Thompson v. Watkins

• Decision Date: 30 August 1974
• Docket Number: No. 80,80
• Citation: 285 N.C. 616,207 S.E.2d 740
• Court: North Carolina Supreme Court
• Parties: Miriam Gaither THOMPSON et al. v. Harold L. WATKINS, Sr., Executor of the Estate of Anna L. Litaker, et al.

Page 740

207 S.E.2d 740

285 N.C. 616

Miriam Gaither THOMPSON et al. v. Harold L. WATKINS, Sr., Executor of the Estate of Anna L Litaker, et al.

No. 80.

Supreme Court of North Carolina.

Aug. 30, 1974.

Williams, Willeford, Boger & Grady by John R. Boger, Jr., Concord, for plaintiff appellees.

Hartsell, Hartsell & Mills by W. Erwin Spainhour, Concord, for defendant appellants.

SHARP, Justice:

The question presented is whether the widow, at the time of her death, owned the land in controversy in fee simple or held it as trustee for plaintiffs. To answer this question we must review the relationship between a life tenant and remainderman and the duties each owes the other with relation to encumbrances on the land in which they hold successive interests.

A life tenant's relation to the remainderman is a quasi-fiduciary one in the sense that he must exercise reasonable care to preserve the property intact for transmission to the remainderman and in that he can legally do nothing to prejudice or defeat the estate of the remainderman. 1 Tiffany, Real Property § 68 (3rd ed. 1939); 31 C.J.S. Estates § 34 (1964); 51 Am.Jur.2d, Life Tenants and Remaindermen §§ 27, 28 (1970). '(N)o such fiduciary relations exist between a life tenant and his remainderman as to make applicable to their transactions the rules of equity which govern trustees and cestuis que trustent, and preclude the life tenant from acquiring by gift or purchase from the remainderman his estate in remainder.' Muzzy v. Muzzy, 364 Mo. 373, 380, 261 S.W.2d 927, 931 (1953).

The life tenant has the obligation to list and pay the taxes on the property. G.S. 105--302(c)(8); G.S. 105--384. See Smith v. Smith, 261 N.C. 278, 134 S.E.2d 331 (1964); Meadows v. Meadows, 216 N.C. 413, 5 S.E.2d 128 (1939). Therefore he canot defeat the estate of the remainderman by allowing the land to be sold for taxes and taking title in himself by purchase at the tax sale. See Farabow v. Perry, 223 N.C. 21, 26, 25 S.E.2d 173, 176 (1943); Creech v. Wilder, 212 N.C. 162, 166, 193 S.E. 281, 284 (1937); Miller v. Marriner, 187 N.C. 449, 457, 121 S.E. 770, 774 (1924); 51 Am.Jur.2d, Supra, § 255; 1 Tiffany, Supra, § 68. The life tenant's purchase at a tax sale 'is regarded as a payment of the tax, and the owner of the future interest is regarded as still holding under his original title.' Simes and Smith, The Law of Future Interests, § 1700 (2d ed. 1956).

In addition to the taxes, absent a different stipulation in the instrument creating the life estate, a life tenant owes a duty to the remaindermen to pay the interest accruing during the period of his estate on a mortgage encumbrance given prior to the creation of the life estate and remainder or reversion, at least to the extent of the income or rental value of the property. Simes and Smith, Supra, § 1697. See 31 C.J.S. Estates § 48 (1964); 51 Am.Jur.2d, Supra, § 277.

'Being bound to pay the taxes and interest, he (a life tenant) cannot acquire a tax title or good title based on his failing to pay taxes or interest. He is a trustee to this extent.' Miller v. Marriner,Supra at 457, 121 S.E. at 774. If an encumbrance is foreclosed because of the default on the part of the life tenant in the payment of interest or otherwise, and he becomes the purchaser at the foreclosure sale, 'he thereby restores the life estate and the estate in the remainder.' 1 Tiffany, Supra § 68. See Morehead v. Harris, 262 N.C. 330, 338, 137 S.E.2d 174, 182 (1964); Restatement of Property §§ 129, 130, 131, 149 (1936); 31 C.J.S. Estates § 35 (1964).

In respect to a prior mortgage lien on the whole estate, unless obligated by the instrument creating his estate, the life tenant's only duty to the remainderman is to pay the interest. He is under no obligation to pay any part of the principal. 31 C.J.S. Estates § 48 (1964); 51 Am.Jur.2d, Supra, § 275. When a life tenant, in order to preserve his estate, 'pays off an encumbrance upon the fee or estate property, whether the encumbrance is a mortgage, lien, charge or other type of encumbrance, he is entitled to reimbursement from the owners of future interests, such as reversioners or remaindermen, to the extent of their interest in the property which was subject to the encumbrance.' 51 Am.Jur.2d, Supra, § 275. See 31 C.J.S. Estates § 48 (1964); 1 Tiffany, Supra, § 63. He 'has a lien on the future interest for the amount which its owner is under a duty to pay.' Simes and Smith, Supra, § 1697. See Farabow v. Perry, Supra, 223 N.C. at 26, 25 S.E.2d at 176; Creech v. Wilder, Supra, 212 N.C. at 166, 193 S.E. at 284.

When a mortgage falls due during the period of the life estate the question arises: Who has the burden of paying the principal? In Simes and Smith, The Law of Future Interests, § 1697 (2d ed. 1956), the question is answered as follows: 'Courts have generally indicated that life tenant and reversioner or remainderman must each pay his due proportion of this amount. To require them to share the burden would seem to be just. By paying off the mortgage, the value of both life estate and future interest have been increased in proportion to their respective values. Hence it would seem that the due proportion would be based upon the respective values of life estate and the remainder or reversion. . . . The cases, however, are not clear as to what a due proportion of the principal is.'

The foregoing statement accords with the Restatement of Property § 132 (1936). Explanatory Comment e. under this section says that the proportionate contributions of the life estate and future interests to the payment of an encumbrance 'are computable by employing the mortality tables and rate of interest regularly employed in valuing an estate for life in the state wherein the affected land is located.' Id. at p. 433. See Faulkenburg v. Windorf, 194 Minn. 154, 157, 259 N.W. 802, 804 (1935).

In Comment a. to § 132, Supra, it is noted that absent some special provision in the instrument creating the estate for life, the life tenant has no duty to contribute from his other assets to the payment of the encumbrance. 'He can, however, be compelled to choose between giving up his estate for life and making a contribution, from his other assets, to the new investment of capital.' Id. at p. 431.

When a mortgage, deed of trust or other encumbrance on the whole estate, the burden of which does not fall solely on the life tenant, is foreclosed, the life tenant may purchase the property at the sale in order to protect his interest. Yet he cannot purchase the fee on a foreclosure sale so as to exclude the remainderman If the remainderman is willing to contribute his share of the cost of acquisition within a reasonable time. 'It is uniformly held that the purchase of land by a life tenant at a foreclosure sale under a mortgage or deed of trust will be deemed to have been made for the benefit of the remainderman or reversioner if he contributes his portion of the purchase money within a reasonable time.' 51 Am.Jur.2d Supra, § 280. See Witcher v. Hanley, 299 Mo. 696, 253 S.W. 1002 (1923); Hager v. Connolly, 204 Ky. 147, 263 S.W. 723 (1924); Ward v. Chambless, 238 Ala. 165, 189 So. 890 (1939); Drane v. Smith, 271 Ala. 54, 122 So.2d 135 (1960); 51 Am.Jur.2d, Supra, § 279; 1 Tiffany, Supra, § 68.

Courts have not attempted to mark the limits of 'a reasonable time' for contribution. 'Each case depends upon its own peculiar facts.' Witcher v. Hanley, Supra, 299 Mo. at 704, 253 S.W. at 1004. 'What constitutes reasonable time depends upon the circumstances of each case.' Ward v. Chambless, Supra, 238 Ala. at 171, 189 So. [285 N.C. 623] at 894. See Drane v. Smith, Supra, 271 Ala. at 58, 122 So.2d at 138; Fleming v. Brunner, 224 Md. 97, 106, 166 A.2d 901, 906 (1960). In any event, when a life tenant purchases the fee at a foreclosure sale his 'new deed . . . is not regarded as giving the remainderman an interest in the land unless and until the latter pays his proportionate share of the incumbrance.' Simes and Smith, Supra, § 1700.

The Restatement of Property § 150 (1936) states the rule as follows:

'When an estate for life and a future interest exist in the same land and both interests become subject to sale for the collection of a sum of money, and, as between the owner of the estate for life and the owner of such future interest this whole sum is payable partly by each of such owners, then, the owner of the estate for life, who acquires the interests sold on such sale, owns the interests so acquired subject to the power of the owner of the future interest to redeem such sale.'

As explained in Comment a. to Section 150, Supra, when the whole estate becomes subject to sale for the collection of money payable partly by the owner of each estate and the life tenant purchases at the foreclosure sale, he acquires a new ownership coextensive with the interest sold. His new interest, however, is subject to the equitable power of the owner of the future interest to redeem from such sale, that is, to share in its benefits by contributing his share of the purchase price. As previously noted, the life tenant acquires no such interest when he purchases at a foreclosure sale for the collection of taxes, interest, or other obligation primarily charged against the estate for life.

Of course, when only a future interest in the land is affected by a foreclosure sale, the owner of the estate for life has no disability under Section 150. Restatement of Property § 150, Comment e. (1936). Thus, when a remainderman for his own use places an encumbrance against his vested interest and defaults, purchase by the life tenant for his sole benefit at the foreclosure sale is not inconsistent with his quasi-trustee relationship to the remainderman provided the transaction is free from fault and the life tenant had no part in bringing about the foreclosure. Muzzy v. Muzzy, Supra.

In this case the decision of the Court of Appeals was that the widow held the property as ...