TA Session Week 7

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FUTURE INTERESTS (CONTINUED) FUTURE INTERESTS CREATED IN THE GRANTOR (1) Reversion (REV/RV): When a grantor transfers away a vested estate of a lesser quantum than he began with and doesnt in the

same conveyance transfer the balance to a third party. Key = lesser estate and balance not given to third party. Ex: O to A for life, then to B if he is 21 when A dies.

(2) Possibility of Reverter (POR): Grantor conveys a determinable estate of the same quantum and doesnt in the same conveyance give remainder to third party. Key = estate of same quantum with a determinable limitation. Almost always in the context of carving FSD out of an FSA.

Ex: O to A, SLA no liquor is sold. (3) Right of Entry (ROE/RE): Grantor creates an estate subject to condition subsequent and retains the right to cut short the estate.

Key = conveyance of an estate subject to condition subsequent and grantor retains power to cut short conveyed estate before natural termination. Generally tied to FSSCS.

Ex: O to A, but if liquor is sold, O may reenter. FUTURE INTERESTS CREATED IN THE GRANTEE Remainder (R): [waits patiently] A remainder is a future interest in a grantee that (i) has the capacity of becoming possessory at the natural expiration of the prior estate and (ii) that does not divest the prior estates. Can follow anything but an FSA. (1) Vested Remainder (VR): A remainder is vested if (1) it is given to an ascertained person and (2) it is not subject to a condition precedent (other than the natural termination of the preceding estate). A VR survives its holder.

i) Indefeasibly vested: Remainder is certain of becoming possessory and cannot be divested. Ex: O to A for life, then to B and her heirs.

ii) VR subject to open/subject to partial divestment: Remainder is created in a class of grantees, at least one of whom presently exists and is qualified to take possession as soon as the previous estate ends, but which is capable of expansion to include as of yet unascertained members of the class.

Ex: W to H for life, then to children who have graduated from law school. W and H have three children, A, B, and C. A has graduated from law school.

iii) VR subject to total divestment: A vested remainder is subject to total divestment when it is held by someone who has satisfied all conditions precedent to possession, but who is subject to a condition subsequent that, if it occurs, will completely divest the remainderman of his interest.

Ex: O to A for life, then to B, but if C graduates from law school, to C. iv) VR subject to total and partial divestment

Ex: O to A for life, then to Bs children, but if C returns to NYC, then to C. B is alive and has child D. (2) Contingent Remainder (CR): A remainder created in an unascertained person or subject to a condition precedent. A CR is a right of possession that depends upon the satisfactory resolution of some uncertainty.

i) Contingent remainder is always followed by a reversion. Ex: O to A for life, then to As childrens. A has no children at the time of conveyance. Ex: O to A for life, then to Bs heirs. Ex: O to A for life, then to B if B survives A.

ii) Alternative contingent remainders: These occur when remainders are structured such that the property must go to one or the other (this is where O has a technical reversion if there is waste or simultaneous death, etc).

Ex: O to A for life, then to B if B survives A, but to C if B does not survive A. (3) Executory Interests (EI): [cuts short] Future interest in a grantee that divests either (1) another grantees possessory or future interest (shifting executory interest) or (2) the grantors interest at some future time (springing executory interest).

(a) Shifting EI: Ex: O to A, but if B should ever come back from France, to B.

(b) Springing EI: Ex: O to A for life, then to B if he gives A a proper funeral. Ex: O to A for life, then to B if she graduates college.

Compare: O to A for life, then to B for life, then to C in the event of Bs death.

Condition Subsequent vs. Condition Precedent: Key to distinguishing a VR subject to total divestment and a CR. CS: O to A for life, then to B, but if B ever rides a motorcycle, then to C. CP: O to A for life, then to B if she has never ridden a motorcycle, but if she has, then to C.

As a background rule, VRs are preferred compared to CRs. Remainders vs. Executory Interests: Key question: Can the interest possibly pass along to grantee at the precise moment when the prior estate ends?

TA Session Week 7

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TRUSTS

1. A trust is created via separation of the legal and equitable titles of a piece of property. a. TrusteeHolds legal title to trust property and manages the property for beneficiaries b. BeneficiaryHolds equitable title, which gives right to beneficial enjoyment of the property

2. Spendthrift trust a. Creator of trust makes the beneficiaries interests inalienable and unreachable by creditors. b. Validity upheld in Broadway National Bank v. Adams

3. Asset protection trusts a. Creator of trusts own equitable interest is immune from creditors claims

4. Perpetual trusts a. Disposition of wealth is controlled forever into the future.

5. Consider implications for democracy/wealth inequality COMMON LAW CONCURRENT INTERESTS Types, Characteristics, Creation

Tenancy in Common (TIC) o Only unity of possession required: each tenant has a separate, undivided right to the whole.

Joint Tenancy o Four unities: Time; Title; Interest; Possession.

Distinguish time & interest Modern trend: permit unequal shares (see p. 324; see also bank account rules, pp. 33536).

o The magic words to create a JT vary. See p. 321 & n.4. o Key feature: Right of Survivorship (RS); major advantage: avoids probate (since no interest passes at death)

Tenancy by the Entirety (abolished in most states); considered further in Sawada v. Endo. o Essentially a JT + marriage. o Neither party may unilaterally defeat the right of survivorship; ends by mutual agreement or possibly by divorce

(where TBE is converted to TIC or JT depending on state law) Modern presumption: Conveyance to two or more persons creates TIC; Exceptions:

o In some states, conveyance to H and W will create TBE o In some states that have abolished TBE, conveyance to H and W will create JT

Language problem: Which of the following conveyances creates a joint tenancy? What is lacking in the others? o O to A and B for their joint lives as joint tenants. o O to A and B as joint tenants with right of survivorship. o O to A undivided for As life and to B undivided for Bs life, as JT.

Problems o O to A, H, & W as JT. H dies. Who owns what: (1) in a TBE state; (2) in a state that has abolished the TBE? o O to A, B, C & D as JT. A dies (devising all to E). B to F & G. C dies intestate (heir H). State of title?

Creation and Severance of Joint Tenancies

Creation problem. A, owner of Greenacre, wants to create JT with B. o Anywhere: A to straw. Then straw to A & B as JT. o Modern trend: A to A & B as JT will create joint tenancy. E.g., Donovan v. Donovan (Cal.)

Secret severance problem. Strawman required to sever a JT in most states. o Any jurisdiction: Where A & B hold as JT, B to straw. Then straw to B, converts the JT into TIC. o Riddle v. Harmon: Does B to B as TIC sever the joint tenancy? Held: Yes. o Policy concerns: Fraud: Why? Fairness: Would a notice requirement resolve all of our concerns? What about TBE?

Effect of conveyance of a lesser interest by joint tenant o Harms v. Sprague: Is mortgaging of a JT property by one JT adequate to sever the JT? Held: No.

Title theory vs. lien theory (modern approach). Either way, modern courts would not extinguish the RS. Policy: Should mortgage survive the death of the joint-tenant mortgagor?

Many think so; MH thinks not. Question: Who loses as between two innocent parties? o Range of possibilities for A and B as JT, A conveys lesser interest to X: see casebook, p. 334

Other way to sever a JT: agreement to sever.

TA Session Week 7

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Remedies: Partition Partition converts cotenancy into severalty (distributing property, distinguish from severing a JT)

o Partition in kind: Physical division of property into separate parcels. (With owelty: $$ to equalize the division.) o Partition by sale: Property is sold at auction; proceeds divided among cotenants according to their respective shares. o Rule: The legal preference remains for partition in kind; may be overcome if (1) partition in kind is impracticable or

inequitable and (2) owners interests would be better promoted by partition by sale. Modern trend for partition by sale (tends to be favored by parties and/or courts).

Competing visions of property o Subjective value (Ark Landfamily home); personhood (remember Radin PPL) vs. economic, fair market value.

Delfino v. Vealencis o Facts: D owns 1/3 (runs garbage business and lives on land); V (absent) owns 2/3. o V wants partition by sale; D wants partition in kind; trial court orders sale; S.Ct. overturns, orders in-kind partition. o Which party is being opportunistic here? What values should the law recognize?

Restrictions on partition: Will be upheld if the restraint on alienation that it imposes is reasonable under the circumstances. What about improvements:

o In partition in kind, the court will consider the land being partitioned (Delfino), not adjacent land (Gray v. Crotts) o In partition by sale, the improver gets the value of the improvement (or bears the risk of loss).

Remedies: Ouster and Accounting

Ouster: One cotenant excludes the other cotenant and deprives her of the right of possession. o Spiller: Cotenant in possession took possession of warehouse; cotenant demanded rent. Held: No ouster. Why?

Rent to cotenants out of possession: o Majority rule (Spiller): A refused demand to vacate or pay rent is not sufficient to serve as ouster. o Minority rule (Cohen): Cotenant in exclusive possession must pay rent to cotenants out of possession. o Prof. Heller prefers the minority rule on Liberal Commons grounds for commercial use. Less clear for personal use.

With an exception for heir property. Why? Adverse possession: Almost impossible as between cotenants. Ex parte Walker. (or as between lessee and lessor) Remedy under ouster: half of fair market value. Accounting: cotenant affirms the lease and gets equitable relief for half of actual rental value. Third partys liability depends on what he thought he was renting: just one cotenants share or the entire property.

Effect of Lease by Joint Tenant

Swartzbaugh v. Sampson (H to S for a term of years over Ws dead body). When one joint tenant leases to a third party, what effect (1) on the JT; (2) on the lessees interest? Remedies for Mrs. Swartzbaugh (W)?

o Ouster: W disaffirms lease, gets ousted (Spiller), will receive reasonable rental value. Valuation issue: Assume Ss lease has rent R. If S ousts W, what does S owe W? H?

o Accounting: W will receive actual rental value. o Partition: Would sever joint tenancy as between W and H. Value of improvement to improver. o Wait for H to die. Lease ends; W can evict.

Burdens of Co-ownership

Cotenant has rights to contribution for taxes, mortgage payments, and other necessary carrying charges (that will prevent the estate from extinction by operation of law).

Necessary repairs: Majority rule, no right to contribution; but credit at partition or accounting. Improvements: No right to contribution; no credit for cost of repairs on partition or accounting; however, credit for the added

value (or loss) at partition. (Improver bears all the risk. PPL - POSNER

Division of property rights creates opportunities for externalities (can incentivize inefficient use). But, risk-spreading. o Economic basis for law of waste: transaction costs may be too high for remainderman and present interest holder to

negotiate due to bilateral monopoly o Doctrines like adverse possession help eliminate this by reuniting property

Points out that interests may be divided vertically (in time) as well as horizontally (among concurrent owners) o Vertical you dont care about improving your apartment b/c you dont own it. Law of waste helps here; next person to

come into your apt can keep you from destroying it o Horizontal tragedy of the commons - you race to be the first to lie on the couch, beating out your sick roommate.

Argues common law doctrines such as Rule in Shelleys Case (combine consecutive estates in 1 owner), Doctrine of Worthier Title (remainder to grantors heirs belongs to grantor), and law of easements (conveyance for railroad or pipeline is assumed to be an easement and end when the use ends) intend to increase the free transferability of land.