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Promissory Notes: A Texas Commercial Paper Primer

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Welcome to Scutt Law, PLLC’s primer on promissory notes made in Texas. First, what is a promissory note? A promissory note is a signed paper promising to pay another a certain sum of money. In order to be legitimate and acceptable as a proper promissory note, the writing MUST contain the following elements:

1. UNCONDITIONAL: There cannot be any conditions to payment. For instance, “I promise to pay if it rains on June 15th.” That statement makes the payment conditional on rain on June 15th.

2. PROMISE OR ORDER TO PAY: There must be a written undertaking to pay money that is signed by the person undertaking to pay. For example, “I, John Doe, promise to pay to the order of Jane Doe one thousand dollars.”

3. TO PAY A FIXED AMOUNT OF MONEY: The principal amount due under the promissory note must be fixed. The amount of interest due does not need to be fixed. However, the interest rate must not be unconscionable, or it may violate the Texas Usury Laws, which are state laws that specify the maximum interest rate that can be charged before it becomes unlawful.

4. PAYABLE TO ORDER OR BEARER: The promissory note must be payable to order or to bearer. For instance, “Pay to the order of Jane Doe,” or “I promise to pay to the order of bearer”. A bearer is any person who may present the note to the person who made it (“the maker”) for payment.

5. PAYABLE ON DEMAND OR AT A DEFINITE TIME: The note is payable on demand if it states that it is payable “on demand” or “at sight”, or if it does not state a time for payment. This means that it is payable at the will of the holder of the note. The note is payable at a definite time if it specifies a specific date for payment, or if it states a specific period of time after sight, such as “120 days after presentment for payment”. However, as addressed above, made sure that there are no conditions on payment.

6. DOES NOT STATE ANY UNAUTHORIZED UNDERTAKING OR INSTRUCTIONS: Finally, the Texas Business & Commerce Code states that a promissory note must not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

Who uses promissory notes? Banks often use them, and people use them in day-to-day transactions (such as when family members or friends loan money to one another that must be repaid). Promissory notes can even be used in Texas as capital contributions to Limited Liability Companies (“LLC”s) by LLC members.

Why must a promissory note contain the elements describe above? Because it is then what is called a “negotiable instrument”. A negotiable instrument allows the holder to transfer that instrument (here, a promissory note) in the same way that cash can be transferred. Therefore, if it is “negotiable”, and adheres strictly to the elements listed above, a promissory is a very useful and powerful instrument. This is because it is a safe and convenient substitute for cash in certain situations.

How is a promissory note a substitute for cash? If the note is transferred to another holder in a special way (if it is “negotiated”), the new holder can enforce the note against the maker of the note, and in that way, it is like cash. The process of negotiation is a topic for another primer, but it is important to understand how a promissory note can become a negotiable instrument in the first place.

If you are interested in having a promissory note drafted, or if you have concerns involving one that has already been executed, you should contact an attorney for advice about your specific situation. It is important to consult an attorney to make sure your rights are protected.

 

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

¡Viva Chipotle!

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We are Chipotle-bound here at Scutt Law, PLLC this afternoon! We want to give a shout-out to Chipotle Mexican Grill located at 438 NW Loop 410 here in San Antonio. Scutt Law, PLLC won a free meal for four of our employees at Chipotle, compliments of their monthly business card drawing at the restaurant. What a great way to give back to the local business community!

So, please patronize your local Chipotle Mexican Grill! Besides the fact that they never fail to serve up wonderful, fresh burritos and burrito bowls, they also have some of the best guacamole around, and they really do strive to take care of their patrons. ¡Viva Chipotle!

CAVEAT EMPTOR: BEWARE AND BE AWARE!

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Scutt Law, PLLC’s Consumer Awareness Series, Topic Number One

CARCINOGENS IN YOUR CHILD’S PLAY SAND AND CALIFORNIA’S PROPOSITION 65 WARNING LABELS

Scutt Law, PLLC’s CAVEAT EMPTOR (which means “buyer beware” in Latin) topic this week examines the dangers of play sand. Play sand is used in children’s sand boxes, and can be purchased at your local home improvement store or big box retailer. Many companies are adding the now all too familiar labels to their bags of play sand that read, “Warning: this product contains chemicals known in the State of California to cause cancer.” Not exactly something you want your child to be playing with on a daily basis, right?

First, why are these ominous California warning labels popping up all over our products that are located in Texas, and in other states outside of The Golden State? According to California’s Office of Environmental Health Hazard Assessment (“OEHHA”) website, Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of 1986, was enacted as a ballot initiative in November 1986. The Proposition was intended by its authors to protect California citizens and the State’s drinking water sources from chemicals known to cause cancer, birth defects or other reproductive harm, and to inform citizens about exposures to such chemicals. Proposition 65 requires the Governor to publish, at least annually, a list of chemicals known in the state to cause cancer or reproductive toxicity.

OEHHA does state on its website that, “the fact that a product bears a Proposition 65 warning does not mean by itself that the product is unsafe. For additional information about the product, contact the product manufacturer.” In other words, you can think of Prop 65 more as a “right to know” law than a pure product safety law. It allows consumers and their families to decide on their own if they want to purchase and/or use a product.

So, why are consumers in states other than California seeing the warning labels on products? Probably because big box retailers and home improvement stores sell items such as play sand in California and in other states, and/or because the product’s manufacturer is located in the State of California.

Why is play sand considered carcinogenic? Because most play sand sold today in retail and home improvement stores is not made of the same type of sand you and I used to play in as kids. It is manufactured from crystalline silica (a.k.a. quartz). Unlike natural sand that you would find on the beach, which has been “tumbled” by the wind, air and water, sand that is manufactured from quartz has sharp edges that can become embedded in lungs if it is inhaled.

Crystalline silica is considered hazardous under the OSHA Hazard Communications Standard (29 CFR 1910.1200). The material safety data sheet (MSDS) that accompanies play sand from a leading manufacturer lists the potential health effects from inhalation of the sand. Some of these health effects include:

1. Silicosis: Respirable crystalline silica (quartz) can cause silicosis, a fibrosis (scarring) of the lungs. Silicosis may be progressive; it may lead to disability and death;

2. Lung Cancer: Crystalline silica (quartz) inhaled from occupational sources is classified as carcinogenic to humans;

3. Tuberculosis: Silicosis increases the risk of tuberculosis;

4. Autoimmune and Chronic Kidney Diseases: Some studies show excess numbers of cases of scleroderma, connective tissue disorders, lupus, rheumatoid arthritis, chronic kidney diseases and end-stage kidney disease in workers exposed to respirable crystalline silica; and

5. Non-Malignant Respiratory Diseases (other than silicosis): Some studies show an increased incidence in chronic bronchitis and emphysema in workers exposed to respirable crystalline silica.

It is more than a little disconcerting that consumers are expected to allow their children to play in this product every day. Although it could be argued that the health problems listed above stem mostly from inhaled quartz, such as from sandblasting and other industrial or occupational uses, consumers do need to be aware of the contents of the products they purchase.

This is the first installment in the ongoing series “Caveat Emptor” by Scutt Law, PLLC. We strive to bring consumers up-to-date and relevant information about consumer products and issues in order to help each “buyer beware” on his or her own terms. UNTIL NEXT TIME, BEWARE AND BE AWARE!

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

Hollywood gets it!

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Aha! Hollywood gets it…make sure that you do, too!

What is the real moral of the movie “The Social Network”? That you should always have an attorney review any contract you sign before you sign it. You will not regret it.

Congratulations to “The Social Network” for its Academy Award nomination for best picture, and of course, to all of the other nominees, as well. Scutt Law, PLLC enjoyed the Oscars this evening-what an amazing pool of movies there were to choose from this year!

A primer on consideration and the law of contracts

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In order for a contract to be legally enforceable, there must be some sort of legitimate consideration. What is “consideration”? Consideration is a bargained-for change in legal position between the parties. Basically, two elements must be present for a valid contract to exist. First, there must be a bargained-for exchange between the parties. And second, that which is bargained for must have legal value (it must be a detriment to the person to whom the promise is made, and should constitute a benefit to the person who makes the promise). Substitute doctrines may permit the enforcement of an agreement without consideration, but those are outside of the scope of this primer. An example of the elements of consideration may help with the concept:

Robert promises to sell his car to Jeffrey for $5,000 in exchange for Jeffrey’s promise to pay $5,000. Both elements of consideration (a detriment and a benefit) are found here. Robert’s promise was bargained for, and it induced a detriment to Jeffrey. Jeffrey’s detriment induced Robert to make the promise. Also, both parties suffered detriments. The detriment to Robert was the transfer of ownership of the car, and the detriment to Jeffrey was the payment of $5,000 to Robert.

Unless the promise induces a detriment and the detriment induces the promise, there is no “bargained-for exchange”.

Additionally, if either of the parties intended to make a gift, he or she was not bargaining for consideration. Also, “past consideration” is generally not sufficient consideration. For instance, if something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement. Here is an example of past consideration:

Jennifer was about to be struck by a speeding car. Eva pushed her out of the car’s path, just in time to save her from being struck. However, Eva was herself struck by the car and was seriously injured. Jennifer later promised Eva that she would pay her $1,000 per month for life. There is no consideration because Eva did not bargain for Jennifer’s promise.

It should be noted here that there is substantial disagreement with this general rule, and therefore many exceptions exist to past consideration issues. However, it is important to be aware that past consideration can influence the legal sufficiency of a contract.

These are just a few things to consider when determining the validity of a contract. If you are contemplating entering into a contract, or if you would like to have an existing contract reviewed, you should contact a licensed attorney to determine the best course of action, or to preserve your legal rights.

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

Scutt Law, PLLC moves to The Alamo City!

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Scutt Law, PLLC is in the process of relocating to beautiful San Antonio, Texas! We are so excited, and are looking forward to a happy and prosperous new year in the Alamo City. Check back for updates and observations about our new home, and please bear with us as we settle in. We can always be reached via telephone at (512) 590-9903, and also via e mail at jessica@scuttlaw.com (and, of course, through the contact page of this website, as well!). Thank you to all of our Austin clients for making our time in Austin absolutely amazing, we are glad that we will only be about an hour or so away from you after the move. See you in San Antonio!

Good to know: Special warranty deeds

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Special warranty deeds are cropping up more and more in the current real estate market. In Texas, a special warranty deed gives less protection to a home purchaser than a general warranty deed, but more protection than a quitclaim deed. Each of these types of deeds mean something very different for the buyer.

A “general warranty deed” is the typical deed used in Texas in a real estate transaction. This deed gives the most protection to the purchaser. Why? Because when a seller makes a general warranty, the seller covenants with the buyer that not only has the seller not personally done anything to adversely affect the title being conveyed, but neither has anyone else who has ever owned the property. Therefore, if there is a defect in title, the purchaser has a cause of action against the seller, and a purchaser who has conveyed defective title under a general warranty deed will be liable to the buyer under this type of deed.

A “special warranty deed” is being used more frequently in the current real estate market where homes are being foreclosed on by banks and bought up by investors who “turn and burn” properties. This type of deed affords the buyer less remedies against the seller, because the seller is only warranting that the seller has not personally done anything to adversely affect the title being conveyed. This leaves the buyer with essentially no remedy against the seller in the case of a defect in title (unless, of course, the seller did something that caused a defect in title). The warranty limits claims to those claimed by the the seller (the current grantor) against previous grantors, and does not give the buyer a right to claims against the seller, as with a general warranty deed. This could lead to insurmountable hurdles in order to cure defects in title, since the person selling the property may or may not (depending on the type of title they hold) have a claim against prior owners for defects in title, and leaves the current buyer with few or no claims against the current seller.

A “quitclaim deed” affords very little protection to the purchaser. It is only a transfer of whatever interest the grantor (seller) has. Therefore, if the seller holds defective title, the buyer now holds defective title and has no claim against the seller. The buyer would then need to go back in time to the last party that sold the property under a general warranty deed in order to obtain relief for defective title. This affords essentially no protection to the buyer.

In the current real estate market, special warranty deeds are appearing quite a bit. If you are considering purchasing a home and the seller attempts to give you a special warranty deed, think twice. If you are prepared to move forward on a real estate purchase that affords you no remedy against the current seller, at least be sure to include that consideration in your negotiations with the seller. Most importantly, make sure that any contract you sign is reviewed by a competent attorney to make sure that your rights are protected. For most people, the purchase of a home is the largest investment they will ever make, and it is best to make sure it is done right.

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

The beauty of the Series LLC

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Thinking about forming an LLC? Consider forming a Texas series LLC. Texas is one of only eight states that offers this, and it is a wonderful tool that prevents the need for the formation of multiple LLC’s. It is especially handy if you are interested in holding different types of properties.

For instance, instead of having to form an LLC for each property, with a series LLC, you can hold each property distinctly separate from each other in one LLC. So, let’s say your LLC is called “My, LLC.” You may then hold property #1 in “My, LLC, A,” property #2 in “My, LLC, B,” property #3 in “My, LLC, C.” and so on. This allows the liabilities of each property to remain insulated from the others, so if one property were to go into foreclosure, the other properties would be protected. If all of the properties were instead held under one LLC, that foreclosure would affect the other properties, even if they were successful in their own right. Alternatively, using the series LLC prevents the headache of having to form an LLC for each property.

Series LLC’s are a great tool provided by the Texas Legislature, and they are worth a look if you are considering forming an LLC. Remember, you should always get advice from both a tax professional and an attorney prior to forming any business to determine the tax implications, and to select the correct form of business for your needs.

*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

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