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LEARNING OBJECTIVES 1. Know the relationship between law and ethics. How do ethics influence law?
CHAPTER 2-THE ETHICAL BASIS OF LAW AND BUSINESS MANAGEMENT
BLW 302
2. How does culture influence ethics and law?3. What are values and what values do American and other cultures protect and promote?
4. Define the discipline of ethics as a branch of philosophy and what it accomplishes.
5. Know the two main approaches to ethics: Consequentialist Theories (Teleological or Formalism) and Deontological Theories (Duty-based).
6. Know the Teleological Theory of Egoism and know how it is applied to justify a moral position.
7. Know the Teleological Theory of Utilitarianism and know how it is applied to justify a moral position.
8. Know the role of utilitarianism in making laws.
9. In regards to Rights and Duties (Deontology) know where rights may come from and how rights relate to duties.
10. Know what the “Categorical Imperative” is, what philosopher is credited with the concept and how it is applied to justify a moral position.
11. Know the similarities and differences between the Categorical Imperative and the Golden Rule of Christainity.
12. Know W.D. Ross’ Duty Theory (Prima Facie Theory) and how it is applied to justify a moral position.
13. Know how Ross’ theory differs from Kant’s theory.
14. Know John Rawls’ social contract theory (Fairness and Justice), including the concept of the “Veil of Self-Ignorance.”
15. Know what assumptions a person would make, according to Rawls, just before he or she emerges from under the Veil of Self-Ignorance.
16. Know the concepts of Procedural and Distributive Justice and how they can be applied in business situations.
17. Become acquainted with on pages 36-37 and why these statements are examples of Ethical Formalism and Ethical Consequentialism respectively.
18. Know the role of ethics in such critical areas of American law as liberty, rights, good faith, due care, confidentiality and conflicts of interest.
19. Know the role of organizational codes of ethics to businesses, the obstacles to their implementation, what facilitates their adoption and the rewards of ethical behavior in business.
20. Know the moral controversies surrounding property and its acquisition.
Three Approaches to an Ethical Analysis
Utilitarian Analysis
(Teleological Approach)
• Identify the ethical/moral issue.
• Identify the parties who may be burdened or receive pain as a consequence of the moral decision.
• Assign weights* to the amount of pain the parties may receive as a consequence of the moral decision.
• Identify the parties who may are benefited or receive pleasure as a consequence of the moral decision.
• Assign weights to the amount of pleasure the parties may receive as a consequence of the moral decision.
• Weigh the two against each other.
• Determine which is greatest- the amount of pain or pleasure.
• If the pleasure outweighs the pain, the decision is morally correct.
• If the pain outweighs the pleasure, the decision is morally wrong.
*Assigning weights to determine pain and pleasure is often difficult since it is inherently speculative and often requires the quantification of factors that are highly subjective and qualitative in nature (e.g. what weight do you assign to the pleasure of seeing a clear, pollution-free view of the ocean? Does that outweigh the pain of the costs of environmental laws that may affect economic viability?).
See pages 37-38 in the text.
Rights and Duties Analysis
(Deontological Approach)
• Identify the ethical/moral issue.
• Identify the source of the right or rights the party may have-
is it a right as a human, as a citizen created by law, by position, or by
contract?*
• Once the right is identified, articulate the duty that corresponds to the right.
• If a person’s right or rights are infringed upon by those who owe the duty, then the party breaching the duty is morally wrong.
• Weigh against each other the relative importance of the rights and duties that are at issue.**
• If there are no right or rights that can be identified, then there is no duty and
thus no ethical or moral issue.
*Note that legal rights, created by law (right to be safe and healthy), position (the right a policeman has to detain and arrest) or by contract (a private ordering of rights and duties such as in a sales contract) generally create ethical rights and duties as well.
**Ethicists generally do not consider any rights to be absolute. Even the right to life can be overridden by self-defense or a “just” war. Therefore, there may be situations in which some rights, such as the right to life could be considered more important than the right to be told the truth.
See pages 35-36 in the text.
Fairness and Justice Analysis
(Social Contract Theory)
• Identify the policy- it may be either public (government) or private (business) policy.
• Identify the group of similarly situated people who will be subject to the policy (view this as a social contract between government and the governed or between employer and employees)
• To determine whether the policy is substantively fair, (i.e., does it adhere to the principles of distributive justice) analyze the policy to determine whether the burdens and benefits of the policy are distributed in a fair and just manner.*
• To determine whether the policy is procedurally fair and just to those in the similarly situated group, the principles of procedural justice must also be applied.
• To do this, identify the process or procedures that are being used to carry out the policy in question.
• Are the procedures applied in a similar manner to those in the group?
• If so, the procedures adhere to the principles of procedural justice.
*To determine what is fair and just, an analysis based on the so-called “veil of self- ignorance” may be helpful. The veil of ignorance concept, created by philosopher John Rawls, helps to remove personal bias from the analysis.
See page 36 in the text.
LEARNING OBJECTIVES
CHAPTER 1-LAW AS THE FOUNDATION OF BUSINESS
BLW 3021. Know the purposes for why we have legal systems.
2. Know how tort, criminal, contract, and property as general concepts began to evolve before a more formal court system was devised. As a contrast, be acquainted with the importance today of law, the rule of law and property in creating a well functioning marketplace (see book pages 9-12)
3. Know where both the common law and civil law legal systems began, evolved and spread to.
4. Be acquainted with the early actions of William the Conqueror and what he did with land to consolidate his power in post-1066 AD England.
5. Know why William set up a system of courts in post-1066 AD and how they functioned to create law common to the realm.
6. Be acquainted with the early concepts and functions of the Writ System, juries, adversarial representation by lawyers, precedent and stare decisis.
7. Know how a judge creates a rule of law from a “case of first impression” and its effect on future cases.
8. Know the significance to a party in a lawsuit on how prior cases affect his case. Be able to understand the importance of arguing whether facts from prior cases are similar or distinguishable from the case being heard.
9. Understand how the common law system works in an inductive manner.
10. Know the reasons why the common law uses stare decisis, the exceptions to the rule and how it applies to both state and federal courts today.
11. Know the difference between how the common law and the civil law functions in respect to juries, judges, questioning the litigants and witnesses, and how they how the two make law inductively or deductively.
12. Know how and why the Courts of Equity were formed in England, the role of the Chancellor and their current status in the U.S.
13. Know what an equitable remedy is and how it differs from a legal remedy.
14. Know what the three branches of the U.S. government are and how each makes law, what kind of law they make, and how these three branches interact with each other.
15. Know how a judge goes about interpreting statutes. Be aware of what concepts, (i.e. plain meaning, in pari material etc.) and in what order a judge would normally apply these concepts in making her interpretations of a statute.
16. In respect to legal reasoning, know what ejusdem generis means, how a policy-based argument is made, the role of case precedence in interpreting statutes, and what dicta is (page 14).
17. Know what sources of law judges look at in the absence of statutory or case law.
18. Know the role of ethics in making law.
19. Know the kinds of law created from the Executive Branch.
20. Be aware of how the U.S. Constitution as a source of law, the significance of the Bill of Rights and judicial review.
21. Know how the Constitution can be amended and the probability of success.
22. Be acquainted with the differences between how statutory and common law is made and how the two interact.
23. Know the difference between substantive and procedural law and how the two work to resolve legal cases.
24. Know the difference between criminal law and civil law (as well as the two meanings for civil law) and their major procedural law differences.
25. Be aware of the how private law differs from public law.
SAMPLE QUESTION EXAM 1-BLW 302
Stanton attacked Clay one Saturday night in a drunken stupor at a sleazy hangout in the
Vegas Strip. The attack was unprovoked. Clay now files criminal charges of assault and
battery against Stanton. In respect to these facts:
a. Clay can also sue for an equitable remedy under tort law.
Wrong: You cannot sue for an equitable remedy under tort law. An action in tort is an action under law not equity. Therefore, you request a legal remedy (damages) for a wrong under tort.
Source: Lecture on Courts of Equity. See #14 on Review Sheet.
b. Clay cannot sue in a civil proceeding after filing criminal charges because the law permits only one lawsuit per conflict.
Wrong: You can sue in a civil case for a remedy while the state
prosecutes Stanton under criminal law. Criminal law seeks to punish,
deter, protect society and rehabilitate the criminal. Civil law seeks to
compensate and make the victim whole.
Source: Lecture on Classifications of the Law. See #25 on Review Sheet.
c. Clay can collect monetary damages under criminal law since criminal law is
designed to compensate victims of criminal attacks such as in this particular
conflict.
Wrong: You do not collect monetary damages under criminal law, only
civil law.
Source: Lecture on Classifications of the Law. See #25 on Review Sheet.
d. if the criminal charges are dropped by the District Attorney for lack of
evidence, Clay can still sue for damages under tort law and might even win
because the burden of proof in a civil case is less than in a criminal case.
True: Since the burden of proof for civil cases is a preponderance of the
evidence and a criminal case it is beyond a reasonable doubt, it is possible
for a person to be found liable after being found not guilty (or having the
case dropped for lack of enough evidence). This happened to O.J.
Simpson.
Source: Lecture on Classifications of the Law. See #25 on the review sheet.
e. if Stanton is found guilty and is convicted for this crime, he does not have to
pay any damages even if he is found liable in a later civil case since the
criminal conviction is sufficient payment of his debt to society.
Wrong: Since civil and criminal proceedings are two separate proceedings
in our legal system, one doesn’t pay for the other.
Source: Lecture on Classifications of the Law. See #25 on the review sheet.
LEARNING OBJECTIVES
CHAPTER 3-THE COURT SYSTEM
BLW 3021. Know what the word jurisdiction means-including two specific kinds: jurisdiction over the person of the defendant (in personam jurisdiction) as well as over the case’s subject-matter (subject-matter jurisdiction).
2. Know what it takes for a court to gain personal jurisdiction over an in-state defendant and be able to distinguish it from the concept of venue.
3. Know about the two elements necessary for gaining personal jurisdiction over an out-of-state defendant-namely a long-arm statute and minimum contacts.
4. Know what some of the circumstances that must exist for creating minimum contacts in the forum state are for establishing personal jurisdiction.
5. Be acquainted with the Constitutional origins of minimum contacts and satisfies the due process requirements for protecting a defendant’s property rights.
6. Know how to apply the concept of minimum contacts to various hypothetical situations in which parties reside in multiple states.
7. Be acquainted with how the federal court system is structured with particular emphasis on federal district courts, federal circuits of appeals and the Supreme Court.
8. Know the important functions of the federal district courts.
9. Know what subject-matter jurisdiction means and why federal courts are courts of limited subject-matter jurisdiction.
10. As courts of limited subject-matter jurisdiction, know about the kinds of cases a federal district court can preside over-namely federal question and diversity of citizenship cases.
11. Know how a case satisfies the federal requirement for diversity of citizenship.
12. Know what states are used for deciding where a corporation is from in a diversity of citizenship case, including the various tests used to determine where a corporation’s principle place of business is.
13. Know what substantive law and procedural law is applied in a diversity of citizenship case heard in federal district court.
14. Know what both exclusive federal subject-matter jurisdiction and concurrent subject-matter jurisdiction are.
15. Be acquainted with the Writ of Certiorari and what factors the Supreme Court generally looks at when granting the Writ.
16. Know the difference between judicial activism and judicial restraint. 17. Be acquainted with a typical state court system, particularly with what a state’s court of general subject-matter jurisdiction is and can do.
18. Be acquainted with what inferior courts of limited subject-matter jurisdiction are in a state system.
19. Know how a typical state’s appellate court system is structured.
20. Be acquainted with how a case originating in state court can, is some circumstances, be removed to federal court.
LEARNING OBJECTIVES
CHAPTERS 5 AND 4 – NEGOTIATION AND ALTERNATIVE DISPUTE RESOLUTION SYSTEMS AND LITIGATION
BLW 3021. Be able to compare and contrast the basic ADR concepts of arbitration and mediation.
2. Know where these ADR methods are generally used and why.
3. Know the scale of the various ADR methods, from negotiated settlement to arbitration in terms of expense, time and emotion. (See page 132 in the text).
4. Know the advantages and disadvantages of arbitration and mediation.
5. Be able to distinguish the between voluntary as opposed to mandatory arbitration.
6. Know about the hybrid ADR methods such as Med-Arb and mock trials.
7. In the litigation process, know the concepts of standing to sue and the requirement of actual or justiciable controversy.
8. Know what a contingency fee contract is and how it works.
9. Know the basic kinds of pleadings involved in commencing a lawsuit, such as complaint, answer, counterclaim, reply and what they generally contain.
10. Know the terms for the parties and what they mean: plaintiff, defendant, counterplaintiff, counterdefendant, appellant, appellee, petitioner and respondent.
11. Know what motions a defendant may file to quickly dismiss the lawsuit, such as a motion to dismiss for failure to state a cause of action, motion for judgment on the pleadings, etc.
12. Know what discovery is, why it’s sometimes controversial and what can be discovered.
13. Know the various methods used in discovery such as interrogatories, requests, depositions and request for an admission.
14. Know what a motion for summary judgment is and how it can be defeated.
15. Know what Federal Rule 11 is and its role in eliminating frivolous cases.
16. Know what a pre-trial conference is and what it tries to accomplish.
17. Be acquainted with jury selection or “voir dire” and the two kinds of challenges that can be made-for cause and peremptory.
18. Know what kinds of persons cannot be eliminated as jurors for either challenge.
19. Know how direct and cross-examination of witnesses works and what they both are designed to accomplish.
20. Know the role of discovery in a trial, particularly in cross-examination.
21. Know what a motion for a directed verdict is.
22. Be acquainted with jury instructions and their role in carrying out the jury’s functions.
23. Know what a judgment and a judgment notwithstanding the verdict (JNOV) are.
24. Know how judgments are collected.
25. Be acquainted with how appeals are made, how an appellate court operates in contrast to a trial court.
26. Know what res judicata means.
LEARNING OBJECTIVES
CHAPTER 6-THE CONSTITUTION AND BUSINESS
BLW 3021. Know what federalism is.
2. Be acquainted with the Enumerated Powers for Congress (Article 1, Section 8 of the Constitution) are in the U.S. Constitution.
3. Know what the Commerce Clause states (third clause of Section 8), particularly the segment dealing with commerce among the states.
4. Know the general facts of Gibbons v. Ogden and how it empowered Congress to regulate interstate commerce.
5. Be acquainted with the limitations on Congress’ ability to regulate that Gibbon created in its interstate vs. intrastate doctrine.
6. Be acquainted with the historical and economic conditions of the late 19th Century that set the stage for regulatory intervention by Congress. 7. Know about the case of Hammer v. Dagenhart, what it was designed to regulate and why it was declared unconstitutional.
8. In regards to the Great Depression of the 1930s, be acquainted with the political initiatives started by Congress and President Roosevelt to revive the economy, including the National Industrial Recovery Act (NIRA) of 1933.
9. Why was the NIRA declared unconstitutional?
10. Why did President Roosevelt seek to pack the Supreme Court and how did the country react to it?
11. Be acquainted with the Affectation Theory created in NLRB v. Jones and Laughlin Steel Co. of 1937 and how it was interpreted in 1942 in Wichard v. Filburn.
12. Be acquainted with the Heart of Atlanta Motel v. U.S. and how the Commerce Clause is used to justify the regulation of social as well as economic problems.
13. Know in general how a Commerce Clause analysis is designed to do.
14. Know what exclusively federal subjects are and why they are preempted.
15. Know what dual regulation is and how a state or local law can be preempted if it is in irreconcilable conflict with a federal law. Know how a law can also be reconciled with a similar federal law.
16. Know what the Pike Test is and how it is used to determine whether a state law creates an undue burden on interstate commerce.
17. Know the Commerce Clause implications of a state law that favors itself over out-of-state competition.
18. Know the doctrine of “state action” and how it pertains to the Bill of Rights.
19. Know the doctrine of “selective incorporation” and how it functions to protect citizens from the actions of state and local governments.
20. Know what the First Amendment protects.
21. Know what the exceptions to the First Amendment freedom of speech and expression are.
22. Be acquainted with the extent to which political speech is protected relative to commercial speech.
23. Know how to apply the test for determining whether a law regulating commercial speech is constitutional.
24. Be generally acquainted with Equal Protection and what areas of regulation the government laws are subjected to under strict scrutiny, quasi-strict scrutiny and minimum rationality.
SAMPLE QUESTION EXAM 2-BLW 301
State Y has a law requiring that all door-to-door sales contracts contain a provision allowing cancellation by the consumer within 7 days. A federal law requires that such contract contain a provision allowing for cancellation within 3 days. Companies selling door-to-door in State Y
a. must comply with the federal law because the state law is unconstitutional in that it is in conflict with the federal law.
WRONG. THE STATE LAW IS NOT IN IRRECONCIABLE CONFLICT WITH FEDERAL SINCE IT ADVANCES THE SAME INTEREST OF PROTECTING CONSUMERS FROM FRAUD IN DOOR-TO-DOOR SALES. THEREFORE THE STATE LAW COULD BE USED.
SOURCE: CLASS LECTURE AND HANDOUT ON COMMERCE CLAUSE ANALYSIS. # 15 ON HANDOUT REVIEW SHEET.
b. must comply with the state law because sales with State Y are local activities which can only be regulated by State Y.
WRONG. IT MUST BE REGULATED BY THE STATE BUT NOT BECAUSE IT IS A LOCAL ACTIVITY. LOCAL ACTIVITIES CAN BE REGULATED BY THE FEDERAL GOVERNMENT TOO AS LONG AS THE ACTIVITY BEING REGULATED AFFECTS INTERSTATE COMMERCE.
SOURCE: CLASS LECTURE ON THE AFFECTATION CLAUSE AND ITS EXTENT AND COMMERCE CLAUSE ANALYSIS HAND OUT. # 11 AND 15 ON HANDOUT REVIEW SHEET.
c. must comply with the state law since it is more restrictive to the salesman's activities and thus not irreconcilable with the Federal law.
CORRECT. THE AIM OF THIS LAW IS TO PROTECT CONSUMERS BY RESTRICTING THE SALEMAN’S ACTIVITIES. A STATE’S LAW APPLIES WHEN IT ADVANCES THE RIGHTS GIVEN BY THE FEDERAL GOVERNMENT. THE RIGHT HERE INURES TO CONSUMERS TO BE PROTECTED FROM FRAUDULENT SALES ACTIVITIES. THIS SCENARIO IS ANALOGOUS TO THE ENVIRONMENTAL HYPOTHETICAL USED IN CLASS.
SOURCE: CLASS LECTURE ON COMMERCE CLAUSE AND COMMERCE CLAUSE ANALYSIS HANDOUT. # 15 ON HANDOUT REVIEW SHEET.
d. must comply with the state law if they are a local (state) company, must comply with the federal law if they are an out-of-state company.
WRONG: THIS IS TOTALLY INCORRECT SINCE BEING AN OUT OF STATE BUSINESS MAKES NO DIFFERENCE. A STATE REGULATES THE ACTIVITIES OF BUSINESSES WITHIN ITS BOUNDARIES NO MATTER WHERE THEY ORIGINATE. OBVIOUSLY IN-STATE BUSINESSES CAN BE REGULATED. IN FACT, IF A STATE TRIES TO TREAT AN OUT-OF-STATE COMPANY WORSE THAN AN IN-STATE COMPANY IT IS VIOLATING CONSTITUTIONAL LAW.
SOURCE: CLASS LECTURE ON POLICE POWERS AND FAVORING IN -STATE BUSINESSES OUR OUT- OF- STATE BUSINESSES. # 15 AND 17 ON HANDOUT REVIEW SHEET.
e. need comply with neither law because the state law unlawfully discriminates against interstate commerce and the federal law violates the state's right to regulate local activity.
WRONG: FOR A STATE TO DISCRIMINATE AGAINST INTERSTATE COMMERCE IT MUST HAVE A LAW THAT IMPOSES AN UNDUE BURDEN ON INTERSTATE COMMERCE. THIS INVOLVES APPLYING THE PIKE TEST. THE PIKE TEST MAINLY INVOLVES TRANSPORTATION ISSUES ETC. BUT APART FROM THAT, A LAW WHICH REGULATES DOOR TO DOOR SALEPERSONS WOULD NOT HAVE AN ADVERSE AFFECT ON HOW OTHER STATES OPERATE AND SO WOULD HAVE NO RELEVANCE. FEDERAL LAW CAN REGULATE NEARLY ANYTHING ECONOMIC IN NATURE EVEN IF IT’S LOCAL.
SOURCE: CLASS LECTURE ON COMMERCE CLAUSE ANALYSIS AS WELL AS LECTURE ON AFFECTATION THEORY. #11 AND 15.
LEARNING OBJECTIVES
12-ADMINISTRATIVE LAW AND CORPORATE GOVERNANCE
BLW 3021. Know what the Federal Register is and what its role is within administrative law.
2. Be acquainted with the historical reasons for the creation of departmental type agencies.
3. Know the historical events and reasons for creating independent regulatory agencies.
4. Be acquainted with some key independent agencies that were created from late 19th century to the 1970s and why they were created.
5. Know why de-regulation became an important political issue in the mid-1970s and what changes were spawned by this trend.
6. Know the main differences between the three general agency models that exist in the federal government-independent, departmental, authority.
7. Know the general reasons why our government needs administrative agencies.
8. Know what an enabling act or legislation is and its role in creating and directing an administrative agency.
9. Know the three main functions of administrative agencies: quasi-legislative, quasi-executive and quasi-judicial.
10. Under quasi-legislative, know how informal, formal and hybrid rulemaking works.
11. Under quasi-legislative, know the difference between procedural, interpretative and legislative rules.
12. Know what the main aim of the quasi-executive function of an administrative agency is.
13. Know what the quasi-executive function does and how an adjudication works.
14. Know about administrative law judges and what they do.
15. Know, in general, about the judicial review of an agency’s rule-making and adjudication by the independent judiciary (federal court system).
LEARNING OBJECTIVES
CHAPTER 8-TORTS IN THE BUSINESS ENVIRONMENT
BLW 3021. Know what the three kinds of torts are.
2. Know what intent means under tort law and what an intentional tort is in general.
3. Know the intentional tort of assault and battery and know the difference between the two.
4. Know how assault and battery can arise in business scenarios.
5. Be acquainted with the intentional infliction of mental distress and how it can arise in business scenarios.
6. Know the intentional tort of invasion of privacy, how it arose historically and business scenarios in which it can arise.
7. Know about false imprisonment and particularly its application to retailers.
8. Be acquainted with intentional torts involving real property (trespass) and personal property (conversion).
9. Know about defamation (both slander and libel) and how they may relate to business.
10. Know about fraud or intentional misrepresentation and how it relates to sales and other business situations.
11. Know the two kinds of common law business torts (page 235), particularly the intentional interference with contractual relations.
12. Know what the term “elements” means and the four elements of negligence.
13. Know how the first element of “duty of care” is defined and who the “reasonable person” is.
14. Know how an unreasonable risk to others is determined in creating a duty of care and how this risk can change depending on the circumstances.
15. Be acquainted with the concept of an “objective” standard of care created by operation of law.
16. Know what the duties of care are for manufacturers.
17. Recognize that in determining duty, it is the behavior of the defendant that is scrutinized, not the product (this distinction is important when analyzing strict liability).
18. Know the second element of negligence, breach of the duty of care, how this constitutes fault, but not necessarily negligence.
19. Know the third element of negligence, proximate cause, and how this element relates to the concepts of injury in fact and foreseeability.
20. Be acquainted with the Palsgraf case and how that case gave rise to the concept of “zone of danger” as a means of proving proximate cause.
21. Know the fourth element of negligence, injury, and what types of damages are awarded to plaintiffs for their injuries.
22. Be acquainted with the concept of privity of contract and how it relates to negligence.
23. Know the concept of joint and several liability and particularly how that can relate to the liability to those in the chain of distribution of a product.
24. Know the defense to negligence called contributory negligence, which uses an objective standard or care, and how that has been modified by the concept of comparative negligence.
25. Know the defense to negligence, called assumption of the risk, which uses a subjective standard.
26. Be able to distinguish between subjective and objective standards and the implications of this distinction.
27. Know that strict liability is a no-fault system, and what situations it has historically been applied to.
28. Know the historical reasons why strict liability was applied to products and why negligence and warranties were inadequate.
29. Know the elements of the Restatement of Torts 2d, 402 A, which is the model form for strict liability as applied to products.
30. Know how a defect is defined under strict liability and the difference between a product defect, a production defect and a warning defect.
31. Know that the defense of contributory negligence is generally not applicable to strict liability and the implications of this.
32. Know how assumption of the risk and misuse is applied to strict liability of products with emphasis on its subjective nature.
33. Know about the “state of the art” defense and why it generally is ineffective in a products liability case.
34. Know the concept of respondeat superior, why this is a form of strict liability.
SAMPLE QUESTION ON EXAM 3-BLW 302
George was injured when a power drill he was using blew up. George subsequently sues the manufacturer, ABCO in a products liability action. At trial, the jury determines that ABCO is not a fault because even though a defect existed in the drill, the defect could not be discovered through even careful inspection. Thus, ABCO was behaving like the averaging reasonable manufacturer would have in a similar situation. In this case ABCO may be:
a. liable based in either a negligence or strict liability theory.
WRONG. IF THE DEFECT COULD NOT BE DETECTED AND ABCO
WAS BEHAVING LIKE THE AVERAGE REASONABLE
MANUFACTUER, THEN IT COULD NOT BE NEGLIGENT. IT STILL
MIGHT BE LIABLE FOR STRICT LIABILITY (SEE b.) HOWEVER,
THAT MAKES THIS STATEMENT ONLY PARTIALLY TRUE.
SOURCE: # 14 IN HANDOUT AND LECTURE ON NEGLIGENCE.
b. liable based on a strict liability theory.
CORRECT. EVEN IF ABCO IS BEHAVING AS THE AVERAGE
REASONABLE MANUFACTUER, IT IS STILL LIABLE IF THERE IS A
DEFECT FOUND IN THE DRILL UNDER STRICT LIABILITY
SOURCE: #29 IN HANDOUT AND LECTURE ON STRICT LIABILITY.
c. not liable in tort but possibly in contract.
WRONG. STRICT LIABILITY IS A TORT WHICH IT COULD BE LIABLE UNDER.
SOURCE: #1 AND #29 IN HANDOUT. LECTURE ON CLASSIFICATION OF TORTS AND STRICT LIABILITY.
d. not liable in either a theory of tort or contract.
WRONG. SEE c. above.
SOURCE: SEE c. ABOVE.
CHAPTER 15 (pp.454-466) EMPLOYMENT AND LABOR LAWS
1. Know that employment at will is the presumptive rule today in all states (except Montana) and what reasons (or lack of reasons) for which an employee can be terminated. 2. Know that the main way to distinguish an employee at will from an employee for cause is the lack of an expressed term of employment.
3. Be acquainted with the historical reasons for employment at will (Wood’s Rule) and how it differed from the previous rule used in agriculture.
4. Know the justification of symmetry between employer and employee and the implications of it.
5. Know what workers are not employees at will and the reasons, either contractual or policy-based, why they are afforded protections employees at will do not have.
6. Know in general, the federal statutory exceptions to employment-both those discussed in class and listed on page 428.
7. Know what are the minimum number of employees necessary for the various federal laws become applicable (e.g., CRA of 1964 requires 15 employees or more), but how state laws can be applicable to businesses below these thresholds.
8. In respect to the Age Discrimination in Employment Act (ADEA), know what the protected age class is.
9. Know the three state common law exceptions to employment at will and how many of these apply to Nevada.
10. In respect to employer handbooks, know how they can give rise to an implied contract in which the employee becomes an employee for cause.
11. Know the difference between subjective versus objective expectations in regards to whether employees can create an implied contract based on an employer’s oral representations.
12. Know the state public policy tort or wrongful discharge exception to employment at will and in what situation is can arise.
13. Be aware of why the public policy torts is a difficult legal risk to manage for employers.
14. Know what is necessary to prove the implied covenant of good faith and fair dealing and how this was done in the Ponsock v. K-Mart case.
15. NOTE: In addition to knowing the foregoing concepts be able to apply them to factual scenarios similar to how they are presented in class.
LEARNING OBJECTIVES
CHAPTER 16- DISCRIMINATION IN EMPLOYMENT
BLW 3021. Know about the Civil Rights Act (CRA) of 1964 and what it set out to accomplish in general.
2. Know the five protected classifications under the CRA of 1964.
3. Be acquainted with factors an employer can use that are likely to be legal even though they are discriminatory (e.g. collegiality etc.) and why.
4. Be acquainted with the Equal Employment Opportunity Commission (EEOC), what type of regulations it promulgates and how it enforces anti-discrimination laws.
5. Know that the CRA of 1964 applies to both public and private (15 or more employees) sectors, what their record keeping requirements are and why these records can become important to both the government enforcers and the employers.
6. Know what disparate treatment is for proving intent to discrimination in hiring, why it was created and how a prima facie case is established.
7. Know how statistics can be used to create an inference of intent to discrimination.
8. Know what disparate impact is and how it can still violate the CRA of 1964 even though the employer may not intend to discriminate.
9. Know how a “facially neutral criterion” for hiring is, how it can cause disparate impact and how it can still be legal.
10. Be acquainted with the Civil Rights Act of 1991, particularly with its impact on damages that can be awarded, use of juries and its extraterritorial application.
11. Know what a “Bona fide occupation qualification” (BFOQ) defense to Title VII is and which two of the five protected classifications under the CRA of 1964 cannot be used as a BFOQ defense.
12. Know how, under sex discrimination, a BFOQ can be proven.
13. Know what “reverse discrimination” is and how that becomes an issue under Affirmative Action.
14. Know the four definitions of Affirmative Action and which of the four is currently under legal scrutiny and why. Also, know the current legal treatment by federal and state governments regarding Affirmative Action including California’s most recent proposition.
15. Know about the Weber case and what factors must be present for it to be legal form of discrimination against white males under the CRA of 1964.
16. Know the history behind the inclusion of gender as a protected classification under the CRA of 1964 and how that history has affected the evolution of this form of discrimination.
17. Know how a “sex-plus” analysis is done.
18. Know what both “quid pro quo” and “hostile environment” sexual harassment is.
19. Know about the Meritor Bank v. Vinson case is and what elements must be present to prove hostile environment sexual harassment.
20. Know the current legal status of sexual orientation discrimination under both federal and state laws.
21. Know the Age Discrimination in Employment Act, what size workplaces it covers and how to prove it.
22. Know about religious discrimination under the CRA of 1964 and the extent of the accommodations that an employer must make for it.
23. Know about the Americans with Disabilities Act, what workplaces it covers and what employers must do to accommodate disabled employees.
24. Know about current trends in employment discrimination (p. 486-88) particularly on the use of arbitration in resolving discrimination disputes.
REAL ESTATE LAW
BLW 331
LEARNING OBJECTIVES BY CHAPTER
CHAPTER 2 – THE NATURE OF PROPERTY1. Know the basic terms for property: real versus personal, tangible versus intangible, what they constitute and how the two interact, such as what is a severance versus an annexation.
2. Know the different legal rules that apply to real versus personal property. For example, the Uniform Commercial Code (UCC) only applies to personal property (called goods under the UCC) and not to real property.
3. Know general characteristic about the UCC. Also, know the implications between real property law versus the UCC and how these differences can affect property transactions, such as the application of the Statute of Frauds.
4. Know the differences and similarities between real and personal property in terms of how the two are acquired.
5. Know how to define a fixture and what types of parties are affected by whether property is a fixture or personalty.
6. Know the three fixture tests and how they may be applied in factual scenarios.
7. Know what parties courts tend to favor in deciding whether an item is a fixture or not. For example, why are tenants generally favored over landlords.
8. Know the various special statutory tests such as fructus naturales versus fructus industriales and how the concept of emblements relates to them.
9. Know the characteristics and differences between trade fixtures, agricultural fixtures and domestic fixtures.
10. Know, in general, when fixture financing occurs and when it becomes a legal issue.
11. Know what a secured interest is and what instruments create it.
12. Know what a Purchase Money Security Interest (PMSI) is versus a Financing Statement and what must be contained in them to be legally effective.
13. Know what attachment and perfection are and how they relate.
14. Know all the potential parties a creditor with a perfected PMSI has priority over.
15. Understand why a prior recorded construction mortgage constitutes an exception to the general rule of a perfected PMSI overriding a priorly recorded mortgage and how subordination can be a means for a fixture lender to protect its security interest.
16. Know what a fixture filing is and what the new rules under UCC Article 9 are regarding it.
17. Know the difference between a wrongful annexation and a mistaken annexation.
ANSWERS TO TEXT PROBLEMS-Chapter 2
Pages 50-52 in the text
1. The funeral parlor organ is a fixture. Although it is difficult to determine intention on the basis of the facts given, the annexation test is met because of the size and weight of the organ. It is also probable that the adaptation test is met because funeral parlors are often designed to include organs as an integral part of the structure.
See Chapman v. Union Mutual Life Insurance Company, 4 Ill. App. 29
(1879) and Rogers v. Crowe, 40 Mo. 91 (1867).
It cannot be determined conclusively whether or not Clyde's organ is a fixture. It is difficult to determine intention on the facts given. The annexation test would be met because, in addition to the size and weight of the organ, it was bolted to the floor. However it is unlikely that the adaptation test would be met, although this point is debatable.
See Moller, Inc. v. Wilson, 63 P.2d 818 (1936), where the court decided that an organ installed in a residence (but not physically attached) was not a fixture.
2. Nelson is entitled to the buildings.
The court in Nelson v. Murton, 277 N.W. 390 (1938), decided that buildings do not have to be attached to the ground and do not require foundations in order to be considered part of the realty. The court stressed the fact that Kloster's actions showed that he intended the buildings to become part of the real estate: (1) he never listed the buildings as personal property for tax purposes, and (2) he installed the structures intending them to be permanent. "The land was his and he lived there over thirteen years.... The house and the barn were as 'permanently resting' on the land as could be expected."
3. The Alaska Theater Company may remove the articles.
It is debatable whether the articles are fixtures. But, assuming that the articles are fixtures, they are trade fixtures and may be removed by the tenant if: (1) the removal does not cause substantial damage to the premises and (2) the removal is completed before termination of the tenancy. See Ballard v. Alaska Theater Co., 161 P.478 (1916).
4. Abner probably will be liable for the outhouse but not for the shed.
In analyzing this problem, three questions must be resolved. First, are the two structures fixtures? Both structures are attached to the real estate and meet the annexation test. The adaptation test is met because the structures are beneficial to the use and enjoyment of the property. It is difficult to determine whether the intention test has been met. On the one hand, a strong argument can be made that a tenant under a five-year lease would not intend the structures to become fixtures. But on the other hand, the structures are adapted to the use of the real estate and are annexed to the real estate. Although debatable, it is likely that both structures would be considered fixtures.
Second, is there a lease provision governing removal of the fixtures? We assume not, no such clause having been mentioned in the facts.
Third, may Abner remove the structures as trade fixtures? The structures are trade fixtures because Abner erected them in order to carry on his business (running the inn). He also removed the structures before termination of the lease. But was he able to remove them without substantial injury? He could remove the shed without substantial injury; the shed rested on concrete blocks and was merely nailed to another structure. Consequently, Abner is not liable for the shed.
Abner could not remove the outhouse without substantial injury since it was made of brick and rested on a concrete foundation. Therefore, it is likely that he would be liable for the outhouse. The fact that he restored the premises in this case makes no difference:
"The reason is founded in public policy and economics.... [The total [cost of removal] is all out of proportion to the value of the materials saved." C. Smith and R. Boyer, Survey of the Law of Property 232 (2nd ed. 1971).
5. The Otts will not win. The heating and cooling system is a fixture and therefore part of the real estate. Such a system would normally be annexed to the real estate and the adaptation test would be met, especially since cooling systems are so important in Arizona. The intention test is also met because, as the court observed, "the intent of the parties in practically all home purchases presupposes the existence and inclusion of some type of cooling system." Voight v. Ott, 341 P.2d 923 (1959).
6. Friendly Appliance can recover the appliances. It is the intention of the parties, as represented by the security interest, that Friendly Appliance has the right to repossess the collateral on default. Friendly Appliance's failure to perfect its interest does not change this result because no third parties are involved.
7. Although debatable, it is likely that the mirrors would be considered personal property, which will pass to Harry. This was the holding in Waltman v. Mayer, 97 Pa. Super. 236 (1929): "They were not structural elements of the building or articles which ordinarily are part of the building in the sense that it becomes real property; they could be, as in fact they were, removed without damage or other interference with the real estate."
8. Although this case is a close call and could be decided either way, the court concluded that the company should win because there was no intention that the topsoil would become a permanent accession to the real estate. "The intent sought is not the subjective intent or undisclosed purpose of the annexer, but the intent manifested by his actions. The size of the pile of topsoil, approximating in height a two-story house, was objective evidence that the topsoil had been piled on the lot for purposes other than permanent affixation to it. The size of the pile was a sufficient basis for a determination that the topsoil remained personalty and so did not become a part of the realty conveyed to the defendants by the plaintiffs deed." See Giulano Construction Company v. Simmons, 162 A.2d 511 (1960).
9. The bank has prior rights to the furnace. Fancy Furnace Company failed to make its fixture filing within ten days after the furnace was installed. See A. Rabinowitz and S. Bernstein, Fixtures, Filings and Real Estate Mortgages Under the 1972 Amendments to the U. C. C, 5 Mich. R. Prop. Rev. 8 (April, 1978). (If the furnace is considered a replacement appliance, the bank will win because the company did not perfect its interest before the furnace was installed.) Note that many states, since 2001, have adopted the revised U.C.C. Article 9 that allows twenty days to make a fixture filing after a good becomes a fixture. However, even under the new law, Fancy Furnace is still a day late.
10. The Tennessee Supreme Court first discussed whether the frozen embryos (which they carefully classified as preembryos) are protected under existing state and federal law. For example, under the state’s law, there is no cause of action for wrongful death unless a viable fetus is born alive. The Court also discussed Roe v. Wade, the U.S. constitutional case that protects a women’s right to privacy, including the right to an abortion under some circumstances. Under both state and federal law, a women and her doctor may abort the fetus after the first three months. After three months an abortion can be performed at a facility regulated under law, but after 6 months, the fetus is viable and can only be aborted to save the life of the mother. Therefore, even a viable fetus is not accorded the exact same legal rights as a person born.
However, the Davis case was unique and not directly addressed by law. Therefore, the Court introduced ethical principles to help resolve the issue. The Court discussed three positions articulated by ethicists concerning preembryos. On one extreme, the court stated, the preembryo is a person and accorded all rights of a human being. At the opposite extreme, the preembryo is simply human tissue with no limitations imposed. The middle view, and the one most ethicists hold, is that the preembryo is accorded greater rights than mere human tissue, but is not a person either. It is accorded greater respect than other tissue since it has the potential to be a human someday and it possesses a symbolic meaning to many. Still, it is not a person since it has not developed the features of “personhood” and is “not yet established as developmentally individual, and may never realize its biologic potential.” The Court concluded that preembryos were neither persons nor property, but occupied an interim category and therefore should be accorded special respect.
Ultimately, Junior, the husband, was awarded custody of the preembryos since his strong objections to fathering a child overrode the ex-wife’s interests. This especially became the case since Mary Sue later changed her mind about becoming pregnant and wished only to have the preembryos donated. If she had decided to implant the preembryos, the decision might have been different. Now, however, the issue of her bearing children with Junior being required to pay child support became moot.
In ethics, under some deontological theories, rights are not absolute and can be prioritized. In this case, Junior’s rights outweighed that of his ex-wife.
Morally, property can be legally bought, sold, leased and destroyed, but humans, of course, cannot. Ethicists argue that human beings have certain inherent rights under the natural law in which others may not enslave and torture them. This is true despite what a government classifies them under its laws. The lesson of 6 million Jews and other ethnic groups being systematically exterminated because they weren’t by law “human” should be a very strong lesson as to the moral perils of such classifications.
LEARNING OBJECTIVES
CHAPTER 3 – THE SCOPE OF REAL PROPERTY
1. Know the geographic dimensions of real property ownership under the common law.
2. Know the specifics regarding the precedent-setting case of U.S. v Causeby in determining nuisance and air rights.
3. Know what a taking is in general and how it applies specifically to air rights.
4. Know air rights and buildings, including condominiums.
5. Know the difference and the legal implications of the ownership principle versus the non-ownership or exclusive right to extract subsurface minerals.
6. Know how a mineral lease works and its main provisions.
7. Know how the Capture Doctrine.
8. Know why states have pooling or unitization laws regarding oil and gas.
9. In regards to water rights, know how we define navigable waters and what entities regulate and control navigable waters versus non-navigable waters.
10. Know the extent of ownership rights a riparian owner has and what a state or states (if the river forms a boundary) own.
11. Know the Solid Waste Agency of Northern Cook County (SWANCC) v. U. S. Army Corp. of Engineers case and its implications to the definition of navigable waters and to environmental laws.
12. Know the extent of ownership of land adjacent to oceans and a nation’s rights to regulate the waters and resources off its shores and in the open seas.
13. Compare and contrast the two theories of water use by riparian owners - Natural Flow and Reasonable Use Theories.
14. Compare and contrast the Riparian Theories with the Prior Appropriation Theory.
15. Be able to compare and contrast the three theories of surface water-the common enemy rule, the civil law rule and the reasonable conduct doctrine.
16. Know why lateral support has become important in property law and the four (4) possible situations in which an adjacent landowner would be liable to his neighbor.
ANSWERS TO TEXT PROBLEMS-Chapter 3
Pages 84-85 in the text
1. The 1958 Amendment should have no effect on the Causby decision. There can be liability for flights within the navigable airspace if the flights interfere with the use of the land.
2. Rocky's advice is not sound. Red will be liable if the planes interfere with the operation of the mink ranch regardless of whether a trespass has been committed.
3. Maude owns the coal. Mineral rights may be sold apart from the surface of the real estate and the purchaser is subject to taxation. Central Coal 8& Coke Co. v. Carseloway, 45 F.2d 744 (10th Cir., 1930). Maude also owns the oil if the real estate is located in a state that follows the "ownership" theory. In other states, which recognize the migratory nature of oil and gas, Maude cannot own the oil until she "captures" it, although she can purchase the exclusive right to remove the oil.
4. The court first must determine whether the water is surface water or water which flows in a defined channel.
If the water is surface water, Bonnie can capture and use the water as she pleases under the common law approach followed by most courts.
If the water flows in a defined channel, the court might apply one of three
theories:
(a) Natural Flow. Bonnie has clearly interfered with the natural-
flow and will lose under this theory.
(b) Reasonable Use. The decision could go either way. The factors
listed in the text, relating to relative utility and harm of the use,
should be discussed.
(c) Prior Appropriation. The first person to appropriate the
water, apparently Clyde, will prevail.
See C. Smith & R. Boyer, Survey of the Law of Property 201 (2nd ed. 1971).
5. The answer will depend upon which of the three theories is used: (a) the
common law rule, (b) reasonable use, or (c) prior appropriation.
In Schenk v. City of Ann Arbor, 163 N.W. 109 (1917), the court summarized the
common law rule:
"The letter of the law, as it has been expounded in many cases in England and America, affirms the right of the owner of land to sink wells thereon, and use the water therefrom, supplied by groundwater, in any way he chooses to use it, to allow it to flow away, even though he thereby diminishes the water in his neighbor's wells or dries them entirely, and even though in so doing he is actuated by malice."
The court, however, decided to apply the reasonable use rule instead. The court concluded
that it is unreasonable to sell or use groundwater on land that does not overlie the water if the use injures neighboring owners. Although the court refused to issue an injunction because the plaintiff did not prove he was harmed, the plaintiff was granted the right to seek future relief in the event that the city's actions did result in damage.
Under the prior appropriation theory, water belongs to the first party to appropriate it for a beneficial use--in this case (apparently), Rufus.
6. The answer depends on the water rights theory adopted by the state. Under
the natural flow theory, Green's use has materially changed the natural flow of the river. He may continue to use the water for domestic purposes but may not use it on the farm, which is non-riparian land and, furthermore, a non-domestic use.
Under the reasonable use theory, the court will balance the utility of Green's use against the harm caused Blue. It is likely that Green will have to relinquish his use of water on the farm, which is non-riparian land.
Under the prior appropriation theory, Green was the first person to appropriate the water and will be allowed to continue his use.
7. The court in Prete v. Cray, 141 A. 609 (1928), discussed several issues raised by these facts. First, does it make a difference that the city was doing the excavation? The court decided that a city "is subject to the same duty not to interfere with the lateral support of land" as a private individual.
Second, did the weight of the building cause the land to subside? The court determined, as a question of fact that the land would have subsided even absent the weight of the building.
Third, is the city liable for the land alone or both the land and the building? The court adopted the majority view in holding the city liable for both the land and the building.
8. Butch is not liable. Sundance's natural right to lateral support is qualified in that Butch "is not obligated to provide support for that lost through an act of God." See Carrig v. Andrews, 17 A.2d 520 (1941).
9. The Causbys could not bring a traditional tort action because, at the time of the action, the United States was immune from tort liability. However, the Tucker Act allowed suits against the United States on the theory that there had been an unconstitutional taking. Since the government interfered with the use of their property without initiating formal condemnation proceedings, the Causbys were forced to take action under the inverse condemnation approach. See Chapter 13 at footnote49.
10. The film the Milagro Beanfield War raises a number of fundamental ethical issues concerning how the law distributes valuable water resources. The prior appropriation doctrine can be justified on a utilitarian basis. Since there is very little water in arid climates if it were parceled evenly among all potential users of water, no one would have enough to make productive use of it. In other words, everyone would be poor. In the case of the facts illustrated in the film, an argument can be made that the new resort will bring in tourists who will spend money, spinning off jobs and creating a better local economy. Thus, the doctrine advances the utilitarian view that the morally correct outcome is that which gives the greatest good to the greatest number.
On the other hand, although some of the characters in the film, such as the poor landowner who kicks a hole in the ditch, do not have a legal right to the water, he may claim a moral right as a human being. Under this argument, all humans should be afforded a certain amount of dignity and to lessen their suffering. This would include not having to live in poverty. Thus, resources as vital and essential as water should be divided up more equitably among others who could find some use for it too. Therefore, those who control the water have a moral duty to see that everyone has a certain minimum amount of water to live a better life economically.
A theory of fairness and justice argues that similarly situated people should be accorded the same processes and outcome when resources are distributed. Since the laws of prior appropriation were presumably in existence when the area was settled, anyone who first gained the legal rights to the water now can say that, from a procedural point of view, he has the moral right to the water as well. Put another way, everyone had an even chance to come here first and claim the water under the same laws. However, under notions of distributive justice, if all landowners are considered similarly situated, then all should be given rights to the water. The reasonable use doctrine, for example, distributes the benefits of water resources to all riparian owners in a similar manner. Still, distributive justice likely would not work in arid climates for the reasons discussed under utilitarianism.
LEARNING OBJECTIVES
CHAPTER 4 – RIGHTS IN THE LAND OF OTHERS
1. Know the difference between a possessory interest vs. a non-possessory interest in real property.
2. Know the four main characteristics of easements and how to classify an easement.
3. Know how an affirmative easement differs from a negative easement.
4. Be able to distinguish between a dominant and servient estate in an easement appurtenant.
5. Be able to compare and contrast an easement in gross from an easement appurtenant.
6. Know specifically why an easement appurtenant can be alienated and transferred and how and why it must inhere to land.
7. Know in what circumstances, involving both commercial and non-commercial activities, an easement in gross can be alienated and transferred.
8. Know the different ways that easements can be created.
9. Know the difference between creating an express easement appurtenant and the creation of an express easement appurtenant through reservation.
10. Know how implied easements are created with particular attention to the four elements necessary for their creation by prior use.
11. Be able to distinguish between how an implied easement by prior use is created versus an implied easement by necessity.
12. Know how a prescriptive easement is created with particular attention paid to the two main elements and their sub-elements.
13. Know how and affirmative prescriptive easement can be created as compared to a negative prescriptive easement.
14. Know how easements can be terminated.
15. Know what a profit a prendre is and how it differs from the other easements discussed.
16. Know what a license is and how it differs from an easement in gross.
ANSWERS TO TEXT PROBLEMS-Chapter 4
Pages 122-124 in text
1. Petruchio is probably correct in asserting that Katherina cannot use the water for hotel purposes, although the decision could go either way.
As a general rule, courts assume that the parties to the conveyance of an easement contemplate the normal development of the dominant estate. However, Katherina's conversion of her house to a hotel would be beyond the normal contemplation of the parties, as she is changing both the nature (this is a residential area) and degree of use. The result might be different if hotels surrounded the house. See C. Smith & R. Boyer, Survey of the Law of Prope 369-397 (2nd ed. 1971).
2 The following issues should be resolved:
(a) Location. In the absence of an agreement, Sebastian has the right to determine the location of the easement. Unless agreed otherwise, once Sebastian has selected the location he has no right to change it later.
(b) Use on adjacent land. In the absence of an agreement, Olivia Enterprises cannot use the easement to service land adjacent to the dominant estate that the company now owns or may later acquire.
(c) Change in use of dominant estate. If Sebastian wants to limit the easement to certain uses of the dominant estate, he should include this as part of the agreement.
(d) Use of easement by servient owner. Sebastian may use the
easement in any manner that does not interfere with the
company's use unless the agreement states otherwise.
3. Constance will probably prevail on the contract theory. In purchasing the ticket she obtained the implied promise of the organization that she be allowed to sit through the game. The other arguments are not sound for the following reasons:
(a) Easement. Constance did not obtain an interest in land
and, furthermore, her interest was not created by a signed,
written instrument.
(b) Lease. Constance did not acquire possession of a
specific parcel of real estate, although she might have a lease
if the seat were reserved.
(c) License. Constance did acquire a license to enter the
stadium. However, in the absence of a statute, such licenses
are revocable by the licensor.
4. Salisbury has acquired an easement (profit) by prescription. He openly and continuously removed 15 million tons of coal annually Warwick's property for more than 15 years.
However, for the past 6 years Warwick removed 20 million tons of coal, 5 million tons more than his prescriptive right allowed. He is liable for 10 million tons of coal (since the statute of limitations is 2 years) and should be enjoined from removing more than 15 million tons annually. See C. Smith & R. Boyer, Survey of the Law of Property 421 -423 (2nd ed. 197 1).
5. If Helen's grant was oral, Alex has only a license that may be revoked by Helen at any time.
If Helen's grant was written, Alex may use his automobile on the right of way. The grant is not restricted to wagons and the change in vehicles is a reasonable change that should be expected. See Matteodo v. Capaldi, 138 A.38 (1927).
6. Angus will probably lose on a prescription theory because Malcolm, from whom Angus purchased the property, testified that his use was not hostile. See Stevenson v. Williams, 145 A.2d 734 (1958), where the court noted that there must be "clear proof that the prescriptive rights have been established by a user with hostile intent and not through indulgence, permission or mutual accommodation. The use of this driveway began and continued as a result of friendly and accommodating permission of the appellants."
However, there are two other arguments on which Angus might prevail. First, as noted in Chapter 4 at footnote 23, several courts treat the driveway easement as a special case where proof of hostile intent is not required. Second, Angus might argue that, in black-topping the drive, he relied to his detriment on Duncan's implied permission and that Dunca should be estopped from revoking the license.
7. Although there is authority to the contrary--for example, Zinser v. Lucks, 235 S.W.2d 844 (1951)--a court would probably decide that Hamlet has established an easement by prescription.
8. Yes, Lear may use the elevator. There is an implied easement by prior use.
9. If Isabel's promise was oral, she has given Henry a license that may be revoked at any time.
Assuming Isabel's promise was written, the question arises whether the easement (profit) is appurtenant or in gross. If it is appurtenant or an exclusive easement in gross, Isabel loses. If the easement in gross is non-exclusive, Isabel wins because it cannot be divided between Henry and York.
10. In Schwab v. Timmons (389 N.W.2d 1 (Wis. 1999)) the petitioners, the Schwabs,
argued that, even though they had accidentally landlocked themselves after they had subdivided their land and sold off portions to others, they should be able to impose an easement by necessity on their neighbors’ land in order to gain access to their property. Unfortunately for the Schwabs, they had not become landlocked as a result of buying their land from a common grantor. Because they were arguing for a major change in the existing common law of Wisconsin, they relied on ethical principles as a basis for creating new law. The Schwabs petitioned the “court [Wisconsin Supreme Court] to set forth a ‘reasonable use’ test. The test would balance the equities by weighing the competing interests of the need and benefit of allowing access by an easement to develop otherwise useless land versus the detriment such a burden may place on other property to use an existing road.”
The Schwabs were advancing a utilitarian argument, contending that when all stakeholders’ burdens and benefits are weighed against each other, the greatest good for the greatest number would be for them to build a road across their neighbor’s land to reach an existing road that connected to a highway. It was estimated that if the Schwabs were to build a new road totally on their own land to gain access to the highway it would cost them a prohibitively high $700,000, while the adjacent landowners would only be inconvenienced by the Schwabs’ use of the cheaper route across their land. Because the Schwabs could not afford the road, their land would essentially become worthless. Thus, it could be argued that the burden of this decline in value greatly outweighs the other landowners’ burden of allowing the Schwabs to cross their properties.
Because the common law gives individuals the moral and legal right to exclude others from their land, the Schwabs could morally as well as legally be excluded from gaining access over their neighbor’s land. If they want to modify their neighbors’ rights they should pay for this privilege (that is, they should gain a moral and legal right by contract) rather than relying on the government to usurp their neighbors’ rights by imposing an easement by necessity. Thus, the neighbors could argue that their property rights as citizens should not be taken by the Schwabs through the courts. Thus they have no moral or legal rights as citizens to impose an easement by necessity over their neighbors’ land.
LEARNING OBJECTIVES
CHAPTER 5 – TYPES OF OWNERSHIP1. Know the history of common law property law during the feudal times and how those early developments still influence property law today.
2. Know the various tenants in the feudal system as well as their rights and feudal obligations to their overlords.
3. Know the general differences between freehold and non-freehold estates historically and presently.
4. Know what a fee simple absolute means, how it was created historically, and how it is created today.
5. Be versed in the similarities and differences among the defeasible fee estates – fee simple defeasible, fee simply subject to an executory limitation and fee simple subject to a condition subsequent.
6. Know the future interests associated with each of the foregoing defeasible fee estates and how they differ.
7. Know what a fee tail estate is and what its current status is in the American common law.
8. Be well versed on the life estate, including the fact that it is not inheritable, and its importance today in estate planning.
9. Know how the two important future estates of a reversionary interest and a remainderman interest are created.
10. Know the difference between a vested and contingent remainderman interest.
11. Know the respective rights and obligations of life tenants.
12. Know the rights and obligations of those who own future interests subject to the life tenant – i.e. reversionary interest holders and remainderman – including payment of taxing, debts, insurance, repairs and fixtures.
13. Know the various non-freehold or leasehold estates, how they differ how they are created.
14. Know the difference between an estate or property interest and a lease or contractual interest.
15. For all the estates mentioned above, know their words of limitation.
16. Be well versed in the “Four Unities” and how they relate to concurrent ownership.
17. Know how the joint tenancy is created and what unities apply.
18. Be versed in how joint tenants hold their interest relative to the other joint tenant(s) and in what circumstances this can adversely affect creditors.
19. Know how a joint tenancy can be terminated and, if terminated, how this may adversely affect potential heirs.
20. Know what a tenancy in the entirety is, what unities apply and how this concurrent ownership may affect creditors and other third parties.
21. Know what a tenancy in common is and its role in the American common law.
22. Know the rights and obligations of concurrent property owners.
23. Know what community property is, be versed in its history, and what states use this approach to marital property.
24. Know the how community and separate property is determined.
25. Know the various forms of concurrent ownership for commercial purposes and how they differ in terms of liability, rights and duties, and taxes.
26. Be particularly versed in one of the newest forms, the limited liability company (the LLC) and why it has become a frequently used business entity in recent years.
ANSWERS TO TEXT PROBLEMS-Chap. 5
1. a. This is not waste if a court concludes that Homer was merely continuing an existing business-farming.
b. This cannot be answered on the given facts. Important factors to be investigated are the condition of the farmhouse, the nature of the area in which the farm is located, and whether the property is worth more without the farmhouse.
c. This is waste. This is a new operation that harms the value of the reversion.
d. This is not waste as it falls within Homer's right of estovers. See C. Smith & R. Boyer, Survey of the Law of Property 237 (2nd ed. 1971).
2. Alice and Carol own the farm as tenants in common. The deed to Alice severed the joint tenancy.
3. Abel's heirs (nine-tenths) and Cain (one-tenth) own the property as tenants in common. Adam did not create a valid joint tenancy because the joint tenants were not given an equal interest.
4. In many states, Macbeth would be correct. Wilda would be liable under owner's consent statutes or the family purpose rule. See W. Prosser, Law of Torts 483-487 (4th ed. 197 1). Since both parties are liable a creditor could force a sale of the house even though it is owned under a tenancy by the entirety (subject, however, to a possible homestead exemption).
If the car had been titled in Harry's name, then he alone would be liable and his creditor, Macbeth, could not force a sale of the house.
5. Harry and Barry each owned one-half of the farm as tenants in common. On Barry's death, Harry would still own his half and the other half would be divided among Harry and his two sisters. Consequently, Harry owns 2/3 of the farm and each sister owns 1/6.
6. The main question is whether Sheryl and Kim have formed a partnership. If they have, then Sheryl is liable for the torts committed by her partner, Kim, within the scope of the partnership business. It is likely that a court would consider Kim's tort within the scope of the business because she was driving to the farm to water blueberries when the accident occurred.
In determining whether Sheryl and Kim have formed a partnership, the key issue is whether they are in business. Although the definition of business is vague in the Uniform Partnership Act is vague, a court would probably decide that the blueberry farm is a business sand, consequently, that Sheryl is liable as a partner.
7.Among the potential problems are the following:
a. In some states Hilda must first deed the property to a straw man; otherwise the unities of time and title will be missing.
b. Clyde (or his creditors) can sever his interest.
c. There are tax considerations to be considered such as gift tax, estate tax, and homestead exemptions for the elderly.
d. If Hilda and Clyde die simultaneously--or if Clyde dies first--the property must be probated.
e. There is potential for conflict over maintenance of the property, insurance payments, mortgage payments, and tax payments.
8. The major problems are as follows:
a. Corporation. Formation is complicated and there is double taxation.
b. S Corporation. Formation is complicated. The number of shareholders is limited.
c. Partnership. The major problem is the personal liability of the partners.
d. Limited Partnership. The general partners still face personal liability. The limited partners cannot exercise control. Formation is somewhat complicated.
e. REIT. Most income must come from real estate sources. One hundred or more beneficiaries are required for special tax treatment.
f. Limited Liability Company. There is a potential risk that the business will be taxed as a corporation.
Although we need additional facts before making a final decision, it is likely that the best forms would be the S Corporation and the limited liability company. It would seem that liability would be a major consideration in this type of operation and both forms would limit the personal liability of the investors while providing certain tax advantages.
9. In Portchester Electric Constr. Corp. v. Atlas, 389 N.Y.S. 2d 327 (1976), the creditor claimed that the corporate veil should be pierced. The court rejected this argument because each corporation was formed and operated in compliance with normal corporate procedures. However, the creditor was ultimately successful on other grounds when it was proven that corporate assets were transferred when insolvency was imminent.
10. Various ethical arguments can be raised when comparing the civil law concept of
forced heirship with the freedom to will or not property to your children as it exists in the common law. Under the doctrine of forced heirship, if a parent does not will to his child a certain amount of his estate, the child may sue the estate and extract a forced portion or legitime. The amount varies by civil law jurisdiction, but it is often ¼ for one child, or ½ of the estate if there are two or more children. Some jurisdictions, like Louisiana, exclude children over the age of 23, using the rationale that the parent supported the child through college. But disabled children over 23 can sue for a forced portion for their support.
Determining moral correctness in these cases often turns on specific facts. From a utilitarian perspective, when a parent with means fails to leave property to a child who does not have the ability to support himself (such as a minor or a disabled adult child) the outcome is unethical because this would not give the greatest pleasure to the greatest number. Taxpayers would be required to support the child. An argument could even be made that disinheriting a college age child (who would have to seek subsidized government loans because he was left no property by a deceased parent of means) would also not be a moral outcome under utilitarian theory.
An intriguing question is does a child have a right under the natural law as a close family member to a deceased parent’s property? The civil law applies principles of natural law to doctrines such as forced heirship. However, does a rich person’s child, who may squander the family riches, have such a natural right?] Civil law jurisdictions do allow the disinheriting of a child, but it is very rare, as well as legally difficult and impractical, to do so. Thus it becomes essentially an absolute right, which in turn can create moral dilemmas. For example, shouldn’t a parent have the flexibility to will more property to a poor child than to one who is rich? The civil law does, however, allow a disposable portion (defined as the remainder of the estate after the forced portion is determined) to be given to anyone the testator chooses, which can mitigate this moral dilemma.
Laws often change when a person crosses a state border, but do moral rights also change? A disabled child, for example, in Shreveport, Louisiana would have a legal right to ¼ of his deceased father’s estate. Yet, a disabled child 15 miles to the west in Texas would not have a similar right if his father decided to leave him out of his will.. Is this just? Similarly-situated children are being treated differently in their receipt of family assets.. An argument could be made that the Texas child is being treated unjustly.
LEARNING OBJECTIVES
CHAPTER 6 – THE SEARCH FOR REAL ESTATE
1. Know the sources of agency law for real estate professionals.
2. Know the difference between a real estate broker and a real estate salesperson.
3. Know what a REALTOR® is.
4. Be able to know and distinguish between the major kinds of listing agreements.
5. Know particularly about the exclusive listing agreement and the reasons why it is used the most in industry.
6. Know how an open listing works and which competing broker gets the commission.
7. Know what procuring cause is, when it becomes an issue and generally how it is determined.
8. Know the four scenarios discussed in the book for determining whether the broker should receive a commission even if the deal falls through- the Kruger case on page 166, the Retterer case on page 167, the Ellsworth case on page 184 and the contractual approach normally used today.
9. In a traditional multiple listing service agreement (MLS), know how the broker for the seller (selling broker) and the broker for the buyer (subagent) divide the commission.
10. Know the antitrust implications of MLS and other broker activities.
11. Be able to distinguish between express, implied and apparent authority and how they apply to real estate brokers.
12. Know what a real estate broker’s fiduciary duties are and to whom he/she owes these duties.
13. Know the problems associated with subagents and fiduciary duties and how modern disclosure statutes apply to control these problems.
14. Know the duties a selling broker has to disclose to prospective buyers about certain property conditions.
15. Know about the Fair Housing Act (FHA) of 1968 and what kinds of persons it protects.
16. Know about steering and blockbusting and other forms of discrimination and how brokers may become liable for the actions of their salepersons for these activities.
17. Know in particular, how the FHA of 1968 has affected new construction to help the disabled.
18. Know about the Americans with Disabilities Act and how it has affected construction.
ANSWERS TO TEXT PROBLEMS-Chapter 6
1. Mariko may not terminate the agreement. She is not acting in good faith. See McMillan
v. Quincey, 72 S.E. 506 (1911).
2. Trusty, as Green's agent, owes Green a fiduciary duty. The duty was breached when
Trusty (through its salesperson) persuaded Green to give up $ 100,000 in equity in the old house for a $40,000 equity interest in the new house. In Brown v. Coates, 253 F.2d 36 (D.C. Cir. 1958), the plaintiffs were awarded actual and punitive damages. The court noted that although punitive damages are usually not allowed in contract cases, when "one trained and experienced holds himself out to the public as worthy to be trusted. . . ., and that trust is intentionally and consciously disregarded and exploited for unwarranted gain, community protection, as well as that of the victim, warrants the imposition of punitive damages.
3. Carlos owes a commission to Smith. In Brinkman v. Peel, 260 S.W.2d 448 (1953), the court observed that the "law is that as between realtors who have nonexclusive listings, the agent first producing a buyer whose offer meets the seller's terms has earned his commission." This is true even though Carlos must also pay a commission to Jones.
4. Cleon is liable to Chumney because the contract was an "exclusive right to sell" agreement. Although Cleon argued that the commission was a penalty and unenforceable, the court, in Chumney v. Stott, 381 P.2d 84 (1963), concluded that his liability was "essentially in fulfillment of the obligations created by the contract rather than in the form of liquidated damages for the breach thereof. ... It is to be kept firmly in mind that
the courts recognize the rights of parties freely to contract and are extremely reluctant to do anything which will fail to give full recognition to such rights." The damages would be 6% of $120,000, or $7,200.
5. Broadway is not entitled to a commission. The court in Broadway Realty and Trust, Inc. v. Gould, 665 P.2d 580 (Ariz. 1983), concluded that agreements providing for payment of the "usual", "regular", or "legal rate of' commission are not specific enough to satisfy the Statute of Frauds. The language used in the listing agreement in this case is similar to such language.
6. Flora is not entitled to a commission. The court, in Bartlett v. Keith, 90 N.E.2d 308 (1950), concluded that because this is an exclusive agency agreement, the agent is not entitled to a commission when the owner finds a buyer.
7. The board's actions are not legal. The court in Marin County Board of Realtors v. Palsson, 549 P.2d 833 (1976), ruled that the California anti trust -statute, which is modeled after the Sherman Act, applied to the board's activities. While the board's practices were not "per se" violations of the statute, they did present serious anticompetitive dangers. The "primarily engaged" requirement was found to inflict especially severe economic detriment on part-timers because it resulted in a denial of employment with no justification.
8. Decision for the Smalleys. The court in Schepers v. Lautenschlager, 112 .W.2d 767 (1962), noted that it is the duty of a broker "to give his client the fullest information concerning his transactions and dealings in relation to the property with reference to which he is employed. A broker cannot, without violating his general duty of good faith, act for persons having interests adverse to those of his employer, unless he acts with the consent of his employer given with full knowledge of the facts." This duty of good faith places the broker under a legal obligation to make a full, fair, and prompt disclosure to his employer of all facts within his knowledge. "Thus, it is the duty of a broker who is employed to sell property at a specified price to inform his principal of the fact that the property has become of enhanced value since the time when it was placed in his hands for sale, or, upon hearing that a more advantageous sale or exchange can be made." A broker who breaches this duty is liable to his principal for whatever loss the latter may suffer as a consequence thereof and the broker also forfeits his commission.
9. The Golds owe Rossi $205,000. Larker had authority to accept only $5000. "A real estate agent is generally a special agent with limited power and is, therefore, in dealing with land, closely restricted within the terms of his agency." Gerig v. Russ, 264 P.2d 1045 (1953).
10. This question is designed to encourage discussion about the legal and ethical pitfalls inherent in the traditional subagency arrangement and why having a buyer’s agent may lessen these pitfalls. In a traditional subagency situation, Mantecon might be legally and ethically at fault for informing Jameson of these potential problems since he has a duty, at least derivatively under the listing contract, to represent the best interests of Sullivan, the seller. His only legal and ethical duty is to disclose to Jameson material problems with property. This would likely not include the potential for having to pay high energy bills and having to remodel a downstairs room someday. Of course, subagents often inform the prospective buyers of such matters and this information likely influences how much buyers will offer. In the process, subagents may be breaching the fiduciary duties (both legal and ethical) they owe to the sellers.
Ethically, you might argue that subagency facilitates sales by creating a less adversarial environment, since no one represents the buyer’s interests. Does this create the greatest good for the greatest number by creating efficiencies in transacting the sale? The discussion on page 180 in the book asserts that a buyer’s agent creates a more adversarial transactional environment which lessens prices.
Is it fair and just for a subagent to treat sellers better than buyers? If you can argue that sellers and buyers are similarly situated, then they should be afforded the same information. However, adversarial parties cannot logically be classified as similarly situated. On the other hand, buyers commonly assume that the subagent is representing their interests. Thus, their perception is that they are similarly situated with sellers in terms of having their interests represented by an agent, including the receipt of pertinent information about the house they are thinking of buying.
To create a more fair and just environment, buyers should be fully informed of what their rights are and who is representing their interests. Today, most states require sellers’ brokers to inform potential buyers that they are representing sellers (see page 179). These disclosure requirements are a good example of positive law created to advance a more ethical environment in real estate.
LEARNING OBJECTIVES
CHAPTER 7 – THE REAL ESTATE CONTRACT
1. Note that this is a contract to sale, or an executory contract, not a contract of sale. Title to the property is conveyed later at the closing.
2. Know the difference between contract formation and contract performance.
3. Know what the Statute of Frauds is, how it pertains to real estate contracts and how the exception of part performance fits in.
4. Know the difference between the Statute of Frauds and the Parol Evidence Rule.
5. Know how offer and acceptance or mutual assent works in the context of a real estate contract.
6. Be acquainted with when and how an offer can and cannot be revoked and when and how a counteroffer is made.
7. Know the essential terms of a real estate contract.
8. Know how a land swap works.
9. Know what an installment land contract is as compared to a real estate contract.
10. Be acquainted with the new E-Sign law of 2000 and how it fits in with traditional real estate contracts.
11. Know the important additional (but not essential) terms of a real estate contract are, in particular the requirement for marketable title.
12. Be acquainted with the Merger Rule and the collateral promise exception.
13. Know the principle of Equitable Conversion, who owns legal and equitable title to both the land and the money and in particular how it can affect the risk of loss to the buyer.
14. Know what damages can be awarded when there is a breach of the real estate contract-specifically liquidated damages (in the form of earnest money), restitution, and compensatory damages.
15. Be acquainted with the various equitable remedies such a specific performance, and the various ways (mutual mistake, incapacity, duress, undue influence and misrepresentation) that can form the basis of a recission of the real estate contract.
16. Know how the law treats an “AS IS” sale of real estate, especially when the seller is aware of the property’s materially defective conditions.
ANSWERS TO TEXT PROBLEMS-Chapter 7
1. This is not an enforceable agreement because it is not specific enough to comply with the Statute of Frauds. "[W]hen a writing on its face evidences deferred payments, it must state with reasonable certainty the substance of the payment terms." Tucson v. Farrington, 240 N.W.2d 464 (1976).
2. Yes, Nellie is liable for misrepresentation. While she accurately stated the hotel income, the statement requires clarification that the source of the income is an illegal business. Ikeda v. Curtis, 261 P.2d 684 (1953).
3. Ernie is not entitled to Bert's real estate. The agreement was not in writing, as required by the Statute of Frauds. The "part performance" exception probably does not apply because Ernie did not have possession of the real estate during Bert's life--he was only living on the property as an employee. See C. Smith & R. Boyer, Survey of the Law of Property 253-254 (2nd ed. 1971) and Bums v. McConick, 135 N.E. 273 (1922). However, the result might be different under Restatement, Second, Contracts, which is cited in Chapter 7, footnote 1.
4. The court in Couture v. Lowery, 168 A.2d 295 (196 1), held that the auction sale did not meet the requirements of the Statute of Frauds for the sale of real estate. The court ruled that sales by auction are within the provisions of the Statute of Frauds. Thus, the Lowerys could be required to convey only if they had personally signed a written agreement to sell the farm or duly authorized (in writing) an agent to sign for them. The Lowerys had done neither.
5. The court ruled in favor of Schaeffler. "The general rule is that a builder must substantially perform his contract according to its terms.... His performance is only excused by acts of God, impossibility of performance, or acts of the other party to the contract preventing performance. . . . If a builder wishes to protect himself against the
hazards of the soil, the weather, labor or other uncertain contingencies, he must do so by provisions in the building contract." The court decided that Newcomb had breached the contract by not performing the contract in a good and workmanlike manner and that the delivery of a defective structure to Schaeffler negated any claim of substantial performance. See Newcomb v. Schaeffler, 279 P.2d. 409 (1955).
6. Ballou might argue that the implied warranty was merged into the deed or that the doctrine of caveat emptor should apply. However, in Hartley v. Ballou, 209 S.E.2d 776 (1974), the court ruled that Ballou had breached the implied warranty that the house was suitable for its intended purpose. The court held that "a builder implicitly warrants to the initial vendee that the dwelling, together with all its fixtures, is sufficiently free from major structural defects and is constructed in a workmanlike manner. . . . The court further held that the implied warranty survives the passing of the deed for the taking of possession by the initial vendee, but falls short of an absolute guarantee that waterproofing is sufficient in extreme weather conditions. The court, although ruling in Hartley's favor noted that Hartley's recovery was limited to his inconvenience and expense during the period from initial occupancy to the completion of Ballou's effort to remedy the problem. Hartley assumed a portion of his loss by continuing to occupy the dwelling after the problem was identified and after Ballou incurred additional expense to correct it.
7. Bassford may not rescind the contract. The court in Bassford v. Cook, 380 P.2d 907 (1963), noted that a person seeking rescission "need not prove that the seller had knowledge of the falsity of the representations or was utterly indifferent to their truth or falsity." The person does, however, have to "establish all the other elements of fraud and deceit including his right to rely upon the representations made." The court ruled that Bassford was aware of the soil problem and was negligent in not pursuing inquiries further. "Circumstances surrounding the transaction here were such as to alert the suspicion of the buyer as to the condition of the soil and reasons for the cracks, and the representations, even if false, being innocently made, equity will not relieve the buyer from the consequences of his inattention and negligence for failing to pursue his investigations."
8. The court in Johnson v. Olsen, 381 P.2d 623 (1963), held for Johnson. In concluding that caveat emptor has lost much of its potency, the court noted that "caveat emptor does not apply to a misrepresentation of a material fact made for the purpose of inducing a sale." The court found that Johnson was justified in his reliance on representations made by Olsen and quoted Prosser: "[Assertions of fact as to the quantity or quality of land or goods sold . . . may justifiably be relied on without investigation, not
only where such investigation would be burdensome or difficult ... but likewise where the falsity of the representation might be discovered with little effort by means easily at hand." [Despite the Prosser view, a strong argument can be made in this case that the buyer cannot recover because he should have verified the seller's representation.]
9. Baker wins. She is entitled to rescission on the basis of the false representation. See Hodgeson v. Brant, 319 P.2d 684 (1958), where the court concluded that although "the defendants were under no duty to speak as to the condition of the property , they were bound by the representations made." (However a strong argument could be made that Able's statement was only an opinion. See Chapter 7, at footnote 61.)10.
10. This problem deals with the ethical issues surrounding the common law rule—in which the adequacy of consideration paid for land is disregarded by the courts—versus the civil law doctrine of lesion beyond moiety. This is a classic case of fairness versus efficiency. Under the common law, a person like Goodman who unwittingly sells his land for less than one-half its value could not use this doctrine against Alvarez, although some of the common law defenses such as mutual mistake, minority status, insanity, etc. might apply. Allowing sales to be completed efficiently and keeping titles clean probably gives the greatest good to the greatest number. It makes property more merchantable and productive.
Lesion beyond moity, however, confers rights on sellers, like Goodman, who are not sophisticated or who are careless and may not take the initiative to learn the property’s true value. Thus, this doctrine imposes a moral and legal duty on citizens in civil law jurisdictions to sell land in excess of half its value. The civil law tends to be more moralistic than the common law, with public policy intervening to protect people. The common law, on the other hand, favors private ordering and the sanctity of the contract.
Fairness and justice principles require that similarly situated people must be treated in a similar manner as to process and outcome. In this case, if Goodman lived in Mississippi he would be treated worse in terms of outcome compared with how he’d be treated in Louisiana. However, Alvarez, as a buyer, could argue that he is subject to certain laws that do not give him the right to a reasonably clear title for three years, as in Louisiana. Thus he could argue that he should have the right to a reasonably clear title, a right he receives immediately in Mississippi. Both sides have valid arguments for fairness here.
LEARNING OBJECTIVES
CHAPTER 8 – TITLE AND INSURANCE
1. Know the history and reasons underlying the principle of recordation of legal instruments.
2. Be acquainted with the concepts of both constructive and actual notice.
3. Know what a bona fide purchaser is and how that related to two of the three types of recordation statutes.
4. Know how the notice, race-notice and race statutes function for recordation and be able to apply them to factual scenarios.
5. Know what requirements must be generally contained in a deed before it can be recorded.
6. Know what a chain of title is, how a grantor and grantee index works and what happens when a party falls out of the chain of title.
7. Be acquainted with what an abstract of title and title insurance are.
8. Know what a mortgage title insurance policy is, what it protects and what it excludes.
9. Know what losses a mortgagee title insurance policy cover versus the owner’s title insurance policy.
10. Be acquainted with how a mortgagee loss clause works.
11. Know the two basic losses covered by a homeowner’s insurance policy.
12. Know what is covered in the three basic forms of property coverage in a homeowner’s policy and what is commonly excluded.
13. Know two types of limitations that a property owner can suffer even with property insurance coverage.
14. Know what the liability provision in a homeowner’s policy generally covers and the typical exclusions.
15. Know what an insurable interest is and how it relates to homeowner’s insurance.
16. Know what mortgage insurance is, whose loss it protects and how it operates if the real estate is destroyed.
ANSWERS TO TEXT PROBLEMS-Chapter 8
1. Beta owns Sunnybrook. Beta has no constructive notice of Alpha's deed because Siedel's name was misspelled in the deed. In searching the grantor's index, Beta would find no deeds from Siedel under the proper spelling.
2. Randall wins. This is a notice statute. Randall purchased the property without actual or constructive notice of the earlier conveyance. See Randall v. Hamilton, 119 S.E. 595 (1918), and C. Smith & R. Boyer, Survey of the Law of Property 327-328 (2nd ed. 1971).
3. Leroy is entitled to ownership because of any one of three reasons:
(a) Crafty had constructive notice, based on Leroy's possession of the farm.
(b) Crafty had constructive notice based on Leroy's recording of the deed.
c) Crafty was not a purchaser for value--he paid only nominal consideration.
See C. Smith & R. Boyer, Survey of the Law of Property 328-329 (2nd ed.
1971).
4. Terrell is correct. The court in Terrell v. Andrew County, 44 Mo. 309 (1869), noted: "The obligation of giving the notice rests on the party holding title. If he fails in his duty, he must suffer the consequences., If his duty is but imperfectly performed, he can not ... lay the fault at the door of an innocent purchaser. [H]ard and uncertain would be the fate of subsequent purchasers if they could not rely upon the records, but must be under the necessity, before they act, of tracing up the original deed to see that it is correctly recorded." [Despite Terrell, however, the Restatement of Property -Security (Mortgages) § 1. 5 (Tent. Draft No. 1, 199 1) takes the position that later mortgagees, have a duty to inquire about the status of the debt.]
5. First, it should be noted that the use of any abstract has the inherent problems noted in the text.
Second, with regard to this specific abstract, the title examiner should resolve several potential problems.. For example:
(a) Why are the descriptions in the Caption and in entries 2, 3,
and 4 inconsistent?
(b) Is the description in entry 7 correct?
c) Is it important that the deed in entry 9, dated October 17,
1929, was not recorded until April 28, 1930? What is the purpose
of entries 10-15?
(d) What is the effect of discrepancies in the names? (Compare,
for example, Joseph Hellman's name in entry 8 and entries 10- 12.
Or McCowen's name in entry 5 and entry 6. Or Sylvester Hellmann's
name in entry 9 and entries 11 and 16.)
(e) What problems might arise from the easement grant at entry 16?
See 0. Browder, R. Cunningham & J. Julin, Basic Property Law 935 (2nd ed.
1973).
6. This case presents a dilemma in that Morse would prevail over Clark, who had actual notice of the unrecorded deed. However, the purchaser from Clark (Curtis) had no actual notice and, in the course of a normal title search, would not discover Morse's deed because it had been recorded after Clark's deed.
In Morse v. Curtis, 2 N.E. 929 (1985), the court found that Curtis had superior title to the land. The court ruled against constructive notice in this case stating "it would be a hardship to require an examiner to follow in the index of grantors the name of every person who at any time, through perhaps a long chain of title, was the owner of the estate." The court established a rule which provided that "if a purchaser, upon examining the registry, finds a conveyance from the owner of the land to his grantor which gives him a perfect record title, complete by what the law at the time it is recorded regards as equivalent to livery of seizin, he is entitled to rely upon such recorded title; and is not obliged to search the record title, afterwards made, to see if there has been any prior unrecorded deed of the original owners." See also C. Smith & R. Boyer, Survey of the Law of Property 334-335 (2nd ed. 1971).
7. Dolly does not have a valid claim. The court in Russell v. Williams, 374 P.2d 827 (1962), held that: "[A] policy of fire insurance does not insure the property covered thereby, but is a personal contract indemnifying the insured against loss resulting from the destruction or damage of that property." The court also noted that "there is no obligation upon the part of one cotenant to insure the other cotenant against loss of the latter's interest in their jointly held property.... In the instant case, even though the amount of the proceeds obtained from the policy of insurance represented the full value of the property destroyed, no equitable considerations exist which require a determination, as a matter of law, that the plaintiff was entitled to any portion thereof"
8. Putnam can recover under the fire policy. The court in Pulaski Savings & Loan Association v. United States Fidelity and Guaranty Company, 539 S.W.2d 602 (1976), ruled that "knowledge" means actual knowledge, not constructive knowledge. Furthermore, the court stated that "it is equally clear that if plaintiff had actual knowledge of the transfer of the property and did not . . . notify the defendant of the change the policy would be void." Here Putnam did not have actual knowledge of the ownership transfer.
9. This is not a good defense. In Slate v. Boone County Abstract Company, 432 S.W.2d 305 (1968), the court ruled in favor of the Slates. The court found that "the abstracter promised the seller for a consideration to prepare ... an abstract and to deliver it to the buyers. The plaintiffs as buyers were the beneficiaries of this promise." After finding the Slates were third party beneficiaries, the court noted that "a third party beneficiary may sue the promisor in a contract made for the benefit of the third party whether it be on a theory that a third party beneficiary is in privity with the promisor or that privity is not necessary to permit the third party beneficiary to sue the promisor."
10. This question is designed to engage your class in a discussion of the ethics of the various recording statutes. The scenario presented has happened to those who live in race statute states. Few people, like the foreign student Yakamoto, are aware that they must, even as lessees, protect property rights from others through the recording of leases.
Those states that use race statutes argue that they promote certainty and efficiency in establishing priority of rights. All you have to do is to examine the public record and whoever records first has priority, regardless of whether they act in good faith. That is why Thistle possessed rights superior to Yamamoto’s. Thus, Yakamoto could not legally challenge Thistle’s lease by proving that Thistle knew he had already leased Flaherty’s apartment.
An opponent of race-notice and notice laws would also argue that a person’s good faith can be falsely called into question, thus precipitating expensive litigation. Ultimately the party with the best lawyer and most money may win over the party who was honest. Race statutes likely reduce litigation and costs. Moreover, the risk is generally easy to manage. Lenders, through their closing agents, make sure they record deeds and mortgages for their mortgagors immediately after the closing. Commercial lessees, who are often legally sophisticated, routinely record their property interests. Thus, these problems are very rare in these common but important transactions. In the end, it could be argued that race statutes confer the greatest good to the greatest number, although occasionally a person such as Yakamoto might fall through the cracks and suffer a lose.
On the other hand, it could be argued that a person with non-freehold property rights, such as Yakamoto, should be protected. Others owe him a moral and legal duty to respect his property rights. So even though he has no legal right to keep Thistle from occupying the apartment he leased from Flaherty, Thistle has a moral duty to respect Yamamoto’s property rights once he became aware of their existence. Flaherty has a legal and moral duty to respect the leasehold rights he conveyed to Yamamoto and breached this duty when he subsequently leased the apartment to Thistle.
Principles of fairness and justice provide that similarly-situated persons should be treated the same with regard to process and outcome. Yakamoto is not accorded the same protection as would, say, a person in neighboring Virginia, a notice state, where Thistle’s actual notice would disqualify him as bona fide lessee. Thus, we have similarly-situated lessees experiencing different outcomes. This is unfair and unjust to Yakamoto.
LEARNING OUTCOMES
CHAPTER 9- FINANCING THE REAL ESTATE PURCHASE
1. Know how a lien works in general and the three classes of liens.
2. Know the concept of mortgage and how mortgages are set up in both lien and title states.
3. Be acquainted with and be able to compare and contrast the following financing instruments: conventional mortgages (both first and second mortgages), VA and FHA mortgages, purchase money mortgage and deeds of trust.
4. Be versed in the various federal laws meant to protect borrowers from illegal forms of discrimination.
5. Know about the Home Ownership and Equity Protection Act (HOEPA) and how it works to root out predatory lending practices.
6. Know the Truth in Lending Act, Regulation Z and what it requires to be disclosed to potential borrowers.
7. Know the difference between a simple interest rate and APR.
8. Be versed in how mortgages are originated and the various roles of the mortgage broker, mortgage banker, the borrower and the secondary market.
9. Know how the promissory note or mortgage note debt relates to the mortgage itself.
10. Know the difference between a recourse and non-recourse note.
11. Know the difference between a negotiable and non-negotiable promissory note in particular what terms must a negotiable have to make it negotiable.
12. Be versed on the economic reasons for why it is desirable for a note to be negotiable.
13. Know what a “holder in due course” (HDC) is and what defenses, both personal and real, are effective and non-effective against it.
14. Know the various important terms contained in a typical promissory note, particularly the acceleration clause, forebearance, attorneys fees and the waiver of the homestead exemption.
15. Know the various important terms contained in a typical mortgage or deed of trust, particularly after-acquired title clause, borrower’s warranties of title, borrower’s duties that can create a material breach, due-on-sale clause, and the sale by trustee (only in deeds of trust).
16. Be versed in how a property with an existing mortgage can be sold to another: sale free-and-clear of the mortgage, sale “subject to” the mortgage, and assumption of the mortgage.
17. Know in the foregoing three scenarios whether the seller of the property is personally liable should the buyer let the property go into foreclosure and there is a deficiency judgment.
18. Know the difference between a closing in a lawyer’s office and closing of escrow normally done by a title company.
19. Know what a novation is and how it comes into play sometimes with mortgages.
20. Know what stages you would go through once a mortgage note is called into default until the process reaches statutory right of redemption stage.
21. Be able to compare and contrast these stages with the ones that you would go through with a deed of trust.
22. Know how an installment land contract works.
23. Know how statutory liens work in general.
24. Be acquainted with the mechanics’ lien work and how the New York and Pennsylvania Rules differ.
25. Know how attachment and judgment liens work.
ANSWERS TO TEXT PROBLEMS-Chapter 9
1. Yes, Thelma can foreclose because the entire amount of the mortgage is due under the acceleration clause as a result of Louise's mistake. See Graf v. Hope Building Corporation, 171 N.E. 884 (1930), where the court held for the plaintiff mortgagee: "Rejection Of Plaintiff s legal right could rest only on compassion for defendant's negligence. Such a tender emotion must be executed, if at all, by the parties rather than by the court."
2. Yes, the farm should be included in Floyd's estate on the grounds that the deed is really an equitable mortgage. Two of the three factors that courts emphasize in declaring deeds to be equitable mortgages are present: (1) Floyd owed money to the hospital at the time of the conveyance and (2) he continued to act as owner after the conveyance. See McCool v. Ayres, 192 N.E.2d 636 (1963).
3. The maximum amount is $4800. The bank may collect $3600 to cover payments that have accrued between the last tax payment date, December 1, and the first mortgage payment date six months later. The bank can also collect two extra monthly escrow payments, which total $1200. See the "HUD Guide to Settlement Costs."
4. The loan is usurious for two reasons. First, while bank charges for services rendered are not considered to be interest under usury laws, the bank cannot charge twice for the services. Here the bank has charged Henry both for attorney's fees and for preparation of legal documents.
5. Second, the $10,000 commission appears to be nothing more than disguised interest, which means that the bank is receiving more than the 10 percent interest allowed by law. See National-American Life Ins. Co. v. Bayou Country Club, 403 P.2d 26 (1965).
6. Elmo is entitled to pay off the mortgage only if the note contains a clause allowing early payment (that is, an "on or before" clause).
. A due on sale clause accelerates payment of the principal and the interest at the lender's option. In this case, it appears that the lender opts to continue receiving monthly payments from Elmo.
7. Edith should argue that, if the note is nonnegotiable, she does not have to pay twice because she never received notice of the assignment. If the note is negotiable, she should argue that Pioneer was acting as the bank's agent for purposes of collecting her mortgage payments. See Kraemer, Chapter 9 at footnote 35, and Steele v. Seaton, 248 S.W.2d 81 (1952).
8. The key legal issue is whether the prepayment penalty makes the loan usurious. In Lyon’s v. National Savings Bank of City of Albany, 113 N.Y.S.2d 695 (1952), the court decided that the prepayment penalty was not interest because it "was not exacted in connection with or as a consideration for any loan or forbearance of money….”
9. The Hughes' mortgage has priority. A mortgage securing future obligatory advances, here Hughes' mortgage recorded on February 7, has priority over later liens such as Ashdown's mechanic's lien which was effective on February 2 1. Ashdown Hardware Co. v. Hughes, 267 S.W.2d 294 (1954). (The result would be the same under the statutory approach.)
10. This question explores the law and ethics underlying the payment of a an extra
payment or premium on the yield spread . A yield spread premium can be charged legally when a borrower pays a mortgage broker for actual services provided by bringing the borrower together with a mortgage banker. This practice commonly occurs when the borrower has imperfect credit or lacks adequate finances and thus needs help finding a mortgagee willing to lend to him. Thus, the borrower benefits if the broker’s work in finding a lender is equal to the premium paid. The ethics of this practice depends to a large extent on disclosing the yield spread premium to the borrower. This is particularly important because many of those who must use a broker have fewer choices or are not sophisticated in real estate finance practices. As of 2004, the law did not require disclosure to a borrower of the yield spread premium.
Assuming that the broker and lender are behaving legally (no kickbacks, etc.), charging a yield spread premium for the broker’s services is probably ethical under a utilitarian analysis. For example, if the broker’s efforts bring the borrower together with a willing lender and the borrower would not otherwise be able to obtain a mortgage due to bad credit or finances, it gives the greatest good to the greatest number. The buyer will now be able to have the pride and economic benefit of accumulating equity—something a renter cannot do. When people own their own homes they have a greater stake in their property and their communities. This may benefit many others in both social and economic terms. Moreover, borrowers who enter the housing market, earn a good credit rating, and build equity may be able to re-finance loans at a lower rate, thus securing economic well-being into the future. The downside is the premium he must pay might cause the borrower to default on the loan. That might burden not only the borrower, but also the lender and possibly the community.
As a citizen, the borrower does not have, under the law, a right to disclosure of the premium he is being charged. Morally, through their relationship there may be a moral duty to provide this information. In fact, many brokers do this even though it is not explicitly required by statute or under a regulation. However, some complain that they lose clients and or that the complexity of the concept confuses them and only causes greater problem.
Lenders have a legal and moral right to charge higher interest to a less credit-worthy borrower because of the greater risks involved in making the loan. However, this right only exists if the borrower may incur a greater loan risk to the lender. Disclosure diminishes this risk because, once informed, a borrower can investigate whether he actually should be paying this premium and whether it is equal to the risk he poses to the lender.
Fairness and justice dictate that similarly-situated people be treated in a similar manner in respect to process and outcome. Presently, only some borrowers are being informed about the premium they are paying. This is unjust to those who do not receive the information. Therefore, a federal law creating uniformity among borrowers would create greater fairness.