& A Bar Q Bar examination questions are copyrighted by the State Bar of California. Reprinted with permission. Editor’s note: The Bar Q&A answers are printed as submitted without editing.
question #1 Contracts On April 1, Pat, a computer software consultant, entered into a written services contract with Danco, Inc. to write four computer programs for use by Danco in controlling its automated manufacturing machines. The contract provided that Danco would pay Pat $25,000 on completion of the work and that the programs were to be delivered to Danco no later than May 1. The contract stated, “This is the complete and entire contract between between the the parties, and no modification of this contract shall be valid unless it is in writing and signed by both parties.” Pat entered into the contract in anticipation that it would lead to significant work from Danco in the future, and he consequently turned away opportunities to take on more lucrative work. On April 15, Pat called Chelsea, the President of Danco, who had executed the contract on behalf of Danco, and told her, “I’m having some problems with program number 3, and I won’t have it ready to deliver to you until at least May 8 – maybe closer to May 15. Also, I have some doubt about whether I can even write program number 4 at all because your computer hardware is nearly obsolete. But I’ll get programs numbers 1 and 2 to you by May 1.” Chelsea said in response, “I’m sorry to hear that. We really need all four programs. If you can’t deliver until May 15, I guess I’ll have to live with that.” On April 28, Pat called Chelsea and said, “I’ve worked out the problems with programs numbers 3 and 4. I’ll deliver them to you on May 12.” Chelsea responded, “I’ve been meaning to call you. I’m going to start looking around for another consultant to do the work because I consider what you said in our April 15 telephone discussion to be a repudiation of our contract. My lawyer tells me that, because of the language in the contract, nothing I said to you in that conversation matters. You repudiated the contract, so we don’t owe you anything.” Can Pat prevail in a suit against Danco for breach of contract, and, if so, what is the measure of his damages? Discuss.
answer 1 This answer was provided by Paul Pfau of Cal Bar Tutorial Review, 800-783-6168, www.cbtronline.com.
Bar review experts answer the six essay questions on the February 2010 Bar 2010 Bar Exam
Danco for breach of contract will initially depend on the validity of their contract as well as its terms. The measure of any damages Pat may receive will also depend on these initial issues. VALIDITY OF CONTRACT
Presuming a valid “written services contract” between Pat and Danco reflecting their mutual assent for Pat to supply four computer programs for use by Danco by May 1st for valuable consideration of $25,000 – and which satisfies the defense of the Statute of Frauds – at issue are the terms the parties agreed upon – and whether they were breached – as discussed below. TERMS OF THE CONTRACT
Express Condition Precedent An express condition precedent is one that must occur before an absolute duty of performance arises in the other party. Thus, payment to Pat of the $25,000 is based on Pat’s duty to perform by completing and delivering the four computer programs to Danco by May 1st. Absent an excuse, Danco may argue that Pat’s failure to meet this time of the essence express condition precedent would relieve the company of its obligation to perform its duty to pay Pat the $25,000. PERFORMANCE APRIL 15TH COMMUNICATION BY PAT/CHELSEA
Pat’s call to Chelsea, Danco’s President, on April 15th that he was “having problems” with computer program’s three and four – and that he may not be able to deliver them before May 8th or 15th – constituted the basis of relieving Danco of its duty to perform to Pat. Danco would make the following arguments: Excuse Breach
of
Condition
by
Actual
Although Pat’s statement did not signal his failure to cooperate, Danco might argue that it was an actual and material breach of the express time of the essence condition. Pat would make the argument that the potential delay – while not meeting the May 1st condition – was at best incidental and minor given the need for a one to two week delay. This would only suspend Danco’s Danco’s duty to perform – but not excuse it. Excuse of Condition by Anticipatory Repudiation
PAT PA T v. DA NCO
Whether Pat will prevail in a suit against
Anticipatory repudiation must be unequivocal, not just an expression of doubt
or the prospective inability or unwillingness to perform.
MEASURE OF DAMAGES Compensatory
It seems clear Pat’s expression of doubt – “having some problems” would fall short of the unequivocality standard in which event Danco’s duty to perform would remain. Excuse of Condition by Waiver or Estoppel
Pat would argue that the standard measure of compensatory damages will be expectation damages that will permit him to fully benefit under the terms of the May 1s t contract. In this event, Pat Pat would be justified in arguing for the full $25,000. Consequential
A party may waive a condition by indicating that he will not insist upon it. Such a waiver, however, may be retracted unless the other party relies on the waiver and changes his position to his detriment. Upon such detrimental reliance, the waiving party is estopped from non-performance. In this regard, Chels ea’s response to Pat’s communication that (Danco) would “have to live with the May 15th (date)” in the event Pat could not resolve the programming problems would seem to constitute a sufficient waiver of the time of the essence condition. On the other hand, Chelsea might argue that she retracted the waiver with her April 28th communication that she would treat Pat’s April 15th statement as a “repudiation” of his duty to perform. Pat, however, could successfully argue that the nearly two week delay in informing him caused him to change his position to his detriment – and especially given the fact at the time of the making of the contract that “he turned away opportunities to take on more lucrative work.” work.” In this event, subject to a valid modification, as discuss ed below, Chelsea’s waiver would also be valid. APRIL 28TH COMMUNICATION BY PAT/CHELSEA Anticipatory Repudiation by Danco
Pat would argue that Chelsea’s representation, as described above, that Danco would treat Pat’s April 15th communication as an actual breach and not pay Pat “because of the language in their contract” – itself is an unequivocal repudiation of the terms of the April 1st contract – supporting a successful cause of action by Pat against Danco for material breach. Modification of the May 1st Contract
Pat would also contend that Danco’s waiver – as discussed – through Chelsea’s April 15th communication to him – was valid even though it was not supported by consideration. Pat would argue that his detrimental reliance was a valid substitute – and that the modified time for performance was extended to May 15th. As such , his assertion on April 28th that full performance would be satisfied by May 12th was within the terms of the modified contract.
These damages are awarded in addition to compensatory damages in the event a reasonable person would have foreseen at the time of entering the contract that such damages would result from the breach. Here, Pat would argue that his contract with Danco – in “anticipation that it would lead to significant work in the future with Danco” – foreseeably resulted in his turning down more “lucrative work.” Here, Pat would argue that he should also be compensated for the loss of work that at least would cover the nearly one month of time from the start of the contract to Danco’s April 28th repudiation. Punitive
It is unlikely Pat would be successful in arguing for punitive damages in view of the commercial nature of his contract with Danco. Duty to Mitigate
Pat should cease work on behalf of Danco in his attempt to find alternative employment that would lead to mitigating any compensatory or consequential damages owed to him by Danco for their repudiation of their duty to perform under the terms of the April 1st contract.
question #2 Business Associations Associations & Professional Responsibility Able, Baker, and Charlie are successful attorneys who set up a law firm under the name “ABC Legal Services LLP” (“ABC LLP”). They agreed to share profits and losses equally. Able prepared the documents required to register the firm as a limited liability partnership and instructed his assistant to file them with the Secretary of State. Inadvertently and unbeknownst to Able, Baker, and Charlie, Able’s assistant never filed the appropriate documents. Able, Baker, and Charlie leased office space for four attorneys in the name of ABC LLP. They rented the extra office to David, an attorney who had a small solo law practice,
2010 Bar Exam for a monthly rent of the greater of $1100 or 10% of his billings. David committed malpractice arising from a case that he undertook soon after he moved into the ABC LLP office space. Able, Baker, and Charlie hired Jack as head of computer services. Jack had just graduated from college with a degree in computer science. Jack, in an effort to save ABC LLP the cost of Internet access budgeted at $500 a month, accessed and used the wireless network of an adjacent law firm for free. Able, Baker, and Charlie were surprised at the savings, but did not inquire how it came about. Their use of the network resulted in the disclosure to a third party of confidential client information for one of Able’s clients, which caused the client economic loss. 1. May Able, Baker, and Charlie each be held personally liable for the economic loss to Able’s client caused by the disclosure of confidential client information? Discuss. 2. May Able, Baker, and Charlie each be held personally liable for David’s malpractice? Discuss. 3. Have Able, Baker, and Charlie breached any rules of professional conduct? Discuss. Answer this question according to California and ABA authorities.
answer 2 This answer is provided by Belia Bennett of Raise the Bar, LLC, www.raisethebarwriting.com, 888-644-3287. 1. Personal Liability of Able (A), Baker (B) and Charlie (C) for economic loss of Able’s Client.
In order to determine whether A, B and C will be held personally liable for the economic loss to Able’s client, it is first necessary to determine the type of entity formed by A, B and C. Partnership: A partnership is an association of two or more persons to carry on as co-owners a business for profit. A sharing of profits raises a presumption of a partnership. Here, A, B and C are successful attorneys who set up a law firm which is a form of business. The three attorneys agreed to share profits and losses equally. Therefore A, B and C formed “ABC Legal Services LLP” as a business for profit. Partnership Formalities: No formal agreements or writings are required to initially form a partnership. However, in order to comply with the statute of frauds, a partnership in existence for more than one year must execute a writing to reflect the partnership agreement. Given what appears to be A, B and C’s recent creation of ABC Legal Services, the attorneys are not required to have a formal agreement or writing. The existence of their partnership may be implied from their conduct to engage in business and share profits. A general partnership was formed. Limited Liability Partnership (LLP): The Revised Uniform Partnership Act (RUPA) allows for the creation of a limited liability partnership whereby partners are not personally liable for the LLP’s obligations. An LLP is established by filing a statement of qualification with the secretary of state which must be signed by two partners and contain the name and address of the partnership and a statement that the partnership elects to become an LLP. The LLP is established at the time of filing the statement. Here, A prepared the statement of qualification to establish ABC Legal Services as an LLP. While he instructed his assistant to file the statement with the Secretary of State, as required by the RUPA to form an LLP, the statement was never filed. Accordingly,
ABC Legal Services did not become a legally formed LLP; only a general partnership arose. Partner Liability: Partners are liable for all contracts entered into by a partner and all torts committed by any partner or employee of the partnership within the ordinary course of the partnership. Liability is joint and several for all obligations of the partnership. Given ABC Legal Services’ lack of limited liability partnership status, A, B and C are joint and severally liable for the torts committed by any one partner or employee. Malpractice Action by Client against ABC Legal Services: A client may institute a malpractice action against her attorney, based in tort, for the unauthorized disclosure of confidential client information to a third party. The malprac-
Questions & Answers tice action will be based upon a negligence theory. The applicable rules of professional responsibility will establish the standard of care. The client may recover economic damages in a malpractice action. Duties of Care and Confidentiality: In California, competent representation requires the lawyer to supervise the work of subordinate attorneys and non-attorney employees. Under the Rules of Professional Conduct (RPC), a lawyer generally must not reveal information relating to the representation of a client. Here, ABC budgeted $500 for internet access. ABC hired Jack as head of computer services. Instead of purchasing its own internet access, Jack used the wireless network of an adjacent law firm. ABC did not pay for the use of the wireless network. Although surprised by the savings, A, B and C did not inquire how Jack was acquiring internet ac-
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cess. The free use of the wireless network resulted in a disclosure of confidential client information to a third party. A, B and C failed to supervise the work of Jack by not inquiring into the source of free internet services and failed to ensure that client confidences were preserved in using the free wireless network. The breaches of professional conduct will establish the standard of care in a malpractice action against ABC Legal Services. Provided that A’s client is able to establish a malpractice action against Able she may recover economic losses caused by the unauthorized disclosure of confidential client information. Given the lack of creation of an LLP, A, B and C will be joint and severally liable for a successful malpractice action by A’s client. 2. Personal Liability of Able (A), Baker (B) and Charlie (C) for David’s malpractice.
2010 Bar Exam for a monthly rent of the greater of $1100 or 10% of his billings. David committed malpractice arising from a case that he undertook soon after he moved into the ABC LLP office space. Able, Baker, and Charlie hired Jack as head of computer services. Jack had just graduated from college with a degree in computer science. Jack, in an effort to save ABC LLP the cost of Internet access budgeted at $500 a month, accessed and used the wireless network of an adjacent law firm for free. Able, Baker, and Charlie were surprised at the savings, but did not inquire how it came about. Their use of the network resulted in the disclosure to a third party of confidential client information for one of Able’s clients, which caused the client economic loss. 1. May Able, Baker, and Charlie each be held personally liable for the economic loss to Able’s client caused by the disclosure of confidential client information? Discuss. 2. May Able, Baker, and Charlie each be held personally liable for David’s malpractice? Discuss. 3. Have Able, Baker, and Charlie breached any rules of professional conduct? Discuss. Answer this question according to California and ABA authorities.
answer 2 This answer is provided by Belia Bennett of Raise the Bar, LLC, www.raisethebarwriting.com, 888-644-3287. 1. Personal Liability of Able (A), Baker (B) and Charlie (C) for economic loss of Able’s Client.
In order to determine whether A, B and C will be held personally liable for the economic loss to Able’s client, it is first necessary to determine the type of entity formed by A, B and C. Partnership: A partnership is an association of two or more persons to carry on as co-owners a business for profit. A sharing of profits raises a presumption of a partnership. Here, A, B and C are successful attorneys who set up a law firm which is a form of business. The three attorneys agreed to share profits and losses equally. Therefore A, B and C formed “ABC Legal Services LLP” as a business for profit. Partnership Formalities: No formal agreements or writings are required to initially form a partnership. However, in order to comply with the statute of frauds, a partnership in existence for more than one year must execute a writing to reflect the partnership agreement. Given what appears to be A, B and C’s recent creation of ABC Legal Services, the attorneys are not required to have a formal agreement or writing. The existence of their partnership may be implied from their conduct to engage in business and share profits. A general partnership was formed. Limited Liability Partnership (LLP): The Revised Uniform Partnership Act (RUPA) allows for the creation of a limited liability partnership whereby partners are not personally liable for the LLP’s obligations. An LLP is established by filing a statement of qualification with the secretary of state which must be signed by two partners and contain the name and address of the partnership and a statement that the partnership elects to become an LLP. The LLP is established at the time of filing the statement. Here, A prepared the statement of qualification to establish ABC Legal Services as an LLP. While he instructed his assistant to file the statement with the Secretary of State, as required by the RUPA to form an LLP, the statement was never filed. Accordingly,
ABC Legal Services did not become a legally formed LLP; only a general partnership arose. Partner Liability: Partners are liable for all contracts entered into by a partner and all torts committed by any partner or employee of the partnership within the ordinary course of the partnership. Liability is joint and several for all obligations of the partnership. Given ABC Legal Services’ lack of limited liability partnership status, A, B and C are joint and severally liable for the torts committed by any one partner or employee. Malpractice Action by Client against ABC Legal Services: A client may institute a malpractice action against her attorney, based in tort, for the unauthorized disclosure of confidential client information to a third party. The malprac-
Questions & Answers tice action will be based upon a negligence theory. The applicable rules of professional responsibility will establish the standard of care. The client may recover economic damages in a malpractice action. Duties of Care and Confidentiality: In California, competent representation requires the lawyer to supervise the work of subordinate attorneys and non-attorney employees. Under the Rules of Professional Conduct (RPC), a lawyer generally must not reveal information relating to the representation of a client. Here, ABC budgeted $500 for internet access. ABC hired Jack as head of computer services. Instead of purchasing its own internet access, Jack used the wireless network of an adjacent law firm. ABC did not pay for the use of the wireless network. Although surprised by the savings, A, B and C did not inquire how Jack was acquiring internet ac-
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cess. The free use of the wireless network resulted in a disclosure of confidential client information to a third party. A, B and C failed to supervise the work of Jack by not inquiring into the source of free internet services and failed to ensure that client confidences were preserved in using the free wireless network. The breaches of professional conduct will establish the standard of care in a malpractice action against ABC Legal Services. Provided that A’s client is able to establish a malpractice action against Able she may recover economic losses caused by the unauthorized disclosure of confidential client information. Given the lack of creation of an LLP, A, B and C will be joint and severally liable for a successful malpractice action by A’s client. 2. Personal Liability of Able (A), Baker (B) and Charlie (C) for David’s malpractice.
2010 Bar Exam Part performan ce? The Statute of Frauds is satisfied if any provision of the contract is performed, regardless of whether the performance is by the plaintiff or the defendant. Here, Firm paid Chris his law school expenses of $120,000, as promised by the contract. Therefore, part performance satisfies the statute.
said he supported Chris’s decision. Since a waiver only excuses later performance and here Chris breached before the waiver, it is not effective.
difference in pay between a paralegal and a lawyer is greater than $30,000 a year. It almost certainly is greater. That means that Chris is paying significantly more than he is receiving.
Conclusion : waiver does not excuse Chris’s breach.
It could be argued that Provision 3 also provides consideration to Chris for his sacrifice in pay, in that Chris might make partner after four years. On the one hand it is possible that being made partner after only four years faster than normal and is a benefit to Chris. On the other hand Firm has within its control whether it gives Chris superior performance reviews, and even in defining what superior reviews means. Firm is not promises any actual consideration in Provision 3. Therefore provision 3 of the contract does not provide Chris any additional consideration for his four years of low paid labor.
Equitable defenses
Conclusion : the Statute of Frauds is satisfied and the contract is not voidable. Chris can defeat Firm’s claim for legal damages if he is not in breach.
Doctrine of Divis ibility . When the terms of a contract are broken into separate units of performance and payment, defendant is not in breach if he completes performance of some units but not others. Here, there are three provisions in the contract.
In Provision 1 Firm promises to pay Chris’s law school expenses when he completes law school and is admitted to the bar. In Provision 2 Chris promises to work at Firm for four years as a lawyer but at the salary of a paralegal. In Provision 3 Firm promises to consider Chris for partnership after four years if his performance reviews are superior. Arguably, the contract is divisible and Provision 1 is a single unit whereby Chris’s performance is completing law school and being licensed and Firm’s performance is reimbursing the costs of his education. However, there are problems with this interpretation. First, Chris does not make a promise to Firm to complete law school. Second, if Provision 1 is divisible, there is no separate consideration for Provisions 2 and 3. In Provision 2, Chris promises to work at a greatly reduced salary for four years. This does not stand alone as a unit of performance and payment. Arguably, Provision 2 and 3 are divisible from Provision 1. In that case, Chris promises to work for four years at a greatly reduced salary and Firm promises to consider him for partnership if his work is superior. Provision 3 does not really contain any consideration for Chris’s reduced salary. Firm only promises to consider Chris for partnership. Furthermore, whether Chris’s performance reviews are superior is within the control and judgment of Firm. Therefore, Provision 3 does not provide Chris consideration for his four years at low pay. Conclusion : the contract is not divisible. Chris can defeat Firm’s claim for legal damages if his performance was excused.
Waiver? Defendant’s performance is excused if plaintiff tells defendant he no longer has a duty to perform a contract provision. Here, Firm paid Chris $120,000 fulfilling Provision 1 of the contract. Then Chris told Lou that he did not plan to work for Firm. Lou said Firm would support his choice of employment and said nothing about returning the $120,000.
However, a waiver serves as an excuse only if plaintiff excuses defendant’s performance before it is due. Here, once Chris graduated and was admitted to the bar and received Firm’s reimbursement his duty to work exclusively for Firm for four years was absolute. Chris accepted other employment and then told Lou. Therefore, Chris had already breached before Lou
Questions & Answers
Chris can defeat Firm’s claim for specific performance by showing that the elements of specific performance are not met.
Specific performance requires: inadequate remedy at law, definite and certain contract, and feasibility of enforcement. Inadequate legal r emedy If money makes plaintiff whole, a court will not order specific performance. Here, Firm paid Chris $120,000. If Chris pays Firm $120,000, then Firm has received all that it lost. Therefore legal remedies are adequate. Definite and certa in contract If the terms of the contract are not clear, a court will refuse to order specific performance. Here, the meaning of “superior performance reviews” is not certain. Therefore, a court will refuse to order specific performance. Feasibility of performance A court must be confident that it can enforce compliance with its order. A court does not favor orders which require continued monitoring. Here, the order woul d be to force Chris to work for Firm for four years. Enforcing defendant’s labor is not feasible. A court cannot order an employee to work for an employer. Further, the court would have to monitor compliance for four years. Therefore, the remedy is not feasible. Conclusion : The elements of specific performance are not met, and a court will refuse to grant specific performance. Chris can defeat Firm’s claim for specific performance by proving equitable defenses.
Unclean hands A court will not order equitable relief if the plaintiff has acted inequitably concerning the contract. Here, Lou knew that before Chris attended law school, his understanding of the contract was naive. The question is whether the contract took unfair advantage of Chris based on his naivete. Stated another way, is Chris working as an attorney for four years at paralegal pay adequate consideration for what the Firm is providing.
First it should be noted that the costs were reimbursed only after the fact, so that the Firm did not make it possible for Chris to go the law school. The analysis might be different if the firm provided Chris the money for law school expense before he began law school. Making law school possible where it might not have been otherwise is another form of consideration. And the interest on the money over four years is an additional consideration. But, as it was, Chris had to find his own financing. So the payment of the $120,000 after the fact is just a cash trade for the contract’s other two provisions. Provision 2 requires Chris to work as an attorney for paralegal wages for four years.
This represents Chris’s repayment at $30,000 a year. The question is whether the
Therefore the bargain boils down to paying Chris $120,000 in advance in exchange for his working as a lawyer at onl y $30,000 a year above the paralegal wage rate.
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species. On that basis, County denied the development application. Paula brought an action claiming that County’s denial of the development application constituted a regulatory taking in violation of the U.S. Constitution. It was stipulated that the 10 acres are worth $4,000,000 if development is permitted and $200,000 if it is not. The trial court ruled that County’s denial of Paula’s development application did not constitute either (1) a total or (2) a partial taking. Did the trial court correctly rule that County’s denial of Paula’s development application did not constitute: 1. A total taking? Discuss. 2. A partial taking? Discuss.
answer 5 This answer provided by Robyn Sembenini of BarGraders Inc., www.bargraders.com, 866-517-3926. 1. Total Taking
While a court will not inquire into the adequacy of consideration to determine the validity of a contract, it will examine whether unfair advantage was taken of the defendant when weighing equitable relief. The contract terms heavily favor the Firm and Lou apparently took advantage of Chris’ naivete in making the contract. Therefore, a court will refuse to order specific enforcement because of the Firm’s unclean hands. Laches Equity will be denied when the plaintiff has waited an inequitable length of time to sue. It is inequitable when the delay prejudices the defendant by loss of evidence needed to defend the suit. Here, the Firm waited to bring suit against Chris until after Chris’s father died. Chris’s father was a witness to the original offer and also to the dinner in which Chris breached and Lou did not insist on the Firm’s rights.
The question is what evidence could Chris’s father provide that would be instrumental to Chris’s defense. The original contract is in writing, so it does not seem as if the father’s evidence is necessary. As to the dinner after law school, Chris might need his father’s parol evidence to prove that Lou forgave Chris’s obligations to work for Firm. However, if there is evidence that Chris had already accepted another job, he is already in breach and no matter what Lou said it will be ineffective to excuse Chris’s breach. Therefore, a court will not refuse equitable relief based on laches. Conclusion : A court will refuse to issue equitable relief because Lou has unclean hands.
question #5 Constitutional Law Paula has owned and farmed a parcel consisting of 100 acres for many years. Last year, in compliance with County regulations, she expended a substantial amount of money in determining the economic feasibility of developing 10 acres of the parcel that border the shore of a small lake. She recently submitted a development application to County seeking to construct 30 homes on those 10 acres. County then determined that the 10 acres constitute protected wetlands that, under a state law enacted recently, had to be left undeveloped to protect certain dangered
Standing: A plaintiff must have an actual stake in the controversy, which is measured by whether the plaintiff has suffered a consequence as a result of the challenged action. Here, Paula has the right to use, exclude, lease, sell, or otherwise transfer her interests in the property. However, as a result of the County’s decision, she is unable to construct 30 homes on the 10 acres of land bordering the shore of the lake. Although Paula retains possession of this parcel of land, her right to use the land for this specific desired purpose has been eliminated. Thus, Paula has suffered an injury and has standing to challenge the County’s action. State Action: The 14th and 15th Amendments to the U.S. Constitution are applicable only to the actions of the State. Moreover, the State’s action must be the proximate cause of the injury suffered. Here the restriction limiting development in order to protect certain endangered species was passed by the State. Moreover, the decision to deny Paula’s development application was made by the county. As such, there was State action for purposes of this analysis. Ripeness: In order for a plaintiff to challenge a state action, it must be final. Courts measure ripeness by considering whether administrative remedies have been exhausted. Generally, denial of a single application will not satisfy this requirement; often the courts require a minimum of two denials of applications. The courts look for a final decision by the government agency as to what level of development will be permitted on the property. See Mac Donald, Sommer & Frates v. Yolo County, 477 U.S. 340, 353 (1986). Here, Paula has submitted only one application. The denial, however, indicated the entire 10-acre parcel must be left undeveloped. In light of this determination, it appears submitting another application would be futile. See Palazzolo v. Rhode Island, 533 U.S. 606, 625-6 (2001). As such, the controversy is ripe. Total Taking: The 5th Amendment to the U.S. Constitution, applicable to states through the 14th Amendment, prohibits the taking of private property absent just compensation. Takings generally fall within three categories: permanent physical occupation of the property; unconstitutional exactions; or diminution in value. A total or per se taking occurs where a regulation destroys all value of the prop-
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erty. Courts look at the severity of the burden the government actor places on the private party’s property rights. Permanent Physical Occupation Where there is a permanent physical occupation of private land, regardless of the reason for the occupation, there is a taking requiring compensation. See Loretto v. TelePrompTer Manhattan CATV, 458 U.S. 419 (1982). Courts have held that when a regulation is aimed at protecting wildlife, the inhabitation of a private landowner’s property by the protected wildlife will not support a claim of physical occupation by a state actor; regulatory protection of wildlife does not convert them into state actors. See Christy v. Hodel, 857 F.2d 1324 (9th Cir. 1988). There are no facts suggesting physical occupation by the State. As such there is no total taking predicated on permanent physical occupation by the State. Unlawful Extractions Where the State exercises eminent domain or exacts onerous restrictions on development that lack nexus and proportionality to the proposed project, there is a per se taking requiring just compensation. Here, there are no facts indicating that Paula has suffered an unlawful extraction. Diminution of Value Where the State’s action deprives a property owner of all economically beneficial use or renders void the reasonable investment backed expectation and economic value of the property, there is a per se taking regardless of the public purpose of the s tate’s action. Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992). This standard is reserved for instances where there is a permanent deprivation of all value to the property as a whole. See Tahoe-Sierra Preservation Council v. Tahoe Regional Planning Agency , 535 U.S. 302 (2002). A mere decrease in value is not sufficient to underlie a per se taking. Here, the 10 acres of lake shore property were valued at $4,000,000 if they could be developed as proposed in Paula’s application. If the 10 acres must remain undeveloped, the property is worth $200,000. Although the difference in value is great, the property retained value after the denial of the application. Additionally, the restriction applies to the 10 acres adjacent to the lake. This portion is a mere 10 percent of Paula’s property. The fact that Paula expended a substantial amount of money to determine the feasibility of developing the 10-acre parcel will not sway the court in its determination. As such, the total diminution of value test cannot be met and there is no per se taking.
2010 Bar Exam impair the value of private property that it is considered a taking. Penn Central Transp. Co. v. New York City, 438 U.S. 108 (1978). Partial takings may occur where there is an economic, spatial or temporal limitation. To determine when impairment rises to the level of a taking, courts must conduct ad hoc examinations. The factors considered are 1) the economic impact on the claimant; 2) the extent the regulation impairs reasonable investment-backed expectations; and 3) the character of the government’s action. Economic Impact While some courts have found an impact as great as 95 percent insufficient to result in a partial taking, other courts have found a diminution of 70 percent of the property’s value enough to constitute a taking requiring compensation. In making this determination, courts consider the impact to the property as a whole. See Palazzolo v. Rhode Island, 533 U.S. 606 (2001). Here the denial of the application has had an economic effect on Paula. The value of the 10-acre parcel as proposed in the application was $4,000,000. If the parcel is left in its current undeveloped state, the value is only $200,000. In these facts, the denied application involved only 10 percent of Paula’s property. Although the facts ar e silent as to the impact the state law has on Paula’s property as a whole, to the extent Paula’s application was denied because the 10-acre lake short parcel was a protected wetland, it does not appear the remaining 90 acres would be subject to the same limitation. Moreover, the facts state that Paula farms her land. As her ability to continue this economic activity has not been impaired, she appears unable to meet the threshold economic impact requirement. Reasonable Investment-Backed Expectations Courts generally apply a fairness test when evaluating reasonable investment-backed expectation, and consider four factors: What the property owner expected at the time the property was purchased; whether the regulation at issue is typical for the type of property affected; whether the existing use of the property may be continued; and the character of the regulation. Here, the facts indicate Paula has owned the property for many years and has used it for farming. Only in the last year did Paula consider developing the 10 acres alongside the lake. The facts do not suggest that she purchased the property with intent to develop it as proposed in the application. The fact that Paula expended a substantial amount of money to determine the feasibility of developing the 10-acre parcel will not sway the court in its determination.
Conclusion: Because the denial of Paula’s application did not result in permanent physical occupation, unlawful extraction, or deprivation of all economically beneficial use of the property, a total taking did not occur. Thus the trial court ruled correctly. 2. Partial Taking
Standing: See above.
The regulation described in the facts provided aims to protect endangered species by designating certain shoreline areas as protected wetlands. This regulation appears appropriate to land adjacent to a lake, and there are no additional facts suggesting otherwise. The denial of Paula’s application as a result of the recently enacted state law does not appear to affect the existing use of the property as farm land. The only restriction is that the property not be developed. As such, Paula may continue to use her land, including the 10 acres next to the lake, for farming.
Questions & Answers considering the first two factors. See Lingle v. Chevron U.S.A., 544 U.S. 528 (2005); City of Monterey v. Del Monte Dunes at Mont erey, Ltd., 526 U.S. 687 (1999). Taken as a whole,
the burden Paula must bear does not appear disproportionate to the public good resulting from the state’s regulation or the county’s denial of the permit. Conclusion: In total, the facts do not indicate the economic impact suffered by Paula rises to the level of a partial taking requiring just compensation. As such, the lower court’s ruling was correct.
question #6 Community Property Herb and Wendy, residents of California, married in 2001. Herb worked as an accountant. Wendy was an avid coin collector who hoped someday to turn her hobby into a profitable business. Prior to marriage, they had entered into a prenuptial agreement providing that each spouse’s wages would be his or her separate property. On Wendy’s birthday in 2002, Herb gave Wendy a drawing by a famous artist. Herb paid for the drawing with $15,000 that his parents had given him. Wendy hung the drawing in their bedroom. In 2003, Wendy opened CoinCo, a shop specializing in rare coins. She capitalized the business with a $10,000 inheritance that she had received when her grandfather died. Wendy worked at the shop alone every day. Customers appreciated her enthusiasm about coin collecting and her ability to obtain special coins at reasonable prices. Over time, Wendy learned that she had acquired a number of highly valuable coins. There was also a renewed interest in coin collecting due to the discovery of several boxes of old coins found buried in the area. Although Wendy’s services at the shop were worth $40,000 per year, she took an annual salary of $25,000. She also paid $5,000 in household expenses from the business earnings each year. In 2008, Herb and Wendy separated, and Wendy filed for dissolution of marriage. At that time, CoinCo was worth $150,000, and the drawing was worth $30,000. In 2009, before trial of the dissolution proceeding, Wendy was disabled by a serious illness and had to be hospitalized. She closed CoinCo while she was in the hospital, and the value of the business fell to $100, 000 by the time of trial. Her hospital bill was not covered by health insurance. In the dissolution proceeding, Wendy claims that the prenuptial agreement is valid and Herb claims that it is not. What are Herb’s and Wendy’s respective rights and liabilities in: 1. The drawing? Discuss. 2. CoinCo? Discuss. 3. The hospital bill? Discuss. Answer according to California law.
answer 6 This answer provided by Carla Vasques dos Santos-Moore, adjunct faculty at Emerson’s Tutorial Bar Review, 415-864-4122, www.emersonstutorialbarreview.com
State Action: See above. Ripeness: See above. Partial Taking: A state’s regulation of a property may so
The regulation that led to the denial of Paula’s application appears to adjust the benefits and burdens of economic life to promote common good. The common good of protecting endangered species is recognized as supporting the loss of some economic value of private property. This third prong is typically not determinative as to whether or not there has been a taking; it does , however, provide courts with a degree of subjectivity in
1 Herb’s and Wendy’s rights and liability in the drawing: Community property and separate property
California law characterizes all property acquired or earned during marriage as community property, including the fruits of the labor of either spouse during marriage. Separate property is property obtained by
a spouse, while married, through gift, bequest, devise, or descent, and any rents, issues, and profits of separate property. Any property acquired before marriage or after permanent separation also qualifies as separate property. A change in the physical form of property will not result in a change of its separate/community character. Property characterization is commonly determined by the property’s source, time and manner of acquisition thereof, applicable legal presumptions and valid interspousal agreements concerning it. At divorce, community property is divided equally between the spouses while separate property is unaffected by a change in marital status. Here, Herb and Wendy were in a 7-year marriage (2001 through 2008) and acquired/earned property during their marital economic community in the form of a $15,000 cash gift from Herb’s parents, a $15,000 painting, a rare coin shop capitalized by Wendy’s $10,000 inheritance, and income from both spouses’ wages. Whether these property items are subject to community property laws or not will depend on the determining factors listed above. Gift to spouse’s separate property
A gift to a spouse’s separate property during marriage is separate property. Herb received a gift from his parents in the amount of $15,000. The gift was to Herb only, not to the couple. Hence, the $15,000 belongs to Herb as his s eparate property. Change in form/Change in character
Since a change in form will not give rise to a change in character, Herb’s purchase of the $15,000 drawing with his parents’ cash gift to himself can only result in the characterization of the drawing as part of his own separate property as well. Transmutation
Spouses may choose to voluntarily change the character of property by agreement. Such interspousal agreements are known as transmutations. If occurring on or after January 1, 1985, transmutations must be evidenced by a writing containing express language unambiguously stating that a change in the characterization of property has been agreed upon. In addition, the writing must be signed by the spouse adversely affected by the transmutation. Here, Herb gave Wendy a drawing, which he purchased with his $15,000 cash gift. The gift to Wendy may arguably operate as a transmutation from Herb’s separate property to Wendy’s separate property. However, the transmutation, even though apparently intended by Herb, suffers from a defect in that it was never memorialized in writing and a signature of Herb attesting to the validity of the agreement does not exist. Consequently, the transmutation is unenforceable and the drawing would remain Herb’s separate property with the increased value of $30,000. Personal gift exception
The personal gift exception may apply to validate an otherwise unenforceable transmutation between spouses when the item intended to be subject to transmutation is of a personal nature, is insubstantial in value given the parties’ financial station in life during marriage, and used principally by the spouse receiving the gift. The drawing was hung in the bedroom Herb and Wendy shared and, as a result of
2010 Bar Exam its placement, can hardly be considered of personal use only by Wendy. Both spouses arguably benefitted from Herb’s acquisition. Moreover, the painting is by a famous artist and cost a substantial amount — $15,000. According to the facts, Wendy was not working in 2002 and Herb was relying on his accountant’s wages to provide for both of them. There is no mention of any other assets owed by the couple at the time when the gift was made. Wendy and Herb’s net worth in 2002 was likely not very significant or large enough to warrant the assumption that $15,000 was insubstantial to the couple at that time. At trial, their assets totaled a little more than $100,000 and the drawing was then worth $30,000, which tends to show that the drawing’s value represented quite a significant percentage of their total assets, given the facts. On the other hand, Herb purchased the drawing as a birthday gift to Wendy. A birthday gift usually is meant to represent something meaningful and personal to the birthday celebrant. The drawing is probably not of a personal nature because Wendy cannot wear or use the gift in the same manner as she would a piece of jewelry or clothing. However, hanging the drawing in her bedroom may indicate that it was a personal gift as the drawing was placed in a very private area of their home to which, very likely, only Wendy and Herb had access. Wendy may have been an art lover or a big fan of this famous artist’s works to hang the piece in a room where she would see it constantly, every day. Therefore, it is possible that the court may recognize the exception in the context of Herb’s intended transmutation, although it is more likely that it wouldn’t apply the exception due to the very substantial value of the drawing. Transmutation back to marital economic community?
In the unlikely event that transmutation occurred due to the application of the personal gift exception, it would be possible to argue that Wendy may have intended to change the drawing’s characterization from her separate property to community property because she hung the drawing in the couple’s bedroom and may have intended thereby to gift the drawing to the community by allowing Herb to equally share in the use of the art piece. However, use alone will not affect a change in the characterization of property, and the value of the piece is quite substantial for the exception to be applied. Also, she had just received the painting as a gift. It seems unlikely that she would gift it back to the community right afterwards. The personal gift exception is just as inapplicable here as it probably was in the context of Herb’s attempted transmutation from his separate property to Wendy’s separate property. Hence, the painting remains as Herb’s separate property unless the personal gift exception applies to transfer it to Wanda’s separate property. 2. CoinCo: Prenuptial agreement
A prenuptial agreement stating that each spouse’s wages are to remain his or her separate property during marriage is valid in California as long as the agreement is in writing (Statute of Frauds), was not executed involuntarily by the party against whom enforcement is being sought, and is not unconscionable or fraught with nondisclosures of wealth of the party seeking its enforcement.
The facts do not state that Herb and Wendy had a written prenuptial agreement. If they did not have it in writing, the agreement is invalid for non-compliance with the Statute of Frauds unless an exception applies. Estoppel
An exception may apply to the Statute of Frauds requirement. A promisor is estopped to assert the Statute of Frauds when the promisee relies to her detriment on the oral premarital agreement. Wendy could argue that she invested so much of her time, personal efforts, skills, and labor in the management of her rare coin shop because she was working under the assumption that the prenuptial was valid and her earnings from the business were her separate property. She can further contend that she would not have used her $10,000 inheritance to invest in a business that would not be solely hers. Herb can defend against this claim by asserting that Wendy will not suffer detriment as the $10,000 still belongs to her separate property and that her working in the coin shop was simply an extension of a hobby in which she had already been engaged for years. Given the facts, it is likely that the court find in favor of Herb because it does not seem that Wendy relied to her detriment on the prenuptial agreement’s terms. Involuntary execution?
Involuntary execution prevents enforcement of a premarital agreement. Herb may argue that he entered into the agreement involuntarily. An agreement is involuntarily executed unless the court finds that the party against whom enforcement is being sought was represented by counsel or expressly waived such representation after being counseled to seek independent legal representation; the agreement was presented to the same party at least seven days before it was signed along with an advisement to seek independent legal counsel; in the absence of legal counsel, the party was fully informed on the terms of the agreement in writing and prior to the signing of the same; the agreement was not executed under fraud, duress, or undue influence. A premarital agreement is also rendered invalid if it was unconscionable towards the party against whom enforcement is sought and the party did not and could not have had adequate knowledge of the wealth of his future spouse, and did not waive his right to disclosure of such wealth. Herb cannot claim fraud, duress, or undue influence, as the facts do not support any of these assertions. There is no mention of either party having engaged legal counsel to be advised on the premarital agreement. In addition, it is not known whether Herb was fully informed on the terms of this contract and its legal ramifications. Herb can contend that at the time he did not consider the potential business opportunity of his wife’s hobby. He may further argue that he had no knowledge of Wendy’s intentions of turning her passion for coin collection into a profitable business and was unaware of the profit potential of such an enterprise. Based on these circumstances, Herb may assert unconscionability coupled with nondisclosure and successfully claim the agreement is unenforceable. Wendy could counter Herb’s claims by
Questions & Answers stating that she did not misrepresent her wealth at the time the contract was formed and that wealth potential should not be equated to actual wealth for purposes of unconscionability. Wendy will likely succeed in defending against the unconscionability and nondisclosure claims as she did not even have a job at the time and coin collection was only a hobby (although she hoped to turn it into a profitable business operation one day). Hence, it appears that the lack of a writing ultimately determines the invalidity of the agreement since Wendy’s estoppel defense is a weak argument, as explained above. The premarital agreement is unenforceable and Herb and Wendy’s wages and earnings accumulated during marriage are community property. Business interests valuation at divorce
A business established with separate property funds belonging to a spouse who manages the business during marriage earns the non-contributing, non-managing spouse a community property share in the business due to the managing spouse’s investment of community property labor into the operation. At divorce, the business may have appreciated in value, at which point a determination of separate and community property shares is to be made for purposes of distribution upon dissolution. Here, Wendy started a coin shop business with a $10,000 inheritance. The inheritance is separate property, thus the business was originally capitalized with Wendy’s separate property only. Wendy worked in the business during marriage and her labor, therefore, is community property. Van Camp/Pereira accounting methods
Van Camp values the manager’s services at the current market rate for such s ervices. It then subtracts salaries actually received by the working spouse and the amount of family expenses paid from business income on a yearly basis. The resulting sum, multiplied by the number of years of operation during marriage, represents the community property interest in the business. The total value of the business minus the community property share equals the managing spouse’s separate property share. Van Camp applies when the character of the separate business is the main factor for its growth and productivity and that the managing spouse’s contribution of labor is deemed ordinary. Pereira requires payment of a legal rate of return on the separate property start-up capital, with the sum of the initial capital plus interest equaling the working spouse’s separate property share. The remainder, that is, the total value of the business subtracted from the separate property, is the total community property share. In Pereira, the managing spouse’s labor and skills were the primary reason for growth and profitability of the business. First, Wendy’s role in the business should be assessed. She worked tirelessly at the shop every day; customers appreciated her business savvy and excitement about coin collecting, her good prices and distinct inventory of highly valuable coins. These are all characteristics that probably rendered the business unique among other operations dealing in the sale of rare coins. However, it can also be contended that the business flourished as a result of the very favorable timing of the discovery of
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boxes of old coins buried in the area, which sparked consumer interest in coin collecting. After weighing these factors, the court would more likely find that Wendy’s unique managerial style, determination, and enthusiasm were the more important factors contributing to her business’s success. The finding of the buried coins was but one isolated event that could not have possibly been responsible for her shop’s profitable five-year run. Hence, valuation of separate and community property shares will be determined according to Pereira. The business is valued at the time of marriage and the date of trial. The start-up capital of $10,000 plus interest at 10 percent per annum for five years would result in a total separate property interest of $15,000. The remainder, $85,000 ($100,000 minus $15,000) is the community property interest. Hence, Wendy is entitled to $15,000 plus $42,500 ($57,500) and Herb will receive $42,500 for his share in the coin business. In the unlikely event that Wendy’s managerial capacity were qualified as average and ordinary, using Van Camp, the court would value Wendy’s services at $40,000 per year (going market rate), for a total of $200,000, and deduct from $200,000 the amount received as actual compensation for five years ($125,000), which would amount to $75,000. The sum contributed towards household expenses ($5,000 per year for 5 years = $25,000) would also be deducted from the $75,000, resulting in $50,000 of community property interest. The facts have stated that at the time of trial the business was valued at $100,000. Hence, the business is 50 percent community property and Herb and Wendy will split the community property share equally, receiving each $25,000 at dissolution. Wendy will receive the other $50,000 as her separate property interest in the business. Therefore, under Van Camp, Wendy will receive a total of $75,000 from the business. 3. Hospital bill:
Debt incurred by one spouse during marriage All the community property and the debtor spouse’s separate property are liable for a debt incurred during marriage. The separate property of the other spouse is not liable. One exception to this general rule is that the non-debtor spouse may be personally liable for necessaries on account of which the debtor spouse incurred the debt. In this case, the non-debtor spouse’s separate property is liable for the debt. If community property funds are available and the non-debtor spouse’s separate property happens to pay for the debt, the latter will be reimbursed by the community. Necessaries are expenses incurred to preserve a person’s station in life so that she or he does not lack basic necessities of life. Even after permanent separation spouses must still support each other with regard to the necessaries of life. In this case, Wendy’s hospital bill clearly qualifies as a necessary of life because without proper medical care Wendy’s life could be in danger. The hospital bill may be paid for with community property funds, Wendy’s separate property, or Herb’s separate property.
