PART V

MORTGAGES OF REAL ESTATE

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.

A lease is regarded as personal property and, while it is an interest in real property, it is usually called a chattel real, and is treated as personal property. When the owner of a lease dies, the lease is personal property in the hands of the executor or administrator of the owner, and does not descend to the heirs of the owner as real property. In some states, long time leases, such as leases for ninety-nine years, are by statute made real property.

The practical distinction between leases for years and leases from month to month, is that in the former, the lease ends when the time covered by it expires. In a lease from month to month, a new lease is created by implication, if a tenant is permitted to hold over. This question is discussed more at length under the section, Tenancies from Year to Year.

336. Subletting. Some states by statute refuse to permit a tenant to sublet any portion of his lease, without the consent of the landlord. A landlord may stipulate in his lease that a tenant shall not sublet any portion of the premises. In the absence of statutory provisions, or stipulations in the lease, a tenant may sublet the leased premises. A transfer by a tenant of an interest in the leased premises may be an assignment, or it may be a sublease. An assignment is a transfer by a tenant of his entire interest in the premises. If A rents B's farm for five years, and sells his lease for five years to C, the transfer is an assignment. A transfer of only a portion of a tenant's interest is a sublease. If A rents B's farm for five years, and leases the farm for three years to C, the transfer is an assignment. If A leases the farm to C for five years, the transaction is a sublease. An assignment is a transfer of the tenant's entire interest in the leased premises. A sublease is a transfer of a part of a tenant's interest in the leased premises.

A tenant may mortgage his interest in the leased premises. A creditor of a tenant may levy upon the lease in satisfaction of a judgment, the same as upon any article of personal property.

The purpose of the statute and stipulations in a lease, forbidding a tenant to sublet the leased premises, is for the protection of the original lessor. A subtenant is not permitted to avoid a lease on the ground of such a statutory provision, or by reason of such a stipulation in a lease. For example, if A rents B's farm for five years, and the lease contains a stipulation that A cannot sublet, if A sublets the farm for three years to C, C cannot avoid the obligation to A by reason of the stipulation in the lease. The stipulation is a privilege in favor of B. It may be exercised by B if he chooses to avail himself of the privilege. He may waive the privilege, or refuse or neglect to exercise his right. Neither C nor anyone else can avail himself of this privilege.

It is sometimes quite difficult to tell just what constitutes a subletting in violation of a statutory provision or a provision in the lease. Mere privileges granted to others do not constitute sublettings. Permission granted a neighbor to use a barn for a short period, or taking roomers by the week, has been held not to constitute a subletting.

If a tenant in violation of his lease sublets a part of the premises, the original lessor may eject the sublessee, and sue the tenant for damage for breach of contract.

If a tenant exercise his right of subletting a part of the premises, he is not thereby relieved from his responsibility to pay rent under the lease. Even though the tenant agrees to accept rent from the sublessee, and apply the same on the obligation of the original lessee, this does not relieve the original tenant from his obligation to pay rent. For example, if A rents B's house and lot for three years for $25.00 per month, payable monthly in advance, and B agrees to accept the rent from C, and does accept payments from C, this does not relieve A from liability to pay B the rent. A is a surety, and his obligation to pay the rent to B is the same as the obligation of C. If B expressly agrees to relieve A and to accept C in place of A, he can no longer hold A.

337. Tenancies at Will and at Sufferance. A lease may be entered into, the terms of which may be terminated at the will of either party. It is for an indefinite period. Such a lease creates a tenancy at will. (See Estates at Will, chapter on Real Property.) Tenancies at will are uncommon. The usual tenancies are tenancies for years and tenancies from year to year. If A permits B to take possession of, and to occupy his house under an agreement that either he or B may terminate the lease at the desire of either party, the tenancy is one at will. B may agree to pay rent at the rate of $10.00 per week, $40.00 per month or $500.00 a year, or at any rate, without affecting the estate at will. If the estate is for an indefinite period, but is terminable at the wish of either party, no matter what the arrangement for paying the rent, it is an estate at will, as distinguished from an estate for years, and an estate from year to year.

It is sometimes held that a person who holds over with the consent of the landlord after the termination of a lease for a definite period, called an estate for years, is a tenant at will. For example, if A rents B's house for one year, and at the expiration of the year, A with B's consent retains possession, A is a tenant at will. The tenancy may be terminated at the desire of either party, and upon notice by either party. In most jurisdictions, however, this constitutes A a tenant from year to year. (See following section.)

A tenancy at sufferance is created by a tenant unlawfully retaining possession of the premises after the termination of his lease, without the consent of the landlord. If A rents B's house for one year, and at the expiration of the year A, without B's consent retains possession of the house, he is a tenant at sufferance. He is a trespasser, and may be ejected by B. Tenancies at will and at sufferance are estates in land. They are also discussed under the chapter on Real Property.

338. Tenancies from Year to Year. A tenancy may be created for a definite period of time to continue for similar periods unless terminated by notice of either party. Such a tenancy is called a tenancy for years. The tenancy may involve any definite period with the understanding that it is to continue for similar periods if not terminated by notice of the landlord or tenant. While the estate is called an estate from year to year, or a tenancy from year to year, it may be for a week, a month, a year, or a series of years, or for any definite period. If A rents B's house for one year, the rent to be paid at the rate of $30.00 per month, payable monthly in advance, the lease to continue for yearly periods unless either A or B notifies the other to the contrary, the tenancy is from year to year. If, at the expiration of the year, A retains possession of the premises, having received no notice from B to leave, A has a lease for another year under the same terms, and so on, for succeeding years. The period may be a week, or a month, as well as a year. Sometimes leases are spoken of as leases from month to month, or from week to week, in case the lease is to continue for a month, or a week. The same principle is involved as in leases from year to year. If the tenant holds over after the expiration of the week or month, he has a lease for a similar period at the same terms.

A tenancy for years may be created by express or by implied contract. It is sometimes difficult to tell whether a tenancy is for years, from year to year, or at will. If a lease specifies that it is to cover a definite period only, it is a lease for years, and terminates at the expiration of that period. If the lease stipulates that it is to cover a definite period, and continue for similar periods unless either party terminates it by notice to the other, it is a lease from year to year. If the lease stipulates that it can be terminated at the will of either party, it is a lease at will. When the lease is oral, or created by implication, the intention of the parties must determine the nature of the lease.

Some difficulty arises in determining whether a lease is one at will, or from year to year when a tenant for years is permitted to hold over with the consent of his landlord. For example, if A rents B's farm for one year, and is permitted by B to remain in possession after the expiration of the year, in theory, A is a mere tenant at will, and can be ejected at the will of B. This is the law in a few jurisdictions. Most jurisdictions, however, hold that A, when permitted to hold over by B's consent, becomes a tenant from year to year.

339. Termination of Leases. A lease for years is terminated by expiration of the period covered by the lease. The lease may contain covenants, breach of which may by stipulation constitute a ground of forfeiture. For example, a lease may contain a stipulation that the landlord may declare a forfeiture in case the tenant fails to pay the rent when it is due. If the tenant commits a breach of this or any other covenant made by special stipulation, a ground of forfeiture, the landlord may by notice declare the lease forfeited. This renders the balance of the lease void. Leases for years, definite periods of time, require no notice to terminate. Leases at will, and from year to year require notice on the part of the party seeking their termination to be given to the other party. For example, suppose A rents B's house for one year, to continue for similar periods if agreeable to both parties. To terminate the lease at the end of the year, B must notify A to quit the premises at the expiration of the year. If A, on the other hand, desires to terminate the lease at the expiration of a year, he must notify B previous to the expiration of the year, of his intention to terminate the lease at the expiration of the year. If A holds over without notice to B, or without B's consent, A has a lease for another year at the same terms as before.

To terminate a lease from year to year or at will, the party seeking the termination of the lease must notify the other party of his intention to terminate the lease. The states generally provide by statute the time and manner of giving such notice. In general, the notice must be in writing and must be served on the interested parties or their agents a reasonable time before the expiration of the period of the lease.

A lease may be terminated by a subsequent agreement between the parties. This is commonly known as a surrender. A surrender is a release of possession of the premises by the tenant, and an acceptance by the landlord. A mere abandonment of possession by a tenant without the express or implied acceptance or assent of the landlord is not a surrender. Such an abandonment might constitute a breach of contract on the part of the tenant, but it requires the assent of the landlord to terminate the lease. If A rents a farm for three years at $500.00 a year, and at the expiration of two years agrees to pay B $100.00 to cancel the lease, and B accepts, the transaction constitutes a surrender, and terminates the lease. If A merely abandons the premises without the consent of B, the lease still exists. B can collect the rent for the remaining period covered by the lease. If A abandons the premises, and notifies B that he will not carry out the lease, B may refuse to accept the breach, permit the premises to remain vacant, and collect the rent from B. B may accept A's breach of the contract, and terminate the lease, or he may take possession of the premises, and relet them for A's benefit, notifying A that he takes possession for A's benefit, and not for his own. In this event, B must use reasonable diligence in obtaining the highest rent possible, and if he is obliged to rent for a less amount than A was to pay, B can collect the difference from A.

340. Liability of Parties to a Lease for Breach. If the landlord fails to fulfill the conditions of the lease, he is liable in damages to the tenant. The damages are the difference between the rent paid under the lease, and the market value of the premises furnished. For example, if A rents his house and lot to B for one year at $25.00 per month, and agrees to redecorate the house, but fails to do so, A may recover from B the difference between $300.00, the rent paid under the lease, and the market rental of the house undecorated. If a tenant abandons the lease, the landlord may recover from the the deficiency between the rental named in the lease, and the rental he is able to obtain for the balance of the time covered by the lease.

For example, if A rents B's farm for three years at $500.00 a year, and at the expiration of two years, A abandons the lease, if B is able to obtain but $300.00 for the remaining year covered by the lease, he can recover $200.00 and expenses from A.

A suit for damages is not the only remedy the landlord has against a tenant for the latter's abandonment of the premises. The landlord may refuse to accept the breach on the part of the tenant, let the premises remain vacant, and collect the rent under the lease.

The landlord may enter the premises for the purpose of preventing loss or destruction of the premises without accepting the breach. The landlord may accept and cancel the remaining portion of the lease, or he may again lease the premises for the benefit of the tenant, and collect the deficiency in the rent from the tenant. This question is also discussed in the previous section.

341. Actions for Recovery of Rent and Possession of Leased Premises. A landlord may sue and recover judgment by bringing an ordinary action for debt when rent or any installment is due. If A rents B's house for one year at the rate of $25.00 per month, payable at the end of each month, and fails to pay any installment, B may sue him. The judgment may be satisfied out of any property A may have. If married, A, by statute in most jurisdictions, is entitled to a certain amount of exempt property.

If the landlord has failed to perform all of the terms and conditions of the lease, A may bring a counteraction against B when sued by B for rent. For example, if B has failed to repair the house according to the terms of the lease, A may counterclaim for damages when sued by B for the rent.

When the period of the lease expires, the landlord is entitled to possession of the premises. At common law, he was entitled to use the force necessary to recover possession. He is not permitted to commit a breach of the public peace in obtaining possession. Most of the states provide statutory methods for obtaining possession. A complaint is filed with a court and an officer of the court ejects the tenant by order of court. Non-payment of rent does not entitle the landlord to terminate the lease, unless the lease expressly so provides. When the lease is forfeited according to its provisions, the landlord is entitled to take possession.

TRADE=MARKS AND NAMES

342. Trade=Marks in General. Persons are permitted to place marks on goods manufactured or sold by them, which indicate their origin or ownership. By this means, they are able to obtain the benefit of any superiority which their goods have over goods of other manufacturers or sellers. These marks placed on goods by owners or manufacturers are called trade-marks. A court has defined a trade-mark to be "A word, symbol, figure, form or device, or a combination thereof adopted or devised and used by a manufacturer or seller of goods to designate the origin or ownership of the goods, and used by him to distinguish the goods from those sold or manufactured by others."

A manufacturer or seller of an article is not permitted to appropriate as a trade-mark a name commonly used to describe the article. Flour is manufactured and sold by many persons. Anyone has the right to manufacture and sell flour by that name. No one is permitted to appropriate to himself as a trade-mark the name Flour. A person may, however, apply an arbitrary term, not describing the thing produced, for the purpose of designating his brand of flour as distinguished from other brands of flour. While a manufacturer of flour is not permitted to appropriate as a trade-mark to be used on flour the name Flour, he may be permitted to use the term Ideal. The person first adopting the name Ideal as a trade-mark in the sale of flour, acquires a property right in the name. The law will protect him in the use of this name in connection with the sale and manufacture of flour.

Any arbitrary name, sign, mark, symbol, letter or number used for the purpose of designating the origin or ownership of goods may be appropriated as a trade-mark by the person first adopting and continuing its use. A person is not permitted to adopt as a trade-mark anything which indicates the grade or ingredients, or which is descriptive of the article sold or manufactured. The reason for this rule is that otherwise a person adopting the name would have a monopoly on the production of such articles. Crack-Proof Rubber Goods, as applied to rubber goods; A1 Honey, as applied to honey, are terms descriptive of quality of goods and cannot be appropriated.

A proper name of a person is not the subject of a valid trade-mark. Persons of the same name are permitted ordinarily to use their name in the manufacture of goods of the same nature. A party is not permitted, however, to manufacture or sell his goods as the goods of another. He may not be permitted to use his own name in the sale of certain goods if another has long made and sold goods under the same name, and if purchasers are defrauded thereby, or if confusion results. This is not by reason of a person having a trade-mark in his own name, but by reason of unfair trade. This is discussed under the section on Unfair Trade.

343. Trade=Marks (Continued). A name of a place or locality cannot be appropriated as a trade-mark. Any person is permitted to use the name of a place or locality to designate the origin of the goods and it is the common property of all as much as any descriptive name. A geographical name cannot be appropriated as a trade-mark. A common example of this principle is the use of the term, Lackawanna. This is the name of a district in Pennsylvania. A coal company endeavored to appropriate the name, but was not permitted to use it as a trade-mark. Others, mining coal in the Lackawanna district have an equal right to designate their coal by the same name. Any fanciful or arbitrary name not describing the article, may, however, be adopted as a trade-mark. A person first using such an arbitrary mark in the manufacture or sale of a particular class of goods acquires a trade-mark. He may use the mark without any intention of acquiring a trade-mark therein. If another person attempts to use the mark, no matter if without intent to defraud, he may be enjoined from its use. The owner of a trade-mark has no greater right than any other person to use the trade-mark on classes of goods different from the class on which it has been acquired. A trade-mark used on flour may also be used on stoves by another person. This principle is subject to the limitations that one person is not permitted to deceive purchasers in leading them to believe that they are purchasing the goods of another. This question is discussed under the section on Unfair Trade.

A trade-mark is acquired by the person first using it in connection with the sale or manufacture of goods. It is not necessary that it be adopted with the intention of being used as a trade-mark. A trade-mark may be lost by discontinuance. A trade-mark will not be allowed on an article which it is against public policy to manufacture. An example of this principle is adulterated food or medicine. A trade-mark which does not indicate that the goods manufactured or sold are the result of the personal skill of a particular person, may be sold with the business in connection with which the trade-mark is used.

344. Trade Names. A person is permitted to use a name other than his own for the purpose of trade. For example, John Smith may use the name The John Smith Co., The Eureka Co., The L. X. Co., or any arbitrary or fanciful name he may choose, so long as it does not conflict with the rights of others. Such names are called trade names. Their adoption and use are governed by the same legal principles as trade-marks. Trade names, however, are applied to a business, while trade-marks are brands applied to articles of manufacture or sale. As in the use of trade-marks, a person is not protected in the use of trade names which describe the article manufactured or sold. The use of the name, Cleveland Fertilizer Co. by John Smith, does not prevent others from using the same name. The law does not permit one party to monopolize the use of the term fertilizer; neither does it permit him to monopolize the geographical term, Cleveland. The party first adopting a trade name other than a descriptive geographical, individual, or proper name, acquires the right to use it as a trade name.