1990
[Contracts]
F1. Bilder operated a building company specializing in custom-built houses. In order to maintain his high standards of construction, Bilder kept his company small and never had more than two projects going at one time. Homer owned a lot in Suburban Estates on which he wanted to build a house. After hearing of Bilder's reputation for doing superior work, Homer decided that he would have his house built by Bilder. On April 15, Homer and Bilder entered into a valid written contract for the construction of the house. According to the contract, construction was to be completed no later than November 30 and the contract price, S300,000, was to be paid upon completion. Bilder estimated that the work would take about four months and, knowing that he was obligated to begin work on two other houses on December 1, determined that if he started construction on Homer's residence on July 1 , he would finish by about the end of October. This left a one-month period, which Builder considered adequate to accommodate unanticipated delays. Bilder started construction on Homer's house as scheduled . By the end of August, the work was one-half completed at a cost to Bilder of S 1 20,000. On September 1, the developer of Suburban Estates obtained a temporary injunction against both Homer and Bilder restraining further construction of Homer's house on the ground that the house violated the subdivision's minimum set-back requirement upon receiving notice of the injunction, Bilder stopped work. Six months later the injunction was dissolved and the lawsuit was dismissed as without merit. By that time, Bilder, already at work on other projects, refused to resume performance for Homer, and demanded payment of one-half the contract price. Because of increased construction costs, it appeared certain that it would cost Homer $200,000.00 to have another contractor finish the house. This could only have been discovered if Homer checked with other contractors to determine the cost of completion. lf Bilder is found in a material breach of the contract, Homer would be able to receive his out of pocket damages, that is the
[Constitutional Law]
F2. There has been a recent substantial rise in residential mortgage loan interest rates inState X. This has resulted in numerous complaints to the statute legislature by homebuyers about mortgage lenders who raise rates after the initial loan commitment but before execution of loan documents. In response, the legislature enacted the State X Residential Mortgage Banking Act (RMBA), requiring a ninety-day period during which a residential loan rate commitment cannot be increased by the lender. If the loan closes during this ninety-day period at a higher interest rate than that initially agreed to by the lender, the lender is subject to a penalty For example, the penalty for breaching an interest rate commitment on a $1000,000 loan would be $15,000.Under RMBA, lenders whose principal places of business are in State X can obtain a reduction of the penalty to 10% of what the penalty would otherwise be by demonstrating a reasonable business justification to the State X Commissioner ofBanks. This reduced penalty provision does not apply to lenders doing business inState X whose principal places of business are in other states.When RMBA was enacted, out-of-state banks making residential loans had seventy-five branches in State X. Of these, forty were branches of Lendco, a large out-of-state lender. RMBA limits to ten the number of branches that any out-of-state lender may have in State X. There is no similar limitation for lenders whose principal places of business are in State X. The sponsors of RMBA justified the ten-branch limitation by citing the need to supervise lending operations closely, given the limited enforcement budget for the Commissioner of Banks, who was responsible for enforcement of RMBA.When the State X governor signed RMBA into law, he stated “This will bring those eastern banking conglomerates down to size.”Lendco has filed an action against the State X Commissioner of Banks in United StatesDistrict Court in State X seeking a declaration that RMBA violates the U.S. Constitution. Lendco can present proof that market economics require it to have at least twenty branches in State X to compete effectively and that it will cost Lendco in excess of $10million to close down thirty of its existing branches in State X.
What arguments under the U.S. Constitution should be made for and against Lendco’s challenge to the validity of the provisions of RMBA governing (1) the interest rates and penalties, and (2) the limitation on the number of branches for out-of-state lenders?
How should the Court decide these arguments? Discuss.
F3. Officer is the treasurer of Bank. Officer called the Bank's regular outside counsel, Lawyer, and asked that they meet immediately. Lawyer offered to come to Bank, but Officer insisted that they meet elsewhere for "confidentiality reasons."
When Officer arrived, he was visibly upset. He began by telling Lawyer that Bank was experiencing financial difficulties which, if not corrected, would lead "to more serious problems." The problem began several years ago when Officer's superior, Boss, the president of Bank, began making loans to fictitious corporations for Boss' benefit. The loans were initially for small amounts, but the amounts increased and now totaled over $1,000,000. Neither Boss nor any of the fictitious corporations is able currently to repay the loans, and interest on the loans has not been paid for some time.
Officer learned of the loans a year ago but agreed with Boss to keep quiet. In return, Boss arranged to have a $25,000 loan made to XYZ, a newly created corporation, for Officer's personal benefit. Officer reminded Lawyer that Lawyer's firm prepared the incorporating documents for XYZ Corporation.
Officer believes that all loans for both his and Boss' benefit could be repaid over time, but because Bank's auditors are scheduled to review Bank's financial statements the following week, the problem loans are likely to be revealed.
Officer asked Lawyer to agree to advise him how to protect himself, Boss, and Bank from liability. Officer requested that the information he had disclosed and Lawyer's advice be kept confidential. Lawyer has not responded to Officer's requests.
Under the ABA Model Rules and ABA Code of Professional Responsibility:
1. Can Lawyer ethically agree to assist Officer, Bank, or Boss? Discuss.
2. Can Lawyer ethically disclose the information she has learned:
a. To Boss? Discuss.
b. To other officials of Bank? Discuss.
3. What individuals or entities will be able to waive Bank's attorney-client privilege relating to Lawyer's discussion with Officer? Discuss.
4. What are Lawyer's ethical obligations to Bank given her law firm's preparation of the incorporating documents for XYZ Corporation? Discuss.
[Trusts]
F4. When Bonnie was born in 1968, her Uncle Albert gave to Bonnie’s parents, Max and Carol, a $1,000 U.S. Savings Bond and 100 shares of Delta Company, a small California corporation. He told them that he wanted to encourage Bonnie to get a good education and asked that it be used for this purpose. Albert endorsed both the bond and the stock “to Max and/or Carol, for Bonnie.” Max and Carol thanked him for the generous gift and subsequently put the bond and the stock in a safe deposit box. Albert died in 1971.
In 1972, Max and Carol obtained a dissolution of their marriage. Bonnie continued to live with her mother, Carol, who remarried in 1974. Carol retained control over the bond and shares of stock. The bond matured in 1975 and Carol redeemed it for the face amount and placed this money in a joint, non-interest bearing checking account, which she owned with her new husband, Daniel. Carol told Daniel that the money was for Bonnie’s education and he never inquired any further. The 100 shares of Delta stock increased in value and, in 1976, Carol exchanged the shares for shares of ABC Corp., worth $5,000 at the time of the exchange. The value of the ABC Corp. shares steadily declined and is now approximately $250.
Meanwhile, Bonnie developed an interest in music and studied piano privately for many years until she became quite proficient. She was eventually able to obtain a partial music scholarship to attend the state university upon her graduation from high school. It was at this time that she first learned, from her father, of the existence of the gift from her Uncle Albert. She asked her mother for the bond and the stock, but her request was refused. Carol told Bonnie that the gift had been used to pay for the piano lessons.
What rights and remedies, if any, does Bonnie have against:
Carol? Discuss.
Daniel? Discuss.
Max? Discuss.
[Criminal Procedure]
F5. Deft was formally charged with a criminal offense punishable with a ninety-day maximum jail term and/or a $500 fine. As Deft was being brought by a policeman to the courtroom for arraignment, Witt, who had witnessed the charged offense and was asked by the prosecutor to be present at Deft's arraignment, said to the policeman, 'Tes, that's the guy!" At the At the arraignment, Deft established his indigency and requested appointment of counsel and trial by jury. The arraignment judge denied both requests without explanation. Representing himself in the trial court, Deft moved to exclude evidence of Witt's statement to the policeman that he recognized Deft at the arraignment, and to prevent identification of Deft by Witt at trial. The trial judge agreed to exclude evidence of Witt's statement to the policeman but refused to prevent any potential identification of Deft by Witt at trial. After the foregoing rulings, Deft negotiated a plea bargain with the prosecutor under which Deft agreed to enter a plea of guilty without admitting that he was, in fact, guilty, and the State agreed that it would not request a jail term. The plea agreement was explained to the court. The judge then advised Deft of the constitutional rights he would waive by pleading guilty and also told Deft the maximum statutory penalty that could be imposed. The judge explained that the plea agreements did not limit the court's discretion in imposing sentence. Deft then waived his rights and agreed to go forward with the plea. After the prosecutor made a proffer of evidence to establish a factual basis for the charge, the judge accepted Deft's plea of guilty, even though Deft told the judge he was really innocent. Deft was sentenced to a fine of $500 and a thirty-day suspended jail term. Deft has appealed. The jurisdiction permits an appeal following a plea of guilty. You may assume that each issue raised by Deft is a proper subject for appeal notwithstanding the guilty plea.
Deft argues in the appellate court that his conviction must be reversed on federal constitutional grounds because:
1. He was denied his right to appointed counsel.
2. He was denied his right to trial by jury.
3. Any identification of Deft by Witt was inadmissible at trial.
4. His plea was not shown to be voluntary and intelligent and should not have been accepted since he had maintained that he was innocent.
How should the appellate court rule on each of Deft's arguments? Discuss.
[Real Property] [Contracts] [Torts] [Remedies]
F6. Joe had a wealthy brother, Steve, who owned an aging, unoccupied house situated on a large tree-covered lot. Joe asked Steve if he would sell the property and, if so, at what price. Steve replied that he would not sell, but would let Joe have possession of the property, free of charge, if Joe would maintain it. A few days later, Joe wrote Steve and asked permission to go on and take possession of the property for the purpose of making the substantial repairs and renovations necessary to make the house habitable and to take up residence there. Steve wrote back: "Of course you may go on the property as we discussed. I promise that if you make the house habitable, it is yours for at least the next ten year."
Over the next several months, Joe spent more than 300 hours of his free evenings and weekends working on the house, expended $6,000 for materials, and paid out another $5,000 for plumber and electrician help. Joe often slept overnight at the house on occasions when he worked late.
Just as the house became habitable and ready for Joe to take up permanent residence on the property, Steve told him that Buyer had offered $200,000 for the house for immediate possession, that Steve has accepted Buyer's offer, and that Steve would compensate Joe for his out-of-pocket expenses ($11,000) but not for his time and labor. The rental value of the property, as restored by Joe, is $800 per month, and Joe's time is worth $15 an hour.
What are Joe's rights and remedies? Discuss.
J1.
J2.
J3. All of the following events occurred in California.
Shortly after he graduated from college in 1957, Harry purchased a home for $40,000, taking title in his name. Harry's father gave him the $10,000 down payment and Harry borrowed the balance of the purchase price on a note secured by a 30-year mortgage for the remainder. A month later, Harry married Wilma and began work for ABDO Corporation. Harry rnade all mortgage payments from his ABDO earnings. The house is now worth $500,000.
A homemaker until their children were grown, Wilma enrolled in a local public university and in 1983 earned a professional credential in landscape architecture. Her tuition and other educational costs were paid by Harry from his ABDO earnings.
In 1984, using a $50,000 inheritance from her father, Wilma established a remarkably successful landscape business, Flora, Inc. In 1990, Wilma was offered $600,000 for Flora even though the physical assets were worth only $50,000. Wilma rejected the offer.
In 1990, Harry was permanently and totally disabled in a hunting accident. In satisfaction of his claim for personal injuries, he received a $400,000 settlement, which he used to purchase a portfolio of corporate stocks now worth $600,000.
Harry can no longer work at ABDO because of his disability. He now receives ABDO disability benefits, which provide two-thirds of his monthly pre-injury salary.
The disability payments will continue until 1995 when Harry turns 60. He will then receive ABDO early retirement benefits, which will be three-fourths of his pre-injury monthly salary.
Harry and Wilma have decided to obtain a dissolution of their marriage.
1. How should the following assets be classified and distributed on dissolution:
a. The house? Discuss.
b. Flora, Inc.? Discuss.
c. The corporate stocks? Discuss.
d. The ABDO disability payments? Discuss.
e. The future ABDO retirement benefit payments? Discuss.
2. Should any adjustment in the distribution be made in order to reflect the cost and value of Wilma's education? Discuss.
[Evidence]
J4. Dave, a waiter at Bill's Cafe (Cafe), is on trial by jury for the crime of arson, defined by statute as setting a building afire either intentionally or with gross and reckless disregard for human life.
1. The prosecution's first witness was Sam, a cook at Cafe, who testified, over objection, that just prior to the time Cafe burst into flames, Bart, another waiter, ran into the kitchen shouting that Dave was spilling gasoline all over the lobby, and that someone should call the police because what Dave was doing would kill them all. is such a statement. Bart cannot be located by either party.
2. Ellen, assistant manager of Grill Restaurant (Grill), was called as a witness by the prosecution and testified, over objection, that Dave had been a busboy at Grill before he became employed at Cafe, and that she had fired him after she found Dave showing other employees how to construct a gasoline bomb.
3. After the prosecution rested, Dave took the witness stand and testified that he had been ordered to clean the lobby doors and ornamental brasswork at Cafe, and that he was using gasoline as a cleaning solution in that work when a patron entered and flipped a lit cigarette butt on the lobby floor, igniting the gasoline. On cross_examination, over objection the prosecution elicited the fact from Dave that, two years earlier, he had been expelled from college for cheating on a final examination.
4. The defense next called Dr. Hix, a chemist, who testified, over objection, that based on his pretrial review of standard scientific treatises, as well as his own experimentation, it was his expert opinion that although use of gasoline as a cleaning fluid cannot be recommended, its use for that purpose in normal circumstances is reasonably safe, if the gasoline vapor is kept from contact with hot filaments or burning objects.
5. In rebuttal, the prosecution, over objection, asked the judge to take judicial notice that gasoline vapor is so combustible that use of gasoline as a cleaning fluid in space occupied by other persons constituted gross and reckless disregard for human life, as a matter of law. The court stated that it took such notice. Assuming that all objections were properly made, should the evidence objected to in items 1 through 5 have been admitted? Discuss.
[Professional Responsibility]
J5. Doctor is a nationally recognized surgeon. He operated on patient who, after the surgery, developed an infection and died. Execu, the personal representative of patient's estate, commenced a malpractice action against Doctor who referred the claim to Medins, Doctor's malpractice insurance carrier.
Doctor's policy provided that Medins would retain an attorney to defend any claim against Doctor, and would pay up to $1,00,000 in satisfaction of any claim of judgment against Doctor. The policy also provided that Medins would "investigate and settle any claim as it deemed appropriate."
Medins retained Lawyer to defend against Execu's claim. After reviewing the record, conduction some discovery and obtaining an opinion from a medical expert, lawyer reasonably concluded that, while Doctor's liability was uncertain, Execu had a good chance of prevailing. In light of the possibility of substantial damages, lawyer recommended that Medins settle the case. Medins authorized a settlement. Lawyer then negotiated with Execu's attorney and reached a tentative agreement to settle the case for $500,000.
Lawyer's secretary notified Doctor of the proposed settlement. Doctor expressed anger with the proposed settlement, stating unequivocally that he was not responsible for patient's death. Doctor stated that settling would adversely affect his reputation, could increase his insurance premiums, and could result in disciplinary action against him. Accordingly, Doctor told the secretary that he would not authorize the settlement. There were no further communications between Lawyer and Doctor.
Lawyer contacted Medins informing it of Doctor's objections and seeking further direction. Medins directed Lawyer to complete the settlement in accordance with the tentative agreement.
1. Who does Lawyer represent in this case? Discuss.
2. Has Lawyer violated rules of ethical behavior in her handling of the case prior to taking action on Medins' direction? Discuss.
3. May Lawyer settle the dispute as directed by Medins without breaching rules of professional responsibility? Discuss.
4. What rights does Doctor have, if any, against Lawyer? Discuss.
[Business Associations]
J6. Abby, chief executive officer of Oilco, was eating lunch with several fellow Oilco executives when she saw her business school classmate, Barb, sit down at the next table. Abby was aware that Barb was a prominent local stockbroker. In an unusually loud voice, Abby stated to her fellow executives, "I bet my former classmate would give her left arm to know that tomorrow we are going to announce a tender offer for ALT Corporation."
Barb overheard this remark and when she returned to her office, bought 10,000 shares of ALT Corporation for her own account.
Barb also telephoned the Mutual Fund Complex (Mutual) and told its chief executive officer, "If you are smart, you will buy ALT Corporation this afternoon." Within one hour Mutual placed an order to buy 50,000 shares of ALT, using Barb as a broker.
That afternoon, Barb visited Cora, a neighbor whom she intensely disliked and who, at Barb's recommendation, had recently purchased ALT stocks. Barb told Cora that she had heard that ALT shares were about to decrease in value and because she felt badly that it was upon her advice that Cora had purchased ALT shares, she was willing to buy the ALT shares from Cora at the current stock exchange price without charging any commission. Cora immediately sold Barb her one hundred shares of ALT stock.
The following morning, Oilco announced it was making a tender offer for ALT Corporation shares at a price 50% above its current market price. Approximately one month later, the tender offer was completed, with Barb and Mutual receiving profits of approximately 50% on their shares. Abby has not purchased any ALT shares for more than three years.
Has Abby, Barb, or Mutual violated Rule 10b-5 under Section 10(b) of the Federal Securities Exchange Act? Discuss.
2. Has Barb incurred any potential non-statutory civil liability? Discuss.