I. INTRODUCTION
A. Why? Learning property law gives one the power to control the disposition of wealth in society. Idealist theory
B. Subject Matter: That which is owned, can be owned. "Bundle of Sticks"
1. Rights and interests that humans have in relation to object and to each other in relation to the object.
a. Humans to Object
b. Humans to Other Humans IN RELATION TO Object
C. Types of Property
1. Real Property--Most interests in land and all other interests in land. Typically immovable
a. Ex. Land, house on land, land and minerals underneath
2. Personal Property--chattels, tangible movable objects
a. Ex. Book, minerals once removed and sold separately
3. Chose in action--thing/debt that can be enforced by bringing an action against a person.
a. Ex. Intellectual property, stock, debt/lending
1. First Class--Tangible evidence/viewable (certificate of stock)
2. Second Class--No tangible embodiment (borrow money and promise to pay.
4. Hybrid chattel real--Mixture of real property with personal property
a. Ex. Interest which a tenant owns in real estate when there is landlord-tenant relationship (lease)
D. Why distinguish different kinds of property?
1. In transferring interest, different rules may apply
A. NOTE: Cant give/sell what you don't have
2. Disposition of property at death/inheritance
A. Legatees--person who takes property under a will
B. Devisee--Person you give property to under a will
3. Different statute of limitations
4. Different procedural remedies (must have right writ)
5. Nature of property may determine who is entitled to it
A. Ex. Tenancy expires and tenant has put in chandelier (if fixture belongs to tenant, if part of property owned by LL)
6. Seison--land transferred
7. Spouse dies, other may have dower
A. Ex. Traditionally, wife gets real estate that husband owned but not personal property. NY is different?
B. Ex. Married man in partnership--wife only gets interest at death, not real property because the partnership doesn't continue)
E. Damages
1. Nominal (when there is no actual loss, designed to vindicate legal right)
2. Compensatory (most common, to restore status quo--damages = to the loss)
3. Punitive/exemplary (when D is guilty of extreme/gross negligence-misconduct, then D will be punished over and above to set and example)
a. Deterrance to Defendant
b. Example to others
c. Sometimes only the effective remedy
d. Partial profit to State--NY (so P doesn't get windfall)
F. Are rights to property absolute? Private property exists b/c states back it up.
1. Right to Exclude
a. Jaques v. Steenberg--If you interfere by way of trespass to someone's property, their sole interest in the property may be vindicated by allowing punitive damages even when there is no actual damage
b. Cohen article--keep off my property unless you have permission, which I may grant or withhold--State protects this interest by endorsing this right by enforcement.
c. State action to enforce discriminatory condition of transfer--now prohibited.
d. Historically:
1. Originally everything owned in common--Gan Eden
2. As resources became scarce and it became clear that people would force things into extinction, unless...private property system created.
3. William Blackstone--right to exclude is absolute--sole and despotic control however, he eventually retreated from this extreme view and courted the idea tat there are some limitations
4. Hobbes view (This is mine) vs. Locke (Right created by labor)
5. Why Private Property is good....
a. Utilitarian view--incentive for people to make property more productive if they could keep what they've sown/grown.
b. Incentives for people to use resources more efficiently
c. Avoid conflict between people
d. Grow common wealth
e. Limitations
1. Necessity/Privileged Tresspasser- In a circumstance of necessity, the LL would have to let person in, and has to pave the way.
a. Privileged tresspasser is responsible for ACTUAL damages (forseeible or not) that she causes
b. State v. Shack--migrant workers living on farm get visit from legal/health aid workers. LL disallows the visit. However, ct. Says there are limitations on LL's absolute right to exclude
-Human rights/social interest (no dominion over destiny of workers)
2. Cannot unreasonably interfere with other's use-
a. Nuisance law, zoning laws
b. Rule against perpetuities, laws of inheritance, some restrictions on sales to others
3. Airspace and trespass: When airplane flies over your land, can you sue for trespass? (Have possession, D is interfering)
A. YES> Early common law--ad column. All airspace above and below your property is yours.
B. MAYBE> Doctrine of effective/potential possession-As much airspace above as is essential to complete use and potential use of land in question
C. PROBABLY NOT> Doctrine of Actual Possession--Airspace possession limited to actual use. So includes space immediately incidental and adjacent thereto the land.
D. OTHER OPTION: Sue for Nuisance instead--Unreasonable and substantial interference with use/enjoyment of property (does not have to show actual flight over the land, but probably has to be continuing noise, etc)
---NOTE Restatement of Torts
A. First Restatement (Section 194) : Landowner owns all the way up; even so, pilot has privilege to travel through if he complies with four conditions
1. Travel must be for legitimate purpose (no drugs)
2. Flight must be conducted in reasonable manner (no stunts)
3. Flight must not constitute unreasonable interference with use of land (no dropping shit)
4. Flight must be in conformity with applicable rules and regulations. (Local, state, federal law, etc.)
-Even then, like all privileged trespassers, are liable for any damages caused.
-Also, airline has affirmative burden of proof to show compliance with conditions
B. Second Restatement (Section 159) Flight by aircraft through the airspace above is trespass ONLY IF:
1. D enters into the immediate reaches of the airspace above/next to the land; AND,
2. Flight interferes substantially with use or enjoyment.
-Burden of proof is on the landowner to show these
-May be easier to get at them with nuisance law.
II. ACQUISITION OF PROPERTY BY CAPTURE--WILD ANIMALS
A. General Rule, State only has the power to regulate capture, and ownership of
wild animals is public domain. One gains an enforceable right to wild animal only
by reducing it to possession
B. Pierson v. Post--P chasing wild fox on public beach. D captures and kills fox and takes it for himself. Jury finds for P/chaser and D/taker appeals, saying that P never had a legally sufficient cause of action (was not possessor in the first place)
1. Issue: Does mere pursuit (of a wild animal) (on a public beach) confer a right to property. NO.
2. Support by scholars, not precedent. Policy interests?
a. Discouraging/encouraging litigation
b. Certainty--at capture--I wanna see blood!
c. Encourage destruction of noxious beasts
3. Suit sounds more like trespass on the case, which does NOT require P to first prove that he possessed the fox. However, framed in Pierson as trespass (P owned the property and D interfered) so P loses because he never owned it (ownership determinant on possession)
4. Definition of POSSESSION dependant on action (civil, criminal) and circuit
a. All steps necessary to render escape impossible
b. Some steps to render escape impossible, but all to render it highly improbable
c. All steps necessary to render escape highly improbable
d. Some steps necessary to render escape highly improbable, but all to
make it improbable
B. Limitations on possessor's right
1. Ratione Soli--"on account of the soil"
a. Person in possession of the land has 'constructive possession of the things that are on or under the land even if they are not actually in his control.
1. Would include: animal living on the land, animals captured on the land
b. Can a person who acquires title through a wrong (trespass) keep it?
1. RULE: First possessor, even if wrongdoer, can recover
2. Ex. T1 pursues, T2 reduces to possession, but T1 takes it away--T2 would prevail (first possessors right)
a. Yet, if on O's land, O would get it.
c. Ratione Soli applies to real property. Real property (land) only becomes personal property only when taken off the land. So, larceny after taken?
d. Can this be assigned/licensed--YES
-Ex. A gets permission, pursues fox on private land belonging to O, but T captures and takes it off. If assigned in writing, then A stands in landowner's shoes and gets the animal
1. NOTE: Subject to statute of frauds, must be in writing.
-Ex. If P who reduces to possession first is not licensed is precluded from recovery against someone with license who takes it away.
-Ex. If both are unlicenced, and P reduced to possession but D takes away, the fact that P had no license is still enough to prevent him from recovery. Irrelevant that D had no license either. Wild scramble.
e. Exception/Law of Accession: Mussels drawn from stream bed and
made into pearl buttons. Common Law: If one auguments the item and
adds value (even if there was a willful trespass/theft) may be able to keep
2. Generally, if you illegally reduce to possession, you have no enforceable property right.
1. Absolute: Hunt during closed season--violation of statute, so X who reduces the animal to possession cannot recover it against taker.
2. Limited: If statute directed at means of capture, then may still retain right
3. Note: Even if the state does not have possession, they can regulate and thus choose how to enforce laws.
3. Generally, possessor cannot gain an enforceable right when interfering with an Advantageous Relationship.
1. Keeble. Decoy maker P (business) places duck decoys in pond to lure others. D scared birds away from P's pond for D's own business reasons. Even though P has only constructive control/possession, he wins injunction and damages for interference.
2. Young v. Hutchens--Civil Action of Trespass. Commercial fisherman enclosed net around school of fish, but not completely. Jury for P and D objects. On appeal court says that it should not have gone to jury because reasonable people would disagree about P's efforts of possession--stringent def. of possession as actual control harder to prove. P looses.
1. P must prove he had property right to begin with (possession)
2. P must prove that D interfered with that right
3. Compare to: State v. Shaw--Criminal Action for Larceny. Court uses less stringent definition of possession--reasonable precautions against escape enough. Brought to jury and P wins.
B. Ferai Nature==If the wild animal escapes back to nature, (not necessarily natural habitat) it is lost to the original possessor unless he recaptures it.
NOTE: -How do you judge the wildness of the animals--individual characteristics, NOT the species/type
Mullett (Sea Lions) Title is lost when animal escaped to its natural liberty because title was qualified-conditioned on possession and contingent on continued possession.
1. Exception, Industry
a. Stevens (Fox for breeding purposes) Rule evolved because now there's an industry. Possession is protected, having spent money and labor on acquiring it.
2. Exception, Custom.
b. Ghen v. Rich Whale washed ashore. Harpoon from hunter still in it. Custom in P-town/whaling industry. Finder can't keep, b/c the hunter had constructive possession according to the local custom in geographic area
-NOTE: conformity to custom/usage admissible in evidence, but is not conclusive.
3. Exception, animus returndi
a. If particular animal, once reduced to possession, has a habit of returning (animus returndi) then you might be able to re-claim it after it escapes.
4. Exception, active pursuit
a. Don't loose qualified property right as long as you are actively pursuing the animal and have once possessed the animal.
NOTE: When a union between 2 domestic animals, each owned by different people, the owner of the mother keeps the offspring. Wild animals? Talmud Example-someone who owns the mother bird in nest, and bird found within 50 cupits, then belongs to bird mother-owner.
QUESTION: if animal chased onto private land, then ratione soli or original possessor
5. Stretching the wildness concept to natural gas/airspace
1. Generally, once gas escapes, then becomes common property. You loose property rights as long as the gas leaves the land
2. So, first to capture and enclose the gas gains valuable right in common law.
III. ACQUISITION OF PROPERTY--FINDERS
1. Armory v. DeLamorie-chimney sweep finds a jewel and takes it to a shop for appraisal. Ct says extreme liability for this shop keeper--boy gets best jewel.
RULE: Finder of jewel has title to it against all but its true owner
POLICY: Policy is to protect true owner by best facilitating the object's return. We let finders keep it in order to encourage reported finds, and allow owners to retrace their steps to find their shit quicker.
2. Bailors/Bailees v. Finders
A. A Bailee is entrusted with the goods for safekeeping/cleaning, etc, by the Bailor (owner).
-If a thief takes it from the Bailee, then the Bailee can recover 100% from thief.
(But Owner/Bailor cannot sue thief separately)
B. Finder has title except for true owner. When finder sues tortfeasor, he vindicates his own interest and is not recovering as the owner.
1. After Owner shows up to reclaim from Finder (even if finder has already recovered from Thief), Owner can recover from Thief too.
-Ex. Auto Accident--Insurance Co. pays your claim against D, then they are subrogated to your rights and can (also) sue defendant D.
2. NOTE, posessor has special possessory interest--even if posessor obtains wrongfully, he can reclaim for nonowner2 who violates possessory right.
3. What kind of interest does the finder have?
a. If 2 finders, then a joint tenancy (if A dies, then interest goes to
B) under right of survivorship. Goal---concentrate interest in fewer
hands, and enhance chances of true owner getting it back.
3. True owner will prevail against the finder
A. True owner has burden of proof to prove ownership
B. ONLY if the true owner has abandoned (absolute relinquishment of one's property right) his interest in the goods, will he lose against finder
-In order to effectuate abandonment, owner must have intent to abandon (mere lapse of time, inaction, may be evidence, but not conclusive)
4. "I found it!" (Who is a 'finder' and what requirements must be met)
A. Actual Control
1. If finder sells the good, he becomes a converter himself. He has no right to sell until the statute of limitations elapses (true owner loses interest when SOL runs)
2. In Bridges (banknote in store) Pollack sees it as who had actual control first. If on the shop floor, store owner never could have had it first (as he would have if it flew out of the register)
3. Bridges represents the general rule, "The first person who reduces the object to posession has actual (de facto) control"
B. Intent to Control
1. Intent to control object, irrespective of value (doesn't really matter how much you think it is worth)
2. Definition of intent and the things' contents. A broad definition will entail that because a person intends to control the bag, he intends to control the contents. A narrow definition restricts intent to what the finder is aware of.
Broad-
*Problem--How can you intend to control something you don't know exists? Under broad definition, then may be able to intend control.
*Also--if it's YOUR space (private property) intent may be inferred if the definition of intent is construed broadly.
3. Finder has responsibility to take ordinary due care of the item in the circumstances of the case (he's not being paid to act as security, but if he wants it, he will show it)
4. If finder incurs expenses, he can be reimbursed (on theory of unjust enrichment) for reasonable expenses. However, he cannot keep a lien on the goods until reimbursement.
5. Holmes says owner of private premises intends to control objects found there; in Bridges, the shop is open to the public so owner of shop cannot intend to control all of the things there.
5. Should the finder be entitled to a reward
A. If offer has been made and he knows about the offer--YES
B. If no offer by true owner, then NO unless it falls under law of salvage
6. Hannah v. Peel--Soldier stationed in house finds brooch under dust on windowsill. Three cases cited in opinion:
a. Bridges--Banknote found on public store property by customer. Finder wins.
b. Elwes--Boat found when digging on rented land. Owner of premises wins.
c. South Staffordshire-Servant finds ring in pool--Owner of premises wins.
7. Does the Israeli case, Bank Kupat Am v. Hendeles explain anything?
a. Guy finds bank notes on floor of the safe deposit section of the bank. Who owns it. Ct. Says that if one finds a 'lost article' in the DOMAIN of another, he must inform the owner of the domain and the domain owner keeps it, unless the true owner appears.
-Note, the definition of domain becomes problematic
8. Lost or Mislaid and Policy Goals
a. Goal of the law of finders: To promote disclosure so that true owner can get his thing back (before SOL expires) Thus, we must also look at whether it is likely that the owner will return.
-If the item is lost in public, probably wont return, so finder keeps it.
-If mislaid on private property, then probably will come back so Premesis Owner keeps it for safekeeping until owner returns.
b. Common law is to keep the distinction between LOST and MISLAID. Absent statute, keep distinction
c. Benjamin v. Linder--Bank takes over from other owner of airplane. Bplane goes in for maintenance and employee finds a cache of $$ under a panel. He tells supervisor. Bank sues Inspection Co. (where airplane sitting) and wins.
d. Hard to distinguish betwen lost/mislaid....and without the distinction, finder is more likely to win, just as if property was abandoned.
1. Abandonment--what facts would support?
-Age of coins, that he never went back, no search for it, etc.
-Non-use not enough--must show INTENT to relinquish
2. Abandonment--Columbus-America Discovery v. Atlantic Mutual-Boat with a lot of gold sank. Previous owners file claim with insurance company who pays them off. Thus, insurance co becomes new owner. Explorer company finds boat and Insurance Co wants its shit back.
a. The Insurance Co 'lost' documents and waited years and years--majority says this is not enough to show abandonment.
b. A Finder in admiralty is entitled to a salvage reward so there is some incentive after all.
9. Framework for Finders question
A. Abandonment?
a. If you can show intent to relinquish, then finder gets it
b. Otherwise, look at where true owner left it or law of salvage
B. Who found it first?
a. Actual Control
b. Intent to Control
C. Allocation of rights
a. Between finders/thieves
b. Between Finder/owner
c. Between finder/Bailee
IV. ACQUISITION OF PROPERTY BY ADVERSE POSSESSION
1. Theory--While the general rule gives the finder good title against the whole world except the true owner, adverse possession carves an exception into this rule when the owner of the property fails to bring an action to recover the thing within the period of the statute of limitations. (AP for SOL, then (wrongful) possessor gets title)
2. Policy:
a. Punish owner who sits on his rights
b. Protect against stale claims--evidence lost, memories faded, witnesses disappeared
c. SOL operates to give repose--clear courts of lots of old claims, protect defendant--if claim laid dormant, P can't just show up and fuck up his life.
d. Encourage productive use of property--why should AP labor if he cannot reap. 3. Interpretations (Doctrine of Adverse possession evolved out of judicial interpretation)
a. Statute of Limitations is a matter of State Law. Usually, for real property it is longer than for personal property
-Starts running when action accrues (this can be when AP sets up camp on the land, or when as for personal property the owner asks for it back
4. Elements
A. Actual possession of the property
1. Generally, required to use the property in the same manner the average owner would exercise over similar property in like circumstances
-Ewing v. Burnett--AP used land to extract sand and gravel, gave permission to some to get minerals and sued others who came on to take them. AP never built on the land, but facts show adverse posession
Nome v. Fagerstrom--Year round use of Arctic land probably not even possible--AP had used abandoned camp as base, and continued seasonal use. Over time, built picnic area, firewood, etc. Ct says ok whereas in Van Valkenburg, similar use was not enough--but note, land was not rural or isolated and more could have been done with it.
2. As posession entails right to exclude, than AP's use must be exclusive.
3. If Mistaken boundary that is honest and reasonable mistake, must look at definition of posession which includes actual control and intent to control. Narrow definition would be a problem, because the person would probably not intend to make the mistake.
-if he didn't know he was doing anything wrong, then can't claim title..because he thought it was his and so he's not claiming adversely to O's title. (Subjective)
-if he's there even mistakenly..and conducting activities that look like ownership, then you intend to control (objective)
B. Possession is open and notorious
1. Generally, the owner must know (or have reason to know?) that his legal rights are being invaded.
2. Some states require or give weight to AP's payment of real estate taxes
3. If AP disclaims title, says don't worry, and lulls owner into false sense of secuity, he is then precluded from taking the inconsistent position.
4. AP must claim title--say, this is mine. (Recognition of O's title stops action from accruing)
C. Possession must be adverse or hostile
1. Tenant on lease cannot claim title by AP, even if lease is for SOL period..
2. Co-owners (joint) entitled to occupy so no AP
3. Permissive posession can become adverse once communicated to Owner (i.e. lease runs out and tenant tells owner that she is staying without paying rent. From that period of time, then is AP)
4. When sale of land is oral, there is already a statute of frauds problem. If AP takes posession of land and does not pay for the SOL period, he will not get title, because there was K and that is recognition that O had title. Would be a debt--even if the remedy barred by SOL, the right (to reposess) may not be barred)
5. When AP goes into posession of property saying he has life interest or AP goes into posession against lease-holder, he NEVER gets title, because cause of action only runs against the interest he is invading.
6. Hostility an objective test of whether the possessor acted toward the land as if he owned it without the permission of one with legal authority to give it to him.
-In VanVakenburg v. Lutz, intent to claim is important, not belief of whose it is originally--as long as AP is open and notorious YET owner must have actual knowledge, and no presumption of knowledge arises from a minor encroachment along a common boundary.
D. Possession must be continuous
1. Owner can prevent running of the clock by bringing cause of action (interruption from start of action--provided it is carried to successful conclusion. If AP doesn't leave after judgement, then SOL begins again
2. Owner can try to get rid of AP by self help--stops statute from running
3. Owner can stop running of statute by converting the AP into permissive posession.
-Note, negotiations constituting a disclaimer is tantamount to estoppel and would interrupt SOL
4. If AP abandons posession before statute passes, then no longer subject to ejectment and so SOL not running and he loses out. (Must ask, did he have intent to return-animus returndi, or intent to surrender/relinquish)
-Must look at facts--what would regular owner do in like circs.
E. Posession must be under some claim of deed (this is not required in some States, but may convey more rights or shorter SOL)
1. Color of title--some written instrument that proports to give title.
2. Constructive AP goes into posession of O's lot with (defective) deed given to him by X. If no written deed, only gets title to the small part of the lot he actually posesses. If written deed, gets title to the entire lot described in the deed.
a. Does not apply when there is natural barrier that separates the land
b. Does not apply even when deed describes whole parcel, but AP
is only posession of a sub-part which X owns and transfers to him.?
IV. AP'S, BFP'S, AND TITLE
1. When AP gains title to real estate (been there for SOL period) and then abandons, does NOT lose title. At this point, only writing can extinguish title.
a. If O tries to sell to BFP when AP goes away, battle between AP and BFP, but AP wins. (while you usually rely on deed to prove title, and AP of course doesn't have one, it doesn't matterAP is not subject to recording rule)
-NOTE, however, if AP somehow got a deed and did not record, then BFP may win??
2. In every written K for RE sale, there is an implied obligation for seller to have marketable titlefree of reasonable doubt. Buyer can check title and if he finds something wrong, he can get out of the deal.
3. AP can get marketable title by bringing a bill in equity to quiet title.
a. (In remtitle to land located in the district of the court)
-provides practical tool so that he can sell the property himself
b. AP acquires no more than the estate held by the person entitled to possession at the time the AP takes over. (ie, if on a lease, future interest, etc.) CHECK LATER
c. Statute of Limitations for acquiring easement or title runs against the possessory interest only. (not LL's future interest)
-so, LL cannot bring action against AP, when other Tenant is the leaseholder
-however, AP can only gains the remainder of the lease, or the interest held by the possessor
4. All claims?
a. AP gains the title, and after SOL runs, is free and clear of all claims by the true owner later on for all of his activities.
-dower exception under common law (wife's interest)
-Note, title goes back to the year he took AP retroactively. (after he gets title, the owner cannot even sue him for his trespassing activities years and years ago)
b. No AP/easement rights against the government
-Kiowa Creekuse of land while owned by the State cannot support a claim of easement by prescription.
c. AP can claim use rights against the Tenant, but only so long as tenant has right. AP gets the "present interest."
-AP can inherit the option to purchase too, unless option unique to T
-SOL does not run against the Owner's "Future interest" (when title reverts to O after lease runs)
-AP would have benefits AND burdens of T's lease (covenants, servitudes, restrictive covenants, etc.)
d. Once cause of action accrues, O cannot subdivide to defeat AP.
5. Adverse possession and Tacking
1. AP's generally: If two possessors are in privity of interest (successorsvoluntary, consensory) then can tack on periods of AP that ran against Owner.
a. If AP-2 shows up and tries to take over against AP-1's wishes, then AP-1 can bring action of ejectment against AP-2.
-jus tearsti, from law of findersright over second wrongdoer
-legally irrelevant that AP-1 is wrongful taker
b. SOL interrupted by the time he was not in possession/suing AP-2?
c. Both AP "tackers" must have privity and possession.
-if AP transfers deed to B (who does not take possession) AND then later, C (who does take possession) then neither can win, except if C stays for the SOL period himself.
2. Owners generally: When two successive owners are in privity of interest, then period of AP that ran against O-1 runs against O-2 from earlier date (is continuation of old cause of action)
3. Ownership interest and tenancy interest do not combine.
4. Cause of action does not accrue against future interest--only against the current possessor.
6. Adverse possession and Tolling
1. Running of the Statute is suspended while the person who has a right to sue (generally, O) is suffering some disability, i.e. age, insanity, felon, military
a. Statutes vary, some being many years after the disability removed, some go for the longer of the SOL or a few years after disability removed.
b. Reason for tolling is disability when action accrues, if the then owner/person with possessory interest is disabled.
-disabilities are NOT tackedonly refer to original disability of owner when action accrued (insane guy has a minor son at time of death...SOL measured from time of insane guy's death)
-tolling provision is an exception that should be construed narrowlyonly go from time after the FIRST/ORIGINAL disability removed. (i.e. 15 y.o. kid at time AP takes posession...when he is 21 the disability is removed, even if he goes nuts in the interim)
c. Soldiers and Sailors Relief ActFederal Exception
1. Period of military service should not be included in SOL time. (either for or against)
2. Is not an interruption, but not an accrual of time (skip over and forget this period)
7. Double the Trouble-two AP's together
1. When two people, acting in concert jointly and concurrently go into AP of O's land and remain for full SOL period--->like joint tenanants
a. Right of survivorship: If A1 dies, then A2 gets the whole property
8. Gaining Easement by Perscription/AP
1. Easement appertainment- right to use X's property only in CONJUNCTION with Y's land. Must have dominant estate and servient estate. (Y-OWNER OF LAND has land on the other side and has built thru road to get to diner across X's land)
2. Easement in gross--adjoining land
3. Abrogation Easement: cannot gain easement for prescription for view/air because there must be CAUSE OF ACTION. (Ex. X would not have cause of action against Y for looking across the property and seeing the glorious ocean)
-Sacred Heart Trees example, Under federal law, and airline has privilege of using airspace, so Sacred Heart cannot stop them from using the space. So...airline's use was permissive and so NO cause of action, so airline cannot force them to take down the trees.
9. AP OF Chattels
1. Owner can't necessarily check to see if his ownership interests are being invaded so is differnt with land. Also, movable objects are harder to find, so owner may not even know it is gone. BFP may need more protection, b/c no registry of deeds to personal property.
2. Statute of Limitationsgenerally, against wrongdoers, the SOL runs from the date of the wrong. Against the BFP, SOL runs from demand/refusal or time after reasonable person could discover missing)
A. Conventional approach (Songbyrid) is that SOL starts to run at the date the cause of action accrues--date of wrongwhen the individual commits the tort of conversion, by taking for his own or purchasing, or otherwise asserting title to the thing. When rock star rips off the riff he heard last night at the bar. (Can occur when person takes the thing, even if they don't realize it is wrong taking.)
B. Discovery rule Cause of action does not accrue until 1) Date when Cyprus learned it was missing. (Or, due dilligence requirement: Reasonably could or should know it was missing) and Cyprus could have reasonably learned the identity of the wrongful posessor.
1. Doctrine of Fraudulent ConcealmentD who by fraud or deceit conceals cause of action cannot take advantatge\
-Stems from the requirement that AP must be open and notorious.
2. Laches Defense: Persons barred from getting remedy if action unreasonably delayed and other person relies on it.
C. Demand and refusal NEW YORK APPROACH More lax is Guggenheim v. Lubell Cause of action against BFP of a stolen chattel or against Bailee accrues only when the true owner makes a demand for return of the chattel and the person in posession of it refuses to return it. (Here, museum's failure to take steps to locate the thing does not hurt it)
1. If true owner knows of the stolen good, he cannot unreasonably delay the demand/refusal
2. In Mom/Dad case/art gallery son, demand and refusal do not need to be explicit.
3. Exception: When BFP sells thing to another, the demand to him is
futile, so the SOL runs form time of sale. (2nd BFP can always sue 1st BFP,
under UCC for breach of implied warranty of good title)
VI. BFP'S AND THEIR RIGHTS
1. What the hell is a BFP? Bona Fide Purchaser
A. Must be bona fide
B. Must pay valuable consideration
2. As a general rule, NEMO DOT PODNAM HABIT (You cannot give away better title than you have, and you cannot create a better title than you bought so even a BFP will gain no title when buying from a theif.) There are 7 exceptions.
A. Doctrine of a sale to BFP in a market overt
B. Judicial Sale in Rem
C. BFP of $ or Negotiable Instruments
D. Posession Plus
E. BFP of legal title chops off all equities
F. Factors acts/agents
G. Failure to record
3. Liability and Remedies:
1. Seek replevin
2. Sue and recover for trover in conversion
A. Monetary Damages: If BFP loses, then he is generally liable for the fair market value of the thing at the time of conversion. (Time of "purchase" is assertion of title-conversion)
B. If the thing changes value due to efforts of the first wrongdoer:
1. VALUE UP: Ex. D's land, trespasser chops down trees worth 1K, brings trees to NYC and sells to BFP for 20K--the wrongdoer doesn't get title, and BFP is liable for his purchase price (20K)
A. Wrongdoer does not get restitution for labor/materials, etc. that was put into improving value.
1. Note however, BFP can turn around and sue the wrongdoer for 20K for breach of warranty.
2. Owner can sue wrongdoer for conversion (time of sale-20K) or assumpsit--unjust enrichment
2. VALUE DOWN: BFP liable for value at time of conversion (time he bought) and wrongdoer liable for value at time of taking (which would be more)
3. CHANGE BY ITSELF, i.e. stock--O-->wrongdoer-->BFP
A. Measure of damages depends, in NY--liable for highest value from date of original conversion and time you discovered the loss and had to replace.
C. Wilfulness of wrongdoer probably won't matter.
1. Depends by jurisdiction, may be weighed in proportion to the damages
D. BFP gets title when he pays the damages. Generally, cannot force owner to take the shit back. Is deemed owner from the time back to the time of conversion
E. Cannot sue in trover for conversion AND in replivin for return of goods, but (Doctrine of Election of Remedies) but can plead alternatively
4. Exceptions explained:
*Generally, it is the buyer's duty to check good title, but if he was misled as to the lost or stolen nature of the thing, he may be protected (especially if there is public policy interest)
A. Doctrine of sale to a BFP in a market overt in order to encourage sale, the buyer in a public market is protected (common law from UK--never US.
1. Exceptions: pawn shop, true owner secures conviction of the theif
B. Judicial sale in rem state can determine the status of property within their jurisdiction.
1. Ex. Car used by drug dealer is seizedpurchaser at auction can buy better title than the dealer who stole the car.
C. Certain types of BFP's who buy $ or negotiable instruments will prevail over the true owner. (Policy interest in reliance on good title of free-flowing cash)
1. Ex. Shopkeeper receives stolen bill in payment (he becomes protected as "holder in due course"
2. $$$ is chose in actioncan redeem for value from the government
3. Miller caseEndorsed check is like cash
D. Possession plus thing is entrusted to someone else, there is representation on part of the true owner, the purchaser reasonably relies on the representation, the reliance is to the purchaser's detriment.
1. Here, the BFP had reason to believe he was buying good title so the true owner cannot take position now inconsistent with the representation. ESTOPPEL
2. O'Conner wagon case, employeehaving gotten permission of business owner, paints his own name on company wagon, and sells it to BFP
3. Differnce between common law and UCC §2-403(2)
A. UCCWhen entrusting to merchant who deals with goods of that kind, gives the merchant power to transfer all title to buyer in ordinary course of business.
Ex. X entrusts jewelry store to fix watch. Store sells to Buyer, buyer wins the watch. X can sue store.
1. Buyer in ordinary course of business:
-Without knowledge of ownership rights of third party
-Ordinary course of business
1. Must give value for something and not merely consideration (satisfying a debt is not enough)
2. Not purchaser in gross, or wholesale
3. Honesty-in-fact, subjective--does not need to ask questions
B. Common law BFP
1. Good faith --objective standard
2. Cconsideration required
E. BFP of the legal title chops off all equities.
1. Ex. Beneficiaries of trust have equitable titlecan enforce trusts in equitybut trustees can sell the trust. If trustee sells to BFP and runs off, the bona fide purchaser of the legal title chops off all equities. (In equity, the legal title will stay where it is
2. Delivery to a fraudulent party
A. Person-to-person: Phelps. Store gives package to fraudulent party, (store intends to pass title, even if it fell victim to the fraud) The fraudulent party gets VOIDABLE LEGAL TITLE so when he sells it to the BFP, the equities balanced and title stays where it is--BFP wins.
B. Correspondence: Cundy: Letter sent to shop to ask for delivery. Fraudulent guy (FG) accepts the package then sells to BFP. The FG's title is conditional on being the right person, so no intent to pass to him. FG has NO title so even BFP loses.
1. Seller intends only to pass on what he is aware of--Merry (sale of chest to buyer--buyer finds secret apartment with valuable jewel that seller was not aware of.) Seller's intent conditional--he assumed no jewel, so buyer cannot keep jewel
2. Compare Wood v. Boynton, seller sells to buyer what he thinks is shitty jewel, but it turns out that it is worth a lot. Mutual mistake--buyer gets title
-Note policy considerations--promoting stable transactions and encouraging merchants to be more careful, Also merchant had opportunity to check value and ID purchaser
C. UCC 2-403(1) Person with voidable title has the power to transfer good title to a good faith purchaser for value. When goods delivered under the transaction of purchase, the purchaser (even fraudulent purchaser) has such power to convey good title to a buyer even though the true owner was deceived as to the ID of the purchaser in the transaction.
D. Note, when BFP gains good legal title, then can transfer to others (doesn't matter now that it was originally taken by fraud) because ability to transfer title is a part of the bundle of sticks-property right of title holders. HOWEVER, BFP can NOT give/sell back to the originally Fraudulent Guy (FG)
F. Statutory Factors Acts--covers agents whom are entrusted to sell your goods. 1. When Owner gives an agent something to sell and authorizes him to sell it, the Owner/Seller cannot be picky later about the buyer (unless previously agreed)
2. If by the time of the sale the authority of the agent to sell has been revoked, then can no longer sell it and BFP loses
3. BFP must be able to rely on sale by authorized agent.
G. When there is a RECORDING REQUIREMENT that has not been complied with, (failure to record) then the subsequent BFP (who was misled) may prevail. See below!
VII. RECORDING/SALE OF REAL ESTATE
1. Real Estate transaction--Buyer can blow the whistle anytime before closing--i.e, if seller does not have marketable title.
A. Buyer/Seller Contract--implied obligation that seller gives buyer marketable title--can negotiate exceptions.
1. If buyer checks records beforehand, may have good negotiating tools.
B. Delivery of Deed--Types of Deeds
NOTE: Sometimes the kind of deed depends on the bargaining power of the parties
1. General Waranty Deed--guarantee that there is PERFECT title--if not, buyer can sue for breech
2. Special Waranty Deed--Quit Claim Deed with Covenants--only a guarantee against defects arising out of acts of seller.
3. Quit Claim Deed W/O Covenants--no warantys, no guarantees--buyer gets what seller had (or didn't have)
A. May put buyer on inquiry notice of encumberances, so he can no longer claim BFP.
B. Customary to have Quit Claim deed in many circumstances-fiduciary deed, gift, etc.
C. Closing--once buyer accepts deed, can no longer question or quit for problem with title. (But can sue for fraud, deceit, etc.)
D. Indexing--
1. Check grantee index (who owns it?) and then check grantor index (who gave it to them) and keep going back. Should be a perfect chain, but that's where you get into problems.
A. Generally, title passes from grantor to grantee upon delivery of the deed.
2. Some jurisdictions have a tract indexing system organized by lot E. Recording Statutes in Different Jurisdictions
1. Notice Jurisdiction--As between two conflicting claimants, A and B. When B is BFP without notice of the prior unrecorded deed (even though O has already "sold" to A) then O has legal power to convey better title than he has (none, because he already "gave" to A) A's failure to record misleads B, so B prevails
A. If A had recorded properly, even though B never saw the deed, then A will probably win b/c B had constructive/record notice.
B. No wash sales, when O>A who doesn't record, then O>BFP, then A records and sells to BFP-C, C cannot sell it back to A. Analogy to theif-BFP-theif above?
2. Race Notice Jurisdiction--Subsequent BFP will prevail over A if he is:
A. Bona Fide
B. Records First
3. Pure Race Jurisdiction--In allocating priorities, the only determination is who records first.
F. Problem of the Circular Lien
1. Three different mortgages on the property, if foreclosed (proceeds divided to mortgagees with leftover to Owner) then who has priority when no $ generated for profit.
A. First in time, first in right
B. Divide by %, put in
C. Look to who recorded first as if a Race jurisdiction
D. Best? Give all their justifiable expectancy--(What property brings in, minus the amount of the mortgage of which they had constructive/record notice). Second step, if you can't then allocate and punish the guy who caused the problem (non-recorder)
G. Proper Recordation--even if the deed has been recorded/indexed, if the statute imposes a prerequisite and this was not done, then no constructive notice (but may be actual notice if the buyer actually checked)
1. Ex, deed must be notarized, if not it creates a cloud on title. Some states have curing statutes, where it wouldn't matter after a period of time.
2. If (proper) indexing an essential of the recording process, if not properly indexed, and statue requires it, then no constructive notice
A. Buyer(B) records and indexes under maiden name. Buyer borrows money from A, B gives A mortgage claim under B's new married name. Buyer then divorces and goes back to maiden name. Buyer then sells property to BFP.
-If indexing essential, then A, who was in the best position to check and make sure mortgage properly recorded, has failed--will lose to BFP. However, if when selling to BFP Buyer said something about divorce--is this notice, thus he would not be BFP
H. Chain of title--Recordation outside of the chain of title is not deemed to be recorded (for constructive notice) in notice/race notice jurisdictions
1. Ex. O>A (as between grantor-grantee, title passes upon delivery of deed) but A does not record. (A>B, and B records.) Subsequently, O>C. C is BFP with no notice of A or B. Since the sale from A to B was not preceded by A's recordation, then C will prevail over A
-Note, B could have checked records and seen that A had not recorded. In pure race Juris., B would win because he recorded first. In Race Notice Juris., If B was BFP and recorded first, then he would prevail.
I. Estoppel by Deed, How Far Back & Forward in the Records to Check
A. If A delivers general warantee (basis for estoppel) deed to B and B records BEFORE A actually got the title from O (but did so eventually), when O>A, then A will be estopped from denying the prior representation to B.
-If A gave no warranty, then no basis for estoppel
B. However, if later A>C, then C would have to check A in the grantor book and would find that A acquired title from O, but NOT that A>B beforehand. So, C will prevail if he had no duty to check on the prior sale.
-Chelsea Tile rule--only duty bound to check grantor book from the date of O>A (because would person really convey the land before he himself had title?) Must check all prior owners for past 60 years
-Buyer WILL have constructive/record notice if he is duty bound to check title.
-Ayer Rule--minority rule. BFP duty bound to check on each prior O's title from O's date of birth, from 60 years back. If prior O had conveyed his interest before he actually got the title, then the title goes to the holder of the earlier deed by estoppel. Bigger burden on title searcher that may screw BFP
B. Theoretically, tract indexing system would seem to resolve this problem, because all conveyances listed under that parcel of land. However, may be gap iin chain of title because holder my never have acquired by deed, and instead by will, inheritance, etc.
C. How far forward to you have to check
A. Morse rule--Once you find Seller in grantee index and find O>Seller in grantor book, then you are fine. No need to check further.
-Ex. C will be misled by unrecorded O>A sale, if B>C after O>B is recorded. (Yet, A could get bill to quiet title against B, or file lis penddens-notice of pending litigation so any subseq. Purchaser would see)
B. Practically, though, you should check al prior owners for three years after O>recorded sale. Also, if you don't pay taxes, locality can foreclose to get taxes (even after O sells) If you find the records, it's actual notice, so not BFP.
3. Where Bona Fidiness (BFP b/c no notice) of Subsequent Purchaser Relevant/Irrelevant:
NOTE: UCC may say that thee is recording for personal property, so some of the same rules may apply.
1. Actual Notice
A. If one has actual notice that someone else has title, then they are not BFP. This may apply even where constructive notice fails (no duty to check, improper recordation)
2. Constructive/Record Notice
A. Only know of the record from the date A is shown to actually have title.
B. In Chelsea Tile Co, insurance company does not have to cover encumbrance to title (easement) because it was granted before X actually gained title, so it obviously could not be found.
C. One (can/cannot--depends on jurisdiction) have record notice outside of documents outside the chain of title
3. Irrelevant: AP is not subject to recording rules, because a title acquired by AP, which is not a title under instrument. So, BFP will not find AP's right in title search if O>BFP, where an AP has already taken from O. In litigation between AP and BFP, AP will win! (Note how this is especially true where BFP knew that AP had the right--silly, silly, I guess this would be actual notice anyway)
4. Inquiry notice
A. Where all lots look alike--common developer, may have covenants attached.
B. In notice jurisdiction, purchaser of Quit Claim deed may be put on inquiry notice --deemed to have duty to make inquiry to determine whether someone else has title.
1. Be suspicious, why isn't seller willing to guarantee it.
2. Held to have notice of all the facts you would have discovered with reasonable inquiry--constructive knowledge. (But this is NOT always the case--usually, it won't make a difference what kind of deed B takes).
C. If O>A who goes into possession, but does not record, and then O>B who has no actual notice of O's deed....(What is the impact of possession on notice?)
1. Some jurisdictions: Subsequent purchaser must check--deemed with knowledge of facts that would have been revealed---on Inquiry notice.
2. Other jurisdictions--if you know someone is in possession then you have a duty to make an inquiry.
3. Other jurisdictions--no duty unless actual knowledge
5. Possession
A. What is the impact of possession on the giving of notice to the otherwise BFP?
1. Some jurisdictions would put subsequent purchaser on inquiry notice. Some jurisdictions, no duty unless actually aware.
2. Some jurisdictions, even though you actually know someone is in possession (but not recorded option or lease, etc.) There is no duty to make an inquiry.
B. Even when inquiry required, not charged with notice when possession consistent with record title. BFP would win against tenant (with recorded lease) who decides to buy the place but does not record. BFP sees that the tenant is on the lease, and expects him to leave. Subsequently, when the Tenant does not record the sale , he is misleading BFP
C. Office building situation--should ask seller to make warranties on who tenants are, confirm terms, etc
4. Who is entitled to the protection of the recording laws?
1. Usually, statute will refer to "any subsequent purchaser"
A. Bona Fide Purchasers
1. Under the UCC, acceptance of a pre-existing debt is not sufficient value to give BFP protection under recording laws.
2. Must be BF--w/o notice
B. Secured Creditor
1. Protected when he gets lien or mortgage on the property (creditor is unsecured until he sues and gets attachment of the property)
2. Creditor must be subsequent creditor
3. Must give something of value--not fulfil pre-existing debt.
4. Must be misled.
C. When sold at open market sale/attachment (foreclosure?) And creditor buys it, he becomes a BFP EVEN in jurisdictions which usually don't protect creditor
2. Statutory--some statutes refer to "any person"
1. In this case, subsequent tenant may be protected. Ex, if O>A and A does not record Then, O leases to B who has no notice.
2. Would donee's be protected?
5. Sale of Sub-Divisions of Development
A. Generally, when the developer subdivides the property and starts selling it off--his ability to make money is dependant on buyer's confidence that he can deliver on "finest residential area" or "non-competitive zone" etc.
B. Covenants, Restrictions, Servitudes arise by:
1. By Express Agreement. (O>Buyer, who agrees to use it only for residential purposes. Seller agrees that lots retained will also be used for residential purposes)
A. Note depending on jurisdiction, some courts will imply that once one party explicitly makes the covenant, there is an implied reciprocal agreement. (May be problem, though because not written/signed -- statute of frauds)
2. By Implication
B. Uniform Scheme: Grantor of 100 lots in same development, every time he makes a conveyance to grantee, he says it must be for residential use. Thus, 80/100 plots so far are residential. Courts willing to say that parties intended the agreements to be enforceable and reciprocal
C. Enforceable against/enforceable by, when:
1. Original parties must have intended that covenant run with the land.
2. Covenant must touch and concern the land--not just a personal undertaking
D. General problem:
A. If there is a restriction that runs with the land, BFP may try to claim that he had no notice of it because it was not properly recorded.
B. Purchaser who searches title to the plot of land to be purchased, but covenant not reflected on it--but is reflected on the deeds to the other lots owned by the same owner.
C. If there is a duty to check out all the deeds of the grantor and some restriction was properly recorded, whether or not the records are checked, it is said that buyer has constructive notice
E. Analysis--
1. Is there a restriction or covenant?
2. Does the covenant run with the land?
A. Did the original parties intend that the covenant run with the land?
3. Does the covenant touch and concern the land?
A. Or, is it a personal undertaking?
4. Even if the covenant fits 1,2,3, can the subsequent purchaser claim he is a BFP b/c the covenant:
A. Was not properly recorded?
B. Does not fit into a uniform scheme?
1. If lots all look alike, cloned development, or all residential, etc.---any reasonable purchaser would be likely to see this and expect restrictions. Is at least inquiry notice.
C. Was expressly in deed from common grantor but NOT within direct chain of title. (So not bound)
1. Some jurisdictions--deeds out from common grantor provide constructive notice of encumbrances.
D. Provided buyer with no actual notice (and there was no duty to make an inquiry)
F. Buffalo Academy case
1. Large development. Lot 151 owned by Academy, enters into agreement with Bohm for sale of land. Academy explicitly warranty's good and marketable title. If warranty bad, then deal with Bohm is off, gets liquidated damages. Academy (seller) wins because no restrictions on lot #151.
A. Bohm says that the title is not marketable--burdened by implied covenants arising out of express covenants by grantees to others. (Deed to Kendall--lot 48, contained express covenant--no other gas stations in development)
1. Option 1-If is a personal covenant--does not apply to other lots, no intent to run with the land and thus not enforceable against subsequent purchaser.
2. Sanborne rule-If covenant not to compete that runs with land from common grantor (not personal) then with proper recordation, is constructive notice and subsequent purchaser of any lot is bound.
A. Holms says that when you get a covenant in the nature of a monopoly, it restrains trade and as a matter of public policy should not run with the land.
B. This has changed, now when deciding whether to enforce covenants not to compete, judge measures reasonableness. (duration, geographical scope)
3. General rule: NOTICE ONLY FROM DIRECT CHAIN. Purchaser takes with notice only of incumbrances in his direct chain of title. Purchaser/Owner only bound by restrictions if they appear in some deed of record in the conveyance to himself or his direct predecessors in title.
G. Subdivision and Easements
1. Easements can arise 1. By express terms of the grant
2. Easement by prescription (AP)
3. By implication--on the theory that the parties intended it.
A. O's land, builds house and garage, and driveway across property to reach road. Sells half to A-houseside, half to B-roadside. Then, B builds a fence across the land, and blocks driveway. Can A still access driveway? (Deed is silent--but does O impliedly intend to give A the easement, b/c when O owned the land, he used road to highway.?)
4. Doctrine of Easements by Implication
1. Easement by Implication--how?
A. Arises in scenario when one portion is contiguous to the other and all were owned by common same person.
B. During the period of common ownership, one part is used for the benefit of the other.
C. Such use must have been apparent --visible or could discern it from their intellect
D. Such use must be reasonably necessary.
2. Easements by implication are not subject to recording laws.
A. Nothing to record b/c not express grant (analogous to AP, b/c no duty to record)
B. A's interest does not arise out of recordation, and if it arises before B's interest, then A has better title.
C. B has no duty to check land but title searcher would do best by checking the land to see what is apparent. Buys at his peril, and must let A use the driveway.
3. O->Tenant, 2 year lease does not need to be recorded. When O sells to BFP with no notice of the tenant/lease, tenant can enforce the lease. T wins.
4. (Indefinite reference) When there is an express reference in a recorded instrument to some unrecorded instrument--is notice, so BFP will likely lose.
A. Statute may save BFP by saying that
there is no duty to check indefinite
references.
VIII. GIFTS
1. Taxes as related to property
A. Income tax--on money earned, or when property generates income
B. Gift tax--paid when giving irrevocable gifts over 10K/annual
1. Paid by donor
C. Estate tax--when transferring assets by will at death
1. Paid out of the estate
D. Generation skipping transfer tax--series of successive life interests
1. When possession and enjoyment passes to generation 2 generations below transferror, then that generation is taxed.
2. Ex. O>Wife for life, following their children, following their grandchildren, following, their great-grandchildren. (Grandchildren taxed)
2. Change in tax scheme
A. At one time, gift tax less than estate tax and this discriminated in favor of the wealthy who could afford to give away assets while sitll living.
B. In 1976, reformers changed this and equalized the rates.
C. Amount you could give away free and clear of estate taxes during lifetime and at death was increased to 675K
D. Living gifts, and gifts by will (every taxable gift) aggregated at death to find estate tax bracket, but do not have to pay tax on $ paid in gift tax.
1. Ex. H had $1 Million --actual assets at death come to 325K, but to determine the bracket he's in, they add back the 675K he gave away untaxed. The 325K is taxed at a much higher rate.
3. Why make irrevocable inter-vivos gifts?
A. You want to give away $
B. You can afford to give away $
C. Can make living gifts without paying gift tax on it.
1. Annual Exclusion
a. Donor in each calendar year can give 10K to as many different donees as she wants without incurring a gift tax.
1. The amount is taken out of her estate for federal and state tax purposes.
2.. If married and spouse consents, can give away 20K gifts to each donee without incurring extra tax.
b. Annual exclusion only applies to present interests.
1. Note: Value of gift is from date given.
c. If one person's possession and enjoyment is dependent on the will of another person (trustee) it cannot qualify for the annual exclusion
1. Exception: Safe Harbor/Uniform Gifts to Minors Act--a gift to a/for the benefit of a minor can qualify for the annual exclusion if:
A. Trustee has the discretion to pay out the income and as much of the principal for the benefit of the minor as the trustee sees fit
B. The trust provides that when the minor reaches 21, any accumulated income and all of the principal must be paid to the beneficiary.
C. If the minor dies before age 21, the trust must provide that all accumulated income and principal must be payable to minor's estate or to someone the minor has designated.
2. Note: Trust created with brokerage firm: If parent is creator and "custodian" (trustee) of trust and dies while the trust is in operation, his gift is includable in the parent's gross estate for tax purposes.
D. Unlimited Exclusions
1. Unlimited exclusion for tuition and medical payments made on behalf of another person.
A. Must be made directly to institution or provider
B. No upper limit, but if donee is reimbursed by insurance/financial aid, etc. too--then the reimbursement amount turns into a gift that may be taxed if over 10K
2. Unlimited marital exemption for gifts between spouses.
A. Unmarried or GLBT couples are fucked when one of them dies and leaves a bunch of money for the other partner. Partner B may end up owing a lot of tax.
E. Tax based on present value of the gift on the date made
1. If property likely to appreciate in value, smart planner could give it away during his life.
2. An offsetting consideration is that the donee may have to pay more capital gains taxes, because the donor's basis/value when donor purchased, is carried over.
A. Capital GAIN = realized sales proceeds-basis.
1. Note however, that capital gains tax is a lot less than the gift tax
3. GRAT-grantor-retained-annuity trust. For period of years, trustee will pay to donor a high amount, at the end of time nothing left for donees. (Only thing left for donee if property appreciates) Donor retains high annuity, beneficiaries have to wait until the time goes by--but the present value while waiting is 0 (so no tax).
F. Amount of Gift Tax paid not included in estate for federal tax purposes (so, estate is smaller)
1. Some states--state death taxes not all in sync with federal model. That is, the amount exempt from state estate tax may not match federal amount.
A. Some jurisdictions follow Florida model, "Sponge tax."
1. Instead of all estate tax to US, portion to FL and rest to US. (IRS allows credit for state taxes paid to state)
2. Exception: Gift Tax paid on gift made within 3 years of death. Then, gift tax added back into the estate. "Grossing up." Then again, your assets will have been lowered.
G. Make irrevocable gift to divert income to lower tax bracket taxpayer
1. Creative trusts
A. Trust to older parent (who has no income/no tax to pay), name mother as beneficiary--payable to parent for life, afterwards property comes back to donor. Upon parent's death, payable to parent's estate which comes back to you anyway.
B. To child, who doesn't pay tax
1. Exception, "kiddie tax" If donee under 14, then taxable at same rate as it would to parent.
2. Nothing limits gift to blood family/marital family
H. Valuation advantage
1. Gift of stock in closely held family corporation. If you give stock, you pay Gift Tax on it, but can set your own price on valuation. If IRS does not question your report, then is useful evidence.
I. Charitable Gifts
1. Gifts to qualified charity, either by will or inter vivos are totally deductible for estate/gift tax purposes
2. Inter vivos irrevocable charitable remainder trust
A. Retain right to annuity (at least 5% of original value) but don't cash in b/c would be subject to capital gains
B. For the year trust made, can deduct value of gift for that year--determined by age/actuary tables.
C. Net effect--includable in estate, but totally deductible (no adverse ET). As you are the life beneficiary and donor, not taxable b/c gift to self.
J. Non-Tax Advantages of Irrevocable Inter Vivos gifts
1. Avoids probate/ surragate's court--long and painful process, expenses and delays
2. Probate is a public event--not sealed. Many people don't want their gifts scrutinized
3. Unless fraudulent conveyance, irrevocable IV gift is beyond the reach of future creditors, whereas if will, creditors can go after.
4. IV gifts are beyond the reach of the surviving spouse, others who might contest the will. Surviving spouse gets statutory elected share (usually 1/3 of estate) regardless of will unless waived.
A. Note, Allows GLBT's to give to partner, friends, charity instead of letting unsupportive family get to their wealth.
5. Can choose law under which to give, whereas will would be governed by the state where the real estate is located.
6. Issues of capacity more resolved if donor makes gift while alive--burden of proof on the person challenging. Whereas will, burden on the person taking from the will
7. Drawbacks
A. Donor loses control of property--and things may change and he may wish he disposed of it differently.
B. Donor loses control of asset--if circs change, he may really need it later and can't get it back.
C. Lose flexibility
K. Notes:
1. Doctrine of Escheat: If you die leaving no heirs, then state becomes statutory heir
4. How to make an irrevocable gift?
A. Delivery
1. By writing/signed deed that is delivered
A. Letter must contain present words of gift, otherwise is a barenaked promise without consideration
2. Subject matter to be delivered
A. Father>son, a horse. Oral declaration of gift, but father never hands the reins to the son. Asks son to pay for the hay, but no proof that the son paid for anything except a few days before father died. No gift
1. Note, that if son underage the son is under legal incapacity, so father is guardian and holds horse until kid can take care of it.
B. Possibility of perfecting gift by constructive delivery--
(Gift is perfected when donor gives donee means of obtaining possession and control)
a. However, some courts--if actual delivery possible/feasible no substitutes are permitted
2. Examples/Problems:
a. Donor Delivers locked box with ring inside, but no key
-may be problem, because although you have physical delivery of SM, and intent to make gift, no means of getting it.
b. Donor tells donee where something is, but retaining a map to it or a duplicate key
-Donor hasn't totally given up control, but control is not the relevant question. Rather, donative intent.
c. Donor gives piano (still in living room) to niece
-delivery requirement may be relaxed, but case would present tremendous litigation. Donor should really write letter.
d. Donor brands cow with donee's initials
-May be symbolic delivery if conforms to system of recording of brands
e. Donor gives key to safe deposit box at bank.
-Gift when key is delivered. If the donor/donee in same room with box, and donor can easily get to it himself, key is not a gift of the contents.
f. Donor has duplicate key.
-Until would-be donee gets to the box, does not have the means to obtain possession. Only once he gets the box is the gift perfected
g. Delivery to 3rd person
-Depends on whether 3rd person is acting as agent of donee or donor. Delivery is effective when donor no longer has control. So, gift perfected if 3rd person acting as agent of donee. If 3rd person an agent of the donor, no gift until delivery to ultimate donee
h. Donor draws check to donee
-If donor physically hands it over and donee has not yet cashed it, then revoked when donor dies
-Check by itself does not operate as assignment/transfer. No perfected gift when delivered, only when cashed.
-If there was consideration for the check (i.e., check for services) then can now be assigned
3. Trust--one person (trustee) holds legal title to property as fiduciary, for benefit of another (beneficiary)
A. Trustee is legal title holder, but beneficiary can enforce trust in court of equity. Thus, no delivery needed to create equitable interest
4. Present gift of future interest--future interest is created when the gift is delivered, even though donee only gets possession and enjoyment of the gift when donor dies..
A. Donor benefits during lifetime (i.e. reserves rights to get dividends)
B. Subject to estate tax, b/c/ donor has retained life interest.
C. Cannot create future interests on consumables, i.e. car, banana. 5. Gift of stock--only way to transfer is to endorse the stock certificate (so to prevent donor from also selling to BFP) So, donor must give donee endorsed stock certificate.
A. You can have a valid gift without changing corporation's record (corporation protected) Donee can bring a bill in equity to compel records change. If the donor only changed the corporations records (so that notice of shareholder meeting, dividends sent to donee) then weight of authority says valid gift.
6. Gift of bond--no effective gift if you do not comply with mode of transfer specified in the bond itself
A. Condition exists to protect the obligor/debtor, so they don't pay to wrong person.
B. Donative Intent
1. Not every gift make in contemplation of death is a causa mortis gift. Depends on intent. If construed as inter vivos gift then is irrevocable and will not incur problems at probate.
2. Gifts causa mortis has significance before death (legal title passes on delivery subject to condition subsequent of revocation)
3. Revocation before death
A. Gifts causa mortis can be revoked anytime before donor's death
B. Donor may reserve power to revoke trust by instrument in writing.
4. Revocable gifts become effective at death. No longer revocable.
5. Will becomes effective at death, so if gift by writing-will is inconsistent, then what happens? NY state says will revokes trust if explicit.
6. Common law: Doctrine of demption- If you make a disposition under a will to A and then subsequently make an inconsistent disposition-inter vivos to B, the gift is deemed extinguished at common law and B wins.
A. If gift causa mortis, then will may be manifestation of intent to revoke person could take under the will
C. Donee must accept
1. Acceptance ordinarily assumed: donee presumed to accept benefit.
2. However, donee can renounce or disclaim the gift.
a. In order for donee to effectively renounce, must file a timely disclaimer/renunciation. Donee will not have to pay GT. Cannot begin to accept benefits of gift.
b. Second chance post-mortem
1. Ex, Deceased Husband gives entire estate to W..but she doesn't need the money. If wife disclaims, treated if she predeceased the decedent husband and $ would pass to kids.
5. Revocable gifts.
1. Revocable Inter Vivos Trusts?
A. Created by donor, can be revoked, altered, or amended at any time.
B. NOT a perfected gift for tax purposes--any income earned by the revocable trust is taxed.
C. Donor can revoke, can chose donee. Trust bypasses probate b/c trust comes into operation the day the trust is founded.
D. At death, is includable in estate.
E. Unless explicit power to revoke retained, then gift assumed to be irrevocable
2. Causa Mortis Gifts
A. Made in contemplation of immediate death
1. Since donor has the power to revoke the gift, the gift is includable in his estate.
2. Objective standard
3. Source of the peril--internal bodily peril is enough, maybe even suicide. But going off to war more questionable.
B. Revocable by operation of law--even if explicit power of revocation not retained. How revoked:
1. By donor expressly, "I revoke"
2. If donee predeceases the donor, then revoked automatically
A. If both donee/donor die at the same time (Uniform Simultaneous Death Statute) then:
1. Dispose of as if each predeceased each other
2. Divide in half/as would you do with a disposition by will
3. If donor does not die from the illness, his recovery revokes the gift
A. If he does not die from the specific illness he contemplated when making the gift, the gift may be revoked, i.e., there is some intervening event.
B. If Donee can show that donor never recovered from specific illness he feared when making the gift, then he may keep it.
C. If donee sells to BFP a causa mortis gift given to him by a donor who recovers from the illeness? Voidable title, title subsequent to condition.
4. If donee returns the subject matter of the gift to donor. (IRS requires a writing)
A. In Newell, In hospital, guy gives ring to friend. If the gift construed as inter vivos, recovery has no impact, even tho the friend gave it back to guy, because this would make the guy a bailee. If the gift construed as causa mortis, then when friend returned it to donor, then gift automatically revoked.
C. Inter Vivos v. causa mortis
A. If a court does not construe the gift as causa mortis, the donor will not be able to revoke if he did not explicitly retain the power to revoke, provided other elements of gift met.
6. Other Gifts
1. Gifts in anticipation of Marriage
A. Traditional common law theory, is that if one breaks off the engagement, the other could sue for breach of contract. However, modern "anti-heartbalm" legislation takes away the remedy for breach (however, may have cause of action for return of the ring--unjust enrichment)
B. Can the would-be groom get the ring back?
1. Common law--depends on who is at fault in breaking off the engagement.
a. If the donor's fault with no justification--stays with donee
b. If donee's fault, must give it back to the donor
c. Mutual breakup--donor gets it back.
4. Joint Bank Accounts
A. Typically, the elderly parent will put daughter as joint owner of account for convenience sake.
1. Delivery--yes, signature card
2. Donative intent--no, but hard to prove
B. When parent dies, what happens? If O and A joint tenants with right of survivorship, then A gets balance free and clear/not thru the will. However, bank account may not be joint tenancy b/c consumable--either can withdraw all the money
C. Highly litigious area--may be wiser to set up different type of account
IX. ESTATES IN LAND
A. Present Possessory Estate/Present estates in landsomeone who owns a present estate is currently possessing/enjoying the land
B. Future interestsFuture estate, will enjoy in the future
1. One who holds a future interest is ready to take effect in possession whenever and however the prior estate terminates.
C. Freehold Interestestate in land. An estate in which there is seison
1. Historically, Seison created by ceremony called livery of seison. Grantor and grantee went on to the land and engaged in a ceremonydelivering twig.
2. Today, Delivery of deed is important for Seison.
3. Medieval/Feudal systemseison had to be in someone at all time. Feudal overlord looked to the person with seison to perform his services
4. Seison-definition: Possession of land under a claim of a so-called freehold estate
5. Types of Freehold Estates
A. Fee Simple
1. Fee Simple Absolute largest estate recognized by law, potentially indefinite duration
A. If Owner of fee simple absolute dies, the estate can be disposed of by will, living gift to whomever, or inheritable to heirs.
1. Heirs in priority order: Spouse, Kids, Parents, collateral relatives
2. Note, in early common law, could limit inheritace to one side of the family or the other. Now, fee simples are inheritable equally to both sides of the family.
A. In any case, restriction to one side or another probably does not restrict their ability to dispose of inter vivos or by will.
B. The question is: What is the intent of the donor? If he really wanted Sarah's paternal relatives to get the shit, he could have given Sarah a life estate, and on her death would go to heirs on her father's side.
B. Some limits: Owner of fee simple absolute can use, abuse, etc. but cannot create a nuisance. Must honor easements, must obey covenants.
C. Owner of Fee Simple Absolute can sell
D. Who can reach the estate?
1. O's creditors
2. Heirs/intestate or Probate by will
3. Spouse may have dower/curtesy
E. By statute today, if person owns a fee simple absolute and does not use words of limitation when giving it away, it is presumed you are giving away everything.
F. Generally, when you are giving away Fee Simple Absolute (and to keep it a fee simple absolute) need to use "and his heirs"
1. Exceptions, do not need to use "and his heirs"
A. Joint Tenants:
1. 2 people own property as joint tenants (each deemed to own 100% already) When A dies, the interest passes to B automatically. B doesn't get anything new. So, if A gives interest to B while living, B ends up as owner
B. Conveyance to Corporation
1. Corporation is a perpetually indefinate durationdoes not die. So, it is assumed to go to them and sucessors and assigns
C. O gives A the whole lot, except the Western part which he retains for himself. Still retains a fee simple absolute?
D. Conveyance to trustee.
1. When conveying propetrty to truste, then it doesn't matter about the words, but the nature and scope/purpose of the trust.
2. Fee Simple Determinablepotentially indefinite duration, but may terminate if it fails condition
A. Here's how it works: O leaves Fee simple absolute to A and his heirs, so long as it remains banana-free. Becomes fee simple determinable
B. Is inheritable, but subject to a condition. If the condition is breached, the interest is terminated AUTOMATICALLY, and comes back to Owner.
1. If O does nothing after condition is breached, Statute of Limitations runs as of date the condition is breached.
C. O retains future interest in the estatePOSSIBILITY OF REVERTING
1. O's possibility of reversion is inheritable, disposable by will, alienable inter vivos.
2. Note, Automatic reversion may not be state action, may not be subject to 14th Amendment.
3. Fee Simple Subject to Right of Re-Entry
A. Here's how it works: O has fee simple absolute. Gives to A and his heirs, provided bananas are not consumed. If bananas are consumed, O and O's heirs can retake and renter.
B. Is inheritable, but subject to a condition. If the condition is breached, title does NOT AUTOMATICALLY revert. Rather, O has the OPTION to retake. O must bring an action of ejectment to regain title.
1. Statute of Limitations runs only if/when action of ejectment brought. (cases say that action must be brought within reasonable amount of time)
C. In common law, not subject to the Rule Against Perpetuities.
D. If O attempts to alienate right of re-entry (cause of action) then it becomes ineffective and O loses it.
4. Fee Simple Subject to Executory Interest
A. Common law said no shifting/springing executory interests.
B. IF conditions never breached, and O->A and his heirs, A's heirs can keep inheriting.
C. Springing
1. Here's how it works: O has fee simple ablsolute, gives to heirs, with condition. When condition breached, then fee simple will spring out of O and go to 3rd Party A.
2. Here, O is said to own a fee simple subject to springing executory interest in fee simple absolute in favor of 3rd party A.
3. Springing interest executed by the statute of usesconverts the interest from equitable to legal
D. Shifting
1. Here's how it works. O gives estate to A and his heirs, but if J marries M, to B and his heirs. A has fee simple until J marries M, then shifts to B.
2. A has fee simple subject to shifting executory interest in fee simple absolute in favor of B.
5. Creation of a fee simple
A. In common law, in order to create a fee simple, needed to use appropriate words of limitation. (To A in fee simple and his heirs) otherwise would just be giving A a life estate.
1. Courts may construe will as grantor intended. That is, the law would try to give A a full fee simple. (but cts probably not so lenient for living gifts)4
B. Now, must include both words of purchase and words of limitation, "To A and his Heirs"
1. Words of purchase: Identifies the taker, who gets the interest
A. Ex. "To A"
B. Ex. "To A and his issue"
1. Issue is lineal descendants.
2. Here, A and childre take concurrent life estates.
2. Words of limitation: Defines the duration/scope of the estate that the grantee takes
B. Ex. "And his Heirs"
1. Heirs are lineal descendants first, then parents, then collateral relatives.
3. Words of condition
C. Results when condition is breached (depends on how deed is construed)
A. Grantor/grantor's heirs (O) can get $ damages if condition is breached
B. Forfeiture and reversion to grantor
C. Expression of wishes, not contractual obligation. (recital of purpose)
D. Fugghetabouditif so much time has expired.. (Note also, the grantee living in sin (in breach of condition) may get title thru AP.
D. Problem: "To A for 10 years, and the remainder to B life, and after that to the Church so long as it should be used for Church Purposes, (f it shall not be used for Church purposes, then O can retake.
1. "To A for 10 years...."
A. This is not freehold estate, but A becomes tenant and there is no seison. If A were to die before the 10 years, the balance is inheritable. This interest (the balance thereof, that is) goes to the person inheriting personal property.
B. A has present possessory term for 10 years
2. And the remainder to "B for Life..."
A. B takes future interest. B has life estate, not a fee simple. The interest only lasts for his lifetime.
B. B has vested remainder for life
3. "And the remainder to the Church, and their successors and assigns."
A. Church gets future interest, and takes only after A's 10 years over and B has died.
B. "So long as it shall be used for church purposes"
1. Words of condition. Church and Church's successors and assigns (corporate speak for heirs) mustuse the estate for church purposes.
2. If they do not use for church purposes, then automatically reverts to O. O has possibility of reverting
3. Church has vested remainder in fee simple determinable
D. "So long as it shall be used for church purposes. If it is not used for church purposes, then O can retake"
1. If they do not use for church purposes, O can bring an action of ejectment.
2. Church has fee simple with right of re-entry.
E. Problem: To A for life, remainder to the heirs of B
| O gives | To: A | For Life | And the Remainder | To the heirs of B | |
| Words of | Purchase | Limitation | Purchase. Note, "B's Heirs" contingent on who's left after B's Death | ||
| Creates | Life Estate | Future interest | common law reads in to the heirs of B and their heirsfee simple absolute | ||
| What do they end up with? | Reversion: O has created less vested interest than he had to start with | Present Posessory Life Estate | Contingent remainder in fee simple absolute | ||
1. If A dies before B's heirs have been ascertained, seison boes back to O until B's heirs are ready to take. Becomes fee simple subject to springing executory interest.
2. When B dies, the contingent remainder becomes vested remainder in fee simple absolute. The condition has happened.
E. Problem: From O to A and his heirs, but if A shall die
w/o issue living at the time of his death, to B and his heirs:
| From O | To A | and his Heirs | But if A shall die w/o issue living at the time of his deah | to B and his Heirs | |
| Words of | Purchase | Limitation | |||
| Creates | Fee SimpleA is free to give to anyone JUST AS LONG AS HE HAS KIDS | ||||
| What do they end up with | Nothing | Fee simple subject to shifting executory interest in fee simple absolute in favor of B | If A has no kids living when he dies, then B and Heirs get fee simple absolute | ||
.
B. Fee Tail"To A and heirs of his body"
1. In common law, created by a conveyance, and restricts the grant to lineal descendants (children, grandchildren, etc.)
2. Conveyance is in fee tail, so that linear descendants do not get a fee simple absolute (unless disentailed) They cannot convey the property to others
3. Generally, the property passes down the family line. If the line dries up, and there are no descendants, then property reverts to O.
4. Differences by jurisdiction
A. Mass: Common Law Fee TailA has fee tail, but by a simple conveyance out can convert it to a fee simple absolute
B. CT: A gets estate for his life, The first heir who inherits from A gets fee simple absolute.
C. A doesn't take fee tail for lifetakes pure life estate. Life estate owner liable for waste, whereby a fee tail owner is not.
D. Alabama: A takes fee simple absolute from the word go
E. NYWhat A gets is some form of fee simple, but if there is a future interest that has been created, the future interest takes effesct if A dies w/o lineal descendants.
F. South Carolina: If you say to "A and Heirs of His Body" is fee simple conditional
G. When and Where common law recognizes fee tail, could have 6 types.
1. General: "from O To And Heirs of his Body;" if A married 5X, then all his lineal descendants can take.
A. If no lineal descendants, then becomes TITAPIE? Tenant in Tale After the Possibility of Issue is Expired" Property is no longer inheritable, and becomes A's life estate. (Some characteristics of fee tailnot responsible for wastebut kind of like life estate)
B. When A dies, reverts to O
2. Fee Tail Special: "To A and heirs of his body by his wife Mary.
A. If Mary dies and there are no kids, becomes TITAPIE
3. Fee Tail Male: "A and the Male Heirs of His Body" (To male heirs only)
4. Fee Tail Male Special, "To A and male heirs of his body by his wife Mary"
5. Fee Tail Female
6. Fee Tail Female Special
C. Life Estates
1. Estate which is not terminable in any fixed or computable period of time, but cannot last longer than the life of one or more persons
A. If there is a fixed/determinable period, then is not technically a life estate, even if the term is 100 years.
B. Not includable in estate tax
C. Ends when grantee dies
2. Not inheritable but is alienable.
3. Types of Life Estates
A. Legal life estateby operation of law
1. Dower/Curtsey
A. In common law, surviving widow had right of dower on all property (ever) owned by H during the marriage
1. This might include estates he lost, if they were taken over by AP's. In that case, the AP will lose out to the wife.
1. Modern is all property owned at the time of H's death
B. Common law dower entitled surviving widow to 1/3 of Real Estate/Legal interests (not equitable interest like trust beneficiary) provided, husband was seized of the property (not life estates.
1. Now, surviving spouse gets elected share which is 1/3 of everything
C. Dower can be cloud on title if she had not yet released her dower claim.
D. Requisites:
1. Valid Marriage--can be viodable, but not yet void.
2. Deceased spouse must have (beneficially) seised of the property
A. Not trustee--no seison/benefit
B. Not beneficiary-in equity
C. Not on future interests
1. Exception: when A's possession is on behalf of B (say, a landlord) and B has the seison. When Bdies, her spouse gets seison.
3. Seison must be sole--not if as joint
tenant, but ok if tenant-in-common
4 Husband must have been seised of an inheritable estate
A. Ex fee simple, fee tail
B. Must be inheritable by the children of that marriage
E. Choses in Action
1. Mortgages:
A. Does the wife of the lender get dower? No, mortgage is chose-in-action so no dower
B. Does the wife of the borrower get dower? Yes, subject to the rights of the bank
2. Partnership:
A. When A dies, A's widow does not get dower (is chose in action) Deceased partner's interest becomes liquidated--so will be part of the estate?
E. How is Dower Defeated?
1. Divorce--yet, some jurisdictions depends on fault.
2. Adultery/misconduct does not bar dower
3. If O-->A and his heirs BUT IF A DIES WITHOUT ISSUE, to B and his heirs.
A. If condition breached and no longer inheritable (no kids) then NO DOWER TO A's WIFE.
2. Legal life estates are probably undesirable from a planning perspective. Creates a legal life estate in one person and a future interest in others.
A. When O>A for life, then to B and his heirs, A is only a life tenant.
1. A has a duty to act in a manner that does not create waste.
A. Active waste-destroying
B. Permissive-not making repairs
2. A's duty is limited to the degree that there are rents/income generated, and benefits derived.
A. Yet, if taxes not paid, the property may be foreclosed, as no one has the obligation, and the estate will rot
B. May be better to put the estate in trust, and give trustee power to make decisions as to repairs, taxes, expenditures, etc.
B. Conventional life estatesby act (deed/will) of parties
1. Regular life estatemeasured by life of grantee
A. If A has life estate, could convey it as a life estate, but would end when he dies
B. A cannot convey more than he has--if he tried, then: tortious feoffment and the property is forfeited.
C. Problem for A to lease the property if he just owns a life estate, because if he dies B4 the lease ends, then estate ends at his death and tenant loses. (Tenant may take out life insurance on A)
2. Pour Autre Vie--Measured by the life of another
A. If O>A for the life of B
1. Modern, Is inheritable by those who take A's personal property. (Common law said not inheritable)
2. If A predeceases B, then inheritable interest goes to A's heirs (until B dies) Is includable in A's estate for estate tax purposes.
3. Could be interpreted as to A and his heirs for the life of B whereby you wouldn't have to worry about inheritance and A's heirs would take from O directly.
D. Future Interests/Future Estates
1. Interests which person may posess/enjoy at some future date.
NOTE: When you try to create future interests in consumables, in some jurisdictions may end up giving ownership outright.
1. Ex. O gives car to widow for life. Auto is consumable, so wife gets outright ownership.
A. Retained in favor of transferor or his successor in interst:
1. Reversion
A. Deemed to be retained by the transferor when the transferor of the interests creates LESS vested estates than the transforer had to begin with.
1. Ex. O gives the estate to A for life. When A croaks, O gets a reversion in fee simple absolute.
B. Reversion is a VESTED Future Interest
1. Vested in interest--Owner is ready to take posession whenever and however the prior estate may terminate.
2. When interest is vested--DO NOT worry about the Rule Against Perpetuities.
B. Legal Characteristics of Reversion
1. When O dies, he can give his reversion interest away by will, can sell it, transfer it, creditors can reach it.
2. Reversion is includable in his estate for fed. Estate tax purposes.
3. O's reversion interest is inheritable
4. Basically, when O gives away life estate, he has a reversion in fee simple absolute.
2. Possibility of Reversion
A. Ex. O->A and his heirs so long as bananas are not consumed. A could keep the estate forever as long as bananas not consumed.
3. Right of Re-Entry
B. Created in favor of others
1. Shifting/Springing Executory Interests
2. Remainder
A. Future interest is created in person other than the transferor or his successor in interest.
B. Created simultaneously with the prior interest in favor of person other than the transferor.
C. Created so that it can become a present interest at the natural termination of the estate--waits patiently
1. Ex. If O>A for life, then to B and his heirs. A has present possessory life estate, B takes only after A's estate terminates. It is said that B has a vested remainder in fee simple absolute. O has noting left.
D. Contingent remainders
NOTE: Are transferable, alienable, devisable, etc. but conditions do not disappear)
1. Ex. If O>A for life, and if B attains 25 y.o, to B and his heirs. A has present possessory life estate, B has contingent remainder. O has retained a reversion in fee simple subject to total divestment if B attains 25..
A. When A dies, B is over 25, he will take. If A dies and B is only 20, will revert to O until B attains 25. When B turns 25, B has a vested remainder in fee simple absolute and O no longer has anything.
2. Problem: Ex. From O>A for life, then if he attains age 25 (condition precedent) to B and his heirs; BUT, if B does not attain age 25 (condition subsequent) to C and his heirs.
| From O | to A for life | If B attains 25, then to B and his heirs | If B fails to attain 25 | then to C and his heirs | |
| What's it called? | Condition precedent | Condition subsequent | |||
| Creates | Vested present possessory life estate | Contingent remainder in fee simple absolute | Alternative contingent remainder in fee simple absolute | ||
| Ends up/retains | Reversion in fee simple subject to total divestment | Doctrine of Destructability of Common Law Remainders. If A were to die when B was only 16. B has failed to attain 25, so he cannot take yet. C cannot yet demonstrate that B has not attained 25. Estate goes back to O, because B & C's remainders destroyed | |||
A. Other possibility: Law favors early vesting of estates, so the contingent subsequent is stressed. A has present possessory life estate, B has vested remainder in fee simple subject to shifting executory interest (if he dies b4 age 25), C has shifting executory interest, and O has the hole in the bagel.
3. Problem: From O to A for life, then to the "children of B" (CofB) and their heirs.
A. Bill is a flaming queen, unmarried, with no kids. A has present possessory life estate. Until Cof B born, Cof B have a contingent remainder (unascertained group)
C. O retains a reversion in fee simple subject to total divestiture by the gift vesting in the children of B
D. When Bill finally has a kid, the son takes vested remainder in fee simple (for 100%). When other children born, Son1 loses some to the others. O no longerhas anything
E. When A dies, the class is closed, and B's kids after that cannot share in the gift, unless construction different.
1. Would be, "Children of B whenever born"
4. If subject to total divestiture, then is fee simple, not fee simple absolute.
5. If gift from O>A for life, then to "heirs of B" and B is still alive (living person has no heirs) the "heirs of B" take a contingent remainder in fee simple absolute
E. Merger and Residual Clauses
1. If will gives A life estate and kids of A the remainder, (with condition subsequent--if he has no kids to someone else) and then has a residual clause that gives remainders to A and his heirs, then something or other.
2. Doctrine: If person owns two interests in property, the larger swallows the smaller. HOWEVER, this does not occur if the immediate effect would be to destroy the contingent remainder. However, A can convey both to 3rd party and merger will occur.
3. See Ch. 2.29 of Source.
4. Always an issue with wills-all parts take effect simultaneously.
F. Brown v. Baptist Church.
1. Testator gives property to a church so longs as it should be used for church purposes. (Fee simple determinable, and O retains possibility of reverting)
2. IF ceased to be used for church, then would go to 10 people in equal shares (shifting executory interest)
3. By the time the church wants to move, there are 100 heirs of the original 10. Title not marketable b/c heirs won't agree on what to do if title reverts to them.
G. Common Law Rule Against Perpetuities
1. If it is all (even remotely) possible that an interest may not vest in interest within period of the rule (lives in being + 21 years), then the interest is destroyed.
6. Confusing Common Law Doctrines
A. Doctrine of Destructibility of Contingent Remainders (DDCR)
B. Rule in Shelley's Case
C. Doctrine of Worthier Title
D. Rule in Wild's Case
E.. Rule Against Perpetuities (RAP)