Melms v. Pabst Brewing Co.
1896 Wisc. LEXIS 1, 66 N.W. 244, 93 Wis. 140 (1896)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A life tenant's grantee who agrees to pay an existing encumbrance as part of the consideration for the purchase of the life estate is considered to have extinguished the encumbrance for all parties and cannot assert title under it or seek contribution from the remaindermen.
Facts:
- The testator died leaving a will that devised his entire estate, including a homestead and brewery property, to his wife, Mrs. Melms.
- The estate was heavily indebted with mortgages and about $100,000 in unsecured debts.
- Mrs. Melms filed a notice of election to take the provisions made for her by law instead of taking under the will.
- This election gave Mrs. Melms a life estate in the homestead, with the remainder interest descending to the testator's children, the plaintiffs.
- Mrs. Melms entered an agreement to sell her interest in the properties to Pabst and Schandein for an agreed price of $95,000.
- As part of the consideration for the sale, Pabst and Schandein covenanted that they would pay and extinguish a sheriff's certificate of sale (an encumbrance) on the property.
- Instead of extinguishing the certificate, Pabst and Schandein took an assignment of it and subsequently obtained a sheriff's deed for the entire property.
Procedural Posture:
- The heirs of the testator (plaintiffs) initiated a lawsuit against the defendant, the successor in interest to Pabst and Schandein, in a Wisconsin trial court, likely to quiet title to the homestead.
- The trial court entered a judgment in favor of the plaintiffs.
- The defendant (appellant) appealed the trial court's judgment to the Supreme Court of Wisconsin.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a grantee of a life estate, who agreed to pay an existing mortgage on the property as part of the purchase price, acquire a title superior to the remaindermen by taking an assignment of the mortgage certificate and obtaining a sheriff's deed instead of extinguishing the debt?
Opinions:
Majority - Winslow, J.
No. A grantee of a life estate cannot assert title against the remaindermen under an encumbrance that the grantee agreed to pay as part of the purchase price for the life estate. When Mrs. Melms elected to take under the law, the will became inoperative as to all real estate, giving her a life estate in the homestead and vesting the remainder in her children. When Pabst and Schandein purchased her life estate, they became life tenants in possession. It is a firmly established principle that a life tenant who purchases an encumbrance on the estate holds it in trust for the remainderman and cannot use it to defeat their title. While a life tenant who pays an encumbrance might normally seek contribution from the remaindermen, that right is extinguished here. Because Pabst and Schandein's payment of the encumbrance was part of the agreed-upon consideration for the life estate, the debt is considered wiped out for all parties. To allow them to revive it as a claim against the remaindermen would be to permit them to recover part of the consideration they paid to the life tenant from an innocent third party.
Dissenting - Marshall, J.
No, but the grantee should acquire an equitable interest. While the grantee cannot use the sheriff's deed to cut off the remaindermen's title, they should be subrogated to the rights of the original encumbrance holder. The settled law is that a life tenant who pays off an encumbrance is presumed to do so for their own benefit and acquires an equitable interest in the property, which can be passed to a grantee. This allows the life tenant or their grantee to compel the remaindermen to contribute their proportionate share of the debt. The fact that the payment was made from the purchase money does not change this fundamental equitable principle. Therefore, the defendant should be considered the owner of the encumbrances it paid off and should be entitled to enforce them against the remaindermen's interest to compel reimbursement for their share of the principal debt.
Analysis:
This decision clarifies the scope of a life tenant's duties and rights concerning encumbrances, particularly in the context of a sale of the life estate. It establishes a crucial distinction: while a life tenant who independently pays an encumbrance may be entitled to contribution from the remainderman, that right is forfeited when the payment is an express part of the consideration for purchasing the life estate. This precedent prevents purchasers of life estates from using the purchase transaction itself to create a claim against the remaindermen. It reinforces the fiduciary-like duty a life tenant owes to the remainderman, extending that duty to the life tenant's grantee and preventing them from using a contractual obligation as a tool to diminish the remainder interest.
