Michael L. Muenich
Timothy R. Sendak
Michael S. Vass
ATTORNEY FOR APPELLEE PARKER
Crown Point, Indiana
Michael L. Muenich
Timothy R. Sendak
DANIEL G. NELSON, )
Appellant (Plaintiff below), )
v. ) Indiana Supreme Court
) Cause No. 45S03-9703-CV-225
IRENE PARKER, )
) Indiana Court of Appeals
Appellee (Defendant/Cross- ) Cause No. 45A03-9512-CV-428
Petitioner below), )
NBD BANK, N.A. and DONALD HAWKINS, )
Appellees (Cross-Defendants )
The issue in this case is whether a deed "subject to a life estate" in a third person validly creates that life estate. We hold that it does and overrule earlier authority to the contrary.
(Capital letters and underscoring in original.) Daniel was Russell's son. Irene Parker had
lived with Russell for thirteen years prior to his death and remained on the property after he
died. In September 1994 Daniel initiated this action to eject Parker, asserting that the deed
did not effectively grant Parker a life estate. On cross-motions for summary judgment, the
trial court agreed with Parker that she held a valid life estate and granted her motion for
summary judgment. The court concluded that the object of deed construction is to ascertain
the intent of the parties. Looking at the language of the deed as a whole, the court found that
Russell intended to create a life estate in Parker. Daniel appealed.
In the trial court, both parties based their contention on their view of the grantor's intent. In the Court of Appeals Daniel made a new argument. He characterized the "subject
to a life estate" language as improperly "reserving" an interest in a stranger to the deed. A
"reservation" is "[a] clause in a deed or other instrument of conveyance by which the grantor
creates, and reserves to himself, some right, interest, or profit in the estate granted, which
had no previous existence as such, but is first called into being by the instrument reserving
it; such as rent, or an easement." Black's Law Dictionary 1307 (6th ed. 1990). As the
definition suggests, at common law a grantor could reserve an interest only for the grantor,
but not for a third person, or "stranger" to the deed.See footnote
Words of reservation were not
considered to be words of "grant" and so could not create an interest in another. Daniel cited
this Court's decision in Ogle v. Barker, 224 Ind. 489, 68 N.E.2d 550 (1946) which upheld
this common law rule. Because Parker was a "stranger to the deed," Daniel argued, the
reservation of a life estate to her was void.
The Court of Appeals accepted Daniel's characterization of the "subject to" language as a reservation but declined to follow the common law rule. Rather, citing Brown v. Penn Cent. Corp., 510 N.E.2d 641, 643 (Ind. 1987) and Kirtley v. McClelland, 562 N.E.2d 27, 36 (Ind. Ct. App. 1990), the court found the grantor's intent to be controlling. In affirming judgment for Parker, the court found that Russell's intent to create a life estate in Parker was clear from the deed's language and the surrounding circumstances at the time of the deed's
execution. Nelson v. Parker, 670 N.E.2d 962, 963-64 (Ind. Ct. App. 1996). More
importantly, the court analyzed and rejected the rule upheld in Ogle that a grantor cannot by
reservation convey a life estate in real property to a party who is a stranger to the deed. Id.
at 964. The court noted that the rule's validity had already been questioned in Brademas v.
Hartwig, 175 Ind. App. 4, 369 N.E.2d 954 (1977). In Brademas, the court followed § 472
of the Restatement of PropertySee footnote
and held that a reservation in a deed of an easement to a third
party was valid when the intention of the parties was "patently evident." Id. at 7-8, 369
N.E.2d at 956-57. In rejecting Daniel's argument, the Court of Appeals also commented that
the common law rule was derived from efforts, dating back to feudal times, to limit
conveyance by deed as a substitute for livery by seisin. Nelson, 670 N.E.2d at 964 (citing
Willard v. First Church of Christ, Scientist, Pacifica, 498 P.2d 987, 989 (Cal. 1972)
(explaining the history of the rule and concluding that "it is clearly an inapposite feudal
shackle today.")). Noting that other jurisdictions had also decided against the wisdom of the
rule, id. at 964 n.4, the court held that Russell's intent to create a life estate in Parker
trumped application of the common law rule. We granted transfer because of the apparent
conflict between the Court of Appeals opinion and the decision of this Court in Ogle.
been "increasingly discredited"); W.W. Allen, Annotation, Reservation or Exception in Deed
in Favor of Stranger, 88 A.L.R. 2d 1199, 1202 (1963 & Supp. 1993) (intent ought to be
favored over use of words reservation or exception).
Not all courts agree. See generally Allen, 88 A.L.R. 2d at 1199. Estate of Thomson v. Wade, 509 N.E.2d 309 (N.Y. 1987) appears to be the case most frequently cited in support of the common law rule. In that case, the New York Court of Appeals upheld the rule, noting that any frustration it caused to the grantor's intent could easily be avoided by a direct conveyance. A grantor could first convey an easement to a "third person" and then convey the fee, literally "subject to" an already existing easement. Although this procedure avoids frustrating the grantor's intent, there is no reason to force the grantor to do in two steps what could otherwise be done in one. Further, as the Indiana Court of Appeals remarked in Brademas, the Ogle rule did not prevent the grantor from first reserving to himself then conveying the reserved interest to a third party.See footnote 3 Brademas, 175 Ind. App. at 8, 369 N.E.2d at 957. Thus, under Ogle, Russell could have "reserved" a life estate to himself, and then simply conveyed it to Parker without encountering any legal impediment. The sum of this is that the rule functions solely as an obstacle to conveying interests in land, but serves no purpose. This is not a function consistent with our modern preference for effecting the grantor's clear intent.
Estate of Thomson concluded that the common law rule protects the rights of bona
fide purchasers and avoids conflicts of ownership. Estate of Thomson, 509 N.E.2d at 310.
But the court did not explain how the rule served these ends. In this case, Daniel's interest
appears from the deed to be a fee simple interest subject to a life estate. We see no reason
and no policy to be furthered by imposing an artificial and unintended result on the parties.
A bona fide purchaser of an identical interest would have reasonably believed that the
interest was, as the deed said, "subject to" a life estate. Any examiner of an abstract or title
policy for this property is fairly notified of Parker's interest. Thus, as the Willard court
noted, a purchaser faced with this language would assume it to be at least potentially valid
and pay less for property erroneously encumbered by "reservation" or by "subject to"
language, only to receive a windfall if the interest is later deemed void because of the
common law rule. Willard, 498 P.2d at 989-90. In addition to working this sort of
inequitable result generally, the rule would work an unfair, if not inequitable, result in this
case. Daniel presumably knew the contents of the deed and knew of Russell's intentions
when the deed was drafted in May, but did not contest Parker's interest until after the alleged
error became uncorrectable by reason of Russell's death in August. As to the concern
expressed in Estate of Thomson for conflicts of ownership, the rule as relied upon by Daniel
fueled an otherwise nonexistent conflict.
Finally, Estate of Thomson relied on the public policy favoring certainty in the area of property law: "[where] settled rules are necessary and necessarily relied upon, stability and adherence to precedent are generally more important than a better or even a 'correct' rule
of law." Estate of Thomson, 509 N.E.2d at 310 (internal quotation marks and citation
omitted). We recognize the importance of settled rules in property law. Stability is desirable
so planners can predict the outcome of the use of formulaic language and rely on achieving
the conventional result. But it is hard to imagine who reasonably and in good faith could
rely on a failed reservation clause to obliterate an apparently intended interest. This Court
is not persuaded that the public policy of promoting settled rules requires adherence to a
vestige of ancient conveyancing law that has only pernicious effects. To the extent Ogle
holds otherwise, it is overruled.See footnote
SHEPARD, C.J., and DICKSON, SULLIVAN, and SELBY, JJ., concur.
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