Property: Future interest: Rules enhancing marketability

Question 1

Precatory Language:

O transfers Blackacre “to A on the hope that A will operate a circus on the land.”

Answer 1

A has a
FSA

O has
Nothing

Question 2

Precatory Language:

O transfers Blackacre “to A for the purpose of operating (or for the use of) a farm.”

Answer 2

A has a
FSA

O has
Nothing

Question 3

Precatory Language:

O transfers Blackacre “to A on the condition that Blackacre is used as a farm.”

Answer 3

A has a
FSA (it is not a FSSCS because there is no re-entry or termination language)

O has
Nothing (except possibly a claim against A for money damages for breach of covenant)

Question 4

Restraints on Alienation

O transfers Blackacre “to A for so long as A never attempts to sell Blackacre.”

Answer 4

A has a
FSA

O has
Nothing

Why?
Temporary (five years or more) and permanent (as here) absolute restraints on the alienation of fee simples (any type) are considered “unreasonable” and thus are void

Question 5

Restraints on Alienation:

O borrows money from First National Bank (FNB) giving FNB a mortgage on Blackacre (which O owns in fee simple). The mortgage provides that if O sells Blackacre, the payments will be accelerated and due immediately. Is this restriction valid?

Answer 5

But not all restraints on alienation are considered unreasonable and void:

Yes. Due-on-sale clauses are considered “reasonable restraints” and thus are valid under state and federal law

Question 6

Restraints on Alienation

O transfers Blackacre “to A for life, but if A attempts to sell her interest in Blackacre, the property shall revert to O.”

Answer 6

A has a
Life Estate Subject to a Condition Subsequent (because restraints on life estates are generally valid)

O has two future interests

1. A Reversion (in the event A never attempts to sell)
2. A Right of Entry (in the event A attempts to sell)

Question 7

Restraints on Alienation

O transfers Blackacre “to A for 20 years; A may not assign or sublease her interest in Blackacre without O’s written consent.”

Answer 7

A has a
Leasehold (Tenancy for Years)

The restraint on alienation is
Valid (but will be strictly construed against the landlord)

Question 8

Restraints on Alienation

O transfers Blackacre “to A, but if A should ever decide to sell Blackacre, she must first offer to sell it to O at the then fair market value.”

Answer 8

A has a
FSA

O has a
Valid Right of First Refusal

Rule: A right of first refusal is considered a “reasonable” restraint on alienation if the party holding the right must pay the then (i.e., time of future sale) fair market value or is required to match legitimate third party offers.

Question 9

Doctrine of Desirability of Contingent Remainders:

O transfers Blackacre “to A for life, remainder to B if B survives to the age of 21.”

Thereafter, A dies when B is only 19.

Answer 9

At common law,

O has a FSA. B’s contingent remainder was “destroyed” because it did not vest prior to the termination of A’s estate.

Under modern law,

Blackacre reverts back to O in FSSEL and B has a Springing Executory Interest

If B reaches age 21, B has a
FSA

If B dies before age 21, O has a
FSA

Question 10

Rules in Shelley’s Case:

O transfers Blackacre “to A for life, remainder to A’s heirs (or next-of-kin).”

Answer 10

At common law,

A has a FSA based on two steps:

1. To enhance the marketability of Blackacre, the Rule in Shelley’s case automatically converts the Contingent Remainder in A’s heirs into a Vested Remainder in A
2. The Doctrine of Merger merges A’s Life Estate and Vested Remainder into a FSA

Under modern law,

A has a Life Estate, A’s heirs have a Contingent Remainder in Fee Simple (because a live person has no heirs), and O has a Reversion

Question 11

Rules in Shelley’s Case:

O transfers Blackacre “to A for life, then to B for life, remainder to A’s heirs.”

Answer 11

At common law,

A has a Life Estate and a Vested Remainder in Fee Simple (because of the Rule in Shelley’s Case), but there will be no merger because of B’s Remainder in a Life Estate

Under modern law,

A has a Life Estate, B has a Remainder in a Life Estate, A’s Heirs have a Contingent Remainder in Fee Simple, and O has a Reversion

Question 12

Doctrine of Worthier Title:

O transfers Blackacre inter vivos “to A for life, remainder to O’s heirs.”

Answer 12

At common law,

A has a Life Estate and O has a Reversion (to enhance the marketability of Blackacre, the Doctrine of Worthier Title—as a rule of law—converts the Contingent Remainder in O’s heirs into a Reversion in O)

Under modern law,

Same as common law, except that the Doctrine of Worthier Title is a rule of construction (which creates a rebuttable presumption of a Reversion in O)

Question 13

Doctrine of Worthier Title:

O transfers Blackacre by will “to A for life, remainder to O’s heirs.”

Answer 13

At common law,

A has a Life Estate and O’s heirs have an Indefeasibly Vested Remainder in Fee Simple (because the Doctrine of Worthier Title does not apply to testamentary transfers)

Under modern law,
Same as common law

Question 14

Doctrine of Worthier Title:

O makes an inter vivos transfer of Blackacre “to A for life, remainder to O’s heirs. It is my (O’s) intent for my heirs to have a remainder in Blackacre.”

Answer 14

At common law,

A has a Life Estate and O has a Reversion (because the Doctrine of Worthier Title—as a rule of law—converts the Contingent Remainder in O’s heirs into a Reversion in O)

Under modern law,

A has a Life Estate, O’s heirs have a Contingent Remainder in Fee Simple (because the second sentence of the conveyance is sufficient to override the rebuttable presumption of a Reversion in O), and O has a Reversion.

Question 15

Rule in Wild’s Case (a rule of construction):

O transfers Blackacre “to A and her children.” At the time of the conveyance, A has no children.

Answer 15

A has a
Life Estate

A’s children have a
Contingent Remainder in Fee Simple

O has a
Reversion

Question 16

Rule in Wild’s Case (a rule of construction):

O transfers Blackacre “to A and her children.” At the time of the conveyance, A has two children, B and C.

Answer 16

A has a
50% Fee Simple interest as a Tenant in Common

A’s children
Share a 50% Fee Simple interest as a Tenant in Common

O has
Nothing

Question 17

Construing Future Interests as Option to Purchase:

O transfers Blackacre “to A and her heirs, provided that the premises herein conveyed shall be used solely for residential purposes and, if the premises are used for nonresidential purposes, O, his heirs and assigns, shall have the right to repurchase the premises for the sum of $50,000.”

Answer 17

A has a
FSA

O has
Nothing

Why?

Step One: Restatement (First) of Property § 394 (If the language and circumstances of a conveyance of an estate in fee simple are otherwise reasonably susceptible of two constructions, under one of which it creates either a possibility of reverter or a right of entry and under the other of which it creates an option to repurchase, the latter of these two constructions is preferred. The fact that the exercise of the reserved privilege requires the parting with money or other consideration is sufficiently indicative of the intent of the conveyor to create an option.)

Step Two: Because the option may be exercised more than 21 years after the deaths of O and A, it violates the Rule Against Perpetuities and thus is invalid.