TIP:If the first interest is a contingent remainder, the subsequent interest is an alternative contingent remainder (so in the example above: either B takes or C takes the property).If the first interest is a vested remainder in fee simple, the subsequent interest is an executory interest.C. EXECUTORY INTERESTS (Pac-Man)-a future interest, held by a third person, that either cuts off another’s interest or begins after the natural termination of a preceding estate. (Almost all of these is subject to some condition)An executory interestis a future interest in a transferee that must, in order to become possessory:(a) divest or cut short some interest in another transferee(this is known as a shifting executory interest)(b) divest the transferor in the future (this is known as a springing executory interest)a. Prohibitory Rules: No Shifting Interests, No Springing InterestsCommon law courts laid down two rules based upon their ideas of estates and of conveyancing:(1) no future interest could be created in favor of a transferee if the interest could operate to cut short a freehold estate.(2) no freehold estate could be created to spring up in the futureb. The Rise of UseThe Chancellor was concerned with conscience, not seisin, and paid no attention to the seisin rules of the law courts. When he thought persons should be required to perform their moral duties, the chancellor would step in and protect at transferee, regardless of what his legal rights might be. There developed in equity a protected interest known as a “use” (meaning benefit).c. Abolition of the Use: The Statute of Uses 1536•the statute made what was recognized as an equitable interest in the Court of Chancery into a legal interest recognizable by common lawStatute of Uses was defective:18
• it only applied if I had a passive use and not a active use (duties)• can be defeated by adding five wordsd. Modern Executory Interestsfee simple subject to an executory limitation- a fee simple that, upon the happening of a stated event, is automatically divested by an executory interest in a transferee.FEE SIMPLE ON EXECUTORY LIMITATION (1536 Statute of Uses)•interest that “shifts” possession to 3rdparties after fee simple estates• takes effect automatically when the stated event occurs• meets its “early” end by divestment OR expiration2 types of fee simple onexecutory limitation• f.s. subject to executory limitation <divested>• f.s. followed by executory limitation <expires>D. The TrustPrinciple active duty• trustee (legal interest) is under a duty to administer the trust solely in the interest of the beneficiaries(equitable interest) ; self-dealing is prohibited.Life beneficiaries have equitable interestSynonym for corpus = principle • trustee must prudently invest the trust property, securing a reasonable return on the capital, and dispose of the income and principal in the manner specified in the trust instrument.