Property I Outline

First Possession

Main Concept: Normally one obtains title to good by acquiring them from, and with the consent of, their prior owners. There are a few situations in which one may obtain title by the mere fact of possessing the article. The best examples of title from possession are: (1) wild animals, (2) the finding of lost articles, and (3) adverse possession.

Acquisition by Capture- Property at issue: personal property in the form of wild animals.- Two distinct areas where capture occurs: public domain and private property.

1. Capture in the public domain:

o Chasing: Mere pursuit alone is not enough. Ex. Pierson v. Post (the fox case): Plaintiff pursued a fox with his hounds, but before he could capture it,

the defendant, who had not been in pursuit, killed and took away the fox. Court held that mere pursuit alone is insufficient to sustain an action for killing and keeping the fox. Capture is required but if not then, must be in pursuit and mortally wound the animal

o Rule for capturing wild animals (achieving first possession, and thus ownership, requires the following elements):

- mortal wounding, and- not abandoning pursuit- with the intention of appropriating the animal to one’s individual use, such that the hunter has deprived the

animal of its natural liberty and brought it within the his/her control.

o Livingston’s Dissent Rule for capturing wild animals:

- bodily touch is not imperative, provided that the animal is within reach, or the hunter has the reasonable prospect of taking the animal; and

- the hunter has the intention to convert the animal to his/her own use.

Custom: In a close case, the court may look to the “customs” or “usages” prevailing in the activity or trade involved. For example the custom among whalers was that the shop or company which lanced the whale and thereby killed it was the owner, even though the whale immediately sank, floated to the surface several days later, and was found by another.Acquired local principles or customs that derive from the whaling industry

Ex. Ghen v. Rich (the whale case): Plaintiff killed a fin-back whale with a bomb lance. Whale sunk to the bottom after being killed and later washed up on shore and was taken by the finder who sold it at auction to the defendant who sent it off to be processed. Plaintiff sued defendant for the value of the whale. Court holds that local custom prevails and the whale goes to the killer not o the finder. Court reasons that where the fisherman has done all that is possible to acquire possession of the whale, those efforts seem to be sufficient. Court fears that the whaling industry would cease if the common trade customs were not adhered to and any chance finder could appropriate the fruits of the whaler’s labor.

HYPO: O is the owner of land with hundreds of deer. O refuses to give anyone permission to hunt on his land. T decides to sneak on land in the middle of the night, kills a deer and takes it. T puts it into his pick-up truck, hits pots hole and deer falls off. S drives along, sees deer on road and picks up the deer and takes it. If O discovers that T has done this and sues T to recover deer or value of venison, will O prevail in an action against T?

o Yes, because O is the true owner. (finder prevails against everyone, except true owner)o If T were to discover that S has possession of the animal, T would win against S, because T was the finder of

the deer.

Notes:

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- First possession: generally, first possessor has better rights. O v. T, O wins. T v. T1, T. wins, etc.- Wild animals entering private property are “constructively possessed” by property owner, but generally return to

their wild state when they leave the private property (ratione soli); however, a property owner who tames or domesticates a wild animal who has a habit of returning to that property owner’s land might have an argument for possession of the animal when it returns to the wild (animus revertendi).

2. Capture on Private Property:

Business Competition: Courts are more likely to be sympathetic to the interfering defendant if he acts out of competition with the plaintiff, rather than out of spit or malice.

Non Competitor can’t interfere and if they do they are held liable, wildlife being there is good enough for 1st possession while on private property, they leave the property they lose 1st possession

1) People cannot maliciously interfere w/ trade2) There are property rights to wildlife on land that he attracts by luring them

Ex. Keeble v. Hickeringill (the duck case): Keeble (P) owned land containting a duck pond. He loaded the pond with decoys to lure ducks to come to the pond so he could hunt them. Hickeringill (D) discharged a gun near the duck pond, which caused the ducks to stay away. Keeble recovered damages for the intentional frightening of wild ducks off another’s land caused by Hickeringill. Keeble was usoing his land in a lawful manner and Hickeringill interfered with this lawful use and is liable in damages.

Acquisition by Creation (property created by exercising the mind)

This involves the development of intellectual property ideas, patterns, designs, etc. Congress has enacted statutes for patents, copyrights, etc., providing for the achievement of rights of possession with

respect to such property. Issues in the cases that follow are whether people may acquire possession in instances not covered by statutory law.

Intellectual Property

Ex. Cheney Bros. V. Doris Silk Corp. (the designer silk case): Plaintiff, fancy designer, expended time and money to create unique silk designs. Defendant copied those designs and sold them to the public at much lower prices. Plaintiff sought protection of its designs to prohibit said copying during the “season.” Court gave no protection to the plaintiff. In the absence of some right recognized at common law, or under the statutes, a man’s property is limited to the chattels which embody his invention, others may imitate at their pleasure. Theft of your name is not permitted, but saying your product is just as good is. The Court seeks to prevent monopoly and allow comparable goods at lower prices to be available to the public.

Competition depends on imitation and public bettererment but only to a certain degree: No 1st possession for ideas unless they are copyrighted

1. This creates better marketability2. Lower prices3. Better competition

Ex. INS v. Associated Press (the news case): AP (P) sued INS (D) for the INS’s admitted use of AP new stories in INS publications. INS would obtain advance publications of AP news and would then use it in its newspapers. AP contended it had property rights to all its news it gathered through the efforts of its contributors. INS contended any such right terminated upon its first publication. Publication for profit of news obtained from other new gathering enterprises is the stealing of a property right. The non-profit communication of new, regardless of source, is widespread in a free society and involves no property right. However, when 2 competing news organizations are involved, each gaining their livelihood from beating the other’s deadline, the use of such news, for profit, is stealing of the other’s product. If stolen then no rights

1. Unfair competition newspapers have a quasi-property interest in the news and prohibits until its value as news has passed

Subsequent Possession- the next ownership of the property-ownership encourages the productive use of the property if someone takes it, people won’t do anything

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Acquisition by Find

Main Concept: “ The finder’s title is good against the whole world except the true owner” The finder of lost property holds it, at least for a certain time, in trust for the benefit of the true owner; thus he is a custodian, or “bailee” for the true owner. What is important is that the finder has rights superior to those of everyone except the true owner. If the true owner is located, the true owner can recover lost property.

Possession is not the same as ownership, ownership you have title for the “thing”True owner

OVERPossessor (finder or theief)

OVERSubsequent possessor

- Trover: is an action at common law to recover monetary damages, if P waives his right then D has to pay for it, the value at the time of the P’s interest . (trover is a forced sale)

- Replevin: is a lawsuit to recover the actual goods converted, not the monetary damages.

- Bailment: is created when goods (i.e. personal property or chattel) are transferred from the owner (bailor) to another person (bailee) for a limited purpose.

- Voluntary bailment: occurs when the owner of the goods the (bailor) gives possession to the bailee (Ex. coat check, car valet, ect.)

- Involuntary bailment: occurs when people take chattels into their possession without the consent of the owner. (Ex. Airport takes your possessions, car gets towed, having to empty your pockets if you are arrested, when someone looses a watch and someone else picks it up.)

Armory v. Delamirie: (jewel in chimney) Armory found a jewel which he took to Delamirie, a goldsmith, for appraisal. Delamirie’s removed the stones and refused to return them. The finder of lost property, although he does not acquire absolute ownership, does acquire title superior to everyone else except the rightful owner.

Hannah v. Peel: (broach case) Hannah was living in the house owned by Peel. Peel had never lived in house before and rented it for use by military. Hannah found broach and gave it to police, who later gave it to Peel, who then sold it. There was no evidence that Peel had prior knowledge of the broach and was never had physical possession. 3 important facts:

1. General rule is that if it in your house it is yours.2. Exception to general rule, if you have never been in possession of the premises, you would not be considered the true

owner.3. How long does it take to look for the true owner? That varies for jurisdiction.

- General Rule for Lost property on Public Land: Finder prevails as against all but the true owner or prior possessors.

- General Rule for Lost Property on Private Land: If something is found, attached to or under that land, the presumption is that the possessor of the land or premises is deemed to be, and constructively is, in possession, and therefore, gets ownership, subject to the rights of the true owner.

• Exception: Where the property is never in the custody of owner of shop/land, and not within the protection of a dwelling inhabited by the owner, and is in an area where the public is invited or expected to be, then the finder rule from the public domain applies and ownership goes to the finder subject to the rights of the true owner.

- General Rule for Property found in a Home: Property within a home is presumed to be within the constructive possession of the owner of the home (i.e., presume that the owner of the home intended to possess all property situated within the home), and the true owner is most likely to return to the home to recover the lost property. Therefore, the owner of the home is entitled to the lost property, subject to the rights of the true owner.

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GOALS: • Want to protect original owners• Want a system that returns property if they lose it• Want to protect owners at a low cost• Prevent theft• Stable ownership- want there to be title of ownership at all times• Discourage people from losing things – a system that penalizes careless owners• Protect the finder by the idea of ‘relative title’-if you find something honestly, that person needs protection too• Encourage people to return property in good condition, so reward system might be a good idea; incentives for honesty• Way to distinguish things that are abandoned and things that are lost

• Rule: Anything found by someone else while working for someone is conveyed to your employer

• Rule: If you buy found property, you are buying title that is better than everyone but the true owner

• Rule: If misplaced, goes to landowner, if lost, to finder.• If under or attached to land, it goes to the landowner.• If trespassing, no rights at all

Mislaid Property

1. Lost property: is unintentionally put down. 2. Mislaid property: is intentionally set own, but unintentionally left.3. Abandoned Property: Intentionally and voluntary left with no intent to reclaim.

Results in a complete transfer of rights. First person to find abandoned property is the new owner How do you determine what is abandoned?

o Look to condition of property. Does it look like it is abandoned?o How long has it been there? o Where it has been abandonedo Value of property

Ex. McAvoy v. Medina: Medina owns barber shop and McAvoy, customer, found a wallet on a table. McAvoy told Medina to keep the wallet in hopes of finding the owner. The barber asserted ownership. The owner was not found and McAvoy wanted ownership. The owner of the premises on which misplaced goods are found is deemed to be the bailee of the goods for the true owner. When goods are misplaced the finder acquires no original right to the property. Court wants to promote the return of the mislaid property to the true owner and entrusting the shopkeeper (at the shop where the property was mislaid) with the goods gives the true owner a better chance of being reacquainted with the property.

**Who gets the goods? Lost: finder gets it. Mislaid: shop owner gets it Abandoned: finder gets it

Adverse Possession (AP): A process through which a person who uses property for a statutorily determined (number of years varies by state) period of time becomes the owner of the property and defeats all rights of the person with legal record of title. Adverse possessor takes ownership of property by using it as would a true owner.

3 Ways to Think About AP:- AP punishes owners who “sleep” on their rights, and rewards adverse possessors who “earn” rights by possession.- AP encourages the productive use of property, rather than allowing land to go unattended and unused.- AP furthers the alienability of land. (“sellable property that may be conveyed)

AP Process Issues:

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- Statutory period for adverse possession starts when the cause of action accrues (when A enters and begins to adversely possess).

- Owner has the right to commence action(s) for Quiet Title (determines who owns property), Ejectment (Replevin- action to recover the asset), or Injunction (ask court to enforce someone to do something).

- Period ends at the end of the statutory period, subject to an exception for disabilities (as specified by statute).- Law regarding AP is governed by both statutory rules and court made rules.

Exceptions: One cannot adversely possess government property, but Gov’t can adversely possess your property Claim of title : one way of expressing the requirement of hostility or claim of right on part

of the adverse possessor Color of Title : title based on a written grant of some kind that gets you constructive

possession of everything described in the deed even if you are the active possessor of only a small part of the land*Unless the true owner is still on the property, then true owner wins

(1) Actual entry (2) giving exclusive possession : (not with the permission of the owner and not with the owner in occupancy) ; a. Constructive: On part of the land may be deemed in constructive possession of the restb. Exclusive: they are not sharing it w/ anyone else including but not limited to the true owner

(3) Open and (4) notorious: (must give the true owner the opportunity to be on notice of occupancy. (visible, apparent, not hidden), regardless of whether the owner ever actually takes notice, and must exhibit possession typical of ownership (change of address from post office, buildings, fences, crops, paying taxes);

(5) Adverse and (6) under a claim of right (entry and possession is a statement of title, and the denial of title to all others, generally there is no intent requirement);

a. If under a claim of right (HOSTILE)b. without the owners consent

-actions of possessor, looks like they are claiming the propertyc. Bona fide or good faith (mistaken belief)d. Color of title- claim founded on a written instrument (deed, will)

-they believe in good faith they own the land* Must have hostility or claim of right on the part of the adverse possessor

-state of mind is irrelevant: the rationale for AP does not matter whether the entry was made in good faith or bad faith, open occupancy is key (Majority View)- Good faith claim or ownership (minority view)

(7) Continuous (without interruption, consistent with customary property under like and similar circumstances);

(8) for the statutory period. (Statutory period for adverse possession starts when the cause of action accrues.)

Color of Title: A claim found on a written statement that is for some reason defective. (something is wrong with the deed.)

o Actual possession under color of title by an adverse possessor of only part of the land covered by the defective writing is constructive possession of all of the land covered by the writing. The benefit of constructive possession is that activities relied upon to establish AP reach not only the part of the premises actually occupied but the entire premises described in the faulty instrument.

o 2 Exceptions: (1) Owner in possession and (2) two owners of property described in the deed.) Ex. AP1 sells 10 acres of land to AP2 for $200,000. But AP2 only needs 2 acres of land. True owner comes back from long

vacation and judge says that that AP2 gets land. Owner says “But, AP2 is only using 2 acres of land.” Explanation: Generally AP2 would only get the 2 acres, but according to “color of title” AP2 says that he has color of title for all 10 acres. (O does not get ownership of land)

o Exception to Color of Title: Ex. O owns and possesses a 100 acre farm. A enters back 40 acres under invalid deed from Z (who had no interest) for the whole 100 acres. A works the back 40 for the statutory time. O is in physical possession of the front 60 acres. Can A evict O from the whole farm? Explanation: A only gets 40 acres, and original owner gets 60,

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because owner physically possessed it. (one of the elements to get adverse possession is that the owner is not physically on property)

Ex: There is a 100 acre plot of land and A has color of title for the whole 100acre and B has color of title for 100acres, but A and B only occupy 10 acres, A and B each only get10 acres and the original owner would possess the 80acresAnother example A has color of tile for 100 acres and lives on only 10 acres, Owner occupies 10 acres. A would get 10 and owner would get 90.

Statute of Limitations- Used to be 20 years, but trend is to shorten them now (6-10yrs).- Once the statute of limitations runs, it not only bars any action by the (former) owner, but it also vests a new title in the

adverse possessor which relates back to the date of the event that started the statute running. The law operates as though the new owner has held title since that event.

Claim of Title Theories- Must have hostility or claim of right on the part of the adverse possessor. In learning about adverse possession, you will hear the

terms “claim of title,” “claim of right,” and “hostile.” These terms all stand for the same general element, but have three different categories of interpretation regarding state of mind among the States:

• State of mind is irrelevant—majority view.• Good faith claim of ownership (I thought I owned it--the good faith trespasser).• The aggressive trespasser, who knew he did not own the property, but entered from the beginning to gain title.

Ex. X owns lot 1 and Y owns lot 2, contiguous lots. Z conveys both lots 1 and 2 to A under an invalid deed. A enters lot 1 and holds for the statutory period. A sues to evict X and Y. Can he get either of them out? Explanation: A wins lots 1, and Y only wins for lot 2, because Y was not “open and notorious.” Color of Title here fails, because the 2 parcels of land where owned by 2 different people (and the true owner was not in physical possession) A did not do anything to act in an open and notorious manner that he wanted lot #2.

Ex. Van Valkenburgh v. Lutz: Beginning around 1920, Lutz traveled across a triangle tract to reach his home on a nearby parcel and also built a shed and kept a garden on the tract. In 1974 Van Valkenburgh purchased the tract at a tax sale, and when he demanded that Lutz vacate the land, Lutz obtained a judgment that granted him a right of way by prescription over the tract and then in a judicial proceeding established title to the tract by adverse possession. Title to a piece of property may vest in an AP who occupies that piece of property under claim of right, protects the parcel by an enclosure, improves to cultivates the piece, and maintains that state of affairs for the statutory period. Here, the Court finds that the improvements (shed, chicken coop) are insufficient, and that the cultivation of the garden did not equal utilization of the whole premises.

Prescriptive Rights-where one person knowingly goes over another’s property for a statutory period of time, they get the right to continue walking over it, but does NOT get possession of it

Ex. Mannillo v. Gorski: Gorski created a structure encroaching upon Minnillo’s property, not knowing that the structure was on her property. Minnillo argues that Gorski lacked the requisite hostile intent to obtain title by adverse possession. One of Gorski’s sons made improvements to the house. Later Gorski raised the house. Gorski admits that its steps and concrete walk encroached on Manillo’s land by 15 inches.

o Does an entry and continuance of possession under the mistaken belief that the possessor has title to the lands involved exhibit the requisite hostile possession to sustain the obtaining of title by AP? Explanation: To claim titles by AP the possessor need not have been aware that the land in question was in fact owned by another.

o Does the minor encroachment here meet the necessary standard of open and notorious possession? Explanation: No presumption of knowledge on the part of the true owner arises from a minor encroachment along a common boundary. In such a case, only where the true owner has actual knowledge, may the possession be said to be open and notorious. So, the true owner is ousted from possession.

HYPO: (this is often on EXAM) A & B own adjacent lots. A erects a fence and maintains it 3 ft. over the property line (on B’s land). Assume A has acquired title by adverse possession. After the statutory period expires B gets a survey and finds out. B asks A to take the fence down and move it. A does, but three years later she changes her mind and wants to put it back up in its original

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place. She sues B, who owns the three feet now? Explanation: A wins because once title is gained by AP it cannot be destroyed by oral agreement or lost by abandonment. It must be conveyed in accordance with the Statute of Frauds (in writing). Since A was now the owner of those 3 feet, by adverse possession, she is owner and just because she took the fence down doesn’t mean that she no longer owns it.

Tacking and Privity

- Tacking is the joining of consecutive periods of possession by different persons to treat the periods as one continuous period; esp., the adding of one’s own period of land possession to that of a prior possessor to establish continuous adverse possession for the statutory period. Tacking is only allowed if you have privity.

- Privity mutual or successive relationship to the same right of property –agreement and knowledge to coney property.

3 types of Privity

1. Privity of Contract: the relationship between the parties to a contract, allowing them to sue each other, but preventing a third party from doing so.

2. Privity of Estate : a mutual or successive relationship to the same right in property, as between grantor/grantee or landlord/tenant. (ex. when you buy house and get a deed for the property that was adversely posessed)

3. Privity of Possession: privity between parties in successive possession of real property. The existence of this type of privity is often at issue in adverse possession claims.

Mechanics of Adverse Possession

Ex. Howard v. Kunto: The Kuntos took possession of a summer home under a deed which (unknown to them) described the adjoining property. After discovering the mistake, Howard obtained conveyance of the deed which described the property occupied by Kuntos, then sought and obtained a judgment quieting title in himself. Several successive purchasers, over a period of over 10 years, had taken possession of the disputed piece of property under the same mistaken deed.

o Is a claim of adverse possession defeated because the physical use of the premises is restricted to summer occupancy? Explanation: With regard to adverse possession, the “requisite possession requires such possession and dominion ‘as ordinarily marks the conduct of owners in general in holding, managing, and caring for property of like nature and condition.”

o May a person who receives record title to tract A under the mistaken belief that he has title to tract B (immediately contiguous to tract A) and who subsequently occupies tract B for the purpose of establishing title to tract B by adverse possession, use the periods of possession of tract B by his immediate predecessors who also had record title to tract A? Explanation: A purchaser may tack the adverse use of its predecessor in interest to that of his own where land was intended to be included in the deed between them, but was mistakenly omitted from the description.” The Court further states that the technical requirement of privity should not be used to destroy the long periods of occupancy of those who, in good faith, received a faulty deed description.

Problems

1. 1996, A enters adversely upon Blackacre, owned by O. In 2003, B kicks A off of Blackacre. B enters possession. In 2006, who owns Blackacre?

o O, because there was no privity. O can oust B, as can A as the prior possessor. B doesn’t have title by adverse possession

because B was only there 3 years. B doesn’t tack onto A because they were not in privity. A transfers from one AP to another by conveyance or by delivery of possession is sufficient privity to allow tacking, when the AP is ousted by a third party without right, his possession cannot be tacked to the prior possession because of the lack of privity.

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2. Second paragraph of question (1), if A leaves under threat of B’s force, but returns in six months, if O does nothing, when will A own Blackacre?

o Ten years and six months from when he originally entered because A did not abandon, but was forced off. A’s re-entry is a

continuation of the first possession.

3. Third paragraph, question (1), if A abandons Blackacre in 2003, and B takes immediate possession, and O does nothing, will B own it in 2006?

o No because there is no privity, and hence no tacking, between A and B.

4. In 1990, A enters adversely upon Blueacre, owned by O. In 1991, O dies leaving a will that devises Blueacre to B for life, remainder to C (life estate remainder). In 2006, B dies without having ever entered Blueacre. Who owns Blueacre?

o O owned it when A entered, B did nothing, and the statute ran. A owns it b/c once there is an entry against an owner, AP

begins and isn’t defeated or interrupted by subsequent transfers by the owner via will or intestacy. A gets what O had when A entered.

5. O, owner of Purpleacre, dies in 1991 leaving a will that devises Purpleacre to B for life, remainder to C. In 1992, A enters adversely upon the land (against B- so true owner is now B). In 2006, B dies. Who owns Purpleacre? B only has a life estate (which disappears when he dies).

o C wins, because A (who was stealing from B) entered against B, not O. You can NEVER get more as an AP than the

person that you are stealing from.

Disability

Main Concept: Many states claim that the statute of limitation for an AP claim will not run against a true owner who is under a disability. The statute of limitations will not start until the disability is removed. What qualifies as a disability?)

1. Minors2. Mentally ill3. Imprisoned4. Military service

General Principles:

1. The disability must exist at the beginning of the adverse possession. A disability that arises after the AP begins will not stop the running of the statue of limitations. (Ex. If A enters and O is normal and then he become disabled. This does not fall under disability, because he was normal A adversely possessed)

2. There is not tacking of disabilities.3. A disability is immaterial unless it existed at the time when the cause of action accrued. 4. Only the disabilities suffered by the true Owner at the time of A’s entry count never the disabilities of later acquirers of the true

Owner.5. Usually a certain grace period after this is off then the new owners can try to get control of the land 6. 21 years after the cause of action accrues and 10 years after the disability is lifted, which ever is longer

Problems

When would the APer acquire title? In each case O is the owner in 1980, and A enters adversely on May 1, 1980. The age of majority is 18.

1. O is insane in 1980. O dies insane and intestate in 2003. (1980 + 21yrs = 2001)

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a) O’s heir, H, is under no disability in 2003. (2003 + 10= 2013) You compare 2013 to 2001 and pick the one that give O more time (since he is disabled) Statute will not run until 2013. O’s qualifying disability ended at his death, and H, as O’s heir, has 10 yrs within which to file suit.

b) O’s heir, H is 6 yrs old in 2003. This does not change our owner, because only the disability of O is important- H is underage (which is a disability, but this does not matter.) Same as before, 2013, Disabilities don’t tack, so a guardian must be appointed for H to sue on his behalf.

2. O has no disability in 1980. O dies intestate in 1998. O’s heir, H, is two years old in 1998. The statute runs in 1980 + 21 yrs = 2001. O was under no disability and H’s disability is disregarded.

3. O is 5 yrs. old in 1980. In 1990, O becomes mentally ill, and O dies intestate in 2005. O’s heir, H, is under no disability. Does the adverse possessor here acquire title in 2001, 2003, or at some later date? (18-3=13) (1980+13=1993+10=2003) *2003 is bigger than 2001, so answer to this questions is 2003. Standard Approach: O’s second disability is disregarded. Disabilities can’t be tacked, and the subsequent intervening disability did not exist at the time the cause of action accrued in 1980. O would have reached majority in 1993 (1980 + 13), the only disability that counts is removed at that time. O would have had until 2001 (1980 + 21) or 2003 (1993 + 10) whichever is longer, to bring suit. No one sued during this time, so A has title. O’s parent or guardian should have brought suit.

Adverse Possession Against the Government- Adverse possession does not run against the government (local, state, or federal) because government lands are said to be for the

benefit of all of the people, who should not lose it because of the negligence of a few government employees.- Where it has been permitted, some permit it on the same terms as private land, others where the AP continues much longer than on

private land, and still others where the land is held only in a proprietary, as opposed to public, fashion.

o Exceptions: (1) If the jurisdiction allows AP against the govt, (2) jurisdiction allows AP against the govt, but extends the statute of limitations, (3) If the govt acts in a Propriety Function (acting like a person- ex. earning/getting mass quantities of land by people not paying their taxes and the govt sells the land for money), you can adversely possess against them.

Adverse Possession of Chattels

Main Concept: the rule has been that the possession had to be hostile, actual, visible, exclusive, and continuous. The problem becomes establishing the open, visible, and notorious elements, because personal property is small and often kept within the confines of one’s home.

CHATTEL:i. Movable or transferable property;

ii. personal property; iii. esp., a physical object capable of manual delivery and not the subject matter of real property

Ex. O’Keeffe v. Snyder: (1946) Three paintings by O’Keeffe are missing from gallery owned by her husband Stieglitz. O’Keeffe alleges that they are stolen; Snyder alleges that Dr. Frank had possession of them from 1941-1943 (and exhibited them at a one day show. From 1946-1972, O’Keeffe doesn’t report the theft, but she discusses the theft with her associates in the art world. In 1972, O’Keeffe lists the paintings as stolen. In 1975, O’Keeffe learns that they are in NY. Frank’s son sells the paintings to Snyder. In 1976, O’Keeffe demands their return. Snyder refuses and O’Keeffe institutes an action for replevin. Snyder asserted that he was a purchaser for value, had title by adverse possession, and that O’Keeffe’s action was barred by the 6 yr statute of limitations pertaining to actions in replevin. Explanation: The Court chooses the discovery rule as a replacement for adverse possession for chattels because it shifts the emphasis from the conduct of the possessor to that of the true owner. The new question becomes not whether the possessor has met the tests of adverse possession, but rather whether the owner has acted with due diligence in pursuing

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their property. The Court feels that the discovery rule permits an artist who uses reasonable efforts to report, investigate, and recover a painting to preserve the rights of title and possession.

o Why does the court promote the Discovery Rule? The discovery rule will fulfill the purposes of the statute of limitations and give greater protection to the innocent owner of personal property whose goods are lost or stolen.

Trial Court will have to consider the following to determine if O’Keeffe is entitled to the benefit of the discovery rule: whether she used due diligence to recover the painting at the time of the alleged theft and thereafter; whether at the time of the alleged theft there was an effective method, other than talking to her colleagues, to alert the art

world; and whether registering paintings with the Art Dealer’s Association of America or any other organization would put a

reasonably prudent purchaser of art on constructive notice that someone other than the possessor was the true owner. Acquisition by Gift

Main Concept: A gift is a no contractual, gratuitous transfer of property and is made without legal consideration. A transfer of property by will after a person’s death is called a devise or bequest and is not a gift.

- Donor: One who gives something without receiving consideration for the transfer.- Donee: One to whom a gift is made; the recipient of a gift.- Constructive Delivery : is handing over a key or some other object that will provide access to the subject matter- Symbolic Delivery : is handing over something symbolic of the property, e.g., a written instrument declaring a gift of the

subject matter.

• TWO types of gifts

1. Inter Vivos Gift : (Irrevocable) Gift between living persons. The donnee must show 3 things:

THREE ELEMENTS FOR VALID GIFT:1) PRESENT INTENT TO MAKE A GIFT2) PRESENT DELIVERY- serves as good evidence of intent

i. Manual/Actual deliveryii. Constructive delivery is were it plainly appears that it was the intention of the donor to make the gift, but

where the things are not present or are incapable of manual delivery b/c of their size and weight; but if articles are present and capable of manual delivery, it must be made.

a. “Constructive” delivery is handing over a key or some other object that will provide access to the subject matter.

iii. Symbolic – worst kind- must have the best delivery possible given the circumstancesa. “Symbolic” delivery is handing over something symbolic of the property, e.g., a written

instrument declaring a gift of the subject matter.3) ACCEPTANCE (GENERALLY PRESUMED IF GIFT HAS POSITIVE VALUE)

2. Gift Causa Mortis: (Revocable) is a gift made in contemplation of death from some immediate illness. (If Donor does not die, he gets the gift back.), it is substitute for a will (one witness)

1) The intention to give the gift2) A delivery of the thing3) If a person is already in possession of the object there must be redelivery of the object at that time

Problems

1. O owns a ring and leaves it at A’s house. A finds it and calls O to tell her of the discovery. O says “A, you can keep it as a gift.” Has O made a valid gift to A? Yes, a valid gift. A’s physical possession of the gift constitutes delivery.

2. Can O change her mind the next day and make A give the ring back? No, she cannot because it was a valid, irrevocable gift. (Inter vivos gift)

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3. What if A doesn’t call O, but instead brings the ring to a dinner party later in the week and surprises O with it? O takes the ring, looks at it, and hands it back to A saying “Its yours, you keep it.” A tries it on, but its too big. O says, “let me wear it until you get it sized it to fit.” O leaves the dinner, gets hit by a car and dies. A sues O’s executor for the ring. What happens? O was acting as a bailee (ex. valet parker, coat check) and was merely holding the gif, so A gets ring

4. What if O had said instead at the dinner party, “I promise to leave you this ring when I die?” No, because there is no intent to make a present transfer.

5. Sick man asks nurse to give insurance policy to girlfriend, nurse does not. Is there a valid gift? No gift, because no delivery.

6. Sick man asks that dresser be moved into girlfriend’s bedroom. Dresser is so moved. Does girlfriend get the insurance policy in the dresser? It depends. Intent and delivery are present, but it should have been delivered and since this did not occur, it is possible that she does not get it.

7. Sick man says “I want to give you my dresser and my insurance policy inside of it. Here’s the key.” Valid gifts? Maybe. Much stronger case. He could have still physically handed her the actual policy, but this is a better case than problem #3.

8. Sick man says “I want to give you my strong box and the policy inside of it, here’s the key.” Girlfriend takes the key, but leaves the box where it is. Valid gift? Could be a valid gift. Accepting the key could mean acceptance, but on the other hand the box could have been handed over. Another grey area.

9. Would an oral gift of the piano be sufficient for a gift to a girlfriend if house is still in his house, but then burns down? Valid gift? If it’s a wife, then it would be a valid gift because there is a presumption of dominion or control. Girlfriend does not have same presumption as wife.

Delivery: If it can be handed over, it must be. A constructive delivery of a gift causa mortis will be effective where it plainly appears that it was the intention of the donor to make the gift and where the things intended to be given are not present, or where present, are incapable of manual delivery from their size or weight.

Ex. Newman v. Bost: Van Pelt on his death bed gave Newman keys, one of which unlocked bureau, and pointed out to her the bureau and other furniture in the room. Van Pelt told them her to take the keys and he desired her to have them and everything in the house. 4 things that Newman claims are hers: (1) $3,000 life insurance policy, (2) Bureau & household furniture, (3) Piano, (4) Bedroom furniture. The Court decided that she gets:

Insurance Policy: She does not get $3,000 insurance policy, because he should have physically handed it over.

Bureau & household furniture: She was entitled to anything that those keys unlocked.

Piano: He did make any attempt to constructively deliver the piano. (court allowed her to bring evidence to support possible delivery and possible get $ for the piano)

Bedroom furniture: Yes, she got because it was hers and in her possession.

Ex. Gruen v. Gruen: Victor (donor/deceased) gifted his son (P) a painting but reserved a life estate in it (wanted to hold it until his death). It was a future interest in the painting. Victor wrote three different letters to his son, expressing his intent to gift it to him. Victor died and step-mother (D) would not give son possession of painting. Son sues for possession of the painting. Explanation: A valid inter vivos gift of a chattel can be made where the donor has reserved a life estate in the chattel and the done has never had physical possession before donor’s death. The court ought to protect the right of donors to preserve possessory interests in chattel while effectively conveying future interests to donees.

o Dad Dad for life, remainder to son. (this is giving Dad life estate interest and giving son fee simple interest in painting)

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Possessory Estates (Present Interests)

Subcategories of Estates

1) Absolute Fee Simple AbsoluteFee Tail in Fee Simple AbsoluteLife Estate in Fee Simple AbsoluteTerm of Years in Fee Simple Absolute

2) Determinable Fee Simple Determinable

3) Subject to Condition Fee Simple Subject to Condition Subsequent Fee Simple Subsequent Defeasible

4) Subject to Executory Fee Simple Subject to Executory Limitation Limitation

TYPES OF ESTATES IN LAND FUTURE INTERESTS IN LAND

(POSSESSORY): (MIGHT BECOME POSSESSORY)

FEE SIMPLE ABSOLUTE NONE

FEE TAIL REVERSION (O, never 3rd party)

REMAINDER

LIFE ESTATE REVERSION (O, never 3rd party)

REMAINDER (VESTED OR CONTINGENT)

TERM OF YEARS REVERSION

REMAINDER (VESTED OR CONTINGENT)

FEE SIMPLE DETERMINEABLE

(until, so long as, while, during)

POSSIBILITY OF REVERTER (IN O)

EXECUTORY INTEREST (In 3RD party)

FEE SIMPLE SUBJECT TO CONDITION SUBSEQUENT

(but if, provided that, on condition that, however)

RIGHT OF ENTRY (In O)

EXECUTORY INTEREST (In 3RD party)

FEE SIMPLE SUBJECT TO EXECUTORY LIMITATION (followed by an executor interest)

EXECUTORY INTEREST (In 3RD party)

Special Rules:

Contingent remainders are always followed by reversions.

**Contingent remainders usually follow contingent remainders, then conversion.

Executory interests usually follow vested remainders.

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• Examples of Punctuation Rule:

O A for life, then to B if B turns 21. A=LE, B=CR, O=Reversion.

O A for life, then to B, if B doesn’t reach 21, then to C. A=LE, B=VR, C=EI.(B has a vested remainder subject to executor limitation. (since C has executor interest)- If B doesn’t turn 21 and

he dies at 20, C will get it. If B turns 21 he gets it, and C will not.

Think of the commas as a “bubble” to protect interest. (ex. …, then to B,…. B’s interest in protected so it is vested.

Fee Simple OA + his heirs (CL) OA (modern law)

Fee Simple Vocabulary

• Decedent: A person who has died. • Heirs: If a person dies intestate (without a will), persons who survive the decedent and are designated by statute as intestate

successors are heirs. There are no heirs of living persons, only heirs apparent. • Testate Estate: An estate that is to pass by will. • Beneficiary or Devisee: Person to whom property passes under a will, or person who claims under a will.• Intestate Estate: An estate that is to pass without a valid will. • Issue: Means descendants, offspring (not children only). They take to the exclusion of all other kindred depending on relevant

statutory provisions. • Ancestors: Those who came before the decedent (parents). Generally, parents take if the decedent leaves no issue or spouse. • Collaterals: All people related by blood who are neither descendents nor ancestors (brothers, sisters, nephews, nieces, uncles,

aunts, and cousins). If the decedent leaves no spouse, issue, or parents, the brothers and sisters (and their descendants by representation) take.

• Escheat: If a person dies intestate with no heirs, the property escheats to the state like it did to the lords in feudal times.

Fee Simple Absolute

• The biggest and best estate in land. Most unrestricted and may last forever.• Now, to create a fee simple absolute: O (Owner, Grantor, Seller, Transferor) to A (Grantee, Purchaser, Transferee).• Historically at common law, it was necessary to say “O to A and his heirs.”• Nothing in the transfer creating this estate establishes that it will end based upon any future event.

Inheritability: Fee simple is inheritable, under intestate (w/o will) statutes. If the owner of fee simple absolute dies without any direct descendant (children, grandchildren) then his collateral relatives (siblings, cousins, aunts, uncles, etc.) will inherit the property.

Fee Simple Defeasible: A fee simple defeasible may last forever, or it may come to an end upon the happening of an event in the future.

Fee Simple Determinable: “so long as,” “while,” “during”, and “until”• When the future interest is retained by the transferor (O in the ex below), the future interest is called a possibility of

reverter. • When the future interest is passed to a transferee it is called an executory interest.

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Ex. O conveys Orangeacre to Thomas Cooley Law School, its successors and assigns, so long as the premises are used for law school purposes.

o If Orangeacre ceases to be used for law school purposes, it will automatically revert back to O, the Grantor (Transferor).

o Ends automatically when the stated event happens.o All fee simple determinables are accompanied by future interests.

Restrictions on Use: The most common function is to prevent the property from being put to a certain use which the grantor opposes.

O B and his heirs so long as liquor is not sold on the property. I

o Exam Tip: If event occurs there is an automatic reversion back to O (grantor)

Fee Simple Subject to Condition Subsequent: “provided that, “ “on the condition that,” and “but, if…”

• Courts and legislators tend to prefer the fee simple subject to a condition subsequent because it provides more certainty for purchasers, more flexibility for the grantor, and the law tends not to like forfeiture (especially when it is automatic).

• Unlike the fee simple determinable the fee simple subject to condition subsequent does not automatically end when the event occurs.

• The grantor has a right to take back the property, but nothing happens until he affirmatively exercises that right.

Ex. O conveys Redacre to Thomas Cooley Law School, its successors and assigns, but if the premises are not used for law school purposes, the grantor has a right to re-enter and re-take the premises.”

o If Redacre ceases to be used for law school purposes, the fee simple will continue until O takes action to re-enter and re-take it.

o Does not automatically terminate, but may be cut short at the transferor’s choice when a stated condition happens.

o The future interest retained by the transferor here is called a right of entry (also called a power of termination). When the future interest is retained by the transferee it is called an executory interest.

Fee Simple Determinable Fee Simple Subject to Condition Subsequent

1. Created by words “until” or “so long as” during” or “while”

2. Possibility of reverter (which means the fee simples estate is subject to a special limitation)

3. Estate terminates automatically upon the happening (or non-happening) of states even or condition.

4. Automatic reversion to the grantor (or those claiming under him) when the event occurs.

1. Created by words “upon condition that” “but if” or “subject to the condition that”

2. Right of entry (which means the fee simple estate is subject to being terminated by the reentry of the grantor)

3. Estate will continue in the grantee (or his successors) unless and until the grantor exercises his power of termination)

4. Grantor’s reentry effectuates (causes to happen) a termination of grantee’s estate.

5. Estate does not end, upon the happened of the event, but rather upon grantor’s exercising his right of reentry.

Fee Simple Subject to Executory Limitation: The fee simple determinable and the fee simple subject to condition subsequent, exist by definition only when the estate will return to the grantor (or his heirs) when the states event occurs. An executory limitation provides for the estate to pass to a 3rd person upon the happening of the stated event.

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Ex. O Blackacre “to B and her heirs but if liquor is sold on property then to C and his heirs.”o Exam Tip: If event occurs, title passes to 3rd person (no reversion to O (grantor)

Examples of Inheritance of Fee Simple

1. O, owner of Pinkacre, has two kids: A (daughter) and B (son). B dies testate, devising all of his property to his wife W. B is survived by his three kids: B1 (girl), B2 (boy) and B3 (girl). A1 (boy) is born to A. O dies intestate. Who owns Pinkacre in England in 1800? Under modern American Law?

(a) Grandson gets property (when O dies, it would go to B since he is the son)

(b) O dies and property would split between A and B. (If B dies, B’s kids share Dad’s 50% of grandpops property)

2. 2) O A and her heirs. If A dies intestate without issue, will the property escheat to the State? Only if she does not have collaterals or ancestors.

3. 3) O A for life, remainder to B and her heirs. B dies intestate and without heirs, A then dies. Who owns Blueacre? O has conveyed a fee simple absolute. It would go escheat (to the state)

Fee Tail: (O A and the heirs of his body)

• Is a mechanism for keeping estates in land in the family.• It descends to A’s lineal descendants generation after generation and expires when the original tenant in fee tail, A, and all of A’s

descendants are dead. • Once the bloodline runs out, the property reverts back to O or O’s heirs, if O is dead, unless otherwise specified in the instrument.• Every fee tail has a reversion or remainder after it.• Today the fee tail can be created only in Delaware, Maine, and Massachusetts, and even there can be destroyed by a deed executed

during life (but cannot be barred by will).

Life Estate (O A for life)

• Estate in land for the life of a person.• If A transfers her life estate to B, B’s estate will last only as long as A lives (this is called a life estate per autre vie). If B dies

before A does, the life estate passes to B’s heirs or devisees for the duration of A’s lifetime. • Every life estate is followed by a future interest, either a reversion in the transferor (Grantor usually), or a remainder in the

transferee (Grantee usually). • The life tenant does not have the power to sell or mortgage the property, but he may convey the interest or a lesser one. (Ex. If A

holds a life estate, he may convey to B either for the life of A, or for a term of years)

Term of Years (OA for 10 years)

• Estate in land for some period of time that is measured by the calendar.• O to A for twenty years.

Examples of Life Estates

1) In 1600, O A for life, then to B forever. What estates do A and B have? If A dies, then B dies, who owns Blackacre? What if the conveyance takes place in 2007?

(a) A has a life estate. B has a vested remainder for life. (life estate) (because it did not say “and his heirs”

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(b) It would revert to O.

(c) Life estate in A and remainder to B in fee simple absolute, so it would not revert to O.

2) In 1600, O A for life, remainder to the heirs of B. B is alive in 1600, but dies soon thereafter. B’s heir is C. Then A dies. What estate does C have? C has fee simple absolute. (because A’s life estate has ended)

3) O A and her heirs. A’s only child, B, is a shopaholic and runs up large unpaid bills. B’s creditors can attach B’s property to satisfy their claims. Does B have an interest in Greenacre which his creditors can reach? If A wants to sell Greenacre and use the money to take a trip around the world, can B prevent A from doing so?

(a) B’s creditors cannot get property (because B has no interest)

(b) “and her heirs’ conveys nothing to B. B has no interest, because A has right (in fee simple absolute) to do whatever she wants with it.

Restraints on Alienability

• Make property unmarketable and unavailable for its best use;• Perpetuate the concentration of wealth by making it impossible for the owner to sell and reap the benefits of the sale;• Discourage improvements on land because owner unlikely to sink money into something she cannot sell and banks unlikely to

loan money for home improvements where mortgages cannot be placed on the land; • Prevent the owner’s creditors from reaching the property.

Waste: Where A and B have rights to possess the property at the same time, A should not be able to use the property in a manner that unreasonably interferes with the expectations of B. The purpose of the doctrine of waste is to avoid uses of the property that fail to maximize the property’s value.

• Affirmative waste : arises from voluntary acts, which result in liability for damages which are more than trivial. If a substantial change is made that increases the value of the property, this is not considered waste. (Open Mines Doctrine: minerals can be extracted by the life tenant if they were already being extracted by the grantor when the future interest was created.)

• Permissive waste : arises out of negligence—the failure to take reasonable care. Damages may be assessed.

Future Interests

Main Concept: Future interests are presently existing property rights (that may become possessory in the future) which give legal rights to their owners which are protected by the courts. A Transferee may sell, give away, and devise his/her future interest. The Transferee may also sue third parties who are injuring the land or trying to hostilely claim title. The Transferee can even enjoin (legally prohibit by injunction) its predecessor in possession from committing waste on the property. (O A for life, then to B and his heirs. B can enjoin A).

Five Estates:

1. The possibility of reverter: which follows the fee simple determinable2. The right of entry: which follows an interest (fee simple or other) subject to conditions subsequent3. Reversion: which is left in a grantor after he makes a conveyance of a lessor estate.4. Remainder: which is a future interest in one other than the grantor, and which takes effect after the termination of an earlier

estate. Two types of remainders: (a) vested and (b) contingent5. Executory interest: which (like the remainder) is a future interest in one other than the grantor, but which generally takes

effect by cutting short a prior interest.

(1) The Possibility of Reverter (which follows the fee simple determinable)

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Main Concept: Suppose the owner of a fee simple absolute transfers a fee simple determinable. The grantor is said to retain a possibility of reverter. That is, if the fee simple determinable comes to an end, possession reverts to the grantor; since it is not certain that this event will ever occur, the word “possibility” is used.

Ex. O owns a fee simple absolute in Blackacre. He conveys “to A and his heirs, so long as no liquor is sold on the premises, and if the liquor is sold thereon, title to revert to O and his heirs.” After the transfer, O has a possibility of reverter; he will automatically regain possession if A or anyone holding under him sells liquor.

Distinguished from Reversion: the possibility of reverter should be distinguished from the reversion, which is a non-contingent prospect of getting the property back, thus, if in the above example O’s conveyance has been “to A for life,” with nothing more, O will have a reversion (not a possibility of reverter) since A’s life is sure to come to an end.

(2) The right of entry (which follows an interest (fee simple or other) subject to conditions subsequent)

Main Concept: If the holder of an interest in land conveys all or part of his interest and attaches a condition subsequent to the transferee’s interest, the transferor is said to have a right of entry. This right gives the transferor ability to take back the estate if the condition subsequent occurs.

Ex. O owns blackacre in fee simple. He conveys “to A and his heirs, on condition that liquor never be sold on the premises; if liquor is sold thereon, O or his heirs may re-enter the premises.” The conveyance to A has been made subject to a condition subsequent, and O therefore reserves a right of entry.

• The Right of Entry interrupts the prior estate. Ex. O conveys Redacre to the City Library Commission, but if it ceases to use the land for library purposes, O has the

right to re-enter and re-take the premises. O has a right of entry and the City Library Commission has a fee simple subject to a condition subsequent

(3) Reversion (which is left in a grantor after he makes a conveyance of a lessor estate)

Main Concept: a reversion is created when a holder of a vested estate transfers to another a smaller estates; the reversion is the interest which remains in the grantor.

Ex. A holds a fee simple absolute in Blackacre. He conveys “to B for life.” A has retained a reversion, which will become possessory in A (or his heirs) upon B’s death.

• Reversions wait patiently for the Transferee’s estate to end naturally. Transferor’s reversion will not interrupt the Transferee’s possessory estate.

• Example, O A for life. When A dies, Blackacre reverts back to O. • All reversions are retained interests which remain vested in the transferor.• There is no such thing as a possibility of reversion.

Distinguishing from possibility of reverter: to distinguish the two one must examine the interest given away by the grantor; if he has given away a fee simple determinable, he retains only a possibility of reverter. If he has given away something less than a fee simple, he retains a reversion.

Example of Reversion

Owns fee simple and makes the following transfers. In which cases is there a reversion?

a. O A for life, then to B and her heirs. - No, no reversions after vested remainders.

b. O A for life, then to B and the heirs of her body.- Yes, because we do have reversions after fee tails

c. O A for life, then to B and her heirs if B attains the age of 21 before A dies. At the time of the conveyance, B is 15 yrs. old.

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- Yes, because B has a contingent remainder and there are always reversions after contingent remainders. B is contingent because B may not reach 21, and the condition that B has to reach 21 which means he is subject to condition precedent. (There is no comma after “then to B”) Vested remainders are not followed by reversion.

d. O A for 20 years. A = terms of years estate. Yes, reversion to O.

O conveys Brownacre to A for life, then to B for life. O dies. O’s will devise all of her property to C. A dies, then B dies. Who owns Brownacre? C owns brownacre. Reversion back to O which is devisable by will and transferable intervivos.

(4)

Remainder (which is a future interest in one other than the grantor, and which takes effect after the termination of an earlier estate)

Main Concept: a reminder is a future interest which can become possessory upon only the expiration of a prior possessory interest, created by the same instrument. For a remainder to exist, the following requirements must be met:

1. A grantor must convey a present possessory estate to one transferee2. He must create a non possessory estate in another transferee, by the same instrument3. The 2nd, non-possessory, estate (the reminder) must be capable of becoming possessory only in the “natural” expiration (as

opposed to the cutting short) of the prior estate. Ex. O “A for life, remainder to B and his heirs.” B has a remainder because; (1) a present interest has been created;

(2) a future interest has been created in a different person by the same instrument; (3) the 2nd interest will become possessory only after the natural expiration of the first one (i.e. after A’s death).

Remainders distinguished from reversions: it is usually not difficult to distinguish a remainder from a reversion: Created in one other than the grantor: the reminder must be created in someone other than the transferor. The reversion,

by contrast, is an interest left in the transferor after he has conveyed an interest to someone else.

a. Reversion may be transferred – a reversion may be transferred from the transferor to a 3rd person. What determines whether something is a remainder is its original status.

Ex. O A for life, then to B and his heirs. B then conveys his interest back to O. O holds a remainder, not a reversion, since the interest was originally created in a third party (B), not the transferor (O).

No Remainder following fee simple: there is no remainder after any kind of fee simple (absolute, determinable, and subject to conditions subsequent).

Two Types of remainders: Vested and Contingent

• Remainders can only follow a life estate or a term of years. It cannot follow a defeasible fee, executory interest, or anything else.

• Remainders must be created at the same time as the life estate or term of years.• Remainders wait patiently; they cannot divest the earlier interest. Remainders just wait until the earlier interest ends and then

they take.

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Future Interests in the Grantor

Reversion Possibility of Reverter Right of Entry

How is the interest created?

A reversion is created when the grantor conveys an expirable estate (ie. fee tail, life estate, or contingent remainder that does not vest.

A possibility of reverter is created when the grantor conveys a fee simple determinable.

A right of entry is created when the grantor conveys a fee simple on condition subsequent.

Is the interest alienable? Yes Yes No

Is the interest inheritable?

Yes Yes Yes

1. Vested • It is given to an ascertained (born and identified) person; and• It is not subject to a condition precedent nothing needs to occur for the remainderman to take other than the natural

termination of the preceding estate. • If a remainder is vested, O retains no reversion.

Ex. O A for life, then to B. A has a life estate and B has a vested remainder.

• Types of vested remainders- Indefeasibly vested : meaning that it is certain to become possessory and incapable of being divested, O A

for life, then to B and his heirs.

- Vested subject to being divested : means that it is vested but no certain of becoming possessory. O A for life, than to B and her heirs, but if B does not survive A, to C and her heirs

- Vested based upon one member of the class being ascertained : meaning that where there is a remainder created in a class of person, the remainder becomes vested if one member of the class is ascertained and there is no condition precedent.O A for life, then to A’s children. A has one child B

- Vested subject to open or vested subject to partial divestment: occurs when later-born children are entitled to share in the gifts.

1.) Physically2.) Rule of convenience

O A for life, then to A’s children and their heirs. A has one child B.

2. Contingent

• It is given to an unascertained person (examples: my children living at my death; A’s heirs while A is still alive; my widow; the children of B, where B is 10 and not yet married) ; or

• It is made contingent upon some event occurring other than the natural termination of the preceding estates (i.e. subject to a condition precedent) (Ex: to A for life, then to C if she has graduated from law school; to A for life, then to D if he is married; to A for life, then to F if he has reached the age of 21).

• Contingent remainders are not certain to become possessory. Ex. O A for life, then to the heirs of B. A has a life estate and the heirs of B have a contingent remainder

because they are unascertained people (the heirs of B cannot be ascertained until B dies). Ex. O A for life, then to B and her heirs if B survives A. A has a life estate and B has a contingent

remainder because B’s remainder is subject to a condition precedent (B can take only if B survives A).

Note: If a remainder is contingent, O retains a reversion.

Differences between vested and contingent remainders

• Vested remainders accelerate into possession when the preceding estate ends, but contingent remainders cannot become possessory so long as they remain contingent.

Ex. O A for life, then to B, but if B dies under 21 to C. Here B takes at A’s death even if B is under 21 because B has a vested remainder (subject to divestment if B never attains the age of 21). But see, O A for life, then to B if B reaches 21. Here, B does not take possession until B reaches 21 because B has a contingent remainder.

• At early common law, contingent remainders were thought of as the mere possibility of becoming an interest and were not assignable or capable of being reached by creditors. Vested remainders have always been transferable during life and at death. The modern trend is now to allow contingent remainders to be transferred during life and reachable by creditors.

• At common law, contingent remainders were destroyed if they did not vest upon termination of the preceding life estate. Vested remainders were not destructible in thus way.

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• Under some State statutes, contingent remaindermen cannot sue for waste, partition, or a trust accounting, where vested remaindermen can.

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Vested Remainder Contingent Remainder

1. Is vested2. Is not subject to the RAP3. Is limited to an ascertained person who has the right

to immediate possession if and when the prior estate is terminated.

4. Remainderman has right against prior estate owner (e.g. Life tenant) for waste.

5. Remainderman has right to compel prior estate owner to pay taxes and interest on encumbrances.

1. Is not vested.2. Is subject to the RAP3. Is subject to a condition precedent; it will not vest

until the happening of an event or the ascertainment of a person.

4. Remainderman has no right against prior estate owner (i.e. life tenant) for waste.

5. Remainderman cannot compel state owner to pay taxes on encumbrances.

Condition precedent:

• Condition precedent is a condition or event that must happen before the remainderman can take the property or become vested.

• Example, O A for life, then to B if B reaches 21, and, if B doesn’t reach 21, then to C. A has a life estate, B has a contingent remainder because B does not take unless she meets the condition precedent. B and C have alternative contingent remainders (if the remainder of B vests, the remainder of C cannot). O has a reversion.

Condition Subsequent:

• Condition subsequent is a condition or event that may occur after the estate has become vested or possessory, and results in the property being lost to someone else.

• Example, O A for life, then to B, but if B dies under 21, then to C. A has a life estate and B has a vested remainder and C has an executory interest.

***Punctuation is the key to distinguishing the different between these two examples.

Destructibility of Contingent Remainders: • “A remainder in land is destroyed if it does not vest at or before the termination of the preceding freehold estate.”

• Under the destructibility doctrine, contingent remainders were destroyed if they did not vest upon the natural termination of the life estate.

Ex. O A for life, then to B and her heirs if B reaches 21. When A dies, B is not yet 21. B’s remainder is destroyed, Blackacre goes back to O.

• Contingent remainders could also be destroyed by the life estate being forfeited or merged before the life tenant’s death. This meant that the life tenant could destroy the contingent remainder at will. For example, O A for life, then to B and her heirs if B survives A. If A conveys his life estate to O, the life estate merges into the reversion destroying B’s contingent remainder.

Two general rules for telling if the future interest is a contingent remainder or an executory interest:• If the 1st future interest created is a contingent remainder, the 2nd future interest in a transferee is a contingent remainder also.• If the 1st future interest created is a vested remainder, the 2nd future interest in a transferee is an executory interest.

Examples of vested and contingent remainders B’s remainder is vested. If B conveys he interest back to O, what does O have? O has a vested remainder.

What interests are created? A = life estate, B = vested remainder for life, C = vested remainder in fee simple absolute (vested remainder followed by vested remainder because one is for life)

Is the remainder vested or contingent? Contingent...Joint Life Estate in A and B, we don’t know who will live longer, and who the survivor is…then reversion in O.

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Is the remainder vested or contingent? B = contingent remainder, because not only do you have to be one of A’s children, he has to reach 21. When B reaches 21, is the remainder vested or contingent? Vested subject to open because A can have more kids.

(5) Executory Interest [which (like the remainder) is a future interest in one other than the grantor, but which generally takes effect by cutting short a prior interest] O A for life, then to B, then to C

Main Concept: Executory interests which (like the remainder) is a future interest in one other than the grantor, but which generally takes effect by cutting short a prior interest.

Occur in two conditions:

1. After fee simple determinable2. After fee simple subject to conditions subsequent

Distinguishing between executory interests and remainder: this is not easy because both are created in persons other than the grantor. The difference is essentially that a remainder never cuts off a prior interest. On the other hand, an executory interest is generally one which cuts off a prior interest before that prior interest natural termination.

o Exception - executory interests following fee simple determinable: there is one exception to the rule that an executory interest always takes effect by cutting short a prior interest. If an interest following a fee simple determinable is in a stranger (rather than in the grantor, which would make it a possibility of reverter) that interest is called an executory interest. Yet it does not cut short the fee simple determinable; by definition, the fee simple determinable ends naturally when the event takes place.

• Statute of Uses created a new estate: fee simple subject to executory limitation.• Executory interests are always created in 3rd persons; therefore they cannot be created in the grantor.• Developed to do what a remainder cannot: divest or cut short the preceding interest.• Future interest in a transferee that can take effect only by divesting another interest.• Difference between taking possession as soon as the prior estate ends and divesting the prior estate is the essential difference

between a remainder and an executory interest. • Executory interests can divest a fee simple possessory interest. • Executory interests can divest a vested remainder in fee simple.

Ex. O A for life, then to B and his heirs, but if B dies under the age of 21, to C and her heirs. B is age 15. A has a life estate. B has a vested remainder in fee simple subject to an executory limitation and C has an executory interest.

• Executory interests are usually treated as contingent interests.• Executory interests can be created only in the transferee. If the transferor seeks to create an interest in the transferee after a Fee

Simple Determinable or a Fee Simple Subject to Condition Subsequent, it will necessarily be an executory interest. Ex. O Richmond School Board, its successors and assigns, but if the premises are not used for school purposes, to B and

her heirs. The School Board has a fee simple subject to an executory limitation and B has an executory interest which will automatically divest the Board’s interest if the condition occurs.

• Since a remainder cannot follow a vested fee simple, we see the following: Ex. O City Library so long as the premises is used for library purposes, then to Children’s Hospital. City Library has a

fee simple determinable; Children’s Hospital has an executory interest. The future interest here looks more like a remainder because it waits patiently to succeed rather than divesting the prior estate, but the courts prefer to describe it as an executory interest because of the rule that a remainder cannot follow a vested fee simple. (Note that fee simple determinables are followed by a possibility of reverter when the future interest is retained by the transferor.)

Examples of Executory Interests O owns Purpleacre and wants to draft an instrument of gift. He needs your help. O wants to convey P-acre to son A for

life, and upon A’s death, O wants the property to go to A’s children if any are alive, or if none are alive to O’s daughter B. Consider the following conveyances, all carrying out O’s intent, but each creating different future interests:

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a. O A for life, then to A’s children and their heirs, but if at A’s death he is not survived by any children, then to B and her heirs. At the time of the conveyance, A is alive and has no children. What is the state of the title? A = life estate, A’s kids are unascertained and are a contingent remainders, B = alternative contingent remainder, O = reversion (this is only because A has no kids).

- Two years after the conveyance, twins C and D are born to A, now what is the state of the title? A = life estate, C and D = vested remainder subject to open (because A could have more kids), B = executory interest, and O no longer has a reversion.

b. O A for life, then to such of A’s children as survive him, but if none of A’s children him, to B and her heirs. At the time of the conveyance A is alive and has two kids C and D. What’s the state of title?

- A = life estate, C & D = contingent remainder, subject to condition precedent, B = alternative contingent interest, and O = reversion

c. O A for life, then to B and her heirs, but if A is survived at his death by any children, then to such surviving children and their heirs. At the time of the conveyance, A is alive and has two kids, C and D. What’s the state of the title?

- A = life estate, B = vested remainder (this is found by applying punctuation rule), C & D = executory interests (because that always follows a vested remainder.)

Future Interest Questions (Prior Exam) (these will be multiple choice)

1. O’Malley conveys Tealacre to Arnold for life, then to Brooke and the heirs of her body. What interests do O’Malley, Arnold, and Brooke have in the property?

- Arnold = life estate, and Brooke = fee tail, O’Malley = reversion

2. Oprah conveys Orangeacre to Alicia for life, then to the heirs of Bessie. What interests do Oprah, Alicia, Bessie’s Heirs, and Bessie have in the property?

- Alicia = life estate, Bessie’s Heirs = contingent remainder (we don’t know who the heirs are, so they are unascertained), and Bessie = nothing, Oprah = reversion

3. Octavius conveys Violetacre to Arnetta for life, then to Brutus, but if Brutus dies under the age of 21, to Caitlin and her heirs. What interests do Octavius, Arnetta, Caitlin, and Brutus have in the property?

- Arnetta = life estate, Brutus = vested remainder, Caitlin = Executory interest, Octavius = nothing

4. Ostentatious conveys to Goldacre to Gucci, but if it ceases selling shoes, Ostentatious has the right to re-enter and re-take the premises. What interests do Ostentatious and Gucci have in the property?

- Gucci = fee simple subject to conditions subsequent, Ostentatious = right of entry

Rule Against Perpetuities (RAP)

Main Concept: “No interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest.”

o Exam Tip: memorize for short answer question

What is the purpose of the rule? - To promote a limited amount of time within which a contingency will encumber the free marketability of the property.

When does creation of the interest occur?- Creation by Deed: If the contingent interest is created by an irrevocable intervivos transfer, the creation occurs at the time

of the transfer, and the measuring life in being must be a person alive at the time of transfer.

- Creation by Will: If the contingent interest is created by will, the creation occurs at the testator’s death, and measuring life in being must be a person alive at the testator’s death.

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- We must, therefore, apply the test at the time the interest is created (at the time of conveyance); and, must prove that a contingent interest is certain to vest or terminate no later than 21 years after the death of some person alive at the creation of the interest.

- When does a conveyance to A’s will, A’s heir or A’s devisee become ascertained? When A dies.

Gestation Rule – tells us that if a child is conceived at time of conveyance and is later born alive, it will constitute a life in being at the creation of the interest.

Lives in being at the creation of the interest are all of those people alive at the time of the conveyance that are somehow connected to it.

Measuring Life: is a person who can prove that a contingent interest is certain to vest or fail within the permitted time period. Ex. O A for life, then to A’s first child to reach 21. A is the measuring (validating) life. You can prove that any child of

A who reaches 21 will do so within 21 years of A’s death. The remainder must vest or fail within this period. The measuring lives do not have to be specifically listed in the problem. Ex. T devises property to “my grandchildren who

reach 21.” T leaves two children and three grandchildren under 21. The measuring lives are T’s two children

***In order to test a particular contingent interest to determine if it meets the RAP, it is necessary to first assume that the lives in being at the time of the creation have died, and then go out another 21 years.

Must determine validity Contingent interests as of this time must either vest or

terminate by this point in time

Period of Lives in Being 21 Years

Creation End of Lives in Being 21 yrs after lives in being

Application of the Rule:- We are attempting to ascertain whether all or part of the conveyance is invalidated by the Rule Against Perpetuities.

- If it becomes certain that a contingent interest will not vest, the principle is satisfied just as it would if a vesting interest did occur. We do not care if an interest will never vest—that is alright.

- To apply this rule, we are testing the conveyance to see whether each interest will be certain to either vest or not to vest within the time limit established by the rule.

- We only care if an interest will vest too far out in time, tying up the title while we wait to find out if it vests. If an interest will either vest or fail to vest within our timeframe it is ok and does not violate the RAP.

- When an interest violates the RAP, it is struck out and the remaining valid interests stand.

Ex.(no violation of RAP) O A for life, then to B if B reaches 30. B is 5yrs old.- Life in Being: B, because he is in the best position to determine if he is ever going to be 30.

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- When B dies + 21 years, will we know if B reaches 30? Yes, we found that RAP will vest. We don’t care whether B dies at 29. We only care about whether or not the interest will vest or fail within this time frame:

o If B dies at 60 it vests.o If B dies at 30 it vests.o If B dies at 29 it doesn’t vest, either way no violation of RAP.

Ex.(violation of RAP) O A for life, then to A’s kids if they reach 30. Violates RAP because we will not know for sure in 21 years if A’s kids will reach 30. (We took out that B is 5 yrs old.)

Paraphrase of the Rule: An interest is valid unless it can be said, with absolute certainty, that it will either vest or fail to vest, before the end of the period equal to (a) a life in existence at the time the interest is created plus (2) an additional 21 years.

Ex. O conveys A his fee simple interest in Blackacre “to A for life, remainder to the first son of A whenever born who becomes a clergyman.” Viewing the matter from the date of the conveyance, A has no son who is presently a clergyman. Viewing the matter from the date of the conveyance, it is possible to imagine a situation in which the son could be born to A after the date of the conveyance, and this son could become a clergyman. Since this remote vesting is possible (even though somewhat unlikely) the contingent remainder is invalid. This is so even though it actually turns out that A has a son alive before the date of the conveyance who ultimately becomes a clergyman.

Judged in advance: As the above example makes clear, the CL version of the Rap requires that the validity of the interest be judged at the time it is created, not at the time the interest actually vests. If, at the time the interest is created, it is theoretically possible (even though very unlikely) that the interest will vest later than 21 years after the expiration of lives in being, the interest is invalid. This is so even if it actually turns out that the interest vests before the end of lives in being plus 21 years.

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What does the RAP apply to?- Contingent Remainders- Executory Interests- Vested Remainders Subject to Open

Keep in mind that the RAP does not invalidate every contingent interest, only the ones that might vest too far out.

What does the RAP NOT apply to?- Fully vested interests (example, O A for life, then to A’s children for their lives, then to B).- Future interests retained by the transferor (examples: reversions, possibilities of reverter, and rights of entry).- Charitable organizations, if both the possessory estate and the contingent future interest are charitable.

Interest to Which RAP Applies:

Contingent Remainder: One of the principle reasons why it is necessary to be able to distinguish between vested and contingent remainders is precisely because a vested remainder is vested from the moment of its creation, whereas a contingent remainder violates the RAP if it might not vest or fail before the end of lives in being plus 21 years.

Ex. O A for life, remainder to the first son of A to reach the age of 25 and his heirs. Answer: At the time of the conveyance, A does not have a son who has reached the age of 25. The remainder in the son is contingent, rather than vested, since it is not known which if any, will reach the age of 25. It is possible that the first son to reach 25 will be one who has not yet been born as of the date of the conveyance, such a son’s interest would vest later than lives in being plus 21 years, if A has no other sons, or if all his sons dies within the 4 years of the conveyance. Since there is a possible or remote vesting, the gift to the oldest son violates the RAP and is invalid.

Vested Remainders – a vested remainder, by contrast, can never violate the RAP. A vested remainder, by definition, vests at the moment it is created. This is true even if possession is not to occur until the future; the important thing is that the remainder vests “in interest,” not possession, immediately.

Ex. O to A for life, remainder to A’s children for life, remainder to B and his heirs. It is possible that A’s last surviving child will be one who has not been born as of the date of the conveyance and who will live more than 21 years longer than any of A’s other children born before the date of the conveyance. It is also possible that, following the last child’s death, possession will go not to B (who may already be dead) but to an heir or devisee of B not yet living at the time of the conveyance. Nonetheless, the gift to B and his heirs does not violate RAP because that gift is a vested remainder, which vests in interest (though not in possession) on the date of the conveyance.

Reversionary Interests – the rule does not apply to reversionary interests (i.e. reversions, possibilities of reverter, and rights of entry). This is because those interests, like vested remainders are deemed to vest as soon as they are created.

Ex. O to A and his heirs for as long as liquor is not sold on the premises. Liquor may never be sold on the premises, in which case O’s possibility of reverter would never become possessory. Or, it might become possessory 300 years from now, surly a severe restraint on alienation. Nonetheless, RAP does not apply.

Executory Interest: an executory interest is not vested at its creation. Thus such an interest may violate the rule. Ex. O conveys certain property to the city of Klamath Falls, “so long as it complies with certain conditions”, including the

building and maintenance of a library on the property. The deed provides that after the property is no longer used for a library, title is to pass to A and B and their heirs. Some years later, the city stops using the library and sues the D’s (who are the heirs of A and B) to gain adjudication on the rights of the parties. Answer: the gift to A and B was an executory interest, and was thus subject to RAP. Since there was a possibility at the time of the gift, that the city might continue to maintain a library on the property indefinitely, it was possible that the gift to A and B would not vest (and become possessory) until after lives in being + 21 years. Therefore, the gift to A and B was void and their heirs take nothing. However, this does not mean that the city gets a fee simple absolute. Instead, the possibility of reverter in O (a corporation) becomes possessory, and goes to the corporation’s successors.

Fertile Octogenarian: Any person, regardless of age or physical condition, is capable of having children. (i.e. a 100 year old man is still capable of having children)

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Unborn Widow: if a conveyance is made to the “widow” of X, the widow is not necessarily the person who is now married to X. Furthermore, the widow may be someone who, at the moment of the conveyance, is not yet even a live in being. The gift to the “widow” thus violates RAP.

Is the gift to an unborn widow automatically void? O A for life, then to A’s widow, if any, for life, then to A’s issues then living. Widow cannot be a measuring life because she may not be born. A is the measuring life. Is the gift to A’s issue valid? The widow’s life estate is good.

A Future Interest is Void if:

a. It is in a grantee (not in O)b. It is either contingent or subject to openc. It might still exist, and still be contingent or subject to open, longer than 21 years after the death of the last person alive at the

creation of the interest

Future Interest Problems

1. Q: O A for life, then to B if B reaches 21, and if B does not reach 21, then to C. What interest does each of the parties have?- A=Life Estate, B=Contingent Remainder, C=Alternative Contingent Remainder, O=Reversion

2. Q: O A for life, then to B, but if B dies under 21, then to C. What interest does each of the parties have?- A=Life estate, B =vested remainder subject to executory limitation, C=executory interest

3. Q: O A, but if A cuts timber on the property, then to B and her heirs. What interest does each party have?- A=FSSEL (fee simple subject to executory limitation) or FSSCS is also correct (fee simple to condition subsequent), B=executory

interest

4. Q: O A for the life of B. What interest does each party have?- A= Life estate per autre vie, O=reversion

5. Q: O A until B reaches 25, then to B. What interest does each party have?- A=Fee simple determinable (FSSEL also correct), B=executory interest

Examples of RAP

O A for life, then to B if B attains the age of 30. B is now 2 yrs. old. Is the conveyance good?- No. B is the measuring life. We will know at the moment B dies how old B is, was, and if he turned 30.

O A for life, then to A’s children for their lives, then to B if B is alive then, and if B is not alive, to B’s heirs. Is the conveyance good?

- Yes. A = life in being. Gift to A’s kids is fine. B is a life in being and measuring life. When be B dies, we will know his heirs. Does not violate RAP. A and B are lives in being and measuring lives.

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O, property law professor, says she holds in trust $1000 “for all members of my present property class who are admitted to the bar.” Is the gift good? (a) Everyone in class are lives in being and when we all die, we will know whether everyone had passed the bar exam.

- (b) Suppose O had said “for the first child of A who is admitted to the bar.” Would the gift be good?- This violates RAP. There is a huge chance that A could die with a 1 day old baby, and we don’t know whether

that child will be able to pass the bar in 21 years. A could also have a 20 yr old that could die right before they passed the bar.

O Cooley Law School so long as used for a school. Does the conveyance violate the RAP? - Cooley = Fee simple determinable, with possibility of reverter. We do not apply RAP to interests held by the transferor.

Does not violate RAP.

O Cooley Law School so long as used for a school, then to A and her heirs. Does the conveyance violate the RAP? - A = executory interest. Apply RAP test. Do we know that Cooley will die? No, it is not a person. A’s interest might not

become possessory for centuries. Violates RAP because A’s interests will vest too remotely, too far out in time. - Typically if your fee simple determinable or fee simple subject to conditions subsequent holder is not a person and it is

followed by a executive interest, 99% of the time it will violate RAP.

What happens if A’s interest violates the RAP? Will be tested on exam- Then you cross out the offending interest (violation of rule), Possibility of reverter in O, Fee simple determinable in Cooley

O Cooley, but if it ceases to use the property for school purposes, to A and her heirs. Does the conveyance violate the RAP? - Cooley = fee simple subject to conditions subsequent, A = executory interest. Apply RAP test. Are we certain that A’s

interest will vest or fail within 21 years? No, Cooley will be around for many years. This violates RAP because A’s interest will vest too far out in time.

- Exception with charities

What happens if A’s interest violates the RAP? - Different result than above. Cross out from “but if…A and her heirs.” Fee simple absolute in Cooley.

How could you effectuate O’s intent without violating the RAP? - You do two things:

- Convey the property in fee simple absolute: O A- Convey the property: A Cooley, so long as it is used for a parking lot, if not back to A. Keeps the possibility of

reverter in A. Not violating the RAP, but allowed A to keep property if Cooley messes up.

Class Gifts:- Must stand or fall as a unit.- Under the RAP, a class gift is not vested in any member of the class until the interests of all of the members are vested.- A gift that is vested subject to open is not vested under the RAP.- For a gift to be vested under the RAP, the class must be closed (every member must be identified) and all conditions precedent

for each and every member of the class must be satisfied within the perpetuities period. Ex. O A for life, then to A’s children. A has one living child B. B’s remainder is vested subject to open because A is

capable of having more children until A’s death. This means that B’s remainder is not vested under the RAP because the interests of other members of the class are not vested (they are not yet identified). Just because B’s interest is subject to the RAP does not make it invalid, it simply means that we have to test it. Because all of the members of the class will be ascertained at A’s death, the remainder is valid.

- When drafting a trust creating future interests, it is prudent to add a perpetuities savings clause. A savings clause terminates the trust, and distributes the assets, at the expiration of specified measuring lives plus 21 years, if the trust has not earlier terminated.

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Examples of Class Gifts

1. O A for life, then to A’s children who reach 24.” A has a child B who is 26, and living at the time of the conveyance. Is the remainder valid?

- *Exam Tip: Any time you have a class of people and the number is above 21, take note.- A = measuring life, we are not guaranteed that at A’s death her children will be 24. A might have a baby and die the next

day. Is that kid going to be 24 in two years? No, the remainder is void. Violates RAP, cross out “A’s children who reach 24.”

- *The reminder in B does not vest since it might vest in one child too remotely.

Unborn Widow Example2. O A for life, then to A’s widow, if any, for life, then to A’s issue then living. Is the gift to A’s issue valid?

- A’s issue has to survive widow. Cannot use widow as a measuring life. Will we know within 21 years of A’s death whether or not the kids will live past widow? No. Violates RAP because it won’t vest until A’s widow dies and she may be a woman not yet alive. Gift to widow ok, but not to issue.

3. T devises property “to A for life, and on A’s death to A’s children for their lives, and upon the death of A and A’s children, to [the person or persons in brackets below].” A and B survive T. Is the devise of the remainder in fee simple valid or void under the RAP if the following words are inserted in the brackets: A and B are measuring lives and lives in being. T is dead.

a. [B if A dies childless] – We will know when B gets it at A’s death. A is a life in being, so the conveyance to B is valid.

b. [B if A has no grandchildren then living] – When will B get it…at the death of A’s children. A’s kids are not lives in being. So, A might have after born kids (born after creating of interest) Will we know for sure within 21 years of A’s death that all of A’s kids will die? No. conveyance to B vest too remotely and violates RAP.

c. [B’s children] – When B dies, we will know which of B’s kids will get it. The gift to B’s children is valid. If B’s children die before A’s children, B’s children’s heirs will get it.

d. [B’s children then living] – “then living” means they have to survive A’s kids. B’s kids have to live longer than A and A’s kids. We won’t know if B’s kids get to take the property within 21 years.

e. [A’s grandchildren] – When A’s children die, we will know who A’s grandchildren are. A’s kids may be born after the creation of the interest (this is bad, because you are not a measuring life). Violates RAP.

i. *Exam Tip: Typically any conveyance to A’s (who is living) grandchildren is bad. ii. However, conveyance to grandchildren when the person is already dead is ok, because the Children have

been ascertained.

f. [T’s grandchildren] – When T’s children die, we will know who T’s grandchildren are. Does not violate RAP. The children are lives in being at time of conveyance.

Wait and See Doctrine (Modern Times): This approach finds that an interest is valid if it actually vests during the perpetuities period, irrespective of what might have happened. A majority of the states have adopted one of two broad classes of wait and see rules: wait and see for the common law perpetuities period, and wait and see for 90 years:

- Wait and See for the common law period: Most of the states that have adopted this rule authorize reformation of interests that would otherwise be invalid.

- Wait and See for 90 years: Adopted in various forms in 26 states in statutory form as The Uniform Statutory Rule Against Perpetuities (USRAP).

Application of the Wait and See for 90 years rule: o If, at the time of its creation, a contingent interest will necessarily vest, if at all, within 90 years, it is valid. BUT,o If the contingent interest is not certain to vest or fail within such a period, we wait and see for 90 years to see if it

actually vests within that time.o If it vests, it is valid; and

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o If it does not vest, the contingent interest will be reformed by a court at the end of the 90 years so as to most closely approximate the plan of the donor and vest within 90 years.

Examples of RAP (Previous Term Exam Questions)

Does this violate RAP and if so, why?

1. Oliver Alicia for life, then to Brad, but if Brad uses the land for a tavern, then to Cathy. - No, we will know at the time of Brad’s death, we will know if he used the land for a tavern. He is a measuring life.

2. Oscar Adam for life, then to Ben if Ben reaches 50. Ben is now 18 years old.- No, measuring life is Ben (life in being). Ben is in the best position to tell us whether he will reach 50 when he dies.

3. Opal Easter Seals (a charity), but if the land is ever leased to another grantee, then to Adelaide.- Yes, Adelaide has an executory interest, and is not a charity, so we have to apply the rule. We have a fee simple subject to

condition subsequent, followed by an executory interest. We will not know for sure whether Easter seals will lease land. Might vest too remotely. Violates RAP.

4. Oprah Adewole for life, then to Beyonce, but if the land is ever used for a shoe store, then to Carlos.- Yes, because the land could be used for a shoe store. “Ever” is not linked with a person. We will never know within in 21

years whether the land will be used as a shoe store. Violates RAP, because it might vest too remotely. Impossible to pick a measuring life.

5. Odell Anthony for life, then to Anthony’s widow for life, then to Anthony’s children then living.• Yes, because this is an unborn widow situation. Widow cannot be used as a measuring life. A’s children then living might

vest too remotely. Violates RAP.RAP Problems (Call of question: “Is this valid under RAP?” or “Taking into account the RAP…?”

1. Q: O A for life, then to A’s first child to reach 30. A has one child B who is 32. Is this valid or void under the Rule Against Perpetuities?

- Valid b/c B’s interest is fully vested by becoming A’s 1st child to turn 30.The measuring life is the first child to reach 30.

2. Q: O A for life, then to A’s children who reach 29. B, A’s child, is 34. Is this valid or void under the Rule Against Perpetuities? (note the distinction between first child to turn a specified age and all children to reach a specified age)

- Violates RAP b/c B could die before A dies, and A’s afterborn child might not turn 29 in 21 years after A’s death.

3. Q: O A for life, then to A’s first child to reach 25. A has one child B who is 22. Is this valid or void under the Rule Against Perpetuities?

- Void b/c B could die before he reaches 25 and A’s afterborn child might not turn 25 in 21 years after A’s death.- *Even though this specifies first child, the child has not yet turned 25, so he might not reach it!!!

4. Q: O A for life, then to A’s first child to reach age 21. A has two kids B (19) and C (20). Is this valid or void under the Rule Against Perpetuities?

- Does not violate RAP b/c we’ll know within 21 years after A’s death whether he has a child who reaches 21.

5. Q: O A for life, then to A’s first child if he survives A by 20 years. Is this valid or void under the Rule Against Perpetuities?- Valid, this does not violate RAP b/c we’ll know within 21 yrs after A’s death whether his 1st child will survive him by 20 years.

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Option to Purchase -A right granted by a property owner allowing a person to acquire a specified interest in the property-May be granted for a specified period of time or for a unstated period, in which case it will be deemed to be valid for a reasonable period.- Have been subjected to rule against perpetuities (RAP)-- To have an option to purchase u may give some money to A and some money to B to hold the option open

Ex: The Symphony Space Inc. V. Pergola Properties, Inc.

Broadwest owned property in Manhattan, included commercial/ office space and a theater and Symphony space was a non-profit and took the theater space and would not have to pay property space. Broadwest was waiting for the value of land to go up and they sold it for $10,000 plus $10 and can take back the lease of the commercial space for a $1, they take a option to purchase and have the right to come back to purchase and the theater space for $1. Could have it back at any time after July 1, 1979, 1987, 1993, 1998, and 2003.

- 2003 is more than 21 years it is 25 years

- You have a contingent interest in the original seller for 25 years

- Symphony said it violated the rule against perpetuities

- Trial court found for Symphony space

- DF's argue :

(1) the statutory prohibition against remote vesting doesn't apply to commercial options;

(2) that the option here cannot be exercised beyond the statutory period;

(3) and this Court should adopt the "Wait and See" approach to RAP.

- when they agreed to it 25 period started the moment the K was made, they are saying business are counted as life and bean, so it starts from day one therefore the 25 goes past the 21

- If this was under modern law it would be valid

- Cannot apply the wait and see because it is up to specific legislature to choose

Co-Ownership of Property (Concurrent Ownership)

• There are various ways in which 2 or more people may own present or future possessory interests in the same property. There are 3 types:

1. Joint Tenancy (JT)2. Tenancy in Common (preferred form of co-ownership)3. Tenancy By the Entirety

(1) Joint Tenancy

Main Concept: A joint tenancy (JT) is a form of co-ownership where each tenant owns an undivided interest in the whole estate. Each joint tenant has exactly the same rights in the property; thus one cannot have a greater interest than the other.

• Generally, conveyance to “A and B as joint tenants and not as tenants in common” will create a joint tenancy; but, a conveyance to “A and B jointly” may result in a tenancy in common in some states. Some states require an express statement of survivorship, such as “to A and B as joint tenants with the right of survivorship.”

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• Avoids probate because no interest passes on the joint tenant’s death (it vanishes). Even though “nothing passes” at the joint tenant’s death, his/her share of the jointly held property is subject to federal estate taxation.

• Joint tenant cannot pass her interest in a joint tenancy by will or by intestate succession.

• If a joint tenant’s creditors act during his/her lifetime, they can sever the joint tenancy by seizing and selling the joint tenant’s interest in property, but, if the creditor waits until death, the decedent joint tenant’s interest has disappeared and there is nothing the creditor can seize.

a. Right of Survivorship: The most significant feature of the JT is that each JT has a right of survivorship. That is, if there are 2

JT’s, and one dies, the other become sole survivor of the interest that the 2 of them had previously held jointly.

b. Right of Possession: IN a sense, each of the JT’s owns the “entire” interest, subject only to the rights of the other. Each JT is entitles to occupy the entire premises, subject only to the same rights of occupancy by the other tenants.

Four Unities: To create a joint tenancy, at common law (this has been superseded by statute in some states), four unities were required: (Memorize these for EXAM)

1. Time : The interest of each joint tenant must be acquired or vest at the same time.

2. Title : All joint tenants must acquire title by the same instrument or by a joint adverse possession. A joint tenancy can never arise by intestate succession or and very infrequently by other act of law.

3. Interest : All must have equal undivided shares and identical interests measured by duration.

4. Possession : Each must have a right to possession of the whole. After the JT is created, one joint tenant can voluntarily give exclusive possession to the other.

How can you sever (Split Up) Joint Tenancy?

- Severance of Joint Tenancies : A severance of the joint tenancy, and thus the creation of a tenancy in common, may occur as a result of:

1. Mutual agreement;2. By one joint tenant conveying his/her interest to a third party (destroying unities of time and title);3. Death of joint tenant (extinguishes his/her interest);4. Partition: (Partition in Kind) action brought by any joint tenant or tenant in common, where the Court will either physically

partition the tract of land into separately owned parts, or (Partition by sale) order the land to be sold and divide the proceeds of sale among the tenants.

5. Unilaterally sever by conveying it from yourself as a joint tenant to yourself as a tenant in common. (Riddle v. Harmon)6. Titled-Theory: (minority) A mortgage is regarded as transfer of title and thus causes a severance. (Harms v. Sprague) 7. Lien on Title: (majority) Mortgage is deemed to be merely a security for repayment and not a transfer of title.

Conveyance to Ones Self: Suppose a JT tries to terminate the JT’s fee by conveying his interest to himself. Since the JT could terminate the JT by conveying to t 3rd person and that 3rd person could then re-convey to the original JT, thus leaving the original JT with a tenancy in common.

Ex. Riddle v. Harmon: (Sneaky wife case) Francis learns that certain property is held by herself and P (her husband) as joint tenants. She wants to be able to bequeath (pass personal property by will) the property to someone other than P. She therefore executes a deed in which she grants to herself an undivided ½ interest in the property; the deed states that its purpose it to terminate the joint tenancy. Simultaneously, she executes a will leaving her ½ interest in the property to someone else. She then dies. Answer: The deed by Francis to herself was effective to terminate the joint tenancy. A

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transfer by Francis to X, followed by a re-transfer by A to Francis, would have sufficed to terminate the joint tenancy. There is not reason why Francis could not accomplish the same result without the use of a “middleman.”

Ex. Harms v. Sprague: John and William Harms (2 brothers) own property as joint tenants. Without Williams knowledge, John and his friend Simmons executed a note favoring Sprague. (Simmon’s own mortgage on property) John gives a mortgage on the joint property to secure this note. John dies before the note is paid. John had bequested all of his property to Simmons. William (P) contended that the mortgage had died with John and that William should have taken the property by right of survivorship. Answer: “Lien Theory state” so Williams execution of a mortgage did not sever the joint tenancy. Upon John’s death, William therefore became the sole owner of the property. The mortgage was merely a lien on John’s interest in the joint tenancy; since John’s interest stopped existing at the moment of he dies, so did the lein on his interest. Therefore, William hold sole title to the property and Sprague’s lien is extinguished.

Problems: (pertain to Harms v. Sprague)

1. If the court had instead held that the mortgage severed the joint tenancy, what effect would paying off the mortgage have had during John’s lifetime (title theory state)? No, they have to have the 4 unities to be a joint tenant and this does not restore the JT.

2. What if William had died first, Sprague had not paid the note off, and the Simmonses foreclosed, would the whole property be subject to the mortgage, or only a ½ interest in it? The whole thing, because when William dies John became sole owner of the whole property and the mortgage lien expands to cover the new interest acquired by John and the joint tenant owns the whole property all along. The Simmonses can get their fingers on the whole interest.

3. A and B own Blackacre in joint tenancy. A conveys a 10 year term of years to C. After 5 years, A dies, devising all of his property to D. What are B’s rights? Does a lease sever joint tenancies? No, they don’t. So when A dies the lease dies with A (just like the mortgage died with John Harms) C is not guaranteed to stay there, and B can kick C off the land if he wants to. So, B owns the property because survivorship is stronger than a conveyance by will.

4. What if A and B sign a written agreement that says B gets the rentals from and possession of the land for her life? Rentals; rent money made from lease.

a. Does the agreement destroy the unity of possession? You have to have the 4 unities for the joint tenancy to be created, but once it has been created A and B can do whatever they want.

b. At A’s subsequent death, who gets Blackacre? B gets it because of the right of survivorship.

Two Notes on the Death of a Joint Tenant

• Where A and B, joint tenants die in a common disaster with no sufficient evidence of who died first, Uniform Simultaneous Death Act says that ½ of estate passes as if A survived B and ½ as if B survived A.

– This means that A’s half goes to A’s estate and B’s half goes to B’s estate)

• If A and B are joint tenants and A murders B, the Uniform Probate Code says that the murder severs the joint tenancy and converts it to a tenancy in common. The murderer gets his/her ½, but the decedent’s share goes to his/her estate.

(2) Tenancy in Common (preferred form of co-ownership) • Created by either: O A and B as tenants in common; or O A and B

Main Concept: A tenancy in common is a concurrent estate in which co-tenants each own an undivided, separate and distinct share of the property. The most important difference between the tenancy in common and the JT is that there is no right of survivorship between tenants in common. Each tenant can dispose of her undivided fractional part of any portion thereof either by deed, will or intestate sucession.

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• Ex. If A and B are tenants in common, and A C, then C and B are tenants in common. If B dies intestate, then C and B’s heirs hold as tenants in common.

(3) Tenancy by the Entirety

• Can only be created in husband and wife. (co-ownership)• 5 unities are required (time, title, interest, and possession, unity of marriage).• The surviving tenant has the right of survivorship.• Husband and wife are considered to hold as one person at common law) both are seized of the entirety.

Severance of Tenancy by the Entirety

• Conveyance: in most states, neither spouse can individually dispose of any interest in the estate by entireties; rather both must joint in the conveyance.

• Death of either spouse• Divorce: terminates the tenancy by the entirety because it ends the marriage (which is one of the five unities. Typically,

after a divorce, the parties become tenants in common.• Execution by a joint creditor of both husband and wife (but a creditor one spouse cannot collect upon the estate owned

by the entirety.• Partition: Because the tenancy by the entirety is to protect the family, neither spouse has a right to have partition and

neither has the power, without consent of the other, to destroy such tenancy.• Mutual agreement: Where both spouses agree to destroy the tenancy by the entirety, such an agreement will be effective.

Problems of All 3 Co-Ownership

1. (Exam question) O A, B, and C as joint tenants. Later A D. Later B dies intestate, leaving H as his heir. a. What is the state of the title, or who gets what? When A to D it severed the joint tenancy with respect to A’s interest.

(but the entire joint tenancy is not severed) So, D has tenancy in common with B & C, and D is joint tenants in common with B &C.

b. What if B died leaving a will devising his property to H? C now has 2/3 interest in the property and D has tenancy in common. When B dies H gets nothing because survivorship rights cause C to become the owner of all of B’s interest (2/3) D is owner of ½ property interest. C & D are tenants in common with one another. (Survivorship rights trump intestate succession)

2. T devises Aquaacre “to A and B for their joint lives, remainder to the survivor. a. What interests are created by the devise? Joint life estate in A and B and future interest is contingent remainders to

survivor. Reversion in O. b. How do a joint tenancy and the above conveyance differ? Life estate conveys different rights then owning in fee simple

absolute. In a joint life estate the only way to convey a fee simple of any kind, would be for A & B to joint agree to convey their interest. (a father might want to keep the property in the family and conveys the property to his children and he is forcing them to agree if they want to sell it)

3. A and B are engaged. Two weeks before the wedding they buy a house and take title as “A and B as tenants by the entirety.” Several years after the marriage, A moves out and conveys her interest in the property to her brother C. C brings an action to partition the property. What’s the result? No tenancy by entirety because they were not married, so they actually formed a joint tenancy or a tenancy in common. It was okay for A to sell to C. One co-tenant may seek a partition against B.

Co-Ownership of Property Generally

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• Lien Theory of Mortgages (majority): says that the Mortgagor (Borrower) keeps legal title and the Mortgagee (Lender/Bank) has only a lien on the property.

– You run to bank to pay off a land shark. To sever joint tenancy you have to convey it to a third person. • Title Theory of Mortgages (minority): says that the Mortgagee (Lender/Bank) takes title to the land and the Mortgagor retains

only the equity of redemption. – You run to bank to get loan to pay off loan shark, you have severed your joint tenancy.

Relationship Among Concurrent Owners

Partition: Any co-tenants who want to terminate their co-tenancy, and can agree on the division of their property. This termination can be accomplished through mutual agreement; but, if they cannot agree, they must file an action for partition, which the court will either:

(1) divide the property, or (2) order it sold and the proceeds distributed.

• Joint tenants and tenets in common can file a partition. (but tenants by entirety cannot )• Partition is available to joint tenants and tenants in common, not tenants by the entirety. • Termination of tenancy by the entirety can only be accomplished through joint conveyance or divorce.

Partition in Kind: • Court physically divides the property.• Court determines the share of the total property to which each co-tenant is entitled (in the absence of evidence to the contrary,

presumption is equal undivided shares).• Court awards portions of the property to the parties in accordance with their interests.• If, after physical division, there remains an inequality in the value of the parcels allocated to the former co-tenants, this may be

corrected by the payment, by the party having the excess share, of “owelty.” (Delfino v. Vealencis)o Money that you give over to make the distribution of the property more equal.

Ex. Delfino v. Vealencis: (Garbage business case) The Delfino’s (P) owned an undivided 99/144 interest in land in which the Vealenci’s (D) owned an undivided 44/144 interest. The property was held as a tenancy in common. Delfino wanted to develop residential housing and sought a partition sale. Vealenci defended, contending partition in kind. She used her portion of the property for the operation of a rubbish removal business and she had her home on the property. She did not store any garbage on the land. Answer:

o Since the property in this case may practically be physically divided, and since the interest of all owners will better be prompted if a partition in kind is ordered, the Court concludes that the trial court erred in ordering a partition by sale, and that, under the facts as found, Vealencies is entitled to a partition in kind.

o Court seeks to promote the best interests of the owners through a determination that partition in kind in the preferred method (in keeping with the (then) common law preference)

Partition by Sale (this is the modern trend)• A sale of the property is conducted under the supervision of the Court.• The expenses of the sale are paid.• The net proceeds of sale are then distributed to the parties according to their respective interests.

Problems

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(1) A and B are heirs of their father. They both want Dad’s old rocking chair. A brings a partition action. What relief should the court award (assume that the chair has very little value)? Joint custody was awarded for the chair until one dies. Then it would go to the survivor.

(2) A and B own Blueacre as tenants in common. Each agrees in writing with the other never to bring an action to partition the land. A then brings a partition action.

a. What result? Yes, A may bring an action. “Never” is a retrain on alienation and does not hold. The agreement is unenforceable.

b. What if instead the agreement provides for no partition until clouds on the title are resolved in a pending lawsuit? Same result? He would not have been allowed to bring a partition if he had done it before the lawsuit was resolved. There has to be a reasonable time period and as long you are in a law suit to resolve the property issues, it is better to resolve these issues and get the cloud off the title inthe long run.

Possession By One Tenant: Each co-tenant has the right to occupy the entire premises, subject only to a similar right in the other co-tenants.

o Ouster: If the occupying tenant refuses to permit the other tenant equal occupancy, then he must account to his co-tenant for their share of the fair rental value of the premises.

What Constitutes Ouster? Most courts hold that ouster occurs only when the out-of-possession tenant physically attempts to occupy the premise and is refused access. Most courts hold that ouster does not occur where the out-of-possession tenant merely demands that the occupying tenant either vacate or pay rent.

Ex. Spiller v. Mackereth: Spiller, Mackereth and other own a building as tenants in common. The lessee of the building vacates. Spiller then enters and begins using the building as a warehouse. Mackereth writes to Spiller demanding that he either vacate half the building or pay rent. Spiller does neither. Mackereth brings suit for half the rental value of the premises. Answer: Spiller owes nothing. To start with “in the absence of an agreement to pay rent, a co-tenant in possession is not liable to his co-tenants for his use and occupation of the property. Mackereth’s demand letter and Spiller’s refusal to pay rent or move out, was not enough to oust Mackereth, because he was not demanding equal use/enjoyment of the premises, merely rent. Spiller did not place locks on the building to act as an ouster, he was merely trying to protect goods he was storing in the building, not keep co-tenants out.

EXAM TIP: Rule of Ousting You have to try to enter and be prevented by the other co-tenant for there to be ouster.

Ex. Swartzbaugh v. Sampson: (walnut tree case) Mrs. Swartzbaugh (P) and Mr. Swartzbaugh (D) were married and had acquired title to property as joint tenants and there were growing walnuts on the property. Mr. Swartzbaugh wanted to lease 4 acres of the 60 for a boxing pavilion. Mr. Swartzbaugh and Samson executed 2 leases for partials of this property. Mrs. Swartzbaugh objected to the lease and refused to participate in it. At no time had she received any rent from this lease. She sued to cancel the lease, claiming it was a total nullity without her participation as a joint tenant. Answer:

- A joint tenant who has not joined in the leases executed by her co-tenant and another cannot maintain an action to cancel the leases where the lessee is in exclusive possession of the leased property. The ease does not sever the joint tenancy.

- To promote productive use (bowing pavilion is more productive than growing walnut trees) of jointly held property by one joint tenant without destroying the joint tenancy. The Court further encourages potential lessees to deal with both joint tenants.

- REMEDIES AVAILABLE TO MRS. SWARTZBAUGH:

- Partition : Mrs. Swartzbaugh could bring an action to partition the entire 60 acres or an action to partition the portion leased to Sampson (the four acres) for the duration of the lease.

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- Ouster: Mrs. Swartzbaugh could enter or try to enter into possession with Sampson. If Sampson resists, the remedies of an ousted co-tenant are available to her. If ousted, Mrs. Swartzbaugh could recover ½ of the reasonable rental value of the leased land (historically called mesne profits).

- Accounting: Mrs. Swartzbaugh can sue Mr. Swartzbaugh for an accounting of the rents received by him. If the lease rent is equal to or higher than the market rent, this is the best remedy for Mrs. Swartzbaugh because she is entitled to ½ of all of the rents collected by Mr. Swartzbaugh from Sampson.

- If she is patient and waits for him to die, the lease dies with him.

- EXAM TP: Difference between Ousting and Accounting

Ousting requires that the party has to give half of all reasonable money, where accounting requires that the party gives half of all rents received.

Where there has not been a Ouster:

-Majority rule, no obligation for a co-tent to pay rent for the use of all or part of the property and profits from the property as long is the property is not permanently damaged

- If reduced value than they other party has to accommodate the other part especially if the damage is permanent

-If there was a ouster than the co-tent has to pay market value of the property

Costs and Benefits of Concurrently Owned Property

o Benefits: • Rents realized from leases to third parties;• Profits realized from using the property for business purposes;• Value realized by one or more of the co-tenants occupying the property as a residence.

o Costs: • Taxes and mortgage payments;• Maintenance and repairs;• Improvements.

Obligations Among Co-Tenants

o Rents and Profits:• In all states, a co-tenant who collects rents and other payments (arising from the co-owned property) from third parties

must share with co-tenants for the amounts received.

• Absent ouster, the accounting is usually based only on actual receipts, not fair market value.

o Taxes and Mortgage Payments: • A cotenant paying more than his/her share of the taxes, mortgage payments, etc., generally has a right to contribution from

the other co-tenants, at least up to the amount of the value of their share in the property.• Exception: If the tenant who has paid the taxes or interest has been in the sole possession of the property, and the

value of the use and enjoyment which he has had equals or exceeds such payments, no action in any form for contribution will lie against the others. **This exception to the rule is not uniformly applied.

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o Repairs:• Regarding necessary repairs, in most jurisdictions, a co-tenant making or paying for them has no affirmative right to

contribution from the other co-tenants in the absence of an agreement.

• But note that the paying co-tenant receives a credit for reasonable repairs in a partition or accounting action (subject to the same qualifications for taxes and mortgage payments).

(EXAM TIP) • A and B are co-tenants. A spends $10K on new roof for their concurrently owned property. A asks B for $5K and B says

no. A institutes a partition action. Court determines that the house with the old roof is valued at $100K and the house with the new roof is valued at $125K, how much do A and B each get? A gets $75K and B gets $50K. (divide the value of the house prior to improvements. Look at full increase in value after and give to A)

• There is no obligation for the non-repairing co-tenant to give contribution for unnecessary repairs, but if an action for partition is instituted, the repair maker gets the lesser of the value of the repair and the cost of the repair.

o Improvements: (EXAM TIP)

• Regarding improvements, a co-tenant making or paying for them has no affirmative right to contribution from the other co-tenants.

• Unlike the rule regarding repairs, a co-tenant paying for improvements gets no credit for the cost of improvements in an action for an accounting or for partition. The improving co-tenant does not necessarily always eat the value of the improvements, the general rule is that the interests of the improver are to be protected if this can be accomplished without detriment to the interests of the other co-tenants.

Ex. A and B own as Tenants In Common Roof needs repair. A fixes it, but B doesn’t give $. A puts in pool. Again B doesn’t contribute. Partition by sale occurs. Roof increased value $10K and Pool increased value $20K. Original value w/o repairs and improvements was $200K, now $230 (sale price at partition by sale). How much does A get? Split old value in half- $100k to A and $100k to B. The remaining $30k goes to A, so A gets a total of $130k.

• (1st Solution) If property is physically divided in a partition action and it is possible to award the improved portion of the property to the improver without diminishing the interests of the other co-tenants as they stood prior to the improvements being made, then it is proper to do so.

• (2nd Solution) Where physical partition is impossible, and the property is sold, the improver may be awarded the added value (if any) of the improvements.

• (3rd Solution) occurs where partition in kind (physical) is utilized and the non-improving co-tenant is awarded property with improvements and the court orders that the non-improving co-tenants pay “owelty” to the improving co-tenant for the enhanced value to the property resulting from the improvements.

• In an accounting for rents and profits, the improver is allowed all increments in value (if any) attributable to the improvements.

• Where improvements cost more than they yield in increased sales or rental value, the improver bears the full downside risk.

• Where the improvements increase the value beyond their cost, the improver gets the full upside (the total increase in value).

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Marital Property

• Historically, under the English marital property system, a woman moved under her husband’s protection, or cover, at the instant of marriage and ceased to be a legal person for the duration of the marriage.

• Starting in 1839, the common law property States in the US began enacting the Married Women’s Property Acts which were designed to give a married woman control over all of her property.

o This made the wife’s property immune from the husband’s debts.o Married Women’s Property Act- to protect the woman from her husband’s creditors and give her legal autonomy

and she would remain in control of her property Ex. After H has a stroke, he bargains with W and enters into an agreement whereby if W personally cares for him at home for the

rest of his life, H would devise certain property to W in his will. W followed through with her part of the deal and when H died he devised the bargained for property to someone else. Can W enforce the contract? In 1993 wife is obligated to provide nursing care to her husband. This is without consideration and the contract is not enforceable.

• The modern movement is to eradicate gender based differences in the law.

• In MI, and other States, legislation has been enacted to give equal rights to both husband and wife. This is the majority view.

Ex. Sawada v. Endo: Endo (D) who had no liability insurance, severely injured the Sawada’s (P). They sued Endo, who’s only real asset was real property held as a tenant by the entirety with his wife. This had been conveyed to Endo’s son. The Sawada’s brought an action to set aside the conveyance of Endo’s property to the son, alleging that it was fraudulent. Endo’s wife had dies prior to the action and Endo alleged that the conveyance could not be deemed fraudulent, because the separate creditor of either spouse may not reach property held as tenants by the entirety. Answer:

- (Married Women’s Property Act ) The interest of a husband or wife in an estate by the entireties is not subject to the claims of his or her individual creditors during the joint lives of the spouses. The transfer to the sons was not fraudulent.

- Family solidarity is to be protected. The home is a valuable asset to be safeguard especially where, as in Hawaii, real property is scarce.

- Tenant by the entirety are protected by the debts or creditors of their co-tenant (spouse) and property may not be taken.

Tenants by Entirety: Creditors can only reach such property as the debtor can voluntarily assign. (All decisions must be made by yourself.)

o In a majority of states, a creditor of one spouse cannot reach a tenancy by the entirety because one spouse cannot assign his or her interest.

Real and Personal Property: Tenancy by the entirety protects not only any amount of real property from transfer by one spouse and from creditors of one spouse, but also, today in many states, any amount of personal property as well.

• One creditor can reach the interest of a debtor spouse in property held as tenancy by the entirety.• Guess who? The government• US v. Craft: A federal tax lein attached to this property. The government can take property held as tenants by entirety.

United States v. 1500 Lincoln Avenue: (the drug trafficking case) Husband and wife own pharmacy as tenants by the entirety. Husband was providing prescription medicine to people who should not get it. The only forfeitable interest is husband’s survivorship interest. The Court hoped to deter drug trafficking and simultaneously preserve and protect the innocent tenant by the entirety’s interest. Answer: The govt felt that the wife was an innocent owner. Can we protect the wife and simultaneously punish the husband? Yes, they can do both by taking the husband’s survivorship. If the wife survives the husband, then the husband’s rights die with him. Wife gets the right to use and possess the land during her lifetime. If they divorce or she dies fist, the govt wants the opportunity to access the property.o The GOV. took the wrongdoers interest because there was a innocent person, the wife of the wrongdoer

United States v. Lee: Husband was convicted of money laundering. The govt wanted to take the home, but the court rules against the govt because the house had not been used for the criminal activity and the wife deserved protection.

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Joint Tenants:

• General Rule: Deed by one joint tenant to 3rd party Severance • Deed by one joint tenant to self Severance (Riddle) • Mortgage by one joint tenant: (Harms)

– Lien Theory No Severance– Title theory Severance

• Lease by one joint tenant to 3rd party No Severance (Swartzbaugh) Also, the spouse does not joint in the leases, cannot sue.• Grant of partition by the court, resulting in a physical division of the property Severance (Delfino)

Tenants by the Entirety:

• Commission of tort by one co-tenant (ex. car accident) No Severance, and property may not be taken for resulting liability (Sawada)

• Property liability under federal criminal foreclosure H’s survivorship interest is forfeitted. (1500 Lincoln Ave)• Where home had not been used for H’s criminal activity No severance. Court cannot take the home owned by H and W.

(United States v. Lee)

Real Estate Transfer

Typical House Purchase Transaction1. The first step in a house-buying venture is to consult a real estate agent. He will know what property is for sale in the local

markets and what price is being asked2. The reasonable and prudent buyer will employ his own attorney to draft a proper contract and steer him through the legal

and financial goals which lie ahead. He will know that the contract is about to sign will have predominate influence upon what is to follow and should clearly and explicitly express the rights and responsibilities of both parties. However, it is more probable that the buyer is somewhat unreasonable and will sign a printed from supplied by the real estate agent because the American public is not yet convinced that a lawyer is needed at this juncture.

3. After the agreement is reached on the purchase price, the buyer expects to pay down on a certain percentage of the purchase price and expects to obtain the remainder of the purchase price by giving a mortgage. After he signed the contract, the buyer will require credit and the assurance that the seller has a good title to convey

4. The agent will forward the application for the loan to the lending institution where it will be processed to determine whether the borrower is a good risk and a credit report will be obtained. An appraisal will be also ordered. The lender will the notify its attorney that an investigation of title will be required

5. There is a direct search of the records by the examining attorney and culminates in the attorney giving his client a written statement called a certificate of title to the effect that he has made the examination and on the basis of what he has found, the fee simple is vested in the seller free and clear of any encumbrances other than those noted as exceptions

6. The function of the closing is to bring all interested parties together and to permit them to execute and deliver the necessary documents simultaneously with the payment of the purchase price and the settlement of the costs of the transactions

7. Following the closing, the lender’s attorney will send the deed and the mortgage to the courthouse for the attachment of revenue stamps and recording and will pay the necessary fees. When the instruments are returned from the courthouse, he will send the deed to the buyer and the abstract, mortgage, note and a certificate of tile to the lender

Purchase agreement: Arrangement that talks about the terms of buying and selling of property and the sale is not final until the closing

- Before entering into purchase agreement it is the best time to get attorney Key provisions of purchase agreement:

i. Direct whether property is to be taken as tenants in common, joint tenants or tenants by the entiretyii. Direct the nature of title required

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iii. Specific existing encumbrances, easement, and restrictionsiv. Key disclosures by the seller that may impact buyers decision to purchase and impact purchase price

Aim for Chocolate: Attorneys need:Decorum;Reliability;Honesty; andEthical Behavior

to generate Legal Opinions, to successfully close real estate transactions, and to generate positive reputations amongst colleagues and clients.

The Anatomy of a Real Estate Transfer:

1) Verbal Negotiation (price, down payment, method of finance, and time of occupancy (Time is of the essence to get the K form extending

2) Preparation and presentation of the offer with or without a attorney : A key time when important rights are fixed, further negotiation and execute purchase agreement

3) Buyer must secure financing (mortgage) also get insurance for the property (risk of loss)4) Appraisal and credit check5) Title Analysis (generally title Insurance)

a. Direct search or examination by attorney who gives client an opinion called certificate of title (rare)b. Abstract of title- where an abstract assembles the relevant documents or abbreviation their contents and certifies

that the abstract contains all relevant information pertaining to tile of property. Abstract is then examined by an attorney who certifies title to his/her claim

c. Local title Insurance where a local company examines all the information pertaining to title and issues a policy of insurance, subject to conditions and expectations relative to statue of title (all rely on American Recording System)

6) Due Diligence (house inspected, environment general area inspection, zoning and master plan, special assessments, schools, etc.) *Must reserve the right to reverse purchase agreement

7) Closing for execution and delivery of deed and payment of purchase price (including mortgage financing and settlement of closing cost)

8) Record deed and mortgage9) Secure possession

1) Oral Negotiations/ Offer in Writing2) Purchase Agreement3) Financing4) Title Analysis5) Due Diligence6) Closing7) Record Deed and Mortgage8) Secure Possession

(1) Oral Negotiations/ Offer in Writing

a. To prove you can buy land/house Showing of Letter of Credit/Commitment Letter/Pre-approval Letter. - Verbal negotiations of price, down payment, method of finance, closing date, and time of occupancy.- Good Faith Deposit : you want to put down as little $ as you can, but enough to show that you are serious.

b. Legal description: Must compare legal descriptions and make sure that they match. Make sure that your client is buying what they think they are buying and what the seller is selling. Compare legal description to the following: EXAM TIP

1. Survey (of land)

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2. Seller’s Deed: (this is all that the seller owns and can sell you)3. Title Policy: (insurance is covering same property you think you are buying)4. Mortgage: (ensure that the bank is mortgaging what you actually own)5. Buyer’s Deed: (what you are actually buying is what you thought you were going to buy)

(2) Preparation and presentation of a purchase agreement. Purchase agreement should be drafted by an attorney. Examples of the types of provisions that should be included in the purchase agreement include (this list is not all inclusive): EXAM TIP #2, 10

1. Names and addresses of the buyer and seller.2. Type of estate/ownership held by seller (fee simple absolute, tenancy in common, joint tenancy, tenancy by the entirety)

and similarly the type of ownership that the buyer desires to obtain.3. Price minus the amount of the earnest money deposit (usually says “receipt of which is hereby acknowledged”) equals the

remaining amount to be paid at closing.4. Legal description and street address. 5. Appliances/fixtures included or not included.6. Seller’s disclosure statement of defects.7. Lead based paint disclosure.8. When closing date is and where closing occurs.9. What happens if the closing does not occur on time/ default provisions/ return of earnest money deposit?10. Type of deed to be conveyed, disclosure of restrictions. 11. Type of title to be conveyed. Who will be procuring and paying for the title commitment and owner’s policy?12. Financing conditions. Timeframe for buyer’s procurement of financing. (this is a way for the seller to get out of the deal in

case the buyer wont be able to follow through)13. Real estate taxes, transfer taxes, and closing costs. Who will pay?14. Time is of the essence. (important) 15. Inspections by buyer and permission for entry.16. Cleanliness of property.17. Survey (buyer pays for this)18. Risk of Loss/ Insurance issues. (who bears the risk of loss?)19. Warranties.20. Well and Septic Test.21. Appraisal. (buyer pays for this)22. Statement of Assessments (condos homeowner’s association fees, etc.).23. Merger of Agreements.24. Plurals/ pronouns.25. Invalidity of one provision does not equal invalidity of whole.26. Signature block/ Legal document secure the advice if counsel before signing.

(2) Financing (Buyer secures financing and bank reviews appraisal and conducts a credit check).

(4) Title analysis: (bank must be satisfied, unsatisfactory defects must be cured).

(5) Due Diligence (some examples follow):

1. Survey review (look for encroachments, set- backs, legal description).2. Compare survey legal to (Buyer’s and Seller’s) deed, title work, purchase agreement and mortgage.3. Environmental review if necessary. (what was on the land before- dry cleaners would alter the land)4. Do a site visit to determine occupancy.5. Prepare/ review/ negotiate all documents required for closing.6. (EXAM TIP) If counsel for borrower, review loan documents, then review with clients, then negotiate with lenders.

(Review Loan Docs)- Important deadlines- Things to verify for accuracy

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- Things that you think are bad for your client

7. If more than one lender, clarify 1st and 2nd position and discuss subordination agreement. 8. If duplex do a common wall agreement.9. Provide lenders with everything they need to feel comfortable with the transaction if representing buyer.

(6) Closing:1. Execution and delivery of deed by seller.2. Payment of purchase price (including execution of mortgage/note/etc.).3. Settlement of closing costs.

(7) Record deed and mortgage.

(8) Secure possession.

Agents & Brokers

- What’s the difference? Agent works for broker and the broker has to go through more hours of class.

- How are each licensed in Michigan? Broker has to sponsor agent’s license and agent has to go through 40 hours of class. Broker has to go thorugh 90 additional hours of class.

- How many homes can you sell per year without being a licensed broker or “salesperson” (agent)? 5 homes. You want to avoid having a broker sell your home because it is more expensive.

- Why do Sellers hire Brokers? List the house and sell the house and facilitate your real estate transaction.

- What do Brokers do? The list the house on a MLS (makes the property available on the internet). Only certain people can list on the MLS- you have to be a broker or real estate professional to list your client’s house on the MLS. You can list it on free add books in supermarket, tv ads, radio, etc. They also negotiate purchase agreements, serve as your intermediary between you and the buyer, if you are a buyer they may assist you in obtaining financing, broker recommends other professionals to you (mortgage broker, list of home inspectors, etc., title company. Your agent or broker will also participate in all inspections with you.

- How are they compensated? Commission- about 6% of the selling price. The agent has to share with the broker. If there is only one agent involved in transaction they get the 6-8%. If there are 2 agents they have to share it.

- Are Sellers the only people who use Brokers? No, seller used to be the only ones, but now buyers are increasingly using brokers and agents.

Brokers owe their clients (usually sellers) the following duties:o Fiduciary duties of :

Loyalty and Good Faith which includes:

Obligation to Maximize the Sale Price and To Report any information that the Buyer shares with the Broke

o You risk these 2 things if you do not act in good faith: (EXAM TIP) Financial liability Loosing your brokers license

Ex. Licari v. Blackwelder: (broker case) 6 siblings enlisted Schwartz, a real estate broker, to help them sell a home they had inherited, though they knew nothing of its potential value. Schwartz enlisted Blackwelder, another broker, for further assistance.

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Blackwelder and Schwartz entered into an agreement in which they would equally divide the commissions from a sale. Blackwelder bought the home for less than market value and sold it 6 days later for $45,000 more than his purchase price. Answer: A real estate broker is a fiduciary who is required to exercise fidelity (loyalty) and good faith and who cannot act adverse to his client’s interests, or fail to communicate information that may be material to his client’s advantage. A failure to communicate the information that a more advantageous sale might be made render to broker liable to the clients for whatever loss the client might suffer as a consequence and also precludes the recovery of a commission for the broker’s service.

Listing Brokers : contract with the Seller to sell the property. (Seller’s agent)

Selling Brokers : introduce the Buyer to the Seller’s property. Sole duties are to the seller. He splits the listing brokers commission, but also has a less direct relationship with the seller. They work with the brokers for a long time.

o You don’t have to pay them anything in order to initiate this relationship. The only cost that you are paying is already within the purchase price.)

Ex. Selling Broker spends several months working with Purchaser, who is a buyer looking for a home with a white picket fence and a swimming pool. To guide the search, Purchaser tells Selling Broker that he does not want to spend more than $870K. Selling Broker starts to search diligently scanning the MLS listings. Selling Broker finds a house with an asking price of $899K. Purchaser falls in love with the house and wants to begin negotiations to buy it as soon as possible. Selling Broker has never met the listing broker or the owner of the house. Does Selling Broker have a duty to inform the owner or the listing broker of how much Purchaser is willing to pay? Yes, because they owe a duty to the seller unless the purchaser and the selling broker have signed an agreement with establishes an agency relationship between them. (in practice seller’s brokers aren’t always very honest) So the buyer has to be careful what she tells the broker, because he has a duty to tell this info to the seller.

Buyers Broker

- Owe fiduciary duties to prospective purchasers.- Narrow property searches to particular geographic locations and price ranges.- Review past sales records and current property on the market.- Show buyers property that fits their criteria.- Help arrange for physical inspections of the property.- Get copies of Seller’s Disclosure Statement, survey- Prepare offers and counteroffers.- Facilitate buyer consultations with other experts in real estate transactions.

Dual Agents - Dual agency occurs when the Buyer and Seller hire the same person.- Dual agent owes Buyer and Seller the same duty of good faith and loyalty.- Many States permit, but there has to be full disclosure early on to both parties.

Listing Agreements- Employment Contract between the Broker and Seller.- What sorts of provisions should it include?

• Price• % of commission to be paid to broker or agent• Name of seller and name of broker• Seller’s disclosure• Stipulate duration of contract • Breakdown of closing costs (pay to prove that you have good title to the house, any extra things that you have to pay for)

Unauthorized Practice of Law:- Traditionally Brokers have been prohibited from:

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• Drafting Legal Documents;• Offering Legal Advice• Carrying out Property Closings

- Many jurisdictions allow real estate brokers to fill in blanks. They will tell you what everything means. People who agree with this say that is saves $ and time. Lawyers, don’t think they should do this, because it is a job for lawyers only.

- Public interest does not require people to get an attorney.

When’s the Broker’s Commission Due?

• Traditional Rule: (majority) The broker earns a commission upon bringing to the Seller a Buyer who is “ready, willing, and able.” (this means someone who expresses the desire to buy the property by making an offer at the asking prices and has the assets to purchase the property.)

• This allows the broker to get paid even if the sale does not close. (word of mouth is a huge thing with real estate agents, so if they try to collect on money even when the house doesn’t get sold, people are going to talk and she is going to get a bad reputation.)

• Most jurisdiction adhere to the traditional rule, but in practice most people don’t get paid until the property has been sold.

The Contract of Sale

Statute of Frauds: English Statute of Frauds (1677) : if you want to sell land or you have a lease that is more than 3 years, you have to write it down. (no oral agreements)

Two Key Provisions:• Except for leases less than three years, no interest in land may be created or transferred except by an instrument in writing,

signed by the party to be bound.

• No action shall be brought upon any contract or sale of land or any interest in or concerning land unless the agreement upon which the action is brought, or some memo or note thereof, shall be in writing and signed by the party to be charged.

Exception #1 to the Statute of Frauds:

• Part Performance (recognized in most states): occurs where a party demonstrates that certain acts were undertaken that make sense only as having been performed pursuant to an oral contract (“unequivocally referable to a contract of sale”).

• Examples of part performance would be the buyer’s taking possession of the property and paying all or part of the purchase price, or making valuable improvements.

Exception #2 to the Statute of Frauds:•When conscionable injury would result from denying enforcement of the oral K after one party has been induced by the other

seriously to change his position in reliance on the k. May also apply unjust enrichment would result if a party who has received the benefit of other’s performance were allowed to rely upon the statue

•Estoppel (well recognized): Has three basic elements:- Inducement (action or inaction).-Change of position in reliance upon inducement.- Inequitable to deny the existence of a contract:

o Inequity occurs where one has been induced by the other to seriously change his/her position in reliance upon the contract.

o Inequity occurs when unjust enrichment would result if a party who has received the benefits of the other party’s performance were allowed to rely upon the statute.

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Ex. Hickey v. Green (the highest bidder case): Green (D) orally agreed to sell land to Hickey (P) and accepted a check as a deposit. In reliance of that contract, Hickey accepted a deposit on his home from a purchaser, intended to build a new home on the land he purchased from Green. Green, knowing Hickey sold his house in reliance of the contract, refused to sell the land to Hickey. Hickey sued for specific performance and Green defended contending the contract was unenforceable under the statute of frauds. Answer: Case is remanded to the trial court to amend the judgment and order the conveyance of Lot S by Mrs. Green to the Hickey’s upon payment of the balance of the $15K from the Hickey’s to Mrs. Green. If the trial judge finds that the Hickey’s are no longer under an obligation to sell their house, the trial judge may order that Green pay the full restitution to the Hickey’s of all costs reasonably caused to them in respect to these transactions (including advertising costs, deposits, and reasonable costs for litigation) with interest. Court finds in favor of the Hickeys and they are to have the costs for this appeal.

o Which of the exceptions does the court rely upon? Estoppelo Public policy? The court does not want to promote the bad behavior.

Statute of Frauds Problems

1. O A as a gift. Deed not recorded. Later O tells A she wants Blackacre back. A, a dutiful daughter, hands the deed back to O and says “the land is yours again.” O tears up the deed. Who owns Blackacre? A, it is irrelevant that the deed was not recorded. This was still a valid conveyance of land.

2. O A and O as joint tenants. Deed is not recorded. A tells O she wants her son B to have her interest, O agrees. To save the recording tax on two deeds, A just whites out her name on the deed and puts B in her place. The revised deed is recorded. O dies. Who owns Blackacre now (keep in mind that this was a joint tenancy)? A is the owner. Why A instead of B? Because there was an original and valid conveyance to A, so in order for A to convey her interest to B , she would have had to sever the joint tenancy (she would have had to say AB) so whiting out in insufficient satisfy the state of frauds.

Marketable Title (4 elements) EXAM TIP

1. Reasonably prudent and intelligent buyer2. Who wouldn’t worry about buying3. Who would pay fair value4. After receiving competent legal advice

Marketable title is a title:

- not subject to such reasonable doubt- as would create a just apprehension of its validity - in the mind a reasonable, prudent, and intelligent person,- one which such persons,- guided by competent legal advice, - would be willing to take - and for which they would be willing to pay fair value.

Two other ways to think about marketable title:

1. Marketable title is a title which would not expose the buyer to the hazard of litigation with regard to a material matter, OR materially reduce the value of the property, assuming the parties are reasonably prudent and intelligent, and acting on competent legal advice.

2. Marketable title is a title which can be readily sold or mortgaged to a person of reasonable prudence, and there is no objection that a reasonable buyer would make so as to interfere with a sale or with the market value of the property—free of reasonable doubt, but not from every doubt.

Marketable Title Example EXAM TIP

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Ex. Lohmeyer v. Bower: Lohmeyer (P) contracted to buy a specific piece of property from Bower (D). The contract said that Bower would convey (by warranty deed good merchantable title, free and clear of encumbrances) but subject to all recorded restrictions and easements applying to the property. The contract also stated that Bower would be allowed sufficient time to correct any defects in the title. Upon examination of the title Lohmeyer learned that the property was in violation of both a city zoning ordinance and a restriction previously imposed on the lot. Answer: The zoning violating and restrictive covenant (agreement) violation on Lot 37 so encumber the title to Lot 37 so as to expose the party holding it to the hazard of litigation and make such title doubtful and unmarketable. The Bower cannot convey the title contracted for the Lohmeyer and the trial court should have rendered the judgment rescinding the contract.

- Private violation - Purchase agreement would say “Subject to all restrictions of record.” This means that you may not back out of the house because of private restrictions that have been recorded at the public records office. IF there are restrictions that exists that the property is not violative of, you can’t back out. But if the property is already in violation of those private restriction, the title is unmarketable.

- We have a violation a municipal zoning regulation and a violation of a private restriction (the house is not tall enough)

- Is the zoning violation and is the restrictive convenant make this unmarketable? Does the fact that he signed an agreement that says “subject to all restrictions of record” This encumbered the title so that anyone buying this house would be in litigation and this make title to the property unmarketable.

o Municipal regulation or zoning ordinance problem (regulation for marketable regulations title) Looking at these facts we have a violations of municipal regulations that subject the purchaser to the hazard of litigation.

o Private restrictions- mere existence of them does render the title unmarketable BUT if you agree to them in the purchase agreements you cannot back out of the contract. If you agree to the existence of the restriction NOT to the existence of the violation!

Municipal Regulations EXAM TIP1. Mere existence of municipal regulations or zoning ordinances do NOT make the title un-merchantable or unmarketable.2. Municipal Regulations are not really part of the “title to” or interest in land. (houses must be one story, houses must be grey in

color etc.) “Subject to all restrictions of record…” You have agreed in advance to these restrictions.3. The discovery of the violation of municipal regulations pre-closing does usually result in the title being u-merchantable or

unmarketable, because it subjects the buyer to a potential lawsuit.

Private Restrictions (ASK)

- Mere existence upon the use of the land or the location and type of buildings that may be erected as established by private restrictions and covenants do constitute encumbrances rendering the title to land unmarketable.

Types of Title (parties to an agreement can vary the standard to make it more or less rigorous):

- Perfect title: Subject to no risks or defects whatsoever (rare, but sometimes proposed by purchaser).

- Record title: As discerned from the public record.

- Marketable title: Apply the definitions previously discussed.

- Insurable Title: Title such that a Title Company would insure (preferred by seller, could lead to unmarketable title if the insurance is inadequate).

Time is of the Essence:

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- In equity, if parties fail to stipulate that “time is of the essence,” the courts will give a reasonable time for performance, but where the parties have stated that “time is of the essence” the Seller’s title must stand or fall as of that date.

- Title defects cannot be cured after the closing date without the Purchaser’s consent.

- They must give you good marketable title by the closing date.

EXAM TIP: This case is huge for “time is of the essence” and is also huge for marketability and AP!

Ex. Conklin v. Davey: Conklin (P, sellers) contracted to sell and convey to Davi (D, purchasers) a residential property in Ridgewood. Davi refused to complete the sale, alleging defects in title and misrepresentations by the sellers. Conklin sued for specific performance; Davi counterclaimed for rescission. The case proceeded solely as an action on the counterclaim of Davi-purchasers, seeking rescission, in effect to secure the return of the down payment.

- Judgment entered in favor of Buyers is reversed and the cause is remanded to the Superior Court a new trial to determine whether Seller has established title by adverse possession and thus has proven marketability. Title based upon adverse possession, if clearly established, is marketable in NJ.

- To promote productive use of the land (through adverse possession) and to further the alienability of land.

- “Clearly established” the court is going to the Seller time to come back to the court to prove that he clearly established AP. The buyer (because they didn’t out “time is of the essence” in the agreement) must wait for the seller to go to court and prove title by adverse possession!

Specific Performance: is a remedy that a court of equity may grant, at its discretion, to a buyer or a seller when money damages are insufficient.

- When the buyer asks for specific performance, the court’s reasons for granting it are because land is unique, and money damages are not an accurate substitute.

- When the seller asks for specific performance, the court’s reasons for granting it are based on the theory that the seller may find it difficult to prove with reasonable certainty the difference between the contract price and the market price of the land.

Equitable Conversion: “equity regards as done that which ought to be done.” (we want to make things fair)

- The court looks at a specifically enforceable contract, and puts the parties where they have bargained to be.

- The buyer is viewed in equity as the owner from the date of the contract (holder of equitable title). (you are not yet in possession of the land- but you are the owner. The risk of loss is on the buyer from the moment of signing the purchase agreement.

o Ex. If you buy a house and the seller is still living in it and the house burns down, many states will say that it is the buyer’s risk of loss, not the seller who is still living in the house.)

Risk of Loss:

- (majority CL view) Some courts hold that the risk of loss is on the buyer from the moment of contract of sale, irrespective of the fact that the seller is still in possession until the closing. It tells you when you should get property insurance during the course of the contract.

- It is advisable for the buyer to procure property insurance at the time of execution of the purchase agreement (contract of sale).

Seller’s Duty to Disclose Defects:

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- Majority Rule: Seller has a duty to disclose known material defects. - Non-disclosure is equivalent to fraud or misrepresentation.- What is material? One of two tests apply:

o Whether a reasonable person would attach importance to the defect in determining whether to buy? OR

o Whether the defect affects the value or desirability of the property to the buyer?

“As Is” Clause: an “as is” clause in a sales contract will generally be upheld if:

- The defects are reasonably discoverable; and- There is no fraud, however:- If there is a fraudulent misrepresentation or concealment of information by the seller, the buyer is not bound by the “as is”

clause.

Stambovsky v. Ackley (Haunted House case) Stambovsky (P) discovered that the house he recently contracted to purchase was widely alleged to be possessed by poltergeists, reportedly seen by Ackley (D), the seller, and members of her family on numerous occasions over the previous 9 years. Stambovsky promptly sought rescission of the contract of sale. Answer:

- “Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction nondisclosure constitutes a bases for rescission as a matter or equity.”

- To avoid having a psychic accompany the termite inspecxtor and structural engineer through every contract of sale home inspection, the court finds that there is no sound policy reason for denying plaintiff relif for failing to discover ghosts which the most prudent purchaser would not be expected to unearth.

- EXAM TIP: A neighbor says the house is haunted? Can buyer back out of the deal? No, because the seller did not create the condition. (only the neighbor knows about it)

- Here, the seller created the condition so the buyer was allowed to back out of the deal.

Ex. Johnson v. Davis: Johnson’s (D) failed to disclose to the Davis’ (P) certain roof defects prior to conveyance of the Johnson residence. After signing, but before conveyance, Mrs. Davis noticed water spots. A roofer concluded that a new roof was needed. The Davis’ sued for rescission and return of their deposit plus costs. Johnsons counter claimed seeking liquidated damages for $5,000. Answer:

- Where the seller of a home knows of fact materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under duty to disclose them to the buyer (laten physical defects). This duty is applicable to all forms of real property, both new and used.

- Public Policy: Tendency of more recent cases has been to restrict rather than extend caveat emptor (“buyer beware”) and seller must disclose. The law is working towards full disclosure of all material facts whenever elementary fair conduct demands it.

All of the cases above were pre-closing cases, and now we are discussing post closing cases. (courts are not as generous when you discover defects after closing, because they want you to exercise due-diligence before you purchase the home.

Implied Warranty of Quality: Builder Buyer of new home subsequent purchaser No privity of contract

- What happens when builder has contract with original purchaser of home and then they sell the home? No Contract relationship (No privity of contract)

Ex. Lempke v. Dagenais: Lempke's (P) predecessor contracted with Dagenais (D) to build a garage, which he did. After Lempke purchased the property, structural problems appeared which Lempke claimed were due to substandard work by Dagenais. Lempke sued Dagenais for the cost of repair and/or replacement.

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- Privity of contract is not necessary for a subsequent purchaser to sure a builder or contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time after the purchase and which cause economic harm.

- Implied warranties are mechanisms which have evolved to protect purchasers of homes from latent defects. Protect innocent buyers.

- This is scary for contractors- the court lists several reasons for this: 1. Latent defects don’t manifest themselves for a considerable time.2. We are mobile people, and we buy and sell houses quickly.3. The subsequent purchaser typical doesn’t have a lot of time to check over the property and they are not very

knowledgeable in construction.4. Arbitrarily imposing a first purchaser as a bar of recovery, might push contractors to do bad work.

Limitations on the Court’s holding:

- Latent Defects only: defects which become manifest after the subsequent owner’s purchase and which were not discoverable had a reasonable inspection of the structure been made prior to purchase.

- Can’t sue builder for economic loss

- Limited to a reasonable period of time.

- Plaintiff still has the burden of proving that the defect was caused by the defendant’s workmanship.

- The law recognizes an implied warranty that the builder or contractor will use the customary standard of skill and care.

- Two Implied Warranties against persons who are in the business of selling

o Warranty of suitability and o Warranty of quality

Uniform Land Transaction Act: Builder and original home owner have a contract the moment they sign- if they sell it within 6 years, then the new buyer will also get the warranty too. But after 6 years the contractor is off the hook.

The Deed

Warranties of Title- Warranties of title: a written instrument for the conveyance of an interest in land and abolished the livery of seisin

There are three types of deeds generally used in the US today:1. General Warranty Deed : warrants title against all defects in the title, that arose before or after the grantor took tile2. Special Warranty Deed- warranties only against the grantor’s own acts but not the acts of others3. Quitclaim Deed- contains no warranties, it merely conveys whatever title the grantor has

(1) General Warranty Deed (typically called warranty deeds)

- Offers the most protection.

- The type of deed that you want when you are buying property. Why? Because it warrants title against all defects, whether they arose before or after the grantor (seller) took title.

- The seller does not want to give this deed.

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Deed1) State the grantor and grantee and words of grant 2) Consideration- state in a deed that some consideration was paid by the grantee, to raise a presumption that the grantee was a bone fide purchaser entitled to the protection of the recording acts against a prior unrecorded instrument

3) Description of tract- a deed must contain a description of the parcel that was conveyed by describing its boundariesa. Reference to natural and artificial monuments and directions from a starting pointb. Reference to a gov. survey recorded plot or some other recordc. Reference to the street and number or name on the property

4) Seal- Abolished, but need signature of the grantor

5) Forgery/ Fraud- A forged deed is void. The grantor whose signature is forged on a deed prevails over all persons, including subsequent bona fide purchasers from the grantee who do not know the deed is forged6) Most courts hold that a deed procured by fraud is voidable by the grantor in an action against the grantee, but a subsequent bona fide purchaser from the grantee who is unaware of the fraud prevails over the grantor

EXAM TIP (know when to use present and when to use future covenants)

Present Covenants: Are broken if ever at the time of conveyance (when the deed is delivered). Statute of Limitations begins to run at the date of delivery of the deed. (varies by jurisdiction. Most likely to recover under these, because they are easier to prove) do not run with the land and the damages for easement are whatever the warrantor received

1. Covenant of Seisin grantor warrants that he owns the estate that he purports to convey (I own what I am conveying to you)

2. Covenant of the Right to Convey Grantor not only owns it, but has the right to convey it to you.

3. Covenant against Encumbrances grantor warrants to you that there are no encumbrances on the property at the time of transfer. (ex. of encumbrances mortgages, liens, easements, covenants)

Future Covenants: Are not breached until the grantee or his successor is evicted from the property, buys up the paramount claim, or is otherwise damaged. Statute of Limitations begins to run at the time of eviction or when the covenant is broken in the future. It is a promise that the grantor will do some act, such as defend against claim of third party or compensation for losses, it is not breached until the grantee or his successors is evicted from the property, they do run with the land to all successors

1. Covenant of General Warranty grantor warrants that he will defend against lawful claims and will compensate grantee for any loss that they sustain by assertion of superior title. (aka. Grantor: I’ll defend you against lawful claims and then I’ll pay the damages)

2. Covenant of Quiet Enjoyment you are not going to be disturbed in your use or enjoyment of the property by an assertion of superior title.

a. Actual Eviction: occurs when the landlord excludes the tenant from the leased premises.b. Constructive Eviction: results from conduct of negligent by the landlord which make the premises uninhabitable. To

take advantage of this defense, the tenant must actually vacate the premises within a reasonable time. Once vacated he may stop paying rent.

3. Covenant of Further Assurances I will execute any documents required to perfect the title. (I’ll sign anything that I need to make your title good)

EXAM TIP: Everyone gets this one wrong on the EXAM!

Ex. Brown v. Lober: (Mineral rights case) Mineral rights are anything that you can find in the ground. (ex. coal, gold, etc.) 1947: OBosts (80 acres of land, 1/3 mineral rights) 1957: Bosts Browns as a warranty deed. (they think that are getting 80 acres and all mineral rights. 1974: Browns Consolidated Coal Co. for $6,000 (all mineral rights) Answer:

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- Until such time as one holding paramount title interferes with P’s right to possession (eg. Beginning to mine coal), there can be no constructive eviction and, therefore, no breach of the covenant of quiet enjoyment.

- P’s oversight, in failing to get a title search, does not justify the court in overruling previous decisions in order to recognize P’s premature cause of action.

• To figure out who owns a piece of property, how they own it, and if they have good title to it; go to the Register of Deeds (aka. Public records office) there are copies of all deeds, mortgages, etc.

• Consolidated Co. did this before buying the mineral rights, so they renegotiated and said that they would only give $2,000 for the mineral rights. This made the Brown’s mad, so they sue the executor of the Bost’sestate.

• The best act would have been to sue under the Present Covenant of Seisen. • BUT, the statute of limitations runs out so they sue under the Future Covenant of Quiet Enjoyment and they loose! • What has to be proven before you can sue under future covenant? You need to be injured, but the court said that they were not.

O did not act to undermine that contract. Their own injury was because they chose to contact with a 3rd party (Consolidated Coal Co)

• The Brown’s were stupid when they bought the property without checking it out at the public records office!

Good Questions to Ask for Warranty of Title Issues: EXAM TIP• When was it breached?• When does the statute of limitations start running?• How did the breach occur?• Does the warranty run with the land?• What type of damages may be awarded?• Is there a limitation on the amount of damages?

Encumbrances-When there is knowledge of an encumbrance and you don’t let the buyer know then they are liable UNLESS it is a public easement and it is apparent like a railroad track

• An encumbrance is “every right to or interest in the land which may subsist in third persons, and they diminish the value of the land, but consistent with the passing of the fee by the conveyance.”

• All encumbrances may be classed as either• A pecuniary charge against the premises, such as: mortgages, judgment liens, tax liens, or assessments; or• Estates or interests in the property less than the fee: like leases, life estates, or dower rights; or• Easements or servitudes on land: such as rights of way, restrictive covenants, and profits.

• The Covenant Against Encumbrances cannot be breached unless the encumbrance existed at the time of the conveyance.

• If a buyer has knowledge of an encumbrance on the property when she accepts a warranty deed, is the covenant against encumbrances breached?

- Encumbrances that affect title are included in the covenant (even if the buyer knows of them). So if you know of a title problem and you take the problem by warranty deed (which says that there are no problems) you can still sue and win.

- Covenants that affect the physical condition of the property are not included in the covenant as encumbrances if the buyer is aware of them. If there is something physically wrong with the house, you cannot sue and win if you knew about the defects before purchasing.

Ex. Mr. and Mrs. L convey a Lot that they own to Mr. M. M did not go into possession. The L’s continue to use the Lot to mow hay, grow oats, maintain a garden, and feed cattle. Forty years later, M’s grandkids convert the Lot into a baseball field. The L’s claim title by adverse possession. Who wins? Can a grantor or seller of property reacquire title to that property by AP if the title

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has been conveyed by warranty deed? If you are the grantor you can’t AP the land that you just sold back. (covenant of general warranty and covenant of quiet enjoyment)

of Damages: If you are suing…

• For breach of covenant of seisin the measure of damages is the return of all or a portion of the purchase price. Ex. A buys 100 acres. Title fails as to 20 of the acres. A is entitled to return of 1/5 of the purchase price.

• For breach of covenant against encumbrances, the measure of damages depends on how easily removable the encumbrance is. If it is easy to remove, the measure of damages is the cost of removal. If it is not easily removable, the measure of damages is the difference in value between the land with the encumbrance and without the encumbrance.

• In either case, the damages are limited by the amount received by the warrantor. (Ex. if O sells to A via warranty deed, for $100 O can never been expected to pay out more than $100 in damages)

Ex. Frimberger v. Anzellotti: (wetlands case) Anzellotti's (D) brother, DiLoreto, subdivided a parcel of land for the purposes of constructing residences. The property was next to a tidal marshland and was subject to the provisions of General Statutes controlling the development of wetlands. DiLoreto Anzellotti by quit claim deed. Anzellotti Frimberger (P) by warranty deed, free and clear of all encumbrances but subject to all building and zoning restrictions. Frimberger requested a survey which found a violation of a statute. In order to correct the violation, Frimberger should submit an application to DEP, demonstrating the necessity of maintaining the bulkhead and fill within the tidal wetlands. He did not do this and sued Anzellotti, claiming damages for breach of the warranty against encumbrances and innocent misrepresentation. Answer:

- He sues for violation of Present Covenant of Encumbrance. - The concept of encumbrances cannot be expanded to include latent conditions on property that are in violation of statutes or

govt regulations.- P could have protected himself by ordering the A2 survey before closing or by inserting indemnification provisions in the

purchase agreement. Since the P was an attorney who developed real estate, specifically waterfront property in the past, and who was aware of the wetlands requirement, the Court has no problem denying him relief.

- Due diligence prior to closing is essential for avoiding unnecessary challenges post closing. (if you discover the violation prior to closing you can rescind the contract)

Distinguish between Laumeyer v. Bauer (1) Laumeyer did his dudiligence before the sale was completed and he was only a doctor. Here, a real estate attorney makes no attempt to find out what is wrong and then he wants to complain once when property violates the statute. (2) Has the P actually been injured? The court is saying “you haven’t been injured yet, so why should we let you recover?” Here they are suing in present covenant and they should be suing in future covenant.

Do covenants run with the land to the successors of the grantee? EXAM TIP

Future covenants run with the land to all successors in interest of the grantee. - Ex. A gives a general warranty deed to B and B sells to C. A is liable to C on any of the future covenants in A’s deed. If

the paramount owner O evicts C, A is liable to C on the covenants of general warranty and quiet enjoyment.

Present covenants usually does not run with the land (majority rule). - If a present covenant is breached when the deed is delivered, the grantee no longer has the covenant, but, instead, has a

cause of action for the breach of the covenant (chose in action).

- Majority rule is that, A B then B C and C discovers a problem, if C tries to sue A on a present covenant, C will not prevail.

o As soon as the breach occurs, the covenant disappears and what will be in its place it a “chose in action.” In a majority rule jurisdiction the “chose in action” (right to sue) does not go to C. C has no right to sue.

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- Minority rule is that, where A B then B C and C discovers a problem, B gives his “chose in action” (right to sue) against A to C with the conveyance. (C can recover against A on a present covenant). B no longer has it unless C sues B, then B gets it back and B can sue A.

o If the present covenant is breached we say that “chose in action” (right to sue) is conveyed in minority jurisdictions.

EXAM TIP

Ex. Rockafellor v. Gray

Doffing Rockafellor by warranty deed. (Grey holds the mortgage…think of him as the bank)Grey forecloses Sheriffs Deed to Connelly (not a good deed- like a quit claim deed)Connelly warranty deed to Dixon for $4kDixon special warranty deed to H &G for $7k7 years after the foreclosure, Rockafellor sued.

- Who does this make nervous? H&G are nervous because they own property that way back in the beginning was an issue of foreclosure and if they win H&G loose the property.

- So H&G cross sue against Connelly so that if Rockafellor wins H&G can recover something from Connelly. - Why did they sue Connely if they bought from Dixon? Dixon received the property via warranty deed and H&G had a

special warranty deed. - We need to assess whether or not Dixon would be liable to H&G since he conveyed by special warranty deed? No, he is

only liable for things that he did himself and he was smart enough to convey via special deed. - Connely is not smart because his sheriff’s deed is not as good as a warranty deed.

You should NEVER convey away property that is with greater warranty than the deed that you received.

- The covenant of seisin does not run with the land, and an action thereon may be maintained by a remote grantee.- To hold original grantor conveying by warranty deed to his warranties and protect subsequent grantees as mush as

Connelly DixonDixon H&G

Can H&G sue Connelly on a present covenant and win? Yes, we are in a minority state in this case. The covenant of seisin runs with the land. How much do H&G get? They only got $4,000 because you are never allowed to get more than the original warrantor received.

PROBLEMS: By Warranty Deed, A B for $20K. B C for $15K. O, true owner, ousts C. (kicks C off the property) Jurisdiction holds that present covenants are breached, if at all, when made, and the chose in action is not assigned to subsequent grantees. (Which jurisdiction is this: majority or minority rule?) Majority

(a) Can C recover against B? No B has no liability to C (since B conveyed it via quitclaim deed)

(b) The deed from B C is a Quitclaim Deed. How much if anything can B recover from A? Since B has no liability to C, B cannot recover anything from A.

(c) Deed from B C is a Warranty Deed. C has not sued B or settled with him. How much, if anything, can B recover from A? Nothing, because B is not injured (he has not been sued by C).

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(d) Deed from B C is a Warranty Deed. C sues B and recovers $15K (injury to B). How much, if anything, can B recover from A? B can only recover $15k because that is the amount that he has been injured. Even though A’s max liability is $20k, and B’s max liability is $15k, so B can’t sue A and make a profit off of it.

Ex. By Warranty Deed, A B for $15K. By Quitclaim Deed, B C for $12K. By Warranty Deed C D for $20K. O, true owner, ousts D at a time when the land is worth $24K. Advise C and D as to how much they can recover on the warranties. (We can assume present covenants) D could sue C for $20k OR D could sue A on the future covenants for $15k. B cannot be sued because B conveyed via quitclaim deed. If D sues C and recovers, then C can sue A and get $15k. But until D sues C, C cannot independently sue A.

Estoppel by Deed

- Owns Blueacre, and is planning to sell it to A, but has not yet done so.- A sells Bluecare to B even though A doesn’t own it.- Later, O does convey Blueacre to A.- If A tries to claim that he now owns it and not B, because he did not own it when he sold it to B, A will lose because of the

theory of Estoppel by Deed. (A is estopped by denying validity of the deed)- A is estopped from denying the validity of his transfer to B.- Estoppel by Deed originally applied only to Warranty Deeds, but now applies to Quitclaim Deeds where the Quitclaim

represents that the Grantor had title.

Delivery of the Deed

• For a conveyance to be complete, there must be delivery of the deed with the intent that it transfer title immediately.• Delivery can be to the grantee, or to an escrow agent to hold until payment is made.

Ways to Effectively Deliver a Deed: 1. By delivery to the grantee, with the intent that it be presently operative:

o By handing the deed over to the grantee; oro By words or acts expressing intent for the present passage of title.

2. By delivery to an independent agent (often an escrow agent), with the view that it will be delivered to the grantee and effective upon the occurrence of certain conditions.

3. If you have an escrow agent and I deliver the deed and say “as soon as the purchase price is paid you can give me the $” the grantor cannot take back the deed.

4. If the grantor hands deed over and then dies before receiving the $. The sale can go through because the grantor cannot take back deed.

Ex. Sweeney v. Sweeney: (AO conditional delivery case) Maurice, Sweeney's (P) intestate, gave property to John Sweeney (D) by deed which was recorded, and John (D) deeded the property back to Maurice, who wished to be protected in the event John (D) predeceased him. John (D) gave the second deed to his attorney. When the latter's office was burned, the deed was destroyed and not recorded. Maurice's purpose in making the second deed was so that he would be protected if John (D) predeceased him. Maurice continued to live on the deeded property until his death. Answer:

- There was legal delivery of the 2nd deed because not only was the deed physically delivered, but also because the only purpose expressed for making the deed (protection of Maurice if John predeceased him) would have been defeated if there were no delivery with intent to pass title.

- Rule: The condition is not operative because conditional delivery must be made to a 3rd party. The farm goes to Mrs. Sweeney.

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- The safety of real estate title is considered more important than the unfortunate results which may follow the application of the rule in a few individual instances.

Ex. What would you have recommended to Maurice if he had approached you and explained his intentions? Answer: – Joint Tenancy (best option); or– M J, then J M if he survives him; or– M J, then J M handed to escrow agent “to deliver on John’s death if Maurice survives him;” or– Irrevocable trust giving Maurice a life estate with remainder to John if John survives, reversion in Maurice if John dies

first; or– M J, J devises property to Maurice (gives J power to revoke).

Ex. Seller is ready to deliver deed to buyer, but buyer does not have the money yet. Seller says to buyer, “I’ll give you this deed now on the condition that you pay me by the first of next month.” Buyer takes the deed and records it, but does not pay up. If Sweeney is followed, what is Seller’s remedy? Answer: Seller could sue for the purchase price. Seller has an implied vendors lien on the property and that is superior to other creditors.

To deliver a deed of land, it is not necessary that the deed be ‘handed over’ to the grantee.

- “Delivery” means no more than an act that evinces an intent to be immediately bound by a transfer.- Delivery can be physically handing over the deed, but it can also be the grantor’s declaration, express or implied, that he is

bound by his deed.”

EXAM TIP

• If a grantor intends to pass title to or future interest in the grantee now, there has been delivery even though possession may be postponed until the grantor’s death. (Intervivos Transfer) Life estates and reference Gruen v. Gruen

• If the grantor intends that no interest should arise until death, no delivery during life has taken place and the deed cannot take legal effect at death because the grantor intended it to be a will. Instruments need to be executed with two witnesses in accordance with the Statute of Wills. (Transfer at Death) If you are trying to convey your property at death via deed, this is bad because that transfer becomes ineffective. Rosengrant v. Rosengrant

Rosengrant v. Rosengrant (pg.536) Harold and Mildred Rosengrant, tried to convey their farm to Jay Rosengrant (D), one of their six nieces and nephews. They both signed a deed transferring the property to Jay (D), and asked him to leave the deed at their bank, saying that he could record the deed after they died. Harold handed the deed to Jay at the bank during their meeting with the banker, apparently in an effort to comply with the legal requirement that a deed be delivered. Jay took the deed from Harold but then handed it to the banker. The banker then held the deed in a safety deposit box in an envelope marked as being for "Jay Rosengrant or Harold Rosengrant." 6 days after Harold died, Jay recorded the deed. 19 days later, a petition to cancel the deed was filed [by other nieces and nephews of Harold and Mildred Rosengrant]. The petition to cancel alleged that the deed was not legally delivered, and was therefore void, or that the deed was only a testamentary instrument and therefore failed to comply with the Statute of Wills. Answer:

• Rule: Where a grantor delivers a deed under which he reserves a right of retrieval and attaches to that delivery the condition that the deed is to become operative only after the death of the grantors and further continues to use the property as if no transfer had occurred, the grantor’s actions are nothing more than an attempt to employ the deed as if it were a will.

• A deed physically handed over to a grantee and then immediately given to the grantor’s agent, to hold until the death of the grantor, does not constitute a valid delivery of the deed.

• The court seeks to preserve and promote the anti-fraud mechanisms present in the Statute of Wills (witnessing requirements)

• KEY POINT: The banker is not an independent 3rd party the banker is the agent of the grantor. Also, the banker puts the deed in an envelope that has Herald’s name on it. (this was not an irrevocable transfer) they attempted to use the deed as if it were a will, which is not valid.

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• Where a grantor delivers a deed under which he reserves a right of retrieval (Harold name on the envelope, at his bank, with his baker) and attaches to that delivery the condition that the deed is to become operative only after the death of the grantors and then continues to use the property as if no transfer had occurred, the grantor’s actions are nothing more than an attempt to employ the deed as if it were a will and this is not allowed.

The Mortgage

• Lender (bank) = Mortgagee• Borrower = Mortgagor• Borrower gives Lender a Note and a Mortgage to get the money she needs to buy her home.• Note: creates personal liability, but is unsecured.• Mortgage: (security interest- collateral) Allows the Lender to sell (at a private sale or a judicially supervised sale, depending on the

jurisdiction) the property and apply the proceeds to the amount owed in the event of the borrower’s default.*The mortgage company must act in good faith and use due diligence

EXAM TIP

There are two redemption periods

1. There is a judicially created right to redeem (oneself by bringing his/her payments up to date within a reasonable time) from the mortgagee called the equity of redemption . (this starts at the moment you default on your loan until the second before your house is sold at foreclosure) The mortgagee cannot ask the mortgagor to waive the equity of redemption. The equity of redemption is extinguished by the foreclosure sale.

2. About ½ of the States have passed statutes that give the mortgagor the statutory right (created by the courts) to buy back the property from the foreclosure sale buyer within a specified time period ranging from 3 months to 2 years. The statutory right of redemption does not become operative until the borrower’s equity is extinguished at a foreclosure sale.

Mortgages

Mortgage Notice Foreclosure Statutory Right to Redeem

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Default Equity of Redemption Taken from Mortgagor

Foreclosure: The banks gets around judicial foreclosure sales by these 2 below:

o Judicial Foreclosure: when you have this the court has been involved. Typically because of the courts involvement, they feel like it has gone pretty fairly and the price obtained is not challengeable, because it is fair. Courts will allow deficiency judgments against borrowers. If you pursue foreclosure by private sale and you have not taken the time and effort the courts

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may have taken, the court will scrutinize this sale more closely and may even deny a deficiency judgment. Deficiency judgment- if this is case, if the property does not sell for as much as was mortgaged against it then the lender will ask for this to get the borrower to finish paying back what was owed to them

o Ex. You owe the bank $100k. You don’t pay. If the bank the judicial foreclosure they sell your house for $75. If the bank pursued a judicial foreclosure they can recover $25k.

- Deed of Trust : Recognized in a majority of jurisdictions where the deed is given to a 3rd party (perhaps the lender) to hold in trust to secure payment of the debt to the lender. If the borrower defaults, the trustee has the power to sell the land without going to court.

- Power of Sale Mortgage : Typical in Michigan, a power of sale provision in a mortgage gives the lender the ability to sell the property without going to court, similar to a deed of trust, which makes the foreclosure sale more expeditious and inexpensive.

Ex.

Purchase Price: $100,000Bank 1st Mortgage: $75,000Seller 2nd Mortgage: $15,000Down Payment: $10,000

- If the Buyer defaults, and the house sells for $50,000, how are the proceeds to be distributed? The 1st mortgage holder always gets satisfied first and has the best rights to the money than anyone. Subordination agreements tell you who gets paid first.

Second Mortgages: these are mortgages that were taken out if they were not able to get enough money from the first lender o They are always subject to the first mortgage

a. You must pay off 1st mortgage before the 2nd

o Usually if there is a foreclosure on one then there is a foreclosure on the second a. If insufficient money is received at foreclosure then it will go to the paying off of 1st mortgage b. The second one takes a greater risk and will usually charge a higher interest rate

All jurisdictions adhere to the rule that mere inadequacy of the foreclosure sale price will not invalidate a sale, absent fraud, unfairness, or other irregularity (sale at 3am).

Ex. Murphy v. Financial Development Corp. (The buyer’s equity case) Murphy (P) was the mortgagor of his residence, the mortgagee being Financial (D). Murphy defaulted on loan payments and attempted several times to renegotiate and refinance the debt. D cooperated by postponing the foreclosure sale at least once, but subsequently held the sale after proper notice. No one other than Murphy appeared at the sale, at which Financial pledged its mortgage and obtained title to the property. Murphy sued to set aside the sale on the basis that Financial failed to use due diligence in obtaining a fair price for the property. Answer:

- The mortgagee’s role on foreclosure is that of a fiduciary. The mortgagee has a duty to exert every reasonable effort to obtain fair price. The court further holds that the measure of damages where due diligence is lacking is the difference between the sale price and a “fair” price (not fair market value). The Court remands for a reassessment of damages.

- The court seeks to ensure that, in the context of foreclosure, the mortgagee neither acts in bad faith nor in exercising due diligence with respect to protecting and preserving the mortgagor’s equity in the foreclosed property.

- What was bizarre about the sale of the house? The sale of the house was advertised at City hall, the post office, and the front door of the house.

- Even though the bank complied with the statutory provision, the Murphy’s argued that there was bad weather, no one knew about the sale because of the way that it was advertised, and the bank was the only buyer who showed up.

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- The fair market value of the house was $55,000 and the bank had this information and they knew that their offer was much lower than what the house was worth.

- The bank paid $27k and then the lawyer turned around and sold the house for $40k. The bank made a huge profit and got their money from the loan.

- Does the bank have a duty to exercise good faith and due diligence? No

- Bad faith it must be an intentional disregard of duty or a purpose to injure. The court held that there is insufficient evidence that they acted in bad faith. The bank did not make the purchase knowing that they would be able to turn around and sell it right away.

- Due diligence Whether a reasonable man in the lender’s place would have adjourned the sale and would have tried to get a better price.

o What should the lenders have done in Murphy to receive a higher bid? Put an ad in the newspaper, they could have hired a

real estate agent to list the property, they could have hired an auctioneer and sent a “sellers reserve” (which puts a minimum the sale price), or they could have appraised it.

o If the foreclosure sale is defective, what are the borrower’s remedies? If you think that this sale will be defective before it

even starts? You can petition the court to have an injunction to stop the sale. The courts will require that the person who lost the house put up a bond.

o Why is the mortgagee frequently the only bidder at a foreclosure sale? Normal people don’t have that kind of money in

cash. Our assets are not liquid enough and we would have to go through too much to get the money (loans, paperwork, etc) Banks are the only buyers that can show up to the sale, since they are already owed the money on the property and they are not making any out-of-pocket expenses.

What is the difference between purchasing land “subject to the mortgage” versus purchasing land and “assuming the mortgage?” (you do not assume any personal liability on the mortgage. So what’s the catch? )

“Subject to a mortgage” The land is still collateral to the mortgage. You are not paying the mortgage, but someone else is. The problem is that if they stop paying the mortgage the land will get taken from you, because the bank has first priority)

“Assuming the mortgage” (you have greater control than subject to a mortgage) You have assumed responsibility for paying the debt as well. The original mortgagor and you are both responsible for paying the debt.

Land Contract: - Seller financed mechanism which allows the buyer (vendee) to assume possession and the seller (vendor) to retain legal title

(security for the premises) to the premises until the buyer has paid all of the purchase price in regular installments during a fixed time period to the seller. (Like a “rent to own”. It is a way to buy a house where the seller finances the deal.)

- Buyer gets possession of the property- Seller retains legal title serves as security of purchase price- Specified payment, installment, may have to pay interest, the whole thing at once- The buyer still has equity in the property that can’t be taken away just like a mortgage- Seller of land K can try to get possession if the purchaser doesn’t pay amount due at the time

Why would a purchaser want to utilize a land contract rather than a traditional mortgage? It is easier to get financing, you may not have a good credit score, private people are more flexible (if you miss a payment they might be more willing to work with you, but a bank wont), or in order to avoid a 2nd mortgage you have to put 20% down.

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Why would a seller want to utilize a land contract rather than a traditional mortgage? You might have a cd at the bank, but you might be able to get 6-7% or more out of a land contract. You are not giving up legal title and you still own the property on paper. So it is easier to get the people out if they are not paying it.

Bean v. Walker (the land contract/vendee’s rights case) Bean (P) sold to Walker (D) a home for $15,000. The contract provided that this sum would be paid over a 15-year period at 5% interest, in monthly installments of $118.62. Bean retained legal title to the property, which they agreed to convey upon payment in full. The contract provided that if Walker defaulted in making payments and failed to cure the default within 30 days, Bean could elect to call the remaining balance immediately due or elect to declare the contract terminated and repossess the premises. If the latter alternative was chosen, Bean could retain all the money paid under the contract as "liquidated" damages. 8 years later, Walker defaulted on the contract, having already paid over $12,000 and having made substantial improvement to the house. Bean (P), after the required 30-day period, sued for an ejectment. Answer:

- The vendee under a land contract agreement has acquired an interest in the property of such a nature that it must be extinguished before the vendor may resume possession. The is because the vendee acquires equitable title in the property and the vendor merely holds legal title in trust for the vendee, subject to the vendor’s equitable lien for the payment of the purchase price in accordance with the terms of the contract.

- If a forfeiture would result in the inequitable disposition of property and an exorbitant monetary loss, equity can and should intervene. (assist the buyer or the vendee is being whole)

- Does this mean that no vendor can pursue forfeiture from now on? Avery small amount of the principle has been paid or if you have abandoned and you don’t “wrap” up the situation and you leave town, so the vendor can reclaim their property.

- Here Walker paid a lot of the principle, and Walker is very interested in keeping the house. Walker was willing to make himself whole, bring his payment up to date, and even paying a higher interest rate.

- You do have to have an actual foreclosure proceeding.

The Recording System*If the deed was not properly indexed by the register of deeds will not prevent it from being constructive notice

From now on assume O is a jerk. Recording creates in O the power to convey to more than one person.

Types of things that get recorded Deeds, mortgages, leases, option agreements, liens, wills, and all additional instruments affecting land titles can be recorded at the public records office, in Michigan this office is called the Register of Deeds.

- A deed is valid and good against the grantor without being recorded- Why record documents???

In order to do a title search, you must look at an index at the public records office. There are two types of indices currently used in the United States:

(1) The Tract Index: Search by Property (best one to use, because you are less likely to have complications, or lose the deed, etc.) Interest by property, legal description, plot number

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(2) The Grantor/Grantee Index: Search by Name of Parties (Most commonly utilized index.)

- In the Grantor/Grantee system, there is an index for the grantors and an index for the grantees.

How do you search a title in the Grantor/Grantee System?

Imagine that you represent Anu, and she has entered into a purchase agreement with Oscar for the sale of Pinkacre. Anu asks you to do a title search to make sure Oscar really owns Pinkacre and has good title. (This conveyance will be O A once the closing has occurred and the deed is delivered.) Here’s what you do:

1. Look up, in the grantee index, Oscar’s (Oscar is Anu’s grantor, but he was a grantee) name and find the deed granting the property to him.

2. Once you find it you can discern the following: the name of Oscar’s grantor, assume his name is Pete, the property description, and any recorded restrictions on the deed.

3. Next you look up Pete’s name in the grantee index and find the deed giving it to him, assume Quita was Pete’s grantor, and review this deed.

4. Then you look up Quita’s name in the grantee index and find the deed giving it to her, assume Roscoe was Quita’s grantor, and review this deed.

5. Go as far back as necessary, 60 years or less in some jurisdictions, back to the sovereign in others, to ensure good title.6. So, you have found the following: Roscoe Quita

Quita PetePete Oscar

7. Next to switch to the grantor index, start with Roscoe’s name, and confirm the chain of title from R Q, Q P, and P O and make sure that there are no deviations from this chain (“breaks in the chain”) of title, duplicate conveyances to others, etc.

o You have to look under each person’s name for each consecutive year after they acquired the property until you find

the next conveyance. In other words, if Roscoe was deeded the property by someone in 1970, you have to look under Roscoe’s name in 1971, 1972, 1973, etc. until you see his conveyance to Quita (or to someone else if Roscoe was misbehaving).

o You proceed through the chain until you reach Oscar.

8. It is important that you search based upon the date the deeds were executed (signed) NOT from the dates they were recorded. o This is key because perhaps Quita acquired the property in 1973, but did not record until 1976. She owned the

property during that time, and you want to be sure she did not convey or encumber it during the time in between execution and recordation. Be sure also to check the grantor index for Roscoe from 1973-1976 because he was still the record owner, and, had Roscoe tried to misbehave and sell Pinkacre to someone else between 1973 and 1976 after he conveyed it to Quita, but before she recorded, an innocent purchaser would not have known.

“Old Mother Hubbard” went to the cupboard to give her poor dog a bone. When she got there, the cupboard was bare, and so her poor dog had none.”

Mother Hubbard Clause is sufficient if subsequent purchaser does have actual knowledge.

Mother Hubbard Clause is not sufficient if subsequent purchaser has no actual knowledge of the prior assignment.

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(EXAM TIP)

Ex. Luthi v. Evans (the Mother Hubbard Clause Case): Owens assigned all her interests in 7 oil and gas leases to International Tours, Inc. (D). The instrument further assigned Owens's interest in all Coffey County oil and gas leases "whether or not the same are specifically enumerated above . . ." (This is an example of a "Mother Hubbard" clause.) The assignment was recorded on February 16, 1971. On January 30, 1975, Owens assigned a Coffey County oil and gas lease that had not been specifically enumerated in the first instrument to J. R. Burris (P). Burris's personal check of the records and his abstract of title did not reveal the prior assignment. The district court found the recording of the first assignment to be insufficient notice to a subsequent innocent purchaser of a lease not specifically enumerated therein. Answer:

- The recording of an instrument which uses a Mother Hubbard Clause to describe the property conveyed, does not constitute constructive notice to a subsequent purchaser who has no actual knowledge of the prior assignment. Burris prevails.

- Tours is the cheapest cost avoider. If the court had not held for Burris, the titles searcher would have to read all prior leases made by Ownen’s to other tracts and then would have had to search to find out what property Owen’s owned in the county. This would be very costly and would have to be repeated by every subsequent title searcher.

Recording Acts EXAM TIP

- General CL Rule: First in Time, First in Right. (on past EXAMS: In the state of Cooley, they have the following recording act we have to identify which of the 3 types of recording acts it is.)

- Recording Acts represent the exceptions to the general common law rule. There are 3 exceptions:

- Subsequent bona fide purchaser (BFP) is protected against prior unrecorded interests. (people who pay fair value for property and are buying it in good faith)

- O is a bad guy, he sold the property to 2 people.

#1 Race Statute: (minority)

- The party that wins the race to record prevails. - Whether a subsequent purchaser has knowledge of a prior purchaser’s claim is irrelevant. - A (who does not record), then O B (of same parcel) B knows of deed to A and B records. Under a race statute, B wins over A.- Exists in very few states, mainly in North Carolina and Louisiana today.

#2 Notice Statute:

- The prevailing party does not have to record to win (but will remain vulnerable to subsequent purchasers without notice if he/she does not), but must take without notice and must pay value.

- If the subsequent purchaser has actual or constructive notice of an earlier conveyance of the property, he/she will not prevail.- O A (who does not record), then O B (of the same parcel) who does not have notice or knowledge of A’s deed. Under a notice

statute, B prevails over A, even though B does not record the deed from O B.- About half of the states have Notice statutes, examples of these states are: Illinois, Massachusetts, Texas, and Virginia.

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#3 Race-Notice Statute: (most stringent of all states)

- The prevailing party must pay value, take without notice (actual or constructive), and record before the prior purchaser.- O A (who does not record), then O B (of the same parcel) who does not have notice or knowledge of A’s deed. Then A records.

Then B records. Under a Race-Notice statute, A prevails over B because, even though B had no notice, B did not record before A.- About half of the states have Race-Notice statutes, examples of these states are: Georgia, Michigan, New Jersey, and New York.

Shelter Rule:

- A person who takes from a bona fide purchaser protected by the recording statute has the same rights as his grantor, even if the subsequent purchaser had notice.

- Applies only in a notice or race-notice jurisdiction.- O A (who does not record), then O B (who pays fair value and is without notice of A’s deed—a BFP). Then B records so he is

the winner. Then A records. (this does not affect the fact that B won. When B conveys to C, FC become rightful owner despite the fact that A had prior interest in the property) Then B C. C wins because of the shelter rule. It is alright that C knows of A.

Ex. O A (who does not record), then O dies. O leaves H as an heir. H B (who records). B purchases for value and without notice of A’s deed. H has not yet received the property from O’s estate when he conveys it to B. Who prevails? B wins because O had the power to convey to B. (recording creates in O the power to convey to more than one person) When O dies (since A did not record) O’s power to convey the property transferred to H. (A remains vulnerable to subsequent parties)

Ex. O A (who does not record), then O B. B purchases for value and without notice of A’s deed, but does not record. A then records and A C. C purchases in good faith for valuable consideration. B records, then C records.

- Who prevails under a notice statute? Who wins between A and B? B wins, because A didn’t record. Then there is a conveyance to C, so between B and C who wins? C wins because C took without notice and paid fair value.

- A race-notice statute? Who wins between A and B? A wins, because A records first. May A then convey to someone else? (Yes, per shelter rule that since A won under the statue they can convey to someone else even though that they have knowledge.) C wins because of the shelter rule.

Ex. Messersmith v. Smith (acknowledgement deed case)

1. Caroline Messersmith and her nephew, Frederick Messersmith (P), each owned an undivided one-half interest in land. 2. On April 23, 1951, Smith (D) negotiated an oil and gas lease with Caroline which was recorded on May 14, 1951. 3. On May 7, 1951, Caroline executed a mineral deed to the land which was recorded on May 26, 1951. On its face, the deed

indicated that it had been acknowledged, but Caroline had not, in fact, acknowledged it. 4. On May 7, 1946, Caroline delivered a quit-claim deed to Frederick for the land, and the deed was recorded on July 9, 1951. 5. On May 9, 1951, Smith executed the mineral deed he had received from Caroline to Seale which was recorded on May 26,

1951. 6. Seale asserts this deed which Smith got from Caroline and which was recorded on May 26, 1951, as cutting off Frederick prior

deed which was not recorded until July 9, 1951. 7. The jurisdiction had a race-notice state.

- Since the acknowledgement was defective in the deed from C Smith, the deed cannot be treated as recorded. (he did not see her sign the deed) Since all of the deeds in Seale’s chain of titles were not recorded, Seale was not a subsequent purchaser in good faith who first records. Every deed in Seale’s chain of title must be recorded in order to defeat a prior purchaser.

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- The purpose of the acknowledgement provision is to prevent forgery.- We are in a race notice state in this case every deed in the chain has to be recorded so Messersmith wins.- If you want to seek protection of the recording statute, then you need to have done everything necessary to qualify as a bona

fide purchaser.

Chain of Title: Is the recorded sequence of transactions by which title passes. Wild deed not properly recorded in the chain of title sequence.

Ex. Board of Education of Minneapolis v. Hughes

5/16/06: CH

5/17/07: CH Hughes (who pays $25) CH did not fill in the name on the deed. Hughes does not record until 12/16/10.

4/27/09: Before Hughes recorded CH D & W (who pay $25). D & W record on 12/21/10.

11/19/09: D&W Board of Edu (who then record on 1/27/10)

- Does the deed from CH to Hughes ever become operative? Deed from Carrie to Hughes did not become operative until Hughes filled in his name on 12/16/10.

- If so, is he a subsequent purchaser and does he deserves the protection of the recording act? Who wins, Hughs or Board of Edu? It was necessary, not only that the deed to the Bd. Of Edu should be recorded before the deed to Hughes, but also that the deed from the Bd of Edu’s grantor should also be first recorded. Hughes gets it.

- Court seeks to avoid the promulgation of wild deeds. Even if Hughes had been due diligent, there was no way to see that Ch was conveying to anyone else. Hughes wins, because D&W and Board of Edu were required to record.

- If a tract index were used, would the result in Hughes be different? Hughes no longer would have qualified as a subsequent purchaser without notice who paid fair value. He would have lost and Board of Edu would have won.

Ex. Guillette v. Daly Dry Wall, Inc: In 1967 and 1968, Guillette (P), the Walcotts (P), and the Paraskivas (P) bought individual lots in the same subdivision. Each of these three deeds either set out restrictions maintaining the subdivision as a residential area for one family homes, or incorporated such restrictions by reference. Additionally, the Guillette deed provided that the lots retained by the seller were similarly restricted. Daly Dry Wall (D) purchased a lot in 1972 and the deed contained no restrictions; though the deed referred to the same recorded plan, this plan was also silent as to restrictions. After Daly learned of the restrictions, it obtained a building permit for 36 apartment type units. Guillette and the others sought to enjoin the construction. Daly appealed the injunction and the case was transferred to this court.- Every recorded deed from a common grantor (sub-divider) gives constructive notice of its contents to the subsequent purchaser

of any lot in the subdivision. In other words, if there is a common owner to a piece of property with a master plan, even if your deed does not make reference to a restriction, you have a duty to review everyone else’s restrictions to determine whether there are any applicable to you.

- Someone purchased home that D did not mention any of the restrictions on the deed. Are you bound by restrictions that are contained in the deeds of your neighbors, if you took without knowledge of the other’s restrictions? Yes, all of the property had to have come from a common grantor. (Contractor/builder divided into sub lots).

Who is protected under the recording statutes? - Usually Purchasers are Protected, but Donees and Devisees are not Protected.- Donees are recipients of gifts and devisees are recipients under a will.

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Ex. O A for $500K. A does not record the deed. O then conveys same property as a gift to son B. B has no knowledge of prior conveyance to A. B records, then A records. Who wins? B recorded first and took without knowledge, but did to pay value. However, A wins because he paid a ½ million dollars. The person who pays money always wins over the person who got as a gift.

How much must a grantee pay to be a purchaser?- Usually more than a nominal amount;- Substantial amount is adequate;- Amount must not be grossly inadequate.

How much do you have to pay? Property is a vacant one acre of land in northern MI (UP). Barachkov will trade you one dollar and a new car. Would that be enough? Probably more than enough. If Barachkov paid $1 plus additional and other valuable consideration, would that be enough? Yes

- There is a presumption that if money is exchanged that is enough. Grantee is a purchaser for good and valuable consideration when there is payment of money (even if just $1). The burden shifts to the person who wants to falsify the conveyance.

Inquiry Notice

There are three types of notice (with respect to a prior claim on land):

Actual – you actually know about an earlier deed, interest, mortgage

Record – arises if the document has been recorded at the public records office. Ex. What happens if B records deed and Scott doesn’t want to drive over there. Does the fact that he didn’t look and

doesn’t know mean that he does not have notice? The fact that it is in the public records office makes it knowledgeable. You have knowledge whether or not you actually look into it.

Inquiry – You have constructive notice of someone else’s interest in the property, if it is in public record. Happens in 2 situations :

a. Something arises on the face of the deed that would put a normal person on notice that further investigation is required (it’s strange).

Ex. Harper v. Paradise

b. When there are circumstances surround the use or occupancy of the property which would put a reasonable person on notice that they should inquire. (i.e. possession). You are presumed to know whether you drive by or not.

Ex. Waldorf v. Eglin

Ex. Harper v. Paradise: “Lost deed case”

o 2/1/22 SH MH life estate in X to M’s kidso 22-25 SH Dieso 3/19/28 SH’s heirs MH Fee simple absolute references 1922 lost deedo 2/27/33 MH ET ($50 loan)o 1936 – MH defaults sheriff’s deed to ETo 1955 ET Paradise (records)o 1957 Lost deed found and recorded in July

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- The recitals in the 1928 instrument clearly put any subsequent purchaser on notice of the 1922 deed. It was incumbent upon the appellees to find out, through diligent inquiry, what was in the 1022 deed. Court holds that the remaindermen are entitled to the property because Paradise was on inquiry notice of their interest because of the 1928 instrument alluding to the 1922 deeds.

- Court Holding: 1922 deed is effective. When SH’s heirs conveyed to MH, they should have known that only a life estate was conveyed. And Paradise should have been due diligent. The Court gave it to MH’s kids because the 1922 deed is effective. A deed in the chain of title is constructive notice of all the deeds referred to in the discovery of the deed. Court is presuming that you have knowledge of what is in the 1922 deed.

- What is all you could have done? Hire a title company to do a search and when they discovered the 1922 lost deed, then hire an investigator to determine who SH and MH’s family members are. Then go one step further and go to each person with a quit claim deed and give them some form of payment and get them to sign the property over, staying they had no interest in the property. (File a quite title action and the court gives notice to everyone who they think has an interest.)

- Why is court being hard on Paradise? They did not do their homework prior to purchase. The court is punishing them for not being due diligent. When you are due diligent, don’t ignore the fact that a deed was lost, look into it further to determine who really has an interest in the property.

Ex. Waldorff Insurance and Bonding, Inc. v. Eglin National Bank: Choctaw mortgaged a condominium project to Eglin (D). It sold a single unit to Waldorff (P), which occupied the unit and paid all expenses and rent. Choctaw executed a second mortgage in favor of Eglin on which it defaulted. Eglin foreclosed on the project, including the unit occupied by Waldorff. Waldorff sued, contending it had better title. The trial court held Eglin had no notice of Waldorff's ownership merely because of possession. Answer: Subsequent successors to legal title take subject to all equitable interests of which they have notice. A contract to convey legal title on payment of the purchase price creates an equitable interest in the purchaser. Beneficial ownership passes to the purchaser while the seller retains mere naked title. The occupancy of the unit placed Eglin (D) on notice of Waldorff's (P) interest. Thus Waldorff (P) retained greater title.

- Actual possession of a real estate is sufficient to a person proposing to take a mortgage on the property, and to all the world, of the existence of any right which the person in possession is able to establish. The court Seeks to promote due diligence prior to purchase of real property. Go inspect the premises to determine if they are occupied.

- Weird structure of their purchase agreement? Started with $1K deposit (normal), Choctaw is not paying Waldorff, insurance broker, and owes $22K. Waldorff says let’s call it even, and Waldorff gets title fee simple absolute in the property. Waldorff was occupying the land; lived there, paid for maid services, utilities, ect. Did the things that would put someone on notice that someone lives there.

- Eglin forecloses and is trying to exercise its rights under the mortgage and wants to take the property, sell it, and get paid back. Waldorff decides to assert its ownership interests.

- Occupancy issue (2nd aspect of inquiry notice) Court holds for Waldorff, because the least they can do is drive by the property to determine if someone is living there.

Questions on Inquiry Notice: Is the Doctrine of Inquiry Notice sound (a good idea)? From public policy perspective it is quite sound, forces you to be

due diligent before you buy the land so you know of any problems in advance.

Does Inquiry Notice make the transfer of land more costly and title less certain? Yes it is more costly and less certain because issues may rise on the face of the deed. With regard to physical possess and use of the premises it is very simple, fair, and cheap. If they don’t drive by the land to see if someone is living there they should be stripped of their interest.

Should the courts abolish Inquiry Notice and require Actual Notice? Actual notice has an added layer of difficulty. Inquiry Notice is based on what a reasonable person should know and do. We can say that the house is occupied so a reasonable person should know this and is easy to prove. When you have actual notice it may be harder to prove. How does one show that someone actually knows.

Marketable Title Acts

Marketable Title Acts: “making sure the title of the property is clean and clear”

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- Looking for the chain of title that show all the ownership in the land.- Their purpose is to limit title searches to a reasonable period of time—usually thirty or forty years (so that for every land sale

the title does not have to be searched back to the sovereign or the beginning of time).- The theory is that when one person has record title to land for 30 – 40 years, inconsistent claims or interests are extinguished. - They seek to extinguish old title defects automatically with the passage of time.

- Claimants of an interest in land must file a notice of claim every thirty or forty years after the recording of their instruments of acquisition to preserve their ownership of the property where marketable title acts are present.

- Have been enacted in a large number of states.- If in jurisdiction with 40 yr. Lived in house for 39 yrs. It would be a good idea to file a notice of claim and make it so as to

preserve your interest in the property.

How do marketable title acts work?

- Some take the form of a statute of limitations barring a claim not recorded within the designated period of time.

Root of Title: the most recent transaction in the chain of title that has been of record for at least 40 years (or whatever the statutory period is).

Notice of Claim: is either a re-recording of the old interest or claim; or a new recordation made to renew an interest or claim for an additional 40 years (or whatever the statutory period is).

Ex. 1889, O gives a 99 year lease to X which is recorded the same year. 1890, O A via deed reciting that it is subject to the 99 recorded lease in X. 1920, A B via deed with no mention of the (X’s) lease. 1941, B C via deed with no mention of the lease. Under a 40 year marketable title act, C’s title would be free and clear of the 99 year lease as of 1960, when the 1920 deed

had been of record for 40 years, assuming that X was not in possession and that X has not filed a notice of claim. C is owner in 1960 in fee simple absolute. 1920 is the root of title. 40 years have elapsed with no mention of the lease or encumbrance.

There are some exceptions to the extinguishment of rights under marketable title acts:- Possession, which serves as inquiry/constructive notice of an interest or claim to the property under some statutes.- Mineral rights, easements, and claims of the federal government may also be exceptions under some statutes. Previous example: if X were still living on the property, C could not claim he didn’t know of possession

Ex. Assume the jurisdiction has a 40 year marketable title act. (There is one example where forged deed will be valid)o 1959, O dies intestate. O owns Blueacre, unimproved land.o O’s heir, H, doesn’t know O owns Blueacre.o 1960, F forges H’s name to a deed conveying Blueacre from H A.o Forged deed is recorded.o 1962, A B.o 2002, H’s daughter and sole heir, C, discovers the 1960 forgery.o C brings suit against B to establish title to Blueacre.o Who wins? B wins because the forged deed has become the root of title. 40 years have lapsed since the 1960 deed.

Forged deed is cured by the marketable title act.

Title Insurance

Title Insurance: - Developed because of inadequacies and inefficiencies in the public records in protecting private titles to land.- Guarantees that the insurance company has searched the public records and insures the policy holder against any defects in

the public records, unless such defects are specifically excepted from coverage in the policy.

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- Definition: Is the opinion of the insurer concerning the validity of title, backed by an agreement to make that opinion good if it should prove to be mistaken and loss results as a consequence.

Title Insurance – is what you purchase when you purchase a home (1) you want to find out what is wrong with the title of the house before you buy the house. Typically, the title company will search the title at the public records office. (2)

The difference in duty between 2 documents: (1) Title Abstract and (2) Title Commitment leading to Title Policy.

(1)Title Abstract (tort liability-duty owed) – Not an insurance policy, but rather a search of the title, and the company reports as to what they think is wrong.

- If failed to notify of a problem of the home you can sue under tort. The company performing the abstract has a duty to you, the potential buyer, to inform you of all the defects or problem relating to the title of the home.

(2)Title Commitment (no tort liability-no duty): done in advance of the issuance of policy and is not expensive, and will get a list of all the things wrong with the property. If you do the things that are required at the closing, they will grant a title policy at the time of closing.

- Title insurance: title company does not owe you a duty to disclose what they discovered in the search. The Co is doing the search for their own benefit, not yours, to determine if they will give you insurance (they are assessing their own risk). You cannot sue them if they fail to disclose the defects.

- Title Policy (aka Title Insurance) protects against defects of the property, issued by the company that did the search.

- Is purchased by the payment of one premium paid at the time the policy is issued.

- Continues for so long as the insured maintains an interest in the property.

- Is purchased in the amount of the purchase price of the home if a homeowner’s policy, and is purchased in the amount of the loan if a lender’s policy. It is a percentage of the value of the home. If using a real estate agent, the seller is typically the one who pays (but it is negotiable). If you represent the seller, you will want the buyer to pay. If buyer, you will want the seller to pay.

- Does not run with the land. A subsequent purchaser must take out a new policy if he/she wants title insurance.

- Lasts as long as you own the property. You cannot assign the policy rights to the person who gets the home after you.

Lender’s policy (buyer pays): you take insurance on the part that you mortgage (the amount of the loan). It protects the bank if the title defect results in your dispossession of the land.

Owner’s Policy (seller pays)

Torrens System (aka registration of title) – not used much in US. The Torrens system differs from the traditional recording system in that it establishes a legal procedure where the state guarantees the owner’s title. The main difference between the Torrens system and the recording system, is that under the recording system a good faith purchaser bears the risk of losing his interest in the land if a claimant later appears, where under the Torrens system the owner’s certificate defeats any competing claims not declared in the initial proceeding.

- It puts recording deeds and transferring title into the realm of secretary of state or DMV. Certificate of title for the house that gets signed over, take to public records office (who will search title) then issue

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new cert of title to the purchaser of the home. Puts title insurance in the hands of the gov’t instead of private companies. Once the lawsuit adjudicated title in P, you have a certificate of title. The gov’t bears the burden to search title. Those who encounter errors there is an indemnity fund to compensate those who are injured.

Ex. Walker Rogge, Inc. v. Chelsea Title & Guaranty Co: When Walker Rogge, Inc. (P) discovered by survey that its property contained 5.5 less acres than the seller had represented, it sued Chelsea Title & Guaranty Co. for failing to discover and disclose the correct acreage contained in Chelsea Title's (D) files. Issue: Whether issuance of the title commitment and title policy places a duty on the title insurance company to search for and disclose any reasonably discoverable information that would affect the insured’s decision to purchase the property?

- Answer: No duty. The survey exception applies. The purpose of the exception is to protect the company from risks which a survey might reveal, such as less acreage than expected, thus, Chelsea is not liable on the insurance contract. The court here remands for exploration of whether Chelsea assumed some additional independent duty to do a search and disclose the problems to Rogge. Title insurance is no substitute for a survey. Rogge should have gotten his own survey done before the closing.

- You want title abstract. Not all title companies will give you a title abstract. Title comapanies don’t want to purchase the insurance because of the exposure of the tort liability attached to it.

Would an attorney, hired to give a title opinion, be liable to Rogge if that attorney failed to report the difference in the amount of the acreage? Yes. Why or why not? Lawyer has a duty to the client to disclose that information. The title company was doing the search for its own benefit and not Rogge’s benefit.

Does a grantee have more protection under a Warranty Deed or a Title Policy and why? (Not on Exam) If Warrantee deed it will protect against defects on and off the record. Title Policy only protects against defects on the record. Title Companies usually have a lot of money. Those who give warrantee deeds don’t. Title Co’s will defend against any attack on title resulting from a defect that is insured against. WD the covenant of general warranty promises only to defend against attacks by an owner of a paramount claim. Which is better? Get both!! And you’re fully covered.

Things to do to protect yourself when purchasing a home:

(1) Get survey before you purchase land

(2) There is no tort liability under title commitment or title policy, so if you want to be able to sue the title company for their negligence of not disclosing everything about the property to you, you better find a way to get the title abstract.

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