Inghram v. Chandler

179 Iowa 304

• Court: Supreme Court of Iowa
• Decided: February 14, 1917
• Status: Published

Opinion

Evans, J.

1. Conversion : equitable conversion : not predicable on mere option to purchase: descent and distribution. I. The principal question, and decisive one, involved in the casé is whether, upon the facts appearing in the record, there was an equitable conversion of certain real estate owned in his lifetime by Theodore Wykert. If there was not, then the judgment below should be affirmed, regardless of any other question presented. We therefore give this question our first consideration.

Theodore Wykert executed his will in May, 1904. Ignoring for the moment the dispute between the parties as to the proper construction of the will, we will assume as correct the construction adopted by the appellants, and say that by his will the testator gave to his wife all his personalty and a life estate in his realty, and to his children all his real estate, subject to such life estate. In June, 1906, the testator executed a lease of his farm of 200 acres to Dunn, for a period of five years beginning March 1, 1907, with an option to Dunn to buy the farm at $65 per acre on or before the termination of the lease. In July, 1906, the testator died, and the will referred to was admitted to probate and his widow was appointed executrix thereof. Shortly before the expiration of the term of the lease, and in January or February, 1912, Dunn exercised the option, and notified the executrix and the other beneficiaries of the estate of his election to purchase the farm at -the offered price. The purchase money was accepted from him and the title conveyed to him.

It is the contention of the appellants that the exercise of the option by Dunn worked an equitable conversion of the real estate into personalty, and that such conversion related back to the date of the option; that, therefore, the proceeds of the sale passed under the will to the widow as personalty. The widow having died in 1915, leaving no issue, her administrator and collateral heirs are the defendants and appellants.

The doctrine of equitable conversion is altogether a doctrine of equity, and depends wholly upon the rules of equity. Its real purpose is to give effect to the manifest intent of a testator or vendor, and to treat that as done’ which by will the testator has directed to be done, or that which, by previous contract with another, both have mutually bound themselves to do. If a testator by his will directs imperatively and absolutely that real estate be sold, then, for the purpose of the distribution of the estate, it will be deemed sold as of the date of the death of the testator, and for the purpose of distribution will be treated as personalty, and not as land. This presents a typical case of the doctrine of equitable conversion. The doctrine, however, is not confined to directory provisions in a will. It is applied to those cases of conversion resulting from the contract of the decedent, whereby as vendor he has undertaken to sell to a vendee who has undertaken to buy his land. Such a contract, mutually enforcible for and against vendor and vendee, is a present equitable conversion of land into personalty and of- personalty into land. It becomes such by the act of the parties themselves. When-such contract is fully executed, and the legal title is fully conveyed by the vendor- to the vendee, then it is a conversion actual and complete, without need of any aid of equity. But when the contract is executory, and contemplates time for its full performance, the vendor retaining legal title and the vendee entering into possession, then equity designates the vendee as the equitable owner of the land, and the vendor as a trustee holding^ the legal title in trust as security for the pur chase price. The foregoing is a typical case of the application of the doctrine of equitable conversion by contract.

If the doctrine of equitable conversion is to be applied to the case at bar, it is a conversion by contract, and not by the terms of the will. The consideration of the will becomes important only because, under its terms of distribution, the personalty goes in one direction and the realty in another.-

The distinction between the case at bar and the typical contract case above set forth is that there was no contract of sale entered into by the decedent. The option was a mere offer on the part of the decedent, an offer, however, which could ■ be accepted by Dunn at any time within 5 years. It is urged for appellants that the contract, such as it was, was binding upon Wykert, and therefore enforcible. The broad proposition is urged that, if the written option signed by the decedent was enforcible against him, then the acceptance of the offer within the time limited worked an equitable conversion as of the date of the offer; that there is no distinction in the application of the doctrine as between an option contract and a contract of purchase and sale, presently and mutually binding upon both vendor and vendee.

The specific question thus raised has never been presented to us heretofore. We have, however, passed upon questions that are closely akin thereto and indirectly involved therein. The logic of those cases quite clearly points the way herein.

Taking the typical case of equitable conversion by contract, as above stated, we are fully committed to the doctrine that such a contract works an equitable conversion; that, in case of the death of the vendor, his interest in the contract would pass as personalty; that, in case of the death of the vendee, his interest would pass as realty; that a judgment against the vendee would become a lien upon the property as real estate; that a judgment against the vendor would not become a lien upon the property as real estate. See In re Estate of Miller, 142 Iowa 563, and authorities therein cited. We have held also that such a contract becomes a credit in the hands of the vendor and is subject to taxation as such. Rampton v. Dobson, 156 Iowa 315, 321. We have held also that there is a vital distinction between such a contract and a mere contract of option. We have held that a contract of option does not create a credit in favor of the proposed vendor. In re Assessment of Shields Brothers, 134 Iowa 559. We have held frequently that a contract of option confers upon the optionee no interest in real estate. It is not necessary to serve 30 days’ notice of forfeiture in order to terminate it. Even when the option is given for a consideration, and is in that sense en-forcible, it is enforcible after the exercise of the option and not before. If the optionee elects to accept the offer, he may then enforce. But by such election he also binds himself to buy, and the contract created by his election to accept becomes mutually binding upon both parties. It is only when the optionee binds himself to buy that the equitable conversion takes place. In the Rampton case, 156 Iowa 321, we said:

“An ‘option’ is not an actual or existing contract, but merely a right reserved in a subsisting agreement. It is a continuing offer ,pf a contract, and if the offeree decides to exercise his right to demand the conveyance or other act contemplated, he must signify that fact to the offerer. * * * ‘It is only when there has been an acceptance of a proposal to sell that the vendee becomes in any sense the equitable owner of the subject-matter of the option.’ ”

The case of Sheehy v. Scott, 128 Iowa 551, is very much in point, if not quite decisive of this question. That case involved a contract which we held to be a mere option contract. The contract on its face was a complete /undertaking by the vendor to sell. It acknowledged receipt of $50 paid by the proposed vendee. It specified the remaining consideration to be paid, with a provision for the forfeiture of the $50 if the remaining consideration were not paid. There was no undertaking by the proposed vendee to buy or to pay. Before any further performance by the proposed vendee, the vendor died. We held that the property passed as realty, and that descent -was cast upon the heirs of the vendor. A creditor of one of the heirs of the vendor levied an attachment upon the interest of his debtor. The proposed vendee intervened, claiming the property. We held that, at the time of the death of the alleged vendor, the alleged vendee had no interest in the real estate, and that the real estate in question passed by descent as the realty of the .alleged vendor; in other words, we held, in effect, that the contract of option did not work an equitable conversion.

On the oilier hand, in Beaver v. Ross, 140 Iowa 154, which involved a typical contract such as we have above set forth, where vendor and vendee mutually bound themselves to each other, we held that the interest of the vendor passed at the time of his death as personalty, and that a previous judgment against one of the heirs did not attach as a lien upon the alleged interest of the heir in the real estate. The appellant lays considerable stress upon In re Estate of Bernhard, 134 Iowa 603, 606. That case, however, involved the typical contract already referred to, and not at all a mere contract of option. In that case, as in the Beaver case, the vendor bound himself to sell and the vendee bound himself to buy. True, it was an executory ooniract, and was performed afier the death of the vendor, but iliat fact does not stand in the way of the doctrine of equitable conversion. It was held in that case, as in the Beaver case, that the equitable conversion existed at the date of the death of the testator. Stress is laid by appellants upon the following statement in our opinion in that case:

“It is also true that, when the title passes under the-terms of the contract, it relates back to the date of the contract, and the vendor is treated as holding the legal title as trustee for the purchaser.”

On the strength of the foregoing quotation, the appellants contend in the case at bar that, when the optionee elected to exercise his option and thereby to bind himself to a purchase, such purchase related back to the date of the offer or option. Appellants overlook the. fact that to “relate back to the date of the contract” is one thing, and to “relate back to the date of the offer” is another. Granting, in the case at bar, that the transfer of title did relate back to the date of the contract, it does not follow that it would relate back to the date of the original offer. There was no contract of purchase and sale until Dunn elected to accept the offer. The date of such electiop was the date of the contract. Up to that date, Dunn had no interest in the real estate as such, according to our holding in Sheehy v. Scott. To the same effect are the following cases from other jurisdictions: Gilbert v. Port, 28 Ohio St. 276; Caldwell v. Frazier, (Kans.) 68 Pac. 1076; Bras v. Sheffield, 49 Kans. 702; Fx parte Hardy, 30 Beavan 206; Richardson v. Hardwick, 10 U. S. 252.

Appellants purport to make the following quotation from the Bernhard case:

“It is settled that an estate under contract of sale is regarded as converted into personalty from the time of the contract, notwithstanding an election to complete the purchase rests entirely with the purchaser, and, if the seller die before the election' be exercised, the purchase money when paid will go to the executors as assets.”

It is urged that this is authority for their position that the doctrine of equitable conversion applies to an option contract. Counsel overlook that the purported quotation is set forih in the opinion as a quotation from Kerr v. Day, 14 Pa. St. 112. The Kerr case fully supports our Bernhard case, and was cited for that reason only. Assuming that the Kerr case goes further as pertaining to option contracts than we had occasion to go or to consider in the Bernhard case, its citation by us was not a pronouncement upon any other question than that under consideration in our own case. Authorities are not wauling in support of appellants'’ position, and some of these we will consider presently; but it does not appear from the briefs that the Rupreme Court of Pennsylvania has ever actually passed upon the particular question. Direct authority upon the question here discussed is very rare indeed. Directly in point, however, are Smith v. Loewenstein, 50 Ohio Rt. 346 (34 N. E. 159); Rockland-Rockport Lima Co. v. Leary, 203 N. Y. 469 (97 N. E. 43).

The English cases lend support to the contention of appellants. The original case in England is Lawes v. Bennett, 1 Cox 167, decided by Lord Kenyon 100 years ago. While the case has been deemed a binding precedent, and has been followed by the English courts, it has been so followed reluctantly, and seldom without criticism. In Townley v. Bedwell, 14 Ves. 591, it was said:

“That case (Lawes v. Bennett) was very much argued, and I do not mean to say that a great deal may not be urged against it.”

In Collingwood v. Row, 3 Jur. (N. S.) 785, the vice chancellor said:

“The only question, then, is whether this is to be taken as realty or personalty; and I confess I should have felt very great doubts if it were res integra, as very great inconveniences might follow; for after the enjoyment for many years by the devisor, on the expression of option the realty may be converted into personalty, and not only converted, but the whole may be taken away and given to another. It is a very singular and inconvenient state of things; but if the question has been decided by so great a man as Lord Kenyon, * * * in Lawes v. Bennett, whatever doubts I might entertain as to that decision, I am bound to follow it.”

The case has also been criticized by the courts of this country. In Rockland-Rockport Lime Co. v. Leary, 203 N. Y. 469 (97 N. E. 43), the New York Court of Appeals said:

“The doctrine of equitable conversion rests on the presumed intention of the owner of the property and on the maxim that equity regards as done what ought to be done. The conversion usually becomes effective at the date of the instrument expressing the intention, if a deed or contract, and, if a will, at .the date of the testator’s death. This is the rule when an absolute and not a contingent conversion is intended. In the case before us no conversion was intended unless the option was exercised, and the conversion was contingent, for it depended wholly upon a future event which might or might not happen. If it happened, there was a conversion, otherwise there was none, and hence the date when the contingency was resolved becomes important. The lessor had the power to thus provide, and, in so providing, what was his intention as presumed from what he wrote, there being no other guide except the surrounding circumstances, so far as they bear on his intention? As he intended no conversion .unless tbe contingent event happened, he is presumed to have intended none until that event happened, for that would be the natural date to have it take effect in order to avoid confusion if not disaster. Upon this theory the heirs would take the land and enjoy it as land, just as the heirs in this case have done, until the contingency became a certainty by the exercise of the option when they would take the purchase money instead of the land, precisely as their ancestor would have, had he survived until that time. The maxim underlying the doctrine of equitable conversion rests on a duty to do something, but in this case until the option was exercised there was no duty and it could not be known whether there ever would be a duty. Hence, the conversion should not be presumed as of a date earlier than the date when the duty became certain, as that would be unreasonable and the same in effect as if the duty had existed from the outset. If the lessor had made the duty absolute instead of contingent, he could fairly be said to have intended that conversion must take place at some time, but as he made it contingent he could not have intended that result. * * * Hence the lessor must in reason be presumed to have intended that the discharge of the duty should take effect for all purposes only from the date when by his direction the duty became absplute, 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. * * * The courts of this state have not adopted Lord Kenyon’s application, and we decline to adopt it. We hold that conversion was effected only from the date when conveyance became a duty, and that it did not relate back to the date of the lease.”

As already indicated, the doctrine of equitable conversion is a doctrine of equity, and not a rule of law. Its intent is to lengthen the arm of the court of equity to do justice in a particular case by giving effect to the intention of a testator. Its application is always withheld if it should appear to foil the intent of the testator or to work injustice in the particular case. The laws of inheritance in England, whereby all children save the eldest are barred from the inheritance of real estate, afford some reason for a more radical application of the rule of equitable conversion in England than in this country. The conversion of realty into personalty tends there in the direction of equality and natural justice. ' We offer this excuse on behalf of Lord Kenyon for a rule which appears to us quite illogical and difficult of equitable application, at least under the conditions existing in this country. Tn this state, the-question is res integra, and Ave are at liberty to follow Avhat seems to us the more logical and practical rule. Clearly, in this case there avhs no conversion at the time of the death of Wykert. 1 f there was no conversion, then the fee of the realty passed by tire terms of the Avill to the children, and the personalty to the Avidow. That Avas the intention of the testator as expressed therein. If this distribution must now be undone and recalled by the act of Dunn firm year’s thereafter, and if the property once awarded to the children must be taken aAvay from them and aAvarded to the widow, by whose intention is such change made? To whose will and election are the beneficiaries of the first distribution made subject? Surely not the will and intention of the testator; for that spoke in the first distribution. The rights of Dunn are in no manner affected by the question whether the farm passed as realty in the first distribution or otherwise. Whichever Avay it passed, he was no .less entitled to exercise his option. Why then, in reason or equity, should the exercise of his option after the death of the testator be determinative upon the distributees as to the extent of their respective interests in the estate as between themselves? If Dunn had exercised his option in the lifetime of the testator, the will could have been adapted to the existing facts, and the intention of the testator could have been expressed in the light of such facts. Is it not more reasonable to say that, if Dunn had no interest in fact in the real estate as such at the time of the death of Wykert, then his subsequent acquisition of interest by the exercise of his option could not have the effect of taking the property of one beneficiary of the will and paying the proceeds to the other? Granting him the right of conversion as of the date of his acceptance of the offer under the option, it would be a conversion in the hands of the devisee under the will, and this would entitle the devisee to take the proceeds of the conversion in lieu of the land. The contrary holding would put these distributees, the children on the one hand and the widow on the other, at the arbitrary mercy of Dunn. If he allowed his option to lapse, it would allow the benefit of the devise to rest with the children. If he chose to exercise his oj)tion, it would take from the children not only the laud but the proceeds thereof, and award the same to the widow. Much a situation would furnish to Dunn an opportunity of duress upon one or the other of the contending interests. He Avould be in a position to call for a division of spoils. Likewise, the contending beneficiaries would be put naturally under the pressure of temptation to influence the choice by improper inducements. Such a situation would not aid in carrying out the intention of the testator, but on the contrary would tend to the dissipation of his estate to the benefit of a third party; in other words, Dunn would be thereby able to force the beneficiaries of the will into a contest for which neither of them could have any legal remedy, aud which could not be determined in any other manner than by his own arbitrary conduct.

It is clear that Dunn had no manner of interest in the question whether his exercise of his option worked an equitable conversion as of the date of his option. His rights were the same either way. We think it equally clear that his election subsequent to the death of Wykcrt should not be determinative of the interest's of the beneficiaries of the will as between themselves. To hold otherwise would be to say that the intention of the testator, expressed in the will, was two-headed and contradictory, in that it appeared therefrom that the children should take the farm and also that they should not take it, nor any interest therein. It puts the testator in the attitude of knowing and intending that the only provision made in his will for his children had been rendered uncertain by the giving of the option, and of intentionally wagering the entire benefits of such provision for his children upon the future election of the optionee. The situation thus created seems to us so clearly unreasonable, illogical and' inequitable that it ought not to be brought about by the aid of equitable presumption. For a general discussion of the subject of equitable conversion, see 6 R. C. L. 1065, 1 L. R. A. (N. S.) 400, 4 L. R. A. (N. S.) 365, 12 L. R. A. (N. S.) 1029, 20 L. R. A. (N. S.) 65, 20 L. R. A. (N. S.) 117, 39 L. R. A. (N. B.) 817. I'Ve think it clear that sound reasoning, as well as the trend1 of our own previous cases upon the kindred question, requires us to sustain the holding of the trial court.

2. executors and TOR™reaiApropcsís rnérata?1" tractsato°purchase: equitable conversion. II. Notwithstanding that our conelusion announced in the foregoing paragraph is decisive, it may not be amiss to look at the question there considered from a somewhat different point of view. As already indicated in the foregoing paragraph, the purpose of the application of the doctrine of equitable conversion is to enable the court to carry out the manifest intention of the testator, and thereby to work an equitable result. Turning to the will of the testator, it is contended by appellants that testator thereby gave to his wife all his personal property. This contention is not conceded by appellee, and a question of construction is involved also at this point. We will, however, assume the correctness of appellants’ contention, for the sake of the argument. The testator gave her also the life use of all of his real estate. He gave to his children all the remainder of his property, real and personal, such as should remain after the death of the wife (who was not the mother of his children). There was no other provision for his children than herein indicated. The will on its face appears natural and reasonable. It indicates a desire to make abundant provision for his wife during her life. It also indicates an intention that all the residue should go to his children. So far as appears in this record, the real estate involved herein comprises the bulk of the realty belonging to the estate. The widow elected to take under the will. The question here involved was never raised by the widow, though she lived, for nine years after the death of her husband and for more than three years after the exercise of the option by Dunn. Upon her death, her estate descended to her collateral heirs, and these are they who claim the application of this doctrine of equitable conversion for the purpose of carrying out the' intention of the testator. Reading the will of the testator, and observing that it provided naturally and reasonably for wife and children, the only persons who had immediate claims upon his bounty, can it be said therefrom, even in the light of the subsequent lease and the option contained therein, that he intended wholly or substantially to disinherit his children and to permit the bulk of his estate to pass ultimately bv descent to the ■collateral heirs of his widow? If such intention and result must be found of necessity from the very terms of the will, so be it. But such a result is not entitled to the aid of a merely equitable presumption. It is needless to pursue the subject further. For the reasons indicated in the first division hereof, the decree of the trial court is — Affirmed.

Gaynor, C. J., Ladd and Salinger, JJ., concur.