Property-In Re Estate of Vincent: The Tennessee Supreme Court Declines to Extend the Common Law Doctrine of Exoneration to Survivorship Property

On January 22, 1993, George Vincent (Decedent) purchased real property in Deerfield Resort, Campbell County, Tennessee (Deerfield Property).1 Decedent borrowed money to purchase the Deerfield Property from Home Federal Bank (bank) and signed a note secured by a deed of trust on the property.2 On June 17, 1993, Decedent conveyed the Deerfield Property to himself and his nephew, William J. Vincent (Vincent), as joint tenants with right of survivorship.3 Decedent recorded the survivorship deed and made all the monthly mortgage payments on the Deerfield Property until his death on February 22, 2001.4 A few weeks before his death, Decedent executed a will that designated an individual named John Oliver as the sole beneficiary of all his real and personal property.5 The will, however, did not mention Vincent, the Deerfield Property, or the mortgage on the property,6 but did contain the following instructions:

I direct my Executor to pay all my just debts and funeral expenses; provided however, any installment debts secured by real estate may, in the discretion of my executor, continue to be paid on an installment basis for so long as my Executor deems such method of payment to be beneficial to my estate.7

After the Deerfield Property passed to Vincent by virtue of the survivorship deed, the bank received no further payments and the mortgage went into default.8 The bank levied a claim against the estate, seeking the balance of the mortgage.9 Vincent filed a lawsuit seeking a declaratory judgment that would entitle him to exoneration10 of the mortgage debt.11 The trial court denied Vincent's claim, determining that Decedent's estate did not include the Deerfield Property and that the doctrine of exoneration, therefore, did not apply.12 On appeal, the Tennessee Court of Appeals reversed the decision of the trial court, and held that the debt should be exonerated because the will directed the personal representative of the estate to pay all the testator's "just debts."13 The Tennessee Supreme Court granted Vincent's application for permission to appeal and held, reversed. In the absence of a testator's clear language to the contrary, the common law doctrine of exoneration does not extend to property passing by right of survivorship. In re Estate of Vincent, 98 S.W.3d 146 (Tenn. 2003).

The doctrine of exoneration originated in English common law.14 English cases from the early eighteenth century demonstrate that an heir or devisee of real property could look to a decedent's personal estate to satisfy any mortgage debt remaining on a decedent's probate property.15 The doctrine of exoneration stems from the broad English common law rule that all debts of the deceased were to be paid from his personal estate.16 Moreover, English common law held real property in high regard.17 Not surprisingly, English common law provided for exoneration from the personal estate of a decedent, rather than from the real property itself.18

Along with the condition that property could only be exonerated from the personal estate of the decedent, the English common law doctrine of exoneration had other limitations.19 For instance, if a will demonstrated that the testator did not wish for property to be exonerated, the doctrine did not apply and a devisee took property subject to any encumbrances.20 In addition, for the doctrine of exoneration to be invoked, the mortgage had to be a personal obligation of a decedent.21 As the law developed, these principal limitations evolved into various alternative rules as courts interpreted the doctrine.22 In 1854, however, England abrogated the common-law doctrine of exoneration.23 Thereafter, a bequest of real property carried with it any encumbrance that existed at the testator's death, unless the testator clearly intended for his estate to exonerate the debt.24

By the time England abrogated the doctrine of exoneration in the mid-1850s, it was already firmly established as a legal doctrine in the United States.25 Evidence of the doctrine of exoneration at work in early American cases can be found in reported case law from the late eighteenth century.26 Early American decisions carried forth the English common law rule that property be exonerated only from the decedent's personal estate.27 Some American courts modified the personal property limitation to protect specific legacies and pecuniary legacies granted by the testator.28 Early on, state courts also followed the historic limitation that the debt to be exonerated must be a personal debt of the testator.29

Over time, many United States jurisdictions found disfavor with the doctrine of exoneration and enacted statutes abrogating the doctrine in favor of a rule that allowed for exoneration of real property only when expressly called for by the testator.30 New York was one of the first states to enact such a statute.31 At least twenty-four states joined New York in enacting statutes abrogating the common law doctrine.32 The Uniform Probate Code33 (UPC) has taken a similar approach, stripping away the right of exoneration and requiring a devisee of real property to take the property subject to any encumbrance when a will is silent as to exoneration.34 The UPC goes further, however, stating that generic language in a will calling for the payment of debts is insufficient to invoke exoneration.35 Nineteen states now follow the UPC approach of default non-exoneration.36

Tennessee, however, still follows the common law doctrine of exoneration, even with its inherent limitations.37 Only a handful of Tennessee opinions deal with the doctrine of exoneration.38 When taken as a whole, the few cases that exist demonstrate that Tennessee follows the traditional English common law doctrine of exoneration with a few modifications.39

In Tennessee, like other jurisdictions, personal property in the form of the residuary estate may be used to exonerate devised property passing by will.40 Moreover, in Hennegar v. Deadrick,41 the court held that a general legacy may be defeated, at least in part, in the exoneration of a mortgage debt.42 In Hennegar, the testator provided for all his just debts to be paid and for his wife and son to each receive one-half interest in "personal effects, and all moneys, notes, insurance, or unmentioned property," that were in his possession at the time of his death.43 Additionally, the testator bequeathed to his wife encumbered real property in Knoxville.44 The court considered the question of whether the mortgage on the Knoxville property should be a charge against the wife's share of the personal estate.45 The court determined that the will had directed the executors to pay off all of the decedent's debts.46 Since the mortgage on the Knoxville property was one of the testator's debts, the court held that the decedent's personal estate should be divided after paying all the testator's debts, including the mortgage on the Knoxville property.47

The common law doctrine provides that an estate's just debts must usually be satisfied from the decedent's personal estate. In Wilson v. Smith,48 however, the Tennessee Court of Appeals held that a testator may express a contrary intention to protect the personal estate.49 In Wilson, a married couple jointly executed a note on a parcel of land held by the husband in fee simple.50 The husband died testate, providing in his will that all his just debts be paid.51 He left all of his personal property to his wife, as well as a life estate in the real property for which they had become jointly indebted.52 The will provided for the remainder interest in the real property to be distributed to the husband's brothers and sisters, or their heirs, upon the death of the wife.53 The wife did not file a claim against the estate for exoneration of the real property; instead, she continued to make the installment payments until the debt was satisfied.54 At her death, the administrator of her husband's estate sold the property and the remaindermen divided the proceeds.55

The executrixes of the deceased wife's estate, however, contended that because the widow personally paid the balance of the mortgage debt, her estate should be reimbursed.56 The court determined that, absent a testator's express wish to have a bequest of real property exonerated by selling the real property, Tennessee law clearly provided for the debts of the testator to be satisfied first from the personal estate of the decedent.57 The court determined that the testator intended to have the mortgage debt satisfied from his personal estate because the testator directed in his will that all his just debts be paid, and because he left his wife all his personal property.58

The practice of using a decedent's real property, in the face of an insufficient personal estate, to exonerate mortgage debt on bequested property was illustrated in Crumley v. Deake.59 In this late nineteenth-century case, the testator expressly provided in his will that his personal estate satisfy debts on the real property devised in his will.60 The personal estate of the decedent, however, did not contain enough funds to free the encumbered land from its underlying debt.61 The decedent anticipated this occurrence and directed that in the event the personal estate could not cover the mortgage balance, the land should be rented and the proceeds from the rental used to satisfy the debt.62 The decedent had, however, acquired additional real property after the execution of his will.63 The court disregarded the property rental scheme and held that because the decedent's personal estate did not contain sufficient funds to free the encumbered property, the land that the testator acquired after the making of the will should be sold, and the proceeds from the sale used to pay the mortgage on the bequested property.64

In Tennessee, the doctrine of exoneration not only effects property passing by virtue of a will, but also property passing by intestate succession.65 In American Surety Co. v. Grace,66 the Tennessee Supreme Court examined an administrator's fiduciary obligation to exonerate real property passing to heirs of a decedent.67 In this case, the decedent died intestate, survived by her husband and three minor children.68 The decedent's estate included the following: encumbered real property, $683 in cash, and $13,500 in notes secured by mortgages on real estate.69 The husband qualified as administrator of the estate and, in that capacity, paid the decedent's funeral expenses, but did not free the real property from its debt.70 Instead, the husband used the mortgage notes as collateral for business loans, eventually selling the notes for less than their value and paying off the business loans with the proceeds and retaining the balance.71 The court determined that the intestate decedent's personal estate was primarily liable for her debts.72 As administrator, her husband had an obligation to discharge the mortgage debt on the encumbered real property with funds from the personal estate before any distribution of the personal estate occurred.73

In addition to the limitation that real property must be exonerated primarily from the personal estate of the decedent, Tennessee law also requires that the debt must be a personal debt of the decedent to be exonerated.74 This principle is demonstrated by the Tennessee Supreme Court's decision in O'Conner v. O'Conner.75 In O'Conner, the decedent died intestate, leaving an estate with substantial amounts of real and personal property.76 During his life, the decedent purchased a tract of land with a mortgage already attached to it, the mortgage being the personal obligation of the vendor who sold the property to the decedent.77 In consideration for the land, the decedent paid cash and expressly assumed and agreed to pay the debt owed by the vendor.78

Upon the death of the decedent, his heirs sought to have this property freed from its encumbrance, however, the sole distributee of the personal property contended that because the decedent did not personally incur the mortgage debt on the property, the heirs of the real property should take the land subject to the mortgage.79 At the outset of the analysis, the court cited the general rule as follows:

[W]here lands descend subject to a . . . mortgage . . . not created by the intestate, which was never his personal debt, or one for which he could have been held personally liable by the creator, the heir, in such case, would take the land subject to the [e]ncumbrance.80

The court held that since the decedent in O'Conner expressly agreed to assume and pay off the mortgage of his immediate vendor, he did not simply promise to pay his vendor's debt; rather, he promised to be personally responsible to his vendor's creditor for the balance of the mortgage debt.81 As a result, the court determined that the property should be exonerated from the debt at the expense of the decedent's personal estate.82

It is possible that a significant period of time may pass before heirs or devisees of real property become aware of their right to have that real property exonerated. Recently, in In re Estate of Wyatt,83 the Tennessee Court of Appeals addressed the issue of whether the doctrine of exoneration remains available to devisees in this situation.84 In Wyatt, the decedent died testate and devised real property encumbered by a mortgage to his three children.85 After paying the mortgage for several years, the children realized that they were entitled to have the property exonerated from the mortgage and filed a motion seeking to compel the executrix of the will to exonerate the property.86 The court held that the executrix of the estate had a duty to free the real property from its encumbrance, even in the absence of a claim to enforce that duty.87 The children were therefore entitled to exoneration of the property.88

Where property passes outside of probate, such as with property held in joint tenancy, courts in several jurisdictions hold that the common law doctrine of exoneration cannot be applied.89 These courts agree, however, that non-probate property may be exonerated if a testator, by clear testamentary language in his will, expresses such an intent.90 In order to satisfy the standard of "clear intent" required for exoneration of non-probate property, the language used must be something more than just a general clause that instructs the executor of an estate to pay a testator's "just debts and expenses."91 The following cases illustrate this requirement.

In In re Estate of Dolley,92 the testator purchased a home in Laguna Beach, California, for himself and his wife, which they held as joint tenants.93 When the husband died, his widow filed a petition to require the executors of the estate to pay off the balance of the mortgage.94 She contended that under the provisions of the will, her husband intended to leave her the home free of the encumbrance.95 The California Court of Appeals first examined the common law doctrine of exoneration and found it proper for the heirs and devisees of encumbered real property to require exoneration from the personal estate of the decedent.96 The court then determined that in order for a surviving joint tenant to invoke the doctrine of exoneration, clear language in the will must be shown to indicate the testator's intent that the property be exonerated.97 The testator's will in this case did not address exoneration of the joint tenancy property, but only provided for the executor of the estate to pay the decedent's "just debts."98 The court found this boilerplate clause insufficient to show "clear intent" of the testator to exonerate the survivorship property,99 suggesting that if the decedent intended for his wife to take the family home unencumbered, this intent might have been achieved by including "not more than three words, such as 'free and clear.'"100

In In re Estate of Young,101 the decedent's wife had acquired some residential property in fee simple before her marriage to the decedent.102 When they married, she conveyed the property by quitclaim deed to herself and the decedent as joint tenants with the right of survivorship.103 The couple then executed a promissory note, secured by a deed of trust on the property, to pay off the wife's previous mortgage on the house and make some other purchases.104 Almost two years into the marriage, the decedent executed a will that contained a provision ordering "all mortgages on any real property or interest therein titled in my name and all legal claims filed against my estate be paid."105 Upon the death of the decedent, his widow claimed that this provision showed clear intent that the decedent wanted the property freed from any encumbrance at his death.106 The personal representative of the estate challenged the widow's claim on the grounds that the provision did not sufficiently evince the testator's intent to exonerate the property.107

The Nebraska Court of Appeals began by setting forth some basic tenets of will construction,108 continuing with the general rule that "a surviving joint tenant does not qualify for exoneration of a mortgage on joint tenancy property unless there is language in the decedent's will clearly expressing an intention that the mortgage be paid."109 Turning to the provision in the decedent's will calling for the payment of mortgages on any real property titled in his name, the court determined that the term "mortgage" is commonly used to refer to notes secured by deeds of trust.110 The testator in this case intended this type of "mortgage" to be paid if the property encumbered by the "mortgage" was titled in the testator's name.111 Because the survivorship property had been titled in the testator's name and because it was encumbered by a "mortgage," it fell within the will provision and was eligible for exoneration.112

In Vincent, the Tennessee Supreme Court began by setting forth the general rule that, under the doctrine of exoneration, a devisee or heir of encumbered real property is entitled to have the encumbrance settled by the personal estate of the decedent unless, in the case of a devisee, the will directs otherwise.113 The court then restated Vincent's contention that even though he had taken the property by deed and not through descent or devise, the court should extend the doctrine of exoneration to apply to property passing outside of probate.114

Vincent argued that he was entitled to invoke the doctrine by citing to cases allowing for the exoneration of property passing through intestate succession.115 He argued that because intestate property is never technically part of a decedent's estate in Tennessee, it is analogous to property passing outside of probate.116 The court conceded that the Tennessee Code provides that "[t]he real property of an intestate decedent shall vest immediately upon death of the decedent in the heirs [and] real property of a testate decedent vests immediately upon death in the beneficiaries named in the will."117 The court, however, rejected Vincent's argument that survivorship property, which also devolves at the time of death, is the functional equivalent of real property passing by intestate succession or devise.118 Vincent failed to recognize one fundamental difference-if a decedent's personal property is not sufficient to satisfy the debts of his estate, then the estate may use real property passing through intestate succession or devise to satisfy those debts; however, an estate may not use property passing outside of probate to satisfy a debt of the estate.119 Consequently, Vincent's argument that non-probate property is analogous to probate property lacked merit and did not withstand scrutiny.120

The court continued by noting that several jurisdictions abrogated the common law doctrine of exoneration in favor of statutes requiring testators to specifically direct exoneration of encumbered property.121 Some of these statutes specify that a mere boilerplate clause calling for the payment of debts is insufficient to exonerate property passing from a testator.122 In light of this approach, the court found that general language calling for the payment of the testator's just debts is "not sufficiently clear" to command the exoneration of property passing outside of probate.123

The court then analyzed Vincent's claim that the language in the will calling for the payment of installment debts on real property supported the argument that the testator wanted all his outstanding mortgages paid, whether on probate or non-probate property.124 The court began by noting that "the cardinal rule [of will construction] is to ascertain the intent of the testator and to give effect to that intent unless prohibited by law or public policy."125 Furthermore, such an "intention is to be gathered from the scope and tenor of the whole will."126 Detailed analysis of the will revealed that Decedent expressed a clear testamentary intent that John Oliver be his sole beneficiary.127 Because the will's language focused solely on John Oliver, the court held that it would exceed the limits of inteipretation to extend the language of the testator to imply an exoneration of unmentioned non-probate property held by an unmentioned person.128

Because Vincent could not invoke the doctrine of exoneration, he was forced to take the Deerfield Property subject to the encumbrance.129 The court noted that Vincent did not have a legal obligation to pay the note but, as a matter of practicality, he would have to pay the debt to avoid foreclosure.130 The estate, on the other hand, would be liable for any deficiency that might result from a foreclosure of the property.131

An order requiring the estate to pay off the mortgage for the benefit of Vincent would be to the detriment of John Oliver, the sole beneficiary of the will.132 The decision against exoneration, however, would not damage Vincent because he had several options, including the ability to sell the property to redeem the existing equity.133 The court further justified the decision on the grounds "of public policy because it gives effect to the stated intent of the testator."134

Following the Tennessee Supreme Court's decision in Vincent, exoneration of non-probate property can only occur when the decedent has executed a will and his testamentary intent is clear.135 This holding encourages testators who wish to have nonprobate property exonerated to be explicit when making their will-either clearly granting exoneration or unambiguously denying it. Practitioners should carefully ascertain the intentions of their clients, utilizing appropriate testamentary language to ensure their clients' intentions are fulfilled. Otherwise, a will that does not convey the clear intent of the testator may lead to frustration of the testator's desired wishes, and litigation for the heirs and beneficiaries.

A further effect of Vincent is that landowners of mortgaged property who later convert title to survivorship property must execute a will in order to exonerate the property. In reality, this outcome appears somewhat strict in light of Tennessee's commonlaw approach favoring exoneration. Under Vincent, when the owner of mortgaged property later names another person as joint tenant, that surviving joint tenant is saddled with the burden of a mortgage debt. In contrast, if the owner had retained sole ownership of the mortgaged property and devised the mortgaged property to the other person, the other person would take free of the mortgage. As the Tennessee Supreme Court noted, however, a surviving tenant in the former situation is not without options.136 She may, among other things, elect to sell the property to extract the equity.137 This outcome seems to be a fair solution in light of the fact that if property passes by intestate succession or devise, the estate itself may be forced to sell the property if the personalty of the decedent is insufficient to exonerate the debt.

The doctrine of exoneration is an often overlooked, yet important element, of Tennessee property law. The doctrine, as interpreted by Tennessee courts, permits a testator or intestate decedent to provide for a benevolent disposition of property by devising to heirs or devisees real property without the burden of any debt. A non-benevolent testator, however, is free to require devisees of real property to take subject to a mortgage by using express language to that effect. It would appear that jurisdictions abrogating the common law rule, along with the promulgators of the UPC, do not agree with the idea of a benevolent testator and assume that a decedent would, by default, want to burden recipients of real property with debt. This is troubling, but it does provide for a very clean system of property distribution.

With the statutory approach, no question exists about the testator's intent; it must be unequivocal for property to be exonerated. This approach offers the best solution in light of the fact that, with the common law approach, questions of a testator's intent invariably arise. When a will is probated, there are bound to be claims by residuary legatees who wish to prove that a testator did not intend to exonerate property at the expense of their bequest. By implementing a system that requires explicit intent of the testator for exoneration to take place, claims such as these will disappear. There will be no question as to the testator's intent, because it must be explicit to effectuate exoneration. Testators will be on notice that unless their intentions are clear, exoneration will not take place.

The Tennessee Supreme Court, in a separate paragraph of the Vincent opinion, noted that the common law doctrine of exoneration has been abrogated in several jurisdictions, citing six state statues as authority.138 In the next paragraph of the opinion, the court determined it would not extend the doctrine of exoneration "in the absence of guidance from the General Assembly,"139 This language invites the Tennessee legislature to take up the issue, and enact legislation to abrogate the common law doctrine of exoneration. The legislature would be wise to consider the abrogation of the common law doctrine because such action would bring certainty to this area of law in that without clear intent on behalf of the testator, all claims for exoneration would be barred.

THOMAS E. CLARY III*

* Associate Staff, The University of Memphis Law Review, J.D. Candidate, May 2005, University of Memphis, Cecil C. Humphreys School of Law; B.M., May 2002, University of Memphis. The author wishes to extend many thanks to Professor Ralph Brashier for his time, guidance, and thoughtful encouragement. Deepest thanks to my wife, Anita, and my children, Brenna and Avery, whose love and support are immeasurable.

Copyright University of Memphis Spring 2004
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