Archives for category: Contracts

Understanding What’s in the Contract Boilerplate

In the age of the word processor, most contracts are assembled from forms or using a contract one of the parties has used before. Very often at the end of these previous agreements or forms, some boilerplate provisions are included. Sometimes these provisions are a good fit for the new agreement and other times they are not.  If you understand the purpose behind the most used boilerplate provisions, you will be in a better position to make an informed decision about whether they should be included in the contracts you are using or are considering entering into.  Below are brief explanations of some of the most-used and important boilerplate provisions.

Governing Law / Choice of Law

Governing Law or Choice of Law provisions determine what law will be used to resolve a contract dispute. This could be relevant to you if the particular contract’s subject matter would be treated more favorably under one state’s laws over another state’s laws. Generally, the state referenced in this term relates to where the contract will be performed or to the location of the parties to the contract.  If the state referenced is not the state where you reside, find out why that state has been chosen. If you don’t get a clear answer that satisfies you, request that governing law be changed to the State of Texas.  If the contract is to be performed in Texas, having the law of a different state apply to a dispute can add unnecessary cost and uncertainty to resolving the dispute.

Venue / Forum Selection 

Venue or Forum Selection clauses deal with where a suit to resolve a contract dispute may be filed. For example, many contracts drafted for Denton County businesses set the venue in Denton County, where the businesses are located. Although venue provisions are not always enforceable, generally this means that anyone who files a claim based on the contract must file it in Denton County. Venue clauses can impact you negatively when they require you to litigate in a county or state where your business is not located.  Locating and retaining attorneys may be more difficult, and travel to and from the selected forum can greatly increase the costs of the litigation.    

Arbitration

Arbitration clauses take contract disputes out of court and into an arbitration. Arbitration clauses waive your right to a jury or bench trial. Arbitration can be faster and less expensive than filing a claim in state or federal court, but this is often not the case.  Arbitration decisions remain private, and arbitration clauses may place limits on traditional aspects of litigation, such as discovery. Unless your contract involves highly technical, industry specific terms and expertise, generally the benefits of arbitration are not outweighed by the negatives including increased costs and a very limited ability to appeal a bad decision.

Costs / Attorney’s Fees

Costs and Attorney’s Fees clauses are a way to shift fees to one party to the contract or both parties to the contract. Costs can add up during a dispute, so it’s important to know by whom the fees will be paid if they are incurred. In some cases, the party who claims breach of an agreement can be awarded attorney’s fees, and generally the party defending against the alleged breach of the agreement cannot recover its fees.  However, this can be changed by contract.  Most contract provisions dealing with attorney’s fees allow the prevailing party to recover its attorney’s fees.  For this reason, generally a prevailing party provision puts the party defending the suit in a better position than they would be in otherwise.

Assignment

An Assignment clause can either allow you to, or prevent you from, assigning your rights under the contract to another party. This could come into play in a contractor / subcontractor situation. Let’s say you contract with a commercial business to install new flooring, but wish to subcontract that work out to one of your crews. If an Assignment clause in the contract prevents you from assigning the work, you may breach the contract if you give the work to your subcontractor. If you have plans to assign your rights and responsibilities under the contract to another entity, be sure this clause allows for it.

Entire Agreement / Merger Clause 

An Entire Agreement or Merger clause states that the contract is the complete agreement between the parties. The clause is intended to prevent either side from arguing there are any oral or other written agreements that modify or amend the contract. This clause is important to a contract because without it, a party may claim that a conversation modified the terms of the agreement, and in case of a dispute, each party would be able to present evidence of that conversation. In practice, such a provision only limits evidence of conversations before the written agreement was entered into.  For this reason, if there are any promises that were made orally before the written agreement is made, be sure they are included in the written agreement.  Otherwise, those promises may end up being unenforceable.

Force Majeure

A Force Majeure clause indicates the events that will excuse performance under a contract. Standard force majeure events may include labor strikes, acts of war, and extreme weather events. Such events should be extremely unlikely to occur. These clauses can be tricky, because parties may insert events that aren’t really force majeure events as a preventative measure against events they can and should reasonably anticipate could impede or prevent the party’s performance.  If you see a force majeure clause, carefully read any provisions that define the term.  It may be more or less expansive than you really intend.

Severability

A Severability clause allows parts of an agreement to be enforced even when some of the agreement terms are found to be unenforceable.  While the intent of these provisions is to prevent the contract from being unenforceable for “technical” reasons (i.e. being found enforceable because some minor part of the agreement is unenforceable), these provisions rarely come into play, and can lead to unintended consequences.  For example, they can operate to make an agreement enforceable even when an important promise that benefits you is found unenforceable.

Time is of the Essence Clause

Generally, when a contract calls for a specific time for performance, the performance due will still be considered timely if performance occurs reasonably soon after the specified time. Many contracts deal with time sensitive matters.  When a contract specifies “time is of the essence,” the general rule is changed.  Therefore, if time is specified for performance, failure to comply exactly will be a breach of contract. Construction contracts, where missed deadlines can have severe repercussions, often include time is of the essence provisions.

Indemnification Clause

An indemnification clause deserves your careful attention. Indemnification clauses are used to protect one party from the actions or negligence of another party or make one party responsible for the other parties’ actions.  Indemnification clauses typically provide that the first party will pay any attorney’s fees and damages a second party may have to pay as a result of the first party’s actions, but they can also be used to make the first party responsible for attorney’s fees and costs resulting from the second party’s actions.  Because you cannot control others’ actions, it is important to include this clause when you are performing work jointly with other businesses.  Indemnification clauses are very common in service contracts, especially when there are contractors and subcontractors performing the work together. Indemnification clauses often contain arcane wording and are written in run-on sentences. Read and re-read them until you are sure you understand whose actions you will and will not be responsible for.

Conclusion

Lastly and, perhaps most importantly, keep these two things in mind. First “boilerplate” is as enforceable as the rest of the contract. Thus, “boilerplate” should not be understood to mean unimportant.  Second, there isn’t really any such thing as boilerplate any more. Historically, the term boilerplate came from the similarity in appearance between curved metal plates used on water boilers and the curved metal pieces that were circulated to printing presses to allow ads and other repetitive material to be printed over and over.  Once these plates were produced, they were fixed.  Word processors don’t function this way.  What we call boilerplate can be and often is modified when it is re-used.   This means that, for example, the “Attorney’s Fees” section in the contract you see today may not say the same as a similar provision you read last year.  For both these reasons, give the boilerplate in the contracts you see the attention it deserves.  Read it and try to understand it.  If you can’t understand it, ask questions or change it.  Contracts are intended to reflect the contracting parties’ intentions.  If you don’t understand any part of a contract, it is not likely to reflect your intentions.

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Premises Liability

Of prime importance to property owners and occupiers (tenants) is liability for damages to persons or property which occur on the owner’s or occupier’s property. Ownership or control of the premises upon which the damages occurred by itself will not create liability for the owner or occupier.  There also must exist a duty from the owner or occupier to the damaged person or property.  Also, control may be established through a showing of actual control or a right to control the area in which the damage occurred.  The control must relate to the activity that caused the injury complained of before a duty will exist.  Areas beyond the limits of an owner’s or occupier’s control will not establish such a duty.

Chapter 95 of the Texas Civil Practices & Remedies Code governs damage claims accruing on or after September 1, 1996, arising from negligent construction activities. A thorough discussion of that Chapter is well beyond the scope of this article.

In addition to control, an owner’s or occupier’s duty to a party will be determined by the legal status of that party. A party may be considered a trespasser, licensee or invitee.  A “trespasser” is someone who has no legal right to be on the property.  A “licensee” is a person who is present on the property with the permission of the owner or occupier, but for whom the owner or occupier has no business relationship.  A licensee is present on the property for his or her benefit only, and not that of the owner or occupier.  On the other hand, an “invitee” has a present business relationship with the owner or occupier and is present on the property for the mutual benefit of both parties.  A licensee or invitee may become a trespasser if his or her occupancy exceeds the scope of the rights granted to them.

Typically, owners and occupiers owe trespassers no duties other than to not injure them willfully, wantonly or through gross negligence. This has been the common law rule in Texas for many years, and has been codified in Section 75.007(b) of the Texas Civil Practices & Remedies Code.  For licensees, owners and occupiers owe the same duties that are owed to trespassers, and the additional duty to use ordinary care to make reasonably safe and adequately warn of dangerous conditions of which the owner or occupier is aware, but the licensee is not.  Actual instead of constructive knowledge of the dangerous condition by the owner or occupier is required.  Owners and occupiers are additionally responsible to invitees for their active negligence.  With respect to agricultural or recreational activities, Chapter 75 of the Texas Civil Practices & Remedies Code provides special protections to land owners engaged in such activities.

Texas courts have divided invitees into 2 categories: “public invitees” and “business visitors”. Public invitees are people who enter premises which are generally open to the public, such as governmental facilities and parks.  A business or merchant impliedly is “inviting” the public into its place of business.  Contractors, employees, and public servants are distinct categories of invitees.  By way of the invitation to the public, all entrants into those premises expect to be in a safe environment.  As such, owners and occupiers owe invitees the duty to exercise ordinary care to keep the premises reasonably safe, including the duty to inspect and discover latent defects, make safe any defects, or warn the invitees of the same.  For invitees, an owner or occupier is charged with any actual or constructive knowledge of the condition of the premises (i.e., conditions that the owner or occupier should have known of regardless of actual knowledge), and has a duty to make sure their invitees are reasonably safe from any such dangerous conditions or adequately warn the invitee of such conditions.

Even where a duty exists on an owner or occupier to provide a safe premises, liability will only occur where the breach of such duty proximately causes damages to the third party. Proximate cause is made up of two separate elements.  The first being “cause in fact”, which means that the negligent act or omission was a substantial reason that the injury occurred and without which, the injury would not have occurred.  The second element is “foreseeability”, which means that an ordinary and reasonably prudent person (which my first year contract law professor described as “Ward Cleaver”—Baby Boomers and Gen-Xers will understand) should have anticipated that such act or omission would result in such damage or injury.  These rules are general in nature, and several special situations have modified versions of these rules.  For example, premises liability relating to children, disabled persons, elevators and escalators, sporting events, and animals, each have modified rules relating to liability to the premises owner or occupier.

Under certain circumstances, an owner or occupier may be responsible for acts of third parties. The same rules as above apply for a third party act as for the owner’s or occupier’s direct negligence.  There must be a duty, a breach of that duty, and such breach proximately caused the injured party’s damages.  Most premises liability situations involving third parties are determined by proximate cause.  However, a third party’s act or omission may be a superseding act, breaking the chain of causation between the premises owner’s or occupier’s conduct.  A “superseding act” is an outside force that intervenes in a chain of events to cause an outcome that otherwise would not have occurred.  A superseding act can relieve an owner or occupier from liability relating to that act.

The criminal act of a third party is a common type of superseding act which may prevent the owner or occupier from becoming liable for an injury occurring on the premises. However, there are situations where an owner or occupier has been held responsible even where the criminal acts of a third party were involved.  In situations where such conduct is foreseeable and unreasonable, courts have imposed liability on the premises owner or occupier.

Employers have a duty to provide a safe workplace for its employees. Owners and occupiers have a duty to follow laws and ordinances which relate to safety of the premises, and the failure to follow such laws and ordinances may be considered to be per-se negligence.  Where an area or place has had so much criminal activity that has resulted in damage or injury to persons in and around such area, a premises owner or occupier may have a duty to protect its invitees against such dangers.  Note, however, that employers typically do not have a duty to warn an employee of conditions that are commonly known or already appreciated by the employee.  Of course, such duties will necessarily be affected by whether Worker’s Compensation insurance exists or not.

The principles underlying premises liability are in most instances purely fact driven. The analysis can be complicated, particularly when there may be more than one cause of the damage or injury or a superseding act.  Owners and occupiers of real property should always take advantage of liability insurance which will cover any negligence found against such owner or occupier, as well as provide the owner or occupier with a defense (attorney) against the prosecution of such claims.

Scott Alagood is board certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and can be reached at alagood@dentonlaw.com or http://www.dentonlaw.com.

 

Educate Yourself about Builder’s Risk Insurance

 

Almost every homeowner insures their home. A typical homeowner’s policy protects against fire, hail, theft, and other common perils. However, a typical homeowner’s policy covers completed structures. Therefore, if you plan to build or have built a custom home or other significant structure, you will need to make sure you have insurance that provides coverage during the construction process.

Builder’s risk insurance is a special type of property insurance for the construction process. Generally, builder’s risk insurance is coverage that protects a person’s or organization’s insurable interest in materials, fixtures and equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered loss.” Usually written for a specific project, builders risks policies will cover “named perils” of loss caused by external causes (such as fire or hail), but also may cover property damage caused by acts of third parties (theft or vandalism). Most builders risk policies are written on an “all risk” basis, meaning that the policy will cover all risks of property damage unless the cause is specifically excluded. Such policies may be referred to as ARBR (all risk builders risk) or CAR (construction all risks policies). In addition, contractors will sometimes obtain builders risk “floater” policies that are not project specific, but that will cover, subject perhaps to lower limits than a project-specific builders risk policy, property damage at any project undertaken by the insured contractor.

Although coverage is often purchased by the custom builder or general contractor, property owners should purchase this coverage or contract with the builder or general contractor to be a named insured in the policy. Many times, proof of builder’s risk coverage is necessary to comply with local city, county, and state building codes. If you are the owner of the property and are commissioning new construction, you are the one most likely to suffer if construction is delayed because the builders risk policy was not in place. Further, some in the construction industry believe that it is the property owner who should have the builder’s risk policy because they have already paid for the improvements to their land, and if the builder receives the funds directly from a claim, theoretically, they could abscond with that benefit. Therefore, it is far safer for the property owner to obtain the builder’s risk policy, because they already own the building, even while it is under construction. If something happens to the under-construction project, then they should be the beneficiary and control how the funds are spent.

Although commonly written as an all risk policy, common exclusions significantly limit what “all” means. By far, the most significant limit on builder’s risk coverage is flawed workmanship. If your builders risk policy includes a faulty workmanship exclusion, you may need additional insurance coverage to protect you from this specific risk. Some insurance companies offer an endorsement to remove the common faulty workmanship exclusion. Every owner should inquire about this option and purchase this coverage if it is available. If such coverage is not available, then other options include performance bonds and/or well-drafted warranties in your construction contract. Always be aware, a contract is only as good as the person you contract with. If you have the world’s best warranty and you make it with a contractor who is broke and changes his business name once a year, it’s not worth the paper it is written on. One exception to this rule (at least as to the ability to perform) is insurance. Insurance is a highly regulated industry. Part of what that regulation makes certain of is that insurance companies have the funds available to pay the claims made on their policies. Especially in Texas, there is nothing that ensures a contractor can or will stand behind his construction warranty.

Other common exclusions from builder’s risk policies include earthquakes and floods. In Texas, earthquakes are extremely unlikely, but flooding is not. Fortunately, FEMA maintains and updates flood maps regularly used for identifying suitable construction sites. Generally, if you are building outside of the 100 year flood plain, flooding will not be an issue. In most cities and counties in Texas, you are required to obtain a construction permit, one of the conditions of which, is that you are not building in the 100 year flood plain. In lieu of or in addition to checking the FEMA maps yourself, your construction contract with your general contractor should include that they are required to obtain all necessary permits. If you are building in an unincorporated area outside of Denton County, I recommend you check with the FEMA map yourself.

Finally, be aware there are many soft costs that may not be covered by builder’s risk coverage. A soft cost is money you lose during the time it takes to move forward with your project after a covered loss. Soft costs may include additional insurance premiums, legal fees, and construction loan interest. Some policies will include soft costs, and some might not. If you discover that your builders risk insurance doesn’t cover soft costs, consult with your insurance agent about adding supplemental coverage.

 

 

 

Lawsuits – Not as Seen on TV

Often people’s perspectives of the litigation process are shaped by TV. Although the entertainment industry does a great job of entertaining us with legal drama, it is rarely accurate. One notable difference between TV and reality is that TV lawyers get hired by a client and try her case in a single episode, which may cover just a few days’ time. In reality, the process can take years. The cost vs. benefit, time, and stress of litigation are not shown on TV. These are important factors to consider when facing litigation.

This article offers a behind the scenes glimpse at the real civil litigation process. The statements in this article are not legal advice nor are they comprehensive or applicable to every case or every person.

In a civil lawsuit, there are at least two parties. The plaintiff is the party that brings the lawsuit. The defendant is the party being sued.

In certain types of cases, such as deceptive trade practices, the would-be plaintiff is supposed to send a written demand to the would-be defendant before filing a lawsuit. The demand usually summarizes the plaintiff’s legal and factual allegations and requests the desired relief. A party may have up to sixty days to respond to a demand. If the parties cannot resolve their dispute informally, filing suit is usually the next step.

The document that is filed to initiate a lawsuit in Texas courts is called a petition. In preparing a petition, lawyers may spend hours or weeks gathering information about the facts of the case and researching applicable law. The defendant must be served with the petition before the case can proceed. After a defendant is served, he must file an answer or another applicable response with the court clerk by the applicable deadline. If the defendant fails to timely respond, the plaintiff may take a default judgment — meaning she wins because the defendant failed to timely participate.

After the defendant answers, the parties usually engage in discovery. The discovery process allows each party to gather information that is relevant to the case from the other party and from nonparties. Parties may discover information that provides a basis to bring new claims, which in turn may allow for additional discovery. Discovery disputes sometimes arise, involving the relevance of the information sought, protecting confidential information (e.g. trade secrets, etc.) and other issues. Discovery is one of the most time-consuming phases of litigation — taking months or even years to complete.

During the course of a lawsuit, there may be numerous motions filed on a variety of issues. Each motion and hearing may take days, weeks, or months to prepare and present.

Although settlement is rarely featured in legal shows, most cases are resolved through the mediation process or by informal settlement talks between attorneys. Lawsuits settle at all stages of the litigation process.

If a case does not settle before its trial date, a judge or jury will decide the case (subject to appeal). Getting to trial usually takes a year or more. This is due in part to allow lawyers time to develop and evaluate their case; courts being backed up because there are not enough of them to handle the influx of cases filed; and the scheduling issues that have to be worked out among the parties, attorneys, courts, and witnesses.

Just before trial, courts may hear various pre-trial motions. Potential jurors are then let in the courtroom and a jury is selected. The lawyers then make their opening statements giving a roadway of the evidence they believe will be presented. After opening statements, each party may put on evidence through witnesses and exhibits (e.g. documents, photographs, and other tangible items). The parties rest after putting on their evidence. The judge reads the charge (instructions and questions) to the jury. The lawyers then make closing arguments. Following further instruction from the judge, the jury will then leave the courtroom to deliberate and answer the questions presented to them in the jury charge. The judge reads the jury’s verdict and converts it to a final judgment. That judgment becomes final if not timely appealed or otherwise successfully challenged.

In summary, TV shows start by revealing the client’s problem, skip the hard work, and end with a dramatic trial where the bad guy is exposed beyond all doubt. In reality, there is not a smoking gun in most cases—it’s more of a connect the dots to see the picture approach.

 

Ryan Webster can be reached at 940-891-0003 or www.dentonlaw.com.

 

Have I Formed a Contract?

What must happen to form a contract? Like the NFL’s catch rule, it’s not always clear. Most of us enter into contracts on a regular basis. We buy and sell goods and services; we make promises in exchange for things we want. This article addresses some of the fundamentals associated with forming a binding contract.

Generally, to create a contract one party must make an offer to another party, the other party must accept that offer, and something of value or perceived value must be exchanged. That something is called consideration.

The offer may be for a good, service, promise, etc. The offer must be reasonably certain. For example, John offers to sell Larry his horse, Hurricane, for $70,000. Unless John owns multiple horses named Hurricane, that statement is probably a sufficient offer. If John had not named a price, his offer would not be certain. Offers may be revoked before they are accepted. An offer will lapse if it is not accepted in the stated time or a reasonable time. A reasonable amount of time to accept an offer is dictated by the surrounding circumstances. A reasonable time to accept an offer to buy a perishable item is likely shorter than an offer for non-perishables.

The next step to forming a contract is accepting the offer. Acceptance must be communicated to the person who made the offer (or his agent), and acceptance must be clear and definite. So, if Larry tells Bob (who is not John’s agent) that he accepts John’s offer, has Larry actually accepted? No. Larry’s statement was not made to John. If Larry says to John, “I think I’d like to buy your horse”, Larry has expressed a desire to buy Hurricane but not a clear and definite acceptance of John’s offer. Communicating acceptance, however, does not necessarily require a person to sign a contract or say “I accept.” If upon hearing John’s offer, Larry handed John $70,000, that act would constitute acceptance and performance of Larry’s contractual obligation. If, instead, Larry says to John “I’ll pay you $60,000 for Hurricane”, Larry has rejected John’s offer and made his own offer (a counteroffer) to purchase Hurricane, which John can either accept or reject.

Usually, consideration must be exchanged or promised to create a contract. The consideration for John and Larry is money and a horse. Consideration consists of either a benefit to the promisor or a loss or detriment to the promisee. Consideration may be provided by or to someone who is not a party to the contract. Also, consideration is generally regarded as adequate, except when its inadequacy would “shock the conscience” or is inadequate as the result of fraud. In other words, bad deals are usually enforceable.

Under certain circumstances where consideration is not specified, but one party relies to his detriment on a promise made to him by another party, the promise may still be enforced. For example, John assures and reassures Larry that he is going to give him the rest of the $10,000 he needs to build a new barn for Hurricane. “I love Hurricane and don’t want him setting hoof in your old barn. I’ll give you the money”, says John. Larry, in relying on that promise, demolishes his old barn and starts construction on the new barn. John then informs Larry that he has decided not to give him the money. Larry may be able to enforce John’s promise of $10,000. However, if Larry did not believe that John would give him the $10,000 but demolished his barn and started building a new one anyway, there would be no reliance and no enforcement of John’s promise.

To form a contact, the parties must also have a mutual understanding of the subject matter of the contract and the essential terms. Under a scenario where Hurricane had died two weeks before John offered to sell him to Larry, John knew of Hurricane’s demise, but Larry didn’t. John and Larry don’t have a mutual understanding. Additionally, there is likely inadequate consideration and possible fraud in this example. Larry thinks he’s getting a living horse for $70,000 and John knows otherwise but doesn’t tell Larry.

Contracts can be oral, but some must be in writing and signed by the person to be charged with the promises (e.g., contracts to loan money and contracts for the purchase and sale of real estate). Contracts can be formed through an email or text message exchange if such satisfies the elements of a contract.

Contracts range in complexity and terms. If you need help preparing, reviewing, understanding, enforcing, or defending a contract, consult with an experienced and qualified attorney.

The Texas Timeshare Act

Timeshares have been and continue to be a popular method to secure affordable vacation destinations. For timeshare properties located in or offered for sale in Texas, Texas Property Code Chapter 221, also known as the “Texas Timeshare Act” (“Act”), governs and regulates  timeshare interests.  “Timeshare interests” are comprised of “estates”, “properties”, and “uses”.

A “timeshare estate” is any arrangement under which the purchaser receives a right to occupy a timeshare property along with an interest in real property. A “timeshare property” is one or more accommodations and any related amenities that are subject to the same timeshare instrument, and any other property rights that may co-exist.  An “accommodation” includes apartments, condominiums, cooperative units, hotel or motel rooms, cabins, lodges, or other private or commercial dwellings attached to real property.  An “amenity” includes any common areas, recreational facilities, or other common components of timeshare property.  A “timeshare use” is any arrangement which allows the purchaser the right to use timeshare property, but does not grant any other interest in such property.

It must be noted that any timeshare interest located outside of Texas is not subject to the Act’s provisions relating to the creation of the timeshare regime (subchapter B) and the rules relating to a timeshare owners’ association (subchapter I). So long as out-of-state timeshare interests are offered for sale in Texas, then the provisions of the Act relating to registration (subchapter C), disclosures and advertisements (subchapter D), cancellation and rescission rights (subchapter E), exchange programs (subchapter F), escrow deposits (subchapter G), deceptive trade practices (subchapter H), and the transfer or termination of timeshare interests (subchapter J), will apply.

Only timeshare properties in existence on or after August 26, 1985, are subject to the Act. There are also certain types of offerings and dispositions which are exempt from the Act.

If a timeshare property is subject to the Act, a person may not offer or dispose of a timeshare interest unless a timeshare plan is registered with the Texas Real Estate Commission. “Offer” means any advertisement, inducement, solicitation, or encouragement to attempt to cause a  purchase of a timeshare interest.  “Dispose” means a voluntary transfer of any legal or equitable timeshare interest.  Offering or disposing of a timeshare interest which has not been registered is a Class A misdemeanor.  However, it is permissible for a developer to accept a reservation and deposit from a prospective purchaser on an unregistered property and place the deposit in a segregated escrow account with an independent escrow agent, so long as such deposit is fully refundable upon request by the purchaser.

Any advertisement or promotion related to a timeshare interest offering must comply with the Contest and Gift Giveaway Act (Chapter 621 of the Texas Business & Commerce Code). Any advertisement must make it clear that it is soliciting purchasers of timeshare interests and anyone whose name is obtained during a promotion may be solicited, and must set forth the developer’s name and the name and address of any marketing company involved in the promotion, unless affiliated with the developer.  A developer must also provide a timeshare disclosure statement to any prospective purchaser before entering into a purchase agreement.  The required contents of a timeshare disclosure statement can be found in Section 221.032(b) of the Act.

If the timeshare interest includes an exchange program, the party making the offer must also provide an exchange program disclosure statement. The details of the exchange program disclosure statement can be found at Section 221.033(d) of the Act.  An “exchange program” is any method, arrangement, or procedure for the voluntary exchange of timeshare interests between owners.  Typically the company administering an exchange program is not responsible for misrepresentations of the developer or for the denial of any exchange privileges.  So long as the developer’s contracts and sale documents have been approved by the Texas Real Estate Commission or a licensed Texas attorney, the developer may charge a reasonable fee for completing such forms, including the disclosure statements, purchase agreement, and closing documents.

Section 221.043(c) of the Act sets out the requirements for the timeshare purchase contract. The contract must advise the purchaser of his or her right to cancel the contract without penalty.  This right to cancel extends through the 5th day following the purchaser’s execution and receipt of the contract or the purchaser’s receipt of the timeshare disclosure statement, whichever is later.  The cancellation right cannot be waived.

Enforcement of the Act may be accomplished through the filing of an administrative complaint with the Texas Real Estate Commission or by private enforcement through the Courts. Several violations of the Act also constitute violations of the Texas Deceptive Trade Practices – Consumer Protection Act (Texas Business & Commerce Code Section 17.41 et. seq.).  Upon a finding of a material violation of the Act, the Texas Real Estate Commission may suspend or revoke a developer’s registration, place it on probation, issue a reprimand, impose an administrative penalty of up to $10,000.00, or take any other disciplinary action authorized by the Act.

Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com and www.dentonlaw.com.

 

 

The Panama Papers are an unprecedented leak of 11.5 million files from the database of the world’s fourth largest offshore law firm, Mossack Fonseca. Among the revelations within the leaked database is that twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore creditor and tax havens.

With the added intrigue of tax havens, politicians, and the rich and famous, the current Panama Papers situation reminds us that many people (wealthy or otherwise) use mostly legal shelters to protect their assets. From a historical point of view, the leak should be viewed less as evidence of recent sea change and more as the modern manifestation of a well-established practice. In fact, the novelty illustrated by the Panama Papers may be the globalization or standardization of the tools used for asset protection by the wealthy across the globe. As observed by Crawford Spencer, a professor of accounting from the Warwick Business School in the U.K. in a recent article on the Panama Papers, “That the global elite ensconce their money in offshore tax havens and byzantine corporate structures is nothing new. However, these latest revelations… are novel in that they show how elites from different walks of life come together in order to avoid scrutiny of their affairs by state authorities and the public more broadly.” Not only is the behavior of today’s wealthy in seeking out protection of their assets nothing new, Panama’s use of asset protection as a means of recruiting investment within its borders is nothing new.
In fact, Texas residents don’t need to seek out exotic locals or foreign lands to find historical evidence of the use of asset protection to attract investment and settlement. Most readers are likely aware that your “homestead,” the house and land you intend to occupy as your main home, are exempt from creditor’s claims. In Texas, up to 10 acres of an urban family home, plus improvements, and up to 200 acres in rural areas — except for single adults, who are limited to 100 acres — are exempt from the claims of general creditors. What you may not be aware of is why Texans enjoy such generous homestead protections.

Many Americans who settled Texas in the early nineteenth century were pursued by their creditors, and for their protection Stephen F. Austin recommended a moratorium on the collection of the colonists’ foreign debts. In response to that recommendation, the legislature of Coahuila and Texas enacted Decree No. 70 of 1829 to exempt from creditors’ claims lands received from the sovereign as well as certain movable property. Although that act was repealed in 1831, the principle remained alive in Texans’ minds and was a model for the Texas Act of 1839, which protected the home of a family from seizure by a creditor. This was the first law of this sort, and the principle of homestead exemption is therefore deemed Texas’s particular contribution to American jurisprudence. The homestead principle was embodied in the Texas Constitution of 1845 and all constitutions thereafter. In other words, Texas was a forerunner of Panama as being an innovator in creating the legal protection of assets from creditors.

Even if you didn’t know the history of the homestead protection, it is easy to see history’s influence in some of our State’s personal property exemptions. Today, personal property with a fair market value of no more than $60,000 for a family and $30,000 for a single adult is protected. This includes horses, up to twelve head of cattle, and (of course) two guns. Other personal property that creditors can’t seize from Texans include your car, farming or ranching vehicles, clothes, pets, and athletic and sporting equipment, including bicycles. In addition to horses and twelve head of cattle, two mules or donkeys, and a saddle, blanket and bridle for each are exempt.

This early legacy of asset protection in Texas has not waned. Led by the famous homestead exemption, our debtor-friendly state shelters the most significant parts of an average family’s wealth from creditors. Much as it was in 1845, the Texas Constitution continues to be the foundation for protection of debtors from creditor actions. For instance, the Texas Constitution does not cap the value of the homestead exemption. The Texas exemption is done by the area of land, so it doesn’t matter how expensive it is. If your 200 acres is worth $2 million or $200,000, it doesn’t matter. You still get your 200 acres.

Although legal protection from creditor’s claims goes all the way back to Texas’s early recruitment of settlers, today Texans enjoy protection of many modern classes of assets. For example, in general, IRAs, 401(k)s, traditional pension plans, profit-sharing plans, annuities, and life insurance proceeds are protected from creditors. Also protected are college savings plans, such as 529 plans, and prepaid tuition plans.

Whether or not we choose to be proud of Texas’s singular contribution of the Homestead exemption to American jurisprudence, or are disappointed by what we have learned from the Panama Paper’s leaks, knowledge of our own Texas history can help us keep today’s global events in perspective and allow us to at least acknowledge that the impulse to protect what we claim as our own is part of the human condition.

Getting along Our economy has changed a great deal over the past several decades, and today most people work in a service industry. These businesses deliver services to customers or clients with whom they create and maintain relationships. In those relationships, the business usually solves some problem for the customer. When a business’s essential function is solving problems, you would expect those businesses who are the least effective problem solvers to be the ones who get sued. However, failing to solve a customer’s problem is only one of the ingredients that leads to a lawsuit. Surprisingly, error rate alone is not a very good indicator of which businesses are likely to get sued and which are not.

When people get sued they will almost always ask themselves, why did this happen to me? There are many reasons lawsuits get filed. The person who has been sued may not have been able to control the circumstances that led to the suit. However, a significant cause of litigation may be easily controllable.

In his book Blink, Malcolm Gladwell writes about the observations of Alice Burkin, a medical malpractice lawyer. Ms. Burkin is quoted as saying “In all the years I have been in business, I’ve never had a potential client walk in and say, I really like this doctor, and I feel terrible about doing it, but I want to sue them.” In fact, Ms. Burkin’s clients had flatly refused to sue doctors they liked even when confronted with evidence that their injuries were that doctor’s fault.

Most lawsuits start with a call to a lawyer’s office. What precedes most of those calls is a relationship that is no longer working. A study of medical malpractice suits showed that the difference between doctors who had never been sued and those that had been sued multiple times was roughly three and a half minutes. That’s the difference in the amount of time the doctors who had never been sued (18.3 minutes per visit on average) spent with their patients versus the amount of time the doctors who had been sued on multiple occasions had spent with their patients (15 minutes per visit on average). What was happening during that time? According to the study, not much related to health care. Instead, the physicians were using that time to set expectations and to build a personal relationship with the patient.

For example, the physicians who had not been sued used orienting comments like “First, I’ll examine you then we’ll talk about your problem” or “l’ll leave time for your questions.” Also, the physicians that had not been sued more often laughed and made small talk with their patients during the visit.

As part of your business’s risk management strategy, you should consider the following: 1) Set clear expectations with customers/clients when starting a communication, 2) Make time to ensure that you have answered all of their questions (even ones that may have occurred to them during the call or meeting), and 3) Take the time to talk to customers about how they are, and laugh and joke with them when appropriate. Show some interest in their personal lives and not only the commercial transaction in which you are involved. If you do these things, your customers will probably like you (or like you more). In general, people don’t sue people they like.

Everyone makes mistakes. Sometimes those mistakes don’t hurt anyone. But when they do, the difference between a lawsuit being filed against you or not could be as little as three and a half minutes.

Samuel B. Burke is board certified in Civil Trial Law by the Texas Board of Legal Specialization. Sam can be reached at sburke@dentonlaw.com or http://www.dentonlaw.com.

Image More and More of us are doing our shopping online for the holidays.  Much of the time, before the sale is completed, we are asked to check a box that says something like “agree to terms and conditions.”  Occasionally, if you are like most people, you’ll scroll down the tiny box skimming the tiny print that is there.  Then, you click on the box and move on to complete the purchase.  Well, you didn’t really read those terms and conditions, are you bound by them anyway?

The short answer is “probably yes.”  These point and click contracts, where the individual consumer has no opportunity to negotiate the terms, are sometimes referred to as adhesion contracts.  An adhesion contract is a standardized contract form that offers goods or services to consumers on essentially a “take it or leave it” basis without giving consumer realistic opportunities to negotiate terms.  If the consumer wants the product, the consumer cannot purchase it unless, as in the case of most internet sales, they check the box that they agree to the terms and conditions that the seller is offering.

Some people have heard (or have the knee jerk reaction) that adhesion contracts are not enforceable.  This is generally not true.  As the Texas Supreme Court has repeatedly said, an agreement is not negated because one party had a better bargaining position.  Adhesion contracts will be enforced unless the contract results in unfair surprise or oppression.  To constitute unfair surprise and oppression the circumstances have to be extreme.  Texas courts have found relatively few adhesion contracts that they believed resulted in unfair surprise or oppression.

In a similar vein, many retailers now use shorter contracts when you make in-store purchases that incorporate the terms and conditions that are spelled out on a company’s website.  Sometimes the terms are even emailed to you when or shortly after you pay for the product.  These types of agreements are also finding favor in the courts.  Under Texas law, unsigned documents may be incorporated into the parties’ contract by referring in the signed document to an unsigned document.  The language used to refer to the incorporated documents is not important as long as the signed document “plainly refers” and not just mentions the incorporated document.  For example, if a written contract signed in the store plainly refers  you to the terms and conditions on the store’s website, those terms and conditions have likely become part of your agreement with the store whether you have read them or not.

The moral of the story is this.  Be careful where you point and click.  For major purchases, you should actually read, not simply scroll through, the terms and conditions.  If you see a reference in an in-store agreement to additional terms and conditions on the website, ask to see the website terms before signing the agreement.  Now more than ever, we have options on where and from whom we purchase goods and services.  If you think the terms  and conditions of a point and click contract are outrageous, take you business elsewhere.  Your local merchants will be glad to see your smiling face this holiday season.

Sam B. Burke is Board Certified by the Texas Board of Legal Specialization in Civil Trial Law and may be reached at sburke@dentonlaw.com or at www.dentonlaw.com.