FINAL EXAM

INSTRUCTIONS:

1. This is a three-hour examination. The examination is a closed book exam.

2. The examination consists of three (3) questions.

3. The questions are not of equal weight. The questions will be weighted as follows:

 
4. Answer each essay question in order, and start each question on a separate page. Please take time to organize your answer before you begin to write, and write clearly. Typed examinations are appreciated, but are not required.

5. If you believe a question is vague or a material fact is lacking, state explicitly the assumption of fact you are making in answering the question. In some questions a key fact or facts may have been intentionally omitted. In these instances, in order to fully answer the question, you must make an assumption and supply the key fact or facts. Be sure to make your analysis and/or argument in the alternative: e.g., If X were the case, then the result would be Y. If W were the case, then the result would be Z.

6. Unless otherwise noted, if you conclude that different results could be reached dependent upon the applicable law of a particular jurisdiction, your answer should cover alternative situations, e.g., the majority, the minority, and the California rule. When applying California law, you should always indicate that this is the law which you are applying.

7. Please enter your Student Examination Number on the front page and on the bottom of the first page of each examination book and on each typewritten page.

8. You must hand in the question sheets along with your exam booklet in order to obtain your examination receipt. You must sign in when you take the exam out and sign in when you return the exam.

QUESTION I
(Suggested Time: 75 min.)

You work as a law clerk for a Superior Court Judge, and she has asked you to write a memorandum addressing how you would decide the following case. Your memorandum should include a discussion of the claims each party could assert against the other party as well as that other party's defenses.

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On February 1, 2001, Mary and Steve Baker ("tire Bakers") entered into a written commission agreement with Robert Hamin ("Hamm") doing business as Resort Sales Realty ("Resort") to sell their vacation condominium unit located at Blue Lake. The commission agreement provided as follows:

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Commission Agreement

1. In consideration of Broker's efforts, Owner grants to Broker the sole and exclusive right to sell that certain real property commonly known as 123 Water Street, Blue Lake, State X (the "Property") for a period of ten months from the date of this Agreement (the "Exclusive Period").  In the event that Broker procures a purchaser for the Property at the price and terms provided for in Section 2 or such other price and terms as may be acceptable to Owner, Owner agrees to pay to Broker a commission equal to seven percent (7%) of the purchase price, which commission shall be paid at the closing.  Owner agrees to refer to Broker all real estate licenses, buyers, or prospects who may come to Owner directly during the Exclusive Period or any extension thereof.

2. The price (the "Listing Price") shall be $400,000.00 and the terms shall be all cash or other terms acceptable to Owner. The Listing Price shall include all appliances and furniture and furnishings currently located on the Property.

3. In the event that the Property is sold, leased, or conveyed within six months after the expiration of the Exclusive Period (or any extension thereof) to a person to whom Broker or any cooperating broker showed the Property during the Exclusive Period (or any extension thereof), Owner agrees to pay Broker a full commission as provided for in Section 2.

4. Owner hereby authorizes Broker to appoint either subagents or secondary agents. Broker reserves the right to determine in its sole and exclusive discretion with which real estate brokers it will cooperate, the share of its commission that it will offer to cooperating brokers, and whether such brokers will be appointed as subagents, secondary agents, or neither. Broker agrees to place the Property on the Multiple Listing Service for the Blue Lake County Board of Realtors.

5. Owner shall owe Broker a full commission based on the Listing Price in the event that during the Exclusive Period or any extension thereof Owner withdraws the Property from the market, prevents the completion of a sale duo to Owner's default, or otherwise makes the Property unmarketable by transferring, leasing, or other voluntary or involuntary act of Owner.

This Agreement contains all terms agreed to between the parties and there are no other conditions, representations, warranties, or agreements, express or implied.

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In May, 2001, Larry Ladd ("Ladd"), doing business as Lakeside Realty, a cooperating broker, showed the Property to a prospective buyer, Alice Kim ("Kim"), who thereafter made a written offer to purchase the furnished Property at less than the full asking price. Hamm and Ladd orally agreed that Hamm would pay Ladd one half of his commission due under the terms of the written Commission Agreement.

Negotiations between the Bakers and Kim followed. On May 30, 2001, Kim's first offer, for $370,000, lapsed because it was not timely accepted. During a telephone conversation with Ladd, Steve Baker falsely stated that he had received and turned down a $385,000 offer for the Property. Ladd asked Baker if he would consider a $390,000 offer. Baker indicated that he would consider, but not necessarily accept, such an offer. Ladd told Kim about the prior turned down offer and that the Bakers would accept a $390,000 offer. In response, Kim offered $390,000 for the furnished condominium. Her offer contained both financing and physical inspection contingency clauses. The Bakers were hesitant to accept this offer in part because of the contingency clauses. Steve Baker informed Hamm that they were considering taking the Property off the market. Hamm told this to Ladd who telephoned Kim and suggested that she needed to make a full purchase price offer without contingencies if she wanted to be assured of getting the Property.

Because Kim did not really want the furniture and was reluctant to make a full price offer, Ladd told Kim that if she made a $400,000 all cash no contingency offer, he would purchase the condominium's furnishings for $10,000 at the closing. Kim agreed to this arrangement, and on June 23, 2001, she offered $400,000, without contingencies, for the Property. The Bakers were never told about the arrangement regarding the condominium's furnishings. The June 23 offer was sent to the Bakers on June 26, 2001. Steve Baker began to express concerns about taxes which would result from the Property's sale in 2001, and asked to delay closing until January 2002. Kim agreed, and, on July 15, 2001, Hamm sent a revised contract to Baker modifying the closing date. The Bakers, however, did not return the contract.

In late July, the Bakers consulted with an attorney and made a counteroffer, which Kim received on July 31, 2001. Kim was "quite shocked" when she reviewed the counteroffer. Although the Bakers accepted the price, their counteroffer contained other unusual terms and conditions, including the right to rescind the transaction for a three-month period. Kim considered the terms and conditions contained in the counteroffer to be so outrageous that she concluded that the Bakers did not really want to sell the Property and that they would continue to throw "monkey wrenches" into further attempts to reach an agreement. During a telephone conversation with Ladd, Kim expressed her frustration and anger about the Baker's counteroffer. Ladd subsequently spoke with Hamm about the counteroffer.

On August 4, 2001, Hamm then contacted the Bakers' attorney and informed him that the Bakers had turned down a full-price offer and could be liable for a broker's fee. That same day, the Bakers responded and agreed to rescind their counteroffer, and accept Kim's offer. The next day, on August 5, Hamm informed Ladd that the Bakers had accepted Kim's offer. In the meantime, Ladd had already arranged to show Kim other Blue Lake condominiums that were for sale. Ladd did not inform Kim of the Bakers' change of heart immediately because he did not wish to expose Kim to further aggravation. Instead, aware of the anger expressed by Kim, Ladd decided to wait until August 8 to give this information to Kim, when they were scheduled to meet to look at other properties.

During Kim's visit on August 8, 2001, Ladd told Kim that the Bakers had changed their mind; Ladd also showed her a more expensive condominium in the same complex as the Baker unit, and offered to purchase the furniture and furnishings for $15,000. Kim decided to make an offer to purchase this condominium for $415,000 (a net price of $400,000 after taking into account the sale of the personal property for $15,000). The offer was accepted and the sale closed on September 10, 2001.

The World Trade Center tragedy of September 11, 2001 caused a decline in market value of approximately twenty-five percent in the vacation condominiums at Blue Lake. The Bakers subsequently sold their Property directly to a buyer they found over the internet for $300,000, entering into a contract on September 29, 2001 and closing the sale on November 15, 2001. Hamm learned about the sale only after it closed.

Upset by the events of September 11, 2001, Hamm inadvertently allowed his real estate broker's license to expire on November 5. Hamm renewed his license on November 10, 2001 after satisfying the continuing education requirements of State X.

Hamm and Ladd are suing the Bakers for their commissions. The Bakers have denied liability and asserted various affirmative defenses. The Bakers are suing Hamm and Ladd for the $100,000, which they feel they lost because of the failure to close the sale with Kim. Both Hamm and Ladd deny liability.

QUESTION II
(Suggested Time: 75 min.)

You work as a law clerk for a Superior Court Judge, and she has asked you to write a memorandum addressing how you would decide the following case. Your memorandum should include a discussion of the claims each party could assert against the other party as well as that other patty's defenses.

__________

Carol and James Richards (the "Richards") owned a house, which they used as a principal residence, located at Morningside Drive, City of Little Pebble, County of Yellow Springs, State Z (the "Morningside Property"). Having decided to sell their home, they entered into a six-month exclusive right to sell agreement (the "Commission Agreement") with Elizabeth Gordon ("Gordon"), a licensed real estate broker. The Morningside Property was placed on the Multiple Listing Service with the Yellow Springs County Board of Realtors. About one month after the Listing Agreement was executed, the Property was shown by Peter Smith ("Smith"), a licensed salesperson, with ERA Realty, Inc. ("ERA") to Suzanne and David Babbett (the "Babbetts"). The Babbetts submitted a written offer for $400,000, which was contingent upon them 1) obtaining financing froth an institutional lender in an amount not less than $300,000.000 on terms and at an interest rate satisfactory to theirs, and 2) obtaining acceptable pest control, contractor's, and such other inspection reports as they thought desirable.

The Richards discussed the offer with Gordon. Gordon told them that she thought it was a good offer and advised them to accept it. The Richards wanted to have their attorney review the offer before accepting it. They were particularly concerned about title matters, representations and warranties, and disclosure issues. Unfortunately, the Richards' attorney Sam Anderson ("Anderson") was away on vacation and was not going to return for another five days. Gordon advised the Richards that she thought it important to keep the Babbetts "on the hook" and advised them to respond before the expiration date in the offer to show that they were serious sellers. Gordon suggested that they should accept the Babbetts' offer, and submit a counteroffer containing an attorney review clause.

The Richards signed the Babbetts' offer "subject to the terms of a Counteroffer" and Gordon drafted the following Counteroffer which the Richards signed:

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Counteroffer

1. Terms. The terms and conditions of the above referenced document are accepted subject to the following:

a. Attorney Approval. Seller shall have seven days from the time Buyer accepts this Counteroffer to have their attorney review Buyer's Offer. Unless Seller's attorney delivers a written notice of disapproval to Buyer within said seven-day period, the Offer shall be deemed automatically approved by Seller's attorney.

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The Richards executed the Counteroffer on March 5, 2001 and the Counteroffer was accepted by the Babbetts on March 10, 2001. Upon his return, the Richards set up a time to meet with Anderson to review the Babbetts' offer, which they had delivered to his office.

The Richards met with their attorney on March 15, 2001. Anderson told his clients that he had reviewed the Babbetts' offer and that in general he had no problems with it. The Richards explained that in the interim that they had received an offer from Margo Cook ("Cook") through Gordon. The written offer was for $425,000 and was contingent upon her 1) obtaining financing from an institutional lender in an amount not less than $380,000 at an interest rate not to exceed 7.5 percent per annum, fully amortized over 30 years, and 2) obtaining satisfactory inspection reports. In other respects the Babbett and Cook offers were substantially similar having used the same standard real estate form. Anderson asked the Richards what they wanted to do. They said that Gordon had recommended that they accept the higher offer and they said to Anderson, "I guess we should go with the higher price." Anderson had a notice of disapproval delivered to the Babbetts the same day.

On April 7, 2001, the Babbetts filed a complaint against the Richards seeking specific performance on the contract, and caused a lis pendens to be recorded against the Morningside Property. The sale to Cook closed on April 8, 2001. The Babbetts subsequently amended their complaint to add Cook, Gordon, Smith, and ERA.

QUESTION III
(Suggested Time: 30 min.)

You are an attorney and a client has presented you with the following introductory set of facts. Please advise your clients as to what courses of action they may pursue and evaluate their chances of success.

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Your prospective clients Michael and Karen Graham (the "Grahams") recently purchased a home in San Jose. At the time of their purchase, the backyard had been neglected for a number of years and had become overgrown with vegetation. Several months after buying the house while doing gardening work, Michael discovered that one of the prior owners had buried medical waste and garbage in the backyard. After interviewing neighbors, the Grahams learned that the property was owned about ten years ago by a nurse who worked at a local nursing home. Apparently, she buried medical waste in her backyard to prevent soil erosion along a steep bank that bordered a creek, and to rid the back yard of gophers. The medical waste included intravenous tubing, syringes, needles, used feeding bags and kidney dialysis bags, x-ray film, and petri dishes.

The Grahams paid $350,000 for the home and obtained a $250,000 loan from First Federal Savings. They purchased the property from Reed Nagle, who owned it for about three years. The Grahams were represented by C&S Realty, Inc. and Nagle by Best Homes, Inc. Neither was represented by legal counsel. The Grahams obtained title insurance from Springfield Title, and liability and tire insurance from Better Fire and Life. Clean-up liability is estimated at one million dollars.