Monday, September 30, 2019

LET’S JUST AGREE ON THAT LATER, OK?


             The DFW International Airport Board operates the DFW International Airport. In 2012 the Board’s staff retained Vizant Technologies to analyze the airport’s payment-processing costs and provide expense reduction suggestions.
 
            The DFW Board and Vizant negotiated a Consulting Agreement for three years, with various incentives payable to Vizant based upon recommendations that effectively reduced payment-processing costs.

            The Contract limited Vizant’s compensation to $50,000. However, DFW agreed that the Board “will make a good faith effort to receive board authorization to increase the compensation” and if approved, the parties would amend the Contract accordingly.

            According to Vizant its services ultimately saved the airport ~ $82,000, and its fee under the agreed formula should have exceeded $300,000. Vizant submitted an invoice for $50,000 and requested that the Board approve an amendment authorizing the larger amount.

            The Board paid the $50,000 but denied the excess. So, Vizant sued the Board, alleging that the Board failed to make the promised good faith effort to authorize the increased compensation.

            And, appeals brought this case to the attention of the Texas Supreme Court, which – surprisingly – agreed to accept it.

            First, the high Court reviewed the exact language whereby the Board agreed to make a good faith effort to obtain its own authorization for the higher payments. Thinking that it might be more reasonable for the Board’s staff to make a good faith effort to obtain the Board’s approval, that promise is not enforceable against the Board and even if it were, the remedy could never be to require the Board to pay more than it authorized staff to negotiate.

            But back to the agreement. The essence is that the Board agreed to make a good faith effort to authorize a higher payment in the future. Note that the Board did not agree to make a higher payment; rather it agreed to make a good faith effort to accomplish that result.

            This, the high Court reminded us, is not the situation where parties agree to agree in the future. Rather this contract obligated the Board to make a good faith effort to agree. This may be a distinction without merit, as we get to the same place.

            The Court determined that the Board’s promise was similar to the equivalent of a promise to negotiate towards a future deal in good faith. And, an agreement regarding future negotiations is unenforceable. The addition of the good faith qualifier does not save the contract.

            The Court also felt compelled to add that Texas is in a minority position, as many more jurisdictions have recognized the enforceability of contracts obligating parties to negotiate. But even in this situation if the provision was enforceable, the proper remedy might be difficult to find. Because the Board would have breached an “efforts” agreement, as opposed to breach of an agreement obligating the Board to pay $330,000.

            Some courts, say the Supremes, have used reliance damages as a model (the amounts paid by plaintiff in reliance on its belief that the defendant was negotiating in good faith). Other have allowed expectancy damages (the amount the plaintiff expected to receive as a result of the anticipated contract).

            But no matter here. A Texas contract obligating parties to agree in the future is unenforceable, as is a Texas contract obligating a party to use its good faith efforts to agree in the future to amend an existing contract.

            Judgment is rendered dismissing all claims. DFW wins; Vizant loses.

See Dallas / Fort Worth International Airport Board v. Vizant Technologies, LLC Texas Supreme Court; No. 18-0059; May 17, 2019: https://law.justia.com/cases/texas/supreme-court/2019/18-0059.html.  
   
            Lessons Learned / Questions Asked:

1.      Question: Does your Contract provide for a future agreement to agree? These provisions are ineffective in Texas.

2.      Question: Does your Contract provide for a future agreement to use good faith efforts to cause future payment or similar? Sorry, not effective in Texas.

3.      Lesson: Don’t mess with Texas.

                                                                                     Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888




Friday, August 30, 2019

BACK TO BELLEVUE


            I wrote about this case in January and February 2018. In December 2017 the Superior Court of Kings County, Washington, entered an Order requiring a vacant tenant (Whole Foods, owned by Amazon) to reopen its closed business and continue operations. The decision was promptly appealed.
 
Commercial real estate attorneys across the county have been patiently watching. Waiting. Anticipating.

            Now it’s decision time.
 
            As background and for those of you who don’t recall . . . Bellevue Square, LLC has 1.3 million square feet of retail space. In 2013 there were three anchors: Nordstrom (266,708 SF), Macy’s (218,371 SF), and JCPenney (200,000 SF).

            Penney’s notified Bellevue that Penney’s would vacate in 2014. Whole Foods was interested in the ground floor space, approximately 34,000 SF.

In 2015 Bellevue Square LLC entered into a 20 year lease with Whole Foods Market, Inc. Whole Foods opened the store in September 2016, and closed the site in October 2017.

Bellevue filed a lawsuit based on an operating covenant requiring Whole Foods to “conduct and carry on” its business of grocery sales “without interruption.” Bellevue’s experts testified that Whole Foods’ vacancy disrupted the stability of the shopping center, affected negotiations with potential and current tenants, reduced customer traffic, prevented Bellevue from recovering percentage rents, and adversely affected Bellevue’s reputation.

Whole Foods conceded that it vacated, but asserted that Bellevue’s appropriate remedy for the breach is damages. Not an injunction or temporary restraining order.

Surprising virtually every real estate attorney in the country, Bellevue prevailed at trial and obtained a preliminary injunction requiring Whole Foods to reopen and continue operating the retail store. Whole Foods appealed, and the Court of Appeals stopped the injunction pending full review.

The Appellate Court determined that injunctions are not warranted if there is a plain, complete, speedy, and adequate remedy at law. And whether or not Bellevue is entitled to an injunction is a function of the Lease and particularly, its remedy provisions.

The Court reviewed the operating covenant in the Lease and determined that Whole Foods was required to continue business operations for the first 10 years of the lease term of between 10 and 13 hours every day. The Court then focused on Bellevue’s contractual remedies in the event of Whole Foods’ default.

The Lease provides that if Whole Foods breaches the Lease by abandoning the site, Bellevue may either terminate the Lease or recover damages for Whole Food’s default. In the latter event, Bellevue has a contractual duty to mitigate damages.

The trial court concluded that these limitations did not prevent ordering Whole Foods to reopen within 14 days and continue business operations. The Court of Appeals disagreed, finding that damages are compensatory and there is no legal justification to force Whole Foods to reopen particularly when Bellevue is required to mitigate its losses.

Those are inconsistent remedies. The Lease gives Bellevue an adequate, complete, and speedy remedy for the harm caused by Whole Foods and Bellevue may continue to recover rent, damages, and other payments from Whole Foods. This case is not appropriate for an injunction compelling Whole Foods to remain open.

Whole Foods wins; Bellevue loses.

See Bellevue Square, LLC v. Whole Foods Market, Inc., Washington Court of Appeals; Division One; Case No. 77770-0-1; December 17, 2018: https://law.justia.com/cases/washington/court-of-appeals-division-i/2018/77770-0.html.  

            Lessons Learned / Questions Asked:

1.      Question: Does your Lease provide for operating covenants, enforceable by the remedy of specific performance? The provision might be ineffective, depending on how the other remedies provisions are worded.

2.      Lesson: Don’t mess with Amazon.

                                                                                                     Stuart A. Lautin, Esq.*



* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York



Wednesday, July 31, 2019

THE SUPREMES SPEAK. AGAIN.


             I have written about this before. It is rare that the Texas Supreme Court will review a case involving a commercial landlord – tenant dispute. Well it just happened. Again.

            Landlord Rohrmoos Venture executed a lease in 1996 with tenant UT Southwestern DVA Healthcare for a building in Dallas. I believe the building may be on Elmbrook Drive – very close to UTSW’s main campus facilities. The lease was modified and ratified in 2003. UTSW used the space for a dialysis clinic.

            At some point UTSW experienced water penetration in the building’s concrete foundation. UTSW installed ceramic floor tiles in an attempt to contain the moisture problem.

            In September 2007 Texas health inspectors evaluated the clinic and criticized UTSW because flooring had become loose and moisture could be seen under the tiles. UTSW notified Rohrmoos of the inspection results and the two parties exchanged communications over a period of several months. Neither party accepted responsibility.

            Multiple engineers and contractors were engaged, but the issue persisted to 2009 and then began to worsen as the building suffered significant water penetration.

            Because UTSW viewed the building as unsuitable for its intended commercial purpose, UTSW terminated the lease early, vacated, and relocated to Irving while still owing ~ $250k in unpaid rent. UTSW then sued Rohrmoos for breach of contract, breach of an implied warranty of suitability, and attorney’s fees.

            At trial, the case was submitted to a jury. The jury found that: (a) both UTSW and Rohrmoos had failed to comply with the lease, (b) Rohrmoos breached the lease first, and (c) Rohrmoos breached an implied warranty of suitability.

            The trial court, based on the jury’s verdict, held that UTSW properly terminated the lease and Rohrmoos owed UTSW over $1 million in attorney’s fees.

             Rohrmoos appealed to the Texas Court of Appeals.
 
            The Court of Appeals determined that UTSW had the right to terminate the lease based on Rohrmoos’ breach of an implied warranty of suitability. And, that UTSW was entitled to a judgment of $1+ million in attorney’s fees.

            Rohrmoos appealed to the Texas Supreme Court. And (surprise, surprise) the Supremes agreed to review the case.

            In a 56-page Opinion, the Supreme Court concluded that UTSW had the right to terminate the lease as a remedy for a material breach by the landlord. Since the jury found that Rohrmoos had materially breached the lease, then the relocation and termination actions of UTSW were justified.

            All of that was concluded in the first 15 pages. The remainder of the decision concerned procedural matters and a $1+ million attorney fee award.

            UTSW prevails on the right to terminate a lease and vacate following a landlord’s material breach of lease; Rohrmoos loses that point. However, the $1+ million attorney fee award was reversed and sent all the way back to Dallas County to present that singular issue to yet another trial jury.

See Rohrmoos Venture v. UTSW DVA Healthcare, LLP, Texas Supreme Court; Case No. 16-0006; April 26, 2019: https://law.justia.com/cases/texas/supreme-court/2019/16-0006.html.  

            Lessons Learned / Questions Asked:
 
1.      Texas attorneys, landlords, tenants, lenders, and brokers all had questions about the viability of allowing tenants to terminate a commercial lease and vacate, claiming the commercial premises are unsuitable for its intended business purpose. We’ve had this theory since 1988, but precious little has been written about it. Now we know the theory is correct.

2.      To Texas landlords: beware and quickly respond to the claim of commercial tenants that the premises are not suitable for its intended business purpose. To Texas tenants: if you have not committed a significant lease breach, this Rohrmoos case confirmed what we have believed since 1988 – you may have the right to relocate and terminate.


3.      To Texas litigation attorneys: your ability to receive a fee award has been severely compromised. You don’t need to read the first 15 pages, but you might want to focus hard on the remaining 41.

                                                                                     Stuart A. Lautin, Esq.*



* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York






Tuesday, July 2, 2019

SUBLEASE TERM RENEWALS


            Subsea 7 Port Isabel is an engineering and construction firm that manufactures and installs undersea oil and gas pipelines. Starting in 2007 Port Isabel Logistical Offshore Terminal leased 54 acres in Port Isabel, Texas, from the Port Isabel-San Benito Navigation District. In April 2008 PILOT subleased about half of that property to Subsea, to be used as Subsea’s ‘spoolbase’ for its undersea pipe operations.
 
            The sublease term started on May 1, 2008, and ended May 31, 2012. If PILOT (as prime tenant) exercised its renewal options, then Subsea was also allowed to do the same relative to its sublease by issuing option exercise notice at least 60 days prior to May 31, 2012.
 
            Subsea claims it spent $40+ million to improve the property by building a dock, facilities for fabricating pipes and loading them unto ships, and stabilizing the ground with crushed rock. Clearly, the sublease was important to Subsea.
 
            In February or March 2012 the operations manager for Subsea spoke to PILOT’s president about renewing the sublease. Subsea asserts that the president told Subsea’s operations manager that Subsea did not need to send written notice to renew the sublease before March 31, 2012, as required by the Sublease.

            PILOT’s vice president also recalled that Subsea wanted to renew its sublease.
 
            In May 2012 PILOT replaced its president. Subsea sent an email to the new president providing that Subsea intended to renew its sublease. The following day Subsea sent a sublease renewal notice by certified mail.

            PILOT did not respond to either of the notices. PILOT did, however, continue to send sublease rental invoices to Subsea for two years after expiration of the original sublease term, and Subsea paid the invoices while Subsea remained in occupancy.

            PILOT sent an eviction notice to Subsea in April 2014. Subsea refused to vacate, claiming that the sublease had been effectively renewed due to the oral notice, email notice and Subsea’s continued occupancy of the subleased premises after May 2012.

            When PILOT refused to accept Subsea’s position regarding sublease extension, Subsea sued PILOT and asked the court for a ruling that Subsea had substantially complied with the sublease renewal notice provisions. After a two-week jury trial, the court entered judgment in 2016 that Subsea became an unlawful trespasser as of June 1, 2014 and was responsible for $635k in ‘trespass’ damages.
 
Both Subsea and PILOT appealed.

            Subsea argued to the Appellate Court issues of equitable estoppel, quasi-estoppel, and waiver. Each failed.

            It was then PILOT’s turn. PILOT claimed it was wrong to deny PILOT its attorney’s fees and court costs and that Subsea should not have been permitted to remove its property and improvements.

            All of PILOT’s arguments were rejected.

            The conclusion reached by the Appellate Court is that an oral understanding to exercise a sublease renewal term followed by a late email is ineffective, if the sublease requires formal, timely, written notice. Subsea failed to furnish compliant and timely written notice. Remaining at the subleased premises for two additional years does not waive PILOT’s position that Subsea is nothing more than a holdover tenant.

See Subsea 7 Port Isabel, LLC v. Port Isabel Logistical Offshore Terminal, Inc.; Texas Court of Appeals, 13th District, Cause Number 13-17-00144-CV; June 20, 2019: https://law.justia.com/cases/texas/thirteenth-court-of-appeals/2019/13-17-00144-cv.html.  

            Lessons Learned / Questions Asked:

1.      To quote from Dr. Seuss, lease renewal and extension notice provisions mean what it says and says what it means. Renewal and extension options are usually strictly interpreted. Even a minor deviation can invalidate a renewal / extension notice.

2.      To the commercial tenants – get out your Leases and Subleases. Carefully calendar each renewal and extension date. Follow exactly the notice provisions of your document. Don’t assume that anything less than full compliance will result in an effective renewal.

3.      To the commercial landlords – don’t like the renewal / extension provisions of the Lease in your building? You may be able to defeat it if the tenant or subtenant deviates, based on this appellate decision.


                                                                                                      Stuart A. Lautin, Esq.*


* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
 
Licensed in the States of Texas and New York
 
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888

Monday, June 3, 2019

GOOD FAITH & FAIR DEALING – TEXAS STYLE


            The Janowitz Edmiston Family Living Trust entered into two contracts to sell Texas real estate to Rima Group, Inc. Both contracts contained a Seller Financing Addendum, under which Rima agreed to deliver credit reports to the Trust within five days after December 9, 2016.

             Rima did not deliver the credit reports to the Trust by that date. The Trust terminated both contracts on the last day allowed for the Trust to do so.

             Two weeks later, Rima filed a lawsuit against the Trust seeking specific performance.
 
            The trial court rendered judgment for the Trust, declaring that the Trust properly terminated both contracts. Rima appealed.

            The Court of Appeals started by reviewing the contracts. Both unconditionally obligated Rima to deliver credit reports; both gave the Trust unconditional authority to terminate if the reports were not timely delivered, or if the Trust determined from the reports that Rima’s credit was not satisfactory.

            Both contracts were unambiguous on this point.
 
            On appeal Rima argued that Rima’s President had been assured by the trustee of the Trust that the credit report was merely a formality, since Rima was paying 25% of the purchase price at closing. And regardless, that the trustee would obtain the required credit report from Dunn & Bradstreet so that Rima would be relieved of this duty.

            Rima argued that based on the email where the trustee agreed to order the business credit report, Rima’s President understood that the condition of furnishing a credit report on Rima had been satisfied.

            The trustee disputed Rima’s allegation that the trustee would obtain the reports and release Rima from that duty. The Appellate Court agreed with Rima that the trial court should not have dismissed Rima’s claims and that the parties had genuine issues of material fact as to whether the Trust relinquished the obligation of Rima to furnish credit reports.

            Now on to our issue.

            Rima also asserted that the Trust failed to terminate the contracts in good faith because the Trust used its discretion to determine that Rima’s performance was unsatisfactory.

            Neither of the contracts contained any provisions requiring the Trust to act in good faith. Absent good faith provisions, the Trust had the right to take whatever action the Trust deemed appropriate if Rima failed to timely deliver a credit report.

            Consequently, the Trust had the right to terminate the contracts based on Rima’s failure to timely deliver the reports. Further says the Appellate Court citing Texas Supreme Court authority: “Under Texas common law, contracts do not impose a general duty of good faith and fair dealing.”

            The Trust wins the point that it had no duty to act in good faith. That obligation is not inherent in Texas contracts, and is only applicable when a Texas contract contains that specific language and in other unusual circumstances evidently not presented in this case.

See Rima Group, Inc. v. Janowitz Edmiston Family Living Trust; Texas Court of Appeals, 14th District, Cause Number 14-17-00466-CV; April 23, 2019: https://scholar.google.com/scholar_case?case=15478969053425728452&q=Rima+Group+v.+Janowitz&hl=en&as_sdt=6,44.  
          
Lessons Learned / Questions Asked:

1.      Many States have cases and laws that impose duties of good faith and fair dealing in real estate transactions. Texas does not.

2.      Texas does, however, recognize such an obligation when the parties are in a “special relationship.” That issue does not appear to have been argued in this case.

3.      One might only wonder if the outcome would have been different if Texas had imposed such a duty, or otherwise if the contracts had provisions to the same effect.

 

                                                                                    Stuart A. Lautin, Esq.*


* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization
 
Licensed in the States of Texas and New York
 
Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888


Wednesday, May 1, 2019

WHEN MATERIAL TERMS ARE LACKING


            Steven Barnhart and Ashley Smith met when they both worked at the same bank. They started an affair in 2011 that lasted three years.

             Barnhart gave Smith money so she could pay off her high-interest credit card debt, to terminate her auto lease, to pay her lawyer in an unrelated matter, for moving expenses, to purchase an antique necklace, and to reimburse her for funds stolen from her.

            As he continued to pay Smith monies, Barnhart would periodically provide her with documentation of the amounts given and the amounts owed. The documents were intended to reflect that both Smith and Barnhart understood that some of the monies were gifts, while others were loans which Smith was supposed to repay at zero percent interest.

            In an email of 2013 Barnhart explained that he was owed $47,050, and itemized the total amount among 20 separate sums of money he had provided to Smith. The sums were divided into four categories: (1) short term / payment plan, (2) long term, (3) to give, and (4) home.

            The first category, short term / payment plan, consisted of $20,000 total that Barnhart had furnished to Smith to pay off credit card debt.

            The second category, long term, totaled $20,550 that Barnhart gave Smith to pay for her attorney’s fees and other expenses.

            The third category, to give, represented $6,500 which was the sum Barnhart had promised to deliver to Smith to pay her remaining attorney’s fees.

             And the fourth category, home, consisted of a single $15,000 payment for Smith’s moving expenses.
 
            Barnhart notified Smith in a later email that he was willing to work out a payment plan for the entire amount of $47,050. Smith responded with OMG. Barnhart reminded her that the amount stated did not include $15,000 for moving expenses, which he considered a gift. And that if he added $15k to $47k the total amount was over $60,000.

            Smith responded: OMG – I am abt to vom.

            One month later Barnhart sent another email to advise Smith that he had loaned her an additional $5,000 to pay additional attorney’s fees, bringing the total to $67,000 which amount included the $15,000 gift.

            A following email listed five more sums of money Barnhart had given to Smith, which increased the amount of all sums furnished to Smith to $75,985. Subtracting $15,000 Barnhart had given Smith as a gift yielded a balance of $59,985.

            About a week later Smith sent an email to Jana Barnhart, stating that Smith hoped to pay back a large portion of what is owed within the following two months.

            When nothing was paid and Ms. Barnhart received no further communications, she contacted Smith by email to request a status update. Smith responded that her (Smith’s) records reflected that she owed $28,000 as opposed to the $59,985 requested by Mr. Barnhart.

            From there, Smith tendered 31 payments of $100-$200 each in a two year period, totaling $4150. And then stopped making payments.

            In May 2017 Barnhart sued Smith. Barnhart alleged that he and Smith entered into a valid contract pursuant to which Barnhart made a series of loans to Smith in exchange for Smith’s promise to pay him back. The agreement to repay the funds constituted legal consideration, he claimed. He further alleged that Smith breached the contract by failing and refusing to repay the loans in full.

            Barnhart sought damages in the amount of $61,102, plus attorney’s fees.

            At trial Smith testified that when Barnhart gave her money he never said anything about repayment. Further, that she never agreed to repay anything. And last, that the sums of money were gifts. Not loans.

            The trial court concluded that, based on Barnhart’s testimony, both parties had an agreement under which Barnhart loaned Smith money at zero percent interest. Smith breached the agreement, and Barnhart was entitled to recover $61,102 plus attorney’s fees.

            Smith appealed.

            The Court of Appeals determined that enforceable contracts must address each material term with a reasonable degree of certainty. With regard to loans, the material terms are the amount to be loaned, maturity date, interest rate, and repayment term.

            If the parties’ conduct showed that they clearly intended to agree, the contract terms are definite enough to be enforceable as the Court will imply some missing material terms such as price, duration and time for performance.

            From there, the Court of Appeals determined that Smith had agreed to reimburse Barnhart, as Barnhart testified. And the fact that exact repayment terms were not proven was not fatal to Barnhart’s claim. The suggestion that the funds could be repaid in “installments over a period of several years” was sufficient to support Barnhart’s claim for breach of contract.

            Barnhart wins. Smith loses. See Ashley Smith v. Steven Barnhart; Texas Court of Appeals, 1st District, Cause Number 01-18-00111-CV; April 2, 2019: https://law.justia.com/cases/texas/first-court-of-appeals/2019/01-18-00111-cv.html.  
 
           Lessons Learned / Questions Asked:
  1. Be. Careful. What you say / write / text / post can be used against you in a Court of Law. While a piece of paper signed by the parties is best, much less can be used as evidence. Emails and texts can be used to support a claim.
     
  2. Don’t have all the material provisions of a contract worked out such as a loan repayment term? Good news, it may not be required. The Texas Court of Appeals, 1st District, will supply those material terms for you.

                                                                                               Stuart A. Lautin, Esq.*


* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization

 Licensed in the States of Texas and New York

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888










Monday, April 1, 2019

DE MINIMIS NON CURAT LEX

            De Minimis Non Curat Lex. It means the law does not remedy an injury that is minimal. We’ve had this legal theory for, well, forever.

             Lawyers use that phrase to tell the opposition: There was no blood. So there could be no foul. Therefore, your honor and members of the jury, my client is not guilty. Or isn’t responsible to pay damages. Or the rough equivalent in whatever makes sense at the time.

             This is that case; that is this case. Or maybe it’s not. Keep reading.

             J.S. Bawa is a residential landlord in Los Angeles and was owed rent by David Terhune. When Terhune did not pay, Bawa served a three-day notice to pay or vacate. Bawa stated in his notice that if Terhune did not comply with the notice, Bawa would pursue an eviction claim.

             Bawa’s resident manager testified at trial that Terhune had received a check for rent, but returned it because it was not in the correct amount. The PM further testified that after expiration of the three-day notice period, Terhune delivered two checks. One was for the correct amount of rental and the other was intended serve as rental for the next month, which rental was not yet due.

             Bawa and his PM did not deposit the checks and instead filed an eviction lawsuit.

             The case was tried to a jury. The jury determined the facts: $507.61 owed in rent. Terhune furnished a check for $507.60. The differential – one penny – convinced the jury that Terhune had indeed paid full rent owing and did not default.

             Let me state that again. This landlord asserted an eviction claim against his tenant because the rent check was one cent short.

             One. Penny. Short. You can’t make this up.

             The Landlord, clearly a person of deep conviction, appealed.

             The Court of Appeals, using Uniform Commercial Code laws, determined that a non-certified check is a conditional payment. A conditional payment suspends the obligation until dishonor of the check or until it is paid or certified.

             Typically, reasons the Appellate Court, a debtor is not in default for paying with an uncertified check. Once the tendered check is successfully negotiated, the obligation is discharged.

             But all of this is premised upon the creditor’s willingness to accept the conditional payment offered in the form of a non-certified check. Following this thread further, if a landlord does not accept an uncertified check, the duty to pay rent is not suspended and the tenant is in default.

             Then, the Appellate Court evaluated whether or not the landlord’s refusal to accept an uncertified check which is one penny less than the required amount is equitable. Or not. Because, you see, Courts have the ability to apply the theory of “de minimis non curat lex.” The point is to conserve valuable and overburdened judicial resources and not waste the time of the Judge, Justices, bailiffs, sheriffs, constables, clerks, marshals, deputies, jury members, court personnel, and pay outrageous amounts to attorneys when parties are squabbling over something trivial.

             Easy out for the Appellate Court, right? Regardless of certified or non-certified funds, conditional acceptance vs. conditional delivery, apply ye olde DMNCL and we’re done. Case concluded, go home and next time focus on something significant.

             But no. Rather than trust the jury to correctly determine the facts – that is after all the jury’s one and only job – no, the Appellate Court finds that Tenant Terhune failed to pay rental. And, after making that finding the Court rules for the Landlord Bawa and case over, yes?

             No. The Appellate Court kicked the case back to where it came from. For a new trial. So that we can start all over again and litigate this one penny case. From which one might suspect there will be further appeals.

             Which will give me the ability to write about this case again in 2021. But that’s a digression.

The judgment rendered by the trial court was reversed for a new trial where presumably the jury will be instructed that a one-penny-short rent payment is a default. See J.S. Bawa v. David Terhune; Appellate Division of the Superior Court, State of California, County of Los Angeles, Case No. BV 032618; January 30, 2019: https://www.courts.ca.gov/opinions/documents/JAD19-01.PDF.  

Lessons Learned / Questions Asked:
 
1.      Sweet suffering Buddha. Why does this case exist; why were / are the parties arguing over one penny. Yes that’s rhetorical. One might presume rent control . . . Section 8 . . . a personal vendetta . . . who knows.
 
2.      Ok disregarding #1 for the moment, why didn’t the Appellate Court use the DMNCL theory and drop-kick this to hades? Yeah, that’s also rhetorical. Because here we are. With a 10-page appellate decision.

3.      Look for further appeals. Sadly. 

                                                                                                                 Stuart A. Lautin, Esq.*




* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law,
Texas Board of Legal Specialization 

Licensed in the States of Texas and New York 

Higier Allen & Lautin, PC
2711 N. Haskell Avenue, Suite 2400
Dallas Texas 75204
P: 972.716.1888