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Document Sample
Professor Crump, 2006
Property Visual Aids
11/10/2011 1
FUNDAMENTALS
11/10/2011 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
• agreemt/sale
• finance-transfer docs
• title
• closing; remedies
5. Gov’t actions; taking
6. Land use: laws, servitudes
7. Possessory & future int’s
8. Complex transactions
11/10/2011 3
―A Very Different Subject‖
1. Traditional parts:
a. subject-matter cov’g
b. cases, statutes, notes (most)
–notes are useful
2. Non-traditional:
a. lawyering strategy problems
b. transaction (anatomy) book
c. methods for policy analysis
d. life as a transactional lawyer: satisfaction?
11/10/2011 4
―A very different kind of course‖
Most law school courses deal solely
with this context:
This course, however, includes this
context, by definition:
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?
11/10/2011 5
6. A ―deal-oriented‖ course? (Can ―deals‖ be taught?)
Special Methods in This Course
1. Calling on you–sequence
2. ―Anatomy‖ book–transactional papers, in sequence
3. Handout of overhead projector transparencies
4. Internet video reviews
• 3 of them; periodically
• noted in syllabus
• keyed to transp. Handout
• can be used as preview
5. Syllabus: differential reading
6. Problems: simulations
7. Practice xam; sample ans; confs
8. Exam preview (later)
11/10/2011 7
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)
11/10/2011 8
PAPERBACK BOOK:
THE ANATOMY OF A REAL
PROPERTY TRANSACTION
11/10/2011 9
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‖ 8. Preparation of Ancillary Documents
4. Fulfilling Financing 9. Closing: Execution of the
Preconditions Documents
5. Fulfillment of Inspection
10. Title Insurance, Funding,
Preconditions
Recording, Delivery, Possession
11/10/2011 10
Brokerage
1. brokers
2. licensing
3. reqmt of writing
4. exclusivity?
5. MLS
6. entitlmt/commiss
7. consumer legisln
8. broker tasks
9. agent of both?
11/10/2011 11
The Earnest Money Agreement
1. blueprint
2. emotional event
3. reqmt of writing
4. finance contngncy
5. good & indefeasible?
6. exceptns/seller
7. risk/loss
8. furniture/fixtures
9. delivery/poss’n
10. equitable title/record
11/10/2011 12
The Terms of Financing
1. fixed-rate
2. ARM
3. ROM/balloon
4. GPM
5. why non-fixed?
6. regulation
7. caps
11/10/2011 13
The Financing Process
1. loan commitment
2. RESPA: g.f. est.
3. ―points‖
4. usury
5. fed preemption
6. engineering rept
7. other inspections
11/10/2011 14
The Deed
1. deed: elements
2. conveyance
3. general warranty
4. exceptions
5. acknowledgement, recording
6. corp resolution
7. fee simple absolute
8. ―baron sole‖
9. express vendor’s lien
11/10/2011 15
The Promissory Note
1. negot’bl instrument
2. ARM & cap
3. ―limited paymt‖ note
4. prepayment right
5. default; acceleratn
6. anti-waver
7. personal liability?
11/10/2011 16
The Mortgage
(―Deed of Trust‖)
Seller
deed funds
note & deed/trust
Buyer 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.
11/10/2011 17
Terms of the Deed of Trust Mortgage
1. uniform covenants
2. judicial sale mtg
3. pvt sale: D/T
4. foreclosure delay
5. which better?
6. equity redemptn
7. escrow: taxes/ins.
8. mortg ins. (PMI)
9. phys integrity
10. foreclosure proced
11. trustee & subst.
12. deficiency?
11/10/2011 18
The Due on Sale Clause; The ―Riders‖
1. due-on-sale
2. borrower credit?
3. other concern?
4. due/sale controversy
5. ―golden rule‖
1. PUD rider
2. adjust/rate rider
3. self-destruct rider
4. forms & riders
11/10/2011 19
The Title Assurance Process
1. trace to sovereign?
2. adverse possession
3. ―driveway easement‖
4. examiner’s method
5. marketable–legislatn
6. marketable, record, good
7. recording system
8. taxes, judgments
9. variations; attys
11/10/2011 20
Title Insurance
1. insurance: function
2. what’s insured
3. contract?
representatn?
4. boundary agrmt: curing
5. cure by affidavit
6. modified policy
11/10/2011 21
Closing
1. function of closing
2. escrow usage
3. escrow disadvantages
4. borrower’s undertakings
5. voluntary disclosures
6. required disclosures
7. Reg Z statement
8. disclosure cost/benefit
9. closing instructions
11/10/2011 22
Subdivision & Homeowner’s Ass’n
1. deed restrictions
2. force of restrictions
3. lapse
4. zoning compared
5. homeowners assn
6. powers/duties
7. maintenance fee
8. officers/directors
11/10/2011 23
Resale; Tax Issues
1. assumption instrumts
2. assumption v. subject-to
3. lender’s consent
4. terms for consent
5. alternative: new note
6. estoppel letter
7. other docs
1. deductibility
2. recognition
3. capital gain
4. ord, nec bus exp
11/10/2011 24
APPENDIX A:
THE ECONOMICS OF
PROPERTY LAW
11/10/2011 25
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
11/10/2011 26
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
11/10/2011 27
law & economics–
the allocative effect of the market D S
• supply and demand
• comparison to central planning
• the invisible hand P
• equilibrium
Q
figure 2: where supply & demand cross
is the equilibrium price
11/10/2011 28
signaling; controls; misallocation
signaling effect of prices: D S
demand or supply curve shifts;
equil price changes; and equil controlled price
quantity follows
P
price controls: shortages shortage
figure 3: equilibrium price is higher Q
than controlled price; demand
exceeds supply; shortages result.
11/10/2011 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?
11/10/2011 30
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
11/10/2011 31
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?)
11/10/2011 32
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
11/10/2011 33
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?
11/10/2011 34
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?
11/10/2011 35
structural imperfections
monopoly
• evil? rational?
• restrict output, same motives
oligopoly
• few enuf/indiv
• strategic behavior
• prod different’n
• barriers/entry
responses
• regulation
• antitrust
11/10/2011 36
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
11/10/2011 37
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
11/10/2011 38
public goods
• public goods
• hybrid goods
• free riders
• tragedy of the commons
problems:
1. public housing and advocates of vouchers
2. trade secret law: efficient?
3. patent grant justification: free riders?
4. deed restrictions: hybrid goods? tragedy of the commons?
5. Fiss, Against Settlement, because doesn’t contrib to precedent
bank. Efficient?
11/10/2011 39
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?
11/10/2011 40
externalities
externalities
• pollution
• accidents, etc.
[positive ext]
responses
• ignore
• pvt negotiatn
• prohib activity
• perform stds
• cost-internlzn:
• taxes, permits,
• subsidies, dmgs
11/10/2011 41
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.
11/10/2011 42
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?
11/10/2011 43
accident claims,
efficiency
• compens dmgs:
deterrence?
compensatn?
• punitive dmgs?
gap-fillers?
overkill?
problems:
1. Stachura case:
compens & pun & ―additional,‖ illegal
2. dmgs for breach of propty sale K: usually, no recovery for ―speculative‖
items (appreciation since breach; distress). Inefficient; why?
3. Smith v. Wade
fn of punitives; gross neg? intent?
4. punitive dmgs for real estate fraud: efficient?
11/10/2011 44
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. property sale closing cost reduction: efficiency of regulating uniform disclosures,
controlling max costs for some items?
2. litigation as a transaction cost: efficiency of lowering by reducing discovery?
3. title insurance with an exception for adverse possessors: usually chosen by buyers.
why?
4. real estate class actns: efficiency?
5. zoning laws; large transaction costs. why?
11/10/2011 45
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?
11/10/2011 46
APPENDIX B:
ETHICS AND POLITICAL PHILOSOPHY
AS THEORETICAL JUSTIFICATIONS
OF PROPERTY LAW
11/10/2011 47
The Great Divide in Ethics
Teleology = nature & purpose
purpose
consequentialism
utilitarianism
Bentham, Mill
Deontology = non-purposive
(not cost/benefit)
Kant
imitation principle
categorical impertv
11/10/2011 48
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?
11/10/2011 49
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. which is best, to evaluate the law–usually conseq; deontol at ―borders‖?
2. BMW v. Gore: reprehens, ratio, comparables–
deontol measures of pun dm?
what role for conseq?
3. efficient breach/K: conseq?
deontol?
11/10/2011 50
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. 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?
2. deontology seems to dominate this kind of issue (refusal to consider cost/benefit). Why?
What consequences?
11/10/2011 51
1A. LEASE REGULATION:
LANDLORD-TENANT
REGULATION
11/10/2011 52
lease regulation
1. quiet enjoyment
a. wrongful conduct
b. attributable to landlord
c. omissions?
d. constructive eviction: notice, cure, surrender
e. contrast habitability
2. Pfeifle v. Tanabe
a. entry & use, noise, dirt, fumes, electric, bldg. codes
b. written notice req’d?
c. problems cured?
d. waiver? (prompt?)
e. cumulative effect?
3. notes: 1. ―substantial‖ interference, 2. attribution/landlord, 3. quit:
reasonably prompt, or waiver? 4. tenant’s dilemma, 5. tenant’s remedies,
6. statutory modificatn
11/10/2011 53
habitability: meaning?
1. Javins v. First National
a. allegation: 1500 violations
b. agricultural tenant v. urban dweller
c. inferring the warranty: analogy to sales warranties, cultural change, contract aspect,
codes
d. rent withholding
2. notes: 1. are housing codes an appropriate test? 2. vagueness, 3. effect of rent
withholding: tenant’s power
3. Dick case: broken sewer, mold; minimal standard
4. Metz v. Duenas: pretext
5. notes: 1. meaning of habitability? 2. running (hot) water? 3. nonwaivability,
4. rent withholding v. abatement, self-help, restitution? 5. misuse: the dishwasher
hypothet
6. law & economics: is scarcity an appropriate argument for raising supply cost?
7. Central Bank v. Mika
8. A & G Pinzon case
11/10/2011 54
security deposits:
Garcia v. Thong
1. URLTA
2. § 47-8-18:
a. wear/tear excluded
b. itemization required
c. 30 day deadline, last addr
d. forfeiture if not
3. no exceptn for entire detention
4. notes: 1. legal aid advice, 2. back rent different, 3.
URLTA
11/10/2011 55
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
11/10/2011 56
eviction etc.
A. self-help
1. common law: necessary force
2. limited modern use/force
3. lockout: Spinks case
4. case for/against self-help
5. modern lockout remedy
6. landlord’s lien
B. special eviction procedures
1. ―summary proceedings‖; ―FE&D‖; etc.
2. short notice-to-cure
3. suit/service
4. expedited answer/trial
5. one-issue trial(?)
6. rent independence justified?
7. constitutional
C. are they really ―expedited‖?
1. technical aspects: Metz v. Duenas
2. defenses or c’claims: habitability
3. contrary cases
D. rules in our State
11/10/2011 57
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
11/10/2011 58
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
11/10/2011 59
1B. LEASEHOLDS:
CONVEYANCE AND
CONTRACT
11/10/2011 60
leaseholds: tenancy types
1. tenancy types
a. estate for years (―fixed‖)
b. periodic (renewable)
c. at will
d. at sufferance
e. statutory
[f. trespass]
2. Miller & Desatnik v. Bullock
a. tenant dies during tenancy; mother occupies, subterfuge
b. under each tenancy type, what result?
c. actual result: periodic, terminated: she’s a trespasser
d. if not by death, notice given
3. notes: 1. what if mother was roommate? or, assignment? 2. tenancy types,
3. statutory tenancies
11/10/2011 61
common law leases
1. lease = conveyance (land conveyed, as is)
2. [ejectment remedy]
3. [lease = chattel real]
4. [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]
11/10/2011 62
transfer: landlord’s consent
1. types of arrangements
a. no restriction
b. consent, reasonableness
c. consent, absolute
2. Kendall v. Earnest Pestana
a. ―silent‖ consent clause
b. majority rule: absolute
c. Calif.: reasonableness
d. reasoning: restraint/alienation, lease as contract, lessor’s only interest is tenant quality(?)
3. California legislation: protects majority rule, earlier transactions
4. Trinity v. Metrocrest: different result (TX)
5. law & economics: is Cal. S.Ct. wrong?
a. is tenant quality only interest?
b. stable K enforcement
c. market pricing
d. Coase Theorem
e. arguments supporting Cal. rule
11/10/2011 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
11/10/2011 64
transfer: subordination & attornment
1. interest priority: senior & junior
2. lease after mortgage (or, mortgage after lease?)
3. subordination
4. subordination agreements
5. why does it matter?
6. attornment: account to new person
7. ―SNDA‖ clauses
8. multiple overlapping interests: commercial planning & disputes
9. Miscione v. Barton Devel.
a. the SNDA clause--subordination, nondisturbance, attornment
b. lessee’s need for clarity
c. key to the case: new landlord didn’t give required written assurance
d. 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
11/10/2011 65
delivery of possession:
Keydata v. United States
1. holdover; landlord didn’t deliver poss’n
2. tenant (US) terminates
3. American rule: conveyance only
4. English rule: deliver possession
5. policy reasons
6. acquiescence/estoppel claims
7. notes: 1. English rule adoption
11/10/2011 66
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--Wal-
Mart’s argument? 4. Okla Plaza’s argument? 5. damages
only--or injunction, too?
7. ―use restriction‖ clauses; cases
11/10/2011 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
11/10/2011 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
11/10/2011 69
rent etc. clauses
1. ―gross‖ or fixed
2. triple-net (taxes, insurance, maint.): multiple meanings
3. escalators: fixed, indexed
4. percentage
5. multiple combinations
6. United States v. McLaren
a. Stark & anti-kickback
b. inflated-lease claim
c. govt expert considered fixed only
d. McLaren expert, triple-net included; adjustment
e. other factors: escalation, negotiations
7. 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?
8. percentage rents: policies
11/10/2011 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. rent clause; price? type?
2. rent increases?
3. assignment/sublease?
4. restoration/environmental?
5. use, operation, abandon?
C. assignments
1. negotiate completion
2. prepare status letter
3. explain and discuss
11/10/2011 71
2. INTELLECTUAL
PROPERTY
11/10/2011 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
11/10/2011 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?
11/10/2011 74
OddzOn v. Oman
1. Background: Koosh; Copyright Register; this suit
2. Holding: refusal upheld
3. The originality issue
a. familiar shape? [this isn’t the issue; why?]
b. originality?
c. 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. Supreme Court: no copyright
b. correct decision--or wrong?
c. if commentary added?
11/10/2011 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]
11/10/2011 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
11/10/2011 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.
11/10/2011 78
Notes after Jacobson
1. when color alone? (device, ID source,
secondary meaning, not functional.)
2. functionality: why excluded? (red fire-
fighting 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)
11/10/2011 79
Notes
1. Secondary meaning; why not required here?
2. hierarchy of mark (or dress) strength: ―Apple‖
Computers; ―Coppertone,‖ ―Nice N’ Soft,‖
―Bathroom Tissue
11/10/2011 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
11/10/2011 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
11/10/2011 82
―UTSA‖: Uniform Trade Secrets Act--
BP Chemicals v. Jiangsu Sopo
1. 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?
11/10/2011 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!)
11/10/2011 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.
11/10/2011 85
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
11/10/2011 86
Why This Course Is Different:
Property (―Private‖) Property
1. Property law is PRIVATE LAW.
2. Property law is DOCUMENTS.
3. AGREEMENTS form much of the law.
4. If you WRITE it, a court (almost always) will ENFORCE
IT.
5. It becomes the LAW.
6. CUSTOMARY language and structure are important.
a. understood among DIVERGENT PARTIES. A suspicious buyer or
seller on the other side more likely can trust it.
b. 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.
11/10/2011 87
Intellectual Property: Rosenthal’s
―Four Issues‖
1. creation?
2. protected?
3. prevented?
4. pitfalls?
[compare to the ―Five Questions‖]
11/10/2011 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
11/10/2011 89
Infringement, Equivalents & Estoppel:
Festo Corp. v. FMC
1. patent rejected; amended to cover only devices w/pair of 2
sealing rings; defendant’s device had only 1 sealing ring.
2. P argues: infringemt by equivalents
3. D argues: pros hist estoppel
4. 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
11/10/2011 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)
11/10/2011 91
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)
11/10/2011 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!)
11/10/2011 93
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)
11/10/2011 94
3. REAL PROPERTY
OWNERSHIP
11/10/2011 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
11/10/2011 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
11/10/2011 97
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]
11/10/2011 98
Decotiis & Steele, The Skills of the
Lawyering Process
1. ―capabilities‖: which?
2. reading, writing, case analysis, research? NO(!?)
3. skilled generalists, here; contrast other practitioners
4. 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. law-
intensiveness of practice v. school? 3. lawyers = bad
managers? 4. relevance of school to the observed
skills? 5. update?
11/10/2011 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
11/10/2011 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
11/10/2011 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
11/10/2011 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
11/10/2011 103
Estate of Mitchell
1. took title ―as joint tenants.‖ (meaning? presumption?)
2. dissolution suit, TRO
3. Robert’s severance declaration
4. what’s a joint tenancy?
5. how to sever?
6. 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?
11/10/2011 104
Problem 3C: Pravelka-Damani Deed
1. the assignment; the previous problem
2. tenancy in common: what language?
3. the deed form
a. elements (look at form)
b. how to complete it
4. detailed instructions
a. conforming gender, singular/plural
b. consideration: why?
c. property description, careful: why?
d. habendum & warranty: to H & W heirs; defend against all; why?
e. all exceptions to title
f. taxes
g. acknowledgement; why?
5. EVERY remaining encumbrance
a. MUST be an express exception! Why?
b. But not those that will be removed at closing. Why?
6. what if joint tenancy desired?
7. function of the title report
11/10/2011 105
Security Interests
1. What are they?
2. Other names: ―lien,‖ ―mortgage,‖ ―deed of trust‖
3. Relation to ―ownership‖
4. Creation
5. Perfection (relevance of recording)
6. Priority (insolvency)
commercial law, bankruptcy, etc.
7. Thought Problem
• mortgage on one JT interest: usually unwise. why?
• mortgage on TC: less risky. why?
11/10/2011 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
11/10/2011 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
11/10/2011 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
11/10/2011 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)
11/10/2011 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
11/10/2011 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!
11/10/2011 112
4. TRANSACTIONS:
THE PURCHASE
AGREEMENT
11/10/2011 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‖ 8. Preparation of Ancillary Documents
4. Fulfilling Financing 9. Closing: Execution of the
Preconditions Documents
5. Fulfillment of Inspection
10. Title Insurance, Funding,
Preconditions
Recording, Delivery, Possession
11/10/2011 114
getting in the mood--why be careful about
agreements?
1. Asimov, Foundation
a. meaningless rhetoric
b. promises don’t mean what you want them to
c. what isn’t said matters
d. how to analyze
2. McElroy, Ross and Me
a. enthusiasm seems to promise results & prompts ―victim’s‖ investment; then, pull the rug out
b. changing the deal
c. refusing to make reasonable agreements
d. killing the deal arbitrarily
e. accusations & hardball
f. exploitation of vague or half-way deals
g. Nonperformance
h. false accusations of nonperformance
i. aggressive interpretation of the deal
• People do these things: a. because they are sloppy, b. because of wishful thinking,
c. because of strategy
3. Professor Stark’s approach
4. Is litigation a good remedy?
11/10/2011 115
brokerage
1. roles of brokers
2. the brokerage agreement
a. exclusive v. nonexclusive
b. ready, willing & able
c. 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?
11/10/2011 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)
11/10/2011 117
brokerage agreement
1. exclusive right to sell--why?
2. ready, willing, able--why?
3. limitation of liability–how, why?
4. sales after term (if ―procuring cause‖)
11/10/2011 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?
11/10/2011 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
11/10/2011 120
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‖
11/10/2011 121
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
11/10/2011 122
Problem 4A: Wilson v. Prairie
1. the set of pleadings
a. Complaint
exhibit A (the ―agreement‖)
b. answer (and counterclaim)
c. motion to dismiss
d. setting of hearing
2. Statute of Frauds
3. roles assigned
4. types of arguments (based on Meyer v. Kesterson)
5. standard: assume all in petition true; if, under law, no way plaintiff can win,
dismissal
6. how to argue motion
a. introduce selves
b. legal standard
c. GET TO POINT--no ―learned counsel,‖ etc.
d. explain why, if as to intelligent lawyer
11/10/2011 123
conditions precedent/preconditions
1. 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!
2. 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?
3. 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
11/10/2011 124
options
1. what is an option?
2. document: term, extension, exercise, full agreement
3. either condition precedent or particular kind of K
4. 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.
5. 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
11/10/2011 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
11/10/2011 126
real estate sales agreement
1. ―Can you give me big picture?‖
2. yes--and no(!)
3. the six elements
4. 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
11/10/2011 127
sample sales agreement
1. parties
2. property
3. price
4. financing
5. earnest $
6. title policy/ survey
7. condition, inspection
8. broker fees
9. closing
10. possession
11. special provisions
12. settlement expenses
13. prorations
14. casualty loss
15. default/remedies
16. mediation
17. attorney’s fees
18. escrow
19. representations (warranties)
20. [tax]
21. notices
22. merger, etc.
23. option
24. consult attorney
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merger clauses and extra-K liability
1. the parol evidence rule
2. the policy basis for the rule
3. extent of the rule: inconsistency
4. merger clause: entire agreement
5. fraud: the dilemma
6. 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.
11/10/2011 129
Cases about Disputes & Claims
Woodlands Land v. Jenkins: actual fraud,
note case
1. 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
11/10/2011 130
Problem 4B: Damani-Pravelka
Renegotiation
1. the problem: inadequate agreement
2. how: use document analysis
(6 elements), plus this chapter
3. status letter: format, terms
4. 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)
11/10/2011 131
5. TRANSACTIONS:
FINANCING AND
CONVEYANCING DOCUMENTS
11/10/2011 132
The Lending Market
1. Real Estate Lenders
FNMA; secondary market
S&L crisis of the 1980's
private law, FNMA-driven
2. Loan Documentation
• 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
11/10/2011 133
Figure 1
Real Estate Finance: A Simplified Diagram
Seller
funds deed
Lender note and Buyer-
mortgage/deed of trust
Borrower
11/10/2011 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)
11/10/2011 135
Moore v. Bank Midwest
1. lenders: Gibraltar, which sold note to Midwest
2. original buyer-borrowers: Moores. Then:
a. ―assumption‖ sale to HSA;
b. HSA’s ―subject-to‖ sale to MGM.
c. ―assumption‖ v. ―subject-to‖: meaning?
3. MGM abandoned property. But: who’s liable? not MGM! assumption v. subject-to
4. the deficiency statute in this State: limited by FMV, found by jury; prevents windfall
5. 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?
11/10/2011 136
sample promissory note: the document
1. negotiable instrument (¶’s 1-3)
2. adjustable rate (¶ 4)
3. ―caps‖ (¶ 4(D))
4. right to prepay (¶ 5) v. penalty
5. usury/illegality savings clause (¶ 6)
6. default & remedies (¶ 7): late fee, acceleration,
recovery, costs
7. other provisions (¶ 8-10)
8. uniform secured note (¶ 11); relation to mortgage
11/10/2011 137
promissory note ownership
1. 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
11/10/2011 138
promissory notes continued:
―holder in due course‖
1. special status: overcomes even fraud by earlier holder
2. Why? Marketability!
3. reqmts: for value, good faith, w/out notice of defects, negotiable
instrument (signed, unconditional, definite time, payee or bearer)
4. destroying HIDC status: a. ―I agree to pay $100; /s/ maker‖ = no HIDC;
why? b. including conditional promises
5. 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?
11/10/2011 139
Deed Components
(see form in previous chapter)
11/10/2011 140
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?)
11/10/2011 141
Notes
2-3. The Shady Oaks ambiguous
description (why is it ambiguous?) What the
attorney in Shady Oaks advised doing:
nothing(!)
11/10/2011 142
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?
11/10/2011 143
deeds and warranties
1. 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?)
11/10/2011 144
Brown v. Lober
1. general warranty contains 3 covenants:
a. of seisin, b. against encumbrances, c. of quiet enjoyment
2. problem: seller sold without excepting 2/3 of minerals, which seller
didn’t own.
3. 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)
11/10/2011 145
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
11/10/2011 146
Figure 3
The Deed of Trust Mortgage
Seller
funds deed
Lender note Buyer-Borrower
Deed of Trust
Trustee
11/10/2011 147
deed of trust mortgage
1. historical origin: used straw ―trustee‖ to expedite
2. equity said: it’s still a mortgage
3. use today; ―trustee‖ isn’t a trustee
4. regulation by law
5. trustee’s duties: notice, process, reasonable
auctioneer
6. debtors remedies: wrongful foreclosure, injunction,
set-aside
11/10/2011 148
deed of trust mortgages:
Dreyfuss v. Union Bank
1. multiple defaults, modifications, bankruptcies; 2 more properties added
2. foreclosure (at last): bank sequentially sold each property
3. how does the d/t work?
4. why did bank insist on additional security?
5. buyer-borrower’s argumt:
a. 2d & 3d foreclosures were collection of ―deficiency‖ on a ―note‖
b. so, violated anti-deficiency statute
c. 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?
11/10/2011 149
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
11/10/2011 150
sample deed of trust: notes
1. 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?
11/10/2011 151
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
11/10/2011 152
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
11/10/2011 153
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
11/10/2011 154
equity of redemption: Emanuel v. Bankers
Trust
1. Florida’s equity of redemption
a. final judgment of foreclosure (not really ―final‖)
b. judgment sets date of sale
c. sale by auction
d. [objections; confirmation--not done here]
e. equity/redemp still exists, until
f. 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?
11/10/2011 155
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?
11/10/2011 156
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]
11/10/2011 157
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)?
11/10/2011 158
Problem 5C: Pravelka-Damani Assumption Sale
1. complete the assumption deed (how differ from non-
assumption?)
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‖
11/10/2011 159
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