Texas Board of Law Examiners

February 25, 1999

QUESTION 7

On June 1^st, 1998, Sally Taylor ("Taylor") purchased bedroom and living room furniture for her home from XYZ Furniture and Appliance Store ("XYZ") in Houston, Texas. Taylor made a down payment of $2,500.00 for this furniture with a check drawn on Last National Bank and signed an installment credit agreement with XYZ to finance the remainder of the purchase price. Also on June 1^st, Taylor purchased a refrigerator from XYZ, paying the entire purchase price of $1,500.00 through a check drawn on Last National Bank. XYZ held the checks until June 15^th when Frank Thomas ("Thomas"), the owner of XYZ, took the checks received from Taylor to First Bank where he had a bank account for XYZ. Thomas informed First Bank on June 15^th that he was leaving town because of financial difficulties and that he was closing his store. Thomas closed his XYZ bank account at First Bank and withdrew the entire balance in the account and cashed the Taylor checks which he left with First Bank on June 15th. Later that day, a teller at First Bank discovered that Thomas had not endorsed the Taylor checks, so the teller placed an endorsement on each check reading "Pay any bank, Frank Thomas". On June 16^th, First Bank sent both checks to Last National Bank for payment.

In the meantime Sally Taylor was dissatisfied with the furniture and refrigerator that she had bought from XYZ. Taylor telephoned Last National Bank on June 2, and ordered payment stopped on the $2,500.00 down payment check for the furniture and the $1,500.00 check for the refrigerator, each made payable to XYZ. Taylor was informed by Last National Bank that she would have to sign a written stop payment order for each check. Taylor asked the bank to mail her the stop payment forms. Last National Bank never sent the stop payment forms to Taylor and Taylor never signed written stop payment orders for the two checks written to XYZ.

Both checks written by Taylor arrived at Last National Bank on June 17^th. Last National Bank returned both checks to First Bank with a return item ticket for each check reading, "Insufficient Funds," although Taylor’s account balance at Last National Bank was sufficient on June 17^th to pay both checks.

1. What cause of action, if any, does Taylor have against Last National Bank and what defenses, if any, does Last National Bank have to any such cause of action by Taylor? Explain fully.

2. What cause of action, if any, does First Bank have on the Taylor checks (a) against Last National Bank? (b) against Taylor? Explain fully.

QUESTION 8

On April 13, 1997, Blake purchased a big screen television set from Ambience Entertainment Center ("AEC") for household use. The cash price for the television set was $2,000. Blake made a $200 down payment and agreed to pay off the $1,800 balance with finance charges in 12 monthly payments beginning on May 1, 1997. AEC perfected a security interest in the television set. The security agreement, signed by Blake on the day of the purchase, contained the following "strict foreclosure" clause:

Secured Party reserves the right, in the event of repossession of the collateral, to elect to dispose of the collateral by strict foreclosure and, no matter how great a percentage of the cash price has been paid, to retain the collateral in full satisfaction of the debt. In that event, Debtor agrees that he has waived his rights under the UCC with respect to the repossessed collateral and Secured Party agrees that it has waived its right to recover any deficiency.

After making 10 monthly payments, Blake defaulted. At the time of default, the balance due on the debt was $360. AEC repossessed the television set on March 13, 1998.

At the time of the repossession, the AEC representative orally proposed the following to Blake: If Blake would agree to let AEC keep the television set in complete satisfaction of the balance owed by Blake, AEC would waive any right to recover a deficiency. Blake said he agreed.

AEC stored the television set in a back room of its warehouse until September 13, 1998. It then sold the television set at a public sale of which Blake received notice 15 days before the sale. Blake did not attend the sale.

1. Was either the "strict foreclosure" clause contained in the security agreement or the oral agreement made at the time of the repossession effective to waive Blake's rights to the collateral under the UCC? Discuss fully.

2. Assuming that neither agreement was an effective waiver, what are Blake's rights under the UCC and what if any damages can Blake recover from AEC? Discuss fully.

QUESTION 9

In March 1982, Grandfather, a resident of Bull County, created a valid testamentary trust in his Last Will and Testament. The beneficiary of the trust was his granddaughter, Frances, who had been born in February 1982. Grandfather died in May 1982, when Frances was only three months old.

The testamentary trust provided as follows: "The trust income shall be used for the support of Frances until her 18th birthday when, as a young adult she will be capable of managing her affairs prudently. Upon her 18th birthday, the principal shall be distributed to her." The trust named Frances' uncle, Tex, a resident of Bear County, as trustee. Cash Federal Bank ("CFB"), with its principal place of business in Dove County, was named as successor trustee. The trust instrument was silent as to the procedure for resignation of an acting trustee and appointment of a successor trustee.

Unbeknownst to Grandfather, Frances had suffered birth damage which resulted in permanent severe mental retardation. Frances, through a guardian ad litem, sued the physician in attendance and the hospital and obtained a settlement. The settlement proceeds were used to fund a court-created special needs trust, the purpose of which is to furnish money for the care of Frances in such a way as to preserve her lifetime eligibility for Medicaid and other government benefits. CFB is the trustee of the special needs trust.

Tex has administered Grandfather's support trust for over 17 years. He is now experiencing health problems and wishes to be relieved of his duties as trustee. Tex realizes that Frances will need Medicaid and other government benefits for the rest of her life. He is concerned that outright payment of the considerable principal from Grandfather's trust to Frances when she turns 18 might disqualify her from continuing to receive government benefits.

Tex seeks your advice on the following questions:

1. If he decides to resign:

(a) What is the procedure that must be followed for his resignation and appointment of a successor, and who will be the likely successor trustee? Discuss fully.

(b) Who are the parties that must be involved in the proceeding? Discuss fully.

(c) What court has jurisdiction and where is the proper venue? Discuss fully.

2. Assuming that there is no applicable federal law that would result in adverse consequences, under Texas law:

(a) Is the court likely to be persuaded to change the terms of Grandfather's trust so that the principal is payable to the special needs trust when Frances turns 18? Discuss fully.

(b) What costs will be incurred in petitioning the court for such a change, and who will have to pay them? Discuss fully.

QUESTION 10

Ben, 15 years old, is the income and remainder beneficiary of a substantial trust created for his benefit by Settlor, who is deceased. The trust will terminate on Ben's 18th birthday, at which time the principal will be distributed to him.

Tara, who was named in the trust instrument as trustee, has been serving in that capacity for several years. Her activities as trustee have been questioned from time to time but, until now, no action has been taken against her.

Through a guardian ad litem, Ben sued Tara for alleged mismanagement of the trust and is seeking all remedies that might be available to him.

After the liability stage of the trial, the court made the following findings of fact:

(1) Prior to the time Tara secured her bond as trustee, she executed a lease on behalf of the trust letting to the lessor a commercial property owned by the trust for a period extending eight years beyond the termination of the trust.

(2) Despite repeated written requests by Ben, Tara failed to provide reports reflecting the financial status of the trust.

(3) Tara sold to her son, Hal, a 100 acre tract of land owned by the trust. The sale to Hal was at fair market value but the value of the land has since doubled.

(4) Tara sold certain trust assets in direct contradiction of the terms of the trust, resulting in a substantial loss to the trust. The court finds that this act was a material and willful violation of the terms of the trust.

(5) Prior to the time Tara agreed to serve as trustee and as an inducement for her to serve, Ben, through his guardian, signed and delivered to Tara a document releasing her prospectively from any and all liability she might incur in her capacity as trustee.

(6) Tara traded for the trust's account in speculative securities, resulting in the diminution of the value of the trust and the loss of profits to the trust.

As to each of the foregoing enumerated items, what if any duties did Tara breach, and what if any remedies are available to Ben? Discuss fully.

Answer the next two question in the YELLOW answer book

QUESTION 11

Andy died in 1998. He was survived by Barbara, his wife, and by Sylvia, his granddaughter. Sylvia is the child of Deb, a deceased daughter of Andy's from a prior marriage.

At the time of Andy's death, the community and separate property of Andy and Barbara consisted of the following:

• A residential homestead worth $100,000 purchased with community funds during their marriage;

• $150,000 in a joint savings account held in their names with legally adequate rights of survivorship;

• Real and personal property worth $300,000 inherited by Andy before and during the marriage;

• Real and personal property worth $400,000 inherited by Barbara before and during the marriage; and

• A paid up life insurance policy of $50,000 on Andy's life and naming Sylvia as the beneficiary. The premiums had been paid from community funds without Barbara's knowledge or consent.

The only debts connected with Andy's death, which Barbara paid from the savings account, were $8,000 for burial expenses and $5,000 for their ordinary living expenses during the last month that Andy lived.

No will made by Andy has been found. Barbara has, however, found a letter dated in 1987 addressed to Andy from the lawyer whom Andy had been consulting at the time. The letter stated: "Enclosed is the original will you executed in my office last week. You should put it in a place for safekeeping." The lawyer who wrote the letter and who had always been a sole practitioner, is now deceased. All his files were destroyed in a fire, and no one who worked for him near the time the letter was written is available.

Barbara says that, when she and Andy married in late 1986, Andy told her he was going to see his lawyer about making a will and he was going to leave half of everything he owned to her. Aside from Barbara's statement about what Andy had said, the 1987 letter is the only indication that Andy might have executed a will.

Please answer the following questions and explain the reasons for your answers.

1. Does the Probate Code provide a means by which Barbara can try to prove up the will referred to in the 1987 letter and, if so, what proof would suffice?

2. If Barbara can not prove up the will, what are the respective rights of Barbara and Sylvia in the items of property listed above?

3. If Barbara can not prove up the will, is she entitled to a family allowance?

QUESTION 12

Don Smith, a single man with no known domicile or fixed place of residence in Texas, died in Tarrant County, Texas, in 1997. In his wallet was found an undated document written entirely in Don's handwriting, which contained the following words and nothing more:

"I, Don Smith, leave my house in Harris County, Texas and my Buick automobile to my longtime friend Bill and all the rest of my property to my cousin Fred and my nephew Joe, share and share alike."

At the time of his death, Don owned the following property:

• A house in Harris County worth $100,000;

• A Buick automobile worth $5,000;

• A 25 acre tract of land in Travis County worth $60,000;

• $20,000 in a savings account in a Travis County bank; and

• $10,000 in gold coin in a lock box at a Travis County bank.

The debts of Don or his estate, to be paid by the personal representative, consist of the following:

• Credit card indebtedness of $50,000 owed to various card issuers;

• $10,000 owed to the State of Texas for sales taxes;

• $5,000 in expenses of administration and management of the estate; and

• Funeral expenses and expenses of last illness totaling $20,000.

Please answer the following questions and explain the reasons for your answers.

1. Was the document found in Don's wallet a valid will, and, if so, in what county or counties could it be probated?

2. Assuming the document is a valid will and that each of the legatees is qualified and wants to serve as personal representative:

(a) Which of the legatees should the Probate Court appoint as personal representative, and what would be the title conferred upon the appointee?

(b) Under the Texas Probate Code, what duties would the appointee be required to perform within the first 120 days after qualifying or receiving his letters testamentary?

3. In what order would the bequests of property in Don's estate abate, and in what order would the items of property be used or sold, if necessary, to pay the debts of the estate, and in what order of priority would the creditors of the estate be entitled to payment?

THIS IS THE END OF QUESTION 12 AND THIS TESTING SESSION.