Outline - Alexander - Property - 1994

PROPERTY - SPRING TERM 1994, PROFESSOR ALEXANDER ACQUIRING PROPERTY RIGHTS I. ACQUISITION by DISCOVERY, pp. 3-20 A. Johnson v. M’Intosh (1823), p.3-11: P had document showing title from Indian conveyance in 1775. Problem is: 1) Royal proclomation that subjects cannot purchase land west of Mississippi; and 2) VA passed law in 1779 that only gov’t can purchase land from Indians and voided all other purchases. Territories were transferred to the US and  purchased the same land from U.S. in 1818. P brings action in ejectment: person holding land not person w/ title, sometimes brought to quiet title; Title : claim of right to a land; right of ownership. 1. Government right to extinguish/acquire by discovery: Doctrine of Discovery a. Discovery creates title which gives exclusive right to extinguish Indian’s right of occupancy by purchase or conquest. i. Discovery: the sighting or finding of hitherto unknown or unchartered territory; it is frequently accompanied by landing and symbolic taking of possession, acts which give rise to an inchoate title which must subsequently be perfected by effective occupation. ii. Conquest: the taking of possession of enemy territory through force followed by fornal annexationof the defeated territory by the conqueror. b. Law of Nations : only civilized nations allowed to extinguish non-civilized (non-christian, savages) nations. Does not work on two civilized nations. i. Resolves conflicts among nations c. Justification of Law of Nations. i. Indians could not coexist in peace and so no complete integration or separate rule. ii. Crown would lose use of land if Indians have title. iii. –To leave them in possession of their country was to leave the the country in a wilderness.î See Locke’s labor theroy of property infra. d. HYPO: Does Johnson, acting as a US citizen/agent of the gov’t, have the power to extigush the Indian’s occupation interests? => NO, Johnson is not a valid sovereign purchaser. 2. Indians retain residual land interests: right of occupancy a. If Indians have title, neither acts would invalidate their title. i. Proclomation: Indians are not subjects of Crown and Crown cannot take property w/o acts of Parliament. ii. VA act : Cannot annul deed w/o just compensation. Takings clause of V Amendment. b. BUT Ct held that Indians only have a right of occupancy. i. Discovery extinguishes title interests but not possessory interests. c. Residual possession/occupancy interests can only be terminated through purchase or conquest(physical possesion and control, not just declaration). d. HYPO: Suppose Johnson has possession and M’Intosh comes by and kicks him off. Does this mean Johnson’s possesion interests have been conquered? => NO, in the original case, gov’t had title and exclusive right to conquer. Doctrine of conquest only applies to sovereigns. 3. Justification: relation between law and sovereign. a. Title comes from gov’t since it is a social construct that conqueror creates and backed up by courts. b. Courts are bound by Law of nations since sovereign bound and cannot deny the foundation of one’s country. 4. A land patent, deed transfer of title from gov’t, is starting point of the chain of title in US. 1 5. 6. 7. Didn’t Johnson receive an occupancy interest from the Indians? a. Marshall says that the Indians –lacked the power of alienation,î ie. transfer b. Why would the Indians not retain the right to to transfer their occupancy interests? i. Transfer does not impede the gov’s sovereign power. ii. Johnson simply replaces the Indians as the occupier of land. c. Occupancy should be transferable i. Eg. Tenant allowed to assign the remainder of lease to someone else unless prohibited by the lease. d. HYPO: M’Intosh tells Johnson to –get the hell out.î Johnson today would have recourse to go to Indians and say –you have duty to ensure my quiet enjoyment of the land.î i. Back then the only duty was to ensure good legal transfer of land. ii. Landlord’s duty to provide quiet enjoyment used to mean only that L or L’s agents would not interfere w/ T’s possession. L did not have to duty to protect T from strangers; –call the police.î Marshall seems to take this case as a political question a. An adverse decision would upset land ownership all over the country. It would mean that the courts have jurisdiction over the doctrine of discovery in national and international law. b. The doctrine of discovery has been settled by another branch of the gov’t. c. –However this restriction may be opposed to natural right, and to the usages of civilized nations, yet, if it be indispensible to that system under which the country has been settled. . .it may perhaps be supported by reason, and certainly cannot be rejected by Courts of justice. . .î d. A narrower view of the case holds that court will not recognize titles derived from nonsovereigns if not viz gov’t title. Maxim of Roman Law: Who is first in point of time is stronger in right. a. Law of the culture defines possession. The European definition was possession equals use for commercial purposes. Eg. Locke’s labor theory: protects labor through commercial theory of property. The Indians left it to the wilderness and did not –hold it fast.î (Weak justification) B. Possession Defined: A person is in possession of objects he physically controls. The word possession may refer to either facts indicating physical control and intent to exclude others from control or a conclusion by a court that a person is –in possessionî and ought to be protected as a possessor. A person in possession may be ousted only by court order, but a trespasser may be ousted by the owner using resonable self-help. 1. Ownership is –title.î Possession is proved by showing physical control and intent to exclude others. 2. A person is in –constructive possessionî when the law treat him as if he is in possession although in fact he is not or unaware of it.It is a convenient fiction that allows judges to arrive at the desired result. 3. Why the law protects possessors/Policy (–Possession is 9/10 of the lawî): a. Protecting possession is an efficient way to protect ownership b. Prevents ditrubance of public peace and order c. Facilitates trade because the buyer can rely on sellers’ ownership d. Gives effect to expectations of a person who has asserted a right to a thing until another person comes along w/ a better right. e. In cases of persons capturing wild animals or finding lost property, protection rewards them for making a useful item available to society. f. Easy and efficient way to allocate resources even if arbitrary. 2 C. Occupation Theory and Principle of First In Time, pp.14-15 1. Acquiring the right to things previously unowned and can never extinguish a prior right. The first person to take possession of a thing owns it. A prior possessor prevails over a subsequent possessor. These rules implement important social poilcies related to rewarding labor, protecting investment in resouces, and encouraging people to bargain instead of fighting. 2. Only unowned property a. Occupation only for originally unowned property b/c the underlying justifications for occupancy are: i. Social harmony: prevents discord by not allowing people to appropriate other people’s private property. [Questionable b/c social harmony can also be enhanced by having rules to stop appropriations.] ii. Appropriation of –killsî during a hunt : In the beginning, we needed a way of appropriating food to survive. 3. Why allow for private property? a. Some things must be pte in order to have value or to function, e.g. food. b. Because of scarcity, private property was needed to preserve the peace. c. If all things are common property i. People won’t invest time to acquire things from the wild b/c no security. ii. Tragedy of the commons: more economically efficient use of resource since externalities are internalized. (1) Counter argument: may maximize social utility if used as common property. (2) Economist rebutta: if most efficient, then can buy it back from pte owners. (3) Problem w/ economist’s rebuttal: a. Transaction costs may be too high to buy back–make the purchase inefficient b/c transaction costs. b. Thing has to be for sale in the beginning. c. $ may not measure the full desire of item b/c people may not have enough $ to pay equal to their desires. d. Free rider problems: someone may not pay but use the common property anyway – externality. Labor Theory (Natural Law Theory) Lock’s Theory 1. In the state of nature, everything is common property. 2. Pte appropriation of the common property begins when one mixes one’s labor with the common property. 3. Who has property right and against whom? a. Whoever put in labor has right against everyone else. b. Gov’t supposed to enforce this right b/c of social K. 4. What can property be? a. Anything that one puts labor into. b. Constraints i. Enough and as good left in common for others [Problem Scarcity] ii. No waste. 5. Rights of participants that arise from property a. Permanent rights as long as using, creating useful products and not wasting. b. Can create durable possessions by changing form into money. Aggregation of wealth. 6. Labor as Source of Right a. Labor as Owned i. Everyone owns her own body and labor–the only thing that is not common property: body, labor and life. ii. Once you mix your labor w/ something, you have a better right to it than other people because it becomes a mixture of common and pte property. iii. Alienability v. Control (1) Alienability (a) Person cannot sell all of body b/c inalienable and would amount to slavery. (b) Person can work for K (i) Different from slavery b/c can break K. 3 D. 7. (ii). Difference is the quantity rather than the quality. (c) Person can only sell liberty in certain pieces and ways. Cannot sell all liberty. (2) Control: individual has right to control and use own body (sell labor through contracting away part) but cannot alienate body. Labor as Source of Value a. Reasons for labor creating right i. If labor does not create right, no incentive to labor and cultivate the land. ii. Must exclude somethings to make it useful. iii. Labor gives value to a common item, e.g. tilling a ground. Value comes from labor b. Counter arguments i. Other kinds of value other than economic value. ii. Some things start out more valuable, fertile land v. barren land. So the same value may not indicate the same amount of labor put into the item. iii. Quality of labor v. Quantity of labor iv. Value may depend on things not related to labor: (1) Scarcity and demand (2) Need E. Law of Accession, pp.16-17: The doctrine of accession comes into play when one person adds to the property of another either labor or labor and new materials. A person whose property is taken and used by another is always entitled to the value of the property but may lose title by accession/additions. a. Where A adds labor to B’s raw material, cts usually award the final product to the owner of the raw material unless A’s efforts have sufficiently increased the value to make it unfair. In addition most states require that A acted in good faith and not willfully. Accessioner is usually denied any recovery, but there are exceptions turning on bona fides. b. HYPO: By labor alone A chopping B’s trees and making flower boxes from them. => Court usually award the final product to the owner of the raw material (B), unless A’s labor has sufficiently increased their value (and A has not acted willfully). The doctrine is a bit arbitrary in application. c. Where A adds labor and materials to B’s raw material, the final product is usually awared to the owner of the principle material even if that person is one who willfully and wrongfully took the other’s and transformed it by adding her own. d. HYPO: By labor and addition of new material, C using her own oils and D’s canvas to produce a valuable painting. => The final product is usually awarded to the owner of the principle material, even to one who willfully and wrongfully took. Here again arbitrary results can be expected. e. Owner who loses can generally recover damages equal to the value of her material before transformation. f. Haslem v. Lockwood (1871), p.17: P raked into heaps manure that had accumulated in public streets intending to carry it away the next day. Before he could do it, D found the heaps and carried them off. The manure belonged to the original owners of the animals but had been abandoned. As abandoned property it belonged to the first occupant, and P –had changed its original condition and greatly enhanced its value by his labor.î g. Doctrine of mistaken improver applies to real estate. Suppose A build a house on B’s land. If A acted willfully, A has no remedy and the house belongs to B. If A acted in good faith, usually B has the option of paying for value of house or selling to A the fair market value of the land. Property & power: Property confers and rests upon power. It bestows owners a form of sovereignty over others because property means that the sovereign state stands behind the owner’s assertion of right. a. It does assure some degree of certainty in whatever system society developes. F. 4 (Textbook shifts from interests in land to personal property.) II. ACQUISITION by CAPTURE, pp. 20-62: Acts Necessary for Occupation/Possesion: subject animal to physical control or deprive liberty. A. Rule of Capture: If wild animals are captured they belong to the captor. But capture is required, merely chasing the animal is not enough. 1. Society’s objective is to capture foxes or ducks. To foster competition, resulting in more animals captured, society does not reward pursuer, only captor. 2. Ease of Administration: promotes certainty and efficiency 3. Note: today the rule of capture leaqds to overcapture and overinvestment in capture technology. 4. Mortally wounded or trapped so that cature is virtually certain = capture a. But if the trap door has not snapped shut ? capture B. Pierson v. Post (1805), p.20-24: ? chased fox and about to capture when  took fox away from ?. For ? to have C/A, need property right to fox. Theory of the property right is occupancy of the fox. [See Possession and Labor theory] 1. Ct held: ? did not have property right to fox b/c did not satisfy requirement of subjecting animal to ?’s control. 2. Majority i. Legal Definition of First Possession (first occupancy) = Physical possession, ie. actual capture, or mortal wound. ii. Want a bright line rule to prevent quarrels and litigation so refer to historical authority. We know what –actual captureî means. (1) However, what is –mortal woundî? (2) What about the fact that bright line for hunters is in custom? (3) Majority assumes these parties are rational. This lawsuit is a grudge match. iii. Policy Arguements based on false assumptions of facts. 3. Dissent : capture should follow from chase. i. Custom Definition of First Possession = Reasonable Prospect of Acquisition. ii. Scholars out of touch w/reality & world has changed should not look to historical authority iii. Silly rules if it turns on the likelyhood of capture: may end up turning on the size of the dog. iv. Policy: encourage fox-hunting b/c they are pest in the countryside, so the property right should go w/ the hunter. (1) If the policy is to catch foxes, shouldn’t we reward the actual capture instead of one who merely chases? (2) Isn’t the real purpose here the hunt and not the catch? 4. Is there any practical difference between –mortal woundingî and –reasonable captureî? While the general rule is captor must acquire physical control over the animal, in some hunting trades, custom, which is more effective in getting animals killed, may dictate a different result (different definition of occupancy). Ghen v. Rich (1881), p.27-30: Among American whalers, the custom was to award the whale to the ship that first killed the whale--even though the whale sank and was discovered a few days later floating on the syrrface by another whaler. This custom advanced society’s object. This custom was rrecognized by courts as giving possession. 1. Definition of occupancy based on policies based on assumptions 2. Moby Dick, H.Melville a. Fast-fish belongs to the party fast to it. b. Loose-fish is fair game for anybody who can catch it soonest. c. Case of the vessel losing everything to the whale and another vessel killing whale and taking boat, lines and harpoon. i. Judge allowed vessel 2 to keep whale because whale was loose-fish. ii. Judge allowed vessel 2 to keep harpoon and lines because that became the property of the whale when it escaped vessel 1. iii. Judge returned vessel to vessel 1 because they abandoned it to save their lives. 3. Ghen court applies an exception to the rule of capture. Custom controls if well-known in a business or trade. 4. Ghen only requires reasonable knowledge of capture, not actual knowledge. 5. The definition of custom may be the distinction between Ghen and Pierson. 5 C. 6. 7. D. Ghen: custom = common law i. It requires in the first taker the only act of appropriation that is possible. ii. It is extremely limited and can only affect a few persons b. Pierson: custom ? common law Deference to custom is just deference to circumstances that apply to different species or trades. Observed by whalers and courts as extralegal property rights regimes that max whaler’s and society’s aggregate wealth. a. If a person is in the process of entrapping animals, a competitor who also wants to capture the animals can interfere w/ other person’s activity and try to capture the animals. But a person who does not want to capture the animals cannot interfere. Society wants the animals caught. Keeble v. Hickeringill (1707), p.31-34: A put decoys out on his pond to attract ducks and set nets to catch them, B, cannot shoot off gun to scare duck away. But B can shhot to kill the ducks flying over his land. 1. This rule promotes killing and not conservation of wildlife which may be a goal today. 2. Distinguish Pierson: sport v. right to trade; goals of society. 3. HYPO: Suppose Keeble admitted this was a sport? => Perhaps this distinction is not crucial. Perhaps the real issue is the interference w/ property interests related to a beneficial social interest.: freedom from malicious interference w/ trade. i. The point is not whether P’s interests are harmed, but does this harm frustrate socially desireable objective. The big aasumption is what is a socially desireable objective? 4. Ratinoe Soli: conventional view that owner of the land has constructive prior possession of ferae naturae on his land.until the animals take off. (This was not the holding of Keeble.) 5. The idea of possesion is a legal conclusion not a fact in itself. It is the result of another purpose, and the real question is –Why is this purpose valuable?î The reasoning is instrumental. No a priori facts assumed. 6. Q#1, p.36: Suppose T, trespasser, capture wild animal on land of O and carries it off to her own land. Subsequently T1 trespasses on T’s land and carries the animal. => We want an orderly society and do not encourage trespass. i. T1 needs to show he was in prior possession. T has relatively better title. If not, allow slippery slope of trespass. ii. Title is relative not absolute. Do you have a better claim. iii. However, O cannot trespass to retrieve animal, must use judicial system. Title does not give license to trespass. Regulation by State: States can and do regulate hunting and fishing by game laws. These laws have the purpose of preventing overkill and preserving natural resources. The state has the power to regulate taking of game under its police power to prevent conduct harmful to the public. The Rule Of Capture and Other –Fugitiveî Resources, pp.37-41 1. Oil, natural gas and water, like wild animals, have a common fugitive character. They are mobile and want to move and have the tendency to escape w/o the volition of the owner. 2. Oil & Natural Gas a. Common law maxim: To whomever the soil belongs, he also owns to the sky and the depths i. However, this is applicable only to stationary objects b. Oil and natural gas treated as unowned until they are –capturedî because of their fugitive character. Capture/extraction = Possession. c. Rule of capture provides no rules on rate of capture i. There can be no malicious intent to compete for capture (Keeble) ii. What is the social utility of wasteful drilling to acquire the most oil? iii. Non-renewable scarce resource iv. Extraction is now well regulated in US by legilation e. Reinjecting oil returns it to the –wildî and becomes unpossessed again. f. No trespass if reinjected oil flows into another person’s land. i. We presume it is the case today that reinjection does not ordinarily give rise to liability for the use and occupation of parts of a reservoir underlying the land of neighbors, even though ownership of the reinjected materials remain intact. 3. Criticism: 6 E. F. 4. Oil and gas are not –fugitiveî in the same sense as wild animals. Animals –chooseî their habitats. Oil reinjuected was put ther by somone, and maybe that person should be responsible for it. b. Policy/law does not encourage cheap storage c. Today, overall oil and gas are regulated by legislative statutes. i. Explicit regulations on extraction rates ii. Maximize value over time. Water Law a. Economic Efficiency Problem i. Analysis can help understand: (1) Changes in law for efficiency (2) Need for further modification in laws (Property – L – Inalienable) ii. General understanding of the Changes in Law (1) Transaction costs preventing internalizing of externalities and achieving pareto optimality (2) The law bypass mkt to counteract effect of transaction cost and eliminate transaction costs. (a) Assign right to party w/ lowest transacton costs (3) Must consider the increases in transaction costs if certainty is undermined: litigation increased, leading to increased transaction costs. (4) Therefore, its a balance to decide what is the most economically efficient course. b. Ground Water i. East (1) Absolute Ownership (English: direct application of capture, for a landowner’s pump could induce water under the land of his neighbor to flow to his well, water that was in theory his neighnors while it remained in place) a. Can use anyway you want regardless of effects to other people; no principle of apportionment b. Property rule (can trade entitlement) c. Not inalienable nor L rules d. Rationale : Expectations of surface water and ground water different. 1. Surface: claims known. 2. Ground : claims unknown. e. Problem with system 1. Unlimited right to use groundwater may create a lot of externalities. 2. Diffue and widespread externalities also increase transaction costs. f. Only followed in a few states. ii. West (1) Reasonable use (United States: still the rule of capture but w/ addition that wasteful uses, if they actually harmed the neighbors, were unreasonable and hence unlawful) a. Solution to the Absolute Ownership – L rule (property can be taken away but will be paid socially accepted value). 1. Make a L rule to account for externalities 2. Courts intervene to achieve efficiency b/c high transaction costs prevent market from working. 3. Problems a. But may be expensive if hard to show casualty (transaction costs) b. Uncertainty leads to increased litigation leads to increased transaction costs. b. Owner limited to reasonable uses of unlimited quantities of the groundwater similar to Riparianism even if it caauses neighbors harm. c. Nuisance action. 1. ? tries to get injunction or damages 2. When harm outweighed by benefit, no injunction, just get damages. (2) Correlative Rights over Underground Water Basin a. Can use underground water in proportion to the amount of owned surface land. 7 a. c. Use that lowers the water table is not allowed. Possible geological reason for difference. 1. East : underground streams 2. West : underground pools. (3) Appropriation a. The same as the appropriation system for surface water. b. Rationale 1. Scarcity of water 2. Problem of division: incentive to keep large enough amount for efficient use b/c so little water to start out with. 3. Surface and underground water related and affect each other so extend the surface system to the underground. Surface Water i. East : Riparianism (Majority of states) (1) Introduction a. Entitlement given to riparian owners [land next to water] subject to rights of other riparians. b. To get right, must own land or buy entitlement; the right is –attachedî to the land and cannot be transferred to a nonriparian owner. c. Transaction costs high b/c lots of potential owners. 1. Eg. upstream vs. downstream owners d. Externalities may not be internalized if other costs possible to other than riparian owners, e.g. Nuclear Plant. e. To make more efficient : L rules Make party internalize externalities and cure holdouts. (2) Natural FlowÛUK a. Each riparian owner can use the water but must return it to the stream in its natural condition. Cannot use water to affect quantity, quality or velocity. b. Riparian owner was not allowed to use water on nonriparian land and could not deplete qunatity of water though no one is harmed. c. Prohibits full utilization of water even if no one is harmed b/c riparian owner cannot interfere w/ quantity of water. Because it is not utilitarian, a large majority of states reject it. d. Well suited for agrarian socieety and early Industrial Revolution (3) Reasonable UseÛUS a. This formulation changes the English formulation to make more economically efficient. The riparian owner is entitled to reasonable use, and downstream owners cannot enjoin or recover damages unless they are not receiving enough water for their needs or the upstream owner is substantially interfering w/ their needs. If a downstream owner is not harmed, she cannot enjoin the up stream owner’s use. b. Types of uses [Ct’s making social gradation of efficiency] 1. Natural Use: Fundamental for living 2. Artificial Use: Industrial c. Conflict 1. Conflicting uses, more fundamental use wins. 2. When 2 equal uses conflict = jury question as to how much upper streem can use given needs of lower stream owners. d. Some, but not all, courts adhering to the reasonable use theory have permitted a ri[arian owner to use water for nonriparian land if this does not cause harm to a reasonable use of other riparian owners. e. Stratton v. Mt. Hermon Boys’ School 1913: Â’s right to take water for reasonable use limited to land adjoining water course and DID NOT EXTEND to other premises.  diverted water from spring for use at property one mile away. Sued by ?, owner of mill. f. Monroe Carp Pond Co. v. River Raisin Paper Co. 1927 : Court decided  had action over ? b/c use of stream by  co unreasonable. However, social 8 b. c. usefulness of activity ( employed 3K persons) allows continued use of river to pollute but ? only recompensed loss rather than permanent injunction. g. Defined during industrial revolution to facilitate production and commercialization. (4) Efficiency of Riparianism a. Land has lots of water. b. If attach L rule activity more productive b/c no unreasonable use of water. c. Lots of rights to many people w/ little conflict. d. A fixed definition of natural flow does not allocate resources to best use. (5) Take little account of the relative productivity of the land the water services and encourages the developement of uneconomical –bowling alleyî parcels of land perpendicular to the stream and rations poorly when the stream is low. ii. West: Prior Appropriation (8 most arid Western states) (1) The first person who appropriates (captures) water and puts it to reasonable and beneficial use has a right superior to later appropriators. Lose rights by not making beneficial use of water (2) Once a right to water is established, it is an interest independent of land and can be severed from the land and sold to another for use on their land. (3) Conflict : Earlier person to make beneficial use wins in a conflict. (4) Rationale: Water is scarce in the West a. If had riparian system would end up w/ large tracts of property not having water; low ratio of streams to land b. Don’t want to waste water 1. Make maximum use and is predictable 2. Minimize conflict – lose right if not making beneficial use. 3. Allows transfer to one who values it the most and low transaction costs c. Certainty: earlier user gets right 1. Economic efficiency b/c major investment to replace water if uncertain whether retain right. 2. Also ensures social usefulness rule. 3. Reduces transaction costs a. No need to find out who has right b. Negotiate w/ only right person. c. Transaction costs 0 for 1? user and increases w/ subsequent users. But not much water to begin w/. d. Externalities can be taken care of by L rule (5) Encourages premature development and excessive diversion. It also rations poorly when supplies dwindle periodically. d. Summary Surface Ground Diffuse-Surface East Riparianism 1)Natural Flow 2)Reasonable Use 1)Absolute Ownership 2)Reasonable use 1)Common Enemy 2)Civil Law (implied servitude of drainage) 3)Reasonable Use West Appropriation 1)Correlative Rights 2)Appropriation 1)Common Enemy 2)Civil Law (implied servitude of drainage) 3)Reasonable Use e. G. Today, like oil and gas, water use is heavily regulated by legislative statute. Demsetz, Toward a Theory of Property Rights, p.42-49 1. His theory is that priviate property is more efficient than communal property where evveryone has equal rights of use and cannot prevent others from use. 9 a. 2. 3. 4. 5. 6. 7. 8. 9. Communal in this sense mean –open-useî free of regulation. This is distinguished from – collectiveî ownerships, eg. co-ops, where regulations are made by the group. Collective ownership contains w/in its meaning a range from democratic to totalitarian. He purports to give a positive description (describe, explain) of facts, history of ownership, to enable us to predict the future. However, there is a certain normative element as he tries to advocate efficiency = private property. a. Efficiency = Maximize aggregate social wealth b. Principle difference w/ utilitarianism = efficiency measures utility as the willingness to pay money. c. However, willingness = —(ability to pay); economics ignores the current distribution of wealth. Economists only claim to allocate resources efficiently and disclaim distribution and equity. d. Fundamental concern w/\privaye property is to max efficiency over time. He felt open-access is inefficient because it breeds waste and aggregate social cost to everyone is higher. Private property reduces the # of transactions involved to negotiate because it is costly to have to negotiate w/ everyone in the world. a. But rational behaviour could lead to irrational resualts: (1) Freerider problem (2) Holdouts b. Need a regime that combines self-interests and collective interests. Externalities - social affects/affects to others that are external to the actor and are not accounted for by the actor. a. We want to minimize externalities in order to max future utility b. Eg. Endangered animals are hunted for their value. If we privatize their ownership, it would be easier to negotiate for their preservation rather than having everyone race to acquire it. c. Tragedy of the Commons - The Commons leads to social waste; a skeptical assumption of human self-interest and incapacity for negotiation and cooperation for the social good. (1) But there are counter examples of successful commons What conditions are necessary and sufficient for people to cooperate to make the group better off even though there is no individual ownership, ie. when does open-ownership avoid the Tragedy of the Commons? Demsetz’s theory contains a contradiction: if we do not have the capcity to cooperate for the common good, how did we move from a regime of common to private property? a. There is a hurdle that everyone has to get together to deceide we want private property before we can do away w/ open-access. We need to cooperate in the first place. b. This defeats the assumption that we cannot cooperate because we had to do it at one time. c. Eg. Whalers agreed to extra-legal norms and cooperated to stop whaling. This suggests that the tragedy of the commons can be avoided where there is a maximization of long-term inerests. a. Property rights = —(thing,others), thing = —(other) Property rights viz others to a thing b. As long as we have to deal w/ each other in the long-run, we need to work together to max goals. c. As a repeat player, I want to max my relationship w/ you Scarce vs. re-newable resources Implications for the Rule of Capture: a. We should expect inefficiency and tragic consequences if there is no cooperation over acquisition. Eg. Endangered species b. The solution may be to find another way to privatize or a new regime of cooperation or regulation 10 III. A. CREATION, pp. 69-102 Any expenditure of mental or physical effort, as a result of which there is created an entity, where tangible or intangible, vests in the person who brought the entity into being, a proprietary right to the commercial exploitation of that entity, which right is separate and independent from ownership of that entity. 1. The assertion is that if you create something - if in that sense you are first in time - then that something is yours alone to exploit. Moore v. Regents of the University of California (1990), pp.69-86: P was trreated for hairy-cell leukemia and had his spleen removed. He was not told that his cells were unique and access to them was of great scientific and commercial value. He consented to 7 yrs of follow up tests which he was led to believe were important for his treatment and his spleen was retained for research purposes w/o his consent of knowledge. D subsequent;y established the Mo cell line, received a patent and entered into various lucrative commercial agreements. P sued for damages for conversion, lack informed consent, breach fiduciary duties, fraud and deceit, UE, etc. 1. Conversion: wrongful exercise of ownership rights over the personal property of another. Interference w/ possessory and ownership interests in personal property w/o acknowledging the superior rights of the true owner. a. Moore alleged that blood and bodily substances and the cell line derived from them were his tangilbe personal property. b. Conversion is only for personalty/personal property. Damages = everything derived from cells (In Keeble, ct treated as action on case which require possession => constructive possession of the ducks. Invasion of land interests was in trespass.) 2. Informed consent: negligence; not predicated on injury to property interests 3. Ct of Appeals: P has sufficient legal interests in his body tissues amounting to personal property. Absent consent of lawful justification, eg. abandonment, the complaint is adequate for conversion. Policy of –gift basedî or –free marketî use of tissues is for Legislature. There is proper elements of dominion, or rights of use, control and disposition. 4. CA Supreme Ct: There is c/a for breach of fiduciary duties and lack of informed consent, but not for conversion a. In order to maintain action for conversion, P must have title or possession. Since P did not expect to retain possession he must have ownership to maintain action. b. CA statutory laws’ practical effect is to limit limit patient’s control over excised cells. What is left may not amount to –ownershipî for the purposes of conversion. Bundle of rights reduced to nothing. c. Fiduciary-duty and informed-consent theories are sufficient to protect privacy and dignity interests. d. The patent line is both factually and legally distinct from the cells taken. Doctrine of accession. e. Reasons against extension of tort law: i. Policy: liability based on existing disclosure obligations protects patient;s rights of privacy and autonomy w/o unnecessarily hindering research. ii. Legislature should make the decision to held scientific users liable f. No conversion => 1) Abandoned property interest, or 2) Lost all property interests 5. Concurring: Ethical objections to treating human beings as commodities. 6. Dissent: a. The real inquiry is whether P has a right to determine, before removal, the use of the part after removal. b. The Uniform Anatomical Gift Act clearly recognizes that it is the donor who has the authority to designate, w/in the parameters of statutory authorized uses, the use of a part. c. Although P may not get value of derived products, the fact that P may not be entitled to all the damages does not justify denying his right to maintain any conversion action at all. d. The majority only speaks of the patient’s rights to make autonomous decisions and fails to mention the patient’s interest in obtaining the economic value. If this is wrong the Legislature can do something. Besides the majority only says the donor may not tade bidy parts, but D is left free to exploit the market. 11 B. e. 7. 8. 9. Bundle of Rights: Property can be equated to a bundle of rights. Alienability is just part of the bundle. If you lose it, you still retain the rest of the rights, eg. ownership. P had at least as much right to do what D did. 1. Alienability (transferability) - allows parties to make each other better off and max utility of property. Property law likes to max utility and allow you to sell to someone who values it more. 2. Property interests are not exstinguished at the point of severability. Hypo: If you chop off my hand, I do not lose ownership at that point. Therefore Moore’s ownership continued after his spleen was removed. 3. Statute only covered the right of alienability, not ownership. Besides the statute is a health statute regulating disposal. If not unhealthy is not covered, eg. teeth. 4. Limited market-inalienability, eg. Moore can sell his body for research upon his death. Because you cannot sell your body does not mean you do not own it. 5. It does not follow all or nothing. Still entitled to damages for material/remainder of his bundle of rights. f. Policy: 1. The right to appropriate and exploit a patient’s tissue for their sole economic benefit is analogous to slavery. 2. Unjust enrichement and unequal bargaining positions g. The Uniform Anatomical Gift Act does not prohibit sale for research. h. It is difficult to recover for failure to disclose => must prove negligence instead of strict liability. Patient must prove a causal connection between injury and failure to inform, but-for and proximate cause. Conclusion = CA cts do not recognize property inerestsa in body parts. When did Moore’s conversion take place? Moore had a property interest. => Did he then abandon that interest? Perhaps the arguement is that he did not have knowledgable action as a result of D’s nondisclosure and D should be liable as if he stole property. C. Right to Exclude, pp.92-102 1. It is generally accepted that the essence of private property is the right to exclude others, the right to exclusive possession over whatever things the law of property assigns to a person. The use of property may be restricted by zoning laws, and transfer may be curtailed by lawful restraint on alienation, but courts seldom permit another person to enter the property of the possessor. a. The right to exclude others is –one of the most essential sticks in the bundle of rights that are commonly characterized as property.î Kaiser Aetna v. U.S., S.Ct (1979). 2. The right to exclude and the right to include are necessary and sufficient conditions of transferability. (Remember Moore supra) 3. Where legislature has acted to protect civil rights, ensuring equal admittance to public accomidations or housing, the court have upheld such legislation as a constitutional exercise of police powers. Eg. Heart of Atlanta Motel, Inc. v. U.S. 4. First Amdt does not require the owner of a shopping center to allow access to the property for free speech. (See also rent control, adverse possession, public easements on private beaches, default on mortgage) a. However, the state may broaden a state constitutional right to free expression on private property beyond the protection offered by the Federal Constitution. 5. State v. Shack (1971), pp.92-98: T employs migrant workers and as part of their compensation, theys are housed at a camp on his property. Ds provides health and legal services to migrant farm workers. Ds entered upon T’s property and T refused to allow Ds to interview the workers w/o his presence. When Ds refused to agree Ds were arrested for trespass. a. Under State law the ownership of real property does not include the right to bar access to gov services available to migrant workers and hence there is no trespass. The interests are more expansively served by a decision resting on nonconstitutional terms. i. The court did not rest its decision on Constitutional grounds raised by amicus curiae (1st Amdt, Supremacy, 6th, 9th, 14th Amdt, Griswold) Ct considers what alternatives the migrant workers have before creating a new property rights. 12 b. 6. 7. Property serves human values and are recognized to that end and are limited by it. Title to real property cannot include dominion over the destiny of persons the owner permits to come on the premises. c. The law will deny the occupant’s power to K away what is deemed to be essential to their health, welfare or dignity. d. The case deals w/ a rootless, isolated, highly disadvantaged segment of our society. They are unorganized and w/o economic or political power and this is their only domicile. e. Congress specifically provided aid under Economic Opportunity Act and these ends would not be gained if the intended benficiaries could be insulated from efforts to reach them. The key is communications and this requires positive efforts tailored to that end. f. A man’s right in his real property is not absolute. A maxim of common law that one should so use his property as not to injure the rights of others. Property rights are relative. No absolute rights to property and exclusion. Necessity, public or private, may justify entry upon the lands of another. i. Powell: An owner must expect to find the absoluteness of his property rights curtailed by the organs of society, for the promotion of the best interests of others for whom these organs also operate as protective agencies. g. The quest is for a fair adjustment of the competing needs. We see no profit in trying to decide upon a conventional category and then forcing the present subject into it. h. Reps of federal, state and local services or recognized charitable groups may enter upon premises to seek out a worker at his living quarters. So too, he must be allowed to receive visitors of his own choice and members of the press so lnog as there is no behaviour harmful to others. Employers may bar solicitors if purpose is not to gain commercial advantage or regulation does not deprive migrant workers of practical access to things he needs. i. The employer may not deny the worker his privacy or interfere w/ his opportunity to live w/ dignity and enjoy associations customary among our citizens. These rights are too fundamental to be denied on the basis of an interest in real property. j. Ds have invaded no possessory rights of P. (Possessory interests ? possessory rights) Singer, p.99: The wide variety of legal rule limiting the right to exclude can be justified by the reliance interest in property theory: 1) When owner grant access they are not unconditionally free to revoke such access as non-owners may have relied on the relationship; 2) When people create relations of mutual dependence involving joint efforts and the relationship ends, property rights must be redistributed to protect more vulnerable; and 3) Redistribution reflects interests of more vulnerable in reasonably relying on relationship to continue, resources earned, and fulfillment of needs. i, Contrast, p.100, Local 1330, United Steel Workers v. US Steel Corp (1980). Epstein, p.102: Buyers ans sellers may deal as they see fit, but so long as there are many buyers and sellers market forces will check abuse. Under certain locaolized cercumstances conferring these absolute rights to exclude does not advance competition but rather creates bilateral monopoly, holdout problems and transaction-cost problems. It is these situations in which there is a sustematic willingness to back off a comprehensive idea of property. 13 SUBSEQUENT POSSESSION: ACQUISTION by ADVERSE POSSESSION and GIFT IV. ACQUISTION by ADVERSE POSSESSION, pp.121-144 If, w/in the # of years specified in the statute of limitations, the owner of land does not take legal action to eject a possessor who claims adversely to the owner, the owner is therafter barred from bring an action in ejectment. Once the owner is barred from suing in ejectment, then the adverse possessor has title to the land; possession will ripen into ownership w/o consent from anyone. Adverse possession creates new title for the adverse possessor that relates back to event that started S/L running and the old title is extinguished. (Adverse possession never works on the government.) The doctrine is a composite of statutory and decisional law (about kind of possession required). Possesion + Time = Title. A. Policy Reasons 1. Moral & Psycological (Holmes): Equittable interest for possessor after certain period of time acquires connection to land. a. Reliance interest –takes root in your beingî as interests become more associated w/ you and disassociated w/ owner over time. b. Society should protect attachment of person to things to ensure development of people. c. People attach more to loss of possession than loss of opportunity for gain. 2. Statute of Limitations [Foundation of Adverse Possession]: a. Security & peace of mind b. Stale evidence and claims; timely lawsuits c. Sleeping Theory: Need to put non-owners on periodic notice that you are assertin ownership rights. –Raising the Flagî Burden of warning. Punish lazy owners who sleep on their rights. 3. Utility: a. Automatically quiet/protects title, provide proof of meritorious titles, and correct error in conveyencing. b. Facilitate efficient transfer transactions and reduce uncertainty 4. Economic/Efficiency: Encourage productive use of land in the community (against absentee owner). [Locke & M’Intosh] 5. [SOVEREIGN is immune] 6. Problems arise when multiple policies are present and conflicting. B. Rights of adverse possessor before acquiring title [Relativity of Title]: Has all the rights of a possessor. He can evict subsequent possessor. He can sue 3rd party for damages to property. He has possessory interest which can be transferred. But there is no valid interest in the property against the true owner. Requirements of Adverse Possession 1. Actual entry giving exclusive possession a. Adverse possessor must actually enter the land, possess it and compete w/ title owner. Possesion must be such character that the community would reasonably regard the adverse possessor as the owner. Such acts as the average owner depending on the character and circumstances of the land. This is possession that must be seen, hence this requirement differs little from open and notorious. b. The primary purpose is to trigger the cause of action which starts the S/L running. It also shows the extent of the possessor’s claim. c. No such thing as constructive entry onto the land unless there is actual entry on some part w/ color of title. d. Adverse possessor cannot share possession with the Owner or any member of the general public. Adverse possessor must be able to use all the functions of the land exclusively. If the adverse possessor was sharing, the owner may not realize there was a claim of ownership against him. i. Example of the neigbor raking the leaves for 21 years. Neighbor does not adversely possess b/c does not have exlusive use of all the uses of the land. May get a prescriptive easement – right to rake the leaves. (See prescriptive easements. 2. Open & Nortorious possession a. The adverse possessor must act open, notorious and visible as to give reasonable notice to the owner and opportunity to defend. Generally open and notorious acts are those that look like typical acts of an avaerage owner of property, they are acts which the community 14 C. 3. observing would infer the actor to be claiming ownership. Actual notice is not necessary : encourage landowners to keep an eye on property i. Nature of acts depend on the type of land. Acts must be appropriate to the condition, size and locality of the land. (1) Fencing, cultivating, and erecting a building on farm land is sufficient. In a state like TX where unenclosed land is open for grazing by anyone’s cattle, adverse possessor must fence the land. (2) Wild undeveloped land not suitable for farming but suitable for hunting and fishing can be adversely possessed by acts indicating claim of dominion, eg building a hunting cabin, paying taxes, selling timber, executing leases. (3) Totality of acts must give a picture of a person claiming dominion. Eg. Ewing v. Burnet, Took gravel from city lot, granted permission to others, paid taxes, and sued in trespass. (4) Statutory requirements, eg. Van Valkenburgh v. Lutz. b. If the same person owns both the surface estate and mineral rights when adverse possession begins, adverse possession of the suface includes possession of the minerals. If minerals have been severed by sale prior to entry of adverse possessor, possession of the surface does not carry possession of the minerals. Possession of the surface does not give c/a to separate owner of the minerals until the minerals are disturbed. c. Possession of a cave under the surface owner’s land of which the surface owner is unaware does not establish adverse possession because it is not open and notorious. Adverse/Hostile and under claim of right/title (Most uncertainty, ambiguity and litigation) a. Possession is w/o owner’s consent and is not subbordinate to the owner. One purpose of the claim of right requirement is to assure that the owner is not lulled into believing that the occupant will make no claim against him. The adverse possessor asserts non-permissive entitlement. b. –Claim of titleî is simply one way of expressing the requirement of hostility or claim of right which expresses the necessary adversity (? color of title which is possesion under defective written instrument). c. Objective Test i. Under the objective test the state of mind of the possessor is irrelevent, what is important is the actions of the possessor. The possessor’s acts including statements must look like they are claims of ownership. He is not occupying w/ permission and O immediately has cause of action. If all other requirements of adverse possession are met, hostility is implied. ii. Owner’s acquiesence/permission destroys the objective hostility iii. Majority Rule: Involves going on land w/o the permission of the owner. iv. Minority Rule: hostility must be to the use of the owner. a. Example: Owner grows trees for lumber while neighbor rakes leaves. That neighbor is not making hostile use of property with respect to the use of the owner, growing trees. b. Problem is, inconsistent use encourages adverse possessors to do nothing b/c no action will defeat the hostility requirement. This defeats the equity for adverse possession b/c there is no support or verification of adverse possession. d. Bona Fide Subjective Test i. Adverse possessor must have bona fide or good faith claim of right that he has title. Under this view, a mere squatter is not an adverse possessor. Hostile possession and claim of right are legal equivalents. ii. Criticism: 1) O has c/a already; 2) Psycological attachment; and 3) Does not reward efficient use. iii. Situations like Lutz occurs where the court requires a bona fide claim of right as well as adversity/hostility of the aggressive nature. In this situation the adverse possessor will always lose. iv. Although the objective test is recommended by all commentators, and said to be majority rule, courts usually do require possessors to act in good faith. Courts cannot let go view that someone who knows the land does not belong to him is really 15 e. f. g. stealing. They manipulate the hostility and claim of right requirements to regularly award title to good faith trespasser. Aggressive Subjective Test i. There is a presumption untiol rebutted that an intruder enter to hold for himself. Involves being subjectively hostiles to an owner’s claim, knowledge that ought to ask permission. ii. It is necessary to be adverse from the start, and to infer otherwise would be inconsistent of purpose. iii. Eg. A enters land owned by O and occupied it for 20 years. A uses the land as the average owner would, but frequently asserts that he is making no claim of title, but will surrender the land to the true owner when he appears. Legally, A is making a claim of right and is an adverse possessor. He is not occupying w/ permission and O immediately has cause of action. Occupation if prima facie evidence that he does so under claim of title. iv. Some propose a 2-tier S/L rule w/ longer period for bad-faith or to allow a bad-faith claim only after compensation to owner. Color of Title & Constructive Adverse Possession: refers to a claim founded on a written instrument (deed or will) or a judgment or decree that is for some reason invalid or defective. Only a few states is it essential to acquiring title by adverse possession (Good faith requirement). Color of title is the strongest example of good-faith. i. Where a person enters w/ color of title, no further claim or proof of adversity is req. ii. Statutory req. for adverse possesion is usually more lenient under color of title. iii. Actual possession under color of title of only part of the land covered by the defective writing is constructive possession of all that writing describes. Established by judicial rule of statutes. iv. Requirements for contructive adverse possession: a. Good faith belief in validity of title b. Occupation of significant portion of the whole c. The tract in the deed is recognized in the community as 1 defined parcel of land. If the described tract consists of 2 or more lots regarded as separate parcels, possession of one is not constructive possession of the other. v. If the owner or prior adverse possessor under color of title is there first, one w/ color of title only adversely possesses what he actually occupied. The true owner’s actual possession trumps adverse possessor’s constructive posession. Boundary Disputes i. Objective test - majority view: The possessor is necessarily holding under claim of right if his actions appear to the community to be a claim of ownership and if he is not hold w/ permission of owner. ii. Maine doctrine [few jurisdictions follow]: If a possessor is mistaken as to the boundary and would not have occupied or claimed the land if he had known the mistake, the possessor has no intention to claim title and adversity is missing. The state of mind is relevant. [Aggressive Subjective Test] iii. New Jersey view: Objective test + when the encroachment is of a small area and the fact of an intrusion is not clearly and self-evidently apparent but requires survey, it is not open and notorious. S/L will only run if owner has actual knowledge of encroachment. iv. Doctrine of Agreed Boundaries: if there is uncertainty, an oral agreement to settle the uncertainty is enforcable, not as a conveyance which would violate the Statute of Frauds, but as a way of locating the boundaries described in the deeds at least if subsequent conduct by parties affirm the agreement. v. Doctrine of Acquiescence: Long acquiescence is evidence of an agreement between the parties fixing the boundary line. vi. Estoppel: Where B makes positive representations about, or conducts himself so as to indicate, the location of a common boundary, and A substantially changes position in reliance on such representation, B is estopped to deny the validity of statements or conduct.. Also applies when B remains silent in the face of substantial expenditure by A. 16 4. 5. 6. Problems: p.141, #1: Suppose A and B owns adjacent lots and A erects a fence 3 feet onto B’s lot. A thereafter acts as the owner of all the land on her side of the fence for the statutory period. Subsequently B sues for ejectment. 1. Maine doctrine: Requie bad-faith to protect true owner. The problem is that is encourages bad-faith and neighbor disputes and protect the wrong people. Requires P to lie about bad faith and is harder to administer. 2. Conn. Doctrine: Objective interpretation 3. Once A has title, she cannot disclaim it orally or by moving the fence back. A can only lose title by legally transferring it back or allowing B to adversely possess for S/L. Continuous, uninterrupted possession for statutory period a. Continuous possession only requires the degree of occupancy and use the average owner would make of the particular type of property. An adverse use is continuous when it is made w/o a breack in the essential attitude/intent of mind required for adverse use. b. Purpose is to give owner notice that possessor is claiming ownership and entries are not just series of trespasses. c. Abandonment is the intentional relinquishment of possession. Abandonment for any period of time, w/o intent to return, continuity is broken. Possession returns constructively to the owner. This is not the same as absence for the property. d. When possessor enters the land, S/L clock starts. If fail any requirement, the clock stops. Goal is to keep the clock running for S/L period. i. If owner re-enters, the clock is stopped reset. Most states use objective test, and there is a presumption that use of land by owner is exercise of right to use it and assertion ownership. ii. If adverse possessor is adversely possessed, clock is stopped and #2 adverse possessor may not tack #1’s time. e. If legal owner conveys land, the clock does not restart for the adverse possessor b/c the legal owner conveys a claim rather than a possession. Several states, principally in the West require the adverse possessor to pay property taxes in order to prevail. Payment of taxes is recorded in the courthouse and gives owner notice. In all states payment of taxes is good evidence of claim of right. Statute of Limitations a. Time limits vary depending on jurisdictions. b. Statutes vary on the requirements for adverse possession. eg some may not require hostility, some may require subjective v. objective claim of right. c. Similarity to Statute of Limitations: right to eject extinguished after certain time if conditions are met. vii. D. Miscellaneous 1. Title acquired by adverse possessor cannot be recorded. In order to record, adverse possessor must file a quiet title action against the formaer owner. 2. The adverse possessor’s title may be subject to liens, easements, covenants, or mineral interests in another. If the adverse possessor has never interferred w/ these interests, no statute has barred them. No c/a. 3. Future interests are not affected by adverse possession and thus are not barred if existing prior to adverse possession. On the other hand, if the adverse possessor takes possession before the future interest is created, then ther is a bar on the future interest. Van Valkenburgh v. Lutz (1952), pp.125-135: 1912 - William and Mary Lutz buys lots 14 & 15. Lutz cleared a –traveled wayî across the northern boundary of lot 19. Lutz also partially cleared lot 19 and built his brother Charlie a shack thereon. By 1920 all the buildings were complete and occupied. 1928 - Lutz lost his job and stayed home tending a garden on lot 19 4/47 - Van Valkenburghs buy lot 19 in a foreclosure sale for non-payment of taxes. No personal notice was given to the Lutzes. 7/6/47 - Van Valkenburgh accompanied by police –took posessionî of 19 and told the Lutzes to clear out. 17 E. 7/8 - Lutz went to see Van Valkenburgh’s attorney and asked to see proof of ownership and asked for time to harvest his vegetable crop. 7/21 - Van Valkenburgh had the land surveyed. Lutz agrees to remove his shed, junk and garden from lot 19 but claimed a prescriptive right. Lutz then removed his stuff. Van Valkenburgh thenerected a fence across the right of way 1/48 - In a suit lutz alleged Van Valkenburgh was owner of 19 but he retained the right of way. Judgment was in Lutz’s favor. Affirmed 6/48. 4/8/48 - Van Valkenburgh commenced this action to compel removal of encroachments and delivery of possession, etc. 6/50 - Van Valkenburgh loses this action at the trial court and appealed. 1. Prescription - Common Law extended this use interest through passage of time and possession, but title remained w/ owner.. Eg. right of way and other easements. 2. NY Adverse Possesion Statute, p.129: ? 34 - Statute of Limitations = 15 years [Today = 10 yrs] ? 38 - Color of Title Requirements & Constructive Possesion ? 39 - Adverse Possession: Actual, Continued, Hostile => only land actually occupied is adverse ? 40 - Practical Notice for ? 39 - (1) Protected by substantial enclosure; (2) Usually cultivated or improved. [Common law requirements easier to monitor] 3. NY Cout of Appeals: a. Required the whole premises to be cultivated or enclosed to constitute –actual occupationî under adverse possesion. (This does not match the plain meaning of the statute nor is it required to serve the purpose of the statute which is to fufill the 4 req. of adv possession and give owner notice.) b. Conceded that there was no substantial enclosure and further failed to show shack, chicken coop, cuuting brush and trees and litteing was an improvement under the statute. c. Lutz admitted he knew the land was not his => not bona fide claim d. Lutz thought garage encroachment was on his own land => not hostile 4. Dissent: a. Surely there is no requirement that proof of adverse possession depands of cultivation of the whole plot b. There is testimony that –nearly allî the land was cultivated and that the right of way and a row of logs marked the boundaries. The evidence clearly shows that the neighbors thought the property belonged to Lutz c. –Usually cultivatedî means such acts that are usual in the ordinary cultivation and improvement of similar lands by thrifty owners. d. Lutz knew he did not have title but nevertheless intended to occpy it as their own. –Bona fide claims are not essentialî We are not trying to protect squatters but are trying to get back to statutory roots and objective test. e. Once the title has vested, it may not be divested by oral disclaimer. The disclaimer only shows the character of previous occupation. 5. The majority requires good faith occupation and hostility! 6. Claim of title: the majority clearly rejects the objective test which the dissent uses. The question is whether the majority is requiring a good faith subjective test or a hostile subjective test. 7. The clear trend is to follow the objective test of the dissent. But many courts still do not get past the moral objections to stealing. E. Problems: 1. p.143, #1: In 1977 O owned 4 contiguous lots and conveyed invalid deed of lots to A. A entered on lot 1 and occupied and improved it in the usual fashion for statute of limitations. B enters lot 2. What rights does A have against B? a. NY Code p.129: NO constructive possession unless the community considers it to be 1 lot. (NY tries to tighten requirements for adv poss against true owner.) b. Common Law: The lots must be contiguous to have constructive adverse possession 2. p.143, #2: O owns and is in possession of 100 acres. A enters back 40 acres under color of title for whole. Since entry, A has occupied and improved the back-40 in the usual manner for S/L. A bring suit to evict O claiming title by adverse constructive possession. 18 3. No adverse constructive possession where O is in actual possession. A only gets what she actually occupies. Suppose O took title under invalid deed and was in possession for S/L? Would the result be different? a. NO, A gets to keep back-40 and O keeps front-60. Relativity of Title. Prior in time constructive adverse possession has greater priority than later actual adverse possession. b. A still gets what she actually occupies since O has c/a as current possessor and prior adverse possessor. A’s S/L begins to run as soon as she enters the property, not after O’s S/L has run. O and true owner has c/a as soon as A enters. c. If S/L has not run for either O or A, then O can sue for ejectment. Suppose AP1 take possession of front-60 in 1970, and AP2 takes possession under color of title in 1972. In 1973, AP1 sues in ejectment for front-60. a. AP1 WINS. Prior in time actual adverse possessor trumps later constructive adverse possessor. Look at who has a cause of action! p.143, #3: Contiguous lots 1 & 2 are owned by X & Y respectively who are not in possession. Z conveys to A by invalid deed. A enters lot 1 and occupies in usual manner for S/L. A sues X & Y to quiet title. What result? a. A wins against X but loses against Y. Y never had c/a against A because A never interfered w/ Y’s possessory interests. a. 19 V. A. ACQUISTTION by GIFT [Personal Property], pp. 168-190 Definition: A gift is a voluntary transfer of personal property w/o consideration during owner’s lifetime. [Transfers at death belong to Wills, and voluntary transfers of real property during owner’s lifetime belong to Deeds.] 1. Gift Inter Vivos: gift during lifetime when donor is not under threat of impending death. Inter vivos gifts are irrevocable. 2. Gift Causa Mortis: gift made in comtemplation of immediately approaching death. The requirements are the same as inter vivos but the courts may be more strict here (eg. require redelivery if already in hands of donee) because of greater chance of fraud and undercutting the safeguards of the Statute of Wills. A gift causa mortis is revoked if the donor recovers from illness that prompted the gift, unless donor intended inter vivos gift. Death is condition implied by law for irrevocability. Requirements of a Gift: 1. Donative Intent: the donor must intend to pass title presently, and not merely to transfer possession. In absence of deed of gift, intent will always have to be shown by extrinsic evidence. The requirement of delivery sustains intent by requiring an objective act - but intent and delivery are separate requirements. A promise to give property in the future is not a gift. 2. Delivery [Almost all litigation here]: Parting w/ dominion and control presently. Three Functions of Delivery: 1) Cautionary: Delivery impresses the grantor of the legal significance and finality of the act. Handing over the object make vivid and concrete to the donor the significance of the act. By feeling the –wrench of deliveryî, the donor realizes an irrevocable gift has been made. 2) Evidentiary: The act is unequivical evidence to actual witnesses. Delivery is prima facie evidence in favor of alleged gift. 3) Protective: Protects the unwary or barely competent donor from making improvident oral statements. No oral deliveries, want evidence. Prevent mistake. a. Actual Manual Transfer: Deliery does not require that the object be –handed over.î It means that the donor must do an act that envinces intent to immediately bound. If symbolic and constructive deliveries are broadly defined, the delivery requirement becomes basically a question of intent. i. General rule: If an object can be handed over, it must be. ii. At modern law it is probable that chattel may be transferred w/o actual delivery by – deed,î a sealed instrument. iii. Cases are conflicting whether an unsealed instrument is effective to make a gift w/o actual delivery of chattel. If it is impracticable for actual delivery, some court may give affect to symbolic delivery. iv. A chose in action evidenced by written instrument are treated like tangible property. b. Symbolic Delivery: Where actual manual delivery is impracticable or impossible because the chattel is too large or the situation of the parties will not permit it, symbolic delivery is permitted. A symbolic delivery is the handing over of some object that is symbolic of the thing given. The most common example is where the donor hands over an instrument in writing under circumstances where manual delivery is difficult or impracticable. i. Generally need writing or substitute is needed. Parol evidence may not suffice. ii. A chose in action not evidenced by written instrument can be transferred by written assignment. iii. A remainder interest, which has no physical existence can be transferred by written assignment. See Gruen v. Gruen Infra. iv. See In re Cohn Infra. c. Constructive Delivery: Where actual delivery is impracticable, constructive delivery is permitted. It is the handing over of the means of obtaining possession and control (usually a key), or in some other way relinquishing dominion (title) and control (possession) presently over the property. Constructive delivery is adequate to support the gift when the evidence of donative intent is concrete and undisputed, when there is every indication that the donor intended to make a present transfer, and when steps are taken by the donor to effect such transfer must have been deemed by the donor as sufficient to pass the donor’s interest to the donee. 20 B. 3. C. The typical constructive delivery case involves the handing over of a key to a locked receptacle if it is impracticable to hand over the receptacle or the articles therein. ii. Handing over the sole key to a safe deposit box is sufficient. But where the donor hands over one of 2 keys, the cases are divided as to whether ther is constructive delivery. Since the donor can still enter the box, the donor has not surrendered dominion and control. iii. See Newman v. Bost Infra. d. Delivery Through Third Person: If a 3rd party is an agent of the donor, no gift takes place until the donor’s agent delivers the chattel to the donee. If the 3rd party is an agent of the donee or an independent agent, the gift is effective upon delivery to the agent. It is often difficult to determine whose agent the 3rd party is. This usually depneds on the intent of the donor. i. Contigency of delivery is OK as long as it is something which the donor has no control. If the donor can control the event or if the donor can get the property back from the 3rd party on demand (ie. revoke the gift) the gify is void e. Revokable Gifts: .The general rule is that no gift is made when the donor retains the right to revoke. Retaining the power to revoke is inconsistent w/ surrenderring dominion and control and transferring a present interest. i. Revokable Trusts are an exception and are probably closer to representing the intentions of the donor. Acceptance: The law presumes acceptance when the gift is beneficial to donee. The gift takes effect immediately upon delivery, subject to the right of donee to repudiate the gift. i. In re Cohn (1919), p.169-175: Leopold Cohn, in the presence of his entire family in NJ, on his wife’s birthday, write out and hands to his wife the following: –I give this day to my wife Sara as a birthday present 500 shares of XYZ stock. [signed] Leopold Cohn.î Cohn owns the stock, but it is in the name of his partnership and is in the firm’s safe deposit box in NY. The partnership has been dissolved but the shares have not been reregistered in Cohn’s name. Because of impracticable to deliver the stock, the writing is sufficient symbolic delivery and the gift is valid. 1. There being no rights of creditors involved, no suggestion of fraud, the intention of the donor to make the gift conclusively established, the gift being evidenced by an instrument of gift executed and delivered to the donee on her birthday, and ever since retained by her, and the circumstances surrounding the gift affording a reansonable and satisfactory excuse for not making actual delivery there is a valid and effectual gift. 2. The delivery necessary must be as perfect as the nature of the property and circumstances and surroundings will reasonable permit. Symbolic delivery is sufficient only when the conditions are so adverse to actual delivery to make it a perfect and complete as circumstances allow. 3. Dissent: There was no valid inter vivos gift because of the desire to control the election of the board of directors of the new partnership. Cohn retained control and dominion and clearly expressed intention to give at a future date. 4. Did Cohn do all that was possible, was it really impossible of impracticable? Was there present absolute and irrevokable surrendering of control and dominion? 5. Question: How far can you push dominion and control when there is no doubt as to intent? 6. p.175, #3: O owned 100 shares which split 3 for 1. O wanted to give 1/2 the shares to A. O executes an assignment to A, on the back of her stock certificates. She turned over her stock to agent B directing B to have the company issue 150 shares to A when the certificates are available. Before new shares are issued to A, O dies. Valid gift? In re Szabo (1961). a. NO, until there is a change in the record books, O still had an opportunity to revoke. Stock agent is agent of donor. O had not parted control and dominion. (Note: in a transfer of land, the deed is given to an escrow agent who is an agent of both donor and donee. Why can that not be the case here? Intent of the donor and fiduciary duties of broker to O.) b. Instrument of gift was crucial in Cohn. No instrument passes to donee here. c. In Szabo there is an issue of intent. O has not taken any steps to manifest intent and commitment to part dominion and control. (Courts play w/ delivery requirement to authorize gifts or not.) 7. p.175, #4: O rented safe deposit box jointly w/ S and planned to give her everything in the box. O handed S $5000 bearer bond saying, –Iwant to give these to you.î S puts them in the deposit box 21 and O clipped the coupons and collected the interest. O further added 22 more bonds and a diamond ring. Only O went to the box though S had a right to do so. O placed a handwritten note in the box, –Upon my death, the contents of this box will belong to and are to be removed only by S.î Upon O’s death is S entitled to contents? a. NO, S is only entitled to the bonds handed over (delivered). b. The bonds could have been maunally delivered. Not impossible or impracticable. c. O retained access (control and dominion) to the box. D. Newman v. Bost (1898), p.176-182: O, lying on his deathbed, calls in J, hands her the keys to all the furniture in the house, and says she is to have everything in the house. In his bedroom bureau, which one of the keys unlock, is an insurance policy. O has not made the gift of the policy because it is in the room where O lies dying and is capable of manual delivey. J does however receive as gift causa mortis all the furniture unlocked by the keys (either of constructive or symbolic delivery) because it is impracticable to hand the furniture over manually. 1. Opinion: a. The doctrine of causa mortis is in direct conflict w/ the spirit and purpose of the Statute of Wills (prevention of fraud). b. There is a question of intention if O since he does not mention the policy contained in the bureau but merely that J shall have the furniture, and unlike a safe deposit box, the bureau is not the usual place to put valuables. c. We feel bound to give effect to constructive delivery where it plainly appears that it was the intention of the donor to make the gift, and where the things to be given are not present or where present are incapable of manual delivery from their size or weight. But where articles are present and are capable of manual delivey, this msut be had. d. –There is no such thing in this State as symbolic delivery in gfts either inter vivos or causa mortiis. . .î 2. Gifts Causa Mortis: a. Insurance Policy -> NO: Could have handed it to her. (The real problem is not delivery but intent. There is no evidence that he wanted to give it to her.) b. Contents of the house -> SOME: Allowed those where she has access and impracticable to deliver manually. Gifts Inter Vivos: c. Piano -> RETRIAL: J must show O surrenderred dominion and control. Not likely since O collected the insurance money. d. Bedroom furniture -> YES: Contents of the bedroom was put in a separate section of the house so it was easier for the court to draw the line. 3. In 1898, there was probably a presumption that wife owned the piano, but husband owned the stocks and financial instruments. 4. The court is probably suspicious of the relationship because they are not dealiing w/ a wife but the maid and are unwilling to extend favorable presumptions to the unmarried housekeeper. Delivery requirement is subject to interpretation of variables such as relationships and proof of intent. (J will probably not get the piano.) 5. The court is trying to prevent gifts causa mortis from going around the Statute of Wills. The last sentense is just dicta, but they will not recognize any more cases that come up. 6. p.183, #2: Suppose O said to J, –I want to give you my insurance policy in that bureau over there, so Enos please get it and give it to her.î Enos leaves the policy where it is. Valid gift? a. Probably no delivery under Newman. J can probably sue Enos if it was fraud, but if not, then J is out of luck. The court didn’t want to give it to J so delivery was probably the easiest way out. Suppose O says, –I want to give you my bureau there. Enos, move it into her room.î Enos does so. Valid gift of insurance policy? a. Under Newman, there was no intent shown. The court will probably find the excuse that there was no manual delivery of the policy so no valid gift. 7. p.183, #3: Suppose O called J and said, –I want to give you my bureau and the insurance policy locked inside it. Here is the key.î J takes the key but the bureau stays where it is. Is the gift valid? 22 a. 8. 9. 10. E. On the reasoning of Newman v. Bost, NO. The court only talks about delivery and not about intent. The last sentense of the opinion invalidates all symbolic delivery in that state and there is no constructive delivery where actual delivery is possible. b. Alexander: No good reason to require manual delivery when uncontradicted evidence of intent. Unfortuantely the court’s language only concerns delivery. Perhaps the court’s real pupose was to insure intent and they were being covert about it. p.183, #4: Suppose O says, –I want to give you my little strong box here and the insurance policy locked in it. Here’s the key.î J takes the key but the box stays where it is. Valid gift? a. If you pushed the Newman court, they would still probably say no. p.183, #6: a) NO, under Newman, no symbolic gifts. b) NO, again for same reason. Alexander: Newman is a troubling opinion because of how expansive it is. The court’s real concern is for proof of intention not delivery. Gruen v. Gruen (1986), p.183-190: O gives S an inter vivos gift of a painting but reserves a life estate in himself w/ right of possession. S never takes possession of the painting nor seeks to do so during O’s lifetime. S receives a valid vested remainder interest in the painting. 1. Donative Intent: An inter vivos gift requires that the donor intend to make an irrevocable present transfer of ownership. If the intention is to make a testamentary disposition effective only after death, the gift is invalid unless made by will. The evidence is conclusive that O intended to transfer a remainder interest at the time. a. The test is whether the maker intended the gift to have no effect until after the maker’s death or whether he intended to transfer some present interest. b. Once the gift is irrevocable, the donor is limited to the rights as a life tenant not an owner. Moreover, the gift of a remainder title vests immediately in the donee and possession is postponed until donor’s death. 2. Delivery: There must be delivery sufficient to divest donor of control and dominion. This requirement is applied in light of its purpose to avoid mistake by donors and fraudulent claims by donees. Delivery must be as perfect as the nature of the property and the circumstances and surroundings of the parties will reasonable permit. 3. –I will giveî vs –I giveî 4. Division of a bundle of rights. Division of ownership temporally. 5. Focus on control and dominion of the remainder not current possession 6. Remainder: ownership interest which right of possession is delayed. May have uncertainty because a condition may be attached to right of possession 23 DOCTRINE of ESTATES [Leaseholds Aside]: Dividing Ownership (Temporally) POSSESSORY ESTATES [Presently Possessory], PP. 193-262 I. HISTORICAL BACKGROUND, pp. 193-205 Feudal System 1. A system revolving around the relation of sovereign to tenants-in-chief to sub-lord and sub-lord 1 to sub-lord 2 , etc. until you get to the man-in-possession. 2. Feudal tenure a. Continuing relation between lord and tenant w/ lifetime rights and responsibility b. Tenant was the Vassal i. Must swear fealty and service to the lord is attached to the land itself. ii. Types of services a. King’s Chief Tenant - knight service and service in certain posts. b. Seargentry Tenure - non-military service c. Frankelmoin Tenure - religious praying for king. d. Common Socage - rent service. 1. Most common service at end of feudal system 2. Incident of feudal tenure: rent-service cf rent-wage. c. Lord i. Protection of Tenant ii. Warrantee of Tenant’s rights to own land. d. Subinfeudation: The process of creating another rung in the feudal ladder below the particular tenant. Any tenant had a right to subinfeudate, creating a vassal below him. When he did so he became a mesne (middle) lord, meaning he had a lord above hime and a vassal below. 3. Freeholders: Seized of Land a. Livery of Seisin: Ceremony of seizure where T and Lord go thru a witnessed ceremony to hand over the land. i. Seisin: Individual holds an estate of freehold and has possession of land or a tenant holds possession. b. Service was set in advance and the Lord could not change. c. T could go to the King’s Ct for disputes with his Lord. 4. Non-freehold tenure [Leaseholds]: Peasants & Serfs a. Land was held by Lord of Manor and never passed through the livery of seisin. b. Bound to the land. c. Got protection and the Lord could not physically injure them arbitrarily. d. Could not go to the King’s Ct but only to the Manoral Ct. i. Peasants & Serfs held as individual rights the particular custom of Manoral Ct. ii. Copyholder: In order to prove rights, Peasants & Serfs must show a copy of records. B. Statute of Quia Emptores To put a stop to subinfeudation and eliminate the creation of new mesne lords, Parliament enacted Quia Emptores in 1290. As a price of prohibiting further subinfeudation in FS, tenants were given the right to freely alienate their land (substitute another tenant in the feudal order) w/o consent of the lord. Note that Quia Emptores did not prevent the developement of estates less than FS w/ a reversionary interest in the grantor. 1. Substitution: Where a buyer will replace a seller in the feudal relationship a. L å T1. When T1å T2, T2 takes T1’s place. So the relationship will end up L å T2. 2. Subinfeudation : Where a buyer will become a sub-tenant to the seller. a. L å T1 (L2) å T2. 2. Statute of Quia Emptores (1290) a. Substitution became the proper conveyance and not subinfeudation. b. Prevent the spread of feudalism and the loss of incidence of feudal tenure by the Lord. C. Passage of Land at Death 1. Statute of Wills (1540): Allowed toe conveyance of land through devise. 2. Inheritance: statutory mechanism to convey land to heirs of deceased. a. Lists heirs in order of priority. A. 24 D. b. Intestacy Statutes. c. If no heirs, property escheates back to the state Modern Estates System and Relation to Feudal Tenure. 1. Indirect Effect: More archane rules created by efforts to avoid or enforce feudal tenure (Statute of Uses, Rule in Shelley’s case) 2. Direct Effect: The modern estates system 3. Analogy: Mathematics b/c add up certain fees to a sum of a FS. Chess b/c peices are limited to certain movements only. 4. Today in many states property owners are still thought to be held tenurially for the purposes of escheat. When a property owner dies intestate and w/o heirs the land reverts to the state who is the original owner. 5. In other states land owners are tthought to hold allodially, w/o any notion of holding from anyone, even the state. When a person dies intestate w/o heirs. the state is the intestate sucessor by virtue of statute and the estates passes forward to the new owner, the state. FREEHOLD ESTATES - POSSESORY INTERESTS A. Freehold Estates: where owner is said to have seisin [possession plus claim of legal right] and has a present right to possession. Remember that modern analysis insists that an estate is a –bundle of rights.î 1. Creation of Estate a. Words of Purchase: Words in an instrument creating the estate that identifies the person in whom the estate is created. (Detail the people the estate can go to, e.g. –To A...î) b. Words of Limitations: Words in an instrument creating the estate that identifies the type of estate created. Example –...and his heirs.î This conveyance is of a FSA. 2. Hierarchy of Estates: Estates are ranked according to their duration. Remember that estates are measured in time. a. Fee Simple => Fee Tail => Life Estate => Leaseholds 3. No New Estates May Be Created! FS, FT, LE, and leasehols are the onlky estates permissible. If an attempt is made to create a new type of estate, the language of the creating instrument will be construed to create an estate w/in one of the existing categories of estates. 4. Duration : Estates are measure in time and the potential for their existance. a. Fee: estates inheritable w/ potential to be infinite. b. Life Estates: Lasts only for the life of a person. i. pur autre vie: Life estate created for the life of another person than grantee. May be inheritable for the duration of the other person. 5. Inheritability a. Fee simple: May be devised (bequeathed thru will) or inherited (in cases of intestacy). i. –and his heirsî ii. Words of limitations: Grantee may sell and heir lose interest. b. Fee Tail: Inherited by direct lineage only. i. –and the heirs of his bodyî ii. Word of Limitation => Words of Purchase: Heirs took grant through original grant therefore grantee may not cut off descendants by selling estate during life. 6. Objections to direct restraints on alienation a. Makes property unmarketable. The particular land may be made unavailable for its highest and best use as dictated by the market. b. Tend to perpetuate the concentration of wealth by making it impossible for the owner to sell the property and consume the proceeds of sale. c. Discourages improvements on the land. Owner unlikely to sink in money and lenders will not give mortgages if they cannot sell when the borrower defaults. d. Prevents the owner’s creditors from reaching tjhe property. 6a. Classification of restraints: a. Disabling restraint: w/holds from the grantee the power of transferring his interest. Eg. –to A and his heirs but any transfer hereafter in any manner of an interest in BA shall be null and void.î 25 b. 6b. 7. Forfeiture restraints: if a grantee attempts to transfer his interest, it is forfeited to another. Eg. –to A and his heirs, but if A attempts to transfer the property by any means whatsoever, then to B and her heirs.î c. Promissory restraints: grantee promises not to transfer his interests enforcable by K remedies of damages and injunction. Eg. –to A and his heirs, and A promises for himself, his heirs and successors in interest that BA will not be transferred by any means.î Restatement (2d) of Property views on restraint: a. Following overwhelming authority, Restatement provides that any absolute restraint on FS is void. b. More tolerant w/ respect to partial restraints than most courts. Restatement provides that a partial restraint is valid if, under all the circumstances of the case, the restraint is found to be reasonable in purpose, effect, and duration. The reasonableness test is the modern trend. i. A partial restraint is one that purports to restrict the power to transfer to specific persons, or by a specific method, or until a specific time. ii. Most court find even partial restraints invalid. iii. Eg. –to A and his heirs, provided, however, that S shall permit W to reside in the family home as long as she desires to do so and any transfer of the family home w/o the consent of W during the time W resides there is null and void.î => Valid iv. Sale w/ consent of another => Void. v. Sale to a member of a club => There must be reasonable standard for admission to association thereby giving arbitrary power, then it is void. vi. Sale of Coop => Valid because of financial interdependency c. W/ respect to legal LE, Restatement provides that absolute disabling restraint is void but a forfeiture or promissory restraint is valid. The follows the majority of cases. This is probably because the person holding benefit of the forfeiture or promise can usually be found to obtain a release. i. A disabling restraint on an equitable LE in trust is know as a spendthrift trust and is valid in most states. The rational is that a restraint on an equitable interest does not prevent alienation of specific property, ie. the trustee has legal title and can sell the property. This has been criticised because creditors cannot reach this interest. Conditions: Defeasible v. Absolute a. Absolute: There are no limitations on the conveyance of estate. Unconditioned estate. b.. Defeasible: There are conditions attached to the estate. i. All freehold estates may be made defeasible by a specified events. ii. Works for FS, FT, and LE iii. Types of defeasible estates: Determinable or Subject to Condition Subsequent. c. Determinable i. If defeasible by words that delimit length of estate. ii. –To X so long as **** occursî iii. Possiblity of reverter: Estate automatically reverts to grantor if *****occurs. iv. Executory Interest : Grantor makes determinable to another person. a. –To X so long as *** occurs then to Bî b. eg. Fee simple determinable with executory limitation. d. Subject to a condition subsequent i. If defeasible by words that cut short estate. ii. –To X, but if ****occurs then A may reenterî iii. Right to enter or Power of Termination: when grantor can terminate X’s estate if ***occurs. iv. Executory Interest: same as above where Grantor gives right to enter to someone els. a. Diff from Grantor’s right to enter because automatically becomes possessory. b. Fee Simple subject to executory limitation. 26 II. A. FEE SIMPLE, pp.205-211 Fee Simple Absolute is the absolute ownership of a piece of land so far as absolute ownership is understood. –Biggestî possessory estate in CL. 1. Fee: It is potentially infinite in duration. 2. Simple: There are no limitations on its inheritability 3. Absolute: It cannot be divested nor end upon the happening of any event 4. After the Quia Emptores the alienable fee simple became a freehold estate not terminable at will by the lord. 5. The lawyer thinks in terms of an estate in land or a bundle of rights (or a piece of pie), that is a relationship between a person and thing. a. O can convey FS or devise at death b. Creditors can reach FS to pay debts in default 6. Fee simple only applies to real property. –Absolute ownershipî is the analogue in personalty. Creation of fee simple: words of the grant: –To A and his Heirs.– 1. –To Aî are words of purchase, identifies transfree. 2. –and his Heirsî are words of limitation and identifies unit of ownership transferred, eg. fee simple. A’s heirs have no property interests, in fact A has no heirs until A dies. 3. If the grant was –To A in fee simple.î then A takes a LE and O a reversion in FS. Need to have – Ûand his Heirsî to convey a FS. 4. In a will, –and his heirsî was never necessary. 5. Today it is no longer necessary to put word of inheritance in a deed [maybe ME & SC]. The grantor/testator is now presumed to transfer his entire estate, in absence of words indicating otherwise. So a deed –To Aî may transfer a FSA. Alienability 1. Definition: the ability to convey the estate. (This is at the core of the FS estate.) 2. Statute Quia Emptores settled that the fee was freely alienable and was adopted as part of the CL. 3. Ct’s will not allow a restriction that severely restricts Alienability b/c that is repugnant to the underlying nature of the FS. 4.. Standardization of estates to further alienability FS Problems 1. p.208. #1: In 1600 O conveys BA –to A for life, then to B forever.î What estates do A and B have? If A dies then B dies, who owns BA? a. A has a LE. B has a remainder interest in a LE. When B dies, BA will revert to O’s heirs. O’s heirs have a remainder interest in FSA. Suppose the conveyance takes place in 1992? a. B will probably get remainder interest in FSA [unless he lives in ME or SC]. 2. p.208. #2: In 1600 O conveys WA –to A for life, remainder to the heirs of B.î B dies soon after and leaves heir C. Subsequently A dies. What estate does C have? a. A & B alive: C has no property interest. Expecting heirs have expectancy interests, but property law does not protect expectancies because –No one is an heir to the living.î b. A alive & B is dead: C has a remainder in FSA. Under primogeniture there can only be one heir per generation, so CL construed –...Heirsî to be plural => FS. If it was only –heirî then C would have remainder in LE. 3. p.208. #3: O conveys GA –To A and her heirs.î A’s only child is B. Can B’s creditors attach a property interest in B? Suppose A wishes to sell GA and take the proceeds to sail around the world. Can B prevent A from doing this? a. NO. B has no property interest until A dies intestate or wills or deeds GA to B. A can do anything she wants w/ the land. b. If A did not have the mental capacity to transfer, B still has no legal standing even though he is guaranteed to inherit the estate. Devisability / Inheritability: Statute of Wills & Statute of Inheritance Pass by Will => legatees (personal property), devisees (land) Pass Intestacy => heirs, intestee 27 B. C. D. E. 1. 2. 3. 4. Heirs: If a person dies intestate, the decedent’s real property descends to heirs. Heirs are persons who survive the decedent and are designated as intestate successors under a state’s statute of intestate succession or statute of descent. The statute is meant to effectuate the intentions of the average person dying intestate. A living person has no heirs. a. Today in almost all states, the surviving spouse is designated as an intestate successor to some fractional share in the decedent’s land. [At CL a spouse was given only dowery or curtesy.] i. Under Uniform Probate Code, if a decedent leaves a spouse, the spouse takes 1/2. The other hlaf goes to decedent’s issue or if none to parents or if none to spouse. b. Under modern statutes of descent, classes of kindred are usually preferred as heirs in the followinf manner: first issues; and if no issue, then parents; and if no parents, then collaterals. c. [Persons who succeed to intestate’s personal property under statute of distribution are called next of kin. Today in most states, –heirsî & –next of kinî are merged and distinction between statute of descent & distribution eliminated.] Issue: If a decedent leaves issue, they take to the exclusion of all other kindred. The word issue is synonymous w/ descendants. a. If the decedent leaves a spouse, the spouse takes 1/2. If the decedent leaves no spouse, the children share equally. b. Per Stirpes: if any child of the decedent die before the decedent, but leaves children who survive the decedent, such child’s share goes to his/her children by right of representation. i. Grandchildren do not take if their parents are alive. Generally speaking, the grandchildren only share under the principle of representation. c. Filius Nullius [child born out of wedlock]: Today inherits form the mother, and if paternity is acknowledged or proved, from the father. d. Adopted Children: Today inherit from adoptive parents and sometimes from natural parents as well. e. Stepchildren: Stepchildren do not take. Except for spouse and adopted children, only blood relatives of the decedent take as heirs. Ancestors: By statute parents usually take all as heirs if decedent leaves no issue and no spouse. If decedent lease a spouse and no issue, parent take 1/2. If decedent leaves issue, parents do not take. Collaterals: All persons related by blood who are not descendents nor ancestors are collateral kin. Includes brothers, sisters, nephews, nieces, uncles, aunts, cousins. If a decedent leaves no spouse, no issue, no parents, the decedent’s brothers and sisters (and their descendents by representation) take in all jurisdictions. Paternal and Maternal Grandparents Parents GP Issue Decedent Parent's Issue 5. F. Issue Escheat: If a person intestate w/o any heirs, the person’s real property escheats to the State where the property is located. If no next of kni can be found, personalty also goes to the State. Inheritance of FS Problems 1. p.210, #2: O, owner of BA, has 2 children, A (daughter) & B (son). B dies devising all his property to wife, W. B is survived by 3 children, B1 (daughter), B2 (son), and B3 (daughter). A1 (son) is born to A. O dies intestate. Who owns BA in 1800 England? a. In England until 1925, B2 would inherit under primogeniture. Everyone else splits personalty. 28 2. 3. 4. Who owns BA under modern American law? a. Under American law, O’s children inherit per stirpes, by representation. A = 1/2; B1 B2 B3 = 1/6 b. If it is per capita: A A1 B1 B2 B3 = 1/5. Usually have representation scheme. Suppose A & B both predecease O? a. A1 = 1/2; B1 B2 B3 = 1/6. b. However A1 B1 B2 B3 are all equally related to O. The trend of modern law is to skip to the generation w/ at least 1 survivor and divide from there. States differ as to ignoring the ist generation or not. Depends on how they interpret the average intention imputed. Suppose A,B, and B3 die before O, B3 leaving children X & Y? a. A1 B1 B2 = 1/4; X Y = 1/8 b. Guarentees horizontal class have equal shares. c. However, people do think vertically and not horizontally meaning that A & B are heads of their families. It would be unfair to reward the family w/ the most representatives (unless you value lots of babies). p.211, #3: O conveys BA –To A and her heirs.î If A dies intestate, w/o issues, will BA escheat to the state? a. Not necessarily. The example says A dies –w/o issueî not –w/o heirs.î p.211, #4: O conveys BA –to A for life, remainder to B and her heirs.î B then dies intestate w/o heirs. A then dies. Who owns BA? a. BA escheats to the STATE. O has given everything away, and the is no remainder in O. p.211, #5: If your client does not want his granddaughter’s heirs on her mother’s side to inherit the land, how should this be drafted? (The law recognizes a finite # of estates (6): –A man cannot create a new kind of inheritance.î Courts will try to squeeze intentions into one of these boxes.) a. –LE to Sarah, remainder to her Father’s heirs.î i. –her Father’s heirsî: words of limitation => word of purchase. b. Perhaps a Fee Tail Male if it is recognized in the state. III. A. FEE TAIL, pp. 211-216 FT is an estate that can potentially last forever. The estate ends when the grantee has no more lineal decendents. It is an estate of –lesser quantumî than FS. 1. FT lasts only as long as the grantee or any of his lineal descendents survive. 2. FT is only inheritable by the original grantee’s descendents/issue, and not by collateral kin. 3. Alienation: limited to the lineal descendents. A particular possessor can only alienate a LE. 4. A FT cannot be devised by will. 5. Grantor retains REV in FSA. 6. Every FT has a REV and/or REM after it. 7. Fee tail can only be in land. Creation: O (FSA + REV) => –to A and the heirs of his bodyî [or sometimes –to A and his issueî or –to A and his children.î] 1. Words of puchase: –to Aî 2. Words of limitations: –and the heirs of his bodyî Limit inheritability to grantee’s issue or lineal descendents. a. Further limitations: Can limit the estates to all male descedents (FT male) or all female descendents (FT female). Eg. –to A and the male heirs of his body.î b. FT Special: –to William and the heirs of his body by wilfe Joan.î Inheritable only by issue of grantee and a certain spouse. A child of a previous or subsequent marriage of William cannot take, nor could any issue of such child. If Joan died childless, William then only had a LE. 3. At CL, –to A and his issueî or –to A and his childrenî created no more than a LE in the grnatee. Under modern law, the requirement of technical words to create a fee has generally been abolished. Therefore the above quotes may suffice to create a FT. 4. A has a FT => LE. The heirs of his body currently have NO property interests (once A dies they will have a REM in FT => LE). O has a REV in FSA. 5. Eg. –To my son, A, and the heirs of his body, and if A dies w/o issues, to my daughter, B, and her heirs.î 29 B. a. b. C. A gets FT B gets Vested REM in FSA possessory when and if FT expires. Note the FT expires when A and all of A’s descendents are dead., and indefinite failure of issue. Statute de Donis Conditionalibus(1285) : Created FT by abolishing FS conditional. 1. Before: Ct’s treated the conveyance –O to A and his issueî as a FS conditional [FS upon having issue]. 2. After: Ct’s try to establish grantor’s intent. If the grantor intended to tie the land to a particular family, then there was permanent entailment. [FS conditional can still be created in IA and SC.] Future Interests Following FT 1. The future interest left over is a reversion in FS in the grantor unless the grantor makes a grant to a third party in which case it becomes a vested remainder in FS (b/c it becomes possessory by a natural termination of the preceding estate rather than by interrupting). 2. Reversion: fully vested and kept by grantor. a. Can pass through the intestacy statutes or by devise. 3. FS subject to condition subsequent cannot be made to look like FT b/c it restricts the alienability of a FS too much that it will strike at the heart of the estate. 4. Eg. –to A and his heirs, but if A dies w/o issue, then to B and his heirs.î a. In England construed as indefinite failure of issue, ie. FT to A and REM to B. b. In US, preference for definite failure of issue, ie. FSCS to A and EI to B. Modern Entailment (Disentailment) Statutes 1. Even before modern statutes abolishing the FT, a tenant in tail could –bar the entailî (disentail) by bringing a collusive ficticious lawsuit called common recovery by which the FT tenant in possession could obtain a court decree awarding him a FS, cutting off all rights of his issue and extinguishing all REV or REM. After 400 yrs, common recovery was abolished and a FT tenant was given power to disentail simply by conveying a FS by deed to another. 2. Today, FT can only be created in DE, ME, MA, and RI, and in these states a FT tenant can bar the entail by conveying a FS by deed. Moreover, creditors can reach the entire property just as if he has a FS. 3. What happens in states that have abolished the FT when you get –to A and the heirs of his body, and if A dies w/o issue, to my daughter B and her heirsî? a. Very few states say A takes LE and A’s issue takes REM in FS. b. Some say A gets FS. Neither A’s issue nor B takes anything. c. Rest say A gets FS subject to divesting EI, the condition being a definite failure of issue (FT for grantee and FS for issue). B will take FS if, and only if, at A’s death A personally leaves no surviving issue. If A leaves surviving issue, B’s interest fails forever, and A can devise FSA to anyone. B has a FI called divesting executory interest which might shift FSA to B. d. In IA and SC, A receives a FS conditional. e. Remember, in most states A can disentail and avoid all of this. FT Problems 1. p.215, #3: O, in MA, conveys BA –to A and the heirs of her body.î A dies leaving B as sole heir and B dies w/o children devising all her property to C. What is the state of title? a. When B dies w/o issue, title reverts to O. O retains REV. How should B have arranged her affairs to carry out her wishes? a. B should have during her lifetime deeded to a –strawî in FSA who would deed it back to her in FSA. OR, B could have deeded to C in FSA reserving LE. 2. p.215, #4: O conveys WA –to A and the heirs of her body, and if A dies w/o issue to B and his heirs.î A then makes a conveyance of WA –to C and his heirs.î A then marries D and has a son E. A dies intestate and is survived by O, B, C, D, and E. Who owns WA in MA? a. C received a deed in FSA. A barred the entail. Remember MA still allows FT and permits deed transfers of FSA. Who owns WA in category D (3)(c) noted above? If E had predeceased A, now who owns WA? a. A conveys a FS defeasible to C. If A dies w/o issue, then B divests C of FS and B has FSA. If A dies w/ issue, then C’s FS defeasible becomes FSA. 30 D. E. F. 31 IV. A. LIFE ESTATE, pp. 216-225 Estate that has a potential duration for the life of a person. 1. LE may be defeasible 2. There can be LE in personalty eg. Gruen v. Gruen 3. Today, most LE are created in trust. A good lawyer will not create a legal life estate (not in a trust). 4. Every LE is followed by a future interest: REV in trnasferor and/or REM in a transfree. Types of life estate 1. For the life of the grantee a. Where the estate lasts as long as the grantee lives. b. Words of creation : –O to A for life.î i. A gets a LE. ii. O has a REV in FSA. c. Or –to A for life, then to B and her heirs.î i. A gets a LE. ii. B has vested REM interest 2. Pur autre vie a. Where the estate is measured by the life of another person. b. Words of creation: –O to A for the life of B.î Alternatively, A can give her LE to B in which case B has a LE for the life of A. c. If the tenant predeceases the measuring life. A’s heirs or devisees would get the rest of the LE until B dies at which point O’s reversion kicks in. 3. In a class: –to the children of A for their lives, REM to B.î Here the usual construction is that at the death of one, his share goes to the remaining life tenants and the REM does not become possessory until all life tenants die. a. However, –to the children of A for their lives, and at their respective deaths to B.î B takes a share of the income upon the death of each life tenant. 4. Defeasible LE: Like FS, a LE may be created as to be determinable, subject to condition subsequent, or subject to an executory limitation. a, –to A for life so long as A remians unmarried.î b. –to A for life, but if she does not use the land for agricultural puposes, O retains the right to reenter.î c. –to A for life, but if B returns from Rome during A’s life, to B.î Alienability: A life tenant is ordinarily free to transfer, lease, encumber, or otherwise alienate her estate inter vivos. Of coure the transferee get no more than the life tenant had, an estate that ends at the expiration of the measuring life. Law of Waste (Life tenant’s use is restricted) 1. CL action of waste: against current possessor who wastes the land and damages future interests of future possessors when there are 2 simultaneous property interest possessors. a. Reversioner, in fairness, is entitled to receive propety in substantial the same condition. b. Where the underlying conditions of the neighborhood has changed, then the reversioner’s right is weighed against the social usages of the property. i. It ends up a jury decision to determine what the common usages of the property are in that neighborhood. c. The law of waste is extordinarily unclear. 2. Definition of Waste : Act or omission of duty by tenant that does lasting injury to freehold, inflict permanent loss on owner of the fee, destroy or lessen the value of the inheritance, or destroy the identity of the property even if the value of the property is enhanced, or impaired the nature, character and improvements. a. Change in the value of land that harms future owners. Done by the possessor of a land who owns less than a fee (LE, lessee, mortgagor, etc) 3. Types of waste a. Voluntary: destructive acts that permanently injure the land. b. Involuntary or permissive: Land is allowed to fall into disrepair, failing to pay taxes. 32 B. C, D. c. 4. 5. 6. Ameliorating: This occurs when the principle use of the land is substantially changed, but the change substantially increases the value of the land. This is actionable if the court finds that: i) the grantor intended to pass land w/ specific buildings on it, and ii) the building can be reasonably used for the purpose built. Social Standard: Usages and customs of community - Jury determination of what the jury finds more important a. Reasonable expectations of future owners b. Customs of community. Economic analysis of law a. Presently the reversioner has the entitlement protected by a property rule. b. To increase the efficiency, can use a L rule so the entitlement will be bought at a socially accepted price - mkt value of property c. Property v. Compensation : which one is more important? If compensation, stick with L rule. It is best to avoid the Law of Waste by giving a LE in the form of a Trust. a. Usually the grant will be, –to A for life, then to B and her heirs.î i. A has current possessory interest and title. B has future interest. b. Instead grant, –to T, in trust, for A for life, then to B and her heirs.î i. T has a fiduciary title and duty as a trustee for the beneficiaries, A and B. ii. There is only one title, and T decides what A can and cannot do to the land. E. If the life tenant and the owners of the REM are all adults, competent, ascertained, and agree, a FS in the land can be sold. a. If for some reason they do not agree, the life tenant can go to court to sell the land, and order the proceeds reinvested in a trust w/ income paid to the life tenant only if equity provides that this would be in the best interest of all parties. Generally a court will not interfere if the parties only disagree. There is an assumption that the grantor wants the land to pass to the holders of the REM. b. If the holders of the REM cannot consent because one or more are unascertained, under age, or incompetent, a court may order a sale if it finds the sale to be in the best interests of the holders of the REM. Sometimes it is not clear what estate is created by the language used. Each case depends on its own facts and the probable intent of the grantor read from the language of the instrument and in light of the surrounding circumstances. White v. Brown (1977), pp.217-223: O devises, –I wish E [my sister-in-law] to have my home to live in and not to be sold. . .My house is not to be sold.î O and E lived together as a family for 25 yrs. E sues the heirs at law of O for construction of the will to give E a FSA. 1. The rules of construction always yielding to the cardinal rule of the testator’s intent. 2. Did O intend: a. LE + REM to heirs at law b. FS w/ restraint on alienation c. FS subject to condition subsequent 3. There is an assumption that the grantor intends to pass the whole estate unless the intent to pass a lesser estate appears in express terms or is necessarily implied by the terms. A court will prefer any reasonable construction or any construction which does not do violence to the language rather than construe a partial intestacy. There is a statutory presumption against partial intestacy as a person devising a will usually wants to give everything away. 4. Conclusion: O passed a FSA to E and O’s attempt to restrain alienation is declared void as inconsistent w/ incident and nature of FSA. 5. Alexander: The court probably felt that the relationship between O and E was so much stronger that O probably intended to give everything to E as opposed to O’s collateral relatives who never came to visit. The will says nothing about anyone else and $10K is not a lot of money to haggle over. 6. Dissent: A FS cannot be made subject to a restraint on alienation (accepted everywhere) and this was the clear intention of O because O gave other property away w/o this restriction. 7. Compare: –To my wife, to be used as she shall see fit, for her maintenance and support.î Majority view: FS is created w/ extra word merely stating reason for the gift. DEFEASIBLE ESTATES [Estates Subject to Termination], pp. 236-247 33 F. V. Any estate can be created so as to be defeasible upon the happening of a future event. A defeasible fee simple is one that may last forever or may come to an end upon the happening of an event in the future. Defeasible estates are considered the same size as the underlying estate. A. Miscellaenous 1. Defeasible estates usually reversionary (to transferor) FI. If non-reversionary => Executory Interest (to another transferee) 2. Usually used for private land use restrictions. A defeasible FS is usually for land use planning; however, a restrictive covenant would probably serve this purposse better Fefeasible FT & LE usually for family property planning 3. Note: condition that is bound to happen may violate the heart of the underlying estate. –To A as long as my horse livesÛî The horse will necessarily die so this may violate the heart of FS. 4. Statute of Waste only applies to LE and Leasehols Tenants, not to defeasible estates because these potentially last forever. Differences Between FSD & FSCS 1. W/o these differences, you can collapse FSD and FSCS in one. Only thing is to choose which one to keep. CA and KY have abolished the FS determinable w/ statutes providing that language creating FSD at CL creates instead FSCS. a. Alexander: for all purposes, there is no longer a distinction between FSD and FSCS. It doesn’t matter which one we choose, the issue is practically how do we tell the difference and how do we plan for it. Courts tend to look closely at the language of the instrument. 2. If the court has a choice of construction in case of ambiguous language, FSCS is preferred on the ground that forfeiture is optional at the grantor’s election and not automatic. a. Eg. –to A so long as intoxicating liquors are not sold on the premises, and if they are sold, O has a right to reenter.î 3. Transferability: In most American states the possibility of reverter and right of entry, like other property interests are transferable inter vivos. This is the modern trend. a. A regular reversion to O is transferable, devisable, inheritable in all states. b. But some states continue to follow the CL rule that P of REV and R of E are not transferable inter vivos except to the owner of the possessory fee, a release. Eg. IL, see Mahrenholz infra. c. Some states hold that possibility of reverter is transferable but right of entry is not or vice versa. Some states the mere attempt to transfer right of entry destroys it, forfeiture restraint. 4. Automatic vs. Optional Termination and Adverse possession: Theoretically S/L starts to run on possibility of reverter as soon as determinable fee ends. Right of entry, S/L should not start until grantor attempts to exercise the right and is rebuffed giving rise to c/a. a. In most states, the S/L bsgin to run on right of entry as soon as the condition occurs. Equitable doctrine of laches which bars relief when delay work injury, prejudice or disadvantage to D. Courts in other states require right of entry be exercised in a reasonable time, which may be in turn defined by S/L. b. In addition, the grantor may waive the right of entry. 5. Restraints on marriage: Limitation-condition test. 6. Rule Against Perpetuities: If the future interest is created not in the transferor but in another transfreree, an executory interest, it is subject to RAP. Determinable Fees 1. This condition limits the length of an estate to when an occurence happens. Upon the occurrence, the estate automatically terminates and the new estate naturally begins. [Sometimes called fee simple on a special limitation.] 2. Creation: –To X so long asÛî –To X while used for...î –To X during continuance of...î –To X until no longer use the land for...î a. These are words of limitation/duration, if event occurs, estate automatically terminated. A determinable fee is created by language that connotes that the grantor is giving a FS only until a stated event happens, language providing that upon the happening of a stated event the land will automatically revert to the grantor. B. C. 34 b. 3. 4. 5. D. Words that merely state the motive of the transferor in making the gift do not create a deteminable fee. Eg. –to the Hartford School Board solely for school purposes.î gives the Board a FSA not FSD. c. X has the estate. d. Future Interest: O retains a possiblity of reverter if the condition comes to pass. May be expressly retained or arise by operation of law since the grantor has not given the whole estate away. May only be retained by transferor and his heirs, not to transferees. Eg. –to the Hartford school board, its successors and assigns, so long as the premises are use for school purposes.î Transferability: FSD may be transferred or inherited in the same manner as any other FS, as long as the stated event does not happen. But the FS remains subject tothe limitation no matter who holds it. CA and KY have abolished FSD. Language that would create a FSD at CL now creates FSCS. Fee Subject to a Condition Subsequent 1. This condition interrupts the current estate. Upon the occurence of a stated event, the estate does not automatically terminate. Rather, the grantor must retake or use ct action, grantor may cut short or divest at his option 2. Creation: –To X, but ifÛî –To X, provided, however, that when the premises...î –To X, on condition that, if premises...î a. These are words of condition . Words indicating that the estate may be cut short at the transferor’s option b. Future Interest: O retains a right of entry or power of termination. The estates continues until the grantor exercises the option. May only be retained by transferor and his heirs, not to other transferees. The right of entry may be expressly retained or it may be implied if the words of the instrument is reasonable susceptible to the interpretation that this type of forfeiture estate was contemplated by the parties. However, the court will not imply a right of entry where none is provided in a deed because equity will not aid in forfeiture. c. O can exercise this right by retaking or through the courts through action of ejectment. 3. Eg. –to the Hartford School Board and its successors and assigns, but if the premises are not used for school purposes, the grantor has a right to reenter and retake the premises. 4. However, –to A and his heirs, provided always, and upon this condition, that the aforesaid premises shall not be used as a tavern.î might be construed as FSCS or a restrictive covenant imposed to benefit the grantor’s land. a. It is always wise to avoid litigation by expressly including the right of entry if that is intended. 5. Transferability: FSD may be transferred or inherited in the same manner as any other FS until the transferor is entitled and does exercise the right of entry. Fee Subejct to Executory Limitation: The fee subject to executory limitation is a fee that upon the happening of a stated event, is automatically divested in favor of a third person, another grantee. 1. –To X, but if Û,then to Bî –To X as long asÛ,then to Bî 2. B has an executory interest which is automatically possessory. Different from grantor. Interpretation of Grant and determination of which defeasible estate. 1. Ct’s construe against forfeiture of the estates so presumption of FS subject to cond subsequent rather than FS determinable b/c subj to cond’n subs is not an automatic forfeiture like determinable. 2. Words of the grant are important but the court will try to get to the intent of the grantor. Mahrenholz v. County Board of School Trustees (1981), pp.238-244: 3/18/41 - W.E. Hutton --deed--> School Dist. –this land to be used for school purposes only; otherwise to revert to Grantors herein.î 7/41 - W.E. Hutton --deed--> Jacqmain, purported to transfer REV 10/9/59 - Jacqmain --deed--> Mahrenholz, purported to transfer REV 2/18/69 - W.E. Hutton died intestate. H. Hutton is legal heir. 5/30/73 - Classes no longer held, building used for storage purposes. 35 E. F. G. 5/7/77 - H. Hutton --deed--> Mahrenholz, conveyed all his interests 9/6/77 - H. Hutton --disclaimer--> School Dist., disclaimed and released any possibility of reverter and any right of entry. 9/7/77 - H. Hutton -> Mahrenholz deed recorded 10/4/77 H. Hutton --> School Dist. disclaimer recorded 1. In IL, neither Possibility of Reverter nor Right of Reentry may be transfered by will or by inter vivos conveyance; neither devisable nor alienable but inheritable => Common Law. Therefore Mahrenholz could not receive either future interest from Jacqmain. => Must decide if Mahrenholz received interest from H. Hutton first. (In IL grantor is allowed to release FI to possessor of fee.) 2. If right of entry, H. Hutton never legally re-entered possession, and because right of entry may not be transferred, H. Hutton released to School Dist. If possibility of reverter, then H. Hutton owned the property as soon as ceased to be used for school purposes, and he could have conveyed FSA. 3. Assuming: 1) cessation of classes constitutes –abandonment of school puposes;î 2) conveyance from H. Hutton to Mahrenholz is legally correct; and 3) the conveyance was not pre-empted by disclaimer, Mahrenholz could have received FSA if H. Hutton inherited a possibility of reverter. FSA or nothing. 4. No words of temporal limitation or express condition were in the grant to the School Dist; just expression of purpose + reverter clause. 5. Both theoretically and lingustically, –onlyî fits w/ –so long asî suggesting a limited grant rather than a full grant subject to condition subsequent. => FS determinable. Furthermore in conjunction w/ –revertî suggest mandatory return to Grantor rather than permissive ‘may’ re-enter. Court really reasons backward from reverter clause. (Weak. How about –only on condition that...î?) 6. Upon a grant for exclusive use followed by an express provision for reverter when that use ceases, courts and commentators have agreed a FS determinable is created. (Isn’t this begging the question? The cases cited all use word of limitation so are distinguishable.) 7. –Onlyî was put in the granting clause not the reverter clause meaning the granted was limted. 8. If the word –revertî was not used, court would probably find FSA w/ restrictive covenant or FSA w/ statement of purpose. 9. How much weight should the court give to –revertî? The lawyer already fucked up, so why should we assume he knows that legal meaning of the word. He might of well have used –go toî instead. 10. Classification of the current estate defines the FI not vice versa. 11. Alexander: Court probably wanted Mahrenholz to win because it was an innocent mistake not to know that possibility of reverter and right of entry is non-transferable in IL. IL law is screwed up, almost all states allow transfer of one of them. (But is this a good excuse since they should have used a lawyer and any competent IL lawyer should have known?) 12. Note: There is no problem w/ recording acts here. Under race, notice, or race-notice Mahrenholz wins. School Dist. does not even qualify under pure notice act because they did not purchase the future interest for consideration, a requirement for legal and valid recordation. H. Defeasible Life Estates, pp.261-262: In previous years it was common to run across a LE defeasible upon marriage. Such a provision is now rarely encountered because: 1. The provision rests upon the assumption that the second husband is liable for support of his wife for her lifetime, even after divorce, so the wife will not need support from her first husband, but the CL liability of husbands to support their wives after divorce has almost passed from the American scene. 2. Modern law has increased the protection of the surviving spouse, giving her an electivre share of fee simple ownership in her deceased husband’s estate and not, as at CL, merely support for her life. a. If dissatisfied w/ a LE defeasible upon remarriage given her by her husband’s will, the surviving wife can renounce the will and claim a share of outright ownership. 3. For LE to qualify for IRS marital deduction and pass free of estate taxation, the surviving spouse must be entitled to all the income for her entire life. 4. CL rule against restraints on marriage. Court question whether the provision has the purpose of: a. coercing abstention from marriage => Valid i. Words of limitation: –to A for life so long as A remains unmarried, then to B.î b. providing support until marriage w/o desire to hinder marriage => Invalid 36 5. 6. i. Words of condition: –to A for life, but if A marries, then to B.î Construed to form. Restatement (2d) of Property: A restraint against marriage is construed as narrowly as possible, consistent w/ the language employed in describing the restraint and, hence, does not automatically include w/in it a restraint against cohabitation w/o marriage. Prob. p.262: –to my wife, W, for her use and benefit, so long as she remains unmarried.î Does W get a LE or FS? a. Most courts => FS, unless the devisor clearly intends to transfer less than the whole estate a court will construe to transfer all he has. b. A few, like Eller v. Wages (GA), => LE reasoning that when W dies she is neither married nor unmarried. This is probably attributing a lot of subtlety where there is none. 37 NON-POSSESSORY ESTATES: FUTURE INTERESTS, PP. 263-324 VI. INTRODUCTION, pp. 263-264 Future Interests confer rights/interests to possession and enjoyment of property at a future time. Today LE followed by FI are the foundation blocks of wills and estate planning. There are a finite number of FI, (6). FI are not mere expectancy rights. A FI gives legal rights and liabilities to its owner and is a presently existing property interest possessed the moment created and protected by the courts. The owner can sell or give away a FI and enjoin someone from committing waste or sue a 3rd party for injuring the land. Although a future interest does not entitle its owner to present possession, it is a presently existing property interest that may become possessory in the future. Future Interests retained by Transferor [Reversionary]: Reversion Possibility of Reverter Right of Entry (Power of Termination) Future Interests created in a Transferee [Non-reversionary]: Vested Remainder Indefeasibly Subject to Open Subject to Complete Defeasance Contingent Remainder Executory Interest Don’t Forget: VII. A. All FI have to labelled with respect to the estate, e.g. Contingent Remainder in FSA. All vested interests must add up to a FS, the whole pie. FUTURE INTERESTS IN TRANSFEROR [Reversionary], pp. 264-266 Reversion –A reversion is the interest remaining in the grantor, or in the successor in interest of a testator, who transfers a vested estate of a lesser quantum than that of the vested estate which he has.î [The interest left over in an owner when he carves out of his estate a lesser estate and does not provide who is to take the property when the lesser estate expires. Ie. When the grantor doesn’t give away the whole pie and keeps a slice for himself.] 1. When grantor gives away lesser quantum of estate and does not at the same time convey a vested remainder in FS. a. O gives away the whole pie if he transfers a present possessory FSA or a future vested REM. 2. Heirarchy of estate: FS => FT => LE => Leasehold (non-freehold) 3. Automatically occurs at the natural termination of the lessor estate 4. Automatically vested and retained in transferor and can be transferred, devised, and inherited. a. Not subject to the Rule against Perpetuities. b. Fed estate tax or state inheritance tax may be levied upon its value 5. Retained reversion may or may not become possessory in the future. a. O conveys –to A for life.î O has a reveriosn in FS that is certain of becoming possessory in the future. There is no need to be explicit, O has an implied reversion. b. O conveys –to A for life, then to B and her heirs if B survivies A.î O has a reversion in FS but if A dies before B, O’s reversion is divested at A’s death and will never become possessory. B’s estate in not vested; B has a contigent REM. 6. Problems, p.265: #1: a. –to A for life, then to B and her heirs.î • B has vested REM. Nothing has to happen except for A to die. b. –to A for life, then to B and the heirs of her body.î • FT is a lesser quantum => depending if the state has abolished FT, O has REV. Even if the state allows FT, B can still bar the entail and get a FSA thereby divesting O of the REV. c. –to A for life, then to B and her heirs if B attains the age of 21 before A dies.î At the time of the conveyance B = 15 (If there is a reversion, what happens to it when B reaches 21 during A’s life.) 38 #3: • B has a contingent REM and O has REV. When B reached 21 during A’s life, B has an indefeasible vested REM and O is divested. FI can change over time as events and conditions change. d. –to A for 20 years.î • A has a term-of-years leasehold which will REV to O at its termination. Even if the term is for 1000 years, there is a REV. (Sometimes used in place of a FS.) O conveys BA –to A for life, then to B for life.î O subsequently dies and devises all his property to C. Then A dies, then B dies. Who owns BA? a. O gave away 2 vested LE and transferred his REV interests to C. B. Possibility of Reverter, pp.236-237 1. Grantor gives away determinable estate of same quantum. P of R is a FI remaining in the transferor or his heirs when a determinable fee is created. a. Note: if O had a LE and gave A LE determinable, then O has a possiblity of reverter. But almost all cases deal w/ carving a FS determinable out a FSA. b. Remember that O gave away a determinable estate of the same quantum. 2. Automatically vests at the natural termination of the previous estate 3. Not vested. It was regarded as too ephemeral to stay with the grantor and stays with the estate and passes only when the stated condition happens. 4. Alienability a. CL: viewed as only a mere possiblity and not an interest. Therefore, it could not be transferred. However, at death, the posibility of reverter descends to owner’s heirs. (What was argued in Long v. Long) b. Under modern law, it is freely alienable during life and by will. Right of Entry (Power of Termination), pp.237-238 1. Grantor gives away estate subject to condition subsequent and retains the power to cut short or terminate the estate. a. Note: if O had a LE and gave A LE subj cond’n subsq, then O has a power of termination. b. Remember that O gave away an estate subj cond’n subsq of the same quantum. 2. CL: Interests not vested and could not be alienated inter vivos but may be inherited. 3. Now, can be freely transferable in most states. FUTURE INTERESTS IN TRANSFEREES, pp. 266-282 FI in transferees are either REM or EI. They are usually created in the context of a LE because grantor probably has in mind to give away or retain the rest. REM are capable of taking immediate possession at the termination of the previous estate. No Gap. EI divests a previous estate. REM and EI can only be created in a transferee. Once created, these interests can be later transferred back to the grantor, but the name originally given the interest does not change. 1. All vested interests must add up to FS. a. If someone has a vested interest at that time frame, then all other interests must be contingent. b. If no one has a vested interest at a particular time frame, then there is an implied reversion in Grantor. 2. Prob., p.268: –to A for life, then to B if B gives A a proper funeral.î Does B have a REM or an executory interest? If it is an executory interest, whose interest will it divest if B gives A a proper funeral? a. It is an executory interest because there is a gap between A’s possession and Bîs. O probably retains a REV which is divested by B. Remainders A REM is a FI that waits politely until the termination of the preceding possessory estate, at which time the REM moves into possession if it is then vested. A REM is a FI that is capable of becoming possessory immediately at the termination of the prior estate. If at the time the FI is created, it is not possible for it to become possessory upon the termination of the prior estate, the FI is not a REM. 1. Created when grantor a. gives away smaller quantum than has and gives balance to Third party. AND... 39 C. VIII. A. B. b. 2. 3. 4. 5. Arranges for Third parties’ estate to become possessory immediately upon natural termination of prior estate. Requirements a. Express acts of grantor in deed. Cannot be implied. b. Created in the same instrument or act that creates the particular estate Particular Estate: Estate that precedes remainder a. Particular estate must be at least an estate for years. b. Particular estate must not be defeated before natural termination. Test: Would interest be reversion if retained by grantor? a. Must become possessory at the Natural termination of the prior estate. The owner of a vested or contingent REM may transfer the REM during life or by will or intestacy if he dies during the life tenant’s life, unless the instrument creating the REM expressly requires the remainderman to survive the life tenant. The general rule is that a requirement of survivorship is no implied. B1. Vested REM The holder of a vested REM is the holder of a FI that is entitled to take possession as soon as the preceding estate terminates. A REM is vested in A, when, throughout its continuance, A, or A’s heirs have the right to immediate possession, whenever and however the preceding freehold estate may determine. 1. Vested Test: a. Given to an ascertained person (Holder of interest is identified) b. Not subject to any condition precedent other than the natural termination of the prior estate. c. [Take note : if all vested interests add up to a fee simple, then this interest must be contingent] 2. Indefeasibly Vested REM is certain of becoming possessory in the future and cannot be divested. a. Indefeasiby Test: i. Know who has it. ii. No condit’n precedent other than the natural termination of the prior estate. iii. Know quantum of estate they will get iv. No cond’n subsequent that will divest them. b. Example: –to A for life, then to B and his heirs.î i. B has it ii. Only cond’n prec is A’s death which is the natural termination. iii. B has FS iv. No cond’n subsq that will divest B. 3. Subject to Partial Divestment or Subject to Open A REM created in a class of persons is vested if one member of the class is ascertained and there is no condition precedent. a. Subj to Open Test i, Know who has it. ii. No condit’n precedent other than the natural termination of the prior estate. iii. Do Not know quantum of estate they will get iv. No cond’n subsequent that will divest them. b. Example class gift: –to A for life, then to B’s children and their heirs.î i, B’s children has it. ii. A has to die - natural termination iii. Don’t know quantum b/c B can have more kids. Split up the pie more. iv. No cond’n subsq that will totally divest them. 4. Subj to total divestment a. Subj to total divestment Test: i. Know who has it. ii. No condit’n precedent other than the natural termination of the prior estate. iii. Maybe Do Not know quantum of estate they will get iv. There is a cond’n subsequent that will divest them. b. Example: –To A for life and then to B unless A decides to appoint the property to C.î i. B has it ii. A has to die - natural termination 40 iii. c. d. B2. B knows quantum but could easily have been B’s children where they do not know quantum. iv. A divest by giving it to C Example 9, p.270: –to A for life, then to B and her heirs, but if B does not survive A to C and his heirs.î B has a vested REM in FS subject to total divestment. C has a shifting EI which can become possessory only by divesting B’s REM. O ---> LE + Vested REM (FS) + EI = 1 (no REV) When a vested REM is not subject to complete divestment, it cannot be fully defeated. Contigent REM Holders of contingent REM are either unascertained and/or some condition must happen before the holder is entitled to possession. Pre-condition. A REM is contingent if, in order for it to come into possession, the fulfillment of some condition precedent other than the determination of the preceding freehold estate is necessary. 1. A REM is vested it a. It is given to an unascertained person OR b. It is subject to a condition precedent 2. Condtion must be expressed in precedent form. a. REM is vested subject to complete divestment if condition is in subsequent form. i. Eg. –to A for life, then to B, but if B dies before attaining the age of 21...î b. A grant w/ condition subsequent usually –..,but if...î c. A grant of condition precedent usually –...to B if...î d. If the conditional element is incorporated into the description of or into the gift to the remainderman, then the REM is contingent; but if, after the words giving a vested interest, a clause is added divesting it, the REM is vested. 3. Eg. –to A for life, then to B and her heirs if B lives to attain the age of 21.î a. A may die before B reaches 21, so B has a REM contigent on reaching 21. b. Under modern law O receives a REV in FS defeasible and B now has an EI that will become FSA at 21. O can only gain permanent possesion if the land was in a revocable trust for B. c. Under CL and the destructability rule, CR were prevented from becoming EI and therefore B would receive nothing and O got FSA. 4. Eg. –to A for life, then to the heirs of B.î a. The REM is contingent because the heirs of B cannot be ascertained until B dies. 5. CR are inheritable and alienable. a. No Condition of Survivorship i. Ordinarily, a requirement that the holder be alive when the interests vest. b. CR are deviseable, alienable & inheritable to be collected when vested. 6. In classifying FI after a LE: If the first FI created is CR in FS => second FI in a transferee wil also be a CR. If the first FI created is a VR in FS, the second FI created in a transferee will be a divesting EI. 7. Example 7, p.269: –to A for life, then to B and her heirs if B survives A.î 8. Example 8, p.269: –to A for life, then to B and her heirs if B survivies A, and if B does not survive A to C and his heirs.î In this case, B and C have alternate contingent remainders. There is an implied reversion in O to finish the time line. O (FSA) ---> LE + CR + CR + REV 9. Questions, p.271: #1: In Example 8, under what circumstances will the property revert to O? The key is to realize that a LE can terminate prior to death of life tenant. a. Today, estates can be forfeited by statute for say tax crimes or felony crimes. What is forfeited is the LE not the property. There is still a reversion to O, the next vested esatate. O (FSA) ---> LE + CR + CR + REV. REV are always vested. b. Under CL, if A conveyed her LE to O, then the CR estates would be destroyed since O would possess the whole pie. Destructability Rule. c. There are statutes that provide for the event where B and C both die at the same time. #3: O conveys –to A for life, then to B for life, then to C and his heirs.î What interests are created? a. B has a vested REM in a LE. B is realistically contigent on living longer than A, but this is not explicit, so B has a vested interest. 41 10. C is indefeasibly vested in REM in FSA. Nothing need to happen for C to possess except for the estates of A and B to end. Nobody can come along and cut short/divest C. Problems, p.271: #1: T devises BA –to my son A for life, then to A’s children and their heirs.î At the time of T’s death, A has one child, B. Two years later C is born. Then B dies, leaving a husband, D, and a child, E. B devises all of her property to D. Then A dies, survived by C, D, and E. Who owns BA? a. A’s children is vested subject to open (subject to partial divestment). b. A’s unborn children have EI that is realized when the child is born. c. B is vested, therefore vested interests are transferable to D. d. When A dies, B and C become indefeasibly vested in FSA. Indeed they are possessors in FSA. e. If A has yet to have children then the future children have CR and O has a REV. #2: T devises BA –to my son A for life, then to A’s children and ther heirs, and if any child dies in the lifetime of A, such child’s share shall go to his or her issue who survive A.î At the time of T’s death A has two children, B and C. Then B dies leaving husband, D, and a child, E; B devises all her property to D. Then C dies leaving wife, F, and no issue and devises all his property to his F. Then another child, G, is born to A. Then A dies and is survived by D, E, F, and G. Who owns BA? a. B has a vested REM that is subject to open and subject to complete divestment. B can transfer his vested interest by will, but this interest is still subject to divestment. b. Three conditions for B’s divestment: 1) B dies before A; 2) B has issue; and 3)B’s issue survives A. The time of divestment is at A’s death. c. If B and E died before A, B’s interets and will is good b. –to A for life, then to B if B is then alive, otherwise to C if C is then alive.î –to A for life, then to my existing children.î –to A for life, then to B’s children who reach 30.î (B is alive and has one child, X, age 22.) C. Difference between vested REM subject to complete divestement and CR 1. Destructability rule only applies to CR (No longer exists) 2. Alienability, at CL CR were not transferable or deviseable (No longer exists) 3. Rule Against Perpetuities only applies to CR. Still in effect in every state! The only real reason there is a distinction between CR and VR. Difference between VR and CR 1. The law has a preference for vested REM, and where an instrument is ambiguous, the courts construe it in favor of VR. 2. A vested REM accelerates into possession whenever and however the preceding estate ends. 3. A CR cannot become possessory so long as it remains contingent. 4. At early CL, CR w/ few exceptions were not assignable during the remainderman’s life and hence unreachable by creditors. a. Today in most states, CR are transferable during life and reachable by creditors. In a handful of states the old CL is still followed. 5. Vested REM have always been transferable during life as well as at death. 6. AT CL< CR were destroyed if they did not vest upon termination of the preceding life estate. Whereas vested REM were not destructable in this manner. 7. CR are subject to the Rules Against Perpetuities. 8. In some state laws owner of CR may not have standing to sue for waste, or for partition, or for trust accounting. D. 42 D. Executory Interests, pp274-282 An EI is a FI in a transferee that must in order to become possessory, 1) divest or cust short some interest in another transferee (This is a shifting executory interest) or 2) divest the transferor n the future (This is a springing executory interest). The difference between taking possession as soon as the prior estate ends and divesting the prior estate is the essential difference between a REM and EI. 1. Third party interests that divest or interrupt a prior estate w/ no time limit on when they can vest. a. Exception: The label EI is applied in one situation where the FI is not a divesting interest, and that is where a FI in a transferee follows a FSD (when O gives a FSD and an EI). That estate does not interrupt, but it is still considered an executory interest. i. It cannot be a REM b/c the grantor gave the same size piece - a FS - rather than a smaller quantum. Does not matter if it was determinable for the size calculation. ii. Eg. –to Town Library Board so long as the premises are used for library purposes, then to Children’s Hospital.î The Library Board has a determinable fee and Children’s Hospital has an EI. iii. The interest given to Children’s Hospital should logically be classified as a REM. It stands ready to succeed on the natural expiration of the preceding estate; it does not divest the preceding estate. But a REM cannot follow a vested FS. Forced to violate one rule or another, courts chose to give the FI the label EI, but it is not a divesting interest. b. But for any estate smaller determinable, like LE determinable, then the remaining third party interest is a vested remainder b/c the grantor gave away a smaller quantum. c. EI cannot follow CR because it presupposes a divestment of a vested interest. Since CR is not vested, there can be no divestment by definition. Rule: Interests following CR must be EI or REV. 2. EI are associated w/ FS subject to executory limitation, a FS that upon the happening of a stated event, is automatically divested by an EI in a transferee. Or a LE followed by vested REM in FS subject to third party right of entry or possibility of reverter. 3. Created by third party when grantor either: a. Gives away defeasible estate the same size as own and gives remaining to third party. OR i. Possibility of reverter or right of entry by grantor and assigns to third psrty. b. Gives away estate smaller than own but creates third party interests so interrupts prior estate rather than becoming possessory at the natural termination of estate. i. Springing a. When the estate potentially divests the grantor. b. –to A for life, then one day after A’s death to Bî. Property reverts to O for a day then B gets it by interrupting. ii. Shifting a. When third party interrupts/divests another transferee 4. Vesting: Executory Interest only vests when it becomes possessory. a. Executory interests always interrupts, thus it has a condition precedent. b. Therefore, cannot be vested: 1) who has estate 2) no condition precedent other than the natural termination of the estate 3)Vested interests add up to FS. c. EI that follows a FS determinable cannot be vested b/c FS determinable is vested as a possessory interest therefore there is nothing else that can be vested. 5. At CL, EI were invalid. Now valid b/c Statute of Uses if comply w/ Rule Against Perpetuities. a. At CL, the executory limitations were integrated into the estate. b. The resulting estate would depend on the type of condition. i. Determinable w/ EI became a determinable w/ possiblity of reverter in grantor. a. Condition is integral to the estate so it must remain when the court strikes out the executory limitation. ii. Subj to executory interest became the underlying estate Absolute. a. Condition is not integral to the estate so the court struck out the executory limitation and the condition. Holder ends up with an absolute estate. c. Today in any jurisdiction, springing and shifting future interests can be created by deed, trust, will; no special form of conveyance has to be employed. 6. Alienability: Not sure. Perhaps follows policy of Possibility of Reverter and allow alienability 43 7. 8. 9. Examples: a. –to Hartford School board, its successors and assigns, but if the premises are not used for school purposes during the next 20 years, to C and his heirs.î b. –to A and his heirs, but if A dies w/o issue surviving him, to C and his heirs.î c. –to A for life, then to B and his heirs, but if B dies w/o issues surviving her, then to C and his heirs.î d. –to C upon my death.î Difference between CR and EI a. Destructability Rule (an overwhelming majority have abolished this rule) b. Shelly’s Case (an overwhelming majority have abolished this rule) c. Both subject to Doctrine of Worthier Title d. Both are not vested and are subject to conditions precedent e. Both are subject to Rule Against Perpetuities. These two categories will be the first to merge when we reorganize FI. Problems, p281: #1: O want to convey BA to his son for life, and upon A’s death, O wants BA to go to A’s children if any are alive or, if none are then alive, to O’s daughter, B. Consider the following conveyances, all carrying out O’s intent, but each creating different FI. a) –to A for life, then to A’s children and their heirs, but if at A’s death he is not survived by any children, then to B and her heirs.î At the time of the conveyance, A is alive and has no children. What is the state of the title? A’s children have CR because they are unacertained. B must have CR because she follows a CR. O has a REV. O(FSA) ---> LE + 2xCR +CR + REV Two years after the conveyance, twins, C and D, are born to A. What is the state of the title? C & D have vested REM subject to open and subject to complete divestment. (Open to future children and divest if predecease A) B has EI (if C and D predecease A). A’s future children have EI. After A has children, O’s REV disappears. O(FSA) ---> LE + 2xVR + EI + xEI Suppose that C dies during A’s lifetime, and that A is survived by B and D. What is the state of the title? C and D share FSA (indefeasibly possessory FS). (C’s heirs will share by representation). If 1 child survives, all keep. O(FSA) ---> LE + 2xFSA Suppose C and D predecease A. A dies survived by B. C and D are divested of REM. B has FSA. Birth of any children to A divests O’s REV. O(FSA) ---> LE + FSA b) –to A for life, then to such of [express condition precedent] A’s children as survive him, but if none of A’s children survives him, to B and her heirs.î At the time of the conveyance, A is alive and has 2 children, C and D. What is the state of the title? C and D and any future children have CR. Only survivors keep. All predeceasing children lose their interest. Vesting at A’s death. B must also have CR. O has a REV. O(FSA) ---> LE + 2xCR + CR + REV What happens if A, C and D all die in a car accident? Uniform Simultaneous Death Act (USDA) - Any indication that a child lived longer than A, that child will vest. Revised USDA, Uniform Probate Code (UPC) - Child must survive 120 hrs after A to vest. (Theory that child will not have time to –appreciateî the grant w/ less time.) c) –to A for life, then to B and her heirs, but if A is survived at his death by any children, then to such surviving children and their heirs.î At the time of the conveyance, A is alive and has two children, C and D. What is the state of title? 44 10. B has vested REM subject to complete divestment C and D have EI Unborn children of A have EI (Do not know who survives A until A dies) O(FSA) ---> LE + VRD + 2xEI + EI #2: T devises land –to my son A for life, then to A’s children, and if A dies w/o surviving children to my daughter B and her heirs.î A has one child C, and C has a child D. C dies. A dies, survived his sister B and by grandchild D. Who takes the land? B takes the land. T probably meant –to A’s issueî #3: T devises $10,000 –to my cousin, D, if and when he survives his wife.î What does D have? There is an express condition precedent => CR or EI? T and his heirs have a possessory FS subject to divestment by EI T(FSA) ---> FS subject to divestment + EI #4: O conveys BA –to A and his heirs one year from now.î By this conveyance, A is given a springing executory interest that will divest O’s FS a year from now. But after this conveyance, how can O have a FS, which is an estate by definition has a potentially infinite duration? A has a springing executory interest certain to become possessory. The only condition precedent is the passing of one year. Almost all EI are subject to condition precedent and are treated as contigent interests. On the other hand, EI that is to become posssessory upon an event certain to happen may be treated as a vested interest. Note that Rules Against Perpetuities applies to both EI and CR, but majority rule is that EI are considered vested. Rule of Destructability also applies to CR but not to EI. Problems: a. –to A for life, then to B if B is alive, else to C if C is alive.î B has CR C has CR. C has 2 express conditions precedent: C must survive A and B. O has REV O(FSA) ---> LE + CR + CR + REV b. –to A for life, then to my then surviving children.î O(FSA) ---> LE + xCR + REV c. –to A for life, then to B’s children who attain the age of 30.î (B is alive and has one child, X, age 22) O(FSA) ---> LE + xCR + REV (Beware Rules Against Perpetuities) d. same as (c) but X reaches 30. O(FSA) ---> LE + VR subject to open + EI(unborn) e. same as (c) but Y is born to B O(FSA) ---> LE + VR subject to open + EI(Y and unborn) f. same as (e) but B dies. No Change. O(FSA) ---> LE + VR subject to open + EI(Y ) g. same as (f) but Y dies age 25. O(FSA) ---> LE + REM vested indefeasibly. INTEREST Determinable (Also works w/ LE and FT) GRANTOR Possibility of Reverter Not Vested but usually deviseable & alienable Automatic THIRD PARTY Executory Interest Shifting and Springing Automatic 45 Subject to Condition Subsequent (Also works w/ LE and FT) Power of Termination or Right of re-entry Not Vested but usually deviseable & alienable. Interrupts the prior estate Reversion Fully vested, deviseable & alienable. Executory Interest Shifting and Springing Automatic Fee Tail : Fee simple cond’l w/ no TP interest. Life Estate Vested Remainder Indefeasiby; Subject to partial divestment; Subject to total divestment Contingent Remainder Executory Interest Springing Shifting E. The Trust, pp.283-290 A trust is a fiduciary relationship w/ respect to property in which one person, the trustee, holds the legal title to property (called the res) subject to the equitable rights in beneficiaries (sometimes called cestius que trust). It is bascally a device whereby one person manages property for the benefit of others. (historically the corporation developed from the trust concept) The person who creates the trust is called the settlor (or trustor). The trust is only recognized in Anglo-American law. 1. The trustee takes the entire legal interest (title) in personal property and, if necessary to carry out the purposes of the trust, as is ordinarily the case, the legal fee simple in land. There are infinite variations on how the trustee will carry out the intentions of the settlor. 2. The beneficiaries retain equitable LE and equitable REM. Upon the life tenant’s death, the trustee hand the assestsover to the remainderman, and the trust is terminated. 3. Eg. O conveys BA –to X in trust [as trustee] for A for life, and then for A’s children who survive A.î X has the express power to sell BA. X has the legal FS in BA; A has an equitable LE, A’s children have a equitable CR, and O has an equitable REV. 4. Eg. –to X in trust to pay income to C for life, then to pay income to C’s children for their lives, and upon the last of C’s children, the principle to my heirs at law.î C has an equitable LE, C’s childen have a vested REM subject to open in an equitable LE, and O’s heirs have a vested REM in legal FS when O dies (while O is alive, O’s heirs have CR and O has a REV). 5. Creation of an Express Trust: The settlor must manifest an intent to create an express trust. To create an express trust in land, a written instrument, a deed or will, is required by the Statute of Frauds. However, an express trust in personal property may be created inter vivos by written or spolen words or conduct. a. Declaration of Trust: One where the settlor declares herself trustee for the benefit of another. No delivery of trust property is necessary. Usually the settlor must notify someone of the trust and the settlor must segregate the trust property, identify it as such, and keep a separate accounting for the trust to evidence intent. b. Deed of Trust: An instrument delivered by the settlor to another person as trustee establishing the trust. Delivery is essential. c. Revocable Trusts: Either a declaration of trust or a deed of trust may be made revocable. The settlor may retain the power to revoke. 6. Elements of an express trust: a. Trustee: A trustee is necessary for a trust. If the office of trustee becomes vacant, a court will appoint a successor trustee if the trust instrument does not name a successor. i. The trustee must have active duties in order to have a trust. However, modern courts are astute at finding some active duty whenever they are convinced the settlor intended a trust. 46 7. 8. 9. Res (property):There must be trust property (a res) for the trustee to manage. The trust property can be land, personal property, a FI - it can be anything the law conceives as property. c. Beneficiary: A trust cannot exist w/o someone to enforce the fiduciary duties against the trustee. If there is no beneficiary, there is a resulting trust (or equitable REV) in favor of the setllor. i. The trustee may be a beneficiary of the trust. But if the trustee is the sole beneficiary, there is no trust. Where one person hold both legal title and the entire equitable title, the equitable title merges into the legal title. A trust requires that someone other than the trustee be a beneficiary of some interest. It must give rights to a beneficiary other than the trustee to sue the trustee. Implied Trust: created by the law. a. Intended to prevent unfairness that is inherent in situation that is remediable by a trust. b. Person with legal title does not have moral or equittable right to the title. Example: equittable lien. c. Rationale - Active Trust i. Statute of Use does not execute b/c the holder of the legal title has duties to perform. ii. Example of a house sale. In the interrim before the closing, the seller is the trustee to the buyer, who holds the equittable title. Duties of a Trustee: A trustee is a fiduciary and is under duty to administer the trust solely in the interst of the benficiaries. a. Standard: Trustee must act with undivided loyalty to the beneficiary in controlling trusts. What a prudent person would do if own self-interest were at stake. b. Prudent Investment Rule: In administering a trust, the trustee must exercise that degree of care, skill, and prudence as would be exercised by a reasonably prudent person mnaging his own property. This includes the duty to make the trust property productive and receive a reasonable return of income. In most states the trustee must diversify the trust instruments. c. Undivided Loyalty: The trustee owes the beneficiaries exclusive undivided loyalty. He must reap no personal advantages from his position and must not put himself in a position where a conflict of interest is possible. The trustee may not borrow trust funds or buy any of the trust assests. Self-dealing in any form is prohibited. The trustee bears the risk of loss in any transactions in violation. d. Change in Circumstances: i. Administrative deviation: A court may authorize a trustee to deviate from the administrative terms of a trust if compliance would substantially impair the accomplishment of the trust purposes and the settlor did not anticipate the changed circumstances. ii. If the trust is a charitable trust, the court can apply the doctrine of cy pres: When the settlor has a general intent to aid some form of charity, and the particular charitable purpose becomes impracticable or impossible to achieve, a court will reform the trust to carry out as nearly as possible under changed conditions the settlor’s general intent. e. The trustee must preserve the property, make it productive, and dispose of the income in the manner specified in the trust instruments. Other duties include the duty to keep trust property separate from the trustee’s own property, to keep accurate record accounts, to invest prudently, and not to delegate trust powers. f. Present Beneficiaries v. Future Beneficiaries. i. Difficulties to decide whose interest to consider in investment. ii. Example: coal miners fund invests in coal utilities that may not have the highest standard of return but will ensure that the benefiaries will keep on working. iii. Restriction on fiduciary responsibilities: extremely conservative investment. f. If the trustee breaches fiduciary duties, the trustee is subject to personal liability to the beneficiaries. Alienability: a. In general, FI are fully alienable (maybe not CR). This means that a transferee can come in and enjoy all benefits of possession. b. C can make a valid assignment of a life interest in a stream of income. Similarly, creditors can reach C’s interest by filing trustee service and attaching property interests. 47 b. 10. Spendthrift Trusts a. A spendthrift trust is one where the settlor imposes a valid restraint on alienation, providing that the beneficiary cannot transfer his interests voluntarily and that his creditors cannot reach it. The validity of spendthrift restrictions on equitable interests has been recognized by most states. It is accepted in a large majority of states. b. The rationale is that the legal title is in the trustee, and the specific trust assets are alienable by the trustee. Therefore the trust assets are not made inalienable by the restraint on equitable interests. All the restraint on equitable interests does is make the stream of income inalienable. i. This is a poor arguement since the trustee may not be given the unrestricted power to sell trust property. ii. This agruement addresses the issue of legal interests. It still does not address the question of why equitable interests are not alienable, why they are not allowed to move to its best use in the marketplace. c. Exception: In some states, a beneficiary’s former wife and children have been given the right to reach the benficiary’s interest for support. d. A spendthrift trust is only allowed for inherited wealth. A person can set up a spendthrift trust for another but not for himself. Thus persons who inherit wealth can be protected against creditors but persons who earn wealth cannot be. e. Broadway National Bank v. Adams (1882), pp.284-287: Adam’s brother devised a trust fund for his benefit –free from the interference or control of his creditors, my intention being that the use of said income shall not be anticipated by assignment.î i. The court will not compel the trustee to do what the will forbids him to do, unless the provisions and intention of the settlor is unlawful. ii. It is said that by means of public record a creditor can learn of the existance of spendthrift trusts but: 1) deeds settling personal property are not recorded and 2) there is no reason why a trust may not be created by a will recorded in some other county or State. (1) While wills in probate are recorded, most trusts today are inter vivos which are not recorded. (2) Personalty are not restricted by Statute of Frauds need not be recorded. iii. This case is the first time in Anglo-American law where there is a valid restraint on voluntary and involuntary alienation of an equitable LE. Prior to this case, the US followed English courts voiding any disabling restraints. This case abandons the CL. f. Discretionary Trusts: The trustee has the discretion to w/hold payment of income. The beneficiary has no right to the income and cannot legally force the trustee to give it to him. Thus, there is no interest for the creditors to reach. g. J.C. Grey felt the spendthrift trust did not just protect the benficiary but immunized the trust itself. It was the modern version of the fee tail and kept the property intact w/in the family. The beneficiaries could not sell and disapate the wealth. The majority of states recognized the spendthrift trust between 1890-1915. At that time there was no social security, no welfare, no gov saftey nets. But it was also a time of great economic fluctuations, eg. 1870 depression. The courts were sympathetic, but the doctrine became vroader than that => any trust w/ restraints on equitable alienation could not be prematurely terminated before the time set by the settlor, even if all the beneficiaries agree. 48 IX. RULES FURTHERING MARKETABILITY BY DESTROYING CONTINGENT FUTURE IN, PP.290-299 Judges were wary of contingent interests that made the land unmarketable either legally or practically whereas vested interests did not. For example, O conveys –to A for life, then to B if B survivies A.î A and B and T’s heir would have to agree to sell the land and how to divide the proceeds. To destroy contigent interests and make land marketable by making the interest owners known, judges invented a number of rules. However these rules were easy to avoid and were limited in circumstances where they applied, and today most have been abolished.. A. Doctrine of Merger, p296 If one person gets vested successive estates, the smaller of the two estates is absorbed by the larger. 1. At the same time, any CR (between the vested estates) not then vested are destroyed by the Doctrine of Destructibility of CR b/c the estate the CR based on is destoryed. BUT if there is a vested REM in the middle blocking merger, then the two interests are not merged. Works for all cases. 2. Exception: FT does not merge into FS. 3. Exception: If the LE and the next vested estate are created simultaneously in the same person they do not merge at that time so as to destroy intervening CR. However, if the LE and the next vested estate are thereafter conveyed to another person, they will then merge and destroy intervening CR. 4. A/LE–––––B/CR–––––O/REV a. A sells or surrenders LE to O b. If B’s REM has not vested, then it is destroyed and O will end up with a FS from the merging of the LE and the indefeasibly vested REV. c. O simply has the whole estate in his hands so it does not conceptually make sense for B to be holding part of it. 5. Still exists. The Rule in Shelly’s Case If (1) one instrument (2) creates a LE in land in A, and (3) purports to create a REM (vested or CR) in person’s described as A’s heirs (heirs of A’s body), and (4) the LE and REM are both legal or both equitable the remainder becomes a REM in FS (or FT) to A. The Doctrine of Merger then merges the LE into the next vested REM in fee, and A has FSA. 1. Example: O conveys BA –to A for life then to A’s heirs.î The rule in Shelly’s Case gives A a vested REM in FS. A’s LE then merges into the REM, leaving A w/ a FS in possession. The land is immediately alienable by A and not tied up for A’s lifetime. 2. The rule in Shelly’s Case as traditionally stated applies only to REM and not to EI, but case authority on this is slight. 3. The rule in Shelly’s Case is a rule of law and applies regardless of the intent of the transferor. 4. Reason: to prevent avoidance of feudal incidence where O tries to give to A and heirs but sticks in a CR if A’s heirs are not ready to vest. This avoids the feudal incidence. a. Example: O to A for life then to B until A’s heirs turns 21, then to A’s heirs in FS. 5. The rule in Shelley’s Case abolished in all states but AR, CO, DE, IN but still important to know because if a grant was made before the abolition, most statutes are not retroactive. 6. Combination of Doctrine of Merger and Rule in Shelley’s Case a. –to A for life, then to B for life if she becomes a lawyer, then to the heirs of A in FS.î b. A/LE–––––B/CR––––A’s heirs/Vested REM c. A gets the REM in FS through rule in Shelley’s Case. d. Doctrine of Merger destroys B’s CR if she has not become a lawyer yet (has not vested yet). 7. Problems, p.293: #1: State the effect of the rule in Shelly’s Case upon each of the following transfers of land: (a) O conveys –to A for life, then to A’s children and their heirs.î NO application of Shelly’s Case here. A’s children is not the same as A’s heirs, and they get vested REM in FS (b) O conveys –to A for life, then to B for life, then to A’s heirs.î 49 B. –to A’s heirsî => vested REM in FS in A. It does not merge w/ A’s LE because of B’s intervening vested LE. O(FSA) ---> vested LEA + vested LEB + vested REMA (c) O conveys –to A for life, then to A’s heirs if A survives B.î CR in A’s heirs => CR in A O(FSA) ---> LE + CR + REV (d) O conveys –to A for life.î O subsequently devises the REV to A’s heirs. NO application of Shelly’s Case here. 2 instruments are used. Shows how easy it is to avoid the rule in Shelly’s Case. Also a Term-of-Years will avoid the rule. Only the unwary are caught by the rule. #2: The rule applies only when the gift in REM refers to an indefinite line of succession, rather than a specific class of takers. The REM must be to the heirs of the first taker by the name of – heirsî as meaning a class of persons to succeed. . .Where to the word heirs other words are added which so limit its meaning that it does not include the whole line of inheritable succession but only designates individuals who are at the death of the life tenant to succeed the estate. . .the rule in Shelly’s Case does not apply. Eg. –to A for life, then to A’s heirs and if she dies w/o issue then to her nephews and nieces.î C. The Doctrine of Worthier Title, pp.294-295 Where there is an inter vivos conveyance of land by the grantor to a person, w/ a limitation over to the grantor’s own heirs either by way of a REM or EI, no FI in the heirs is created but a REV is retained by the grantor. [A similar rule applied to devises of land to testator’s heirs. The heirs took by descent rather than devise. Because it rarely made any difference whether the heirs took by descent or devise, this rule is of no substantial importance today.] 1. Example: O conveys –to A for life, then to O’s heirs.î The REM to O’s heirs is void; O has a indefeasibly vested REV. 2. O cannot devise to own heirs. If he tries, it is negated and the estate remains in O as a reversion and is inherited. a. –Leave my property to my heirs.î b. IF it read –Leave my property to my childrenî then its OK. 3. Functions like the Rule in Shelley’s case, converts interests in heirs to another interest a. Rule of Shelly’s Case - REM in heirs of life tenant => REM in life tenant Doc of Worthier Title - REM or EI in heirs of grantor => REV in grantor b. Rule of Shelly’s Case - by will or inter vivos Doc of Worthier Title - inter vivos 4. Rationale: Same policies as Shelly’s Case, to prevent the avoidance of feudal incidence. A tries to devise to heirs rather than let them inherit. It also furthered alienability because O can convey a REV whereas O’s heirs, not being ascertained, cannot convey a FI. Because these reasons were inapplicable to personal property, the CL doctrine was a rule of law, regradless of intent, applying only to land. 5. Doctor v. Hughes (NY 1919): Cardozo revived this doctrine and changed it in two respects. a. First he applied a rule of construction, a rebuttable presumption of REV. b. Second he extended to doctrine to personal property. 6. The doctrine was later abolished in NY by statute, but many states followed Cardozo’s lead. 7. Problems, p.295: #1: O conveys BA –to my friend A for life, then to the heirs of O.î Thereafter during A’s life O dies, devising all of his property to the American Red Cross. Upon A’s death, O’s heir B, and the Ameriacan Red Cross claim BA. Who owns it? There is a vested REV to O at the time of conveyance of deed. O’s will gives O’s REV in BA to the Red Cross. Suppose that at O’s death O had creditors who were not paid. Could the creditors reach any interest in BA? YES, a REV is a property interest in an estate. #2: O conveys –to X to pay the income to O for life, and on O’s death to distribute the trust property to O’s heirs.î Assume that the rule in Shelly’s Case has been abolished. Do O’s heirs have a REM? NO, REV to O. 50 Note: if the rule in Shelly’s Case existed, the equitable vested REM to O’s heirs becomes an equitable vested REM in O and merges w/ O’s equitable LE.) A trust can be terminated by the grantor if all beneficially interested parties agree. Can O terminate the trust? O can terminate if the Doctrine of Worthier Title exists in the state because O would be the income beneficiary and the principle beneficiary. But if the doctrine is abolished, O cannot terminate because O cannot get the assent of the unknown heirs. In a D.C. case, a guardian ad litum was appointed to negotiate for the heirs. Suppose that the conveyance had directed the trustee to distribute the trust property at O’s death – to O’s surviving issue.î Could the trust be terminated? NO. The doctrine only applies to –heirs.î W/ or w/o the doctrine O’s issue cannot be ascertained so O cannot negotiate w/ them. D. Destructability of Contigent Remainders, pp.205-299 A REM in land is destoryed if it does not vest at or before the termination of the preceeding freehold estate. If the remainderman is not ready to take seisin when it is offered, he is wiped out and seisin moves to the next vested estate. CR were destroyed if they did not vest upon the natural termination of the LE. No abeyance of seisin allowed. 1. Example: O conveys BA –to A for life, then to B and her heirs if B reaches 21.î If at A’s death, B is under 21, B’s REM is destroyed. Seisin returns to O because O holds the vested estate, a REV. 2. CR could also be destroyed upon the artificial termination of the LE by forfeiture or merger. Thus the life tenant had the power to destroy CR whenever he wished. a. Example: O conveys WA –to A for life, then to B and her heirs if B survives A.î A conveys the LE to O; the life estate merges into the REV, destroying B’s CR. 3. The destructability doctrine does not apply to EI. The holder of an EI grabs seisin from some other person so there is no gap in seisin. To give the destructability doctrine as much reach as possible, it was held that you must construe a limitation as creating a CR rather than an EI if that construction is possible. To curb EI, judges invented the Rule Against Perpetuities. 4. The Doctrine does not apply to personal property in which there is no seisin. 5. FI created in a trust (equitable CR) were not subject to the destructability doctrine because the trustee holds seisin and there is no gap. Equitable FI are controled by the Rule Against Perpetuities. 6. Leasehold CR are not subject to the doctrine because seisin is held by the lessor. 7. Example: –to A for life, then to A’s first son and his heirs.î Until the son is born, his interest is a CR. However, if after A’s death, a son is born alive, the child will be treated retroactively as in being from the time of conception. 8. Destructability of CR has been abolished in 3/4 of the states. There has been practically no litigation on destructability of CR in more than 50 years. 9. Problems, p.297: #1: T devises BA –to A for life, then in FS to B’s children who survive B.î In a jurisdiction that following the destructability doctrine, what is the state of title after each of the following events, considered independently of each other? When T dies, he leaves: T(FSA) ---> LE + CR + REV a) B dies during A’s lifetime, leaving children; then A dies. T(FSA) ---> LE + VR ---> FSA b) A dies during B’s lifetime; B has children at A’s death The CR is destroyed and T’s estate take a REV. c) A dies during B’s lifetime; B has no children at A’s death Same, CR is destroyed and T’s estate take a REV. d) While A and B are alive, A conveys his LE to B. A’s LE simply changes hands and the CR remains w/ a LE pur autre vie. Problem, p.298: In a jurisdiction in which the destructability rule has been abolished by statute, O conveys BA –to A for life, then to such of A’s children as attain the age of 21.î O(FSA) ---> LE + CR + REV a) Suppose two years later A dies leaving two children, C age 8 and D age 4. What is the state of title? When C reaches 21 will he take any interest in BA? O has a posessory REV in FS subject to divestment. C and D now have EI. 51 When C reaches 21, C is vested in possessory FS subject to open by EI of D b) Suppose that during A’s life, child C reaches 21 then dies. Then A dies, survivied by child D age 17. What is the state of title? When C dies, he has vested REM subject to open by D’s EI, and this is passed to his heirs or devisees. When A dies, C’s heirs or devisees now have a possessory FS subject to partial divestment by D’sEI. E. Application of rule in Shelley’s Case; Entailment statute; No condition of survivorship; Destructibilty of CR: Evans v. Giles 1980 1. Sard devises –LE to Leta, then heirs of body; if none, to Elmo for life, then to heirs of body.î 2. Leta died in ‘72 w/o issue. Elmo died in ‘51 leaving Elmo Jr who died in ‘68 w/o issue. 3. ?’s Leta’s devisees sue  heir to Elmo. On Face Shelley Leta LE FT Leta’s Heirs CR in FT Interest to Leta Elmo CR in LE VR in FT (know who & natural term) CR in LE Elmo’s Heirs CR in FT Interest to Elmo Sard Rev in Fs Rev in FS Ill Statute: FT = LE + rem in FS for heirs 4.. LE CR in FS CR in FS (Don’t know who; Leta must die w/o kids)` Rev in FS Possiblities a. ALL CR’s fail in which case, there is a reversion to Sard. b. Elmo Jr’s CR did not fail i. Since there is no condition of survivorship to the CR, Elmo Jr’s death before Leta’s death does not matter. The CR passes through intestacy statute or by will. ii. Elmo Jr’s CR in FS does not fail b/c of destruction of Elmo Sr’s CR in LE. (1) ALL prior estates must be destroyed and CR not vest for the CR to be destroyed. (2) In this case, Leta’s estate is still around and Let’s LE is a prior estate. (3) If Leta’s and Sr’s estates destroyed and Jr’s CR not vested, then Jr’s CR is destroyed. e. Holding: Jr’s CR did not fail b/c there is no requirement for condition of survivorship and all prior estates had not been destroyed. Conclusion came about after effect of rule in Shelley’s case and the state entailment statute. X. A. RULE AGAINST PERPETUITIES, pp. 299-302, 317-322 No interest is good unless it must vest, if at all, not later than 21 years after some life in being [or in gestation] at the creation of the interest. - J.C.G. Common Law Rule Against Perpetuities 52 Logical proof: you must prove that a contigent future interest will necessarily vest or fail w/in 21 years after some life in being at the creation of the interest. [Test of –what might happenî at the time deed/will takes affect. Purpose of RAP is to reqiure resolution of uncertainty. The contigency (condition precedent) must be resolved (vest or fail) w/in the perpetuities period.] 1. If the contigent interest is created by will, the life in being must be a person alive at the testator’s death. If the contigent interest is created by an inter vivos transfer, the life in being must be a person alive when the transfer is irrevocable. 2. If the proof cannot be satisfied, the contigent interest is void at creation B. Interests Affected: Both Legal and Equitable 1. Contingent Remainder a. Vested if know who gets it AND no conditions precedent b. [If all vested interest adds up to FS, can’t vest.] 2. Executory Interests subject to condition precedent a. Vested only when possessory b. Since EI are transferable, we have the same worry about identifying the owner and aiding alienablity. c. Examples, p.302: #28: O conveys BA –to the school board so long as used for a school, then to A and his heirs.î A’s EI violates RAP because it will not necessarily vest w/in A’s lifetime or w/in 21 years after A’s death. It may become possessory centuries from now. When an interest violates RAP, it is struck out and the remaining valid interest stand. This leaves a FSD in the school board. Since O has not given away O’s entire interest, O has a possibility of reverter. If the clause has said, –to A and his heirs if A is still aliveî then A would be the validating life. #29: O conveys BA –to the school board, but if it ceases to use BA for school purposes to A and his heirs.î The school board has a FS subject to a purported EI. A’s EI violates RAP for the reason given in #28. Striking out the violating clause, and this leaves a conveyance to the school board in FSA! c. O should have used 2 deeds. First deeding a FSD or FSCS to the school board. Then transferring his Possibility of Reverter or Right of Entry to A. 3. Interests NOT affected a. REV, Possiblity of Peverter and Right of Entry i. FI retained by the transferor are vested as soon as they arise. A policy decision to allow O to have control. ii. No logical reason for the distinction other than the fact that these two interests were more established than the Rule against Perpetuities. iii. Perhaps because EI were not thought to be in existance (were lesser estates) because they came out of nowhere to divest the existing estate. Possibility of Reverter and Right of Entry were thought to be a mere continuation of the existing estate. a1. Examples, p.302: #26: O conveys BA –to the school board so long as used for a school.î The school board has a FSD; O has a possibility of reverter exempt from RAP. #27: O conveys BA –to the school board, but if it ceases to use BA for school purposes, O has a right to re-enter.î The school board has a FSCS; O has a right of entry exempt from RAP. b. Vested interests. Method of Analysis 1. Procedure a. Lay out interest to each person b. Apply rule to CR, Executory Interest, VR subj to open c. At what moment in time MUST (not might) the interst vest? d. Does vesting time fall with in period of perpetuities? Rule of Perp: Life being + 21 years. 2. Analyze from Time of Creation 53 C. 3. 4. The analysis takes place from the time of creation to determine if the interest will necessarily vest or fail w/in the perpetuities period. Must = Logical Possibility a. Actual vesting is not the issue. b. The issue is when an interest MUST vest or fail. Take into considerations all logical possiblities. Presumptions a. Fertile Octegenarian Rule: All persons can have children no matter how old they are. b. Unborn Widow Rule: All persons can marry or re-marry. c. Period of gestation: add 9 months a. D. Perpetuity Period 1. Lives in being [+gestation period] +21 years. 2. The Perpetuity clock begins to run as sson as the interest becomes active a. If created by will - at testator’s death b. If created by deed or gift - at time of delivery c. If created by inter vivos revocable trnasfer - at time irrevocable (eg. At O’s death if O has sole power to revoke.) 3. Life in Being a. Someone alive or in gestation when deed signed & irrevocable or when testator dies. b. Life in being does not have to benefit from the gift or be associated w/ beneficiary. i. eg.To A’s descendants who are living 20 years after the last survivor of all the lineal descendants of Queen Victoria living at the testator’s death. But usually pick a causally connected person because in a –what ifî test, everyone else can die tomorrow. c. Life in being can be a group that is a reasonable number. The measuring life is the last member of the group. i. In the example above, the last survivor of lineal descendants of Queen is the measuring life. 4. Validating (Measuring) Life: the last life in being + 21 that determines the Perpetuities Period. a. A validating life will be found, if at all, only among persons who can affect vesting. These include the preceding life tenant, takers of contigent interests, anyone who can affect the identity of the taker, and anyone who can affect a condition precedent. b. You need only one validating life per interest to satisfy the proof. c. Possible to have different measuring lives for different portions of the grant. i. –By will to my grandchildren for their lives, then in FS to the eldest daughter of C who survives C.î 1. Life in being for grand kids are their parents. 2. Life in being for C’s eldest daughter is C. d. Animals and businesses cannot be measuring lives. 5. Future interest must logically vest in the perpetuity period. There is no wait and see aspect of the rule. Even if vesting actually occurs w/in period but there is a possibility that vesting will occur after the period, the condition is void for remoteness. Charity Exception 1. If there is a charity on both sides, then the Rule Against Perpetuities does not count. 2. Example: To Church then to SPCA Impact on Other Rules 1. Destructibility of Contingent Remainders: saves grants from R against Perpetuities b/c forces all CR’s to vest when prior estates terminates. a. Example –To A for life, then grandchildren of B.î i. A : LE ii. Grandkids B : CR in FS. iii. Know when all grandkids around after B’s children die. Conceivable that B’s children outlives B by more than 21 years. Therefore this grant would be void against R of P. 54 E. F. iv. With a destructible CR, once A dies, grandkids have to vest. Therefore, All grandkids of B must vest before A+21. 55 G. Examples: #22, p.300: O conveys –to A for life, then to A’s first child to reach 21.î A is the validating life. You can prove that any child of A who reaches 21 will necessarily reach 21 w/in 21 years of A’s death. It cannot possibly vest more than 21 years after A’s death. CR in A’s children. Conditions to vest: 1) A must have a child; 2) A child must reach 21; and 3) A child must be 1st to reach 21. Suppose A has children under 21. Then O and A die. First check if there is destructability rule. If Yes => CR is destroyed and REV in FSA to O. If No => REVto O in FS subject to divestment by children’s EI. #23, p.300: O conveys –to A for life, then to A’s first child to reach 25.î A has no child age 25 or older. There is no validating life; the CR is void. Since the CR is void, it is struck from the instrument, leaving a LE in A and REV in O. #24, p.301: T devises property –to my grandchildren who reach 21.î T leaves 2 children and 3 grandchildren under 21. The validating lives are T’s 2 children; all of T’s grandchildren must reach 21, if at all, w/in 21 years after the death of T’s 2 children. The clock starts to run as soon as T dies. Need to find a life at that time. All of T’s children will be lives in being when T dies, and all of T’s grandchildren must be born by the time all of T’s children die. The last of T’s children is the validating life. T’s grandchildren have valid EI and T’s estate has REV in FS subject to divestment. Suppose T makes an inter vivos transfer? NO. An after born child of T could live the longest and have children. Suppose the devise is –to my grandchildren who reach 25.î NO. T’s children now are not validating lives. #25, p.301: O conveys –to A for life, then to A’s children for their lives, then to B.î The REM to B is vested upon creation; B is the life that enables you to prove the REM is vested and valid. B’s REM may vest in possession at the death of A’s afterborn children, which may be too remote; but the remainder is valid because it is vested in interest now. Problems, p.301: #1: O conveys –to A for life, then to B if B attains the age of 30.î B is now 2 years old. Is the conveyance good? YES. B is his own validating life since he is a life in being. This eg shows that a beneficiary can be his own validating life. An example where beneficiary cannot validate own gift is case of class gift. #2: O conveys –to A for life, then to A’s children for their lives, then to B if B is then alive, and if B is not then alive, to B’s heirs.î Is the conveyance good? A’s children are vested REM in LE subject to open; B has CR; B;s heirs have CR O(FSA) ---> LE + LE + CR + CR + REV YES. A validates A’s children. B validate himself and his heirs. The 21 yr period is not required here. What if the rule of Shelly’s Case applies? First apply rule of Shelly’s Case: remainder to B’s heirs => REM in B = B has indefeasibly vested REM. RAP does not come into play. #3: O declares that she holds in trust $1000 –for all members of my present property class who are admitted to the bar.î Is the gift good? YES. The last survivor of the class is the validating life. Self-validating beneficiaries. O is holding in trust. The beneficiaries have a equitable EI. Trusts come under RAP. Suppose that O had said –for the first child of A who is admitted to the bar.î Would the gift be good? NO. All of A’s current children could die, and an afterborn child is admitted 22 years after A dies. Suppose O devises $1000 –to my first child admitted to the bar.î YES. O’s children are their own validating lives. If it was by deed, Void. H. 56 I. More Problems: 1. O --deeds--> to A, but if anyone ever climbs the Sears Tower, then to B [, if B is then alive]. a. B’s EI subject to condition precedent is INVALID. (It is possible that a person climbs the Sears Tower who was born after the transfer of the deed and after everyone at that time has died. b. There is no survivial requirement expressly attached to B’s interest so that interest could still pass to heir or devisee at B’s death and vest in the future. If the phase –if B is then alive is attached, then B’s interest is VALID. B would then be his own validating life.) c. A has a FSA. (A has a f.s. subject to condition precedent if the final phase is attached.) d. If it said –to A until anyone. . .î A has a f.s. determinable and O has a possibility of a reverter. 2. O --deeds--> to my children for their lives, then to my grandchildren [who are alive (conceived) at the death of the last of my children now living]. a. W/o the brackeked phase, the interests of the grandchildren are INVALID. (Everyone dies in a plane crash except for the afterborn child of O who has children 22 years later.) b. The pharse in the brackets is a savings clause and makes the whole interest VALID. 3. O --wills--> to A for life, then to X if she(X) is admitted to the bar. a. The RAP clock starts to run when the interest is conferred. So in a will the clock starts to run at O’s death. b. If X is alive at O’s death, then X is the validating life and her interest is VALID. c. X has a remainder subject to an express condition precedent. i. (Watch out when one person, X, is replaced by a class of people. If it said –. . .to A’s children who pass the bar.î This is INVALID.) d. If A dies before X passes the bar, O’s estate has a reversionary possessory fee simple subject to executory interest of X unless there is a destructability rule. 4. O --wills--> to A for life, then to A’s first child. (A is childless.) a. Validating life = A b. All that has to happen is for A to have a child. 5. O --wills--> to A for life, then to the first child of A to reach 30. (A has child, X, age 28.) a. Validating life = NONE b. The next year A could have an after-born child and evryone dies in a plane crash and the child lives to be 30. c. If a specific person is the holder of the interest, that person is the validating life. Classes of people make it difficult. 6. Same, except X is age 30. a. Vailidating life = X b. X’s interest is vested at O’s death. 7. Same, except the age requirement is 21. a. Validating life = A b. All of A’s children will die or reach 21 w/in 21 years of A’s death. 8. –To my grandchildren who reach the age of 21.î a. By will i. Grantor’s death know all children. ii. Children are lives in being + 21 iii. Grandchildren must be over 21 by death of parents +21. iv. OK b. Inter vivos i. NO b/c don’t know all children born when grantor is still alive. ii. Grantor’s unborn child can beget child who’s not 21 after lives in being +21 years b/c parents not alive at time of conveyance. c. HYPO In a will – To my grandchildren who reach the age of 25î i. Natural closure : no good b/c children + 21 will not encompass grandchildren +25. ii. Rule of Convenience : if one grandkid alive and 25 already, that grandkid becomes the measuring life and the class closes. So OK. d. HYPO –To A for life, then my grandkids who reach 25î i. Natural closure : no good b/c sure will vest at parent’s death + 25. 57 9. 10. 11. 12. 13. Rule of convenience : class closes if grandkid is 25 already and A dies. No good b/c could have a grandkid who is below 4. In which case, that grandkid would still be less than 25, 21 years after A’s death. –By will to my grandchildren for their lives, then in fee simple to the eldest daughter of C who survives C.î a. Grandchildren : LE i. Natural closure, when kids die. Since kids are lives in being at death, kid’s death will occur within 21 years after their own deaths. OK. ii. Rule of convenience : if grandkid alive then class closes when will takes effect. OK. b. Eldest daughter of C: CR in FS i. Eldest daughter will vest after C dies. ii. Since C is a life in being, that will occur 21 + C. iii. OK. –To A and his heirs, but if the big house is torn down, to the Red Crossî a. FS subj to executory limitation b. Red Cross : executory limitation. i. Vesting will occur only if the big house is torn down. That may occur many years more than A+21years. ii. Red Cross cannot be a measuring life. –To my friend A to whom I am gratified for the care she has given my horses, but only for so long as my horses who survive shall continue to receive property care, and thenÛî a. Life estate autre vie (horses) i. Cannot have an estate for an animal. OR b. FS determinable i. Cannot have condition that is bound to happen ii. Violates heart of FS. c. Next party : executory interest. i. Vests when A stops caring for the horse. ii. This may occur more than A+21 b/c heirs may take over. iii. NOT OK. –To my wife for life, the to my niece Hall and the issue of her body, and in default to the daughters then living of my knsman John. a. Wife : LE. b. Neice : VR in FT c. Daughters of John : CR in FS. i. Vests only when a. Parents die. (Close the class b/c may have daughters after the grant-Fertile Octegenarian Rule) b. FT ends c. When they die (destroy any possiblity of vesting) ii. Way out of perpetuities period. –LE to son Ed and daughter Delana, remainder in FS to grandkid Margaret. If more grandkids from son or daughter, they share equally w/ Margaret. If grandkids have no heirs, then to brother and sister and Almeda a. Ed & Delana : LE. b. Class i. Margaret : VR in FS subj to executory interests. ii. Other grandkids : executory interests in FS. iii. Vest when parents die. iv. That is w/in 21 + Ed and Delana. (natural closure) c. Brother,sister and Almeda: CR in FS. i. Vests when grandkids die. ii. Not w/in R of Perp. ii. J. Class Gifts (Vested REM subject to open [partial divestment]) A class gift is not vested in any member of the class until the interests of all members have vested. A gift subject to open is not vested under RAP. 58 [ [ For a class gift to be vested under RAP, the class must be closed (each and every member is identified) and all conditions precedent for each and every member must be satisfied w/in the perpetuities period. 1. Natural Closing a. Natural course of event where no one can get in or out of a class. b. Example: –To A for life, then to B’s children.î When B dies and kids are there. 2. Members of the class either: a. All have CR OR b. Some have vested REM subject to open and rest have EI All these interests are subject to RAP. 3. Rule of Conveniences a. Class closes to new comers when interest becomes possessory if one member is ready to take - have a vested interest. i. Example: –To A for life then to B’s children over 21.î X=21. X has a vested interest b/c ready to take (21) and gets interest when A dies. Thus class closes to new comers. No newcomers born can join group. b. Grantor may require class to remain open, defeating the rule of convenience. c. Member who vests will have a vested REM subj to executory limitation. If the member can take, then it becomes possessory subj to executive limitation? i. Nonvested Members of class have executory interest if one member of class vests. ii. ?????Example –To A for life, then my grandchildren by Son O who reach 21î O is dead. X is 21 already. Y + Z are brothers <21. Therefore X has a VR subj to executory limitation and Y + Z has executory interests. iii. X may only take after Y + Z vest. ] 4. Procedure for Class Gifts a. When will class close to new comers and fall outs. b. Will this occur w/in the Rule ag Perp? i. Natural closing ii. Rule of convenience: Once class interest is possessory, members of class closed to new comers. ] 5. Gifts to a class that are not –class giftsî- subject to partial divestment are not considered. K. Class Gift Problems, p.318: #1: O conveys –to A for life, then to A’s children who reach 25.î A has a child, B, age 26, living at the time of conveyance. Is the REM valid? •NO. Some of A’s children may not vest in time. Therefore, all forfeits. • A has LE and O has REV. #2: O conveys –to A for life, then to A’s widow, if any, for life, then to A’s issue, then living.î Is the gift to A’s issue valid? • NO. Validating life for the widow’s CR = A • Issue have CR (do not know who & subject to express condition precedent). But widow is unknown and may not be living yet. Therefore a widow born after the conveyance may live 22 years after all linves in being die and then pass to issue. Unborn Widow Trap. • O can avoid the trap by naming the widow on the aasumption that A will still be married to this person, but O’s intention is probably different. #3: T devises property –to A for life, and on A’s death to A’s children for their lives, and upon the death of A and A’s children, to [ ].î A and B survive T. Is the devise of the REM in FS valid or void if the following words are inserted in the brackets? a) [B if A dies childless] • YES. Validating life = A. • B has CR w/ express condition precedent that takes naturally at the end of LE. [• The usual rule is that new technology (eg. sperm bank giving A children after death) will not be construed to invalidate an interest though there is no case law on this.] b) [B if A has no grandchildren then living] • NO. Afterborn children of A may have children after all lives in being are dead. • B has CR subject express condition precedent c) [B’s children] • YES. Validating life = B 59 • B’s children have CR because all the class will not be known until B is dead. Birth is the contingency and will be resolved at B’s death. d) [B’s children then living] • NO. B’s children must survive the last of A’s children. A and B can have afterborn children who live 22 years after all lives in being are dead. • CR because the whole class is unknown and subject to express condition precedent. e) [A’s grandchildren] • NO. An afterborn child of A will live for 22 years and all other grandchildren die. f) [T’s grandchildren] • YES. Validating Lives = T’s children • When T dies, the class of T’s children closes, and they will validate tîs grandchildren. L. More Class Gift Problems: 1. T devises –to M and her heirs, but if she dies w/o issue, then to the then living children of J. (M is age 60, unmarried and childless. J is age 80 and has 4 daughters.) => INVALID, Jee v. Audley (1787), p.312 a. The Fertile Octogenarian or Precocious Toddler Exception: a presumption of lifetime fertility. The assumption is the J may have more children, and an afterborn child may vest in 50 years when all the lives in being are dead and M’s line of descendents run out. b. If there is no assumption of futher children, then J’s daughters are their own validating lives. c. The court construes the gift to M as FT, indefinite failure of issue. The court could have saved the gift by construing the gift to M as a definite failure of issue. In this case M would be the validating life. d. Another way for the court to save the clause is the assume that T intended to make a gift to the four daughters specifically and really wanted to identify them individually. In this case each daughter validates her own gift. 2. T devises –to A for life, then to A’s issue living when the administration of A’s estate is liquidated.î => VOID a. Administrative Contigency Violation: the administration of A’s estate in probate could take 100 years (usually 2 or 3). It is like using the phase –when the gravel pit is exhausted.î 3. O --deeds--> to A for life, then to T’s children for their lives; then upon the death of the last of T’s children, to T’s grandchildren. (T has 1 child X, and 1 grandchild Y) a. The interest to T’s children is VALID. Validating life = T b. The REM to T’s grandchildren is INVALID. (An afterborn child of T has a child 22 years after everyone else dies.) c. The class is subject to increase, some of T’s grandchildren will vest after time runs out. 4. O --deeds--> to A for life, then to A’s children who reach 25. (A has one child age 26.) a. Validating life = NONE (A has another child then everyone dies. That child could die at age 23 or vest 25 years later.) b. The class is subject to decrease, all of A’s children will not vest before time runs out. 5. O --deeds--> to A for life, then to A’s grandchildren who reach 25. a. Validating life = NONE. b. Class is subject to increase. (All die except an after-born child who has a child 26 years later.) c. Subject to decrease. Savings Clauses, p.318 Drafting clauses are designed to terminate a trust and distribute the assets at the expiration of specified measuring lives plus 21 years if the trust has not already been termined. The clause operates only if there is a violation of RAP. 1. Measuring lives: Identify a finite group of lives in being at time of transfer (reasonable number) and tack on 21 years. Expressly identify the measuring lives. [Could name anyone in the world.] 2. Gift over: Distributes to an identified group. It supercedes, changes, reforms the original gift. It is a reasonable close approximation of the original gift to the original beneficiaries. 3. Limitations: the group must be: #1) living and #2) not unreasonably large. A rule of administrative convenience (not a requirement od RAP). 60 M. i. 4. 5. 6. N. The largest validated group of lives was a conveyance in England using –all of Queen Victoria’s now living descendents in the world.î This would probably be judged unreasonable today. Example: –Nothwithstanding any other provision in this instrument, this trust shall terminate, if it has not previously terminated, 21 years after the death of the survior of A and A’s issue living at my death. In case of such termination, the then remaining princlple...î i. If A actually has an afterborn child who live more than 21 years after the death of A an all A’s issue living at the testator’s death, the trust will terminate under the savings clause and the rpinciple will then be distributed. Allows the grantor to choose –12 healthy babiesî as measuring lives. Grantor can choose anyone w/o having to –findî someone. [ Wait-and-See Doctrine, pp.318-322 The wait and see doctrine serves the same purpose as a savings clause. [Impliedly inserted by the legislature for those w/ bad lawyers.] Cts will look at what actually happens if interest actually vests in perpetuities period. It has been adopted by the Restatement (2d) of Property (1983) and a majority of states. It provides common sense in some situations, but on the down side, it does not have the absolute certainty of the CL what-might-happen test. 1. Wait-and-see for the Common Law Perpetuity Period a. Dukeminier [KY Rule]: Wait for lives of persons who can affect vesting of the particular interest + 21 years. Causally connected lives. [We do not apply wait-and-see to everyone in the world.] i. Each interest has an inherent perpetuities period applicable to it alone measured by the persons who can affect vesting. b. Restatement: Applies wait-and-see to a designated group of people. People who can affecr vesting include: preceding life tenant, the takers of the contingent interest, anyone who can affect the identity of the takers, and anyone who can affect the condition precedent. c. Completely replaces the CL what-might-happen-test with an actualities test leaving one perpetuities rule, wait-and-see measured by the traditional period. d. Example #30, p.320: T devises property – to A for life, then to A’s children who reach 25.î The llives in being who can affect vesting are A and A’s children alive at T’s death. A can affect the vesting in possession of the REM because A is the preceding life tenant; A can affect vesting in interest because A, by having another child, can affext the identities of the beneficiaries. A’s presently living children can affect vesting because they answer the description of the beneficiaries. Hence, the CL perp. period is 21 years after the death of A and all of A’s living children. If the CR vests w/in that perios, it is valid. 2. Wait-and-See for 90 Years (USRAP) a. Approximates a very young life in being + 21 years. b. If an interest does not become valid in 90 years, USRAP goes on to provide that at the end of 90 years the contingent interests will be reformed by the court so as to most closely approximate the dispositive plan of the donor and vest w/in 90 years. c. USRAP adopts 2 rules against perpetuities: the CL what-might-happen test and a 90-year wait-and-see rule. If a contigent interest satisfies either rule, it is valid. d. USRAP assumes that it is not always obvious who are the causal lives. i. Eg. –to A so long as land is used as a school, otherwise to B.î This is void at CL. So who affects B’s interests? A and everyone who receives from A will affect interest. USRAP says hell w/ that. e. In effect in 20 states and increasing. Will be the majority rule w/in 5 yrs. f. USRAP abolishes the application of RAP to options and other commercial transactions. g. CL CyPres Rule i. Applied where equitable interests (Trust) ii. If the equitable interest fails the RAP, ct may change the interest to meet the Rule if not so adverse to grantor’s intent. iii. Eg. –To my grandchildren who reach 25î treat as 21. ] Wait-and-See Problems: 61 O. 1. 2. O --wiils--> to A for life, then to A’s child who attains the age of 30. (2 kids X + Y, 9 + 13) After O’s death; A has Z. At A’s death X & Y are over 30. Z might attain 30 Beyond the 90-year period. A dies w/in the 90-year period. a. Apply the common-law test first. b. INVALID c. Under USRAP, after 90 years, the instrunent is reformed to validate the closest intentions of the grantor. This would mean if Z is 25 at the expiration of the 90-year term, the age requirement of the instrument would be scaled back to 25. p.320: Apply the wait-and-see doctrine to the following transfers. How long do we wait and see? a) The devise of Jee v. Audley. • Dukeminier: look for causally connected lives: John and Mary Jee - can have more children; Mary Hall she can have more children or influence vesting by dying; Living issue of Mary Hall. There is a different group for each interest under causally connected formula. • Restatement: Use the same listed group for all interests. b) A devise –to the first child of A to become a lawyer.î • This grant is subject to RAP because afterborn can become a lawyer 22 years after everyone is dead. • Under causally connected, A and A’s child are the measuring lives. c) A devise –to A for life, then to A’s children for their lives, then to A’s grandchildren.î • Under CL, the grant to grandchildren is void. Afterborn to A. Only apply wait-and-see to grandchildren interests. • Causal lives: A, A’s living children, A’s living grandchildren 62 XI. CONCURRENT ESTATES: SHARED OWNERSHIP UNDER COMMON LAW, pp. 325-336, 345-357 Compare concurrent estates according to: 1)Rights of Use, Possessio; and Ownership 2) Alienability and Transferability; and 3) Survivorship Rights. A. Tenants in Common Tenants in Common have separate and discrete but undivided interests in the property; the interest is descendible and may be conveyed by will or deed. Each owns an undivided % interest. Tenants in common each uses and possesses the whole (spatially) but owns only a share. Neither can do any act to the prejudice of his cotenants in their estate. 1. Example: T devises BA to A and B; A and B are tenants in common. If A conveys his interest to C, B and C are tenants in common. If B then dies intestate, B’s heir is a tenant in common w/ C 2. Requirements: Only Unity of Possession 3. No suvivorship rights - move through inheritance or by devise. 4. No severance b/c already tenants in common. [Severance is when lead to common tenancy] 5. Partition can either be judicially compelled or voluntary through physical division or division of proceeds through sale. See Delfino v. Vealencis, infra. B. Joint Tenancies At CL joint tenants together were regarded as one entity; each tenant was seized per my et per tout. Each owned an undivided whole. Each tenant owns the whole and has privilege to the whole. Neither can do any act to the prejudice of his cotenants in their estate. 1. –Single Tenantî where each has undivided right to use the entire land. 2. Requirement of Unity [Four Unities]: a. Time: The interest of each joint tenant must be acquired or vest at the same time. b. Title: All joint tenants must acquire title by the same instrument or by joint adverse possession. A joint tenancy can never arise by intestate succession or other act of law. c. Interest: All must have equal undivivded shares in identical interests measured by duration (FS, FT). i. Unequal Shares: Today the unity of equal shares is increasingly ignored by courts where it counts. If A and B take title as joint tenants and A furnished 1/3 of the purchase price and B 2/3, and the parties intended the proceeds from the sale of the joint tenancy property to be divided 1/3 and 2/3 if sold during their joint lives, a joint tenancy is created, and if the property is sold, the court will divide the proceeds acccording to their intent. d. Possession: Each tenant must have a right to possession of the whole. After a joint tenancy is created, however, one joint tenant can voluntarily give exclusive possession to the other joint tenant. In SUM: joint tenants must take the same type and duration of interest at the same moment from the same instrument and all must have right to use the whole. e. Statutes in some jurisdictions abolish the requirement of the four unities and provide that a joint tenancy is created simply by stating explicitly the intent to do so. f. At Cl and in many state today, if these four unities do not exist, a tenancy in common is created. 3. Rights of suvivorship: if one tenant dies during course of tenancy, then the other has his/her interest. Ownership immediately extinguished at death. This continues until the longest lived tenant becomes the sole owner of the tenancy. This is the outstanding characteristic of joint tenancy. 4. Severance: [Only Applies to Joint Tenancies] Turns to tenancy in common by breaking 4 unities and destroying rights of survivorship. a. Example: If X,Y & Z in joint and Z sells to A. b. A & X-Y are tenants in common. c. X & Y are still joint tenants. d. Unilateral action from one joint tenant conveying interest from herself to herself as tenant in common effectively severed joint tenancy. e. Cannot sever by will; ownership destroyed at death f. Quit Claims & Partition i. See Riddle v. Harmon, infra. ii. Johnson v. Johnson: George had interest in bldg w/ wife – joint tenancy. 63 5. 6. George quitclaimed w/o Minnie’s knowledge to lawyer –Minnie and lawyer tenants in common (2) Lawyer reconveyed in joint tenancy to George and daughter from previous marriage in joint tenancy – OK b/c time, title, interest and possession preserved. (3) When George died, suvivorship allowed Daughter to claim his half and she became tenants in common w/ step mom Minnie. (4) If George directly conveyed to himself and Rosie, would have destroyed unity of time. Therefore, his interest would pass through his estate. (5) New Hampshire S.Ct struck down this legal fiction and determined estate through intent of parties rather than complicated feudal technicalities. Partition: Dividing the Property and Destroying Concurrent Ownership a. See Delfino v. Vealencis, infra. b. If joint tenant cannot solve their problems by mutual agreement, any one of them can bring an action for judicial partition. c. Getting rid of co-tenancy i. Physical particion of property ii. Partition by sale & split proceeds d. When husband kills wife, he severs joint tenancy and forces partition. He ends up tenant in common w/ heirs of wife other than herself. Uniform Probate Code. e. When two adjacent lots owned separately but spanned by single building, owner of one lot cannot force partition. But one in four can force partition. Avoidance of Probate a. Joint Tenancy is the practical equivalent of a will but at the joint tenant’s death probate is avoided. b. Joint tenancy avoid probate because no interest passes at joint tenant’s death. Under the theory of joint tenancy, the decedent’s interests vanishes at death and the survivor’s ownership of the whole continues w/o the decedent’s participation. c. Since the joint tenant’s interest ceases at death, a joint tenant has no interest that can pass by will. d. Creditors: If a creditor acts during a joint tenant’s life, the creditor can seize and sell the joint tenant’s interest in property severing the joint tenancy. But if creditor waits until after death, there is nothing to seize. (1) C. Tenants by Entirety 1. Tenancy by Entirety can only be created by husband and wife legally married through state process. 2. Four Unities + Unity of Marriage 3. Rights of Survivorship to surviving tenant 4. Husband and wife are considered to hold as one person at CL; per tout et non per my 5. Severance: only a conveyance by husband and wife together can defeat the right of survivorship. NOT unilaterally transferable. Conceptually there is no share or discrete interests. Cannot sever by will. 6. Partition: Niether acting alone has the right to judicial partition. 7. Divorce terminates the tenancy because it destroys the unity of marriage. 8. Absent some agreement to the contrary, termination of tenancy by entirety results in tenancy in common. Requirements Joint Tenants Tenants in Common Unity of Unity of Possession Possession (simultan) Time(beg & end at same time) Title (Same instrum’t) Interest (Same estate) 64 Tenants by Entirety Four Unitites + Valid Marriage at time 4 unities took place At Death Rt by Survivorship No Survivorship move through inheritance or by devise Already Tenants in Common No severance Rt of Survivorship Severance Sell share to someone else (Break Unity) Partition Compelled or Voluntary Compelled or Voluntary -Divorce or annulment -CL no other way to sever (sale is null and void) b/c don’t hold by share. -Quitclaim Divorce or annulment CL not other way Accounting use by one tenant Contributions Adv Poss - everything Adv Poss - everything Use by 1 T Use by 1 T -TP rents -TP rents -Use of Resources -Use of Resources Account net profit Account net profit CL No accounting -Own occupancy -Own occupancy Maj : No acct but Maj : No acct but carry charges alone carry charges alone Min: Acct own Min: Acct own use use Nec Repairs - no contrib’n but credit in acct’g Unnec Improv ditto Taxes & Mortages - Contrib’n b/c $ goes to TP. Can bring separate proceeding to get $ back. If don’t exercise can get credit in No Contribution b/c acct’g. marital unity Outside mortgage or lien and one Co-T buys has good faith oblig’n for other co-T to by out so don’t foreclose. D. Presumptions 1. Common Law - Presume Joint Tenancy over tenancy in common 2. Modern Law - Presume Tenancy in Common in all states a. Usually a statute provides that a grant to 2 or more persons creates a tenancy in common unless an intent to create a join tenancy is expressly declared. b. –to A and B as joint tenants and not as tenants in common.î => YES c. –to A and B jointlyî => Maybe 3. CL and states that still have it presume a conveyance to husband and wife to be Tenancy by Entirety absent clear intention to the contrary. Problems, p.328: #1: O conveys BA to A, B, and C as joint tenants. Subsequently A conveys his interest to D. Then B die intestate, leaving H as his heir. What is the state of title? What if B had died leaving a will devising his interest to H? 65 E. • Can only sever your own right to survivorship. B & C are still joint tenants. • A(1/3) + (B & C)(2/3) => A(1/3) + C(2/3). • Can only sever join t tenancy by lifetime transfer. Cannot sever by will. H gets nothing. #2: T devises BA –to A and B for their joint lives remainder to the survivor.î How does a joint tenancy in FS differ? • T devises a joint LE to A and B, w/ CR to the survivor. There can be no severence of the CR. • T(FSA) ---> 2xLE + CR + REV #3: Two weeks before A and B are to be married they buy a house and take title in –A and B as tenant by the entirety.î Several years later A move out of the house and conveys his interest to C. C bring an action for partition. What result? • A and B are joint tenants, so the transfer to C is valid. • A and B could have reconveyed to themselves as tenants by entirety after the marriage. F. Quiteclaim Deeds and Severance of Joint Tenancies [No Notice Required]: Riddle v. Harmon (1980), pp.330-335: Mr. and Mrs. Riddle purchased real estate taking title as joint tenants. In order to devise her interest in the property to someone else because she hated her husband, Mrs. Riddle deeded a grant to herself a 1/2 interest in the property and proceeded to devise that share. 1. Severence of the joint tenancy extinguishes the principle feature of survivorship and a tenancy in common remained. 2. Unities may be destroyed by voluntary conveyance, partition proceedings, involuntary alienation under an execution, etc. 3. CA was a pioneer in joint tenancy creation by direct transfer where the owner would merely transfer to himself and someone else as joint tenants w/o having to use a third person straw. 4. The court expanded this so did not need straw for termination. One can unilaterally sever a joint tenancy w/o use of an intermediary device. i. By using a straw, one would transfer his interest to a straw and the straw would then transfer it back to the owner thereby destroying the unities and leaving a tenancy in common. 5. One can also sever a joint tenancy by conveying legal title to a trust while retaining the equitable benefits. 6. If an indestructable right to survivorship is desired, one can create a joint LE w/ CR in fee to the survivor or tenancy in common in FS and EI in the survivor. 7. HYPO: Riddle gratuitously trransfers $10K to his wife w/ the understanding that the money was to be used to buy a vacation home as joint tenants => They are now joint tenants w/ right of survivorship. 8. Note: Riddle may be able to go to a court of equity and plead reliance to impose a constructive trust for his benefit. But there may be a finding that his wife had no obligation to him. 9. Notice of severance is not required but recordation may be required. Carmack v. Place (1975). A notice requirement adds the to adminstrative costs of recordation. But states like CA require recordation of notice. In CA, a recorded joint tenancy will not be severed until notice is also recorded. Partition of Tenancies in Common and Joint Tenancies [Fair and Equitable Treatment]: Delfino v. Vealencis (1980), pp.346-351: Tenants in common wanted to construct residential housing, but one tenant in common owned a garbage disposal facility on a part of the property. The others brought a partition action to sell the land and divide the proceeds so they could force Vealencis to sell. The owner objected and requested a physical partition instead. 1. The court may order the sale of jointly owned property when that will better promote the interests of the owners. 2. It is the policy of most courts to favor partition in kind over partition by sale. A sale of one’s property w/o consent is an extreme exercise of power warranted only in clear cases. a. In fact, most partitions are by sale. The result here is rare. 3. Partition by sale should be ordered only when 2 conditions are satisfied and the burden is on the party requesting partition by sale to demonstrate the conditions: a. The physical attribute of the land is such that a partition inkind is impracticable or inequitable, AND b. The interests of the owners would be better promoted by a partition by sale. 66 G. 4. 5. It is the interests of all the tenants in common that the court must consider and not the economic gain of one tenant or group of tenants. a. The trial court failed to give due consideration to the fact that one of the tenants in common has been in actual and exclusive possession for a substantial period of time. Factors used to decide: a. Physical Atributes of the land i. Footnote 10, p.347: One option is physical partition of unequal shares and money damages to the others. b. Number/Nature of the parties i. If large numbers, difficult to equally partition physically and value of each would be less. See infra. ii. In this case there are only 2 competing interests making it more practicable to partition equitibly c. Contemplated Use d. Protecting Right to Reamin on the Land and RelianceInterests H. Adjacent ownership by one of the tenants is not considered when partitioning. This is probably because each tenant is supposed to own the whole, and though one may value one section more than another, in partition each should receive an equal share. Johnson v. Henderickson (1946), pp.351-352: Henry Bauman died intestate leaving 1/3 to his widow and 2/9 to each of his 3 children. The widow married Hendrickson and had 2 sons. The Bauman children grew up and move away while the Hendrickson family lived on the land and bought an adjacent farm across the road. When the widow died and devised her 1/3 interest to Hendrickson, the Bauman children brought action for partition by sale. The court approved partition by sale saying: A sale may be ordered if it appears that the value of the share of each co-tenant in case of partition would be materially less than his share of the money equivalent that could be obtained for the whole...It is common knowledge in this state that a division of this quarter section would materailly depreciate as to its salability and its use for agricultural puposes...their ownership of the adjoining land is immaterial. Sharing the Benefits and Burdens of Co-ownership Spiller v. Mackereth (1976), pp.353-356: P and D owned property as tenants in common. D entered and possessed the whole property. P demanded D vacate half the property or pay half the rental value. 1. In absence of agreement or ouster of a cotenant, a cotenant in poseesion is not liable to his cotenants for the value of his use and occupation of the property. Concurrent owners have undivided interests. If one is in actual possession, he is not required to pay for his possession. 2. Ouster: a. The beginning of the running of S/L for adverse possession i. A claim of absolute ownership and a denial of cotenancy relationship by the occupying cotenant. b. The liability of an occupying cotenant for rent to other cotenants i. Occupying cotenant refuses a demand of another cotenant to be allowed into use and enjoyment of the land regardless of a claim of absolute ownership. 3. Occupying cotenant is not liable for rent notwithstanding demand to vacate or pay rent. Occupying cotenant has equal right to whole possesion of the property. Must demand right to enter into equal use and enjoyment. 4. Majority: no acc’t for use if Co-T acting in good faith w/o adverse possession. If sole occupant, must pay for all maintenanc tax, etc.. a. Implied permission b/c no hostility, should not be charged. b. Co-T has right to undivided whole so not really taking away from others. c. Ecourage productive use by lowering cost of use. 5. Fiduciary Duties, p.356: Each cotenant is expected to look after his interests, but in some situations, courts impose fiduciary duties. For example if cotenants are relatives or where cotenant buy the concurrently owned property at a foreclosure sale and then asserts superior title or where cotenant asserts adverse possession. I. 67 6. HYPO: H and W are joint tenants in a home. H beats W repaetedly and W moves out. H says, – Please come back.î W files for legal separation and seeks to obtain 1/2 of the fair market value from H. Can she get it? a. NO. Because W was invited back there was no ouster. b. Constructive ouster? Functional equivelant of ouster, ie. threat of violence. Same as constructive eviction by Landlord if he changes the locks or runs a noisy machine shop under your apartment. Instead, W throw H out and tells him never to come back. H sues for 1/2 rental value. What result? c. Under Spiller, there is ouster and H would get the rent d. Justified ouster? It was impossible for H and W to carry out 68 LEASEHOLD INTERESTS: LAW OF LANDLORD & TENANT, PP. 423 - 572. There are significant distinction (especially in the last 25 years) between residential and commercial leases, especially in areas of substantive rights and duties that are beneficial to the tenant. Changes were more reflected in residential leases rather than commercial due to the recognition of the disparity in bargaining power. Even in commercial leases, court have relaxed old CL rules. (Eg. CL rule that LL did not have to mitigate damages and could hold T liable for all the back rent.) Changes can also be seen in the duties of both parties. It is convetional to say that the basis for pro-T changes reflects the transition of judicial and legilative understanding of the lease from one of property to one of K. (This only explains part of the doctrinal changes. Some examples are explained by neither property nor K law.) In the K regime, there has been a transformation from free K to a regulatory scheme w/ many of the terms set by law and unwaivable. Today, LL and T relationships are analogous to treatments of public utilities. • Remember to look at the modern lease as a composite of K and Property law. I. A. TYPES OF TENANCIES [Only 4], pp. 425-427, 431-437 Term of Years 1. Fixed period w/ beginning and ending dates; may be less than a year. a. Some states limit the duration of term of years 2. Determinable upon the happening of some condition or event. 3. Automatic Termination (No automatic renewal), parties must come up with a new lease b/c of automatic ending of lease at the end of the term. No notice is required for termination. a. Death of LL has no effect on the duration of a term of years. Periodic A Periodic Tenancy is a lease for a period of some fixed duration that continues for succeeding periods until either the LL or T gives notice of termination. 1. Period to period - e.g. –month to monthî - until notice of termination given a. Note: If under a tenancy for no fixed period, rent is reserved or paid periodically, a periodic tenancy - rather than tenancy at will - arises in most jurisdictions by implication. 2. Renewal automatic unless one party gives notice of termination. 3. Termination [Notice Requirement]: a. Under CL rules, 1/2 year notice is required to terminate year-to-year tenancy or T can be held over for another term. b. For any periodic tenancy less than a year, notice of termination must be given equal to the length of the periond not to exceed 6 months. c. Notice must terminate the tenancy on the final day of the period, not in the middle of the tenancy. i. Example: Month-to-month beginning January 1 decides to terminate March 20, the earliest he can terminate is April 30. d. If there is no legal notice of termination, at CL the lease automatically renewed for the same period on the same terms. (Depending on the locality this may still be true.) e. In many states statute have shortened the length of notice required to terminate periodic tenancies and have permitted month-to-month tenancy to be terminated at any time following 30-days’ notice. Usually these statutes allow 30-days’ notice for termination of any periodic tenancy. (Don’t count on there being such a statute in your jurisdiction!) f. Death of LL has no effect on the duration of a periodic tenancy. Tenancy at Will 1. No stated duration, continues until LL OR T desires an end. a. Eg. –to T for as long as LL wants.î 2. If a tenancy at will is created, the lease providing that it can be terminated by one party is necessarily at the will of the other as well. No unilateral right of termination for tenancy at will. a. Note: The unilateral power to terminate a lease may be engrafted on a term of year or a periodic tenancy. Eg. Term of years determinable. 69 B. C. 3. D. Under modern law and the Restatement, the LL could grant a determinable FS which would allow unilateral termination. (But this restricts LL ability to control property; difference between K rights and servitude rights.) i. Why FSD and not determinable LE? Maybe a presumption that LL transfers the whole pie. Perhaps it is ungainly to measure a LE by the life of LL, because tenancy at will ends at the death of LL. Ends when one of the parties terminate it or at the death of one of the parties. a. Modern statute ordinarily require notice in order to terminated tenancy at will. b. Problems, p.427: #1: On October 1, LL leases WA –to T for one year beginning October 1.î On the following September 30, T moves out w/o giving notice. What are LL’s rights? • None. A term of years requires no notice for termination. What if the lease had been –to T from year to year, beginning October 1.î at an annual rent of $2400 payable $200 per month on the first of each month? • CL requires 6 months notice and T has to explicitly state that the lease ends on the last day, September 30. If not, LL can hold T to another year w/o notice. In fact, at CL LL can keep holding T until LL receives proper notice. (Perhaps w/ modern requirement of mitigation of damages.) • Modern statutes generally shorten notice requirements of year-to-year tenancy to 1 month. LL can probably hold T for only 1 month damages since there is notice in fact. • Another way to read the lease is a month-to-month tenancy. The cases are divided on a clause like this. #2: T a month-to-month, notified LL on Nov 16, 1992 that she would vacate as of Nov 30, 1992. T subsequently vacated on that date and paid no further rent to LL. LL after reasonable efforts, finally relet the premises beginning April 1, 1993. The jurisdiction in question has no statute prescribing the termination of a month-to-month tenancy. LL sues T for unpaid rent for the months of December 1992 and January through March 1993. What result? • Since there is no statute, CL rules prevail. At CL, T is requied to give at least 1 period notice and has to be explicit that the lease would end on the last day of the next full period. If T does not meet these requirements, the periodic lease will continue to renew until T gets it right! • T is require to tell LL she is –terminating on Dec 31, 1992.î Nothing else will do at CL. Therefore, T is liable for Dec-Mar. • Perhaps today courts will treat T’s notice as the earliest possible notice. There is no point in giving LL a second notice to correct the first one when LL already knows the intent to terminate and the date of the end of the next period. This means T is liable for only Dec. • Parties can K in a lease to provide for procedures other than CL. Tenancy at Sufferance (Holdover tenancy), pp.431-437 1. T remians in possession after termination of lease. 2. Tenancy at Sufferance only lasts from lease to LL’s election; once LL make the election, T is either a trespasser or under a different lease. 3. T not automatically a trespasser - had earlier permission. (protects LL from adverse possession.) 4. LL’s option (w/in reasonable time): a. Treat T as trespasser => Eviction + Damages OR b. Consent (express or implied) to creation of a new tenancy i. The new tenancy differ from state to state. Majority states have periodic tenancy (usually month-to-month) but some states apply term of years. c. Advantanges to LL of election i. Gives LL control over property in terms of property value and changing circumstances. ii. Prevents adverse possession d. Advantages to T’s of election i. Possible for T to negotiate w/ LL ii. Rent stays the same $. 5. Crechale & Polles, Inc. v. Smith (1974), pp.431-435: [Although this is a commercial case, it applies as well to residential leases.] P and D entered into a 5 yr term of years lease commencing 2/7/64 w/ rental amount of $1250/mo. 70 E. 6. 7. 8. 9. 2/6/69 - P write D requesting that he quit and vacate the premises at midnight and that he was subject to double rent (damages) for any holdover. 3/3 - D paid the rent for February, and the check was cashed by P. 4/6 - D gave check for March, but was not cashed by P because it was marked –final payment.î 4/19 - P wrote D stating he was treating the holdover as a renwal of the lease for another 5 years. 5/27 - D tendered keys to premises to P. a. –As a general rule, a tenancy from year-to-year is created by the tenant’s holding over after the expirations of a term of years and the continued payment of the yearly rent is reserved..î b. Tonkel: It is firmly established that where, w/o a new K, a tenant continues to occupy the property which he has held under an annual lease, he becomes liable for aother year at the same rate and under the same terms. c. Is it clear that LL used the letter to evict T or was it just a warning that LL would treat them under a new lease? Maybe LL was just rejecting T’s month-to-month offer and left the option open to treat T as a trespasser of under a new term. i. Is LL really accepting a month-to-month or just accepting monthly payments for a term of years as he has been doing for 5 years. ii. The odd thing is that if anything the letter explicitly rejects a month-to-month tenancy. And this is what the court utimately imposes on LL. d. –After having elceted not to accept T as tenant, LL could not later, after failing to pursue his remedy to evict, change his election so as to hold T as tenant for a new term.î i. LL’s election, once exercised, is binding upon LL as well as T. e. Absent evidence to show a contrary intent, a LL who accepts rent from his holdover T will be held to have consented to a renewal or extension of the leasing for the peroid of time for which the check was accepted. f. The court endorsed the view that if LL neglects to evict a holdover tenant and to demand double rent for the holdover peroid, choosing instead to accept monthly payments, the lease is implicitly extended on a month-to-month basis. i. Length of period depends on period of the check accepted. In most jurisdictions, holding over gives rise (at the LL election) to a periodic tenancy; in the balance it results in a term of years. As for the length, one view is the way rent is reserved in the original lease and another view is the length of the original term or period - but the maximum length is limited to 1 year. a. Restatement: Holding over results in a periodic tenancy measured by the way rent is computed, up to a max period of 1 years. b. There is a general unhappiness in the courts w/ a holdover doctrine that holds T for more than a month-to-month basis, and they are willing to mitigate it. Tenancy resulting from holding over is usually subject to the same terms and conditions as in the original lease. Many states have adopted statutes to deal w/ holdovers, but in widely varying ways. a. Some specify the length of the holdover. b. Few convert the holdover into a tenancy at will. c. Other provide that LL may demand double rent damages from the holdover. i. CL damages is the fair rental value plus any special damages, and the rent reserved in the original lease is a good measure of the fiar rental value (although technically LL is not recovering rent.) A holdover is considered as having stayed voluntarily and interfered w/ LL’s use of the premises. 71 F. Future Interests 1. Old Usage, Grantor has a FS subj to term of years. i. Not really reversion b/c T is not seised so no one is seised in the tenancy if Grantor has a reversion. 2. Modern Usage, Grantor has a reversion Estate for Years Periodic Tenancy Tenancy at Will Tenant at Sufferance G. Grantor’s Interests Reversion Reversion Reversion None Third Party’s Interest Remainder None None None The Lease, pp.437-441 1. Labels are not controlling; an arrangement that calls itself a lease may be something else and vice versa. Factors that determine a lease include: intention of the parties, number of restrictions on use, exclusivity of possession, degree of control retained by granting party, presence or absence of incidental services, etc. 2. It matter whether or not an arragement is a lease becasue a lease gives rise to LL-T relationships which carries w/ it rights and duties, remedies and liabilities. a. Eg. For billboards NY distinguishes ground lease and wall lease. A ground lease is a true lease whereas a wall lease is an easement, There is retention of possession, the wall is still possessed by the owner. 3. Conveyance and K: Today courts rely explicitly on K principles to reshape the law of leases. Questions answered using K law include: are the covenants mutually dependent, is T still liable for rent if the premises are destroyed, must LL mitigate and damages, are there implied warranties. 4. Statute of Frauds: Most states require written lease for more than 1 year. All but a few permit oral lease for less than a year; those that do not usually hold that entry under anoral lease plus payment of rent creates a periodic tenancy that is not subject to the Statute. 5. Form Leases and Bargaining Power: What is important is not whether there is haggling in every transaction but whether competition forces seller to incorporate in their standard K terms that protect the purchasers. 6. License: A legal relationship that allow use only w/ a right to terminate at any time (unless reliance interests require extention.) i. Non-transferable (Personal use) ii. Not subject to Statute of Frauds 7. Easements: Possessory interests not revocable at will. i. Maybe transferable (See Law of Servitudes infra) ii. Subject to Statute of Frauds DISCRIMINATION IN LANDLORD-TENANT RELATIONS, pp. 441-463 Fair Housing Act, 42 USC ?? 3601-3619 (1988) [Civil Rights Act of 1968] ?? 3603. Effective Dates of Certain Prohibitions (a) Application to certain described dwellings Subject to the provisions of (b) of this section and ? 3607 of this title [3607 exempts religious organizations and private clubs under certain circumstances, and also states that provisions regarding familial status do not apply to housing for older persons], the prohibitions against discriminations in the sale or rental of housing set forth in ? 3604 of this title shall apply.... (b) Exemptions Nothing in ? 3604 of this title [other than subsection (c)] shall apply to -(1) Any single-family house sold or rented by an owner: Provided, That such private individual owner does not own more than 3 such single-family houses at any one time: Provided further, That....after December 31, 1969, the sale or rental of any such single-family house shall be excepted from application of this subchapter only only if such house is sold or rented (A) w/o use in any manner of the sales or rental facilities or services of any real estate broker, agent or II. A. 72 salesman...and (B) w/o the publication, posting, or mailing after notice, of any ad or written notice in violation of 3604(c)....or (2) rooms or units in dwellings containing living quarters occupied or intended to be occupied by no more than 4 families living independently of each other, if the owner actually maintians and occupies one of such living quarters as his residence... ?? 3604. Discrimination in the sale or rental of housing and other prohibited practices As made applicable by ? 3603 of this title and except as exempted by ?? 3603(b) and 3607 of this title, it shall be unlawful -(a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial statuts, or national origin. (b) To discriminate against any person in terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial statuts, or national origin. (c) To make, print, or publish any notice, statement, or advertisement, w/ respect to the sale or rental of a dwelling that indicates any preference, limitations, or discrimination based on race, color, religion, sex, familial statuts, or national origin, or an intention to make any such preference, limitations, or discrimination. (d) To represent to any person because of race, color, religion, sex, handicap, familial statuts, or national origin that any dwelling is not available for inspection, sale, or rental when such dwelling is in fact so available. (e) [Induce selling or renting using representations regarding entry of persons into neighborhood.] (f) [1988 Handicap amendments.] 1. A discriminatory motive need not be proved in order to make out a prima facie case under the Fair Housing Act; proof of discriminatory effect is sufficient to shift the burden to D. D must then justify the action as one taken in pursuit of a bona fide compelling governmental purpose w/ no less discriminatory alternatives available to achieve the goal, or in the case of private D, one taken pursuant to rational and necessary business purposes. B. Civil Rights Act of 1866, 42 USC ? 1982 (1988) All citizens if the US shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property. 1. Jones v. Alfred H. Mayer Co. (1968): The Court held that the 1866 provision bars all racial discrimination, private and public, in the sale or rental of property. The court noted that the provision is narrower than the Fair Housing Act because it only reaches racial discrimination, does not deal w/\discrimination in the provision of services and facilities, and does not prohibit discriminatory advertising. But the provision is broader in that is contains none of the exceptions. 2. Claims under Civil Rights Act of 1866 probably require proof of intentional or purposeful discrimination. Equal Protection Clause of the Fourteenth Amendment 1. Shelley v. Kramer (1948), p.903 Facts : lot in Q had a covenant restricting race. a. S.Ct. Covenants is OK but the judicial enforcement amounts to state action so cannot enforce b/c violative of the Equal Protection clause of 14th Amendment. b. Counter that state enforces equally against black and whites is no ancwer b/c individual right. Not a group issue. c. Ct refused to enforce b/c TP wanted to restrain a willing seller. Difference is between individual racism and conspiracy. d. Unclear how far Ct will apply to other situations. Likely to limit to land control devises. e. The difference of individual and concerted action in Shelley loses its distintion b/c Congress allowed to touch individuals w/ ?1982. 2. Claims based on the Equal Protection Clause of the 14th Amdt clearly require proof of intentional or purposeful discrimination. C. 73 D. State Legislation 1. States are free to go beyond federal law in prohibiting discrimination. 2. The prohibited ground of discrimination vary a great deal from state to state, but include among others: race, relogion, national origin, sex, sexual orientation, martial status, tenant w/ children, handicapped children. 3. Marina Point Ltd. v. Wolfson (CA 1982): L excluded all children on the ground that they were noisier, rowdier, more mischevious, and more boisterous. The court found violation even though the state’s legilation only referred to race, color, religion, ancestry, and national origin. The court said the list was merely illustrative and that the legislature intended to eliminate all arbitrary discriminations. The LL was arbitrary because it looked at children as a class instead of looking at each instance at the individual child or children involved. Problems, pp.444-446: Mrs. Murphey has an apartment for rent in her home. She puts the following advertisement in a local newspaper: –For Rent: Furnished basement apartment in private white home.î A black couple applies and is is rejected by Mrs. Murphey because of race. Are there any violations of 42 USC ? 1982 or ? 3604? [Intent is clear here. Most hypos will give intent because in reality it must be proved as a ques. of fact.] • YES. ? 1982 prohibits all racial discrimination. • YES. ? 3604(c) - Advertisements. There is no exception in 3603(b) for advertising. Violation assumes that –whiteî means race. Suppose the advertisement had not contained the word –white.î What result? • YES. ? 1982 prohibits all racial discrimination. • NO. ? 3603(b)(2) makes the disctinction between residential and commercial transactions. LL is living in –intimateî associaction w/ T. Advertising does not affect intimate associations and is therfor prohibited. You can discriminate, just don’t use ads to do it. Suppose the advertisement had not said –in private white home,î but had said –rented only to persons speaking Polish, German, or Swedish.î What result? • Maybe ? 1982 violation under certain circumstances. But not a facial violation. Need to show intent. • YES. Violation of 3604(c) - advertisements. Even if there is no per se discrimination based on national origin, there is clearly an inclination of intent to discriminate. LL may not use advertising but may negotiate w/ potential T only if falling under 3603(b)(2) exception. Holmgren v. Little Village Community Reporter (N.D.Ill. 1971). Does the regular exclusion of blacks and other minority models from real estate advertisements containing human models violate 42 USC ? 3604(c)? • YES. There is a proscription against –long standingî patterns of discrimination. But once is not enough. Ragin v. NY Times (1991) –Wanted: Female to share lovely 2-bedrm. 2-bath apt. near campus and bus lines. $400/mo. plus half utilities.î Should such ads be held to violate the Fair Housing Act? • Comentators says not w/in intent of the statute. There is rational discrimination here; no invidious reasons. Which (if any) of the following would violate the Fair Housing Act? (a) L refuses to rent to a heterosexual couple because they are unmarried. • Not covered. Familial status is meant to cover only children and single parents, ie. –marital status.î What would be required at this point is to come up w/ statistical studies proving disparate impact. • Exception: The Act exempts senoir housing intended to be occupied solely by those over 62 or at least one person over age 55 in each unit. The logic is tht older people have a legitimate concern over noise etc. • Some states allow familial discrimination based on religious beliefs - free exercise clause. CA has rejected this and Alaska rejected this arguement based on its state constitution 2/11/94. In any event, LL still has to prove religious belief. • One arguement that allows states to regulate more strictly is you do not have a fundamental right to rent. If you cannot comply, get out of the business. (b) L refuses to rent to a gay couple because he objects to the partners’ sexual orientation. E. 74 • Not covered. Same as above; gays are not protected under the Act.. The closest thing would be familial status, but it is clear that it refers to single parents and their children. Gay couples need to look to state laws defining marital statuts. • Some states have religious exceptions to discrimination. IL has penal fornication outside of marriage laws. This would run up against Constitutional privacy, but we still have sodomy laws on the books. Would it matter that L’s reason is fear of AIDS? • YES. AIDS is COVERED under handicapped status. Baxter v. City of Belleville. An irony that gays are not protected, but if they have AIDS they are. (c) L rents to T a single woman, and then several weeks into the tenancy begins to harassing her w/ demands for sexual favors. • Sexual harassment is not covered per se by the Fair Housing Act, but if it is quid pro quo (eg. threats to evict or w/hold services) then it falls under 3604(b) and 3617 (enjoyment of use). Grieger v. Sheets (N.D.Ill. 1988). (d) L regualrly rents one-bedroom apartments to households consisting of 2 adults, and two-bedroom apartments to households consisting of 2 adults and 2 children, but will not rent the one-bedroom units to 1 adult and 1 child, nor the two-bedroom apartments to 1 adult and 3 children. • YES. Fall squarely under familial status. (e) On its face, the Fair Housing Act seems to prohibit –singles onlyî dwellings as a reverse familial status situation. But there is an exception read into the statute for this. (f) There is nothing in the Fair Housing Act against income discrimination, However many states statutes prohibit discrimination of welfare receipiants as well as limitations on income. What one can do under the Fair Housing Act is to show disparate affect on a enumerated minority and shift the burben to the LL. LL obviously has a legitimate business concern but it can be argued that welfare receipiants have a stable consistent income to pay the rent. What is really needed is a better worded amendment or HUD regulations. F. Affirmative Action and the Fair Housing Act United States v. Starrett City Associates (1988), pp.446-458:Starrett City, the largest hosuing developement in the nation was built privately and subsidized by the government on the condition that the developer intended to create a racially integrated community. Starrett sought to maintain a stable racial distribution through affirmative racial quotas imposing caps on racial and ethinc groups. The US commenced action for violations of ? 3604(a)-(d) of the Fair Housing Act. 1. While quotas promote Title VIII’s integration policy, the contravene its antidiscrimination policy bringing the dual goals of the Act into conflict. 2. A plan employing racial distinctions must be temporary in nature and w/ a defined goal as its termination point. a. Societal discrimination alone seems insufficient and over expoansive as the basis for adopting sp called benign practices w/ discriminatory effect that work against innocent people. b. The use of quotas should be based on some history of racial discrimination. c. Measure desu=ign to increase or ensure minority participartion, such as access quotas have generally been upheld. d. However, programs designed to maintain integration by limiting minority participation, such as ceiling quotas, are of doubtful validity. 3. Otero v. NYC Housing Authority: Otero did not involve procedures for the lomg term maintenance of specified levels of integration. Further the suspension of regulations did not operate as strict racial quotas since former site residents entitled to priorty were 40% white. The burden here is far less. 4. Dissent: The bring of the suit raises a substantial question as to the government’s commitment to integrated housing. The Fair Housing Act was meant to bar perpetual segregation. It is surely not w/in the spirit of the Act. There is nothing in the text of the statue to provide a distinction for Otero. Otero established that a race-conscious policy adopted to promote integration does not violate Title VIII and that D must be afforded an opportunity that its rental policy is needed to prevent segregation. 5. The court does not allow affirmative action, but seems to approve a lower court ruling on just that. 75 6. 7. 8. 9. 10. 11. The court does not address the issue presented by the dissent that in real life the ideal of integration will not happen by itself and will require changes The effect of this case is that LL are limited to remedies that are temporary and do not address the underlying issues. Kushner: Starrett City is the greatest sign of a return to segregation since Plessy. Federal courts have recognized that the policies of the Act necessarily mandate race-conscious measures in some circumstanes.. In the passage of the Fair Housing Amendment Act of 1988 the House rejected an amendment designed to prohibit affirmative action. (Congress passed the buck back to the courts to hack out affirmative action v. quotas.) Proposals to foster integration: a. Measures to Change Demand i. –Benignî Steering: get real estate agents to encourage or discourage demand in minority neighborhoods. Need to beware of how to name it (how to sell the idea). Worry about gentrification and pricing poor out of the neighborhood b. Equity Insurance i. Protect property values of integrated neighborhoods c. Mobility grants i. Subsudy loans for minorities who move to white neighborhoods; to integrate and give financial means to move into white areas III. A. ASSIGNMENTS AND SUBLEASES, pp. 469-489 Ordinarily Ts are allowed to sublease or assign w/o permission of LL. However, LL are allowed to require such permission as a covenant of the lease. 1. Subinfeudation and Substitution a. Assignment is substitution: Privity of Estate will exist between LL and T2 b/c T1 drops out. i. LL––––––T1–––––T2 => LL ––––––T2 b. Sublease is subinfeudation: no privity of estate between LL and T2. i. Relationship remains LL––––––T1–––––T2. 2. Privity of Estate a. Relation between people with interest in same interest of land. This is what changes in a Sublease and Assignment b. Privity of Estates exist if there is no intervening interest. Must be simultaneous or successive interests i. Simultaneous/Mutual: Rights at same time, e.g. Co-tenants. ii. Successive: Interests follow one another. c. In a sublease, there is an intervening interest between LL and T2. i. LL––––––T1–––––T2. ii. The privity of estate is LL-T1 and T1-T2 iii. T2 is only L to T1. d. In an assignment, there is no intervening interest so LL is in privity w/ T2. i. LL––––––T1–––––T2. ii. T2 is L to LL. 3. Privity of K a. Relation between parties of a K. b. Exists between LL and T1 b/c of original lease. c. Will continue to exist regardless of whether T1 assigns or sub-leases d. Some states, assignment will allow LL to have privity of K w/ T2. i. Important if T2 drops out by assinging to T3. ii. LL–––––––––––T1–––––––––T2––––––––––T3 iii. If no privity of K, LL may sue T1(Privity of K) and T3 (Privity of Estate) but not T2. 4. Liability to LL a. If Assignment, LL can i. Go after T1 on K ii. Go after T2 on estate. b. IF Sub-lease, LL can only go after T1 on K or estate. 76 B. How to distinguish between an Assignment and a Sublease 1. Formalistic Approach: An assignment arises when a lessee transfers his entire interest under the lease - when he has transferred the right to possession for the duration of the term leaving no interest or REV interest in the grantor or assignor. If the lessee transfers anything less than his entire interest or reserves to himself a REV interest in the term, a sublease results. a. In a sublease, lessee retains a REV. b. The lesse may transfer all of his interest in some physical part of the premises, a partial assignment. c. An explicitly reserved right of re-entry or power of termination (contigent REV interest) is found by a substantial minority to be a sublease. i. FSCS were traditionally thought of as a lesser estate that FSD since they cut short rather than continue the estate. Court are divided whether giving an interest subject to right of entry passes the whole interest or not. 2. Intention of the Parties [Minority/Modern]: The actual language used is not conclusive though persuasive. However, in practice, the court use the same criteria of whether the whole interest was transferred or not. a. See Ernst v. Conditt, infra. What happens when the original lease is prematurely terminated? 1. If LL excercises a power to forfeit the primary lease because of some breach by the original T, then LL is entitled to possession as against sublessees and assignees. 2. If the original T merely gives up the primary lease voluntarily, the rights of possession of the sublessees and assignees remain intact. 3. In the case of the sublessee, surrender by the orignal lessee leaves sub-T in privity of estate w/ LL. C. D. Assignment LL Privity of K T LL Sublease Privity of K & Estate T Privity of K Assignee Sublessee Privity of Estate E. Ernst v. Conditt (1964), pp.469-475: [Commercial lease, but applicable to residential situations.] Lessor agreed to allow a sublease on the condition that the original T is still liable for the performance of all the conditions of the original lease. The sublease reads, –For value received and in consideration of the promise to faithfully perform all conditions of the w/in lease as amended, I hereby sublet the premises...upon the understanding that I will remain liable for the performance of the lease.î Sub-T stopped making payments after a few months but remianed in poseession until the end of the term. LL brought suit against sub-T for rent past due and expenses for removal of improvements. 1 year - Head Lease Covenant to pay Cov to remove improvements Rogers (T) Ernst (LL) Suit for Payment 1. Transfer entire 1 year + Extension of 1 year Conditt (Sub-T) –If the instrument purports to transfer the lessee’s estate for the entire remainder of the term it is an assignment, regardless of its form or the parties’ intention. Conversely, if the instrument purports to transfer the lessee’s estate for less than the entire term - even for a day less - it is a sublease, regardless of the form of the parties’ intention.î 77 2. 3. 4. 5. 6. The cardinal rule is to ascertain the intentions of the parties. That intention to be arrived at from the language of the instrument read in light of the surrounding circumstances. The fact that T remained expressly liable for the performance did not create a REV or a right to re-enter either express or implied. The obligations and liabilities of a lessee and lessor, under express covenants of a lease, are not in any way affected by assignment of sublease to a third party, in absence of express or implied agreement or some action on his part which amounts to waiver or estops him from insisting on compliance w/ the covenants. The express agreement of T to remain personally liable for the performance of the covenants of the lease created no greater obligation on his part or interest in the leasehold, other than that set forth in the original lease. By an assignment of a lease the privity of estate between lessor and lessee is terminated, but the privity of K between them still remians and is unaffected. Neither privity of estate or K are affected by sublease. The court did not have to do this analysis because even if the assignment was found to be a sublease, sub-T would still be liable because of the express promise to assume the obligations of the covenants put him in privity of K w/ LL. F. Problems, pp.476-477: (a) L lease to T for a term of 3 years at a monthly rent of $300. One year later T –sublease, transfers, and assignsî to T1 for a period of one year from date. Therafter neither T nor T1 pays rent to L. What are the rights of L against T? Against T1? • Privity of K and estate between L and T. No privity between L and T1. Suppose in the instrument of transfer T1 had –agreed to pay rentsî reserved in the head lease. What effect might this have on L’s rights? • Restatement: The exaction of the promise does not relieve the transferor of liability on his promises. It does give him direct remedy against his transferee if the transferee fails to perform the promises, which remedy will continue to be available even after the transferee has transferred the interest to someone else...the transferee is in privity of K w/ such third party beneficiary (LL) and a subsequent transfer by the transferee will no affect the privity of K liability. • Today the dominant view is that if T and T1 intended (know and understamd) to benefit a third party beneficiary, whether L paid consideration or not, then the third party has collateral rights. In such a jurisdiction that recognizes third party beneficiary rights, only explicit disclaimers will negate privity of K w/ L. (b) L leases to T for a term of 3 years at a monthly rent of $300; the lease provides that –T hereby covenants to pay said rent in advance on the first if each month.î The lease also provides, –T shall not sublet or assign w/o permission from L.î Six months later, T w/ permission transfers to T1 for the balance of the term. Thereafter T1 pays the rent directly to L for several months then defaults. L sues T for rent due. What result and why? • Privity of K remains between L and T. • Principle of suborgation: T can sue T1 whether there is privity of K or not. T is a surety and receives L’s rights to sue when L claims damages from T. T can sue anyone L can sue. (c) L leases to T for a term of 3 years at a monthly rent of $600; T covenants to pay the rent in advance on the first of each month and also to keep the premises in good repair. Six months later, T assigns her entire interest to T1, who agrees in the instrument of assignment to, –assume all covenants in the leaseî between L and T; 3 months later T1 assigns her entire interest to T2, and 3 months after that T2 assigns her entire interest to T3. T3 defaults on rent payments and fails to keep the premises in good repair. L sues T, T1, T2, T3. What are the liabilities of the four tenants to L and to themselves? • L - T: Privity of K. To discharge, L must expressly release T’s obligations - novation. • L - T1: Privity of K, if states recognizes 3rd-party beneficiaries. • L - T2: No, probably not unless there is some privity of K there. • L - T3: Privity of Estate • T - T1: Privity of K and Principle of Suborgation • T - T2: No, probably not unless there is some privity of K there. • T - T3: Suborgation (T can proceed against all L can); and vice versa • T1 - T2: Privity of K? • T1 - T3: Suborgation (T1 is L’s surety). 78 • T2 - T3: Privity of K? • Note: Covenant must be one that –touches and concernsî the leasehold estate in order for the covenant toîrun w/ the landî and for L to sue the assignee. 79 G. LL may not unreasonably or arbitrarily w/hold consent to Assignment or Subleease Kendall v. Ernest Prestana, Inc. (1985), pp.477-486: lease assign San Jose Perlitch Ernest Pestana sublease Bixler permission 1. 2. 3. 4. 5. 6. 7. 8. 9. Kendell Proposed Assignment The law generally favors free alienability of property, and at CL leasehold interests are freely alienable. K restrictions are justified as a reasonable protection of reversionary interests and interest in covenants performed. Leaseholds are lesser estates (no seisin) and so have lesser privileges. However, such restrictions shall be strictly construed against the lessor. (Usually only allow restraints on trusts, equitable estates.) A majority of jurisdictions adhere to the CL rule that where a lease contains an –approval clause,î the lessor may arbitrarily refuse a proposed assignee no matter how suitable. A growing minority now hold that where a lease provides for assignment only w/ the prior consent of the lessor, such consent may be w/held only where the lessor has a commercially reasonable objection to the assignment, even in absence of a provision in the lease stating that consent to assignment shall not be unreasinably w/held. a. Restatement: A restraint on alienation w/o the consent of LL of T’s interest in a leased property is valid, but the LL’s consent to an alienation by T cannot be w/held unreasonably, unless a freely negotiated provision of the lease give LL the absolute right to w/hold consent. Reasonableness is determined by comparing the justification for a particular restraint on alienation w/ the quantum of restraint actually imposed by it. a. Factors considered in test of reasonableness: financial responsibility of propsed assignee, suitibility of use for the particular property, legality of the proposed use, need for alteration of the premises, nature of the occupancy, ie. office, factory, clinic, etc. Changes in nature of leases as conveyances: Relationships between lessors and lessees have become more impersonal. The traditional personal character of leaseholds have given way to armslength bargaining that has characterized freehold transfers. Shortage of housing and commercial space. a. The lessor’s interests are also protected in the fact that the original lessee remain liable as a surety even if the lessor consents to the assignment and the assignee expressly assumes the obligations of the lease. Changes in nature of leases as K: Duty of good faith and fair dealing in every K. In every K there is an implued covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the K. a. Lessors like all K parties have a duty to mitigate damages b. Parties may still K risk for appreciated rentals in a transfer, p.485, fn 30. Denying consent solely on the grounds of convenience, personal taste or sensibility is not commercially reasonable. The clause is for the protection of LL in its ownership and operation of a particular property, not for its general economic protection. Legislation enacted in CA in 1989 codifies the holdings in Kendall as well as dicta allowing K of risk allocation. It is a poor argument for the court to say they are filling in the intentions of the parties. These were sophisticated actors working under tradition and precedents against reasonableness. The UCC only applies to sale of goods. H. Notes on Kendall, pp.486-488 1. Slavin v. Rent Control Bd. of Brookline (MA 1990): No State court has acted to create a reasonableness requirement in a case only involving a residential lease....the necessity of reasonable alienation of commercial building space has become paramount in our ever-increasing urban society. We are not persuaded that there is such necessity of residential building space.... (Historical and traditional reasons against a reasonableness requirement.) 80 2. 3. 4. 5. Merchants Row Corp v. Merchants Row, Inc. (MA 1992): SInce the bargaining power of commercial tenants at the lease drafting stage is ordinarily greater than that of residential tenants, logic would indicate that, if we were to differentiate, we would do so in favor of residential rather than commercial tenants. The tension of the above 2 cases where one would expect K protection in a residential setting where there are smaller players is explained by the traditional estate conveyance view that residential lease is not a commodity. It is still regarded as personal and different in character. This explains the special protection courts afford residiential housing in the areas of rent controls and warranties of habitability. CL allows LL to act unreasonably but it also requires mitigation of damages. Suppose T propses an assignment and LL unreasonably refuses. T vacates and LL must take all reasonable steps to mitigate. Since T propsed a reasonable assignee, it would seem as though LL would have to lease to the proposed assignee in order to mitigate. => In jurisdictions w/ mitigation doctrine, it does not matter whether the courts follow the majority or minority in terms of reasonableness. HYPOS: a. L ---($500/mo)---> T ---(market = $400/mo)---> A i. Under unreasonable and mitigate, L can refuse and if T abandons, L can sue for damages of $100/mo. L cannot lose. ii. Under reasonableness, if L is unreasonable, L breaches the lease and T is discharged from the duty to pay the difference.. L must allow assignment to hold T for $100/mo. b. L ---($400/mo)---> T ---(market = $500/mo)---> A i. Under unreasonable and mitigate, L can refuse and if T abandons, L can profit from increase in rent. L must force breach in order to profit. ii. Under reasonableness, L would be forced to rent at below market price. If L breached, he can get higher rent but woiuld be liable for damages to T. Prob. #3, p.489: L leases to T, and T covenants to pay rent and not to sublet or assign w/o permission. Thereafter, T w/ permission assigns to T1. (T1 does not expressly assume the obligations of the lease.); then T1 assigns to T2 w/o obtaining permission. T2 defaults on rent and L sues T1 for amount due. What result? • Restatement would require T1 to get permission even though there is no express reservation by L to prohibit future assignments. IV. DUTIES, RIGHTS, AND REMEDIES, pp. 513-542 Landlord’s Duties; Tenant’s Rights and Remedies A. Caveat Lessee: Early CL implied covenants concerning title and possession, but not concerning the condition of the premises. Absent some clause in the lease providing otherwise, T took the premises –as isî and LL were under no obligation to warrant their fitness. Reforms have not so much replaced conventional doctrine as riddled it. The traditional regime is as follows: T’s Duties L’s Duties (implied) duty to pay rent No implied duty to repair (implied) duty to avoid waste No implied warranty of fittness (implied) duty to make repairs (flip side of waste) No implied warranty of habitability (other than ordinary wear and tear) Duty to deliver (legal) possession Implied covenant of quiet enjoyment Except for the implied duties under this traditional regime, unless there are express duties spelled out in the lease, T is out of luck. There was no duty to warrant habitability or fittness whether LL knew of the defecrs or not. T was expected to inspect the premises himself. LL simply had the duty to legally deliver title. Even a holdover T was lessee’s problem. The land was regarded as the essence of the conveyance, not the dwelling. In fact, caveat lessee was harsher than buyer beware. In K law, the duties of Buyer and Seller were dependent. If S breached a duty, B was discharged from his duty. Under caveat lessee, a breach of LL’s duties does not necessarily relase T of his duties. LL and T’s duties were seen as independent of each other; breach by LL gave T a cause of action for damages but not a right to suspend rent or terminate the tenancy. Exception: duty to pay rent • CQE (unlawful disturbance by LL). A breach of CQE => constructive eviction => allows T to vacate and discharge rent duty; mutually dependent. CQE served as a substitute for dependency of covenants. 81 B. Covenant of Quiet Enjoyment & Constructive Eviction: CQE was alway read into a lease, but its scope has broadened considerably. 1. Traditionally: CQE means LL or his agent cannot actually physically oust (evict) once T is in legal possession 2. Constructive Eviction/Breach of CQE: L (1) substantially breaches the traditional duty or some other duty (characterizable as an unlawful disturbance) and as a result, (2) T’s right of possession and quiet enjoyment is substantially interfered w/. CQE was bootstrapped to a breach in another duty. W/o CQE, breach of duty only entitled T to damages. a. Remedies: i. T vacates premises and stops paying rent. T is also entitled (presumably) to recover damages to compensate for losses realized while in possession and for lossess resulting from higer rent for equivelant replacement premises. T treates as equal to actual physical eviction. Vacate and discharge rent obligation. ii. Remain in possession, continue to pay rent and sue for damages due to breach of duty. Continue obligation to pay rent. b. LL seldom breached CQE because there weren’t many other express duties. 3. Exceptions to CL no-duty rule [really was not far from conception of private order and K]: a. Express covenants breached b. –Furnished dwellingî - if LL and T agree and understand that T is renting (1) furnished dwelling, (2) occupied for short term (3) w/ immediate possession => implied LL duty to maintain habitability. (In general required T to inspect himself, but there was an exception if T had no chance to do so. This is not straying too far from K regime of caveat lessee.) c. Latent Defects. Again T is usually responsible for inspecting the premises, but if the defect is not reasonably discoverable then T can do no more to protect against it and we will not hold it against him. No notice. (It is a test of reaonableness w/ the heavier burden on T to discover defects.) d. Fraudulently represented conditions. Traditionally T had to ask first in order for there to be fraud. Today there is a general duty to disclose. e. Common Areas. T is not responsible for inspecting outside the specific rental area. Eg. hallways, stairways, walkways. LL continues to possess and be responsible for these areas. All these exception constitute a breach of LL’s duties. If there is in addition substantial interference w/ T’s possession and quiet enjoyment, then T has the remedy options. 4. Partial Constructive Eviction: [If there is actual partial eviction (recognized everywhere), T is traditionally said to be relived of all rent liability even though still occupying the balance. LL is said not to have apportioned the wrong. Restatement rejects this rule and now it is clear the modern courts will discharge T on a pro rata basis.] In most jurisdictions there is no constructive partial eviction where LL breach only makes a part of premises uninhabitable for proposed purpose. a. Only NY recognizes partial constructive eviction by analogy. Rent is discharged to pro rata share. b. In recent years, most other jurisdictions have rejected partial constructive eviction. Unless T moves out completely, there is no discharge of rent duty. c. Anytime LL changes the locks, there is an actual total eviction. Disputes between LL and T regarding the condition of the premises arise in essentially 2 ways. First T might wish to vacate or to stay and pay less (or no) rent. Second, T (or invitee) might be injured by allegedly defective premises and claim damages against LL in tort. C. Reste Realty Corp. v. Cooper (1969), pp.514-521: L leases a commercial basement to T, the use of which is necessary to for the conduct of T’s business, which L knows. After every rainstorm the basement floor is covered by 2 inches of water running off of a common driveway. T renews the lease under promise that flooding will be solved. When problem continues and is given notice to LL and not addressed, T moves out. [No distinction between commercial and residential lease CQE.] 1. Even in the absence of express covenant to keep basement waterproof, most court will imply such a duty as necessary to to T’s enjoyment of premises, which the parties contemplated. T has been constructively evicted. 82 2. 3. 4. 5. 6. Latent defects not assumed. If it was known to LL, he had a duty to disclose. (Not applicable to 2nd lease. T waived the claim in the 2nd lease beacause she had notice.) T had no duty to repair common areas. (Again, waived in the 2nd lease.) Promise also constituted an express CQE. T did not waive the defects. The court relies heavily on this exception. The defect does not have to be a –permanent interferenceî in the sense of being everlasting and unending to constitute a substantial deprivation of use and enjoyment. If recurrence is regular and serious to amount to substantial interference w/ use and enjoyment for the purposes of the lease, the test of constructive eviction has been met. NJ S.Ct: Any act or ommission by LL or agent which renders the premises substantially unsuitable for the purposes for which they are leased, or which seriously interferes w/ the beneficial enjoyment of the premises is a substantial breach of CQE, express or implied, and consitutes a constructive eviction. a. –Doctrinally can be treated as a substantial breach of CQE resulting in a constructive eviction or a subsantial interference w/ beneficial enjoyment both constitute a marterial failure on consideration or a material breach of implied warranty against latent defects.î a. This holding is broader than the doctrine of CQE. The analysis is not on LL’s duty but T’s enjoyment of purpose. The court could have but did not use any of the CL exceptions. The court makes CQE an indepedent duty. b. Examples: Failure to supply heat, offensive odors dangerous to health. Ie. Failure to terminate the use which LL has legal power to do constitute constructive eviction. D. Problem, p.524: #2: In each case T asserts defense of constructive eviction, claiming LL breached CQE. (a) L fails to control ecessive noise made by neighboring tenants of T who commonly party long and loud into the night. • Under the traditional doctrine if the lease is silent about noise, then it does not fall into the 5 exceptions. • Traditionally L was not responsible for the conduct of 3rd parties. • Recent trends have departed from traditional 3rd party responsibilities of L (especially in terms of noise). • Today there are usually covenants in the lease providing T shall not create a disturbance or excessive noise. Some court interpret as duty of L; some interpret only that L has the power to stop. • Even if there is no express clause, some court still imply duty (Reste Realty). • There are noise abatement claws (usually for multi-unit apartments). Suppose the noise is from a bar across the street owned by LL? Couldn’t LL tell T to use self-help? The actual premises leased to T is OK. • Usually a duty is implied if LL has legal power or control over the noise. • Therefore in one MA case, L was held responsible for bar he owned across the street. (b) The building has been the site of criminal activity -- acts of burglary, vandalism by unknown 3rd parties. L installs deadbolt locks on all entrance doors and hires private security guards, but the problem continue. • L has probably taken all reasonable steps necessary. L has a reasonable duty, not a condition precedent. Note that once L starts to take steps to cure the problem, L is under duty of reasonable care. Defects in the cure will make L liable. (c) The office space leased by T has been the target of on-going demonstrations by protesters. During the protests, singing and chanting protesters picket the parking lot and the main lobby. Despite many months of complaints, L has done essentially nothing. • If the protesters remain of the property, then L has no control over ther 3rd party actions. • Where the protesters are on property, the L has an action for trespass and implied duty. • It the protesters are on the sidewalk, then it may fall under fittness/suitability for use, but not under CQE unless there is an express duty. (Most jurisdictions confine habitability doctrine to residential housing.) • Bright line: 3rd party not on premises and not acting illegally => no duty. Courts will not look into motive for noise. They want to make CQE straight forward so L has notice of duty. 83 • In the case cited, L is required to take reasonable steps. L is not an insurer or warranty. Generally, L must have the power to have duty. E. The Illegal Lease, pp.524-525 The problem w/ doctrine of CQE is that it requires T to vacate completely in order to raise the defense. A poor T who can not afford to move would have to stay, continue to pay rent, and bring a suit for damages from breach of CQE. To help the poor, the courts in the 60’s expanded protection of CQE in the form of the illegal lease. 1. Brown v. Southall Realty Co. (D.C. 1968): L evicted for nonpayment of rent. T asserted no rent was due because unsafe and unsanitary conditions violated the housing code. The court agreed, holding that the lease was an illegal K made in violation of statutory provisions and therefore unenforcable. 2. It does not apply to code violations devolping after the making of the lease. LL is not under a duty. This doctrine only applies to public policy and law of K. 3. Minor technical violations do not render a lease illegal, nor do violations in which LL has neither actual nor constructive notice. 4. Ie. If there are defects constituting substantial material violations of the houing code at the comencement of the lease of which LL has notice, then the lease is illegal and T can possess the premises w/o payment of rent. T has benefit of possession. 5. Hitch: A tenant under an illegal lease is a tenant of sufferance (not a trespasser because entered w/ permission), and LL is entitled to reasonable rental value of the premises gien their condition. Quasi-K; unjust enrichment theory. Once LL repairs violations, a new lease needs to be made. Probably cannot evict under dotrine against retaliatory evictions. 6. The chief attraction was the leverage of being able to w/hold rent and still defend the impending action. T has not breach himself by not paying rent. 7. The doctrine of the illegal lease did not move beyond the D.C. area because the doctrine of implied warranty of habitability which came soon after mooted the need. Implied Warranty of Habitability [Recognized in about 40 states by statute of judicail decision] Today’s tenant enter into a lease agreement not to obtain arable land, but to obtain safe, sanitary and comfortable housing. They seek a well known package of goods and services. Today’s tenant is not expreienced in performing maintenance work. LL is more familiar w/ the dwelling unit and the mechanical equipment attached and is more financially capable to discover and cure and faults. T lacks relative bargaining power under a housing shortage and lacks the relative sophistication of LL. The modern view favors a new approach that recognizes that the lease is essentially a K between LL and T wherein LL promises to deliver and maintain premises in habitable condition and T promises to pay rent for such habitable premises. These promises constitute interdependent and mutual considerations and are non-waivable. Analogy to K doctrine of implied warranty, good faith, and fitness for use. There still exists a valid K to recover damages from (T is not a tenant of sufferance underr this doctrine.) 1. Exceptions: a. Implied warranty of habitability in most states only applies to residential leases. For commercial leases, there is no assumption of unequal bargaining power and sophistication and capacity to inspect and maintain of T. b. Minority of cases say if L is less sophisticated than T, then habitability does not apply. c. Habitability may not apply across the board to residential housing. single-family residences may be excluded or agricultural leases or long-term leases. d. A few states permit –knowingî waiver if T’s bargaining power is essentially equal. 2. Standard and breach of warranty a. Housing code violation is per se breach b. Housing code, but substantial compliance is sufficient so long as habitability is unaffected. Factors include the nature of the defect, its effects on habitability, how long it existed, age of the building, and amount of rent. c. Housing code violation is relevant but an adequate standard habitability is required and breach occurs when the premises are uninhabitable to the eyes of a reasonable person.. d. Standard and breach are independent of housing code, eg. –unfit for human habitation.î 84 F. e. 3. 4. [5. What about unpleasantness but not a breach of the code? Fine tune LL’s duties upon reasonable expectations of the parties and degree of factual specificity. Eg. broken air conditioning in August? May be a breach if it is necessary. eg. elderly or geographic area, GA in the summer. Remedies a. Since warranty based on K principles, K remedies of damages, recession and reformation are available. {Reimburment and damages for T who has already paid.] b. T can w/hold rent and still defend on habitability. Most important strategic difference w/ CQE. T does not have to bear the expense of bringing suit (also gives rise to LL tort liability, infra,) Under Habitabilty, the scope of LL’s duties are broader than under CQE. i. Some jurisdictions still require T to pay some rent unless breach has been so substantial as to totally abate. e. Whether view as a reduction, setoff or counterclaim for damages, the result is the same: T may w/hold rent, retain possession, and have the agreed rent reduced by virtue of LL’s breach. f. Defense: justification for rent w/holding, retention of possession and rent abatement g. Affirmative c/a: stay in possession and pay rent h. Terminate and sue for damages i. Equitable: Specific performance, repair and deduct Calculation of Damages Courts are badly divided over how to calculate damages. Courts worry about their competency to determine the FMV of the neighborhood and similar housing, but it is still something they have to do. a. Difference FMV –as warrantedî and FMV –as isî, the rent agreed is evidence of fair market value as warranted. b. Difference between agreed rent and fair rental value –as isî (Most courts say the agrred rent is • FMV) i. The is usually no difference unless you are in a rent control situation or one of the parties got a good deal. Eg. if FMV as warranted is $400, rent control is $300, and as is equals $100 => damages for the first option is 400-100=300 and T pays no rent. c. Percentage diminution [NJ, PA, MA]: The agreed rent is reduced by percentage equal to percentage lost by T as result of breach. d. Restatement: If –as warrantedî is 100 and –as isî equals 20, and agreed rent is 30, T is entitled to return of 24. e.. Tort approach: damages for discomfort and annoyance and emotional harm and punitive damages. One analysis of the D.C. decisions is to apply the illegal lease if the violation is at the beginning of the lease and breach implied warranty of habitability if the violation happens in the middle of the lease. This is probably not done because the whole purpose of the doctrine of habitability is to give T the benefit and to impose upon LL a duty.] G. Hilder v. St. Peter (1984), pp.525-533: P leased a residential home and paid all rents due under it. The premises had broken windows, clogged toilets, water leaking down the walls, plaster falling from the ceiling, and a broken sewage pipe under the basement w/ raw sewage over the basement floor. All of this was made aware of to LL and he promised to remedy the situation but never did. T brings suit for return of rent other compensatory damages and punitive damages. The trial court held that the state of disrepair was known to LL and substantially reduced to value of the leasehold. [T is the plaintiff suing for damages here (usually the procedural posture for CQE breach). Usually in a habitability suit, T has stopped paying and LL sues for back rent and T defends on habitability.] 1. We now hold expressly that in the rental of any residential dwelling unit an implied warrantry exists in the lease, whether oral or written, that LL wil deliver and maintain premises that are safe, clean and fit for human habitation. The implied warranty of habitability covers all latent and patent defects in the essential facilities of the residential unit (also common areas). 2. T entering a lease w/ knowledge of any defects in the essential facilities cannot be said to have assumed the risk thereby losing the protection of the warranty. Nor can the warranty be waived by any written provision in the lease or by oral agreement. 85 3. 4. 5. 6. 7. 8. H. Standard court used in determining habitability: 1) substantial violation of the housing code and 2) other health and safety requirements. a. Crucial for rural housing because there are no housing codes b. Most courts have developed standards like VT. Housing codes are relevant and prima facie evidence but not necessary. T must show notice and reasonable time for correction and the defect affecting habitability existed for the time which rent was w/held. Damages shall be the difference between the value warranted and value existing. Damages shall be computed for rent paid and future rent w/held. In determining the fair market value, the court may look to agreed to rent as evidence. a. Also compensatory damages for annoyance and discomfort. b. Punitive danages available in the appropriate case. When LL after notice fails to repair essential facility to health and saftey punitive danages is proper. c. Once LL correct the defect, T’s obligation to pay rent becomes due again. d. When LL is notified and fails to correct in a reasonable amount of time, T may deduct expenses of repair from future rent. T can w/hold rent, and the burden and expense of bringing suit will be on LL who can better afford to bring the action. a. T’s duty to pay is contigent on LL duty to provide and maintain a habitable dwelling. Therefore it is no longer necessary to abandon the premises. Thus CQE is no longer viable or needed. Suppose this court does not recognize Habitablity but does recognize CQE. What remedies may Hilder still have? a. Latent defects: the sewage was unseeas well as the power box and water leakage b. Hilder probably seen to waive patent defects that were seen when moved in. c. Maybe there was fraud or express promise to fix here. Court award all rent returned. Court must have calculated that FMV –as isî for the pupose of residence is zero. Problems, p.537: #1: L owns a high rise apartment building. L’s entire maintenance and janitorial staff goes on strike for 2 weeks. Ts must take their own garbage out to the curb in paper bags supplied by L. City sanitation worker refuse to cross the picket line and trash piles up to first floor windows. The garbage exudes noxious odors and results in a health emergency declaration by the city. Rats and vermin have become a problem. Has L breach the implied warranty of habitability? • LL can argue that it is not permanent, he took all reasonable steps to end strike, the garbage is on city walk and not on premises, and that it is nice to have but not fundamental and did not violate habitability. • Park West Management Corp. v. Mitchell (NY 1979): The court agreed that LL is not an insurer of everything and limited a breach to those elements affecting habitability, ie. health and safety. The court held however that health and saftey was the absolute responsibility of LL and w/in his control. The city declared a health emergency and that was prima facie eveidence that there was a breach. Ts were ordered to pay back rent minus 10% damages for breach of implied warranty of habitability. What if it was just odors and no rats? • Can still be substantial breach. Is there a duty for L to hire private sanitation if the city went on strike? •NO, L does not have insurer liability. L is just required to take reasonable steps. #2: L offers a small run-down house for rent at $100/mo. T inspect the premises, finds a number of defects and tells L she will take the place –but only at $50 per month because that’s all it’s worth.î L agrees, T takes possession and subsequently fails to pay rent. In eviction suit by L, T asserts breach of implied warranty of habitability as a defense. What are T’s damages? • Isn’t the agreed rent FMV as is? In which case there is no damage suffered by T? • Usually warranty is non-waivable. • Warranty is taken out of the realm of K and bargaining. As a result, LL will probably get out of the rental market or gentrify. By imposing a non-market standard, we may be infact 86 squeezing the poor out of the market. T may be willing to live in a dump, but the court considers 3rd party externalities like social consequences. • Alexander: in some cases, court are trying to redistribute wealth that was not bargained for. • Same perverse effects as rent control. Skelly Wright did not anticipate this economic arguement. He probably just thought it was immoral and illegal and required good housing w/o cost to the poor. Whether you are for or against this analysis, it takes sophisticated economic analysis to defend. I. Retaliatory Eviction Most jurisdictions today, commonly by statute, forbid retaliatory actions by LLs. A fairly common approach is to create a rebuttable presumption of retaliatory purpose if LL seeks to terminate, increase rent, or decrease services w/in some given period (usually 90-180 days) after a good-faith complaint or other action by T based on condition of premises. Retaliatory acts beyond the stated period are usually also prohibited, but T bears the burden of proof. [Also remember anti-discrimination statutes (eg. Fair Housing Act) and rent control laws.] 1. LL must show legitimate business reason: can’t make repairs, going entirely out of LL business; violation of other lease provision. a. Inability to repair premises through Financial Imposibility, physical impossibility. b. Going entirely out of the housing industry. c. LL brings up to code and T’s don’t pay. d. City condemns bld e. T continues to not pay rent, destruction of rental property, disturbance of neighbors, breach of covenants 2. Illegitimate Business Motivation a. Most other reasons are not good enough. 1. Not going out of business but losing money or don’t get high return. 2. Economic decisions to cut losses when not giving up housing business. b. Ct tries to force LL’s to repair bldg b/c only 2 ways to prevent sub-code housing 1. Evict T (only if house up to code) 2. Force LL to repair houses. c. If LL wants to sell house must fix bldg first. d. Argument: Chill on investment effect 1. COUNTER: LL had original obligation to keep housing at code level in first place. 2. REBUT: Then treat lease as K w/ expectancy and reliance damages rather than specific performance. Tort Liability At CL, L was liable for injury to T and 3rd parties only for breach of duties under caveat lessee (common areas, fraud, latent defects) or some express covenant. A few jurisdictions have expanded the doctrine implied warranty of habitability to impose a general duty of care w/ a standard of negligence. CA and LA has strict liability for injuries caused by latent defects. However, CL exceptions remain of paramount importance for majority of jurisdictions. 1. Public Use Doctrine: L is liable for negligence to 3rd parties if: 1) the leaseed use is open to the public, and 2) defects exist at the inception of the lease, and 3) L knew or should have known of the existance of the defect, and 4) L knew or should have known T could not be expected to remedy the defect 2. Problems, p.539: #1: L leases to T for a term of 1 year, knowing T intends to use the land to board and rent horses and to operate a riding trial. T holds over and becomes a month-to-month. On a rainy 4th of July, a customer of T is injured when her horse slips on a soft narrow riding trail and fals on top of her. Is L liable? • Under public use doctrine, L was found liable because he should have known and repaired the defect! • Pritchett the arguement was over whether the lease was a term of years or month-to-month. Under a month-to-month tenancy, the court reasoned that a new lease was created at the beginning of each month, and therefore any new defects were assumed by LL at that time. 87 J. 3. #2: T leases a farm to the father of P, a young boy badly injured when he becomes entangled in a silage auger in the barn. If L liable? • Posner, J.: Danger was obvious. There was no express promise and it was not defective. #3: L leases a unit in an apartment building to the parents of P, a little girl badly injured when she is struck by boys racing bikes on a parking lot owned by L and used by Ts. The parking lot has no speed bumps. Is L liable? • Held L may be liable under the –common areaî exception. L had complete control. Question is whether L’s conduct was negligent in not preventing. It is relevant if L knew or should have known, eg. other Ts have complained before. Suppose the little girl is injured on the street, off L’s property which has no fence around it. Is L laible? • Some court hold as a matter of law, L has no laibility. It is not in a common area, and L has no control or possession of the area of injury; summary judgment for L. • Case cited, Udy v. Calvary Corp., held no summary judgment for L. Under some circumstances L may be liable if L did not take preventive steps. –Duty of care does not stop at the boundary lines.î Eg. if sidewalk was next to the parking lot. • Brooks v. Eugene Berger Management Corp., –Certainly L’s duty does not go beyond the boundary lines.î • Arbitrary distinctions. There could be a difference if L advertised for family housing. • If L undertakes repairs, even if not required, L is liable to T and 3rd parties for negligent repairs. #4: L leases a unit in an apartment building to Ts. A parking garage adjacent to the building and owned by L is available for use to Ts. Parking there ine evening, Ts are attacked by 3 men who are never caught. Is L liable? • Seems to fall into common areas exception. • Courts are divided over criminal conduct by 3rd parties on the premises. • PA in Feld explicitly refused to extend the common area exception to criminal conduct. – Tantamount to imposing insurer liability.î But this is non-sequiter because L’s duty is reasonable care not absolute prevention. • DC in Kline ws an early case to hold L liable. If L failed to take reasonable steps under the circumstances. In that case, L knew of criminal assaults in the common area. –Most urban Ts expect security from Ls ‘in the business’.î • CA appellate ct 11/93: a L who permits a crack house to operate on his property may be liable for nuisance and criminal activivty arising from the crack house by 3rd parties off the property. #5: Would it matter is any of the foregoing the lease in question provides, –Lessor shall not be liable to T or any other person or to any property damage or injury occurring on or owing to the condition of the leased premises, or any part thereof, or in the common areas thereof, and T agrees to hold lessor harmless from any claims for damages no matter how caused.î (Exculpatory Clauses) • This is not void as an attempted waiver of implied warranty of habitability. Habitability is a K obligation, this is tort liability. The general tort duty of care is separate from habitability. Some jurisdictions, UT, have a general duty of care even though it has no implied warranty of habitability. • Probably clause will be struck down for unequal bargaining power. The genral tendency is to assume unequal power. • Henrioulle (CA): Exculpatory clauses in residential leases are unenforcable because the business is like a public utility and L should reasonable know that a duty of care cannot be waived because of superior bargaining power. • OîCallaghan (IL): Clause always enforcable. In recent years the court have backed off and allowed T to show evidence of unequal bargaining power. • Cardona (NJ): Unenforcable because of unequal bargaining power even though it is explicit in the lease. T was given the option to pay $2 more a month to exclude the clause. The court still struck down the clause. The tendency is to view residential leases as public utitlities, regulated industries and natural monopolies. Arguments against CL 1. LL is in the best position to deal : lowest transaction costs, Least Cost Avoider. 2. Tragedy of the Commons : LL the best way to internalize the transaction costs. 88 3. Utility : LL best able to promote public welfare. Loss to T is so much more than lose to LL if repaired premises. Maximize social welfare. V. RENT CONTROL, HOMELESSNESS, & PUBLIC HOUSING, pp. 548-572 Over the past 30 years, rent control has been the most witten about issue in landlord tenant relationship. Usually those who favor the doctrine of implied warranty of habitability also favor rent control and vice versa. Indeed the two may necessarily go together so that habitable residential units are not price out of reach of the poor. In its pure form, rent control is price control where regulations fix the rate which L can charge for a particular unit. This is in contrast w/ rent stablization measures which allow some regular movement in the price. The usual approach is to set the controlled rent for a given rental unit by establishing a base figure w/ reference to values as they existed at some specified date in the past, then adding reasonable periodic increases designed to yield a –fairî and –reasonableî ROR. Increases may be based on an annual period and/or when a new T moves in. Units are usually exempt from controls the first time they are put on the rental market. At first blush, rent control looks suspect taking, but it has been held to be a vaild exercise of police power for the public –health, safety, and general welfare.î To be a valid rent controls must: 1) nondiscriminatory; 2) reasonable (allow fair ROR); and 3) pass taking clause of 5th Amdt. A. Cromwell Associates v. Mayor and Council of Newark (1985), pp.548-553: A city ordinance placed a max limitation on annual rent increases including increases granted under a hardship provision. The max increase was held to 25% in any 12-month period, 6% cost of living adjustment and 19% permissible hardship increase where LL could demonstrate did not get 11.5% ROR. The ordinance was held facially unconstitutional. 1. Constitutional requirement that rent regulation permit a fair and reasonable return require only that the regulation serves a public purpose w/o arbitrariness and discrimination. No particular form is required of the regulation 2. Every rent control ordinance must be deemed to intend to permit owners to apply for relief on the ground that the regulations entitles owner to just and reasonable return. 3. In extreme circumstances even 25% is arbitrary and may mean not insure fair ROR. 4. Municiple ordinances are presumed to be valid. This presumption may only be overcome by clear and covincing evidence that the ordinance has a confiscatory effect on LLs. 5. If 25% was not the absolute cap, but only a rebuttable presumption, then regulation would probably be OK. In order to survive a challange of arbitrariness, the city would probably have to show that historically (but from how far back?) there has been no reasonable increase greater than 25%. Fair Return: Rent controls must allow LL a fair return. Ordinances have been invalidated for failing to provide for LL’s financial hardship. 1. Base Value: Market Value or Owner Investment? a. Market value is presumably based on future rents capitalized. So do we use the market value before rent control. But this is why we have rent control in the first place because we assumed rents and market values were too high. b. So do we use market values after rent controls? This might understate the amount that should be received by owners who purchased before rent control. c. Hypothetical markets that presumably would have existed before rent control had supply and demend werre equal. Most think that no one can come up w/ reliable numbers for this situation d. How about owner’s investment? But what if LL inherited or received as a gift? What about the owner who bought the building a long time ago when it dollars were worth more? 2. Rates or Return: a. The rate is supposed to allow an efficient LL to recover reasonable expenses and earn a –fairî profit. Do we base the profit on CPI, inflation, interest rates, yields on similar investments? 89 B. b. C. Court have generally accomodated rent control authorities on rate issues in the absence of obviously confiscatory rates. Vacancy Decontrol Ordinances Some ordinances allow L to set a new rate whenever there is a new T. Usually Ls are allowed to set at market rate. This benefits a new T in the long run since rent control kicks in for future rent. 1. Purpose to reduce disincentives (create incentives) for L to remain in the market of residential rentals 2. Experience under these ordinances suggest the average rate approximate the market rate because the typical period of tenancy is relatively short, 1-3 years. 3. Decontrol ordinances have always been accompanied w/ provisions requiring good cause termination by LL to prevent eviction to avoid rent control or to be able to increase rent on a new tenant. 4. Decontrol ordinances usually are also accompanied by succession rights to protects surviving occupants when T dies or even moves out. Succession Rights 1. There is no general answer to who has succession rights; the outcome turns on the wording of the statute in question and on judicial interpretation of ambiguities. 2. Functional Approach: Braschi v. Stahl Assoc. Co, (NY 1989): Ct interpreted –member of the deceased T’s familyî to include any long-term relationships characterize by emotional and financial interdependence w/ T of record. NY’s regulations were subsequently ammended to reflect Braschi, and lower cts extended to include rent stablization as well as rent control. a. What if there was a clause in lease requires –all new occupants other than a legal spouseî to receive approval from L. then a gay partner moves in. L allowed to evitct? => NY court held that the statute was intended to prohibit discrimination based upon sexual orientation and the clause is unenforcable under the ordinance. b. A contrary interpretation is that the ordinance only intended to protect all Ts not of record at the time of lease. Does not protect subsequent Ts because they have no reliance interests. c. Alexander: Court probably interpreted a general policy against discrimination based on sexual orientation. But a contrary arguement can be made based on the language of the opinion. 3. Increased succession rights tightens the rental market and places an increased burden on prospective Ts. Fifth Amendment and State –Takingsî Clause 1. 5th Amdt provides that the government shall not take property w/o just compensation. Physical invasion or reduces the property value (regulatory taking). public use. Challanges to rent control under takings clauses have been mixed. 2. Yee v. City of Escondido (1992): CA limits the right of park owners to terminate a mobile home owner’s tenancy (only if T default on rent or LL goes out of business) and provides that while a rental agreement is in effect, the park owner may not require removal of a mobile home upon its sale, charge a transfer fee, or disapprove of the buyer so long as he is able to pay rent. The city of Escondido limited the rent a park owner can charge. As a result, park owners may no longer set rents or decide who their Ts will be. The mobile home owner is allowed to sell at a premium for ownership of the mobile home as well as ownership of a perpetual right to occupy the pad below market value. The ordinances have transferred a right (to occupy land indefinitely at sub-market rent) from park owner to mobile home owner. a. Yee argued that the combination of the ordinances resulted in functional equivalent to per se physical taking. a. The S.Ct found no actual physical taking because the park owners were not required to submit to the physical occupation of their land. b. The owners rented voluntarily and were not compelled to continue; they were permitted to change the use of their land after eviction of Ts. c. The Court conceded that is may have been a regulatory taking because of the wealth transfer and because of the limits of freedom to choose incoming Ts. d. Yee is a perfect example of botched lawyering. 90 D. E. 3. 4. 5. F. Seawll Assocs. v City of NY (NY 1989): NYC ordinance put a 5 year moratorium on the demolition, alteration or conversion of single-room-occupancy properties and required owners to restore all such units into habitable condition and lease them at controlled rents. Owners could buy out at $45K per unit. a. The Court held that the forced occupancy denied possession and right of exclusion and therefore amounted to physical taking per se. Ordinary rent control do not force their owners in the first instance to make their property available. Owners cannot get out of the business, and are forced to have people on their premises => –permanent physical occupationî b. The ordinance was a regulatory taking because it did not allow the owners an economically viable use reasonable expected of their property. Second the ordinance did not substantially advance legitimate state interests. c. Normally L can evict or refuse to renew lease for: i. –Good Causeî: eg. breach of express covenant ii. L gets out of the residential market iii. If L or a member of family intends to live in the premises iv. If L is renovating the premises in a substantial way as to make occupancy impossble. d. State and local ordinances cannot force L to rent in the first place Three possible interpretations of the effect of the Taking Clause on State’s right to regulate: a. Block v. Hirsh (S.Ct 1921): L does not have a right under the Taking Clause to take a buiding out of the rental market. L is only allowed to evict T if he will use the pemises himself or for family use. This view is the most restrictive, but it may have been implicitly overruled by Yee. b. Yee: State may require L to allow occupany by existing Ts, only if the state also allows L to go out of business. This is probably the most favorable view to Ls under the taking clause. c. Seawall: A compromise; construed to prevent forced occupantion by 3rd parties, but permit forced occupancy by current Ts through rent control. For rent control no physical taking. Usually no regulatory takings because for public benefit and allows fair ROR Chicago Board of Realtors, Inc. v. City of Chicago (1987), pp.559-562: A Chicago ordinance codified the implied warranty of habitability. Posner, J.: 1. The initial consequences of the rule will be to reduce the resources LL devote to improving the quality of housing. 2. LL will probably offset the higher costs by raising rents 3. LL will screen applicants more carefully 4. Irresponsible Ts will be subidized by others who will pay higer rent 5. The result is rent will be higher and there will be less units on the market 6. The principle beneficiaries will be the middle class who buy rather than rent, people willing to pay higher rental for better-quality housing 7. In effect: the ordinance imposes an unbargained for legal duty on L => raise costs => rents will be raised => poor Ts will be disadvantaged by higher rents or L will get out of the market. 8. COUNTER: a. There is de facto oligopoly of L since it is not easy to enter the market and Ts do not have bargaining power. The market is not in equilibrium anyways. b. Third party effects c. The elasticity of demand is limited because there are no substitutes for housing. d. Exit costs may prevent Ls from leaving the market. e. Like NY, usually a balance of rent control and rent stablization to manipulate the supply curve so that developers will continue to have incentives to enter the market. 9. Recent commentators have suggested scenarios where there rent control creates no perverse effects in a gentrifying market. 91 Price D P Pc Quantity S P = Market Price Pc = Rent Control Price ² - excess demand Generally the arguement goes that rent control: 1) Increases demand; 2) decreases supply; and 3) even may create a black market price where Ls make side deals because there is a shortage of housing; the black market price is even higher then the price at market equilibrium. => Price controls create perverse price and quantity effects. COUNTER: Land is different from ofthe commodities: 1) There is a fixed quantity (irrelevant point); 2) In the residential market there has been a fundament change in the way demand is met for different income class levels. Traditionally, demand was satiisfied through a –trickle downî process. As new luxury apartments are built, the old luxury apartments are passed to the middles class, etc... So demand is more or less in equilibrium and high income renters do not compete w/ low income renters for supply. Recently the process of gentrification have put high income renters head-to-head w/ low income renters for the same supply. This –trickle upî cycle have forced low income renters out as high income renters bid up the price. This increases the –ecomonic rentî as opposed to –transfer earnings.î (Eg. You probably wouldn’t have to pay Michael Jordan $5M to play basketball, but you will to get him to play for your team.) Rent control simply allows low income renters to compete w/ the rich. L is still earning enough to saty in the market; just loses the excess economic rent. There is a –shiftî of economic rent from L to T (T gets the benefit). In fact, if you do not apply rent control to newly built housing, this may even increase the supply of housing available. Advocates of rent control would still require doctrine of habitability as well as restrictions on condo and coop conversions (and perhaps even get rid of vacancy decontrol) to see rent control work. Also you would need rigorous enforcement of anti-discrimination laws. The strongest defense of rent control is the protection of reliance interests of the present Ts. This is a moral arguement, a non-welfare arguement. REBUT: All these regulations are needed to support rent control and is very heavy burden on the government. The number of agencies required to administer, enforce, regulate, monitor may crack up the system. Perhaps we should just provide strsight transfer payments instead of trying to shift the economic rent. It would be easier to administer. Policy - goals and alternatives 1. Goals of Rent Control a. Affordable Housing for Poor b. Overcome unequal bargaining power - set fair price when mkt failure. 2. Choice of goal will make choice of rent control sys b/c makes certain factors more important than others. a. Affordable Housing : concentrate on T’s ability to Pay. b. Fairness : Try to mimick Mkt Force 3. Majority rent control primarily focus on fairness b/c don’t consider T’s ability to Pay 4. Why won’t rent control work a. Apts for lower income don’t go to lower income b/c old T stays b. Could increase discrimination. 92 G. 5. c. Social costs - beauracracy and litigation d. Potential for abandonment increased. [Combination of Housing Codes and Rent Control] Other Options a. Public Housing COUNTER: turn into a slum b. Direct Subsidies to T’s i. COUNTER: just end up subsidizing LL b/c LL keep raising rents. ii. Beauracratic problem w/ syst of subsidies (1) Social cost and agcy-admin cost (2) Not always work and reach people who needs. iii. Paternalistic problems : only use aid for rent and nothing else. c. Rent Control is a lot easier to get through leg than public housing or subsidies i. Rent control has hidden public costs not as obvious as the others (increase in tax) ii. People who benefit from rent control are not just poor. More political power. 93 DEEDS OF LAND I. WARRANTIES OF TITLE, pp. 626-635 A. Short Form Deed: contains all the essential elements rrequired for an instrument to be a conveyance: [1. Deeds in land must be Written. Statute of Frauds.] 2. Grantor 3. Grantee 4. Words of Grant 5. Description of Land involved a. Heirarchy of description: Natural monuments => artificial monuments => references to afjacent boundaries => directions => distances, area => place names 6. Signature of Grantor (Any mark of grantor is sufficient.) [7. Acknowledgment: most states required for recordation] [8. Consideration (–for $10 and other considerationî); bargain and sale required for recordation as bona fide purchaser] [9. Delivery] [10. Recordation: Deeds do not have to be recorded to pass title. Recordation gives protection to a range of persons from others who may also claim title. B. Forgery and Fraud 1. Forgery: Grantor whose name is forged prevails over all persons including subsequent bona fide purchasers. 2. Fraud: Voidable by the grantor only in an action against grantee, but subsequent bona fide purchaser w/o notice prevails over grantor. 3. As between two innocent persons suffering a loss due to third party, the law places the loss on the person who could have prevented to loss to the other. General Warranty Deed: warrants title against all defects in title, whether they arose before or after grantor took title. [Usually used to convey land.] Present Covenants (broken when conveyed; S/L begins to run immediately): 1. A covenant of seisin: The grantor warrants that he owns the estate that he purports to convey 2. A covenant of a right to convey: The grantor warrants that he has the right to convey the property. (In most instances this serves the same purpose as the covenant of seisin, but it is possible to have seisin but no right to convey, eg. trustee.) 3. A covenant against encumbrances: The grantor warrants that there are no encumbrances on the property. Encumbrances include mortgages, liens, easements, and covenants. Future Covenants (broken when grantee is successfully evicted, buys up a paramount claim, or is otherwise damaged): 4. A covenant of genral warranty: The grantor warrants that he will defend against lawful claims and will compensate grantee for any loss that the grantee may sustain by assertion of superior title. (The granto is only liable if the grantee loses to a superior lawful claim.) 5. A covenant of quiet enjoyment: The grantor warrants that grantee will not be dirsturbed in possession and enjoyment of the property by assertion of superior title. The covenant is for all practical purposes identical to the covenant of general warranty. 6. A covenant of further assurances: The grantor promises that he will execute any other documents required to perfect the title conveyed. Special Warranty Deed: warranties only against grantor’s own acts but not the acts of others. [Usually used to convey land.] Quitclaim Deed: no warranties of any kind (merely conveys whatever grantor has, if anything). [Usually used for trustee deeds: –I give you whatever was given to me in trust.î] Brown v. Loder (1979), pp.632-634: 1947: O (reserve 2/3 mineral interest) ----> Bost 1957: Bosts --- General Warranty Deed ---> Browns 1974: Browns --- K to sell mineral rights ---> Consolidated C. D. E. F. 1975: Brown sues Bosts’ estate for 2/3 damages under breach of covenant of quiet enjoyment (10 yr S/L has already run against –presentî warranties.) 1. There is no actual or constructive eviction (breach of covenant of quiet enjoyment) until grantee is disturbed by the owner of the paramount title taking possession. Assertion of adverse title is required; grantee needs to feel the pressure of adverse title. S/L begins to run on –eviction.î 2. Grnatee must first have possession or be prevented from taking possession. 3. The covenant of general warranty and covenant of quiet enjoyment only gives possession and enjoyment of the premises, it does not guarantee perfect title. a. The mere existance of a paramount title does not consitute a breach of covenant of quiet enjoyment. There must be an assertion of paramount title. 4. To possess a mineral estate, one must undertake the actual removal thereof (rule of capture) or do some other act as to apprise the community that such interest is in the exclusive use and enjoyment of the claiming party (adverse possession). 5. No one w/ a better right has come along and told grantees to release possession and enjoyment or has come along and began to possess it themselves => no breach of covenant of quiet enjoyment. 6. Browns failed to do a title search to find the reservation of interest! The reservation would plainly have turned up under a competent title search. 7. Brown has to start excavation before O can have c/a to evict. There is no constructive possession so no adverse possession from O. 8. Consolidated has no privy of K to sue Bost. G. Problems, p.635: #1: Suppose the Brown buy up the 2/3 interest in the minerals for $10K and then sued the Bosts’ executor on the covenant of general warranty. Can they recover? • NO. The new title does not have anything to do w/ what Bost gave Brown. This new title is not an assertion by the seller of paramount title. • Brown can only get remedy by taking possession of the minerals and waiting for threaten eviction from O then buy rights from O. Only then can he sue Bost for the fair market value. #2: Suppose that the buyer has knowledge of an encumbrance on the property when he accepts the general warranty deed. Is the covenant against encumbrances breached? • Depends. If the encumbrance affects title/estate granted (value) then it is included in the covenant. Eg. mortgages, liens, easements and covenants. • If it is an encumbrance affecting physical conditions (they are apparent and in contemplation by the parties), it is usually excluded from the covenant. Physical condition usually means public easements that are open and notorious at the time of conveyance Other physical encumbrances should require manifestation in the deed to be excluded from the covenant. • For zoning laws, the grantee assumes the risk for violations under covenant against encumbrances. The reasoning is that it is just as easy for the grantee to discover the violation as it is for grantor to disclose. Encumbrances and Sale of Land [Not under convenant against encumbrances but K sale of land.] 1. Implied Covenant of Marketable Title: In all land transactions, there is a rebuttable and waivable common sense idea that the grantor assures that the grantee has title that is reasonable to receive from a grantor. When K calls for conveyance of land, the seller cannot convey land unless he has title to it. a. A marketable title is a title reasonably free from doubt, one which a prudent purchaser would accept. Although a perfect title is not required, the title must be such that there is no reasonable probability that the buyer will be subjected toa lawsuit. b. Encumbrances under K for sale usually means mortgages, liens, easements and covenants. 2. Usually the K will allocate the risk for defects. 3. Encumbered FS is not a marketable title. 4. Zoning measures generally do not block marketable title. It may when a zoning measure is enacted after buyer has signed K. An existing violation of zoning regulation does block marketable title unless the parties K away the risk. H. II. DELIVERY OF DEEDS, pp. 648-657 Delivery requires words or conduct of the grantor that shows an intent to make the deed operative and to pass an interest immediately to the grantee (can be a future interest). In other words, the conduct must show an intent to make the deed legally effective now. The crutial issue is intent. Court have found delivery where the grantor manifests by words, acts, or circumstances his intention to be bound. A public act is deemed important to establish intent to be bound. Delivery requirements of deeds are the same as for gifts (indeed, deeds can be given as gifts). Delivery is presumed if: (1) the deed is handed over to grantee, (2) the deed is acknowledged by grantor before a notary, or (3) the deed is recorded. No delivery is presumed if grantor retains possession. These presumptions may be rebutted by extrinsoc evidence. Cancellation after delivery is ineffective. A. Although generally a deed delivered to grantee may not have oral conditions attached (violation of Statute of Frauds voids the oral condition), a deed can be delivered into escrow w/ oral conditions. Where the escrow agent is given written instructions, the grantor is bound by the delivery to the agent. Where grantor deposits deed w/ oral conditions, most courts allow grantor to revoke unless there is a written K of sale (to show intent). Merry v. County Board of Education of Jefferson County (1956), pp.649-651: Shortly before her death S and the Board were negotiating for sale of land. S executed a deed and gave it to here attorney so they might deliver it if the Board accepted her written offer. S died. Not knowing of her death, the Board subsequently accepted the offer and paid the puchase money and received the deed. The executors of S brought suit to cancel the deed. Court finds there was no delivery. 1. There was no delivery during her lifetime, and S’s death revoked the power of her attorny to deliver. 2. Parties must actually contract in order for there to be a valid escrow. 3. The K ws unilateral and unenforcable so long as it remain executory. Therefore the escrow was revokable at any time before it was accepted and acted upon by grantee. There is no agreement on price which cannot be assumed. 4. The death of grantor is ipso facto revocation of offer. 5. If there is a valid K and merely a condition precedent of payment, then delivery is good. 6. Physical possession is not necessary for delivery. In escrow situations, the doctrine of constructive delivery relates the second delivery back to the time of delivery to agent if conditions occur. 7. The real purpose is to ascertain the true intention of the grantor. As in a gift situation, delivery grows out of intention. a. Plaintiffs were really attacking the intentions of S. Though they were saying no delivery, they proved it by showing there was no agreement w/ consideration. 8. Written conditions are valid under Statute of Frauds. It may either mean: a. No delivery and deed is not effective until condition happens OR b. Valid deed and delivery w/ vested interest passing subject to condition precedent 9. Oral conditions are generally void under Statute of Frauds. a. Delivery is good if made directly to grantee b. No delivery to escrow unless there is valid K Question, p.651 #2: Seller is ready to deliver deed to buyer, but buyer does not yet have the money. Seller says to buyer, –I’ll give you the deed now on condition that you pay me by the fist of next month.î Buyer takes the deed and record, but does not pay. Where direct delivery is made to grantee on an oral condition, the delivery is good, even though the oral condition is not complied w/. What is the seller’s remedy? • There is a K just no money yet. Parties have expressed an intention to sell. Condition subsequent. • Normally oral conditions will be voided under Statute of Frauds. Suppose seller said, –Here, you hold it while while we negotiate.î • No K. There is no agreement about the consideration to be paid so seller could not have agreed to bind herself. Can only say that seller agreed to be bound once they agree on a price. • The same would be true if seller delivered to a 3rd party to hold. There is a valid delivery when seller and buyer reach an agreement. The third party at that point is regarded as an agent of both parties. Before agreement, 3rd party only agent of seller and is terminable at any time by seller. B. C. If grantor retains the power to revoke the deed, court are split over whether delivery is valid. Probably most modern courts will give effect to the deed as creating a valid interest in the grantee that can be revoked. St. Louis County National Bank v. Fielder (1953), pp.652-657: Grantor through quitclaim deed gave a presently vested REM in FS subject to complete defeasance if grantor revokes (grantor retained a LE and EI in hinself). Court held grantor passed interest immediately. 1. The reservation of power to revoke is valid under modern trend (as opposed to traditional doctrine against encumbrances on alienation). W/ modern recording system there is no longer the fear that the power to revoke will produce fraud on creditors. a. The old view was that power to revoke produced a testamentary deed which was void under the Statute of Wills. 2. Fielder is the majority view allowing revocable deeds. 3. The hard cases is where it states, –This deed shall not take effect until grantor’s death.î Does this mean possession or transfer does not take effect until death? Court are usually very fact specific. 4. See also Revocsable Trusts, supra. 5. Compare revocable deeds of land, gifts of personal property, and revocable trusts. How come gifts of personal proerty are not revokable, especially because personal property can be part of a reocable trust? a. Statute of Frauds only apply to deeds and revocable trusts of land. b. One explanation (an unsatisfactory one) is that a revocable deeds and in general revocable trusts are in writing so there is less room for fraud. c. Deeds are allowed to be recorded and thus reduces the chance of fraud. d. In the end, it is probably a judgment call that there is too much room for fraud w/ gifts of personal property. TITLE ASSURANCE III. THE RECORDING SYSTEM, pp. 711-714 Generally any knid of instrument creating or affecting an interest in land can be recorded. Under recording acts subsequent bona fide puchaser for valuable consideration who records is protected against prior unrecorded interests and subsequent conveyances. But remember: the CL rule of –prior in time, prior in effectî continues to control, unless a person can qualify for protection under the applicale recording act. A. Process 1. Once a K is made to purchase an estate, must do a title search to see if the grantor owns the property or if the title is clear. 2. Search is done at the Registry of Deeds which provides public record of transactions affecting title to land. 3. Records are kept in bound volumes w/o regard to names of parties or location. Grantor-Grantee Index: most common. 1. Begin from Grantee Index and search from present grantee all the way back as necessary to cut off earlier claims (statute of limitations) or back to the original grant from the sovereign. Usually a statute will determine how foar you have to go. 2. Then switch to Grantor Index and search forward if any former grantor made a conveyance or encumbrances on property that affects the title. You must search forward from the time of the execution of first deed giving title to owner until the time of the first deed recorded out of that owner. 3. Difficulties w/ the search a. If a link in the chain proceeded through inheritance, must look at probate records. Very difficult unless deed refers to the will. b. Change in names through marriage, divorce, legal changes, etc. c. Intestacy, divorce, adverse possession, and the like will not be reflected in the grantor-grantee index. d. Liens against property recorded in a different system Tract or Block Index B. C. 1. 2. 3. 4. D. Key is not to grantor or grantee but to tracks of land. Searcher must obtain block number and lot of parcel of land. Index will contain a listing of all the recorded instruments [document] related to that tract. The primary obstacle is the many early deeds in eastern states described land by netes and bounds. Recording Statutes 1. Statutes that govern the determination of who owns a tract when an owner of a tract of land sells it twice. a. Growth of recording statutes reflect the mkt economy where the commercial transfer of land happen frequently. b. Now the first purchaser is required to record his/her deed. Once recorded, the purchaser is protected against later purchasers and earlier unrecorded instruments. 2. Race Statutes: First person to record wins. a. Actual knowledge of prior purchaser’s claim irrelevant. b. However, a prior instrument that has been –recordedî so as to give constructive notice is important. c. Only LA and NC have race statutes for conveyances. 3. Notice Statutes: 2nd purchaser prevails if a. No actual notice of 1st purchaser’s instrument b. Prior grantee has not –recorded.î No constructive notice. c. Subsequent bona fide (w/o notice) purchaser for valuable consideration d. Notice statutes protect 2nd purchaser who fails to record even when 1st purchaser later records. e. Shelter Rule: A person who takes from a bona fide purchaser protected by a recording act has the same rights as the grantor. Therefore even if a 3rd purchaser has notice, he can still prevail by buying from 2rd bona fide purchaser. 4. Race-Notice Statutes: 2nd purchaser prevails if a. No actual notice of 1st purchaser’s instrument b. Prior grantee has not –recorded.î No constructive notice. c. 2nd purchaser is first person to record. 5. Who wins if both fail to meet legal requirement? a. Depends on the statute. 6. Recordation does not a. Validate Invalid Deeds b. Protect against prior adverse possessor who does not record Problems, pp.713-714: #1: O conveys to A who does not record. O dies leaving heir, H. H conveys to B who records. B purchases for valuable consideration and w/o notice. Who prevails? •B prevails. Any other way would render recording system useless; everyone who bought land from the heir of the record holder cannot be sure if title is good. Doen’t matter if H took under residuary clause of will. • Even after 1st deed, O has the power to transfer title to a bona fide (good faith, no notice) subsequent purchaser for valuable consideration. • A has c/a against O’s estate #2: O conveys to A who does not record. O conveys to B who purchases in good faith and for valuable consideration but does not record. A then records and conveys to C. C purchases in good faith and for valuable consideration. B records. C records. Who prevails under notice statute? • C prevails. B over A, and C over B. Under a race-notice statute? • C prevails. A over B, and C over B. • Shelter Rule, C stands in the shoes of A. Protects A’s rights. O conveys to A who does not record. O conveys to B who purchases in good faith and for valuable consideration but does not record. C purchases from B in bad faith and for valuable consideration. A records. Who prevails under notice statute? • C prevails. Shelter Rule, p.712 Under a race-notice statute? E. • A prevails because recorded first. See Hughes, infra. #3: O contracts to sell a sub-division lot to A. May 30, O hands A a deed and A hands O the purchase price. June 3, O discovers that A intends to move a mobile home onto the lot. June 4, O records a declaration of a restrictive covenant onto all sub-division lots prohibiting mobile homes. June 5 A records and move mobile home onto the lot. July 3, A conveys to B who records. In late July O sues B asking for an injunction. What result? • B does have constructive notice of the restrictive covenant. As he searches back, B -> A -> O, then forward, O -> A, he will find the covenant. • However B will see that A’s deed was executed before the restrictive covenant. B has a valid arguement that the covenant was not part of the deed or in the bargain between A and O at the time of conveyance. You need to own the land in order to impose a restrictive covenant on it. • The restrictive covenant is not binding notice on B since O has no power to create one on land he does not own. #4: O owner of BA which is worth $50K borrows $10K from A and gives A a mortgage on BA. A does not record. O then borrows $14K from B and after telling B of prior mortgage to A give B a mortgage to BA. B records. O then borrows $5K from C and gives C a mortgage to BA. C has no notice of A’s mortgage. C records. Subsequently BA is discovered to contain hazardous waste and its value plummets. O defaults. Upon a foreclosure sale, BA sells for $20K. How should this amount be distributed among A, B, and C? Suppose all the figures are $5000. How should the fund be distributed? • Parties should be given their expectations. B expected to be subordinate to A, and C expected to be subordinate to B. A should expect to get screwed since he didn’t record. • PA Rule: First in time --> A - B - C • VA Rule: First to record --> B - C - A • NJ and NY Rule: Since C stands as a creditor above A, C takes A’s place. However C stands below B. Therefore C takes up to what A should get. If C < A, then A would get A C. Then B would get his full share. Then C would get the rest. Then the rest to A. • Hoag v. Sayre: C gets paid first from A’s claim amount. B and rest of C is pari passu. A gets what is left. • OH Rule (comes out the same as NJ): C = Total - B B = Total - A A = Remainder • MS Rule: If Total > B then: Set aside B’s share. C gets the rest. A gets claim from B’s share minus C’s share A= B - C. So B get whatever is left of his share. If Total < B then: C=0. A get paid in full. B gets the rest. IV. CHAIN OF TITLE PROBLEMS, pp. 721-736 Chain of title refers to the period of time for which records must be searched and the documents which mustr be examined w/in that time period. The meaning of chain of title varies for each jurisdiction; it includes the series of recorded documents that give constructive notice to a subsequent purchaser. A. O conveys to A, who does not record. A conveys to B, who records the A-to-B deed. O conveys to C, a purchaser for value who has no actual knowledge of the deeds from O to A and from A to B. C records. Who prevails, B or C? The issue is: Is the A-to-B deed properly –recordedî so as to give constructive notice to the world? Board of Education of Minneapolis v. Hughes (1912), pp.722-724: 1906 - Hoerger ----> Hughes (ommitting Hughes’ name) 1909 - Hoerger (O) ----> D & W (A), not recorded 1909 - D & W (A) ----> Board of Ed. (B), records 1910 - Hughes (C) fills in name in –(O) --> (C) deedî and records 1910 - –(O) --> (A) deedî recorded Q: Did –(A) --> (B) deedî give constructive notice to (C)? A: NO 1. Race-notice state. 2. 3. 4. 5. 6. 7. B. Held: NO notice, C is a subsequent good faith purchaser for valuable consideration whose conveyance was first duly recorded. The School Board recording does not take effect until D&W records. Court says the 1906 deed is a –nullityî until the grantee name is filled in. The court also says the 1906 deed gave Hughes the implied authority to fill in his name. => How can 1906 deed be a nullity if it gives legal power? a. Even if the 1906 deed is seen as a mere K to convey, Hughes can sue for specific performance if Hoerger revokes. So really the conveyance was enforcable since 1906. b. Also the consideration was cashed in 1906. So why not say the parties intended to convey in 1906? c. Implied authority = Legal power = Property Interest The court may be avoiding question of defining what –recordationî means. This was a big question in many jurisdictions at the time. Questions, p.724: #1: Would the result in the case be any different in a notice jurisdiction? • If deed in 1910, NO. The –(A) --> (B) deedî is a –wild deedî and does not give subsequent purchases constructive notice. So C is still bona fide subsequent purchaser. • If deed in 1906, YES. D&W would be the subsequent bona fide purchaser and School Board would be protected under Shelter Rule. #3: What if court said –(O) ---> (C)î deed took place in 1906? • NO DIFFERENCE in race-notice jurisdiction. Zimmer v. Sundell. • The arguement is that a legal recording requires a connection to the chain of title. Therefore the School Board recording is not legal until D&W records, and Hughes has the first legal recording. The moral of the tale is that not all recordations protects against subsequent bona fide purchasers for valuable consideration. Recordation must be chain of title to give protection. O, owner of BA and WA, conveys BA to A by a deed that also transfers to A an easement over WA. A records the deed, and it is described in the index as a deed to BA. O subsequently conveys WA to B, a purchaser for value who has no actual knowledge of the easement over WA conveyed to A. B records. Is WA subject to the easement? The issue is: Does the deed of BA from O to A give constructive notice to purchasers of WA? Guillette v. Daly Dry Wall, Inc. (1973), pp.725-727: 1967 - Gilmore ----> Walcotts, recorded (restricting only Walcotts, referene to common plan w/o restrictions) 1968 - Gilmore (O) ----> Guillette, (A), recorded (restricting Guillette and all lots retained by Gilmore, reference to plan w/o restrictions) 1972 - Gilmore (O) ----> Daly (B) (no restrictions in deed, reference to common plan w/o restrictions) Q: Does –(O) --> (A) deedî give constructive notice to (B)? A: YES. 1. Notice state. 2. Gilmore is a common subdivision developer of undeveloped tract land for residentioal purposes only. The 1968 restriction on his remaining land is a restriction benefitting everyone in the developement. It is a scheme of reciprocal benefits and burdens of covenant. 3. When a common grantor has not bound his remaining land in writing, the Statute of Frauds prevents enforement of restrictions on grantor or subsequent purchasers of a lot not expressly restricted. a. Some jurisdictions require writing to be in Daly deed. b. Some jurisdictions imply restiction even if not in Guillette deed. 4. Requires title search of every prior deed grantor gives out of a common subdivision. 5. Wool: A clear rule is what is really needed one way or the other. 6. The cases are equally divided between the position of Guillette and the position that an easement or restrictive covenant on WA that appears in a prior deed of BA from a common owner of BA and WA is not in the purchaser’s chain of title to WA. a. Local practice also varies w/ colloquial meaning of chain of title being used. b. No one really searches common plans because they are not official, not drafted by a lawyer, usually contain many faults, etc. 7. Did the uniform practice of the other lots give Daly notice? See Inquiry notice - Sanborn v. McLean, infra. C. A conveys BA to B by general warranty deed. B records. A subsequently acquires title to BA from O. A records the deed from O to A. A then conveys BA to C, a purchaser for value who has no actual knowledge of B’s deed. C records. Who prevails, B or C? The issue is: Does the A-to-B deed gice C constructive notice? A: NO. Sabo v. Horvath (1976), pp.727-731. 1. Race-Notice state 2. Sabo is a good faith purchaser for valuable consideration even though he took by quitckaim deed. a. In a majority of states, a grantee under quitclaim deed is treated the same as a grantee under warranty deed. No inference is made that a quitclaim deed is given because the grantor had some doubt about the validity of his title. See Marketability of Title, supra. b. Some states impliy inquiry notice of prior unrecorded conveyances. Grantee is required to make a reasonable inquiry and is responsible for anything that may turn up. i. In this case, this may make no difference because it is probably unreasonable to search for a wild deed. But probably would have required to ask Grantor if he conveyed previously. 3. Estoppel by Deed: The day O conveys title to A, by law it automatically conveys to B. A is estopped from claiming he did not have title when he conveyed warranty deed to B. a. ???even if it was a quitclaim deed??? B gets interest from estoppel by deed, not estoppel by warranty since there was no warranty. 4. Most courts hold that C prevails over B on the theory that a deed from A to B, recorded prior to the time title came to A, is not in the chain of title. a. Rationale: It would be excessive burden to search under each grantor’s name prior to the date the grantor acquired title. b. Would require search of Grantor Index from time grantor gives title to grantee all the way back to birth of Grantor in order to make sure Grantor did not convey earlier and is estopped by deeds. c. Even in the minority jurisdictions (MA, NY) there is a gap between practice and the chain of title. Most people will make it up through title insurance. 5. Conveyance of title to Horvath was outside the chain of title, a wild deed. Does not serve as constructive notice to subsequent purchaser who duly records. 6. Note: If there is no legal notice ==> Necessarily no valid recordation If there is no valid recordation ??> can still have actual notice 7. Problem p.731, #3: O is the owner of BA. A conveys BA to B. A conveys BA to C, who gives valuable consideration and is w/o actual knowledge of B’s deed. O conveys BA to A. B records. A records. C records. C goes into possession. Bring action of ejectment against C. Judgment for whom in a notice jurisdiction? • If general warranty and estoppel by deeds, C prevails. • If no estoppel by deeds, B can eject C, and A can eject B. • It doesn’t matter that A records after B because a search is supposes to start from when A received the execution from O, not when A records. In a race-notice jurisdiction? • If general warranty and estoppel by deeds, B prevails. • If no estoppel by deeds, B can eject C, and A can eject B. O conveys to A, who does not record. O subsequently conveys to B, who knows of the conveyance to A. B records. A records. Later B conveys to C, a purchaser for value who has no actual knowledge of the deed from O to A. C records. Who prevails, A or C? The issue is: Does the deed from O to A, when recorded, give constructive notice to C? Woods v. Garnett (1894), pp.732-735: 11/9/1891 - Riley (O) ----> Pond’s Trustee (A) (filed w/ defective acknowledgement) 5/6/1892 - Riley (O) ----> Cocke’s Trustee (B) records (Cooke sees defect in –(O) --> (A) deedî and records) 10/1/1892 - Pond assigns note to Woods 10/7/1892 - Riley re-acknowledges deed of trust to Pond’s Trustee 10/24/1892 - Woods re-record Pond deed (A) records 11/19/1892 - Land was sold under both deeds of trust. Sale to Woods of Pond’s interest. (B) ----> Garnett, (C) records. D. 1. 2. 3. 4. 5. 6. 7. 8. Whoever buys from A take the shoes of A under Shelter rule. So it is a fight between A and C, two bona fide purchasers. Notice state. Cocke did not have actual notice (he did not know) or constructive notice (the recordation was invalid) but he had inquiry notice. So Cocke is not a bona fide subsequent purchaser. B never wins. In most states C prevails over A. a. Rationale: If A prevails, the title searcher would have to look under the name of each grantor in the chain of title to the present date to see if there wa a deed executed before the first recorded deed but recorded later. b. Minority states (CA and NY, MS) A’s deed gives notice to subsequent purchasers although recorded after B’s deed. In these states, the title searcher must search to the present date under the name of each person who ever owned the property in order to pick up deeds recorded late. c. Title searchers often ignore the law and take the risk. Don’t cry too much for Garnett. Unlike C in the example above, Garnett had inquiry notice same as Cocke because of the first recording even though faulty. Garnett was not a bona fide subsequent purchaser. In fact, Garnett did no title search at all. The court went farther than it had to. It could have just held that Cocke and Garnett were not bona fide subsequent purchasers under MS notice statute. Insted the court forces future title searchers to search every grantor to the present date. p.736: In a race-notice jurisdiction in the example, C must always fail because C can never satisfy the technical requirement of recording first in time. a. But doesn’t recording first mean recording w/in the chain of title and not the actual act of recording? Isn’t this the whole point of this case and example? Curative Acts: Many states have curative acts which provide that in an instrument of record for a specified number of years, technical defects in the instrument may be disregarded. A. Relativity of Title 1. Ejectment a. Historically can only be brought by tenants. b. ? must prove that 1)? has title 2) has possession 2. Relativity : Where 2 parties have possessory claims that are not perfect. a. Old Rule (Available in personal property action) : ? must have best title or else  use jus tertii i. ? in ejection action must win on own title so title must be perfect. ii.  may defend by using Jus Tertii a. Defense used against ejectment where  shows that O exists who has better title than ?. iii. Exception a. If X leased B land, B cannot use jus tertii. b. New rule : Straight comparison of title. jus tertii only if  is peaceful possessor. i. ? in ejection action may win over  even if no clear title a. ?’s title > Â’s title b. ? prior possessor c.  in possession through ouster of ?. ii.  may not use Jus Tertii iii. Exception a. If  is peaceful possessor and did not oust ?, can use Jus Tertii. iv. Presumption : There is a presumption of prior possession through inheritance that defeats actual possession by Â. c. Rationale i. Want to prevent dangerous behavior (ouster) and protect first possessor. So don’t make jus tertii available to Â’s who oust and find for prior possessor. a. Also let peaceful possessor use jus tertii 3. 4. 5. ii. Problem, there is an incentive for a party with better title to oust a possessor with lesser title. The ouster party will win as  b/c just compare title. Whereas the ouster party would lose if ? b/c prior possessor, since peaceful, can use jus tertii. Therefore, the new rule actually creates an incentive to oust in certain cases. a. O has best title; A has 2? title; Z has worst title but in possession. b. If A brings claim, will lose b/c Z can use jus tertii and point at O. c. If A ousts Z and Z brings claim, A barred from jus tertii but the straight comparison of title will show that A>Z, so A keeps possession. iii. Solution : get rid of jus tertii a. Eliminates incentive for ouster all the way. b. Problem : possessor w/ weak title can be kicked off by person with intermediate title. iv. THEREFORE, it does not really matter. Any clear rule will allow negotiation while uncertainty leads to litigation. Tapscott v. Lessee of Cobbs 1854 a. ? has clouded title i. Anderson?Executors?Lewis?Cobbs. ? Rives ii. Rives could have owned the land from an earlier sale. iii. Alternatively, title could have passed through Lewis. b.  has no title. If land is unowned, then he may have sufficient claim for the land through Brumigan standard : open and notorious. c. Ct found for Cobbs by changing the rules of relativity of title such that  can not use jus tertii b/c the court presumed possession by ? as heir to Lewis and so  was a trespasser and constructively ousted ?. Equittable Title Analysis a. Ct did not have to change the old rule of relativity. b. Could have relied on Lewis’ equittable title. c. Process of purchasing a house i. Bid for house ii. K to purchase house : Purchse Agreement a. Equittable title shifts to purchaser. b. Seller retains legal title but stands in fiduciary relation to buyer: can’t do anything against buyer’s interest to land. iii. Closing : Complete all required steps and deed transfered and pay $. a. Legal title shifts to purchaser. d. Mrs. Lewis could have had equittable title while Rives or TP had Legal Title. Whoever had legal title has to stand behind equittable title. e. Mortgage : Bank owns legal title but buyer owns equitable title until pays off mortgage. Seisin a. Possession + claim b. Seisin must be accompainied by possession.