Rules Enhancing Marketability and the RAP Flashcards
marketability - 2 governing rules (and the point of these rules)
– 1. The law favors alienability of real estate.
– 2. The law disfavors restraints on the alienation of real estate.
• this is why we have rules restricting contingent remainders and executory interests (because these types of interest don’t tell us for certain who gets the land and are subject to conditions that may never happen)
rule in shelley’s case (when it applies; what is the outcome) - ABOLISHED
• Rule in Shelley’s Case (nearly obsolete)
o applies when:
one instrument
creates a freehold estate in a transferee,
a remainder in that transferee’s heirs (or heirs of his body) not “children”, AND
both interests are legal or both equitable
o outcome: transferee takes both the freehold estate and the remainder
the contingent remainder in the heirs (who are unascertainable at the time) becomes a vested remainder in the transferee (who is ascertainable)
doctrine of worthier title (when it applies; what is the outcome) - ABOLISHED
• Doctrine of Worthier Title (majority still recognizes this rule as a rebuttable presumption, not a rule of law)
“father Worthier CONVEYED remainder in me as heir, but it just turned into reversion back to him”
o applies when:
a conveyance creates a remainder or executory interest (doesn’t apply to transfers on death)
in the grantor’s heirs
o outcome: grantor retains a future interest in himself
o “O to B for life, then to O’s heirs” becomes “O to B, then to O”
doctrine of destructibility of contingent remainders (when it applies; what is the outcome; modern approach) - ABOLISHED
• Doctrine of Destructibility of Contingent Remainders (nearly obsolete)
o applies when:
a contingent remainder
that does not vest before the preceding freehold estate ends
o outcome: the contingent remainder is destroyed
o modern approach: if the CR does not vest, it becomes an executory interest (so if the person did not meet the condition after the transferor’s death, they would gain a springing EI)
o “to B for life, then to C if C becomes a lawyer” becomes “for B to life, then to C”
o only applies to contingent remainders
precatory language
O transfers Blackacre “to A on the hope that A will operate a circus on the land.” or “to A for the purpose of operating (or for the use of) a farm.”
• A has a
– FSA (b/c the extra language is precatory)
• O has
– Nothing
- Why?
- If a conveyance is ambiguous and may reasonably be construed as more than one estate, there is a presumption in favor of the larger possessory estate and a presumption against finding a future interest
restraints on alienation - main rule; examples; key note
• restraints on alienation: preventing future sale of property
o absolute restraints are VOID because against public policy – we will cross this language out and then interpret the clause
o examples:
“to B and any conveyance by B is void”
“to B, but if B ever tries to sell the estate, to D”
“to B, if B promises she will not sell the estate”
o **while absolute restraints on fee simple are void, partial restraints may be valid if they are reasonable as to duration, scope, and purpose
»> 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
restraints on alienation - restraints not considered unreasonable/void (due on sale clauses; restraints on life estates)
- 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?
- Yes. Due-on-sale clauses are considered “reasonable restraints” and thus are valid under state and federal law
- O transfers Blackacre “to A for life, but if A attempts to sell her interest in Blackacre, the property shall revert to O.”
– A has a
• Life Estate Subject to a Condition Subsequent (because restraints on life estates are generally valid – b/c LE’s don’t have much marketability)
– 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)
rule in wild’s case
**rule of construction, not a rule of law
(to wild an his wild children)
If a grantor (O) grants, by deed or will, property to another person (A) with the language “To A and her CHILDREN”, who gets lawful possession of the property?
The rule resolves this ambiguity as follows:
If A has living children at the time of the grant, A and her children take the property as joint tenants.
If A does not have living children at the time of the grant, A takes the property in fee tail.
construing future interest as an option to purchase (example and rule)
• 1. 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.”
– 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.
RAP - common law general rule (as applied to wills, deeds, revocable trusts, and irrevocable trusts)
• Common Law: An interest is void if there is any possibility, however remote, that the interest may vest more than 21 years (plus a gestation period) after some life in being at the “creation” of the interest.
– For wills, an interest is created at the testator’s death.
»> On the UBE, a grantor transfers property by will if she “devises” the property.
– For deeds, an interest is created at the time the deed is delivered.
»> On the UBE, a grantor transfers property by deed (inter vivos) if she “conveys” (i.e. execution plus delivery) the property.
– For revocable trusts, an interest is created at the settlor’s death, unless—before death—the settlor amended the trust making it irrevocable.
– For irrevocable trusts, an interest is created on the date the trust is created.
RAP - common law flowchart (5 steps)
FLOWCHART
»> ID future interest (CR, VRSO, EI, OC)
»> list lives in being at creation of the interest
»> **consider whether anyone can be born who might affect vesting
»> kill off ALL lives in being at some future date and add 21 years
»> ask yourself: Is there ANY chance that this transfer of interest might be unsettled 21 years after the last party alive has died?”
• 1. QUESTION ONE: Is this a RAP question? There will be one or two RAP questions on the MBE. In most of the MBE RAP questions, the question will state: “The common law Rule Against Perpetuities is unmodified in the jurisdiction” (or similar language). But beware: this statement is often provided when there are no RAP issues in the question.
• 2. QUESTION TWO: Are any of the interests involved in the question subject to RAP? Only five interests are subject to RAP:
– a. Contingent Remainders
– b. Vested Remainders Subject to Open
– c. Executory Interests
– d. Option Contracts (and Rights of First Refusal) to purchase real property (except options to extend the lease or purchase the property exercisable by a tenant during the leasehold)
– e. Powers of Appointment (unlikely to be tested on MBE)
• 3. QUESTION THREE: If there is an interest subject to RAP, what condition must be met for that interest to vest?
– Executory Interests vest in possession when the event that terminates the prior estate occurs. (i.e. vests on possession)
– Contingent Remainders vest when they become vested remainders or vest in possession, whichever is earlier.
– Vested Remainders Subject to Open vest when all of the class members have indefeasibly vested interests.
– Option Contracts vest when the option to purchase becomes exercisable.
- QUESTION FOUR: Whose life is most relevant to the condition? If you are unable to determine the measuring life, assume all persons alive at the time of conveyance will die within one year of the conveyance. Tip: members of open classes (e.g., children with living parents), widows and heirs of a living person cannot be measuring lives.
- QUESTION FIVE: Is the interest sure to vest or not vest within 21 years (plus a gestation period) of the death of the measuring life?
RAP - uniform statutory flowchart (2 steps)
• STEP ONE: If an interest is valid under common law RAP, it is automatically valid under USRAP.
• STEP TWO: If an interest is invalid ab initio (at the outset) under common law RAP, USRAP adopts a wait-and-see approach to such interest and it will become invalid only if it actually fails to vest within 90 years of its date of creation.
– Under USRAP, courts also have cy pres power (i.e., if a conveyance violates RAP, the court may reform the conveyance to comply with RAP)
– Most jurisdictions have adopted USRAP (or similar rules).
– Option contracts and rights of first refusal are exempt from USRAP.
RAP - general rules
o “no interest is good unless it must vest, if at all, no later than 21 years after some life in being at the creation of the interest”
in other words - none of our three types of future interests will be valid unless we are 100% certain that any contingencies will be resolved within the perpetuities period
o imposes a time limit **beginning when the interest is created
o vesting: the point where title uncertainty is removed
o life in being must have been alive/conceived at the creation of the interest (be it the delivery of a deed or the death of the testator)
o ex) “to C if C finds a cure for cancer” (because C can only find a cure for cancer while he – as a life in being – is alive, there is no possibility that the interest might vest too late – it will either vest or forever fail to vest when he dies)
»> but “to C if anyone finds a cure for cancer” fails under the RAP because we cannot know for certain that the interest will vest/forever fail to vest in time
o **a devise is less likely to have a RAP problem than a conveyance
o **class gifts: not valid as to any members of the class unless it is valid for all members of the class
o Bright Line Rules an executory interest with no limit on the time within which it must vest violates the RAP (alcohol could potentially be served on site forever) a gift to an open class conditioned on the members surviving to an age beyond 21 violates the RAP
RAP traps - unborn widow
unborn widow: O conveys “to B for life, then to B’s widow for life, then to B’s children living at B’s widow’s death”
- B could marry a wife that is not yet born and the wife could live past 21 years before the interest vests in the children, so the conveyance is void
- **a widow status is like an heir in that it is undefined until the husband dies
RAP traps - slothful executor
slothful executor: O conveys “to B for life, then to C when B’s will is probated”
• although a will is usually probated right after death, it could be done so more than 21 years after all parties have died, making the conveyance void
