California Laws - Civil Code
EFFECT OF THE 1872 CODES (23-23.6)
DIVISION 2. PROPERTY

PART 1. PROPERTY IN GENERAL (894)(1-click HTML)

TITLE 1. NATURE OF PROPERTY (654-663) (895)(1-click HTML)

654. The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others. In this Code, the thing of which there may be ownership is called property. (896)

655. There may be ownership of all inanimate things which are capable of appropriation or of manual delivery; of all domestic animals; of all obligations; of such products of labor or skill as the composition of an author, the good will of a business, trade marks and signs, and of rights created or granted by statute. (897)

656. Animals wild by nature are the subjects of ownership, while living, only when on the land of the person claiming them, or when tamed, or taken and held in possession, or disabled and immediately pursued. (898)

657. Property is either: (899)

l. Real or immovable; or, (900)

2. Personal or movable. (901)

658. Real or immovable property consists of: (902)

l. Land; (903)

2. That which is affixed to land; (904)

3. That which is incidental or appurtenant to land; (905)

4. That which is immovable by law; except that for the purposes of sale, emblements, industrial growing crops and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale, shall be treated as goods and be governed by the provisions of the title of this code regulating the sales of goods. (906)

659. Land is the material of the earth, whatever may be the ingredients of which it is composed, whether soil, rock, or other substance, and includes free or occupied space for an indefinite distance upwards as well as downwards, subject to limitations upon the use of airspace imposed, and rights in the use of airspace granted, by law. (907)

660. A thing is deemed to be affixed to land when it is attached to it by roots, as in the case of trees, vines, or shrubs; or imbedded in it, as in the case of walls; or permanently resting upon it, as in the case of buildings; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws; except that for the purposes of sale, emblements, industrial growing crops and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale, shall be treated as goods and be governed by the provisions of the title of this code regulating the sales of goods. (908)

662. A thing is deemed to be incidental or appurtenant to land when it is by right used with the land for its benefit, as in the case of a way, or watercourse, or of a passage for light, air, or heat from or across the land of another. (909)

663. Every kind of property that is not real is personal. (910)

TITLE 2. OWNERSHIP (911)(1-click HTML)
CHAPTER 1. OWNERS (669-671) (912)(1-click HTML)

669. All property has an owner, whether that owner is the State, and the property public, or the owner an individual, and the property private. The State may also hold property as a private proprietor. (913)

670.] Section Six Hundred and Seventy. The State is the owner of all land below tide water, and below ordinary high-water mark, bordering upon tide water within the State; of all land below the water of a navigable lake or stream; of all property lawfully appropriated by it to its own use; of all property dedicated to the State; and of all property of which there is no other owner. (914)

671.] Section Six Hundred and Seventy-one. Any person, whether citizen or alien, may take, hold, and dispose of property, real or personal, within this State. (915)

CHAPTER 2. MODIFICATIONS OF OWNERSHIP (916)(1-click HTML)
Article 1. Interests in Property (678-703) (917)(1-click HTML)

678. The ownership of property is either: (918)

1. Absolute; or, (919)

2. Qualified. (920)

679. The ownership of property is absolute when a single person has the absolute dominion over it, and may use it or dispose of it according to his pleasure, subject only to general laws. (921)

680. The ownership of property is qualified: (922)

1. When it is shared with one or more persons; (923)

2. When the time of enjoyment is deferred or limited; (924)

3. When the use is restricted. (925)

681. The ownership of property by a single person is designated as a sole or several ownership. (926)

682. The ownership of property by several persons is either: (927)

1. Of joint interest; (928)

2. Of partnership interests; (929)

3. Of interests in common; (930)

4. Of community interest of husband and wife. (931)

682.1. (a) Community property of a husband and wife, when expressly declared in the transfer document to be community property with right of survivorship, and which may be accepted in writing on the face of the document by a statement signed or initialed by the grantees, shall, upon the death of one of the spouses, pass to the survivor, without administration, pursuant to the terms of the instrument, subject to the same procedures, as property held in joint tenancy. Prior to the death of either spouse, the right of survivorship may be terminated pursuant to the same procedures by which a joint tenancy may be severed. Part I (commencing with Section 5000) of Division 5 of the Probate Code and Chapter 2 (commencing with Section 13540), Chapter 3 (commencing with Section 13550) and Chapter 3.5 (commencing with Section 13560) of Part 2 of Division 8 of the Probate Code apply to this property. (932)

(b) This section does not apply to a joint account in a financial institution to which Part 2 (commencing with Section 5100) of Division 5 of the Probate Code applies. (933)

(c) This section shall become operative on July 1, 2001, and shall apply to instruments created on or after that date. (934)

683. (a) A joint interest is one owned by two or more persons in equal shares, by a title created by a single will or transfer, when expressly declared in the will or transfer to be a joint tenancy, or by transfer from a sole owner to himself or herself and others, or from tenants in common or joint tenants to themselves or some of them, or to themselves or any of them and others, or from a husband and wife, when holding title as community property or otherwise to themselves or to themselves and others or to one of them and to another or others, when expressly declared in the transfer to be a joint tenancy, or when granted or devised to executors or trustees as joint tenants. A joint tenancy in personal property may be created by a written transfer, instrument, or agreement. (935)

(b) Provisions of this section do not apply to a joint account in a financial institution if Part 2 (commencing with Section 5100) of Division 5 of the Probate Code applies to such account. (936)

683.1. No contract or other arrangement made after the effective date of this section between any person, firm, or corporation engaged in the business of renting safe-deposit boxes and the renter or renters of a safe-deposit box, shall create a joint tenancy in or otherwise establish ownership in any of the contents of such safe-deposit box. Any such contract or other arrangement purporting so to do shall be to such extent void and of no effect. (937)

683.2. (a) Subject to the limitations and requirements of this section, in addition to any other means by which a joint tenancy may be severed, a joint tenant may sever a joint tenancy in real property as to the joint tenant's interest without the joinder or consent of the other joint tenants by any of the following means: (938)

(1) Execution and delivery of a deed that conveys legal title to the joint tenant's interest to a third person, whether or not pursuant to an agreement that requires the third person to reconvey legal title to the joint tenant. (939)

(2) Execution of a written instrument that evidences the intent to sever the joint tenancy, including a deed that names the joint tenant as transferee, or of a written declaration that, as to the interest of the joint tenant, the joint tenancy is severed. (940)

(b) Nothing in this section authorizes severance of a joint tenancy contrary to a written agreement of the joint tenants, but a severance contrary to a written agreement does not defeat the rights of a purchaser or encumbrancer for value in good faith and without knowledge of the written agreement. (941)

(c) Severance of a joint tenancy of record by deed, written declaration, or other written instrument pursuant to subdivision (a) is not effective to terminate the right of survivorship of the other joint tenants as to the severing joint tenant's interest unless one of the following requirements is satisfied: (942)

(1) Before the death of the severing joint tenant, the deed, written declaration, or other written instrument effecting the severance is recorded in the county where the real property is located. (943)

(2) The deed, written declaration, or other written instrument effecting the severance is executed and acknowledged before a notary public by the severing joint tenant not earlier than three days before the death of that joint tenant and is recorded in the county where the real property is located not later than seven days after the death of the severing joint tenant. (944)

(d) Nothing in subdivision (c) limits the manner or effect of: (945)

(1) A written instrument executed by all the joint tenants that severs the joint tenancy. (946)

(2) A severance made by or pursuant to a written agreement of all the joint tenants. (947)

(3) A deed from a joint tenant to another joint tenant. (948)

(e) Subdivisions (a) and (b) apply to all joint tenancies in real property, whether the joint tenancy was created before, on, or after January 1, 1985, except that in the case of the death of a joint tenant before January 1, 1985, the validity of a severance under subdivisions (a) and (b) is determined by the law in effect at the time of death. Subdivisions (c) and (d) do not apply to or affect a severance made before January 1, 1986, of a joint tenancy. (949)

684. A partnership interest is one owned by several persons, in partnership, for partnership purposes. (950)

685. An interest in common is one owned by several persons, not in joint ownership or partnership. (951)

686. Every interest created in favor of several persons in their own right is an interest in common, unless acquired by them in partnership, for partnership purposes, or unless declared in its creation to be a joint interest, as provided in Section 683, or unless acquired as community property. (952)

687. Community property is property that is community property under Part 2 (commencing with Section 760) of Division 4 of the Family Code. (953)

688. In respect to the time of enjoyment, an interest in property is either: (954)

1. Present or future; and, (955)

2. Perpetual or limited. (956)

689. A present interest entitles the owner to the immediate possession of the property. (957)

690. A future interest entitles the owner to the possession of the property only at a future period. (958)

691. A perpetual interest has a duration equal to that of the property. (959)

692. A limited interest has a duration less than that of the property. (960)

696. Two or more future interests may be created to take effect in the alternative, so that if the first in order fails to vest, the next in succession shall be substituted for it, and take effect accordingly. (961)

697. A future interest is not void merely because of the improbability of the contingency on which it is limited to take effect. (962)

698. When a future interest is limited to successors, heirs, issue, or children, posthumous children are entitled to take in the same manner as if living at the death of their parent. (963)

699. Future interests pass by succession, will, and transfer, in the same manner as present interests. (964)

700. A mere possibility, such as the expectancy of an heir apparent, is not to be deemed an interest of any kind. (965)

701. In respect to real or immovable property, the interests mentioned in this Chapter are denominated estates, and are specially named and classified in Part II of this Division. (966)

702. The names and classification of interests in real property have only such application to interests in personal property as is in this Division of the Code expressly provided. (967)

703. No future interest in property is recognized by the law, except such as is defined in this Division of the Code. (968)

Article 2. Conditions of Ownership (707-714.5) (969)(1-click HTML)

707. The time when the enjoyment of property is to begin or end may be determined by computation, or be made to depend on events. In the latter case, the enjoyment is said to be upon condition. (970)

708. Conditions are precedent or subsequent. The former fix the beginning, the latter the ending, of the right. (971)

709. If a condition precedent requires the performance of an act wrong of itself, the instrument containing it is so far void, and the right cannot exist. If it requires the performance of an act not wrong of itself, but otherwise unlawful, the instrument takes effect and the condition is void. (972)

710.] Section Seven Hundred and Ten. Conditions imposing restraints upon marriage, except upon the marriage of a minor, are void; but this does not affect limitations where the intent was not to forbid marriage, but only to give the use until marriage. (973)

711. Conditions restraining alienation, when repugnant to the interest created, are void. (974)

711.5. (a) Notwithstanding the provisions of Sections 711 and 1916.5, a state or local public entity directly or indirectly providing housing purchase or rehabilitation loans shall have the authority to deny assumptions, or require the denial of assumptions, by a subsequent ineligible purchaser or transferee of the prior borrower of the obligation of any such loan made for the purpose of rehabilitating or providing affordable housing. If such a subsequent purchaser or transferee does not meet such an entity's eligibility requirements, that entity may accelerate or may require the acceleration of the principal balance of the loan to be all due and payable upon the sale or transfer of the property. (975)

(b) As a condition of authorizing assumption of a loan pursuant to this section, the entity may recast the repayment schedule for the remainder of the term of the loan by increasing the interest to the current market rate at the time of assumption, or to such lower rate of interest as is the maximum allowed by an entity that provided any insurance or other assistance which results in an assumption being permitted. Any additional increment of interest produced by increasing the rate of interest upon a loan pursuant to this subdivision shall be transmitted or forwarded to the entity for deposit in the specified fund from which the loan was made, or, if no such fund exists, or the public entity has directed otherwise, then to the general fund of such entity. (976)

(c) The state or local public entity providing assistance as specified in this section may implement appropriate measures to assure compliance with this section. (977)

712. (a) Every provision contained in or otherwise affecting a grant of a fee interest in, or purchase money security instrument upon, real property in this state heretofore or hereafter made, which purports to prohibit or restrict the right of the property owner or his or her agent to display or have displayed on the real property, or on real property owned by others with their consent, or both, signs which are reasonably located, in plain view of the public, are of reasonable dimensions and design, and do not adversely affect public safety, including traffic safety, and which advertise the property for sale, lease, or exchange, or advertise directions to the property, by the property owner or his or her agent is void as an unreasonable restraint upon the power of alienation. (978)

(b) This section shall operate retrospectively, as well as prospectively, to the full extent that it may constitutionally operate retrospectively. (979)

(c) A sign that conforms to the ordinance adopted in conformity with Section 713 shall be deemed to be of reasonable dimension and design pursuant to this section. (980)

713. (a) Notwithstanding any provision of any ordinance, an owner of real property or his or her agent may display or have displayed on the owner's real property, and on real property owned by others with their consent, signs which are reasonably located, in plain view of the public, are of reasonable dimensions and design, and do not adversely affect public safety, including traffic safety, as determined by the city, county, or city and county, advertising the following: (981)

(1) That the property is for sale, lease, or exchange by the owner or his or her agent. (982)

(2) Directions to the property. (983)

(3) The owner's or agent's name. (984)

(4) The owner's or agent's address and telephone number. (985)

(b) Nothing in this section limits any authority which a person or local governmental entity may have to limit or regulate the display or placement of a sign on a private or public right-of-way. (986)

714. (a) Any covenant, restriction, or condition contained in any deed, contract, security instrument, or other instrument affecting the transfer or sale of, or any interest in, real property, and any provision of a governing document, as defined in subdivision (j) of Section 1351, that effectively prohibits or restricts the installation or use of a solar energy system is void and unenforceable. (987)

(b) This section does not apply to provisions that impose reasonable restrictions on solar energy systems. However, it is the policy of the state to promote and encourage the use of solar energy systems and to remove obstacles thereto. Accordingly, reasonable restrictions on a solar energy system are those restrictions that do not significantly increase the cost of the system or significantly decrease its efficiency or specified performance, or that allow for an alternative system of comparable cost, efficiency, and energy conservation benefits. (988)

(c) (1) A solar energy system shall meet applicable health and safety standards and requirements imposed by state and local permitting authorities. (989)

(2) A solar energy system for heating water shall be certified by the Solar Rating Certification Corporation (SRCC) or other nationally recognized certification agencies. SRCC is a nonprofit third party supported by the United States Department of Energy. The certification shall be for the entire solar energy system and installation. (990)

(3) A solar energy system for producing electricity shall also meet all applicable safety and performance standards established by the National Electrical Code, the Institute of Electrical and Electronics Engineers, and accredited testing laboratories such as Underwriters Laboratories and, where applicable, rules of the Public Utilities Commission regarding safety and reliability. (991)

(d) For the purposes of this section: (992)

(1) (A) For solar domestic water heating systems or solar swimming pool heating systems that comply with state and federal law, "significantly" means an amount exceeding 20 percent of the cost of the system or decreasing the efficiency of the solar energy system by an amount exceeding 20 percent, as originally specified and proposed. (993)

(B) For photovoltaic systems that comply with state and federal law, "significantly" means an amount not to exceed two thousand dollars ($2,000) over the system cost as originally specified and proposed, or a decrease in system efficiency of an amount exceeding 20 percent as originally specified and proposed. (994)

(2) "Solar energy system" has the same meaning as defined in paragraphs (1) and (2) of subdivision (a) of Section 801.5. (995)

(e) (1) Whenever approval is required for the installation or use of a solar energy system, the application for approval shall be processed and approved by the appropriate approving entity in the same manner as an application for approval of an architectural modification to the property, and shall not be willfully avoided or delayed. (996)

(2) For an approving entity that is a homeowners' association, as defined in subdivision (a) of Section 1351, and that is not a public entity, both of the following shall apply: (997)

(A) The approval or denial of an application shall be in writing. (998)

(B) If an application is not denied in writing within 60 days from the date of receipt of the application, the application shall be deemed approved, unless that delay is the result of a reasonable request for additional information. (999)

(f) Any entity, other than a public entity, that willfully violates this section shall be liable to the applicant or other party for actual damages occasioned thereby, and shall pay a civil penalty to the applicant or other party in an amount not to exceed one thousand dollars ($1,000). (1000)

(g) In any action to enforce compliance with this section, the prevailing party shall be awarded reasonable attorney's fees. (1001)

(h) (1) A public entity that fails to comply with this section may not receive funds from a state-sponsored grant or loan program for solar energy. A public entity shall certify its compliance with the requirements of this section when applying for funds from a state-sponsored grant or loan program. (1002)

(2) A local public entity may not exempt residents in its jurisdiction from the requirements of this section. (1003)

714.1. Notwithstanding Section 714, any association, as defined in Section 1351, may impose reasonable provisions which: (1004)

(a) Restrict the installation of solar energy systems installed in common areas, as defined in Section 1351, to those systems approved by the association. (1005)

(b) Require the owner of a separate interest, as defined in Section 1351, to obtain the approval of the association for the installation of a solar energy system in a separate interest owned by another. (1006)

(c) Provide for the maintenance, repair, or replacement of roofs or other building components. (1007)

(d) Require installers of solar energy systems to indemnify or reimburse the association or its members for loss or damage caused by the installation, maintenance, or use of the solar energy system. (1008)

714.5. The covenants, conditions, and restrictions or other management documents shall not prohibit the sale, lease, rent, or use of real property on the basis that the structure intended for occupancy on the real property is constructed in an offsite facility or factory, and subsequently moved or transported in sections or modules to the real property. Nothing herein shall preclude the governing instruments from being uniformly applied to all structures subject to the covenants, conditions, and restrictions or other management documents. (1009)

This section shall apply to covenants, conditions, and restrictions or other management documents adopted on and after the effective date of this section. (1010)

Article 3. Duration of Leases (715-719) (1011)(1-click HTML)

715. A lease to commence at a time certain or upon the happening of a future event becomes invalid if its term does not actually commence in possession within 30 years after its execution. (1012)

717. No lease or grant of land for agricultural or horticultural purposes for a longer period than 51 years, in which shall be reserved any rent or service of any kind, shall be valid. (1013)

718. No lease or grant of any town or city lot, which reserves any rent or service of any kind, and which provides for a leasing or granting period in excess of 99 years, shall be valid. The property owned by, or that held by, or under the management and control of, any municipality, or any department or board thereof, may be leased for a period not to exceed 55 years. The property of any municipality not acquired for park purposes may, for the purpose of producing, or effecting the production of minerals, oil, gas or other hydrocarbon substances, be leased for a period not to exceed 35 years. Any tidelands or submerged lands, granted to any city by the State of California, may be leased for a period not to exceed 66 years unless the grant from the state of the use thereof provides specifically the term for which said lands may be leased. Tidelands and submerged lands owned or controlled by any city, together with the wharves, docks, piers and other structures or improvements thereon, and so much of the uplands abutting thereon as, in the judgment of the city council, or other governing body, of said city, may be necessary for the proper development and use of its waterfront and harbor facilities, may be leased for a period not to exceed 66 years. Said tidelands, submerged lands and uplands may be so leased only for industrial uses, the improvement and development of any harbor, or harbors, of said city, the construction and maintenance of wharves, docks, piers or bulkhead piers, or any other public use or purpose consistent with the requirements of commerce or navigation at, or in, any such harbor or harbors. (1014)

718f. A lease of land for the purpose of effecting the production of minerals, oil, gas, or other hydrocarbon substances from other lands may be made for a period certain or determinable by any future event prescribed by the parties but no such lease shall be enforceable after 99 years from the commencement of the term thereof. (1015)

719. Notwithstanding the 55-year limitation imposed by Section 718, property owned by, or held by, or under the management and control of, any city, or any department or board thereof, may be leased for a period which exceeds 55 years but does not exceed 99 years, if all of the following conditions are met: (1016)

(a) The lease shall be subject to periodic review by the city and shall take into consideration the then current market conditions. The local legislative body may, prior to final execution of the lease, establish the lease provisions which will periodically be reviewed, and determine when those provisions are to be reviewed. (1017)

(b) Any lease entered into by any city pursuant to this section shall be authorized by an ordinance adopted by the legislative body. The ordinance shall be subject to referendum in the manner prescribed by law for ordinances of cities. (1018)

(c) Prior to adopting an ordinance authorizing a lease, the legislative body shall hold a public hearing. Notice of the time and place of the hearing shall be published pursuant to Section 6066 of the Government Code, in one or more newspapers of general circulation within the city and shall be mailed to any person requesting special notice, to any present tenant of the public property, and to all owners of land adjoining the property. (1019)

(d) Any lease shall be awarded to the bidder which, in the determination of the legislative body, offers the greatest economic return to the city, after competitive bidding conducted in the manner determined by the legislative body. Notice inviting bids shall be published pursuant to Section 6066 in one or more newspapers of general circulation within the city. (1020)

(e) The provisions of subdivisions (b), (c), and (d) of this section do not apply to any charter city, which may utilize a procedure as specified by charter or adopted by ordinance in accordance with its charter. (1021)

(f) This section shall not apply to leases of property acquired for park purposes; to leases for the purpose of producing mineral, oil, gas, or other hydrocarbon substances; nor to leases of tidelands or submerged lands or improvements thereon. (1022)

Article 4. Accumulations (722-726) (1023)(1-click HTML)

722. Dispositions of the income of property to accrue and to be received at any time subsequent to the execution of the instrument creating such disposition are governed by the rules relating to future interests. (1024)

723. All directions for the accumulation of the income of property, except such as are allowed by this Title, are void. (1025)

724. (a) An accumulation of the income of property may be directed by any will, trust or transfer in writing sufficient to pass the property or create the trust out of which the fund is to arise, for the benefit of one or more persons, objects or purposes, but may not extend beyond the time permitted for the vesting of future interests. (1026)

(b) Notwithstanding subdivision (a), the income arising from real or personal property held in a trust forming part of a profit-sharing plan of an employer for the exclusive benefit of its employees or their beneficiaries or forming part of a retirement plan formed primarily for the purpose of providing benefits for employees on or after retirement may be permitted to accumulate until the fund is sufficient, in the opinion of the trustee or trustees, to accomplish the purposes of the trust. (1027)

725. If the direction for an accumulation of the income of property is for a longer term than is limited in the last section, the direction only, whether separable or not from the other provisions of the instrument, is void as respects the time beyond the limit prescribed in said last section, and no other part of such instrument is affected by the void portion of such direction. (1028)

726. When one or more persons for whose benefit an accumulation of income has been directed is or are destitute of other sufficient means of support or education, the proper court, upon application, may direct a suitable sum to be applied thereto out of the fund directed to be accumulated for the benefit of such person or persons. (1029)

CHAPTER 2.6. LEGAL ESTATES PRINCIPAL AND INCOME LAW (731-731.15) (1030)(1-click HTML)

731. This chapter may be cited as the Legal Estates Principal and Income Law. (1031)

731.01. Nothing in this chapter shall affect the provisions of the Personal Income Tax Law and the Bank and Corporation Tax Law. (1032)

731.02. This chapter shall apply to all transactions by which a principal was established without the interposition of a trust on or after September 13, 1941, or is hereafter so established. Transactions by which a principal is held in trust are governed by Chapter 3 (commencing with Section 16300) of Part 4 of Division 9 of the Probate Code. (1033)

731.03. (a) "Principal" as used in this chapter means any realty or personalty which has been so set aside or limited by the owner thereof or a person thereto legally empowered that it and any substitutions for it are eventually to be conveyed, delivered, or paid to a person, while the return therefrom or use thereof or any part of such return or use is in the meantime to be taken or received by or held for accumulation for the same or another person; (1034)

(b) "Income" as used in this chapter means the return derived from principal; (1035)

(c) "Tenant" as used in this chapter means the person to whom income is presently or currently payable, or for whom it is accumulated or who is entitled to the beneficial use of the principal presently and for a time prior to its distribution; (1036)

(d) "Remainderman" as used in this chapter means the person ultimately entitled to the principal, whether named or designated by the terms of the transaction by which the principal was established or determined by operation of law. (1037)

731.04. This chapter shall govern the ascertainment of income and principal and the apportionment of receipts and expenses between tenants and remaindermen in all cases where a principal has been established without the interposition of a trust, except that in the establishment of the principal, provision may be made touching all matters covered by this chapter, and the person establishing the principal may himself direct the manner of ascertainment of income and principal and the apportionment of receipts and expenses or grant discretion to the tenant or other person to do so, and such provision and direction, where not otherwise contrary to law shall control notwithstanding this chapter. The exercise by the tenant or other designated person, of such discretionary power if in good faith and according to his best judgment, shall be conclusive, irrespective of whether it may be in accordance with the determination which the court having jurisdiction would have made. (1038)

731.05. (a) All receipts of money or other property paid or delivered as rent of realty or hire of personalty, or interest on money loaned, or interest on or the rental or use value of property wrongfully withheld or tortiously damaged or otherwise in return for the use of principal, shall be deemed income unless otherwise expressly provided in this chapter. Dividends on corporate shares, payable in stock or otherwise, shall be deemed income except as provided in Section 731.07. (1039)

(b) All receipts of money or other property paid or delivered as the consideration for the sale or other transfer, not a leasing or letting, of property forming a part of principal, or as a repayment of loans, or in liquidation of the assets of a corporation, or as the proceeds of property taken on eminent domain proceedings where separate awards to tenant and remainderman are not made, or as proceeds of insurance upon property forming a part of the principal except where such insurance has been issued for the benefit of either tenant or remainderman alone, or otherwise as a refund or replacement or change in form of principal, shall be deemed principal unless otherwise expressly provided in this chapter. Any profit or loss resulting upon any change in form of principal shall inure to or fall upon principal, except in the case of property referred to and defined by Section 731.14, in which case the provisions of Section 731.14 shall govern. (1040)

(c) All income, after payment of expenses properly chargeable to it, shall be paid and delivered to the tenant or retained by him if already in his possession or held for accumulation where legally so directed by the terms of the transaction by which the principal was established; while the principal shall be held for ultimate distribution as determined by the terms of the transaction by which it was established or by law, except in the case of property referred to and defined by Section 731.14, in which case the provisions of Section 731.14 shall govern. (1041)

731.06. Whenever a tenant's right to income shall cease by death, or in any other manner, all payments theretofore actually paid to the tenant shall belong to the tenant or to his personal representative; all income actually received after such termination shall be paid to the person next entitled to income by the terms of the transaction by which the principal was established. (1042)

731.07. (a) All dividends on shares of a corporation forming a part of the principal which are payable (1043)

(1) In shares of the declaring corporation of the same kind and rank as the shares on which such dividend is paid; and (1044)

(2) In shares of the declaring corporation of a different kind or rank to the extent that they represent a capitalization of surplus not derived from earnings, shall be deemed principal. (1045)

Subject to the provisions of this section, all dividends, other than those awarded to principal under (1) and (2) above, including ordinary and extraordinary dividends and dividends payable in shares or other securities or obligations of corporations other than the declaring corporation, shall be deemed income. (1046)

Where the tenant shall have the option of receiving a dividend either in cash or in the shares of the declaring corporation, it shall be considered as a cash dividend and deemed income, irrespective of the choice made by the tenant except as provided in subdivision (f) of this section. (1047)

(b) All rights to subscribe to the shares or other securities or obligations of a corporation accruing on account of the ownership of shares or other securities in such corporation, and the proceeds of any sale of such rights shall be deemed principal. All rights to subscribe to the shares or other securities or obligations of a corporation accruing on account of the ownership of shares or other securities in another corporation, and the proceeds of any sale of such rights, shall be deemed income. (1048)

(c) Where the assets of a corporation are liquidated, amounts paid upon corporate shares as cash dividends declared before such liquidation occurred or as arrears of preferred or guaranteed dividends shall be deemed income; all other amounts paid upon corporate shares on disbursement of the corporate assets to the stockholders shall be deemed principal. All disbursements of corporate assets to the stockholders, whenever made, which are designated by the corporation as a return of capital or division of corporate property shall be deemed principal. (1049)

(d) Where a corporation succeeds another by merger, consolidation, or reorganization or otherwise acquires its assets, and the corporate shares of the succeeding corporation are issued to the shareholders of the original corporation in like proportion to, or in substitution for, their shares of the original corporation, the two corporations shall be considered a single corporation in applying the provisions of this section. But, two corporations shall not be considered a single corporation under this section merely because one owns corporate shares of or otherwise controls or directs the other. (1050)

(e) In applying this section the date when a dividend accrues to the person who is entitled to it shall be held to be the date specified by the corporation as the one on which the stockholders entitled thereto are determined, or in default thereof the date of declaration of the dividend. (1051)

(f) Distributions made from ordinary income by a regulated investment company or by a trust qualifying and electing to be taxed under federal law as a real estate investment trust are income. All other distributions made by the company or trust, including distributions from capital gains, depreciation, or depletion, whether in the form of cash or an option to take new stock or cash or an option to purchase additional shares, are principal. (1052)

(g) The tenant may rely upon the statement of the paying corporation as to whether dividends are paid from profits or earnings or are a return of capital or division of corporate property, and as to any other fact, relevant under any provision of this chapter, concerning the source or character of dividends or disbursements of corporate assets. (1053)

731.08. Where any part of the principal consists of bonds or other obligations for the payment of money, they shall be deemed principal at their inventory value as fixed by the appraiser or appraisers regularly appointed by the court, or, in default thereof, at their market value at the time the principal was established, or at their cost where purchased later, regardless of their par or maturity value; and upon their respective maturities or upon their sale or other disposition any loss or gain realized thereon shall fall upon or inure to the principal, except in the case of property referred to and defined by Section 731.14, in which case the provisions of Section 731.14 shall govern. Where any part of the principal consists of a bond or other obligation for the payment of money, bearing no stated interest but redeemable at maturity or a future time at an amount in excess of the amount in consideration of which it was issued, such accretion, as when realized, shall inure to income. (1054)

731.09. (a) Whenever a tenant is authorized by the terms of the transaction by which the principal was established or by law, to use any part of the principal in the continuance of a business which the original owner of the property comprising the principal had been carrying on, the net profits of such business attributable to such principal shall be deemed income. (1055)

(b) Where such business consists of buying and selling property, the net profits for any period shall be ascertained by deducting from the gross returns during, and the inventory value of the property at the end of, such period, the expenses during, and the inventory value of the property at the beginning of, such period. (1056)

(c) Where such business does not consist of buying and selling property, the net income shall be computed in accordance with the customary practice of such business, but not in such way as to decrease the principal. (1057)

(d) Any increase in the value of the principal used in such business shall be deemed principal, and all losses in any one calendar year, after the income from such business for that year has been exhausted, shall fall upon principal. (1058)

731.10. Where any part of the principal consists of animals employed in business, the provisions of Section 731.09 shall apply; and in other cases where the animals are held as a part of the principal partly or wholly because of the offspring or increase which they are expected to produce, all offspring or increase shall be deemed principal to the extent necessary to maintain the original number of such animals and the remainder shall be deemed income; and in all other cases such offspring or increase shall be deemed income. (1059)

731.11. (a) Where any part of the principal consists of property in lands from which may be taken timber, minerals, oils, gas, or other natural resources, and the tenant in possession is not under a duty to change the form of the investment of the principal, or (the duty to change the form of the investment being absent) is authorized by law or by the terms of the transaction by which the principal was established, to lease or otherwise develop such natural resources, and no provision is made for the disposition of the net proceeds thereof after the payment of expenses and carrying charges on such property, such proceeds shall be deemed income, whether received as rent or bonus on a lease or as a consideration, by way of royalties or otherwise for the permanent severance of such natural resources from the lands. A duty to change the form of the investment shall be negatived, and authority to develop such natural resources shall be deemed to exist (not excluding other cases where appropriate intent is manifested) where: (1) the resources or the right to exploit them is specifically devised or granted, or (2) where development or exploitation of the resources had begun prior to the transaction by which the principal was established, or (3) where by the terms of that transaction a general authority to lease or otherwise develop is conferred, or (4) where the lands are directed to be retained. The fact that such property received upon creation of the principal does not fall within the category of investments which the tenant or a trustee would be authorized to make under the law or the terms of the particular instrument by which the principal is established, nor the conferring of a mere authority, as distinguished from a direction, to sell such property, shall not be deemed to evidence an intent that the form of the investment shall be changed. (1060)

(b) Where any part of the principal consists of property in lands containing such natural resources, and the conditions under which the proceeds thereof become income shall not exist, then in the absence of the expression of contrary intent in the terms of the transaction by which the principal was established, all such proceeds from such resources, not in excess of 5 percent per annum of the inventory value of such resources as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof their fair market value at the time the principal was established, or their cost if acquired later, shall be deemed income and the remainder principal. (1061)

(c) Nothing in this section shall be construed to abrogate or extend any right which may otherwise have accrued by law to a tenant to develop or work such natural resources for his own benefit. (1062)

731.12. Where any part of the principal consists of property subject to depletion, such as leaseholds, patents, copyrights, and royalty rights, and the tenant in possession is not under a duty to change the form of the investment of the principal, the full amount of rents, royalties, or income from the property shall be income to the tenant; but where the tenant is under a duty to change the form of the investment, either at once or as soon as a reasonable price, not representing an undue sacrifice of value, may be obtained, then the rents, royalties or income from such property not in excess of 5 percent per annum of its inventory value as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof its market value at the time the principal was established or at its cost where purchased later, shall be deemed income and the remainder principal. (1063)

731.13. (a) Where any part of a principal in the possession of a tenant consists of realty or personalty which for more than a year and until disposed of as hereinafter stated has not produced an average net income of at least 1 percent per annum of its inventory value as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof its market value at the time the principal was established or of its cost where purchased or otherwise acquired later, and the tenant is under a duty to change the form of the investment as soon as a reasonable price, not representing an undue sacrifice of value, may be obtained and such change is delayed, but is made before the principal is finally distributed, then the tenant shall be entitled to share in the net proceeds received from the property as delayed income to the extent hereinafter stated. (1064)

(b) Such income shall be the difference between the net proceeds received from the property and the amount which, had it been placed at simple interest at the rate of 5 percent per annum for the period during which the change was delayed, would have produced the net proceeds at the time of change, but in no event shall such income be more than the amount by which the net proceeds exceed the inventory value of the property as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof its market value at the time the principal was established or its cost where purchased later. The net proceeds shall consist of the gross proceeds received from the property less any expenses incurred in disposing of it and less all carrying charges which have been paid out of principal during the period while it has been unproductive. (1065)

(c) The change shall be taken to have been delayed from the time when the duty to make it first arose, which shall be presumed in the absence of evidence to the contrary, to be one year after the tenant first received the property if then unproductive, otherwise one year after it became unproductive. (1066)

(d) If the tenant has received any income from the property or has had any beneficial use thereof during the period while the change has been delayed, his share of the delayed income shall be reduced by the amount of such income received or the value of the use had. (1067)

(e) As between successive tenants, or a tenant and a remainderman, delayed income shall be apportioned in the same manner as provided for income by Section 731.06. (1068)

731.14. (a) Where any part of the principal in possession of the tenant consists of an obligation for the payment of money secured by a mortgage or other hypothecation of real or personal property, and by reason of the enforcement of such obligation or by agreement in lieu of enforcement the tenant acquires any property, real or personal, of whatsoever kind, including a money judgment, such property shall be treated as a single substituted asset, and thereafter all income therefrom, expenses incident thereto and proceeds received upon sale, satisfaction, or transfer thereof, not a leasing or letting, excepting gain or profit on such sale, satisfaction or transfer, shall be apportioned in the same manner as provided by this chapter for property of like character acquired by purchase or held as a part of the estate at the time the principal was established. (1069)

Gain or profit realized on sale, satisfaction, or transfer, not a leasing or a letting, of property referred to in this section shall be credited to the income in an amount up to, but not exceeding, the accrued unpaid interest on the original obligation secured by such property as of the date of its acquisition by enforcement of the obligation or agreement in lieu thereof, and the balance shall be credited to principal. Such credit to income on account of accrued interest shall be in addition to any and all other credits due income by the terms of any other section of this chapter. Should any portion of such credit to income on account of accrued interest be in a form other than cash, then, and in that event, the full amount of such credit to income shall be paid first out of any sums received from the conversion of such asset into cash whether by payment, sale, or transfer before any sums so received shall be paid to principal. (1070)

As between successive tenants or a tenant and a remainderman, all sums paid hereunder on account of accrued interest shall be apportioned in the same manner as provided for income by Section 731.06. (1071)

The cost price of the property shall be the unpaid balance of the principal sum of the debt secured by such property, plus all sums whenever paid on any of the following items: (1072)

(1) All costs, charges, and expenses incident to the acquisition of such property; (1073)

(2) All taxes, bonds, and assessments, or any of them, which were payable at the date of the acquisition of such property by the tenant, excepting, however, interest accruing thereon from the date of the acquisition of such property by the tenant; and all such sums shall be a charge against the principal. (1074)

(b) Upon the sale, surrender, or other disposition of a bond, debenture, note, or other evidence of an indebtedness, voluntarily created, or of a certificate of deposit evidencing the deposit of any such instrument with a protective or reorganization committee, or of stock or other security received through paricipation in the enforcement of such obligation or the foreclosure of the security therefor, upon which bond or other obligation there is overdue unpaid interest which accrued after the establishment of the principal, the proceeds realized upon such sale, surrender, or other disposition, after repayment (1) of expenses incurred in connection therewith and (2) of any sums paid to protect or preserve such security, shall be divided pro rata between income and principal, computing interest at the rate specified in such obligation. The amount allocable to income shall in no case exceed the interest accrued and unpaid on the original obligation up to the time of such sale or other disposition or, where another security has been received in lieu of the original obligation, the income which would have accrued on the latter up to such time, less income received from the original or the substituted security. The terms sale, surrender, or other disposition, as above used, shall include compromise, settlement, accord and satisfaction, and similar arrangements. (1075)

731.15. (a) All ordinary expenses incurred in connection with the principal or with its administration and management, including regularly recurring taxes assessed against any portion of the principal, water rates, premiums on insurance taken upon the estates of both tenant and remainderman, interest on mortgages on the principal, ordinary repairs, compensation of assistants and court costs on regular accountings, except attorneys' fees, shall be paid out of income. But such expenses where incurred in disposing of, or as carrying charges on, unproductive property as defined in Section 731.13, shall be paid out of principal, subject to the provisions of subdivision (b) of Section 731.13. Attorneys' fees for ordinary or current services shall be paid one-half out of income; one-half out of principal or in such other proportion as the court may direct. (1076)

(b) Attorneys' fees and other costs incurred in maintaining or defending any action to protect the property or assure the title thereof, unless due to the fault or cause of the tenant, costs of, or assessments for, improvements to property forming part of the principal, brokers' commissions, title charges, and other costs incurred in connection with purchasing, selling, or leasing property, or investing or reinvesting principal, and all other expenses, except as specified in subdivision (a) of this section, shall be paid out of principal. Any tax levied by any authority, federal, state, or foreign, upon profit or gain defined under the terms of subdivision (b) of Section 731.05 shall be paid out of principal, notwithstanding such tax may be denominated a tax upon income by the taxing authority. (1077)

CHAPTER 3. RIGHTS OF OWNERS (732-733) (1078)(1-click HTML)

732. The owner of a thing owns also all its products and accessions. (1079)

733. When, in consequence of a valid limitation of a future interest, there is a suspension of the power of alienation or of the ownership during the continuation of which the income is undisposed of, and no valid direction for its accumulation is given, such income belongs to the persons presumptively entitled to the next eventual interest. (1080)

CHAPTER 4. TERMINATION OF OWNERSHIP (739-742) (1081)(1-click HTML)

739. A future interest, depending on the contingency of the death of any person without successors, heirs, issue, or children, is defeated by the birth of a posthumous child of such person, capable of taking by succession. (1082)

740. A future interest may be defeated in any manner or by any act or means which the party creating such interest provided for or authorized in the creation thereof; nor is a future interest, thus liable to be defeated, to be on that ground adjudged void in its creation. (1083)

741. No future interest can be defeated or barred by any alienation or other act of the owner of the intermediate or precedent interest, nor by any destruction of such precedent interest by forfeiture, surrender, merger, or otherwise, except as provided by the next section, or where a forfeiture is imposed by statute as a penalty for the violation thereof. (1084)

742. No future interest, valid in its creation, is defeated by the determination of the precedent interest before the happening of the contingency on which the future interest is limited to take effect; but should such contingency afterwards happen, the future interest takes effect in the same manner and to the same extent as if the precedent interest had continued to the same period. (1085)

TITLE 3. GENERAL DEFINITIONS (748-749) (1086)(1-click HTML)

748. The income of property, as the term is used in this Part of the Code, includes the rents and profits of real property, the interest of money, dividends upon stock, and other produce of personal property. (1087)

749. The delivery of the grant, where a limitation, condition, or future interest is created by grant, and the death of the testator, where it is created by will, is to be deemed the time of the creation of the limitation, condition, or interest, within the meaning of this Part of the Code. (1088)

  

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