Go Ahead, Just Slap On Some Extra Words!

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Is it masochistic to want to read court decisions? Given that most of society frowns upon masochists, it’s probably good that very few of us who create transaction documents actually read any such decisions. [That’s sarcasm.] It seems to us that what we do is engage in some “on the job training,” but mostly we rely on the wisdom of our ancestors – those who wrote the documents we use as templates. If today’s blog posting were a sermon then, fortunately, we’d be preaching to the choir. You, our readers, by being such and, almost certainly, by your reading of more erudite materials than these postings, are, unfortunately, the exception in our chosen field. Today, Ruminations salutes you.

We’re not sure why we felt compelled to express those thoughts today. Perhaps it is because we were thinking about the mix of topics in our blog postings and why we use court decisions as to the central focus for about two-thirds of those postings. Our conclusion was that we learn more from mistakes than successes. In general, it is often difficult to find a mistake, and in our own work, very much more so. [That’s not necessarily because our own work, and we’re talking “collectively,” couldn’t be “better.” It’s just that we don’t see errors in it where others do.] Almost all court decisions point out mistakes people have made. Reading such decisions is how we learn. [Read more…]

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Who Knew Purchase Options Could Be So Complicated?

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We don’t know if there are more ways to write a purchase option in a lease “wrong” than right,” but we do know opportunities abound. Here are a couple of examples. The first is based on a statement of California law within a court opinion from March of 2018. [See it by clicking: HERE.] Basically, that court lifted text from earlier cases, each of which is pretty stark. Here they are:

Where an option to purchase exists within a lease agreement, the exercise of the option to purchase causes the lease and its incorporated option agreement to cease to exist, and, instead, “a binding contract o[f] purchase and sale c[omes] into existence between the parties.”

[W]hen defendant exercised the option granted her to purchase the property by making the first payment of $500 thereunder, the lease and option agreement no longer existed and a binding contract of purchase and sale came into existence between the parties.

Further, a consequence of the termination of the lease agreement is that the former lessee’s obligation to pay rent under the lease also terminates, unless there is an express stipulation that requires continued rent payments after the exercise of the purchase option.

Where the relation of landlord and tenant exists under the terms of a written lease, containing an option to purchase which the lessee exercises, [and it is exercised,] he is no longer in possession as a tenant, but his possession is that of a vendee.

[Read more…]

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Consent Expressly Given – A New Look

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Sometimes a party has the right to withhold its consent when the other party requires that party’s consent. And, sometimes the right to deny consent is desired to be absolute and unconditional. In such cases, and for a very long time, Ruminations has been using a formulation saying that such consent “may be withheld for any reason or no reason at all.” We just read a June 28, 2019 Supreme Court of Texas decision possibly chastising us for wasting those words. After analyzing a contract provision stating simply that a party could not assign its rights “without the express written consent” of the other, that court wrote that the added words, “for any reason or no reason,” were surplusage. As that court wrote, consent-required provisions with or without the extra words have identical meaning. Accordingly, “the same can be said” as to a provision reading that consent “can be granted or withheld at [a party’s] sole discretion.”

Before every reader starts searching for an eraser to take to their form agreements, there is a caveat. This decision came out of the state of Texas. That’s not going to be the law in every jurisdiction. Also, it was based on the premise that a provision, in an oil and gas “farm-out” agreement saying that one a party could not assign its interest without the other’s consent, is “unambiguous.” [Viewing Wikipedia would tell you that “a farmout agreement is an agreement entered into by the owner of one or more mineral leases, called the ‘farmor,’ and another company who wishes to obtain a percentage of ownership of that lease or leases in exchange for providing services, called the ‘farmee.’”] When a court decides that an agreement’s provision is not ambiguous, it refuses to look outside of the agreement itself to aid in interpreting that provision. It accepts the “plain meaning” of the words. At most, it will refer to a dictionary of its own choice, sometimes, as Ruminations, has noted, one with a definition that supports an already decided conclusion. What a court won’t do is to look at prior discussions or negotiations to aid interpretation. [Read more…]

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What Is A “Reasonable Time”?

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What is a “reasonable time” for something to happen or to get done? Do we ask this question of ourselves when we use that phraseology in our leases and other agreements? We can’t avoid using concepts such as “reasonable,” “material,” “promptly,” and the like, but are we being as careful as we should be when sprinkling them around?

There are good reasons to use what Ruminations has called “weasel words” or “deliberate ambiguity.” [For earlier thoughts on this subject, click: HERE.] Basically, we don’t always know how long something should or will take, even when diligence is observed and proper efforts (whatever those are) are employed. After all, we may know that the time for something to happen may be affected by adverse weather, but we don’t know whether there will be any such weather. We might know that a particular repair, say a roof replacement, might take 30 days from beginning to end in the summer, but not how long it might take in a winter season five years hence. So, we use “reasonable” when setting a time limit for such work to take place. [Read more…]

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Are Waivers Enforceable?

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Are waivers enforceable? It depends. How unsatisfying is that answer? Generally speaking, absent duress or coercion, parties can waive what would otherwise be their right. How does one know if there is (was) coercion? Well, some situations, such as an actual gun to the head, are easy to identify. Others are not so simple. When it comes to agreements between commercial parties, there is a presumption that they are grown-ups, able to protect their own interests. The “bigger” they are, the less likely a cry of “coercion” will rule the day. Representation by an attorney will dull a party’s claim that it was improperly forced to agree to a waiver (or other contract terms). When courts reject a party’s plea that it was coerced, you’ll often see the “deal” as having been between “sophisticated parties that negotiated at arm’s length with apparent care and specificity, and represented by competent counsel.” All of those factors concern themselves with the character of the parties and how they arrived at their agreement. [Read more…]

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You Need To Know French To Choose Applicable Law For Your Agreement

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Today, we begin with a French lesson. The French word, “renvoi,” means “to return,” in the sense of “sending back.” In law, “Renvoi” is a doctrine, and what follows is why you’ll be pleased to know that.

Last week, we tackled the humdrum, excitement-lacking “boilerplate” of specifying, in a lease or other agreement, an exclusive venue for litigation. What we didn’t even hint at was that just because the parties are obligated to duke it out in a particular jurisdiction doesn’t mean that the law of that jurisdiction will apply to their fight. Often, but not always, parties are free to specify which jurisdiction’s (state’s) law will govern their dispute. As to the location (venue) for the match, though some states will allow contracting parties with no connection to those jurisdictions to avail themselves of that state’s courts, most still require the parties or the subject matter of the dispute to at least “touch” their state. For example, if a loan is made in State X on a property in State Y, but the lender or borrower is in State “Z,” it is likely that each of those three states would allow its courts to hear the dispute. But, which state’s law would apply? A less than comprehensive list of the factors a court will use in deciding to apply the law of a jurisdiction other than its own would be: the parties’ intent, their domiciles, where the lease or other agreement was executed, and where the property is located. In the case of “property,” a secondary analysis is made as to whether the property is primary or secondary to the agreement in front of the court. For example, a personal guaranty of a mortgage loan may only have an attenuated relationship to the property serving as collateral for the loan and the parties are able to call for jurisdiction where either the borrower or lender “resides.” It could also be, but isn’t required to be, where the property is located. [A separate issue is whether a party or either party can be served in other than its “home” state, but we’ll leave that for another day (if ever)]. [Read more…]

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Exclusive Use Rights: Common Language Knowledge May Not Work

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We doubt that our next paragraph, let alone the rest of today’s blog posting, will make much sense to readers who haven’t seen last week’s posting. So, if that means you, we suggest you click: HERE.

After receiving a number of “off-line” comments from readers, we took a look at the various types of rice in our pantry and found the following: Carnaroli, Jasmin, Wild Rice, Arborio, California Sushi, Basmati Light Brown, Brown Jasmin, Extra Long Grain Rice, Brown Rice, and a Rice Blend (something that offers the look of much more expensive Wild Rice, but, with some white rice in the blend, is not as expensive). Who knew? Yes, to the eye some of these types clearly are “white”; some are not; some are “different minds will differ.” Thus, an expert organoleptically examining our pantry’s selection, would call some versions “white” and call others “brown.” But, when these, other than Long Grain White Rice and the straightforward Brown Rice, were offered for sale, the merchants wanted them to be seen as something other than “white” or “brown” rice. Those two boring descriptions imply “commodity” rice. Carnaroli Rice, which by the way we highly recommend over Arborio rice, for preparing risotto, costs the consumer more even though its production costs might not support that “bump.” [Read more…]

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When It Comes To Tenant Exclusives, Forget What You Think You Know

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Ruminations has always had an interest in understanding the “why” of things. That includes understanding why we do certain things certain ways and especially how we can get led astray. We double down when it comes to the subject of exclusive uses. That’s why a July 5, 2018 decision out of the Superior Court of Rhode Island caught our interest. The original lawsuit was filed in 2005 and the dispute, one that started no later than in 2000, had already made two trips to the Rhode Island Supreme Court. Here’s the opening line from the 2018 decision, one that will probably intrigue readers: “Before this Court is the sticky question of which competing food-court vendors had the right to sell certain oriental foods – primarily various types of rice – at the [subject shopping center].” As long as we are quoting the Court, we’ll let you know that it characterized the case before it (for over 15 years) as a “saga.” Similarly, today’s posting will be a “saga,” and will conclude next week when we’ll reveal our pithy “take-aways.” [Read more…]

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