February 2020 First Example Ten-point Answers to Virginia Essay Questions
February 2020 - QUESTION 3 – VIRGINIA BAR EXAMINATION
Al Adams and Joe Jones, two licensed Virginia attorneys, formed a general partnership in 2014 for the practice of law in the City of Virginia Beach, Virginia. By 2017, the practice had grown beyond their expectations and they began to expand by hiring several associates and paralegals. In May 2017, they converted their general partnership to a professional limited liability partnership (“PLLP”) and purchased an office building in Virginia Beach in the name of the PLLP to accommodate their growing practice.
Clara, a long-time client of Joe’s, recently called on Joe to discuss two promissory notes from her son, Stanford, that Joe had prepared. Clara loved Stanford, her only child, but she had always explained to Joe that she wanted both notes in writing so that they could be sold if she ever needed cash.
The first note had been prepared by Joe in July 2016, when Clara loaned Stanford some money for repairs on a duplex he had purchased a few months earlier. This note follows:
July 4, 2016
Virginia Beach, VA
- For value received, I promise to pay Clara Client, or order, the sum of TEN THOUSAND DOLLARS ($10,000) with interest at the prime rate of Bank of Virginia Beach plus one percent (1%) per annum to be adjusted daily. The principal sum and all accrued interest shall be payable in full on demand but not later than August 5, 2020. This Note is secured by an assignment of rents from the property at 123 Main Street, Virginia Beach, Virginia.
The second note was for a loan Clara made to Stanford in June 2018 for the down payment on a surf shop he bought at the beach. Joe prepared the following note:
June 7, 2018
Virginia Beach, VA
- For value received, I promise to pay to my mother, Clara Client, the sum of FIFTEEN THOUSAND DOLLARS ($15,000) with interest payable quarterly at ten percent (10%), per annum. The principal sum and any accrued interest shall be payable in full two (2) years after the opening of Stanford’s Surf Shop in Virginia Beach, Virginia.
In early 2019, the surf shop had not yet opened, and Clara tried to sell the two notes to Southeast Finance Co. (“Finance”) in order to get the funds to buy a new car. Finance refused to buy the notes and told her that neither of the notes was negotiable.
|(a)||Was Finance correct when it advised Clara that neither of the notes was negotiable? Explain fully.|
|(b)||Assume for this part of the question only that neither of the notes was negotiable, and that Clara can prove malpractice by Joe in preparing them. From what party or parties should Clara seek to recover damages? Explain fully.|
February 2020 - QUESTION 3 – EXAMPLE ANSWER #1
(a) Finance was correct with respect to the June 2018 promissory note but not with respect to the July 2016 promissory note. Under the UCC, a negotiable instrument is a written and signed instrument providing for an unconditional promise to pay money to order or bearer and do nothing else payable on demand or at a definite time. The instrument may be payable either to the order of a specific person, or to bearer. Under the UCC, a promisory note secured by a stream of income does not cause the promissory note to be treated as a secured transaction, because the commercial paper provisions of the UCC apply to promissory notes over the secured transactions provisions of the UCC. Additionally, having the payment secured by an assignment of rents or other income stream does not cause the promissory note to be for something other than money. Under the UCC, a negotiable instrument must be payable on demand or at some descernible time in the future. A promise to pay may not be contingent on the happening of another thing, or based on some event to occur at some unspecified time in the future. It is permissible that a promise to pay is either on demand or at a specific date in the future. Finally, the interest rate with respect to a negotiable instrument need not be specified, but the principal amount must be fixed. When the insterest rate is not fixed, the parties will look to a central, publicly circulated interest rate based on the date the promissory note is executed.
Here, the July 2016 note was a negotiable instrument. It was written and signed by Stanford and was payable to Clara, or to her order. Furthermore, it made an unconditional promise to pay money, with a fixed principal amount of $10,000 on demand or on a specific date. There are no other promises that are required other than the promise to pay money. Additionally, the fact that it was secured by an assignment of rents from property does not cause the promissory note to fail to be a negotiable instrument. As mentioned above, the commercial paper provisions of the UCC govern promissory notes even when they are secured by income from tangible or real property. Finally, the parties were free to reference an interest rate without specifically using a number, as they did with this note by referencing the Bank of Virginia Beach prime rate plus 1%. Therefore, the July 2016 note is a valid negotiable instrument and Finance was incorrect with respect to that assertion.
However, the June 2018 note is not a valid negotiable instrument. To be a valid negotiable instrument, it must be payable on demand or at a specific date. Payment based conditioned on an event that is not certain to occur is not sufficient. Here, the June 2018 note is written and signed by Stanford, is for a payment of a sum certain ($15,000) with a specific interest rate ($10%), is specifically payable to his mother, Clara Client, is a payment only of money, but it is not payable on demand or a specific date. Instead, it is payable in two years after the opening of a Surf Shop, an event the date of which is not certain to occur. The parties could have instead stated that the principal and interest were payable two years after the opening of the surf shop or a specific date, whichever is earlier, but they did not do so. As such, the June 2018 check is not a negotiable instrument.
(b) Clara should seek to recover damages with respect to the July 2016 note from Joe Jones, Al Adams and the partnership. Clara should seek to recover damages with respect to the June 2018 note from Joe Jones and the PLLP. Under Virginia law, a partnership is formed when two or more persons enter into a business for the purpose of sharing profit. The default is that a general partnership is formed. Under Virginia law, each partner in a general partnership is personally liable for the actions of the partnership and the actions of the other partners undertaken as a partner in the partnership. Virginia law also recognizes professional limited liability partnerships in which professionals may form a partnership for purposes of providing professional services and an individual may limit their exposure to the malpractice of other individual partners in the professional partnership. The individual does not limit their liability with respect to their own malpractice. When converting from a general partnerhsip to a PLLP, a former general partner may only limit their personal liability prospectively from the time that the PLLP is formed. Finally, in Virginia, a partnership, whether a general partnership, a limited liability partnership, a registered limited liability partnership or a PLLP has the ability to sue and be sued.
Here, when the July 2016 promissory note was created, Joe Jones and Al Adams were general partners of their general partnership. As such, both Joe Jones and Al Adams are liable for the torts of each other committed while acting as a partner in the partnership. Furthermore, as a general partnership, the partnership has the capacity to sue and be sued. Therefore, for a malpractice suit with respecet to the July 2016 note, Clara should sue Joe Jones, Al Adams and the partnership.
With respect to the June 2018 note, Clara should sue Joe Jones, the attorney who drafted the promissory note, and the PLLP. As mentioned above, Virginia law recognizes a PLLP that limits ones liability with repsect to the malpractice of the other partners in the partnership. It does not limit one’s own malpractice liability. Furthermore, the partnership itself has capacity to sue and be sued. Here, the general partnership was converted to a PLLP in 2017. As such, Clara should seek recovery with respect to the June 2018 note from Joe, as drafter of the instrument, and the partnership. Clara should not seek to recover from Al Adams because Al Adams was insulated from liability for torts committed by Joe Jones after May 2017, when the general partnership converted into a PLLP.
February 2020 - QUESTION 3 – EXAMPLE ANSWER #2
(a) Finance was correct in telling Clara the 2018 note was not negotiable, but not correct in telling her the 2016 note was not negotiatiable. In order for a note to be negotiatable, it must: (i) be paid to someone or to the order or to a bearer; (ii) have a specific sum of money; (iii) have an interest rate either desribed specifically or to be set by the court; (iv) a final payment date; (v) a security; and (iv) a signature.
In this case, the first promissorry note contained all of the above. The second promissory note however was missing a security as well as a date it had to be performed by. For the value that Clara gave, she recieved nothing in return. There was no security offered by Stanford to ensure that Clara would recieve her money. Secondly, there is no definite date that Clara has to be paid by. The date in the note is an uncertain future date. There is no guarantee that the surf shop will open so the date to be paid back by is invalid. Since there is no value given for Clara’s money to insure that she will get it back and there is no valid date for her repayment, the second note is not negotiable.
(b) Depending on the promissory note, Clara may be able to recover damages from both Al and Joe or just Joe. A partner may be held liable for other partner’s torts depeding on what kind of partner they were and what kind of partnership was formed.
Pertaining to the 2016 promissory note, Clara could seek and recover damages from both Al and Joe. General partners in a general partnership are liable for all debts of the partnership and torts committed by the other general partners. In this case, both Joe and Al were general partners and Al can be held liable for Joe’s torts. Al may argue that since Joe was also a partner, he had no way to control or review his work as he would with a paralegal or secretary, but this argument will fail. Regardless of if Al had the opporutnity to oversee and review Joe’s work, he will still be liable for Joe’s torts because of the partnership.
Pertaining to the 2018 promissory note, Clara could only seek and recover damages from Joe. At this point, the general partnership had been converted into a limited partnership. In a limited partnership, limited partners are only liable for torts committed by themselves. They are also not liable for the debts of the partnership. In this case, Joe would be the only limited partner liable for his torts. Al could not be held liable because he is also a limited partner and not liable for Joe’s torts.
Clara will be able to seek damages from both Al and Joe pertaining to the 2016 promissory note that was drafted when Al and Joe were general partners of a general partnership. Clara will only be able to recover to Joe for the 2018 promissory note which was created when Al and Joe had entered into a limited partnership and become limited partners, not liable for each other’s torts.