February 2021 CBX Essay Qs and Selected Answers

California

Bar

Examination

Essay Questions

and

Selected Answers

February 2021

Los Angeles Office

845 S. Figueroa Street

Los Angeles, CA 90017

www.calbar.ca.gov

San Francisco Office

180 Howard Street

San Francisco, CA 94105

ESSAY QUESTIONS AND SELECTED ANSWERS

FEBRUARY 2021 CALIFORNIA BAR EXAMINATION

This publication contains the five essay questions from the February 2021 California Bar

Examination and two selected answers for each question.

The answers were assigned high grades and were written by applicants who passed the

examination after one read. The answers were produced as submitted by the applicant, except

that minor corrections in spelling and punctuation were made for ease in reading. They are

reproduced here with the consent of the authors.

Question Number Subject

1. Evidence

2. Contracts/Remedies

3. Community Property

4. Professional Responsibility

COMMITTEE OF BAR EXAMINERS

OFFICE OF ADMISSSIONS

180 Howard Street, San Francisco, CA 94105

845 South Figueroa Street, Los Angeles, CA 90017

415-538-2300

213-765-1500

ESSAY EXAMINATION INSTRUCTIONS

Your answer should demonstrate your ability to analyze the facts in the question, to tell

the difference between material facts 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 the 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 or no

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 that 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.

QUESTION 1

On January 15, Paul fell down the stairwell of Dell’s Department Store (“Dell”). Paul sued

Dell for personal injuries, alleging he fell because one of the steps was broken. The

following occurred at a jury trial in the California Superior Court while Dell’s manager,

Mark, was being examined by Dell’s attorney:

QUESTION: Where were you when Paul fell down the stairs?

ANSWER: I was standing nearby with my back to the stairs talking to Carol, a

store customer, when I heard the noise of the fall.

(1) QUESTION: Has Paul sued Dell before?

ANSWER: Yes, five times that I personally know about.

(2) QUESTION: No one saw the accident. Right?

ANSWER: That’s right. A thorough investigation was unable to find anyone who

saw Paul fall on the stairs.

Mark was then cross-examined by Paul’s attorney as follows:

(3) QUESTION: Isn’t it true that you used to be employed by Paul as a cashier in his

grocery store and that he fired you for stealing money from the cash register?

ANSWER: That is what he claimed.

(4) QUESTION: The stairs were repaired the day after Paul fell. Weren’t they?

ANSWER: Yes.

(5) QUESTION: Didn’t Carol, the store customer, exclaim at the time of the accident:

“Oh no! A man just fell on that broken step”?

ANSWER: So, what?

QUESTION: Is this the report that Dell’s insurance company prepared following

an investigation of the accident?

ANSWER: Yes. That is the report the insurance company gave me. They always

prepare a report in case we get sued.

Paul’s attorney then moved to enter into evidence the insurance company’s report. The

report states: “Steps on the stairs at the store are in very poor condition.”

A. What objections could Paul’s attorney and Dell’s attorney reasonably make to the

questions or answers to Mark’s testimony numbered (1) to (5) above, and how should

the court rule on each objection? Discuss.

B. What objections could Dell’s attorney reasonably make to the motion to enter the

insurance company’s report into evidence and how should the court rule? Discuss.

Answer according to California law.

QUESTION 1: SELECTED ANSWER A

Relevance

Under California law, evidence is admissible if it is relevant and competent. Evidence is

relevant if it pertains to an element of a claim or defense and is probative of that

element. Probative means that the evidence has some tendency to prove or disprove a

particular element of a claim or defense. Evidence is competent if it is not otherwise

barred by some exclusionary rule. A court may nonetheless exclude otherwise relevant

and competent evidence if there is a risk of prejudice to the party against which the

evidence is being offered and the prejudice substantially outweighs the evidence's

probative value.

Question 1

The question is relevant in that it tends to prove that Paul has a prior motive for suing

Dell other than the cause of his personal injury. Moreover, Mark is asserting that he has

personal knowledge of the prior suits, which means that this testimony is competent,

because a witness must generally have personal knowledge of the matters to which

they are testifying.

Character Evidence

Paul's attorney should object to this question on the grounds that it is inadmissible

character evidence. Character evidence is evidence that tends to establish a particular

trait of one party. Character evidence may take the form of reputation testimony about

the party's reputation in the community, the testifying witness's opinion of the party's

character, or prior acts of the party. Generally, character evidence is inadmissible

unless character is directly in issue. Here, the question appears to be establishing that

Paul's prior suits against Dell were frivolous or lacked some sort of sound basis.

Moreover, because this is a personal injury tort claim, Paul's character is not directly in

evidence. Therefore, under the general rule, the question should be objected to on the

basis that it is improper character evidence.

There are several exceptions to the general rule against the introduction of character

evidence. These exceptions include (1) establishing motive; (2) establishing the identity

of a party; (3) establishing lack of mistake; (4) establishing intent; or (5) demonstrating a

common plan or scheme. Here, Dell's attorney should argue against the objection that

the question establishes Paul's motive for suing Dell; that it also establishes Paul's

intent to sue Dell, thereby undercutting the argument that Dell was negligent in

maintaining its stairs; and that Paul's previous suits establish a common plan or

scheme against Dell through the use of multiple, potentially frivolous suits. It appears

that potentially multiple exceptions to the general rule against character evidence apply

to this question, and the court should therefore overrule the objection that this is

impermissible character evidence.

The court should also weigh in favor of admitting the evidence because its probative

value tends to outweigh its prejudicial conduct. The evidence is clearly prejudicial to

Paul, but the fact that Paul has sued this particular store five times in the past is highly

probative of Paul's intent to sue the store and perhaps contributory negligence or

recklessness. Therefore, the court should overrule this particular objection.

Question 2

Paul's attorney should object to this question on the grounds that it is irrelevant and

leading. Paul's attorney should also object to the part of the answer that affirms that "no

one" saw the fall actually happen.

Relevance

As noted above, evidence must be relevant to be admissible. Here, while Paul's

attorney could argue that the question is not relevant, he likely will fail on this point. The

fact that no one else saw the fall happen is not relevant to the issues in a personal tort

claim. Dell's attorney, however, should argue that this testimony is relevant because it

tends to undercut the validity of Paul's claim, i.e. that there are no corroborating

witnesses to the fall.

Leading Questions

An attorney directly examining a witness may not ask leading questions unless the

witness is hostile. A leading question tends to assume its answer in the form of the

question. Here, the question assumes that no one saw the fall happen and then asks

the witness to confirm this. Moreover, Mark is being directly examined by Dell's attorney

and is clearly not hostile to Dell's attorney. Therefore, the form of the question was

improper. The proper remedy here would be to strike the leading question for Dell's

attorney to rephrase the question in a way that is not leading.

Lack of Personal Knowledge

Paul's attorney should object to the portion of the answer that asserts that "no one" saw

the fall actually happen. In order for a witness's testimony to be admissible, he must

have personal knowledge of the matter being testified to. Here, it is likely impossible

that Mark could identify all possible bystanders in a department store. Therefore, this

portion of the answer is outside the scope of Mark's knowledge and therefore should be

inadmissible. The proper remedy here would be to strike the offending portion of the

statement.

The remaining portion of the statement is admissible, because Mark has personal

knowledge of the investigation and can attest that the persons interviewed in the

investigation.

Question 3

Dell's attorney should object to this question because it improperly references the

consequences of a prior bad act by Mark.

The question is relevant because it tends to undermine Mark's credibility for truthfulness

and a possible motive against Paul. The court should not exclude the testimony under

the normal balancing test because Mark is a key witness and his truthfulness is

probative of the validity of the rest of his testimony.

As noted above, character evidence in the form of prior bad acts is generally

inadmissible. A witness's credibility may be impeached, however, by an attorney asking

a good-faith question about a prior bad act if the act is probative of the witness's

truthfulness. Extrinsic evidence of the prior bad act is not admissible, and the attorney

may not reference any consequences of the prior bad act. The act in question here is

theft, which is probative of truthfulness. Paul's attorney likely has sufficient grounds to

ask the question in good faith, because Paul is his client and likely mentioned Mark's

firing to the attorney. The form of the question, however, is improper, because the

attorney references the fact that Mark was fired for stealing from Paul. Dell's attorney

should object, and the question should be stricken. Paul's attorney may, however,

rephrase the question to remove the reference to the consequence.

As noted above, the form of the question here is not objectionable because Paul's

attorney is cross-examining a witness for the opposing party. Therefore, a leading

question is permissible.

Answer to Question 3

At issue in Mark's answer is whether his statement constitutes hearsay. Hearsay is an

out of court statement that is offered as proof of the matter asserted. Here, Mark is

repeating a statement made by Paul ("That's what he says."). The statement is being

offered as proof of the matter asserted because the question is whether Mark stole

money from the cash register. Therefore, the statement is hearsay under the general

rule.

A hearsay statement may be nonetheless admitted under one of the exceptions to the

hearsay rule. An admission by a party-opponent is admissible as an exception to the

hearsay rule in California. Here, Paul is an opposing party and therefore his statement

may be admitted under this exception to the hearsay rule.

Question 4

Dell's attorney should object that this question is impermissible because it includes

subsequent remedial measures.

The evidence here is relevant because it tends to show that the stairs were, in fact,

broken, thereby establishing a breach of duty by Dell.

While nonetheless relevant, public policy excludes evidence of subsequent remedial

measures, except in cases of products liability. Here, there is no products liability

question involved, and the question falls squarely within the subsequent remedial

measures rule. Therefore, the question should be objected to and stricken from the

record.

Question 5

Hearsay Objection

Dell's attorney should object to this question because it is clearly hearsay. The

statement by Carol is an out of court statement and it is being offered as proof that Paul

fell and that the stairs were broken. Therefore, under the general hearsay rule, the

testimony is not admissible. Note that the statement is relevant because it is probative

of both breach (the stairs are broken) and causation (Paul fell down the stairs).

Paul's attorney could potentially argue that the statement constitutes an excited

utterance and is therefore admissible as a hearsay exception. An excited utterance is

one that is made by a person who is still under the stress of an exciting event and for

which there is no time to reflect on the statement. Here, seeing a person fall down

broken stairs likely qualifies as a startling event and the statement was made

contemporaneously with the event in question. Therefore, the question and its answer

are likely proper under this exception to the general rule against hearsay.

Note that Paul's attorney cannot successfully argue that the statement is a present

sense impression. In California, a present sense impression is only admissible when

the hearsay declarant makes a statement about her actions while she is performing the

act. Here, there is no action by the hearsay declarant and therefore this exception does

not apply.

Lay Opinion Objection

Paul's attorney could object to the answer in the question because it constitutes a lay

opinion that goes to one of the ultimate issues in the case (whether there was a breach

of duty because of the broken stairs). In California, a lay witness may testify to her

opinion as to sensory matters, speed of an automobile, whether a person is drunk or

insane, or other matters within her personal knowledge. Note that California also allows

a lay witness to testify as to scientific or technical knowledge that the lay witness has.

Here, it is likely within the lay witness's knowledge that the stairs are broken because

Carol can observe that the stairs were broken. Therefore, this objection should likely be

overruled.

Insurance Report

Dell's attorney should object that the insurance report is (1) privileged work product; (2)

that it is hearsay; (3) that it is improper evidence of liability insurance; and [sic]

The first issue is whether the work product privilege would attach. The work product

privilege is a qualified privilege that allow documents made in anticipation of litigation to

be excluded from discovery and evidence. Here, the work product doctrine likely applies

because an insurance company making a report likely anticipates that its insured will be

sued because of an accident that happened on the store's premises. Moreover, Mark

indicated that the report was prepared "in case we get sued." Paul's attorney could

argue here that the work product doctrine should not apply because there is substantial

need for the document. This argument may succeed because the stairs were repaired

shortly after the fall, and therefore Paul's attorney could not inspect them or have an

expert inspect them.

The second objection would be that the document constitutes hearsay because it is an

out of court statement being offered to prove that the stairs were in fact broken. This

argument will fail because the report likely constitutes an exception to the hearsay rule

known as the business records rule. Where a business normally keeps a particular type

of record within the ordinary course of business and the record is made by a person

with knowledge of the event and a business duty to record the event, the business

record may be admitted under an exception to the hearsay rule. Here, the insurance

company always prepares a report when there is an accident and the insurance

company likely has a duty to keep such records for when it is required to issue liability

payments. Therefore, the business records exception to this evidence applies and the

report will not be excluded on the grounds that it is inadmissible hearsay.

Finally, Dell's attorney may attempt to argue that the report is inadmissible evidence of

liability insurance. Generally, evidence of liability insurance is not admissible to prove

guilt or ability to pay. Here, however, the report is not being offered to prove guilt.

Instead, it is likely being offered to show the condition of the stairs at the time of the

accident. Therefore, the liability insurance exclusionary rule likely does not apply.

The court should also balance the introduction of the report against unfair prejudice to

Dell. While the report is prejudicial to Dell, it does not appear to be unfair to Dell.

Moreover, the insurance company likely has an interest in accurately representing the

material in its reports. Therefore, the balancing test weighs admission.

The court may consider excluding the evidence on the grounds that it is protected work

product, but should likely rule for its admission on the ground that there is substantial

need for the report.

QUESTION 1: SELECTED ANSWER B

Under Proposition 8 of the California Constitution (Prop 8), all relevant evidence is

admissible in a criminal trial. Prop 8 makes an exception for California Rules of

Evidence Code Section 352, which prohibits the introduction of evidence whose

relevance is substantially outweighed by the risk of unfair prejudice, confusion of the

issues, or misleading the jury. As this is a civil case, Prop 8 will not apply.

A.1. Prior suits

Logical relevance

To be admissible in CA, evidence must be relevant to an issue in dispute. Here, Paul's

previous lawsuits against Dell are relevant because they show potential bad faith by

Paul (P) in constantly bringing lawsuits against Dell (D). This fact makes it more likely

that the lawsuit is without merit, and may have been brought for the purpose of

harassing D.

Legal Relevance

In CA, evidence should be excluded if its relevance is substantially outweighed by the

risk of undue prejudice. Here, the evidence is prejudicial in that it does not address the

issue here - D's negligence for P's injuries, but instead seeks to introduce extraneous

evidence about P's previous actions against D. This must be weighed against the

relevant bias that this evidence introduces. In balance, it is likely that the court would

find that the relevance would not be substantially outweighed by the prejudice of this

statement.

Form of the question

Assumes facts not in evidence

The question states that Paul fell down the stairs. This has not been established in the

fact pattern. If there is no basis for the statement, it is improper to include this fact in the

question. However, if it has previously been established that P fell down the stairs, then

the question is proper.

Personal knowledge

To testify, a witness must have personal knowledge about the facts being described.

Here, although Mark (M) may not have been involved in the previous lawsuits, he has

testified that he is personally aware of five previous lawsuits. Therefore, this testimony

is based on personal knowledge.

Character evidence

Character evidence is evidence about a party's previous actions or dispositions that are

introduced to establish that the party acted in conformity with their purported character.

Character evidence is generally inadmissible. Character evidence is inadmissible in civil

cases unless a party's character is part of the cause of action.

This case, a negligence suit does not have a party's character at issue. The question

and answer introduce evidence about P's previous actions in suing D. This does not

relate to the suit, but instead relates to P's previous actions with respect to D.

Therefore, it will be inadmissible character evidence, and should be excluded for

substantive purposes.

Habit

Although character evidence is inadmissible, habit evidence is admissible. Habit

evidence are a party's actions that always occur with respect to certain stimulus. Habit

evidence may be introduced to show that a party acted in conformity with the habit.

Here, P's prior suits do not rise to the level of a habit. They are isolated instances of

actions that P has taken, but they are not a reaction to a stimulus. Therefore, this

evidence is not admissible as habit evidence.

Impeachment

Although character evidence may be inadmissible for substantive purposes, it may be

used to impeach a party or witness. Bias may always be raised to impeach a party to a

suit.

Here, P's previous suits show a pattern that may indicate bias against D. Therefore, this

evidence is admissible to impeach P, but may not be used for substantive purposes.

A.2. No witnesses

Logical relevance

See rule above. This evidence is admissible because it shows that there were no

witnesses to the accident. This makes it less likely that the accident occurred since no

other person can corroborate P's version of events. Therefore, it is logically relevant.

Legal relevance

See rule above. As stated above, the statement is relevant. It is not unfairly prejudicial

to P. P can contradict this testimony by producing a witness.

Form of the question - leading question

Leading questions are questions that contains the answer. It is improper to ask a

leading question in direct examination.

Here, this question is a leading question. D's attorney states that no one saw the

accident, and merely asks for concurrence. M is an employee of D and is being called

as D's witness. Because this is D's witness, and this is direct examination, this question

is an improper leading question. P's attorney should have objected to this question as

leading, and the court should sustain that objection.

Personal knowledge

See rule above. M's answer talks about a thorough investigation but does not state who

engaged in the investigation. It is unclear whether M has any personal knowledge about

this testimony. Therefore, P's attorney should object to the response, and the court

should either (1) sustain the response, or (2) order some clarification to identify M's

basis for the statement.

A.3. Mark's firing

Logical relevance

See rule above. The question is relevant because it tends to show a potential basis for

M's bias. This evidence throws into question M's previous testimony. Therefore, it is

logically relevant.

Legal relevance

See rule above. The question is relevant as described above. It is prejudicial in that it

does not precisely go to a disputed fact, but merely throws into question M's

truthfulness. Still, the court will likely find it more relevant than prejudicial.

Form of the question - leading question

See rule above. While leading questions are not allowed in direct examination, they are

allowed in cross examination. Here, P's attorney is cross examining M. Therefore, this

question form is appropriate.

Form of the question - compound

When questioning a witness, a lawyer may only ask one question at a time. Compound

questions are disallowed.

Here, this question is composed of two questions: (1) did P fire M, and (2) was the firing

for stealing money. Because it is a compound question, D's lawyer should object, and

the court should sustain the objection.

Form of the response - nonresponsive

A witness must respond to the question asked. A response that does not answer the

question can be stricken, and the witness will be instructed to answer the question.

Here, M's response does not respond to the question. P's attorney asked M if P fired M

for stealing money. M does not answer the question, but instead states that M claimed

these things. Therefore, P should object to the answer, and the court should sustain the

objection and order M to answer the question.

Character evidence

See rule above. This evidence is a past act being introduced to show that M's testimony

is false because he was previously fired by P, and therefore has an axe to grind. As this

is character evidence it is inadmissible as substantive evidence.

Impeachment

See rule above. This evidence is proper impeachment evidence because it shows M's

bias. Therefore, it will be admitted for impeachment purposes.

A.4. Repair of the stairs

Logical relevance

See rule above. The fact that the stairs were repaired after the accident tends to show

that there was something wrong with the stairs previously - during the time of the

accident. Therefore, it tends to show that the stairs were negligently maintained by D,

and that P's claim has merit. Therefore, this evidence is logically relevant.

Legal relevance.

See rule above. As stated above, this evidence is relevant. However, it is prejudicial

because it uses a subsequent repair against D. The prejudice of this use is the reason

for the rule against its use, as described below. Therefore, it is prejudicial. The court

may exclude it on these grounds, but there is a specific rule on point.

Subsequent remedial measure

Where a defendant makes a subsequent repair, such repair may not be used to show

the fault of the defendant. This is because it would make it less likely that defendants

would make subsequent needed repairs. Subsequent repairs may be used to show

ownership or control over the property.

Here, the ownership or control of the stairs does not appear to be at issue. Instead, this

is being introduced to show that the stairs were in bad repair at the time of the accident.

Therefore, it is inadmissible because it is a subsequent remedial measure. D's attorney

should object to this line of questioning, and the court should sustain it.

A.5. Store customer's statement

Logical relevance

See rule above. Here, this statement tends to show (1) that P in fact fell on the stairs

and (2) that the step was broken. Therefore, it shows both that P fell, and that D was

potentially at fault. As such it is logically relevant.

Legal relevance

See rule above. Here, the evidence is relevant as described above. There is little risk of

prejudice because M can say whether this did or did not occur.

Form of the answer - nonresponsive

See rule above. M does not respond to the question either affirmatively or negatively,

and instead questions the relevance of the question. As M did not respond to the

question, P's attorney should object to the response. The court should sustain the

objection and order M to respond.

Hearsay

Hearsay is an out of court statement being introduced for the truth of the matter

asserted. Hearsay is generally inadmissible.

Here, Carol's statement, made out of court, is being introduced for the truth of the

matter asserted. It is being introduced to show that P fell on D's broken step. Therefore,

it is hearsay, and D's attorney can object to it on those grounds. It will be inadmissible

unless an exception applies.

Contemporaneous statement

A contemporaneous statement is a statement that a witness makes while an event is

occurring. A contemporaneous statement is admissible as an exception to hearsay.

Here, Carol's statement was made immediately after the event. It was not made while

the event was occurring, but a contemporaneous statement may be admissible if the

statement was made immediately after the event. Here, it is likely that the court would

find that this is admissible as a contemporaneous statement.

Excited utterance

An excited utterance is a statement made while a person is under the stress of an

exciting event. Such a statement is admissible as an exception to hearsay.

Here, Carol's statement was made while witnessing a person fall down the stairs. This

is an exciting event and would startle a reasonable person. Therefore, this statement

was made due to a startling event. In addition, it was made immediately after the event,

and likely while Carol was still under the stress of the event. Therefore, it will be

admissible as an excited utterance.

B. Insurance company's report

Logical relevance

See rule above. The insurance report describes an investigation of the accident. It likely

provides background and a determination of fault. Therefore, it will be logically

relevant.

Legal relevance

See rule above. The insurance report is relevant as described above. It will likely not be

deemed to be prejudicial. There are no facts that indicate that the report is prejudicial to

Authenticity

To be admissible, the proponent of tangible evidence must establish that the thing is

what it purports it to be. This may be done through the testimony of an individual with

knowledge of the evidence.

Here, M was able to identify that the report that P proffered was what it purports to be -

an insurance report that D's insurance company prepared. Therefore, it has been

properly identified.

Hearsay

See rule above. The insurance report, a report that was prepared and contains

statements made out of court, is being introduced for the facts set forth in the report.

Therefore, it is hearsay, and will be admissible unless it is non-hearsay or an exception

applies.

Vicarious statement

A statement that a party's agent makes out of court may be imputed to the party. A

party's out of court statement is always admissible as non-hearsay. Similarly, a

vicarious statement made by a party's agent may similarly be admissible. Admissibility

will depend on whether the agent is an employee or an independent contractor, and

whether the statement is made in the course of employment.

Here, the insurance company is not an employee of D, but is instead an independent

contractor. The insurance company provides insurance to D, and D does not control the

insurance company's actions. Therefore, statements that the insurance company

makes cannot be imputed to D. Therefore, the insurance report will not qualify as a

vicarious statement.

Business record

A record made in a business's regular course of business is admissible as an exception

to hearsay. The record must be part of a regularly conducted activity, must be regularly

recorded, and must be made at or near the time by a person with knowledge of the

items being recorded.

Here, the insurance company's report may be a business record. However, P's attorney

has failed to establish a foundation for its status as a business record. P's attorney has

failed to show that it was the insurance company's regular practice to prepare these

reports, and that it was made at or near the time of the events by a person with

knowledge of the items being recorded. Instead, P's attorney is seeking to introduce the

record through M, who did not prepare the report. While M stated that the insurance

company always prepares the report, he does not know how or by whom it was

prepared.

In addition, if a record is created in anticipation of litigation alone, it is not a business

record. Here, the record is only created when the insurance company believes that D

will be sued. Therefore, it does not constitute a business record.

QUESTION 2

Bright Earth Solutions (“Bright”), an agricultural services business that employed 10

people and had over 100 clients, purchased a new commercial tractor mower (not suitable

for personal, family or household purposes) from Stercutus Mowers (“SM”) for $15,000.

In concluding the sale, SM presented a one-page contract that contained the following

language:

SM undertakes, affirms and agrees that this mower is free of defects in

material and workmanship at the time of its delivery to the buyer. If the

mower or one of its component parts fails within one year of delivery to the

buyer because the mower or its component part was defective when

installed, SM shall repair or replace at its sole option any such mower or

component part at its own cost or expense. Other remedies are excluded.

The contract also stated in bold, 12-point font:

THERE ARE NO WARRANTIES EXPRESSED OR IMPLIED AND

PARTICULARLY, THERE ARE NO WARRANTIES OF

MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE

MADE BY SM IN CONNECTION WITH THE SALE OF THIS MOWER.

Authorized representatives of Bright and SM signed the contract and Bright took delivery

of the mower.

Over the next six months, Bright experienced numerous problems with the mower. The

bolt holding the mower blade in place broke five times under normal usage. The steering

system was faulty, causing unsightly and uneven lines in mowing jobs. The gas tank

installation was defective, causing intermittent gas leaks. Several times the mower would

not start due to various electrical faults and Bright had to cancel planned jobs. As a result,

Bright lost clients and $5,000 in profits.

Bright took the mower to SM each time it malfunctioned. SM effected repairs and the

mower would work for a while and then malfunction again. Sometimes the replacement

part would fail, other times a different part would fail. The mower was returned to SM for

repairs 12 times in the first six months after purchase.

At the beginning of the seventh month after purchase, the mower’s steering wheel came

off during a job. At that point, Bright communicated to SM that it wished to return the

mower and be refunded the purchase price. SM refused, pointing to the clauses above in

the original contract. Bright then sued SM for breach of contract and warranty.

1. Is Bright likely to prevail in its suit against SM? Discuss.

2. If Bright prevails, what remedies, if any, would likely be available? Discuss.

QUESTION 2: SELECTED ANSWER A

1. Success of Bright in its suit against SM

Governing Law

Contracts for the sale of goods are governed by Article 2 of the UCC. All other contracts

are governed by the common law. Goods are things moveable when identified in the

contract. Here, we have a contract for the sale of a commercial tractor mower, which is

moveable. Because the tractor is a good, the contract is governed by Article 2.

Statute of Frauds

While contracts generally need not be evidenced by a writing, some contracts require a

writing if they fall within the Statute of Frauds. A contract for the sale of a good over

$500 falls within the Statute of Frauds and requires a writing signed by the party against

whom enforcement is sought, and expressing the quantity involved.

Here, the contract is for the sale of one $15,000 commercial tractor mower. The

contract is in writing and signed by both parties, so it complies with the formalities of the

Statute of Frauds.

Breach of Contract

A contract for the sale of goods (governed by Article 2) requires that the seller of goods

tender perfect goods. This means that goods have to be exactly what the buyer

contracted to purchase under the terms of the contract. If the seller fails to tender

perfect goods, the buyer is entitled to not accept delivery of the defective goods.

However, once acceptance is made, a buyer cannot revoke the acceptance unless

there is a latent defect later arising (whereby the defect was not easily identified, but

with subsequent use becomes clear).

Here, the contract is for a commercial mower, and the mower has to run perfectly and

like an ordinary good of that type operates. After the contract was signed, Bright took

delivery of the mower. The assumption would be that the mower, at first glance,

seemed to conform to the good that was purchased and as such it was accepted.

However, over the next six months, Bright experienced numerous problems with it. The

bolt holding the mower blade broke five times under normal usage, the steering system

was faulty, the gas tank installation was defective, and on several occasions the mower

failed to start due to electrical faults.

Because these defects were latent and could not have easily been discovered the

buyer, Bright, is entitled to revoke its acceptance of this nonconforming good by stating

that the defect was a breach of the contract.

With this type of defect and breach, Bright would be entitled to a refund of the full

contract price of the mower - $15,000.

Express Warranty and its Disclaimer

Moreover, Bright will be able to argue that the contract included an express warranty

which stated, "this mower is free of defects in material and workmanship at the time of

its delivery to the buyer." An express warranty is one which sits on the face of the

contract and entitles the buyer to rely on such warranty. Express warranties cannot be

disclaimed by a subsequent statement in the contract saying that there "are no

warranties expressed or implied."

Here, SM made an express warranty in promising that it would be free of defects at the

time of delivery and failure to abide by such warranty will subject SM to damages.

There is no direct evidence that mower was defective at its delivery but it is unlikely that

all the problems that arose were a result of negligence on the part of Bright (especially

given that it malfunctioned under "normal usage"). Rather the logical inference is that

the mower was defective at delivery and SM will be liable for violating the express

warranty - the disclaimer will be irrelevant.

SM might argue that the express warranty was specific to defects in material and

workmanship and not related to defects in the component parts or in installation.

However, where there are vague terms in express warranties, they will be read in favor

of the non-breaching party and as such, Bright will win in arguing that the types of

defects that occurred were a result of defects in material and workmanship - in breach

of the express warranty.

** Note: SM's disclaimer of an implied warranty of merchantability or fitness for a

particular purpose was likely proper. It was in bold and on the same page as other

contractual terms.

Limits to Relief

While disclaiming express warranties is improper, SM was able to limit the relief that

could be sought if the mower was not defective upon delivery. Here, a term of the

contract stated that in bold 12 point font that "If the mower or one of its parts fails within

one year of delivery to the buyer because the mower or its component part was

defective when installed, SM shall repair or replace at its sole option any such

mower or component at its own cost or expense. Other remedies excluded."

Accordingly, SM properly limited Bright's relief to repairs or replacement at its sole

discretion.

The facts state that Bright took the mower to SM each time it malfunctioned and SM

effected repairs. Thus, SM would argue that it was abiding by its contractual duty to

repair the mower and was under no obligation to replace the mower or offer a refund.

Further, SM would argue that the fact that the mower would work for a while and then

malfunction again is of no relevance, because SM was willing to repair each time as

evidenced by the fact that the mower was returned to SM for repairs 12 times in the first

six months after purchase and repairs were made each time.

Note: If the suit was for personal injuries sustained by the defective condition, then the

limit to relief would not be abided by and the plaintiff would be entitled to damages for

his/her injuries. Here, the suit is not for personal injuries so the limit to relief would have

been proper but for the express warranty saying the mower would be free from defects.

Conclusion

Bright will be successful in its suit against SM both on a contractual and express

warranty suit. Contractually, SM breached by failing to tender perfect goods, and under

the express warranty by failing to deliver a mower free of defects in material and

workmanship.

2. Remedies available for Bright

Damages

Compensatory Damages

Bright is entitled to recover the purchase price of the defective mower. The mower was

purchased for $15,000 and based on the breach of contract, Bright will argue that he is

entitled to a full refund of the purchase price. Assuming the court finds that SM did in

fact breach by providing a defective product, then the breach will entitle Bright to a

refund of the purchase price plus any other damages sustained as a result of the

breach.

Incidental Damages

Bright will also be able to recover any incidental damages that resulted from SM's

breach. Incidental damages are those that arise in dealing with the breach. Here, Bright

took the mower to get repaired a total of 12 times. He will be able to recover any costs

associated with taking the mower to get repaired such as the cost of the salary for the

employee who had to go take it in or the gas money spent, etc.

Consequential

Bright will also argue he is entitled to consequential damages for the lost profits he

sustained as a result of the breach. Consequential damages will be awarded if both

parties (especially the breaching party) was aware of the lost profits that would be

incurred as a result of a breach and that those losses were foreseeable.

Here, as a result of the mower being so defective (that sometimes it wouldn't even

start), Bright had to cancel planned jobs and lost both clients and $5,000 in profits.

Bright has a good claim here because SM knew that Bright was an agricultural services

provider and that if the mower failed consistently it would cause Bright to lose both

clients and profits. As such, the court should award the consequential damages. SM will

argue that it was not foreseeable that the losses would be incurred as a result of the

breach because it was not foreseeable that Bright would not have other mowers it could

use while the mower they purchased was being repaired. Assuming it was clear that

this is the only mower Bright owned, the consequential damages will be awarded at

least in the amount of $5,000.

Conclusion

Bright will likely be able to recover the initial purchase price, anything expended as

incidental damages, and at least the $5,000 in consequential damages.

Defenses

SM might argue that Bright is not entitled to the tender of perfect good because it was a

contract for goods not suitable for personal, family or household purposes. However,

this argument will fail because nothing indicates that the goods were made specifically

for Bright.

Additionally, SM might say that Bright consented to the repairs or took too long to

demand refund. Also fails.

QUESTION 2: SELECTED ANSWER B

Governing law is UCC Art. 2

Where a contract is for a sale of goods, Article 2 of the UCC applies. For all other types

of contracts, the common law applies. Here, the contract was for Bright Earth Solutions

(B) to purchase a commercial tractor mower from SM. This is a contract for a sale of

goods, therefore Art. 2 of the UCC applies to the contractual analysis set out below.

1. Is B likely to prevail in its suit against SM?

The issue here is whether B has a claim against SM for breach of contract and breach

of warranty.

Valid contract

The Statute of Frauds requires that any contract for the sale of goods worth more than

$500 be in writing and signed by the party against whom it is sought to be enforced,

and UCC Article 2 requires that the essential term of quantity be included. This is not an

issue here as a contract was entered into in writing and signed by both representatives

of B and SM and it referenced "this mower", being the particular mower that B

purchased from SM. There is, thus, a valid written contract for SOF and UCC

purposes.

Breach of contract

Article 2 of the UCC requires a perfect tender where sale of goods is concerned; this

means that the seller must tender the right number of conforming goods as required

under the contract. The standard for determining "conforming goods" is that they are fit

for their ordinary purposes. Failure to delivery conforming goods entitles the buyer to

reject all the goods, accept some and reject the rest, or accept all and sue for damages.

However, Article 2 also permits a buyer to reject a good after acceptance, where there

are defects that are subsequently discovered. Acceptance of defective goods does not

preclude a buyer from subsequent rejection where (i) the defect could not have been

discovered at the time of delivery and the buyer relied on the seller's assurance that

there were no defects; or (ii) the defect was apparent but the buyer accepted in reliance

on seller's assurance that the defect would be cured.

Here, B took delivery of the mower upon signing the contract and there is nothing on

the facts to suggest that the mower was not conforming at the time of delivery.

However, B can argue that it was not possible to detect any defects at the time of

delivery because of the nature of the good (i.e. that any defects could be discovered

only after operating the mower for some time) and additionally that B relied on SM's

undertaking that the mower was "free of defects in material and workmanship at the

time of its delivery". In addition, B could argue that SM's undertaking to repair or replace

any mower or component part that failed within 1 year of delivery constituted an

assurance to cure a defect discovered after delivery. As such, B will be able to argue

that the subsequent defect constituted a breach of the perfect tender rule thereby

allowing it to remedies (discussed in part 2 below).

Breach of warranties

B may also argue that SM breached the express warranty set out in the contract.

Express warranty

An express warranty is a statement of fact, description of a good, or a sample or model

relating to the quality of the product, where such statement, description, sample or

model formed as part of the bargain into and made at such time that the buyer could

have relied on the same when entering into the bargain. Here, B will argue that the

statement in the contract where SM affirmed that the mower was "free of defects in

material and workmanship at the time of its delivery" constituted an express warranty,

that was breached when the mower subsequently broke down multiple times over the

next 6 months. It is clear that this statement constituted an express warranty. On the

other hand, SM will argue that the contract also contained a disclaimer that "there are

no warranties express or implied...in connection with the sale of this mower", which

precluded B from being able to sue on the express warranty. However, SM's argument

is likely to fail. The general rule is that it is very difficult to disclaim express warranties

because of the nature of the inconsistency between the disclaimer clause and the

express warranty, and the court is likely to construe the interpretation of both in favor of

B, the consumer who acted in reliance on the express warranty by entering into the

agreement.

As such, B will be able to sue for breach of the warranty if it can be shown that the

numerous problems experienced were a result of a defect in material and workmanship

at the time of delivery. On the facts, it is stated that the bolt holding the blade in place

broke 5 times under normal usage, the steering system was faulty, and that the gas

tank installation was defective. It will be for a trier of fact to determine if this evidence

shows that the defects existed at delivery, but on balance it seems like this is the case

here such.

Implied warranties

B may also sue for breach of implied warranties of merchantability and fitness for

particular purpose. A warranty of merchantability is provided by a commercial seller of

the goods in question and warrants that the goods are fit for their ordinary purpose. A

warranty of fitness for particular purpose can be provided by any seller and provides

that the goods are fit for the particular purpose of the buyer, where the seller knew of

the buyer's purpose and that buyer was relying on the seller to help select a suitable

good. Here, SM is a commercial seller of mowers and thus can provide both types of

implied warranties. B will argue that on the facts, the mower was not fit for ordinary

purpose (given that the blade broke down 5 times on normal use, as well as the gas

leaks and steering issues). B will also argue that it was not fit for the particular purpose

which was for B to use on customers’ lawns which required that the mowing lines be

satisfactory, since the steering system was faulty and caused unsightly and uneven

lines in mowing jobs) and that SM knew of B's particular purpose as B was an

agricultural services business.

However, SM will likely be able to succeed that the implied warranties were validly

disclaimed by the language. The rule is that a disclaimer must be fair and in

conspicuous font and writing so that it is clear to the buyer. Here, the disclaimer clause

was stated in bold and 12- point font and will likely meet this requirement. As such, B is

unlikely to succeed in arguing breach of implied warranty.

2. B's remedies

If B prevails, it might be entitled to damages or rescission, provided it can argue against

the validity of the disclaimer clause.

Validity of limitation of remedies clause:

A commercial contract may include a clause limiting the remedies available, provided

that such clause is not unconscionable. A limitation clause may not purport to limit

remedies for personal injury or operate in such a way where it limits the remedy to a

one that is essentially unworkable under the circumstances. Here, the contract seeks to

limit B's remedies to repair or replacement by SM, at its sole option, any mower or

component part. However, B can show that the mower simply could not be repaired; on

the facts, the mower was returned to SM for repairs 12 times in the first 6 months after

purchase and finally that at the beginning of the 7th month, the steering wheel came off

during a job, As such, B can argue that the limitation of remedies clause was unfair and

should not be enforceable to limit the types of remedies available to B.

Damages

As B can demonstrate breach of contract and express warranty (discussed above), B

can sue for damages, namely expectation damages, consequential damages, and any

incidental damages. The expectation damages are to place B in a place it would be in

had the contract been properly performed (i.e. receiving a mower that functions for

ordinary purposes) and would be the cost of cover or market cost of a functioning

mower. In addition, B can sue for any consequential damages (the lost $5000 in profits)

as it was reasonably foreseeable to SM that any defect in its mower would cause a loss

in business to B (being an agricultural services company) and lost profits. Finally, B can

sue for any incidental damages such as the cost of sending the mower back and forth

to SM for repair.

Rescission

B may also look to sue for rescission and obtain its money back. To succeed, B will

need to show grounds for rescission such as mistake, misrepresentation, undue

influence, duress and further that SM has no valid defenses such as laches, unclean

hands etc. Here, B may argue that there was a misrepresentation of statement by SM

as to the mower being free of defects. Misrepresentation is an untrue statement of fact

regarding the product, that the buyer was objectively justified in relying on and actually

relied on. If the statement was made intentionally to induce the buyer's reliance, then it

is intentional misrepresentation. Here, B can show that it was justified in relying on SM's

statement regarding the defect free nature of the mower and did actually do so. This

serves as grounds for rescission. In addition, SM has no valid defenses in equity such

as laches (e.g. that B did not sue within a reasonable time thereby causing prejudice to

SM) or that B had unclean hands (i.e. acted wrongfully in relation to the matter at hand).

As such, B can sue for rescission of the contract, which would entitle it to unwind the

contract as if it had not been entered into, and to obtain a refund of the purchase price

paid.

QUESTION 3

Prior to her 1990 marriage to Hal in California, Wendy helped operate an antiques and

rare book business owned by her father.

During the marriage, Wendy continued to work with her father in operating the business.

Over the years, Wendy and her father jointly operated the business and in 1995, they

signed an agreement whereby Wendy became the owner of a ½ interest in the business.

Wendy had developed an exceptional talent for buying antiques and took over that part

of the business in 1995. The business doubled in value from 1995 to 2000. In late 1999,

Wendy’s father died and by his will left his interest in the business to Wendy, including all

of the business’s real property and inventory.

Wendy and Hal separated early in 2014. They have lived separate and apart since then

and are now involved in divorce proceedings.

How should the court allocate the value of the business between Hal and Wendy?

Discuss.

Answer according to California law.

QUESTION 3: SELECTED ANSWER A

California is a community property state (CP). In a CP state, the marital economic

community begins at the time of marriage and ends with (a) separation, (b) divorce or

presumed to be CP. Income, property and debts acquired (a) prior to marriage, (b)

during marriage but pursuant to a gift or inheritance and (c) after separation or divorce

are presumed to be separate property (SP). Property acquired while the couple are

living in another state that would be CP if the couple had been living in a CP state is

called quasi-CP and is distributed according to CP principles upon divorce or the death

of a spouse.

Marriage: In California, marriage requires the consent of two individuals with the

capacity to enter into the contract of marriage, along with adherence to certain

formalities. Here, the facts indicate that that H and W married in California in 1990. We

presume that they met all of the above requirements. As the marriage took place in

California and it appears that H and W still live in California, the entirety of their marital

economic community is subject to CP principles.

Separation: In California, separation requires (1) an expression of intent by one or both

spouses to end the marital relationship and (2) action in conformity with that intent. Prior

to 2017, a valid separation ending the marital community also required that the spouses

live separate and apart. That requirement no longer holds, and this applies

retroactively. Here, the facts indicate that W and H separated early in 2014 and that

they have been living separate and apart since. Though the separate and apart element

is no longer necessary, it certainly evinces an intent to end the marital relationship.

There has therefore been a valid separation since 2014 and that is when their marital

economic community ended.

1990-1995: Prior to marriage W helped operate an antiques and rare book business

owned by her father. During the marriage, W continued to work with her father in

operating the business.

Presumptions: As noted above, income acquired during marriage is presumed to be

CP. During this period, though the business was owned by W's family, W did not own it.

Therefore, it was not W's SP business. Rather, she worked for her father and probably

derived an income from her work. W's income during this period would be CP but would

not be incorporated into the calculations further discussed below.

Distribution: As with any other income accrued during the marriage, W's income from

this period would be CP and, as such, would be split 50/50 with H upon divorce.

1995-1999: In 1995, W and her father signed an agreement whereby W became the

owner of a 1/2 interest in the business.

Presumption: Property acquired during marriage is presumed to be CP. As the 1/2

interest in the business was acquired during marriage, it is presumed to be CP.

However, it is not clear that W paid any consideration for her 1/2 interest. If she did not,

then the 1/2 interest would be considered a gift and therefore W's SP. Though the

business was SP, W's efforts invested in the business would be considered CP and

therefore the community would have an interest in the business and be allotted a

portion at divorce using either the Pereira or Van Camp formula. The following

discussion assumes that the business was SP.

Pereira Formula: The Pereira formula applies to the allotment to CP when the increase

in the value of the SP business comes from the efforts of the spouse. Here, the Pereira

formula fits because the facts indicate that W had developed an exceptional talent for

buying antiques and took over that part of the business in 1995, so her efforts probably

contributed to the subsequent increase in the value of the business.

Under the Pereira formula, the SP is calculated as (fair market value (FMV) of the

business at marriage) + [(FMV of business at marriage) * (fair rate of return) * (years of

marriage)]. Here, we do not have the numbers to do the calculation. While we know that

the value of the business doubled from 1995 to 2000, that is not necessarily reflective of

the actual fair rate of return. Note also that the years of marriage would be 1990 to

2014, at time of separation, rather than 1990 to now.

The CP is then calculated by subtracting the SP calculated above from the FMV at time

of separation.

Van Camp: The Van Camp formula applies to the allotment of CP when the increase in

the value of the business is due to reasons other than the spouse's efforts, such as

market forces or characteristics inherent in the business, rather than the efforts of the

spouse. Here, the Van Camp formula may fit because (1) the facts indicate that the

entire value of the business doubled, but we know W was only involved in 1/2, so her

father's efforts probably also contributed and (2) antiques and rare books naturally go

up in value over time.

Under the Van Camp formula, the CP is first calculated as [(FMV of spouse's efforts in

business) minus (family expenses paid from business)] multiplied by years of marriage.

Again, we do not have the numbers to do the calculation but note that the years of

marriage are 1990 to 2014.

SP is then calculated as the FMV of the business at separation minus the CP calculated

above.

If the spouse was under-compensated - that is, the salary she drew was lower than the

actual value of her work - then the court may choose to calculate CP by removing family

expenses from actual salary paid on the theory that the community has already been

compensated for the spouse's efforts.

Disposition: Assuming the 1/2 interest in the business was a gift, then the formulas

above would apply. If W paid consideration for her 1/2 interest, however, then she

would have likely used CP and therefore the 1/2 interest would be CP. This is because

the concept of tracing dictates that property takes on the character of the property used

to acquire it.

1999-2014: In late 1999, W's father died and by his will left his interest in the business

to W. Presumably this would be the book end of the business.

Presumptions: Property acquired during marriage is generally considered CP.

However, property acquired during marriage by gift or inheritance is presumed to be

SP. Here, H and W had not separated at the time W's father died. However, as W's

father left W his 1/2 interest in the business by will, the interest would be S's SP.

Disposition: As this 1/2 interest in the business was definitely SP, the formulas

outlined above would apply again to the CP allotment.

2014-2021: During this period H and W were separate, which ended the marital

economic community.

Presumptions: Property acquired after separation is presumed to be SP. Any earnings

W had from the book side of the business would then be entirely SP. If the antiques

side of the business is SP, then any earnings from that side of the business would also

be SP. If, however, W paid for that interest and used CP, then that interest would be

CP. This is because the property acquires the character of the property used to buy it;

so property acquired using CP would continue to be CP. If the antique side of the

business is CP, then the community would be entitled to allotment even after

separation. The following calculations presume that the antiques side of the business

was CP.

Reverse Pereira: As with the regular Pereira formula, the reverse Pereira formula

applies to the allotment of CP when the increase in the value of the business comes

from the efforts of the spouse. Again, the reverse Pereira formula would apply because

the facts indicate that W's knack for the antiques business contributed to the business's

earlier success.

Under the reverse Pereira formula, the CP is calculated as (FMV of the business at

separation) + [(FMV of business at separation) * (fair rate of return) * years of

separation)]. Here, we do not have the numbers to do the calculation. Note also that the

years of separation would be 2014 to 2021, or 2020 since it is so early in 2021.

The SP is then calculated by subtracting the CP calculated above from the FMV at time

of divorce.

Reverse Van Camp: As with the regular Van Camp formula, the reverse Van Camp

formula applies to the allotment of CP when the increase in the value of the business is

due to reasons other than the spouse's efforts, such as market forces or characteristics

inherent in the business, rather than the efforts of one spouse. Here, this may fit

because antiques and rare books naturally go up in value over time.

Under the Van Camp formula, the SP is first calculated as [(FMV from spouse's efforts

from business) minus (family expenses paid from business)] multiplied by years of

separation. Again, we do not have the numbers to do the calculation but note that the

years of separation are 2014 to 2021, or 2020 since it is so early in 2021.

CP is then calculated as the FMV of the business at divorce minus the SP calculated

above.

Disposition: The book side of the business, which W inherited from her father at death

is definitely SP and W will be able to keep it. It is not clear whether the antique side is

SP or CP, and the court will allocate the value of the business as discussed above. If it

is CP, there may be a question as to whether H will be able to maintain a 1/2 interest in

it (i.e., a 1/4 interest in the whole business). It is possible that he will and that W will

have to buy him out. She will be able to keep the business for herself, however, despite

the usual rule of equitable division at divorce. The court will consider that the business

is identified more with her than with H and that her means of income would be severely

affected if she lost it.

QUESTION 3: SELECTED ANSWER B

General Community Property Principles

California is a community property (CP) state. All property and earnings that are

acquired during marriage that do not come from inheritance, gift, or devise, is

considered CP. Property that a spouse acquires before marriage, after divorce or

permanent separation, or during marriage via gift, inheritance, or devise is considered

separate property (SP). Property acquired in a non-CP state that would be CP if the

spouses were living in California is considered quasi-community property (QCP) and

treated like CP upon divorce or death.

Here, Hal (H) and Wendy (W) were residents of California and married in California, so

the general CP principles of California would apply to this case.

Marital Economic Community

The marital economic community is defined as the time between the formation of a valid

marriage and ending with death, divorce or permanent separation. Property acquired

during the marital economic community is CP, as discussed above.

Here, H and W were married in 1990 and separated in early 2014. They have lived

separate in the interim and now have initiated divorce proceedings. The community

begins in 1990 when the marriage was entered into, and potentially ended in 2014 if

there is the requisite intent attached to their separation to not re-instate the marital

economic community. Seemingly their separation in 2014 was permanent because the

facts mention they lived separate and have been apart since, which has led to their

divorce proceedings. There's no other mention of them rekindling any romance in

between or making any other remedial measures to re-instate the marital economic

community, so likely the community ended in 2014 upon their permanent separation.

Thus, the community lasted between 1990 when they got married and 2014 when they

permanently separated.

VALUE OF THE BUSINESS

Character / Source of the Business

As discussed above, property acquired before marriage or during marriage through a

gift, inheritance or bequest is considered SP. Property acquired during marriage or

acquired from CP assets, is considered CP.

Here, W helped operate the antique business owned by her father before she and H got

married. However, she did not acquire the property until after they got married and she

took jointly with the operations in 1995. W would argue that the business is her SP

because the business was owned by her father and her father granted her 1/2 of the

business in 1995. There's no mention of her father granting H any stake in the business

and no mention of H even working there. Further, W would argue that the business is

hers because in 1999 when her father died, she inherited the entire business through

his will. So while she and H were married in 1999 at the time she inherited the

business, because the business was hers through inheritance and not through

purchase or any other acquisition, means that would result in it being CP, that the

business is her SP and her SP alone.

H would likely counter this and say that even though W acquired her father's interest in

the business through his will in 1999, that her becoming owner of 1/2 of the business in

1995 means that the business is a CP asset. The 1/2 interest was not a result of any

inheritance or gift, and seemingly the inheritance in the will only was to give her the

other half she didn't own already. While the 1/2 she inherited in 1999 would be her SP

because it came from an inheritance, the fact that he obtained a 1/2 ownership to the

business during marriage would result in 1/2 of the business being a CP asset.

However, the court would have to determine the exact circumstances surrounding the

1995 acquisition and whether it was a purchase with CP funds, SP funds or a gift.

There's no mention of whether W paid for this 1/2 interest or whether the business was

a gift from her father, but all the facts mention is that they "signed an agreement" where

W became 1/2 owner of the business and took a 1/2 stake. Depending on whether W

paid for this 1/2 stake and where the money came, potentially this could result in 1/2 of

the business being a CP asset. If she paid for the 1/2 interest with her earnings during

marriage, then that 1/2 stake would be a CP asset because funds earned during

marriage are a CP asset and anything bought with them would also be considered a CP

asset. If the court finds that this was a gift from her father to W, then potentially this is

an SP asset because it could be a gift in lieu of money or some other repayment that

was specifically directed at W and not at H and gifts acquired during marriage are the

SP of that spouse. While the facts are ambiguous as to what the 1/2 ownership stake

came from, W clearly owns 1/2 of the business as her own SP from the inheritance from

her father because inheritance during marriage is an SP asset.

Thus, depending on whether the court finds the 1/2 ownership interest W took in 1995

via the agreement with her father was purchased or a gift, potentially that 1/2 interest

could be a CP asset, or an SP asset. The other 1/2 interest W took in 1999 under her

father's will would be considered an SP asset because property acquired via

inheritance during marriage is an SP asset.

CP Contributions to SP Business

When one spouse owns an SP business and there are CP contributions to the

business, the CP acquires an interest in the SP business. The court has discretion to

apply one of two formulas when determining how to apportion the CP share of the

business: the Pereira formula, and the Van Camp formula.

Here, W would likely argue that the court should apply the Van Camp formula to

apportion the CP share because the increase in the business was not due to her own

work, but rather the work of her father and the inherent value of the business itself. The

business was an antique shop that also sold old rare books. Her father owned the

business and started it and even though she continued to work there, her father was

really what got the business off the ground. There's no mention of how long W's father

owned it, but potentially he was a mainstay in the community and someone that was

very valued in the community. He could have had the business for a very long time

before W began helping him out in 1990 and potentially the business was already on an

upwards trajectory before she joined the team and started helping him out. Further,

depending on where they live in California, W could also argue that the business was

successful because of the local area. Potentially people in that area were attracted to

the store because of its items and because the local population valued such a store in

their community and not because of W's own contributions to the store. Even though W

worked there, she would argue that the value of the business and the increase was due

to her father and the business that he created and not any of her own doing.

H would certainly counter this and say that the increase in the business between 1995

and 2000 was due to W's contributions. She developed "an exceptional talent for buying

antiques" and took over that part of the business in 1995. Even if the local community

valued the store, it was because of W's own contributions. She had worked at the store

for over 5 years and had been helping her father out with running the business. He

would argue that potentially she did not have this skill before they were married

because she hadn't been working there for that long, but rather developed the skill after

they were married through her continued work, and the fact that she developed it after

they got married would result in it being a CP asset. She did not come into the marriage

with this, but because of her constant work and time spent with her father she learned

these skills and trained her eye for antiquing which increased the value of the business

based on her work alone and her own time spent developing her craft. That much

experience and that much exposure contributed to her having an eye for antiquing and

for collecting valuable items and it was this eye and expertise that increased the value

of the business. Even if the 1/2 stake W acquired in 1995 was a SP interest, her own

contributions through her labor and time and expertise increased the business, so much

so that she solely took over the antiquing part of the business from her father because

she was so good in that area and had such a skill set that H would argue she

developed during the marriage meaning it is a CP asset. She was married during that

time so her labor would be a CP asset and the exceptional and business savvy labor

was the reason that the business doubled in value from 1995 to 2000 and no market

forces could have pushed that drastic increase in value.

Likely the court would apply the Pereira formula to determine the CP share of the

increase in value. While there's no mention of any outside market or economic factors

that drove the increase in the business from 1995 to 2000, seemingly W's own acquired

skill and expertise in this area had a huge impact on the business. While it is in the

court's discretion to apply either formula, likely they would apply the Pereira formula to

determine the CP share of the business.

Pereira Formula

The Pereira formula attributes the increase in value of the SP business to the labor,

skill, and work of the spouse, which is considered a CP asset. The Pereira formula is

more favorable to the CP because it views the labor and skill and work of the spouse as

the factor behind the increase and the reason the business is doing so well.

Here, as discussed above, if the court applies the Pereira formula to determine the CP

share in the SP business, it would determine that the increase in the value of the

business was due to W's own experience, skill, and mastery in the area of antiquing.

The SP would still have its ownership interest, but the CP share would likely be greater

because the Pereira formula is more favorable to the CP interests. Thus, the court

would determine the CP and SP share of the business as shown by the formula below.

Formula

Under the Pereira formula, the court determines the two shares as follows: SP = value

of business at marriage + (value of business at marriage X fair rate of return [10% in

California] X years of marriage). CP = fair market value of the business at divorce - the

SP share.

Here, there are no specific numbers to determine the value of the business when W

started working there or acquired her interest. The two were married for 24 years so

that would be applied at the end of the formula, and presumably the fair market value at

marriage versus at divorce would be different because of the increase in the business

during marriage, but without the specific monetary figures it is all speculative.

Dependent on the discussion above and whether the interest she acquired in 1995 was

an SP or a CP interest, potentially the value at marriage would be different because

those were four years apart. Without the numbers and actual concrete monetary figures

of the increase it is impossible to know the actual numerical figures associated with the

business value, but likely the CP would have a sizable stake based off of W's

contributions because her contributions seem to have drastically increased the value of

the business.

Thus, if the court applies the Pereira formula, likely the CP interest would be greater

because of Pereira's favoring of the CP interest.

Van Camp Formula

The Van Camp formula attributes the increase in the value of the business to market

forces, the economy, the inherent business value, and all other factors not related to the

hard work of the spouse. Because this formula does not consider the work of the

spouse to be the reason for the increase, this formula and approach tends to favor the

SP of the business owner spouse.

Here, if the court determines the Van Camp formula applies, it will be because the

increase in the value of the business was due to the market forces and inherent

business qualities of the business and not of W's hard work or expertise. Thus, the

court would determine the CP and SP share based on the formula as described below.

Formula

Under the Van Camp formula, the court determines the shares as follows: CP =

(reasonable rate of services - annual family expenses) X years of marriage. SP = fair

market value of the business at divorce - CP share.

Here, as discussed above, there are no corresponding monetary values to show the

actual expenditures. Likely W's reasonable rate of services was substantial because

she seemingly was the sole operator of the business outside of her father and was the

only person running it as there is no mention of any other employees or any other

helpers, especially after her father died. There's also no mention of the family expenses

or no other mention of them having any children, but depending on how much they

spent annually on the family expenses, this would be factored in. Further, they were

together for 24 years, so the interest would be determined by multiplying that figure at

the end. Presumably the fair market value at divorce would be substantial because the

business doubled in value from 1995 and 2000 and there's no mention of any other

decrease in value. Without any other facts to support the numbers it is pure speculation,

but likely the SP would have a more favorable interest here because the Van Camp

formula more heavily favors the SP interest.

Conclusion

Likely the court would find the Pereira formula to be more appropriate for determining

the SP and CP interest of the business, but without any concrete monetary values it is

impossible to determine the actual percentage of both interests.

Goodwill of CP Business

Goodwill of a CP business refers to its community reputation and future business

prospects and earning potential. If the goodwill of the business is earned during

marriage, then it will be a CP asset.

Here, potentially the goodwill of the business could be a CP asset. If the court finds

that W's acquisition of the business in 1995 was a CP acquisition and that 1/2 was a CP

asset, then any other increase in goodwill from the business from there on out could be

a CP asset as well. The business seemed to be doing well, saying it increased in value

substantially from 1995 to 2000 and W had seemed to develop quite a specialty in that

area. W's own expertise and the business's success would likely result in high projected

future earnings and a good reputation throughout the community. If this comes from

W's own hard work and labor, which is a CP asset, then the resulting growth of the

goodwill of the business would also be a CP asset. There's no mention of any future

contracts or earnings or deals that the business has lined up, but if the business is

successful in the community which it seemingly is, then the goodwill and local good

reputation of the business would be a CP asset and the court would have to attribute a

value to this in order to distribute it evenly at divorce.

Thus, the goodwill of the business could also be factored into its value and be

distributed at divorce between H and W if the court finds that the goodwill comes from

CP contributions.

Distribution

W owns at least 1/2 of the business as her own SP from when her father devised it to

her in his will. An increase in the business and its value would at least be half of her

own SP as attributed to that 1/2 of the business. Depending on whether the court

determines the 1995 acquisition of the other 1/2 was a purchase with CP funds or an

SP acquisition through a gift or other SP funds purchased, then potentially 1/2 of the

business is CP or SP. Further, the CP will have an interest in the SP business and its

increase because of W's work there while they were married. The court will likely apply

the Pereira formula to determine this interest because of the mention of W's expertise

and growing skill in antiquing. However, the court has the discretion to apply either the

Van Camp or Pereira formulas and the resulting CP or SP share will be different

depending on which formula is applied. Further any earnings W had from her time at

the business while married would be CP assets.

QUESTION 4

Linda Lawyer is just starting out in practice. She arranges with Chiro, a chiropractor, to

give Linda’s name to his patients who have been in car accidents or falls. When Linda

recovers money in contingent-fee lawsuits for Chiro’s patients, she gives Chiro a gift,

which they have agreed will be 5% of Linda’s fee. If Linda recovers nothing, Chiro receives

no gift. They also form a partnership, in which Chiro’s services are described as

“marketing.”

Pete is one of Chiro’s chiropractic partners. Chiro sends Pete to Linda because Pete is

seeking a divorce from his wife Alice.

Pete tells Linda he can never forgive Alice because she was unfaithful. Pete tells Linda

that he’s having money problems and asks that she take the case on a contingency basis.

Linda tells him she’ll consider it if he’ll have drinks with her. Pete feels he has little choice,

and goes out with her. Linda initiates a sexual relationship with Pete, and agrees to take

the case. Linda is increasingly distracted from Pete’s case by her desire to spend time

with him, sometimes filing papers hurriedly and narrowly avoiding deadlines.

Tom, Alice’s divorce lawyer, calls Linda one day and says, “I know you’re having sex with

Pete. Either you settle this case cheaply, or I’ll report you to the Bar.” Linda decides to

beat Tom at his own game and, without telling him, calls the Bar herself and reports his

threat.

1. What ethical violations, if any, has Linda committed with respect to her:

a. Financial arrangement with Chiro? Discuss.

b. Partnership with Chiro? Discuss.

c. Relationship with Pete? Discuss.

d. Accepting Pete’s case on a contingency basis? Discuss.

2. What ethical violations, if any, has Tom committed? Discuss.

Answer according to California and ABA authorities.

QUESTION 4: SELECTED ANSWER A

Q1. What ethical violations, if any, has Linda committed with respect to her:

a. Financial arrangement with Chiro?

Fee for referral

Under ABA and California rules, a lawyer may not arrange referral agreements with

non-lawyers for a fee unless it is a qualified reciprocal referral service.

Here, Linda made an arrangement with Chiro, a chiropractor who gives Linda names of

his patients who have been in car accidents. This is not a qualified referral service and

it involves procuring clients from a chiropractor who would see patients who come

following car accidents. Their names would then be given to Linda who would then

presumably contact the clients.

Thus, Linda violated the rules by engaging a non-qualified referral arrangement.

Gifts

Under ABA rules, lawyers are not permitted to solicit substantial gifts. Under California

rules, gifts for past referrals are permitted as long as there is an understanding that the

gift is not a consideration for future referrals and the gift is "fair".

Here, Linda gives the gift of 5% for the names. They do have an understanding that

Chiro will continue to receive "gifts" if he keeps giving her name and she recovers fees

from those representations. Thus, the arrangement with "gift" is prohibited under

California rules.

Solicitation

Under ABA rules, solicitation, whether personally or through an agent, is prohibited.

Solicitation is direct communication with a person in order to gain representation for a

financial gain. Under California rules, direct solicitations in hospitals and medical

facilities are presumed unethical.

Here, Chiro is referring the clients to Linda. In effect, Linda is soliciting injured clients

directly after she gets their names from Chiro, knowing that they might need a lawyer

following an accident for a financial gain of representing them in a case for a fee. This is

especially egregious as recognized by California rules because the clients are

vulnerable in these situations when they were involved in a car accident and are easily

manipulated, especially when the clients are not aware of the arrangements.

Thus, Linda violates both ABA and California rules by soliciting these patients.

b. Partnership with Chiro?

Partnership with a non-lawyer

Under both ABA and California rules, a partnership with a non-lawyer is strictly

prohibited to avoid any improper influence on a lawyer.

Here, Linda has formed some sort of partnership with Chiro, who is a non-lawyer that

they call "marketing" whereby Chiro would provide Linda with the names of the patients

that Linda would then contact in order to win representing them. Because partnership

would involve both partners having a say in a strategy of the law firm, influencing

strategic and legal decisions and otherwise influencing legal services, such

arrangements are violative of ethical rules.

Thus, Linda violated both ABA and California rules by engaging in such partnership.

Sharing fees with non-lawyers

Under both ABA and California rules, sharing fees with non-lawyers is prohibited,

unless it is for employees within a firm as part of a compensation plan.

Here, as Linda is sharing a fee with Chiro, a non-lawyer, whereby he acquires 5% of the

fee for giving her names of the clients. Because Chiro is not an employee of Linda and

it's not part of a compensation plan and is otherwise for an improper purpose, such fee

sharing is prohibited under both ABA and California rules.

Thus, Linda violated both ABA and California rules by sharing fees in this "partnership".

c. Relationship with Pete?

Sexual relations with a client

Under ABA rules, sexual relations with a client are prohibited, unless they pre-date the

lawyer-client relationship. Under California rules, lawyer is prohibited from coercing or

otherwise unduly influencing a client into sexual relations.

Here, Linda started dating Pete after she took him on as a client. Their relationship

started at the same time and did not pre-date the lawyer-client relationship. Additionally,

Pete felt like he "had no choice" indicating that there was a coercion and the

relationship was not entirely voluntary. This is especially egregious because she knew

that Pete and Alice were divorcing, and he would be in a vulnerable situation from his

wife being unfaithful. These circumstances in total show that sexual relations resulted

from an improper influence and coercion.

Thus, under both ABA and California rules, sexual relations with Pete was a violation of

ethical duties by Linda.

Competence

Under both ABA and California rules, a lawyer must represent a client and act with a

skill, effort, preparation and diligence of a reasonable attorney in the like

circumstances. If the lawyer cannot competently represent a client, s/he must 1)

withdraw from representation, 2) acquire knowledge and skill before performance

arrives, or 3) associate him/herself with a competent lawyer or seek advice from an

experienced lawyer.

Here, Linda let her relations with Pete affect her performance as an attorney. She was

distracted by Pete and because she wanted to spend more time with him, she

frequently underperformed, filing papers in a hurry and only narrowly avoiding

deadlines. That would be below what a reasonable attorney would do under the

circumstances. Thus, Linda violated her duty of competently representing a client.

Additionally, she likely should not have taken the case in the first place. She is a new

attorney, she is taking accident cases and Pete's case was a divorce case. Ordinarily, it

would not be a violation if she acquired the knowledge and expertise. However, she is

frequently missing deadlines and otherwise not engaging in an exemplary competence.

Thus, Linda violated her duty of competent representation under both California and

ABA rules.

Current conflict

Under ABA rules, a current conflict exists if 1) representation is adverse to one of the

clients, or 2) representation is materially limited by responsibilities to other clients,

third parties, or lawyer's own interests. Lawyer may still continue to represent despite

a conflict, if 1) the lawyer reasonably believes that s/he may still competently represent

a client, 2) obtains written consent from a client. California rules are similar but do not

have a "reasonableness" requirement.

Here, Linda's own interest in sexual relations with Pete are likely in conflict with Pete's

divorce case. Her own interest in him is likely to be in conflict with a representation in a

divorce case where she would have to be impartial. She has a personal interest in the

case, creating a conflict.

Thus, Linda likely violated her duty to Pete under both California and ABA rules.

d. Accepting Pete's case on a contingency basis?

Contingency fee agreements

Contingency fee agreements are agreements whereby a lawyer recovers a percentage

fee of the recovered amount. Generally, contingency fee agreements are permitted.

They must be in writing and clearly indicating how the fee is calculated. However,

contingency fees are prohibited in domestic relations cases for policy reasons

because there is a danger that such agreements would promote divorces. There are

certain exceptions such as recovering alimony judgment due.

Here, Linda said that he would take a case on a contingency basis because Pete is

having money problems. Because the case involves divorce, such arrangement is

prohibited.

Thus, Linda violated ethical rules under both ABA and California rules.

Q2. What ethical violations, if any, has Tom committed?

Threatening with administrative action to gain advantage in a current litigation

Under California rules, threatening with administrative action or any other civil action or

prosecution to gain advantage in a current litigation is prohibited. Under ABA there are

no such rules.

Here, Tom threatened that he would report Linda to the Bar about her relations with

Pete in order to gain advantage in the current divorce proceedings where Linda is an

adversary attorney. Such threat is strictly prohibited under California rules.

Thus, Tom violated California rules by making such threats.

Reporting violations of the rules to the authorities

Under ABA, a lawyer must report violations of the ethical rules. Under California, there

is no such reporting requirement. However, under California rules, the lawyer

him/herself must report to the bar of any own professional misconduct.

Here, it would be a violation for Tom not to report Linda's misconduct to the bar under

the ABA rules but not under California rules.

Thus, Tom violated ABA rules by not reporting the misconduct.

QUESTION 4: SELECTED ANSWER B

1. Ethical Violations of Linda

In California, lawyers are obligated to comply with the ethical rules promulgated by the

Rules of Professional Conduct (RPC) and the State Bar Act (SBA). The ABA also

promulgates the Model Rules (MR) which CA will take under advisement in conjunction

with the CA rules.

a. Financial arrangement with Chiro

Referral fees

Under the MR, lawyers are prohibited from engaging in exclusive referral arrangements

that result in a pecuniary gain for the lawyer, absent participation in an approved

attorney referral program. Here, L has made an agreement with C to give L's name to

his patients when they suffer personal injuries and when L recovers for these patients,

she will pay him a gift of 5% of Linda's fees. Under the MR, referral fees are strictly

prohibited and as such, L is in violation of the rules regarding referral fees as they are

prohibited under the MR.

Under the CA rules, lawyers may not engage in straight referral fee arrangements;

however, they may provide a gift as a gesture of thanks when a referral is

provided. The gift must be given as purely a gesture of thanks and not for the purpose

of a quid pro quo or for securing future referrals. Here, L has arranged with C to give

him a gift that amounts to 5% of L's fee in contingent fee lawsuits. Even though they

call this a gift, it is clearly not a gift. There is a clear quid pro quo arrangement whereby

L is paying C for referring business. L is likely to argue this as well. She will argue that

it is a gift pure and simple and she has called it as such, but this argument will not

succeed. A referral fee disguised as a gift is not permitted under the CA rules. As

such, L has violated the CA ethical rules by agreeing to pay a referral fee to C in

exchange for his referral of clients.

Additionally, any referrals cannot be exclusive. It is not clear that the arrangement is

exclusive, but to the extent that it is, it is not permitted. L may also attempt to argue

that there is no quid pro quo because she is not offering to send patients to C, but this

will fail because the exchange of money for the referral of patients is the quid pro quo

and thus, is a violation of the rules.

Fee Splitting

Under the MR and the CA rules, lawyers are strictly prohibited from splitting fees with

non- lawyers. The exception to this rule is where fees are paid to non- lawyers for

compensation, as retirement benefits, and the like. Here, L is purporting to split the

fees she earns as a lawyer with a non- lawyer, the chiropractor, C. This is strictly

prohibited under the MR and the CA rules. L will likely attempt to argue that she is

permitted to compensate staff for wages and earnings resulting from the work they

perform on behalf of her and in assisting her in her cases, but this argument will fail. C

is a chiropractor and even though it seems that L and P have agreed to form a

partnership, it does not change the fact that lawyers are not permitted to split fees with

non- lawyers.

Solicitation

Under the MR and CA rules, solicitation is prohibited when it is in person or live direct

telephone or internet chat in nature. Here, the facts indicate that C's services are

described as marketing services, meaning that C is likely conducting in person

solicitation of L's services as a result of the in person patients C meets as part of his job

as a chiropractor. While L might argue that C is merely a conduit and there is no

guarantee that C's clients will turn to L for legal services, C will be deemed to be

engaging in solicitations on L's behalf. As such, this marketing/solicitation agreement

will be another of L's violations of ethical rules.

b. Partnership with Chiro

Formation of Law Partnership

Under the MR and CA rules, lawyers are not permitted to form law partnerships with

non-lawyers. Here, the facts indicate that L and C formed a partnership and C's

services are described as marketing. While law firms do typically have marketing

departments whereby they market themselves outside of the firm, a law partnership

between a lawyer and a non-lawyer is strictly prohibited.

Here, the facts indicate that C is a chiropractor, not a lawyer. There is no information to

suggest that C is a lawyer and as such, the joining of L and C as partners as a lawyer

and marketer is a violation of the ethical rules under both MR and CA analyses.

Splitting Fees

As discussed above, L and P's partnership, which by implication means they are

sharing in the profits and losses of their respective businesses, is a violation of the fee

splitting rules promulgated by the CA rules and the MR. C and L's partnership is

improper between a lawyer, and also due to the fact that C is sharing in the profits of L's

cases potentially, L's partnership arrangement is a violation of the ethical rules under

both CA and MR.

c. Relationship with Pete

Duty of Loyalty

A lawyer has a duty of loyalty to act in the best interests of their clients and exercise

independent professional judgment. When a personal conflict of a lawyer may

materially limit their ability to represent a client to the best of their ability, they may be in

violation of their duty of loyalty. A lawyer may represent a client when there is a

personal conflict if he or she believes objectively and subjectively that he can provide

representation that is not limited, it is not prohibited by law, it is not in violation of the

ethical rules, and the client gives informed written consent (CA) or informed consent,

confirmed in writing (MR). Here, while it is highly unlikely that a lawyer engaged in

sexual relationship with a client can give objectively solid representation, this

representation is likely in violation of the ethical rules that prohibit sexual relationships

with clients.

Sexual Relationships with Clients

Under both the MR and CA rules, lawyers are prohibited in engaging in sexual

relationships with their clients, unless the sexual relationship existed prior to the

attorney client relationship. California also has a specific exclusion that applies to

lawyers who are married. The conflict of interest that arises due to a sexual relationship

with a client is not waivable.

Here, the facts indicate that L met P through a referral from C. As such, P and L did not

have a relationship prior to commencing their relationship as attorney and client. They

clearly were not married; in fact, L was hired by P to help him secure a divorce and as

such, the married couple exception is not applicable. Additionally, L may argue that P

will agree to sign a waiver and indicate that he is fine with the concurrent sexual

relationship and representation, but this prohibition cannot be waived by client

consent. As such, L will be in violation of the ethical rules by engaging in a sexual

relationship with her client that began after the representation had started.

Start of Attorney Client Relationship

The attorney client relationship begins when the client reasonably believes that the

attorney client relationship begins. Attorneys and clients may meet prior to deciding to

formally engage as attorney and client, but to the extent that the relationship is

confirmed, the conversations that took place prior to a formal engagement will likely be

deemed to comprise the start of the attorney client relationship.

Here, the facts indicate that P confided in her regarding his relationship with his former

spouse, A. This initial meeting whereby P clearly gave L confidential information and

conducted himself such that the relationship was likely to have started, would probably

be deemed to have begun the attorney client relationship between L and P. Although L

states that she'll consider the case if he has drinks with her, P's actions indicate that he

believed the attorney client relationship had already begun. After the drinks outing, L

initiated a sexual relationship with P, who at that point, after drinks and an initial

consultation, likely believed he was her client, even though those acts occurred before

she agreed to take the case.

L will attempt to argue that she began her relationship with P prior to the attorney client

relationship, but this argument will likely fail. The facts seem to indicate that P likely

believed the relationship had already begun and, thus, the exception for preexisting

sexual relationships is likely not applicable. As such, L likely abused her position of

power and is in violation of the ethical rules to not engage in a sexual relationship with a

client.

Even if L was successful in arguing that the attorney client relationship began after the

sexual relationship, there are no facts indicating that P, as the client, disclosed in writing

that he was comfortable to continue with the representation in light of their sexual

relationship. As such, L is likely in violation of the ethical rules.

Duty to Decline Representation

A lawyer is under a duty to decline representation if the representation would lead to a

violation of the ethical rules of conduct. Here, by representing P, a client L is in a

sexual relationship with, L is violating the rules of professional conduct under MR and

CA principles as discussed above. As such, L is under an obligation to decline

representation in accordance with the expected violation of ethical rules. L is in

violation of her duty to decline representation when she is in a sexual relationship with

P before, in her mind, she formally undertakes the representation. She should not have

undertaken the representation of P and has violated her ethical duty by doing so.

d. Accepting Pete's case on contingency basis

Interest in Cases

Under the MR and CA rules, an attorney may only obtain a financial interest in a case to

the extent that it doesn't involve criminal or divorce matters. Here, the case is a divorce

matter and this i [sic]

Contingency Fee Arrangements

Under the MR and CA rules, contingency fee arrangements are permissible so long as

they are not unreasonable or unconscionable and they are not for compensation related

to criminal cases or conditioned upon fees that would be awarded in securing a

divorce. To be valid in CA, a contingency fee arrangement must be in writing, must

include the duties and responsibilities of the lawyer and the client, must set forth the

details regarding the calculation of the fee, and the fee must be reasonable. Here, L

has agreed to take P's divorce case on a contingency fee basis and as such, this is a

violation of the MR and CA rules. P's case is a divorce case and L is clearly working to

secure a favorable divorce settlement.

L might argue that P having money problems and as such, she agreed to take on his

case on a contingency fee basis to help him, but under CA rules, this is not

permissible. Under CA rules, lawyers may not advance costs or fees. As L has

engaged in a contingency fee agreement for P's divorce, this is a violation of both CA

and MR.

Duty of Competence

Under the MR, a lawyer is under a duty to represent a client with the appropriate

knowledge, skill, and experience such that they can provide the client with competent

representation. A lawyer may become competent by putting in the time necessary to

gain competence or by associating with a competent lawyer. In CA, a lawyer must not

knowingly, recklessly, or intentionally fail to represent their client with

competence. Here, all of the other relationship issues aside, it is necessary that a

lawyer be competent in the representation of the client. Here, the facts indicate that L is

just starting out in practice and she seems to have perhaps some experience in the field

of personal injury. She agreed to take on P's case for a divorce and it is not clear that

she has any experience in this field. The facts are silent as to whether she had

undertaken any steps to gain competence in the field of divorce law and whether she

has associated with an experienced lawyer. Unless L becomes competent in this field

or associates herself with a competent lawyer in this field, she will be in violation of her

duty of competence to P under both MR and CA rules. Additionally, L is being

distracted by her relationship with P, which means she is not providing the most

competent representation possible. She clearly is not undertaking time and efforts

necessary to competently represent P.

L might argue that P doesn't mind and will waive her incompetence, but unfortunately,

waiver of competence is not permitted under either CA rules or MR. L has clearly

violated the duty of competence to her client, P.

Duty of Diligence

Under the MR, a lawyer is obligated to perform their duties in a diligent and timely

manner such that the lawyer is a zealous advocate for the client. Under CA rules, a

lawyer is obligated to not knowingly, recklessly, or intentionally fail to act with

diligence. Here, the facts indicate that L is increasingly distracted by her desire to

spend time with P and files papers hurriedly and narrowly avoiding deadlines. Due to

her inability to act as a zealous advocate for P, filing his papers in a concerted manner

and giving his case the appropriate time needed to ensure he is adequately

represented, L is breaching her duty of diligence under both the MR and CA rules.

2. Ethical violations of Tom

Duty Not to Threaten

In CA, lawyers are not permitted to threaten opposing parties or other clients with a

claim that lacks merit to gain some kind of strategic advantage. Here, T, who is A's

divorce lawyer, has called L and threatened to report her for having sex with her client,

P. This is forbidden under the ethical rules as it is clearly based on T's statements that

he is intending to use this information to induce L to convince her client that he should

settle the case. As such, T is in violation of his ethical duty not to threaten with the

prospect of influencing the result of a case.

T will likely argue that he is threatening L with a meritorious breach of duty, L's personal

relationship with P that she has engaged in with her client. And while this may be true,

it is an inappropriate use of the information as it is clearly being used to threaten L and

P regarding the outcome of the case. As such, T has violated his ethical duties by

threatening L.

Duty to Report

Under the MR, lawyers are under a duty to report misconduct of other lawyers when it

pertains to matters of clear and weighty importance, like truthfulness or honesty, that

would impact a lawyer's ability to practice law. Under the CA rules, there is no such

duty to report misconduct of others. Rather, there is a duty to self-report

conduct. Here, under a MR analysis, it must be determined whether L's relationship

with T is a matter of clear and weighty importance that weighs on L's ability to practice

law. While it is certainly a violation of ethical duties for L to engage in a sexual

relationship with her client, as discussed above, she will likely argue that it does not in

any way relate to her ability to practice law or her truthfulness or honesty. T will likely

argue that any violation of the ethical rules is of clear and weighty importance and L's

behaviors are report worthy. It is possible that under the MR, T violated his duty to

report by not reporting L's misconduct to the state bar.

In CA, as discussed above, only lawyers have a duty to self -report their ethical

misgivings. As such, under CA law, T is not under a duty to report L's relationship with

QUESTION 5

Ed owned a parcel of land on the north side of a rural highway. A lane connected the

highway to the small country inn Ed operated on the land. Ten years ago, Ed entered into

a signed written agreement conveying a right-of-way easement over the lane to Fran, his

neighbor north of his parcel. Fran operated a commercial farm with a small bunkhouse

for farm workers on her land. She often used Ed’s lane to access the farm and bunkhouse

from the highway.

Recently, Fran announced that she was converting her farm into a 50-lot residential

subdivision and the bunkhouse to a computer server center. She informed Ed that she

wanted to run new electric lines and a fiber optic cable along the lane.

Fifteen years ago, Ed and Gloria, his then-neighbor on the south side of the highway, had

entered into a signed written agreement in which Gloria covenanted that she and her

successors in interest would use her property only as a commercial organic garden and,

in exchange, Ed would purchase produce from Gloria for use in his country inn. Soon

thereafter, Gloria sold her land to Henry. Ed continued to buy produce from Henry.

Recently, Henry informed Ed that the more intense development Fran had planned for

her parcel and the increased traffic along the highway justified the conversion of Henry’s

garden into a combination truck stop and diner.

Ed objected to Fran’s and Henry’s intended changes and decided to sue both of them to

enforce his rights.

1. What rights and interests do Ed and Fran each have in the lane, and may Fran, over

Ed’s objection, carry out her plans for the lane? Discuss.

2. What rights and interests do Ed and Henry each have in the garden property, and may

Henry, over Ed’s objection, carry out his plans for that property? Discuss.

QUESTION 5: SELECTED ANSWER A

Easements

An easement is a property right that grants the use of land to someone who does not

otherwise own the property. It can either be tied to anther parcel of land (appurtenant)

or be tied to the person who has the easement (in gross). Typically, easements are

appurtenant, but it does not appear to matter for the controversy here.

Ten years ago, Ed and Fran entered into an agreement for an express

easement. Fran's property benefited from the easement, so it is the dominant estate,

while Ed's was burdened, so he has the servient estate. This was a signed document,

so it appears that it has satisfied the requirement that it comply with the Statute of

Frauds. There is a valid express easement.

With that easement, Fran has the right to use the lane as she has been doing for the

past ten years (as they agreed). She also has the right to make minor changes to her

use so long as it is reasonable under the circumstances. Her right to use the lane is not

exclusive (Ed can use it too). And Fran has the obligation to pay or make repairs

necessary to the easement.

Change in use

When easements are established, they are typically limited to the use that was agreed

upon. Establishing the use of the lane does not give Fran the absolute right to use it

however she sees fit. A court will judge whether a change in use of an easement is

allowable based on a test of reasonableness.

Fran says that she needs to run new electric lines and a fiber optic cable along the lane

because she is converting her farm into a 50-lot residential subdivision. While needing

the additions to the lane, given the changes to the property she is making, is

reasonable for Fran, the court will question whether it is a reasonable accommodation

based upon the agreement that was made between the parties.

Given these circumstances, it does not appear to be reasonable. This is transforming

the use of the easement into something it never was before. Before it was used to

access the small farm and bunkhouse from the highway. Now Fran wants to install

significant electrical infrastructure. Importantly, this is inconsistent with how Ed, one of

the signatories to the easement, uses his land. He runs a small country inn. While

Fran's old farm and bunkhouse, along with a path used to reach it, did not affect Ed's

enjoyment of his land, his inn will be materially hurt if he is forced to place cables and

electric lines along the path. Ed does not have a right to tell Fran what she does with

her property (changing the farm and bunkhouse into large residential lots), but he will

convince the court that her attempt to add the lines (and potentially the cable, although

it may be allowed if the court believes it can be underground and not an eyesore,

resulting in minimal harm to Ed) is not reasonable under the circumstances.

Ed will be able to enforce his rights to maintain the easement as to its current use with

Fran.

Real Covenants

Real covenants occur when owners of property covenant to engage or refrain from

certain behaviors with their property regarding one another. That is what appeared to

happen between Ed and Gloria 15 years ago. Here, Ed now seeks to enforce the rights

under the covenant to prevent Henry, a successor in interest from Gloria, from changing

his land into a truck stop and diner, in violation of the agreement Ed had struck with

Gloria.

While Ed could have simply enforced his contractual rights with Gloria, since Henry is

not a party to that contract, Ed will try to enforce his rights under a real covenant. In

order to enforce the burden of a covenant you must show that there is privity, intent for

the covenant to run with the land to successors in interest, notice, the covenant touches

and concerns the land, and that it complies with the Statute of Frauds. I will address

each below.

Privity

While for the benefit to run with the land in a real covenant, it only requires minimal

vertical privity, for the burden to run with the land, there must be horizontal and

complete horizontal privity. Here, the burden is running because it is Ed who is trying to

enforce the rights, or burden, under the real covenant on Henry, who was not a party to

the original contract (and therefore is only subject to the covenant if it runs with the

land).

Horizontal privity occurs when the covenant was involved in the actual establishment of

the horizontal transaction of the real property between the landowners. A common way

to see if this is the case is to see if the covenant is in the deed. Here, Ed and Gloria

simply entered into an agreement to use their property in specific ways, without the

required transaction relating to the land. Therefore, the requirement for horizontal

privity is not met.

Complete vertical privity is also required to enforce the burden of a real

covenant. Complete vertical privity means that the entire property interest, nothing

short of that, must be passed along to the successor in interest against whom the

burden is sought to be enforced. Here, it appears that Gloria sold her entire interest, so

vertical privity is met.

While complete vertical privity exists, horizontal privity does not. Therefore, the

requirement of privity has not been met.

Intent

It must be the intent of the parties to the contract that the covenant run with the

land. Here, the facts state that the agreement stated the covenant applied to Gloria and

her successors in interest. This is sufficient evidence to show that the requirement of

intent is met.

Notice

A purchaser of land, such as Henry, must be on notice that the covenant exists as well,

or else it will not be enforceable. Here, the facts are unclear. On one hand, they state

that Ed did continue to buy fruit from Henry and Henry informed Ed, giving him a

chance to evaluate his legal obligations, before going ahead with the change. On the

other, Henry may have simply been giving a kind of heads up to Ed, and Ed's actions

do not serve as evidence to what Henry knew. These facts do not cut one way or the

other definitively, but it seems likely that Henry was indeed aware of the agreement

between Gloria and Ed.

The requirement of notice is met.

Touch and Concern

Real covenants must also touch and concern the land. That means that each party

enters into the agreement to benefit their land, rather than entering into unrelated

contractual relations regarding personal conduct that have nothing to do with the

property. Here, Ed benefits from having a consistent supplier of produce to serve his

country in, while Gloria benefits by having a consistent buyer of goods for her

business. These are both tied to the pieces of property.

The touch and concern requirement is met.

Statute of Frauds

As will all contracts regarding real property, the contract must comply with the Statute of

Frauds. Here, the facts state that they entered into a signed written agreement,

demonstrating compliance with the Statute of Frauds.

Conclusion re Real Covenant

As the above demonstrates, Ed has satisfied the requirements of intent, notice, touch

and concern, and Statute of Frauds that are necessary to enforce his rights against

Henry. However, he has fallen short of establishing the final prong of privity necessary,

meaning he will not be able to enforce his rights as a real covenant. However, the

remedy available when enforcing a real covenant is damages. Ed appears to want to

maintain the status quo, meaning he may have another option.

Equitable Servitude

An equitable servitude is similar to a real covenant but has two important

differences. First, while it requires a showing on intent, notice, touch and concern, and

compliance with the Statute of Frauds (things Ed has shown), it does not require

privity. Privity is the one issue Ed was missing, meaning that he will be able to enforce

his rights under an equitable servitude.

Second, while damages are not the available remedy under an equitable servitude, an

injunction is. Here, Ed objects to Henry's change, and an injunction preventing Henry

from changing the land from its use as an organic garden is exactly what he

wants. Therefore, Ed will be able to prevent Henry from carrying out his plans for the

property.

Changed Circumstances Doctrine

Henry may counter that he should not have to abide by the contract because of the

changed circumstances doctrine. This applies in situations where there have been

drastic changes to the land and the surroundings such that it makes it unreasonable to

comply with the former restrictions placed by covenants/equitable servitudes/implied

reciprocal servitudes. However, this is a very high bar to establish. The facts do not

suggest that it is infeasible, or even close to it, for him to continue operating as a

commercial organic garden. Rather, it appears that due to external factors, he may

have a better commercial option if he switches to being a truck stop and diner. The

existence of a better commercial opportunity on its own is not sufficient to release

Henry from his legal obligation.

Ed will still be able to enforce his rights via injunction under the equitable servitude.

QUESTION 5: SELECTED ANSWER B

Easements

Express Easement

An easement is the right to enter the property for a particular purpose, but it does not

grant any right of possession or enjoyment in the land.

An express easement is an easement given in writing signed by the party to be charged

in order to satisfy the Statute of Frauds.

Here, Ed gave signed written agreement to Fran over the lane going to the highway.

Therefore, this was a valid express easement.

Termination of An Easement

Easements are presumed to last forever. However, they can be terminated by a writing,

oral statement, and act of abandonment, selling of the servient estate to a bona fide

purchaser without notice, or merging of the dominant and servient estate (the benefited

and burdened estate, respectively).

Here, there is no indication that there has been any attempt to terminate this express

easement. Fran did not say or write that she was abandoning the easement and Ed (the

servient owner) has not sold his land.

Therefore, Fran will successfully argue that the easement is still valid.

Use of an Easement -- Surcharging the Easement

An easement can be used in a reasonable way for the purpose that it has been given. If

the dominant estate owner exceeds the reasonable use of the easement and thus

surcharges the easement, the servient estate holder can sue to enforce an injunction

and prevent the use beyond what is reasonable.

Additionally, the user of the easement can do what is reasonably necessary for the

maintenance of the easement even if it burdens the servient estate owner.

Here, Ed will argue that he gave Fran this right of way easement so she could access

her farm and bunkhouse from the highway, not to run electrical lines and cables across

it. Therefore, she is surcharging the easement by going beyond the scope of its use.

Additionally, these additions of cables are not maintenance of the easement, that would

be adding something to the easement.

Here, Fran will argue that the right of way easement was not conditioned on the fact

that she continue to use the property as a farm and bunkhouse. Therefore, running the

cables along the lane is now reasonable for the use of her property and thus the

easement should still apply to it.

Here, the court will likely find that the right of way express easement was intended for

the use of Fran having access to her property, not to run lines and cables across it or

along it. Therefore, by wanting to install cables along the lane, Fran is exceeding the

reasonable use of the easement. Therefore, Ed can likely get an injunction to prevent

Fran from carrying out her plans with the lane.

Covenants and Servitudes

A covenant or servitude is a condition on the use of land. A covenant is when the

person seeking to enforce the covenant is seeking damages. An equitable servitude is

when they are seeking an injunction.

Here, Ed and Gloria entered into an agreement when Gloria covenanted that she and

her successors would use the property as a garden and Ed would purchase produce

from her in exchange. However, Gloria sold the land to Henry, but Ed continued to be

able to buy produce from Henry.

Now, Henry wants to get out of this covenant.

Covenants

Burden to Run

For there to be a valid covenant to enforce for damages the subsequent owner of the

burdened estate must have 1) notice 2) in writing 3) horizontal privity 4) vertical privity

5) intent 6) and the covenant must touch and concern the land.

Notice

The owner must have notice (actual, constructive, or inquiry).

--Actual

Actual means that the new owner has actual knowledge of the covenant at the time of

conveyance.

Here, it appears that Henry has actual knowledge of the covenant because he

continued to sell Ed produce after he bought the land and there are no facts suggesting

that he learned this later. It is likely that Gloria informed Henry of this in the sale of the

land considering her contract with Ed that her successors in interest would also be

bound.

--Constructive

Constructive notice means that the covenant is recorded in the chain of title.

There is no indication here that anything is in the title to the property because this

covenant was just in a signed written agreement, not the deed itself.

--Inquiry

Inquiry notice is when there are facts or circumstances that would lead a reasonable

person to further inquire about the property.

Here, Henry is selling product to Ed, so he seems to be aware of the covenant and thus

inquiry notices doesn't apply.

Thus, Henry had actual notice of the covenant.

Writing

Here, the covenant was set out in a signed writing.

Horizontal Privity

Horizontal privity means that the covenant was set out in the conveyance of the land

between the original grantor and grantee.

Here, there is no indication of that.

Facts indicate that Ed and Gloria were merely neighbors who signed a written

agreement. Thus, this was not a covenant set out between a grantor and grantee, but

just a contract between to neighbors, so there is no horizontal privity.

Vertical Privity

Vertical privity means that the new owner owns the same interest as the original owner.

Here, it appears that Gloria sold all of her land to Henry and there are no facts to the

contrary.

Thus, Henry likely has the same interest in the property that Gloria did and therefore

there is vertical privity.

Intent

Intent means that there is an intent that the subject matter of the covenant be affected.

Here, there was clearly an intent for Gloria/Henry's land to be subject to this produce

covenant that limited her use to a garden in exchange for Ed buying her produce

because they explicitly put that in the written agreement.

Touch and Concern

Touch and concern means the covenant is valuable to the benefitted party.

Here, the covenant is valuable to Ed, who is the benefitted party because, he gets to

buy organic produce for his country inn which he runs on his property. Additionally, it

also benefits Ed's "country inn" by being right next to a garden which is likely more

appealing to guests out in the country than a truck stop/diner combination would be.

Thus, this covenant touches and concerns the land.

However, since there is no horizontal privity, Ed does not have a right to seek damages

for breaching this covenant.

Benefit to Run

To determine if the benefit to run for a subsequent owner of the benefitted parcel

requires 1) notice 2) intent 3) vertical privity 4) and for it to touch and concern the land.

Here, Ed was the original party to the covenant, and he is the one trying to enforce it;

therefore, there is no need to analyze whether the benefit runs. That only applies to

subsequent owners of the benefitted estate.

Here, Ed can seek to enforce the covenant without showing this.

Equitable Servitude

Burden to Run

Ed may also seek an injunction for this equitable servitude and prevent Henry from

changing the land from a commercial organic garden into a truck stop and diner.

For the burden to run for an equitable servitude there must be 1) notice 2) a writing 3)

intent 4) and it must touch and concern the land. There is no requirement for privity.

Notice

See above for rule statement.

See above for discussion as to why Henry likely had actual notice of the covenant.

Writing

See above for discussion how this equitable servitude is in writing because it was set

forth in the written agreement between Gloria and Ed.

Intent

See above for rule statement.

See above for discussion on why there was intent.

Touch and Concern

See above for rule statement.

See above for discussion for why this equitable servitude likely touches and concerns

the land.

Therefore, since all four of these elements are likely met, Ed is able to enforce this

equitable servitude and get an injunction that prevents Henry from operating the land as

anything other than the commercial garden.

Benefit to Run

For the benefit to run for an equitable servitude it requires 1) notice 2) intent 3) and that

it touch and concern the land.

Here, see above for discussion as to why Ed does not need to show the benefit to run

because he is the original party to the servitude.

Termination of a Covenant/Servitude

A covenant or equitable servitude can be terminated based on abandonment, change in

circumstances, estoppel, written release, and merger of the dominant and servient

estates.

Change of Circumstances

Here, Henry is asserting that this covenant/servitude is terminated and thus cannot be

enforced because of change of circumstances. Henry will argue that Fran's change to

her parcel and increased traffic change the circumstances of the area such that this

covenant no longer should apply.

Fran used to use the land as a farm and bunk house, but now, Henry will argue, she is

changing that to 50 residential homes and a computer server center, thus changing the

nature of the area from agricultural and farmland. Thus, since there will be more people

and less farms. a truck stop and diner now fit within these new circumstances.

Additionally, many more people will be in the area because instead of one farm with

some workers on Fran's land, it will be 50 residences with people living in them.

Ed will argue back that she is changing her land into majority residential housing which

is different in nature to a truck stop or diner which are entirely different types of

establishments for commercial uses. Ed will argue that keeping the garden is still

applicable and should be enforced because this is an agricultural area and thus a truck

stop and diner do not fit in the area. This is a "rural" area, even with additional

residential homes.

Here, because of the likely massive construction changes that will take place on Fran

land, the increase in traffic due to 50 residential houses being used, and the change

from using the land for agriculture/farming to a different use, the court could likely find

that the circumstances have changed enough that the covenant/servitude should no

longer apply to Henry's land even it was previously enforceable.

Therefore, Henry can likely carry out his plans over Ed's objections.