February 2015 Second Example Ten-point Answers to Virginia Essay Questions
February 2015 - QUESTION 3 – VIRGINIA BAR EXAMINATION
Jane wanted to construct a new office building for her engineering firm in Richmond, Virginia. She asked her friend, Ralph, a real estate agent, to help her find an appropriate parcel to purchase. Jane had known Ralph since her childhood, and he had represented her in several past real estate transactions. There was no written agreement between them.
Several times during 2012, Jane and Ralph visited a property owned by Sam and expressed an interest in purchasing it. Sam was present during two of those visits. Jane introduced Ralph as her real estate broker, and the three of them engaged in conversations about the property and the fact that access to the parcel was over a common driveway shared with the owner of the adjoining property. Jane did not then voice any concern about that fact.
On January 24, 2013, Ralph met with Jane and discussed the wording of an offer on Sam's property. They agreed on the $300,000 price she was willing to offer, and Jane told Ralph that the deal would have to be contingent on her obtaining a bank loan secured by a bond issued by the Richmond Economic Development Authority. Jane objected to the common driveway on the property and told Ralph that the offer would also have to be contingent on Sam's conveying to her the sole right to the use of the driveway. Ralph said he would go back to his office, type the terms and contingencies onto a standard form real estate contract, and return with it later in the day for her signature.
Back at his office, Ralph found a message that Sam had received a competing offer that he was about to accept. He phoned Jane and told her she needed to act quickly if she wanted the property. She said that he should go ahead, type up the offer, sign her name to it, and present it to Sam. He typed in the price and the financing contingency; however, in the rush of the moment, he omitted the contingency about the driveway. He signed Jane's name and presented the written offer, which Sam immediately accepted. The closing was to occur on April 15, 2013.
Jane met with her banker, who approved a $300,000 loan on the condition that the Development Authority would issue its bond to finance it. On April 1, however, the Richmond Economic Development Authority refused to issue the bond, and Jane's bank withdrew its approval of the loan. The Development Authority's refusal came as a surprise to the parties because it almost always routinely issued such bonds once the financing bank approved the loan. Without the Development Authority bond, Jane could not finance the purchase. She immediately notified Sam that she was "cancelling" the contract. Sam said he would not accept a cancellation and that he intended to "hold Jane to the deal."
Jane abandoned plans to build a new building and instead, in May 2013, spent about $50,000 to remodel her existing offices. In the meantime, Sam was unable to sell the property to anyone else, including the party who had made the earlier competing offer.
In December 2014, Sam filed suit against Jane for specific performance of the contract. Jane asserted the following defenses: (i) that Ralph had no authority to sign the offer on her behalf because there was no written agreement conferring such authority on him; (ii) that, in any event, Ralph had no authority to present an offer without the driveway contingency; (iii) that the suit was barred by laches; and (iv) that the refusal of the Economic Development Authority to issue the bond excused her from the contract.
a) How should the Court rule on each of Jane's defenses? Explain fully.
b) Is the Court likely to grant Sam's prayer for specific performance? Explain fully.
February 2015 - QUESTION 3 – EXAMPLE ANSWER #1
Defense (i): The Court should rule that Ralph had the apparent authority to sign the offer on behalf of Jane. An agreement with a real estate broker to execute a land sales contract is subject to the Statute of Frauds in Virginia. A designation of an agent to execute documents in ones own name that pertain to a document that is subject to the Statute of Frauds is also subject to the Statute of Frauds. The Statute of Frauds requres documents pertaining to certain subject matter or which cannot be performed within a year to be in writing and signed by the party against whom they are being enforced. Without a signed real estate brokerage agreement or designation of agent (power of attorney allowing Ralph to sign on Jane's behalf), between Jane and Ralph, Jane's oral authorization to sign the land sales agreement did not convey any actual authority to Ralph to sign the document on her behalf. However, Ralph and Jane had previously met with Sam and Jane had acknowledged to Sam that Ralph was her real estate broker and the parties jointly discussed the property. Based on these interactions, Sam had every right to assume that Ralph was in fact Jane's broker with the authority to bind her. Further, it appears that Ralph executed the contract in Jane's name and not as her agent so Sam had no reason to know that Jane had not in fact signed the document herself. Therefore this defense should not be effective against Sam. Note, however, that Jane may have recourse against Ralph for exceeding the scope of his delegated powers.
(ii) The Court should rule that lack of the condition related to the exclusive use of the driveway is not a bar to formation of the contract between Jane and Sam. A unilateral mistake of the contents of a contract is not grounds for rescission or reformation of a contract. Upon the presented facts, the mistake as to the inclusion of the condition related to the driveway, was solely Jane's. The discussions with Sam related to the property had never addressed that this was an issue so he was not on notice that this provision was to be included in the contract. We have no evidence that Ralph followed up the conveyance of the contract with a note related to the important conditions that Jane wanted to have included which would have provided Sam with notice of the mistake prior to contract execution. Instead, Sam received an executed document that he though was from Jane and appeared to contain all of the material terms of the contract. Jane's mistake as to the contents of the prepared contract should not excuse her performance under the contract. Note, however, that Jane may have recourse against Ralph for not properly preparing the contract.
(iii) The Court should rule that the suit is not barred by laches. Laches, like most equitable doctrines, is very fact specific and thus subject to the determination of the court. However, it is often said that equity follows the law. If this were a legal cause of action it would be governed by the statute of limitations. The statute of limitations for a breach of a written contract related to land is 5 years. Less than one year passed between the date the contract was breached and the equitable action was instituted. The passage of a reasonable time for Sam to attempt to continue to try to sell the property (and thus obviate the need for the suit for specific performance) should not be punished by the Court. Jane will argue that she spent $50,000 to renovate her existing building in reliance of the contract being terminated but this should not act as a bar to the suit for specific performance. She did not close under the contract and land is per se unique so (barring some other reason to excuse her performance) she should have been on notice that a claim for specific performance may be forthcoming.
(iv) Jane should prevail on the defense that her performance under the contract was excused by her failure to obtain a bank loan secured by an economic development authority bond. A condition precedent to Jane's obligation to close under the purchase agreement was that Jane obtain financing secured by an economic development authority bond. Upon the presented facts it is clear that Jane took good faith measures to procure the loan, going as far as to have a conditional loan approval. Since Jane took good faith measures to satisfy the condition precedent to closing and was unable to satisfy the condition precedent she should be excused from her obligation to proceed to close and the contract should be deemed terminated.
No the court will not grant Sam's prayer for specific performance. Although specific performance would be an appropriate remedy (as discussed in (iii) above) in the event that all of the conditions precedent to the contract had been satisfied therefore obligating Jane to proceed to Closing, the fact that there remained a condition precedent to closing (obtaining of financing) that was not satisfied will prevent Sam from receiving this equitable relief. Instead, the failure of the condition precedent to closing excuses Jane from performing on the Contract.
February 2015 - QUESTION 3 – EXAMPLE ANSWER #2
a) The court should rule as follows on each of Jane's defenses:
i) The court should find that Ralph had authority to sign Jane's name, despite the absence of a written agreement between Jane and Ralph.
In Virginia, a real estate brokerage agreement is subject to the Statute of Frauds, meaning there must be a signed writing between the broker and client. However, the Statute of Frauds as to the brokerage agreeement does not mean that Ralph could not bind Jane to a contract as an agent.
An agency agreement is created where a principal grants authority and exercises control over the actions of an agent, who enters into agreements or takes actions on behalf of the principal, by agreement. The agent binds the principal when the principal has actually and expressly authorized conduct, has actually and impliedly authorized conduct (such as conduct incidental to completing an expressly authorized act) and by apparent authority. Apparent authority is created when the principal holds out the authority of the agent to a 3rd party, and the 3rd party reasonably relies on this manifestation of authority when entering into an agreement with the agent. Subsequent ratification of an entire contract by a principal may also bind the principal.
Here, Ralph had apparent authority to bind Jane to a real estate contract with Sam. Jane and Ralph visited Sam's property together, and met Sam twice. Jane explictly held out that Ralph was her real estate broker. It was reasonable for Sam, based on this manifestation, to rely on Ralph's ability to present a contract for purchase of the land on Jane's behalf based on this manifestation, because that is generally the role of a real estate broker. When Ralph signed the agreement on Jane's instructions, he did so as her agent and he did not need a written agreement to do so in this instance. Further, Jane's actions likely constituted ratification of the contract by meeting with the bank and applying for the bond, and communicating with Sam regarding the contract.
ii) The court should find that Ralph had the authority to present the offer, though the driveway contingency was missing, thus binding Jane.
As discussed above, Ralph had apparent authority to enter into a real estate contract with Sam on behalf of Jane based on her manifestions. This apparent authority extends to the scope that a 3rd party could reasonably rely on the manifestaion. Here, when Jane and Ralph met with Sam, Jane was aware of the common driveway, however, she made no statement about it to Sam, nor made any indication that the authority she had granted to Ralph did not extend to entering into an agreement only with the driveway contingency. It was reasonable for Sam, then, ro rely on the contract that Ralph sent without the driveway contingency, as he would have no way to know that Jane did not authorize Ralph to enter into an agreement without that contingency. Thus, Ralph could bind Jane as prinicipal to the agreement, even with the missing provision.
iii)The court should rule against Jane's defense that the claim is barred by laches.
Laches is an equitable defense that applies only to claims where there is no applicable statute of limitations. Laches bars claims where, essentially, plaintiff's conduct in waiting so long to bring a claim shows either a waiver of the claim by the plaintiff, or would be so prejudicial to the defendant in the ability to defend the claim and present evidence that it would be inequitable to allow the claim to go forward; the judge weighs inequities on both sides in deciding whether to bar a claim under laches.
Where there is a statute of limitations by statute, however, laches is not an available defense. in Virginia, contracts have a statute of limitations of 3 years for oral contracts, 4 years for UCC contracts for sale of goods, and 5 years for written contracts. The statute of limitations begins to toll when there has been a breach of the contract.
Here, Jane and Sam have a contract. Though it is not entirely clear it is a written contract, there was a written offer, and under the Statute of Frauds, a contract for the sale of real property would need to be in writing. Assuming, then, that this is a written contract, the relevant statute of limitations is 5 years. The contract was entered into on Jan. 24, 2013, and the date of closing was to be April 15, 2013 - as there was no performance on that date, this would be the date of breach, when the statute of limitations began tolling. Sam's suit was filed in Dec 2014, less than two years following the date of breach. The suit is well within the statute of limitations and will not be time barred.
iv) The court should rule that the refusal of the Economic Development Authority to issue the bond does excuse Jane from the contract.
Contracts may include conditions precedent, the non-occurrence of which excuses performance because the contract duty never arises, thus there can be no breach. Conditions subsequent should be clear in the agreement of the parties. A party must act in good faith in seeking to bring about the condition subsequent, and it must be reasonable (that is, not a condition so unlikely as to make the promise illusory for lack of consideration).
Here, Same and Jane formed a contract through an offer, acceptance, and consideration. Jane's promise to buy, if she got funding, and Sam's promise to sell if Jane got funding, supplied adequate consideration.
Here, the agreement that Sam accepted expressly included a financing contingency. This contingency stated that Jane would only purchase the property if she was able to secure a bank loan secured by a bond issued by the Richmond Economic Development Authority. Assuming the agreement was this explictly spelled out in the agreement, the non-occurrence of the bond being issued excuses Jane's duty to perform under the contract. Jane acted in good faith in meeting with her bank and seeking to get the bond. There is no indication that she acted in any way to cause the bond not to be issued, as indicated by her surprise that it was not. The bank then withdrew its loan approval. As Jane acted in good faith to make the condition precedent come about, but it failed nonetheless, her performance under the contract was excused.
b) The court is not likely to grant Sam's specific prayer for specific performance.
Specific performance is an equitable remedy where a party can show that there is an indequate remedy at law for the damages caused to the party by another party's breach of a contract. Doubts as to the adequacy of a remedy existing at law are to be decided in favor of the party seeking specific performance. Specific performance is generally available for contracts, except for those for personal services. Specific performance may be especially favored for transactions involving land, as land is considered unique. For specific performance, there must have been both a valid contract - through offer, acceptance, and consideration (benefit/detriment to both parties), followed by a breach of that contract.
Here, however, while Sam may be able to show that he has damages for which there is no adequate remedy at law (since he has been unable to seel the property), he is not able to show a breach of the contract. As discussed above, the failure of a condition precedent to a contract to occur excuses performance under the contract; Sam accepted this term in accepting Jane's offer. This offer became part of the agreement; thus when the funding contingency failed, due to no bad faith on the part of either party, the contract was not breached, but simply did not come into existence. Sam should be bound by the bargain that he entered into, knowing that it was contingent on financing. His subjective suprise at the funding not being granted does not warrant a finding in his behavior, as he assumed the risk of the condition not occuring in agreeing to the contract. The court is thus not likely to grant Sam's prayer for specific performance.
February 2015 - QUESTION 3 – EXAMPLE ANSWER #3
3-A. Regarding Jane's defenses.
(i). Jane will be unsuccessful in raising a defense that Ralph had no authority to sign the offer on her behalf.
A real estate agent is, by definition, an agent, in that there is mutual assent to the appointment, the agent acts on the principal's behalf, and the agent is subject to the principal's control. Thus the Ralph's acts may legally bind Jane, as principal--but only if Ralph had appropriate authority to act.
Note that while the Virginia Statute of Frauds requires a signed writing for contracts between real estate brokers and their agents, a contractual relationship is distinct from an agency relationship. Ralph was still Jane's agent.
This analysis is simple, as Jane, in as many words, directed Ralph to sign the offer on her behalf. Ralph's authority to sign the offer was express and actual, and the lack of a written grant of authority is immaterial in such circumstances. Assuming Sam can prove these facts, Jane will not succeed.
(ii). Jane will not prevail on her second defense. It is of no moment that Ralph "lacked" authority to omit the driveway contingency. A principal is bound the acts of her agent, even if negligently performed, as long as authority to undertake the act existed, and the act was taken within the scope of duty.
It is true that Jane's grant of authority to draft the offer was express, and no authority or discretion to omit the driveway contingency was implied. In that sense, authority fails. However, Sam received the offer and signed it in reliance of Ralph's apparent authority to draft an deliver the offer. Ralph, by ostensibly serving as Jane's agent and delivering the agreement on her behalf, induced Sam's reasonable belief that the offer was properly made on her behalf, and relied, to his detriment, on that belief.
On a related issue, Jane cannot claim unilateral mistake in seeking excuse from performing under the contract, as Sam was given no reason to know Jane required the sole use of the driveway.
(iii). Jane will not prevail in raising a defense of laches. Laches is an equitable defense in which a defendant claims that the plaintiff failed to assert a right within a reasonable amount of time, and that the delay in asserting the right prejudiced the defendant's interests and ability to defend against the claim.
Because specific performance is a form of equitable relief, laches is a defense generally available in defending that claim.
Jane must first demonstrate that there was a significant delay in Sam's raising the claim. This may or may not be met, as only a year and a half had passed since the breach. Additionally, Jane must prove that the delay prejudiced her interests. No facts readily demonstrate this to be the case. The delay was for a minimal amount of time, and the majority of the evidence is either testimonial or in written form, so there is little likelihood that it was lost.
The fatal flaw to the defense, however, is that the defense of laches is not available if a statute of limitations governs the claim, even if the claim is equitable. The Virginia statute of limitations on written contracts is five years from the date of breach. Laches is not available.
(iv). The refusal of Jane's bond is her strongest defense. The approval of the bond was an absolute condition precedent on performance under the contract, and the failure of the condition was outside both the contemplation of the parties as well as Jane's control. As such, Jane may be excused from performance under a theory of impossibility.
Because the condition was express and absolute, it indicated the only acceptable way to perform under the agreement. However, the condition failed in a manner completely outside of the control of either party, and completely outside their contemplation at the time of forming the agreement.
Jane might like to raise a defense of mutual mistake, as well, but she cannot, as the mistake in this case was about a future fact. The defense is not applicable in such cases.
Sam may counter Jane's defense of impossibility by attempting to prove that she assumed the risk that the bond would not be issued.
3-B. Regarding Sam's claim for specific performance.
This answer assumes that Jane's defense of impossibility is not successful. In such a case, Sam may be able to prevail in a claim for specific performance.
First, as is the case with all equitable remedies, Sam must demonstrate that no adequate remedy at law is available. While Virginia generally recognizes that real property is sufficiently "unique" to meet this requirement for buyers, sellers are also afforded specific performance under real estate contracts if the equities so demand. In this case, Sam has demonstrated his inability to resell the property, suggesting that Jane's specific performance may be his only remedy. However, Jane may argue in return that mere money damages to cover the difference between the contract price and the fair market value of the property is adequate.
Sam must also demonstrate that the contract is valid and enforceable. This seems clear, considering that Jane's defenses to the formation of the contract (described above) will not succeed. Offer and acceptance were properly made and expressed, and consideration was sufficient.
Sam must also prove that he was willing and able to perform under the contract. There is nothing in the facts to indicate that Sam was unwilling or incapable of delivering the property to Jane. (This analysis concerns the contract as it existed, in which case the driveway was not an issue.)
Finally, Sam must demonstrate that the balance of equities is in his favor. This will be somewhat difficult. Sam has apparently experienced little harm from the failure of the contract, aside from the inability to sell the building. Further, it would not necessarily be equitable to force Jane to enforce the contract, whose ability to perform in compliance with the contracts conditions was rendered impossible by forces outside of her control. Essentially, absent the agreement, the parties are left at the status quo, which is not an intolerable state, considering the alternative of forcing Jane to comply with an obligation which the Development Authority has apparently precluded her from performaing.
In any case, however, a grant for specific performance rests within the discretion of the judge.