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Keeping Current—Property

Keeping Current—Property offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

CASES

ADVERSE POSSESSION: Land held by city for resale is subject to loss by adverse possession. The city acquired a parcel of land by eminent domain for part of a highway project but ultimately did not use it in the project, declaring it “surplus property.” A decade after the completion of the highway, Galdo purchased a two-story dwelling directly across the street from the parcel and began using it as if he owned it—pouring concrete slabs for parking vehicles and storing tools, planting trees, and building a fence, a carport, a tree house, and a volleyball court. When the city entered into an agreement to sell the parcel, it filed an ejectment action against Galdo. Galdo counterclaimed, asserting ownership by adverse possession. After a bench trial, the court ruled in favor of the city, but the commonwealth court vacated the decision, remanding for a determination whether the property was devoted to public use. Before the supreme court was the question whether the parcel was devoted to a public use in a case in which it was acquired by condemnation to assist in a highway project but later held for resale. The court ruled for Galdo, first reciting the well-established principle that a claim of title by adverse possession does not lie against state property. This rule of immunity emanates from the doctrine nullum tempus occurrit regi, meaning “time does not run against the king,” which has its roots in the prerogative of the Crown. Though this rule ordinarily does not apply to counties and municipalities, as the prerogative is that of the sovereign alone, an exception applies when the political subdivision devotes the property to a public use. The acquisition of the parcel as part of the highway project is undoubtedly a public use, but the city abandoned that public use when it began holding the parcel for resale only. Nearly 40 years passed since its acquisition while the city left the parcel idle and unoccupied. City of Philadelphia v. Galdo, 2019 Pa. LEXIS 5452 (Pa. Sept. 26, 2019).

BROKERS: Commission is earned when seller agrees to sell during carve-out period and closes after expiration of period. In September 2013, a seller and broker entered into an exclusive right to sell brokerage agreement. The agreement contained several carve-outs, including one excluding a commission if another broker completed a sale, exchange, or transfer of the property by January 5, 2014. On January 3, 2014, two days before the expiration of the carve-out period, the seller entered into an agreement to sell the property for $3.4 million. The sale closed on April 24. The broker filed suit to collect a commission, and the seller argued that the sale was complete during the carve-out period by virtue of the doctrine of equitable conversion. The trial court granted summary judgment in favor of the broker, finding that the execution of the agreement of sale did not constitute a completed sale because the agreement contained a mortgage contingency, which prevented equitable title from passing to the buyer. The supreme court affirmed, but on a different ground, finding that the arguments about equitable conversion were off the point. Instead, the terms of the brokerage agreement dictated the outcome. The brokerage agreement provided that a commission is earned and due at the time scheduled for closing on a sale. This means that the determinative point in time was April 2014, when the agreement closed, not when the seller signed the agreement to sell the property. Binswanger of Pa., Inc. v. TSG Real Estate LLC, 2019 Pa. LEXIS 5447 (Pa. Sept. 26, 2019).

GIFTS: Reporting stock transfer on gift tax return does not constitute delivery. Knop owned the large majority of the shares of Ticonderoga Farms, a family company that owned nearly 1,000 acres of land. His three children owned the remaining shares. Over the years, for estate tax purposes, Knop instructed the corporation’s accountant to make gifts to his children of stock equivalent to the maximum gift tax exclusion. The returns reflected the children’s increased ownership of shares and Knop’s decreased ownership. By 2004, according to the tax forms, the children’s ownership interests in Ticonderoga had risen to 44 percent of the outstanding shares. Knop decided to grant a scenic easement over some of the corporation’s land, but the children objected, relying on the corporate bylaws, which required the approval of 90 percent of the ownership interests to sell corporate land. The children filed a declaratory judgment action to block the grant. But they had a problem—although emails and corporate documents signed by Knop acknowledged the transfers and the increases in the children’s ownership interests, Knop never prepared the stock certificates and no ledgers showed transfers of the shares. The trial court concluded that although Knop intended to make gifts of stock to his children for estate planning purposes, those gifts were never effectually made because they were never delivered to the children in the manner required by law. The children appealed and the supreme court affirmed. An inter vivos gift requires donative intent and actual or constructive delivery. For delivery, the supreme court applied the rules for transfers of securities set forth in Article 8 of the Uniform Commercial Code. The rules depend on whether the security is a “certificated security” (represented by an instrument) or an “uncertificated security” (not represented by an instrument). Va. Code § 8.8A-102(a)(4). By the unambiguous terms of the statute, “[d]elivery of a certificated security to a purchaser occurs when . . . the purchaser acquires possession of the security certificate[.]” Va. Code § 8.8A-301(a)(1). Here, Ticonderoga shares were certificated securities, and Knop never surrendered control of any certificates. Nor could the gift tax returns, even though sworn to be truthful under penalty of perjury, satisfy the delivery requirement because they do not constitute a relinquishment of control of the certificated shares by the donor. Knop v. Knop, 830 S.E.2d 723 (Va. 2019).

LANDLORD-TENANT: Punitive damages are awarded for breach of implied warranty of habitability. In June 2016, a landlord entered into an oral agreement with Edson to paint the interior and exterior of an apartment building in order to comply with the lead-paint requirements of the city housing code. Edson finished the first phase of the painting, but the landlord paid him only a fraction of the amount owed. To get Edson to continue painting, the landlord offered to let Edson and his girlfriend, Well, reside in an apartment rent-free until the building was fully brought up to code, at which time they would pay $1,650 per month. When Edson finished, the landlord paid him only $1,400 out of the $12,400 owed. Soon after, the landlord sent Edson and Well a letter ordering them to vacate because he needed to prepare the apartment for new tenants, threatening to disconnect the utilities. Well did not vacate but had the electricity put in her name. The landlord then commenced an action for past-due rent and possession. The court awarded the landlord $1,060 for electrical bills and $31,350 for unpaid rent on an unjust enrichment theory. The court awarded Edson compensatory damages and also awarded Well compensatory damages, $10,000 in punitive damages, and attorney’s fees for illegal eviction and breach of the warranty of habitability. The supreme court reversed on the unjust enrichment claim and affirmed on the tenants’ damages awards. The evidence did not establish that tenants’ rights to stay rent-free was pinned to the point of code compliance nor on when the building became code compliant, such that there was no proven basis for the unjust enrichment claim. But the landlord’s liability for punitive damages was clear. Punitive damages are recoverable in the case of willful and wanton conduct, such as when a landlord, after receiving notice of a defect, fails to make a repair that is essential to the tenant’s health and safety. Here, the landlord took seven days to fix a heat issue, when a reasonable amount of time was two days, and nine days to fix a lack of water, when a reasonable time was 24 hours. Moreover, the landlord did not offer to pay for the tenant to stay in a hotel while the apartment was not habitable until a code enforcement officer required him to do so. The landlord also used propane heaters in the basement of the apartment, which posed a serious fire hazard and a risk of carbon-monoxide poisoning. The landlord fraudulently represented to the city that the apartment was not occupied so he could avoid providing tenant with lead-paint notices. Finally, the landlord resorted to self-help by towing Well’s car on two occasions to force her out of the premises without a court eviction order. Kwon v. Edson, 2019 VT 59 (Vt. 2019).

LANDLORD-TENANT: “Rent-to-buy” agreement is residential lease, not land-sale contract. Cress Trust offered four alternatives to consumers interested in its housing stock: straight sale, straight rental, land contract, and rent-to-buy contract. A married couple with a good monthly income but a bad credit history picked the last alternative, signing a “Purchase Agreement Rent to Buy Agreement.” They agreed to buy a single-family house for $37,546 to be paid $549 per month for 30 years at an interest rate of 16.3 percent. Under the agreement, the couple agreed that they were acquiring the house “as is,” that it was not in livable condition, that they would need to make it habitable before they could live in it, and that all improvements would become part of the real property. The agreement stated that the parties intended to consummate a sale of the house, that the first 24 monthly payments were “rental payments,” and that, if they made them, the parties would execute a separate “Conditional Sales Contract (Land Sale)” for the remaining 28 years. The house was in miserable condition—missing toilets, plumbing, electrical wiring, and door locks; all the windows were broken; basement stairs were in disrepair, and carpets beyond repair. It was strewn with trash and animal-infested. Most of the house had no flooring. When the couple failed to make payments as agreed, Cress Trust sued to evict in small-claims court. The couple counterclaimed, alleging injury from Cress Trust’s failure to make the premises habitable as required by the landlord-tenant statute. The trial court ruled for defendants on the counterclaim, but the court of appeals reversed. The supreme court agreed with the trial court. Although denominated a contract and containing attributes of contract of sale (“as is,” no warranty of condition, “sale”), the form and assigned label does not control its legal status. The court observed that if the agreement were a contract of sale, the couple were homeowners and thus not subject to eviction in small-claims court, where the landlord brought its action. Most telling is that the agreement referred to “rental payments” for the first 24 months, which the landlord was entitled to keep on eviction. A landlord-tenant relationship having arisen, the landlord had a duty to make the premises habitable. Rainbow Realty Grp. Inc. v. Carter, 131 N.E.3d 168 (Ind. 2019).

LANDLORD-TENANT: Tenant who complains to landlord about condition of premises has common-law retaliatory eviction defense. After a residential tenant under a one-year lease made several written complaints to the landlord about maintenance and other issues, the landlord notified the tenant of termination of his lease, alleging multiple breaches of lease terms. After receiving the notice, the tenant filed a written report with the department of human rights. The landlord brought an eviction action. A jury found that the tenant violated lease terms but also that the landlord retaliated against the tenant for seeking to enforce his rights. The landlord moved for judgment as a matter of law on the ground that the tenant’s defense was not legally available. The trial court denied the motion and granted possession to the tenant based on a statutory retaliatory eviction defense. Minn. Stat. § 504B.441. The appellate court reversed. A divided supreme court reinstated the lower court’s judgment in the tenant’s favor. The supreme court noted that, under the statute, retaliatory conduct is found when the tenant files an action in court or complains to someone other than the landlord. Although the tenant’s human rights complaint would normally suffice, it could not be retaliation under the statute because it followed the landlord’s notice of termination. The court, however, recognized a common law defense of retaliation for tenants who complain to their landlords about violations of the lease or law. Believing it had responsibility and leeway from the legislative in shaping the common law, the court considered its gap-filling as appropriate protection of the tenants’ health, safety, and welfare. Cent. Hous. Assocs. v. Olson, 929 N.W.2d 398 (Minn. 2019).

RESTRICTIVE COVENANTS: Homeowners association’s suit to stop sale and subdivision of lot is not abuse of process. A subdivision established in 1923 with 23 lots provided that “only one residence shall be erected on each lot.” Another provision granted a right of first refusal to all lot owners upon the sale of any lot. A real estate developer bought one home in the subdivision and applied to split the property into two lots. Over the objections of the residents and the subdivision’s trustees, the municipality approved the split because the developer’s application complied with municipal ordinances. The trustees filed suit against the seller and the developer. The seller counterclaimed, alleging abuse of process. The trial court held that the right of first refusal covenant was valid and that the seller properly followed its requirements. Second, it held that the trustees’ efforts to enforce the covenants was an abuse of process. Third, the trial court held that the “one residence” covenant was valid and that developer’s proposed subdivision to create two lots violated that covenant. The supreme court affirmed the latter holding but otherwise reversed, finding no abuse of process. The trustees had the right to sue to enforce the covenants based on their fiduciary duty to other lot owners. The goal of seeking to set aside the sale to the developer based on failure to comply with the covenants was a proper purpose, not wrongful. The trustees’ action to prevent the subdivision was also justified by the covenants because at no point in the subdivision’s history were there more than 23 houses. Even though the covenants did not expressly prohibit subdividing a lot, the court interpreted language in the covenants—especially that if the lots were combined, only a single house could be built on the combined lot—to also preclude avoidance of the limits by subdividing the lots. Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, 2019 Mo. LEXIS 315 (Mo. Aug. 13, 2019).

TAKINGS: Statute of limitations bars action for damages against Army Corps of Engineers for flooding of Mississippi River. Landowners in the Dogtooth Bend Peninsula in Alexander County, Illinois, have suffered countless floods from the Mississippi River for over a century. On numerous occasions during the 20th century and continuing this century, the Army Corps of Engineers has intervened, building levees and installing river training structures. The landowners sued the United States, alleging that the recurrent flooding is the direct and foreseeable result of the Corps’s practice of placing an increasing number of training structures in the river. They claimed that this caused a permanent taking of their property under the Fifth Amendment, which accrued in 2016 when the Len Small Levee breached and caused unprecedented destruction as a result of increased water surface elevations caused by the Corps’s structures. They maintained that the Corps’s structures have caused and will continue to cause inevitably recurring flood events of longer durations, which significantly impairs the use of agriculture and recreational property. The government moved to dismiss the action as barred by the running of the six-year statute of limitations. 28 U.S.C. § 2501 (requiring filing of claim “within six years after such claim first accrues”). The court granted the motion. A takings claim accrues when all the events that fix the government’s alleged liability have occurred and the plaintiff knows or should know of their existence. In the flooding context, a claim for a permanent taking through intermittent but recurrent flooding accrues when it first becomes clearly apparent by the passage of time that the intermittent flooding is of a permanent nature. The landowners should have known before August 3, 2012 (six years before they filed suit) that the Corps had already built hundreds of river training structures in the Mississippi River, that there had been multiple breaches of the Len Small Levee, which had resulted in damage to property located on Dogtooth Bend Peninsula, and that the area was long subject to flooding of the same or a similar magnitude and duration. In addition, the theory that river training structures could increase flooding was well-known long before 2012. Jackson-Greenly Farm, Inc. v. United States, 144 Fed. Cl. 610 (2019).

WATER: Statutory adjudication of water rights is prerequisite to judicial enforcement. A landowner filed a complaint against its neighbors, claiming that they interfered with the flow of spring waters when they built their house and destroyed ditches. The water court dismissed the action, and the Colorado Supreme Court affirmed. The court explained that Colorado water rights, although arising by prior appropriation, are regulated by a unique legal framework that requires adjudication through a statutory process before enforcement. That process requires specific resume notice and publication of claims and results in a specification of the amount and priority of the water rights. Colo. Rev. Stat. § 37-92-302. The court then explained that the court had subject matter jurisdiction, as the adjudication of water rights is what the water court does, but it lacked personal jurisdiction over the case because the trust had not complied with the statutory notice requirements. Luskin Daughters 1996 Trust v. Young, 448 P.3d 982 (Colo. 2019).

WATER: Water rights pass as appurtenance to land only if provided by corporate documents of mutual irrigation company. A corporation bought 15 acres of land within the service area of Eagle Creek, a mutual irrigation company. The purchaser claimed it owned water rights represented by 15 shares of Eagle Creek stock issued to a prior owner of the 15 acres of land. The trial court granted summary judgment for the purchaser, reasoning that the 15 shares automatically passed as an appurtenance when the purchaser acquired title to the land. The supreme court reversed, explaining that, in Idaho, water rights are real property. They are conveyed with land, as appurtenances, unless expressly reserved. But the provenance of a water right determines the nature and transferability of the right. Eagle Creek’s water right was appurtenant to the whole of its service area, rather than to individual tracts. If shares in a mutual irrigation company represent a water right appurtenant to a specific tract of land (as the trial court reasoned), it could pass as an appurtenance to the land. But if, as was usually the case, the shares represented only a right to the delivery of water, their transferability depends on rules of contract and corporate governance. The trial court erred by not construing the language of Eagle Creek’s governing documents, as they suggested that the shares were “floating,” stating the right to a specific amount of water without listing specific tracts of land. Eagle Creek Irrigation Co. v. A.C. & C.E. Investments, Inc., 447 P.3d 915 (Idaho 2019).

LITERATURE

LANDLORD-TENANT. In The Harmful Effects of Unenforceable Contract Terms: Experimental Evidence, 70 Ala. L. Rev. 1031 (2019), Meirav Furth-Matzkin shows through an empirical study that, even though prohibited terms and clauses are not enforceable, tenants are nonetheless affected by their presence in leases. Although there is ample regulation of the content of standard-form consumer contracts, including leases, new findings reveal that drafting parties continue to use unenforceable terms in their standardized agreements. In leases, the most prevalent illegal terms are overly broad liability waivers, disclaimers of the warranty of habitability, and clauses shifting the landlord’s mandatory duty of repair to tenants. Even though these clauses are unenforceable in court, they may mislead non-drafting parties of their rights and affect their decisionmaking in the post-contract stage; that is, tenants might forgo pursuing valid legal rights and claims. The study is based on tests given to nearly 400 tenants in Massachusetts, presenting them with various scenarios and asking them about their understanding of rights and responsibilities under leases. The author’s study suggests that even though many tenants fail to read their leases at contracting, still they are affected by the fine print after a related problem or dispute arises. She believes that more consumer education is sorely needed.

LAND USE. Is environmental protection harmful to communities? That is the essential inquiry of Prof. Sarah Fox in Environmental Gentrification, 90 U. Colo. L. Rev. 805 (2019). Few people question the many values of programs to ensure clean air and water, including large-scale environmental improvements, such as remediating contaminated land, improving water bodies, encouraging green space, and planning for sustainability. Fox asserts that the calculus of ends to be achieved often misses the effects on communities, particularly the depletion of affordable housing. She describes this as “environmental gentrification.” She conceives this phenomenon as the process by which environmental cleanups and other improvements to environmental health spur the cycle of gentrification. Higher-income groups move into lower-income areas, potentially altering the cultural and financial landscape of the original neighborhood. The decades-long transition to a service economy, a generational shift in housing preferences, and employment by young professionals in jobs located in the city have all led to increases in the cost of housing in many communities around the country. The shortage of affordable housing stock means that as new residents flood into old neighborhoods, existing residents are pushed out either into adjacent areas or into the surrounding suburbs. Fox does not call for stopping the cleanup of contamination, only for planning that considers the impacts on pre-cleanup communities.

PROPERTY THEORY: In Property in the Anthropocene, 43 Wm. & Mary Envtl. L. & Pol’y Rev. 541 (2019), Prof. E. Lees ponders the prospect of a new notion of stewardship over land, one that may require owners to have regard for the effects of uses on future people, in the much talked about and feared Anthropocene geological era. Among the questions raised is whether the “harm principle” may require an owner to preserve her land for the benefit of future generations. The author believes that the harm in not managing property in this way lies in the erosion of the collective interest shared by the community of landowners. The essential proposition is that the community’s justification for imposing sanctions for breach of the “harm avoidance” rule is not because of environmental damage per se, but instead in order to ensure the community’s continued and ongoing existence. As such, this new stewardship is not seen as arising from environmental ethics but as a coordination rule, justified by the role it plays in maintaining the collective interest. This imperative is made more urgent in the face of a rapidly changing climate. Whether grounding stewardship this way will make new burdens and limits on ownership more palatable remains to be seen.

In Private Energy, 38 Stan. Envtl. L.J. 119 (2019), Yael R. Lifshitz endeavors to show a new property-energy connection that has emerged with the rise of “distributed generation” with multiple local sources of production, including solar panels and wind turbines. Property is traditionally seen on the resource side (extraction of oil, gas, and coal) of private generation of energy. Today, with the rise of distributed generation, property also plays a role on the production side in the energy system. Energy law scholars have traditionally focused on the public law aspects of electricity production and consumption, but an understanding of the web of private property law regimes is essential to develop a viable distributed energy generation system. The trend toward dispersed energy will likely accelerate with the introduction of peer-to-peer trading. The author’s central point is that involving property holders (either owners or renters) in energy production creates a new interest group in energy law and policy, whose objectives will count in the new system for energy generation.

LEGISLATION

CALIFORNIA adopts statewide rent control for residential leases. Allowable rent increases are capped at five percent plus the inflation rate or ten percent, whichever is lower. The law prohibits landlords from terminating tenancies without just cause. 2019 Cal. Stats. ch. 597.

CONNECTICUT prohibits the conduct of real estate closings by non-lawyers. A real estate closing is defined as any transaction in which a party pays consideration to effectuate a change in ownership of real property and any mortgage loan transaction, other than a home equity line of credit or loan transaction that does not involve the issuance of a lender’s policy of title insurance. 2019 Conn. Pub. Acts 88.

DISTRICT OF COLUMBIA regulates short-term rentals. Hosts must obtain a license for their short-term rentals. The property may not be rented out for more than 90 nights cumulatively in a calendar year. Occupancy is limited to the greater of eight guests total or two guests per bedroom. 2019 D.C. ch. 72.

ILLINOIS adopts eviction protections for immigrants. The Immigrant Tenant Protection Act prohibits landlords from evicting tenants because of citizenship or immigration status and from threatening to disclose, or actually disclosing, a tenant’s citizenship status to any person, agency, or law enforcement with the intent to harass or intimidate. Tenants may not waive this right, and it is an affirmative defense to eviction. 2019 Ill. Laws 439.

ILLINOIS amends the Revised Uniform Unclaimed Property Act. If a decedent’s unclaimed property does not exceed $100, an heir or agent may verify the claim by submitting an affidavit attesting to the heir’s or agent’s capacity to make the claim in lieu of a certified copy. 2019 Ill. Laws 342.

MAINE amends law governing foreclosure proceedings. The law provides for an extension of time to sell for good cause and sets new requirements for filing a report of sale after a public sale or a mortgagee’s delivery of the deed. The language clarifies that, if a mortgagee allows redemption after the period for redemption has expired, the mortgagee “shall” convey the property to the mortgagor. 2019 Me. Laws 408.

MAINE amends provisions concerning notices of a residential mortgagor’s right to cure defaults. Notice is required to be sent by both certified and first-class mail, postage prepaid. The law specifies that notice is deemed to be given to the mortgagor or cosigner on the date the receipt is signed, the date of the last attempt by the post office to deliver, or, in the case of ordinary mail, on the date delivered. A certificate of mailing is conclusive proof of receipt on the seventh day after mailing. 2019 Me. Laws 361.

MARYLAND changes the statute of limitations for claims against mortgage loan servicers. The act shortens the statute of limitations for bringing claims relating to residential real property for unfair, abusive, or deceptive trade practices from 12 years to five years after a foreclosure sale, but, when the servicer discloses the misconduct, the period is three years. 2019 Md. Laws 650.

MARYLAND requires that escrow agents enter into a written agreement with purchasers and sellers in residential real estate transactions. The escrow agreement must specify the amount of money held, the date entrusted, the responsibilities of the agent, the conditions for release of the money, and the process for addressing disputes. 2019 Md. Laws 349.

NEVADA lengthens the statute of limitations for claims relating to construction defects. The limitations period for the recovery of damages is increased from six to ten years after substantial completion of the improvement. But an action is allowed at any time for any act of fraud in causing a deficiency in the construction or in the design, planning, supervision, or observation of construction of an improvement. The law also relaxes the standard for reporting defects from “specific detail” to “reasonable detail.” 2019 Nev. Stat. 361.

NEW JERSEY codifies the Foreclosure Mediation Act. The act ensures the continuation of mediation services provided to assist homeowners. The act also raises foreclosure filing fees used to operate the mediation program and for the services and training of foreclosure prevention and default mitigation counselors. 2019 N.J. Laws 64.

NEW JERSEY requires receiverships for multifamily housing foreclosure. The act requires a receivership when the property has two-to-five residential units, one of which is occupied by the debtor or the debtor’s immediate family when the loan originated. 2019 N.J. Laws 69.

TEXAS requires disclosure for houses in a floodplain. Sellers must disclose if the property for sale is in a floodplain, a flood pool, floodways, or near a reservoir. The seller must also say if the home has flooded and if they have ever received assistance from FEMA for flood damage. 2019 Tex. Gen. Laws 1337.

TEXAS amends recording act to allow recording of copies of electronic records. Recording a paper copy of an electronic record is allowed if the copy bears an image of an acknowledged electronic signature and the copy is certified as true and correct by a notary public or other official. The amendment contains a form for a declaration of authenticity. 2019 Tex. Gen. Laws 678.

TEXAS amends landlord-tenant law to limit fees for failure timely to pay rent. The law applies to residential tenancies and allows only a reasonable fee, whereas prior law limited the fee to a reasonable estimate of the landlord’s damages. A tenant may request that the landlord provide a written statement of the late fee. 2019 Tex. Gen. Laws 627.

TEXAS directs the supreme court to adopt a form for revocation of a transfer-on-death deed. The act repeals the former statutory forms for transfer-on-death deeds. 2019 Tex. Gen. Laws 337.

TEXAS amends common-interest community law to restrict certain persons from serving on boards of homeowners associations. The law prohibits persons who cohabit with another board member at the same primary residence from serving on an association board. The prohibition does not apply in case of an association with fewer than ten residences or during the development period of the subdivision. 2019 Tex. Gen. Laws 1056.

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