David Duarte and Daniel Rojas were long-term friends.
Duarte learned how to repair, maintain and program ATM machines. Knowing that
Congress passed legislation permitting individuals to own and operate ATMs,
Duarte sensed a sure-fire business.
David
found several ATMs sitting in an El Paso warehouse. He bought one and
approached Daniel about buying the others together. In the fall of 2002 they
agreed to enter the ATM business together, splitting profits and losses
equally.
So David
Duarte testified.
Daniel
Rojas had a different memory of the deal. Daniel recalled that he and David
were not partners, but rather that Daniel was an independent contractor who was
engaged to help David operate the ATM business.
For the
initial three years the business was quite successful, but in May 2005 the
parties were ready to end their relationship. Daniel told David he was keeping
all of the ATMs and was going to pay David $1,000 per month. Duarte received a
total of $2,500. Unhappy with the payout, David Duarte sued Daniel Rojas.
At trial
Duarte presented evidence that the business was worth $420,000 and that he and
Rojas had formed a lawful (but oral) general partnership. Duarte won the
lawsuit. Rojas appealed.
Predictably,
Rojas claimed that there was no evidence of a partnership.
The
Court of Appeals determined that there are five factors to consider regarding
the creation of a Texas general partnership: (1) right to receive profits; (2)
intent to be partners; (3) right to participate in control of the business; (4)
agreement to share losses or liabilities; and (5) agreement to contribute money
or property to the business.
The Appellate
Court evaluated all five factors and compared each to the facts as presented to
the trial court. All five factors were proven to the satisfaction of the Appellate
Court. Judgment was affirmed that a Texas oral partnership agreement existed
and was enforceable.
And so,
dear reader, I am sure you are wondering why this is newsworthy enough to place
in my valuable blog. Right?
And here
is the answer. Note the total, unmitigated absence of any facts or laws that
the partnership agreement must be in writing. It’s not there. Purposefully. Texas law has always been,
in my 30-year career and much longer, that general partnerships and joint
ventures need not be written and signed to be enforceable.
Texas limited
partnerships must be written and signed. Texas general partnerships and JVs – not so much.
See Rojas v. Duarte; 08-11-00072-CV;
Texas Court of Appeals 8th District, El Paso Texas; November 30,
2012.
Lessons learned:
1. Texas
general partnerships and joint ventures might be enforceable even though they
are not written.
2. Oral
/ verbal partnerships and JVs are tailor-made for problems. Be sure that all of
your personal agreements to share income are written and suggest to your
principals that they do the same (but without practicing law!).
3. Best
wishes for a healthy, happy and prosperous 2013!
Reprinted with the permission of North
Texas Commercial Association of REALTORS®, Inc.
Friday, March 29, 2013
Friday, March 15, 2013
8.00% interest = 00.00% or maybe 5.00%
In 2008 Aneita Weaver loaned her nephew John Jamar
$193,000 so that John could purchase a Harris County townhouse. The two parties
prepared and signed a loan agreement, without the help of lawyers or title
agents. That was their first (well maybe their second) mistake.
The funds were loaned at 8.00% interest for one year. Jamar was supposed to pay Weaver $1,400 per month during the term of the loan, which by my math establishes an amortization of 31.5 years.
The loan agreement stated: “If the . . . property does not sell [by January 1, 2010, then] . . . Aneita J. Weaver has the right to assume the title to the property free and clear from John Jamar, for the balance of the loan.”
Seriously. That’s what it says.
Jamar neither sold the property by January 1, 2010, nor did he make his payments to Weaver. So Weaver sued, asking the trial court for specific performance under the loan agreement, unpaid interest at the stated rate of 8.00% and attorney’s fees.
Weaver sued because Jamar did not sign a Deed of Trust, which would have otherwise allowed her to foreclose. Without a Deed of Trust Weaver’s only choices were to ignore the default or assert a lawsuit and ask the Court to force Jamar to convey the property to her.
Weaver won the case. The trial court ordered Jamar to convey the Property to Weaver. However, Weaver did not receive 8.00% interest in the Judgment. Instead, the trial court awarded her only 5.00% interest on all post-judgment amounts.
So Weaver appealed.
The Appellate Court looked at the security clause and focused on Weaver’s right to “. . . assume the title to the property . . . for the balance of the loan.”
The Court decided that the everyday meaning of “balance” includes principal and interest. And that Weaver’s exercise of her right to get title to the townhouse extinguished the balance of the loan, including interest.
So, Weaver’s interest rate of 8.00% was reduced to 00%. However, once the Judgment was entered by the trial court, the full Judgment amount accrued interest at the statutorily-mandated rate of 5.00%. Which wasn’t quite as painful. But still.
All of this pain was caused by the preparation by the parties of their own loan agreement, written with terms and provisions they could understand. And we can appreciate that.
But the other side is that Weaver was inadequately protected. I shudder to think of her legal expenses to clean up this mess, when a properly worded Promissory Note and Deed of Trust would likely have avoided both courthouses entirely.
See Weaver v. Jamar; 14-11-00516-CV; Texas Court of Appeals 14th District; October 30, 2012.
Lessons learned:
1. Loan documents written by non-lawyers cause problems.
2. Loan docs with problems generate lawsuits.
3. Lawsuits keep lawyers employed.
4. It is probable that Weaver and Jamar could have avoided the Courthouse if they had proper loan docs.
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
The funds were loaned at 8.00% interest for one year. Jamar was supposed to pay Weaver $1,400 per month during the term of the loan, which by my math establishes an amortization of 31.5 years.
The loan agreement stated: “If the . . . property does not sell [by January 1, 2010, then] . . . Aneita J. Weaver has the right to assume the title to the property free and clear from John Jamar, for the balance of the loan.”
Seriously. That’s what it says.
Jamar neither sold the property by January 1, 2010, nor did he make his payments to Weaver. So Weaver sued, asking the trial court for specific performance under the loan agreement, unpaid interest at the stated rate of 8.00% and attorney’s fees.
Weaver sued because Jamar did not sign a Deed of Trust, which would have otherwise allowed her to foreclose. Without a Deed of Trust Weaver’s only choices were to ignore the default or assert a lawsuit and ask the Court to force Jamar to convey the property to her.
Weaver won the case. The trial court ordered Jamar to convey the Property to Weaver. However, Weaver did not receive 8.00% interest in the Judgment. Instead, the trial court awarded her only 5.00% interest on all post-judgment amounts.
So Weaver appealed.
The Appellate Court looked at the security clause and focused on Weaver’s right to “. . . assume the title to the property . . . for the balance of the loan.”
The Court decided that the everyday meaning of “balance” includes principal and interest. And that Weaver’s exercise of her right to get title to the townhouse extinguished the balance of the loan, including interest.
So, Weaver’s interest rate of 8.00% was reduced to 00%. However, once the Judgment was entered by the trial court, the full Judgment amount accrued interest at the statutorily-mandated rate of 5.00%. Which wasn’t quite as painful. But still.
All of this pain was caused by the preparation by the parties of their own loan agreement, written with terms and provisions they could understand. And we can appreciate that.
But the other side is that Weaver was inadequately protected. I shudder to think of her legal expenses to clean up this mess, when a properly worded Promissory Note and Deed of Trust would likely have avoided both courthouses entirely.
See Weaver v. Jamar; 14-11-00516-CV; Texas Court of Appeals 14th District; October 30, 2012.
Lessons learned:
1. Loan documents written by non-lawyers cause problems.
2. Loan docs with problems generate lawsuits.
3. Lawsuits keep lawyers employed.
4. It is probable that Weaver and Jamar could have avoided the Courthouse if they had proper loan docs.
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
Friday, March 1, 2013
How Not to Foreclose
Lawrence Mathis owned and operated a commercial laser
printing and direct mail business in Austin. In March 2000 he bought a 20,000
SF building, and arranged SBA financing. A first lien Note for $440,000
(approx. 50% of the purchase price) was given to Norwest Bank, NA, and SBA
through its affiliate CenTex Certified Development Corporation accepted a
second lien Note for $365,000 (approx. 40% of the purchase price).
Mathis had difficulty servicing the debts and he started making late payments in 2003. In 2006, CenTex acquired the Norwest Note. At that time, Mathis was still several months behind on his payments.
For years Mathis continued to make late payments, and CenTex continued to accept them. Until 2009. In February 2009 Mathis sent CenTex a check for three installment payments. This was the first time that a payment was rejected, but not until April 2009. Shortly thereafter CenTex sent Mathis a letter of intent to foreclose on the property in May 2009.
Mathis sued to stop the foreclosure, claiming the debt was improperly accelerated. And as a consequence, CenTex had no right to foreclose. The trial court initially granted Mathis’ request to stop the foreclosure, but at a full trial in 2010 the court reversed itself and ruled for CenTex.
Displeased with that final Judgment, Mathis appealed.
While Texas law requires notice of intent to accelerate a real estate debt, it can also be waived if done so properly. At least with regard to commercial transactions. The waiver must be clear and unequivocal. And from my experience, most commercial loans contain a full waiver clause, giving the lender the option to send a notice of intent to accelerate the debt and opportunity to cure a default, or bypassing it and instead sending a notice of foreclosure.
It is also my experience that many times the notice waiver can be negotiated and eliminated. Then, lenders are forced to give a written notice of intent to accelerate and an opportunity to cure the default before acceleration. But the loan docs in this case did not contain the type of clause that would have been of great benefit to Mathis. Instead, the scales were tilted in the lender’s behalf.
The Texas Court of Appeals looked at the waiver provision in the Note and the waiver provision in the Deed of Trust. They were not the same. The waiver provision in the Note appeared to be ‘clear and unequivocal.’ But not so in the Deed of Trust. The Deed of Trust stated: “If [Mathis] defaults . . . and the default continues after [Lender] gives [Mathis] notice of the default and the time within which it must be cured, as may be required by law or by written agreement . . .”
Feeling confused by the two clauses, the Court of Appeals concluded that the waiver provisions in the Note and Deed of Trust could not be rectified. Absent clear and unequivocal evidence that the Lender and Mathis intended to waive any formal requirement to send notice of default and intent to accelerate the debt before foreclosure, the Judgment of the trial court was reversed because the attempted Note acceleration was ineffective.
Mathis wins. CenTex loses. Well not really. All CenTex has to do now is to send out a notice of intent to accelerate, then accelerate the debt and foreclose next month. But I digress.
See Mathis v. DCR Mortgage III Sub I L.L.C.; 08-10-00310-CV; Texas Court of Appeals 8th District; October 10, 2012.
Lessons learned:
1. Be wary of commercial loan docs. Yes they are one-sided and intended to be so. But that doesn’t mean that Borrowers must be in default the moment they sign the docs. Many lenders are willing to make reasonable accommodations. But you have to know what to ask for. And then ask.
2. Texas law will usually help consumer-borrowers and residential tenants. Not so in a commercial context. Don’t count on Texas laws helping you. Many provisions that are non-waivable in Texas consumer and residential law are waivable in Texas commercial law.
3. Exercise your Democratic right / obligation. Even if you are a Republican. Vote!
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
Mathis had difficulty servicing the debts and he started making late payments in 2003. In 2006, CenTex acquired the Norwest Note. At that time, Mathis was still several months behind on his payments.
For years Mathis continued to make late payments, and CenTex continued to accept them. Until 2009. In February 2009 Mathis sent CenTex a check for three installment payments. This was the first time that a payment was rejected, but not until April 2009. Shortly thereafter CenTex sent Mathis a letter of intent to foreclose on the property in May 2009.
Mathis sued to stop the foreclosure, claiming the debt was improperly accelerated. And as a consequence, CenTex had no right to foreclose. The trial court initially granted Mathis’ request to stop the foreclosure, but at a full trial in 2010 the court reversed itself and ruled for CenTex.
Displeased with that final Judgment, Mathis appealed.
While Texas law requires notice of intent to accelerate a real estate debt, it can also be waived if done so properly. At least with regard to commercial transactions. The waiver must be clear and unequivocal. And from my experience, most commercial loans contain a full waiver clause, giving the lender the option to send a notice of intent to accelerate the debt and opportunity to cure a default, or bypassing it and instead sending a notice of foreclosure.
It is also my experience that many times the notice waiver can be negotiated and eliminated. Then, lenders are forced to give a written notice of intent to accelerate and an opportunity to cure the default before acceleration. But the loan docs in this case did not contain the type of clause that would have been of great benefit to Mathis. Instead, the scales were tilted in the lender’s behalf.
The Texas Court of Appeals looked at the waiver provision in the Note and the waiver provision in the Deed of Trust. They were not the same. The waiver provision in the Note appeared to be ‘clear and unequivocal.’ But not so in the Deed of Trust. The Deed of Trust stated: “If [Mathis] defaults . . . and the default continues after [Lender] gives [Mathis] notice of the default and the time within which it must be cured, as may be required by law or by written agreement . . .”
Feeling confused by the two clauses, the Court of Appeals concluded that the waiver provisions in the Note and Deed of Trust could not be rectified. Absent clear and unequivocal evidence that the Lender and Mathis intended to waive any formal requirement to send notice of default and intent to accelerate the debt before foreclosure, the Judgment of the trial court was reversed because the attempted Note acceleration was ineffective.
Mathis wins. CenTex loses. Well not really. All CenTex has to do now is to send out a notice of intent to accelerate, then accelerate the debt and foreclose next month. But I digress.
See Mathis v. DCR Mortgage III Sub I L.L.C.; 08-10-00310-CV; Texas Court of Appeals 8th District; October 10, 2012.
Lessons learned:
1. Be wary of commercial loan docs. Yes they are one-sided and intended to be so. But that doesn’t mean that Borrowers must be in default the moment they sign the docs. Many lenders are willing to make reasonable accommodations. But you have to know what to ask for. And then ask.
2. Texas law will usually help consumer-borrowers and residential tenants. Not so in a commercial context. Don’t count on Texas laws helping you. Many provisions that are non-waivable in Texas consumer and residential law are waivable in Texas commercial law.
3. Exercise your Democratic right / obligation. Even if you are a Republican. Vote!
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
Labels:
accelerate,
clause,
commercial law,
commercial transaction,
consumer law,
cure default,
debt,
foreclose,
lien note,
notice of default,
notice of foreclosure,
payments,
residential law,
SBA financing,
waiver
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