1983

July 1983 1. Remedies

I. Was there a valid contract?

A. Offer

B. Acceptance

C. Consideration

D. Statute of Frauds

II. Was there a breach?

A. Conditions

B. Breach

III. What are Tom and Mary’s remedies?

A. Damages

B. Restitution

C. Specific Performance

1. Inadequacy of the legal remedies

2. Definite and certain terms

3. Feasible

4. Mutuality

5. Defenses

IV. Unenforceable contract

In 1980, at the wedding of Tom and Mary, Tom's father, Frank, told them that he wanted them to live with and care for him for the rest of his life. He said, "If you agree to do this, I will deliver to you, within a year, a deed to my home." Tom and Mary told Frank that they accepted his offer and promised to look after Frank with loving care in Frank's home. They immediately moved in with him.

Soon after moving into Frank's home, using their own money, Tom and Mary added a new wing to the house, paid the outstanding property taxes, and paid off an existing mortgage of $25,000.

One year after Tom and Mary moved into the home, Tom reminded Frank of his promise to convey the property to them. Frank became angry, refused to execute the deed, and ordered Tom and Mary to leave the premises.

Tom and Mary consult you concerning their rights and the remedies that may be available to them.

How would you advise them? Discuss.

2. Criminal Law

Prior Convictions

Testimony of Perry’s secretary

Diminished capacity

Insanity

3. Business Associations

1. Motion for security for costs

2. Paul’s requests for relief

a. Removal of Al for misconduct

b. The shareholder’s agreement

c. Declaring a dividend

d. right to inspect the records

4. Trusts

I. The Trusts- Agatha

A. Definition

There do not seem to be any problems in formation of the two trusts created by George’s will, so they are, subject to the limitations discussed infra, enforceable as valid testamentary trusts.

B. The spendthrift clause

A spendthrift clause is a term of a trust which limits the ability of the beneficiary to alienate his equitable interest in the trust res. Most states recognize some form of a spendthrift clause. Some forms prevent only voluntary alienation.

C. Fiduciary Duty

II. John

The liability of one who takes from a trustee who is delivering is breaching his duty, turns upon the knowledge of the transferee. A transferee for value without notice of the breach takes free of the claims of the beneficiaries One who takes with notice will be said to have taken in constructive trust, with a duty to convey to the beneficiaries on demand. Here, the trust assets are no longer in the possession of the transferee, he may be liable for the value of the assets formerly received on the theory of conversion.

Notice, for the purpose of the foregoing rules, does not consist of mere knowledge that there was a trust, of that the transferee was taking form a trustee. The notice must be such that the transferee knew or should have known that the asset received was transferred in violation of the trustee’s fiduciary duty.

We are not told enough to reach a conclusion on whether John took with notice, but it seems likely that he did. He purchased as $10,000 under market, and we are told that the stock was in the trust. While it is not necessarily registered in the trust’s name, it may well have been. That, coupled with the severe underpayment, would have been enough to put John on notice. If he had such notice, he is liable to the beneficies (to the extent that they cannot recover from Larry or Agatha) for the $10,000.

III. Larry

A donee of trust assets does not take free of the equitable claims of aggrieved beneficiaries, regardless of notice. Where the misappropriated assets come to rest in the hands of a donee, the court will impose a constructive trust in favor of the beneficiaries, who can then compel redelivery to the trust. Accordingly, Larry must give back the stock.

5. Contracts

1. Owner’s suit against Byer- owner prevails due to Byer’s Breach

Assignment of Contract

Constructive Condition of Delivery Full 50-Acres

Substantial Performance

Specific Performance

2. Owner’s Suit against Ellis

Assignment of Contract

Third Party Beneficiary Liability

Ellis’s Cross-Complaint Against Owner

Assignee Rights

Rescission

Restitution

j 1983 QUESTION 2

Dave suffers from a disease whi=h sometimes causes seizures during which he IS not aware of his actions and sometimes physically attacks other persons. Dave

has been convicted of aggravated assault twice within the last three years.

Dave's doctor has repeatoedly instructed him too avoid cdooholic beverages

because of a connection between Dave's seizures and consumption of alcohol. The dssaults that led to Dave's convisdons occurred after Dave had consumed aloohcd..

Valene visited Dave at his apartment. Dave gave Valerie a beer and poured one fiar himself. In an hour. Dave consumed four bottles of beer. An surgument with Valene ensued. When Dave became irntabed and his speech slurred, Vzderie

decided he was intisxicatoed and she left the apartment. Dave grabbed a fireplace

poker, fioUowed Vaterie into the haU.. and struck her on the head from behind.

He then returned to his apartment.

Dave's first recollection after his argument with Valerie is looking out his window and seeing an emergency squad removing a motionless Valene from the apartment biulding.

Dave immediately called Perry, his attxamey. Perry's secretary put the call

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pursuant to ocMiversation. Dave tolri Perry aU. that he oould recaU about the incident and that

he thought Valerie was dead. Then Dave said: "The poker has blood on it.

Should I get rid of it?"

Perry replied, "Leave everything as it is."

Va.lprip survived the attack, but oouM not positively identify Dave as her

assailant.

Dave was charged wibh attempted murder. He pleaded not guilty and not

by reason of insanity. At t】二ial* during tfw People's case-in-chief, Vatene ad that Dave had consumed four bottles of beer in a one-hour period, and

he appeau'ed too be intoxicated when she left his apartment. Over Dave's IS, the c»urt admitted evidence of Dave's prior assau]t convictions. and admitted the testunony of Perry's secretary about the conversation between Perry

and Dave.

Dave testified that he had had a seizure and that he could not remember anything after his argument with Valerie. Dave's physician testified regarding

the relationship of Dave's seizures to oonsumptaon of alcohol.

The tdal court refused to give instructaons requerted by Dave Cfft duninished capacity and insanity.

1. Did the trial court err in admitting:

(a) The evidence of prior convictions? DiECuss.

(b) The testimony of Perry's BBRrntary? Discua

j 83 QUESTION 3

Paul owns 250 of the 1,000 issued and authorized shares of Duroo, a State x ctose cx3rporatk>n. The Durco directors are Al, who owns 650 shares, and Baker and Carc, each of whom owns 50 shares of Durco stack. Al has offered to buy

the shares of Durco stock owned by Paul at a price substantially less than that

paid by Paul to acquire the stock. Paul has refused Al's offer, claiming the offiered pnoe was "unfair."

Paul has brought an action in State x court against Durco and its three

direcbars. His complaint alleges:

《A》 The directors have acted unreasonably tn failing bo have Durco distnbute as cash dividends approximately $5 millinn of accumulated earnings;

(B) The distribution is being arbitrarily withheld for the benefit of Al;

(c》 There is an "invalid" agreement between the individual defendants as

Durco shareholders, the purpose of which is bo maintain Al in office as "managing director" to "supervise and direct the ope】二ations and management" of aU. of Durco's business;

(D) Paul has been constsbsntLy denied the right tio inspect Durco' s corporate records during regular working hours or at any other tune.

By way of relief, the complaint asks that: (1) Al be removed as a director

for misconduct; (2) the shareholders' agreement be found invalid; (3) the directors declare and pay a substantial cash dividend; and (4) Paul be permitted to

inspect Diirco's records dunng normal business hours.

In thetr answer, the defendants allege that Paul's addon should be considered a derivative action, and admit the existence and terms of the shareholders' agreement, the wihhholding of accumulated earnings of approximately $5 million, and the denial of access by Paul to Durco's records. They then allege by way of affirmative defense that: (1) the discretion of the directaors to declare dividends

has been properly exercised; (2) the shareholders' agreement is valid and therefcre Al cannot be removed as director, even for cause; and (3) the requested

inspection should be denied because Paul only wants to inspect the corporate records fcr the "improper purpose" of bringing a "strike suit."

The defendants have moved for an order requiring Paul too post security for costs in the pending action.

State x law grants an unqualified n.ght to shareholders of State x corporattons too inspect corporate books and records, and requires plaintiffs in shareholder derivative actk>ns to provide security for costs.

How should the court rule on defendants' motion for security for costs?

Discuss.

1 •

�s ,

How should the court rule on each of Paul's requests for relief?

Discuss.

j 83 4 trusts

In 1972, Agatha loaned $300,000 to her brother George. George died in

1975. His will provided that i£ Agatha forgave the $300,000 debt, a $300,000

trust would be created for her under his wiU. (Trust #1). Agatha forgave this

debt in exchange for the trust interest. Under this trust, Agatha receives the

income for life, and upon her death the corpus is to be distributed to Betty,

Agatha's daughter.

George's residuary

beneficiaries. Agatha was

passed into Trust #2 for the benefit of fi.ve named not named as a beneficiary of this trust.

Each of fhe trusts created by George's will contained a spendthrift provision stating that creditors could not reach income in the trustee's hands. Nancy,

George's accountant, was designated trustee of Trust #lf and Agafha was designated trustee of Trust #2. Each trustee was authorized to sell tcust assets.

In 1978, Agatha defaulted on a $10,000 toan from John made in 1971. She relied on the spendthrift clause to shield her income interest in Trust #1 from

John's datm for the debt. However, to discharge her debt, she offered to seU.

John 100 shares of T staock from the corpus of Trust #2 for $10,000 Isss than ifcs

fair market value. John agreed and purchased the stock from Trust #2 on the offered fcerms.

In 1979, John gave the T stock to his nephew Larry as a wedding present.

Larry had no notice of the pnor transactions and stUl has possession of the T

stock.

What are the rights and tiabihties of John, Agatha, and Larry? Discuss.

j 83 QUEST工ON 5

In January 1983, Owner contracted in a signed writing to seU- Greenacre, a

50-acre square parcel of unimproved realty, to Byer for $50,000. Byer was to

pay $5,000 on March 1. The remainder of the purchase price and the deed were

to be exchanged on April 1.

On February 1, in a signed wnting, Byer assigned to Klll.g all his nghts under the contract, and E工lis , also in a signed writing, agreed wifch Byer to pay

the contract price to Owner. Byer then noti.fied Owner that he had assigned the contract to EUis, that E11J5 had agreed to pay the contract price, and that,

therefore, Byer considered himself "free and dear of any further obligations under the contract." Owner received, but did not reply to, this communication.

On March 1, Owner accepted fhe $5,000 installment paid to him by EUis. On

March 15, Owner notified Byer and Ellis that he had just discovered that he did not own a strip three feet wide along the western edge of Greenacre.

On April 1, Owner tendered to Byer and EUis a deed to Greenacre, excluding from the description of the property the three-foot std-p. Both Byer and

mMg refused to accept the deed or to pay the remaining $45,000. Owner thereupon commenced a suit for specific performance against both Byer and EUis. 데ig cross-complatned against Owner for restitution of the $5,000 Installment he had

paid to Owner.

1. what result in Owner's suit against Byer? Discuss.

2. What result in Owner's siut against EUis and EUJ5* cross-complaint agzanst Owner? Discuss.

j 83

Hal Jones and Wihna Smith, both in the U.S. Navy, and both California

domialianes, were married in 1966. At that tune, WiLma obtained a Military Group

Life Insurance (MGLI) pdicy, issued by a federal agency. She designated Hal as

benefkaary. Premiums were paid through salary deducdons. In October 1974,

both were discharged from the Navy.

The fcJlowing month, Hal's mother gave them a single fairuly residence located in Califorrua. The deed named as grantees "Hal Jones and Wilma Jones."

They moved intoo the house, and in January 1975, WiLma gave b그rth fa3 twins.

Soon afterwards, Hal and Wilma became employed as engineers. They deposited

their salaries into a joint checking account, from which their living expenses, inchiding the premiums on Wihna's insurance, were paid.

On February 1, 1983, Hal and WiLma had an argument and Hal moved into a motel. He told Wilma he wanted to "think things over." One week later, while in a bakery, WiLma was in그ured when she slipped and f&LL.

WiLma later decided to dissolve the marriage. She made an appointment wihh

Attorney for the foUowing week. Wilma cashed in her MGLI poUcy, receiving

$3,000. She deposited the entire sum in a savings account which she opened in

her own name. The fr)11nwing day, WiLma accepted $4,000 as a settlement from the

bakery's insurer, which she deposited in the savings account.

When WiLma met with Attorney, she stated that she wished to continue living

in the house wibh the children. Wilma also showed Attorney her copy of a joint will which she and Hal had executed a year ago. The will red±ed that aIL property owned by the parties IS community property, and each left everything to the survivor. The only checking account has a nominal balance in 化.

AU events took place in California.

Upon dissolution, what will be WiLma's dghts in:

1. The savings account? Discuss.

2 The residence? Discuss.

Answer according to Cahforma Law.

6. Community Property

july 1983

In 1980, at the wedding of Tom and Mary, Tom's father, Frank, told them that he wanted them to live with and care for him for the rest of his life. He said, "If you agree to do this, 工 wilL deliver to you, wifchin a year, a deed to my home." Tom and Mary told Frank they accepted his offer and promised to look after Frank with loving care in Frank's home. They immediately moved in with him.

Soon after moving into Frank's home, using their own money, Tom and Mary added a new wing to the house, paid the outstanding property taxes, and paid off an existing mortgage of $25,000.

One year after Tom and Mary moved into the home, Tom reminded Frank of his promise to convey the property to them • Frank became angry, refused to execute the deed, and ordered Tom and Mary to leave the premises.

Tom and Mary consult you concerning their rights and the remedies that may be available to them.

How would you advise them? Discuss.