Types of Future Interests Flashcards
3 types of Future Interests
a) Common law future interests applies to legal interests
b) Legal Executory Interests (see below) applies to legal interests created by the Statute of Uses executing the use (not the double use)
c) Equitable future interests (see below) applies to the equitable interest created by the double use (i.e. a trust).
4 types of future interest at common law are:
Reversions, Remainders, Right of Entry, Possibility of Reverter
What is the only way to give a future interest to 3rd party at CL?
Remainder… Can be vested in interest or contingent
Reversions
Always vested in interest (i.e. it concerns something that must return, not may) and is that part that remains with a grantor who has not exhausted the whole of the interest by the transfer
Right of Entry
Defeasible grant with a condition subsequent that can occur after vesting and if so grantor has right to re-enter (i.e. upon condition occurring, grantor can bring an action to recover possession, but up until exercising this right the transferee continues to enjoy the property, and there is a limitation period of 6 years within which the grantor must bring the action - Property Law Act s.8(3) and Limitation Act)
A complete gift is given, but the condition subsequent operates so as to artificially / prematurely terminate an estate by giving grantor right (i.e. option) to re-enter and determine the estate (i.e. to divest grantee)
This is an exception to repugnancy that is permitted
Note the Property Law Act s.8(3): a right of entry affecting land, exercisable on breach of condition may be made exercisable by any person and the persons claiming under him. This has not be interpreted by the courts, but could be interpreted to allow a 3rd party to a right of entry. At common law however, only with a remainder can a grant of a future interest be made to a third party
Possibility of reverter
Possibility of Reverter results from the occurrence of a Determinable Limitation, meaning that the slot in time of the estate is itself by definition limited by the event
Arises when a grantor creates a determinable gift in fee simple or life estate i.e. which is to last until the occurrence of some future determining event specifying a slot in time written into the words of limitation, and the event may or may not happen
It is not giving completely and taking back, as in right of entry, rather it is giving something less. Thus, the courts have decided that the possibility of reverter itself is vested since courts have considered the determining event to be a “natural” termination as opposed to a condition subsequent which cuts short an otherwise completely given estate.
What difference does defeasible vs determinable make?
The difference is relevant as to consequences and validity in certain circumstances. An invalid condition subsequent (defeasible) is simply struck out and the interest remains. On the other hand an invalid determinable limitation causes the whole gift to fail.
Megarry Rules Governing Legal Remainders
Restrictions against springing interests:
RULE 1 (Megarry No1): Remainder must be supported by prior estate of freehold created by the same instrument as the remainder
RULE 2 (variation of Megarry Rule 4):
(i) A remainder must be limited so as to be capable of vesting, if it vests at all, at the latest at the moment of termination of the prior estate of freehold
(ii) A remainder must in fact vest during the continuance of the prior particular estate or at the moment of its termination
Restrictions against shifting interests:
RULE 3 (Megarry no3): A remainder is void ab initio if it is designed to take effect in possession by defeating the prior particular freehold estate
RULE 4 (Megarry no2): A remainder after a fee simple is void (doesnt capture determinable)
When you see a determinable fee simple u know you will get by rule 3 but not 4. If you see determinable life estate then you will get past both
How to get around the two rules?? (Megerry 2 and 3) → Equity.
Future trusts/ Legal Executory interests - brief history
CL rules re remainders didnt apply to equitable interests. If estate is vested in trustees in whole, the CL is satisfied
Equity saw no reason to apply CL rules founded on seisn.
Land can be granted “to x and his heirs to the use of A and his heirs until B marries then to the use of B and his heirs”, OR “to Y and his heirs to the use of B’s heirs and his heirs”.
Before 1535, the limitations in such cases were valid gifts in equity. Could get around rules by using a single “use”
AFTER 1535
CL judges looked at purpose of statute of uses - to safeguard the revenue of the crown. not to prevent shifting interests. Therefore not returned to CL but returned to law by statute. Valid under statute. Not a CL remainder but a statutory remainder now.
SO Statute of uses 1535 (executed the use) and statute of wills 1540 made it possible to create future interests that are legal estates and still free from remainder rules. These interests fell into 3 categories: Shiifting Uses, Springing Uses, Executory Devises… collectively, these are known as legal executory interests
Later still they could be valid as future trusts if land was granted “ to the use of X and his heirs” etc…
For testamentary transfers the court would imply the words “to the use of” to save the gift by making it an executory devise, but the words “to the use of” must be used for inter vivos transfers (still true today) to create an executory limitation.
Double uses / trusts put you in equity so avoid all that stuff.
Shifting Use
Ex “to T and his heirs to the use of A and his heirs, but to the use of B and his heirs as soon as B is called to the Bar”
Where there is a gift with either a defeasible or a determinable event and it goes to a third party as opposed to the grantor it becomes a shifting interest.
After 1535, the effect of T being seized to the use of A and B is that the use is executed, T drops out, and equitable interests of A and B become the corresponding legal estates (but there can be no fee upon a fee - B, on attaining the condition - obtains fee simple)
Springing use
“To X and his heirs to the use of Y and his heirs after my death”
After 1535 Y took legal fee simple as soon as donor died
Whenever there is a gap between interests, equity implied a resulting use in favor of grantor which the statute then executed so that until the donors death the legal estate was vested in him rather than X
Conveyances
All that was required to validate a limitation inter vivos which infringed a legal remainder rule was the insertion of the formula “to X and his heirs to the use of ….” before the desired limitations. The statute of uses did the rest.
Executory Devises
Gift by will was treated in the same way as a if a use had been inserted. This was due to the wording of the statute of wills 1540, which gave the testator power to dispose of land at his will and pleasure. Consequently, a shifting devise “to A and his heirs, but if A fails to convey Blackacre to my executors, to B and his heirs”… Or a springing devise “to the child of which my wife is now enceinte” …. Was fully effective.
The Rule in Purefoy v Rogers
Rule in PvR required that the common law “wait and see” rule (rule 4) should apply to legal executory interests, irrespective of any grant to uses or will, just as if they were contingent remainders at common law and without regard to grantors intent.
If a gift, even though contained in a grant to uses or a will, was by any possibility capable of complying with legal remainder rules, it was to be treated as a legal contingent remainder and not an executory interest.
The Operation of the Rule
3 possibilities, contingent interest in a grant to uses or a will might either:
(i) defy the legal rules from the outset and be certain to infringe them if take effect at all (as did springing and shifting interests)
(ii) comply with them from the outset and be sertain to vest (if at all) within the limits and in the way required at CL
(iii) be capable of complying with them, but not certain to do so unless events turned out favourably
Interests in class (i) and class (ii) were safe, but an interest in (iii) was exposed to the danger that an estate might determine before the remainder had vested, leaving a gap which the CL rules dont tolerate.
Get around this by making it clear that rule 4 is to be violated if necessary – “to A for life with remainder to any son who shall attain 21 either before or after death”
Trusts
Rule in PvR had no application to future trusts… cases where equitable interests were given under trusts which the statute of uses would not execute. All its perils could be avoided by vesting legal estate firmly in trustees, ex. By conveyance “unto and to the use of T and his heirs upon trust for A for life, with remainder upon trust for the first son of A who shall attain 21 and his heirs”
OR by a devise to trustees upon similar trusts.
