Anti-Trust and Trade Regulation

Antitrust and the Regulation of Trade in the United States

In the United States, both state and federal statutes seek to protect free trade by prohibiting activities that constitute an unlawful restraint, including price-fixing and the establishment of monopolies.

The Sherman Antitrust Act

The Sherman Antitrust Act was passed in 1890, to combat the use of certain types of trusts by corporations to circumvent state laws prohibiting corporations from owning the stock of other corporations. At that time, large corporations were using these trusts to purchase a controlling interest in their competitors, and then artificially raise prices by limiting supply. The act has two separate sections:

  • A violation of Section One occurs when there is an agreement which unreasonably restrains competition, and which affects interstate commerce
  • A violation of Section Two occurs when a single company has possession of monopoly power in a specific market, and that monopoly power came from willful acts of acquisition, rather than from a superior product, superior business skills, or historical accident.

Certain acts are considered to be “per se” violations of the Sherman Act, meaning that there does not need to be any inquiry into whether or not the action had an effect on the market. Per se violations include horizontal price fixing, horizontal market division, and concerted refusals to deal.

If an act is not per se violation, it may still run afoul of the law under the “rule of reason.” Under this provision, the court will look at the totality of the circumstances involved, seeking to determine whether the practice promotes or interferes with competition.

The Clayton Act

An unfortunate consequence of the Sherman Act was its use by corporations to prohibit any organization by workers. Furthermore, while the Sherman Act prohibited cartels or trusts, it did not preclude mergers. In the wake of the Sherman Act, the United States saw the largest number of mergers in American history, as business owners sought to accomplish through mergers what could not be done through other means.

The key components of the Clayton Act include:

  • A prohibition on price discrimination between different purchasers, if doing so lessens competition
  • A prohibition on certain types of exclusive dealings, or on requiring that buyers also purchase other products, when doing so will lessen competition
  • A prohibition on mergers and acquisitions that will lessen competition
  • A prohibition on any person being a director of two or more competing corporations
  • An exemption for labor unions and agricultural organizations

Renewable Energy Law

Renewable Energy Law

Renewable energy sources, such as hydroelectric, solar, wind and geothermal, have provided an increasing percentage of American energy needs over the last two decades, with those energy sources finally surpassing the production of the U.S. nuclear power energy program in 2011. The Obama administration has made clear its commitment to alternative or renewable energy sources, with President Obama seeking a commitment from the Department of Defense to obtain at least 1,000 megawatts of renewable energy annually.

Federal Renewable Energy Laws

In the Energy Policy Act of 2005, Congress created a federal tax credit for residential property, allowing the credit for solar electric and solar water systems, as well as fuel cells. In 2008, the credits were extended to small wind energy systems and geothermal pumps

State Legislation

In 2011 alone, approximately 1,000 renewable energy related bills were proposed in state legislatures across the country. The acts addressed a wide range of topics, including:

  • Financing of renewable energy projects—the use of loans, bonds and rebates, as well as the creation of financing authorities
  • Tax incentives—Seventeen states enacted laws allowing tax incentives for property owners using solar, wind and other renewable sources of energy, or for economic development that included alternative energy sources.
  • Grants—Illinois, Virginia and Oregon provide grants to fund clean energy projects.
  • Mandatory renewable energy standards—A number of states have required that a specific percentage of future electricity sales come from renewable sources. States have also authorized credits for the use of renewable energy sources.
  • Location and land use—Most states have enacted legislation governing where alternative energy structures may be located on property
  • Ownership rights—In many states, legislatures have passed laws giving alternative energy ownership rights to surface owners of real property. These laws typically prohibit a municipality from placing alternative energy structures on private property without compensating the landowner.
  • Self-generation of electricity—California and Texas have both enacted statutes that allow private property owners to generate their own electricity through alternative means, up to a certain output, without being considered a utility.

Security Agreements and Mortgages

Mortgages and Security Agreements—The Establishment of Collateral

When a lender advances money to the purchaser of residential or commercial real estate, two documents are executed with respect to the repayment of those funds:

  • A promissory note sets forth the terms of repayment—how much interest will be paid, how many years the borrower will take to pay off the loan, and the principal amount being financed. Typically, the payments are “amortized” over a number of years, with the borrower paying the same monthly payment, but with a greater portion of the earlier payments being applied to interest.
  • A mortgage or deed of trust—A mortgage or deed of trust establishes a lien on the real property purchased. The lender holds the lien and has the right to enforce the lien, should the borrower default on the note. In most instances, when the borrower defaults on the note, the lender will have the right to accelerate the loan. If the borrower cannot bring the loan current, and the parties cannot restructure the loan, the mortgage customarily gives the lender the right to foreclose. Foreclosure is a formal legal process that typically ends in a foreclosure sale, where the property is sold at auction and the lender has priority to the proceeds of sale.

The mortgage or deed of trust identifies the borrowers, and provides a legal description of the property, as well as the common street address.

At the closing, the borrower signs the mortgage, which is then recorded in the public land records, so that potential buyers can be put on notice that it exists. Once the note on a home is fully paid, the lender will file a release of mortgage.

A deed of trust accomplishes the same objective as a mortgage, but in a different way. With a mortgage, the purchaser receives a deed, subject to the mortgage. With a deed of trust, the lender holds the deed until the purchaser has made all payments, then conveys the deed to the property owner.

Promissory Notes

The Promissory Note—Your Promise to Pay for Your House

A common mistake among homebuyers is the assumption that the mortgage is the legal obligation to repay the amount financed by the bank or lender. A mortgage establishes a security agreement, pledging your home as collateral for the loan. It’s the promissory note, however, that sets forth the terms of your payment—the interest rate, the number of years, the amount of your down payment, and the principal amount financed. With that information, you can calculate the amount of your monthly payment.

The terms of the promissory note will specify how it is to be repaid. Though promissory notes tied to the purchase of a home, known also as mortgage notes, typically require regular periodic payments for a specified length of time, a promissory note can all be a demand note, such that the lender may demand full repayment under its terms.

The promissory note identifies the parties, the obligations and the contingencies of the repayment agreement. For example, a promissory note will specify what constitutes a late payment, what constitutes default, and what remedies are available in the event of a default. Promissory notes frequently contain an “acceleration “clause, which allows the lender to seek payment of all amounts due if the debtor reaches a certain level of delinquency.

A promissory note to repay an amount financed for the purchase or renovation of a home will not be secured by the property unless the parties enter into a mortgage or security agreement. If you sell property to another person on an installment basis, it is critical that you record the lien or mortgage, so that you are protected if the person attempts to sell the property to a third party.

Water Law

The Ownership, Control and Use of Water as a Resource

In the United States, the regulation and legal control of water rights varies based on the geographic location.

All states east of Texas, with the exception of Mississippi, follow what is known as the riparian doctrine. Riparian law traditionally grants certain ownership rights to anyone whose land has frontage on a body of water. Typical riparian rights include the use of the entire surface of a body of water, under the condition that such use is reasonable and does not interfere improperly with the rights of other riparian owners on the same body of water. It also includes the right to build piers, docks, landings and wharves; and to participate in fishing, boating, hunting and the irrigation of crops. It can also allow the owner the right to consume reasonable amounts of water.

In Texas, Mississippi and all states west (except Hawaii), water law is governed by the prior appropriation doctrine, which gives rights to the first person or entity to put water to a beneficial use.

Water law encompasses a broad range of issues, including:

  • The management of public waters, including rivers, streams, ponds, lakes and wetlands
  • The use and regulation of other surface waters, such as rain, floodwaters or snowmelt
  • Environmental regulation—Control of public health issues, fisheries, flood control and other matters
  • The interaction between public and private rights in water
  • Water projects –Specific state and federal laws address the components of major water projects, including construction, financing, repair and management of drainage, irrigation, navigation, flood control and other projects. Frequently, a state or local jurisdiction will establish a special improvement district with responsibility for a water project. In many instances, the special improvement district obtains initial funding through the federal government, but maintains the project through local taxes or assessments.
  • The implications of treaties with Native American tribes

Oil, Gas and Minerals

Your Right to Oil, Gas or Minerals under Your Land

If you own the mineral rights under your land, you can extract oil, natural gas, coal or any other substance found there. However, in the United States, you can transfer the mineral rights to property separately from the property rights. Before you drill or dig, you need to look at the deed of conveyance when you purchased the property, or you may have to look at prior deeds to see what rights prior owners had. A longstanding property rule holds that a seller cannot convey a greater interest that he or she holds. If a prior owner gave away mineral rights, you will have no right to them, short of obtaining them from the rightful owner.

The ownership of mineral rights is known as the “mineral estate” of the land. Typically, it includes all organic and inorganic matter that is part of the soil, with some notable exceptions: sand, subsurface water, gravel and limestone are typically excluded.

Mineral rights automatically pass with the conveyance of land, unless the deed of conveyance specifically denotes otherwise. Because land and mineral rights can be separated, you can transfer mineral rights to one person and land to another, or you can transfer one set of rights and keep the other.

The rights commonly associated with a mineral estate include:

  • The right to pass on those rights to another
  • The right to receive royalties for the exploitation of those minerals
  • The right to use as much of the land surface as is reasonably required to exploit the minerals
  • The right to receive payment to delay production or extraction of minerals
  • The right to receive bonus consideration

As the owner of the mineral estate, you can convey any of these rights separately. In addition, you can sell or transfer some mineral rights, but retain others.

The Challenges that Come with Exploiting Your Mineral Rights

In most situations, it doesn’t matter who owns the mineral rights, as it may be cost prohibitive to get the minerals out of the ground. Furthermore, if you have the resources to do so, you must do so without damaging or interfering with the use of any homes or property around you. State or local laws may also regulate the extent to which a mineral extraction operation can affect the environment.

Title Insurance and Closings

The Real Estate Closing

Real estate transactions involve a substantial amount of documentation and paperwork, including a fairly lengthy list of documents that must be signed by one or both of the parties. Once the attorneys and real estate professionals have ensured that all inspections and other due diligence have been completed, it is customary to schedule a time where the parties can get together and execute all the required documents. This is called the “closing.”

While most closings are conducted with both parties present at the same time, there is no legal requirement that this occur. Frequently, the parties will meet at the office of a real estate professional, either an agent or broker, or a title officer. Often, the party handling the closing will shuttle the parties in and out of a conference room, obtaining all required signatures from each party separately. Furthermore, even though the documents will be signed, title won’t technically pass until it is recorded, and the parties can agree to the transfer of possession at any time.

What Documents are Typically Part of a Closing?

You can expect to be asked to review and sign the following documents at a closing:

  • The deed of conveyance—This document legally transfers ownership of real property. The common types of deeds are warranty deeds, grant deeds and quitclaim deeds.
  • The bill of sale—This document identifies what is being transferred, as well as the amount being paid.
  • Any transfer tax declarations—Most municipalities charge a real property transfer tax on the sale of real estate.
  • An affidavit of title—This document warrants that the seller has clear title, or describes any known defects in the title.

As part of a closing, the closing agent will customarily prepare a closing statement. This document outlines how all expenses will be allocated as a part of the sale, including closing costs, taxes, interest points and other amounts.

What is Title Insurance and Why Do You Need It?

A policy of title insurance warrants that the seller of real estate has clear title, or provides compensation to the buyer in the event there are unknown or hidden defects or clouds on the title. Title insurance is typically applied for through the escrow or closing agent.

A policy of title insurance will protect the buyer from all potential contingencies that could compromise free and clear ownership. Some common examples include:

  • Purchasing property from a supposedly single person whose divorce is not yet final
  • Purchasing property from someone who received the real estate under the terms of an invalid will
  • Purchasing property that is subject to a tax lien, a contractor’s lien or child support/spousal support liens

Construction Contracts

What to Look for in a Construction Contract

If you are planning to build a home, or hire someone to remodel your existing home, it is in your best interests to sign a written agreement with the contractor. In the absence of such a contract, it will be difficult to protect your rights in situations where the contractor’s actions are not clearly negligent or careless.

The Provisions You Want to Include in a Construction Contract

Make certain that the contract includes the following:

  • A complete record of the general contractor’s business information, including name, address, phone number, e-mail address and license number
  • A thorough description of the project—the contract should identify all work to be done, and should include specifications of materials to be used. It should also confirm that the contractor will obtain the necessary permits.
  • The total price and payment schedule for the project—make certain the contract specifies how much has to be paid up front, and when installment payments are due. Include any required inspection approvals.
  • Work schedule-Be clear about when the project will start and an approximate end date. Also identify whether work will be done in the evening, on weekends or on holidays.
  • Protect yourself against potential liens—If the general contractor or a subcontractor obtains supplies from a vendor, uses them on your project, but then does not pay for them, you could be subject to a mechanic’s or materialman’s lien. If the amount is substantial, the creditor could force the sale of your home. There are ways to avoid this:
    • require that the contract secure a “payment bond.”
    • make checks payable to the contractor and subcontractor jointly
    • require that the general contractor get a release of all liens before you make final payment
    • include a retention of funds provision, essentially a set-aside to cover potential liens.
  • Warranties—Make certain that all parties—contractors, subcontractors, vendors and suppliers—provide reasonable warranties on materials and labor
  • Special instructions—If there’s anything out of the ordinary in the project, put it in writing

Your Right to Cancel a Construction Contract

Under federal law, if you signed the contract in your own home, or at some place other than the general contractor’s place of business, you may cancel the agreement for any reason within three days.

Be careful to note whether the agreement requires binding arbitration. These clauses are standard in most construction clauses. If you sign, you relinquish your right to take your case to court.

Transfer of Ownership

The Ways that Real Property Ownership is Legally Transferred

Real estate is legally transferred through the use of a deed. A deed identifies the party transferring interest and the party acquiring interest, as well as a legal description of the property. It also identifies the type of ownership interest that is being transferred.

The Common Types of Deeds

The most desirable form of deed of conveyance is known as a warranty deed. A warranty deed expressly promises or guarantees that the seller has clear title—that there are no known liens or encumbrances held by any other party. Accordingly, the seller also acknowledges that, should any “clouds” appear on the title—unknown liens or ownership interests—the seller will compensate the buyer for loss of value. Warranty deeds also include a number of other promises by the seller.

A grant deed passes title and interests, but does not expressly warrant that there are no liens or encumbrances. Generally, it promises that the property has not already been transferred to another person, and that the only known liens and encumbrances are in the deed.

When there are liens or encumbrances—clouds on title—a seller may still transfer ownership, but the buyer will take the property with the liens and encumbrances still on the property. In these situations, it is typical for the seller to execute a quitclaim deed. The quitclaim deed includes no implied or express covenants of title/ownership, but only passes that interest currently held by the seller. Quitclaim deeds are often used within families to pass property from generation to generation.

Transferring Ownership without a Deed

If you are named on a deed as a “joint tenant,” i.e., if you own real property jointly, when one of the parties dies, all other joint tenants become the sole owners. A deed is not required to legally pass ownership interest of property held as joint tenants when one of the joint tenants dies.

If, however, you own property with another person as “tenants in common,” you may pass the property to your heirs upon your death.

The way to take property as joint tenants or as tenants in common is to specify that type of ownership in your deed. In most states, if you don’t specify that property is held in a joint tenancy, it is held as tenants in common.

Powers of Attorney

The Uses of a Power of Attorney

Even if you are in good health, there may come a time when, for a variety of reasons, you may not be able to make your own decisions regarding health issues, medical treatment, financial concerns or legal matters. With a power of attorney, you can specify who will have the authority to act on your behalf in those situations where you cannot. Without a valid power of attorney, if you need someone to manage your affairs because you lack capacity, you will need a court order appointing a conservator.

The Different Types of Powers of Attorney

Powers of attorney may be limited or general. For example, a power of attorney may only grant another person the authority to make medical decisions on your behalf, or to handle certain aspects of your finances. A general power of attorney, though, typically gives the named person the legal right to make decisions that affect all aspects of your life.

Most powers of attorney are what are known as “durable powers of attorney.” The durable power of attorney remains in effect (in fact, often only goes into effect) if you become incapacitated. A non-durable power of attorney automatically terminates when you are determined to be incapacitated.

Additionally, most powers of attorney are what are technically called “springing” powers of attorney. This means that they only become effective—spring into action, so to speak—if you are declared incompetent by a doctor or psychiatrist. As long as you remain healthy, you continue to exercise control over all your business and personal issues.

When You Want to Put a Power of Attorney in Place

Because you can seldom predict when you might become incapacitated, it is good practice to have a durable, springing power of attorney in place at all times. If, however, you are about to undergo a medical procedure, or have other reason to believe that you will lack capacity, you can prepare and execute a power of attorney that goes into effect immediately. In addition, the use of a power of attorney is not limited to times of health or capacity issues. If you plan to be out of the country, and inaccessible during a key stage in a business or legal matter, you can designate another person to make your decisions for you while you are gone.