Legal Analysis: Maria's Contract with RC for House Cleaning Services, Exams of Business Management and Analysis

Download Legal Analysis: Maria's Contract with RC for House Cleaning Services and more Exams Business Management and Analysis in PDF only on Docsity! California Bar Examination Essay Questions and Selected Answers July 2006 TUESDAY MORNING JULY 25, 2006 California Bar Examination Answer all three questions. Time allotted: three hours Your answer should demonstrate your ability to analyze the facts in question, to tell the difference between material and immaterial facts, and to discern the points of law and fact upon which the case turns. Your answer should show that you know and understand the pertinent principles and theories of law, their qualifications and limitations, and their relationships to each other. Your answer should evidence your ability to apply law to the given facts and to reason in a logical, lawyer-like manner from the premises you adopt to a sound conclusion. Do not merely show that you remember legal principles. Instead, try to demonstrate your proficiency in using and applying them. If your answer contains only a statement of your conclusions, you will receive little credit. State fully the reasons that support your conclusions, and discuss all points thoroughly. Your answer should be complete, but you should not volunteer information or discuss legal doctrines which are not pertinent to the solution of the problem. Unless a question expressly asks you to use California law, you should answer according to legal theories and principles of general application. acted reasonably in taking Paul to the back room, and that leaving him for 25 minutes was not unreasonable. Clerk will argue the 25 minute stay was reasonable because he had to wait for the store manager to come back. Paul will reply that Clerk’s belief was unreasonable because Clerk was not paying attention in the first place, and that all Clerk had to do was look on the counter to see if the $1.50 was there. If nothing else, Clerk could have simply checked the register. Paul will then argue that the 25 minute detainment was unreasonable because of the type of room he was placed in. Paul will argue that putting him in a [room] that was full of carbon monoxide was unreasonable, even if it was only for one minute. Paul should succeed in rebutting Clerk’s defense of SP b/c it was not a reasonable suspicion and the time constraint was unreasonable. Clerk’s unlawful arrest of Paul For purposes of demonstrating intent and unreasonable belief, Clerk’s arrest of Paul can be analyzed. It has been held that when a citizen arrests another citizen, for purposes of a misdemeanor (which these facts indicate as the candy was only $1.50), require that the Clerk had been reasonable in his belief that the individual conducted the act, that act was done in his presence, and it had to be a breach of the peace. Clerk may try to argue that it was done in his presence, and it technically was, but Clerk never actually saw it. Clerk may argue that regardless of [whether] he actually saw it, his belief was reasonable. Clerk may attempt to argue that a theft amounts to a breach of the peace and that he did not unlawfully arrest Paul. Paul will argue that even if Clerk was reasonable in his belief, this was not a breach of the peace. Paul took $1.50 worth of candy from a gas station and threw the money on the counter. This simply cannot amount to a breach of the peace, no matter how strict a state’s law might be. Therefore, Clerk unlawfully arrested Paul. Conclusion Therefore, because Clerk intended to confine Paul, and did indeed confine Paul (and caused an injury[,] no less), that Clerk did not satisfy the elements of shopkeeper’s privilege as the belief was unreasonable, as was the time constrained. Finally, Clerk’s unlawful arrest of Paul also goes towards the intent of illegal confin[e]ment. Thus, Paul should succeed in a false imprisonment claim again[s]t Clerk. Paul v. Mark Negligence Negligence is a tort that requires the following factors: Duty, Breach of Duty, Foreseeability (Actual/Proximate Causation), and Damages. Negligence per se Negligence per se occurs when there is a[n] ordinance that prohibits some type of conduct that occurred. If it’s intended to cover the type of occurrence it speaks to, one may be guilty of it without demonstrating all the elements of negligence. Here, the statute refers to stopping a car on the curb/highway, and turning the wheels. This would indicate it’s to prevent cars from sliding if the parking brakes don’t work. Thus, this statute was not intended to protect people from carbon monoxide poisoning. Thus, negligence per se doesn’t work. Duty Duty requires that the tortfeasor have some duty to victim. Generally speaking, we all have a duty not to act negligently. Essentially this is requiring that we act in a reasonable manner that does not put others in a[n] unnecessary state of harm. In order to make out a case for negligence, Paul needs to show that Mark owed him a duty. Mark will argue that he has no general duty to everybody in the world. To hold him to such a high duty is improper. In addition, Mark will argue that the medicine he was taking made him forgetful, thus absolving [him] of his duty. Paul will argue that nobody’s asking Mark to have a duty toward the whole world, just those who enter his store[.] Paul will state that shopkeepers are held to a much higher degree than normal guys just walking on the street. Paul will also argue that Mark’s tendency to forget while taking the medicine does not absolve him because he knows that the medicine makes him forgetful. Thus Mark must act in accordance with that knowledge. In order to properly examine duty, it’s necessary to look at the duties owed to a trespasser, licensee and invitee. Trespasser An undiscovered trespasser is owed no duty under the common law. Anticipated trespassers need to be warned of active operations and artificial conditions that are unreasonably dangerous. Mark will try to argue that Paul was a trespasser because (b/c) Mark was being held for alleged shoplifting. Mark will argue that Paul was in an area that is not generally open to members of the public, thus his duties will amount to that owed to a trespasser only. Mark will argue that he was not aware of Paul’s presence[;] therefore, he owned Paul no duty. Paul will reply that holding him as an undiscovered or unanticipated trespasser makes no sense. He was discovered and most likely anticipated, although the facts do state the room was seldomly used. Paul will argue that he was owed, at worst, a duty that’s granted to an anticipated/discovered trespasser. Thus, Mark will argue that he was entitled to a warning in regards to the carbon monoxide. Licensee A licensee is one who is invited onto the land of another as a social guest. They are owed to [sic] warnings regarding unreasonably dangerous conditions involving active operations, hidden but discovered dangers, artificial and natural conditions. Because Paul was not invited as a social guest, whether into the gas station or the back room, the licensee standards do not apply to him and need not be discussed here. Invitee An invitee is one who has been invited onto the land of [sic] property of another for the property owner’s benefit. The rule for invitees is that the property owner owes all the same duties that is [sic] owed to licensees, plus the owner needs to make reasonable inspections for unreasonable dangerous conditions existing on the premises. Mark will argue that Paul was not an invitee because he had allegedly stole [sic]. Mark will argue that while Paul may have started off as an invitee, by stealing, he exceeded the scope of the invite and became a trespasser. Mark will argue that because of that, Paul is not entitled to the protections of an invitee. Paul will argue that he was an invitee as he went to the station to buy gas. He was there for the benefit of Delta. Paul will argue that just because he allegedly stole, that does not change his status because he did not in fact steal, that Clerk false[ly] imprisoned him, and the false imprisonment cannot change the scope of duty owed to him. Paul will then argue that because an invitee is entitled to have the owner inspect the premises for dangerous conditions, this means that there was a duty to inspect the back Paul will reply that CO cannot be smelled, that it simply knocks a person out. Paul will reply that there was no way for him to know that there was CO[;] therefore he cannot be contributorily negligent. Assumption of risk requires that the victim voluntarily assume the risk of whatever occurred to him. The facts do not indicate that Paul voluntarily assumed any risk. While the door was unlocked, he could not have voluntarily assumed the risk that there would be CO leaking from the garage. Therefore, AOR is a bad defense for Mark to assert. Further, comparative negligence will only serve to decrease some of Mark’s liability. In some jdx’s, one who is over 50% negligent cannot recover. In pure jdxs, P can always recover something, unles[s] she is 100% negligent. The facts do not seem to indicate any negligence on Paul’s part[;] therefore Mark will be responsible for 100% of the negl[ig]ence, as it relates to Paul. 2. Vicarious Liability/Respondeat Superior Vicarious Liability/Respondeat Superior Generally, an employer is guilty for the acts of his employees, provided that it is within the scope of his employment. In the case, Clerk was acting within the scope of his employment. He was trying to protect the store from being robbed. The store may try to argue by falsely imprisoning Paul, Clerk was acting outside of it. Further, store will try to argue that b/c Clerk was talking on the phone, he was also acting outside the scope of employment. The store’s arguments probably will not work because Clerk undoubtedly in [sic] given the privilege by his employer to detain those he believes is stealing. It would appear from the facts that Clerk was acting within the scope of his employment[;] surely his job entails detaining those who he believes was [sic] stealing from the store. Thus, the store cannot relieve itself of Clerk’s false imprisonment tort. Mark, on the other hand, left his truck on while running on a personal errand. The store will try to claim he was acting outside the scope of employment because he was on a detour. The general rule is that when an employee detours from his employment functions, the employer might not be held responsible. The store will argue b/c Mark left on a personal errand, his actions cannot be attributed to them. This argument probably will not work b/c Mark left his truck at work. Mark did not take his truck on a personal errand and run somebody over. It is given that people generally take their cars to work, and if that car poses a problem and causes injury to a customer, that is within the scope of the employment. Therefore, the store will be held under the vicarious liability/respondeat superior theories. Trespasser/Licensee/Invitee All of the rules and arguments above apply to the Employer as well. Since Paul was a[n] invitee, the Store (or its employees) owed a duty to inspect the premises and by failing to do so, Store is liable for the employer’s acts. Defenses All the same defenses from above apply. Answer B to Question 1 1) I. Can Paul maintain tort claims against Clerk for false imprisonment? In order to prevail under a claim of an intentional tort, such as false imprisonment, the plaintiff must show an action of the defendant, made with requisite intent, causation and damages. False imprisonment specifically requires the following: (1) an act or omission of the defendant that causes the plaintiff to be restrained to a bounded area. This can be done through a physical act or under an imminent threat. There must be no reasonable means of escape. (2) The defendant must have acted with specific intent to confine or general intent, meaning he acted with substantial certainty that he was acting in the proscribed manner. (3) It was the actions of the defendant that caused the harm to the plaintiff. The action must have been at least a substantial factor. (4) Damages. The plaintiff had to suffer some harm so he must have known of the restraint or suffered damage because of it. Action of the defendant (C) In this case, C did ask P to go with him to the back of the store, which P did. Though C may argue P was free to leave, P should argue that he only went to the back room under threat of having trouble with the police. He knew C had taken down his license number, and P arguably was willing to go into the back room so he could have a chance to explain himself. P was put into the room and C closed, though did not lock [,] the only door to the room, which contained no windows. This should be enough to meet the requirement that there be no reasonable means of escape. Even though P could have physically opened the door and may have been able to walk out, he was being held there under threat of having to deal with the police. M may argue that the threat of calling the police should not be considered to be a threat that confined the P. If P was truly innocent, all he would have to do is give his story to the police. Plus, P should have known that his money was still on the counter, and if he could convince C or the police to look for [it], this story would Storekeeper privilege Tort law does permit storekeepers to retain customers suspected of shoplifting. The idea is that storekeepers are permitted to try to recapture their chattels by using reasonable means and holding the suspected thief for a reasonable amount of time. The shopkeeper is protected against making reasonable mistakes as to whether or not the suspect actual stole anything. In this case, C should argue that he was reasonable to suspect P of shoplifting. There are facts to support this claim [.] C did witness P pocked [sic] the candy and was not aware that P had paid. It is true that P had tossed money on the counter to cover the cost of the candy, but it was reasonable for C not to have seen this. This is because it is customary for customers to pay for items by going up to the cash register and being rung up by the cashier, and giving money directly to the cashier. Clerks are not used to having to look for money dropped on counters to be sure if someone has paid or not. Therefore, C was reasonable to think P was shoplifting, so he was covered by the privilege. However, P has a very good claim to shoot down this defense. The detention by a shopkeeper asserting this privilege must be reasonable. Here, C hold [sic] P in the back room for 25 minutes while he was waiting for Mark (M) to arrive. Arguably, this is too long to hold someone in a windowless back room by themselves to discuss stealing a candy bar that cost $1.50. C will of course argue it was reasonable for C to make P wait for the manager, and that 25 minutes really is not that long. However, he was held in the back room and was never once checked on to be sure he was okay. This is arguably unreasonable. Also, the harm that came to P as a result of being in the room was clearly not reasonable. Therefore, C was outside the bounds of the storekeeper privilege and this defense is not available to him. Superseding force As discussed above, C may also want to argue that it was not his tortious act that caused the harm, but rather it was Mark’s supervening actions. C would argue that if M had not left his truck running in the garage for so long, the exhaust would have not leaked into the back room and P would not have suffered any damages. Therefore, it is M’s negligence (either in merely running the engine or in failing to take his medication) that was the real cause of the harm. The rule for causation in tort cases is that the defendant’s act was a substantial factor. P should easily be able to show that C was a substantial factor in the harm, because C left him there by himself for long [sic]. Therefore, the superseding force will not absolve his liability. Consent C may also try to argue that P consented to the imprisonment. Consent is a valid defense against intentional torts. C would argue that P went to the back room of his own volition, because he made the choice to go back there rather than have the police be called by C. The problem with this defense, P will argue, is that consent must be given voluntarily, and the actions of the defendant must not exceed the bounds of the consent. Here, the consent was not voluntary, because P was acting under threat of having the police be called, even though he did pay for his item. Also, even if P did arguably consent to going into the back room, he surely did not consent to being held for 25 minutes by himself and to suffer such physical harm. Conclusion Based on the above, it appears that P does have a tort claim against C for false imprisonment. Though there are defenses that C will try to argue, he will probably not succeed with any of them. II. Can P maintain a tort claim against M for negligence? A basic cause of action for negligence requires a showing of the following elements: (1) existence of a duty with an accompanying standard of care; (2) a breach of that duty; (3) defendant’s actions were the but [-] for and proximate cause of the plaintiff’s injury and (4) the plaintiff was actually damaged. Therefore, P must show all of these elements in order to prevail against M for negligence. Duty and Standard of Care A duty of care is not owed to all. However, a duty of care is owed to all people who can forseeably be injured by the actions of the defendant. In this case, the vicinity of P to the area of where M was running his engine would make him a foreseeable plaintiff. M may argue that no duty of care is owed to P because M had no idea P was back there, and had no reason to know because the store room was seldom used. However, this probably will not absolve M of his duty of care, because it is foreseeable that someone will be in the back of the store or garage at some point, and that leaving an engine running for so long in a closed area will cause harm to someone. The standard of care owed is usually that of a reasonable person acting under similar circumstances and with ordinary prudence. This will be the standard of care applied in this case. Breach Now it must be determined if M’s conduct fell below the standard of care. There are several ways that P can argue that it does. First, P could argue that M was negligent merely in leaving the engine running for so long in the closed area. Certainly, reasonable people know that they should not allow highly toxic carbon monoxide to fill a small space, especially when the small space is so close to a public business where it is certain people will be found. Second, P could argue that M was negligent because M failed to take his medication. A person who knows that they are likely to forget doing things that would make their actions safe (like, in this case, turning off [the] engine of his truck) arguably should not be engaged in those actions. Here, M must have known of his likelihood of forgetting such things, since he has a prescription for short-term memory impairments. Therefore, he was negligent in failing to remember to take the medication in the first place that would have allowed him to avoid putting P at risk. P should be able to show breach on both of these points, since no be liable, so too will DG. P should also point out that C was on the clock and was at the place of employment when the tort occur[r]ed, strengthening the argument that this is within the scope. Liability for the tort of M The same rules will apply to determine if DG is liable for the torts of M. M’s tort occurred when he was running the engine of his personal truck in the back room of the garage. Nothing indicates that M was on the clock at this time. Also, nothing indicates that M was doing this with any intention of helping employer. Rather, it appears he was doing this only for himself. Therefore, it is unlikely that DG will be liable for the act of M. The best argument P could make to hold DG liable would be the close proximity of M to the place of employment. However, this probably will not overcome the facts that he was not on the clock and was not acting to benefit the employer. Independent contractors? If for some reason C and M are ICs and not employees, then a different standard would apply. Employers of ICs are generally not liable for the torts of ICs. However, they are liable if the tort involves a non-delegable duty, such as the duty of care owed to an invitee. In this case, P would be an invitee of the business, so he would be owed a very high standard of care. The employer would be charged with warning him of any latent dangers that the employer knows or should have known about. Clearly, carbon monoxide is a latent danger, since it is one that is not immediately apparent and cannot be seen. Also, P would argue that the defendants should be charged with knowing when there are gas leaks in the store. It would not matter that they did not have actual knowledge. The standard is that they should have known. Failing to warn of the latent danger would therefore be a breach, and DG would be liable for the torts of M and C, even if they are construed as independent contractors and not employees. Question 2 In an effort to “clean up Columbia County,” the County Board of Supervisors recently passed an ordinance, providing as follows: “(1) A Review Panel is hereby established to review all sexually graphic material prior to sale by any person or entity in Columbia County. (2) Subject to subsection (3), no person or entity in Columbia County may sell any sexually graphic material. (3) A person or entity in Columbia County may sell an item of sexually graphic material if (a) the person or entity first submits the item to the Review Panel and (b) the Review Panel, in the exercise of its sole discretion, determines that the item is not pornographic. (4) Any person or entity in Columbia County that fails to comply with subsection (2) or (3) is guilty of a misdemeanor, and is punishable by incarceration in jail for one year or by imposition of a $5,000 fine, or by both.” Videorama, Inc., a local video store, has brought an action claiming that the ordinance violates the First Amendment to the United States Constitution. What arguments may Videorama, Inc. reasonably make in support of its claim, and is it likely to succeed? Discuss. Compelling State Interest Generally, when indecent speech is involved, the interest is in protecting children from sexual material. This is of the utmost importance in providing a safe & moral environment in which to grow up. Therefor[e] it most likely qualifies as a compelling state interest. Note: merely regulating the morals of the community is not compelling. Necessary & Least Restrictive Means A law is necessary when it provides the only way to achieve the compelling state interest. Here, ther[e] are other ways to prevent the dissemination of indecent sexual material to children. For instance, the statute can limit the sale of sexual material to those over the age of 18. Or, a regulation can validly control the zoning & location of shops which sell sexual material so they are not near schools. Therefor[e], because there are other options to achieve the compelling interest, least restrictive means have not been used. The law fails strict scrutiny and is therefore an unconstitutional violation of the 1st Amendment. Punishment The final issue is whether the provision of the statute which authorizes imprisonment and/or fines for the violation of the statute is valid. First, for this provision to be valid, the substantive portions of the statute must be valid. Because the statute is unconstitutional as a prior restraint, overbroad & vague & does not meet strict scrutiny (unless the statute is limited to “obscene” material), the punishment clause is invalid. However, the punishment clause raises the issue of compliance. Collateral Bar Rule The collateral bar rule applies when a person violates a statute. The rule states that if a person does not comply with a statute, the person cannot use the unconstitutionality of the statute as a defense in a criminal contempt proceeding. Therefor[e], even though the statute at issue is likely unconstitutional, a violation of the statute could result in punishment for contempt. Thus, the best option is to comply with the statute for the time being, while appealing the decision of the panel and/or challenging the constitutional validity of the statute in court. Answer B to Question 2 Videorama v. Columbia County State Action To bring a First Amendment claim, the plaintiff must assert state action, because the First Amendment only applies to the government, not private action. State action is present here because the ordinance was passed by the Columbia County Board of Supervisors, an instrument of the local government. First Amendment Freedom of Speech The First Amendment, applicable to the states through the 14th Amendment, provides that no government shall interfere with the right to free speech. The Columbia County ordinance interferes with the right to free speech because it restricts the ability of video stores and individuals to sell, and correspondingly to buy, sexually graphic material. The ordinance imposes monetary fines and imprisonment for violation. Thus, the ordinance must be scrutinized under the First Amendment. Overbroad A statute may violate the First Amendment if it is overbroad. A statute is overbroad if it restricts protected speech as well as unprotected speech. Even if some of the speech restricted is not protected by the First Amendment, the statute will fail if it also draws unprotected speech. In this case, the ordinance restricts both protected and unprotected speech. Obscene speech is a category of unprotected speech, and enjoys no protection at all under the First Amendment. Obscenity is speech that (1) appeals to the prurient interest, as defined by a local standard, (2) is patently offensive, as defined by local law, and (3) lacks serious scientific literary, artistic, or political value, as defined by a national standard. Some of the speech restricted by the Columbia County ordinance may be obscene speech. The ordinance targets sexually graphic material, and obscene speech is probably included in that category. The obscene material restricted by this statute presents a First Amendment problem. However, the problem is that the ordinance restricts a broader category of speech, including some speech that is protected speech. Sexually graphic material that has serious scientific, literary, artistic, or political value is not obscenity and therefore is protected speech. The ordinance does not adopt the three part obscenity test, or make an exception for material that has serious value. Therefore, the statute is overbroad. Unfettered Discretion The First Amendment is also violated where an official is given complete discretion on whether to allow or prohibit speech. Requiring an individual or entity to obtain a license or authorization to engage in certain speech, before engaging in the speech, is a prior restraint. Prior restraints are disfavored because they quell speech before it is even uttered. However, a licensing scheme, even though a prior restraint, can be constitutional if (i) no official has complete discretion over whether to grant a license, (2) specific, articulated standards are used to grant the licenses, and (3) judicial review or some other appellate process is available as a check. The ordinance fails this test because it gives “sole discretion” to the Review Panel. The statute does not provide any standards whatsoever that the Panel should use to evaluate requests. The only standard given is that “sexually graphic material” may be prohibited by burden of proving that it passes this test. Compelling State Interest Columbia County’s purpose in enacting this ordinance is to “clean up Columbia County.” Presumably this means to regulate the distribution of sexually explicit material in order to have a more civil, professional, family-friendly atmosphere. The County may have had problems with children being exposed to sexually graphic material in stores or on the streets. The County may be concerned that an excess of such material may deter new residents, cause businesses to leave, harm young children, and even hurt Columbia’s tourist industry. All of these concerns are valid state interests, and probably rise to the level of compelling. Assuming Columbia can prove that it has a compelling interest, it will next have to show that the ordinance is necessary to achieving those interests. Necessary to Achieve That Interest This requirement is more than just narrow tailoring. It actually requires that the law be the least restrictive means available for achieving the state’s interests. If less restrictive alternatives are available, the state must pursue those alternatives first. Columbia County will not be able to show that its ordinance is the least restrictive means for protecting children, cleaning up the town’s image, and preserving its business and tourist industries. These interests could be accomplished by the use of content-neutral time [,] place and manner restrictions, such as requiring people to keep the material they are selling off of the streets, indoors, during normal business hours. Then children walking on the sidewalk would not necessarily run into sexually graphic material. The County could also require stores that sell such material to post warnings at the front door or window, to announce to customers that such material is sold inside. This would be a less restrictive ban, although still content [-] based, because it would allow stores to sell such material without pre-approval from a Panel. It would also accomplish the County’s goals by enabling residents to avoid that material if they want. The County could also use zoning laws to regulate where adult-themed book and movie stores can operate. The Supreme Court has upheld the use of zoning in this way to control the secondary effects of such businesses. Zoning would be less restrictive than Columbia’s current ordinance because it would not ban all sales or require pre-approval by a Panel. It would still allow Columbia to “clean-up” by regulating where such businesses can operate, and keeping other areas of the County free of them. Because less restrictive alternatives are available, the ordinance will fail strict scrutiny, and Videorama will win its suit against Columbia. Question 3 On Monday, Resi-Clean (RC) advertised its house cleaning services by hanging paper handbills on doorknobs in residential areas. The handbills listed the services available, gave RC’s address and phone number, and contained a coupon that stated, “This coupon is worth $20 off the price if you call within 24 hours and order a top-to-bottom house- cleaning for $500.” Maria, a homeowner, responding to the handbill, phoned RC on the same day, spoke to a manager, and said she wanted a top-to-bottom house cleaning as described in the handbill. Maria said, “I assume that means $480 because of your $20-off coupon, right?” The RC manager said, “That’s right. We can be at your house on Friday.” Maria said, “Great! Just give me a call before your crew comes so I can be sure to have someone let you in.” Within minutes after the phone conversation ended, the RC manager deposited in the mail a “Confirmation of Order” form to Maria. The form stated, “We hereby confirm your top-to- bottom house cleaning for $500. Our crew will arrive at your house before noon on Friday. You agree to give at least 48 hours advance notice of any cancellation. If you fail to give 48 hours notice, you agree to pay the full contract price of $500.” About an hour later, Maria sent RC an e-mail, which RC received, stating, “I just want to explain that it’s important that your cleaning crew do a good job because my house is up for sale and I want it to look exceptionally good.” On Thursday evening before RC’s cleaning crew was to show up, Maria accepted an offer for the sale of her house. The next morning, Friday, at 10:00 a.m., Maria sent RC another e-mail stating, “No need to send your crew. I sold my house last night, and I no longer need your services.” By that time, however, RC’s crew was en route to Maria’s house. At 10:30 a.m. on Friday, Maria received RC’s Confirmation of Order form in the mail. At 11:00 a.m., RC’s crew arrived, prepared to clean Maria’s house. Maria explained that she no longer needed to have the house cleaned and sent the crew away. RC’s loss of profit was $100, but RC billed Maria for $500. Maria refused to pay. Has Maria breached a contract with RC, and, if so, how much, if anything, does Maria owe RC? Discuss. bottom. This exchange of promises provides the required bargained[-]for exchange and legal detriment to each party for there to be valid consideration. Thus, this element is met. Defenses Statute of Frauds The Statue of Frauds does not apply to services contracts that will be completed in less than one year. Here, the contract was to be completed in its entirety by Friday so that the statute of frauds was inapplicable. As no other defenses are applicable, a valid contract was likely formed at the time of the phone conversation between Maria and the manager of RC. Terms of the Contract Formed Once it is determined that a valid contract was formed between the parties, the next step is determin[in]g the terms of that contract. In this case, Maria called RC and stated that she wanted a “top-to-bottom” house cleaning “as described in the handbill.” Moreover, she indicated (and the manager of RC agreed) that the price would be $480 once the coupon from the handbill was taken into consideration. The contract likely also contains the provision that RC will complete the work on Friday as that was agreed upon by the parties during the course of the phone conversation. Thus, the contract will certainly be for a top- to-bottom house cleaning at Maria’s house on Friday for $480. A question exists as to whether Maria’s statement that they had to call her before their crew comes in order to be sure that someone was there to let them in. It is unlikely that this would become part of the contract given that the parties had already agreed on the contract before Maria made that statement. Moreover, the statement does not affect the performance of the obligation but was merely intended to ensure that the contract would move forward with no hassles. Thus, this is not likely to be considered part of the contract. The provision in the “Confirmation of Order” memo sent by RC also does not likely become part of the contract. The contract was completed over the telephone and RC may not unilaterally make modifications to that contract (i.e. the 48 hour notice provision) without additional consideration provided by the other party. Here, RC gave no additional consideration to Maria for requiring the 48 hour notice provision). This does not mean, however, that Maria was free to cancel the contract at will[;] because the contract became enforceable over the phone, she is bound by the contract unless she has some excuse or defense to its enforcement or unless she is for some reason relieved of her duties under the contract. Finally, for the same reasons as the 48-hour provision above, Maria’s subsequent e-mail regarding the “exceptionally good job” would not become part of the contract. There was no additional consideration for the this [sic] provision and to require RC to do an “exceptionally good job” would deprive them of the benefit of the bargain their [sic] received when they negotiated for the $480 price. Thus, this would not become part of the bargain and RC would be required to do a reasonable job in good faith. Thus, the contract was for a full house cleaning on Friday for $480 and it did not include the 48-hour notification provision or the “exception[al] job” provision. Did Maria Breach or Does She Have Any Excuses/Defenses For Her Breach? Because a valid and enforceable contract existed, Maria is liable to RC if she breached the contracted [sic] as [she] is not excused from performance. Maria’s Breach Under the terms of the contract, Maria was required to pay RC $480 and allow them into her house in order to complete the cleaning to which she agreed. Here, rather than allowing RC to come and clean her house, she sent them an e-mail at 10 a.m. on the morning of performance indicating that she was repudiating the contract and, when they showed up to perform, she turned their workers away. Thus, Maria anticipatorily repudiated the contract which would allow RC to: (1) treat it as an offer to rescind the contract and rescind; (2) treat the contract as materially breached and sue for damages immediately; (3) suspend their performance and sue once the contract becomes due; or (4) do nothing and encourage performance. Here, Maria breached the contract the morning of performance so that suspending their performance or encouraging Maria’s performance would be infeasible. Moreover, RC would not want to rescind the contract because that is exactly what Maria wanted to do and it would cost them $100 in lost profits. Thus, RC would treat the contract as materially breached and Maria would be liable for damages unless she had a valid excuse for her breach. Possible Defense/Excuses of Performance Condition Precedent Not Met Maria may argue that she had a valid excuse for not performing because in the course of their telephone call she indicated that the crew should call her before they come so that someone may be there. However, this argument would fail for a few reasons. First, as I indicated above, the provision that they call on Friday before they come was not likely part of the contract because they had already agreed on the terms of the agreement at that point and Maria’s statement was only intended to make sure she could make arrangement to let them into her house. Second, the purpose of the covenant was not breached because they showed up to clean her house when she was there (because she turned them away). Third, she repudiated the contract before they could make the phone call by sending them her repudiating e-mail that morning so that they could treat the contract as breached immediately without adhering to the condition precedent. Thus, this argument would fail to excuse Maria’s material breach. House sold (Impossibility, Impracticability, Frustration of Purpose) Maria may also a[r]gue that the fact that she no longer owned the house at the time the contract came due excused her performance by way of: (1) impossibility; (2) impracticability; or (3) frustration of purpose. As will be shown below, all of these arguments would fail. Impossibility - For performance to be excused by way of impossibility an unforeseeable and supervening event must render performance impossible for any person to perform. Here, Maria’s sale of her house was not unforeseeable because she knew that [she] was trying to sell her house and it was not a supervening outside factor because it was entirely within Maria’s control. Moreover, it was still possible for RC to complete performance – it just would not be as valuable to Maria now that she no longer owned the home that she contracted with them to clean. Thus, this argument would fail. Impracticability - For performance to be excused by way of impracticability an unforeseeable and supervening event must render performance by one party inordinately difficult so as to create an injustice if the contract was enforced. Here, as noted immediately above, Maria controlled the event and it was foreseeable so this did not excuse her performance. Morever, paying $480 to have a house that you have just sold cleaned does not seem unduly difficult on Maria. Thus, this defense would fail as well. Frustration of Purpose - For performance to be excused by way of frustration of purpose an unforeseeable and supervening event must intervene to render the entire purpose of the contract – known by both parties to the contract at the time the contract was formed – a nullity. Like the two arguments above, this would fail because the supervening event was in Maria’s control and was entirely foreseeable so that Maria assumed the risk that her house would be sold by Friday. Moreover, at the time the contract was formed RC had no idea that she was selling her house so that the purpose was to fix the house up for its sale. Thus, the fact that this purpose was frustrated would not excuse Maria’s performance because RC had no idea of that purpose at the time the the [sic] contract was formed. Potential Damages that Maria Owes RC For Her Breach In a contracts case where one party materially breaches the other party is entitled to damages to compensate them for their expectancy under the contract. They may also receive consequential and incidental damages as appropriate. However punitive damages Answer B to Question 3 Maria v. Resi Clean 1. Applicable Law: The transaction between Maria and RC involved the purchase and sale of services. Accordingly, even though RC may have used tangible items (detergent, etc.) while performing services, the predominant aspect of the transaction involved services. Thus the common law (not the U.C.C.) controls. 2. The handbill constitutes an Offer: Many advertisements are merely invitations to negotiate. Here, under the objective theory of contract formation, the handbill would induce a reasonable person to conclude that RC had manifested an intention to perform the services at the stated price if Maria called “within 24 hours.” By giving Maria the power to accept the offer with[in] 24 hours by calling, the handbill was not merely an invitation to negotiate – at least not with respect to a “top-to-bottom housecleaning.” If someone had called with respect to some other service or bundle of services, the handbill might not be deemed an offer. Here, RC gave Maria the power of acceptance. 3.Maria’s acceptance was a mirror image of the offer. First, Maria noted that she wanted a top-to-bottom cleaning as offered in the coupon. Accordingly, the subject matter of the offer and the acceptance was the same. Second, Maria did not attempt to negotiate or make a counterproposal that would have served as a rejection. Her request for clarification did not reject the offer. Having received clarification, her utterance “Great!” was an objective manifestation of her willingness to be bound to the terms of the offer, including the time for performance. 4.The Offer and Acceptance Created a Contract: 4.A. Consideration Upon Maria’s acceptance, both Maria and RC suffered a legal detriment. Both had exchanged promises to do something they were not otherwise legally obligated to do. 4.B. Essential Terms Maria and RC agreed to all essential terms. RC agreed to perform a top-to-bottom cleaning consistent with the standards in its handbill. Maria agreed to pay $480 upon completion of the service. Although performance of the services within a reasonable time would have been a concurrent condition, RC agreed to perform the services on Friday and Maria agreed. RC’s obligation to perform the services prior to payment would be a concurrent condition, filling in any gap concerning order of performance. All essential terms were established even though the term “top-to-bottom housecleaning” was not defined with specificity. 4.C. No writing required: A contract to perform $480 of services on Friday is not covered by any aspect of the statute of frauds. The oral agreement is enforceable without a writing. 5. There were no valid modifications to the Contract[.] 5.A. RC’s confirmatory memorandum stated one inconsistent term and one additional term. Neither would be incorporated into the contract; both would be a unilateral attempt to modify the contract. Maria did not agree to the higher price, and she did not agree to the cancellation terms. Because the UCC does not apply, the consistent additional term between a merchant and consumer does not become part of the contract. Likewise, the inconsistent term regarding price is merely an offer for a modification that Maria did not accept. Maria had no duty to make a reasonable objection to the letter. She may have, but was not required to, request assurances of performances. 5.B. Maria’s e[-]mail did not modify the contract. Maria’s statement of the importance to her of RC’s crew doing a good job does not alter, or purport to alter, RC’s obligation to perform or her obligation to pay. Had RC performed, Maria would not have been justified in refusing to pay unless she was satisfied that RC did an exceptionally good job. Nor did it create an agreement about a basic assumption of the K. 6. Maria’s cancellation was not excused: Maria will argue that the sale of her house on Thursday gave rise to a frustration of purpose. That “purpose”, however, was not known to RC when the contract was formed. (Nor was it expressed as a condition: “I will pay you to clean my house if services are rendered before I sell it”.) Maria’s undisclosed purpose was not a basic assumption of the contract known to both parties. Further, a clean house between sale and closing is still valuable. Although under the UETA, Maria’s e[- ]mail is a proper mode of communication, it occurred after formation and does not relate back to formation. 7. Maria cancelled the contract after RC commenced performance. Although, as stated above, Maria did not accept RC’s cancellation clause, Maria would still have the power, although not the right, to cancel before RC tendered performance. By dispatching the crew in accordance with the contract (i.e., before noon), RC commenced performance. [That would be a form of acceptance, were that needed.] Accordingly, Maria sent the crew away after RC partially performed. 8.Maria’s cancellation excused RC’s performance. Maria cannot defend her refusal to pay on the grounds that RC never performed. RC’s performance was discharged by her breach. 9.Maria is liable to RC for damages caused by her breach: Given the late cancellation RC had no opportunity to mitigiate and thus sustained $100 in lost profits due to the breach. RC would not be able to recover $480, the contract price[,] because it did not perform (although excused). It could only recover $100 plus incidental damages (cost of fuel, wages paid to the crew, supplies, etc.). RC could not recover $500 because (a) Maria never agreed to the cancellation clause and (b) $500 would be either an improper penalty or unjustified liquidated damages (in that the damages for lost profit would not be difficult to determine and $500 is not a reasonable amount). Maria owes $100 plus incidental damages[.] Answer A to Question 4 4) 1. Directors’ Breach Regarding the Adco Job Duty of Care: Since corporate directors have a fiduciary duty to the corporation, directors of a corporation owe the corporation a duty of care. The duty of care requires that the directors act with good faith and the degree of care which a prudent person would proceed with in regard to his own business, Here Adco asked that Web perform complex work that would cost thousands of dollars to create on credit. Adco claimed to be a well-established corporation, but the directors had a duty to investigate Adco’s financial situation to determine whether it was safe and in the Web’s best interest to extend credit for the work. Beth, Charles and David all agreed to take the work conditioned upon a prior review of Adco’s financial statements. Their decision to review was correct, but they did not adequately follow through with it. David, anxious to obtain Adco’s business, decided to proceed with the work. This decision violated David’s duty of care. David should have conducted a reasonable inspection of the financial records and then reasonably determined whether it was in the corporation’s best interests to extend the credit. Instead, David made an uninformed decision. Further, David acted in bad faith by misrepresenting to the other directors that he reviewed the financial statements and made his determination to proceed based on information he obtained from them. Therefore, David clearly breached his duty of care to Web. Charles and Beth relied on David’s decision without inquiring further as to what was found in the financial reports. They will likely claim that the[y] reasonably relied on David’s statements in making their decision and should, therefore, not be liable. However, Charles and Beth cannot completely delegate their responsibility to the corporation and should have at least inquired further about what David based his decision on. Because Beth and Charles blindly followed David’s conclusory statement, they too violated their duty of care to the corporation. Business Judgment Rule: Directors may be protected under the business judgement rule. Courts will not second guess a business judgment if, at the time it was made, it was informed, reasonable (based on sound business judgment), and made in good faith. Directors will still be liable for decisions which are grossly negligent or reckless. This will certainly not serve as a defense for David, who was not informed when making his decision and acted in bad faith by lying to the other directors about having obtained and reviewed Adco’s financial statements. Beth and Charles have a better chance to succeed with this defense since they did not act in bad faith and will claim that their reliance on Charles’ decision was reasonable. However, it is likely that their decision to proceed in such a risky, costly and extensive project without any independent investigation or at least further inquiry was probably not sufficiently reasonable or informed under the circumstances. Therefore, they should not be able to be protected from liability from their breach by the business judgment rule. 2. Web’s Rights Against Adco’s Shareholders General Rule Regarding Shareholder Liability Generally, shareholders are not liable for the debts and liabilities of the corporation. One of the main benefits of the corporate form is that it provides limited liability; protecting shareholders from personal liability caused by corporate loss. This benefits the economy, because more risks are likely to be taken. Piercing the Corporate Veil Despite the general rule, courts may decide to pierce the corporate (PCV) veil and hold shareholders personally liable if there appears to be fraud or bad faith. Courts will often PCV if (1) the corporation is actually just an alter ago of the shareholders, or (2) the corporation was inadequately capitalized at its inception. A corporation will be found to be the alter ego of its shareholders when there is serious lack of corporate formalities. If, for example, shareholder commingle corporate funds with personal funds, use corporate funds for any personal benefit, that would be grounds to PCV. Also, if meetings are not held or decisions are consistently made without meeting or voting, that may constitute grounds to PCV. Courts are generally more willing to PCV for the benefit of tort creditors than contract creditors, since contract creditors presumably had the opportunity to investigate and make an informed decision about whether to enter into the contract. Here, it was determined that Adco’s shareholders have regularly taken its funds for their personal use. This would constitute violating the corporate form and creates grounds to PCV. Web can successfully argue that Adco’s shareholders are using the corporate form in bad faith to commit fraud use[,] then use the corporation as a shield from personally [sic] liability. It can argue that since Adco is operating as an alter ego and [sic] therefore, its shareholders should be held personally liable for Adco’s liabilities. However, since Web voluntarily decided to enter into the contract and could have investigated before making their decision to assume the risk of doing business with Adco, they will have a higher burden. If Web can convince the court to PCV, it will be able to sue the shareholders of Adco personally to the debt owed. 3. Charles’ Contract with Sam Duty of Loyalty Director has a fiduciary relationship with the corporation and has a duty of loyalty towards the corporation. The director must act in the corporation’s best interests and not engage in any self dealing or receive personal gain at the corporation’s expense. If a director comes across a situation which would breach his duty of loyalty, the director may cure the problem by disclosing it and getting approval by a majority of disinterested directors or disinterested shares. Here, Charles did work that the corporation was entitled to and received personal profit from it. He therefore violated his duty of loyalty by acting in his own interest rather that [sic] the corporation’s. If he really wanted to proceed with the work, he could tell the other disinterested directors about Sam’s interest and see if a majority of disinterested directors or shares would decide that he could proceed to do the work on his own. In this case, he convinced Sam to allow him to do the work, received profit that the corporation could have had, and did so without proper disclosure and approval. Therefore, Charles breached his duty of loyalty to Web. Usurping a Corporate Opportunity A director should not usurp a corporate opportunity. A corporate opportunity is one which the corporation has a business interest or reasonable expectancy in. Something that is in the corporation’s line of work/field will usually be deemed a corporate opportunity. If a director learns of a corporate opportunity in his capacity as director and wants benefit from it personally, he may be able to do so if he takes certain steps: (1) he must inform the corporation of the opportunity [and] (2) wait for the corporation to decline to take the opportunity. Here, Web clearly had an interest in the job Sam was asking about. Sam wanted Web to create a new game website, which is exactly the kind of work Web does. As a business that creates websites, Web clearly has an expectancy interest in the work and would benefit (profit) from it. Charles usurped Web’s legitimate right to the opportunity by convincing Sam that the job was small and that he could do it at home for less money than Web. Charles should have first disclosed the opportunity and waited to see if Web would have taken it. In this case, since the job is exactly in the line of work Web ordinarily conduct[s], Web would have likely taken the job. As a remedy, Web can recover any profit that Charles earns from performing the work for Sam. Charles’s Defenses: Charles may argue that he learned of the corporate opportunity in his personal capacity, investigated and come to the conclusion that Web should proceed. Although directors are allowed to rely on the reports of officers of committees of directors assigned to perform a certain role (as well as the reports of officers of the corporation, accountants[,] etc[.]) directors may not delegate all their duties to a committee and serve simply as a “rubber stamp” for the committee’s decisions. A director may not delegate his duty to make independent decisions. Therefore, Beth and Charles should have insisted on seeing at least some further information about the financial health of Adco so that they could evaluate for themselves whether the decision to extend credit was a good decision. This is, at minimum, what a reasonably prudent person would do with regard to their own finances. Web suffered damage as a result of Beth and Charles[’] breach, and therefore these directors are personally liable to Web for the loss they caused. Finally, Beth and Charles cannot take shelter in the business judgment rule because they did not act in good faith after a reasonabl[e] investigation. They made no investigation and knew none of the relevant facts. Therefore, their decision was not within the business discretion protected by the business judgment rule. (2) Web’s rights against Adco’s shareholders A company must maintain corporate form and structure if the shareholder’s personal assets are going to be protected by the corporate form. The shareholders may not use the corporate form fra[u]dulently - as simply a cloak for their personal business activities. Therefore, the shareholders may not intermingle corporate and personal assets or take the corporation[’]s assets for their personal use. When shareholders behave in this way, a court may disregard or pierce the corporate veil to hold the shareholders personally liable if justice requires it. Here, Adco’s shareholders have been regularly taking its funds for their personal use. Usually, a court will not pierce the corporate veil simply because a corporation is unable to pay its debts. Undercapitalization when a company is formed is usually required for veil piercing. However, if the shareholders have made an extensive practice of draining the corporate assets for their personal benefit, then it will appear that they have been abusing the corporate form to shield their personal business transactions from creditors. This pattern of behavior will introduce the required element of fraud. The shar[e]holders who took the corporate assets probably cannot claim that they were just receiving dividends. A company cannot pay out dividends if paying the dividends will cause it to become insolvent (unable to pay its bills when they come due). Therefore, the shareholders (who seem to control Adco) will not be allowed to make themselves dividend payments and then not pay Web. Web can make a strong case that a court should pierce Adco’s veil to reach the shareholder’s assets to satisfy Adco’s debt to Web. The court will be able to reach the assets of those shareholders who engaged in the improper behavior (although the shareholders who did not take part in the misbehavior will not be liable). Even if a corporation’s shareholders have abused the corporate form, a court will not pierce the corporate veil unless justice requires it. Furthermore, a court is generally more willing to pierce the corporate veil in tort situations than in contract situations since tort victims usually do not cho[o]se to interact with the corporation. Because Web has been harmed by Adco’s failure to pay its debts, Web can argue that the interest of justice require[s] holding the shareholders personally liable. However, because Web did not make an adequate investigation of Adco before doing work for them, it may be more difficult for Web to prevail. On the other hand, Web can try to argue that Adco intentionally and fraudulently misrepresented its financial health to Web (both by saying it was a “well-established corporation” and that “the sooner Web could start on the website, the sooner Adco would be able to pay”), and that this weighs in favor of piercing the veil even though Web did not take all possible precautions to protect itself. Finally, if Adco is a close corporation and the shareholders who were siphoning money from Adco were the same people who participated in negotiations with Web and David, then Web may be able to make a claim against them personally for fraud. To do this Web would have to show intentional misrepresentation (of fact) with the intent to induce reliance by Web, which did induce reliance and reasonable reliance by Web. It is unlikely they can show reasonable reliance on misrepresentations of fact. (3) Web’s rights against Charles Corporate directors owe a duty of loyalty to the corporation. They must reasonably believe that their actions are in the best interest of the corporation. A director violates the duty of loyalty when he usurps a corporate opportunity and takes it for himself. A corporate opportunity is one in which the corporation has a reasonable expectation or one that is in the business of the corporation. A director cannot excuse taking a corporate opportunity by showing that the corporation would not have been able to take the opportunity. Before a director may take advantage of any corporate opportunity he must disclose it to the corporation and wait for the corporation to turn it down. Here Charles took for himself a corporate opportunity (work) that should reasonably have gone to the corporation. He did not fully disclose the existence of opportunity to the other directors nor did he wait for the other (disinterested directors) to refuse the opportunity. Instead he did the work himself and was paid for it. Here it seems likely that Web would have been fully capable of doing the work (taking the corporate opportunity) but even if it wasn’t this would not excuse Charles’s behavior. Charles is therefore liable to the corporation for the money he made by doing the work and must disgorge it to Web. Question 5 Lawyer represents Client, who sustained serious injuries when she was hit by a truck driven by Driver. Lawyer and Client entered into a valid, written contingency fee agreement, whereby Lawyer would receive one-third of any recovery to Client related to the truck accident. Because Client was indigent, however, Lawyer orally agreed to advance Client’s litigation expenses and to lend her $1,000 monthly in living expenses that he would recoup from any eventual settlement. Lawyer did not tell Client that he had written a letter to Physician, Client’s doctor, assuring Physician full payment of her medical expenses from the accident out of the recovery in the case. Unfortunately, Driver had strong legal defenses to defeat the claim, and the case would not settle for the amount Lawyer initially forecast. Counsel for Driver finally offered $15,000 to settle the case without conceding liability. By this time, Lawyer had advanced $5,000 in litigation and living expenses, and Client had incurred $5,000 in medical expenses. Client was reluctant to accept the offer. Realizing, however, that this case could drag on indefinitely with little chance of substantial recovery, Lawyer took Client out for an expensive dinner, at which they shared two bottles of wine. Afterward Lawyer took Client to Lawyer’s apartment where they engaged in consensual sexual relations. Later that evening Lawyer persuaded Client to accept the settlement offer by agreeing to give her the net proceeds after his contingency fee and the amounts he had advanced were deducted and not to pay Physician anything. The next week, Lawyer distributed the net proceeds to Client as agreed. What ethical violations, if any, has Lawyer committed? Answer according to California and ABA authorities to the extent there is any difference among them. A lawyer owes a client a duty of loyalty, according to which the lawyer must act solely to further the client’s best interests. He may not sacrifice the client’s interests to his own or to those of a 3rd party. In this case, the facts suggest that Lawyer pressured Client into accepting the settlement offer, even though she was reluctant to do so at first. Indeed, Client had already incurred $10,000 worth of expenses, and the offer was only for $15,000. Lawyer appears to have convinced her to accept by taking her out to dinner, engaging in sexual relations with her, and renegotiating their oral contingency fee agreement. The facts also suggest that Lawyer’s interests in so doing were not solely to ensure Client received the largest possible award, but also to ensure that he too would recover his expenses. Under these facts, therefore, it appears Lawyer has violated his duty of loyalty to client by using undue influence to ensure that he is able to recover his continency fee, regardless of how much is left over for Client. Consensual Sexual Relations The ABA Code and Model Rules expressly forbid lawyers from engaging in consensual sex with their clients. California, by contrast, allows such relations where the Lawyer and Client are involved in a preexisting sexual relationship and where the nature of their personal relationship will not affect the Lawyer’s care, judgment, skill, etc. Here, Client and Lawyer engaged in consensual sex after drinking two bottles of wine with dinner. This would be grounds for an ethical violation under the ABA Model Rules and Code. Under California law, the answer is slightly less clear. There is no indication that Client and Lawyer had a previous relationship. Furthermore, as discussed above, the circumstances indicate that Lawyer was using sex as a means to exert undue influence over client’s decision to accept the settlement off[e]r. The presence of wine certainly doesn’t help Lawyer’s case. Therefore, Lawyer will likely be found to have violated California’s rules as well by engaging in consensual sex with client. Substantive Decisions Clients have a right to make substantive decisions about their cases, while lawyers typically choose the legal strategy to be employed. Here, Client had a right to decide whether or not to accept the settlement offer, as this was a decision affecting her substantive rights. Lawyer’s exertion of undue influence over this decision therefore violated her right[.] General Duty of Good Faith Finally, Lawyer will likely be found to have violated his general duty of good faith by failing to pay Physician after expressly agreeing to do so earlier, albeit without Client’s knowledge or consent. Answer B to Question 5 The question asks what ethical violations the lawyer in this fact pattern may have committed. There are five events which might have given rise to ethical violations by the Lawyer (L): 1) The agreement to advance legal and living expenses; 2) The letter to the Physician (P); 3) Sexual relations between L and Client (C); 4) The settlement offer agreement decision by C; and 5) Failure to pay P. 1. Agreement to advance expenses The issue is whether the lawyer committed any ethical violations regarding the advances from L to C. Under ABA rules, a lawyer may advance litigation expenses to clients unable to afford such expenses, but he may not advance living expenses for fear that a lawyer is buying a client. Under CA rules a lawyer may advance both legal and living expenses, but the lawyer must get any loans to a client in written form with the client’s knowing consent that such funds are loans that must be paid back. Further, the advancement of legal expenses in both CA and ABA must be contained in the writing of any contingent fee agreement. Here, the lawyer advanced living expenses[,] which is strictly forbidden under the ABA, so he could be subject to discipline. Also, the expense arrangement was oral[,] not in writing, so in CA, the lawyer has also violated the ethical code re: loans to clients. In addition, in any contingency fee agreement, it must be explained in the writing whether the lawyer’s percentage is pre- or post- expenses. On these facts, it is unclear whether L put such arrangement in the writing. L should be subject to discipline[.] 2. Letter to Physician (P) The next issue is whether L committed any ethical violations re: his letter to P that P’s fee would be paid out of the accident recovery. L potentially violated his duty of loyalty to C, his duty to communicate to C, overstepped the proper scope of his representation of C, and his duty of confidentiality to C. Duty of Loyalty A lawyer owes his client a high duty of loyalty - the lawyer must act in accordance with the client[’]s best interest. Here, L assured P that P would be paid out of the recovery of [the] case without informing C of such agreement. This action possibly created a conflicting duty on L because L had sent a letter to P which P may have relied upon and considered a contract or surety created by L. Since L’s duty of loyalty to P extends beyond the representation, L created a potential conflict in that he may have been personally liable if C did not pay P and hence he would have an incentive to ensure payment even if C had a good faith reason not to pay P. This potential conflict could have been overcome if California Bar Examination Essay Questions and Selected Answers July 2006 TUESDAY MORNING JULY 25, 2006 California Bar Examination Answer all three questions. Time allotted: three hours Your answer should demonstrate your ability to analyze the facts in question, to tell the difference between material and immaterial facts, and to discern the points of law and fact upon which the case turns. Your answer should show that you know and understand the pertinent principles and theories of law, their qualifications and limitations, and their relationships to each other. Your answer should evidence your ability to apply law to the given facts and to reason in a logical, lawyer-like manner from the premises you adopt to a sound conclusion. Do not merely show that you remember legal principles. Instead, try to demonstrate your proficiency in using and applying them. If your answer contains only a statement of your conclusions, you will receive little credit. State fully the reasons that support your conclusions, and discuss all points thoroughly. Your answer should be complete, but you should not volunteer information or discuss legal doctrines which are not pertinent to the solution of the problem. Unless a question expressly asks you to use California law, you should answer according to legal theories and principles of general application. acted reasonably in taking Paul to the back room, and that leaving him for 25 minutes was not unreasonable. Clerk will argue the 25 minute stay was reasonable because he had to wait for the store manager to come back. Paul will reply that Clerk’s belief was unreasonable because Clerk was not paying attention in the first place, and that all Clerk had to do was look on the counter to see if the $1.50 was there. If nothing else, Clerk could have simply checked the register. Paul will then argue that the 25 minute detainment was unreasonable because of the type of room he was placed in. Paul will argue that putting him in a [room] that was full of carbon monoxide was unreasonable, even if it was only for one minute. Paul should succeed in rebutting Clerk’s defense of SP b/c it was not a reasonable suspicion and the time constraint was unreasonable. Clerk’s unlawful arrest of Paul For purposes of demonstrating intent and unreasonable belief, Clerk’s arrest of Paul can be analyzed. It has been held that when a citizen arrests another citizen, for purposes of a misdemeanor (which these facts indicate as the candy was only $1.50), require that the Clerk had been reasonable in his belief that the individual conducted the act, that act was done in his presence, and it had to be a breach of the peace. Clerk may try to argue that it was done in his presence, and it technically was, but Clerk never actually saw it. Clerk may argue that regardless of [whether] he actually saw it, his belief was reasonable. Clerk may attempt to argue that a theft amounts to a breach of the peace and that he did not unlawfully arrest Paul. Paul will argue that even if Clerk was reasonable in his belief, this was not a breach of the peace. Paul took $1.50 worth of candy from a gas station and threw the money on the counter. This simply cannot amount to a breach of the peace, no matter how strict a state’s law might be. Therefore, Clerk unlawfully arrested Paul. Conclusion Therefore, because Clerk intended to confine Paul, and did indeed confine Paul (and caused an injury[,] no less), that Clerk did not satisfy the elements of shopkeeper’s privilege as the belief was unreasonable, as was the time constrained. Finally, Clerk’s unlawful arrest of Paul also goes towards the intent of illegal confin[e]ment. Thus, Paul should succeed in a false imprisonment claim again[s]t Clerk. Paul v. Mark Negligence Negligence is a tort that requires the following factors: Duty, Breach of Duty, Foreseeability (Actual/Proximate Causation), and Damages. Negligence per se Negligence per se occurs when there is a[n] ordinance that prohibits some type of conduct that occurred. If it’s intended to cover the type of occurrence it speaks to, one may be guilty of it without demonstrating all the elements of negligence. Here, the statute refers to stopping a car on the curb/highway, and turning the wheels. This would indicate it’s to prevent cars from sliding if the parking brakes don’t work. Thus, this statute was not intended to protect people from carbon monoxide poisoning. Thus, negligence per se doesn’t work. Duty Duty requires that the tortfeasor have some duty to victim. Generally speaking, we all have a duty not to act negligently. Essentially this is requiring that we act in a reasonable manner that does not put others in a[n] unnecessary state of harm. In order to make out a case for negligence, Paul needs to show that Mark owed him a duty. Mark will argue that he has no general duty to everybody in the world. To hold him to such a high duty is improper. In addition, Mark will argue that the medicine he was taking made him forgetful, thus absolving [him] of his duty. Paul will argue that nobody’s asking Mark to have a duty toward the whole world, just those who enter his store[.] Paul will state that shopkeepers are held to a much higher degree than normal guys just walking on the street. Paul will also argue that Mark’s tendency to forget while taking the medicine does not absolve him because he knows that the medicine makes him forgetful. Thus Mark must act in accordance with that knowledge. In order to properly examine duty, it’s necessary to look at the duties owed to a trespasser, licensee and invitee. Trespasser An undiscovered trespasser is owed no duty under the common law. Anticipated trespassers need to be warned of active operations and artificial conditions that are unreasonably dangerous. Mark will try to argue that Paul was a trespasser because (b/c) Mark was being held for alleged shoplifting. Mark will argue that Paul was in an area that is not generally open to members of the public, thus his duties will amount to that owed to a trespasser only. Mark will argue that he was not aware of Paul’s presence[;] therefore, he owned Paul no duty. Paul will reply that holding him as an undiscovered or unanticipated trespasser makes no sense. He was discovered and most likely anticipated, although the facts do state the room was seldomly used. Paul will argue that he was owed, at worst, a duty that’s granted to an anticipated/discovered trespasser. Thus, Mark will argue that he was entitled to a warning in regards to the carbon monoxide. Licensee A licensee is one who is invited onto the land of another as a social guest. They are owed to [sic] warnings regarding unreasonably dangerous conditions involving active operations, hidden but discovered dangers, artificial and natural conditions. Because Paul was not invited as a social guest, whether into the gas station or the back room, the licensee standards do not apply to him and need not be discussed here. Invitee An invitee is one who has been invited onto the land of [sic] property of another for the property owner’s benefit. The rule for invitees is that the property owner owes all the same duties that is [sic] owed to licensees, plus the owner needs to make reasonable inspections for unreasonable dangerous conditions existing on the premises. Mark will argue that Paul was not an invitee because he had allegedly stole [sic]. Mark will argue that while Paul may have started off as an invitee, by stealing, he exceeded the scope of the invite and became a trespasser. Mark will argue that because of that, Paul is not entitled to the protections of an invitee. Paul will argue that he was an invitee as he went to the station to buy gas. He was there for the benefit of Delta. Paul will argue that just because he allegedly stole, that does not change his status because he did not in fact steal, that Clerk false[ly] imprisoned him, and the false imprisonment cannot change the scope of duty owed to him. Paul will then argue that because an invitee is entitled to have the owner inspect the premises for dangerous conditions, this means that there was a duty to inspect the back Paul will reply that CO cannot be smelled, that it simply knocks a person out. Paul will reply that there was no way for him to know that there was CO[;] therefore he cannot be contributorily negligent. Assumption of risk requires that the victim voluntarily assume the risk of whatever occurred to him. The facts do not indicate that Paul voluntarily assumed any risk. While the door was unlocked, he could not have voluntarily assumed the risk that there would be CO leaking from the garage. Therefore, AOR is a bad defense for Mark to assert. Further, comparative negligence will only serve to decrease some of Mark’s liability. In some jdx’s, one who is over 50% negligent cannot recover. In pure jdxs, P can always recover something, unles[s] she is 100% negligent. The facts do not seem to indicate any negligence on Paul’s part[;] therefore Mark will be responsible for 100% of the negl[ig]ence, as it relates to Paul. 2. Vicarious Liability/Respondeat Superior Vicarious Liability/Respondeat Superior Generally, an employer is guilty for the acts of his employees, provided that it is within the scope of his employment. In the case, Clerk was acting within the scope of his employment. He was trying to protect the store from being robbed. The store may try to argue by falsely imprisoning Paul, Clerk was acting outside of it. Further, store will try to argue that b/c Clerk was talking on the phone, he was also acting outside the scope of employment. The store’s arguments probably will not work because Clerk undoubtedly in [sic] given the privilege by his employer to detain those he believes is stealing. It would appear from the facts that Clerk was acting within the scope of his employment[;] surely his job entails detaining those who he believes was [sic] stealing from the store. Thus, the store cannot relieve itself of Clerk’s false imprisonment tort. Mark, on the other hand, left his truck on while running on a personal errand. The store will try to claim he was acting outside the scope of employment because he was on a detour. The general rule is that when an employee detours from his employment functions, the employer might not be held responsible. The store will argue b/c Mark left on a personal errand, his actions cannot be attributed to them. This argument probably will not work b/c Mark left his truck at work. Mark did not take his truck on a personal errand and run somebody over. It is given that people generally take their cars to work, and if that car poses a problem and causes injury to a customer, that is within the scope of the employment. Therefore, the store will be held under the vicarious liability/respondeat superior theories. Trespasser/Licensee/Invitee All of the rules and arguments above apply to the Employer as well. Since Paul was a[n] invitee, the Store (or its employees) owed a duty to inspect the premises and by failing to do so, Store is liable for the employer’s acts. Defenses All the same defenses from above apply. Answer B to Question 1 1) I. Can Paul maintain tort claims against Clerk for false imprisonment? In order to prevail under a claim of an intentional tort, such as false imprisonment, the plaintiff must show an action of the defendant, made with requisite intent, causation and damages. False imprisonment specifically requires the following: (1) an act or omission of the defendant that causes the plaintiff to be restrained to a bounded area. This can be done through a physical act or under an imminent threat. There must be no reasonable means of escape. (2) The defendant must have acted with specific intent to confine or general intent, meaning he acted with substantial certainty that he was acting in the proscribed manner. (3) It was the actions of the defendant that caused the harm to the plaintiff. The action must have been at least a substantial factor. (4) Damages. The plaintiff had to suffer some harm so he must have known of the restraint or suffered damage because of it. Action of the defendant (C) In this case, C did ask P to go with him to the back of the store, which P did. Though C may argue P was free to leave, P should argue that he only went to the back room under threat of having trouble with the police. He knew C had taken down his license number, and P arguably was willing to go into the back room so he could have a chance to explain himself. P was put into the room and C closed, though did not lock [,] the only door to the room, which contained no windows. This should be enough to meet the requirement that there be no reasonable means of escape. Even though P could have physically opened the door and may have been able to walk out, he was being held there under threat of having to deal with the police. M may argue that the threat of calling the police should not be considered to be a threat that confined the P. If P was truly innocent, all he would have to do is give his story to the police. Plus, P should have known that his money was still on the counter, and if he could convince C or the police to look for [it], this story would Storekeeper privilege Tort law does permit storekeepers to retain customers suspected of shoplifting. The idea is that storekeepers are permitted to try to recapture their chattels by using reasonable means and holding the suspected thief for a reasonable amount of time. The shopkeeper is protected against making reasonable mistakes as to whether or not the suspect actual stole anything. In this case, C should argue that he was reasonable to suspect P of shoplifting. There are facts to support this claim [.] C did witness P pocked [sic] the candy and was not aware that P had paid. It is true that P had tossed money on the counter to cover the cost of the candy, but it was reasonable for C not to have seen this. This is because it is customary for customers to pay for items by going up to the cash register and being rung up by the cashier, and giving money directly to the cashier. Clerks are not used to having to look for money dropped on counters to be sure if someone has paid or not. Therefore, C was reasonable to think P was shoplifting, so he was covered by the privilege. However, P has a very good claim to shoot down this defense. The detention by a shopkeeper asserting this privilege must be reasonable. Here, C hold [sic] P in the back room for 25 minutes while he was waiting for Mark (M) to arrive. Arguably, this is too long to hold someone in a windowless back room by themselves to discuss stealing a candy bar that cost $1.50. C will of course argue it was reasonable for C to make P wait for the manager, and that 25 minutes really is not that long. However, he was held in the back room and was never once checked on to be sure he was okay. This is arguably unreasonable. Also, the harm that came to P as a result of being in the room was clearly not reasonable. Therefore, C was outside the bounds of the storekeeper privilege and this defense is not available to him. Superseding force As discussed above, C may also want to argue that it was not his tortious act that caused the harm, but rather it was Mark’s supervening actions. C would argue that if M had not left his truck running in the garage for so long, the exhaust would have not leaked into the back room and P would not have suffered any damages. Therefore, it is M’s negligence (either in merely running the engine or in failing to take his medication) that was the real cause of the harm. The rule for causation in tort cases is that the defendant’s act was a substantial factor. P should easily be able to show that C was a substantial factor in the harm, because C left him there by himself for long [sic]. Therefore, the superseding force will not absolve his liability. Consent C may also try to argue that P consented to the imprisonment. Consent is a valid defense against intentional torts. C would argue that P went to the back room of his own volition, because he made the choice to go back there rather than have the police be called by C. The problem with this defense, P will argue, is that consent must be given voluntarily, and the actions of the defendant must not exceed the bounds of the consent. Here, the consent was not voluntary, because P was acting under threat of having the police be called, even though he did pay for his item. Also, even if P did arguably consent to going into the back room, he surely did not consent to being held for 25 minutes by himself and to suffer such physical harm. Conclusion Based on the above, it appears that P does have a tort claim against C for false imprisonment. Though there are defenses that C will try to argue, he will probably not succeed with any of them. II. Can P maintain a tort claim against M for negligence? A basic cause of action for negligence requires a showing of the following elements: (1) existence of a duty with an accompanying standard of care; (2) a breach of that duty; (3) defendant’s actions were the but [-] for and proximate cause of the plaintiff’s injury and (4) the plaintiff was actually damaged. Therefore, P must show all of these elements in order to prevail against M for negligence. Duty and Standard of Care A duty of care is not owed to all. However, a duty of care is owed to all people who can forseeably be injured by the actions of the defendant. In this case, the vicinity of P to the area of where M was running his engine would make him a foreseeable plaintiff. M may argue that no duty of care is owed to P because M had no idea P was back there, and had no reason to know because the store room was seldom used. However, this probably will not absolve M of his duty of care, because it is foreseeable that someone will be in the back of the store or garage at some point, and that leaving an engine running for so long in a closed area will cause harm to someone. The standard of care owed is usually that of a reasonable person acting under similar circumstances and with ordinary prudence. This will be the standard of care applied in this case. Breach Now it must be determined if M’s conduct fell below the standard of care. There are several ways that P can argue that it does. First, P could argue that M was negligent merely in leaving the engine running for so long in the closed area. Certainly, reasonable people know that they should not allow highly toxic carbon monoxide to fill a small space, especially when the small space is so close to a public business where it is certain people will be found. Second, P could argue that M was negligent because M failed to take his medication. A person who knows that they are likely to forget doing things that would make their actions safe (like, in this case, turning off [the] engine of his truck) arguably should not be engaged in those actions. Here, M must have known of his likelihood of forgetting such things, since he has a prescription for short-term memory impairments. Therefore, he was negligent in failing to remember to take the medication in the first place that would have allowed him to avoid putting P at risk. P should be able to show breach on both of these points, since no be liable, so too will DG. P should also point out that C was on the clock and was at the place of employment when the tort occur[r]ed, strengthening the argument that this is within the scope. Liability for the tort of M The same rules will apply to determine if DG is liable for the torts of M. M’s tort occurred when he was running the engine of his personal truck in the back room of the garage. Nothing indicates that M was on the clock at this time. Also, nothing indicates that M was doing this with any intention of helping employer. Rather, it appears he was doing this only for himself. Therefore, it is unlikely that DG will be liable for the act of M. The best argument P could make to hold DG liable would be the close proximity of M to the place of employment. However, this probably will not overcome the facts that he was not on the clock and was not acting to benefit the employer. Independent contractors? If for some reason C and M are ICs and not employees, then a different standard would apply. Employers of ICs are generally not liable for the torts of ICs. However, they are liable if the tort involves a non-delegable duty, such as the duty of care owed to an invitee. In this case, P would be an invitee of the business, so he would be owed a very high standard of care. The employer would be charged with warning him of any latent dangers that the employer knows or should have known about. Clearly, carbon monoxide is a latent danger, since it is one that is not immediately apparent and cannot be seen. Also, P would argue that the defendants should be charged with knowing when there are gas leaks in the store. It would not matter that they did not have actual knowledge. The standard is that they should have known. Failing to warn of the latent danger would therefore be a breach, and DG would be liable for the torts of M and C, even if they are construed as independent contractors and not employees. Question 2 In an effort to “clean up Columbia County,” the County Board of Supervisors recently passed an ordinance, providing as follows: “(1) A Review Panel is hereby established to review all sexually graphic material prior to sale by any person or entity in Columbia County. (2) Subject to subsection (3), no person or entity in Columbia County may sell any sexually graphic material. (3) A person or entity in Columbia County may sell an item of sexually graphic material if (a) the person or entity first submits the item to the Review Panel and (b) the Review Panel, in the exercise of its sole discretion, determines that the item is not pornographic. (4) Any person or entity in Columbia County that fails to comply with subsection (2) or (3) is guilty of a misdemeanor, and is punishable by incarceration in jail for one year or by imposition of a $5,000 fine, or by both.” Videorama, Inc., a local video store, has brought an action claiming that the ordinance violates the First Amendment to the United States Constitution. What arguments may Videorama, Inc. reasonably make in support of its claim, and is it likely to succeed? Discuss. Compelling State Interest Generally, when indecent speech is involved, the interest is in protecting children from sexual material. This is of the utmost importance in providing a safe & moral environment in which to grow up. Therefor[e] it most likely qualifies as a compelling state interest. Note: merely regulating the morals of the community is not compelling. Necessary & Least Restrictive Means A law is necessary when it provides the only way to achieve the compelling state interest. Here, ther[e] are other ways to prevent the dissemination of indecent sexual material to children. For instance, the statute can limit the sale of sexual material to those over the age of 18. Or, a regulation can validly control the zoning & location of shops which sell sexual material so they are not near schools. Therefor[e], because there are other options to achieve the compelling interest, least restrictive means have not been used. The law fails strict scrutiny and is therefore an unconstitutional violation of the 1st Amendment. Punishment The final issue is whether the provision of the statute which authorizes imprisonment and/or fines for the violation of the statute is valid. First, for this provision to be valid, the substantive portions of the statute must be valid. Because the statute is unconstitutional as a prior restraint, overbroad & vague & does not meet strict scrutiny (unless the statute is limited to “obscene” material), the punishment clause is invalid. However, the punishment clause raises the issue of compliance. Collateral Bar Rule The collateral bar rule applies when a person violates a statute. The rule states that if a person does not comply with a statute, the person cannot use the unconstitutionality of the statute as a defense in a criminal contempt proceeding. Therefor[e], even though the statute at issue is likely unconstitutional, a violation of the statute could result in punishment for contempt. Thus, the best option is to comply with the statute for the time being, while appealing the decision of the panel and/or challenging the constitutional validity of the statute in court. Answer B to Question 2 Videorama v. Columbia County State Action To bring a First Amendment claim, the plaintiff must assert state action, because the First Amendment only applies to the government, not private action. State action is present here because the ordinance was passed by the Columbia County Board of Supervisors, an instrument of the local government. First Amendment Freedom of Speech The First Amendment, applicable to the states through the 14th Amendment, provides that no government shall interfere with the right to free speech. The Columbia County ordinance interferes with the right to free speech because it restricts the ability of video stores and individuals to sell, and correspondingly to buy, sexually graphic material. The ordinance imposes monetary fines and imprisonment for violation. Thus, the ordinance must be scrutinized under the First Amendment. Overbroad A statute may violate the First Amendment if it is overbroad. A statute is overbroad if it restricts protected speech as well as unprotected speech. Even if some of the speech restricted is not protected by the First Amendment, the statute will fail if it also draws unprotected speech. In this case, the ordinance restricts both protected and unprotected speech. Obscene speech is a category of unprotected speech, and enjoys no protection at all under the First Amendment. Obscenity is speech that (1) appeals to the prurient interest, as defined by a local standard, (2) is patently offensive, as defined by local law, and (3) lacks serious scientific literary, artistic, or political value, as defined by a national standard. Some of the speech restricted by the Columbia County ordinance may be obscene speech. The ordinance targets sexually graphic material, and obscene speech is probably included in that category. The obscene material restricted by this statute presents a First Amendment problem. However, the problem is that the ordinance restricts a broader category of speech, including some speech that is protected speech. Sexually graphic material that has serious scientific, literary, artistic, or political value is not obscenity and therefore is protected speech. The ordinance does not adopt the three part obscenity test, or make an exception for material that has serious value. Therefore, the statute is overbroad. Unfettered Discretion The First Amendment is also violated where an official is given complete discretion on whether to allow or prohibit speech. Requiring an individual or entity to obtain a license or authorization to engage in certain speech, before engaging in the speech, is a prior restraint. Prior restraints are disfavored because they quell speech before it is even uttered. However, a licensing scheme, even though a prior restraint, can be constitutional if (i) no official has complete discretion over whether to grant a license, (2) specific, articulated standards are used to grant the licenses, and (3) judicial review or some other appellate process is available as a check. The ordinance fails this test because it gives “sole discretion” to the Review Panel. The statute does not provide any standards whatsoever that the Panel should use to evaluate requests. The only standard given is that “sexually graphic material” may be prohibited by burden of proving that it passes this test. Compelling State Interest Columbia County’s purpose in enacting this ordinance is to “clean up Columbia County.” Presumably this means to regulate the distribution of sexually explicit material in order to have a more civil, professional, family-friendly atmosphere. The County may have had problems with children being exposed to sexually graphic material in stores or on the streets. The County may be concerned that an excess of such material may deter new residents, cause businesses to leave, harm young children, and even hurt Columbia’s tourist industry. All of these concerns are valid state interests, and probably rise to the level of compelling. Assuming Columbia can prove that it has a compelling interest, it will next have to show that the ordinance is necessary to achieving those interests. Necessary to Achieve That Interest This requirement is more than just narrow tailoring. It actually requires that the law be the least restrictive means available for achieving the state’s interests. If less restrictive alternatives are available, the state must pursue those alternatives first. Columbia County will not be able to show that its ordinance is the least restrictive means for protecting children, cleaning up the town’s image, and preserving its business and tourist industries. These interests could be accomplished by the use of content-neutral time [,] place and manner restrictions, such as requiring people to keep the material they are selling off of the streets, indoors, during normal business hours. Then children walking on the sidewalk would not necessarily run into sexually graphic material. The County could also require stores that sell such material to post warnings at the front door or window, to announce to customers that such material is sold inside. This would be a less restrictive ban, although still content [-] based, because it would allow stores to sell such material without pre-approval from a Panel. It would also accomplish the County’s goals by enabling residents to avoid that material if they want. The County could also use zoning laws to regulate where adult-themed book and movie stores can operate. The Supreme Court has upheld the use of zoning in this way to control the secondary effects of such businesses. Zoning would be less restrictive than Columbia’s current ordinance because it would not ban all sales or require pre-approval by a Panel. It would still allow Columbia to “clean-up” by regulating where such businesses can operate, and keeping other areas of the County free of them. Because less restrictive alternatives are available, the ordinance will fail strict scrutiny, and Videorama will win its suit against Columbia. Question 3 On Monday, Resi-Clean (RC) advertised its house cleaning services by hanging paper handbills on doorknobs in residential areas. The handbills listed the services available, gave RC’s address and phone number, and contained a coupon that stated, “This coupon is worth $20 off the price if you call within 24 hours and order a top-to-bottom house- cleaning for $500.” Maria, a homeowner, responding to the handbill, phoned RC on the same day, spoke to a manager, and said she wanted a top-to-bottom house cleaning as described in the handbill. Maria said, “I assume that means $480 because of your $20-off coupon, right?” The RC manager said, “That’s right. We can be at your house on Friday.” Maria said, “Great! Just give me a call before your crew comes so I can be sure to have someone let you in.” Within minutes after the phone conversation ended, the RC manager deposited in the mail a “Confirmation of Order” form to Maria. The form stated, “We hereby confirm your top-to- bottom house cleaning for $500. Our crew will arrive at your house before noon on Friday. You agree to give at least 48 hours advance notice of any cancellation. If you fail to give 48 hours notice, you agree to pay the full contract price of $500.” About an hour later, Maria sent RC an e-mail, which RC received, stating, “I just want to explain that it’s important that your cleaning crew do a good job because my house is up for sale and I want it to look exceptionally good.” On Thursday evening before RC’s cleaning crew was to show up, Maria accepted an offer for the sale of her house. The next morning, Friday, at 10:00 a.m., Maria sent RC another e-mail stating, “No need to send your crew. I sold my house last night, and I no longer need your services.” By that time, however, RC’s crew was en route to Maria’s house. At 10:30 a.m. on Friday, Maria received RC’s Confirmation of Order form in the mail. At 11:00 a.m., RC’s crew arrived, prepared to clean Maria’s house. Maria explained that she no longer needed to have the house cleaned and sent the crew away. RC’s loss of profit was $100, but RC billed Maria for $500. Maria refused to pay. Has Maria breached a contract with RC, and, if so, how much, if anything, does Maria owe RC? Discuss. bottom. This exchange of promises provides the required bargained[-]for exchange and legal detriment to each party for there to be valid consideration. Thus, this element is met. Defenses Statute of Frauds The Statue of Frauds does not apply to services contracts that will be completed in less than one year. Here, the contract was to be completed in its entirety by Friday so that the statute of frauds was inapplicable. As no other defenses are applicable, a valid contract was likely formed at the time of the phone conversation between Maria and the manager of RC. Terms of the Contract Formed Once it is determined that a valid contract was formed between the parties, the next step is determin[in]g the terms of that contract. In this case, Maria called RC and stated that she wanted a “top-to-bottom” house cleaning “as described in the handbill.” Moreover, she indicated (and the manager of RC agreed) that the price would be $480 once the coupon from the handbill was taken into consideration. The contract likely also contains the provision that RC will complete the work on Friday as that was agreed upon by the parties during the course of the phone conversation. Thus, the contract will certainly be for a top- to-bottom house cleaning at Maria’s house on Friday for $480. A question exists as to whether Maria’s statement that they had to call her before their crew comes in order to be sure that someone was there to let them in. It is unlikely that this would become part of the contract given that the parties had already agreed on the contract before Maria made that statement. Moreover, the statement does not affect the performance of the obligation but was merely intended to ensure that the contract would move forward with no hassles. Thus, this is not likely to be considered part of the contract. The provision in the “Confirmation of Order” memo sent by RC also does not likely become part of the contract. The contract was completed over the telephone and RC may not unilaterally make modifications to that contract (i.e. the 48 hour notice provision) without additional consideration provided by the other party. Here, RC gave no additional consideration to Maria for requiring the 48 hour notice provision). This does not mean, however, that Maria was free to cancel the contract at will[;] because the contract became enforceable over the phone, she is bound by the contract unless she has some excuse or defense to its enforcement or unless she is for some reason relieved of her duties under the contract. Finally, for the same reasons as the 48-hour provision above, Maria’s subsequent e-mail regarding the “exceptionally good job” would not become part of the contract. There was no additional consideration for the this [sic] provision and to require RC to do an “exceptionally good job” would deprive them of the benefit of the bargain their [sic] received when they negotiated for the $480 price. Thus, this would not become part of the bargain and RC would be required to do a reasonable job in good faith. Thus, the contract was for a full house cleaning on Friday for $480 and it did not include the 48-hour notification provision or the “exception[al] job” provision. Did Maria Breach or Does She Have Any Excuses/Defenses For Her Breach? Because a valid and enforceable contract existed, Maria is liable to RC if she breached the contracted [sic] as [she] is not excused from performance. Maria’s Breach Under the terms of the contract, Maria was required to pay RC $480 and allow them into her house in order to complete the cleaning to which she agreed. Here, rather than allowing RC to come and clean her house, she sent them an e-mail at 10 a.m. on the morning of performance indicating that she was repudiating the contract and, when they showed up to perform, she turned their workers away. Thus, Maria anticipatorily repudiated the contract which would allow RC to: (1) treat it as an offer to rescind the contract and rescind; (2) treat the contract as materially breached and sue for damages immediately; (3) suspend their performance and sue once the contract becomes due; or (4) do nothing and encourage performance. Here, Maria breached the contract the morning of performance so that suspending their performance or encouraging Maria’s performance would be infeasible. Moreover, RC would not want to rescind the contract because that is exactly what Maria wanted to do and it would cost them $100 in lost profits. Thus, RC would treat the contract as materially breached and Maria would be liable for damages unless she had a valid excuse for her breach. Possible Defense/Excuses of Performance Condition Precedent Not Met Maria may argue that she had a valid excuse for not performing because in the course of their telephone call she indicated that the crew should call her before they come so that someone may be there. However, this argument would fail for a few reasons. First, as I indicated above, the provision that they call on Friday before they come was not likely part of the contract because they had already agreed on the terms of the agreement at that point and Maria’s statement was only intended to make sure she could make arrangement to let them into her house. Second, the purpose of the covenant was not breached because they showed up to clean her house when she was there (because she turned them away). Third, she repudiated the contract before they could make the phone call by sending them her repudiating e-mail that morning so that they could treat the contract as breached immediately without adhering to the condition precedent. Thus, this argument would fail to excuse Maria’s material breach. House sold (Impossibility, Impracticability, Frustration of Purpose) Maria may also a[r]gue that the fact that she no longer owned the house at the time the contract came due excused her performance by way of: (1) impossibility; (2) impracticability; or (3) frustration of purpose. As will be shown below, all of these arguments would fail. Impossibility - For performance to be excused by way of impossibility an unforeseeable and supervening event must render performance impossible for any person to perform. Here, Maria’s sale of her house was not unforeseeable because she knew that [she] was trying to sell her house and it was not a supervening outside factor because it was entirely within Maria’s control. Moreover, it was still possible for RC to complete performance – it just would not be as valuable to Maria now that she no longer owned the home that she contracted with them to clean. Thus, this argument would fail. Impracticability - For performance to be excused by way of impracticability an unforeseeable and supervening event must render performance by one party inordinately difficult so as to create an injustice if the contract was enforced. Here, as noted immediately above, Maria controlled the event and it was foreseeable so this did not excuse her performance. Morever, paying $480 to have a house that you have just sold cleaned does not seem unduly difficult on Maria. Thus, this defense would fail as well. Frustration of Purpose - For performance to be excused by way of frustration of purpose an unforeseeable and supervening event must intervene to render the entire purpose of the contract – known by both parties to the contract at the time the contract was formed – a nullity. Like the two arguments above, this would fail because the supervening event was in Maria’s control and was entirely foreseeable so that Maria assumed the risk that her house would be sold by Friday. Moreover, at the time the contract was formed RC had no idea that she was selling her house so that the purpose was to fix the house up for its sale. Thus, the fact that this purpose was frustrated would not excuse Maria’s performance because RC had no idea of that purpose at the time the the [sic] contract was formed. Potential Damages that Maria Owes RC For Her Breach In a contracts case where one party materially breaches the other party is entitled to damages to compensate them for their expectancy under the contract. They may also receive consequential and incidental damages as appropriate. However punitive damages Answer B to Question 3 Maria v. Resi Clean 1. Applicable Law: The transaction between Maria and RC involved the purchase and sale of services. Accordingly, even though RC may have used tangible items (detergent, etc.) while performing services, the predominant aspect of the transaction involved services. Thus the common law (not the U.C.C.) controls. 2. The handbill constitutes an Offer: Many advertisements are merely invitations to negotiate. Here, under the objective theory of contract formation, the handbill would induce a reasonable person to conclude that RC had manifested an intention to perform the services at the stated price if Maria called “within 24 hours.” By giving Maria the power to accept the offer with[in] 24 hours by calling, the handbill was not merely an invitation to negotiate – at least not with respect to a “top-to-bottom housecleaning.” If someone had called with respect to some other service or bundle of services, the handbill might not be deemed an offer. Here, RC gave Maria the power of acceptance. 3.Maria’s acceptance was a mirror image of the offer. First, Maria noted that she wanted a top-to-bottom cleaning as offered in the coupon. Accordingly, the subject matter of the offer and the acceptance was the same. Second, Maria did not attempt to negotiate or make a counterproposal that would have served as a rejection. Her request for clarification did not reject the offer. Having received clarification, her utterance “Great!” was an objective manifestation of her willingness to be bound to the terms of the offer, including the time for performance. 4.The Offer and Acceptance Created a Contract: 4.A. Consideration Upon Maria’s acceptance, both Maria and RC suffered a legal detriment. Both had exchanged promises to do something they were not otherwise legally obligated to do. 4.B. Essential Terms Maria and RC agreed to all essential terms. RC agreed to perform a top-to-bottom cleaning consistent with the standards in its handbill. Maria agreed to pay $480 upon completion of the service. Although performance of the services within a reasonable time would have been a concurrent condition, RC agreed to perform the services on Friday and Maria agreed. RC’s obligation to perform the services prior to payment would be a concurrent condition, filling in any gap concerning order of performance. All essential terms were established even though the term “top-to-bottom housecleaning” was not defined with specificity. 4.C. No writing required: A contract to perform $480 of services on Friday is not covered by any aspect of the statute of frauds. The oral agreement is enforceable without a writing. 5. There were no valid modifications to the Contract[.] 5.A. RC’s confirmatory memorandum stated one inconsistent term and one additional term. Neither would be incorporated into the contract; both would be a unilateral attempt to modify the contract. Maria did not agree to the higher price, and she did not agree to the cancellation terms. Because the UCC does not apply, the consistent additional term between a merchant and consumer does not become part of the contract. Likewise, the inconsistent term regarding price is merely an offer for a modification that Maria did not accept. Maria had no duty to make a reasonable objection to the letter. She may have, but was not required to, request assurances of performances. 5.B. Maria’s e[-]mail did not modify the contract. Maria’s statement of the importance to her of RC’s crew doing a good job does not alter, or purport to alter, RC’s obligation to perform or her obligation to pay. Had RC performed, Maria would not have been justified in refusing to pay unless she was satisfied that RC did an exceptionally good job. Nor did it create an agreement about a basic assumption of the K. 6. Maria’s cancellation was not excused: Maria will argue that the sale of her house on Thursday gave rise to a frustration of purpose. That “purpose”, however, was not known to RC when the contract was formed. (Nor was it expressed as a condition: “I will pay you to clean my house if services are rendered before I sell it”.) Maria’s undisclosed purpose was not a basic assumption of the contract known to both parties. Further, a clean house between sale and closing is still valuable. Although under the UETA, Maria’s e[- ]mail is a proper mode of communication, it occurred after formation and does not relate back to formation. 7. Maria cancelled the contract after RC commenced performance. Although, as stated above, Maria did not accept RC’s cancellation clause, Maria would still have the power, although not the right, to cancel before RC tendered performance. By dispatching the crew in accordance with the contract (i.e., before noon), RC commenced performance. [That would be a form of acceptance, were that needed.] Accordingly, Maria sent the crew away after RC partially performed. 8.Maria’s cancellation excused RC’s performance. Maria cannot defend her refusal to pay on the grounds that RC never performed. RC’s performance was discharged by her breach. 9.Maria is liable to RC for damages caused by her breach: Given the late cancellation RC had no opportunity to mitigiate and thus sustained $100 in lost profits due to the breach. RC would not be able to recover $480, the contract price[,] because it did not perform (although excused). It could only recover $100 plus incidental damages (cost of fuel, wages paid to the crew, supplies, etc.). RC could not recover $500 because (a) Maria never agreed to the cancellation clause and (b) $500 would be either an improper penalty or unjustified liquidated damages (in that the damages for lost profit would not be difficult to determine and $500 is not a reasonable amount). Maria owes $100 plus incidental damages[.] Answer A to Question 4 4) 1. Directors’ Breach Regarding the Adco Job Duty of Care: Since corporate directors have a fiduciary duty to the corporation, directors of a corporation owe the corporation a duty of care. The duty of care requires that the directors act with good faith and the degree of care which a prudent person would proceed with in regard to his own business, Here Adco asked that Web perform complex work that would cost thousands of dollars to create on credit. Adco claimed to be a well-established corporation, but the directors had a duty to investigate Adco’s financial situation to determine whether it was safe and in the Web’s best interest to extend credit for the work. Beth, Charles and David all agreed to take the work conditioned upon a prior review of Adco’s financial statements. Their decision to review was correct, but they did not adequately follow through with it. David, anxious to obtain Adco’s business, decided to proceed with the work. This decision violated David’s duty of care. David should have conducted a reasonable inspection of the financial records and then reasonably determined whether it was in the corporation’s best interests to extend the credit. Instead, David made an uninformed decision. Further, David acted in bad faith by misrepresenting to the other directors that he reviewed the financial statements and made his determination to proceed based on information he obtained from them. Therefore, David clearly breached his duty of care to Web. Charles and Beth relied on David’s decision without inquiring further as to what was found in the financial reports. They will likely claim that the[y] reasonably relied on David’s statements in making their decision and should, therefore, not be liable. However, Charles and Beth cannot completely delegate their responsibility to the corporation and should have at least inquired further about what David based his decision on. Because Beth and Charles blindly followed David’s conclusory statement, they too violated their duty of care to the corporation. Business Judgment Rule: Directors may be protected under the business judgement rule. Courts will not second guess a business judgment if, at the time it was made, it was informed, reasonable (based on sound business judgment), and made in good faith. Directors will still be liable for decisions which are grossly negligent or reckless. This will certainly not serve as a defense for David, who was not informed when making his decision and acted in bad faith by lying to the other directors about having obtained and reviewed Adco’s financial statements. Beth and Charles have a better chance to succeed with this defense since they did not act in bad faith and will claim that their reliance on Charles’ decision was reasonable. However, it is likely that their decision to proceed in such a risky, costly and extensive project without any independent investigation or at least further inquiry was probably not sufficiently reasonable or informed under the circumstances. Therefore, they should not be able to be protected from liability from their breach by the business judgment rule. 2. Web’s Rights Against Adco’s Shareholders General Rule Regarding Shareholder Liability Generally, shareholders are not liable for the debts and liabilities of the corporation. One of the main benefits of the corporate form is that it provides limited liability; protecting shareholders from personal liability caused by corporate loss. This benefits the economy, because more risks are likely to be taken. Piercing the Corporate Veil Despite the general rule, courts may decide to pierce the corporate (PCV) veil and hold shareholders personally liable if there appears to be fraud or bad faith. Courts will often PCV if (1) the corporation is actually just an alter ago of the shareholders, or (2) the corporation was inadequately capitalized at its inception. A corporation will be found to be the alter ego of its shareholders when there is serious lack of corporate formalities. If, for example, shareholder commingle corporate funds with personal funds, use corporate funds for any personal benefit, that would be grounds to PCV. Also, if meetings are not held or decisions are consistently made without meeting or voting, that may constitute grounds to PCV. Courts are generally more willing to PCV for the benefit of tort creditors than contract creditors, since contract creditors presumably had the opportunity to investigate and make an informed decision about whether to enter into the contract. Here, it was determined that Adco’s shareholders have regularly taken its funds for their personal use. This would constitute violating the corporate form and creates grounds to PCV. Web can successfully argue that Adco’s shareholders are using the corporate form in bad faith to commit fraud use[,] then use the corporation as a shield from personally [sic] liability. It can argue that since Adco is operating as an alter ego and [sic] therefore, its shareholders should be held personally liable for Adco’s liabilities. However, since Web voluntarily decided to enter into the contract and could have investigated before making their decision to assume the risk of doing business with Adco, they will have a higher burden. If Web can convince the court to PCV, it will be able to sue the shareholders of Adco personally to the debt owed. 3. Charles’ Contract with Sam Duty of Loyalty Director has a fiduciary relationship with the corporation and has a duty of loyalty towards the corporation. The director must act in the corporation’s best interests and not engage in any self dealing or receive personal gain at the corporation’s expense. If a director comes across a situation which would breach his duty of loyalty, the director may cure the problem by disclosing it and getting approval by a majority of disinterested directors or disinterested shares. Here, Charles did work that the corporation was entitled to and received personal profit from it. He therefore violated his duty of loyalty by acting in his own interest rather that [sic] the corporation’s. If he really wanted to proceed with the work, he could tell the other disinterested directors about Sam’s interest and see if a majority of disinterested directors or shares would decide that he could proceed to do the work on his own. In this case, he convinced Sam to allow him to do the work, received profit that the corporation could have had, and did so without proper disclosure and approval. Therefore, Charles breached his duty of loyalty to Web. Usurping a Corporate Opportunity A director should not usurp a corporate opportunity. A corporate opportunity is one which the corporation has a business interest or reasonable expectancy in. Something that is in the corporation’s line of work/field will usually be deemed a corporate opportunity. If a director learns of a corporate opportunity in his capacity as director and wants benefit from it personally, he may be able to do so if he takes certain steps: (1) he must inform the corporation of the opportunity [and] (2) wait for the corporation to decline to take the opportunity. Here, Web clearly had an interest in the job Sam was asking about. Sam wanted Web to create a new game website, which is exactly the kind of work Web does. As a business that creates websites, Web clearly has an expectancy interest in the work and would benefit (profit) from it. Charles usurped Web’s legitimate right to the opportunity by convincing Sam that the job was small and that he could do it at home for less money than Web. Charles should have first disclosed the opportunity and waited to see if Web would have taken it. In this case, since the job is exactly in the line of work Web ordinarily conduct[s], Web would have likely taken the job. As a remedy, Web can recover any profit that Charles earns from performing the work for Sam. Charles’s Defenses: Charles may argue that he learned of the corporate opportunity in his personal capacity, investigated and come to the conclusion that Web should proceed. Although directors are allowed to rely on the reports of officers of committees of directors assigned to perform a certain role (as well as the reports of officers of the corporation, accountants[,] etc[.]) directors may not delegate all their duties to a committee and serve simply as a “rubber stamp” for the committee’s decisions. A director may not delegate his duty to make independent decisions. Therefore, Beth and Charles should have insisted on seeing at least some further information about the financial health of Adco so that they could evaluate for themselves whether the decision to extend credit was a good decision. This is, at minimum, what a reasonably prudent person would do with regard to their own finances. Web suffered damage as a result of Beth and Charles[’] breach, and therefore these directors are personally liable to Web for the loss they caused. Finally, Beth and Charles cannot take shelter in the business judgment rule because they did not act in good faith after a reasonabl[e] investigation. They made no investigation and knew none of the relevant facts. Therefore, their decision was not within the business discretion protected by the business judgment rule. (2) Web’s rights against Adco’s shareholders A company must maintain corporate form and structure if the shareholder’s personal assets are going to be protected by the corporate form. The shareholders may not use the corporate form fra[u]dulently - as simply a cloak for their personal business activities. Therefore, the shareholders may not intermingle corporate and personal assets or take the corporation[’]s assets for their personal use. When shareholders behave in this way, a court may disregard or pierce the corporate veil to hold the shareholders personally liable if justice requires it. Here, Adco’s shareholders have been regularly taking its funds for their personal use. Usually, a court will not pierce the corporate veil simply because a corporation is unable to pay its debts. Undercapitalization when a company is formed is usually required for veil piercing. However, if the shareholders have made an extensive practice of draining the corporate assets for their personal benefit, then it will appear that they have been abusing the corporate form to shield their personal business transactions from creditors. This pattern of behavior will introduce the required element of fraud. The shar[e]holders who took the corporate assets probably cannot claim that they were just receiving dividends. A company cannot pay out dividends if paying the dividends will cause it to become insolvent (unable to pay its bills when they come due). Therefore, the shareholders (who seem to control Adco) will not be allowed to make themselves dividend payments and then not pay Web. Web can make a strong case that a court should pierce Adco’s veil to reach the shareholder’s assets to satisfy Adco’s debt to Web. The court will be able to reach the assets of those shareholders who engaged in the improper behavior (although the shareholders who did not take part in the misbehavior will not be liable). Even if a corporation’s shareholders have abused the corporate form, a court will not pierce the corporate veil unless justice requires it. Furthermore, a court is generally more willing to pierce the corporate veil in tort situations than in contract situations since tort victims usually do not cho[o]se to interact with the corporation. Because Web has been harmed by Adco’s failure to pay its debts, Web can argue that the interest of justice require[s] holding the shareholders personally liable. However, because Web did not make an adequate investigation of Adco before doing work for them, it may be more difficult for Web to prevail. On the other hand, Web can try to argue that Adco intentionally and fraudulently misrepresented its financial health to Web (both by saying it was a “well-established corporation” and that “the sooner Web could start on the website, the sooner Adco would be able to pay”), and that this weighs in favor of piercing the veil even though Web did not take all possible precautions to protect itself. Finally, if Adco is a close corporation and the shareholders who were siphoning money from Adco were the same people who participated in negotiations with Web and David, then Web may be able to make a claim against them personally for fraud. To do this Web would have to show intentional misrepresentation (of fact) with the intent to induce reliance by Web, which did induce reliance and reasonable reliance by Web. It is unlikely they can show reasonable reliance on misrepresentations of fact. (3) Web’s rights against Charles Corporate directors owe a duty of loyalty to the corporation. They must reasonably believe that their actions are in the best interest of the corporation. A director violates the duty of loyalty when he usurps a corporate opportunity and takes it for himself. A corporate opportunity is one in which the corporation has a reasonable expectation or one that is in the business of the corporation. A director cannot excuse taking a corporate opportunity by showing that the corporation would not have been able to take the opportunity. Before a director may take advantage of any corporate opportunity he must disclose it to the corporation and wait for the corporation to turn it down. Here Charles took for himself a corporate opportunity (work) that should reasonably have gone to the corporation. He did not fully disclose the existence of opportunity to the other directors nor did he wait for the other (disinterested directors) to refuse the opportunity. Instead he did the work himself and was paid for it. Here it seems likely that Web would have been fully capable of doing the work (taking the corporate opportunity) but even if it wasn’t this would not excuse Charles’s behavior. Charles is therefore liable to the corporation for the money he made by doing the work and must disgorge it to Web. Question 5 Lawyer represents Client, who sustained serious injuries when she was hit by a truck driven by Driver. Lawyer and Client entered into a valid, written contingency fee agreement, whereby Lawyer would receive one-third of any recovery to Client related to the truck accident. Because Client was indigent, however, Lawyer orally agreed to advance Client’s litigation expenses and to lend her $1,000 monthly in living expenses that he would recoup from any eventual settlement. Lawyer did not tell Client that he had written a letter to Physician, Client’s doctor, assuring Physician full payment of her medical expenses from the accident out of the recovery in the case. Unfortunately, Driver had strong legal defenses to defeat the claim, and the case would not settle for the amount Lawyer initially forecast. Counsel for Driver finally offered $15,000 to settle the case without conceding liability. By this time, Lawyer had advanced $5,000 in litigation and living expenses, and Client had incurred $5,000 in medical expenses. Client was reluctant to accept the offer. Realizing, however, that this case could drag on indefinitely with little chance of substantial recovery, Lawyer took Client out for an expensive dinner, at which they shared two bottles of wine. Afterward Lawyer took Client to Lawyer’s apartment where they engaged in consensual sexual relations. Later that evening Lawyer persuaded Client to accept the settlement offer by agreeing to give her the net proceeds after his contingency fee and the amounts he had advanced were deducted and not to pay Physician anything. The next week, Lawyer distributed the net proceeds to Client as agreed. What ethical violations, if any, has Lawyer committed? Answer according to California and ABA authorities to the extent there is any difference among them. A lawyer owes a client a duty of loyalty, according to which the lawyer must act solely to further the client’s best interests. He may not sacrifice the client’s interests to his own or to those of a 3rd party. In this case, the facts suggest that Lawyer pressured Client into accepting the settlement offer, even though she was reluctant to do so at first. Indeed, Client had already incurred $10,000 worth of expenses, and the offer was only for $15,000. Lawyer appears to have convinced her to accept by taking her out to dinner, engaging in sexual relations with her, and renegotiating their oral contingency fee agreement. The facts also suggest that Lawyer’s interests in so doing were not solely to ensure Client received the largest possible award, but also to ensure that he too would recover his expenses. Under these facts, therefore, it appears Lawyer has violated his duty of loyalty to client by using undue influence to ensure that he is able to recover his continency fee, regardless of how much is left over for Client. Consensual Sexual Relations The ABA Code and Model Rules expressly forbid lawyers from engaging in consensual sex with their clients. California, by contrast, allows such relations where the Lawyer and Client are involved in a preexisting sexual relationship and where the nature of their personal relationship will not affect the Lawyer’s care, judgment, skill, etc. Here, Client and Lawyer engaged in consensual sex after drinking two bottles of wine with dinner. This would be grounds for an ethical violation under the ABA Model Rules and Code. Under California law, the answer is slightly less clear. There is no indication that Client and Lawyer had a previous relationship. Furthermore, as discussed above, the circumstances indicate that Lawyer was using sex as a means to exert undue influence over client’s decision to accept the settlement off[e]r. The presence of wine certainly doesn’t help Lawyer’s case. Therefore, Lawyer will likely be found to have violated California’s rules as well by engaging in consensual sex with client. Substantive Decisions Clients have a right to make substantive decisions about their cases, while lawyers typically choose the legal strategy to be employed. Here, Client had a right to decide whether or not to accept the settlement offer, as this was a decision affecting her substantive rights. Lawyer’s exertion of undue influence over this decision therefore violated her right[.] General Duty of Good Faith Finally, Lawyer will likely be found to have violated his general duty of good faith by failing to pay Physician after expressly agreeing to do so earlier, albeit without Client’s knowledge or consent. Answer B to Question 5 The question asks what ethical violations the lawyer in this fact pattern may have committed. There are five events which might have given rise to ethical violations by the Lawyer (L): 1) The agreement to advance legal and living expenses; 2) The letter to the Physician (P); 3) Sexual relations between L and Client (C); 4) The settlement offer agreement decision by C; and 5) Failure to pay P. 1. Agreement to advance expenses The issue is whether the lawyer committed any ethical violations regarding the advances from L to C. Under ABA rules, a lawyer may advance litigation expenses to clients unable to afford such expenses, but he may not advance living expenses for fear that a lawyer is buying a client. Under CA rules a lawyer may advance both legal and living expenses, but the lawyer must get any loans to a client in written form with the client’s knowing consent that such funds are loans that must be paid back. Further, the advancement of legal expenses in both CA and ABA must be contained in the writing of any contingent fee agreement. Here, the lawyer advanced living expenses[,] which is strictly forbidden under the ABA, so he could be subject to discipline. Also, the expense arrangement was oral[,] not in writing, so in CA, the lawyer has also violated the ethical code re: loans to clients. In addition, in any contingency fee agreement, it must be explained in the writing whether the lawyer’s percentage is pre- or post- expenses. On these facts, it is unclear whether L put such arrangement in the writing. L should be subject to discipline[.] 2. Letter to Physician (P) The next issue is whether L committed any ethical violations re: his letter to P that P’s fee would be paid out of the accident recovery. L potentially violated his duty of loyalty to C, his duty to communicate to C, overstepped the proper scope of his representation of C, and his duty of confidentiality to C. Duty of Loyalty A lawyer owes his client a high duty of loyalty - the lawyer must act in accordance with the client[’]s best interest. Here, L assured P that P would be paid out of the recovery of [the] case without informing C of such agreement. This action possibly created a conflicting duty on L because L had sent a letter to P which P may have relied upon and considered a contract or surety created by L. Since L’s duty of loyalty to P extends beyond the representation, L created a potential conflict in that he may have been personally liable if C did not pay P and hence he would have an incentive to ensure payment even if C had a good faith reason not to pay P. This potential conflict could have been overcome if Question 6 In 2003, Tom, a patient at Happy Home, a charitable convalescent hospital that specializes in caring for the disabled elderly, asked Lilly, his personal attendant, to help him execute his typewritten will. Tom suffered from severe tremors and had difficulty signing his name. In the presence of one other attendant, Tom directed Lilly to sign his name and to date “my will.” She did so and dated the document. At Tom’s request, Lilly and the other attendant, in the presence of each other, then signed their names as witnesses. The 2003 document stated “I give $100,000 to my niece, Nan. And, because Happy Home does such important work for the aged who are disabled, I give the residue of my estate in trust to Happy Home for the continued care of the disabled elderly. Lilly to act as Trustee.” In 2004, Tom, believing he needed to do more for the disabled elderly, asked Lilly to type a new will and told her he would take care of executing it. She typed the will, including in it the terms Tom dictated. He then asked Lilly to send two attendants into his room to act as witnesses. After the first of the attendants arrived and was present, Tom explained the purpose of the document and then signed his name at the end of the document. The first attendant then signed her name as a witness and left the room. Immediately thereafter the second attendant came into Tom’s room and quickly signed the document as a witness. Lilly was not present when Tom or the attendants signed their names. The 2004 document stated “I revoke all prior wills and I give my entire estate to Happy Home in trust for the continued care of the disabled elderly. Lilly to act as Trustee.” In 2005, Tom died, leaving an estate worth one million dollars. At the time of Tom’s death there were only two convalescent hospitals in the county where Tom lived, Happy Home and Sunnyside. A few days after Tom’s death, Happy Home went out of business. Sunnyside, also a charitable convalescent hospital, provides care for disabled persons of all ages. Sunnyside has petitioned the court to substitute Sunnyside as the beneficiary of Tom’s estate. 1. What rights, if any, does Nan have in Tom’s estate? Discuss. Answer according to California law. 2. How should the court rule on Sunnyside’s request to substitute Sunnyside for Happy Home as the beneficiary of Tom’s will? Discuss. Answer A to Question 6 6) Question 6 1) What right does Nan (“N”) have in Tom’s (“Ts”) estate? The first issue is whether N has any rights in T’s estate. N was named as a beneficiary under T’s first putative will but was not named as a beneficiary under T’s second putative will. The issue is thus whether the first will was valid in the first instance, and, if so, whether the second will validly revoked the first will. Will #1 Formalities of a Formal, Attested Will Will 1 was a typewritten will. Thus, Will 1 would have to conform to the requirements necessary for a formal, attested will. Under California law, a formal attested will: 1) must be signed by the testator, by someone at his direction and in his presence, or by his conservator: 2) must be signed in the presence of two disinterested witnesses who are both present at the same time; 3) must be dated; and 4) must be signed by the two witnesses. Although the witnesses need not know the contents of the will, they must know that they are witnessing the execution of the testator’s will. Signature Here, T, as a consequence of his disability, asked Lilly (“L”) to help him execute his will. Because T had severe tremors and had difficulty signing his name, he asked L to sign for him. Given that L signed the will in T’s presence and at his direction, this would satisfy the first condition stated above (i.e., that the testator sign the will or have another person sign the will at his direction). Attestation The next issue is whether the will was validly attested to by two disinterested witnesses. Here, one other attendant, in addition to L, was present when the will was signed. The issue is whether L, who signed the will at T’s direction, could be considered a disinterested witness. On one hand, it might be argued that L was simply taking T’s place, as she signed the will for T at his direction. In that sense, L would not seem to be a disinterested witness who could properly attest to the signing of the will. On the other hand, however[,] because L was simply signing the will for T, it might be argued that she could serve in two as trustee of the trust. Trust Principles A trust is a fiduciary relationship with respect to property wherein one person (the trustee) holds the property (trust res) for the benefit of a person or group of persons (beneficiaries), arising out of a manifestation to create it for a legal purpose. A trust thus requires: 1) an intent by the person creating the trust (settlor) to create it for a valid purpose; 2) property (trust res); 3) beneficiaries; 4) a trustee; and 5) valid delivery of the trust res to the trustee. A settlor may create a trust inter vivos by making a declaration of trust or by effecting a transfer in trust. A settlor may also create a trust through the provisions of his will (a testamentary trust). Here, T created the trust through the provisions of his will. Thus, T created a testamentary trust which was to take effect on his death. The trust had a res, the residue of T’s estate. The trust also had beneficiaries, HH and the disabled elderly. The trust had a trustee, L. The Trust was created for a valid, legal purpose- to care for and help the elderly. And, T expressed the intent to create the trust and the trust res was validly delivered through the will upon T’s death. Charitable Trust The next issue concerns the nature of the trust created in T’s will. A charitable trust is a trust that is created in order to benefit the public health and welfare. Because the trust benefits society, it does not have any readily ascertainable beneficiaries. In other words, unlike a private express trust, the settlor does not name specific individuals who are to benefit from the creation of the trust. Rather, all those persons who fall within the class described in the trust are to receive its benefits. Here, in Will 1, T devised the residue of his estate to HH for the continued care of the disabled elderly. Because no specific beneficiaries are named, it might be argued that the beneficiaries are all of those disabled elderly persons who qualify for convalescent care. Thus, it seems that the trust to HH might be considered a charitable trust, especially since it serves the greater public good by providing for the aged. Cy Pres The next issue is the effect of HH’s going out of business on the validity of the trust. Under the doctrine of cy pres (meaning, as near as possible), a court has the power to give effect to a charitable trust where it would otherwise fail as long as the court only has to change the mechanism of the trust as opposed to the beneficiaries of the trust. A court only has cy pres powers to give effect to charitable trust where the settlor has manifested a general charitable intent as opposed to a specific charitable intent. Here, S might argue that T had a general charitable intent, as his ultimate goal was to provide for the care of the disabled elderly. Thus, S would argue that the court could use its cy pres powers to carry out T’s intent by simply substituting S for HH. On the other hand, however, it might be argued that T had the specific charitable intent of giving the benefits of the trust only to those elderly persons who were residents of HH. On this view, the court would not be able to amend the trust to give it effect because T’s intent would only be to benefit those elderly persons residing in HH as opposed to all elderly persons residing in convalescent homes in the county where T lived. Because T likely knew that S was in existence when he executed his will, there were only two convalescent homes in the county, a court would likely find that T only intended to benefit those persons who resided in HH. Consequently, the court would not use its cy pres powers to deviate from T’s intent. Therefore, a court would likely find that the charitable trust to HH failed, as HH was no longer in existence at the time T’s will was probated. Consequently, the court would declare a resulting trust under which the trust res (consisting of the residue of T’s estate) would be reconveyed to T’s estate and would be distributed to her heirs. Thus, it seems likely that N, T’s niece, would also receive her intestate share of the residue of T’s estate in addition to the $100,000 general devise she already received under Will 1. Answer B to Question 6 6) Question 6 As discussed below, Nan will likely take $100,000 from Tom’s estate. Validity of 2003 Will Tom’s 2003 will was a typewritten, formal. As such, in order to be valid, it must be [sic] satisfy the requirements for an attested (or printed) will. Capacity to Make a Will Under California law, in order to make a will, the would-be testator must be (1) at least 18 years old; (2) be able to understand the scope of his or her estate; (3) be able to understand who it is the estate will be devised and (4) have intent to make a will. Here, Tom is in a convalescent elderly home, so he is clearly over 18 years of age. In addition, the fact that he was able to specify the gifts and devisees indicated he meets (2) and (3). Finally, Tom also apparently had the intent to make a will. Hence, Tom had the capacity to make a will in 2003. Requirements for an Attested Will An attested will must be (1) in writing, (2) signed by the testator or by someone in testator’s presence at his/her direction; (3) signed or signature acknowledged in the presence of at least two witnesses; and (4) the witnesses must understand that they are witnessing the execution or acknowledgment of a will. In writing. Here, the will was typewritten, so this requirement for an attested will was met. Signed by the testator or at testator’s direction. Here, while Tom had difficulty signing his name, he asked Lilly, his personal attendant, to help him execute the will. Because Tom directed Lilly to sign and date the document at his direction and in his presence, the will was validly signed. Signed or Signature Acknowledged in the Simultaneous Presence of At Least Two Witnesses. In order to be valid, an attested will must either be signed, or the signature must be acknowledged by the testator, in the presence of at least two uninterested witnesses. Here, this requirement is met because both Lilly and the other attendant, in the presence of each other, served as witness to the signature at Tom’s direction. Understanding of Witnesses of Execution of Will. Finally, the witnesses must understand