Court Opinion

ID: 9856723
Source: CourtListenerOpinion
Date Created: 2023-09-24 06:56:05.338137+00
Date Added: 2024-06-11T09:40:26.714530
License: Public Domain

BAKES, Justice,
concurring in part and dissenting in part:
Although I agree with the majority’s analysis under the UCC in Part I of its opinion, I must dissent from its resolution of the severance issue addressed in Part II. Whether Idaho Bank & Trust’s security interest in the stock evaporated upon Richard’s demise should not turn upon the anachronistic question of whether one of the four unities (interest, title, time, and possession) was destroyed when Richard pledged the stock. Rather, we should base our decision upon the clear policy favoring free alienability and liquidity of assets and the accepted utility of the joint tenancy with right of survivorship as a means of disposing of property upon death.
The four unities are one method, albeit crude and mechanistic, of reconciling the societal interest in free alienability of assets with the nature of joint tenancies. When two individuals hold property in joint tenancy with right of survivorship, the probable descent of the property depends upon which of the two is likely to live longer. If a transfer by one joint tenant to a younger third person left the joint tenancy intact— but with the life of the grantee substituted for that of the grantor — the odds that the other joint tenant would eventually obtain full title to the property could be substantially altered to his detriment. This vulnerability could be averted by prohibiting a single joint tenant from transferring his interest without the consent of the other joint tenant or tenants, as Justice Bistline’s special concurring opinion suggests, but such a rule would offend the policy against restraints on alienation. However, the potential for abuse can also be avoided without restraining alienation by converting the joint tenancy with right of survivorship into a tenancy in common at the time of a transfer. The rule that a joint tenancy is severed when one of the four unities is destroyed accomplishes this desirable result.
However, severing a joint tenancy whenever one of the four unities is destroyed may be undesirable in many cases. When one joint tenant leases his possessory rights to a third person, the unity of possession is obviously and palpably destroyed, yet the relative risks concerning survivorship are not affected because the same lives continue to govern the ultimate disposition of the property. Similarly, a mortgage or pledge undermines the unity of interest without threatening the integrity of the survivor-ship arrangements. To avoid an unnecessary conversion of a joint tenancy with right of survivorship into a mere tenancy in common, courts facing such problems have managed to reach counter-intuitive results in their analyses of the unities issues, as the cases cited in the majority opinion demonstrate.
The pledging problem involved in the case before us shows how the policy of protecting the expectations of joint tenants without restraining alienation is disserved by tying the severance issue to the question of whether one of the four unities has been destroyed. If one holds that pledging stock destroys one of the unities (such as the unity of possession, which it clearly does), thereby completely and permanently severing the joint tenancy, then the survivorship device is gone. It is destroyed even though the pledging, in and of itself, does not reduce the likelihood that the non-pledging joint tenant will obtain full title by surviving the pledging joint tenant. The non-pledging joint tenant’s chance of being the survivor would not be affected unless and until the pledging joint tenant defaulted and the pledgee foreclosed on the security interest, at which point the non-pledging joint tenant would have to outlive the pledgee in order to obtain full title. How*369ever, if the pledging joint tenant successfully discharged his obligation to the pledgee, the stock would be unencumbered again, and the odds of survivorship would have remained unchanged throughout. Thus, if a complete severance occurred at the time of the pledge, the survivorship device would have been destroyed for no good reason.
On the other hand, one may hold, as the majority does, that pledging does not destroy any of the unities and, therefore, that no severance results. However, this approach effectively impairs the alienability and liquidity of the jointly held assets; the potential pledgee’s security interest becomes so ephemeral that few, if any, lenders would knowingly extend credit on the strength of it. In order to use the asset to enhance his borrowing power, the joint tenant would have to create a severance by means of a straw transaction with a third party (or through judicial partition). This is not only wasted motion, but also places the joint tenant on the horns of a dilemma: if he chooses to augment his borrowing power by severing the joint tenancy so that a lender will accept a security interest in the stock, he cannot retain the survivorship device; he cannot have both under a traditional four unities analysis.
In my view, there is a simple and direct solution to this problem. Disregarding the ill-fitted straight jacket of the four unities, I would hold merely that a pledge results in a floating, partial severance of the joint tenancy. Specifically, the survivorship provision should be suspended to the extent necessary to protect the pledgee’s security interest, but should otherwise remain intact. Thus, if a joint tenant pledged his interest in the jointly held asset and thereafter predeceased the remaining joint tenant, the pledgee could enforce his security interest in the pledgor’s interest in the asset to the extent of his claim against the pledging joint tenant; after the pledgee’s claim was satisfied, any excess of the pledging joint tenant’s interest would pass under the survivorship provision to the surviving joint tenant. Such a rule promotes free alienability and liquidity of assets, with minimal disruption to the survivorship means of disposing of property.
The approach that I have suggested is not unprecedented. In Wilken v. Young, 144 Ind. 1, 41 N.E. 68 (1895), the court concluded that “a joint tenant may mortgage his interest in the joint estate . . ., and to the extent of the mortgage lien the right of the survivor will be destroyed or suspended, and the equity of redemption, at the death of the [mortgagor] tenant, will be all that will fall to the surviving companion.” Id. 41 N.E. at 70 (emphasis added). Referring to the Wilken decision, one commentator has observed, “[T]he joint tenancy is not severed but surviving joint tenants take subject to the mortgage executed by one joint tenant.” 4 G. Thompson, Commentaries on the Modern Law of Real Property § 1780 (Supp.1977). According to another commentator, a similar rule is applied when one joint tenant leases his interest in property and thereafter expires before the lease does. See W. Burby, Handbook of the Law of Real Property § 94, at 221 (3d ed. 1965). Such a rule would be in keeping with Article IX of the Uniform Commercial Code, which has expanded and liberalized the rules governing security interests in personal property in order to facilitate the collateralization of loans to borrowers, thus enhancing commerce and business.