Bar Exam (US) Property: Quirk owned a four-story office building located in downtown El Paso. Th...

Question

Quirk owned a four-story office building located in downtown El Paso. The building, named Quirk Towers, was old and badly in need of renovation. To finance the improvements, Quirk borrowed $125,000 from his friend, Lama. As consideration for the loan, Quirk executed a promissory note for $125,000 payable to Lama in one year and secured by a mortgage on Quirk Towers. The mortgage was dated January 1, 1999, and was recorded January 2, 1999. Thereafter, on February 1, 1999, Quirk executed a deed absolute on Quirk Towers and named Lama as grantee. This deed, although absolute in form, was intended only as additional security for the payment of the debt. In order to make judicial foreclosure unnecessary and to eliminate the right to redeem, Quirk then delivered the deed to Uribe in escrow with instructions to deliver the deed to Lama if Quirk failed to pay his promissory note at maturity.

On January 1, 2000, Quirk failed to pay the note when it came due. Thereupon, Uribe, in accordance with escrow instructions, delivered Quirk's deed on the office building to Lama, which he promptly and properly recorded. Two weeks later, Quirk tendered the $125,000 indebtedness to Lama. When Lama refused to accept it, Quirk brought an appropriate action to set aside and cancel the deed absolute and to permit the redemption of Quirk Towers from Lama. Conversely, Lama counterclaimed to quiet title and argued that the deed absolute was intended as an outright conveyance upon default.

For this question only, assume the following facts. On January 1, 2000, Quirk failed to pay the note when it came due. The next day, Uribe, the escrow agent, delivered the deed to Quirk Towers to Lama. Lama then properly recorded this deed on January 3. One week later, on January 10, Lama conveyed Quirk Towers by warranty deed to Gonzales for the purchase price of $200,000. On January 12, Quirk tendered the $125,000 balance due to Lama, which he refused to accept. Quirk now brings an appropriate action against Lama and Gonzales to set aside the conveyance and to permit the redemption of the property by Quirk. Which of the following best states Quirk's legal rights, if any, in his action against Lama and Gonzales?

AnswerChoose the correct answer.Choose all that apply. Correct Partially correct Incorrect Don't Know

  1. A
    Correct Answer
    Quirk has no rights against Gonzales but Quirk does have an action for redemption against Lama for the value of the property.
  2. B
    Correct Answer
    Quirk has no rights against Lama but Quirk does have an action for redemption against Gonzales for the value of the property.
  3. C
    Correct Answer
    Quirk has the option of seeking redemption against either Lama or Gonzales for the value of the property but Quirk cannot set aside the conveyance.
  4. D
    Correct Answer
    Quirk has no rights against either Lama or Gonzales because he defaulted on the promissory note.
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