Minors and Conveyances

Winter Park Home Magazine - Issue 2 - 2012

Mary Smith contacted me to assist her in the sale of a vacant lot owned by both Mary and her son, Michael. Mary originally went to a local title agency and was advised that she cannot complete the sale because her son is a minor – i.e., under the age of 18 years. Mary owns a 50% interest in the property, and her 17 year old son, Michael, owns the remaining 50% interest. They have a Buyer ready to purchase the lot for $25,000.00.

Initially, I explained that minors do not have certain contractual legal rights. Florida law provides that only individuals 18 years of age or older are deemed “sui juris,” which means that only those individuals 18 years of age or older have the full ability (i.e., are not under any legal disability) to execute contracts or to sign a deed conveying real property. Property can be transferred to and owned by a minor. The problem is that a conveyance executed by Michael, as a minor child, could subsequently be set aside by Michael after he turns 18. Existing case law would allow a minor to set the deed aside as long as seven years after the minor reaches his eighteenth birthday, unless that individual ratified the deed once he turned 18. Additionally, if he has already spent the money from the sale, there would be no obligation for the “minor” to pay the money back.

Florida law provides certain exceptions to this ability of a minor to subsequently set aside a conveyance. Specifically, the disability of nonage (lack of legal age) of a minor is removed if the minor is now, or ever has been married. Additionally, a circuit court has jurisdiction to remove the disabilities of nonage of a minor age 16 or older who resides in Florida based upon a petition filed by the minor’s natural or legal guardian. Alternatively, a guardianship proceeding could be filed with the circuit court, and an order authorizing the sale of the property by the guardian could be obtained, in order to transfer Michael’s interest in the property. Michael has never been married, and neither of these judicial proceedings has been undertaken to date. The cost of these proceedings might sometimes be justified, but fortunately there is a much simpler and less costly approach to remedy the absolute conveyance of Michael’s interest in this vacant lot.

Florida law provides that if the minor’s net interest in the property is less than $15,000.00, the natural guardian of the minor may execute a deed on behalf of the minor. The mother and father of the minor are the “natural guardians” of the minor. If both parents are still alive, both parents would have to sign the deed. If one of the parents dies, the surviving parent acts as the natural guardian. Mary’s husband and Michael’s dad, John Smith, is deceased. As a result, Mary has full power to execute a deed as the natural guardian for Michael – since Michael’s 50% interest in the property, $12,500.00, is less than the statutory maximum of $15,000.00. Although it will be necessary to document on the public record the fact that Mary and John are Michael’s parents, that John is now deceased, and that no guardianship or adoption proceedings have subsequently been filed, we will now be able to complete the sale of the property. The signature section on the deed for Michael’s one-half interest will read: “Michael Smith, by Mary Smith, his natural guardian.” The deed itself, for Michael’s one-half interest in the property, will be signed by Mary in her representative capacity, and not by Michael. The deed cannot be subsequently set aside by Michael.

Conveyances to minors, generally speaking, are potentially problematical when it is time to convey the property from the minor. Formal guardianships can be created on behalf of the minor, and property conveyed to the guardian on behalf of the minor. Guardianships are formal legal proceedings, and the guardian will only be able to sell the property after the court has entered an order authorizing the sale and conveyance of the minor’s interest in the property.

A minor’s interest in property can also be created under the Florida Uniform Transfers to Minors Act (“FUTMA”). Under FUTMA, property is conveyed to a natural (adult) person as a custodian of the minor child. The authority of the Custodian, unlike the “natural guardian” example above, is not subject to any monetary limitation. FUTMA, however, is extremely technical, and an attorney should always review the facts and determine the appropriate format of the deed. There may also be different time periods during which the Custodian may act on behalf of the “minor.” In certain situations, the authority of the Custodian ceases at the eighteenth birthday of the minor, and in other situations that authority will remain until the 21st birthday of the minor.

There are numerous variations to the examples that are set forth above. Any person wishing to vest title in a minor needs to be aware of the logistical problems that are created by transferring title to an individual who has not yet reached the age of 18, and should consult with his/her legal counsel to determine the appropriateness of such transfers.

This Article is not a substitute for hiring an independent attorney to determine the appropriateness of transferring property to a minor. 

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Integrated Project Delivery: Changing the Insurance Landscape

ProNetwork News  - April 2012

With more project owners demanding the use of Building Information Modeling (BIM), project delivery is necessarily carried out through greater contributions of design input by the general contractor and the major trade subcontractors. The design professionals are no longer the sole authors of the project design. This collaborative project delivery method has been called integrated project delivery (IPD). The contribution of design input from each of the various project players using IPD is a significant break from the traditional division of responsibility recognized in the standard design-bid-build project delivery method. Players who never participated in the project design now face potential risk of professional liability. Additionally, the new, cutting-edge technologies being used for BIM expand the types of risks born by the design professional if there are errors and omissions within the computer modeling system or the improper management of the computerized data.

What is BIM?
BIM involves computerized design software tools that help create a model that reflects all of the building components' geometric and functional qualities. The general contractor and trade subcontractors provide product-specific information for building components and that data is inputted into the model, including performance specifications, connection details and cost data. However, the model is more than a mere representation of the design in a three-dimensional computer graphic. Embedded within the design programs are rules that define each of the components' relation to the other components. The model is dynamic. If there is a change to one component, then the computer program would automatically and immediately revise the design to accommodate the ripple effect caused by the change. During the pre-construction phase, the project team can input different design options to facilitate value engineering and budgetary decisions, material estimation, and even long-term maintenance costs of the facility. In theory, assuming that the information provided by the various project players is accurate and the rules embedded in the model are correct, BIM should reduce errors and omissions, resulting in an aggregate reduction in professional liability and errors & omissions claims. Additionally, it should reduce the demand for change orders during the project, as the design should have fewer ambiguities and inconsistencies. Yet, if the assumptions embedded in the computerized model prove false, then the result would be a costly problem that all concerned should hope is covered by insurance.

Increasing Industry Acceptance:
IPD using BIM technology is becoming more prevalent with many predicting that it will become standard. In 2003, the U.S. General Services Administration's (GSA) Public Building Service set a goal to require BIM on FY06 projects and beyond in support of improving design quality and construction delivery. One reason for the use of BIM was a lack of GSA staffing to review design documents and to ensure conformance to building standards. Additionally, GSA was concerned with anticipated sustainability goals for federal buildings with respect to energy efficiency and long-term maintenance costs. GSA sought to rely upon the new BIM software tools to provide solutions to these problems. Since that time, GSA has employed BIM successfully on numerous projects. The GSA is not the only project owner to use IPD using BIM technology. General Motors has constructed at least six projects using this delivery method. Also, the United States Coast Guard and the United States Army Corp or Engineers has implemented BIM software in its recent projects. The expected industry trend is that this delivery method will not be reserved only for complex projects, but rather will start being used for simpler projects on a wider scale.

Evolving Contractual Relationships:
The construction industry is only beginning to catch up with the contractual liability issues that arise from the non-traditional roles played by the various project participants. For example, there has been the 2008 release of the ConsensusDOCS 300 Series for use on IPD projects using BIM technology. Also, the American Institute of Architects (AIA) has developed IPD Agreements AIA C196-2008 Standard Form of Agreement between Single Purpose Entity and Owner for Integrated Project Delivery and AIA C197-2008 Standard Form of Agreement between Single Purpose Entity and Non-Owner Member for Integrated Project Delivery. The AIA contractual agreements incorporate a separate Exhibit (AIA Document E202 – 2008) that might also be used with their other, more traditional contract documents on IPD projects using BIM technologies. The new AIA documents allow the parties to define the standard of care for BIM, as such would be difficult to define given the short history of this technology. They also attempt to allocate responsibility for managing the computer model, e.g. data storage, transferring model files, granting and withholding access to model files, validating completeness and usability of files, among other things. Also, the Exhibit provides a chart listing standard building components that is to be filled out by identifying who will author each listed element of the model design. These contractual means of defining the standard of care and allocating responsibility may impact a design professionals' liability for professional negligence.

Professional Liability Concerns for General Contractors and Trade Subcontractors:
The collaboration of general contractors and trade subcontractors in the design on IPD projects may result in liability exposure arising from errors in each parties' contribution that result in defects in the project design. Accordingly, these parties must approach the IPD similarly to a design-build project and obtain professional liability coverage and errors & omissions insurance. Moreover, the general contractor must recognize that it would face contractual liability to the owner for the errors contributed solely by its subcontractors – errors which could be very difficult to detect by the general contractor. Thus, the general contractor would be well advised to demand in its subcontracts that those subcontractors who contribute to the project design obtain coverage. Yet, the specific type of coverage that expressly contemplates the allocation of responsibility and risk inherent in IPD may not yet be on the market.

Expanded Liability Concerns for Design Professionals:
The consensus seems to be that IPD using BIM technology will result in an overall reduction in design errors. Yet, to the technophobe, an over-reliance on computer models with decreasing human over-sight could also spell disaster. What responsibility should the design professional have for errors in the data inputted by the various parties? What if there are errors in the rules embedded in the model or the internal mechanisms for transferring data or any other number of possible computer glitches? The contract with the company creating the modeling software likely limits liability for such errors to an amount far less than the damage that could be created by the error. The design professional must consider insuring that gap. To address these questions and issues, the design professional should discuss the potential IPD exposures with their broker and to what extent they are insured for same.

IPD not only requires additional contributions to design from the contractor, but may also involve greater involvement by the design professionals on the construction side. Design professionals may find themselves more active in the development in the means and methods of construction given the overall integrated approach on these types of projects. "Means and methods" are often excluded in professional liability policies. This raises the question of whether the design professional should purchase general liability insurance to cover damages resulting from negligent construction practices.

Conclusion:
IPD using BIM technology is changing the relationships between the various players on such construction projects. As a result, the standard construction contracts and their allocation of responsibility and risk may no longer be equitable or reflect reality. Accordingly, before participating in this type of project, all parties should consult with their attorney to review their contracts to address these issues. In addition to the need for revised construction contracts for these types of projects, all parties are strongly advised to meet with their insurance brokers and discuss the new risks arising from this project delivery method.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Right of Set-Off on Unrelated Projects

Architects/Engineers Professional Network - April 2012

 Frequently, general contractors will work with the same subcontractor or supplier on two separate, unrelated projects. When that happens, the situation may arise that on the first project (Project A), the subcontractor defaults on its contract, resulting in a back-charge that exceeds the subcontractor's contract balance, i.e. the subcontractor owes the general contractor money. On the second project (Project B), the subcontractor satisfactorily completed its work and is due money from the general contractor. It may seem obvious that the general contractor would have a right of set-off, allowing the general contractor to deduct the amount due from the subcontractor on Project A from the amount that the general contractor otherwise owes the subcontractor on Project B. Seemingly, the general contractor should only have to pay the net difference or be able to avoid paying the subcontractor anything if the back-charge on Project A exceeds the amount due on Project B. However, as outlined in this article, that seemingly straight-forward right to "net out" the competing claims might not always be available.

There are several different factors that can frustrate the general contractor's right of set-off. In some jurisdictions, state statutes may prohibit the general contractor from withholding from the subcontractor the amounts received from the owner for the subcontractor's work, such statutes holding that those funds are held in trust for the benefit of the subcontractor. Some states might even find the withholding of funds received by the owner for the subcontractor's work to be statutorily criminal. On projects covered by a payment bond, courts in some jurisdictions have held that even if the general contractor has a contractual right to set-off, the Surety may not. As a result, in those jurisdictions, notwithstanding the contractor's contractual right of set-off, the subcontractor may be entitled to recover the full amount on Project B (from our scenario above) from the Surety without any deduction of the amounts the subcontractor owes on Project A. Given that the general contractor must almost always indemnify the Surety, such a result has the practical effect of eliminating the contractual benefit of a right of set-off. Additionally, in certain circumstances, by the discretion afforded to judges under the rules of civil procedure, courts have required the two competing claims to be handled by separate lawsuits independently and without regard to the general contractor's claim of set-off. This article discusses these scenarios and others that impact the right of set-off.

Projects Protected by Payment Bonds

Basic surety law holds that a surety assumes only the liability of its principal and generally has the same defenses against a subcontractor suing on a payment bond as the principal/ general contractor. So, it would seem that if a general contractor has a contractual right of set-off against amounts otherwise owed to a subcontractor on a bonded project, the surety's liability to the subcontractor on that bonded project should be reduced by the amount of the set-off. However, a federal district court in Virginia disagreed when addressing that situation on a federal project on which a federal Miller Act payment bond was issued. In U.S. ex. rel. Accoustical Concepts, Inc. v. Travelers Casualty and Surety Company of America,635 F. S. 2nd 434 (E.D. Va. 2009), the court held that general principals of suretyship law that conflict with the Miller's Act's terms and purposes (i.e. ensuring that subcontractors are paid promptly for labor, materials and services furnished on federal construction projects) must give way to the Act.

In Accoustical Concepts, a subcontractor sued the surety on a Miller Act payment bond to recover amounts due on a federal project. The general contractor (the principal on the bond) had a claim against the same subcontractor on an unrelated non-federal private project. Accordingly, the general contractor and its surety set-off those claims against the amounts otherwise due on the federal project. In doing so, the general contractor and surety relied upon a provision in the subcontract on the federal project that expressly stated that the general contractor had the right to do so. Specifically, the contract provision stated:

 Before paying any amount due to the Subcontractor as provided hereinabove, the Contractor is hereby authorized to deduct therefrom and offset an amount equal to any and all sums or obligations owing by the Subcontractor to the Contractor and ... any and all claims liquidated or unliquidated, by the Contractor against the Subcontractor , arising hereunder, under any other contract or agreement between the Subcontractor and the Contractor.... 

Again, the court rejected the surety and general contractor's argument, based in part on its determination that neither the Miller Act nor the subject payment bond made any reference to the contractual set-off provision or its effect. The court reasoned as follows:

Were defendants [general contractor and Surety] allowed to interpose a setoff defense involving facts and circumstances relating to a non-federal project, plaintiff subcontractor would be forced to litigate with defendant sureties a dispute that plaintiff has with its general contractor that is nowhere a part of the payment bond or the Miller Act. The result can only be the kind of delay and complexity the Miller Act was designed to avoid. By contrast, preventing sureties from asserting a setoff defense leads to the sensible result - contemplated by the Miller Act - that a subcontractor [on a federal construction project] receives timely payment for providing labor and materials to [that project]. Defendant sureties may then seek to recover from [its principal] the full amount paid to plaintiff [subcontractor], and [the general contractor/principal] may then litigate the unrelated, non-federal dispute with plaintiff. In other words, the result reached here maintains a sharp division between the Miller Act's remedy for subcontractors on federal construction projects and disputes between subcontractors and prime contractors arising from non-federal construction projects that are not governed by the Miller Act. 

The argument can be raised that courts would apply this same reasoning in cases involving the states’ various Little Miller Acts on non-federal public projects or with respect to projects protected by statutory private payment bonds.

State "Trust Fund" Statutes

Several states have enacted statutes that hold that money received by the general contractor from the owner for the labor, materials, and services provided by subcontractors and suppliers (and lower-tiered subcontractors and suppliers) are held by the general contractor in trust for their benefit. The purpose of such legislation is to ensure that the subcontractors and suppliers that actually provide the work get paid. They may also potentially result in the frustration of the general contractor's right of set-off. The New York Lien Law, Article 3A §§70-79 is an example of a state trust fund statute. Section §70, states as follows:

The funds … received by a contractor under or in connection with a contract for an improvement of real property, or home improvement, or a contract for a public improvement in this state … shall constitute assets of a trust…. (Emphasis added.)

The New York Lien Law then outlines a statutory cause of action to enforce such a trust.

This statute was addressed in the New York federal case of Universal Maintenance, Inc. v. Amherst Painting, Inc. 1997 WL 160157 (W.D.N.Y.). In that case, the subcontractor sued the general contractor for amounts due on Project A – amounts that the general contractor had already received from the owner for the work performed by the subcontractor. The subcontractor argued that the funds received by the general contractor were held in trust pursuant to the New York Lien Law. The general contractor filed a counterclaim and raised as a defense that it had a right of set-off for back-charges arising from that same Project A, as well as, a back-charge arising from an unrelated subcontract on Project B. The court ruled that the general contractor indeed had a right of set-off as it related to the back-charges arising from the same Project A, holding: “the relief available in a Lien Law trust action encompasses the contractor’s right as trustee to offset against the trust fund amounts sums due from the subcontractor to the contractor with respect to the project.” Id. at 7 (Emphasis added). However, the court struck the general contractor’s counterclaim and defense of setoff for back-charges arising from the unrelated Project B, holding as follows: “The policy reasons for allowing the contractor to set off sums due from the subcontractor apply only to claims for sums due with respect to the project in question, not unrelated projects.” The court reasoned that a set-off claim arising from the unrelated Project B was not a compulsory counterclaim (i.e. one that must be brought in the same lawsuit pursuant to the rules of civil procedure) and can be pursued in another forum. 

New Jersey has a similar trust fund statute which applies to public projects (“The New Jersey Trust Fund Act”) which states as follows:

All money paid by the State of New Jersey … or by any county, municipality or school district in the state, to any person pursuant to the provisions of any contract for any public improvement ... shall constitute a trust fund in the hands of such person as such contractor, until all claims for labor, materials and other charges incurred in connection with the performance of such contract shall have been fully paid.

N.J.S.A. §2A:44-148.

The federal district court of New Jersey addressed that statute in the context of this article’s two-project set-off scenario in a March 27, 2008 opinion and order granting a motion for partial summary judgment filed by the subcontractor in Atlantic City Associates, LLC v. Carter & Burgess Consultants, Inc. Civil Action No.: 05-3227. In that case, we again have the scenario of the general contractor having a back-charge claim against the subcontractor on Project A and, as a result, claiming a right of set-off against amounts the general contractor otherwise owes to the subcontractor on Project B. Also, the general contractor was paid in full by the public owner for the work performed by the subcontractor on Project B. Further, the following contractual provision was contained in the governing subcontracts that expressly granted the general contractor this right of set-off on unrelated projects:

The Subcontractor agrees … that Contractor shall have the right to set off against any moneys due Subcontractor under this Subcontract any claim or claims against Subcontractor, whether arising under this Subcontract, or any other Subcontract or Subcontracts between the parties hereto.

Notwithstanding an express contractual right to do so, the federal district court rejected the general contractor’s claim to a right of set-off on unrelated projects as a matter of law. The court reasoned, in part, as follows: “The Trust Fund Act provides that ‘… the funds in the hands of the prime contractor constitute a trust fund to inhibit their diversion for purposes unconnected with the public project.’”

In an attempt to circumvent The New Jersey Trust Fund Act, the general contractor argued that the above-cited contractual right to set-off on unrelated projects constituted a waiver by the subcontractor of any rights otherwise bestowed by the Act. However, the court rejected that argument stating that the contract language was not "clear and unmistakable" evidence of the subcontractor’s knowing waiver of its statutory rights, in part because the contractual provision did not reference the statutes. It should be noted, however, that the case holding suggests that, with more specific waiver language, a subcontractor can waive such statutory rights.

Set-off as a Felony Crime?

It would be difficult to be more severe than Florida which makes the misapplication of construction funds a statutory felony. Florida Statute §713.345(1)(a) states as follows:

(1)(a) A person, firm, or corporation, or an agent, officer, or employee thereof, who receives any payment on account of improving real property must apply such portion of any payment to the payment of all amounts then due and owing for services and labor which were performed on, or materials which were furnished for, such improvement prior to receipt of the payment. This paragraph does not prevent any person from withholding any payment, or any part of a payment, in accordance with the terms of a contract for services, labor, or materials, or pursuant to a bona fide dispute regarding the amount due, if any, for such services, labor, or materials.
(b) Any person who knowingly and intentionally fails to comply with paragraph (a) is guilty of misapplication of construction funds, punishable as follows: 1. If the amount of payments misapplied has an aggregate value of $100,000 or more, the violator is guilty of a felony of the first degree, punishable as provided in s. 775.082 [i.e. by a term of imprisonment not exceeding 30 years].

This provision arguably limits a general contractor’s right to withhold payment for a back-charge (i.e. a bona fide dispute regarding the amount due) to only the project on which that back-charge arose. This is because the statute limits bona fide disputes to “disputes regarding the amount due, if any, for such services, labor, or materials”. A strong argument can be made that this language could be interpreted to mean “such” services, labor, or materials provided on that project only. If so, there would not be any right to set-off on unrelated projects if the contractor has received payment for the work by the subcontractor on the unrelated project on which the subcontractor performed satisfactorily; it would be criminal to withhold such payment because of a claim on an unrelated project. A general contractor could try to argue otherwise, but at the risk of committing a statutory felony crime punishable by jail time.

Rules of Civil Procedure – Court’s Discretion to Require Separate Trials

The rules of civil procedure might also assist a subcontractor to avoid a general contractor’s right of set-off on unrelated projects. If the subcontractor sues a general contractor for amounts owed on a project, and the general contractor has a back-charge arising from that same project, the general contractor must assert the back-charge through a counterclaim in that same lawsuit; it is deemed a compulsory counterclaim. However, the same is not true for a back-charge arising from a separate contract. In such instances, the general contractor’s counterclaim is deemed a permissive counterclaim. It is within the court’s discretion whether a permissive counterclaim is to be addressed in the same lawsuit or separately.

This scenario was addressed in Turner Construction Co. v. E&F Contractors, Inc., 939 So. 2d 1108 (Fla. 3rd DCA 2006). In that case, the general contractor conceded that the subcontractor was due the amounts sought, but for the general contractor’s claim to a right of set-off for back-charges arising from three other unrelated projects. Importantly, the subcontractor had filed four separate lawsuits – one for each of the projects. In the lawsuit at hand, the general contractor claimed that its back-charges on the other three projects exceeded the amount that the subcontractor was owed on the subject project. Accordingly, the general contractor filed a counterclaim and affirmative defense in the subject lawsuit, asserting a claim of set-off arising from its back-charges on the other projects.

The trial court struck the general contractor’s defense of set-off and entered a final summary judgment in favor of the subcontractor. The appellate court affirmed that decision holding as follows:

The affirmative defense of set-off in the instant case is in the nature of a permissive counterclaim, and is the subject of other pending suits between the parties…. It is within a trial judge’s discretion to sever a permissive counter-claim from the main claim if there is no evidence of prejudice…. Here, the trial court’s order does not prejudice [the general contractor] because [the general contractor] still has the opportunity to fully litigate its set-off claims in the pending lawsuits arising out of its other subcontracts with [the subcontractor]…. Furthermore, the trial court’s order striking the set-off claim promotes the interests of judicial economy, and avoids the potential of inconsistent rulings.

Based upon the results of this case, legal counsel for subcontractors facing this scenario may want to consider filing separate lawsuits. The lawsuit concerning the project on which the back-charge arose may take years to litigate given the likelihood of numerous contested factual issues that must be investigated through discovery. Conversely, the lawsuit concerning the project on which the amount due is undisputed (but for the set-off claim arising from the other project) could be won through summary judgment much sooner. The subcontractor might be able to collect quickly on the undisputed project, allowing it to build its legal war chest to fight the battle on the disputed project.

Conclusion

While it may seem absurd to require Party A to pay Party B when Party B owes Party A, the courts may nonetheless require it depending upon which states’ law governs, whether the job is bonded, or other circumstances. Accordingly, when there are set-off claims arising from separate and unrelated projects, it is strongly recommended that parties consult and retain local counsel.

View our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida. Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980.

Power of Attorney - Revisited

Winter Park Home Magazine - Issue 1 - 2012

In previous issues of this magazine, I covered the use of a Power of Attorney (a “POA”) in real estate transactions for those situations in which a party (the “Principal”) is not available to sign documents at a closing and appoints a third person, known as the Attorney-in-fact (“AIF”), to sign on his or her behalf. I also discussed the proper format of execution of a POA, as well as the proper format of execution of documents by the Attorney-in-fact, and also the use of the statutory form Power of Attorney known as a Durable Power of Attorney.

Since I wrote those articles, the Florida Legislature has significantly amended certain provisions of the Power of Attorney Act, in order to conform Florida’s Power of Attorney law to the uniform Power of Attorney Act that is used in most states. This article addresses relevant provisions of this new legislation which amend certain requirements when executing a POA, and also delineates the rights of third parties to accept or reject the use of a Power of Attorney executed in another state.

Under the law in existence prior to October 1, 2011, a POA had to be executed with the same formalities as the document that would be signed by the AIF on behalf of the Principal. Since a deed, for example, needs two witnesses, the POA also needed two witnesses. A mortgage, on the other hand, does not require witnesses, and therefore the POA did not require witnesses. Although there were certain exceptions to these rules prior to the effective date of the new legislation, under the revised guidelines two witnesses are now required on all Powers of Attorney executed in Florida. Under the new law, therefore, all Powers of Attorney (except for military POAs which are governed by different rules) executed in Florida on or after October 1, 2011 must be signed by the Principal, have two witnesses, and be acknowledged by the Principal before a notary public.

What if the POA was executed prior to October 1st? There is a savings clause in the new legislation, which provides that a Power of Attorney executed before October 1, 2011 is valid as long as its execution complied with the laws of Florida at the time it was executed. There is no reason to obtain a new POA, therefore, if it was executed before October 1st – as long as it was properly executed at that time.

What if you have a Power of Attorney signed in another state? The law now provides that any POA executed in another state, whether executed before or after October 1, 2011, is valid as long as you can determine that it complied with the laws of that jurisdiction. How can you make that determination? The new act also provides a solution – the third person who is to rely upon the POA may timely request, at the Principal’s expense, an opinion of counsel in that foreign state as to any matter of law concerning the POA, including its due execution and validity. The opinion, if provided, may then be relied upon by the requesting third party. If the legal opinion is not provided, then the third person making the request can refuse to rely upon the POA. If the opinion is provided, and the requesting party refuses to rely upon the opinion, then the rejecting party must provide in writing the reason(s) for the rejection. Further procedures are then outlined in the statute for each party’ rights and remedies.

The standard for the POA executed in another state is, however, modified by Florida’s homestead law. It provides that whenever a Power of Attorney is used with a deed or mortgage of Florida homestead property, the Power of Attorney must also be executed with the same formalities as a deed – i.e. two witnesses. As a result, even if the out-of-state legal opinion provides that the POA is valid under its laws, if the property is Florida homestead and the POA does not include the requisite witnesses, then we will not be able to rely upon the out-of-state POA. Note that this analysis has also been confirmed by Florida’s title insurance underwriters.

Another section of the new law provides that a photocopy or electronically transmitted copy of an original Power of Attorney has the same effect as the original. This section, however, cannot be relied upon for a real estate transaction, since it is in conflict with the Florida recording statutes, which provide that only documents with original signatures (and not photocopies) may be recorded. The original POA, and not a photocopy, must therefore be recorded. The sole exception to this rule is the recording of a certified copy of an original Power of Attorney that has been recorded in another county in Florida.

One type of Power of Attorney permitted prior to the effective date of the new act, the springing Power of Attorney, provided that the authority granted to the AIF would not take effect until a particular event occurred (e.g. when the Principal has been determined by the Principal’s physician to lack the capacity to manage the real property). Under the new act this type of POA is no longer permitted – only a POA in which the AIF can immediately exercise his or her powers is valid. Note, however, that a springing POA executed before October 1st may still be valid.

The new act also provides for more specific delineation of certain powers. For example, a Power of Attorney might include the right for the Attorney-in-fact to gift real property. Prior to October 1st, the language authorizing the AIF to make a gift might be somewhat vague or difficult to locate within the POA – raising the question of whether the Principal truly understood this permission. Under the new act, the intent of the Principal to allow gifting must be separately delineated, and the Principal must initial the clearly set off gifting provision.

The new Power of Attorney Act has made many changes to the existing law. Not only should you contact your attorney if you have any question about the validity of any Power of Attorney that was executed before October 1, 2011, but you should also be certain to contact your attorney to prepare any new Power of Attorney that you may need in order to ensure that it meets with the current requirements of Florida law.

Visit our website for more information on this subject.

This Article is not a substitute for hiring an independent attorney 

 to prepare and review your Power of Attorney. 

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida. Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980.

The Closer

Winter Park Home Magazine - Issue 4 - 2011

At a real estate closing, the closing agent has multiple responsibilities, and must rely upon the cooperation of the parties to complete his duties. He or she must determine that all title commitment requirements have been satisfied, that all documents are properly executed, that all parties have provided appropriate identification, and that funds provided for the closing have cleared – all of which must be resolved prior to disbursing proceeds and recording the documents. This Article addresses the documentation and funds that are to be supplied by the parties prior to or at the time of closing.

The first task of the closing agent (the “Closer”) is to confirm that the appropriate parties are present. Sometimes the Closer will personally know one or more of the parties. Absent personal knowledge, the Closer, both in his or her capacity as a notary public and as the closing agent, must obtain acceptable forms of photographic identification from the parties. By Florida law acceptable forms of identification include, but are not limited to, a valid Florida or other U.S. state issued driver’s license, an identification card issued by an authorized public agency, a passport issued by the Department of State of the United States, or a passport issued by a foreign government (if duly stamped by the United States Bureau of Citizenship and Immigration Services). The originals of these forms of identification must be provided to the Closer, who will copy the identification for the file.

Oftentimes, individuals are under the mistaken belief that any form of picture identification is sufficient. A Costco card, an office I.D. card, and other similar forms of identification, although frequently presented as identification, clearly are not sufficient under Florida law, with the result that the closing will be either delayed, or canceled. The original must be presented to the Closer for inspection prior to the completion of closing. Faxing or scanning a copy of a passport or driver’s license to the Closer, or promising to return with the identification, is not sufficient. If, for example, a “Seller” attends a closing and executes a deed, is provided with the proceeds check, and promises to return in an hour with his driver’s license, then the Closer clearly has exposed himself to significant liability.

Unfortunately there are too many examples of fraud that have been successfully perpetrated for failure to obtain sufficient proof of identification. A classic example is the situation where a husband, the only party in title, owns homestead property. The estranged wife refuses to appear (or is oblivious to the fact that the property is being sold), and the husband makes arrangements for a friend to appear in her place, and insists that the person is his wife. The Closer must be alert, and obtain and scrutinize the form of identification.

Any original document in the possession of a party that is to be used in conjunction with the closing should be delivered to the Closer in advance. These might include, for example, an unrecorded corrective deed or a private satisfaction of a mortgage. Often a party “offers” to help by obtaining and delivering one of these documents to the Closer at the closing table. The Closer then has the affirmative duty not only to confirm that the document was properly executed, but also to determine that there is no evidence of fraud. The Closer will typically require that he or she be provided with a copy of the signer’s driver’s license, and in certain situations will independently contact both the signer and/or the notary who executed the acknowledgement section. It is far superior for the Closer to contact the necessary parties and prepare and coordinate the execution of any corrective deed or satisfaction of mortgage. Alternatively, the Closer should review the document before closing, in order that any issues be addressed to everyone’s satisfaction.
This is also true of a party’s reliance on a Power of Attorney (the “POA”). If a Closer is unaware of the existence of a POA until the actual closing, there is a risk that the document will be rejected because it was not properly executed, or because the parameters of authority set forth in the POA are not adequate for the particular transaction. Additionally, lenders have their own guidelines relative to the use of a POA by a borrower. By providing the POA in advance, the Closer can not only determine its adequacy and legal sufficiency, but the Closer can also confirm whether the Lender will approve its use.

The ideal method of providing funds at closing, and the procedure used by the author’s law firm, is the wire transfer. Although it may be possible for a buyer to provide a cashier’s check well in advance of closing, there are legitimate concerns that these checks will not clear on time. For that reason, wired funds should be coordinated with and delivered to the Closer’s office immediately prior to or at the time of closing in order to avoid any unnecessary delays.

Historically many Closers have accepted cashier’s checks and disbursed prior to clearance of funds. Cashier’s checks however are not “good” funds at the time the check is delivered to the Closer. The check must first be deposited into the Closer’s account, and the check processed through the banking system and confirmed as collected (“cleared”) funds, before those funds are deemed sufficient. Closers who disburse prior to funds being cleared run the risk of those checks being returned marked “insufficient funds”. There are also many recent examples of banking institutions that cannot timely honor their “cashier’s check” due to subsequent takeover by the FDIC, and also an increasing number of fraudulent checks being provided to a Closer.

Until such time as all funds have been confirmed as cleared, the closing is not completed, and no funds should be disbursed. Title underwriters also mandate that all funds be cleared prior to disbursing at a closing. The Florida Bar rules similarly mandate that a law firm cannot disburse until receipted funds have cleared the law firm’s trust account.

Visit our website for more information on this subject.

This Article is not a substitute for hiring an independent attorney
to review the impact that closing documents may have on real property.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank’s legal practice has concentrated on complex real estate, tax and corporate transactions throughout Central Florida. Frank has been involved in the Central Florida community for more than thirty years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980.