Summary
In Kern v. Robertson, 92 Mont. 283, 12 P.2d 565, 567, we said: "The authorities are in accord that an enforceable contract for the purchase and sale of real property passes to the purchaser the equitable and beneficial ownership thereof, leaving only the naked legal title in the seller, as trustee for the purchaser, and as security for the unpaid purchase price."
Summary of this case from Calvin v. Custer CountyOpinion
No. 6,903.
Submitted February 13, 1932.
Decided April 13, 1932. Opinion on Motion for Rehearing Filed June 25, 1932.
Real Property — Quieting Title — Vendor and Purchaser — Executory Contract of Sale — Death of Vendor — Equitable Conversion of Realty into Personalty — Levy of Execution on Property as Realty for Debt of Devisee Void — Right of Executor to Maintain Action — Failure to Bring About Speedy Termination of Estate Matter Does not Affect Right. Real Property — Vendor and Purchaser — Effect of Death of Parties While Contract of Sale in Force — Equitable Conversion. 1. An enforceable contract for the purchase and sale of real property passes to the purchaser its equitable ownership, leaving the naked title in the seller, as trustee for the purchaser, as security for the unpaid purchase price; in the event of the death of the purchaser while the contract is in force, his interest passes to his heirs as real property, while, if the seller dies within that time, his interest passes to his personal representative as personalty, and not to his heirs. Same — Equitable Conversion — Doctrine Inapplicable to Option Contracts. 2. The doctrine of equitable conversion does not apply to real estate option contracts, such a contract being a mere offer to sell — a continuing offer of a contract — which may be accepted within a specified time but is not enforceable against the optionee, as distinguished from a contract under which one undertakes to sell and the other to buy property, which is mutually enforceable. Same — Quieting Title — Vendor and Purchaser — Sale on Deferred Payments — Death of Vendor — Equitable Conversion of Realty into Personalty — Levy of Execution as upon Realty for Debt of Devisee Invalid — Certificate of Sale Void. 3. Held, in application of the doctrine of equitable conversion, that where the wife of plaintiff (in an action to quiet title) sold realty on deferred payments, her interest therein on her death while the contract was still in force passed to her executor as personal property, and hence was not subject to levy of execution as upon real property for the debts of her husband, devisee under the will, and therefore the sheriff's certificate of sale under such execution did not pass title. 2. Option to purchase as working conversion of the realty into personalty, see note in 50 A.L.R. 1322. Same — Quieting Title — Removing Cloud — Vendor by Contract to Convey Land not Deprived of Right to Maintain Action. 4. A mere contract to convey land will not divest the vendor of his right to maintain an action to quiet title or remove a cloud therefrom when the legal title remains in him. Same — Quieting Title — Executor Proper Party to Maintain Action as to Land Sold by His Testate on Deferred Payments. 5. An executor, as holder of the naked legal title to real property sold by his testate on deferred payments, charged with the duty to make conveyance on compliance by the purchaser with the terms of his contract, was a proper party to prosecute an action to quiet title to remove a cloud thereon in the shape of a sheriff's certificate on execution sale of the property levied upon as real property after its conversion into personalty as detailed above. Same — Right of Executor to Maintain Action to Quiet Title Under Above Circumstances not Affected by Delay in Bringing About Speedy Termination of Estate Matter. 6. The fact that plaintiff executor in his action to quiet title may have been derelict in his duty to bring the estate matter to a speedy termination, and that the court failed to require him to deliver possession of all real property (converted into personal property as above recited), in obedience to section 10139, Revised Codes 1921, to the devisee (himself), could not affect his right to prosecute the action.
Appeal from District Court, Ravalli County; James M. Self, Judge.
Mr. T.N. Marlowe, Mr. James D. Taylor and Mr. Harry H. Parsons (now of the Bar of San Bernardino, California), for Appellants, submitted a brief; Mr. Taylor argued the cause orally.
Messrs. O'Hara, Madeen Grant, for Respondent, submitted a brief; Mr. Robert A. O'Hara argued the cause orally.
We are aware of the decisions of state courts upholding life estates, but whether a devise for life accompanied by an absolute power of disposal is a life estate or an estate in fee has not been passed upon in this state and is a matter of first impression, and we believe that such a devise with power to destroy the remainder ought to be held to be a devise in fee and to create in the devisee an estate in fee simple. "Where a life estate is given by will and an unequivocal power of absolute disposition of the same property is also given, the latter generally prevails and has the effect of elevating the life estate into a fee." ( National Surety Co. v. Jarrett, 95 W. Va. 420, 39 A.L.R. 1171, 121 S.E. 291; Jones v. Jones, 25 Mich. 401; Gadd v. Stoner, 113 Mich. 689, 71 N.W. 1111; Gibson v. Gibson, 213 Mich. 31, 181 N.W. 41; McKnight v. McKnight, 120 Tenn. 431, 115 S.W. 134; Bradley v. Carnes, 94 Tenn. 27, 45 Am. St. Rep. 696, 27 S.W. 1007; Burwell v. Anderson, 3 Leigh (Va.), 348; May v. Joynes, 20 Gratt. (Va.) 692; Bowen v. Bowen, 87 Va. 438, 24 Am. St. Rep. 664, 12 S.E. 885; Newman v. Newman, 60 W. Va. 371, 7 L.R.A. (n.s.) 370, 55 S.E. 377; Meyer v. Barnett, 60 W. Va. 467, 116 Am. St. Rep. 894, 6 L.R.A. (n.s.) 1191, 56 S.E. 209; Watkins v. French, 149 Okla. 205, 299 P. 900; McNutt v. McComb, 61 Kan. 25, 58 P. 965; Bilger v. Nunan, 186 Fed. 665.)
The will here considered gives Kern the absolute power to destroy the estate as against the remaindermen. ( Herring v. Williams, 153 N.C. 231, 138 Am. St. Rep. 659, 69 S.E. 140; Young v. Hillier, 103 Me. 17, 125 Am. St. Rep. 283, 67 A. 571; Hamilton v. Hamilton, 149 Iowa, 321, 128 N.W. 380; Gildersleeve v. Lee, 100 Or. 578, 36 A.L.R. 1166, 198 P. 246); and it would seem to us that Kern is vested with a fee in the property and, not having exercised his power before the respondent caused the property to be sold, the whole estate is now the property of the respondent.
We have discussed the case thus far with the point in view that under the facts the whole estate is subject to sale in satisfaction of the respondent's claim; this question, however, is not necessarily before the court. Counsel for appellant seem disposed to becloud the issues. In one instance they tell us that because of the power contained in the will the life estate cannot be sold by Kern's creditors, and in another breath they insist that it is personal property and cannot be sold as real estate. It was our contention that, because of the condition the property was in, the outstanding contracts of sale, that it would be regarded and treated as personalty in equity, yet that fact would not transmute it into dollars or other symbols that might be taken into hand by the officer and brought into court. The physical properties remain as before in theory and in contemplation of equity the estate was personal property, but it was not so considered by the appellant for it was inventoried as real estate.
It is a well-established principle of law that the vendor in a contract of sale of real property may dispose of his equity or interest to another, who will be compelled to convey to the purchaser complying with the contract. (27 R.C.L., p. 560, sec. 300.)
It would seem that the above is the rule in this state. ( Chadwick v. Tatem, 9 Mont. 354, 23 P. 729; Tyler v. Tyler, 50 Mont. 65, 144 P. 1090; Knapp v. Andrus, 56 Mont. 37, 180 P. 908; Horgan v. Russell, 24 N.D. 490, 43 L.R.A. (n.s.) 1150, 140 N.W. 99; Hunter v. Coe, 12 N.D. 505, 97 N.W. 869.)
Upon appellants' theory of the case, the question presented for consideration in this court is: "Is a life estate subject to sale under execution?" There may be diversity of opinion as to what right appellant has in the body of this estate; it is probable that he has the power to destroy the remainder, but up to the time the execution was levied and the property sold there is no evidence that he did so.
That a life estate may be sold on execution has been held many times. (17 R.C.L., pp. 118, 644; 21 C.J., p. 940, sec. 72; 17 Cyc. 952; Blackstone Bank v. Davis, 21 Pick. (Mass.) 42, 32 Am. Dec. 241; Fish v. Fowlie, 58 Cal. 373; Hutchinson v. Maxwell, 100 Va. 169, 93 Am. St. Rep. 944, 57 L.R.A. 384, 40 S.E. 655; Verdier v. Youngblood, Rich. Eq. Cas. (S.C.) 220, 24 Am. Dec. 417; Pedigo's Exr. v. Botts, 28 Ky. Law Rep. 196, 89 S.W. 164; Armour Fertilizer Works v. Lacey, 146 Ga. 196, 91 S.E. 12; Tscherne v. Crane-Johnson Co., 56 S.D. 101, 227 N.W. 479.)
As to what we may get by reason of the sale it has been held: "The purchaser takes only title to right of judgment creditor in the land." ( MacGinniss Realty Co. v. Hinderager, 63 Mont. 172, 206 P. 436, citing Story v. Black, 5 Mont. 26, 61 Am.Rep. 37, 1 P. 1.)
We contend that the legal title to the land sold was vested in the defendant, Milburn G. Kern, and that for the purposes of this action, whether such title was a fee or a life estate, is not material. That such title as he had passed by the sheriff's sale and vests in the respondent. That respondent's deed is not a cloud upon Kern's title, but that it divests Kern of all title, and that the judgment should be affirmed.
On and prior to January 3, 1917, Milburn G. Kern was the owner of two tracts of land in Ravalli county. On that date he entered into a contract with James Weber, under the terms of which Kern agreed to sell, and Weber agreed to buy, one tract on deferred payments. On November 17, 1920, Kern deeded both tracts of land to his wife, Cynthia J. Kern. Thereafter, in November, 1922, Mrs. Kern entered into a contract with Paul D. Lear, under which she agreed to sell, and Lear agreed to purchase, the second of these tracts, on deferred payments, deed to be delivered upon final payment. The purchaser in each instance went into, and has at all times remained in, possession, and both contracts are in full force and effect.
On February 12, 1926, Mrs. Kern executed her will, which contains the following provision: "I give, devise and bequeath all my estate, both real and personal, to my husband, Milburn G. Kern, to have and hold the same during his natural life with the power, however, to him to sell and convey all or any part thereof, or to mortgage the same or any part thereof, and to use the proceeds thereof to all intents and purposes as if he were the owner thereof in fee, and if any thereof remain at the time of his death, I devise and bequeath the same to his heirs and to my heirs, share and share alike." Kern was nominated and appointed executor of the will without bond and with authority to "sell or mortgage any of the property of my estate devised to him as hereinabove mentioned without an order of the court authorizing him to do so."
Mrs. Kern died on November 17, 1927, and plaintiff was appointed executor of her estate which is in process of administration.
On January 24, 1925, a judgment was duly made and entered against Kern, and thereafter, and on January 17, 1930, execution was issued on the judgment and the lands referred to were levied upon and sold by the sheriff, and a certificate of sale issued to defendant. This action was commenced by Kern, as executor and devisee under the will, to quiet title to the lands; he claiming "that the said sheriff's certificate of sale constitutes and is a cloud on the title of the plaintiff herein and to the above described lands, and if left outstanding may cause serious injury to the plaintiff herein." There was judgment for defendant, and plaintiff appeals.
The determinative question presented for consideration is: Upon the death of Mrs. Kern, what, if any, interest in the lands described in the complaint passed to Kern as devisee under the will?
The authorities are in accord that an enforceable contract for [1] the purchase and sale of real property passes to the purchaser the equitable and beneficial ownership thereof, leaving only the naked legal title in the seller, as trustee for the purchaser, and as security for the unpaid purchase price. If the purchaser dies while the contract is in force and effect, his interest passes to his heirs as real property. If the seller dies while the contract is in force and effect, his interest passes to his personal representative as personal property, and not to his heirs.
"Applying one of its fruitful principles, that what ought to be done is regarded as done, equity says that from the contract, even while yet executory, the vendee acquires a `real' right, a right of property in the land, which though lacking legal title, and therefore equitable only, is none the less the real, beneficial ownership, subject, however, to a lien of the vendor as security for the purchase price as long as that remains unpaid. This property in the land, upon the death of the vendee, descends to his heirs, or passes to his devisees, and is liable to the dower of his widow. The vendor still holds an equitable ownership of the purchase money; his property, as viewed by equity, is no longer real estate, in the land, but personal estate, in the price, and if he dies before payment, it goes to his administrators, and not to his heirs. In short, equity regards the two contracting parties as having changed positions, and the original estate of each as having been `converted,' that of the vendee from personal into real property, and that of the vendor from real into personal property." (1 Pomeroy's Equity Jurisprudence, 4th ed., sec. 105, pp. 117, 118; see, also, sec. 368, p. 685, Id.; 3 Id. secs. 1159-1168, pp. 2744-2769; Story's Equity Jurisprudence, 14th ed., p. 486.) The text is fully borne out by the authorities. ( Detroit Trust Co. v. Baker, 230 Mich. 551, 203 N.W. 154, 204 N.W. 773; Detroit Security Trust Co. v. Kramer, 247 Mich. 468, 226 N.W. 234; Colignon v. Artz, 205 Wis. 51, 236 N.W. 585; Berndt v. Lusher, 40 Ohio App. 172, 178 N.E. 14; Retsloff v. Smith, 79 Cal.App. 443, 249 P. 886; Pinson v. Pinson, 150 S.C. 368, 148 S.E. 211; Taylor v. Interstate Inv. Co., 75 Wn. 490, 135 P. 240; Robinson v. Pierce, 278 Pa. 372, 123 A. 324; Blair v. Snodgrass, 1 Sneed (33 Tenn.), 1; Flomerfelt v. Siglin, 155 Ala. 633, 130 Am. St. Rep. 67, 47 So. 106; Stockfleth v. Britten, 105 N.J. Eq. 3, 146 A. 583, 586; Clapp v. Tower, 11 N.D. 556, 93 N.W. 862; Ward v. Williams, 282 Ill. 632, 118 N.E. 1021; Koehne v. Beattie, 36 R.I. 316, 90 A. 211; In re Denning's Estate, 112 Or. 621, 229 P. 912; Bowne v. Ide, 109 Conn. 307, 66 A.L.R. 1036, 147 A. 4.)
The doctrine of equitable conversion does not apply to option [2] contracts. The distinction between contracts such as the ones before us, where the vendor has undertaken to sell to a vendee who undertakes to buy the land involved, and a unilateral option, is clear. The former are mutually enforceable, while the latter is a mere offer to sell — a continuing offer of a contract — which may be accepted, within the time designated in the option, but is not enforceable against the optionee. ( Gallup v. Sterling, 22 Misc. Rep. 672, 49 N.Y. Supp. 942.) Taking the option contract, we are committed to the doctrine that such a contract does not work an equitable conversion and that title remains in the owner until full compliance with the terms of the contract by the purchaser. ( Knapp v. Andrus, 56 Mont. 37, 180 P. 908; Tyler v. Tyler, 50 Mont. 65, 144 P. 1090.) "When an option to purchase land is given, according to the doctrine most in accord with authority and principle the conversion is deemed to have taken place at the time the option is declared and not from the date of the contract giving the option. The maxim underlying the doctrine of equitable conversion rests on a duty to do something, and until the option is exercised there is no duty and it cannot be known whether there ever will be a duty. Hence, conversion should not be presumed as of a date earlier than the date when the duty becomes certain, as that would be unreasonable and the same in effect as if the duty existed from the outset. The person granting the option must in reason be presumed to intend that the discharge of the duty shall take effect for all purposes only from the date when by his direction the duty becomes absolute through the occurrence of an uncertain event. To hold otherwise would carry a rule, unknown to the common law and created by courts of equity because founded on reason, far beyond the bounds of reason. As intention is involved, or presumed intention, which must be reasonable, the manifest inconvenience of holding otherwise cannot be ignored." (6 R.C.L., p. 1088, sec. 21; Inghram v. Chandler, 179 Iowa, 304, L.R.A. 1917D, 713, 161 N.W. 434; Rockland-Rockport Lime Co. v. Leary, 203 N.Y. 469, Ann. Cas. 1913d 62, L.R.A. 1916F, 352, 97 N.E. 43.)
Here, under each of the contracts, the vendor and vendee [3] mutually bound themselves to each other — one to sell and the other to buy, the land described upon deferred payments, and under the doctrine of equitable conversion the interest of the vendor was converted into personal property, and upon her death her interests in the partially performed contracts passed to her personal representative as personal property, and were not subject to the attempted execution upon real property for the debts of Kern, the devisee under the will. ( Bowen v. Lansing, 129 Mich. 117, 95 Am. St. Rep. 427, 57 L.R.A. 643, 88 N.W. 384; Beaver v. Ross, 140 Iowa, 154, 17 Ann. Cas. 640, 20 L.R.A. (n.s.) 65, 118 N.W. 287.)
The sheriff's certificate of sale under execution upon a judgment against Kern was ineffectual and did not pass title to the purchaser; it constitutes a cloud upon the naked title held by the executor and the court erred in entering judgment for defendant.
The judgment is reversed and the cause remanded to the district court of Ravalli county, with direction to enter judgment for plaintiff Kern, as executor.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES GALEN, ANGSTMAN and MATTHEWS concur.
ON PETITION FOR REHEARING.
Counsel for defendant contend that, since it is determined that under the facts disclosed by the record the doctrine of equitable conversion applies, and that upon the execution of the contracts the interest of Mrs. Kern was converted into personal property, and upon her death passed to her personal representative as personal property, the executor of her estate cannot maintain this action to quiet title to the lands in controversy.
While it is true, as pointed out in the opinion, that upon the execution of the contracts in question the beneficial interest in the lands passed to the purchasers, and under the doctrine of equitable conversion the interest of the vendor was converted into personal property, it is equally true that the naked legal title remained in the vendor, which she held as trustee for the vendees and as security for the purchase price remaining unpaid. Upon the death of Mrs. Kern, the naked legal title to the property passed to the executor, and, upon compliance by the purchasers with the terms of the contracts, the executor is required to convey the property free and clear of all clouds and encumbrances. In the event the full purchase price under the contracts is paid during administration, the executor, under order of court, executes the necessary conveyances. (Secs. 10268-10280, Rev. Codes 1921.)
Since, then, the executor held the naked legal title for the [4, 5] purposes pointed out, was he a proper party to prosecute the action to quiet title and thus remove the cloud upon the naked legal title caused by the sheriff's certificate of sale?
Section 9479, Revised Codes 1921, which was in force when the action was commenced, provides: "An action may be brought and prosecuted to final decree, judgment, or order, by any person or persons, whether in actual possession or not, claiming title to real estate, against any person or persons, both known and unknown, who claim or may claim any right, title, estate, or interest therein, or lien or encumbrance thereon, adverse to plaintiff's ownership, or any cloud upon plaintiff's title thereto, whether such claim or possible claim be present or contingent, including any claim or possible claim of dower, inchoate or accrued, for the purpose of determining such claim. or possible claim, and quieting the title to said real estate."
"A mere contract to convey land will not divest the vendor of his right to maintain an action to quiet title or remove a cloud therefrom when the legal title remains in him." (51 C.J. 176, and cases cited; Jones v. Nixon, 102 Tenn. 95, 50 S.W. 740; Jackson Mill Co. v. Scott, 130 Wis. 267, 110 N.W. 184; Langlois v. Stewart, 156 Ill. 609, 41 N.E. 177; Coel v. Glass, 232 Ill. 142, 15 L.R.A. (n.s.) 413, 83 N.E. 529.)
Defendant claims a right or interest in and to the legal title to the lands in controversy adverse to the executor's naked legal title; the sheriff's certificate of sale constitutes a cloud on the naked legal title held by plaintiff, as executor, and on his right to receive the payments under the contracts as well as his right to execute conveyances upon final payment under the contracts. In our opinion, under the provisions of section 9479, supra, the executor was a proper party to prosecute the action.
It is also contended that the record discloses that the [6] estate, for more than two years prior to the commencement of the action, was in a condition to be closed, and that, since the executor failed and neglected to close the same, any right to bring the action expired when the time for distribution of the estate expired.
Section 10139, Revised Codes 1921, provides that, unless it satisfactorily appears to the court that the rents, issues and profits of the estate for a longer period are necessary wherewith to pay the debts of decedent, or that it will probably be necessary to sell real estate for the payment of such debts, "the court or judge, at the end of the time limited for the presentation of claims against the estate, must direct the executor or administrator to deliver possession of all the real estate to the heirs at law or the devisees."
Clearly, the purpose of this section is to require the speedy termination of probate proceedings, but the fact that plaintiff may have been derelict in his duty and that the court did not require him to deliver possession of all real estate to the devisee within the time prescribed by statute cannot affect the right of plaintiff to prosecute this action.
Petition for rehearing is denied.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES GALEN, ANGSTMAN and MATTHEWS concur.