texas_bar_exam_essays_copy_20160621212615 Flashcards
In Texas, conveyances that are ambiguous are considered to be Fee Simple Absolutes unless what?
1) The conveyance is expressly limited, OR2) A lesser estate is created
The majority of jurisdictions require specific language to create a life estate. What does Texas require?
No particular words are necessary to create a life estate. “For life,” “until his/her death,” etc.
What is the Texas distinction with regard to Joint Tenancies?
Unlike most states, a joint tenancy is Texas does not automatically include a right of survivorship. INSTEAD, joint tenants can create a right of survivorship by expressly agreeing to allow their interests to pass under a right of survivorship. NEED SPECIFIC LANGUAGE.
T/F - Tenancy by the Entirety exists in Texas.
NoTexas is a community property jurisdiction and thus does not recognize the tenancy by the entirety.
T/F - Texas limits the duration of a possibility of reverter and rights of re-entry.
FalseTexas has no durational limits for a posibility of reverter or right of re-entry. Further, RAP does not apply to these types of interests.
T/F - In Texas, a contingent remainder is not destroyed if it has not vested by the time the prior estate terminates.
TrueLike in most states, Texas will wait to see if the contingent remainder ultimately vests.
What is the Rule Against Perpetuities?
Under RAP, specific future interests are valid ONLY if they must vest OR FAIL by the end of a life in being, plus 21 years (and 9 months gestation).
In Texas, how are Charitable Trusts treated if RAP is violated? What happens if the Charity ceases to exist?
Property held in trust is subject to RAP. In Texas, perpetual trusts and indefinite period trusts violate RAP. HOWEVER, IN TEXAS, RAP DOES NOT APPLY TO CHARITABLE TRUSTS.Cy Pres - Texas courts use the doctrine of cy prees to reform a charitable trust when its particular purpose has become impossible or impractical. The court can modify the trust to support a different program or charity of similar purpose.
How do Periodic Tenancies terminate in Texas?
Month-to-Month Leases - the tenancy ends on the LATER of (a) the day given in the termination notice, OR (b) one month after the day notice is given.Week-to-Week (less than a month) - tenancy ends on the LATER of (a) the day given in the termination notice, OR (b) the day following the expiration period.
In Texas, what must a landlord do to evict a holdover tenant. Can the landlord seek double rent?
The landlord must provide the holdover tenant with at least THREE DAYS’ NOTICE to vacate before the landlord can evict the tenant.Texas does NOT allow landlords to collect double rent from a willful holdover.
In Texas, what are the landlord’s remedies when a tenant fails to pay rent?
Money - If the landlord provides written notice, he may recover one month’s rent PLUS $500.Lockout - Further, Texas allows a landlord to “lock out” a tenant (literally change the locks). If a residential lease, landlord can lock out a resident if the lease ONLY IF THE LEASE EXPRESSLY SAYS SO. In a commercial lease, landlord can lock out a tenant after placing a NOTE on the tenatn’s FRONT DOOR, explaining where a new key may be obtained after back rent is paid. NOTE: A Commercial tenant can get a new key REGARDLESS of whether back rent has been paid!IF THE LOCKOUT WAS WRONGFUL - the tenant can get two remedies:1) Possession of the property or terminate the lease; AND2) One month’s rent PLUS $1,000 in damages and costs.
How does a security deposit work in Texas lease agreements?
A COMMERCIAL landlord must refund a tenant’s security deposit WITHIN 60 DAYS after tenant surrenders the premises. A RESIDENTIAL landlord must return the tenant’s security deposit WITHIN 30 DAYS after the tenant surrenders the premises.If the landlord retains all or part of the security deposit, the landlord must provide a WRITTEN REPORT of the DEDUCTIONS. HOWEVER, if the tenant OWES BACK RENT, then the landlord doesn’t have to provide the written report.
Does a commercial landlord have a duty to mitigate?
YES. In Texas, if the tenant surrenders the leasehold before the lease is up, a commercial landlord has a duty to take reasonable steps to mitigate damages.This can be changed by the lease terms. Burden is on the tenant to prove the landlord failed to mitigate.This is not the majority view.
Does Texas follow the majority view preventing landlords to sue for future rent due like an anticipatory breach?
NO, Texas does allow anticipatory breach in a lease. Landlord can treat the breach as anticipatory and either:1) Repossess and sue for the value of future rentals LESS the current value of the remaining term, OR2) Re-lease and sue for the difference between the original contract price and the new tenant’s rent.
With regard to habitability, what duty to landlords have?
In Texas, RESIDENTIAL Landlords must provide a SAFE, DECENT, and SANITARY dwelling, as well as make REPAIRS to threats on health or safety of an ORDINARY TENANT.
Does a Texas residential landlord have a duty to make repairs?
Yes. A landlord must make a DILIGENT effort to repair a condition, IF:1) Tenant gives PROPER NOTICE of the condition in need of repair;2) Tenant is NOT DELINQUENT on rent at time notice is given; AND3) Condition HAS TO MATERIALLY AFFECT to health and safety of an ORDINARY TENANT.
What is the statutory period for adverse possession in Texas?
25 Years - General Rule10 Years - If the land is FEWER than 160 acres.5 Years - If the claimant has: (1) cultivated, used, or enjoyed the property; (2) PAID TAXES; AND (3) is claiming rights to the property UNDER A DEED (with color of title after acquiring a deed and good faith).
How can a landowner stop adverse possession in Texas?
Language is not enough. Can’t just tell them to leave. Adverse possession in Texas is terminated only when the owner FILES A LAWSUIT to recover possession of her land.A true owner MUST BRING SUIT TO EVICT a trespasser WITHIN THREE YEARS in the case where a trespasser has based title on color of title or an improper recording.
How are disabled owners treated in Texas in the case of adverse possession?
If the true owner is disabled at the time the adverse possession COMMENCES (steps on to land), then the 3-year, 5-year, and 10-year statutes of limitation dont begin running.
What is the executory period?
This is the period in a land sale contract between the contract and the closing on the property.
What are the rights and duties of the seller during the executory period?
Seller holds the land in trust for the buyer. Seller has the right to possess the property. Seller also has the DUTY TO MAINTAIN the property in GOOD CONDITION.
Who bears the risk of loss in a land sale contract in the executory period?
Majority of states - buyerTEXAS has adopted the UNIFORM VENDOR AND PURCHASER RISK ACT. Under this statute, the risk of loss during the executory period is placed on the SELLER.
T/F - Lenders in Texas, upon default, have the power to force a foreclosure in a mortgage note to satisfy the debt.
True
Does Texas have Statutory Redemption?
NO, a foreclosure sale is FINAL.
How does Texas treat installment contracts with regard to mortgages?
In most states, if a buyer can’t continue to make payments, the buyer defaults, and the seller gets to keep the buyer’s interest. IN TEXAS, the SELLER must give STATUTORY NOTICE before forfeiting the purchaser’s interest. If the purchaser has paid 40% or more of the AMOUNT DUE, the seller has the power to sell the purchaser’s interest in the property to a new purchaser.
T/F - In a Non-Judicial Foreclosure, in Texas, a purchaser takes the property “AS IS,” without ANY express or implied warranties.
True
What happens in Texas when a foreclosure sale brings in less than the outstanding debt?
Court may issue a DEFICIENCY JUDGMENT.
Is Equity of Redemption allowed in Texas?
Yes. A homeowner may pay off her debt BEFORE the foreclosure sale BEGINS.
What is a Deed in Lieu of Foreclosure?
If the homeowner can’t pay off her debt, she can convey the property to the lender in exchange for releasing or canceling any outstanding debt.
Texas recognizes the Strips and Gores Doctrine. What is it? Does it always apply?
Comes up when property that abuts a roadway or right-of-way is conveyed.Has the grantor explicitly reserved an easement or right-of-way interest in a strip of land between the conveyed property and the center of a public road?If yes, then the grant does NOT convey title up to the center of the roadway.If no, then the grant does convey title up to the center of the roadway.DOES NOT APPLY IF:1) Grantor owns land abutting BOTH sides of the strip, OR2) The strip is larger and MORE VALUABLE than the conveyed tract.
How are errors in a deed fixed in Texas?
1) Non-Material Corrections - Any person with personal knowledge of the error can execute a correction instrument to correct a non-material error.2) Material Corrections - ONLY a party to the ORIGINAL transaction may execute a correction instrument to fix a material error in the deed.
How are restraints on alienation handled in Texas?
If the restraint is void, then it does not render the entire deed void (just the restraint).
T/F - In Texas, restraints on use, sale, or rental to a person because of race, color, religion, or national origin are prohibited.
True
T/F - In Texas, all types of easements are transferable and assignable.
False. An easement in gross in Texas is NOT transferable or assignable, EXCEPT for CONSERVATION EASEMENTS.
What is the statutory period for creating an easement by prescription?
In Texas, the prescription period to create a prescriptive easement is 10 YEARS.
Explain how water rights work in Texas.
Riparian Rights - Landowners who can trace title back between 1823 and 1895 can make use of the Riparian Rights Doctrine. This allows owners of land that abuts a water way to reasonable use of the water (not interfering with other riparian owners’ rights).Prior Appropriation - This is TEXAS. First in time, first in right no matter where your land is located. Users must put the water to a BENEFICIAL USE (a productive use). Groundwater - A landowner owns the groundwater BELOW THE SURFACE of the landowner’s property. Landowner has ABSOLUTE CONTROL over that groundwater.
Explain Homesteads in Texas.
Texas provides a homestead exemption for single adults and heads of households. This protects a home from a forced sale to satisfy creditors after the death of the head of household.Rural Homesteads - 200 acres are allowed for families, and 100 acres is allowed for single adults.Urban Homesteads - Must:1) Consist of NOT MORE THAN 10 acres of one or more contiguous lots;2) Be located within the city limits; AND3) Be served by municiple police, fire protection, and at least THREE of either: electric, natural gas, sewer, storm sewer, or water services.NOTE: There cannot be a mixed homestead (part urban and part rural). Also, you are limited to ONE homestead.
How is personal property located on a homestead treated?
In Texas, personal property is only protected if it is on the owner’s land and has some level of ATTACHMENT to the land. The best example is a fixture attached to the land (barn or related building).
T/F - A business cannot be a homestead in Texas.
False.A business may be a homestead if it is:1) On the same lot or a lot contiguous to the homestead, AND2) Does NOT exceed 10 acres.Example - Bob’s Burgers
Can non-contiguous parcels of land ever qualify as part of a homestead?
Yes but ONLY in a RURAL homestead.Owner must show that the parcel is NECESSARY to the USE AND ENJOYMENT of her home.
What are the legal effects of a homestead? Are there any exceptions?
Protects a home from a forced sale to satisfy the owner’s creditors. NOTE: The homestead is only protected from creditor’s rights in the homestead that occurred AFTER the property became a homestead.EXCEPTIONS:1) Purchase Money - Texas Constitution permits creditors to force a sale if the purchase money on the home is due.2) Taxes on the Property - Homestead not protected from forced sale for payments of any TAXES assessed and levied on the property.3) Refinance of a lien - Encumbrances may be properly fixed on homestead property for the refinance of a lien against the homestead.4) Construction Improvements - Forced sale permitted for loans made in connection with improvements to the property PROVIDED THAT the work was contracted for IN WRITING and WITH THE CONSENT OF BOTH SPOUSES.5) Home Equity Loans - Forced sale allowed for the payments of a home equity loan.6) Reverse Mortgage - Forced sale allowed for payments of a reverse mortgage. This is a line of credit available to people over the age of 62, which enables them to access a portion of the equity in their home.7) Owelty - Forced sale allowed to satisfy an owelty of partition. Owelty is the money paid following the partition (division) of a co-tenancy when an equal partition isn’t possible.
Can spouses transfer or encumber a homestead?
Yes ONLY WITH THE AGREEMENT OF THE OTHER SPOUSE.
When does a homestead terminate?
Ends in the following situations:1) If the claimant dies without a survivor to take the homestead, OR2) Abandonment - must show CLEAR AND PRESENT intent not to use the property as a homestead.
T/F - Divorce destroys a homestead effectively terminating it.
False. Divorce does not destroy the homestead PROVIDED THAT one of the spouses is able to MAINTAIN the homestead.
What is a mechanic’s lien? Who may get one?
IN TEXAS, a contractor, subcontractor, architect, engineer, surveyor, or other supplier of materials (materialman) or labor to be used for the CONSTRUCTION OR REPAIR of a home or building, may secure a mechanic’s lien on the home or building to secure repayment.SCOPE: Covers payment for LABOR PERFORMED, MATERIALS FURNISHED OR FABRICATED, or for the PREPARATION OF A PLAN. DOES NOT extent to sidewalks, streets, or utilities that are public.
How much can a subcontractor claim on a mechanic’s lien?
Not more than the amount equal to the labor performed, materials used, reasonable overhead costs, AND proportionate profit margin.
What must one do to get a mechanic’s lien?
1) A person claiming the lien must FILE AN AFFIDAVIT with the COUNTY CLERK NOT LATER THAN the 15th DAY of the 4TH CALENDAR MONTH (or 3rd calendar month for residential projects) AFTER THE DAY INDEBTEDNESS ACCRUES. 2) After filing, the filer must NOTIFY the OWNER at her LAST KNOWN ADDRESS by CERTIFIED MAIL. If the filer is not the original contractor, the filer must also send a COPY to the ORIGINAL CONTRACTOR. All notifications must be made NO LATER THAN THE FIFTH DAY AFTER THE AFFIDAVIT IS FILED IN COURT.3) If the filer is a subcontractor, he/she must give the ORIGINAL CONTRACTOR WRITTEN NOTICE OF ANY UNPAID BALANCE NO LATER THAN THE 15TH DAY OF THE SECOND MONTH IN WHICH THE SUBCONTRACTOR’S LABOR WAS PERFORMED OR MATERIALS FURNISHED.
When does “indebtedness accrue” for a mechanic’s lien?
It depends on who you are:1) Original Contractor - Indebtedness accrues on the last day of the month in which: (1) a written declaration is received by the original contracting parties stating that the original contract has terminated OR (2) the original contract has been completed, settled, or abandoned.2) Subcontractor - Indebtedness accrues on the last day of the month in which: (1) labor was performed OR (2) materials were furnished.
What priority does a mechanics lien have over other creditors?
A mechanic’s lien attaches to the house, building, or improvements in preference to ANY PRIOR lien, encumbrance, or mortgage on the land.HOWEVER, the mechanic’s lien DOES NOT AFFECT any lien, encumbrance, or mortgage on the land at the time of inception of the mechanic’s lien.
Is Texas a Lien or Title State? What does that mean?
Texas is a LIEN STATE. This means that the mortgagee or creditor has a lien or security interest in the mortgaged property, NOT TITLE to the property. This affects when the creditor can possess the property upon default.
What is a Vendor’s Lien? How does it work?
In a contract for a deed (installment contract), a breach may give rise to a lien in favor of the seller (vendor). This is an equitable lien for the benefit of the vendor who passed legal title to the buyer BUT DID NOT RECEIVE THE ENTIRE PURCHASE PRICE.IN TEXAS, a vendor’s lien SHOULD BE EXPRESSLY RESERVED in the deed of trust. However, it is normally done in the deed itself.If the buyer defaults, the vendor may foreclose the lien and sue for the balance owed, rescind the contract and take possession (because the vendor retains legal title), OR sue to recover title and possession.
T/F - A tenant can get rent and damages for delays by the landlord in repairing property.
True
What is required to make property your homestead?
For a homestead to exist, there must be a present enforceable right plus the right to possession of the property. The homestead claimant must have the intent to occupy the property as a homestead and there must be overt acts of occupation and dedication to such intention.
When is an owner liable to a subcontractor for paying a contractor?
An owner who receives lawful notice of a claim between the subcontractor against a contractor may withhold from payments owed to the original contractor an amount necessary to pay a claim to a subcontractor. The owner is not liable for any money paid to the original contractor before he received notice. If the owner received notice, a lien has been secured and reduced to a final judgment, the owner is liable, and his property is subject to a claim for any money paid to the original contractor.
What must the affidavit that is filed with the county clerk for a mechanic’s lien contain?
The affidavit:1) Must be signed by the person claiming the lien and must include a sworn statement of the amount of the claim; 2) The names and last known addresses of the owner, original contractor, and claimant; a statement of the work performed and material furnished (a subcontractor must specify the month the work was performed or the material furnished); AND3) A legally sufficient description of the property to be charged with the lien.
T/F - The Texas Constitution extended the meaning of the “homestead of a family” to embrace not only the home or residence of the family, but also the place where the head of the family could exercise his calling or business.
True
What must a party do to effect a non-judicial foreclosure sale on property?
The nonjudicial foreclosure process is used if a power-of-sale clause exists in a mortgage or deed of trust authorizing the sale of the property to pay off any default loan balance. For residential property, a notice of default must be served by certified mail and provide at least 20 DAYS to cure the default before notice of sale will be given. After the 20 DAYS’ notice, notice of the sale must be filed with the county clerk, posted on the courthouse door, and served on the debtor by certified mail at least 21 DAYS before the sale date. However, Texas homeowners may end the foreclosure process by paying off the debt before the foreclosure sale begins. This process is known as an equity of redemption. The seller must notify a purchaser who is in default their right to cure the debt and allow the purchaser at least 60 DAYS to do so.
A landowner who owns the land in fee simple absolute owns two separate estates. What are they?
1) Surface Estate2) Mineral Estate
How much did a landowner own at common law?
The AD COELUM DOCTRINE states that the owner owns the airspace above the surface, and all the subsurface to the center of the Earth.
Can the surface estate and the mineral estate be split?
Yes. They can be severed.
What is the Texas rule as to what a landowner owns?
OWNERSHIP-IN-PLACE THEORY - Texas follows this. Provides that mineral interest owners actually own the minerals under their tract; but, ownership is subject to the RULE OF CAPTURE.
What is the Rule of Capture?
States that anyone who LEGALLY OR LAWFULLY drills on their own property owns ALL MINERALS THAT ARE PRODUCED from their well (INCLUDING MINERALS THAT MAY HAVE COME FROM ANOTHER’S TRACT).
Although the Rule of Capture is the basic rule in Texas, what are its limitations?
1) It does not apply to personal property (oil and gas that has already been extracted);2) Limited by the doctrine of Correlative Rights - Correlative rights means that everyone is entitled to their FAIR SHARE of production from a reservoir and NO ONE CAN NEGLIGENTLY DAMAGE THE RESERVOIR;3) Police Power - Governmental, state, and city regulations may also limit the Rule of Capture; AND4) The Rule of Capture is limited by NEGLIGENCE.
T/F - Mineral interests are highly fractionalized and several people can own a mineral interest in the same tract.
True
T/F - A conveyance will generally convey the greatest amount possible, unless it is severed or reserved from the conveyance.
TrueThus, a deed conveying real property will pass the entire estate (surface and mineral, including all characteristics) unless it is severed.
What are the four characteristics (bundles of sticks) of owning a mineral interest?
1) Executive leasing rights - a mineral owner has the exclusive right to enter into an oil and gas lease to develop the minerals. This does not violate RAP;2) Exclusive right to develop the minerals under your tract;3) Ingress and egress - The right of ingress and egress is known as the Dominant Estate Theory, which states that the mineral owner may enter the surface estate and use as much of the surface estate as is REASONABLY NECESSARY to develop the minerals underneath that tract. 4) The right to RECEIVE MONETARY LEASE BENEFITS.
What are the limitations on the right of ingress and egress?
1) Reasonableness;2) Use of the surface tract must benefit the materials DIRECTLY UNDER that surface tract;3) The terms of the lease; AND4) THE ACCOMMODATION DOCTRINE
What is the Accommodation Doctrine?
States that a mineral interest owner must accommodate the surface owner’s use IF:1) There is a SUBSTANTIAL interference;2) With a PRE-EXISTING USE; AND3) There are ALTERNATIVE METHODS to develop the mineral acreage in question.
What is a Royalty interest? What are the different types?
A share in the production FREE OF PRODUCTION COSTS.The three types are:1) Landowner Royalty - proportionate share of the gross production of minerals, free of production costs;2) Non-Participating Royalty (NPRI) - a royalty interest CARVED OUT of the land owner royalty interest (ONLY rights are to royalties / NOTHING ELSE);3) Overriding Royalty (ORRI) - Carved out of the LESSEE’S REVENUE INTEREST (the oil company’s revenue interest).
What is the name of the interest granted to the lessee under the terms of an oil and gas lease? Is it like a royalty interest?
This is the LEASE HOLD INTEREST, also known as the WORKING INTEREST.It DIFFERS from a royalty interest in that the leasehold interest BEARS ALL COSTS AND RISKS associated with drilling the wells.
How does “trespass” operate on a mineral estate.
There are three common instances of trespass in oil and gas law:1) Ordinary Trespass - unlawful drilling into another’s mineral estate. If minerals are actually produced, then a claim for trespass AND CONVERSION will arise;2) Slant Well Trespass - drilling from one tract into and under an adjacent tract without permission;3) Geophysical Trespass - gathering geophysical data DIRECTLY from under the tract without permission.
What are the damages that are available for a trespass claim on the mineral estate? What if an oil & gas lease is in place?
The amount of damages for a trespass will depend on whether the trespasser acted in GOOD FAITH OR BAD FAITH:1) Good Faith - If trespasser has acted in good faith, but has unlawfully produced minerals, then the mineral interest owner would be entitled to receive the FAIR MARKET VALUE of the minerals produced, VALUED AT THE TIME OF THE PRODUCTION. HOWEVER, the good faith TRESPASSER will be entitled to recover the COST TO DRILL THE WELL.2) Bad Faith - If the trespasser acts in bad faith, then the trespasser shall be liable in the amount equal to the FAIR MARKET VALUE of the minerals produced, VALUED AT THE TIME OF PRODUCTION. The TRESPASSER will NOT BE ENTITLED TO RECOVER THE COSTS TO DRILL THE WELL.If an Oil & Gas Lease is in place - BOTH the lessor and the lessee have a right to seek monetary damages. A lessor’s remedy is LOST ROYALTIES, while the lessee can sue for the FMV of the oil and gas. BOTH CAN SUE TO EJECT THE TRESPASSER.
Define Slander of Title in a mineral rights scenario.
Mineral interest owner must prove FIVE ELEMENTS:1) Publication;2) False Statement;3) Made with MALICE;4) Causing ECONOMIC LOSS (specific sale); AND5) The owner has standing
How is standing proved in a Slander of Title case?
Owns the mineral interest that was affected.
What are the damages recoverable for Slander of Title?
The measure of damages is the DIFFERENCE of the FMV BEFORE SLANDER and the FMV AFTER SLANDER.
Explain adverse possession of a mineral estate.
There are two separate rules used in applying adverse possession to the mineral estate:1) Unsevered Estate - When the minerals and the surface estate are owned by the same person: If the adverse possessor adversely possesses the surface estate, they will obtain the mineral estate at the same time.2) Severed Estate - When Owner A owns the surface estate and B owns the mineral estate: In order to adversely possess the mineral estate, the adverse possessor must ACTUALLY DRILL AND PRODUCE FOR THE STATUTORY PERIOD OF TIME.THE DOCTRINE OF RELATION BACK APPLIES!
What is the doctrine of Relation Back?
Provides that the title relates back to when the adverse possession began.Therefore, in order to determine which adverse possession rule to apply, you must look back to when the adverse possession began to determine if the mineral and surface estates were severed at that particular time.
Owners of undivided mineral interests in the same tract are called ___________.
Co-tenants
What are the rules with regard to co-tenants?
Either party can lease the ENTIRE MINERAL ESTATE WITHOUT THE CONSENT OF THE OTHER PARTY but NOT TO THE EXCLUSION OF THE OTHER PARTY.
What if one co-tenant doesn’t consent to the lease by the other co-tenant?
Leasing co-tenant must account to non-consenting co-tenant who is still entitled to a FAIR SHARE of production of the minerals.
What does it mean to “account” to the non-consenting co-tenant? What are the non-consenting co-tenant’s options?
Consenting co-tenant is considered a royalty interest owner. The non-consenting co-tenant is not.Royalty interest owner’s share is free of production costs. The non-consenting co-tenant does NOT retain a royalty, but is a mineral interest owner treated as a WORKING INTEREST OWNER. As such, they must pay their pair share of the cost to drill.Non-consenting co-tenant has three options:1) Enter into an oil and gas lease himself and obtain a royalty interest;2) Ratify the oil and gas lease other co-tenant created and become a royalty interest owner that way; OR3) Do nothing and be treated as a CARRIED WORKING INTEREST OWNER (meaning he starts paying and receiving after the well pays itself / doesn’t pay anything out of pocket up front until his part of the production costs are paid off).
How does successive ownership (life tenant and remainderman) affect an oil & gas lease?
In order to have a valid lease from a life tenant and a remainderman, the oil and gas company must obtain a lease from ALL OF THEM.Trespass - Because remainderman does not own a possessory interest, the remainderman could not develop because of trespass.
What doctrine applies to life tenants of mineral interests with regard to keeping up the property?
DOCTRINE OF WASTE - Because a life estate is temporary, a life tenant CANNOT DAMAGE OR DEVALUE THE LAND.
How are proceeds distributed when the lease hold interest is a life estate owner? Is there an exception to the rule?
General rule - If the life tenant and remainderman execute an oil and gas lease, RENTAL PROCEEDS ARE PAID TO THE LIFE TENANT and BONUSES AND ROYALTIES DUE UNDER THE LEASE ARE PAID TO AN INTEREST BEARING ACCOUNT.The INTEREST off of that account is PAID TO THE LIFE TENANT.The PRINCIPLE remaining upon the death of the life tenant is PAID TO THE REMAINDERMEN.EXCEPTION IS THE OPEN MINES DOCTRINE - States that if an oil and gas lease is effective AT THE TIME THE SUCCESSIVE OWNERSHIP IS CREATED, then ALL proceeds under the oil and gas lease are to be PAID TO THE LIFE TENANT for so long as the lease remains effective. ONCE THE LEASE TERMINATES OR THERE IS AN EXTENSION OF THE EXISTING LEASE (considered a new lease under Texas law), THE GENERAL RULE APPLIES.
Co-tenants have a legal right to partition. What is required to partition?
1) Joint ownership;2) Possessory interests;3) Equal dignity (same type of interest / not quantity); AND4) The ownership must exists throughout the entire tract.
What are a court’s options when co-tenants want to partition?
1) Partition in kind - equal tracts (generally applies to undeveloped tracts) OR checkerboard (generally applies to larger tracts;2) Partition in sale - if the land is PRODUCTIVE or there is evidence that a FAIR DIVISION CANNOT BE MADE.
How do liens affect a mineral estate?
If a lien attaches prior to the mineral estate being severed from the surface estate (an oil and gas lease is a severance), then the lien will be considered SUPERIOR to the lease.Example: If bank forecloses on Blackacre, and the oil and gas lease was taken after the date of the lien, the lease does not affect Blackacre.
How does a lessee protect its lease against a superior lien?
The lessee must obtain a SUBORDINATION AGREEMENT from the lien holder.
When an oil & gas company pays the owner of the land a royalty in order to use the land, what does the oil & gas company have?
They retain the mineral interest.
T/F - An oil & gas lease, unlike a landlord-tenant lease, is a conveyance.
True.It conveys a mineral interest to the lessee oil and gas company. It is a FEE SIMPLE DETERMINABLE conveyance. This means that the lessee becomes the owner of the mineral estate, while the lessor retains a POSSIBILITY OF REVERTER in the mineral estate.
What is the granting clause?
Identifies the interest being granted and provides a physical legal description of the property.
If a lease conveys “oil, gas, and other minerals,” what might be an issue?
The definition of “other minerals” needs to be determined.
How are “other minerals” defined?
KNOW THIS DATELEASES PRIOR TO JUNE 8, 1983 - Texas uses the SURFACE DESTRUCTION TEST to determine which minerals were owned by the mineral owner and surface owner. Here, if the minerals are NEAR THE SURFACE (200 feet has been held to be near), and if extracting the minerals would cause the surface estate to be DESTROYED, then those minerals are considered part of the surface estate.LEASES ON AND AFTER JUNE 8, 1983 - Texas uses the PLAIN AND ORDINARY MEANING TEST stating that if the substance is a mineral by the plain meaning of the word, then it belongs to the mineral estate.EXCEPTIONS TO THE PLAIN AND ORDINARY MEANING TEST - IF:1) The minerals are either: water, sand, gravel, building stone, limestone, clay, or surface shale; OR2) The minerals are near the surface (no bright line rule, 200 feet has been held “near the surface”) lignite, iron, or coal;THEN, THOSE MINERALS STILL BELONG TO THE SURFACE.
What is a Mother Hubbard Clause? What is its effect?
Grants an interest in a piece of land (e.g., adjacent tract) that was not physically described in the conveyance.Example - “I hereby lease to you the oil, gas, and other minerals under Blackacre, as weell as all of my tracts adjacent to blackacre.No matter HOW BROAD the Mother Hubbard Clause is written, courts will ONLY construe the provision as pertaining to SMALL STRIPS OF LAND CONTIGUOUS AND ADJACENT to the described tract which were mistakenly omitted from the legal description.Ex: A 50 acre tract won’t stick, but a 10 acre tract might.
What is a Habendum Clause?
This provision establishes the DURATION of the lease (when it will terminate) and creates two terms - the primary and secondary terms.The term “for so long as” creates the determinable fee. That is the secondary term. The stated number of years in the habendum clause is known as the primary term. Absent other provisions in the lease, the only way a lessee can maintain the lease in its secondary term is to actually produce minerals IN PAYING QUANTITIES.
What does “produced” mean? What is “paying quantities?”
Actually PRODUCED AND MARKETED. The determination of “paying quantities” is subject to a TWO-PART TEST:1) Litmus Test: Do the oil and gas company’s proceeds EXCEED their operating costs (breaking even) over a REASONABLE PERIOD OF TIME (no bright line rule / 12 months has been reasonable)? If yes, then PPQ. If no, then go to the SECOND part of the test;2) Objective Test: Would a REASONABLY PRUDENT OPERATOR continue to operate the well AT A LOSS for reasons OTHER THAN MERE SPECULATION? If yes, then PPQ. If no, then the lease TERMINATES per the Habendum Clause.
What is a Delay Rental Clause? When does it apply?
The Delay Rental provision says that the owner is leasing the property to the oil and gas company which requires them to drill a well quickly.The Delay Rental Clause applies ONLY TO THE PRIMARY TERM.The Delay Rental Clause is a condition. Breach of a condition is AUTOMATIC TERMINATION of an oil and gas lease (must pay the right amount within the right time or lose the oil and gas lease).
What is an “Engaged in Operations” clause?
If the oil and gas company is engaged in operations, even though they are not actually producing, they are able to maintain the lease AS LONG AS the operations are in GOOD FAITH AND DILIGENT PURSUIT (usually limited in time) to obtain production.This acts as a SAVINGS CLAUSE because it saves the lease from terminating based upon the Habendum clause.
What is a Dry Hole Provision?
If you are engaged in operations, and that particular well does not produce oil and gas, you have X AMOUNT OF DAYS TO COMMENCE OPERATIONS on another well.
What is a Temporary Cessation of Production?
ALWAYS IMPLIED IN AN OIL AND GAS LEASE. Every well will have a time where it ceases production (whether by mechanical failure or other reason.If there is an EXPRESS PROVISION, you have X AMOUNT OF DAYS TO BEGIN REPRODUCTION.If there is NOT AN EXPRESS PROVISION, the oil and gas company has a REASONABLE AMOUNT OF TIME TO PURSUE PRODUCTION (must do so DILIGENTLY).
What is Force Majeure?
A provision that maintains the lease when the lessee is prevented from operating under the lease DUE TO AN ACT OF GOD OR SOME OTHER EVENT out of the control of the oil and gas companyNOT IMPLIED. YOU MUST HAVE AN EXPRESS PROVISION FOR THIS TO APPLY.ONLY APPLIES TO PRODUCTION - DOESN’T APPLY TO THINGS LIKE DELAY RENTAL PAYMENTS.
What is a Shut-in Clause?
Allows the lessee to maintain the lease if it pays a “shut-in royalty” to stop producing a well WHICH IS CAPABLE OF PRODUCING. This acts as a savings clause.CAN BE DRAFTED AS A CONDITION OR COVENANT.”Unless” = ConditionBreach of a condition = automatic termination of the lease.Breach of a covenant = MONETARY DAMAGES.
What is “pooling?”
Mineral interests of one owner are pooled together with those of another. MUST HAVE TWO OR MORE TRACTS. This serves as a savings clause.
What is a “pugh clause?”
In Texas, a production on any portion of the leased premises will maintain the entire lease as to all the acreage under the lease, UNLESS a Pugh clause is included.Under a Pugh clause, production on the pooled unit may maintain ONLY the portion of the leased premises that are included in the pooled unit.
What is an “entireties clause?”
If the original owner of a particular tract enters into an oil and gas lease and then that tract is later subdivided, if the oil and gas company drills on a particular subdivided tract, the owner of that particular tract would be entitled to ALL of the royalties IF THERE WERE NO ENTIRETIES CLAUSE.
What is a “royalties clause?” Can they vary in how royalties are calculated?
Provides a share in the proceeds FREE OF PRODUCTION COSTS. Most of the time, it is drafted as a covenant instead of a condition.AMOUNT REALIZED vs MARKET VALUE1) Some value the amount of the royalties based on the amount realized by the oil and gas company.2) Others use a “market value at the well” royalty provision. The question here is “what would a reasonably prudent purchaser pay for it at the well?”IF the minerals are not being sold directly at the wellhead or within the vicinity of the well, a court will look at THREE FACTORS TO DETERMINE THE MARKET VALUE:1) Other direct sales;2) Comparable sales of the same QUALITY of gas in the VICINITY of that well;3) Netback Method: Take the market value at the actual point of the sale and DEDUCT the amount of money it costs to get the minerals from the wellhead to the actual point of sale (these are post-production costs).
What are “division orders?”
Piece of paper given to the landowner that states what the oil and gas company believes that the landowner is due.THIS IS AN ACTUAL AGREEMENT to determine the amount the landowner will get paid. IT IS BINDING BUT REVOCABLE IF THE RI HOLDER LATER DECIDES HE IS OWED MORE.
What are warranty provisions in an oil & gas lease?
THREE TYPES:1) General Warranty - warrants title against ANY problem throughout the chain of title;2) Special warranty - warrants title by, through, and under the grantor only; and3) No warranties provision.
What is a “change of ownership provision?”
Benefits oil and gas company. Oil and gas company will pay the royalties until they receive NOTICE of a change of ownership.
What is a “notice to cure provision?”
Owner must provide notice to cure a breach to the oil and gas company, and they are given a reasonable amount of time to cure. Note that this provision does NOT apply to conditions.
What is a “proportionate reduction provision?”
Important to the oil and gas company. Most oil and gas leases purport to cover 100% of the mineral estate in the lease. A proportionate reduction provision says the the monetary benefits under the lease will be REDUCED PROPORTIONALLY to the amount that is actually owned.Example: If A owns a 1/2 interest and leases to the OG company and there is a provision like this in the lease, then all monetary benefits due to A would be proportionately reduced by 1/2. If there is no provision, then A would be entitled to the ENTIRE royalty.
What is a “subrogation provision?”
If there is an outstanding lien against the property, the oil and gas company has the right to pay off the lien or not and subrogate its interest and step into the shoes of the lienholder.
What is a “separate ownership provision?”
Oil and gas company wants to assign a percentage of ownership of property to another oil and gas company.If this exists, when the lease is divided, that oil and gas company is only responsible for the acreage that they own. The other oil and gas company would be responsible for the other acres.
What is an “equipment removal provision?”
If the lease expires, the oil and gas company would have X months to get the equipment off the premises.
What is a “surrender clause?”
Allows the oil and gas company to release any portion or the entire lease at ANY time.
Are there implied covenants in an oil and gas lease? THIS IS HEAVILY TESTED ON THE BAR EXAM.
THERE IS ALWAYS A BASIC COVENANT TO ACT IN GOOD FAITH.The standard is a REASONABLY PRUDENT OPERATOR.THERE ARE SIX IMPLIED COVENANTS IN AN OIL AND GAS LEASE:1) Covenant to Protect Against Drainage - If the landowner can prove the following, then the oil and gas company must protect against drainage: (a) substantial drainage; (b) reasonably prudent operator would drill to protect aginst drainage (off-setting well); AND (c) damages for failure to do so.2) Covenant to Market - Once oil and gas is discovered, every oil and gas company MUST market for the prevailing market price.3) Covenant to Fully Develop - Once you discover oil or gas, you MUST act as a REASONABLY PRUDENT OPERATOR and fully develop the tract.4) Covenant to Test - ONLY APPLIES IF there is no delay rental provision and no substitute for a delay rental provision (paid-up provision, which provides that all rentals have been paid up front). Within a reasonable time of executing the lease, the company will at least test the property for minerals.5) Covenant to Further Explore - If oil or gas is discovered under a particular tract, the oil and gas company has an implied duty to explore for other sources of oil or gas. TEXAS DOES NOT RECOGNIZE THIS IMPLIED COVENANT. It is instead treated as part of the covenant to Fully Develop.6) Covenant to Operate Diligently and Properly - Catch-all category.
What are the remedies for breach of an implied covenant?
Courts PREFER MONETARY DAMAGES as a remedy.HOWEVER, the landowner MUST give the oil and gas company NOTICE TO CURE.If notice is given and still no cure, the court MAY award termination of the lease.
Distinguish a mineral interest from a royalty interest.
Language that identifies a mineral interest reserves or conveys an interest in the rock itself. “Into and under” is language that conveys a a mineral interest.Language that conveys an interest in production conveys a royalty interest.IF the document COMBINES the conveyances, it is considered a MINERAL INTEREST. A mineral interest owns the bundle of sticks (leasing, develop, ingress and egress, receive monetary benefits).A royalty interest is only an interest in the royalty itself, a right to receive a percentage of the production, free of production costs.
Within the rights of a mineral interest owner, what does the right to receive monetary benefits include?
Includes delay rentals, shut-in payments, royalties, and bonus payments (the amount of money paid up front to the landowner for signing the lease).
What is the difference between “of” language and “out of” language in determining fractional royalty interests?
“OF” - MULTIPLY. Ex: 1/2 of 1/4 is 1/8.”OUT OF” - SUBTRACT. Ex: 1/4 out of 1/2 = 1/4
What happens in the case of an overconveyance? How does this even happen? What is the fix?
When the document purports to reserve or convey more interests than actually exists. CONSTRUCTIVE NOTICE DOES NOT APPLY. Look only to the four corners of the document to determine what is purported to be conveyed.THE DUHIG DOCTRINE SAVES THE DAYDuhig Doctrine (“Doctrine of Estoppel”) - The grantor who overconveys an interest because of a reservation is ESTOPPED from claiming the reservation insofar as it is necessary to SATISFY THE GRANT TO THE GRANTEE.Exam Tip: Take each conveyance chronologically.Example 1: A owns Blackacre. A conveys Blackacre to B and reserves 1/4 mineral interests. B then conveys to C and reserves a 1/4 mineral interest and does NOT mention A’s previous 1/4 interest (appears to be conveying 3/4 but means to convey 2/4). Because of DUHIG, B is estopped from his reservation. A keeps his 1/4, and C gets his entire 3/4 interest.Example 2: Same facts except B reserves 1/8 (appearing to convey 7/8. We take the 1/8 away from B and give it to C, who only has 6/8 afterwords because of A’s 2/8. C gets less than he thought because B didn’t have enough to satisfy the entire amount.
How is a landowner’s royalty interest calculated if there is a non-participating royalty interest?
Mineral interest owned X royalty retained by the lease MINUS any non-participating royalty interest.Example: A owns 100% of Blackacre and the royalty is 1/8. 100% X 1/8 = 1/8. Thus, A’s landowner royalty would be 1/8. If there is also a NPRI that is 1/16, then A’s royalty will be 1/16.
How is the working interest calculated?
Take the net revenue interest of the oil and gas company, THEN subtract the overriding royalty interest, if any (carved out of the working interest).
What is “voluntary pooling?”
Pooling is when a lessee combines two or more tracts to create one particular unity (a pooled unit). This gives the oil and gas company flexibility in developing the oil and minerals below the tracts of land.Pooling serves as a savings provision in that production on ANY TRACT in a pooled unit MAINTAINS THE LEASE on ANY of the pooled tracts.In the event that the oil and gas company exercises its right to pool, it must do so in GOOD FAITH and get the mineral interest owner’s CONSENT before entering into a pooling agreement.Courts will STRICTLY CONSTRUE POOLING PROVISIONS and the pooling authority of oil and gas companies.
How are royalty interests calculated in a pooled unit?
The royalty interest is proportionally reduced by the number of acres they own on the pooled unit.Ex: 5 tracts of 20 acres each for a total of 100 acres. All 5 leases call for a 1/8 royalty. Here, all 5 owners own 1/5 of the unit. Multiply 1/5 by 1/8 to get 1/40, which is each owner’s share in the production. The oil and gas company owns the remaining 7/8.
What happens in a “community lease?”
If owners of separate tracts sign a single lease covering BOTH their tracts, a pooled unit is AUTOMATICALLY CREATED. Production on EITHER tract is shared among the owners based proportionally on the amount of acreage they own.
What is “forced pooling?” What is the purpose?
The Mineral Interest Pooling Act states:When there are two or more tracts over a single reservoir that cannot agree on a voluntary pooled unity, BOTH tracts are PRODUCTIVE, and one of those owners has either DRILLED OR PROPOSES TO DRILL A WELL, the regulatory authority MAY CREATE A FORCED POOLED UNIT.Purpose:1) To prevent waste;2) To avoid unnecessary drilling of wells; AND3) To protect correlative rights (everyone’s opportunity to produce their share of gas.This requires the owners to exhaust all efforts to voluntarily pool before applying for a forced pooled unity.
What is “unitization?”
This is a field-wide pooling (i.e., tracts in many different pooled units are combined on a field-wide basis (a producing reservoir)).Few fields are unitized in Texas.Pooling and unitization ARE NOT INTERCHANGEABLE TERMS.
Who is the regulatory authority for oil and gas operations? What are its main purposes?
The Texas Railroad Commission has authority to create the rules that regulate oil and gas operations in Texas.Its Purposes:1) To prevent waste;2) To avoid drilling of unnecessary wells; and3) To protect correlative rights.
What is the Rule 37 “Spacing Rule?”
There are statewide and field-wide spacing rules. FIELD RULES ALWAYS TRUMP STATEWIDE RULES.Rule 37 is a statewide spacing rule providing that:1) A producing well must be 467 feet from a lease line or from un-leased lines.2) A producing well must be 1200 feet from another producing well.EXCEPTION:1) An oil and gas company can file an exception with the RRC;2) Notice to affected parties; and3) Have a hearing.AGAIN REMEMBER THAT FIELD-WIDE RULES TRUMP STATE RULES!!!!
What is the Rule 38 “Density Rule?”
Rule 38 is a statewide density rule stating that at least 40 ACRES must be attributable to each well drilled. EXCEPTION - Everyone, even those owning less than 40 acres, are entitled to drill a well as long as the tract does not violate the VOLUNTARY SUBDIVISION RULE.
How is the Voluntary Subdivision Rule violated?
THREE WAYS:1) If a less-than-40-acre tract is trying to get the exception was a larger tract at the time that oil and gas was DISCOVERED AND PRODUCED, and later became SUBDIVIDED, that is a voluntary subdivision and violates the voluntary subdivision rule;2) The particular tract was subdivided by an oil and gas lease, OR3) The larger tract was subdivided for the sole purpose of circumventing Rule 38. This is true EVEN IF IT IS BEFORE oil and gas is found.
What does “allowable” mean with regard to oil production?What happens if you are granted an exception under Rule 38?
Allowable: Formula that says how much each well can produce in a particular field. It is based on “acreage attributable to a particular well.Example 1: The allowable for a 320-acre tract is one million MCF per month. If someone owns 160 acres, they are allowed to produce 1/2 of that allowable formula (500,000 MCF)If granted an exception under rule 38, you are still subject to the allowable formula.Example 2: 10-acre tract with Rule 38 exception. 320-acre tract is allowed one million MCF per month. 10/320 = 1/32. Thus, the production allowed is 1/32 of 1,000,000 MCF per month for the 10-acre tract.
How is a well classified (oil or gas)?
Depends on the ratio of oil and gas that is produced.
What specific Environmental Regulations are in play with oil and gas production?
1991 Clean-Up Fund - All operators that drill a well must provide bonds that are paid to the fund in the event that the well is not plugged or abandoned, or there was a spill that needed to be cleaned up. If an operator committed a violation that required the RRC to use the funds within the LAST 5 YEARS, that operator IS BARRED FROM DRILLING ADDITIONAL WELLS.Relinquishment Act - Applies to ALL PUBLIC LANDS CONVEYED BETWEEN 1895 AND 1931. The Act granted the land but ONLY THE SURFACE RIGHTS. The mineral rights belong to the State of Texas. Meaning 1/16 of the mineral rights go to the State. A surface owner held the minerals as a fiduciary to the State of Texas, but could not convey them in fee. Surface owners could lease the minerals but had to pay a 1/16 royalty to the State. Also, surface owners had to protect against drainage.
The DTPA applies to ____________.
Consumers.
T/F - The DTPA is to be liberally construed in favor of the consumer.
True.
What is the purpose of the DTPA?
Protect consumers from FALSE, MISLEADING, AND DECEPTIVE ACTS OR PRACTICES. Also, to provide efficient and economical procedures to secure such protection.
What damages are recoverable under the DTPA?
1) Money Damages: ECONOMIC DAMAGES.2) If the plaintiff can show knowing or intentional conduct, then the DTPA permits additional remedies in addition to economic damages. These include mental anguish and discretionary additional damages called treble damages.3) ATTORNEY’S FEES ARE MANDATORY IN EVERY DTPA CLAIM FOR A PREVAILING PLAINTIFF.
What are the elements of a private cause of action under the DTPA?
1) The plaintiff is a CONSUMER;2) The defendant is CONNECTED with the consumer transaction;3) The defendant committed either: (a) a violation of the DTPA’s laundry list; (b) a breach of warranty; (c) an unconscionable action or course of action; (d) a violation of the Insurance Code Chapter 541; OR (e) violation of a tie-in statute;4) The defendant’s violation was a PRODUCING CAUSE; AND5) Damages to the plaintiff.
Who has standing to bring a DTPA claim?
Must be a CONSUMER.A consumer is someone who SEEKS OR ACQUIRES, by purchase or lease, GOODS OR SERVICES for use.
Can corporations be consumers?
Yes. “Consumer” is not limited to natural persons.
T/F - Privity is required for a DTPA claim.
False
T/F - The State of Texas and any political subdivision or state agency can be consumers.
True
Is payment of consideration required to have DTPA protection?
No. As long as a consumer has a good faith intention of completing the purchase and the objective ability to complete the transaction, the consumer has standing.
How are “goods and services” defined under the DTPA? Does a pure loan transaction fall under the DTPA?
BroadlyGoods includes both tangible goods as well as real estate. It does not cover intangible goods like stocks, bonds, or pure loan transactions.Services includes labor and repair services. A pure loan transaction does not gain DTPA protection. However, if a person goes to the bank to get a loan in order to purchase a good, such as a car, then the person will have consumer status.
What does “for use” mean?
Any use, even if you are going to resell the goods.
What does the DTPA not apply to?
1) Certain business consumers with assets in excess of $25 million;2) Professionals giving advice, judgments, or opinions;3) Media or publishers unless they have actual knowledge of the falsity of their act or practice;4) Transactions over $500,000 (not including the consumer’s residence); OR5) Transactions over $100,000 if the consumer is represented by an attorney (also excluding the consumer’s residence).
Are personal injury claims covered under the DTPA?
Generally, the DTPA does NOT give way to personal injury claims. Damages solely under the DTPA are limited to economic damages.EXCEPTIONS:1) Medical expenses incurred or any lost earnings or wages suffered as a result of the personal injury are considered economic damages and can be recovered under the DTPA; AND2) Mental Anguish damages are recoverable when the deceptive act or practice is committed knowingly or intentionally.
What is considered to be a part of the DTPA laundry list?
The DTPA imposes liability on a defendant who commits conduct specifically defined as trade practices which are FALSE, MISLEADING, OR DECEPTIVE. THE MOST COMMON ARE:MISREPRESENTATION OF GOODS OR SERVICES. Most commonly: 1) Representing goods or services to have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have; 2) standard, quality, or grade, or goods that are of a particular style or model if they are actually of another; 3) agreement confers rights, remedies, or obligations which it does not have. None of the above require knowing or intentional4) Failing to disclose information concerning goods or services which was KNOWN at the time of the transaction if such failure to disclose was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed. REQUIRES KNOWLEDGE AND INTENT.MISREPRESENTATION OF REPAIRS: Knowingly making false or misleading statements of fact concerning the need for parts, replacement, or repair services.WARRANTY FRAUD: Representing that a guarantee or warranty confers or involves rights or remedies which it does not have or involve.MISREPRESENTING WORK PERFORMED: Representing that work or services have been performed on, or parts replaced in, goods when the work or services were not performed or the parts were not replaced.NOTE: FOR ALL LAUNDRY LIST VIOLATIONS, THERE IS A SPECIFIC REQUIREMENT OF RELIANCE TO THE CONSUMER’S DETRIMENT.
What is “mere puffery?”
Descriptions of quality, a characteristic, use, or benefit, such as “perfect condition,” “top quality,” and “like new,” are NOT actionable under the laundry list.
What is required to bring a claim for “unconscionability?”
Unconscionable action or course of action is conduct that takes advantage of a consumer’s LACK of knowledge, ability, experience, or capacity to a GROSSLY UNFAIR DEGREE.Gross unfairness - Glaring, noticeable, flagrant, complete, and unmitigated.
T/F - A deceptive act or practice can be a violation of a laundry list provision, an unconscionable action, AND a breach of warranty.
True.
How is a claim brought under the DTPA through a “tie-in” statute? What damages are available? Personal injury?
The DTPA makes it actionoable conduct for a defendant to have violated a “tie-in” statute. A tie-in statute allows for ACTUAL DAMAGES, which is broader than economic damages.Mental anguish can be recovered WITHOUT showing the conduct was committed knowingly or intentionally.PERSONAL INJURY CAN BE AWARDED THROUGH A TIE-IN STATUTE!Examples:1) The Debt Collection Act;2) Business Opportunities Act;3) Health Spa Act;4) Manufactured Housing Standards Act;5) Home Solicitations Act;6) Telemarketing Disclosure and Privacy Act;7) Timeshare Act; and8) Telephone Solicitations Act.
How is a claim under the Insurance Code brought under the DTPA?
Insurance Code Chapter 541 prohibits unfair methods of competition and unfair or deceptive acts or practices in the business of insurance as specifically defined in Chapter 541.Status Required: The DTPA only gives a CONSUMER the right to seek relief under the DTPA for violation of Chapter 541.CUMULATIVE REMEDY: Recovery under the DTPA would be cumulative with any recovery under any other act or statute, including 541.
How is a breach of warranty claim brought under the DTPA?
The DTPA does not create any warranties. The DTPA takes existing warranty law in Texas and brings it into the DTPA. The source of warranty law is the UCC. The breach of an EXPRESS OR IMPLIED warranty will allow a consumer to bring a cause of action under the DTPA.Any conditions or defenses in the underlying warranty law will apply when the breach of warranty serves the basis of a DTPA claim.THE UCC DOES NOT APPLY TO SERVICES, BUT THE COMMON LAW RELATED TO EXPRESS WARRANTIES FOR SERVICES GENERALLY FOLLOWS THE UCC.
How are express warranties created? Can they be modified?
An affirmation of fact or promise to the consumer which becomes the basis of the bargain.Can be created by a description of the goods or by a sample of the goods. The words “warranty” or “guarantee” are NOT necessary to create an express warranty.Modification: Only if the limiting language can be harmonized with the express warranty. If it contradicts the express warranty, then it will not be effective.
What are the implied warranties actionable under the DTPA? Can they be disclaimed?
1) Implied warranty of Merchantability - Arises in the sale of NEW goods by a MERCHANT. The goods must be FIT FOR THE ORDINARY COMMERCIAL USE for which the goods are used. Can be disclaimed IN WRITING by specifically mentioning the IWOM, and must be CONSPICUOUS (AS IS / WITH ALL FAULTS). Cannot disclaim as to personal injury if a tort is involved.2) Implied Warranty of Fitness for Particular Purpose - NOT LIMITED TO MERCHANTS. Arises when the seller has reason to KNOW a consumer has a SPECIFIC PURPOSE for the goods, and the consumer is RELYING on the seller’s SKILL OR JUDGMENT to select or furnish suitable goods. Can be modified or disclaimed IN WRITING AND CONSPICUOUSLY.3) Implied Warranty of Title - defendant warrants that he owns the goods he is selling.If the result of disclaiming any of the above is that there is no breach of the warranty because it was effectively discaimed, then the DTPA will NOT provide a remedy for breach of warranty.
What about warranties with respect to services?
There CAN BE EXPRESS WARRANTIES.Implied Warranties:1) Services will be performed in a GOOD AND WORKMAN LIKE MANNER. This warranty is NOT implied for professional services. THIS WARRANTY CANNOT BE DISCLAIMED OR MODIFIED.2) New Home Construction: Implied warranty of HABITABILITY. Can be disclaimed or modified in writing in LIMITED CIRCUMSTANCES.
What damages are recoverable under the DTPA?
ECONOMIC DAMAGES normally.ACTUAL DAMAGES FOR TIE-IN STATUTES.Medical damages and lost wages.Mental anguish possibly.Possible treble damages if intentional or knowingly.MANDATORY ATTORNEY’S FEES FOR PREVAILING PLAINTIFF.
What are some measures of economic damage?
1) Benefit of the bargain (difference between value represented and value delivered);2) Out of pocket damages (difference between price paid and value delivered);3) Cost of Repair Damages (cost to make the goods or services as warranted or represented); AND4) Loss of Use damages (cost to rent replacement / don’t actually have to rent replacement goods in order to have loss of use damages).
Can lost profits be recovered under the DTPA for economic damages?
Yes, but must be shown with REASONABLE CERTAINTY (hard to do).
How is mental anguish recovered under the DTPA?
Must first have conduct committed knowingly or intentionally. The consumer must present DIRECT EVIDENCE showing NATURE, DEGREE, and SEVERITY of the mental anguish which causes a SUBSTANTIAL DISRUPTION in the CONSUMER’S DAILY ROUTINE.
How are treble damages recovered under the DTPA?
Must show intentional or knowing conduct. Amount is determined by a judge or jury. If KNOWINGLY - limited to 3 times the amount of economic damages.If INTENTIONALLY - limited to 3 times the amount of economic AND mental anguish damages combined.
Explain the mandatory attorney’s fees under the DTPA.
A consumer who PREVAILS (not necessary to recover) in a claim under the DTPA is entitled to recover MANDATORY REASONABLE AND NECESSARY ATTORNEY’S FEES.
What other relief can be sought under the DTPA?
A consumer may also be entitled to a broad range of equitable relief like rescission of the transaction OR declaratory relief if appropriate in the circumstances.
Can a consumer waive all remedies under the DTPA?
Unlikely, but yes.A waiver of the DTPA MUST:1) Be in writing;2) Be conspicuous;3) State “I waive my rights under the [DTPA], etc.”;4) Be signed by the consumer;5) Who is in a similar bargaining position with the seller; AND6) Is represented by an attorney.
T/F - Common law defenses are not applicable to DTPA cases (PER / SUB PERF / MERGER).
True.
Are there any complete statutory defenses to the DTPA?
Yes1) Written notice of third-party information - Defendant gives notice to consumer IN WRITING at the time of the transaction that the defendant is relying on third-party information . . . and that will be used as a defense to a later claim that the information was incorrect. DOES NOT APPLY IF DEFENDANT KNEW AT THE TIME THAT THE INFORMATION WAS INCORRECT. Must be done AT THE TIME OF THE TRANSACTION. Must be relying on information from a government agency or other third-party source.2) Rejection of full payment settlement offer - IF the consumer REJECTS a defendant’s offer to pay the consumer all claimed damages and all claimed attorney’s fees WITHIN 30 DAYS OF RECEIVING NOTICE of the consumer’s DTPA claim, the defendant will have no liability under the DTPA.
T/F - A breach of contract is NOT a DTPA violation.
True
Can “as is” contractual language bar a DTPA claim?
Yes, tough to do.Must be:1) Freely negotiated;2) Between similarly sophisticated parties;3) Part of the basis of the bargain (negotiated about);4) In an arms length transaction.Will not have effect if by fraud; seller impaired buyer’s ability to inspect; OR the clause is merely boiler plate in a contract of adhesion.
What is the Statute of Limitations for a DTPA claim? Can it be extended?
TWO YEARS.The statute runs from the date of the deceptive act OR from when the consumer discovered or reasonably should have discovered the wrongfully caused injury.The limitations date may be extended 180 DAYS if the defendant KNOWINGLY INTERFERED in the filing of the suit.
What pre-suit notice is required to bring a DTPA claim?
Notice at least 60 days prior to filing suit. Notice must provide:1) A description in reasonable detail of the consumer’s complaint;2) A dollar amount for damages claimed; AND3) A separate dollar amount of attorney’s fees, if any, incurred.
When must settlement offers be made?
Defendant has 60 days after receiving the DTPA notice to make a qualifying settlement offer. Requirements:1) In writing;2) Offer a dollar amount for damages; AND3) Offer a separate amount for attorney’s fees.
What are the consequences of rejecting a qualified settlement offer?
If the offer is substantially the same as (or more) that actually received at trial, the consumer’s recovery for damages will be limited to the recovery of the LESSER of the two (offer or judgment). Attorney’s fees awarded will be the lesser of the offer or amount accrued up to date.REMEMBER: IF SETTLEMENT OFFER WITHIN 30 DAYS OF NOTICE FOR FULL DAMAGES AND ATTORNEY’S FEES IS REJECTED, THE CONSUMER GETS NOTHING.
What duties are owed by an insurance company to a policy holder?
A duty of good faith and fair dealing.The company has a duty to settle a claim with its policy holder when liability has become REASONABLY CLEAR. Company cannot delay or use other tactics to keep from paying the claim promptly and fairly. CAUSE OF ACTION FOR FAILURE TO DO SO IS CALLED “BAD FAITH.”This duty is NOT OWED TO THIRD-PARTY CLAIMANTS.
What is the Stowers Doctrine?
An insurer has a common-law duty to exercise reasonable care in handling third-party claims against its insured.Failure to do so will make the insurance company liable to its insured for the amount of excess liability that the insured suffers as a result of a judgment in excess of the policy limit.
Who has standing to bring a claim under the Insurance Code Chapter 541?
A “PERSON” including an individual, corporation, an insurance company, or an entity engaged in the business of insurance. DOES NOT CREATE A CAUSE OF ACTION FOR THIRD PARTY CLAIMS.Exam Tip: Plaintiff will almost always qualify as both a consumer under the DTPA and as a person under Chapter 541.
What are the elements to bring a claim under the Insurance Code Chapter 541?
1) The plaintiff is a person;2) Defendant is a person;3) Defendant committed either a Laundry List Violation OR a violation of the Insurance Code Chapter 541;4) The defendant’s violation was a producing cause of;5) ACTUAL DAMAGES TO THE PLAINTIFF.
What are the prohibited acts under Chapter 541? What are the Remedies?
There are several violations and unfair or deceptive acts or practices in the insurance industry. The most commonly seen are:1) Misrepresentation of an insurance policy;2) False advertising regarding the business of insurance;3) Misrepresenting to a claimant a material fact or policy provision relating to the coverage at issue;4) Failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement once liability has become REASONABLY CLEAR; OR5) Refuse to pay a claim without conducting a reasonable investigation.REMEDIES = ACTUAL DAMAGES. Treble damages if intentionally or knowingly in the amount of three times the actual damages.MANDATORY REASONABLE AND NECESSARY ATTORNEY’S FEES.Court has ability to order injunction or rescission.
What is the statute of limitations for a claim under Chapter 541? What notice is required?
TWO YEARS - just like DTPA180 day extension if defendant interferes with the filing.NOTICE - At least 60 days before filing.
Does Chapter 541 allow for defenses for rejected settlement offers?
Not complete defenses like the DTPA, but the same partial defenses as the DTPA. Settlement offer must be made within 60 days of notice.
What does the Insurance Code Chapter 542 say? How does it work?
Provides consumers with a penalty for the insurance company’s failure to promptly pay a claim. It arises from an UNREASONABLE DELAY IN PAYMENT OF AN INSURANCE CLAIM.Insurer has 15 DAYS after receipt of a claim to:1) Acknowledge receipt of the claim;2) Begin investigation of the claim; AND3) Request any information needed in order to make a decision about paying a claim.Within 15 DAYS of receipt of all information and documentation, the insurer MUST ACCEPT OR REJECT the claim.IF ACCEPTED - Payment MUST be made WITHIN 5 DAYS OF ACCEPTANCE OF THE CLAIM.FAILURE TO COMPLY:1) Insurance Penalty: Calculated at a rate of 18% per year on the amount of the claim; AND2) Recovery of REASONABLE AND NECESSARY ATTORNEY’S FEES.This remedy is CUMULATIVE with any recovery for violations of Chapter 541 and of the DTPA.
What is the FDCPA? What is its purpose? Does it preempt state law?
The Fair Debt Collection Practices Act. To eliminate abusive debt collection practices, to promote fair debt collection practices, and to promote state law remedies consistent with these purposes.Preemption - The FDCPA does not preempt state law remedies EXCEPT to the extent that there is a direct conflict with the federal act. There is only direct conflict if state law fails to provide greater protection to the consumer.
Under the FDCPA, what can a consumer bring suit for?
1) Actual damages;2) Civil penalties of up to $1,000 per case in the discretion of the court; AND3) Private remedy for reasonable attorney’s fees.
Who has standing to bring a FDCPA claim?
The FDCPA provides redress to a consumer against any debt collector who violates the standards of conduct for debt collection activities related to a debt.”Consumer” - Any NATURAL PERSON obligated to pay a debt.”Debt” - any obligation of a consumer to pay money arising out of a transaction primarily for PERSONAL, family, or household purposes. BUSINESS DEBTS ARE NOT SUBJECT OF THE FDCPA.”Debt Collector” - Any person who is in business for the principal purpose of collecting debts; OR who regularly collects or attempts to collect debts due or asserted to be owed to another.UNDER THE FDCPA, CREDITORS ARE NOT DEBT COLLECTORS.
Is an attorney a debt collector?
Under the FDCPA, yes if the attorney regularly or attempts to regularly collect debts on behalf of their clients.
What does a debt collector not include under the FDCPA?
1) Creditor itself, or an officer or employee of the creditor;2) Legal process servers;3) A nonprofit debt counseling service;4) A fiduciary; and5) An official of the government acting in an official capacity.
What are the four prohibited practices and mandatory requirements under the FDCPA?
1) Third-Party Communications;2) Mandatory Disclosures;3) Prohibited Acts; AND4) Prohibited false or misleading communications.
How are third-party communications regulated under the FDCPA?
Generally, a debt collector cannot contact a third-party for the purposes of collecting a debt without the consent of the consumer. The debt collector CAN, however, do so for the purposes of FINDING/LOCATING the consumer. In doing so, the debt collector:1) Must properly and truthfully identify himself;2) May not state that the consumer owes a debt;3) May not state that they are a debt collector or that they are doing a debt collection;4) May not communicate by post card; AND5) Once a debt collector knows that the consumer is represented by an attorney, the debt collector may not communicate with anyone other than the attorney.
What are the mandatory disclosures under the FDCPA?
VALIDATION NOTICE: Within 5 days of contact with the consumer, a debt collector must tell the consumer IN WRITING each of the following:1) The amount owed;2) The name of the creditor; AND3) Notice that (a) within 30 days of the receipt of notice, if the consumer disputes the validity of the debt, the collector will verify that debt and provide verification to the consumer, AND (b) if no request for validation is made, the collector will assume the debt to be valid.MINI-MIRANDA WARNING: In the initial communication with the consumer, whether written or oral, the debt collector must inform the consumer:1) That he is attempting to collect a debt;2) Any information collected will be used for that purpose; AND3) In all subsequent communications, the debt collector must remind the consumer that they are acting as a debt collector and the information will be used for debt collection.
What are the prohibited acts under the FDCPA?
The FDCPA prohibits the following acts REGARDLESS of whether they are deceptive or misleading:1) No contact at any inconvenient time or place unless the consumer consents (8am - 9pm is ok / outside of that is per se inconvenient);2) No communications with a consumer represented by attorney, unless the attorney consents;3) No calls to consumer’s place of employment once debt collector knows the employer objects;4) No harassment or abuse, including, but not limited to, threatening or using violence, using profanity, publishing the consumer’s debts as a list to others, OR causing the telephone to ring repeatedly or continuously calling a person.
What are the prohibited false or misleading communications under the FDCPA?
A debt collector may not use any false, deceptive, or misleading representations or means in connection with the collection of any debt, such as:1) Representing that they are a member or acting with governmental authority;2) Misrepresenting the amount or character of any debt;3) Falsely implying the debt collector is an attorney if they are not; and4) Implying that the failure to pay the debt is a crime or that the debtor could be sent to jail.
Are there any defenses to an FDCPA claim?
Bona Fide Error Defense - It is an AFFIRMATIVE DEFENSE to a claim under the FDCPA if the violation was NON INTENTIONAL and that REASONABLE PROCEDURES had been adopted by the collector to ensure the violation would not happen, but it happened despite the procedures.
T/F - There is criminal liability for violating the FDCPA.
False - There is NO CRIMINAL LIABILITY under the FDCPA.
What is the public remedy under the FDCPA?
The FDCPA empowers the FTC to take enforcement action.
Who has standing to bring a claim under the Texas Debt Collection Act (TDCA)?
The TDCA allows any person to sue for violation of the TDCA, which prohibits conduct by BOTH debt collectors AND third-party debt collectors.Third-Party Debt Collector - Same as a debt collector under the FDCPA.Debt Collector - Any person who directly or indirectly is engaged in debt collection. CAN INCLUDE CREDITORS THEMSELVES. THIS HAS BROADER COVERAGE THAT THE FDCPA.ATTORNEY’S REPRESENTING THEIR CLIENTS ARE EXCLUDED FROM THE DEFINITION OF A THIRD-PARTY DEBT COLLECTOR.
What are the prohibited acts and practices under the TDCA?
1) Threats of coercion, violence, or criminal prosecution;2) Harassing telephone calls or other types of abuse;3) Unfair or unconscionable means - charging or collecting interest, fees, or incidental expenses UNLESS it is specifically authorized by the contract that made the basis of the debt;4) Fraudulent misrepresentations and deception.
What are the mandatory disclosures under the TDCA?
In the initial communication, the debt collector must state that they are attempting to collect a debt and that any information will be used for that purpose.In subsequent communications, the debt collector must state that they are a debt collector.
Is there a Bona Fide Error Defense under the TDCA?
Yes, basically the same as the FDCPA.
