Essay Question 1 (60 minutes estimated time). Sally Sellers lived in a house she owned on Main Street in the City and State of Anticipation. When Sally's mother died, she left Sally another house, which was also on Main Street a couple of blocks from Sally's residence. Sally did not need two houses, so she called up an acquaintance, Roy Realtor, whom she knew from association in the Rotary Club. At Sally's request, Roy came to Sally's home on April 1, 1999. Sally told him she wanted him to sell the house she had inherited. Roy said, "I didn't bring any blank listing agreements with me, but I'll just write up one." Roy then prepared the document on the following page, which both of them signed.

Roy placed a description of the house on the multiple listing service and placed an advertisement for it in the Anticipation Gazette, a local newspaper.

Shortly thereafter, Sally received a phone call from an old college roommate, Betty Byers, who told Sally that she was moving to the City of Anticipation from out of town. Sally said, "Perhaps you would be interested in buying the house I inherited from my Mom." Betty and Sally agreed to meet at the house on April 10. Betty loved the house, and immediately agreed to buy it for $100,000, with a closing date of May 1, 1999 However, Betty asked Sally to have a large skylight installed in the roof before the closing, since Betty was an artist and like to have lots of light for painting. Sally readily agreed. The two women shook hands on the deal, but they did not have any contract form at hand and did not write down their agreement. Betty gave Sally a check for $5,000. There was no extra writing on the check except the words "earnest money" on the memo line.

Sally hired a contractor, who installed the skylight at a cost to Sally of $3,000. On April 28, two days before the scheduled closing, Betty telephoned Sally and said, "I'm sorry, but I won't be able to buy your Mom's house after all. I've just been offered the job as art director for Vague Magazine, and I'm moving to New York. Would you please send back my $5,000?" Sally was outraged, and fumed, "You can't do that. You and I have a contract." Betty's response was, "Oh, don't worry. There are plenty of people who will buy your house. Anyway, we didn't put our contract in writing." At that point, Betty hung up. Unknown to Betty, Sally had set her answering machine to record this entire conversation.

As soon as Sally hung up the phone, she received another call. It was from Roy Realtor, who said, "I just heard that you sold the house you listed with me. That makes you responsible for my commission, so send me a check for $6,000."

Sally has consulted you. She advises you that the local lumber mill closed on April 20, and that real estate prices in the City of Anticipation have been falling as a result. She estimates that the house she was planning to sell had a value of only $90,000 on May 1. The skylight, she reports, adds little or nothing to the market value of the house. She plays for you the tape of her conversation with Betty, and asks you (1) whether she is liable for payment of a commission to Roy Realtor, and in what amount, and (2) whether she can recover damages from Betty, and in what amount. It is now May 7, 1999. Please write a response to these questions, discussing fully the relevant legal issues. Be sure that you don't allow your (debatable) conclusions on some issues to foreclose your discussion of other issues.

Essay Question 2. (40 minutes estimated) Oscar Owens was the owner of a three-story commercial warehouse building in Emerald City. On January 1, 1995 he entered into a ten-year lease of the third floor with Tom Tennant, who planned to use the space to store the inventory for his sporting goods store, which he operated at another nearby location. The rent under the lease was $2,000 per month, which was (and still is) about the fair market rental value of the space. The lease, which was on a pre-printed commercial lease form, contained the following clause:

    Tennant shall not sublet or other otherwise convey the premises without Owens' prior written consent.

The lease was not recorded in the public records, but Tom immediately took possession of the space and began using it. In May 1997 Tom decided to get out of the retail business, so he sold all of the assets of his store (his inventory, fixtures, trade name, etc.) to Agnes Abbott. Tom's contract of sale of the store with Agnes contained the following clause:

    Tennant also hereby transfers to Abbott all of his right, title and interest in the lease for warehouse space which Tennant presently occupies from Oscar Owens, landlord.

This contract was signed by both Tom and Agnes, but it was not recorded. Neither of them informed Owens of the leasehold transfer. Agnes took immediate possession of the warehouse space. She has paid the rent each month without fail by means of a money order, and has complied with all other terms of the lease. Owens never had any idea that the transfer of the leasehold had occurred.

On March 1, 1999, Owens entered into a written contract to sell his warehouse to Pam Purchaser for $500,000. At that time there were no leases in effect on the first or second floors of the warehouse, and Owens did not mention the third floor lease to Pam. She assumed that the warehouse was vacant, and she planned to use it in its entirety to operate a health club. She inspected the warehouse before the closing of the contract of purchase, but at that time Agnes' sporting goods store was having a huge sale, so all of her inventory had been removed from the warehouse except for a few cartons in one corner, which did not happen to have the name of Agnes' store on them. Pam assumed that they were simply trash left by a former occupant.

Pam closed on the purchase of the warehouse on April 1, 1999, receiving a full warranty deed from Owens, which she immediately recorded. When she returned to the warehouse to make plans for remodeling it in early April, she discovered to her shock that the third floor was full of cartons. She found the name of the sporting good store on several of the boxes, and when she contacted Agnes, Agnes informed her about the lease (which Agnes pointed out ran until December 31, 2004).

Pam then contacted Owens and demanded that he either remove Agnes from the warehouse or refund Pam's purchase money. Owens replied that he had no knowledge of the lease transfer to Agnes, but he said, "That's actually good news for you. I didn't consent to that transfer, so the lease is now null and void. You have nothing to worry about. I suggest you simply evict Agnes."

Pam has contacted you and asked for your opinion as to her rights. Specifically, may she (1) legally evict Agnes, (2) rescind her purchase with Owens, and/or (3) recover damages from Owens? Damages are not her first choice, since she really needs possession of the entire building to operate her health club successfully. Please write a response to her questions, discussing fully the relevant legal issues. Be sure that you don't allow your (debatable) conclusions on some issues to foreclose your discussion of other issues. The state has an ordinary "notice-race" recording act.