Law Exam


. (TCO A, C) Major Media Station, which broadcasts TV and radio programs around the country, contracts with shock jock Don Marco, who hosts the station’s most successful morning drive radio program in the country: Mark My Words. The program consists of traffic and sports updates, interviews with sports figures and celebrities, and Mark’s Words, which are in the nature of rants and opinions on whatever topic of interest the host decides to focus on, including news articles and happenings around the country and locally. Audience participation is encouraged by way of phone calls to the station during the program.  On more than one occasion, Mark My Words has made national news because of controversial statements made by the host regarding people’s looks, religion, lack of intelligence, actions, race, etc. In fact, the contract between Major Media Station and Don Marco specifies that Mark My Words is to be controversial. The greater the controversy, the higher the audience ratings and the higher Marco’s compensation. However, the term controversial is not defined, although the station manager who broadcasts Mark My Words is responsible for activating a delay button in the event Marco uses a word or makes comments that would cause the FCC to fine the station.  One morning, Mark My Words featured a rant full of derogatory sexual and racial comments about the members of a visiting ball team that succeeded in beating the local favored team at the championship game. As soon as the program aired, Major Media Station was bombarded with complaints. Following letters to sponsors and pressure from respected public figures, three large sponsors cancelled their advertising contracts. This happened in spite of the host’s public apology in which he claimed to have just made another stupid comment. In spite of fan protests, the station terminated Don Marco’s five-year $20 million contract. The contract was in its second year.  Marco is now suing Major Media Station for breach of contract, and the insulted players are also suing the station for defamation and intentional infliction of emotional distress. i. What arguments do you think Marco will make in his suit against Major Media Station? ii. In order to support his claim against the station, Marco wishes to introduce parol evidence regarding the term controversial. What would be the purpose of introducing this evidence? What arguments will Major Media Station make in opposition to the introduction of this evidence? Will Marco be successful in this regard, and why? iii. As for the tort claims by the insulted players, Major Media Station argues it has no liability, as Don Marco is an independent contractor who is solely responsible for his rants, and that his public apology constitutes an admission of liability. Is Major Media Station off the hook? (Points : 50)


2. (TCO B, D) Mercer Mechanics offers a one-day sale on battery installation. During the course of the day the mechanics at Mercer install over 200 batteries in various vehicles. Unfortunately, one of the installed batteries had a manufacturer defect and exploded within the vehicle that was being driven by Driver. Fortunately, Driver only sustained minor injuries, but his vehicle was destroyed. i. Is Mercer Mechanics installation of the battery in Driver’s automobile subject to Article 2 of the UCC? Why or why not? ii. Describe the various business entities that Mercer Mechanics could have formed to conduct business. Discuss the strategic considerations involved in each choice of entity. What are the advantages and disadvantages of each? (Points : 50)



3. (TCO E, H) Grumped Company asks Pierce Whippersnapper LLP (PW), a CPA firm, to audit its financial statements. Grumped tells PW that it plans to use the statements to obtain a loan from First Bank. PW prepares the statements. Grumped uses the statements to obtain a loan from Second Bank. The statements falsely state Grumped’s financial position due to PW’s negligent preparation of them. When Grumped defaults on the loan, Second Bank sues PW under the common law rule of negligence. Does PW have liability for negligence to Second Bank under the Ultramares decision? Does PW have liability for negligence to Second Bank under the Restatement (Second) of Torts? How does UCC Article 3 play into this situation? (Points : 50)



. (TCO F, G) Belinda is in the market for a used car. She enjoys the color silver and is specifically looking for any silver vehicle. She finds a 2002 Ford Taurus at Useit Used Car Sales that meets her color specification. The purchase price for the used Ford Taurus is $9,600.00. Belinda does not have the cash available for this transaction. As it turns out, Useit Used Car Sales is willing to sell her the vehicle on credit. Useit Used Car Sales enters into a contract with Belinda for the sale of the silver 2002 Ford Taurus. The security agreement describes the collateral as a “Silver 2002 Ford Taurus.” Has a security interest attached as to that vehicle? Why or why not? What are Belinda’s responsibilities? What are Useit Used Car Sales responsibilities? (Points : 50)


(TCO C, D/G) Current legislation limits the amount of economic-related liabilities to be paid by a company on account of an oil spill to $75 million. A move to amend that legislation and raise the liability cap to $10 billion was blocked in the Senate because Big Petroleum, who is responsible for a recent spill, has given its word that it would cover the cost of all damages and cleanup costs deriving from a recent oil spill in an ecologically significant marine area that supports a thriving fisheries and recreation industry and is home to many endangered and threatened marine animals and waterfowl. Big Petroleum’s chairman of the board made the statement after convening a special meeting of the board and studying videos of the damage taken by film crews.  It is estimated that actual costs of clean up and industry losses could even exceed the $10 billion proposed cap. Meanwhile, other oil companies involved in the oil spill have now gone to court invoking limits on their liability as provided by law. As a stockholder in these companies, you are concerned about your investments in oil, as a dip in your stocks could ruin your retirement and that of other investors, including several pension plans that are heavily invested in oil. However, you are outraged at the companies that are seeking to limit their liability as permitted by law because you think corporate citizenship demands these companies correct the damage from this disaster.  i. What is the justification behind the decision of boards of directors of the oil companies seeking limitation on damages? Explain. ii. Is the board of directors of Big Petroleum committing waste of corporate assets by its decision not to invoke the legal limitation of damages? (Points : 50)






(TCO C, D, G, H) Petunia is in the business of selling flower bulbs. Petunia’s sales agent is Astilbe. While sales agents generally warrant the quality of the goods they sell, Petunia specifically told Astilbe not to make any warranties on the bulbs she sells. Further, Petunia wrote each of her customers to inform them of this policy. About two months later, Astilbe made a prohibited warranty in order to sell Tulip 1,000 Gladioli bulbs. Tulip was an established customer who knew that Astilbe was acting on Petunia’s behalf and who also had been informed of Petunia’s warranty policy, but who honestly forgot about the policy while dealing with Astilbe and truly thought Astilbe had authority to make the warranty. Is Petunia contractually liable to Tulip here? Is Astilbe liable to Tulip? (Points : 50)+




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