1986
July 1986 Question 7 [Remedies]
July 1986 Question 5 [Torts] [Remedies]
Alice took her diamond ring worth $14,000 to Bob, a jeweler, to have the stone reset. After Bob had agreed to reset the stone and Alice had left the shop, Bob placed the ring on a counter for a few minutes while he helped another customer.
Carl, also a customer, took Alice's ring and left the shop. Carl later sold the ring for $15,000. He deposited $2,000 of the proceeds in a savings account that already contained $5,000 of his own funds and bought Blackacre with the remaining $13,000.
When Alice returned for her ring, Bob told her that it had been stolen, that he thought he knew the identity of the thief, that he had hired a private investigator, and that he hoped to recover the ring. The investigator's activities prompted Carl to admit his theft.
Blackacre is now worth $26,000. The balance in Carl's savings account, which had dropped to a low of $600 after he had deposited the $2,000, is now $3,000. Carl has revealed that he sold the ring to Dan, who knew nothing about Carl's theft.
What are Alice's rights and to what relief, if any, is she entitled? Discuss.
July 1986 Question 3 [Community Property]
office building
July 1986 Question 1 Evidence
Parks, a patron of Delta Theatre, after watching the motion picture, started to descend a carpeted stairway leading to the men's room. He fell when halfway down the stairs and broke his leg. Two months later he sued Delta for his injuries, alleging that his foot had caught in a tear in the carpet which he could not see in the dim light and that Delta had negligently permitted the carpet to remain in its dangerous condition. Delta denied there was any defect in the carpet and alleged that Parks had fallen because he was intoxicated.
The following evidence was admitted at trial:
1. Parks introduced testimony of Ward that Ward was at the bottom of the stairway when Parks fell and that an unknown person rushed down the stairway to Parks and said, "I saw you trip on that tear in the carpet. Are you hurt?"
2. Parks introduced testimony of Carter that a week after the accident Carter was called to lay a new carpet and that the old carpet had been removed before his arrival.
3. Delta introduced testimony of Adams that he had sat next to Parks; that Parks had spoken to him just before Parks left his seat; that Adams followed Parks as he was going down the stairway and saw Parks fall; that in his opinion Parks was intoxicated and that his impression was that Parks fell because of his intoxication.
4. Delta introduced testimony of Martin, manager of the theatre, that prior to Parks' fall, thousands of persons had used the stairway, that there had been no complaints and no reports of any person falling.
5. Delta introduced testimony of Attorney Nate that at Parks' request he visited Parks a month after the accident and that during the visit Parks said to him: "I fell on the stairway in Delta Theatre. I had had too many drinks and I think that is why I fell. But I hear Delta has put a new carpet on the stairway and I want you to sue for me and say the old carpet had a tear in it and that is why I fell, although as far as I know the carpet was O.K." Nate further testified that he then refused to represent Parks.
Assuming that in each instance all appropriate objections were made, did the court err in admitting items of evidence 1 through 5? Discuss.
February QUESTlON 6 [Community Property]
Husband (H) and Wife (W), California domiciliaries, were married in January 1976. They immediately opened a joint checking account, into which they deposited their salary earnings, and from which they paid their living expenses and made the expenditures set forth below.
In April 1976, H's aunt died and left him desert land in California. The property was worth $30,000 but was subject to a purchase money encumbrance with an unpaid balance of $10,000, payable at the rate of $200 per month, including principal and interest. Between 1976 and 1981, H paid off the encumbrance with 60 monthly payments. H and W never discussed ownership of the land. The land remained unimproved.
In January 1984, H, without prior notice to W, purchased a sports car. The purchase price was $22,000, payable $3,000 down, the deferred balance, including interest, payable at $1,000 per month for 24 months.
In September 1984, W obtained a judgment for $25,000 general damages plus $5,000 punitive damages against a driver who had injured her in a 1982 automobile accident. The judgment was paid to W's attorney, who deducted the agreed fee of one third and remitted the remaining $20,000 to W; she deposited the $20,000 into the joint checking account.
In December 1984, H's brother, X, who was unemployed and unable to obtain further credit, asked H for a $5,000 loan to pay existing creditors. X promised to repay the loan within six months, with interest at the maximum lawful rate. Despite W's strenuous objections, H made the loan.
In January 1985, H and W separated; H moved out and took the sports car with him; W filed for dissolution of marriage and W immediately obtained a temporary restraining order, which froze the bank account until trial. There was $20,000 in the account at the time, the lowest balance in the account since W made the $20,000 deposit.
Thereafter X was declared bankrupt and all his debts were discharged. X never repaid any part of the loan.
In the dissolution proceeding, the trial judge made the following rulings:
A. The parties stipulated that the land was worth $45,000 at the time of trial. The land was confirmed to H as his separate property.
B. The parties stipulated that the sports car was worth $15,000 at the time of trial. The sports car was awarded to H. H was ordered to pay W $7,500 for her share at the rate of $2,500 per year, payable on the first day of each of the next three years. H's request that he be reimbursed for the payments he had made on the sports car after the parties separated was denied.
C. W was awarded the $20,000 in the joint account.
D. W's request that H be required to reimburse her the $5,000 lost on the loan to X was denied.
Was the court correct in each of its rulings? Discuss, applying California law.
February 1986 Question 3 [Contracts] [Remedies]
On Son's twenty-first birthday, his father, Vendor, gave him a house and lot to which Vendor had a good record title. The gift was made orally and Vendor gave Son the keys to the house. Son promptly took possession and occupied the premises for the next six years. During this time, he made substantial improvements to the house at considerable expense. At the end of the six years, Son's business required him to move to another city, and he listed the property with a local real estate agent for sale or for rent.
After the premises were vacated by Son, Vendor, without Son's knowledge, entered into a contract in writing to sell the house and lot to Purchaser, with transfer of title and possession to take place in sixty days. Purchaser paid one-half of the purchase price to Vendor when they signed the contract. When Vendor and Purchaser were negotiating the sale, Purchaser stated that it was his intent to raze the building and to erect a commercial structure on the land, and Purchaser signed the contract after he had ascertained that the intended improvement would not be in conflict with the local zoning ordinance. When Purchaser inspected the premises at the time of the contract, Son was not in possession and there were no sale or rental signs or other indications of Son's interest. A preliminary title insurance report obtained by Purchaser disclosed no such interest.
Two days before the scheduled transfer, the house was destroyed by fire through no fault of Vendor. Purchaser, having meanwhile discovered another lot better suited to his purposes and having learned that Son claimed title to the premises, notified Vendor that he considered the contract terminated. Purchaser demanded the return of his payment.
What are the rights and obligations of Vendor, Son, and Purchaser, if any, and to what relief, if any, is each entitled? Discuss.
February 1986 Question 1 [Torts]
Bayban is an oral contraceptive manufactured by Drugco. Unlike some otherbirth control pills, it has no known undesirable side effects. However, it iscompletely ineffective with about 0.4% of all women. Bayban could not be made100% effective without creating a risk of side effects. Bayban is advertised onlythrough circulars mailed to doctors and is sold only on a doctor’s prescription. Itslabel does not mention that it is ineffective with some women, although Drugcoso informs the physicians to whom its promotional literature is sent.
Albert and Amy Able had three minor children. Albert’s salary, their only sourceof income, was $28,000 a year, and was not likely to increase significantly. InJune 1984, Albert and Amy concluded that three children were as many as theycould hope to raise and educate adequately. They decided to have no morechildren. Accordingly, Amy consulted her physician, who prescribed Millpill,another contraceptive which she took regularly until October 1984.
In October 1984, the Ables spent two weeks with their friends the Bakers in anearby city. When she unpacked her bag, Amy discovered that she hadforgotten her Millpills. Mrs. Baker, informed of the problem, told Amy that shewould give Amy some Bayban pills which the Baker family physician had prescribed.
Although her doctor had warned her that Bayban was not 100% effective, Mrs.Baker did not mention this when she gave the package to Amy. Amy took thepills as directed on the package during the two-week visit. In December 1984,she learned she was pregnant.
Since they learned of Amy’s pregnancy, the Ables have suffered from severeinsomnia caused by economic worries, and as a result Amy has been treated bya psychiatrist. Their 17 year-old daughter, Dora, has also been emotionallyupset and under psychiatric treatment since her parents told her that they nowcould not afford to send her to college.
Amy refused to consider an abortion even though her doctor assured her that itwould present no danger to her health. Both the pregnancy and the birth werenormal and uneventful. Thomas Able, a healthy baby, was born on July 10,1985. Thomas was conceived during the time Amy was taking Bayban.
On what legal theory or theories, and for what injuries, might Albert, Amyand Dora might recover from Drugco? Discuss.
February 1986 Question 4 [Contracts]
Buyer, a builder of industrial plants, requested Seller, one of his regular suppliers, to submit a proposal for supplying a turbine for a plant Buyer was building for Carlson. Several days later. Seller phoned Buyer and offered to produce and install a turbine, pursuant to the specifications Buyer had supplied, at a price to be agreed upon at later time when all of Seller's costs were know. During this telephone conversation, Buyer accepted this offer, "so long as the price does not exceed $400,000," and emphasized that delivery by February 15th was essential, since the turbine was vital to Buyer's completion of the plant. Seller assented to Buyer's requests. The next day, Buyer sent Seller a written confirmation that referred to the specifications Buyer had given Seller, stated the price as “not to exceed $400,000,” required delivery by February 15, provided for damages of $1,000 per day for any delay in delivery, specified "the usual warranties," and stated that "any changes in the terms of this agreement must be in writing." Shortly after receiving this confirmation, Seller began producing the turbine. On January 15, Buyer received a letter from Seller requesting a one-month extension in the delivery date. Buyer phoned Seller and, after hearing Seller's reasons for the request, said that a one-month delay in delivery would be acceptable. On February 20, Buyer learned from a reliable source that Seller had completed the turbine and was about to sell and deliver it to Ted, another builder, for $430,000.
What are Buyer's rights, and to what relief and remedies, if any, is he entitled? Discuss.
February 1986 Question 5 [Business Associations] [Remedes]
Corp, Inc., (Corp) has 200,000 authorized shares of $1 par value stock. Andy, Ben, Carl, and Dave each purchased at par and continue to hold 50,000 shares of Corp. Corp's articles prohibit incurring any single debt in excess of $75,000 and require a vote representing 80% of outstanding shares to amend the articles. The articles also provide for preemptive rights, cumulative voting, and a board of four directors. Each of the four shareholders has elected himself director at annual shareholder meetings during each year of corporate existence.
Corp's board unanimously decided to borrow $100,000 from Lender. Lender took Corp's ten-year note, bearing interest at 20% per annum, payable in monthly interest installments. Corp has the option to pay off the note at any time, without penalty. Later, Lender needed funds and approached Andy, who serves as Corp's treasurer. Lender offered to sell the note for $90,000 and Andy, without consulting with Ben, Carl, or Dave, purchased the note on his own account.
The week following the purchase of the note by Andy, Rich asked to subscribe to 100,000 shares of Corp stock at $1 per share. Ben, Carl, and Dave approved Rich's proposal, but at the annual shareholders' meeting, Andy voted against and thus defeated a proposed amendment of the articles authorizing additional shares free from preemptive rights. Because of the note's high interest, Andy did not want it paid off. The other directors, hoping to use Rich's investment to pay the note and now aware of Andy's acquisition of it, were angered and caused Corp to cease paying the monthly interest installments.
Rich then caused the incorporation of Endrun, Inc., and subscribed to 100,000 of its shares for $100,000. Rich proposes that Corp be merged into Endrun, that each Corp share be converted into an Endrun share, and that Endrun pay the Lender note now held by Andy. Corp's board has approved the merger three to one, Andy dissenting.
Assume that the interest rate is not usurious.
1. Did Andy breach any duty to Corp or to fellow shareholders in voting against the proposal to issue 100,000 shares to Rich? Discuss.
2. Can Andy obtain an injunction to prevent the Corp-Endrun merger? Discuss.
3. Can Andy collect interest payments on Corp's note? Discuss.
July 1986 QUESTlON 6 [Business Associations]
Starco, stockbrokers, in attempting to market 1,000,000 common shares to be issued by Durmac, offered 500,000 shares to the Ennis Corp. at $50 per share. Already the owner of a substantial interest in Durmac, Ennis' financial condition was such as to make desirable a large immediate acquisition of additional shares of Durmac.
Ennis' by laws provided that a quorum consisted of five out of its seven directors. After due notice to the four resident directors, but without notice to the three non-resident directors, a special emergency board of directors' meeting was held. Resident directors, Almon, Barnes and Chester with a proxy executed by Grabe, the fourth resident director, attended the meeting. Also present was Webster, a non-resident director. The directors present unanimously voted to purchase 400,000 of the new Durmac shares. Upon conclusion of the meeting, Webster signed a waiver of notice.
Immediately following the meeting, Ennis purchased and paid for in full 400,000 Durmac shares.
At their next regular meeting, attended by all directors, the board voted unanimously to ratify the action taken at the special emergency meeting.
Before the actual offering of Durmac shares to Ennis, Starco had offered to a select few, for one day only, a few thousand of the new common Durmac shares at $42 per share, cash.
Among the offereees was Almon, who purchased a total of 2,000 shares for his own account. Almon subsequently disposed of these shares at a substantial profit. However, by the time the Ennis shareholders became aware of the foregoing facts, the market price of Durmac shares had declined sharply.
1. Was the acquisition of Durmac shares by Ennis a proper corporation action? Discuss.
2. Are any of the directors liable to Ennis for the decline in value of Durmac shares? Discuss.
3. What, if any, is the liability of Almon to Ennis for profits he made on his purchase and sale of the Durmac shares? Discuss.
Do not discuss federal statutory securities issues.
Answer
July 1986 Question 3 Community Property
The following events occurred in California.
Husband (H), a carpenter, and Wife (W), a nurse, were married in 1965. In 1966, W contracted to buy a small office building. She paid the purchase price in installments by withdrawals from a joint bank account into which H and W deposited their earnings. In 1970, W paid the last installment and received a deed conveying the building to “W, a married woman.” He knew W was buying the building and made no objection. He did not know how the title to the building was taken.
In 1980, H’s aged uncle, Ted (T), promised H and W that if they would move into his home, maintain it in good repair, and care for him for the remainder of his life, he would will his house and furniture to H. H and W moved in with T, cared for him, and maintained his home in good repair until his death in 1985. T left a valid will giving his house and furniture to H.
H and W continued to live in the house. Returning home one day, W discovered to her surprise that all the furniture had been removed. H confessed that he had sold the furniture and used the proceeds to pay gambling losses he had secretly incurred.
In a dissolution of marriage proceeding now pending, what are W’s and H’s rights, if any, with respect to the following:
1. The office building?
2. The house?
3. The furniture or its value?
Discuss
Answer according to California law.
Answer
July 1986 QUESTlON 2 [Constitutional Law]
SADS, a national college student organization, decided to conduct a campaign protesting government defense spending. SADS members at a university in City planned to distribute campaign literature within City to motorists stopped at major intersections and to patrons at a shopping center owned by Owen.
For years, community service organizations have distributed literature in City to motorists stopped at intersections. There were several accidents causing serious injuries to persons engaged in such practices. For that reason, the City council had been considering for several months a proposed ordinance that would prohibit pedestrians from approaching motorists stopped at intersections within City. Immediately after the SADS distribution plan was publicly announced, the proposed ordinance was passed out of committee and unanimously enacted by the City Council. SAD members have not yet attempted to deliver literature to motorists.
City has a municipal ordinance making it a misdemeanor to trespass on private property, including shopping centers. Owen's shopping center is posted with signs stating that no tenant or visitor may distribute on the premises literature not directly related to the commercial purposes of businesses in the center, and that violators are subject to removal by the center's security guards and prosecution under the anti-trespass ordinance.
SADS has filed two actions (in the appropriate federal district court).
One action is against City, seeking a declaratory judgment that the recently enacted ordinance violates the rights of SADS members under the United States Constitution.
The other action is against Owen, seeking a declaratory judgment that any action by Owen or his employees to stop SADS from distributing campaign literature at this shopping center would violate the rights of free speech of SADS members under the United States Constitution.
No SAD campaign literature has yet been distributed at Owen's shopping center, and no threat has been made to remove SADS members from the center or to have them prosecuted under the anti-trespassing ordinance should they attempt to distribute their literature on the center premises.
City has filed its answer to the complaint in the first action and that case is set for trial.
Owen has moved to dismiss the second action on the grounds that (a) the action is not ripe, and (b) the complaint fails to state a claim for relief because SADS members have no constitutionally protected right to distribute the campaign literature on private property.
1. What arguments should SADS make in support of its claim against City, and how should the court decide that claim? Discuss.
2. How should the court rule on Owen's motions? Discuss.
February 1986 Question 2
Question 2 [Civil Procedure]
Owner was the driver and Rider a passenger in Owner's expensive auto when it collided on a State X highway with a pickup truck driven by Trucker, a citizen of adjoining State Y. Both vehicles were damaged. Rider, Trucker, and Owner were injured.
Owner, a citizen of State X, sued Trucker in a federal district court in State X, claiming $75,000 in property damage to his auto. In his answer, Trucker denied negligence and asserted contributory negligence. After a nonjury trial, the court expressly found that Trucker was not negligent. Judgment was entered for Trucker and has become final.
Subsequently, Rider commenced a $400,000 personal injury suit against Owner in an appropriate State X court. State X has adopted the Federal Rules of Civil Procedure. Prior to trial, Owner timely moved that the suit be dismissed on the ground that Trucker was an indispensable party and had not been named a defendant. After a hearing, the court denied Owner's motion.
Before trial, Trucker timely petitioned to intervene as a plaintiff and, over Owner's objection, the court granted the petition. Trucker's complaint in intervention sought $200,000 for personal injury and property damage against Owner, who counterclaimed for $150,000 in personal injury damages. Rider, over Trucker's objection, was permitted to assert a $400,000 cross-complaint against Trucker.
None of the claims asserted is barred by a statute of limitations.
1. In the State X court action, did the court correctly rule that:
a. Trucker was not an indispensable party?
b. Trucker could intervene?
c. Rider could cross-complain against Trucker?
Discuss.
2. In the State X court action, what effect, if any, should the federal district court action have on:
a. Rider's claim against Owner?
b. Rider's cross-complaint against Trucker?
c. Trucker's claim against Owner?
d. Owner's counterclaim against Trucker?
Discuss.
Answer