $1 per year. Broadwest maintained liability for an existing mortgage of $243,000 as well as maintenance. As a condition of the sale, P for consideration of $10 granted to Broadwest an option to repurchase the entire building. This arrangement was accomplished in order for P to seek a property tax exemption for the entire property as they were a nonprofit. This was to reduce Broadwest's real estate taxes by $30,000 per year and permitted Broadwest to retain the rental property income which produced $140,000 per year.
A contract was executed. The option period specified in the contract allowed Broadwest to exercise its option at specified calendar years. The option agreement was unconditional and was not to be impaired in any way by Broadwest's performance or nonperformance, of any obligations to be performed under the lease. The option was to be a covenant running with the land. After P obtained a tax exemption, Broadwest sold its interest in the lease, option, mortgage, mortgage note and its ownership interest in the contiguous properties for $4.8 million to Pergola Properties (D), Swett, Casandium Limited, and Darenth Consultants as tenants in common.
Ds converted the buildings to co-ops and the values of the properties increased substantially. By August of 1988, the value has risen to $27 million but without the option they were worth $5.5 million. Due to P's alleged default on the mortgage note, defendant Swett served P notice that it was exercising the option on behalf of all Ds. P disputed that it was in default and sued for a declaratory judgment arguing that the option agreement violated the Rule Against Perpetuities. P's motion for summary judgment was granted; the open option violated the Rule. D's counterclaim for rescission of the agreements based on mutual mistake and that was dismissed. The appeals court agreed; the commercial option was subject to the Rule and rescission was inappropriate.
ISSUE: Does the Rule Against Perpetuities apply to commercial option contacts?
RULE OF LAW: The Rule Against Perpetuities applies to commercial option contacts.
Two ways to close a class:
1. Physiologically – occurs with the death of the person capable of closing the class.
2. Rule of convenience – class closes at the time any member of the class is entitled to demand possession of his or her share.
WEEK 9
Important for inter vivos and estate planning. It has rendered the law of perpetuities obsolete.
An attorney, the Great Conveyancer, came up with the idea of trusts. The idea is based upon the concept that we can take legal and beneficial ownership which usually are unified.
For example, if you own an estate in land (FSA), you are the legal title holder, you also are the beneficial owner of that estate which means you have the legal right to control it, have title in it but you are also entitled to receive the benefit of that estate. What a trust does is it separates legal ownership and beneficial ownership of the trust assets into two separate entities or groups.
Legal
Beneficial
Trust Beneficiaries
Legal Ownership Income Beneficial Ownership
The settlor (grantor) of the trust draws up a trust document. The trust document provides that legal ownership of the trust assets is given to the trust (legal fiction). That is something that exists only on paper. The assets exist, but the trust is like a corporation, it is an entity set up to hold property.
The trust document gives legal ownership to the trust. The trust document will also identify the trustee. The trustee manages the trust assets in accordance with the instructions (or direction) of the trust document.
The trustee does not own the trust assets and is not entitled to access for his or benefit any of the trust assets. A trustee is entitled to a fee for being the trustee, and managing the trust. The trustee also distributes income (principal) to the trust beneficiaries according to the specifications of the trust document.
Beneficiaries: People who have beneficial ownership. They are entitled to receive whatever is specified in the trust document. They don’t have legal ownership of the assets of the trust, they have beneficial ownership.
Protection against creditors example: You have a $100,000 trust from which you take $5000 per year on. If you only take out the specified amount each year, your creditors cannot get to the assets of the trust; however they can get to what is allotted to you, in this case the $5000 per year.
The trustee can speak from the grave on how the trust is to be distributed.
MERGER
A doctrine very much alive today
If one person owns both the LE and the next vested interest we combine the smaller interest or merge the smaller interest into the larger interest.
O to A for life. A has a life estate and O has a reversion in FSA.
O conveys my right, title, and interest in Greenacre to A. A owns LE + Reversion. We apply the merger doctrine to say A immediately owns FSA.
O to A for life then to B. Then A conveys my right, title, and interest in the property to B. At the time of conveyance B’s interest was contingent. B is ascertained, no condition precedent. B owns a LE plus a vested remainder in FSA. We combine the smaller into the larger and say B immediately owns FSA.
RULE IN SHELLEYS CASE
Fading in time
Preserve the alienability or doctrinabillity
The rule says:
1. If one instrument (deed, will, etc.);
2. creates a LE in A; and
3. purports to create a remainder in persons identified as A’s heirs; and
4. the LE and the remainder are both legal (the same person would hold both legal and beneficial ownership) or both equitable, meaning for both to be equitable the LE wasn’t a LE per se, it was a benefit for life. The remainder was benefit to the remainder. If both equitable then the remainder becomes a remainder in A in FS.
O to A for life, remainder to A’s heirs. A has a LE, A’s heirs have a CR, if don’t apply the rule, O has a reversion. If apply Shelley’s rule, A gets FSA immediately.
THE DOCTRINE OF WORTHIER TITLE
1. An inter vivos conveyance of land (doesn’t apply wills)
2. to a person (doesn’t apply to conveyances)
3. with a Remainder or EI in persons identified as grantor’s own heirs
4. does not create a future interest in those heirs but creates a reversion in grantor.
Originally applied only to conveyances of land at common law. Later to personal property
If O conveyed to A for life, remainder to the heirs of O.
Applying the doctrine of worthier title, grantor created a reversion in FSA, not to his heirs.
O=reversion in FSA
A=LE
THE RULE AGAINST PERPETUITIES
A rule to further marketability and protect assets in the future
I don’t give a crap!
SYMPHONY SPACE, INC. V. PERGOLA PROPERTIES, INC.
669 N.E. 2d 799 (1996)
Hicks: If the rule against perpetuities applies, it applies not only to conveyances of land made in a will but also to option agreements where an option to purchase real estate may not vest within the life plus 21 years.
The majority in the United States applies the Uniform Statutory Rule Against Perpetuities. It is essentially a wait-and-see doctrine codified by statute. It says that any interest that actually does vest within 90 years from the date of a gift is good and any interest that still has not vested at that point is extinguished. So we don’t strike down gifts to classes anymore the way we did under the common law rule against perpetuities.
NATURE OF THE CASE: This was a dispute over whether options on commercial property were subject to the rule against perpetuities.
FACTS: Broadwest Realty Corporation owned a building in New York and had been unable to secure a permanent tenant for the building's theater which was 58% of the total building space. Symphony Space, Inc. (P) was a not-for-profit entity devoted to the arts. P had previously rented space from Broadwest for one-night engagements. Broadwest also owned two adjacent properties and had been operating its properties at a net loss.
In 1978, Broadwest sold the building to P for a below market price of $10,010 and leased back the income producing commercial property excluding the theater for $1 per year. Broadwest maintained liability for an existing mortgage of $243,000 as well as maintenance. As a condition of the sale, P for consideration of $10 granted to Broadwest an option to repurchase the entire building. This arrangement was accomplished in order for P to seek a property tax exemption for the entire property as they were a nonprofit. This was to reduce Broadwest's real estate taxes by $30,000 per year and permitted Broadwest to retain the rental property income which produced $140,000 per year.
A contract was executed. The option period specified in the contract allowed Broadwest to exercise its option at specified calendar years. The option agreement was unconditional and was not to be impaired in any way by Broadwest's performance or nonperformance, of any obligations to be performed under the lease. The option was to be a covenant running with the land. After P obtained a tax exemption, Broadwest sold its interest in the lease, option, mortgage, mortgage note and its ownership interest in the contiguous properties for $4.8 million to Pergola Properties (D), Swett, Casandium Limited, and Darenth Consultants as tenants in common.
Ds converted the buildings to co-ops and the values of the properties increased substantially. By August of 1988, the value has risen to $27 million but without the option they were worth $5.5 million. Due to P's alleged default on the mortgage note, defendant Swett served P notice that it was exercising the option on behalf of all Ds. P disputed that it was in default and sued for a declaratory judgment arguing that the option agreement violated the Rule Against Perpetuities. P's motion for summary judgment was granted; the open option violated the Rule. D's counterclaim for rescission of the agreements based on mutual mistake and that was dismissed. The appeals court agreed; the commercial option was subject to the Rule and rescission was inappropriate.
ISSUE: Does the Rule Against Perpetuities apply to commercial option contacts?
RULE OF LAW: The Rule Against Perpetuities applies to commercial option contacts.
Two ways to close a class:
1. Physiologically – occurs with the death of the person capable of closing the class.
2. Rule of convenience – class closes at the time any member of the class is entitled to demand possession of his or her share.
WEEK 9
CO-TENANCY
Common Law Co-tenancy
In practice never advise a client to engage in any sort of meaningful activity on property unilaterally, or de facto without having some written agreement about who can do what where and when for what compensation.
Any co-tenant is entitled to exclusive possession of the property if the other co-tenants want to give it to them. A co-tenant is entitled to keep any of the proceeds he or she generates from his or her own activities on that property but every co-tenant has the right to be let in to any section of the property. If there is any falling out between the co-tenants and you are trying to use the property, the other co-tenants can make your life a living hell.
Have your client pay a little money upfront for the assurance that they are going to be able to do whatever they want to do on the property. Historically this was seen on farmland – on sibling stays and the other leaves for the city. A few years later the land is worth a lot of money.
Lexis Outline:
Any tenant in common or joint tenant may end the co-tenancy by suing for partition; the court will grant partition automatically, with no need to show cause. The court will grant either partition in kind (physical division of the land) or partition by sale (division of proceeds from the judicial sale of the land). In addition, a cotenant can always end or sever the joint tenancy merely by conveying her interest to another person. For example, if A and B are joint tenants, and B conveys her interest to C, then A and C now have a tenancy in common, because the unities of time and title are missing.
Lexis Outline:
[A] Tenancy in Common
There are three basic types of concurrent estates: tenancy in common, joint tenancy, and tenancy by the entirety. In a tenancy in common, each co-owner holds an undivided fractional share in the entire parcel of land, and each is entitled to simultaneous possession and enjoyment of the whole parcel. Today any devise to two or more unmarried persons is presumed to create a tenancy in common (e.g., “to A and B”). A tenancy in common interest is freely transferable during the holder’s lifetime and at death.
Hicks: Each co-tenant owns a separate but undivided interest in the whole. If there are three co-tenants, each of whom are 1/3 tenants in common, it doesn’t mean that they each own a discreet 1/3 geographical strip of the property or even a discreet strip of the property worth 1/3 of the value, the each have a 1/3 interest in the value of the undivided whole. Each co-tenant has the right to possess the undivided whole, that is they even have the right to exclusive possession of the undivided whole if the other co-tenants will permit them to have it subject only to the right of every co-tenant to be let in to the co-tenancy property.
Co-tenancy shares in properties in general, with the exception of the tenancy by the entireties, can unilaterally be sold or gifted during your life. Your share is heritable, meaning at your death, if you have a will, your share will pass through your will. If you die intestate it will pass to your heirs at law. This is the default tenancy in the United States. If the parties intend to create one of the other co-tenancies but do it incorrectly, this is what they have created. In addition, this is the only way you can take property as a co-tenant through intestate succession.
[B] Joint Tenancy with Right of Survivorship
The joint tenancy differs from the tenancy in common in that a joint tenant has a right of survivorship. If O conveys land “to A and B as joint tenants, with right of survivorship,” and A dies first, then B holds fee simple absolute. English common law required four unities to create and continue a joint tenancy. The joint tenants had to acquire title at the same time; they had to acquire title by the same deed or will; each interest had to be identical in size; and each tenant had to have an equal right to possession. Today some states have eroded these requirements. A joint tenancy interest is inalienable.
Hicks: In order to create a joint tenancy with right of survivorship, the conveyance must read: To A and B as joint tenants with right of survivorship. You must use that language. The common law says: as joint tenants – that’s not enough, you’ve created only tenancy in common.
Modern Rule
We look at the intent of the grantor and the folks who took the conveyance. “To A and B as joint tenants” would normally be enough. It is a red flag though. The first question you ask yourself is, is this an old common law jurisdiction (it will be only a tenancy in common) or is this a modern jurisdiction where this is enough to create a joint tenancy with right of survivorship?
What a right of survivorship amongst the tenants means is when one joint tenant with right of survivorship dies there is nothing that passes through their estate. Their interest is extinguished at the time of death and the surviving co-tenants are simply relieved of the obligation of the deceased joint tenant’s interest. If you die, your estate doesn’t have anything coming to it from that property. The joint tenancy with right of survivorship represents the ultimate gamble – survival. The last tenant standing gets it all in FSA. Other than that it operates like a tenancy in common – each co-tenant is entitled to exclusive possession of the undivided whole subject only to the right of every joint tenant to be let in. This was the default co-tenancy in England, not in the United States.
To create and maintain a joint tenancy with right of survivorship we must have at common law the presence of the four unities: TIPP
1. Time. The interest of each joint tenant had to have been vested at the same time
2. Title. All joint tenants had to acquire title by the same instrument or by joint adverse possession.
3. Interest. At common law, every joint tenant had to have equal and undivided shares in the whole. (2 joint tenants each had ½, 3 1/3, 4 1/4, etc.) and identical interests measured by duration (no interruption).
4. Possession. Each joint tenant has right to exclusive possession of the undivided whole.
Modern Rule
Today we will permit joint tenants to have unequally sized shares (1 person puts up 50% of the money, another 30%, and another 20%) What that means today is joint tenancy with right of survivorship where in life one of the joint tenants has a 50% share in the property such that if they choose to sell or gift their share during his or her lifetime, the joint tenant can convey away 50%, but if they hold until death his or her share is subject to the full right of survivorship.
Suppose you have the three co-tenants, A, B, and C. A conveys away A’s share (50% share) to his son D. That severs the unities between the other joint tenants. D is now a co-tenant with B and C but D is not in a joint tenancy with right of survivorship with B and C. D is now a 50% tenant in common with B and C, who are collectively 50% tenants in common with D but they (B and C) are still joint tenants with right of survivorship between the two of them. If C dies, nothing passes through C’s estate but B now is the 50% tenant in common with D. The two of them are tenants in common each having 50% shares of the property.
Any time we sever unities, that will end the joint tenancy with right of survivorship with regard to the person or share who severs the unity. You do not need permission to sell your share.
[C] Tenancy by the Entirety TIPP+M
The tenancy by the entirety—now abolished in many states—can only be created in a husband and wife (e.g., “to A and B, as tenants by the entirety”). It requires the same four unities as the joint tenancy, plus the fifth unity of marriage. It can be terminated only by divorce, the death of one spouse, or mutual agreement of the spouses. This estate is controversial because in some states creditors of one spouse cannot levy on property held in tenancy by the entirety. See, e.g., Sawado v. Endo, 561 P.2d 1291 (Haw. 1977).
Hicks: This is like a joint tenancy with right of survivorship in that entireties co-tenants do have full survivorship right as to their shares but with tenancy by the entireties there are two factors that must be in place at the creation of the interest in order to create a tenancy by the entireties
1. It is only available to persons who are married at the time they take and must specifically take as tenants by the entireties. Just because you are married when you acquire property does not make you tenants by the entireties. You must be married and the conveyance must provide that you take as tenants by the entireties. To A and B, a married couple, as tenants by the entireties. Not every jurisdiction recognizes tenants by the entireties.
2. Where it is recognized, it has an interesting attribute that no other co-tenancy has: Neither entireties co-tenant can alienate their share without the consent and signature of the other. In other words, neither co-tenant by the entireties can alienate any or all of their share without the express written consent of their entireties co-tenant. In the event of divorce the default rule is immediately upon the entry of decree of divorce, an entireties co-tenancy becomes a tenancy in common, but during the divorce proceedings or pendency of the marriage, the entireties of co-tenants cannot be alienated by either co-tenant. In a pure entireties co-tenancy such as Hawaii, neither co-tenant can even encumber the entireties property with a lien (judgment or creditor).
RIDDLE V. HARMON
102 Cal. App. 3d 524, 162 Cal. Rptr. 530 (1980)
“Handing oneself a dirt clod is ungainly.”
Hicks: A joint tenancy with right of survivorship getting cold feet about the survivorship issue. This comes up in second marriages where each spouse has children from the first marriage. The two spouses may have taken property as joint tenants with right of survivorship and upon the death of one spouse, the other spouse gets everything and the decedent’s children get nothing. One of the spouses decides to sever the unity.
At common law if you wanted create or break a joint tenancy with right of survivorship in property you already owned, you had to use a “straw man.”
Modern rule
California passed a statute that if you wanted to create a joint tenancy with right of survivorship, forget about the straw man, all you have to do is convey A to A and B as joint tenants with right of survivorship. The idea is that this conveyance would not really have severed the unities because A and B would not have take their title at the same time. The modern rule view: the duration of their interest as joint tenancy with right of survivorship is still identical so we’ll fudge the unities a bit.
At common law if wanted to break your joint tenancy with right of survivorship with someone else but not convey away your share to another person you had to convey from A as joint tenancy with right of survivorship to a straw man who then would convey back as: to A as tenant in common with B. You had to use a straw man to break a joint tenancy with right of survivorship. The modern rule (and question presented in this case): Should we permit the unilateral breaking of a joint tenancy with right of survivorship? The modern rule says you can convey to A as joint tenancy with right of survivorship with B, to A as tenant in common with B.
Notes: A system which permits the unilateral severance without notice does create the opportunity for fraud.
*Problems may arise when the title is in joint tenancy with right of survivorship but the will conveys property interests to children.
Some jurisdictions require that a deed that severs be recorded or at the very least be filed with an attorney so there is someone who can attest to the genuineness of the deed.
If there are two tenants with right of survivorship and one severs, they both become tenants in common.
NATURE OF THE CASE: This was an appeal from a judgment upholding joint tenancy and quieting title.
FACTS: Mr. and Mrs. Riddle purchased real property taking title as joint tenants. Several months before her death, Mrs. Riddle (D) retained an attorney to plan her estate. Upon learning that the property would pass to her husband at her death, D conveyed her joint tenancy interest from herself as joint tenant to herself as tenant in common. The attorney prepared the deed and on the face of the deed it told its purpose was to terminate the joint tenancies. She did not want the property to pass to her husband when she died; she wanted to pass it on through her will. The grant deed and D's will were executed on December 8, 1975 and D died 20 days later. The trial court refused to sanction her plan to sever the joint tenancy and quieted title to her husband. Harmon (D) was the executrix of the wife's estate, and he appealed the decision.
ISSUE: Is it possible to sever a joint tenancy by conveying property to oneself without an intermediary?
RULE OF LAW: It is possible to sever a joint tenancy by conveying property to oneself without an intermediary (straw man).
HARMS V. SPRAGUE
105 Ill. 2d 215, 473 N.E.2d 930 (1984)
Title Theory of Mortgage
At common law, the old theory of less than all of the joint tenants with right of survivorship pledging their interest as security was: if less than all joint tenants with right of survivorship gave a mortgage on their share, that operated to sever the joint tenancy so long as the mortgage remained on the property. The giving of the mortgage was an equitable conveyance of title. Under this theory, the giving of the mortgage was an equitable conveyance of title.
Modern Rule
The Lien Theory of Mortgage
It more accurately reflects what giving a mortgage is all about. When you give a mortgage you are giving a lien or a security interest against the property. The mortgage is only a lien and does not sever the joint tenancy unless the loan secured by the mortgage goes into default and the mortgagee forecloses – that is what severs the right of survivorship. At the foreclosure sale the lender is going to sell the mortgagor’s interest in the property.
This case involves the surviving brother and joint tenancy with right of survivorship of the deceased joint tenant. The survivor, William, is going against Sprague, the best friend of his late brother John, who was also the devisee of all of John’s property.
Issues:
1. Is a joint tenancy severed when less than all of the joint tenants’ mortgages their interests in the property? In other words, if one of the joint tenants mortgages his or her interest, does that affect severance of his or her joint tenancy?
2. What happens when the mortgaging tenant dies? Does a mortgage on a joint tenant's interest survive the mortgaging joint tenant?
Banks don’t like it but it is perfectly legal for one joint tenant to mortgage their share of joint tenancy property. That is what John did here. Sprague is arguing that the mere giving of the mortgage by John severed the joint tenancy with John’s brother William.
Why is Sprague so exited for the court to apply title theory of mortgage and say that the mere giving of the mortgage severed the joint tenancy? He would own half of the property.
The court said that Illinois does not recognize the title theory of mortgage but only the lien theory of mortgage. It’s a jurisdiction that says that the mere giving of a mortgage by one joint tenant does not sever the joint tenancy unless there has been a default and foreclosure on the mortgage. It is the foreclosure in a lien theory of mortgage jurisdiction that affects the severance of the joint tenancy with right of survivorship.
Mortgage: Not a loan but merely a security instrument – a lien on property that secures repayment. The actual loan agreement is spelled out in the promissory note (loan agreement). That has all the terms of the loan, i.e. the amount borrowed, interest rate, repayment schedule, fees, costs, terms of default, etc. The mortgage secures the payment of the loan only as a lien and puts the world on notice that the property is subject to foreclosure if the loan obligation is not satisfied. A lien is a superior interest.
NATURE OF THE CASE: This was an appeal of a reversal of a court order quieting title.
FACTS: Harms (P) and his brother, John, were joint tenants with full right of survivorship in property on June 26, 1973. Sprague (D) wanted to purchase other property from the Simmons’s (D1) for $25,000 and tendered $18,000 in cash and signed a promissory note for $7,000. D asked his friend John to co-sign the note and give a mortgage on John's interest in the joint tenancy property. John agreed and the note was executed on June 12, 1981. The note stated that the principal was to be paid from the proceeds of the sale of John's interest in the joint tenancy property but in any event no later than six months from the date the note was signed. John executed a mortgage in favor of D1 on his undivided half-interest in the joint tenancy property.
John mortgaged his interest to Carl and Mary Simmons in order to secure a loan made to them to John’s friend, Charles Sprague. John dies while the loan was unpaid.
The Illinois Supreme Court held that (1) there was no severance, and (2) William owned the farm entirely free of the mortgage to Carl and Mary. The mortgage burdened only John’s interest and that because John’s interest died with him, leaving only the previously unencumbered interest of William as the surviving title, the mortgage had died with John.
P was unaware of the mortgage. John died on December 10, 1981. D was the devisee of his entire estate. The mortgage given to D1 was recorded on December 29, 1981. D was the devisee of John's entire estate through his will. P sued to quiet title and for a declaratory judgment. The trial court held that the mortgage severed the joint tenancy and that the mortgage survived the death of John; it was a lien against the undivided half interest in the property, which passed to D through John's will. The appellate court reversed, holding that the mortgage did not sever the joint tenancy, so the property was owned entirely by the surviving joint tenant with no mortgage lien. D appealed.
RULE OF LAW: A mortgage on a joint tenant's interest does not survive the mortgagor. A joint tenancy is not severed when one joint tenant mortgages the property.
DECISION: The mortgage existed on John's interest in the property and thus did not sever the joint tenancy. The interest of John was completely extinguished upon John's death. Therefore, the mortgage of the property was also extinguished. Judgment affirmed.
LEGAL ANALYSIS: A mortgage may be seen as a transfer of title or a mere encumbrance. Most jurisdictions follow the lien theory, which is what this jurisdiction adopted in the Kling case. This is a matter of public policy on who should bear the risk of loss. D took a chance that John would not die first and D lost. This is rather twisted logic and does not promote prior case law. If a party can severe the joint tenancy virtually at will then the survivor should take the dying person's share of the property subject to the mortgage on that half of the property. There is no public policy behind making D the fall guy for the entire risk of loss.
JOINT BANK ACCOUNTS
A joint bank account is a joint tenancy. When you open a bank account, the bank’s agreement is going to reflect that you have opened a true joint tenancy with right of survivorship at least in regard to the bank’s relationship to you. What that means is, if you open an account in your name and in the name of your nephew (in case you die he gets the money), the bank is not going to have any liability to you if your nephew finds out his name is on the account and he drains the account of your life savings. You’ll have an action against your nephew, but not against the bank. The bank’s form is going to provide that this is a true joint tenancy; therefore, giving the right to exclusive possession to anyone who is on the account.
1. Joint tenancy with right of survivorship. (See above)
If your use and intent of the account reflects something different of a true joint tenancy despite what the bank form says, then we will countenance at least three other possibilities:
2. A survivorship only account. If the account is really used only by the person who put the money in and signed on when they opened it, then we will say that in life, only that person has right to the money. That means that other people on the account do not have the right to take the money out for the lifetime of the person who opened it and if they do the account opener will have an action against them* to get it back. But in death it is a true survivorship account – the other people on the account do get survivorship rights.
3. Convenience only account. Someone who travels a lot or someone who is elderly will put his or her name and the name of someone who will handle their business affairs. The other person has the right to write checks, make withdrawals, etc., but only for the benefit and convenience of the other person who opened the account. No survivorship rights at death. Need to have intent clear in writing filed with your attorney.
4. Uniform Probate Code (UPC) default possibility: This tends to be the default or assumption. In life each person is entitled to account proceeds in the percentage they contributed but full survivorship rights in death.
These accounts depend upon the intent at the time the account was created and the actual way in which the account was used.
Partition in Action
The court will order that the joint tenancy or tenancy in common will be wrapped up and each co-tenant will be compensated for his or her share in one of two ways:
1. Partition in kind. Historically we preferred this type of partition. Each co-tenant gets a physical section of the property corresponding in value to his or her share. Some sections may be more valuable that others so it may not be divided equally as 1/3, 1/3, 1/3., etc. Example: if the property is mountainous, one person may end up getting 60% of the property to compensate them. We in this country have tremendous respect for property ownership. This does not meet the needs of today because of zoning as the partition may be too small for a building, apartment complex, etc.
Modern Rule
2. Partitioned by sale. This way we are sure we can get everybody the highest percentage of FMV for his or her share. We sell the entire property and everybody gets 1/3 of the purchase price. It is the neatest and cleanest way to do it but it can be a bitter pill to swallow with families that have had land for many years.
Disenfranchisement
The people living on the family farm may be forced off by other family members who have an interest in the land because they want to sell the land to BMW for a new factory. Should they be allowed to stay when there are many others who have an interest as well?
The reason why partition by sale is favored when there are lots of owners is because the sum is greater than the parts. You are not going to get as much selling just your share as you would get if the entire property is sold all at once because anybody who buys your share is buying your co-tenants as their effective partners in the property and that’s a problem. You have no idea whether they are going to be reasonable and agree to do the things you want to do. One co-tenant can cause tremendous trouble for the other co-tenants when that a co-tenant is using the property to generate income as we see in the next case.
DELFINO V. VEALENCIS
181 Conn. 533, 436 A.2d 27 (1980)
NATURE OF THE CASE: This was an appeal from judicially ordered partition sale.
FACTS: The Delfinos (P) and Vealencis' (D) owned land as tenants in common. The property was 20.5 acres and P owned 99/144 of the property with D owning 45/144. D occupied the dwelling and a portion of land from which she operates a rubbish and garbage removal business (grandfathered in as a prior non-conforming use).
P wanted a partition by sale because they wanted to develop and subdivide the property into 45 residential building lots. P also wanted the proceeds of the sale divided according to their respective interests. P claimed these lots would be hindered if D was allowed to run the garbage business on part of the property. D moved for a judgment in kind. The trial court concluded that a partition in kind could not be had without material injury to the respective rights of the parties. The trial court ordered a partition by sale and that the proceeds be paid into the court for distribution to the parties. D appealed, claiming that the court erred in ruling that a partition in kind was impossible.
ISSUE: Must a court consider the interests of all the tenants in common before it can order a partition sale of tenant in common property?
RULE OF LAW: A court must consider the interests of all the tenants in common before it can order a partition sale of tenant in common property.
HOLDING AND DECISION: (Healey, J.) Must a court consider the interests of all the tenants in common before it can order a partition sale of tenant in common property? Because our law presumes that a partition in kind dissolution is in the best interests of the parties, the burden is on the party requesting a partition sale to demonstrate that such a sale would better promote the owners' interests.
It is clear that a partition by sale should be ordered only when two conditions are satisfied; (1) The physical attributes of the land are such that a partition in kind is impracticable or inequitable; and (2) The interests of the owners would be better promoted by a partition sale. The trial court considered the economic gain of just one of the parties. D was living on the property and had been running her business for many years; D has had actual and exclusive possession of a portion of the property for a number of years. It would be unfair to force her to give up her home and livelihood in order to sell the property for the economic benefit of P. A partition in kind was the fair ruling, and was not impractical because of the relative ease by which it may be accomplished and the limited number of competing interests. The speculation of what might happen at the zoning board and the possible influences a garbage dump would have on future residential development are not relevant. Judgment is set aside and case is remanded.
LEGAL ANALYSIS: The parties were tenants in common. The standard should promote the highest and best usage of the property and should also involve the city when zoning issues are present. A party is entitled to use his property in any manner that is legal. What is legal will be determined by the city and the city should have had a say in determining the best way to split the property up because there is no doubt that one of these parties will go to the city to have their property rezoned. In short, the court really has not protected the interests of the property owners. In all likelihood, it just delayed the inevitable and gave a false sense of security and wasted a lot of time by not solving the entire problem. The standard should allow the city or zoning authority to be interpled if zoning is at issue.
Payment of Rent by co-tenants, Ouster, and Adverse Possession
When one co-tenant is in exclusive possession of the property – that alone, by itself, is never enough to begin the running of the SOL of adverse possession because every co-tenant has a right to exclusive possession subject only to the right of the other co-tenants to be let in and every co-tenant holding the property is presumed to be doing so for the benefit of all the co-tenants.
SPILLER V. MACKERETH
334 So.2d 859 (Ala. 1976)
Hicks:
Issue: Is the tenant, who is out of possession here, entitled to rent from the tenant in possession where there has not been a demand for rent or for the tenant in possession to let the tenant out of possession into the property?
Rule: A co-tenant who is using the property for their own personal benefit, i.e., farming, running a business, etc., is entitled to use all of the property if he or she wishes, subject to the obligation of letting the other co-tenant in, and he or she can keep all the proceeds they generate by their own efforts. You can give up your right to enter by payment of the other co-tenant by a separate agreement. The co-tenant in possession will have to compensate the other co-tenant(s) if he or she rents out the property but not for fruits of their own efforts.
Ouster
If a co-tenant has committed an ouster, the other co-tenant would be entitled to rent. There are two ways to show if there has been an ouster:
1. Show the start of the running of the SOL for adverse possession. You do that by showing one co-tenant is asserting either expressly or implicitly exclusive ownership.
For example:
- Rent the land without accounting to your co-tenants for their share;
- Hunt all the game off the property, clear-cut all timber, etc.;
- If you pay all taxes yourself without requesting contribution from co-tenants that also is an assertion of sole ownership that begins the running of the SOL for adverse possession;
- Acting like the property is yours, i.e., making public statements asserting that you are sole owner of the property.
2. Having liability of the occupying co-tenant for rent to non-occupying co-tenants. That you have refused to let the co-tenants in – the occupying co-tenant has refused to let other co-tenants in and that’s regardless of whether the occupying co-tenant claims sole ownership. This is a pure physical ouster.
NATURE OF THE CASE: This was an appeal from a judgment awarding damages for back rent to a non-possessing cotenant.
FACTS: Mackereth (P) and Spiller (D) owned a building as tenants in common in downtown Tuscaloosa. D began using the building as a warehouse after a lessee vacated the premises. P wrote D a letter demanding that D either vacate one-half of the building or pay one-half of the rental value. D refused. P sued, and the trial court awarded her $2,100 in back rent. D appealed. D changed the locks to protect the property. P never asked for a key nor did D refuse to let her in. It’s not enough to entitle P to rent.
ISSUE: Is a cotenant in possession liable to other cotenants for the value of his use of the property if he had not excluded other cotenants?
RULE OF LAW: Unless an occupying cotenant bars another cotenant from entry upon the owned land, that occupying cotenant is not liable to the non-occupying cotenant for rent.
HOLDING AND DECISION: (Jones, J.) Is a cotenant in possession liable to other cotenants for the value of his use of the property if he had not excluded other cotenants? No. In the absence of an agreement to pay rent or an ouster of a cotenant, a cotenant in possession is not liable to his cotenants for the value of his use and occupation of the property. Under these facts there was no agreement for rent so there must then be a showing of ouster before D is required to pay rent to P.
Ouster is a conclusory word, which is used loosely in co-tenancy cases to describe two distinct fact situations. The two fact situations are the beginning of the running of the statute of limitations for adverse possession and the liability of an occupying cotenant for the rent to other cotenants. Adverse possession requires a finding that the possession cotenant asserted complete ownership of the land to support a conclusion of ouster. The essence of this claim is a claim of absolute ownership and a denial of the co-tenancy relationship by the occupying cotenant. As for liability for rent, a claim of absolute ownership is not essential.
Rent may become due when the occupying cotenant refuses a demand of the other cotenants to be allowed into use and enjoyment of the land, regardless of the claim of absolute ownership. Under the present facts we are concerned with the claim for rent. D has acknowledged the co-tenancy by filing a bill for partition.
To prove ouster, P's attorney relies upon the November 15th letter. However, that letter was not a demand for equal use and enjoyment as it only demanded that D either vacate or pay rent. There is a minority view, which establishes liability for rents on a continued occupancy after a demand to vacate or pay rent is issued. However, we believe in the majority view in that tenants in common as seized per my et per tout and thus each has an equal right to occupy. Unless one denies the other the right to enter or agrees to pay rent, nothing can be claimed from a mere occupation of the property. Simply requesting the occupying cotenant to vacate is not sufficient to prove ouster and is not a denial of his cotenants right to enter. Both parties had the right to use the entire property. Nor is the use of new locks under these circumstances sufficient to amount to an ouster.
There is no evidence that D was attempting to do anything other than protect the merchandise he stored in the building. D had to acquire new locks to accomplish that goal and there is no evidence that P ever requested keys to the new locks or was ever prevented from entering the building because of the new locks. Judgment reversed.
LEGAL ANALYSIS: Unless there has been an ouster, the cotenant in possession does not have to pay a proportionate share of the rental value to the cotenants out of possession (under majority law).
SWARTZBAUGH V. SAMPSON
11 Cal. App. 2d 451, 54 P.2d 73 (1936)
Any co-tenant does have the right unilaterally to lease up to his or her proportionate share of the property. If you are a 1/3 co-tenant in common or joint tenant, you can lease physically up to 1/3 of the property unilaterally but you take rent from tenant and you are obligated to account to your co-tenants for their proportionate share. If you rent out your share, you must give 1/3 of the rent to one co-tenant and 1/3 to the other co-tenant.
California did not and does not recognize tenancy by the entireties.
Issue: is there a severance of the joint tenancy by Mr. Swartzbaugh leasing unilaterally a portion of the property.
The court said no, that was the English rule. In the United States a leasing of a portion of the property by less than all the co-tenants does not affect any severance of the joint tenancy. The court then talked about incidents of joint tenancies generally. Each joint tenant has an equal right to the possession of the whole. A joint tenant out of possession cannot recover exclusive possession from a co-tenant, you only have the right to be let in. A joint tenant cannot get rent from the co-tenant merely from the co-tenant’s occupancy or even a share of the co-tenant’s profits running their own business or use of the property.
A joint tenant cannot commit any act to the prejudice of his or her co-tenant meaning in a lease setting, you are not allowed to lease a greater percentage of the property than you have. Also, a joint tenant does have the right to compel for an accounting for your percentage of the rent actually received by your co-tenant when your co-tenant leases unilaterally some portion up to their share of the property.
Your co-tenant leasing of the property has no impact or prejudice one your rights as co-tenant with regard to the property. Mrs. Swartzbaugh is not bound by the terms of the lease. She cannot cancel the lease but she is entitled to an accounting from her husband.
When your cotenant unilaterally leases their share of co-tenancy property you have two choices:
1. Ask for an accounting to receive your proportionate share of the rental from the leasing co-tenant;
Or, the alternative:
2. You can force on ouster. If you’re ousted now you’re entitled to your proportionate share of the FMV rent and it comes from the lessee. We permit that because co-tenants may disagree. A co-tenant may lease out his or her share below FMV to a relative; therefore, we protect co-tenants from fraud. You never have the right to demand exclusive possession but you always have the right to be let in.
NATURE OF THE CASE: This was an action to cancel a lease made by a co-joint tenant with a third party.
FACTS: Mr. and Mrs. Swartzbaugh owned land as joint tenants with right of survivorship. The 60-acre land was used to grow walnuts. Sampson (D) wanted to lease a part of the land for a boxing pavilion. Mrs. Swartzbaugh (P) objected. Mr. Swartzbaugh executed two leases on the property to D, neither of which P signed. D was advised that P refused to sign. D then removed the walnut trees from the leased premises and then erected a pavilion and placed other improvements on the property and used the property for a boxing pavilion. P sued to cancel the lease. D was in possession of all of the property under the two leases signed by P's husband. At trial, P testified that she had gotten no part of the monthly rental ($15 per month, which she regarded as too little considering the improvements were in excess of $10,000). She claimed that the lease was null and void because as a joint tenant she did not participate in the transaction. P lost. P appealed.
ISSUE: Can one joint tenant who has not joined in a lease executed by another cotenant and a third party maintain an action to cancel the lease when the third party is in exclusive possession of all of the property under the lease to the exclusion of the plaintiff?
RULE OF LAW: One joint tenant who has not joined in a lease executed by another cotenant and a third party cannot maintain an action to cancel the lease when the third party is in exclusive possession of all of the property under the lease to the exclusion of the plaintiff.
WEEK 10
CONCURRENT INTERESTS CONTINUED
Options to non-leasing co-tenants:
1. Accept from the leasing co-tenant their proportionate share of actual rent received;
OR as an alternative:
2. Force an ouster by lessee and then collect their proportionate share of the fair market value rent from lessee.
When only one co-tenant or less than all co-tenants lease a share of the property, they are putting the lessee in the same position with regard to the non-leasing co-tenants as the co-tenants themselves were. That means that every co-tenant has the right to enter any portion of the co-tenancy property.
If you are ousted you are entitled to rent. Not a good idea to do business on common law in your jurisdiction on co-tenancy. You should use an express written agreement that spells out the obligations of the parties.
EXPENDITURES
Three different categories of expenses and/or three different ways we divide up responsibility for these expenditures
1. Expenditures necessary for the legal maintenance of title of the property. Non-payment of these expenditures will result in loss of the property. They are:
Taxes, sewer and other public assessments – things the government charges. Non-payment will result in a sale to the highest bidder of the property. Mortgage loan payments – if you don’t pay, property could be sold.
Rule: The co-tenant who makes these payments on behalf of the property is entitled to immediate contribution from all the co-tenants. Do not have to wait for contribution.
2. Necessary repairs. The co-tenant who makes the payment is entitled to receive from the other co-tenants each co-tenants’ proportionate share of the reasonable costs of the repair. There is no right to immediate contribution. In this case, the paying co-tenant is entitled to recovery anytime there is an action for accounting.
An action for accounting is a legal action – you bring suit against your co-tenants independently and ask the court to decide how much everybody to pay as long as there has not been any change in the co-tenant structure. Every jurisdiction permits periodic actions for accounting (typically once a year but it depends on the jurisdiction). Here’s how it works: suppose the co-tenant in exclusive possession (she’s living in the house) concludes that the house needs a new roof. She can’t wait for the other co-tenants to pony up and she spends to $10K for a new roof. She is not entitled to seek immediate contribution; she has to wait for a periodic accounting OR she is entitled to an action of accounting when:
(a) Any co-tenant alienates his or her share (gift, sale, or death); or
(b) Anytime there is a partition.
Otherwise, there is no right to immediate contribution for necessary repairs. The rule says; reasonable costs – if the co-tenant paid too much, the co-tenant is responsible for the excess that goes beyond the reasonable costs of the repair. That prevents co-tenants entering into sucker deals or fraud. But for necessary repairs you do get the reasonable costs.
3. Improvements, i.e., building a new structure, renovation, swimming pool, etc.
Rule: The improving co-tenant is entitled to the entire amount by which the improvement changed the property’s FMV. An above-ground swimming pool usually adds nothing to the value and may depress the value. The improving co-tenant can only receive (or pay) compensation for the improvement in an action for accounting and generally only in those actions for accounting that accompany sale of share or partition. We don’t give compensation in a periodic action for accounting for an improvement. If the improvement is made by the occupying co-tenant, why should the others pay anything now? If the repair was not necessary, she may get nothing at all. Improvements are almost always optional – no one is holding a gun to their head.
Partition in Kind
If there is a partition in kind, courts will bend-over backwards to give a co-tenant who has made an improvement that section of the physical property that contains the improvement. Suppose one of the co-tenants has built a barn and a house on farmland. We will take three shares equal in economic value and the improving co-tenant will get the share with the improvements on it. That way we don’t have to worry about how much the value of the land increased or decreased. The judge evaluated the property as raw land, gave everybody their 1/3 share but the section which happened to include the improvements will go to the improving co-tenant in a partition in kind.
Partition by Sale
The court will say, what is the property worth without the improvement and what is it worth with the improvement and give the improving co-tenant the difference right off the top. Example: In addition to the roof, the occupying co-tenant also put in an extension for a gourmet kitchen. The value is derived by bringing in experts. The property without the new kitchen is worth $300,000 but the property with the improvement is worth $330,000. The other expense that has yet gone uncompensated is we add $10,000 for the roof, but the reasonable cost was $9,000. A court would say, sale price of this property was $330,000 but only one of the co-tenants made the improvement that increased the value.
That $30,000 goes right off the top
$330,000
-300,000
_________
$30,000
Imp CoT CoT2 CoT3
30,000 100,000 100,000
-3,000 (roof) -3,000 (roof)
100,000 ______ ______
+3,000 97,000 97,000
+3,000
________
$136,000
Tenancy by the Entireties
SAWADA V. ENDO
57 Hawaii 608, 561 P.2d 1291 (1977)
NATURE OF THE CASE: This was an action to set aside conveyance of real property.
FACTS: Endo (D) had no liability insurance. He severely injured Helen and Masako Sawada (P) in an accident. D's only asset was land that he held as a tenant by the entirety with his wife. Soon after P filed suit for damages from the accident, D and his wife conveyed this land to his sons for no consideration. Both sons were aware that their father had been involved in an accident and that he had carried no liability insurance. However, D continued to live on the land even though he had reserved no life interest in it. Although P received judgment from D for $8,846.46 and $16,199.28, they had no way to recover it. D's wife died on January 29, 1971. P was frustrated in their recovery from D's personal property. P then sued to set aside the conveyance to the sons for fraud. D claimed that the conveyance was not a fraud; the separate creditor of either spouse can't reach property held as tenants by the entirety. The trial court refused to set aside the conveyance and P appealed.
ISSUE: Is the interest of one spouse in real property held in tenancy by the entireties subject to levy and execution by individual creditors?
RULE OF LAW: The interest of one spouse in real property held in tenancy by the entireties is not subject to levy and execution by individual creditors.
HOLDING AND DECISION: (Menor, J.) Is the interest of one spouse in real property held in tenancy by the entireties subject to levy and execution by individual creditors? No. Under the Married Women's Property Acts, the interest of one spouse in real property held in tenancy by the entireties is not subject to levy and execution by individual creditors during the joint lives of the spouses. This state has always recognized that entirety by tenancies is a distinct estate. The tenancy by the entirety is predicated upon the legal unity of husband and wife, and they hold the estate in single ownership. This estate can only be created by a married couple and thus can only be destroyed by the actions of a married couple. They do not take by moieties, but both and each are seized by the whole estate. The indivisibility of the estate, except by the joint action of the spouses is an indispensable feature of the tenancy by the entirety. Tenancy by entirety cannot be entered into to defraud creditors and there is nothing to prevent a creditor from insisting that a property held as such be subject to levy before extending credit. We are not persuaded by the argument that it would be unfair to the creditors of either spouse to hold that the estate by the entirety may not, without the consent of both spouses be levied upon for the separate debt of either spouse. If the tenancy already exists, any creditor has notice of this status and thus cannot complain. Public policy favors family unity and peace. To allow a third party to become a joint tenant with a couple in their marital home would hinder family peace and unity and severely cripple the use of that home for family purposes. The conveyance from P to their sons was not a fraud, because P was not able to attach the property in the first instance. Affirmed
DISSENT: (Kidwell, J.) The majority misconstrues the Married Woman's Act. It held that the effect of the Act was to equalize the positions of the spouses by taking the husband's common law right to transfer his interest rather than by elevating the wife's right of alienation to that of her husband's. I disagree. The court should have allowed creditors of either spouse to reach their right of survivorship. The Married Women's Act states that there is equality between the spouses and it follows that if the wife takes equal rights with the husband in the estate, she must take equal disabilities. The restriction upon the freedom of the spouses to deal independently with their respective interests is both illogical and unnecessarily at odds with present policy trends.
LEGAL ANALYSIS: A judgment creditor should be allowed to execute upon the separate rights of survivorship. Thus they should have been able to get to D's share of the land but not the part that P owned. The dissent has the better view particularly when the facts are that the home is no longer a family home because the wife is dead. This was a fraud upon the court and if there was evidence that Ds were transferring the property to the sons for no consideration in order to avoid the judgment, the protection of the Act should be forfeited or at least stayed until it is determined who the survivor is.
Hicks:
Before this judgment can come down, Mr. Endo and his wife convey their entireties tenancy property to their son as a gift. The Sawadas go bonkers over this. The plaintiffs argue that the transfer is fraudulent by preventing them from attaching (putting a lien on it) the property.
Fraudulent Transfer
The Sawada’s argument: If the Sawadas could legitimately attach this property if the Endos still owned it and the Endos new the judgment was coming, then legitimately a court could order that the Sawadas affectively could attach this property. The court could say, we strike down the conveyance to the son, that was simply a fraud, to prevent these folks who had a legitimate claim against the Endos from getting at the one asset the Endos had that could satisfy this claim.
This is analogous to making a transfer within 30 months of a bankruptcy. The court will pull those assets back into the estate and allow the creditors preference. This is why very few people will do business with people or businesses on the edge of declaring bankruptcy.
If you transfer away property one step ahead of a judgment, the court can treat it as a fraud and recapture the assets and allow creditors to put a lien on the assets.
There are four versions of the tenancy by the entireties. The court here chose the most restrictive view. The court sided with those states that follow the Married Woman’s Property Act rule – the interest of a husband or a wife in an entireties tenancy state is not subject to the creditors of either individual during the joint lives of the spouse.
MWPA
As a practical matter, the Sawadas could never attach the interest of just Mr. Endo in the entireties tenancy property so long as Mrs. Endo was also alive – they lose. The court is not concerned about whether this holding is unfair to the creditors because the whole rationale of the MWPA is that neither spouse can encumber his or her interest in an entireties tenancy property during the joint lives. We don’t want the property that is the family home (mandatory for entireties property) subject to the creditors of just one, in effect, replacing the interest of the family ahead of the interest of the creditors. Courts don’t worry themselves because creditors are big boys and girls. They ought to know better to extend credit to anyone based upon the hope that they will get that person’s share of an entireties tenancy property without the signature and consent to risking the property of the other spouse as well.
What the court has done is equate a Debt Creditor to a Tort Judgment Creditor – a contract debt creditor with a tort judgment creditor. They didn’t ask Mr. Endo to injure them and yet the court treats that judgment in the same was it would a business that foolishly extends credit to just one entireties tenant based upon the one interest in the property. In the eyes of this court, the family is not only more important than business creditors but even tort judgment creditors as well.
LAND TRANSACTION
Enter into a separate agreement with your realtor so they are exclusively your agent.
Real estate agents want elaborate agreements signed by the prospective buyer because of the Statute of Frauds. The agent then has an enforceable agreement.
Contracts for the sale of land are subject to the Statute of Frauds:
1. Written memorandum;
2. The memorandum must describe the essential terms of the transaction contract i.e. description of the property, price or a method of calculating price. FMV is not a method for calculating price. FMV as determined not later than Aug. 1, 2007 by certified real estate appraiser is a method for calculating price.
3. The memorandum must be signed by the party to be bound. That means, who’s trying to enforce the agreement? If only the seller has signed the memorandum, than only the buyer can enforce that memorandum under the statute of frauds. Conversely, if only the buyer has signed the memorandum than only the seller can enforce it under the SOF. It depends upon who is trying to enforce the agreement. You can only enforce the agreement if the other party has signed it. It meets the SOF if that agreement has been signed by the party other than the party seeking to enforce the agreement.
Policy: to prevent fraud but also contracts for the sale of land properly executed under the SOF carry with them the ability to get specific performance meaning in addition to any incidental and consequential damages, an order from the court that the buyer shall buy and the seller shall sell according to the terms of the agreement.
Two exceptions to the requirement of a memorandum that satisfies the SOF and still get specific performance:
1. Part performance
(a) There must be some agreement – just one that doesn’t meet the statute of frauds between buyer and seller; and
(b) There must be some act which only makes sense (which must be solely referable to the agreement).
At common law a buyer had to show:
1. Occupancy of the property;
2. Tendering some significant portion of purchase price; and
3. Some improvement to the property or work done to the property.
Policy: Many agreements at common law were made between people who were already tenants on the property and the owner of the property.
2. Estoppel
(a) Requires that one party has changed his or her position in reasonable reliance upon representations of another; and
(b) Harsh injury or injustice would result if we didn’t grant specific performance.
Licari v. Blackwelder
CT, 1988
Nature of the duty of real estate agents to the principal they represent.
Real Estate Broker owes a fiduciary duty to his or her client. That means the broker has the duty to not intentionally or recklessly do anything against the interests of his or her client and a duty of fidelity – to be truthful and complete in sharing information related to the agency representation.
Stages of a Land Transaction
Step 1: Entry of buy/sell agreement
Interim period: 45-120 days:
Buyer – putting together financing
- Conducting inspections
- Obtaining Title insurance
- Checking status of title
Seller – preparing docs
- Taking any action agreed upon with condition of property
- Clearing up any encumbrances on title
Step 2: Closing
At closing:
Takes place at title company.
Hickey v. Green
MA, 1982
Green (D) contended that the real estate sales contract she orally entered into with Hickey (P) was unenforceable based on the statute of frauds.
Rule of Law: An oral contract for the transfer of interest in land may specifically be enforced despite the SOF if the party seeking performance changed his or her position in reasonable reliance on the contract and injustice can be avoided only through specific performance.
Buy-sell agreement
The date for closing is not absolute. The inability of one party to close on the agreed upon date is not immediately a violation of the buy-sell agreement unless the agreement specifically provides that time is of the essence. If not, we generally will give either party a reasonable time after the closing date to be prepared to close. Reasonable will depend upon the nature of the transaction and jurisdiction (30, 60, or 90 days). If the parties have not specifically provided that time is of the essence of the agreement, then parties cannot immediately sue for breach of the agreement just because the other party is not prepared to close. You can sue for breach of agreement if they cannot close within a reasonable period. If the agreement does state time is of the essence you can sue immediately. The benefit to you is you’ll get any damages you may have incurred from the date of closing to actually closing. Policy: if you can’t close you may be forced to live in a motel and have belongings in storage.
Checking the state of title
Checking with the registrar of deeds and checking for encumbrances on the title. These encumbrances include: covenants, restrictions, easements, mortgage liens, judgment liens, zoning violations, etc. These matters can give rise to litigation against the buyer. That by definition means they could render title unmarketable.
Marketable Title
An implied condition of a contract of sale of land is that the seller must convey to the buyer a “marketable title.” If the seller cannot convey a marketable title, the buyer is entitled to rescind the contract. Marketable title is “a title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, one which such persons, guided by competent legal advice, would be willing to take and for which they would be willing to pay fair value.” Seligman v. Fist Natl. (1989).
The seller is obligated to deliver marketable title at closing. If an agreement is silent as to the quality of title, the standard is marketable title in every jurisdiction. If you want perfect title with no problems or complications, you have to ask for record title.
Typical clause on buy-sell agreements: Buyer agrees to take this property subject to all existing covenants, easements, and restrictions of record.
That means that if any of the above are properly recorded, the buyer cannot object even though otherwise those encumbrances would render title unmarketable, the buyer cannot object because the buyer agreed to take the property with the otherwise encumbering issues.
Lohmeyer v. Bower
Supreme Court of KS, 1951
P is claiming unmerchantable title and sued for rescission of real estate contract which D cross-complained for specific performance.
Issue: Is P entitled to rescind contract and get deposit because of violations of covenant and zoning ordinance.
Rule of Law: A party cannot convey good merchantable title if violations of covenants or zoning ordinances exist on the subject property at the time it is to be sold.
Trial court said these violations are not encumbrances. The Supreme Court reversed on grounds that title is unmarketable. What the court is doing is pretty typical. Where there is a problem with title prior to closing, the buyer has the greatest incentive to fix the problems efficiently as possible. . Let the seller walk away.
The court defined marketable title as: Title which is free from reasonable doubt. One way title is subject to reasonable doubt is if it exposes the party holding it to the hazards of litigation.
The defect can’t be de minimis (of minimum importance). The defect has to be:
1. Substantial; and
2. One from which buyer may suffer injury; and
3. There has to be relative certainty as to the existence of the defect.
Zoning Ordinances
The mere existence of a zoning issue in and of itself does not render title unmarketable. In order for the issue to render title unmarketable and be an encumbrance, the ordinance has to be violated. The mere existence of ordinances and public regulations that cover the use of the property do not constitute encumbrances on the land.
Private Covenant or Restriction
The mere existence of a private covenant or restriction that binds the property is sufficient to render title unmarketable. A private covenant or restriction is an agreement by a prior owner or the property and neighboring property owners that contractually put some obligation on the use of the property or more likely a restriction or limitation of what can be done on the property in the form of an agreement. It runs with the land such that successive owners of the property will also be burdened/benefited by the covenant.
In this case, the private covenant did not render the title unmarketable because he agreed to take the property to all covenants and restrictions of record meaning, if this covenant was properly recorded, he cannot object on marketability grounds as he agreed to be subject to it.
Each piece of property unique. You are only obligated to accept that which you specifically agreed to purchase. You don’t have to take less, and you don’t have to accept more.
Encumbrances:
1. Private covenants and restrictions;
2. Easement: A positive easement is the right to do something on someone else’s property that would otherwise be a trespass; and
3. Liens – mortgage or judgment. Exception for mortgage liens: You can object to closing if there is still a lien on the property at the day of closing if the purchase price is sufficient to retire all debts secured by liens on the property and an independent third party (title company) has agreed to serve as escrow agent and to distribute sale proceeds first to lien holders in order of priority (order they were recorded) in exchange for releases of liens before the sellers get a penny.
4. Violations of public ordinances and regulations governing the property – not their mere existence but their violation; and
5. Interests in the property less than the fee meaning, you don’t have to close if someone has a contingent remainder or executory interest which might give him or her that property.
WEEK 11
Options to non-leasing co-tenants:
1. Accept from the leasing co-tenant their proportionate share of actual rent received;
OR as an alternative:
2. Force an ouster by lessee and then collect their proportionate share of the fair market value rent from lessee.
When only one co-tenant or less than all co-tenants lease a share of the property, they are putting the lessee in the same position with regard to the non-leasing co-tenants as the co-tenants themselves were. That means that every co-tenant has the right to enter any portion of the co-tenancy property.
If you are ousted you are entitled to rent. Not a good idea to do business on common law in your jurisdiction on co-tenancy. You should use an express written agreement that spells out the obligations of the parties.
EXPENDITURES
Three different categories of expenses and/or three different ways we divide up responsibility for these expenditures
1. Expenditures necessary for the legal maintenance of title of the property. Non-payment of these expenditures will result in loss of the property. They are:
Taxes, sewer and other public assessments – things the government charges. Non-payment will result in a sale to the highest bidder of the property. Mortgage loan payments – if you don’t pay, property could be sold.
Rule: The co-tenant who makes these payments on behalf of the property is entitled to immediate contribution from all the co-tenants. Do not have to wait for contribution.
2. Necessary repairs. The co-tenant who makes the payment is entitled to receive from the other co-tenants each co-tenants’ proportionate share of the reasonable costs of the repair. There is no right to immediate contribution. In this case, the paying co-tenant is entitled to recovery anytime there is an action for accounting.
An action for accounting is a legal action – you bring suit against your co-tenants independently and ask the court to decide how much everybody to pay as long as there has not been any change in the co-tenant structure. Every jurisdiction permits periodic actions for accounting (typically once a year but it depends on the jurisdiction). Here’s how it works: suppose the co-tenant in exclusive possession (she’s living in the house) concludes that the house needs a new roof. She can’t wait for the other co-tenants to pony up and she spends to $10K for a new roof. She is not entitled to seek immediate contribution; she has to wait for a periodic accounting OR she is entitled to an action of accounting when:
(a) Any co-tenant alienates his or her share (gift, sale, or death); or
(b) Anytime there is a partition.
Otherwise, there is no right to immediate contribution for necessary repairs. The rule says; reasonable costs – if the co-tenant paid too much, the co-tenant is responsible for the excess that goes beyond the reasonable costs of the repair. That prevents co-tenants entering into sucker deals or fraud. But for necessary repairs you do get the reasonable costs.
3. Improvements, i.e., building a new structure, renovation, swimming pool, etc.
Rule: The improving co-tenant is entitled to the entire amount by which the improvement changed the property’s FMV. An above-ground swimming pool usually adds nothing to the value and may depress the value. The improving co-tenant can only receive (or pay) compensation for the improvement in an action for accounting and generally only in those actions for accounting that accompany sale of share or partition. We don’t give compensation in a periodic action for accounting for an improvement. If the improvement is made by the occupying co-tenant, why should the others pay anything now? If the repair was not necessary, she may get nothing at all. Improvements are almost always optional – no one is holding a gun to their head.
Partition in Kind
If there is a partition in kind, courts will bend-over backwards to give a co-tenant who has made an improvement that section of the physical property that contains the improvement. Suppose one of the co-tenants has built a barn and a house on farmland. We will take three shares equal in economic value and the improving co-tenant will get the share with the improvements on it. That way we don’t have to worry about how much the value of the land increased or decreased. The judge evaluated the property as raw land, gave everybody their 1/3 share but the section which happened to include the improvements will go to the improving co-tenant in a partition in kind.
Partition by Sale
The court will say, what is the property worth without the improvement and what is it worth with the improvement and give the improving co-tenant the difference right off the top. Example: In addition to the roof, the occupying co-tenant also put in an extension for a gourmet kitchen. The value is derived by bringing in experts. The property without the new kitchen is worth $300,000 but the property with the improvement is worth $330,000. The other expense that has yet gone uncompensated is we add $10,000 for the roof, but the reasonable cost was $9,000. A court would say, sale price of this property was $330,000 but only one of the co-tenants made the improvement that increased the value.
That $30,000 goes right off the top
$330,000
-300,000
_________
$30,000
Imp CoT CoT2 CoT3
30,000 100,000 100,000
-3,000 (roof) -3,000 (roof)
100,000 ______ ______
+3,000 97,000 97,000
+3,000
________
$136,000
Tenancy by the Entireties
SAWADA V. ENDO
57 Hawaii 608, 561 P.2d 1291 (1977)
NATURE OF THE CASE: This was an action to set aside conveyance of real property.
FACTS: Endo (D) had no liability insurance. He severely injured Helen and Masako Sawada (P) in an accident. D's only asset was land that he held as a tenant by the entirety with his wife. Soon after P filed suit for damages from the accident, D and his wife conveyed this land to his sons for no consideration. Both sons were aware that their father had been involved in an accident and that he had carried no liability insurance. However, D continued to live on the land even though he had reserved no life interest in it. Although P received judgment from D for $8,846.46 and $16,199.28, they had no way to recover it. D's wife died on January 29, 1971. P was frustrated in their recovery from D's personal property. P then sued to set aside the conveyance to the sons for fraud. D claimed that the conveyance was not a fraud; the separate creditor of either spouse can't reach property held as tenants by the entirety. The trial court refused to set aside the conveyance and P appealed.
ISSUE: Is the interest of one spouse in real property held in tenancy by the entireties subject to levy and execution by individual creditors?
RULE OF LAW: The interest of one spouse in real property held in tenancy by the entireties is not subject to levy and execution by individual creditors.
HOLDING AND DECISION: (Menor, J.) Is the interest of one spouse in real property held in tenancy by the entireties subject to levy and execution by individual creditors? No. Under the Married Women's Property Acts, the interest of one spouse in real property held in tenancy by the entireties is not subject to levy and execution by individual creditors during the joint lives of the spouses. This state has always recognized that entirety by tenancies is a distinct estate. The tenancy by the entirety is predicated upon the legal unity of husband and wife, and they hold the estate in single ownership. This estate can only be created by a married couple and thus can only be destroyed by the actions of a married couple. They do not take by moieties, but both and each are seized by the whole estate. The indivisibility of the estate, except by the joint action of the spouses is an indispensable feature of the tenancy by the entirety. Tenancy by entirety cannot be entered into to defraud creditors and there is nothing to prevent a creditor from insisting that a property held as such be subject to levy before extending credit. We are not persuaded by the argument that it would be unfair to the creditors of either spouse to hold that the estate by the entirety may not, without the consent of both spouses be levied upon for the separate debt of either spouse. If the tenancy already exists, any creditor has notice of this status and thus cannot complain. Public policy favors family unity and peace. To allow a third party to become a joint tenant with a couple in their marital home would hinder family peace and unity and severely cripple the use of that home for family purposes. The conveyance from P to their sons was not a fraud, because P was not able to attach the property in the first instance. Affirmed
DISSENT: (Kidwell, J.) The majority misconstrues the Married Woman's Act. It held that the effect of the Act was to equalize the positions of the spouses by taking the husband's common law right to transfer his interest rather than by elevating the wife's right of alienation to that of her husband's. I disagree. The court should have allowed creditors of either spouse to reach their right of survivorship. The Married Women's Act states that there is equality between the spouses and it follows that if the wife takes equal rights with the husband in the estate, she must take equal disabilities. The restriction upon the freedom of the spouses to deal independently with their respective interests is both illogical and unnecessarily at odds with present policy trends.
LEGAL ANALYSIS: A judgment creditor should be allowed to execute upon the separate rights of survivorship. Thus they should have been able to get to D's share of the land but not the part that P owned. The dissent has the better view particularly when the facts are that the home is no longer a family home because the wife is dead. This was a fraud upon the court and if there was evidence that Ds were transferring the property to the sons for no consideration in order to avoid the judgment, the protection of the Act should be forfeited or at least stayed until it is determined who the survivor is.
Hicks:
Before this judgment can come down, Mr. Endo and his wife convey their entireties tenancy property to their son as a gift. The Sawadas go bonkers over this. The plaintiffs argue that the transfer is fraudulent by preventing them from attaching (putting a lien on it) the property.
Fraudulent Transfer
The Sawada’s argument: If the Sawadas could legitimately attach this property if the Endos still owned it and the Endos new the judgment was coming, then legitimately a court could order that the Sawadas affectively could attach this property. The court could say, we strike down the conveyance to the son, that was simply a fraud, to prevent these folks who had a legitimate claim against the Endos from getting at the one asset the Endos had that could satisfy this claim.
This is analogous to making a transfer within 30 months of a bankruptcy. The court will pull those assets back into the estate and allow the creditors preference. This is why very few people will do business with people or businesses on the edge of declaring bankruptcy.
If you transfer away property one step ahead of a judgment, the court can treat it as a fraud and recapture the assets and allow creditors to put a lien on the assets.
There are four versions of the tenancy by the entireties. The court here chose the most restrictive view. The court sided with those states that follow the Married Woman’s Property Act rule – the interest of a husband or a wife in an entireties tenancy state is not subject to the creditors of either individual during the joint lives of the spouse.
MWPA
As a practical matter, the Sawadas could never attach the interest of just Mr. Endo in the entireties tenancy property so long as Mrs. Endo was also alive – they lose. The court is not concerned about whether this holding is unfair to the creditors because the whole rationale of the MWPA is that neither spouse can encumber his or her interest in an entireties tenancy property during the joint lives. We don’t want the property that is the family home (mandatory for entireties property) subject to the creditors of just one, in effect, replacing the interest of the family ahead of the interest of the creditors. Courts don’t worry themselves because creditors are big boys and girls. They ought to know better to extend credit to anyone based upon the hope that they will get that person’s share of an entireties tenancy property without the signature and consent to risking the property of the other spouse as well.
What the court has done is equate a Debt Creditor to a Tort Judgment Creditor – a contract debt creditor with a tort judgment creditor. They didn’t ask Mr. Endo to injure them and yet the court treats that judgment in the same was it would a business that foolishly extends credit to just one entireties tenant based upon the one interest in the property. In the eyes of this court, the family is not only more important than business creditors but even tort judgment creditors as well.
LAND TRANSACTION
Enter into a separate agreement with your realtor so they are exclusively your agent.
Real estate agents want elaborate agreements signed by the prospective buyer because of the Statute of Frauds. The agent then has an enforceable agreement.
Contracts for the sale of land are subject to the Statute of Frauds:
1. Written memorandum;
2. The memorandum must describe the essential terms of the transaction contract i.e. description of the property, price or a method of calculating price. FMV is not a method for calculating price. FMV as determined not later than Aug. 1, 2007 by certified real estate appraiser is a method for calculating price.
3. The memorandum must be signed by the party to be bound. That means, who’s trying to enforce the agreement? If only the seller has signed the memorandum, than only the buyer can enforce that memorandum under the statute of frauds. Conversely, if only the buyer has signed the memorandum than only the seller can enforce it under the SOF. It depends upon who is trying to enforce the agreement. You can only enforce the agreement if the other party has signed it. It meets the SOF if that agreement has been signed by the party other than the party seeking to enforce the agreement.
Policy: to prevent fraud but also contracts for the sale of land properly executed under the SOF carry with them the ability to get specific performance meaning in addition to any incidental and consequential damages, an order from the court that the buyer shall buy and the seller shall sell according to the terms of the agreement.
Two exceptions to the requirement of a memorandum that satisfies the SOF and still get specific performance:
1. Part performance
(a) There must be some agreement – just one that doesn’t meet the statute of frauds between buyer and seller; and
(b) There must be some act which only makes sense (which must be solely referable to the agreement).
At common law a buyer had to show:
1. Occupancy of the property;
2. Tendering some significant portion of purchase price; and
3. Some improvement to the property or work done to the property.
Policy: Many agreements at common law were made between people who were already tenants on the property and the owner of the property.
2. Estoppel
(a) Requires that one party has changed his or her position in reasonable reliance upon representations of another; and
(b) Harsh injury or injustice would result if we didn’t grant specific performance.
Licari v. Blackwelder
CT, 1988
Nature of the duty of real estate agents to the principal they represent.
Real Estate Broker owes a fiduciary duty to his or her client. That means the broker has the duty to not intentionally or recklessly do anything against the interests of his or her client and a duty of fidelity – to be truthful and complete in sharing information related to the agency representation.
Stages of a Land Transaction
Step 1: Entry of buy/sell agreement
Interim period: 45-120 days:
Buyer – putting together financing
- Conducting inspections
- Obtaining Title insurance
- Checking status of title
Seller – preparing docs
- Taking any action agreed upon with condition of property
- Clearing up any encumbrances on title
Step 2: Closing
At closing:
Takes place at title company.
Hickey v. Green
MA, 1982
Green (D) contended that the real estate sales contract she orally entered into with Hickey (P) was unenforceable based on the statute of frauds.
Rule of Law: An oral contract for the transfer of interest in land may specifically be enforced despite the SOF if the party seeking performance changed his or her position in reasonable reliance on the contract and injustice can be avoided only through specific performance.
Buy-sell agreement
The date for closing is not absolute. The inability of one party to close on the agreed upon date is not immediately a violation of the buy-sell agreement unless the agreement specifically provides that time is of the essence. If not, we generally will give either party a reasonable time after the closing date to be prepared to close. Reasonable will depend upon the nature of the transaction and jurisdiction (30, 60, or 90 days). If the parties have not specifically provided that time is of the essence of the agreement, then parties cannot immediately sue for breach of the agreement just because the other party is not prepared to close. You can sue for breach of agreement if they cannot close within a reasonable period. If the agreement does state time is of the essence you can sue immediately. The benefit to you is you’ll get any damages you may have incurred from the date of closing to actually closing. Policy: if you can’t close you may be forced to live in a motel and have belongings in storage.
Checking the state of title
Checking with the registrar of deeds and checking for encumbrances on the title. These encumbrances include: covenants, restrictions, easements, mortgage liens, judgment liens, zoning violations, etc. These matters can give rise to litigation against the buyer. That by definition means they could render title unmarketable.
Marketable Title
An implied condition of a contract of sale of land is that the seller must convey to the buyer a “marketable title.” If the seller cannot convey a marketable title, the buyer is entitled to rescind the contract. Marketable title is “a title not subject to such reasonable doubt as would create a just apprehension of its validity in the mind of a reasonable, prudent and intelligent person, one which such persons, guided by competent legal advice, would be willing to take and for which they would be willing to pay fair value.” Seligman v. Fist Natl. (1989).
The seller is obligated to deliver marketable title at closing. If an agreement is silent as to the quality of title, the standard is marketable title in every jurisdiction. If you want perfect title with no problems or complications, you have to ask for record title.
Typical clause on buy-sell agreements: Buyer agrees to take this property subject to all existing covenants, easements, and restrictions of record.
That means that if any of the above are properly recorded, the buyer cannot object even though otherwise those encumbrances would render title unmarketable, the buyer cannot object because the buyer agreed to take the property with the otherwise encumbering issues.
Lohmeyer v. Bower
Supreme Court of KS, 1951
P is claiming unmerchantable title and sued for rescission of real estate contract which D cross-complained for specific performance.
Issue: Is P entitled to rescind contract and get deposit because of violations of covenant and zoning ordinance.
Rule of Law: A party cannot convey good merchantable title if violations of covenants or zoning ordinances exist on the subject property at the time it is to be sold.
Trial court said these violations are not encumbrances. The Supreme Court reversed on grounds that title is unmarketable. What the court is doing is pretty typical. Where there is a problem with title prior to closing, the buyer has the greatest incentive to fix the problems efficiently as possible. . Let the seller walk away.
The court defined marketable title as: Title which is free from reasonable doubt. One way title is subject to reasonable doubt is if it exposes the party holding it to the hazards of litigation.
The defect can’t be de minimis (of minimum importance). The defect has to be:
1. Substantial; and
2. One from which buyer may suffer injury; and
3. There has to be relative certainty as to the existence of the defect.
Zoning Ordinances
The mere existence of a zoning issue in and of itself does not render title unmarketable. In order for the issue to render title unmarketable and be an encumbrance, the ordinance has to be violated. The mere existence of ordinances and public regulations that cover the use of the property do not constitute encumbrances on the land.
Private Covenant or Restriction
The mere existence of a private covenant or restriction that binds the property is sufficient to render title unmarketable. A private covenant or restriction is an agreement by a prior owner or the property and neighboring property owners that contractually put some obligation on the use of the property or more likely a restriction or limitation of what can be done on the property in the form of an agreement. It runs with the land such that successive owners of the property will also be burdened/benefited by the covenant.
In this case, the private covenant did not render the title unmarketable because he agreed to take the property to all covenants and restrictions of record meaning, if this covenant was properly recorded, he cannot object on marketability grounds as he agreed to be subject to it.
Each piece of property unique. You are only obligated to accept that which you specifically agreed to purchase. You don’t have to take less, and you don’t have to accept more.
Encumbrances:
1. Private covenants and restrictions;
2. Easement: A positive easement is the right to do something on someone else’s property that would otherwise be a trespass; and
3. Liens – mortgage or judgment. Exception for mortgage liens: You can object to closing if there is still a lien on the property at the day of closing if the purchase price is sufficient to retire all debts secured by liens on the property and an independent third party (title company) has agreed to serve as escrow agent and to distribute sale proceeds first to lien holders in order of priority (order they were recorded) in exchange for releases of liens before the sellers get a penny.
4. Violations of public ordinances and regulations governing the property – not their mere existence but their violation; and
5. Interests in the property less than the fee meaning, you don’t have to close if someone has a contingent remainder or executory interest which might give him or her that property.
WEEK 11
LAND TRANSACTION CONTINUED
The land-sale transaction consists of two steps:
Step 1: Entry of buy-sell agreement
Interim period: 45-120 days
Buyer:
- Putting together financing
- Conducting inspections
- Obtaining Title insurance
- Checking status of title
Seller:
- Preparing documents
- Taking any action agreed upon with condition of property (repairs)
- Clearing up any encumbrances that compromise marketability of title
The obligations in the buy-sell agreement generally do not survive closing so if there was something in the buy-sell agreement that one party was obligated to do and they did not do it and the deal closes, under the concept of merger, all the obligations of the buy-sell agreement are merged into the deed and the only things that survive in terms of obligations on the part of the seller to the buyer after closing are those promises or warranties in the deed if there are any.
If there is anything that a seller is obligated to do under the buy-sell agreement, generally a buyer is well advised not to close until they are done. If you want those obligations to survive closing you have to enter into new agreement with new consideration that would obligate the performance of what has not yet been done. Typically that is something the seller is supposed to do like make making repairs, repainting, etc. If you go to closing and it’s not done and you close anyway, if you try and enforce that promise in the buy-sell agreement, you are not going to be able to do it. The only way to enforce that promise is enter into a new agreement for new consideration. Most jurisdictions need something other than a promise to close in exchange for a promise to fix something later; otherwise, at closing the obligations of the buy-sell agreement are merged into the deed.
Closing dates in a buy-sell agreement are not fixed and rigid such that if one party is not prepared to close on that day, the other party cannot immediately sue unless the agreement provides that time is of the essence; otherwise, it is a reasonable time after the breach.
Step 2: Closing
At closing:
Takes place at title company.
Post closing:
Condition that has to do with legal title of the land. Not include: violations also the presence on the property of a trespasser who was real close to the time period for adverse possession. If it would subject the buyer to litigation. If the AP has been there 20 years. Within 3 days of closing the AP takes possession
Encumbrances Review
Pre-closing – Buy-sell agreements and marketability
1. Private covenants and restrictions;
2. Easement: A positive easement is the right to do something on someone else’s property that would otherwise be a trespass; and
3. Liens – mortgage or judgment. Exception for mortgage liens: You can object to closing if there is still a lien on the property at the day of closing if the purchase price is sufficient to retire all debts secured by liens on the property and an independent third party (title company) has agreed to serve as escrow agent and to distribute sale proceeds first to lien holders in order of priority (order they were recorded) in exchange for releases of liens before the sellers get a penny.
4. Violations of public ordinances, statutes and regulations governing the property – not their mere existence but their violation. It does not include building code violations as they generally do not compromise marketability of title. If there is a zoning violation, unless you get the zoning law changed or unless the seller can get a variance prior to closing, the seller is not going to be able to give marketable title because a buyer does not have to accept less or more property than he or she agreed to; and
5. Interests in the property less than the fee meaning, you don’t have to close if someone has a contingent remainder or executory interest which might give him or her that property. If someone has a lease that entitles someone to be there and it’s properly recorded (you are on notice of it), that could effect marketability of title as you may not be able to take possession of the property until the lease is over. This also includes life estates, executory interests, etc.
6. Presence of a potential adverse possessor. If the person has only been there for a short period of time, that doesn’t render title unmarketable because a defect has to be more than de minimis and the facts have to be known. If the person has been there close to the statutory period or if it is not known for how long a person has been there, that can encumber title.
EQUITABLE CONVERSION DOCTRINE
This deals with who bears the risk of loss in property after the entry of buy-sell agreement but before closing.
Common Law
At common law, at the moment of closing, the buyer was deemed to be the equitable owner of the real property and the seller was deemed to have a constructive lien on the proceeds. Apply that concept to damage (fire, lightening, etc.) of the property after the entry of the buy-sell agreement but before closing, at common law the buyer bore the risk of loss on the property after closing.
Example: if 2 weeks after the buy-sell agreement and 6 weeks before closing and the seller is still living on the property, the house was struck by lightning and largely destroyed, the buyer would still be obligated to go through with the deal at the agreed upon price.
The corollary to the rule was the buyer was also deemed to be equitable owner of any insurance proceeds that seller was entitled to receive because of the damage. If seller has any insurance proceeds, buyer has an equitable claim on the proceeds.
Modern Rule
Risk of loss after entry of the buy-sell agreement but before closing, is in the party who is in possession. If seller is still on the property when the lightening hits and destroys the house, the seller is responsible for the loss and if seller cannot deliver the agreed upon house, the buyer can rescind and walk away from the deal.
SELLER’S DUTY TO DISCLOSE DEFECTS IN THE PROPERTY NOT READILY OBSERVABLE
Common law rule
Caveat emptor (buyer beware). The seller could not make any affirmative misrepresentation about the condition of the property nor actively conceal any problem. You could have the leakiest basement in town and you were not obligated to say a word about it nor was your realtor but this could lead to a bad reputation in the business community. The buyer would have no action after closing.
Affirmative misrepresentation: Someone asks a direct question and you lie.
Active concealment: Putting up drywall on a wall that conceals water damage, fake central air, etc.
Modern Rule
Beginning in the 1980s we begin to see affirmative duties on sellers to disclose any known defect that is not readily observable.
Independent Duties: if seller makes a misrepresentation, even at common law, you could sue for fraud after closing. If the seller has failed to inform the buyer of a defect that is not readily observable and it did have a material impact on the property, now you can bring an action after closing against the seller, not under the buy-sell agreement, not under common law, but under the statute in that state.
Stambovsky v. Ackley
New York Supreme Court, 1991
Haunted house case
This is the first step away from caveat emptor. Can the buyer rescind based upon the fact that the seller claimed for many years that the house was haunted but never informed the buyer of that fact? The trial court applied New York law of caveat emptor. The appellate court said that rescission is the equitable remedy.
The court becomes interested in the specific misbehavior of the seller and it resulted in the change of the disclosure law in New York. This was a situation where the seller affirmatively created the problem by fostering the idea that the house was haunted.
If you have a separate agreement with a realtor, that realtor has an affirmative duty to pass along information to you.
The seller is the person in the best position to make the disclosure. If there is going to be a duty imposed it is going to be on the home owner.
This is not a problem that is easy to discover.
Rule of Law: Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity.
Policy: Caveat emptor does not work in the modern world. We have to balance buyer’s confidence on one hand against convenience and cost to sellers. Even the most carefully worded form cannot cover everything.
Johnson v. Davis
Supreme Court of FL, 1985
The modern rule
1. We don’t want to saddle a buyer with problems that he or she didn’t really agree to take; and
2. It doesn’t make economic sense to allow the buyer to solve the problem at the seller’s expense because the buyer is not going to do it in the most efficient way when they are not paying for it.
The best thing to do is let the buyer rescind pre-closing and walk away and let the seller fix the problem because the seller has the greatest incentive to fix the problem in the most economic way.
Facts: The Johnsons failed to disclose to the Davises certain roof defects prior to conveyance of the residence. The Davises sue to rescind the contract.
Rescission: The cancelling of an agreement and the return of the parties to their positions prior to the formation of the contract.
Misfeasance: The commission of a lawful act in a wrongful manner.
Nonfeasance: The silence or omission of withholding important information or a known material fact.
The court said that failure to disclose is just as bad as a misrepresentation where it is intended to create a false belief – they both have the same bad motive and consequences.
The court is not extending the doctrine of misrepresentation, it is creating an entirely new duty on the part of the seller to disclose know defects to the seller. The scope of this duty goes to defects that the buyer is unaware of and which are not readily observable which materially affect the value of the property. If they exist the seller must disclose them.
Example: Purchasers of a house near a GM plant were not told that ash would fall onto their cars and property. The plant was readily observable from the property. They were not able to rescind the contract.
In some jurisdictions like California, you do have an affirmative duty to disclose noisy neighbors or issues that would affect the enjoyment of the home if they are not readily observable. To not do so would be considered active concealment.
IMPLIED WARRANTY OF WORKMANLIKE QUALITY
This is another issue in which the law implies a duty on the part of a contractor or a builder to perform work using acceptable methods that meet the appropriate standard of the trade.
Common Law
Because of privity we limited the applicability of the warranty to the builder or the contractor and the person with whom they had contracted to do the work.
If you sold your house then the next owner under common law would not have any remedy under this implied warranty.
Modern Rule
The issue is not so much worrying about unlimited liability but rather worrying about whether or not the builder is going to do a good job because they could limit liability in a mobile society.
Lempke v. Dagenais
Supreme Court of NH, 1988
Facts: P sought to recover from D the cost of rebuilding a garage D had built for the prior owner, which P claimed had been built in a substandard manner.
Rule of Law: A subsequent purchaser of property may recover from one performing defective contractor services for the prior owner if the work contained latent defects not apparent at the time of purchase.
It has to be within a reasonable time. What would be reasonable time to discover a latent defect?
Modern Rule
1. No longer requires privity between a contracting party and the contractor who does the work.
2. Latent defects that manifest themselves only after the subsequent purchaser and they can’t be discoverable before purchase, the warranty will be limited to a reasonable time.
3. The homeowner has the burden of proof to show it was the contractor’s fault. The duty is to perform in a workmanlike manner in accordance with accepted standards.
We’ve extended this to remote purchases of the property but only for defects that did not manifest themselves until after buyer purchases the property. If they were apparent prior to closing, buyer could walk away or get seller to lower the price and the seller could recover from the builder.
REMEDIES FOR DAMAGES
Damages available for breach of a buy-sell agreement when the parties are not seeking specific performance or where specific performance may not be possible (you can’t get blood out of a stone). If a house burns down prior to close and they were too cheap to purchase fire insurance, they are not going to be able to sell the home and get the money they needed to purchase another home. Instead of ordering specific performance, a court will order damages. The seller will remarket the house and if it sells for less, the seller can recover some difference plus incidental and consequential damages as a result of the breach.
Jones v. Lee
Court of Appeals, NM, 1998
The contract did not contain a liquidated damages clause. That is a clause which provides in advance what the damages are for a breach of an agreement will be. Such clauses will be upheld as long as long as they are not a penalty or unreasonable to one side or the other. Generally we accept liquidated damages clauses where it may not always be clear what the actual damages to a buyer or seller might be and the parties have made a good faith effort to figure out in this clause what the appropriate monetary remedy may be.
Date of Buy-Sell Agreement Date Buyers Breach Date Sellers Sold
------------------------------------------------------------------------------------------ down $70,000
Trial Court: $70,000 (contract minus sell price) plus other damages such as punitive damages.
On Appeal: Contract price minus FMV on date of breach.
The appellate court represents the majority. Some jurisdictions are moving towards the price the seller, making reasonable efforts, is able to sell for. In other words, some jurisdictions have adopted difference between contract price and sell price. You cannot get punitive damages but can get incidental and consequential damages – other damages you suffered as a result of the breach (costs of re-advertising, etc.)
Another downside to the majority rule is the FMV at the time of breach will always be speculative and will be a battle of experts. Even if sellers would like specific performance, not a practical
The most common remedy for when sellers breach is specific performance and the buyers want the house.
Kutzin v. Pirnie
Supreme Court of NJ, 1991
Majority rule on the ability of a seller to keep a deposit as damages for a buyer’s breach
The contract did not have a liquidated damages clause so we are relying on the common law in the jurisdiction.
The buyers paid 10% of the purchase price as a deposit and then breached the agreement. The buyers sued for their deposit back for the difference between deposit and actual damages ($17,365).
The trial court ordered the sellers to return the remaining $18,675 to the buyers and the appellate court reversed and applied the common law rule that a seller can retain a deposit even when the amount of the deposit exceeds actual damages. It is still the majority rule (not the modern rule however). The seller can retain up to 10% of the purchase price for buyer’s breach regardless of actuals. Anything over that would be considered a penalty.
DEEDS
The device by which we transfer title. Grantor executes a deed, puts on the deed the name and the description of the property to be transferred, the grantor’s name and the name of the grantee. In some cases the name of the grantee is actually left blank and that someone else can fill it in then. The grantee can flip the property without showing he or she had an interest in the land.
Deeds come in two varieties with regard to the promises they make:
1. General Warranty Deeds. The general warranty deed contains six specific covenants of title that warrant against any defect in the grantor’s title. For example, the covenant against encumbrances warrants that there are no mortgages, easements, liens or other encumbrances on the property at the time the deed is delivered. It warrants against all defects in title that are not specifically excluded from coverage on the face of the deed whether the defects arose before the grantor took title or while grantor held title. Essentially he is saying, I took good title from my grantor and I warrant that I am transferring good title to you and did nothing to compromise the title. If there are easements, covenants or restrictions that have been recorded, then the general warranty deed will say, I will warrant the condition of title except as to easement of farmer Jones and the happy valley subdivision covenants and restrictions.
2. Special Warranty Deeds. The special warranty deed usually contains the six title covenants found in the general warranty deed, but applies them only to defects caused by the acts or omissions of the grantor. For example, suppose A, having no title whatever to a parcel of land, purports to convey title to B, and B in turn conveys to C using a special warranty deed; because the title defect was caused by A, not B, B is not liable to C. Not every jurisdiction permits special warranty deeds. It does not warrant that there are no defects in title that arose before grantor took the property. He is saying, you are getting title as good as I received. I didn’t compromise the title but I make no promises about what happened before I owned the property.
The difference between the two warranty deeds is the period of time over which the grantor warrants to the grantee that he or she will be responsible for making good on any defects in the title.
Quitclaim Deed. The quitclaim deed contains no title covenants. By its use, the grantor does not warrant that she owns the property or—if she has any title—that her title is good. This type of deed merely conveys whatever right, title, or interest the grantor may have in the land. It is just as effective as transferring title, but it does not make the deed warranties.
Any deed properly executed is still sufficient to transfer.
Forgery and Fraud
A forged deed is no good to anyone. It can never give the forger title but also anyone who purchases from the forger cannot get title.
A fraudulently obtained deed is no good to the person who commits a fraud but a when transferred to a good faith or bona fide purchaser for value – someone who takes with no notice that the deed is fraudulent and thus no notice that the person who was defrauded has a superior interest in the title – that good purchaser for value can take good title from the person who commits the fraud.
Page 514
In many jurisdictions it would be enough to say:
General Warranty Deed
“I, John Doe, hereby transfer this ______ pursuant to this General Warranty Deed.”
We would then know that those 6 general covenants all apply. The difference between the 6 is when the SOL for actions for their violation begin to run. The deed covenants are:
Present Covenants:
Present covenants make statements about of the condition of title at the moment of closing. They are violated if at all at closing meaning, the SOL for violation of these three present covenants begins to run at the moment of closing.
1. Covenant of seisin. I own everything that I convey to you
2. Covenant of right to convey. I have the right to convey to you everything I convey to you.
3. Covenant against encumbrances. There are no legal encumbrances on title other than those that are specifically spelled out as exceptions in the deed.
a. Any private covenants, restrictions, and servitudes (private agreements between other owners that run with the land).
b. Any lien on the property at the time of closing.
c. Easements.
d. Any interest in the land including an adverse possessor at the moment of closing.
e. Interests less than the fee. A properly recorded lease, life estates, executory interests, remainder interests, etc.
f. Someone else owning of air or mineral rights. If they have been properly conveyed away, that is an interest less than the fee.
Future Covenants
Future Covenants are promises rather that declarations of existing fact. These are promises of things that grantor will do in the future if necessary.
1. Covenant of General Warranty. Promise that grantor will step up and defend against all lawful claims of title superior to yours and will compensate you for any losses. Not breached by discovery of a right superior, breached when someone steps forward and actually asserts the superior right. That’s when the SOL begins to run.
2. Covenant of Quiet Enjoyment. In many jurisdictions this covenant has been subsumed with covenant of general warranty to form one covenant. The grantee will not be disturbed by someone asserting superior title and if someone does that, grantor will compensate your any losses.
3. Covenant of Future Assurances. Promise by the grantor that he will cooperate with the grantee by executing any document that may be required to perfect the title conveyed.
The difference is the SOL – it does not begin to run until the time in the future when the covenant is actually breached. For example, covenant of general warranty and covenant of quiet enjoyment are not breached simply by discovery that someone has a right superior to the grantees in the title, they are only breached when someone actually steps forward and actually asserts (in court or by entering the property) that superior right and disturbs the grantee in his or her title – that’s when the SOL for the violation of the future covenants begins to run.
Brown v. Lober
Supreme Court of IL, 1979
Facts: P acquired the subject property under a general warranty deed despite the fact that a 2/3 interest in mineral rights had previously been reserved.
The Bosts give a general warranty deed. They did not own everything they purported to convey. P decides to make money from the property by selling the mineral rights. The coal company did a title search before they took a deed from P. The coal company discovered that P only owned 1/3 of the mineral rights.
That put the Browns on actual notice. If they had discovered this sooner they would have a remedy under the 10 year statute of limitations for violation of present covenants – statements of the condition of title at the moment of closing.
Issue: The Browns realize the jig is up on the future covenants and they can’t dance because the SOL has run. The Browns want to argue that the mere discovery that someone else has a superior interests and their inability to sell those rights violates the future covenant of quiet enjoyment.
Rule of Law: The mere existence of a superior title does not constitute a breach of the covenant of quiet enjoyment.
Holding and Decision: P was in no way hindered from peaceable possession and enjoyment of his property by someone holding superior title. The mere fact that he had to renegotiate his contract for the assignment of mineral rights does not constitute an interference with quiet enjoyment, thus the suit was premature. The covenant of quiet enjoyment guarantees only possession and enjoyment of the premises, not a perfect title. The reservation of mineral rights was a matter of public record and P could have maintained an action for breach of warranty; however, he let the SOL run and he lost his opportunity.
The preservation of mineral rights was properly recorded. All they had to do is check the land records and the mineral rights would have shown up.
The plaintiff’s failed to secure. That is relevant to the court because they were cheap or lazy. Their oversight does not justify overruling.
Adverse Possession Hypo: P’s could legally take more minerals than they actually occupied by constructive adverse possession under color of title because they have a deed that gives them FSA. FSA gives you all mineral rights; therefore, if they exploit anything over their 1/3 they are asserting constructive adverse possession through color of title of the rest and if the true owner does not come in and eject them, they will be able to claim all the mineral rights when they satisfy the period for continuous occupancy.
The P in this case was either cheap or lazy and the court is not going to go out of its way to help him out. His oversight does not justify the overruling numerous other decisions.
If the original owner with 2/3 mineral rights showed up to mine it, that would be a violation of quiet enjoyment of title.
Benefits of Title Insurance
1. It is far less likely that an insurance company will go under than it is that your grantor will eventually die. You will have a remedy against an insurance company 20 years from now.
2. Someone completes AP one month before you took title. You spend $80,000 defending the quite title action and bringing your ejectment counterclaim. If the grantor gave you a warranty deed for good title (and it wasn’t really), you now have a judgment that says, you have good title! Even if you win, the title insurance company will compensate you for the cost of the defense. Grantor only pays defense costs if you lose.
Frimberger v. Anzellotti
CT, 1991
What is an encumbrance pre-closing and what is an encumbrance post-closing
Facts: D contended that she did not breach the warranty against encumbrances and did not innocently misrepresent the condition of property purchased by P and subsequently found to be in violation of wetlands statutes.
Rule of Law: Latent violations of state or municipal land use regulations (1) that do not appear on the land records, (2) that are unknown to the seller of the property, (3) as to which the agency charged with enforcement has taken no official action to compel compliance at the time the deed was executed, and (4) that have not ripened into an interest that can be recorded on the land records do not constitute an encumbrance for the purpose of the deed warranty.
Set of pre-closing encumbrances that compromise marketability
[ } ]
At Post-closing we are far more reluctant to undo a deal than we would be in that interim period between execution of the buy-sell agreement and closing. We decide as a matter of policy that if problems regarding marketability of title arise prior to closing we let the buyer rescind and walk away.
Rockafellor v. Gray
IA, 1922
Facts: Hansen and Gregerson (P), the remote grantees of a deed from Connelly (D) sued for a breach of the covenant of seisin.
Rule of Law: The breach of the covenant of seisin creates a chose in action which passes by assignment to subsequent grantees of the deed.
Chose in action: The right to recover, or the item recoverable, in a lawsuit.
The land-sale transaction consists of two steps:
Step 1: Entry of buy-sell agreement
Interim period: 45-120 days
Buyer:
- Putting together financing
- Conducting inspections
- Obtaining Title insurance
- Checking status of title
Seller:
- Preparing documents
- Taking any action agreed upon with condition of property (repairs)
- Clearing up any encumbrances that compromise marketability of title
The obligations in the buy-sell agreement generally do not survive closing so if there was something in the buy-sell agreement that one party was obligated to do and they did not do it and the deal closes, under the concept of merger, all the obligations of the buy-sell agreement are merged into the deed and the only things that survive in terms of obligations on the part of the seller to the buyer after closing are those promises or warranties in the deed if there are any.
If there is anything that a seller is obligated to do under the buy-sell agreement, generally a buyer is well advised not to close until they are done. If you want those obligations to survive closing you have to enter into new agreement with new consideration that would obligate the performance of what has not yet been done. Typically that is something the seller is supposed to do like make making repairs, repainting, etc. If you go to closing and it’s not done and you close anyway, if you try and enforce that promise in the buy-sell agreement, you are not going to be able to do it. The only way to enforce that promise is enter into a new agreement for new consideration. Most jurisdictions need something other than a promise to close in exchange for a promise to fix something later; otherwise, at closing the obligations of the buy-sell agreement are merged into the deed.
Closing dates in a buy-sell agreement are not fixed and rigid such that if one party is not prepared to close on that day, the other party cannot immediately sue unless the agreement provides that time is of the essence; otherwise, it is a reasonable time after the breach.
Step 2: Closing
At closing:
Takes place at title company.
Post closing:
Condition that has to do with legal title of the land. Not include: violations also the presence on the property of a trespasser who was real close to the time period for adverse possession. If it would subject the buyer to litigation. If the AP has been there 20 years. Within 3 days of closing the AP takes possession
Encumbrances Review
Pre-closing – Buy-sell agreements and marketability
1. Private covenants and restrictions;
2. Easement: A positive easement is the right to do something on someone else’s property that would otherwise be a trespass; and
3. Liens – mortgage or judgment. Exception for mortgage liens: You can object to closing if there is still a lien on the property at the day of closing if the purchase price is sufficient to retire all debts secured by liens on the property and an independent third party (title company) has agreed to serve as escrow agent and to distribute sale proceeds first to lien holders in order of priority (order they were recorded) in exchange for releases of liens before the sellers get a penny.
4. Violations of public ordinances, statutes and regulations governing the property – not their mere existence but their violation. It does not include building code violations as they generally do not compromise marketability of title. If there is a zoning violation, unless you get the zoning law changed or unless the seller can get a variance prior to closing, the seller is not going to be able to give marketable title because a buyer does not have to accept less or more property than he or she agreed to; and
5. Interests in the property less than the fee meaning, you don’t have to close if someone has a contingent remainder or executory interest which might give him or her that property. If someone has a lease that entitles someone to be there and it’s properly recorded (you are on notice of it), that could effect marketability of title as you may not be able to take possession of the property until the lease is over. This also includes life estates, executory interests, etc.
6. Presence of a potential adverse possessor. If the person has only been there for a short period of time, that doesn’t render title unmarketable because a defect has to be more than de minimis and the facts have to be known. If the person has been there close to the statutory period or if it is not known for how long a person has been there, that can encumber title.
EQUITABLE CONVERSION DOCTRINE
This deals with who bears the risk of loss in property after the entry of buy-sell agreement but before closing.
Common Law
At common law, at the moment of closing, the buyer was deemed to be the equitable owner of the real property and the seller was deemed to have a constructive lien on the proceeds. Apply that concept to damage (fire, lightening, etc.) of the property after the entry of the buy-sell agreement but before closing, at common law the buyer bore the risk of loss on the property after closing.
Example: if 2 weeks after the buy-sell agreement and 6 weeks before closing and the seller is still living on the property, the house was struck by lightning and largely destroyed, the buyer would still be obligated to go through with the deal at the agreed upon price.
The corollary to the rule was the buyer was also deemed to be equitable owner of any insurance proceeds that seller was entitled to receive because of the damage. If seller has any insurance proceeds, buyer has an equitable claim on the proceeds.
Modern Rule
Risk of loss after entry of the buy-sell agreement but before closing, is in the party who is in possession. If seller is still on the property when the lightening hits and destroys the house, the seller is responsible for the loss and if seller cannot deliver the agreed upon house, the buyer can rescind and walk away from the deal.
SELLER’S DUTY TO DISCLOSE DEFECTS IN THE PROPERTY NOT READILY OBSERVABLE
Common law rule
Caveat emptor (buyer beware). The seller could not make any affirmative misrepresentation about the condition of the property nor actively conceal any problem. You could have the leakiest basement in town and you were not obligated to say a word about it nor was your realtor but this could lead to a bad reputation in the business community. The buyer would have no action after closing.
Affirmative misrepresentation: Someone asks a direct question and you lie.
Active concealment: Putting up drywall on a wall that conceals water damage, fake central air, etc.
Modern Rule
Beginning in the 1980s we begin to see affirmative duties on sellers to disclose any known defect that is not readily observable.
Independent Duties: if seller makes a misrepresentation, even at common law, you could sue for fraud after closing. If the seller has failed to inform the buyer of a defect that is not readily observable and it did have a material impact on the property, now you can bring an action after closing against the seller, not under the buy-sell agreement, not under common law, but under the statute in that state.
Stambovsky v. Ackley
New York Supreme Court, 1991
Haunted house case
This is the first step away from caveat emptor. Can the buyer rescind based upon the fact that the seller claimed for many years that the house was haunted but never informed the buyer of that fact? The trial court applied New York law of caveat emptor. The appellate court said that rescission is the equitable remedy.
The court becomes interested in the specific misbehavior of the seller and it resulted in the change of the disclosure law in New York. This was a situation where the seller affirmatively created the problem by fostering the idea that the house was haunted.
If you have a separate agreement with a realtor, that realtor has an affirmative duty to pass along information to you.
The seller is the person in the best position to make the disclosure. If there is going to be a duty imposed it is going to be on the home owner.
This is not a problem that is easy to discover.
Rule of Law: Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity.
Policy: Caveat emptor does not work in the modern world. We have to balance buyer’s confidence on one hand against convenience and cost to sellers. Even the most carefully worded form cannot cover everything.
Johnson v. Davis
Supreme Court of FL, 1985
The modern rule
1. We don’t want to saddle a buyer with problems that he or she didn’t really agree to take; and
2. It doesn’t make economic sense to allow the buyer to solve the problem at the seller’s expense because the buyer is not going to do it in the most efficient way when they are not paying for it.
The best thing to do is let the buyer rescind pre-closing and walk away and let the seller fix the problem because the seller has the greatest incentive to fix the problem in the most economic way.
Facts: The Johnsons failed to disclose to the Davises certain roof defects prior to conveyance of the residence. The Davises sue to rescind the contract.
Rescission: The cancelling of an agreement and the return of the parties to their positions prior to the formation of the contract.
Misfeasance: The commission of a lawful act in a wrongful manner.
Nonfeasance: The silence or omission of withholding important information or a known material fact.
The court said that failure to disclose is just as bad as a misrepresentation where it is intended to create a false belief – they both have the same bad motive and consequences.
The court is not extending the doctrine of misrepresentation, it is creating an entirely new duty on the part of the seller to disclose know defects to the seller. The scope of this duty goes to defects that the buyer is unaware of and which are not readily observable which materially affect the value of the property. If they exist the seller must disclose them.
Example: Purchasers of a house near a GM plant were not told that ash would fall onto their cars and property. The plant was readily observable from the property. They were not able to rescind the contract.
In some jurisdictions like California, you do have an affirmative duty to disclose noisy neighbors or issues that would affect the enjoyment of the home if they are not readily observable. To not do so would be considered active concealment.
IMPLIED WARRANTY OF WORKMANLIKE QUALITY
This is another issue in which the law implies a duty on the part of a contractor or a builder to perform work using acceptable methods that meet the appropriate standard of the trade.
Common Law
Because of privity we limited the applicability of the warranty to the builder or the contractor and the person with whom they had contracted to do the work.
If you sold your house then the next owner under common law would not have any remedy under this implied warranty.
Modern Rule
The issue is not so much worrying about unlimited liability but rather worrying about whether or not the builder is going to do a good job because they could limit liability in a mobile society.
Lempke v. Dagenais
Supreme Court of NH, 1988
Facts: P sought to recover from D the cost of rebuilding a garage D had built for the prior owner, which P claimed had been built in a substandard manner.
Rule of Law: A subsequent purchaser of property may recover from one performing defective contractor services for the prior owner if the work contained latent defects not apparent at the time of purchase.
It has to be within a reasonable time. What would be reasonable time to discover a latent defect?
Modern Rule
1. No longer requires privity between a contracting party and the contractor who does the work.
2. Latent defects that manifest themselves only after the subsequent purchaser and they can’t be discoverable before purchase, the warranty will be limited to a reasonable time.
3. The homeowner has the burden of proof to show it was the contractor’s fault. The duty is to perform in a workmanlike manner in accordance with accepted standards.
We’ve extended this to remote purchases of the property but only for defects that did not manifest themselves until after buyer purchases the property. If they were apparent prior to closing, buyer could walk away or get seller to lower the price and the seller could recover from the builder.
REMEDIES FOR DAMAGES
Damages available for breach of a buy-sell agreement when the parties are not seeking specific performance or where specific performance may not be possible (you can’t get blood out of a stone). If a house burns down prior to close and they were too cheap to purchase fire insurance, they are not going to be able to sell the home and get the money they needed to purchase another home. Instead of ordering specific performance, a court will order damages. The seller will remarket the house and if it sells for less, the seller can recover some difference plus incidental and consequential damages as a result of the breach.
Jones v. Lee
Court of Appeals, NM, 1998
The contract did not contain a liquidated damages clause. That is a clause which provides in advance what the damages are for a breach of an agreement will be. Such clauses will be upheld as long as long as they are not a penalty or unreasonable to one side or the other. Generally we accept liquidated damages clauses where it may not always be clear what the actual damages to a buyer or seller might be and the parties have made a good faith effort to figure out in this clause what the appropriate monetary remedy may be.
Date of Buy-Sell Agreement Date Buyers Breach Date Sellers Sold
------------------------------------------------------------------------------------------ down $70,000
Trial Court: $70,000 (contract minus sell price) plus other damages such as punitive damages.
On Appeal: Contract price minus FMV on date of breach.
The appellate court represents the majority. Some jurisdictions are moving towards the price the seller, making reasonable efforts, is able to sell for. In other words, some jurisdictions have adopted difference between contract price and sell price. You cannot get punitive damages but can get incidental and consequential damages – other damages you suffered as a result of the breach (costs of re-advertising, etc.)
Another downside to the majority rule is the FMV at the time of breach will always be speculative and will be a battle of experts. Even if sellers would like specific performance, not a practical
The most common remedy for when sellers breach is specific performance and the buyers want the house.
Kutzin v. Pirnie
Supreme Court of NJ, 1991
Majority rule on the ability of a seller to keep a deposit as damages for a buyer’s breach
The contract did not have a liquidated damages clause so we are relying on the common law in the jurisdiction.
The buyers paid 10% of the purchase price as a deposit and then breached the agreement. The buyers sued for their deposit back for the difference between deposit and actual damages ($17,365).
The trial court ordered the sellers to return the remaining $18,675 to the buyers and the appellate court reversed and applied the common law rule that a seller can retain a deposit even when the amount of the deposit exceeds actual damages. It is still the majority rule (not the modern rule however). The seller can retain up to 10% of the purchase price for buyer’s breach regardless of actuals. Anything over that would be considered a penalty.
DEEDS
The device by which we transfer title. Grantor executes a deed, puts on the deed the name and the description of the property to be transferred, the grantor’s name and the name of the grantee. In some cases the name of the grantee is actually left blank and that someone else can fill it in then. The grantee can flip the property without showing he or she had an interest in the land.
Deeds come in two varieties with regard to the promises they make:
1. General Warranty Deeds. The general warranty deed contains six specific covenants of title that warrant against any defect in the grantor’s title. For example, the covenant against encumbrances warrants that there are no mortgages, easements, liens or other encumbrances on the property at the time the deed is delivered. It warrants against all defects in title that are not specifically excluded from coverage on the face of the deed whether the defects arose before the grantor took title or while grantor held title. Essentially he is saying, I took good title from my grantor and I warrant that I am transferring good title to you and did nothing to compromise the title. If there are easements, covenants or restrictions that have been recorded, then the general warranty deed will say, I will warrant the condition of title except as to easement of farmer Jones and the happy valley subdivision covenants and restrictions.
2. Special Warranty Deeds. The special warranty deed usually contains the six title covenants found in the general warranty deed, but applies them only to defects caused by the acts or omissions of the grantor. For example, suppose A, having no title whatever to a parcel of land, purports to convey title to B, and B in turn conveys to C using a special warranty deed; because the title defect was caused by A, not B, B is not liable to C. Not every jurisdiction permits special warranty deeds. It does not warrant that there are no defects in title that arose before grantor took the property. He is saying, you are getting title as good as I received. I didn’t compromise the title but I make no promises about what happened before I owned the property.
The difference between the two warranty deeds is the period of time over which the grantor warrants to the grantee that he or she will be responsible for making good on any defects in the title.
Quitclaim Deed. The quitclaim deed contains no title covenants. By its use, the grantor does not warrant that she owns the property or—if she has any title—that her title is good. This type of deed merely conveys whatever right, title, or interest the grantor may have in the land. It is just as effective as transferring title, but it does not make the deed warranties.
Any deed properly executed is still sufficient to transfer.
Forgery and Fraud
A forged deed is no good to anyone. It can never give the forger title but also anyone who purchases from the forger cannot get title.
A fraudulently obtained deed is no good to the person who commits a fraud but a when transferred to a good faith or bona fide purchaser for value – someone who takes with no notice that the deed is fraudulent and thus no notice that the person who was defrauded has a superior interest in the title – that good purchaser for value can take good title from the person who commits the fraud.
Page 514
In many jurisdictions it would be enough to say:
General Warranty Deed
“I, John Doe, hereby transfer this ______ pursuant to this General Warranty Deed.”
We would then know that those 6 general covenants all apply. The difference between the 6 is when the SOL for actions for their violation begin to run. The deed covenants are:
Present Covenants:
Present covenants make statements about of the condition of title at the moment of closing. They are violated if at all at closing meaning, the SOL for violation of these three present covenants begins to run at the moment of closing.
1. Covenant of seisin. I own everything that I convey to you
2. Covenant of right to convey. I have the right to convey to you everything I convey to you.
3. Covenant against encumbrances. There are no legal encumbrances on title other than those that are specifically spelled out as exceptions in the deed.
a. Any private covenants, restrictions, and servitudes (private agreements between other owners that run with the land).
b. Any lien on the property at the time of closing.
c. Easements.
d. Any interest in the land including an adverse possessor at the moment of closing.
e. Interests less than the fee. A properly recorded lease, life estates, executory interests, remainder interests, etc.
f. Someone else owning of air or mineral rights. If they have been properly conveyed away, that is an interest less than the fee.
Future Covenants
Future Covenants are promises rather that declarations of existing fact. These are promises of things that grantor will do in the future if necessary.
1. Covenant of General Warranty. Promise that grantor will step up and defend against all lawful claims of title superior to yours and will compensate you for any losses. Not breached by discovery of a right superior, breached when someone steps forward and actually asserts the superior right. That’s when the SOL begins to run.
2. Covenant of Quiet Enjoyment. In many jurisdictions this covenant has been subsumed with covenant of general warranty to form one covenant. The grantee will not be disturbed by someone asserting superior title and if someone does that, grantor will compensate your any losses.
3. Covenant of Future Assurances. Promise by the grantor that he will cooperate with the grantee by executing any document that may be required to perfect the title conveyed.
The difference is the SOL – it does not begin to run until the time in the future when the covenant is actually breached. For example, covenant of general warranty and covenant of quiet enjoyment are not breached simply by discovery that someone has a right superior to the grantees in the title, they are only breached when someone actually steps forward and actually asserts (in court or by entering the property) that superior right and disturbs the grantee in his or her title – that’s when the SOL for the violation of the future covenants begins to run.
Brown v. Lober
Supreme Court of IL, 1979
Facts: P acquired the subject property under a general warranty deed despite the fact that a 2/3 interest in mineral rights had previously been reserved.
The Bosts give a general warranty deed. They did not own everything they purported to convey. P decides to make money from the property by selling the mineral rights. The coal company did a title search before they took a deed from P. The coal company discovered that P only owned 1/3 of the mineral rights.
That put the Browns on actual notice. If they had discovered this sooner they would have a remedy under the 10 year statute of limitations for violation of present covenants – statements of the condition of title at the moment of closing.
Issue: The Browns realize the jig is up on the future covenants and they can’t dance because the SOL has run. The Browns want to argue that the mere discovery that someone else has a superior interests and their inability to sell those rights violates the future covenant of quiet enjoyment.
Rule of Law: The mere existence of a superior title does not constitute a breach of the covenant of quiet enjoyment.
Holding and Decision: P was in no way hindered from peaceable possession and enjoyment of his property by someone holding superior title. The mere fact that he had to renegotiate his contract for the assignment of mineral rights does not constitute an interference with quiet enjoyment, thus the suit was premature. The covenant of quiet enjoyment guarantees only possession and enjoyment of the premises, not a perfect title. The reservation of mineral rights was a matter of public record and P could have maintained an action for breach of warranty; however, he let the SOL run and he lost his opportunity.
The preservation of mineral rights was properly recorded. All they had to do is check the land records and the mineral rights would have shown up.
The plaintiff’s failed to secure. That is relevant to the court because they were cheap or lazy. Their oversight does not justify overruling.
Adverse Possession Hypo: P’s could legally take more minerals than they actually occupied by constructive adverse possession under color of title because they have a deed that gives them FSA. FSA gives you all mineral rights; therefore, if they exploit anything over their 1/3 they are asserting constructive adverse possession through color of title of the rest and if the true owner does not come in and eject them, they will be able to claim all the mineral rights when they satisfy the period for continuous occupancy.
The P in this case was either cheap or lazy and the court is not going to go out of its way to help him out. His oversight does not justify the overruling numerous other decisions.
If the original owner with 2/3 mineral rights showed up to mine it, that would be a violation of quiet enjoyment of title.
Benefits of Title Insurance
1. It is far less likely that an insurance company will go under than it is that your grantor will eventually die. You will have a remedy against an insurance company 20 years from now.
2. Someone completes AP one month before you took title. You spend $80,000 defending the quite title action and bringing your ejectment counterclaim. If the grantor gave you a warranty deed for good title (and it wasn’t really), you now have a judgment that says, you have good title! Even if you win, the title insurance company will compensate you for the cost of the defense. Grantor only pays defense costs if you lose.
Frimberger v. Anzellotti
CT, 1991
What is an encumbrance pre-closing and what is an encumbrance post-closing
Facts: D contended that she did not breach the warranty against encumbrances and did not innocently misrepresent the condition of property purchased by P and subsequently found to be in violation of wetlands statutes.
Rule of Law: Latent violations of state or municipal land use regulations (1) that do not appear on the land records, (2) that are unknown to the seller of the property, (3) as to which the agency charged with enforcement has taken no official action to compel compliance at the time the deed was executed, and (4) that have not ripened into an interest that can be recorded on the land records do not constitute an encumbrance for the purpose of the deed warranty.
Set of pre-closing encumbrances that compromise marketability
[ } ]
At Post-closing we are far more reluctant to undo a deal than we would be in that interim period between execution of the buy-sell agreement and closing. We decide as a matter of policy that if problems regarding marketability of title arise prior to closing we let the buyer rescind and walk away.
Rockafellor v. Gray
IA, 1922
Facts: Hansen and Gregerson (P), the remote grantees of a deed from Connelly (D) sued for a breach of the covenant of seisin.
Rule of Law: The breach of the covenant of seisin creates a chose in action which passes by assignment to subsequent grantees of the deed.
Chose in action: The right to recover, or the item recoverable, in a lawsuit.
WEEK 12
DEEDS
If you take property without notice of someone else’s otherwise perfectly legitimate interest in that property, then you as a good faith purchaser for value take free of that interest. You take without being bound by that interest. Meaning, if there was a mortgage on property that the lender simply forgot to record, even though we know ordinarily if a lien is not released at or prior to closing, it runs with the land.
If you take free of notice of that lien, you also take free of the lien. The interest is effectively extinguished.
In order to be bound by an interest you have to be on notice of it.
There are three types of notice:
1. Record notice or constructive notice. If something is recorded, whether you check or not, you are on notice.
2. Actual notice. Someone has told you or you’ve seen the document.
3. Inquiry notice. There is something in the record of title or something about the condition of the property that would put a reasonable person on notice to inquire further about whether someone has a prior and thus superior interest in that property. Example: there is language in the deed that causes you to say, this isn’t right, I need to ask whether there is another interest here. Example 2: There is someone on the property whose presence is inconsistent with whom the land records reflect who title owner is. Whether you check or not it doesn’t matter. If they are there at or before closing and you don’t bother to check, then you’re still on inquiry notice. If you don’t check, the court will decide what would have been a reasonable inquiry under the circumstances. Wheel rut on property example:
Good Faith Purchaser for Value
Our system protects GFPFV
A good faith purchaser for value is one who takes without notice of a prior and thus superior notice.
Rockafellor v. Gray
IA, 1922
Facts: Hansen and Gregerson (P), the remote grantees of a deed from Connelly (D) sued for a breach of the covenant of seisin.
Rule of Law: The breach of the covenant of seisin creates a chose in action which passes by assignment to subsequent grantees of the deed.
Two lessons:
1. Chose in action: A minority rule which says that the right to sue on a prior grantor’s warranty deed runs with the land.
2. Regardless of what a deed cites as purchase price, as between grantor and grantee, the grantee is limited under the deed warranties to the lesser of that facial number or what was actually paid.
Title Insurance
Deed warranties are a cap
O by General Warranty Deed to A for $200,000, now worth $160,000. Z claims title. A is capped at $160,000, not $200,000 because just as your grantor does not insure against whatever loss you may suffer for appreciation over and above the property, grantor is also is not your guarantor against drops in the market. Capped at FMV at time of loss. 200K is the cap even if FMV appreciates.
ESTOPPEL BY DEED
MIA (although brother knew otherwise), sells property to B, soldier comes back, kicks B off – no money, no land. O dies and A now does own the land. Because A sold property he did not own, if A ever comes into legal title to that property, estoppel by deed transfers immediately to the person he sold it to (B).
Modern Utility
GM land accumulation plant example. Real estate agent will convey to developer prior to the time land owner conveys to the real estate company.
DELIVERY
Analogous to the principal of delivery of gifts.
In order for a deed to transfer title we must have (1) delivery of that deed – physical delivery by mail, handed over or by messenger, (2) coupled with the intent to transfer title. Once that occurs, grantee has title. If he hands back the title at that point, it doesn’t matter the grantee still has title.
Recording Systems
Who owns the property between these multiple grantees from the same grantor. Grantees always have a better claim to title than the grantor regardless whether they record or not. The recording statutes and the order of recording is going to determine as between multiple grantees. If the condition occurs
Sweeney v. Sweeney
CT, 1940
The law does not protect the cheap or the lazy.
Rule of law: Where a deed has been formally executed and delivered, the presumption that the grantee assented to delivery can be overcome only by evidence that no delivery was in fact intended.
Conditional Delivery
Conditional delivery: when a grantor properly executes a deed and then gives the deed to a third party with instructions to deliver to grantee upon the occurrence of the condition. If the condition occurs and delivery is accomplished before (1) the grantor dies; or (2) the grantor recalls the deed from the third party, then we have a proper completed delivery and title is vested in the grantee.
We do not permit conditional delivery to be completed after the death of the grantor with two exceptions: (1) Unless the condition of the delivery is the death of the grantor; and (2) Grantor has retained a right to recall the deed from the third party.
If the delivery is accomplished by the third party before grantor dies or recalls the deed – that’s ok.
We establish a rebuttable presumption that where the deed is beneficial to the grantee, that physical delivery comes with the intent to transfer title meaning, in the absence of any compelling evidence to the contrary, we will presume it was delivered with the intent to transfer title.
Rosengrant v. Rosengrant
OK, 1981
Rule: A deed is not considered to be delivered if the grantor continues to exercise control over the property and the delivery is conditional on the grantor’s death.
We are forced as a matter of law to presume that because Harold’s name was on the envelope, he could have come for it at any time, thus retaining a right to recall the deed; therefore, there could not have been a proper conditional delivery of the deed following the death of Harold.
MORTGAGE
Murphy v. Financial Develop. Corp.
NH, 1985
Rule: Mere compliance with statutory requirements may not discharge a mortgagee’s duty to exercise good faith and due diligence in selling the property at foreclosure.
Fair Price
The lender did not set a fair price – a price below FMV. (1) Fair price is used for properties in foreclosure (they are not in the best condition); (2) For a quick sale; and (3) You only get a quitclaim deed when you buy a foreclosure.
Power of Sale Mortgage
If there is a default on the terms of the note the property can be sold at a foreclosure sale without any court involvement.
Duties of Lender When There Is a Foreclosure Sale
1. Duty of good faith. You cannot do anything intentionally to hurt borrower’s interest.
2. Duty of due diligence. A fiduciary obligation lender owes to borrower. Not just compliance with the statute – maybe advertise more, hire a realtor, etc., but at a minimum, set a fair price.
Damages
The measure of damages for breach of duty of due diligence is fair price (as determined by the court) and sale price.
The measure of damages for breach of good faith is FMV minus sale price.
LAND CONTRACT (NOT CONTRACT FOR THE SALE OF LAND)
Land Contract: The buyer and the seller sign an agreement under which the buyer can move onto the property, the seller tenders possession of the property immediately but retains legal title to the property (does not tender a deed) in exchange for possession, the buyer makes specified payments for generally 20 years, and if the buyer completes the land contract by making all payments, the seller will convey a deed to the buyer. Not only does he have possession but also holds legal title to the property.
The point is this: The buyer under a land contract does not hold legal title until the land contract is completed.
Common Law (majority) Rule: If at any time during the course of the contract the buyer defaults at that point the seller at common law had the right to retake possession of the property and keep every penny that had been paid.
Usually these are no money down. It is a way for people to get real property who normally wouldn’t qualify for a loan.
Modern Rule of Equitable Conversion
The value of the property over and above the amount that buyer still owes on the land contract has shifted to the buyer. The seller still has legal title but now the buyer is deemed equitably the owner of the value of the property minus the amount still owed on the land contract. The buyer is entitled to a closure sale at which whatever price is bid on the property, the seller keeps whatever is still owed on the contract. The high bidder will most likely be the buyer.
RECORDING SYSTEM
Recording statutes have no effect on the validity of a deed or any other instrument. A deed properly conveyed is always good as between grantor and grantee. The recording statutes help us decide who amongst the grantees is the legal title owner.
- Provides a secure place
- Increases the reliability of documents
- Protect good faith purchasers for value and lien creditors against prior unrecorded interests
- Puts the rest of us on notice
Grantor and Grantee Indices
Any interest or any matter affecting title in real property gives notice to all the world (record or constructive notice) that there is a prior and thus superior interest out there.
Two types of recording systems:
1. Tract index system – All matters filed under legal description of the property
2. Majority – Grantor/grantee index system and Liber number
(a) Liber – copies of the actual documents submitted for recording
(b) Grantee indices – name of grantee, legal disc, name of grantor, date recorded
(c) Grantor indices – name of grantor. “ ”
Marketable Title Statute
A statute that says you have to go back only as far as the first recorded title that is at least 30 years old. Any interest recorded before that time if not re-recorded is deemed extinguished. Not every state has a marketable title statute.
Title Insurance
Title insurance only covers any interest superior to yours that was properly recorded. You are on inquiry notice of any adverse possessor. An inspection of the property would disclose any adverse possessor or easements not recorded. Title insurance excludes things an inspection would have discovered and does not insure AP’s or prescriptive easements.
Luthi v. Evans
KS, 1978
Rule: An instrument which describes the property to be conveyed as “all of the grantor’s property in a certain county” is not sufficiently specific as to be effective against subsequent purchasers and mortgagees unless they have actual knowledge of the transfer.
Mother Hubbard Deed
A deed that looks like any other deed except in the description line it will say, All my real property interests in X county. It doesn’t specifically list all of the properties being conveyed. It just says, I am deeding to you all of my interests. If properly executed and delivered it is valid to convey from grantor to grantee any and all interest in real property grantor may hold in that county. The trick it to make sure we have properly entered in the index all of the properties that are covered by the Mother Hubbard Clause.
Soldiers and sailors or those who traveled long distances used Mother Hubbard Deeds so that the land would not pass through a will.
When there is a proper entry in the index with regard to a reference to the liber and page of the document, you are not obligated to look beyond the description of the property as listed in the index. There is no need to go to the liber and page to see the actual document that might put you on notice more than what the index said. You are you entitled to rely on the entry made by the registrar of deeds or recorder of deeds. The court said that looking at the index is enough. Subsequent purchasers are entitled to rely on the description of the property listed in the index alone. We are not going to make them go and look at the actual document.
Policy: We are trying to balance safety and security for buyers and sellers against complexity and time consumption and expense.
If the recorder makes a mistake, we want people to record and therefore charge subsequent purchasers with notice even though they could not find the record. Some jurisdictions take the opposite approach.
Orr v. Byers
CA, 1988
Idem Sonans: The doctrine that a name stated in a legal document need not be its exact spelling if the name as pronounced sounds sufficiently identical to the name in the document. It does not work for recordings.
Rule: A misspelled name does not give constructive notice to title searchers under the doctrine of idem sonans.
If you take property without notice of someone else’s otherwise perfectly legitimate interest in that property, then you as a good faith purchaser for value take free of that interest. You take without being bound by that interest. Meaning, if there was a mortgage on property that the lender simply forgot to record, even though we know ordinarily if a lien is not released at or prior to closing, it runs with the land.
If you take free of notice of that lien, you also take free of the lien. The interest is effectively extinguished.
In order to be bound by an interest you have to be on notice of it.
There are three types of notice:
1. Record notice or constructive notice. If something is recorded, whether you check or not, you are on notice.
2. Actual notice. Someone has told you or you’ve seen the document.
3. Inquiry notice. There is something in the record of title or something about the condition of the property that would put a reasonable person on notice to inquire further about whether someone has a prior and thus superior interest in that property. Example: there is language in the deed that causes you to say, this isn’t right, I need to ask whether there is another interest here. Example 2: There is someone on the property whose presence is inconsistent with whom the land records reflect who title owner is. Whether you check or not it doesn’t matter. If they are there at or before closing and you don’t bother to check, then you’re still on inquiry notice. If you don’t check, the court will decide what would have been a reasonable inquiry under the circumstances. Wheel rut on property example:
Good Faith Purchaser for Value
Our system protects GFPFV
A good faith purchaser for value is one who takes without notice of a prior and thus superior notice.
Rockafellor v. Gray
IA, 1922
Facts: Hansen and Gregerson (P), the remote grantees of a deed from Connelly (D) sued for a breach of the covenant of seisin.
Rule of Law: The breach of the covenant of seisin creates a chose in action which passes by assignment to subsequent grantees of the deed.
Two lessons:
1. Chose in action: A minority rule which says that the right to sue on a prior grantor’s warranty deed runs with the land.
2. Regardless of what a deed cites as purchase price, as between grantor and grantee, the grantee is limited under the deed warranties to the lesser of that facial number or what was actually paid.
Title Insurance
Deed warranties are a cap
O by General Warranty Deed to A for $200,000, now worth $160,000. Z claims title. A is capped at $160,000, not $200,000 because just as your grantor does not insure against whatever loss you may suffer for appreciation over and above the property, grantor is also is not your guarantor against drops in the market. Capped at FMV at time of loss. 200K is the cap even if FMV appreciates.
ESTOPPEL BY DEED
MIA (although brother knew otherwise), sells property to B, soldier comes back, kicks B off – no money, no land. O dies and A now does own the land. Because A sold property he did not own, if A ever comes into legal title to that property, estoppel by deed transfers immediately to the person he sold it to (B).
Modern Utility
GM land accumulation plant example. Real estate agent will convey to developer prior to the time land owner conveys to the real estate company.
DELIVERY
Analogous to the principal of delivery of gifts.
In order for a deed to transfer title we must have (1) delivery of that deed – physical delivery by mail, handed over or by messenger, (2) coupled with the intent to transfer title. Once that occurs, grantee has title. If he hands back the title at that point, it doesn’t matter the grantee still has title.
Recording Systems
Who owns the property between these multiple grantees from the same grantor. Grantees always have a better claim to title than the grantor regardless whether they record or not. The recording statutes and the order of recording is going to determine as between multiple grantees. If the condition occurs
Sweeney v. Sweeney
CT, 1940
The law does not protect the cheap or the lazy.
Rule of law: Where a deed has been formally executed and delivered, the presumption that the grantee assented to delivery can be overcome only by evidence that no delivery was in fact intended.
Conditional Delivery
Conditional delivery: when a grantor properly executes a deed and then gives the deed to a third party with instructions to deliver to grantee upon the occurrence of the condition. If the condition occurs and delivery is accomplished before (1) the grantor dies; or (2) the grantor recalls the deed from the third party, then we have a proper completed delivery and title is vested in the grantee.
We do not permit conditional delivery to be completed after the death of the grantor with two exceptions: (1) Unless the condition of the delivery is the death of the grantor; and (2) Grantor has retained a right to recall the deed from the third party.
If the delivery is accomplished by the third party before grantor dies or recalls the deed – that’s ok.
We establish a rebuttable presumption that where the deed is beneficial to the grantee, that physical delivery comes with the intent to transfer title meaning, in the absence of any compelling evidence to the contrary, we will presume it was delivered with the intent to transfer title.
Rosengrant v. Rosengrant
OK, 1981
Rule: A deed is not considered to be delivered if the grantor continues to exercise control over the property and the delivery is conditional on the grantor’s death.
We are forced as a matter of law to presume that because Harold’s name was on the envelope, he could have come for it at any time, thus retaining a right to recall the deed; therefore, there could not have been a proper conditional delivery of the deed following the death of Harold.
MORTGAGE
Murphy v. Financial Develop. Corp.
NH, 1985
Rule: Mere compliance with statutory requirements may not discharge a mortgagee’s duty to exercise good faith and due diligence in selling the property at foreclosure.
Fair Price
The lender did not set a fair price – a price below FMV. (1) Fair price is used for properties in foreclosure (they are not in the best condition); (2) For a quick sale; and (3) You only get a quitclaim deed when you buy a foreclosure.
Power of Sale Mortgage
If there is a default on the terms of the note the property can be sold at a foreclosure sale without any court involvement.
Duties of Lender When There Is a Foreclosure Sale
1. Duty of good faith. You cannot do anything intentionally to hurt borrower’s interest.
2. Duty of due diligence. A fiduciary obligation lender owes to borrower. Not just compliance with the statute – maybe advertise more, hire a realtor, etc., but at a minimum, set a fair price.
Damages
The measure of damages for breach of duty of due diligence is fair price (as determined by the court) and sale price.
The measure of damages for breach of good faith is FMV minus sale price.
LAND CONTRACT (NOT CONTRACT FOR THE SALE OF LAND)
Land Contract: The buyer and the seller sign an agreement under which the buyer can move onto the property, the seller tenders possession of the property immediately but retains legal title to the property (does not tender a deed) in exchange for possession, the buyer makes specified payments for generally 20 years, and if the buyer completes the land contract by making all payments, the seller will convey a deed to the buyer. Not only does he have possession but also holds legal title to the property.
The point is this: The buyer under a land contract does not hold legal title until the land contract is completed.
Common Law (majority) Rule: If at any time during the course of the contract the buyer defaults at that point the seller at common law had the right to retake possession of the property and keep every penny that had been paid.
Usually these are no money down. It is a way for people to get real property who normally wouldn’t qualify for a loan.
Modern Rule of Equitable Conversion
The value of the property over and above the amount that buyer still owes on the land contract has shifted to the buyer. The seller still has legal title but now the buyer is deemed equitably the owner of the value of the property minus the amount still owed on the land contract. The buyer is entitled to a closure sale at which whatever price is bid on the property, the seller keeps whatever is still owed on the contract. The high bidder will most likely be the buyer.
RECORDING SYSTEM
Recording statutes have no effect on the validity of a deed or any other instrument. A deed properly conveyed is always good as between grantor and grantee. The recording statutes help us decide who amongst the grantees is the legal title owner.
- Provides a secure place
- Increases the reliability of documents
- Protect good faith purchasers for value and lien creditors against prior unrecorded interests
- Puts the rest of us on notice
Grantor and Grantee Indices
Any interest or any matter affecting title in real property gives notice to all the world (record or constructive notice) that there is a prior and thus superior interest out there.
Two types of recording systems:
1. Tract index system – All matters filed under legal description of the property
2. Majority – Grantor/grantee index system and Liber number
(a) Liber – copies of the actual documents submitted for recording
(b) Grantee indices – name of grantee, legal disc, name of grantor, date recorded
(c) Grantor indices – name of grantor. “ ”
Marketable Title Statute
A statute that says you have to go back only as far as the first recorded title that is at least 30 years old. Any interest recorded before that time if not re-recorded is deemed extinguished. Not every state has a marketable title statute.
Title Insurance
Title insurance only covers any interest superior to yours that was properly recorded. You are on inquiry notice of any adverse possessor. An inspection of the property would disclose any adverse possessor or easements not recorded. Title insurance excludes things an inspection would have discovered and does not insure AP’s or prescriptive easements.
Luthi v. Evans
KS, 1978
Rule: An instrument which describes the property to be conveyed as “all of the grantor’s property in a certain county” is not sufficiently specific as to be effective against subsequent purchasers and mortgagees unless they have actual knowledge of the transfer.
Mother Hubbard Deed
A deed that looks like any other deed except in the description line it will say, All my real property interests in X county. It doesn’t specifically list all of the properties being conveyed. It just says, I am deeding to you all of my interests. If properly executed and delivered it is valid to convey from grantor to grantee any and all interest in real property grantor may hold in that county. The trick it to make sure we have properly entered in the index all of the properties that are covered by the Mother Hubbard Clause.
Soldiers and sailors or those who traveled long distances used Mother Hubbard Deeds so that the land would not pass through a will.
When there is a proper entry in the index with regard to a reference to the liber and page of the document, you are not obligated to look beyond the description of the property as listed in the index. There is no need to go to the liber and page to see the actual document that might put you on notice more than what the index said. You are you entitled to rely on the entry made by the registrar of deeds or recorder of deeds. The court said that looking at the index is enough. Subsequent purchasers are entitled to rely on the description of the property listed in the index alone. We are not going to make them go and look at the actual document.
Policy: We are trying to balance safety and security for buyers and sellers against complexity and time consumption and expense.
If the recorder makes a mistake, we want people to record and therefore charge subsequent purchasers with notice even though they could not find the record. Some jurisdictions take the opposite approach.
Orr v. Byers
CA, 1988
Idem Sonans: The doctrine that a name stated in a legal document need not be its exact spelling if the name as pronounced sounds sufficiently identical to the name in the document. It does not work for recordings.
Rule: A misspelled name does not give constructive notice to title searchers under the doctrine of idem sonans.
WEEK 13
Luthie case. Mother Hubbard Clause
RECORDING STATUTES
Three types for the purpose of determining
1. Race Recording System. The first to record wins. Minority opinion (2 jurisdictions). We still protect GFPV, the first GFPV to record
2. Notice Recording System. The last good faith purchaser for value wins. Whoever records after
O to A GFPV
O to B GFPV
O to C GFPV
A records
B records
C records
You take without notice
3.
Actual
Record
Inquiry (harper v. paradise) LE in maude and a VR in FS to Maude’s children
Shelter last gfpv does not matter after you record. You can still transfer good title to a purchaser for value because if we made.
Messersmith v. smith
O to Fred. A few years later O conveys to Smith.
Smith conveys to Seale.
Smith records, Seale records then Fred records.
If a deed is facially defective, it is not entitled to be recorded.
A wild deed cannot be found. A break in the chain of title. This is an exception to race notice.
Drywall case. You are not bound within your chain of title.
All deeds come from common grantor.
Grantor must have put restriction in first deeds conveyed with promise to bind all grantor’s remaining lots and there was a common plan or scheme for the subdivision.
Common plan or schemed is established by looking to the way the developer may have advertised the property or more commonly the work done with the planning.
Marketable title statutes: fixed and discreet limit for your needs to search. A Purchaser is only on record notice of any interest recorded after the first title that is at least some states say 30, 40, years old.
Title Insurance
When the amt is less
If there is anything that could be disclosed, the insurance company... they are only insuring you are getting the property as described subject to.
1. Interests in the land including less than the fee
2. pecuniary interests, liens, assessments,
3. covenants, rests, eq. servitude
RECORDING STATUTES
Three types for the purpose of determining
1. Race Recording System. The first to record wins. Minority opinion (2 jurisdictions). We still protect GFPV, the first GFPV to record
2. Notice Recording System. The last good faith purchaser for value wins. Whoever records after
O to A GFPV
O to B GFPV
O to C GFPV
A records
B records
C records
You take without notice
3.
Actual
Record
Inquiry (harper v. paradise) LE in maude and a VR in FS to Maude’s children
Shelter last gfpv does not matter after you record. You can still transfer good title to a purchaser for value because if we made.
Messersmith v. smith
O to Fred. A few years later O conveys to Smith.
Smith conveys to Seale.
Smith records, Seale records then Fred records.
If a deed is facially defective, it is not entitled to be recorded.
A wild deed cannot be found. A break in the chain of title. This is an exception to race notice.
Drywall case. You are not bound within your chain of title.
All deeds come from common grantor.
Grantor must have put restriction in first deeds conveyed with promise to bind all grantor’s remaining lots and there was a common plan or scheme for the subdivision.
Common plan or schemed is established by looking to the way the developer may have advertised the property or more commonly the work done with the planning.
Marketable title statutes: fixed and discreet limit for your needs to search. A Purchaser is only on record notice of any interest recorded after the first title that is at least some states say 30, 40, years old.
Title Insurance
When the amt is less
If there is anything that could be disclosed, the insurance company... they are only insuring you are getting the property as described subject to.
1. Interests in the land including less than the fee
2. pecuniary interests, liens, assessments,
3. covenants, rests, eq. servitude
End
