Transcript (Download) - University of Houston Law Center

Professor Crump, 2006
Property Visual Aids
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1
FUNDAMENTALS
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2
Course Plan
Intro: Anatomy of Real Estate Trans; Economic
1A. Lease regulation
1B. Leases: the agreement
2. Intellectual propty: copyrt, trademk, patent, secret
3. Real estate ownership
4. Real estate transactns
•
•
•
•
5.
6.
7.
8.
agreemt/sale
finance-transfer docs
title
closing; remedies
Gov’t actions; taking
Land use: laws, servitudes
Possessory & future int’s
Complex transactions
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“A Very Different Subject”
1. Traditional parts:
a. subject-matter cov’g
b. cases, statutes, notes (most)
–notes are useful
2. Non-traditional:
a.
b.
c.
d.
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lawyering strategy problems
transaction (anatomy) book
methods for policy analysis
life as a transactional lawyer: satisfaction?
4
“A very different kind of course”
Most law school courses deal solely
with this context:
This course, however, includes this
context, by definition:
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What will the differences be?
1. “Policy” questions?
2. Customary kinds of transactions?
3. Private negotiations and ordering?
4. “Private” property?
5. Cases . . . or, documents?
6. A “deal-oriented” course? (Can “deals” be taught?)
5
Special Methods in This Course
1.
2.
3.
4.
5.
6.
7.
8.
Calling on you–sequence
“Anatomy” book–transactional papers, in sequence
Handout of overhead projector transparencies
Internet video reviews
• 3 of them; periodically
• noted in syllabus
• keyed to transp. Handout
• can be used as preview
Syllabus: differential reading
Problems: simulations
Practice xam; sample ans; confs
Exam preview (later)
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The Lawyering Strateg Problems:
An Overview
Ch. No. Subject Matter
2A Analyze copyrt agreemt
3A Analyze land sale agreemt
3B Prepare deed
4A Argumt: land agreemt
4B Renegotiate land agreemt
5A Deed boundaries
5B Mortgage foreclosure
6A Analyzing title
6B Curing title
7A Takings; subdivision regs
10A Zoning request
11A Easement dispute
11B Easement conveyance
13A Commercial lease negotiatn
Competencies: documt prep, documt analysis, negotiation, counseling, dispute resolution
(litigation)
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PAPERBACK BOOK:
THE ANATOMY OF A REAL
PROPERTY TRANSACTION
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road map for real estate transaction
1. Brokerage
6. Fulfillment of Title Preconditions
2. Negotiations
7. Preparation of the Core Documents:
Note, Deed, and Mortgage
[or Deed of Trust]
3. “Earnest Money Contract”
or
“Agreement of Purchase and Sale”
4. Fulfilling Financing
Preconditions
5. Fulfillment of Inspection
Preconditions
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8. Preparation of Ancillary Documents
9. Closing: Execution of the
Documents
10. Title Insurance, Funding,
Recording, Delivery, Possession
10
Brokerage
1.
2.
3.
4.
5.
6.
7.
8.
9.
brokers
licensing
reqmt of writing
exclusivity?
MLS
entitlmt/commiss
consumer legisln
broker tasks
agent of both?
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The Earnest Money Agreement
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
blueprint
emotional event
reqmt of writing
finance contngncy
good & indefeasible?
exceptns/seller
risk/loss
furniture/fixtures
delivery/poss’n
equitable title/record
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The Terms of Financing
1.
2.
3.
4.
5.
6.
7.
fixed-rate
ARM
ROM/balloon
GPM
why non-fixed?
regulation
caps
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The Financing Process
1.
2.
3.
4.
5.
6.
7.
loan commitment
RESPA: g.f. est.
“points”
usury
fed preemption
engineering rept
other inspections
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The Deed
1.
2.
3.
4.
5.
6.
7.
8.
9.
deed: elements
conveyance
general warranty
exceptions
acknowledgement, recording
corp resolution
fee simple absolute
“baron sole”
express vendor’s lien
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The Promissory Note
1.
2.
3.
4.
5.
6.
7.
negot’bl instrument
ARM & cap
“limited paymt” note
prepayment right
default; acceleratn
anti-waver
personal liability?
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The Mortgage
(“Deed of Trust”)
Seller
deed
Buyer
funds
note & deed/trust
Lender
A deed/trust is literally a “conveyance in trust,” but not
really; it’s really a privately foreclosable mortgage, and
the “trustee” isn’t one.
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Terms of the Deed of Trust Mortgage
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
uniform covenants
judicial sale mtg
pvt sale: D/T
foreclosure delay
which better?
equity redemptn
escrow: taxes/ins.
mortg ins. (PMI)
phys integrity
foreclosure proced
trustee & subst.
deficiency?
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The Due on Sale Clause; The “Riders”
1.
2.
3.
4.
5.
1.
2.
3.
4.
due-on-sale
borrower credit?
other concern?
due/sale controversy
“golden rule”
PUD rider
adjust/rate rider
self-destruct rider
forms & riders
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The Title Assurance Process
1.
2.
3.
4.
5.
6.
7.
8.
9.
trace to sovereign?
adverse possession
“driveway easement”
examiner’s method
marketable–legislatn
marketable, record, good
recording system
taxes, judgments
variations; attys
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Title Insurance
1. insurance: function
2. what’s insured
3. contract?
representatn?
4. boundary agrmt: curing
5. cure by affidavit
6. modified policy
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Closing
1.
2.
3.
4.
5.
6.
7.
8.
9.
function of closing
escrow usage
escrow disadvantages
borrower’s undertakings
voluntary disclosures
required disclosures
Reg Z statement
disclosure cost/benefit
closing instructions
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Subdivision & Homeowner’s Ass’n
1.
2.
3.
4.
5.
6.
7.
8.
deed restrictions
force of restrictions
lapse
zoning compared
homeowners assn
powers/duties
maintenance fee
officers/directors
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Resale; Tax Issues
1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
assumption instrumts
assumption v. subject-to
lender’s consent
terms for consent
alternative: new note
estoppel letter
other docs
deductibility
recognition
capital gain
ord, nec bus exp
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APPENDIX A:
THE ECONOMICS OF
PROPERTY LAW
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Economic Policy: A Summary of This
Coverage
I. The Market System and Its Efficiencies
A. The Allocative Effect of the Market
Supply & Demand; the Invisible Hand
Contrasting Central Control
Equilibrium Price & Quantity: No Waste
B. The Signaling Effect of Prices
Supply or Demand Curve Change; Price
Effect of Blockages: Shortage
C. Marginal Cost etc.
Efficient Use of Factors of Production
Marginal Cost, M. Productivity, M. Revenue
D. Production Efficiencies
Factor Use; Innovation; Quantity; Investment
E. Distributional Efficiencies
Pareto Optimality
Kaldor-Hicks Efficiency
F. The Coase Theorem: Efficiency of Pvt Barg
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Economic Policy: A Summary of This
Coverage cont’d
II. Imperfections Justifying Intervention in Markets
A. Equality as a Value, Traded vs. Efficiency
B. Industry Structure: Monoply, Oligopoly, Restrictn
C. Overcompetition and Distressed Firms
D. Public Goods, Hybrids, Free Riders, Tragedy/Commons
E. Socioeconomics: the Failures of “Homo Economicus”
F. Externalities
Types of Responses: Ignore; Use the Law
Efficiency of Negligence Law: Cost Internalization
Actual and Exemplary Damages: Economic Functions
G. Incommensurability, Uncertainty, Irrationality
H. Information Asymmetries
I. NOT: “Bargaining Power” (but Lawyers Use It)
III. Deontology as an Alternative to Consequentialist Economics
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law & economics–
the allocative effect of the market
•
supply and demand
•
comparison to central planning
•
the invisible hand
•
equilibrium
figure 2: where supply & demand cross
is the equilibrium price
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D
S
P
Q
28
signaling; controls; misallocation
signaling effect of prices:
demand or supply curve shifts;
equil price changes; and equil
quantity follows
price controls: shortages
figure 3: equilibrium price is higher
than controlled price; demand
exceeds supply; shortages result.
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D
S
controlled price
P
shortage
Q
29
consumer sovereignty
one & ½ cheers?
problems:
1. housing vouchers
support? oppositn?
2. taxicab fare; apt. safety:
reg or competition?
3. rent control: effects?
4. the efficiency of enforcing contracts
5. nuisance law, balancing benefits of conduct vs. harm
caused, uses an economic test. Why?
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marginal cost, productivity, revenue
marginal cost:
1 more unit
m cost curve–
figure 4. U-shaped.
factors of production
marginal productiv:
tends to equal marginal cost
marginal revenue:
tends to equal marginal cost
efficiency mix of factors
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problems:
1. how much spend to renovate a rental apartment
property?
2. how decide what renovation ideas to spend it on?
3. litigation: economically, how would an efficient
lawyer make decisions about using discovery, doing
research, etc?
4. efficient breach of contract (with payments of
damages: why?)
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productn efficiency
•
•
•
•
•
•
•
mix of factors of prod
innovation
production volume
investment (present/future)
distribution efficiency
marginal utility
Pareto-optimality
no trade improves
satisfaction
not “equal”
Kaldor-H efficiency
tot gains/winners exceed tot losses
Pareto-superior
if compensate
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problems:
1. Pareto-optimality
from market:
Why?
2. factory’s 100-lb effluent; citizens prefer 50; $100,000
cost, $500,000
benefit: K-H
efficiency for $100,000 cost to be imposed (should
citizens pay it?)
3. revisiting efficient breach of K, with damages:
K-H efficiency, why?
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efficiency v. equality
• mkt = efficiency, but not distrib equality
• tolerable inequality?
• gross inequality?
wealth redistribution:
inconsistent w/efficiency
problems:
1. H Chavez’s Venezuela
2. scarce necessities
3. in-kind or unrestricted?
4. price (rent) controls/tax & transfer?
5. erad poverty/reduce billionrs?
6. the paradox: equality by redistribution inconsistent w/efficiency, BUT–at
some point, is it needed for efficiency?
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structural imperfections
monopoly
•
evil? rational?
•
restrict output, same motives
oligopoly
•
few enuf/indiv
•
strategic behavior
•
prod different’n
•
barriers/entry
responses
•
regulation
•
antitrust
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problems:
1. patents: a legal “monopoly?” What motivation; what
patent standards?
2. professional team wants a smaller arena?
3.-4. historical cost regulation: effect on price signaling
f’n? lag politics, undercap, noninnovatn→
brownouts; why?
5. prudent cost reg v. used & useful: higher return
6. should conscious parallelism in prices be an antitrust
violatn?
7. antitrust & politics
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distressed firms and overcompetition
problems:
1. antitrust: should govt oppose merger if 2nd
largest acquires 5th largest (which is
distressed)?
2. let’s start a band! $$! OR:
entertainmt law firm!
3. lender, bus plan, market analysis:
competition
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public goods
•
•
•
•
public goods
hybrid goods
free riders
tragedy of the commons
problems:
1.
2.
3.
4.
5.
public housing and advocates of vouchers
trade secret law: efficient?
patent grant justification: free riders?
deed restrictions: hybrid goods? tragedy of the commons?
Fiss, Against Settlement, because doesn’t contrib to precedent
bank. Efficient?
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socioeconomics
•
•
•
homo economicus
Thaler’s experiment
max price/beer brought from
[exp resort]
[cheap grocer]
problems:
1. 2 property sellers: same m u/money, same opp/for
fraud; one does, one no. Can econ predict?
2. what factors make non-fraudulent seller?
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externalities
externalities
•
pollution
•
accidents, etc.
[positive ext]
responses
•
ignore
•
pvt negotiatn
•
prohib activity
•
perform stds
•
cost-internlzn:
•
taxes, permits,
•
subsidies, dmgs
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negligence & externalities
L Hand’s Formula: it’s negligence, if B ‹ PL,
meaning if the safety burden is less than
probable loss–
figure 5: efficient point (due care) is where P x L
curve (probable loss) crosses B curve (cost of
safety). Why?
market system motivates cost reduction; tort
system, as a corrective, motivates socially
desired level of safety.
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problems:
1. nuisance law (balancing) revisited: balances value of
conduct v. harm; how similar to Hand’s formula?
2. negl std for person w/disability efficient?
3. Easterbrook: airline safety
increase →
increased autos; less safety(!)
4. building codes can decrease safety (how?)
effect of rent control on safety?
5. ADA requires specific (and costly) building stds for
the disabled. evaluate efficiency?
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accident claims,
efficiency
•
•
compens dmgs:
deterrence?
compensatn?
punitive dmgs?
gap-fillers?
overkill?
problems:
1.
2.
3.
4.
Stachura case:
compens & pun & “additional,” illegal
dmgs for breach of propty sale K: usually, no recovery for “speculative”
items (appreciation since breach; distress). Inefficient; why?
Smith v. Wade
fn of punitives; gross neg? intent?
punitive dmgs for real estate fraud: efficient?
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incommensurability; shadow markets
irrationality of enforcemt
uncertainty of future factors
problems:
1. eminent domain:
value of a strip to widen road
2. should em domain, then, use hist cost
transaction costs
problems:
1.
2.
3.
4.
5.
property sale closing cost reduction: efficiency of regulating uniform disclosures,
controlling max costs for some items?
litigation as a transaction cost: efficiency of lowering by reducing discovery?
title insurance with an exception for adverse possessors: usually chosen by buyers.
why?
real estate class actns: efficiency?
zoning laws; large transaction costs. why?
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Coase Theorem
railroad → sparks;
2 possible legal rules:
railroad liable, or
farmers absorb loss
if trans costs = 0, it’s immaterial to efficiency which
rule; parties will negotiate efficient agreement
•
argumt for pvt barg
•
wealth effects remain
•
is Coase meaningless?
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APPENDIX B:
ETHICS AND POLITICAL PHILOSOPHY AS
THEORETICAL JUSTIFICATIONS
OF PROPERTY LAW
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The Great Divide in Ethics
Teleology = nature & purpose
purpose
consequentialism
utilitarianism
Bentham, Mill
Deontology = non-purposive
(not cost/benefit)
Kant
imitation principle
categorical impertv
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Both Theories Are Imperfect
1. Utilitarianism & slavery–
slave owners wd like. But Kantianism opposes;
why?
2. Utilitarianism & vulnerable minorities: how treat
ADA, confiscation of amusemt park?
3. Kant: conflicting categorical imperatives?
(performance of promise illegal?)
4. Kant: must you tell truth to terrorist (neighbor in
closet?)
or: contract bankrupts promisor w/negligible
benefit?
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consequentialism v. deontology
•
•
•
•
pun dmgs seen as mkt corrective, vs as retributive, proportional justice
“zero tolerance”: the Advil problem?
death p, drunk drivers?
synthesis?
diff ways of same thing?
problems:
1.
2.
3.
which is best, to evaluate the law–usually conseq; deontol at “borders”?
BMW v. Gore: reprehens, ratio, comparables–
deontol measures of pun dm?
what role for conseq?
efficient breach/K: conseq?
deontol?
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some other moral theories and issues:
•
•
•
•
•
the “rule utilitarian” and “limited deontologist”
indeterminancy
a.
trolley problem
only way save 6 is divert, killing 1
b. invol org donor:
only way save 6 is harvest his organs
pervasive indeterminism: Westermark’s relativism
process theory
a.
as a response to indeterminancy
b. emphasizes procedure, debate, justification
social moral theory
problems:
1.
2.
for a market in transplantable organs, what analytical method would be used by:
(1)Kantians? (2) utilitarians? (3) rule utilitarians? (4) moral relativists? (5) process theorists?
(6) social moral theorists?
deontology seems to dominate this kind of issue (refusal to consider cost/benefit). Why?
What consequences?
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1A. LEASE REGULATION:
LANDLORD-TENANT
REGULATION
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lease regulation
1.
quiet enjoyment
a.
b.
c.
d.
e.
2.
Pfeifle v. Tanabe
a.
b.
c.
d.
e.
3.
wrongful conduct
attributable to landlord
omissions?
constructive eviction: notice, cure, surrender
contrast habitability
entry & use, noise, dirt, fumes, electric, bldg. codes
written notice req’d?
problems cured?
waiver? (prompt?)
cumulative effect?
notes: 1. “substantial” interference, 2. attribution/landlord, 3. quit:
reasonably prompt, or waiver? 4. tenant’s dilemma, 5. tenant’s remedies,
6. statutory modificatn
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habitability: meaning?
1.
Javins v. First National
a.
b.
c.
d.
2.
3.
4.
5.
6.
7.
8.
allegation: 1500 violations
agricultural tenant v. urban dweller
inferring the warranty: analogy to sales warranties, cultural change, contract aspect,
codes
rent withholding
notes: 1. are housing codes an appropriate test? 2. vagueness, 3. effect of rent
withholding: tenant’s power
Dick case: broken sewer, mold; minimal standard
Metz v. Duenas: pretext
notes: 1. meaning of habitability? 2. running (hot) water? 3. nonwaivability,
4. rent withholding v. abatement, self-help, restitution? 5. misuse: the dishwasher
hypothet
law & economics: is scarcity an appropriate argument for raising supply cost?
Central Bank v. Mika
A & G Pinzon case
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security deposits:
Garcia v. Thong
1. URLTA
2. § 47-8-18:
a.
b.
c.
d.
wear/tear excluded
itemization required
30 day deadline, last addr
forfeiture if not
3. no exceptn for entire detention
4. notes: 1. legal aid advice, 2. back rent different, 3.
URLTA
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damages–duty to mitigate?
1. Austin Hill (Tx): yes, duty.
a. majority rule
b. contractual aspect, econ efficiency, reduces deterioratn,
penalties disfavored, not a “personal” obligation
2. Stonehedge (Pa): no duty.
established law, simplicity, legislature, unfair burden
on nonbreaching party, tenant can mitigate
3. notes: moral & econ argumts
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eviction etc.
A.
self-help
1.
2.
3.
4.
5.
6.
B.
special eviction procedures
1.
2.
3.
4.
5.
6.
7.
C.
“summary proceedings”; “FE&D”; etc.
short notice-to-cure
suit/service
expedited answer/trial
one-issue trial(?)
rent independence justified?
constitutional
are they really “expedited”?
1.
2.
3.
D.
common law: necessary force
limited modern use/force
lockout: Spinks case
case for/against self-help
modern lockout remedy
landlord’s lien
technical aspects: Metz v. Duenas
defenses or c’claims: habitability
contrary cases
rules in our State
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eviction continued
•
•
lockout remedy
[Tx: yes, but must post where key]
summary eviction
[does it work?]
•
Tx: FE & D Stat—
holdover, etc.
justice courts
3-day notice
writ/possession
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rent control & related issues
1. Pennell v. San Jose
a. majority: tenant hardship premature
b. Scalia: policy against (“off-budget”)
2. notes: 1. consensus about effects, 2.
monopoly/shortage argument, 3. “economic rent,” 4.
administrative & ancillary [Danekas case]
4. notes: 1. prohibition even if tenant agrees; 2.
vacancy/decontrol; 3. benefits long-term gentry @
expense of short-term poor?
6. affordable housing
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1B. LEASEHOLDS:
CONVEYANCE AND
CONTRACT
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leaseholds: tenancy types
1.
tenancy types
a.
b.
c.
d.
e.
[f.
2.
Miller & Desatnik v. Bullock
a.
b.
c.
d.
3.
estate for years (“fixed”)
periodic (renewable)
at will
at sufferance
statutory
trespass]
tenant dies during tenancy; mother occupies, subterfuge
under each tenancy type, what result?
actual result: periodic, terminated: she’s a trespasser
if not by death, notice given
notes: 1. what if mother was roommate? or, assignment? 2. tenancy types,
3. statutory tenancies
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common law leases
1.
2.
3.
4.
lease = conveyance (land conveyed, as is)
[ejectment remedy]
[lease = chattel real]
[conveyance or contract?]
a. what difference?
b. example: independence of rent
5. [comparison to modern]
a. common law: tenant as agricultural
b. modern: tenant as urban dweller
6. [lease, license, etc.?]
7. [statute of frauds]
8. [recording acts]
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transfer: landlord’s consent
1.
types of arrangements
a.
b.
c.
2.
Kendall v. Earnest Pestana
a.
b.
c.
d.
3.
4.
5.
“silent” consent clause
majority rule: absolute
Calif.: reasonableness
reasoning: restraint/alienation, lease as contract, lessor’s only interest is tenant quality(?)
California legislation: protects majority rule, earlier transactions
Trinity v. Metrocrest: different result (TX)
law & economics: is Cal. S.Ct. wrong?
a.
b.
c.
d.
e.
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no restriction
consent, reasonableness
consent, absolute
is tenant quality only interest?
stable K enforcement
market pricing
Coase Theorem
arguments supporting Cal. rule
63
transfer: assignment v. sublease
1. assignmt is of entire remaining lease
2. sublease: sublessor retains part
3. right to re-enter upon breach
a. majority rule: does not covert to sublease
b. Texas rule: does convert
4. what effects?
a. consent clauses
b. restoration; loss
c. other consequences
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transfer: subordination & attornment
1.
2.
3.
4.
5.
6.
7.
8.
9.
interest priority: senior & junior
lease after mortgage (or, mortgage after lease?)
subordination
subordination agreements
why does it matter?
attornment: account to new person
“SNDA” clauses
multiple overlapping interests: commercial planning & disputes
Miscione v. Barton Devel.
a.
b.
c.
d.
the SNDA clause--subordination, nondisturbance, attornment
lessee’s need for clarity
key to the case: new landlord didn’t give required written assurance
majority thinks that’s ok; dissent, no.
10. notes: 1.-2. majority v. dissent, 3. negotiation strategies, 4. strategies after
foreclosure, 5. multiple overlapping interests
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delivery of possession:
Keydata v. United States
1.
2.
3.
4.
5.
6.
7.
holdover; landlord didn’t deliver poss’n
tenant (US) terminates
American rule: conveyance only
English rule: deliver possession
policy reasons
acquiescence/estoppel claims
notes: 1. English rule adoption
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use/occupation/operation--“going dark”:
Okla Plaza v. Wal-Mart
1. no “continuous operations” clause (dismissal on that claim)
2. “use” clause, “abandonment” clause
3. ct implies continuous operations clause from use &
abandonment clauses, plus policy arguments
4. policy arguments: why?
5. BUT then: district court remands bankruptcy decision; why?
6. notes: 1. opposing strategies about going dark, 2. negotiations
for lease, 3. operations, use, abandonment clauses--WalMart’s argument? 4. Okla Plaza’s argument? 5. damages
only--or injunction, too?
7. “use restriction” clauses; cases
7/17/2015
67
premises quality
1. during tenancy: Wesson v. Leone
a. covenant inferred from lease language
b. rent-covenant dependency
2. notes: 1. distinguishing implied “quiet
enjoyment,” 2. where’s the alleged “lease
promise”? (3) non-independence
3. restoration upon termination(?): lease
provisions
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68
premises quality cont’d
1. premises liability: negligence duty
a. Cramer case: no duty
b. Doe v. Dominion: opposite
c. the economic argument
2. non-delegable duty: statutes
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69
rent etc. clauses
1.
2.
3.
4.
5.
6.
“gross” or fixed
triple-net (taxes, insurance, maint.): multiple meanings
escalators: fixed, indexed
percentage
multiple combinations
United States v. McLaren
a.
b.
c.
d.
e.
7.
8.
Stark & anti-kickback
inflated-lease claim
govt expert considered fixed only
McLaren expert, triple-net included; adjustment
other factors: escalation, negotiations
notes: 1. FMV and appraisers, 2. was gov’t expert right? triple-net and
risk-shifting, 3. overall lease negotiations, 4. why use triple-net? 5. or
escalators?
percentage rents: policies
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70
Problem 12A: Carr-Mertz Lease
A. customary clauses
1. rent, use etc., remedies/terminatn: more complex
2. additional: SNDA, consent, possession, etc.
B. problem: incomplete terms
1.
2.
3.
4.
5.
rent clause; price? type?
rent increases?
assignment/sublease?
restoration/environmental?
use, operation, abandon?
C. assignments
1. negotiate completion
2. prepare status letter
3.
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explain and discuss
71
2. INTELLECTUAL
PROPERTY
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72
Constitution: how read it?
1. “To promote the Progress”
2. of “Science & useful Arts”
3. for “limited Times”
4. to “Authors & Inventors”
5. the “exclusive Right”
6. to “Writings & Discoveries”
Notes
1. Reading the Constitution: it’s different
2. a. idea without an invention
b. trivially simple invention
c. the “updated” Shakespeare
3. statute versus Constitution
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73
copyright statute: how read it?
1. original works
2. of authorship
3. fixed in tangible medium
4. communicable
5. list of 8 types
6. not an idea, process, . . . or discovery
Notes
1. originality: “updated” Shakespeare?
2. originality: Shakespeare in Spanish?
3. copyright is automatic
4. tangible medium: “idea” for Shakespeare in Spanish?
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74
OddzOn v. Oman
1.
2.
3.
Background: Koosh; Copyright Register; this suit
Holding: refusal upheld
The originality issue
a.
b.
c.
familiar shape? [this isn’t the issue; why?]
originality?
deference to Register?
4.
the functionality issue (why not functional aspects)?
Notes
1.
adding originality: colored pattern & copyright? But not helpful?
2.
Koosh patentable as “invention”?
3.
non-artistic creation: directory
a.
b.
c.
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Supreme Court: no copyright
correct decision--or wrong?
if commentary added?
75
types of IP we’ll study
1. Copyrights
expression, fixed medium, original [registration],
categories
2. Trademarks
distinctiveness, priority, use, nonconfusion,
commerce [registration]
3. Patents
novelty, utility, nonobviousness
4. Trade secrets
substantially secret, bus use, ec value
5. [other types]
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76
Trademarks & Unfair Competition:
Lanham Act
•
•
•
•
•
•
[There are other sections that create a broad protection against “unfair
competition.”]
§ 1127: registrable unless (1) “resembles” registered mark so (2)
“likelihood of confusion”
[registration is not required]
§ 1114: infringement & remedies
§ 1127: trademark--any (1) “device” (2) “used [by or intended]” (3) “in
commerce” (4) “to ID, distinguish, & indicate source” of goods/services.
Notes:
1. a. name on your law firm
b. green-handled hammer
c. red fire equipment
d. “General Motors” on tools
2. registration: not required; advantages
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77
Trademark: Qualitex Co. v. Jacobson
1. Background: Qualitex’s green-gold pads; registered; Jacobson
used similar colors; Qualitex suit under § 1114--registered
mark; likelihood of confusion [potential damages &
injunction]. Also, unfair competition.
2. Holding: for Qualitex. Color alone OK.
3. Reasoning: a. color is a “device.” b. admittedly, it isn’t alone
enough, like (1) fanciful, (2) arbitrary, or (3) suggestive
symbols. “Weaker” marks include (4) suggestive and (5)
generic (not usable as T’mark). c. but: can indicate source
(red bolt head & pink insulation examples) if d. secondary
meaning, and e. not functional (light bulb shape; red fire
equip examples). f. court rejects arguments about uncertainty,
limited supply, old statute, no need.
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78
Notes after Jacobson
1. when color alone? (device, ID source,
secondary meaning, not functional.)
2. functionality: why excluded? (red firefighting equipment)
3. likelihood of confusion: what meaning? (a)
side-by-side, ability to distinguish or (b) easy
distinguishability alone? (Jacobson adopts
close-but-different color OR Jacobson adopts
orange paisley)
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Notes
1. Secondary meaning; why not required here?
2. hierarchy of mark (or dress) strength: “Apple”
Computers; “Coppertone,” “Nice N’ Soft,”
“Bathroom Tissue
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80
Patent Limits: Anderson’s Black-Rock
1. background: patent issued for combined heater, spreader,
shaper; spreader-shaper combination well known, heater well
known
2. held: patent invalid
3. reasoning: statutes--novelty, utility, nonobviousness.
Combination must produce synergy over prior art.
Commercial success not enough. Nonobviousness std is
constitutional.
Notes:
1. 3 requirements; what’s missing?
2. expense, delay, risk of patent application
3. judging obviousness: hindsight
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81
Patent Grant: United States v. Adams
1.
background: patent issued for magnesium, CuCl, & water battery. Each element known, but
combination filled need. Useful, unexpected.
2.
held: patent valid.
3.
reasoning: prior art must be examined. Differences from prior art are important. So are
unexpected results, etc. Novelty, utility, nonobviousness are present
Notes
1.
Was Adams’ battery really nonobvious? (Novel or different, yes, but nonobvious?)
2.
Combination patent: ALL patents!
3.
Distinguishing Adams from Anderson’s Black-Rock: 3 well known ingredients in each,
commercial success, etc.
4.
Expert doubts, results, need, comm’l success: do these count?
5.
What is “nonobviousness”? Is it arbitrary?
6.
The “claims” in a patent
a.
claims are the heart of the patent
b. exact words used to determine infringement
c.
note focus on claims in Adams
d. strategy: (1) multiple claims; (2) broadest claims possible—but not so broad as to
threaten novelty, utility, nonobviousness
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“UTSA”: Uniform Trade Secrets Act-BP Chemicals v. Jiangsu Sopo
background: “real” issue is personal jurisdiction, which requires
connection between elements of claim & act in U.S. For that, must
explore claim. Sopo, a foreign sovereign entity, worked with SPECO to
obtain BP secret methods from BP licensees & then disseminated them to
American contractors.
2. Held: claim elements exist in U.S.; therefore, jurisdiction exists.
3. Reasoning: a foreign sovereign is subject to suit in the U.S. for a claim
“based on commercial activity” in the U.S. A “trade secret,” under
UTSA, is (1) information, w/ (2) economic value, (3) not generally
known, and (4) with secrecy reasonably maintained. Misappropriation,
under UTSA, is defined & includes dissemination.
Notes
1. Secrets v. patents: why didn’t BP patent all secrets?
2. Subjects: customer lists, prospects, customer specs?
3. “Reverse engineering”: what difference, trade secrets v. patents?
1.
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83
property transfer agreements
the “six elements” approach (a method of analysis devised by this professor)
I.
Parties
II. Preconditions
III. Obligations: Other Party
IV. Obligations: ClienT
V.
Breach & Remedies
VI. Termination
[Other considerations]
•
What do these mean?
•
Why study?
•
Property Law is PRIVATE LAW. Most of lawyer’s efforts concern
AGREEMENTS and other DOCUMENTS.
•
(This course is different!)
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84
the “six elements”
I.
Parties
Can they perform? Do we have all we need? Are they financially responsible?
II. Preconditions
What has to happen before the other party is obligated? On the other side, is the client
protected from obligations that shouldn’t exist?
III. Obligations: Other Party
What does the agreement say, and how specifically, about what the other party must do? Do
these obligations fit the client’s expectations, as written?
IV. Obligations: Client’s
What does the client have to do? Is it specifically limited, or can it be read to require more
than the client expects to do?
V. Breach and Remedies
If the other party performs in a way we don’t like, can we clearly prove breach? And what
relief can we get? On the other side, can the other party possibly claim breach after sound
performance by our client, or obtain ruinous remedies?
VI. Termination
Can we tell when and why the other party’s and the client’s obligations end? What happens
then?
WHY THIS SYSTEM IS NEEDED: It’s what’s NOT expressed that really matters, and you won’t
notice what’s not there if you don’t look at it systematically.
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Problem 2A: Arthur-Publis Copyright
Assignment & Pub. Agreemt
1. Novice writer; small informal publisher
2. Badly written agreement
3. What makes a bad agreemt?
a. provisions give plenty to other party,
nothing to you or your client
b. ambiguity in important matters
c. lacks desirable flexibility
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Why This Course Is Different:
Property (“Private”) Property
1.
2.
3.
4.
Property law is PRIVATE LAW.
Property law is DOCUMENTS.
AGREEMENTS form much of the law.
If you WRITE it, a court (almost always) will ENFORCE
IT.
It becomes the LAW.
CUSTOMARY language and structure are important.
5.
6.
a.
b.
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understood among DIVERGENT PARTIES. A suspicious buyer or
seller on the other side more likely can trust it.
the EXPERIENCE factor: a document that has been through
thousands of transactions (or for that matter, even a few) is more
likely to reflect experience about risks than one you scribble on a
legal pad or type out on a laptop with no experience.
87
Intellectual Property: Rosenthal’s
“Four Issues”
1. creation?
2. protected?
3. prevented?
4. pitfalls?
[compare to the “Five Questions”]
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88
Patents: Defining Infringement
1. the claims control, compared to device–“literal” infringement
2. doctrine of equivalents: most alleged infringements exhibit
small differences
3. pros. history estoppel: Pat. Off. challenges as overbroad;
applicant narrows (rather than appeal); then, estopped from
claiming abandoned item as “equivalent”
4. Adams-based example: applicant specifies water; infringer
uses another liquid; applicant claims “equivalent.” (But what
if applicant gave up the word liquid in response to rejection &
substituted water; “estoppel”?)
5. equivalents expands patent; BUT: prosecution hist estoppel
limits equivalents
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89
Infringement, Equivalents & Estoppel:
Festo Corp. v. FMC
1.
2.
3.
4.
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patent rejected; amended to cover only devices w/pair of 2
sealing rings; defendant’s device had only 1 sealing ring.
P argues: infringemt by equivalents
D argues: pros hist estoppel
Held; even if there is pros hist, abandoned item can be
equivalent if:
a. infringing equiv was “unforeseeable”;
b. reason for amendmt was “tangential” to equivalent; or
c. some other reason for not describing equivalent
90
Festo case, continued:
5. policy underlying equivalents
6. resulting uncertainty
7. to prevail, what must Festo show?
Infringements of Other IP types
copyright: substantial similarity
trademark: likelihood/confusion
trade secret: types of misappropriation
Notes: (1) who’ll win?; (2) copyright infringemt; (3) the
“similar Supermen” problem; (4) trademark
infringement (Huggies v. Dougies)
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Problems about Patents, Trademarks,
Copyrights, and Trade Secrets
1. “Valcom”: computer prog; base inputs lead to mkt
valuations; used known algorithms/commands
combined by programmer; sold printout to investor
customers; how protect?
2. Wrestler, “The Hammer”--steel-like plastic helmet &
gloves, distinctive gait & speech; how stop
imitation/neg publicity, get paid when pictured;
Note: “right of publicity” (not studied, but appears in
Ch. 8 if interested)
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92
Legal Analysis: The Logic
•
Syllogism (Deductive)
First Premise
“All emeralds are green.”
Second Premise
“This object is an emerald.”
Conclusion
“This object is green.”
• Analogy (Inductive)
• Generalization (Inductive)
Here’s the key! Law school analysis is heavily deductive (syllogistic).
1. PRINCIPLES (all) (First Premise)
2. FACTS (all) (Second Premise)
3. CONCLUSION (this comes last!)
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Conversion; trespass
1. Forms of action; conversion & trespass
2. Are intangibles propty?
3. Subject to conversion?
a. early rule: no
b. later: if merged in doc
c. later: broad
4. Policies against–
a. strict liability?
b. cost-benefit? (economic test)
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94
3. REAL PROPERTY
OWNERSHIP
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95
property interest creation: gift, devise,
descent, transfer
1. gift: a. donative intent, b. delivery, c. acceptance
Brewer v. Brewer: trial court erred in applying
presumption of gift among spouses where transfer
was one day before marriage; delivery & acceptance
present, but intent to be tried. Notes:
a. formal requirements: why?
b. burden (heavy) on donee: why? Presumptions: why?
2. devise (bequest if personal prop) or descent
(intestate)
3. transfer by conveyance: “equitable” title
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96
property interest creation cont’d: transfer
3.
Purchase
Problem 3A: Pravelka-Damani
a. residence sale for $380,000 by Pravelkas to Damanis
b. assignment very similar to previous problem (2A)
c. six elements: parties, preconditions, buyer’s obligations, seller’s
obligations, breach & remedies, termination
d. again, a terrible agreement
e. some examples: financing contemplated, but no precondition that
buyer be able to obtain it (literally, K seems to require buyer pay cash
then); no seller obligation to provide warranties or quality assurance
(and no inspection conditioned; etc.)
f. again, issues w/all 6 elements
g. issue isn’t case law or statutes
h. objective; to teach you to analyze a private agreement not just for
conformity to the law, but as creating private law for the parties
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property interest creation cont’d:
adverse possession
4.
adverse possession: a. actual & open, b. exclusive, c. continuous
(tacking), d. hostile (or non-permissive claim of right), e. time period
(state statute of limitations)
(1) Totman v. Malloy: landowners assumed creek = boundary; BUT: surveys
showed creek on Malloy’s record propty. Use by Totman &
predecessors: open, exclusive, for required period (What evidence
shows? Why 20 years?) The issue: “hostility.” Held, no presumption of
permissive use within family (Why?)
(2) Notes: 1. What’s “open” enough? 2. Why permissive occupation
insufficient? 3. what if landowner repudiates permission? 4. practical
effect of permissiveness presumptn? 5. “tacking”?
Not considered:
[5. discovery and occupation
[6. “patent” (grant) from sovereign
[7. other means: a. accretion v. avulsion, b. capture v. correlative rights]
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98
Decotiis & Steele, The Skills of the
Lawyering Process
“capabilities”: which?
reading, writing, case analysis, research? NO(!?)
skilled generalists, here; contrast other practitioners
strategies that matter: client relations, negotiation,
document preparation, learning, courthouse
activities, management
5. teaching documt prep: start w/legal pad?
Notes: 1. existing form: good practice? 2. lawintensiveness of practice v. school? 3. lawyers = bad
managers? 4. relevance of school to the observed
skills? 5. update?
1.
2.
3.
4.
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99
possessory estates:
1.
fee simple absolute
“O to A & heirs”
2. life estate
“O to A for life”
[3. others: later]
future interests:
4. Remainder
“[O to A for life] and then to B & heirs”
problems:
1. “to Grantee & heirs”
2. “to Grantee & heirs”; heirs claim a remainder
3. “to Grantee in FSA”
4. “to Grantee for life, then to Grantee’s son & his heirs”
5. “to Grantee for life”; no further gift
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100
tenancy in common
1. creation: “O to A & B & heirs” (or “O to A &
B in fee as tenants in common”)
2. rights: (a) convey (your interest only); (b) use
(but not waste); (c) not be excluded; (d)
partition only by agreement or legal process
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101
Chinn v. Chinn: tenancy in common:
creation; characteristics
Notes
1. rights and duties: agreeing cotenants had “right”; other’s
objection “not relevant”: why?
2. accounting: must employ “good faith to make it profitable”
and account. objecting cotenant had reasonable argument!
why?
3.
TIC: useful, but messy. why?
a. many cotenants
b. don’t know/trust well
5. a family disaster
6. partition suit: division, sale
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102
j. ten rt. survivorship
1. creation: “as jt’s w/ rt/ survivorship and not tenants
in common”
2. (if not abolished in the State)
3. statutory forms; TOD statutes
4. [historic “4 unities”: time, title, poss’n, interest]
5. doesn’t pass by will or inheritance
6. severance
7. presumption against
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103
Estate of Mitchell
took title “as joint tenants.” (meaning? presumption?)
dissolution suit, TRO
Robert’s severance declaration
what’s a joint tenancy?
how to sever?
community property: a. presumption of community, b. death before
severance/divorce, c. after divorce: cotenancy, unless awarded , d. effect
on passage at death
7. effect of TRO: a. absolute right to sever? NO, BUT: b. avoids violating
TRO? YES, because not “transfer”: Robert successful
Notes
1. parties’ strategies; severance: what effect?
2. Robert’s severance: dirty trick, or what law expected?
3. what if K not to sever?
1.
2.
3.
4.
5.
6.
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104
Problem 3C: Pravelka-Damani Deed
1.
2.
3.
the assignment; the previous problem
tenancy in common: what language?
the deed form
a.
b.
4.
detailed instructions
a.
b.
c.
d.
e.
f.
g.
5.
conforming gender, singular/plural
consideration: why?
property description, careful: why?
habendum & warranty: to H & W heirs; defend against all; why?
all exceptions to title
taxes
acknowledgement; why?
EVERY remaining encumbrance
a.
b.
6.
7.
elements (look at form)
how to complete it
MUST be an express exception! Why?
But not those that will be removed at closing. Why?
what if joint tenancy desired?
function of the title report
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105
Security Interests
1.
2.
3.
4.
5.
6.
7.
•
•
7/17/2015
What are they?
Other names: “lien,” “mortgage,” “deed of trust”
Relation to “ownership”
Creation
Perfection (relevance of recording)
Priority (insolvency)
commercial law, bankruptcy, etc.
Thought Problem
mortgage on one JT interest: usually unwise. why?
mortgage on TC: less risky. why?
106
marital property: historical
1. Historic common law:
unity; dower/curtesy
2. Married Women’s Acts
3. Uniform Dissolutn of Marriage Act
4. Equitable Dist.
5. UMPA
6. Meanwhile: community prop–continental
system
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107
community property
Estate of Mitchell shows:
1. divisible on divorce
2. characterization important
3. passage on death too
4. community presumption
5. protections of community
additional points:
1. which States? (southwestern rim)
2. separate: gift, devise, descent; inception/title; partition
3. differences among States
4. what’s community?
5. the presumption; commingling
6. homestead
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108
notes on community property
1. mixed-up bank acct: W premarital acct check → earnings
acct; check → 100 shares. 5 yr, 10 x value; who gets it?
H: commingling. W: inception/ title, tracing. What if
commun funds used on part/debt? (reimbursement).
2. H prefers characterizing as community, not reimbursemt.
Why?
3. medical degree as “prop”?
career as “prop?”
a. the dumpor-dumpee scenario
b. the professional-as-wage-slave scenario
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109
notes on community (continued)
5. valuation (very important to property lawyers)
a. capitalizatn/earnings
b. multiple/earnings
c. market value
d. hist. cost (book val)
e. replacement cost
6. should difficulty of valuation mean it’s not prop?
(Graham case)
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110
Is earning capacity “property”?
1. Graham = most states (Tx.)
2. NJ: “reimbursement alimony,” based on
“contributions”
3. how value spousal “contributions”?
4. business goodwill is divisible. Should “pers
goodwill” be?
5. refusal to characterize human labor as “propty”?
6. N.Y. approach, based on its D.R. statute: prof degree
is prop; so is career
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111
[common law States; difference]
UMPA–[not read]:
1. marital, individual, “mixed”
2. mixed equals marital unless traced
3. broad power/agreements
4. managemt: titling, etc.
5. creditors: presumption marital
6. survivorship
7. reimbursement
EXCEPT DETAILS, this is commun prop system!
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112
4. TRANSACTIONS:
THE PURCHASE
AGREEMENT
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113
road map for real estate transaction
1. Brokerage
6. Fulfillment of Title Preconditions
2. Negotiations
7. Preparation of the Core Documents:
Note, Deed, and Mortgage
[or Deed of Trust]
3. “Earnest Money Contract”
or
“Agreement of Purchase and Sale”
4. Fulfilling Financing
Preconditions
5. Fulfillment of Inspection
Preconditions
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8. Preparation of Ancillary Documents
9. Closing: Execution of the
Documents
10. Title Insurance, Funding,
Recording, Delivery, Possession
114
getting in the mood--why be careful about
agreements?
1.
Asimov, Foundation
a.
b.
c.
d.
2.
McElroy, Ross and Me
a.
b.
c.
d.
e.
f.
g.
h.
i.
•
3.
4.
meaningless rhetoric
promises don’t mean what you want them to
what isn’t said matters
how to analyze
enthusiasm seems to promise results & prompts “victim’s” investment; then, pull the rug out
changing the deal
refusing to make reasonable agreements
killing the deal arbitrarily
accusations & hardball
exploitation of vague or half-way deals
Nonperformance
false accusations of nonperformance
aggressive interpretation of the deal
People do these things: a. because they are sloppy, b. because of wishful thinking,
c. because of strategy
Professor Stark’s approach
Is litigation a good remedy?
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115
brokerage
1.
2.
roles of brokers
the brokerage agreement
a.
b.
c.
exclusive v. nonexclusive
ready, willing & able
liability concerns
3.
terms: duration, post-term sales, Statute of Frauds
4.
terminology
Frady v. May: the transaction; the financing condition; the two contracts; 1st failed, 2d closed; the
parties’ strategy;
Statute/Frauds prevents recovery except under written K
Court salvages recovery: how?
notes
(1) “cheat the broker” cases
(2) requirement of a writing
(3) closed under 1st or 2nd K?
(4) passage of equitable title--meaning?
(5) what if buyer defaults--seller still owe?
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116
extra-contractual liability
•
tension: prospective defendant wants to limit liability to K. fairness, predictability,
risk. prospective plf wants open non-contractual liability. fairness, expectation,
risk.
Hoffman v. Connall
1. Boundary problem: a typical problem; survey. Seller held liable; no appeal.
2. Broker adopts seller’s representations that reasonably seem true. (Broker must.)
3. Three approaches: (a) warranty (strict) liability, (b) negligence liability, (c) no
duty to buyer.
4. Court adopts (b). why?
not negligent here; why?
notes
1. seller’s liability here (what if honest mistake)?
2. broker lost by winning
3. broker’s liability reduct’n
4. strict liab, negligence, no liab?
5. Tx. approach, Miller v. Keyser–strict liability. Why? (DPTA)
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117
brokerage agreement
1.
2.
3.
4.
exclusive right to sell--why?
ready, willing, able--why?
limitation of liability–how, why?
sales after term (if “procuring cause”)
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118
“agreements to negotiate”;
“letters of intent/understanding”:
1. is there such a thing?
2. damages: certainty
a. importance of damages
b. liquidated
c. proof--hard
Notes
1. enforceability?
2. usefulness--why?
3. danger--why?
4. “status” letters--why?
5. suggested 2-part form (to avoid K--why?)
6. how to do it if you do want K--why?
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119
Negotiating techniques
•
•
•
firm, fair offer
THE negot method:
- unreas 1st
- conceal point
- pretend reas
other techniques
- merits
- blame client
- reverse psych
- agenda
- drafter
- barg chip
- time
- collateral cons
- whipsaw
- focal points
- clubbiness
- physicalities
- mediator
- feigned emotion
- test/strength
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Negotiation continued
Notes
1. ethics? (what about, agree, repudiate, & raise?)
2. importance of negotiation?
3. importance of the merits?
Problems
1. “out-of-pocket medical only”
2. “give me your best shot”
3. “client is unreasonable”
4. “tell me what’s fair”
5. “doesn’t want to cash out”
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Requisites of the property transfer agreement:
the writing requirement
1. Statute of Frauds (Oregon example)
2. Meyer v. Kesterson: payment terms left blank, no
legal (surveyable) description.
held: cash sale enforceable; non-surveyable
description sufficient if owner owns only 1 tract that
fits, aided by extrinsic ev. with “ascertainable
objective facts.”
Notes
1. loose v. strict cases
2. other terms--price?
3. kinds of documents covered
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Problem 4A: Wilson v. Prairie
1.
the set of pleadings
a.
b.
c.
d.
2.
3.
4.
5.
6.
Complaint
exhibit A (the “agreement”)
answer (and counterclaim)
motion to dismiss
setting of hearing
Statute of Frauds
roles assigned
types of arguments (based on Meyer v. Kesterson)
standard: assume all in petition true; if, under law, no way plaintiff can win,
dismissal
how to argue motion
a.
b.
c.
d.
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introduce selves
legal standard
GET TO POINT--no “learned counsel,” etc.
explain why, if as to intelligent lawyer
123
conditions precedent/preconditions
1.
2.
3.
inspection conditions
Allen v. Cedar Real Estate
a.
K: subject to purchaser’s “approval” of environmental; “satisfaction” std.
b. condition not met, but purch claims K enforceable
c.
condition precedent
d. seller’s responsibility to pay, under law; BUT--no K!
financing conditions
Frady v. May
a.
most land is financed
b. what if condition omitted?
c.
usually more detailed
d. why a condition instead of pre-financing?
title conditions
a.
why agree, if title unsure?
b. methods: “satisfactory” v. “usual” v. “permitted encumbrances”
c.
the “free look” concern & how it arises
d. Texas custom: “good” title, plus insurance
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options
1.
2.
3.
4.
5.
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what is an option?
document: term, extension, exercise, full agreement
either condition precedent or particular kind of K
Beale St. v. Miller: Calvin claims he made repeated attempts to pay but
Miller prevented by saying wouldn’t accept. Held, no compliance by
tender.
Notes
(1) Calvin’s waiver argument: didn’t Miller waive by saying wouldn’t
accept?
(2) Statute/Frauds: what if parties orally agree to extend?
(3) strategies re: (a) term, (b) extension, (c) exercise, (d) payments:
don’t say “six months” (Why?)
(4) full agreement included
125
escrow
1. three-way deal, with stakeholder
2. attys, title co’s, etc.
3. seller escrows; buyer escrows (earnest $)
Matter of Akivis--escrow to secure seller’s removal, held by atty;
no standards in escrow K; held, escrowee has duty of
reasonable inquiry, liable for breach
notes
1. caught in the middle (as trustee!)
2. escrowee prefers agreement allowing action on party’s
certification
3. earnest $ as escrow
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real estate sales agreement
“Can you give me big picture?”
yes--and no(!)
the six elements
competing objectives: a. obtain expected benefits, b. reduce/shift risk, c.
reduce ambiguous obligations owed, d. clarify & increase obligations
received
5. mutual objective: agreement
6. purchaser’s view
7. seller’s view
8. purchaser’s 3-time protection:
a. time of agreement, b. period of pendency, c. closing
9. value of knowing traditional and customary solutions
10. universality
1.
2.
3.
4.
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sample sales agreement
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
parties
property
price
financing
earnest $
title policy/ survey
condition, inspection
broker fees
closing
possession
special provisions
settlement expenses
prorations
casualty loss
default/remedies
mediation
attorney’s fees
escrow
representations (warranties)
[tax]
notices
merger, etc.
option
consult attorney
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merger clauses and extra-K liability
1.
2.
3.
4.
5.
6.
the parol evidence rule
the policy basis for the rule
extent of the rule: inconsistency
merger clause: entire agreement
fraud: the dilemma
compromise solution to dilemma
the types of claims: 1. actual fraud, 2.
nondisclosure fraud, 3. innocent misrepresentation
(4. strict liab), 5. negligence, 6. consumer laws, 7.
warranty, etc.
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Cases about Disputes & Claims
Woodlands Land v. Jenkins: actual fraud,
note case
merger clause, but: “boilerplate,” not sophisticated, not used as dispute
resolution
2.
Tx. statutory fraud (§ 27.01(a))--a. false rep, b. real estate, c. purpose of
inducing, d. reliance
[3.
common law fraud: similar]
4.
Tx. § 27.01(d)--nondisclosure, actual awareness (not here)
Stambovsky v. Ackley: nondisclosure of ghost reputation that seller created.
Held: no damage claim, but equitable recission.
disclosure statutes: specify disclosures req’d, moderate liability
Amylot v. Luchini: erroneous disclosure = negligence liability, not
strict liability
consumer legislatn: beyond fraud or warranty
1.
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Problem 4B: Damani-Pravelka
Renegotiation
1.
2.
3.
4.
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the problem: inadequate agreement
how: use document analysis
(6 elements), plus this chapter
status letter: format, terms
renegotiation assignment
a. use all possible negotiation techniques
b. explain them
c. give all offers/counteroffers
d. ethical issues
e. must reach agreement (but tell why you wouldn’t have,
if not)
131
5. TRANSACTIONS:
FINANCING AND
CONVEYANCING DOCUMENTS
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The Lending Market
1. Real Estate Lenders
FNMA; secondary market
S&L crisis of the 1980's
private law, FNMA-driven
2. Loan Documentation
•
•
•
•
•
•
•
•
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retail & secondary markets
result: negotiation, but uniform nationwide elements
public law: e.g., required disclosures; but mostly private law
flat-rate & adjustable loans
the “credit quartet”: rate, term, amortization, amount
core documents: note, deed, mortgage or deed of trust
other documents at closing
recording
133
Figure 1
Real Estate Finance: A Simplified Diagram
Seller
deed
funds
Lender
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note and
mortgage/deed of trust
BuyerBorrower
134
real estate promissory notes: general
principles
(before discussing Moore case)
1. promise (contract) to pay
2. acceleration
3. relation to mortgage
4. deficiency judgments
5. legal limits on deficiency j’s
6. resale:
a. “assumption” (liability on note);
b. “subject to” debt (no liability, although can lose propty)
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Moore v. Bank Midwest
1.
2.
lenders: Gibraltar, which sold note to Midwest
original buyer-borrowers: Moores. Then:
a.
b.
c.
“assumption” sale to HSA;
HSA’s “subject-to” sale to MGM.
“assumption” v. “subject-to”: meaning?
MGM abandoned property. But: who’s liable? not MGM! assumption v. subject-to
the deficiency statute in this State: limited by FMV, found by jury; prevents windfall
customary vs. negotiated provisions: here, “20% of outstanding principal balance,”
individually negotiated
6.
costs, etc. recoverable; atty fees
7.
ambiguity is not desirable!
Notes:
1.
assumption v. subject-to
2.
battle of the appraisers
3.
what should deficiency statute say if bidding is vigorous?
3.
4.
5.
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sample promissory note: the document
negotiable instrument (¶’s 1-3)
adjustable rate (¶ 4)
“caps” (¶ 4(D))
right to prepay (¶ 5) v. penalty
usury/illegality savings clause (¶ 6)
default & remedies (¶ 7): late fee, acceleration,
recovery, costs
7. other provisions (¶ 8-10)
8. uniform secured note (¶ 11); relation to mortgage
1.
2.
3.
4.
5.
6.
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promissory note ownership
the note is a contract–and also “property”
named payee; or, “bearer”
2. sales of notes; markets
3. evidencing ownership after multiple transfers?: the problem
4. possession as establishing owner
5. the UCC
Cadle Co. v. Errato
1. possession = prima facie proof of
a. ownership
b. rest of case
c. [overcomes defenses–for value, w/out notice]
2. Here, only a copy is in evidence: why is this a problem?
3. Testimony: we bought note in transaction; “if assigned, I’d have been
informed”–enough
1.
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promissory notes continued:
“holder in due course”
1.
2.
3.
4.
5.
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special status: overcomes even fraud by earlier holder
Why? Marketability!
reqmts: for value, good faith, w/out notice of defects, negotiable
instrument (signed, unconditional, definite time, payee or bearer)
destroying HIDC status: a. “I agree to pay $100; /s/ maker” = no HIDC;
why? b. including conditional promises
Wilson v. Toussie:
a. “predatory lending” claims
b. claims against original participants and also “current lenders” who
bought notes
c. current lenders = HIDC. why?
d. what effect on claims vs. current lenders?
139
Deed Components
(see form in previous chapter)
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deed descriptions
1. plats v. metes-and-bounds
2. reference to other landmarks; reservations
3. rules of construction: ambiguities; conflicts
Ferriter v. Bartmess
1. ambiguous reservation
2. the “dance hall” is reserved (aren’t land titles fun)
3. conflict: a. deed says reservatn at SW corner but b. also locates it by road
intersection that is not at SW corner!
4. rules/construction: a. liberal construction to effect intent; b. interpret grant
favorably to grantee, reservation favorably to grantor; c. rights to center of
road; d. avoid extrinsic evidence if unambiguous; e. if conflict, prefer
definite & ascertained description
5. here, SW corner prevails--why? (definite & ascertained?)
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Notes
2-3. The Shady Oaks ambiguous
description (why is it ambiguous?) What the
attorney in Shady Oaks advised doing:
nothing(!)
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Problem 5A: sketch plat
1. the assignment–draw a sketch plat from metes &
bounds. Harder than it looks, even if “mechanical.”
2. the point: you have to do this to: a. perceive
ambiguities, b. see whether reality conforms to
mental picture.
3. tendency to neglect
the property description: to assign to most junior
lawyer, etc.
4. purpose: how see ambiguities?
how resolve?
should we neglect the description?
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deeds and warranties
Ohio: a. general warranty, b. limited warranty (also, “special” warranty)-only defects created by grantor, c. quitclaim
2. language: Ohio, other States, our State
notes
1. grantor by SWD who never had title: no recovery on warranty
2. when use SWD?
3. what difference if grant by GWD?
4. suit under warranty is not the preferred method of protection!
5. quitclaim to the moon?
6. when use quitclaim?
7. conveyance w/out warranty
8. what if variance from prescribed or customary language? (wisdom?)
1.
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Brown v. Lober
1.
2.
3.
general warranty contains 3 covenants:
a. of seisin, b. against encumbrances, c. of quiet enjoyment
problem: seller sold without excepting 2/3 of minerals, which seller
didn’t own.
suit on warranty fails, though. Why?
a. covenant of seisin was breached at conveyance (long ago); limitations
has run.
b. covenant of quiet enjoyment requires ouster; none, here.
notes
1.
how should deed have been written? (write the exception!)
2.
what if suit on covenant vs. encumbrances? (probably violated at time of
conveyance)
3.
up-chain warrantors are liable too–(but limits based on their
consideration)
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financing documents
•
•
deed as a financing doc: title to mortgage depends
on deed; lender usually drafts/approves deed
the straight mortgage
1. explicit conveyance to lender; mostly east of
Mississippi
2. judicial foreclosure
3. New York approach: protect debtor to time of
sale, much less after
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Figure 3
The Deed of Trust Mortgage
Seller
funds
Lender
deed
note
Buyer-Borrower
Deed of Trust
Trustee
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deed of trust mortgage
historical origin: used straw “trustee” to expedite
equity said: it’s still a mortgage
use today; “trustee” isn’t a trustee
regulation by law
trustee’s duties: notice, process, reasonable
auctioneer
6. debtors remedies: wrongful foreclosure, injunction,
set-aside
1.
2.
3.
4.
5.
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deed of trust mortgages:
Dreyfuss v. Union Bank
1.
2.
3.
4.
5.
multiple defaults, modifications, bankruptcies; 2 more properties added
foreclosure (at last): bank sequentially sold each property
how does the d/t work?
why did bank insist on additional security?
buyer-borrower’s argumt:
a.
b.
c.
2d & 3d foreclosures were collection of “deficiency” on a “note”
so, violated anti-deficiency statute
court rejects: why? (nature of a d/t!)
Notes
1. power of pvt sale
2. usually, lesser price received
3. tradeoff: private sale, no deficiency
4. bank’s prolonged workout: why?
5. giving a “deed in lieu”: why?
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sample deed of trust: big picture
1. reading documents; how?
2. fine print matters
3. is there a “big picture”? (yes & no)
4. the “other golden rule”
5. lender’s interest in valid security
6. lender’s interest in payment
7. lender’s interest in protecting
8. lender’s interest in foreclosure and remedies
9. lender’s interest in short duration: due-on-sale clause
10.rights provided to borrower
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sample deed of trust: notes
is “conveyance” to trustee really a conveyance? what’s meant by the
“power of sale”?
2. default: what remedies, with what requirements?
3. default other than nonpayment: what if borrower removes walls?
4. hazard insurance: why? what if borrower doesn’t obtain? what if
destruction by fire?
5. other default: what if maintenance assessment unpaid, and association
records lien?
6. foreclosure method? process?
7. substitute trustee: why?
8. other remedies by law (deficiency)
due-on-sale: notes
1. meaning of due-on-sale clause?
2. federal legislation about due-on-sale: in public interest?
1.
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the foreclosure process
1. Bank-Fund v. Vivado: earlier notice w/amount to cure, but this one,
no; sale overturned. [hypertechnical? Vivado had actual notice &
made no showing of ability/pay.]
2. Hoffman v. Ameriquest: notice to “Lester” Ave. rather than
“Lister”; delivered nevertheless to Hoffman’s box; unclaimed.
Notes
1. how exacting must compliance be? Should debtor be required to
show harm (i.e., ability & effort to pay)?
2. Mills v. Haggard: no notice to James (who’s dead), but to wife
Louise; sale overturned.
3. other irregularities; inadequate price?
4. other processes; reasonable auctioneer
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Problem 5B: Damani-Pravelka Foreclosure
[1.notice of default & cure; notice of
acceleration]
2. appointment of substitute t’ee
3. request to act
[4.notice of sale]
5. affidavit of notice & posting
6. (orally): conduct of the sale--various sub-steps
7. substitute trustee’s deed
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equity of redemption
1. comm l: mtg conveys seisin; absolute deed; repay by law day
= defeasance of deed
2. common l vs. equity: competition; “no adequate remedy/law”
3. “equity of redemptn”: petition to set aside deed or reconvey,
if mortg pd, even if not in conformty/mortg
4. uncertainty clouded lender’s title
5. equity responded: “strict” foreclosure (=foreclosure of
equity/redemp)
6. lender’s effort to prevent equity of redemp; e.g., initial waiver
7. equity responded: “clogging” equity/redemp prohibited
8. today: foreclosure process set by law; instrument can’t avoid,
if a mortg
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equity of redemption: Emanuel v. Bankers
Trust
1.
Florida’s equity of redemption
a.
b.
c.
d.
e.
f.
final judgment of foreclosure (not really “final”)
judgment sets date of sale
sale by auction
[objections; confirmation--not done here]
equity/redemp still exists, until
cutoff: certificate of sale creates “strict foreclosure”
2. here, judge extended 10 days (because no confirmation?)
3. Why? (trying to be “nice guy”?)
4. extension was illegal: statute is clear; strict foreclosure upon certif.
Notes
1. contrast foreclosure “when gavel falls”
2. Is the “gavel-falls” rule better?
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wrongful foreclosure:
Hwang v. Stearns
1. notice posted → damage
2. not in default
a. Stearns evidently miscalculated debt (scary!)
b. arrears of taxes not considered–not in deed of trust; not in
notice
3. ct decides std is strict liability, not negligence. why?
(a “property” claim)
Notes
1. an “honest mistake” exception: should it exist?
2. deed of trust document should cover taxes; why?
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liens arising by operation of law
1. “purchase money” or “vendor’s” lien—direct
financing by lienholder (not a loan). Arises
automatically.
Chrissikos v. Chrissikos: father paid, directly to
seller, for home for son & daughter-in-law.
Notes: a careful real estate lawyer will want the
vendor’s lien to be express on the face of the
documents. (Why? Public record!)
[2. construction liens (“mechanics”; materialmen’s
liens)]
[3. other types]
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Bad Loan Bargain . . . or . . . Predatory
Lending?
- Types
- Solutions (Are there good solutions?)
Possible Disaster:
1. Current loan practices may lead to inability to pay
2. Widespread “walk-aways”
3. Collapse
4. Solutions?
a. Private incentives
b. Regulation of mortg terms
c. Regulation making foreclosure harder (or easier)?
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Problem 5C: Pravelka-Damani Assumption Sale
1. complete the assumption deed (how differ from nonassumption?)
2. not the subject-to deed (why not?)
3. complete deed of trust to secure assumption:
purchasers grant security interest to sellers. Why?
4. preparing the DTSA
5. due diligence w/lender:
a. verify balance; b. and nondefault; c. and due on
sale; d. obtain “estoppel letter”
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