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Long ago in law school a bankruptcy professor pointed out to us that, if you exaggerate your income on a credit card application, you might have a problem eliminating that card debt in bankruptcy. The bankruptcy code has a provision prohibiting discharge of debts to the extent they were obtained by use of statement in writing that is materially false, on which the creditor reasonably relied.

I’d be surprised if a credit card company could produce an original credit application from 10 years ago, but in other circumstances an exaggerated statement could seem to last forever, or so it may appear to the debtors in a recent decision. The 9th Circuit Court of Appeal, which governs Federal Courts in California, concluded in May 2009 that, even if the objecting creditor had not relied on the false statements, they could prevent the debt being wiped out in bankruptcy.

The case involved Blue Corporation, a commercial tenant. In signing a 1999 lease with the landlord, two corporate officers submitted personal financial statements and guaranteed the lease. The landlord sold its interest in the lease to Matsco in 2002. Blue Corp subsequently defaulted on the lease, and Matsco obtained a judgment for $193,ooo against the corporation & both officers. Matsco assigned the judgment to Stornawaye. In 2004 Stornawaye assigned the judgment to Blue Falls, and the two officers then filed for bankruptcy.

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A commercial lease in California stated that the premises contained approximately x square feet. It also stated that the parties agreed that it was a reasonable approximation and payments based on the size are not subject to revision if the actual size is found to be different.

The tenant paid rent based on the square footage, and common area maintenance (CAM) charges based on their percentage of the total shopping center square footage. Two years into the term, the tenant obtained a copy of the lessor’s application for earthquake insurance, which disclosed that the tenant’s premises had a smaller square footage than indicated in the lease, and that the shopping center was larger than the lease indicated, which would reduce the percentage of CAM charges the tenant was liable for. The total overcharge for the term of the lease would be $90,000.

The tenant filed suit for misrepresentation and fraud, claiming that prior to entering the lease, the lessor repeatedly affirmed the accuracy of the square footage and actively discouraged confirming measurements; they acted offended at the suggestion! The tenant’s position was that the lessor knew the actual square footage at the time they entered the lease. The trial court ruled for the lessor, finding that the terms of the lease (that the footage was agreed to be reasonable approximation and the rent would not be revised), barred the tenant’s claims.

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Prescriptive easement law evolved from the problems locating property lines in rural areas. Traditional real estate law provided the concept was that, if you used your neighbors land, by running livestock across it, building a road on the neighbors side of the property line, or so other use, the victimized neighbor has five years to do something about it or the trespassing neighbor has established a legal right to continue that use.

Something different happens when the trespasser uses the land in exclusive way, such as by building a structure on it, or fencing it in. Courts are less likely to find establishment of an “exclusive” easement, in which the original owner no longer has rights in the land. By putting a fence five feet over the actual line, the trespasser could establish an exclusive right to use that five feet, even though he does not own the underling land.

The issue is a big problem in residential neighborhoods. It problem starts when a homeowner, for whatever reason, has their property surveyed and discovers that one of their fences is not on the line, but instead is set inside their side, reducing the size of the backyard. Has the trespassing neighbor established a right to keep the fence in its location, enlarging his yard? California courts say no -the concept of an exclusive prescriptive easement “has no application to a simple backyard dispute.” Based on this, the trespasser can be forced to move the fence back across the line.

However, it is common for both neighbors to move in with the fence already in place, and both live in peace ignorant of the problem. Improvements such as drainage, structures, perennial plants or trees may have been installed.
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California Courts have been refusing to enforce arbitration provisions that appear in homebuilder’s contracts.  These provisions often appear in the purchase agreement, home buyer’s warranty application, and even the project’s Declaration of CC&R’s recorded before any houses are sold.  The Courts are finding the provisions to be “unconscionable.”

An unconscionable contract provision has two elements.  First is the element of surprise.  The provision is not negotiated for, but is presented to the buyer as a take-it-or-leave-it decision.  The second element is whether it is one-sided, allocating all the risk to the buyer.  Courts find these arbitration provisions to be one sided because the builder never has cause to sue the buyer after close of escrow, but every claim the home buyer has against the builder will not be discovered until after closing.  Builders who want to avoid a similar fate must ensure their agreements are not unconscionable.

www.JFalconeLaw.com

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When is Saturday a holiday? How to calculate when to exercise an option, give notice, and other deadlines.
California Code of Civil Procedure 10 defines holidays as only Sunday and other days specified elsewhere in the Code.    This must be read in conjunction with Code of Civil Procedure 12a, which states that if the last day for performance of any act  provided by law to be performed within a specified period of time is to be done is a holiday, and then the period of time is extended to the next day that is not a holiday….for purposes of this section, “holiday” means all day on Saturdays…”

A recent California court decision clarified that, because 12a addresses acts “provided by law,”, it does not apply to acts governed by contract provisions.  A contract deadline can fall on a Saturday, but a legal deadline cannot.  A legal deadline is one established by statute or local ordinance.

www.JFalconeLaw.com

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A buyer contracted to buy 10 acres of land subject to a study to determine whether the property could be subdivided.  The contract provided that, during the study period, the buyer, “at its absolute and sole discretion,” could cancel the contract.  The seller cancelled the escrow, and Buyer sued.  The Court found that there was no contract between the parties, only an unenforceable option.  As the buyer had absolute discretion to cancel, it was an option.  But for an option to be enforceable, there must be some consideration- the buyer must have paid something for it.  Here, there was no consideration, so the option was unenforceable.

To avoid this problem, parties must make a choice.  Either the agreement cannot be cancelled on the sole discretion of a party, or there must be some consideration, such as a non-refundable deposit.  If the seller ties up his property for a period of time, he should be paid something for it.

www.JFalconeLaw.com