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Thursday Afternoon July 29, 1999 Essay Questions 7 - 12
TEXAS BAR EXAMINATION COPYRIGHT © 1999 TEXAS BOARD OF LAW EXAMINERS THIS MATERIAL, OR ANY PORTION
HEREOF, MAY NOT BE REPRINTED WITHOUT THE ADVANCE WRITTEN PERMISSION OF THE TEXAS
BOARD OF LAW EXAMINERS.
ANSWER QUESTIONS 7 AND 8 IN THE RED
ANSWER BOOK Larry decided to form a Texas
corporation for the purpose of establishing a website to operate a flea market
on the Internet. He published his idea in several internet chat rooms and
invited anyone interested to subscribe to buy shares at $50 par value.
Responding to that invitation, Fred called Larry by telephone and agreed to buy
100 shares to be issued and paid for when the certificate of incorporation was
issued. Larry took all necessary steps to
form a corporation named Nile.com, Inc. The articles of incorporation provided
for one director and named Larry as initial director. The articles did not
include a list of stock subscriptions. When the Texas Secretary of State
issued the Certificate of Incorporation for Nile.com, Inc., the corporation
began operating its website. Larry purchased 20 shares of stock at the par value
of $50. He wrote Fred a letter telling him that the shares were now available
and requesting that Fred forward the $5,000 he had agreed to pay for 100 shares.
Fred refused, and Nile.com, Inc. filed suit against Fred for breach of his
subscription agreement. Larry, acting for Nile.com, Inc.,
borrowed $100,000 from Big Bank and, in his capacity as Chief Executive Officer
of Nile.com, Inc., signed a promissory note in that amount. Larry also signed
the note in his personal capacity as guarantor of Big Bank's loan to Nile.com,
Inc. Under the terms of the loan, Nile.com was required to pay only interest for
five years, at which time the principal balance of the note would be due and
payable. The note provided, however, that the balance would be due and payable
upon a sale of all or substantially all of the assets of Nile.com. Nile.com was very successful in
its first nine months of operation and attracted the attention of Gertrude,
owner of a company named Universal Websites. Gertrude offered to buy 60 shares
of Nile.com and her offer was accepted. She paid par value and the 60 shares
were issued to her in due course. At the first annual meeting of the
shareholders, Gertrude voted her shares to oust Larry as director and to elect
herself as director. Acting as the sole director, Gertrude adopted a resolution
recommending that all the corporate assets of Nile.com be sold to Universal
Websites for $50,000. It is undisputed that $50,000 includes a premium of 10%
over the fair market value of the assets. Gertrude then voted to submit the
resolution to a meeting of shareholders, which was duly and properly called. At
the shareholders meeting, Gertrude voted her stock in favor of the resolution
and Larry voted against it. As a result of that vote, all assets of Nile.com
were transferred to Universal Websites and Gertrude paid the $50,000 to Nile.com,
Inc. QUESTION
7 CONTINUES ON THE NEXT PAGE CONTINUATION
OF QUESTION 7 Big Bank thereupon declared the
promissory note due and payable. Nile.com turned over to Big Bank the $50,000 it
had received from Gertrude but was unable to pay more. Big Bank made a demand
upon Larry for payment of the remaining $50,000 on the basis of his guarantee.
Larry refused to pay, asserting that Big Bank's remedy is to seek payment from
Gertrude and Universal Websites. After all, said Larry, Gertrude and her company
had "stolen" the corporation from him. A. In the suit by Nile.com, Inc.
against Fred, who should prevail ? Discuss fully. B. Were the steps taken by Gertrude
to acquire the assets of Nile.com, Inc. legally appropriate under the Texas
Business Corporations Act? Discuss fully. C. Does the fact that Gertrude and
Universal Websites acquired the assets of Nile.com, Inc. create any obligation
upon Gertrude and Universal Websites to pay the balance due on the promissory
note? Discuss fully. Sonny and Hazel were equal
partners in S & H, a Texas partnership. The partnership's sole asset was an
apartment building. The building was in need of remodeling, and S & H was
short of cash. Walter agreed orally with Sonny
and Hazel to pay for the remodeling in return for one-quarter of the gross
revenue from the building for each of the next ten years. S & H used the
money advanced by Walter for the remodeling. One effect of the remodeling,
which had been completed, was to enhance the value of the apartment building,
increasing the property tax assessment for the ensuing year. As a result, Sonny
and Hazel projected S & H would be short of cash again next year. To cover
the anticipated shortage, they orally agreed with Ed to sell Ed a one-third
interest in S & H in return for his capital contribution. Ed advanced the
money and was accepted as a one-third partner in S & H. About six months after Ed advanced
the money, a number of the tenants, who claimed to have suffered personal
injuries from toxic fumes generated by the paint used and carpet installed
during the remodeling, sued S & H as a partnership and Sonny, Hazel, Walter,
and Ed individually as partners in S & H. Sonny had performed many hours of
work overseeing the remodeling. There was no agreement among the partners that
Sonny would be paid for any of the work. He submits a bill to S & H for
services rendered. The bill is in an amount that is concededly reasonable and
represents the fair value of his services. A. Assuming the tenants' suit for
personal injury is meritorious, can Sonny, Hazel, Walter and Ed be held
personally liable? Discuss fully. B. Is S & H required to pay
Sonny's bill for services rendered? Discuss fully. ANSWER
QUESTIONS 9 AND 10 IN THE GREEN
ANSWER BOOK Husband and Wife married in Waco,
Texas in 1984. Their first child, Daughter, was born in 1986, and their second
child, Son, was born in 1990. In 1991, Son was diagnosed with a mental
disability that would be lifelong and render him incapable of ever supporting or
caring for himself. It is anticipated that expenses of caring for Son will
increase as he grows older. In May 1999, Wife filed a divorce
petition alleging insupportability as the sole ground for divorce. Husband did
not bring a countersuit. The cause remains pending in McLennan County, Texas. Both Husband and Wife were
employed at the time of the filing. Husband worked as an advertising executive
for a company headquartered in Waco. He had always been secretive about the
amount of his salary, which he claims is $75,000 per year, minus taxes and other
withholdings, for a net of $60,000. Wife, however, believes Husband earns closer
to $120,000 which, after taxes and withholdings, leaves a net of $90,000 per
year. Wife is employed as a teacher and
earns a salary of $32,000 per year. Neither Husband nor Wife has any other
source of income. Husband and Wife have agreed upon
the division of their marital property and custody of their children. Wife will
be appointed sole managing conservator of both children. Husband will be
appointed as possessory conservator of both children and will enjoy the standard
possession rights set out in the Texas Family Code. However, Husband and Wife are
unable to agree as to either the amount or the duration of post-divorce child
support that Husband will pay. Moreover, Wife is concerned that she may have
trouble collecting child support payments because Husband is moving to Oklahoma
to be in charge of his employer's Tulsa branch. A. What factors will the court
apply to determine Husband's obligation to pay child support and, depending on
who is correct about the amount of Husband's salary, what measure will the court
use to determine how much Husband must pay? Discuss fully. B. What is the duration of
Husband's obligation to support each of the children? Discuss fully. C. Once the divorce decree becomes
final and the court enters a child support order, may the court ever modify the
child support order and, if so, what must either Husband or Wife show in order
to prevail in a request for modification? Discuss fully. D. What provision exists in Texas
law to ensure, if Husband remains employed after the divorce and becomes
delinquent in his child support payments, that Wife will be able to collect the
payments? Discuss fully. Husband and Wife married in 1985.
They filed for divorce in 1999. At the time of the filing, they held the
following principal assets: Residence:
A residence was purchased in 1985, after marriage, for $150,000. The down
payment of $25,000 was made from money received by Husband as a wedding gift
from his parents. The balance was financed through a bank. Both Husband and Wife
signed the promissory note to the bank. Title was taken in the names of both
Husband and Wife. Husband made the note payments and paid insurance premiums and
taxes from his earnings. The note was paid off in 1997, and there are no liens
on the residence. At the time of the filing of the divorce, the residence was
valued at $300,000. Rental
Property: In 1990, Husband and Wife purchased a house to use as a rental,
income producing property. The purchase price was $80,000. The down payment of
$15,000 was made from a joint savings account that consisted of commingled
deposits from their respective earnings. Both Husband and Wife signed a
promissory note for the balance due the seller. Because Husband and Wife agreed
that Wife would take responsibility for managing the rental property, which she
thereafter did without Husband's participation, title was taken in Wife's sole
name as her separate property. All of the income from the property has been used
to pay the note payments, insurance premiums, taxes, and maintenance expenses.
The balance due on the note is $50,000. Shares
of Stock: In 1988, Wife's parents gave her as a birthday gift 100 shares
of stock in Corp. Over the years, the stock has earned cash dividends of $1,000,
which Wife deposited in the same joint savings account mentioned above. In 1993,
the stock split two for one. At the time of the filing of the divorce, there
were 200 shares of Corp. One
Certificate of Deposit: A certificate of deposit for $75,000 was
purchased in 1995 with the proceeds of a settlement of a personal injury lawsuit
resulting from a 1992 accident in which Husband had been injured. The components
of the settlement were: $40,000 for Husband's mental anguish; $10,000 for
Husband's medical expenses; $15,000 for Husband's lost wages; $5,000 for
Husband's pain and suffering; and $5,000 for loss of consortium by Wife. This
certificate was taken in Husband's sole name. Husband's
Retirement Plan: Husband worked for Acme Co. continuously from 1978 until
he retired in 1998. During the entire period of his employment, Husband paid
into a defined contribution retirement plan maintained and managed by Acme Co.
The contributions to the plan were withheld from his salary, and matching
contributions were made by Acme Co. Husband began receiving a monthly benefit
payment of $3,000 when he retired in 1998. Question: What
interests do Husband and Wife each have in each of the items of property, and
what, if any, claims for reimbursement may Husband and Wife make against the
property? Discuss fully. Joe Cotton owned a 2,000 acre
tract of land in LaSalle County, Texas. In 1996, he and Big Star Oil Company
("Big Star") entered into a written oil, gas and other mineral lease
covering a parcel of 400 specifically described acres out of the 2,000. The 400
acres leased to Big Star are surrounded on three sides by the remainder of
Cotton's tract and on the west side by land owned by Wilbur Granger. The lease document contains no
language expressly granting access across the remaining 1,600 acres of Cotton's
tract to the 400 acres of leased land. It does, however, contain a "Mother
Hubbard" clause that states: This lease also covers and
includes, in addition to the land described above, all land, if any, contiguous
or adjacent to or adjoining the land described above. There is no public road by which
access can be had to the 400 acres. There is, however, a good all weather road
that cuts across Granger's land and ends about 200 yards from the common
boundary of Granger's land and the 400 acres leased to Big Star. No one has ever
used this road to gain access to the 400 acres of leased land. There is also an old ranch road
that meanders from east to west across the remaining 1600 acres of Cotton's
tract and goes onto the 400 acres. Cotton had always used that road for access
to the western part of his tract, and, since the inception of the lease, Big
Star's employees have used this meandering ranch road to get to the 400 acres. In 1997, Cotton sold the entire
2,000 acre tract to Bill Purch, an avid hunter and conservationist. The sale to
Purch was made expressly subject to the lease of the 400 acres to Big Star. Purch bought the tract from Cotton
with the intention of establishing a whitetail deer management program. He knew
when he bought the land that no one had ever used the road across Granger's
property to get to the 400 acres and that Big Star's employees regularly used
the meandering ranch road to get to the 400 acres. Although it has not yet reached
that point, Purch is concerned that Big Star's continued use of the meandering
ranch road will disrupt the whitetail deer population. A. What rights, if any, does Big
Star have to continue using the meandering ranch road for access to the 400
acres, and what, if any, effect does the Mother Hubbard clause have on those
rights? Discuss fully. B. Under the present
circumstances, can Purch prevent or reduce Big Star's use of the meandering
ranch road based on his concern for the whitetail deer population? Discuss
fully. In January 1989, Cora purchased
Green Acres from Tommy. Green Acres is a fenced but otherwise undeveloped
50-acre tract of rural land in Parker County, Texas. The adjoining property,
Lost Acres, is owned by Ralph. The 1988 taxes on Green Acres were
delinquent so Cora paid them and obtained from the proper authorities a release
of the tax lien. She also promptly recorded the deed from Tommy. Also in January 1989, Cora built a
barn for her horses, repaired fences, and cultivated a hay crop. One of the
fences she repaired was one that separated Green Acres from Lost Acres. The
fence appeared to have been torn down. It turns out that Ralph had torn it down
anticipating that he would be buying Green Acres from Tommy, but that
transaction had never occurred. Cora erected a new fence which, unbeknownst to
her, encroached ten feet on Lost Acres. Ralph knew about the encroachment but
took no immediate steps to call it to Cora's attention or otherwise object. Cora's usual residence was in a
town two miles away from Green Acres. She visited Green Acres regularly, saw to
it that she or her paid hand, Bob, attended to the horses daily, regularly
harvested the hay crop, and paid all taxes on the property. In 1997, Cora moved to Dallas,
which is a considerable distance from Green Acres. She and Bob entered into an
oral lease of Green Acres to Bob, who has faithfully paid the rent, kept current
the tax payments, continued to cultivate the hay crop, and managed Cora's
horses. In July 1999, Ralph sued Cora to
require her to remove the encroaching fence. Question: What
theories might Cora reasonably assert as defenses against Ralph, what must she
prove in order to maintain each defense, and what is the likelihood of success
on each? Discuss fully. THIS
IS THE END OF QUESTION 12 AND THIS TESTING SESSION. WRITE
THE PLEDGE
ON THE BACK COVER OF THE YELLOW ANSWER BOOK.
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