The Board of Law Examiners has provided the Reserve Room with a copy of the July, 1996 Texas portion of the bar exam and has granted Tarlton Law Library permission to make the exam available on the Web.
Thursday Morning
August 1, 1996
Essay Questions 1-6
THIS MATERIAL, OR ANY PORTION HEREOF, MAY NOT BE REPRINTED WITHOUT THE ADVANCE WRITTEN PERMISSION OF THE TEXAS BOARD OF LAW EXAMINERS
H and W were married in 1984. In April of 1990, they were divorced in Travis County. H and W signed a settlement agreement in connection with the divorce.
The agreement provided that
In July of 1991, W and the child moved to Dallas County because W's employer transferred her there. In 1996, W learns that H is offering for sale a parcel of real property he purchased in 1988. The property was community but was not included in the settlement agreement or divorce decree. W has no prior knowledge that H purchased the property during the marriage with community funds.
She also learns that H is earning $10,000 per month after taxes. On the date of divorce, he was only earning $3,000 per month. W has remarried and her spouse earns $20,000 per month. H and W's child has been diagnosed with a learning disability and W is currently paying $3,500 per month for the total needs of the child, including $2,000 per month for special educational services.
W desires to file an action to modify the support order and also an action seeking an interest in the real property which was not included in the settlement or divorce decree.
H's lawyer states that he will argue in the action to modify child support that
In the action to obtain an interest in the land, H's counsel asserts that the divorce judgement is final and can not be reopened at this late date.
Your law firm represents W. Answer the following questions which the senior partner in your firm has posed in a memo to you and explain each answer:
[1] W wants to litigate the child support issues in a court in Dallas County, where she resides. Can she properly do so? What pleadings would she file in an attempt to litigate the support issues in Dallas County and in what county would she file them?
[2] Is the court with jurisdiction precluded from modifying the prior support order because of the prior settlement and decree?
[3] Assuming that the court is not precluded by the prior settlement and decree, what is the standard which W must meet in order to modify a prior support order and can she prove it in this instance?
[4] If the court reaches the issue of what amount of child support to award, can the court consider the earnings of W 's spouse or the special education needs of the child and what is the effect of the child support guidelines on this issue? If there is a limit on the maximum amount of child support to be awarded, what is that limit in this instance?
[5] What disposition, if any, should the court make of the property which was not included in the prior settlement or decree?
In 1988, H and W resided in and were married in Rhode Island, which is not a community property state. In 1990, they moved to Texas to permanently reside. In 1996, W filed suit for divorce in Texas.
The estate of the parties consists of the following:The ABC, Inc. stock was purchased in 1989 and paid for with H's earnings from his job in Rhode Island during that year.
The Fab 5, Inc. stock (500 shares) was given to W by her mother on her birthday in 1991 . In 1994, the stock split two for one so that W held 1,000 shares in her name. At the time of the gift, the 500 shares were worth $10,000. When the stock spl it occurred, the 1000 shares were worth $30,000. At divorce, the shares are now worth $40,000.
The certificates of deposit were acquired at various times during the marriage with funds resulting from cash dividends paid to the shareholders of Fab 5, Inc. The interest received on the certificates was used for living expenses.
The ranch was purchased in 1993 for $300,000. A $30,000 cash down payment was made from funds W inherited from her mother. The seller financed the remainder of the purchase price through a note signed by both H and W and secured by a vendor's lie n and deed of trust. W has made all payments on the note from her earnings at her job.
The royalty interest arose from an oil and gas lease covering the minerals underlying the ranch. H signed the lease in 1994.
The Texas Phone, Inc. stock was inherited by H from his father in 1991. H's father owned controlling interest in the company and H inherited that position. Since 1991, H has served as chief executive officer of the company and has spent the ma jority of his time working at that job with thecompany. When H inherited the stock, it was worth $75,000, but it is now worth $400,000.
During the marriage, H drew a substantial salary from the company. The company has always observed all corporate formalities.
[2] Identify any rights of reimbursement and what estate holds such rights; and
[3] State the measure of such rights of reimbursement.
The next two questions in the GREY answer book
The following events all occurred in 1996. On May 1, Maude purchased a used car from Harold, which Harold represented to have been recently overhauled and in excellent condition. Maude gave Harold a negotiable promissory note, payable June 1, 1996, in the amount of $1500, the purchase price of the car. On the same day, Harold, in need of immediate cash, endorsed Maude's note and delivered it to his mother, in return for which Harold's mother gave him a check drawn on Waco Bank for $1, 000 and a promise to deliver to Harold by June 2 a new television set worth $500.
Harold endorsed his mother's check in blank and placed it on his secretary's desk with instructions to cash it as soon as possible. Bookmaker, who had been in Harold's office trying to collect $1,000 which Harold owed him, picked up the check fro m the secretary's desk and said to Harold on his way out, "Now, we are even." Harold immediately called Waco Bank and verbally ordered it to stop payment on his mother's check. The next day, Bookmaker presented the check to a teller at Waco Bank who, desp ite being aware of Harold's call, cashed the check.
On May 29, Harold's mother met Maude and told Maude that she expected payment on the note on June 1. Maude told Harold's mother that the transmission fell out of the car and her mechanic said the car was falling apart, having apparently not been touched by a mechanic in several years. Maude indicated that she was going to demand that Harold repair the car. Maude and Harold's mother then agreed to delay payment to June 15; changed the date of payment on the note; and initialed the change.
On June 2, Harold's mother delivered the television set to Harold.
On June 15, Harold's mother demanded payment from Maude who refused to pay because Harold misrepresented the car's condition and would not agree to repair it.
[A] What, if anything, can Harold's mother recover from Maude on the note? Explain fully.
[B] Assuming that when Maude refuses payment, Harold's mother sells the note back to Harold, can Harold recover from Maude on the note? Explain fully.
[C] What rights, if any, does Harold have against Waco Bank with respect to the stop payment order? Explain fully.
[D] Assuming sufficient funds were available in Harold's mother's account, if Waco Bank had refused to pay the check on Bookmaker's presentation, what rights, if any, would Bookmaker have against Waco Bank? Explain fully.
[A] Homer House is a home builder. For many years, he has financed his home building contracts with Texas Bank. On each contract, he would borrow funds for materials and payroll, pay to the Bank amounts received under the contract, and upon co mpletion of the contract, pay the Bank the balance owed. On May 1, 1995 Homer entered into a security agreement giving to Texas Bank a security interest in all "accounts receivable, and inventories, now owned or hereafter acquired." This interest was give n to secure payment of a $200,000 line of credit dated May 1, 1995. A $50,000 advance on such line of credit occurred on the same day. A proper financing statement was properly filed on May 2, 1995.
On January 15, 1996 Homer paid Texas Bank's $50,000 advance in full but did not obtain a release of Texas Bank's security agreement. On March 1, 1996, Homer borrowed from Goliath Construction $25,000 to use as working capital and signed and delivered to Goliath a security agreement describing the collateral in the same language as in the May 1, 1995 security agreement to Texas Bank. On March 3, 1996, Goliath properly filed a proper financing statement.
Then on April 15,1996, Homer borrowed from Texas Bank an additional $ 10,000. On July 1,1996, Homer gave up his business at which time he owned nothing but an account receivable in the amount of $10,000 owed to Homer on a completed homebuilding c ontract. Both Goliath Construction and Texas Bank claim a prior security interest in Homer's accounts receivable to secure their respective loans, which Homer still owed in full.
Is the claim of Goliath Construction or Texas Bank superior? Explain fully.
[B] The following events all occurred in 1996. JAVA, Inc., an upscale purveyor of gourmet coffees, entered into negotiations with Starlight Coffee Co., which resulted in the signing by both parties on February 1, of a contract under which JAVA ag reed to buy and Starlight agreed to sell one-half of JAVA's requirements for coffee beans (not less than 1.5 tons nor more than 2.0 tons), at its headquarters in Austin, Texas during the 12 month period beginning April 1, all at a specified price per poun d. The contract was sufficient in all respects and contained detailed provisions as to orders, shipping, payment, etc. By March 1, the market price for coffee beans had risen to triple the contract price. On that date, pursuant to the contract, JAVA issue d shipping instructions to Starlight to ship 2.0 tons during April. Starlight advised that it would be unable to ship all the coffee beans, but if JAVA would release Starlight, Starlight would ship 2.0 tons as best it could during the 12 months be ginning April 1. Starlight gave no reason for its inability to ship and the contract contained no "force majeure" provision or any other relief. In fact, on March 12, Starlight's processing plants were producing at 80% of their capacity worldwide.
[1] What rights, if any, does JAVA have against Starlight? If JAVA can recover, what is its measure of damages? Explain fully.
[2] Suppose, in addition to the facts stated above, on March 12, the Colombian government suddenly and unexpectedly ordered a shutdown at Starlight's main processing plant in South America. Would this affect the result? Explain fully.
Answer the next two questions in the BLUE answer book
Nat is a twenty-year old college student and .he only child of Don and Doe West. Don and Doe died simultaneously in a common disaster one year ago. In their virtually identical wills, Don and Doe each created a testamentary trust with provisio ns for merger of the trust with the identical trust created by his/her spouse for the primary benefit of their son, Nat, and for the secondary benefit of their beloved hometown, Fair City. Trust assets include the entirety of Don and Doe's estates - cash accounts, the family residence, a sizeable stock portfolio, a lakefront weekend home, retirement funds, and 20 acres of valuable undeveloped urban land bordering a local creek.
TR, a close personal friend of Don, is the person named to serve as trustee. TR, a naturalist, and Don, an architect, had served together for 12 years as citizen members of the Fair City Urban Planning Board.
The trust language used by the settlors is rather sketchy. Except for the provision that TR is aurhorized to serve without the necessity of a bond, it is silent on the issue of TR's personal liability when serving as trustee. It is also silent as to how trust property investment decisions are to be made .
TR seeks your counsel with regard to the following:
[A] TR reveals that Don once told him that he and Doe had made a joint decision to convey their 20 urban acres to Fair City to be used as public parkland. Don and Doe never acted on this decision. TR wants to dedicate the 20 acres in this way, but h as concerns that Nat will challenge this action.
[B] TR and the trust are being sued by a moving company which was employed by TR to transport personal property belonging to the trust from one place to another. The service contract was signed by TR with his usual signature, followed by the words, " as trustee."
[C] TR wants to- invest the proceeds from the recently-sold residence and from collected life insurance for the benefit of Nat.
[1] Discuss whether or not it is permissible for TR to dispose of trust property in the form of dedication of parkland to the city. What are the specific Trust Code standards by which TR must make this determination?
[2] Discuss the legal effects of TR signing the contract "as trustee." If the moving company should win a favorable judgment in its suit, from which source may it seek collection?
[3] Discuss the specific guidance contained in the Texas Trust Code which governs TR's investment powers and duties. Address TR's powers and duties with respect to engaging in businesses, managing real estate, and managing securities.
Mae Rose established a written testamentary trust named after her daughter, Sara - the Sara Rose Jones Trust. Sara was the primary beneficiary and Sara's two sons were named as secondary beneficiaries. Mae's brother, Harvey, was named as origina l trustee. Fundit State Bank ("Fundit") was named substitute or successor trustee.
The language of the trust instrument provided, "No trustee named herein shall be liable for any act.of self-dealing or bad faith in the administration of this trust."
Mae died in early 1995. Among the assets of the Mae Rose estate were 800 shares of stock in Dig-It, an oilfield service company and a closely-held corporation. Dig-it had been a customer of Fundit for three generations. Dig-It was involved in a joint venture with Fundit to provide low interest loans to start-up oil companies. Dig-It's chief executive officer and president, Phil Smith, had been a customer of Fundit since 1950 and had served an 8 year term on Fundit's board of directors from 1976 to 1983.
Harvey, the original trustee, died in October 1995. At his death, little had been done to administer the trust. Fundit assumed the trusteeship soon after Harvey's death. In June 1996, without seeking an appraisal or notifying the beneficiaries, Fundit sold the 800 shares of Dig-lt which it held as trustee back to the Dig-lt company for a price of $200 per share. Dig-lt then resold the stock to Phil Smith, who then became the majority stockholder of Dig-It.
Sara Rose Jones and her sons want to bring suit against Fundit.
[1] Discuss the use of exculpatory clauses authorized by the Texas Trust Code. How will the Court treat the exculpatory clause cited in the testamentary trust of Mae Rose?
[2] If you were the attorney for Sara Rose Jones and her sons, what legal theories of recovery would you argue to the Court? Discuss fully.
TEXAS BAR EXAMINATION
Thursday Afternoon
August 1, 1996
Essay Questions 7- 12
THIS MATERIAL. OR ANY PORTION HEREOF, MAY NOT BE REPRINTED WITHOUT THE ADVANCE WRITTEN PERMISSION OF THE TEXAS BOARD OF LAW EXAMINERS
The proprietors of a thriving food products business, Mr. and Mrs. Jose Garcia, Sr. have consulted you regarding the formation of a formal business entity through which to carry on their business of the manufacturing and distribution of Mexican f ood products. Mr. Garcia, Sr. is acting as the promoter of this new enterprise and his desire is to set up a company in which he, his wife, his two sons (Pepe and Chuy), and his daughter (Anna), will be joint owners. You subsequently form a Texas corporat ion for the Garcias, Garcia's Delicious Foods, Inc. The stock authorized was one hundred thousand shares, each of no par value. Mr. Garcia, Sr. was listed as the initial sole director of the corporation. As attorney for the corporation you prepared the Ar ticles of Incorporation, Bylaws and will draft the minutes of the initial meeting of the board of directors. The Garcias have asked your advice regarding what issues must be discussed at the initial meeting of the board of directors.
[A] Set forth briefly the matters which, under Texas law, may be necessary to deal with at the organizational meeting of the board of directors of Garcia's Delicious Foods, Inc. (Explain what business the corporation may conduct in order to operate.)
At the organizational meeting it is decided that the issuance of stock will be as follows:
Mr. Jose Garcia, Sr. 30,000 shares
Mrs. Jose (Diana) Garcia 30,000 shares
Jose Pepe Garcia, Jr. 15,000 shares
Jesus Chuy Garcia 15,000 shares
Anna Garcia 10,000 shares
Each share carries with it one vote. At the organizational meeting Mr. Garcia, Sr. is elected president, Pepe is vice-president, Chuy is treasurer, Anna is secretary. The corporation operates approximately two years without major difficulties unt il one Christmas the sons announce, at their parents' dinner table, their desire to take over the business and bring it into the "modern age." They offer to buy out their parents and sister. The boys are ordered out of the house by their father. The next day they are delivered a letter from Mr. Garcia, Sr. indicating that they have been removed from their pon the corporation and that they are not to trespass upon corporate property. The sons want immediate access to the corporation's books and records so they can attempt to remove their father as president.
[B] Explain the sons' right, if any, to inspect the books and records of the corporation. Explain whether the right, if any, may be enforced in court and the procedure to be used, if appropriate.
Dear Sons:
Your request to review the books and records of my company is denied. Your sister has told me about your intent to open a competing food service business if I do not let you take over my business. Let me say you have broken your mother's heart .
Sincerely,
Papa
[C] Explain whether you can support or defend against the request for inspection based upon any of the facts revealed in this letter. Explain whether there is any limitation to any of the defenses.
Your old friend and law school drop-out, "Snake Eyes" Bonnano, comes to you for advice on the formation of a Texas corporation for the distribution of "self-help" law books to be distributed in Texas. Mr. Bonnano explains to you that he is pre pared to distribute the following titles he has authored to the consuming public: How to Make Your Own Will; How to Do Your Own Divorce; and How to Defend Yourself in DWI Court. These books all give, according to your friend, practical advice regarding th e status of Texas law and how to represent oneself in Texas courts. The books also contain very helpful forms to allow the user to "fill in the blanks and go to court."
[A] Mr. Bonnano has always been impressed with lawyers who list their firms as "professional corporations." He instructs you to form a professional corporation for him, for the purpose of distributing and selling these books in Texas. Explain whe ther he may legally do so and what impediments, if any, prevent such a formation.
[B] Mr. Bonnano explains that he has some "silent partners," also non-lawyers, who have helped finance the books. He wishes for these individuals to have a share of the business, as he explains, "enough to wet their beaks," although they will not actively participate in the operations or activities of the business. Explain whether these individuals may be shareholders in the new professional corporation.
[C] Assume that you have advised against the corporate formation discussed above and that Mr. Bonnano is now considering the formation of a partnership. You draw up a limited partnership, "Lawyers-R-Us, Ltd." Mr. Bonnano is the general partner; h owever, his limited partner, Don Fanucci, will actually be in control of the operation of the company. Explain whether the limited partnership will shield Don Fanucci individually from contractual or tort liability incurred by the limited partnership.
[D] Assume that instead of forming a limited partnership, you formed a limited liability partnership, "Lawyers-R-Us, L.L.P." Assume further Bonnano and Fanucci are partners but Fanucci continues as a "silent partner" who nonetheless exercises ultimate control over the operations of the L.L.P. As luck would have it, the body of Joey Zsaza is found on the premises of "Lawyers-R-Us, L.L.P." The family of Zsaza files suit against "Lawyers-R-Us, L.L.P." as well as against Bonnano individually and Fanucci individually, for the negligent failure to provide adequate security on the premises. Explain whether there is any legal basis for the imposition of liability on 1) the limited liability partnership, (2) Bonnano, individually, and (3) Fan ucci, individually.
[E] Explain whether there is any legal basis for individual liability for the negligence claim which is the subject of [D] above if "Lawyers-R-Us" is a limited liability company, rather than a limited liability partnership.
the next two questions in the GREEN answer book
Jim Jones, a 70-year-old single man, executed a valid typewritten will in state A in March 1991. The will provided: "my house I devise to my daughter Sarah, and I give $20,000 to my granddaughter Maggie, to be paid out o f the proceeds of the sale of my coin collection. All of my remaining property I devise to my favorite charity, United Orphans Care".
In April 1994, Jim went to state B to spend 60 days at a spa designed for senior citizens to undertake a course of physical conditioning. While at the spa, Jim learned that there had been changes made to United Orphans Care's board of directors. Jim had served on United Orphans Care's board of directors for over 20 years before he resigned in January 1994. He was informed that the chairman of the board, who Jim trusted and had worked with for many years, had been replaced with a person Jim thoroughly despised and who he believed to be quite dishonorable.
Jim was upset about the appointment of the new chairman. In a fit of anger, he took a blank piece of paper and wrote the following: "I revoke my March 1991 will. My house I devise to my daughter Sarah and I give $20,000 to my granddaughter Maggi e, to be paid out of the proceeds of the sale of my coin collection. l give all of my remaining property to Good Salvation Charitable Organization."
Jim signed and dated this instrument on Aprii 21, 1994.
After returning to state A from the spa trip, Jim retrieved an envelope containing the March 1991 will and put the April 21, 1994 instrument into the envelope with it.
Several months thereafter, Jim decided to move to Texas where Sarah resided. He sold his house in state A for $100,000 and sold his coin collection for $50,000, and moved to Harris County, Texas. He used the proceeds from the sale of his house in state A and the coin collection to purchase a condominium in Harris County.
Jim died a year after moving to Harris County, Texas. His estate consists of the condominium in Harris County and $300,000 in stocks and bonds. Sarah, Jim's only heir, brings you the envelope containing the March 1991 will and the document dated April 21, 1994.
Your research indicates that holographic wills are not valid in state A or state B.
[1] Which instrument, if any, would you offer for probate? Give reasons for your answer.
[2] Assuming one of the instruments is probated, who should get what and why?
[A] Phillip McNeese, a widower, dies on January 1, 1996. His will devises his home worth approximately $ 100,000 to his daughter, Mary, bequeaths his GM stock valued at $50,000 to the Boy Scouts of America, and bequeaths his residuary estate t o his two nephews, Gary and Don. The residuary estate consists of a beach house worth $50,000, a vacant lot worth $ 10,000, U.S. savings bonds worth $ 10,000 and $ 10,000 in cash.
The debts and expenses of administration of the estate are $ 110,000. The Executor wants to know against whom should the debts and expenses be charged. Give reasons for your answer.
[B] Harry, a resident of Tarrant County, Texas, died intestate on May 1,1996. He was survived by his wife Wilma, and their two children, Carol and Bob. The following property was in Harry's estate:
| Community property of Harry & Wilma: | Harry's separate property: |
| personal property $110,000 | Stocks and bonds $40,000 |
| Real estate(family home) $100.000 | Real estate $50,000 |
| $210,000 | $90,000 |
[1] What distribution should be made of Harry's property?
[2] Assume the same facts as above, except that Harry has a third child from a prior marriage, Craig. What distribution should be made of Harry's property?
[C] Walker owned $300,000 of corporate stock which he inherited from his father approximately 10 years ago. Walker had three children: Daniel, David, and Martha.
When Daniel reached 21 years of age in July 1993, Walker gave $50,000 of stock to him, stating that "I want you to have a good headstart in life without having to wait until after my death to get this money." In June 1995, when David reached 21 years of age, Waiker gave $50,000 of stock to him in the same manner and making essentially the same statement to David as he had to Daniel.
Walker, a widower, died last week intestate. Martha is 19 years of age and has not received any similar gift from her father. Walker's estate consists of $200,000 in stocks he had inherited from his father.
How should Walker's estate be divided? Give reasons for your answer.
the YELLOW answer book
[A] Rancher A was the owner of the surface and unsevered mineral estate of a 640 acre tract of land in Washington County, Texas. On December 1,1993, Rancher A executed a deed to his brother Rancher B and the pertinent portions of the granting clause provided as follows:
Rancher A...does hereby grant...unto Rancher B...an undivided one-sixteenth (1/16) interest in and to all of the oil, gas and other minerals in and under and that may be produced.... But does not participate in any rentals or leases...with t he rights of ingress and egress at all times for the purpose of mining, drilling, exploring, operating and developing said lands for oil, gas and other minerals, and storing, handling, transporting, and marketing the same therefrom....
On April 10,1995, Rancher B passed away and left all of his estate to his son. Rancher B's son has come to you for advice and wants to know whether the one-sixteenth (1 /16th) interest his father acquired is a royalty interest or a mineral fee in terest.
In a subsequent dispute between Rancher A and Rancher B's son, Rancher B's son contends that his 1 /16th interest is a royalty interest. Rancher A contends it is a 1 /16th mineral interest. Discuss fully the arguments in support of Rancher A's position and Rancher B's son's position, and the likely outcome of the litigation.
[B] Rancher A owns the surface only to a one thousand (1000) acre tract of land known as Superacre. The oil, gas and mineral estate to that tract of land is owned by his cousin named Joe Minerals. This 1000 acre tract of land is not under lease for oil, gas and other mineral purposes, but various oil companies have expressed considerable interest in obtaining seismic information from this 1000 acre tract in an attempt to target prospects for oil, gas and other mineral exploration and with hope of obtaining an oil and gas lease on the subject tract. In fact, 3-D Seismic Company is willing to pay $150 per acre to obtain the right to do the seismic work on this 1000 acre tract of land. Rancher A feels that he, as the surface owner, is entitled to the $ 150 per acre because his surface is to be used for the seismic work. Joe Minerals, as the oil, gas and other mineral interest owner, feels that he is entitled to the $ 150 per acre for the seismic work.
[1] Discuss fully the legal rights and obligations of Rancher A as it relates to the above facts, including whether he is entitled to any compensation for the seismic work and reasons for your answer.
[2] Discuss fully the legal rights and obligations of Joe Minerals as it relates to the above facts, including whether he is entitled to any compensation for the seismic work and reasons for your answer.
[A] Rancher A leased a 1000 acre tract of land to Super Oil Company for oil, gas and other mineral purposes. The oil and gas lease had an express lease provision which imposed a duty upon Super Oil Company to drill an offset well in the event a draining well was located within five hundred (500') feet of the boundary lines of Rancher A's property. Shady Oil Company owned the oil and gas lease upon the lands surrounding Rancher A's 1000 acre tract. Shady Oil Company drilled three producing gas wells located approximately six hundred to six hundred fifty (600' to 650') feet from Rancher A's boundary property line and which wells are draining some gas from Rancher A's land. Rancher A is trying to determine what rights, if any, he has against Super Oil Company.
[1] Discuss fully what rights and remedies, if any, Rancher A has against Super Oil Company for the wells drilled six hundred (600') to six hundred fifty (650') feet from his boundary. Give reasons for vour answer.
[2] Discuss fully what rights and remedies, if any, Rancher A would have against Super Oil Company assuming any gas wells were drilled within five hundred (500') feet of Rancher A's boundary property line. Give reasons for vour answer.
[B] Rancher A leased his 640 acre track of land to Great Oil Company for oil, gas and other mineral purposes, and which lease provided for a one-sixth (1/6th) royalty. The pertinent part of the royalty clause reads as follows:
...on gas, including casinghead gas or other gaseous substances produced from the land, or land consolidated therewith, and sold or used off the premises or in the manufacture of gasoline or other products therefrom, the market value at the well of 1/6th of the gas so sold or used, provided that on gas sold at the well the royalty shall be 1/6th of the amount realized from such sale.
Great Oil Company drilled and completed a gas well which appears to be a very prolific producer.Rancher A has been tendered his first royalty check for this production, but noticed that his check. has a number of deductions for various costs. The check shows deductions for the following categories:
The sales of gas represented by this royalty check were for sales made off the lease premises. Rancher A has come to you for advice as to whether these deductions are appropriate.
[1] Discuss fully whether it is appropriate for Great Oil Company to deduct any of the above six (6) listed costs. Give reasons for vour answer.
In accordance with the instructions previously furnished to you, in your usual handwriting, write the pledge on the back cover of the YELLOW answer book. A copy of the pledge appears on the back of your YELLOW answer book. DO NOT sign your name to the pledge. Use only your examinee number.