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I. Property

A. What is Property?

1. The object that is subject to that of the property owner, as in something that is owned: book, house, land, jewelry

2. The rights and interests that human beings have in relation to each other and to objects (ownership, possession, tenant) describing a relationship to the object.

3. Property can be viewed as the sum total of interests in relation to a given object (i.e. car owner can drive it, paint it, sell it etc. and no one else can).

4. Property can also be viewed as a pie that can be split into component parts. These different interests could be owned by different people.

5. Property rights are regulated, and even if a person owns all the interests in the object, he is still not the sole, despotic, absolute owner. ( i.e. government can force you to pay taxes, employ eminent do-main, regulate your use through zoning regulations, when there is a necessity, sometimes you al-lowed to use someone else’s property w/o their permission etc.) We do not have absolute prop-erty rights – public policy could override property rights. (Blackstone disagrees: Property ownership is sole, despotic and absolute)

B. Four Types of Property

1. Real Propertya) Land and all interests in land, including improvements of land: Real estate; land and anything

growing on, attached to or erected on land. Real property can either be tangible (soil and building) or intangible (interests in land)

2. Personal Propertya) Tangible, movable objects that are subject to ownership and not classified as real property

(e.g., a book, car, jewelry)

3. Choses in Actiona) A thing in action; what you own is a cause of action to recover money, a debt or a thing, and

the property in question is usually an intangible item. Copyrights and patents are choses in action—a right to the exclusive use of an idea; shares of stock in a corporation. Personal property that one person owns but another possesses, the owner being able to regain pos-session through a lawsuit

i. Choses in Action are sometimes evidence by written pieces of paper, but the pieces of paper are not choses, but evidence of choses

ii. Another example is when prof took Kelly’s $20. Who owns the bill? Prof, BUT, Kelly owns the “chose in action” the right to bring an action against him for the twenty dol-lar bill.

4. Chattel Reala) An interest in real property that is possession, but less than ownership, such as the tenant’s

interest in the landlord-tenant relationship. The most important type of chattel real is an estate for years in land, which is considered a chattel because it lacks the indefiniteness of time es-sential to real property.

b) For some legal purposes, it is characterized as real estate, but for others, specifically the law of inheritance, it is characterized as a chattel or personal property (i.e. T leases Rockefeller Center for 99 years and dies after 50, his inheritor inherits the remaining years of the lease).

C. Classification of Real v Personal Property

1. Real property has different rules for its transfer than personal property

a) Real Property: O owns land, which he sells to A. A does not record the deed. O then sells the same land to B, who immediately records the deed. A bought the land first, but never

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recorded it. In a battle between A and B, B will prevail, because when it comes to the transfer of real estate, there are more formalities, and we want stability and certainty in property law. O still has the power to pass on a better title than he himself has, because A did not record the deed. Deeds of registry must be recorded.

b) Personal Property: O sells a book to A, and A pays for the book and takes it. O then sells B the book, and B pays for it. As between A and B, A will prevail, because A has possession of the book. You cannot give what you do not have. O may not have the right to sell the book, but he has the power to sell the book.

c) Real property descends differently at common law, as opposed to personal property.i. Concerning inheritance, people who inherit real estate are called “heirs,” those who

inherit personal property are called “next of kin.”

2. Different legal rules govern

a) In re Horn – testatrix gave her sister “diamond ring and any other personal property” she also owned stocks (choses in action). Courts said “ain dan haklal elah kiprat” (ejusdem geneis) so the stocks weren’t included. If she would have just said “I give her all my personal property,” they might have decided she included the stocks since the layman might not know the distinction.

b) Gordon v. Gordon – “I only leave assets to child if he marries s/o born to the Hebrew faith.” He married a convert. Court said that even though in Halacha converts are ‘born again’, fa-ther is not a scholar and prob. meant it literally.

3. Different procedural remedies may be available

a) The Statute of Limitations for bringing suit to recover real estate is typically much longer than the Statute of Limitations to recover personal property. If you don’t bring suit over someone taking your land within the statute of limitations the doctrine of adverse possession says that that person will now have legal title.

4. Classification may make a difference as to ownership

a) Ex. In a landlord-tenant situation, a landlord leases a commercial space for five years. The tenant puts in lighting fixtures. After the five years have passed, there is a question as to who owns the lighting fixtures. If they are part of the real estate, they will belong to the landlord. It they are personal property, they will be the tenant’s property.

5. Taxes may apply differently depending on the property interest.

a) Ex. A California resident purchased a co-op in New York. The California resident dies, and the estate wants to sell the co-op. A purchaser, who wants to buy the co-op, wants to be as-sured that all estate taxes have been paid. In fact, there is no estate tax due, because the na-ture of the person’s interest as owner of a co-op is a chose in action, not real estate and NY only has jurisdiction over noncitizens’ real estate.

6. Difference in applicable law when there is a conflict of laws

a) Real Property: the traditional rule is the law of the place where the land is situated or located is the law that will control.

b) Personal Property/Choses in Action: the controlling law is the law that controls the owner of the property (based on his domicile)

II. Wild Animals

A. Possession

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1. Possession is the first step to ownership. Prior to the time that someone reduces the animal to pos-session, no one owns the wild animal. The state may have the power to regulate the capture of the animal, but it does not have legal title to the animal.

2. A person can establish ownership of a wild animal (ferae naturae) by killing it or taking it into his or her possession. Once a person reduces an animal to possession, that person has a property right in that animal. The only way to get an enforceable property right in a wild animal is by reducing it to pos-session.

B. What Constitutes Possession?

1. Possession is the seizing or holding of personal property, with or without a claim of ownership.

2. There are two elements, both of which must be present to acquire the rights of a possessor:

a) Objective manifestation of intent to control on the part of the possessor;

b) Actual control - actual seizure or holding of the property.

3. Theory of Legal Relativity

a) Courts define property differently for different legal purposes. However, they have consis-tently held that some degree of control is required for possession.

b) Degree of Control

i. Absolute Dominion (All Steps Necessary to Render Escape Impossible)

a. Pierson v Post1. Fact Summary: Post pursued a fox on a public beach. Pierson shot

the fox and claimed it. 2. Mere pursuit of a wild animal is not enough to constitute possession

or give a party an enforceable property right. 3. The court held that Post had to have actually seized the fox with the

intent to do so, before Pierson’s interference could be actionable.

b. Young v Hichens1. Fact Summary: Young shot out a net to capture a school of fish. The

fish were not completely enclosed in the net. Hichens entered through the opening and captured the fish.

2. The court defined possession as absolute dominion of control over the animal. The court held that Young had not yet taken actual pos-session, nor did he have constructive possession, because all but re-ducing the fish to possession is not the same as possession.

c. Buster v. Newkirk1. P shot and wounded wolf and followed it onto D’s land where D killed

it and took it.2. Court said that since P had not gained absolute control over the

wolf, he couldn’t get a directed verdict

ii. All Steps to Render Escape Practically Impossible

a. State v Shaw1. Fact Summary: Shaw took fish from a third party’s nets and was

charged with larceny. To be convicted of larceny, Shaw must have taken the fish from the possession of the owner with the intent to de-prive. On trial, the jury returned a directed verdict for Shaw, because not all steps necessary to render escape of the fish impossible had

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been taken. The state appeals on a matter of law (does not change the outcome for Shaw), and the court could not change the definition of larceny, but it could change the definition of possession.

2. The court held that the standard for possession is more relaxed and possession should be defined as taking all steps necessary to render escape practically impossible.

3. This seems to be a policy decision based on a desire to compensate the defendant. If they did not apply this liberal interpretation of pos-session, people could just take fish out of people’s nets. We do not want to encourage criminal activity.

4. Always take into account and advise your client: is the price of the animal worth a costly trial?

C. Prior Possessors: First in Right, First in Time

1. If there are two legitimate claims and not enough to go around, the earlier claim often wins. The rule of first in right, first in time establishes a priority of property rights based on acquisition of the right in question. Typically, the prior possessor has a superior property right.

a) A prior possessor, even if a wrongful possessor, will prevail.

i. T1 wrongfully takes possession of O’s land. T2 trespasses on the land and chops down trees. T1 can sue T2 for the value of the trees, because prior possession even though wrongful, is enough to bring suit against a subsequent wrongful possession. T1 has a superior title to T2—T1 has a superior title to all but the true owner. (Ander-son v Gouldberg)

ii. Jus Tertii – Asserting the rights of third parties. T1 has superior title to T2. T2 would want to assert rights of 3rd party (the TO) so that he could say T1 doesn’t have title, but he can’t. T2 as a wrongdoer cannot assert the rights of third parties. T1, even as a wrongdoer, has superior title to T2.

a. By wild animals we don’t apply this rule since your rights are based only on possession so we want the possession to be as untainted as possible.

2. Exceptions

a) Custom

i. Custom and usage can become a source of law and a basis for awarding posses-sion.

a. Ghen v Rich 1. Fact Summary: Ghen is a whaler pursuing a whale off Cape Cod. He

shoots a bomb lace and hits the whale, which dies of the wound. The whale sinks and two days later is discovered on a beach by Ellis, who sells it to Rich.

2. The person who was not the first possessor gets an enforceable property right. The court held that the mortal wound inflicted by Ghen, constituted constructive possession based on the custom of the industry.

b. Mussel hypo:1. A owns swampland and a river runs through it. He owns the bed of it.

Turns out B has taken out 307 tons of mussels over many years and made a big profit turning them into pearls. A consults you

2. You find a case where even when A owns the bed, he can’t recover trout taken by T since they are ferae naturae.

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a. You could distinguish that in this case the mussels are imbedded in the soil so they are A’s through rational soli

3. You find a case holding that even in an enclosed pond entirely owned by one person, the custom is that anyone can fish there un-less notice is given otherwise.

a. You could distinguish that there’s a big difference between a few fish and tons of mussels. No implied consent to take that much.

4. Now assuming that A owned them, how much can he recover mus-sels or pearls?

a. Under the doctrine of Accession, the court evaluates:i. Degree of culpability - willful or innocent wrongdoer?ii. Degree or extent to which the value of the object has

been enhanced or its identity changed – the more the change, the more the scale tips toward the wrongdoer (he’ll still be liable for the original value)

ii. Accession - doctrine that says the measure of damages changes the nature of the property

a. Courts consider: (1) frame of mind of trespasser, (2) how much has the value augmented

b. Hypo: O owns a lot of land. Along comes superman down O’s property. Su-perman picks up a pebble and takes off with it. He is liable for the valuable of a pebble. He uses his superpowers to make the pebble into a hope dia-mond.

1. Can you recover the value of the hope diamond? Or can you re-cover only for the pebble? It depends

a. what is the frame of mind of superman?b. how much was the value augmented? The greater the

change the scale is turned to the wrongdoer. If the owner is in the business of selling pearls the owner can recover on the basis of interfering.

b) If the possessor violated the Criminal Law

i. Those who broke the criminal law in obtaining possession of the animal do not get ti-tle to the animal.

ii. Wild animals are a unique area of law, because the only way you can get an enforce-able property right of a wild animal is by reducing it to possession. Since possession looms so large in terms of acquisition and retention of rights, the possession should be untainted, since possession is the ultimate source of property rights.

a. Two hunters are hunting a fox on a public beach. H1 captures the fox, but H2 takes it away. H1 violated a criminal statute requiring a license to hunt.

1. In Babson v Dailey, the court held if the plaintiff doesn’t have a li-cense to hunt, he loses the fox and he cannot sue for the value of it. The dictum from Babson says if you violate the criminal law, you can’t be protected by the civil law.

2. The argument for recovery is that the statute could have but did not add a penalty for violators, thus, maybe he should not be deprived of right to property.

b. If P captures a bear on the off-season and D takes the bear, P cannot sue for the bear even though he was a prior possessor, because he violated the criminal sanction.

1. In James v Wood, a criminal statute says that bears can only be captured during certain seasons, and if a bear is captured during the off-season, then a criminal statute has been violated.

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2. In Jones v Metcalf, a criminal statute says that if you want to cap-ture bears, you must used a trap with certain parameters. P violates the parameters and reduces the bear to possession; D takes the bear. Again, P cannot sue.

c) Ratione Soli (Constructive Possession)

i. Ratione soli means on account of the soil and expresses a legal conclusion that a person in possession of the land has “constructive possession: of things that are on or under his land even though they are not actually in his control. There are two branches to the doctrine:

a. The animal must be living on the land

b. It must be captured on the land

ii. If an animal is living on land, and is captured on the land, regardless of who captures the animal, the owner of the land owns the animal. Animals are considered to be part of the soil—part of the land.

a. Prior to the time the fox is reduced to possession, no one owns the foxb. Hunters A and B are trespassing on O’s land, and they see a fox. A pursues

it, but B captures it. Between A and B, under Pierson, B will get the fox. But O will get the fox in the end, because it was living on his land.

c. O owns land, and he gives permission for T1 and T2 to be on the land, and hunt. If T1 captures a fox, O1 may have waived his right to ownership.

d. If O gave T1 permission but not T2, and T2 captures the fox, T1 cannot claim the fox because he was pursuing it. T2 would claim pursuit is insuffi-cient under Pierson v Post. T1 would claim that O transferred his rights of ra-tione soli to him. However, statute of frauds says that the transfer of land must be in writing, and this was done orally. Interests in real estate cannot be transferred orally. However, you could say that he didn’t transfer his rights, but just waived his rights to claim ratione soli which does not require a writ-ing

iii. However, if the animal living on land is captured on another land, title in the animal will go to the possessor.

a. If T1 commits trespass and reduces the fox to possession on O’s land, then he does not get the fox if the fox was living on O’s land. But, if T1 commits 2 trespasses and pursues the fox onto O2’s land, he gets possession. (2 wrongs make a right: Sutton v. Moody)

iv. Rights acquired through Ratione Soli are treated for some purposes as real property rights (i.e. can’t be guilty of larceny through R.S. since it only applies to Personal property) and for other purposes as personal property

3. The State doesn’t have a property right over wild animals in its territory; only power of regulationa) Missouri v. Holland: International treaty by U.S. regulated the capture of migratory birds.

MO protested saying they had property interests in them and therefore Supremecy Clause didn’t apply. Court said no way.

b) Commonwealth v. Agway: State sued chemical company for polluting public stream which killed fish. Court says they can’t recover on property grounds but can pass statutes against polluting.

D. Common Law Rule of Qualified Property Interests

1. Qualified Property Interests

a) When a wild animal is reduced to possession, a qualified property interest is acquired. The property interest is conditional upon possession being maintained.

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i. Mullett v Bradleya. Fact Summary: A sea lion escaped from Mullett’s possession. Mullett made

no effort to recapture the animal. Bradley bought the sea lion from a fisher-man, and it had been in his possession since. A year later, Mullett tried to re-claim the sea lion. The court held for Bradley.

b. Although the sea lion did not regain its natural liberty, because it did not re-turn to its native habitat, the animal was free to go as it wanted to. It is not necessary that the animal return to its natural habitat.

c. Interest in an animal can be abandoned or relinquished when the party does not factually try to claim it or get it back. The intention not to act or inac-tion accompanied by proof of intent will suffice as abandonment or relinquish-ment of the interest.

d. Once a wild animal escapes and is free to go as it chooses, a party loses its qualified property interest.

2. Exceptions to Rule

a) Animus Revertiendi

i. If an animal has animus revertiendi or the habit of returning, then a party does not lose its property right, and the party’s interest is unqualified.

a. Manning v. Mitchenson: X owns a canary, which escapes from its cage and returns on its own initiative. The second time the bird escapes, Y catches it. The courts hold that because of one prior escape and return, the animal has illustrated the habit of returning and the property right is not lost.

b) Fresh Pursuit

i. If an animal has escaped, and the party is pursuing the animal, the party does not lose his property right, as long as he is in fresh pursuit. (Blackstone)

a. If O is in fresh pursuit of the animal, and P comes along and captures the animal, P may have actual possession of the animal, but O has not lost his property interest. O’s interest is superior to P.

b. If O is in fresh pursuit, he may enter private property, under the privilege of necessity, to regain possession of the animal. (Goff v Kitts)

1. But, some courts hold that the pursuit of O ends when the animal of O enters into the property of a third party. (Carney v Patterson)

c) Actionable Interference with an Advantageous Relationship

i. Courts will hold that if a party’s property interests are maliciously interfered with they will not lose their property interest if the animal escapes because of the interference.

a. Keeble v Hickeringill1. Fact Summary: Keeble set up decoys on his pond to lure ducks in or-

der to hunt them. Hickeringill fired guns nearby to drive the ducks away.

2. The ducks were living on Keeble’s land ratione soli, but upon leaving, Keeble did not lose his qualified property interest. The court held that Keeble was entitled to recovery for his lost propert interest because Hickeringill’s act was violent and malicious interference with Keeble’s livelihood.

a. Why not same result in Pierson v. Post?i. Malicious v. not maliciousii. Private property v. public propertyiii. Livelihood v. sport

3. Competition is OKAY as long as you don’t use unfair means – If in-stead of using malicious/violent methods, Hickeringill could set up a

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pond next to Keeble’s land to attract ducks. In this scenario, his ac-tions would be viewed as competition, which is allowed.

a. Martell v. White: A trader doesn’t have a free lance – fight he may but as a soldier not a guerilla.

4. Can’t reap where another has sown

b. Motive is very important. Something that would normally be actionable as interference with an advantageous relationship may not be actionable if there is a contrary motive (goodwill). There can be justifiable interference.

1. Tuttle v. Buck – small town w/ one barber who falls in love w/ banker’s daughter and banker doesn’t like it so he opens his own shop next door to sabotage him. Court said he could recover since the motive was purely malicious

2. Brimilo v. Casan – girls were forced into sex to make living b/c they were so underpaid at their burlesque group. Union (Lugg) got wind and persuaded all local theaters to cancel. Troop owners sought to enjoin Union from interfering w/ advantageous relationship. Court denied injunction since motive wasn’t malicious.

d) If a party has spent a lot of money to enhance or cultivate their property interest, courts have held they will not lose their property interest if the animal escapes and is captured by another.

a. In Stephens v Albers, Stephens has a breeding farm of silver foxes. The fox escapes, and Albers captures it. The court held for Stephens, stating that people who are in the business of breeding these animals or have spent a lot of money should not have a qualified property interest.

1. This is a more modern exception – not the common law view

3. Wild Gas

a) Courts are taking precedent that evolved from animals, and using it as an analogy to develop property rules for modern things, like gas.

b) Courts treat gas as wild (ferae naturae), and if the wild gas escapes you will lose your quali-fied property interest. The courts treat gas like wild animals.

i. O1 owns private property. He is in the business of selling natural gas. O1 pumps in natural gas to a subterranean cavern underground. However, the gas which O1 has expended considerable amounts of money on, and flowed into a subterranean area on O2’s property. O1 loses the qualified property interest.

a. Court followed the more traditional common law view

III. Finders

A. Law of Finders

1. Policy Considerations

a) The law of finders wants to encourage people to find things, because it makes the chance of returning the property to the true owner greater.

b) States enact statutes to help promote the policy considerations.

i. The statute may set up a procedure for giving the finder 100% absolute title.a. A city may have a law requiring the finder to turn in found goods to the au-

thorities and wait a period for the owner to show up. If the true owner does not show up after a certain period, then the finder gets full title.

1. If a finder does not comply with the requirements of such a statute, and a thief comes along and steals the item from the finder, a finder can invoke the rule of Armory and recover.

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2. However, even before the finder does not turn in the goods or even if the finder does not turn in the goods, he will still have title good against the whole world.

ii. A statute may also facilitate the true owner reclaiming his property and the statute works to protect the owner’s property interest.

a. F1 v. F2: O owns a jewel and loses it. F1 finds it and loses it. F2 finds the jewel. F1 will prevail against F2, because F1 is more likely to have the owner contact him. The owner is more likely to get his goods back if they are awarded to F1 (Lawrence v. Buck).

b. However, if F2 can prove that by giving the goods to F1, we will not en-hance the chance of the true owner getting the goods back (i.e since he’s a scoundrel who plans on keeping it), the court will give them to F2.

iii. If the statute has a criminal penalty, it illustrates the intent of the legislature to return the property to the true owner.

B. Rights and Interests of Finders

1. Rights and Property Interest of Finders

a) Finding property will give a person a right to it over others who later possess it. (First in right—First in time.) The law of prior possessors extends to finders.

b) A finder gets title against all the whole world save the true owner.

i. The finder has a qualified property interest. His interest is 100% until the true owner appears. Then it is 0%.

a. If a tortfeasor steals from the finder, the finder can sue for the 100% full value of the property stolen.

1. We don’t permit the tortfeaser to say the TO has better rights than you so you can’t complain, since we don’t allow jus terti – pleading a 3rd party’s superior rights

b. Armory v Delamire

1. Fact Summary: A chimney sweep found a jewel and brought it to a jeweler to get appraised. The jeweler’s apprentice stole the jewel and the sweep brought an action in trover to reclaim the value.

2. Armory is the leading case for finders; it established the finder as a prior possessor with claim good against the whole world except the true owner; also allows the finder to have a cause of action against subsequent possessors

3. The finder was awarded the most expensive jewel that would have fit in the space where it was found

a. Doesn’t seem fair since if the TO would have shown up, the finder’s interest would have been worth 0 but we rather pe-nalize the wrongdoer than the innocent party.

4. If the TO returns, he can recover against the tortfeaser unless aban-donment is shown; since the finder was not his agent, he’s not pre-cluded by the finder’s suit – tortfeaser pays twice

a. After paying TO and F, the tortfeaser is subrogatedi. Subrogation is a succession to another’s right or

claim; it puts another in the place of the person origi-nally holding the claim, substituting the former for the latter; this is an equitable doctrine

ii. i.e. The tortfeaser is entitled to step in the shoes of the TO under subrogation to sue the finder.

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ii. No finder can give or assign greater rights to a transferee than he initially has. (nemo dat qui non habet) In this instance, those rights involve only the right to possession. Thus, the holder of the title or ownership to the property may trump it, as can a prior possessor.

2. Becoming a Finder

a) A person becomes a finder when they reduce something to possession.

b) In order to take possession a finder must

i. Actually come upon or discover the property

ii. Have an intent to control the property

a. Specific Intent

1. Kerren v. Cashman: F1 finds a stocking on the street. F1 uses it to play football with F2 and F3. The stocking explodes and there is money in it. F1 owns the stocking unless the true owner appears, be-cause she had control and intended to possess the stocking. She did not intend to control the money inside the stocking. She cannot in-tend to control something she does not know about. Control and in-tent must exist simultaneously to constitute possession.

a. The court adopted a very narrow definition of intent to con-trol—you can only intend to control the things you are aware of and made them split the money.

2. Queen v. Ashnell: Lend me $1. Gives me $100 dollar bill by acci-dent and I only discover later. I only got possession when I realized it was $100 b/c till then, I had specific intent to control a $1 bill. Since possession and decision to keep happened at the same time this is larceny.

3. Merry v. Green: A sells antique chest to B who discovers $ hidden in it. Court says only had specific intent to sell the chest and not the money.

4. Dependent Relative revocation: Testator drafts will #1. Two years later he wants to make changes so he makes will #2 and tears up #1. He says “I am doing this w/ intention of revoking.” But for some technical reason #2 is not valid.

a. Court said there is a rebuttable presumption that he had spe-cific intent to only revoke #1 if #2 would be valid so #1 is controlling and it’s not considered as if he has no will.

b. General Intent (some courts take this approach)

1. Peet v. Roth Hotel: A leaves jewel with hotel clerk to put in safe for B to pick up and it gets stolen. Court says hotel had general intent to be a bailee for whatever the stone was worth even though it turned out that it was worth a lot more than they would have suspected.

2. Phelps v. McQuale: Con artist tells jewelry store hes Rockerfeller and will pay later. He then sells to B. B has title since jeweler had general intent to transfer it to this person standing in front of him.

a. However if the scam was done by correspondence, he only had specific intent to transfer to the specific person, not the con artist (Condy v. Lindsey).

3. Adverse possession: two adjoining landowners O and A. O and A both mistakenly believe the true boundary line is closer to O than it really is and A occupies that area for the full period of SOL.

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a. When A went into possession he made an honest mistake, and did not have specific intent to control - the court said re-gardless, there was general intent and therefore adverse possession.

c. How do we reconcile?

1. Intent defined differently based on different policy considerationsa. In the AP case we ascribe general intent to A so that there

will be certainty after he’s been there past the SOL.b. In Queen, we don’t want him to get off for larceny based on

a technicality by ascribing general intent.c. In Peet, hotels should have a much higher duty of care so

we ascribe to them general intent.d. Kerren was probably wrongly decided since policy would

urge not to split up the money b/c then much less likely TO will ever see it again.

iii. Actually control the propertya) F1 is walking down the street and sees a jewel. He is the first person to see

the jewel. He screams out “I found a jewel.” F2 comes along and takes pos-session of the jewel. F1 saw it first, but F2 grabbed it first. F2 gets it. Seeing something does not give you a property interest. Seeing something is not possession, because the elements of possession have not been met. There is no control.

b) F1 finds a jewel, picks it up and puts it back. A thief comes along and takes it. F1 is not responsible since he did not have the intent to control the jewel.

3. Liability of a finder

a) F is walking in Snob Hill and finds a valuable jewel. He walks with the jewel to Slob Hill, and a pickpocket steals the jewel. F is not guilty of conversion, At common law, the finder is a gra-tuitous bailee. He has the duty to exercise due care under the circumstances. The fact that a party is a finder and is not getting paid is taken into account of the circumstances.

b) If the bailment benefits the bailee, as with a borrowed object, the bailee’s standard of care rises again and the merest neglect or any damage renders the bailee liable.

4. Rights of a finder

a) HYPO: Finder goes and finds a horse and brings him home and feeds him a lot of hay. Now TO shows up and says I want him back and finder says fine but I spent a lot of money on him and I want to be reimbursed. Does finder have right to get reimbursed under these circum-stances?

i. He is not an intermeddler and TO benefited from finder’s action and finder should be able to recover on quasi contractual benefit – money in restitution to prevent un-just enrichment – determine the value of the benefit conferred

b) HYPO: Finder has horse and gave him the hay and TO appears and says fine I will pay you in 2 weeks and finder says no I am going to keep the horse until you pay me. Can the finder assert a lien on the property? Can he claim a right to continue to possess the lost item until the benefit is paid?

i. General common law rule is no – he has to surrender the animal, but he has a cause of action for unjust enrichment that he would have to assert independently

ii. He would be a converter if he held the horsec) HYPO: What a/b collecting a reward?

i. Depends If he knew there was a reward then yes, but if he didn’t then what?a. If you are merely performing your legal duty is there consideration?

1. You didn’t have a duty until you picked it up and once you do, you have duty to return once you find it

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C. Constructive Possession: Finders v. Landowners

1. Landowners as Prior Possessors

a) A landowner is regarded as being in possession of everything found on or under his land

b) The landowner is regarded as the prior possessor of the object found. A trespasser, for ex-ample, usually has no rights against a landowner to the object found on the land or in the house.

i. This result is justified by a policy of deterring trespassers. The owner will be found to be the prior constructive possessor of the object although unaware of its presence there.

c) Persons holding title to the land or house that is the place where the property is found are called owners of the locus in quo. They may assert that they have prior possession of it, be-cause the ownership of the place of the find gives them constructive possession over every-thing found there. Their possession is regarded prior to that of the finder.

d) However, An owner is less likely to prevail over a finder if he did not know of the presence of the lost object on the realty, was not on the premises when the object was found, and was not in possession of the realty at the time of its likely loss.

i. Hannah v Peel

a. Fact Summary: P found a brooch in a crevice while occupying D’s house. He turned it over to the police, who were unable to locate the true owner. F pre-vailed b/c O was unaware of the lost object on his property, he was not on the premises when the object was found and he was not certain he was the owner when the object was lost

b. The issue in this case was not whether the owner was a prior actual posses-sor, but whether he was in constructive possession through his holding title to the property on which the brooch was found.

c. The court held that the owner was never in “possession” of the brooch, while the finder was no trespasser and acted honestly, giving the police time to search for the true owner. That search having failed, the prior possessor of the brooch is the finder under such circumstances. This result rewards hon-esty and encourages searching for the true owner.

d. Hannah was subject to much criticism, because the finder’s winning put the brooch beyond the reach of its true owner.

e) Constructive Possession vs. Policyi. Hannah quoted 3 cases, 2 of which had a different result:

a. Bridges v. Hawesworth – parcel of banknotes found on floor of shop, F prevailed.

b. South Staffordshire v. Sharman – guy hired to clean out pool of mud finds ring at bottom. O prevails.

c. Elwes v.Briggs – O authorized F (who was a lessee) to put in a gas holder and F finds sunken antique boat. O prevails.

ii. How do we reconcile?a. General rule is that goods go to first person who reduce them to posses-

sion.1. Bridges and Hannah are representative of that general rule.2. Sharman and Elwes are exceptions – master-servant exception in-

Sharman – goes to the employer; and trespassing finder exception in Elwes since F exceeded his area of invitation he forfeit.

3. Problem: master-servant exception has not been recognized by the courts unless they are in the business of finding things; and tres-passing finder exception is not really recognized unless it is a SERI-

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OUS T, b/c otherwise people just won’t announce their finds + bit of a stretch to say he was trespasser. So all of this is useless!

b. Holmes view1. Possession is control and intent to control. A distinction should be

drawn between public and private places. If an object is found in a private place, that the owner of the private place intends to ex-clude the public from that area, he intends to control everything in that area. If it is a public place, since the owner has opened up the premises to the public, he cannot intend to possess what he is not aware of.

2. ∴ I can explain Bridges – it was a public floor, O of bank wasn’t aware of it so he can’t intend to control things he doesn’t know a/b

3. If private – you have intent to control objects even if you don’t know of them

4. The whole point of Holmes distinction is that if it is private you intend to exclude the public from the area and you ∴ intend to control every-thing in the place – is a subterranean area (Elwes) private or public? Is a crevice (Hannah) public or private?

c. Sir Frederick Pollack1. Focus on 1st element – de facto control. The lost item is given to the

person who had possession first.

d. Sir John Salmon1. Possession is intent to control, and you can’t intend to control what

you are not aware of.

e. Another view1. O only has possession of things that are attached or under the land

a. But what about intent?b. Also, in Hannah, it was found in a crevice and yet F got it!

f. Another view1. Lost v. mislaid

a. Doesn’t help since Hannah was the only mislaid case and yet F got it!

g. William Schwartz1. The right of the finder should not be allocated on the basis of pos-

session, but based on the ultimate policy objective—the true owner getting possession.

a. Bridges – we should give it to O for reasonable period to give TO time to find it and if they don’t appear in reasonable time then give it to F to encourage F to disclose

b. Elwes – this policy is not relevant here b/c Noah is not com-ing back for the ark, so under the circumstances where TO isn’t going to show we ought to decide this on who got pos-session first – the F

c. Sharman – tough case, do we follow the rule of giving it to O for reasonable time – maybe we should

d. Hannah – to increase the chances of TO you give to O of premises but maybe the reasonable time has already lapsed since it has been 2 years since O was there so we give it to F

D. Classifications of Found Property

1. Courts have held that the rights of the finder depend on the classification of property found.

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2. Lost Property

a) Lost property has been involuntarily, unintentionally separated from its owner. If the owner lost the property, no reclaiming is likely, so the finder will prevail over the owner of the loca-tion. Stolen property found by someone who did not participate in the theft is lost property.

3. Mislaid Property

a) Mislaid property is voluntarily put in a certain place by the owner who then overlooks or for-gets where the property is. It differs from lost property in that the owner voluntarily and inten-tionally places mislaid property in the location where another eventually finds it. In contrast, property is not considered lost unless the owner parts with it involuntarily. The finder of mis-laid property acquires no rights to the property. The right of possession of mislaid property belongs to the owner upon which the property is found, as against all persons other than the true owner. The law is clear that mislaid property found on private property belongs to the owner of the property. See McAvoy v Medina

b) Folks v. Consolidated Railway: F was passenger on subway and looks down at seat next to him and sees there is a package and picks it up but subway guard sees him doing it and asks him what he is doing and finder says I found it and am going to keep it for TO.

i. Goods were not found in public place but in a train that is owned by someone (gov agency), court held it was mislaid property and ∴ the O of premises is able to keep it

c) Flax v. Monticello Realty: F stays at hotel, gets in bed and finds diamond stuck in mattressi. Court held mislaid, not lost so hotel got it

d) Benjamin v. Linder Aviation: Plane is repossessed by the bank and they bring it to be maintenanced and employee finds money behind a panel. Court held it was mislaid and bank gets it . . . plane was distinct place from terminal

e) An owner mislaying property is supposed to remember its location and return to reclaim it. So the owner of the location is likely to be found in prior constructive possession of it.

i. The policy is to enable the true owner to find their property, but this doesn’t encour-age the finder to disclose his find. A better rule, but not the law, would be to give the property to the finder after a period of time if the true owner fails to show up. There needs to be an incentive for the finder.

f) If O owns the building and T leases it, and F finds something there, it goes to T since T owns the interest in the premises since a lease is a temporary sale

i. However, if the lease is up in a week, questionable if this reasoning still holds up

4. Abandoned Property

a) The finder usually prevails when the owner abandoned the property. Here the owner can re-member its location, but refuses to reclaim it. Abandoned property belongs to the finder of the property against all others, including the former owner. Abandonment requires:

i. A specific intent to abandon the object

ii. An act abandoning it

b) Doctrine of Abandonment: If the finder can prove that the true owner abandoned the property interest in the chattel, then the first person who reduces the chattel to possession will have a superior title.

i. A leaves a book in a public place for 20 years, and B comes along and finds it. A has not conclusively abandoned the property. The passage of time without the intention to abandon the interest will not constitute abandonment. The mere fact that a long period is accompanied by non-use does not show abandonment. You must show a clear, specific intent from the owner of the chattel to relinquish the chattel.

ii. When Barry Bonds hit the ball, MLB owns the ball. When it is hit out of the park, they have abandoned their property interest, and the custom is that the first person who

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reduces it to possession has title. In Popov v. Hayashi, since it wasn’t clear who had possession first, the court made them split it citing Keron v. Cashman.

iii. Pay phone hypo: Put in coin and press A when someone picks up. If no one does press B to get it back. Tourists don’t realize this and frequently leave with unused coin still in the phone. Dude walks around pushing the B buttons. If coin is aban-doned, it goes to 1st possessor. Who’s 1st possessor?

a. F since he had control and specific intent to control. b. Phone company since they had general intent to control everything in the

phone. However, the presence of the B button indicates they only have spe-cific intent to control coins used for an actual call. However, maybe they only give certain people authority to push the B button (those who put the coin in) and have specific intent to control when those people don’t push it. If they ac-tually have a sign saying only users of phone can push B, this is a better ar-gument. Can argue giving it to phone company would further policy of getting it back to TO. Can also argue that A is a trespasser and since he’s not likely to get the coin back to the owner, we don’t let him keep it even though the trespass is trivial.

c. There is no definite answer

5. Treasure Trove

a) Treasure trove consists of coins or currency concealed by the owner. It includes an element of antiquity. To be classified as treasure trove, the property must have been hidden or con-cealed for such a length of time that the owner is probably dead or undiscoverable. Not rele-vant in modern U.S. law

E. Actions to Recover Lost Property

1. Trovera) A common law form of action that results from the interference with chattels. If you are suc-

cessful, you recover 100% of the value of the chattel. Trover is the procedural action to re-cover for conversion of personal property.

i. A conversion is the act of wrongfully using another’s personal property as if it were one’s own. It is by itself actionable, so that the action in trover is often trover and con-version, since conversion is a necessary element of an action in trover.

b) The theory of a trover action is that the plaintiff has elected to forego recovery of the personal property and to receive, instead, the full value of the property; a second theory is that the de-fendant has elected to sell the property to the defendant.

2. Conversiona) Conversion may be an action is its own right, but it only occurs to protect some tangible item

of personalty.

3. Replevlina) Replevin seeks the specific recovery of the personal property and the return of the property it-

self, along with 1) damages for the value of the possession lost because of the conversion and 2) any permanent damages to the property.

IV. Bailments

A. A bailment is the transfer and delivery by an owner or prior possessor (bailor) of personal property to another (bailee) whose purpose in holding possession is often for the safekeeping for the owner.

B. Types of Bailments1. Solely for the benefit of the bailor (gratuitous bailee)

a) EX: O owns Rover and O comes up to X and says won’t you be my bailee and take care of Rover (this is bailment solely for the benefit of bailor b/c bailee derives no benefit and he is just doing it to help out bailor). If anything happens to Rover what do you have to prove be-fore X can be liable to O?

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i. At common law you have to prove gross N, not just ordinary Nii. A finder is considered a gratuitous bailee

2. Solely for the benefit of the baileea) EX: Suppose O wants to keep Rover and X comes over and says I want Rover for the week-

end, I am not going to pay, but will you lend him and O does (O doesn’t derive any benefit). If something happens what is the standard of liability?

i. Don’t even have to prove ordinary N, even if bailee is slightly N, b/c bailee owes the duty of the highest degree possible.

3. Mutual benefit bailmenta) EX: X says I need Rover this weekend and I am paying you $100. Duty of care?

i. Duty of ordinary care, ordinary N

C. More modern approach says the jury should be instructed that the duty of care owed by any bailee is due care under the circumstances

D. Examples:1. You go to restaurant and you are wearing a cheap coat and you go to check it and put an expensive

scarf in the sleeve (attendant doesn’t see you put it in there). You come back later and it is missing. Can you hold the restaurant liable?

a) Did the coat check and restaurant as employer become the bailee of the coat?i. This is mutual bailment so if you can prove bailment they would be liable. Before you

have bailment the alleged bailee has to have possessiona. Was there control – yesb. Intent to control – hinges on how we define intent

1. Specific (only intended to control things you are aware of) 2. General (anything and everything that might be in that coat regard-

less of your awareness of existence then they will be bailess)ii. So how do we prove intention?

a. There could be a disclaimer on the ticket which might be relevant to showing what the check room’s intention was – that they don’t really intend to control hidden objects – or they put a limitation on the liability which would indicate an intention not to control anything worth more than $500.

2. O entrusts possession of dog to B, and thief steals dog. B is bailee—a consensual arrangement. B can sue the thief and collect damages. This will preclude O from suing thief. A suit by the bailee pre-cludes the bailor from suing the thief, so there is no issue of subrogation, because of the consensual relationship (This rule comes from The Winkfield – postmaster general case).

3. Parking garage: If you just leave your car there it’s as if you are just leasing the space and you only have a landlord-tenant relationship so they have almost no duty of care. However, if they park the car for you and give you a ticket, there is more control (and intent to control) and this is probably a bail-ment.

a) If you leave a diamond in the trunk they have not necessarily become the bailee of the con-tents of the trunk – just the car itself and anything visible

4. Safe deposit box: Although they don’t have full control since they need your key for access, we view it as a bailment as a matter of policy so that creditors could garnish from it and also people de-mand a very high duty of care from a bank.

5. Collin v. Prestige (NYAD) – brokerage house operated by Δ w/ outer office where messangers come in and delivery bearer bonds through a hole in the wall and it drops on the table on the other side and the messanger is never seen. Here I call up Π and say I want a valuable bond delivered to me and Π says sure and delivers the bond, but delivers the wrong one and the clerk on the otherside immediately sees this is the wrong bond and yells out that it is wrong and pushes it back through slot. Πs messanger has left and an interloper takes off w/ the bond. Π is out a bond, can he hold Δ liable?

a) They never got title to the bond b/c it wasn’t the right one. i. They might have had control but was there intent to control?

a. They never ordered that bond, they certainly do not want to keep it (they pushed it back).

1. Goes back to general or specific intentb) Majority – Δ firm became an “involuntary bailee” and they don’t analyze intent just that they

became bailees

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i. They don’t analyze whether a bailment was truly created and once they reach conclu-sion there was a bailment they say there was absolute liability

c) Dissent – can’t be a bailment b/c bailment only arises out of a K express or implied and they never agreed to take care of this bond Professor says this is erroneous

i. Professor says you can have a bailment w/o a K!!a. B/c a bailment exists when a person takes possession of something owned

by someone else regardless of there being a K1. Frost v. Plum – suppose there was a K to rent a horse and you

rented it on Sunday and back then there was a law that Ks signed on Sundays were null and void (Sunday Blue Law)

a. Say the person who rents the horse if N, can he argue the K is null and void and ∴ no bailment?

i. Court rejects this b/c you can have a bailment re-gardless of K

V. Adverse Possession

A. Doctrine of Adverse Possession

1. In Adverse Possession, the possessor’s rights are greater than the finder. An adverse possessor may gain full-blown legal title of real and personal property even against the TO after the SOL run.

a) The statute of limitations begins to run when the cause of action accrues. As a result, people may be barred from suing prior to the acknowledgement of a claim.

2. The doctrine applies not only to blatant conscious wrongdoers, but also to innocent possessors, such as in land dispute boundaries.

a) i.e. O and A own continuous property and erect a fence that occupies part of O’s land, the majority rule says that even though the parties made an honest mistake, A will adversely pos-sess the land.

3. The doctrine came about because the legislature has created statutes of limitations relating to the conferment of land, and judicial gloss and interpretation says that when the owner’s ability to bring an action for ejection expires, one may actually gain title by adverse possession.

4. Adverse Possession is applicable to real and personal property

5. There is no recording requirement for AP

B. Policy considerations

1. Early rationale was to punish O who has delayed in presenting his claima) Since adverse possession applies even to those owners who don’t realize their land is being

adversely possessed, not a good rationale since 1st of all why penalize an innocent person, and 2nd of all, property law deals with civil law and punishment is for the criminal law.

2. Protect against Stale Claimsa) The statute is designed to protect against stale claims of title after memories are lost, wit-

nesses are dead, etc. (i.e., if you don’t act, we give A title.) 3. Repose

a) Gives people piece of mind that there will be no legal action after they have possessed for a period of time.

4. Certainty of Titlea) The statute helps promote certainty of title. We want to make sure as a matter of certainty

“who has title against all the true world.” Once the SOL has passed, there is no doubt – you don’t have to check the chain of title back to year 1.

5. Encourages Productive Use of Landa) If the adverse possessor betters and makes productive use out of the land, he should be re-

warded as an incentive that he will get title since he benefits society.

C. Elements of Adverse Possession

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1. Possession of someone else’s land

a) There needs to be a showing of possession. The cases define possession as exercising the degree of control of the property that the average owner of similar property would exer-cise under similar or like circumstances. The degree will vary with the nature and location of the property.

i. Ewing v. Burnett: Land was on a hill so it wasn’t possible to have a fence go all the way up so the AP built the fence on part of the property. He also couldn’t really build on the land. But he charged people to extract gravel and sand and he also extracted from the land for the full 21 years and brought trespass actions against those who re-moved stuff w/o his permission. He also paid the taxes (doesn’t show possession but is relevant to showing if you are adverse). The court said that based on the topogra-phy and nature of the land, this is how an average owner of similar property would have used it

ii. Nome 2000 v. Fagerstrom: Since Alaska is only nice in certain times of the year, the court said it was the nature of the location to only use it seasonally and therefore there was adverse passion even though it wasn’t being used by the Fagerstroms for most of the year.

iii. A occupies a house but lets everyone and anyone sleep there whenever they want for 21 years. This is not how an average owner would use a residential house, so no adverse possession.

a. exclusivity is not necessary but is relevant based on the nature of the property as evidence so in this case the lack of exclusivity shows there is no possession, but in Nome, it was normal to let other people use the land

b) The standard for possession is objective. i. A were circus performers, who lived across the street from land, which was unim-

proved. A cleared the lot, put in pipes, and paid taxes. They used it to practice their circus stunts. The court held this is enough to sustain a finding of adverse posses-sion. While the average owner is not a circus performer nor would the average owner use it to practice circus stunts, the standard is not subjective, and the average owner would use the land to improve their business.

c) Mere assertions of ownership, no matter how open and notorious will not suffice.i. O owns a lot of land, and along comes A and A goes on national television continu-

ously for 21 years, 3 hours a day, 24 hour programming that A owns lot of land, the record title of which is in O. At the end of 21 years, who owns title of lot of land? This doesn’t amount to title by adverse possession, even though it is continuous and open and notorious, but it doesn’t seem to have possession—control and intent to control. He may have intent to control, but not physically control.

2. Open & Notorious

a) Courts will hold that the openness and notoriety element is satisfied if the reasonable person should have known that he’s acting as the owner of the property even if he himself doesn’t re-alize he’s not the true O. It is an objective requirement . . . If he doesn’t have actual knowl-edge, but should have known, the court will confer constructive knowledge

i. Lawrence v.Town of Concord: T gives her house to W in will and on W’s death, T says title will go to the town. W dies and H continues to live in the house for more than 20 years. Even when not living there he is renting it out (tenant’s possession is considered your possession). The court said that once H was in possession, the town had a cause of action for ejectment, and therefore the SOL started then even though the town knew nothing about the will.

a. The town was not protected by sovereign immunity since the statute granting it was passed after this case and only prospectively.

b. If the tenants would have said we refuse to pay rent b/c we are the owners, the AP would not have been continuous.

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c. If he had been there for 18 years while W was still alive and the town brought an action for ejectment 4 years later, after 22 years, they would prevail since the 1st 18 years were not w/o the permission of the owner and therefore not adverse.

b) O owns a house. He goes to Florida. A sleeps in the house every night for 21 years between 12 am and 4 am. He may not get title by adverse possession, because he is not open and no-torious. A furtive concealed possession is not the sort of control that the average owner would exercise. Open and notorious may be evidentiary of possession.

c) O&N shouldn’t really be a separate element since the main question is whether a COA has accrued and O&N is just evidence that he has possession by showing that he’s exercising the degree of control that an average owner would . . . a “subsidiary element.”

d) However, see Manillo v Gorski:i. Fact Summary: A owns a house, and in 1946 he remodeled the house and installed a

concrete walkway and steps, which encroach onto the lot next door. O moved in 7 years later, and in 1969 (24 years later after the steps were built) requested an in-junction to remove the walkway and steps. Neither of them had realized till now that it was encroaching on O’s property.

ii. The court concluded that A did not meet the requirements for adverse possession even though he had “possessed” the encroachment for greater than the statutory pe-riod. Unless there is actual subjective knowledge, the possession is not open and notorious.

iii. However, if it would be inequitable for D to remove the encroachment, since he would sustain a huge loss, courts can force D to pay O for the value of the land, not a full value, but partial.

iv. This is an extreme approach to defining the term open and notorious very narrowly. Not the law elsewhere!!

3. Adverse

a) Possession is adverse when it is without permission from the true owner b) Does not require hostility according to most courts (Maine holds you do need hostility)

i. Van Valkenburgh v Lutza. The adverse possessor should get title as long as he is in possession with-

out the permission of the true owner.b. The court requires a hostile intent as opposed to an innocent intent to ac-

company the adverse possession. Because Lutz honestly believed he was on his own land, and he was an innocent wrongdoer, he is not rewarded. However, when Lutz knew he was not on his own property, he was a blatant wrongdoer, but he was not attempting to claim title. It seems that the court is not looking for a hostile or innocent wrongdoer, but intent to adversely pos-sess.

c. There is only one scenario when a person admits they didn’t have permission during the SOL, and yet still won’t get title after possessing adversely for the whole time—if he makes a representation to the true owner that he will never claim title – “don’t worry!”, he may be estopped from taking a position incon-sistent with the prior possession, if the true owner relies on the representa-tion to his detriment. However, if he just says “I don’t have title,” he may get title later.

ii. O owns a lot of land. Along comes T, a tenant to be. O leases the property to T for 21 years. T goes into possession and pays rent for 21 years. After 21 years, can T get adverse possession? No. His possession was with the permission of the true owner.

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iii. O owns a lot of land. He enters into an oral agreement with A to sell the property. A does not pay the purchase price immediately, but he goes into possession. He re-mains in possession for 21 years. Does he have title by adverse possession?

a. The oral agreement is not valid because of the statute of frauds. However, just b/c a contract is not enforceable b/c of the statute of frauds, it’s not nec-essarily null and void. It may not be enforceable, and you may be without a remedy, but it doesn’t mean that there isn’t something under it. It may be enough to make A’s possession permissive. A would have to communicate the repudiation of the oral agreement to O for his possession to be adverse (Bell v. Bell).

c) Permissive possession may become adverse possession.

i. O leases the property to T for 21 years. For T to get title, he would have to expressly repudiate the special relationship that makes it permissive and stop paying. Here openness and notoriety is very important – he must communicate his repudiation.

ii. O leases the property to T for 21 years. After 10 years, T calls O and says he is not paying rent and repudiates the lease. 11 years later, while the 21 years is up, T is an adverse possessor, but he needs 10 more years of adverse possession to get title.

iii. If two people own property jointly, but haven’t apportioned specific parts to e/o, it is permissive for either of them to be on any part of the property even if they don’t own equal shares. For there to be AP, one would have to expressly repudiate his partial ownership.

4. Color of Title

a) When an adverse user enters the property with a deed that purports to give title, although de-fective, the user is said to enter the land under a “color of title.” Unless the statute requires it, color of title is not a separate requirement.

i. O owns a lot of land. A comes on the property, and says I am not claiming under a color of title (a piece of paper that purports to give him title) but I am claiming title af-ter 21 years by AP. If a statute requires COT he won’t get title after 21 years.

b) Constructive Adverse Possession (here color of title is always a requirement)

i. Constructive Adverse Possession is concerned about the scope and extent of the property you get when you go into adverse possession of land. Normally AP will only give you title to the land that you actually occupy and no more. However, if you have a defective deed, you are deemed to be in possession of the entire acreage de-scribed under that deed. (Nome 2000 is an illustration of limiting title to the property occupied since there was no deed).

a. However, the lots/land must be contiguous. The doctrine does not apply if there is a natural boundary dividing the land or if the land is not contiguous.

1. i.e. There is a lot of land, which is split down the middle by the styx river. A is claiming title under a defective deed that covers the whole lot. But he only occupies the left half. If it is not enough to give him constructive adverse possession.

ii. For the doctrine of constructive adverse possession to apply, you must show color of title.

iii. Some jurisdictions say CAP only works when made in good faith.

5. Continuous

a) In order for an adverse possessor to get title, his possession must be continuous and without interruption throughout the period of the statute of limitations.

b) Continuity is the control or use that the average owner would use.

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i. This is a very factually based question and usually best decided by the jury

ii. Nome v Fagerstroma. The adverse possessor only used the property seasonally. Continuity does

not mean every day or even every month, but for continuous, the adverse possessor has to do the same things an average owner would do with the land in that location and climate.

c) If there is an interruption in the running of the statute, then the count starts over:

i. An adverse possessor abandoning his adverse possessiona. If the adverse possessor discontinues possession without an intention to re-

turn (no animus revertiendi) this will be a question of fact for the jury, factual considerations will be location, nature and adaptability

1. If the property is a residential dwelling in NE and for 1 month a year he takes vacation in Florida, there is no break in continuity since there is an intention of returning and the average owner would prob-ably occupy the property in the same way

2. On farm land which is usually cultivated regularly, if the AP leaves for 3 or 4 years this might indicate a break in the chain of continuity or abandonment since the average owner of the property would be working with the land and growing crops frequently

ii. The true owner brings an action of ejectmenta. This will only constitute an interruption, if the ejectment is successful.

1. A has been living on property for 10 years, O brings action after 10th year, but it is not heard until 11 years later. A has then been living on land for statutory period. However if O’s ejectment action is success-ful, then O gets the property since this verdict relates back to when it was brought. If O loses, then A’s AP will not be interrupted.

iii. The true owner regains possession (self help)a. A is in possession. O gets back possession, but doesn’t oust A. They coex-

tensively have possession. The mere fact that O has regained possession constitutes an interruption in the running of the statute.

1. If O leaves after a period of time, but A remains in possession, A will have to remain in possession for 21 more years to get AP.

2. The coextensive possession could be likened to permissive posses-sion, and be another reason why the adverse possession is inter-rupted.

iv. Converting the adverse possession into permissive possessiona. O owns land and A is adverse possessor for 10 years. At end of 10 years, O

offers lease to A, and A pays rent, making his possession permissive. The statute stops running as soon as the possession becomes permissive. How-ever, permission cannot be unilaterally granted by O – A could always repu-diate it.

b. If A is in AP for 18 years, and then he enters into a negotiation with O to pur-chase, this is not necessarily a recognition by A of O’s title and therefore an interruption of his AP. Maybe he’s saying even though its mine, it might be worth it to throw you some money to shut you up. It all hinges on the tenor of the negotiations.

c. O gives A a deed, but it only covers half of the property. Does A’s accep-tance of a deed to the half of the property constitute an interruption in the running of the title to the other half? It depends on your location. It may not interrupt the possession of the other half.

D. Adverse Possessor’s Title

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1. The adverse possessor acquires full-blown legal title after the SOL, provided the above elements are satisfied. The AP will get possession and title, but he does not get a recordable nor marketable ti-tle, to do so he would have to bring an action to quiet title, and then file a judicial decree.

a) O owns a lot of land. A comes along and satisfies all of the requirements of adverse posses-sion. A will have acquired a full blown legal title. After that period, A moves to Florida for a while (not abandonment since he has already acquired the land and you can’t abandon an in-terest in land orally). O then comes back to the land, finds a bona fide purchaser, B, and sells with a deed. What happens if A comes back and tries to get the land? Under these circum-stances, O doesn’t even have title, and even a bona fide purchaser from O cannot prevail. As between O and A, A has title from adverse possession. The bona fide purchaser loses, but tough luck. This is a circumstance where a registry system does not work for the bona fide purchaser. A is not required to record anything, nor is there anything to record. The adverse possessor’s title is not a recordable title.

i. In Massachusetts, once a title is registered you can’t get title by adverse possession so this problem is avoided but most jurisdictions including NY don’t have a system of title registration

b) O owns a lot of land, and A goes into AP for 21 years. Then O and A have litigation. If A can prove his title by AP, he’ll prevail. During trial O says to A, I won’t contest the fact that you’ve been in possession for 21 years, but I will give you that benefit if somewhere around the 10th year, you admit I gave you a deed, but you didn’t record it. Also, O transferred the property to B. Now the dispute is between A and B. Under these circumstances, who prevails? B since A’s title was interrupted by the acceptance of the deed, because it makes his possession per-missive, and not adverse.

c) If A acquires O’s land through AP, he now has title, but the paper trail will still point to O, so how does he prove that he has good marketable title (free from reasonable doubt)? Bring a bill in equity to quite title (an in rem proceeding) . . . a judicial determination. This judgment will render his title marketable.

2. As of what date did A get title? Does it go back to when he went into AP?a) HYPO: O owns land, A is in AP for 21 years and gets title. Then O says “I lost title but until

the clock struck 21 I owned the property and you were damaging my property and T on it and that is a 6 year SOL and I am going to sue you for the last 6 years. You are a wrongdoer until the clock strikes 21.”

i. It would make no sense to say someone has title for AP if the TO can still sue him for damages for what happened during that time.

a. A’s title should relate back to the moment he went into possession b/c other-wise it would go against the reasoning behind AP

E. Tacking

1. Adverse possessors can combine or tack their period of possession with that of a predecessor, so that one adverse user need not be in possession for the whole prescriptive period.

a) There must be a privity of estate or a consensual succession.i. O owns a lot of land. A1 goes into adverse possession against O. He remains for 10

years. A1 sells interest in the property to A2. His interest is 10 years in adverse pos-session. A2 then remains in possession for 11 years. At the end of the second 11 year period, A2 will get title by adverse possession.

ii. A1 is adverse possessor for 10 years. A2 kicks him off the land, and takes over pos-session for 11 years. At the end of 11 years, A2 does not have title against O since A2 is not a consensual successor. There is no privity of estate. He can not succeed to A1’s 10 years of adverse possession and will have to remain in possession for an additional 11 years.

iii. A1 is in possession for 11 years. A2 pushes him off the property, then A1 gets pos-session back. A1 can’t tack to A2 since there is no consensual arrangement. Addi-

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tionally, A1 probably cannot backpedal to tack on to the original 11 years, because possession has to be continuous and since there was an interruption, the statutory period begins anew. One might try to argue that maybe he could backpedal since O now has the same COA against him as before.

2. One can also tack different owners together.

a) A possesses adversely against O1 for 10 years when O1 sells the land to O2. 11 years later A will be considered to have been in AP for the full 21 years since there is no new COA that arises when O2 buys the land; it is deemed to be a continuation of the former cause of action . . . once the statute starts to run against a former owner, it continues to run against the current owner since he’s buying the land subject to those former years of AP . . .one of the li-abilities he is acquiring is 10 years of AP since he is the successor in interest to O1

3. Subject to the continuity requirement, several adverse users can tack their possession together, and together run the statute as long as there is continuity.

a) A is in AP for 10 years and then he dies and leaves his interest to X for life and then to Y for life. X dies after 5 years. Y only has to wait six years to run the SOL and get title

b) A has 10 years AP. A dies. He leaves a will, in which he leaves his property to H. H doesn’t go into possession for 2 or 3 years. Then he takes possession, and remains in possession for 11 years. Does he now have title for 11 years? No, because while there is privity, there is an interruption in the chain of continuity. There could have been tacking had it be continuous. Tacking does not obviate the need for continuity.

c) A is in AP for 10 years when he gives B a deed conferring his interests in the property but B never goes into possession. A gives a 2nd deed to C who immediately goes into possession and remains there for 11 years. Who owns the land? Once A gives his interests to B, he has no interests left to give to C but he still has the power to give better title than he has as long as B doesn’t record his deed so it will now be C’s.

d) O owns a lot of land and needs money desperately. So he gives A a mortgage on his land as security for a loan. B goes into AP for 15 years and then there’s a default and A forecloses and takes over title. When will B get AP title against A? Since the mortgage foreclosure is a consensual arrangement (even though hostile) there is privity and B only needs 6 more years of AP.

F. Tolling

In the event that the TO is suffering from a disability (minor, insane etc.) when the COA accrues, the statute tolls and you can’t get AP until a certain amount of time after the disability is removed.

In Ohio, 10 years after the removal of the disability but not less than 21from accrual of COA In NJ, 20 years after the removal of the disability but not less than 20 from accrual of COAExamples:O owns property in 1975 and the AP takes possession on July 1st, 1975:

1) O was nuts on July 1st and dies w/o a will in 1980. H has no disability.Ohio: the disability was removed in 1980 (since the nut died), 10 years after this is 1990, but the minimum for AP is 21 years so the AP will get title in 21 years from 1975 – i.e. 1996.NJ: You count 20 years from removal of disability so AP gets title in 2000

2) O was nuts on July 1st and dies w/o a will in 1995. H has no disability.Ohio: 2005NJ: 2015

3) O has no disability in 1975. He dies w/o a will on July 3rd. 6 year old H inherits.Ohio: The disability had to be there when the COA accrued – we don’t tack disabilities. The disability of a subsequent owner is irrelevant and does not trigger the tolling provision. Since when the COA accrued O was the owner, we count 21 years from there – i.e. 1996.

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NJ: 19954) O dies with no disability on June 30th. 6 year old H inherits.

Ohio: The disability will be removed in 1987 when H turns 18. AP will get possession in 10 years from then – i.e. 1997.NJ: 2007

5) O was nuts on July 1st. O dies in 1995. 2 year old H inherits.Ohio: Since we don’t tack disabilities, we only care about O’s. O’s disability is removed in 1995. AP gets possession 10 years later in 2005.NJ: 2015

6) In 1975 O was 10 years old. This disability will be removed in 1983. In 1982 he’s convicted of a felony which creates a statutory disability. He’s in jail till 2000.

Ohio: We only take the disability of O at the time the action accrued into account and therefore the subsequent disability is irrelevant. 21 years after 1975 is 1996.NJ: 20 years from removal = 2003

7) In 1975 O was 10 years old and nuts. In 1983 he’s still nuts.Ohio: When suffering from 2 concurrent disabilities (as opposed to a supervening subsequent dis-ability), the disabled owner gets the benefit under the tolling provision of whichever disability lasts the longest. If he never recovers from being nuts, the AP will never get title.

G. Adverse Possession of Personal Property

1. While it is easy for the owner of real property to discover its adverse use, it is difficult for the owner of tangible, movable property (chattels) to discover its adverse use.

2. At common law, the statute of limitations begins to run when the theft occurred (conversion); how-ever, it is a harsh rule. Furthermore, the statute is usually very short.

a) Greek Orthodox Church v Goldberg and Feldmani. The court held a discovery rule should apply. The statute does not begin to run until

the plaintiff ascertains or with the exercise of due diligence could have ascertained who and where the thief is (an objective standard). This rule requires O to make due diligence to find this out.

ii. Although under Swiss law a BFP prevails, the court decided that Feldman was not a bona fide purchaser since she did not exercise due diligence and did not act as a reasonable and prudent art buyer.

b) Solomon Guggenheim v Lubelli. Expensive Shegal was stolen and resold to Lubell who had it in her home for over 20

years. Then the Guggenheim wanted it back. a. Under the discovery rule the museum would be barred because if they would

have exercised due diligence they could have discovered it.

ii. NY does not embrace the discovery rule and therefore the statute begins to run against the thief from the day of the theft. If the thief sells it to a bona fide purchaser, the statute only begins to run from the date the true owners demands the goods back, and the bona fide purchaser refuses. (Demand and Refusal rule). Since Lubell was a BFP and not the thief, the SOL only began to run now when they de-manded it back.

a. A bailee is treated as a bona fide purchaser in this regard1. Feld v. Feld (art case): Guy got in fight w/ his parents and moved

out and when they died he claimed he owned art in their apt. So they had been bailees according to him. Court said that when he wrote a letter many years earlier saying “I’m gonna pick my stuff up”, that was a demand, and when they replied “we won’t give it to you until you give us what you owe us”, that was a refusal . . . demand and re-fusal doesn’t have to be formal and in legalese.

3. Just b/c the thief can’t be sued in replevin b/c the SOL has run, doesn’t mean he has title (unlike land where you get title when the SOL runs).

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H. Areas in which Adverse Possession Does Not Operate

1. Future Interests

a) The owner of a future interest, since they have no standing to bring a cause of action against an adverse possessor, cannot be affected by the doctrine of adverse possession or an ease-ment by prescription. If all a person owns is a future interest, then you can’t adversely affect the interest.

i. AP commences after the conveyancea. O owns a lot of land, and transfers title to X for life and upon X’s death to Y

outright. A goes into adverse possession after the conveyance has taken place, and remains in adverse possession while X is living. A strikes 21 years of AP so now it’s A’s. X dies. Y wants to take over. A cannot prevent Y from taking over since Y had a future interest and therefore could not sue for ejectment till now . Therefore, nothing had triggered the running of the statute against Y. So A can defeat X, but he would have to remain in adverse pos-session for another 21 years to beat Y.

ii. AP commences before the conveyancea. A goes into adverse possession against O for 5 years, and only then O con-

veys the property to X for life and then to Y outright. A remains in adverse possession for 16 more years. When O made the conveyance to X and Y, the conveyance was subject to the action already accrued. If the statute be-gins to run before the conveyance of a future interest, the statute continues to run. Can Y bring an action, before X dies? No. Only X can, but Y will be barred if X fails to bring a cause of action within 21 yrs.

1. However, Y can still bring an action against X. If X has a life interest and causes damage to the property, Y can sue X for “waste.” X has a duty to protect the property against waste - what can be a bigger waste than loss of title. He would have the ability to sue X in equity to compel X to bring a cause of action in ejectment. The life tenant has a duty to preserve the title in favor of Y.

2. State Interests

a) One can’t get title to the government’s land through AP since they has sovereign immunity.

i. Kiowa Creek Land v Nazariana. O owns land. O is the state. O leases the land to T for 6 years. After the

lease commences, A begins to adversely use the land for a period of 6 years. At the end of the 6 year period, O, the state, conveys the property to T. A continues to use the property adversely for another 4 years. A total of 10 years of adverse use under a 10 year statute for easement by prescriptive use. A does not have a prescriptive easement over the property. The court said that the first 6 years don’t count since you can’t get an easement by pre-scription against the state. Since the 1st 6 years don’t count, after T gains ti-tle, A will have to remain in adverse use for another 6 years to get an pre-scriptive easement.

1. But the state had a future interest in the property. If at the end of the 6 years, the state took over the title, A would never be able to get AP.

b. If O was an individual (as opposed to the state), and A takes over against T for 21 years, and the lease was for 25 years, O’s right accelerates, and he may eject A before the lease was up. If within 21 years, from the point A takes over from T, O doesn’t eject, A will get title against O.

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ii. O leases to T for 6 years, with an option to buy, in that case, we should only require 4 more years.

b) The state can get title by adverse possession.

i. Even though you can’t bring an action of ejectment against the state, because they have sovereign immunity, the state can still get title by AP, since you can sue the pri-vate individuals that work for the state. The statute for sovereign immunity does not extend to employees. This is enough to justify the state getting title by AP. Surrell v Town of Framingham

3. Easements Interests

a) O owns a lot of land. Previously, O had given X, who owns the adjoining property, the right of way to travel over O’s land (an express conveyance of easement). A goes into AP and re-mains for 21 years. At the end of 21 year period, can A say to X you no longer have a right of way over this property? Is X’s easement extinguished by A taking title of O’s land? If O con-veys the property to Y, would X’s easement be extinguished?

i. X’s rights are not extinguished by O losing title, they are not conditioned on O’s title. In order for X’s right to be extinguished, A would have to have interfered or ob-structed with the easement for the statutory period, because then X would have had a cause of action.

I. Prescription

1. Prescription is a companion doctrine to adverse possession. Prescriptions gives parties the right to use property—an easement.

a) In the area of prescription, O owns the property. A for the period of the statute of limitations uses O’s land. A will by prescription gain the right to use the land—an easement by prescrip-tion.

2. Easement Appurtenant

a) When you use someone else’s land to benefit your land. In order to gain an easement appur-tenant, the person has to own the land he is trying to benefit.

i. O owns a lot of land. X owns land next door. O leases his land to A for 10 years who builds a restaurant on the land. He also makes a driveway to his restaurant through X’s land which he uses for all 10 years. At the end of the 10 years A buys the prop-erty from O and continues to use the driveway for an additional 11 years. A is trying to gain a right to use X’s land for the benefit of his land (an easement appur-tenant). Court said for this kind of easement, you need to own the land being bene-fited by the adverse use and therefore he gets no credit for the first 10 years since he was only a lessee. (Bell v. Bome RI)

b) The easement appurtenant passes with the property it benefits. It has the potential to con-tinue indefinitely.

c) It affects two parcels of land:i. Servient estate (land burdened)ii. Dominant estate (land benefited)

3. Easement by Prescription

a) A person can gain an easement by prescription by long-continued adverse use. The elements for an easement by prescription parallel those of adverse possession.

i. Actual useii. Open and notorious useiii. Adverse useiv. Continuous and uninterrupted use

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v. For the statutory prescriptive period

b) Dietrich International Truck Sales v JS & J Servicesi. Dietrich had been using adjoining property of O for 25 years, starting in 1967. O had

leased the area to T, and the lease began in 1956. Since the adverse use began af-ter the lease, the owner had a future interest. At the end of the term of the lease, the possession returns to the owner (reversion). But, until the end of the lease, the land-lord, O, does not have an action of ejectment, therefore, the adverse user does not get an easement against O, but only T.

c) 2 adjoining landowners – O and A. O’s land is vacant and separates between A’s land and the ocean. It has been like this for more than 21 years. One day O decides to build a huge building blocking the entire view. Does A have an easement by prescription to the light and air? No, since no cause of action has accrued since O never could have sued A for looking out his window at the view.

VI. GIFTS AND MODES OF TRANSFERRING WEALTH

A. Terminology

1. Basis: The values assigned to a taxpayer’s investment in property and used primarily for computing gain or loss from transfer of the property. Basis sets the starting value of capital assets to determine the extent of a gain or a loss on the sale or transfer of the assets.

a) If O buys 100 shares of stock for $1,000 and sells them for $1,500, O’s basis is $1,000 and O’s gain is $500.

2. Step up in Basis: The basis of property, given gratuitously at death (transferred by inheritance), is the property’s fair market value at the date of death.

3. Carry over Basis: The basis of property transferred by the gift or in trust, equaling the transferor’s ba-sis

4. Gift: The act of voluntarily transferring property to another without compensation with the intention of making a gift. If the property is land, the intention to transfer the property must appear in a writing signed by the donor, otherwise, the intention may be expressed orally or inferred from the circum-stances surrounding the transfer.

a) Elements of a gift – Donative intent, delivery, and acceptance are all necessary. There are exceptions, refer to relevant sections.

5. Gift Causa Mortis: A gift made in contemplation of death

6. Inter-vivos Gift: A gift made during the donor’s lifetime and delivered with the intention of irrevocably surrendering control of the property

7. Taxable Gift: A gift that, after adjusting for the annual exclusion and applicable deductions, is subject to the federal unified transfer tax (IRC§2503)

8. Testamentary Gift: A gift made in a will

B. Taxes

1. Federal Estate Tax

a) The US Government imposes an indirect estate tax on the privilege of transferring property at one’s death. The property to be valued for estate tax purposes is that which the decedent ac-tually transfers at death, rather than the interest held before death. (IRC §2010).

2. Gift Tax

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a) A tax on the value of lifetime transfers of property. The gift tax applies to the donor’s act of making the gift and is measured by the value of the property transferred between the donor and the donee. The gift tax is based on the amount of the gift or its value on the date of the gift (IRC §2501)

b) Aggregation Concept

i. When you die, the government will look at the decedent’s lifetime and figure out how many taxable gifts he made.

a. A taxable gift is aggregated to your death bed tax that pushes you up into the next tax bracket. This prevents the possibility of double exemption.

b. You will get a credit for estate taxes based on gifts taxes previously paid.c. But, the amount of gifting will be aggregated to figure out which bracket you

fall into for purposes of estate tax.

ii. The tax bracket is based on the total gifts made under the will and made during life. The total is taxed, and then credits for taxes are given which were paid on the living gifts, which qualified for the annual exclusion or exemptions.

a. The first million of a taxable gift is exempt from the gift tax. The first million is also exempt from the estate tax. There is not a double exemption; there is aggregation.

1. O gives away 1 million in taxable gifts, and doesn’t pay the gift tax, because of the exemption. At death, O has an estate worth 3 million. O’s estate will also have a 1 million dollar exemption. The estate tax will not be computed at 2 million. The 1 million dollar gift will be added to the total estate, before the estate tax exemption is applied. The tax bracket will be based on the 4 million dollar estate, and ex-emption will be applied to the 4 million dollar estate.

3. Generation Skipping Tax

a) Husband conveys property to wife for life, and then to child for life and then to grandchild for life. Every time a donee dies, there would be no estate tax, because the interest is terminated upon death. The government implemented a generation skipping tax, so when 2 generations down the line gets property, it is taxed.

C. Tax Benefits of Irrevocable Gifts

1. Lifetime Exemptions

a) Generally

i. The gift tax exemption is 1 million. The estate tax exemption is 1 million. In 2004, the gift tax exemption will remain 1 million, but the estate tax exemption will increase to 1.5 million.

ii. The estate tax exemption will continue to grow, while the gift tax exemption will re-main frozen. By 2009, the estate tax exemption will grow to 3.5 million, and an estate can be left worth 3.5 million without any estate tax.

iii. In 2010, the estate tax is repealed. Step up in basis will be repealed also, and carry over basis will apply to all types of transfers. In 2011, the exemptions will be less, and all the original taxes will be left. So much more can be left in death, but there are many advantages to making a living gift.

2. Appreciation

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a) Any further appreciation in value after making the gift is free and clear of future estate and gift taxes.

i. EX: Why do people make gifts from a tax perspective? If you have property that is likely to appreciate very substantially in the future and by the time you die it’s going to go up a lot, it’s going to be subject to an estate tax. It’s better to gift it away when it’s cheap (present time), you can give it to your beneficiaries without being subject to ET (estate tax) which will be more in the future. Better to just pay GT now.

3. Step up basis in gift v. will a) Capital gains rates (estate tax) are lower than Transfer tax rates (gift tax rates).

i. O owns 5 million dollars worth of stock bought originally for 1 million. If O gave the stock to the donee the donee gets the same basis as the donor (1 million) so if he sold it for 5 million, 4 million will be subjected to capital gain taxes.

ii. However if O gave the stock through the basis of a will the basis will be 5 million be-cause a property that is required to be included in a person’s estate for estate tax purposes gets a new basis as it is equal in the estate. If the donee sells it for 5 mil-lion, he will not have any capital gains because the step up in basis is 5 million.

iii. So why do people still make living gifts? Because there are loopholes in the federal gift tax law that allow you to make gifts without paying tax. Annual Exclusion (“AE”) is one such loophole.

4. Annual Exclusion (IRC §2503)

a) A donor can give annually $12,000 to as many different donees as he wants without incurring gift tax. It renews itself every year. A gift that qualifies for the annual exemption is not a tax-able gift.

i. A receipt of a gift is not taxable for income tax purposes, unless income, such as divi-dends are paid out after receipt of the gift, and such payment is subject to income tax.

b) If the donor is married the couple can combine the annual exclusion to equal $24,000 per donee per year (even if all the money is coming from H).

i. H makes a gift of $22,000 to X. W is his wife. If H files a gift tax return and lists the $22,000 gift, and W consents to being the donor of half the property, then there is no taxable gift. Each can give $12,000 to as many donees as they want. If H and W have 4 children and 6 grandchildren, and 10 son-in-laws (20 potential beneficiaries getting $24,000 each), the beneficiaries will receive a total of $480,000, non-taxed as long as a gift tax return is filed. However, if H and W have individual funds, then they don’t even have to file the return.

c) The annual exclusion does not draw on the lifetime exemption of 1 million dollars. Once you have exceeded the annual exclusion, then the donor can draw upon the once in a lifetime ex-clusion. You lose it when you use it. (1 million dollars total, doesn’t have to be one gift)

d) The purpose of the annual exclusion is both to serve as an estate-planning mechanism (so that gifts made during the donor’s lifetime remain non-testamentary and non-taxable) and to eliminate the administrative inconvenience of taxing relatively small gifts. (Purpose of life time gifts)

e) The annual exclusion is only available for gifts with present interests as opposed to future in-terests. (IRC §2503)

i. O makes a gift of 1 million dollars in trust with annuity to A for life, and then to B. B has a future interest—an interest in which B may have and enjoy in the future—but B doesn’t have the present right to enjoy benefits. A has a present interest—a present right to get beneficial enjoyment. A’s present interest can qualify for the annual exclu-

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sion, but B’s interest cannot since you cannot tax future interest unless future interest becomes present interest.

a. IRC §7520: A’s life expectancy is one factor in evaluating his present inter-est, the return on the money is another consideration (look at interest rates).

f) It must be a present interest and possession and enjoyment cannot be dependent on an-other person. I.e., O gives A income for life and to B once A dies, B’s interest is a future in-terest because it is dependent on A.

i. O creates a trust, and wants the trustee to hold the gift for the lifetime of children, with discretion on the amounts paid. The children’s beneficial enjoyment is depen-dent on a third-party, the trustee. Therefore, this gift is held to be a gift of a non-present interest, and no portion of the gift will qualify for the annual exclusion.

g) Annual Exclusion and Gifts to Minors (Trusts) – Safe Harbor

i. IRC §2503(c) provides a safe harbor provision allowing the creation of a flexible trust for the benefit of minors that will qualify for the annual exclusion, despite the fact that minor’s interest is future and dependent on a third party.

a. The terms of the trust must incorporate the following to qualify for the annual exclusion.

1. Until the minor reaches the age of 21, the trustee is given discretion to pay out as much or as little income as he feels necessary to bene-fit the minor. The trustee must have absolute discretion over paying out the income and the principal.

2. When the minor turns 21, the trust must terminate and the principal and any undistributed income must be distributed to the minor’s es-tate or to such persons as the minor shall by deed or will appoint.

3. If the minor dies before distribution, the principle and undistributed income has to be paid to minor’s estate or in your trust you can say that minor designates someone to give it to. General power: if the mi-nor does not exercise the power of appointment, it will go to XYZ. You’re hoping that he’ll die before the age 18, because before that age he can’t exercise that general power because you can’t make a will.

b. Sixth months before the minor reaches the age of 21, the minor must be in-formed of the trust, and if the minor does not request the funds, then they are not distributed, and the trust is continued. If the minor allows the funds to re-main in trust, he is making a gift, so the terms of the continuing trust must be evaluated. The minor could also create gifts in favor of third parties, and could qualify for his own exclusion.

ii. Since the trustee has absolute discretion, the trustee has the opportunity to make amendments to the trust, even though it is revocable, such as changing the adminis-trative provisions.

a. EPTL §10-10.6: If a trustee has the absolute power to pay the principle, the trustee can make amendments to that trust without court approval, so long as he does not diminish the rights of the beneficiary.

iii. Never name the parent of the donee as trustee, because it could have adverse estate tax effects, if the parent dies first.

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h) Custodianship

i. Uniform Gift to Minors Act: A statute designed to facilitate arrangements that benefit minors without drafting a trust instrument. Benefit is simplicity.

ii. The person who acts as the custodian for the benefit of the minor retains the gift. The sentence “I entrust X as custodian for the benefit of a minor” covers all aspect of the statutory requirements. We don’t know with certitude what the legal status of the cus-todian is.

a. Under the custodial act, there is not much flexibility with regards to the terms, as opposed to a trust, where you can incorporate your own provisions, as long as the safe harbor provisions of IRC §2503 are followed.

iii. The custodial arrangement determines the custodial successor by statute, but in a trust relationship, the grantor determines the trust successor.

5. Unlimited Exclusion-more reasons to make gifts w/out taxation

a) IRC §2503:”A donor without incurring the making of a taxable gift can pay someone’s educa-tional expenses or healthcare insurance without making the payment a taxable gift.”

b) If the gift is made to pay for medical or educational expenses, there is an unlimited exclusion under the gift tax (tuition could be considered part of the unlimited exclusion if there is no le-gal obligation to pay under the domestic obligations law)

i. There does not need to be a familial relationshipa. X becomes very ill, and a stranger pays X’s medical expenses. This is not a

taxable gift.

ii. The payment in question has to be made directly to the healthcare provider or educa-tional institution. The educational exclusion is limited to tuition.

a. A is in the hospital and has insurance, but the hospital demands to be paid immediately. B offers to pay in full. A gets reimbursed. Unless A is under a legal obligation to pay B back, once the insurance pays, B’s payment is treated as a taxable gift.

D. At Death

1. Intestacy: The state or condition of a person’s having died without a will

a) Intestate Succession: The legislature specifies the mode of transfer/estate plan of a person who dies without a will.

2. Will

a) Generally

i. Most people view the will as the primary vehicle for transferring wealth from one per-son to another.

ii. Ambulatory Instrument: A will does not speak as of the moment it is executed or drafted—it has no legal effect until after death.

iii. Interests: The beneficiaries of a will have possible expectancies, but no property in-terests until death. Therefore, the will can be changed at any time prior to death.

iv. Probate: The instrument will not take effect until the will is admitted to probate—the judicial procedure by which a testamentary document is established to be a valid will.

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v. Executor: An executor is designated to make the gifts in the will, however he has no authority to transfer wealth until the court appoints him executor.

a. Preliminary Executor: The executor named in the will, while the probate ac-tion is pending, may ask for a preliminary executorship, authorizing the ex-ecutor to perform limited acts on behalf of the estate, but the estate cannot be distributed.

b) Statute of Wills

i. The Statute of Wills sets forth meticulous requirements (writing, signed, and wit-nessed in testator’s presence) for the valid execution of a will.

ii. The rigid requirements serve a ritualistic and evidentiary function.

a. Ritualistic: Compliance with the formalities (if you want to dispose of your property by will, you must do so in the presence of witnesses, they must sign it at a given point of the document at the end of the will, and you must de-clare it to be your will) has a ritualistic value, because the ceremony pre-cludes the possibility that the testator was acting in a casual or careless man-ner.

b. Evidentiary: The requirement that a will be in writing has great evidentiary value. A written statement of intention may be ambiguous, but if it is genuine and can be produced, it has the advantage of preserving in permanent form the language chosen by the testator to show intent.

c) Advantages

i. Control

a. The testator retains control over the property until the moment of death. Any income earned on the property is attributable to the testator for income tax purposes.

ii. Income Tax Advantage for Beneficiaries

a. While property disposed of by will is subject to a federal estate tax, the bene-ficiaries of the will have an income tax advantage.

b. Deathbed gifts through a will offer a tax advantage in terms of a step-up in basis.

1. O buys stock of $100. O dies, leaving his estate to wife. At time of death, stock is worth $1,000, and its basis will jump to $1,000. If the beneficiary of the stock sells it for $1,000, no taxable gain will occur, since the sales price and the basis are the same amount.

d) Disadvantages

i. Causes disruption and delay

a. A will as a legal document comes into being at the time of the testator’s death, but it has not legally operative significance until it has been approved by the probate or surrogate’s court (New York). The will is not an empower-ing instrument until the court says it is valid—but it may not be valid.

b. The executor is not allowed to act until the will is declared to be valid—this might take a very long time.

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ii. Statute of Wills

a. Failure to adhere to these rigid formalities will result in invalidity and intestacy becomes the mode of transfer.

1. T goes to his lawyer. No one is present but the attorney. T signs the will in the attorney’s presence. After T leaves, the attorney has his partner and his secretary sign the will later, while T is on the phone. This may not be a valid will, despite the telephonic communication, because the signing did not happen in the presence of the testator and the witnesses and vice versa. Some courts will hold that sub-stantial compliance will suffice, but this is not the overwhelming weight of authority.

iii. Estate Tax

a. Property disposed of by way of will is included in your gross estate as part of your federal estate tax.

b. Step up in Basis: The basis of property, given gratuitously at death (trans-ferred by inheritance), is the property’s fair market value at the date of death.

1. IRC §1014: To the extent that the property is required to be included in the decedent’s estate for federal tax purposes, the property gets a step up basis to equal the fair market value at time of death.

a. T buys stock at $100. T dies leaving estate to family. At death, the stock is worth $1000, and is included in the estate for tax purposes.

e) Disclaimer

i. If a beneficiary does not want the gift, he can file a disclaimer and renounce the gift. The disclaimer or renunciation permits post mortem estate planning and is designed to take into account circumstances after testator’s death. The most common reason for disclaiming property is to save taxes, but the advice can also be used to avoid creditors.

a. T dies and leaves property to X. X doesn’t need wealth. X would prefer that the gift goes to C, X’s child. X renounces the gift, and the property will trans-fer directly to the child, and X will avoid the estate tax, which X would have been subject to had he accepted the gift and transferred it to C.

ii. A disclaimer is a very important post mortem estate planning tool. It has become very big in estate planning, because it gives the lawyer and the estate a second chance to undo mistakes in the plan after death.

a. H dies and leaves his entire estate worth 100 million to his already wealthy wife, W. W disclaims, and it is as if W predeceased H. If in H’s will, H leaves the estate to his wife and then to his children, the inheritance will bypass her estate for income tax purposes. If W doesn’t disclaim the inheritance within 10 months, W would have to “gift it.” If W uses the disclaimer correctly, then it was like W had never received it. There can also be a partial disclaimer.

E. Trusts

1. Generally

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a) In a trust situation, a person or corporation, known as the trustee, holds the legal title to the property (the trust), not for his or her own benefit but for the benefit of beneficiaries.

b) The beneficiaries have rights, which historically, were only enforceable in the courts of equity.c) The trustees have legal title, and the beneficiaries have equitable title. d) Created during the person’s lifetime and does not require court’s approval. It is effective

legally as of the date of instrument.

2. Purpose

a) Benefit successive generationsb) Asset management; Protect people against own inability to manage fundsc) Inject flexibility into an instrumentd) Escape estate and gift taxes

3. Revocable Intervivos Trust

a) A trust in which the grantor reserves the right to terminate the trust and recover the trust prop-erty and any undistributed income. Any person who owns property can create a revocable trust. It may be changed, altered or revoked at any time. The only statutory requirement is that the trust be notarized.

i. O could create a revocable trust and retain the power to terminate or change the trust. He could retain during his lifetime the full control over the beneficial enjoyment of the trust. When O dies, there is no requirement of probate court approval.

b) From a tax point of view, there are no advantages. When the grantor of the trust dies, the trust will be included in the estate for tax purposes, and during the grantor’s lifetime, it is in-cluded in income tax calculations.

c) For tax purposes, it is treated like a will. The trust doesn’t have to comply with the statute of wills, because it creates interests at the time the trust is created rather than upon death.

4. Irrevocable Intervivos Trusts

a) Generally

i. A trust that cannot be terminated by the grantor once created.

ii. It is not included in the grantor’s estate for federal estate tax purposes; however, IRC §2033: “When a person dies, the federal government can require that all interests that the decedent is transmitting at death by will or intestacy be included in the es-tate.” The converse is if the grantor has not retained an interest, there will be no inter-est to include.

a. O creates an irrevocable living trust. The trustee is directed to pay A for life and then to A’s surviving children. A is 80 and a bachelor. O dies, having cre-ated that trust. The standard for determining whether any interest in the trust will be included in O’s estate tax is whether O, the decedent, owned an inter-est in the property at death that is transmittable. While A will get the trust upon O’s death, at A’s death, because he is childless, the trust will go back to O’s estate. Therefore, O has not given away all of his interest. O has created a reversionary interest. The interest that O has retained is an inherited inter-est that he can dispose of under his will, and it can be included in O’s estate for federal income tax purposes.

b. O creates an irrevocable living trust. The trustee is directed to pay O for life, and then on O’s death, it goes to X. O cannot control its disposition; there-fore, he doesn’t have an interest that he can transmit by will or intestacy. However, IRC §2036 prohibits a grantor from creating a trust and retaining a

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right to get the income for life. In such a case, the trust will be included in the estate. If O retains the right to beneficial enjoyment for life or a period that does not expire before his death, then it is included the estate. Even if O does not get beneficial enjoyment, but he retains the right to determine who gets the beneficial enjoyment, even if O cannot personally benefit, the prop-erty will be included in his estate for federal tax purposes.

b) Grantor Retained Annuity Trust (GRAT)

i. A trust to which the grantor transfers property, taking back an interest in the form of an annuity (fixed percent of the original amount) for a limited period of time, paying a fixed return to the grantor. The value of the remainder is a taxable gift. The purpose of a GRAT is to avoid a transfer tax in the form of an estate tax and a gift tax.

ii. Why GRAT? a. Purpose is to avoid estate tax.b. Trust is worth nothing at the moment because the beneficiary has to wait five

years. And IRS has to measure growth so current interest rate is calculated.

iii. The GRAT must expire before the grantor’s death in order to escape the estate tax.

a. If O retained the annuity for life, then it would be includable in O’s estate. If O retains the right to get an annuity for 10 years, and he dies when he still has the right to get the annuity, then O has retained the right to beneficial enjoy-ment of the trust for a period of time that did not end before his death, the trust is then transmittable at death (IRC §2033) and is included in the estate tax.

iv. To avoid the gift tax, a grantor wants to “zero-out” the GRAT.

a. O creates a trust with 1 million dollars, and retains the right to get an annuity of 350,000 (35%) per year for 5 years. The current interest rate is 4%. In or-der to pay O the annuity, the funds must be taken out of the principal. Conse-quently, in 5 years, the trust will be depleted and the present value of the gift is 0—a zeroed out GRAT. The trust is not subject to a gift tax.

a. In order to “zero-out,” the grantor must retain a high annuity percentage and the asset transferred must grow at a low in-terest rate. (If the grantor retains low interest rate, the trust will zero-out and will not be subject to gift tax). Because the IRS only computes the present interest value looking at the 4% interest rate, the GRAT could “zero-out” but yet still have assets to transfer in 5 years, creating a tax-free gift.

b. A non-zeroed out GRAT will still mitigate the gift tax.

v. Present Value Analysis

a. The irrevocable gift is created at the date of the creation of the trust. Since the beneficiaries have to wait until they get beneficial enjoyment, the gift tax is calculated by the present value of the right to get the gift.

1. O creates a 5 year GRAT and makes an irrevocable transfer of 1 mil-lion dollars in real estate. O retains the right to get 15% annuity ($150,000), and the asset is yielding 15% annually. The taxable por-tion is not the 1 million dollars, but only the remainder, making 4% in-terest. (If the trustee has to dip into the principle to pay the annuity, the present value is not 1 million, but the remainder minus the annu-ity plus 4% interest a year). The IRS does not look to at what the trust is actually yielding, but only looks at the applicable assumption

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of 4% (current interest rate). The IRS will tax what it perceives to be the principle remainder interest of $350,000, leaving $650,000 tax-free gift.

vi. There are several discounts, which may be available to lessen the gift tax.

a. Minority Interest Discount: The value of the GRAT in the real estate may be less than 1 million, if the grantor does not own the majority interest, but a 1/3 minority interest—making the GRAT worth only 333,000.

b. Marketability Discount: If a corporation owns the property in the GRAT, and there is a provision in the agreement that the interest is non-transferable and not assignable, the restriction on the transfer affects the value of the in-terest. If you own something that is not freely transferable, the marketability factor lowers the value of the GRAT.

c. Easement Discount: If the exterior of a building is dedicated for landmark or public purposes, the owner may get an easement. The fact that the exte-rior can’t be changed discounts the value.

c) Grantor Retained Uni Trust (GRUT)

i. A trust in which the grantor retains a unitrust interest. Instead of getting a fixed dollar amount each year, the grantor gets a fixed percent of the amount given with assets each year. So rather than 5% of the original amount, 5% of the present year value. If the value of the trust increases, so does the payout (this is a hedge against inflation).

a. If O puts 1 million into a GRAT, with an annuity for 5 years, then each year O gets $50,000. But in a GRUT, O would receive 5% of the trust’s total amount each year. The payout changes.

d) Personal Residence Trust

i. A grantor creates an irrevocable trust in his personal residence and creates the right to live in the home for a certain period of time. The major problem is that the grantor is forced to move out of the home. However, a solution is that that the grantor could lease the home for a bonafide rent from the beneficiaries of the Personal Residence Trust.

ii. People shy away from creating these trusts. If the grantor dies during the period in which they are retaining beneficial enjoyment, the personal residence trust is in-cluded in the grantor’s estate for tax purposes.

e) Charitable Remainder Annuity Trust (CRAT)

i. A split interest trust from which a certain sum, no less than 5% of the initial value of all the property transferred into the trust, is payable annually to beneficiaries. (Univer-sities benefit from this big gift tool.)

a. O puts 1 million dollars into an irrevocable CRAT. O retains the right to get 5% of the initial value ($50,000 per year) for the balance of his lifetime. O is not concerned if the trust is included in his estate, because there is a 100% reduction for charitable gifts. O has his cake and eats it too. In the year O creates the trust, the present value of the charitable gift is deductible on his income tax return.

b. You have a large portfolio of stocks (10,000,000). Stocks concentrated in one company. If you sell, you will have a capital gain tax and lose 25%. So you can transfer it into CRAT. Your portfolio can be diversified.

ii. Three Benefitsa. Benefiting charity b. Keep enjoyment of a certain percentage for the balance of your lifetime

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c. Future interest gift to charity- so present value is deductible on your income tax return for income tax purposes.

f) Charitable Remainder Uni Trust (CRUT)

i. Similar to a CRAT, except that the 5% is valued based on the trust amount from year to year – a hedge against inflation.

ii. Biggest advantage- you can put a provision. i.e. if there is no ordinary income, you don’t have to pay and you can make it up another year.

iii. Client was over 90 years of age. He owned parcel of real estate that was worth a lot of money. It had grown in value but it was not producing any income. If he transfers it to CRAT and the trust sells it right away, the IRS can say that this was a sham. In-stead, he puts it into a CRUT. He sold it for 5 million dollars after a few months be-cause the grantor does not have to be paid right away. You can wait until it produces income and theoretically you can roll over forever.

g) Charitable Lead Annuity Trust (CLAT)

i. Charity gets the money up front. A tax planning device under which a taxpayer trans-fers property intervivos to a trust, which transfers its earnings to a charity for a deter-minable period, after which the remainder reverts to the transferor or another party.

a. Instead of the charity getting the money after death, the charity gets the money while the grantor is still alive. O gets an annuity of 8 or 9% to pay Car-dozo for 20 years, and after 20 years, the remainder goes to C. C’s present interest may be 0. The kids may get the trust free and clear of a gift tax, and O gets a charitable deduction in the year he created the trust for income tax purposes, provided that the trust is drafted so that the charity is getting the annuity and O is getting the income.

ii. This trust may help shelter an enormous amount of income that came in the year, O is asking for the deduction. This device is rarely used.

h) Charitable Lead Uni Trust (CLUT)

i. Similar to a CLAT but the annuity is taken from the present trust value.i) Present Interest Trust

i. $12,000 exemption per donee. j) Life Insurance Trust

i. Can set up life insurance a. Paid to the trust b. Policy is owned by the trust.

5. Other Vehicles a) Private annuity

i. Sell real estate to children for an annuity for the remainder of his life time.ii. Filled with a lot of perils.

b) LLC i. Treated like a corp for liability purposes, but as a partnership for tax purposes.ii. Can get a deduction for minority interest

F. Living Intervivos Gifts

1. Generally

a) Gifts made during donor’s lifetime that cannot be revoked or changed. Unless the grantor expressly retains the power to revoke the gift, it is presumed irrevocable.

i. An exception is a gift causa mortis, which is revocable.

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b) It could be an outright gift (A gives B $100). However, such gifts take the form of a trust.

c) Since the property has been given away during the donor’s lifetime, it is irrevocable and will not be included in probate or the estate

2. Taxation of Living Gifts

a) Background

i. The making of a living gift was highly advantageous from a tax perspective before 1976, because the gift tax rates were less steep that the estate taxes.

ii. In 1976, the taxes were unified by having a unified rate of taxation for irrevocable gifts and deathbed gifts. This was done to even the playing field between the rich and poor.

iii. If a party gives an irrevocable living gift, the gift is free and clear of future gift or es-tate taxes it’s a one-time shot

3. Disadvantages

a) Lose control of the gift

b) Carry Over Basis: The basis of property transferred by the gift or in trust, equaling the trans-feror’s basis.

i. When there is a lifetime gift, the basis depends on whether the donee disposes of the property at a gain or a loss. If the donee transfers for a gain, the donee’s basis be-comes what the donor’s basis was. If the donee transfers for a loss, the donee’s ba-sis is the lesser amount of the donor’s basis or the fair market value at the time of the gift.

a. O buys stock for $100. The stock rises in value to $150. O gives stock to X, and X sells it for $150. O’s basis is carried over to X’s basis, therefore X has a gain of $50. X gets appreciation free and clear of estate and gift tax, but it comes with an income tax.

b. In planning for the making of a gift, you must anticipate tax impacts on clients and future beneficiaries. You have to take into account unintended income tax consequences.

4. Advantages

a) Avoids Probate

i. From a planning perspective, if a client can afford to do so, an irrevocable living gift is advantageous, because it is not a part of the probate estate. The gift bypasses and avoids problems and delays that are incident to probate.

G. Elements of Intervivos Gift

1. Donative Intent (intent to confer a benefit gratuitously)

a) Intent to Give: There must be intent on the part of the donor to make a gift.

i. G gives P a key to a locked box and says that P can have the contents. However G keeps a duplicate key. Although G has given P possession and enjoyment, it is not clear if there is donative intent.

a. In re Fithians held that there is no valid gift, not because of lack of delivery, but because the retention of a duplicate key shows lack of donative intention, and the donor has failed to relinquish dominion and control. However, if the duplicate key is locked inside the box, this is a valid gift, because the donor has not retained control.

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b. However, In re Gillbertson sustained the gift holding that a person may re-tain the key for other reasons.

b) Intent to make a present gift: The intent must be to make a present transfer, not one in the fu-ture.

c) Gift of future interest: Courts generally go out of their way to find that there has been a present gift of the right to the subject matter, with only the enjoyment postponed to a later date.

i. Innes v Pottera. Facts: Potter writes on back of a stock certificate that he “leaves” it to his

daughter but he doesn’t give it to her. He writes on a piece of paper that he has transferred the certificate to his daughter. He puts both in an envelope and says it is to be delivered to his daughter “in case of his death” and he then delivers it to his friend and when the donor dies the friend delivers it to the daughter. Donor got the dividends for the balance of his lifetime. Is there a valid gift or is this just a testamentary disposition in disguise?

b. Even though delivery of envelope was not to take place until moment of death – we can still say the delivery requirement was satisfied b/c we have a delivery to a 3rd person

1. But if it only takes affect at death doesn’t it violate the statute of wills – Court said no!

2. But donor said he wanted to “leave” property to daughter and that suggests testamentary intention – Court said no b/c he was a laymen and didn’t know the legal meaning

c. There was evidence the 3rd party would have given it back to donor if asked which is good evidence that the 3rd party was an agent for the donor – Court pushed this aside b/c they say the 3rd party’s frame of mind is not their con-cern, they are only concerned w/ donor’s frame of mind and he would not have taken it back

d. What a/b fact that donor was getting all the benefits until death – how did title pass to donee if donor was getting all the dividends?

1. Was any property interest created in the daughter before the father died?

a. Yes – future interest – father in this case retained a life es-tate (beneficial enjoyment for balance of lifetime) and cre-ated future interest for daughter but future interest was legally created on date of delivery of the envelope. But can you create a future interest in choses in action?

i. **Court says you can create future interest in per-sonal property, as in real estate

ii. You CANNOT create future interest in tangible prop-erty that is consumable in nature

e. Innes was correct in highlighting an extremely important fact – there is a dif-ference b/w a gift that takes affect only at the moment of death (which must comply w/ the SOW), and a gift that is legally created before death with the possession and enjoyment of it postponed until after death (which doesn’t have to comply w/ the SOW).

ii. There may be present transfer of title with the right of enjoyment postponed until a fu-ture date.

a. Grandma gives candlesticks to her daughter, saying that these candlesticks are for my granddaughter when she marries. 3 approaches:

1. There has been a delivery and there is donative intent. The daughter may be the grandmother or the granddaughter’s agent for the pur-poses of delivery (depending on how the court defines her role, will affect the outcome of the gift).

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a. If the mother was the agent of the grandma, unless the can-dlesticks are delivered before the death of the grandma, the agency situation is revoked. Legal title remained in the grandma subject to the future interest of the granddaughter. The delivery requirement is not satisfied until the daughter delivers the candlesticks, and the grandma can revoke the gift prior to delivery.

b. If the mother was the agent of the granddaughter, the mother is the agent to hold the gift for the granddaughter un-til she marries. Delivery requirement is met because the grandmother intended to give the candles when she gave it to her daughter.

2. The gift to the granddaughter only takes affect when she marries. Until then, the legal title stays with either the grandmother or the daughter.

a. The grandma has retained possession and enjoyment while creating a future interest in the granddaughter. The grandma has maintained Fee Simple Absolute ownership interest subject to a springing executory future interest.

b. OR, when the grandma hands the candlesticks to the daugh-ter, she may intend to create a future interest in favor of the granddaughter, but until the granddaughter meets the condi-tion, she intends the legal title to be transferred to the daugh-ter subject to a shifting executory interest in favor of the granddaughter.

3. The real donee could be the daughter. The statement “give it to her when she marries” could be merely a desire or wish to transmit the wealth from one generation to the next, rather than a demand man-dating a transfer.

iii. Father calls favorite daughter (1 of 5 children). In his last will and testament drafted 5 years ago, he divided the property of his valuable business equally. He calls his daughter and dictates – “I agree that on this day in a discussion w/ my daughter it was decided that this particular asset (the business) will be written in her name.” Then (in the dated letter) “All other assets will be divided equally among the children. This note supersedes all other agreements unless it is changed at my lawyers office.” She has written it in her handwriting but he signed it. She has the note b/c it was de-livered to her (delivery of a written instrument signed by a would-be donor). Although he started the business, she has been running it and there is a large amount of evi-dence that he has been telling people he is giving her the business. She had other business interests but she worked her butt off for her dad and neglected her own business. Father didn’t write this immediately in her name b/c she was going through a nasty divorce and father didn’t want to get caught in the middle of it. Father died. Does she own the business? Other 4 kids move for SJ saying this gift takes affect at death and it is an invalid testamentary document b/c not witnessed.

a. The basic argument made in the SJ motion was that this was an attempt to dispose of property at death and ∴ it fails b/c it violates the statute of wills b/c it wasn’t witnessed properly.

b. Daughter could argue that donor here (ala Innes and Gruen) was gifting something right now that would take affect when he died but that she wouldn’t get possession and enjoyment immediately (reason he didn’t give gift outright was b/c of divorce) so she could argue a future interest is cre-ated as of date of delivery of the note and father is retaining possession and enjoyment

c. Daughter could also argue that this was a K to will – look at all the language “I agree...This note supercedes all other agreements”

1. Father has agreed that in his last will and testament he will make a provision that this goes to her

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a. K to will means X may have a remedy – X can sue for breach of K (doesn’t affect probate) and seek specific perfor-mance

b. Has to be consideration – she has been working at the busi-ness and impliedly agreed to continue and consideration for K (if agreement is in writing and signed) doesn’t have to be in writing

2. If there is K to will and the person dies and hasn’t changed the will then the K will be enforced

d. Daughter could also argue promissory estoppel – she gave up her own business to her detriment in reliance on her father’s promise.

e. SJ was denied here

iv. Gift subject to a life estate: Most courts hold that a donor may make a valid gift of a future interest in personal property. Even though the donor retains possession and enjoyment for his life, the intent to make a present gift will usually be found to have been satisfied.

a. Gruen v Gruen1. Facts: O wrote a letter to his son G, stating that he was giving him a

valuable painting for his birthday, but that O wished to retain posses-sion of the painting for life. G never took possession of the painting. O dies and G asks for the painting.

2. Court concluded that this was a transfer w/ a retained life estate. Victor created a future interest in his son (called a vested remainder), not when he died, but as of the moment he sent the letter.

a. The letter signed by the father (not a formal deed of gift) was considered a deed of gift since it was signed by the donor and delivered to the donee

3. Step-mom argued Victor exhibited the painting, lent it to museums, insured it, and fixed it and that shows no intent to give it to the son Court said no, this is a life estate and he wanted to preserve and take care of it

4. But Victor didn’t pay a gift tax and if sons interest came into being when letter was written it was a gift for gift tax purposes Court said mere fact he didn’t pay doesn’t show he didn’t give a gift

5. Even though this is a perfected transfer for property purposes and doesn’t go through probate b/c gift took affect legally during donors lifetime as an intervivos gift, this was includable in father’s estate for estate tax purposes b/c father retained a life interest (§2036)

a. Who would pay?i. There should be an equitable apportionment under

Art II – son should bear the burden6. What if this was the only asset of the estate, is the step-mom out

of luck?7. Art 5 of NY EPTL – she could take her elective share and satisfy it

from anything under the will and if there is nothing in the will then she can satisfy her elective share out of property he transferred and re-tained a life estate unless she waived this in a prenup

d) Exceptions to Gifts of Future Interests

i. A future interest cannot be created in intangible personal property.

a. G gives a deed of gift to P and the heirs of her body. At common law, P gets a fee tail estate. However, a fee tail cannot be created in personal property, only real estate.

b. If G gives P outright ownership, then G can’t give outright ownership and a future interest. You can’t have anything following outright ownership.

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ii. A future interest cannot be created in a consumable item.

a. G gives banana to P and then on P’s death to A. A does not get an interest in the banana, because we are dealing with something consumable in nature. Only outright ownership can be transferred in a consumable item.

b. This principle has helped taxpayers. O, in his will, gives his car to his wife for life and then to his children. (This was done when the rules didn’t allow a marital deduction when the wife was only given a life estate. If a gift qualifies for a marital deduction, it is deducted from the estate tax. However, if the wife is limited to a life estate, then it doesn’t qualify for a marital deduction.)

1. Markoff v US IRS argued that a car is consumable. Because it will wear out, the wife is not limited to a life interest, because she be-came the outright owner and qualified for the exemption.

e) Gifts Subject to Conditions

i. Common law views an engagement ring as a gift condition subsequent to marriage

a. G proposes to P and gives her an engagement ring. The engagement does not take place. Depending on who is at fault, G may or may not get the ring back.

1. If without justification, G breaks off the engagement and P is willing to get married, then G is not entitled to get the ring back.

2. If P breaks off the engagement, G is entitled to get the ring back. 3. If the engagement is broken off by mutual consent, G can get the

ring back (Cohen v Sellers).4. If G dies before the wedding, P will keep the ring, unless P killed G,

where G’s estate will get the ring. (Verbanis v Vernes—the donor’s estate cannot get the ring back)

5. If P dies, G will get the ring back barring G killing Pb. Anti heart balm statutes - there is no solace for the soul. Many states

have statutes that say they don’t get involved in the engagement contract – no cause of action for breach of promise of marriage.

1. One case held this precludes recovery by the donor of the ring2. However, another case held that the donor could get the ring back

b/c the he’s not suing to enforce the promise to marry, but for restitu-tion to prevent unjust enrichment, and the statute does not prevent recovery on this theory.

ii. Guy tells pregnant woman – if you name your kid after me, I’ll give that child 1 million dollars. She names the kid after him but he refuses to pay. Actionable?

a. Yes. Not enforceable on the basis of the law of gifts but on the law of con-tracts since naming the kid after him was consideration for his promise.

2. Delivery

a) Generally

i. Delivery requirement can be satisfied in 3 ways: actual delivery, constructive de-livery, and symbolic delivery.

ii. The delivery requirement serves a ritualistic, evidentiary and channeling function.

a. The ritualistic function makes the seriousness and legal significance of the gift vivid and concrete to the donor.

b. The Protective/(book calls it evidentiary) function provides unequivocal evi-dence of the gift to actual witnesses of the transaction and gives the donee

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prima facie evidence that a gift was made; although the gift may not be con-clusive.

c. The channeling function provides a surefire mode that some gift was made. It says to a donor that if you want to make sure you are giving a valid gift—if you effectuate delivery or make out a deed and deliver the deed, then a gift will be effectuated.

b) Actual Delivery: Before there is a valid gift, there must be an actual delivery.

i. Irons v Smallpiecea. Facts: A father approaches his son, P, and says I want you to have this

horse. The horse remains in the father’s possession. 6 months later, the fa-ther says, I am going to feed the horse, but you should pay me. Nothing is paid until 3 or 4 days before the father’s death. The father dies, and P tries to claim the horse.

b. The court held that the horse was never delivered, and the property re-mained the father’s at death and passed under the will. “In order to transfer property by gift there must be either a deed or instrument of gift, or there must be an actual delivery of the thing to the donee.”

c. While it’s possible to argue that the father was in essence agreeing to keep the horse as a bailee, this idea would destroy the delivery requirement and has no foundation in American law. *However, if the son was a minor, it may be argued that delivery to a young child may be foolish, because the child may be too young to accept delivery and the father may be the proper guardian. This follows the line of thinking where you have done everything possible to deliver, but courts are reluctant to allow such constructive deliv-ery. The court also says there cannot be a verbal gift.

d. Judge Holroyd said, “In order to change the property by a gift of this descrip-tion, there must be a change of possession: here there has been no change of possession.”

ii. Whether delivery is necessary to effectuate a trust depends on who the trustee is. When a donor creates a trust naming himself as trustee, no delivery is required; where a third party is named as trustee, delivery is required.

a. Donor is the trustee:1. O owns stocks and says I hereby declare myself trustee of these

shares and they are to be held in trust for benefit of X for life and then to Y. He is gratuitously making it for the benefit of X and Y – but is there a valid gift for X and Y – i.e. was there a delivery?

2. The trustee has legal title when you have a trust, while beneficiaries have equitable title (can go into court of equity to enforce trust) and delivery requirement is applied to legal title (not equitable)

3. Since O is the trustee and he already has legal title, he doesn’t have to transfer by way of delivery (since we don’t require delivery when the recipient is already in possession).

b. Third party is the trustee:1. O names B as trustee for the benefit of X for life and then to Y, and

O writes on paper he is transferring title to B but never delivers the stock or the title to him. Since there has been no delivery to the 3rd party, the gift won’t be effectuated till there is actual delivery.

c. Hebrew University v. NYE – woman says she wants to donate her library to HU. She goes to Hebrew University and they have a luncheon for her and they announce this gift in front of all these important dignitaries and she says “I am giving these.” Then they issue a press release and she signs it. Then there is a battle when she dies before they are delivered to Israel, whether HU owns them.

1. HU argued there is a valid gift b/c the would-be donor declared a trust. When she got back from Israel she was cataloguing these

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things and wrote HU a letter again saying it was theirs and this effec-tively made her the trustee for the trust that now owned the books.

2. The Court said NO – we don’t think she intended to be a trustee since a trustee takes on huge fiduciary responsibilities. So they re-manded it to lower court

3. On remand, the court awarded the books to HU on a different theory - there was a non-trust intervivos gift – the signing of the press re-lease and handing it to them was a delivery of a deed of gift – a symbolic delivery.

c) Constructive Delivery: The property is not transferred, but something giving access to it and control over it is.

i. Constructive delivery emphasizes that the rationale for the concept of delivery is to have the donor relinquish possession and control of the chattel.

a. G has a locked box, and in order to open the box, you need a key. Unless you use the key, the box is rigged to explode. G gives the box to P, but does not deliver the key.

1. This is not a valid gift unless the key is also given, because it fails to fulfill the requirement of delivery. (Warner v Rogers)

ii. Constructive delivery will not be allowed unless delivery of the actual subject matter would be impossible or impracticable.

a. G gives P the key to the locked box on the dresser. G says the jewels in the box belong to P. Before P unlocks the box, G dies.

1. Newman v Bast held there is no valid gift. If a gift is susceptible to actual delivery of the subject matter, then the constructive delivery will not suffice. The law permits a relaxation of the actual delivery re-quirement only in special circumstances. The court is concerned with the reliability of donative intent when the donor is deceased.

b. LJS owned valuable treasure on treasure island. LJS called Jim and says “there is a valuable treasure that I own, and x marks the spot.” LJS gives him directions or a map of where the treasure is located. Before Jim reaches the island, LJS dies. (Depends)

1. The delivery of a map could be constructive delivery. It is like the de-livery of a key, and it is a valid gift. (Waite v Grubby).

2. However, other cases have held it is not a valid gift, and it may be likened to the donor retaining a duplicate key (Shankle v. Spaher).

iii. Delivery of a part may be considered constructive delivery of the whole.a. G owns 50 volumes of encyclopedia set, says to P that the 50 volumes are

for P. G gives P 25 volumes, and says the remainder will be delivered later. Before the others are delivered, G dies. The gift is of all 50 volumes. How-ever, the result would be different if the gift is not a set or does not belong to-gether.

d) Symbolic Delivery: A delivery is symbolic if, instead of the thing itself, some other object is handed over in its place. The symbol or deed must be delivered. Writing the symbol or deed is insufficient without delivery.

i. LBJ takes a branding iron and brands the cow LBJ jr. The brand name “LBJ jr” of this cow belongs to his son, LBJ jr, but LBJ never delivers the cow.

a. In some cases, the gift is sustained if the brand is recorded. If the brand has been recorded and registered in a central registry it is analogous to recording the deed in real estate. The recordable deed is a presumption of delivery of the deed—the same is true with a recorded brand.

b. If the brand is not recorded in a central registry, yet the cow is branded, there is not a valid perfected gift. (Love v Hudson). While the court sometimes

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relaxes the delivery requirement, there are limits, and they will require some sort of delivery. Brands and deeds must be recorded and registered for gifts to be effectuated.

ii. G rents a skywriter and writes out “I give my ring to P, signed G.” The wind blows the writing away. G has expressed donative intent, and in the sky, he has written a deed of gift. No gift because no delivery.

a. As a policy, the whole purpose of delivery is to serve a ritualistic function and to impress upon the donor the legal significance of the gift. If someone rents a plane, they are arguably aware of the legal significance of what they are doing. While the ritualistic function is present, the evidentiary function has not been satisfied (since wind blows writing away).

iii. G rents a billboard and writes out “I give my ring to P, signed G.” a. The evidentiary and ritualistic functions have been served, however, it is not

likely to be an effectuated gift. It is arguable that the rules for gifts should be reworked for this reason. However, the law’s objective is certainty of title, and we need an actual delivery to guaranty this certainty.

e) If other factors fill the functions performed by the delivery requirement, courts should uphold the gift even in the absence of actual or constructive delivery.

i. O goes on TV and says “I am giving K this enormous sum of money.” Millions of peo-ple witness this and there is clear, unambiguous, donative intent. But K does not own the money, because there is no delivery. However, there may be such overwhelming evidence of donative intent as to fulfill the ritualistic, evidentiary and channeling func-tions of delivery, that the court could arguably impose constructive or symbolic deliv-ery. (GOOD HYPO FOR EXAM)

ii. Verbal delivery of bulky gifts, which remain in the joint domain of the donor and the donee, may effectuate a valid gift.

a. H owns a grand piano. H turns to W and gives a verbal declaration of inten-tion to make a gift. Although there is no physical delivery, since the item is bulky and the parties live in the same house it was sufficient.

b. As a matter of sound planning, a deed of gift should be delivered, so as to guarantee the gift at a later date, after death or divorce.

c. However, Armitage v Mace, sustained a similar gift without a deed. There H gives W a horse, and after the verbal declaration was made, W used the horse exclusively, and such evidence is proof of gift.

f) When the donee is already in possession as a bailee or employee, actual delivery would be a fruitless action.

i. O, the donor is in NY, and B, the donee is in CA. B is already in possession, as a bailee, of O’s ring. O calls B, and says I give you the ring, which you are holding in bailment for me.

a. The court in In Re: Mills held that where the donee is in possession of the gift, a second delivery is not necessary, and the same would be true of a mi-nor already in possession.

g) Delivery through third person: Delivery to an agent may result in a perfected gift.

i. Agency Test : The general rule is that transfer to a third person will constitute valid de-livery only if the third party is acting as an independent agent, or as the agent of the donee. If the third party is the donor’s agent, no delivery has occurred since the donor has not parted with dominion and control, the basic test for delivery.

a. A father lives in NY. His son lives in CA, and his daughter lives in IL. The fa-ther calls the son and says, “you have my $100,000 in possession. It is for you and your sister. $50,000 is to go to each of you.” The son’s gift has been delivered, but the daughter’s gift has not.

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1. If the son is acting as the daughter’s agent, the gift could be sus-tained because there has been delivery to the daughter’s agent. If the son is the father’s agent, the gift will only be effected if the agent delivers the gift to the donee before the donor’s death.

a. Agency entails control and consent . Always ask under whose control is the would-be agent. If the son is under the sister’s control, then he is the agent of the sister, and the gift is effectuated upon delivery to the son. However, if the son is in the father’s control, then he is the father’s agent and the gift is not perfected until the gift is delivered to the sister.

b. The death of the principal revokes the authority of the princi-pal’s agent. If the son does not effectuate the father’s intent in a reasonable amount of time and the father dies before the gift is effectuated, the sister may be able to sue for a breach of fiduciary duty.

2. If the son refuses to act as the daughter’s agent (if the 3rd party re-fuses to serve as the agent), in some j’s, the gift will fail, because he can’t be an involuntary agent, and there would be no delivery. (Gerry v Howe). Other courts will sustain the gift, because there is donative intent and the donor has relinquished possession.

b. Same situation, but father leaves a voice mail message giving the gift to the son and daughter, but dies before the son listens to the message, the son has a perfected gift, because his acceptance is presumed (acceptance can/will be presumed if gift is to the benefit of donee). The daughter’s gift has not been delivered.

1. Case v Dennison holds it is not a perfected gift until the daughter gets the money, and if the father dies prior to her receipt, there is no gift. Agency requires knowledge of the agency relationship, because agency is a consensual relationship.

2. Crook v First National Bank holds it would be a perfected gift, be-cause it is not a question of agency. There is donative intention, the donor does not have possession, and the fact that the gift is in the possession of a third party may be enough to sustain the gift.

3. Acceptance

a) Common law says a person is presumed to accept things that are beneficial to him. To com-plete a transfer of property, acceptance by the transferee is required. However, if the transfer is beneficial to the transferee, acceptance will ordinarily be assumed.

b) Acceptance is presumed even if the donative intent is not communicated to the donee.i. G leaves a voice mail message announcing intent to give ring to P. G drops it through

P’s mail slot. P is presumed to accept delivery even if P has not heard the voice mail message or found the ring.

c) Even though acceptance is presumed, the would be donee may renounce or disclaim the gift w/i a reasonable amount of time (usually within 9 months).

i. X has a pet elephant and wants to give it to Y. X leaves the elephant in Y’s living room with a note. Y is technically the owner, because the acceptance is presumed. However, Y has a right within a reasonable time to disclaim the gift, and it is as if there is no gift at all. This is called renunciation or disclaimer.

ii. X owns a ring. X wants to give it to Y who is out of town so he leaves it by Y’s house. Y is out of town for 10 month, and upon his return says he doesn’t want it. It may be too late to renounce or disclaim. Under IRC §2518, the Federal Disclaimer Statute, an unwilling donee (Y) may be treated as giving a gift back to the donor and subject to a gift tax.

H. Gifts Causa Mortis

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1. Generally

a) A gift cause mortis is a revocable gift made in contemplation of the donor’s imminent death.

i. Gift made when the donor has the apprehension or expectation of death and delivers the chattel with the intention that control over the subject of the gift takes effect imme-diately, but becomes absolute only upon the donor’s death. The distinguishing le-gal feature is that it is automatically revoked by operation of law if the would-be donor recovers from the illness

b) There is a presumption that a gift made while death is impending is a gift causa mortis, rather than a gift intervivos. This presumption is rebuttable by proof of the donor’s intention to part unconditionally with the property given.

i. The test whether the gift is one intervivos or causa mortis is not the mere fact that the donor is expecting to die, but whether he intended the gift to be irrevoca-ble regardless of whether he recovers or dies.

a. Newell v National Bank of Norwich1. G is in the hospital, expected to die. G called his friend P and says

“this ring is for you.” G physically delivers the ring to P. G miracu-lously recovers from the illness and lives for 4 more years. After G recovers, P says “I want you to have the ring back” and shtups it on his finger. G accepts the ring, but states “I gave the ring to my friend P, I want P to have it, but she insists on my keeping and wearing it now. I want it understood that it is P’s ring and she shall have it when I die.”

2. The court held that the circumstances surrounding the transaction, and the subsequent declarations of donative intent, indicate that while G was ill when he gave P the ring, G intended the gift to be an intervivos gift and therefore irrevocable. As a result, absolute title vested in P, and G’s subsequent possession was as a bailee.

3. Return of an intervivos gift from the donee is not revocation, without donative intent. The court concluded that in order for the redelivery of the ring to be a revocation, there would need to be proof that the re-delivery was accompanied by donative intent to effectuate a gift.

a. The testimony showing his intent to make an intervivos gift was admissible even though it was hearsay since it was a declaration against interest.

4. Moral of story – not every deathbed gift is a gift CMa. In this case, this was a gift intervivos followed by a delivery

by the donee as a bailor back to the donor as a bailee.

c) To be a gift causa mortis:

i. The gift must be made with a view to the donor’s present illness or peril

a. State of mind - The expectation of death required is a subjective one; an objective or reasonable expectation is not required.

1. O has a bad toothache and goes to the dentist. O is scared and thinks he is going to die. A reasonably and prudent person would probably not think so. Thinking he is going to dies, O gives the ring to P. O leaves the dentist office and demands the ring back. Is this a gift causa mortis?

a. If we apply a subjective standard, then there is a gift causa mortis. However, there is a policy argument against that b/c if a subjective standard is applied, those people making IN-TERVIVOS gifts may turn around and say I thought I was

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going to die and would like to revoke my gift. (Schwartz) We want certainty.

i. He could have retained the power to revoke the gift, but he needed to make that explicit.

b. The court in Nicholas v Adams held it is a gift causa mortis if you can subjectively show that the donor anticipated death, as long as the expectation is factually present

c. Most courts will apply an objective standard: if the ordinary prudent person does not anticipate death. However, if a per-son of superior knowledge knows that death is imminent, the perhaps a subjective standard should apply.

b. Nature of the fear of death - The illness, disease or peril prompting the expectation must be objectively present. A threatened assassination, minor surgery, undertaking a perilous journey and a perilous enterprise undertaken voluntarily have traditionally been regarded as insufficient.

1. Fred is a member of the armed forces and is about to go to war. While he contemplated death, it is insufficient for a gift causa mortis. The death feared must be from an internal malady, not an external source (Reedy v Kelley).

a. G is about to be electrocuted and gives P his ring. Before G is killed, P suffers a heart attack and dies. Even though P predeceases G, since G anticipated death by an external force, the gift will be viewed as an intervivos gift and irrevo-cable.

c. Depending on the jurisdiction, a person contemplating suicide may or may not be regarded as being in imminent peril of death sufficient to justify an ex-ception to the statute of wills.

1. McGuire v Jon Wannamaker held that a gift in contemplation of suicide is null and void as contrary to public policy.

2. In re Estate of Smitha. Facts: Before Smith committed suicide, he drafted four

checks and mailed them. His wife contested the checks as invalid gifts causa mortis, arguing that the money belonged to the estate. (depends)

b. The majority held that the gift in contemplation of suicide was a valid gift causa mortis. The majority did not specify that the threat must come from external, internal or self-in-flicted death. The majority said that a gift causa mortis is re-vocable by nature, and by saying to a person committing sui-cide that the gift is revocable, they might change their mind to commit suicide to get the gift back. The majority thinks by calling it a gift causa mortis, they are furthering a policy against suicide.

c. The dissent says that a gift in contemplation of suicide does not meet the strict requirement of having the death come from an internal malady. There is a strong social policy against it, and anything made in relation to it should be null and void. The dissent also notes there is a question of relia-bility, because the person may not have been thinking clearly.

ii. There must be a delivery

a. Can a gift causa mortis be effectuated through constructive delivery if dona-tive intent is shown and means to obtain gift are transferred?

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1. O intends to give a gift causa mortis to G. O writes out a deed of gift and gives it to his wife to deliver after his death. (Gift was stock). There is an effected gift. (Grymes v Hone)

2. Arguments for and against a valid gift in Grymes v. Honea. In favor of viewing as will instead of gift- He said I intend this

for G, if I die give it to G. He had no intent to give her any-thing until he died, so it was a purported will. At the moment he died, he was trying to give it to her, but it was not wit-nessed as a will was. Even assuming that jurisdiction per-mits a gift, if you are going to make a gift by will, it will have to meet the requisites. This paper was not signed by a wit-ness. This violates the statute of wills. Valid gift- his state-ment was a gift causa mortis. The mere fact that he can re-voke at any time is implicit in gift causa mortis.

b. Against Gift – To have a valid causa mortis, you have to have some delivery. The piece of paper was delivered to the wife. She was operating under his control as donor’s agent. Until she hands it over to G, there is no delivery. Counter ar-gument – Since we are dealing with a gift causa mortis, the agency issue is irrelevant because gifts causa mortis are IN-HERENTLY REVOCABLE. Legal title passed to grand-daughter as soon as the piece of paper was handed to the wife.

c. Against gift - If he is ill and he is writing out a piece of paper, Mcgrath v. Reynolds holds you can’t make a gift causa mortis by delivering a will. For gift - In a gift causa mortis, ti-tle does not pass at the moment of death. Title passes as soon as it is delivered. Even though it is a death gift, he in-tends to pass the title immediately.

d. Against gift – When you are dealing with a negotiable instru-ment, the grandfather (donor) can sell to a BFP and BFP will prevail over granddaughter, even though granddaughter has legal title. This is because stocks are negotiable instruments and exceptions to the general common law. Counter argu-ment – If there was a perfected gift, the granddaughter has title. This is a battle between the granddaughter and the grandfather’s estate. BFP is not a party to this action, if the estate of the grandfather sold the stock, she does not get the stock, but she can get the proceeds. Thus, even if she loses to the BFP, she can prevail against the estate.

e. Against – The stock was listed under the grandfather’s name. So how can there be a gift if the records indicate grandfather was the owner. For Gift – Granddaughter has equitable title. Eventhough the books show that the grandfa-ther owns the stocks, granddaughter can bring bill in equity and compel the records to change.

b. Constructive delivery of a gift causa mortis may be sufficient if the donor is unable to put his hands on the chattel.

1. G is at home and calls P. G says in my summer home, 3 hours away, there is a locked box, and in the box, there is an envelope that says all of the items in the box belong to P. G gives P the key to the locked box. P get in the car and drives to the summer home. Before P gets there, G dies.

a. In re Stevenson’s Estate held that the gift could be sustained without actual delivery, because in a limited number of cir-cumstances, the law will permit a constructive delivery. If the

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donee gives the donor the means of obtaining possession that will suffice as long as there is proof of donative intention.

d) For tax purposes, a gift causa mortis is treated as a revocable gift and therefore is included in your estate for estate tax purposes (like all revocable transfers).

i. IRC- transfers in contemplation of death. (estate tax law) a. If you transfer property in contemplation of death, it is automatically includ-

able in the estate. The definition is not the same as a causa mortis gift. Even if you are healthy and you are not suffering from any malady and you die within three years, for tax purposes, it could be viewed as contemplating death. IRC merely said, “we look to see within what time period the person died.” If the person was on the death bed, and lingered for 100 years, it will be included in the estate tax. However, the code has been amended and section 2035 has very limited reach. As a general proposition, there is no general rule that says it is includable in your estate when it was not actually given in contemplation of imminent death. It is true only in limited situations.

1. The major exception is a life insurance policy. If you own a life insur-ance policy and you transfer the policy and die within 3 days, it is in-cludable in the estate tax.

2. Revocability

a) A gift causa mortis can be revoked in a number of ways:

i. The general rule is that the gift causa mortis is automatically revoked by operation of law upon recovery of the donor from his illness.

ii. Redelivery back to the donor may or may not constitute a revocation depending on the jurisdiction. (See also Newell)

a. G gives P a ring on his deathbed. Before G recovers and before G dies, P re-delivers the ring.

1. In Dunbar v Dunbar, the court held in the case of a gift causa mor-tis, the gift is automatically revoked as a result of the donee returning the ring to the donor. The redelivery constitutes a revocation. Dunbar takes the position since a gift causa mortis is so close to be-ing a will, under these circumstances, if you return the gift, by rede-livering the ring to the donor, then you violate the statute of wills, by later accepting the gift after death (i.e., if the donor was treated as a bailee, like in Newell)

a. A regular gift causa mortis does not violate the Statute of Wills, because the legal title passes to the donee on the date of the delivery, subject to the power of revocation by the donor or the revocation by law upon recovery, not on death.

2. The court in Kennedy v Nelson thinks whether the redelivery con-stitutes revocability should hinge on the intent of the parties.

a. Statements to witnesses may prove intention. While hearsay is generally inadmissible, hearsay as to a state of mind, or a statement against the parties’ pecuniary or financial interest, is admissible.

iii. A gift causa mortis is revocable if the donee predeceases the donor.

a. If G gives the ring to P on his deathbed, but P goes out and gets killed first, the authorities hold that it is a revocation. The gift is made on the assumption that P survives G, and the ring is automatically revoked. If G dies a half hour later, the ring still goes to G’s estate.

iv. If the donor doesn’t die from the illness prompting the gift (acc. to some)

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a. G makes a gift causa mortis after suffering a heart attack. G tells the nurse in the hospital that he is cold, and the nurse gives him a heating pad. G is elec-trocuted by the heating pad.

1. Some cases have held that as long as the donor does not recover from the illness prompting the gift, the gift should be valid and per-fected. The cause of death should be irrelevant. Sometimes, it is very difficult to pinpoint the cause of death (The patient in the next hospital bed might have a contagious illness.) If you try to get too specific as to the cause of death, legal title may become contingent upon trying to prove a medical uncertainty.

2. Other cases have found in favor of revocation since the gift causa mortis is prompted by the fact that the donor thinks he is going to die from a specific illness, and if the donor doesn’t dies from the specific illness, the donor can still manifest an intention to revoke by simply demanding it back. If another event comes along that causes the donor to die, the power of revocation is shortened, and therefore you can argue that it was not the donor’s intention. This invites an inquiry as to the cause of death so there are evidentiary problems with this approach.

b) Until the power of revocation is exercised and before the gift becomes absolute, the donee is the donor’s bailee.

i. Revocation may happen at any time prior to death, because legal title of a gift causa mortis passes on the date of delivery of the of the gift, subject to the condition subse-quent of recovery.

a. G gives a gift causa mortis to P. P sells the gift to a BFP, who did not know that it was a gift causa mortis. G recovers and demands the ring back. G can exercise the power of revocation against the purchaser, because P only re-ceived on delivery legal title subject to G’s legal power of revocation. P does not get full blown legal title, and the BFP cannot buy what P does not have to give. The BFP bought legal title subject to revocation. Nemo Dot Quo Non Habet.

c) Simultaneous death i. C is being rushed in ambulance to hospital and contemplates immediate death and

hands A ring and says I want you to have this (gift CM). But before they reach hospi-tal ambulance collides w/ another car killing C and A immediately. What do we do w/ the ring?

a. One approach – gift CM is made almost at moment of death and in contem-plation of death so maybe we say we need to be sure (by preponderance of the evidence) that C died first

b. Or – in gift CM legal title is passed upon delivery subject to donor dying. Un-like will which takes affect only at moment of death. So since legal title is in donee now, subject to condition subsequent (donor revoking), the donor should have to prove condition subsequent did not occur and if he fails then donee keeps it (b/c he who wants to take something has the burden of proof)

c. Or Solomonic Approach: NY - §2-1.6 EPTL – “where title to property de-pends on priority of death, the property of EACH person shall be disposed of as if he had survived (a), except as provided in the act.” Based on this statute you have a stalemate since if you consider it that donor survived, the donee doesn’t get it and if you consider it that the donee survived, he does get it.

a. Argue statute evidences POLICY in favor of Solomonic Approach – (b) statute deals w/ wills where two beneficiaries died and say to split 50/50 and (c) says divide baby in half in a joint tenancy [only no 50/50 approach in life insurance policy and it is distributed as if the INSURED survived]

d) Rule of ademption

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i. Refers to when property mentioned in a will cannot be given to a beneficiary because it no longer belonged to the deceased at the time of death. For example, the particu-lar gift may have been destroyed, sold, or given away between the time of the will and the time of death.

ii. G writes in his will that he gives his ring to X and afterwards gives that ring to Y as an irrevocable intervivos gift. Y gets it b/c the will only bequeaths that which the testator owns at death and he no longer owns the ring.

iii. A owns an automobile. A gives his automobile to X through a will. After A executes the will, the car is destroyed. After A dies, A’s executor collects in insurance gift is not ademed. The legatee in the will has title to it. But if A gave it away, then the gift is ademed.

e) A gift causa mortis can be revoked in a willi. By statute, (CL had been divided) a revocable trust can be revoked by an express

direction in a will. By analogy, a gift causa mortis (which is also revocable) should also be able to be revoked by express direction in a will.

I. Gift of a Chose in Action

1. Sometimes, the subject matter of a gift is intangible, i.e., a claim of some sort against another person, stocks, bonds, etc. Since the claim itself cannot be physically transferred, the courts are compelled to recognize symbolic or constructive delivery.

a) Document as embodiment of claim: Some types of intangibles have a document so closely associated with them that the document is treated as the embodiment of the claim. The busi-ness custom is to assign the obligation by transferring the document, and by surrendering the document to the obligor when the obligation has been satisfied. Any negotiable instrument falls within this class (shares of stock, stock certificates, insurance policies and savings bank account passbooks).

i. Courts hold that delivery of the document is sufficient to constitute delivery of the in-tangible claim represented by it.

a. Corporation C borrows money. They execute the promissory note by selling bonds, which are promises to pay. C is the obligor, and the obligee is the owner of the bond. Corporate bonds will have a statement on the bottom re-stricting the mode of transfer. On the face of the bond, it says that transfer of the bond must be accompanied by an endorsement and guarantee from the bank.

b. G owns a bond and wants to give it to P. G does not follow the procedure on the bond, but he follows the common law modes of transfer. G dies. The pro-cedure of transfer guarantees that the debt will be paid to the appropriate owner. The provision is not intended to change the existence of the common law gift. P will have the burden of proving ownership and common law rights to the bond.

1. The specified procedure is meant to protect the corporation, but if he proves ownership, the corporation still needs to pay.

2. U.S. bonds and insurance policies might be a different story and you’d have to follow the specific procedures.

2. Delivery to the donee of a written instrument under seal stating the particulars of a gift may also con-stitute sufficient delivery.

a) Grymes v Hone: donor has 120 shares of stock evidenced by stock certificates. He gets a witness and notary public to stamp it and says “I hereby give 20 to A the donee.” He signs the paper, it is witnessed and stamped. He turns to his wife and says “put this paper in the box w/ our will and other valuables” and when he hands it to her says “I intend this for A. When I die give it to her and not to our executors. I am not giving it to her right away b/c I don’t know how much longer I may live or what may happen and whether we may need the

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stock or not.” Assume donor was 78 and in bad health and died 4-5 months later. Now there is a battle over the stock. Has there been a perfected gift to donee or does it go to the es-tate? (court sustained the gift)

i. Arguments it goes to estatea. Its like a testamentary disposition – “don’t give it to her right way, only when I

die” then he says “put it in the box w/ the will” and “I don’t know if we will need it.” This all resembles a disposition that takes affect only at death and ∴ doesn’t this do violence to statute of wills b/c it didn’t meet requirements

b. There was no delivery since the deed of gift was delivered to the wife who was the donor’s agent and not the donee’s.

c. The certificate of stock is a negotiable instrument and the donor could have sold it to a BFP the next day, so notwithstanding the written assignment, he never parted with it.

1. However, even though he could have sold it to a BFP who would have prevailed over the donee, the battle is not between the donee and a BFP, but with the donor, and in between them, the donee should win.

ii. Arguments it goes to Aa. This is a gift CM b/c he is 78 and in bad health and when he says “don’t give

it to her right away b/c we may need it” he is actually saying I want the ability to revoke this gift and w/ a gift CM you can revoke. He wanted it to go imme-diately just w/ a condition subsequent – his death. Here he intended legal ti-tle to pass and it is consistent w/ CM which doesn’t violate the statute of wills b/c it was made before death.

b. This 3rd party delivery situation is really redundant and irrelevant b/c in CM the donor ALWAYS retains control and ∴ as long as he parts w/ possession that satisfies the policy objectives to relinquish control

1. However - McGraff v. Reynolds held you CAN’T effectuate gift CM by deed of gift b/c if he really meant it he would have gone through all the formalities of drafting a will and you cannot effect a gift CM by delivering a deed gift since it looks suspicious.

a. Schwartz – BUT in case of gift CM you are technically transferring legal title right now so it should be a valid gift even though it is by way of a deed of gift and we are more liberal since someone on their deathbed usually isn’t capable of going through all the formalities required by the statute of wills.

i. Not a testamentary disposition b/c title passed im-mediately so not subject to statute of wills

b) What if he lost the certificates?i. Lyons v. Freshman – concludes you cannot make a gift of share of stock unless

you deliver the certificate, a separate deed of gift will not be enough b/c of the con-cern that donor will sell to BFP

a. While it is true donee would lose to BFP this case does not involve a battle b/w donee and BFP

1. **As b/w the donor and donee the donee should prevail b/c you de-livered the deed of gift

3. A check is a chose in action.

a) G intends to make a gift to P. There is donative intent. G writes out a check to P for $100,000. There is enough money in the account. There is delivery, but G dies before P cashes the check.

i. Most cases hold under the UCC that when G hands over the check, there is not a perfected gift. G has only authorized the bank to pay the debt that G owes. The bank becomes the agent of G to pay the money. P must present the check and cash it for the gift to be perfected.

a. Debtor creditor relationship.

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ii. A check by itself does not operate as an assignment of the funds which are owned by the depositor to the would-be donee. It is merely an authorization to the bank as the depositor’s agent. The general agency rule is that the death of the drawer of the check revokes the authority of the agent to act.

a. However it could be argued that delivery of the check is like delivery of the key and therefore there is constructive delivery

b) A deed of gift may be written out on a check. The funds in a bank account can be assigned, although the check may be invalid, the obligation and the funds are still transferable.

i. G owes S money and pays S by check. This is not a gratuitous transaction, but a payment to discharge a debt for which consideration was furnished. Then for no con-sideration, G endorses the check to R, S’s donee. S has assigned the right to the money to R. There hasn’t been a transfer of money, but the claim for the money has been transferred. If S dies prior to R cashing the check, R would argue that the obli-gation has been transferred, not the money.

ii. Life estate can be created with a future interest for the beneficiary.

J. Joint/Concurrent Ownership

1. General Presumptions

a) If you conveyed property to A and B, there used to be a presumption of joint tenancy, but to-day, there is a presumption of tenancy in common.

b) Today, if you convey property to H and W, there is a presumption of a creation of a tenancy by the entirety. You can rebut the presumption by deeming it tenancy in common or joint ten-ancy.

2. Other rules

a) Joint ownership can be defeated by adverse possession if one party clearly repudiates the joint ownership and fulfills all of the other requirements.

b) If one co-tenant extracts from the land, he could be liable to the other guy since your posses-sion does not give you a license to seriously waste/deplete the property.

c) If only one co-tenant takes possession, the other can’t charge rent b/c its still also the other guy’s property.

d) If one party rents to a 3rd party, he has to share the proceeds with the co-tenant.e) If one co-tenant makes necessary repairs to the jointly owned property or manages it, in the

absence of any agreement, most courts say you can’t force the other guy to reimburse you since the repairing tenant is merely taking care of his own property interest.

i. However if the repairing co-tenant is renting out the property to others and has to turn over a portion to the other co-tenant, he’s entitled to a credit for the cost of the re-pairs.

f) However, if one co-tenant pays a mortgage or real estate tax payment, most courts say he is entitled to reimbursement from the other.

i. Since there is no consistency as to the rights of the parties, it is very prudent, in a joint ownership situation, to have an agreement fixing rights and responsibilities at the outset.

3. Tenancy in Common

a) The key characteristic is unity of possession.i. If A and B own property together as tenants in common, until that tenancy is termi-

nated neither can be excluded from any part of the property. They have a united equal interest in the whole. In order to give an exclusive right to a portion of the prop-erty, the tenancy has to be terminated by an action for partition.

b) There does not have to be unity of interest (i.e. there interest doesn’t have to be identi-cal – could be 1/4th and 3/4th)

i. As long as you have not allocated them to specific portions of the property, their inter-ests are undivided, even if not identical.

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c) The tenant’s interest does not go to the co-tenant on death but passes to his heirs. There is no right of survivorship.

i. If A owns a ¼ interest and A dies, the ¼ interest will pass through a will or the heirs of A will get a tenancy in common with B.

d) The co-ownership could be involuntarily terminated.i. Concurrent ownership of property by which each owner (tenant) has an individual un-

divided interest in such property and holds a distinct title. Tenants in common can generally demand a partition of the property but the courts will usually enforce an ex-plicit agreement between the tenants not to partition if that is reasonable.

ii. A and B were co-tenants, A sought a partition and said that since it was not feasible to divide the property in kind, we should split the proceeds. B was against this. The petition alleged that they were in possession via a tenancy in common.

a. A is allowed to bring a proceeding for partition to divide the property in half, sever it, terminate and destroy the current property, or sell the property and split the proceeds.

e) Creditor’s can attach one co-tenant’s interests and have it sold at an attachment sale where it will be taken free and clear by the purchaser.

f) Tax Consequences

i. O creates a tenancy in common in favor of A and B. When A dies, A’s interest passes in accordance with his will or with the law of intestacy and is included in his estate for tax estate tax purposes . . . will pass through probate unless he disposes of it be-fore he dies.

ii. §2033 IRC: if a person dies all interests that are transmitted at death are included in the estate for estate tax purposes.

4. Joint Tenancy

a) Undivided ownership of property by two or more persons with the right of survivorship. The in-terest is usually freely alienable.

b) In a joint tenancy, as distinguished from a tenant in common, four unities must be present. If one of these unities is lacking, there is not a true joint tenancy.

i. Unity of Possession

ii. Unity of Interest (A and B must own identical interest - each ½ ; or if A, B, and C, - each 1/3rd)

iii. Unity of Title (A and B must have acquired identical interest by the same instrument of transfer—deed or will)

iv. Unity of Time (interest must be acquired by the same instrument at the same time.)

c) The hallmark of a joint tenancy is that there is a right of survivorship.

i. If A predeceases B, A’s interest goes to B automatically by right of survivorship. Sur-vivor takes all. (avoids probate)

ii. If A in his will, gives his interest to X, A’s will cannot divest or defeat B’s right of sur-vivorship. The right of survivorship trumps a will.

a. By doing a joint tenancy - you avoid probate. This is not always good—un-less you take precautions to equalize other gifts—one child may get more be-

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cause of the right of survivorship. There also could be adverse tax conse-quences that flow from a joint tenancy. (Stay away from expensive joints).

iii. If A and B are joint tenants, and A dies, with other assets sufficient to pay creditors. A’s assets pass by survivorship to B, and the creditors would have to look at other assets. But if A is insolvent, the creditors can beat the rights of the surviving joint ten-ant.

d) Survivorship can be defeated if a party transfers his interest in a joint tenancy intervivos to a third party who then transfers it back to him, since there no longer is unity of title and time, and therefore it will now be a tenancy in common where there is no survivorship.

i. A and B own property as joint tenants with the right of survivorship, and A enters into a written contract to sell his ½ of property to X. If X backs out, A can go into equity and get specific performance because in real estate money damages may be insuffi-cient. The seller still has legal title, but the buyer has equitable title. There has been a bifurcation of A’s title. However, B still has both legal and equitable title. Since A and B no longer own a unity of interest it becomes a tenancy in common. If A were to die, before the contract were consummated, the title would pass by estate, not by sur-vivorship. If A consummates the deal and transfers the title to X, it obviously be-comes a tenancy in common between B and X.

ii. A and B are joint tenants. A contracts with X to sell ½ interest. The deal is called off, because X claims there is no marketable title or the contract is rescinded … does this revive the joint tenancy between A and B? You could argue that there has been a re-vival of the joint tenancy. A’s title is derived by the same deed at the same time as B’s.

iii. A and B own property as joint tenants with the right of survivorship. A transfers prop-erty to X for life. When X dies, the interest goes back to A’s estate. A only owns a re-version, X owns a life interest, and B owns his outright. Neither A nor X has the same interest as B. If B dies and X is still alive the right of survivorship is terminated be-cause X acquired his interest at a different time than B.

a. If A and B are still alive and X dies… the title goes back to A. The unity of in-terest is there. A got his title when B did, therefore it could be argued that the unities of time and title are restored and the joint tenancy is recreated. The joint tenancy is suspended, not extinguished, during X’s lifetime.

e) A joint tenancy can be involuntarily terminated by one of the parties.

f) A party can create a joint tenancy by self-conveyance.i. A owns property outright, but would like to create a joint tenancy with B. A transfers

title to himself and B with joint interests. At common law, it was impossible for A by a direct conveyance to create a joint tenancy with B since there was no unity of title or time. Today, many j’s, under statute, permit A to create a joint tenancy with B by a di-rect conveyance to himself and B.

a. At CL you would have to convey it to a third person (straw person) with a deed and then have that person convey it back to A and B with another deed so that there would be unity of title and unity of time.

g) A joint tenant’s interest can be transferred or mortgaged. i. A and B are joint tenants. A needs money and approaches L. L says I need a mort-

gage for the loan. A takes his interest in the real estate and creates a mortgage on it. While that mortgage is in effect, A and B lack a unity in interest. If that mortgage is paid off before A or B dies, the joint tenancy will be restored.

h) A joint tenancy is severed if one of the joint owners transfers his interest during his lifetimei. If A and B own property as joint tenants and A conveys his 50% interest to C, B and

C will own the property as tenants in common.

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ii. A, B, and C own property as joint tenants. A transfers his 1/3rd interest to X. As be-tween B and C, their 2/3rds are still a joint tenancy with rights of survivorship. X be-comes a tenant in common with both of them. If A or B dies, their portion goes to the other. If X dies, his portion goes to his heirs or as directed by his will.

i) Tax Consequences

i. For gift tax consequences upon the creation of a joint tenancy in real estate between spouses see §2515.

ii. §2033 does not apply, because there is a right of survivorship, and nothing is trans-mitted at death.

iii. §2044 of the IRC applies with estate tax consequences of joint tenancies.a. A and B have a joint tenancy. A dies first and it passes by right of survivor-

ship to B. What is included in the estate tax depends upon who furnished the consideration for the acquisition of the property.

1. If A paid for the property, then he furnished the consideration, and 100% of the value of the property is included.

a. A furnished the entire consideration. B survives A. B dies 15 years later. 100% is included in B’s estate under §2033—be-cause it is no longer a joint tenancy. But if B paid, then noth-ing is included in A’s estate tax.

2. If they split the consideration, then half of the value is included. 3. If you can’t prove who paid for it, then there is a presumption that is

rebuttable, that the first decedent furnished the entire consideration. iv. A will cannot override the right of survivorship

5. Tenancy by the Entirety (only be created between a husband and wife)

a) Joint ownership of property by husband and wife. The vital features of this form of ownership are that only married persons can hold title and the survivor automatically succeeds to the decedent’s interest to the property. State laws commonly make transfers by only one spouse of his or her interest impossible without the consent of the other spouse.

i. In many jurisdictions, it is unclear whether you can create such estate in anything but real estate. A tenancy by the entirety may not apply to personal property or choses in actions. However, in NY, a husband and wife can own a co-op apartment as tenants by the entirety. (Article 6 of EPTL) Other states may allow this however.

b) This is a marital estate b/w a husband and wife.

c) There is a right of survivorship

d) For most purposes, this now has most of the legal characteristics of a joint tenancy, such as a right of survivorship. However, creditors rights are different in tenancy by the entirety.

i. If the husband dies first, whether the husband is insolvent or not, under New York law, the creditors cannot reach the property. New York construes this as each one of the co-owners is deemed to own everything and the survivor doesn’t gain any new rights, and the property will automatically pass by right of survivorship.

e) Unlike a joint tenancy, you can’t defeat a right of survivorship unilaterally. i. A cannot transfer his half of property unilaterally to convert it to another form of ten-

ancy…) you need approval of the other spouse.a. H conveys his interest, A may take over H’s interest during his lifetime, but if

H dies, then the property still transfers to W.

ii. If one spouse dies, it passes automatically to survivor. a. If H and W have a tenancy by entirety and they get divorced, it gets trans-

ferred to a tenancy in common. However, there are cases that say that the

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parties in a divorce settlement agreement can manifest intent and agree to turn tenancy by the entirety to joint tenancy.

f) Tax Consequences

i. §2033 does not apply, because there is a right of survivorship, and nothing is trans-mitted at death. (A will cannot override the right of survivorship)

ii. §2044 of the IRC applies with estate tax consequences of joint tenanciesa. H furnished 100% of consideration and took title by tenancy by the entirety

and the husband dies first. If you have a right of survivorship between H and W, then 1/2 is included in the first decedent spouse’s estate. The test of who furnished the consideration is irrelevant.

1. The entire property passing to the spouse will not get taxed because of marital deduction—yet it could be a detriment to the surviving spouse… because of the income tax down the road when the wife decides to sell the property.

b. H buys real estate for 200,000 and sells for 200,000 there is no gain because the sales proceeds do not exceed there basis.

1. If the value is 2 mil at the time of H’s death, after he bought it for 200,000 and he gives the real estate to W by will—no estate tax—b/c of marital deduction. W would take an asset of 2 million without the estate tax, and since required to be included in estate—if W sells it for 2 mil, she will not have any gain. (Gain= sales proceeds minus basis.) Sales proceeds are 2 mil, and basis is 2 mil—so there is no gain, and she does not pay a gain tax and will escape income tax.

2. Husband and Wife buy house for 200,000. At the time of H’s death, it is worth 2 mil. ½ is included in H’s estate (1 million). So, that 1 mil gets a step up in basis. The other half retains its old basis 100,000. Combined together, there is a 1.1 mil step up in basis. If W sells for 2 mil, she will gain 900,000. Since it’s personal property, 500,000 is excluded. 400,000 will be taxed. Capital gains tax of approximately 100,000. If the husband didn’t create a tenancy by the entirety. The step up in basis at death would be 2 mil. So if she sold it at 2 mil there would be no capital gain therefore no income tax.

3. §1014- to the extent that property is required to be included for tax purposes it gets a step up in basis to the present market value (at the time of death) when it is included into the estate. In a tenancy by the entirety, 1/2 is required to be included, so only 1/2 will get a step up in basis, and the other 1/2 will keep its original basis.

a. If W sells it for 2 mil, there is a gain of 900,000. Keep in mind if H had kept it in his own name, W would have paid less tax.

iii. Disclaimera. H and W purchase a home for $200,000. H dies, and at H’s death the home

is worth 2 million. 1. W should be advised to file a disclaimer of her right of survivorship or

half of the jointly owned property pursuant to IRC § 2518.2. W is careful not to disclaim rights under the will. The disclaimer will

not tax the property as a joint tenancy, but as passing by will. a. 1/2 of the property, which W disclaimed, will be included in

H’s estate and get a step up in basis at the date of death to 1 million.

b. The other 1/2 of the property she takes as a joint tenant, and under §2040 1/2 of the1/2 (1/4) will be included in the estate and will get a step up in basis to $500,000.

c. The last 1/4 keeps its original basis—only $50,000—and is not required to be included in the estate.

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6. Relations between Co-Tenants

a) Either a joint tenant or a tenant in common can assign transfer or lease his individual interest.

i. In the case of the assignment of the joint interest, it will sever the right of survivorship and it will become a tenancy in common.

ii. An assignment by a co-tenant does not cause a partition of the premises. The unity of possession will still exist.

a. In order to be able to exclude a cotenant from any portion of the premises, not a transfer or an assignment, but a partition must occur—either a volun-tary partition or a partition court ordered or they can sell the property and di-vide the property.

b. But until that occurs no one can be excluded from the premises.

iii. In the case of tenancy by the entirety, you cannot cause a partition without consent of other tenant

b) One co-tenant could defeat rights of the other under the doctrine of adverse possession.

i. X and Y own property as either joint tenants or tenants in common. X could go into adverse possession of premises, and at the end of statutory period gain a full blown title 100% owner.

a. It is difficult to establish adverse use, because originally there is permissive possession. You have to establish adversity. X would have to repudiate cote-nancy and communicate the repudiation to the cotenant or repudiate it with such notoriety that a reasonable cotenant would be aware.

c) A co-tenant may be obligated to account to the fellow cotenant for profits or the change in value of the property if he is not simply benefiting his own property.

i. If X occupies the premises himself, he is under no duty to pay rent to Y. If X leases the property to Z and is getting rent from Z, he under an obligation to turn over part of rent to Y.

ii. If X goes into possession and plants a small garden, he does not have a duty to ac-count if he is making normal use of the property. But if he engages in activities that damages natural resources on the property, under those circumstances, he has a duty to account to co-tenants and is responsible for change in value of property.

iii. If X goes into possession, and says to Y, I have been taking care of the property, and I have conferred a benefit upon you, and it is not officious, … there is no right to re-cover for unjust enrichment—quasi-contract, because he is benefiting his own prop-erty and can’t be reimbursed.

iv. Suppose X sees the roof is leaking and pays for repairs. Can X ask Y to pay for half? Courts will say he is merely caring for his own property, and he can’t ask Y to chip in. Some jurisdictions will say that if X was renting out and must account to Y, he may be able to get some credit for improvements if they contributed to the rent he must ac-count. If the property is subject to a mortgage, etc., court says if he pays real estate taxes, mortgages, etc., court say that he can be reimbursed by Y.

v. If X improves the property, (adds a swimming pool), can X force Y to chip in? If you can’t force Y to pay for the repairs, you can’t force him to pay for improvements. If the property is partitioned either in sale or in kind, that improvement should be taken into account. X should be able to argue that the improvements X made increased the value of the sale, X should be compensated, or if it is partitioned, he should get the part with the improvements.

7. Joint Bank Accounts

a) When the depositor of funds wishes to give another person either present or future rights in the funds, the depositor may set up the account in four basic ways.

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i. By opening the account in the other person’s name (A deposits the funds in an ac-count bearing B’s name)

ii. By having the account jointly in his own name and that of another, subject to with-drawal by either. (A deposits funds in an account denominated “A and B jointly, with right of survivorship” – this is the usual form for a joint savings or checking account)

iii. By depositing in his own name, but with a clause “payable on death” to the other per-son

iv. By acting as trustee for the other person (A deposits funds in an account bearing the designation “A in trust for B” – this is the totten trust)

b) Donative Intent Required

i. The survivor of a particular account is not necessarily entitled to the balance. He is entitled only to the balance when there is a strong showing of donative intent.

a. A, an elderly matriarch, is having trouble getting to the bank and writing checks. A wants her bank account to have her child, C’s, name on it. A con-verts her account to be joint account in A and C’s name. A dies, and C ar-gues that the gift was a joint tenancy with a right of survivorship, and this beats a will.

1. Some cases will hold that all that was intended was the creation of a bank account for the convenience A, and A had no intent to make a gift to C, either during A’s life or of the balance existing at A’s death.

c) Symbolic Delivery Presumed

i. Actual delivery of the funds is not required to make a perfected gift in most states. Donative intent is the main issue. Most states hold that there is symbolic delivery by way of the signature card.

ii. In Massachusetts, delivery is not a problem, because when you sign the signature card, a contract is created with the bank, and the gift is sustained on the basis of the contract.

d) Presumption of Tenancy in Common

i. Article VI of the EPTL creates a presumption of a tenancy in common. a. O conveys property to A and B, there is a presumption that a tenancy in com-

mon was created. Unless there is proof of donative intent, this presumption applies to bank accounts.

ii. To rebut the presumption, the signature card must incorporate words of survivorship.a. If the matriarch and a child open up a new account and they sign the signa-

ture card “Payable to the matriarch or the survivor,” then under NY Banking Law § 678, there is a rebuttable presumption of a joint tenancy with a right of survivorship.

iii. Proper language of survivorship is required. a. If the signature card says “Payable to the matriarch or the child,” then it does

not create a right of survivorship. The use of the word OR rather than AND does not create a rebuttable presumption of survivorship.

b. If the signature card says “Payable to the matriarch or child for the conve-nience of the matriarch,” it is rebuttably presumed not to be a gift.

e) Testamentary Disposition of Joint Bank Accounts

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i. Testamentary substitutes are usually subject to the elective share

ii. A joint bank account may be reached under the elective share statute (Article V of EPTL) if the deceased spouse furnished the consideration for the account.

a. If H opened a joint bank account for one of his children with his own personal check, then he furnished the consideration, and the account is subject to the elective share.

b. When H and W jointly own the bank account, each is considered to have contributed half.

f) Totten Trust

i. Generallya. A trust formed under NY law, whereby the grantor deposits his or her own

funds in a bank account in his or her own name as a trustee or beneficiary (ownership is listed as “A as trustee for B”) .

b. The grantor retains control and ownership of the funds until death, or com-pletes the gift by some unequivocal act during his or her lifetime.

c. Such trusts are revocable at will by the grantor until completion of the gift and may be revoked in the grantor’s will.

d. Where the grantor does not complete the gift during lifetime, he is treated as the owner of the trust, and any income it derives must be included in the grantor’s gross income for federal income tax purposes. It is also reachable by his creditors. It is typically used to avoid probate.

e. A Totten Trust is commonly used to indicate a successor to the account with-out having to create a will. Although it avoids probate it still is not a perfected gift for estate tax purposes (like a revocable trust).

f. Generally not recommended way of creating a trust since you can’t put in any complicated provisions. People do it b/c it is cheap and easy to set up.

ii. In re Matter of Totten (NY 1904)

a. Facts: An Aunt went around to various banks and opened accounts for her nephew. She frequently withdrew money from the accounts and spent it on personal items. When the Aunt died, the nephew sued the estate to get the balance of the money in the accounts and the money she spent from the ac-counts.

b. Holding: “The deposit by one person of his own money in his own name does not alone establish a trust; it is a tentative trust revocable at will until the depositor dies or completes the gift by some unequivocal gift.”

c. It is not a trust at all. It is not a case giving rise to a fiduciary duty, and the de-positor can withdraw the money at anytime throughout their lifetime. At death, if there is any money left in the account, the alleged beneficiary gets it.

iii. Exception to the Statute of Wills

a. This is an exception to the Statute of Wills codified by the legislature, and the property passes at death not subject to the rules of a will.

b. It is limited solely to the situation of Totten Trusts. Because the depositor is dealing with a financial institution, and the instrument of gift is technically de-livered, because you have to sign when you open the bank account, the ex-ception seems to have justification.

iv. Codified in Article VII of the EPTL

a. Article VII deals with Totten Trusts, but it is limited to bank accounts; it does not include brokerage or mutual fund accounts. Under Article VII, the benefi-ciary does not have present or future interest in the funds, while the depositor

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is alive. The depositor can only withdraw the funds. The alleged beneficiary has no rights at all.

1. need to put it in your name in trust for X. (not a joint bank account, beneficiary cannot be able to withdraw funds)

2. State of Becka. Facts: D opened an account and sent B a letter informing

him of the account and telling B that the funds would pass to B at D’s death. 7 years later, D withdrew all of the money, and B sued arguing it was an irrevocable gift.

b. The trial court held that the letter made the gift irrevocable. The Appellate Division disagreed and held that nothing in the letter made the gift irrevocable. The letter was a consistent declaration of a Totten Trust.

v. Revocation

a. The depositor has the right to revoke the trust by any means, including by will1. As long as the depositor held the exclusive right to control and with-

draw the funds during his lifetime, no gift occurs until death, and a will can revoke the gift. (and change beneficiary)

b. Withdrawal of the funds revokes the trustc. Also, changing the name of the beneficiary on the signature card.d. If the beneficiary predeceases the depositor, the trust is automatically re-

voked.

vi. Tax Ramificationsa. The income earned on the interest is attributable to the depositor, so the de-

positor has to pay income tax on the account.b. No gift has been made, so there is no gift taxc. If the depositor leaves money in the account, it will be included in his estate

for federal estate tax purposes, because the depositor retained the power to revoke (like a revocable trust) not included in probate.

d. D’s creditors can also reach the funds for satisfying debts e. If the depositor is married, the surviving spouse can claim the elective share

out of the account.

VII. BONA FIDE PURCHASERS OF PERSONAL PROPERTY

A. Bona fide Purchasers

1. Some cases (and the UCC) hold that a bonafide or good faith purchaser or personal (or real property) is a person who buys honestly and without notice of any conflicting claim on the property bought, whether or not the purchase is negligent – honesty in fact - a subjective standard.

2. Other cases hold whether s/o is a BFP turns on whether he exercised diligence and due care – whether a reasonably prudent person would have known - an objective standard.

B. General Rule

1. As a rule, a seller of PP can’t convey a better title than that which he holds. (nemo dat qui non habet)a) O owns a ring. T, a thief, steals the ring and sells it to a BFP. T cannot give what he does not

have. O has legal title, and BFP gets what T had—nothing.

2. Hessian v Iowa Auto Mutual Insurance Companya) Facts: O owns a car. T steals it and sells it to BFP (Hessian). BFP insures the car. The car

gets damaged, and BFP sues insurance company. The insurance policy stipulated that the in-sured part had to be the sole and unconditional owner of the car.

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b) Because T cannot transfer a title better than he has, O is the true and unconditional owner of the car. BFP only has possession, and O has the legal title. Consequently, the insurance company is not liable for the damages.

i. If not for that clause, the BFP might have recovered since he still has an interest in the car as a possessor similar to a finder – good against the whole world except for the TO and he could have said that it was his interest that was insured.

c) The insurance company was only allowed to invoke jus tertii and assert the rights of a third party (O) since they put it in the contract. Otherwise we don’t allow it.

3. Morgan v Hodges

a) O owns a horse, harness and buggy. B asks to borrow the horse, harness and buggy. O and B have a bailment. O has the legal title, and B has possession. B wrongly sells the horse, harness and buggy to BFP, and the BFP later sold the horse to a third party. O tries to get his stolen property back from BFP, but BFP had sold the horse. O says to BFP, if you give me back the buggy and harness, O will forget about the horse. BFP agrees, but later, O has sec-ond thoughts and demands return of the horse as well (or the value of the horse).

b) The court holds that there was no consideration for the settlement since BFP was giving O back something that O already owned. BFP was under a pre-existing duty to return all the items including the horse.

4. A BFP who innocently purchases and later sells stolen goods is liable in trover for the full market value of the goods as of the date of conversion.

a) The majority holds that a BFP is a converter on the day he purchases the goods.i. Restatement of Torts §228: The tort of conversion is defined as serious interference

with possession; it has elements of liability without fault.a. M and J own identical cars and have identical keys. They both honestly get

into the wrong cars and drive home. M asserts ownership. This can be viewed as serious interference with possession, making M liable for the full value of the car.

ii. In New York, a demand for the goods has to be accompanied by a refusal to return them, for the statute of limitations to begin to run for conversion.

a. If the BFP has already sold the goods, there is no need to prove refusal.

5. The only remedy for the BFP in these cases is to sue the thief/seller for the tort of deceipt/fraud or for breach of the implied warranty under the UCC.

a) O owns car. T steals the car, and sells it to BFP1, who sells it to BFP2, who sells it to BFP3. O can sue BFP3 for trover, because O still has legal title, and BFP3 has no title. BFP3 can in turn sue BFP2 for breach of implied warranty, etc.

6. Once the BFP satisfies the judgment (where TO sues BFP), legal title passes to the BFP.

C. Exceptions

1. Market Overt

a) In an open, legally regulated public market, buyers acquire good title to products regardless of any defects in the seller's title.

b) In common law England, only specific sections of the town were called market overt. If a bonafide purchaser came into such a shop, the bonafide purchaser would prevail even over the TO.

i. Pawnshops cannot be considered market overts—a BFP would not prevail against the true owner if he bought from a pawnshop.

ii. If the true owner was able to secure the criminal prosecution of the thief, the BFP would not prevail.

c) This is an exception of historical value, but not of modern value. No jurisdiction has adopted it in the U.S. This exception illustrates a very strong policy of encouraging free commerce.

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2. Judicial Sale in Rem

a) A BFP who buys at a judicial sale in rem MAY prevail over the true owner.i. A jurisdiction has the power to determine title to property located within the state,

conclusively to bind the entire world. It has an in rem effect.

b) There are a limited number of situations when there may be a judicial decree selling property that may give the BFP title against the whole world.

i. A BFP will prevail at a judicial sale in rem.a. State passes a statute that says any property that is used for the transporta-

tion of narcotics will be seized and sold at a judicial proceeding. O owns a car. X borrows the car. Title is in O. Unaware to O, X drives the car to FL to transfer narcotics. The police seize the car, and the title remains in O, but BFP may buy it, and the statute may give title to the BFP.

ii. However, a BFP at a judicial sale in personam will not prevail.a. O owns equipment. X borrows it. X has possession and a bailment. X owes a

lot of creditors money, and the creditors attach all of X’s property to enforce a judgment against him, including O’s equipment. The sheriff sells all of X’s property to BFP. BFP does not prevail as to O’s property, because when the sheriff sells O’s property, he is only selling X’s bailment interest in the prop-erty. So the creditor has no legal title, and neither does the BFP.

b. A typical attachment sale is really a sale in personam, and it will fall under the general rule that a BFP from a thief gets no title. The sheriff could also be considered a converter.

3. Sale of Money or Negotiable Instruments

a) A BFP who buys money or negotiable instruments will prevail over the true owner. This result promotes commerce and business; it facilitates the proper conducting of free trade and it would disrupt the economy if people could not rely on money.

i. O is walking down the street with $1000 in his pocket. A thief picks his pocket and buys merchandise at a local store with O’s money. The merchant is a BFP of the money (so to speak), who honestly and reasonably believed that the money be-longed to the thief. O traces the money to the merchant and argues that the thief had no title to transfer. The merchant is a BFP and will prevail. If merchant had to check and see if all cash given was actually owned by thief, there would be no viable econ-omy. Merchant’s would be too scared to sell and money would not flow freely.

b) Under UCC Article III, a person who has the status of a BFP in negotiable instruments is called a holder in due course.

4. Estoppel (Possession Plus)

a) If an owner, by his words or conduct, has expressly or impliedly represented that the posses-sor of the goods is the owner of them, or that he has the authority to sell them, the owner is estopped from denying the truth of these representations to a BFP who buys in good faith re-liance on the representation.

i. O’Connor v Clarka. O owns trucks. T works for O. Prior to working for O, T was in the moving

business. O wants to capitalize on T’s former customers so he puts T’s name on his truck. T, without O’s permission, approaches BFP and offers to sell truck. BFP asks for ID. It is clear that T is T. BFP purchases truck. O says T was a bailee and could not give good title.

b. The court held that because O made a representation to the world that T owned the truck, and BFP relied on the representation to his detriment by paying valuable consideration, O is estopped from claiming title.

c. There must be reasonable reliance on the representation.

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ii. This concept is called “possession plus” and means that in addition to having posses-sion, there are circumstances that give rise to an estoppel. Possession alone is not enough (such as a bailee). There must be some additional conduct, such as repre-sentation of the owner, not just the seller.

a. O owns a ring. X borrows the ring. O entrusts possession of the ring to X. X sells to BFP. O prevails. X had possession, but no legal title. O would win as against the BFP, because X did not have title, and O did not make any repre-sentations that would give rise to an estoppel.

b. O owns a dog named Rover. M asks to borrow rover for a week. M is in the park, and O is there, unbeknownst to M. M approaches S and offer to sell the dog. O is there and can easily speak up and blow the whistle, but he doesn’t and allows M to misrepresent. S pays valuable consideration.

1. O may or may not have a duty to speak up. While technically, his si-lence isn’t a representation, estoppel is an equitable remedy, and ar-guably O should be estopped from asserting title.

2. Argument against estoppel – to have an estoppel there has to be an affirmative representation, and nonfeasance (failure to do some-thing) is not enough b/c you haven’t made an affirmative rep

3. Argument for – GF person should speak up but at CL, nonfea-sance is not actionable and many J have departed from this rule.

c. O owns a watch. It needs to be repaired. O goes to a watch store, where watches are sold and repaired. O delivers the watch to the repairman. A BFP comes in and buys O’s watch.

1. At common law, the cases are reluctant to invoke an estoppel. In-stead they invoke the general rule that there is only a bailment; there are no affirmative representations. (Royle v Worchester Buick Co) Otherwise, it would be difficult to get your watch repaired if you know it will be sold from under you. The burden should be on the BFP.

a. However, under the UCC, the BFP would prevail.

b) UCC §2-403 Expands Doctrine (answers this problem)

i. The UCC goes further in protecting the good faith purchaser against an owner who has entrusted goods to a merchant.

ii. While the common law might say that an entrustment of possession is not enough to invoke an estoppel and the BFP would lose, under UCC §2-403, a buyer in the or-dinary course of business will prevail and the true owner will be estopped from as-serting ownership.

iii. UCC §2-403(2): Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in the ordinary course of business.

a. The exception does not speak of a BFP, but a buyer in the ordinary course of business.

1. UCC §1-201(9): A buyer in the ordinary course of business is a per-son who in GF and without knowledge that the sale to him is in viola-tion of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of sell-ing goods of that kind

b. Under 2-403, a sale in bulk is not a sale in the ordinary course of business.c. A sale from a pawnbroker is not a buyer in the ordinary course of business. d. O owns goods. X gets possession plus, and X sells to Y. X owes money to Y,

and X offers to give the merchandize in exchange for cancellation of a pre-existing debt. Y, by forgiving the antecedent debt, is not a buyer in the ordinary course of business, but he is a BFP.

1. However, under the facts in O’Conner, a CL jurisdiction could say that the cancellation of a preexisting debt is valuable consideration and the purchaser who bought the truck in exchange for cancelling the debt would prevail over the TO, while in a UCC jurisdiction he

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wouldn’t prevail since he wasn’t a buyer in the ordinary course of business – critical distinction bet. CL and UCC.

e. A buyer not in the ordinary course of business may also be a BFP (a good faith purchaser who pays valuable consideration), but the “bonafide” must be in relation to a sales transaction.

5. BFP of Legal Title Chops Off All Equities

a) The BFP of legal title will chop off equitable title, and the BFP will prevail.

i. In a trust arrangement, the trustee has the legal title in paintings. The beneficiaries have equitable title. The trustee wrongfully sells the paintings to BFP, who honestly believes that the trustee has legal title. The beneficiaries contest the sale, arguing that they had equitable title and the trustee breached fiduciary duty. BFP argues that he was honest and paid fair market value.

a. If you have to choose between the BFP and the beneficiaries, who are both innocent parties who have been hurt by the trustee, the equities are in bal-ance, so the title is left where it is - in the BFP.

ii. O owns Tiffany’s. F walks into the store with a beautiful woman and represents that he is this super rich man. F asks to see a clip. The jeweler takes out a fancy clip, which F likes very much. F asks the jeweler to wrap it up, and asks the jeweler if F can take it with him, because F left his wallet at his hotel, and F says he will pay later. F leaves with the clip, and sells it for full fair market value to a BFP who honestly be-lieved that F owned the clip (similar facts to Phelps v. Mcquaid).

a. The common law courts say that in the transaction between O and F, even though O is defrauded, O had general intent to pass voidable legal title to the person in front of him.

b. While voidable legal title passes to F, O still has equitable title. O can bring a bill in equity to rescind the sale and void the sale. If O does not do so before the sale to the BFP, the BFP will cut off O’s remedies, and the BFP will pre-vail. Since BFP and O’s equities are in balance, we leave title where it is – with BFP.

iii. The Common Law cases draw a bright line between a face-to-face fraud and a fraud perpetrated by correspondence, creating a distinction between the nature of the titled transferred.

a. F writes a letter to Tiffany’s on hotel stationery, “My name is F, I am staying at the Ritz. I saw the clip in the window. Please send it to me and I will send you a check.” O sends the clip and F sells it to a BFP (similar facts to Cundy v. Lindsay).

b. The common law says O does not have a general intention to give F a void-able legal title but only specific intent to give title to the person he thinks he is dealing with. F gets no legal title, not even a voidable title. When F sells to BFP, BFP gets nothing, and O will prevail.

iv. UCC does not draw a distinction, between a face-to-face fraud and a fraud by corre-spondence.

a. UCC §2-403 (1) A purchaser of goods acquires all title which his transferor had or had power to transfer, except that a purchaser of limited interest ac-quires rights only to the extent of the interest purchased. A person with void-able title has power to transfer a good title to a good faith purchaser for value. When the goods have been delivered under a transaction of purchase the purchaser has such power even though (a) the transferor was deceived as to the identity of the purchaser.

b. The UCC may have intended to eliminate the distinction, but they may also have intended to incorporate it.

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v. O gives a voidable legal title to F. F sells it to P, someone who pays valuable consid-eration, but is not bonafide, because P knows that a fraud was perpetrated.

a. O will prevail, b/c a purchaser who is not bonafide will not prevail – since he wasn’t bonafide, there are no equities to balance.

vi. O gives voidable legal title to F w/ general intent (voidable like Phelps). F gives it to BFD (bona fide donee).

a. O prevails b/c there is no balance of equity. There is no reason to protect BFD b/c it was a gift and not out of pocket. A BFP will prevail but not a BFD.

1. If BFD expended a tremendous amount of money in reliance upon the gift he might prevail. Short of this situation, the BFD should lose.

vii. O gives F voidable legal title, and F passes the voidable legal title to the BFP. The BFP turns around and sells to P, a purchaser, who knows of the original fraud.

a. The BFP of the legal title will cut off all equities. The BFP has title and can transfer ownership. One of the key characteristics of title is the ability to transfer wealth.

b. P will be protected (shelter doctrine), not b/c he is deserving, but b/c we want the BFP’s title to be worth something (i.e. fully alienable).

viii. If the BFP gave the property to D, a donee as a gift…a. The donee would be protected by the doctrine of shelter, because otherwise

the BFP’s title would be worthless.

ix. O gives F voidable legal title, and F sells the title to BFP who sells it to BFP2, and BFP2 sells it to F, the original fraudulent party.

a. Between O and F, O will prevail. Maybe an ordinary purchaser will get title, but it would be pushing the envelope too far to allow F to get legal title. (draw the line at the frauder getting it back. Previous hypo was just someone aware of fraud.)

b. Under these circumstances, there are limits to shelter. c. If F loses to O, F can try to sue BFP2 for breach of implied warrant of legal ti-

tle, but he’ll lose since he was a participant in the fraud.

b) Courts are divided as to whether bonafideness is an objective or a subjective standard. In the area of real estate, most courts have adopted a subjective standard.

i. Tupen v Peabodya. O owned a commercial building. T, a tenant, had a five year lease of the first

floor with an option to renew. P came along, saw that the premises were oc-cupied by a tenant, and made no inquiry to O. P buys the building and says that he is a BFP, taking free and clear of T.

b. The court held that without actual knowledge, P was bonafide. As long as P believed there was no lease, it doesn’t matter if a reasonable and prudent person would have with reasonable diligence discovered one. The BFP will prevail.

c) Illustrationi. O F (fraud- person to person) BFP (BFP will prevail b/c voidable title, and unless rescinded,

BFP will get legal title)ii. O F P (purchaser but has reason to believe fraud has been perpetrated) under these cir-

cumstances he can’t qualify under exception 5 and the general rule is that a river cannot rise above its source.

iii. O F BFD (O would prevail because b/c we don’t have a BFP. Donor did not pay anything. He is not out of pocket. O is going to prevail even against the BFD) (perhaps under unjust en-richment or equitable principles, if the donee relied on the gift and had a change of position, under those circumstances he may have a better claim)

iv. OF BFD BFP (BFP will prevail) v. O F BFP P D (BFP owns the property outright so a regular, non- fraudulent participant

gets title b/c what would the title be worth?)

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vi. OF BFP F (F cannot have a washed sale curing from his defect. So this may be an ex-ception to an exception) F cannot be sheltered

6. Factor’s acts Authorized Agent/Entrustment (by statute in many j’s)

a) Where a person has entrusted merchandise with an agent and has authorized the agent to sell the property, a BFP prevails against the true owner’s subsequent assertions of owner-ship. (It is a little like estoppel and a little like possession plus, but it is a rule developed with regards to agency.)

i. O owns merchandise and ships it to A, authorizing A to sell it for $100,000. A sells it to a BFP for $95,000.

a. Courts hold that where an agent is entrusted with merchandise and is cloaked with the authority to sell, even though the agent violates the instruc-tions of the sale, the BFP will be protected.

1. However, if O had revoked the agent’s authority before the sale, the BFP can’t rely on the statute to prevail, but he may be able to prevail under estoppel if O hadn’t made his revocation of the agent’s author-ity known to the world.

ii. O gives A merchandise worth $100,000 and authorizes him to sell it for no less that $100,000. A sells it to P for $5,000.

a. A BFP from an agent who violates instructions of sale will usually prevail, but under these circumstances, we do not have a BFP.

b. Although usually in an arm’s length commercial transaction, courts will not usually inquire into the adequacy of consideration, if it is grossly inadequate, then P is not really a purchaser, but a donee, and it raises the question of whether P can be bonafide.

c. If the cts adopt a subjective standard (UCC approach), they could say that P knew that the merchandise was worth more, we won’t believe that P was BF.

7. Recording Exception

a) If there is a recording requirement with respect to a transaction, and the purchaser fails to record, the purchaser can pass on a better title than he has, and a BFP may still prevail.

i. Under UCC Article 9, certain types of conditional sales have to be recorded to be valid against a subsequent BFP.

ii. However, if you are a wholesaler and you sell goods on a conditional basis to a re-tailer, and you know that the goods will be resold, then the wholesaler has no rem-edy. Recordation will not protect the wholesaler

1. Sheer-Gillett v. Longa. Facts: O sells a display counter to B on a conditional sale

transaction (installments). B pays the purchase price over a period of time but title doesn’t pass to the buyer until the buyer pays all of the installment. B defaults on the payments and sells the good to BFP.

b. The buyer did not have title when he sold to the BFP. So at CL, the general rule applies – you can’t give what you don’t have so the BFP will lose.

i. Under UCC, you may have to record a conditional sale agreement with the authorities and since it wasn’t done, the BFP could prevail.

D. Damages and Remedies

1. Damages only arise under the general rule (nemo dat) and the BFP is liable. A BFP will not be held li-able under one of the exceptions.

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2. The general rule is that even though the goods are sold to a BFP, the BFP will be liable for trover and conversion.

a) O can sue BFP for money damages or he can ask for the goods back (replevin). Or O can seek alternative relief.

i. O sues BFP, and court holds BFP is liable for full market value. BFP is broke and doesn’t have the money. At CL, O has chosen his remedy, and O can’t now sue for restoration of the goods. But today, O can sue for liability in the alternative.

3. The BFP is liable for the full market value of the goods at the time of conversion.a) O owns a lot of land, and a wrongdoer T chops down timber, which is worth $5,000. T brings

it to a town 1000 miles away and sells it to a BFP, where it is worth $100,000. O discovers this and sues BFP.

i. Woodenware v United States held when the BFP is held liable in trover for con-version for the fair market value at the time of conversion, which is $100,000. If BFP is liable for $100,000, he can sue T for breach of implied warranty of title.

ii. From a policy perspective it makes sense to hold BFP liable for the full fair market value of the chattel, even though he is innocent b/c this will discourage thieves since they’ll know the BFP can then sue them for breach of warranty for this larger amount.

b) O owns a valuable racehorse worth 100 million. T steals horse, chops it up and sells as horsemeat. As horsemeat, horse is only worth $500.

i. Richtmyer v Mutual Live Stock: BFP is only liable for $500, invoking the general rule that as a converter you are only liable for the fair market value at the TIME of the conversion (“What’s good for the goose is good for the gander”), and at the time of the conversion, the horse is horsemeat. If O sues T, the value will be $100,000.

c) O owns trees worth $5000. T is not a wrongdoing converter, but an innocent trespasser, who mistakenly chops down trees on O’s land and transports them to a distant place where they are worth $100,000 and sells them to BFP.

i. Wright v Skinner held that the liability of the BFP is only the amount that the seller would have been liable - $5000. The rule is flexible and the courts take equitable consideration into account – the policy stated above doesn’t apply since there is no wrongdoer to discourage.

4. What if fluctuations in value are not due to wrongdoer but b/c of the market?a) O owns stock and T steals it. Stock is worth $100. Then w/ the passage of time the stock

goes up and when the action is actually commenced the stock is worth $1mil.i. Damages will depend on the Jurisdiction:

a. MA (traditional CL rule) – Koski v. Haskins – Π (TO) is allowed to recover the market value of the goods at the time of the conversion. The time of con-version is time of the theft and if it was worth $100 then that is what you get. But if he then turns around and resells at time when it was worth $200, the resale is treated as a second act of conversion and the market value is eval-uated at the time of the 2nd conversion or the TO can sue in assumpsit for money received.

b. PA – TO can recover the highest value that the stock obtained b/w the time of the original conversion and time of the trial (for conscience wrongdoers, if innocent then follow CL rule)

c. CA – TO can recover the highest value that the stock attains until the com-mencement of trial, but says we will only follow this approach if TO com-mences the case w/ reasonable diligence b/c otherwise, TO might try to stall while waiting for the price to go up.

d. Iowa – Gilman v. Andrews – TO recovers the highest intermediate value b/w the time of conversion and time you commence the action (not start the trial).

e. Old NY – Trying to achieve some accommodation so neither party gets a windfall – it is the highest intermediate value b/w the time of conversion and a reasonable period of time thereafter w/in which the goods could have been replaced in the open market

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1. So you have something stolen for $100 and if you could have gone into the market and replaced it then you take the highest value of when you could have replaced it

a. Doesn’t mean you have to actually replacef. New NY – In re Salmon Weed & Comp – takes position that the replace-

ment period doesn’t start to run until the TO could have reasonably known the goods were stolen and then it is the highest intermediate reasonable value during the replacement period

1. In NY it is conceivable some cases are like PA rule – highest value it obtains until trial itself

ii. Courts will draw a distinction between willful conscious wrongdoers and innocent wrongdoers.

a. In re Rothco’s Estate (NY) – wrongdoing by trustee – most famous trust and estates case

1. When Rothko died he left will naming 3 people as executors of his will and one was a key official at Marlboro galleries, 2nd was unsuc-cessful artist currying favor w/ Marlboro, 3rd was an innocent shnooky Anthropology professor

a. Up until Rothko’s death Marlboro would get a commission (10%) for selling his paintings and after his death the 2 ex-ecutory (1st and 2nd) raised the commission to 50%.

i. This was not advantageous to the estate and came close to self-dealing.

b. All were held liable for damages to the estate – breach of their fiduciary duties. The 3rd executor wasn’t diligent and was ∴ held liable on a theory of N and was liable for the value of the paintings at the time of the wrong.

c. B/c of publicity of the trial the value of the paintings rose tremendously and the two conscious wrongdoers liability was predicted on the value at the time of the trial (aggra-vated damages)

b. **EXTREME for NY – but it indicates that in the face of a serious wrong-doer the court will up the ante

5. O can sue BFP for conversion or replevin.

a) If O’s goods are taken by T and sold to BFP, BFP is liable for the full market value of the goods at the time of conversion.

i. If BFP offers to give O the goods back, and O accepts them, O will still have a cause of action for conversion; however, his damages will be limited to nominal damages (the difference in value).

a. In the real world, BFP would never offer to give the goods back unless he was released from liability (i.e. a settlement).

ii. If BFP offers to give O the goods back, O can refuse to accept the goods and insist that BFP pay by satisfying a judgment for trover or conversion.

a. BFP cannot force O to take the goods back.b. But O can force BFP to pay fair market value.

iii. The English courts and a few American courts have held that where the BFP is inno-cent, and the goods have not been damaged, O may be forced to take the goods back.

6. When the BFP satisfies the judgment, legal title will pass to the BFP.

a) When a BFP buys goods, he is a converter at the time and place of purchase. He only gets possession, not title at the time of purchase.

b) When the judgment is rendered, but not satisfied, the legal title is still in O.i. If the judgment is for $10,000 and the BFP pays the judgment, the title is in the BFP. ii. Some courts say that to some extent the title may relate back to the day the BFP

bought the goods.

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a. O owns chattel. T steals it and sells it to BFP1. O sues BFP1 in trover for conversion. While lawsuit is pending, and BFP1 has not yet satisfied the judgment (BFP1 forced to give back through judgment), O sells the chattel to BFP2. Then a judgment is rendered, and BFP1 satisfies the judgment and pay O full market value. O has given title to BFP2 and BFP1 is left with the hole in the bagel.

1. However, Bacon v Kimmel holds that the BFP2 would prevail. The BFP1 title which he gets when he satisfies the judgment does not re-late back to the original time of purchase. BFP1 can sue O on the theory of unjust enrichment, and restitution would come into play.

VIII. THE RECORDING SYSTEM

A. Generally

1. The general rule that you can’t give more than you have has less importance in the area of real es-tate, because of recording requirements and therefore it can be possible for someone to have the power to convey a title that he himself doesn’t own anymore when the new TO hasn’t recorded.

2. We are concerned with who has the better title between subsequent purchasers.

3. Even when the recording requirements aren’t followed, a transfer of title is still effected upon transfer of the deed. However, the prior owner might still be able to transfer better title than he actually has.

B. Purposes and Policy Considerations

1. A public recording system serves the needs of society in facilitating land ownership and land trans-fers. The recording acts determine the validity and priority of conflicting interests

a) Prior to the recording acts, the common law rule was “first in time, first in right.” That old rule still applies when there is no applicable recording statute. The recording acts attempt to re-solve the competing claims of A’s and B’s.

2. The recording system serves two basic purposes: a) it protects existing owners from losing their property to later purchasers by providing con-

structive notice; and b) it protects new buyers by allowing them to qualify for bona fide purchaser protection after

careful title searching reveals no prior interests.

3. The acts function by creating a record system that will reflect who owns what interests in any given piece of realty.

4. In order to encourage people to record documents in the system and to conduct searches, the laws in the various states generally punish those who fail to follow standard recording and searching proce-dures.

a) To encourage prospective purchasers to review deed records, the prospective purchaser is deemed to have constructive notice of all recorded documents regarding the property.

b) A person who fails to record takes the risk that a subsequent bonafide purchaser will not have to honor the first person’s interest, either because the first person did not qualify for protection under the state’s recording act, or because, of the two innocent parties, the first person could have avoided the problem by recording so he loses.

5. Courts look to see which result will best serve the policy of the statute, whether the parties followed standard recording and searching procedures and who best could avoid the loss in question.

a) For the recording system to work, courts often favor maintaining the integrity of the system over seeking equity and justice in any individual case.

b) This judicial attitude puts the onus on the latest person in the chain of title to verify that the chain of title is complete and documents are filed properly in the chain of title.

C. Functions of the Recording System

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1. Determine a Priority of Rights

a) A person recording a document in the local deed of records takes priority over persons later recording an interest in the same property.

2. Informational

a) A prospective purchaser or lender can search the deed records to determine whether the prospective seller or borrower has record title, and to locate other recorded interests affecting the property.

3. Assures Title

a) A person recording an interest can usually rest assured a subsequent purchaser must honor the previously recorded interest.

b) With knowledge or notice of the previously recorded documents, a prospective purchaser will be bound by all recorded encumbrances and interests in the property.

D. Mechanics of Recording

1. Grantor-Grantee Index

a) Every recorded document is indexed both by the name of the grantor in the document and by the name of the grantee.

i. The grantor index is used to ascertain whether a particular owner of property made any conveyances that will prevail over the conveyance under which you will be claim-ing if you buy.

b) A title searcher begins the search by locating the current owner in the grantee index. i. If the searcher finds a deed, the searcher must search the grantee index again, this

time using the grantor’s name as the grantee. ii. The searcher repeats the process until the root of title, which is when the government

conveyed the land to an individual.

c) The title searcher then takes the root of title by searching the grantee in the grantor index, and searches chronologically up until the present.

i. The chain of title resulting from the search should lead back down to the seller. The title searcher must continue the search up until the date of closing to be sure that the seller has not granted the interest to someone else.

d) If there is a solid chain of title (no break) for 60 or 70 years, the doctrine of adverse posses-sion suggests that there is a good chain of title.

2. Tract-Index

a) A tract index shows all transaction in connection with a particular tract of land. i. This is a much better system but not widely used

E. Types of Notice

1. Actual Notice

a) If a subsequent purchaser is shown to have actual notice of the existence of the prior un-recorded interest, he will not gain the protection of the recording act in a notice or race notice jurisdiction.

b) Actual notice or knowledge means the subsequent purchaser had actual notice O’s prior con-veyance to A.

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i. The subsequent purchaser can gain this knowledge from person observations, a doc-ument in the deed records, or hearing about it from outside the transaction itself.

c) Some jurisdictions (Massachusetts) require actual notice, and if you don’t have actual notice (as in hit you over the head notice), you are a BFP.

2. Constructive or Record Notice

a) Constructive notice, also called record notice, refers to knowledge or notice a purchaser could gain by searching the deed records.

b) If a document is properly recorded in the chain of title of property—i.e., those documents that are discoverable by a reasonable search of the records, all people in the world are deemed to have record notice of its terms.

i. So if A records his deed from O before B receives her deed, B is said to have record notice of A’s interest whether or not B searches the record and found the instrument. B is punished for failure to search.

c) The purchaser is deemed to know all matters contained in documents legally recorded in the deed records, even though the purchaser did not search the deed records.

i. Constructive notice or record notice usually is asserted when a purchaser did not search the records.

d) Constructive notice is not too important in a race notice jurisdiction since documents giving constructive notice also are the first recorded documents; and the recording party prevails on the race portion of the race-notice requirements.

e) One does not have record notice of documents outside the chain of title. So, the chain of title concept both determines the extent of the title search that must be conducted and identifies those documents that give record notice.

3. Inquiry Notice

a) A prospective purchaser or creditor has inquiry notice when the purchaser hears or observes something that would cause an ordinarily prudent person to inquire further.

b) If a prudent person would have investigated further, and that investigation would have re-vealed some unrecorded interest in the property, the purchaser is deemed to have notice of the unrecorded claim.

i. O sells to A. A does not record. O gives B a deed. B has no constructive notice. How-ever, if a reasonable prudent person would have made an inquiry to discover the facts, he may be barred by what he may reasonably have discovered.

c) Possession or the physical condition of property can be a large source of record notice.i. Some jurisdiction say that if you know someone is in possession of land that you are

about to buy, then you have a duty to make a reasonable inquiry. This may also hap-pen in a jurisdiction that has an actual notice requirement. It all depends on the inter-pretation of the statute.

ii. However. possession may not always charge a diligent purchaser with notice. a. O owns land, and leases it to T for 10 years. Under recording laws, the lease

must be recorded. At the end of 9th year, T says to O, I want to buy this prop-erty, and O gives T a deed. T does not record the deed. But he had recorded the lease 9 years ago. O then sells the property to BFP.

1. We have a situation of “possession of property being consistent with the record title.” If you check the record title, it shows a lease in fa-vor of T, same with possession. A BFP is entitled to presume that T is in possession for the terms of the lease. In those circumstances, if he doesn’t make an inquiry of T, then he will be protected.

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2. We will protect BFP because even if a reasonable inquiry was made, BFP is entitled to presume that T is only in possession for the terms of the lease.

iii. The law requires that a person make a reasonable physical inspection of property be-fore taking an interest in it and to make reasonable inquiries about ownership that such an inspection would trigger.

a. This knowledge is imputed to B, regardless of whether he makes this inspec-tion, so the law punishes failure to follow this procedure.

iv. A prospective purchaser may also have inquiry notice based on a common scheme of development or may be required to check deeds to neighboring property if the properties were conveyed by a common grantor.

d) Inquiry notice plays a large role in race-notice jurisdiction. A subsequent purchaser who searches the deed records and who first records can lose to an adverse claimant that would have come to light had the purchaser inquired. B actually knows of O’s prior conveyance to A

F. Recording Statutes

1. Recording Acts

a) Recording Acts establish the priority persons have to a parcel of land.

b) State recording acts fall into 3 categories: race, notice and race-notice.

c) On exam, first ascertain the nature of the statute, race, notice or race-notice. If it is unclear, answer the question using all three acts.

2. Notice Statute (subsequent purchaser must be BFP)

a) Notice statutes place no premium on the race to the recorder’s office and protect the bonafide purchaser whether he or she records first or not.

i. A subsequent BFP or creditor prevails over prior claimants as long as the subsequent purchaser has no notice (actual or constructive) of the prior claim.

ii. A subsequent BFP without notice prevails immediately upon closing.

iii. The subsequent BFP is not required to record to prevail against prior unrecorded claimants, although the BFP must record to protect his interest against later subse-quent purchasers.

b) In a battle between two successive purchasers, A and B, in allocating the property between A and B, ask if B is a subsequent BFP without notice of A’s deed? If he is, B will prevail.

i. In a notice state, there is an assumption that A did not record, if A did record, B would have constructive or record knowledge imputed to him. It is no longer first in time, first in right. We are concerned with whether B was hurt by A’s failure to record.

a. O gave A a deed, and A immediately and properly records the deed. O gives B a deed. If B has no actual notice, B will be found to have constructive no-tice of any prior deed recorded within the chain of title, and B will lose.

ii. Once O executes the deed, O is left with nothing. As between O and A, title will pass from the grantor to the grantee. The recording requirement affects the re-quirement of subsequent purchases from O. A may have a remedy against O if he loses to B, but as between A and B in a notice state, B will prevail over A, if he did not have notice of A’s deed.

c) Example of a Notice Statute

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i. Mass Gen Laws.ch.183 §4: A conveyance of land shall not be valid as against any person except those having actual notice of it, or an office copy of the deed is recorded.

3. Race Notice Statute (BFP + Record)

a) In order for a subsequent purchaser to prevail, the subsequent purchaser must be bonafide, having no notice of the prior deed, and must record first.

i. BFP will lose if the person against him records first.a. The subsequent BFP can know about the prior interest when he records the

document as long as she did not have notice when he purchased. ii. These jurisdictions insist on the act of recordation, because recording enables the

person and the world to determine with stability and certainty where the title is.

b) In order for B to prevail over A, he must be a BFP without notice and win the race. (If a pur-chaser is bonafide then he doesn’t have notice)

i. Courts define notice in a race-notice state as actual, constructive or inquiry notice.

c) Example of a Race Notice Statute

i. Mich. Comp Laws §565.29: A conveyance, which is not recorded, is void against any subsequent purchaser in good faith, and for a valuable consideration of the same real estate recorded first.

4. Race Statute (Record)

a) A race statute places a premium on the race to the registry of deed. The subsequent pur-chaser must record before the earlier purchaser and if he wins the race, he is protected whether or not he has notice of the earlier conveyance (i.e. he does not have to be bona fide)

i. The statute is not concerned with bonafideness - the only question is who records 1st.ii. We don’t want to speculate whether the subsequent purchaser had notice. iii. Even though the jurisdiction might say that as between O and A title has passed, be-

tween A and B, B will have priority if he recorded first.

b) Example of a Race Statutei. N.C. Gen Stat §47-18: No conveyance of land shall be valid to pass any property as

against purchasers, but from the time the deed was recorded.

G. When Will a Subsequent Purchaser Prevail

1. As a matter of policy, when we ask whether the subsequent purchaser should prevail or whether the purchaser should be deemed to have notice, we are asking whether the title searcher should have been able to find a deed. (Always look at who should prevail through the perspective of the title searcher)

2. Depending on the state recording act, when a grantee fails to record, he takes the risk that a subse-quent purchaser will prevail.

Hypo 1 Notice Race- notice Race

(1) OA-Not Record A has title (as between grantor and grantee, title passes upon delivery of the deed)

A A

(2) OB-BFP-NR B prevails (since he’s BFP) A A

(3) A rec. B A A

(4) B rec. B A A

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Hypo 2 Notice Race- notice Race

(1) O A- NR A (as between grantor and grantee title passes as soon as deed is delivered)

A A

(2) O B- not BFP - NR A (since B is not BFP) A A

(3) B rec A A B

(3) A rec A A B

Hypo 3 Notice Race- notice Race

(1) OA- NR A A A

(2) O B-BFP- NR B A A

(3) B learns of A’s deed B (All that matters is bonafidiness at time of purchase when he paid consid-eration – not at time of recording)

A A

(4) B rec B B (critical date is the date of purchase)

B

(5) A rec B B B

Hypo 4 Notice Race Notice Race

(1) O A-NR A A A

(2) O B- BFP- NR B A A

(3) A rec. B (too late for A b/c B was BFP) A A

(4) AC-BFP C (Although B has better title than A, when C does a title search it will show it’s A’s and since we want ppl to be able to rely on the rec. system, C wins – A has power to give better title than he himself has - B remains vulnerable if he fails to record)

C (now A is a grantor and as between a grantor and a grantee . . .- C is still vulnerable if A sells to D who is BFP and records b/f C)

C (now A is a grantor and between a grantor and a grantee . . .C is still vulnerable if A sells to D who records b/f C)

Notice Race Notice Race

(1) OA (NR) A A A

(2) OB (not BFP) (R) A (even though A hasn’t recorded B isn’t protected b/c he is not BFP)

A B (B recorded first- BFP is irrelevant)

(3) BC (BFP) (NR) C (normally you can’t pass what you don’t have but you may cut off prior unrecorded rights, so even though B would lose to A, C is un-aware of A’s prior unrecorded deed and is misled by A’s failure to record - Even though a person doesn’t have title, he still may have the power to convey a better title than he owns)

A – C hasn’t recorded and that is the 2nd re-quirement in a race-notice stateC – Think of AP and tacking of the two pe-riods So we permit C to tack on his BFP to B’s recordation – he is the successor in interest to B – so the argu-ment might be made he can take advan-tage of B’s prior recor-dation**It is unclear as to who would prevail

C (B has title and A is cut off permanently. As b/t grantor and grantee, title passes upon delivery)

(4) A rec C AC

C – too late for A

(5) C rec C AC

C

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H. The Problem of the Circular Lien

1. The recording statutes are not only applicable to title, but also to mortgages of real estate.a) A mortgage gives someone a security in real estate, and is a form of a deed. In mortgages, it

is not the same thing as selling the Brooklyn Bridge twice. O may give a number of people mortgages in his property. If the money is paid, then O gets his title free and clear. But if O defaults on the mortgage, the mortgagee gets to foreclose on the mortgage. The mortgagee has a duty to exercise reasonable care in notifying the public of the sale, so that the mort-gagor is protected and gets a fair price. (not allowed to chill the sale)

i. If a default occurs, and A does not stir up enough interest to satisfy all of O’s mort-gagees, then O can sue A for breaching his duty to O under the “anti-chilling” rule.

2. O owns a lot of land. O borrow $5,000 from A, and to secure the loan, gives A a mortgage on the property. A does not record the mortgage. O then borrows $7,000 from B, giving B a mortgage on the land. B records the mortgage, but B knew and had actual knowledge of A’s prior unrecorded mort-gage. O then borrows $3,000 from C, who is unaware of A’s first mortgage, but has constructive knowledge of B’s mortgage (since it was recorded). C records. The mortgages add up to $15,000. O defaults, and at the foreclosure sale, the property only sells for $10,000.

a) If A, B, and C had properly recorded their mortgage, A would be the first mortgagee, B would be the second mortgagee, etc. The priority illustrates who gets the first crack at the mortgage. A would get $5,000, B would get $5,000 and C would get nothing. Since this is not the case, in a race notice and a notice state, a circularity of lien occurs.

Notice Race Notice Race

1) OA (NR) (5,000) A prevails over B, b/c B has notice of A’s prior mortgage (not BF)

Same 3rd (0)

2) O B (not BF)(R) (7,000)

B prevails over C, b/c C had constructive notice of B’s prior mortgage (not BF)

Same 1st ($7,000)

3) O C (not BF since constructive notice of B’s) (R) (3,000)

C prevails over A, b/c he had no notice of A’s prior mortgage (BF)

C prevails over A since he was BF and recorded 1st

2nd ($3,000)

1. Bottom line: C prevails over A who prevails over B who prevails over C, so what should a judge do? (there are different approaches):· Divide proportionately – A’s mortgage is 1/3, B’s is 7/15, C’s is 3/15· Base it on who recorded 1st, i.e. since B recorded 1st, $7k to him, then C gets $3k, and A gets nothing

o This gives certainty· Prior in time, prior in right; base it on the chronological time sequence that they came into the picture – so

A gets $5k, then B gets $5k and C gets nothing· Schwartz thinks the better approach is to try to give everyone their justifiable expectancy and if not

possible, penalize those who caused the loss.1. A’s JE at the time he executes his loan is the 1st $5k of any foreclosure sale2. B’s JE, since he knows of A’s mortgages, is NOT $7k, rather it is everything that comes in at

the foreclosure in excess of $5k capped at $7k (so if only $4k comes in, his JE is $0).3. C’s JE, since he has constructive notice of B’s mortgage, is everything in excess of $7k

capped at $3k.o So in our hypo with a foreclosure sale for $10k there is not enough for everyone to get their JE, so we

say the person responsible for causing this problem should bear the loss. Who is that?(i) Since A’s failure to record caused the circle he should bear the loss

1. So B gets $5k b/c he is entitled to everything in excess of $5k2. C gets everything in excess of $7k, so he gets $3k3. And A will get only $2k – we punish him b/c we deem him most culpable

(ii) Problem! But what happens if they each lent O $5k and the foreclosure sale only gets $5k?

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a. A’s JE is $5k at time he executes the mortgageb. B’s JE is anything in excess of $5k that is realized at sale b/c he knows a/b A

i. BUT – since nothing in excess of $5k, his JE is $0c. C’s JE is anything in excess of $5k b/c B has recorded his mortgage

i. BUT – nothing in excess of $5k so his expectancy is $02. So you see this raises a question – if this is such a good approach why should it suffer from

vagaries of generating too little? A is better protected to the extent mortgage foreclosure nets very little (even though he was at fault) so maybe he has incentive to not get a lot at the sale and we want to encourage (to protect O, B, and C) people to drum up interest in foreclosure salesa. BUT – A will still have an incentive to get the highest price b/c O could sue him if he try to

get the maximum price for chilling the sale.

I. Proper Recordation (When is a deed deemed to be recorded to afford constructive or record no-tice?)

1. Depending on the jurisdiction, a filed, but not recorded deed may accord constructive notice.a) O sells to A who goes to record and pays his filing fee and gets a receipt. Before the clerk

records the deed, a gust of wind blows it out the window. O then conveys to B who doesn’t know about A’s prior purchase since it wasn’t recorded.

i. It is possible that a given recording statute may only require the ministerial acts of fil-ing, and the registry official’s responsibility is to record. Sykes v Keating held that based on the MA recording law, all you have to do is file. It constitutes constructive notice at the point of filing.

2. Other jurisdictions hold that proper indexing is required for recording, otherwise how else would a subsequent purchaser get notice of the prior deed. This is not too burdensome on A, because A can always go back and confirm that the deed was properly indexed.

a) O, L.J. Marshal, borrows money from M, mortgagee. The clerk indexes the mortgage under S.J. Marshall by accident. O later conveys the mortgage to a BFP, who has no notice of the prior mortgage since it was under the wrong name.

i. The court in Prouty v Marshall held that a deed that is not properly indexed does not constitute constructive notice. PA places the burden on the first mortgagee, since he has the opportunity to double-check that it was filed and indexed properly.

ii. In 1875, PA established a requirement, imposing a duty on the clerk to keep and pre-pare indexes. The clerk would be subject to criminal fines for failure to adhere. The court decided that indexing was an integral part of recording.

3. The recording of a deed gives record notice to a subsequent searcher only if that searcher would have found the document.

a) O delivers a deed to Elsa Smith. Elsa records the deed immediately. Elsa marries a man named Taylor. She is now known as Elsa S. Taylor. Elsa borrows money from A, and secures the loan by a mortgage deed in the name Elsa S. Taylor. A records it. Elsa later gets divorced and resumes her maiden name Elsa Smith. Elsa later conveys a deed to B. B has no notice of the prior mortgage to A.

i. If the jurisdiction holds that proper indexing is an essential part of the recording process, A’s mortgage may still not be considered properly recorded, because at the time it was recorded she was known as Elsa S Taylor. A should have had Elsa index it under Elsa Smith AKA Elsa Taylor. If the jurisdiction holds that proper indexing is not essential, then how the deed was recorded would not matter, and A would have priority over B. The result hinges on this distinction.

a. On the one hand, B has no way of obtaining notice, because he has no way of knowing that Elsa had another name. There is no record of Elsa Smith giv-ing a mortgage. B has no way of even knowing there was an Elsa Taylor.

1. If Elsa says to B, I would never want to sell this place, but since the divorce, I have to for financial reasons, then a reasonable prudent purchaser might be put on notice that there was a name change. While a lay person may not connect the dots, a lawyer might have an

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imputed notice of a duty to ask. This duty will hinge on how the recording law treats notice to the subsequent purchaser.

a. This is not constructive notice, but actual notice from exter-nal sources. You are held to have notice if a reasonable pru-dent person would have notice of the facts—this may hinge on the verbiage of the statute.

b. On the other hand, A is in the best position to check probable loss. A’s title searcher should note that there was no title in favor of Elsa Taylor when checking the grantor grantee index. When A realizes that there is no chain of title, A should have a duty to check the correct chain.

1. This argument proceeds on the assumption that proper indexing gives notice. Since Elsa Taylor’s name does not appear in the index, in the spirit of the recording laws, A should make sure that there is a chain of title.

ii. This problem would not arise if the jurisdiction had a tract index system—which all of the conveyances are indexed under a lot number.

4. A deed recorded outside the chain of title does not constitute constructive or record notice even though it is physically recorded.

Example 1O A, who does not recordA B, who records immediatelyO C, who has no actual notice of the deed in favor of B (i.e. he’s a BFP)

a) A’s failure to record, puts B’s recorded deed outside the chain of title. A normal title search by C would not bring up B’s chain of title, since there is no recording of O granting the title to anyone he’d assume it was free and clear – he’d have no way of finding out about A and B.

i. In a notice state, C would prevail since he’s a BFP. In a race notice state, a subse-quent BFP without notice who records will prevail, so C would prevail if he records. In a race state, we could argue that even though B has recorded outside the chain of ti-tle, the race jurisdiction is not concerned about notice, so B has won the race.

Example 2: Board of Education v Hughes (race notice jurisdiction)(1) O A (NR) (grantee’s name left blank on the deed title can’t pass till filled in) (2) O B (BFP) (NR)(3) B C (BFP) (R)(4) A fills in his name on the deed and records(5) B records

Threshold question – Is A’s filling in the deed a legally operative fact? Does A have authority to fill in deed? - O has title and he is asking A to complete the action of transferring his (O’s) title so O has given A the authority to do this legal act as O’s agent- Although you can’t orally transfer title (b/c of the SOF), the court held you can you orally appoint an agent to fill in the deed and this appointment doesn’t have to be in writing.

- Therefore A became a purchaser at Stage (4) b/c that is when the grantee’s name is filled in and that is when he becomes a purchaser – so he is thus subsequent to B and C w/o notice of these prior deeds

- A doesn’t have notice of B’s deed b/c it wasn’t recorded and C’s was recorded outside chain of title and ∴ since A is subsequent BFP (in notice or race-no-tice) and records 1st then he takes free and clear of C. A prevailed.

- In a race state you could argue that all that matters is that C won the race and therefore he should prevail.- PROBLEM w/ court’s reasoning – allows A to manipulate the result by picking time he becomes purchaser.- If he had filled in at stage 1.5 then he became purchaser then and failed to record.- Clearly in a notice jurisdiction C would have prevailed – since B was BFP, he would take free and clear and could give C good title.

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- In race-notice C should prevail – A would be treated as prior purchaser and he shouldn’t be able to take advantage of a recordation outside chain of title (in Schwartz’s opinion) - Recordation outside chain of title should work for subsequent purchaser and not prior- What if we said that b/c of SOF A has NO authority to put in the name b/c no authority orally to fill in deed- So O agrees in (1) but hasn’t really given A deed b/c grantee’s name is blank and A didn’t have - authority to fill it in. Then O gives deed to B.- When O enters K w/ A legal title is in O and A has equitable title b/c he can go into equity and get specific performance. But when O gives that legal title to B who is a BFP then the BFP w/ le-gal title chops off A’s equitable title - If A came to you for legal advice at stage (4) you would tell him to go back to O and get a new deed which would make A purchaser as of that date and then record. Or have O re-execute deed and re-acknowledge signature w/ notary public

If A is considered a purchaser at stage 1, he is a prior purchaser who did not record at that stage. a. In a notice state, at stage 2, B would be a subsequent BFP with no notice,

and B would prevail. b. A is not misled by C’s recordation outside the chain of title. There is no sub-

sequent purchaser that is misled, because A is a prior purchaser. In such case, in a notice and race notice state, A will lose.

J. The Problem of Estoppel by Deed

1. The doctrine holds that where O makes a conveyance of property to A before he has obtained title, and then he does get title, the title passes immediately to A upon his receipt of title. The grantor, O, is estopped from denying the validity of his earlier deed.

AB (R) (but not A’s yet)OA (R)AC (BFP)

a) O owns a lot of land. A represents to B that he has a full warranty deed, and conveys it to B, who records it. But its not A’s yet. Afterwards, O gives A a deed, and A records it. Later, A gives C (BFP) the deed.

i. At stage 1, A gave a general warranty deed. A makes a representation that he has good title. B relies on the representation to his detriment.

a. A general warranty deed expressly guarantees the grantor’s good clear title, free of all defects not mentioned in the deed.

ii. At stage 2, when A gets title, by operation of law, the title passes immediately to B, and A is estopped from denying the validity of the prior conveyance – B prevails.

b) If A had conveyed a quit claim deed or a special warranty deed, it may have be unreasonable for B to rely on the deed to his detriment, and A might not be estopped, because there was not a complete warranty. (Schwartz said this might be a good exam question)

i. A quitclaim deed conveys a grantor’s complete interest or claim in certain real property but that neither warrants nor professes that the title is valid (If I own it, it’s yours, if not, tough noogies).

a. A few jurisdictions hold that the existence of a quitclaim deed anywhere in the chain of title puts the purchaser on inquiry notice as to the possible inad-equacy of the title held by the grantor under that quitclaim deed.

b. O conveys to A, and A does not record. O gives deed to B. Assume that B gets a quit claim deed without covenants (without warranty).

1. In an actual notice state, B has no actual notice. But if you are in a jurisdiction that accepts actual and inquiry notice, doesn’t a quit claim deed without guarantees create suspicion in B.

2. If O is only willing to give B a quit claim deed with no guarantees, it should make B suspicious, and B should make an inquiry, and if a

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reasonably inquiry would have revealed a defect in title, then B is not a BFP. (minority view)

3. However, Morell v Sherwood held that there should be no distinc-tion between a quitclaim and a warranty deed; no one wants to make guarantees, so inferences shouldn’t be drawn from the nature of the deed.

4. NJ says if O gives A a deed (NR), the title is in A. If O then gives B, a quit claim deed, O is in essence saying if I have title you have title, therefore B should lose even if he records. This law loses sight of the purposes posed by the recording title. The purpose of the recording system is that O has a power to give a better title than he has until A records. (pre-1931).

a. However this was later overruled legislatively

ii. A special warranty deed is a deed in which the grantor warrants only against de-fects that the grantor created or that came after he was the owner.

2. While the estoppel by deed doctrine applies as between the original grantor and grantee, the doctrine is not binding against a subsequent BFP.

a) Ryczkowski v Chelsea Title & Guarantyi. O and A enter contract for sale of property. But no deed has been tendered and the

contract has not been recorded. Before A acquires title to the property, A grants P an easement across the property in writing. P records the easement. O then conveys the property to A. A conveys the property to B.

ii. The court said that B is not subject to the easement, because the easement was not recorded in the chain of title, and the subsequent purchaser would take free and clear of it. (It is called a wild deed, because it is outside the chain of title.)

iii. The court held that deeds that are recorded before the person took title don’t consti-tute constructive notice to subsequent purchasers.

K. The Title Search

1. When do you begin your search for conveyances out? (see other outline pg 27…)

a) Ayer v Philadelphia Brick Corporation

1) OM1 a mortgage and it is recorded2) OM2 a mortgage and it is recorded3) O defaults, M1 forecloses. B buys at sale.4) O goes bankrupt, all of his debts are discharged.5) B sells the property to O.6) O C (BFP)7) M2 tries to enforce mortgage against C.i. Holmes held that the bankruptcy doesn’t permanently eliminate and extinguish all

rights that existed, it just bars the remedy. A bankruptcy does not preclude estoppel.a. Once O gets title, the warranty estoppel by deed comes into play, and

against O, M2 is entitled to claim the validity of the mortgage without contrary assertions by O.

ii. Holmes says that the BFP should have checked out O in the grantor index, not from the stage he got the title from B, but from the date of O’s birth. As a result, the BFP has constructive notice of M2’s mortgage and takes subject to it. BFP loses.

b) The Ayer principle is that in all cases you begin a title search at the date of birth.

c) This principle holds that you extend the doctrine of estoppel by deed to apply to disputes not only between the grantor and the first grantee, but between the first grantee and subsequent grantees .

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i. O A (NR) ii. O B, B not BF. B records.iii. A records. iv. B C, C is bonafide. v. There is a battle between A and C.

a. In a Notice state, A will prevail over B, b/c B is not bonafide. B may not pre-vail over A, but he has the power to give a better title than he has since A didn’t record. C should have constructive notice, because he would check B in the grantee index, and see that B got it from O. Then he would check out O’s name in the grantor index from O’s birth and see that O sold it to A be-fore he sold it to B. Since C had constructive notice, A prevails.

b. If it is not constituted as constructive notice, C will prevail because A’s deed is recorded outside the chain of title. Morse v Curtiss

d) The rule of Ayer was not followed in Massachusetts and was later overruled by statute.

e) Most states adopt the chain-of-title doctrine and require you to search the records only so far back as the date when your grantor acquired his interest.

i. Although the first BFP (who bought it from the seller b/f it really was his) would have prevailed over the grantor because of estoppel by deed, a subsequent BFP will not be charged with notice of that purchase and will prevail.

2. When do you stop your search?

a) The title searcher can stop as soon as his chain of title is completed.

b) Morse v Curti

OM1 (NR)OM2 (R)(Not BF)M1 recordsM2 BF Assignee

i. Morse holds the bonafide assignee does not have constructive notice of M1’s mort-gage, because it is outside the chain of title. Once BFA found the conveyance from O to M2, BFA can stop searching.

ii. Morse says you can stop checking the grantor index, once the searcher finds a deed from the prior owner to someone in the chain of title. The searcher does not need to check out O until the present day. The searcher can stop as soon as his chain of title is complete.

a. This is a considerate view not to impose too many burdens on the title searcher.

c) Other jurisdictions take the position that the grantor index volume should be checked to the present day, Morse is not the universal rule

3. Ayer and Morse deal with two different issues. Ayer is concerned with when you begin your title search—from the date of the prior owner’s birth. But once you find a deed out that connects your chain of title, Morse kicks in and the title search stops. Morse is concerned with when your title search is finished – you don’t have to check out each prior owner to the present day – once you find a deed out that give you a perfect chain of title, you don’t have to go any further.

OA (NR)OB (Not BF)(R)A recordsBC

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a) In an Ayer jurisdiction, C’s title searcher will have to check out all conveyances from O from his birth to the present day, so C will have constructive notice, and in a notice or race-notice state, A will prevail.

b) In a Morse jurisdiction, C’s title searcher will only need to look at conveyances from O that connect the chain of title. Once C’s title search connects OB, the search stops. A’s subse-quent recording will not constitute constructive notice, because it is too late. C will prevail.

c) However, even in a Morse jurisdiction, A can prevent B from conveying title to C, by seeking injunctive relief and enjoining B from selling the property. By filing a lis pendens (notice of pending litigation) in the registry of deeds, A guarantees that C will have constructive notice of the pending litigation, and A would prevail. A could also file a bill in equity to quiet title.

4. On an exam, we will need to analyze the problem on the assumption that we are in an Ayer jurisdic-tion, then a Morse jurisdiction, and then a jurisdiction that follows both.

Notice Race Notice

1) O A (NR) A prevails, as between a grantor and a grantee . . . A prevails, as between O and A title passes . . .

2) O B (BFP)(NR)

B since he’s BFP A, because the subsequent BFP must record, and B has not recorded.

3) A records B still prevails, because A records to late A will prevail, because he wins the race

4) B records B A will prevail, despite B’s subsequent recordation, because he wins the race

5) A C (BFP) If you follow Morse, C’s burden is to check out the name of O until he gets a perfect chain of title. C is buying from A, and sees a deed from O to A. In a Morse jurisdiction, C will prevail. But if you are not in a Morse jurisdiction, and you have to extend your search to the present date, C will be held to have constructive notice of B’s deed. In such jurisdiction, B would prevail.

C will prevail, because C is a BFP with no notice of B’s recordation, and A’s title is stronger than B’s

L. Deeds Out from a Common Grantor (see other outline pg. 29…)

1. Deeds out from a common grantor may impose covenants or restrictions on subsequent purchasers.

There are three ways that a covenant or restriction may be imposed on subsequent deeds.

a) Express Covenants

i. Sometimes covenants are enforceable because they are expressly created by the terminology in the deed.

a. If O gives X a deed with the restrictive covenant that the land will only be used for residential purposes, this is an express covenant.

b) Implicit Covenants

i. If a purchaser explicitly agrees to the restricted use of a lot, many courts will imply or infer an implied reciprocal covenant for the restriction of other land uses.

ii. In NY, if it is clear that the grantor intended to impose uniform restrictions on the lots, the court will imply or infer the restricted use of the land to subsequent deeds. There must be evidence of a uniform scheme.

iii. Other courts hold that any restriction on land must be in writing and cannot be in-ferred or implied.

c) Covenants Running with the Land

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i. For a covenant to run with the land, the intention of the original parties must be something intended to run with the land. The covenant in question must touch and concern the land. It must be related to the use and enjoyment of the land for it to be enforceable against subsequent purchasers.

a. If O got a promise from X that X was only going to use his land for residential purposes, and X sells it to Y. Y is bound because there are covenants that may run with the land.

ii. Even if the covenant was intended to run with the land, etc, it may not be enforceable against a subsequent purchaser because of recording restrictions. A subsequent pur-chaser is bound only if he has constructive or record notice of the restriction.

a. Buffalo Academy of the Sacred Heart v Boehm Brothers (New York)

OX (express restriction)XYYA (BFP, no notice of restriction)AB

1. A enters a contract to sell lot 98 to B, on the condition that the title is marketable, and free and clear from reasonable doubt. B cancels contract claiming that there are implied restrictions imposed on the land, since the deed to X contained restrictive covenants on the use of the land, and therefore the deed is not marketable.

2. NY will not imply a restricted covenant unless there is a scheme of uniformity. None of the maps and plans illustrated an intention to re-strict the property to residential purposes. None of the deeds con-tained a uniform scheme of covenants. Some deeds had restrictions. Some did not. Lot 98 did not. We cannot prove that there are any re-strictions and the court holds the lot is free from restrictions.

3. Holmes said that a covenant not to compete unilaterally imposed on the land is not enforceable, because it is an easement of monopoly, which restricts trade, and it should run with the land.

a. However, the court in Whitinsville Plaza, Inc. v. Kotseas held that an easement of monopoly is enforceable if it is rea-sonable, the parties intend it to run with the land, and it serves a purpose to promote orderly development for com-mercial use.

4. Because the covenant appeared in deed 55, not 98, and there was not a uniform scheme of development, it is too burdensome to re-quire the purchaser of 98 to check out the other lots. The purchaser is only obligated to check out the deed to his lots.

a. Other courts say that in a common development you have an obligation to check out all of the other deeds no matter how burdensome. (Sanborn v McLean)

b. Maybe as a practical matter you should check out the other deeds to make sure the description of the lot is in tune with the neighboring lots.

5. While B actually discovered the restriction, which constituted con-structive notice, A was a BFP, and the deed from Y to academy cut off the restriction, and it is no longer enforceable on B, and it is a marketable title. (common law)

2. Some jurisdictions hold that deeds out from a common grantor are in the chain of title, and a subse-quent purchaser may be bound by previous deeds.

a) In a common development, a uniform scheme may put a purchaser on inquiry notice of cer-tain non-recorded restrictions running with the land. (This is the rule for NY too)

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i. Sanbourne v McLean

a. A uniform building plan had been developed, all of the houses looked alike because they were subject to a uniform restriction—uniform development.

b. When approaching this type of development, you will be put on notice of a uniform scheme of development, and restrictions by implication will be im-puted.

c. Court says you have to check out lot you are buying, and you have to check out neighborhood, which it is apparent of a uniform scheme of development. A reasonable subsequent purchaser may be put on notice that there are re-strictions.

1. (Note in Buffalo, there was not a uniform development or uniform re-strictions, whereas here, every house to the naked eye looked the same.)

M. Unrecorded Interests

1. Easements

a) Regardless of whether the deed out is within the chain or title, since easements arise by op-eration of law, they are not subject to the recording requirements.

i. Easements can be express and arise by explicit grant.

ii. Easements can also arise by a matter of strict necessity, as if O was landlocked and it was absolutely necessary for him to use a right of way.

iii. Easements can also be implied.

a. If O owns a lot of land, and if at the time the entire land was under single ownership, when O divides the ownership, we conclude that an easement by implication will arise even though the deed is silent.

b. In order for there to be an easement by implication, you need:1. To at one point have common ownership of the entire land in one

person;2. Prior to the subdivision of the property, one portion had to of been

used for the benefit of the other portion;3. Such use must have been reasonable necessary to fully enjoy the

other portion;4. Such use must have been apparent.

b) A person who owns an easement does not own anything that is recordable, yet a subsequent bonafide purchaser may take subject to the easement.

i. O owns a lot of land. O builds a house on the eastern portion of the property. He passes through the western half to get to a highway. There is a dirt road that eventu-ally hooks up to the highway. It is not strictly necessary but it is reasonably necessary to use the strip to get to the highway. O sells the western half of the land to X. He then sells the eastern half, including the house, to Y. Then X sells the western half to Z. Z puts up a barrier to prevent Y from using driveway.

a. Regardless of whether Z is a BFP or not, Z will take title subject to the ease-ment, because recording laws only bar a person who has a title that is re-quired to be recorded.

ii. Both an easement by necessity and an easement by implication are likely to place the subsequent purchaser on inquiry notice, since the existence of the easement it-self will probably leave physical clues on the servient estate (a tract of land that is burdened by an easement benefiting a dominant estate)

2. Adverse Possession

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a) Title by adverse possession does not give rise to an instrument, and therefore, the adverse possessor is not subject to the recording laws.

b) In a priority dispute between an adverse possessor and a subsequent BFP of land conveyed after the adverse possessor has “title,” the adverse possessor will prevail based upon the common law rules of adverse possession and that the first in time of the legal interest, has the first right.

i. O owns land. A goes into adverse possession for 21 years. A takes a vacation. O sells to B. B checks the registry and finds that the title is in O. A has nothing to record. A will prevail, because his title is derived by operation of law.

3. Short Leases

a) Depending on the jurisdiction, a short term lease does not have to be recorded. If so, that lease will be valid against a subsequent BFP.

i. In New York, a lease in excess of 3 years must be recorded. Anything less is an un-recordable interest.

a. O gives A a lease for 2 years. A doesn’t record and doesn’t have to. O gives B a deed, B had no notice. A prevails, because a subsequent purchaser will prevail over a prior unrecorded interest, only if it had to be recorded.

ii. In Massachusetts, leases in excess of 7 years must be recorded to be valid against a subsequent BFP without actual notice. There is a statute that protects subsequent BFP’s without notice of an unrecorded instrument.

a. Tupen v Peabody1. O owned a building, and leased the first floor to T. T operated it as a

drugstore. T’s lease was for 5 years with an option to renew for 5 years. O proposes to sell property to X, X knows a drugstore is oper-ating on the premise. T does not record the lease, and the 5 year term expires, and T want to exercise option. X says T can’t exercise option, because if you do, then the lease is for more that 7 years, then it must be recorded. But X knew of T’s possession and occupa-tion of the premises. X argues that he thought that T had a month to month tenancy.

2. The court enunciates a rule that if the subsequent purchaser does not have ACTUAL notice, under a subjective standard, he is a BFP even though he could have made a further inquiry and didn’t.

a. However in Galley v. Ward, the court held that if someone sell you land, you have a duty to make a reasonable inquiry to see if s/o else is in possession and your held to what the reasonable inquiry would reveal (i.e. you’re not considered a BFP if reasonable inquiry would have revealed that s/o else was in possession).

b. Brickman v. Jones held that even though the statute speaks of actual notice, if you actually know that s/o else is in possession you have a duty to make an inquiry, but unlike Galley v. Ward, you don’t have to check to see if s/o is in possession.

c. There is a major exception to the cases that require inquiry to see if s/o else is in possession in order to be a BFP – when the possession is consistent w/ the record title.

i. O gives A a 10 year lease and records it and A goes into possession. (9 years later, O sells the property to A but A doesn’t record it. O then conveys the property to B who doesn’t know that a deed was al-ready given to A.

ii. B will prevail since his title search would have found a recorded lease in favor of A and therefore A’s pos-session was consistent with O still being the owner.

N. The Problem of Indefinite Reference

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1. An indefinite reference is a reference in a recorded instrument to some unrecorded right.

a) O gives a deed to X. X records it. The deed to X says that the deed is subject to a mortgage/lease/option in favor of A. A is not identified, the terms of the mortgage is not listed, etc. If a buyer’s title searcher finds this reference and he can’t find any lease or mortgage, because it is not recorded, the title may not be marketable.

i. Many states say that these references to unrecordable rights creates reasonable doubt in favor of X. The purchaser can say the title is not marketable.

ii. However, in NY, § 291(e) of NYRPL, an indefinite reference does not constitute by it-self a cloud on the title, and a subsequent purchaser will take free of it. You can’t use it to blow the whistle and avoid taking title.

O. Parties Protected by the Recording Laws

1. Purchaser for Value

a) A grantee receives the benefit of the recording act only if he gives value for his interest. An earlier unrecorded conveyance is “void against any subsequent purchaser in good faith and for a valuable consideration.”

i. O gives A a deed, doesn’t record. O borrows money from B. B attaches property, gets a judgment, property sold, and B buys at the sale. B is a subsequent purchaser, so he should be protected under the recording laws. A lot hinges on local law.

2. Creditor

a) O conveys to A; A does not record. O borrows money from B. (B does not get a mortgage, if he had there would be no problem, because a mortgagee is protected by the recording laws). B may have been misled by A’s failure to record, B might not have lent O the money, if he thought that O didn’t have sufficient collateral. B attaches the property and gets a judgment. Will B have protection?

i. DEPENDS ON DIFFERENT JURISDICTIONSa. When B gave his loan he did not acquire an interest in the property, if the

statute says a subsequent purchaser might be able to cover a mortgager but probably not a creditor.

b. Some jurisdiction will protect a judgment of a creditor. If the statute protects any “person” it will be easier to protect the creditor.

b) O borrows money from B, then O gives to A who doesn’t record. Jurisdictions may not pro-tect the creditor, because when he loaned money there was no deed to A, and he can’t argue that he was misled.

3. Tenant

a) O gives A a deed in a notice state and A doesn’t record. O gives B a lease. B is unaware of A’s unrecorded deed. For purposes of recording laws, a tenant should be protected; a subse-quent tenant who has no notice of the prior unrecorded deed should be protected.

b) The common law had the rule that says buyers beware—basically the common law enunci-ated a rule that when you lease premises you are in essence a purchaser, and you are buy-ing an interest in the property...you are a purchaser.

i. A landlord leases a building and the adjoining land to the tenant, and the lease is silent on the point, but the building is burnt down. The early common law would say that the tenant got a tenancy for a term of years, and he still has the tenancy and rent should be paid.

c) The subsequent tenant must be bonafide and must be without notice.

4. Donee

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a) O gives A deed, A doesn’t record. O gives gift to B. As between A and B, B will not be pro-tected. B does not give valuable consideration, A BFD does not prevail in the area of per-sonal property or real property. A donee should be protected only if there is detriment.

5. Consideration Required

a) Unless the consideration is grossly inadequate, for example, if property is worth 1 million, and B only pays O $1, B will get protection of the recording laws.

b) Pre-Existing Debt

i. O conveys to A, and A doesn’t record. B was a creditor of O’s. He had given O a loan. 3 years later, B says I want a mortgage, and O gives him a mortgage. Is a pre-existing debt sufficient consideration so as to protect B?

a. Under UCC, if a subsequent person extinguishes an antecedent debt it is valuable consideration unless it is entrustment and you are not a buyer in the ordinary course of business.

b. However, the real property law doesn’t have to follow UCC. If O conveys to B, and the consideration is extinction of preexisting debt, then B if he loses, has not given anything up. If we say that B has not prevailed, B can go back to O and say that my debt is reinstated because there is no consideration.

ii. If O gives B a mortgage and the consideration is the preexisting debt, and as part of the terms, B says I will extend the loan in exchange for the mortgage, he has given valuable consideration and he would be a BFP.

IX. ESTATES IN LAND

A. Estates in Land

1. Estates

a) An estate is the amount, degree, nature and quality of a person’s interest in land or other property.

b) It is the type of right or title that a person has in land or real property. c) It is a shorthand way of describing the extent or the nature of his or her ownership. Its chief

incident is the right to possession.

2. Two Categories

a) Real estate interests are divided into two categories

i. Freehold Estates

ii. Non Freehold Estates

3. Freehold Estates Generally

a) Seisini. At medieval common law, a freehold estate was created by livery of seisin.

a. Livery of seisin is a ceremonial act in which the grantor would come on the property with the grantee and physically hand a piece of the property (a twig, etc) to the grantee. (kinyan Suder)

ii. Interests in freehold estates are created by the grantee getting seisin of the property.a. Seisin is possession of a freehold estate in land; ownership.

iii. Common law mandated that seisin be in a person at all times. a. It can’t be up in the air.

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b. Common law doesn’t permit the seisin to abruptly shift up and go to another person, because it will confuse the overlord and prevent him from collecting feudal taxes.

b) There are 3 types of Freehold Estates.

i. Fee Simpleii. Fee Tailiii. Life Estate

c) Each freehold estate can be held absolutely, or be qualified or limited in one of three ways:i. It can be determinable on some stated event or be subject to a condition subsequent

(returning possession to the grantor) or an executory interest (giving the possession into the hands of some transferee).

ii. The freeholder has the right to possession with seisin.

d) The common law measured the size of the estate in terms of its duration.

4. Non-Freehold Estates Generally (No Seisin)

a) Tenancy for Yearsi. Tenant does not have seisin, but possession. Tenant’s possession is deemed to be

on the behalf of the landlord.

b) Periodic Tenancyi. A tenancy that is automatically renewed at the end of each period (month to month) if

neither party has decided to terminate it.

c) Tenancy at Willi. A tenancy at will is a tenancy that has no stated duration and may be terminated at

any time by either party.

d) Tenancy at Sufferance

i. The tenancy at sufferance exists only in one limited situation: that in which a tenant holds over at the end of the lease. This tenancy is extremely insubstantial; it will end as soon as the landlord exercises his option either to evict the tenant or to hold him to another term.

a. O leases to T for 5 years. The clock strikes 5, but the tenant does not move out and holds out. The only difference between him and a trespasser is that his entry was permissive.

B. Words of Purchase and Words of Limitation

1. The common law drew a distinction between words of purchase and words of limitation.

a) Words of Purchase identify who is purchasing or receiving (i.e. “to A”).

b) Words of Limitation define the property interest – the scope and duration of the estate (i.e. “and his heirs”).

2. Examples of Words of Purchase and Words of Limitation

a) O conveys to A for ten years, remainder to B for life, remainder to the First Baptist Church, its successors and assigns, so long as the premises should be used for church purposes.

i. A has a present possessory estate for a term of years. B has a vested remainder for life. The church has a vested remainder in FSD, and O has the possibility of reverter.

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a. The words ‘to A” are words of purchase indicating that A gets a present pos-sessory interest. For “10 years” are words of limitation defining the scope and interest of A’s present possessory estate.

1. The current title is in A, an A has the right to possession for a term of years. A only has possession, and has no claim of a freehold estate.

b. The word “remainder” is a signal that B gets a future interest at some future date. “To B” are words of purchase and “for life” are words of limitation. B will get a future estate for life—a vested remainder in B for life.

1. A future interest is deemed vested if it is ready to take effect/posses-sion whenever and however the prior estate terminates. Whenever A’s estate terminates, B will be ready to take possession.

c. The “remainder” is a future interest in favor of 1st Baptist Church, “its succes-sor and assigns” are words of limitation, giving the church a FEE SIMPLE. These words of limitation are modified by conditional language. The church does not take a FEE SIMPLE ABSOLUTE, the words of condition make the church’s interest a FEE SIMPLE DETERMINABLE.

1. Even though the church is in existence indefinitely, there is a possi-bility that the land may be used for other purposes, upon breach of the condition, the church’s interest will terminate.

2. If the church’s title is terminated title will go back to O. O had a FEE SIMPLE ABSOLUTE, and he has not given a FEE SIMPLE ABSO-LUTE in anyone.

b) O conveys to A for life, and then to the heirs of B.

i. A has a present possessory life estate. B’s heirs have a contingent remainder, and O has a reversion in fee simple subject to being divested by B predeceasing A. In such case, B’s heirs would have a vested remainder in FEE SIMPLE ABSOLUTE.

a. “To A” are words of purchase indicating that A takes a present possessory in-terest. “For life” are words of limitation defining the duration and scope of A’s estate, and A has a present possessory life estate.

b. “and then to the heirs of B” are words of purchase indicating that the heirs of B take an interest in the property.

c. The heirs of B have a contingent remainder (contingent since they aren’t known or ascertained). Although there are no words of limitation, the courts will read words of limitation “and their heirs” as if the words had been in the conveyance so the heirs will be given a FEE SIMPLE ABSOLUTE.

d. O has not given away everything that he had. The common law will measure this by “O gives away everything he has if he has created as many vested estates as he had.” O only created 1 vested estate.

e. If A predeceased B, the property would revert back to O since there would be no “heirs of B” at A’s death. The seisin to the property goes back to O. When B subsequently dies, we do not permit the seisin to spring out of O, because the doctrine of the destructibility of contingent remainders kicks in. The con-tingent remainder would be destroyed if it does not vest at or before the ter-mination of (the preceding) A’s life estate, and the heirs of B will never get the property.

c) O conveys “to A and his heirs, but if A shall die without issue living at the time of his death, to B and his heirs.”

i. A has a present possessory fee simple subject to a shifting executory interest in FEE SIMPLE ABSOLUTE in B.

a. The words “to A” are words of purchase indicating that A takes a present possessory interest in the property. “And his heirs” are words of limitation, and if they stood alone they would be a FEE SIMPLE ABSOLUTE.

b. “But if A dies without issue” are conditional words. A’s fee simple is subject to being cut short if he dies without lineal descendants.

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c. The words “to B” are words of purchase, B has a future interest and B will take a FEE SIMPLE ABSOLUTE.

3. Indefinite and Definite Words of Limitation (Failure of Issue)

a) Indefinite failure of issue specifies that if at any remote point of time in the future condition takes effect, title is to go to a third party.

i. O owns a FEE SIMPLE ABSOLUTE and gives it to A and his heirs, but whenever there is a failure of issue living at A’s death, title shifts to B and his heirs.

a. A has a FT, and B has a remainder in FS, subject to disentailment by A.1. The language suggests that A’s title is going to terminate whenever

there is a failure in his lineal descendents.2. Whenever an indefinite construction is adopted, the words of limita-

tion should be construed as creating a FT, as opposed to a FS, be-cause a FT is inheritable only by lineal descendents.

3. B would have a vested remainder to take when A’s lineal heirs runs out, and when B takes he will take a FS, not a FEE SIMPLE ABSO-LUTE, because if A has a FT, then A can disentail into a FEE SIM-PLE ABSOLUTE and wipe everyone out.

b) Definite failure of issue specifies a particular point in time that the condition must take effect.

i. O owns a FEE SIMPLE ABSOLUTE and gives to A and his heirs, but it A dies without issue to B and his heirs.

a. If this is viewed as a definite limitation, then A gets a FS subject to a shifting executory interest in FEE SIMPLE ABSOLUTE in B.

b. If this is viewed as an indefinite limitation, the A gets a FT, and B has a vested remainder, subject to disentailment.

4. In the case of a will, the court will construe the words in a way to effectuate the wishes of the dece-dent. If a testator dies, leaving real estate to A, a court may construe that there was an intent to give A a FEE SIMPLE ABSOLUTE.

a) Jackson v Schultz i. Testator is married to 2d wife. She has children by a prior marriage. The testator in

his will gives his property to his loving wife and to her heirs and assigns forever. The wife predeceases the husband.

ii. At common law and today, if a beneficiary under a will predeceases the testator, the share lapses (it fails). There is a condition in any will that the beneficiary survives the testator.

a. There are anti-lapse statutes in NY that may cure the problem, but the statute does not apply with gifts to spouses.

iii. The court said the phrase “and her heirs and assigns” were not to be construed solely as words of limitation, b/c we don’t need words of limitations to create a FS. The court construed it as saying “to my wife OR her heirs and assigns” and deemed this as words of purchase indicating that her heirs take an interest in the property.

iv. This case indicates how the court can play with words of limitation and words of pur-chase to get a certain result.

C. Fee Simple

1. A fee simple is an interest in land that has the possibility, of enduring until the current holder dies without heirs.

a) A “fee” is an estate that may either be of infinite or of uncertain duration. “Simple” distin-guishes this estate from a “fee tail”—an estate limited in its alienability and descendability to a specific bloodline.

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b) The “fee simple” is both alienable and inheritable.

2. There are four types of Fee Simples:

a) Fee Simple Absolute

b) Fee Simple Determinable

c) Fee Simple Subject to a Right of Entry

d) Fee Simple Subject to an Executory Interest

3. No new estates can be created, if a deed or conveyance attempts to do so, the court will generally treat the conveyance as establishing one of the conventional estates.

a) Johnson v Whitoni. Facts: O devises land “to my granddaughter Sarah and her heirs on her father’s

side.” Sarah tried to sell the property, but the buyer repudiated because Sarah couldn’t sell a FEE SIMPLE ABSOLUTE.

ii. The court held that O’s attempt to create a “fee simple special” was void, because you cannot create a new type of fee simple. Rather than following the Massachusetts law that said “heirs are heirs” regardless of the limitation, the court held that the testa-tor could not create a new fee simple, and rather than voiding the conveyance and giving Sarah nothing, the court says she gets it all.

a. Holmes never addresses the testator’s intention that the heirs on Sarah’s mothers side should not take in case Sarah died intestate. O probably did not have an intention to impede Sarah’s intervivos transfer of the land.

b) There are ways to draft a conveyance, such as by giving a life estate, or limiting the heirs to one side of the family, without creating a new estate.

i. O could have conveyed the land “To Sarah for life and then to the heirs on her fa-ther’s side.” The heirs would not be taking from Sarah, but from O. “Heirs on her fa-ther’s side” would be words of purchase and limitation, giving Sarah a life estate, and the heirs a contingent remainder in FEE SIMPLE ABSOLUTE.

ii. Sarah could be given a life estate with the power of sale. If Sarah sells the property, Sarah will have a life estate in the proceeds, and the remainder in the proceeds would go to the heirs on her father’s side.

iii. O could also have given Sarah a life estate with discretion. “To Sarah for life, and Sarah in her will can give it to any of the heirs on her father’s side.”

D. Fee Simple Absolute

1. Duration

a) The FEE SIMPLE ABSOLUTE is the largest estate at common law, because of its potential to last forever . . . A conveyance from O to A and his heirs.

b) Even though we call the estate a FEE SIMPLE ABSOLUTE, Blackstone agreed that the term absolute never means that O is the absolute, sole despotic owner.

i. O can use the estate in any way he wants, but he is not the sole despotic owner, be-cause there may be easements, zoning laws, etc.

ii. Additionally, if O owns a FEE SIMPLE ABSOLUTE and he is married, the estate is subject to a claim of dower, curtesy or an elective share.

2. Alienability

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a) A FEE SIMPLE ABSOLUTE is freely transferable, and the owner of a FEE SIMPLE ABSO-LUTE can transfer as much of his interests (all) or as little of his interest (life estate) in the land as he wants.

3. Inheritability

a) A FEE SIMPLE ABSOLUTE is inheritable by collateral and lineal heirs.

i. O owns a lot of land in FSA. This is the biggest possible interest one can own. If O dies, the land will be inherited by his lineal (children, spouse) and collateral heirs (sib-lings).

ii. If O does not have any natural blood heirs, the state will step in.

4. Words Used

a) In order to create a FEE SIMPLE ABSOLUTE at common law, particular words of limitation “AND HIS HEIRS” must be used.

i. The deed to A must say, “I, O, am giving my interest in the property to A and his heirs.” If those words were not used, A would not get a FSA at common law.

ii. If he just said “To A,” using only words of purchase, A only gets a life estate.

b) The common law carved out exceptions where words of limitation in an intervivos transfer of a FEE SIMPLE ABSOLUTE are not necessary.

i. A and B own property in FSA as joint tenants with a right of survivorship. While A is alive, A releases all of his interests in the property, and gives it to B, not to B and his heirs. B will still get a FSA, because at common law, each of the joint tenants owned the whole, and A is not creating something in B, but he is transferring his interest . . . A is not giving anything but merely dropping out.

ii. O owns a FSA and conveys to C corporation, (to the corporation and its successors and assigns is the equivalent of heirs.) If the language is not used, the corporation will still get a FSA, because a corporation has an indefinite existence.

iii. O owns a FSA and gives A and his heirs the western half of the property, but keeps the eastern half. O retains a FSA in the eastern half, because he is not creating any-thing, he is only retaining what he has. Only when you are creating something are words of limitation required.

iv. When conveying property to a trustee, courts will construe the deed to effect the purposes of the trust and the trustee will get a FSA.

c) Today, if O owns property in FSA and gives a deed “To A,” the normal presumption is that A winds up with everything that O has. If A is to get something other than a FSA, then there must be some words indicating otherwise . . .a transfer is assumed to convey the largest es-tate the grantor had unless the language in the conveyance expresses a contrary intent.

E. Fee Simple Determinable (FSD)

1. Duration

a) A FSD is an estate that would be a FSA but for a provision in the transfer document that the estate shall automatically go back to the grantor upon the happening of a stated event.

2. Possibility of Reverter

a) A FSD will automatically end and revert to the grantor if some specified event occurs. The fu-ture interest retained by the grantor is called a possibility of reverter.

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i. O owns FSA and gives property to A and his heirs, so long as bananas are not con-sumed on the premises. A’s estate could potentially last forever, yet it is subject to a condition that could terminate the interest. A’s estate is a FSD. If bananas are con-sumed, A’s legal title terminates and title goes back to O. O has retained a possibility of reverter. If O dies, the possibility of reverter is an inheritable and transferable in-terest.

b) The possibility of reverter is subject to statutes of limitations, and the grantor may be barred from bringing an action.

i. Since title automatically reverts to O, the statute begins running immediately.

c) The possibility of reverter is exempt against the rule of perpetuities. Regardless of when the condition is breached, it will go back to O. If A dies without consuming bananas, the heirs will get a FSD. The condition is still on the property.

d) The future interest retained is not a reversion, because reversions are always vested estates and this estate is contingent.

3. Words Used

a) The words typically taken as a sign of the intention to create a FSD, when used to introduce the terminating event, are “so long as,” “during,” “while,” “unless,” or “until.”

b) Absent words indicating an intent to make the fee subject to this automatic termination, the language indicating the use to which the grantor intends the property are merely an indication of the grantor’s intent, but doesn’t control the type of estate conveyed to the grantee.

F. Fee Simple Subject to a Right of Entry (FS/RE)

1. Duration

a) A FS/RE would be a FEE SIMPLE ABSOLUTE were it not subject to a power in the transferor or his heir to end the estate upon the happening of a state event or non-event.

2. Right of Entry

a) A FS/RE is an estate subject to the grantor’s power to end the estate if some specified event happens. The future interest retained by the grantor is called a right of entry.

i. O owns a FSA and conveys property to A, but says if bananas are consumed on the premises, O and his heirs may reenter and retake the premises.

a. In FSD, the breach of condition automatically reverts the title to O. b. A FS/RE does not automatically revert title to O, O has an option to exercise

the right of re-entry . . . he has to elect to take title back by bringing an action for ejectment. But until O exercises this option, title remains in A.

b) O has a future interest known as a right of entry, also exempt against the common law rule of perpetuities, so whenever the condition is breached, O’s heirs will have an interest.

i. The court in Rice v Wooster Railway created a strange rule that a right of entry re-sembles a cause of action.

a. The common law did not sanction the transferability of causes of action. Con-sequently, the common law said if you own a right of entry, and you try to give it away intervivos, the conveyance is a nullity and the right of entry is de-stroyed.

c) The right of entry is subject to the statute of limitations, and the grantor may be barred from bringing an action for ejectment.

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i. In a right of entry, there is not an automatic return of title, but an option to regain title. Therefore the statute does not begin to run until the option is exercised (this is the key distinction bet. FSD and FS/RE). Case law says that the option must be exer-cised within a reasonable time of the breach.

ii. Another distinction is that FS/RE could be waivable if the right of entryway is not ex-ercised in a reasonable amount of time.

3. Words Used

a) The usual words introducing the terminating event and which are used to signal an intention to create this type of estate are “provided that,” “but if,” “on the condition that,” or words of similar import.

4. The Possibility of Reverter, Right of Entry and Covenant

a) Possibilities of Reverter, Rights of Entry and Covenant all place restriction all land, but the remedies are different.

i. O sells property to A, and says A must agree that there will not be a factory on the land. If A breaches, and the restriction is phrased in terms of a contractual undertak-ing, damages or an injunction will be the appropriate remedy. However, in the case of a reverter or a right of entry, O gets title if the condition is breached.

b) The law does not favor a construction that results in a forfeiture of title, so if ambiguous, the court will construe the words of condition as contractual undertakings, rather than words of limitation.

i. Northwestern Medical School was given a deed to land with a condition that the land had to be used for a hospital. NW did not want to maintain the hospital, so if they breach, and the deed was a FS determinate, the deed would automatically go back to the grantor but they wouldn’t have to comply. But if FS R/E, the Grantor might have contractual undertakings that can force NW to maintain the hospital through Specific performance (a liquidated damages clause).

G. Fee Simple Subject to an Executory Interest

1. Duration

a) A FS/EI provides for the estate to pass to a third party (someone other than the grantor) upon the happening of a stated event.

b) This is in distinction to a FSD and FS/RE where the estate will return to the grantor or his heirs when the stated event occurs.

2. Springing Executory Interest

a) The executory interest takes effect by divesting the transferor or his successor in interest of beneficial enjoyment.

i. O owns property in FSA. O gives FSA to A and his heirs from and after the time that Z jumps over the Empire State building. Until that occurs, the legal title remains in O. In the event that the condition is met, the title springs out of O and goes to A. O has a FS subject to a springing executory interest in favor of A in FSA.

3. Shifting Executory Interest

a) An executory interest that follows a vested fee simple is called a shifting executory interest.i. O has FSA, and gives title to A and his heirs, and if the Red Sox win the pennant in

A’s lifetime, the title is to shift from A to B and his heirs in FEE SIMPLE ABSOLUTE.

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It is a fee simple with a condition. A’s interest is a fee simple subject to a shifting ex-ecutory interest. Present interest and enjoyment is in A, and future interest is in B.

4. Not Allowed at Common Law

a) At early common law, the only estates that could follow a fee simple were the possibility of re-verter and the right of entry. The FS/EI, insofar that it would cause the seisin to shift to a third person was illegal and B’s interest was null and void .

b) However, the Statute of Uses (enacted in 1536) made such shifting interests feasible.

5. Subject to Rule of Perpetuities

a) Even though the law permits springing and shifting executory interests, they are subject to the rule of perpetuities.

i. Rule against Perpetuities—A common law rule prohibiting a grant of an estate unless the interest must vest, if at all, no later than 21 years after the death of some person alive when the interest was created.

ii. If O said to A and heirs, if Red Sox ever win, B’s interests would be null and void un-der the rule against perpetuities. What possibility could exist—all lives and beings could all die and 21 years later the red sox might not ever winning the pennant, after all these people have died and 21 years have past, B’s interest would vest too late. The shifting interest would be void and A would wind up with a FSA.

H. Fee Tail

1. Duration

a) A fee tail is smaller than a fee simple.

2. Inheritable

a) A fee tail is inheritable only by lineal descendents (not collateral)

i. “To A and the heirs of his body.” A’s lineal heirs (his children etc.) will inherit the prop-erty on A’s death.

ii. If there are no lineal heirs, O will get the property back. O retained a reversion in FSA, since O gave away less than he had.

b) If A does not disentail, and has multiple lineal descendents, the court in White v Thayer held that the doctrine of primo genitur applies, and the oldest male child will prevail. The Massachusetts statute says that the children will share equally life estates and fee simples, but the statute doesn’t mention fee tails.

3. Words Used

a) The words needed to create a fee tail are ones which indicate that the property is to pass only to the issue of each tenant in tail (not to collateral heirs such as siblings) and the property is to revert to the grantor is the line of descent runs out.

b) The common way of doing this is a grant “to A and the heirs of his body.”

4. Fee Tail Estates

a) Fee Tail General: A was married to two women M and S. Children from both marriages will qualify as lineal heirs.

b) Fee Tail Special: To A and the heirs of his body by his wife M limits the lineal heirs to children of A and M.

c) Fee Tail Male/Female General: To A and the male/female heirs. d) Fee Tail Male/Female Special: To A and his male/female heirs by M, etc.

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5. Disentailable

a) The two major themes in property law – 1) property should be marketable and freely alien-able, and 2) if a person owns property, he should be able to perpetuate his ownership by al-lowing it to pass from generation to generation—play themselves out in the context of a fee tail estate.

b) The holder of the fee tail can disentail the property by conveying his interest in Fee Simple Absolute to a third party, who takes it in Fee Simple Absolute; that third party is often the en-tailed owner’s attorney, or someone who is bound to convey it right back in Fee Simple Abso-lute.

6. The Fee Tail Today

a) Six states adhere to the common law rule that a conveyance to A and the heirs of his body, is a fee tail, and A can disentail by a simple conveyance out. (Massachusetts)

b) Connecticut takes the view that A would get a life estate with the legal characteristics of a fee tail (duty of preservation, not liable for waste, etc). A’s estate only lasts for his lifetime, and on his death, the lineal descendents inherit a FSA.

c) Illinois says that A gets a life estate, which has the characteristics of a life estate, and the lin-eal heirs get a FSA.

d) Alabama says that A takes a FSA and there is no such thing as a FT.e) In New York, Article 6-1.2 of the EPTL states that if “to A and the heirs of his body” is the

only language of conveyance, then A will take a FSA. When the grantor purports to convey a future interest in B in FSA (to A and the heirs of his body and then to B and his heirs), A’s es-tate will have characteristics of FS, if A dies without lineal descendents, then the property goes to B, however, if A dies leaving lineal descendents, they get a FSA.

f) South Carolina follows the common law rule of a fee simple conditional. A, in essence got a fee simple, and if a child was born to A, a condition is fulfilled, and A has the ability during his lifetime to convey a FSA out. If A had a child born to him, he could alienate the property while he was alive and create a FSA. If he did not sell it, the child would inherit this. If A died with-out children and no descendants, the property would go back to O. If you have a child born you have the ability to convey it in FSA.

I. Life Estates (Legal and Conventional)

1. Duration

a) The life estate is the shortest freehold estate in duration.

b) It’s a freehold estate since does not last for a fixed or computable period, but it cannot last longer than the life or lives of more than one person.

c) If however there is a fixed ending point for the estate, even if it will definitely be for his whole life, it is not a LE, but a non-freehold estate.

i. i.e. to A for a 1000 years if he so long lives.

d) It only lasts for the life of the grantee and then either goes back to the grantor or his heirs (as a reversion), or to a 3rd party chosen by the grantor at the time the life estate was created (as a remainder).

2. Alienability

a) While nondevisable and nondescendible, it is alienable: many interests can be created within it, but any interest carved out of it ends at the death of the life tenant.

b) The life interest can be transferred, but the life tenant cannot give more than he has.

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i. If O says to A for life, A can transfer his life interest to B, and B would have a life in-terest pur autre vie of A.

ii. O conveys property to A for life, and upon A’s death, it is to go to A’s children, which he doesn’t have. At this point, A is 25, and the property contains a valuable store. A commercial tenant wants to move in the store and sign a 25 year lease, but they need some assurance that the property will be available. A can give T a lease for 25 years, and if A dies, then T’s interest dies. A cannot give an interest larger than his life. A should lease the premise for 25 years, and have T take out insurance in case of A’s death. This is not perfect remedy, because T would not have possession.

a. This hypo illustrates the undesirability of creating, legal, non-trust estates, where you create a present interest in one person, and a remainder in oth-ers.

3. Problems with Life Estates

a) A life tenant owes a duty to reasonably preserve the land and not to impair future interests.i. He is not obliged to make expenditures for repairs or to pay taxes beyond the profits,

rent or income earned by the land.ii. His obligation to make mortgage payments is limited by the fact that he only has to

pay the interest to the extent of the income generated.

b) Consequently, disputes may arise about who pays for certain repairs of the premises.

c) It is unwise to create legal life estates today. A transfer in trust may mitigate many of the problem associated with allocating the burden to preserve the life estate.

i. A trustee can make all of these decision in an objective manner.ii. The only time a life estate without a trustee will be created is if we have a family

dwelling and the owner of the life estate is the surviving spouse, and after the spouse dies it will go to the children.

d) In creating future interests, we suggest very strongly the desirability of a trustee, so that the land will be held in trust for A and then B, and all potential problems will be taken care of by an objective third party.

4. Legal Life Estates (By Operation of Law)

a) Tenant in Tail After Possibility of Issue is Extinct (TITAPIE)i. O gives property to A and heirs of body by his wife M. (A fee tail special). If M dies

without children, nobody can inherit the fee tail. A becomes a TITAPIE and A’s estate will only last for his lifetime. At his death, title goes back to O.

b) Dower and Curtesy (Incidental to the Marital Relationship)

i. Dower and Curtesy BOTH:

a. Require a marital relationship and a surviving spouseb. Are limited to real estate (not personal property or choses in action)

1. H and X are partners in business and own real estate. H dies. The partnership owns the real estate. A partner’s interest in the real es-tate is limited to owning an interest in the partnership, he doesn’t have a right to a specific segment in the property.

a. Neither partner owns an interest in real estate. If H dies, W does not get dower.

b. If the partnership is dissolved, he does get a share of the property, but he doesn’t get the real estate. H’s right is to a share of the proceeds, not the land itself. (§25e of Uniform Partnership Act)

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c. This suggests an interesting use of a corporation to defeat a dower claim.

c. Require the deceased spouse to own an inheritable freehold estate (FSA or FT)

1. If H dies having owned a Life Estate, W will not get dower.

ii. Curtesy

a. Curtesy is a life estate in everything for the surviving husband, including legal and equitable estates.

b. Curtesy had a condition affixed: there needed to be children from the mar-riage. No children, no curtesy.

c. Today, the tendency is to treat curtesy like dower.

iii. Common Law Dower

a. Dower is limited to 1/3 of the real estate owned during the marriage by the deceased spouse. Dower only applies to legal estates.

b. The deceased spouse does not actually have to own the property at death. Dower relates to any property owned during the marriage.

1. In Massachusetts, dower is limited to real estate owned by the spouse at the time of death—the statute is retroactive

2. The wife would have to authorize the husband’s transfer of any prop-erty and release her dower claim, before the husband could transfer property.

c. There must be a valid marriage between the decedent and the surviving spouse.

1. There cannot be a void marriage, such as one prohibited by the state (marriage among family members)

2. If the marriage is not void, but voidable (i.e. for fraud), until it is avoided, there is a valid marriage and dower (annulment)

d. The deceased spouse has to be seized of the property at death

1. Common law said that the deceased spouse’s seisin had to be sole with sole beneficial possession.

i. If H owned property with X as a joint tenant with a right of survivorship, H’s seisin is not sole, X will take by right of survivorship, and W will not take dower.

ii. If H and X owned the property as tenants in com-mon, if H dies, W will get dower, because there is no right of survivorship.

iii. By a tenancy by the entirety, there is no point to elect for dower since W gets everything anyway.

iv. If H was a trustee in property, W gets no dower since H had no beneficial possession.

2. H must have seisin in a freehold estate, and it must be inheritable by the children of their marriage.

a. O conveys to H and the heirs of his wife M. H and M divorce. H marries S. M dies.

i. H’s second wife S cannot get dower, because the FT was not inheritable by the children of H and S’s mar-riage. H is a TITAPIE.

b. O conveys to A for life, and then to B and his heirs.

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i. A’s widow will not get dower, because all she had was a life estate, and a life estate is not inheritable.

ii. If B dies before A, B’s widow will not get dower, be-cause B did not have seisin, but a future interest.

iii. If A dies before B, then B’s wife would get dower.

c. O conveys to A for 10 years and then to H and his heirs. i. If H dies before the 10 years, H’s widow will still get

dower because seisin had to be in someone at all times. Seisin can’t be in A because A doesn’t have a freehold estate – he is considered a tenant of H.

ii. A term of years is not a freehold, and seisin has to be in someone, so it will be in H. H owns the prop-erty subject to A’s term of years.

e. Divorce but not misconduct will terminate the right to dower

1. If the spouses have a falling out and get divorced, at common law, in absence of a statute, divorce will terminate a right to dower, and once there is divorce, there is no dower.

2. W commits adultery. H brings an action for divorce, and before the divorce action is heard, H dies. There was misconduct but no divorce

a. In the absence of statute, common law says that misconduct on the part of the surviving spouse does not terminate dower. The conduct may be grounds for divorce but alone is not enough to terminate dower.

f. A breached condition may terminate dower.

1. O conveys to A and his heirs, but if bananas are consumed on the premises during his lifetime, to B and his heirs. A breaches the con-dition.

a. A’s interest is terminated, and W’s dower may be condi-tional. However, it could be argued that A had seisin in an in-heritable freehold estate, and W should get dower.

g. What if there is a mortgage?

1. H owns property. H borrows money from B, and gives B a mortgage. Then H marries W. H dies.

a. At common law, when a person mortgaged the property, the mortgagor is transferring the legal title to the lender. (Title theory) It is a title given on condition that if the mortgage is paid off, title will come back to O.

i. H was said to have equitable title. Since H has only equitable title, W cannot get dower out of an equi-table interest.

b. Today we view the mortgage as a lien (lien theory) so she will get dower subject to the lien.

c. If W was married to H before H borrowed the money, W will get dower w/o the lien unless W consents to the mortgage, making her dower claim subordinate to the mortgage.

i. Some states say that W would get dower subject to the mortgage automatically.

d. B gets legal title, but B’s wife does not get dower because the common law was weary that title passes to mortgagee—it was a conditional title.

2. The promissory note for a mortgage is a chose in action, and the rights of the individuals are determined by the type of the property

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and dower is limited to real estate. (The wife of the mortgagee will not get dower because he only has a claim of a chose in action. Un-less the mortgage was given before they got married, then the wife of the mortgagee could get dower subject to the terms of the mort-gage.)

iv. Marital Estates Today

a. Today in every jurisdiction, a surviving spouse is given the elective share (the statutory forced share).

1. It is not limited to real estate—it can be satisfied out of personal property and choses in action.

2. The elective share applies to property owned at the moment of death, it may also apply to testamentary substitutes, such as a revo-cable trusts, joint ownerships.

3. Today in NY, the elective share is 1/3 outright of all assets owned by deceased spouse, unless there has been a waiver of the elective share.

a. NY (190 RPL) abolished dower and curtesy and only made available the elective share.

b. But in some states, there is a combination of remedies. They give a surviving spouse dower or curtesy or the ability to elect a elective share.

1. The one you elect is dependent on the nature of the property and the age of the person.

c. If the property cannot be divided, then she will receive the present value of 1/3 of the future value of the property and the future income.

5. Conventional Life Estates

a) Life Estates Created by Acts of Parties (Terms of Deed/Agreement)

i. Duration

a. O owns property in FSA and conveys it to A for life. The estate lasts for a long as A lives. A is the beneficiary and his lifetime is the measuring stick for the estate. When A dies, O gets a reversion in FSA.

ii. Life Estate Pur Autre Vie

a. A life estate pur autre vie is measured by the life of some person not the holder of interest.

1. “To A for the life of B”. If B dies before A, A’s life estate terminates and reverts back to O.

b. If the holder of the life estate pur autre vie predeceases his or her transferor, the heirs of the holder can inherit, but what they obtain will still only last as long as the measuring life lives.

1. O conveys to A for the life of B. B is just a measuring stick, his life determines how long A will enjoy the property. If B dies, A’s interest reverts to O. If A predeceases B, A’s estate at common law was not an inheritable interest, a common occupant would get the interest—the 1st person who entered into possession got the property for the balance of B’s lifetime.

a. Nowadays, if A predeceases B, it is an inheritable estate, and A’s heirs will inherit the property for the balance of B’s lifetime.

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2. If O gives to A and his heirs for the life of B. The common law saw these words not as words of limitation, because it would create a contradiction allowing A to have a FS for the life of B. It was con-strued as words of purchase, giving interest to heirs of A, not by in-heritance but directly from O. Then this would not be included in A’s estate tax, because the heirs are getting directly from O.

a. If we take the position that they inherit from A, it is includable in A’s estate, if it is taken from O, not included in estate. The estate tax consequences for the same conveyance may vary from state to state, even though it is a national statute we may get lack of uniformity depending on how local state law treats the interest (as inheritable or not)

3. 6-1.3 EPTL and 13-1.1 EPTL says we treat A’s interest while he is living as an interest in real property, however, if A dies before B, and the interest is inheritable, the interest is treated as personal property. If A in his will says I leave my RP to X and my PP to Y. Y will get the land. The heirs will take without the inclusion of “and his heirs.” If this is inheritable it means it will be included in A’s gross estate for estate tax purposes.

iii. A Life Estate cannot be enlarged into a FS or FT. a. O owns a valuable building that has a big department store as tenant who

wants to sign a new 20 year lease. At this point in time O has already con-veyed it to A for life and then to A’s issue and their heirs. If they sign the lease with A and he then dies, A’s heirs can kick the store out.

1. A solution is for O to instead initially create a trust to hold the title for everyone (A and his heirs) so that the trustee can then commit to a long term lease, since even when A dies, the ownership won’t be in-terrupted.

2. Schwartz says don’t make legal life estate w/o a trust!

X. FUTURE INTERESTS IN LAND

A. Future Interests

1. A future interest may be defined as an interest in property which may be possessed or enjoyed in the future, but which is not currently being possessed or enjoyed. It is the means through which a donor can benefit successive generations of beneficiaries and provide for as yet unborn objects of his bene-faction. It can be used as an instrument of control over the use and enjoyment of the property and the activities of the donees.

a) If H gives all of his property to W, there is no guarantee that she’ll leave it to their children. Maybe she’ll get remarried and leave it to H#2. Creating a FI gives H control.

2. In identifying the nature of the future interest, look at whether you are dealing with the grantor (trans-feror) or a third party, i.e., someone other than the grantor, to determine what kind of future interest you are dealing with.

a) Future Interests Retained in Favor of Grantor or his successor in interesti. Reversion- reverts back to O.ii. Possibility of Reverter (FSD)iii. Right of Entry

b) Future Interests Created in Favor of Third Partiesi. Remaindersii. Executory Interests

Vested interest = If it’s ready to take possession whenever and however prior estates may terminate by an ascertainable person w/o any conditions precedent.

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Contingent interest = If there is a condition precedent of if the beneficiaries are unknown or ascer-tained (i.e. a living person’s heirs, or “the firstborn of A b/f he has children).

B. Future Interests and Estate Planning

1. A future interest may be used as an instrument of control over the use and enjoyment of the property in the future.

a) A donor can do this by retaining a reversionary interest or by creating an executory interest in a third party.

2. A future interest may be used to control collateral activities of the donee.a) A donee’s future use and enjoyment may be conditioned on compliance with the donor’s

wishes.

C. Reversions

1. Requisites of a Reversion

a) A reversion can only be retained in favor of the transferor and the successors in interest to the transferor.

b) It arises when the transferor creates a smaller vested estate than he had to begin with. If one gives away less than he had, something must have been retained. The retained interest is a reversion.

i. O owns FSA. O to A for life. Since O has created an estate of lesser duration, he has retained a reversion.

ii. O owns FSA. O to A and the heirs of his body. A fee tail is smaller than a FSA, O has retained a reversion (if A has no lineal heirs) subject to being completely divested by A disentailing.

iii. O owns FSA. O to A for life. O has a reversion. A conveyed to B for 999 years. At A’s death, the property will revert from B to O. A could not create an estate in B to last longer than his lifetime.

iv. O has a 99 year lease. O to A for life. O has retained a reversion in a term of years. All A acquired was a life estate up to the term of years.

c) A reversion arises where the transferor creates estates that are equal in duration to his if those estates are contingent.

i. O owns FSA. O to A for life, and then to B and his heirs if X marries Y. X hasn’t mar-ried Y yet. Until X marries Y, only one vested estate – the LE in A – has been cre-ated, since B has a contingent remainder. Since A LE is smaller than a FSA O has created less vested estates than he had and has therefore retained a reversion.

2. Types of Reversions

a) All reversions are vested interests. They may be indefeasibly vested or vested subject to di-vestment.

b) Some reversions are indefeasibly vested; the reversioner or his successor in interest is cer-tain to possess and enjoy the property in the future.

i. O owns FSA. O to A for life. O owns an indefeasibly vested reversion in FSA.

c) Some reversions are vested subject to divestment; the reversioner may be prepared to take, but due to subsequent events, the reversion may be divested.

i. O owns FSA. O to A for life and then to B and his heirs if X marries Ya. O owns a reversion which is vested subject to complete divestment if X mar-

ries Y.

D. Possibilities of Reverter and Rights of Entry (See also FS/RE)

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1. Requisites of a Possibility of Reverter

a) A possibility of reverter is the future interest retained in favor of the transferor or his succes-sor in interest upon the creation of a fee simple determinable in another.

i. O owns FSA. O conveys to A and his heirs so long as liquor is not sold upon the premises.

a. If liquor is sold upon the premises, title will automatically revert to O even if A has lineal or collateral heirs.

b) A possibility of reverter differs from a reversion in that it arises from the creation of an estate of equal duration—a fee simple, which can potentially last forever.

2. Requisites of a Right of Entry and How it Differs from a Possibility of Reverter

a) A right of entry is the future interest retained by the transferor or his successor in interest when he reserves the right to regain title upon the breach of a condition.

i. O owns FSA. O conveys to A and his heirs so long as liquor is not sold upon the premises, but if liquor is sold upon the premise, O and his heirs may re-enter and re-take the premises.

b) The possibility of reverter takes effect automatically upon breach of the condition, whereas the owner of a right of entry had an option of re-entering and retaking possession. Until this option is exercised, title remains with the owner of the present possessory estate.

E. Remainders

1. Characteristics of a Remainder (§2.3)

a) A remainder is a future interest that is created simultaneously and by the same instrument of transfer as a prior possessory estate. It is created in a person other than the transferor.

i. O owns FSA. O transfers to A for life, and then to B and his heirs.a. A is given a present possessory life estate. B has a future interest, since B’s

interest and enjoyment does not take effect until A’s life estate terminates. b. B’s future interest was created simultaneously with a present possessory es-

tate in favor of A, and was created by the same instrument of transfer.c. B’s future is a remainder (vested).d. O DOES NOT RETAIN A REVERSION because he created as many inter-

ests as he had before.

ii. O owns FSA. O transfers to A for life. Since O has conveyed away less than he has, O has retained a reversion. A few minutes later, and by a separate deed, O conveys the “reversion” to B and his heirs.

a. Since B’s interests were not created simultaneously by the same instrument of transfer as A’s, B does not have a remainder but a reversion.

b) There must be a prior estate created in favor of a person other than the grantor or his estate. If a prior estate has not been created, the future interest is not a remainder, but an executory interest.

i. O devises Fee Simple Absolute to his son, S, “from and after the time that S attains (and only if he attains) 50 years of age.” S is 30 years old at O’s death. Since O has made no attempt to create an interest which takes effect prior to S’s attaining the age of 50, S’s future interest is a springing executory interest and not a remainder.

c) A remainder cannot be created in favor of a transferor or his successors in interest. If a trans-feror creates a future interest in favor of himself or his successor in interest simultaneously with a prior possessory estate in another, he has retained a reversion and not a remainder. (Doctrine of Intervivos Worthier Title)

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i. O owns FSA. O conveys it to A for life and then to O and his heirs. Even though O ‘s future interest was created simultaneously with the prior estate in A, O has a rever-sion and not a remainder.

d) In order to create a remainder, the prior estate must not be a vested fee simple. If the prior estate is any kind of vested fee simple, a remainder will not have been created. The future interest following any kind of vested fee simple is an executory interest.

i. O owns FSA. O conveys to A and his heirs as long as liquor is not consumed on the premises, but if liquor is consumed on the premises, then to B and his heirs.

a. A ‘s prior possessory estate is a vested fee simple determinable. You can’t have a remainder after a vested fee simple. B’s interest is classified as a shifting executory interest.

1. Although we would classify B’s interest as shifting executory interest, it is null and void under the rule of perpetuities. A may die and the property may be inherited, and the condition may never be breached more than 21 years after the death of everyone living at the date of the instrument.

2. If we limit the term to no liquor during A’s lifetime—limited the opera-tive scope on the condition, there would be no violation of the rule of perpetuities.

3. We strike B’s interest from the conveyance and we are left with a conveyance to A and his heirs so long as condition is not breached.

4. A has a fee simple determinable and O retains a possibility of re-verter, which is exempt from the rule of perpetuities.

a. If this happens, and the jurisdiction permits possibilities of re-verter to transfer intervivos, O by a separate deed could gives his possibility of reverter to B. B could take a possibility of reverter in FSA when the condition is breached without vi-olating rule of perpetuities. We might be able to do with 2 deeds what we could not do with one.

ii. O owns land in FSA and O says, “to A and his heirs, but if liquor is sold on the premises to B and his heirs.”

a. B’s is shifting executory interest and violates rule of perpetuities; so B’s inter-est is null and void. (not a vested interest)

b. This is a conveyance which reads to A and his heirs, and A has a FSD. O doesn’t retain any interest. In the first case “so long as” provides O with a re-verter and O’s interest remains even though B’s interest is struck out. Not here.

e) In the course of becoming a possessory estate, a remainder does not cut short the prior pos-sessory interest. A remainder waits patiently for the normal termination of the prior estate, as opposed to an executory interest.

i. O owns FSA. O conveys it to A and his heirs, but if X marries Y, to B and his heirs.a. A has a present possessory fee simple. Even if A has lineal and collateral

heirs, the estate will terminate if X marries Y and B will take possession. B will not wait until the ordinary termination of A’s estate. Since B cuts short the prior estate, B’s future interest is not a remainder, but a shifting executory in-terest in FSA.

ii. O owns FSA. O conveys it to A for life and then to B and his heirs.a. In the course of becoming a possessory estate, B does not cut short A’s prior

estate. B waits until the termination of A’s life estate before he takes posses-sion. B has a remainder.

f) A remainder takes effect at the termination of the prior estate. If there is an interval between the termination of the prior estate and the future interest taking possession, it is a springing executory interest and not a remainder.

i. O owns FSA. O conveys to A for life, and then one day after A’s death to B and his heirs.

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a. A has a present possessory life estate, and B has a future interest, but it is not a remainder but a springing executory interest.

1. If A dies, the seisin goes back to O for one day. O would have a re-version in fee simple, subject to a springing executory interest in FSA in favor of B. The future interest springs out of O (the transferor) at a future date (one day after A’s death in this case).

2. This is a popular drafting device to avoid the doctrine of destructibility of contingent remainders.

g) A remainder may be preceded by more than one estate.i. O owns FSA. O conveys to A for life, then to B for life, then to C for life, then to D and

his heirs. a. A has a present possessory life estate. B and C have vested remainders for

life. D has a vested remainder in FSA.

h) More than one interest can be created in the remainder.

i. O owns FSA. O conveys to A for life, then B for life, then to C and the heirs of his body, and then to D and his heirs so long as liquor isn’t sold on the premises.

a. A has a present possessory life estate, B has a vested remainder for life, C has a vested remainder in fee tail, and D has a vested remainder in FSD. O retains a possibility of reverter in FSA.

b. If this is operating at common law, C can disentail and convert Fee Tail into FSA, which will terminate all other interests. They will be divested. Acting on his own, C cannot disentail until he has possession of the property.

1. If all a person owns is a future interest in fee tail, in MA jurisdiction, law permits an owner of a future fee tail to disentail if the prior es-tates join with him, but standing alone, C cannot disentail.

2. Vested and Contingent Remainders

a) There are two types of remainders: Vested remainders and Contingent remainders.

i. A vested remainder means that the interest is ready to take possession and enjoy-ment whenever and however the preceding estate terminates.

a. O owns FSA. O conveys it to A for life and then to B and his heirs.1. Since B is ready to take possession and enjoyment, whenever and

however A’s prior estate terminates, B has a vested remainder in FSA.

b. If the interest is vested, the conveyance will avoid certain common law rules, such as the Doctrine of Destructibility of Contingent Remainders and the Rule of Perpetuities, which only apply to contingent interests, not vested in-terests.

1. A for life, but if X marries Y, to B and his heirs. If A dies, B is not ready to take possession and enjoyment, because the condition precedent of X marrying Y has not been satisfied. At common law the doctrine of destructibility of contingent remainders would be in-voked and destroy B’s interests.

c. All reversions are vested. The possibility of reverter and right of entry is also treated as vested.

d. Remainders could be vested depending upon whether there is a condition, and executory interests are usually not vested.

1. It is possible that an interest could start out as a contingent remain-der and be converted to a vested remainder or executory interest. If O conveys to A for life and then to children of B and heirs, B has no children, the children of B have a contingent remainder. If B has a son, the son has a vested remainder subject to an executory interest in favor of his unborn siblings.

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ii. A contingent remainder is not ready to take effect either because there is a condi-tion precedent or because the gift is to an unascertained group of takers.

a. O owns FSA. O conveys it to A for life, and if B marries C (contingent), to B and his heirs. B has not married C yet.

1. A has a present possessory life estate. B has a remainder, because it is created simultaneously by the same interest of transfer. B has a contingent remainder in FSA, because if A died tomorrow, B would not be ready to take. O retains a reversion in FS, subject to being di-vested if B marries C, because the transferor creates less vested es-tates than he had. Once B marries C, B would get a vested remain-der in FSA.

2. A contingent interest can become vested. If A died before B married C, the seisin would revert to O, and the doctrine of the destructibility of the contingent remainder would be invoked. If at common law, the contingent remainder did not vest in interest before the termination of the prior estate, B’s interest is destroyed by the doctrine of destruc-tibility of contingent remainders.

b. O owns FSA. O conveys it to A for life, and then to the heirs of B. B is alive at the date of the conveyance.

1. While B is alive, the heirs of B have a contingent remainder since they are an unascertained group. If A dies and B is still living, B’s heirs’ contingent remainder is destroyed, and O gets a FSA.

a. Until a child is born, the unborn children of B have a contin-gent remainder in FSA. As soon as a child is born, the 1st born child has a vested remainder in FS subject to divest-ment in favor of any future children (since they all take an equal amount, his portion will be reduced) who now have a shifting executor interest in FSA.

c. O owns a FSA. O conveys it to A for life, and if X marries Y, to B and his heirs. A is still alive, and B predeceased A, and X still hasn’t married Y.

1. B’s interest is a contingent remainder. Even though it is conditional in nature, it is not contingent on surviving A.

2. In an instrument, we do not imply a condition of survivorship to a condition unrelated to survivorship.

a. However, a rule of construction will bend to a contrary mani-festation of intent. If O manifests an intention to keep the class open indefinitely, then we do so.

3. The contingent remainder is included in B’s estate for estate tax pur-poses. The fact that it is a contingent estate does not impact inclu-sion in the estate.

b) A vested remainder may be either indefeasibly vested or vested subject to partial or complete divestment.

i. A remainder is indefeasibly vested if it is certain to take effect in possession and en-joyment (either in the remainderman or his successors in interest) and the interest in the remainderman is not subject to being reduced.

a. O owns FSA. O conveys it to A for life, and then to B and his heirs. B has an indefeasibly vested remainder.

ii. A remainder may be vested subject to partial divestment. Such a remainderman is certain to take some portion of the property, but his share is subject to being partially reduced. This occurs where there is a gift to an open class.

a. O owns FSA. O conveys it to A for life, and then to the children of B and their heirs. B hasn’t given birth to any children yet.

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1. A has a present possessory life estate, and the children of B have a contingent remainder in FSA (they haven’t been ascertained yet). O has retained a reversion in FS. O’s reversion is a vested interest, that will be divested as soon as a child is born to B. The first child born will get a vested remainder in FS subject to partial divestment by the birth of more children to B.

a. The class remains open until the date of the distribution to the class, i.e., until the death of A. Any children born to B af-ter that date get nothing.

iii. Remainders may also be vested subject to complete divestment. Even though there is no certainty that such a remainderman may ever take any portion of the property, his remainder is still deemed vested (but subject to complete divestment)

a. O owns FSA. O conveys it to A and the heirs of his body and then to B and his heirs.

1. A has a present possessory fee tail and there is a vested remainder in FS in B subject to complete divestment by A disentailing and ac-quiring a FSA (once A disentails, B’s estate is wiped out b/c you can-not have any interest following a FSA). However, B has a vested re-mainder, because he is ready to take whenever A’s line of lineal de-scendents runs out if the FT has not been disentailed.

c) A remainder which is subject to a condition subsequent is deemed vested subject to divest-ment (i.e. subject to a shifting executory interest). However, a remainder that is subject to a condition precedent is deemed to be a contingent remainder.

If condition subsequent vested remainder subject to divestmentIf condition precedent contingent remainder

i. O owns a FSA. O conveys it to A for life, then to B and his heirs, but if B fails to attain 21, to C and his heirs.

a. A has a present possessory life estate, B has a vested remainder in FS sub-ject to a shifting executory interest in FSA in favor of C and his heirs.

ii. What if both condition precedent and subsequent are used?

a. O owns a FSA. O conveys it to A for life, then if B attains 21, to B and his heirs, but if B fails to attain 21, to C and his heirs.

1. The condition is express in both condition precedent and subsequent form. Edwards v Hammond (§9.5) says that we disregard the con-dition precedent language and we only stress the condition subse-quent, and B would have a vested remainder subject to a shifting ex-ecutory interest in C (i.e. subject to divestment)

b. O owns a FSA. O conveys it to A for life, then to such children of A that have attained 21 and their heirs, but if no children of A attain 21, then to C and his heirs.

1. In Festing v Allen, the court held that the children of A have contin-gent remainders in FSA, and C has an alternative contingent remain-der in FSA. The court said you cannot disregard condition precedent language.

c. How do we reconcile Edwards and Festing when both conditions precedent and subsequent are used (don’t worry about this for exam)?

1. In Edwards, assume A dies and the property is earning income. If you say that B’s interest is subject to a condition precedent of reach-ing 21, we can’t give him the income now and there won’t be a com-plete disposition of the property. By saying he has a vested interest

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subject to divestment, he gets possession right away and gets the in-come in the interim and when he reaches 21 he’ll get it forever. We want certainty. In Festing, the condition was related to the identity of the taker and since we don’t know who to give it to anyway, we re-quire the condition precedent and the children only have contingent remainders.

2. We could also invoke the doctrine of relativity. An interest may be defined as vested or contingent depending on the legal purpose for which a construction is needed. For instances, if the remainder are threatened to be destroyed by the Doctrine of Destructibility of Con-tingent Remainders, we may want to characterize the remainders as vested.

F. Executory Interests §2.13

1. The Use of the Executory Interest in Estate Planning

a) A transferor may want to primarily benefit A, but in the event that certain conditions are not complied with, he may want the property to go to an alternate beneficiary, B. B may be pro-vided for by an executory interest. The executory interest given to B directly benefits B, and may have the indirect effect of controlling A’s conduct.

i. T bequeaths property to his widow outright, but is she remarries, it is to go to B.ii. T devises property to A and his heirs but if A, during his lifetime, sells liquor on the

premises, the property is to go to B and his heirs.

b) A transferor may also wish to create a future interest, but may desire to retain possession and enjoyment in himself until the future estate becomes possessory. He may accomplish this ob-jective by creating a springing executory interest.

i. T devises property to A and his heirs from and after the date that A graduates, if he does graduate, from college.

c) The executory interest is frequently used where an alternative beneficiary dies without leaving lineal descendents.

i. O owns FSA. O conveys it to A and his heirs, but if A dies without leaving issue sur-viving him at the time of his death, then to B and his heirs.

2. Differences between Contingent Remainder and Executory Interest

a) Like a contingent remainder, an executory interest is created in a person other than the trans-feror or his successor in interest.

b) It differs from a remainder in that:

i. There does not need to be a prior estate.a. If no prior estate is created, the future interest is a springing executory inter-

est.1. T conveys to A and his heirs from and after the time that JT jumps

over the Empire State Building. A has a springing executory interest.

ii. If there is a prior estate, it may be a vested fee simplea. A remainder cannot follow a vested fee simple; an executory interest can.

1. O owns FSA. O conveys to A and his heirs so long as liquor is not sold upon the premises during A’s lifetime, and if liquor is sold upon the premises during A’s lifetime, then to B and his heirs. B has a shifting executory interest.

iii. If there is a prior estate, the executory interest may cut it shorta. A remainder does not divest a prior estate. An executory interest may cut it

short.

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1. T bequeaths his property to W and her heirs, but if W remarries to A and his heirs. W was given a fee simple, subject to a shifting execu-tory interest in A if W remarries.

iv. If there is a prior estate, there may be a waiting period between the termination of the prior estate and the taking effect of the executory interest.

a. In order to be a remainder, the future interest must take effect at the termina-tion of the prior estate. If there is a waiting period, it is an executory interest and not a remainder.

1. T devises property to A for life, and then one day after A’s death to B and his heirs. B has a springing executory interest since for one day after A’s death beneficial enjoyment is to return to T, and B’s execu-tory interest succeeds the beneficial enjoyment of the transferor.

G. Doctrine of Destructibility of Contingent Remainders

1. Doctrine of Destructibility of Contingent Remainders

a) A contingent remainder in a freehold is destroyed, at common law, unless it vests at or before the termination of the prior estates (by any means).

b) The doctrine is not applicable to personal property, executory interests or vested remainders.

2. Modes of Destroying a Contingent Remainder

a) Natural Termination

i. At common law, a contingent remainder in a freehold was destroyed if it did not vest at or before the death of the life tenant.

a. O owns a FEE SIMPLE ABSOLUTE. O conveys it to A for life, and if B mar-ries C, then to B and his heirs. A dies and B has not married C yet.

1. B’s interest is destroyed by the Doctrine of Destructibility of Contin-gent Remainders. Until A died, the seisin was in A. When A died, the seisin could not remain up in the air. It couldn’t flow to B b/c he hasn’t satisfied the condition precedent of marrying C. Hence, the seisin reverts back to O, because O has a vested reversion.

2. If B later married C, the common law would not permit the seisin to spring out of O. Consequently, B’s interest, a contingent remainder in a freehold, is destroyed unless it vests at or before the termination of the preceding estate.

3. If however, B married C before the termination of A’s estate, he would have acquired a vested remainder and seisin would have flowed to him upon the subsequent termination of A’s prior estate.

b) Merger

i. A contingent remainder will also be destroyed if it hasn’t vested at or before the time the prior estate is merged into a larger estate. If a man owns two interests in land, the larger interest will swallow and extinguish the smaller one.

a. O owns a FEE SIMPLE ABSOLUTE. O conveys it to A for life, and if B mar-ries C, then to B and his heirs. O owns a reversion in FS. A conveys his life estate to O.

1. O now owns a life estate and a reversion in FS. If A conveys his life estate to O, O will now own two interests in the property. Since the reversion in FS is larger than the life estate, it will swallow the life es-tate.

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2. If B has not married C yet, B’s interest will be destroyed under the Doctrine of the Destructability of Contingent Remainders since it did not vest at the termination of A’s estate. O owns the present posses-sion in FS. O will acquire a present fee simple absolute.

b. (Exception # 1) If two interests are created simultaneously in the same per-son, merger doesn’t occur immediately so as to destroy a contingent re-mainder.

1. O owns a FEE SIMPLE ABSOLUTE. O conveys to A for life, and if B marries C, to B for life, and then to A and his heirs.

a. A’s life estate will not be swallowed up immediately by his vested remainder in FSA so as to destroy B’s contingent re-mainder for life. However, if A conveys his life estate and re-mainder to X, merger will then occur - A’s life estate will be swallowed up and B’s contingent remainder will be de-stroyed. X will wind up with a current FSA.

c. (Exception # 2) Although a fee tail will swallow up a life estate, a fee tail will not itself be swallowed up by a fee simple.

1. O owns a FSA. O conveys it to A and the heirs of his body, and then to B and his heirs if B marries C. B hasn’t married C yet.

a. O has only created one vested estate—the fee tail—and O has retained a reversion subject to divestment (by A disen-tailing and by B marrying C). O conveys his reversion to A. Merger does not occur. B’s estate is not affected.

2. O owns a FSA. O conveys it to A for life, and if B marries C, to B for life and then to D and the heirs of his body. A conveys his life estate to D.

a. The life estate will be swallowed up by the vested remainder in FT and will destroy B’s contingent remainder for life.

c) Forfeiture (Tortious Feoffment)

i. A contingent remainder in a freehold is destroyed unless it vests at or before the for-feiture of the prior life estate. At common law, if A tried to convey a larger estate than he had, then it would be a tortious Feoffment abolishing his life estate. This was called the doctrine of forfeiture and has since been abrogated.

3. Contingent Remainders Supported by a Prior Freehold

a) A contingent remainder in a freehold is not destroyed if there is another prior estate of free-hold to support it.

i. Even though a prior estate is terminated, this does not mean that contingent remain-ders will be destroyed. If there are other prior vested estates, the seisin will flow to those other prior vested estates and the contingent remainder will not be destroyed.

a. O owns FEE SIMPLE ABSOLUTE. O conveys it to A for life, then to B for life, and then, if C marries D, to C and his heirs.

1. A dies and C hasn’t married D yet. The seisin will flow to B. C’s inter-est is not destroyed. However, C’s interest must vest before the ter-mination of B’s estate.

b) There is an interesting drafting technique to avoid the destructibility doctrine. It is a trust to preserve contingent remainders. This was a device by which seisin would pass to trustees if a contingent remainder had not vested at the termination of the prior estate.

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i. O owns FEE SIMPLE ABSOLUTE. O conveys it to A for life, then to trustees for the lives of A and B in trust to preserve contingent remainders, and then to the heirs of B.

a. Seisin will pass to the trustees if A’s estate terminates before the heirs are ascertained and the contingent remainder in the heirs will be supported by the estate given the trustees.

4. Destructibility Doctrine and Equitable Contingent Remainders, Non-Freeholds and Personalty

a) The Destructibility Doctrine is inapplicable to equitable contingent remainders, non-freehold interests, and interests in personalty.

i. If the contingent remainder is an equitable one, seisin will not present a problem, since seisin will remain in the trustee. The destructibility doctrine is inapplicable to eq-uitable contingent remainders.

a. O creates a trust and gives it to T, trustee, for the benefit of A for life, and then if X marries Y, to B and his heirs. The trustee has the legal title and the seisin. A and B have equitable interests. We are not concerned with the doc-trine, because it does not apply to equitable interests.

ii. For the same reason, non-freehold interest and interests in personalty are not subject to the rule.

5. Destructibility Doctrine and Executory Interests

a) If it is possible, at the outset of an instrument, that an interest could take effect as a remain-der, it must do so or it fails. The court will not permit it to take effect as a springing executory interest.

i. O owns a FEE SIMPLE ABSOLUTE. O conveys it to A for life, and if B marries C, then to B and his heirs. A dies and B hasn’t married C yet.

a. B’s interest is destroyed. Legal title reverts to O, and we don’t permit B to subsequently take by way of a springing executory interest. B’s estate could have taken effect as a remainder, since B might have married C before the termination of the life estate.

6. Draftsmanship and the Destructibility Doctrine

a) If at the outset, there was no chance the future interest would be a remainder, it would take effect as an executory interest and the doctrine would not apply.

b) At common law, there could not be, at the inception of an instrument, a contingent remainder in a freehold preceded only by a term of years.

i. O owns a FEE SIMPLE ABSOLUTE. O conveys to A for 100 years if he so long lives and then to B and his heirs if X marries Y.

a. A has a determinable tem of years. It is not a freehold estate, so A does not have seisin. Seisin cannot be in B, because there is a condition precedent. The seisin stays with O. A contingent remainder cannot follow a non-freehold estate. Hence, B could not take by way of remainder, but by a springing ex-ecutory interest.

c) If there is a waiting period between the termination of the life estate and the time the future in-terest is to take effect in possession, such a future interest, at the outset, is an executory in-terest and not a remainder.

i. O owns a FEE SIMPLE ABSOLUTE. O conveys it to A for life, and one day after A’s death, to B and his heirs if X marries Y.

a. There is a one-day hiatus between A and B’s estate. A remainder is a future interest that takes effect immediately on the termination of the prior estate. In the one-day hiatus, the seisin goes back to O, and then it springs out of O to

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B. At the outset, B could only have taken by way of springing executory inter-est, so B’s interest is safe from destruction.

d) If a life tenant renounces the interest given to him under a will, this has the legal effect of re-lating back to the date the will went into effect. It is treated as if the will did not create a life estate. The destructibility doctrine will be inapplicable, since the future interest following the life estate will be classified at the outset as an executory interest. It can’t be a remainder, since a remainder requires a prior estate.

i. O owns FEE SIMPLE ABSOLUTE. O devises it to W for life, and then to B and his heirs if X marries Y. W renounces her life estate.

a. The renunciation will have the legal effect of the widow never having taken a life estate (same result as if W predeceased O) and B’s interest could not have taken affect as a remainder but as a springing executory interest.

7. Destructibility Doctrine and Child in Gestation

a) The Destructibility Doctrine has no applicability to a contingent remainder in favor of an un-born child who is born posthumously, if the sole condition to be performed is their birth.

i. O owns FEE SIMPLE ABSOLUTE. O conveys to A for life, and then to A’s first son and his heirs. A dies leaving a pregnant wife. A child is born to A’s wife a few months later. The child will be permitted to take.

b) If, however, there was an added condition to be performed, the unborn fetus would not be permitted to take.

i. O owns FEE SIMPLE ABSOLUTE. O conveys to A for life, and then to A’s first son who reaches 21 and his heirs. A dies leaving a pregnant wife. A child to A is born a few months later. The interest is destroyed because of the added contingency of at-taining 21.

8. Current Status of the Destructibility Doctrine

a) In many states, the Destructibility Doctrine has been abrogated by statute.

i. New York has totally abrogated the doctrine by permitting springing executory inter-ests to take effect.

b) It is important to see if the statute completely abolishes the doctrine, because in some states, it does apply in the case where the prior estate terminates naturally.

c) Some statutes may be totally prospective.

d) Don’t always assume that the doctrine has a negative effect. The invocation of the doctrine could have a benign effect.

i. Assuming the doctrine is in effect, it could be invoked to avoid a violation of the rule of perpetuities. Rule against perpetuities: “no interest is valid, unless it must vest, if at all, within lives in being and 21 years”

a. O to A for life and then to the 1st child of A who reaches 25 and his heirs. Since its possible that when A dies he’ll only have a child under 4 years of age, the rule says there never is an interest to begin with.

b. However, since under the doctrine of destructibility of contingent remainders, the 1st child won’t receive siesen if he’s under 25 when A dies since siesen can’t be up in the air, it comes out that the child’s interest won’t vest at all and therefore the rule of perpetuities won’t prevent A from getting an interest.

H. The Nature of an Interest Created in a Residuary Clause in a Will Creating Contingent Remain - ders §2.29

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1. A reversion may be retained in favor of the successor in interest to the transferor. The commentators are in disagreement as to the nature of an interest created in a residuary clause in a will, which has created contingent remainders in its other dispositive clauses.

2. Edgerton v Massey

a) Facts: O owns FSA. O devises it to “A for life, remainder to the children of A living at A’s death, and if there are no children living at A’s death, then to B and his heirs.” O devises the residue to “A and his heirs.” A then conveyed his life estate and residue to X.

b) The court and Gray believe that the residue clause takes effect later than the conveyance in the first paragraph.

i. They believe that up until the residue clause, A was given a present possessory life estate. The children of A took a contingent remainder in FSA. B took an alternate contingent remainder A had no children at his death. O had created only one vested estate. O owned a reversion in FS subject to total divestment by one of the contin-gent remainders vesting. O retained the reversion, and by way of the residue clause, conveyed the reversion to A. So A owned a life estate and a reversion. (Merger does not occur immediately because it would frustrate the testator’s intent, we have to give the children a fighting chance). When A conveyed his interests to X, his life estate merges with the reversion, causing the contingent remainders to be de-stroyed. (doctrine of destructibility) X is given a FSA.

c) Professor Kales’ disagrees with the court and says that all parts of the will take effect simulta-neously. (Professor Schwartz agrees with this approach)

i. Kales says the interests were created simultaneously in A. A does not take O’s rever-sion, but he takes a remainder. A has a present possessory life estate, taking effect simultaneously, with a vested remainder in FS under the residuary, subject to a shift-ing executory interest in the children of A in FSA and an alternative shifting executory interest in B in FSA and O has nothing. Kales concludes that since the interests of the children are executory, their interests could not be destroyed under the Doctrine of Destructibility of Contingent Remainders. When A conveys to X, he may convey a life estate and a remainder, and a merger may occur, however, X’s interest is still subject to a shifting executory interest.

d) Warren suggests a third approach. He agrees that all interests take effect simultaneously and that A has a vested remainder by way of the residue clause, but he believes the children and B take contingent remainders.

i. Warren’s approach runs counter to the universal rule that a vested remainder in FS cannot follow a contingent remainder in FS. Warren is wrong.

I. Future Interests in Personalty

1. Today, the same type of future interests can be created in personalty as in realty except that one can’t usually create a future interest in a consumable and there can’t be a remainder following a limi-tation to “heirs of the body” if personalty is being disposed of.

a) O transfers chattel to “A and the heirs of his body” and then to “B and his heirs.” B’s interest would be classified as an executory interest since it would cut short A’s prior absolute interest upon the failure of issue to A.

2. The donee for life of a consumable chattel acquires absolute ownership of the chattel. However, where there is a duty express or implied, that the chattel be sold and the proceeds invested, a future interest may be deemed to be created in the invested proceeds.

XI. GIFTS TO HEIRS AND CHILDREN AND THREE KEY COMMON LAW DOCTRINES

A. The Rule in Shelley’s Case (applies only to real estate)

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1. The Rule in Shelley’s Case

a) If a transfer of land creates a life estate in A and also a remainder in the heirs or heirs of the body of A, and the life estate and remainder are of the same quality (both legal or both equi-table), then A owns the remainder.

i. O owns a FSA and conveys it to A for life remainder to the heirs of A. a. A has a possessory life estate, and A’s heirs have a contingent remainder in

FSA. O would have a reversion in FS subject to total divestment.b. Shelley’s Rule rewrites it to “A for life and remainder to A and his heirs.” A

has a present possessory life estate, and there is a vested remainder in FSA in A.

1. Although the Rule in Shelley’s Case only operates upon the remain-der, the doctrine of merger will also apply so as to give A a present FSA.

ii. O owns a FSA and conveys it to A for life and then to the heirs of the body of A.a. The Rule in Shelley’s Case is applicable. It is rewritten as “A for life and the

remainder to A and the heirs of his body. A now owns a life estate and a vested remainder in Fee Tail. Under Shelley’s rule, a merger would occur, and A would own a present possessory Fee Tail, and O has a reversion in Fee Simple, subject to total divestment by A (if he disentails the estate con-verting it to a FSA)

2. Requires a Life Estate in A

a) Before the rule can be applied, there must be a life estate in A. The rule is applicable even if the life estate is pur autre vie, is itself a future interest, or if the ife tenant himself has the power to convey a FSA.

3. Applies to Contingent or Vested Remainder

a) Ordinarily when the rule is applied, A acquires a vested remainder. However, if there is some condition precedent attached to the remainder (other that the heirs being ascertained) A will acquire a contingent remainder.

i. O owns FSA. O conveys it to A for life, and if X marries Y, to the heirs of A. (rewritten as “to A for life, and if X marries Y, to A and heirs of A.”

a. A has a present possessory life estate, which is a prerequisite of Shelley’s rule. There is a condition precedent. A also has a contingent remainder sub-ject to fee simple determinable in Fee Simple Absolute. A’s life estate and FSA merge and A owns a contingent remainder in FSA, and O owns a rever-sion in FS, subject to divestment. Shelley’s Rule can be applied to conditions precedent.

4. The Rule and Merger

a) Although merger may apply when the rule is applied, the rule is applicable even though merger doesn’t occur.

i. O owns FSA. O conveys it to A for life, and if X marries Y, to B for life, remainder to the heirs of A.

a. The rule is applicable. A has a life estate, B has a contingent remainder for life, and there is a vested remainder in FSA in A.

1. Merger will not occur immediately if two estates are created simulta-neously if its effect would be to destroy a contingent remainder. How-ever if A conveys all of his interests to C, merger will then occur and B’s contingent remainder will be destroyed

5. Must be a Remainder to the Heir or Heirs of A’s Body

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a) The rule is applicable only if there is a remainder to the heirs or the heirs of the body of A. If it is an executory interest, the rule is inapplicable.

i. O owns FSA. O conveys it to A for life, and then to B and his heirs, but if X marries Y, to the heirs of A.

a. Shelley’s Rule is inapplicable since the interest given to the heirs of A is an executory interest. A has a life estate, there is a vested remainder in fee sim-ple in B subject to a shifting executory interest in FSA in the heirs of A

b) However, if the interest of the heirs or the heirs of the body is a remainder as compared to the ancestor’s estate, even though both estates are contained within an executory limitation, the Rule still applies.

i. O owns FSA. O conveys it to X and his heirs, but if X marries Y, then to A for life, and then to the heirs of A.

a. Even though A and the heirs of A take within an executory interest as com-pared to X’s estate, the interest of the heirs of A is a remainder as compared to A’s estate.

6. Creation by the Same Instrument

a) The rule is applicable only if the same instrument creates the life estate and the remainder.

i. O owns FSA. O conveys to A for life and then to the heirs of B. Subsequent to the conveyance, A conveys his life estate to B.

a. Shelley’s Rule is inapplicable. We don’t give A the power to invoke Shelley’s rule, it must be by the terms of the original transfer

7. Drafting Techniques to Avoid Shelly’s Rule

a) The Rule is inapplicable when the heirs take by way of an executory interest.

i. To A for life and then one day after A’s death to the heirs of A, is a construction to avoid Shelley’s rule. At the very outset, it is not possible for A’s heirs to take a re-mainder, because they take by way of a springing executory interest. A has a LE, and O has a one-day reversion, subject to a springing executory interest in the heirs of A.

ii. O conveys to A for 100 years if he so long lives, and then to the heirs of A. It is not a life estate but a determinable term of years, so Shelley’s rule does not apply. There is a contingency of this interest, so it is a springing executory interest. A would have a determinable term of years. O would have a reversion, and A’s heirs would have a springing executory interest.

b) If two instruments of conveyance (two deeds) are used, Shelley’s Rule will be avoided.

i. O owns FSA A for life. By a separate deed, O conveys his reversion to A’s heirs. a. At the end of deed 1, O gave to A for life, creating a present possessory life

estate. O retains a reversion in FSA. By way of the second deed, he gives the heirs of A his reversion in FSA. A’s heirs are the successors in interest of O. (A remainder must be created by same instrument). Shelley’s rule is not invoked, because interest is taken by way of reversion and not a remainder.

b. If you follow Gray and Edgerton, at the end of first deed A would have a LE, and O a reversion. Since the second deed is later, Shelley’s Rule does not apply. Kales would have said that all parts take effect simultaneously, and heirs get a remainder. Kales would invoke Shelley’s rule. So would Warren.

8. Effect of Contingencies

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a) If a life estate and the remainder are subject to the same condition precedent, the rule is ap-plicable at the outset.

i. O owns FSA. O conveys it to X for life, and if A attains 25, then to A for life, remain-der to the heirs of A if A attains 25. A is 15.

a. X will have present possessory life estate, a contingent remainder for life in A, and a contingent remainder in FSA in A. Merger will occur, because they are in one person and subject to the same condition, and A will have a con-tingent remainder in FSA and O would have a reversion in FS subject to di-vestment by the contingent remainder vesting.

1. If at the date of the conveyance, A is living is 4. He is a life in being, he must attain 25 if at all, within the span of his own lifetime, and his lifetime is within the rule of perpetuities and so the rule of perpetu-ities would not apply.

b) If only the life estate is subject to a condition precedent, the rule will not be applied until the life estate is vested.

i. O owns FSA. O conveys it to X for life, and if A attains the age of 25, to A for life, re-mainder to the heirs of A whether A reaches 25 or not. A is 15.

a. The condition is attached to the life estate in A but it is not attached to the in-terests in the heirs of A. Shelley’s Rule cannot be applied at the outset, be-cause the LE is subject to a condition precedent, but the remainder is not.

b. X has a present possessory LE, A has a contingent remainder for life, and there is a contingent remainder in the heirs of A in FSA, and O has retained a reversion.

c. But if A does attain 25, A will have a vested remainder, and Shelley’s Rule will then apply. The result is if A does reach 25, X will have LE, A will have a vested remainder for life, and Shelleys’ rule would apply and there would be a vested remainder in FSA in A’s heirs. A’s interests would merge to create a LE in X, and a vested remainder in FSA in A.

9. Satisfying the Rule Subsequent to the Original Transfer

a) The rule will be applied even if its requisites are fulfilled subsequent to the date of transfer. If the requisites are subsequently fulfilled in accordance with the terms of the original transfer, the rule will be applied.

i. O transfer property to A for life, remainder to B and his heirs, but if X marries Y, to A’s heirs.

a. The rule is inapplicable at the outset, since the heirs have an executory inter-est. If X marries Y while A is alive, the heirs then have a remainder. B’s inter-est is divested and A’s heirs are given a remainder in FSA. A will then be given a FSA.

10. Rule of Law and Not of Construction

a) Shelley’s Rule is a rule of law and not of construction. The rule will apply regardless of ex-press manifestation of contrary intention.

11. Current Status of the Rule

a) A good number of states have abrogated or abolished the rule.

i. In New York, §6-5.8 of EPTL provides when a remainder is limited to heirs or heirs of the body of a person to whom a life estate is also given, the persons who take on the termination of the life estate, take as purchasers (words of purchase). For example, if A has a life estate with a remainder to A’s heirs. The heirs automatically take an inter-est at the outset; A is not snatching it away from them.

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a. O has FSA. O conveys it to A for life and then to the heirs of A. A has a present possessory life estate; A’s heirs will have a contingent remainder in FSA, and O will have a reversion in FS subject to total divestment.

1. If the rule did apply, O would not have a reversion and A would have a FSA.

b) The rule may still apply to instruments that went into affect prior to the statutory abrogation.

12. The Rule in Shelley’s Case and Estate Taxes

a) The application of the Rule in Shelley’s Case could affect the marital deduction and the size of a decedent’s federal gross estate for estate tax purposes.

i. W dies and she leaves property in trust for H for life and then to H’s heirs. a. If Shelley’s rule is applicable, the gift could be qualified for the estate tax

marital deduction, because there would be a LE in H and the remainder in the heirs of H would be given to H, and once you apply merger, there is a gift to H, and this is a slam dunk for the marital deduction.

b. But if Shelley’s Rule is not in force—H has a LE and the heirs have an inter-est in the property, to qualify for the marital deduction 2056 b7—the surviving spouse must meet all of the qualifications for the marital deduction—the sur-viving spouse must qualify for all of the income, and the trustee cannot retain discretion.

B. The Doctrine of Testamentary Worthier Title

1. Statement of Rule

a) If land was devised under a will, and the devisee under the will is given an estate of the same quality or quantity as the devisee would have gotten by inheritance even if he’d been stricken out of the will, it will be treated not as a disposition under the will, but by way of inheritance.

i. O owns FSA. O devises it to A. At O’s death, A is O’s heir. A takes by intestacy, not by devise.

2. The Practical Effect of the Doctrine Today

a) The application of the doctrine will preclude A from renouncing the gift and defeating credi-tors. If property passes by descent, rather than by devise, it will be abated first to satisfy cred-itors, since intestate property is sacrificed before testate assets.

i. In New York, there is an order of abatement of gifts. If there is not enough money to go around and pay the debts of the estate, the intestate property gets sacrificed first.

3. Devise to an Heir

a) The doctrine is applicable as long as there is a devise to a person who turns out to be an heir. Unlike in Shelley’s Rule, it doesn’t have to specify heirs.

i. O devises land to X, and X turns out to be an heir, then the doctrine will be invoked.

4. Equal in Quantity and Quantity

a) The doctrine is invoked when the same interest and quality under the will would be taken by intestacy.

i. T devises to X 1/2 real estate in FSA, and X is given a FSA by way of intestacy, the estates are of the same quality but not the same quantity.

a. In England, some courts say quantity refers to the duration of the estate, and as long as the duration is the same, X will take that 1/2 by intestate heir.

b. Some American cases require that the devise be equal in amount as would have been passed by intestacy for the doctrine to apply.

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5. Rule of Law Not Construction

a) The Doctrine of Testamentary Worthier Title is a rule of law, not construction, and is not changeable by a contrary manifestation of intent. It only applies to testamentary gifts of land.

6. Recognition of Doctrine Today

a) The doctrine has not been extensively dealt with by legislatures.

C. The Doctrine of Intervivos Worthier Title

1. Statement of Rule

a) When O transfers an interest in property intervivos to his heirs or next of kin, the interest given to O’s heirs or next of kin is a nullity. The Doctrine applies, and O will retain a reversion.

i. O owns a FSA. O transfers it intervivos to A for life and then to O’s heirs. A has a life estate and O has a reversion in FSA. The heirs of O have nothing.

a. If the doctrine was not present, then O’s heirs would have a contingent re-mainder, but the doctrine strikes the remainder from the conveyance, making the conveyance read “To A for life.” O will retain reversion.

2. The Practical Importance of the Doctrine Today

a) The Doctrine has significant impact today, because it will tell you who will take the property in question.

b) This Doctrine has tremendous estate tax consequences, because O at his death will have a reversion in FSA, which will be included in O’s gross estate for federal estate tax conse-quences.

c) The Doctrine may also affect the rights of beneficiaries to compel a termination of a trust.

i. If the doctrine is applied and all of the beneficiaries of a trust and the settler consent to the termination of a trust, it will be terminated. The problem is obtaining the con-sent of all of these parties.

a. There is a provision in 7-1.9 of EPTL that says that while the creator of the trust is living, if he consents to a modification or a revocation and all persons beneficially interested in the trust consent, you can modify the trust.

1. O creates an irrevocable trust to A for life then to B and his heirs. (And his heirs are words of limitation, they don’t take an interest in the property until B dies). O wants to modify trust. All of the people who have an interest are known and ascertained and get A and B to agree to a modification.

ii. If the doctrine is not applied, the heirs will have an interest and it will be impossible to terminate the trust, because there are unknown ascertained beneficiaries, as when they haven’t been born, they theoretically have a beneficial interest in the trust, and it may be difficult getting consent.

a. 10-10.6 in certain circumstances if the terms of the trust give the trustee an unqualified power to invade principle of the trust and pay it to beneficiary, even though the trust is irrevocable, then the trustee can amend provided they don’t diminish income interest.

3. Compared to Shelley’s Rule Shelly’s Rule Inter Vivos Worthier Title

Applicable only to realty Applicable to realty and personalty

A rule of law A rule of construction

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Applicable only to remainders Applicable to remainders and executory inter-ests

A remainder must be limited to the heirs or heirs of the body of an ancestor (who does not have to be the transferor) who is giving a pre-ceding interest in the property

A remainder or executory interest must be lim-ited to the heirs of the transferor (who does not have to expressly retain an interest in his own behalf)

The remainder and the preceding estate must be of the same quality

No such requirement

a) The doctrine, like Shelly’s rule, requires you to refer to the heirs in the sense as an indefinite line of succession. The magic words must be “remainder to O’s heirs.” You can’t refer to heirs at a given point of time (ppl. who inherit at O’s death).

b) In some cases, both rules may be applicable.i. If O conveys realty in trust to pay the income to himself for life, with a remainder in

trust for O’s heirs, O will receive a vested remainder in FS under Shelley’s Rule. Un-der Worthier Title, the remainder will be void, and O would have a reversion in FS. O’s interest will merge to give him an equitable FEE SIMPLE ABSOLUTE.

4. Legislative Treatment

a) This branch has been subject to legislative treatment.

b) Article 6 of EPTL abrogates the Doctrine of Intervivos Worthier Title.

i. The heirs will take by way of purchase and are given an interest.

a. O owns a FSA. O conveys it to A for life and then to O’s heirs. The heir of O will have a contingent remainder, and they will have an interest, it is no longer a nullity.

b. If O wanted to modify the trust, § 7-1.9 would apply, which states for pur-poses of this statute, you treat the interest given O’s heirs as if it didn’t exist. For the limited purpose of modifying the trust, you don’t need consent.

ii. The doctrine of intervivos worthier title exists in NY only for the purpose of modifying the trust without the consent, the interest of the heirs does not become a nullity.

D. The Rules in Wild’s Case (Only applies to dispositions of land under a will)

1. Statement of the Rule

a) (1) If a testator devises land to A and his children, and A has no children at the date the will goes into effect, A’s estate is classified as a fee tail. (The words “and his children” are words of limitation having the same effect as heirs of his body.)

b) (2) If A has children at the date of the devise, the courts, as a matter of construction, hold that A and his children become concurrent owners, and they become cotenants, taking at the same time of the death.

c) Does not apply to intervivos transfers or transfers of personal property.

d) This is a rule of construction which bends to a contrary manifestation of intent.

2. Current Status of the Rule

a) The first rule does not have a lot of vitality, because of the demise of the fee tail.

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i. If A has no children at the date the will goes into effect, today the court might hold that A gets a life interest, and if there are children are living at A’s death, they will take successively. If A has children living, then they would take as co-owners.

E. Rule of Perpetuities

1. The Statement of the Rule

a) No interest is valid unless it must vest, if at all, within lives in being and 21 years. Generally speaking, the rule is concerned with interests that vest in interest too remotely.

i. Lives in being are anyone who is alive at the date the perpetuities period begins to run and who is either given an interest in the property or mentioned in the instrument of transfer.

2. The Requirement of Absolute Certainty

a) If there is any possibility, however, slight, of an interest not vesting within the period of the rule, it is invalid.

i. Regardless of what the odds of an interest vesting in time are, the rule requires that there be a 100 percent guarantee that the interest vest within the period of the rule.

ii. It is not enough that the interest does in fact, as events actually occur, vest within the period of the rule.

iii. O owns a FSA. O conveys it to A for life, and then to the first child of A to reach 25 and his heirs.

a. A has a present possessory life estate. A’s children have a contingent re-mainder. At the time of the conveyance, A does not have children. After the conveyance, A could give birth to a child, who was not a “lives in being” at the time of the conveyance, and the child may be 3 when A dies. Therefore, at common law, the child’s interest violates the rule of perpetuities. All that has been created is a life estate in A.

b. If a child is alive at the time of the conveyance, then the rule of perpetuities will be satisfied, because if the child’s interest vests at all, it will vest within the lives in being at the time of the conveyance. However, the conveyance is still subject to the Doctrine of the Destructibility of Contingent Remainders.

iv. O owns a FSA. O conveys it to A for life, then to such children of A who reach 25 and their heirs.

a. If A is alive at the testator’s death, then A is a life in being because he has been given an interest in the property, and has been specifically mentioned in the will. The critical date for the determination of lives in being is at the tes-tator’s death. Since A is alive, he is presumed to be capable, of giving birth to additional children after the testator’s death. While the children of A have been given an interest, they cannot be considered lives in being, because they have not been born yet.

b. While A may have given birth to 1 child, and that child will have a vested re-mainder, not subject to the rule against perpetuities, the rule requires an ab-solute 100% guarantee of vesting in time, and A could die leaving more than one child less than four years of age. Their interests are void, because the vesting interest must be ALL or NOTHING.

c. A limited cy-pres provision could come into play here to change the age from 25 to 21.

3. Legal Consequences of Applying the Rule

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a) An interest invalidated by the Rule of Perpetuities is stricken from the conveyance.

b) In an intervivos conveyance, the rules for filling in possible gaps are:

i. When the estate preceding the one invalidated is less than a FSA, a reversion will be implied.

ii. When the estate preceding the one invalidated in a FSD, then a possibility of reverter will be implied.

iii. If the preceding estate is subject to a condition subsequent or an executory limitation, the preceding estate becomes absolute.

c) In a will or devise, the residuary clause in the will controls.

i. Brown v Independent Baptist Church

a. Facts: T devised land to the Baptist Church and its successors and assigns, so long as it shall be used for church purposes, and if it ceased to be used for church purposes to 10 named individuals (A-J) and their heirs. The residue clause gave the property to the same 10 named individuals and their heirs. The church wants to sell the property.

b. Judge (Justice Qua) said under the 1st paragraph, the church got a FSD (fee simple determinable), The ten people have shifting executory interests. It is a possibility that all lives in being at time of testator’s death die, and more than 21 years after that the interest could vest; the interests could vest too late, in violation of the rule against perpetuities. The interest of the 10 named people is null and void under the rule of perpetuities. The conveyance is to church so long as it is used for church purposes. The church still has a FSD, and T the testator retains a possibility of reverter, which is not subject to the Rule.

c. The 10 named people can take under the residue clause. The clause oper-ates as a transfer of the possibility of reverter to the 10 people, causing them to have an interest that is valid and inheritable. It is almost impossible for the church to sell the property.

d. Schwartz says that what you can’t do under the first conveyance, you should not be able to do under the residue; the church should get a FSA. As a mat-ter of policy, why should possibilities of reverter and rights of entries be ex-empt from the rule of perpetuities?

1. In Mass, possibilities of reverter and rights of entries only remain in force for 30 years. This is designed to prevent and abrogate obsolete conditions. But the statute is not applied retroactively.

4. Avoiding the Rule

a) Limited Cy-Pres Provision

i. The Cy-Pres Doctrine was developed in common law in reference to charitable gifts

a. O makes a gift to Harvard, but Harvard goes out of business. The judge will reform the instrument and say that the testator would not have wanted the gift to fail, so the judges will re-write it and convey it to another school.

ii. Legislatures have borrowed this judicial practice and created a statutory limited cy-pres provision, noting that many gifts would violate the rule of perpetuities contrary to the testators intent.

a. Article 9 of the EPTL has a limited cy-pres provision that reduces age contin-gencies in dispositions to avoid the rule of perpetuities.

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b. If a gift will otherwise violate the rule of perpetuities, to save the gift, the court will reduce the age contingency from 25 to 21.

b) Savings Clause (Professor Leech)

i. Professor Leech created a savings clause to avoid a violation of the rule of perpetu-ities. Leech wanted to convey a power in the trustee in the event an interest was challenged as violating the rule of perpetuities, it would give the trustee the power to rewrite the instrument in a manner that would most closely represent the client’s in-tent.

c) Second Look Doctrine

i. The common law invalidated interests based on a view that viewed the testator’s death in terms of the remote possibilities, and the 2nd look says take a look again at the end of the life estates death to see if the rule would be violated.

5. New York’s Statutory Variation of the Rule

a) In New York, an interest is invalid if the power of alienation is suspended for too long a period of time.

i. O creates a trust to A for life and then to children of A for their lifetimes, and then to CSL outright.

a. The gift to CSL is vested immediately, but possession and enjoyment is post-poned. The gift to A for life is also vested right away. The gift to the children will vest when they are born. The children’s interest must vest during A’s life estate. There is not a perpetuities problem.

ii. Under NY law the gift may suspend the power of alienation. NY makes the interest of every life beneficiary of a trust spendthrift and alienable.

a. Creditors cannot reach it and it cannot be conveyed. A cannot assign his in-terest, the children of A cannot assign their interest.

b. A can die and leave children, their interest will vest, but those children could include children who will not living at the testator’s death, and the children with life estates could live longer than lives and beings of 21 years… the power to convey a FEE SIMPLE ABSOLUTE has been suspended for longer than lives and beings, and the interests are invalid.

F. The Rule in Clobberies Case

1. There are two rules in Clobberies Case:

a) A gift “To A if A attains the age of 21” is a gift that is subject to a condition precedent. The at-tainment of 21 is a prerequisite to A taking. If A dies before attaining the specified age, then A and his heirs do not take.

b) A gift “To A to be paid to A at 21” is deemed immediately vested, with A’s possession and en-joyment postponed. If A dies under the A of 21, the property will go immediate to A’s estate.

2. Clobberies Rule bend to contrary manifestations of intent.

3. An immediate gift of income may have the constructional effect of vesting a gift that would otherwise be contingent.

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a) To A if he attains 21, but until he attains 21, he is to get all of the interest. There is an immedi-ate gft of income that may be vested with corpus postponed.

XII. LEGAL CHARACTERISTICS OF FUTURE INTERESTS

A. Transferability

1. Intervivos Conveyances

a) All reversions and vested remainders are alienable intervivos.

b) Contingent remainders and executory interests are alienable intervivos.

c) The cases are divided as to the alienability intervivos of a possibility of reverter.

d) The right of entry is not alienable intervivos. In some states, an attempt to alienate a right of entry may result in its destruction. But it the right of entry is incident to a reversion, the right of entry may be transferred with the reversion.

i. O owns FEE SIMPLE ABSOLUTE. O to A for life provided that liquor isn’t sold on the premises. But if liquor is sold on the premises, O may re-enter and retake. O has a reversion and a right of entry. O may transfer his reversion an his right of entry to-gether.

e) Even though a future interest is alienable intervivos, the successor in interest to the future in-terest takes it subject to all of its conditions (precedent or subsequent)

i. O owns FEE SIMPLE ABSOLUTE. O to A for life, and then to B and his heirs if X marries Y. Even if B may alienate his contingent remainder to C, C takes subject to the condition precedent of X marrying Y. Likewise, O may convey his reversion to D but the reversion will be divested by X marrying Y.

B. Creditor’s Rights

1. Since reversions and vested remainders are alienable intervivos, the courts have uniformly upheld the availability of creditors to reach them in satisfaction of their debts.

2. Some states permit contingent remainders to be voluntarily alienated intervivos. Some of these states permit creditors to reach contingent remainders if they are contingent only as to the occurrence of an event, but they can’t be reached if they are contingent because the beneficiary is unascertained. In some states contingent remainders can be attached, but they cannot be sold until they vest.

a) Even though a contingent remainder can be reached by creditors in a given state, the credi-tors and purchasers at any execution sale will take the interest subject to the conditions at-tached to it.

3. The right of a creditor to reach a possibility of reverter and a right of entry should be the same as the right of a creditor to reach a contingent remainder.

4. Most executory interests should be treated like contingent remainders as far as creditor’s rights are concerned. However, if an executory interest is certain to take effect, it should be treated like a vested remainder and creditors should be able to reach it.

5. The rights of the creditors of a decedents estate are believed to be generally the same as they would be intervivos.

6. The trustee in bankruptcy has greater rights than the ordinary creditor. He gains title to all future inter-ests which were transferable by any means by the bankrupt before bankruptcy or become transfer-able within six months after bankruptcy.

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C. Transmissibility at Death

1. Future interests are transmissible at death unless they terminate at or before death. The successor in interest takes it subject to all of the contingencies attached to the interest.

2. In some states, possibilities of reverter and rights of entry are not devisable. In those states, they de-scend by right of representation to their heirs of the person last seised of the property.

3. Descendible future interests are includible in a decedent’s gross estate for federal estate tax pur-poses.

D. Partition

1. Concurrent ownership is a prerequisite to partition. Partition does not lie to merely sever future inter-ests from present interests.

2. Future interests may be subject to a partition suit brought by the owners of the present possessory estates.

E. Rights against Third Persons

1. Statute of Limitations

a) The Statutes of Limitations for recovering damages to the property starts to run against the owner of an indefeasibly vested remainder and an indefeasible reversion from the date of the commission of the tort.

b) The Statute of Limitations starts to run against other interest from the time they become present interests.

c) The Statute does not commence running until the owner of the future interest has notice of the tort.

2. Adverse Possession

a) Since the owner of a future interest does not have possession and can’t maintain an action for ejectment, the Statute of Limitations for acquiring title by adverse possession does not commence running against him until his estate becomes a present interest.

i. The major exception to this rule is where the Statute had already started running be-fore the transfer creating the future interest was made.

b) There is a split of authority as to whether the owner of a possessory interest can acquire title by adverse possession as against the owners of future interests.

i. The basic arguments again allowing the possessor to gain title is that his possession is not really adverse and that the statute doesn’t usually start to run against those in-terests until they are vested interests.

XIII. LANDLORD-TENANT RELATIONSHIP

A. Nature of Landlord-Tenant Relationship

1. The tenant is said to acquire an interest, an estate, in the land.

a) It is not a freehold estate. By definition, it is smaller than a freehold estate. Its potential dura-tion is less than a life estate.

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b) The tenant does not get seisin.

2. The tenant’s interest is a chattel real.

a) For some purposes, a chattel real is characterized as real property and for others it is charac-terized as personal property.

i. Tenant owns a lease at Rockefeller Plaza for 30 years. Tenant dies and bequeaths all of his personal property to X and all of his real property to Y. For purposes of in-heritance, we call the tenancy an interest in personal property so X gets it.

3. There are some areas of legal tension between the notion that the tenant gets a property interest as distinct from contractual undertaking.

a) While there will be a contract, specifying the rights of the parties, the fundamental character-istic remains that the tenant has an interest in an estate in land.

i. O owns a lot of land. On the lot, there is a building. O leases building to T for 5 years. There is no written agreement, and the statute of frauds is satisfied. T goes into pos-session. Two days later, the building burns down.

a. If this was a contractual relationship, the tenant would not be obligated to pay rent, because the rights and obligations of the parties are contingent on the continuance of the subject matter of the contract.

b. But at common law, an interest in land is owned, and the land is still there, so T may be still obligated to pay rent. Today, there will be a written lease and the lease will cover the contingency of what happens if the building burns down.

ii. T, a tenant, moves in. T breaches the lease agreement and moves out early. The landlord says you owe me rent for the balance of the lease. Can T say that this is a breach and I only have to mitigate damages, by renting premises to someone else? At common law, in the absence of anything in the contract, there is no duty to miti-gate damages.

b) At common law, a tenant moves in, and the general rule is caveat emptor—let the buyer be-ware. However, in a limited number of jurisdictions, the landlord may be imposed with the duty to provide an implied warranty of inhabitability. This sounds like contract law.

B. Interest in Land vs Licensee

1. A tenant gets an interest in the land and possession and a licensee gets permission to use premises (no interest.)

a) When A buys a movie ticket, A is not a tenant. A does not have the irrevocable right to be in premises. A is not a possessor, A is just given a license, permission which is revocable.

b) If it is supported by consideration, there is a valid contract. A may be able to sue theatre for breach of contract. Even if the theatre does not have the right to breach the contract, they have the power to do so, unless the contract is specifically enforceable. (money damages)

c) If the contract is for something unique, it may be specifically enforceable. Unless you get to a court of equity in time (when $ damages are inadequate), a license is ordinarily revocable and the only remedy is to sue for money damages.

d) A person who buys a ticket to a sporting event is a licensee. If someone is invited onto land for a picnic, they are a licensee.

e) When a person rents a hotel room, the normal relationship between a hotel and a transient renter is that of a licensee. (and is not subject to the statute of frauds)

C. Tenancies at Common Law

1. Tenancy for Years

a) Length of Tenancy

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i. These are tenancies for a fixed period of time.

ii. The tenancy doesn’t have to last for a year of more.a. If O gives T possession for 2 days, and the tenancy ends in 2 days, the ten-

ancy is one for years.

iii. In every state, there is a statute that says that a lease which is for 100 years or more, is considered like a freehold estate, and the wife will get dower, and to avoid those sort of rules and obligations, they created a 99-year lease.

iv. Consult the local statutes to see when the statute of frauds kicks in. a. Some states say that any tenancy for years must be in writing. b. Other states say that it must be only for leases more than 3 years.

b) Termination of Tenancy

i. A tenancy for years is terminable by a party giving notice. a. If a leasehold arrangement is for a fixed period of 2 years, but landlord has

the right to terminate with 6 months notice, this is still a tenancy for years.

ii. For a tenancy for a fixed period, unless there is something contrary in the lease, no notice is required. A provision in the lease could specify the requirement of notice. (i.e., automatic renewal in the absence of notice)

a. L owns property and leases it to T for 5 years. The clock strikes 5 years. At the end of the lease, T does not have to give notice.

2. Periodic Tenancies

a) Length of Tenancy

i. These are tenancies that go from year to year, month to month, quarter to quarter etc.

ii. They are tenancies of indefinite duration and they continue indefinitely into the future unless they are brought to a conclusion by notice from the landlord or tenant.

b) Termination of Tenancy

i. Periodic tenancy can be terminated only if proper notice is given. If proper notice is not given, the tenancy will carry on indefinitely.

ii. A periodic tenancy cannot be terminated in the middle of a period. It can only be ter-minated at the end of the period. Proper notice is usually dependent on the period of the tenancy.

a. Courts traditionally require notice equal to the period to terminate a periodic tenancy of less than a year (i.e. one month’s notice to terminate a month-to-month tenancy) and six month’s notice to terminate a year-to-year tenancy. However, most states now have statutes governing the amount of notice that must be given.

iii. Notice of termination must be given at the end of the period.

a. T has a month-to-month tenancy that began Jan 1 2004. On Feb 1, 2004, T decides he doesn’t want to live there anymore. On Feb 15, 2004 T gives L notice of termination at the end of February.

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1. A months notice has not been given. The notice will be considered deficient. If you remain in possession, the rent obligation and ten-ancy will continue.

b. Effective notice may be given on Feb 15, and T will be liable for month of March. T’s notice should say—I am hereby notifying you that I am terminat-ing the tenancy, as of the end of the period, which commences next after the receipt of this notice. The period, which commences next, is March. This is valid notice that would terminate at the end of March.

c) Periodic tenancies can arise in 3 ways:

i. Express agreement

a. The period is specified in the lease. If it is not, the period will be inferred by the schedule on which rent is paid.

ii. Entry under lease in violation of Statute of Frauds and pays rent

a. Landlord and tenant have orally agreed to a 5 year lease. The lease is not enforceable because it is not in writing (SOF). But the tenant enters posses-sion and the landlord accepts rent. Once this occurs, the courts will say that the parties have a periodic tenancy. They will look at how the rent is paid for the period.

b. If T moves in under a lease that violates the SOF and no rent has been paid or accepted, the tenant is a tenant at will. He is not a trespasser, because the L is permitting it.

iii. Hold-over tenant who pays rent

a. A periodic tenancy may arise when there is a hold over tenant and the land-lord accepts rent from the hold over tenant.

1. O leases to T for 5 years. T remains in possession after the 5 years is up. T is a tenant at sufferance. T is a hold over tenant. T pays rent to L. L accepts rent. It becomes a periodic tenancy by implication.

a. The period may be determined by the terms of the original lease, the length of the original tenancy or by how rent is paid—this is the preferred approach.

2. T holds over and hasn’t paid rent. L can make him a periodic tenant by bringing an action against him to collect rent. L can elect to bring a suit to get rent and turn it into a periodic tenancy. T will have to give notice of intent to terminate.

3. Tenancy at Will

a) Length of Tenancy

i. The tenancy is held at the will of both the landlord and tenant.

ii. The tenancy is of indefinite duration, but it is terminable by either party at any time.

b) Tenancies at Will can arise in X ways:

i. Express agreement

ii. T enters into possession in lease that violates SOF, hasn’t paid rent yet, tenant at will

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iii. Holdover tenant with permission of L, no rent paid, no action brought, tenancy at will no notice of termination. This may be modified by statute.

c) Termination

i. At common law, the tenancy was terminable by either party at anytime without notice.

ii. While common law does not impose a notice requirement, statutes may require no-tice to terminate when termination is by act of one of the parties.

iii. A tenancy at will is terminated if certain events occur by operation of law. Even in in-stances where statutes require notice, they do not change the notice requirement for termination by law.

a. If L or T dies, that terminates a tenancy at will—no notice required.

b. If T attempts to assign his interest, the tenancy at will terminate.

c. An insolvency will terminate a tenancy at will

d. If L conveys interest to X, at common law, tenancy at will is terminated.

1. O owns building. O leases it to T (tenant at will) If O wants to termi-nate, at common law no notice, but by statute notice will be required. If O transfers ownership of building, it terminates tenancy.

a. T moves in 1960. At the time, L has a duty to maintain the common areas in a reasonable condition or state of repair at the time of the letting. In 2004, T is still occupying building as a tenant at will. T slips and falls. The building is in state of disrepair. L transfers ownership to C corporation. When L transferred ownership of the building to the corporation, even though he is the sole shareholder, the old tenancy was tech-nically terminated. When T agrees to pay rent, a periodic tenancy will arise or in some states a tenancy at will. If a new tenancy at will arises, what is the landlord’s duty with respect to the common areas? L has a duty to exercise reasonable care to keep premise the same at the time of the letting. But we have a new time of letting.

i. All v Jordon 340 Mass 228—the Massachusetts court woodenly applied the common law rule. Mass-achusetts statute changed the result saying that L had the duty to keep the premises how it was at the original time of letting (i.e. in 1960).

4. Tenancy at Sufferance (Not a true tenancy)

a) How It Arises

i. A tenancy at sufferance arises if a tenant wrongfully holds over and does not vacate after the termination of a prior tenancy.

ii. He isn’t a tenant, because he is a trespasser—the only difference between him and a trespasser, is that his original entry was lawful.

b) Landlord’s Remedies

i. The landlord can elect to evict the tenant at sufferance, and bring an action for tres-pass.

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a. Doctrine of Trespass Ab Initio: If someone enters private premises, pursuant to a public privilege and then commits an affirmative act of misfeasance, they are deemed to be a trespasser from the very beginning. In order for the doc-trine to apply, it must be a public privilege, not a private privilege, like a let-ting of a lease.

1. After you arrest someone, you have a duty to bring them in front of a magistrate. There is a prolonged period of detention, which is tor-tious in nature. If you are acting under a public authority and commit an act of misfeasance, the argument could relate back and make the original arrest unlawful

b. The tenant is not a trespasser from the date the tenancy began, however, if the landlord ejects the tenant, he is allowed to hold the tenant as a tres-passer from the filing of action.

1. If T throws a cigarette into the fireplace, even though he wasn’t negli-gent, and the building explodes, the L could treat T as a trespasser sue him for damages caused.

ii. The landlord could elect to convert Tenancy at Sufferance to a Periodic Tenant.

D. Common Law Obligations

1. Generally

a) There are covenants, which govern the obligations between a landlord and tenant. Common law evolved implied covenants that exist whenever there is a valid tenancy. The law implies them.

b) The parties can modify these by contractual agreement.

2. Implied Obligations

a) Implied Covenant of Quiet Enjoyment

i. The tenant should not be disturbed of his quiet enjoyment by any wrongful act of the landlord or by the assertion of any title superior to the landlords.

ii. The covenant is only breached when there is an eviction.

a. There are 2 types of eviction:

1. Actual Eviction—physically booting him off the property

2. Constructive Eviction—wrongful acts of landlord cause the premises to be uninhabitable forcing the tenant to leave (failure to provide heat; failure to exterminate, infestation by rodents).

b. Once the tenant is actually or constructively evicted, the tenant could recover money damages and the tenant could also have a defense for any action for rent that accrues after the eviction. Tenant is also entitled to say that the lease is at the end.

c. A cause of action for damages suspends obligation to pay rent in future (doesn’t suspend obligation to pay in the past).

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d. There is a slight difference if there has been a partial eviction caused by an act of the landlord. The rent is totally suspended in the case of a partial evic-tion.

1. However, if partial eviction is caused by superior title, rent is partially suspended on pro rata basis.

2. If the tenant moves out, then the tenant can suspend the entire obli-gation to pay rent.

3. Landlord’s Obligations

a) These issues will be regulated by contractual terms of lease. However in residential areas, there are statutes that may prevent the landlord from not providing certain obligations to keep the premises inhabitable, such as heat, extermination, and other things against public policy

i. The landlord may not have an obligation to control the actions of third parties.

b) If the tenant is unclear whether the landlord has breached obligations in a manner which justi-fies a tenant moving out, the tenant should bring an action for declaratory judgment.

4. Tenant’s Obligations

a) There is an implied obligation on the part of the tenant to repair the premises.

i. This is usually governed by the contractual terms of the lease.

ii. Under this limited implied obligation, the tenant may have to repair a broken window or door, a leaky roof patched.

iii. The tenant may have a limited obligation to repair but not replace.

iv. The tenant has no obligation to take care of anything that is the result from deprecia-tion from ordinary wear and tear.

b) There are leases in which the tenant has the obligation to insure the premises, real estate taxes, etc.

i. The landlord has to be careful in extensive leases that he doesn’t forego certain tax advantages. One of the major tax advantages a landlord has is the ability to deduct depreciation on his income tax. To take advantage of this deduction, the tenant’s obli-gations should be limited to repair, and not for ordinary wear and tear.

E. Assignment and Subletting

1. Generally

a) In the absence of anything in the lease to the contrary, as a general common law proposition, leases are assignable and may be sublet.

i. T signs a lease for 10 years. After 5 years, T can find someone to take over tenancy.

b) However, a landlord can put a provision in the lease prohibiting assigning or subleasing with-out the consent of the landlord. If the condition is breached, the tenancy is brought to an end.

i. These clauses are valid and enforceable. They are not viewed as invalid restraints on alienation. They will be strictly construed.

a. If lease says no assignments, the tenant can still sublet.

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b. If lease says no subletting, the tenant can still assign.

c. The prohibition must be against both without landlords consent. 1. T is signing lease for 20 years. L insists upon a clause prohibiting

subleasing and assigning without consent. T says add clause that consent shall not be unreasonably withheld.

2. Assignments

a) An assignment is a transfer of the whole of the unexpired term, along with the whole estate or interest of the tenant for that term. It does not need to be a transfer of all of the premises.

i. O leases to T for 5. After 1, T transfers remaining 4 to X. This is an assignment.

ii. However, if rent is at a different rate or payable at a different time, where there is a variation between the transactions, it is a sublease and not an assignment.

iii. Even if the terms are identical, but T reserves right to enter premises in case of breach, it is a sublease and not an assignment.

b) The assignee succeeds to the tenant’s estate.

i. There was a relationship (privity of estate) between the landlord and tenant.

ii. When the tenant transfers interest by way of assignment, the assignee succeeds to his interest in the estate and steps into the tenant/assignor’s shoes.

iii. The covenants that run with the land in a landlord tenant relationship, such as the obligation to pay rent, will transfer.

a. When the tenant transfers to an assignee, the obligation to pay rent is bind-ing and enforceable against the assignee. The assignee is liable to the land-lord for the rent, because he succeeds to the tenants’s estate in the land, and the covenant to pay rent touches and concerns the land.

b. If the assignee goes insolvent, the original tenant will be liable for the rent, because there is still a promise on his part to pay rent, (novation) and unless there was an explicit agreement between the landlord and tenant to substi-tute A for T on the obligations on the contract, T is still obligated.

1. The landlord can sue the tenant or the assignee. A should pay the rent in equity and good conscience. If L sues T, T can sue A. T occu-pies the position of being a surety, the primary obligor is the as-signee.

3. Sublease

a) A sublease is a partial transfer of the unexpired term.

i. O leases to T for 5. After 1, T transfers 1 year to X. This is a sublease, because T as-signs less than he owns.

b) The subletting tenant (becomes sublessor) retains some interest in the term.

c) A sublease is not a transfer of the whole leasehold; instead, it is an independent transaction creating a wholly new and distinction landlord-tenant relationship between the sublessor and the sublessee.

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d) The sublessee is not bound by the covenant to pay rent in the original lease—the original ten-ant remains bound by it.

i. There is no relationship between the landlord and sublessor, so the landlord cannot sue the sublessor for rent.

e) Even though sublessor’s only obligation runs to the tenant, anything that terminates the ten-ant’s interest will terminate sublessor’s interest.

i. If T fails to pay rent to L. L can terminate T’s lease, and everything dependent on T’s lease—S’s lease—will terminate.

3-1/2 hours88 true/false questions2 essays 212 504 6399

46) False 47) False- gifts have a carry-over basis48) True- anything included in O’s estate gets a step up in basis49) False- it might make sense to give away property that is appreciating in value. (GRAT)50) False- the check has to be made payable to the institution and book and board are not included51) True- each parent can give 12k. It is possible. 52) False- there is an annual exclusion (renewable every year)53) False- he can set up a present interest trust.54) False- irrevocable gifts are exempt from probate55) False- it is includable because it is revocable