ARTICLE 1. Survivorship Rights and Future Interests.

Sec.

§ 41-1. Fee tail converted into fee simple.

Every person seized of an estate in tail shall be deemed to be seized of the same in fee simple.

History

(1784, c. 204, s. 5; R.C., c. 43, s. 1; Code, s. 1325; Rev., s. 1578; C.S., s. 1734; 1995, c. 190, s. 1; c. 525, s. 1.)

Cross References. - As to fee presumed, though word "heirs" omitted, see G.S. 39-1.

Legal Periodicals. - For discussion of the effect of this section upon the application of the rule in Shelley's case, see 1 N.C.L. Rev. 110 (1923).

For case law survey on real property, see 41 N.C.L. Rev. 500 (1963).

For case law survey as to the rule in Shelley's case, see 44 N.C.L. Rev. 1036 (1966).

For case law survey as to real property, see 45 N.C.L. Rev. 964 (1967).

For comment on the rule in Shelley's case, see 4 Wake Forest Intra. L. Rev. 132 (1968).

For article, "The Rule in Wild's Case in North Carolina," see 55 N.C.L. Rev. 751 (1977).

For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For note discussing the enforceability of assessments against property owners in residential developments in light of Figure Eight Beach Homeowners' Ass'n v. Parker, 62 N.C. App. 367, 303 S.E.2d 336, cert. denied, 309 N.C. 320, 307 S.E.2d 170 (1983), see 7 Campbell L. Rev. 33 (1984).

For article, "Does the Fee Tail Exist in North Carolina?," see 23 Wake Forest L. Rev. 767 (1988).

For article, "Requiem for the Rule in Shelley's Case," see 67 N.C.L. Rev. 681 (1989).

CASE NOTES

I. GENERAL CONSIDERATION.

Editor's Note. - Many of the cases under this section were decided prior to the enactment of G.S. 41-6.3, which abolished the rule in Shelley's case.

History and purpose of this section. See Walter v. Trollinger, 192 N.C. 744, 135 S.E. 871 (1926).

Estates Tail Converted. - The section converted by one stroke of the legislative pen estates tail into fee simple. Hodges v. Lipscomb, 128 N.C. 57, 38 S.E. 281 (1901).

Form of Acquisition Not Changed. - The act of 1784, which subsequently converted the estate tail into a fee simple, did not change the original form of the acquisition, which still continued to be by purchase. Ballard v. Griffin, 4 N.C. 237 (1815).

The word "children" is ordinarily a word of purchase. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

"Heirs of their bodies" is equivalent to the words "heirs general." Revis v. Murphy, 172 N.C. 579, 90 S.E. 573 (1916); Cohoon v. Upton, 174 N.C. 88, 93 S.E. 446 (1917).

When the term "heirs of the body" is used in its technical sense, it imports a class of persons to take indefinitely in succession, from generation to generation. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

Remainder Dependent upon Estate Tail. - The section will bar a remainder dependent upon an estate tail, in possession of tenant in tail, at the time of passing the section. Lane v. Davis, 2 N.C. 362 (1796).

Confirmation of Alienation in Fee. - This section converted no estates tail into estates in fee, but such whereof there was a person seized and possessed, and confirmed only such alienations in fee as had been made by tenants in tail in possession since the year 1777. Wells v. Newbolt, 1 N.C. 450 (1802).

Cited in Williamson v. Cox, 218 N.C. 177, 10 S.E.2d 662 (1940); Lackey v. Hamlet City Bd. of Educ., 258 N.C. 460, 128 S.E.2d 806 (1963); White v. Lackey, 40 N.C. App. 353, 253 S.E.2d 13 (1979); Pugh v. Davenport, 60 N.C. App. 397, 299 S.E.2d 230 (1983).

II. RULE IN SHELLEY'S CASE.

Statement of Rule. - A good definition of the rule in Shelley's case, and the most general, is as follows: "That when the ancestor by any gift or conveyance taketh an estate of freehold, and in the same gift or conveyance an estate is limited either mediately or immediately to his heirs, in fee or in tail, the word 'heirs' is a word of limitation of the estate and not a word of purchase." Nichols v. Gladden, 117 N.C. 497, 23 S.E. 459 (1895). See also the statement of the rule in Smith v. Proctor, 139 N.C. 314, 51 S.E. 889, 2 L.R.A. (n.s.) 172 (1905); Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

The rule in Shelley's case says, in substance, that if an estate of freehold be limited to A, with remainder to his heirs, general or special, the remainder, although importing an independent gift to the heirs, as original takers, shall confer the inheritance on A, the ancestor. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

Force of Rule in North Carolina. - The common-law doctrine known as the rule in Shelley's case is in force in this State. Nichols v. Gladden, 117 N.C. 497, 23 S.E. 459 (1895) (decided under prior law).

Rule has never been abolished in North Carolina, and this section does not affect that principle of law. Dawson v. Quinnerly, 118 N.C. 188, 24 S.E. 483 (1896); Hammer v. Brantley, 244 N.C. 71, 92 S.E.2d 424 (1956).

Nature and Operation of Rule. - The rule in Shelley's case is a rule of law and not of construction, and, no matter what the intention of the grantor or testator may have been, if an estate is granted or given to one for life and after his death to his heirs or "heirs of his body," and no other words are superadded which to a certainty show that other persons than the heirs general of the first taker are meant, the rule applies and the whole estate vests in the first taker. Nichols v. Gladden, 117 N.C. 497, 23 S.E. 459 (1895).

Where the conveyance is to the first taker for life and then by whatever language employed to his bodily heirs or heirs of his body, the rule in Shelley's case applies and the first taker acquires a fee. Whitson v. Barnett, 237 N.C. 483, 75 S.E.2d 391 (1953).

When a devise is to a named person for life with remainder after his death to "his heirs" or "his bodily heirs" or the "heirs of his body," nothing else appearing, the devisee becomes seized of a fee simple estate upon the death of the testator subject to any prior life estate created by the will. Hammer v. Brantley, 244 N.C. 71, 92 S.E.2d 424 (1956).

The rule in Shelley's case operates as a rule of property without regard to the intent of the grantor or devisor. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

Rule in Shelley's case applies to personalty as well as to realty. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

Whenever applicable, the rule in Shelley's case applies to both real and personal property in this jurisdiction. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

Limitation within Rule Passes a Fee Simple. - A limitation coming within the rule in Shelley's case, recognized as existent in this State, operates as a rule of property, passing when applicable a fee simple, both in deeds and wills, regardless of a contrary intent on the part of the testator or grantor appearing in the instrument. Wallace v. Wallace, 181 N.C. 158, 106 S.E. 501 (1921).

Difference between Words of Purchase and Words of Limitation. - In considering the applicability of the rule in Shelley's case, it is important to draw and constantly keep in mind the difference between words of purchase and words of limitation. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

When the rule in Shelley's case says that the words "heirs" or the "heirs of the body" of A are words of limitation and not words of purchase, it simply means that "heirs" or the "heirs of the body" refer to and are read in connection with the estate given to A, extending or modifying that estate, and are not taken as describing a group to whom an estate will first attach. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

"Heirs" or "Heirs of the Body". - The words "heirs" or "heirs of the body" must be taken in their technical sense, or carry the estate to the entire line of heirs to hold as inheritors under our canons of descent; but should these words be used as only designating certain persons, or confining the inheritance to a restricted class of heirs, the rule does not apply, and the ancestor or the first taker acquires only a life estate according to the meaning of the express words of the instrument. Wallace v. Wallace, 181 N.C. 158, 106 S.E. 501 (1921).

The rule in Shelley's case applies whenever judicial exposition determines that heirs are described, though informally, under a term correctly descriptive of other objects, but stands excluded whenever it determines that other objects are described, though informally, under the term heirs. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

III. APPLICATION AND ILLUSTRATIVE CASES.

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Deed Sufficient Formerly to Convey Fee Tail. - A deed, which was sufficient under the old law to confer a fee tail, is sufficient under this section, where a contrary intent may not be gathered from the instrument construed as a whole, to convey an estate in fee simple, but such a deed must be distinguished from a conveyance in which the words "bodily heirs" are used as descriptio personarum, which merely conveys to them an estate in remainder and as purchasers from the grantor. Harrington v. Grimes, 163 N.C. 76, 79 S.E. 301 (1913). See Whitfield v. Garriss, 134 N.C. 24, 45 S.E. 904 (1903); Jones v. Ragsdale, 141 N.C. 200, 53 S.E. 842 (1906); Sessoms v. Sessoms, 144 N.C. 121, 56 S.E. 687 (1907); Perrett v. Bird, 152 N.C. 220, 67 S.E. 507 (1910). See also Acker v. Pridgon, 158 N.C. 337, 74 S.E. 335 (1912); Puckett v. Morgan, 158 N.C. 344, 74 S.E. 15 (1912).

Conveyance to One and Heirs of the Body. - A conveyance of land to A and "her heirs by the body of R (her husband) and assigns forever" was a fee tail at common law, but under this section it is converted into a fee simple absolute, unaffected by the fact that there were children of the marriage living at the time of the execution of the conveyance; and in this case, construing the instrument as a whole, it evidences the intent of the grantor that it should be so interpreted. Revis v. Murphy, 172 N.C. 579, 90 S.E. 573 (1916); Whitley v. Arenson, 219 N.C. 121, 12 S.E.2d 906 (1941).

If testatrix intended to use the term in its strict technical sense, a devise to one and his "bodily heirs" would violate the rule against perpetuities, or might create a fee tail, and in either case a fee simple would vest in the first taker. Elledge v. Parrish, 224 N.C. 397, 30 S.E.2d 314 (1944).

An estate to H during his life, with remainder to the testator's son "and his bodily heirs," vests a life estate in the land in H, with an estate tail in remainder to the son, which, under our statute, is converted into a fee simple. And upon the falling in of the life estate, the son can convey a good fee simple title. Howard v. Edwards, 185 N.C. 604, 116 S.E. 1 (1923), distinguishing Leathers v. Gray, 101 N.C. 162, 7 S.E. 657 (1888) and Chamblee v. Broughton, 120 N.C. 170, 27 S.E. 111 (1897).

A devise to A for life and at her death to the heirs of her body presents a classic case for application of the rule in Shelley's case. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

By a devise to A for life and at her death to the heirs of her body, the rule in Shelley's case, and the doctrine of merger, give A an estate tail which this section converts into a fee simple. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

Where a testatrix devised and bequeathed all her property to her daughter during her lifetime and at her death to the "heirs of her body, if any," with further provision that if the daughter should die before testatrix without heirs of the body, the property should go to named collateral kin, the daughter took a fee tail under the rule in Shelley's case, which was converted into a fee simple by this section. Ray v. Ray, 270 N.C. 715, 155 S.E.2d 185 (1967).

Child Adopted by Unmarried Daughter. - Where will provided for remainder interest to an unmarried daughter "to have and to hold the same to her and the heirs of her body," any child adopted by her would satisfy the conditions of the will and could inherit as a bodily heir. Russell v. Russell, 101 N.C. App. 284, 399 S.E.2d 415, cert. denied, 328 N.C. 577, 403 S.E.2d 514 (1991).

Deed to Daughter, "Her Children or Heirs". - Grantors executed a deed to their daughter and "her children or heirs." At the time of the execution of the deed the daughter had no children. It was held that the deed conveyed an estate tail to the daughter, which estate is converted into a fee simple by this section, and the daughter had power to dispose of the property by will. Davis v. Brown, 241 N.C. 116, 84 S.E.2d 334 (1954).

Conveyance to One and His Children. - Where a conveyance is made to A and his children, and A has children at the time the deed is executed, A and his children take as tenants in common, but if A has no children at the time the deed is executed, A takes an estate tail which is converted into a fee by this section. Davis v. Brown, 241 N.C. 116, 84 S.E.2d 334 (1954).

When the devise is to one for life and after his death to his children or issue, the rule in Shelley's case has no application, unless it manifestly appears that such words are used in the sense of heirs generally. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

Devise to Go on Devisees' Deaths to Their "Children & So On". - Where testatrix stated she "wanted" the land in question to go to her brother and at his death to his three sons and his named grandson, with further provision that at their deaths testatrix "wanted" the land to go to their "children & so on", the brother took a life estate with remainder to his children and the named grandson in fee under the rule in Shelley's case, since it is apparent that testatrix used the word "children" in the sense of an indefinite line of succession and created an estate tail converted into a fee by this section. Wilson v. Spain, 260 N.C. 482, 133 S.E.2d 189 (1963).

Devise to One and Lawful Heirs of His Body. - A devise to S and the lawful heirs of his body forever confers an estate in fee tail, converted into a fee simple under the section. Sessoms v. Sessoms, 144 N.C. 121, 56 S.E. 687 (1907). See Wool v. Fleetwood, 136 N.C. 460, 48 S.E. 785 (1904).

Devise to testator's wife for her natural life and at her death to testator's daughter and "her bodily heirs" vested a life estate in the land to the wife, with an estate tail in remainder to the daughter, whose interest was converted under this section into a defeasible fee simple, and, even though the wife conveyed her present life estate interest to her daughter, the daughter's interest could only be defeated in the event that she died without having children. Russell v. Russell, 101 N.C. App. 284, 399 S.E.2d 415, discretionary review denied, 328 N.C. 577, 403 S.E.2d 514 (1991).

Where Words "Bodily Heirs" Not Used in Technical Sense. - If it appears by correct construction that the words "bodily heirs" are not used in the technical sense as conveying the estate to the entire line of heirs of the first taker, as inheritors under the canons of descent, but as words designating certain persons, the rule in Shelley's case does not apply. Whitson v. Barnett, 237 N.C. 483, 75 S.E.2d 391 (1953).

Where the conveyance was made "to Roy Whitson and bodily heirs, and their heirs and assigns," Roy Whitson being the father of four children, it was held that the words "bodily heirs" were intended to mean children and not heir general in the technical sense. The words were interpreted to mean "to Roy Whitson and children, and their heirs and assigns." Whitson v. Barnett, 237 N.C. 483, 75 S.E.2d 391 (1953).

Effect of G.S. 41-6. - Where a deed is executed to "M and the heirs of her body by her husband S begotten, or upon failure thereafter her death to the nearest heirs of S," and at the date of the execution of the deed M has children living, the deed conveys a fee tail special to M which is converted to a fee simple by this section, defeasible upon her dying without surviving children by S, and her children do not take as tenants in common with her, G.S. 41-6, providing that a limitation to the heirs of a living person shall be construed to be the children of such person, being applicable only when there is no precedent estate conveyed to the living person, and the condition as to the failure of heirs referring to the death of M without surviving children and not to the birth of issue, there being issue born at the date of the execution of the deed, and the ulterior limitation is not barred by the birth of such issue. Paul v. Paul, 199 N.C. 522, 154 S.E. 825 (1930), distinguishing Sharpe v. Brown, 177 N.C. 294, 98 S.E. 825 (1919). See Bank of Pilot Mountain v. Snow, 221 N.C. 14, 18 S.E.2d 711 (1942).

A deed to a married woman and her heirs by her present husband, with granting clause, habendum and warranty to "parties of the second part, their heirs and assigns," is held to convey to the married woman a fee tail special, which is converted into a fee simple absolute by this section. Whitley v. Arenson, 219 N.C. 121, 12 S.E.2d 906 (1941).

A deed to a widow and the heirs of her body by her late husband creates an estate tail which is converted by this section into a fee simple absolute in the widow, and her children by her deceased husband take no interest in the land; G.S. 41-6 is not applicable, since it applies only when no preceding estate is conveyed to the "ancestor" of the "heirs." Bank of Pilot Mountain v. Snow, 221 N.C. 14, 18 S.E.2d 711 (1942).

A deed to grantor's wife "and to her heirs" by grantor, conveys a fee tail special, converted by this section into a fee simple absolute. Pittman v. Stanley, 231 N.C. 327, 56 S.E.2d 657 (1949).

A devise to testator's wife, "to her and her heirs by me," vests in the wife a fee tail special, converted by this section into a fee simple, and her estate is not affected or limited to a life estate with remainder in fee to the heirs of testator by subsequent provision in the item that testator's wife should have exclusive and sole use of the property and "should she have living heirs by me, then all my estate . . . shall belong to her and her heirs in fee simple," in the absence of a reverter or limitation over in the event the wife should not have children born to her marriage with testator. Sharpe v. Isley, 219 N.C. 753, 14 S.E.2d 814 (1941).

Life Estate with Limitation over to Bodily Heirs. - A devise of lands for life, followed by a separate paragraph, to the "bodily heirs" of the devisees named after their death, creates an estate in fee tail, which is enlarged into a fee simple under this section. Keziah v. Medlin, 173 N.C. 237, 91 S.E. 836 (1917).

Where a husband conveys his lands to his wife for life and to her bodily heirs begotten by him, the estate conveyed is an estate tail special under the rule in Shelley's case, converted into a fee simple absolute by this section. Morehead v. Montague, 200 N.C. 497, 157 S.E. 793 (1931).

Conveyance to Husband and Wife for Life Then to Heirs of the Body of Wife. - A deed conveyed to husband and wife a life estate and expressed grantor's intent to convey only a lifetime right to said grantees, with provision that said grantees should have and hold said tract of land during their natural lives and then to the heirs of the body of the feme grantee. It was held that the husband took only a life estate, and the conveyance being to the wife and then to heirs of her body, the rule in Shelley's case applied, and the estate in fee tail conveyed to the wife was converted by this section into a fee simple absolute. Edgerton v. Harrison, 230 N.C. 158, 52 S.E.2d 357 (1949).

Devise "to Have and to Hold for the Heirs of Their Bodies". - A devise of lands to the wife of the testator for life, and at her death or remarriage to their two children, by name, to have and to hold during their natural lives for the heirs of their bodies, constitutes an estate tail, converted by this section into a fee simple. Washburn v. Biggerstaff, 195 N.C. 624, 143 S.E. 210 (1928).

Remainder to "Male Heirs, They to Share and Share Alike". - The will in question devised certain lands to testator's son for life "and then to be divided equally among his male heirs, they to share and share alike" and it was held that even if it be conceded that the words "male heirs" should be construed "heirs" under the provisions of this section, the addition of the words "share and share alike" prevents the application of the rule in Shelley's case, and upon the death of the son, his sole male heir takes the fee in the property by purchase under the will. Cheshire v. Drewry, 213 N.C. 450, 197 S.E. 1 (1938).

Devise to Grandchildren for Their Lives, Then "to Their Bodily Heirs". - The rule in Shelley's case does not apply to a devise to testator's grandchildren during the term of their natural lives, then "to their bodily heirs, or issue surviving them," with limitation over of the share of any grandchild who should die without issue to his next of kin, since it is apparent that the word "heirs" was not used in its technical sense, and the grandchildren take only a life estate. Williams v. Johnson, 228 N.C. 732, 47 S.E.2d 24 (1948).

The use of the word "children" following the life estate does not create a fee simple estate or fee tail estate which would be converted by this section into a fee simple estate where a will devises real estate to the three daughters of testator, naming them, "during the time of their natural lives" and provides that "the share of each one of my said daughters shall upon her death go to her children and their heirs absolutely," for the word "children" is a word of purchase. Moore v. Baker, 224 N.C. 133, 29 S.E.2d 452 (1944).

"Lawful Heirs". - Where a devise is to one for life and then to his "lawful heirs," the word "lawful," qualifying the word "heirs," does not have the effect of preventing the latter word from operating as one of limitation and of restricting the meaning of the words "lawful heirs" to that of "children," who will take not by descent from their parent, but by purchase from the devisor. Wool v. Fleetwood, 136 N.C. 460, 48 S.E. 785 (1904).

"Heirs, if Any". - A conveyance to one for "his lifetime, and at his death to his heirs, if any," invokes the application of the rule in Shelley's case and vests a fee in the first taker. The use of the phrase "if any" does not prevent the application of the rule, since there is no limitation over. Glover v. Glover, 224 N.C. 152, 29 S.E.2d 350 (1944).

"Heirs or Heiresses of Her Body". - A devise to P, "during her natural life, and after her death to the begotten heirs or heiresses of her body," vested in P an absolute estate in fee simple. Leathers v. Gray, 101 N.C. 162, 7 S.E. 657 (1888).

"Or Other Lineal Descendants". - The superadded words "or other lineal descendants . . . to have and to hold the same to them and their heirs, executors and administrators absolutely" do not demonstrate that testator contemplated an indefinite succession from generation to generation. Wright v. Vaden, 266 N.C. 299, 146 S.E.2d 31 (1966).

Devise "for Life Only". - A devise of lands to the testator's named children "for life only and then to their body heirs," falls within the rule in Shelley's case, notwithstanding the use of the words "for life only," and carries to the remainderman a fee tail under the old law, converted by our statute into a fee simple title. Merchants Nat'l Bank v. Dortch, 186 N.C. 510, 120 S.E. 60 (1923), citing Harrington v. Grimes, 163 N.C. 76, 79 S.E. 301 (1913).

Reverter upon Death without Surviving Heirs. - The interpretation that a deed for life and then to "the surviving heirs of her body" conveys the fee simple title, under this section, does not apply when the grantor uses the additional words, "but should she die without leaving such heir or heirs, then the same is to revert back to her nearest of kin according to law," for then the intent is manifest that the conveyance is of a defeasible fee depending upon whether the first taker died without leaving children surviving her. Smith v. Parke, 176 N.C. 406, 97 S.E. 209 (1918).

A devise to testator's daughter and her bodily heirs, and if she dies without bodily heirs, then in trust for the heirs of testator's sisters, is held to create a fee simple estate in the daughter, defeasible upon her dying without children or issue, it being apparent that the words "bodily heirs" used in the devise meant children or issue, as otherwise the limitation over to the heirs of testator's sisters would be meaningless. Murdock v. Deal, 208 N.C. 754, 182 S.E. 466 (1935).

Where land is devised to a person for life at her death to vest in the testator's children during their natural lives and at their death to vest in their lawful heirs, and should they leave no lawful heirs, then to the testator's lawful heirs, such children take a fee simple absolute on the death of the life tenant. Wool v. Fleetwood, 136 N.C. 460, 48 S.E. 785 (1904).

Where a testator devises realty to a grandson, and upon the grandson's death without children, then the realty to descend to other grandchildren, such devise vests a fee simple estate in the first devisee, defeasible only on condition that he die without leaving heirs of his body. Whitefield v. Garriss, 134 N.C. 24, 45 S.E. 904 (1903).

When Defeasible Estate Becomes Absolute. - A conveyance to a granddaughter and the heirs of her own body passed an estate in fee tail, which by this section was converted into a fee simple, defeasible under the terms of the deed if no child was born to her, but which became absolute upon the birth of a child. Sharpe v. Brown, 177 N.C. 294, 98 S.E. 825 (1919). See Paul v. Paul, 199 N.C. 522, 154 S.E. 825 (1930).

An estate in remainder to the testator's son "and to his children or issue, but in case he should die childless and without issue, then . . . to my heirs in equal degree in fee simple," there being no child or children of the son until long after the testator's death, was held to create an estate tail at common law, which was converted into a fee simple by this section, defeasible upon the testator's son dying without issue, and as there was an ultimate limitation over to persons coming within its terms, the testator's son and his child or issue could not convey a fee simple title. Ziegler v. Love, 185 N.C. 40, 115 S.E. 887 (1923).


§ 41-2: Repealed by Session Laws 2020-50, s. 2(d), effective June 30, 2020.

History

(1784, c. 204, s. 6; R.C., c. 43, s. 2; Code, s. 1326; Rev., s. 1579; C.S., s. 1735; 1945, c. 635; 1989 (Reg. Sess., 1990), c. 891, s. 1; 1991, c. 606, s. 1; 2009-268, s. 1; 2010-96, s. 9; 2012-69, s. 2; 2013-204, s. 1.11; 2020-50, s. 2(b); repealed by 2020-50, s. 2(d), effective June 30, 2020.)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," "widow," and "widower," see G.S. 12-3(16), (17).

As to personal representatives holding in joint tenancy, see G.S. 28A-13-5.

As to survivorship among trustees given power of sale, see G.S. 45-8.

Editor's Note. - Session Laws 1989 (Reg. Sess., 1990), c. 891, which amended this section, provided in s. 3: "Nothing in this act shall be construed to affect the validity of instruments that provide for a right of survivorship executed prior to the effective date of this act." The act became effective January 1, 1991.

Session Laws 1991, c. 606, which amended this section, in section 2 provides: "A conveyance of any interest in real property occurring between January 1, 1991, and the effective date of this act [October 1, 1991] by a party to himself and one or more other parties that expressly provides for a joint tenancy with a right of survivorship shall have created such an interest."

Portions of subsections (a) and (b) of former G.S. 41-2 were recodified in G.S. 41-72, 41-73(c)(3), and 41-74 by Session Laws 2020-50, s. 2(b), effective June 30, 2020. Session Laws 2020-50, s. 2(d), repealed the remainder of the section.

Former 41-2 pertained to survivorship in joint tenancy defined; proviso as to partnership; unequal ownership interests.

Effect of Amendments. - Session Laws 2009-268, s. 1, effective July 10, 2009, designated the previously existing provisions as subsection (a); in subsection (a), made gender neutral changes in the first sentence, in the last sentence, deleted "himself and" preceding "one or more" and inserted "whether or not jointly with the grantor-party"; and added subsection (b).

Session Laws 2010-96, s. 9, effective July 20, 2010, substituted "subsection" for "act" at the end of the last paragraph in subsection (b).

Session Laws 2012-69, s. 2, effective October 1, 2012, rewrote the third sentence of subsection (b), which formerly read: "If joint tenancy interests among three or more joint tenants holding property in joint tenancy with right of survivorship are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the surviving joint tenants according to their respective pro rata interest and not equally, unless the creating instrument provides otherwise."

Session Laws 2013-204, s. 1.11, effective June 26, 2013, added subsection (a1).

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

CASE NOTES

I. GENERAL CONSIDERATION.

Survivorship Only Abolished as Incident of Joint Tenancy. - This section abolished survivorship only where it follows as a legal incident to an existing joint tenancy. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Right of survivorship has been statutorily abolished where it follows as legal incident to an existing joint tenancy. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990), decided under law in effect prior to G.S. 53-146.1.

"Estate" in Most General Sense Includes Choses in Action. - "Estate" is derived from status, and in its most general sense means position or standing in respect to the things and concerns of this world. In this sense it includes choses in action. Pippin v. Ellison, 34 N.C. 61 (1851); Webb v. Bowler, 50 N.C. 362 (1858); Hurdle v. Outlaw, 55 N.C. 75 (1854).

Estate is also used in a much more restricted sense, and is then put in opposition to a chose in action, or mere right, to signify something which one has in possession, or a vested remainder, or reversion without dispute or adverse possession. Taylor v. Dawson, 56 N.C. 86 (1856). See Bond v. Hilton, 51 N.C. 180 (1858).

Section Applies Only to Estates of Inheritance. - The act of 1784, converting joint tenancies into estates in common, applies only to estates of inheritance. Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881).

If the purpose had been to include all estates in joint tenancy, that purpose would have been better served by abolishing the "jus accrescendi" in a few direct words to that effect, instead of resorting to words applicable only to estates of inheritance held in joint tenancy in real estate, and absolute estates held in joint tenancy in personalty. Powell v. Allen, 75 N.C. 450 (1876).

This section which abolished the right of survivorship in joint tenancies in estates of inheritance, does not apply to a joint tenancy in a life estate where no estate of inheritance is involved. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Concurrent Life Estates Not Affected. - Concurrent life estates still stand untouched by this section, and the old feudal presumption in favor of joint tenancies with survivorship remains. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Joint Estates for Life and Estates by Entirety Not Affected. - Joint tenancies are not abolished by the section. It abolishes the right of survivorship in joint tenancies in fee, but does not affect joint estates for life or estates by entirety. Vass v. Freeman, 56 N.C. 221 (1857); Powell v. Allen, 75 N.C. 450 (1876); Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881); Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

In Powell v. Allen, 75 N.C. 450 (1876), in construing the act of 1784, now this section, Chief Justice Pearson says: "It is obvious that these words cannot be made to apply to joint tenants for life." Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

Legatees May Hold as Joint Tenants. - Legatees may still hold by a joint tenancy in North Carolina, though the incident of survivorship was abolished by the act of 1784, now this section. Vass v. Freeman, 56 N.C. 221 (1857).

When Remaindermen Take as Tenants in Common. - A deed of gift, executed by W.B. to his son J.B., "during his natural life only, and then to return to the male children of the said J.B., lawfully begotten of his body, for the want of such to return to the male children of my other sons W and B, their proper use, benefit and behoof of him, them and every of them, and to their heirs and assigns forever," vested a life estate in J.B., with remainder in fee to his sons as tenants in common under the section. Brown v. Ward, 103 N.C. 173, 9 S.E. 300 (1889).

Survivorship May Be Provided for by Contract. - This section abolishes survivorship, where the joint tenancy would otherwise have been created by the law, but does not operate to prohibit persons from entering into written contracts as to land, or verbal agreements as to personalty, such as to make the future rights of the parties depend upon the fact of survivorship. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895); Jones v. Waldroup, 217 N.C. 178, 7 S.E.2d 366 (1940); Bunting v. Cobb, 234 N.C. 132, 66 S.E.2d 661 (1951); Wilson County v. Wooten, 251 N.C. 667, 111 S.E.2d 875 (1960).

This section does not operate to prohibit persons from entering into written contracts as to lands so as to make future rights of the parties depend upon survivorship. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Parties who wish to create a right of survivorship applicable to joint bank accounts must comply with requirements of G.S. 41-2.1(a). In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1

Survivorship in Personalty Must Be Pursuant to Contract. - Since the abolition of survivorship in joint tenancy, the right of survivorship in personalty, if such right exists, must be pursuant to contract and not by operation of law or statutory provision. Wilson v. Ervin, 227 N.C. 396, 42 S.E.2d 468 (1947); Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

A verbal agreement between two parties owning a note, payable to them jointly, that upon the death of either without issue it shall belong to the survivor is valid. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895).

Joint Tenancy Severed by Deed of Trust. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court properly ruled that the son-in-law and daughter owned a one-half undivided interest in the land which was not encumbered by a deed of trust to the benefit of the mortgagee because, after the son-in-law and daughter and the mother executed a general warranty deed creating a joint tenancy with a right of survivorship between the mother and the son-in-law and daughter, that joint tenancy was severed by the filing of a deed of trust which only obligated the mother, as the accompanying mortgage was a conveyance, due to North Carolina being a title theory state, so the mother, on one hand, and the son-in-law and daughter, on the other hand, held the land as tenants in common. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Instrument Held Ineffective to Provide for Survivorship. - While this section may not preclude tenants in common from providing for survivorship by adequate contract inter sese, an instrument executed by them which merely expresses a general intent that the survivor should take the fee, without any words of conveyance, is ineffective. The execution by the administrator of the deceased tenant in common of a deed to the surviving tenant, made under the supposed authority of the contract, is without effect. Pope v. Burgess, 230 N.C. 323, 53 S.E.2d 159 (1949).

Joint Tenant's Interest Did Not Pass to Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the mother's interest as a tenant in common passed to the son-in-law and daughter upon the mother's death because the mother's interest as a tenant in common had no right of survivorship, since a joint tenancy previously created by a general warranty deed was severed by the filing of a deed of trust that obligated only the mother. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Interest of Tenant in Common Did Not Vest in Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the son-in-law and daughter owned the land in fee simple absolute upon the mother's death because the mother's interest in the property as a tenant in common did not vest in the son-in-law and daughter pursuant to a right of survivorship. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Applied in Powell v. Malone, 22 F. Supp. 300 (M.D.N.C. 1938).

Cited in Buffaloe v. Barnes, 226 N.C. 313, 38 S.E.2d 222 (1946); O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980); McLain v. Wilson, 91 N.C. App. 275, 371 S.E.2d 151 (1988); Mutual Community Savs. Bank v. Boyd, 125 N.C. App. 118, 479 S.E.2d 491 (1996); Clark v. Dyer, 236 N.C. App. 9, 762 S.E.2d 838 (2014).

II. ESTATES OF HUSBAND AND WIFE.

Section Inapplicable to Conveyances to Husband and Wife. - In construing this statute, the Supreme Court held that it had no application to an estate granted to husband and wife, on the ground that it is not an estate in joint tenancy, but an entirety estate. Motley v. Whitemore, 19 N.C. 537 (1837); Gray v. Bailey, 117 N.C. 439, 23 S.E. 318 (1895); Woolard v. Smith, 244 N.C. 489, 94 S.E.2d 466 (1956).

The act of 1784, now this section, abolishing survivorship in joint tenancies, does not apply to conveyances to husband and wife, for the reason assigned in Motley v. Whitemore, 19 N.C. 537 (1837), that "being in law but one person they have each the whole estate as one person; and on the death of either of them the whole estate continues in the survivor." Long v. Barnes, 87 N.C. 329 (1882); Smith v. Gordon, 204 N.C. 695, 169 S.E. 634 (1933).

Survivorship in Joint Bank Accounts. - Where agreements of husband and wife relating to savings accounts provide that the accounts are held by them as joint tenants with right of survivorship, and not as tenants in common, the right of survivorship exists pursuant to the contracts, and upon the death of the husband the widow is entitled to take the whole. Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

Estate by Entireties Not Abolished. - It has been held in several well considered decisions of the Supreme Court that our Constitution and the later statutes relative to the property and rights of married women have not thus far destroyed or altered the nature of this estate by entireties, a conveyance to a husband and wife. Bruce v. Sugg, 109 N.C. 202, 13 S.E. 790 (1891); Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903); West v. Aberdeen & R.R., 140 N.C. 620, 53 S.E. 477 (1906); Bynum v. Wicker, 141 N.C. 95, 53 S.E. 478 (1906); Jones v. W.A. Smith & Co., 149 N.C. 318, 62 S.E. 1092 (1908); McKinnon, Currie & Co. v. Caulk, 167 N.C. 411, 83 S.E. 559 (1914). See also Martin v. Lewis, 187 N.C. 473, 122 S.E. 180 (1924).

The right of survivorship applies to estates in land conveyed jointly to husband and wife, and title vests in the heirs of the one surviving the other. Murchison v. Fogleman, 165 N.C. 397, 81 S.E. 627 (1914).

A conveyance to a husband and wife, as such, creates an estate of entirety, and does not make them joint tenants or tenants in common. Neither can alien without the consent of the other, and the survivor takes the whole. Needham v. Branson, 27 N.C. 426 (1845); Todd v. Zachary, 45 N.C. 286 (1853); Woodford v. Higly, 60 N.C. 234 (1864); Long v. Barnes, 87 N.C. 329 (1882).

Where the husband and wife purchase property, each furnishing a portion of the purchase money, an estate in entirety and not a joint estate is created which they hold per tout et non per my. Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903).

Interest of Husband and Wife as Tenants in Common. - When a joint tenancy between a mother, on one hand, and a son-in-law and daughter, on the other hand, was severed by the filing of a deed of trust that obligated only the mother, the mother's subsequent interest as a tenant in common was one-half of the property, and the son-in-law's and daughter's interest, as tenants by the entirety, was also one-half because the son-in-law and daughter were husband and wife, so the son-in-law and daughter held the property as a single tenancy by the entirety and were treated as a single party when determining interests in the joint tenancy with right of survivorship upon severance of the joint tenancy. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

III. JOINT TENANCY IN PARTNERSHIP PROPERTY.

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Joint Tenancy of Partnership in Land. - This section provides that land jointly purchased for partnership purposes shall, upon the death of one partner, survive to the others for the purpose of paying the partnership debts. Real estate held and used for partnership purposes is subject to partnership debts to the exclusion of the heir or widow of the deceased. When the partnership debts are satisfied, if there is any remainder, such share as would have fallen to the deceased partner, shall be delivered over to the heirs, executors, administrators or assigns. Stroud v. Stroud, 61 N.C. 525 (1868).

Upon Settlement Partnership Land Descends as Real Estate. - When land is purchased in fee by partnership funds and for partnership purposes, and one partner dies, upon the settlement of the partnership debts his share of the land descends to his heir as real estate. Summey v. Patton, 60 N.C. 601 (1864).

When lands are purchased by a partnership with partnership funds, upon the death of one of the partners, in the absence of any agreement in the articles of partnership to the contrary, his share therein descends to his heir at law as real estate, if the personal property of the partnership is sufficient to pay all the partnership debts and demands. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Heir May Recover from Surviving Partner. - The heir at law to whom a deceased partner had conveyed by deed his share of lands purchased with partnership funds is entitled to the lands against the rights of the surviving partner, in an action by the latter for possession for the purpose of winding up the partnership affairs, when it appears that the partnership personalty is sufficient for the purpose of paying the partnership debts and satisfying any claim the surviving partner may have, and there is no provision in the articles of the partnership agreement of a contrary purpose. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Immaterial Whether Claim Is by Deed or Inheritance. - When the rule applies that lands purchased by partnership funds descend to the heir at law, it is immaterial whether the heir of the deceased partner claims his interest by deed from him or by inheritance. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

G.S. 59-74 is to be read in connection with this section respecting the settlement of partnership affairs by surviving partners. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

The fact that the surviving partner instituting action on a partnership asset has not filed a bond as required by G.S. 59-74, is not ground for nonsuit, since the requirement of a bond is for the protection of the estate of the deceased partner, and the objection is not available to one who is merely a debtor of the partnership. This conclusion is consonant with G.S. 59-75, which provides that upon failure of the surviving partner to file bond, the clerk of the superior court shall appoint a collector of the partnership upon application of any person interested in the estate of the deceased partner. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

Opinions of Attorney General

Effect on Common Law Application to Joint Bank Accounts. - See opinion of the Attorney General to Mr. W.C. York, Department of Insurance, 41 N.C.A.G. 352 (1971).

§ 41-2.1. Right of survivorship in bank deposits created by written agreement.

  1. A deposit account may be established with a banking institution in the names of two or more persons, payable to either or the survivor or survivors, with incidents as provided by subsection (b) of this section, when both or all parties have signed a written agreement, either on the signature card or by separate instrument, expressly providing for the right of survivorship.
  2. A deposit account established under subsection (a) of this section shall have the following incidents:
    1. Either party to the agreement may add to or draw upon any part or all of the deposit account, and any withdrawal by or upon the order of either party shall be a complete discharge of the banking institution with respect to the sum withdrawn.
    2. During the lifetime of both or all the parties, the deposit account shall be subject to their respective debts to the extent that each has contributed to the unwithdrawn account. In the event their respective contributions are not determined, the unwithdrawn fund shall be deemed owned by both or all equally.
    3. Upon the death of either or any party to the agreement, the survivor, or survivors, become the sole owner, or owners, of the entire unwithdrawn deposit, subject to the following claims listed below in subdivisions a. through e. upon that portion of the unwithdrawn deposit which would belong to the deceased had the unwithdrawn deposit been divided equally between both or among all the joint tenants at the time of the death of the deceased:
      1. The allowance of the year's allowance to the surviving spouse of the deceased;
      2. The funeral expenses of the deceased;
      3. The cost of administering the estate of the deceased;
      4. The claims of the creditors of the deceased; and
      5. Governmental rights.
    4. Upon the death of one of the joint tenants provided herein the banking institution in which said joint deposit is held shall pay to the legal representative of the deceased, or to the clerk of the superior court if the amount is less than two thousand dollars ($2,000), the portion of the unwithdrawn deposit made subject to the claims and expenses as provided in subdivision (3) above, and may pay the remainder to the surviving joint tenant or joint tenants. Said legal representative shall hold the portion of said unwithdrawn deposit paid to him and not use the same for the payment of the claims and expenses as provided in subdivision (3) above unless and until all other personal assets of the estate have been exhausted, and shall then use so much thereof as may be necessary to pay said claims and expenses. Any part of said unwithdrawn deposit not used for the payment of said claims and expenses shall, upon the settlement of the estate, be paid to the surviving joint tenant or tenants.
  3. This section shall be subject to the provisions of law applicable to transfers in fraud of creditors.
  4. This section shall not be deemed exclusive; deposit accounts not conforming to this section, and other property jointly owned, shall be governed by other applicable provisions of the law.
  5. As used in this section:
    1. "Banking institution" includes commercial banks, industrial banks, building and loan associations, savings and loan associations, and credit unions.
    2. "Deposit account" includes both time and demand deposits in commercial banks and industrial banks, installment shares, optional shares and fully paid share certificates in building and loan associations and savings and loan associations, and deposits and shares in credit unions.
    3. "Unwithdrawn deposit" shall be the amount in the deposit account held by the banking institution at the time of the death of the joint tenant; provided, however, that the banking institution shall not be held responsible for any amount properly paid out of said account prior to notice of such death.
  6. This section does not repeal or modify any provisions of the law relating to estate or inheritance taxes.
  7. A deposit account under subsection (a) of this section may be established by a written agreement in substantially the following form:

"We, the undersigned, hereby agree that all sums deposited at any time, including sums deposited prior to this date, in the ______________ (name of institution) in the joint account of the undersigned, shall be held by us as co-owners with the right of survivorship, regardless of whose funds are deposited in said account and regardless of who deposits the funds in said account. Either or any of us shall have the right to draw upon said account, without limit, and in case of the death of either or any of us the survivor or survivors shall be the sole owner or owners of the entire account. This agreement is governed by the provisions of § 41-2.1 of the General Statutes of North Carolina.

Witness our hands and seals, this ________ day of ________, ________.

_______________________________________________________________ (Seal) _______________________________________________________________ (Seal) _______________________________________________________________ (Seal) ______________________________________________________________ (Seal)"

History

(1959, c. 404; 1963, c. 779; 1969, c. 863; 1973, c. 840; 1975, c. 19, s. 14; 1977, c. 671, ss. 1, 2; 1998-69, s. 11; 1999-337, s. 9; 1999-456, s. 59.)

Cross References. - As to joint bank accounts, see G.S. 53C-6-6.

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966); 46 N.C.L. Rev. 520 (1968).

For note on joint bank accounts with the right of survivorship in North Carolina, see 46 N.C.L. Rev. 669 (1968).

For survey of 1980 property law, see 59 N.C.L. Rev. 1209 (1981).

For survey of 1982 law on property, see 61 N.C.L. Rev. 1171 (1983).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

For article, "The Unmerry Widow: Spousal Disinheritance and Life Insurance in North Carolina," see 87 N.C.L. Rev. 1869 (2009).

CASE NOTES

Rights of Creditors. - The legislature has not enacted any statute with respect to the rights of creditors against property held by virtue of a contract creating a joint tenancy with right of survivorship, except as to the right of survivorship in bank deposits created by a written agreement by husband and wife as provided by this section. Wilson County v. Wooten, 251 N.C. 667, 111 S.E.2d 875 (1960).

Effect of Deposit into Joint Account. - A deposit by one spouse into an account in the names of both, standing alone, does not constitute a gift to the other; the depositor is still deemed to be the owner of the funds. Myers v. Myers, 68 N.C. App. 177, 314 S.E.2d 809 (1984).

For a deposit by one spouse to constitute a gift to the other, there must be donative intent coupled with loss of dominion over the property; the donor must divest himself of all right and title to, and control of, the gift. Myers v. Myers, 68 N.C. App. 177, 314 S.E.2d 809 (1984).

Wife Held Entitled to Funds in Joint Bank Account. - Notwithstanding the terms of an antenuptial contract and the terms of decedent-husband's will in keeping with the contract, the wife is also entitled to the funds on deposit in a joint bank account, the contract for which was entered into after the marriage. Harden v. First Union Nat'l Bank, 28 N.C. App. 75, 220 S.E.2d 136 (1975).

Listing Survivorship Accounts on 90-Day Inventory Held Not to Make Accounts Part of Estate for Purpose of Right to Dissent. - Where executrix listed one-half of funds in survivorship accounts on 90-day inventory to comply with subdivisions (b)(3) and (4) of this section, listing accounts for this purpose on 90-day inventory did not make funds a part of net estate for purposes of determining right to dissent under former G.S. 30-1. In re Estate of Francis, 327 N.C. 101, 394 S.E.2d 150 (1990).

Joint Bank Accounts with Survivorship Created Under Subsection (a) of This Section. - Because right of survivorship has been statutorily abolished where it follows as legal incident to existing joint tenancy, parties who wish to create right of survivorship applicable to joint bank accounts must comply with requirements of subsection (a) of this section. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1

Certain joint bank account held by a decedent and her nephew incorporated a right of survivorship pursuant to G.S. 41-2.1(a) because the decedent and the nephew executed individual customer access agreement forms for this account, which specifically authorized the incorporation of a right of survivorship. Albert v. Cowart, 200 N.C. App. 57, 682 S.E.2d 773 (2009), review denied, review dismissed, as moot, 363 N.C. 744, 687 S.E.2d 688 (2009).

Attorney-in-fact did not breach the attorney-in-fact's fiduciary duty to the attorney-in-fact's principal by transferring funds from an account the principal held jointly with the principal's husband to an account the principal held jointly with the attorney-in-fact and then transferring the funds to the attorney-in-fact because (1) the transfer to the account the principal held jointly with the attorney-in-fact carried out the principal's wishes, (2) the transfer was not a gift, in violation of G.S. 32A-14.1, as the principal was alive and a joint tenant of the account into which the funds were transferred, and (3) the attorney-in-fact moved no funds from the account held jointly with the principal until after the principal died, when the attorney-in-fact owned the funds, pursuant to G.S. 53-146.1 [Repealed. See now G.S. 53C-6-6]. Albert v. Cowart, 219 N.C. App. 546, 727 S.E.2d 564 (2012).

Account Established Under Subsection (a) Not Part of Net Estate. - Funds held by testator-spouse in joint tenancy with right of survivorship with third party established pursuant to subsection (a) of this section do not become part of testator-spouse's net estate for purposes of dissent statute. In re Estate of Francis, 327 N.C. 101, 394 S.E.2d 150 (1990).

The signature card constitutes the contract between the depositor of money, and the bank in which it is deposited, and it controls the terms and disposition of the account. Threatte v. Threatte, 59 N.C. App. 292, 296 S.E.2d 521 (1982); Myers v. Myers, 68 N.C. App. 177, 314 S.E.2d 809 (1984).

Signed Certificate Would Be Sufficient. - Either a properly executed signature card or a certificate signed by both parties and expressly providing for a right of survivorship would be sufficient to create a joint account with right of survivorship. Threatte v. Threatte, 59 N.C. App. 292, 296 S.E.2d 521 (1982).

Written agreement not signed by party asserting rights as a survivor is not sufficient to satisfy statutory requirements of subsection (a) of this section. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1.

Plain language of this section clearly requires that both parties sign a written agreement. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1.

A certificate of deposit did not itself constitute compliance with subsection (a) of this section since the certificate did not contain the signatures of the depositors and thus did not amount to a signed writing as contemplated by the statute. The provision of the certificate, "Payable to said depositor, or, if more than one, to either or any of said depositors or the survivors or survivor," absent any other evidence, was not dispositive as to the ownership of funds. The use of the conjunction "or" in the certificate did not establish the right of survivorship but merely created an agency for the one other than the depositor to withdraw funds, such agency terminating at depositor's death. O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980).

Nor Did Signature Card Signed by Depositors. - A signature card signed by depositors did not comply with this section where the card did not expressly provide for the right of survivorship in the certificate of deposit in that there was no indication in the space provided on the signature card that gave effect to the survivorship provision. O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980).

Where signature cards for savings and loan association accounts designated both parties "as joint tenants with right of survivorship" and instructed the savings and loan association "to act pursuant to any one or more of the joint tenants' signatures, shown below, in any manner in connection with this account and, . . . to pay, without any liability for such payment, to any one or the survivor or survivors at any time," the withdrawal clause indicating that withdrawals were to be made only by the deceased party would be disregarded and the contractual terms allowing both parties the right to act in any manner regarding the account controlled. McLain v. Wilson, 91 N.C. App. 275, 371 S.E.2d 151 (1988), cert. denied, 324 N.C. 328, 377 S.E.2d 749 (1989).

Survivorship Account Not Created. - Where the materials of the parties showed without contradiction that though plaintiff and codepositor intended to establish a joint savings account with the right of survivorship, codepositor died before signing the agreement, the statutory terms for creating a survivorship account were not complied with, and plaintiff's action seeking the release of funds held in the savings account, titled in his name and that of the decedent, had no basis. Powell v. First Union Nat'l Bank, 98 N.C. App. 227, 390 S.E.2d 461 (1990).

No Trust Created. - Where deceased opened a savings account and on the application form wrote, "Payable to Rose Z. Weaver, as survivor only," there was no trust created with right of survivorship, since there was no evidence of a transfer or assignment of a present beneficial interest but only the expression of a desire that plaintiff own the account at the death of the depositor. Kyle v. Groce, 50 N.C. App. 204, 272 S.E.2d 609 (1980).

Change of Joint Account. - Where plaintiff and his former wife executed a joint account agreement with right of survivorship pursuant to this section, the joint account could be changed only by the signatures of all the parties to the joint account agreement or by one party's withdrawing the complete account and opening a new account. This section does not permit only one of the joint tenants of the account in question to change it from the original agreement executed by both parties to the detriment of the other. Benfield v. First Fed. Sav. & Loan Ass'n, 44 N.C. App. 371, 261 S.E.2d 150 (1979).

Abstention by Bankruptcy Court. - In a bankruptcy action concerning the issue of rights of ownership in a joint bank account with rights of survivorship, the bankruptcy court refused to rule on the issue since it was clearly one of state law requiring state expertise and, thus, the issue was one of unsettled North Carolina law on which a court of that state should have made a ruling. Kimrey v. Dorsett, 10 Bankr. 466 (Bankr. M.D.N.C. 1981).

Liability for Wrongful Conversion. - This section and the signature card serve only to discharge the bank from liability to its depositors; they do not release one depositor to a joint account from liability to another for a withdrawal which constitutes wrongful conversion. Myers v. Myers, 68 N.C. App. 177, 314 S.E.2d 809 (1984).

Co-defendants of step-daughter who transferred funds that were located in her joint bank accounts which she shared with her step-father, the decedent, were not entitled to summary judgment pursuant to this section on the plaintiff's conversion claims where the defendant/step-daughter knew that the money was not hers and that "[s]aid transfers were made without [his]knowledge or consent." Hutchins v. Dowell, 138 N.C. App. 673, 531 S.E.2d 900 (2000).

Action against Spouse for Conversion. - When one spouse deposits funds into a joint account with the other, the other is designated the depositor's agent, with authority to withdraw the funds. The depositing spouse, as principal, thus may bring an action in conversion against the withdrawing spouse to recover funds which that spouse has converted as agent. Myers v. Myers, 68 N.C. App. 177, 314 S.E.2d 809 (1984).

Estate administrator's complaint seeking a declaratory judgment that an investment account was a single person account owned by the estate was properly dismissed for failure to state a claim where the investment company's activities or services were not within the G.S. 41-2.1(e)(1) definition of banking institution, and the account did not fall within the G.S. 41-2.1(e)(2) definition of deposit account. As a result, the G.S. 41-2.1 requirements did not apply. Mclean v. Spaulding, - N.C. App. - , - S.E.2d - (Sept. 15, 2020), review denied, 855 S.E.2d 279, 2021 N.C. LEXIS 229 (N.C. 2021).

Applied in Johnson v. Northwestern Bank, 27 N.C. App. 240, 218 S.E.2d 722 (1975); Sutton v. Sutton, 35 N.C. App. 670, 242 S.E.2d 644 (1978); Salvation Army v. Welfare, 63 N.C. App. 156, 303 S.E.2d 658 (1983); Napier v. High Point Bank & Trust Co., 100 N.C. App. 390, 396 S.E.2d 620 (1990); Holloway v. Wachovia Bank & Trust Co., 104 N.C. App. 631, 410 S.E.2d 915 (1991).

Cited in Combs v. Eller, 30 N.C. App. 30, 226 S.E.2d 197 (1976); Moore v. Galloway, 35 N.C. App. 394, 241 S.E.2d 386 (1978); Stanley v. Miller, 42 N.C. App. 232, 256 S.E.2d 308 (1979); Kimrey v. Dorsett, 10 Bankr. 466 (M.D.N.C. 1981); Miller v. Miller, 117 N.C. App. 71, 450 S.E.2d 15 (1994); Davis v. Wrenn, 121 N.C. App. 156, 464 S.E.2d 708 (1995); Mutual Community Savs. Bank v. Boyd, 125 N.C. App. 118, 479 S.E.2d 491 (1996); State ex rel. Pilard v. Berninger, 154 N.C. App. 45, 571 S.E.2d 836 (2002), cert. denied, 356 N.C. 694, 579 S.E.2d 100 (2003).

Opinions of Attorney General

Joint Bank Account; Decedent's Share Applied in Payment of Debts; As Basis for Computing Administrator's Bond Required. - See opinion of the Attorney General to Mr. Everitte Barbee, Clerk, Superior Court of Onslow County, 40 N.C.A.G. 23 (1970).

Unwithdrawn Deposits Which Would Have Belonged to Decedent Are Subject to Computation of Costs of Administration. - See opinion of the Attorney General to Mr. R.J. White, Jr., 42 N.C.A.G. 316 (1973).

§ 41-2.2. Joint ownership of securities.

  1. In addition to other forms of ownership, securities may be owned by any parties as joint tenants with rights of survivorship, and not as tenants in common, in the manner provided in this section.
    1. A joint tenancy in securities as provided by this section shall exist when such securities indicate that they are owned with the right of survivorship, or otherwise clearly indicate an intention that upon the death of either party the interest of the decedent shall pass to the surviving party. (b) (1)  A joint tenancy in securities as provided by this section shall exist when such securities indicate that they are owned with the right of survivorship, or otherwise clearly indicate an intention that upon the death of either party the interest of the decedent shall pass to the surviving party.
    2. Such a joint tenancy may also exist when a broker or custodian holds the securities for the joint tenants and by book entry or otherwise indicates (i) that the securities are owned with the right of survivorship, or (ii) otherwise clearly indicates that upon the death of either party, the interest of the decedent shall pass to the surviving party. Money in the hands of such broker or custodian derived from the sale of, or held for the purpose of, such securities shall be treated in the same manner as such securities.
  2. Upon the death of a joint tenant his interest shall pass to the surviving joint tenant. The interest of the deceased joint tenant, even though it has passed to the surviving joint tenant, remains liable for the debts of the decedent in the same manner as the personal property included in his estate, and recovery thereof shall be made from the surviving joint tenant when the decedent's estate is insufficient to satisfy such debts.
  3. This section does not repeal or modify any provisions of the law relating to estate or inheritance taxes.
  4. As used in this section, "securities" has the same meaning as in G.S. 41-40(9) and includes "security account" as that term is defined in G.S. 41-40(10).

History

(1967, c. 864, s. 1; 1969, c. 1115, s. 2; 1989 (Reg. Sess., 1990), c. 891, s. 2; 1998-69, s. 12; 1999-337, s. 10; 2005-411, s. 3.)

Editor's Note. - Session Laws 1989 (Reg. Sess., 1990), c. 891, which amended this section, provided in s. 3: "Nothing in this act shall be construed to affect the validity of instruments that provide for a right of survivorship executed prior to the effective date of this act." The act became effective January 1, 1991.

Effect of Amendments. - Session Laws 2005-411, s. 3, effective October 1, 2005, deleted "corporate stock and investment" preceding "securities" from the section heading; deleted "shares of corporate stock or investment" preceding "securities" in subsection (a); in subdivision (b)(1), deleted "shares of corporate stock or investment" preceding "securities as provided" and deleted "shares or" preceding "securities indicate"; deleted "shares or" four times preceding "securities" in subdivision (b)(2); and added subsection (e).

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 46 N.C.L. Rev. 520 (1968).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

CASE NOTES

Applied in Johnston Health Care Ctr., L.L.C. v. North Carolina Dep't of Human Resources, Div. of Facility Servs., Certificate of Need Section, 136 N.C. App. 307, 524 S.E.2d 352 (2000).

Cited in O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980).


§§ 41-2.3, 41-2.4: Reserved for future codification purposes.

§ 41-2.5: Recodified as G.S. 41-56(d) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.

§ 41-3. Survivorship among trustees.

In all cases where only a naked trust not coupled with a beneficial interest has been created or exists, or shall be created, and the conveyance is to two or more trustees, the right to perform the trust and make estates under the same shall be exercised by any one of such trustees, in the event of the death of his cotrustee or cotrustees or the refusal or inability of the cotrustee or cotrustees to perform the trust; and in cases of trusts herein named the trustees shall hold as joint tenants, and in all respects as joint tenants held before the year 1784.

History

(1885, c. 327, s. 1; Rev., s. 1580; C.S., s. 1736.)

Cross References. - As to limitation on actions by cotenants of personal property, see G.S. 1-29.

As to survivorship among trustees with power of sale, see G.S. 45-8.

CASE NOTES

The trustees of a trust estate hold as joint tenants, and not as tenants in common. Cameron v. Hicks, 141 N.C. 21, 53 S.E. 728 (1906); Webb v. Borden, 145 N.C. 188, 58 S.E. 1083 (1907).

Loss of Right to Trustee Is Loss to Cestui and Cotrustees. - When a right of entry is barred and the right of action lost by a trustee through an adverse occupation, the cestui que trust and the cotrustees are also precluded from asserting claim to the land. Cameron v. Hicks, 141 N.C. 21, 53 S.E. 728 (1906).

Cited in In re Michal, 273 N.C. 504, 160 S.E.2d 495 (1968).


§ 41-4. Limitations on failure of issue.

Every contingent limitation in any deed or will, made to depend upon the dying of any person without heir or heirs of the body, or without issue or issues of the body, or without children, or offspring, or descendant, or other relative, shall be held and interpreted a limitation to take effect when such person dies not having such heir, or issue, or child, or offspring, or descendant, or other relative (as the case may be) living at the time of his death, or born to him within 10 lunar months thereafter, unless the intention of such limitation be otherwise, and expressly and plainly declared in the face of the deed or will creating it: Provided, that the rule of construction contained in this section shall not extend to any deed or will made and executed before the fifteenth of January, 1828.

History

(1827, c. 7; R.C., c. 43, s. 3; Code, s. 1327; Rev., s. 1581; C.S., s. 1737.)

Legal Periodicals. - For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For survey of 1980 property law, see 59 N.C.L. Rev. 1209 (1981).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "Does the Fee Tail Exist in North Carolina?," see 23 Wake Forest L. Rev. 767 (1988).

For note, "Rawls v. Early: A Refusal to Imply Conditions of Survivorship Upon Ascertained Contingent Remaindermen," see 68 N.C.L. Rev. 1343 (1990).

CASE NOTES

Editor's Note. - Many of the cases under this section were decided prior to the enactment of G.S. 41-6.3, which abolished the rule in Shelley's case.

Purpose of Section. - This section was enacted for the primary purpose of making contingent limitations good by fixing a definite time when the estate of the first taker shall become absolute, and also to establish a rule of interpretation by which the estate of the first taker shall be affected with the contingency till the time of his death unless a contrary intent appears on the face of the instrument. Sain v. Baker, 128 N.C. 256, 38 S.E. 858 (1901); Harrell v. Hagan, 147 N.C. 111, 60 S.E. 909 (1908); Kirkman v. Smith, 174 N.C. 603, 94 S.E. 423 (1917); Bell v. Kessler, 175 N.C. 525, 95 S.E. 881 (1918).

The primary purpose of the enactment of this section was not to abrogate the rule which favors the early vesting of estates but it has been given that effect under certain circumstances in the North Carolina decisions. Cabarrus Bank & Trust Co. v. Finlayson, 286 F.2d 251 (4th Cir. 1961).

This section was enacted in 1827 to meet the rule then generally prevailing in this country that a gift over on "death without issue" in a deed or will meant an indefinite failure of issue and hence was void for remoteness. Cabarrus Bank & Trust Co. v. Finlayson, 286 F.2d 251 (4th Cir. 1961).

The purpose of this section is to save gifts over upon the contingency of someone's dying without issue if the contingency occurs after the death of the testator or after some estate or period subsequent to his death. White v. Alexander, 290 N.C. 75, 224 S.E.2d 617 (1976).

The purpose of this section is to sustain the contingent interest created by the testator and ensure that the interest will pass in possession when and if the contingency occurs, even if the occurrence is after the death of the testator. Therefore, when the contingency is fulfilled the limitation is deemed to take effect. Hollowell v. Hollowell, 107 N.C. App. 166, 420 S.E.2d 827, aff'd, 333 N.C. 706, 430 S.E.2d 235 (1993).

Section Is Obligatory. - The rule laid down by this section is obligatory on the courts, and must be observed in all cases except, as provided by the statute, when a contrary intent is "expressly and plainly declared in the face of the deed or will." Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919).

Inapplicable to Wills Executed before January 15, 1828. - See Rice v. Satterwhite, 21 N.C. 69 (1835); Brown v. Brown, 25 N.C. 134 (1842); Gibson v. Gibson, 49 N.C. 425 (1857); Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919).

Does Not Interfere with Rule in Shelley's Case. - The section does not interfere with the application of the principle laid down in Shelley's case in determining the nature and extent of the precedent estate. This is declared in Sanderlin v. Deford, 47 N.C. 74 (1854), in construing a will executed in 1838. King v. Utley, 85 N.C. 59 (1881).

Doctrine of Shifting Uses and Executory Devises Unaffected. - This section is a rule of construction upholding the second and contingent estate upon the death of the first taker without heirs, etc., and does not change the application of the doctrine of shifting uses and executory devises in determining the nature and extent of the precedent estate. Sessoms v. Sessoms, 144 N.C. 121, 56 S.E. 687 (1907).

Common-Law Rule Superseded. - Where there was a devise of lands for life, then to J and C equally, and in case "they or either of them die without issue," then to the heirs of certain others and the survivor of J and C equally, it was held that the common-law doctrine that a limitation contingent upon death and failure of issue is void for remoteness gives place to the new rule of construction enacted by this section, made applicable since January 15, 1828, without restriction as to immediate estates, and a contrary intent not being expressly and plainly declared in the face of the instrument, the death without issue referred to the death of J and C; and it appearing that J died without issue after the death of the first taker, and C survived, with issue, the absolute fee simple title to the lands was in C and the other ulterior remaindermen. Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919).

Rule When Will Is Ambiguous. - Where there is ambiguity in a will as to whether the vesting of an estate devised for life with contingent limitation over shall be at the death of the testatrix or that of the first taker, under the principle that the law favors the early vesting of estates, the former will be taken; and where it clearly appears from the terms of the will and surrounding circumstances that that was the intent of the testatrix, it will not be affected by the section, by which a contingent limitation depending upon the dying of a person without heir, etc., is to vest at the death of such person. Westfeldt v. Reynolds, 191 N.C. 802, 133 S.E. 168 (1926); Moore v. Hunter, 46 N.C. App. 449, 265 S.E.2d 884 (1980).

Provisions of Section Prevail over Rule of Stare Decisis. - A vested interest in lands cannot be established under the doctrine of stare decisis in direct conflict with the expressions of a statutory change of the rule to the contrary, where the decisions relied upon are upon a construction of a written instrument made or executed before the statutory enactment and excepted by it from its provisions, and the subsequent decisions of affirmance of the old rule of construction are either conflicting among themselves or upon prior executed instruments excepted by the statute, or without express reference thereto; and this section, changing the rule of construction as to the vesting of an interest contingent upon a death with issue, cannot be affected by the rule laid down in Hilliard v. Kearney, 45 N.C. 221 (1853), and subsequent decisions on the subject. Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919).

The law favors early indefeasible or absolute vesting of estates. As a corollary of this rule, such a construction is to be put upon conditional expressions, which render a testamentary gift defeasible, as to confine their operation to as early a period as the words of the will allow, so that it may become an absolute interest as soon as the language of the testator will permit. Elmore v. Austin, 232 N.C. 13, 59 S.E.2d 205 (1950); Moore v. Hunter, 46 N.C. App. 449, 265 S.E.2d 884 (1980).

Contingent Remaindermen Take Transmissible Estate. - Where there is a contingent executory devise to named persons in the event the first taker should die without issue, the persons who are to take the contingent limitation over are certain and only the event upon which they are to take is uncertain, and the contingent remaindermen take a transmissible estate which is not dependent upon their surviving the first taker, and upon the death of the contingent remaindermen prior to the death of the first taker without children then surviving, the estate goes to the heirs, next of kin, and successors of interest of the contingent remaindermen. Seawell v. Cheshire, 241 N.C. 629, 86 S.E.2d 256 (1955).

A contingent remainder dependent upon the death of a certain donee without issue means, under the terms of this section, without issue living at the time of death. Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916).

The words that the gift over "shall be . . . a limitation to take effect when such person dies not having such heir or issue, or child . . . living at the time of his death, or born to him within ten lunar months thereafter" mean simply that the interest will be sustained and will pass in possession when and if the contingency, e.g., dying without issue, occurs, even if this event takes place after the death of the testator or grantor or after some intervening estate or period following his death. White v. Alexander, 290 N.C. 75, 224 S.E.2d 617 (1976).

The words, that the gift over "shall be . . . a limitation to take effect when such person dies not having such heir or issue, or child . . . living at the time of his death, or born to him within ten lunar months thereafter," do not mean that a determination of those persons who take the interest must necessarily wait until the event occurs. At what point in time those persons are determined remains a question of the testator's intent. White v. Alexander, 290 N.C. 75, 224 S.E.2d 617 (1976).

This section does not operate to postpone vesting of the reversion until the death of the life tenant without children because a reversion is not an estate created by limitation in a deed or will but is an estate created by operation of law. Atkins v. Burden, 31 N.C. App. 660, 230 S.E.2d 594 (1976), cert. denied, 291 N.C. 710, 232 S.E.2d 202 (1977).

Roll Must Be Called as of Death of First Taker. - Where a contingent limitation over is made to depend upon the death of the first taker without children or issue, the limitation takes effect when the first taker dies without issue or children living at the time of his death. Williamson v. Cox, 218 N.C. 177, 10 S.E.2d 662 (1940).

To determine the effectiveness of a limitation over, the roll must be called as of the date of the death of the first taker. Turpin v. Jarrett, 226 N.C. 135, 37 S.E.2d 124 (1946).

Where a will set up a trust with provision that the income therefrom be divided among named beneficiaries for life and the corpus proportionately to their issue upon their deaths, with further provision that if a beneficiary should die without issue, his share of the corpus should become a part of, and be distributed in accordance with, the residuary clause, it was held that the person entitled to each share of the corpus was contingent upon whether each of the life beneficiaries died with or without issue surviving, and therefore the will set up a contingent and not a vested limitation, and the roll must be called as to each share of the corpus as of the death of its life beneficiary. Van Winkle v. Berger, 228 N.C. 473, 46 S.E.2d 305 (1948).

Dying without heirs or issue, upon which a limitation over takes effect, is referable to the death of the first taker of the fee without issue living at the time of his death, and not to the death of any other person or to any intermediate period. House v. House, 231 N.C. 218, 56 S.E.2d 695 (1949). See Wachovia Bank & Trust Co. v. Waddell, 234 N.C. 34, 65 S.E.2d 317 (1951); Seawell v. Cheshire, 241 N.C. 629, 86 S.E.2d 256 (1955).

Not as of Death of Testator. - A devise of land to L with limitation that if she "shall die leaving issue surviving her, then to such issue and their heirs forever," but if she "die without issue surviving her, then the property to return to my eldest daughter," the vesting of the estate in remainder depends upon the contingency of the death of L without leaving "issue" surviving her, and not upon the death of the testatrix. Rees v. Williams, 164 N.C. 128, 80 S.E. 247 (1913), petition for rehearing dismissed, 165 N.C. 201, 81 S.E. 286 (1914).

Unless a contrary intent appears from the will, the event by which the estate must be determined will be referred not to the death of the devisor, but the holder of the particular estate itself, and the determinable quality of such an estate, or interest, will continue to affect it till the event occurs by which same is to be determined, or the estate becomes absolute. Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919). See Williams v. Lewis, 100 N.C. 142, 5 S.E. 435 (1888); Harrell v. Hagan, 147 N.C. 111, 60 S.E. 909, 125 Am. St. R. 539 (1908).

Rule in Hilliard v. Kearney Changed. - Under the rule at common law a limitation contingent upon death without issue was void for remoteness because it referred to an indefinite failure of issue; and in order to give effect to the testator's intention the courts began to look for some intermediate time, such as the termination of the life estate, or some other designated period, and held that the phrase "dying without issue" was to be referred to this intermediate period. Hilliard v. Kearney, 45 N.C. 221 (1853). This principle was entirely changed by the act of 1827, which is now this section. American Yarn & Processing Co. v. Dewstoe, 192 N.C. 121, 133 S.E. 407 (1926). See Hussey v. Burgwyn, 51 N.C. 385 (1859); Robertson v. Pickerell, 77 N.C. 302 (1877); McKinnie Bros. Co. v. Wester, 188 N.C. 514, 125 S.E. 1 (1924); Brock v. Franck, 194 N.C. 346, 139 S.E. 696 (1927); Phillips v. Penland, 196 N.C. 425, 147 S.E. 731 (1929); Richlands Supply Co. v. Banks, 205 N.C. 343, 171 S.E. 358 (1933); Tew v. Hinson, 215 N.C. 456, 2 S.E.2d 376 (1939); Hammond v. Williams, 215 N.C. 657, 3 S.E.2d 437 (1939); Whitley's Elec. Serv., Inc. v. Sherrod, 293 N.C. 498, 238 S.E.2d 607 (1977).

Section Applies Notwithstanding Intervening Life Estate. - On devise of an estate to M for life, then to G and K, and if they should die without bodily heirs, then over, the creation and existence of the life estate, without more, does not, of itself, affect the statutory rule of construction as to estates in remainder, and the contingency affecting such estates will continue to affect the same till the death of the first takers in remainder. Kirkman v. Smith, 175 N.C. 579, 96 S.E. 51 (1918). The section has been construed by the Supreme Court at least 26 times, and in every case in which it has come before the court for construction it has uniformly been held that "dying without heirs or issue," upon which a limitation over takes effect, is referable to the death of the first taker of the fee, without issue living at the time of his death, and not to the death of any other person or to any intermediate period. Patterson v. McCormick, 177 N.C. 448, 99 S.E. 401 (1919). See Cowand v. Meyers, 99 N.C. 198, 6 S.E. 82 (1888); Dunning v. Burden, 114 N.C. 33, 18 S.E. 969 (1894); Kornegay v. Morris, 122 N.C. 199, 29 S.E. 875, reheard, 123 N.C. 128, 31 S.E. 375 (1898), petition to rehear dismissed, 124 N.C. 424, 32 S.E. 733 (1899); Harrell v. Hagan, 147 N.C. 111, 60 S.E. 909 (1908); Dawson v. Ennett, 151 N.C. 543, 66 S.E. 566 (1909); Perrett v. Bird, 152 N.C. 220, 67 S.E. 507 (1910); Elkins v. Seigler, 154 N.C. 374, 70 S.E. 636 (1911); Vinson v. Wise, 159 N.C. 653, 75 S.E. 732 (1912); Hobgood v. Hobgood, 169 N.C. 485, 86 S.E. 189 (1915); Whichard v. Craft, 175 N.C. 128, 95 S.E. 94 (1918).

First Taker Has Base and Qualified Fee. - O devised his lands to certain of his children, S, D, and J. By item 3 of the will a certain tract was devised to D and "the lawful heirs of his body lawfully begotten;" by item 9 it was provided that in case of death of either of the children, his portion should revert to the surviving one, with further contingent limitations. It was held that these items should be construed together, and that the estate devised to D was not in fee simple, but a base and qualified fee, defeasible on the death of D without leaving living lineal descendants. Perrett v. Bird, 152 N.C. 220, 67 S.E. 507 (1910).

First Taker Dying Without Issue Cannot Devise Property. - When a testator devises land to his son with a limitation over to his daughters, provided the son dies without heirs, the son, dying without children, cannot by will give his wife a life estate with the remainder to a third party. Sain v. Baker, 128 N.C. 256, 38 S.E. 858 (1901); Seawell v. Cheshire, 241 N.C. 629, 86 S.E.2d 256 (1955).

Instances of Fee Simple Defeasible. - A devise to testator's four sons, but if any one of them should "fail to become a father of a living child by lawful wedlock" his share should revert to the estate, was held to devise a fee simple to each son, defeasible upon his death without having a living child born in wedlock, but which becomes a fee simple absolute as to each son upon the birth of him of a living child in wedlock. Buffaloe v. Blalock, 232 N.C. 105, 59 S.E.2d 625 (1950).

By residuary clause, testator devised the remainder of his estate to his four sons, his sole heirs at law, each to take a defeasible fee to become absolute as to each upon the birth of a living child in wedlock. It was held that testator intended to dispose of all the residue of his estate in the residuary clause, including any reversion, and therefore if the fee of any one of the sons should be defeated, the reversion would go to the estate and pass under the residuary clause to the other sons or their heirs, who would not take as purchasers under the will but by descent from the devisees, and therefore deed executed by the four sons conveys the fee simple absolute, since the deed of each would estop him or his heirs from claiming any reversionary interest if such interest should thereafter arise. Buffaloe v. Blalock, 232 N.C. 105, 59 S.E.2d 625 (1950).

Testator devised a life estate to his wife with provisions that at her death his lands should be divided among his living children, with particular description as to the share each should take, with further provision that one daughter (who had living children at the time the will was executed) should take a life estate in her share with remainder to her children, and that his other named daughter and three named sons should have their share in fee simple forever "And if either one of my daughters shall die without issue, their share of the lands shall be equally divided among" the three named sons. It was held that the words "shall die without issue" refer to the death of the devisees of the fee and not to the death of the life tenant, and the daughters took a defeasible fee so that upon the death of one of them without issue her surviving, her share became vested in the three named sons. House v. House, 231 N.C. 218, 56 S.E.2d 695 (1949).

Where a will provided that some of the beneficiaries shall each receive a percentage of the income from the trust estate for 20 years, then, as to all of these, the trust shall terminate and each shall receive a like percentage of the corpus of the trust absolutely, but should any of them die before the termination of the trust, the interest and corpus shall go to their respective surviving issue, but if any die without issue surviving, "their respective shares shall be added to the residue of (the) estate," each of the beneficiaries, at the death of testator, had a vested interest, subject to the 20-year trust, in his or her respective share in fee, defeasible upon dying without issue before the termination of the trust. Little v. Wachovia Bank & Trust Co., 252 N.C. 229, 113 S.E.2d 689 (1960).

Where testatrix bequeathed property to her daughter or to the children of testatrix's son if the daughter should die childless, the daughter took only a defeasible title which terminated upon her death without children. Cabarrus Bank & Trust Co. v. Finlayson, 286 F.2d 251 (4th Cir. 1961).

Instance of Fee Simple Determinable. - Testator devised lands to his daughter with further provision that the gift should become absolute if she improved the land by erecting a dwelling or if she should die leaving issue, but that if she should fail to improve the lot or should die without living issue, then the lands should be disposed of as directed in a subsequent item. It was held that the devise created a fee simple determinable, and under the rule of construction requiring that the fee simple absolute should vest as soon as the language of the testator permits, the ambiguous provisions for defeasance must be read so as to require both of the specified contingencies to occur before the fee should be defeated, and therefore upon the erection of a dwelling house upon the property of the daughter her fee became absolute. Elmore v. Austin, 232 N.C. 13, 59 S.E.2d 205 (1950).

Estate Created Direct to Second Taker. - When by the operation of G.S. 41-1 a fee tail is converted into a fee simple, with a limitation of a fee upon the death of the first taker without heirs, a separate estate is created direct from the testator to the second taker upon the happening of the contingency, under the doctrine of shifting uses and by way of executory devise, and is not a qualification of the estate of the first taker, or too remote since the enactment of this section. Sessoms v. Sessoms, 144 N.C. 121, 56 S.E. 687 (1907).

A devise of lands to B in fee, "provided he has a child or children; but if he has no child, then to him for life," with limitation over to the testator's heirs at law, carries to the devisee a fee simple estate, defeasible upon his death without having had a child, the contingent event by which the estate is determined referring to the death of the devisee and holder of the prior estate unless a contrary intent clearly appears from the will itself; and upon the death of B and the nonhappening of the contingency named, the inheritance passes directly from the testator to the ultimate devisees. Burden v. Lipsitz, 166 N.C. 523, 82 S.E. 863 (1914).

An estate to M and her bodily heirs, without further limitation, is converted into a fee simple under G.S. 41-1, but such an estate followed by the words "if no heirs, said lands shall go back to my estate," will go over to the heirs of the grantor at the death of M, upon the nonhappening of the event, as a shifting use under the statute of uses, G.S. 41-7, whereunder a fee may be limited after a fee, by deed, and under the provisions of this section that every contingent limitation in a deed or will made to depend upon the dying of any person without heir or heirs of the body, or issue, shall be held to be a limitation to take effect when such person dies not having such heir, or issue, or child living at the time of his death. Willis v. Mutual Loan & Trust Co., 183 N.C. 267, 111 S.E. 163 (1922).

An estate to testator's daughter N for life, and to the lawful heirs of her body, creates an estate tail converted by our statute into a fee simple; and a further limitation "and if she should die leaving no heirs, then the lands to return to the G family," gives N a fee defeasible upon her death without issue, children, etc., under this section, and on her death, leaving children surviving, they take an unconditional fee, and can make an absolute conveyance thereof. Vinson v. Gardner, 185 N.C. 193, 116 S.E. 412 (1923).

Where a father devised the land in question to plaintiff "to be hers and to her heirs, if any, and if no heirs, to be equally divided with my other children," and at the time plaintiff executed deed to defendant, which was refused by him, plaintiff was married, but had been abandoned by her husband, and had no children, it was held that the plaintiff's deed did not convey the indefeasible fee to the land free and clear of the claims of all persons, whether the limitation over be regarded as a limitation over on failure of issue, or as not coming within the rule in Shelley's case. Hudson v. Hudson, 208 N.C. 338, 180 S.E. 597 (1935).

Applied in Conrad v. Goss, 227 N.C. 470, 42 S.E.2d 609 (1947); Lide v. Mears, 231 N.C. 111, 56 S.E.2d 404 (1949); Blanchard v. Ward, 244 N.C. 142, 92 S.E.2d 776 (1956).

Cited in West v. Murphy, 197 N.C. 488, 149 S.E. 731 (1929); Rigsbee v. Rigsbee, 215 N.C. 757, 3 S.E.2d 331 (1939); Perry v. Bassenger, 219 N.C. 838, 15 S.E.2d 365 (1941).


§ 41-5. Unborn infant may take by deed or writing.

An infant unborn, but in esse, shall be deemed a person capable of taking by deed or other writing any estate whatever in the same manner as if he were born.

History

(R.C., c. 43, s. 4; Code, s. 1328; Rev., s. 1582; C.S., s. 1738.)

Legal Periodicals. - For article, "The Rule in Wild's Case in North Carolina," see 55 N.C.L. Rev. 751 (1977).

For note on the wrongful death of a viable fetus, see 23 Wake Forest L. Rev. 849 (1988).

CASE NOTES

Unborn Infant Takes from Time of Conception. - This section gives the same capacity to an unborn infant to take property as such infant has under the law governing its right to take by inheritance or devise, which is from the time of conception. Mackie v. Mackie, 230 N.C. 152, 52 S.E.2d 352 (1949).

When Child Presumed In Esse. - For the purpose of capacity to take under a deed, it will be presumed in the absence of contrary evidence that a child is in esse 280 days prior to its birth. Mackie v. Mackie, 230 N.C. 152, 52 S.E.2d 352 (1949).

Grant Directly to Children of Living Person. - A grant of land directly to the children of a living person conveys the title only to those who are alive at the time of the execution of the deed, including a child then en ventre sa mere. Powell v. Powell, 168 N.C. 561, 84 S.E. 860 (1915).

Under a deed to a woman "and her children" a child en ventre sa mere at the date of the conveyance will take, but children born more than a year thereafter will not. Heath v. Heath, 114 N.C. 547, 19 S.E. 155 (1894).

Child Takes as Tenant in Common. - By virtue of this section a child if en ventre sa mere at the time the deed is executed takes as tenant in common with the living children. Campbell v. Everhart, 139 N.C. 503, 52 S.E. 201 (1905).

Life Estate to Parent with Limitation Over. - Where there is a reservation of a life estate in the parent or another, with limitation over to the children, all the children who are alive at the termination of the first estate, whether born before or after the execution of the deed, take thereunder. Powell v. Powell, 168 N.C. 561, 84 S.E. 860 (1915).

Remainder after Freehold to Children Not In Esse. - Where there is a deed to lands to an unmarried grantee for life, with remainder to his children, not then in esse, the life estate of the first taker is sufficient to uphold the estate of his children, though not in esse at the time, by way of contingent remainder till they are born, and thereafter as owners of a vested remainder. Johnson Bros. v. Lee, 187 N.C. 753, 122 S.E. 839 (1924).

Life Insurance Policies Benefitting "Then Living Children." - Under North Carolina law, a life insurance policy benefitting "then living children" of an individual included that individual's unborn child who was in esse and posthumously born. Fort Dearborn Life Ins. Co. v. Turner, 521 F. Supp. 2d 499 (E.D.N.C. Oct. 3, 2007).

Cited in Byerly v. Tolbert, 250 N.C. 27, 108 S.E.2d 29 (1959); Stam v. State, 47 N.C. App. 209, 267 S.E.2d 335 (1980).


§ 41-6. "Heirs" construed to be "children" in certain limitations.

A limitation by deed, will, or other writing, to the heirs of a living person, shall be construed to be to the children of such person, unless a contrary intention appear by the deed or will.

History

(R.C., c. 43, s. 5; Code, s. 1329; Rev., s. 1583; C.S., s. 1739.)

Legal Periodicals. - For note on doctrine of worthier title, see 41 N.C.L. Rev. 317 (1963).

For article, "The Rule in Wild's Case in North Carolina," see 55 N.C.L. Rev. 751 (1977).

For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "The Battle to Preserve North Carolina's Estuarine Marshes: The 1985 Legislations, Private Claims to Estuarine Marshes, Denial of Permits to Fill, and the Public Trust," see 64 N.C.L. Rev. 565 (1986).

CASE NOTES

I. GENERAL CONSIDERATION.

Editor's Note. - The cases under this section were decided prior to the enactment of G.S. 41-6.3, which abolished the rule in Shelley's case.

Purpose of Section. - It seems that the main object of this section is to convert a contingent into a vested remainder under certain circumstances. It seems also to have been the purpose of the act to sustain a direct conveyance to the heirs of a living person. As there can be no heirs during the life of the ancestor, such a conveyance at common law would have been void unless there was something in the deed which indicated that by "the heirs" was meant the children of the person named. This section provides that in such a case the word "heirs" shall be construed to mean "children" and the limitation therefore would be good. By this construction of the section it does not affect the rule in Shelley's case. Starnes v. Hill, 112 N.C. 1, 16 S.E. 1011 (1893); Hartman v. Flynn, 189 N.C. 452, 127 S.E. 517 (1925).

"Limitation" Explained. - The word limitation has two different senses: the original sense, namely, that of a member of a sentence, expressing the limits or bounds to the quantity of an estate; and the derivative sense, namely, that of an entire sentence, creating and actually or constructively marking out the quantity of an estate. In this statute, the word is manifestly used in its derivative or secondary sense. Campbell v. Everhart, 139 N.C. 503, 52 S.E. 201 (1905). See Starnes v. Hill, 112 N.C. 1, 16 S.E. 1011 (1893).

The rule in Shelley's case is not abrogated by this section. Starnes v. Hill, 112 N.C. 1, 16 S.E. 1011 (1893).

Common-Law Rule Changed. - While as a general common-law rule, subject to some exceptions, a conveyance of an estate for life in lands to another, with remainder to the heirs of the grantor, could not divest the grantor of the fee, under the rule that nemo est haeres viventis, this does not prevail under the provisions of this section. Thompson v. Batts, 168 N.C. 333, 84 S.E. 347 (1915).

Section Applies Only When No Precedent Estate to Said Living Person. - The Code of 1883, s. 1329, now this section, providing that a limitation to the heirs of a living person shall be construed to be the children of such person, applies only when there is no precedent estate conveyed to said living person. Jones v. Ragsdale, 141 N.C. 200, 53 S.E. 842 (1906); Whitley v. Arenson, 219 N.C. 121, 12 S.E.2d 906 (1941).

If it were not true that this section applies only when there is no precedent estate conveyed to said living person, it would not only repeal the rule in Shelley's case, but would pervert every conveyance to "A and his heirs" into something entirely different from what those words have always been understood to mean. Marsh v. Griffin, 136 N.C. 333, 48 S.E. 735 (1904).

Conveyance to Living Person and Limitation to Heirs. - This section applies only when there is no precedent estate conveyed to said living person, nor is this section applicable where there is a conveyance to a living person, with a limitation to his heirs. Bank of Pilot Mt. v. Snow, 221 N.C. 14, 18 S.E.2d 711 (1942).

Conveyance Must Be to Heirs of Living Person. - This section applies only when the conveyance is to the heirs of a living person. Scott v. Jackson, 257 N.C. 658, 127 S.E.2d 234 (1962), commented on in 41 N.C.L. Rev. 317 (1963).

This section does not apply when the limitation is to a living person and his heirs. Whitley v. Arenson, 219 N.C. 121, 12 S.E.2d 906 (1941).

Applied in Sprinkle v. City of Reidsville, 235 N.C. 140, 69 S.E.2d 179 (1952); Clarke v. Clarke, 253 N.C. 156, 116 S.E.2d 449 (1960).

Cited in Williamson v. Cox, 218 N.C. 177, 10 S.E.2d 662 (1940).

II. ILLUSTRATIVE CASES.

Devise to "Heirs of His Children". - By his will, the testator devised a lot to trustees for 20 years from the date of his death, and at the expiration of such term to the "heirs of his children, to be equally divided between them, per stirpes." The testator left surviving two children, a son and a daughter, both of whom had children living at the date of testator's death. The son and daughter are now living. Under this section the word "heirs," as used in the will, must be construed to mean "children." Lide v. Wells, 190 N.C. 37, 128 S.E. 477 (1925).

A testator devised a lot to trustees for 20 years from the date of his death and provided that at the end of said period the estate should "be equally divided between the heirs of my children, per stirpes." By virtue of this section, the word "heirs" as used in this item of the will, must be construed to mean the "children" of the son and daughter of the testator. Lide v. Mears, 231 N.C. 111, 56 S.E.2d 404 (1949).

"Lawful Heirs of Her Body". - Where a testator, by separate devises, gave to each of his three daughters, who were his only heirs at law, a certain tract of his land, with provision in each item "to her and the lawful heirs of her body in fee simple forever, and if she should die without a lawful heir of her body, then the property to go to the other surviving heirs," by the expression, "lawful heirs of her body," in the connection used, the testator intended "child" of his daughters. Kornegay v. Cunningham, 174 N.C. 209, 93 S.E. 754 (1917).

Remainder to Living Heirs of Grantor. - Grantor conveyed the land in question to her son after the reservation of a life estate, and by habendum stipulated that the grantee should have an estate for the term of his natural life and at his death to his issue surviving, with further provision that should he die without issue "then to the living heirs of" the grantor. It was held that the other children of grantor have a remainder contingent upon the death of the grantee without issue, which interest cannot be defeated by a conveyance executed by the grantee with the joinder of the grantor. Ellis v. Barnes, 231 N.C. 543, 57 S.E.2d 772 (1950).

Section Validates Conveyance Directly to Heirs of Living Person. - By virtue of the section a deed conveying land directly to the "heirs" of a living person passes whatever title the grantor had to the children of such person. Campbell v. Everhart, 139 N.C. 503, 52 S.E. 201 (1905).

A deed to "the heirs" of A, he being still alive, although void at common law, is good under this section, and is construed to be a limitation to the children of A, and includes after-born children. Graves v. Barrett, 126 N.C. 267, 35 S.E. 539 (1900).

A devise to the "heirs" of a person will be construed to be to his "children" in the absence of a contrary intention expressed in the instrument. Moseley v. Knott, 212 N.C. 651, 194 S.E. 100 (1937).

An estate granted to D for life and then to the heirs of S, who was then alive, is operative as to the conveyance of the remainder under Revival, s. 1583, now this section, which construes the word "heirs" to mean children, in such instances. Condor v. Secrest, 149 N.C. 201, 62 S.E. 921 (1908).

Child Born during Life of Life Tenant. - A devise was of lands to the widow of the testator for life, then to the heirs of his son J, and it appeared that the son was living at the time and had living children at the death of the testator and one born thereafter, during the continuance of the life estate. It was held that the devise, being to the heirs of a living person, conveyed such interest to the children of the person designated, and being, in terms, to a class, it included all who were members of the class and filled the description at the time the particular estate terminated, and therefore the child born after the death of the testator, but during the lifetime of the tenant for life, took his share with the other children of J. Cooley v. Lee, 170 N.C. 18, 86 S.E. 720 (1915).

Limitation to Heirs of One with Conditional Limitation Over. - Where an estate was devised to A "and the heirs of his body, but if he die without heirs living at the time of his death, then to the heirs of B," "heirs" was construed to mean children. Smith v. Brisson, 90 N.C. 284 (1884).

Limitation over Provided First Taker Dies Without Heirs. - Where a testator devises land to his son with a limitation over to his daughters, provided the son dies without heirs, the word "heirs" is construed to mean "children." Sain v. Baker, 128 N.C. 256, 38 S.E. 858 (1901).

Where a devise of lands is limited over should the first taker die without heirs, evidencing that the intent of the testator made the contingency to depend upon the first taker's dying without issue, this section has no application. Massengill v. Abell, 192 N.C. 240, 134 S.E. 641 (1926).

Contingent Remainder Interests. - Trial court erred in granting summary judgment in favor of a second son's children because they received nothing under their great-grandfather's (testator) will and their grantees received deeds from persons who had no interest in the property where the will created contingent remainder interests in the testator's children that were satisfied and the property reverted to the testator's heirs, inter alia, upon the death of his first son without lineal descendants. Barnes v. Scull, 237 N.C. App. 184, 765 S.E.2d 820 (2014).

Reverter to Heirs upon Nonhappening of Contingency. - A conveyance of land in contemplation of marriage, to M, "to descend to the heirs of the body of the said M in fee simple, the issue of such marriage, and on failure of issue to revert to the heirs of" the grantor, the "reverter" to his heirs under this section meant to his children after the death of his wife and the nonhappening of the stated contingency. Thompson v. Batts, 168 N.C. 333, 84 S.E. 347 (1915).

"Lawfully Begotten Heirs of the Body". - It was held that "the lawfully begotten heirs of her body" in a will referred most obviously to the children of the devisee for life, of whom there were only two, and was construed to mean "the children of such person" since contrary intention did not appear from the will. Lockman v. Hobbs, 98 N.C. 541, 4 S.E. 627 (1887).

When Children Illegitimate. - Where a bequest is immediate - not dependent upon a preceding limited estate - to the heirs of a living person, and the children of such person are illegitimate, they have the right to take under the section which declares that a limitation to the "heirs" shall be construed to be the "children" of such person, unless a contrary intention appears. Howell v. Tyler, 91 N.C. 207 (1884).


§ 41-6.1. Meaning of "next of kin."

A limitation by deed, will, or other writing, to the "next of kin" of any person shall be construed to be to those persons who would take under the law of intestate succession, unless a contrary intention appears by the instrument.

History

(1967, c. 948.)

Legal Periodicals. - For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

CASE NOTES

At the time of death of testatrix who died May 22, 1962, "next of kin" and, by implication, "nearest relatives" still retained their very narrow technical common-law meaning. Rawls v. Rideout, 74 N.C. App. 368, 328 S.E.2d 783 (1985).

Construction with G.S. 28A-4-1. - For purposes of G.S. 28A-4-1, "next of kin" refers to the class of blood relatives of the decedent, thus the court erred in determining that the term was synonymous with "heirs," as used in this section. In re Estate of Bryant, 116 N.C. App. 329, 447 S.E.2d 468 (1994).


§ 41-6.2. Doctrine of worthier title abolished.

  1. The law of this State does not include: (i) the common-law rule of worthier title that a grantor or testator cannot convey or devise an interest to the grantor's or testator's own heirs, or (ii) a presumption or rule of interpretation that a grantor or testator does not intend, by a grant or devise to the grantor's or testator's own heirs or next of kin, to transfer an interest to them. The meaning of a grant or devise of a legal or equitable interest to a grantor's or testator's own heirs or next of kin, however designated, shall be determined by the general rules applicable to the interpretation of grants or wills.
  2. Subdivision (a)(i) of this section shall apply to all revocable trusts in existence as of February 26, 1979 and to all instruments, including revocable trusts, becoming effective after February 26, 1979, and subdivision (a)(ii) of this section shall apply to all instruments in existence as of February 26, 1979 and to all instruments becoming effective after February 26, 1979. If the application of this section to any instrument is held invalid, its application to other instruments to which it may validly be applied shall not be affected thereby.

History

(1979, c. 88, s. 1; 2011-284, s. 49.)

Effect of Amendments. - Session Laws 2011-284, s. 49, effective June 24, 2011, in subsection (a), twice substituted "the grantor's or testator's" for "his" and "grant or devise" for "grant, devise or bequest."

Legal Periodicals. - For article, "North Carolina Bids Goodbye (Again) to the Rule in Dumpor's Case," see 35 Campbell L. Rev. 193 (2013).

§ 41-6.3. Rule in Shelley's case abolished.

  1. The rule of property known as the rule in Shelley's case is abolished.
  2. This section shall become effective October 1, 1987, and applies to transfers of property that take effect on or after that date.

History

(1987, c. 706, s. 1.)

Editor's Note. - Session Laws 1987, c. 706, s. 2, was codified in 2005 as subsection (b) of this section at the direction of the Revisor of Statutes.

Legal Periodicals. - For article, "North Carolina Bids Goodbye (Again) to the Rule in Dumpor's Case," see 35 Campbell L. Rev. 193 (2013).

§ 41-6.4. Rule in Dumpor's Case abolished.

  1. The rule of property known as the Rule in Dumpor's Case is abolished.
  2. This section shall become effective October 1, 2012, and applies to transfers of property that take effect on or after that date.

History

(2012-163, s. 1.)

Legal Periodicals. - For article, "North Carolina Bids Goodbye (Again) to the Rule in Dumpor's Case," see 35 Campbell L. Rev. 193 (2013).

§ 41-7. Possession transferred to use in certain conveyances.

By deed of bargain and sale, or by deeds of lease and release, or by covenant to stand seized to use, or deed operating by way of covenant to stand seized to use, or otherwise, by any manner or means whatsoever it be, the possession of the bargainor, releasor, or covenanter shall be deemed to be transferred to the bargainee, releasee, or person entitled to the use, for the estate or interest which such person shall have in the use, as perfectly as if the bargainee, releasee or person entitled to the use had been enfeoffed at common law with livery of seizin of the land intended to be conveyed by such deed or covenant.

History

(27 Hen. VIII, c. 10; R.C., c. 43, s. 6; Code, s. 1330; Rev., s. 1584; C.S., s. 1740.)

Legal Periodicals. - For article, "Does the Fee Tail Exist in North Carolina?," see 23 Wake Forest L. Rev. 767 (1988).

CASE NOTES

I. GENERAL CONSIDERATION.

History of Section. - It is conceded, on all hands, that the Statute of Uses, 27 Hen. VIII, c. 10, was in force and in use, in this State, up to the passage of the Revised Statutes (1836). Indeed, all of the conveyances of land adopted and used in this State are based on, and take effect by, the operation of that statute. In the Rev. Stat., c. 43, s. 4, and the Rev. Code, c. 43, s. 6, the words used in 27 Hen. VIII, c. 10, i.e., "When one person or persons stand, or be seized, or at any time thereafter shall happen to be seized of land, etc., to the use of any other person, persons, or body politic, by reason of any bargain, sale, feoffment, etc., or otherwise, by any manner or means whatsoever it be, the persons, etc., having the use, shall have the legal estate, etc.," are omitted and the provision is simply "By deed of bargain and sale, lease and release and covenant to stand seized, the possession shall be transferred to the bargainee, releasee, covenantee, etc." Substantially in this form the section is carried through all the various codes up to this one. The tendency, while no material change has been made, has been to make the section all inclusive by extending its application to every possible case involving the principle. Wilder v. Ireland, 53 N.C. 85 (1860).

Possession Transferred. - The statute of uses, substituted for 27 Hen. VIII, now this section, provides that the possession of the bargainor shall be transferred to the bargainee as perfectly as if the bargainee "had been enfeoffed at common law with the livery of seizin of the land intended to be conveyed, etc." Kirby v. Boyette, 118 N.C. 244, 24 S.E. 18 (1896).

Same Footing with Feoffments at Common Law. - Deeds of bargain and sale, and covenants to stand seized to uses, are put on the same footing with feoffments at common law, with respect to seizin, the declaration of uses thereon, and the consideration. Ivey v. Granberry, 66 N.C. 223 (1872); Love v. Harbin, 87 N.C. 249 (1882).

A use may be limited on a use. Rowland v. Rowland, 93 N.C. 214 (1885).

Necessity of Consideration. - A deed of bargain and sale is governed in this State by the same principles which were applied to it in England. It must have a pecuniary, or other valuable, consideration. Blount v. Blount, 4 N.C. 389 (1816); Brocket v. Foscue, 8 N.C. 64 (1820); Bruce v. Faucett, 49 N.C. 391 (1857).

If no consideration, either good or valuable, appears on the face of the instrument, or can be proved aliunde, the instrument will be void. Springs v. Hanks, 27 N.C. 30 (1844); Jackson v. Hampton, 30 N.C. 457 (1848); Bruce v. Faucett, 49 N.C. 391 (1857).

Resulting Use at Common Law. - At common law, where there was no consideration, the use would result to the feoffor, unless the declaration of the use or trust was contemporaneous with the transmutation of the legal title. Pittman v. Pittman, 107 N.C. 159, 12 S.E. 61 (1890).

Love and Affection as Consideration. - Though in form a deed is one of bargain and sale, yet if the only consideration is that of love and affection, it will operate as a covenant to stand seized. Slade v. Smith, 2 N.C. 326 (1796); Hatch v. Thompson, 14 N.C. 411 (1832); Cobb v. Hines, 44 N.C. 343 (1853); Bruce v. Faucett, 49 N.C. 391 (1857).

Where Legal and Equitable Title in Same Person. - Where one who has an equitable title acquires the legal title so that the same becomes united in the same person, the former is merged in the latter, and numerous decisions elsewhere are to the same effect. Peacock v. Stott, 101 N.C. 149, 7 S.E. 885 (1888), petition to rehear dismissed, 104 N.C. 154, 10 S.E. 456 (1889); Odom v. Morgan, 177 N.C. 367, 99 S.E. 195 (1919).

Exceptions to Rule That Beneficial Use Is Converted into Legal Ownership. - Where one person is seized to the use of another, the statute carries the legal estate to the person having the use. But three classes of cases are made exceptions to its operation, i.e.: (1) Where a use is limited on a use, (2) where a trustee is not seized but only possessed of a chattel interest, and (3) where the purposes of the trust make it necessary for the legal estate and the use to remain separate, as in the case of land conveyed for the separate use and maintenance of a married woman. Wilder v. Ireland, 53 N.C. 85 (1860); Kirby v. Boyette, 118 N.C. 244, 24 S.E. 18 (1896).

An estate of freehold to commence in futuro can be conveyed by a deed of bargain and sale operating under this section, or by executory devise; therefore, an estate to H for life and at her death to her children in fee, reserving a life estate to the grantor, is good. Savage v. Lee, 90 N.C. 320 (1884).

Covenant to Stand Seized on Death of Grantor. - Where there was a conveyance of real property upon the consideration of love and affection, reserving a life estate to the donor, it was held by the court that the conveyance was good; that it was a conveyance to stand seized to the use of the vendee on the death of the donor. Davenport v. Wynne, 28 N.C. 128 (1845). To the same effect in Hodges v. Spicer, 79 N.C. 223 (1878).

There cannot be the least doubt but that a covenant to stand seized to the use of another, after his own life, is good to pass the estate intended; for the law raises in the grantor an estate for life in the meantime to support the future estate. This has been decided in a vast number of instances. There is no point better established by the authorities. Sasser v. Blyth, 2 N.C. 340 (1796), overruling Ward v. Ward, 1 N.C. 59 (1793); Savage v. Lee, 90 N.C. 320 (1884).

Life Estate to Woman with Limitation Over to Children. - Where one devised, in 1828, to a trustee, to the use and benefit of a woman, for her life, remainder to the use of all her children, it was held that the legal estate in the remainder, by force of the statute, passed to the children she had at the time of the devise, subject to the participation of such as she might thereafter have. Wilder v. Ireland, 53 N.C. 85 (1860).

Future Contingent Use. - It is settled that a future contingent use to one unknown, or not in esse, cannot be raised by a deed of bargain and sale. It is also settled that a use cannot be raised by a general power of appointment given to the taker of the first estate in the use; and the case is much stronger where the power of appointment is given to a stranger. Smith v. Smith, 46 N.C. 135 (1853); Bruce v. Faucett, 49 N.C. 391 (1857).

Shifting or Springing Use. - Whenever the event happens when a shifting or springing use is to take effect, the statute of uses vests the legal seizin and ownership in the person entitled by virtue of the use. Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916).

Fee Simple Limited after a Fee Simple. - A fee simple may be limited after a fee simple either by a deed or will by operation of the statute of uses; if by deed, it is a conditional limitation; if by will, it is an executory devise. Smith v. Brisson, 90 N.C. 284 (1884). See Rowland v. Rowland, 93 N.C. 214 (1885).

Applied in Craven County v. First Citizens Bank & Trust Co., 237 N.C. 502, 75 S.E.2d 620 (1953).

Cited in Honeycutt v. Citizens Nat'l Bank, 242 N.C. 734, 89 S.E.2d 598 (1955).

II. TRUSTS.

This section merges the legal and equitable titles in the beneficiary of a passive trust, but as to active trusts, the legal title vests and remains in the trustee for the purpose of the trust. Fisher v. Fisher, 218 N.C. 42, 9 S.E.2d 493 (1940). See Security Nat'l Bank v. Sternberger, 207 N.C. 811, 178 S.E. 595 (1935).

Where the use is executed by the statute, the trustee takes no estate or interest, both the legal and equitable estates vesting in the cestui que trust; but where the use is not executed, the legal title passes to the trustee. Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916).

As to the wife's life estate, so long as her husband lived, it was necessary that the trust for her separate use and maintenance should continue, as it was then active; but when her husband died, and the disability of coverture was removed, and there was no longer any necessity for a trustee to protect her interest, and as the trust then became passive, the statute executed the use and united the legal and equitable estates in her. Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916). See Perkins v. Brinkley, 133 N.C. 154, 45 S.E. 541 (1903); Cameron v. Hicks, 141 N.C. 21, 53 S.E. 728 (1906); Springs v. Hopkins, 171 N.C. 486, 88 S.E. 774 (1916).

The Statute of Uses, 27 Henry VIII, preserved in this State by this section, merges the legal and equitable titles in the beneficiary of a passive trust. Wachovia Bank & Trust Co. v. Taylor, 255 N.C. 122, 120 S.E.2d 588 (1961).

Where conveyance of wife's property to trustee for her sole use and benefit during her life and, after her death, for the benefit of her husband was ineffective to create any estate or trust in favor of the husband because of noncompliance with a former version of G.S. 52-12, a passive trust for the wife for her natural life was created and it was executed by the statute. Pilkington v. West, 246 N.C. 575, 99 S.E.2d 798 (1957).

In a passive trust the legal and equitable titles are merged in the beneficiary by virtue of the statute of uses. Poindexter v. Wachovia Bank & Trust Co., 258 N.C. 371, 128 S.E.2d 867 (1963).

Rule Does Not Apply to Resulting Trust. - Where the plaintiff cited no North Carolina authority to support the argument that the statute of uses would be operative, and since the general rule is that the statute of uses applies only to express passive trusts and not to resulting or constructive trusts which arise by operation of law, under North Carolina law a resulting trust would not be executed. Greer v. United States, 448 F.2d 937 (4th Cir. 1971).

No Application to Active Trusts. - While this section converts the beneficial use into the legal ownership and unites the legal and equitable estates in the beneficiary, this rule applies only to passive or simple trusts and not to active trusts. Patrick v. Beatty, 202 N.C. 454, 163 S.E. 572 (1932); Chinnis v. Cobb, 210 N.C. 104, 185 S.E. 638 (1936), citing Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916).

This section merges the legal and equitable titles in the beneficiary of a passive trust, but the rule established by the statute does not apply to active trusts. Finch v. Honeycutt, 246 N.C. 91, 97 S.E.2d 478 (1957).

If the trust is active the legal and equitable titles do not merge. Poindexter v. Wachovia Bank & Trust Co., 258 N.C. 371, 128 S.E.2d 867 (1963).

An active trust is one where there is a special duty to be performed by the trustee in respect to the estate, such as collecting the rents and profits, or selling the estate, or the execution of some particular purpose. Chinnis v. Cobb, 210 N.C. 104, 185 S.E. 638 (1936), citing Perkins v. Brinkley, 133 N.C. 154, 45 S.E. 541 (1903); Finch v. Honeycutt, 246 N.C. 91, 97 S.E.2d 478 (1957).

Where there is any control to be exercised by the trustee or any duty to be performed by him in relation to the trust property or in regard to the beneficiaries, the trust is an active trust, and the legal and equitable titles do not merge in the beneficiaries. Finch v. Honeycutt, 246 N.C. 91, 97 S.E.2d 478 (1957).

Where a deed purports to convey land in trust, but prescribes no duties of any kind to be performed by the trustee, he is made a depositary only of title, and by operation of this section the legal, as well as the equitable, estate in the land passed to and became vested solely in the beneficiary. Pippin v. Barker, 233 N.C. 549, 64 S.E.2d 830 (1951).

Trust for "Sole and Separate Use" of Married Woman. - The words "for the sole and separate use," or equivalent language, qualifying the estate of a trustee for a married woman, must be construed as manifesting the intent on the part of the grantor to limit her right of alienation to the mode and manner expressly provided in the instrument by which the estate is created. Kirby v. Boyette, 118 N.C. 244, 24 S.E. 18 (1896).

Passive Trust for Husband and Wife. - Where a husband purchases realty and has the deed made to a trustee of a passive trust for the benefit of himself and wife, nothing else appearing, the instrument creates an estate by entirety. Akin v. First Nat'1 Bank, 227 N.C. 453, 42 S.E.2d 518 (1947).


§ 41-8. Collateral warranties abolished; warranties by life tenants deemed covenants.

All collateral warranties are abolished; and all warranties made by any tenant for life of lands, tenements or hereditaments, the same descending or coming to any person in reversion or remainder, shall be void; and all such warranties, as aforesaid, shall be deemed covenants only, and bind the covenanter in like manner as other obligations.

History

(4 Anne, c. 16, s. 21; 1852, c. 16; R.C., c. 43, s. 10; Code, s. 1334; Rev., s. 1587; C.S., s. 1741.)

CASE NOTES

For history and discussion of section, see Southerland v. Stout, 68 N.C. 446 (1873); Smith v. Ingram, 130 N.C. 100, 40 S.E. 984 (1902), petition to rehear dismissed, 132 N.C. 959, 44 S.E. 643 (1903).

Remainder Not Defeated by Warranty. - A warranty in a deed of a life tenant cannot defeat the remainder of the heirs by way of rebutter. Moore v. Parker, 34 N.C. 123 (1851); Starnes v. Hill, 112 N.C. 1, 16 S.E. 1011 (1893).

Where land is devised to a person for life, and at her death to her children, the children are not estopped by a deed with covenant of warranty executed by the life tenant. Hauser v. Craft, 134 N.C. 319, 46 S.E. 756 (1904).

Under this section a warranty in a deed of a life tenant does not bar or rebut the claim of heirs who can connect themselves with the outstanding remainder. This is so because such heirs take by purchase, i.e., as remaindermen, and not by descent, i.e., as heirs. Sprinkle v. City of Reidsville, 235 N.C. 140, 69 S.E.2d 179 (1952).

Warranty by Tenant by Curtesy. - Where a tenant by the curtesy sells land belonging to his wife, by deed of bargain and sale, in fee, with general warranty, the right of the heir of the wife to the land is not rebutted by the warranty. Johnson v. Bradley, 31 N.C. 362 (1849).

Warranty to Grantee but Not to Assigns. - Where a deed contains a warranty to the grantee, but not to his assigns, such assignees can neither maintain an action on such covenant nor defend under it against the grantor. Smith v. Ingram, 130 N.C. 100, 40 S.E. 984 (1902), petition to rehear dismissed, 132 N.C. 959, 44 S.E. 643 (1903).

Heir Rebutted by Ancestor's Warranty. - Where in an action to recover lands the plaintiff claims by paper title to his ancestor, without claim of possession, and it appears that his ancestor has conveyed the land to a stranger with full covenants and warranty of title prior to his having acquired it, the burden of proof is on the plaintiff to establish his title, and he cannot recover, for his ancestor's deed to the stranger, with covenant and warranty, destroys his right of action by rebutter, and passes the title to the grantee by estoppel. Olds v. Richmond Cedar Works, 173 N.C. 161, 91 S.E. 846 (1917).


§ 41-9: Repealed by Session Laws 1979, c. 180, s. 2.

Cross References. - For present provisions as to spendthrift trusts, see G.S. 36C-5-501 et seq.

Editor's Note. - Session Laws 1979, c. 180, s. 2, provided that this section was repealed, except as to wills or deeds executed prior to October 1, 1979.

§ 41-10. Titles quieted.

An action may be brought by any person against another who claims an estate or interest in real property adverse to him for the purpose of determining such adverse claims; and by any man or woman against his or her wife or husband or alleged wife or husband who have not lived together as man and wife within the two years preceding, and who at the death of such plaintiff might have or claim to have an interest in his or her estate, and a decree for the plaintiff shall debar all claims of the defendant in the property of the plaintiff then owned or afterwards acquired: Provided, that no such relief shall be granted against such husband or wife or alleged wife or husband, except in case the summons in said action is personally served on such defendant.

If the defendant in such action disclaim in his answer any interest or estate in the property, or suffer judgment to be taken against him without answer, the plaintiff cannot recover costs. In any case in which judgment has been or shall be docketed, whether such judgment is in favor of or against the person bringing such action, or is claimed by him, or affects real estate claimed by him, or whether such judgment is in favor of or against the person against whom such action may be brought, or is claimed by him, or affects real estate claimed by him, the lien of said judgment shall be such claim of an estate or interest in real estate as is contemplated by this section.

History

(1893, c. 6; 1903, c. 763; Rev., s. 1589; 1907, c. 888; C.S., s. 1743.)

Legal Periodicals. - For article on installment land contracts in North Carolina, see 3 Campbell L. Rev. 29 (1981).

CASE NOTES

I. GENERAL CONSIDERATION.

As to the history and purpose of this section, see McLean v. Shaw, 125 N.C. 491, 34 S.E. 634 (1899); Rumbo v. Gay Mfg. Co., 129 N.C. 9, 39 S.E. 581 (1901); Campbell v. Cronly, 150 N.C. 457, 64 S.E. 213 (1909); Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924).

This section is highly remedial. Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924).

This is a remedial statute which has been liberally construed; it is more comprehensive than the old suit in equity to remove a cloud from title. Jacobi Hdwe. Co. v. Jones Cotton Co., 188 N.C. 442, 124 S.E. 756 (1924); Maynard v. Holder, 216 N.C. 524, 5 S.E.2d 535 (1939).

This statute is remedial in nature, designed to provide a means for determining all adverse claims to land, including those formerly encompassed within the equitable proceedings to remove clouds on title. Boyd v. Watts, 73 N.C. App. 566, 327 S.E.2d 46 (1985), rev'd in part, 316 N.C. 622, 342 S.E.2d 840 (1986).

This section is liberally construed. York v. Newman, 2 N.C. App. 484, 163 S.E.2d 282 (1968).

Liberally Construed to Execute Legislative Intent. - This section and the amendatory acts thereto, being remedial in nature, should have a liberal construction in order to execute fully the legislative intention and will. Stocks v. Stocks, 179 N.C. 285, 102 S.E. 306 (1920).

Construction to advance the remedy and permit the courts to bring the parties to an issue. Asheville Land Co. v. Lange, 150 N.C. 26, 63 S.E. 164 (1908); Wachovia Bank & Trust Co. v. Miller, 243 N.C. 1, 89 S.E.2d 765 (1955); Heath v. Turner, 309 N.C. 483, 308 S.E.2d 244 (1983).

The beneficial purpose of this section is to free the land of the cloud resting upon it and make its title clear and indisputable, so that it may enter the channels of commerce and trade unfettered and without the handicap of suspicion. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971); Heath v. Turner, 309 N.C. 483, 308 S.E.2d 244 (1983).

Requirements for Prima Facie Case. - In order to establish a prima facie case for removing a cloud on title, a plaintiff must meet two requirements: (1) plaintiff must own the land in controversy, or have some estate or interest in it; and (2) defendant must assert some claim in the land which is adverse to plaintiff's title, estate or interest. Chicago Title Ins. Co. v. Wetherington, 127 N.C. App. 457, 490 S.E.2d 593 (1997), cert. denied, 347 N.C. 574, 498 S.E.2d 380 (1998).

The section deprives the defendant of no right, but affords him every opportunity of defending the validity of his title; but in the interest of peace and the settlement of controversies, it allows his adversary to put to the test of early judicial investigation, and does not compel plaintiff to wait on the defendant's pleasure as to the time when the inquiry shall be made, and thus give defendant an unfair advantage over him. Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920).

The fact that the plaintiff brings his action under this section deprives the defendant of no right. He has the right to defend the validity of his alleged title on every relevant ground available in any type of action involving recovery or possession of real property. Barbee v. Edwards, 238 N.C. 215, 77 S.E.2d 646 (1953).

Record of Exercising Option to Renew Lease Note Necessary. - In a suit to quiet title brought by a lessor, the trial court properly held that lessees had a leasehold interest in a tract through 2011, provided that they continued to tender rent; it was not necessary under G.S. 47-18 to record the exercise of an option to renew a lease, and by accepting rent for over 30 years, the lessor and its predecessors had waived the requirement of notice to extend the lease. Spruce Pine Indus. Park, Inc. v. Explosives Supply Co., 179 N.C. App. 524, 634 S.E.2d 264 (2006), review denied, 361 N.C. 222, 642 S.E.2d 450 (2007).

The distinction between a suit to remove a cloud upon title and an action to quiet title under this section is clear. In the old equity action, to remove a cloud upon title to real property, the proceeding was an equitable one and was intended to remove a particular instrument or documentary evidence of title or encumbrance against the title, which was hanging over or threatening a plaintiff's rights therein. In a suit to quiet title to real property under this section, the proceeding is designed and intended to provide a means for determining all adverse claims, equitable or otherwise. It is not limited to a particular instrument, bit of evidence, or encumbrance but is aimed at silencing all adverse claims, documentary or otherwise. Any action that could have been brought under the old equitable proceeding to remove a cloud upon title may now be brought under the provisions of this section. York v. Newman, 2 N.C. App. 484, 163 S.E.2d 282 (1968).

The General Assembly did not include personal property under the provisions of this section. Newman Mach. Co. v. Newman, 2 N.C. App. 491, 163 S.E.2d 279 (1968), rev'd on other grounds, 275 N.C. 189, 166 S.E.2d 63 (1969).

A bill to quiet title or to remove a cloud on title to personal property may be maintained in equity, in the absence of statutory authorization, where, by reason of exceptional circumstances, there is no adequate remedy at law. Newman Mach. Co. v. Newman, 275 N.C. 189, 166 S.E.2d 63 (1969).

Even though there is no statute in North Carolina authorizing suits to quiet title to personalty, the Supreme Court adheres to the general rule that such suits may be maintained in equity where, due to exceptional circumstances, there is no adequate remedy at law. Newman Mach. Co. v. Newman, 275 N.C. 189, 166 S.E.2d 63 (1969).

Since North Carolina has no statute regarding suits in equity to remove cloud or quiet title to personalty, the Supreme Court applies to such suits the same principles which obtained prior to enactment of this section when title to land was involved. Newman Mach. Co. v. Newman, 275 N.C. 189, 166 S.E.2d 63 (1969).

In order to remove a cloud from a title, it is not necessary to allege and prove that the plaintiff had an estate in or title to the lands in controversy. It is only required that the plaintiff or plaintiffs have such an interest in the lands as to make the claim of the defendants adverse to him or them. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

Burden on Plaintiffs. - In an action to quiet title under this section plaintiffs bear the burden of proving valid title in themselves which may be accomplished by either (1) reliance on the Real Property Marketable Title Act, or (2) utilization of traditional methods of proving title. Chappell v. Donnelly, 113 N.C. App. 626, 439 S.E.2d 802 (1994).

Title Not Necessarily Put in Issue. - By suit to remove a cloud from title, a plaintiff does not necessarily put his title in issue. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

For requirements in equity suits to remove cloud and quiet title to realty prior to enactment of this section, see Newman Mach. Co. v. Newman, 275 N.C. 189, 166 S.E.2d 63 (1969).

If title becomes involved in a processioning proceeding under G.S. 38-1 through 38-4, the proceeding becomes in effect an action to quiet title under this section. Roberts v. Sawyer, 229 N.C. 279, 49 S.E.2d 468 (1948); Bumgarner v. Corpening, 246 N.C. 40, 97 S.E.2d 427 (1957).

Where the only issue to be tried is the location of a dividing line, it is a processioning proceeding under Chapter 38. However, where title to the land is put in issue the clerk has no authority to pass on any question involved. He must transfer the proceeding to the regular session of superior court where it becomes in effect an action to quiet title pursuant to this section. Cobb v. Spurlin, 73 N.C. App. 560, 327 S.E.2d 244 (1985).

A declaratory action is an appropriate remedy to perform the function of the customary action to quiet title. York v. Newman, 2 N.C. App. 484, 163 S.E.2d 282 (1968).

Restraining Sale Under Execution. - Under this section the sheriff's sale of land by execution under a judgment may now be restrained by suit in equity when it will cast an additional cloud upon the title of the owner of the lands. Mizell v. Bazemore, 194 N.C. 324, 139 S.E. 453 (1927).

No statute of limitations runs against plaintiff bringing action for removal of a cloud upon title. Such an action is a continuing right, which exists as long as there is occasion for its exercise. Poore v. Swan Quarter Farms, Inc., 79 N.C. App. 286, 338 S.E.2d 817 (1986).

Theory of Relief May Determine Applicability of Limitations. - There is no express statute of limitations governing actions to quiet title under this section. It thus is necessary to refer to plaintiffs' underlying theory of relief to determine which statute, if any, applies. Poore v. Swan Quarter Farms, Inc., 79 N.C. App. 286, 338 S.E.2d 817 (1986).

When Quiet Title Actions Are Treated as Ejectment Actions. - Actions to remove a cloud upon title are in essence ejectment actions and are properly reviewed as such where defendants are in actual possession and plaintiffs seek to recover possession. Poore v. Swan Quarter Farms, Inc., 79 N.C. App. 286, 338 S.E.2d 817 (1986).

Action Held Not One for Ejectment. - Where plaintiffs made no specific allegation that defendants were in actual possession at the time of the filing of their action, and did not seek specifically to recover possession in their demand for relief, but merely prayed for rents and profits and removal of certain deeds as a cloud upon their title, plaintiffs' action was not in essence one for ejectment controlled by G.S. 1-38 and G.S. 1-40; rather, plaintiffs' action was one to remove a cloud upon title which was not barred by any statute of limitations. Poore v. Swan Quarter Farms, Inc., 79 N.C. App. 286, 338 S.E.2d 817 (1986).

Quitclaim Deeds Conveyed Interest In Land to Corporation. - Trial court erred in granting a homeowners association (HOA) summary judgment, declaring that it was the fee simple owner of a strip of land between a subdivision and the Atlantic Ocean, because the deeds conveying land to the HOA did not include a conveyance of the oceanfront strip; quitclaim deeds conveyed all interest the developer of the subdivision had in the oceanfront strip to the corporation the owners of beachfront lots set up. Le Oceanfront, Inc. v. Lands End of Emerald Isle Ass'n, 238 N.C. App. 405, 768 S.E.2d 15 (2014).

Deed Void. - There was no genuine issue of material fact as to the validity of a deed because the deed was void whether due to notarization if the deed was to the notary and her husband or the deed was materially altered after execution without the grantor's knowledge or consent. Quinn v. Quinn, 243 N.C. App. 374, 777 S.E.2d 121 (2015).

Although a deed of trust omitted the amount of a lien, it directed an inquirer to the source of such information by stating that the principal sum was evidenced by a note, which it not only incorporated by reference into the deed of trust, but identified with specificity. Thus, as the deed of trust was valid, summary judgment was granted in favor of the creditor on debtor's cause of action for quiet title under North Carolina law, and debtor's arguments with respect to avoidance of an affidavit of correction pursuant to 11 U.S.C.S. § 522 were rendered moot by the validity of the deed of trust. Hurlburt v. Black (In re Hurlburt), - Bankr. - (Bankr. E.D.N.C. Dec. 5, 2016).

Applied in Doub v. Harper, 234 N.C. 14, 65 S.E.2d 309 (1951); Edwards v. Arnold, 250 N.C. 500, 109 S.E.2d 205 (1959); Clay v. Clay, 259 N.C. 251, 130 S.E.2d 309 (1963); Twiford v. Harrison, 260 N.C. 217, 132 S.E.2d 321 (1963); J. Perry Jones Realty, Inc. v. McLamb, 21 N.C. App. 482, 204 S.E.2d 880 (1974); Boyce v. McMahan, 22 N.C. App. 254, 206 S.E.2d 496 (1974); VEPCO v. Tillett, 73 N.C. App. 512, 327 S.E.2d 2 (1985).

Cited in Johnson v. Fry, 195 N.C. 832, 143 S.E. 857 (1928); Sears v. Braswell, 197 N.C. 515, 149 S.E. 846 (1929); Bechtel v. Bohannan, 198 N.C. 730, 153 S.E. 316 (1930); Hinton v. Whitehurst, 214 N.C. 99, 198 S.E. 579 (1938); Whiteheart v. Grubbs, 232 N.C. 236, 60 S.E.2d 101 (1950); Newbern v. Barnes, 3 N.C. App. 521, 165 S.E.2d 526 (1969); Mayberry v. Campbell, 16 N.C. App. 375, 192 S.E.2d 27 (1972); McRorie v. Query, 32 N.C. App. 311, 232 S.E.2d 312 (1977); Heritage Communities of N.C. Inc. v. Powers, Inc., 49 N.C. App. 656, 272 S.E.2d 399 (1980); Simmons v. United States, 53 N.C. App. 216, 280 S.E.2d 463 (1981); Williams v. Sapp, 83 N.C. App. 116, 349 S.E.2d 304 (1986); Ballance v. Dunn, 96 N.C. App. 286, 385 S.E.2d 522 (1989); Foreman v. Sholl, 113 N.C. App. 282, 439 S.E.2d 169 (1994), cert. improvidently granted and appeal dismissed, 339 N.C. 593, 453 S.E.2d 162 (1995); Parrish v. Hayworth, 138 N.C. App. 637, 532 S.E.2d 202 (2000); Merrick v. Peterson, 143 N.C. App. 656, 548 S.E.2d 171 (2001); Angell v. Wells Fargo Bank, N.A. (In re Harper), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2012).

II. NATURE AND SCOPE OF REMEDY.
A. PURPOSE.

.

This section was designed and intended to afford a remedy wherever one owns or has an estate or interest in real property, whether he is in or out of possession, and another wrongfully sets up a claim to an estate or interest therein which purports to affect adversely the estate or interest of the true owner and which is reasonably calculated to burden and embarrass such owner in the full and proper enjoyment of his proprietary rights, including the right to dispose of the same at its fair market value. And it should and does extend to such adverse and wrongful claims, whether in writing or parol, whenever a claim by parol, if established, could create an interest or estate in the property, as in case of a parol trust or a lease not required to be in writing. And suit should be allowed, too, when existent records or written instruments reasonably present such a claim, the statute preventing all hardship in such cases by its provision that if the holder does not insist on the same in his answer or does not answer at all, the plaintiff shall pay the costs. Satterwhite v. Gallagher, 173 N.C. 525, 92 S.E. 369 (1917); Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920).

This section was designed to avoid some of the limitations imposed upon the remedies formerly embraced by a bill of peace or bill quia timet, and to establish an easy method of quieting titles of land against adverse claims. Newman Mach. Co. v. Newman, 275 N.C. 189, 166 S.E.2d 63 (1969).

To Leave Lands Unfettered. - The beneficial purpose of this section is to free the land of the cloud resting upon it and make its title clear and indisputable, so that it may enter the channels of commerce and trade unfettered and without the handicap of suspicion, instead of remaining idle and unremunerative. Christman v. Hilliard, 167 N.C. 4, 82 S.E. 949 (1914); Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920); Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924).

To Broaden the Equitable Remedy. - This section, giving the owner of lands the right to remove a cloud upon his title, is much broader in its scope and purpose than the equitable remedy theretofore allowed and administered in this State, and includes not only the right to remove an apparent lien under a docketed judgment, but also the potential claim of a wife to her inchoate right of dower in her husband's lands. Southern State Bank v. Sumner, 187 N.C. 762, 122 S.E. 848 (1924).

The statute has been said to be an extension of the remedy in equity theretofore existing for the removal of clouds on title, and is intended to afford an easy and expeditious mode of determining all conflicting claims to land, whether derived from a common source or from different and independent sources. It is highly remedial and beneficial in its nature, and should therefore be construed liberally. It is also a statute of repose, and for that reason is entitled to favorable consideration. Christman v. Hilliard, 167 N.C. 4, 82 S.E. 949 (1914); Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920); East Carolina Lumber Co. v. Pamlico County, 242 N.C. 728, 89 S.E.2d 381 (1955).

The General Assembly of 1893 enacted the statute now codified as this section to avoid some of the limitations imposed upon the remedies formerly sought by a bill of peace or a bill quia timet, and to establish an easy method of quieting titles to land against adverse claims. Wells v. Clayton, 236 N.C. 102, 72 S.E.2d 16 (1952).

Equitable Estoppel. - Where a loan company sought to quiet title to real property, an equitable estoppel claim did not fail because the attorney who closed the loan did not know and had no way of knowing that the payoff amount included in the letter contained a latent $ 100,000.00 error. Since the attorney's actions were reasonable, the trial court properly concluded that the doctrine of equitable estoppel applied. Countrywide Home Loans, Inc. v. Bank One, N.A., 190 N.C. App. 586, 661 S.E.2d 259, review denied, 362 N.C. 680, 669 S.E.2d 745 (2008).

B. INTEREST NECESSARY TO BRING ACTION.

.

Suit may be instituted by any person against any other person claiming an interest adverse to his title. Rutherford v. Ray, 147 N.C. 253, 61 S.E. 57 (1908).

An action must be based upon plaintiffs' ownership of some title, estate, or interest in real property, and defendants' assertion of some claim adverse to plaintiffs' title, estate, or interest, which adverse claim must be presently determinable. Vandiford v. Vandiford, 241 N.C. 42, 84 S.E.2d 278 (1954).

Plaintiff Need Not Prove Estate in or Title to Land. - The contention that a plaintiff in an action brought under this section must allege and prove that at the commencement of the action and at its trial he had an estate in or title to the land, cannot be sustained. It is only required that he have such an interest in the land that the claim of the defendant is adverse to him. Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924). But see Johnston v. Kramer Bros. & Co., 203 F. 733 (D.C.N.C. 1913); Etheridge v. Wescott, 244 N.C. 637, 94 S.E.2d 846 (1956).

Failure to Prove Prescriptive Easement. - There was inadequate evidence to take the issue of a prescriptive easement to the jury because the defendants had the burden of proving the elements necessary for a prescriptive easement and failed to meet that burden. Nichols v. Wilson, 16 N.C. App. 286, 448 S.E.2d 119, cert. denied, 338 N.C. 519, 452 S.E.2d 814 (1994).

The statutory action to quiet title to realty consists of two essential elements. The first is that the plaintiff must own the land in controversy, or have some estate or interest in it; and the second is that the defendant must assert some claim to such land adverse to the plaintiff's title, estate or interest. Wells v. Clayton, 236 N.C. 102, 72 S.E.2d 16 (1952).

Remedy Given Whether in or out of Possession. - This section affords the remedy whenever one owns or has an estate or interest in real property, whether he is in or out of possession, and another sets up a claim to an estate or interest therein which purports to affect adversely the estate or interest of the true owner and which is reasonably calculated to burden and embarrass such owner in the full enjoyment or disposition of his property at a fair market value; the statute affords a remedy by disclaimer when the party does not in fact claim the "adverse interest" which is alleged to be a cloud on the title of the true owner. Satterwhite v. Gallagher, 173 N.C. 525, 92 S.E. 369 (1917); Vick v. Winslow, 209 N.C. 540, 183 S.E. 750 (1935). See Daniels v. Baxter, 120 N.C. 14, 26 S.E. 635 (1897).

The authorities to the effect that only one in possession may maintain an action to remove a cloud from title, were decisions rendered prior to the act of 1893, c. 6, Revisal, s. 1589. Since that statute, it is held that the action is maintainable, though plaintiff is not in the present possession or control of the property. Daniels v. Baxter, 120 N.C. 14, 26 S.E. 635 (1897); Campbell v. Cronly, 150 N.C. 457, 64 S.E. 213 (1909); Speas v. Woodhouse, 162 N.C. 66, 77 S.E. 1000 (1913).

Under this section, the plaintiff is not required to show that he is either in or out of possession. Nor is the plaintiff required to show that the defendant is an occupant or any more than a claimant of the land in controversy. Barbee v. Edwards, 238 N.C. 215, 77 S.E.2d 646 (1953).

Action Is Maintainable Though Plaintiff Might Have Maintained Ejectment. - This section is broad enough to cover an action to quiet the title to real property though the person sued may be wrongfully in possession and the plaintiff might have maintained ejectment. The complaint would not be demurrable merely for the reason that the allegations might be sufficient to support a possessory action. Pressly v. Walker, 238 N.C. 732, 78 S.E.2d 920 (1953).

Adverse Claimant to Execution Debtor. - If real estate levied upon should be claimed by one other than the execution debtor, then nothing can more quickly bring up for trial the plaintiff's prayer to have the cloud removed from his title than to allow the execution sale to take place. If the purchaser should delay to commence suit for recovery of possession, then the claimant can commence proceedings under the section. McLean v. Shaw, 125 N.C. 491, 34 S.E. 634 (1899).

Judgment Lien. - In McLean v. Shaw, 125 N.C. 491, 34 S.E. 634 (1899), it was held that it was not in contemplation of the act that a judgment lien should be included in the terms "estate" and "interest," as they are used in this section. This case was decided at September term, 1899. The legislature, at its session in 1903, by chapter 763, amended Laws 1893, c. 6, s. 1, by adding thereto the last sentence of the present section. "Estate" and "interest" now expressly embrace a judgment lien. Crockett v. Bray, 151 N.C. 615, 66 S.E. 666 (1909).

Correction of Life Estate into Fee Simple. - Defendants have a right, in order to avoid multiplicity of suits, to ask for the correction of a life estate deed, under which they claim, into a fee simple deed, by way of counterclaim, not merely as a matter of defense, but to remove a cloud upon the title, under this section. McLamb v. McPhail, 126 N.C. 218, 35 S.E. 426 (1900).

When Land Conveyed Pendente Lite. - Where the owner of lands in possession thereof or entitled thereto brings his action claiming as such owner to remove as a cloud upon his title the lien of one claiming under his mortgage, and pendente lite conveys the land to another with full warranty deed, he may continue to prosecute his suit against the mortgagee as to the title, being a real party in interest under G.S. 1-57, without claim of the right to the possession, under the provisions of this section; and where issue has been joined, he may, if successful, recover his costs. Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924).

Nonpayment of Taxes. - In a suit to remove a cloud on the title to lands, the suggestion that plaintiff's ancestors have not, for many years, paid the tax on the land, is immaterial, because to do so does not, under any statute in force in this State, work a forfeiture of title, otherwise than by a sale conducted in conformity with the law. Johnston v. Kramer Bros. & Co., 203 F. 733 (D.C.N.C. 1913).

Standing Sufficiently Pled. - Plaintiff sufficiently pled standing to sue to quiet title to the property; plaintiff attached the deed of trust to the plaintiff's verified complaint, which showed the company's security interest, and the plaintiff also alleged that the company assigned the deed of trust to the plaintiff, citing to the entry in the register of deeds that reflected the assignment. U.S. Bank N.A. v. Estate of Wood, - N.C. App. - , 836 S.E.2d 270 (2019), appeal dismissed, 840 S.E.2d 220, 2020 N.C. LEXIS 355 (N.C. 2020).

Lack of Standing - Mortgage company that had no standing to dispute a foreclosure sale of the subject property also had no standing to bring a quiet title action against the purchaser in that foreclosure sale. Beneficial Mortg. Co. v. Hamidpour, 155 N.C. App. 641, 574 S.E.2d 163 (2002), cert. dismissed and denied, 357 N.C. 163, 580 S.E.2d 359 (2003).

Standing Found - At least to the extent that the action was an action to quiet title pursuant to G.S. 41-10, the pleadings raised an actual controversy which was a proper subject for an action under the Uniform Declaratory Judgment Act, G.S. 1-254. Therefore, the appellate court affirmed the trial court's denial of the county and the company's motion to dismiss the claims of the purported heirs for want of standing. Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619, 684 S.E.2d 709 (2009).

Summary judgment quieting title in the seller of lots in a subdivision was properly granted; the seller had sought to quiet title to a parcel adjacent to the subdivision that was discovered when a new survey revealed that the seller and her husband did not convey all of certain real estate when they sold the subdivision lots, and the seller's title to this parcel was superior to that of the owners of lots in the subdivision, who purported to divide the parcel among themselves. Hensley v. Samel, 163 N.C. App. 303, 593 S.E.2d 411 (2004).

Summary Judgment Quieting Title to County Property Should Have Been Granted. - By the July deed, the property owner conveyed his entire fee simple absolute interest in the property to the county, and the additional language in the deed did not create any limitations or conditions upon the fee simple interest; moreover, municipalities and counties had statutory authority to change the use of real property or to sell or dispose of real property, without regard to the method or purpose of its acquisition or to its intended or actual governmental or other prior use, G.S. 160A-265, and the heirs had not alleged that the county did not follow proper statutory procedures under G.S. 160A-266 et seq., in its sale of the property to the company. Therefore, summary judgment in favor of the heirs on the basis of express or implied dedication of the property to use as a site for a courthouse or county offices or a public park was in error and was reversed; as there were no genuine issues of material fact and the company was entitled to judgment as a matter of law quieting title to the property under G.S. 41-10, the trial court should have granted summary judgment to the company as to its action to quiet title, and should have granted summary judgment in favor of the county and the company by way of declaratory judgment pursuant to G.S. 1-253 et seq., on all substantive issues. Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619, 684 S.E.2d 709 (2009).

Summary Judgment Improper When Boundary Unclear. - Because a genuine issue of material fact existed, the court of appeals erred in affirming the dismissal of plaintiffs' claim seeking a declaratory judgment that the disputed land was within the boundary of a lot, that the title be quieted, and that defendant's encroachments be removed and granting summary judgment to the defendant; with reference only to an ambiguous map, what the grantor intended the boundary to be remained unclear, and the parties' intent was a question of fact for a jury. Daughtridge v. Tanager Land, LLC, 373 N.C. 182, 835 S.E.2d 411 (2019).

C. WHAT CONSTITUTES CLOUD.

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Includes Any Adverse Interest. - The language of this section is broad and liberal, showing the purpose of the General Assembly to permit any person to bring an action against another who claims an interest or estate in real property adverse to him. Plotkin v. Merchants' Bank & Trust Co., 188 N.C. 711, 125 S.E. 541 (1924).

Action Lies to Prevent Creation of Cloud. - An action will lie, not only to remove an existing cloud on title, but also to prevent one from being created, and where the object is merely preventive an injunction is the proper remedy to restrain the doing of the wrongful act. Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920).

Defendant Need Only Be Claimant. - Under Laws 1893, c. 6, now this section, a plaintiff may maintain an action to remove a cloud from his title without showing that the defendant is an occupant or any more than a claimant of the land in controversy. Duncan v. Hall, 117 N.C. 443, 23 S.E. 362 (1895).

Adverse Claim Must Be Presently Determinable. - This section applies only to the extent the alleged adverse claims are presently determinable. Vandiford v. Vandiford, 241 N.C. 42, 84 S.E.2d 278 (1954).

Apparent Invalidity of Defendant's Title. - The plaintiff is not required to have possession as a condition precedent to his right of action, nor will the apparent invalidity of defendant's title deprive him of the statutory remedy. Daniels v. Baxter, 120 N.C. 14, 26 S.E. 635 (1897); Rumbo v. Gay Mfg. Co., 129 N.C. 9, 39 S.E. 581 (1901); Beck v. Meroney, 135 N.C. 532, 47 S.E. 613 (1904); Campbell v. Cronly, 150 N.C. 457, 64 S.E. 213 (1909); Carolina-Tennessee Power Co. v. Hiawassee River Power Co., 175 N.C. 668, 96 S.E. 99 (1918), appeal dismissed, 252 U.S. 341, 40 S. Ct. 330, 64 L. Ed. 601 (1920).

Obscure Contingent Limitations. - This section enlarges the power of the courts to entertain suits to quiet titles, where the conditions were formerly such that a possessory action could not be brought; and the section is liberally construed, so that the court can acquire jurisdiction to clear up obscure contingent limitations which are imposed upon titles. Campbell v. Cronly, 150 N.C. 457, 64 S.E. 213 (1909).

Will of Living Person. - A paper-writing, in form a will, executed by a person now living, is without legal significance either as a transfer of title or as a cloud thereon, until death of the testator and probate of the instrument. Vandiford v. Vandiford, 241 N.C. 42, 84 S.E.2d 278 (1954).

Invalid Judgment as Cloud. - A judgment, if invalid, would be such a cloud on the title, or such a direct menace to it, as to fall within the provisions of this section. Stocks v. Stocks, 179 N.C. 285, 102 S.E. 306 (1920).

An action to quiet title or to remove a cloud from title is equitable in its nature, and may now be maintained to remove from the title a cloud created by the apparent lien of an invalid judgment docketed in the county where the land lies. Holden v. Totten, 224 N.C. 547, 31 S.E.2d 635 (1944).

In an action to remove a cloud from plaintiff's title, caused by a docket judgment alleged to be invalid, a demurrer to the complaint, as not stating a cause of action, was properly overruled, this section being sufficiently broad to entitle plaintiff to maintain an independent action. Exum v. Carolina R.R., 222 N.C. 222, 22 S.E.2d 424 (1942).

Judgment Obtained by Fraud. - A complaint alleged, in effect, that the plaintiff had her dower laid off in the lands of her deceased husband, in which the defendant, her son, was properly represented, and thereafter the son, without the service of summons upon her, instituted an independent proceeding to annul the judgment, and falsely represented to her that the action had been withdrawn, and that she should not further consider it, and in consequence, and through his false representation, obtained a judgment in his favor, destroying her dower right. The complaint was held sufficient for the plaintiff to maintain an independent action to set aside the former judgment upon the issue of fraud, and also under this section to remove the former judgment as a cloud upon her title. Stocks v. Stocks, 179 N.C. 285, 102 S.E. 306 (1920).

Tax Deed. - Where a judgment entered in favor of the county in an action against the owner of land for taxes has been set aside upon motion after notice to the parties, the owner, in an action to remove cloud upon title, is entitled to judgment cancelling the tax deed. Galer v. Auburn-Asheville Co., 204 N.C. 683, 169 S.E. 642 (1933).

Deed of Trust. - Property owner was entitled to have title to real property quieted in the owner under G.S. 41-10, as the owner filed a notice of lis pendens of an action against a trustor and cross-indexed it under G.S. 1-118 prior to defendants' execution of a deed of trust by a trustee and a beneficiary on the property; thus, the deed of trust was an invalid cloud upon the owner's title. Kelley v. CitiFinancial Servs., 205 N.C. App. 426, 696 S.E.2d 775 (2010).

Foreclosure of Mortgage Given by Tenant in Common Prior to Partition. - The purchaser of land from one tenant in common, after the land had been allotted to the tenant in a special proceeding for partition, may maintain a suit to restrain foreclosure of a mortgage executed by the other tenant in common prior to partition, when the mortgagee advertises and seeks to sell a one-half interest in the entire tract, since such foreclosure would constitute a cloud on the purchaser's title. Rostan v. Huggins, 216 N.C. 386, 5 S.E.2d 162, 126 A.L.R. 410 (1939).

Contract Without Married Woman's Privy Examination. - A contract to convey the lands of a married woman, signed by her and her husband, but without her privy examination, when recorded is a cloud upon her title to the lands and subject to her suit to remove the same, within the intent and meaning of this section, though she is and remains in possession of the land. Satterwhite v. Gallagher, 173 N.C. 525, 92 S.E. 369 (1917).

Usurious charge of interest on notes did not affect the validity of the mortgage or deed of trust securing them under G.S. 24-2, and a suit brought to remove a cloud upon title to the lands under this section to the extent of the usurious charge of interest on the notes could not be maintained. Briggs v. Industrial Bank, 197 N.C. 120, 147 S.E. 815 (1929).

Proof Required of Plaintiff. - In a suit to remove a cloud upon the plaintiff's title under this section, the defendant claimed under a sale by foreclosure of a mortgage which the plaintiff attacked for fraud. It was held that the burden of proof was on the plaintiff to show the fraud by the preponderance of the evidence, and not by clear, strong and cogent proof as required in the information or correction of a conveyance of land. Ricks v. Brooks, 179 N.C. 204, 102 S.E. 207 (1920).

III. PLEADING AND PRACTICE.

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A. IN GENERAL.

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When Suit Treated as Action of Ejectment. - A suit instituted to determine conflicting claims to real property, under Laws 1893, c. 6, now this section, may be properly treated as an action of ejectment, when the complaint alleges ownership in the plaintiff and possession in the defendant. Hines v. Moye, 125 N.C. 8, 34 S.E. 103 (1899); Baldwin v. Hinton, 243 N.C. 113, 90 S.E.2d 316 (1955); Hayes v. Ricard, 244 N.C. 313, 93 S.E.2d 540 (1956).

Trustee Improper Party In Quiet Title Action. - Substituted trustee was an improper party to join as a defendant in a purchaser's action to quiet title because there were no statutory duties for the trustee to fulfill, and his participation in the proceeding served no purpose. Greene v. Tr. Servs. of Carolina, LLC, 244 N.C. App. 583, 781 S.E.2d 664 (2016).

Plaintiff Has Burden of Establishing Title. - In an action to quiet title, the burden of proof is on the plaintiff to establish his title. He may do so by traditional methods or by reliance on the Real Property Marketable Title Act, Chapter 47B. Heath v. Turner, 309 N.C. 483, 308 S.E.2d 244 (1983).

The plaintiff is not bound to show as an independent proposition the invalidity and wrongfulness of the adverse claim. These matters are inseparably interwoven in the two essential elements of the action. The claim of the defendant is necessarily invalid and wrongful if it is adverse to the title, estate or interest of the true owner. Wells v. Clayton, 236 N.C. 102, 72 S.E.2d 16 (1952).

The plaintiff is not required to allege or show the specific circumstances giving rise to the defendant's adverse claim, unless it is essential for the plaintiff to overcome such claim in order to establish his own title, estate or interest. Hence, it is ordinarily sufficient for the plaintiff to allege and show in general terms that the defendant is asserting some claim adverse to him. Wells v. Clayton, 236 N.C. 102, 72 S.E.2d 16 (1952).

When Court Will Hear and Determine Without Action. - The courts will hear and determine a controversy submitted without action in suits brought by and against the parties in interest, wherein a vendee has refused to accept the title on the ground of its being doubtful, either in the exercise of their equitable jurisdiction, treating the controversy as a bill for specific performance, or under the provisions of this section, for the purpose of removing clouds upon obscure titles. Campbell v. Cronly, 150 N.C. 457, 64 S.E. 213 (1909).

When Adverse Claim Invalid. - Under Laws 1893, c. 6, now this section, where, in an action to determine conflicting claims to real property, plaintiff being in possession, the court finds the claim of defendant to be invalid, the action should not be dismissed, but the court should enter its decree removing the cloud upon the title. Rumbo v. Gay Mfg. Co., 129 N.C. 9, 39 S.E. 581 (1901).

Sufficiency of Evidence. - In a quiet title action, plaintiffs' evidence was sufficient to show that the disputed area lay within the boundaries of their land, while defendants' reliance on parol evidence to show that the disputed land belonged to them was improper. Defendants failed to establish that their title was superior to plaintiffs' title. McLennan v. Josey, 234 N.C. App. 45, 758 S.E.2d 888 (2014).

Complaint Upheld. - Plaintiffs' complaint, which alleged that noncompliance with legal formalities voided two deeds, but did not allege fraud, despite failure to state specific facts underlying these allegations, nevertheless, under the liberal theory of notice pleading, was minimally sufficient to state a claim for relief under this section. Poore v. Swan Quarter Farms, Inc., 79 N.C. App. 286, 338 S.E.2d 817 (1986).

No defense bond is required in an action to quiet title under this section. Roberts v. Sawyer, 229 N.C. 279, 49 S.E.2d 468 (1948).

A judgment binds parties and privies only. Hines v. Moye, 125 N.C. 8, 34 S.E. 103 (1899).

Default Judgment against Non-Responding Defendants Cannot Automatically Extend to Answering Defendants. - A default final judgment against the non-responding defendants/property buyers did not adjudicate any rights, i.e. quiet title under this provision, between plaintiffs/conveyors of property and answering defendants/alleged innocent bona fide purchasers for value nor did it result in any admissions on behalf of defendant-appellants, bar any of their defenses or claims, or prejudice their rights. Little v. Barson Fin. Servs. Corp., 138 N.C. App. 700, 531 S.E.2d 889 (2000).

Costs. - Where the defendant disclaims title to lands in a suit to remove a cloud thereon, the plaintiff is chargeable with the costs under the express provisions of this section. Clemmons v. Jackson, 183 N.C. 382, 111 S.E. 609 (1922).

In an action for trespass and for damages, the plaintiff, after trial of issues as to trespass, etc., may not abandon these contentions upon the trial, and have the court consider the action as an equitable one to remove a cloud upon the title, and so avoid the payment of the full amount of the costs incident to the litigated issues. Clemmons v. Jackson, 183 N.C. 382, 111 S.E. 609 (1922).

B. PLEADINGS.

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Sufficiency of Bill of Complaint. - Where a bill asserts that the complainant is the owner of certain designated lands, sets forth the chain of title, and alleges that the defendant claims an adverse interest in the said lands, which claim renders sale impossible and otherwise casts a cloud over complainant's title, it sufficiently states a cause of action to quiet title under this section. North Carolina Mining Co. v. Westfeldt, 151 F. 290 (W.D.N.C. 1907), rev'd on other grounds, 166 F. 706 (4th Cir. 1909).

A complaint, which alleged that defendant city claimed, without legal right thereto, a right-of-way on and over plaintiff's land, and that such claim was a cloud on his title, was sufficient to state a cause of action within the purview of this section. Cannon v. Wilmington, 242 N.C. 711, 89 S.E.2d 595 (1955), cert. denied, 352 U.S. 842, 77 S. Ct. 66, 1 L. Ed. 2d 58 (1956).

In an action to remove a cloud on title, a complaint alleging that defendants claimed under a receiver's deed and that the trustee in a prior deed of trust executed by the debtor was not a party to the receivership proceedings, is demurrable, since the mere fact that the trustee in the deed of trust was not a party does not in itself render the receiver's deed ineffectual. East Carolina Lumber Co. v. Pamlico County, 250 N.C. 681, 110 S.E.2d 278 (1959).

A complaint alleging that plaintiffs are the owners of a described tract of land by record title and that the State claims an interest therein by virtue of a specified registered deed, that plaintiffs have a superior title, and that the State's claim constituted a cloud on plaintiff's title is sufficient to state a cause of action to quiet title, and such action may be maintained against the State under the provisions of G.S. 41-10.1. Williams v. North Carolina State Bd. of Educ., 266 N.C. 761, 147 S.E.2d 381 (1966).

A complaint meets the minimum requirements of this section where it alleges that the plaintiffs own the described land and that the defendant claims an interest therein adverse to them. York v. Newman, 2 N.C. 484, 163 S.E.2d 282 (1968).

In a suit brought by mortgagors against various defendants alleging various federal and North Carolina state law claims related to a mortgage on their home, a magistrate judge recommended granting the motion to dismiss for failure to state a claim filed by defendants as to the mortgagors' quiet title claims because the mortgagors made general allegations that defendants had created defects in the chain of title, but they have not alleged that defendants claimed any adverse interest in the property. Bryant v. Wells Fargo Bank, N.A., - F. Supp. 2d - (E.D.N.C. Jan. 24, 2012).

District court adopted the recommendation of the magistrate judge with respect to a mortgagor's quiet title claim and dismissed it because the mortgagor did not allege any facts providing a basis for removing the deed of trust as an encumbrance on his property, when it was undisputed that he defaulted on his mortgage loan, and defendants were not asserting any other encumbrance adverse to him, thus, there was no basis for a quiet title claim. Joy v. MERSCORP, Inc., - F. Supp. 2d - (E.D.N.C. Mar. 27, 2013).

Superior court properly granted the bank's motion to dismiss the purchaser's quiet title claim because the amended complaint failed to sufficiently allege a claim to quiet title; the amended complaint's allegations established that the bank had a valid interest in the property because it alleged that the bank submitted the promissory note secured by the deed of trust, indorsed in blank, to the clerk of court at the foreclosure special proceeding. Greene v. Tr. Servs. of Carolina, LLC, 244 N.C. App. 583, 781 S.E.2d 664 (2016).

Superior court properly granted the bank's motion to dismiss the purchaser's quiet title claim because the amended complaint failed to show that the deed of trust was invalid; the promissory note and the deed of trust were not separated through the securitization process because the transfer of the note constituted an effective assignment of the deed of trust, and the holder of a note could enforce both the note and the deed of trust. Greene v. Tr. Servs. of Carolina, LLC, 244 N.C. App. 583, 781 S.E.2d 664 (2016).

A cause of action to remove a cloud from title is made out when the plaintiff introduces evidence that he has an interest in a described tract of land and the defendant is asserting, or attempting to assert, an unjust claim thereto. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

Unnecessary to Allege Possession. - This section removed the necessity for alleging that the defendant was in possession. The plaintiff may now set out his claim of title, and if defendant disclaims any adverse claim, the plaintiff pays the cost, and the title as between them is settled. Asheville Land Co. v. Lange, 150 N.C. 26, 63 S.E. 164 (1908).

When Occupation Is Alleged. - But where the plaintiff alleges an occupation as the cause of action, not only must the allegation and proof correspond, but the testimony offered to show possession is open to objection and exception on the ground of competency. Duncan v. Hall, 117 N.C. 443, 23 S.E. 362 (1895).

Plaintiff's failure to show fee simple title to all the lands claimed is not fatal to its case. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

Admission. - Where the defendants, by answer, admitted that the plaintiff owned an interest in the described lands, but asserted they also had an interest therein, this admission gave the plaintiff standing in court to challenge the defendants' claim as a cloud upon its title. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

Answer Sufficient to Raise Issue. - Where the complaint in a suit to remove a cloud upon plaintiff's title to land alleges that the plaintiff is the owner of the locus in quo, and asks for a reformation of his deed to the lands to show that by mutual mistake the name of the grantee therein was that of a private business enterprise he was conducting, and that accordingly the defendants claimed an interest therein, an allegation in the answer in reply that the defendant had no knowledge or information sufficient to form a belief as to whether the plaintiff was conducting a business in the name of the grantee in the deed is sufficient to raise the issue, and a judgment in plaintiff's favor upon the pleadings is reversible error. Brinson v. Morris, 192 N.C. 214, 134 S.E. 453 (1926).

Issue as to Delivery of Deed. - Delivery of a deed is essential to its validity, and where the pleadings and evidence raise the question of delivery under this section the court's refusal to submit an issue thereon entitles appellant to a new trial. Ferguson v. Ferguson, 206 N.C. 483, 174 S.E. 304 (1934).

Pleadings Sufficient for Determination of Damages as in Condemnation. - Where, in addition, to the fact that general relief was prayed, the parties specifically asked that their rights be determined, and defendant, relying upon the right of eminent domain, asserted its right to flood lands in which plaintiffs owned mineral interests in derogation of plaintiffs' right of access, it was held that the damages resulting to plaintiffs from such floodings must be ascertained as in a suit for condemnation. Duke Power Co. v. Toms, 118 F.2d 443 (4th Cir. 1941).

The burden rests upon the defendant to establish a title which he has set up to defeat the complainant's claim of ownership. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

When the defendants alleged their title had its origin in a certain grant, from which they and their predecessors derived title, they thereby assumed the burden of locating the calls of the grant on the ground, and of showing that the grant covered at least a part of the lands described in the complaint. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

Where the defendants claim by record title, and not by adverse possession, and allege their record title had its genesis in a certain grant, the state of the pleadings casts upon them the burden of tracing their title to that grant. Resort Dev. Co. v. Phillips, 278 N.C. 69, 178 S.E.2d 813 (1971).

C. JURISDICTION OF COURTS.

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Advisory Jurisdiction of Courts. - The advisory jurisdiction of courts of equity does not extend to the mere construction of a will to ascertain the rights thereunder of devisees or legatees. And such jurisdiction is not sustained under this section, when the suit is not brought by the plaintiff against some person claiming an adverse estate or interest. Heptinstall v. Newsome, 146 N.C. 503, 60 S.E. 416 (1908).

Dismissal of a suit brought by a group of beachfront landowners against the State of North Carolina, the State of North Carolina Department of Environment and Natural Resources, the Coastal Resources Commission, the Division of Coastal Management, and its director, was upheld on appeal because the landowners failed to allege in their complaint sufficient allegations to establish that the State of North Carolina asserted any claim of title to their land under G.S. 41-10.1 to have constituted a waiver of the state's sovereign immunity with regard to the landowners' suit to prevent the general public from interfering with their use of certain beach property, which the landowners claimed was deeded to them. Fabrikant v. Currituck County, 174 N.C. App. 30, 621 S.E.2d 19 (2005).

Concurrent Jurisdiction of State and Federal Courts. - The remedy given by statutes of this character may be enforced in the federal court when the parties are inhabitants of different states. Johnston v. Kramer Bros. & Co., 203 F. 733 (E.D.N.C. 1913).

Where there is an action pending in the State courts to try the title to lands under this section, the State courts have thereby acquired jurisdiction over the property, and the federal courts will not entertain a suit in equity on the same facts and for the same relief. Westfeldt v. North Carolina Mining Co., 166 F. 706 (4th Cir.), cert. denied, 214 U.S. 516, 29 S. Ct. 697, 53 L. Ed. 1064, appeal dismissed, 215 U.S. 586, 30 S. Ct. 404, 54 L. Ed. 339 (1909).

This section does not enlarge the jurisdiction of federal courts of equity, as it merely regulates procedure and does not create any substantive right. And, even if it could be considered as creating an equitable right, it would not authorize the trial by a federal court of equity of what is in essence an action of ejectment, for the reason that in such action the defendant is entitled under the federal Constitution to a trial by jury. Wood v. Phillips, 50 F.2d 714 (4th Cir. 1931).

In an action under this section, while it is true that a federal court of equity lacks jurisdiction of a suit brought against a number of defendants claiming severally different portions of the land in dispute, that ground may oust the court's jurisdiction only in respect to those defendants who raise the objection, and, where title and possession in the complainant is sufficiently alleged, it is error to dismiss the suit as to those defendants who have made no defense, but submitted themselves and their interests to the jurisdiction of the court. New Jersey & N.C. Land & Lumber Co. v. Gardner-Lacy Lumber Co., 178 F. 772 (4th Cir. 1910).

Removal of Action to Federal Court. - Action to quiet title to real property in which plaintiff, the record owner, alleged that defendant had placed an IRS tax lien on the property, and that defendant's IRS tax lien was acting as a cloud on plaintiff's title and preventing plaintiff from selling or alienating the property was properly removed to federal district court, as the essential focus of plaintiff's action was the validity, priority, and extinguishment of the IRS tax lien. Wilkinson v. United States, 724 F. Supp. 1200 (W.D.N.C. 1989).

§ 41-10.1. Trying title to land where State claims interest.

Whenever the State of North Carolina or any agency or department thereof asserts a claim of title to land which has not been taken by condemnation and any individual, firm or corporation likewise asserts a claim of title to the said land, such individual, firm or corporation may bring an action in the superior court of the county in which the land lies against the State or such agency or department thereof for the purpose of determining such adverse claims. Provided, however, that this section shall not apply to lands which have been condemned or taken for use as roads or for public buildings.

History

(1957, c. 514.)

CASE NOTES

Betterments claim is not a claim of title to land. It is, instead, a claim demanding payment for permanent improvements to the land over and above the value of the use and occupation of the land. State v. Taylor, 322 N.C. 433, 368 S.E.2d 601 (1988).

State Did Not Consent to Be Sued for Betterments. - Construing this section strictly, a claim for betterments is not a claim of title to land. The State therefore has not consented to be sued for betterments and is entitled to the full protection of its sovereign immunity. State v. Taylor, 322 N.C. 433, 368 S.E.2d 601 (1988).

"Claim of Title to Land" Cannot Be Broadened to Include Claim for Betterments. - Sovereign immunity is a common-law doctrine to which the existing exceptions or waivers have been mandated by the legislature, and statutes which waive the benefits of the doctrine of sovereign immunity are to be strictly construed. Thus, the phrase "claim of title to land" contained in this section cannot be broadened to include a claim for betterments under G.S. 1-340. The betterments statute does not, by its terms, create a right against the State. State v. Taylor, 322 N.C. 433, 368 S.E.2d 601 (1988).

Suit May Be Brought to Determine Extent of Easement Granted by State. - A controversy between an individual and the State as to the extent of an easement granted to the individual by the State may be made the basis of a suit against the State in the superior court under G.S. 1-253, since such suit involves title to realty within the purview of this section. Shingleton v. State, 260 N.C. 451, 133 S.E.2d 183 (1963).

Sufficiency of Complaint. - A complaint alleging that plaintiffs are the owners of a described tract of land by record title and that the State claims an interest therein by virtue of a specified registered deed, that plaintiffs have a superior title, and that the State's claim constituted a cloud on plaintiff's title is sufficient to state a cause of action to quiet title, and such action may be maintained against the State under the provisions of this section. Williams v. North Carolina State Bd. of Educ., 266 N.C. 761, 147 S.E.2d 381 (1966).

Dismissal of a suit brought by a group of beachfront landowners against the State of North Carolina, the State of North Carolina Department of Environment and Natural Resources, the Coastal Resources Commission, the Division of Coastal Management, and its director, was upheld on appeal because the landowners failed to allege in their complaint sufficient allegations to establish that the State of North Carolina asserted any claim of title to their land under G.S. 41-10.1 to have constituted a waiver of the state's sovereign immunity with regard to the landowners' suit to prevent the general public from interfering with their use of certain beach property, which the landowners claimed was deeded to them. Fabrikant v. Currituck County, 174 N.C. App. 30, 621 S.E.2d 19 (2005).

When the title to the property is no longer in question, plaintiffs may not sue the State for any further damages. Mattox v. State, 21 N.C. App. 677, 205 S.E.2d 364 (1974).

Where the defendant city was already in possession of the disputed property at the time of plaintiff's action, the action was in the nature of ejectment and merely an action to try title. Costner v. City of Greensboro, 37 N.C. App. 563, 246 S.E.2d 552 (1978).

Applied in East Carolina Lumber Co. v. Pamlico County, 250 N.C. 681, 110 S.E.2d 278 (1959); Roten v. State, 8 N.C. App. 643, 175 S.E.2d 384 (1970).


§ 41-11. Sale, lease or mortgage in case of remainders.

In all cases where there is a vested interest in real estate, and a contingent remainder over to persons who are not in being, or when the contingency has not yet happened which will determine who the remaindermen are, there may be a sale, lease or mortgage of the property by a special proceeding in the superior court, which proceeding shall be conducted in the manner pointed out in this section. Said proceeding may be commenced by summons by any person having a vested interest in the land, and all persons in esse who are interested in said land shall be made parties defendant and served with summons in the way and manner now provided by law for the service of summons in other special proceedings, as provided by Rule 4 of the Rules of Civil Procedure, and service of summons upon nonresidents, or persons whose names and residences are unknown, shall be by publication as now required by law or such service in lieu of publication as now provided by law. In cases where the remainder will or may go to minors, or persons under other disabilities, or to persons not in being, or whose names and residences are not known, or who may in any contingency become interested in said land, but because of such contingency cannot be ascertained, the clerk of the superior court shall, after due inquiry of persons who are in no way interested in or connected with such proceeding, designate and appoint some discreet person as guardian ad litem, to represent such remainderman, upon whom summons shall be served as provided by law for other guardians ad litem, and it shall be the duty of such guardian ad litem to defend such actions, and when counsel is needed to represent him, to make this known to the clerk, who shall by an order give instructions as to the employment of counsel and the payment of fees.

The court shall, if the interest of all parties require or would be materially enhanced by it, order a sale of such property or any part thereof for reinvestment, either in purchasing or in improving real estate, less expense allowed by the court for the proceeding and sale, and such newly acquired or improved real estate shall be held upon the same contingencies and in like manner as was the property ordered to be sold. The court may authorize the loaning of such money subject to its approval until such time when it can be reinvested in real estate. And after the sale of such property in all proceedings hereunder, where there is a life estate, in lieu of said interest or investment of proceeds to which the life tenant would be entitled to, or to the use of, the court may in its discretion order the value of said life tenant's share during the probable life of such life tenant, to be ascertained as now provided by law, and paid out of the proceeds of such sale absolutely, and the remainder of such proceeds be reinvested as herein provided. Any person or persons owning a life estate in lands which are unproductive and from which the income is insufficient to pay the taxes on and reasonable upkeep of said lands shall be entitled to maintain an action, without the joinder of any of the remaindermen or reversioners as parties plaintiff, for the sale of said property for the purpose of obtaining funds for improving other nonproductive and unimproved real estate so as to make the same profit-bearing, all to be done under order of the court, or reinvestment of the funds under the provisions of this section, but in every such action when the rights of minors or other persons not sui juris are involved, a competent and disinterested attorney shall be appointed by the court to file answer and represent their interests. The provisions of the preceding sentence, being remedial, shall apply to cases where any title in such lands shall have been acquired before, as well as after, its passage - March 7, 1927.

The clerk of the superior court is authorized to make all orders for the sale, lease or mortgage of property under this section, and for the reinvestment or securing and handling of the proceeds of such sales, but no sale under this section shall be held or mortgage given until the same has been approved by the resident judge of the district, or the judge holding the courts of the district at the time said order of sale is made. The approval by the resident judge of the district may be made by him either during a session of court or at chambers. All orders of approval under said statute by judges resident in the district heretofore made either during a session of court or at chambers are hereby ratified and validated.

The court may authorize the temporary reinvestment, pending final investment in real estate, of funds derived from such sale in any direct obligation of the United States of America or any indirect obligation guaranteed both as to principal and interest or bonds of the State of North Carolina issued since the year 1972; but in the event of such reinvestment, the commissioners, trustees or other officers appointed by the court to hold such funds shall hold the bonds in their possession and shall pay to the life tenant and owner of the vested interest in the lands sold only the interest accruing on the bonds, and the principal of the bonds shall be held subject to final reinvestment and to such expense only as is provided in this section. Temporary reinvestments, as aforesaid, in any direct obligation of the United States of America or any indirect obligation guaranteed both as to principal and interest or State bonds heretofore made with the approval of the court of all or a part of the funds derived from such sales are ratified and declared valid.

The court shall, if the interest of the parties require it and would be materially enhanced by it, order such property mortgaged for such term and on such condition as to the court seems proper and to the best interest of the interested parties. The proceeds derived from the mortgage shall be used for the purpose of adding improvements to the property or to remove existing liens on the property as the court may direct, but for no other purpose. The mortgagees shall not be held responsible for determining the validity of the liens, debts and expenses where the court directs such liens, debts and expenses to be paid. In all cases of mortgages under this section the court shall authorize and direct the guardian representing the interest of minors and the guardian ad litem representing the interest of those persons unknown or not in being to join in the mortgage for the purpose of conveying the interest of such person or persons. In all cases of mortgages under this section the owner of the vested interest or his or her legal representative shall within six months from the date of the mortgage file with the court an itemized statement showing how the money derived from the said mortgage has been expended, and shall exhibit to the court receipts for said money. Said report shall be audited in the same manner as provided for the auditing of guardian's accounts. The owner of the vested interest or his or her legal representative shall collect the rents and income from the property mortgaged and apply the proceeds first to taxes and discharge of interest on the mortgage and the annual curtailment as provided thereby, or if said person uses or occupies said premises he or she shall pay the said taxes, interest and curtailments and said party shall enter into a bond to be approved by the court for the faithful performance of the duties hereby imposed, and such person shall annually file with the court a report and receipts showing that taxes, interest and the curtailment as provided by the mortgage have been paid.

The mortgagee shall not be held responsible for the application of the funds secured or derived from the mortgage. The word "mortgage" whenever used herein shall be construed to include deeds in trust.

History

(1903, c. 99; 1905, c. 548; Rev., s. 1590; 1907, cc. 956, 980; 1919, c. 17; C.S., s. 1744; Ex. Sess. 1921, c. 88; 1923, c. 69; 1925, c. 281; 1927, cc. 124, 186; 1933, c. 123; 1935, c. 299; 1941, c. 328; 1943, cc. 198, 729; 1947, c. 377; 1951, c. 96; 1967, c. 954, s. 3; 1971, c. 528, s. 39.)

Cross References. - As to constitutional restriction against perpetuities, see N.C. Const., Art. I, § 34.

As to vagueness of description of land in pleadings, see G.S. 8-39.

As to vagueness of description in conveyance, see G.S. 39-2.

As to sale, lease or mortgage of property held by a "class," where membership may be increased by persons not in esse, see G.S. 41-11.1.

As to partition sales of real property generally, see G.S. 46-22 et seq.

Legal Periodicals. - For comment on the 1941 amendment, see 19 N.C.L. Rev. 506 (1941).

For brief discussion of the 1947 amendment, see 25 N.C.L. Rev. 390 (1947).

For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For article, "Requiem for the Rule in Shelley's Case," see 67 N.C.L. Rev. 681 (1989).

CASE NOTES

I. GENERAL CONSIDERATION.

Constitutionality and Validity. - Revisal, s. 1590, now this section, providing for the sale of contingent remainders, is constitutional and valid. Smith v. Miller, 151 N.C. 620, 66 S.E. 671 (1909), petition for rehearing dismissed, 152 N.C. 314, 67 S.E. 746 (1910).

This section does not interfere with the essential rights of ownership, but, operating in addition to those already possessed, is constitutional and valid. Pendleton v. Williams, 175 N.C. 248, 95 S.E. 500 (1918).

Retroactive Effect. - Chapter 99, Laws 1903, Rev., s. 1590, now this section, is valid, even when allowed to reach back and affect estates already created by will, though only so far as it is permitted to apply to interests not yet vested. Anderson v. Wilkins, 142 N.C. 154, 55 S.E. 272 (1906). See Springs v. Scott, 132 N.C. 548, 44 S.E. 116 (1903).

The decision in Springs v. Scott was approved in Hodges v. Lipscomb, 133 N.C. 199, 45 S.E. 556 (1903), a case in which it appeared that the will was made prior to the passage of Laws 1903, c. 99. It was there held that the act of 1903 operated retrospectively, so as to apply to contingent interest created by a will which had already taken effect by the death of the testator. Anderson v. Wilkins, 142 N.C. 154, 55 S.E. 272 (1906).

Purpose of Section. - To prevent any possible doubt of the existence of the power of the court, upon the application of all the parties in interest, the trustee representing contingent remaindermen, and to provide for its exercise and protect the interest of all parties in remainder, whether in esse or not, the act of 1903, now this section, was passed. McAfee v. Green, 143 N.C. 411, 55 S.E. 828 (1906).

The purpose of this section is not to obtain predictive declarations of future rights of the parties, inter se, but rather to promote the interest of all the parties by allowing the sale of desirable land free from restrictions imposed by the presence of uncertainties as to whom the land will ultimately belong. Crumpton v. Crumpton, 290 N.C. 651, 227 S.E.2d 587 (1976).

The remedial purpose of this section may be served where there are contingent remainders over to persons not in being, or the contingency has not happened which will determine who the ultimate remaindermen are, but to achieve the desired result the provisions of the statute must be observed. Barnes v. Dortch, 245 N.C. 369, 95 S.E.2d 872 (1957).

Section Does Not Destroy Interest of Remote Contingent Remaindermen. - It will be noted that this section does not, either in its terms or purpose, profess or undertake to destroy the interest of the contingent remaindermen in the property, but only contemplates and provides for a change of investment, and, subject to the right to use a reasonable portion of the amount for the improvement of the remainder, when properly safeguarded, it impresses upon the fund the same contingencies and limitations as were imposed upon the original property. Dawson v. Wood, 177 N.C. 158, 98 S.E. 459 (1919).

It was not the purpose of this section to destroy the interest of the remote contingent remaindermen, but to enable the present owners to sell the property and make a good title to the same, and to require that the proceeds be held as a fund, subject to the claims of persons who may ultimately be entitled thereto, and safeguard their rights in all respects. Poole v. Thompson, 183 N.C. 588, 112 S.E. 323 (1922). See Lancaster v. Lancaster, 209 N.C. 673, 184 S.E. 527 (1936).

When Section Applicable. - This section (before the 1927 amendment) and G.S. 41-12 apply only to a sale of property in which there are or have been contingent interests. Waddell v. United Cigar Stores, 195 N.C. 434, 142 S.E. 585 (1928).

The 1927 amendment, where the land is unproductive, etc., extends the right of action to include life estates where there are vested remaindermen and reversioners without their joinder. The section theretofore had reference only to contingent remainders. Stepp v. Stepp, 200 N.C. 237, 156 S.E. 804, 76 A.L.R. 536 (1931).

A sale under this section can be ordered only in a "special proceeding," which must be instituted before the clerk of the superior court, and the section has no application to an action for waste under G.S. 1-533. Parrish v. Parrish, 247 N.C. 584, 101 S.E.2d 480 (1958).

Strict Compliance Required. - In order that a valid conveyance of the land in fee simple be made pursuant to this section, it is essential that the provisions of the statute be strictly complied with. Blades v. Spitzer, 252 N.C. 207, 113 S.E.2d 315 (1960).

Applied to Charitable and Other Trusts. - Courts, in the exercise of general equitable jurisdiction, may, in proper instances, decree a sale of estate in remainder and affected by contingent interests, for reinvestment, or a portion thereof, when it is shown that it is necessary for the preservation of the estate and the protection of its owners; and this principle is not infrequently applied in the proper administration of charitable and other trusts, notwithstanding limitations in instruments creating them that apparently impose restrictions on the powers of the trustee in this respect, when it is properly established that the sale is required by the necessities of the case and the successful carrying out of the dominant purposes of the trust. Middleton v. Rigsbee, 179 N.C. 437, 102 S.E. 780 (1920).

The sale of an estate in remainder affected under the terms of a will with certain ultimate and contingent interests in trust will not be affected by a clause in the will requiring that the principal of the trust fund shall not be used or diminished during the period of 30 years, with a certain exception, the limitation applying only to the administration of the trust estate, and not preventing the court from ordering a sale when required by the necessities of the estate for its preservation. Middleton v. Rigsbee, 179 N.C. 437, 102 S.E. 780 (1920).

Section Does Not Limit Power of Court over Trusts. - This section, authorizing those who have a vested interest in land with contingent remainders over to persons not in being to petition for and procure the sale of the land for reinvestment, does not limit the power of the court to supervise the administration of trust estates and to enter such orders and decrees in respect thereto as circumstances may require, so that the interest of contingent remaindermen and other beneficial owners may be sold to preserve the trust estate from destruction. First-Citizens Bank & Trust Co. v. Rasberry, 226 N.C. 586, 39 S.E.2d 601 (1946).

Power of Court Independent of Section. - The court, without regard to the Act of 1903, now this section, has the power to order the sale of real estate limited to a tenant for life, with remainder to children or issue, and upon failure thereof, over to persons, all or some of whom are not in esse, when one of the class being first in remainder after the expiration of the life estate is in esse and a party to the proceeding to represent the class, and upon decree passed, and sale and title made pursuant thereto, the purchaser acquires a perfect title as against all persons in esse or in posse. Springs v. Scott, 132 N.C. 548, 44 S.E. 116 (1903).

While the courts of this State do not have inherent power to decree a sale and pass title to the purchaser of lands, with remainder limited upon a contingency that would prevent the ascertainment of the ultimate takers, or any of them, till the death of the life tenant, this power is now conferred by the express terms of our statute in all cases where there is a vested interest in real estate, with a contingent interest over to persons not in being, or when the contingency has not happened which shall determine who the remaindermen are, under the procedure therein laid down. Dawson v. Wood, 177 N.C. 158, 98 S.E. 459 (1919).

Decree May Be Binding on Persons Not in Esse. - A lease authorized by the decree of a court of chancery may be binding upon beneficiaries not in esse, when their interests are the same as those of persons in being who are subjected by due process to the jurisdiction of the court. Waddell v. United Cigar Stores, 195 N.C. 434, 142 S.E. 585 (1928), wherein a lease of trust property was held valid over the objection that it might extend beyond the term of the trust.

Status of Remainders. - Contingent remainders are no longer considered mere possibilities which cannot be transferred, but a remainderman whose estate is contingent may convey it. 2 N.C.L. Rev. 126; Beacon v. Amos, 161 N.C. 357, 77 S.E. 407 (1913).

Applied in Cheshire v. Carolina Power & Light Co., 54 N.C. App. 467, 283 S.E.2d 810 (1981).

Cited in Smith v. Witter, 174 N.C. 616, 94 S.E. 402 (1917); Hines v. Williams, 198 N.C. 420, 152 S.E. 39 (1930); Greene v. Stadiem, 198 N.C. 445, 152 S.E. 398 (1930); Cole v. Cole, 229 N.C. 757, 51 S.E.2d 491 (1949); Davis v. Griffin, 248 N.C. 539, 103 S.E.2d 728 (1958); Menzel v. Menzel, 250 N.C. 649, 110 S.E.2d 333 (1959); De Lotbiniere v. Wachovia Bank & Trust Co., 2 N.C. App. 252, 163 S.E.2d 59 (1968); Simpson v. Simpson, 29 N.C. App. 14, 222 S.E.2d 747 (1976); Stoney v. MacDougall, 31 N.C. App. 678, 230 S.E.2d 592 (1976); FMB, Inc. v. Creech, 198 N.C. App. 177, 679 S.E.2d 410 (2009).

II. ACTION IN SUPERIOR COURT FOR SALE.

General Requirements for Sale. - Lands devised for life with contingent limitations over may be sold for reinvestment under the provisions of this section, under the court's order, subject to its future approval of the sale, when it is made to appear that the best interest of all parties so requires, and those living and in present interest are represented in person, and unborn children by guardian ad litem. McLean v. Caldwell, 178 N.C. 424, 100 S.E. 888 (1919).

Jurisdiction Cannot Be Conferred by Consent. - Jurisdiction of the superior court of an action by owner of a vested estate against contingent remaindermen to sell land cannot be conferred by consent, and this section, authorizing such an action, must be strictly complied with. Watson v. United States, 34 F. Supp. 777 (M.D.N.C. 1940).

Jurisdiction on Appeal from Proceedings Improperly Brought before Clerk. - Where an action is wrongfully brought before the clerk of the superior court and is taken to the superior court by appeal, the superior court having original jurisdiction, it will be retained for hearing. Springs v. Scott, 132 N.C. 548, 44 S.E. 116 (1903).

Lands subject to contingent limitations may be sold by order of the judge of the superior court in term (now during a session of court), on appeal in proceedings in partition improperly brought before the clerk, by retaining jurisdiction for the purpose of settling the controversy. Ryder v. Oates, 173 N.C. 569, 92 S.E. 508 (1917).

Authority of Clerk. - It was not contemplated by this section that the rights of parties should be entrusted to the clerks of the superior court in ordinary special proceedings without approval or confirmation by a judge of the superior court. Ray v. Poole, 187 N.C. 749, 123 S.E. 5 (1924).

Proceedings Brought under G.S. 46-3. - A tenant for life may not, directly or indirectly, affect the title of those in remainder, whether having a vested or contingent interest in the lands, by joining them in their proceedings for a division or sale for that purpose, brought before the clerk of the court under the provisions of G.S. 46-3, and these proceedings so brought cannot be validated by derivative jurisdiction in the superior court, on appeal, under the provisions of this section, it being required that the proceedings be originally brought in the latter jurisdiction, with certain requirements for the protection of contingent remaindermen, which must be strictly followed; and, though under G.S. 46-23 and G.S. 46-24 a sale is provided when the land is affected with a contingent interest in remainder, not presently determinable, the proceedings are therein required to be brought upon petition of such remaindermen, and not upon that of the life tenants. Ray v. Poole, 187 N.C. 749, 123 S.E. 5 (1924).

Life Tenant May Not Have Partition under G.S. 46-24. - A tenant for life in lands may not by adversary proceedings against the remaindermen compel the sale of lands for partition of the proceeds under G.S. 46-24, but upon a proper showing the sale for reinvestment may be ordered in equitable proceedings under the provisions of this section. Smith v. Suitt, 199 N.C. 5, 153 S.E. 602 (1930).

Who May Institute Suit. - Proceedings to have lands sold that are subject to a life estate, with limitation over, upon contingencies which will prevent the ascertainment of the remaindermen during the life of the first taker, etc., may be instituted by any person having a present vested interest in the lands. Dawson v. Wood, 177 N.C. 158, 98 S.E. 459 (1919).

The life beneficiary of a trust estate has a vested equitable estate therein so as to entitle her to institute proceedings for the sale of lands of the estate for reinvestment, and the trustees are proper parties to the proceeding. Blades v. Spitzer, 252 N.C. 207, 113 S.E.2d 315 (1960).

Plaintiff Must Have Vested Interest. - In a proceeding under this section to sell real property in which there is a contingent interest, plaintiff must be a person having a vested interest in the property to be sold, and the sale must be passed upon by the judgment of the superior court. The contingent interest alone cannot be sold. Butler v. Winston, 223 N.C. 421, 27 S.E.2d 124 (1943).

Where one who had no vested estate in land brought action in the superior court against contingent remaindermen to sell land, the court lacked jurisdiction of the action, and hence the judgment ordering sale of the land was void and could be collaterally attacked. Watson v. United States, 34 F. Supp. 777 (M.D.N.C. 1940). See Barnes v. Dortch, 245 N.C. 369, 95 S.E.2d 872 (1957).

Necessary Parties. - Where timber growing upon lands was devised to testator's daughter for her life, and at her death to such of her children and grandchildren then living as she might have appointed in her will, or, upon her failure to exercise the power of appointment, to her children and grandchildren then living, objection to proceedings brought by the devisee and her children and grandchildren then living on the ground that no one having a vested interest in the land had been made a party could not be sustained. Midyette v. Lycoming Timber & Lumber Co., 185 N.C. 423, 117 S.E. 386 (1923). See Thompson v. Humphrey, 179 N.C. 44, 101 S.E. 738 (1919).

In proceedings under this section certain contingent interests in land held in trust were sold and reinvested in other lands in accordance with the terms of the trust in the original deed conveying them. The title acquired under the original deed in trust by the trustee had become passive in him, and it was held that as, under the statute of uses, the legal and equitable title had merged in the same person, neither the trustee nor his heirs were necessary parties to the owner's action against a purchaser to enforce his contract of purchase, and especially so when all vested and contingent interests were represented by some of the parties to the suit. Lee v. Oates, 171 N.C. 717, 88 S.E. 889 (1916).

Construing the statute, as amended, in Hodges v. Lipscomb, 133 N.C. 199, 45 S.E. 556 (1903), the court held that it was only necessary to make parties defendant those of the contingent remaindermen who, on the happening of the contingency, would presently have an estate in the property at the time of action commenced, and as to others more remotely interested they could have their interest represented and protected by the guardian ad litem as the statute provides. Dawson v. Wood, 177 N.C. 158, 98 S.E. 459 (1919).

A special proceeding under this section to authorize the sale for reinvestment of certain land in which there are contingent interests must be brought by a person having a vested interest in the land and those, who on the happening of the contingency would presently have an estate in the property at the time the proceeding is commenced, made parties and served with summons. Barnes v. Dortch, 245 N.C. 369, 95 S.E.2d 872 (1957).

Effect of Omission of Persons Having Contingent Interests. - An order of sale and judgment of confirmation will not be vacated on the ground that certain contingent remaindermen were not made parties to the proceedings to sell, where the interest of the contingent remaindermen has, since the sale, been extinguished by failure of the contingency. Beam v. Gilkey, 225 N.C. 520, 35 S.E.2d 641 (1945).

Setting Aside Sale for Failure to Serve Summons on Infant. - Where in proceedings to sell lands affected with contingent interests the provisions of this section have been observed, and the clerk has appointed a guardian ad litem for contingent interests and for infant parties, the failure to serve summons on a minor is to be regarded as an irregularity that will not render the sale void and a nullity. However, on a proper showing, the sale may be set aside as to all the parties except an innocent purchaser without notice of the irregularity; and on appeal to the Supreme Court, when this fact is not apparent, the case will be remanded for its ascertainment. Welch v. Welch, 194 N.C. 633, 140 S.E. 436 (1927).

Where Guardian Appointed after Sale. - In a proceeding under this section to sell all the contingent interest in certain lands of minors and unborn children, where petitioners were represented by a guardian, judgment of sale signed on the day before the guardian's appointment was void. Butler v. Winston, 223 N.C. 421, 27 S.E.2d 124 (1943).

When Action Abates. - An action against a contingent remainderman to sell the lands under this section abates upon the death of the remainderman prior to the termination of the life estate, when his limitation over is made to depend upon his surviving the life tenant. Redden v. Toms, 211 N.C. 312, 190 S.E. 490 (1937).

Estoppel by Judgment. - Where an executor under a will with power to sell the lands of his testate and reinvest the proceeds, etc., has died, and all persons in present and contingent interest have been made parties to an action wherein the court has substituted another as trustee, upon like trusts in every respect, and the decree was not appealed from, all the privies and parties are estopped as to all issuable matters therein, and may not deny the power of the substituted trustee to make sale of the lands as fully as the executor under the will was therein authorized to make. Hayden v. Hayden, 178 N.C. 259, 100 S.E. 515 (1919).

Preliminary Judgment for Payment of Betterments. - Where a preliminary judgment in proceedings to sell lands with contingent interests provides for the payment of betterments to the life tenant, and in this respect the judgment is not excepted to or appealed from, it is conclusive upon the parties as an estoppel. Pendleton v. Williams, 175 N.C. 248, 95 S.E. 500 (1918).

Judgment under Former Law Does Not Work Estoppel. - A former action determined before the enactment on the subject by the legislature, holding that contingent remainders in lands, etc., cannot be sold unless all persons who may by any possibility be interested unite in the decree, cannot estop the parties to proceedings thereafter brought under the provisions of this section. Pendleton v. Williams, 175 N.C. 248, 95 S.E. 500 (1918).

Irregularities in Judgment against Person Having no Interest. - Irregularity of entering a consent judgment against testator's minor grandson without investigation and approval of the court may be disregarded where the minor had no interest. Beam v. Gilkey, 225 N.C. 520, 35 S.E.2d 641 (1945).

III. SALE AND REINVESTMENT.

.

Section Contemplates Reinvestment. - This section contemplates that the proceeds of the sale, less expenses and perhaps the present worth of the life tenant's share, will be reinvested, either in purchasing or in improving real estate. Crumpton v. Crumpton, 290 N.C. 651, 227 S.E.2d 587 (1976).

Public or Private Sale Permissible. - The sale of estates affected with contingent interests, under the provisions of this section, may, in the sound discretion of the trial judge and subject to his approval, be made either at public auction or by private negotiation, as the best interests of the parties may require. Middleton v. Rigsbee, 179 N.C. 437, 102 S.E. 780 (1920). See McAfee v. Green, 143 N.C. 411, 55 S.E. 828 (1906).

Where the sale of land affected with remote contingent interests not ascertainable at the time, comes within the provisions of this section, the court having jurisdiction may order the property disposed of either at a public or private sale, when it is shown that, as to the one or the other, the best interests of the parties will be promoted, subject always to the approval of the court. Poole v. Thompson, 183 N.C. 588, 112 S.E. 323 (1922).

Where the provisions of this section have been observed in the sale of lands affected with contingent interests, the commissioner appointed to make the sale may effect the same by private negotiations, subject to the approval of the court, when it is properly made to appear that the best interests of the parties so require. Midyette v. Lycoming Timber & Lumber Co., 185 N.C. 423, 117 S.E. 386 (1923).

Sale of Lands with Contingent Interests. - The court has the power to order the private sale of lands affected with contingent interests under the provisions of this section under a proper finding that it would be to the best interests of all concerned, without submitting this issue to the jury, and where the proceedings are properly had and all parties are before the court, the objection is untenable that the sale was made under the decision of the court, and the parties had not agreed thereto. DeLaney v. Clark, 196 N.C. 282, 145 S.E. 398 (1928). See Ryder v. Oates, 173 N.C. 569, 92 S.E. 508 (1917).

Bond Required. - Where the court decrees a sale of trust property for reinvestment, the trustees should be required to give bond, or other legal provision should be made, to assure the safety of the funds arising from the sale, notwithstanding that the will provides that the trustees should not be required to give bond in administering the trust, since in acting under the decree of the court the trustees act as commissioners of the court and not necessarily as trustees under the will. Blades v. Spitzer, 252 N.C. 207, 113 S.E.2d 315 (1960).

Decree Must Provide for Reinvestment. - Where real estate is sold under order of the court, the decree must provide for investment of the fund in such way as the court may deem best for the protection of all persons who have or may have remote or contingent interests. Springs v. Scott, 132 N.C. 548, 44 S.E. 116 (1903).

Discretion of Court and Clerk in Reinvestment. - Before the 1923 amendment, which inserted the first sentence of the third paragraph of this section, it was held that the preservation of the proceeds of the sale of lands, under this section, was referred to the sound discretion of the trial judge, and no error was found to an order requiring the funds to be paid into the office of the clerk of the superior court, to be loaned out by him or otherwise invested as required by law until the happening of the contingency, except that it should be so modified as to require that interest on these loans be allowed the owners of the particular estate, it appearing that they were given the usufruct of the land. Pendleton v. Williams, 175 N.C. 248, 95 S.E. 500 (1918).

Time of Reinvestment. - In Laws 1905, c. 548, the reinvestment in realty was required to be within two years, but such requirement was removed by the later Laws 1907, cc. 956 and 980, leaving the matter of reinvestment somewhat in the discretion of the court, but with clear intimation that the fund should be reinvested in realty when an advantageous opportunity should be offered. Dawson v. Wood, 177 N.C. 158, 98 S.E. 459 (1919).

Effect of Omitting Bond Required by G.S. 1-407. - In all cases where property affected with unascertainable contingent remainders is ordered sold under the provisions of this section, it is now required by G.S. 1-407 that a bond be given to assure the safety of the funds arising from the sale; but where this is omitted from a judgment otherwise regular, it will not affect the title conveyed, though the decree should be modified in that respect by proper steps taken in the superior court. Poole v. Thompson, 183 N.C. 588, 112 S.E. 323 (1922).

Where an order has been made for the sale of timber growing upon lands affected with contingent interests, the court should also require its commissioner appointed for the sale to give bond for the preservation and proper application of the proceeds of sale, etc., under G.S. 1-407; but this provision does not affect the title of the purchaser, who is not required to see to the application of the funds, and the proper order in this respect may be supplied by amendment or supplementary decree. Midyette v. Lycoming Timber & Lumber Co., 185 N.C. 423, 117 S.E. 386 (1923).

Purchaser's Liability Ends When Money Paid into Court. - A purchaser of devised lands affected with a life estate and contingent limitation over, sold for reinvestment under the provisions of this section, is not ordinarily charged with the duty of looking after the proper disposition of the purchase money, and upon paying it into court, under its order, he is quit of further obligation concerning it. McLean v. Caldwell, 178 N.C. 424, 100 S.E. 888 (1919).

Where the purchaser at a sale of lands for reinvestment pays his money into the court or to the person authorized by order of court to receive it, ordinarily he is not required to see to the proper application of the fund, its safety being taken care of by the court in its final decree. DeLaney v. Clark, 196 N.C. 282, 145 S.E. 398 (1928).

Purchaser Takes Fee Simple Title. - A purchaser at a sale of land with contingent interests allowed under the provisions of this section acquires a fee simple title, upon payment of purchase price to the court or person authorized to receive it, without being required to see to the application of the funds, and on such payment made is quit of all obligations concerning it. Pendleton v. Williams, 175 N.C. 248, 95 S.E. 500 (1918).

Commissioner Held Without Authority to Insert Restrictions in Deed. - Where a commissioner was authorized by the court to sell part of the lands of an estate for reinvestment under the provisions of this section, and there were no restrictions in regard to the use of the property of the estate, and in the commissioner's report and recommendation of the offer to purchase, no authority to restrict the use of the property was asked, and none granted in the order of the court, it was held that the commissioner was without authority to insert restrictions in the deed to the purchaser, his authority being limited under the order of the court to the sale of the property and the distribution of the proceeds of sale. Southern Real Estate Loan & Trust Co. v. Atlantic Ref. Co., 208 N.C. 501, 181 S.E. 633 (1935).

IV. ILLUSTRATIVE CASES.

.

Where lands are affected with a contingent interest in remainder, not determinable during the life of the tenant for life, the holder of the vested interest and those in immediate remainder may proceed to have the lands sold under the provisions of this section, and have those remotely interested represented by guardian ad litem for the protection of their interests; and where it is made to appear that the interest of all parties requires, or will be materially enhanced by it, the court may order a sale of the property, or any part thereof, for reinvestment, either in purchasing or improving real estate, etc., or invested temporarily to be held under the same contingencies in like manner as the property ordered to be sold. Poole v. Thompson, 183 N.C. 588, 112 S.E. 323 (1922).

Complaints Held Good on Demurrer. - A testator devised his improved and unimproved lands, in the corporate limits of a town, to his daughter for life with remainder to her children living at her death, with ulterior limitations over to trustees on certain contingencies, and the life tenant brought proceedings for sale and reinvestment of the proceeds under the provisions of this section, having made parties of the persons interested in accordance with the statute, and alleged that by the sale the income would be largely increased, that the sale of the contemplated part to a purchaser she had secured for a certain price would enable her to make improvements on the land then without income, to make houses on other parts of the land more profitable for rental purposes, etc., that the property as it stood was rapidly depreciating, and that there were no available funds, otherwise, to meet the necessary and insistent demands. It was held that a demurrer was bad, and properly overruled. Middleton v. Rigsbee, 179 N.C. 437, 102 S.E. 780 (1920).

Where the complaint of a life tenant alleges that the land is unproductive and income therefrom is insufficient to pay the taxes and reasonable upkeep, and prays that the land be sold in accordance with this section, the demurrer of the vested remaindermen is improperly sustained, the complaint alleging at least one good cause for action. Stepp v. Stepp, 200 N.C. 237, 156 S.E. 804 (1931).

Suit Regarding Management of Trust Estate. - In a suit regarding the management of a trust estate where the trustee and the testator's wife and children are parties and the one living grandchild is made a party defendant and is represented by a guardian ad litem, who also represents as a class the other grandchildren not in esse, all parties having an interest in the estate are properly represented, and the judgment of the court is binding as to all interests. Spencer v. McCleneghan, 202 N.C. 662, 163 S.E. 753 (1932).

Where the grantors in a deed have erroneously assumed that they had title to the lands which they conveyed in fee, but which were affected by future contingent interest not at present ascertainable, and thereafter bring action to make title under the provisions of this section, and in these proceedings have protected the interest of the remote remaindermen by the appointment for them of a guardian ad litem, and have fully set forth the facts and circumstances of the former sale, and bring in the proceeds and submit them to the jurisdiction and orders of the court, the final judgment authorizing and confirming the sale, being had in conformity with the provisions of the statute, perfects the title, and same will inure to the benefit of the covenantee in the former deed, and for a breach of this covenant only nominal damages are recoverable. Myer v. Thompson, 183 N.C. 543, 112 S.E. 328 (1922).

Testator devised land to his five brothers and sisters and a nephew "for their lives and then to their children." The life tenants partitioned the land into equal shares, and the lot partitioned to a surviving brother, aged 75 without children, was conveyed by the children of the four deceased life tenants and the other surviving life tenant and her children to the wife of the surviving brother. The petitioners who purchased the lot from the surviving brother and his wife were not entitled to sell it by virtue of a proceeding under this section where the heirs of the testator living at the time of the proceeding were not made parties, since upon the death of the brother without issue the land would revert to the heirs of the testator living at that time. Barnes v. Dortch, 245 N.C. 369, 95 S.E.2d 872 (1957).

A will devised a life estate to daughter with remainder to her children but she renounced her life estate and it was adjudicated that the renunciation of the life estate accelerated the vesting of title in members of the class in esse at the time. It was held that the acceleration of the estate of the remaindermen did not change the date when the final roll call will be made to ascertain members of the class, and although members of the class in esse are not required to account for rents and profits pending the birth of other members of the class, after-born children must be let in, and the fee simple title to the land cannot be conveyed prior to the death of the life tenant except for reinvestment pursuant to judicial decree. Neill v. Bach, 231 N.C. 391, 57 S.E.2d 385 (1950).

A devise of an estate in trust with provision that the income therefrom should be paid to a designated beneficiary for life and, upon her death, the corpus should be divided among her children, with further provision that the child or children of any deceased child of the life tenant should take such child's share, requires that the remaindermen be ascertained upon the falling in of the life estate, who then take under the will and not as heirs of the life tenant, so that this section is applicable. Blades v. Spitzer, 252 N.C. 207, 113 S.E.2d 315 (1960).

Foreclosure of Tax Lien. - Where land held by a life tenant with contingent limitation over, the persons entitled to the remainder not being determinable until the death of the life tenant, was mortgaged by the life tenant and the mortgage was foreclosed upon default, it was held that in an action to foreclose the lien for taxes against the land under former G.S. 105-414, in which the purchaser at the foreclosure sale, the life tenant and the known contingent remaindermen were made parties, and the minor contingent remaindermen, the unknown contingent remaindermen and those not in esse were represented by guardian ad litem under this section, and the provisions of both statutes were fully and accurately followed, the purchaser at the commissioner's sale acquired the fee simple title. Rodman v. Norman, 221 N.C. 320, 20 S.E.2d 294 (1942).

Sale of Growing Timber. - The timber growing upon lands devised to the testator's named daughter for her sole and separate use during her life only, and at her death to such of her children and grandchildren then living as she may have appointed in her will, and upon her failure to have done so, to her children and grandchildren then living, during the life of the daughter, was affected by the contingencies contemplated by this section. Midyette v. Lycoming Timber & Lumber Co., 185 N.C. 423, 117 S.E. 386 (1923).

Order of Sale Held Invalid. - The proceeding in which an order for the sale of a lot was made was not instituted and was not conducted in accordance with this section. The power of sale was not exercised by virtue of the statute. The proceeding was brought before the clerk, and not in term. The minors were not represented by guardian ad litem appointed by the judge, but by a next friend appointed by the clerk. The order of sale was signed, not during the term (now session) of the superior court in Haywood County, but by the judge holding the courts of the twentieth district (which includes Haywood County), at Sylva, in Jackson County, in said district. The order of sale could not, therefore, be held valid. Lide v. Wells, 190 N.C. 37, 128 S.E. 477 (1925).

Effect of Invalid Decree for Sale and Reinvestment. - In an action brought under the provisions of this section, to sell certain lands devised to E for life with a contingent remainder to her children, it appeared that to further a scheme to erect a hotel on one of the lots, the court had decreed the sale of certain other of the lands and had appointed a commissioner to act in furtherance of its object. The lands were sold and the proceeds applied to the building of the hotel, but the funds being only sufficient to erect the skeleton work of the hotel, other of the lands were decreed by the court to be sold, and their proceeds to be likewise applied; these would not be sufficient for the purpose, and when erected the hotel would not be a desirable investment, especially in the unfurnished condition in which it then would be left. It was held: (1) That the decree for the further sale and reinvestment was void, not meeting the statutory requirement that the interests involved should be properly safeguarded; (2) that the court was without authority to order an investment or reinvestment of funds not then available, but depending upon the outcome of future sales of the land, and of this, notice was implied to third persons; (3) that the purchasers at the sale of the land derived to a clear title thereto; (4) that the commissioner came under no personal liability to the contractor or materialmen of the hotel building; (5) that endorsers of a note made to procure money for building the hotel had no claim on the hotel lot; (6) that the commissioner should sell the hotel lot and report to the court, and that the proceeds be held for the benefit of the devisees to the extent of the value of the lots and the costs of improvements thereon free from the claims of materialmen, etc. Smith v. Miller, 151 N.C. 620, 66 S.E. 671, petition for rehearing dismissed, 152 N.C. 314, 67 S.E. 746 (1910).

Mortgage for Permanent Improvements Held Improper. - The locus in quo was devised to testator's daughter for life with limitation over to the daughter's children. The daughter and her husband expended large sums in making permanent improvements upon the property, and instituted this proceeding against their children, in esse or which might thereafter be born, seeking to have a mortgage in the sum of $20,900 placed on the property to refinance an existing mortgage on the property in the sum of $10,000, and also unsecured notes executed by the life tenant representing a part of the moneys used in making said improvements. It was held that since the remaindermen were in no way liable for any sums expended by the life tenant in making permanent improvements, the finding by the court that the execution of the mortgage to refinance the indebtedness would materially enhance the interest of the remaindermen was erroneous, and judgment directing the execution of the mortgage to refinance the indebtedness should be reversed. Hall v. Hall, 219 N.C. 805, 15 S.E.2d 273 (1941).


§ 41-11.1. Sale, lease or mortgage of property held by a "class," where membership may be increased by persons not in esse.

  1. Wherever there is a gift, devise, transfer or conveyance of a vested estate or interest in real or personal property, or both, to persons described as a class, and at the effective date thereof, one or more members of the class are in esse, and there is a possibility in law that the membership of the class may later be increased by one or more members not then in esse, a special proceeding may be instituted in the superior court for the sale, lease or mortgage of such real or personal property, or both, as provided in this section.
  2. All petitions filed under this section wherein an order is sought for the sale, lease or mortgage of real property, or of both real and personal property, shall be filed in the office of the clerk of the superior court of the county in which all or any part of the real property is situated. If the order sought is for sale, lease or mortgage of personal property, the petition may be filed in the office of the clerk of the superior court of the county in which any or all of such personal estate is situated.
  3. All members of the class in esse shall be parties to the proceeding, and where any of such members are under legal disability, their duly appointed general guardians or their guardians ad litem shall be made parties. The clerk of the superior court shall appoint a guardian ad litem to represent the interests of the possible members of the class not in esse, and such guardian ad litem shall be a party to the proceeding.
  4. Upon a finding by the clerk of the superior court that the interests of all members of the class, both those in esse and those not in esse, would be materially promoted by a sale, lease or mortgage of any such property, he shall enter an order that the sale, lease or mortgage be made, and shall appoint a trustee to make such sale, lease or mortgage, in such manner and on such terms as the clerk may find to be most advantageous to the interests of the members of the class, both those in esse and those not in esse; but no sale, lease or mortgage shall be made, or shall be valid, until approved and confirmed by the resident judge of the district, or the judge holding the courts of the district. As a condition precedent to receiving the proceeds of the sale, lease or mortgage, the trustee shall be bonded in the same manner as a guardian for minors.
  5. In the event of a sale of any such property, the proceeds of sale shall be owned in the identical manner as the property was owned immediately prior to the sale; provided,
    1. The trustee appointed by the clerk as provided above may hold, manage, invest and reinvest said proceeds for the benefit of all members of the class, both those in esse and those not in esse, until the occurrence of the event which will finally determine the identity of all members of the class; all such investments and reinvestments shall be made in accordance with the laws of North Carolina relating to the investment of funds held by guardians or minors; and all the provisions of G.S. 36-4, relating to the reduction in bonds of guardians or trustees upon investment in certain registered securities and the deposit of the securities with the clerk of the superior court, shall be applicable to the trustee appointed hereunder;
    2. The clerk by appropriate order, in lieu of holding, managing, investing and reinvesting the proceeds of sale, may pay or authorize the trustee to pay the entire amount of such proceeds to the living members of the class as they may be then constituted or to their duly appointed guardians, or to pay the ratable portion or portions of such proceeds to one or more of such living members or to their guardians; provided that, where the class would be closed by the death of the mother or mothers of the members of the class, said mother or mothers are living and have attained the age of 55, and upon the further condition that there be first filed with the clerk a bond conditioned upon the payment of the lawful share of any member of the class not then in esse, but who may thereafter come into being or otherwise become a member of the class, to such member or his guardian whenever he becomes a living member of the class. Such bond shall be payable to the State to the use of the additional members of the class and shall be either a cash bond or a premium bond executed by a surety company authorized to transact business in North Carolina. The penalty of such bond shall not be less than one and one fourth the amount of the proceeds of sale. Any bond filed hereunder shall be acknowledged before and approved by the clerk of the superior court.
  6. In the event the proceeds of sale shall be paid over to a trustee and invested by him as authorized above, the entire income actually received by the trustee from such investment shall be paid by said trustee periodically, and not less often than annually, in equal shares to the living members of the class as they shall be constituted at the time of each such payment, or to the duly appointed guardians of any such living members under legal disability.
  7. In the event the court orders a lease of the property, the proceeds from the lease shall be first used to defray the expenses, if any, of the upkeep and maintenance of the property, and the discharge of taxes, liens, charges and encumbrances thereon, and any remaining proceeds shall be paid over by the trustee in their entirety, not less often than annually, in equal shares to the living members of the class as they shall be constituted at the time of each such payment or to the duly appointed guardians of any such members under legal disability.
  8. Payments of income to the living members of the class as aforesaid shall constitute a full and final acquittance and disposition of the income so paid, it being the intent of this section that only the living members of the class (as they may be constituted at the time of each respective income payment) shall be entitled to the income which is the subject of the respective payment, and that possible members of the class not in esse shall not share in, or become entitled to the benefit of any income payment made prior to the time that such members are born and become living members of the class.
  9. In the event that there has been a sale of any of the property, and the proceeds of sale are being held, managed, invested and reinvested by a trustee as provided above, any member of the class who is of legal age and who is not otherwise under legal disability may sell, assign and transfer his entire right, title and interest (both as to principal and income) in the funds or investments so held by the trustee. Upon receiving written notice of such sale, assignment or transfer, the trustee shall recognize the purchaser, assignee and transferee as the lawful successor in all respects whatsoever to the right, title and interest (both as to principal and income) of the seller, assignor and transferor; but no such sale, transfer or assignment shall divest the trustee of his legal title in, or possession of, said funds or investments or (except as provided above) affect his administration of the trusts for which he was appointed.
  10. The court shall order a mortgage of the property only for one or more of the following purposes:
    1. To provide funds for the costs and expenses of court incurred in carrying out any of the provisions of this section;
    2. To provide funds for the necessary upkeep and maintenance of the property;
    3. To make reasonable improvements to the property;
    4. To pay off taxes, other existing liens, charges and encumbrances on the property.
  11. The mortgagee shall not be held responsible for the application of the funds secured or derived from the mortgage. As used in this section, references to mortgages shall also apply to deeds of trust executed for loan security purposes.
  12. Every trustee appointed pursuant to the provisions of this section shall file with the clerk of the superior court an inventory and annual accounts in the same manner as is now provided by law with respect to guardians.
  13. The superior court shall allow commissions to the trustee for his time and trouble in the effectuation of a sale, lease or mortgage, and in the investment and management of the proceeds, in the same manner and under the same rules and restrictions as allowances are made to executors, administrators, and collectors.
  14. Provided, however, this section shall not be applicable where the instrument creating the gift, devise, transfer or conveyance specifically directs, by means of the creation of a trust or otherwise, the manner in which the property shall be used or disposed of, or contains specific limitations, conditions or restrictions as to the use, form, investment, leasing, mortgage, or other disposition of the property.
  15. And provided further, this section shall not alter or affect in any way laws or legal principles heretofore, now, or hereafter existing relating to the determination of the nature, extent or vesting of estates or property interests, and of the persons entitled thereto. But where, under the laws and legal principles existing without regard to this section, a gift, devise, transfer or conveyance has the legal effect of being made to all members of a class, some of whom are in esse and some of whom are in posse, the procedures authorized hereby may be utilized for the purpose of promoting the best interests of all members of the class, and this section shall be liberally construed to effectuate this intent. The remedies and procedures herein specified shall not be exclusive, but shall be cumulative, in addition to, and without prejudice to, all other remedies and procedures, if any, which now exist or hereafter may exist either by virtue of statute, or by virtue of the inherent powers of any court of competent jurisdiction, or otherwise.
  16. The provisions of this section shall apply to gifts, devises, transfers, and conveyances made both before and after April 5, 1949.

History

(1949, c. 811, s. 1; 1971, c. 641, s. 1; 1997-456, s. 27; 2011-284, s. 50(a)-(d).)

Editor's Note. - G.S. 36-4, referred to in this section, has been repealed. As to trusts and trustees, see now Chapter 36A.

Subsection designations (a) through (p) were added pursuant to S.L. 1997-456, s. 27, which authorized the Revisor of Statutes to renumber or reletter sections and parts of sections having a number or letter designation that is incompatible with the General Assembly's computer database.

Effect of Amendments. - Session Laws 2011-284, s. 50, effective June 24, 2011, in subsections (a), (n), (o), and (p), deleted "bequest" following "devise," or similar language.

Legal Periodicals. - For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For article, "Requiem for the Rule in Shelley's Case," see 67 N.C.L. Rev. 681 (1989).

CASE NOTES

Section Limited to Proceedings Involving Sale, Lease or Mortgage. - This section appears to be limited to actions or proceedings involving the sale, lease or mortgage of property. McPherson v. First & Citizens Nat'l Bank, 240 N.C. 1, 81 S.E.2d 386 (1954).

Cited in De Lotbiniere v. Wachovia Bank & Trust Co., 2 N.C. App. 252, 163 S.E.2d 59 (1968); Crumpton v. Crumpton, 290 N.C. 651, 227 S.E.2d 587 (1976).


§ 41-11.2. Sale of standing timber; life estate.

If real property with standing timber is subject to a life estate, the life tenant or owner of the remainder or reversionary interest may initiate a proceeding under Chapter 46A of the General Statutes to sell the timber, separate from the real property, pursuant to G.S. 46A-80.

History

(2020-23, s. 14.)

Editor's Note. - Session Laws 2020-23, s. 18 made this section effective October 1, 2020.

§ 41-12. Sales or mortgages of contingent remainders validated.

In all cases where property has been conveyed by deed, or devised by will, upon contingent remainder, executory devise, or other limitations, where a judgment of a superior court has been rendered authorizing the sale or mortgaging, including execution of deeds of trust, of such property discharged of such contingent remainder, executory devise, or other limitations in actions or special proceedings where all persons in being who would have taken such property if the contingency had then happened were parties, such judgment shall be valid and binding upon the parties thereto and upon all other persons not then in being or whose estates had not been vested: Provided, that nothing herein contained shall be construed to impair or destroy any vested right or estate.

History

(1905, c. 93; Rev., s. 1591; C.S., s. 1745; 1923, c. 64; 1935, c. 36.)

Cross References. - As to revocation of deeds of future interests made to persons not in esse, see G.S. 39-6.

Legal Periodicals. - As to the 1923 amendment, see 1 N.C.L. Rev. 285 (1923).

For article, "The Rule Against Perpetuities in North Carolina," see 57 N.C.L. Rev. 727 (1979).

For article, "Requiem for the Rule in Shelley's Case," see 67 N.C.L. Rev. 681 (1989).

CASE NOTES

Constitutionality and Validity. - This section is a valid exercise of legislative power. Anderson v. Wilkins, 142 N.C. 154, 55 S.E. 272 (1906).

So long as the interest remains contingent only, the legislature may act, for a bare expectancy or any estate depending for its existence on the happening of an uncertain event is within its control, not being a vested right which is protected by constitutional guaranties. Anderson v. Wilkins, 142 N.C. 154, 55 S.E. 272 (1906).

This section, rendering valid judgments authorizing the sale of lands wherein there are contingent remainders, is constitutional and valid. Bullock v. Planters Cotton-Seed Oil Co., 165 N.C. 63, 80 S.E. 972 (1914).

Partition Sale Not Authorized. - This section does not authorize or validate a partition sale at the instance of a life tenant against vested remaindermen, who are not infrequently children. Ray v. Poole, 187 N.C. 749, 123 S.E. 5 (1924).

Application. - A testator devised certain lands to his wife during her widowhood or life, which, at her death, were to be equally divided between the children or "their heirs." The lands were sold in partition in 1904, during the lifetime of the widow, and the children were made parties. One of these children died in 1906, before the death of her mother (1909) and her children, the grandchildren of the testator, brought suit to recover their interests in the land devised, claiming they had a vested interest therein in 1904, and not being parties to the proceedings, were not estopped by the judgment in partition. It was held that the plaintiffs had a contingent interest in the lands at the time of the sale, and were precluded from claiming the lands under the Validating Act of 1905 (Revisal, s. 1591, now this section). Bullock v. Planters Cotton-Seed Oil Co., 165 N.C. 63, 80 S.E. 972 (1914).

Cited in Hines v. Williams, 198 N.C. 420, 152 S.E. 39 (1930); Watson v. United States, 34 F. Supp. 777 (M.D.N.C. 1940); McRorie v. Shinn, 11 N.C. App. 475, 181 S.E.2d 773 (1971).


§ 41-13. Freeholders in petition for special taxes defined.

In all cases where a petition by a specific number of freeholders is required as a condition precedent to ordering an election to provide for the assessment or levy of taxes upon realty, all residents of legal age owning realty for life or longer term, irrespective of sex, shall be deemed freeholders within the meaning of such requirement.

History

(1915, c. 22; C.S., s. 1746.)

CASE NOTES

Former Law. - "Freeholders," used in Laws 1911, c. 135, s. 1, amending Revisal, s. 4115, as to who are required to sign the petition for the laying off special school districts and levying a tax therein, did not include females. Gill v. Board of Comm'rs, 160 N.C. 176, 76 S.E. 203 (1912).

Women Now Included. - In ascertaining the necessary number of resident freeholders for a petition in a proposed new school district, women freeholders must be counted, under the provisions of this section. Chitty v. Parker, 172 N.C. 126, 90 S.E. 17 (1916).


§ 41-14: Reserved for future codification purposes.

ARTICLE 2. Uniform Statutory Rule Against Perpetuities.

Sec.

Editor's Note. - Permission to include the Official Comments was granted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute. It is believed that the Official Comments will prove of value to the practitioner in understanding and applying the text of this Chapter.

The Official Comments appearing under individual sections in this Article have been printed by the publisher as received, without editorial change, and relate to the Article as originally enacted. However, not all sections in this Article may carry Official Comments. Furthermore, Official Comments may or may not have been received or updated in conjunction with subsequent amendments to this Article and, therefore, may not reflect all changes to the sections under which they appear.

Where they appear in this Article, the term "Amended Comment" usually means that an error in the original comment has been corrected by a subsequent amendment, and a "Supplemental Comment" pertains to a later development, such as an amendment to the statute text.

§ 41-15. Statutory rule against perpetuities.

  1. A nonvested property interest is invalid unless:
    1. When the interest is created, it is certain to vest or terminate no later than 21 years after the death of an individual then alive; or
    2. The interest either vests or terminates within 90 years after its creation.
  2. A general power of appointment not presently exercisable because of a condition precedent is invalid unless:
    1. When the power is created, the condition precedent is certain to be satisfied or become impossible to satisfy no later than 21 years after the death of an individual then alive; or
    2. The condition precedent either is satisfied or becomes impossible to satisfy within 90 years after its creation.
  3. A nongeneral power of appointment or a general testamentary power of appointment is invalid unless:
    1. When the power is created, it is certain to be irrevocably exercised or otherwise to terminate no later than 21 years after the death of an individual then alive; or
    2. The power is irrevocably exercised or otherwise terminates within 90 years after its creation.
  4. In determining whether a nonvested property interest or a power of appointment is valid under subdivision (a)(1), (b)(1), or (c)(1) of this section, the possibility that a child will be born to an individual after the individual's death is disregarded.
  5. If, in measuring a period from the creation of a property arrangement, language in a governing instrument:
    1. Seeks to disallow the vesting or termination of any interest beyond,
    2. Seeks to postpone the vesting or termination of any interest until, or
    3. Seeks to operate in effect in any similar fashion upon,

the later of (i) the expiration of a period of time not exceeding 21 years after the death of the survivor of specified lives in being at the creation of the property arrangement or (ii) the expiration of a period of time that exceeds or might exceed 21 years after the death of the survivor of lives in being at the creation of the property arrangement, that language is inoperative to the extent it produces a period of time that exceeds 21 years after the death of the survivor of the specified lives.

History

(1995, c. 190, s. 1; 2007-390, s. 2; 2021-85, s. 3(a).)

OFFICIAL COMMENT

  1. General Purpose
  2. Section 1(a)(1): Nonvested Property Interests that are Initially Valid
  3. Section 1(a)(2): Wait-and-See - Nonvested Property Interests whose Validity is Initially in Abeyance
    1. The 90-Year Permissible Vesting Period
    2. Technical Violations of the Common-Law Rule
  4. Sections 1(b)(1) and 1(c)(1): Powers of Appointment that are Initially Valid
  5. Sections 1(b)(2) and 1(c)(2): Wait-and-See - Powers of Appointment whose Validity is Initially in Abeyance
  6. The Validity of the Donee's Exercise of a Valid Power
  7. Section 1(e): Effect of Certain "Later-of" Type Language; Coordination of Generation-Skipping Transfer Tax Regulations With Uniform Act
  8. Subsidiary Common-Law Doctrines: Whether Superseded by this Act

Common-Law Rule Against Perpetuities Superseded . As provided in Section 9, this Act supersedes the common-law Rule Against Perpetuities (Common-law Rule) in jurisdictions previously adhering to it (or repeals any statutory version or variation thereof previously in effect in the jurisdiction). The Common-law Rule (or the statutory version or variation thereof) is replaced by the Statutory Rule Against Perpetuities (Statutory Rule) set forth in this section and by the other provisions in this Act.

Subsidiary Doctrines Continue in Force Except to the Extent the Provisions of Act Conflict with Them . The courts in interpreting the Common-law Rule developed several subsidiary doctrines. In accordance with the general principle of statutory construction that statutes in derogation of the common law are to be construed narrowly, a subsidiary doctrine is superseded by this Act only to the extent the provisions of the Act conflict with it. A listing and discussion of such subsidiary doctrines, such as the constructional preference for validity, the all-or-nothing rule for class gifts, and the doctrine of infectious invalidity, appears later, in Part G of this Comment.

Application . Unless excluded by Section 4, the Statutory Rule Against Perpetuities (Statutory Rule) applies to nonvested property interests and to powers of appointment over property or property interests that are nongeneral powers, general testamentary powers, or general powers not presently exercisable because of a condition precedent.

The Statutory Rule does not apply to vested property interests (e.g., X's interest in Example (23) of this Comment) or to presently exercisable general powers of appointment (e.g., G's power in Example (19) of this Comment; G's power in Example (1) in the Comment to Section 2; A's power in Example (2) in the Comment to Section 2; X's power in Example (3) in the Comment to Section 2; A's noncumulative power of withdrawal in Example (4) in the Comment to Section 2).

A. GENERAL PURPOSE

Section 1 sets forth the Statutory Rule Against Perpetuities (Statutory Rule). As explained above, the Statutory Rule supersedes the Common-law Rule Against Perpetuities (Common-law Rule) or any statutory version or variation thereof.

The Common-law Rule's Validating and Invalidating Sides . The Common-law Rule Against Perpetuities is a rule of initial validity or invalidity. At common law, a nonvested property interest is either valid or invalid as of its creation . Like most rules of property law, the Common-law Rule has both a validating and an invalidating side. Both sides are derived from John Chipman Gray's formulation of the Common-law Rule:

No [nonvested property] 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.

J. Gray, The Rule Against Perpetuities § 201 (4th ed. 1942). From this formulation, the validating and invalidating sides of the Common-law Rule are derived as follows:

Validating Side of the Common-law Rule . A nonvested property interest is valid when it is created (initially valid) if it is then certain to vest or terminate (fail to vest) - one or the other - no later than 21 years after the death of an individual then alive.

Invalidating Side of the Common-law Rule . A nonvested property interest is invalid when it is created (initially invalid) if there is no such certainty.

Notice that the invalidating side focuses on a lack of certainty , which means that invalidity under the Common-law Rule is not dependent on actual post-creation events but only on possible post-creation events. Actual post-creation events are irrelevant, even those that are known at the time of the lawsuit. It is generally recognized that the invalidating side of the Common-law Rule is harsh because it can invalidate interests on the ground of possible post-creation events that are extremely unlikely to happen and that in actuality almost never do happen, if ever.

The Statutory Rule Against Perpetuities . The essential difference between the Common-law Rule and its statutory replacement is that the Statutory Rule preserves the Common-law Rule's overall policy of preventing property from being tied up in unreasonably long or even perpetual family trusts or other property arrangements, while eliminating the harsh potential of the Common-law Rule. The Statutory Rule achieves this result by codifying (in slightly revised form) the validating side of the Common-law Rule and modifying the invalidating side by adopting a wait-and-see element. Under the Statutory Rule, interests that would have been initially valid at common law continue to be initially valid, but interests that would have been initially invalid at common law are invalid only if they do not actually vest or terminate within the permissible vesting period set forth in Section 1(a)(2). Thus, the Uniform Act recasts the validating and invalidating sides of the Rule Against Perpetuities as follows:

Validating Side of the Statutory Rule : A nonvested property interest is initially valid if, when it is created, it is then certain to vest or terminate (fail to vest) - one or the other - no later than 21 years after the death of an individual then alive. The validity of a nonvested property interest that is not initially valid is in abeyance. Such an interest is valid if it vests within the permissible vesting period after its creation.

Invalidating Side of the Statutory Rule : A nonvested property interest that is not initially valid becomes invalid (and subject to reformation under Section 3) if it neither vests nor terminates within the permissible vesting period after its creation.

As indicated, this modification of the invalidating side of the Common-law Rule is generally known as the wait-and-see method of perpetuity reform. The wait-and-see method of perpetuity reform was approved by the American Law Institute as part of the Restatement (Second) of Property (Donative Transfers) §§ 1.1-1.6 (1983). For a discussion of the various methods of perpetuity reform, including the wait-and-see method and the Restatement (Second)'s version of wait-and-see, see Waggoner, Perpetuity Reform , 81 Mich.L.Rev. 1718 (1983).

B. SECTION 1(a)(1): NONVESTED PROPERTY INTERESTS THAT ARE INITIALLY VALID

Nonvested Property Interest . Section 1(a) sets forth the Statutory Rule Against Perpetuities with respect to nonvested property interests. A nonvested property interest (also called a contingent property interest) is a future interest in property that is subject to an unsatisfied condition precedent. In the case of a class gift, the interests of all the unborn members of the class are nonvested because they are subject to the unsatisfied condition precedent of being born. At common law, the interests of all potential class members must be valid or the class gift is invalid. As pointed out in more detail later in this Comment, this so-called all-or-nothing rule with respect to class gifts is not superseded by this Act, and so remains in effect under the Statutory Rule. Consequently, all class gifts that are subject to open are to be regarded as nonvested property interests for the purposes of this Act.

Section 1(a)(1) Codifies the Validating Side of the Common-law Rule . The validating side of the Common-law Rule is codified in Section 1(a)(1) (and, with respect to powers of appointment, in Sections 1(b)(1) and 1(c)(1)).

A nonvested property interest that satisfies the requirement of Section 1(a)(1) is initially valid. That is, it is valid as of the time of its creation. There is no need to subject such an interest to the waiting period set forth in Section 1(a)(2), nor would it be desirable to do so.

For a nonvested property interest to be valid as of the time of its creation under Section 1(a)(1), there must then be a certainty that the interest will either vest or terminate - an interest terminates when vesting becomes impossible - no later than 21 years after the death of an individual then alive. To satisfy this requirement, it must be established that there is no possible chain of events that might arise after the interest was created that would allow the interest to vest or terminate after the expiration of the 21-year period following the death of an individual in being at the creation of the interest. Consequently, initial validity under Section 1(a)(1) can be established only if there is an individual for whom there is a causal connection between the individual's death and the interest's vesting or terminating no later than 21 years thereafter. The individual described in subsection (a)(1) (and subsections (b)(1) and (c)(1) as well) is often referred to as the "validating life," the term used throughout the Comments to this Act.

Determining Whether There is a Validating Life . The process for determining whether a validating life exists is to postulate the death of each individual connected in some way to the transaction, and ask the question: Is there with respect to this individual an invalidating chain of possible events? If one individual can be found for whom the answer is No, that individual can serve as the validating life. As to that individual there will be the requisite causal connection between his or her death and the questioned interest's vesting or terminating no later than 21 years thereafter.

In searching for a validating life, only individuals who are connected in some way to the transaction need to be considered, for they are the only ones who have a chance of supplying the requisite causal connection. Such individuals vary from situation to situation, but typically include the beneficiaries of the disposition, including the taker or takers of the nonvested property interest, and individuals related to them by blood or adoption, especially in the ascending and descending lines. There is no point in even considering the life of an individual unconnected to the transaction - an individual from the world at large who happens to be in being at the creation of the interest. No such individual can be a validating life because there will be an invalidating chain of possible events as to every unconnected individual who might be proposed: Any such individual can immediately die after the creation of the nonvested property interest without causing any acceleration of the interest's vesting or termination. (The life expectancy of any unconnected individual, or even the probability that one of a number of new-born babies will live a long life, is irrelevant.)

Example (1) - Parent of Devisees as the Validating Life . G devised property "to A for life, remainder to A's children who attain 21." G was survived by his son (A), by his daughter (B), by A's wife (W), and by A's two children (X and Y).

The nonvested property interest in favor of A's children who reach 21 satisfies Section 1(a)(1)'s requirement, and the interest is initially valid. When the interest was created (at G's death), the interest was then certain to vest or terminate no later than 21 years after A's death.

The process by which A is determined to be the validating life is one of testing various candidates to see if any of them have the requisite causal connection. As noted above, no one from the world at large can have the requisite causal connection, and so such individuals are disregarded. Once the inquiry is narrowed to the appropriate candidates, the first possible validating life that comes to mind is A, who does in fact fulfill the requirement: Since A's death cuts off the possibility of any more children being born to him, it is impossible, no matter when A dies, for any of A's children to be alive and under the age of 21 beyond 21 years after A's death. (See the discussion of subsection (d), below.)

A is therefore the validating life for the nonvested property interest in favor of A's children who attain 21. None of the other individuals who is connected to this transaction could serve as the validating life because an invalidating chain of possible post-creation events exists as to each one of them. The other individuals who might be considered include W, X, Y, and B. In the case of W, an invalidating chain of events is that she might predecease A, A might remarry and have a child by his new wife, and such child might be alive and under the age of 21 beyond the 21-year period following W's death. With respect to X and Y, an invalidating chain of events is that they might predecease A, A might later have another child, and that child might be alive and under 21 beyond the 21-year period following the death of the survivor of X and Y. As to B, she suffers from the same invalidating chain of events as exists with respect to X and Y. The fact that none of these other individuals can serve as the validating life is of no consequence, however, because only one such individual is required for the validity of a nonvested interest to be established, and that individual is A.

The Rule of Subsection (d) . The rule established in subsection (d) plays a significant role in the search for a validating life. Subsection (d) declares that the possibility that a child will be born to an individual after the individual's death is to be disregarded. It is important to note that this rule applies only for the purposes of determining the validity of an interest (or power of appointment) under paragraph (1) of subsection (a), (b), or (c). The rule of subsection (d) does not apply, for example, to questions such as whether or not a child who is born to an individual after the individual's death qualifies as a taker of a beneficial interest - as a member of a class or otherwise. Neither subsection (d), nor any other provision of this Act, supersedes the widely accepted common-law principle, sometimes codified, that a child in gestation (a child sometimes described as a child en ventre sa mere ) who is later born alive is regarded as alive at the commencement of gestation.

The limited purpose of subsection (d) is to solve a perpetuity problem caused by advances in medical science. The problem is illustrated by a case such as Example (1), above - "to A for life, remainder to A's children who reach 21." When the Common-law Rule was developing, the possibility was recognized, strictly speaking, that one or more of A's children might reach 21 more than 21 years after A's death. The possibility existed because A's wife (who might not be a life in being) might be pregnant when A died. If she was, and if the child was born viable a few months after A's death, the child could not reach his or her 21st birthday within 21 years after A's death. The device then invented to validate the interest of A's children was to "extend" the allowable perpetuity period by tacking on a period of gestation, if needed. As a result, the common-law perpetuity period was comprised of three components: (1) a life in being (2) plus 21 years (3) plus a period of gestation, when needed. Today, thanks to sperm banks, frozen embryos, and even the possibility of artificially maintaining the body functions of deceased pregnant women long enough to develop the fetus to viability (see Detroit Free Press, July 31, 1986, at 5A; Ann Arbor News, Oct. 30, 1978, at C5 (AP story); N.Y. Times, Dec. 6, 1977, at 30; N.Y. Times, Dec. 2, 1977, at B16) - advances in medical science unanticipated when the Common-law Rule was in its developmental stages - having a pregnant wife at death is no longer the only way of having children after death. These medical developments, and undoubtedly others to come, make the mere addition of a period of gestation inadequate as a device to confer initial validity under Section 1(a)(1) on the interest of A's children in the above example. The rule of subsection (d), however, does insure the initial validity of the children's interest. Disregarding the possibility that children of A will be born after his death allows A to be the validating life. None of his children, under this assumption, can reach 21 more than 21 years after his death.

Note that subsection (d) subsumes not only the case of children conceived after death, but also the more conventional case of children in gestation at death. With subsection (d) in place, the third component of the common-law perpetuity period is unnecessary and has been jettisoned. The perpetuity period recognized in paragraph (1) of subsections (a), (b), and (c) has only two components: (1) a life in being (2) plus 21 years.

As to the legal status of conceived-after-death children, that question has not yet been resolved. For example, if in Example (1) it in fact turns out that A does leave sperm on deposit at a sperm bank and if in fact A's wife does become pregnant as a result of artificial insemination, the child or children produced thereby might not be included at all in the class gift. Cf. Restatement (Second) of Property (Donative Transfers) Introductory Note to Ch. 26 at pp. 2-3 (Tent. Draft No. 9, 1986). Without trying to predict how that matter will be settled in the future, the best way to handle the problem from the perpetuity perspective is subsection (d)'s rule requiring the possibility of post-death children to be disregarded.

Recipients as Their Own Validating Lives . It is well established at common law that, in appropriate cases, the recipient of an interest can be his or her own validating life. See, e.g., Rand v. Bank of California, 236 Or. 619, 388 P.2d 437 (1964). Given the right circumstances, this principle can validate interests that are contingent on the recipient's reaching an age in excess of 21, or are contingent on the recipient's surviving a particular point in time that is or might turn out to be in excess of 21 years after the interest was created or after the death of a person in being at the date of creation.

Example (2) - Devisees as Their Own Validating Lives . G devised real property "to A's children who attain 25." A predeceased G. At G's death, A had three living children, all of whom were under 25.

The nonvested property interest in favor of A's children who attain 25 is validated by Section 1(a)(1). Under subsection (d), the possibility that A will have a child born to him after his death (and since A predeceased G, after G's death) must be disregarded. Consequently, even if A's wife survived G, and even if she was pregnant at G's death or even if A had deposited sperm in a sperm bank prior to his death, it must be assumed that all of A's children are in being at G's death. A's children are, therefore, their own validating lives. (Note that subsection (d) requires that in determining whether an individual is a validating life, the possibility that a child will be born to "an" individual after the individual's death must be disregarded. The validating life and the individual whose having a post-death child is disregarded need not be the same individual.) Each one of A's children, all of whom under subsection (d) are regarded as alive at G's death, will either reach the age of 25 or fail to do so within his or her own lifetime. To say this another way, it is certain to be known no later than at the time of the death of each child whether or not that child survived to the required age.

Validating Life Can Be Survivor of Group . In appropriate cases, the validating life need not be individualized at first. Rather the validating life can initially (i.e., when the interest was created) be the unidentified survivor of a group of individuals. It is common in such cases to say that the members of the group are the validating lives , but the true meaning of the statement is that the validating life is the member of the group who turns out to live the longest. As the court said in Skatterwood v. Edge, 1 Salk. 229, 91 Eng. Rep. 203 (K.B. 1697), "for let the lives be never so many, there must be a survivor, and so it is but the length of that life; for Twisden used to say, the candles were all lighted at once."

Example (3) - Case of Validating Life Being the Survivor of a Group . G devised real property "to such of my grandchildren as attain 21." Some of G's children are living at G's death.

The nonvested property interest in favor of G's grandchildren who attain 21 is valid under Section 1(a)(1). The validating life is that one of G's children who turns out to live the longest. Since under subsection (d), it must be assumed that none of G's children will have post-death children, it is regarded as impossible for any of G's grandchildren to be alive and under 21 beyond the 21-year period following the death of G's last surviving child.

Example (4) - Sperm Bank Case . G devised property in trust, directing the income to be paid to G's children for the life of the survivor, then to G's grandchildren for the life of the survivor, and on the death of G's last surviving grandchild, to pay the corpus to G's great-grandchildren then living. G's children all predeceased him, but several grandchildren were living at G's death. One of G's predeceased children (his son, A) had deposited sperm in a sperm bank. A's widow was living at G's death.

The nonvested property interest in favor of G's great-grandchildren is valid under Section 1(a)(1). The validating life is the last surviving grandchild among the grandchildren living at G's death. Under subsection (d), the possibility that A will have a child conceived after G's death must be disregarded. Note that subsection (d) requires that in determining whether an individual is a validating life, the possibility that a child will be born to "an" individual after the individual's death is disregarded. The validating life and the individual whose having a post-death child is disregarded need not be the same individual. Thus in this example, by disregarding the possibility that A will have a conceived-after-death child, G's last surviving grandchild becomes the validating life because G's last surviving grandchild is deemed to have been alive at G's death, when the great-grandchildren's interests were created.

Example (5) - Child in Gestation Case . G devised property in trust, to pay the income equally among G's living children; on the death of G's last surviving child, to accumulate the income for 21 years; on the 21st anniversary of the death of G's last surviving child, to pay the corpus and accumulated income to G's then-living descendants, per stirpes; if none, to X Charity. At G's death his child (A) was 6 years old, and G's wife (W) was pregnant. After G's death, W gave birth to their second child (B).

The nonvested property interests in favor of G's descendants and in favor of X Charity are valid under Section 1(a)(1). The validating life is A. Under subsection (d), the possibility that a child will be born to an individual after the individual's death must be disregarded for the purposes of determining validity under Section 1(a)(1) . Consequently, the possibility that a child will be born to G after his death must be disregarded; and the possibility that a child will be born to any of G's descendants after their deaths must also be disregarded.

Note, however, that the rule of subsection (d) does not apply to the question of the entitlement of an after-born child to take a beneficial interest in the trust. The common-law rule (sometimes codified) that a child in gestation is treated as alive, if the child is subsequently born viable, applies to this question. Thus, subsection (d) does not prevent B from being an income beneficiary under G's trust, nor does it prevent a descendant in gestation on the 21st anniversary of the death of G's last surviving child from being a member of the class of G's "then-living descendants," as long as such descendant has no then-living ancestor who takes instead.

Different Validating Lives Can and in Some Cases Must Be Used . Dispositions of property sometimes create more than one nonvested property interest. In such cases, the validity of each interest is treated individually. A validating life that validates one interest might or might not validate the other interests. Since it is not necessary that the same validating life be used for all interests created by a disposition, the search for a validating life for each of the other interests must be undertaken separately.

Perpetuity Saving Clauses and Similar Provisions . Knowledgeable lawyers almost routinely insert perpetuity saving clauses into instruments they draft. Saving clauses contain two components, the first of which is the perpetuity-period component . This component typically requires the trust or other arrangement to terminate no later than 21 years after the death of the last survivor of a group of individuals designated therein by name or class. (The lives of corporations, animals, or sequoia trees cannot be used.) The second component of saving clauses is the gift-over component . This component expressly creates a gift over that is guaranteed to vest at the termination of the period set forth in the perpetuity-period component, but only if the trust or other arrangement has not terminated earlier in accordance with its other terms.

It is important to note that regardless of what group of individuals is designated in the perpetuity-period component of a saving clause, the surviving member of the group is not necessarily the individual who would be the validating life for the nonvested property interest or power of appointment in the absence of the saving clause. Without the saving clause, one or more interests or powers may in fact fail to satisfy the requirement of paragraph (1) of subsections (a), (b), or (c) for initial validity. By being designated in the saving clause, however, the survivor of the group becomes the validating life for all interests and powers in the trust or other arrangement: The saving clause confers on the last surviving member of the designated group the requisite causal connection between his or her death and the impossibility of any interest or power in the trust or other arrangement remaining in existence beyond the 21-year period following such individual's death.

Example (6) - Valid Saving Clause Case . A testamentary trust directs income to be paid to the testator's children for the life of the survivor, then to the testator's grandchildren for the life of the survivor, corpus on the death of the testator's last living grandchild to such of the testator's descendants as the last living grandchild shall by will appoint; in default of appointment, to the testator's then-living descendants, per stirpes. A saving clause in the will terminates the trust, if it has not previously terminated, 21 years after the death of the testator's last surviving descendant who was living at the testator's death. The testator was survived by children.

In the absence of the saving clause, the nongeneral power of appointment in the last living grandchild and the nonvested property interest in the gift-in-default clause in favor of the testator's descendants fail the test of Sections 1(a)(1) and 1(c)(1) for initial validity. That is, were it not for the saving clause, there is no validating life. However, the surviving member of the designated group becomes the validating life, so that the saving clause does confer initial validity on the nongeneral power of appointment and on the nonvested property interest under Sections 1(a)(1) and 1(c)(1).

If the governing instrument designates a group of individuals that would cause it to be impracticable to determine the death of the survivor, the common-law courts have developed the doctrine that the validity of the nonvested property interest or power of appointment is determined as if the provision in the governing instrument did not exist. See cases cited in Restatement (Second) of Property (Donative Transfers) (1983), Reporter's Note No. 3 at p. 45. See also Restatement (Second) of Property (Donative Transfers) § 1.3(1) Comment a (1983); Restatement of Property § 374 and Comment l (1944); 6 American Law of Property § 24.13 (A. Casner ed. 1952); 5A R. Powell, The Law of Real Property Para. 766[5] (1985); L. Simes & A. Smith, The Law of Future Interests § 1223 (2d ed. 1956). If, for example, the designated group in Example (6) were the residents of X City (or the members of Y Country Club) living at the time of the testator's death, the saving clause would not validate the power of appointment or the nonvested property interest. Instead, the validity of the power of appointment and the nonvested property interest would be determined as if the provision in the governing instrument did not exist. Since without the saving clause the power of appointment and the nonvested property interest would fail to satisfy the requirements of Sections 1(a)(1) and 1(c)(1) for initial validity, their validity would be governed by Sections 1(a)(2) and 1(c)(2).

The application of the above common-law doctrine, which is not superseded by this Act and so remains in full force, is not limited to saving clauses. It also applies to trusts or other arrangements where the period thereof is directly linked to the life of the survivor of a designated group of individuals. An example is a trust to pay the income to the grantor's descendants from time to time living, per stirpes, for the period of the life of the survivor of a designated group of individuals living when the nonvested property interest or power of appointment in question was created, plus the 21-year period following the survivor's death; at the end of the 21-year period, the corpus is to be divided among the grantor's then-living descendants, per stirpes, and if none, to the XYZ Charity. If the group of individuals so designated is such that it would be impracticable to determine the death of the survivor, the validity of the disposition is determined as if the provision in the governing instrument did not exist. The term of the trust is therefore governed by the 90- year permissible vesting period of paragraph (2) of subsections (a), (b), or (c) of the Statutory Rule.

Additional references . Restatement (Second) of Property (Donative Transfers) § 1.3(1) (1983), and the Comments thereto; Waggoner, Perpetuity Reform , 81 Mich.L.Rev. 1718, 1720-1726 (1983).

C. SECTION 1(a)(2): WAIT-AND-SEE - NONVESTED PROPERTY INTERESTS WHOSE VALIDITY IS INITIALLY IN ABEYANCE

Unlike the Common-Law Rule, the Statutory Rule Against Perpetuities does not automatically invalidate nonvested property interests for which there is no validating life. A nonvested property interest that does not meet the requirements for validity under Section 1(a)(1) might still be valid under the wait-and-see provisions of Section 1(a)(2). Such an interest is invalid under Section 1(a)(2) only if in actuality it does not vest (or terminate) during the permissible vesting period. Such an interest becomes invalid, in other words, only if it is still in existence and nonvested when the permissible vesting period expires.

  1. The 90-Year Permissible Vesting Period
  2. Technical Violations of the Common-Law Rule

Since a wait-and-see rule against perpetuities, unlike the Common-law Rule, makes validity or invalidity turn on actual post-creation events, it requires that an actual period of time be measured off during which the contingencies attached to an interest are allowed to work themselves out to a final resolution. The Statutory Rule Against Perpetuities establishes a permissible vesting period of 90 years. Nonvested property interests that have neither vested nor terminated at the expiration of the 90-year permissible vesting period become invalid.

As explained in the Prefatory Note, the permissible vesting period of 90 years is not an arbitrarily selected period of time. On the contrary, the 90-year period represents a reasonable approximation of - a proxy for - the period of time that would, on average, be produced through the use of an actual set of measuring lives identified by statute and then adding the traditional 21-year tack-on period after the death of the survivor.

One of the harsh aspects of the invalidating side of the Common-Law Rule, against which the adoption of the wait-and-see element in Section 1(a)(2) is designed to relieve, is that nonvested property interests at common law are invalid even though the invalidating chain of possible events almost certainly will not happen. In such cases, the violation of the Common-law Rule could be said to be merely technical. Nevertheless, at common law, the nonvested property interest is invalid.

Cases of technical violation fall generally into discrete categories, identified and named by Professor Leach in Perpetuities in a Nutshell , 51 Harv.L.Rev. 638 (1938), as the fertile octogenarian, the administrative contingency, and the unborn widow. The following three examples illustrate how Section 1(a)(2) affects these categories.

Example (7) - Fertile Octogenarian Case . G devised property in trust, directing the trustee to pay the net income therefrom "to A for life, then to A's children for the life of the survivor, and upon the death of A's last surviving child to pay the corpus of the trust to A's grandchildren." G was survived by A (a female who had passed menopause) and by A's two adult children (X and Y).

The remainder interest in favor of G's grandchildren would be invalid at common law, and consequently is not validated by Section 1(a)(1). There is no validating life because, under the common law's conclusive presumption of lifetime fertility, which is not superseded by this Act (see Part H, below), A might have a third child (Z), conceived and born after G's death, who will have a child conceived and born more than 21 years after the death of the survivor of A, X, and Y.

Under Section 1(a)(2), however, the remote possibility of the occurrence of this chain of events does not invalidate the grandchildren's interest. The interest becomes invalid only if it remains in existence and nonvested 90 years after G's death. The chance that the grandchildren's remainder interest will become invalid under Section 1(a)(2) is negligible.

Example (8) - Administrative Contingency Case . G devised property "to such of my grandchildren, born before or after my death, as may be living upon final distribution of my estate." G was survived by children and grandchildren.

The remainder interest in favor of A's grandchildren would be invalid at common law, and consequently is not validated by Section 1(a)(1). The final distribution of G's estate might not occur within 21 years of G's death, and after G's death grandchildren might be conceived and born who might survive or fail to survive the final distribution of G's estate more than 21 years after the death of the survivor of G's children and grandchildren who were living at G's death.

Under Section 1(a)(2), however, the remote possibility of the occurrence of this chain of events does not invalidate the grandchildren's remainder interest. The interest becomes invalid only if it remains in existence and nonvested 90 years after G's death. Since it is almost certain that the final distribution of G's estate will occur well within this 90-year period, the chance that the grandchildren's interest will be invalid is negligible.

Example (9) - Unborn Widow Case . G devised property in trust, the income to be paid "to my son A for life, then to A's spouse for her life, and upon the death of the survivor of A and his spouse, the corpus to be delivered to A's then living descendants." G was survived by A, by A's wife (W), and by their adult children (X and Y).

Unless the interest in favor of A's "spouse" is construed to refer only to W, rather than to whoever is A's spouse when he dies, if anyone, the remainder interest in favor of A's descendants would be invalid at common law, and consequently is not validated by Section 1(a)(1). There is no validating life because A's spouse might not be W; A's spouse might be someone who was conceived and born after G's death; she might outlive the death of the survivor of A, W, X, and Y by more than 21 years; and descendants of A might be born or die before the death of A's spouse but after the 21-year period following the death of the survivor of A, W, X, and Y.

Under Section 1(a)(2), however, the remote possibility of the occurrence of this chain of events does not invalidate the descendants' remainder interest. The interest becomes invalid only if it remains in existence and nonvested 90 years after G's death. The chance that the descendants' remainder interest will become invalid under the Statutory Rule is small.

Age Contingencies in Excess of 21 . Another category of technical violation of the Common-Law Rule arises in cases of age contingencies in excess of 21 where the takers cannot be their own validating lives (unlike Example (2), above). The violation of the Common-law Rule falls into the technical category because the insertion of a saving clause would in almost all cases allow the disposition to be carried out as written. In effect, the Statutory Rule operates like the perpetuity-period component of a saving clause.

Example (10) - Age Contingency in Excess of 21 Case . G devised property in trust, directing the trustee to pay the income "to A for life, then to A's children; the corpus of the trust is to be equally divided among A's children who reach the age of 30." G was survived by A, by A's spouse (H), and by A's two children (X and Y), both of whom were under the age of 30 when G died.

The remainder interest in favor of A's children who reach 30 is a class gift. At common law, the interests of all potential class members must be valid or the class gift is totally invalid. Leake v. Robinson, 2 Mer. 363, 35 Eng. Rep. 979 (Ch. 1817). This Act does not supersede the all-or-nothing rule for class gifts (see Part G, below), and so the all-or-nothing rule continues to apply under this Act. Although X and Y will either reach 30 or die under 30 within their own lifetimes, there is at G's death the possibility that A will have an afterborn child (Z) who will reach 30 or die under 30 more than 21 years after the death of the survivor of A, H, X, and Y. The class gift would be invalid at common law and consequently is not validated by Section 1(a)(1).

Under Section 1(a)(2), however, the possibility of the occurrence of this chain of events does not invalidate the children's remainder interest. The interest becomes invalid only if an interest of a class member remains nonvested 90 years after G's death.

Although unlikely, suppose that at A's death Z's age is such that he could be alive and under the age of 30 at the expiration of the allowable waiting period. Suppose further that at A's death X or Y or both is over the age of 30. The court, upon the petition of an interested person, must under Section 3 reform G's disposition. See Example (3) in the Comment to Section 3.

D. SECTIONS 1(b)(1) AND 1(c)(1): POWERS OF APPOINTMENT THAT ARE INITIALLY VALID

Powers of Appointment . Sections 1(b) and 1(c) set forth the Statutory Rule Against Perpetuities with respect to powers of appointment. A power of appointment is the authority, other than as an incident of the beneficial ownership of property, to designate recipients of beneficial interests in or powers of appointment over property. Restatement (Second) of Property (Donative Transfers) § 11.1 (1986). The property or property interest subject to a power of appointment is called the "appointive property."

The various persons connected to a power of appointment are identified by a special terminology. The "donor" is the person who created the power of appointment. The "donee" is the person who holds the power of appointment, i.e., the powerholder. The "objects" are the persons to whom an appointment can be made. The "appointees" are the persons to whom an appointment has been made. The "takers in default" are the persons whose property interests are subject to being defeated by the exercise of the power of appointment and who take the property to the extent the power is not effectively exercised. Restatement (Second) of Property (Donative Transfers) § 11.2 (1986).

A power of appointment is "general" if it is exercisable in favor of the donee of the power, the donee's creditors, the donee's estate, or the creditors of the donee's estate. A power of appointment that is not general is a "nongeneral" power of appointment. Restatement (Second) of Property (Donative Transfers) § 11.4 (1986).

A power of appointment is "presently exercisable" if, at the time in question, the donee can by an exercise of the power create an interest in or a power of appointment over the appointive property. Restatement (Second) of Property (Donative Transfers) § 11.5 (1986). A power of appointment is "testamentary" if the donee can exercise it only in the donee's will. Restatement of Property § 321 (1940). A power of appointment is "not presently exercisable because of a condition precedent" if the only impediment to its present exercisability is a condition precedent, i.e., the occurrence of some uncertain event. Since a power of appointment terminates on the donee's death, a deferral of a power's present exercisability until a future time (even a time certain) imposes a condition precedent that the donee be alive at that future time.

A power of appointment is a "fiduciary" power if it is held by a fiduciary and is exercisable by the fiduciary in a fiduciary capacity. A power of appointment that is exercisable in an individual capacity is a "nonfiduciary" power. As used in this Act, the term "power of appointment" refers to "fiduciary" and to "nonfiduciary" powers, unless the context indicates otherwise.

Although Gray's formulation of the Common-law Rule Against Perpetuities does not speak directly of powers of appointment, the Common-law Rule is applicable to powers of appointment (other than presently exercisable general powers of appointment). The principle of subsections (b)(1) and (c)(1) is that a power of appointment that satisfies the Common-law Rule Against Perpetuities is valid under the Statutory Rule Against Perpetuities, and consequently it can be validly exercised, without being subjected to a waiting period during which the power's validity is in abeyance.

Two different tests for validity are employed at common law, depending on what type of power is at issue. In the case of a nongeneral power (whether or not presently exercisable) and in the case of a general testamentary power , the power is initially valid if, when the power was created, it is certain that the latest possible time that the power can be exercised is no later than 21 years after the death of an individual then in being. In the case of a general power not presently exercisable because of a condition precedent , the power is initially valid if it is then certain that the condition precedent to its exercise will either be satisfied or become impossible to satisfy no later than 21 years after the death of an individual then in being. Subsections (b)(1) and (c)(1) codify these rules. Under either test, initial validity depends on the existence of a validating life. The procedure for determining whether a validating life exists is essentially the same procedure explained in Part B, above, pertaining to nonvested property interests.

Example (11) - Initially Valid General Testamentary Power Case . G devised property "to A for life, remainder to such persons, including A's estate or the creditors of A's estate, as A shall by will appoint." G was survived by his daughter (A).

A's power, which is a general testamentary power, is valid as of its creation under Section 1(c)(1). The test is whether or not the power can be exercised beyond 21 years after the death of an individual in being when the power was created (G's death). Since A's power cannot be exercised after A's death, the validating life is A, who was in being at G's death.

Example (12) - Initially Valid Nongeneral Power Case . G devised property "to A for life, remainder to such of A's descendants as A shall appoint." G was survived by his daughter (A).

A's power, which is a nongeneral power, is valid as of its creation under Section 1(c)(1). The validating life is A; the analysis leading to validity is the same as applied in Example (11), above.

Example (13) - Case of Initially Valid General Power Not Presently Exercisable Because of a Condition Precedent . G devised property "to A for life, then to A's first born child for life, then to such persons, including A's first born child or such child's estate or creditors, as A's first born child shall appoint." G was survived by his daughter (A), who was then childless.

The power in A's first born child, which is a general power not presently exercisable because of a condition precedent, is valid as of its creation under Section 1(b)(1). The power is subject to a condition precedent - that A have a child - but this is a contingency that under subsection (d) is deemed certain to be resolved one way or the other within A's lifetime. A is therefore the validating life: The power cannot remain subject to the condition precedent after A's death. Note that the latest possible time that the power can be exercised is at the death of A's first born child, which might occur beyond 21 years after the death of A (and anyone else who was alive when G died). Consequently, if the power conferred on A's first born child had been a nongeneral power or a general testamentary power, the power could not be validated by Section 1(c)(1); instead, the power's validity would be governed by Section 1(c)(2).

E. SECTIONS 1(b)(2) AND 1(c)(2): WAIT-AND-SEE - POWERS OF APPOINTMENT WHOSE VALIDITY IS INITIALLY IN ABEYANCE

Under the Common-law Rule, a general power not presently exercisable because of a condition precedent is invalid as of the time of its creation if the condition might neither be satisfied nor become impossible to satisfy within a life in being plus 21 years. A nongeneral power (whether or not presently exercisable) or a general testamentary power is invalid as of the time of its creation if it might not terminate (by irrevocable exercise or otherwise) within a life in being plus 21 years.

Sections 1(b)(2) and 1(c)(2), by adopting the wait-and-see method of perpetuity reform, shift the ground of invalidity from possible to actual post-creation events. Under these subsections, a power of appointment that would have violated the Common-law Rule, and therefore fails the subsection (b)(1) or (c)(1) tests for initial validity, is nevertheless not invalid as of the time of its creation. Instead, its validity is in abeyance. A general power not presently exercisable because of a condition precedent is invalid only if in actuality the condition neither is satisfied nor becomes impossible to satisfy within the 90-year permissible vesting period. A nongeneral power or a general testamentary power is invalid only if in actuality it does not terminate (by irrevocable exercise or otherwise) within the 90-year permissible period.

Example (14) - General Testamentary Power Case . G devised property "to A for life, then to A's first born child for life, then to such persons, including the estate or the creditors of the estate of A's first born child, as A's first born child shall by will appoint; in default of appointment, to G's grandchildren in equal shares." G was survived by his daughter (A), who was then childless, and by his son (B), who had two children (X and Y).

Since the general testamentary power conferred on A's first born child fails the test of Section 1(c)(1) for initial validity, its validity is governed by Section 1(c)(2). If A has a child, such child's death must occur within 90 years of G's death for any provision in the child's will purporting to exercise the power to be valid.

Example (15) - Nongeneral Power Case . G devised property "to A for life, then to A's first born child for life, then to such of G's grandchildren as A's first born child shall appoint; in default of appointment, to the children of G's late nephew, Q." G was survived by his daughter (A), who was then childless, by his son (B), who had two children (X and Y), and by Q's two children (R and S).

Since the nongeneral power conferred on A's first born child fails the test of Section 1(c)(1) for initial validity, its validity is governed by Section 1(c)(2). If A has a child, such child must exercise the power within 90 years after G's death or the power becomes invalid.

Example (16) - General Power Not Presently Exercisable Because of a Condition Precedent . G devised property "to A for life, then to A's first born child for life, then to such persons, including A's first born child or such child's estate or creditors, as A's first born child shall appoint after reaching the age of 25; in default of appointment, to G's grandchildren." G was survived by his daughter (A), who was then childless, and by his son (B), who had two children (X and Y).

The power conferred on A's first born child is a general power not presently exercisable because of a condition precedent. Since the power fails the test of Section 1(b)(1) for initial validity, its validity is governed by Section 1(b)(2). If A has a child, such child must reach the age of 25 (or die under 25) within 90 years after G's death or the power is invalid.

Fiduciary Powers . Purely administrative fiduciary powers are excluded from the Statutory Rule under Sections 4(2) and (3), but the only distributive fiduciary power that is excluded is the power described in Section 4(4). Otherwise, distributive fiduciary powers are subject to the Statutory Rule. Such powers are usually nongeneral powers.

Example (17) - Trustee's Discretionary Powers Over Income and Corpus . G devised property in trust, the terms of which were that the trustee was authorized to accumulate the income or pay it or a portion of it out to A during A's lifetime; after A's death, the trustee was authorized to accumulate the income or to distribute it in equal or unequal shares among A's children until the death of the survivor; and on the death of A's last surviving child to pay the corpus and accumulated income (if any) to B. The trustee was also granted the discretionary power to invade the corpus on behalf of the permissible recipient or recipients of the income.

The trustee's nongeneral powers to invade corpus and to accumulate or spray income among A's children are not excluded by Section 4(4), nor are they initially valid under Section 1(c)(1). Their validity is, therefore, governed by Section 1(c)(2). Both powers become invalid thereunder, and hence no longer exercisable, 90 years after G's death.

It is doubtful that the powers will become invalid, because the trust will probably terminate by its own terms earlier than the expiration of the permissible 90-year period. But if the powers do become invalid, and hence no longer exercisable, they become invalid as of the time the permissible 90-year period expires. Any exercises of either power that took place before the expiration of the permissible 90-year period are not invalidated retroactively. In addition, if the powers do become invalid, a court in an appropriate proceeding must reform the instrument in accordance with the provisions of Section 3.

F. THE VALIDITY OF THE DONEE'S EXERCISE OF A VALID POWER

The fact that a power of appointment is valid, either because it (i) was not subject to the Statutory Rule to begin with, (ii) is initially valid under Sections 1(b)(1) or 1(c)(1), or (iii) becomes valid under Sections 1(b)(2) or 1(c)(2), means merely that the power can be validly exercised. It does not mean that any exercise that the donee decides to make is valid. The validity of the interests or powers created by the exercise of a valid power is a separate matter, governed by the provisions of this Act. A key factor in deciding the validity of such appointed interests or appointed powers is determining when they were created for purposes of this Act. Under Section 2, as explained in the Comment thereto, the time of creation is when the power was exercised if it was a presently exercisable general power; and if it was a nongeneral power or a general testamentary power, the time of creation is when the power was created. This is the rule generally accepted at common law (see Restatement (Second) of Property (Donative Transfers) § 1.2, Comment d (1983); Restatement of Property § 392 (1944)), and it is the rule adopted under this Act (except for purposes of Section 5 only, as explained in the Comment to Section 5).

Example (18) - Exercise of a Nongeneral Power of Appointment . G was the life income beneficiary of a trust and the donee of a nongeneral power of appointment over the succeeding remainder interest, exercisable in favor of M's descendants (except G). The trust was created by the will of G's mother, M, who predeceased him. G exercised his power by his will, directing the income to be paid after his death to his brother B's children for the life of the survivor, and upon the death of B's last surviving child, to pay the corpus of the trust to B's grandchildren. B predeceased M; B was survived by his two children, X and Y, who also survived M and G.

G's power and his appointment are valid. The power and the appointed interests were created at M's death when the power was created, not on G's death when it was exercised. See Section 2. G's power passes Section 1(c)(1)'s test for initial validity: G himself is the validating life. G's appointment also passes Section 1(a)(1)'s test for initial validity: Since B was dead at M's death, the validating life is the survivor of B's children, X and Y.

Suppose that G's power was exercisable only in favor of G's own descendants, and that G appointed the identical interests in favor of his own children and grandchildren. Suppose further that at M's death, G had two children, X and Y, and that a third child, Z, was born later. X, Y, and Z survived G. In this case, the remainder interest in favor of G's grandchildren would not pass Section 1(a)(1)'s test for initial validity. Its validity would be governed by Section 1(a)(2), under which it would be valid if G's last surviving child died within 90 years after M's death.

If G's power were a general testamentary power of appointment, rather than a nongeneral power, the solution would be the same. The period of the Statutory Rule with respect to interests created by the exercise of a general testamentary power starts to run when the power was created (at M's death, in this example), not when the power was exercised (at G's death).

Example (19) - Exercise of a Presently Exercisable General Power of Appointment . G was the life income beneficiary of a trust and the donee of a presently exercisable general power of appointment over the succeeding remainder interest. G exercised the power by deed, directing the trustee after his death to pay the income to G's children in equal shares for the life of the survivor, and upon the death of his last surviving child to pay the corpus of the trust to his grandchildren.

The validity of G's power is not in question: A presently exercisable general power of appointment is not subject to the Statutory Rule Against Perpetuities. G's appointment, however, is subject to the Statutory Rule. If G reserved a power to revoke his appointment, the remainder interest in favor of G's grandchildren passes Section 1(a)(1)'s test for initial validity. Under Section 2, the appointed remainder interest was created at G's death. The validating life for his grandchildren's remainder interest is G's last surviving child.

If G's appointment were irrevocable, however, the grandchildren's remainder interest fails the test of Section 1(a)(1) for initial validity. Under Section 2, the appointed remainder interest was created upon delivery of the deed exercising G's power (or when the exercise otherwise became effective). Since the validity of the grandchildren's remainder interest is governed by Section 1(a)(2), the remainder interest becomes invalid, and the disposition becomes subject to reformation under Section 3, if G's last surviving child lives beyond 90 years after the effective date of G's appointment.

Example (20) - Exercises of Successively Created Nongeneral Powers of Appointment . G devised property to A for life, remainder to such of A's descendants as A shall appoint. At his death, A exercised his nongeneral power by appointing to his child B for life, remainder to such of B's descendants as B shall appoint. At his death, B exercised his nongeneral power by appointing to his child C for life, remainder to C's children. A and B were living at G's death. Thereafter, C was born. A later died, survived by B and C. B then died survived by C.

A's nongeneral power passes Section 1(c)(1)'s test for initial validity. A is the validating life. B's nongeneral power, created by A's appointment, also passes Sections 1(c)(1)'s test for initial validity. Since under Section 2 the appointed interests and powers are created at G's death, and since B was then alive, B is the validating life for his nongeneral power. (If B had been born after G's death, however, his power would have failed Section 1(c)(1)'s test for initial validity; its validity would be governed by Section 1(c)(2), and would turn on whether or not it was exercised by B within 90 years after G's death.)

Although B's power is valid, his exercise may be partly invalid. The remainder interest in favor of C's children fails the test of Section 1(a)(1) for initial validity. The period of the Statutory Rule begins to run at G's death, under Section 2. (Since B's power was a nongeneral power, B's appointment under the common-law relation back doctrine of powers of appointment is treated as having been made by A. If B's appointment related back no further than that, of course, it would have been validated by Section 1(a)(1) because C was alive at A's death. However, A's power was also a nongeneral power, so relation back goes another step. A's appointment - which now includes B's appointment - is treated as having been made by G.) Since C was not alive at G's death, he cannot be the validating life. And, since C might have more children more than 21 years after the deaths of A and B and any other individual who was alive at G's death, the remainder interest in favor of his children is not initially validated by Section 1(a)(1). Instead, its validity is governed by Section 1(a)(2), and turns on whether or not C dies within 90 years after G's death.

Note that if either A's power or B's power (or both) had been a general testamentary power rather than a nongeneral power, the above solution would not change. However, if either A's power or B's power (or both) had been a presently exercisable general power, B's appointment would have passed Sections 1(a)(1)'s test for initial validity. (If A had the presently exercisable general power, the appointed interests and power would be created at A's death, not G's; and if the presently exercisable general power were held by B, the appointed interests and power would be created at B's death.)

Common-Law "Second-look" Doctrine . As indicated above, both at common law and under this Act (except for purposes of Section 5 only, as explained in the Comment to Section 5), appointed interests and powers established by the exercise of a general testamentary power or a nongeneral power are created when the power was created, not when the power was exercised. In applying this principle, the common law recognizes a so-called doctrine of second look, under which the facts existing on the date of the exercise are taken into account in determining the validity of appointed interests and appointed powers. E.g., Warren's Estate , 320 Pa. 112, 182 A. 396 (1930); In re Estate of Bird , 225 Cal.App.2d 196, 37 Cal.Rptr. 288 (1964). The common-law's second-look doctrine in effect constitutes a limited wait-and-see doctrine, and is therefore subsumed under but not totally superseded by this Act. The following example, which is a variation of Example (18) above, illustrates how the second-look doctrine operates at common law and how the situation would be analyzed under this Act.

Example (21) - Second-look Case . G was the life income beneficiary of a trust and the donee of a nongeneral power of appointment over the succeeding remainder interest, exercisable in favor of G's descendants. The trust was created by the will of his mother, M, who predeceased him. G exercised his power by his will, directing the income to be paid after his death to his children for the life of the survivor, and upon the death of his last surviving child, to pay the corpus of the trust to his grandchildren. At M's death, G had two children, X and Y. No further children were born to G, and at his death X and Y were still living.

The common-law solution of this example is as follows: G's appointment is valid under the Common-law Rule. Although the period of the Rule begins to run at M's death, the facts existing at G's death can be taken into account. This second look at the facts discloses that G had no additional children. Thus the possibility of additional children, which existed at M's death when the period of the Rule began to run, is disregarded. The survivor of X and Y, therefore, becomes the validating life for the remainder interest in favor of G's grandchildren, and G's appointment is valid. The common-law's second-look doctrine would not, however, save G's appointment if he actually had one or more children after M's death and if at least one of these after-born children survived G.

Under this Act, if no additional children are born to G after M's death, the common-law second-look doctrine can be invoked as of G's death to declare G's appointment then to be valid under Section 1(a)(1); no further waiting is necessary. However, if additional children are born to G and one or more of them survives G, Section 1(a)(2) applies and the validity of G's appointment depends on G's last surviving child dying within 90 years after M's death.

Additional References . Restatement (Second) of Property (Donative Transfers) § 1.2, Comments d, f, g, and h; § 1.3, Comment g; § 1.4, Comment l (1983).

G. SECTION 1(e): EFFECT OF CERTAIN "LATER-OF" TYPE LANGUAGE; COORDINATION OF GENERATION-SKIPPING TRANSFER TAX REGULATIONS WITH UNIFORM ACT

Effect of Certain "Later-of" Type Language . Section 1(e) was added to the Uniform Act in 1990. It primarily applies to a non-traditional type of "later-of" clause (described below). Use of that type of clause might have produced unintended consequences, which are now rectified by the addition of Section 1(e).

In general, perpetuity saving or termination clauses can be used in either of two ways. The predominant use of such clauses is as an override clause. That is, the clause is not an integral part of the dispositive terms of the trust, but operates independently of the dispositive terms; the clause provides that all interests must vest no later than at a specified time in the future, and sometimes also provides that the trust must then terminate, but only if any interest has not previously vested or if the trust has not previously terminated. The other use of such a clause is as an integral part of the dispositive terms of the trust; that is, the clause is the provision that directly regulates the duration of the trust. Traditional perpetuity saving or termination clauses do not use a "later-of" approach; they mark off the maximum time of vesting or termination only by reference to a 21-year period following the death of the survivor of specified lives in being at the creation of the trust.

Section 1(e) applies to a non-traditional clause called a "later-of" (or "longer-of") clause. Such a clause might provide that the maximum time of vesting or termination of any interest or trust must occur no later than the later of (A) 21 years after the death of the survivor of specified lives in being at the creation of the trust or (B) 90 years after the creation of the trust.

Under the Uniform Act as originally promulgated, this type of "later-of" clause would not achieve a "later-of" result. If used as an override clause in conjunction with a trust whose terms were, by themselves, valid under the Common-law Rule, the "later-of" clause did no harm. The trust would be valid under the Common-law Rule as codified in Section 1(a)(1) because the clause itself would neither postpone the vesting of any interest nor extend the duration of the trust. But, if used either (1) as an override clause in conjunction with a trust whose terms were not valid under the Common-law Rule or (2) as the provision that directly regulated the duration of the trust, the "later-of" clause would not cure the perpetuity violation in case (1) and would create a perpetuity violation in case (2). In neither case would the clause qualify the trust for validity at common law under Section 1(a)(1) because the clause would not guarantee that all interests will be certain to vest or terminate no later than 21 years after the death of an individual then alive.** In any given case, 90 years can turn out to be longer than the period produced by the specified-lives-in-being-plus-21-years language. **By substantial analogous authority, the specified-lives-in-being-plus-21-years prong of the "later-of" clause under discussion is not sustained by the separability doctrine (described in Part H of the Comment to Section 1). See, e.g., Restatement of Property § 376 Comments e and f and illustration 3 (1944); Easton v. Hall, 323 Ill. 397, 154 N.E. 216 (1926); Thorne v. Continental Nat'l Bank & Trust Co., 305 Ill. App. 222, 27 N.E.2d 302 (1940). The inapplicability of the separability doctrine is also supported by perpetuity policy, as described in the text above.

Because the clause would fail to qualify the trust for validity under the Common-law Rule of Section 1(a)(1), the nonvested interests in the trust would be subject to the wait-and-see element of Section 1(a)(2) and vulnerable to a reformation suit under Section 3. Under Section 1(a)(2), an interest that is not valid at common law is invalid unless it actually vests or terminates within 90 years after its creation. Section 1(a)(2) does not grant such nonvested interests a permissible vesting period of either 90 years or a period of 21 years after the death of the survivor of specified lives in being. Section 1(a)(2) only grants such interests a period of 90 years in which to vest.

The operation of Section 1(a), as outlined above, is also supported by perpetuity policy. If Section 1(a) allowed a "later-of" clause to achieve a "later-of" result, it would authorize an improper use of the 90-year permissible vesting period of Section 1(a)(2). The 90-year period of Section 1(a)(2) is designed to approximate the period that, on average , would be produced by using actual lives in being plus 21 years. Because in any given case the period actually produced by lives in being plus 21 years can be shorter or longer than 90 years, an attempt to utilize a 90-year period in a "later-of" clause improperly seeks to turn the 90-year average into a minimum.

Set against this background, the addition of Section 1(e) is quite beneficial. Section 1(e) limits the effect of this type of "later-of" language to 21 years after the death of the survivor of the specified lives, in effect transforming the clause into a traditional perpetuity saving/termination clause. By doing so, Section 1(e) grants initial validity to the trust under the Common-law Rule as codified in Section 1(a)(1) and precludes a reformation suit under Section 3.

Note that Section 1(e) covers variations of the "later-of" clause described above, such as a clause that postpones vesting until the later of (A) 20 years after the death of the survivor of specified lives in being or (B) 89 years. Section 1(e) does not, however, apply to all dispositions that incorporate a "later-of" approach. To come under Section 1(e), the specified-lives prong must include a tack-on period of up to 21 years. Without a tack-on period, a "later-of" disposition, unless valid at common law, comes under Section 1(a)(2) and is given 90 years in which to vest. An example would be a disposition that creates an interest that is to vest upon "the later of the death of my widow or 30 years after my death."

Coordination of the Federal Generation-Skipping Transfer Tax with the Uniform Statutory Rule . In 1990, the Treasury Department announced a decision to coordinate the tax regulations under the "grandfathering" provisions of the federal generation-skipping transfer tax with the Uniform Act. Letter from Michael J. Graetz, Deputy Assistant Secretary of the Treasury (Tax Policy), to Lawrence J. Bugge, President, National Conference of Commissioners on Uniform State Laws (Nov. 16, 1990) (hereinafter Treasury Letter ).

Section 1433(b)(2) of the Tax Reform Act of 1986 generally exempts ("grandfathers") trusts from the federal generation-skipping transfer tax that were irrevocable on September 25, 1985. This section adds, however, that the exemption shall apply "only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985." The provisions of Section 1433(b)(2) were first implemented by Temp. Treas. Reg. § 26.2601-1, promulgated by T.D. 8187 on March 14, 1988. Insofar as the Uniform Act is concerned, a key feature of that temporary regulation is the concept that the statutory reference to "corpus added to the trust after September 25, 1985" not only covers actual post-9/25/85 transfers of new property or corpus to a grandfathered trust but "constructive" additions as well. Under the temporary regulation as first promulgated, a "constructive" addition occurs if, after 9/25/85, the donee of a nongeneral power of appointment exercises that power "in a manner that may postpone or suspend the vesting, absolute ownership or power of alienation of an interest in property for a period, measured from the date of creation of the trust, extending beyond any life in being at the date of creation of the trust plus a period of 21 years. If a power is exercised by creating another power it will be deemed to be exercised to whatever extent the second power may be exercised." Temp. Treas. Reg. § 26.2601- 1(b)(1)(v)(B)(2) (1988).

Because the Uniform Act was promulgated in 1986 and applies only prospectively, any "grandfathered" trust would have become irrevocable prior to the enactment of the Uniform Act in any state. Nevertheless, the second sentence of Section 5(a) extends the wait-and-see approach to post-effective-date exercises of nongeneral powers even if the power itself was created prior to the effective date of the Uniform Act in any state. Consequently, a post-effective-date exercise of a nongeneral power of appointment created in a "grandfathered" trust could come under the provisions of the Uniform Act.

The literal wording, then, of Temp. Treas. Reg. § 26.2601-1(b)(1)(v)(B)(2) (1988), as first promulgated, could have jeopardized the grandfathered status of an exempt trust if (1) the trust created a nongeneral power of appointment, (2) the donee exercised that nongeneral power, and (3) the Uniform Act is the perpetuity law applicable to the donee's exercise. This possibility arose not only because the donee's exercise itself might come under the 90-year permissible vesting period of Section 1(a)(2) if it otherwise violated the Common-law Rule and hence was not validated under Section 1(a)(1). The possibility also arose in a less obvious way if the donee's exercise created another nongeneral power. The last sentence of the temporary regulation states that "if a power is exercised by creating another power it will be deemed to be exercised to whatever extent the second power may be exercised."

In late March 1990, the National Conference of Commissioners on Uniform State Laws (NCCUSL) filed a formal request with the Treasury Department asking that measures be taken to coordinate the regulation with the Uniform Act. By the Treasury Letter referred to above, the Treasury Department responded by stating that it "will amend the temporary regulations to accommodate the 90-year period under USRAP as originally promulgated [in 1986] or as amended [in 1990 by the addition of subsection (e)]." This should effectively remove the possibility of loss of grandfathered status under the Uniform Act merely because the donee of a nongeneral power created in a grandfathered trust inadvertently exercises that power in violation of the Common-law Rule or merely because the donee exercises that power by creating a second nongeneral power that might, in the future, be inadvertently exercised in violation of the Common-law Rule.

The Treasury Letter states, however, that any effort by the donee of a nongeneral power in a grandfathered trust to obtain a "later-of" specified-lives-in-being-plus-21-years or 90-years approach will be treated as a constructive addition, unless that effort is nullified by state law. As explained above, the Uniform Act, as originally promulgated in 1986 or as amended in 1990 by the addition of Section 1(e), nullifies any direct effort to obtain a "later-of" approach by the use of a "later-of" clause.

The Treasury Letter states that an indirect effort to obtain a "later-of" approach would also be treated as a constructive addition that would bring grandfathered status to an end, unless the attempt to obtain the later-of approach is nullified by state law. The Treasury Letter indicates that an indirect effort to obtain a "later-of" approach could arise if the donee of a nongeneral power successfully attempts to prolong the duration of a grandfathered trust by switching from a specified-lives-in-being-plus-21-years perpetuity period to a 90-year perpetuity period, or vice versa. Donees of nongeneral powers in grandfathered trusts would therefore be well advised to resist any temptation to wait until it becomes clear or reasonably predictable which perpetuity period will be longer and then make a switch to the longer period if the governing instrument creating the power utilized the shorter period. No such attempted switch and no constructive addition will occur if in each instance a traditional specified-lives-in-being-plus-21-years perpetuity saving clause is used.

Any such attempted switch is likely in any event to be nullified by state law and, if so, the attempted switch will not be treated as a constructive addition. For example, suppose that the original grandfathered trust contained a standard perpetuity saving clause declaring that all interests in the trust must vest no later than 21 years after the death of the survivor of specified lives in being. In exercising a nongeneral power created in that trust, any indirect effort by the donee to obtain a "later-of" approach by adopting a 90-year perpetuity saving clause will likely be nullified by Section 1(e). If that exercise occurs at a time when it has become clear or reasonably predictable that the 90-year period will prove longer, the donee's exercise would constitute language in a governing instrument that seeks to operate in effect to postpone the vesting of any interest until the later of the specified-lives-in-being-plus-21-years period or 90 years. Under Section 1(e), "that language is inoperative to the extent it produces a period of time that exceeds 21 years after the death of the survivor of the specified lives."

Quite apart from Section 1(e), the relation-back doctrine generally recognized in the exercise of nongeneral powers stands as a doctrine that could potentially be invoked to nullify an attempted switch from one perpetuity period to the other perpetuity period. Under that doctrine, interests created by the exercise of a nongeneral power are considered created by the donor of that power. See, e.g., Restatement (Second) of Property, Donative Transfers § 11.1 comment b (1986). As such, the maximum vesting period applicable to interests created by the exercise of a nongeneral power would apparently be covered by the perpetuity saving clause in the document that created the power, notwithstanding any different period the donee purports to adopt.

H. SUBSIDIARY COMMON-LAW DOCTRINES: WHETHER SUPERSEDED BY THIS ACT

As noted at the beginning of this Comment, the courts in interpreting the Common-law Rule developed several subsidiary doctrines. This Act does not supersede those subsidiary doctrines except to the extent the provisions of this Act conflict with them. As explained below, most of these common-law doctrines remain in full force or in force in modified form.

Constructional Preference for Validity . Professor Gray in his treatise on the Common-law Rule Against Perpetuities declared that a will or deed is to be construed without regard to the Rule, and then the Rule is to be "remorselessly" applied to the provisions so construed. J. Gray, The Rule Against Perpetuities § 629 (4th ed. 1942). Some courts may still adhere to this proposition. Colorado Nat'l Bank v. McCabe, 143 Colo. 21, 353 P.2d 385 (1960). Most courts, it is believed, would today be inclined to adopt the proposition put by the Restatement of Property § 375 (1944), which is that where an instrument is ambiguous - that is, where it is fairly susceptible to two or more constructions, one of which causes a Rule violation and the other of which does not - the construction that does not result in a Rule violation should be adopted. Cases supporting this view include Southern Bank & Trust Co. v. Brown, 271 S.C. 260, 246 S.E.2d 598 (1978); Davis v. Rossi, 326 Mo. 911, 34 S.W.2d 8 (1930); Watson v. Goldthwaite, 184 N.E.2d 340, 343 (Mass. 1962); Walker v. Bogle, 244 Ga. 439, 260 S.E.2d 338 (1979); Drach v. Ely, 703 P.2d 746 (Kan. 1985).

The constructional preference for validity is not superseded by this Act, but its role is likely to be different. The situation is likely to be that one of the constructions to which the ambiguous instrument is fairly susceptible would result in validity under Section 1(a)(1), 1(b)(1), or 1(c)(1), but the other construction does not necessarily result in invalidity; rather it results in the interest's validity being governed by Section 1(a)(2), 1(b)(2), or 1(c)(2). Nevertheless, even though the result of adopting the other construction is not as harsh as it is at common law, it is expected that the courts will incline toward the construction that validates the disposition under Section 1(a)(1), 1(b)(1), or 1(c)(1).

Conclusive Presumption of Lifetime Fertility . At common law, all individuals - regardless of age, sex, or physical condition - are conclusively presumed to be able to have children throughout their entire lifetimes. This principle is not superseded by this Act, and in view of new advances in medical science that allow women to become pregnant after menopause by way of test-tube fertilization (see Sauer, Paulson & Lobo, A Preliminary Report on Oocyte Donation Extending Reproductive Potential to Women Over 40 , 323 N.Eng.J.Med. 1157 (1990)) and the widely accepted rule of construction that adopted children are presumptively included in class gifts, the conclusive presumption of lifetime fertility is not unrealistic. Since even elderly individuals probably cannot be excluded from adopting children based on their ages alone, the possibility of having children by adoption is seldom extinct. See, generally, Waggoner In re Lattouf's Will and the Presumption of Lifetime Fertility in Perpetuity Law , 20 San Diego L.Rev. 763 (1983). Under this Act, the main force of this principle is felt in Example (7), above, where it prevents a nonvested property interest from passing the test for initial validity under Section 1(a)(1).

Act Supersedes Doctrine of Infectious Invalidity . At common law, the invalidity of an interest can, under the doctrine of infectious invalidity, be held to invalidate one or more otherwise valid interests created by the disposition or even invalidate the entire disposition. The question turns on whether the general dispositive scheme of the transferor will be better carried out by eliminating only the invalid interest or by eliminating other interests as well. This is a question that is answered on a case-by-case basis. Several items are relevant to the question, including who takes the stricken interests in place of those the transferor designated to take.

The doctrine of infectious invalidity is superseded by this Act by Section 3, under which courts, upon the petition of an interested person, are required to reform the disposition to approximate as closely as possible the transferor's manifested plan of distribution when an invalidity under the Statutory Rule occurs.

Separability . The common law's separability doctrine is that when an interest is expressly subject to alternative contingencies, the situation is treated as if two interests were created in the same person or class. Each interest is judged separately; the invalidity of one of the interests does not necessarily cause the other one to be invalid. This common-law principle was established in Longhead v. Phelps, 2 Wm.Bl. 704, 96 Eng. Rep. 414 (K.B. 1770), and is followed in this country. L. Simes & A. Smith, The Law of Future Interests § 1257 (2d ed. 1956); 6 American Law of Property § 24.54 (A. Casner ed. 1952); Restatement of Property § 376 (1944). Under this doctrine, if property is devised "to B if X-event or Y-event happens," B in effect has two interests, one contingent on X-event happening and the other contingent on Y-event happening. If the interest contingent on X-event but not the one contingent on Y-event is invalid, the consequence of separating B's interest into two is that only one of them, the one contingent on X-event, is invalid. B still has a valid interest - the one contingent on the occurrence of Y-event.

The separability principle is not superseded by this Act. As illustrated in the following example, its invocation will usually result in one of the interests being initially validated by Section 1(a)(1) and the validity of the other interests being governed by Section 1(a)(2).

Example (22) - Separability Case . G devised real property "to A for life, then to A's children who survive A and reach 25, but if none of A's children survives A or if none of A's children who survives A reaches 25, then to B." G was survived by his brother (B), by his daughter (A), by A's husband (H), and by A's two minor children (X and Y).

The remainder interest in favor of A's children who reach 25 fails the test of Section 1(a)(1) for initial validity. Its validity is, therefore, governed by Section 1(a)(2) and depends on each of A's children doing any one of the following things within 90 years after G's death: predeceasing A, surviving A and failing to reach 25, or surviving A and reaching 25.

Under the separability doctrine, B has two interests. One of them is contingent on none of A's children surviving A. That interest passes Section 1(a)(1)'s test for initial validity; the validating life is A. B's other interest, which is contingent on none of A's surviving children reaching 25, fails Section 1(a)(1)'s test for initial validity. Its validity is governed by Section 1(a)(2) and depends on each of A's surviving children either reaching 25 or dying under 25 within 90 years after G's death.

Suppose that after G's death, A has a third child (Z). A subsequently dies, survived by her husband (H) and by X, Y, and Z. This, of course, causes B's interest that was contingent on none of A's children surviving A to terminate. If X, Y, and Z had all reached the age of 25 by the time of A's death, their interest would vest at A's death, and that would end the matter. If one or two, but not all three of them, had reached the age of 25 at A's death, B's other interest - the one that was contingent on none of A's surviving children reaching 25 - would also terminate. As for the children's interest, if the after- born child Z's age was such at A's death that Z could not be alive and under the age of 25 at the expiration of the allowable waiting period, the class gift in favor of the children would be valid under Section 1(a)(2), because none of those then under 25 could fail either to reach 25 or die under 25 after the expiration of the allowable 90-year waiting period. If, however, Z's age at A's death was such that Z could be alive and under the age of 25 at the expiration of the 90-year permissible vesting period, the circumstances requisite to reformation under Section 3(2) would arise, and the court would be justified in reforming G's disposition by reducing the age contingency with respect to Z to the age he would reach on the date when the permissible vesting period is due to expire. See Example (3) in the Comment to Section 3. So reformed, the class gift in favor of A's children could not become invalid under Section 1(a)(2), and the children of A who had already reached 25 by the time of A's death could receive their shares immediately.

The "All-or-Nothing" Rule with Respect to Class Gifts; the Specific Sum and Sub-Class Doctrines . The common law applies an "all-or-nothing" rule with respect to class gifts, under which a class gift stands or falls as a whole. The all-or-nothing rule, usually attributed to Leake v. Robinson, 2 Mer. 363, 35 Eng. Rep. 979 (Ch. 1817), is commonly stated as follows: If the interest of any potential class member might vest too remotely, the entire class gift violates the Rule. Although this Act does not supersede the basic idea of the much-maligned "all-or-nothing" rule, the evils sometimes attributed to it are substantially if not entirely eliminated by the wait-and-see feature of the Statutory Rule and by the availability of reformation under Section 3, especially in the circumstances described in Sections 3(2) and (3). For illustrations of the application of the all-or-nothing rule under this Act, see Examples (3), (4), and (6) in the Comment to Section 3.

The common law also recognizes a doctrine called the specific-sum doctrine, which is derived from Storrs v. Benbow, 3 De G.M. & G. 390, 43 Eng. Rep. 153 (Ch. 1853), and states: If a specified sum of money is to be paid to each member of a class, the interest of each class member is entitled to separate treatment and is valid or invalid under the Rule on its own. The common law also recognizes a doctrine called the sub-class doctrine, which is derived from Cattlin v. Brown, 11 Hare 372, 68 Eng. Rep. 1318 (Ch. 1853), and states: If the ultimate takers are not described as a single class but rather as a group of subclasses, and if the share to which each separate subclass is entitled will finally be determined within the period of the Rule, the gifts to the different subclasses are separable for the purpose of the Rule. American Security & Trust Co. v. Cramer, 175 F. Supp. 367 (D.D.C. 1959); Restatement of Property § 389 (1944). The specific-sum and sub-class doctrines are not superseded by this Act. The operation of the specific-sum doctrine under this Act is illustrated in the following example.

Example (23) - Specific-Sum Case . G bequeathed "$10,000 to each child of A, born before or after my death, who attains 25." G was survived by A and by A's two children (X and Y). X but not Y had already reached 25 at G's death. After G's death a third child (Z) was born to A.

If the phrase "born before or after my death" had been omitted, the class would close as of G's death under the common-law's rule of construction known as the rule of convenience: The after-born child, Z, would not be entitled to a $10,000 bequest, and the interests of both X and Y would be valid upon their creation at G's death. X's interest would be valid because it was initially vested; neither the Common-law Rule nor the Statutory Rule applies to interests that are vested upon their creation. Although the interest of Y was not vested upon its creation, it would be initially valid under Section 1(a)(1) because Y would be his own validating life; Y will either reach 25 or die under 25 within his own lifetime.

The inclusion of the phrase "before or after my death," however, would probably be construed to mean that G intended after-born children to receive a $10,000 bequest. See Earle Estate , 369 Pa. 52, 85 A.2d 90 (1951). Assuming that this construction were adopted, the specific-sum doctrine allows the interest of each child of A to be treated separately from the others for purposes of the Statutory Rule. For the reasons cited above, the interests of X and Y are initially valid under Section 1(a)(1). The nonvested interest of Z, however, fails Section 1(a)(1)'s test for initial validity; there is no validating life because Z, who was not alive when the interest was created, could reach 25 or die under 25 more than 21 years after the death of the survivor of A, X, and Y. Under Section 1(a)(2), the validity of Z's interest depends on Z's reaching (or failing to reach) 25 within 90 years after G's death.

The operation of the sub-class doctrine under this Act is illustrated in the following example.

Example (24) - Sub-Class Case . G devised property in trust, directing the trustee to pay the income "to A for life, then in equal shares to A's children for their respective lives; on the death of each child, the proportionate share of corpus of the one so dying shall go to the children of such child." G was survived by A and by A's two children (X and Y). After G's death, another child (Z) was born to A. A now has died, survived by X, Y, and Z.

Under the sub-class doctrine, each remainder interest in favor of the children of a child of A is treated separately from the others. This allows the remainder interest in favor of X's children and the remainder interest in favor of Y's children to be validated under Section 1(a)(1). X is the validating life for the one, and Y is the validating life for the other.

The remainder interest in favor of the children of Z fails Section 1(a)(1)'s test for initial validity; there is no validating life because Z, who was not alive when the interest was created, could have children more than 21 years after the death of the survivor of A, X, and Y. Under Section 1(a)(2), the validity of the remainder interest in favor of Z's children depends on Z's dying within 90 years after G's death.

Note why both of the requirements of the sub-class rule are met. The ultimate takers are described as a group of sub-classes rather than as a single class: "children of the child so dying," as opposed to "grandchildren." The share to which each separate sub-class is entitled is certain to be finally determined within a life in being plus 21 years: As of A's death, who is a life in being, it is certain to be known how many children he had surviving him; since in fact there were three, we know that each sub-class will ultimately be entitled to one-third of the corpus, neither more nor less. The possible failure of the one-third share of Z's children does not increase to one-half the share going to X's and Y's children; they still are entitled to only one-third shares. Indeed, should it turn out that X has children but Y does not, this would not increase the one-third share to which X's children are entitled.

Example (25) - General Testamentary Powers - Sub-Class Case . G devised property in trust, directing the trustee to pay income "to A for life, then in equal shares to A's children for their respective lives; on the death of each child, the proportionate share of corpus of the one so dying shall go to such persons as the one so dying shall by will appoint; in default of appointment, to G's grandchildren in equal shares." G was survived by A and by A's two children (X and Y). After G's death, another child (Z) was born to A.

The general testamentary powers conferred on each of A's children are entitled to separate treatment under the principles of the sub-class doctrine. See above. Consequently, the powers conferred on X and Y, A's children who were living at G's death, are initially valid under Section 1(c)(1). But the general testamentary power conferred on Z, A's child who was born after G's death, fails the test of Section 1(c)(1) for initial validity. The validity of Z's power is governed by Section 1(c)(2). Z's death must occur within 90 years after G's death if any provision in Z's will purporting to exercise his power is to be valid.

Duration of Indestructible Trusts - Termination of Trusts by Beneficiaries . The widely accepted view in American law is that the beneficiaries of a trust other than a charitable trust can compel its premature termination if all beneficiaries consent and if such termination is not expressly restrained or impliedly restrained by the existence of a "material purpose" of the settlor in establishing the trust. Restatement (Second) of Trusts § 337 (1959); IV A. Scott, The Law of Trusts § 337 (3d ed. 1967). A trust that cannot be terminated by its beneficiaries is called an indestructible trust.

It is generally accepted that the duration of the indestructibility of a trust, other than a charitable trust, is limited to the applicable perpetuity period. See Restatement (Second) of Trusts § 62, Comment o (1959); Restatement (Second) of Property (Donative Transfers) § 2.1 and Legislative Note and Reporter's Note (1983); I A. Scott, The Law of Trusts § 62.10(2) (3d ed. 1967); J. Gray, The Rule Against Perpetuities § 121 (4th ed. 1942); L. Simes & A. Smith, The Law of Future Interests § 1391-93 (2d ed. 1956).

Nothing in this Act supersedes this principle. One modification, however, is necessary: As to trusts that contain a nonvested property interest or power of appointment whose validity is governed by the wait-and-see element adopted in Section 1(a)(2), 1(b)(2), or 1(c)(2), the courts can be expected to determine that the applicable perpetuity period is 90 years.

Editor's Note. - Session Laws 2021-85, s. 3(c), made the amendments to subsection (a) of this section by Session Laws 2021-85, s. 3(a), effective July 8, 2021, and applicable to trusts created before, on, or after August 19, 2007.

Effect of Amendments. - Session Laws 2007-390, s. 2, effective August 19, 2007, and applicable to all trusts created before, on, or after that date, inserted "Except as otherwise provided in G.S. 41-23" in the introductory paragraph of subsection (a); deleted "trust or other" preceding "property arrangement" throughout subsection (e); and deleted "or trust" following "of any interest" in subdivisions (e)(1) and (2).

Session Laws 2021-85, s. 3(a), substituted "A nonvested" for "Except as otherwise provided in G.S. 41-23, a nonvested" at the beginning of subsection (a). For effective date and applicability, see editor's note.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

For article, "Allowing Perpetuities in North Carolina," see 31 Campbell L. Rev. 399 (2009).

For comment, "Over My Dead Body: The Legal Nightmare and Medical Phenomenon of Posthumous Conception Through Postmortem Sperm Retrieval," see 34 Campbell L. Rev. 181 (2011).

CASE NOTES

Preemptive Rights Arising From Non-Donative Transfers. - Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., does not replace the common law rule against perpetuities as to preemptive rights arising from non-donative transfers as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicates its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provides that the USRAP does not apply to nonvested property rights arising from non donative transfers such as a commercial lease, there is nothing to supersede the common law rule against perpetuities, and the USRAP does not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Lessee's claim that the Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., replaced the common law rule against perpetuities as to preemptive rights arising from non-donative transfers was rejected as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicated its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provided that the USRAP did not apply to nonvested property rights arising from non donative transfers such as the commercial lease, there was nothing to supersede the common law rule against perpetuities, and the USRAP did not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Cited in Arundel Corp. v. Marie, 383 Md. 489, 860 A.2d 886 (2004); Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).


§ 41-16. When nonvested property interest or power of appointment created.

  1. Except as provided in subsections (b) and (c) of this section and in G.S. 41-19(a), the time for creation of a nonvested property interest or a power of appointment is determined under general principles of property law.
  2. For purposes of this Article, if there is a person who alone can exercise a power created by a governing instrument to become the unqualified beneficial owner of (i) a nonvested property interest or (ii) a property interest subject to a power of appointment described in G.S. 41-15(b) or (c), the nonvested property interest or power of appointment is created when the power to become the unqualified beneficial owner terminates.
  3. For purposes of this Article, a nonvested property interest or a power of appointment arising from a transfer of property to a previously funded trust or other existing property arrangement is created when the nonvested property interest or power of appointment in the original contribution was created.

History

(1995, c. 190, s. 1.)

OFFICIAL COMMENT

Subsection (a): General Principles of Property Law; When Nonvested Property Interests and Powers of Appointment are Created . Under Section 1, the period of time allowed by the Statutory Rule Against Perpetuities is marked off from the time of creation of the nonvested property interest or power of appointment in question. Section 5, with certain exceptions, provides that the Act applies only to nonvested property interests and powers of appointment created on or after the effective date of the Act.

Except as provided in subsections (b) and (c), and in the second sentence of Section 5(a) for purposes of that section only, the time of creation of nonvested property interests and powers of appointment is determined under general principles of property law.

Since a will becomes effective as a dispositive instrument upon the decedent's death, not upon the execution of the will, general principles of property law determine that the time when a nonvested property interest or a power of appointment created by will is created is at the decedent's death.

With respect to a nonvested property interest or a power of appointment created by inter vivos transfer, the time when the interest or power is created is the date the transfer becomes effective for purposes of property law generally, normally the date of delivery of the deed.

With respect to a nonvested property interest or a power of appointment created by the testamentary or inter vivos exercise of a power of appointment, general principles of property law adopt the "relation back" doctrine. Under that doctrine, the appointed interests or powers are created when the power was created not when it was exercised, if the exercised power was a nongeneral power or a general testamentary power. If the exercised power was a general power presently exercisable, the relation back doctrine is not followed; the time of creation of the appointed property interests or appointed powers is regarded as the time when the power was irrevocably exercised , not when the power was created.

Subsection (b): Postponement, for Purposes of this Act, of the Time when a Nonvested Property Interest or a Power of Appointment is Created in Certain Cases . The reason that the significant date for purposes of this Act is the date of creation is that the unilateral control of the interest (or the interest subject to the power) by one person is then relinquished. In certain cases, all beneficial rights in a property interest (including an interest subject to a power of appointment) remain under the unilateral control of one person even after the delivery of the deed or even after the decedent's death. In such cases, under this subsection, the interest or power is created, for purposes of this Act, when no person, acting alone, has a power presently exercisable to become the unqualified beneficial owner of the property interest (or the property interest subject to the power of appointment).

Example (1) - Revocable Inter-Vivos Trust Case . G conveyed property to a trustee, directing the trustee to pay the net income therefrom to himself (G) for life, then to G's son A for his life, then to A's children for the life of the survivor of A's children who are living at G's death, and upon the death of such last surviving child, the corpus of the trust is to be distributed among A's then-living descendants, per stirpes. G retained the power to revoke the trust.

Because of G's reservation of the power to revoke the trust, the creation for purposes of this Act of the nonvested property interests in this case occurs at G's death, not when the trust was established. This is in accordance with common law, for purposes of the Common-law Rule Against Perpetuities. Cook v. Horn, 214 Ga. 289, 104 S.E.2d 461 (1958).

The rationale that justifies the postponement of the time of creation in such cases is as follows. A person, such as G in the above example, who alone can exercise a power to become the unqualified beneficial owner of a nonvested property interest is in effect the owner of that property interest. Thus, any nonvested property interest subject to such a power is not created for purposes of this Act until the power terminates (by release, expiration at the death of the donee, or otherwise). Similarly, as noted above, any property interest or power of appointment created in an appointee by the irrevocable exercise of such a power is created at the time of the donee's irrevocable exercise.

For the date of creation to be postponed under subsection (b), the power need not be a power to revoke, and it need not be held by the settlor or transferor. A presently exercisable power held by any person acting alone to make himself the unqualified beneficial owner of the nonvested property interest or the property interest subject to a power of appointment is sufficient. If such a power exists, the time when the interest or power is created, for purposes of this Act, is postponed until the termination of the power (by irrevocable exercise, release, contract to exercise or not to exercise, expiration at the death of the donee, or otherwise). An example of such a power that might not be held by the settlor or transferor is a power, held by any person who can act alone, fully to invade the corpus of a trust.

An important consequence of the idea that a power need not be held by the settlor for the time of creation to be postponed under this section is that it makes postponement possible even in cases of testamentary transfers.

Example (2) - Testamentary Trust Case . G devised property in trust, directing the trustee to pay the income "to A for life, remainder to such persons (including A, his creditors, his estate, and the creditors of his estate) as A shall appoint; in default of appointment, the property to remain in trust to pay the income to A's children for the life of the survivor, and upon the death of A's last surviving child, to pay the corpus to A's grandchildren." A survived G.

If A exercises his presently exercisable general power, any nonvested property interest or power of appointment created by A's appointment is created for purposes of this Act when the power is exercised. If A does not exercise the power, the nonvested property interests in G's gift-in-default clause are created when A's power terminates (at A's death). In either case, the postponement is justified because the transaction is the equivalent of G's having devised the full remainder interest (following A's income interest) to A and of A's having in turn transferred that interest in accordance with his exercise of the power or, in the event the power is not exercised, devised that interest at his death in accordance with G's gift-in-default clause. Note, however, that if G had conferred on A a nongeneral power or a general testamentary power, A's power of appointment, any nonvested property interest or power of appointment created by A's appointment, if any, and the nonvested property interests in G's gift-in-default clause would be created at G's death.

Unqualified Beneficial Owner of the Nonvested Property Interest or the Property Interest Subject to a Power of Appointment . For the date of creation to be postponed under subsection (b), the presently exercisable power must be one that entitles the donee of the power to become the unqualified beneficial owner of the nonvested property interest (or the property interest subject to a nongeneral power of appointment, a general testamentary power of appointment, or a general power of appointment not presently exercisable because of a condition precedent) . This requirement was met in Example (2), above, because A could by appointing the remainder interest to himself become the unqualified beneficial owner of all the nonvested property interests in G's gift-in-default clause. In Example (2) it is not revealed whether A, if he exercised the power in his own favor, also had the right as sole beneficiary of the trust to compel the termination of the trust and possess himself as unqualified beneficial owner of the property that was the subject of the trust. Having the power to compel termination of the trust is not necessary. If, for example, the trust in Example (2) was a spendthrift trust or contained any other feature that under the relevant local law (see Claflin v. Claflin, 149 Mass. 19, 20 N.E. 454 (1889); Restatement (Second) of Trusts § 337 (1959)) would prevent A as sole beneficiary from compelling termination of the trust, A's presently exercisable general power over the remainder interest would still postpone the time of creation of the nonvested property interests in G's gift-in-default clause because the power enables A to become the unqualified beneficial owner of such interests.

Furthermore, it is not necessary that the donee of the power have the power to become the unqualified beneficial owner of all beneficial rights in the trust . In Example (2), the property interests in G's gift-in-default clause are not created for purposes of this Act until A's power expires (or on A's appointment, until the power's exercise) even if someone other than A was the income beneficiary of the trust.

Presently Exercisable Power . For the date of creation to be postponed under subsection (b), the power must be presently exercisable. A testamentary power does not qualify. A power not presently exercisable because of a condition precedent does not qualify. If the condition precedent later becomes satisfied, however, so that the power becomes presently exercisable, the interests or powers subject thereto are not created, for purposes of this Act, until the termination of the power. The common-law decision of Fitzpatrick v. Mercantile Safe Deposit Co., 220 Md. 534, 155 A.2d 702 (1959), appears to be in accord with this proposition.

Example (3) - General Power in Unborn Child Case . G devised property "to A for life, then to A's first-born child for life, then to such persons, including A's first-born child or such child's estate or creditors, as A's first-born child shall appoint." There was a further provision that in default of appointment, the trust would continue for the benefit of G's descendants. G was survived by his daughter (A), who was then childless. After G's death, A had a child, X. A then died, survived by X.

As of G's death, the power of appointment in favor of A's first-born child and the property interests in G's gift-in-default clause would be regarded as having been created at G's death because the power in A's first-born child was then a general power not presently exercisable because of a condition precedent.

At X's birth, X's general power became presently exercisable and excluded from the Statutory Rule. X's power also qualifies as a power exercisable by one person alone to become the unqualified beneficial owner of the property interests in G's gift-in-default clause. Consequently, the nonvested property interests in G's gift-in-default clause are not created, for purposes of this Act, until the termination of X's power. If X exercises his presently exercisable general power, before or after A's death, the appointed interests or powers are created, for purposes of this Act, as of X's exercise of the power.

Partial Powers . For the date of creation to be postponed under subsection (b), the person must have a presently exercisable power to become the unqualified beneficial owner of the full nonvested property interest or the property interest subject to a power of appointment described in Section 1(b) or 1(c). If, for example, the subject of the transfer was an undivided interest such as a one-third tenancy in common, the power qualifies even though it relates only to the undivided one-third interest in the tenancy in common; it need not relate to the whole property. A power to become the unqualified beneficial owner of only part of the nonvested property interest or the property interest subject to a power of appointment, however, does not postpone the time of creation of the interests or powers subject thereto, unless the power is actually exercised.

Example (4) - "5 and 5" Power Case . G devised property in trust, directing the trustee to pay the income "to A for life, remainder to such persons (including A, his creditors, his estate, and the creditors of his estate) as A shall by will appoint;" in default of appointment, the governing instrument provided for the property to continue in trust. A was given a noncumulative power to withdraw the greater of $5,000 or 5% of the corpus of the trust annually. A survived G. A never exercised his noncumulative power of withdrawal.

G's death marks the time of creation of: A's testamentary power of appointment; any nonvested property interest or power of appointment created in G's gift-in-default clause; and any appointed interest or power created by a testamentary exercise of A's power of appointment over the remainder interest. A's general power of appointment over the remainder interest does not postpone the time of creation because it is not a presently exercisable power. A's noncumulative power to withdraw a portion of the trust each year does not postpone the time of creation as to all or the portion of the trust with respect to which A allowed his power to lapse each year because A's power is a power over only part of any nonvested property interest or property interest subject to a power of appointment in G's gift-in-default clause and over only part of any appointed interest or power created by a testamentary exercise of A's general power of appointment over the remainder interest. The same conclusion has been reached at common law. See Ryan v. Ward, 192 Md. 342, 64 A.2d 258 (1949).

If, however, in any year A exercised his noncumulative power of withdrawal in a way that created a nonvested property interest (or power of appointment) in the withdrawn amount (for example, if A directed the trustee to transfer the amount withdrawn directly into a trust created by A), the appointed interests (or powers) would be created when the power was exercised, not when G died.

Incapacity of the Donee of the Power . The fact that the donee of a power lacks the capacity to exercise it, by reason of minority, mental incompetency, or any other reason, does not prevent the power held by such person from postponing the time of creation under subsection (b), unless the governing instrument extinguishes the power (or prevents it from coming into existence) for that reason.

Joint Powers - Community Property; Marital Property . For the date of creation to be postponed under subsection (b), the power must be exercisable by one person alone. A joint power does not qualify, except that, if the bracketed sentence of subsection (b) is enacted, a joint power over community property or over marital property under the Uniform Marital Property Act held by individuals married to each other is, for purposes of this Act, treated as a power exercisable by one person acting alone. See Restatement (Second) of Property (Donative Transfers) § 1.2, Comment b and illustrations 5, 6, and 7 (1983), for the rationale supporting the enactment of the bracketed sentence and examples illustrating its principle.

Subsection (c): No Staggered Periods . For purposes of this Act, subsection (c) in effect treats a transfer of property to a previously funded trust or other existing property arrangement as having been made when the nonvested property interest or power of appointment in the original contribution was created. The purpose of subsection (c) is to avoid the administrative difficulties that would otherwise result where subsequent transfers are made to an existing irrevocable trust. Without subsection (c), the allowable period under the Statutory Rule would be marked off in such cases from different times with respect to different portions of the same trust.

Example (5) - Series of Transfers Case . In Year One, G created an irrevocable inter vivos trust, funding it with $20,000 cash. In Year Five, when the value of the investments in which the original $20,000 contribution was placed had risen to a value of $30,000, G added $10,000 cash to the trust. G died in Year Ten. G's will poured the residuary of his estate into the trust. G's residuary estate consisted of Blackacre (worth $20,000) and securities (worth $80,000). At G's death, the value of the investments in which the original $20,000 contribution and the subsequent $10,000 contribution were placed had risen to a value of $50,000.

Were it not for subsection (c), the permissible vesting period under the Statutory Rule would be marked off from three different times: Year One, Year Five, and Year Ten. The effect of subsection (c) is that the permissible vesting period under the Statutory Rule starts running only once - in Year One - with respect to the entire trust. This result is defensible not only to prevent the administrative difficulties inherent in recognizing staggered periods. It also is defensible because if G's inter vivos trust had contained a perpetuity saving clause, the perpetuity-period component of the clause would be geared to the time when the original contribution to the trust was made; this clause would cover the subsequent contributions as well. Since the major justification for the adoption by this Act of the wait-and-see method of perpetuity reform is that it amounts to a statutory insertion of a saving clause (see the Prefatory Note), subsection (c) is consistent with the theory of this Act.

Additional References . Restatement (Second) of Property (Donative Transfers) §§ 1.1, 1.2 (1983) and the Comments thereto.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-17. Reformation.

Upon the petition of an interested person, a court shall reform a disposition in the manner that most closely approximates the transferor's manifested plan of distribution and is within the 90 years allowed by G.S. 41-15(a)(2), 41-15(b)(2), or 41-15(c)(2) if:

  1. A nonvested property interest or a power of appointment becomes invalid under G.S. 41-15;
  2. A class gift is not invalid under G.S. 41-15, but might become invalid under G.S. 41-15, and the time has arrived when the share of any class is to take effect in possession or enjoyment; or
  3. A nonvested property interest that is not validated by G.S. 41-15(a)(1) can vest but not within 90 years after its creation.

History

(1995, c. 190, s. 1.)

OFFICIAL COMMENT

Reformation . This section requires a court, upon the petition of an interested person, to reform a disposition whose validity is governed by the wait-and-see element of Section 1(a)(2), 1(b)(2), or 1(c)(2) so that the reformed disposition is within the limits of the 90-year period allowed by those subsections, in the manner deemed by the court most closely to approximate the transferor's manifested plan of distribution, in three circumstances: First, when (after the application of the Statutory Rule) a nonvested property interest or a power of appointment becomes invalid under the Statutory Rule; second, when a class gift has not but still might become invalid under the Statutory Rule and the time has arrived when the share of one or more class members is to take effect in possession or enjoyment; and third, when a nonvested property interest can vest, but cannot do so within the allowable 90-year period under the Statutory Rule.

It is anticipated that the circumstances requisite to reformation will seldom arise, and consequently that this section will be applied infrequently. If, however, one of the three circumstances arises, the court in reforming is authorized to alter existing interests or powers and to create new interests or powers by implication or construction based on the transferor's manifested plan of distribution as a whole. In reforming, the court is urged not to invalidate any vested interest retroactively (the doctrine of infectious invalidity having been superseded by this Act, as indicated in the Comment to Section 1). The court is also urged not to reduce an age contingency in excess of 21 unless it is absolutely necessary, and if it is deemed necessary to reduce such an age contingency, not to reduce it automatically to 21 but rather to reduce it no lower than absolutely necessary. See Example (3), below; Waggoner, Perpetuity Reform , 81 Mich.L.Rev. 1718, 1755-1759 (1983); Langbein & Waggoner, Reformation of Wills on the Ground of Mistake: Change of Direction in American Law? , 130 U.Pa.L.Rev. 521, 546-49 (1982).

Judicial Sale of Land Affected by Future Interests . Although this section - except for cases that fall under subsections (2) or (3) - defers the time when a court is directed to reform a disposition until the expiration of the 90-year permissible vesting period, this section is not to be understood as preventing an earlier application of other remedies. In particular, in the case of interests in land not in trust, the principle, codified in many states, is widely recognized that there is judicial authority, under specified circumstances, to order a sale of land in which there are future interests. See 1 American Law of Property §§ 4.98-.99 (A. Casner ed. 1952); L. Simes & A. Smith, The Law of Future Interests § 1941-1946 (2d ed. 1956); see also Restatement of Property § 179 at pp. 485-95 (1936); L. Simes & C. Taylor, Improvement of Conveyancing by Legislation 235-38 (1960). Nothing in Section 3 of this Act should be taken as precluding this type of remedy, if appropriate, before the expiration of the 90-year permissible vesting period.

Duration of the Indestructibility of Trusts - Termination of Trusts by Beneficiaries . As noted in Part G of the Comment to Section 1, it is generally accepted that a trust cannot remain indestructible beyond the period of the rule against perpetuities. Under this Act, the period of the rule against perpetuities applicable to a trust whose validity is governed by the wait-and-see element of Section 1(a)(2), 1(b)(2), or 1(c)(2) is 90 years. The result of any reformation under Section 3 is that all nonvested property interests in the trust will vest in interest (or terminate) no later than the 90th anniversary of their creation. In the case of trusts containing a nonvested property interest or a power of appointment whose validity is governed by Section 1(a)(2), 1(b)(2), or 1(c)(2), courts can therefore be expected to adopt the rule that no purpose of the settlor, expressed in or implied from the governing instrument, can prevent the beneficiaries of a trust other than a charitable trust from compelling its termination after 90 years after every nonvested property interest and power of appointment in the trust was created.

Subsection (1): Invalid Property Interest or Power of Appointment . Subsection (1) is illustrated by the following examples.

Example (1) - Multiple Generation Trust . G devised property in trust, directing the trustee to pay the income "to A for life, then to A's children for the life of the survivor, then to A's grandchildren for the life of the survivor, and on the death of A's last surviving grandchild, the corpus of the trust is to be divided among A's then living descendants per stirpes; if none, to" a specified charity. G was survived by his child (A) and by A's two minor children (X and Y). After G's death, another child (Z) was born to A. Subsequently, A died, survived by his children (X, Y, and Z) and by three grandchildren (M, N, and O).

There are four interests subject to the Statutory Rule in this example: (1) the income interest in favor of A's children, (2) the income interest in favor of A's grandchildren, (3) the remainder interest in the corpus in favor of A's descendants who survive the death of A's last surviving grandchild, and (4) the alternative remainder interest in the corpus in favor of the specified charity. The first interest is initially valid under Section 1(a)(1); A is the validating life for that interest. There is no validating life for the other three interests, and so their validity is governed by Section 1(a)(2).

If, as is likely, A and A's children all die before the 90th anniversary of G's death, the income interest in favor of A's grandchildren is valid under Section 1(a)(2).

If, as is also likely, some of A's grandchildren are alive on the 90th anniversary of G's death, the alternative remainder interests in the corpus of the trust then become invalid under Section 1(a)(2), giving rise to Section 3(1)'s prerequisite to reformation. A court would be justified in reforming G's disposition by closing the class in favor of A's descendants as of the 90th anniversary of G's death (precluding new entrants thereafter), by moving back the condition of survivorship on the class so that the remainder interest is in favor of G's descendants who survive the 90th anniversary of G's death (rather than in favor of those who survive the death of A's last surviving grandchild), and by redefining the class so that its makeup is formed as if A's last surviving grandchild died on the 90th anniversary of G's death.

Example (2) - Sub-Class Case . G devised property in trust, directing the trustee to pay the income "to A for life, then in equal shares to A's children for their respective lives; on the death of each child the proportionate share of corpus of the one so dying shall go to the descendants of such child surviving at such child's death, per stirpes." G was survived by A and by A's two children (X and Y). After G's death, another child (Z) was born to A. Subsequently, A died, survived by X, Y, and Z.

Under the sub-class doctrine, each remainder interest in favor of the descendants of a child of A is treated separately from the others. Consequently, the remainder interest in favor of X's descendants and the remainder interest in favor of Y's descendants are valid under Section 1(a)(1): X is the validating life for the one, and Y is the validating life for the other.

The remainder interest in favor of the descendants of Z is not validated by Section 1(a)(1) because Z, who was not alive when the interest was created, could have descendants more than 21 years after the death of the survivor of A, X, and Y. Instead, the validity of the remainder interest in favor of Z's descendants is governed by Section 1(a)(2), under which its validity depends on Z's dying within 90 years after G's death.

Although unlikely, suppose that Z is still living 90 years after G's death. The remainder interest in favor of Z's descendants will then become invalid under the Statutory Rule, giving rise to subsection (1)'s prerequisite to reformation. In such circumstances, a court would be justified in reforming the remainder interest in favor of Z's descendants by making it indefeasibly vested as of the 90th anniversary of G's death. To do this, the court would reform the disposition by eliminating the condition of survivorship of Z and closing the class to new entrants after the 90th anniversary of G's death.

Subsection (2): Class Gifts Not Yet Invalid . Subsection (2), which, upon the petition of an interested person, requires reformation in certain cases where a class gift has not but still might become invalid under the Statutory Rule, is illustrated by the following examples.

Example (3) - Age Contingency in Excess of 21 . G devised property in trust, directing the trustee to pay the income "to A for life, then to A's children; the corpus of the trust is to be equally divided among A's children who reach the age of 30." G was survived by A, by A's spouse (H), and by A's two children (X and Y), both of whom were under the age of 30 when G died.

Since the remainder interest in favor of A's children who reach 30 is a class gift, at common law (Leake v. Robinson, 2 Mer. 363, 35 Eng. Rep. 979 (Ch. 1817)) and under this Act (see Part G of the Comment to Section 1) the interests of all potential class members must be valid or the class gift is totally invalid. Although X and Y will either reach 30 or die under 30 within their own lifetimes, there is at G's death the possibility that A will have an afterborn child (Z) who will reach 30 or die under 30 more than 21 years after the death of the survivor of A, H, X, and Y. There is no validating life, and the class gift is therefore not validated by Section 1(a)(1).

Under Section 1(a)(2), the children's remainder interest becomes invalid only if an interest of a class member neither vests nor terminates within 90 years after G's death. If in fact there is an afterborn child (Z), and if upon A's death, Z has at least reached an age such that he cannot be alive and under the age of 30 on the 90th anniversary of G's death, the class gift is valid. (Note that at Z's birth it would have been known whether or not Z could be alive and under the age of 30 on the 90th anniversary of G's death; nevertheless, even if it was then certain that Z could not be alive and under the age of 30 on the 90th anniversary of G's death, the class gift could not then have been declared valid because, A being alive, it was then possible for one or more additional children to have later been born to or adopted by A.)

Although unlikely, suppose that at A's death (prior to the expiration of the 90-year period), Z's age was such that he could be alive and under the age of 30 on the 90th anniversary of G's death. Suppose further that at A's death X and Y were over the age of 30. Z's interest and hence the class gift as a whole is not yet invalid under the Statutory Rule because Z might die under the age of 30 within the remaining part of the 90-year period following G's death; but the class gift might become invalid because Z might be alive and under the age of 30, 90 years after G's death. Consequently, the prerequisites to reformation set forth in subsection (2) are satisfied, and a court would be justified in reforming G's disposition to provide that Z's interest is contingent on reaching the age he can reach if he lives to the 90th anniversary of G's death. This would render Z's interest valid so far as the Statutory Rule Against Perpetuities is concerned, and allow the class gift as a whole to be declared valid. X and Y would thus be entitled immediately to their one-third shares each. If Z's interest later vested, Z would receive the remaining one-third share. If Z failed to reach the required age under the reformed disposition, the remaining one-third share would be divided equally between X and Y or their successors in interest.

Example (4) - Case Where Subsection (2) Applies, Not Involving an Age Contingency in Excess of 21 . G devised property in trust, directing the trustee to pay the income "to A for life, then to A's children; the corpus of the trust is to be equally divided among A's children who graduate from an accredited medical school or law school." G was survived by A, by A's spouse (H), and by A's two minor children (X and Y).

As in Example (3), the remainder interest in favor of A's children is a class gift, and the common-law principle is not superseded by this Act by which the interests of all potential class members must be valid or the class gift is totally invalid. Although X and Y will either graduate from an accredited medical or law school, or fail to do so, within their own lifetimes, there is at G's death the possibility that A will have an after-born child (Z), who will graduate from an accredited medical or law school (or die without having done either) more than 21 years after the death of the survivor of A, H, X, and Y. The class gift would not be valid under the Common-law Rule and is, therefore, not validated by Section 1(a)(1).

Under Section 1(a)(2), the children's remainder interest becomes invalid only if an interest of a class member neither vests nor terminates within 90 years after G's death.

Suppose in fact that there is an afterborn child (Z), and that at A's death Z was a freshman in college. Suppose further that at A's death X had graduated from an accredited law school and that Y had graduated from an accredited medical school. Z's interest and hence the class gift as a whole is not yet invalid under Section 1(a)(2) because the 90-year period following G's death has not yet expired; but the class gift might become invalid because Z might be alive but not a graduate of an accredited medical or law school 90 years after G's death. Consequently, the prerequisites to reformation set forth in Section 3(2) are satisfied, and a court would be justified in reforming G's disposition to provide that Z's interest is contingent on graduating from an accredited medical or law school within 90 years after G's death. This would render Z's interest valid so far as the Section 1(a)(2) is concerned and allow the class gift as a whole to be declared valid. X and Y would thus be entitled immediately to their one-third shares each. If Z's interest later vested, Z would receive the remaining one-third share. If Z failed to graduate from an accredited medical or law school within the allowed time under the disposition as so reformed, the remaining one-third share would be divided equally between X and Y or their successors in interest.

Subsection (3): Interests that Can Vest But Not Within the 90-Year Permissible Vesting Period . In exceedingly rare cases, an interest might be created that can vest, but not within the 90-year permissible vesting period of the Statutory Rule. This may be the situation when the interest was created (See Example (5)), or it may become the situation at some time thereafter (see Example (6)). Whenever the situation occurs, the court, upon the petition of an interested person, is required by subsection (3) to reform the disposition within the limits of the 90-year permissible vesting period.

Example (5) - Case of an Interest, as of its Creation, being Impossible to Vest Within the 90-Year Period . G devised property in trust, directing the trustee to divide the income, per stirpes, among G's descendants from time to time living, for 100 years. At the end of the 100-year period following G's death, the trustee is to distribute the corpus and accumulated income to G's then-living descendants, per stirpes; if none, to the XYZ Charity.

The nonvested property interest in favor of G's descendants who are living 100 years after G's death can vest, but not within the 90-year period of Section 1(a)(2). The interest would violate the Common-law Rule, and hence is not validated by Section 1(a)(1), because there is no validating life. In these circumstances, a court is required by Section 3(3) to reform G's disposition within the limits of the 90-year period. An appropriate result would be for the court to lower the period following G's death from a 100-year period to a 90-year period.

Note that the circumstance that triggers the direction to reform the disposition under this subsection is that the nonvested property interest still can vest, but cannot vest within the 90-year period of Section 1(a)(2). It is not necessary that the interest be certain to become invalid under that subsection. For the interest to be certain to become invalid under Section 1(a)(2), it would have to be certain that it can neither vest nor terminate within the 90-year period. In this example, the interest of G's descendants might terminate within the period (by all of G's descendants dying within 90 years of G's death). If this were to happen, the interest of XYZ Charity would be valid because it would have vested within the allowable period. However, it was thought desirable to require reformation without waiting to see if this would happen: The only way that G's descendants , who are G's primary set of beneficiaries, would have a chance to take the property is to reform the disposition within the limits of the 90-year period on the ground that their interest cannot vest within the allowable period and subsection (3) so provides.

Example (6) - Case of an Interest after its Creation Becoming Impossible to Vest Within the 90-Year Period . G devised property in trust, with the income to be paid to A. The corpus of the trust was to be divided among A's children who reach 30, each child's share to be paid on the child's 30th birthday; if none reaches 30, to the XYZ Charity. G was survived by A and by A's two children (X and Y). Neither X nor Y had reached 30 at G's death.

The class gift in favor of A's children who reach 30 would violate the Common-law Rule Against Perpetuities and, thus, is not validated by Section 1(a)(1). Its validity is therefore governed by Section 1(a)(2).

Suppose that after G's death, and during A's lifetime, X and Y die and a third child (Z) is born to or adopted by A. At A's death, Z is living but her age is such that she cannot reach 30 within the remaining part of the 90-year period following G's death. As of A's death, it has become the situation that Z's interest cannot vest within the allowable period. The circumstances requisite to reformation under subsection (3) have arisen. An appropriate result would be for the court to lower the age contingency to the age Z can reach 90 years after G's death.

Additional References . For additional discussion and illustrations of the application of some of the principles of this section, see the Comments to Restatement (Second) of Property (Donative Transfers) § 1.5 (1983).

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-18. Exclusions from statutory rule against perpetuities.

G.S. 41-15 does not apply to any of the following:

  1. A nonvested property interest or a power of appointment arising out of a nondonative transfer, except a nonvested property interest or a power of appointment arising out of any of the following:
    1. A premarital or postmarital agreement.
    2. A separation or divorce settlement.
    3. A spouse's election.
    4. A similar arrangement arising out of a prospective, existing, or previous marital relationship between the parties.
    5. A contract to make or not to revoke a will or trust.
    6. A contract to exercise or not to exercise a power of appointment.
    7. A transfer in satisfaction of a duty of support.
    8. A reciprocal transfer.
  2. A fiduciary's power relating to the administration or management of assets, including the power of a fiduciary to sell, lease, or mortgage property, and the power of a fiduciary to determine principal and income.
  3. A power to appoint a fiduciary.
  4. A discretionary power of a trustee to distribute principal before termination of a trust to a beneficiary having an indefeasibly vested interest in the income and principal.
  5. A nonvested property interest held by a charity, government, or governmental agency or subdivision, if the nonvested property interest is preceded by an interest held by another charity, government, or governmental agency or subdivision.
  6. A nonvested property interest in or a power of appointment with respect to a trust or other property arrangement forming part of a pension, profit-sharing, stock bonus, health, disability, death benefit, income deferral, or other current or deferred benefit plan for one or more employees, independent contractors, or their beneficiaries or spouses, to which contributions are made for the purpose of distributing to or for the benefit of the participants or their beneficiaries or spouses the property, income, or principal in the trust or other property arrangement, except a nonvested property interest or a power of appointment that is created by an election of a participant or a beneficiary or spouse.
  7. A property interest, power of appointment, or arrangement that was not subject to the common-law rule against perpetuities or is excluded by another statute of this State.
  8. A property interest or arrangement subjected to a time limit under G.S. 36C-4-408 or G.S. 36C-4-409.
  9. A property interest or arrangement subjected to a time limit under Article 3 of this Chapter, "Time Limits on Options in Gross and Certain Other Interests in Land."
  10. A nonvested property interest in or a power of appointment over property or property interests of a trust to which G.S. 41-23 applies.

History

(1995, c. 190, ss. 1-3; 2021-85, s. 3(b).)

OFFICIAL COMMENT

Section 4 lists seven exclusions from the Statutory Rule Against Perpetuities (Statutory Rule). Some are declaratory of existing law; others are contrary to existing law. Since the Common-law Rule Against Perpetuities is superseded by this Act (or a statutory version or variation thereof is repealed by this Act), a nonvested property interest, power of appointment, or other arrangement excluded from the Statutory Rule by this section is not subject to any rule against perpetuities, statutory or otherwise.

  1. SUBSECTION (1): NONDONATIVE TRANSFERS EXCLUDED
  2. SUBSECTIONS (2)-(7): OTHER EXCLUSIONS

Rationale . In line with long-standing scholarly commentary, subsection (1) excludes (with certain enumerated exceptions) nonvested property interests and powers of appointment arising out of a nondonative transfer. The rationale for this exclusion is that the Rule Against Perpetuities is a wholly inappropriate instrument of social policy to use as a control over such arrangements. The period of the rule - a life in being plus 21 years - is not suitable for nondonative transfers, and this point applies with equal force to the 90-year allowable waiting period under the wait-and-see element of Section 1 because that period represents an approximation of the period of time that would be produced, on average, by using a statutory list identifying actual measuring lives and adding a 21-year period following the death of the survivor.

No general exclusion from the Common-law Rule Against Perpetuities is recognized for nondonative transfers, and so subsection (1) is contrary to existing common law. (But see Metropolitan Transportation Authority v. Bruken Realty Corp., 67 N.Y.2d 156, 492 N.E.2d 379, 384 (1986), pointing out the inappropriateness of the period of a life in being plus 21 years to cases of commercial and governmental transactions and noting that the Rule Against Perpetuities can invalidate legitimate transactions in such cases.)

Subsection (1) is therefore inconsistent with decisions holding the Common-law Rule to be applicable to the following types of property interests or arrangements when created in a nondonative, commercial-type transaction, as they almost always are: options (e.g., Milner v. Bivens, 335 S.E.2d 288 (Ga. 1985)); preemptive rights in the nature of a right of first refusal (e.g., Atchison v. City of Englewood, 170 Colo. 295, 463 P.2d 297 (1969); Robroy Land Co., Inc. v. Prather, 24 Wash. App. 511, 601 P.2d 297 (1969)); leases to commence in the future, at a time certain or on the happening of a future event such as the completion of a building (e.g., Southern Airways Co. v. DeKalb County, 101 Ga. App. 689, 115 S.E.2d 207 (1960)); nonvested easements; top leases and top deeds with respect to interests in minerals (e.g., Peveto v. Starkey, 645 S.W.2d 770 (Tex. 1982)); and so on.

Consideration Does Not Necessarily Make the Transfer Nondonative . A transfer can be supported by consideration and still be donative in character and hence not excluded from the Statutory Rule. A transaction that is essentially gratuitous in nature, accompanied by donative intent on the part of at least one party to the transaction, is not to be regarded as nondonative simply because it is for consideration. Thus, for example, the exclusion would not apply if a parent purchases a parcel of land for full and adequate consideration, and directs the seller to make out the deed in favor of the purchaser's daughter for life, remainder to such of the daughter's children as reach 25. The nonvested property interest of the daughter's children is subject to the Statutory Rule.

Some Transactions Not Excluded Even if Considered Nondonative . Some types of transactions - although in some sense supported by consideration and hence arguably nondonative - arise out of a domestic situation, and should not be excluded from the Statutory Rule. To avoid uncertainty with respect to such transactions, subsection (1) specifies that nonvested property interests or powers of appointment arising out of any of the following transactions are not excluded by subsection (1)'s nondonative-transfers exclusion: a premarital or postmarital agreement; a separation or divorce settlement; a spouse's election, such as the "widow's election" in community property states; an arrangement similar to any of the foregoing arising out of a prospective, existing, or previous marital relationship between the parties; a contract to make or not to revoke a will or trust; a contract to exercise or not to exercise a power of appointment; a transfer in full or partial satisfaction of a duty of support; or a reciprocal transfer. The term "reciprocal transfer" is to be interpreted in accordance with the reciprocal transfer doctrine in the tax law (see United States v. Estate of Grace, 395 U.S. 316 (1969)).

Other Means of Controlling Some Nondonative Transfers Desirable . Some commercial transactions respecting land or mineral interests, such as options in gross (including rights of first refusal), leases to commence in the future, nonvested easements, and top leases and top deeds in commercial use in the oil and gas industry, directly or indirectly restrain the alienability of property or provide a disincentive to improve the property. Although controlling the duration of such interests is desirable, they are excluded by subsection (1) from the Statutory Rule because, as noted above, the period of a life in being plus 21 years - actual or by the 90-year proxy - is inappropriate for them; that period is appropriate for family-oriented, donative transfers.

The Committee was aware that a few states have adopted statutes on perpetuities that include special limits on certain commercial transactions (e.g., Fla. Stat. § 689.22(3)(a); Ill. Rev. Stat. ch. 30, § 194(a)), and in fact the Committee itself drafted a comprehensive version of Section 4 that would have imposed a 40-year period-in-gross limitation in specified cases. In the end, however, the Committee did not present that version to the National Conference for approval because it was of the opinion that the control of these interests is better left to other types of statutes, such as marketable title acts (e.g., the Uniform Simplification of Land Transfers Act) and the Uniform Dormant Mineral Interests Act, backed up by the potential application of the common-law rules regarding unreasonable restraints on alienation.

Subsection (2) - Administrative Fiduciary Powers . Fiduciary powers are subject to the Statutory Rule Against Perpetuities, unless specifically excluded. Purely administrative fiduciary powers are excluded by subsections (2) and (3), but distributive fiduciary powers are generally speaking not excluded. The only distributive fiduciary power excluded is the one described in subsection (4).

The application of subsection (2) to fiduciary powers can be illustrated by the following example.

Example (1) . G devised property in trust, directing the trustee (a bank) to pay the income to A for life, then to A's children for the life of the survivor, and on the death of A's last surviving child to pay the corpus to B. The trustee is granted the discretionary power to sell and to reinvest the trust assets and to invade the corpus on behalf of the income beneficiary or beneficiaries.

The trustee's fiduciary power to sell and reinvest the trust assets is a purely administrative power, and under subsection (2) of this section is not subject to the Statutory Rule.

The trustee's fiduciary power to invade corpus, however, is a nongeneral power of appointment that is not excluded from the Statutory Rule. Its validity, and hence its exercisability, is governed by Section 1. Under that section, since the power is not initially valid under Section 1(c)(1), Section 1(c)(2) applies and the power ceases to be exercisable 90 years after G's death.

Subsection (3) - Powers to Appoint a Fiduciary . Subsection (3) excludes from the Statutory Rule Against Perpetuities powers to appoint a fiduciary (a trustee, successor trustee, or co-trustee, a personal representative, successor personal representative, or co-personal representative, an executor, successor executor, or co-executor, etc.). Sometimes such a power is held by a fiduciary and sometimes not. In either case, the power is excluded from the Statutory Rule.

Subsection (4) - Certain Distributive Fiduciary Power . The only distributive fiduciary power excluded from the Statutory Rule Against Perpetuities is the one described in subsection (4); the excluded power is a discretionary power of a trustee to distribute principal before the termination of a trust to a beneficiary who has an indefeasibly vested interest in the income and principal.

Example (2) . G devised property in trust, directing the trustee (a bank) to pay the income to A for life, then to A's children; each child's share of principal is to be paid to the child when he or she reaches 40; if any child dies under 40, the child's share is to be paid to the child's estate as a property interest owned by such child. The trustee is given the discretionary power to advance all or a portion of a child's share before the child reaches 40. G was survived by A, who was then childless.

The trustee's discretionary power to distribute principal to a child before the child's 40th birthday is excluded from the Statutory Rule Against Perpetuities. (The trustee's duty to pay the income to A and after A's death to A's children is not subject to the Statutory Rule because it is a duty, not a power.)

Subsection (5) - Charitable or Governmental Gifts . Subsection (5) codifies the common-law principle that a nonvested property interest held by a charity, a government, or a governmental agency or subdivision is excluded from the Rule Against Perpetuities if the interest was preceded by an interest that is held by another charity, government, or governmental agency or subdivision. See L. Simes & A. Smith, The Law of Future Interests § 1278-87 (2d ed. 1956); Restatement (Second) of Property (Donative Transfers) § 1.6 (1983); Restatement of Property § 397 (1944).

Example (3) . G devised real property "to the X School District so long as the premises are used for school purposes, and upon the cessation of such use, to Y City."

The nonvested property interest held by Y City (an executory interest) is excluded from the Statutory Rule under subsection (5) because it was preceded by a property interest (a fee simple determinable) held by a governmental subdivision, X School District.

The exclusion of charitable and governmental gifts applies only in the circumstances described. If a nonvested property interest held by a charity is preceded by a property interest that is held by a noncharity, the exclusion does not apply; rather, the validity of the nonvested property interest held by the charity is governed by the other sections of this Act.

Example (4) . G devised real property "to A for life, then to such of A's children as reach 25, but if none of A's children reaches 25, to X Charity."

The nonvested property interest held by X Charity is not excluded from the Statutory Rule.

If a nonvested property interest held by a noncharity is preceded by a property interest that is held by a charity, the exclusion does not apply; rather, the validity of the nonvested property interest in favor of the noncharity is governed by the other sections of this Act.

Example (5) . G devised real property "to the City of Sidney so long as the premises are used for a public park, and upon the cessation of such use, to my brother, B."

The nonvested property interest held by B is not excluded from the Statutory Rule by subsection (5).

Subsection (6) - Trusts for Employees and Others; Trusts for Self-Employed Individuals . Subsection (6) excludes from the Statutory Rule Against Perpetuities nonvested property interests and powers of appointment with respect to a trust or other property arrangement, whether part of a "qualified" or "unqualified" plan under the federal income tax law, forming part of a bona fide benefit plan for employees (including owner- employees), independent contractors, or their beneficiaries or spouses. The exclusion granted by this subsection does not, however, extend to a nonvested property interest or a power of appointment created by an election of a participant or beneficiary or spouse.

Subsection (7) - Pre-existing Exclusions from the Common-law Rule Against Perpetuities . Subsection (7) assures that all property interests, powers of appointment, or arrangements that were excluded from the Common-law Rule Against Perpetuities or are excluded by another statute of this state are also excluded from the Statutory Rule Against Perpetuities.

Possibilities of reverter and rights of entry (also known as rights of re-entry, rights of entry for condition broken, and powers of termination) are not subject to the Common-law Rule Against Perpetuities, and so are excluded from the Statutory Rule. By statute in some states, possibilities of reverter and rights of entry expire if they do not vest within a specified period of years (such as 40 years). See Fratcher, A Modest Proposal for Trimming the Claws of Legal Future Interests, 1972 Duke L.J. 517, 527-31. See also Uniform Simplification of Land Transfers Act § 3-409. States adopting the Uniform Statutory Rule Against Perpetuities may wish to consider the enactment of some such limit on these interests, if they have not already done so.

Editor's Note. - Session Laws 2021-85, s. 3(c), made the amendments to this section by Session Laws 2021-85, s. 3(b), effective July 8, 2021, and applicable to trusts created before, on, or after August 19, 2007.

Effect of Amendments. - Session Laws 2021-85, s. 3(b), inserted "any of the following" following "to" in the introductory paragraph; substituted "G.S. 36C-4-408 or G.S. 36C-4-409" for "Article 14 of Chapter 36A, 'Honorary Trusts; Trusts for Pets; Trusts for Cemetery Lots'; or" in subdivision (8); added subdivision (10); and made stylistic changes throughout. For effective date and applicability, see editor's note.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

CASE NOTES

Preemptive Rights Arising From Non-Donative Transfers. - Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., does not replace the common law rule against perpetuities as to preemptive rights arising from non-donative transfers as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicates its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provides that the USRAP does not apply to nonvested property rights arising from non donative transfers such as a commercial lease, there is nothing to supersede the common law rule against perpetuities, and the USRAP does not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Lessee's claim that the Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., replaced the common law rule against perpetuities as to preemptive rights arising from non-donative transfers was rejected as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicated its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provided that the USRAP did not apply to nonvested property rights arising from non donative transfers such as the commercial lease, there was nothing to supersede the common law rule against perpetuities, and the USRAP did not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Cited in Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).


§ 41-19. Prospective application.

  1. Except as extended by subsection (b) of this section, this Article applies to a nonvested property interest or a power of appointment that is created on or after October 1, 1995. For purposes of this section, a nonvested property interest or a power of appointment created by the exercise of a power of appointment is created when the power is irrevocably exercised or when a revocable exercise becomes irrevocable.
  2. If a nonvested property interest or a power of appointment was created prior to October 1, 1995, and is determined in a judicial proceeding, commenced on or after October 1, 1995, to violate this State's rule against perpetuities as that rule existed before October 1, 1995, a court upon the petition of an interested person may reform the disposition in the manner that most closely approximates the transferor's manifested plan of distribution and is within the limits of the rule against perpetuities applicable when the nonvested property interest or power of appointment was created.

History

(1995, c. 190, s. 1; 1997, c. 456, s. 8.)

OFFICIAL COMMENT

Subsection (a): Act Not Retroactive . This section provides that, except as provided in subsection (b), the Statutory Rule Against Perpetuities and the other provisions of this Act apply only to nonvested property interests or powers of appointment created on or after the Act's effective date. With one exception, in determining when a nonvested property interest or a power of appointment is created, the principles of Section 2 are applicable. Thus, for example, a property interest (or a power of appointment) created in a revocable inter vivos trust is created when the power to revoke terminates. See Example (1) in the Comment to Section 2.

The second sentence of subsection (a) establishes a special rule for nonvested property interests (and powers of appointment) created by the exercise of a power of appointment. For purposes of this section only, a nonvested property interest (or a power of appointment) created by the exercise of a power of appointment is created when the power is irrevocably exercised or when a revocable exercise of the power becomes irrevocable. Consequently, all the provisions of this Act except Section 5(b) apply to a nonvested property interest (or power of appointment) created by a donee's exercise of a power of appointment where the donee's exercise, whether revocable or irrevocable, occurs on or after the effective date of this Act. All the provisions of this Act except Section 5(b) also apply where the donee's exercise occurred before the effective date of this Act if: (i) that pre-effective-date exercise was revocable and (ii) that revocable exercise becomes irrevocable on or after the effective date of this Act. This special rule applies to the exercise of all types of powers of appointment - presently exercisable general powers, general testamentary powers, and nongeneral powers.

If the application of this special rule determines that the provisions of this Act (except Section 5(b)) apply, then for all such purposes, the time of creation of the appointed nonvested property interest (or appointed power of appointment) is determined by reference to Section 2, without regard to the special rule contained in the second sentence of Section 5(a).

If the application of this special rule of Section 5(a) determines that the provisions of this Act (except Section 5(b)) do not apply, then Section 5(b) is the only potentially applicable provision of this Act.

Example (1) - Testamentary Power Created Before but Exercised After the Effective Date of this Act . G was the donee of a general testamentary power of appointment created by the will of his mother, M. M died in 1980. Assume that the effective date of this Act in the jurisdiction is January 1, 1987. G died in 1988, leaving a will that exercised his general testamentary power of appointment.

Under the special rule in the second sentence of Section 5(a), any nonvested property interest (or power of appointment) created by G in his will in exercising his general testamentary power was created (for purposes of Section 5) at G's death in 1988, which was after the effective date of this Act.

Consequently, all the provisions of this Act apply (except Section 5(b)). That point having been settled, the next step is to determine whether the nonvested property interests or powers of appointment created by G's testamentary appointment are initially valid under Section 1(a)(1), 1(b)(1), or 1(c)(1), or whether the wait-and-see element established in Section 1(a)(2), 1(b)(2), or 1(c)(2) apply. If the wait-and-see element does apply, it must also be determined when the allowable 90-year waiting period starts to run. In making these determinations, the principles of Section 2 control the time of creation of the nonvested property interests (or powers of appointment); under Section 2, since G's power was a general testamentary power of appointment, the common-law relation-back doctrine applies and the appointed nonvested property interests (and appointed powers of appointment) are created at M's death in 1980.

If G's testamentary power of appointment had been a nongeneral power rather than a general power, the same results as described above would apply.

Example (2) - Presently Exercisable Nongeneral Power Created Before but Exercised After the Effective Date of this Act . Assume the same facts as in Example (1), except that G's power of appointment was a presently exercisable nongeneral power. If G exercised the power in 1988, after the effective date of this Act (or, if a pre-effective-date revocable exercise of his power became irrevocable in 1988, after the effective date of this Act), the same results as described above in Example (1) would apply.

Example (3) - Presently Exercisable General Power Created Before but Exercised After the Effective Date of this Act . Assume the same facts as in Example (1), except that G's power of appointment was a presently exercisable general power. If G exercised the power in 1988, after the effective date of this Act (or, if a pre-effective-date revocable exercise of his power became irrevocable in 1988, after the effective date of this Act), all the provisions of this Act (except Section 5(b)) apply; for such purposes, Section 2 controls the date of creation of the appointed nonvested property interests (or appointed powers of appointment), without regard to the special rule of the second sentence of Section 5(a). With respect to the exercise of a presently exercisable general power, it is possible - indeed, probable - that the special rule of the second sentence of Section 5(a) and the rules of Section 2 agree on the same date of creation for their respective purposes, that date being the date the power was irrevocably exercised (or a revocable exercise thereof became irrevocable).

Subsection (b): Reformation of Pre-existing Instruments . Although the Statutory Rule Against Perpetuities and the other provisions of this Act do not apply retroactively, subsection (b) recognizes a court's authority to exercise its equitable power to reform instruments that contain a violation of the Common-law Rule Against Perpetuities (or of a statutory version or variation thereof) and to which the Statutory Rule does not apply because the offending nonvested property interest or power of appointment in question was created before the effective date of this Act. This equitable power to reform is recognized only where the violation of the former rule against perpetuities is determined in a judicial proceeding that is commenced on or after the effective date of this Act. See below.

Without legislative authorization or direction, the courts in four states - Hawaii, Mississippi, New Hampshire, and West Virginia - have held that they have the power to reform instruments that contain a violation of the Common-law Rule Against Perpetuities. In re Estate of Chun Quan Yee Hop , 52 Hawaii 40, 469 P.2d 183 (1970); Carter v. Berry, 243 Miss. 321, 140 So.2d 843 (1962); Edgerly v. Barker, 66 N.H. 434, 31 A. 900 (1891); Berry v. Union Natl. Bank, 262 S.E.2d 766 (W.Va. 1980). In four other states - California, Missouri, Oklahoma, and Texas - the legislatures have enacted statutes conferring this power on the courts or directing the courts to reform defective instruments. Cal. Civ. Code § 715.5 (West 1982); Mo. Rev. Stat. § 442.555 (1978); Okla. Stat. tit. 60, § 75-78 (1981); Tex. Property Code § 5.043 (Vernon 1984). See also Idaho Code § 55-111 (1948). The California statute is silent as to whether or not it applies to nonvested property interests and powers of appointment created prior to the effective date of the Act; the only significant California appellate decision to apply the statute, Estate of Ghiglia , 42 Cal.App.3d 433, 116 Cal. Rptr. 827 (1974), involved a will where the testator died after the Act's effective date. The Missouri, Oklahoma, and Texas statutes explicitly do not apply retroactively. The Hawaii, Mississippi, New Hampshire, and West Virginia decisions, however, invoked the court's equitable power (sometimes called the cy pres power, and sometimes called the doctrine of equitable approximation or equitable modification) to reform pre-existing instruments that contained a violation of the Common-law Rule. Subsection (b) constitutes statutory authority for a court to exercise its equitable reformation power.

Reformation Experience So Far . The existing judicial opinions and legislative provisions purport to adopt a principle of reformation that is consistent with the theme that the technique of reform should be shaped to grant every appropriate opportunity for the property to go to the intended beneficiaries. The New Hampshire court, for example, said that "where there is a general and a particular intent, and the particular one cannot take effect, the words shall be so construed as to give effect to the general intent." Edgerly v. Barker, 66 N.H. 434, 467, 31 A. 900, 912 (1891) (citation omitted). The Hawaii court held that "any interest which would violate the Rule Against Perpetuities shall be reformed within the limits of that rule to approximate most closely the intention of the creator of the interest." In re Estate of Chun Quan Yee Hop , 52 Hawaii 40, 46, 469 P.2d 183, 187 (1970). The Mississippi court described the reformation principle as "a simple rule of judicial construction, designed to aid the court to ascertain and carry out, as nearly as may be, the intention of the donor." Carter v. Berry, 243 Miss. 321, 370, 140 So.2d 843, 852 (1962). The California statute provides that the authority to reform "shall be liberally construed and applied to validate [the] interest to the fullest extent consistent with [the] ascertained intent." Cal. Civ. Code § 715.5.

Unfortunately, all the cases that have arisen so far have been of one general type - contingencies in excess of 21 years - and all of the courts have simply ordered a reduction of the age or period in gross to 21.

Guidance as to How to Reform . The above reformation efforts are unduly narrow. Subsection (b) is to be understood as authorizing a more appropriate technique - judicial insertion of a saving clause into the instrument. See Browder, Construction, Reformation, and the Rule Against Perpetuities , 62 Mich.L.Rev. 1 (1963); Waggoner, Perpetuity Reform , 81 Mich.L.Rev. 1718, 1755-1759 (1983); Langbein & Waggoner, Reformation of Wills on the Ground of Mistake: Change of Direction in American Law? , 130 U.Pa.L.Rev. 521, 546-49 (1982). This method of reformation allows reformation to achieve an after-the-fact duplication of a professionally competent product. Such a technique would have been especially suitable in the cases that have already arisen, for it probably would have allowed the dispositions in all of them to have been rendered valid without disturbing the transferor's intent at all. See Waggoner, Perpetuity Reform , 81 Mich.L.Rev. 1718, 1756 n. 103 (1983). The insertion of a saving clause grants a more appropriate opportunity for the property to go to the intended beneficiaries. Furthermore, it would also be a suitable technique in fertile octogenarian, unborn widow, and administrative contingency cases. A saving clause is one of the formalistic devices that a professionally competent lawyer would have used before the fact to assure initial validity in these cases. Insofar as other violations are concerned, the saving clause technique also grants every appropriate opportunity for the property to go to the intended beneficiaries.

In selecting the lives to be used for the perpetuity-period component of the saving clause that in a given case is to be inserted after the fact, the principle to be adopted is the same one that ought to guide lawyers in drafting such a clause before the fact: The group selected should be appropriate to the facts and the disposition. While the exact make-up of the group in each case would be settled by litigation, the individuals designated in Section 1.3(2) of the Restatement (Second) of Property (Donative Transfers) (1983) as the measuring lives would be an appropriate referent for the court to consider. Care should be taken in formulating the gift-over component, so that it is appropriate to the dispositive scheme. Among possible recipients that the court might consider designating are: (i) the persons entitled to the income on the 21st anniversary of the death of the last surviving individual designated by the court for the perpetuity-period component and in the proportions thereof to which they are then so entitled; if no proportions are specified, in equal shares to the permissible recipients of income; or (ii) the grantor's descendants per stirpes who are living 21 years after the death of the last surviving individual designated by the court for the perpetuity-period component; if none, to the grantor's heirs at law determined as if the grantor died 21 years after the death of the last surviving individual designated in the perpetuity-period component.

Violation Must be Determined in a Judicial Proceeding Commenced On or After the Effective Date of this Act . The equitable power to reform is recognized by Section 5(b) only in situations where the violation of the former rule against perpetuities is determined in a judicial proceeding commenced on or after the effective date of this Act. The equitable power to reform would typically be exercised in the same judicial proceeding in which the invalidity is determined.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-20. Short title.

This Article may be cited as the Uniform Statutory Rule Against Perpetuities.

History

(1995, c. 190, s. 1.)

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-21. Uniformity of application and construction.

This Article shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Article among states enacting it.

History

(1995, c. 190, s. 1.)

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-22. Supersession.

This Article supersedes the rule of the common law known as the rule against perpetuities.

History

(1995, c. 190, s. 1.)

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

CASE NOTES

Preemptive Rights Arising From Non-Donative Transfers. - Lessee's claim that the Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., replaced the common law rule against perpetuities as to preemptive rights arising from non-donative transfers was rejected as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicated its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provided that the USRAP did not apply to nonvested property rights arising from non donative transfers such as the commercial lease, there was nothing to supersede the common law rule against perpetuities, and the USRAP did not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Lessee's claim that the Uniform Statutory Rule Against Perpetuities (USRAP), G.S. 41-15 et seq., replaced the common law rule against perpetuities as to preemptive rights arising from non-donative transfers was rejected as the North Carolina general assembly's use of the word "supersede" in G.S. 41-22 indicated its intention to replace the common law rule against perpetuities with the statutory provisions as to the types of transfers not excluded from the USRAP; because G.S. 41-18 clearly provided that the USRAP did not apply to nonvested property rights arising from non donative transfers such as the commercial lease, there was nothing to supersede the common law rule against perpetuities, and the USRAP did not apply. New Bar P'ship v. Martin, 221 N.C. App. 302, 729 S.E.2d 675 (2012).

Cited in Arundel Corp. v. Marie, 383 Md. 489, 860 A.2d 886 (2004).

§ 41-23. Perpetuities and suspension of power of alienation for trusts.

  1. A trust is void if it suspends the power of alienation of trust property, as that term is defined in G.S. 36C-1-103, for longer than the permissible period. The permissible period is no later than 21 years after the death of an individual then alive or lives then in being plus a period of 21 years.
  2. If the settlor of a revocable trust, as those terms are defined in G.S. 36C-1-103, has an unlimited power to revoke or amend the trust, the permissible period under subsection (a) of this section is computed from the termination of that power.
  3. If a trust is created by exercise of a power of appointment, the permissible period under subsection (a) of this section is computed from the time the power is exercised if the power is a general power even if the power is only exercisable as a testamentary power. In the case of other powers, the permissible period is computed from the time the power is created, but facts at the time the power is exercised shall be considered in determining whether the power of alienation is suspended beyond a life or lives in being at the time of the creation of the power plus 21 years.
  4. The power of alienation is suspended only when there are no persons in being who, alone or in combination with others, can convey an absolute fee in possession of land, or full ownership of personal property.
  5. Notwithstanding subsection (a) of this section, there is no suspension of the power of alienability by a trust or by equitable interests under a trust if the trustee has the power to sell, either expressed or implied, or if there exists an unlimited power to terminate the trust in one or more persons in being.
  6. This section does not apply to a transfer in trust (i) for charitable purposes, as defined in G.S. 36C-4-405; (ii) to a literary or charitable organization; (iii) to a veterans' memorial organization; (iv) to a cemetery corporation, society, or association; or (v) as part of a pension, retirement, insurance, savings, stock bonus, profit sharing, death, disability, or similar plan established by an employer for the benefit of some or all of its employees for the purpose of accumulating and distributing to such employees the earnings or the principal, or both earnings and principal, of the trust.
  7. This section does not apply to a future interest other than a future interest in trust and, other than as set forth in this section, this section does not modify the common law of the State regarding the power of alienation in this State.
  8. The provisions of G.S. 41-15, the common law rule against perpetuities, and the common law rule against accumulations do not apply to trusts created or administered in this State.

History

(2007-390, s. 1; 2014-107, s. 5.1.)

Editor's Note. - Session Laws 2007-390, s. 3, made this section effective on August 19, 2007, and applicable to all trusts created before, on, or after that date.

Effect of Amendments. - Session Laws 2014-107, s. 5.1, effective August 6, 2014, in subsection (h), inserted "and the common law rule against accumulations" and made minor stylistic changes.

Legal Periodicals. - For article, "Allowing Perpetuities in North Carolina," see 31 Campbell L. Rev. 399 (2009).

CASE NOTES

Constitutionality. - Because N.C. Const. Art. I, § 34, does not require application of the common law rule against perpetuities, G.S. 41-23(a) does not violate the North Carolina Constitution as a result of its repeal of the common law rule; G.S. 41-23(a) is consistent with the constitutional prohibition of perpetuities in N.C. Const. Art. I, § 34, because it provides a mechanism for preventing unreasonable restraints on alienation. Rather than addressing alienability of property indirectly by regulating the vesting of remote interests, as does the common law rule against perpetuities, G.S. 41-23 directly preserves alienability of property by prohibiting suspension of the power of alienation for longer than the period provided; thus, G.S. 41-23 is a constitutional, valid exercise of the General Assembly's authority. Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).

In the historical context of the passage of the North Carolina Constitution, a perpetuity was the attempt to forbid the alienation of lands under any circumstances, and to provide for their descent or disposition in a fixed, unchangeable way. G.S. 41-23(a) adopted the approach of requiring the existence of the power of alienation rather than requiring that remote future interests vest or terminate within a certain time period; thus, under G.S. 41-23, a trust may remain valid in perpetuity as long as the appropriate rights of sale or termination are held. Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).

The General Assembly has modified both the common-law rule and the Uniform Statutory Rule Against Perpetuities (USRAP) as each applies to trusts by adopting G.S. 41-23, which expressly supersedes both the common-law rule against perpetuities and the USRAP. G.S. 41-23 contains no requirement regarding the time period in which a remote future interest must vest, but maintains the marketability of property. Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).

Trust Created Pursuant to G.S. 41-23 Did Not Violate Constitutional Prohibition Against Perpetuities. - Because a trust complied with the statutory requirements of G.S. 41-23 by granting the trustee the power to transfer title to trust property, the trust was valid and did not violate the North Carolina Constitution's prohibition of perpetuities, N.C. Const. Art. I, § 34. Brown Bros. Harriman Trust Co. v. Benson, 202 N.C. App. 283, 688 S.E.2d 752, dismissed and review denied, 364 N.C. 239, 698 S.E.2d 391, 2010 N.C. LEXIS 514 (2010).


§§ 41-24 through 41-27: Reserved for future codification purposes.

ARTICLE 3. Time Limits on Options in Gross and Certain Other Interests in Land.

Sec.

COMMENTARY

Article 3 is based upon a proposed Uniform Act that is under consideration by the Joint Editorial Board for the Uniform Probate Code. G.S. 41-28 and 41-33 have no counterpart in the proposed Uniform Act.

The following comments were prepared to accompany the proposed Uniform Act. The drafters of the North Carolina Act believe that these comments provide a useful guide to the Act. Minor changes have been made to correspond to the North Carolina Act.

Some transactions respecting land, such as options in gross (including rights of first refusal), leases to commence in the future, and nonvested easements, directly or indirectly restrain the alienability of property or provide a disincentive to improve the property.

Article 3 contains sections that generally impose a 30-year time limit on such interests. To prevent an overlap with Article 2 of this Chapter, G.S. 41-18(9) excludes such interests from the Statutory Rule Against Perpetuities. (Many but not all such interests are also excluded by other subdivisions of G.S. 41-18.) The 90-year permissible vesting period of the Statutory Rule Against Perpetuities is an inappropriate limit on these interests. As an approximation of the period of a life in being plus 21 years, the 90-year period is an appropriate limit on interests arising out of family-oriented donative transfers. A shorter period is a more appropriate limit on the interests covered in Article 3, whether those interests arise out of a donative or a nondonative transfer.

The sections in this Article contain language exempting arrangements relating solely to interests in oil, gas, or minerals. The purpose is to assure that these sections do not interfere with bona fide commercial arrangements in the oil, gas, and mining industries.

Editor's Note. - Permission to include the Official Comments was granted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute. It is believed that the Official Comments will prove of value to the practitioner in understanding and applying the text of this Chapter.

The Official Comments appearing under individual sections in this Article have been printed by the publisher as received, without editorial change, and relate to the Article as originally enacted. However, not all sections in this Article may carry Official Comments. Furthermore, Official Comments may or may not have been received or updated in conjunction with subsequent amendments to this Article and, therefore, may not reflect all changes to the sections under which they appear.

Where they appear in this Article, the term "Amended Comment" usually means that an error in the original comment has been corrected by a subsequent amendment, and a "Supplemental Comment" pertains to a later development, such as an amendment to the statute text.

§ 41-28. Definitions.

As used in this Article:

  1. "Nonvested easement in gross" means a nonvested easement which is not created to benefit or which does not benefit the possessor of any tract of land in his or her use of it as the possessor.
  2. "Option in gross with respect to an interest in land" means an option in which the holder of the option does not own any leasehold or other interest in the land which is the subject of the option.
  3. "Preemptive right in the nature of a right of first refusal in gross with respect to an interest in land" means a preemptive right in which the holder of the preemptive right does not own any leasehold or other interest in the land which is the subject of the preemptive right.

History

(1995, c. 525, s. 1.)

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-29. Options in gross, etc.

An option in gross with respect to an interest in land or a preemptive right in the nature of a right of first refusal in gross with respect to an interest in land becomes invalid if it is not actually exercised within 30 years after its creation. For purposes of this section, the term "interest in land" does not include arrangements relating solely to an interest in oil, gas, or minerals.

History

(1995, c. 525, s. 1.)

COMMENTARY

This section imposes a 30-year time limit on the duration of options in gross and preemptive rights in gross with respect to an interest in land. The appellation "in gross" refers to the fact that the optionee or preemptioner has no possessory interest in the property.

If an option or preemptive right pertains to an interest in land, the option or preemptive right becomes invalid if it remains unexercised 30 years after its creation.

Example. A, the owner of Blackacre, sells an option to B under which A obligates himself, his heirs, and assigns at any time in the future to convey Blackacre to B, his heirs, and assigns for $X.00. Or, A, the owner of Blackacre, sells Blackacre to B. As part of the transaction, B obligates himself, his heirs, and assigns at any time in the future to reconvey Blackacre to A, his heirs, and assigns for $X.00. If either option remains unexercised 30 years after its creation, it ceases to be valid. (Both options are excluded from the Statutory Rule Against Perpetuities by G.S. 41-18(1) and (9).)

Options Held by a Lessee Not Affected by this Section. This section does not apply to an option or right of first refusal (preemptive right) that is not in gross. Thus, this section does not apply to an option or preemptive right held by a lessee to renew, extend, or enter into a new lease of or to purchase the leased premises. Such options or rights of first refusal do not deter the lessee from making improvements on the property, and so public policy is not viewed as requiring controls on their duration.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-30. Leases to commence in the future.

A lease to commence at a time certain or upon the occurrence or nonoccurrence of a future event becomes invalid if its term does not actually commence in possession within 30 years after its execution. For purposes of this section, the term "lease" does not include an oil, gas, or mineral lease.

History

(1995, c. 525, s. 1.)

COMMENTARY

G.S. 41-30 provides that a lease to commence at a time certain or upon the happening of a future event becomes invalid if the term does not actually commence in possession within 30 years after the lease's execution.

Such leases are excluded from the Statutory Rule Against Perpetuities by G.S. 41-18(1) and (9). Excluding such leases from the Rule Against Perpetuities removes a source of considerable litigation under the common-law Rule Against Perpetuities concerning the validity of so-called "on completion" leases - leases to commence on the completion of a building.

Such leases would be clearly valid at common law if the lessor was obligated to complete the building within 21 years, but in the absence of an explicit obligation of this sort, some courts have held the lease to be invalid. E.g., Southern Airways Co. v. DeKalb County, 101 Ga. App. 689, 115 S.E.2d 207 (1960); others, though, have upheld such leases on the theory that the lessee's interest was vested from the beginning (Isen v. Giant Food, Inc., 295 F.2d 136 (D.C. Cir. 1960)); or that there was an implicit obligation to complete the building within a reasonable time (Wong v. DiGrazia, 60 Cal.2d 525, 386 P.2d 817 (1963); Singer Co. v. Makad, Inc., 213 Kan. 725, 518 P.2d 493 (1974); see also Read v. GHDC, Inc., 334 S.E.2d 165 (Ga. 1985); Ryland Group, Inc. v. Wills, 331 S.E.2d 399 (Va. 1985)).

Although the risk under the common-law Rule Against Perpetuities that such leases would be declared invalid from the beginning would be removed by the wait-and-see feature of the Statutory Rule Against Perpetuities, such leases are excluded from the Statutory Rule entirely. A shorter period than the 90 years allowed by the Statutory Rule is more appropriate to commercial transactions that impinge upon the marketability of land, and the 30-year period selected should give reasonable time for such leases to commence in possession.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-31. Nonvested easements.

A nonvested easement in gross becomes invalid if it does not actually vest within 30 years after its creation.

History

(1995, c. 525, s. 1.)

COMMENTARY

This section places a 30-year limit on the time during which a nonvested easement in gross can remain nonvested. An easement is nonvested if the right of utilization is subject to a condition precedent, i.e., if the right of utilization is conditioned upon the happening of a specified future event. An easement is in gross if it has a servient estate but no dominant estate; an easement in gross is a personal interest in the land of another. The difficulty of locating the owner of a nonvested easement in gross as time goes along is the principal reason for limiting to 30 years the time during which the easement can remain nonvested.

Whether or not an easement is vested depends on whether the holder has the current right to utilize it. Thus, an easement can be vested even if the holder has not actually utilized it. If, however, the easement holder has actually utilized the easement, the easement is vested by definition. For example, an easement to transmit electric power across land from a power plant would be vested, if it had not previously vested, when the holder of the easement commenced to install power transmission lines on the land; vesting would not be delayed until power is actually transmitted through those lines.

This section does not limit the duration of a vested easement, nor does it affect an easement that is vested subject to a defeasance clause that may cause it to terminate. Nor does this section affect multiple floating easements, which are also called single expansible easements with multiple potential routes, because they are vested. E.g., Kleinheider v. Phillips Pipe Line Co., 528 F.2d 837, 843-44 (8th Cir. 1975).

Exemption from Rule Against Perpetuities. Because nonvested easements in gross are governed by a 30-year time limit, they are exempted from the Statutory Rule Against Perpetuities by G.S. 41-18(9). This reverses the rule at common law, under which nonvested easements were subjected to the common-law Rule Against Perpetuities and rendered invalid ab initio if they were not certain to vest or terminate within a life in being plus 21 years. J. Gray, The Rule Against Perpetuities §§ 314-16 (4th ed. 1942); L. Simes & A. Smith, The Law of Future Interests § 1248 (2d ed. 1956).

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-32. Possibilities of reverter, etc.

  1. Except as otherwise provided in this section:
    1. A possibility of reverter preceded by a fee simple determinable;
    2. A right of entry preceded by a fee simple subject to a condition subsequent; or
    3. An executory interest preceded by either a fee simple determinable or a fee simple subject to an executory limitation;
  2. This section does not apply to a possibility of reverter, right of entry, or executory interest held by a charity, a government or governmental agency or subdivision excluded from the Uniform Statutory Rule Against Perpetuities by G.S. 41-18(5) or to an arrangement relating solely to an interest in oil, gas, or minerals.

becomes invalid, and the preceding fee simple becomes a fee simple absolute, if the right to vest in possession of the possibility of reverter, right of entry, or executory interest depends on an event or events affecting the use of land and if the possibility of reverter, right of entry, or executory interest does not actually vest in possession within 60 years after its creation.

History

(1995, c. 525, s. 1.)

COMMENTARY

With certain exceptions, this section imposes a 60-year time limit on the duration of certain possibilities of reverter, rights of entry (also known as rights of re-entry, rights of entry for condition broken, and powers of termination), and executory interests.

Possibilities of reverter and rights of entry are generally exempt from the common-law Rule Against Perpetuities. But their nonreversionary counterpart - the executory interest that follows either a fee simple determinable or a fee simple subject to an executory limitation - is subject to the common-law Rule. By statute in some states, possibilities of reverter and rights of entry expire if they do not vest within a specified period of years (such as 30 or 40 years). These statutes, however, do not apply to the type of executory interest described above, which is the nonreversionary counterpart of the possibility of reverter and/or right of entry.

G.S. 41-32 treats all three future interests alike by limiting their duration to 60 years and by excluding them from the Statutory Rule. Unless the possibility of reverter, right of entry, or executory interest is an interest in favor of a charity, government, or governmental agency or subdivision that is excluded from the Statutory Rule by G.S. 41-18(5) [or is an arrangement relating solely to an interest in oil, gas, or minerals], the maximum period any of the three can exist is limited to 60 years; if it has not vested by the 60th anniversary of its creation, it ceases to exist and the preceding fee simple becomes a fee simple absolute.

Example 1. G deeded real property: [Alternative 1] "to the City of Sidney for as long as the property is used for a public park, and upon the property ceasing to be used for that purpose, the property is to go to B and his heirs."

[Alternative 2] "to the City of Sidney for as long as the property is used for a public park, and upon the property ceasing to be used for that purpose, the property is to revert to G and his heirs."

In both alternatives, the City of Sidney has a fee simple determinable. In Alternative 1, B has an executory interest. In Alternative 2, G has a possibility of reverter. Both B's and G's future interests are excluded from the Statutory Rule by G.S. 41-18(9). Both are subject to the 60-year limit on their existence imposed by G.S. 41-32. If the property is still being used for a public park on the 60th anniversary of the date of delivery of G's deed, the City of Sidney's fee simple becomes a fee simple absolute.

Example 2. G deeded real property: [Alternative 1] "to A and his heirs on condition that the property be used for residential purposes, and if the property is not used for residential purposes, G is to have the right to re-enter and take possession of the premises."

[Alternative 2] "to A and his heirs, but if the property is not used for residential purposes, to B and his heirs." In Alternative 1, A has a fee simple subject to a condition subsequent; G has a right of entry that is excluded from the Statutory Rule Against Perpetuities. In Alternative 2, A has a fee simple subject to an executory limitation; B has an executory interest that is excluded from the Statutory Rule Against Perpetuities.

In both alternatives, A's fee simple becomes a fee simple absolute on the 60th anniversary of the date of delivery of G's deed, unless the property was used for nonresidential purposes on or before that date and, in Alternative 1, unless G has properly exercised his right of entry on or before that date.

Event or Events Affecting the Use of Land. G.S. 41-32 only applies to possibilities of reverter, rights of entry, and executory interests if the vesting depends on an event or events affecting the use of land. The purpose of this restriction is to exempt family-oriented dispositions from the 60-year time limit in cases where the Statutory Rule Against Perpetuities is a more appropriate measure for controlling the interest.

Example 3. G's will devised real property "to my daughter A and her heirs, but if she should die without descendants, to my son B and his heirs."

Although B has an executory interest preceded by a fee simple subject to an executory limitation, B's executory interest is not controlled by G.S. 41-32 because the event on which its vesting depends does not relate to the use of land. Instead, B's executory interest is governed by the Statutory Rule Against Perpetuities, under which it is valid from creation because it complies with G.S. 41-15(a)(1).

The phrase "event or events affecting the use of land" is to be given an interpretation appropriate to its purpose. Thus, a devise to a church "so long as the church shall maintain and promulgate its present religious belief and faith and continue as a church" is not a family-oriented disposition and should be found to describe an event affecting the use of the land.

Exception for Certain Charitable and Governmental Interest. The last sentence of G.S. 41-32 exempts certain interests held by a charity, a government, or governmental agency or subdivision from the 60-year time limit. The excluded interests are those excluded from the Statutory Rule Against Perpetuities by G.S. 41-18(5). That section codifies the common-law principle that a nonvested property interest held by a charity, a government, or a governmental agency or subdivision is excluded from the Rule Against Perpetuities if the interest was preceded by an interest held by another charity, government, or governmental agency or subdivision.

Example 4. G devised real property "to the X School District so long as the premises are used for school purposes, and upon the cessation of such use, to Y City." The nonvested property interest in favor of Y City (an executory interest) is excluded from the Statutory Rule under G.S. 41-18(5) because it was preceded by a property interest (a fee simple determinable) held by a governmental subdivision, X School District. The fact that the interest of Y City is excluded from the Statutory Rule Against Perpetuities by G.S. 41-18(5) means that the 60-year limit imposed on certain executory interests by G.S. 41-32 does not apply.

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§ 41-33. Prospective application.

This Article applies only to a property interest or arrangement that is created on or after October 1, 1995.

History

(1995, c. 525, s. 1.)

Legal Periodicals. - For article, "Perpetuities Reform in North Carolina: The Uniform Statutory Rule Against Perpetuities, Nondonative Transfers, and Honorary Trusts," see 74 N.C.L. Rev. 1783 (1996).

§§ 41-34 through 41-39: Reserved for future codification purposes.

ARTICLE 4. The Uniform Transfer on Death (TOD) Security Registration Act.

Sec.

§ 41-40. Definitions.

In this Article, unless the context otherwise requires:

  1. "Beneficiary form" means a registration of a security that indicates the present owner of the security and the intention of the owner regarding the person who will become the owner of the security upon the death of the owner.
  2. "Devisee" means any person designated in a will to receive a disposition of real or personal property.
  3. "Heirs" means those persons, including the surviving spouse, who are entitled under Chapter 29 of the General Statutes or the statutes of intestate succession of other states to take the property of a decedent by intestate succession.
  4. "Person" means an individual, a corporation, an organization, or other legal entity.
  5. "Personal representative" includes executor, administrator, collector, successor personal representative, special administrator, and persons who perform substantially the same function under the law governing their status.
  6. "Property" includes both real and personal property or any interest in real or personal property and means anything that may be the subject of ownership.
  7. "Register", including its derivatives, means to issue a certificate showing the ownership of a certificated security or, in the case of an uncertificated security, to initiate or transfer an account showing ownership of securities.
  8. "Registering entity" means a person who originates or transfers a security title by registration and includes a broker maintaining security accounts for customers and a transfer agent or other person acting for or as an issuer of securities.
  9. "Security" means a share, participation, or other interest in property, a business, or an obligation of an enterprise or other issuer, and includes a certificated security, an uncertificated security, a security account, and a security entitlement as defined in G.S. 25-8-102.
  10. "Security account" means (i) a reinvestment account associated with a security, a securities account with a broker, a cash balance in a brokerage account, cash, interest, earnings, or dividends earned or declared on a security in an account, a reinvestment account, or a brokerage account, whether or not credited to the account before the owner's death, or (ii) a cash balance or other property held for or due to the owner of a security as a replacement for or product of an account security, whether or not credited to the account before the owner's death.
  11. "State" includes any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession subject to the legislative authority of the United States.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

The definition of "security" is derived from UCC § 8-102 and includes shares of mutual funds and other investment companies. The defined term "security account" is not intended to include securities held in the name of a bank or similar institution as nominee for the benefit of a trust. Comment amended in 1997.

"Survive" is not defined. No effort is made in this Act to define survival as it is for purposes of intestate succession in UPC § 2-104 which requires survival by an heir of the ancestor for 120 hours. For purposes of this Act, survive is used in its common law sense of outliving another for any time interval no matter how brief. The drafting committee sought to avoid imposition of a new and unfamiliar meaning of the term on intermediaries familiar with the meaning of "survive" in joint tenancy registrations.

The definitions of "devisee," "heirs," "person," "personal representative," "property," and "state" are taken from Section 1-201 of the Uniform Probate Code which, as revised in 1989, includes this Act as Part 3 of Article VI.

NORTH CAROLINA COMMENT

This section differs from the Uniform Act in the following respects. In the definition of "beneficiary form," the word "which" was replaced with the word "that." In the definition of "heirs," the phrase "who are entitled under the statutes of intestate succession to the property of a decedent" was replaced with the phrase "who are entitled under Chapter 29 of the General Statutes or the statutes of intestate succession of other states to take the property of a decedent by intestate succession." In the definition of "personal representative," the word "collector" was inserted. In the definition of "property," the word "therein" was replaced with the phrase "in real or personal property." In the definition of "security," the phrase "in property, in a business, or in an obligation" was replaced with the phrase "in property, a business, or an obligation" to clarify that the phrase "of an enterprise or other issuer" applies to "property" and "business" as well as "obligation." Also, in the definition of "security," the phrase "and a security entitlement as defined in G.S. 25-8-102" was inserted.

Editor's Note. - Session Laws 2005-411, s. 4, provides: "The Revisor of Statutes shall cause to be printed along with this act all relevant portions of the Official Commentary to the Uniform TOD Security Registration Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Official Comments, copyright 2005, are reprinted in this Article with the permission of the National Conference of Commissioners on Uniform State Laws. It is believed that the Official Comments will prove of value to the practitioner in understanding and applying the text of this Article.

The Official Comments appearing under individual sections in this Article have been printed by the publisher as received, without editorial change, and relate to the Article as originally enacted. However, not all sections in this Article may carry Official Comments. Furthermore, Official Comments may or may not have been received or updated in conjunction with subsequent amendments to this Article and, therefore, may not reflect all changes to the sections under which they appear.

Where they appear in this Article, "Amended Comment" usually means that an error in the original comment has been corrected by a subsequent amendment, and "Supplemental Comment" pertains to a later development, such as an amendment to the statute text.

§ 41-41. Registration in beneficiary form; sole or joint tenancy ownership.

Only individuals whose registration of a security shows sole ownership by one individual or multiple ownership by two or more individuals with right of survivorship, rather than as tenants in common, may obtain registration in beneficiary form. Multiple owners of a security registered in beneficiary form hold as joint tenants with right of survivorship, as tenants by the entireties, or as owners of community property held in survivorship form, and not as tenants in common.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

This section is designed to prevent co-owners from designating any death beneficiary other than one who is to take only upon survival of all co-owners. It coerces co-owning registrants to signal whether they hold as joint tenants with right of survivorship (JT TEN), as tenants by the entireties (T ENT), or as owners of community property. Also, it imposes survivorship on co-owners holding in a beneficiary form that fails to specify a survivorship form of holding. Tenancy in common and community property otherwise than in a survivorship setting is negated for registration in beneficiary form because persons desiring to signal independent death beneficiaries for each individual's fractional interest in a co-owned security normally will split their holding into separate registrations of the number of units previously constituting their fractional share. Once divided, each can name his or her own choice of death beneficiary.

The term "individuals," as used in this section, limits those who may register as owner or co-owner of a security in beneficiary form to natural persons. However, the section does not restrict individuals using this ownership form as to their choice of death beneficiary. The definition of "beneficiary form" in Section 1 indicates that any "person" may be designated beneficiary in a registration in beneficiary form. "Person" is defined so that a church, trust company, family corporation, or other entity, as well as any individual, may be designated as a beneficiary.

NORTH CAROLINA COMMENT

In the first sentence of this section, the word "individuals" was inserted (second occurrence).

In this State, the usual abbreviation for joint tenants with right of survivorship is "JT TEN WROS."

§ 41-42. Registration in beneficiary form; applicable law.

A security may be registered in beneficiary form if the form is authorized by this or a similar statute of the state of organization of the issuer or registering entity, the location of the registering entity's principal office, the office of its transfer agent or its office making the registration, or by this or a similar statute of the law of the state listed as the owner's address at the time of registration. A registration governed by the law of a jurisdiction in which this or similar legislation is not in force or was not in force when a registration in beneficiary form was made is nevertheless presumed to be valid and authorized as a matter of contract law.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

This section encourages registrations in beneficiary form to be made whenever a state with which either of the parties to a registration has contact has enacted this or a similar statute. Thus, a registration in beneficiary form of X Company shares might rely on an enactment of this Act in X Company's state of incorporation, or in the state of incorporation of X Company's transfer agent. Or, an enactment by the state of the issuer's principal office, the transfer agent's principal office, or of the issuer's office making the registration also would validate the registration. An enactment of the state of the registering owner's address at time of registration also might be used for validation purposes.

The last sentence of this section is designed, as is UPC § 6-101 (Rev. 1989), to establish a statutory presumption that a general principle of law is available to achieve a result like that made possible by this Act.

§ 41-43. Origination of registration in beneficiary form.

A security, whether evidenced by certificate or account, is registered in beneficiary form when the registration includes a designation of a beneficiary to take the ownership at the death of the owner or the deaths of all multiple owners.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

As noted above in commentary to Section 2, this Act places no restriction on who may be designated beneficiary in a registration in beneficiary form.

§ 41-44. Form of registration in beneficiary form.

Registration in beneficiary form may be shown by the words "transfer on death" or the abbreviation "TOD", or by the words "pay on death" or the abbreviation "POD", after the name of the registered owner or owners and before the name of a beneficiary.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

The abbreviation POD is included for use without regard for whether the subject is a money claim against an issuer, such as its own note or bond for money loaned, or is a claim to securities evidenced by conventional title documentation. The use of POD in a registration in beneficiary form of shares in an investment company should not be taken as a signal that the investment is to be sold or redeemed on the owner's death so that the sums realized may be "paid" to the death beneficiary. Rather, only a transfer on death, not a liquidation on death, is indicated. The committee would have used only the abbreviation TOD except for the familiarity, rooted in experience with certificates of deposit and other deposit accounts in banks, with the abbreviation POD as signalling a valid nonprobate death benefit or transfer on death.

NORTH CAROLINA COMMENT

In this section, the words "or owners" were inserted.

§ 41-45. Effect of registration in beneficiary form.

The designation of a TOD beneficiary on a registration in beneficiary form has no effect on ownership of the security until the owner's death. A registration of a security in beneficiary form may be cancelled or changed at any time by the sole owner or all then-surviving owners, without the consent of the beneficiary.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

This section simply affirms the right of a sole owner, or the right of all multiple owners, to end a TOD beneficiary registration without the assent of the beneficiary. The section says nothing about how a TOD beneficiary designation may be canceled, meaning that the registering entity's terms and conditions, if any, may be relevant. See Section 10. If the terms and conditions have nothing on the point, cancellation of a beneficiary designation presumably would be effected by a reregistration showing a different beneficiary or omitting reference to a TOD beneficiary.

NORTH CAROLINA COMMENT

In the first sentence of this section, the words "of the security" were inserted. In the second sentence of this section, the phrase "then surviving owners" was replaced with the phrase "then-surviving owners,".

§ 41-46. Ownership on death of owner.

On death of a sole owner or the last to die of all multiple owners, ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners. On proof of death of all owners and compliance with any applicable requirements of the registering entity, a security registered in beneficiary form may be reregistered in the name of the beneficiary or beneficiaries who survive the death of all owners. Until division of the security after the death of all owners, multiple beneficiaries surviving the death of all owners hold their interests as tenants in common. If no beneficiary survives the death of all owners, the security belongs to the estate of the deceased sole owner or the estate of the last to die of all multiple owners.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

Even though multiple owners holding in the beneficiary form here authorized hold with right of survivorship, no survivorship rights attend the positions of multiple beneficiaries who become entitled to securities by reason of having survived the sole owner or the last to die of multiple owners. Issuers (and registering entities) who decide to accept registrations in beneficiary form involving more than one primary beneficiary also should provide by rule whether fractional shares will be registered in the names of surviving beneficiaries where the number of shares held by the deceased owner does not divide without remnant among the survivors. If fractional shares are not desired, the issuer may wish to provide for sale of odd shares and division of proceeds, for an uneven distribution with the first or last named to receive the odd share, or for other resolution. Section 8 deals with whether intermediaries have any obligation to offer beneficiary registrations of any sort; Section 10 enables issuers to adopt terms and conditions controlling the details of applications for registrations they decide to accept and procedures for implementing such registrations after an owner's death.

The reference to surviving, multiple TOD beneficiaries as tenants in common is not intended to suggest that a registration form specifying unequal shares, such as "TOD A (20%), B (30%), C (50%)," would be improper. Though not included in the beneficiary forms described for illustrative purposes in Section 10, the Act enables a registering entity to accept and implement a TOD beneficiary designation like the one just suggested. If offered, such a registration form should be implemented by registering entity terms and conditions providing for disposition of the share of a beneficiary who predeceases the owner when two or more of a group of multiple beneficiaries survive the owner. For example, the terms might direct the share of the predeceased beneficiary to the survivors in the proportion that their original shares bore to each other. Unless unequal shares are specified in a registration in beneficiary form designating multiple beneficiaries, the shares of the beneficiaries would, of course, be equal.

The statement that a security registered in beneficiary form is in the deceased owner's estate when no beneficiary survives the owner is not intended to prevent application of any anti-lapse statute that might direct a nonprobate transfer on death to the surviving issue of a beneficiary who failed to survive the owner. Rather, the statement is intended only to indicate that the registering entity involved should transfer or reregister the security as directed by the decedent's personal representative.

See the Comment to Section 1 regarding the meaning of "survive" for purposes of this Act.

NORTH CAROLINA COMMENT

In the second sentence of this section, the word "survived" was replaced with the word "survive."

§ 41-47. Protection of registering entity.

  1. A registering entity is not required to offer or to accept a request for security registration in beneficiary form. If a registration in beneficiary form is offered by a registering entity, the owner requesting registration in beneficiary form assents to the protections given to the registering entity by this Article.
  2. By accepting a request for registration of a security in beneficiary form, the registering entity agrees that the registration will be implemented on death of the deceased owner as provided in this Article.
  3. A registering entity is discharged from all claims to a security by the estate, creditors, heirs, or devisees of a deceased owner if it registers a transfer of a security in accordance with G.S. 41-46 and does so in good faith reliance (i) on the registration, (ii) on this Article, and (iii) on information provided to it by affidavit of the personal representative of the deceased owner, or by the surviving beneficiary or by the surviving beneficiary's representatives, or other information available to the registering entity. The protections of this Article do not extend to a reregistration or payment made after a registering entity has received written notice, addressed to the registering entity, from any claimant to any interest in the security objecting to implementation of a registration in beneficiary form. No other notice or other information available to the registering entity affects its right to protection under this Article.
  4. The protection provided by this Article to the registering entity of a security does not affect the rights of beneficiaries in disputes between themselves and other claimants to ownership of the security transferred or its value or proceeds.

History

(2005-411, s. 1; 2006-226, s. 11.)

OFFICIAL COMMENT

It is to be noted that the "request" for a registration in beneficiary form may be in any form chosen by a registering entity. The Act does not prescribe a particular form and does not impose record-keeping requirements. Registering entities' business practices, including any industry standards or rules of transfer agent associations, will control.

The written notice referred to in subsection (c) would qualify as a notice under UCC § 8-403.

"Good faith" as used in this section is intended to mean "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade," as specified in UCC § 2-103(1)(b).

The protections described in this section are designed to meet any questions regarding registering entity protection that may not be foreclosed by issuer protections provided in the Uniform Commercial Code. Because persons interested in this Act may wish to be reminded of relevant UCC provisions, a brief summary follows.

"U.C.C. § 8-403, 'Issuer's Duty as to Adverse Claims' contains detailed provisions regarding duties of inquiry by an issuer of a certificated or uncertificated security who is requested to effect a transfer, and the availability and use of 30 day notices to force adverse claimants to start litigation if further delay in transfer is desired. U.C.C. § 8-201's definition of 'issuer' for purposes of 'registration of transfer. . .' is simply 'a person on whose behalf transfer books are maintained'. U.C.C. § 8-403 is among the sections dealing with registration of transfers.

"U.C.C. sections 8-308 and 8-404(1) appear to exonerate an issuer who acts in response to transfer directions signalled by the 'necessary indorsement' on or with a certificated security or in response to 'an instruction originated by an appropriate person' in the case of an uncertificated security. Section 8-308 describes the meaning of 'appropriate person' in the case of a certificated security as 'the person specified by the certificated security . . . to be entitled to the security.' U.C.C. § 8-308(6) (1978). In the case of an uncertificated security, 'appropriate person' means the 'registered owner.' Id. § 8-308(7). The survivor of owners listed as joint tenants with right of survivorship is specifically defined as an authorized person. Id. § 8-308(8)(d). The U.C.C. aspect of the problem could be met by an additional sub-paragraph to section 8-308(8) that would include a TOD beneficiary as an 'appropriate person' when the beneficiary has survived the owner.

"No U.C.C. addition would be necessary if a TOD beneficiary designation were viewed as a contingent order for transfer at the owner's death that may be safely implemented as a direction from the owner as an 'authorized person.' The owner's death before completion of the transfer would not pose U.C.C. problems because section 8-308(10) provides: 'Whether the person signing is appropriate is determined as of the date of signing and an indorsement made by or an instruction originated by him does not become unauthorized for the purposes of this Article by virtue of any subsequent change of circumstances.'

"It might be questioned whether a TOD direction, which may be revoked before it is carried into effect and is also contingent on the beneficiary's survival of the registrant, is within the transfer directions contemplated by the U.C.C. framers for purposes of issuer protection. However, since section 8-202 explicitly protects issuers against problems arising because of restrictions or conditions on transfers, only the novelty of revocable directions for transfer on death gives pause.

"In general, article 8 of the U.C.C. reflects a careful attempt to protect implementation of a wide range of transfer instructions so long as the signatures are genuine and are those of owners acting in conformity with duly imposed rules of the issuer organization. . . . Hence, existing U.C.C. protections should be adequate, . . ." Wellman, Transfer-On-Death Securities Registration: A New Title Form, 21 Ga. L. Rev. 789, 823 n.90 (1987).

NORTH CAROLINA COMMENT

In the first sentence of subsection (c), the phrase "transfer of the security" was replaced with the phrase "transfer of a security."

Article 8 of the Uniform Commercial Code was revised in 1994. The references to Article 8 in the Official Comment to this section are references to former Article 8.

Effect of Amendments. - Session Laws 2006-226, s. 11, effective August 10, 2006, inserted "addressed to the registering entity," in the second sentence of subsection (c).

§ 41-48. Nontestamentary transfer on death.

  1. A transfer on death resulting from a registration in beneficiary form is effective by reason of the contract regarding the registration between the owner and the registering entity and this Article and is not testamentary.
  2. The interest of a deceased owner when there are one or more surviving owners remains liable for the debts of the decedent in the same manner as the personal property included in the decedent's estate, and recovery of that interest shall be made from the surviving owner or owners when the decedent's estate is insufficient to satisfy the debts. The interest of a deceased sole owner, or the last to die of several owners, remains liable for the debts of the decedent in the same manner as the personal property included in the decedent's estate, and recovery of that interest shall be made from the TOD beneficiary when the decedent's estate is insufficient to satisfy the debts.
  3. This Article does not repeal or modify any provision of law relating to estate taxes.

History

(2005-411, s. 1.)

OFFICIAL COMMENT

[Omitted.]

NORTH CAROLINA COMMENT

Subsection (a) is identical to subsection (b) of the Uniform Act. Subsections (b) and (c) replace subsections (a) and (c) through (i) of the Uniform Act. Subsection (b) is derived from G.S. 41-2.2(c) and is consistent with other creditor's rights provisions in North Carolina statutory law. Subsection (c) has no counterpart in the Uniform Act and conforms to similar provisions in North Carolina statutory law.

§ 41-49. Terms, conditions, and forms for registration.

  1. A registering entity offering to accept registrations in beneficiary form may establish the terms and conditions under which it will receive requests (i) for registrations in beneficiary form, and (ii) for implementation of registrations in beneficiary form, including requests for cancellation of previously registered TOD beneficiary designations and requests for reregistration to effect a change of beneficiary. The terms and conditions established may provide for proving death, avoiding or resolving any problems concerning fractional shares, and designating primary or contingent beneficiaries. Forms of identifying beneficiaries who are to take on one or more contingencies, and rules for providing proofs and assurances needed to satisfy reasonable concerns by registering entities regarding conditions and identities relevant to accurate implementation of registrations in beneficiary form, may be contained in a registering entity's terms and conditions.
  2. The following are illustrations of registrations in beneficiary form that a registering entity may authorize:
    1. Sole owner-sole beneficiary: "John S. Brown TOD (or POD) John S. Brown, Jr."
    2. Multiple owners-sole beneficiary: "John S. Brown, Mary B. Brown JT TEN WROS TOD John S. Brown, Jr."
    3. Multiple owners-primary and secondary (substituted) beneficiaries: "John S. Brown, Mary B. Brown JT TEN WROS TOD John S. Brown, Jr. SUB BENE Peter O. Brown".

History

(2005-411, s. 1.)

OFFICIAL COMMENT

Use of "and" or "or" between the names of persons registered as co-owners is unnecessary under the Act and should be discouraged. If used, the two words should have the same meaning insofar as concerns a title form; i.e. , that of "and" to indicate that both named persons own the asset.

Descendants of a named beneficiary who take by virtue of a "LDPS" designation appended to a beneficiary's name take as TOD beneficiaries rather than as intestate successors. If no descendant of a predeceased primary beneficiary survives the owner, the security passes as a part of the owner's estate as provided in Section 7.

NORTH CAROLINA COMMENT

In subsection (a), the Uniform Act's language relating to the "LDPS" (lineal descendants per stirpes) designation was omitted because the language defines "per stirpes" in a way different from the usual meaning in North Carolina.

In the introductory language of subsection (b), the word "which" was replaced with the word "that." In subdivisions (b)(2), the phrase "John S Brown Mary B Brown JT TEN TOD John S Brown Jr" was replaced with the phrase "John S. Brown, Mary B. Brown JT TEN WROS TOD John S. Brown, Jr." In subdivision (b)(3), the phrase "John S Brown Mary B Brown JT TEN TOD John S Brown Jr LDPS" was replaced with the phrase "John S. Brown, Mary B. Brown JT TEN WROS TOD John S. Brown, Jr. SUB BENE Peter O. Brown."

§ 41-50. Short title; rules of construction.

  1. This Article shall be known as and may be cited as the "Uniform TOD Security Registration Act".
  2. This Article shall be applied and construed to effectuate its general purposes and to make uniform the laws with respect to the subject of this Article among states enacting it.
  3. This Article does not repeal G.S. 41-2.2. G.S. 41-2.2 applies in determining whether a right of survivorship exists among multiple owners of a security.

History

(2005-411, s. 1.)

NORTH CAROLINA COMMENT

This section differs from the Uniform Act in several respects. In subsection (b), the phrase "liberally construed and applied to promote its underlying purposes and policy" was replaced with the phrase "applied and construed to effectuate its general purposes." Subsection (c) has no counterpart in the Uniform Act. The Uniform Act's subdivision (3), relating to the supplementation of the Act by principles of law and equity, was omitted.

§ 41-51. Application of Article.

This Article applies to registrations of securities in beneficiary form made before, on, or after October 1, 2005, by decedents dying on or after October 1, 2005.

History

(2005-411, s. 1.)

NORTH CAROLINA COMMENT

In this section, the phrase "made before or after" was replaced with the phrase "made before, on, or after."

§§ 41-52 through 41-54: Reserved for future codification purposes.

ARTICLE 5. Tenancy by the Entirety.

Sec.

§ 41-55. Definitions.

For the purposes of this Article, the following definitions apply:

  1. Conveyance. - A transfer of title to real property by deed or devise or other instrument transferring title to real property.
  2. Income. - Rents and profits from property held as tenants by the entirety.
  3. Spouses. - Two individuals then legally married to each other.

History

(2020-50, s. 1(a), (c).)

Editor's Note. - Session Laws 2020-50, s. 4, made this Article, as enacted by Session Laws 2020-50, s. 1(a)-(c), effective June 30, 2020.

§ 41-56. Creation of tenancy by the entirety.

  1. Unless a contrary intention is expressed in the conveyance, a conveyance of real property, or any interest in real property, to spouses vests title in them as tenants by the entirety when the conveyance is to one of the following:
    1. A named man "and wife."
    2. A named woman "and husband."
    3. A named individual "and wife."
    4. A named individual "and husband."
    5. A named individual "and spouse."
    6. Two named individuals, married to each other at the time of conveyance, whether or not identified in the conveyance as being (i) husband and wife, (ii) spouses, or (iii) married to each other.
  2. A conveyance by a grantor of real property, or any interest in real property, to the grantor and his or her spouse vests the property in them as tenants by the entirety, unless a contrary intention is expressed in the conveyance. The joinder of a spouse in a conveyance made by the grantor under this subsection is not necessary, but the conveyance is subject to the provisions of G.S. 52-10 or G.S. 52-10.1, except acknowledgement of the spouse of the grantor is not necessary.
  3. When an individual owns an undivided interest in real property as a tenant in common with some individual or individuals other than his or her spouse and there occurs an actual partition of the property, a tenancy by the entirety may be created in the individual who owned the undivided interest and his or her spouse as follows:
    1. In a division by crossdeed or deeds between or among the tenants in common, if the instrument contains both of the following:
      1. The intent of the tenant in common to create a tenancy by the entirety with his or her spouse in this exchange of deeds is clearly stated in the granting clause of the deed or deeds to the tenant in common and his or her spouse.
      2. The deed or deeds to the tenant in common and his or her spouse is signed by the tenant in common and is acknowledged before a certifying officer in accordance with G.S. 52-10.
    2. In a judicial proceeding for actual partition where both spouses have the right to become parties to the proceeding and to have their pleadings state that the intent of the tenant in common is to create a tenancy by the entirety with his or her spouse. The order of partition must provide that the real property apportioned to the tenant in common and his or her spouse shall be owned by them as tenants by the entirety.
  4. When spouses become co-owners of a mobile home, in the absence of a contrary intention appearing in the instrument of title, the spouses become tenants by the entirety with all the incidents of an estate by the entirety in real property, including the right of survivorship in the case of death of either spouse. For the purposes of this subsection, it is immaterial whether the property at any particular time is classified for any purpose as either real or personal. Nothing in this subsection is deemed to limit or prohibit any other type of ownership otherwise authorized by law. For the purposes of this subsection, the term "mobile home" means a portable manufactured housing unit designed for transportation on its own chassis and placement on a temporary or semipermanent foundation having a measurement of over 32 feet in length and over eight feet in width. As used in this subsection, the term "mobile home" also means a double-wide mobile home consisting of two or more portable manufactured housing units that are designed for transportation on their own chassis and are connected on site for placement on a temporary or semipermanent foundation having a measurement of over 32 feet in length and over eight feet in width.

History

(1957, c. 598, s. 1; 1965, c. 878, s. 3; 1969, c. 748, s. 1; 1977, c. 375, ss. 9, 11; 1981, c. 507, s. 1; 1981 (Reg. Sess., 1982), c. 1245, s. 1; 1983, c. 449, ss. 1, 2; 1999-337, s. 11; 2020-23, s. 13; 2020-50, ss. 1(a)-(c), 3.1; 2021-91, s. 8.)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," see G.S. 12-3(16).

As to rules for construction pertaining to "husband and wife," "widow," and "widower," see G.S. 12-3(16), (17).

Editor's Note. - Subsections (a), (b), (c), and (d) of this section are former G.S. 39-13.6(b), G.S. 39-13.3(b), G.S. 39-13.5, and G.S. 41-2.5, respectively, as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citations and annotations from the former sections have been added to this section as recodified.

This section was amended by Session Laws 2020-23, s. 13, effective October 1, 2020, and Session Laws 2020-50, s. 1(b), (c), which recodified and rewrote the section, effective June 30, 2020, in the coded bill drafting format provided by G.S. 120-20.1. The amendments did not account for one another, and Session Laws 2020-50 did not strike through a period following "common" in subdivision (c)(1) that was added by Session Laws 2020-23. Subdivision (c)(1) has been set out in the form above at the direction of the Revisor of Statutes.

Effect of Amendments. - Session Laws 2020-23, s. 13, effective October 1, 2020, in the introductory paragraph of subsection (c), substituted "as follows" for "in the manner hereinafter provided"; in subdivisions (c)(1) and (c)(2), substituted "tenant in common and his or her spouse" for "tenant and his or her spouse"; in subdivision (c)(1), substituted "must be" for "is" twice; in subdivision (c)(2), inserted "actual" in the first sentence; and made stylistic changes.

Session Laws 2020-50, s. 1(c), effective June 30, 2020, rewrote the section.

Session Laws 2020-50, s. 3.1, effective June 30, 2020, made minor stylistic changes in sub-subdivision (c)(1)b. and subdivision (c)(2).

Session Laws 2021-91, s. 8, effective October 1, 2021, substituted "in real property" for "therein" in subsection (a); substituted "in real property, to the grantor" for "therein, to an individual," "them" for "the grantees," and "G.S. 52-10.1" for "G.S. 52-11" in subsection (b); made a stylistic change in subdivision (c)(1); and, in subsection (d), in the second and third sentences, substituted "is" for "shall be," and, in the last sentence, substituted "consisting of two or more" for "which is two or more," inserted "that are" preceding "designed for transportation," and substituted "chassis and are connected" for "chassis, which connect."

Legal Periodicals. - For article on tenancy by the entirety in North Carolina including brief discussion of this section, see 41 N.C.L. Rev. 67 (1962).

For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

For comment on resulting trusts in entireties property when the wife furnishes purchase money, see 17 Wake Forest L. Rev. 415 (1981).

For survey of 1981 property law, see 60 N.C.L. Rev. 1420 (1982).

For article analyzing North Carolina's tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

For article discussing the doctrine of color of title in North Carolina, see 13 N.C. Cent. L.J. 123 (1982).

For survey of 1982 law relating to family law, see 61 N.C.L. Rev. 1155 (1983).

For comment discussing the status of the presumption of purchase money resulting trust for wives in light of Mims v. Mims, 305 N.C. 41, 286 S.E.2d 779 (1982), see 61 N.C.L. Rev. 576 (1983).

For note, "Branch Banking & Trust Co. v. Wright - Creditors' Rights to Entireties Property Awarded to Nondebtor Spouse Upon Divorce," see 64 N.C.L. Rev. 1471 (1986).

For note on the retroactive application of G.S. 39-13.6 under a vested rights analysis, see 65 N.C.L. Rev. 1195 (1987).

For note, "McLean v. McLean: North Carolina Adopts the Gift Presumption in Equitable Distribution," see 68 N.C. L. Rev. 1269 (1990).

For article, "A Spouse's Right to Control Assets During Marriage: Is North Carolina Living in the Middle Ages?", see 18 Campbell L. Rev. 203 (1996).

CASE NOTES

Editor's Note. - Most of the cases below were decided under former G.S. 39-13.6(b), G.S. 39-13.3(b), G.S. 39-13.5, and G.S. 41-2.5, now recodified as this section.

This Section Creates Exception to Rule in G.S. 39-13.3(b). - This section requires that in order to create a tenancy by the entirety by division deed, the tenant in common must clearly state his intention in the granting clause. Where this was not done, the intention can be supplied by G.S. 39-13.3(b). This section creates an exception to the rule of G.S. 39-13.3(b) that unless a contrary intent is shown, a deed to a husband and wife vests an estate in them as tenants by the entirety. Under this section it is necessary to say so in the granting clause in order to create a tenancy by the entirety by a division deed. Brown v. Brown, 59 N.C. App. 719, 297 S.E.2d 619 (1982), cert. denied, 307 N.C. 696, 301 S.E.2d 388 (1983).

Effect of Separation Agreement on Tenancy by Entirety. - Subsection (c) of this section was not applicable in a divorce action on the issue of whether a separation agreement contractually altered the character of the ownership of a tenancy by the entirety. Branstetter v. Branstetter, 36 N.C. App. 532, 245 S.E.2d 87 (1978).

Wife May Convey as Freely as Husband. - This section and former G.S. 52-6 express a clear legislative intent that so long as the provisions of former G.S. 52-6 are complied with, a wife may convey her separate property to her husband, or to her husband and herself, as freely and with the same consequences as the husband may convey his property to his wife. Skinner v. Skinner, 28 N.C. App. 412, 222 S.E.2d 258, cert. denied, 289 N.C. 726, 224 S.E.2d 674 (1976).

Property Not Removed from Equitable Distribution Act by Dissolution of Tenancy by Entirety. - Though conveyances from wife to husband dissolved the tenancy by the entirety in the parcels of land and vested title thereto solely in husband, as G.S. 39-13.3(c) provides, he nevertheless acquired title to the property thereunder, not by gift, but during the course of the marriage and before the parties separated, and property so acquired, so the General Assembly has declared, is ipso facto marital property. Thus, contrary to husband's contention, dissolving the tenancy by the entirety did not remove the property involved from the ambit of the Equitable Distribution Act, and the trial judge did not err in finding and concluding otherwise. Beroth v. Beroth, 87 N.C. App. 93, 359 S.E.2d 512, cert. denied, 321 N.C. 296, 362 S.E.2d 778 (1987).

Bankruptcy. - Where widow of deceased Chapter 7 debtor sought to reopen his case to allow her to amend debtor's exemptions, and ultimately grant judicial lien avoidance nunc pro tunc, she lacked standing as personal representative of debtor's estate to act with regard to property because it was never part of probate estate, as it was owned as entireties property. In re Kennedy, - Bankr. - (Bankr. M.D.N.C. Apr. 6, 2016).

This section is reflective of changed circumstances in economic relationship and responsibilities among married persons and expresses a public policy of this State that their rights in property should be equalized. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Rights of Judgment Creditor Upon Dissolution of Marriage or Death. - A judgment creditor with a claim against one spouse may not have a lien against the entirety property, but the judgment creditor does have rights with respect to the property upon dissolution of the marriage or upon the death of the judgment debtor's spouse. In re Ulmer, 211 Bankr. 523 (Bankr. E.D.N.C. 1997).

This section expressly changes the common-law incidents of tenancy by the entirety for all real property acquired on and after January 1, 1983. Boyce v. Boyce, 60 N.C. App. 685, 299 S.E.2d 805, cert. denied, 308 N.C. 190, 302 S.E.2d 242 (1983).

Applicability to tenancies by the entireties which existed prior to January 1, 1983. - Provisions of subsection (a) of this section should generally be construed to apply to tenancies by the entirety which preexisted the effective date of the statute (January 1, 1983) and such application is not, in and of itself, unconstitutional. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

The General Assembly has clearly manifested its intention that this section, including the "equal right to control" provision of subsection (a), apply to estates by the entirety created before January 1, 1983. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

A tenant in common has a right to demand an accounting from a co-tenant; furthermore, plaintiff 's action for an accounting was still ripe because the statute of limitations did not begin running until her demand for an accounting was refused. Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Rent from Entireties Property Was Not Entireties Property. - Turnover of rents from real property held as tenants by entirety was ordered, as North Carolina did not recognize estate by entirety in personal property, and rent derived from real property held as tenants by entirety was not entireties property and thus, rents were property of estate and not exempt under applicable nonbankruptcy law. Although North Carolina statute gave married women equal rights to use and control income from entireties property, this did not mean that income from property was entireties property. In re Adams, 506 B.R. 688 (Bankr. E.D.N.C. 2014).

Affirmative Defense. - Where neither the defendants' original nor amended answer included an affirmative defense, the defense was waived even though the lease for land held by a husband and wife was not signed by the wife. Purchase Nursery, Inc. v. Edgerton, 153 N.C. App. 156, 568 S.E.2d 904 (2002).

Dismissal of Complaint. - Because a wife never signed a contract for sale or an authorized agency, pursuant to G.S. 39-13.6(a), the trial court, inter alia, properly granted the husband and wife's N.C. R. Civ. P. 12(b)(6) motion to dismiss a buyer's complaint for breach of contract and specific performance for failing to state a legally sufficient claim. Burgin v. Owen, 181 N.C. App. 511, 640 S.E.2d 427, appeal dismissed, 361 N.C. 425, 647 S.E.2d 98, cert. denied, 361 N.C. 690, 652 S.E.2d 257, 2007 N.C. LEXIS 1026 (Oct. 11, 2007).

The claim of a vested property right may not rest upon state enforcement of common law which is unconstitutionally discriminatory. Thus, to the extent that defendant husband's claims to the exclusive right of control and income of pre-1983 estates by the entirety were based solely upon the common-law incidents of the tenancy, they would fail, as the right recognized by the common law could not be said to be a "vested property right." Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Burden of Proving Vested Rights. - There may be circumstances under which a husband's rights to income and control of pre-1983 tenancy by the entirety property, to the exclusion of his wife, may be classified as "vested rights" for reasons other than the common-law incidents of that estate. In such cases, the burden will be upon the husband to demonstrate facts showing why his rights are "vested rights" such that application of the "equal control" provisions of subsection (a) of this section to the estate would violate due process. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Claimant spouse's assertion of the "innocent owner" defense provided by 18 U.S.C.S. § 983(d) in her claim to a camper, failed because the spouse could not establish that the camper was owned as tenants by the entirety; the spouse had not presented any evidence regarding the "co-owner" requirement of G.S. 41-2.5, nor had the spouse presented any evidence regarding the general requirement with entireties properties that spouses be identified either by name or title in the ownership document. United States v. 1999 Starcraft Camper Trailer, - F. Supp. 2d - (M.D.N.C. Oct. 10, 2006).

Once the parties were divorced, they no longer held the property as tenants by the entirety but as tenants in common. Smith v. Smith, 249 N.C. 669, 107 S.E.2d 530 (1959); Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Attribution of Income for Child Support Purposes. - Although under the Child Support Guidelines income from rental property is included in the calculation of a parent's gross income, because father and his wife owned property in tenancy by the entirety, he was considered to have received only one-half of the income, or $487.50 per month; it was therefore error for the trial court to attribute the full amount of rental income from the property to father. Kennedy v. Kennedy, 107 N.C. App. 695, 421 S.E.2d 795 (1992).

Property Not Available to Satisfy Debts Held Solely by One Tenant. - Debtor's exemptions were properly claimed as property held as tenants by the entirety and the property was not available to the trustee to satisfy general unsecured debt that was held solely in the name of debtor. In re Knapp, 285 B.R. 176 (Bankr. M.D.N.C. 2002).

Chapter 7 debtor's motion to avoid judicial lien under 11 U.S.C.S. § 522(f) was granted even though she and her non-debtor spouse owned the property as tenants by the entirety under G.S. 39-13.6(a), as the debtor's interest in the entireties property was property of her estate under 11 U.S.C.S. § 541(a), the creditor's judgment was against the debtor and her non-debtor spouse, and a trustee would be entitled to sell the entireties property, as there were joint creditors. However, 11 U.S.C.S. § 522(f) had to be applied after the debtor's interest was determined by subtracting the total of two deeds of trust from the value of the property, and then dividing that amount in half to arrive at the value of the debtor's interest in the property; as her exemption (under G.S. 1C-1601(a)(1)) plus the amount of the judgment lien exceeded the value of her interest by more than the amount of the judgment, she was entitled to avoid the entire judgment lien. In re Staples, - Bankr. - (Bankr. M.D.N.C. June 7, 2000).

Bankruptcy Trustee's Sale of Entireties Property. - Consistent with North Carolina law applicable outside of bankruptcy, the court concluded that following the Trustee's sale the proceeds from the entireties property was subject to the claims of joint creditors only. Although the case law was divided on the issue, the better view was that the bankruptcy trustee's sale of entireties property did not destroy the tenancy by the entirety. In re Surles, - Bankr. - (Bankr. M.D.N.C. Apr. 29, 2003).

Deed of Trust Executed By Only One Spouse. - Bankruptcy court granted a Chapter 7 trustee's motion for summary judgment on his claims that a deed of trust a husband executed to secure a loan he received did not create a properly perfected security interest under G.S. 39-13.6(b), and was avoidable under 11 U.S.C.S. § 544(a), because it was executed solely by the husband on real property he owned as a tenant by the entireties with his wife. The trustee filed an adversary proceeding against the husband, the wife, a bank, and an insurance company that held the deed of trust, and although he reached a settlement with the husband and wife, neither the bank nor the insurance company filed a response or brief in opposition to the trustee's motion for summary judgment within the 20-day period allowed by Bankr. M.D.N.C. R. 7056-1(c). Saslow v. PRLAP, Inc. (In re Taylor), - Bankr. - (Bankr. M.D.N.C. Jan. 20, 2010).

Inability to Take Reasonable Measures. - Husband could not take reasonable measures to comply with a court order because (1) the husband could not force the husband's second wife to sell a house the husband owned with the second wife as tenants by the entirety, and (2) any reduction in the husband's withholding from the husband's gross income for taxes still would not have enabled the husband to comply. Spears v. Spears, 245 N.C. App. 260, 784 S.E.2d 485 (2016).

Ineffective Power of Attorney. - Creditor did not hold a properly secured lien against property held by a Chapter 7 debtor and his wife as tenants by the entirety because a power of attorney executed by the wife in favor of the debtor did not authorize the granting of a lien on the property in favor of the creditor. In re Doerfer, - Bankr. - (Bankr. M.D.N.C. Nov. 1, 2006).

Tenancy by the Entirety Not Created. - Quitclaim deed conveyed a one-half undivided remainder interest in the real property to the wife and the debtor as tenants in common because neither party was named or described as "wife" or "husband," and the use of the phrase "in equal shares" in the conveyance was inconsistent with an intention to create a tenancy by the entirety, under G.S. 39-13.6(b). In re Gonzales, - Bankr. - (Bankr. E.D.N.C. June 24, 2013), aff'd, 2014 U.S. Dist. LEXIS 39145 (E.D.N.C. 2014).

Security interest in a mobile home which was moveable, tangible property, was governed by Article 9 of the U.C.C. subsection (a) of this section, which provides that when a husband and wife become co-owners of a mobile home, in the absence of anything to the contrary appearing in the instrument of title, they become tenants by the entirety with all the incidents of an estate by the entirety in real property, does not dictate a contrary result. Joyce v. Cloverbrook Homes, Inc., 81 N.C. App. 270, 344 S.E.2d 58, cert. denied, 317 N.C. 704, 347 S.E.2d 42 (1986).

"Co-owner" Requirement. - Claimant spouse's assertion of the "innocent owner" defense provided by 18 U.S.C.S. § 983(d) in her claim to a camper, failed because the spouse could not establish that the camper was owned as tenants by the entirety; the spouse had not presented any evidence regarding the "co-owner" requirement of G.S. 41-2.5, nor had the spouse presented any evidence regarding the general requirement with entireties properties that spouses be identified either by name or title in the ownership document. United States v. 1999 Starcraft Camper Trailer, - F. Supp. 2d - (M.D.N.C. Oct. 10, 2006).

Although no titles existed for mobile homes that were abandoned in a condemnation of a mobile home park, a bankruptcy debtor properly claimed exemptions in the mobile homes as jointly owned with the debtor's spouse, and thus held in tenancy by the entirety under G.S. 41-2.5; property tax records identified the debtor and the spouse as the owners of the mobile homes, the debtor and the spouse equally shared duties in maintaining and renting the mobile homes, a joint bank account was used with regard to income and expenses related to the mobile homes, and all other real property of the debtor was jointly owned with the spouse. In re Britt, 368 B.R. 471 (Bankr. E.D.N.C. 2007).

Cited in Council v. Pitt, 272 N.C. 222, 158 S.E.2d 34 (1967); Miller v. Miller, 34 N.C. App. 209, 237 S.E.2d 552 (1977); Young v. Young, 43 N.C. App. 419, 259 S.E.2d 348 (1979); In re Foreclosure of Deed of Trust, 303 N.C. 514, 279 S.E.2d 566 (1981); Biesecker v. Biesecker, 62 N.C. App. 282, 302 S.E.2d 826 (1983); Dobbins v. Paul, 71 N.C. App. 113, 321 S.E.2d 537 (1984); Lawrence v. Lawrence, 100 N.C. App. 1, 394 S.E.2d 267 (1990); Davis v. Davis, 360 N.C. 518, 631 S.E.2d 114 (2006); Beckhart v. Nationwide Tr. Serv. Inc., - F. Supp. 2d - (E.D.N.C. Aug. 20, 2012).


§ 41-57. Presumption of gift by spouse furnishing consideration.

Except for purposes of equitable distribution as provided under G.S. 50-20 and G.S. 50-21, when an individual furnishing the consideration for real property causes title to be placed in the name of the individual and the individual's spouse, there is a presumption of a gift to the individual's spouse of an entirety interest, which is rebuttable by clear, cogent, and convincing evidence.

History

(2020-50, s. 1(a), (c).)

§ 41-58. Possession and control of entireties property.

  1. Spouses shall have an equal right to the control, use, possession, and income from property held by them as tenants by the entirety.
  2. Neither spouse may bargain, sell, lease, mortgage, transfer, convey, sign, pay out, or in any manner encumber any property held by them as tenants by the entirety without the written joinder of the other spouse. This section shall not be construed to require the spouse's joinder where a different provision is made under G.S. 41-56(b), G.S. 41-63(4), G.S. 39-13, G.S. 39-13.3, G.S. 39-13.4, or G.S. 52-10.
  3. The mortgage or sale of an interest in real property held by spouses as tenants by the entirety where one or both spouses is incompetent is governed by the provisions of Article 15 of Chapter 35A of the General Statutes.

History

(1981 (Reg. Sess., 1982), c. 1245, s. 1; 1983, c. 449, ss. 1, 2; 2020-50, s. 1(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

Editor's Note. - This section is former G.S. 39-13.6(a) as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Effect of Amendments. - Session Laws 2020-50, s. 1(c), effective June 30, 2020, rewrote the section.

Legal Periodicals. - For article analyzing North Carolina's tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

For article discussing the doctrine of color of title in North Carolina, see 13 N.C. Cent. L.J. 123 (1982).

For survey of 1982 law relating to family law, see 61 N.C.L. Rev. 1155 (1983).

For comment discussing the status of the presumption of purchase money resulting trust for wives in light of Mims v. Mims, 305 N.C. 41, 286 S.E.2d 779 (1982), see 61 N.C.L. Rev. 576 (1983).

For note, "Branch Banking & Trust Co. v. Wright - Creditors' Rights to Entireties Property Awarded to Nondebtor Spouse Upon Divorce," see 64 N.C.L. Rev. 1471 (1986).

For note on the retroactive application of G.S. 39-13.6 under a vested rights analysis, see 65 N.C.L. Rev. 1195 (1987).

For note, "McLean v. McLean: North Carolina Adopts the Gift Presumption in Equitable Distribution," see 68 N.C. L. Rev. 1269 (1990).

For article, "A Spouse's Right to Control Assets During Marriage: Is North Carolina Living in the Middle Ages?", see 18 Campbell L. Rev. 203 (1996).

CASE NOTES

Editor's Note. - Most of the cases below were decided under former G.S. 39-13.6(a), now recodified as this section.

This section is reflective of changed circumstances in economic relationship and responsibilities among married persons and expresses a public policy of this State that their rights in property should be equalized. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Rights of Judgment Creditor Upon Dissolution of Marriage or Death. - A judgment creditor with a claim against one spouse may not have a lien against the entirety property, but the judgment creditor does have rights with respect to the property upon dissolution of the marriage or upon the death of the judgment debtor's spouse. In re Ulmer, 211 Bankr. 523 (Bankr. E.D.N.C. 1997).

This section expressly changes the common-law incidents of tenancy by the entirety for all real property acquired on and after January 1, 1983. Boyce v. Boyce, 60 N.C. App. 685, 299 S.E.2d 805, cert. denied, 308 N.C. 190, 302 S.E.2d 242 (1983).

Applicability to tenancies by the entireties which existed prior to January 1, 1983. - Provisions of subsection (a) of this section should generally be construed to apply to tenancies by the entirety which preexisted the effective date of the statute (January 1, 1983) and such application is not, in and of itself, unconstitutional. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

The General Assembly has clearly manifested its intention that this section, including the "equal right to control" provision of subsection (a), apply to estates by the entirety created before January 1, 1983. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

A tenant in common has a right to demand an accounting from a co-tenant; furthermore, plaintiff 's action for an accounting was still ripe because the statute of limitations did not begin running until her demand for an accounting was refused. Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Rent from Entireties Property Was Not Entireties Property. - Turnover of rents from real property held as tenants by entirety was ordered, as North Carolina did not recognize estate by entirety in personal property, and rent derived from real property held as tenants by entirety was not entireties property and thus, rents were property of estate and not exempt under applicable nonbankruptcy law. Although North Carolina statute gave married women equal rights to use and control income from entireties property, this did not mean that income from property was entireties property. In re Adams, 506 B.R. 688 (Bankr. E.D.N.C. 2014).

Affirmative Defense. - Where neither the defendants' original nor amended answer included an affirmative defense, the defense was waived even though the lease for land held by a husband and wife was not signed by the wife. Purchase Nursery, Inc. v. Edgerton, 153 N.C. App. 156, 568 S.E.2d 904 (2002).

Dismissal of Complaint. - Because a wife never signed a contract for sale or an authorized agency, pursuant to G.S. 39-13.6(a), the trial court, inter alia, properly granted the husband and wife's N.C. R. Civ. P. 12(b)(6) motion to dismiss a buyer's complaint for breach of contract and specific performance for failing to state a legally sufficient claim. Burgin v. Owen, 181 N.C. App. 511, 640 S.E.2d 427, appeal dismissed, 361 N.C. 425, 647 S.E.2d 98, cert. denied, 361 N.C. 690, 652 S.E.2d 257, 2007 N.C. LEXIS 1026 (Oct. 11, 2007).

The claim of a vested property right may not rest upon state enforcement of common law which is unconstitutionally discriminatory. Thus, to the extent that defendant husband's claims to the exclusive right of control and income of pre-1983 estates by the entirety were based solely upon the common-law incidents of the tenancy, they would fail, as the right recognized by the common law could not be said to be a "vested property right." Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Burden of Proving Vested Rights. - There may be circumstances under which a husband's rights to income and control of pre-1983 tenancy by the entirety property, to the exclusion of his wife, may be classified as "vested rights" for reasons other than the common-law incidents of that estate. In such cases, the burden will be upon the husband to demonstrate facts showing why his rights are "vested rights" such that application of the "equal control" provisions of subsection (a) of this section to the estate would violate due process. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Claimant spouse's assertion of the "innocent owner" defense provided by 18 U.S.C.S. § 983(d) in her claim to a camper, failed because the spouse could not establish that the camper was owned as tenants by the entirety; the spouse had not presented any evidence regarding the "co-owner" requirement of G.S. 41-2.5, nor had the spouse presented any evidence regarding the general requirement with entireties properties that spouses be identified either by name or title in the ownership document. United States v. 1999 Starcraft Camper Trailer, - F. Supp. 2d - (M.D.N.C. Oct. 10, 2006).

Once the parties were divorced, they no longer held the property as tenants by the entirety but as tenants in common. Smith v. Smith, 249 N.C. 669, 107 S.E.2d 530 (1959); Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Attribution of Income for Child Support Purposes. - Although under the Child Support Guidelines income from rental property is included in the calculation of a parent's gross income, because father and his wife owned property in tenancy by the entirety, he was considered to have received only one-half of the income, or $487.50 per month; it was therefore error for the trial court to attribute the full amount of rental income from the property to father. Kennedy v. Kennedy, 107 N.C. App. 695, 421 S.E.2d 795 (1992).

Property Not Available to Satisfy Debts Held Solely by One Tenant. - Debtor's exemptions were properly claimed as property held as tenants by the entirety and the property was not available to the trustee to satisfy general unsecured debt that was held solely in the name of debtor. In re Knapp, 285 B.R. 176 (Bankr. M.D.N.C. 2002).

Chapter 7 debtor's motion to avoid judicial lien under 11 U.S.C.S. § 522(f) was granted even though she and her non-debtor spouse owned the property as tenants by the entirety under G.S. 39-13.6(a), as the debtor's interest in the entireties property was property of her estate under 11 U.S.C.S. § 541(a), the creditor's judgment was against the debtor and her non-debtor spouse, and a trustee would be entitled to sell the entireties property, as there were joint creditors. However, 11 U.S.C.S. § 522(f) had to be applied after the debtor's interest was determined by subtracting the total of two deeds of trust from the value of the property, and then dividing that amount in half to arrive at the value of the debtor's interest in the property; as her exemption (under G.S. 1C-1601(a)(1)) plus the amount of the judgment lien exceeded the value of her interest by more than the amount of the judgment, she was entitled to avoid the entire judgment lien. In re Staples, - Bankr. - (Bankr. M.D.N.C. June 7, 2000).

Bankruptcy Trustee's Sale of Entireties Property. - Consistent with North Carolina law applicable outside of bankruptcy, the court concluded that following the Trustee's sale the proceeds from the entireties property was subject to the claims of joint creditors only. Although the case law was divided on the issue, the better view was that the bankruptcy trustee's sale of entireties property did not destroy the tenancy by the entirety. In re Surles, - Bankr. - (Bankr. M.D.N.C. Apr. 29, 2003).

Deed of Trust Executed By Only One Spouse. - Bankruptcy court granted a Chapter 7 trustee's motion for summary judgment on his claims that a deed of trust a husband executed to secure a loan he received did not create a properly perfected security interest under G.S. 39-13.6(b), and was avoidable under 11 U.S.C.S. § 544(a), because it was executed solely by the husband on real property he owned as a tenant by the entireties with his wife. The trustee filed an adversary proceeding against the husband, the wife, a bank, and an insurance company that held the deed of trust, and although he reached a settlement with the husband and wife, neither the bank nor the insurance company filed a response or brief in opposition to the trustee's motion for summary judgment within the 20-day period allowed by Bankr. M.D.N.C. R. 7056-1(c). Saslow v. PRLAP, Inc. (In re Taylor), - Bankr. - (Bankr. M.D.N.C. Jan. 20, 2010).

Inability to Take Reasonable Measures. - Husband could not take reasonable measures to comply with a court order because (1) the husband could not force the husband's second wife to sell a house the husband owned with the second wife as tenants by the entirety, and (2) any reduction in the husband's withholding from the husband's gross income for taxes still would not have enabled the husband to comply. Spears v. Spears, 245 N.C. App. 260, 784 S.E.2d 485 (2016).

Ineffective Power of Attorney. - Creditor did not hold a properly secured lien against property held by a Chapter 7 debtor and his wife as tenants by the entirety because a power of attorney executed by the wife in favor of the debtor did not authorize the granting of a lien on the property in favor of the creditor. In re Doerfer, - Bankr. - (Bankr. M.D.N.C. Nov. 1, 2006).

Tenancy by the Entirety Not Created. - Quitclaim deed conveyed a one-half undivided remainder interest in the real property to the wife and the debtor as tenants in common because neither party was named or described as "wife" or "husband," and the use of the phrase "in equal shares" in the conveyance was inconsistent with an intention to create a tenancy by the entirety, under G.S. 39-13.6(b). In re Gonzales, - Bankr. - (Bankr. E.D.N.C. June 24, 2013), aff'd, 2014 U.S. Dist. LEXIS 39145 (E.D.N.C. 2014).

Cited in Dobbins v. Paul, 71 N.C. App. 113, 321 S.E.2d 537 (1984); Lawrence v. Lawrence, 100 N.C. App. 1, 394 S.E.2d 267 (1990); Beckhart v. Nationwide Tr. Serv. Inc., - F. Supp. 2d - (E.D.N.C. Aug. 20, 2012).


§ 41-59. Income derived from entireties property.

  1. Income derived from property held by spouses as tenants by the entirety becomes personal property held by the spouses as tenants in common in equal shares.
  2. For income tax purposes, each spouse is considered to have received one-half the income or loss from property held by the spouses as tenants by the entirety.

History

(1981 (Reg. Sess., 1982), c. 1245, s. 1; 1983, c. 449, ss. 1, 2; 2020-50, s. 1(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

Editor's Note. - Subsection (b) of this section is former G.S. 39-13.6(c), as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Effect of Amendments. - Session Laws 2020-50, s. 1(c), effective June 30, 2020, added subsection (a); and substituted "held by the spouses" for "owned by the couples" in subsection (b).

Legal Periodicals. - For article analyzing North Carolina's tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

For article discussing the doctrine of color of title in North Carolina, see 13 N.C. Cent. L.J. 123 (1982).

For survey of 1982 law relating to family law, see 61 N.C.L. Rev. 1155 (1983).

For comment discussing the status of the presumption of purchase money resulting trust for wives in light of Mims v. Mims, 305 N.C. 41, 286 S.E.2d 779 (1982), see 61 N.C.L. Rev. 576 (1983).

For note, "Branch Banking & Trust Co. v. Wright - Creditors' Rights to Entireties Property Awarded to Nondebtor Spouse Upon Divorce," see 64 N.C.L. Rev. 1471 (1986).

For note on the retroactive application of G.S. 39-13.6 under a vested rights analysis, see 65 N.C.L. Rev. 1195 (1987).

For note, "McLean v. McLean: North Carolina Adopts the Gift Presumption in Equitable Distribution," see 68 N.C. L. Rev. 1269 (1990).

For article, "A Spouse's Right to Control Assets During Marriage: Is North Carolina Living in the Middle Ages?", see 18 Campbell L. Rev. 203 (1996).

CASE NOTES

Editor's Note. - Most of the cases below were decided under former G.S. 39-13.6(c), now recodified as subsection (b) of this section.

This section is reflective of changed circumstances in economic relationship and responsibilities among married persons and expresses a public policy of this State that their rights in property should be equalized. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Rights of Judgment Creditor Upon Dissolution of Marriage or Death. - A judgment creditor with a claim against one spouse may not have a lien against the entirety property, but the judgment creditor does have rights with respect to the property upon dissolution of the marriage or upon the death of the judgment debtor's spouse. In re Ulmer, 211 Bankr. 523 (Bankr. E.D.N.C. 1997).

This section expressly changes the common-law incidents of tenancy by the entirety for all real property acquired on and after January 1, 1983. Boyce v. Boyce, 60 N.C. App. 685, 299 S.E.2d 805, cert. denied, 308 N.C. 190, 302 S.E.2d 242 (1983).

Applicability to tenancies by the entireties which existed prior to January 1, 1983. - Provisions of subsection (a) of this section should generally be construed to apply to tenancies by the entirety which preexisted the effective date of the statute (January 1, 1983) and such application is not, in and of itself, unconstitutional. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

The General Assembly has clearly manifested its intention that this section, including the "equal right to control" provision of subsection (a), apply to estates by the entirety created before January 1, 1983. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

A tenant in common has a right to demand an accounting from a co-tenant; furthermore, plaintiff 's action for an accounting was still ripe because the statute of limitations did not begin running until her demand for an accounting was refused. Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Rent from Entireties Property Was Not Entireties Property. - Turnover of rents from real property held as tenants by entirety was ordered, as North Carolina did not recognize estate by entirety in personal property, and rent derived from real property held as tenants by entirety was not entireties property and thus, rents were property of estate and not exempt under applicable nonbankruptcy law. Although North Carolina statute gave married women equal rights to use and control income from entireties property, this did not mean that income from property was entireties property. In re Adams, 506 B.R. 688 (Bankr. E.D.N.C. 2014).

Affirmative Defense. - Where neither the defendants' original nor amended answer included an affirmative defense, the defense was waived even though the lease for land held by a husband and wife was not signed by the wife. Purchase Nursery, Inc. v. Edgerton, 153 N.C. App. 156, 568 S.E.2d 904 (2002).

Dismissal of Complaint. - Because a wife never signed a contract for sale or an authorized agency, pursuant to G.S. 39-13.6(a), the trial court, inter alia, properly granted the husband and wife's N.C. R. Civ. P. 12(b)(6) motion to dismiss a buyer's complaint for breach of contract and specific performance for failing to state a legally sufficient claim. Burgin v. Owen, 181 N.C. App. 511, 640 S.E.2d 427, appeal dismissed, 361 N.C. 425, 647 S.E.2d 98, cert. denied, 361 N.C. 690, 652 S.E.2d 257, 2007 N.C. LEXIS 1026 (Oct. 11, 2007).

The claim of a vested property right may not rest upon state enforcement of common law which is unconstitutionally discriminatory. Thus, to the extent that defendant husband's claims to the exclusive right of control and income of pre-1983 estates by the entirety were based solely upon the common-law incidents of the tenancy, they would fail, as the right recognized by the common law could not be said to be a "vested property right." Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Burden of Proving Vested Rights. - There may be circumstances under which a husband's rights to income and control of pre-1983 tenancy by the entirety property, to the exclusion of his wife, may be classified as "vested rights" for reasons other than the common-law incidents of that estate. In such cases, the burden will be upon the husband to demonstrate facts showing why his rights are "vested rights" such that application of the "equal control" provisions of subsection (a) of this section to the estate would violate due process. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Claimant spouse's assertion of the "innocent owner" defense provided by 18 U.S.C.S. § 983(d) in her claim to a camper, failed because the spouse could not establish that the camper was owned as tenants by the entirety; the spouse had not presented any evidence regarding the "co-owner" requirement of G.S. 41-2.5, nor had the spouse presented any evidence regarding the general requirement with entireties properties that spouses be identified either by name or title in the ownership document. United States v. 1999 Starcraft Camper Trailer, - F. Supp. 2d - (M.D.N.C. Oct. 10, 2006).

Once the parties were divorced, they no longer held the property as tenants by the entirety but as tenants in common. Smith v. Smith, 249 N.C. 669, 107 S.E.2d 530 (1959); Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Attribution of Income for Child Support Purposes. - Although under the Child Support Guidelines income from rental property is included in the calculation of a parent's gross income, because father and his wife owned property in tenancy by the entirety, he was considered to have received only one-half of the income, or $487.50 per month; it was therefore error for the trial court to attribute the full amount of rental income from the property to father. Kennedy v. Kennedy, 107 N.C. App. 695, 421 S.E.2d 795 (1992).

Property Not Available to Satisfy Debts Held Solely by One Tenant. - Debtor's exemptions were properly claimed as property held as tenants by the entirety and the property was not available to the trustee to satisfy general unsecured debt that was held solely in the name of debtor. In re Knapp, 285 B.R. 176 (Bankr. M.D.N.C. 2002).

Chapter 7 debtor's motion to avoid judicial lien under 11 U.S.C.S. § 522(f) was granted even though she and her non-debtor spouse owned the property as tenants by the entirety under G.S. 39-13.6(a), as the debtor's interest in the entireties property was property of her estate under 11 U.S.C.S. § 541(a), the creditor's judgment was against the debtor and her non-debtor spouse, and a trustee would be entitled to sell the entireties property, as there were joint creditors. However, 11 U.S.C.S. § 522(f) had to be applied after the debtor's interest was determined by subtracting the total of two deeds of trust from the value of the property, and then dividing that amount in half to arrive at the value of the debtor's interest in the property; as her exemption (under G.S. 1C-1601(a)(1)) plus the amount of the judgment lien exceeded the value of her interest by more than the amount of the judgment, she was entitled to avoid the entire judgment lien. In re Staples, - Bankr. - (Bankr. M.D.N.C. June 7, 2000).

Bankruptcy Trustee's Sale of Entireties Property. - Consistent with North Carolina law applicable outside of bankruptcy, the court concluded that following the Trustee's sale the proceeds from the entireties property was subject to the claims of joint creditors only. Although the case law was divided on the issue, the better view was that the bankruptcy trustee's sale of entireties property did not destroy the tenancy by the entirety. In re Surles, - Bankr. - (Bankr. M.D.N.C. Apr. 29, 2003).

Deed of Trust Executed By Only One Spouse. - Bankruptcy court granted a Chapter 7 trustee's motion for summary judgment on his claims that a deed of trust a husband executed to secure a loan he received did not create a properly perfected security interest under G.S. 39-13.6(b), and was avoidable under 11 U.S.C.S. § 544(a), because it was executed solely by the husband on real property he owned as a tenant by the entireties with his wife. The trustee filed an adversary proceeding against the husband, the wife, a bank, and an insurance company that held the deed of trust, and although he reached a settlement with the husband and wife, neither the bank nor the insurance company filed a response or brief in opposition to the trustee's motion for summary judgment within the 20-day period allowed by Bankr. M.D.N.C. R. 7056-1(c). Saslow v. PRLAP, Inc. (In re Taylor), - Bankr. - (Bankr. M.D.N.C. Jan. 20, 2010).

Inability to Take Reasonable Measures. - Husband could not take reasonable measures to comply with a court order because (1) the husband could not force the husband's second wife to sell a house the husband owned with the second wife as tenants by the entirety, and (2) any reduction in the husband's withholding from the husband's gross income for taxes still would not have enabled the husband to comply. Spears v. Spears, 245 N.C. App. 260, 784 S.E.2d 485 (2016).

Ineffective Power of Attorney. - Creditor did not hold a properly secured lien against property held by a Chapter 7 debtor and his wife as tenants by the entirety because a power of attorney executed by the wife in favor of the debtor did not authorize the granting of a lien on the property in favor of the creditor. In re Doerfer, - Bankr. - (Bankr. M.D.N.C. Nov. 1, 2006).

Tenancy by the Entirety Not Created. - Quitclaim deed conveyed a one-half undivided remainder interest in the real property to the wife and the debtor as tenants in common because neither party was named or described as "wife" or "husband," and the use of the phrase "in equal shares" in the conveyance was inconsistent with an intention to create a tenancy by the entirety, under G.S. 39-13.6(b). In re Gonzales, - Bankr. - (Bankr. E.D.N.C. June 24, 2013), aff'd, 2014 U.S. Dist. LEXIS 39145 (E.D.N.C. 2014).

Cited in Dobbins v. Paul, 71 N.C. App. 113, 321 S.E.2d 537 (1984); Lawrence v. Lawrence, 100 N.C. App. 1, 394 S.E.2d 267 (1990); Beckhart v. Nationwide Tr. Serv. Inc., - F. Supp. 2d - (E.D.N.C. Aug. 20, 2012).


§ 41-60. Liability of entireties property for debts of spouses.

  1. With respect to property held by spouses as tenants by the entirety prior to its termination, all of the following shall apply:
    1. The property may not be held liable for individual debts of either spouse and a judgment lien against one spouse alone does not attach to the property. The property may be conveyed by joint deed of both spouses to anyone of their choice free and clear of a judgment lien against either spouse.
    2. The property is liable for obligations of both spouses and a judgment lien against both spouses upon a joint obligation attaches to the property which may be sold under execution to satisfy the judgment.
  2. Upon termination of the tenancy by the entirety and the conversion of the real property held by the entirety to another form of estate, a judgment lien against one spouse during tenancy by the entirety, if still active and unsatisfied, shall attach at that time to that spouse's interest in the new estate. Conversions of tenancy by the entirety property to another form of an estate occur, without limitation, under either of the following circumstances:
    1. Upon divorce of the spouses, in which event the property is converted to a tenancy in common as provided in G.S. 41-63(5) and the judgment lien against the spouse will attach at that time to the undivided interest of the spouse.
    2. Upon death of a spouse, in which event the surviving spouse acquires the entire legal title as provided in G.S. 41-64 and the judgment lien against the surviving spouse will attach at that time to the property.

History

(2020-50, s. 1(a), (c).)

§ 41-61. Reimbursement for expenditures made on entireties property.

  1. Neither spouse holding property as tenants by the entirety is entitled to reimbursement of expenditures made on the property, including payments on indebtedness encumbering the property, while the tenancy by the entirety exists.
  2. When the tenancy by the entirety is converted to a tenancy in common by absolute divorce or otherwise, responsibility for expenditures for the property held as tenants in common is allocated as provided by the law governing tenants in common, unless otherwise directed in a court order such as in an equitable distribution proceeding.

History

(2020-50, s. 1(a), (c).)

§ 41-62. Insurance coverage and character of proceeds.

Where property held as tenants by the entirety is insured, unless the parties by contract have provided what disposition should be made of the insurance proceeds, the policy and insurance proceeds inure to the benefit of the entire estate even though the policy was issued in the name of only one spouse and paid for by that spouse, and the insurance proceeds become divisible personal property held by the spouses as tenants in common.

History

(2020-50, s. 1(a), (c).)

§ 41-63. Termination of tenancy by the entirety other than upon death of a spouse; effects of termination.

Events terminating a tenancy by the entirety other than the death of a spouse and the effects of termination include the following:

  1. The voluntary sale and conveyance of property held as tenants by the entirety to a third party, including a foreclosure sale pursuant to a power of sale in a deed of trust. Proceeds of the sale, including surplus funds generated from a foreclosure sale, are personal property held by the spouses as tenants in common.
  2. The voluntary partition between the spouses executing a joint instrument conveying the property held as tenants by the entirety to themselves as tenants in common or in severalty.
  3. The involuntary transfer of title of property held by spouses as tenants by the entirety. The proceeds resulting from the transfer are held by the spouses as tenants by the entirety. An involuntary transfer of title includes:
    1. A sale pursuant to Article 15 of Chapter 35A of the General Statutes as to an incompetent spouse.
    2. An appropriation in a condemnation proceeding by the North Carolina State Highway Commission.
  4. The conveyance from one spouse to the other spouse of his or her interest in property held as tenants by the entirety. The conveyance vests the property or interest formerly held as tenants by the entirety in the other spouse. The joinder of a spouse in a conveyance made by the grantor pursuant to this subdivision is not necessary, but the conveyance is subject to the provisions of G.S. 52-10 or G.S. 52-10.1, except that an acknowledgment by the spouse of the grantor is not necessary.
  5. An absolute divorce of the spouses. An absolute divorce converts property held as tenants by the entirety to a tenancy in common.
  6. A judgment of forfeiture ordering divestment of an interest in tenancy by the entirety pursuant to Chapter 75D of the General Statutes. The effect of a judgment when one spouse is an innocent person as defined in G.S. 75D-5(i) is governed by G.S. 75D-8(a).

History

(1957, c. 598, s. 1; 1965, c. 878, s. 3; 1977, c. 375, s. 9; 2020-50, s. 1(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," see G.S. 12-3(16).

Editor's Note. - Subdivision (4) of this section is former G.S. 39-13.3(c) as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Effect of Amendments. - Session Laws 2020-50, s. 1(c), effective June 30, 2020, rewrote the section.

Legal Periodicals. - For article on tenancy by the entirety in North Carolina including brief discussion of this section, see 41 N.C.L. Rev. 67 (1962).

For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

CASE NOTES

Editor's Note. - Most of the cases below were decided under former G.S. 39-13.3(c), now recodified as subdivision (4) of this section.

G.S. 39-13.5 Creates Exception to Rule in Subsection (b) of This Section. - G.S. 39-13.5 requires that in order to create a tenancy by the entirety by division deed, the tenant in common must clearly state his intention in the granting clause. Where this was not done, the intention can be supplied by G.S. 39-13.3(b). G.S. 39-13.5 creates an exception to the rule of G.S. 39-13.3(b) that unless a contrary intent is shown, a deed to a husband and wife vests an estate in them as tenants by the entirety. Under G.S. 39-13.5, it is necessary to say so in the granting clause in order to create a tenancy by the entirety by a division deed. Brown v. Brown, 59 N.C. App. 719, 297 S.E.2d 619 (1982), cert. denied, 307 N.C. 696, 301 S.E.2d 388 (1983).

Effect of Separation Agreement on Tenancy by Entirety. - Subsection (c) of this section was not applicable in a divorce action on the issue of whether a separation agreement contractually altered the character of the ownership of a tenancy by the entirety. Branstetter v. Branstetter, 36 N.C. App. 532, 245 S.E.2d 87 (1978).

Wife May Convey as Freely as Husband. - This section and former G.S. 52-6 express a clear legislative intent that so long as the provisions of former G.S. 52-6 are complied with, a wife may convey her separate property to her husband, or to her husband and herself, as freely and with the same consequences as the husband may convey his property to his wife. Skinner v. Skinner, 28 N.C. App. 412, 222 S.E.2d 258, cert. denied, 289 N.C. 726, 224 S.E.2d 674 (1976).

Property Not Removed from Equitable Distribution Act by Dissolution of Tenancy by Entirety. - Though conveyances from wife to husband dissolved the tenancy by the entirety in the parcels of land and vested title thereto solely in husband, as G.S. 39-13.3(c) provides, he nevertheless acquired title to the property thereunder, not by gift, but during the course of the marriage and before the parties separated, and property so acquired, so the General Assembly has declared, is ipso facto marital property. Thus, contrary to husband's contention, dissolving the tenancy by the entirety did not remove the property involved from the ambit of the Equitable Distribution Act, and the trial judge did not err in finding and concluding otherwise. Beroth v. Beroth, 87 N.C. App. 93, 359 S.E.2d 512, cert. denied, 321 N.C. 296, 362 S.E.2d 778 (1987).

Bankruptcy. - Where widow of deceased Chapter 7 debtor sought to reopen his case to allow her to amend debtor's exemptions, and ultimately grant judicial lien avoidance nunc pro tunc, she lacked standing as personal representative of debtor's estate to act with regard to property because it was never part of probate estate, as it was owned as entireties property. In re Kennedy, - Bankr. - (Bankr. M.D.N.C. Apr. 6, 2016).

Cited in Council v. Pitt, 272 N.C. 222, 158 S.E.2d 34 (1967); Young v. Young, 43 N.C. App. 419, 259 S.E.2d 348 (1979); Biesecker v. Biesecker, 62 N.C. App. 282, 302 S.E.2d 826 (1983); Davis v. Davis, 360 N.C. 518, 631 S.E.2d 114 (2006).


§ 41-64. Termination of tenancy by the entirety upon death of a spouse.

  1. Except as provided in subsection (b) of this section, upon the death of a spouse, property held as tenants by the entirety belongs to the surviving spouse by right of purchase under the original grant or devise and by virtue of survivorship. The deceased spouse has no estate which is descendable or divisible.
  2. Where a slayer, as defined in G.S. 31A-3(3), and decedent hold property as tenants by the entirety, one-half of the property shall pass upon the death of the decedent to the decedent's estate, and one-half shall be held by the slayer during the slayer's life, subject to pass upon the slayer's death to the slain decedent's heirs or devisees as defined in G.S. 28A-1-1.

History

(1961, c. 210, s. 1; 1979, c. 572; 2020-50, s. 1(a)-(c).)

Editor's Note. - Subsection (b) of this section is former G.S. 31A-5, as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Effect of Amendments. - Session Laws 2020-50, s. 1(c), effective June 30, 2020, added subsection (a); and in subsection (b), added "as defined in G.S. 31A-3(3)," near the beginning, and made minor punctuation and stylistic changes.

Legal Periodicals. - For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

CASE NOTES

Editor's Note. - Most of the cases below were decided under former G.S. 31A-5, now recodified as subsection (b) of this section.

This section is not unconstitutional. Since tenancy by the entirety is a purely voluntary method of acquiring and retaining realty, there is no discriminatory State action in violation of U.S. Const., Amend. XIV. Homanich v. Miller, 28 N.C. App. 451, 221 S.E.2d 739, cert. denied, 289 N.C. 614, 223 S.E.2d 392 (1976).

The different solutions depending upon whether husband or wife is the slayer is not discretionary against the wife-slayer. Such disposition was deemed necessary in order to prevent the slayer-husband from having his vested property right forfeited for crime or taken without due process, because North Carolina is one of only three states that have retained the common-law incident of tenancy by the entirety that "the husband has the control and use of the property and is entitled to the possession, income, and usufruct thereof during their joint lives." Homanich v. Miller, 28 N.C. App. 451, 221 S.E.2d 739, cert. denied, 289 N.C. 614, 223 S.E.2d 392 (1976).

The legislature knowingly subjected established policy to provide for a fair disposition of entirety property where the wife slays the husband. Homanich v. Miller, 28 N.C. App. 451, 221 S.E.2d 739, cert. denied, 289 N.C. 614, 223 S.E.2d 392 (1976).

"Estate." - The word "estate" as used in this section means those persons, other than the slayer, who succeed to the rights of the decedent either by testate or intestate succession as the case may be. To accomplish the purpose of this section and consistent with the clear language of G.S. 31A-4, the slayer cannot be included in this class. In cases in which the decedent has made testamentary disposition of the real property involved, this interpretation gives effect to the decedent's will. If there is no will, or if the decedent left a will but made no disposition therein of the real property involved, the decedent's "estate" consists of those persons who become entitled to succeed to the decedent's property under the intestate succession laws. In either event under G.S. 31A-4 the slayer is not included. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The correctness of the interpretation of the words "estate of the wife" in former subdivision (2) as meaning the estate as it came into existence at the moment of her actual death was strengthened by an examination of former subdivision (1) of this section, which dealt with the situation when the wife is the slayer. In such case the statute provided that "one half of the property shall pass upon the death of the husband to his estate, and the other one half shall be held by the wife, subject to pass upon her death to the estate of the husband." It was not reasonable to suppose that the legislature in former subdivision (1) intended the word "estate" to have one meaning as to one half of the property and another meaning as to the other one half. Rather, it is more reasonable to suppose that the word "estate" as twice used in the same sentence was intended to have the same meaning, and that it refers to the estate of the deceased as such estate comes into existence at the moment of actual death. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

"The Estate of the Wife." - G.S. 31A-4 provides in part that, for purposes of distributing the estate of the decedent, "the slayer shall be deemed to have died immediately prior to the death of the decedent." In view of this express statutory presumption, it was clear that the words "the estate of the wife" as the same were used in former subdivision (2) meant the estate of the murdered wife as the same came into existence at the instant of her death, and the title to the entireties property at that moment passed to those persons who would be entitled to succeed to her interest in such property as of the moment of her death if she had in fact survived her husband, subject only to his recognized right to "hold" the property during his lifetime. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The language "he shall hold all of the property during his life" was employed by the legislature, not for the purpose of barring any alienation of the property until after the slayer-husband's death, but in order to recognize and preserve the husband's lifetime rights in the property. The legislature clearly intended that even the slayer-husband should not forfeit what was always recognized as his - the right to possession and income from the property for his lifetime. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The words "shall hold," as used in this section were not intended to effect a complete restraint on alienation during the husband's lifetime. On the contrary, the word "hold," as used in the statute, is used in the same sense as when used in the habendum clause of a deed. Certainly the word "hold" as used in the habendum clause of a deed is never construed to place a restraint on alienation, and the very words used in this statute, "hold all of the property during his life subject to pass upon his death to the estate of the wife," if used in a deed, would not prevent the husband from selling his life interest in the property. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The words "pass upon his death" refer exclusively to possession and enjoyment of the property and not to vesting in interest. In effect, the slayer-husband holds a life estate in the property with a vested remainder in the estate of his deceased wife, and the persons entitled to succeed to her estate are to be determined as of the actual date of her death, not as of the subsequent date when the husband's life estate terminates upon his death. This interpretation is further supported by the express language of this chapter as well as by reference to the purposes to be achieved by the statute. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

Section recognizes distinction in rights held by husband as compared with rights held by wife in entirety property by providing that the slayer-husband shall hold all of the property during his life subject to pass upon his death to the estate of the wife, whereas the slayer-wife is to hold only one half of the property during her lifetime subject to pass upon her death to the estate of the husband, while the other one half of the property in such case shall pass upon the death of her husband to his estate. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The slayer-husband holds the interest of his deceased wife in the property as a trustee for her heirs at law. He should be perpetually enjoined from conveying the property in fee; the plaintiffs should be adjudged the sole owners, upon the decedent's death, of the entire property as the heirs of their deceased mother. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

Slayer-Husband Has Right to Lifetime Possession, Income and Usufruct. - In preserving the slayer-husband's right to hold all of the property during his life, former subdivision (2) of this section recognized his right to the lifetime possession, income, and usufruct, of the property, and thereby avoided the possibility that the statute might be considered unconstitutional as working a forfeiture of a vested property right for crime. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

Where husband and wife own real property as tenants by the entirety, the husband is solely entitled, to the exclusion of the wife, to the possession, income, and usufruct of such property during their joint lives. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

Estate of Decedent Determined at Date of Her Actual Death. - G.S. 31A-4 makes no attempt artificially to alter the date of the death of the decedent, but provides instead that the actual date of death of the slayer is to be disregarded. Therefore, if the language of the statute is followed, the estate of the decedent is determined at the date of her actual death, and the law calls the roll of the class immediately as of that time; those who can then answer, take. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

This section does not bar the alienation of the entire title to the property by joint conveyance of the slayer-husband and the heirs of the decedent. To so interpret the statute would run contrary to the established policy of North Carolina law, which is to prevent undue restraint upon or suspension of the right of alienation. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

The slayer-husband cannot convey more than his own interest in the entirety property and certainly no conveyance of his can work a detriment to the rights of the estate of his deceased wife. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).

Where there is a bequest to one for life, and after his decease to the testator's next of kin, the next of kin who are to take are the persons who answer that description at the death of the testator, and not those who answer that description at the death of the first taker. Porth v. Porth, 3 N.C. App. 485, 165 S.E.2d 508 (1969).


§ 41-65. Entireties property conveyed to trusts.

  1. Any real property held by spouses as tenants by the entirety and conveyed (i) to a joint trust or (ii) in equal shares to two separate trusts shall no longer be held by the spouses as tenants by the entirety and shall be disposed of by the terms of the trust or trusts. However, subject to subsection (b) of this section, the provisions of G.S. 41-60(a)(1) shall apply to the property held in trust as if the spouses had continued to hold the property as tenants by the entireties.
  2. The provisions of G.S. 41-60(a)(1) shall apply to the property held in trust as long as all of the following apply:
    1. The spouses remain married.
    2. The property continues to be held in the trust or trusts as provided in subsection (a) of this section.
    3. Both spouses are current beneficiaries of the joint trust if the real property is conveyed to that trust or of each separate trust if the property is conveyed in equal shares to their separate trusts.
  3. If immediately preceding the death of the first spouse to die, the provisions of G.S. 41-60(a)(1) apply to the real property held in trust upon the death of a spouse, the provisions of G.S. 41-60(b)(2) shall apply to the property.
  4. The trustee acting under the express provisions of a trust instrument or with the written consent of both spouses may waive the application of G.S. 41-60(a)(1) as to any specific creditor or any specifically described property including all separate creditors of a spouse or all former tenancy by the entirety property conveyed to the trustee.
  5. For purposes of this section, all of the following apply:
    1. The reference to the real property conveyed to or held in the trust shall be deemed to include the proceeds arising from the involuntary transfer of title of the real property.
    2. The term "joint trust" means a revocable or irrevocable trust of which both the husband and wife are the settlors.
    3. The term "separate trusts" means revocable or irrevocable trusts of which one spouse is the settlor of one trust and the other spouse is the settlor of the other trust.
    4. The spouses are "beneficiaries" of a trust if they are distributees or permissible distributees of the income or principal of the trust whether or not other individuals are also current or future beneficiaries of the trust.
  6. Notice may be given in a statement in the conveyance of the tenancy by the entireties real property to the trust that the real property is held under this section and that, as of the date of the conveyance, the requirements are met providing for the application of G.S. 41-60(a)(1) protecting the real property from liability for the individual debts of either spouse.
  7. A person entering into a transaction involving real property held in trust under this section may request confirmation from the trustee whether the provisions of G.S. 41-60(a)(1) are met at the time of the transaction.

History

(2014-115, s. 33(a); 2015-205, s. 5; 2019-178, s. 4(a)-(c); 2020-50, s. 1(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

Editor's Note. - This section is former G.S. 39-13.7, as recodified by Session Laws 2020-50, s. 1(b), effective June 30, 2020. The historical citation from the former section has been added to this section as recodified.

Session Laws 2014-115, s. 33(b) made this section effective January 1, 2015, and applicable to real property transferred to a trust on or after that date.

Session Laws 2019-178, s. 4(c) provides: "If Senate Bill 595, 2019 Regular Session, becomes law, this section is repealed." Senate Bill 595 became law as Session Laws 2020-50. The amendments by Session Laws 2020-50, s. 1(c) incorporated some of the same amendments.

Effect of Amendments. - Session Laws 2015-205, s. 5, effective August 11, 2015, rewrote the section.

Session Laws 2019-178, s. 4(a), (b), effective July 26, 2019, substituted "(i) to" for "to (i)" and "trusts" for "trusts;" in subsection (a); and added subsections (f) and (g).

Session Laws 2020-50, s. 1(c), effective June 30, 2020, rewrote the section.

§ 41-66. Common law of tenancy by the entirety; equitable principles.

The common law of tenancy by the entirety and principles of equity supplement this Article except to the extent it conflicts or is inconsistent with a provision of this Article or the laws of this State.

History

(2020-50, s. 1(a), (c).)

§§ 41-67 through 41-69: Reserved for future codification purposes.

ARTICLE 6. Joint Tenancy.

Sec.

§ 41-70. Definitions.

For the purposes of this Article, the following definitions apply:

  1. Conveyance. - A transfer of title to real or personal property by deed, devise, assignment, or other means of transferring title.
  2. Termination. - A severance of the right of survivorship resulting in the creation of a tenancy in common as provided in this Article. The term is used in the context of an estate with a joint tenancy with a right of survivorship.

History

(2020-50, s. 2(a), (c).)

Editor's Note. - Session Laws 2020-50, s. 4, made this Article, as enacted by Session Laws 2020-50, s. 2(a)-(c), effective June 30, 2020.

§ 41-71. Creation of a joint tenancy with right of survivorship.

  1. A conveyance to two or more persons creates a tenancy in common unless a joint tenancy with right of survivorship is created as provided in subsection (b) of this section or a tenancy by the entirety is created as provided by the law governing tenancy by the entireties.
  2. A conveyance to two or more persons creates a joint tenancy with right of survivorship if the instrument expresses an intent to create a joint tenancy with right of survivorship. The following words in the instrument shall be deemed to express an intent to create a joint tenancy with right of survivorship unless the instrument otherwise provides: "joint tenants with right of survivorship," "joint tenants," "joint tenancy," "tenants in common with right of survivorship," "joint with right of survivorship," "with right of survivorship."
  3. Nothing in this Article prohibits joint tenants from entering into any agreement with regard to the property held in joint tenancy, including, without limitation, an agreement that notice must be given to other joint tenants before any joint tenant terminates the joint tenancy as provided in G.S. 41-73(b).

History

(2020-50, s. 2(a), (c).)

§ 41-72. Determination of the interests of joint tenants in a joint tenancy with right of survivorship.

  1. The interests of joint tenants in a joint tenancy with right of survivorship shall be deemed to be equal unless otherwise provided in the instrument of conveyance.
  2. This section shall apply to any conveyance of an interest in property created at any time that explicitly seeks to create unequal ownership interest in a joint tenancy with right of survivorship.
  3. Distributions made prior to October 10, 2009, that were made in equal amounts from a joint tenancy with right of survivorship that sought to create unequal ownership shares shall remain valid and shall not be subject to modification on the basis of this section.
  4. Any joint tenancy interest conveyed to individuals married to each other and to one or more other joint tenants in the same instrument of conveyance shall be held by the married individuals in a tenancy by the entirety, and the married individuals shall be treated as a single joint tenant, unless otherwise provided in the instrument.

History

(1784, c. 204, s. 6; R.C., c. 43, s. 2; Code, s. 1326; Rev., s. 1579; C.S., s. 1735; 1945, c. 635; 1989 (Reg. Sess., 1990), c. 891, s. 1; 1991, c. 606, s. 1; 2009-268, s. 1; 2010-96, s. 9; 2012-69, s. 2; 2013-204, s. 1.11; 2020-50, s. 2(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," "widow," and "widower," see G.S. 12-3(16), (17).

As to personal representatives holding in joint tenancy, see G.S. 28A-13-5.

As to survivorship among trustees given power of sale, see G.S. 45-8.

Editor's Note. - Subsections (a)-(d) of this section are the former first, fourth, fifth, and second sentences, respectively, of G.S. 41-2(b), as recodified by Session Laws 2020-50, s. 2(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Session Laws 1989 (Reg. Sess., 1990), c. 891, which amended this section, provided in s. 3: "Nothing in this act shall be construed to affect the validity of instruments that provide for a right of survivorship executed prior to the effective date of this act." The act became effective January 1, 1991.

Session Laws 1991, c. 606, which amended this section, in section 2 provides: "A conveyance of any interest in real property occurring between January 1, 1991, and the effective date of this act [October 1, 1991] by a party to himself and one or more other parties that expressly provides for a joint tenancy with a right of survivorship shall have created such an interest."

Effect of Amendments. - Session Laws 2009-268, s. 1, effective July 10, 2009, designated the previously existing provisions as subsection (a); in subsection (a), made gender neutral changes in the first sentence, in the last sentence, deleted "himself and" preceding "one or more" and inserted "whether or not jointly with the grantor-party"; and added subsection (b).

Session Laws 2010-96, s. 9, effective July 20, 2010, substituted "subsection" for "act" at the end of the last paragraph in subsection (b).

Session Laws 2012-69, s. 2, effective October 1, 2012, rewrote the third sentence of subsection (b), which formerly read: "If joint tenancy interests among three or more joint tenants holding property in joint tenancy with right of survivorship are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the surviving joint tenants according to their respective pro rata interest and not equally, unless the creating instrument provides otherwise."

Session Laws 2013-204, s. 1.11, effective June 26, 2013, added subsection (a1).

Session Laws 2020-50, s. 2(c), effective June 30, 2020, rewrote the section.

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

CASE NOTES

I. GENERAL CONSIDERATION.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as subsections (a)-(d) of this section.

Survivorship Only Abolished as Incident of Joint Tenancy. - This section abolished survivorship only where it follows as a legal incident to an existing joint tenancy. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Right of survivorship has been statutorily abolished where it follows as legal incident to an existing joint tenancy. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990), decided under law in effect prior to G.S. 53-146.1.

"Estate" in Most General Sense Includes Choses in Action. - "Estate" is derived from status, and in its most general sense means position or standing in respect to the things and concerns of this world. In this sense it includes choses in action. Pippin v. Ellison, 34 N.C. 61 (1851); Webb v. Bowler, 50 N.C. 362 (1858); Hurdle v. Outlaw, 55 N.C. 75 (1854).

Estate is also used in a much more restricted sense, and is then put in opposition to a chose in action, or mere right, to signify something which one has in possession, or a vested remainder, or reversion without dispute or adverse possession. Taylor v. Dawson, 56 N.C. 86 (1856). See Bond v. Hilton, 51 N.C. 180 (1858).

Section Applies Only to Estates of Inheritance. - The act of 1784, converting joint tenancies into estates in common, applies only to estates of inheritance. Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881).

If the purpose had been to include all estates in joint tenancy, that purpose would have been better served by abolishing the "jus accrescendi" in a few direct words to that effect, instead of resorting to words applicable only to estates of inheritance held in joint tenancy in real estate, and absolute estates held in joint tenancy in personalty. Powell v. Allen, 75 N.C. 450 (1876).

This section which abolished the right of survivorship in joint tenancies in estates of inheritance, does not apply to a joint tenancy in a life estate where no estate of inheritance is involved. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Concurrent Life Estates Not Affected. - Concurrent life estates still stand untouched by this section, and the old feudal presumption in favor of joint tenancies with survivorship remains. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Joint Estates for Life and Estates by Entirety Not Affected. - Joint tenancies are not abolished by the section. It abolishes the right of survivorship in joint tenancies in fee, but does not affect joint estates for life or estates by entirety. Vass v. Freeman, 56 N.C. 221 (1857); Powell v. Allen, 75 N.C. 450 (1876); Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881); Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

In Powell v. Allen, 75 N.C. 450 (1876), in construing the act of 1784, now this section, Chief Justice Pearson says: "It is obvious that these words cannot be made to apply to joint tenants for life." Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

Legatees May Hold as Joint Tenants. - Legatees may still hold by a joint tenancy in North Carolina, though the incident of survivorship was abolished by the act of 1784, now this section. Vass v. Freeman, 56 N.C. 221 (1857).

When Remaindermen Take as Tenants in Common. - A deed of gift, executed by W.B. to his son J.B., "during his natural life only, and then to return to the male children of the said J.B., lawfully begotten of his body, for the want of such to return to the male children of my other sons W and B, their proper use, benefit and behoof of him, them and every of them, and to their heirs and assigns forever," vested a life estate in J.B., with remainder in fee to his sons as tenants in common under the section. Brown v. Ward, 103 N.C. 173, 9 S.E. 300 (1889).

Survivorship May Be Provided for by Contract. - This section abolishes survivorship, where the joint tenancy would otherwise have been created by the law, but does not operate to prohibit persons from entering into written contracts as to land, or verbal agreements as to personalty, such as to make the future rights of the parties depend upon the fact of survivorship. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895); Jones v. Waldroup, 217 N.C. 178, 7 S.E.2d 366 (1940); Bunting v. Cobb, 234 N.C. 132, 66 S.E.2d 661 (1951); Wilson County v. Wooten, 251 N.C. 667, 111 S.E.2d 875 (1960).

This section does not operate to prohibit persons from entering into written contracts as to lands so as to make future rights of the parties depend upon survivorship. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Parties who wish to create a right of survivorship applicable to joint bank accounts must comply with requirements of G.S. 41-2.1(a). In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1

Survivorship in Personalty Must Be Pursuant to Contract. - Since the abolition of survivorship in joint tenancy, the right of survivorship in personalty, if such right exists, must be pursuant to contract and not by operation of law or statutory provision. Wilson v. Ervin, 227 N.C. 396, 42 S.E.2d 468 (1947); Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

A verbal agreement between two parties owning a note, payable to them jointly, that upon the death of either without issue it shall belong to the survivor is valid. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895).

Joint Tenancy Severed by Deed of Trust. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court properly ruled that the son-in-law and daughter owned a one-half undivided interest in the land which was not encumbered by a deed of trust to the benefit of the mortgagee because, after the son-in-law and daughter and the mother executed a general warranty deed creating a joint tenancy with a right of survivorship between the mother and the son-in-law and daughter, that joint tenancy was severed by the filing of a deed of trust which only obligated the mother, as the accompanying mortgage was a conveyance, due to North Carolina being a title theory state, so the mother, on one hand, and the son-in-law and daughter, on the other hand, held the land as tenants in common. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Instrument Held Ineffective to Provide for Survivorship. - While this section may not preclude tenants in common from providing for survivorship by adequate contract inter sese, an instrument executed by them which merely expresses a general intent that the survivor should take the fee, without any words of conveyance, is ineffective. The execution by the administrator of the deceased tenant in common of a deed to the surviving tenant, made under the supposed authority of the contract, is without effect. Pope v. Burgess, 230 N.C. 323, 53 S.E.2d 159 (1949).

Joint Tenant's Interest Did Not Pass to Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the mother's interest as a tenant in common passed to the son-in-law and daughter upon the mother's death because the mother's interest as a tenant in common had no right of survivorship, since a joint tenancy previously created by a general warranty deed was severed by the filing of a deed of trust that obligated only the mother. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Interest of Tenant in Common Did Not Vest in Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the son-in-law and daughter owned the land in fee simple absolute upon the mother's death because the mother's interest in the property as a tenant in common did not vest in the son-in-law and daughter pursuant to a right of survivorship. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Applied in Powell v. Malone, 22 F. Supp. 300 (M.D.N.C. 1938).

Cited in Buffaloe v. Barnes, 226 N.C. 313, 38 S.E.2d 222 (1946); O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980); McLain v. Wilson, 91 N.C. App. 275, 371 S.E.2d 151 (1988); Mutual Community Savs. Bank v. Boyd, 125 N.C. App. 118, 479 S.E.2d 491 (1996); Clark v. Dyer, 236 N.C. App. 9, 762 S.E.2d 838 (2014).

II. ESTATES OF HUSBAND AND WIFE.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as subsections (a)-(d) of this section.

Section Inapplicable to Conveyances to Husband and Wife. - In construing this statute, the Supreme Court held that it had no application to an estate granted to husband and wife, on the ground that it is not an estate in joint tenancy, but an entirety estate. Motley v. Whitemore, 19 N.C. 537 (1837); Gray v. Bailey, 117 N.C. 439, 23 S.E. 318 (1895); Woolard v. Smith, 244 N.C. 489, 94 S.E.2d 466 (1956).

The act of 1784, now this section, abolishing survivorship in joint tenancies, does not apply to conveyances to husband and wife, for the reason assigned in Motley v. Whitemore, 19 N.C. 537 (1837), that "being in law but one person they have each the whole estate as one person; and on the death of either of them the whole estate continues in the survivor." Long v. Barnes, 87 N.C. 329 (1882); Smith v. Gordon, 204 N.C. 695, 169 S.E. 634 (1933).

Survivorship in Joint Bank Accounts. - Where agreements of husband and wife relating to savings accounts provide that the accounts are held by them as joint tenants with right of survivorship, and not as tenants in common, the right of survivorship exists pursuant to the contracts, and upon the death of the husband the widow is entitled to take the whole. Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

Estate by Entireties Not Abolished. - It has been held in several well considered decisions of the Supreme Court that our Constitution and the later statutes relative to the property and rights of married women have not thus far destroyed or altered the nature of this estate by entireties, a conveyance to a husband and wife. Bruce v. Sugg, 109 N.C. 202, 13 S.E. 790 (1891); Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903); West v. Aberdeen & R.R., 140 N.C. 620, 53 S.E. 477 (1906); Bynum v. Wicker, 141 N.C. 95, 53 S.E. 478 (1906); Jones v. W.A. Smith & Co., 149 N.C. 318, 62 S.E. 1092 (1908); McKinnon, Currie & Co. v. Caulk, 167 N.C. 411, 83 S.E. 559 (1914). See also Martin v. Lewis, 187 N.C. 473, 122 S.E. 180 (1924).

The right of survivorship applies to estates in land conveyed jointly to husband and wife, and title vests in the heirs of the one surviving the other. Murchison v. Fogleman, 165 N.C. 397, 81 S.E. 627 (1914).

A conveyance to a husband and wife, as such, creates an estate of entirety, and does not make them joint tenants or tenants in common. Neither can alien without the consent of the other, and the survivor takes the whole. Needham v. Branson, 27 N.C. 426 (1845); Todd v. Zachary, 45 N.C. 286 (1853); Woodford v. Higly, 60 N.C. 234 (1864); Long v. Barnes, 87 N.C. 329 (1882).

Where the husband and wife purchase property, each furnishing a portion of the purchase money, an estate in entirety and not a joint estate is created which they hold per tout et non per my. Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903).

Interest of Husband and Wife as Tenants in Common. - When a joint tenancy between a mother, on one hand, and a son-in-law and daughter, on the other hand, was severed by the filing of a deed of trust that obligated only the mother, the mother's subsequent interest as a tenant in common was one-half of the property, and the son-in-law's and daughter's interest, as tenants by the entirety, was also one-half because the son-in-law and daughter were husband and wife, so the son-in-law and daughter held the property as a single tenancy by the entirety and were treated as a single party when determining interests in the joint tenancy with right of survivorship upon severance of the joint tenancy. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

III. JOINT TENANCY IN PARTNERSHIP PROPERTY.

.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as subsections (a)-(d) of this section.

Joint Tenancy of Partnership in Land. - This section provides that land jointly purchased for partnership purposes shall, upon the death of one partner, survive to the others for the purpose of paying the partnership debts. Real estate held and used for partnership purposes is subject to partnership debts to the exclusion of the heir or widow of the deceased. When the partnership debts are satisfied, if there is any remainder, such share as would have fallen to the deceased partner, shall be delivered over to the heirs, executors, administrators or assigns. Stroud v. Stroud, 61 N.C. 525 (1868).

Upon Settlement Partnership Land Descends as Real Estate. - When land is purchased in fee by partnership funds and for partnership purposes, and one partner dies, upon the settlement of the partnership debts his share of the land descends to his heir as real estate. Summey v. Patton, 60 N.C. 601 (1864).

When lands are purchased by a partnership with partnership funds, upon the death of one of the partners, in the absence of any agreement in the articles of partnership to the contrary, his share therein descends to his heir at law as real estate, if the personal property of the partnership is sufficient to pay all the partnership debts and demands. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Heir May Recover from Surviving Partner. - The heir at law to whom a deceased partner had conveyed by deed his share of lands purchased with partnership funds is entitled to the lands against the rights of the surviving partner, in an action by the latter for possession for the purpose of winding up the partnership affairs, when it appears that the partnership personalty is sufficient for the purpose of paying the partnership debts and satisfying any claim the surviving partner may have, and there is no provision in the articles of the partnership agreement of a contrary purpose. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Immaterial Whether Claim Is by Deed or Inheritance. - When the rule applies that lands purchased by partnership funds descend to the heir at law, it is immaterial whether the heir of the deceased partner claims his interest by deed from him or by inheritance. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

G.S. 59-74 is to be read in connection with this section respecting the settlement of partnership affairs by surviving partners. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

The fact that the surviving partner instituting action on a partnership asset has not filed a bond as required by G.S. 59-74, is not ground for nonsuit, since the requirement of a bond is for the protection of the estate of the deceased partner, and the objection is not available to one who is merely a debtor of the partnership. This conclusion is consonant with G.S. 59-75, which provides that upon failure of the surviving partner to file bond, the clerk of the superior court shall appoint a collector of the partnership upon application of any person interested in the estate of the deceased partner. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

Opinions of Attorney General

Editor's Note. - The opinion below was rendered under former G.S. 41-2(b), now recodified as subsections (a)-(d) of this section, or prior law.

Effect on Common Law Application to Joint Bank Accounts. - See opinion of the Attorney General to Mr. W.C. York, Department of Insurance, 41 N.C.A.G. 352 (1971).

§ 41-73. Termination of a joint tenancy with right of survivorship.

  1. Events terminating a joint tenancy with right of survivorship due to the collective action of all joint tenants include the following:
    1. The conveyance to a third party by all of the joint tenants of all of their interests in the property held in the joint tenancy, including a foreclosure sale pursuant to a power of sale in a deed of trust.
    2. The execution of an instrument with a third party by all of the joint tenants that does not convey all of their interests in the property held in the joint tenancy to the third party, including a lease, executory contract of sale, option to purchase, or deed of trust, and an intention to terminate expressly appears in the instrument.
    3. The execution of an instrument by all joint tenants for the purpose of expressing an intent to terminate the joint tenancy as between or among themselves.
  2. Events terminating a joint tenancy with right of survivorship due to the unilateral action of a joint tenant include the following:
    1. The conveyance to a third party by a joint tenant of all of that joint tenant's interest in the property held in the joint tenancy, including a foreclosure sale pursuant to a power sale in a deed of trust.
    2. The execution of an instrument with a third party by a joint tenant that does not convey all of that joint tenant's interest to the third party, including a lease, executory contract of sale, option to purchase, or deed of trust, and an intention to terminate expressly appears in the instrument.
    3. The execution of an instrument by a joint tenant where the joint tenant is both the grantor and the grantee if the intention to terminate expressly appears in the instrument. A termination under this subdivision shall be effective only upon the recording, prior to the death of the joint tenant, of an instrument expressing an intent to terminate in the office of the register of deeds in the county or counties where the real property is situated.
    4. The filing by a joint tenant of a petition to partition.
  3. When a termination occurs, a tenancy in common is created as follows:
    1. If a termination occurs under subdivision (1) of subsection (a) of this section because of the conveyance of all of the joint tenants' interests to a third party, a tenancy in common is created among the tenants as to any proceeds of sale or surplus funds generated from a foreclosure sale.
    2. If a termination occurs because of the execution by all of the joint tenants of an instrument described in subdivision (2) or (3) of subsection (a) of this section, a tenancy in common is created among the tenants.
    3. If a termination occurs under subdivision (a) of subsection (b) of this section because one of the joint tenants conveys all of that joint tenant's interest to a third party and there are only two joint tenants, a tenancy in common is created between the third party and the other joint tenant. If there are more than two joint tenants and one of the joint tenants conveys all of that joint tenant's interests to a third party, a tenancy in common is created among the third party and the remaining joint tenants, who remain joint tenants with right of survivorship as between or among themselves.
    4. If a termination occurs because of the execution by a joint tenant of an instrument described in subdivision (2) or (3) of subsection (b) of this section or because of the filing of a petition by a joint tenant as provided in subdivision (4) of subsection (b) of this section, and there are two joint tenants, a tenancy in common is created between the joint tenant causing the termination and the other joint tenant. If there are more than two joint tenants, a tenancy in common is created among the joint tenant causing the termination and the remaining joint tenants who continue as joint tenants with right of survivorship as between or among themselves.
  4. The following events do not result in a termination of joint tenancy with right of survivorship:
    1. The filing of a judgment against one joint tenant.
    2. The filing of a bankruptcy petition by one joint tenant.
    3. When married individuals holding an interest as tenants by the entirety in a joint tenancy with one or more other joint tenants divorce. Unless the divorced individuals agree otherwise, the divorced individuals shall be deemed to hold their existing interest equally as tenants in common as to each other, but as joint tenants with right of survivorship as to remaining joint tenancy holders.
  5. Nothing in this section shall limit the manner or effect of a termination ordered by a court of competent jurisdiction.

History

(1784, c. 204, s. 6; R.C., c. 43, s. 2; Code, s. 1326; Rev., s. 1579; C.S., s. 1735; 1945, c. 635; 1989 (Reg. Sess., 1990), c. 891, s. 1; 1991, c. 606, s. 1; 2009-268, s. 1; 2010-96, s. 9; 2012-69, s. 2; 2013-204, s. 1.11; 2020-50, s. 2(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," "widow," and "widower," see G.S. 12-3(16), (17).

As to personal representatives holding in joint tenancy, see G.S. 28A-13-5.

As to survivorship among trustees given power of sale, see G.S. 45-8.

Editor's Note. - Subdivision (c)(3) of this section is the former fourth and third sentences of G.S. 41-2(a), as recodified by Session Laws 2020-50, s. 2(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Session Laws 1989 (Reg. Sess., 1990), c. 891, which amended this section, provided in s. 3: "Nothing in this act shall be construed to affect the validity of instruments that provide for a right of survivorship executed prior to the effective date of this act." The act became effective January 1, 1991.

Session Laws 1991, c. 606, which amended this section, in section 2 provides: "A conveyance of any interest in real property occurring between January 1, 1991, and the effective date of this act [October 1, 1991] by a party to himself and one or more other parties that expressly provides for a joint tenancy with a right of survivorship shall have created such an interest."

Effect of Amendments. - Session Laws 2009-268, s. 1, effective July 10, 2009, designated the previously existing provisions as subsection (a); in subsection (a), made gender neutral changes in the first sentence, in the last sentence, deleted "himself and" preceding "one or more" and inserted "whether or not jointly with the grantor-party"; and added subsection (b).

Session Laws 2010-96, s. 9, effective July 20, 2010, substituted "subsection" for "act" at the end of the last paragraph in subsection (b).

Session Laws 2012-69, s. 2, effective October 1, 2012, rewrote the third sentence of subsection (b), which formerly read: "If joint tenancy interests among three or more joint tenants holding property in joint tenancy with right of survivorship are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the surviving joint tenants according to their respective pro rata interest and not equally, unless the creating instrument provides otherwise."

Session Laws 2013-204, s. 1.11, effective June 26, 2013, added subsection (a1).

Session Laws 2020-50, s. 2(c), effective June 30, 2020, rewrote the section.

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

CASE NOTES

I. GENERAL CONSIDERATION.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(a), now recodified as subdivision (c)(3) of this section.

Survivorship Only Abolished as Incident of Joint Tenancy. - This section abolished survivorship only where it follows as a legal incident to an existing joint tenancy. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Right of survivorship has been statutorily abolished where it follows as legal incident to an existing joint tenancy. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990), decided under law in effect prior to G.S. 53-146.1.

"Estate" in Most General Sense Includes Choses in Action. - "Estate" is derived from status, and in its most general sense means position or standing in respect to the things and concerns of this world. In this sense it includes choses in action. Pippin v. Ellison, 34 N.C. 61 (1851); Webb v. Bowler, 50 N.C. 362 (1858); Hurdle v. Outlaw, 55 N.C. 75 (1854).

Estate is also used in a much more restricted sense, and is then put in opposition to a chose in action, or mere right, to signify something which one has in possession, or a vested remainder, or reversion without dispute or adverse possession. Taylor v. Dawson, 56 N.C. 86 (1856). See Bond v. Hilton, 51 N.C. 180 (1858).

Section Applies Only to Estates of Inheritance. - The act of 1784, converting joint tenancies into estates in common, applies only to estates of inheritance. Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881).

If the purpose had been to include all estates in joint tenancy, that purpose would have been better served by abolishing the "jus accrescendi" in a few direct words to that effect, instead of resorting to words applicable only to estates of inheritance held in joint tenancy in real estate, and absolute estates held in joint tenancy in personalty. Powell v. Allen, 75 N.C. 450 (1876).

This section which abolished the right of survivorship in joint tenancies in estates of inheritance, does not apply to a joint tenancy in a life estate where no estate of inheritance is involved. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Concurrent Life Estates Not Affected. - Concurrent life estates still stand untouched by this section, and the old feudal presumption in favor of joint tenancies with survivorship remains. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Joint Estates for Life and Estates by Entirety Not Affected. - Joint tenancies are not abolished by the section. It abolishes the right of survivorship in joint tenancies in fee, but does not affect joint estates for life or estates by entirety. Vass v. Freeman, 56 N.C. 221 (1857); Powell v. Allen, 75 N.C. 450 (1876); Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881); Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

In Powell v. Allen, 75 N.C. 450 (1876), in construing the act of 1784, now this section, Chief Justice Pearson says: "It is obvious that these words cannot be made to apply to joint tenants for life." Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

Legatees May Hold as Joint Tenants. - Legatees may still hold by a joint tenancy in North Carolina, though the incident of survivorship was abolished by the act of 1784, now this section. Vass v. Freeman, 56 N.C. 221 (1857).

When Remaindermen Take as Tenants in Common. - A deed of gift, executed by W.B. to his son J.B., "during his natural life only, and then to return to the male children of the said J.B., lawfully begotten of his body, for the want of such to return to the male children of my other sons W and B, their proper use, benefit and behoof of him, them and every of them, and to their heirs and assigns forever," vested a life estate in J.B., with remainder in fee to his sons as tenants in common under the section. Brown v. Ward, 103 N.C. 173, 9 S.E. 300 (1889).

Survivorship May Be Provided for by Contract. - This section abolishes survivorship, where the joint tenancy would otherwise have been created by the law, but does not operate to prohibit persons from entering into written contracts as to land, or verbal agreements as to personalty, such as to make the future rights of the parties depend upon the fact of survivorship. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895); Jones v. Waldroup, 217 N.C. 178, 7 S.E.2d 366 (1940); Bunting v. Cobb, 234 N.C. 132, 66 S.E.2d 661 (1951); Wilson County v. Wooten, 251 N.C. 667, 111 S.E.2d 875 (1960).

This section does not operate to prohibit persons from entering into written contracts as to lands so as to make future rights of the parties depend upon survivorship. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Parties who wish to create a right of survivorship applicable to joint bank accounts must comply with requirements of G.S. 41-2.1(a). In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1

Survivorship in Personalty Must Be Pursuant to Contract. - Since the abolition of survivorship in joint tenancy, the right of survivorship in personalty, if such right exists, must be pursuant to contract and not by operation of law or statutory provision. Wilson v. Ervin, 227 N.C. 396, 42 S.E.2d 468 (1947); Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

A verbal agreement between two parties owning a note, payable to them jointly, that upon the death of either without issue it shall belong to the survivor is valid. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895).

Joint Tenancy Severed by Deed of Trust. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court properly ruled that the son-in-law and daughter owned a one-half undivided interest in the land which was not encumbered by a deed of trust to the benefit of the mortgagee because, after the son-in-law and daughter and the mother executed a general warranty deed creating a joint tenancy with a right of survivorship between the mother and the son-in-law and daughter, that joint tenancy was severed by the filing of a deed of trust which only obligated the mother, as the accompanying mortgage was a conveyance, due to North Carolina being a title theory state, so the mother, on one hand, and the son-in-law and daughter, on the other hand, held the land as tenants in common. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Instrument Held Ineffective to Provide for Survivorship. - While this section may not preclude tenants in common from providing for survivorship by adequate contract inter sese, an instrument executed by them which merely expresses a general intent that the survivor should take the fee, without any words of conveyance, is ineffective. The execution by the administrator of the deceased tenant in common of a deed to the surviving tenant, made under the supposed authority of the contract, is without effect. Pope v. Burgess, 230 N.C. 323, 53 S.E.2d 159 (1949).

Joint Tenant's Interest Did Not Pass to Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the mother's interest as a tenant in common passed to the son-in-law and daughter upon the mother's death because the mother's interest as a tenant in common had no right of survivorship, since a joint tenancy previously created by a general warranty deed was severed by the filing of a deed of trust that obligated only the mother. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Interest of Tenant in Common Did Not Vest in Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the son-in-law and daughter owned the land in fee simple absolute upon the mother's death because the mother's interest in the property as a tenant in common did not vest in the son-in-law and daughter pursuant to a right of survivorship. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Applied in Powell v. Malone, 22 F. Supp. 300 (M.D.N.C. 1938).

Cited in Buffaloe v. Barnes, 226 N.C. 313, 38 S.E.2d 222 (1946); O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980); McLain v. Wilson, 91 N.C. App. 275, 371 S.E.2d 151 (1988); Mutual Community Savs. Bank v. Boyd, 125 N.C. App. 118, 479 S.E.2d 491 (1996); Clark v. Dyer, 236 N.C. App. 9, 762 S.E.2d 838 (2014).

II. ESTATES OF HUSBAND AND WIFE.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(a), now recodified as subdivision (c)(3) of this section.

Section Inapplicable to Conveyances to Husband and Wife. - In construing this statute, the Supreme Court held that it had no application to an estate granted to husband and wife, on the ground that it is not an estate in joint tenancy, but an entirety estate. Motley v. Whitemore, 19 N.C. 537 (1837); Gray v. Bailey, 117 N.C. 439, 23 S.E. 318 (1895); Woolard v. Smith, 244 N.C. 489, 94 S.E.2d 466 (1956).

The act of 1784, now this section, abolishing survivorship in joint tenancies, does not apply to conveyances to husband and wife, for the reason assigned in Motley v. Whitemore, 19 N.C. 537 (1837), that "being in law but one person they have each the whole estate as one person; and on the death of either of them the whole estate continues in the survivor." Long v. Barnes, 87 N.C. 329 (1882); Smith v. Gordon, 204 N.C. 695, 169 S.E. 634 (1933).

Survivorship in Joint Bank Accounts. - Where agreements of husband and wife relating to savings accounts provide that the accounts are held by them as joint tenants with right of survivorship, and not as tenants in common, the right of survivorship exists pursuant to the contracts, and upon the death of the husband the widow is entitled to take the whole. Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

Estate by Entireties Not Abolished. - It has been held in several well considered decisions of the Supreme Court that our Constitution and the later statutes relative to the property and rights of married women have not thus far destroyed or altered the nature of this estate by entireties, a conveyance to a husband and wife. Bruce v. Sugg, 109 N.C. 202, 13 S.E. 790 (1891); Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903); West v. Aberdeen & R.R., 140 N.C. 620, 53 S.E. 477 (1906); Bynum v. Wicker, 141 N.C. 95, 53 S.E. 478 (1906); Jones v. W.A. Smith & Co., 149 N.C. 318, 62 S.E. 1092 (1908); McKinnon, Currie & Co. v. Caulk, 167 N.C. 411, 83 S.E. 559 (1914). See also Martin v. Lewis, 187 N.C. 473, 122 S.E. 180 (1924).

The right of survivorship applies to estates in land conveyed jointly to husband and wife, and title vests in the heirs of the one surviving the other. Murchison v. Fogleman, 165 N.C. 397, 81 S.E. 627 (1914).

A conveyance to a husband and wife, as such, creates an estate of entirety, and does not make them joint tenants or tenants in common. Neither can alien without the consent of the other, and the survivor takes the whole. Needham v. Branson, 27 N.C. 426 (1845); Todd v. Zachary, 45 N.C. 286 (1853); Woodford v. Higly, 60 N.C. 234 (1864); Long v. Barnes, 87 N.C. 329 (1882).

Where the husband and wife purchase property, each furnishing a portion of the purchase money, an estate in entirety and not a joint estate is created which they hold per tout et non per my. Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903).

Interest of Husband and Wife as Tenants in Common. - When a joint tenancy between a mother, on one hand, and a son-in-law and daughter, on the other hand, was severed by the filing of a deed of trust that obligated only the mother, the mother's subsequent interest as a tenant in common was one-half of the property, and the son-in-law's and daughter's interest, as tenants by the entirety, was also one-half because the son-in-law and daughter were husband and wife, so the son-in-law and daughter held the property as a single tenancy by the entirety and were treated as a single party when determining interests in the joint tenancy with right of survivorship upon severance of the joint tenancy. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

III. JOINT TENANCY IN PARTNERSHIP PROPERTY.

.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(a), now recodified as subdivision (c)(3) of this section.

Joint Tenancy of Partnership in Land. - This section provides that land jointly purchased for partnership purposes shall, upon the death of one partner, survive to the others for the purpose of paying the partnership debts. Real estate held and used for partnership purposes is subject to partnership debts to the exclusion of the heir or widow of the deceased. When the partnership debts are satisfied, if there is any remainder, such share as would have fallen to the deceased partner, shall be delivered over to the heirs, executors, administrators or assigns. Stroud v. Stroud, 61 N.C. 525 (1868).

Upon Settlement Partnership Land Descends as Real Estate. - When land is purchased in fee by partnership funds and for partnership purposes, and one partner dies, upon the settlement of the partnership debts his share of the land descends to his heir as real estate. Summey v. Patton, 60 N.C. 601 (1864).

When lands are purchased by a partnership with partnership funds, upon the death of one of the partners, in the absence of any agreement in the articles of partnership to the contrary, his share therein descends to his heir at law as real estate, if the personal property of the partnership is sufficient to pay all the partnership debts and demands. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Heir May Recover from Surviving Partner. - The heir at law to whom a deceased partner had conveyed by deed his share of lands purchased with partnership funds is entitled to the lands against the rights of the surviving partner, in an action by the latter for possession for the purpose of winding up the partnership affairs, when it appears that the partnership personalty is sufficient for the purpose of paying the partnership debts and satisfying any claim the surviving partner may have, and there is no provision in the articles of the partnership agreement of a contrary purpose. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Immaterial Whether Claim Is by Deed or Inheritance. - When the rule applies that lands purchased by partnership funds descend to the heir at law, it is immaterial whether the heir of the deceased partner claims his interest by deed from him or by inheritance. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

G.S. 59-74 is to be read in connection with this section respecting the settlement of partnership affairs by surviving partners. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

The fact that the surviving partner instituting action on a partnership asset has not filed a bond as required by G.S. 59-74, is not ground for nonsuit, since the requirement of a bond is for the protection of the estate of the deceased partner, and the objection is not available to one who is merely a debtor of the partnership. This conclusion is consonant with G.S. 59-75, which provides that upon failure of the surviving partner to file bond, the clerk of the superior court shall appoint a collector of the partnership upon application of any person interested in the estate of the deceased partner. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

Opinions of Attorney General

Editor's Note. - The opinion below was rendered under former G.S. 41-2(a), now recodified as subdivision (c)(3) of this section, or prior law.

Effect on Common Law Application to Joint Bank Accounts. - See opinion of the Attorney General to Mr. W.C. York, Department of Insurance, 41 N.C.A.G. 352 (1971).

§ 41-74. Application of 120-hour survival requirement to joint tenancy with right of survivorship.

The provisions of G.S. 28A-24-3 apply to joint tenancy interests among two or more joint tenants holding property in joint tenancy with right of survivorship upon the death of one or more of the joint tenants.

History

(1784, c. 204, s. 6; R.C., c. 43, s. 2; Code, s. 1326; Rev., s. 1579; C.S., s. 1735; 1945, c. 635; 1989 (Reg. Sess., 1990), c. 891, s. 1; 1991, c. 606, s. 1; 2009-268, s. 1; 2010-96, s. 9; 2012-69, s. 2; 2013-204, s. 1.11; 2020-50, s. 2(a)-(c).)

Cross References. - As to rules for construction, see G.S. 12-3.

As to rules for construction pertaining to "husband and wife," "widow," and "widower," see G.S. 12-3(16), (17).

As to personal representatives holding in joint tenancy, see G.S. 28A-13-5.

As to survivorship among trustees given power of sale, see G.S. 45-8.

Editor's Note. - This section is the former third sentence of G.S. 41-2(b), as recodified by Session Laws 2020-50, s. 2(b), effective June 30, 2020. The historical citation and annotations from the former section have been added to this section as recodified.

Session Laws 1989 (Reg. Sess., 1990), c. 891, which amended this section, provided in s. 3: "Nothing in this act shall be construed to affect the validity of instruments that provide for a right of survivorship executed prior to the effective date of this act." The act became effective January 1, 1991.

Session Laws 1991, c. 606, which amended this section, in section 2 provides: "A conveyance of any interest in real property occurring between January 1, 1991, and the effective date of this act [October 1, 1991] by a party to himself and one or more other parties that expressly provides for a joint tenancy with a right of survivorship shall have created such an interest."

Effect of Amendments. - Session Laws 2009-268, s. 1, effective July 10, 2009, designated the previously existing provisions as subsection (a); in subsection (a), made gender neutral changes in the first sentence, in the last sentence, deleted "himself and" preceding "one or more" and inserted "whether or not jointly with the grantor-party"; and added subsection (b).

Session Laws 2010-96, s. 9, effective July 20, 2010, substituted "subsection" for "act" at the end of the last paragraph in subsection (b).

Session Laws 2012-69, s. 2, effective October 1, 2012, rewrote the third sentence of subsection (b), which formerly read: "If joint tenancy interests among three or more joint tenants holding property in joint tenancy with right of survivorship are held in unequal shares, upon the death of one joint tenant, the share of the deceased joint tenant shall be divided among the surviving joint tenants according to their respective pro rata interest and not equally, unless the creating instrument provides otherwise."

Session Laws 2013-204, s. 1.11, effective June 26, 2013, added subsection (a1).

Session Laws 2020-50, s. 2(c), effective June 30, 2020, added "The provisions of G.S. 28A-24-3 apply to joint" for "The joint" at the beginning and deleted "are subject to the provisions of G.S. 28A-24-3" following "of survivorship" near the end.

Legal Periodicals. - For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

For article, "Class Gifts in North Carolina - When Do We 'Call The Roll'?," see 21 Wake Forest L. Rev. 1 (1985).

For article, "The Joint Tenancy Makes a Comeback in North Carolina," see 69 N.C.L. Rev. 491 (1991).

CASE NOTES

I. GENERAL CONSIDERATION.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as this section.

Survivorship Only Abolished as Incident of Joint Tenancy. - This section abolished survivorship only where it follows as a legal incident to an existing joint tenancy. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Right of survivorship has been statutorily abolished where it follows as legal incident to an existing joint tenancy. In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990), decided under law in effect prior to G.S. 53-146.1.

"Estate" in Most General Sense Includes Choses in Action. - "Estate" is derived from status, and in its most general sense means position or standing in respect to the things and concerns of this world. In this sense it includes choses in action. Pippin v. Ellison, 34 N.C. 61 (1851); Webb v. Bowler, 50 N.C. 362 (1858); Hurdle v. Outlaw, 55 N.C. 75 (1854).

Estate is also used in a much more restricted sense, and is then put in opposition to a chose in action, or mere right, to signify something which one has in possession, or a vested remainder, or reversion without dispute or adverse possession. Taylor v. Dawson, 56 N.C. 86 (1856). See Bond v. Hilton, 51 N.C. 180 (1858).

Section Applies Only to Estates of Inheritance. - The act of 1784, converting joint tenancies into estates in common, applies only to estates of inheritance. Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881).

If the purpose had been to include all estates in joint tenancy, that purpose would have been better served by abolishing the "jus accrescendi" in a few direct words to that effect, instead of resorting to words applicable only to estates of inheritance held in joint tenancy in real estate, and absolute estates held in joint tenancy in personalty. Powell v. Allen, 75 N.C. 450 (1876).

This section which abolished the right of survivorship in joint tenancies in estates of inheritance, does not apply to a joint tenancy in a life estate where no estate of inheritance is involved. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Concurrent Life Estates Not Affected. - Concurrent life estates still stand untouched by this section, and the old feudal presumption in favor of joint tenancies with survivorship remains. Dew v. Shockley, 36 N.C. App. 87, 243 S.E.2d 177, cert. denied, 295 N.C. 465, 246 S.E.2d 9 (1978).

Joint Estates for Life and Estates by Entirety Not Affected. - Joint tenancies are not abolished by the section. It abolishes the right of survivorship in joint tenancies in fee, but does not affect joint estates for life or estates by entirety. Vass v. Freeman, 56 N.C. 221 (1857); Powell v. Allen, 75 N.C. 450 (1876); Blair v. Osborne, 84 N.C. 417 (1881); Powell v. Morisey, 84 N.C. 421 (1881); Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

In Powell v. Allen, 75 N.C. 450 (1876), in construing the act of 1784, now this section, Chief Justice Pearson says: "It is obvious that these words cannot be made to apply to joint tenants for life." Burton v. Cahill, 192 N.C. 505, 135 S.E. 332 (1926).

Legatees May Hold as Joint Tenants. - Legatees may still hold by a joint tenancy in North Carolina, though the incident of survivorship was abolished by the act of 1784, now this section. Vass v. Freeman, 56 N.C. 221 (1857).

When Remaindermen Take as Tenants in Common. - A deed of gift, executed by W.B. to his son J.B., "during his natural life only, and then to return to the male children of the said J.B., lawfully begotten of his body, for the want of such to return to the male children of my other sons W and B, their proper use, benefit and behoof of him, them and every of them, and to their heirs and assigns forever," vested a life estate in J.B., with remainder in fee to his sons as tenants in common under the section. Brown v. Ward, 103 N.C. 173, 9 S.E. 300 (1889).

Survivorship May Be Provided for by Contract. - This section abolishes survivorship, where the joint tenancy would otherwise have been created by the law, but does not operate to prohibit persons from entering into written contracts as to land, or verbal agreements as to personalty, such as to make the future rights of the parties depend upon the fact of survivorship. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895); Jones v. Waldroup, 217 N.C. 178, 7 S.E.2d 366 (1940); Bunting v. Cobb, 234 N.C. 132, 66 S.E.2d 661 (1951); Wilson County v. Wooten, 251 N.C. 667, 111 S.E.2d 875 (1960).

This section does not operate to prohibit persons from entering into written contracts as to lands so as to make future rights of the parties depend upon survivorship. Vettori v. Fay, 262 N.C. 481, 137 S.E.2d 810 (1964).

Parties who wish to create a right of survivorship applicable to joint bank accounts must comply with requirements of G.S. 41-2.1(a). In re Estate of Heffner, 99 N.C. App. 327, 392 S.E.2d 770 (1990)decided under law in effect prior to G.S. 53-146.1

Survivorship in Personalty Must Be Pursuant to Contract. - Since the abolition of survivorship in joint tenancy, the right of survivorship in personalty, if such right exists, must be pursuant to contract and not by operation of law or statutory provision. Wilson v. Ervin, 227 N.C. 396, 42 S.E.2d 468 (1947); Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

A verbal agreement between two parties owning a note, payable to them jointly, that upon the death of either without issue it shall belong to the survivor is valid. Taylor v. Smith, 116 N.C. 531, 21 S.E. 202 (1895).

Joint Tenancy Severed by Deed of Trust. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court properly ruled that the son-in-law and daughter owned a one-half undivided interest in the land which was not encumbered by a deed of trust to the benefit of the mortgagee because, after the son-in-law and daughter and the mother executed a general warranty deed creating a joint tenancy with a right of survivorship between the mother and the son-in-law and daughter, that joint tenancy was severed by the filing of a deed of trust which only obligated the mother, as the accompanying mortgage was a conveyance, due to North Carolina being a title theory state, so the mother, on one hand, and the son-in-law and daughter, on the other hand, held the land as tenants in common. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Instrument Held Ineffective to Provide for Survivorship. - While this section may not preclude tenants in common from providing for survivorship by adequate contract inter sese, an instrument executed by them which merely expresses a general intent that the survivor should take the fee, without any words of conveyance, is ineffective. The execution by the administrator of the deceased tenant in common of a deed to the surviving tenant, made under the supposed authority of the contract, is without effect. Pope v. Burgess, 230 N.C. 323, 53 S.E.2d 159 (1949).

Joint Tenant's Interest Did Not Pass to Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the mother's interest as a tenant in common passed to the son-in-law and daughter upon the mother's death because the mother's interest as a tenant in common had no right of survivorship, since a joint tenancy previously created by a general warranty deed was severed by the filing of a deed of trust that obligated only the mother. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Interest of Tenant in Common Did Not Vest in Daughter and Son-in-Law. - When a mortgagee sought to foreclose on land held by a daughter and son-in-law and the daughter's mother, a trial court erred in ruling that the son-in-law and daughter owned the land in fee simple absolute upon the mother's death because the mother's interest in the property as a tenant in common did not vest in the son-in-law and daughter pursuant to a right of survivorship. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

Applied in Powell v. Malone, 22 F. Supp. 300 (M.D.N.C. 1938).

Cited in Buffaloe v. Barnes, 226 N.C. 313, 38 S.E.2d 222 (1946); O'Brien v. Reece, 45 N.C. App. 610, 263 S.E.2d 817 (1980); McLain v. Wilson, 91 N.C. App. 275, 371 S.E.2d 151 (1988); Mutual Community Savs. Bank v. Boyd, 125 N.C. App. 118, 479 S.E.2d 491 (1996); Clark v. Dyer, 236 N.C. App. 9, 762 S.E.2d 838 (2014).

II. ESTATES OF HUSBAND AND WIFE.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as this section.

Section Inapplicable to Conveyances to Husband and Wife. - In construing this statute, the Supreme Court held that it had no application to an estate granted to husband and wife, on the ground that it is not an estate in joint tenancy, but an entirety estate. Motley v. Whitemore, 19 N.C. 537 (1837); Gray v. Bailey, 117 N.C. 439, 23 S.E. 318 (1895); Woolard v. Smith, 244 N.C. 489, 94 S.E.2d 466 (1956).

The act of 1784, now this section, abolishing survivorship in joint tenancies, does not apply to conveyances to husband and wife, for the reason assigned in Motley v. Whitemore, 19 N.C. 537 (1837), that "being in law but one person they have each the whole estate as one person; and on the death of either of them the whole estate continues in the survivor." Long v. Barnes, 87 N.C. 329 (1882); Smith v. Gordon, 204 N.C. 695, 169 S.E. 634 (1933).

Survivorship in Joint Bank Accounts. - Where agreements of husband and wife relating to savings accounts provide that the accounts are held by them as joint tenants with right of survivorship, and not as tenants in common, the right of survivorship exists pursuant to the contracts, and upon the death of the husband the widow is entitled to take the whole. Bowling v. Bowling, 243 N.C. 515, 91 S.E.2d 176 (1956).

Estate by Entireties Not Abolished. - It has been held in several well considered decisions of the Supreme Court that our Constitution and the later statutes relative to the property and rights of married women have not thus far destroyed or altered the nature of this estate by entireties, a conveyance to a husband and wife. Bruce v. Sugg, 109 N.C. 202, 13 S.E. 790 (1891); Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903); West v. Aberdeen & R.R., 140 N.C. 620, 53 S.E. 477 (1906); Bynum v. Wicker, 141 N.C. 95, 53 S.E. 478 (1906); Jones v. W.A. Smith & Co., 149 N.C. 318, 62 S.E. 1092 (1908); McKinnon, Currie & Co. v. Caulk, 167 N.C. 411, 83 S.E. 559 (1914). See also Martin v. Lewis, 187 N.C. 473, 122 S.E. 180 (1924).

The right of survivorship applies to estates in land conveyed jointly to husband and wife, and title vests in the heirs of the one surviving the other. Murchison v. Fogleman, 165 N.C. 397, 81 S.E. 627 (1914).

A conveyance to a husband and wife, as such, creates an estate of entirety, and does not make them joint tenants or tenants in common. Neither can alien without the consent of the other, and the survivor takes the whole. Needham v. Branson, 27 N.C. 426 (1845); Todd v. Zachary, 45 N.C. 286 (1853); Woodford v. Higly, 60 N.C. 234 (1864); Long v. Barnes, 87 N.C. 329 (1882).

Where the husband and wife purchase property, each furnishing a portion of the purchase money, an estate in entirety and not a joint estate is created which they hold per tout et non per my. Ray v. Long, 132 N.C. 891, 44 S.E. 652 (1903).

Interest of Husband and Wife as Tenants in Common. - When a joint tenancy between a mother, on one hand, and a son-in-law and daughter, on the other hand, was severed by the filing of a deed of trust that obligated only the mother, the mother's subsequent interest as a tenant in common was one-half of the property, and the son-in-law's and daughter's interest, as tenants by the entirety, was also one-half because the son-in-law and daughter were husband and wife, so the son-in-law and daughter held the property as a single tenancy by the entirety and were treated as a single party when determining interests in the joint tenancy with right of survivorship upon severance of the joint tenancy. Countrywide Home Loans, Inc. v. Reed, 220 N.C. App. 504, 725 S.E.2d 667 (2012).

III. JOINT TENANCY IN PARTNERSHIP PROPERTY.

.

Editor's Note. - Most of the cases below were decided under former G.S. 41-2(b), now recodified as this section.

Joint Tenancy of Partnership in Land. - This section provides that land jointly purchased for partnership purposes shall, upon the death of one partner, survive to the others for the purpose of paying the partnership debts. Real estate held and used for partnership purposes is subject to partnership debts to the exclusion of the heir or widow of the deceased. When the partnership debts are satisfied, if there is any remainder, such share as would have fallen to the deceased partner, shall be delivered over to the heirs, executors, administrators or assigns. Stroud v. Stroud, 61 N.C. 525 (1868).

Upon Settlement Partnership Land Descends as Real Estate. - When land is purchased in fee by partnership funds and for partnership purposes, and one partner dies, upon the settlement of the partnership debts his share of the land descends to his heir as real estate. Summey v. Patton, 60 N.C. 601 (1864).

When lands are purchased by a partnership with partnership funds, upon the death of one of the partners, in the absence of any agreement in the articles of partnership to the contrary, his share therein descends to his heir at law as real estate, if the personal property of the partnership is sufficient to pay all the partnership debts and demands. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Heir May Recover from Surviving Partner. - The heir at law to whom a deceased partner had conveyed by deed his share of lands purchased with partnership funds is entitled to the lands against the rights of the surviving partner, in an action by the latter for possession for the purpose of winding up the partnership affairs, when it appears that the partnership personalty is sufficient for the purpose of paying the partnership debts and satisfying any claim the surviving partner may have, and there is no provision in the articles of the partnership agreement of a contrary purpose. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

Immaterial Whether Claim Is by Deed or Inheritance. - When the rule applies that lands purchased by partnership funds descend to the heir at law, it is immaterial whether the heir of the deceased partner claims his interest by deed from him or by inheritance. Sherrod v. Mayo, 156 N.C. 144, 72 S.E. 216 (1911).

G.S. 59-74 is to be read in connection with this section respecting the settlement of partnership affairs by surviving partners. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

The fact that the surviving partner instituting action on a partnership asset has not filed a bond as required by G.S. 59-74, is not ground for nonsuit, since the requirement of a bond is for the protection of the estate of the deceased partner, and the objection is not available to one who is merely a debtor of the partnership. This conclusion is consonant with G.S. 59-75, which provides that upon failure of the surviving partner to file bond, the clerk of the superior court shall appoint a collector of the partnership upon application of any person interested in the estate of the deceased partner. Coppersmith v. Upton, 228 N.C. 545, 46 S.E.2d 565 (1948).

Opinions of Attorney General

Editor's Note. - The opinion below was rendered under former G.S. 41-2(b), now recodified as this section, or prior law.

Effect on Common Law Application to Joint Bank Accounts. - See opinion of the Attorney General to Mr. W.C. York, Department of Insurance, 41 N.C.A.G. 352 (1971).

§ 41-75. Inapplicability of Article.

This Article does not apply to any of the following:

  1. Executors or trustees in their representative capacity.
  2. Partnerships governed by Chapter 59 of the General Statutes.
  3. Business entities.
  4. Accounts established under G.S. 41-2.1 or G.S. 41-2.2 to the extent inconsistent with the provisions of this Article.
  5. Life estates.

History

(2020-50, s. 2(a), (c); 2021-91, s. 9.)

Effect of Amendments. - Session Laws 2021-91, s. 9, effective October 1, 2021, substituted "G.S. 41-2.1” for "G.S. 42-2.1,” and "G.S. 41-2.2” for "G.S. 42-2.2” in subdivision (4).

§ 41-76. Common law of joint tenancy; equitable principles.

The common law of joint tenancy with right of survivorship and principles of equity supplement this Article except to the extent it conflicts or is inconsistent with a provision of this Article or the laws of this State.

History

(2020-50, s. 2(a), (c).)

§ 41-77. Citation to prior statutes.

A citation to a former statute recodified in Article 5 of Chapter 41 of the General Statutes, whether made before or after adoption of Article 5, shall be deemed to be a citation to the recodified statute, unless application of this rule of construction would substantially impair the rights of a party.

History

(2020-50, s. 2(a), (c).)

§§ 41-78, 41-79: Reserved for future codification purposes.