Chapter XIII: Part V: Mortgages of Real Estate (1)

=305. Mortgage Defined.= By the common law, a mortgage was an absolute deed of conveyance, by the terms of which the debtor was entitled to receive a reconveyance of the property upon payment of the debt described in the mortgage, or upon performing the conditions for which the mortgage was given. For example, _A_ owes _B_ one thousand dollars, _A_, to secure the debt, gives _B_ an instrument of conveyance of his house and lot, the instrument containing a provision that if _A_ pays _B_ one thousand dollars ($1,000.00) on or before January 1st, 1911, _B_ is to reconvey the house and lot to _A_. The above represents a mortgage at common law. As explained later, a present day mortgage is somewhat different.

At common law, the creditor had possession of the property from the time the mortgage was given, unless it was expressly agreed that the debtor was to remain in possession. The real purpose of a mortgage is to give security for a debt or obligation. To permit a creditor to keep the mortgaged property upon default of the debtor to pay the debt when due, is unjust in many cases. For example, if _A_ gives a mortgage to _B_ upon property worth one thousand dollars, to secure a debt of three hundred dollars, and _A_ defaults in payment, it is unjust to permit _B_ to keep the property. Courts of equity have for a long time regarded this transaction as a mere security for a debt, and not an absolute transfer of title to property. Courts of equity long ago permitted the debtor to file a petition in a court of equity asking that the property be reconveyed to him upon payment of the debt, and damages due the creditor. Courts of equity recognize this right of the debtor, which is called _equity of redemption_. At the present time mortgages are, in form, an absolute conveyance of real estate, with a condition that the title is to revest in the debtor, or that the conveyance is to be void and of no effect, if the debtor pays the debt or performs the condition. If the debtor fails to perform this condition at the time stipulated, he is still able to enforce his equity of redemption. This, in effect, makes a mortgage of real estate a mere security for a debt. The creditor is permitted to cut off the debtor's right of redemption by foreclosure, which is discussed under a separate section.

=306. Parties to a Mortgage Contract.= A mortgage of real estate is a contract. Like any contract, it requires competent parties, a consideration, mutuality, etc. (See _Essentials of a Contract_, chapter on Contracts.) The party conveying the real estate to another as security for the debt is called the _mortgagor_, the party to whom the mortgage is given is called the _mortgagee_.

=307. Possession of Mortgaged Property.= Originally at common law, the mortgagee was entitled to the possession of the mortgaged premises as soon as the mortgage was given, and before default of the mortgagor to pay the debt described in the mortgage. At the present time, the mortgagor is entitled to possession of the mortgaged premises until after default of payment of the mortgage debt. After default, the mortgagee may take possession of the premises. Some states now provide by statute, that the mortgagor shall have possession of the mortgaged premises until he defaults in payment of the mortgage debt. Independently of such a statute, the mortgagor has the right to possession of the mortgaged premises before default of payment of the mortgage debt. This is by reason of the fact that the law regards the transaction as a security for a debt rather than an absolute transfer of title.

Parties are permitted to enter into any contract they choose so long as the provisions are legal. Parties to a mortgage may stipulate who is to have possession before default or payment on the part of the mortgagor. If it is stipulated that the mortgagee is to have possession, he is entitled to it under the terms of the mortgage contract. If no stipulation is made, the mortgagor impliedly is given the right of possession before default.

=308. Deeds as Mortgages.= If a deed, absolute on its face, is given by a debtor to a creditor to secure a debt, it will be treated by a court of equity as a mortgage. Equity regards the substance of things rather than the form. (See _Courts of Equity_ under chapter on Courts, Remedies, and Procedure.) Courts of equity were originally created for the purpose of granting justice where the rules of the common law failed. In England, they were called _courts of chancery_. A judge sits alone as a court of equity, without the aid of a jury. When there is no remedy at law, and a wrong exists, equity affords a remedy. In this country, the same court frequently sits as a court of equity as well as a court of law. In the case of deeds absolute on their face, if it was the intention of the parties that the conveyance was to constitute a security for a debt, rather than a sale, a court of equity will permit the grantor to secure a return of the property upon payment of his debt. Equity looks at the substance of the transaction disregarding the form. If mortgages are not in proper legal form, and either party is not permitted at law to enforce his right, equity will enforce the transaction according to the intention of the parties. Informal or incomplete mortgages are called _equitable mortgages_.

=309. The Debt Secured.= A mortgage is a contract, and like any contract, must be supported by a consideration. (See _Consideration_, chapter on Contracts.) The consideration of a mortgage may be anything of benefit to the one giving the mortgage, or any detriment to the one receiving the mortgage. The consideration of a mortgage ordinarily is an advancement or loan, past or present, made by a mortgagee to the mortgagor. That is, a mortgage is given as security for some debt or obligation in favor of the mortgagee. This debt is usually described in the mortgage as a promissory note. Even though no note has been given, if the amount described in the mortgage as a promissory note is the amount of the debt, or if any debt exists, the mortgage is valid. A mortgage may be given to cover future advances, or for a pre-existing indebtedness. If a mortgage is given as security for a promissory note, it will secure all renewals of the note as well.

=310. Essentials of a Mortgage.= A mortgage is an instrument for the conveyance of land. By the provisions of the Statute of Frauds, such instruments must be in writing to be enforceable. (See _Statute of Frauds_, chapter on Contracts.) The states provide by statute that mortgages must be recorded to be effective as against subsequent innocent purchasers, mortgagees or creditors. Mortgages must be in writing for the purpose of recording, as well as to comply with the Statute of Frauds. When a mortgagee takes possession of the mortgaged premises, this is sufficient notice to creditors and subsequent purchasers of his interests. In this event the mortgage need not be reduced to writing nor recorded.

Mortgages are usually written in the form of formal deeds. (See _Form of Deeds_, chapter on Real Property.) Although it is good business practice to follow these well recognized forms in drawing mortgages, an informal instrument describing the parties and the property mortgaged, and showing an intent to make a mortgage is sufficient. Some states by statute provide a short statutory form. This form may be used, but does not prevent the common law form from being used.

A mortgage is given to secure a debt or obligation. This debt or obligation should be set forth in the mortgage, and the time when it is to be paid or performed should be set forth. The mortgage should also contain a description of the property mortgaged. A complete and accurate description, such as is used by surveyors, is the best form. By this means, a person can locate the property directly from the description given in the mortgage. It is sufficient if the description given enables a person to locate the property either by reference to another record containing a description, or by its own terms. A surveyor's description is better, however. A mortgage should contain the names of the grantor and the grantee.

The mortgagor is entitled to his equity of redemption. That is, he is entitled to the right to file a petition in a court of equity, offering to pay the mortgage debt, interest, and damages to the mortgagee, and asking for a return of the property. This may be done at any time before foreclosure by the mortgagee. Foreclosure is discussed under a separate section.

=311. Power of Sale and Delivery in Escrow.= If a mortgagor stipulates in the mortgage that he waives, or will not enforce his equity of redemption, the law does not permit the mortgagee to enforce such a stipulation. It is regarded as against public policy, and illegal. Whenever there is a mortgage, there is an equity of redemption in favor of the mortgagor.

Some mortgages contain a stipulation that in case the mortgagor fails to pay the mortgage debt when due, the mortgagee may sell the property, deduct his claim costs and expenses, and return the balance to the mortgagor. Such mortgages are called _power of sale mortgages_. They are valid and enforceable. The mortgagor's equity of redemption is protected, in that he receives the balance of the proceeds of the sale of the mortgaged premises, after the mortgage debt and expenses are paid. The sale, under a power of sale mortgage, must be public and _bona fide_.

A mortgage must be signed by the mortgagor. This is called in law, _execution of the mortgage_. The mortgage must also be attested. This means that the signing must be in the presence of a witness or witnesses. This requirement is a statutory one. Some states require only one witness, others two. If a mortgage is to be recorded, the signature of the mortgagor must be acknowledged before a notary public or officer authorized to administer oaths. This is called _acknowledgment_. It means that the mortgagor acknowledges the making of the signature in the presence of an officer authorized to administer oaths. The officer writes a certificate of this acknowledgment on the mortgage. Acknowledgment is a statutory requirement. A mortgage will not be received for record by the public recorder, unless it has been acknowledged.

A mortgage given by a married man must contain a waiver of dower by the mortgagor's wife, or the wife will have a dower estate therein if her husband dies before she dies. The mortgage of a married man should contain a statement that the wife waives her dower interest, and the wife should sign the mortgage before witnesses, and acknowledge her signature. A mortgage, like any written contract, does not become effective until delivered. By _delivery_ is meant giving possession of the instrument to the mortgagee or his agent, with intent that it is to become effective from that date. If a mortgage or written instrument is delivered to a third person to be held for a certain purpose or until a certain time, this is called _delivery in escrow_.

=312. What Interest in Real Estate May be Mortgaged.= Any interest in real estate which is the subject of transfer or sale may be mortgaged. One who has the absolute title, called _fee simple interest_, in real estate may mortgage it. A mortgage is not regarded as a transfer but merely as a security for a debt or obligation. The mortgagor retains an interest called his equity of redemption. For all practical purposes, a mortgage of real estate means that the mortgagee may sell the property mortgaged upon failure of the mortgagor to pay the mortgage debt when due. The mortgagee may keep enough of the proceeds of the sale to satisfy the mortgage debt. The equity of redemption of a mortgagor and the remainder must be returned to the mortgagor, or his right to the proceeds of the sale of mortgaged premises, after the mortgage debt is paid, is an interest which in turn may be mortgaged.

A mortgagor may give successive mortgages so long as he finds persons willing to accept them as security. In practice, second and third mortgages on real estate are common. Not only may real estate be mortgaged, but anything permanently connected with real estate, such as crops, trees, horses, and buildings. Articles of personal property which have become permanently annexed to real estate are called _fixtures_. (See _Fixtures_, chapter on Real Estate.) If title to real estate has been obtained by fraud, a valid mortgage may be given to one who has no notice of the fraud. The principle involved is that a title obtained by fraud or duress is voidable. The party defrauded may obtain a reconveyance of the property as against the party practicing the fraud, but not as against innocent purchasers who have had no notice of the fraud. If, however, a conveyance is attempted by means of a forgery, no title to the property passes to the purchaser, who in turn can convey nothing by mortgage or otherwise. Similarly, a party who has conveyed his interest in real estate absolutely, by deed or contract, has nothing left to convey, and cannot give a mortgage. An interest in real estate less than absolute ownership, as a life interest, or a mere lease, or term for years, is an interest which may be mortgaged.

=313. Recording Mortgages.= To be effectual against creditors, subsequent purchasers, and mortgagees, most of the states require by statute, that mortgages be recorded with the public recorder of the county where the property is located. These statutory provisions do not render mortgages ineffectual as between original parties. _A_ gives a mortgage on his house and lot to _B_. _B_ does not have the mortgage recorded. If _A_ fails to pay the mortgage debt when due, _B_ may foreclose. As against _A_, _B's_ mortgage is enforceable without being recorded. If, however, _A_ gives a subsequent mortgage to _C_, and _C_ records his mortgage, _C's_ mortgage is superior to _B's_. If _A_ sells the property to _D_ after mortgaging it to _B_, _B_ not recording the mortgage, _D_, upon having his deed recorded, takes the title free of _B's_ mortgage. If _A_ gives _B_ a mortgage, _B_ not having the mortgage recorded, and _E_ obtains a judgment against _A_ and levies upon the real estate mortgaged to _B_, _E_ obtains a lien superior to _B's_.

The statutes of a few states provide that mortgages become effective from the time they are left with the recorder for record. The recorder stamps on the mortgage the time it is left for record, and the mortgage becomes effective from that time. Suppose _A_ on the second of February gives a mortgage on his house and lot to _B_, for $500.00, and then on the fifth of February gives a mortgage on his house and lot to _C_ for $500.00. If _C_ has his mortgage recorded February sixth, and _B_ has his mortgage recorded February seventh, _C's_ mortgage is superior to _B's_. In the few states where a mortgage does not become effective until received for record, the one first received for record is superior to others, even though the mortgagee first leaving his mortgage for record takes his mortgage with actual notice of the prior mortgage. The general rule is that one who takes a mortgage with actual notice of other mortgages, takes subject to such mortgages.

To be received for record, a mortgage must be acknowledged. This means that the mortgagor must acknowledge the signature to the mortgage before a notary public or officer authorized to administer oaths. The officer makes a certificate of the acknowledgment on the mortgage.

=314. Transfer of Mortgages and Mortgaged Premises.= While, in form, a mortgage is a transfer of real estate, it is regarded merely as security for a debt. The mortgagee is not permitted to transfer title to the real estate. He is, however, permitted to transfer the interest which he possesses in the mortgaged premises. Such a transfer is called an _assignment_. It is a contract of sale by which the mortgagee sells his interest in the mortgage. (See _Assignment of Contract_, chapter on Contracts.) For example, if _A_ mortgages his farm to _B_ as security for a one-thousand-dollar promissory note, _B_ cannot convey title to the property mortgaged, to _C_, but he may sell his interest in the mortgage to _C_. The mortgage cannot be sold separately from the debt secured. The mortgage, separated from the debt, represents nothing of value. If, in the example above given, _B_ endeavors to sell the note to one person, and the mortgage to another, the purchaser of the mortgage takes nothing. A sale of the debt secured by the mortgage, carries with it the mortgage security, unless it is expressly agreed that the debt is transferred without the security of the mortgage.

If _A_ mortgages his farm to _B_ to secure a promissory note for one thousand dollars, and _B_ sells the note to _C_, _C_ takes the security of the mortgage as well as the note, unless it is expressly agreed between him and _B_ that the security of the mortgage is not transferred with the note. After _B_ sells _C_ the note, _B_ cannot cancel the mortgage. The mortgage now belongs to _C_. If _A_ mortgages his farm to _B_ to secure two promissory notes of $500.00 each, and _B_ sells one of the notes to _C_, in the absence of an agreement to the contrary, _C_ has one-half interest in the mortgage as security for his note. _B_ may, however, expressly stipulate in the sale of his note to _C_, that _B_ is to retain the entire mortgage security for his own note.

When a debt secured by a mortgage is assigned, the assignee should immediately notify the mortgagor of the assignment, in order that the mortgagee shall pay him, and not the assignor. This is the safe policy to follow, although technically, the mortgagor before paying the mortgage debt should be sure that the mortgagee is still the owner of the note, debt, or other obligation, secured by the mortgage.

A mortgagor is permitted to sell his interest in the mortgaged premises before satisfying the mortgage. He may sell his equity of redemption, or he may sell in such a manner that the purchaser assumes the mortgage. If the mortgagor sells the mortgaged premises, the purchaser agreeing to assume the mortgage as between the mortgagor and the purchaser, the purchaser must pay the mortgage. The mortgagee, however, is not bound by this agreement. He may disregard it. He may accept the benefit of it if he chooses and sue the purchaser on this contract. (See _Contract for the Benefit of Third Persons_, chapter on Contracts.) If, however, the mortgagee agrees to accept the purchaser of the mortgagor's interest as the debtor, the original mortgagor is relieved thereby.

=315. Satisfaction of Mortgages.= A mortgage is given as security for a debt or obligation. It is satisfied by payment of the debt, or fulfillment of the obligation. The mortgage debt may be paid by the mortgagor himself, by a purchaser of the mortgagor's interest, by a subsequent mortgagee, or by any one having an interest in the real estate mortgaged. If anyone, other than the mortgagor, pays the mortgage debt to protect his own interest, he is thereby entitled to the benefit of the mortgage. This is called _subrogation_. If _A_ owes _B_ $5,000.00, and gives _B_ a note for that amount, secured by a real estate mortgage on a farm, _C_ signing the note as surety or guarantor, in case _C_ pays the note upon default of _A_, _C_ is entitled to _B's_ benefit in the mortgage. Payment of a mortgage debt may be made to a mortgagee, himself, his assignee of the mortgage debt, or any agent or authorized representative of the mortgagee. A party not having an interest in the land cannot voluntarily pay a mortgage debt, and claim the benefit of a mortgage by subrogation. A party interested in the land, even the mortgagor, himself, cannot compel the mortgagee to accept payment before the mortgage debt is due.

Upon payment of a mortgage debt, the title to the mortgaged premises by this act becomes absolute in the mortgagor. At common law, if the mortgagor paid the mortgage debt when due, the mortgagee had to reconvey by deed the mortgaged premises to the mortgagor to give the latter title. But at the present time, a mortgage is not regarded as a conveyance of title, but merely as a security for a debt, the title vesting absolutely in the mortgagor any time he pays the debt before the actual foreclosure of this right by the mortgagee.

When the mortgagor pays the mortgage debt, he is entitled to a written satisfaction of the debt. This is a mere written statement that the mortgage is satisfied, signed by the mortgagee. The mortgagor is thus enabled to have the mortgage cancelled of record, which gives the public notice that the mortgage is no longer effective. The mortgagor presents his written statement of satisfaction to the public recorder, who enters it in his record of the mortgage.

=316. Equity of Redemption.= A mortgagor does not lose his interest in the mortgaged property by failure to pay the mortgage debt when due. Courts of equity regard a mortgage as a security for a debt, and not a transfer of real property. Even though the mortgagor fails to pay the mortgage debt when due, and in spite of the fact that the mortgage purports to be a transfer of real estate, conditioned only on the payment of the debt described, equity refuses to regard the transaction as a sale, and permits the mortgagor to recover the property by paying the debt, interest, and expenses connected with the mortgage, at any time before the statute of limitations cuts him off. The states have statutes requiring suits of different kinds to be brought within certain periods. These statutes vary somewhat in the different states. Most states require an action by which a mortgagor enforces his equity of redemption, to be brought in about twenty or twenty-one years after the debt becomes due. The mortgagor himself or anyone to whom he transfers, or who acquires his interest, is entitled to the equity of redemption.

If _A_ mortgages his farm to _B_, to secure a promissory note of one thousand dollars due in one year, _A_ does not lose his right to the property by failure to pay the note when due. He may bring a suit in equity at any time, usually within twenty-one years, after the note becomes due, offering to pay the mortgage debt, interest, and costs, and asking for a return of the property. Equity now gives the mortgagee a right to cut off the mortgagor's right of redemption by foreclosure. This is discussed in the following section.

=317. Foreclosure of Mortgages.= A mortgagor has the right to redeem the property at any time within the statute of limitations, after the mortgage debt becomes due. The mortgagee does not have to wait the pleasure of the mortgagor to redeem or abandon the right. Equity gives the mortgagee the right to cut off the mortgagor's equity of redemption by foreclosure. By foreclosure is meant the mortgagee's right to file a petition in a court of equity asking that the property be sold, and that from the proceeds, the amount of the mortgage debt and costs first be paid, and that the balance be paid the mortgagor. The court orders the property advertised and sold, and the proceeds distributed as above described.

Some mortgages contain a stipulation concerning foreclosure. These mortgages are called _power of sale mortgages_. It is stipulated that when the mortgagor is in default of payment, the mortgagee may advertise and sell the property, deducting from the proceeds the mortgage debt, interest, and expenses, and paying the balance to the mortgagor. These power of sale mortgages are enforceable. The sale must be free from fraud, public, and the mortgagee cannot become a purchaser unless so stipulated in the mortgage, or so provided by statute. The states usually provide by statute a method of foreclosure. These statutes frequently provide that a mortgagee may enforce his mortgage, and obtain a judgment against the mortgagee on the mortgage debt in the same action. If the mortgaged premises do not bring enough to satisfy the judgment, the balance may be enforced against the mortgagor by seizing any property subject to execution that he possesses.

TRUSTS

=318. Defined and Classified.= In a popular sense, the term, _trust_, is often used to designate combinations of capital or combinations among business men for the purpose of destroying competition, or for the purpose of regulating prices. This is not the meaning of the term as used in this chapter. It is here used to mean an estate of some kind held for the benefit of another. A trust has been defined to be "An obligation upon a person, arising out of a confidence reposed in him, to apply property faithfully according to such confidence." _A_, by will, appoints _B_ trustee of his farm, for the benefit of _C_. Upon _A's_ death, if _B_ accepts the duty imposed upon him by the will, a trust is thereby created in which _B_ holds the legal title to the farm, for the benefit of _C_.

Trusts are sometimes classified as _general_ and _special_. If the property is conveyed by deed or will to another to be held in trust for a third person, without specifying any of the duties of the second person, it is said to be a general or simple trust. If, however, the duties of the second person or trustee are defined, the trust is called a special trust. A trust for the benefit of an individual or individuals is called a _private_ trust, while one for the benefit of a public institution, or for the public, is a _public_ trust. If _A_ gives his property to _B_ to care for the poor of the city of Chicago, the trust is public. As to their method of creation, trusts are usually divided into _express_, _implied_, _resulting_ and _constructive_ trusts.

=319. Parties to Trusts.= The party creating a trust is called the _grantor_ or _settlor_. The party to whom the title to the property is given to hold for the benefit of another is called the _trustee_. The party for whose benefit the trust is created is called the _cestui que trust_. If the beneficiaries are more than one in number, they are termed _cestui que trust_. If _A_ deeds his land to _B_ for the benefit of _C_, _A_ is the settlor, _B_ is the trustee, and _C_ is the _cestui que trust_.

=320. Who May be Parties to a Trust.= Persons of lawful age, and competent to make contracts, including corporations, may create trusts. Any person competent to make contracts, including corporations, may act as trustee. Even infants (persons under legal age) may act as trustees if the duties require the exercise of no discretion. An infant may hold the legal title as trustee, and if the duties require the exercise of discretion, the court will remove him or appoint a guardian to perform his duties. Anyone capable of holding the legal title to property may be a _cestui que trust_. This includes corporations, aliens, and, in case of charitable trusts, infants. Any kind of property, whether real or personal, may be given in trust. This includes lands, chattel property, promissory notes, accounts, and kindred property rights, regardless of where the property is located.

=321. Express Trusts.= An _express trust_ is one created by the express written or oral declaration of the grantor. If _A_ gives a deed of his farm to _B_, by the terms of which _B_ is to hold the farm in trust for _C_, _A_, the grantor, has created an express trust in favor of _C_, _B_ as trustee holds the legal title to the farm, and _C_, as _cestui que trust_ or beneficiary, holds the beneficial or equitable interest. _A_, before giving the deed of trust, was the absolute owner of the farm. That is, _A_ held the legal title and the equitable interest in the farm. By creating the trust, he placed the legal title in one person and the equitable or beneficial interest in another.

Originally, in England, at common law, trusts could be created by oral declaration as well as by written instruments. At that time, land could be transferred without written instruments. The seller took the buyer on to the land to be conveyed, and in the presence of witnesses delivered to him a symbol of the land, such as a piece of turf or a twig. About 1676, the Statute of Frauds was passed by the English Parliament, requiring among other things, that conveyances of lands, including the creation of trusts therein, must be by written instruments. This provision of the Statute of Frauds has been re-enacted by most of the states of this country. At the present time, trusts in real estate must generally be created by written instrument. Trusts may be created by will to take effect at the grantor's death. Trusts may be created in personal property. Except when created by will, trusts in personal property may be created by oral declaration of the grantor. A grantor may create a trust voluntarily. If actually carried out, or if the grantor's intention to create the trust is expressed as final, it requires no consideration to support it. If the declaration of trust amounts to a mere agreement to create a trust, and is not carried out, it requires a consideration to enable the beneficiary to compel its execution. After an express trust is completed, it cannot be revoked by mutual agreement between the grantor and trustee without the consent of the _cestui que trust_.

The most common forms of express trusts are created by deed, by will, or by contract. Any declaration of the grantor, no matter how informal, if expressing his intention to create a trust, is sufficient to create a trust. A trust cannot be created for an immoral or illegal purpose.

=322. Implied Trusts.= When a person by deed or will does not use language expressly creating a trust, but uses language showing his intention to create a trust, one will be implied. Such a trust is known in law as an _implied trust_, as distinguished from an _express trust_. If _A_ devises all his property to his son, _B_, the will containing the following language: "I request my son, _B_, to pay his cousin, _C_, $10.00 per month during his life," this language is held to create a trust in favor of _C_, wherein _B_ is trustee.

=323. Resulting Trusts.= One party may so conduct himself, or so deal with another, that a court will declare the transaction to be a trust, even in the absence of any express declaration, or of an intention on the part of the parties to create a trust. Such a trust is known in law as a _resulting trust_. _J_, to avoid paying his creditors, purchases property in the name of his wife, _K_. _K_ is a trustee for her husband, _J_, and creditors can by suit in equity subject _J's_ interest in the property.

If _A_ purchases property, and takes the deed in the name of _B_, _B_ is trustee for _A_. _B_ is the legal owner, and _A_ is the beneficial or equitable owner. If a third person purchases the property from _B_, without notice of _A's_ rights, and for value, the third person takes good title to the property free from _A's_ claim.

In this country, the states generally require by statute, that deeds and mortgages of real estate must be recorded. If an equitable owner does not have a properly recorded written instrument showing his interest in the real estate in question, thereby giving future purchasers notice of his interest, he cannot complain unless the third person has actual notice of his rights or purchases without giving a valuable consideration. A resulting trust is not created by agreement or contract to that effect, but is created by the trustee using money or funds of the _cestui que trust_ in the purchase of property in his own name.

=324. Constructive Trusts.= If one person is in a confidential relation to another, and misappropriates the money of the other, this act is said to create a _constructive trust_, in which the defrauding party is trustee, and the defrauded party is beneficiary, or _cestui que trust_. A constructive trust differs from a resulting trust in that the former involves fraud on the part of the trustee, exercised on the _cestui que trust_, while a resulting trust never involves fraud between the trustee and _cestui que trust_, although created for the purpose of defrauding third persons.

If _A_, an attorney, is employed by _B_ to collect a note of $500.00, and fraudulently reports a collection of $300.00, keeping $200.00, a constructive trust results, in which _A_ is trustee for _B_, for $200.00. If _A_, for the purpose of defrauding his creditors, deposits his money in bank in _B's_ name, a resulting trust arises in which _B_ is trustee for _A_, and _A's_ creditors can subject the property.

Anyone defrauding another by duress, by taking advantage of old age or of mental weakness, or by fraud, becomes the trustee for the wronged party in the amount the latter has lost.

=325. Rights and Liabilities of Trustee.= A trustee of an express trust need not accept the trust against his will. If _A_ by deed, will, or written declaration, names _B_ as trustee of certain property for _C_, _B_ need not accept unless he so desires. If _B_ refuses to act as trustee, the trust does not fail by reason thereof. A court may appoint another trustee or may itself administer the trust. After accepting a trust, a trustee cannot resign without the consent of the _cestui_. He may be removed by the court for misconduct, or he may transfer his duties, if so stipulated in the instrument creating the trust.

In England during the reign of Henry VIII, a statute was passed called the _Statute of Uses_, declaring that real property given to one person and his heirs in trust for another and his heirs, should vest the legal title in the trustee. Thus, if _A_ gives real estate to _B_ and his heirs in trust for _C_ and his heirs, _C_ takes the legal title. The Statute of Uses is in force in most of the states of this country. It does not apply to personal property, and if the trustee is given some duties, such as to collect rents, or to do anything except to hold the legal title as trustee, the case is not within the Statute of Uses, and the trust will be carried out.

A trustee holds the legal title to the trust estate. Suits against the estate must be brought against him as trustee, and suits for the protection of the estate must be brought by him as trustee. A trustee has the right to possession of all personal property covered by the trust, and to possession of the real property, if necessary to execute the terms of his trust. A trustee must protect the estate and perform his duties with care, or be liable to the beneficiary for any damages resulting. He is not permitted to make any profit out of his office. Any profit made by him through his connection with the trust estate belongs to the beneficiary.

=326. Rights and Liabilities of Beneficiary.= A _cestui que trust_ has the right to receive the benefits of the trust estate as outlined in the instrument creating the trust. If the trustee fails properly to perform his duties, the _cestui que trust_ may bring legal action to have him removed. A trustee has legal title to the trust property, and may convey good title to one who purchases for value, and without notice of the trust. The _cestui que trust_ can follow and regain trust funds or property, if the latter are conveyed to persons not _bona fide_ purchasers.

LANDLORD AND TENANT

=327. In General.= The term, _landlord and tenant_, is applied to the relation existing between one who obtains the right to the possession of the real property of another, under a contract by the terms of which the title or ultimate right to possession, or at least some interest in the property, remains in the grantor. The relation existing between landlord and tenant is contractual. Like all contracts, there must be a consideration, competent parties, and legality of purpose.

The contract by which one party becomes a tenant is called a _lease_. The party granting a lease is called the _landlord_. The owner to whom the lease is given is called the _tenant_ or _lessee_. A lease of property is not a sale. By a lease of real property, the lessor grants but a portion of what he possesses. By making a sale of real property, the grantor transfers his entire interest. If a tenant transfers his entire interest in the lease, it is a sale, and is usually called an _assignment_. If a tenant sublets a portion of his interest in the lease, he, himself, becomes a landlord, and the sublessee becomes a tenant.

=328. Rights of a Tenant.= The form and contents of a lease are discussed under a separate section. Parties to a lease may agree to any terms they choose, if the terms are legal. In the absence of express stipulations in a lease, many things are implied. A tenant is entitled to the possession and use of the premises leased, from the time mentioned in the lease for it to take effect. By possession is meant the right to take actual possession of the premises without being prevented by one having a right superior to that of the tenant.

A tenant is permitted to rent any premises he chooses. A landlord, on the other hand, may lease to a tenant any premises he possesses. There is no implied warranty on the part of the landlord that premises leased are in good condition, or that they are fit for any particular purpose. The tenant makes his own bargain, and, as in the case of making a purchase of goods, or in making any contract, he must take care of his own interests. The tenant may stipulate in the lease that the premises are to be in a certain condition, that they are adapted to a certain purpose. In this event, the tenant is not obliged to accept the premises if they do not comply with the terms of the lease, or he may bring an action for damages against the landlord for not complying with the terms of the lease. In the absence of any express stipulation as to the condition of the premises, or their suitableness for the purpose for which they are to be used, the law implies nothing.

A landlord is not permitted to defraud a tenant. He cannot conceal or misrepresent material facts relating to the lease. If there is a misrepresentation of a material fact by the landlord, which is relied upon by the tenant to the latter's injury, the tenant has been defrauded. He may refuse to accept the property, or he may repudiate the lease as soon as he discovers the fraud. A tenant impliedly has the right to quiet enjoyment of the premises leased. The landlord must not disturb the tenant's right to quiet possession. If the landlord, himself, or one who legally claims a right to possession of the premises disturbs the tenant's possession, the latter may sue the landlord for damages. If a mere trespasser or one who wrongfully claims the right, disturbs the possession or quiet enjoyment of the tenant, the landlord is not liable. The acts of strangers are beyond his control. The tenant may use the premises for the purposes stipulated in the lease. In the absence of express stipulation, he may use the premises for the purpose and in the manner in which the property leased is customarily used.

=329. Taxes, Repairs, and Insurance.= The general rule is, that in the absence of express stipulation in the lease to the contrary, all taxes are to be paid by the landlord. Even though the lease provides that the tenant is to pay all taxes, this does not include special assessments, such as assessments for city paving and sewers. Water rent is not included in the general term, _taxes_. The landlord is obliged to pay all taxes on the property unless the tenant expressly assumes them. In the absence of any express stipulation, the tenant must pay water-rent. There is no implied duty on the part of the tenant to insure the property leased.

A tenant is, in the absence of any express stipulation, required to keep the property in repair. He is not liable for ordinary wear and tear of the property, but must make ordinary repairs at his own expense. If the property is destroyed by fire without the fault of the tenant, the tenant is not liable for the loss. He is not obliged to rebuild the property destroyed. The lease is ended by the destruction of the property by fire, and the tenant is not obliged to pay further rent. The above is the rule fixed by statute in most states. The common law rule was that a tenant was not relieved from paying rent by the destruction of the building by fire.

=330. Liability for Injuries Arising from Condition of Leased Premises.= In the absence of any stipulation in the lease relative to the condition of the premises leased, the tenant is presumed to make the lease on his own judgment. There is no implied duty on the part of the landlord to deliver the premises in any particular condition. This rule is subject to the limitation that a landlord is not permitted to deliver possession of premises containing latent defects of such a character as would be liable to cause injury to a tenant. If injury results from such latent defects, the landlord is liable in damages to the tenant. As a rule, however, the tenant takes the premises as they are, and if injury results to himself by reason of apparent defects in the premises, he has no right of action against the landlord. The tenant has control of the premises. If persons are injured by reason of accummulations of snow or ice on the walks, the tenant, and not the landlord, is liable therefor.

=331. Rent.= The compensation given by a tenant to a landlord for the use of leased premises is called _rent_. A tenant may become liable for rent without any express agreement to that effect. If one person, with the consent of another, occupies the premises of the latter as a tenant, he is liable to pay the reasonable value of such occupancy, as rent. This obligation is implied from the relation of landlord and tenant existing between the parties.

Ordinarily, the matter of rent is expressly agreed upon and, until the tenant is evicted, his lease surrendered, or he is released, he is obliged to pay the landlord rent. The tenant's liability to pay rent does not necessarily depend upon actual occupancy of the leased premises. He may rent the premises for the use of another, or he may, without excuse, refuse to accept possession of the premises. In either event, he is liable for rent. If the lease expressly stipulates that the premises are in a certain condition as to plumbing, etc., the tenant may refuse to accept the possession if the conditions are not fulfilled. If, on the other hand, the tenant leases premises, nothing being said about their condition, the tenant is presumed to rely upon his own judgment, and the fact that the premises are uninhabitable by reason of defective plumbing, by reason of unhealthful conditions, or for any reason, does not release him from his contract. He is liable to pay the rent agreed upon. The landlord is not permitted to defraud the tenant. He cannot mislead the tenant by false or fraudulent representations. Fraud enables a tenant to avoid a lease.

If a tenant refuses to accept possession of premises leased, or abandons the premises without excuse, he is still liable for the rent for the balance of the term. If he surrenders the lease, and the landlord consents to the surrender, the tenant is relieved from further liability. But a voluntary abandonment by the tenant, not consented to by the landlord, does not relieve the tenant from liability to pay rent. If a tenant abandons the premises leased, the landlord may permit the premises to remain vacant and compel the tenant to pay the balance of the rent when it is due under the lease. The landlord may, on the other hand, accept the premises, and cancel the remainder of the lease. Again, the landlord may take possession of the premises and relet them for the benefit of the tenant, notifying the tenant of his intention. He may collect any deficiency in the rent from the original tenant. For example, if _A_ rents _B's_ house for one year for $300.00 and at the expiration of six months _A_ abandons the premises, _B_ may relet the premises to _C_ for _A's_ benefit. If _B_ relets for _A's_ benefit, he must obtain the best terms possible. If he obtains only $100.00 rent from _C_ for the balance of the term, he can collect $50.00 from _A_.

=332. Distress.= At common law, a landlord had the right to take possession of the personal property of a tenant who was in arrears for rent, and hold the personal property until the rent was paid. This remedy is known as _distress_. When a landlord makes use of this remedy he is said to _distrain for rent_. A landlord cannot deprive the tenant of possession, and then distrain for rent. It is not an action against the tenant personally, as an action for debt. It is a mere right of a landlord to take possession of the tenant's personal property after rent is due, and while the tenant is still in possession of the leased property as tenant. The landlord may retain possession of his property as security for the rent. At common law, a landlord could not sell the property, but could hold it as security for the rent.

At the present time, the right to distrain for rent is not recognized by many states. Where recognized, it is regulated largely by statute. The landlord is usually required to give bond, and file an affidavit with a court to the effect that the rent of a certain amount is justly due. The property is then seized by an officer of the court, and upon final termination of the case, may be sold, and the proceeds applied to the payment of the rent. This action is now treated in the nature of an attachment. (See _Attachment_, chapter on Courts and Legal Remedies.) The remedies of a landlord commonly recognized at the present time are actions for rent, and actions to recover possession of the premises. These remedies are discussed under a separate section.

=333. Leases.= _Lease_ is the term applied to the agreement by which one person becomes a tenant, and another a landlord. Leases are usually in the form of formal written instruments in which the rights and duties of the parties are quite fully set forth. No particular form of language is required to make a valid lease. If the agreement shows an intention on the part of the parties to create the relation of landlord and tenant, it is sufficient to constitute a lease. Parties may make oral leases covering short periods of time. Most of the states provide by statute that leases beyond certain periods must be in writing to be enforceable. This period varies in the different states. Some require leases in excess of three years to be in writing; others fix the limit at one year. Some of the statutes which do not specially require leases to be in writing, make them void as against purchasers or incumbrances if not recorded. Such statutes in effect require the lease to be in writing. A lease does not require a seal. By statute, most states require leases to be witnessed, usually by two witnesses, and acknowledged before a notary public. Witnessing is called _attesting_, or _attestation_. By _acknowledgment_ is meant an admission of the signature by the parties to a lease before a notary public. The notary writes his certificate upon the lease, stating that the parties acknowledged the signature in his presence. The notary signs and seals the certificate of acknowledgment. The states generally require by statute that leases beyond a certain time, usually one or more years, be recorded with the public recorder of the county where the property leased is located, to be effectual as against subsequent purchasers or incumbrances.

Certain requisites are recognized in formal lease. The names and description of the parties, the terms of the lease, the description of the property, the signing, delivery, and acceptance of the lease, and the witnessing and acknowledging are regarded as essential features.

_Covenants_ are express or implied terms of a lease. If parties expressly agree to do certain things enumerated and set forth in the lease, the covenant is said to be _express_. The law implies certain obligations on the part of the parties to a lease. There is an _implied_ covenant on the part of the tenant to pay rent, and to make all ordinary repairs subject to the reasonable wear and tear of the premises. The landlord impliedly consents to give the tenant quiet enjoyment, and to pay taxes and assessments.

=334. Transfer of Leases.= A landlord may transfer his interest in a lease. A tenant may, unless the lease stipulates otherwise, transfer his interest in a lease. A transfer of an interest or right in which a third person, not a party to the transfer, has an interest is usually called an _assignment_. For example, _A_ owes _B_ $100.00, _B_ may assign his claim to _C_. By notifying _A_ of the assignment, _A_ is obliged to pay _C_, instead of _B_. Any defense that _A_ has against _B_ is available against _C_. As a rule, partial interests cannot be assigned so as to be binding upon the obligor, without the latter's consent. If _A_ owes _B_ $100.00 _B_ cannot assign $10.00 of this claim to ten different parties. This would compel _A_ to pay ten different persons, while the original obligation bound him to pay but one. _A_ may have a counter claim amounting to $50.00. To obtain the benefit of this counter claim, he would have to set it up in five different suits, whereas if the claim were sued by the original owner, or by one owner he would have to make a defense in but one suit.

An assignment may be made orally, if not in conflict with the provisions of the Statute of Frauds. It may be made by written contract. No particular language is required to make a valid assignment. Any words expressing the intention of one party to make an assignment, accepted by the one to whom the assignment is to be made, is sufficient. A landlord may assign a lease. Upon receipt of notice of the assignment from the landlord or the assignee, the tenant must pay to the assignee the rent subsequently coming due. If an assignment is made by a landlord, and no notice is given the tenant, the latter discharges his liability under the lease by paying the original landlord. Originally at common law, a landlord could not assign his rights without the consent of the tenant. The tenant could not be compelled to recognize a new landlord. Recognition of a new landlord was called _attornment_. A tenant may assign his interest in a lease if the lease does not expressly provide otherwise. This does not relieve the tenant from liability under the lease, even though the landlord consents to the assignment, and accepts rent from the assignee. The original tenant is a surety for the rent. After an assignment of a lease by the tenant, the landlord, if he does not expressly release the original tenant, may collect the rent from either party.

=335. Leases for Years.= A _lease for years_ is a lease for a definite and ascertained period of time. If _A_ rents _B's_ farm for five years commencing June 1, 1910, the lease is for years. If _A_ leases _B's_ house for a year, a month, or a week, to commence on a certain date, the time of the lease is definite and ascertained and constitutes a lease for years. If _A_ rents _B's_ house for a year commencing June 23, 1910, at $25.00 per month, the rent to be monthly in advance, the lease is one for years. The fact that the rent is to be paid in installments does not render the lease one from month to month.