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University of California, Los Angeles *
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Course
108
Subject
Law
Date
Jan 9, 2024
Type
Pages
15
Uploaded by GrandLemurMaster943
1. The federal courts would have subject matter jurisdiction because Susan’s lawsuit satisfies
the two diversity requirements. Susan is looking for $200,000 as compensation for her
damages, which amounts to more than $75,000, and there is diversity of citizenship between
Susan and NBC. Susan is a resident of Los Angeles and NBC is incorporated and has their
primary place of business in New York. Thus, the federal courts would have subject matter
jurisdiction.
2. No, Amazon will lose the motion. Since this case is about the Civil Rights Act of 1964, a
federal statute, the federal courts and state courts have subject matter jurisdiction and can hear
this case. The demurrer will be rejected because the case is about a federal question.Therefore,
the Los Angeles Superior Court has subject matter jurisdiction.
3. Tony can file his case in Federal District court. Despite not satisfying diversity jurisdiction,
Tony is suing on the grounds of his constitutional rights being violated, which is a federal
question. The case satisfies federal question jurisdiction.
4. b. Depositions
Depositions are an examination of a witness under oath, and there is a court reporter present.
Parties subject to a deposition may have counsel represent them, and opposing counsel may
cross-examine them. Depositions are not held in court. They may be used in trial to discredit a
witness on the stand if their testimony does not match what was said in the deposition.
Q1
Susan, a Los Angeles resident, appears on a new NBC reality show. Susan is the first to be
"kicked off the island" and leaves the show. On her way out, she throws a temper tantrum and
destroys some of the furniture on the set. NBC is incorporated and headquartered in New York,
where the show is filmed. NBC has offices and conduct business in Los Angeles and San
Francisco. Humiliated by the loss, Susan plans to sue NBC for breach of contract, fraud and
intentional infliction of emotional distress, seeking $200,000 in damages. Susan is considering
filing her lawsuit in California state court, New York state court or the federal courts.
Explain whether the federal courts would or would not have subject matter jurisdiction.
Q2 Harvey is a resident of California. Harvey files an action in Los Angeles County Superior
Court, California against Amazon alleging $100,000 in damages in a claim arising under the
Civil Rights Act of 1964. Amazon is properly served a summons and complaint in California.
Amazon requests that its attorney file a Demurrer for lack of subject matter jurisdiction. Will
Amazon win the Motion? Please explain why or why not.
Q3 When Officer Krupke arrested Tony, a scuffle ensued. Tony believes that Krupke used
excessive force in making the arrest. He wants to sue Krupke for violating his federal
constitutional rights in a civil action. His injuries amount to about $25,000 of medical bills and a
sore jaw. Both Tony and Krupke are citizens of New York. Can Tony file his case in Federal
District court?
Q4
Which of the following pretrial testimony is taken under oath, out of court, and may be used at
trial:
a.
Complaint b. Depositions c. Pleadings d. Demurrer e. All of the above
Q1
Marie was a famous model. Temp magazine mailed her an offer to do a five-page photo layout
for a new line of swimsuits for $135,000. Marie received the offer January 2. On January 3,
Marie mailed Tempo the following note:
“I accept, but must have twelve pages devoted to me and accordingly, $150,000.”
Tempo received this note on January 5. On January 6, Marie called them and told them she
would do the modeling under the original terms, but Temp refused. Is there a contract, explain
why or why not?
There is no contract because Marie made a counteroffer. The original contract was for
five pages and $135,000, but Marie countered this with twelve pages for $150,000. When an
offeree makes a counteroffer, the original contract is terminated.
Q2
Patrick offered in writing to sell his house to Jarrod for $1,950,000.
Jarrod was interested but
did not wish to decide immediately so he asked Patrick if he would hold the offer open for thirty
days in exchange for $5,000.
Patrick agreed in writing and received the $5,000. Three days
later Jarrod called Patrick and told him he was not sure he could purchase the property because
of financing concerns, but he was still working on it. The next week, Patrick sold the house to
Nick. If Jarrod accepts Patrick’s offer within the 30 days period, explain whether there is or is not
a contract.
There is a contract because Patrick and Jarrod entered into an option contract. The
option period gives Jarrod 30 days to accept or reject the offer. Jarrod voicing his concerns over
the phone did not constitute a formal rejection. Since Jarrod accepted the offer within the option
period, the contract must be upheld. Patrick must sell Jarrod the house.
Q3
Sean, 17, a snowboarder, signs a long-term endorsement agreement for sportswear. He
endorses the products and deposits his compensation for the endorsements for several years.
At age 19, he decides he wants to void the agreement to take a better endorsement deal. He
claims he lacked capacity when he signed the deal at 17.
Can he get out of the contract?
Sean cannot get out of the contract because even though he was a minor and lacked
capacity when he first entered into the deal, he continued to deposit his compensation after he
turned 18. He cannot void the contract now that he is 19 because he was willingly participating
and honoring the deal after turning 18.
Q4
Larson had worked for BUBA Corp. for 30 years and was retiring from his job. At the time of his
decision to retire BUBA Corp. had no pension benefits for its employees. However, the Board of
Directors of the corporation voted to give Larson $1,000/week "for as long as he lives" as a
retirement benefit to honor the fact that Larson was the first employee to work for 30 years for
BUBA Corp. The president of BUBA announced this decision about the pension at Larson's
retirement banquet. BUBA paid Larson $1,000/week over a period of 2 years, until a new Board
of Directors voted to cease any more payments to Larson because of financial difficulties.
Based solely on the facts provided, if Larson sues BUBA to resume payment of the $ 1,000/
week:
a. Larson will lose because BUBA's promise was not supported by consideration.
b. Larson will win because he has a cause of action for implied contract.
c. Larson will win because of the Doctrine of Promissory Estoppel.
d. None of the above are correct.
a. Larson will lose because BUBA's promise was not supported by consideration. If it
were considered to be an oral contract, it would not be enforceable under the Statute of Frauds.
It is a requirement that any contract paid over a one year period must be in writing in order to be
valid. Therefore, Larson will lose because the contract will not be enforceable in court.
Q5
Sister's husband died of a heart attack. Sister, who lived in Buffalo, called her brother-in-law in
San Antonio and told him she had no money and no place to live. Brother-in-law told Sister she
could live in a spare room in his house. Sister traveled to San Antonio and upon her arrival,
Brother-in-law informed her that he had rented the room to a college student. Sister's best
chance of enforcing brother-in-law's promise is to argue:
a. The promise is supported by consideration and therefore a valid contract was formed.
b. The Doctrine of Promissory Estoppel
c. Implied Contract
d. Unilateral contract
e. None of the above
b. The Doctrine of Promissory Estoppel. The brother-in-law knew the sister would take
the steps to travel from Buffalo to San Antonio because of his offer. The sister relied on the offer
and took those steps. The only reason the sister spent money to travel to San Antonio was
because her brother-in-law agreed to give her a room. If he had not said this, she would not
have come. There was detriment if the brother-in-law did not follow through with his offer
because he knew the sister did not have any money and no place to live.
Q6
On July 1, Jane sent Harry a signed letter offering to sell Harry her home in Aspen for
$2,500,000. The letter included all the essential terms of the sale. In the letter, Jane stated that
she would keep the offer open for 30 days. On July 15, Harry called Jane and stated that "The
price for your home seems really high, I wish you would contemplate selling it for $2,000,000."
On July 17, Jane receives a letter from Juan offering to purchase her condominium for
$2,550,000. Jane immediately calls Harry and revokes her offer and then sends Juan an email
accepting his offer. On July 27, Harry calls and insists he has the right to purchase the property
and therefore officially accepts, in writing, the offer under all the terms stated in the July 1 letter,
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including the $2,500,000 purchase price. Jane politely reminds him that she already revoked the
offer and explains that it is too late because she has contracted to sell the property to Juan.
Based upon the foregoing, fully explain whether there is an enforceable contract between Jane
and Harry.
There is not an enforceable contract between Jane and Harry because as the offeror,
Jane has every right to pull her offer at any moment. Jane terminated her offer to Harry before
he accepted. There was no offer for Harry to accept after Jane pulled her offer.
Q7
1. Which of the following contract(s) do not have to be in writing under the Statute of Frauds?
a. The agreement of a father made to his son that if his son doesn't pay his fraternity bill, he
would pay it.
b. A two year option contract to purchase a movie script.
c. A contract of employment for a term of nine months, performance to commence four months
after the agreement was entered into.
d. Two of the above are correct.
c. A contract of employment for a term of nine months, performance to commence four
months after the agreement was entered into. Option a involves a surety agreement where the
father guarantees to repay his son’s debts. Option b exceeds the one year period and must be
put into writing. Since options a and b are both incorrect, option d cannot be correct. Therefore,
the only one that remains is option c.
Q8
Jesus Rodriguez, owns a car dealership in East Los Angeles. His customers, including Graciela,
are predominately Spanish-speaking. When purchasing one of his cars, Jesus makes his
customer sign a contract which is entirely in English and contains excessive dealer charges.
Graciela buys one of his cars and later refuses to pay the dealer charges on the contract. If
Jesus sues her, what is Gracielas’ best defense?
a. Unconscionability
b. Misrepresentation
c. Undue Influence
d. Fraud
a. Unconscionability because the contract was written in English with one-sided terms.
The terms are unjust because Graciela could not understand what she was signing. The terms
are one-sided in favor of the dealer because he would gain more money from the excessive
fees. Additionally, he was the only one who understood what was in the contract because he
speaks English. This is Graciela’s best defense because Jesus did not say anything false during
the contract formation to get her to sign the deal. There is no discernible fraud because Graciela
was not coerced into signing. There is no undue influence as Graciel and Jesus are not close,
and Jesus does not have a special position of trust with Graciela.
Q9
Samuel DaGrossa and others were planning to open a restaurant. At some point prior to August
2015, DaGrossa orally agreed with Philippe LaJaunie that LaJanunie, in exchange for his
contribution in designing, renovating, and managing the restaurant, “could purchase a one-third
interest in the restaurant’s stock if the restaurant was profitable in its first year of operation”. The
restaurant opened in March 2016, and a few weeks later, LaJaunie’s employment was
terminated. LaJaunie brought an action to enforce the stock-purchase agreement. Explain fully
whether this oral agreement is enforceable under the Statute of Frauds?
The contract is not enforceable under the Statute of Frauds because the contract would
take longer than one year to be completed. The contract was made in August 2015, but the
work would not be completed until March of 2017. This is more than one year as it is several
months after August 2016. Therefore, the contract would only be enforceable if it was in writing.
Q10
Sylvia, an elderly widow who is almost deaf, owns her own home. Her closest confidant for
business transactions is her son-in-law, Ron. Ron offered to purchase her home for $100,000.
The home had recently been appraised at $200,000, but Sylvia agreed, in writing, to sell when
Ron persisted in making the offer. She never asked and he never volunteered information about
the appraised value of the house. If Sylvia later desires to set aside that sale, what is her best
argument against the validity of the contract?
Sylvia’s best argument would be that her son-in-law had undue influence over her. Ron
had a special position of trust as her closest confidant for business transactions. He unduly
influenced her into making the sale because he knew that he would get the house for half of its
true valuation. Ron was using his position to enter into a contract for his own economic
advantage.
Q11
Wally contracts in writing to buy 50,000 pounds of fertilizer from Theodore Garden Supplies for
$25,000. Wally will be using the fertilizer to landscape a new hotel and will make a profit of
$100,000 for the landscaping job. Two weeks before the landscaping job is set to start,
Theodore notifies Wally, “I’m backing out of the deal...the price I gave you is too low because of
“fluctuations in the market”, (not related to Covid 19). Wally calls several other suppliers and is
told the same quantity of fertilizer will cost $35,000.
Wally buys the fertilizer for $35,000 and
completes the project for the hotel on time and received payment. Wally wishes to file a lawsuit
against Theodore. In that lawsuit, please indicate whether Wally will be able to recover any or
none of the following and why.
A.
Specific performance
B.
Compensatory damages
C.
Consequential damages.
D. Compensatory & Consequential damages
Specific performance seems unlikely in this situation, as it would require making
Theodore provide the originally agreed upon quantity of fertilizer at the initial price. This might
not be a practical because Wally had to procure the fertilizer from another supplier at a higher
cost. It would not make sense as Wally already completed the job, so he does not need the
fertilizer.
Wally does have the potential to claim compensatory damages. Compensatory damages
are designed to reimburse someone for the losses incurred due to the contract breach. The
calculation for compensatory damages is the difference between the contract price of $25,000
and the expense of purchasing the same amount of fertilizer from an alternative supplier, which
is $35,000. Naturally, Wally may have a valid claim for compensatory damages amounting to
$10,000.
Consequential damages, on the other hand, encompass supplementary losses
stemming from the breaching party's failure to fulfill the contract. In this case, Wally incurred
consequential damages by having to buy the fertilizer at an elevated cost from another supplier.
However, to recover consequential damages, it generally necessitates demonstrating that these
losses were either reasonably foreseeable at the time of contracting or that the breaching party
had knowledge of unique circumstances leading to such damages. Since the provided
information does not specify whether Theodore was aware of the hotel landscaping project and
the potential $100,000 profit, proving that Theodore should have reasonably foreseen these
consequential damages may pose a challenge. Thus, recovering consequential damages may
be intricate in this particular case.
Wally could pursue both compensatory and consequential damages. As previously
explained, compensatory damages would cover the extra $10,000 Wally spent on acquiring the
fertilizer from another supplier. Nonetheless, the recovery of consequential damages hinges on
the ability to demonstrate that Theodore should have reasonably anticipated the potential
$100,000 profit resulting from the landscaping project. Without additional information, it is
uncertain whether Wally would succeed in claiming consequential damages.
In summary, Wally has a reasonable chance of recovering compensatory damages to
offset the additional costs incurred due to Theodore's contract breach. The potential for
recovering consequential damages depends on establishing that Theodore should have
reasonably foreseen the potential landscaping job profits. Given the circumstances of the case,
specific performance is less likely to be granted.
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Q1
Robert executed a valid promissory note and security agreement with First Time Bank covering
Robert's new purchase of machinery and equipment for his new factory.
However, First Time
Bank failed to perfect its security interest in the equipment and machinery. Six months later,
Robert defaults on the loan with First Time Bank. Robert did not sell the machinery & equipment
or use it as collateral for another loan.
Without taking any additional actions (i.e. filing a UCC-1 Financing Statement), can First Time
Bank repossess Robert's new machinery and equipment?
First Time Bank can still repossess Robert’s new equipment and machinery, even though
they forgot to perfect. He did not use the equipment and machinery as collateral for another loan,
so First Time Bank is the only unsecured creditor in this case.
Q2
On May 2, 1990 SAFE BANK discussed the possibility of loaning Tyler Corp. $500,000. Tyler
signed a security agreement and UCC-1 Financing Statement covering its existing equipment.
On May 4th, SAFE BANK properly filed the UCC-1 Financing Statement. On May 7, Tyler
approached ONE TIME CREDIT about borrowing $600,000 secured by the same equipment. On
that same day, ONE TIME CREDIT obtained a signed security agreement, promissory note, and
UCC-1 Financing Statement from Tyler Corp, gave Tyler the money and properly filed the
UCC-1 Financing Statement. On May 10, Tyler signed a promissory note and received the
$500,000 from SAFE BANK.
A) If Tyler defaults on both loans, who has a superior interest in the equipment?
Safe Bank would have superior interest in the equipment because they were the first
creditor to file. They properly filed the UCC-1 Financing Statement on May 2nd, which is five
days before One Time Credit perfected on May 7th. In a case between two perfected creditors,
the first to file or perfect wins.
B) Would your answer change if ONE TIME CREDIT took possession of the collateral instead
of filing a UCC-1 Financing Statement?
No, my answer would not change because Safe Bank still filed first.
Q3
ABC Co., a California corporation sells musical instruments. ABC Co. borrowed $1,000,000
from Local Bank for working capital and gave its inventory, proceeds and after-acquired
inventory as security for the loan. Local Bank took a security agreement and filed a UCC-1
Financing Statement in the proper place on April 1, 2015. On January 3d of the next year, ABC
Co. contracted to buy 50 fancy black walnut pianos for its store from Black Walnut Piano
Company. Black Walnut agreed to sell them to ABC Co. on credit, reserving, pursuant to an
agreement, a security interest in the pianos to secure their purchase price. Black Walnut filed a
UCC-1 Financing Statement in the appropriate place on Jan. 8, 2016 and delivered the pianos on
Jan. 9. On March 3d of that year, Cathy brought a black walnut piano from ABC Co. on credit,
signing a promissory note and a security agreement. She stated that the sole purpose of the
purchase was to fulfill her lifetime dream of learning to play Mozart to her pet cat Muffy. ABC
Co. did not file a UCC-1 Financing Statement. Several months later, ABC Co. fails to pay any of
its debts.
A)
Can Black Walnut or Local Bank repossess the piano sold to Cathy Consumer?
No, Black Walnut or Local Bank cannot repossess the piano sold to Cathy Consumer
because even though they both perfected, Cathy is a buyer in the ordinary course of business.
One exception to the general rule is when a person buys in the ordinary course of business takes
the goods fee from any security interest created by the seller. Therefor, despite ABC Co. failed to
pay its debts, Cathy would still be able to keep the piano.
B) Which creditor, Local bank or Black Walnut, has the superior interest in the Black Walnut
pianos in ABC's inventory?
Local Bank would have superior interest because they filed a UCC-1 Financing
Statement on April 1, 2015. This is before Black Walnut filed the UCC-1 Financing Statement
with ABC Co. on January 8, 2016. The general rule of first to file or to perfect wins applies.
Q4
Marina Inc. sells and services sailboats.
On April 1, Marina financed the purchase of its entire
inventory with ACE Finance Company. ACE required Marina to execute a security agreement
and a UCC-1 financing statement covering the inventory and proceeds. On April 4, ACE
properly filed the UCC-1 Financing Statement covering the inventory, proceeds and after-
acquired inventory. On April 27, Marina sold one of the sailboats to Wally for use in his charter
business for $100,000 ($50,000 cash and $50,000 on credit). Wally, who had once worked for
Marina, knew that Marina regularly financed its inventory with ACE.
Marina defaults on its
obligations to ACE. Can ACE repossess the sailboat purchased by Wally?
No, ACE would not be able to repossess the sailboat purchased by Wally. Marina Inc. is a
company that sells and services sailboat in its ordinary course of business. ACE cannot repossess
the sailboat from Wally because he purchased it from Marina in the ordinary course of business.
This is an exception to the general rule.
Q5
Donald purchased a diamond bracelet form Mayor Jewelry as a present for Lorraine. Donald
signed a written contract agreeing to pay for the bracelet in forty-eight monthly installment and
granted Mayor a security interest in the bracelet. Donald took possession of the bracelet. The
owner of Mayor Jewelry advised the store manager to be certain that she perfect the security
interest immediately. The store manager did not file a financing statement.
I. Two weeks later, Mayor's owner asks the store manager if she had perfected the security
interest and she replies "of course, there is nothing to worry about." ls she correct?
Yes, she is correct because it was automatically perfected at the time of attachment. It
was a Purchase Money Security Interest in a consumer good.
2. Instead of giving the bracelet to Lorraine, Donald sells the bracelet for $10,000 to his friend
Ronald, who retains it for his own use. Prior to purchasing the bracelet, Ronald asks Donald if
the bracelet is free and clear of all liens and Donald replies "yes". Shortly thereafter, Donald
declares bankruptcy still owing $7,500 to Mayor Jewelry. After Ronald refuses to give the
bracelet to Mayor, Mayor sues Ronald . To whom should the court award possession? Would
your answer be different if Mayor filed a financing statement?
The court should give possession of the bracelet to Ronald because he paid Donald and
Donald claimed the bracelet was clear of all liens. This means that Ronald should get the bracelet
and Donald should have to pay the remaining amount to Mayor. However if the financing
statement was previously filed, Mayor would then be given possession of the bracelet as it would
show that Donald still owes Mayor $7500.
3. Instead of selling the bracelet, Donald gives it to Lorraine as he intended. Donald declares
bankruptcy still owing Mayor $7,500. Mayor sues Lorraine. To whom should the court award
possession of the bracelet?
Mayor will be awarded possession of the bracelet because Lorraine received the bracelet
as gift; she did not purchase the bracelet from Donald. Thus, she would not be considered a
consumer, and the consumer to consumer exemption would not apply.
4. Instead of selling the bracelet or giving it to Lorraine, Donald uses the bracelet as collateral to
borrow $10,000 from First National Bank. He signs a security agreement giving the bank a
security interest in the bracelet. For safekeeping the bank stores the bracelet in its vault. Donald
declares bankruptcy. To whom should the court award the bracelet? Would your answer be
different if Mayor or First National had filed a financing statement?
The general of first to file or to perfect rule applies. Mayor was perfected before First
National Bank perfected by possession. The answer would remain the same because Mayor
perfected first at the moment of the PMSI sale.
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Q1
Homer, single & Marge, married with one child, are starting a business to provide computer
consulting services, web design and software development. They will locate in Los Angeles,
California.
Homer is willing to contribute $50,000 to the business. Unfortunately, Marge has no
money to contribute, but has the computer expertise, the essential contacts and is a graduate of
the UCLA Anderson School. In fact, Marge already has two potential new clients, one located in
Arizona. They hope to open a second office in Arizona within a few years. They would like to
participate equally in making all decisions.
They estimate that $100,000 will be enough money
to pay all expenses for 12 months at which time they project that revenues will cover expenses.
Homer and Marge plan on reinvesting most of the earnings with the goal of expanding and
selling the business. They have decided on the name Virtual Construction, Inc., but will be doing
business as "Vircon.” Initially, they would like to hire two people, a web designer and a
consultant.
The consultant will work full-time for Vircon, have substantial decision making
authority, will work at either the main office or at client sites, receive a salary and expenses
reimbursed, use Vircon's equipment, and will not receive any benefits, such as medical
insurance. The web designer will work from his/her home, use his/her own equipment, be paid
hourly, may have other clients and will not receive any benefits, such as medical insurance.
Both workers have written contracts indicating they are independent contractors.
Is the Vircon consultant an independent contractor or an employee under the new ABC test in
California (exclude the exemptions from
your analysis)?
The consultant is an employee under the new ABC test in California because he works
full-time, works on site, uses their equipment, and has substantial decision making authority.
Additionally, the consultant’s service is within the company’s core business because Vircon is a
computer consulting services, web design and software development company, and the
consultant will be assisting in those areas. Therefore, he violates the second part of the test.
There is no evidence that he is also providing the same services to other companies as he is
working for Vircon full-time.
Is the web designer an independent contractor or an employee under the new ABC test in
California?
The web designer is an employee because they do not meet all of the requirements to
be called an independent contractor. Although they are free from the company’s control and
have the potential to have other clients, the web designer does not satisfy the last requirement.
They are providing services that are part of Vircon’s core business, since they are a web design
company.
What are the legal consequences of incorrectly characterizing them
The consequence of incorrectly characterizing them relates to taxes. If they are
employees, Vircon is legally obligated to withhold taxes for the consultant and web designer. If
Vircon did not withhold their taxes, then Homer and Marge would be held liable. They could also
be liable fail to pay for any expenses and/or overtime for employees, failing to acquire insurance
for vicarious liability in accidents during the scope of employment, and ignoring discrimination
laws.
Q2
DotBomb, Inc. is an online retail business through its website, DotBomb.com. In addition to its
own sales of a wide range of retail products, DotBomb sells advertising space on its site. It does
so through a team of in-house sales people, whom advertisers contact by calling a number on
the “Contact Us” page of the website.
In addition, DotBomb’s sales people make cold calls to
potential advertisers, which they can follow up with marketing materials including their business
cards. Jenny, one of the firm’s salespeople, recently scored a huge victory, selling a one-year
advertising deal with AutoMax, the nationwide chain of auto dealerships. It is customary in the
industry for contracts of this nature to be sold by salespeople without prior approval.
However,
subsequently her supervisor reminded her that under the firm’s internal sales team handbook,
contracts in excess of six months require approval by DotBomb’s CEO.
Did Jenny have authority to enter into this contract such that AutoMax will be able to enforce the
contract against DotBomb?
Jenny has apparent authority. Despite not having the actual authority to make the
contract, it would be reasonable for AutoMax to believe that Jenny has the authority to enter into
a sales contract, especially since it is normal in that field.
Her position, title, and materials such
as business cards and company letterheads would lead AutoMax to believe she can enter into a
deal. Jenny likely does not have actual authority because she would be trained to know the
limitation from the internal sales team handbook.
Q3
During the next few years, the business did well and Helmut was supervising a staff of 10
persons. Homer and Marge keep meticulous records of receipts and payments, but did not
document certain corporate transactions, such as salaries and shareholder meetings. In one
year the corporation paid six of Marge’s monthly home mortgage payments because she was
having severe financial problems. Also during this period, Vircon borrowed $150,000 from Nice
Bank to be used as working capital.
One day Helmut, an employee of Vircon, driving negligently, severely injured Thelma and her
prize poodle Fifi in a car accident while he was on his way back to work after visiting a new
client located about 5 miles from the office.
Thelma and Fifi live in Arizona and were only in Los
Angeles, where the accident occurred, to get Fifi groomed by her favorite stylist for her next
show. Needless to say, Thelma is furious and plans to sue Vircon and Helmut for at least
$300,000.
Vircon does not have any appropriate insurance coverage for this accident.
(A) On what legal basis can Thelma sue Vircon for the injuries she sustained in the car accident
with Helmut?
Thelma can sue Vircon because they have vicarious liability for the injuries she has
sustained in the car accident. Since Helmut was traveling to visit a client nearby, he was in the
scope of employment. Therefore, Thelma can sue the principal (Vircon) as they are liable for the
agent’s actions (Helmut).
(B)
DISREGARD THIS QUESTION, WE WILL DISCUSS IN CLASS. On what legal theory can
Thelma sue Homer and Marge, individually, as shareholders of Vircon (assume they are the
only shareholders of Vircon)?
(C)
Assume that instead of getting into an accident with Thelma, Helmut drives approximately
30 miles in a different direction from the office to visit a friend at a restaurant on his way back to
work.
As he was leaving, he negligently hit Pete's car and injured Peter. Is Vircon liable to Pete
for the damages caused by Helmut?
Helmut is not in the scope of employment because he is going on a personal trip.
Therefore, Vircon would not be liable for the accident; Helmut would be liable.
(D)
Would your answer to (A) above be different if Helmut was an independent contractor?
Yes, the answer would change because Vircon would not have any vicarious liability if
Helmut were an independent contractor. Thus, they would not be liable at all for the accident.
Helmut would be responsible.
Q4
Karen, a talent agent, has hit hard times and needs cash. She borrows $50,000 from her mom.
In January 2019 , mom realizes that Karen will not be able to pay her back and forgives the
$50,000 debt, telling her daughter she does not need to pay her back. Soon thereafter in
February, Karen gives her mom her diamond necklace, valued at approximately $10,000 as a
thank you gesture for forgiving the loan.
Karen eventually files bankruptcy under Chapter 7 in
May 2019. In her bankruptcy schedules she does not list her mom as a creditor nor does she list
the transfer of the necklace to her mom.
At a meeting of creditors, one of Karen’s creditor tells
the Trustee about the necklace because he saw Karen wearing it. Karen explains that she gave
it to her mother as a thank you for a loan that was forgiven and she just forgot to schedule it.
Under Chapter 7 bankruptcy, does Karen or her mother have any exposure or risks arising out
of these transactions? Will Karen get her discharge in bankruptcy?
Yes, Karen’s mother has exposure of getting sued for both fraudulent conveyance and
preferential transfer. She can be sued for fraudulent conveyance because there was no fair
value in return and the transaction was within 2 years of Karen filing for bankruptcy. Karen’s
mother can also be sued for referential transfer because the transfer period between insiders is
1 year and it has only been 4 months. Karen’s mother is an insider because she is her mom.
Karen will get her discharge in bankruptcy, but only the amounts from the fraudulent
conveyance and preferential transfers will be added into “the Pot”. If the court finds Karen
transferred the necklace with the intent to defraud her creditors, then she may not get the
discharge
What if Karen owns 100% of the stock in her talent agency, a California corporation. There are
no employees; it is just Karen and her assistant. Is there anyway Karen can keep the stock in
her company under the Chapter 7?
Karen can keep up to $30,000 in value of the stock under the wild card exemption. This
is only valid if she does not take the homestead exemption.
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Assume the corporation leased office space and Karen personally guaranteed the lease. If the
corporation has not paid rent for the two months prior to Karen filing bankruptcy, does the
Automatic Stay protect the corporation from eviction?
No, they will be evicted because the enforcement of residential eviction judgment
entered pre-petition is an exception to the automatic stay.
Homer, single & Marge, married with one child, are starting a business to provide computer
consulting services, web design and software development. They will locate in Los Angeles,
California. Homer is willing to contribute $50,000 to the business. Unfortunately, Marge has no
money to contribute, but has the computer expertise, the essential contacts and is a graduate of
the UCLA Anderson School. In fact, Marge already has two potential new clients, one located in
Arizona. They hope to open a second office in Arizona within a few years. They would like to
participate equally in making all decisions. They estimate that $100,000 will be enough money
to pay all expenses for 12 months at which time they project that revenues will cover expenses.
Homer and Marge plan on reinvesting most of the earnings with the goal of expanding and
selling the business. They have decided on the name Virtual Construction, Inc., but will be doing
business as “Vircon.”
Assuming a few friends of Marge’s, (Sven, Harry and Steven) feel the business will be very
successful and would like to invest. Sven lives in and is a citizen of Sweden. He only visits the
United States once or twice a year. They are all content to be passive investors. A) What form of
legal entity do you recommend if only Homer and Marge decide to participate in this business
venture and why?
If only Homer and Marge decide to participate in this business venture, I would
recommend they form a general partnership. Since Homer and Marge want to be equally
involved in making decisions, a general partnership would be the best legal structure as it allows
both of them to have equal rights to participate in the business. Additionally, a general
partnership allows for flow through taxation for Homer and Marge. They can file any profits or
losses on each of their respective personal tax returns. They will also be more free to manage
the business as they please with no formalities. However, they will be personal liable.
B) What form of legal structure do you recommend if Homer, Marge, Sven, Steven and Harry
participate, and why?
If Homer, Marge, Sven, Steven, and Harry participate I would recommend forming a
Limited Liability Corporation (LLC). LLCs only require to file Articles of Organization with State
Agency. The partners have limited personal liability, and there is no double taxation. The
partners could still do flow through taxation. Since Sven, Steven, and Harry want to be passive
investors, the group can agree to appoint Homer and Marge as managing members. An S-Corp
would not be feasible as Sven is a non-resident alien.
Q2
Marge also serves as an outside director on the board of directors of Cellular Information
Systems (CIS). CIS has five members on its board and approximately 500 shareholders. During
a special meeting of directors of CIS, all five directors present voted to declare a $100,000 cash
dividend. However, three of the directors learned through their position as CIS officers that CIS
had just lost a customer who was its chief source of revenue. This information was not disclosed
at the meeting, although all the other board members asked numerous questions about the
financial situation of the company.
Discuss the legal basis, if any, on whether each of the CIS directors can be held personally
liable.
The three directors who learned that CIS had just lost a major customer and did not
share this information during the board meeting would be liable for breach of their fiduciary
duties. They violated both the Duty of Care and the Duty of Loyalty. Regarding Duty of Care, the
three directors who did not disclose the information about losing a major customer failed to use
care and diligence in making this corporate decision. An ordinary prudent person, when asked
numerous questions about the financial situation of the company, would reveal that they lost a
client, especially if that client was a chief source of revenue. Thus, those three directors are
personally liable for any damages resulting from this decision. The other board members who
asked numerous questions about the financial situation of CIS showed they used care and
diligence when making this corporate decision. Therefore, they are not personally liable,
especially considering they did not have the same information as the other directors. The three
directors who did not share the information violated their Duty of Loyalty by putting their own
interests above of the company’s interests. Instead of helping CIS recover from the financial
loss of losing a major client, the directors wanted to get paid from the cash dividend. Thus, the
three directors could be held liable. The other directors did not violate their Duty of Loyalty
because they thought they were giving out a dividend to help the company.
Q3
A few years later Vircon realized it leased too much office space and decides to sublease a
small portion of its space to two CPA’s,
R & S, LLP, a California limited liability partnership. R &
S, LLP signed a 2 year lease with Vircon in the name of the LLP.
A year later R & S LLP move
out of their office space, breaching the lease with Vircon.
Are the individual partners of the LLP
personally liable for the breach of the lease between Vircon & R & S, LLP?
No, the individual partners of the LLP are not personally liable for the breach of the lease
between Vircon and R & S, LLP. Since it is an LLP, only the LLP itself can be held liable. The
partners would only lose up to the amount they put into the business. Creditors cannot go after
a partner's personal assets or income.
Q4
Assume Marge and Homer form a corporation and each own 50% of the outstanding shares.
The board of directors is composed of just the two of them. Marge wishes to obtain a personal
loan from her bank for $100,000, but the bank requires someone to co-sign the promissory note.
Marge co-signs the note in the name of the corporation and signs as the president.
Later Marge
defaults on the note, and the bank sues the corporation for payment.
-Is Vircon liable to Marge's bank for the $100,000 loan? Please exclude the concept of ultra
vires from your answer.
Yes, Vircon is liable to Marge’s bank because she signed as the president on the
promissory note. This means the corporation has to repay the promissory note. A reasonable
person would believe that she had the authority to co-sign the check because she is a 50%
owner. The apparent authority would hold Vircon liable for the $100K loan.
-Would your answer change if Marge owned 51% of the outstanding shares of
Vircon?
No, my answer would not change if Marge owned 51% of the outstanding shares of
Vircon because it is not about the percentage of shareholding. It matters that the president
signed the promissory note.
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