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




Monday, March 4, 2019

BROKER NON-DISCLOSURE


            In September 2013 Daniel Ryan and Patricia Ryan decided to sell their La Jolla beachfront property and engaged Pacific Sotheby’s International Realty to assist. A listing agreement was executing appointing Sotheby’s as exclusive agent for M/M Ryan. 
 
It was Sotheby’s obligation in the contract to use its “professional guidance and advice throughout all states and aspects of the listing, marketing and sale” of the property. Sotheby’s, in turn, appointed David Schroedl as its agent.

During an open house hosted by Schroedl, Hany Girgis informed Schroedl that Girgis intended to remodel his adjacent property, which would permanently obstruct Ryans’ westerly ocean view. Girgis further told Schroedl that the construction would have a significant impact on the Ryans’ property, as the construction would move Girgis’ home to within five feet of the common boundary, create a two-story wing overlooking Ryans’ pool, take two years to complete, and require extensive excavation.

Schroedl never informed Ryans of Girgis’ plans.

M/M Ryan sold their property several months later to Ney and Luciana Marinho for $3.86 million. Sotheby’s received almost $100k as a brokerage commission; presumably some portion of that was paid to Schroedl.

Schroedl did not disclose to M/M Marinho the extensive remodeling plans proposed by Girgis, and the likely impact upon the ocean view and privacy of the Property.

M/M Marinho only learned of the neighbor’s plans the day after closing, when the interior decorator engaged by M/M Marinho talked with Girgis. After discovery of this new intel, M/M Marinho immediately attempted to rescind the transaction.

M/M Ryan refused.

M/M Marinho demanded arbitration, where an Award was ultimately entered for them rescinding the transaction and returning the $3.86 million purchase price. The Award also ordered M/M Ryan to pay damages, interest, cost and attorney’s fees in excess of $1 million.

After entry of the arbitration Award, M/M Ryan filed a lawsuit against Sotheby’s and Schroedl to recovery the monies paid by Ryans to M/M Marinho. The basis of the claim was that prior to closing Sotheby’s and Schroedl know of the construction plans, knew of the adverse effect to the Property, and informed neither M/M Ryan nor M/M Marinho.

And due to that failure to disclose, M/M Ryan were substantially damaged through an adverse ruling in the arbitration Award.

Defendants claimed in the litigation that no duty to the Ryans was breached. Defendants argued that all of Ryans’ claims were based on professional negligence, and Ryans failed to offer expert testimony on that point, a requirement of California law. And that since M/M Ryan failed to designate an expert in trial court, they could not establish that Defendants breached a standard of care owing to M/M Ryan.

In opposition, Ryans maintained that expert testimony was not required due to the existence of the arbitration Award. Ryans claimed that to delve into the standards of professional responsibility would be essentially relitigating that issue, which – they claimed – had already been decided in the arbitration.

The trial court granted Defendants’ motion to dismiss the case. Ryans appealed.

Counsel for Ryans urged the appellate Court to waive the normal expert testimony requirement, claiming that any non-expert would have “common knowledge” that Sotheby’s and Schroedl owed and breached fiduciary duties owing to M/M Ryan. And that as a consequence, no special expert is needed to provide evidence of that which everyone already knows.

So goes the “common knowledge” theory.

The appellate Court first determined that M/M Ryan did not argue the “common knowledge” theory in trial court. But good news for them – the appellate Court allowed them to present it for the first time on appeal.

That was the first hint that the appeals Court was inclined to waive the expert witness requirement, finding that if the professional malpractice is obvious, then expert testimony is not required.

From that point, it was a short trip to determine that Sotheby’s and Schroedl had knowledge of matters that required pre-closing disclosure. Instead, they “. . . simply chose to remain silent, collect their commissions, and allow the Ryans to deal with the consequences.”

The judgment rendered by the trial court was reversed. M/M Ryan are entitled to proceed in their claims against Sotheby’s and Schroedl. 

See Daniel Ryan v. Real Estate of the Pacific, Inc.; California Court of Appeals, 4th Appellate District, Division One, Case No. D072724; February 26, 2019: http://www.courts.ca.gov/opinions/documents/D072724.PDF.

Lessons Learned / Questions Asked:
 
1.      I believe that a California real estate broker’s and agent’s obligation to disclose material conditions and latent defects is the most stringent in the USA.
 
2.      Although the conclusion reached by the appellate Court may be morally correct, I’m not convinced it is supported by California law. Can it truly be correct that California citizens have “common knowledge” of the professional standards of care that must be discharged by California real estate brokerage licensees? So if we stop a random guy from Escondido driving his 1983 Ranger pickup truck south on I-15 he will be able to aptly describe the fiduciary duties of those licensed by the California Department of Real Estate? Seriously?

3.      Look for further appeals. I will too.

                                                                                     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
























Thursday, January 31, 2019

Is The Notice Valid?




            A general contractor was hired to build public schools in Louisiana. The GC subcontracted a portion of the project to a subcontractor, who in turn, further subcontracted with 84 Lumber Company.
 
            Presumably 84 Lumber Company furnished building materials, but I see from their website that they are capable of furnishing much more including custom manufacturing.
 
            84 Lumber Company was not paid, so 84 Lumber filed sworn Statements of Claim. Louisiana law requires that subcontractors must send written notice of its claim by certified or registered US mail to the GC’s Louisiana office.
 
            Instead of using US mail, 84 Lumber sent the notice by email.
 
            Instead of sending the notice to the GC’s Louisiana office, 84 Lumber sent the notice to the GC’s attorney.
 
            84 Lumber sued the GC. The district court held that 84 Lumber’s notice did not comply with Louisiana laws.
 
84 Lumber appealed.
 
            The Appellate Court reviewed the State laws requiring notice, to determine if it was clear and unambiguous. The Court found that the laws on this subject were intended to protect those performing labor and furnishing materials. And that those same laws, if unambiguous, must not be expanded in their scope, but rather must be read literally.
 
            Louisiana laws provide that a subcontractor must furnish written notice to the GC within 45 days after recordation of the notice of acceptance by the property owner or notice of the owner regarding a default. The notice sent by the subcontractor must be “. . . served by mailing the same by registered or certified mail, postage prepaid, in an envelope addressed to the contractor at any place he maintains an office in the state of Louisiana.”
 
            It is undisputed that 84 Lumber did not send notice of its claim by registered or certified mail to the GC’s Louisiana office. 84 Lumber did neither. However, 84 Lumber gave evidence at trial that its lawyer’s secretary sent claim statements by email to the GC’s counsel. And accordingly, 84 Lumber contends that receipt by the GC of such sworn statements satisfies the statutory requirements.
 
            Because regardless of the manner of delivery, the message was in fact timely delivered and no one is contending otherwise. And so, the argument goes, we should look at the intent of the law not its exact wording. The purpose of the law is to provide notice. Notice was provided. Just not in exact conformance with Louisiana laws.
 
            Unconvinced, the Appellate Court determined that words have meanings and meanings should not be expanded if the ordinary meaning is clear. If the law requires notice to be sent by certified or registered mail to a Louisiana location, then that precludes notice sent by any other manner such as emails, texts, instant messaging, and phone calls.
 
No Louisiana court has held that an email to the GC’s counsel satisfies the requirements of Louisiana law. Consequently, 84 Lumber’s email notice to GC’s attorney fails.
 
            The GC wins; 84 Lumber loses.
 
See 84 Lumber Company v. Continental Casualty Company et al; US Court of Appeals, 5th Circuit, Case No. 18-30170; January 24, 2019: http://www.ca5.uscourts.gov/opinions/pub/18/18-30170-CV0.pdf.
 
            Lessons Learned / Questions Asked:
 
1.      This issue comes up constantly. People want to know that their email message is sufficient under law. Sometimes it is; often it is not.
 
2.      There are times where laws require delivery of a formal notice or demand in a specific manner. Eviction notices come to mind, as do demands for treble or punitive damages. I have not yet seen non-litigation laws that allow severe correspondence to be sent in any manner other than old fashioned paper, with proof of delivery.
 
3.      Conversely, leases, vendor agreements, service agreements, construction contracts and contracts of purchase and sale now commonly offer, as a convenience, to allow formal notices to be furnished by email or posted on a web portal. Be careful. There is a substantial risk that the intended recipient never sees the message as it might be trapped in a spam filter or ignored. For important notices like default, term renewal, and building repairs, only use paper notices by personal delivery, registered or certified mail, or courier delivery. The point is to have evidence of exactly when the notice was delivered, and to whom. You may need that evidence if the matter is contested.
 
                                                                                                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


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.