Analisis for successful lawsuit report
Per your request, our legal team, courtesy of Legal Eagles, LLP, wishes to advise you regarding your tentative legal action against Mechanics National Bank (“National Bank”). As you alleged, National Bank was negligent in their failure to remove a lien on your Lagoon Beach property. Our legal team has assessed this and other concerns of your case. Outlined throughout this correspondence are conclusions we have made and recommendations we wish you
Before we proceed, we thank you for your trust and assure you nothing less than our highest-quality work.
You have expressed to us your interest in recovering compensation for a failed entrepreneurial endeavor involving a hotel property, Hotel California. You also informed us that your acquisition of this property was dependent upon your securing financing through pledging a property you currently own as collateral. In a brief analysis of the facts of your case, we find you may successfully prove liability on the part of National Bank; however, this conclusion is not without concerns, particularly regarding your contract with the owner of Hotel California. This concern and other considerations for your case are also discussed in this correspondence.
Our notes of the essential facts of your case indicate the following: You sought the acquisition of an existing hotel property located in Palm Desert, Green. You contacted the hotel’s listing agent, Mr. Babak Gordon, and obtained preliminary data on the property, including financial statements of the hotel which you have provided us. On January 5, 2005, the hotel owner, Ms. Shirley Ramirez, Mr. Gordon, and you had a preliminary discussion regarding the purchase and sale of Hotel California. Ms. Ramirez offered to you by phone this property for $4.3 million, excluding the furniture, and the sale was to conclude following a 45 day escrow. On January 6, 2005, you faxed Ms. Ramirez a signed letter both indicating your acceptance of her offer and your preference that the transaction close following a 60 day escrow. Although you never received a reply or confirmation from Ms. Ramirez, on January 30, 2005, you obtained a financing commitment from Bank of the West. Their conditions were that the bank would obtain a first priority lien on the hotel property along with an unrelated undeveloped parcel of land owned by you in Lagoon Beach, Green. As you have shared with us, you acquired this land in 1984 and had managed to pay off its mortgage on November 1, 2004. However, National Bank failed to remove its lien on the property. You vigorously attempted to get National Bank to remove its lien
on this property. You contacted bank officers and explained to them that the lien needed to be removed so that you could pledge the property as collateral and finance your purchase of Hotel California. Because National Bank did not remove this lien, you were unable to finance the acquisition of Hotel California. You later bought a hotel property “similarly situated” and “virtually identical” to Hotel California for $4.7 million dollars.
From our analysis, we find as reasonable your decision to consider pursuing legal action against National Bank for damages. You have cited National Bank as negligent for failing to follow instructions regarding the removal of a lien from the title of your Lagoon Beach property. If you proceed further to trial, a court of law will try, whether by failing to remove its lien on your Lagoon Beach property, National Bank committed the tort of negligence.
Because our analysis has also raised concerns regarding your contract with the owner of Hotel California, Ms. Shirley Ramirez, we must also inform you of a second issue a court of law is likely to try. If you proceed further to trial, a court of law will try whether a legally binding, enforceable contract exists (or existed) between Ms. Ramirez and you. Keep in mind that your legal action for damages may be predicated on whether there was a contract.
In addition to listing our conclusions, recommendations, and concerns throughout this correspondence, you will find that we have analyzed the likelihood for success of your legal action against National Bank. You have expressed your desire to recover damages for your lost opportunity involving the Hotel California property. For your convenience, a complete and careful analysis has been conducted and detailed throughout this correspondence. GROUNDS OF LIABILITY
You have alleged that National Bank was negligent, and you intend to recover damages from National Bank. You will have the burden of proving the prima facie case for the tort of negligence. You must cite evidence and present
arguments that support your allegation of National Bank’s negligence. To successfully fulfill your burden you must show that:
* Duty: The defendant (National Bank) owed you (plaintiff) a duty of due care. * Breach of Duty: Defendant’s conduct breached that duty. * Actual and Proximate Cause: Actual and proximate causation between defendant’s breach and your (plaintiff’s) injury was present. * Injury: Injured party (you) sustained injury due to defendant’s actions.
If you fail to prove these elements, National Bank’s legal team may motion to dismiss your case. In this event, it is possible that your case could then be dismissed without further proceedings.
However, if you successfully prove and argue all four of these elements, you must also overcome any affirmative defenses, if applicable, raised by the defendant (National Bank). These defenses are contributory negligence and assumption of risk. From our initial analysis, National Bank will be unable to raise an affirmative defense on these grounds. We will fully assess whether there are on any other legal grounds defenses that National Bank can raise. (See Other Considerations.)
Remedies for Negligence
If you successfully prove National Bank’s liability, you may be entitled to recover compensatory or actual damages. The damages and compensatory award amounts are determined on a case-by-case basis by the jury or judge presiding over the case. We have included a potential award amount you may be entitled to and you will find a complete discussion on how this determination is made. (See ANALYSIS OF LIABILITY – Injury.)
Statutes Governing Contract Law
Because the secondary issue (See Issue) and one of our concerns regarding your case is regarding your contract with Ms. Ramirez, we have disclosed applicable information from both the Green Civil Code and our legal library pertaining to 1) offer and acceptance, 2) Green’s statute of frauds, and 3) Green’s “mirror image rule.” For your convenience, we have bolded and
defined legal terminology that will be reiterated in later sections of this correspondence.
Offer and Acceptance
An offer is the important first step in the contract formation process. A party (offeror) who makes the offer gives another party (offeree) to whom the offer is made the power to bind both parties to a contract simply by accepting the offer. Not every proposal qualifies as an offer. To distinguish an offer, courts evaluate offers on three grounds: First, they look for some objective indication of a present intent to contract on the part of the offeror. Second, they look for specificity, or definiteness, in the terms of the alleged offer. Third, they look to see whether the alleged offer has been communicated to the offeree.
An acceptance is “a manifestation of assent to the terms [of the offer] made by the offeree.” In determining if an offeree accepted an offer and created a contract, a court will look for evidence of three factors: (1) the offeree intended to enter the contract, (2) the offeree accepted on the terms proposed by the offeror, and (3) the offeree communicated his acceptance to the offeror.
Statute of Frauds
According to the Green Civil Code, § 1624, any contract transferring an interest in land is invalid if not accompanied by “note or memorandum.” An unenforceable contract is one that meets the basic legal requirements for a contract, but may not be enforceable because of some other legal rule. A contract for which the statute of frauds requires a form of writing, yet no writing is made, may be declared an unenforceable contract.
Mirror Image Rule
The traditional contract law rule is that an acceptance must be the mirror image of the offer. Attempts by offerees to change the terms of the offer or to add new terms to it are treated as counteroffers because they indicate an intent by the offeree to reject the offer instead of being bound by its terms.
Now that you have an understanding of the relevant law behind the tort of negligence and contracts, and are familiar with the legal terminology of these areas, we proceed into our analysis of the facts of your case and the prima facie case for the tort of negligence.
ANALYSIS OF NATIONAL BANK’S LIABILITY
Should you pursue further legal action against National Bank, you will have the burden of proving the elements of the prima facie case of the tort of negligence. Below are descriptions of these elements, accompanied by our legal analysis between the facts of the case, prima facie case, and case law from our legal library.
Tort of Negligence
In Commercial Escrow Company v. Rockport Rebel, Inc., negligence is defined as “conduct which falls below the standard established by law for the protection of others”. Because of the similarities in the facts between the case of Escrow Company and your case, this case has been used extensively in the forming of the following arguments. We recommend using this case in satisfying your burden for your legal action.
Accordingly, you must argue that National Bank’s behavior in failing to remove the lien on your Lagoon Beach property fell below the standard for public protection established by law. Further, to successfully prove negligence, you must argue that National Bank is responsible for some injury you incurred stemming from their alleged mismanagement and failure to remove the lien on your property. With your notes, the facts of your case, and documents you provided us, we have constructed tentative arguments to determine the success of your legal action. You will find these arguments beginning on the next page.
According to the case, Commercial Escrow Company v. Rockport Rebel, Inc., “a defendant owes a duty of care to all foreseeable plaintiffs.” For example, in cases where a “[defendant] voluntarily assumes the duty to act by
promising to the plaintiff to behave in a certain way,” the defendant owes that plaintiff a duty to act with care. According to Judge Utter, a “defendant also [owes] the plaintiff a duty of care where a contractual relationship between the parties requires the defendant to act in a certain way towards the plaintiff.”
Considering these rules of law, National Bank owed you a duty to act as you requested. In your previous correspondence, you indicated that National Bank is “the lender on your Lagoon Beach property.” You also submitted to us a copy of your deed of trust. To reiterate “the language in the deed of trust” as part of your contractual relationship with National Bank, National Bank was supposed “to promptly record a reconveyance of its lien on [your] property upon payment in full of the underlying loan.” Because National Bank failed to do this, we find it foreseeable that you would be prevented from using the property as collateral for your hotel acquisition.
Additionally, you also mentioned that you “vigorously attempted to get… National Bank to remove its lien on [your] property, but to no avail” and despite “repeated assurances from various officers.” Because National Bank officers assured and essentially promised you that they would remove the lien on your property, National Bank voluntarily assumed a duty to you, if no duty had been present beforehand. In essence, the assurances made to you to process your request indicate that National Bank voluntarily assumed, and therefore owed you, a duty of due care to act as you requested. In light of these arguments, we assure you that you should successfully satisfy this first element – duty – of the prima facie case of the tort of negligence.
Breach of Duty
According to Commercial Escrow Company v. Rockport Rebel, Inc., in order for a plaintiff to prove negligence, the “plaintiff is required to show …that [the defendant] had breached [defendant’s] duty of care to the plaintiff.” In most cases, a defendant owes a plaintiff a duty to act as would a reasonable person under similar circumstances. In the case of Escrow Company, the Court found that “in performing services for a client, [the] escrow company has the duty to strictly follow instructions.” Like an escrow
company, a financial institution like National Bank most likely has a duty to strictly follow instructions drafted in a deed of trust, or part of a loan or other financial instrument.
Because officers on behalf of National Bank did not follow instructions and terms of behavior involving you (as lendee) and National Bank (as lender) detailed in your property’s deed of trust, you may successfully argue that National Bank breached its duty to you. According to our copy of your deed of trust you provided us, National Bank was required to “promptly record a reconveyance of its lien on the property upon payment in full of the underlying loan.” You had managed to pay off the mortgage on this property on November 1, 2004. Despite this, National Bank failed to remove its lien, even after you requested. Because officers at National Bank did not strictly follow this instruction, National Bank breached the duty of due care owed to you.
Satisfying the prima facie case for the tort of negligence also requires that a plaintiff prove that there is a connection (or actual causation) between the alleged breach of duty by defendant and injury suffered by plaintiff. As in the case of Commercial Escrow Company v. Rockport Rebel, Inc., courts assess the existence of a connection between breach and injury by determining whether injury would have occurred if not for breach. A court would employ a similar test in your case. Because National Bank failed to remove the lien on your property, you did not satisfy terms of the loan commitment with Bank of the West and could not secure financing for your acquisition of Hotel California. We find that there is a casual connection.
Courts also evaluate the proximate cause (causation) between a defendant’s breach of duty and a subsequent injury suffered by a plaintiff. Proximate causation refers to whether the defendant’s breach of duty and subsequent injury suffered by the plaintiff was foreseeable. Because you vigorously attempted to have officers at National Bank remove its lien on your property and informed them that you needed the lien removed in order to pledge the property as collateral, we find that your injury of loss of opportunity to
acquire the hotel property was foreseeable.
The final element you must prove to satisfy the prima facie case for the tort of negligence is whether you have suffered injury because of National Bank’s alleged negligence. Due to National Bank’s failure in removing the lien on your Lagoon Beach property, the transfer of ownership agreement of Hotel California between you and Ms. Ramirez allegedly collapsed.
Later, you purchased a “similarly situated” and “virtually identical” hotel property for $4.7 million, $400,000 more than what you would have paid for Hotel California ($4.3 million). In essence, National Bank’s alleged negligence caused you to incur an opportunity cost of $400,000. This loss of opportunity is under the assumption that a valid, enforceable contract existed between you and Ms. Ramirez.
Because National Bank breached its duty by failing to remove its lien on your property, you were unable to secure financing for a $4.3 million acquisition of Hotel California. However, you later purchased a “virtually identical” property for $4.7 million. You may be entitled to the difference.
DEFENSES AGAINST LIABILTY
In this portion of this report, we detailed any applicable defenses relevant to your case, and outlined other considerations and concerns we advise you to consider. Although we have found that affirmative defenses to National Bank’s negligence are inapplicable to the particular facts of your case, we have other concerns to discuss.
It is the opinion of Legal Eagles, LLP, that National Bank may argue that regardless of whether it removed the lien on your Lagoon Beach property, indefinite would be the transfer of ownership of the hotel property from Ms. Ramirez to you. As our analysis showed, you may successfully prove that National Bank had a duty to remove the lien on your property and
subsequently breached that duty by failing to adhere to this instruction. If the failure to remove the lien on your property can be proven to have caused you damage(s), we will advise you to pursue further legal against National Bank. But first we must evaluate the documents you provided us and later the validity of the binding contract between you and Ms. Ramirez. Analysis of Income
We have completely revalued the hotel property, Hotel California you were interested in. We used the same method(s) and approaches that most banks in our region would use to appraise the value of hotel properties. The expected value approach places weights on appraisals from two methods. First, we multiplied the past two years’ average gross margin by four. This holds a weight of 40%, because it is expected to be accurate 40% of the time. The value we derived from this method came to $2,462,380.00. Next, we took the present value of the average of the past three years’ cash flows, discounted at an 8% discount rate for 10 years. This method holds a 60% weight. The value derived from this method comes to $2,505,589.13. Our final step is to assign the correct weight to each method and sum the two figures. We can therefore conclude that the Hotel California’s appraisal value is $2,488,305.48. In addition to this, it is acceptable for a company to sell what is known as “goodwill.” That is why the listed price of 2.5 million dollars was overstated by $11,694.52. We know that the bank would only allow you to borrow up to the appraised value, $2,488,305.48, unless you either pay 25% of the purchase in cash, or pledge to the bank a first priority lien on the vacant land as collateral. We also know that the latter option was not possible, so we will consider the former. We conclude that 25% of the purchase price of $4.3 million is $1,075,000. Because you were able to only provide $500,000 in cash for a down payment, you did not meet the requirements to borrow more than $2,488,305.48 from the bank, without pledging the vacant land. Hypothetically, if you had decided to borrow $2,488,305.48 from the bank, plus your $500,000 down payment, you would have had $2,988,305.48. This amount still would not have been enough to purchase the Hotel California property offered at $4.3 million dollars. Consequently, we conclude that without pledging the vacant land as collateral, there was no way you could have borrowed enough money to make the purchase. Even
though the appraised value was not enough for you to borrow a sufficient amount of money from Bank of the West, we believe the appraised amount you were given was not accurate. There are two reasons why we believe Desert Mirage Accounting should not have relied on the income statement and footnote provided by Ms. Ramirez’s accountant. The first problem lies in the way the accountant prepared the income statement. Mr. Babak Gordon calculated gross profit by taking revenue minus cost of revenue. This method is only used for retailers and manufacturing companies, whereas Hotel California is a service company. The second problem is the verifiability of the financial statements and reliability of the accountant. To be credible, financial statements must follow generally accepted accounting principles (GAAP). A financial statement that follows GAAP must be accompanied by a signed opinion letter. The letter can be in the form of: 1) Compilation letter
2) Review letter
3) Audit opinion
Finally, this letter must be signed by a certified public accountant (CPA). Because the income statement of Hotel California does not come with any signed opinion letter, we cannot verify its accuracy. Therefore, Desert Mirage Accounting should not have relied on that income statement and footnote information to make the evaluation. In our initial observation of your case, we assumed National Bank’s failure to remove its lien from your Lagoon Beach property caused you to forfeit your opportunity to purchase the Hotel California property. As illustrated by our calculations above, you could not have financed the acquisition of Hotel California without pledging your Lagoon Beach property as collateral. However, after conducting a thorough analysis of your case, we regret to inform you that you may not be able to prove damages stemming from National Bank’s failure to remove its lien from your property. Even though National Bank may have breached its duty to you, National Bank could argue that your contract with Ms. Ramirez is invalid or unenforceable. In the event that you do not have a valid or enforceable contract, you are not legally entitled to the Hotel California property or other legal remedies. In essence, regardless of whether National
Bank’s negligence can be proved, a transaction between Ms. Ramirez and you might not have occurred if a binding contract did not exist. We will clarify and explain this finding in the next section. Offer and Acceptance Analysis
From our analysis, coupled with case law from our case library, we have found that there was no contractual arrangement between you and Ms. Ramirez. In arriving at this finding, we took into account the facts surrounding your case. There are key elements that prevent the institution of a contract, for the purchase of real estate, between you and Ms. Ramirez.
In reaching this finding, we referred to the case of Cayetano J. Apablasa v. Merritt & Company from our case library. In this case, the Court evaluated a plaintiff’s action for damages resulting from an alleged breach of contract. This plaintiff’s action for damages depended on whether there was an existing contract. The Court found that “no reasonable construction of evidence” admitted a binding contract between the parties; and that the correspondence that was provided to the Court amounted to “nothing more than an offer that was never accepted.” In essence, at the conclusion of the plaintiff’s case, the Court’s judge “entered a judgment decreeing that no contract was entered into, existing, or was ever executed.”
Similar to your case, in Cayetano v. Merritt, the initial reply to the offeror’s offer by the offeree did not constitute an acceptance, contrary to what the offeree had thought. The offeree had included a “proviso” in his perceived acceptance letter to the offeror. In light of this, the Court found that terms proposed in an offer “must be met exactly, precisely and unequivocally for its acceptance to result in the formation of a binding contract.” This decision supplements our discussing regarding Green’s “mirror image rule” below. (See Regarding Mirror Image Rule.) Additionally, the Court stated that “[t]he addition of any condition… is tantamount to a rejection of the original offer and the making of a counteroffer.” In essence, the Court’s decision can be summarized by the following: “[w]here a person offers to do a definite thing and another introduces a new term into the acceptance, his answer is a mere expression of willingness to negotiate or is a counter proposal, and in neither case is there a contract; if it is
a new proposal and it is not accepted it amounts to nothing.”
Regarding Green’s Statute of Frauds
A key element that is missing in the proof of a contract is that your agreement with Ms. Ramirez was not in writing. The Green Civil Code requires that in order for a contract involving the sale of real property, to be valid, the agreement must be in writing and signed by the party to be charged or by the party’s agent. In your situation, Ms. Ramirez made her initial offer orally over the phone and you replied by a signed fax. There was never a written offer or contract signed by Ms. Ramirez. Therefore, a court of law would most likely find the contract between you and Ms. Ramirez as unenforceable. Even if the alleged contract did not have to be in writing and could be enforceable, there are other additional concerns we have:
Regarding the Mirror Image Rule
In a situation, such as the one you were in, a proper acceptance must meet the “mirror image rule.” This rule states that in order for an offeree to properly accept an offer, the offeree must accept the exact offer that was established by the offerer. When reviewing your case, we found that you had intent to accept Ms. Ramirez’s offer, but in your attempt to accept the offer, you added a different term to the agreement. In her offer, Ms. Ramirez required that “[t]he sale was to conclude following a 45-day escrow.” However, in your reply, you stated that you “would like to close escrow within 60 days.” A court of law would find that by changing the terms of Ms. Ramirez’s offer, you fail to meet the “mirror image rule,” and therefore terminated Ms. Ramirez’s initial offer and proposed a counteroffer.
Documents you provided us detailing your correspondence with Ms. Ramirez indicate no communication on her part in accepting your counteroffer.
We must mention that had there been a contract between Ms. Ramirez and you, you may have been the subject of legal action by Ms. Ramirez. If we assume there was an actual contract between Ms. Ramirez and you with either the 45
day or 60 day escrow term, Ms. Ramirez could have pursued legal action and you could be liable for having breached your contract for your failure to deliver on your promise.
You entered into the alleged contract with Ms. Ramirez on January 6, 2005. Regardless of whether there was an agreement for a 45 day escrow or a 60 day escrow term, you failed to secure financing in either time frame. Approximately 80 days after entering the alleged contract with Ms. Ramirez, on March 28, 2005, you contacted Ms. Ramirez to request an extension. The fact that you have no pending legal action brought by Ms. Ramirez may suggest that Ms. Ramirez did not view the arrangement with you as a binding contract. We reiterate that neither party had a binding, enforceable contract. CONCLUSION
Ms. Warren, we regret to inform you that success with your legal action is unlikely. There is a high chance you will be unsuccessful, should you purse a legal action against National Bank on the grounds of the tort of negligence. National Bank failed to remove the lien on your Lagoon Beach property, violating the duty of due care owed to you, and disrupting your ability to secure financing for your entrepreneurial endeavor. However, the question of law of whether there was a valid, enforceable contract between you and Ms. Ramirez, is the decisive issue.
As our analysis has indicated, a court of law will most likely try the issue of whether there was a binding contract. Thus without the binding contract between you and Ms. Ramirez involving her offer for the hotel (Hotel California), a judge or jury in a court of law cannot rely on how much you would have paid to make a compensatory damages determination. In other words, because your action for damages is predicated on a contract between you and Ms. Ramirez, your damages cannot be established and you incurred no loss of opportunity. Without the loss of this opportunity cost, you have not suffered any injury due in part to National Bank’s negligence.
Ms. Warren, as Associate Partner of Legal Eagles, LLP, I oversaw the analysis
of my legal team and validated their conclusions and findings. In light of the findings of our analysis, I foremost recommend that you consider the following course of action: * Please, do not pursue further legal action against National Bank regarding this cause of action and issue. It is my opinion and the opinion of Legal Eagles, LLP, that pursuing further legal action regarding this issue, considering our evaluation of your case, will result only in additional expense on your part including legal and attorney fees and your time. You will also not receive the resolution that you would like making the process inherently dissatisfying and frustrating.
With this in mind, there is another course of action I do recommend. Because you have already attempted to resolve your issue with National Bank regarding the lien on your Lagoon Beach, Green property, you are entitled to contact the regulatory agency of your former bank. All national banks within the state of Green are regulated by different agencies. If National Bank’s lien remains on your property, I recommend you pursue this alternate course of action:
* Contact the appropriate state of Green regulatory agency of your financial institution (National Bank) and file a complaint.
Your bank’s regulatory agency can help you with your concerns and complaints. There are many regulatory agencies in the state of Green’s banking industry. For your convenience, the appropriate regulatory agency of your former bank, and its details have been listed: According to the Federal Financial Institutions Examinations Council (for additional information visit www.ffiec.gov), National Bank’s regulator is the Office of the Comptroller of the Currency (for additional information please visit www.helpwithmybank.gov). You can visit and reach this regulatory agency online or by phone at (800) 613-6743. The Office of the Comptroller will assist you in getting answers and solutions to your questions and concerns. You can also file complaints against your bank, here. If you decide to proceed with filing a complaint, officials from the Office of the Comptroller will contact National Bank on your behalf regarding your issue for a response. You will then receive a letter summarizing the results.
Those who have sought our legal advice and even had similar experiences as you with National Bank as well have reported that intervention by a regulatory agency expedited the process and liens were eventually removed. We are confident that you have the tools to resolve this issue.
LEGAL EAGLES, LLP
[ 1 ]. The elements of the prima facie case of the tort of negligence are duty, breach of duty, actual and proximate cause, and injury. [ 2 ]. COMMERCIAL ESCROW COMPANY AND JAMES DE MIK, APPELLANTS, v. ROCKPORT REBEL, INC., APPELLEE. 778 S.W.2d 532; 1989 Tex. App. LEXIS 2263 [ 3 ]. CAYETANO J. APABLASA, Appellant, v. MERRITT & COMPANY (a Corporation) et al., Respondents. 176 Cal. App. 2d 719; 1 Cal. Rptr. 500; 1959 Cal. App. LEXIS 1542