Property - Fall Semester 1999 - Essay Questions

Question 1 (70 minutes suggested time). In the late 1980s Ed and Frank Felker, two brothers, were business partners, operating a small computer repair service together. Their rented office was becoming too small, so they decided to buy a building in which to operate the business. They found a suitable commercial property on the market in the State of Anguish and agreed to buy it for $150,000. The seller asked them, "How do you want to take title?" Ed and Frank were unsure what this meant, so they told the seller, "However you think is best."

The seller, who was not a lawyer and knew little about real estate, prepared a deed and delivered it to Ed and Frank in June 1988. The deed described the property and stated that it was being conveyed "to Ed Felker and Frank Felker in common with rights to the survivor." The deed was properly recorded, and Ed and Frank moved into the building. The purchase price was paid in cash entirely out of Ed's savings, since Frank was a bit of a spendthrift and did not have any cash available.

In January 1989 Frank received a job offer from a new computer company in Silicon Valley. He accepted the offer and immediately moved to California, leaving Ed to run the computer repair business alone. Later that month the building was damaged by an earthquake, and Ed spent $20,000 repairing it. He immediately wrote a letter to Frank, explaining what had happened and asking Frank to send him $10,000 for Frank's share of the cost of repair. Frank wrote back, refusing to send any money and commenting, "You're the one who is benefiting from the building now, so I don't see why I should have to pay to maintain it." Ed replied with another letter in June 1989, in which Ed stated, "You ought to be ashamed. I never want to see you again."

There has been no further correspondence between the two brothers in the ensuing period of more than ten years. Ed has had exclusive control of the building since that time, and has paid all maintenance expenses and property taxes, which have averaged $10,000 per year. Shortly after Fred moved out, Ed leased the building to a real estate agent for office use for five years, and collected a net rent (after payment of maintenance, taxes, and similar expenses) of $5,000 per year for that five-year period. When the lease expired, Ed moved back in.

Last month Ed decided to remove the building and construct a new and larger one on the property. He rented a bulldozer and demolished the building. However, as he completed this task he inadvertently caused the bulldozer to capsize, causing his own untimely death. The new building has not been built. Ed was intestate, and his daughter Edna is Ed's sole heir and the administrator of Ed's estate. The property would be worth $300,000 today if the building remained on it, but without the building it is worth only $100,000. The Anguish Department of Transportation has just announced that they need to acquire the property for a new highway, and has offered to pay $100,000 for it.

Assume that you have been visited by Frank, who has asked you the following questions:

1. Who is entitled to the $100,000 to be paid by the State of Anguish?

2. Is any money owed by Fred to Ed's estate or vice versa?

Please write an answer to these questions, fully discussing all relevant legal issues.