UNIVERSITY 
 
 OF CALIFORNIA 
 
 LOS ANGELES 
 
 SCHOOL OF LAW 
 LIBRARY
 
 LAW LIBRARY 
 
 UFORN1 
 ES 
 
 ESCROW 
 
 Text Book on Escrows 
 
 [Book 2] 
 
 Issued by 
 
 TITLE INSURANCE AND TRUST COMPANY 
 
 Los Angeles, California 
 1921
 
 Text Book on Escrows 
 
 [Book 2] 
 
 This book follows 
 'Introductory Text Book on Escrows." 
 
 Issued by 
 
 TITLE INSURANCE AND TRUST COMPANY 
 
 Los Angeles, California 
 1921
 
 Introductory 
 
 THIS booklet does not attempt to be a technical trea- 
 tise of the questions herein dealt with, but is written 
 for the sole use and benefit of the employees of this 
 Company, that they may have a clear conception of 
 the meaning and effect of such matters as it deals with, and 
 to act as a foundation to be builded upon by future study. 
 
 It should be carefully borne in mind that it is not the 
 purpose of the Escrow Department to give legal advice. 
 Customers should receive that from their own attorneys. 
 
 You are here to help the customers draft their escrow 
 instructions in such manner as will clearly and definitely 
 carry out the intent of the parties, and to endeavor to make 
 clear to the parties what they are signing; and, so far as 
 possible, to be certain that they understand their deal. We 
 are not here to make their deals for them; but a deal that 
 will not bear a clear explanation is not a safe one to handle. 
 We will first take up the question of incumbrances: 
 
 Any right to, or interest in, land, or lien or claim upon the 
 same, which may rest in or be held by a third person to the 
 diminution or lessening of the value of the estate, if con- 
 sistent with the passage of the fee, is an incumbrance. In 
 other words, if the third person had any right or title in 
 the land, it would not be considered an incumbrance, but a 
 title or estate; while if a third person is possessed of some 
 interest in or claim upon the land that does not prevent the 
 passage of title in fee simple, the right, interest or claim so 
 held is an incumbrance.
 
 ^ Incumbrances commonly met with by us in the course of 
 
 u. our business will be dealt with in the following order: 
 
 13 
 
 1. Taxes and Assessments 
 
 2. Mortgages 
 
 3. Trust Deeds 
 
 4. The Difference Between a Trust Deed and a Mortgage 
 
 5. Covenants and Conditions 
 
 6. The Difference Between a Covenant and a Condition Sub- 
 quent 
 
 7. Conditions, Restrictions and Reservations as Met with in 
 the Usual Course of Our Business 
 
 8. Mechanic's Liens 
 
 9. Judgments 
 
 10. Bankruptcy 
 
 11. Attachments and Executions 
 
 After which we will treat briefly on: 
 
 12. Homesteads 
 
 13. Powers of Attorney 
 
 14. Acknowledgments 
 
 15. Torrens System 
 
 16. Building Loans 
 
 17. Usury 
 
 ?3|4o7
 
 Taxes and Assessments 
 
 Taxes and certain liens imposed by the Federal, State, 
 County, Municipal and District authorities take precedence 
 over the liens and claims of individuals. 
 
 Under this heading we have the taxes imposed by such polit- 
 ical subdivisions: 
 
 Horticultural Liens 
 
 Lighting Liens 
 
 Local Assessments 
 
 Opening and Widening of Streets 
 
 Personal Property Tax Liens 
 
 Street Assessments 
 
 State Tax Liens 
 
 Street Bonds 
 
 Tunnel Liens 
 
 Weed Liens, etc. 
 
 The first incumbrance to be considered as to any title to 
 real property is that of taxes levied for the purpose of main- 
 taining the government. In this state the taxes were form- 
 erly divided into state, county and city taxes. At the gen- 
 eral election of November, 1910 (Amendment No.l), the 
 state constitution was changed to permit of the segregation 
 of state and local taxation. 
 
 The state derives its revenue principally from a percentage 
 of the gross receipts of public utility corporations, insur- 
 ance companies and banks, and by assessment of franchises 
 of all corporations organized for profit. 
 
 The first corporation franchise tax act was passed in 1911, 
 and has since been amended several times. 
 
 At the present time the state taxes concern us in the exam- 
 ination of titles only when the property was owned by a 
 corporation on the first Monday in March, when the direct 
 state taxes on public utility corporations, banks, and insur- 
 ance companies and the franchise tax on other corporations 
 organized for profit attaches. And on the first day of Janu-
 
 ary of any year, since January 1, 1918, on which date the 
 license tax becomes a lien on the property owned by a 
 corporation organized for profit except those which pay 
 direct taxes to the state. 
 
 Public service corporations are taxed on all their posses- 
 sions (except non-operative property) for state purposes 
 alone. Other commercial corporations, except banks and 
 insurance companies, pay taxes to the state on franchises 
 only, and 1 on their other property to county and city as 
 formerly. 
 
 The corporation franchise tax is one imposed upon a corpo- 
 ration, taxing its right to do business as a corporation. 
 Such taxes are payable to the State Treasurer in two install- 
 ments. The first installment on the first Monday in July, 
 becoming delinquent six Mondays later, with 15% penalty 
 added upon delinquency. 
 
 The second installment is delinquent on the first Monday in 
 February, and 5% penalty attaches on all unpaid amounts. 
 Certain penalties for the non-payment of such corporation 
 taxes are such as forfeitures, etc., and certain provisions are 
 made as in some of the acts for reinstating and reviving the 
 corporation, but these need not be dwelt upon in this general 
 statement. 
 
 License taxes do not apply to corporations in the exempt 
 list, which include those organized for educational, relig- 
 ious, scientific and charitable purposes in other words, 
 those not organized or conducted for profit. Nor to public 
 utility corporations other than water companies, banks; nor 
 insurance companies. 
 
 The state taxes are payable in Sacramento, and therefore it 
 is generally necessary to secure either a statement from the 
 proper authorities in Sacramento or have the receipts sub- 
 mitted by the corporation at the time of taking the escrow, 
 where such corporation taxes are a lien.
 
 County taxes are payable in two installments, both payable 
 on the third Monday in October of each year, the first half 
 (which includes all personal property taxes) becoming 
 delinquent the first Monday of December, at 5 p.m., with 
 penalty added for nonpayment. 
 
 The second half is delinquent on the last Monday in April, 
 at 5 p.m., with 5% added to all amounts unpaid. The 
 delinquent list is published annually by the Tax Collector 
 on or before June 8th, for three weeks, after which all 
 property in delinquency is declared sold to the State of 
 California, early in July, and is so marked on the rolls. 
 
 Penalties and interest at 1% are added after the sale, the 
 property being assessed as usual thereafter for four years. 
 Five years after the original sale to the State, the property, 
 after legal advertisement, is offered at auction, unless it has 
 been previously redeemed prior to or upon the day of sale 
 upon the Auditor's estimate, and is so struck off to pur- 
 chasers, who are allowed thirty days' exclusive right of 
 paying and redeeming all back taxes and taking a deed. 
 The tax collector must publish the delinquent list on or 
 before June 8th each year, and the list of property sold to 
 the State for five years previous and unredeemed. 
 
 The same procedure has been officially adopted by the City 
 of Los Angeles as to its taxes, which are added in with the 
 County taxes, and both are then collected as one amount. 
 
 Personal property taxes of persons also assessed for real 
 estate can be charged when assessed against any parcel of 
 real property owned by such persons, in which case realty 
 taxes will not be accepted unless the personal property tax 
 is paid also. This is of importance to purchasers who 
 assume the taxes on land acquired at a time when the tax 
 rolls are not accessible, as personal property taxes of the 
 party who is the owner of the property on the first Monday 
 in March may be assessed against such real property and 
 must be paid before the real property tax can be credited. 
 There are about forty incorporated cities in Los Angeles 
 County which levy their own municipal taxes, and some of
 
 these cities have arranged with the County Tax Collector 
 for inclusion and collection of same in the county tax bill. 
 For general information, it may be well to know that certain 
 property belonging to religious corporations and those not 
 run for profit are exempt from taxation, and also certain 
 exemptions have been granted on account of military serv- 
 ice, such as an exemption of $1000 on account of military 
 service allowed by the state constitution after honorable dis- 
 charge for those owning less than $5000 of property, and 
 a resident of this State, and an extension of such exemption 
 to the widow or widowed mother of such honorably dis- 
 charged soldier. 
 
 These, however, are exceptions and are only touched upon 
 here for general information. 
 
 Property owned by deceased persons is subject to the lien 
 of an inheritance tax to the State, and an estate tax to the 
 United States, when the amount falls under the provision 
 of the laws governing the same.
 
 Mortgages 
 
 A Mortgage is an instrument executed by owners of property 
 or those claiming an interest therein, in favor of the lender, 
 and is generally given to secure the payment of a debt 
 evidenced by a note. 
 
 It is not necessary to treat of the terms and conditions of 
 a mortgage, as you can best obtain them by reading carefully 
 any of the accepted forms of mortgage now in use in this 
 district. 
 
 In escrow, you are interested in the handling of a mortgage 
 only when the loan is made, or considering the same when 
 it is already of record, or how to cause same to be satisfied 
 of record, or the course to pursue in causing the lien of 
 the mortgage to be released when action has been taken 
 to foreclose. 
 
 So far as the loan secured by a mortgage is concerned, the 
 manner of treatment in escrow is similar to that of a grant 
 deed. The mortgagors, or parties executing the mortgage, 
 deposit the mortgage in escrow and authorize its delivery 
 upon the collection for the account of the mortgagors 
 of a specified consideration. That consideration must be a 
 good and sufficient one, and as escrow holder, for the 
 protection of yourself and the customer, it is necessary to 
 consider whether the mortgage and the terms of the escrow 
 comply with the requirements of the usury law and do 
 not violate the same. 
 
 In this booklet the usury law is treated separately, and 
 it is, therefore, not necessary to refer more specifically to 
 its requirements at- this place. 
 
 A mortgage becomes a lien against real property from the 
 date of its delivery, and like all other such instruments, 
 must be recorded to give notice to the world. 
 When a note, secured by a mortgage on real property, is 
 not paid according to the terms and conditions thereof, 
 the holder of the note and mortgage has the right to bring 
 an action to collect the amount of the debt. The pro-
 
 ceeding is generally referred to as an action to foreclose 
 a mortgage. 
 
 When an attorney for a mortgagee is about to begin his 
 action for foreclosure, it is customary that he secure from 
 the title company a "Guarantee for foreclosure purposes," 
 it being necessary in such action to make parties defendant 
 all parties who appear of record to have any interest in 
 such property adverse to that of the mortgagee. 
 
 When such order is received by the title company, the 
 condition of the title of record is ascertained as of the 
 date of the mortgage, and an examination of the records 
 is then made from that date to the date of the issuance 
 of the "Guarantee for foreclosure purposes." 
 
 Reference is made to every instrument of record affecting 
 the property in question during such intervening time. 
 
 All deeds are examined carefully to ascertain if there 
 be any in which the grantee assumed and agreed to pay the 
 indebtedness. 
 
 A careful search is made to ascertain the names of the parties 
 and the nature of any claims, interest or liens that any 
 such parties may have in the title to the property under 
 search. 
 
 It is then customary for the attorney for the mortgagee, 
 in filing his complaint, to make parties defendant all parties 
 who seem to have acquired any such interest, claim or lien 
 in the property in question, as shown by such Guarantee. 
 It is particularly necessary that all parties who are shown 
 to have had claims or liens be made defendants in order 
 to obtain judgment against them, and to cut out such 
 claims or interest which they may have, in case the action 
 goes to final judgment, and a Sheriff's deed is subsequently 
 issued. 
 
 It is customary also to join all other parties mentioned 
 in the foreclosure Guarantee, as having come into the title 
 during the intervening time, that their rights may be deter- 
 mined and judgment obtained against them, and any such 
 interest as they may have in the property.
 
 If a grantee has assumed and agreed to pay the obligation, 
 a deficiency judgment may rest against such grantee, together 
 with the original makers of the note. 
 
 If a grantee in the chain of title, who has not assumed 
 the debt secured by the mortgage, has afterward, and prior 
 to the commencement of the action, deeded away his interest, 
 it is not necessary to make him a party defendant, except 
 as a precautionary measure, for if the purported conveyance 
 from him were a forgery he would not in reality be out 
 of the title, but by making him a party defendant, judgment 
 can be obtained against him. 
 
 After receiving the "Guarantee for forclosure purposes," 
 the attorney for the mortgagee prepares and files the com- 
 plaint, thereafter filing lis pendens, or notice of the pendency 
 of the action. This lis pendens is recorded in the office of 
 the County Recorder, and is notice to everyone that the 
 action has been filed, and anyone afterward acquiring 
 interest in said property takes the same subject to the action 
 and its effect, and does not need to be made a party 
 defendant. 
 
 After such action has been commenced, and at some stage 
 prior to the time when a Sheriff's deed would be issued, 
 arrangements are frequently made to pay off the incum- 
 brance, securing a satisfaction of the debt, and having 
 the action dismissed. 
 
 If it is desired to pay off the mortgage after suit has been 
 filed, and before judgment is obtained, it requires first 
 the release of the mortgage, and second a dismissal of the 
 action. 
 
 If the mortgage is not paid off at this date, the case is set 
 for trial, and all parties shown in the chain of title above 
 referred to are made parties defendant and served by 
 due process of law, that they will have their day in court 
 at the hearing. 
 
 Assuming that a judgment is given in favor of the plain- 
 tiff, such judgment is entered for the amount of the debt 
 so proved, plus such costs and attorney's fees as may 
 be allowed in court. 
 
 10
 
 Should the escrow instructions require the payment of the 
 debt at this stage, it is necessary to secure a satisfaction 
 of the judgment, together with proper instructions as to the 
 amount to be collected therefor. The satisfaction of 
 judgment will have to be furnished by the attorney for 
 the judgment creditor, and the attorney is entitled to receive 
 consideration therefor if he so elects. 
 
 If the debt has not been paid at this stage, a judgment 
 having been entered, the Sheriff, or a commissioner 
 appointed by the court for the purpose, will be authorized 
 and directed by the court to advertise the property for sale 
 at public auction, and the same will thereupon at the 
 proper time and place be sold to the highest bidder. 
 
 The owner of the property, immediately prior to the fore- 
 closure, may redeem from this Sheriff's sale at any time 
 within twelve months from the date of the issuance of the 
 Certificate of Sale by paying the amount of the sale price, 
 together with interest at the rate of 12 % per annum. Or 
 any subsequent lien claimant may make redemption from 
 the Sheriff's Certificate of Sale, in which case the amount 
 due him is added to the amount required to redeem, and 
 he holds the Sheriff's Certificate of Sale subject to the right 
 of other lien claimants or the owner to redeem from him 
 in like manner. 
 
 Should the owner redeem, he takes title subject to all liens 
 except the lien of the original mortgage foreclosed, but 
 should redemption be made by any lien claimant other than 
 the owner, his debt is added to the amount of the original 
 Sheriff's certificate, and all previous rights of those who 
 had redeemed. 
 
 After each redemptioner has exercised his right, the next 
 redemptioner has automatically an extension of time of 
 sixty days after such previous redemption in which to 
 exercise his right of redemption. 
 
 Should it be desired to pay off the debt occasioned by 
 the mortgage foreclosure, at any time after the issuance 
 of the Sheriff's certificate, and prior to the issuance of 
 
 11
 
 the Sheriff's deed, instructions should be taken from the 
 owner of the property which will authorize us to pay 
 through the Sheriff's office, or through the commissioner, 
 if it be a commissioner's sale, such an amount as may be 
 required by him to affect this redemption. 
 
 A statement must always be had from such Sheriff or 
 commissioner before attempting to make the redemption, 
 as the one holding the Sheriff's Certificate of Sale may 
 have paid taxes and other incumbrances which the law 
 permits to be added to the amount necessary to be paid for 
 redemption, and also there are the Sheriff's fees to be 
 provided for. 
 
 To use every care in closing such an escrow, at this stage 
 of the proceedings, it would be necessary to ascertain from 
 the Sheriff's office on the day prior to the recording, the 
 exact amount that would be required on the next day for 
 a redemption of the property. On the day set for closing 
 the escrow, the Sheriff should be paid in full from the 
 money in escrow, and a Certificate of Redemption taken from 
 him, which Certificate of Redemption will be filed in the 
 office of the County Recorder, together with the other 
 instruments in the escrow. 
 
 The holder of the Certificate of Sale, will thereafter present 
 the same at the Sheriff's office and in return for the surren- 
 der of the certificate, the Sheriff will return to him the 
 amount of money which he has collected for his account. 
 Our code provides other means by which a redemption 
 may be effected by redemption directly from the holder 
 of the Certificate of Sale. This is generally done in such 
 cases where a compromise is effected; that is, in any case 
 where the amount to be accepted by the holder is less than 
 the amount shown to be due by the records in the office 
 of the Sheriff or commissioner. 
 
 In such a case, it will be less complicated to accept from 
 the holder of the certificate such an individual Certificate 
 of Redemption, together, with his instructions, as to the 
 amount to be collected therefor. 
 
 12
 
 This individual Certificate of Redemption, when duly 
 recorded in the Recorder's office, will effect redemption as 
 completely as would a Certificate of Redemption from the 
 Sheriff, and is likewise notice to the Sheriff that such 
 redemption has been made. 
 
 If no previous redemption has been made, the owner must 
 redeem within one year or a Sheriff's deed will be issued 
 to the purchaser holding the Sheriff's Certificate of Sale. 
 In no instance has the owner in excess of one year in which 
 to make such redemption. 
 
 Should the period of redemption elapse without any redemp- 
 tion having been made, the holder then presents his Cer- 
 tificate of Sale to the Sheriff and demands and receives 
 the Sheriff's deed to the property. This deed should then 
 be recorded in the office of the County Recorder, and the 
 grantee in such deed will, if the proceedings leading up 
 to the Sheriff's Sale have in all respects been regular, 
 thereafter be the holder of the rights and title in the prop- 
 erty that the original mortgagor had, free from all claims, 
 rights and liens of those against whom he obtained judgment 
 in his suit for foreclosure. 
 
 13
 
 Trust Deeds 
 
 A Trust Deed, like a Mortgage, is generally given to secure 
 a debt, evidenced by a note or notes. The parties thereto 
 are usually designated as the Trustor, the Trustee, and the 
 Beneficiary. 
 
 To secure such indebtedness, the Trustor grants and conveys 
 to a Trustee in trust, with power of sale, the property 
 in the instrument described. 
 
 1st: To secure the payment of the indebtedness. 
 
 2nd: The payment of all other sums therein, becoming due or pay- 
 able under the provisions of the Trust Deed, whether to the 
 Trustee or to the Beneficiary. 
 
 3rd: The payment of such additional sums, not to exceed a sum 
 specifically set out in the Trust Deed, with interest thereon 
 as may thereafter be borrowed by the original Trustor, and 
 evidenced by another note or notes, specifically stating that they 
 are secured by the same Trust Deed. 
 
 4th: The performance of all other obligations and agreements men- 
 tioned in the Trust Deed, such as the payment of all taxes 
 during the life of the trust, and before delinquency, and any 
 money necessary to be expended or advanced by the Beneficiary 
 and Trustee to protect the lien of the Trust Deed. The Trust 
 Deed also, by its terms, usually provides for keeping the prop- 
 erty free from all liens or adverse claims other than those 
 agreed upon to be allowed to remain prior to the Trust Deed, 
 and provides for fire insurance, and the terms and conditions 
 thereof, and for applying the payments in case of loss by fire. 
 
 It usually also provides that the Trustee or Beneficiary 
 may take such action as is necessary to protect the Trustee 
 and Beneficiary's interest therein against any claims that 
 may be made adverse to the Trust Deed; and provides for 
 the upkeep and preservation of the property; and for 
 the payment, with interest, of any sums advanced to pro- 
 tect the Trust Deed; and provides for a reconveyance when 
 the debt and all other obligations imposed by the Trust 
 Deed are settled. 
 
 Such Trust Deeds usually provide also in specific terms for 
 a declaration of default in case of a breach thereunder on 
 the part of the Trustor or successors, by stating the con- 
 
 14
 
 ditions under which the Beneficiary may declare default, 
 and by providing for a written declaration of default and de- 
 mand for sale, which notice shall be served on the Trustee 
 and shall thereafter be recorded in the office of the County 
 Recorder in the county wherein the property is situated. 
 
 In any event, our present law calls for the recording of 
 such a declaration of default, and after three months shall 
 have elapsed following the recordation of such notice 
 of default, the Trustee shall sell the property in such parcels 
 and at such time and place as the Trustee shall deem best 
 to accomplish the purpose of the Trust Deed, after having 
 advertised same for the time required by law (which 
 time for advertising under the Trust Law is at least three 
 weeks) in a newspaper of general circulation in the county 
 in which the property, or some portion thereof, is located. 
 
 The sale may be postponed from time to time by duly 
 publishing notice of such postponement in the same news- 
 paper in which the original notice of sale was published, 
 or, if provided in the Trust Deed, by giving public notice 
 thereof at the time and place of the advertised sale. 
 
 At such sale, any person or corporation may bid, and the 
 property shall then be sold in due form to the highest 
 bidder for cash at public auction. After the sale, and the 
 purchase price is paid, the Trustee executes a deed without 
 covenant or warranty to the successful bidder. 
 
 From the proceeds of such sale, the accrued expenses and 
 fees are deducted from the purchase price and the balance 
 applied on the amounts due the Beneficiary, and the bal- 
 ance then remaining in the hands of the trustee, if any, is 
 paid to the person or persons legally entitled thereto. 
 
 Trust Deeds usually also provide that there may be partial 
 releases executed of any portion or portions of the property 
 covered by the Trust Deed, upon written request made 
 by the Beneficiary to the Trustee, and any such amounts 
 paid for partial reconveyance are credited on the original 
 debt. 
 
 15
 
 Trust Deeds also frequently provide that before recordation, 
 they must be accepted by the Trustee in writing. 
 
 After a property is sold by the Trustee in satisfaction of 
 a debt, in the form and manner described by the instrument, 
 there is no right of redemption, and any title conveyed 
 by the Trustor to the purchaser under such sale vests such 
 rights in the grantee in such deed immediately upon the 
 issuance and delivery thereof. 
 
 In the event the sale fails to bring enough to satisfy the 
 debt, the holder of the note may bring an action to recover 
 the deficiency and obtain judgment against the makers 
 of the note. 
 
 16
 
 The Difference Between a Trust Deed 
 and a Mortgage 
 
 You will notice that when there has been default in the 
 payment of either the principal or the interest under a 
 note, secured by a mortgage, it is necessary to bring suit 
 on the note, and, after joining in the action all parties 
 necessary to be made parties defendant, to get judgment and 
 thereafter to have a Sheriff's or Commissioner's sale of the 
 property covered by the mortgage to satisfy the debt. 
 
 And thereafter the owner of the property, his successors 
 in interest, or those entitled to make redemption, may redeem 
 from such Sheriff's sale at any time within one year, or 
 within the time fixed by statute. 
 
 Under a Trust Deed it will be seen that in case of default, 
 notice of such default must be given as in the manner 
 provided for a period of not less than ninety days, and a 
 notice of sale published for the period prescribed, after 
 which the Trustee may sell the property in satisfaction of 
 the debt, and immediately upon said sale, all of the title 
 held by the Trustee passes upon the delivery of the deed 
 from the Trustee, and without the right of redemption. 
 
 The necessary time consumed in foreclosing the mortgage 
 and before the expiration of the final time for redemption, 
 is, in common practice, seldom less than one and a half 
 years from the time of the beginning of the action. 
 
 The time of the passing of title under a Trustee's Sale 
 is usually less than five months. For this reason, prin- 
 cipally, Trust Deeds are selected where the loan is on 
 a basis greater than fifty per cent of the value of the 
 property, or where the incumbrance is second and subject 
 to a prior incumbrance. 
 
 17
 
 Covenants and Conditions 
 
 The vendor and purchaser of property have the right to 
 bestow such benefits and impose such burdens for their 
 benefit, as they may see fit, unless some wrong or injury 
 thereby results to a third person, or unless against public 
 policy. Along this line we have to treat with covenants, 
 conditions, restrictions and reservations met with in the 
 issuance of Guarantees of Title. Of these you should 
 have a clear conception as to their meaning and effect, 
 to be the better able to appreciate the necessity of having 
 the parties acquaint themselves fully with each particular 
 set of conditions met with in the chain of title; to consider 
 them carefully and for themselves determine whether the 
 conditions are such as to interfere with their contemplated 
 use of the property, or whether they impose such a burden 
 on the property as to make them undesirable. 
 
 Generally speaking, the restrictions imposed upon the use of 
 property fall under two heads Covenants and Conditions. 
 A Covenant is an agreement to do or not to do a certain 
 thing. Every Covenant contained in a grant of estate in real 
 property, which is made for the direct benefit of the prop- 
 erty, runs with the land. 
 
 To create a Covenant running with the land, there must 
 be privity of estate, or mutuality of benefit; parties must 
 be in such relation to each other that each is under some 
 obligation to the other, or each is to receive some benefit 
 from the Covenant. 
 
 A Condition is a restriction or limitation imposed upon 
 the use of the land, or an obligation to perform or not to 
 perform some act. 
 
 Conditions are either Conditions Precedent or Conditions 
 Subsequent. 
 
 A Condition Precedent is one which is to be performed 
 before some right depending thereon accrues, or some act 
 depending thereon is performed. 
 
 18
 
 To establish a record of the fact that the title is actually 
 vested in the grantee upon the performance of any Con- 
 dition Precedent, a Quit Claim Deed from the grantor impos- 
 ing the condition, his heirs or assigns, should be recorded, 
 that any subsequent person dealing with the chain of title 
 would not be put on inquiry to ascertain if the Condition 
 Precedent has actually been performed. 
 
 A Condition Subsequent is a grant upon condition that if 
 certain things are done or are not done, the grantor has a 
 reversionary right and may enforce forfeiture. 
 
 19
 
 The Difference Between a Covenant and a 
 Condition Subsequent 
 
 In the case of a Covenant, the grantor does not reserve any 
 interest or title, but relies upon the agreement. In the case 
 of the Condition Subsequent, he retains an estate to himself, 
 which may, under certain conditions, ripen into a full estate 
 by forfeiture. 
 
 A Covenant directly and fundamentally concerning land and 
 its use is enforceable in equity, irrespective of whether the 
 Covenant runs with the land or not. Under this head would 
 come ordinary building restrictions with which we are famil- 
 iar, or prohibition against business, or against the sale of 
 intoxicating liquors, or against certain obnoxious trades. 
 
 Such restrictions are sometimes enforceable by injunction, 
 irrespective of privity of estate or the nature of the tenure. 
 It is not necessary to give notice to a subsequent grantee of 
 any such Covenant or Condition Subsequent, that reference 
 be made to the same in the deed to him, although a care- 
 fully drawn deed would so refer. If found in the chain of 
 title, it is as effective against him or for him as if it appeared 
 in his own deed. However, the language should be clearly 
 expressed to produce this result, or the surounding circum- 
 stances must point to the intention. 
 
 It is against public policy that land be unnecessarily 
 restricted. When a grantor has no further interest in the 
 estate, he can not be further concerned with its subsequent 
 use, unless the restrictions are such as to inure to the benefit 
 of the adjoining lands. 
 
 A Covenant made by the owner of land with the owner of 
 other land, to do or to refrain from doing some act on his 
 own land, the doing of which, or the refraining from doing, 
 is expressly for the benefit of the land of the Covenantee, and 
 which is made by the Covenantor, runs with both such 
 parcels of land. 
 
 20
 
 It is difficult in many cases to distinguish between a personal 
 Covenant and a Covenant which binds the land. The inten- 
 tion must be most clearly expressed. 
 
 The Courts are adverse to declaring forfeitures, and Condi- 
 tions are construed strictly against the parties for whose 
 benefit they are created. 
 
 Language which merely describes the use to which property 
 is to be devoted does not necessarily create a Condition 
 such as "to be used for church purposes" unless this be 
 made clearly upon the condition that the property is to be 
 used for such purposes only, the land shall revert to the 
 grantor, his heirs or assigns. 
 
 Any Covenant for the forfeiture of title in satisfaction of a 
 debt is void. 
 
 The grant of fee on condition, even though it will leave an 
 estate in the grantor, does not thereby prevent alienation of 
 the property. 
 
 Where a Condition Subsequent is imposed, the title vests at 
 once in the grantee, but is subject to liability of being 
 divested upon breach of the Condition. 
 
 There are certain Conditions that are void in themselves, 
 such as: 
 
 1st: Those that impose restrictions upon marriage, except of a 
 minor; but this does not affect the Condition when the inten- 
 tion is not to forbid marriage, but only to give the use of the 
 property until marriage. 
 
 2nd: Conditions restraining alienation of the property, when repug- 
 nant to estate granted. Thus a condition that the grantee shall 
 not sell without the consent of the grantor, is void; a Condi- 
 tion that the grantee shall sell to the grantor only, or at a 
 stipulated price, is void. 
 
 3rd: A Condition Subsequent which is impossible of performance is 
 void, and the title passes free of the Condition, but not neces- 
 sarily so when it is a Condition Precedent. 
 
 21
 
 4th: Where a Condition Precedent is impossible from the beginning, 
 and for any reason incapable of being performed, no title 
 passes. 
 
 ~>th: If a Condition Precedent requires the performance of a wrong- 
 ful act, the deed is void and passes no title. If it requires the 
 performance of an act, not wrong in itself, but otherwise un- 
 lawful, the deed passes the title free of the Condition. 
 
 These, however, are purely legal and technical points, and 
 are not properly within your province to determine, but 
 should rather be left to those more skilled in the law of real 
 property. 
 
 22
 
 Conditions, Restrictions and Reservations 
 
 as Met With in the Usual Course 
 
 of Our Business 
 
 1st: It is lawful to create Covenants and Conditions 
 which may not run with the land, which will be bind- 
 ing on all subsequent owners having notice, actual 
 or constructive. The law permits the use of such 
 property to be restricted within reason and will 
 enforce such agreements so long as the reason for the 
 restriction exists. 
 
 2nd: Courts will not permit forfeiture of title unless he 
 who is the reverter comes into Court with clean 
 hands. He cannot violate the agreement, nor consent 
 to others violating it, unless he himself be estopped. 
 
 3rd: Courts will generally relieve property from such 
 restrictions where the character of the property and 
 the nature of the surroundings have so changed since 
 the creation of the Conditions as to render them use- 
 less, burdensome and of doubtful benefit to those for 
 whom they were created. 
 
 4th: Where a general plan of subdivision is contemplated, 
 and a clear and definite set of Conditions are created 
 for the benefit of the tract, it is generally safe to 
 assume that the restrictions will hold, and that all 
 subsequent owners will be bound. 
 
 5th: The common grantor, in such cases, may limit the 
 right to enjoin or abate to himself or to the owners of 
 the adjoining property, or to the owners of property 
 in the same tract, or the like, and the right to enforce- 
 ment will be limited to such as are thus named as 
 entitled to these benefits. 
 
 6th: The common grantor who has created such restric- 
 tions cannot, even if he has parted with the remaining 
 property, destroy the easement by his own and sole 
 account. He can only release his right to reverter, 
 and no more. 
 
 23
 
 The word "outhouse," or "outbuilding" has been defined as 
 a building joining or belonging to a dwelling house some- 
 thing to be used in connection with the main building. The 
 controlling idea of the word "dwelling" is that it is intended 
 for human occupancy. A restriction against any use other 
 than a "private dwelling" restricts against all buildings for 
 business purposes, generally speaking, and the word "pri- 
 vate" excludes buildings of a public character, such as 
 hotels, general or public boarding houses and lodging 
 houses, although it is probable that where restrictions pro- 
 vide that only dwelling houses shall be built, it may not 
 exclude tenement houses or apartment houses. A private 
 residence is defined by our Supreme Court as a habitation 
 designed to be used by one family only. 
 
 This again calls for strict legal interpretation, and is a mat- 
 ter to be determined by those skilled in the law, but is here 
 given only for general information. 
 
 Where the operation of the Covenant is limited as to time, 
 the same may be ignored after the expiration of the time 
 limit, if no breach has occurred. 
 
 Whether there has been any breach or violation prior to the 
 time of the expiration of the Condition or Covenant, is, 
 therefore, a matter of fact to be clearly established. 
 
 Otherwise the restriction must be regarded until such time 
 as an action for breach is barred by the statute of limitation, 
 that period being five years as to action to recover posses- 
 sion of real property. 
 
 It is difficult, and exceedingly so, to determine in many 
 instances how restrictions can be cleared from records, and 
 who has the power to release such burdens. 
 
 Generally speaking, if it appears that the restrictions were 
 created for the benefit of the grantor alone, he is the only 
 person necessary to consent to the relieving of the restric- 
 tions. But if made for the benefit of adjoining lots, or lots 
 
 24
 
 on the same street or block, it would be necessary, ih order 
 to clear the title, to secure deeds from the original grantor, 
 and from the owners and holders of covenants on any such 
 lots named as having the benefits. 
 
 If the grantor does not limit the benefit to the whole tract, 
 but the restrictions are clearly for the benefit of the whole 
 tract, all owners and incumbrance holders in the tract would 
 have to join in any deed to relieve die property of such 
 restrictions. 
 
 Every set of conditions, restrictions and covenants must be 
 considered by itself, and the conditions surrounding each 
 one taken into careful consideration, as forfeitures have been 
 declared by our Courts, and upheld by the Supreme Court, 
 even where no time limit was stated, and where there was no 
 direct statement that the title was to be forfeited in case of 
 violation. 
 
 The only safe rule to follow is to take no chances. Consider 
 the restrictions seriously, and have them interpreted and 
 passed upon by competent attorneys, and act upon such 
 competent advice. 
 
 25
 
 Mechanic's Liens 
 
 In escrows and in connection with the examination of the 
 title to real property, we meet frequently with another form 
 known as Mechanic's Liens. 
 
 A Mechanic's Lien has been defined as a claim created by 
 law for the purpose of securing a priority of payment of the 
 price or value of work performed or materials furnished in 
 erecting or repairing a building or other structure, and as 
 such, it attaches to the land as well as to the building erected 
 thereon. The right to create and enforce such a lien is a 
 creature of and dependent on statutes. 
 
 Section 1185 of the Code of Civil Procedure provides that 
 the land upon which any building, etc., is constructed, 
 together with such space about the same as may be required 
 for the convenient use and occupation thereof, to be deter- 
 mined by the Court on rendering judgment, is also subject 
 to the lien if at the commencement of the work or of the 
 furnishing of the material for the same, the land belonged 
 to the person causing the work to be done. But if such per- 
 son own less than fee simple estate in such land, then only 
 his interest therein is subject to such lien unless the owner of 
 the fee had knowledge of such work and failed to give notice 
 of nonliability provided for in Section 1192 C. C. P. 
 
 Section 1183 C. C. P. provides that mechanics, material- 
 men, contractors, sub-contractors, architects and all persons 
 performing services or labor upon or furnishing materials 
 for the construction, alteration, addition to or repair of 
 any building, etc., shall have a lien upon the property upon 
 which they have bestowed labor or furnished materials, for 
 the value of such labor or materials. Every contractor, sub- 
 contractor, architect, builder or other person having charge 
 of the work shall be held to be the agent of the owner. 
 
 The filing of the original contract between the owner and the 
 contractor in the Recorder's Office is equivalent to the giving 
 of actual notice by the owner to all persons performing work 
 or furnishing materials thereunder. In case said original 
 
 26
 
 contract be filed before the work is commenced, together 
 with the bond of the contractor in an amount not less than 
 fifty per cent of the contract price, which bond shall be con- 
 ditioned for the payment in full of the claims of all persons 
 performing labor upon or furnishing materials to be used 
 in such work, and shall also be made to inure to the benefit 
 of any and all persons who performed labor or furnished 
 materials to be used in said work, so as to give said persons 
 a right of action to recover upon said bond in any suit 
 brought to foreclose such liens, then the court must, where 
 it would be equitable so to do, restrict the recovery under 
 such liens to the aggregate amount equal to the amount 
 found to be due from the owner to the contractor, and render 
 a judgment against the contractor and sureties on such bond 
 for any deficiency. 
 
 Section 1184 C. C. P. Any of the persons mentioned above, 
 except the contractor, may within the time in which liens 
 must be filed for record, give the owner verified written 
 notice that they have performed labor or furnished materials, 
 or both, to the contractor or other person acting by authority 
 of the owner, or that they have agreed to do so, stating the 
 name of the person to or for whom the same was done or 
 furnished, and the character and value thereof. Any of such 
 persons who, upon written demand of the owner, shall refuse 
 to give such notice, shall be deprived of the right to claim 
 a lien. 
 
 When such a notice is given, the owner may withhold from 
 his contractor sufficient money due to such contractor to 
 answer such claim and any lien that may be filed therefor, 
 including the reasonable cost of any litigation thereunder. 
 Section 1184a, C. C. P., provides that any action to enforce 
 the payment of cny such claim must be commenced prior to 
 the expiration of the period within which claims or liens 
 must be filed for record, and not later than ninety days fol- 
 lowing the expiration of such period. 
 
 Section 1141 C. C. P., provides that the homestead is sub- 
 ject to execution or forced sale in satisfaction of judgments 
 obtained for Mechanic's Liens. 
 
 27
 
 Section 1186 C. C. P., provides that Mechanic's Liens are 
 preferred to any lien, mortgage or other incumbrance which 
 may have attached subsequent to the time when the building, 
 etc., was commenced, work done, or materials were com- 
 menced to be furnished; also to any lien, mortgage or other 
 incumbrance not of record and of which the lien holder had 
 no notice. 
 
 By Section 1187 C. C. P. the original contractor has sixty 
 days after the completion of his contract within which to file 
 his lien, and all other persons may file their liens after they 
 have ceased to perform labor or furnish materials and until 
 thirty days after the completion of such work of improve- 
 ment. 
 
 Any of the following shall be deemed equivalent to the 
 completion: 
 
 1st: The occupation or use of a building, improvement or structure 
 by the owner or his representative, accompanied by cessation 
 from labor thereon. 
 
 2nd: The acceptance by the owner or agent of said building, 
 improvement or structure. 
 
 3rd: The cessation from labor for thirty days upon any contract or 
 upon any building, improvement or structure, or the alteration, 
 addition to, or repair thereof. 
 
 4th: The filing of notice of completion by the owner within ten days 
 after the date of actual completion. 
 
 The owner shall, within ten days after the completion of 
 any contract or improvement, or within ten days after there 
 has been a cessation of labor thereon for a period of thirty 
 days, file for record in the recorder's office, a notice setting 
 forth the date when the same was completed or on which 
 cessation from labor occurred. In case such notice be not so 
 filed, then the persons entitled to liens shall have ninety days 
 after the completion of such improvement within which to 
 file same. 
 
 Section 1190 C. C. P., provides that no Mechanic's Lien 
 binds any property for a longer period than ninety days 
 after the same has been filed unless proceedings be com- 
 
 28
 
 menced in a proper court within that time to enforce the 
 same, or if a credit be given within ninety days after the 
 expiration of such credit, but no lien continues in force 
 for a longer time than one year from the time the work is 
 completed by any agreement to give credit, and in case such 
 proceedings be not prosecuted to trial within two years after 
 the commencement thereof, the court may, in its discretion, 
 dismiss the same for want of prosecution. 
 
 In case of the dismissal of such action (unless it be expressly 
 stated that the same be without prejudice) or a judgment ren- 
 dered therefor that no lien exists, shall be equivalent to the 
 cancellation and removal from the record of such lien. 
 
 Section 1191 C. C. P., provides that any person who, at the 
 request of the owner of any tract of land, grades, fills in, or 
 otherwise improves the same or the street or sidewalk in 
 front of or adjoining the same, or constructs any areas, etc., 
 under such sidewalks, has a lien upon said land for work 
 done or materials furnished. If the improvement is subject 
 to acceptance by any municipal board or officer, the time for 
 filing claims and liens begins to run upon such acceptance. 
 Section 1192, C. C. P., provides that work done, materials 
 furnished, building constructed or improvement made upon 
 any land with the knowledge of the owner or of any other 
 person having or claiming any estate therein, is deemed to 
 be done, performed or furnished at the instance of such 
 owner or other person, and such interest under or claim is 
 subject to any lien properly filed unless such owner or other 
 person shall, within ten days after obtaining knowledge 
 thereof, give notice that he will not be responsible for same 
 by posting on the property a notice in writing to that effect 
 and also recording in the recorder's office a like notice. 
 
 Section 1193, C. C. P., provides that the contractor can 
 recover on any lien filed by him only such an amount as 
 shall be due according to the terms of his contract, after 
 deducting all claims of other parties for work done and 
 materials furnished as embraced within his contract, and if 
 a lien be filed for work done or materials furnished to the 
 
 29
 
 contractor, he shall defend any action brought thereon at 
 his own expense, and during the pendency of such action, the 
 owner may withhold from the contractor, the amount of 
 money for which such lien is filed; and in case of judgment 
 thereon against the owner, said owner may deduct from the 
 amount due the contractor the amount of such judgment and 
 costs; or if the same exceeds the amount due the contractor, 
 or the owner has settled in full with the contractor, the owner 
 is entitled to recover back from the contractor or his bonds- 
 men such amount. 
 
 Section 1194, C. C. P., provides that whenever, on the sale of 
 property under foreclosure of a Mechanic's Lien, there is a 
 deficiency of proceeds, a deficiency judgment may be dock- 
 eted against the party personally liable therefor. 
 
 Section 1195, C. C. P., provides that several persons holding 
 liens may join in the same action, or if separate actions are 
 commenced, they may consolidate. 
 
 Section 1196, C. C. P., provides that whenever materials 
 shall have been furnished for use in the construction, altera- 
 tion or repair of any building or other improvement, such 
 materials shall not be subject to attachment, execution or 
 other legal process to enforce any debt due for the purchase 
 money thereof, so long as in good faith the same are about to 
 be applied to the construction, alteration or repair of such 
 building, mining claim or other improvement. 
 
 Section 1197, C. C. P., provides that any person to whom a 
 debt is due for work done or materials furnished, may main- 
 tain a personal action to recover the same against the person 
 liable therefor and may take out a judgment notwithstanding 
 his lien. 
 
 Any judgment obtained does not impair or merge the lien, 
 but any amount collected on such judgment must be credited 
 on the amount of such lien in action brought on the lien. 
 
 Section 1201, C. C. P., provides that the owner and con- 
 tractor, or either of them, cannot waive or impair the claims 
 and liens of other persons except by their written consent. 
 
 30
 
 Section 1202, C. C. P., provides that any person wilfully 
 giving false notice of his claim to the owner, and any person 
 wilfully including in his claim work or materials not per- 
 formed upon or furnished for the property described, shall 
 forfeit his lien. 
 
 Section 1203, C. C. P., provides that mistakes in statement 
 of facts or in the description of the property do not invali- 
 date the lien if not made with the intent to defraud, unless 
 the court shall find that subsequent to the filing of the lien, 
 an innocent third party without notice, direct or constructive, 
 has become the bona fide owner of the property. 
 
 It may be noted that the lien is for the erection of a building 
 or work done thereon or on some such improvement as en- 
 titles one to a lien for labor or materials furnished, and 
 upon this theory it has been held that upon destruction of the 
 building by fire the lien ceases. 146 Cal. 686; 34 Cal. 
 A. P. P. 799. 
 
 31
 
 Judgments 
 
 All money judgments .rendered in the Superior Court or the 
 Federal Courts become liens from the time the judgments are 
 docketed upon all the real property of the judgment debtor 
 not exempt from execution, owned by him at the time, or 
 which he may afterward acquire, until the lien ceases. The 
 lien of such judgment continues for five years unless it is 
 stayed on appeal. (671 C. C. P.). 
 
 Where a judgment is obtained in a court of another jurisdic- 
 tion, it is possible to record a transcript or abstract of judg- 
 ment, and such judgment will thereupon become a lien at 
 the date of riling in the Recorder's office of the county in 
 which the property is located. Such a lien continues for 
 two years from the date of such recording, except that the 
 lien does not extend beyond five years from the date of 
 judgment. (674 & 900 C. C. P.) . 
 
 At the expiration of the two year period above referred to, 
 a new transcript may be filed at any time before the expira- 
 tion of the five year period. 
 
 Abstracts of judgment from Justice Courts, filed in the 
 County Clerk's office are not liens. The purpose of such 
 filing is to have an execution issued to another county in this 
 state. (899 and 900 C. C. P.) . 
 
 In making an examination of title, therefore, to determine 
 what judgments, if any, there may be affecting the interest of 
 the parties connected with the chain of title, it is necessary to 
 search the judgments during the entire period that such 
 judgment would be a lien, and against the names of every 
 party connected with the title whose interest would be 
 affected by any such judgment. 
 
 A deficiency judgment on foreclosure is a lien only from the 
 date of the docketing of the deficiency. (726 C. C. P. 119 
 Cal.22). 
 
 32
 
 A judgment may be satisfied: 
 
 (a) By an endorsement on the margin of the judgment book, signed 
 by the judgment creditor or by his attorney of record, acknowl- 
 edged before the County Clerk. (675 C. C. P.) 
 
 (b) By a release or satisfaction executed and acknowledged by the 
 judgment creditor or by his attorney of record, filed in the case. 
 (675 C. C. P.) 
 
 (c) By return of the execution on file among the papers showing the 
 judgment to have been paid in full. The clerk will enter 
 satisfaction on record, if he has not already done so. 
 
 An attorney-at-law has no power, in the absence of express 
 written authority, to release property from the lien of a 
 judgment nor to release a judgment in full upon receipt of 
 less than the full amount due thereunder. (283 C. C. P.) 
 
 A satisfaction of judgment must be acknowledged (675 C. C. 
 P.) and may be recorded in the Recorder's office. In fact, 
 the practice is to so record all releases, other than full re- 
 leases, showing certain specific property released from the 
 lien of judgment, with direction that after being recorded 
 the releases shall be forwarded to the County Clerk and by 
 him filed. 
 
 It should be known also that the lien of a judgment may be 
 released from real property on the granting of a new trial, 
 or on the filing of a proper stay bond, or upon the per- 
 fecting of an appeal with the filing of proper and accept- 
 able bonds, or by order of court setting aside judgment. 
 
 It is not necessary in this booklet to go more fully into the 
 requirements necessary to release the lien and the require- 
 ments to be met in the filing of bonds and rights to object 
 to the sureties, etc. It is sufficient to know that these must be 
 taken into consideration in the search of the title of the 
 property where such conditions are found to exist. Nor is 
 it advisable here to discuss the technical questions as to 
 whether judgments may be a lien when against the husband; 
 on property standing of record in the name of the wife, pre- 
 33
 
 sumptively as her separate property; or upon property 
 acquired by gift from the husband to the wife; or where 
 some conveyance may have been made for the purpose of 
 evading creditors. 
 
 Such matters are dealt with by the title department, and so 
 far as the escrow is concerned, the escrowholder is entitled 
 to rely upon the title men's instructions relative to such 
 cases. 
 
 34
 
 Bankruptcy 
 
 Where certain persons or corporations have not assets suffic- 
 ient to pay their debts, a way has been provided by the 
 Federal Statutes to protect such persons or corporations from 
 persecution, and to permit of his being made a voluntary or 
 involuntary bankrupt, by distributing his assets amongst 
 his creditors in settlement of his debts, in accordance with 
 the terms and conditions of the bankruptcy acts. 
 
 The theory of the bankruptcy laws must be understood, for 
 it is not the purpose to punish the bankrupt nor to relieve 
 him of his just debts and obligations, but rather to bring 
 about an equitable adjustment to the end that each of his 
 creditors may receive a proportionate amount of the assets 
 of the bankrupt, and that the bankrupt may then be dis- 
 charged from any further liability from such debts as are 
 listed, and thus have an opportunity to begin his business 
 life with a clean slate. 
 
 Certain property of the bankrupt is exempt from execution, 
 but all of his main assets, other than those exempted, become 
 vested in the Trustee of the estate of the bankrupt, upon the 
 appointment and qualification of such Trustee, subject to 
 sale in the form and manner prescribed by the bankruptcy 
 acts. 
 
 Such bankruptcy proceedings are commenced in the United 
 States District Courts. In our District, the local Federal 
 Courts having jurisdiction are the United States District 
 Court for the Southern District of California. This Court 
 has two divisions, i. e., the Northern Division, sitting at 
 Fresno, and the Southern Division, sitting at Los Angeles 
 and San Diego. 
 
 For jurisdictional purposes, bankruptcy proceedings are 
 commenced by the filing of an original petition. The bank- 
 ruptcy imposes upon the bankrupt the duty to prepare, make 
 oath to and file within ten days, unless further time is 
 granted after the adjudication if an involuntary bankrupt, 
 
 35
 
 and with the petition if a voluntary bankrupt, a schedule of 
 his property, showing the amount and kind of property, the 
 location thereof, its money value in detail, and a list of his 
 creditors, showing their residences, if known, or that their 
 residences are unknown, the amounts due each of them, the 
 consideration thereof, the security held by them, if any, and 
 a claim for such exemption as he may be entitled to under 
 the law. 
 
 An adjudication of bankruptcy operates as a notice to the 
 world, having the effect of an attachment and an injunction. 
 It brings the entire estate of the bankrupt, insofar as it is not 
 exempted, into the custody of the law, and appropriates it 
 to the payment of his debts, and where followed by the 
 appointment of a Trustee, is constructive notice to every- 
 body, at least within the Federal jurisdiction, of the transfer 
 of title to the bankrupt's property, and such persons must 
 take notice that the ownership of the bankrupt has ceased, 
 and becomes vested in the Trustee. The title vests in the 
 Trustee only for the purpose of administration and distribu- 
 tion among the creditors. 
 
 The Trustee may disclaim as to such property as would be 
 detrimental to the interests of the creditors, such as an 
 unprofitable lease, but afterward cannot claim the benefits 
 if there should be any. 
 
 The debtor cannot sell, transfer, or convey property while 
 bankruptcy proceedings are pending. The bankruptcy act 
 expressly confers upon the Court of Bankruptcy the power 
 to cause the estates of bankrupts to be collected, reduced to 
 money and distributed. Such property may be sold free of 
 liens or subject to existing incumbrances. 
 
 A bankrupt may apply for a discharge at any time after the 
 expiration of one month after date of his adjudication, and 
 within ten months subsequent thereto. He is entitled to 
 receive this discharge as a matter of right, unless some of the 
 reasons specified by the Bankruptcy Acts for refusing his 
 discharge are found to exist. 
 
 36
 
 One who seeks to avoid his debtors under the Bankruptcy 
 Acts must comply strictly with its provisions, and if he fails 
 to apply for his discharge within the time limit, the right 
 is lost to him forever. 
 
 A discharge having been asked for and granted is con- 
 clusive against any future liability of the bankrupt in respect 
 to debts which the statutes provide shall be released and as 
 to his right to such discharge. 
 
 On the close of the bankruptcy proceedings, the property of 
 the bankrupt undistributed reverts to him or to those en- 
 titled to his estate. 
 
 In ordinary procedure, as same will affect the handling of 
 our escrow and title work, sale is usually made by the 
 Trustee or Referee in bankruptcy, sometimes under order of 
 the court, and sometimes otherwise, and such sales are 
 treated much in the same manner as sales by Executors or 
 Guardians. 
 
 It is not necessary in this treatment of the subject to go into 
 the question as to what exemptions are permitted, what 
 property becomes vested in the Trustee and what property 
 does not become so vested. Nor as to what may become of 
 the property which the bankrupt failed to list through con- 
 cealment or otherwise. The foregoing article is intended 
 merely to give an idea as to the purpose, meaning and effect 
 of bankruptcy laws. 
 
 37
 
 Attachments and Executions 
 
 An attachment is seizure of defendant's property as security 
 for judgment which the plaintiff may recover in the action. 
 The attachment is merely a proceeding ancillary to the 
 action by which the party is enabled to acquire a lien for 
 the securing of his demand by a levy made before, instead of 
 after, the entry of judgment 
 
 The law allowing an attachment is strictly construed and 
 must be strictly followed. 
 
 The attachment lien continues for three years after the date 
 of levy, unless sooner released or discharged, or unless the 
 action be sooner dismissed or goes to judgment. On motion, 
 not less than five nor more than sixty days before the expira- 
 tion of said three years period, the Court may extend the 
 period not to exceed two years from such expiration date. 
 An attachment may rest against the interest of a party in 
 real property even though the property stands vested of 
 record in the name of another party, provided strict com- 
 pliance is had with the provisions of the law. 
 
 This is covered by Section No. 542 C. C. P., which provides 
 that "Real property or an interest therein belonging to the 
 defendant and held by any other person, or standing on the 
 records of the county in the name of any other person, must 
 be attached by filing with the Recorder of the county a copy 
 of the writ, together with a description of the property, and 
 a notice that such real property and any interest of the 
 defendant therein, held by or standing in the name of such 
 named person (naming him) are attached." In other words, 
 "the interest of A, standing in the name of B." 
 
 An attachment as to any real property may be released by 
 writing, signed by the plaintiff or his attorney, or by the 
 officer who levied the writ, and acknowledged in like manner 
 as a grant of real property. Such attachment may also be 
 released by an entry on the margin of the record of the 
 county recorder's office, or an attachment may be discharged 
 by an order of the Court, if it was improperly or irregularly 
 issued. 
 
 38
 
 If an attachment is levied upon property and declaration of 
 homestead be filed before judgment is obtained in the judg- 
 ment suit, the homestead defeats the judgment and the judg- 
 ment is not a lien on the property described in the home- 
 stead declaration, provided, of course, that the statements 
 in the declaration are true and that the declaration is in all 
 respects valid. 
 
 In cases where an attachment is levied upon property and the 
 owner makes a conveyance thereof before the docketing of 
 the judgment, while the judgment itself does not become a 
 lien, the lien of the attachment still remains. 
 
 Where a judgment is rendered and becomes a lien upon the 
 property attached, the lien of the attachment becomes merged 
 in that of the judgment. 
 
 39
 
 Homesteads 
 
 In California a homestead is exempt from execution to the 
 extent of $5,000.00, when made by the head of a family, or 
 $1,000.00 when made by other than the head of a family. 
 Homesteads are controlled entirely by statute; therefore the 
 requirements of such must be followed carefully and strictly 
 complied with. 
 
 A homestead may be declared by the head of a family on 
 property belonging to the one making the declaration, or by 
 the wife on community property or on property held in 
 joint tenancy, or on the husband's separate property, or on 
 her own separate property. 
 
 A husband cannot, however, declare a homestead on the 
 separate property of the wife, unless she joins in the 
 declaration. 
 
 A homestead may be declared bv both the husband and wife 
 joining in the same declaration, or on any property that may 
 be owned by either or both of them, or on any interest that 
 they may have in the property, whether it be contract 
 interest or otherwise, provided they are not holding an 
 undivided interest with anyone else. An undivided interest 
 in property cannot be homesteaded. 
 
 A homestead, to be valid, must be filed with the County 
 Recorder by the party entitled to claim the property as a 
 homestead; must be acknowledged in due form before a 
 notary public, and must be actually filed for record in the 
 office of the County Recorder. In that respect a homestead 
 differs from a deed. A deed may convey the ownership of 
 real property without being acknowledged and without being 
 recorded, although it is not evidence to the world of the 
 conveyance. Neither a declaration nor an abandonment of 
 homestead is effective until actually filed for record, and 
 both must be signed and acknowledged in person. An 
 attorney in fact cannot act for either principal. Nor can 
 execution by either spouse be proven by subscribing witness. 
 A husband and wife can have but one homestead at a time 
 in the State of California. For that reason it is very difficult 
 
 40
 
 to determine whether a homestead is valid. For instance, 
 if there is a homestead in another county in this state, one 
 cannot be lawfully claimed in this county until the former 
 homestead is abandoned. 
 
 Abandonment of homestead may be made either by written 
 abandonment, signed and acknowledged by the husband and 
 wife (if married), or it may be made by signing, acknow- 
 ledging and delivering a grant deed, in which both the hus- 
 band and the wife join in the execution thereof. 
 
 There are certain requirements essential to a good declara- 
 tion of homestead. The declaration must contain a state- 
 ment that the person making it is the head of a family, and 
 if married, must give the name of the spouse; when made by 
 the wife, it should show that the husband has not made a 
 declaration of homestead, and therefore it is for their joint 
 benefit; that the claimant actually resides on the property 
 that is claimed as a homestead. The description must be 
 definite. The estimated or actual value must be given as of 
 the date of the homestead. There is no limit to the value of 
 the property that may be homesteaded, although the amount 
 of the homestead exemption is limited, as above stated. 
 The terms and requirements of the statute must be observed. 
 The instrument must be acknowledged in due form and it 
 must be filed for record. 
 
 While the main purpose of the homestead is to protect and 
 to save the home, it does not necessarily follow that the 
 homestead would be invalidated if it were used for any 
 other purpose, so long as its prime purpose was that of a 
 home. 
 
 The homestead exemption takes precedence over any judg- 
 ment or attachment that may be filed subsequent to the 
 declaration of the homestead itself, but a homestead is not 
 valid against a mortgage executed by both the husband and 
 the wife, nor against mechanic's liens, a bill for labor or 
 material used for the erection of a house on the premises, 
 even though the material and labor may have been used 
 subsequent to the filing of the homestead. 
 
 41
 
 The declaration of homestead is not a prior lien to the lien 
 of a judgment that has been docketed before the filing of the 
 declaration, but if the judgment is entered subsequent to the 
 date of the recording of a valid homestead, the judgment 
 debtor has the right to apply to the Court for the appoint- 
 ment of an appraiser to appraise the property. If the 
 property is appraised at over $5,000.00, such creditor 
 has the right to ask that the property be divided, if it is 
 possible to do so without destroying the home, carving out 
 $5,000.00 worth to be set aside for the homestead, and hav- 
 ing the balance of the property sold for the satisfaction of 
 the debt. 
 
 The Court can order the sale of homestead property where 
 the value is in excess of $5,000.00, and out of the proceeds 
 of such sale $5,000.00 can be set aside as exempt from execu- 
 tion by creditors for a period of six months after the date 
 of the sale, giving time to dispose of the money before some- 
 body else can seize upon it. In other words, a sale could not 
 be made in such a manner without leaving the amount of the 
 homestead exemption immune from attack during such 
 period. 
 
 The same would hold true as to exemption in case of a regu- 
 lar sale of homestead property. 
 
 There is no good reason why a declaration of homestead, 
 when the title otherwise shows clear, should be abandoned 
 for the purpose of putting a mortgage or deed of trust on 
 the property, provided the mortgage or deed of trust is 
 executed by both the husband and the wife, and provided 
 the consideration inures to the benefit of both. 
 
 Many of the finer points dealing with homesteads have not 
 been touched upon here, because of their technical nature. 
 Enough has been said, however, to give a general idea of 
 the homestead, its purpose and effect. 
 
 When we find a judgment against a party having a home- 
 stead, we cannot ignore that judgment, because 
 
 1st: They may not actually have been residing on the property at 
 the time of the filing of the declaration of homestead. 
 
 42
 
 2nd: There may have been executed by the same party a declara- 
 tion of homestead in some other part of the State of California, 
 which would make this one invalid. 
 
 3rd: There may have been a mis-statement in the declaration as to 
 the value, or as to ownership of the property, or any such 
 mistake as would invalidate the declaration. 
 
 A single person, or widow or a widower may execute a valid 
 homestead provided he or she is what is termed "the head of 
 a family." A single person may file a declaration of home- 
 stead when he has living with him on the premises a minor 
 child or a grandmother or grandfather, or a minor brother 
 or sister, or, in fact, almost any family relationship or any 
 person dependent mentally or physically upon the applicant 
 for support, provided the declaration is for the purpose of 
 protecting such dependents. 
 
 The law requires that when one spouse dies, the administra- 
 tor or executor must, if there is homestead property, notify 
 within thirty days the holder of any mortgage or trust deed 
 lien against such property that it is necessary for him to file 
 his claim in Court within the specified time. The Court 
 may, if it deems best, have such claim or lien satisfied out 
 of other property of the decedent and leave the homestead 
 intact. 
 
 Moving from the homestead property to another property 
 does not destroy the homestead, and the parties still have the 
 homestead to which they may return. 
 
 43
 
 Powers of Attorney 
 
 It is possible for one person to delegate to another the power 
 to perform certain lawful acts for the benefit of the one con- 
 ferring the power. Such an instrument, vesting in one party 
 the power to perform an act for another, is usually termed 
 a "Power of Attorney." 
 
 And when said power is to be used for the purpose of sell- 
 ing, conveying, incumbering or otherwise disposing of real 
 property it is executed with all the formality of a deed, and 
 to be entitled to record, must be acknowledged in the same 
 manner. 
 
 Prior to April 3, 1863, a married woman could not make a 
 power of attorney. By an act of that date she was authorized 
 to make a power of attorney provided her husband joined 
 with her in it. (Stats. 1863, p. 165) The act referred to vali- 
 dated all powers of attorney previously made if duly exe- 
 cuted by the wife and husband. 
 
 Since January 1, 1873, a married woman can execute a 
 power of attorney without her husband joining therein. 
 (2966 C. C.) 
 
 Great care should be exercised to determine that the power 
 authorizes the specific act done by the attorney-in-fact, for 
 "when the, authority is given partly in general and partly in 
 specific terms, the general authority gives no higher powers 
 than those specifically mentioned." (2321 C. C.) 
 
 In construing powers of attorney, the usual rules of con- 
 struction of written instruments apply, in accordance with 
 which a power of attorney, being a formal instrument, must 
 be strictly construed according to the natural import of its 
 language, and the authority is not to be extended beyond that 
 which is given in express terms, or which is necessary and 
 proper to carry into effect that which is expressly given. 
 
 While some powers of attorney are spoken of as "general 
 powers of attorney," there is in reality no such form as a 
 general power covering all things. For instance: An attor-
 
 ney-in-fact cannot make a gift of his principal's property; he 
 cannot convey, mortgage or release, except for a valuable 
 consideration; he cannot convey or mortgage homestead 
 property; he cannot deal with the principal's property for 
 his own benefit; he cannot release or assign a mortgage made 
 by himself to his principal. He cannot convey his prin- 
 cipal's property to himself or to any other person for his 
 own benefit; he cannot mortgage his principal's property to 
 himself or to any other person for his own benefit; he can- 
 not make a partition, nor can he execute an abandonment of 
 homestead. 
 
 If a power of attorney is made by two or more persons, it 
 should state whether the power is joint or several, or whether 
 both joint and several. 
 
 A power of attorney by two or more persons may not 
 authorize a conveyance, mortgage, assignment or release of 
 the joint property of the principals, unless it is so expressly 
 provided in the power, except the makers be husband and 
 wife. (50 Cal. 77) 
 
 A power to several attorneys in fact, with full power of 
 substitution, does not authorize one of them to act. If an 
 attorney in fact, under such a power, does substitute another 
 in his place, such substitution probably terminates the origi- 
 nal attorney's powers, and prevents him from acting further, 
 even upon the revocation of the substitution. 
 
 The power to sell is not a power to convey. (76 Cal. 616) 
 Unless the power of an agent is coupled with an interest in 
 the subject of the agency, it is terminated as to every person 
 having notice thereof by: 
 
 Its revocation by the principal; 
 The death of the principal ; or 
 
 The incapacity of the principal to contract. (2C. J. 556 
 C. C.) 
 
 Before acting on the power of attorney, therefore, is is nec- 
 essary to know the full terms of the instrument, the authority 
 given therein for the attorney to act, and an examination of 
 
 45
 
 the records must be made to determine whether there has 
 been a revocation of the authority or if there exists any con- 
 dition that would terminate the power. 
 
 To execute any instrument affecting real property under 
 power of attorney, the power of attorney must be of record, 
 or should at least be recorded at the same time the instru- 
 ment executed by the attorney in fact is recorded. 
 
 46
 
 Acknowledgments 
 
 It must be remembered that the laws governing acknowledg- 
 ments of instruments affecting real property have been 
 changed from time to time, and that they were not always 
 so simple as they are today ; that at different times there have 
 been different requirements. Especially is this true when it 
 comes to the acknowledgments of execution by a wife. 
 
 Prior to January 1, 1873, the wife's acknowledgment had to 
 be taken separately and apart from, and without the hearing 
 of, her husband. From January 1, 1873, to July 1, 1891, the 
 certificate of acknowledgment of an instrument by a married 
 woman must set forth that in addition to the essentials of 
 the general form of acknowledgment, that upon examination 
 without the hearing of her husband, she was made acquainted 
 with the contents of the instrument, and that she does not 
 wish to retract such execution. 
 
 On July 1, 1891, the amendment abolishing the separate 
 examination of a married woman took effect, and on and 
 after that date the present general form of acknowledgment 
 by the wife is sufficient. 
 
 For your benefit and guidance, there is included herewith 
 forms of acknowledgment for different purposes, as now in 
 use in California, and under our California form. 
 
 1st: Acknowledgment by individuals. 
 2nd: Acknowledgment by corporations. 
 3rd: Acknowledgment by attorneys-in-fact. 
 4th: Acknowledgment by subscribing witnesses. 
 5th: Acknowledgment by executors, administrators, guardians and 
 trustees. 
 
 In order to understand thoroughly the instruments in our 
 hands and to be able to talk intelligently on them, it is nec- 
 essary that you become acquainted with the requisites to the 
 making of a good instrument. You have heretofore been 
 told that to entitle an instrument to be recorded in the office 
 of the County Recorder, the instrument must be duly 
 acknowledged. 
 
 47
 
 Forms of Acknowledgment 
 
 The various forms of certificates of acknowledgment are: 
 
 General Form (1189 C. C.) 
 
 State of 
 County of 
 
 On the day of in the year , before me (here 
 
 insert the name and quality of the officer) personally appeared 
 
 known to me (or proven to me on 
 
 the oath of ) to be the person whose name is subscribed to 
 
 the within instrument, and acknowledged to me that he (or she) 
 (or they) executed the same. 
 
 Notary Public in and for the County of State of. 
 
 For Married Women from January 1, 1873, to 
 January 1, 1891 
 
 State of... 
 County of. 
 
 On this day of in the year of one thousand eight 
 
 hundred before me, , a Notary Public in and for the 
 
 County of State of residing therein, duly commissioned 
 
 and sworn personally appeared known to me to be the person 
 
 described in, whose name is subscribed to, and who executed the 
 within instrument described therein as a married woman, and upon 
 examination without the hearing of her husband, I made her 
 acquainted with the contents of the said instrument and thereupon 
 she acknowledged to me that she executed the same, and that she 
 does not wish to retract such execution. 
 
 IN WITNESS WHEREOF, I have hereunto set my hand and 
 
 official seal at my office in the County of the day and year in 
 
 this certificate first above written. 
 
 Notary Public in and for the County of , State of. 
 
 48
 
 Corporation Form (1190 C. C.) 
 
 Same as general form except the officer must certify "personally 
 
 appeared known to me to be the President and , 
 
 known to me to be the Secretary of the corporation that executed the 
 within instrument, and acknowledged to me that such corporation 
 executed the same." 
 
 Where, however, the instrument is executed on behalf of the cor- 
 poration by any person other than the President and Secretary, the 
 certificate of Acknowledgment must say: "known to me (or proved 
 
 to me on the oath of ) to be the person who executed the 
 
 within instrument on behalf of the corporation therein named and 
 acknowledged to me that such corporation executed the same." 
 
 Attorney-in-Fact 
 
 State of . . . 
 County of. 
 
 On this day of , in the year , before me (here 
 
 insert the name and quality of the officer) personally appeared 
 
 , known to me, (or proved to me on the oath of ) 
 
 to be the person whose name is subscribed to the within instrument 
 
 as the attorney-in-f act of , and acknowledged to me that he 
 
 subscribed the name of thereto as principal, and his own 
 
 name as attorney-in-fact. 
 
 Corporation as Attorney-in-Fact 
 
 "Personally appeared , known to me to be the President 
 
 and known to me to be the Secretary of , the 
 
 corporation that executed the within instrument as the attorney-in- 
 fact of , and acknowledged to me that they subscribed the 
 
 name of thereto as principal, and the name of said corporation 
 
 thereto as his attorney in fact, and that said corporation executed said 
 instrument as the attorney in fact of said " 
 
 Proof by Subscribing Witness 
 
 State of \ 
 
 County of ) s 
 
 On this day of in the year of our Lord one thousand 
 
 nine hundred and before me , a Notary Public in and 
 
 for said County of , State of , residing therein, duly 
 
 commissioned and sworn, personally appeared personally 
 
 known to me to be the same person whose name is subscribed to the 
 
 49
 
 foregoing instrument, as a witness thereto, who being by me duly 
 
 sworn deposes and says, that, .he resides in that, .he was present 
 
 on the day of 192 and saw personally known 
 
 to him to be the same person described m and who executed the 
 
 foregoing instrument, as part .... thereto, sign, seal, and deliver 
 
 the same; and that the said duly acknowledged to the said 
 
 affiant, that he executed the same, and that he, the said affiant, 
 
 thereupon at. .. .request, subscribed h....name as a witness thereto, 
 and I further certify that the said affidavit was satisfactory proof to 
 me of the facts therein contained. 
 
 IN WITNESS WHEREOF, I have hereunto set my hand and affixed 
 my official seal the day and year in this certificate first above written. 
 
 Notary Public in and for the County of , State of 
 
 The foregoing forms of acknowledgment are not absolutely 
 essential in all cases, as the law describes further means by 
 which an acknowledgment may be taken. For instance, a 
 certificate of acknowledgment by a Justice of the Peace is 
 good in the county in which he was elected as Justice, but 
 when the acknowledgment is for use in any other county than 
 the one in which he was elected, such acknowledgment must 
 be accompanied by a Clerk's certificate showing his author- 
 ity to act. 
 
 The general form of acknowledgment is sufficient for a Trust 
 Deed, Sheriff, Administrator, Executor or Guardian, pro- 
 vided his official title is clearly set forth in connection with 
 the name, so that it appears that the party acknowledging is 
 doing so in his official capacity. 
 
 A certificate of acknowledgment from a foreign country or 
 from another state by an officer authorized by the laws of 
 this state to take such acknowledgment under his seal, is 
 good if it conforms to the requirements of the form of this 
 state. If it does not so conform, but is in conformity with 
 the laws of the jurisdiction of the officer, a certificate of a 
 Clerk of the Court or record should accompany the certifi- 
 cate of acknowledgment. 
 
 While our state permits acknowledgments to be taken by a 
 subscribing witness, an introduction by responsible parties 
 
 50
 
 is not sufficient and does not relieve the notary from liability, 
 unless he protects himself by using the subscribing witness 
 form. 
 
 Where the party signing the instrument is absent from the 
 state, it is possible to prove the handwriting by a competent 
 witness acquainted with the party and with the handwriting, 
 such acknowledgment must be taken in that form. This is 
 seldom done, because of the danger of mistake and fraud, 
 and is not generally looked upon with favor. 
 
 From time to time there have been passed what are termed 
 Curative Acts, to cure defects in acknowledgments of instru- 
 ments of record. The Curative Act (1207 C. C.) cures all 
 defects of certificates of acknowledgment of all instruments 
 affecting real property, which were recorded in the proper 
 book prior to January 1, 1921, for the benefit of subsequent 
 purchasers and incumbrancers only, except that it does not 
 cover defects in acknowledgments of instruments affecting 
 homesteads nor by married women, except as herein stated. 
 The amendments of 1915, 1919 and 1921 say "including any 
 instrument executed by a married woman on or after the 1st 
 of July, 1891." This latter provision has never been before 
 the Supreme Court, so its effect is still doubtful. 
 
 The laws of California provide that the person whose 
 acknowledgment is being taken must personally appear 
 before the notary; must be personally known to him; and 
 must personally acknowledge that he executed the instru- 
 ment. These are absolute requirements, and a notary who 
 takes an acknowledgment under any other conditions, and 
 using the general form of acnowledgment, does so at his 
 peril. You should not, therefore, introduce any person to a 
 notary with whom you are not sufficiently well acquainted to 
 be absolutely certain as to his identity, as a notary taking 
 such acknowledgment on the general form would be held 
 responsible for any loss which might occur through relying 
 upon your introduction. 
 
 51
 
 Torrens System 
 
 The first so-called Torrens law in this state was passed in 
 1897. That act remained on the statute books practically 
 unused until 1914, when the present so-called Torrens law 
 was passed by initiative, or direct vote of the people. That 
 act became a law in 1914, since which time there have been 
 a considerable number of properties placed under the system 
 not many as compared with all of the titles, but still a 
 considerable number. 
 
 The main points necessary to register a title could, perhaps, 
 be explained best by saying that it is necessary to make 
 application to the Court to place the title under that system. 
 That application is made by the owner or one acting in his 
 behalf, and it must allege that the applicant or those whom 
 he represents are the owners of the property, that he and his 
 predecessors have been in possession of the property for five 
 years last past, that they have paid the taxes for the last five 
 years, and the application must set up the correct incum- 
 brances against the property, together with the names of the 
 parties holding those incumbrances, and the addresses of 
 such parties. 
 
 When the application is filed, it acts as a lis pendent, or 
 notice of a pending action. It has the same effect as a lis 
 pendens in a suit for foreclosure of a mortgage. It is notice 
 of pendency of the action, and after that time anyone filing 
 an instrument in the office of the County Recorder is pre- 
 sumed to have had notice of that application. Any instru- 
 ment, according to the terms of the act, thereafter filed in the 
 office of the County Recorder, is of no value or effect as to 
 the property described in the application. 
 
 When the Court has been satisfied as to the sufficiency of the 
 application it issues an order directing all parties referred 
 to in the application to appear in Court and answer and 
 defend any claims they have in or against the property 
 being registered. 
 
 52
 
 Notice must also be published for four consecutive weeks in 
 a newspaper of general circulation. Notice must also be 
 served on all of the adjoining property owners. 
 
 There is apparently no provision which requires that anyone 
 holding a mortgage or trust deed against the property be 
 personally notified, yet the decree, when entered, purports 
 to determine the interests of all of those parties, and if they 
 are left out of the decree and do not make their appeal within 
 the one year provided by the law, they are supposed, under 
 the terms of the act, to lose their lien. 
 
 After the case comes to trial and a hearing is had, a decree 
 is entered by the Court, which decree is filed with the Regis- 
 trar, who, in this county, is the same person as the County 
 Recorder. He, thereupon, issues a so-called Torrens 
 Certificate. 
 
 The original certificate remains in his files. A duplicate 
 copy thereof is issued by him and delivered, the law says, to 
 the owner of the property. Thereafter no instrument can be 
 recorded by the voluntary action of the owner or the mort- 
 gagee, unless that duplicate copy of the certificate is pre- 
 sented to the Recorder, with the instrument that is to be filed 
 in the Torrens file. 
 
 If the duplicate copy of the certificate is handed to the mort- 
 gagee, he holds absolutely the only evidence that the owner 
 of the property has as to his ownership in case the records in 
 the Recorder's office should be destroyed by fire or otherwise. 
 There is no copy of his deed to him recorded according to 
 the provisions of the act, and there is no evidence of the 
 Certificate of Title, other than the original filed in the 
 Recorder's file, and the duplicate copy which he holds. At 
 the same time, if this duplicate copy is not handed to the 
 mortgagee, the mortgagee has nothing in his possession to 
 show his lien on the property. The registered mortgage is 
 not filed for record in the office of the County Recorder 
 under the terms of the act, but is filed as an instrument in 
 the Torrens file. 
 
 53
 
 If the owner holds the duplicate copy of the certificate, the 
 mortgagee has no evidence in his hands. If the owner gives 
 the duplicate copy of the certificate to the mortgagee, the 
 owner has no evidence. 
 
 Under the present system, they have the recorded deed and 
 the recorded mortgage, respectively, as evidence of their 
 rights in the property, even though the public records have 
 been destroyed. 
 
 The Torrens Certificate purports to show the way the title 
 is vested. It purports to guarantee the title and to be backed 
 by an insurance fund in the hands of the State Treasurer, to 
 give protection to the holders of Torrens Certificates. That 
 fund is made up of a small percentage of the fees charged 
 for the registration of Torrens Titles, it being one tenth of 
 one percent of the assessed valuation of the property so 
 registered. 
 
 The Torrens Certificate purports to give the condition of the 
 title except as to matters specifically referred to as excep- 
 tions. For instance, the first exception is : Any lease, verbal 
 or otherwise, for a period not to exceed one year; also cer- 
 tain easements or exceptions for highway purposes are not 
 covered by the certificate; also any right-of-way or other 
 easement created within one year before the issuance of the 
 certificate is not covered by the certificate; also any taxes or 
 special assessments for which a sale of the land has not been 
 had at the date of the certificate; also any liens, claims or 
 rights arising under bankruptcy acts or otherwise arising 
 under the laws of the United States, which cannot be required 
 to be shown in the state records, and also any local taxes or 
 state taxes are not covered by the certificate, nor corporation 
 license taxes or franchise taxes. Judgments are covered by 
 the Torrens Title only provided they are filed in the Torrens 
 records. Instruments offered for filing under the Torrens 
 system shall contain: 
 
 1st: A statement that the instrument so offered for filing is on 
 registered land; 
 
 2nd: It must give the name of the registered owner; 
 3rd: The number of the last certificate of registration; 
 
 54
 
 4th: Name, address, post office address of every person who acquires 
 or claims an interest under such incumbrahce; and 
 
 5th: The duplicate certificate must accompany the instrument to be 
 registered. 
 
 If the owner sells the property, he must have the copy of the 
 certificate. If the mortgagee assigns the mortgage, he must 
 have the copy; and if the copy of the certificate should 
 chance to be in a safe-deposit box, and the mortgagee away, 
 it would be necessary to go into Court and petition the Court 
 to issue a new duplicate copy, after explaining to the Court 
 the failure to produce the original copy of the certificate. 
 
 If a woman changes her name, by getting married or other- 
 wise, it is necessary for her to petition the Court, after a 
 proper hearing, to issue a new certificate in her new name. 
 There is no legal requirement for notifying the mortgagee, 
 but if it is done, he must employ his own counsel or attorney 
 to see that his own rights are protected, for there have been 
 several instances already where the mortgagee has failed en- 
 tirely to have the mortgage entered under the Torrens system, 
 and there are some instances where the applicant has errone- 
 ously given the amount of the mortgage, or has omitted it, as 
 the case may be, and the Registrar has issued the certificate 
 in accordance with that decree. The decree is supposed to 
 be final after the expiration of one year. 
 We are interested in this system, so far as this booklet is con- 
 cerned, only in understanding the main feature of the law as 
 it affects our handling of escrows. Your instructions should 
 clearly state in the case of a mortgage on registered land, 
 to whom the duplicate registered copy is to be delivered. 
 The same custom should be followed as is followed in instru- 
 ments recorded in the Recorder's office. The duplicate Tor- 
 rens Certificate should be delivered to the mortgagee along 
 with the fire insurance policies and the note. We do not 
 handle in escrow any deal on property which is under the 
 Torrens System, unless in conjunction with that deal we 
 issue our policy of Title Insurance. 
 
 The regular form of Guarantee, based upon record, cannot 
 be issued, because there is no record under the Torrens law. 
 The Torrens law says that instruments filed for record in the 
 
 55
 
 County Recorder's office are not notice to anyone after the 
 application to place the property under the Torrens system 
 has been filed. 
 
 As we cannot rely upon the Torrens system to furnish ade- 
 quate protection to the parties, it is necessary for us to see 
 that the recording laws are complied with, and that the chain 
 of title is complete under the old system of recording. 
 
 We then, in addition thereto, examine fully the proceedings 
 had in the Torrens case, and if we find that all of the parties 
 interested in the property, and having claims of record, have 
 properly been made parties to the action, and have been 
 properly served and have properly had their day in Court, 
 we are then in a position to issue our policy of Title 
 Insurance. 
 
 But if the decree differs from the way we find the title, then 
 we cannot rely upon the Torrens decree alone. 
 
 Application to place the title under the Torrens system may 
 be withdrawn up to the time of the issuance of the final 
 decree of the Court. If that decree has been entered, how- 
 ever, there is nothing left but the formality of the Registrar 
 issuing his certificate in accordance with the decree and after 
 that decree has been entered, the law makes no provision for 
 withdrawal. 
 
 Furthermore, the state leglislative bodies cannot pass such a 
 law, nor amend the act, because the system was placed on the 
 statute books by the direct vote of the people through the 
 initiative process and can be amended only in a similiar 
 manner. 
 
 56
 
 Building Loans 
 
 Building loans are those made in contemplation of the erec- 
 tion of a building or buildings on the property described in 
 the mortgage or trust deed given to secure the loan. 
 
 Whenever a building is to be constructed, or is in the course 
 of construction, Mechanic's Lien Laws and their effects must 
 be considered. 
 
 The purpose of the lien law, as you have already seen, is to 
 give to the parties entitled thereto a direct lien upon that 
 property of the owner upon which the building is to be 
 erected. Such liens are not limited as to the amount, except 
 as to the contractor, by any contract price. 
 
 An attempt is made to give the owner some protection by 
 providing that he may file in the office of the County 
 Recorder, before the work is commenced, the original con- 
 tract, together with the bond of the contractor in a sum not 
 less than 50 % of the whole contract price, guaranteeing the 
 proper performance of the contract, and conditioned that it 
 shall be liable for payment in full of the claims of all per- 
 sons performing labor or furnishing material thereunder. 
 
 If the contract is so filed, and the bond is so filed, then the 
 total amount that may be recovered by lien claimants is 
 limited to the amount due from the owner to the contractor, 
 if the court shall find it equitable to do so. 
 
 All contracts should provide that definite payments shall be 
 made in installments as the work progresses, and that at 
 least 25 % of the contract price shall be reserved for thirty- 
 five days after the filing of the notice of completion to pro- 
 tect lien claimants. 
 
 It is clear that the responsibility of passing on the suffic- 
 iency of the contracts should be no part of the escrow- 
 holder's duty, and likewise the escrow-holder should not be 
 expected to pass on the sufficiency of the bonds nor the 
 sureties. The escrow-holder's duty should be confined to 
 the fulfillment of the terms of the escrow. The instructions 
 
 57
 
 to this end should be plain, simple and explicit to pay 
 certain moneys to certain parties at certain specified times 
 on the order of a certain person. 
 
 In addition to the contractor's bond for the faithful perform- 
 ance of the details of the contract, it should also be incum- 
 bent upon him to furnish what is commonly called "Em- 
 ployer's Liability Insurance," for if anyone is killed or 
 injured through his employment on the building, the Com- 
 pensation Insurance Act provides that he or his heirs shall 
 have a lien against the property for the amount due him 
 under the terms of the act, unless employer's liability insur- 
 ance is carried, and if such insurance is carried, the injured 
 employee or his heirs must look to the insurance company 
 for compensation. 
 
 It should be the endeavor of the escrow-holder in connection 
 either with a new mortgage, trust deed or a conveyance of 
 property through escrow to give to the customer all of the 
 protection possible, but it is also important that the customer 
 be made acquainted with the limitations to the protection 
 that can be offered by the escrow-holder. 
 
 To handle a building loan escrow requires concentrated 
 thought and attention, as well as intelligent understanding 
 of the law and of the conditions surrounding the property 
 in escrow. To cover many of the points involved, special 
 blanks have been prepared for this particular kind of escrow. 
 These blanks should without exception be used. 
 
 Without here going fully into the many provisions of the me- 
 chanic's lien laws, there are certain conclusions to be drawn 
 therefrom, with which you should acquaint yourselves and 
 which should be carefully observed. 
 
 If a building contract is filed, or is known to exist, or if a 
 building has but recently been erected upon the premises, 
 it is evident that precaution must be taken against the pos- 
 sibility of mechanic's liens. 
 
 Where the building contract is filed prior to the furnishing 
 of any labor or material on the premises, the final payment 
 
 58
 
 can ordinarily be safely made on the expiration of thirty- 
 five days after the filing of notice of completion, providing 
 there is taken from the general contractor a receipt in full 
 and a release from him of all claims against the premises. 
 
 If no building contract is filed, but a notice of completion is 
 filed, the final payment cannot safely be made until sixty- 
 one days after the filing of notice of completion, as there 
 would be no way of determining who might be the original 
 contractor. 
 
 If neither contract nor notice of completion is filed, the final 
 payment cannot safely be made until the full ninety days 
 after the actual completion of the building, and the time of 
 such actual completion being a question of facts solely, must 
 be clearly established and agreed on by the parties to the 
 escrow, and clearly set forth in the instructions. 
 
 A notice of completion, to be valid, must be signed by the 
 proper person authorized by the law to do so, and must be 
 filed in the office of the County Recorder within ten days 
 after the actual completion and acceptance of the building. 
 The length of time that the final payment is to be held in 
 escrow must, of course, be agreed on between the parties, 
 but they should have the benefit of such information as you 
 can give them. 
 
 Where a loan is made in contemplation of the erection of a 
 building, it is essential also to obtain in connection with the 
 escrow instructions, a statement as to the approximate cost 
 of the building. Then after ascertaining the amount of the 
 loan, it will be apparent whether the loan will probably be 
 enough to cover the full cost of the building. If it is not, 
 it may be desired to have the mortagor advance enough of 
 his own funds toward the cost of the building to make up the 
 necessary amount when added to the loan money to pay for 
 the building in full, and it may be advisable that the owner's 
 money be expended before using the proceeds of the loan. 
 In any case where it is found that there is a building con- 
 tract in existence, whether same be recorded or not, a receipt 
 in full, together with his release of the premises should be 
 
 59
 
 obtained from the contractor, prior to making the last pay- 
 ment, provided for in the escrow, and the instructions of the 
 mortgagee and mortgagor should so state. 
 
 A building loan escrow that is made in contemplation of a 
 building to be erected on the premises should provide also 
 that no material shall be placed on the premises nor labor 
 performed prior to the recording of the mortgage and to the 
 placing of the money to the account of the mortgagor. 
 Instructions should also provide that after the mortgage has 
 been recorded the mortgagee, or some agent by him desig- 
 nated for the purpose, and agreed upon in the instructions, 
 shall notify the escrow-holder that he has examined the 
 premises after the recording of the mortgage, and has satis- 
 fied himself that up to the time of the recording of the mort- 
 gage no labor had been furnished nor material delivered 
 on the premises. 
 
 It is seldom that two building loan transactions are identical 
 in all of their details. It is therefore obvious that it is 
 impossible to prepare any printed form with specific word- 
 ing which will be applicable in every case. 
 
 However, if you will keep in mind the several points in the 
 foregoing discussion, you should be able to successfully pre- 
 pare your instructions in such form as to make it clear that 
 all parties understand the limitations to the protection that 
 can be afforded them and that they understand clearly the 
 duties and obligations that they must perform and assume 
 in carrying out their part of the escrow. 
 
 60
 
 Usury 
 
 At the present time we have on our statute books the so- 
 called "Usury Law." The main features only with which we 
 will have to deal in the handling of escrows will be con- 
 sidered here. 
 
 No person or corporation can receive a higher rate of inter- 
 est, either in moneys or in property, than 12 per cent per 
 year. 
 
 When the contract upon its face expressly provides for the 
 payment of usurious interest, the stipulation therein for in- 
 terest is void, but the obligation of the payment of the prin- 
 cipal sum, and that only, is valid. 
 
 If usurious interest is received (whether under a written 
 contract expressly providing for same, or otherwise), the 
 one who receives the usurious interest cannot recover a 
 judgment for the interest at all, nor can he recover on the 
 principal debt until the due date thereof as fixed and deter- 
 mined by the contract. 
 
 Interest upon any written contract to pay money shall not 
 be compounded nor shall the interest thereon be construed 
 to bear interest unless an agreement to that effect is clearly 
 expressed in writing and signed by the parties to be charged 
 therewith. 
 
 Any person or corporation who receives usurious interest, 
 whether as a principal or as an agent for another, may be 
 subjected to a judgment at the instance of the one who paid 
 the same, for a penalty of three times the amount of usurious 
 interest so paid and received. 
 
 Any person or corporation, whether as a principal or as an 
 agent for another, that demands or receives more than 12 
 per cent per annum as interest when the same is secured by 
 mortgage, trust deed, bill of sale, assignment, pledge, receipt, 
 or other evidence of title (except corporation bonds and 
 municipal and other public bonds) upon property, real or 
 personal, or by assignment of wages, is guilty of misde- 
 
 61
 
 meanor, and may be punished for a first offense with a fine 
 not less than $25.00, nor more than $300.00, or (if the one 
 convicted is an individual) by imprisonment of not more 
 than six months, or both such fine and imprisonment; and 
 for every subsequent offense and conviction, by a fine not 
 less than $100.00, nor more than $500.00, and (if the one 
 convicted is an individual) by imprisonment of not less than 
 six months nor more than one year. 
 
 Any person or corporation that, whether as principal or as 
 agent, receives or charges more than the amount equal to 5 
 per cent of the amount loaned and secured in all sums of 
 $1,000.00 or less, and 3 per cent on all sums over $1,000.00 
 in full for all examinations, views, first appraisals, com- 
 missions, renewals, made within one year of the date of the 
 loan, and charges of any kind or description (except 
 abstracts and certificates of title which may be made under 
 the Torrens Land Law or otherwise) in procuring, making, 
 and transacting all business connected with such loans, is 
 guilty of a misdemeanor, and is subject to the penalties as 
 above described. 
 
 Any person or corporation, whether as principal or agent, 
 that demands or receives any favor, bonus, or commission 
 whatsoever for the use or loan, or the procuring of such 
 loan, of any sum of money for less than six months, when 
 such loan is not secured upon a trust deed or mortgage 
 on real estate, is guilty of a misdemeanor and subject to 
 the penalties as above described. 
 
 Any person or corporation, whether as principal or agent, 
 that compounds interest upon a written obligation, unless 
 an agreement to that effect is clearly expressed in writing 
 and signed by the parties to be charged therein, is guilty 
 of a misdemeanor, and subject to the penalties as above 
 set forth. 
 
 Everyone taking in or handling an escrow in which a loan 
 is involved should be particularly careful that it is not 
 such a transaction as should fall within the meaning of 
 
 62
 
 the so-called "Usury Law." It is, therefore, particularly 
 essential that all of the proceeds of the loan be accounted 
 for legitimately, and that the instructions show clearly that 
 no portions of the proceeds of a loan over and above 
 that permitted by law should be paid to any person other 
 than the ones lawfully entitled to the same. No part of 
 the proceeds of the loan should be diverted in any manner 
 that might be interpreted as an evasive guise to defeat 
 the purpose of the law, as in all such matters you should 
 use every care, see that the transaction is legitimate, and 
 that the people understand what they are doing. This 
 is an instance where the escrow-holder must go beyond 
 the record and must be in a position to show that he has 
 used every care to protect himself and the customer with 
 whom he is dealing from the results of the penalties 
 imposed by the law. 
 
 63
 
 YCUKO t ICCALLISTtP INC. L A
 
 LAW LIBRARY 
 
 ALIFORNIA 
 
 LOS ANGELES