Insolvency/bankruptcy of the debtor

An individual or company that is unable to pay its debts when they fall due may be declared bankrupt/insolvent. In this situation, creditors such as banks who have lent money against security will have priority when it comes to getting their money back, particularly because they can take possession of the assets of the bankrupt individual or company. These creditors are known as “secured creditors”.
However, there may be many other creditors who are owed money by the individual or company but have not taken any security, such as suppliers. These creditors (known as “unsecured creditors”) also want to get their money back but will be lower down in the order of priority, generally being paid after the secured creditors have received what they are owed.

Certain creditors who are owed money and who have not taken any security are still given priority ahead of other creditors. They include tax authorities that are owed taxes and employees that are owed salaries. These creditors are known as “preferential creditors”.

Liquidation/winding up of the debtor

A company that is insolvent or facing insolvency may be liquidated/wound up, which involves the company’s assets being sold, the money being used to pay off debts to creditors, and anything remaining being distributed to shareholders. The company will then be dissolved.

The company itself may decide to wind itself up, but also creditors, among others, may apply to the court to have the company liquidated. A liquidator will be appointed to carry out the liquidation process, bringing with it a certain amount of control over the company. The process involves selling the debtor’s assets, collecting any debts due to the company, and then paying off creditors in the proper order (i.e. usually preferential creditors first, then secured creditors, then unsecured creditors). Actually, the expenses of the actual liquidation are paid off first, so the liquidator makes sure his/her fees are paid!

Avoiding liquidation
A company in financial difficulties may employ a rescue mechanism to postpone or avoid liquidation. An administrator may be appointed by the company or a court whose job it is to reorganise the company or realise its assets within a limited period in order to achieve maximum benefit for the company and thereby save it from liquidation. During this period, the company benefits from the protection of a “moratorium”, which is effectively a freeze on creditors taking action against the company, such as filing for compulsory liquidation or enforcing security. The management of the company continues to run the day-to-day business operations but all significant business decisions must be approved by the administrator.
The administrator will put forward proposals to the shareholders and creditors for their approval as to how best to rescue the company. An arrangement must be approved by a certain majority of shareholders or creditors and often by a court as well, and will be binding on all creditors and shareholders if so approved. An example of such an arrangement is where creditors agree to convert the money that they are owed into shares in the debtor company (known as a “debt for equity swap”). This leaves the creditors without the money that they are owed, but they have the possibility of recouping the money at a later date if the company stays afloat and makes a profit, which can then be distributed to the shareholders (as well as being in possession of shares which can increase in value and then be sold to someone else for a profit).

Law in Practice

Insolvency/ bankruptcy lawyers advise on numerous issues relating to the insolvency/bankruptcy of debtors. They can advise on rescue procedures for debtor companies that wish to avoid liquidation and dispute winding up proceedings on behalf of debtors. Lawyers can also advise creditors on enforcing security and stategies for recovering their debt. Insolvent companies often have assets in more than one country so advice on local insolvency/bankruptcy law from lawyers from different jurisdictions may be required.

Helpful links

UK Insolvency Service, a government agency

http://www.insolvency.gov.uk/

Information on the bankruptcy courts in the United States and other information on bankruptcy

http://www.uscourts.gov/bankruptcycourts.html

UK Insolvency Act

http://www.statutelaw.gov.uk/content.aspx?activeTextDocId=2519933

US Bankrupty Act

http://www.law.cornell.edu/uscode/usc_sup_01_11.html

What is negotiability?

In this context, the word negotiable means transferable; it does not mean open to discussion or modification, as it does in a litigation context. Negotiability allows the transfer of ownership from one party (the transferor) to another (the transferee) by delivery or endorsement. Endorsement is the action of signing an instrument to make it payable to another person or cashable by any person. That means merely signing your name on the back of the document, or adding an instruction such as “pay to the order of Emily Burns”.

What kinds of instruments are negotiable?

There are several types of common negotiable instruments including promissory notes, certificates of deposit, cheques (US checks) and bills of exchange.

A promissory note is a document, signed by the person making the document, containing an unconditional promise to pay a fixed sum of money to a named person, to the order of a named person, or to the bearer (the person who is in physical possession) of the document. Loans are typically formalized in promissory notes, and since they often provide for payments over time, they function to provide credit to the borrower who is the maker of the note.

A debenture (UK) or bond or secured debenture (US) has a similar function to a promissory note; it is a written acknowledgment of debt, secured on the assets of a company. In fact debentures are the most common form of long-term loan used by UK companies.

A certificate of deposit (CD) is a document from a bank which indicates that a specific sum of money has been deposited and promises to repay that sum with interest to the order of the depositor, or to some other person’s order. A CD, which is also called a time deposit, bears a maturity date (the date when it must be repaid) and a specified interest rate, which is usually higher than on ordinary savings accounts.

A bill of exchange is a three-party written order signed by the first party (the drawer), requiring the second party (the drawee) to make a specified payment to a third party (the payee) on demand or at a fixed future date. A cheque is a type of bill of exchange where the drawee is always a bank and is payable on demand. Unlike promissory notes and certificates of deposit bills of exchange and cheques do not pay interest.

A letter of credit is a document provided by a bank or other financial institution as a guarantee that a specific sum of money will be paid once stated conditions have been met. Letters of credit are often used in the import and export business to ensure that payment will be received. Because of factors such as distance, different laws in each country and difficulty in knowing each party personally, the use of letters of credit has become a very important aspect of international trade.

Key legal concepts in negotiable instruments law—nemo dat and holder in due course

The nemo dat rule is an important general principle of law that states that only holders of good title (legal owners) can transfer ownership. However, this rule does not apply to negotiable instruments. This is to facilitate the free transferability of negotiable instruments, which aids commerce in general. Because negotiable instruments can be payable to the order or to the bearer of the instrument, they can be held by someone who is not connected with the underlying transaction and does not know of any potential defect in that transaction. If such a holder holds the instrument in good faith and is not aware of any problems with the instrument, the holder is a bona-fide purchaser for value or holder in due course (HDC). This means that the HDC takes good title to the instrument and can claim payment even if the person from whom he or she received it did not hold title. The HDC acquires greater rights under a negotiable instrument than an ordinary transferee of a contractual right.

Negotiable instruments law in practice

Lawyers who practice negotiable instruments law usually work for banks , commercial law firms, or governmental authorities.

Many lawyers at certain commercial law firms work in the field of capital markets. Capital markets is a term used to describe the pool of investors (including pension funds, hedge funds, financial institutions and retail clients) who have funds to invest in financial products. Such products would, generally, include corporate bonds, financial bonds and structured securities.

Capital markets lawyers will typically advise investment banks when they issue bonds to raise money. A corporate bond has similar characteristics to a loan in that money is borrowed by a company to be repaid at a date in the future with interest paid thereon. The key difference is that because the company is accessing the capital markets (and thereby a pool of investors), each taking a smaller proportion of risk than lenders in a loan agreement, the company may be able to borrow at more favourable rates. The investor receives interest throughout the life of the bond (in a similar way to a loan agreement) and receives back their principal at maturity (the end of the term of the bond). If there is an event of default (eg the company that issued the bonds becomes insolvent), the investor becomes a creditor in the company’s insolvency. In such an insolvency situation, lawyers may advise a trustee interposed in order to act on behalf of the bondholders.
Commercial lawyers in private law firms also deal with negotiable instruments because they are often used as means of payment in mergers and acquisitions, and other transactions. Lawyers who represent debtors and creditors in bankruptcy cases litigate regarding the validity of the instruments, the rights of the creditors to get paid and the lack of the debtors’ ability to pay. They also try to work out new payment plans on promissory notes, to enable debtors to pay.

Banks are often parties to negotiable instruments, for example, as lenders in promissory notes, as borrowers in CDs, and as guarantors in letters of credit. Therefore, bank lawyers are involved in drafting the forms and seeing that all of the legal prerequisites are met. They can also be involved in bringing collection proceedings and other litigation where other parties to the instruments have defaulted on their obligations, usually by failing to make timely payment under the instruments.

Lawyers who work for governmental tax authorities often monitor negotiable instruments to make sure that they are not used for evading taxes. Consumer protection authorities scrutinize instruments, particularly promissory notes, to see whether the terms and conditions of the loan are unreasonable to the consumer-borrower. For instance, they regulate the amount of interest that may be charged.

Helpful links

• Samples of promissory notes and debentures at : http://contracts.onecle.com/type/
• samples of certificates of deposit at: www.fltreasury.org/certificate_deposit_program/forms.html and https://www.fhlbdm.com/Docs/…/Certificate%20of%20Deposit.doc
• the American legislation governing negotiable instruments, Article 3 of the Uniform Commercial Code is found at : http://www.law.cornell.edu/ucc/3/
• an introduction to the law of negotiable instruments http://www.lexisnexis.com/lawschool/study/understanding/pdf/NegInsCh1.pdf
• a discussion of the law on cheques: http://www.lawhandbook.sa.gov.au/ch08s05s05.php

Secured interests are often required when a party borrows money, which means the loans must be securitized. Lenders often require more than just promises of repayment in order to extend credit to borrowers. The law of secured transactions deals with the collateral interests formed between a lender and borrower. The collateral interests secure the loan by allowing property to act as security for the borrower’s obligation to repay the loan.

A security interest is created by an agreement (“security agreement” also called a “debenture”) and arises when in exchange for a loan, a borrower agrees that the lender may take specific collateral owned by the borrower in the event of a default on the loan. Notably, a lender does not take a security interest in order to acquire the property, the collateral is simply a protection in case of a default. For example, if the borrower is unable to fulfill his obligation to make loan payments as agreed, then the lender may take possession of a specified security property.

In addition, a security interest assures the lender that if the debtor should go bankrupt (or “becomes insolvent”), the lender may be able to recover the value of the loan by taking possession of the specified collateral instead of receiving only a portion of the borrowers property after it is divided among all creditors.

Security agreements as contracts

Security agreements are contracts and so the law of secured transactions is generally considered to be a form of contract law. The law of secured transactions generally applies to any transaction, regardless of its form, that creates a security interest in personal property through a a contract. This includes sales of accounts, promissory notes, consignments, and various other security agreements.

Typically, a statute of frauds requires that security agreements be in writing unless the security is pledged. A pledged security agreement arises when the borrower transfers the collateral to the lender in exchange for a loan. To perfect a security agreement the filing of a public notice is usually required. This act of filing is generally known as perfection, which denotes the additional steps which must be taken in order to make the security effective against third parties and to ensure its effectiveness if the issuer goes bankrupt. In this context, the perfection of a security agreement allows a lender to gain priority to the collateral over any third party.

Taking security in the context of a loan

Pursuant to a loan transaction, a bank will generally take security over the assets and undertaking of the borrower in order to increase its chances of being repaid, even on the insolvency of the borrower. Therefore, in conjunction with entering into the loan agreement, the borrower will be required to enter into a debenture or security agreement, which is the document under which the borrower creates the security in favor of a bank for a loan. Such security typically includes creating a fixed charge over the fixed assets of the borrower (such as plants and machinery), which means that the borrower may not sell or do anything to devalue its assets without the bank’s consent and the bank has recourse to the assets if the borrower defaults on the loan.

In order to secure the remaining assets of the borrower which may fluctuate from time to time (such as its trading stock), the bank will also seek to take a floating charge over the whole undertaking of the borrower. A floating charge allows the borrower to deal with the charged assets in the ordinary course of business without the requirement of the bank’s consent. However, on the occurrence of certain events, such as a default under the loan agreement, the floating charge will crystallize, which means that it is converted to a fixed charge over the assets which it covers at that time, so the borrower will only be able to deal with such assets with the bank’s consent.

Other forms of security which the bank may hold include a mortgage over assets such as land or shares, which often grants the bank a right to sell on default; a pledge over assets capable of delivery such as bearer bonds, since this involves the bank taking physical possession of the asset; and an assignment of the borrower’s rights against third parties, such as book debts.

The bank will seek to ensure perfection of the security (i.e. to make it valid against third parties) by publicly registering the charges or security agreements. It will also seek to ensure that the charge ranks in priority to other charges, which it may achieve by the inclusion of a negative pledge, which is an undertaking by the borrower not to create any further security over its assets, in the debenture to prevent the borrower granting later fixed charges to third parties which take priority over the floating charge granted to the bank. Banks often create negative pledges by requiring the borrower to give covenants, or promises, including non-financial covenants, such as a negative pledge.

In addition to the security granted by the borrower, the bank may also seek a guarantee from the borrower’s parent company or other group company to act as third party support, which is an undertaking by the guarantor to answer for the borrower’s liabilities on its default. If the borrower’s parent refuses to provide a guarantee, it may give a comfort letter, which is usually not intended to be legally binding and is merely a statement of intention to maintain an interest in and support for a subsidiary and to ensure it is capable of fulfilling its obligations under the loan, which acts as reassurance to the bank.

Useful Links

Uniform Commercial Code – Article 9 Secured Transactions

http://www.law.cornell.edu/ucc/9/

Investopedia

http://www.investopedia.com/dictionary/

Related Terms

assets: a person, business, or estate’s entire property. Comprises property of all kinds, including real and personal property. The assets acquired as a result of the sale will be transferred to the buyer on the completion date.

commitments: things pledged, obligations. Commitments to extend credit are agreements to lend provided there is no violation of any condition established in the contract.

creditor: one to whom a debt is owed by another. The debtor proposed to pay its creditors by selling its primary asset, a tract of land.

crystallise: to take definite or concrete form, e.g. when a floating charge becomes fixed. Under this provision, the floating charge crystallises if the borrower goes into liquidation or a receiver is appointed.

enforcement of security: collection of the debt by moving on the assets provided as security by the debtor. A receiver may be appointed to protect and recover secured assets where borrower is in default and enforcement of security is necessary.

fixed charge: a charge attached to specific assets which prohibits dealing with those assets without the creditor’s consent. Assets subject to a fixed charge cannot be sold without the bank’s consent.

floating charge: a continuing charge on assets which allows the grantor to deal with those assets freely. A major difference between a fixed charge and a floating charge is that assets can only be released from a fixed charge with the active consent of the lender.

loan agreement: the contract between borrower and lender which sets out the terms and conditions for the loan. Check that your loan agreement gives you this flexibility and try to avoid a prepayment penalty for paying off part of the loan early.

negative pledge: promise by the borrower not to place any further liens on its assets. Sometimes, the negative pledge is not absolute because it allows the borrower to place further liens on the security subject to the permission of the first creditor.

secured creditor: A person who holds a charge over the assets of a company or an individual and thereby gains priority over some or all other creditors on the winding up of the company or the individual’s bankruptcy. The only secured creditor was the bank, which had a charge over the company’s assets.

syndicated loan facility: usually the extension of a large amount of credit to one borrower by several banks under one agreement. Lundgren has signed a new syndicated loan facility with a syndicate of international banks for €800 million.

take security over: to place a charge over as security for the repayment of a debt. Mr Smith understood that in return for the provision of a revolving credit facility of €100,000, the bank would take security over two of his properties.

transaction: an agreement between a buyer and a seller to exchange an asset for payment. The most recent transaction he worked on was the acquisition by a multi-national company of a smaller competitor.

unsecured creditor: a creditor that does not hold security from the debtor, and does not rank as either a secured or preferential creditor in the liquidation of a company. The law firm was an unsecured creditor and, therefore, could only be paid on a pro rata basis after all secured creditors had been paid.

What are common law and equity?

The term common law is confusing as it has a different meaning depending on the context. The term can refer to: (1) the law that is not established by legislation (also known as “statutory law”) but by judges when they decide cases (also referred to as “case law”), (2) the law that is not equity (see below), and (3) the law of countries following the common law tradition such as England and the US (in contrast to e.g. Roman law or French law), and in this sense it includes the whole of the law, including legislation and equity.
Equity is the name given to the set of rules which traditionally supplemented common law where its application operated harshly, so as to achieve what is sometimes referred to as “natural justice.” Nowadays, equity has merged with the common law to become a branch of the law, dealing with, notably, trusts and certain remedies such as injunctions.

What is the difference between a barrister and a solicitor?

In the UK, the legal profession is divided into two kinds of lawyers: solicitors, who generally advise clients and prepare legal documents, and barristers (called advocates in Scotland) who argue cases in court. In cases where a trial is necessary, a client has to hire a solicitor, who will advise them and then retain a barrister on their behalf. Solicitors have traditionally dealt with any legal matter other than conducting proceedings in court, although nowadays solicitors may appear in the lower courts and also if they have higher “rights of audience” (i.e. the right to appear in court on behalf of another person) in the higher courts. Barristers, who have a general right of audience in all courts, represent clients in court and provide specialist advice on complex legal matters. The easiest way to distinguish the two is to look at how they dress – barristers are the ones wearing wigs and gowns (yes, even in the 21st century), whilst solicitors will invariably be decked out in a dark suit.

What is a deed?

A deed is a written document which is required by law to be executed in a particular way in order to be enforceable (traditionally “signed, sealed and delivered” but these days often by no more than the simple signature of one person). Documents required to be executed as deeds may include certain agreements (such as a transfer of real estate), or where there is a lack of consideration (see “What is consideration?” below), such as the confirmation or creation of a right or interest (such as a power of attorney), and the confirmation or creation of a binding obligation (such as a guarantee). If the formal requirements for execution are met, a deed is enforceable regardless of a lack of consideration, which is usually required for a contract to be enforceable.

What is a trust?

A trust is a legal device used to set aside money or property of one person (the settlor) for the benefit of another (the beneficiary). For example, a trust may arise where assets are left in a will to children who are too young to legally own the assets. A trust is not a legal person – the settler transfers property (such as shares or real estate) to trustees who own the trust property as far as third parties are concerned and have a duty to manage the trust property for the benefit of the beneficiaries. In this way, a trust permits the separation of legal ownership and beneficial interest.

What is consideration in a contract?

In the context of contract law, consideration is a vital element required to form a contract (along with offer, acceptance and an intention to create legal relations). As a general rule, a contract is not enforceable if there is no consideration. It is something done or given, or the promise to do so, by one party to the contract in exchange for the act or promise of the other party. The idea is that, in order for a party to enforce a promise, they must have given some quid pro quo for it. Consideration is, therefore, payment in any form under a contract (such as cash, shares, property, bananas, etc.).

What is the difference between a power of attorney and a proxy?

A power of attorney is authorisation to act on another person’s behalf and in their name in a legal or business matter. The person granting the power of attorney is known as the grantor and the person authorised to act is the agent or attorney-in-fact. The power granted may be very wide in scope and may include the power to sign documents on behalf of the grantor, deal with their financial affairs and property, etc.
A proxy commonly refers only to authorisation to vote on another’s behalf and is therefore more limited in scope than a power of attorney. For example, a shareholder entitled to attend and vote at a company meeting may appoint a proxy to attend and vote in their place or a student backpacking around the world may appoint his or her mother to vote in a general election on his or her behalf (note that a proxy is also the person to whom authorisation is granted).

What are liquidated damages?

Liquidated damages are a fixed or determined sum agreed by the parties to a contract to be payable on a breach of contract by one of the parties to compensate the injured party (also known as the “non-breaching party). The purpose of liquidated damages is for the non-breaching party to avoid the costs which arise in the difficult task of proving the amount of the loss actually incurred. If a liquidated damages payment constitutes a penalty, it will be void, so it is important to draft the liquidated damages clause in the contract such that it compensates the injured party for anticipated loss caused by the breach and does not serve as a penalty. Therefore, for example, the amount of damages stipulated in the contract should be reasonable, and not extend far beyond that which would normally compensate the anticipated loss. It should be noted that, in all other cases where the court quantifies or assesses damages or loss, the damages are known as unliquidated damages.

What is due diligence?

Due diligence (or DD) is the process by which a buyer of a company or business (known as the “target”) investigates the target to assist the buyer in deciding whether or not to go ahead with the proposed acquisition and on what terms (in particular to determine the price). Lawyers will often be instructed to review the target’s documentation relating to, generally, agreements with third parties, loans it has taken out, real estate it owns, environmental matters, intellectual property rights it owns, details of employees and pension schemes, taxation matters and public filings. DD is not very popular amongst lawyers since it can become repetitive and may involve long hours in dingy basements (known as “data rooms”) trawling through copious amounts of documents. Luckily, these days, virtual data rooms are commonly used, whereby documents relating to the target can be retrieved online from the comfort of one’s office desk. This doesn’t seem to have appeased the lawyers though…

Do the words within couplets such as “null and void” and “due and payable” have distinctive meanings?

The short answer is no. Using both words is an unnecessary lawyerism since both words mean exactly the same thing. The couplets came into being in England in the 11th century following the Norman conquest. Since the Normans spoke French, English courts were held in French, but most people in England still spoke English, so lawyers started using both the English and French words in order to be understood. Many of the couplets such as those above are still commonly used in legal drafting, but the fact is that they are redundant, and in these days of plain English in the legal world, it is preferable to use one word rather than two. It’s all King Harold’s fault really…

What is the difference between a contract, agreement, deed and gift?

An agreement ranges in meaning from mutual understanding (not necessarily enforceable by law) to a binding obligation. Whereas, a contract, used especially in law and business, is a binding agreement between two or more persons that is enforceable by law.
A deed is a legal document signed and sealed and delivered to effect a transfer of property and to show the legal right to possess it.
A gift is an intentional and gratuitous transfer of real or personal property by a donor with legal capacity who actually or constructively delivers the property to the donee with the intent of giving up dominion over the property and investing it in the donee who accepts it; broadly : a voluntary transfer of property without compensation.

What is the difference between best efforts and best endeavours?

The term “best efforts” is used in American English and “best endeavours” is used in British English. To use your best efforts/endeavours is to make a usually earnest attempt to do something.

If you haven’t found the answer to your question on this page, please feel free to send us your query by email to info@translegal.com. We will add relevant Questions and Answers to this page.

ILEC Course Design Guidelines

TLS_ LE_in Practice

Education

In most countries, one must have studied law at a graduate level to be able to work within the legal profession. As an example, in the UK, most people study law for 3 years. If one then wishes to start working for a law firm or work within the court system, it is necessary to attend law school or bar school for an additional year. Law school is for law students who wish to work with law firms and bar school is for those who wish to work either as barristers or judges (public prosecutors or private defense lawyers). In the United States, it is generally required that one obtains a four-year undergraduate degree in any subject and subsequently attend law school for three years. However, in other countries, like Sweden or Belgium, students study law at university and then start to work directly, usually taking an exam at a later stage to become a qualified lawyer of some kind.

Practice areas

Law firms
Law firms vary in size but are basically a group of lawyers working together for various private and public clients. They are often set up as partnerships where the lawyers who work together own the law firm together. These owners are called partners. The largest law firms are large international partnerships with offices all over the world. The largest law firms may have thousands of lawyers working worldwide consisting of partners, senior and junior associates, and trainees, as well as support staff such as secretaries, human resources, and IT experts. The large law firms are divided into specialized groups made up of lawyers working within the same area of law, for example a corporate department which works with company law (US – corporate law), a tax department which works with tax law, a litigation department which works with litigation issues, etc. Much of the work carried out by the larger law firms are large projects which involve many different departments within the law firm and, in addition, involve working with lawyers from other countries. Other law firms are smaller and focus on more local or national work. Law firms also work with other, non-economic areas of law, for example, criminal law when defending persons accused of crimes or family law when helping a couple obtain a divorce. Lawyers who work at law firms usually work with private clients, although many are also instructed by public authorities to act on behalf of the state in all kinds of legal areas, civil and criminal. Lawyers who work at law firms will often obtain special titles after working for a certain length of time, such as solicitor (UK) or advocate (FR). These titles are usually earned after passing a specific exam and/or having worked for a certain amount of time.

Court system
The courts of a country enforce the criminal and civil laws which are imposed on the country’s citizens and companies. The court system is usually structured in different levels, where the most number of courts are at the first level (first instance). Decisions from these courts can then, in most cases, be appealed to higher level courts, with one court being the ultimate deciding authority, such as the House of Lords in England and the Supreme Court of the United States. Most countries only have one court system. However, in the US there is a federal and a state court system and in the European Union countries, the European Court of Justice (ECJ) is an additional court which can enforce European Union law within the member countries.

Courts are normally headed by judges who often are lawyers, although in specialized courts such as commercial courts or employment courts, the judges may often be professionals with many years experience and expertise within a special area of law. There are other officials who work at courts who do not have a legal education, such as lay judges and the administrative personnel. Generally speaking, lawyers within the court system usually work as public prosecutors or judges. A public prosecutor is a person who prosecutes criminals on behalf of the State and is therefore employed by the State. To become a judge, one normally must have worked in some capacity previously within the court system, either as a public prosecutor or as a court clerk and progress to being nominated as a judge. In some countries, for example Sweden, a law student starts to work in a district court and works their way from being court clerks to junior, then senior, judge. In the United Kingdom a law student first has to qualify as a barrister then seek work as a junior judge, and work their way to becoming a more senior judge. This process is not the same for all courts in all jurisdictions, however. There are some courts where judges are appointed without any previous court experience.

Companies
All companies need help with legal issues, from actually forming the company to running operations and dealing with everyday business problems. Companies sometimes use law firms for this work, but more often (especially in larger companies) employ their own lawyers who only work for them. These are often referred to as in-house counsel or company lawyers. Some large multinational companies have large groups of lawyers working for them all over the world. There is usually a lead in-house counsel who is also a member of the board of directors. These lawyers work mostly with commercial and corporate law although other areas of law are common too. For example, in-house counsel at a large bank will work with banking, finance and capital markets law. An in-house counsel at a large petrol company may work with environmental law. The in-house counsel works closely with the management of the company and with the board of directors to ensure that the decisions taken by the management and directors comply with the laws applicable to the company. Many lawyers who work at companies will often have worked at commercial law firms as well.

Public sector
There are many lawyers who work within the public sector, both within the government and within the many different public authorities. In the US and the UK, it is often common for politicians to have a legal background. Lawyers who work within government departments prepare and draft new or amended legislation which the government wishes to pass through parliament. Legislation is constantly changed so that it is up-to-date and relevant in relation to the changes which take place within society, such as technological developments, globalization and environmental changes. Therefore, lawyers who work for the government have to draft new legislation to cover new technology, such as when mobile phones were introduced, or re-draft existing legislation such as contract law which covers the sale of goods to include the selling of goods over the internet.

The public authorities of a country are authorized by the legal system of that country to enforce the legislation that has been enacted. There are a large number of public authorities prepare legislation and enforce different laws applicable to private persons and companies. For example, most countries have an authority which supervises banks and financial institutions to ensure that they carry on their business according to the laws and regulations which are enacted within that area. There are also authorities which are entrusted with enforcing competition legislation (see section on Competition Law) whereby companies market behavior is supervised and to a certain extent controlled. The lawyers who work for public authorities will then also represent the state in any court proceeding which may be necessary to enforce the law.

Contracts relating to the sale of goods are typically covered by the legislation of the relevant country or, less frequently, by general contractual principles of law. In the UK, the principal relevant legislation is the 1979 Sale of Goods Act. In the United States, the Uniform Commercial Code (“UCC”) normally applies to sale of goods contracts. A person or entity may have rights under a Sale of Goods Act if they have bought goods for commercial or personal use. Many countries have separate Sale of Goods Acts – one for sales between merchants and one for sales involving consumers.

If the goods are in some way faulty, the purchaser of such goods may be entitled to a full refund or partial compensation. Sale of Goods Acts often list terms or concepts which are implied in every sale of goods contract, regardless of whether they are expressly stated in the contract itself.

Good Faith

In many jurisdictions, a duty of good faith and fair dealing is implied in all contracts, i.e. neither party can do anything that would have the effect of destroying or injuring the right of the other party to receive the benefits of the contract. Although many jurisdictions (including the US) recognise good faith, English law generally refuses to recognise it as an implied contractual term.

Terms implied by custom or trade

One is generally bound by the customs of a particular industry. The terms of a sale of goods contract may have been negotiated against the background of the customs of a particular locality or trade. The parties often assume that their contract will be subject to such customs and thus do not deal specifically with the matter in their contract.

Course of Dealing

If two parties have regularly conducted business on certain terms, the terms may be assumed to be same for each contract made. The parties must have dealt with each other on numerous occasions and been aware of the term meant to be implied. Terms (or entire contracts) may be implied based on the previous course of dealing between the parties.

Implied Warranties

In common law jurisdictions, there are certain implied warranties or assurances presumed to be made in the sale of goods.
The warranty of merchantability is implied, unless expressly disclaimed or a sale is made using the phrase “as is” or “with all faults.” In order to be “merchantable”, the goods must reasonably conform to an ordinary buyer’s expectations, i.e., it functions like other goods of the same type.
The warranty of fitness for a particular purpose is implied by law where a seller knows or has reason to know of a particular purpose or use for which an item is being purchased by the buyer (and the buyer relies on the seller’s expertise in selecting the product).
Other implied warranties include warranty of title, implying that the seller has the right to sell items and is the proper owner and, in conjunction with real estate transactions, the warranty of habitability, often defined as the minimum standard for housing suitable for human habitation.

Battle of the Forms

In many sale of goods transactions, the parties exchange printed purchase orders and acknowledgement forms. Naturally, these forms are oriented to the thinking of the respective drafting parties and the terms contained in them often do not correspond. Sale of Goods Acts provide rules for contract formation in cases in which the parties exchange forms that do not agree on all the terms.
Under the common law’s mirror-image rule, an acceptance that varies the terms of an offer becomes a counter-offer. This operates as a rejection of the original offer. Many modern statutes, such as the UCC and the Sale of Goods Act, change this rule and convert a counter-offer into an acceptance even if it contains additional or different terms. The only requirement is that the responding form must contain a definite and seasonable expression of acceptance. The terms of the responding form that correspond to the offer constitute the contract. Any additional terms become proposals for additions to the contract. When the transaction is between merchants, the additional terms become part of the contract unless the offer is specifically limited to its terms, the offeror objects to the new terms, or the additional terms materially alter the offer.

Helpful links:

United Nations Commission on International Trade Law (CISG and related transactions)

http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods.html

UK Sale of Goods Act

http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1979/cukpga_19790054_en_1

Consumer protection information (US)

http://www.polisource.com/consumer-protection.shtml

Consumers international

http://www.consumersinternational.org/

Unfair Terms in Consumer Contracts Regulations

http://www.opsi.gov.uk/si/si1999/19992083.htm

Appendices

These appendices are in Adobe Acrobat format.
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Appendix 1

In the common law system, there are two types of remedies, legal remedies and equitable remedies.These will be discussed in turn.

A few words about the development of law and equity

As is well-known, England and most of her former colonies operate under a common law system. Very briefly, this means that in the absence of a statute or other legislation or regulation, judges have the authority to decide what the law is on a particular issue. Subsequent courts addressing the same issue are then bound by the previous court’s decision, which is known as a precedent. In order for this system to develop in an organised fashion, precedent was rigidly applied; if the facts of the case were more or less the same as a precedent, the precedent governed the case before the court. Fairly early on (in the Middle Ages) cracks began to develop in the system—what if the facts were close enough to precedent to dictate the application of precedent, but the application of precedent would result in a clearly unfair result? A separate system, known as equity, began to develop parallel to the common law system (and continued to develop over the course of several hundred years). The two separate court systems that resulted were empowered to award different types of remedies. Courts of law could award damages, i.e. money, to compensate a person for the loss he or she had suffered. The Chancery Court, which was the court of equity, could award remedies that would restore equilibrium and lead to a just and fair result between the parties.In order to eliminate problems that arose from these differences, the separate courts were, for all practical purposes, merged in the 19th century. However, the classification of rules and remedies as legal or equitable survives. This is so because the system of precedents that characterises the common law system requires that decisions and remedies be based on earlier cases, and so judges and lawyers still need to make these distinctions in the argumentation and decision processes.

Legal remedies

As mentioned above, courts of law were empowered to award damages. Damages are the legal remedy. Damage is what happens to you (as lawyers say, what you “suffer”) and damages are what the court gives you (as lawyers say, “award” you) if you can prove that you have suffered damage. “Damage” remains singular even if the party suffers several different types of injury. For example, Jones paid Smith to deliver 100 kilos of prime beef to Jones for the opening night of Jones’ new steakhouse restaurant. Smith failed to deliver and Jones had to find a supplier who could quickly provide him with enough beef for the evening. Unfortunately, the supplier could only deliver 75 kilos of inferior quality beef at twice the price, the kitchen ran out of steak before the evening was over, and Jones had to close the restaurant early. What is Jones’ damage? He lost the money that he paid to Smith for the delivery. He had to pay the second supplier. He lost income, since he could not fill all the orders for steak that night. He suffered injury to his reputation, since he advertised and could not provide the product that he offered. Jones’ damages are the amount of money that the court awards him for the various types of damage which he has suffered.

Contract damages
The theory underlying contract damages is that a party to a contract is entitled to the benefit of his or her bargain. The damages that are awarded for a breach of contract are compensatory—they compensate the non-breaching party for his or her loss. These damages can be divided into two categories: general damages and special damages. General damages are damages which flow directly from the breach of contract. In the steakhouse example, Jones’ general damages are the money the court awards him to compensate for (1) the amount that he paid Smith, (2) the amount that he paid to replace the meat that Smith failed to deliver, and (3) the lost income for the steak orders that Jones couldn’t fill. His special damages are consequential damages – damages which are a consequence of the breach of contract, namely damages for injury to his reputation and lost income because he had to close the restaurant early. In order to recover these consequential damages he will need to be able to prove the damages with reasonable certainty and show that Smith could have foreseen the loss if he failed to deliver the meat.

Once damage has been proven and the right to damages is clear, the court needs to calculate the damages. As noted above, the non-breaching party is entitled to the benefit of his or her bargain. The simplest remedy is expectation damages, that is an amount of money which will place the non-breaching party in the position he or she would have been in had the contract been performed. The expectation damages for Jones’ steakhouse are set forth in the preceding paragraph.

What if Jones’ hadn’t been able to find a substitute supplier and had been unable to open his steakhouse as planned? He can’t recover expectation damages because there is no way of knowing how much money the steakhouse would have made that night. Instead of expectation damages, he can recover reliance damages. He relied on the fact that Smith would perform and prepared to open his restaurant. He can’t be put in the position he would have enjoyed had Smith performed, but he is entitled to be put in the position he was in before the contract was made; the status quo will be restored and Jones will be made whole. He will be able to recover, for example, the advertising costs, personnel costs, and all other costs expended in preparing his restaurant.

Damages do not always need to be proven. The contract may provide for liquidated damages, sometimes known as stipulated damages. A liquidated damages clause states that in the event of a proven breach of contract, the non-breaching party is entitled to recover a sum stated in the contract. In order to be enforceable, the stipulated amount must bear a reasonable relationship to the breach of contract; the liquidated damages clause may not operate as a penalty. If the contract between Smith and Jones provided for liquidated damages of £1,000,000 for any delay in delivery and Smith delivered the meat 20 minutes late, a strict interpretation of the contract would mean that Smith must pay £1,000,000 for being 20 minutes late. A court would almost certainly find this to be a penalty and strike down the liquidated damages clause (this would not mean that Smith would not have to pay any damages at all, but rather that the amount of damages must be determined by the court according to the principles set forth above.)

The last type of damages available under a contract are restitution damages. These damages require the breaching party to return the monetary value of the benefit that he or she received under the contract. Unlike expectation and reliance damages, which focus on what the non-breaching party has suffered, restitution damages focus on what the breaching party has gained. In addition, restitution damages are only awarded when there was no contract in force at the time of the lawsuit. There are two cases in which this can happen. The first is if the non-breaching party chose to rescind the contract when the breaching party failed to perform. The second case is where no contract ever existed but the non-breaching party performed and the breaching party accepted performance. For example, return to Jones’ steakhouse, but imagine that, without any contract, Smith delivered meat and Jones accepted it. Jones then refused to pay, saying that he had no contract with Smith. A court would find that Jones must pay restitution damages to Smith.

Tort damages
As discussed in another article, tort is the body of law that addresses non-criminal, non-contractual wrongs, such as personal injury, injury to reputation, trespass and non-criminal property damage. The purpose of damages in tort is to compensate the victim for his or her loss; thus we can say that tort damages are compensatory in nature. Nevertheless, on certain occasions, tort damages may also punish a defendant for his or her actions.

Tort damages can be broken down into types, as follows.

a. Nominal and contemptuous damages
A woman in a fur coat with two small children walks up to a taxi at a taxi station. When she tries to engage the cab, the driver starts to scream and curse and calls her all kinds of horrible names because she is wearing a fur coat and he is offended by fur coats. She is insulted, her children start to cry and ask why the man is calling her a murderer and who she killed. She engages the next taxi in the queue and goes home. She later sues the first taxi driver for defamation of character and damaging her children’s trust in her. The court finds that she indeed suffered injury but that she suffered no loss—she was able to take a taxi to where she wanted to go, her children’s trust was quickly restored without expensive psychotherapy, and she was angry and insulted, but not damaged. The court will award nominal damages. Nominal damages are a token amount awarded by the court when the plaintiff has suffered no loss but an award of damages is appropriate so that the court can (a) order that the defendant pay the plaintiff’s court costs ; or (b) award exemplary damages (see below) if the defendant’s behaviour is so offensive that he needs to be punished.

Contemptuous damages are the mirror image of nominal damages, in that the successful plaintiff is scolded for bringing the lawsuit. Green and Brown are next-door neighbours who have never gotten along. Green’s dog wanders onto Brown’s property one day and relieves himself. Brown steps in the dog’s faeces, is disgusted, and sues Green for trespass and for failing to control his dog. The court finds that Brown was technically legally correct and thus he must win the lawsuit, but that the lawsuit was rather ridiculous and wasted everybody’s time. The court will award damages in the amount of one penny (the smallest monetary amount) to make this statement to Brown.

b. General and special damages
General and special damages in tort are completely different from general and special damages in contract. Special damages are damages that can be itemised at the time of the lawsuit. For example, consider again Green and Brown and the dog. This time, Brown slips, breaks his leg and drops his laptop computer onto a rock. His lawsuit now has merit since he has suffered a real, quantifiable injury. His special damages (think special in terms of specifiable, not special in terms of extraordinary) might include his medical bills, lost wages until the date of the trial and the cost of repairing his computer. His general damages are damages that cannot be specified as of the day of trial, such as projected future lost wages as well as pain and suffering, i.e. his psychological injury.

c. Exemplary and aggravated damages
Exemplary damages, also known as punitive damages, are damages that the court awards when it is shocked by the defendant’s behaviour. To return to the taxicab example, the court could find it highly offensive that a professional cab driver addresses personal insults to a person with small children. An award of exemplary damages would, in essence, tell the driver that although his offence was not criminal, he will nevertheless be punished because we just don’t behave that way in polite society. In the UK, exemplary damages are generally limited to oppressive behaviour by government employees, cases in which the defendant has profited by his actions, or where a large number of people are affected by the action.

Aggravated damages are awarded when the defendant’s behaviour was calculated to insult the plaintiff. They are actually compensatory in nature; the principle is that the loss suffered by the plaintiff was worse than a mechanical application of the rules for calculation of damages would indicate. They compensate the plaintiff for additional mental distress.

Equitable remedies

As discussed previously, equitable remedies are appropriate when an award of damages will not lead to a fair result.

Equitable remedies in contract and quasi-contract
Where damages will be insufficient because something about the contract is unique, the court will award specific performance. The court enforces the terms of the contract. For example, two parties enter into a contract for the sale of a house. The seller has second thoughts and decides not to go through with the sale. The court may award the buyer specific performance, since real property is unique and another house will not give the buyer the benefit of his bargain. Specific performance is often ordered when the dispute involves art or antiquities.

The remedy of replevin requires a party to return goods that are wrongfully in its possession. For example, Gray hires a storage locker and pays rent for one year in advance. At the end of the year he returns to the storage facility to claim his goods. The owner refuses to release the goods because he says that Gray still owes him money. Assuming that no money is owing, Gray will file an action for replevin to recover his property.

A court may order rescission when a party has entered into a contract under duress or due to fraud or misrepresentation. Rescission cancels the contract as if it was never entered into in the first place and the innocent party is excused of all obligations under the contract. Rescission is only available as remedy when the parties can be returned to the status quo ante, that is when they can be returned to exact position they occupied before the contract was entered into. Otherwise, damages are the appropriate remedy.

Where the parties entered into a written contract and both parties agree that the written contract does not reflect their understanding or circumstances have changed, the court may order reformation of the contract. For example, White is a dog breeder and contracts with Black for the sale of a purebred puppy from the next litter produced by the kennel. During negotiations, both parties understood that Black wanted a female puppy so that she could start her own kennel. However, the parties failed to specify the gender of the puppy in the contract and, when the litter is born, it contains only male puppies. White seeks to enforce the contract and require Black to purchase a puppy, but since there is clear and convincing evidence that the parties intended that the contract refer only to a female puppy, the court can order reformation of the contract.

Restitution, discussed above, can also be an equitable remedy, and is the remedy whereby a party must return something to its rightful owner. For example, you lend your car to your neighbour, who then refuses to return it to you as agreed. He hasn’t stolen it (because he acquired possession lawfully) but you can sue for restitution and force him to return it.

Where a party wants a declaration of its rights under a contract but is not seeking enforcement of the contract or damages, the court may issue a declaratory judgment setting forth the relative rights and obligations of the parties. A classic example of this is when an insurance company refuses to provide coverage under the insurance contract because it says that the loss does not fall within the scope of the insurance. The policyholder will then sue for a declaratory judgment so that the court can determine whether the loss is covered. The policyholder is not asking the court to enforce the contract—presumably once the parties’ relative rights and obligations are determined, the insurance company will comply with the terms of the contract.

Equitable remedies in tort
A court can issue an injunction to order a party to stop doing something (a prohibitory injunction) or to do something (a mandatory injunction).

A factory is dumping toxic waste into the river. The neighbours down-river sue for an injunction, asking the court to order the factory to stop dumping waste—damages will be inadequate because once the environment is destroyed, no amount of money will adequately compensate for the loss. While the lawsuit is pending, the plaintiffs want the factory owner to stop dumping so that the pollution does not get worse while their relative rights are determined. The plaintiffs will request a temporary injunction (also known as an interlocutory or preliminary injunction) to stop the dumping until a judgment is entered in the matter. Assuming the plaintiff prevails, the court will then issue a permanent injunction, ordering the factory to never again dump toxic waste into the river.

The court may also issue a mandatory injunction, ordering the factory to clean up the river.

Restitution and declaratory judgment are also available in tort.

Law in practice

The remedy sought must always be appropriate to address the damage suffered. When a lawyer takes a case, he or she must understand not only the law relating to the damage the plaintiff is alleged to have suffered, but also the law regarding the available remedies.

Some lawyers work primarily with contracts, such as commercial lawyers, real estate lawyers, corporate lawyers, competition lawyers, and employment lawyers. These lawyers must understand the remedies necessary to help their clients receive the benefit of the bargain that they entered into. For example, the dispute between Jones, the restaurant owner, and Smith, the meat supplier, is a commercial dispute and their lawyers must understand how to calculate damages in contract. The calculation of certain consequential damages, i.e. injury to reputation, may require expert assistance from, for example, an accountant who has worked with many restaurants. If this accountant testifies at trial regarding the loss, she will be called as an expert witness. Smith’s lawyer will then (presumably) call his expert witness to provide another calculation for the judge or jury to consider.

There are also lawyers who deal primarily with tort claims, such as personal injury lawyers, environmental lawyers, and libel and slander lawyers. The damages calculations that their work requires can be, arguably, more complex than those used by lawyers working primarily with contracts. Consider again the case of the factory dumping toxic waste into the river. In addition to the injunction, the neighbours down-river may seek damages for the loss of use and diminution in value of their waterfront property or, if they are farmers or fishermen or hotel owners, damages for lost income. If they have become ill as a result of the dumping, they may also seek damages for medical expenses and future medical expenses. The services of an expert witness are almost always required in such cases.

The law is complex, and there is no such thing as a “tort lawyer” or a “contract lawyer”. An employment lawyer works primarily with contracts, but if her client suffered emotional trauma or illness as a result of being unfairly terminated, she will need to understand and apply tort law principles and remedies. Since environmental problems usually develop over time and a polluting factory may change owners during the course of the pollution, the environmental lawyer needs to understand the complexities of contractual relationships and the allocation of liability among everyone who has ever owned the factory. Similarly, since personal injury cases may also involve insurance issues, the personal injury lawyer needs to understand his client’s rights and remedies under the insurance contract.

Patent law

The purpose of patent law is to foster and encourage innovation by granting inventors exclusive rights protecting their original inventions. The issuance of a patent is essentially a bargain between an inventor and a state. The inventor must disclose the details of the invention in exchange for enforceable rights to exclude or prevent others from using, making or selling this invention. Such exclusive rights, however, exist only for a limited time. After that period expires (generally twenty years), the invention enters the public domain and is then free to be used and exploited by anyone.

Patent protection is available for nearly all manufactured items. The patent laws usually require that, in order for an invention to be patentable, it must be novel, useful, and non-obvious. An invention is considered novel if it merely has not been previously invented by another; at least some aspect of the invention must be new. An invention is deemed useful if it provides some form of benefit or is capable of industrial application. Whether a patent is obvious is the most subjective element of any patent application. The mere fact that a patent reflects a simple idea does not mean that it is obvious; the issue is whether it would have been obvious to somebody with ordinary skill in the area related to the invention at the time the invention was made. European patent law requires that a patent involves an inventive step which is the equivalent of the non-obvious requirement.

Prior to filing a patent application, inventors often obtain a patentability opinion from a patent attorney regarding whether an invention satisfies the substantive conditions of patentability. In such cases, a search of existing patents and “prior art” is made to help determine the viability of the application. In order to obtain a patent, an applicant must provide a written description of the invention in sufficient detail for a person “skilled in the art” to make and use the invention. This written description is known as the patent specification, which is often accompanied by drawings or diagrams demonstrating how an invention is made and how it operates. In addition, the applicant must provide the patent office with one or more claims that distinctly set forth what the applicant regards as the invention. A claim is a description designed to notify the public of precisely what the patent owner can exclude others from making, using, or selling.

Trade mark law

A trade mark (US: “trademark ”) is anything that is used to identify and differentiate the goods of one owner from the goods of others. Trade marks consist of any word, name, symbol, logo, sound or other device which acts as a source identifier. These are often referred to as brand names. A service mark is virtually identical to a trade mark, except that it is used to identify services rather than goods. Although this distinction exists between trade marks and service marks, the term “trade mark” is an umbrella term that usually refers to both. Trade marks are exceedingly important business tools which enable a company to establish a product’s reputation without the fear of a subsequent company diminishing this reputation or reaping profits by confusing or deceiving consumers.

A mark is eligible for registration if it has distinctive character. A mark is either (a) inherently distinctive or (b) not-inherently distinctive. Inherently distinctive marks are fanciful, arbitrary or suggestive in relation to the goods or services with which the mark is used. Fanciful marks are comprised of entirely invented or coined terms or signs. Such marks are prima facie registrable. For example, KODAK had no meaning in any context before it was adopted as a trade mark. Fanciful marks are terms not previously found in any dictionary. These represent the strongest of all trade marks because there is no reason whatsoever for competitors to use the term. Arbitrary marks are usually common words used in a meaningless context (e.g., CAMEL for cigarettes or APPLE for computers). Such marks consist of words or images which have some dictionary meaning but which are used in connection with products or services unrelated to that meaning. Suggestive marks suggest a quality or a characteristic of the products or services in relation to which they are used, but require imagination on the part of the consumer to identify the characteristic (e.g., GREYHOUND for bus services). Suggestive marks invoke the consumer’s perceptive imagination.

Marks that are not-inherently distinctive are afforded less protection. Descriptive marks are comprised of terms describing a quality or characteristic of the product or service used in connection with the mark (e.g., WIPE AWAY for a cleaning product). Marks that are primarily merely surnames (e.g., JOHNSON´S for any good or service) and geographically descriptive (CALIFORNIA SPIRITS for alcoholic beverages) are also deemed not-inherently distinctive. Due to their lack of distinctiveness or uniqueness, marks that are not-inherently distinctive are not registrable unless it can be shown that they have acquired distinctiveness (also called “secondary meaning” in the United States) through extensive use in the marketplace. Acquired distinctiveness can be established by presenting evidence showing that, in the minds of the public, the mark has become so associated with one particular owner or source that it is no longer merely descriptive.

If a mark merely consists of a generic term (e.g., “water” or “bread”), it is incapable of becoming a trade mark under any circumstance. Such terms must be free to be used by competitors in order to describe their products and services.

Trade mark infringement occurs when one uses a mark that is likely to confuse consumers due to its similarity to another mark. This “likelihood of confusion” standard is also used by some national trade mark offices to deny a particular registration.

Copyright law

Copyright refers to a set of exclusive rights granted to authors of original works created in a fixed, tangible form of expression. In this regard, copyright protects only the expression of ideas, not the ideas themselves. Copyright may subsist in a wide range of artistic forms including, inter alia, books, movies, sound recordings, musical compositions, photographs, radio and TV broadcasts, paintings, drawings, poems, plays, sculptures. A copyright owner has the exclusive right to reproduce the copyrighted work, prepare derivative works and to copy, perform and display the work.

Upon creation of the work, the copyright immediately becomes the property of the author. Copyright is secured automatically when a work is created. A work is considered “created” when it is fixed in a tangible medium of expression, such as the first time it is written or recorded. Neither publication nor registration in any Copyright Office is required in order to obtain a copyright. In order to qualify for copyright, a work must be an original creation. This requirement means only that the work must have been independently created and not copied. In fact, two works could conceivably be identical and nevertheless copyrightable provided they were created independently.

A copyright lasts for a specified period of time, depending on the jurisdiction. Currently, in most countries, the term of copyright protection endures for the author’s life plus an additional 70 years after the author’s death. For “works made for hire,” or works created within the scope of employment, the duration of copyright is generally 95 years from publication or 120 years from creation, whichever is shorter. After the expiration of these prescribed time periods, the works enter the public domain and can be used, copied and exploited freely by anyone.

Subject to certain exceptions, any unauthorized use of a copyrighted work is a copyright infringement. In order to be found liable for infringement, the alleged infringer must have had access to the copyrighted work and copied such work. Also, the alleged infringer´s resulting work must be “substantially similar” to the copyrighted work. Certain acts, however, are minimal enough that they do not interfere with the copyright holder´s exclusive rights and therefore do not rise to the level of infringement. The concept of “fair use,” or exceptions or exemptions from acts otherwise prohibited under copyright law, recognizes that certain types of use of copyright-protected works do not require the copyright holder’s authorization. Fair use is primarily designed to allow the use of the copyright-protected work for commentary, parody, news reporting, research and educational purposes.
Law in Practice

Intellectual property law in practice

Lawyers working with intellectual property law have a wide variety of duties depending on their specialty. Lawyers working in all three areas (trade mark, patent and copyright) often assist in litigation involving intellectual property, primarily infringement actions. IP lawyers also are requested to draft and enforce license agreements and assignments of IP rights. Such lawyers also file applications with national IP offices to attempt to obtain registrations for their clients. While a trade mark or copyright application takes only a few hours, or even minutes, a patent application usually takes months to prepare (due to its technical nature ). For this reason, most jurisdictions require patent attorneys to have scientific or technical backgrounds. In order to become a licensed patent attorney, most jurisdictions require an advanced degree in such areas and often require attorneys to pass an additional exam to qualify.

An important aspect of real property law is the various definitions of estates in land. In the law of almost every country, it is the State that is the true owner of all land within its territory, because it is the sovereign, or supreme, lawmaking authority over such land. Individuals don’t “own” the land, but rather “estates” in the land (also known as “equitable interests”) such as the transferable right to use and exclude others from use.

Estate law and ownership interests

The law recognizes different types of ownership interests in real property. These different interests, called “estates,” encompass different rights. The type of estate held by a landowner is generally determined by the language of the grant through which the landowner acquired the land.

Two differentiating characteristics of estates in land are their duration and transferability. Some important types of estates include:

Fee simple: This is the most common estate which lasts forever and can be freely transferred. This type of estate (sometimes called “fee simple absolute” or “fee tail”) signifies that the owner has the right to dispose of the property as she sees fit and is a form of estate in which an individual has ownership for an indefinite period of time (sometimes referred to as “freehold estates”).

Life estate: This is another form of freehold estate in which the individual (“grantee” or “life tenant”) retains possession of the land for the duration of his or her life. Though it can generally be sold, sale does not change its duration, which remains limited by the original grantee’s life. Upon the individual’s death, possession reverts back to the grantor.

Leasehold: Leasehold estates are estates of limited duration. For example, an apartment-dweller with a one year lease has a leasehold estate in his apartment. Often, leasehold tenants must pay rent. Different terminology is used to distinguish between various forms of leasehold estates, including tenancy for years, tenancy at will, and tenancy at sufferance.

If an estate is of limited duration, whoever will take ownership of the land upon its termination has a “future interest.” Two important types of future interests are:

Reversion: A reversion arises when a tenant grants an estate of lesser maximum duration than his own. Ownership of the land returns to the original tenant when the grantee’s estate expires. The original tenant’s future interest is a reversion.

Remainder: A remainder arises when a tenant with a fee simple grants someone a life estate, and specifies a third party to whom the land goes when the life estate ends. The third party is said to have a remainder. The third party may have some legal rights to limit the life tenant’s use of the land.

Concurrent Estates exist when property is owned or possessed by two or more individuals simultaneously. Estates may be held jointly as joint tenants with rights of survivorship or as tenants in common. The difference in these two types of joint ownership of an estate in land is basically the inheritability of the estate. In joint tenancy (sometimes called tenancy of the entirety s the tenants are married to each other) the surviving tenant (or tenants) become the sole owner (or owners) of the estate. Nothing passes to the heirs of the deceased tenant. In some jurisdictions the phrase “with right of survivorship” must be used or the tenancy will assumed to be tenants in common. Tenants in common will have an inheritable portion of the estate in proportion to their ownership interest which is presumed to be equal amongst tenants unless otherwise stated in the transfer deed.

Real property may also be owned jointly through the device of the condominium or cooperative. A condominium is an apartment house, office building, or other multiple-unit complex, the units of which are individually owned, each owner receiving a recordable deed to the individual unit purchased, including the right to sell, mortgage, or even lease that unit and sharing in joint ownership of any common grounds or passageways. A cooperative is a building owned and managed by a corporation in which shares are sold, entitling the shareholders to occupy individual units in the building.

Real estate transactions

In many countries, professional organizations may also provide further guidelines. For example, in the United States, the Federal Fair Housing Act prohibits discrimination in real estate transactions on account of race, color, religion, sex, or national origin. The agreement to sell between a buyer and seller of real estate, often referred to as the purchase agreement, is governed by the general principles of contract law. It is a common requirement that any contract for real property be in writing.

Another common requirement in real estate contracts is that the title to the property sold be marketable. This requires that the seller have proof of title to all the property he or she is selling and that third parties do not have undisclosed interests in the title. A title insurance company or an attorney is often employed by the buyer to investigate whether the title is, indeed, marketable. Title insurance companies also insure the buyer against losses caused by the title being invalid.

In order to pass title, a deed with a proper description of the land must be executed and delivered. Some states require that the deed be officially recorded to establish ownership of the property and/or provide notice of its transfer to subsequent purchasers. The most common method of financing real estate transactions is through a mortgage, or arrangements by individuals and businesses wishing to make large value purchases of real estate without paying the entire value of the purchase up front. Under such an arrangement, the borrower is obliged to pay back the amount borrowed to the lender with a predetermined set of payments.

Real property law in practice

Lawyers working with real property have a wide variety of duties. Such lawyers are often requested to assisting with all aspects of real estate transactions. Although it is licensed brokers (usually non-lawyers) who normally represent buyers and sellers of real estate, real property lawyers are sometimes requested to assist in the negotiation or review of the closing documents or the sale purchase agreement. With respect to litigation and arbitration, real property lawyers often find themselves represented either wronged tenants/buyers or landlords/sellers accused of wrongdoing. Real property lawyers may also be involved, or cooperate with brokers, in financing and the arranging of suitable mortgages. Finally, such lawyers are often requested to assist in estate or trust distribution where necessary.

Helpful links

Real Estate Agent Forum

http://www.worldpropertylinks.com/

Real Estate Law in England and Wales

http://www.omm.com/webcode/navigate.asp?nodeHandle=1236

The law of real estate and transactions

http://www.real-estate-law.com/index_static.php

American Bar Association – Real Property Section

http://www.abanet.org/rppt/

Latest news in real property law

http://www.lexisnexis.com/practiceareas/realestate/

Appendices

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Appendix 1