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What are preempive rights with a corporation?

1 Right to Maintain Percentage of Ownership A preemptive right is the right of an existing shareholder of common stock to maintain her percentage of ownership in the company by buying stock whenever there is a new issuance of stock for money (meaning cash or its equivalent, like a check).4.4.2 Right Must Be Stated in Articles Under the MBCA, shareholders do not have a preemptive right to purchase newly issued shares to maintain their CORPORATIONS NOTES 23 proportional ownership interest unless the articles of incorporation provide the right. So if the articles are silent on this issue, we do not have preemptive rights. 4.4.3 Limitations Even if the articles do provide a preemptive right, shareholders generally have no preemptive right in shares issued: (1) for consideration other than cash (for example, for services of an employee), (2) within six months after incorporation, or (3) without voting rights but having a distribution preference.

What general rules in regard to directors with their requirements and roles?

5.1 STATUTORY REQUIREMENTS The directors are responsible for the management of the business and affairs of the corporation. 5.1.1 Qualifications Directors must be adult natural persons, meaning they must be human beings with legal capacity. Absent a provision otherwise in the articles or bylaws, the directors need not be shareholders in the corporation or residents of any particular state. Any qualifications for directors prescribed by the articles or bylaws must be reasonable and lawful; no qualification may limit the ability of a director to discharge her duties. 5.1.2 Number We must have one or more directors. The number can be set in the articles or bylaws, which may require as many directors as desired. 5.1.3 Election Initial directors may be named in the articles. If not, they are elected by the incorporator(s) at the organizational meeting. After that, the shareholders elect the directors. The directors are elected at each annual shareholders' meeting, subject to contrary provisions in the articles. a. Staggered Board The entire board is elected each year unless there is a "staggered" (or "classified") board. Whether there is a staggered board is usually set in the articles. A staggered board is divided into half or thirds, with one-half or one-third elected each year. For example, say there are nine directors. Instead of electing all nine each year, we could divide the board into three classes of three directors each, and they would serve three-year terms. CORPORATIONS NOTES 25 5.1.4 Removal Shareholders can remove directors before their terms expire. Shareholders may remove a director with or without cause. In some states, if there is a staggered board, shareholders can remove a director only with cause. A director elected by cumulative voting (which we'll discuss in a later module) cannot be removed if the votes cast against removal would be sufficient to elect her if cumulatively voted at an election of directors. Similarly, a director elected by a voting group of shares can be removed only by that class. 5.1.5 Vacancies Vacancies on the board may arise, for example, when a director resigns before their term is up. In such instances, who selects the person who will serve as director for the rest of the term? It's the board or the shareholders. But if the shareholders created the vacancy by removing a director, the shareholders generally must select the replacement. 5.1.6 Board Action a. Board Must Act As Group The board of directors must act as a group. So is an individual director an agent of the corporation? No, she is not. Individual directors have no authority to speak for or bind the corporation. The directors must act as a group (even if there is only one director). They may act in the following ways: • Unanimous agreement in writing (email is OK, and separate documents are also OK); or • At a meeting, which must satisfy the quorum and voting requirements discussed below.Ratification of Defective Corporate Actions Directors, incorporators, and officers may ratify defective corporate actions (that is, actions that are void or voidable due to a failure of authorization, such as those taken in the absence of the requisite board resolution or shareholder approval). To ratify such an action, the board of directors must state the action to be ratified and the nature of the failure of authorization, approve the ratification, and seek shareholder approval if necessary. b. Board Meetings z Types of Meetings; Notice If there is a board meeting, the method for giving notice is set in the bylaws. Directors may act in regular or special meetings: • For regular meetings notice is not required; • For special meetings at least two days' written notice of date, time, and place is required. The notice need not state the purpose of the meeting. — Failure to Give Notice Failure to give required notice means that whatever happened at the meeting is voidable—maybe even void—unless the directors who were not notified waive the notice defect. They can do this (1) in writing any time, or (2) by attending the meeting without objecting at the outset of the meeting. — Proxies Directors cannot give proxies or enter voting agreements for how they will vote as directors. Any efforts to do so are void. Why? Because directors owe the corporation non-delegable fiduciary duties. Note that this is different from shareholders, who can vote by proxy and enter into voting agreements, which are discussed in Module 9.Action by Unanimous Written Consent Remember that any action required to be taken by the directors at a formal meeting may be taken by unanimous consent, in writing, without a meeting. CMR Exam Tip The examiners often ask about the formalities of directors' meetings by setting up facts where there is no meeting. For example, the facts tell you that a director has entered into an extraordinary contract with another entity on the corporation's behalf, either on his own accord or with the approval of some of the directors, or with the approval of all of the directors, who were called individually. You must recognize that a director does not have the power to bind the corporation in contract unless there is actual authority to act. Actual authority generally can arise only if: (1) proper notice was given for a directors' meeting, a quorum was present, and a majority of the directors approved the action, or (2) there was unanimous written consent of the directors.

What types of collateral in secured transactions?

1.3.1 Goods (Tangible Collateral) "Goods" include all things which are movable at the time the security interest attaches (including unborn animals and growing crops). Goods also include fixtures (discussed below). There are four types of goods. The category into which the good is placed depends on how the debtor is using the collateral. • Consumer goods—goods used or bought primarily for personal, family, or household purposes • Equipment—goods that are used or bought for use in a business. Note: This is also the default category for goods. In other words, if the collateral is a good, and it doesn't fit the definition of consumer goods, inventory, or farm products, it gets classified as equipment. • Farm products—crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk, and eggs) if they are in the possession of a debtor engaged in farming operations • Inventory—goods held for sale or lease, goods that are to be furnished under service contracts, and materials used or consumed in a business in a short period of time Intangible or Semi-Intangible Collateral There are eight types of intangible or semi-intangible collateral. The category into which intangible or semi-intangible collateral is placed depends on the nature of the collateral (rather than its use): • Instruments—Pieces of paper representing the right to be paid money, like promissory notes, drafts (for example, checks), and certificates of deposit • Documents—A document that represents the right to receive goods (for example, a bill of lading, a warehouse receipt) • Chattel paper—A record or records which evidence both (1) a monetary obligation, and (2) a security interest in or a lease of specific goods. A "record" is information that is stored in either a tangible medium (for example, written on paper), or an intangible medium (for example, electronically stored). Chattel paper that is stored in an electronic medium is also called "electronic chattel paper." SECURED TRANSACTIONS NOTES 7 • Investment property—Includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items • Accounts—Includes a right to payment (that is not evidenced by an instrument or chattel paper) for property sold or services rendered. Note: A contractual obligation arising from a loan of money is not an account—it is a general intangible (see below). • Deposit accounts—An account maintained with a bank. Note: In general, Article 9 only applies to security interests in nonconsumer deposit accounts and account monies that are claimed as proceeds of other collateral. • Commercial tort claims—A tort claim where (1) the claimant is an organization (for example, a partnership or corporation), or (2) the claimant is an individual, the claim arose out of the claimant's business or profession, and the claim does not include damages for personal injury or the death of an individual (note that Article 9 also applies to noncommercial tort claims that are claimed as proceeds of other collateral) • General intangibles—Any personal property not coming within the scope of the other definitions, such as patent and trademark rights, copyrights, and goodwill. A general intangible under which the account debtor's principal obligation is a monetary obligation is a payment intangible

What rules on shareholders stock transfer restrictions, rights to inspect, and distributions?

10.1 STOCK TRANSFER RESTRICTIONS One great thing about corporations is transferability of the ownership interest. A shareholder can sell or give her stock away. Sometimes people want to restrict transferability, especially in a close corporation (so they can keep outsiders out). For example, S is a shareholder of Corporation, Inc. Her stock is subject to a stock transfer restriction that requires her to offer it first to the corporation (this is a "right of first refusal" ("RFR")). S sells the stock to X, a third party, in breach of the agreement. Was she allowed to do so? To figure this out, we need to know a few rules regarding stock transfer restrictions. 10.1.1 Restrictions Are Fine If Reasonable Restrictions are valid if they are not an undue restraint on alienation. The RFR is valid. It does not restrict the ability to transfer, but only requires the shareholder to offer the stock first to the corporation. 10.1.2 Enforcing Restriction Against Transferee If the restriction is valid, can it be enforced against the transferee, a third-party purchaser (X, in our example)? Yes, if (1) the restriction is conspicuously noted on the stock certificate (or is contained in the information statement required for uncertificated shares) or (2) the transferee had actual knowledge of the restriction at the time of the purchase.10.2 SHAREHOLDERS' INSPECTION RIGHTS A shareholder has the right, personally or by an agent, to inspect (and copy) the books and records of the corporation. 10.2.1 Standing Any shareholder can demand access. 10.2.2 Procedure Under the MBCA, the procedure followed depends on the material sought. Generally, for non-controversial things, shareholders have an unqualified right of access; for more controversial things, their right of access is qualified. a. Unqualified Right for Certain Records Any shareholder may inspect the following records regardless of purpose: (1) the corporation's articles and bylaws, (2) board resolutions regarding classification of shares, (3) minutes of shareholders' meetings from the past three years, (4) communications sent by the corporation to shareholders over the past three years, (5) a list of the names and business addresses of the corporation's current directors and officers, and (6) a copy of the corporation's most recent annual report. The shareholder must make a written demand at least five business days in advance. b. Qualified Right For more controversial things, such as (1) excerpts of the minutes of board (in contrast to shareholder, referenced above) meetings, (2) the corporation's books, papers, and accounting records, and (3) shareholder records, the shareholder must state a proper purpose for the demand. What's a proper purpose? It's one that's reasonably related to the person's interest as a shareholder. The shareholder also must provide five business days' advance written notice. The shareholder need not personally conduct the inspection; they may send an attorney, accountant, or other agent. 10.2.3 Failure to Allow Proper Inspection If the corporation fails to allow proper inspection, the shareholder can seek a court order. If they win, they can recover their costs and attorney's fees incurred in making the motion. CORPORATIONS NOTES 64 10.2.4 Compare—Directors' Inspection Rights Recall that directors need not go through this procedure to get access to corporate books and records. Directors have unfettered access to such materials. 10.3 DISTRIBUTIONS Distributions are payments by the corporation to shareholders. 10.3.1 Types of Distributions Distributions can take the form of dividends, redemptions (meaning, a forced sale to the corporation at a price set in the articles) of shares, repurchases of shares, distribution of assets upon liquidation, and so on. 10.3.2 Rights to Distributions At least one class of stock must have a right to receive the corporation's net assets on dissolution. Beyond this rule, distributions generally are discretionary. a. Declaration Generally Solely Within Board's Discretion Even if the articles authorize distributions, the decision whether to declare distributions generally is solely within the directors' discretion, subject to solvency limitations (below) and any provisions to the contrary in a shareholders' agreement or the articles. A shareholder has a "right" to a dividend or other distribution only when the board declares it. b. Compelling Distributions The shareholders have no general right to compel a distribution. Because the decision about distributions is the board's, it is difficult to win a case to force the declaration of a distribution. To win, the plaintiff must make a very strong showing of abuse of discretion. For example, maybe the corporation consistently makes profits and the board refuses to declare a dividend while paying themselves a bonus.Contractual Rights in Regard to Distributions z Limitations and Preferences Shares may be divided into classes with varying rights (for example, some classes may be redeemable, others not; some may have no right to receive distributions, others could have preferences; etc.). — Terminology Preferred stock is paid before common stock is paid. The right to the preferred dividend may or may not accumulate if unpaid in a particular year (that is, "cumulative" vs. "noncumulative" preferred shares), or may accumulate only if there are sufficient current earnings (that is, "cumulative if earned" preferred shares). Preferred shares have no right to a share of the distributions made on common shares unless the preferred shares provide that they are "participating." z Rights After Declaration—Same as a General Creditor Once a distribution is lawfully declared, the shareholders generally are treated as creditors of the corporation and their claim for the distribution is equal in priority to claims of other unsecured creditors. However, a distribution can be enjoined or revoked if it was declared in violation of the solvency limitations, the articles, or a superior preference right. d. Limitations z Restrictions in the Articles The articles may restrict the board's right to declare dividends (for example, a creditor might insist that the corporation include in its articles a provision prohibiting payment of any distributions unless the corporation earns a certain amount of profits). z Share Dividends Distributions of a corporation's own shares (that is, "share dividends" or "stock dividends") to its shareholders are excluded from the definition of "distribution." Therefore, the above restrictions are inapplicable. CORPORATIONS NOTES 66 However, shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless one of the following occurs: (1) the articles so authorize; (2) a majority of the votes entitled to be cast by the class or series to be issued approves the issue; or (3) there are no outstanding shares of the class or series to be issued. 10.3.3 Which Shareholders Get Dividends? The record shareholder of the stock as of the record date will receive the dividend.

What rules for will contests insane delusion and undue influence?

10.3 INSANE DELUSION An insane delusion is a belief in facts that do not exist and that no rational person would believe existed. Insane WILLS NOTES 66 delusion destroys testamentary capacity only if there is a connection (nexus) between the insane delusion and the property disposition. An insane delusion may invalidate an entire will or only a particular gift, because the will is set aside only to the extent that the delusion caused the testamentary disposition. EXAMPLE I could believe you are an alien who has come to earth to destroy us, but it doesn't affect my will because I leave everything to Margaret, my wife. But, if I believe Margaret is an alien and thus do not leave her my property, then the insane delusion voids the will. 10.4 UNDUE INFLUENCE A person can hound and badger someone to make a will. Only if the influence is undue is there a problem. To establish undue influence, the contestants must establish that: • The influence existed and was exerted • The effect of the influence was to overpower the mind and free will of the testator (so that the will reflects the desires of the person exerting the influence instead of the testator); and • The resulting testamentary disposition would not have been executed but for the influence (causation) CMR Exam Tip For exam purposes, keep in mind that mere pleading, begging, nagging, cajoling, or even threatening do not constitute undue influence. The free will of the testator must be destroyed.

What is a no contest clause?

10.7.1 Basic Idea A no-contest clause (sometimes called an in terrorem clause) is a clause in a will providing that a beneficiary forfeits their interest in the estate if they contest the will and lose. The goal is to scare a beneficiary who would get more money by WILLS NOTES 72 intestacy into not contesting for fear of getting nothing if the contest fails. 10.7.2 Majority Rule—No Forfeiture If Probable Cause for Contesting Will Under the UPC and in most states, a no-contest clause is valid and will be enforced unless the beneficiary had probable cause for bringing the contest. 10.7.3 Minority Rule—No-Contest Clause Given Full Effect Some states give a no-contest clause full effect, regardless of whether there was probable cause for challenging the will.

What types of custody?

10.3.1 Joint Custody There are many iterations of joint custody, including joint physical custody and joint legal custody. When determining whether joint custody is appropriate, courts often consider: • The fitness of both parents • Whether the parents agree on joint custody • The parents' ability to communicate and cooperate concerning the child's well-being • The child's preference • The level of involvement of both parents in the child's life • The geographical proximity of the two homes • The similarity or dissimilarity of the homes • The effect of the award on the child's psychological development • The parents' ability to physically carry out the joint custody order In most jurisdictions, joint custody is encouraged and will be awarded if the parties agree. However. courts will not award joint custody if the parents are openly hostile or unable to communicate, 10.3.2 Sole Custody Sole custody can be awarded to one parent if there is strong evidence that demonstrates it is in the best interest of the child. If the court awards sole custody, the other parent will almost always be entitled to reasonable visitation with the child. It's very hard to deny a parent any visitation unless some type of harm to the child will result. FAMILY LAW NOTES 39 10.3.3 Custody to a Nonparent In disputes between parents and third parties, the decision does not rest solely on the child's best interest. A natural parent has a constitutional right to raise their child. Absent voluntary relinquishment, the parent is entitled to custody unless the nonparent can show that it will result in harm to the child or that the parent is unfit. However, based on special circumstances (such as abandonment, neglect, or abuse), a court may find that the biological parent has lost the right to rear the child, and the nonparent should get custody. 10.4 VISITATION When sole physical custody is given to one parent, the other parent is almost always entitled to reasonable visitation. 10.4.1 Parental Visitation A court may limit a parent's right to visitation (for example, by ordering supervised visitation) if that parent engages in conduct that might injure the child, but absolute denial of visitation is rare. The right to parental visitation is independent of the child support obligation, and visitation cannot be withheld because of arrearages. Contempt is the primary remedy for violation of visitation orders. Consistent and willful denial of visitation rights could result in a modification of custody. 10.4.2 Nonparental Visitation Nearly all states have statutes entitling some third parties (for example, grandparents) to visitation. These are typically applied when there are extraordinary circumstances, such as where the child's parents have divorced or died. Typically, a nonparent may seek visitation if it is in the best interest of the child, and the determinative factor is often the prior relationship between the child and the third party. However, the United States Supreme Court has stated that if a parent is fit, their wishes on nonparent visitation are constitutionally protected and must be given "special weight." A judge may not override a fit parent's decision regarding third-party visitation merely because it would be in the best interest of the child. FAMILY LAW NOTES 40 10.5 MODIFICATION OF CUSTODY DECREES Custody orders are always modifiable. The burden of proof is on the party seeking the change. Generally, custody awards will be modified only if there has been a substantial and material change in circumstances affecting the child's well-being. Some states require a certain amount of time to elapse between the prior custody order and a request for modification, unless the existing arrangement is harmful to the child. As always, the child's best interest is the overriding concern.10.6 RELOCATION Relocation statutes address a change in the child's primary residence. Statutes generally require notice to the other parent and a court hearing to determine whether relocation is permitted. Most courts allow the custodial parent to move out of state with the child if relocation is in the child's best interest, the move is motivated by a benefit to the family, and it is not intended to thwart the relationship with the other parent. FAMILY LAW NOTES 41 10.7 ENFORCEMENT Child custody awards may be enforced by contempt proceedings, state habeas corpus proceedings, and suits in equity. Further, under the UCCJEA, out-of-state decrees will be enforced if a certified copy has been filed with the clerk of court; this won't remove the original state's continuing exclusive jurisdiction, but it will allow enforcement of the order in the state. Under the federal Parental Kidnapping Prevention Act ("PKPA"), full faith and credit must be given to another state's custody or visitation determination if the Act's jurisdictional requirements are met. If the child is removed from the original state, the custodial parent must file the custody order in the new jurisdiction and seek enforcement or obtain a writ of habeas corpus from that jurisdiction. The jurisdictional standards in the PKPA are substantially the same as those in the UCCJEA, except that emergency jurisdiction is not temporary under the PKPA. The International Parental Kidnapping Prevention Act ("IPKCA") and the Hague Convention on Child Abduction provide relief when a child is wrongfully removed to a foreign country

What basic rules for COL choice of law?

2.1 THE BASICS A choice of law question may arise when two conditions are satisfied: • The lawsuit involves factual connections with multiple states; and • The multiple states will have different laws leading to different results. The core question is: "Which state's law will govern?" The core answer is: The governing law is the law selected by the forum court according to its choice of law approach (assuming no applicable constitutional or statutory restrictions). 2.1.1 Exceptions There are exceptions to the core answer when the case is in federal court based on diversity of citizenship jurisdiction. Where venue is proper is covered in the Federal Civil Procedure lecture and materials, along with the choice of law effects based on the transfer of venue. a. Diversity Cases Filed in Federal Court A federal court sitting in diversity applies the choice of law approach of the state in which it sits. b. Transferred Diversity Cases When a diversity case is filed in a proper venue, and the case is transferred within the federal system, the federal court applies the choice of law approach of the original (transferor) court. When the case is filed in an improper venue, or filed in a venue in defiance of a forum selection clause, the law of the transferee court (that is, the court to which the case is transferred) will apply. 2.1.2 Restrictions on Choice of Law There are restrictions that occasionally limit the forum court's choice of law. CONFLICT OF LAWS NOTES 12 a. Constitutional Rule: The Constitution imposes a limit only if a state's law is chosen that has no significant contact with and/or legitimate interest in the litigation. b. Statutory Rule: If the forum state has a statute that directs a choice of law, then the forum court should apply that statute instead of the usual choice of law approach. A common example is a borrowing statute, which requires the court to apply the statute of limitation of another state regardless of the choice of law approach that the state uses. We'll cover those later. 2.2 OVERVIEW OF THE ANALYTICAL APPROACHES There are three main analytical approaches: (1) the vested rights approach of the First Restatement, (2) the most significant relationship approach of the Second Restatement, and (3) the interest analysis (governmental interest) approach.

What are the rules for the three analytical approaches for choice of law?

2.2.1 Vested Rights Approach of the First Restatement In the vested rights approach (the traditional approach), the following three analytical steps are taken: (1) characterizing the area of substantive law, (2) determining the particular choice of law rule, and (3) localizing the rule to be applied. Note: The forum will generally apply its own law in characterizing an issue, even if the state where the issue arose would apply a different characterization. 2.2.2 Most Significant Relationship Approach of the Second Restatement The most significant relationship approach seeks to identify the state having the most significant relationship with respect to the issue at hand and then apply that state's law on that issue. To do this, you consider the connecting facts in a given case and whether the policy-oriented principles should be considered as in the chart below. CONFLICT OF LAWS NOTES 13 2.2.3 Interest Analysis (Governmental Interest) Approach In the interest analysis approach, you start from the assumption that the forum will apply its own law. Then, you consider whether the forum has any interest in the litigation; if not, it is a "false conflict" situation and the forum will apply the law of the second state. A question arises when both the forum and the second state have interests; this is a "true conflict" situation. (See chart below.)

What other steps to organizing a corporation?

2.4.1 Organizational Meeting If the initial directors were named in the articles, the board of directors hold the organizational meeting. If they were not named in the articles, the incorporators hold the organizational meeting. The purpose of the meeting is to "complete the organization of the corporation," which means (1) adopt initial bylaws and (2) appoint officers. 2.4.2 Bylaws Bylaws are an internal document. You can think of them as the corporation's operating manual; the bylaws might include things like setting record dates (for determining who may vote at shareholder meetings) and methods of giving notice. Bylaws may contain any provision for managing the corporation that is not inconsistent with the articles or law

Liability of partners in partnership?

2.2.3 Liability of the Partners A defining characteristic of the general partnership is that each partner is jointly and severally liable (so, one or more partners may be sued) for all obligations of the partnership, whether arising in tort or contract. But the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner's assets. (So, the partners are essentially guarantors.) That means a plaintiff must first try to recover from the partnership's assets before seeking to recover from your personal assets. A judgment is not personally binding on a partner unless they have been served and the creditor has exhausted partnership assets, or exhaustion is excused by agreement or court order or because the partnership is bankruptcy. 2.2.4 Extent of Liability Each partner is personally and individually liable for the entire amount of partnership obligations. So where one partner PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 14 pays the whole obligation of a partnership, they're entitled to indemnification from the partnership. They may also require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify. 2.2.5 Limiting Liability to Third Parties HYPO A forms a partnership with B and C. They all agree that C will not be responsible for any partnership losses. Is C shielded from liability to a third party? Partners cannot limit a third party's rights without the third party's consent. The agreement is effective, however, among the partners themselves. 2.2.6 Liabilities of Admitted Partners If the partnership admits a new partner (unless otherwise agreed, this requires a unanimous partner vote), is that partner liable for debts incurred by the partnership before their admission? A newly admitted partner is not personally liable for partnership obligations that arose before their admission. They can only lose the amount of their investment in the partnership. The liability of withdrawing (dissociating) partners is discussed in Module 4. 2.2.7 Liabilities of Dissociating Partners An outgoing or dissociated partner remains liable for obligations arising while they were a partner unless there has been payment, release, or novation. An outgoing partner can also be liable for acts done after dissociation. Dissociation and the liability of dissociating partners is discussed further in Module 4. CMR Exam Tip Examiners often test the difference in liability between an incoming partner and an outgoing partner. Remember, an outgoing partner generally remains liable for all partnership obligations incurred while they were a partner, whereas an incoming partner generally has no liability for obligations incurred before they became a partner. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 15 2.2.8 Criminal Liability Partners will not be criminally liable for the crimes of other partners committed within the scope of the partnership business, unless the other partners participated in the commission of the crime either as principals or accessories. 2.2.9 Notice Under the R.U.P.A., a partner has notice of a fact when the partner: (1) has actual knowledge of the fact, (2) is notified of the fact, or (3) has reason to know of the fact based on the surrounding circumstances. a. When Notification Effective Notification is effective not only if and when it comes to a partner's attention, but also when it is delivered to a place of business held out by the partner as a place for receiving communications. b. Notice Imputed to Partnership A partner's notice of a fact relating to the partnership is imputed to the partnership immediately unless the partner having notice is participating in a fraud against the partnership.

What other formation issues with corporations?

3.1 CONSEQUENCES OF FORMING A CORPORATION Now that we've formed a corporation—with a person, a paper, and an act—why does it matter? Let's look at several important consequences that follow from formation. 3.1.1 Internal Affairs Doctrine Under the internal affairs doctrine, the internal affairs of a corporation are governed by the law of the state of incorporation.3.1.2 Entity Status Upon formation, a corporation has entity status, meaning it's a legal person. The corporation can sue and be sued, hold property, be a partner in a partnership, invest in other companies or commodities, and so on.a. Benefit Corporations A benefit corporation (B Corp.) is one formed for profit and also to pursue some benefit to a broader social policy cause. Things work as with a regular corporation, but the articles must say it's a "benefit corporation." The corporation also files an annual benefit report assessing how it pursued its stated social mission. Decisionmakers must consider the impact of decisions not only on shareholders, but also on the CORPORATIONS NOTES 10 broader community or environment. Managers should not be liable for failing to maximize profits alone; the company has a broader purpose than that. 3.1.3 Limited Liability One of the most important consequences of forming a corporation is limited liability

What is the scope of the security interest?

3.1 FUTURE ADVANCES A security agreement may provide that the collateral will serve as security not only for the present obligation, but also for advances the creditor makes to the debtor in the future.3.2 AFTER-ACQUIRED PROPERTY Without an explicit after-acquired property clause in the security agreement, the secured party's security interest only reaches collateral that the debtor had rights in at the time the debtor signed the security agreement. If the security agreement has an explicit after-acquired property clause, the security interest will attach to the property as soon as the debtor acquires an interest in the collateral.3.2.1 Exceptions Even without an after-acquired property clause, a security interest will attach automatically to collateral of a type that's rapidly depleted and replenished, such asaccounts and inventory. A security interest will also automatically attach to identifiable proceeds of collateral, even without an after-acquired property clause (as discussed further below). SECURED TRANSACTIONS NOTES 15 3.2.2 Consumer Goods and Commercial Tort Claims An after-acquired property clause does not apply to consumer goods unless the debtor acquires rights in the goods within 10 days after the creditor gives value. In addition, an after-acquired property clause does not apply to any commercial tort claims. 3.3 PROCEEDS As mentioned, a security interest in collateral automatically attaches to identifiable proceeds of the collateral. Proceeds include whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds. Proceeds include second generation proceeds. Insurance payable by reason of loss or damage to the collateral is a proceed, unless it is payable to someone other than the debtor or secured party. Claims arising out of the loss of, defects in, or damage to collateral also are proceeds. 3.3.1 Proceeds Must Be "Identifiable" "Identifiable" means that the proceeds can be traced back to the original collateral.3.3.2 Commingled Cash Proceeds—Lowest Intermediate Balance Rule Applies In the case of commingled cash proceeds (for example, in a bank account), the identifiable proceeds can be traced using the lowest intermediate balance rule. Under that rule, you will look at the bank account starting at the time the proceeds are deposited and ending at the time you are applying the rule. The lowest balance during that time period SECURED TRANSACTIONS NOTES 16 is the secured party's identifiable proceeds (but the amount cannot exceed the value of the cash proceeds originally deposited).

What choice of law application to specific substantive areas?

3.1 INTRODUCTORY NOTES • Note #1: These specific areas will cover vesting rules under the First Restatement approach and connecting facts/policy principles under the Second Restatement approach. Interest analysis, however, is not sensitive to the substantive area at issue. • Note #2: Under the First Restatement approach, the same vesting rule is generally applied to the entire claim. Under the Second Restatement and interest analysis approaches, however, each issue may be analyzed separately. 3.2 SUBSTANTIVE AREA #1: TORTS 3.2.1 First Restatement Vesting Rule The governing law is the law where the injury occurred. 3.2.2 Second Restatement Considerations a. Factual Connections Second Restatement considerations include the place: (1) of injury; (2) of the conduct causing injury; (3) where the parties are at home; and (4) where the relationship, if any, is centered. b. Policy Principles Policy principles include (1) the relevant policies of the forum state and (2) the relevant policies of other connected states. 3.2.3 Usual Outcomes with Exceptions For all three approaches, the governing law will almost always be the law of the place of injury. But exceptions arise occasionally, particularly under the two modern approaches (interest analysis and most significant relationship). These exceptions typically kick in when two conditions are present: CONFLICT OF LAWS NOTES 19 • The rule at issue is a loss distribution rule (such as loss limitations, vicarious liability rules, and rules eliminating liability like immunity rules); and • The parties share a common domicile. 3.3 SUBSTANTIVE AREA #2: CONTRACTS 3.3.1 Choice of Law Provision A choice of law provision allows the parties to select the law that will apply to their contract. Rule: A choice of law provision will be enforced if it is valid and express. a. Impact of Choice of Law Provision If the choice of law provision is enforced, the provision displaces the choice of law analysis that the court would otherwise perform. Conversely, if the choice of law provision is rejected, the court should then conduct a choice of law analysis. If in doubt on the bar exam, find the provision invalid. b. Applications of Validity Two reasons to find a choice of law invalid are: • The law selected has no reasonable relationship to the contract.• The provision was included without true mutual consent.3.3.2 Choice of Law Analysis a. First Restatement Vesting Rules • Rule #1: If the case is about formation, you apply the law of the place of contracting. Examples of formation issues include: (1) capacity; (2) contractual formalities; and (3) consideration. • Rule #2: If the case is about performance, you apply the law of the place of performance. Examples of performance issues include (1) the time, place, and manner of performance; and (2) excuses for nonperformance. b. Second Restatement Considerations • Factual considerations include: (1) the place of contracting; (2) the place of negotiation; (3) the place of performance; and (4) the place where the parties are at home. • Policy principles include: (1) the relevant policies of the forum state; (2) the relevant policies of other connected states; and (3) the reasonable expectations of the parties. 3.4 SUBSTANTIVE AREA #3: PROPERTY Property is one area where all approaches essentially continue to apply the same rules. 3.4.1 Immovable (Real) Property Rule: Apply the law of the situs. 3.4.2 Movable (Personal) Property • Rule #1: If the case involves an inter vivos transaction, you apply the law of the situs at the time of transaction. • Rule #2: If the case involves a matter relating to inheritance, you apply the law of the decedent's domicile at the date of death. 3.5 SUBSTANTIVE AREA #4: FAMILY LAW 3.5.1 Marriage Valid Where Performed Is Recognized Rule: If a marriage is valid where performed, it will be recognized as valid everywhere. a. Exception: Temporary Relocation for Marriage When domiciliaries of one state temporarily relocate to another state to enter into a marriage that violates a prohibitory rule in their home state, the state of domicile will not recognize the marriage. Prohibitory rules are rules that express a strong public policy regarding marriage, such as rules against incest, polygamy, and marriage under a minimum age. By contrast, directory rules are administrative in nature, such as rules requiring a marriage license, parental consent, and a certificate of a blood test. 3.5.2 Forum Applies Own Laws for Divorce Rule: The forum will apply its own divorce laws. The rationale is that to acquire jurisdiction, at least one of the parties must be domiciled in the state. Therefore, a state has an interest in applying its own law. CONFLICT OF LAWS NOTES 25 3.5.3 Child's Status (Legitimacy Rules) • Rule #1: Legitimacy of a child is governed by the law of the mother's domicile at the time of the child's birth. • Rule #2: The validity of subsequent acts of legitimation concerning paternity are governed by the law of the father's domicile.

What duties of partnership?

3.1 FIDUCIARY DUTIES Each partner owes four fiduciary duties to the partnership: they owe duties of loyalty and care to each other and to the partnership. They also owe a statutory duty of disclosure as well as a duty of obedience. 3.1.1 Duty of Loyalty This duty requires each partner (1) to account to the partnership for any benefit derived by the partner in conducting the partnership business, using the partnership's property, or appropriating a partnership opportunity; (2) to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) a party having an interest adverse to the partnership; and (3) to refrain from competing with the partnership in the conduct of its business. 3.1.2 Duty of Care The duty of care requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. 3.1.3 Duty of Disclosure A partner also has a duty to provide complete and accurate information concerning the partnership. The duty of disclosure is a statutory duty rather than a fiduciary one (although some judicial opinions treat it as fiduciary in nature). R.U.P.A. provides that each partner and the partnership shall furnish to a partner (1) without demand, any information concerning the partnership's business and affairs reasonably required for the proper exercise of the partner's rights and duties; and (2) on demand, any other information concerning the partnership's business and affairs (except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances). 3.1.4 Duty of Obedience The duty of obedience requires the partner to obey all PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 17 reasonable directions of the partnership and not act outside the scope of his or her authority. 3.1.5 Elimination of Duties A partnership agreement may not eliminate the duties of loyalty or care. The duty of disclosure may be eliminated.

What rules for defenses to choice of law?

4.1 DEFENSE #1: PUBLIC POLICY Rule: A forum court will not apply a law that is against its own fundamental public policy. This rule appears in both Restatements, but as a practical matter it is most applicable to the First Restatement. Caveat: As a reminder, this rule does not apply to recognition of judgments! 4.2 DEFENSE #2: PROCEDURAL RULES Rule: Regardless of the outcome of the choice of law analysis, the forum court will always apply its own procedural rules. 4.2.1 Frequently Tested Issue: Statutes of Limitations The general rule is that statutes of limitations have been viewed as procedural. There are some exceptions that follow. CMR Exam Tip Now, don't get tripped up by labels here! You will hear or likely have already heard in the federal civil procedure lecture that statutes of limitations ("SOLs") are "substantive." That's absolutely true. A federal court sitting in say, Illinois, is required to apply whatever SOL for a claim that a state court in Illinois would. But what if Illinois considers SOLs to be "procedural," and the case is filed in federal court and has a choice of law issue between Illinois and Texas? For the exam, it's a step-by-step process. The federal court in Illinois is required to apply whatever statute of limitations an Illinois court would, rather than any federal statute, because this issue is "substantive." And since Illinois considers the SOLs to be "procedural," an Illinois state court would apply its own SOL rather than Texas's SOL, so the federal court has to do likewise. Those are some mental gymnastics you have to use to get to the correct answer! • Exception #1: Borrowing Statutes: Borrowing statutes direct a court to look at both the forum limitations period CONFLICT OF LAWS NOTES 28 and the foreign limitations period (in cases where foreign law governs under a normal choice of law analysis) and then to typically apply the shorter period.• Exception #2: Limitations that Condition a Substantive Right: If the normal choice of law analysis leads to the application of a foreign statute that creates a substantive right, then you apply the entire statute.

What is temporary perfection and continuation for proceeds?

4.10.1 Perfection for Proceeds If a secured party has a perfected security interest in collateral, the secured party automatically has a perfected security interest in any proceeds of the collateral for 20 days after receipt of the proceeds. The security interest in proceeds will continue to be perfected beyond the 20 days if: • The proceeds are identifiable cash proceeds (this is sometimes called the "cash proceeds" rule), • The security interest in the original collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral (this is sometimes called the "same office" rule), or • The security interest in the proceeds is perfected within the 20-day period

What rules for moving of debtor from one state to another?

4.8.1 Collateral in Which Perfection Is Governed by Debtor's Location a. Relocation of Debtor If the perfection of a security interest is governed by the law of the state in which the debtor is located, and the debtor moves from one state to another, the security interest generally will become unperfected 4 months after the debtor's move unless the secured party files a financing statement in the new jurisdiction before that 4-month period is up. b. Debtor in Different State If collateral is transferred to a new owner who is located in a different state, the security interest will become unperfected one year after the collateral moves unless the secured creditor files a financing statement in the new jurisdiction before that one-year period is up. 4.8.2 Other Collateral a. Collateral in Which Security Interest Is Perfected by Possession If a perfected security interest in collateral is a possessory security interest (which is governed by the law of the state in which the collateral is located), and the collateral is moved from one state to another, the security interest will remain SECURED TRANSACTIONS NOTES 28 perfected without any further action as long as the security interest is also perfected by possession under the laws of the new state. b. Certificate of Title Property (Automobiles and Other Vehicles) If a vehicle is moved from one state to another and is covered by a certificate of title issued by the new state, a security interest in the vehicle that was properly perfected in the original state lasts as long as it would have if the vehicle had not been covered by the new certificate of title. z Exception—Purchasers for Value If a vehicle subject to a perfected security interest in one state is moved to a new state and is covered by a certificate of title issued by the new state, the security interest in the original state is perfected as against a purchaser for value of the vehicle only until the earlier of: • The time when the security interest would have become unperfected in the original state if the vehicle had not been covered by the new certificate of title (same rule as the general rule), or • 4 months after the vehicle is covered by the new certificate of title z Exception—Clean Certificate of Title Issued in New State If the certificate of title issued in the new state does not note the secured party's interest in the vehicle, the following parties have priority over the secured party: • A buyer of the vehicle who is not in the business of selling vehicles who purchases for value and receives delivery of the vehicle without knowledge of the security interest, and • A secured party who perfects a security interest in the vehicle without knowledge of the other security interest after the clean certificate of title is issued in the new state SECURED TRANSACTIONS NOTES 29 c. Deposit Accounts, Uncertificated Securities, and Securities Accounts If the bank, issuer, or securities intermediary moves to a new state, perfection of an interest in the deposit account, uncertificated security, or securities account continues until the earlier of: • The time when the security interest would have become unperfected in the original state if the bank, issuer, or securities intermediary had not moved to the new state, or • 4 months after the bank, issuer, or securities intermediary moves to the new state

What are contunuation and termination statements in secured transactions?

4.9.1 Continuation Statements A financing statement is valid for 5 years. A continuation statement may be filed, good for an additional 5 years. The continuation statement can only be filed within 6 months before the lapse of the filed statement. The authorization of the debtor is not required for a continuation statement; the secured party may authorize it. 4.9.2 Termination Statements Generally, a secured party is not obligated to terminate a financing statement. However, if there is no outstanding obligation of the debtor and no commitment on the part of the secured party to make further advances, or if the debtor didn't authorize the filing of the initial financing statement, the secured party must, on demand of the debtor, within 20 days, file a termination statement or provide one to the debtor. a. Timing for Consumer Goods In the case of consumer goods, the secured party must file the termination statement within 1 month after there is no obligation or commitment, or if the debtor demands it, within 20 days of the demand.

What rules for domicile with choice of law?

5 DOMICILE 5.1 CONTEXT "Domicile" in the conflicts context will never be a question on its own. Instead, it is an issue in a broader analysis. In other words, something else in your answer may depend on a domicile determination.5.2 DOMICILE BY CHOICE Rule: An individual with domicile capacity acquires a domicile when two conditions are satisfied: (1) physical presence in the new domicile; and (2) an intent to remain permanently (or indefinitely) in the new domicile.5.3 DOMICILE BY OPERATION OF LAW Rule: An individual who lacks domicile capacity is assigned one by law. 5.3.1 Category #1: Children • Rule #1: Newborns are assigned the domicile of their parents. • Rule #2: In cases of divorce, children are assigned the domicile of their custodial parent. 5.3.2 Category #2: Incompetents • Rule #1: An individual who is mentally incompetent is assigned the domicile of their parents. • Rule #2: If an individual becomes incompetent after acquiring a domicile by choice, they retain the chosen domicile.

What is the role of the board of directors?

5.2 ROLE OF THE BOARD OF DIRECTORS The board manages the corporation, meaning it sets policy, supervises officers, declares distributions, determines when stock will be issued, recommends fundamental corporation changes to shareholders, and so on. Unless the articles or bylaws provide otherwise, the board may create one or more committees, with one or more members, and appoint members of the board of directors to serve on them. The committees may act for the board, but the board remains responsible for supervision of the committees. The board may also delegate authority to officers. 5.2.1 Committees Cannot Take Certain Actions While the board can delegate actions to a committee, a committee may not take the following actions: • Declare a distribution • Fill a board vacancy • Recommend a fundamental change to shareholders Note, however, that a committee can recommend such actions to the full board for its action.

What priorities in secured transactions?

5.2.1 Priority Between Perfected Secured Parties When there are conflicting perfected security interests in the same collateral, priority goes to whichever party was the first to either file or perfect—whichever is earlier—provided that there is no period thereafter when there is neither filing nor perfection. CMR Exam Tip Remember that it's the date of filing or perfection that determines priority—not the date of attachment.5.2.2 Priority Between Unperfected Secured Parties When two unperfected security interests conflict, the first to attach has priority. 5.2.3 Priority Between Unperfected and Perfected Secured Parties A perfected security interest generally prevails over an unperfected security interest. 5.2.4 PMSI Superpriority PMSIs enjoy a superpriority—they're superior to prior perfected security interests in the same collateral if certain conditions (discussed below) are met. a. PMSI in Goods Other than Inventory and Livestock A PMSI in goods other than inventory and livestock (for example, equipment) has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor receives possession of the goods.b. PMSI in Inventory and Livestock A PMSI in inventory collateral has priority over a conflicting security interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if: • It is perfected at the time the debtor gets possession of the inventory (filing must take place before the inventory is delivered to the debtor), and • Any secured party who has filed their security interest in the same inventory receives authenticated notification of the PMSI before the debtor receives possession of the inventory, and the notification states that the purchase money party has or expects to take a PMSI in inventory of the debtor described by kind or type. The notification is effective for deliveries of the same type of collateral for 5 years. Note: A PMSI in livestock generally follows the same rules.Consignor Has PMSI in Inventory Under Article 9, a consignor's interest in the consigned goods is considered to be a PMSI in inventory. Therefore, a consignor can acquire PMSI superpriority in consigned goods if the consignor complies with the above requirements for gaining PMSI superpriority in inventory. c. Conflicting PMSIs If more than one party has PMSI superpriority in collateral, the following rules apply: • A secured party who has a PMSI in collateral as a seller (a seller-financed PMSI) has priority over a secured party who has a PMSI in the same collateral as a lender (a financer-financed PMSI) • Otherwise, the first secured party to file or perfect prevails CMR Exam Tip It's very important to determine the class of collateral when a PMSI is involved because what's necessary for perfection varies. Remember: • A PMSI in consumer goods is automatically perfected, • A PMSI in equipment can be perfected (usually by filing) any time within 20 days after the debtor gets possession of the collateral, and • A PMSI in inventory must be perfected (usually by filing) by the time the debtor gets possession of the collateral—there is no 20-day grace period—and others with a previously filed security interest in the inventory must be given notice 5.2.5 Special Priority Rules for Conflicting Security Interests in Investment Property A security interest perfected by control has priority over a security interest perfected by any other method (that is, by filing or automatic perfection). For conflicting security interests perfected by control, they rank according to the time SECURED TRANSACTIONS NOTES 38 of obtaining control (unless one of the secured parties with control is a securities intermediary, in which case the securities intermediary will prevail). In all other cases, the "first to file or perfect" rule governs priority questions for investment property. 5.2.6 Special Priority Rules for Conflicting Security Interests in Deposit Accounts A security interest in a deposit account that is perfected by control has priority over a conflicting security interest that is perfected by another method (namely, as proceeds of other collateral). If there are conflicting security interests that are perfected by control, they rank according to the time of obtaining control, subject to the following exceptions: • A secured party who has obtained control by putting the deposit account in the party's name has priority over all other secured parties with control, and • A bank that has control because it maintains the deposit account has priority over all secured parties with control, other than the party who has obtained control by putting the account in their name. Note: If a debtor transfers money or deposit account funds (for example, by writing a check or making an electronic funds transfer) to a person, that person takes free of any security interest in the money or funds, unless the transferee acts in collusion with the debtor in violating the rights of the secured party. 5.2.7 "Purchasers" of Chattel Paper and Instruments Article 9 contains special rules for "purchasers" chattel paper and instruments, which includes parties who take a security interest. a. Chattel Paper Purchasers If a purchaser of chattel paper in good faith gives new value and takes possession of the chattel paper in the ordinary course of business (or takes control of electronic chattel paper), the purchaser has priority over:

What rules for secured party vs. judicial lien creditor or holder of possesory lien?

5.4.1 Secured Party vs. Judicial Lien Creditor A judicial lien creditor (that is, a person who has acquired a lien on the collateral through judicial attachment, levy, or the like, or a bankruptcy trustee) prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is perfected. On the other hand, a prior perfected security interest has priority over a judicial lien. CMR Exam Tip A creditor who has won a judgment in court becomes a judicial lien creditor at the time of levy (that is, seizure of the collateral by the sheriff). Therefore, look to see when the sheriff levies on the collateral and when the security interest is perfected (if at all) to determine who has priority.a. Prior Filed Security Interest May Also Have Priority As noted above, the secured party has priority if the secured party perfected before the judicial lien arose. However, the secured party will also have priority if the secured party obtained a security agreement and filed a financing statement (but did not attach and perfect) before the judicial lien arose, as long as the secured party eventually attaches and perfects. b. PMSI Grace Period Exception If the secured party files a financing statement with respect to a PMSI within 20 days after the debtor receives the collateral, the secured party will have priority over a judicial lien arising between the time the security interest attaches and the time of filing. c. Exception—Future Advances For a perfected future advance to gain priority over a subsequent judicial lien, the future advance must be made (1) without knowledge of the lien, (2) within 45 days of the lien arising, or (3) pursuant to a commitment entered into without knowledge of the lien.5.4.2 Secured Party vs. Possessory (Statutory) Lien Holder A possessory lien imposed by other (that is, non-Code) state law in favor of those who supply goods or services (for example, an artisan's lien or a materialman's lien) has priority over a security interest (even if perfected) as long as SECURED TRANSACTIONS NOTES 47 the goods or services were provided in the ordinary course of business and the collateral remains in the lien holder's possession.

WHat is default in secured transactions?

6.1 DEFINITION OF DEFAULT The right of the secured party to proceed against collateral is triggered by default. Article 9 does not define the events that will trigger a default, but the security agreement usually will define default to include events such as failure to pay or maintain insurance. If the security agreement lacks such a provision, "default" is generally construed as a failure to pay or perform. CMR Exam Tip To determine if there has been a default, look out for late or missed payments. However, also look for a possible waiver by the secured party of late or missed payments. 6.2 SELF-HELP REPOSESSION After default, the secured party is entitled to take possession of the collateral without judicial process (that is, by "self-help") if this can be done without a breach of the peace. When a secured party breaches the peace, the secured party loses the authorization to repossess, may be sued for conversion (and possibly assault, battery, trespass, etc.), and is liable for actual (and frequently punitive) damages. 6.2.1 Breach of the Peace Any conduct by the secured party that has the potential to lead to violence is a breach of the peace. Generally, physical presence by the debtor (or a representative of the debtor) plus a verbal objection by the debtor over the repossession is enough to create a breach of the peace.Breaking and Entering Can Be a Breach of the Peace Breaking and entering of a residence is probably a breach of the peace. The breaking and entering of a commercial property is less likely to be a breach of the peace. Further, simple trespass is not a breach of the peace. Thus, for example, a repossessor may hot-wire a car sitting on a driveway, or perhaps one in a commercial garage, but not one sitting in someone's closed garage.6.2.2 Using Judicial Process If self-help is unavailable, the secured party can use judicial process (for example, a replevin action) to get the goods. 6.2.3 Rendering Equipment Unusable Without removal, the secured party may also make equipment unusable and dispose of it on the debtor's property if the secured party can do so without a breach of the peace. This right is directed toward the problem of taking possession of heavy, bulky equipment that is not easily movable. 6.2.4 Self-Help in Accounts If the debtor defaults and the collateral is an account, the secured party can notify the person owing money to the debtor (that is, the account debtor) to make payment to the secured party, rather than to the debtor. Upon notification, the account debtor must pay the secured party, rather than the debtor. Payment to the debtor will not discharge the obligation.

What fiduciary duties of directors and officers?

6.1.1 The Standard A director must discharge her duties in good faith and with the reasonable belief that her actions are in the best interest of the corporation. She must also use the care that a person in like position would reasonably believe appropriate under the circumstances. • The first sentence of this standard is the duty of loyalty. • The second sentence of this standard is the duty of care. Every time you see a director arguably in breach of either duty, state the entire standard. 6.1.2 Duty of Care The standard (stated above) includes the duty of care. A director owes this duty to the corporation. a. Burden on Challenger/Plaintiff The person challenging the directors' action on the basis of a breach of the duty of care has the burden of proving that the statutory standard above was not met. b. Two Common Scenarios On the exam, you'll typically see the duty of care come up in two ways: (1) nonfeasance or (2) misfeasance. z Nonfeasance Nonfeasance occurs when a director basically does nothing. In other words, we have a lazy director.Misfeasance Misfeasance occurs when the board makes a decision that hurts the business. Here, in contrast to cases of nonfeasance, causation is clear.. Director May Rely on Reports or Other Information In discharging her duties, a director is entitled to rely on information, opinions, reports, or statements (including financial statements), if prepared or presented by: (1) corporate officers or employees whom the director reasonably believes to be reliable and competent; (2) legal counsel, accountants, or other persons as to matters the director reasonably believes are within such person's professional competence; or (3) a committee of the board of which the director is not a member, if the director reasonably believes the committee merits confidence. 6.1.3 Duty of Loyalty The standard (see 6.1.1) includes the duty of loyalty. A director owes this duty to the corporation. a. Burden on Defendant Duty of loyalty cases are about conflicts of interest. The business judgment rule does not apply in duty of loyalty cases. Why? Because it can never apply when the fiduciary has a conflict of interest. So the burden in these cases is on the defendant. b. Common Scenarios z Conflicting Transactions ("Self-Dealing") — What Constitutes a Conflicting Transaction? This is any transaction between the corporation (on one side) and (1) one of its directors, or (2) that director's close relative, or (3) another business of the director's (on the CORPORATIONS NOTES 33 other side). A classic example: XYZ Corp. enters into a contract with LMN Corp., which is owned (wholly or in part) or run by one of XYZ Corp.'s directors. We worry that the director has divided loyalties. The same is true if LMN Corp. is owned by the director's spouse or child or other relative close enough to affect one's judgment. — Standards for Upholding Conflicting Interest Transactions A conflicting interest transaction will not be enjoined, set aside, or give rise to an award of damages because of the director's interest if: (1) It was approved by a majority (but at least two) of the disinterested directors (those without a conflicting interest). It is imperative, however, either that the director disclosed all material facts to the board or that they were known when the board approved the transaction. OR (2) It was approved by a majority of votes entitled to be cast by disinterested shareholders (those without a conflicting interest)—again, after disclosure or the facts were known. Notice of the shareholders' meeting must describe the transaction. OR (3) Judged by the circumstances at the time the corporation entered into the transaction, it was fair to the corporation.Duty to Disclose The directors also have a duty to disclose material corporate information to other members of the board. 6.1.5 Loans A corporation can make a loan to a director if it is reasonably expected to benefit the corporation. 6.1.6 Personal Liability of Directors May Be Limited The articles may limit or eliminate directors' personal liability for money damages to the corporation or shareholders for actions taken or for failure to take action. However, the articles may not limit or eliminate liability for financial benefits received by the director to which she is not entitled, an intentionally inflicted harm on the corporation or its shareholders, unlawful corporate distributions, or an intentional violation of criminal law

Which directors may be liable?

6.2.1 Determining Director Liability Directors may be liable to the corporation for improper distributions (discussed in Module 10), improper loans, "ultra vires" CORPORATIONS NOTES 38 acts (that is, making the company do things it has no power to do), and for breaches of fiduciary duties. But how do we know exactly which directors are liable for these actions? A director is presumed to concur with board action unless her dissent or abstention is noted in writing in the corporate records. In writing means (1) in the minutes, (2) delivered in writing to the presiding officer at the meeting, or (3) written dissent to the corporation immediately after the meeting. So an oral dissent, by itself, is not effective. Note also that a director cannot dissent if she voted for the resolution at the meeting. 6.2.2 Exception A director is not liable under the rule above if she was absent from the board meeting (for example, she was sick that day). 6.3 OFFICERS 6.3.1 Powers and Status Officers are agents of the corporation. Agency law determines the authority and powers of officers. The corporation is the principal and the officer is the agent. Whether the officer can bind the corporation is determined by whether she has agency authority to do so (as in, actual or apparent authority). Unauthorized actions may become binding on the corporation because of ratification, adoption, or estoppel. The corporation is liable for actions by its officers within the scope of their authority, even if the particular act in question was not specifically authorized. EXAMPLE The president of a corporation generally has apparent authority to bind the corporation to contracts in the ordinary course of business. 6.3.2 Roles Traditionally, corporations were required to have a president, a secretary, and a treasurer. Now, the corporation need not have any particular officers. It may have those specified in or permitted by its bylaws. One officer may appoint assistant officers if permitted in or by the bylaws. May one person simultaneously serve in more than one office? Yes. CORPORATIONS NOTES 39 6.3.3 Duties Officers' general duties are determined by the bylaws or, to the extent consistent with the bylaws, by the board or an officer so authorized by the board. Officers owe the same duties of care and loyalty to the corporation as directors (see 6.1.1, supra). 6.3.4 Selection and Removal of Officers Officers are selected and removed by the board, which also sets officer compensation. Despite any contractual term to the contrary, an officer has the power to resign at any time by delivering notice to the corporation, and the corporation has the power to remove an officer at any time, with or without cause. If the resignation or removal is a breach of contract, the nonbreaching party may have a right to damages, but note that mere appointment to office itself does not create any contractual right to remain in office. Remember that shareholders hire and fire directors. Shareholders do not hire and fire officers.

What are fixtures with secured transactions?

7.1 DEFINITION OF FIXTURE Fixtures are goods that have become so related to real property that an interest in them arises under real property law. In general, personal property attached to real estate with the intent that it become a permanent part of the real estate is a fixture (for example, central air conditioning, built-in appliances, elevators, etc.). The distinctive aspect of a fixture is that interests in it may arise under both the Code and under the law of real estate. Note: No security interest can exist in ordinary building materials (for example, bricks, lumber, shingles, etc.) that are incorporated into an improvement on land. 7.2 PERFECTION To perfect a security interest in fixtures, a fixture filing must be made in the office where a mortgage on the real estate would be filed. In addition to the usual requirements for a financing statement, a fixture filing financing statement must reasonably identify the real estate and must show the name of the owner (if the debtor does not have an interest of record in the real estate). 7.3 RIGHTS ON DEFAULT When the security interest in the fixture has priority over all interests in the real property, the holder of the security interest in the fixture may, upon default, remove the fixture from the real property. If the debtor does not own the property from which the collateral is removed, the creditor must reimburse the owner of the property for the cost to repair damage to the property caused by removal, but not for any other diminution in value.7.4 PRIORITY 7.4.1 Secured Party v. Subsequent Real Estate Interest A security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of the security interest by fixture filing.7.4.2 Secured Party v. Prior Real Estate Interest A prior real estate interest that is properly recorded has priority over a security interest that subsequently arises. a. Exception—PMSIs A PMSI takes priority over an earlier in time realty interest if it's perfected by a fixture filing before the goods become fixtures or within 20 days thereafter.Note—Construction Mortgages A construction mortgage takes priority over a subsequent SECURED TRANSACTIONS NOTES 60 PMSI in fixtures, even if the security interest is perfected by a fixture filing within 20 days of affixation.3 Fixture Filing Unnecessary a. Readily Removable Collateral A secured party need not fixture file as to readily removable (1) factory or office machines, (2) equipment that is not primarily used or leased for use in the operation of the real estate, or (3) replacements of domestic appliances which are consumer goods. Any method of perfection before such goods become fixtures entitles the secured party to priority. b. Consent, Disclaimer, or Right to Remove A secured party need not perfect at all to have priority (1) if the encumbrancer or owner of the real estate has, in an authenticated record, consented to the security interest or has disclaimed an interest in the goods as fixtures, or (2) if the debtor has a right to remove the goods as against the real estate claimant.

What rules for modification and termination of child support?

7.4 MODIFICATION OF SPOUSAL SUPPORT Only periodic spousal support (that is, permanent or rehabilitative alimony) may be modified. Periodic spousal support FAMILY LAW NOTES 27 may be modified if there is a substantial change in circumstances regarding the needs of the recipient spouse or the ability of the payor spouse to pay. Legal obligations to a new spouse or children (but not stepchildren) may be a sufficient change in circumstances if the change is unanticipated. If a spouse intended to remarry upon divorce, the change is not unanticipated and will not constitute a sufficient change in circumstances. CMR Exam Tip Note that a self-induced reduction in income by the payor spouse is not sufficient to have spousal support reduced. Be alert to this issue if a fact pattern involves a payor spouse who quits their job. 7.5 TERMINATION OF SPOUSAL SUPPORT Periodic spousal support terminates upon the remarriage of the recipient spouse or the death of either spouse. Most jurisdictions would also terminate spousal support if the recipient spouse begins cohabiting with someone in a marriage-like relationship. Lump sum and reimbursement support is not modifiable and survives the death of either spouse. 7.6 TAX CONSEQUENCES OF SPOUSAL SUPPORT Under current law, spousal support is not a taxable event. For divorce or separation instruments executed before 2019, spousal support payments are deductible by the payor and are income to the recipient unless the instrument is modified to follow the current rule.

What is accessions in secured transactions?

8.1 DEFINITION OF ACCESSION Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost (for example, tires on a car). 8.2 PERFECTION If a security interest is perfected when the collateral becomes an accession, the security interest remains perfected in the collateral. 8.3 PRIORITY As a general rule, the rules for priority previously discussed (for example, first to file or perfect, special PMSI rules) apply to accessions.8.3.1 Special Priority Rule—Vehicles A security interest in an accession is subordinate to a security interest in a whole (for example, a car) which is perfected by compliance with the requirements of a certificate-of-title statute.8.4 REMOVAL AND REIMBURSEMENT FOR PHYSICAL INJURY TO THE WHOLE A secured party may remove an accession from other goods if the security interest in the accession has priority over the claims of every person having an interest in the whole. The secured party removing the accession is responsible for the cost of repair of any physical injury to the whole or the other goods. A person entitled to reimbursement may refuse permission to remove until the secured party gives adequate assurance for the performance of the obligation to reimburse.

What are derivative suits by shareholders?

8.1 SHAREHOLDER AS PLAINTIFF AND RECOVERY In a derivative suit, a shareholder is suing to enforce the corporation's claim, not her own personal claim. In other words, if a shareholder believes the corporation has been wronged but the directors have not done anything to enforce its rights with respect to the wrong, the shareholder may be able to bring a shareholder derivative suit to enforce the corporation's rights. It's a case in which the corporation is not pursuing its own claim, so a shareholder steps in to prosecute it for the corporation. So, you should always ask: could the corporation have brought this suit? If so, it's a derivative suit. 8.1.1 Compare—Direct Actions A direct action may be brought for a breach of a fiduciary duty owed to the shareholder by an officer or director. To distinguish breaches of duty owed to the corporation and duties owed to the shareholder, ask: (1) who suffers the most immediate and direct damage, the corporation or the shareholder; and (2) to whom did the defendant's duty run, the corporation or the shareholder? In a shareholder direct action, any recovery is for the benefit of the individual shareholder.8.1.2 Recovery to Corporation In a derivative action, the shareholder is asserting the corporation's rights rather than her own rights. So if a shareholder-plaintiff wins a derivative suit, who gets the money from the judgment? The corporation. Remember, it is the corporation's claim. a. Court May Order Payment of Expenses The shareholder-plaintiff may recover costs and attorneys' fees, usually from the judgment won for the corporation (after all, the shareholder did a favor for the corporation by suing and winning). If the shareholder-plaintiff loses the derivative suit, she cannot recover costs and attorneys' fees. If the court finds that the action was commenced or maintained without reasonable cause or for an improper purpose, it may order the plaintiff to pay reasonable expenses of the defendant. So the shareholder may be liable to the defendant she sued for that defendant's attorneys' fees if she sued without reasonable cause.8.2 REQUIREMENTS FOR DERIVATIVE SUITS 8.2.1 Standing a. Stock Ownership at Time of Wrong To commence and maintain a derivative proceeding, a shareholder must have been a shareholder at the time the claim arose or must have become a shareholder through transfer by operation of law from someone who did own stock at the time the claim arose. Examples of "transfer by CORPORATIONS NOTES 51 operation of law" include getting stock through inheritance or by divorce decree.

What rules in regard to shareholders voting rights?

9.1 WHO VOTES 9.1.1 Outstanding Stock and Record Shareholders Authorized stock is the number of shares the corporation may issue (it's set in the articles). Issued stock is the number of shares the corporation has sold. So what's outstanding stock? It's the shares the company issued but has not reacquired.Record Shareholder and Record Date Shareholders of record on the record date may vote at the meeting. The record date is fixed by the board of directors but may not be more than 70 days before the meeting. Unless the articles provide otherwise, each outstanding share is entitled to one vote.Exceptions There are a few exceptions to the general rule that the record owner on the record date is who votes: z Treasury Stock Suppose the corporation reacquires stock before the record date, so the corporation is the owner of this treasury stock as of the record date. Does the corporation then vote this stock? No. No one votes the stock, because it was outstanding on the record date. • Death of Shareholder CORPORATIONS NOTES 54 HYPO S owns stock in C Corp. S is the record shareholder. After the record date, S dies. Can S's executor vote the shares? z Voting By Proxy A shareholder may vote her shares in person or by proxy executed in writing. A proxy is (1) a writing (fax and email are fine), (2) signed by the record shareholder (email is fine if the sender can be identified), (3) directed to the secretary of the corporation, (4) authorizing another to vote the shares.Shareholder Voting Trusts and Voting Agreements Let's say X, Y, and Z own relatively few shares of C Corp. An exam question might ask you for your opinion as to how they might pool their voting power. They may do so in a voting trust or a voting agreement. a. Requirements for Voting Trust A voting trust is a written agreement of shareholders under which all of the shares owned by the parties to the agreement are transferred to a trustee, who votes the shares and distributes the dividends in accordance with the provisions of the voting trust agreement. In some states, the trust is not valid for more than 10 years unless it is extended by the agreement of the parties. The requirements are: • A written trust agreement, controlling how the shares will be voted; • A copy of the agreement (including names and addresses of the beneficial owners of the trust) is given to the corporation; CORPORATIONS NOTES 56 • Legal title to the shares is transferred to the voting trustee; and • The original shareholders receive trust certificates and retain all shareholder rights except for voting. b. Requirements for Voting Agreement Rather than creating a trust, shareholders can enter into voting (or "pooling") agreements providing for how they'll vote their shares. The requirements are that the agreement be in writing and signed. It need not be filed with the corporation and is not subject to any time limit. These agreements are increasingly specifically enforceable. In states that will grant specific performance of a voting agreement, there is no need to use a voting trust.1 Convening Meetings Shareholders usually take action at a meeting. Or, they can act by unanimous written (email is fine) consent signed by the holders of all voting shares. The meeting need not be held in the state of incorporation. There are two kinds of shareholder meetings: CORPORATIONS NOTES 57 a. Annual Meetings Corporations must hold annual shareholders' meetings. If the annual meeting is not held within the earlier of six months after the end of the corporation's fiscal year or 15 months after its last annual meeting, a shareholder can petition the court to order one to be held. And what do shareholders do at the annual meeting? Primarily, they elect directors. b. Special Meetings Special meetings may be called by (1) the board of directors, (2) the president, (3) the holders of at least 10 percent of the outstanding shares, or (4) anyone else authorized to do so in the articles or bylaws.Shareholders must be notified of meetings not fewer than 10 or more than 60 days before the meeting. Notice must be in writing (fax or email is fine) to every shareholder entitled to vote. Notice may be waived in writing or by attendance. a. Contents of the Notice The notice must state the date, time, and place of the meeting. For special meetings, the notice must also state the purpose of the meeting. Why is the statement of purpose important? The shareholders cannot do anything else at that meeting. b. Consequences of Failure to Give Proper Notice If proper notice is not given to all shareholders, whatever action was taken at the meeting is voidable (maybe void), unless those who were not sent notice waive the notice defect. How can such waiver occur? In either of two ways: • Express waiver, meaning in writing and signed any time (fax or email are fine) OR CORPORATIONS NOTES 58 • Implied waiver, meaning the shareholder(s) attend the meeting without objecting at the outset 9.3 HOW DO SHAREHOLDERS VOTE Shareholders generally get to vote on these things: • To elect directors • To remove directors • On fundamental corporate changes They may also vote on other things if the board asks for a shareholder vote on those things. 9.3.1 Quorum Every time the shareholders vote, we must have a quorum represented at the meeting. Determination of a quorum focuses on the number of shares represented, not the number of shareholders. The general rule is that a quorum is a majority of outstanding shares entitled to vote, unless the articles or bylaws require a greater number. Note that a shareholder quorum will not be lost if people leave the meeting.

How to form a corporation?

A corporation formed in accordance with law is a de jure corporation. If all corporate laws have not been followed, a de facto corporation might result or a corporation might be recognized through estoppel. 2.3 PERSON, PAPER, ACT To create a de jure corporation, we need a person, a paper, and an act. 2.3.1 Person-Incorporators To form a corporation, we need one or more persons who undertake to form it, who are known as the incorporators. The incorporators must comply with all applicable statutory requirements to form the corporation. Basically, they must execute and deliver the articles of incorporation to the secretary of state. Incorporators may be a person or an entity. They do not need to be a citizen of the state of incorporation. HYPO Must an incorporator be a citizen of the state of incorporation? 2.3.2 Paper—Articles of Incorporation To form a corporation, we also need a particular paper—the articles of incorporation. CORPORATIONS NOTES 6 a. Required Contents The articles of incorporation must include: • The name of the corporation. The name must include one of the following words or an abbreviation: "corporation," "company," "incorporated," or "limited." HYPO Can I form a corporation with the name "Bubba's Burritos?" • The name and address of each incorporator • A registered agent and the street address of the registered office. The registered office must be in the state. The registered agent is the company's legal representative, meaning they could, for example, receive service of process for the corporation. • Information regarding the corporation's stock. The articles must give details about the corporation's authorized stock, which is the maximum number of shares the corporation can sell. If the company has different classes of stock or series within a class of stock, many states require that the articles state the number of shares per class; provide a distinguishing designation for each class (for example, "Class A preferred," "Class B preferred," and so on); and describe the voting rights, preferences, and limitations of each class of stock. b. Optional Contents The articles may also include any other provision regarding operation of the corporation that's not inconsistent with law. For example, the articles might include the names and addresses of the initial directors. The articles may also require that any internal corporate claims be brought exclusively at a court within the corporation's state of incorporation. c. Business Purposes Traditionally, corporations have included a statement of business purposes in their articles. Absent such a statement, CORPORATIONS NOTES 7 the MBCA presumes that a corporation is formed to conduct any lawful business and is allowed to undertake any act that is necessary or convenient for carrying on their business purpose, including making charitable donations and lending money to employees, officers, and directors. CMR Exam Tip Under modern corporation statutes, a corporation is given the power to do all things necessary or convenient to effect its purposes. Most modern statutes also provide that a corporation may be formed for any lawful purpose. Combined, these provisions provide authority for a corporation to do almost anything that is rationally related to a business purpose. Thus, unless an exam question restricts a corporation's purposes, you should usually find corporate acts to be within the corporation's powers. z Ultra Vires Acts If a corporation includes a narrow business purpose in its articles, it may not undertake activities unrelated to achieving the stated business purpose. Activities beyond the scope of the stated business purposes are said to be "ultra vires." Under common law, ultra vires acts were void and unenforceable. Under the MBCA, ultra vires acts generally are enforceable, and the ultra vires nature of an act can be raised in only three situations: — A shareholder may sue the corporation to enjoin a proposed ultra vires act; — The corporation may sue an officer or director for damages for approving an ultra vires act; and — The state may bring an action to dissolve a corporation for committing an ultra vires act. CMR Exam Tip Keep in mind that under modern statutes, the ultra vires defense is very limited. Therefore, you should not allow a corporation to get out of a contract merely because the contract is outside the scope of the corporation's stated purposes. CORPORATIONS NOTES 8 2.3.3 Act—Corporate Existence Begins on Filing To complete formation of the corporation, the incorporators will have notarized articles delivered to the secretary of state and pay any required fees.

What happens with pre incrporation contracts (Knew there wasnt a corp)?

A promoter is a person acting on behalf of a corporation not yet formed. Before a corporation is formed, promoters procure commitments for capital and other instrumentalities that will be used by the corporation after its formation. 3.3.1 Promoters' Relationship with Each Other Absent an agreement to the contrary, promoters are joint venturers (partners) who have a fiduciary relationship with CORPORATIONS NOTES 14 each other. They will breach their fiduciary duty if they secretly pursue personal gain at the expense of their fellow promoters. 3.3.2 Promoters' Relationship with Corporation A promoter's fiduciary duty to the corporation is one of fair disclosure and good faith. a. Breach of Fiduciary Duty Arising from Sales to the Corporation A promoter who profits by selling property to the corporation may be liable for his profit unless all material facts of the transaction were disclosed. If the transaction is disclosed to an independent board of directors and approved, the promoter has met his duty and will not be liable for his profits. If the board is not completely independent, the promoter still will not be liable for his profits if the subscribers knew of the transaction at the time they subscribed or unanimously ratified the transaction after full disclosure. Disclosure must be to all who are contemplated to be part of the initial financing scheme. If the promoters purchase all the stock and subsequently sell their individual shares to outsiders, the promoters cannot be held liable for the profits from the sale of property to the corporation. b. Fraud Promoters may always be liable if plaintiffs can show that they were damaged by the promoters' fraudulent misrepresentations or fraudulent failure to disclose all material facts. 3.3.3 Promoters' Relationship with Third Parties— Preincorporation Agreements A promoter may enter into contracts on behalf of a corporation not yet formed. Our key question is who bears liability on these preincorporation contracts? a. Corporation's Liability Since the corporate entity does not exist prior to incorporation, it is not bound on contracts entered into by the promoter in the corporate name prior to incorporation. The corporation may become liable only if it expressly or impliedly adopts the promoter's contract.b. Promoter's Liability Under the MBCA, anyone who acts on behalf of a corporation knowing that it is not in existence is jointly and severally liable for the obligations incurred. Thus, if a promoter enters into an agreement with a third party on behalf of a planned but unformed corporation, the promoter is personally liable on the contract. The promoter's liability continues after the corporation is formed, even if the corporation adopts the contract and benefits from it. The promoter will be released from liability only if there is an express or implied novation (that is, an agreement among all three parties—the promoter, the corporation, and the other contracting party—to release the promoter from liability and substitute the corporation for the promoter in the contract). z Exception—Agreement Expressly Relieves Promoter of Liability If the agreement expressly relieves the promoter of liability, there is no contract; such an arrangement may be construed as a revocable offer to the proposed corporation, and the promoter has no rights or liabilities under the agreement. CMR Exam Tip Questions may require you to discuss whether a promoter will be liable on a preincorporation contract. If you keep in mind that promoters are forming a corporation, these questions should be fairly easy to answer. For there to be a valid contract, someone must be bound with the third party. It can't be the corporation since it does not exist; therefore, the promoter is liable even though she was acting on behalf of the corporation to be formed. (If the agreement expressly relieves the promoter of liability, it will be treated as an offer to the corporation.) z Promoter's Right to Reimbursement A promoter who is held personally liable on a preincorporation contract may have a right to reimbursement from the corporation to the extent of any benefits received by the corporation.

What are the requirements for attachment?

A security interest is not enforceable unless it has attached. There are three requirements for attachment, which must coexist: • The parties must agree to create the security interest (that is, they must enter into a security agreement), as evidenced by (1) the creditor taking possession of the collateral, (2) an authenticated security agreement, or (3) the creditor taking control of nonconsumer deposit accounts, electronic chattel paper, and investment property (see Module 4 for the methods of obtaining control), and • Value must be given by the secured party, and • The debtor must have rights (for example, ownership) in the collateral Form of the Authenticated Security Agreement a. Evidenced by a Record The agreement must be evidenced by a record (that is, written or electronically stored information) and must show an intent to create a security interest. b. Agreement Must Be Authenticated The agreement must be authenticated by the debtor. This usually means that it is signed by the debtor. Any symbol, including an electronic symbol, that is made with the present intent to authenticate the record will work (for example, an "X," or a smiley face). SECURED TRANSACTIONS NOTES 12 c. Description of Collateral The agreement must contain a description of the collateral (and if the security interest covers timber to be cut, a description of the land concerned). The description must reasonably identify the collateral. Collateral can be described broadly by category or type (for example, "all of the debtor's equipment") or specifically (for example, by serial number or by saying "the debtor's television" if the debtor has only 1 television). Exception: Consumer goods, consumer securities accounts, and commercial tort claims cannot be described by type alone; a more specific description is needed. z No Supergeneric Descriptions However, a supergeneric description of collateral such as "all of the debtor's assets" or "all of the debtor's personal property" is not a sufficient description. 2.1.2 Value Must Be Given The secured party needs to give value to create the security interest. Any consideration sufficient to support a simple contract is value. Even past consideration will suffice as value, as long as the security interest is intended as security for the past consideration. 2.1.3 Debtor Must Have Rights in the Collateral The debtor must also have rights in the collateral to create the security interest. However, don't confuse having rights in collateral with having title to collateral. Under Article 9, title to goods matters only for consignments. For attachment, a limited right in collateral (for example, the right to possession) is sufficient. 2.1.4 Rights and Duties of Secured Party in Possession or Control The secured party in possession must use reasonable care in storing and preserving the collateral, but is entitled to reimbursement for reasonable expenses in caring for the collateral. Risk of loss of property in the secured party's possession is on the debtor to the extent of any insurance deficiency. The secured party in possession or control may hold any increase in value of, or profits from, the collateral SECURED TRANSACTIONS NOTES 13 (except money) as additional security, but money so received must be given to the debtor or applied against the secured obligation. The secured party in possession or control may also pledge the collateral. CMR Exam Tip The most important things to remember about attachment are: (1) all three requirements for attachment must be present—they can occur in any order, but there is no attachment until the last of the three occurs; and (2) there must be an authenticated security agreement or the creditor must take possession or control of the collateral.

What rules for resale of collateral?

After default, the secured party may sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation. The sale may be either public (auction) or private, and may be by one or more contracts. The sale discharges the security interest under which the sale is being made and all subordinate security interests. The purchaser, however, is still subject to superior security interests. 6.4.1 Reasonable Notification Required Reasonable notice that is authenticated by the secured party (that is, the notice can't be oral) must be given (1) to the debtor and any sureties on the debt, and (except in the case of consumer goods) (2) to any other secured parties who have notified the secured party of their interests, and (3) to any secured parties who have perfected by filing a financing statement or making a notation on a certificate of SECURED TRANSACTIONS NOTES 54 title. This notice isn't necessary when the collateral is perishable or threatens to decline rapidly in value or is of a kind ordinarily sold in a recognized market (for example, stock). After default, the debtor or the surety may waive the right to notice in an authenticated agreement. a. Timeliness The notice must be sent within a reasonable time before the sale (a question of fact). In nonconsumer transactions, notice is deemed to be sent within a reasonable time if it's sent 10 days or more before the sale. b. Contents of Notice The content of the notice depends on the type of sale and type of collateral. For a public sale, notice of the time and place of sale is required. For a private sale, notice of the time after which the sale will occur must be given. The notice must also describe the parties and the collateral. Extra info is required for consumer goods (see the online Secured Transactions reference outline for more details). 6.4.2 Sale Must Be Commercially Reasonable Every aspect of the sale (including the method, manner, time, place, and terms) must be commercially reasonable. CMR Exam Tip If an exam question raises the issue of the reasonableness of the sale, keep in mind that the secured party must show that they made an effort to obtain the best price for the collateral. The courts will consider, and your answer should discuss, factors such as the following: • The sufficiency of the advertising, • If the collateral had a limited market, whether people in that market were contacted, • Whether the collateral needed cleaning or repair, and • If the sale was by public auction, the convenience of the time and place SECURED TRANSACTIONS NOTES 55 CMR Exam Tip Also note that low price alone is not enough to make the sale not commercially reasonable, but if the price is very low, courts will give extra scrutiny to the other circumstances of the sale. 6.4.3 Secured Party May Buy Collateral The secured party may buy the collateral at any public sale but may buy at a private sale only if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations. 6.4.4 Proceeds of the Sale The money from a foreclosure sale goes first to repay the costs of the repossession and sale, then to pay off the debt of the foreclosing creditor, and then to pay off the debt of creditors with lower priority than the foreclosing creditor. If any money is left over, the debtor gets this surplus. Note: Creditors with higher priority than the foreclosing creditor receive no money from the sale because they don't lose their liens as a result of the foreclosure sale. a. Secured Party's Right to Deficiency Judgment If the collateral when sold doesn't bring in enough to pay the expenses of the sale and the secured party's debt, the secured party may recover any deficiency from the debtor.Explanation of Deficiency or Surplus If the debtor is a consumer, then after the sale, the secured creditor must send the debtor an explanation of the calculation of any debt still owed (the deficiency) or money the debtor will receive (the surplus). SECURED TRANSACTIONS NOTES 56 6.4.5 Failure to Comply with Code Rules a. Liability for Actual Damages A secured party is liable for the actual damages caused by failure to follow any of the Code's rules. b. Minimum Recovery for Consumer Goods If the collateral is consumer goods and the secured creditor violates the Code's rules on default (for example, the sale isn't commercially reasonable), the debtor is entitled to a minimum of 10% of the cash price of the goods plus an amount equal to all the interest charges to be paid over the life of the loan. c. Possible Loss of Deficiency Judgment Generally, if the secured party fails to follow the Code's rules on default, there is a rebuttable presumption that the sale proceeds equal the amount of the debt. In other words, the secured party presumptively loses any deficiency.6.5 DEBTOR'S RIGHT TO REDEEM Any time before the secured party has resold the collateral or has entered into a contract for its disposition, or the obligation has been discharged by the secured party's retention of the collateral, the debtor (as well as any surety or other secured party or lienholder) may redeem the collateral. To do so, the debtor must tender fulfillment of all obligations secured by the collateral, plus additional reasonable expenses. Note: Because most security agreements contain an acceleration clause (that is, a clause allowing the creditor to declare the entire loan balance due upon default), the debtor typically must tender the entire balance in order to redeem.

What does article 9 apply to?

Article 9 applies to the following transactions: • A transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract • A seller's retention of title—if a seller and buyer of goods agree that the seller will retain title to the goods after they are delivered until the buyer has paid for them, the agreement will be treated as the seller's retention of a security interest • Agricultural liens—that is, nonpossessory liens on farm products that are created by state statute in favor of persons providing goods, services, or rental land to farmers (only the perfection and priority of agricultural liens are governed by Article 9; creation and enforcement of the liens are governed by state statutes) • Sales of accounts, chattel paper, payment intangibles, and promissory notes • Commercial consignments of goods (that is, where the consignor did not use the goods for personal, family, or household purposes) worth a total of $1,000 or more to persons who (1) deal in goods of that kind under a name other than the consignor's, (2) are not auctioneers, and (3) SECURED TRANSACTIONS NOTES 9 are not generally known by their creditors to be substantially engaged in selling the goods of others • A secured sale disguised as a lease—that is, leases that are intended to serve as security arrangements (but not true leases); and a lease where the rental obligation is not terminable by the lessee and either: (1) the lease term is equal to or greater than the remaining economic life of the goods, (2) the lessee is bound to purchase the goods at the end of the lease or to renew the lease for the remaining economic life of the goods, or (3) at the end of the lease, the lessee has an option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration

What rules for perfection of security interest?

As discussed in Module 2, attachment establishes the secured party's rights to the collateral as against the debtor. However, other parties may also have rights in the collateral (for example, subsequent purchasers, unsecured creditors, other priority creditors). To acquire maximum priority in the collateral over most such third parties, the secured party must "perfect." There are five methods of perfection: (1) filing; (2) taking possession of the collateral; (3) control; (4) automatic perfection; and (5) temporary perfection. 4.1.1 Time of Perfection A security interest is not enforceable against anyone until it has attached to the collateral. If all of the steps for perfection are taken before the security interest has attached, perfection will occur upon attachment. CMR Exam Tip A key point for you to remember about perfection is that a security interest can't be perfected before it attaches to the collateral. For example, if a creditor has filed a financing statement but has not yet given value to the debtor, perfection is not complete until attachment is complete (that is, when the value is given). Thus, attachment and perfection can occur simultaneously. 2 AUTOMATIC PERFECTION—PMSI IN CONSUMER GOODS In certain situations, a security interest is automatically perfected upon attachment. The most common such situation is a PMSI in consumer goods. A PMSI in consumer goods is perfected as soon as it attaches.4.2.1 Limitations A security interest in motor vehicles can be perfected only by notation on the vehicle's certificate of title (see Section 4.5, infra), and a PMSI in fixtures will have priority over an encumbrancer of the real estate only if the PMSI holder files a fixture filing (see Module 7, infra). CMR Exam Tip Remember that the only type of PMSI that is automatically perfected is a PMSI in consumer goods. 4.3 PERFECTION BY TAKING POSSESSION (PLEDGE) Security interests in most types of collateral can be perfected simply by taking possession of the collateral. 4.3.1 Time of Perfection Where the secured party takes actual possession of the collateral, the security interest is perfected from the moment of possession and continues as long as possession is retained. a. Collateral in Hands of Bailee Where the collateral (other than certificated securities and SECURED TRANSACTIONS NOTES 20 goods covered by a document) is in the hands of a bailee, the secured party is deemed to be in possession from the moment the bailee authenticates a record acknowledging that it is holding the collateral for the secured party's benefit. 4.3.2 Collateral that Cannot Be Pledged Security interests in general intangibles, deposit accounts, nonnegotiable documents, electronic chattel paper, certificate of title goods, and accounts cannot be perfected by possession. CMR Exam Tip Note that taking possession can simultaneously satisfy the requirements for attachment and perfection; that is, possession may be the last thing needed for attachment, and attachment plus possession results in perfection. 4.4 PERFECTION BY CONTROL Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by "control." Note that security interests in nonconsumer deposit accounts can only be perfected by control (unless they're perfected as proceeds of collateral; see Section 4.10, infra). 4.4.1 Methods of Obtaining Control a. Nonconsumer Deposit Accounts The bank in which a nonconsumer deposit account is maintained automatically has control over the deposit account. If the secured party is not such a bank, it may obtain control over a nonconsumer deposit account by either: • Putting the deposit account in the secured party's name, or • Agreeing in an authenticated record with the debtor and the bank in which the deposit account is maintained that the bank will comply with the secured party's orders regarding the deposit account without requiring the debtor's consent SECURED TRANSACTIONS NOTES 21 b. Investment Property Basically, a secured party has control of an item of investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner. c. Electronic Chattel Paper A party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as the assignee. EXAMPLE An example of a system that meets this standard is one in which the secured party has the authoritative copy of the records constituting the electronic chattel paper (for example, a computer file), that copy identifies the secured party as the assignee of record, and any other copy of or amendments to the records are marked as such. 4.5 PERFECTION FOR MOTOR VEHICLES Under the state's certificate of title law, security interests in motor vehicles required to be titled can only be perfected by notation on the certificate of title issued by the state. Perfecting by another method won't work. 4.5.1 Exception—Dealers Security interests created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement under the ordinary Code rules (see Section 4.6, infra), even if a certificate of title covering the vehicle is outstanding. 4.6 PERFECTION BY FILING 4.6.1 Records to Be Filed A secured party may obtain perfection by filing (either in writing or electronically) a financing statement. The financing statement must contain: • The debtor's name and mailing address, • The secured party's name and mailing address, and SECURED TRANSACTIONS NOTES 22 • A description of the collateral covered by the financing statement A security interest may be perfected by filing as to all kinds of collateral except deposit accounts and money. a. Debtor's Name Financing statements are indexed under the debtor's name. In most states, if the debtor is an individual with an unexpired driver's license issued by the state where the financing statement is to be filed, the debtor's name on the financing statement must match the license. If the debtor doesn't have such a license, then the financing statement may include the debtor's individual name (which Article 9 does not define) or the debtor's personal name and surname. If the debtor is a registered organization (for example, a corporation or limited partnership), the debtor's name must match its most recent public organic record (that is, the publicly available record that forms or organizes the organization). Note: Use of the debtor's trade name is insufficient.Although Article 9 provides specific rules for how a debtor's name must be listed on a financing statement, remember that the financing statement becomes invalid only if the name is seriously misleading. If the filing easily could be found despite the error, the financing statement will stand.Description of Collateral As with an authenticated security agreement, the description of collateral in a financing statement is sufficient if it reasonably identifies the collateral, which can be broadly by category or type (for example, "equipment") or specifically (for example, by serial number). However, unlike the requirements for an authenticated security agreement, a financing statement may contain a supergeneric description of the collateral, such as "all assets."

What are some terms of secured transactions?

Attachment Attachment deals with those steps legally required to give the secured party a security interest in the collateral that is effective as against the debtor. Once a security interest attaches, it is effective against the debtor and the creditor has all of the rights of a secured creditor under Article 9. A creditor is not a secured creditor until attachment. 1.2.10 Perfection Perfection deals with those steps legally required to give the secured party an interest in the collateral that is effective as against the world. In general, perfection is the process of giving public notice of the security interest to the world. 1.2.11 Financing Statement A financing statement is the document generally used to provide public notice of the security interest, and so to perfect the security interest.

What rules for fundamental corporate changes?

CHARACTERISTICS OF FUNDAMENTAL CORPORATE CHANGE 11.1.1 Types of Fundamental Corporate Changes Fundamental corporate changes are extraordinary, so the board generally cannot do them alone. They include the following types of changes: • Amending the articles • Merging or consolidating into another company • Transferring substantially all assets (or having stock acquired in a "share exchange") • Converting to another form of business • Dissolving 11.1.2 Procedure for Fundamental Corporate Changes Generally, to do any fundamental corporate change, we need (1) board action adopting a resolution of fundamental change; (2) the board submits the proposal to the shareholders with written notice; and (3) shareholder approval. For most of these changes, we also need to deliver a document to the secretary of state. a. Shareholder Approval The shareholder vote that's required to approve a fundamental corporate change is a majority of the shares entitled to vote. But this is changing; an increasing number of states CORPORATIONS NOTES 69 require only a majority of the shares that actually vote on the proposed fundamental change. Generally, though, we'll apply the traditional rule. 11.1.3 Dissenting Shareholder Right of Appraisal If a corporation approves certain fundamental corporate changes, the shareholders who did not vote in favor of the change may have appraisal rights. The dissenting shareholder right of appraisal is the right of a shareholder to force the corporation to buy their stock for fair value. a. Applies Only to Certain Fundamental Changes Only certain fundamental corporate changes will trigger the right of appraisal: • Merging or consolidating • Transferring substantially all assets • Stock being acquired in a share exchange • Converting to another form of business b. Exists in Close Corporations Note that even if the company is doing one of these changes, there is no appraisal right if the company's stock is listed on a national exchange (that is, it's a publicly traded corporation) or if the company has 2,000 or more shareholders (not shares, shareholders) and the shares involved have a value of at least $20 million (exclusive of the shares held by senior executives, directors, and shareholders owning more than 10% of the shares). This is known as the "market-out exception." What it means is that the right of appraisal exists in close corporations. This makes sense because if you don't like a fundamental change in a public corporation, you can just sell your stock on the public market. But in a close corporation, there is no market to buy the stock, so you can force the company to buy your stock. In our hypotheticals in this section, we'll assume we're dealing with a close corporation. c. Perfecting Right of Appraisal For a shareholder to perfect a right of appraisal: CORPORATIONS NOTES 70 • If a proposed corporate action will create dissenters' rights, the notice of the shareholders' meeting at which a vote on the action will be taken must state that the shareholders will be entitled to exercise their dissenting rights; • Before the shareholders vote, the shareholder must file with the corporation a written notice of objection and intent to demand payment; • At the shareholder vote, the shareholder must abstain or vote against the proposed change (they cannot vote in favor of the proposed action); • If the action is approved, the corporation must notify, within 10 days after approval, all shareholders who filed an intent to demand payment. The notice must include the time and place to submit her shares and the other terms of the repurchase; • Within the time set by the corporation, the shareholder must make written demand to be bought out and deposit her stock with the corporation; and • The corporation must pay the dissenters the amount the corporation estimates as the fair value of the shares, plus accrued interest. If the shareholder is dissatisfied with the corporation's determination of value, the shareholder has 30 days in which to send the corporation her own estimate of value and demand payment of that amount (or the difference between her estimate and the amount sent by the corporation). If the shareholder and the corporation cannot agree on the fair value of the shares, the corporation must file an action in court within 60 days of receiving the shareholder's demand, requesting the court to determine the fair value of the shares, and the court may appoint an appraiser. If the corporation does not so file, the corporation must pay what the shareholder demanded. d. Exclusive Remedy Absent fraud, the right of appraisal is the shareholder's exclusive remedy if they do not like a fundamental change. CORPORATIONS NOTES 71 11.2 AMENDMENTS TO ARTICLES OF INCORPORATION The corporation can amend its articles by following the procedure we discussed above. Certain "housekeeping" amendments (for example, deleting the names of initial directors named in the articles or changing the number of authorized shares after a stock split) can be made without shareholder approval, but most require approval by the shareholders. If approved, the amended articles must be delivered to the secretary of state. Shareholders generally do not have dissenting rights of appraisal for amendments of the articles.MERGERS AND CONSOLIDATIONS A merger involves the blending of one or more corporations into another corporation, and the latter corporation survives while the merging corporations cease to exist following the merger (for example, B, Inc. merges into A Corp.). Note that a domestic corporation can merge with a foreign corporation into a new domestic corporation, but only if the merger is permitted in the foreign corporation's state of incorporation. A consolidation involves two corporations combining to form a new entity (for example, A Corp. and B, Inc. form C Corp.). For both mergers and consolidations, board of director action (by both corporations) is required, as well as notice to shareholders and shareholder approval, generally by both corporations (the required vote is the same as with CORPORATIONS NOTES 72 amending the articles). If approved, the surviving corporation must deliver articles of merger or consolidation to the secretary of state. There is a right of appraisal, generally, for shareholders entitled to vote on the merger or consolidation and also for shareholders of the subsidiary in a short form merger (discussed below). 11.3.1 No Significant Change to Surviving Corporation Approval of a plan of merger by shareholders of the surviving corporation is not required if all the following conditions exist: (1) the articles of incorporation of the surviving corporation will not differ from the articles before the merger; (2) each shareholder of the survivor whose shares were outstanding immediately prior to the effective date of the merger will hold the same number of shares, with identical preferences, limitations, and rights; and (3) the voting power of the shares issued as a result of the merger will comprise no more than 20% of the voting power of the shares of the surviving corporation that were outstanding immediately prior to the merger. 11.3.2 Short Form Merger of Subsidiary No shareholder approval is required for a short form merger. With short form mergers, a parent corporation owning at least 90% of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself without the approval of the shareholders or directors of the subsidiary. The parent must mail a copy of the plan of merger to each shareholder of the subsidiary. 11.3.3 Effect of Merger or Consolidation The surviving corporation succeeds to all rights and liabilities of the constituents. This makes sense because the constituent corporation disappeared. So a creditor of that corporation can sue the survivor. This is known as successor liability. 11.4 TRANSFER OF ALL OR SUBSTANTIALLY ALL ASSETS AND SHARE EXCHANGE Another fundamental corporate change involves the transfer of all or substantially all of the assets of a corporation not in the ordinary course of business. We can group this together CORPORATIONS NOTES 73 with a similar fundamental corporate change, the share exchange, which is when one company acquires all of the stock of another. We treat these alike because functionally, they're the same idea: one company is gobbling up another (either all of its assets, or all of its stock). What constitutes "substantially all of the assets" varies from state to state. A good rule of thumb is that it requires the transfer of at least 75 percent of the corporation's assets. 11.4.1 Fundamental Corporate Change for Selling Corporation Only Both the transfer of all or substantially all assets and the share exchange are fundamental corporate changes for the selling corporation only—not for the buyer. So the corporation disposing of the property must follow the fundamental change procedure. 11.4.2 Procedure Board action by both corporations is required, as well as notice to the selling company's shareholders. We also need approval by the selling company's shareholders only. There are dissenting shareholder rights of appraisal for shareholders of the selling corporation (but not for shareholders of the buying corporation). For a share exchange, articles of exchange must be delivered to the secretary of state. Usually, there is no filing in a transfer of assets. 11.4.3 Successor Liability For the sale of substantially all assets, we do not expect successor liability. Why? Because the selling corporation still exists, meaning creditors can still sue it. So the company that buys assets is not liable for the debts of the company that CORPORATIONS NOTES 74 sold the assets. However, there is an exception if the buyer is a "mere continuation" of the seller, that is, it has the same management, shareholders, and so on. Also, there will be successor liability if a court concludes that the deal was really a disguised (de facto) merger. 11.5 CONVERSION A conversion involves one business entity changing its form to another business form, such as a corporation converting itself into an LLC. The procedure for undertaking this fundamental corporate change will sound familiar: we need board approval and notice to shareholders, as well as shareholder approval. We also need to deliver a document to the secretary of state. For conversion, shareholders also have a dissenting right of appraisal. 11.6 DISSOLUTION Dissolution of a corporation may be voluntary or involuntary (by court order). 11.6.1 Voluntary Dissolution a. Dissolution by Incorporators or Initial Directors If shares have not yet been issued or business has not yet been commenced, a majority of the incorporators or initial directors may dissolve the corporation by delivering articles of dissolution to the state. All corporate debts must be paid before dissolution, and if shares have been issued, any assets remaining after winding up must be distributed to the shareholders. b. Dissolution by Corporate Act The corporation may dissolve by a corporate act approved under the fundamental change procedure. This means that we need board of director action, shareholder approval, and we'll file notice of intent to dissolve with the secretary of state. c. Effect of Dissolution A corporation that has been dissolved continues its corporate existence but is not allowed to carry on any business CORPORATIONS NOTES 75 except as appropriate to wind up and liquidate its affairs. We also need to notify creditors so that they can make any claims. z Barring Claims Against the Corporation A claim can be asserted against a dissolved corporation, even if the claim does not arise until after dissolution, to the extent of the corporation's undistributed assets. If the assets have been distributed to the shareholders, a claim can be asserted against each shareholder for his pro rata share of the claim, to the extent of the assets distributed to him. However, a corporation can cut short the time for bringing known claims by notifying claimants in writing of the dissolution and giving them a deadline of not less than 120 days in which to file their claim. The time for filing unknown claims can be limited to three years by publishing notice of the dissolution in a newspaper in the county where the corporation's known place of business is located. d. Revocation of Voluntary Dissolution The corporation may revoke a voluntary dissolution by using the same procedure that was used to approve the dissolution.

What methods of perfection?

Eective for all classes of collateral except deposit accounts and money. Eective for all classes of collateral except general intangibles, accounts, nonconsumer deposit accounts, nonnegotiable documents, and electronic chattel paper, although it is impractical for some classes of collateral (e.g., if secured party takes debtor's equipment or inventory, it will be dicult for debtor to run his business). Eective only as to PMSIs in consumer goods, small-scale assignments of accounts, sales of payment intangibles and promissory notes, beneficial interests in a decedent's estate, and certain investment property transactions. Eective for 20 days (and possibly longer) for proceeds; 20 days when a secured party gives new value under a security agreement where collateral is a negotiable document, instrument, or certificated security; 20 days where a secured party makes available a negotiable document, instrument, certificated security, or goods in possession of a bailee on a temporary basis (e.g., for debtor to present for payment or to sell); four months where debtor moves from one state to another if debtor's location governs perfection. Eective only for nonconsumer deposit accounts, electronic chattel paper, and investment property

What rule for priority in proceeds of secured transactions?

For purposes of determining the priority of security interests in proceeds, the Code divides collateral into "filing collateral" and "non-filing collateral." Filing collateral is collateral in which a secured party would normally achieve priority by filing a financing statement (for example, goods, accounts, commercial tort claims, general intangibles, and nonnegotiable documents). Non-filing collateral is collateral in which a secured party would normally achieve priority by possession or control, rather than filing (for example, cash, chattel paper, nonconsumer deposit accounts, negotiable documents, instruments, and investment property). a. General Rule Generally, a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the original collateral (for example, under the "first to file or perfect" rule), as long as the perfection of the security SECURED TRANSACTIONS NOTES 41 interest in the proceeds extends beyond the 20-day temporary perfection period (see 4.10, above). Recall that there are also special superpriority rules for certain proceeds of collateral subject to PMSIs (see Section 5.4, above). b. Special Rule for Certain Proceeds of Non-Filing Collateral Because the rules governing priority in non-filing collateral contain many exceptions to the "first to file or perfect" rule (for example, a party with control over a deposit account has priority over a party without control, regardless of when control was obtained), the Code contains a special priority rule for certain proceeds of that collateral. A secured party has priority in the proceeds of non-filing collateral if: (1) the secured party has priority in the original collateral, (2) their security interest in the proceeds is perfected, and (3) the proceeds are cash proceeds or proceeds of the same type as the original collateral. If the proceeds are proceeds of proceeds, all intervening proceeds must be cash proceeds, proceeds of the same type as the original collateral, or accounts relating to the collateral. z Exception—Filing Collateral as Proceeds of Non-Filing Collateral If a security interest in original collateral that is non-filing collateral is perfected by a method other than filing, and the proceeds of the original collateral are filing collateral, the first secured party to file a financing statement covering the proceeds has priority in the proceeds.

What are the rules for secured party v. article 2 claimant?

If Article 2 grants a buyer or seller a possessory security interest in goods (for example, if the buyer rightfully revokes acceptance of goods), the Article 2 claimant has priority over an Article 9 secured party as long as the Article 2 claimant retains possession of the goods. 5.6 PRIORITIES IN A NUTSHELL When a debtor defaults and a number of persons have an interest in the same item of collateral, remember the following hierarchy—the person with the highest priority has first rights in the collateral; if any part of the collateral or its proceeds is left, the next person can recover, etc. Excluding investment property and nonconsumer deposit accounts, in which the party with control generally has priority, the ranking is as follows: • Buyer in the ordinary course of business, if the security interest is created by the buyer's seller • Holder in due course and the like of a negotiable instrument • Transferee of money or funds from deposit accounts • Certain purchasers of chattel paper or instruments who have possession or control SECURED TRANSACTIONS NOTES 48 • Possessory lienholder • Article 2 claimant with possession of goods • PMSI (except that a consumer purchaser from a consumer—such as a neighbor buying from a neighbor—has priority over an automatically perfected PMSI in the consumer goods) • Perfected security interests and judicial liens that have attached to the collateral (including trustees in bankruptcy as of the date the bankruptcy petition is filed) • As between perfected security interests in the same collateral, the first to file or perfect has priority • As between a perfected security interest and an attached lien, the attached lien generally has priority if it attached before the security interest was perfected. Otherwise, the security interest has priority • Purchaser of collateral who buys for value and receives delivery without notice of any unperfected security interest • Unperfected security interests (rank in priority according to order of attachment) • Debtor

What general rules for foreign judgments in conflicts of laws?

If the rendering court is a court in a foreign country, then the source of the obligation to recognize the judgment is comity or treaty. Rule: Under principles of comity, a recognizing court will exercise discretion to decide whether the foreign judgment should be recognized. Many of the same principles as full faith and credit will be considered to guide the court's discretion (for example, is the foreign judgment final? Was the foreign judgment on the merits?). But there are two additional questions that a recognizing court may ask follow. 1.4.1 Did the Foreign Court Have Jurisdiction? The foreign court must have had jurisdiction. The court has CONFLICT OF LAWS NOTES 10 greater leeway to assess jurisdiction than in the full faith and credit context.1.4.2 Were the Procedures in the Foreign Court Fair? The American court also will assess whether the procedures in the foreign court were fair.

What rules in regard to sister state judgments?

If the rendering court is a court in a sister state, then the source of the obligation to recognize the judgment is constitutional (in other words, the Full Faith and Credit Clause applies). By statute, full faith and credit principles also apply to the recognition of judgments between federal courts and state courts. As noted in the chart, there are two steps or questions to ask: • Are the requirements for full faith and credit satisfied?; and TWO-PART ANALYSIS OVERVIEW I. Is the rendering jurisdiction a sister state or a foreign country? II. A. If sister state II. B. If foreign country 1. Are the requirements of full faith and credit satisfied? 2. Are there any valid defenses? Recognition is required when the answer to #1 is yes and the answer to #2 is no Is the foreign judgment entitled to comity? CMR Chart CONFLICT OF LAWS NOTES 4 • Are there any valid defenses? 1.3.1 Step #1: Are the Requirements for Full Faith and Credit Satisfied? There are three requirements that must be satisfied before the Full Faith and Credit Clause kicks in. a. Requirement #1: Jurisdiction Rule: The rendering state must have had jurisdiction over the parties (that is, personal jurisdiction) and jurisdiction over the subject matter.Exception: When the issue of jurisdiction has been fully and fairly litigated, the jurisdictional determination is itself entitled to full faith and credit.b. Requirement #2: On the Merits Rule: The judgment entered by the rendering state must have been on the merits.Other examples of judgments not on the merits include dismissals based on: • Lack of jurisdiction (either personal or subject matter); • Misjoinder; • Improper venue; and • Failure to state a claim (sometimes). z Caution: Default and Consent Judgments A default judgment treats all factual contentions as admitted and is therefore on the merits for full faith and credit and recognition of judgment purposes. (But since no actual issues were determined, the judgment could not be used for issue preclusion.) A consent judgment entered after settlement also is considered on the merits for purposes of recognition.c. Requirement #3: Finality Rule: The judgment entered by the rendering court must be a final judgment. The most common application here is a judgment on appeal in the rendering jurisdiction, which is not final.d. Rendering State Law Used to Determine the Three Requirements These three requirements are evaluated using the law of the rendering state. (But note that the law of the enforcing state governs the method of enforcement.1.3.2 Step #2: Are There Any Defenses to Full Faith and Credit? The following are valid defenses to full faith and credit. a. Penal Judgments A penal judgment is not entitled to full faith and credit. A penal judgment is one that punishes an offense against the public. In practice, this means that the plaintiff in the suit that led to the judgment was the state.b. Extrinsic Fraud A judgment obtained by extrinsic fraud is not entitled to full faith and credit. Extrinsic fraud is fraud that could not be corrected during the regular course of proceedings leading to the judgment.Attractive But Invalid Defenses—Public Policy and Mistake Attractive but invalid defenses also are tested on the exam. • Attractive but invalid defense #1: public policy.• Attractive but invalid defense #2: mistake

What are the 3 basic paragraphs to a choice of law answer?

In paragraph 1, you state the issue and identify the choice of law approach. EXAMPLE "The issue presented is which state's law will govern the outcome of this litigation. The governing law will be selected by the forum court using the (fill in applicable choice of law approach)." This is the "I understand choice of law" paragraph, and it is always the same. • In paragraph 2, you describe the choice of law approach. Here, you will plug in a stock paragraph depending on which of the three tested approaches is being applied. The three approaches are (1) the vested rights (First Restatement); (2) interest analysis; or (3) the most significant relationship (Second Restatement). All of these will be covered below in more detail. • In paragraph 3, you apply the choice of law approach. Here, you will consider the facts presented, apply the approach, and provide a conclusion. (Important: This conclusion should include both the governing law and the result.) CONFLICT OF LAWS NOTES 14 2.4 APPROACH #1: VESTED RIGHTS (FIRST RESTATEMENT) • Stock Language for Paragraph 2 EXAMPLE "Under this approach the court will apply the law of that state mandated by the applicable vesting rule. That rule is selected according to the relevant substantive area of law." • Structure of Paragraph 3 In the first sentence of paragraph 3, you categorize the substantive area of law. In the second sentence, you state the applicable vesting rule. In the third sentence, you apply the vesting rule to determine the governing law. In the fourth and last sentence, you apply the governing law to determine the result. EXAMPLE "This is a torts case. Therefore, the applicable vesting rule is the place of injury. Here, the injury occurred in Michigan and thus Michigan law applies. Under Michigan law, a non-paying passenger cannot recover against the driver, and so the claim is barred." 2.5 APPROACH #2: INTEREST ANALYSIS • Stock Language for Paragraph 2 EXAMPLE "Under this approach the court will consider which states have a legitimate interest in the outcome of the litigation. The forum court will apply its own law as long as it has a legitimate interest. If the forum state has no legitimate interest, it will apply the law of another interested state." • Structure of Paragraph 3 Step #1: Discuss which states have legitimate interests. CONFLICT OF LAWS NOTES 15 Step #2: Characterize the type of conflict. A false conflict arises when only one state has a legitimate interest, and a true conflict arises when two or more states have a legitimate interest. Step #3: Choose the governing law based on the type of conflict. If a false conflict has arisen, you apply the law of the interested state. If a true conflict has arisen and the forum state is interested, you apply forum law. Step #4: You apply the governing law to determine the result. EXAMPLE "In this case, only Illinois has a legitimate interest. It is interested in permitting recovery to compensate its injured resident (the plaintiff). Michigan is not interested in applying its restriction against recovery simply because the accident occurred there. Rather, it would be interested in applying its restriction only if the defendant were a Michigan resident. But the defendant in this case is from Illinois, so Michigan is not interested. This case is therefore a false conflict, and Illinois law should apply. Under Illinois law, the plaintiff may recover." 2.6 APPROACH #3: MOST SIGNIFICANT RELATIONSHIP (SECOND RESTATEMENT) • Stock Language for Paragraph 2 "Under this approach the court will apply the law of the state which is most significantly related to the outcome of the litigation. To determine this, the court will consider connecting facts and policy principles." • Structure of Paragraph 3 Step #1: Discuss connecting facts. CONFLICT OF LAWS NOTES 16 Step #2: Discuss policy principles. Step #3: Choose governing law based on most significant relationship. Step #4: Apply the governing law to determine result. EXAMPLE "In this case, the factual connections are split. The accident occurred in Michigan, and the injury was sustained there. But both the plaintiff and the defendant are from Illinois. As a matter of policy, Illinois seems to have the greater interest because the law at issue is a loss distribution rule and both parties share an Illinois domicile. As a result, Illinois appears to have the most significant relationship to the dispute and its law should apply. Under Illinois law, the plaintiff may recover."

What important initial question for conflicts when recognizing recognition of judgment issues?

Is the rendering jurisdiction a sister state(requirements of fill faith and credit satisfied? Valid defenses? Recognition required when answer is yes and no or a foreign country(foreign judgment entitled to comity)?

What are rofessional corporations?

Licensed professionals, including lawyers, medical professionals, and CPAs, may incorporate as a "professional corporation" or "professional association." The name must include one of those phrases or "P.C." or "P.A." The articles must state that the purpose is to practice in a particular profession. Generally, the rules governing regular corporations apply to the professional corporation. a. Employees Directors, officers, and shareholders usually must be licensed professionals. But may the professional corporation employ non-professionals? Yes, but not to practice the profession. b. Liability The professionals are personally liable for their malpractice. However, shareholders are generally not liable for corporate obligations or for other professionals' malpractice.

What key characteristics for corp?

Limited Liability for Owners, Directors, and Officers The shareholders generally are not personally liable for the obligations of the corporation; neither are the corporation's directors or officers. Generally, only the corporation itself can be held liable for corporate obligations. The owners risk only the investment that they make in the business to purchase their ownership interests ("shares"). b. Centralized Management Generally, the right to manage a corporation is not spread out among the shareholders, but rather is centralized in a board of directors, who usually delegate day-to-day management duties to officers. c. Free Transferability of Ownership Generally, ownership of a corporation is freely transferable— that is, generally, shareholders are free to sell their shares to others unless it is provided otherwise. CORPORATIONS NOTES 2 d. Continuity of Life A corporation may exist perpetually and generally is not affected by changes in ownership (that is, sale of shares).e. Taxation z C Corporation Generally, a corporation is taxed as an entity distinct from its owners. (Under the tax laws, it is a "C corporation.") The corporate tax rate generally is lower than the personal tax rate, and so this arrangement can be advantageous to persons who want to delay the realization of income. However, this advantage comes at a price—double taxation—because when the corporation does make distributions to shareholders, the distributions are treated as taxable income to the shareholders, even though the corporation has already paid taxes on its profits. z S Corporation The tax laws permit certain corporations to elect to be taxed like partnerships and yet retain the other advantages of the corporate form (see above). Such corporations are called "S corporations" under the tax laws. Partnerships and S corporations are not subject to double taxation—profits and losses flow through the entity to the owners. There are a number of restrictions on S corporations (for example, stock can be held by no more than 100 persons, generally shareholders must be individuals, and there can be only one class of stock).

What is defacto corp and limitations?

One of the main reasons to incorporate is to avoid personal liability for obligations that the corporation incurs. If the incorporators thought they formed a corporation, but they failed to do so, they'd be personally liable for business debts. (Basically, the would-be incorporators have formed a partnership instead, and partners are liable for business debts.) But two doctrines may still allow the incorporators to escape liability: (1) de facto corporation and (2) corporation by estoppel. In other words, the veil of protection may be applied where a de jure corporation has not been formed. One important characteristic of both of these doctrines is CORPORATIONS NOTES 11 that anyone asserting either doctrine must be unaware of the failure to form a de jure corporation. 3.2.1 De Facto Corporation a. Characteristics and Requirements For a de facto corporation to exist, we must meet the following requirements: • There must be a relevant incorporation statute. (On the exam, you can address this requirement quickly— it will always be met, because there's an incorporation statute in every state.) • The parties made a good faith, colorable attempt to comply with the statute, meaning the parties tried and came close to forming a corporation; and • There has been some exercise of corporate privileges, meaning the parties were acting as though they thought there was a corporation. If the de facto corporation doctrine applies, the business is treated as a corporation for all purposes except in an action by the state (called a "quo warranto" action).Limitation It's important to remember that the de facto doctrine can be raised as a defense to personal liability only by a person who is unaware that there was no valid incorporation. Persons who act on behalf of a corporation knowing that there was no incorporation are jointly and severally liable for all liabilities created in so acting. CORPORATIONS NOTES 12 3.2.2 Corporation by Estoppel Under the common law doctrine of corporation by estoppel, persons who have dealt with the entity as if it were a corporation will be estopped from denying the corporation's existence. The doctrine applies in contract to prevent the "corporate" entity, and parties who have dealt with the entity as if it were a corporation, from backing out of their contracts. Correspondingly, it will prevent the improperly formed "corporation" from avoiding liability by saying it was not properly formed. Note well that corporation by estoppel applies only in contract cases. It does not apply to tort victims.3.2.3 Application of Doctrines Generally, if a de facto corporation is found, it is treated like any other corporation for all purposes, except that the state may seek dissolution in a quo warranto proceeding. Estoppel applies only on a case-by-case basis. The de facto doctrine applies equally in contract and tort situations, but estoppel generally is applied only in contract cases (on the rationale that a tort victim does not allow himself to be injured in reliance on the business's status as a corporation). If there is no valid incorporation and the facts do not support a de facto or estoppel argument, generally, the courts will hold only the active business members personally liable, and their liability is joint and several.

What rules for transfer of partnership property?

Partnership Interest Indicated Any partner may transfer property held in the name of the partnership. If partnership property is held in the name of one or more partners (who are identified as such) but the partnership is not named, transfer by the titleholders in their own names is effective. In either case, if the transferring partner lacked authority, the partnership may recover the property from the initial transferee but not from a subsequent bona fide purchaser. — Partnership Interest Not Indicated If the partnership's interest is not indicated in the instrument transferring the property, the transfer may be made by those in whose names the property is held. If the transferee gives value without notice of lack of authority, they take free of the partnership interest.

What two areas of conflicts are tested?

Recognition of judgments; and • Choice of law. Domicile, a legal concept that has applications in conflicts, also will be covered.

What is strict foreclosure in secured transactions?

STRICT FORECLOSURE 6.3.1 General Rule After default and repossession, the secured party may retain the collateral in full or partial satisfaction of the debt (in other words, the secured party may make a full or partial strict foreclosure) if the secured party does the following: • The secured party must send its proposal to retain the collateral to (1) any other secured party from whom the foreclosing party has received notice of a claim to the collateral, and (2) any other secured party who has perfected a security interest in the collateral by filing a financing statement or noting its security interest on a certificate of title. If a notified party objects within 20 days after the secured party sends the notice, the collateral must be disposed of by sale. • The secured party must also obtain the debtor's consent. The debtor consents by either: (1) agreeing in an authenticated record after default, or (2) in the case of a full SECURED TRANSACTIONS NOTES 53 strict foreclosure, failing to make an authenticated objection within 20 days after the secured party sends notice (a debtor can't consent to a partial strict foreclosure in this manner). 6.3.2 Exceptions a. No Partial Strict Foreclosure in Consumer Transactions In a consumer transaction, a secured party may not keep the collateral in partial satisfaction of the debt and seek a deficiency judgment. The secured party may keep the collateral only in full satisfaction of the debt. b. Consumer Goods 60% Rule If the debtor has paid 60% of the cash price on a PMSI in consumer goods, or 60% of the loan on a non-PMSI in consumer goods, the secured party must dispose of the collateral within 90 days after repossession. If the debtor has paid less than 60%, the general rules, above, apply

Can shareholders be held liable for corporate debts?

Shareholders generally cannot be held liable for corporate CORPORATIONS NOTES 45 debts. Why? Because the corporation is liable for what it does. But a shareholder might be personally liable for what the corporation did if the court pierces the corporate veil. This can happen in close corporations only. 7.2.1 Piercing the Corporate Veil To pierce the corporate veil and hold shareholders personally liable: • The shareholders must have abused the privilege of incorporating; and • Fairness must require holding them liable. So courts may pierce the corporate veil to avoid fraud or unfairness by shareholders in a close corporation. But something like sloppy administration is not enough. 7.2.2 Common Scenarios—Elements Justifying Piercing There are three situations in which the corporate veil is often pierced: a. Alter Ego (Identity of Interests) If the shareholders ignore corporate formalities such that the corporation may be considered the "alter ego" or a "mere instrumentality" of the shareholders or another corporation, and some basic injustice results, a court might pierce the corporate veil. These situations may arise where shareholders treat corporate assets as their own, commingle their money with corporate money, and so on.Undercapitalization The corporate veil may be pierced where the corporation is inadequately capitalized, so that at the time of formation there is not enough unencumbered capital to reasonably cover prospective liabilities.Fraud, Avoidance of Existing Obligations, or Evasion of Statutory Provisions The corporate veil may be pierced where necessary to prevent fraud or to prevent an individual shareholder from using the entity to avoid his existing personal obligations. But the mere fact that an individual chooses to adopt the corporate form of business to avoid future personal liability is not itself a reason to pierce the corporate veil. 7.2.3 Who Is Liable Normally, only shareholders who are active in the operation of the business will be personally liable. Liability is joint and several. Remember, piercing the corporate veil allows imposition of liability on a shareholder. That shareholder might be another corporation. For example, a parent corporation forms a subsidiary to avoid its own obligations. The court might pierce the corporate veil and hold the parent corporation liable just as it could if the shareholder were a human. 7.2.4 Types of Liability The corporate veil is easily pierced in tort cases, but not in contract cases since parties who contracted with the corporation had an opportunity to investigate its stability. Where the corporation is insolvent, claims of shareholder-creditors may be subordinated to outside creditors' claims if equity so requires (for example, because of fraud). 7.2.5 Who May Pierce Generally, creditors may be allowed to pierce the corporate veil. Courts almost never pierce the veil at the request of a shareholder.

What state must perfection happen in?

The question of which state's law governs the perfection of a security interest is especially important when a security interest is perfected by filing, because filing must occur in the proper state. 4.7.1 General Rule—Law of State Where Debtor Is Located Governs Perfection The law of the state where the debtor is located generally governs perfection of the security interest. Therefore, the secured party must generally file the financing statement in that state. SECURED TRANSACTIONS NOTES 26 a. Location of Debtor If the debtor is an individual, they are located in the state of their principal residence. If the debtor is a registered organization (for example, a corporation, limited liability company, or limited partnership), the debtor is located in the state under whose laws it is organized (that is, where its articles of incorporation are filed). If the debtor is an unregistered organization (for example, a general partnership), it is located at its place of business if it only has one place of business or at its chief executive office if it has more than one place of business. 4.7.2 Exceptions a. Possessory Security Interests and Security Interests in Fixtures and Timber to Be Cut The perfection of possessory security interests, as well as security interests in fixtures and timber to be cut, is governed by the law of the state in which the collateral is located. b. Goods Covered by Certificate of Title If goods are covered by a certificate of title, the law of the state issuing the most recent certificate of title governs perfection. c. Deposit Accounts If the collateral is a deposit account, unless the debtor's agreements with the bank provide otherwise, the law of the state in which the bank has its chief executive office governs perfection. d. Investment Property If the collateral is a certificated security, the law of the state where the certificated security is located governs perfection. If the collateral is an uncertificated security, unless the debtor's agreements with the issuer provide otherwise, the law of the state where the issuer was organized governs perfection. If the collateral is a securities account, unless the debtor's agreements with the securities intermediary provide otherwise, the law of the state where the securities intermediary's chief executive office is located governs perfection. SECURED TRANSACTIONS NOTES 27 z Exception—Perfection by Filing or Automatic Perfection If a security interest in investment property is perfected by filing, or if it's automatically perfected by a securities intermediary, the law of the state where the debtor is located governs perfection. e. Agricultural Liens The perfection of an agricultural lien is governed by the law of the state in which the farm product covered by the lien is located.

What is issuance of stock with corporations?

To start and operate a corporation, we need money (capital). The corporation can either borrow the money or raise it by selling stock (or both). Either way, the corporation will issue a security to the investor. Security is a fancy word for investment. 4.1.1 Debt Securities When the corporation borrows money, it issues a debt security, which is usually called a bond. The bond is a promise that the corporation will repay the loan with interest. If the loan is unsecured by corporate assets, it may be called a debenture. Importantly, the holder of debt securities is a creditor, but not an owner, of the corporation. a. Terminology Debt obligations may be payable either to the holder of the bond (a bearer or coupon bond) or to the owner registered on the corporation's records (a registered bond). A debt obligation may also have special features; for example, it may provide that it is convertible into equity securities at the option of the holder, or it might provide that the corporation may redeem the obligation at a specified price before the obligation matures. 4.1.2 Equity Securities When the investor buys an ownership interest in the corporation, it issues equity securities, which is stock (the investor holds shares of stock). Importantly, the money invested does not create a debt. The shareholder is an owner, but not a creditor, of the corporation. a. Terminology Remember that shares described in the corporation's CORPORATIONS NOTES 19 articles of incorporation are authorized shares. Those shares that have been sold are issued and outstanding. Shares that have been reacquired by the corporation through repurchase or redemption are authorized but unissued. These are sometimes referred to as treasury shares. Shares may be certificated (that is, represented by a certificate) or uncertificated. b. Classification of Shares A corporation may choose to issue only one type of share, giving each shareholder an equal ownership right (in which case the shares are generally called "common shares"). Alternatively, ownership rights may be varied if the articles provide that the corporation's stock is to be divided into classes or series within a class. Recall that if shares are to be divided into classes or series within a class, the articles must include information such as the number of shares of each class. c. Share Options A corporation may issue share options. An option is the right to purchase shares in the future under terms predetermined by the board of directors. Options may be offered in exchange for any type of consideration, including future services. 4.1.3 Issuance An issuance of stock is when a corporation sells its own stock. It's important to remember that the rules in this fact pattern apply only when there is an issuance, meaning, when the corporation is selling its own stock. 4.2 SUBSCRIPTIONS Subscriptions are written offers to buy stock from a corporation. One issue may be whether such an offer may be revoked. 4.2.1 Preincorporation Subscription Under the MBCA, preincorporation subscriptions are irrevocable for six months unless otherwise provided in the terms of the subscription agreement or unless all subscribers consent to revocation.. Payment Unless otherwise provided, payment is due upon demand of the board. Demand may not be made in a discriminatory manner. A subscriber who fails to pay may be penalized by sale of the shares or forfeiture of the subscription and any amounts paid on the subscription, at the corporation's option. 4.2.2 Postincorporation Subscription Postincorporation subscriptions are revocable until accepted by the corporation. In other words, the corporation and the subscriber are obligated under a subscription agreement when the board accepts the offer. 4.3 CONSIDERATION What must the corporation receive when it issues stock? 4.3.1 Form of Consideration Under the MBCA, stock (or an option to buy stock) may be issued for any tangible or intangible property or benefit to the corporation. This includes money (cash or check), property, services already performed for the corporation, and discharge of a debt. It also includes promissory notes to the corporation and future services to the corporation. HYPO Can X Corp. give employees options to buy stock as payment for services? CMR Exam Tip The MBCA greatly expanded what is acceptable consideration for the issuance of shares. Older statutes did not allow shares to be issued for promissory notes or promises of future work. These forms of consideration are acceptable under the MBCA. Similarly, a promise to convey property in the future would also be acceptable. Watch for exam questions that test on this dramatic change.

WHat is divorce?

To have jurisdiction over a divorce, only one of the parties needs to be domiciled (that is, resident with intent to remain) in the jurisdiction. Most states set a minimum residency period (for example, 90 days) before an action may be filed. • It is possible for multiple states to have jurisdiction over a divorce, and multiple cases could proceed until one court renders a judgment causing the other to lose subject matter jurisdiction To determine financial issues (like property rights and support), the court must have personal jurisdiction over the defendant. 5.1.2 In Rem Action The divorce itself is viewed as an in rem action; thus, certain types of constructive service (such as publication) may be permitted. 5.1.3 Recognition of Decree: Full Faith and Credit As long as one of the parties was domiciled in the state that granted the divorce, the decree is recognized as valid in all other states. Provisions of the decree relating to property rights, spousal support, child support, and other financial issues are given full faith and credit only if the court had personal jurisdiction over the defendant. 5.1.4 Comity Courts are likely to recognize foreign divorce decrees if one party was domiciled in the country rendering the judgment. 5.1.5 Mediation In some states, the court may refer the parties to a divorce action to court-approved mediation. A mediator is a neutral party who helps the divorcing parties work through issues such as child support, custody, and visitation. Any agreement FAMILY LAW NOTES 14 reached must be based on the decision of the parties and not the decision of the mediator, who may not advocate for either party or coerce a party to make a decision. a. Mediator Duties Mediators must: • Explain the mediation process • Explain the right to independent counsel to the parties • Ensure that the parties have enough information for informed decisionmaking • Remain impartial and disclose any potential bias • Control for any power imbalance between the parties Mediator misconduct may result in the court setting aside the agreement. All of the mediation proceedings and records are confidential. 5.2 GROUNDS FOR DIVORCE A decree of absolute divorce terminates the marriage relationship. 5.2.1 "No-Fault" Divorce Most state divorce statutes provide for divorce without regard to marital fault. This usually requires a showing that: • Both spouses agree that the marriage is irretrievably broken (also referred to as irreconcilable differences) • The parties have been living apart for a specified and continuous period of time. This period can range from 90 days to 18 months, and the parties are still married during that time. The period is often shorter if both parties agree to divorce and longer for unilateral no-fault divorce. • Both parties agree they are now incompatible and can no longer be married. 5.2.2 Fault Grounds The usual fault-based grounds for divorce are: FAMILY LAW NOTES 15 • Adultery: Generally, the filing spouse presents circumstantial evidence of opportunity and inclination. Corroboration is often required. • Willful desertion (or abandonment): This requires an unjustified departure from the marital home for a specified period with no intent to return • Extreme physical or mental cruelty • Voluntary drug addiction or habitual drunkenness commencing after the marriage • Insanity

What is UPC approach to revival of revoked will?

Under the UPC and in many states, if a will that wholly revoked a previous will is thereafter revoked, the previous will remains revoked unless it is evident from the circumstances or the testator's statements that the testator intended to revive (that is, restore to effectiveness) the previous will. If the original will was only partly revoked, the revoked provisions are revived unless it is evident from the circumstances or the testator's statements that the testator did not intend to revive the provisions.

What is UPC standard for wills execution?

Uniform Probate Code—Court Can Ignore Harmless Errors Even though a will is not executed in accordance with all of the required statutory formalities (for example, there is only one witness), the UPC gives the court the authority to ignore harmless errors. The defectively executed will can be given effect if the will proponent establishes by clear and convincing evidence that the testator intended the document to be their will.

What rules for secured party v. buyer or other transferee?

When a buyer (or lessee) buys or leases something with a security interest on it, the security interest stays on the item. There are a few exceptions to this rule, discussed below. 5.3.1 Authorized Sales If the sale or lease of the collateral is authorized by the secured party free of the security interest, the transferee takes free of the security interest. The authorization may be SECURED TRANSACTIONS NOTES 42 express, or it may be implied from the type of sale or from the seller's conduct.5.3.2 Unauthorized Sales a. General Rule—Buyers in the Ordinary Course A buyer in the ordinary course of business ( "BIOC") takes free of a nonpossessory security interest in the goods created by the buyer's seller, even though the security interest is perfected and even though the buyer knows of the security interest. Note: This rule also applies to lessees of goods. z Definition of "Buyer in the Ordinary Course" A "buyer in the ordinary course" is one who buys goods (1) in good faith, (2) without knowledge that the sale violates the rights of another person in the goods, and (3) in the ordinary course of business from a seller in the business of selling goods of the kind purchased. The typical case of the buyer knowing that the sale violates the rights of another is where the buyer knows that the sale violates the security agreement.Buyers Not in the Ordinary Course of Business Buyers or lessees not in the ordinary course of business: • Take subject to perfected security interests, and • Take free from unperfected security interests unless they know of the security interest when they give value or take delivery. z Exception—Future Advances A buyer or lessee not in the ordinary course of business has priority over future advances or commitments to make future advances made by a secured party either after the secured party learns of the purchase or lease or more than 45 days after the purchase or lease. z Exception—PMSI Grace Period If a secured party attaches a PMSI in the debtor's collateral before the buyer or lessee without knowledge pays value and receives delivery, the secured party will have priority over the buyer or lessee if the secured party files within 20 days after the debtor receives the collateral. c. Consumer-to-Consumer Sales In the case of consumer goods, a buyer takes free of a security interest, even though it's perfected, if the buyer buys (1) without knowledge of the security interest, (2) for value, (3) for the buyer's own personal, family, or household purposes, and (4) before a financing statement covering the goods has been filed. Note that the goods must be consumer goods in the hands of both the buyer and the seller. CMR Exam Tip Recall that PMSIs in consumer goods are perfected automatically without filing. Nevertheless, holders of these security interests will still lose to consumer buyers under this rule unless they file.5.3.3 Secured Party vs. Holder in Due Course or the Like A holder in due course of a negotiable instrument (and similar holders of negotiable documents of title or securities) has priority over a security interest in the negotiable instrumen

How does simulataneous death work for intestate succession?

A person cannot take as an heir or will beneficiary unless they survive the decedent. Because it is sometimes difficult to determine whether one person survived another (for example, in a situation where both persons are fatally injured in the same accident), nearly all states have adopted a version of the Uniform Simultaneous Death Act ("USDA"). About one-half of the states have enacted the traditional USDA, and the other half have enacted the Revised Uniform Simultaneous Death Act, also known as the "120-hour rule." The UPC follows the 120-hour rule.

What methods for computing shares in intestate succession?

. Classic Per Stirpes Under the classic (or strict) per stirpes distribution of the common law, one share is created for each child and one share for each deceased child who has at least one surviving descendant. Each child receives one share and one share passes to a deceased child's descendants by representation. This method divides into shares at the child generation even if no child survives the intestate. This method is used in a small minority of states. b. Majority Rule—Per Capita with Representation In most states, a decedent's descendants take their shares per capita with representation, which means the property is divided into equal shares at the first generational level at which there are living takers. Each living person at that level takes a share, and the share of each deceased person at that level passes to their issue by right of representation. If all children are deceased and all property is going to the grandchildren, each grandchild takes an equal share rather than the share (or part of the share) the parent would have taken had the parent survived. . Modern Trend—Per Capita at Each Generational Level A growing number of states and the UPC make the initial division of shares at the first generational level at which there are living takers, but the shares of deceased persons at that level are combined and then divided equally among the takers at the next generational level. Persons in the same degree of kinship to the decedent always take equal shares. WILLS NOTES 13 Thus, if some children are alive and others dead, each child will take an equal share (as with per capita by representation), but the remaining property is pooled and each grandchild will receive an equal share.

What requirements for witnesses of wills?

. Competency in General Competency means that, at the time the will is executed, the witness is mature enough and of sufficient mental capacity that they could testify in court on these matters. Some states impose a minimum age. b. Publication States vary regarding whether the testator must "publish" the will by informing the witnesses that the document is the testator's will and regarding whether the witnesses must know they are witnessing a will. No state requires the witnesses to know the contents of the will. c. Interested Witnesses At common law, a witness who was also a beneficiary was not competent, and the will could not be probated unless there were two other competent witnesses. All states now provide that the will is still valid, but the bequest to the interested witness may be void under a "purging statute" unless they are supernumerary or would have taken a share as an heir if the will had not been probated. Note that under the UPC, however, gifts to interested witnesses are not purged. CMR Exam Tip Remember that creditors, fiduciaries under the will (for example, trustees), and attorneys are not interested, and are not disqualified from collecting debts or serving the estate because they or their employees witnessed the will. WILLS NOTES 27 d. "Presence" Requirement Some states require the testator to sign the will in the witnesses' presence, and the witnesses to sign in the testator's presence. To determine when a person is in another's presence, most courts use the "conscious presence" test. Under this test, the presence requirement is satisfied if each party was conscious of where the other parties were and what they were doing, and the act of signing took place within the general awareness and cognizance of the other parties. A substantial minority of courts use the "scope of vision" test, under which the requirement is satisfied only if the person was in such close proximity that they could have seen the signing had they looked. In most states, the witnesses do not need to attest in each other's presence.

What is the splitting of interest with trusts?

1.2.1 Legal Interest The legal interest is held by the trustee who has the responsibility of ownership. The trustee receives no benefit from the legal title (except possibly a fee for acting as trustee). A trustee is a fiduciary and thus: (1) must deal with the property with reasonable care; (2) must maintain the utmost degree of loyalty; and (3) is personally responsible if their conduct falls beneath required standards. 1.2.2 Equitable or Beneficial Interest The equitable or beneficial interest is held by the beneficiary who receives the benefits of ownership as set forth in the TRUSTS NOTES 2 trust. The beneficiary usually has little or no control over the trust or the trust property. The beneficiary is the person who enforces the trust and the person the trustee owes duties toward.

What rules for management and operation of a partnership?

1.2.1 Voting Unless otherwise agreed, all partners have equal rights in the management of the business and equal votes (that is, one partner, one vote). Decisions regarding matters within the ordinary course of the partnership business require a majority vote of the partners. Matters outside of the ordinary course of business require the unanimous consent of all partners.1.2.2 No Right to Salary or Other Compensation Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership (with the exception of a right to reasonable compensation for services rendered in winding up the partnership business). On the other hand, if a partner has impliedly or expressly promised to devote time to the partnership business and fails to do so, they may be charged in an accounting for damages caused to the partnership.1.2.2 No Right to Salary or Other Compensation Unless otherwise agreed, a partner has no right to compensation for services rendered to the partnership (with the exception of a right to reasonable compensation for services rendered in winding up the partnership business). On the other hand, if a partner has impliedly or expressly promised to devote time to the partnership business and fails to do so, they may be charged in an accounting for damages caused to the partnership. HYPO A and B are partners. A works 96 hours a week. B sleeps all day. Does A have a right to a salary? 1.2.3 Partners' Accounts Each partner is deemed to have an account that is credited with an amount equal to the partner's contribution plus his share of any profits and debited with the partner's share of any losses and partnership liabilities. Where a partner personally profits at the expense of the partnership, the partner must account to the partnership for those profits. Upon dissolution, a partner is entitled to settlement of their account. 1.2.4 Indemnification and Other Repayment A partnership must indemnify every partner with regard to payments made and obligations reasonably incurred in carrying on the partnership business. If a partner makes a payment or advance on behalf of the partnership beyond the contribution the partner agreed to make, the payment or advance constitutes a loan that must be repaid with interest. 1.2.5 Books and Information Books and information must be kept at the partnership's chief executive office. Each partner has a right to inspect and copy the partnership books. Upon demand, each partner must render true and full information of all things affecting the partnership. 1.2.6 Legal Actions By and Against Partners A partnership may sue or be sued in its own name; however, to reach a partner's personal assets, there must be a judgment against the individual partner. A partnership may sue a partner for breach of the partnership agreement or of a duty owed to the partnership. A partner may sue the partnership or other partners to enforce a right created by partnership act or agreement, or a right otherwise belonging to the partner.

What sort of purposes and uses of trusts?

1.6.1 Providing for and Protecting Trust Beneficiaries If the settlor does not want to give the beneficiary the property outright, the settlor can protect the beneficiary by creating a trust.1.6.2 Flexibility of Asset Distribution If the assets are in a trust, a settlor can provide for any type of distribution plan they desire, within legal bounds such as spreading benefits over time; giving the trustee discretion as to who and how much to pay; and setting standards for distribution such as only for health, education, maintenance, or support. 1.6.3 Protection Against Settlor's Incompetence If the settlor is incompetent, a trust may be a better option than an expensive and embarrassing guardianship. Note: Another estate planning technique which may be effective in avoiding guardianship is a durable power of attorney in which the property owner (principal) names a person (agent) to manage the owner's property with the authority either (1) beginning immediately, or (2) springing into effect upon the owner's incapacity. 1.6.4 Professional Management of Property A trustee can be chosen for its ability to provide professional management of trust property.1.6.5 Probate Avoidance Property in an inter vivos trust passes outside of the probate process, that is, not under the settlor's will or, if intestate, not to the settlor's heirs. 1.6.6 Tax Benefits Income, gift, and estate tax savings are possible.

What are the different types of trusts?

1.7.1 Express Trusts Express trusts are created by the express intention of the settlor. They fall into two categories distinguished primarily by the identity of their beneficiaries: • Private—private beneficiaries (certain ascertainable persons) • Charitable—charitable beneficiaries (indefinite class of persons or the public in general) 1.7.2 Trusts Created by Operation of Law a. Resulting Trusts Resulting trusts arise from the presumed intention of the owner of the property. b. Constructive Trusts Constructive trusts are an equitable remedy used to prevent unjust enrichment.

What rules for child custody?

10.1.1 Purposes The purposes of the Uniform Child Custody Jurisdiction and Enforcement Act ("UCCJEA") are to avoid jurisdictional disputes regarding child custody and visitation, promote interstate cooperation, and facilitate the interstate enforcement of custody and visitation orders. 10.1.2 Initial Custody Determination a. Primary Test—Home State Jurisdiction A court has jurisdiction to initially enter or modify a child custody or visitation order if the state: • Is the child's home state, or • Was the child's home state within the past six months and the child is absent from the state, but a parent or person acting as a parent (that is, a guardian) continues to live in the state A child's home state is the state in which the child lived with a parent (or a person acting as a parent) for at least six consecutive months immediately before the commencement of the proceeding (or the state where the child has lived since birth if the child is younger than six months old), disregarding temporary absences. CMR Exam Tip Home state jurisdiction is the most important jurisdictional test in this arena, and it is frequently tested on the bar exam.b. When "Home State" Rule Does Not Apply A court has jurisdiction to enter or modify a child custody or visitation order if no other state has or accepts home state jurisdiction and: • The child and at least one parent (or person acting as a parent) have a significant connection with the state, and • Substantial evidence concerning the child is available in the state In addition, a court has jurisdiction to enter or modify a child custody or visitation order if no other state has jurisdiction under another test or if another state with jurisdiction defers. 10.1.3 Modification of Existing Decree The issuing court has continuing exclusive jurisdiction. Another state can only exercise jurisdiction if: • No child or parent (or persons acting as parents) continues to reside in the issuing state, or • The child no longer has a significant connection with the issuing state and substantial evidence relating to the matter is no longer available in that state. Only the issuing state can decide if this second test is met. 10.1.4 Declining Jurisdiction A court that has jurisdiction under one of the above tests may decline to exercise its jurisdiction if it determines that it is an inconvenient forum under the circumstances and that a court in another state is a more appropriate forum. Additionally, a court may decline to exercise jurisdiction if the party seeking to invoke the court's jurisdiction has engaged in unjustifiable conduct (for example, a parent wrongfully took the child from another state). 10.1.5 Temporary Emergency Jurisdiction— Abandonment or Abuse A court may exercise temporary emergency jurisdiction if the child has been abandoned or it is necessary in an emergency to protect the child because the child, sibling, or parent is subjected to or threatened with abuse. 10.1.6 Enforcement of Another State's Order A custody or visitation order of one state can be registered in another state and enforced in that state like one of its own orders. In appropriate circumstances, a court can order the respondent to appear in person and award immediate physical possession of the child to the petitioner. The court may issue a warrant to take physical possession of the child if the child is imminently likely to suffer serious physical harm or be removed from the state. A prosecutor, law enforcement officer, or other public official may take any lawful action to locate a child, obtain the return of a child, or enforce a custody or visitation order at a court's request or if there is a reasonable belief that the person holding the child has violated a criminal statute.

What types of will contests?

10.1.1 Timing and Notice States vary considerably with regard to how quickly a will contest must be filed. Time periods can be as short as a few months or as long as several years. All legatees under the will and all intestate heirs are necessary parties and are entitled to notice. 10.1.2 Standing Only interested parties (that is, those whose interests would be adversely affected by the admission of the will) have standing to contest a will. This includes heirs (because they would receive the estate by intestacy if the will is invalid) and, in some states, beneficiaries of prior wills (because if the will is invalid, property would pass under the testator's prior will). Creditors, executors, and testamentary trustees are not interested parties. 10.1.3 Burden of Proof The will contestant has the burden to prove the will is invalid. 10.1.4 Will May Fail Either Partially or Entirely If only a portion of a will is found to have been procured by undue influence, fraud, duress, or mistake, only that part is void and the remainder is given effect. Partial failure is rare because the procurement typically impacts the entire disposition scheme. 10.2 GROUNDS FOR CONTEST—IN GENERAL A will contest challenges the validity of a document offered for probate. Grounds for challenge are: (1) defective execution, (2) revocation, (3) lack of testamentary capacity, (4) lack of testamentary intent, (5) undue influence or duress, (6) fraud, and (7) mistake.

What general rules for child support 2?

10.2 CHILD CUSTODY GENERALLY Custody of a minor can mean legal custody (the right to make major decisions affecting the child's life) or physical custody (actual possession and control of the child). Joint custody can mean either joint legal custody, joint physical custody, or both. 10.2.1 The Best Interest of the Child Standard The standard applied in awarding custody and visitation is the best interest of the child. Factors considered in making that determination usually include: • The wishes of the parents (Note: Parents have a constitutionally-protected right to care, custody, and control of their children.) FAMILY LAW NOTES 37 • Child's preference (Preferences of children under the age of 8 are generally not considered, but preferences of children over the age of 12 are given great weight. Questioning of the child typically occurs in the judge's chambers.) • Child's relationship with parents, siblings, and others involved with parents • Child's adjustment to home, school, and community • Parties' mental and physical health • Who has been the child's primary caregiver The trial court is vested with a great deal of discretion to determine custody and visitation. In most states, preference cannot be shown to one parent because of gender or financial ability. If, after considering all of the relevant factors, the court must decide between two qualified parents, custody will often go to the parent who has been the primary caregiver (that is, the parent most involved in the child's day-to-day life). 10.2.2 Counsel for the Child Courts can appoint counsel or a guardian ad litem ("GAL") for the child in a custody dispute, but this is typically only done if the counsel or GAL can provide substantial assistance in determining what is in the child's best interest. 10.2.3 Interference with the Parent-Child Relationship a. Tortious Injury A child may not recover against one who tortiously injures their parent, but a parent may recover when a child is tortiously injured. b. Interference with Custody A parent whose lawful custody is interfered with may recover tort damages in actions for abduction or enticement. In addition, parties who conspire to conceal information about a newborn child's birth or location may be held liable for their participation in a civil conspiracy.

What general rules for nonmarital children?

11.1 NONMARITAL CHILDREN A nonmarital child (sometimes called an illegitimate child or a child born out of wedlock) is one born to an unmarried woman. (But see 11.3., infra, regarding gestational mother under a gestational agreement.) 11.1.1 Constitutional Limits on Discrimination Distinctions between marital and nonmarital children are subject to intermediate scrutiny (that is, they must be substantially related to an important governmental interest). The Supreme Court will not uphold discriminatory legislation intended to punish the offspring of illicit relationships. Thus, the Court has held that: • Nonmarital children cannot be precluded from inheriting from their fathers • Statutes of limitations on paternity suits are discriminatory • Nonmarital children have the same right to child support as marital children • Government benefits may not be denied to nonmarital children merely because they are born out of wedlock • Nonmarital children may not be precluded from suing for a parent's wrongful death In contrast, because of the plenary power over immigration, the Court upheld a federal law granting immigration preferences to marital children. 11.1.2 Parentage Actions Generally Parentage actions can be brought to establish a biological relationship and settle issues of paternity or maternity, usually the former. Once there's a finding of parentage, that person has rights to custody and visitation in addition to a duty to pay support. FAMILY LAW NOTES 43 a. Presumption of Parentage Typically, the mother's husband is presumed to be the father of a child if the child is born during the marriage or within 300 days of the marriage's termination. This is true even if the marriage is void or voidable. b. Paternity Disestablishment Most states refuse to terminate an established parent-child relationship, especially after the passage of some time, even if the husband can prove that he is not the child's biological father. Some states have made it possible for men, even fathers of marital children, to establish nonpaternity. Rebutting the presumption of parentage generally requires clear and convincing evidence. In that case, paternity will be disestablished and any child support obligation eliminated. 11.1.3 Unwed Fathers Under most state statutes, every child is the lawful child of his mother. The child is the lawful child of an unwed father only if: • The parents married after the child's birth • The father holds the child out as his biological child • The father consents to be named on the birth certificate • The father formally acknowledges paternity or • There is a court order establishing paternity Unwed fathers are protected by the Due Process Clause and can have rights to custody if they demonstrate parental responsibility. This includes acknowledgment of paternity as well as supervision, education, protection, care, and support of the child. To have due process rights regarding a newborn, the unwed father must be willing to assume custody of the child and not merely block adoption by others. Other considerations include publicly acknowledging paternity, paying pregnancy and birth-related expenses, taking steps to establish legal responsibility for the child, and showing a commitment to the child. FAMILY LAW NOTES 44 An unwed father may be precluded from tort recovery for the death of a child he did not legally recognize. 11.1.4 Paternity Suits A paternity suit seeking support may be brought by the child, the mother, or the state (if the child is receiving support from the state). Once paternity is established, the duty of support attaches, and the father may assert rights to visitation and custody. A paternity action can also be used to allow the child to inherit. a. Statute of Limitations Since the statute is tolled during the child's minority, the limitations period will be at least 18 years. b. Evidence States vary on the level of proof required to establish paternity. Some states require "clear and convincing evidence," but a "preponderance of the evidence" standard has also been upheld. To prove paternity today, most states use blood and tissue sampling because it's attainable, but testimonial and other medical evidence has been deemed sufficient. If genetic tests show that the defendant cannot be the father, the case must be dismissed. Records of paternity actions are usually kept sealed. 11.1.5 Citizenship of Child Born Abroad to Unmarried American Parent When an unmarried American woman gives birth abroad, her child may be granted United States citizenship without formally establishing her parentage. However, when the child of an unmarried American man is born abroad, the father must take specific steps to establish his paternity in order to make his child a United States citizen.

What general rules for termination of parental rights?

11.2.1 Termination of Parental Rights Generally Parents may voluntarily relinquish all rights to their children (often done in preparation for adoption). FAMILY LAW NOTES 45 Because the right to raise one's children is a fundamental constitutional right, parents must have due process before their rights can be terminated involuntarily. This includes the right to counsel (including the right to appointment of counsel if indigent, should fundamental fairness so require). Grounds for termination must be proved by clear and convincing evidence. a. Grounds Grounds for involuntary termination include: • Infliction of serious physical harm on the child, including sexual abuse • Abandonment • Neglect or deprivation (failure to meet minimum standards of care) • Failure to provide support without justifiable cause • Mental illness or retardation so severe as to make the parent incapable of caring for the child • Parental unfitness (conduct by the parent that seriously harms the child physically or psychologically) Note: States always want to reunite parents and children, so the ultimate purpose is not to remove the child permanently. The state's purpose is to find a suitable home for the child while the parent gets back on track. And if that's not possible, then placing the child for adoption to a third person. 11.2.2 Types of Adoption In agency adoption, licensed adoption agencies act as intermediaries in the adoption. In private adoption, private persons act as intermediaries to arrange adoption. 11.2.3 Requirements for Adoption a. Termination of Natural Parents' Rights The consent of the child's natural parents is generally required. Parental consent is not necessary if parental rights have been terminated (see above). The parental consent FAMILY LAW NOTES 46 requirement may be waived if the court concludes it is being unreasonably withheld against the best interest of the child (for example, natural parent has deserted the child). A nonconsenting parent is entitled to notice of the hearing and an opportunity to be heard. z Consent of Unmarried Fathers In deciding whether an unwed father can veto a prospective adoption, the court considers the level of the father's involvement with the child, such as whether he lived with and cared for the child, visited the child regularly, admitted paternity, or paid child support. As to a newborn infant, a father's right to a continued parental relationship depends on his manifestations of parental responsibility. A father of a nonmarital child who has never attempted to establish a legal or personal relationship with that child has no right to notice prior to the adoption of the child by others. b. Creation of New Parental Rights z Consent of Adoptee Often, prospective adoptees over a certain age (usually 12 or 14) must also consent to their own adoption z Home Studies, Investigation, and Court Approval Most states require that there be an investigation of the suitability of the proposed adoption, and approval of the adoption by the court. This may be waived for relative adoptions. z Payment of Money Prohibited Most states prohibit the payment of money to the natural parents other than medical costs related to the pregnancy. 11.2.4 Confidentiality of Adoption Proceedings— Sealed Records Records of adoption cases are sealed, and in most states, information contained in them is not available to the public or the adoptees. FAMILY LAW NOTES 47 11.2.5 Consequences of Adoption Upon adoption, a new birth certificate is issued, listing the adoptive parents as the child's parents. The adoption results in the termination of the biological parents' rights and obligations, and creates new rights and obligations in the adoptive parents. In some states, an adoptive child can still inherit from the biological parent. 11.2.6 Venue Most states require that the person seeking to adopt be a resident of the county where the petition is filed. Some states permit filing in the county where the child resides or where the office of the child placement agency is located. 11.2.7 Violation of Adoption Statute Violation of adoption statutes is often punishable as a crime. 11.3 ASSISTED REPRODUCTION When only the intended parents are involved in a procedure such as artificial insemination, in vitro fertilization, or embryo transplantation, there is no problem; they are clearly the resulting child's parents. The Uniform Parentage Act ("UPA") was drafted to deal with consequences when third parties are involved. Many states have not yet adopted the Act; therefore, it is best to discuss both general legal principles and the UPA if a question does not specify the law of the particular jurisdiction. 11.3.1 The Parent-Child Relationship in General Under the UPA, the parent-child relationship is established between an individual and a child by: • Having given birth to the child (except in cases governed by a surrogacy agreement) • Adjudication of a woman's maternity • Adoption by the mother • Adjudication confirming mother of child born to a gestational surrogate FAMILY LAW NOTES 48 • A husband who is married to a woman who has a child through assisted conception is the child's father unless he proves his lack of consent within two years after birth

What general rules for child rights in terms of reproductive technologies?

11.3.2 Gamete Donors Egg or sperm donors (that is, donors who produce an egg or sperm used for assisted reproduction without the intent to be a parent) are not parents of a child conceived through assisted conception. Some jurisdictions have allowed the sperm donor to have rights if agreed in writing by the donor and the woman. 11.3.3 Posthumous Conception If a gamete provider consented in writing that their gametes could be used after death to conceive a child, that child can be considered the child of a deceased parent. This means the child has full inheritance rights and social security benefits, at least in some states. 11.3.4 Gestational Agreements Some states have failed to enact legislation on surrogacy because they characterize the agreement as the sale of a child. a. Surrogacy Defined The term "surrogacy" can refer to either: • Genetic surrogacy (often referred to as "traditional" surrogacy), where a woman who is not an intended parent agrees to become pregnant through assisted reproduction using her own gametes, or • Gestational surrogacy, where a woman who is not an intended parent agrees to become pregnant through assisted reproduction using gametes that are not her own. b. Validity of Agreement Most states only allow gestational surrogacy. To be valid, a gestational carrier agreement must: • Be in writing and approved by the court • Be accompanied by a child welfare agency home study unless waived FAMILY LAW NOTES 49 • Be voluntary • Make provision for healthcare costs until birth • For constitutional reasons, not limit the rights of the surrogate to make healthcare decisions • Provide reasonable consideration if the surrogate is promised consideration. (This varies greatly among states.) Subsequent marriage or divorce of intended parents does not invalidate the agreement. c. Termination of Agreement The agreement can be terminated by any of the parties at any time before embryo transfer. d. Result of Agreement If the agreement is unenforceable, the gestational mother is considered the mother of the child, regardless of biology. If the agreement is approved, intended parents must file notice of birth and court will issue an order of parentage. 11.3.5 Ownership Of Fertilized Ovum In Vitro A cryogenically preserved product of in vitro fertilization (a "frozen embryo") poses many difficult questions, particularly when the couple divorces or dies. These questions include whether the embryo is property or a person, and who will decide whether any transplantation will take place.

What financial rights and obligations and liability of partnership?

2.1 SHARING PROFITS AND LOSSES Unless otherwise agreed, profits are shared equally among the partners (by number). Unless otherwise agreed, losses are shared in the same manner as profits.2.2 LIABILITY TO THIRD PARTIES The R.U.P.A. generally provides that each partner is an agent of the partnership for the purpose of its business. The authority of a partner to bind the partnership when dealing with third parties roughly follows agency law. 2.2.1 Liability of the Partnership in Tort With respect to the partnership's liability in tort, a partnership is liable for loss or injury caused to a person as a result PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 10 of the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership. 2.2.2 Liability of the Partnership in Contract With respect to the partnership's liability in contract, a partnership is liable for all contracts entered into by a partner in the scope of partnership business or with actual or apparent authority of the partnership. a. Actual Authority Actual authority is the authority a partner reasonably believes they have based on the communications between the partnership and the partner. It can come from the partnership agreement or a vote of the partners. A majority vote of the partners is required to authorize ordinary business; a unanimous vote of the partners is required to authorize extraordinary acts. z Statement of Partnership Authority Actual authority can also be created by the partnership's filing of a statement of partnership authority with the secretary of state (for real property transfers, this must also be filed with the county recorder). A statement of authority grants or limits a partner's authority to enter into transactions on behalf of the partnership. The effect differs depending on whether the transaction involves a transfer of real property: — Transactions Involving Real Property Grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the county where the property is located. In other words, third parties are deemed to have constructive knowledge of the statement if secretary of state and county filings are made. Third parties are benefitted by filed grants of authority (unless they have actual knowledge that the partner lacked authority) and burdened by filed restrictions on authority. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 11 — Transactions Not Involving Real Property With respect to all other transactions of the partnership other than real property transfers, grants of partner authority in the statement are binding on the partnership (unless the third party has actual knowledge that the partner lacked authority). Restrictions on partner authority in the statement, however, are not binding on third parties. In other words, third parties are deemed to have constructive knowledge only of filed grants of authority, not filed restrictions. Third parties are benefited by filed grants (unless they have actual knowledge that the partner lacked authority) and are not burdened by filed restrictions (only actual knowledge of restrictions burdens them). b. Apparent Authority The R.U.P.A. provides that a partner is an agent of the partnership, and that a partner has apparent authority to bind the partnership to transactions within the ordinary course of the partnership's business or business of the kind carried out by the partnership (unless the third party is aware that the partner lacks actual authority to act). CMR Exam Tip It is very important to remember that as agents of the partnership, partners have apparent authority to bind the partnership to any contract within the scope of the partnership business. If a contract is outside the scope of partnership business, the partnership generally will not be bound unless the partner has actual authority

What liability of principak for agents contracts?

3.1 ACTUAL AND APPARENT AUTHORITY An agent has the power to bind a principal to a contract the agent enters on the principal's behalf only if the agent acted with authority. There are three types of authority: actual, apparent, and ratified. When deciding whether a principal will be bound on an agent's contract, it should first be determined whether the agent had actual authority. If they did not, look to see whether apparent authority was present. Ratified authority comes into play only if the principal grants authority after the contract is made. CMR Exam Tip The most important of all agency concepts for bar exam purposes are those involving actual and apparent authority. A very high percentage of questions will require you to display your understanding of this area. 3.1.1 Actual Authority Actual authority is authority that the agent reasonably believes they possess based on the principal's dealings with them. Put differently, if the principal's words or conduct would lead a reasonable person in the agent's position to believe that the agent has authority to act on the principal's behalf, the agent has actual authority to bind the principal. Actual authority may be express or implied. a. Express Express authority is that which is actually contained within the four corners of the agency agreement. So it's authority that's conveyed by the principal in words (oral or written). It's effective even if it was granted mistakenly or because of misrepresentation.All or Nothing When determining whether an agent acted with authority in entering a contract for a principal, note that this is an all or nothing issue-they had authority or not.Implied Implied authority is authority the agent reasonably believes they have as a result of the principal's words or actions. It includes authority: • Incidental to express authority • Arising out of custom known to the agent • Resulting from prior acquiescence by the principal; • To take emergency measures • To delegate authority in cases of ministerial acts, where circumstances require, where performance is impossible without delegation, or where delegation is customary AGENCY NOTES 11 • To pay for and accept delivery of goods where there is authority to purchase • To give general warranties as to fitness and quality and grant customary covenants in land sales, collect payment, and deliver where there is authority to sell AND • To manage investments in accordance with the "prudent investor" standard Note: The notion that title or position conveys authority can also be used to establish actual authority to the extent that the agent reasonably believes that they have authority to act based on the title or position given to them by the principal.

What rules for partnership property?

3.2.1 Classifications a. Partnership Capital Partnership capital is the property or money contributed by each partner for the purpose of carrying on the partnership's business. b. Partnership Property Partnership property, in its broadest sense, is everything the partnership owns, including both capital and property subsequently acquired in partnership transactions. 3.2.2 Rules for Determining Partnership Property Which property belongs to the partnership and which belongs to an individual partner? There's no restriction on what may be partnership property, and sometimes it's not always obvious whether property is partnership property or the individual property of a partner. The R.U.P.A. has a number of provisions concerning ownership of titled property (both titled personal property and real property). For property that is not titled, the common law has developed a number of criteria to analyze. a. Property Deemed to Be Partnership Property Titled property is partnership property if it is acquired in the partnership's name or in a partner's name where it is apparent from the document that they are acting for a partnership (for example, it mentions a partnership or says they are a partner). b. Property Presumed to Be Partnership Property Under the R.U.P.A., property is rebuttably presumed to be partnership property if it was purchased with partnership PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 18 funds, regardless of in whose name title is held. "Partnership funds" includes not only the partnership's cash, but also the partnership's credit. c. Property Presumed to Be Partner's Separate Property Under the R.U.P.A., property is rebuttably presumed to be a partner's property if (1) it's held in the name of one or more partners, (2) the instrument transferring title gives no sign that they're acting for a partnership, and (3) partnership funds were not used to acquire the property. HYPO Polly bought a truck in her name with her own money. Her partnership uses the truck for deliveries. Does the truck belong to the partnership or does it belong to Polly? d. Untitled Property—Common Law Criteria In cases not governed by the explicit R.U.P.A. provisions (for example, in cases of property that is not titled), in determining whether property is partnership property or the separate property of a partner, courts will probably continue to look to the following common law criteria, which tend to indicate that the property was intended to be partnership property: • Acquisition of the property with partnership funds • Use of the property by the partnership in conducting the partnership's business • Entry of the property in the partnership books as a partnership asset • A close relationship between the property and the business operations of the partnership • Improvement of the property with partnership funds • Maintenance of the property with partnership funds

What rights in partnership property?

3.2.3 Rights in Partnership Property a. The Partnership's Rights The partnerships rights in partnership property are totally unrestricted (remember, the partnership owns the property!). HYPO Recall the hypo above regarding Polly and the truck. If the truck is partnership property, may the partnership pledge it as collateral for a loan? If the truck is partnership property, may a partnership creditor levy on/attach the truck? b. A Partner's Rights A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred. (The partnership is an entity; the partnership itself, not the partners, owns its property.) A partner can simply use partnership property for partnership purposes. CMR Exam Tip It is important to remember that a partner has no right to use partnership property other than for the benefit of the partnership. 3.2.4 The Partner's Ownership Interest in the Partnership A partner's ownership interest in a partnership is called his "partnership interest" (just like a shareholder's ownership interest in a corporation is called "stock"). The partnership PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 21 interest is the personal property of the partner. Although it is personal property, there are restrictions on what a partner can do with it. a. Comprised of Management Rights and Financial Rights A partnership interest is comprised of (1) management rights (that is, a partner's right to participate in the management of the business, to obtain information about the partnership, and to be recognized as a "partner"); and (2) financial rights (that is, the partner's right to receive his share of any profit distributions made by the partnership). b. No Unilateral Transfer of Management Rights Unless otherwise agreed, a partner cannot unilaterally transfer his management rights and thereby make the transferee a "partner." The default rule for the admission of a new partner is that it requires a unanimous vote of the existing partners. c. Unilateral Transfer of Financial Rights Permitted Unless otherwise agreed, a partner can unilaterally transfer his financial rights. The transferee merely has the right to receive profit distributions from the partnership that would have otherwise gone to the partner. The transferee is not a partner; the transferor is still a partner and retains all of the management rights of a partner.

WHat is the applicable law to wills?

5.2.1 Real Property The validity and effect of a will with respect to real property are determined by the law of the state where the property is located. 5.2.2 Personal Property With respect to personal property, the validity and effect of a will are determined by the law of the testator's domicile at the time of death. 5.2.3 Out-of-State and Foreign Wills Most states and the UPC have a "savings statute," that is, a will is admissible to probate in a jurisdiction if the will has been executed in accordance with the law of: (1) that jurisdiction, (2) the state where the will was executed, (3) the testator's domicile at the time of the will's execution, or (4) the testator's domicile at death. WILLS NOTES 23 CMR Exam Tip Note that these rules apply only to determine whether the will is admissible to probate. Once the will is admitted to probate, local law governs the construction and application of the will's provisions.

What is s support trust?

3.4.1 Use of Trust Property Limited to Beneficiary's Support A support trust directs the trustee to pay only so much of the income or principal (or both) as is necessary for the beneficiary's support. A support trust may be mandatory or discretionary. If discretionary, the creditors' rights are the same as they are for other discretionary trusts (see above). 3.4.2 Not Assignable Even without a spendthrift clause, the beneficiary's interest in a support trust is such that no one but the beneficiary can enjoy it; the beneficiary's interest is not assignable by definition. Support trusts are, therefore, impliedly spendthrift. 3.4.3 Standard of Support and Other Resources If the instrument is silent, the standard of support is the beneficiary's accustomed standard of living. Whether the beneficiary's other income or resources should be taken into account is a question of the settlor's intent and is decided by courts on a case-by-case basis. CMR Exam Tip A trust to "pay all of the income to A for his support" is not a support trust. When the whole of the income is to be paid to A for his support, the words "for his support" merely state the motive for the transfer. The beneficiary is not limited to amounts necessary for his support. creditors of trustee cannot reach the asset of the trust, they can only go after the trustee individiually

What are special cases and those rules for when certain types of children inherit?

3.7.1 Adopted Children For purposes of intestate succession, adopted children are treated the same as the biological children of the adopting parents. An adopted child inherits from and through the adopting parents and their kin, and the adopting parents take from and through the adopted child. Although jurisdictions vary, generally there is no inheritance in either direction between adopted children and their biological parents, except where one of the biological parents marries an adopting parent, or the child is adopted by a close relative. Most states make no distinction based on the age of the child at the time of the adoption. WILLS NOTES 16 3.7.2 Stepchildren and Foster Children Generally, stepchildren and foster children have no inheritance rights unless adopted by the stepparent or foster parent. The doctrine of adoption by estoppel, however, permits a child to inherit from or through a stepparent or foster parent when legal custody of a child is gained under an (unfulfilled) agreement to adopt them. However, if the child dies, many states prohibit the stepparent or foster parent from inheriting. 3.7.3 Nonmarital Children A nonmarital child always inherits from the mother. Generally, the child will inherit from their father if: (1) the father married the mother after the child's birth; (2) the man was adjudicated to be the father in a paternity suit; or (3) after his death and during probate proceedings, the man is proved by clear and convincing evidence to be the father. 3.7.4 Half Bloods and Whole Bloods Half bloods are brothers and sisters who have only one common parent. The UPC and most states make no distinction between half bloods and whole bloods; they inherit equally. However, some jurisdictions give half bloods half shares or cut them out from inheriting entirely if whole-blood siblings exist. 3.7.5 Posthumous Children A posthumous child is a child born after the death of their parent. If a person is in gestation at the time of the intestate's death, most states will allow that person to be an heir. Some states will allow a child of the intestate who was not in gestation but who is born within a statutorily stated period of time (for example, two years) to inherit under specified circumstances.

What rules for dissociation and dissolution in property?

4.1 DISSOCIATION Dissociation is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business. Dissociation of a partner does not necessarily cause a dissolution and winding up of the partnership business. The term simply refers to a withdrawal. When a partner dissociates from a partnership, the partner withdraws or "bows out" of the partnership. 4.1.1 Events of Dissociation A partner becomes dissociated from the partnership by: (1) oral or written notice of the partner's express will to withdraw; (2) happening of an agreed event; (3) valid expulsion of the partner; (4) the partner's bankruptcy or the appointment of a receiver for a partner; (5) the partner's death or incapacity to perform partnership duties; (6) the decision of a court that the partner is incapable of performing a partner's duties; or (7) termination of a business entity that is a partner. CMR Exam Tip Unlike the other events of dissociation, notice of a partner's express will to withdraw from a partnership at will automatically triggers dissolution of the partnership. If an essay question sets up a situation where a partner notifies his co-partners of his express will to withdraw from the partnership at will, you should discuss both dissociation and dissolution. 4.1.2 Wrongful Dissociation A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in the partnership agreement. A dissociation is also wrongful in a term partnership if the partner withdraws, is expelled, or becomes bankrupt before the end of the term. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 24 a. At-Will Partnership An "at-will partnership" is one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. It is the default form of partnership. (Most partnerships are atwill.) b. Term Partnership A "term partnership" is the converse—it is a partnership where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking.3 Consequences of Dissociation a. For Partnership When a partner dissociates from a partnership, one of two statutory avenues is implicated: • The first avenue provides that the partnership is dissolved and that its business must be wound up. This means that the partnership business will be liquidated (that is, "sold off"). • The second avenue provides that the partnership continues in existence with the dissociated partner becoming entitled to a buyout of their partnership interest. The nature of the event of dissociation dictates which of these avenues will be implicated. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 25 b. For Partner Upon a partner's dissociation, their right to participate in management ceases. The partnership must purchase (buy out) their interest at either liquidation or going-concern value, and must indemnify them against known pre-dissociation liabilities, as well as against post-dissociation liabilities not incurred by the dissociating partner's acts. However, a partner who wrongfully dissociates before the expiration of a partnership term or completion of a particular undertaking is not entitled to payment of the buyout price until the term expires or the undertaking is completed, unless they can establish that earlier payment will not cause undue hardship to the partnership business. Interest must be paid on the buyout price from the date of dissociation to the date of payment. 4.1.4 Dissolution Dissolution and winding up are required only in limited circumstances (for example, event in agreement requiring winding up, business becomes illegal, issuance of a judicial decree, unanimous consent of the partners in a term partnership, expiration of a term partnership). Two circumstances are of particular importance: a. In general, when a partner dissociates by express will in an at-will partnership, the partnership is dissolved and its business must be wound up. b. In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner's death or bankruptcy, dissolution and winding up of the partnership are required only if, within 90 days after the dissociation, at least one-half of the remaining partners agree to wind up the partnership. 4.1.5 Buyout and Continuation of the Business If a partner's dissociation does not result in a dissolution and winding up, the partner is entitled to receive a buyout of his partnership interest. The remaining partners may continue the business. If the dissociation is wrongful, any damages will be offset against the buyout price. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 26 4.1.6 Liability of Dissociated Partner a. Pre-Dissociation Generally, a dissociated partner remains liable for pre-dissociation partnership obligations (a creditor can agree to release the withdrawing partner, however, from specific obligations). b. Post-Dissociation A dissociated partner can be liable for post-dissociation partnership liabilities incurred within two years after the dissociation (assuming that dissolution has not occurred) if (1) when entering the transaction the other party reasonably believed the dissociated partner was still a partner, and (2) did not have notice of the partner's dissociation. Note that a dissociated partner can protect themselves (meaning, cut short this period of liability) by notifying creditors directly of their dissociation (effective immediately) or by filing a public notice of dissociation (becomes effective 90 days after filing). The partnership can make the filing as well. 4.1.7 Dissociated Partner's Power to Bind Partnership (Apparent Authority of Dissociated Partner) A partnership can be bound by an act of a dissociated partner undertaken within two years after dissociation (assuming that dissolution has not occurred) if: (1) the act would have bound the partnership before dissociation, and (2) the other party to the transaction (a) reasonably believed the dissociated partner was still a partner and (b) did not have notice of the dissociation. The partnership can protect itself by notifying creditors directly of the dissociation (effective immediately) or by filing a public statement of dissociation (becomes effective 90 days after filing).

What liability of principal for agents torts?

4.2.1 Employer-Employee Relationship A principal's liability for torts committed by their agent is not determined in the same manner as determining the principal's liability for a contract. A principal can be liable for the torts of an agent under the doctrine of respondeat superior ("let the master answer"). Under the doctrine, an employer (formerly called a master) is liable for the torts of an employee (formerly called a servant) committed within the scope of the employment. A principal generally is not liable for torts committed by an independent contractor. So the first step in determining a principal's tort liability is to determine whether there an employer-employee relationship between the tortfeasor and the principal. a. Independent Contractor or Employee? The difference between an employee and an independent contractor is that the principal/employer retains the right to control the manner in which an employee performs their work. A principal does not reserve/have a right to control AGENCY NOTES 25 the manner in which work is performed by an independent contractor. In other words, if the principal has the right to tell the agent how to achieve the results the principal desires, the agent is an employee; if the principal does not have the right to tell the agent how to achieve the results sought, the agent probably is an independent contractor.Right to Control-Factors to Consider If it is not clear whether the principal has the right to control the method and manner of the work, consider: — The degree of skill required on the job (where great skill is required, more likely to be independent contractor) — Whose tools and facilities are used (if the principal supplies the tools and facilities used to perform the job, more likely to be employee) — The period of employment (definite and/or short, more likely to be independent contractor; indefinite and/or long, more likely to be employee) — The basis of compensation (if on time basis, more likely employee; if on job basis, more likely independent contractor) AGENCY NOTES 27 — The business purpose (if person hired to perform an act in furtherance of principal's business, more likely employee; if nonbusiness purpose, such as mowing a lawn, more likely independent contractor) — Whether the person has a distinct business (person who has their own business or occupation is more likely to be an independent contractor) — The characterization and understanding of the parties — The customs of the locality regarding supervision of work

WHat is apparent authority in terms of respondeat superior?

4.3 APPARENT AUTHORITY If respondeat superior does not apply, the principal may still be vicariously liable in certain circumstances if the agent acted with apparent authority. (See 3.1.3, supra, for discussion of apparent authority.) CMR Exam Tip This theory of liability is not commonly tested on the bar exam; most vicarious tort liability questions will focus on whether a principal is liable under respondeat superior. Still, it is wise to consider apparent authority as an alternate theory if respondeat superior does not apply. 4.3.1 Requirements A principal is vicariously liable where an agent appears to deal or communicate on behalf of the principal and the agent's apparent authority enables the agent to (1) commit AGENCY NOTES 32 a tort or (2) conceal its commission. This means that for the principal to be liable, there must be a close link between the agent's tortious conduct and the agent's apparent authority.

What contract and tort liability for principal to agent?

5.1 CONTRACT LIABILITY Is a principal liable to a third party on a contract entered into by an agent? a. Did the agent have actual or apparent authority at the time of the contract, or did the principal ratify the contract later? b. If so, the principal is liable on the contract (but usually, the agent is not). 5.2 TORT LIABILITY Is an employer liable for a tort committed by an employee? a. Was the tort committed by an employee in the scope of employment? b. If so, the employer (master) and employee (servant) are jointly and severally liable to the third party

What rules for LP?

5.1 LIMITED PARTNERSHIPS A limited partnership ("LP") is a partnership with at least one general partner and at least one limited partner. Because it's a partnership, general partnership principles typically apply unless displaced by LP-specific provisions. The general partner(s) is personally liable for partnership obligations, while the limited partner(s) generally does not have any liability beyond the liability to make agreed-upon contributions. A limited partnership differs from a general partnership in that a limited partnership can be created only by filing a certificate of formation with the state. Like a modern partnership, a limited partnership is an entity distinct from its partners and has a perpetual duration unless otherwise provided. 5.1.1 Formation a. Certificate of Limited Partnership A certificate of limited partnership must be filed with the secretary of state. The certificate must be signed by all general partners. The information required in the certificate is minimal. It includes, among other items: (1) the name of the partnership, (2) the names and addresses of the agent for service of process, and (3) the names and addresses of each general partner. It should also include whether the limited partnership is a limited liability limited partnership, which we'll talk about in a bit. (If you fail to file this, remember, you're just a general partnership.) b. Records Office A limited partnership must maintain in its state of organization an office with records of the certificate, any partnership agreements, and the partnership's tax returns for the three most recent years. The partnership agreement or some other record must contain the amount and description of each PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 32 partner's contribution, special rights of partners regarding distributions, etc. c. Agent for Service of Process A limited partnership must maintain in the state an agent for the service of process. CMR Exam Tip It is important to remember that a limited partnership is a creature of statute and thus can exist only on compliance with the limited partnership statute. Watch out for exam questions that set up facts where one partner wants limited liability and the other partner tells him that he can be a limited partner, but there is no filing with the secretary of state. Because there is no statutory compliance, a limited partnership is not created and all partners are subject to full liability. d. Name The limited partnership name must contain the phrase "limited partnership" or the abbreviation "L.P." (unless the limited partnership is a limited liability limited partnership, in which case that must be reflected in the name (for example, "L.L.L.P.")) The policy here is to alert the public to the limited liability nature of the business. The name may contain the name of any partner (general or limited). 5.1.2 Partnership Agreement The real detail on the operation and governance of a LP is typically found in a partnership agreement. It can be written, oral, or implied. As in a general partnership, the agreement can displace almost all of the statutory provisions. 5.1.3 Management and Operation a. General Partners The LP is managed by the general partner(s). Each general partner has equal rights in the management and conduct of the LP's activities. Generally, any matter relating to the limited partnership's ordinary business activities may be exclusively decided by the general partner or, if there is more than one general partner, by a majority of the general partners. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 33 b. Limited Partners Limited partners usually have no management rights unless the partnership agreement grants them rights. Participation in management does not cause a limited partner to become personally liable for an obligation of the limited partnership (under older law, it did). That said, unless otherwise agreed, the vote of all partners (general and limited) is necessary for certain extraordinary activities, including to: (1) amend the partnership agreement; (2) convert the partnership to a limited liability limited partnership; (3) dispose of all or substantially all of the limited partnership's property outside the usual and regular course of the partnership's activities; (4) admit a new partner; or (5) compromise a partner's obligation to make a contribution or to return an improper distribution. 5.1.4 Financial Rights The Uniform Limited Partnership Act's (U.L.P.A.'s) provisions for distributions are very similar to the distribution provisions for corporations. Unless otherwise agreed, distributions from an LP are made on the basis of the partners' contributions (that is, in proportion to the value of each partners' contribution) rather than the R.U.P.A's default equal split for general partnerships. Also, like a corporation, a limited partnership may not make a distribution if after making the distribution the limited partnership would be unable to pay its debts as they become due or the limited partnership's total assets would be less than the sum of its total liabilities, including sums needed to satisfy superior preferential rights upon dissolution. a. Right to Distributions A partner has no rights to distributions unless the partner makes a contribution to the partnership. A contribution may be in the form of any benefit to the partnership (for example, money, property, services, and promises to make such contributions). A partner's contribution obligation is not excused by death or other disability and may be compromised only on the consent of all partners. Note: If a partner fails to make an agreed-upon nonmonetary contribution (for example, the partner fails to provide promised property or services), the limited partnership has the option of seeking cash in lieu of the agreed-upon contribution. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 34 b. Liability for Improper Distributions A general partner who consents to an improper distribution is personally liable to the limited partnership for the amount that the distribution exceeds what could properly have been distributed. Any partner who receives an improper distribution knowing that it is improper may be forced to return the improper amount to the partnership. However, no personal liability for an improper distribution arises if the distribution appeared to have been proper based on reasonably prepared financial statements. c. Right to Assign Partnership Interest As in a general partnership, a partner's right to distributions is personal property that may be transferred, in whole or in part. Such a transfer gives the transferee only the right to receive the transferred distributions and to demand an accounting thereon. The transfer does not make the transferee a partner or give the transferee any rights as a partner. Moreover, the transferring partner remains a partner, and the transfer does not constitute a dissociation or cause a dissolution. However, transfer of a partner's entire transferable interest in the partnership is a ground for expulsion. 5.1.5 Liability a. General Partners General partners are jointly and severally liable for all obligations of the LP, just as they are in a general partnership. Note: A general partner may also be a limited partner and have the rights of a limited partner, but such a dual capacity does not relieve the general partner of his duties as a general partner. z Incoming Partners A person who becomes a general partner of an existing limited partnership is not personally liable for an obligation that the limited partnership incurred before he became a general partner. z Limited Liability Limited Partnership As will be discussed in a bit, if the LP is a limited liability limited partnership, the general partners are not liable PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 35 for liabilities incurred by the individual partners; liability belongs to the partnership alone. b. Limited Partners A limited partner is not personally liable for an obligation of the LP solely by reason of being a limited partner. Limited partners have limited liability, meaning that they can only lose the value of their investments. Note that earlier limited partnership acts made limited partners personally liable if their names were used in the partnership name or they participated in the management or control of the partnership. The U.L.P.A. no longer includes such provisions. HYPO Chef Tom forms a LP to run a bistro. Padma invests $50,000 as a limited partner. The bistro flops; all of its assets, including Padma's $50,000, are gone. Is Padma liable for the LP's debts? Note: A limited partner (as well as a general partner) is always liable for her own torts. The limited liability shield of any business organization does not protect a person from liability for her own torts

What fiduciary duties of LP?

5.1.6 Fiduciary Duties a. General Partner A general partner owes the LP and the other partners the same fiduciary duties of loyalty and care that general partners owe in a general partnership. However, a general partner does not automatically violate the duty of loyalty merely because the general partner's conduct furthers his own interests. b. Limited Partner Generally, a limited partner owes no fiduciary duty to the partnership or any other partner solely by reason of being a limited partner. Thus, they're free to compete with the partnership and have interests adverse to those of the partnership, unless the partnership agreement provides otherwise.

What rules for dissolution and dissocoation of partnership?

5.1.7 Additional Rights of Partners a. Right to Transact Business with the Partnership Any partner may lend money to and transact other business with the limited partnership. b. Right to Dissolve Any partner may apply for a decree of dissolution of the limited partnership whenever it is not reasonably practicable to carry on the business in conformity with the partnership agreement. c. Direct Action Against Limited Partnership by Partner A partner may maintain a direct action against the limited PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 37 partnership or another partner for legal or equitable relief to enforce her rights and interests. d. Derivative Action A partner may maintain a derivative action to enforce a right of a limited partnership if: the partner first makes a demand on the general partners to bring an action to enforce the right and the general partners do not bring the action within a reasonable time; or a demand would be futile. A derivative action may be maintained only by a person who is a partner at the time the action is commenced and: (1) who was a partner when the conduct giving rise to the action occurred; or (2) whose status as a partner devolved upon him by operation of law or pursuant to the terms of the partnership agreement from a person who was a partner at the time of the conduct. e. Right to Information A general partner's right to information is similar to that of a partner in a general partnership. Each limited partner has the right to inspect and copy any partnership records required to be maintained (see 1.2.5, supra). f. Indemnification of General Partners Unless otherwise provided, a general partner is not entitled to remuneration for services performed for the partnership. However, the limited partnership must indemnify a general partner for liabilities that they incur in the ordinary course of the activities of the partnership. 5.1.8 Admission of Additional General and Limited Partners A person may be admitted to the limited partnership as a general or limited partner as provided in the partnership agreement, as a result of a merger or conversion, or on the consent of all partners. 5.1.9 Conversion and Merger A limited partnership may convert to or merge with another form of business entity upon the consent of all partners and filing of a certificate (of conversion or merger) with the secretary of state. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 38 5.1.10 Dissociation The events that will cause dissociation of a partner in a general partnership (see 4.1.1, supra) will also cause dissociation of a partner (general or limited) in a limited partnership. Note that a limited partner has no right to dissociate before termination of the limited partnership. A general partner's right to dissociate is similar to the right of a partner to dissociate in a general partnership. a. Effect on Limited Partner After dissociation, a limited partner is treated as a transferee of the limited partner's transferable interest. b. Effect on General Partner The effects of dissociation of a general partner in a limited partnership are similar to the effects of dissociation of a partner in a general partnership, discussed at 4.1.3, supra. 5.1.11 Dissolution and Distribution a. Dissolution in General A limited partnership may be judicially dissolved upon application of a partner if it is no longer reasonably practicable to carry on the limited partnership in conformity with the limited partnership agreement. A limited partnership may also be administratively dissolved by the secretary of state for failure to pay fees or file an annual report, but the partnership may apply for reinstatement by curing the defect within two years of the dissolution. Otherwise, a limited partnership may be dissolved only upon the occurrence of one of the following: • The happening of an event specified in the partnership agreement • The consent of all general partners and limited partners holding a majority of the right to receive distributions ("majority in interest") • After dissociation of a general partner, upon consent of partners owning a majority in interest if another general partner remains; if no general PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 39 partner remains, after 90 days unless the partners admit a new general partner • Ninety days after dissociation of the last limited partner, unless a new limited partner is admitted within the 90 days b. Winding Up A limited partnership continues after dissolution only for the purpose of winding up its activities. In winding up, the partnership must discharge liabilities, settle and close partnership activities, and marshal and distribute its assets. c. Power to Bind Partnership After Dissolution After dissolution, a partnership will be bound by any acts of a general partner that are appropriate for winding up the partnership. The partnership can also be bound by acts of a general partner that are not appropriate for winding up if the acts would have bound the partnership before dissolution and the party with whom the general partner dealt did not have notice of the dissolution. d. Distribution of Assets upon Winding Up Upon winding up a limited partnership, the assets are distributed in the following order: (1) First, to creditors (including partners who made loans to the limited partnership) (2) Second, any surplus must be paid in cash as a distribution z Distribution Where Assets Are Insufficient to Satisfy Debts If limited partnership assets are insufficient to satisfy all obligations to creditors, each person who was a general partner when the obligation was incurred must contribute to the partnership to satisfy the obligation. The contribution due is in proportion to the right to receive distributions in effect when the obligation was incurred. If a person does not contribute the full amount required, the other persons required to contribute must pay the additional amount necessary to discharge the PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 40 obligation, in proportion to the right to receive distributions in effect when the obligation was incurred. A person who pays an additional contribution may recover from any person whose failure to contribute necessitated the additional contribution, but may not recover more than the amount additionally contributed.

What defenses to divroce?

5.3.1 No-Fault Divorce The only defense to a no-fault divorce is to deny the existence of one of the above grounds. One spouse may claim that a reconciliation restarted the clock for living separate and apart. 5.3.2 Fault-Based Divorce Defenses to fault-based divorce are rarely used, but still exist: a. Collusion Collusion is an agreement between the spouses to simulate grounds for divorce or to forgo raising a valid defense. In some jurisdictions, collusion will prevent the granting of a divorce. b. Connivance Connivance is willing consent to the other spouse's misconduct. This is usually limited to adultery cases, and it has been abolished in many states. c. Condonation Condonation is the forgiveness of marital offenses with full knowledge of the wrongs. Resumption of marital relations after the forgiveness is the key element of this defense. d. Recrimination Recrimination is a defense that arises when the party seeking the divorce is also guilty of misconduct for which a divorce may be granted. This defense is rarely used.

What general principles for property division in marraige?

6.1.1 Approaches to Property Division The three approaches to division of property upon divorce are: • Community property: All property acquired during the marriage is deemed owned one-half by each spouse, and all property brought into the marriage or acquired by gift or bequest is separate property • Equitable division of all property: The court divides all property owned by either spouse, whether acquired before or after the marriage • Equitable division of marital property: Each spouse takes their separate property, and the court only divides the property acquired during the marriage The third approach is the most common and is addressed in this module. 6.1.2 Two-Step Process Typically, there is a two-step process in property division: • Classification: Determine what is marital property and what is separate property • Division: Make an equitable division of the marital estate no matter how the property is titled Note: Equitable division does not necessarily mean equal. Property distribution decrees are not modifiable. 6.2 SEPARATE PROPERTY Generally, in a divorce, each spouse takes their separate property. Separate property includes: • Property owned before marriage FAMILY LAW NOTES 19 • Property acquired by gift or inheritance • Property acquired in exchange for separate property • Income and appreciation of separate property (but see Improvement of Separate Property, at 6.4.2, infra) • Pain and suffering awards • Personal damages (for example, future medical expenses or future lost wages) • Property acquired after an order of legal separation that includes a final disposition of property

Classification of testamentary gifts?

6.1.1 Classification Based on Type of Property A devise is a gift of real property, and the recipient of a devise is a devisee. A bequest is a gift of personal property. A legacy is a gift of personal property in a will, usually of money, and the recipient is called a legatee. Note that many courts, statutes, and attorneys use these terms interchangeably and imprecisely. 6.1.2 Specific Devise or Legacy A specific devise or legacy is a gift of a particular item of property distinct from all other objects in the testator's estate. EXAMPLE "I leave my Sony computer Model VGN-FZ250E with a serial number of 458779027578 to Walter Bishop." A specific bequest of a general nature is not distinguishable from the rest of the testator's estate until the testator dies. EXAMPLE "I leave my computer to Walter Bishop." 6.1.3 General Legacy A general legacy is a gift of a general economic benefit (often a dollar amount) payable out of the general assets of the estate without requiring any particular source of payment. Note that a gift of "100 shares of XYZ stock" or "100 acres of property in Smith County" can also be general legacies if the WILLS NOTES 31 testator never owned those items and intended the executor to purchase them for the beneficiary. EXAMPLE "I leave $10,000 to Walter Bishop." 6.1.4 Demonstrative Legacy A demonstrative legacy is a gift of a general amount that is to be paid from a particular source or fund. A demonstrative legacy is a hybrid—it is treated as a specific legacy to the extent the source of payment is available and a general legacy to the extent of any shortfall of that source of payment. If the designated fund is insufficient, the balance will usually be paid from other assets of the estate. EXAMPLE "I leave $10,000 to Walter Bishop from my account at Superior State Bank." 6.1.5 Residuary Estate The residuary estate, and hence a gift of the residue, consists of the balance of the testator's property after paying (1) debts, expenses, and taxes; and (2) specific, general, and demonstrative gifts. Some testators use the residuary for the "forgotten" items that were not dealt with earlier in the will. On the other hand, some testators use the residuary gift as the main disposition of their property

RIghts to information in LLC?

6.11 RIGHTS TO INFORMATION 6.11.1 Member-Managed LLC In a member-managed LLC, a member has a right to inspect and copy any record concerning the LLC's activities, financial condition, and so on, material to the member's rights and duties. An LLC and its members must automatically furnish such information that they know is material to the exercise of a member's rights and duties, unless they reasonably believe the member already knows the information. The LLC and its members must furnish other information on a member's demand unless the demand is unreasonable or improper. 6.11.2 Manager-Managed LLC In a manager-managed LLC, the managers have the same right to information and duty to furnish information as is discussed in 1., above. The members have a right to inspect and copy any record regarding the LLC's activities, financial condition, and so on, as is just and reasonable if: (1) the member seeks the information for a purpose material to the member's interest as a member; (2) the member makes a demand to the LLC describing with reasonable particularity the information sought and the purpose for seeking the information; and (3) the information sought is directly connected to the member's purpose. 6.12 MEMBERS' ACTIONS AGAINST THE LLC A member who has been injured personally by his LLC can bring a direct action against the LLC to recover. A member may also bring a derivative action on behalf of the LLC if they make a demand on the other members (or managers), unless demand would be futile. For example, demand would be futile if a majority of the members/managers were involved in the alleged wrong. A derivative action may be maintained only by a person who is a member at the time the action is commenced and who remains a member while the action continues. 6.13 INDEMNIFICATION Members of a member-managed LLC and managers of a manager-managed LLC have a right to be indemnified for PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 50 debts, obligations, and other liabilities incurred in the course of their activities on behalf of the company, provided that they complied with the duties of loyalty and care, and they also have a right to be reimbursed for expenses they incur on the company's behalf. 6.14 CHARGE OF TRANSFERABLE INTEREST (ATTACHMENT) A judgment creditor of a member or transferee of a member may charge (attach) the transferable interest of the judgment debtor to satisfy the judgment. 6.15 CONCLUDING NOTE LLPs and LLCs are generally the best vehicles for closely held businesses. They protect all of the owners from liability for the obligations of the business; they allow the owners to contract around almost all of the statutory provisions (so that the business can be run as the owners desire); they allow all of the owners to participate in the management of the business; and they provide pass-through income tax treatment.

What increases to property after execution of will? (accessions)

6.4.1 Specific Gifts Appreciation and depreciation of specifically gifted property between will execution and death is normally irrelevant.6.4.2 Increases Occurring Before Testator's Death Income on property goes into the general estate, but improvements to real property go to the specific devisee. 6.4.3 Increases Occurring After Testator's Death Any increase to specific gifts occurring after the testator's death passes to the specific beneficiary because the beneficiary is deemed to own the property from the time of the testator's death. 6.4.4 Securities Acquired After Will Execution a. Stock Splits and Stock Dividends At common law, a specific bequest of stock includes any additional shares produced by a stock split but does not include shares produced by a stock dividend. Today, the UPC and nearly all states also include stock dividends. The beneficiary will also take an increase in securities caused by a merger or corporate reorganization. b. Newly Purchased Securities The beneficiary does not take new securities that have been purchased or acquired by the reinvestment of dividends.

how to determine equitable division of property?

6.5 EQUITABLE DIVISION Once the court identifies and values the marital property, the court will make an equitable-not necessarily equal-division. Remember, the trial court is given a great deal of discretion, and the court's division of the property is not subject to modification once the divorce is final. The factors considered in dividing the property usually include: FAMILY LAW NOTES 22 • The age, education, background, and earning capabilities of both parties • The duration of the marriage, and whether there were any prior marriages • The standard of living during the marriage • The present incomes of both parties, their vocational skills, and employability • The source of the money used to purchase the property • The health of the parties • The assets, debts, and liabilities of the parties • The needs of the parties • The child custody provisions • Whether the distribution is in addition to, or in lieu of, alimony • Each party's opportunity to acquire future income and assets • Each party's contribution to the acquisition or enhancement of the existing marital assets • Each party's contribution as a homemaker to the family unit • Economic fault (that is, whether either party has dissipated marital property) Note: Marital fault is generally not a consideration (but it can be in some states). Courts can divide the property in kind (that is, actually dividing the assets) or by contribution (that is, awarding assets to one spouse and money to the other).

What genereal principles for alimony?

7.1 GENERAL PRINCIPLES Alimony (also known as spousal support or maintenance) is paid to an economically dependent spouse. It may be awarded while the parties are still married, during the divorce proceeding, or as part of the divorce decree. Some states consider marital fault in awarding spousal support, but other states do not. The trial court is vested with great discretion in awarding alimony. 7.2 TYPES OF ALIMONY There are four types of alimony, and courts can award more than one type in a single award: 7.2.1 Permanent Periodic Spousal Support Permanent periodic spousal support is paid regularly (for example, monthly) to support a spouse who has neither the resources nor the ability to be self-sustaining. • Example: Periodic alimony of $2,000 per month to one former spouse until death or remarriage. • Duration: Indefinite. • Modification: Can be increased, decreased, or terminated upon proof of substantial change of circumstances. 7.2.2 Lump Sum A lump sum payment is a fixed amount payable either all at once or via a series of payments. This is often the present value of permanent periodic support. • Example: The sum of $36,000 paid at a rate of $1,000 per month for 36 months. • Duration: For specified time period; can be payable in installments or in a lump sum. • Modification: None. This is treated like a contract right and is binding on payor's estate. FAMILY LAW NOTES 24 7.2.3 Rehabilitative Spousal Support Rehabilitative spousal support consists of periodic payments for a limited time to enable a spouse to gain skills to become self-supporting. It can be ordered along with permanent periodic or lump sum alimony. • Example: Rehabilitative alimony to one former spouse of $1,000 per month for 36 months to gain education or skills. • Duration: For specified time period, unless modified by court. • Modification: Can be increased, decreased, or terminated upon proof of substantial change of circumstances. 7.2.4 Reimbursement Spousal Support Reimbursement spousal support is occasionally awarded to a spouse who supported the other spouse while the latter obtained a professional license or degree. It can be ordered along with permanent periodic or lump sum alimony. • Example: The sum of $20,000 as repayment for the supporting spouse's contribution to the increased education provided to the other spouse. • Duration: For specified period of time; can be payable in installments or in a lump sum. • Modification: None. It is treated as a contract right and can be awarded even if the supporting spouse is not otherwise eligible for spousal support. • Note: This is a fixed sum award based on the amount of the supporting spouse's contribution, not the value of the professional license or degree. CMR Exam Tip Permanent periodic and rehabilitative spousal support awards are prospectively modifiable upon a substantial change of circumstances, including death or remarriage. Lump sum payments and reimbursement spousal support are nonmodifiable. FAMILY LAW NOTES 25 CMR Exam Tip On your exam, to determine the type of support, look carefully at the language used in the facts. Lump sum support is specified as a total amount (for example, "$30,000" or "$30,000, payable in $500 monthly installments"). Periodic or rehabilitative support is set out in periodic payments with no grand total (for example, "$500 per month" or even "$500 per month for 60 months")

What is incorporation by reference in wills?

7.3.1 Basic Idea Instead of writing something in the will, a testator may incorporate an extraneous document into the will by reference. 7.3.2 Effect The effect of incorporation by reference is that the incorporated material is treated as if it were actually written out in full in the will. It does not matter that the document, for example, lacked witnesses, is not signed, or was written under the influence. 7.3.3 Requirements A document may be incorporated by reference into a will, provided: • The will manifests an intent to incorporate the document • The document is in existence at the time the will is executed; and • The document is sufficiently described in the will The language of the will must refer to the extrinsic document in such a way that it may be reasonably identified, and the document must correspond to the description in the will.

Separare writing disposing of tangible personal property?

7.3.4 Separate Writing Disposing of Tangible Personal Property Many states and the UPC have carved out an exception to the requirement that the document exist at execution. These states permit a testator to refer in their will to a list specifying the distribution of items of tangible personal property and to write or alter that list after executing the will.

What are marital contracts and contracts between cohabitants?

8.1 MARITAL AGREEMENTS A marital agreement is an agreement between spouses who intend to remain married. A marital agreement usually alters or confirms marital rights or obligations during the marriage or at separation, dissolution, or death. Most often, these agreements concern property rights. Most states treat premarital and marital agreements under the same set of principles and requirements (see 1.3., supra). 8.2 SEPARATION AGREEMENTS A separation agreement is an agreement entered into after marriage under which the parties agree to live apart and resolve economic issues (that is, spousal support, property division, and child support) and custody rights. To be enforceable, the agreement must be voluntary, there must have been a full and fair disclosure by both parties, and there must be consideration. Consideration for the agreement is found in the mutual promises of the parties. In a separation agreement, parties can waive alimony or property division and parties can agree on custody and child support, but the court is not bound by the parties' contract concerning children. Child custody and support provisions will be enforced by the court only if they are in the child's best interest. 8.2.1 Modification If the divorce decree states that the separation agreement is merged into the decree, or if the specific provisions of the agreement are repeated in the decree, the whole agreement assumes the status of a court judgment, is enforceable as such (that is, subject to contempt), and can be modified by the court. FAMILY LAW NOTES 29 If the agreement is not merged in this way, it retains its separate character as a contract and is enforceable as such. Child support and custody provisions can always be modified if it is in the best interest of the child. 8.3 CONTRACTS BETWEEN UNMARRIED COHABITANTS Express contracts between unmarried cohabitants regarding earnings and property rights are generally valid and will be enforced. These contracts are unenforceable if sex is the only consideration. Some courts have used implied contracts to award property between unmarried cohabitants, including former spouses who divorced and then resumed living together.

What rules for homestead, family allowance, and exempt personal property?

9.3.1 Homestead Most states have statutes that protect the family residence or farm from creditors' claims by exempting a certain amount of land. These statutes often provide that the decedent's spouse or dependent children are entitled to occupy the homestead for as long as they choose despite the disposition of the residence in the decedent's will. 9.3.2 Family Allowance The purpose of the family allowance is to provide support during probate administration, and usually takes precedence over all claims other than funeral and administration expenses. It is in addition to the amount passing by will, intestacy, or elective share. Some states limit the allowance to a specific dollar amount (for example, $15,000), while others authorize payment of an amount needed to maintain the spouse and children for one year or a "reasonable amount." 9.3.3 Exempt Personal Property A surviving spouse (or if none, minor children) is usually entitled to petition to set aside certain items of tangible personal property (for example, household furnishings, personal effects, farm equipment, and, sometimes, automobiles) as exempt from claims against the estate except for perfected security interests on the items themselves. These items are in addition to the amounts passing by will, intestacy, or elective share.

Revocation by operation of law?

8.2 REVOCATION BY OPERATION OF LAW 8.2.1 Marriage Following Execution of Will In most states, marriage following execution of a will has no effect on the earlier will. In some states and under the UPC, however, the new spouse takes an intestate share as an "omitted spouse" unless: • The will makes provision for the new spouse • The omission was intentional, or • The will was made in contemplation of the marriage 8.2.2 Divorce or Annulment Revokes Provisions in Favor of Former Spouse In most states, divorce or annulment following execution of a will revokes all gifts and fiduciary appointments in favor of the former spouse. The will remains valid and is read as if the ex-spouse predeceased the testator. The UPC and some non-UPC states extend the application of the rule to provisions in favor of the former spouse's relatives who are not relatives of the testator. The divorce must be final. If the parties remarry, the revocation does not occur. CMR Exam Tip Remember that all provisions in favor of a former spouse are revoked, even appointments as executor, guardian, or trustee. WILLS NOTES 52 8.2.3 Pretermitted Children Most states have pretermitted child statutes. The purpose is to provide a share for a left out child on the assumption that the testator would have made provision for the child had the testator thought about it. Under these statutes, if the testator fails to provide in their will for any child born or adopted after the execution of the will, the child takes a share computed using statutorily provided formulas. In many states, if the entire estate is left to the pretermitted child's other parent, the child will not receive a forced share. In making up the child's share, the general rules of abatement apply. Thus, the share usually comes out of the residue, revoking the will to that extent.

What specifics for revocation by written instrument?

8.4.1 Express Revocation The subsequent instrument may expressly revoke the earlier will. EXAMPLE Testatrix's will contains a provision stating, "I hereby revoke all prior wills and codicils." This revokes all prior testamentary instruments. COMPARE Testatrix's will states, "This is my last will." This does not revoke all prior testamentary instruments. 8.4.2 Revocation by Inconsistency If the new instrument completely disposes of the testator's property, the old will is completely revoked by inconsistency. If the new instrument partially disposes of the testator's property, the old will is revoked only to the extent of the inconsistent provisions.8.5 PRESUMPTIONS AS TO REVOCATION 8.5.1 Presumption of No Revocation If a will is found in a "normal location" and there are no suspicious circumstances, there is a presumption that the testator did not revoke it. Examples of normal locations include the WILLS NOTES 55 possession of a person to whom the testator delivered the will or among the testator's valuable papers in the place the testator usually kept valuable papers like a safe deposit box or filing cabinet. 8.5.2 Presumption of Revocation If a will last seen in the testator's possession or under their control cannot be found after their death or is found in a mutilated condition, a rebuttable presumption arises that the testator revoked it. However, if the will was last seen in the possession of a third person or if a person adversely affected by its contents had access to the will, no presumption of revocation arises. Note that extrinsic evidence is admissible to overcome the presumption of revocation.

What general rules for child support?

9.1 GENERALLY Both parents share equally a duty to support their children. In general, parents must pay for their children based on their ability to pay and the needs of the child. 9.1.1 Child Support Guidelines The amount of the award of support to the custodial parent is usually arrived at by reference to child support guidelines, which contain charts that consider the number of children and the parents' incomes. Courts can deviate from the guidelines. including to include health insurance for the children and to cover extraordinary medical expenses.9.1.2 Support and Visitation The child support obligation is independent of the noncustodial parent's visitation rights. Visitation cannot be withheld because of failure to pay child support. a. Support of Parent In some states, children have a duty to support their elderly parents. 9.2 DURATION OF CHILD SUPPORT The duty to support a child ceases upon: • The child reaching the age of majority (usually 18) • Death of child FAMILY LAW NOTES 31 • Emancipation of child Emancipation is the removal of the disabilities of minority. After emancipation, the child is considered an adult. Most states consider married minors to be emancipated. • Termination of parental rights Child support may be indefinite for a severely disabled child. Some courts require child support payments up to a certain level of education (for example, until the child graduates high school even if the child is over 18). Courts will enforce agreements to pay for college, but will not extend child support into college, and some have held that statutes requiring a parent to pay for college are unconstitutional.

What rules for protection of children accidentally omitted from will?

9.2.1 Potential to Receive a Forced Share Most states provide a forced share for a child who was born or adopted after the will was executed. Only a few states provide a forced share for a child born or adopted before the will execution. a. Failure to Provide for Child Believed to Be Dead In many states and under the UPC, if a testator fails to provide in their will for a living child solely because the testator mistakenly believed the child to be dead, the child shares in the estate as though they were an omitted afterborn or after-adopted child. 9.2.2 Determination of Forced Share Jurisdictions vary as to how they determine the share of a pretermitted child. In many states, the pretermitted child takes an intestate share of the decedent's estate. a. Omitted Child May Be Limited to Bequests to Other Children Under the UPC and by statute in several non-UPC states, if the testator had other children at the time the will was WILLS NOTES 63 executed and the will makes a provision for one or more of the children, the portion of the estate to which the pretermitted child is entitled is limited to the provisions made to the other children. The bequests to the other children are reduced, but no other beneficiary's bequest is reduced. The pretermitted child takes such share of the bequests to the other children as the child would have received had the testator included the child with the children upon whom benefits were conferred under the will, and had given an equal share of such benefits to each child. 9.2.3 Circumstances Usually Providing No Protection for Pretermitted Child Many states withhold a pretermitted child's forced share in the following circumstances: • The testator had other children at the time the will was executed and devised substantially all of their estate to the other parent of the omitted child • It appears from the will that the omission was intentional

What tax consequences of child support orders?

9.5 TAX CONSEQUENCES OF CHILD SUPPORT ORDERS Child support payments are not taxable events. 9.6 ENFORCEMENT OF AWARDS Child support awards (and alimony) may be enforced by holding the nonpaying party in contempt of court (usually civil contempt, but may be criminal if failure to pay is willful). FAMILY LAW NOTES 33 Other sanctions include interception of the noncomplying parent's tax refund, forfeiture of a range of licenses (for example, a driver's license, law license, or hunting license), seizure of real estate, attachment of wages, and an order to pay attorneys' fees.

What are acts or facts of independent significance?

An act or fact of independent significance is something outside of a will which has a purpose other than disposing of property at death. A will may dispose of property by reference to acts and events, even though they are in the future and unattested, if they have significance apart from their effect on dispositions made by the will. However, the law may require certain items represented by title documents to be transferred in a particular manner such as real property, stock certificates, and bank accounts. Acts of third persons, as well as those of the testator, can be used under this doctrine.

What is the anti-lapse statute?

A gift lapses if the beneficiary predeceases the testator or if the beneficiary is treated as not surviving the testator because, for example, the beneficiary disclaimed or did not survive long enough. 6.7.1 Distribution of Lapsed Gifts Who receives a lapsed gift is controlled by: • The express terms of the will • Rule of law (such as an anti-lapse statute) • Residuary clause • Intestacy 6.7.2 Anti-Lapse Statutes Nearly all states have anti-lapse statutes that operate to save the gift if the predeceasing beneficiary was in a specified degree of relationship to the testator (for example, descendant of the testator, the testator's parent, or the testator's grandparent) and left descendants who survived the testator. These descendants take by substitution. The statute applies unless a contrary provision appears in the will. CMR Exam Tip In most states, words of survivorship are considered a contrary will provision, and the anti-lapse statute will not be applied. Under the UPC, however, mere words of survivorship are not sufficient to negate application of the anti-lapse statute.6.7.3 Lapse in Residuary Gift If a will devises the residuary estate to two or more beneficiaries and one of them predeceases the testator (and the anti-lapse statute does not apply), some states follow the common law rule and do not allow the surviving residuary beneficiaries to divide the deceased beneficiary's share among them (unless the will specifies this). Instead, the deceased beneficiary's share passes by intestacy. Most states, however, have replaced this "no residue of a residue" rule with one allowing the surviving residuary beneficiaries to divide the share in proportion to their interests in the residue. (Note that if the anti-lapse statute's provisions are met, that statute takes precedence, and the deceased beneficiary's descendants take.) HYPO 6C Testator's will provides, "I leave the residuary of my estate to my friends, A, B, and C." A predeceases Testator. How is Testator's estate distributed? 6.7.4 Class Gifts If a will makes a gift to a class, only the class members who survive the testator take a share of the gift, unless the will WILLS NOTES 38 provides otherwise or the anti-lapse statute's requirements are met. 6.7.5 Beneficiary Dead When Will Executed If a will makes a gift to a beneficiary who was dead at the time the will was executed, the gift is void. In many states, the rules that apply to lapsed gifts also apply to void gifts.

What requirements for holographic will?

A holographic will is one that is entirely in the testator's handwriting and has no attesting witnesses. States vary with regard to how much material may be typewritten before the will no longer qualifies as holographic, but the UPC and most states that recognize holographic wills accept a will that contains some typewritten text as long as the portion not in the testator's handwriting is not material. A holographic will must contain the testator's signature, but it need not be at the end of the will. A nickname, first name, or even initials can constitute the testator's signature. Holographic wills and codicils are recognized by the UPC and a majority of the states. Most states that recognize holographic wills give effect to handwritten changes made by the testator after the will is completed. UPC doesnt recognize oral wills

What rules for LLC

A limited liability company ("LLC") is a hybrid business organization between a corporation and a partnership that (1) is taxed like a partnership (except for a single-member LLC), (2) offers its owners (called members) the limited liability of shareholders of a corporation, and (3) can be run like either a corporation or a partnership. This is not a corporation, nor is it a partnership. It is its own business form. An LLC is treated as a separate legal entity distinct from its owners (called "members"). There is no limit on the number of members as there would be in a Subchapter S corporation (a corporation that is taxed like a partnership under the tax code), and no one has to accept full personal liability for the organization's debts, as would be required in a limited partnership. Although LLCs are governed by statute, LLC members may adopt operating agreements to control most aspects of the LLC's business and management. Note that the Revised Uniform Limited Liability Company Act of 2006 ("R.U.L.L.C.A.") provides a default set of rules for LLCs. 6.2 FORMATION An LLC is formed by filing a certificate of organization (or, in some states, articles of organization) with the secretary of state. The LLC must have at least one member. 6.2.1 Contents of Certificate The information required in the certificate is minimal. It must include the following: a. The name of the LLC b. The address of the LLC's registered office AND c. The name and address of its registered agent PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 43 6.2.2 Name The LLC's name must include an indication that it is an LLC. In general, the name should contain the words "limited liability company" or the abbreviation "LLC" or "L.L.C." 6.3 MANAGEMENT AND OPERATION 6.3.1 Operating Agreement The real detail on the operation and governance of an LLC is typically found in an operating agreement. The operating agreement can displace almost all of the statutory provisions. a. May Alter Duties The operating agreement may alter duties owed by members (for more on these duties, see below). For example, the agreement may eliminate the duty of loyalty and alter the duty of care (except to authorize intentional misconduct or knowing violations of law) if doing so is not manifestly unreasonable. Similarly, the operating agreement may not eliminate the contractual obligation of good faith and fair dealing, but it may prescribe standards for measuring the performance of the obligation if doing so is not manifestly unreasonable. 6.3.2 Management and Operation Management of the LLC is presumed to be by all members. Other management arrangements can be made (for example, management by outside managers), but they must be specified in the operating agreement. Each member (or manager, if the LLC is manager-managed) has equal rights in the LLC's management. A majority vote of the members (or managers) is required to approve most (that is, ordinary business) decisions. Thus, consistent with general agency law principles, each member of a member-managed LLC has authority to bind the company to contracts apparently carrying on the ordinary business of the company, unless the member lacks actual authority to do so and the other party to the contract has notice that the member lacks such authority. In a manager-managed LLC, only the manager(s) has (have) such authority. A unanimous vote of members (or managers if manager-managed) is required to approve extraordinary PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 44 business decisions, including amending the operating agreement. 6.4 FINANCIAL RIGHTS Although the R.U.L.L.C.A. is silent on the allocation of profits and losses among members (for tax purposes), it does provide that if an LLC makes any distribution to its members, the distribution must be made to the members in equal shares unless the operating agreement provides otherwise. In most states, however, unless otherwise agreed, profits and losses and distributions are allocated on the basis of contributions. A member or transferee does not have a right to demand or receive a distribution from the LLC in any form other than money. 6.5 LIABILITY Members and managers generally are not personally liable for the LLC's obligations. They have limited liability and can lose only the amount of their investments. (As always, though, members are liable for their own torts.) However, courts may pierce the LLC veil of limited liability to reach the members' and managers' personal assets to satisfy LLC obligations under circumstances similar to those under which courts would pierce the veil of a corporation. Failure to observe corporate-type formalities (for example, having meetings, recording minutes, etc.) will not be a ground for piercing the LLC veil. 6.6 FIDUCIARY DUTIES The fiduciary duties owed by a member (if member-managed) or a manager (if manager-managed) to the LLC and to its other members are the fiduciary duties of care and loyalty. They must also discharge their duties and exercise any rights consistently with the contractual obligation of good faith and fair dealing. 6.6.1 Duty of Care Members (or managers if manager-managed) must act with the care that a person in a like position would exercise under similar circumstances, in a manner reasonably believed to PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 45 be in the best interests of the LLC. Business judgment rule protection is provided, which effectively means that, despite the prior sentence, members (or managers if manager-managed) cannot be held liable for negligent decisions (but can be held liable for decisions tainted by gross negligence or worse). 6.6.2 Duty of Loyalty Pursuant to the duty of loyalty, a member (or manager if manager-managed) must: (1) account to and hold for the LLC any benefit they derive from the LLC's activities or from the appropriation of an LLC opportunity; (2) refrain from dealing with the LLC as, or on behalf of, a person who has an adverse interest to the LLC (unless the transaction is fair to the LLC); and (3) refrain from competing with the LLC's business. However, after disclosure of all material facts, all of the members may authorize or ratify a specific act by a member (or manager if manager-managed) that would otherwise violate the duty of loyalty. 6.6.3 Member-Managed vs. Manager-Managed LLC As indicated above, in a member-managed LLC, members owe to each other and the LLC duties of care and loyalty. Remember that the duties of loyalty and care are different for managers and members in a manager-managed LLC. Although both members and managers must discharge their duties and exercise their rights in accordance with the contractual obligation of good faith and fair dealing, (1) only the managers are subject to the duties of loyalty and care discussed above; and (2) only the members may authorize or ratify an act by a manager that would otherwise violate the duty of loyalty.

What rules for advanced healthcare directive? Living wills and durable healthcare powers?

A living will states an individual's desires regarding: (1) whether to administer, withhold, or withdraw life-sustaining procedures; (2) whether to provide, withhold, or withdraw artificial nutrition or hydration; and (3) whether to provide treatment to alleviate pain. A durable healthcare power (also called a medical power of attorney) appoints an agent to make healthcare decisions on behalf of the principal and does not become effective until the principal becomes incapacitated. 12.2 CREATION AND EXECUTION Most states require that living wills and durable healthcare powers be: (1) in writing, (2) signed by the declarant or principal or another at the person's direction, and (3) witnessed by two adult witnesses. Most (but not all) of these states provide that the person designated as the agent cannot serve as a necessary witness. In contrast, the Uniform Health Care Decisions Act does not require any witnesses for a durable healthcare power. Some states dispense with witnesses if the document is notarized. 12.2.1 Capacity Presumed The declarant or principal must be an adult and of sound mind. Capacity is presumed, so the burden of proof is on the challenger. 12.2.2 Family Consent Statutes Even when a durable healthcare power is not properly witnessed, the designated agent may nonetheless have authority to act under a state's "family consent" or "statutory surrogate" statute. These laws, enacted in some states, WILLS NOTES 76 permit a close family member to act as a surrogate decisionmaker for a person who has not properly designated an agent under the state's durable healthcare power statute. 12.3 REVOCATION A living will can be revoked at any time by: (1) obliterating, burning, tearing, or destroying the will; (2) a written revocation of the will; or (3) an oral expression of intent to revoke the will. Generally, a durable healthcare power can be revoked by notifying either the agent or the principal's healthcare provider, and the revocation can be either oral or written. Some states also allow revocation of a durable healthcare power in the same manner as that for living wills. 12.4 INDIVIDUALS ELIGIBLE TO ACT AS AGENT UNDER DURABLE HEALTHCARE POWER Many states provide that a principal can appoint as agent anyone except an owner, operator, or employee of a healthcare facility at which the principal is receiving care, unless that individual is related to the principal. 12.5 AUTHORITY OF AGENT UNDER DURABLE HEALTHCARE POWER The agent has the authority to make most healthcare decisions on the principal's behalf that the principal could have made for themself while having capacity. The authority of the agent is within the discretion of the principal and must be stated in the instrument creating the durable healthcare power. If specific powers are not expressed or stated in the instrument creating the durable healthcare power, the agent must act in the principal's best interest. The agent is not subject to civil or criminal liability or to discipline for unprofessional conduct relating to healthcare decisions provided the agent acted in good faith.

What will contest rules for mistake?

A mistake is an error that was not caused by evil conduct—no fraud or undue influence, etc. 10.6.1 Mistake in Execution (Mistake in the Factum) In the case of mistake in the execution, the testator is in error regarding the identity or contents of the instrument and thus lacks testamentary intent. Extrinsic evidence is admissible to show that a testator did not know that the instrument they were signing was a will, because the existence of testamentary intent is at issue. If the testator mistakenly signs the wrong will (for example, a husband and wife sign each other's will), some courts will deny relief, but the better view is that the court will grant relief where the nature of the mistake is obvious. WILLS NOTES 70 EXAMPLE Testator had several documents on his desk including a letter to his mother and his will. In his haste, he mistakenly signed the will rather than his mom's letter. Assuming these facts could be demonstrated, the will would be invalid. 10.6.2 Mistake in Inducement—No Relief In the case of mistake in inducement, the testator is mistaken as to some extrinsic fact and makes their will based on that erroneous fact. If the mistake involves the reasons a testator made their will a particular way and the mistake was not fraudulently induced, the court will not normally grant relief. Relief might be granted, however, if the mistaken inducement appears on the face of the will. The UPC and several states also provide relief if a child was omitted because the testator mistakenly believed the child was dead. EXAMPLE Father has two children, Son and Daughter. Father's original will divided his estate evenly between his two children. Daughter is in the military and is stationed in a dangerous area in Iraq. The United States government erroneously informed Father that Daughter had been arrested for desertion. Father then changed his will to leave everything to Son. Father died before finding out Daughter had not deserted. The court is unlikely to fix this mistake, and thus Son would receive Father's entire estate. 10.6.3 Reformation for Mistake Under the UPC Under the UPC, a court may reform a will, even if the will is unambiguous, to conform to the testator's intent if it is proven by clear and convincing evidence that the testator's intent and the terms of the will were affected by a mistake of fact or law. This includes mistakes involving both the expression of terms and inducement to make the will or any of its provisions.

What is a partnership?

A partnership is an association of two or more persons to carry on as co-owners a business for profit. It's formed as soon as that happens, regardless of whether the parties subjectively intend to form a partnership.Remember that there must be at least two persons involved in forming a partnership. A partnership may not exist with only one partner. But also remember that a "person" may be an individual, trust, corporation, partnership, or other entity. Thus, Partnership A and Corporation B can agree to form Partnership C. 1.1.2 Proof of Partnership Existence a. Subjective Intent Irrelevant Since no formalities are required to form a partnership, it's sometimes difficult to determine whether the relationship between parties is a partnership or something else. To determine whether a partnership exists, courts generally look PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 2 to the intent of the parties. If they intended to carry on a business as co-owners, there is a partnership even if they did not subjectively intend to be partners. CMR Exam Tip As noted above, it is said that courts generally look to the intent of the parties to determine whether a partnership exists. This does not mean that the parties' subjective intent to form a partnership is relevant. It means instead that the inquiry is whether the parties intended to carry on as co-owners a business for profit. This is just another way of inquiring into whether the parties' association meets the definition. In other words, asking "did the parties intend to carry on as co-owners a business for profit" is just another way of asking whether their association meets the definition. b. Factors For Deciding Whether Partnership Exists Where the parties' intent is uncertain, courts consider the following rules: z Sharing of Profits Raises Presumption of Partnership The most important factor in deciding whether an association rises to the level of a partnership is the sharing of profits. Sharing of profits raises a presumption of partnership unless the share was received as payment of a debt, as wages or compensation for services rendered, as rent payment, as an annuity or other retirement benefit, as interest on a loan, or for the sale of goodwill of a business.Right to Participate in Control Another important factor in the partnership inquiry is the person's right to participate in the control of the business PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 3 (even if control is never actually exercised). To state that partners are co-owners of a business is to state that they each have the power to control the business. z Rebuttable Presumption If there is profit-sharing, and therefore a presumption of partner status, one can try to rebut that presumption with evidence suggesting the lack of a co-ownership relationship, such as no right to control or no sharing of losses (something that owners would typically share). z Evidence Indicative of Partnership The following factors may be additional evidence that a partnership has been formed. However, in contrast to the sharing of profits, these factors do not raise a presumption of partnership: — Title to property is held in joint tenancy or in common — The parties designate their relationship as a partnership — The venture undertaken by the parties requires extensive activity (for example, if A and B each contribute $100,000 to buy a building of rental apartments that must be managed, it is more likely that they are partners than if they each contributed $100,000 to buy shares in a company that manages real estate) — Sharing of gross returns CMR Exam Tip Sometimes exam questions will merely describe the relationship among parties involved in a business and will ask about the rights of the parties among themselves or about the liabilities of the parties for obligations of the business. In such questions, you must determine whether there is a partnership; do this by considering and discussing the factors above. Remember that the sharing of profits generally raises a presumption of partnership, but the presumption can be rebutted by other factors indicating that a partnership was not intended. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 4 1.1.3 Writing No writing is required to form a partnership. However, because of the Statute of Frauds, if partners wish to have an enforceable agreement to remain partners for more than one year, they generally must execute a writing reflecting their agreement. HYPO Ice T and Ice Cube form a partnership to record several rap albums. Is a writing required? What if they agreed that the partnership was to last for two years? 1.1.4 Partnership By Estoppel If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties. a. Liability of Person Held Out as Partner When a person by words or conduct represents himself as a partner or consents to being represented by another as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation. z No Duty to Deny Partnership Note that a person held out by another as a partner is not liable as a partner unless they actually consent to the holding out—mere failure to deny a representation of partnership does not give rise to liability as a purported partner. b. Liability of Person Who Holds Another Out as Partner When a person holds another out as a partner, he thereby makes that person his agent to bind him to third parties. (If there is a partnership, only those partners who know of or consent to this holding out will be bound.)

WHat liabilities of parties in agency relatioship?

A principal will be liable to the third party on a contract entered into by their agent if the agent had valid authority (actual, apparent, or through ratification) to act. If the agent did not have authority to enter the contract and the principal has not ratified the contract, the principal cannot be held liable on the contract. 3.3.2 Third Party vs. Agent As a general rule, if the agent had actual authority or apparent authority to enter a contract for the principal, or if the principal ratified a previously unauthorized contract, the agent cannot be held personally liable on the contract. However, an exception applies (that is, the agent may be held personally liable) if the existence and identity of the principal are not disclosed. a. Disclosed Principal Although if the principal's existence and identity are disclosed to the third party (a "disclosed principal" situation) the general rule is that the principal will be liable on an authorized contract and the agent will not be, the agent will be liable if the parties to the contract intended the agent to be liable. z Agent Breaches Warranty of Authority Even if the principal's existence and identity are fully disclosed, if the agent did not have authority to enter into the contract (so the principal will not be liable) the agent can be held liable to the third party for damages for breaching an implied warranty that a principal with contractual capacity exists and that they, the agent, had authority to contract for the principal. b. Unidentified and Undisclosed Principals If the principal is unidentified (that is, the third party knows the agent was dealing on behalf of a principal but does not know exactly who the principal is) or if the principal is undisclosed (the agent does not reveal that they are contracting AGENCY NOTES 22 on behalf of a principal), either the principal or the agent can be held liable on the contract if the agent had authority to enter the contract. The majority of courts permit a third party to file suit against both the principal and agent but, upon objection of either defendant, the third party must elect prior to judgment which party they wish to hold liable. On the other hand, if the third party obtains a judgment against the agent without knowledge of the principal's identity, they can later sue the principal when their identity is discovered if the judgment has not been satisfied. CMR Exam Tip Remember that the type of principal (disclosed, unidentified, or undisclosed) is relevant only when you are considering whether the agent is liable. Do not discuss the type of principal when analyzing the principal's liability. Any type of principal will be bound as long as the agent had authority. 3.3.3 Third-Party Liability to Principal and Agent a. Disclosed Principal Situations When the principal is disclosed, only the principal, not the agent, may enforce the contract and hold the third party liable. b. Unidentified and Undisclosed Principal Situations When the principal is unidentified or undisclosed, either the principal or agent may enforce the contract and hold the third party liable. Note that if the agent enforces the contract against the third party, the principal is entitled to all of the rights and benefits thereunder. z When Principal May Not Enforce Contract The principal may not enforce the contract if there has been an affirmative fraudulent misrepresentation of the principal's identity or if there is an unforeseen increased burden to the third party due to the fact that performance is due to the principal and not the agent.

What are principals duties to the agent?

A principal's duties to an agent are not fiduciary in nature, as fiduciary responsibilities run only from the agent to the principal. Nevertheless, a principal has several obligations to an agent. The principal owes the agent all of the duties imposed by their contract, reasonable compensation, and reimbursement for expenses. So, for example, if an agent incurs expenses or suffers other losses in carrying out the principal's instructions, the principal has a duty to indemnify the agent. The principal also generally should cooperate with the agent and not unreasonably interfere with the agent's performance. CMR Exam Tip Note that if the agency agreement is silent regarding compensation, the agent is entitled to reasonable compensation. Also remember that a principal generally owes no duty to compensate a subagent even if the agent had authority to hire the subagent. AGENCY NOTES 8 a. Agent's Remedies A compensated agent has the usual contract remedies against the principal (but has a duty to mitigate damages).

What are spendthrift trusts?

A spendthrift trust precludes the beneficiary from voluntarily or involuntarily transferring their interest in the trust, and the beneficiary's creditors are precluded from reaching it to satisfy their claims. The purpose is to protect the beneficiary from their own improvidence. Although a spendthrift trust is a restraint on alienation, most courts uphold spendthrift restrictions. 3.3.1 Characteristics a. Beneficiary May Not Transfer Interest The beneficiary may not transfer their interest. However, once the trustee pays the beneficiary, the beneficiary may transfer the property received. b. Creditors Cannot Attach Beneficiary's Interest The beneficiary's creditors cannot reach the beneficiary's trust interest until income or principal has been paid to the beneficiary. Of course, once the trustee pays the beneficiary, the creditors may reach the property. 3.3.2 Restraint on Involuntary Alienation Only— Invalid A restriction permitting the beneficiary to voluntarily alienate their interest, but purporting to deny creditors the right to reach the beneficiary's interest, is probably invalid. TRUSTS NOTES 22 3.3.3 Effect of Spendthrift Clause—Assignments Are Unenforceable A beneficiary's assignees cannot force the trustee to pay them directly. However, the trustee may choose to honor a purported assignment by the beneficiary, but the trustee may recommence payments to the beneficiary at any time, and the beneficiary may withdraw their direction to pay the assignee. Likewise, the beneficiary's creditors cannot force the trustee to pay them. 3.3.4 Limitations on Enforcement a. Ineffective If Settlor Is Beneficiary In most states, a settlor cannot use a spendthrift trust to protect their own property from their own creditors. However, a growing number of states allow self-settled spendthrift trusts, that is, the "domestic asset protection trust" or "DAPT." CMR Exam Tip When it is unclear whether a beneficiary is the settlor, determine who furnished the consideration for the creation of the trust. If a person furnishes the consideration, they are the settlor even though the trust is created by another person. b. Ineffective Against Certain Creditors Typically, a spendthrift clause cannot be used to shield the beneficiary from: • Judgments or court orders for support or maintenance of the beneficiary's child, spouse, or former spouse • Claims by the government Moreover, a creditor can reach a mandatory distribution of income or principal if the trustee did not make it within a reasonable time.

What is a subagent?

A subagent is a person appointed by an agent to perform functions that the agent has consented to perform on behalf of the agent's principal. CMR Exam Tip Remember that not every person appointed by an agent is a subagent. An agent may also appoint a coagent (that is, another agent of the principal). In doing so, the agent does not delegate their own power to that person. Employees of a single organization are presumed to be coagents, not subagents (for example, manager and store clerk are coagents). a. Liability of Agent An agent has absolute liability to the principal for breaches by a subagent. b. Duties If the principal authorized the agent to appoint the subagent, the subagent owes the principal the same duties as the agent owes the principal. If the agent was not authorized to appoint a subagent, the subagent does not owe duties to the principal but does owe duties to the agent.

What is required for common law marraige?

A valid common law marriage requires three things: • Consent to marry, which includes having capacity and a lack of legal impediments • Cohabitation • The couple holding themselves out publicly as spouses No license or ceremony is required. Common law marriage has been abolished in most states. However, if a valid common law marriage is formed in one state, it will generally be regarded as valid even in those states that do not recognize common law marriage. 2.3 MARRIAGE BY ESTOPPEL OR PUTATIVE MARRIAGE This is an equitable remedy that some states use to protect an innocent party who acted in good faith when entering into an invalid marriage. In some states, the putative spouse can acquire all of the rights of a legal spouse.

What is abatement?

Abatement is the process of reducing testamentary gifts in cases where the estate assets are not sufficient to pay all claims against the estate and satisfy all bequests and devises. If the testator does not set out an order of abatement in the will, testamentary gifts will usually abate in the following order: • Property passing by intestacy • Residuary estate • General legacies • Demonstrative legacies • Specific bequests and devises Within a class, abatement is pro rata. In some states, personal property in each category is used before real property in that category.

What is agency?

Agency is a fiduciary relationship that arises when one person (the "principal" appoints another (the "agent") to act on the principal's behalf and the agent consents to act. The agent must also act subject to the principal's control. . 1.1.1 Consent Consent of both the principal and the agent is necessary to form an agency relationship. Consent may be established expressly (through written or oral statements) or by implication from the parties' conduct. 1.1.2 On Behalf of This requirement is generally understood to mean that the agent must be acting primarily for the benefit of the principal, rather than for the benefit of the agent or some other party. 1.1.3 Control The agent must act subject to the principal's control, but the degree of control exercised by the principal doesn't have to be significant. The requisite level of control may be found simply by the fact that the principal has specified the task that the agent should perform, even if the principal hasn't prescribed the details of how the task should be accomplished.

What is ratification of an agency relationship?

An agency relationship is created by ratification when an "agent" purports to act on behalf of a "principal" without any authority at all, but the "principal" subsequently validates the act and becomes bound. In other words, even if the "agent" had no authority at the time of entering into the contract, the "principal" will still be AGENCY NOTES 18 bound by the "agent's" actions if the "principal" ratifies the contract. Ratification effectively serves as a substitute for before-the-transaction authority. It gives the transaction retroactive effect unless the "principal" lacked contractual capacity at the time the "agent" entered into the unauthorized transaction (in which case the "principal" is deemed to have "adopted" the contract), or unless retroactivity would interfere with intervening third-party rights. Upon ratification, the "agent" is relieved of liability for breach of duty (see2.1.1.d, supra) and their implied warranty of authority (see 3.3.2.a., infra). 3.2.2 Methods of Ratifying Ratification may be express or implied through the conduct of the "principal." The most common form of express ratification is oral or written affirmation of a contract (for example, a company resolution). The most common form of implied ratification is when the "principal" accepts the benefits of the contract. Other ratifying conduct would include silence if there is a duty to disaffirm or suing on the transaction. 3.2.3 Requirements for Ratification For ratification to occur, the "principal" must: a. Have knowledge of (or have reason to know) all material facts regarding the contract b. Accept the entire transaction (meaning the "principal" cannot merely ratify a portion of the transaction) AND c. Have capacity (be competent and of legal age) Ratification is a unilateral act of the "principal" and requires no consideration. Note also that ratification cannot be used to alter the rights of intervening parties.Generally, a "principal" may ratify anything unless: (1) performance was illegal at the time of ratification, (2) the third party has withdrawn, or (3) there has been a material change in circumstances. Under the Second Restatement, which is followed by most states, an undisclosed "principal" (one whose existence and identity is withheld from the third party) may not ratify. Only disclosed (existence and identity of the principal are known to the third party) or unidentified (existence of the principal is known, but the principal's identity is withheld) "principals" may do so. This is because the Second Restatement requires that the "agent" purport to be acting on behalf of a "principal". However, the modern view of the Third Restatement does not require the agent to purport to be acting on behalf of a "principal"; therefore, under the Third Restatement any "principal" may ratify. Note: A purported "agent" may not treat the contract as their own.

What are agents duties to the principal?

An agent (even an unpaid one) is a fiduciary of their principal. So, in addition to any express contractual duties that the agent owes the principal, fiduciary duties of loyalty, obedience to lawful instructions, and reasonable care under the circumstances (including duty to disclose all relevant information) are owed. a. Duty of Care An agent owes a duty to their principal to carry out their agency with reasonable care. The degree of care is a "sliding scale" depending on any special skills that the agent may have. While a gratuitous and a compensated agent may owe the same duty of care, the measure of "reasonableness" may vary because compensation is a proper circumstance to consider (that is, courts will probably expect a gratuitous agent to put less effort into being careful than they would expect a paid agent to exercise). b. Duty of Loyalty The agent owes a duty of undivided loyalty to the principal. This includes the following obligations: • An agent may not use their position as agent to profit for themselves. If they do, they must account to the principal for any profits made while carrying out the principal's instructions. • An agent must act solely for the benefit of the principal and not to benefit themselves or a third party. • An agent must refrain from dealing with their principal as an adverse party or from acting on behalf of an adverse party. • An agent may not compete with their principal concerning the subject matter of the agency. AGENCY NOTES 6 • An agent may not use the principal's property (including confidential information) for the agent's own purposes or a third party's purposes.c. Duty of Obedience An agent must obey all reasonable directions of their principal. If the agent disobeys a reasonable direction, the agent will be liable to the principal for any loss that the principal suffers.d. Principal's Remedies for Agent's Breach of Duties The principal's remedies against the agent include contract actions (against compensated agents), tort actions, actions for secret profits, equitable actions for an accounting, imposition of a constructive trust (an equitable remedy whereby a "trust" is imposed to transfer property gained through unjust enrichment back to the intended party, meaning, from the wrongdoing agent to the principal), and withholding of compensation for intentional torts or intentional breaches of fiduciary duty. The principal may recover the actual profits or properties held by the agent whether or not the agent's profit has caused the principal any loss. The principal may also terminate the agency prior to any termination date in a contract. When it comes to breach of fiduciary duty, note that a wide range of equitable remedies are available to a court. In general, a court can do whatever it wants to "do justice" in the situation.

What is apparent authority?

Apparent authority exists when the principal "holds out" another as possessing authority and based on this holding out, a third party is reasonably led to believe that authority exists (even though as between the agent and the principal, no such authority has been granted). Put differently, if the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent has authority to act on the principal's behalf, the agent has apparent authority to bind the principal. So remember, apparent authority arises from reasonable beliefs of third parties. The policy of apparent authority is that it protects innocent third parties who rely on the principal's holding out of a person as their agent. z Compare-Actual vs. Apparent Authority Actual authority is based on the principal's manifestations (words or conduct) and how they affect the reasonable agent. Apparent authority is based on the principal's manifestations (words or conduct) and how they affect the reasonable third party. Remember, AGENCY NOTES 14 apparent authority can exist even when actual authority does not! CMR Exam Tip In an apparent authority situation, you need to discuss what transpired between the principal and the third party. This differs from an actual authority situation, where you would be discussing what transpired between the principal and the agent. In discussing apparent authority, ask yourself what the principal did to indicate to the third party that the agent had authority.

How do disinherit clauses work?

At common law and in most states, a will provision expressly disinheriting an heir is ineffective as to any property passing by intestacy; that is, the will must dispose of everything to effectively disinherit an heir. However, under the UPC and WILLS NOTES 17 statutes in several non-UPC states, a testator may exclude the right of an individual to succeed to property passing by intestate succession (a "negative" will provision). If the person survives the decedent, their intestate share passes as though they had disclaimed it.

what is annulment of marraige?

Broadly, an annulment means that the marriage is set aside as if it never existed. 4.3.1 Defenses The only way to defend an action to annul a void marriage is to deny the existence of the defect. If the impediment has been removed and the parties continue the relationship, the marriage becomes valid in states following the UMDA. Ratification is the most common defense in an action to annul a voidable marriage. Other equitable defenses (for example, laches or estoppel) may also be used, but they are usually subsumed in the ratification defense. 4.3.2 Children of Annulled Marriage The children of an annulled marriage are marital children. Support and custody issues are handled in the same way as in a divorce action. 4.3.3 Spousal Support Generally spousal support is not awarded in annulment actions, but it is available in some jurisdictions. Also, if spousal support from a previous marriage has been terminated by remarriage, it will not be reinstated following an annulment of that marriage. 4.3.4 Division of Property Courts attempt to place the parties in their pre-marriage position, and usually give each party that property to which they have legal or equitable title. 4.3.5 Jurisdiction In states without statutes on the subject, annulment actions are heard by the equity courts. Among states, the state of domicile of either of the parties has jurisdiction to hear the annulment action. Many states also provide that the place of the celebration of the marriage also has jurisdiction. Annulment decrees rendered with proper jurisdiction are entitled to full faith and credit.

What rules for elective shares of spouse?

Common law marital property states have elective share statutes that give the spouse an election to take a statutory share of the decedent's estate in lieu of taking under the decedent's will. 9.1.1 Amount of Elective Share The amount varies from state to state, but the typical amount is one-third of the net probate estate if the decedent is survived by issue and one-half if the decedent is not survived by issue. Some states and the UPC base the amount on the duration of the marriage—for example, the spouse receives 3% if married one year going up to 50% if married 15 or more years. 9.1.2 Property Subject to Election The share is usually calculated from the decedent's net estate (probate estate minus expenses and creditors' claims). Some states, however, apply the share fraction to the decedent's "augmented" estate. The augmented estate includes certain lifetime transfers such as the decedent's share of jointly held property that passed by survivorship, bank accounts now payable to someone other than the surviving spouse, and life insurance proceeds not payable to the surviving spouse. 9.1.3 Notice Must Be Filed The surviving spouse must file a notice of election within a specified period (usually six months from admission of the will to probate). 9.1.4 Right to Election Is Personal to Spouse Only the surviving spouse, or the guardian of an incapacitated spouse, may make the election. WILLS NOTES 62 9.1.5 Effect of Election on Testamentary Plan The elective share is paid first from the assets that, but for the election, would have passed to the surviving spouse. Beyond that, the abatement rules apply. Note that life estates are sometimes treated as though the spouse predeceased the testator, and remainders are accelerated. 9.1.6 Lifetime Transfers to Defeat Elective Share Lifetime transfers by the decedent may be subject to the elective share if the decedent retained the power to revoke or to invade, consume, or dispose of the principal.

What rules for undue influence evidence proving?

Direct evidence is seldom available, so the court will look at the following factors. Note that none of them, or even all of them, are conclusive that undue influence existed. • Unnatural dispositions, such as cutting out close family WILLS NOTES 67 • Opportunity or access to testator • Confidential or fiduciary relationship between parties • The ability of the testator to resist • The beneficiary's involvement with the drafting or execution of the will 10.4.2 Circumstantial Evidence Not Enough to Establish Undue Influence The opportunity to influence the testator, the susceptibility of the testator to influence due to age or poor health, or an unnatural disposition favoring some of the testator's relatives over others alone is insufficient to establish undue influence. 10.4.3 Presumption of Undue Influence— Confidential Relationships A presumption of undue influence arises when: (1) there was a confidential relationship between the testator and a beneficiary (that is, the testator placed an unusual amount of confidence in the beneficiary, and relied on the beneficiary); and (2) that beneficiary was active in procuring, drafting, or executing the will. (Some states add a third requirement—that the provisions of the will appear to be unnatural and favor the person who allegedly exercised undue influence.) Once these elements are shown, the burden of proof shifts to the will proponent. a. No Automatic Presumption Between Spouses Although a husband and wife share a confidential relationship, a presumption of undue influence does not arise between spouses unless the spouse exerted influence over the testator in such a manner that it (1) overpowered the free will of the testator, and (2) resulted in a disposition reflecting the desires of the spouse exerting the influence. b. Attorney as Drafter and Beneficiary If the attorney who drafted the will is also a beneficiary, many states void the gift to the attorney unless the testator and the attorney are closely related. The attorney may also be in violation of ethical rules.

What is will contest of fraud?

Duress is a form of undue influence but connotes violent conduct such as the threat of physical harm. 10.5 FRAUD A successful contest on grounds of fraud requires that the testator have been willfully deceived as to: (1) the character or content of the instrument, (2) extrinsic facts that would induce the will or a particular disposition, or (3) facts material to a disposition. If a testator is fraudulently prevented from making a will, some courts will impose a constructive trust against the intestate beneficiaries in favor of those who would have taken had the will been made. 10.5.1 Elements of Fraud • False representation made to the testator • Knowledge of falsity by person making the statement • The testator reasonably believed the statement • The statement caused the testator to execute a will or make a particular disposition that the testator would not have made but for the misrepresentation 10.5.2 Fraud in the Execution (Fraud in the Factum) In the case of fraud in the execution, there is a misrepresentation as to the identity or contents of the instrument—that is, the testator did not know the document was a will or what it contained. There was a lack of testamentary intent. EXAMPLE Barnabus approached Stevie Wonder, a visually challenged performer, after a concert and asked for an autograph. Although unable to see, Stevie had no difficulty signing what he thought was an autograph book. Instead, Stevie actually signed a will naming Barnabus as the sole beneficiary of Stevie's huge estate. Because of fraud in the factum and lack of testamentary intent, Stevie's will is invalid. WILLS NOTES 69 10.5.3 Fraud in the Inducement In the case of fraud in the inducement, the testator knows they are executing a will and what it contains, but the testator is deceived as to some extrinsic fact and makes the will or a gift based on that fact. The will or the particular gifts affected by the fraud must be set aside.

Dissolution of LLC?

Essentially, the partnership rule applies with respect to the transferability of ownership interests in an LLC—financial rights are unilaterally transferable, but management rights are not. An assignment of a member's interest in an LLC transfers only the member's right to receive distributions. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 46 Management rights are not transferred. One can become a member (that is, management rights can be transferred) only with the consent of all members or as provided in the operating agreement. 6.8 DISSOCIATION A person has the power to dissociate as a member of an LLC at any time, rightfully or wrongfully, by expressly withdrawing as a member. Generally, the events that cause dissociation of a partner in a partnership will also cause dissociation of a member of an LLC. A wrongfully dissociating member may be liable to the LLC for damages. 6.9 DISSOLUTION 6.9.1 Events Causing Dissolution An LLC will be dissolved when any of the following events occurs: (1) an event or circumstance that the operating agreement states causes dissolution; (2) the consent of all the members; or (3) the passage of 90 consecutive days during which the LLC has no members. 6.9.2 Judicial Dissolution A member may also apply for judicial dissolution of the LLC. A court may grant an application for judicial dissolution if: a. The conduct of all or substantially all of the LLC's activities is unlawful. b. It is not reasonably practicable to carry on the company's activities in conformity with the certificate of organization and the operating agreement. c. The controlling members have acted, are acting, or will act in a manner that is illegal or fraudulent. d. The controlling members have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the member applying for dissolution. 6.9.3 Administrative Dissolution The secretary of state may dissolve an LLC administratively PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 47 when the LLC fails to submit a required fee or annual report. The LLC may apply for a reinstatement after correcting the problem. If reinstated, the LLC may resume its activities as if the administrative dissolution had never taken place. 6.9.4 Effect of Dissolution An LLC that has been dissolved continues its existence but is not allowed to carry on any business except that which is appropriate to winding up its activities. a. Barring Claims Against the LLC A claim can be asserted against a dissolved LLC, even if the claim does not arise until after dissolution, to the extent of the LLC's undistributed assets. If the assets have been distributed to the members, a claim can be enforced against each member to the extent of the member's proportionate share of the claim or to the extent of the assets distributed to him, whichever is less. Note that a member's total liability for creditor claims may not exceed the total amount of assets distributed to him after dissolution. An LLC can cut short the time for bringing known claims by notifying claimants in writing of the dissolution and giving them a deadline of not less than 120 days in which to file their claim. The time for filing unknown claims can be limited to five years by publishing notice of the dissolution in a newspaper in the county where the LLC's known place of business is located. 6.10 TAXATION Partnerships and LLCs are taxed on a "pass-through" basis. There is no entity-level tax; instead, business income is passed-through to the owners and reported on the owners' individual tax returns (regardless of whether that business income is actually distributed to the partners). By contrast, a corporation is subject to "double taxation." The corporation pays taxes on its income, and the shareholders pay taxes on that income again when and if it is distributed to them. In today's tax climate, pass-through treatment usually results in less taxes paid.

What are spousal abuse orders?

Every state has laws protecting the victims of domestic abuse, both within and outside of a marriage. All 50 states FAMILY LAW NOTES 6 allow a battered spouse to seek some form of protective order against a violent spouse. Initially, protective orders can be granted ex parte (that is, without notice to the other spouse) and can last from one month to several years depending on the jurisdiction

What factors to consider when awarding alimony?

FACTORS TO BE CONSIDERED WHEN AWARDING ALIMONY The court has great discretion in awarding as much spousal support as necessary for the maintenance of the requesting spouse. Factors considered include: • The standard of living established during the marriage • The duration of the marriage • The age and physical and emotional condition of the parties • The financial resources of the parties • The contribution of each party to the marriage • The time needed for the party seeking support to obtain the training necessary to find appropriate employment • The ability of the payor spouse to meet their needs while paying spousal support • Marital fault (considered in most states for alimony but generally not considered for property division) More broadly, the two primary considerations are the needs of the claimant and the ability of the other spouse to pay.

What requirements for validity of premarital agreement?

For a premarital contract to be enforceable, most courts require the following: • The contract must be in writing and signed • The agreement must be entered into voluntarily, meaning without fraud, duress, or overreaching • There must be a full and fair disclosure of the parties' assets or proof that the party against whom the agreement is being enforced had independent knowledge of the assets • Under the UPAA, courts only examine this element if the agreement is unconscionable • Some courts consider whether the economic provisions are fair and reasonable.

Generally what is required for parties to be married?

Generally, to get married, the parties must: • Not be too closely related • For example, cannot marry ascendants, descendents, siblings (including half-sibilings), aunt/uncle, niece/nephew • States vary on whether first cousins can marry • Not have a prior undissolved marriage to a living spouse (bigamy).

What rules for lost or stolen wills?

If a will is lost or destroyed (and the presumption that the testator revoked it is overcome), it may be admitted to probate if the following can be proven: (1) valid execution; (2) the cause of nonproduction (that is, proof that the will was not revoked); and (3) the contents of the will. The contents are usually proved by the testimony of at least two witnesses, or by production of a carbon or photocopy of the will.

How to terminate an agents actual authority?

If you have determined that a principal granted an agent express or implied authority to enter a contract for the principal, before finalizing your conclusion that the principal will be bound, you need to ensure that the authority was not terminated before the contract was made. a. How Termination May Occur Termination or revocation of actual authority occurs by: • The happening of an event specified in the agent's and principal's agreement as something that will terminate the agent's authority AGENCY NOTES 12 • Lapse of a reasonable time if a time for termination is not specified in the agreement • A change in circumstances, including destruction of the subject matter of the authority, insolvency of the agent or principal, and a change in the law or business conditions • Agent's breach of fiduciary duty • Either party's unilateral termination (both parties have the power to terminate an agency unilaterally, although such termination may constitute a breach of contract) OR • Operation of law (for example, death or loss of capacity of either party except where a durable power of attorney—written authority that says it will not terminate on the principal's disability—is present. Termination in the case of a principal's death is effective only when the agent has notice of it) HYPO Paula collects rare books. She hires Alice to find a rare book to complete her collection. Alice searches everywhere for the rare book. Just before Alice is to pay for the book, she receives a phone call informing her that Paula has passed away. Is Paula's estate bound by the contract and liable to pay for the book on actual authority grounds? CMR Exam Tip The bar examiners sometimes try to play on your emotions by making it seem unfair to terminate the agent's authority at the principal's death. Answer with your head and not with your heart—death terminates an agency unless the agency is irrevocable (see below). b. Irrevocable Agencies Neither an agency coupled with an interest nor a power AGENCY NOTES 13 given as security may be unilaterally terminated by the principal if the agency was given to protect the agent's (or a third party's) rights and it is supported by consideration. Neither will such agencies be terminated by operation of law.

What requirements for a valid disclaimer?

In most states, a disclaimer must be written, signed by the disclaimant, acknowledged before a notary, and filed with the appropriate court within nine months of death (although the time period may vary). To be effective for federal tax purposes, the disclaimer must be in writing, irrevocable, and filed within nine months of the decedent's death or the beneficiary's 21st birthday. Note that for federal tax purposes, a surviving joint tenant may disclaim their interest only within nine months from the other joint tenant's death, and the holder of a future interest may disclaim only within nine months after the interest was created.

What are the 5 main elements of a valid trust?

Intent • Identifiable corpus • Ascertainable beneficiaries • Proper purpose • Mechanics and formalities To determine whether a valid private trust has been created, look for the following characteristics: Settlor with capacity Present intent to create a trust (manifested by settlor's words, writing, or conduct) Trustee (inter vivos trusts only; a testamentary trust will not fail for lack of a trustee) Definite beneficiary(ies) (Note: Same person cannot be sole trustee and sole beneficiary) Trust property (res) Valid trust purpose (one that is not illegal, against public policy, or impossible to achieve, and does not violate the Rule Against Perpetuities)

What requirements for a valid will?

Legal capacity, testamentary capacity (Lower than Kx, can rebut presumption), testamentary intent, Execution(The will or codicil must be in writing. However, at least 10 states permit wills to be in electronic form ("e-wills") without any physical document WILLS NOTES 25 • The will or codicil be signed by the testator, or by another at the testator's direction and in their presence • There be two attesting witnesses • The testator sign the will (or acknowledge their previous signature or acknowledge the will) in each of the witnesses' presence; and • The witnesses sign in the testator's presence)(Note: Under the UPC a will is valid if either: (1) it is attested by two competent witnesses, or (2) it is signed by a notary.), Testators Signature:(intent to authenticate) a. Proxy Signatures The testator's signature may be made by another person at the testator's direction and in their presence. If the proxy signer signs their own name as well, they may be counted as an attesting witness. b. Order and Location of Signatures The order of signing is not critical as long as the signing is done as part of a single contemporaneous transaction. WILLS NOTES 26 In most states and under the UPC, a will is valid if signed anywhere on the instrument, not just at the end. Where the signature is required to be "at the end" and the testator signs elsewhere, some states hold the will is void, while others uphold the will as valid but disregard everything following the signature.

What rules for marital property?

Marital property is all other property acquired during the marriage. Some jurisdictions use the date of separation as the end of the marital estate, and others use the date of filing for divorce. Marital property includes: • Property acquired during the marriage • Earnings • Employment Benefits, Pensions, and Stock Options The majority rule is that employment benefits, stock options, and pension rights (see below) earned during marriage are marital property even if they will not be exercised or vested until after the divorce. • Lost Wages Many states hold that if a cause of action for lost wages due to personal injury accrues between the date of marriage and final separation, then the proceeds from the settlement or award are marital assets subject to distribution. • Reimbursement for medical bills incurred and paid with marital property • Recovery for Damages to Marital Property FAMILY LAW NOTES 20 Marital property is subject to equitable distribution by the court. 6.4 SPECIAL ISSUES IN CLASSIFICATION OF PROPERTY 6.4.1 Property that Changes Character Separate property may become marital property through either: • Commingling The separate property is inextricably intertwined with marital property or with the separate property of the other spouse to the extent that it can no longer be traced • Transmutation The separate property is treated in a way that evidences an intention for the property to be marital property (for example, placing separate property in the names of both spouses) EXAMPLE Husband uses $10,000 of his separate property as a down payment on a home for him and his wife titled in both of their names. There can be a presumption of gift based on joint title and the $10,000 would be classified as marital property. 6.4.2 Improvement of Separate Property When separate property is improved by the use of marital funds or the effort of a spouse, courts generally hold that the property remains separate property, but most jurisdictions grant the marital estate or the nonowning spouse reimbursement for the value added to the separate property. An increase in value due to market factors would remain separate property.6.4.3 Property Acquired Before Marriage But Paid for After Courts are split on the treatment of property acquired before marriage but paid for after marriage. The majority view seems to be that property should be apportioned between FAMILY LAW NOTES 21 separate and marital estates in proportion to the contribution of separate and marital funds to pay for the property. Other states focus on the inception of title and allow a reimbursement remedy. 6.4.4 Pensions The portion of a pension earned during a marriage is marital property subject to distribution. Courts use different formulas to calculate the share of the pension that was earned by the party during the marriage and the amount will be subject to division. Some courts will give the non-earning spouse other funds from the marital estate to offset the amount of the pension plan. HYPO 6A Greg and Sue both work throughout the marriage for the same company, which puts 4% of each employee's income into a 401K plan that was started the year after they married. Greg makes much more money than Sue. He has $40,000 in his, and she has $8,000 in hers. How will the court divide each interest, if at all? 6.4.5 Professional License or Degree Most jurisdictions that have considered the matter have held that a professional license or educational degree is not distributable property. However, to avoid unfair results, some jurisdictions use alimony to compensate supporting spouses for their contribution during the other spouse's education or training. 6.4.6 Tax Consequences of Property Division Property division is not considered a taxable event.

What rules for formation of a partnership?

No agreement is required to form a partnership. Nevertheless, you should be on the lookout for the existence of a partnership agreement because partnership law allows the partners to contract around almost all of the statutory provisions. Look for an agreement first, and then fall back on the statutory default rules in the absence of an agreement. Note also that a partnership agreement may be written, oral, or implied (for example, by conduct). 1.1.6 Entity Status Except with respect to partners' personal liability for partnership obligations, a partnership is a legal entity distinct from its partners. Title to land may be in the partnership name. A partnership may sue or be sued in the partnership name. 1.1.7 Additional Formation Considerations a. Capacity Anyone who is capable of entering into a binding contract may be a partner. A would-be partner who lacks capacity is liable only to the extent of his capital contribution, but the partnership with such person is not void; it will continue to exist until steps are taken to dissolve it. b. Legality of Purpose A partnership formed to achieve an illegal purpose is void, and the courts will not compel an accounting or a settlement of a void partnership's affairs. PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 6 c. Consent Unless otherwise agreed, no one can become a partner without the express or implied consent of all partners. d. Statement of Partnership Authority A partnership may choose to file a statement of partnership authority with the secretary of state, which can give constructive knowledge of the extent of the partners' authority with regard to the partnership. 1.1.8 Governing Law Generally, the Revised Uniform Partnership Act ("R.U.P.A.") provides a default set of rules. Partners are free to agree— through a partnership agreement—to abide by different rules for governing the relationships among themselves, and the R.U.P.A. will govern only those issues not provided for in the partnership agreement. Note, however, that certain R.U.P.A. provisions cannot be waived (for example, the duty of loyalty, the right of a court to expel a partner).

what capacity requirements for an agent?

Notice the different capacity requirements: A principal must have contractual capacity, but an agent need not. Thus, a minor can be an agent but not a principal.

What formalities for formation of an agency relationship?

Remember, consent of both parties is required. b. Writing Generally, agency law does not require the appointment of an agent to be in writing. However, the Statute of Frauds may require one. Many states require agency agreements to be in writing when the agent is to enter into certain contracts within the Statute of Frauds (mostly land transactions), or when the agency agreement itself would fall within the Statute of Frauds. This is called the "equal dignities" rule. AGENCY NOTES 3 HYPO Taylor Swift hires Hollywood bigwig Michael Ovitz to be her agent. Is a writing required? No. Taylor hires Mike to be her agent for five years. Is a writing required? Gilligan authorizes Mike to convey his island to Ginger. Is a writing required? c. Consideration Not Required No consideration is necessary for the creation of an agency relationship. CMR Exam Tip Remember that no consideration is required to establish an agency relationship; that is, one may agree to serve as an agent gratuitously and be saddled with the duties of an agent. 1.2.3 Modes of Creating Agency Relationship The agency relationship may be created by an act of the parties or by operation of law. a. By Act of Parties Parties may create an agency by agreement between the principal and agent (that is, actual authority). Parties may also be bound in an agency relationship through holding out by the principal (that is, apparent authority), or ratification. b. By Operation of Law z Estoppel An agency may be created through estoppel. Estoppel is virtually the same as apparent authority (see 3.1.3, infra) in that it requires third-party reliance on the principal's communication. z Statute Statutes creating agencies are usually designed to accomplish a limited purpose (for example, statute appointing secretary of state as out-of-state motorist's agent for service of process for damages arising from driving in-state).

What rules for LLPs

The R.U.P.A. allows the creation of limited liability partnerships ("LLPs", sometimes called "RLLPs" (meaning, registered limited liability partnership)). This differs from a general partnership and a limited partnership in that in an LLP all of the partners have limited liability (that is, no partner is personally liable for a partnership obligation beyond their contribution to the partnership). So the major advantage of operating as an LLP is that partners are not personally liable for the LLP's obligations. In general, you apply general partnership rules to LLPs, with the exception of the material below. (Note: It is rare, but a limited partnership can also register as an LLP (called an LLLP—a limited liability limited partnership). In an LLLP, the general partners and the limited partners have limited liability for the obligations of the business. In general, you apply limited partnership rules to LLLPs, with the exception of the material below.) 5.2.1 Formation To become an LLP, a partnership must file a statement of qualification with the secretary of state. The statement must be executed by at least two partners. The required minimal information includes: (1) the name and address of the partnership; (2) a statement that the partnership elects to be an LLP; and (3) a deferred effective date, if any. The partnership becomes an LLP at the time of the filing of the statement or on the date specified in the statement, whichever is later. (There is no LLP unless this statement is filed.) a. Name The name of a limited liability partnership must end with the words "Registered Limited Liability Partnership" or "Limited Liability Partnership" or one of the abbreviations "L.L.P.," "LLP," "R.L.L.P.," or "RLLP." PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 41 b. Voting The terms and conditions on which a partnership becomes an LLP must be approved by whatever vote is necessary to amend the partnership agreement or, if specified, the vote necessary to amend the contribution obligations of the partners. If the partnership agreement is silent as to how it may be amended, all partners must approve the terms and conditions of the partnership becoming an LLP. 5.2.2 Liability A partner in an LLP is not personally liable (directly, indirectly, or by way of contribution) for the obligations of the LLP, whether arising in tort, contract, or otherwise. As always, however, a partner remains personally liable for their own wrongful acts. If partnership assets are insufficient to indemnify them for an obligation they incurred on behalf of the LLP, they forfeit the right to receive contributions from other partners in exchange for being relieved of the obligation to contribute to their personal liability. CMR Exam Tip If on an exam you have to determine the liability of a partner in an LLP for a tort committed by a co-partner, recall that a partner's liability is usually limited; that is, they will not be personally liable for the co-partner's tort. But be sure to check to see if the partner engaged in the tort; if they did, they will not be shielded from liability

What tules for jurisdiction over child support?

The Uniform Interstate Family Support Act ("UIFSA"), which has been adopted by all 50 states, provides methods of enforcement and guidelines for modifications of support orders issued in another state. 9.3.1 Original Jurisdiction Original jurisdiction to enter a child support order is proper where the first petition under UIFSA is filed. Another state can exercise jurisdiction only if: • The second petition is filed before the time to answer the first has expired • The petitioner objected to jurisdiction in the first action • The second state is the child's home state (see discussion of home state under Child Custody, infra) 9.3.2 Jurisdiction to Enforce The court that initially issued the order has jurisdiction to enforce, and UIFSA helps parties enforce orders in other states. Another state can enforce a child support order in two ways: FAMILY LAW NOTES 32 a. Direct enforcement Direct enforcement allows the obligee to mail the order to the obligor's out-of-state employer, automatically triggering withholding unless there is a timely objection. b. Registration UIFSA also provides for registration of a support order with another state. The issuing state sends the order to the state where the obligor resides. It is registered and filed as a foreign judgment, and then the order is subject to the same enforcement procedures as if the order had been issued in that state. 9.3.3 Jurisdiction to Modify Generally, the court that issues the controlling child support order has continuing and exclusive jurisdiction to modify it. The role of a court in another state is only to enforce the original order, unless no party resides in the issuing state or the parties consent to jurisdiction elsewhere. 9.4 MODIFICATION OF CHILD SUPPORT AWARDS Child support is modifiable based on a substantial and continuing change of circumstances affecting the needs of the child or the ability of the parent to pay, such as changes in employment, the growth of the child, inflation, income, retirement, or disabling illness. A voluntary reduction in income will not be a ground for modification. Under the federal Full Faith and Credit for Child Support Orders Act, full faith and credit must be given to the child support orders of a court in another state. Past due installments of support cannot be retroactively modified.

WHat principal liability for intentional torts of agent?

The general rule is that the employer is not liable for the intentional torts of an employee (for example, battery or assault). Intentional torts are not normally within the scope of employment. a. Exceptions—Torts Within Scope of Employment Intentional torts will be viewed as within the scope of employment if the conduct is: (1) a natural incident of the employee's duties (as where force is authorized or the nature of the work gives rise to hostilities); (2) where the employee is promoting the employer's business or is motivated to serve the employer; or (3) specifically authorized or ratified by the employer. Also, a principal is liable for an agent's misrepresentations (including intentional misrepresentation) if the agent had actual, apparent, or inherent authority to make statements concerning the subject matter involved. HYPO Dalton is employed as a bouncer at the Double Deuce saloon. He uses force to throw some unruly patrons out into the street one night. The injured patrons sue the Double Deuce for battery. Is the Double Deuce liable? AGENCY NOTES 30 4.2.4 Liability for Acts of Borrowed Employees An employer may lend the services of an employee to another. If the employee commits a tort in the loaned role, who is liable—that is, who is the employer? The key issue is who has the primary right of control over the employee—the loaning principal or the borrowing principal? That employer is liable.4.2.5 Direct Liability Every person is liable for their own torts. Thus, an employer is liable for their own negligence if they fail to properly train or supervise employees or independent contractors, or fail to check an employee's or independent contractor's criminal record or job history. 4.2.6 Liability for Acts of Subservants The doctrine of respondeat superior also applies to duly authorized subservants. Authorization to hire subservants can be express or implied. Implied authorization can arise from: past practices, emergency situations, or a reasonable necessity to achieve an authorized result. However, the employer is generally not liable for the torts of a subservant engaged without authority. AGENCY NOTES 31 4.2.7 Employer-Employee by Estoppel Where a principal creates the appearance of an employer-employee relationship upon which a third party relies, that principal will be estopped from denying the relationship and will be liable under the doctrine of respondeat superior. EXAMPLE A hospital advertises "Our doctors are the best," but the doctors at the hospital are actually independent contractors. If one of the doctors negligently injures a patient, the hospital might well be estopped from denying the doctor was an employee. 4.2.8 Liability for Acts of Independent Contractors A principal will incur liability for the acts of an independent contractor where: (1) inherently dangerous activities (such as blasting) are involved, (2) nondelegable duties have been delegated, or (3) the principal knowingly selected an incompetent independent contractor (if the principal was merely negligent in selecting the independent contractor, the principal is liable only for their own negligence in selection, not for the contractor's negligence).

Question As a result of a personal injury lawsuit, a victim obtained a judgment against a tortfeasor for $100,000. The tortfeasor, who had few assets, did not pay the judgment. On April 1 of the following year, the tortfeasor inherited a parcel of land from her uncle. On May 1, the tortfeasor entered into a contract with a buyer to sell the land for $120,000. The contract was not recorded. The buyer immediately applied to a bank for a loan of $100,000. The bank approved the buyer's loan, and on May 15, a closing was held. The tortfeasor deeded the land to the buyer, and the buyer executed a mortgage for $100,000 to the bank. Due to an error by the title company, the deed from the tortfeasor to the buyer was not recorded, although the mortgage to the bank was recorded. Neither the buyer nor the bank had any knowledge of the victim's judgment. On May 20, the victim recorded his judgment in the county recorder's office where the land was located. At that time, he had no knowledge of the buyer's or the bank's rights. When he learned about them, he immediately brought a proceeding to foreclose his judgment lien, naming the tortfeasor, the buyer, and the bank as parties. The jurisdiction has a typical grantor/grantee recording index, and has enacted the following statute: "Any judgment properly filed in the county recorder's office shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered. No conveyance or mortgage of real property shall be good against subsequent bona fide purchasers for value and without notice unless the same be recorded according to law." As between the victim and the bank, which party's interest in the land will be given priority?

The victim will not likely prevail against the bank because a majority of courts hold that the judgment lienor is not protected by the recording statute. If the statute here, which is a notice statute, were applicable to protect the victim, he would have priority over the bank because his judgment lien was recorded before the buyer's deed was recorded. Under this view, the bank's mortgage would have been considered "wild" and would be deemed unrecorded because the preceding conveyance, the buyer's deed, was actually unrecorded. A searcher in the public records would therefore have been unable to find the mortgage. Hence, if the statute were applicable to protect the victim, he would have priority over the bank. However, most courts reason that either (i) a judgment creditor is not a bona fide purchaser because he did not pay contemporaneous value for the judgment, or (ii) the judgment attaches only to property "owned" by the debtor, and not to property previously conveyed away, even if that conveyance was not recorded. Under the statute in the present question, a judgment does not attach until it is recorded. Here, the victim's judgment did not attach to the land until after the bank obtained a mortgage on it, and the recording statute does not change that result. The failure of the buyer to record, and the resultant treatment of the bank as unrecorded, is irrelevant. Thus, the bank's mortgage is superior to the victim's lien. (A) is wrong because it does not matter whether the bank's mortgage was recorded, as against a subsequent judgment lien creditor. The judgment lien creditor is not protected by the recording statute, so the bank prevails even though its mortgage would be deemed unrecorded, as discussed above. (C) is wrong because, as discussed above, a majority of courts hold that the judgment lienor is not protected by the recording statute. (D) is wrong because the land was not after-acquired property, because the judgment lien was not filed until the tortfeasor had obtained-and conveyed away-an interest in the property. However, if the victim had in fact recorded his lien before the tortfeasor inherited the land, the after-acquired property provision of the statute would have applied, the victim would have had a recorded lien on the land as soon as the tortfeasor acquired it, and the victim would have gained priority over the bank.

What key players of a corp?

There are several key players we need to remember in the context of corporations: • Shareholders, or stockholders, are the owners of the corporation; • The board of directors is the group in charge of management of the corporation; and • Officers are agents of the corporation appointed to carry out the corporation's policy

Dissolution of partnership?

Unlike dissociation, dissolution generally requires the partnership business to be wound up. When dissolution and winding up occur, partnership assets must be applied to the discharge of partnership liabilities. If the assets are insufficient, individual partners are required to contribute ("pay in") in accordance with their loss shares. If there are excess PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 27 assets, they are distributable to the partners in cash in accordance with their profit shares. 4.2.1 Dissolution of a Partnership at Will When a partnership is formed with no particular undertaking or definite term, it is said to be a partnership at will. A partnership at will can be dissolved at any time by the express will (for example, notice of dissolution) of any partner without penalty. 4.2.2 Events Causing Dissolution The following events trigger dissolution under the R.U.P.A.: a. In a partnership at will, notification by any partner of an express will to withdraw as a partner; b. In a partnership for a definite term or particular undertaking: (1) expiration of the term or completion of the undertaking, (2) consent of all of the partners to dissolve, or (3) within 90 days after a partner's death, bankruptcy, or wrongful dissociation, at least half of the remaining partners wish to dissolve; c. The happening of an event agreed to in the partnership agreement that requires winding up the partnership business; d. The happening of an event that makes it unlawful for the partnership to continue; e. Issuance of a judicial decree on application by a partner that (1) the economic purpose of the partnership is likely to be frustrated, (2) a partner has engaged in conduct making it not reasonably practicable to carry on the business, or (3) the business cannot practicably be carried on in conformity with the partnership agreement; f. Issuance of a judicial decree on application by a transferee of a partner's interest that it is equitable to wind up the partnership (1) after the term expires or the undertaking is completed in a partnership for a definite term or particular undertaking, or (2) at any time in a partnership at will; and PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 28 g. The passage of 90 consecutive days during which the partnership does not have at least two partners. 4.2.3 Priority of Distribution Each level of priority must be fully satisfied before beginning the next level: a. First, the partnership must pay all creditors. Creditors include "outside creditors" (for example, trade creditors, lenders, suppliers) and "inside creditors" (for example, partners who loaned money). b. Second, the partnership must repay all capital contributions paid into the partnership by partners. c. Third, profits or losses, if any.4.2.4 Partnership Continues After Dissolution The partnership continues to exist after dissolution until the partnership is wound up. 4.2.5 Who May Wind Up As a general rule, all living partners have a right to participate in the winding up of the partnership's business except partners who have wrongfully dissolved the partnership and PARTNERSHIPS AND LIMITED LIABILITY COMPANIES NOTES 29 bankrupt partners. If all partners have died, the legal representative of the last surviving partner may wind up. 4.2.6 Apparent Authority—Partner's Power to Bind Partnership After Dissolution Partners retain apparent authority to bind the partnership to a third party on new business even after an event requiring winding up. A partnership can be bound after dissolution by any act of a partner appropriate for winding up the partnership's business. The partnership will also be liable for other acts if the party with whom a partner dealt did not have notice of the dissolution. The partnership can protect itself by notifying creditors directly of the dissolution (effective immediately). In addition, any partner who has not wrongfully dissociated may file a statement of dissolution with the secretary of state; all persons are deemed to have notice of a dissolution 90 days after such a notice is filed.4.2.7 Partners May Waive Dissolution and Continue the Business Any time before the winding up of the partnership business is complete, the partners may decide to waive the dissolution and continue the partnership by unanimous vote of the partners who have not wrongfully dissolved. Such waiver does not affect the rights of persons who have relied on the dissolution before receiving notice of the waiver

What sort of transfers of beneficiaries interests?

Voluntary Transfers—Gifts and Sales Absent restrictions by statute or by the trust instrument, a beneficiary may freely transfer their interest in the trust. The assigned interest remains subject to all previous conditions and limitations. 3.1.2 Involuntary Transfers—Creditors Unless statute or the trust provides otherwise, the beneficiary's creditors may reach the beneficiary's interest in the trust. The interest is subject to judicial sale. To avoid this, a court may order the trustee to pay the beneficiary's income to the creditors until the debt is satisfied. 3.2 DISCRETIONARY TRUSTS In a discretionary trust, the trustee is given discretion whether to apply or withhold payments of income or principal (or both) to a beneficiary. 3.2.1 Creditors' Rights Before the trustee exercises their discretion to make payments to the beneficiary, the beneficiary's interest is not assignable and cannot be reached by their creditors. Put simply, the beneficiary has nothing to transfer and no interest for creditors to reach—the beneficiary merely has an expectancy to be a beneficiary. Creditors are usually allowed to attach the beneficiary's interest but may not compel the trustee to make a distribution. If the trustee has notice of an attachment by creditors and decides to make payments to the beneficiary, the trustee must make those payments directly to the creditors unless the beneficiary's interest is protected by a spendthrift provision. TRUSTS NOTES 21 a. Exception—Claims of Child, Spouse, or Former Spouse The court can force the trustee to satisfy a judgment or order against the beneficiary for the support or maintenance of the beneficiary's child, spouse, or former spouse. 3.2.2 Beneficiary's Rights The beneficiary has no right to payment that they can enforce against the trustee. Thus, the beneficiary cannot interfere with the exercise of the trustee's discretion unless the trustee abuses their power, in which case the court will intervene.

Do child custody and support provisions in premarital agreements bind the court?

Watch for child custody and support provisions in premarital agreements. These provisions never bind the court. In some states, custody and child support provisions are void as against public policy, while in others they are subject to judicial review.

What types of apparent authority?

When Agent Exceeds Actual Authority There are situations where the agent exceeds their authority, yet the principal is still bound. — Prior Act Where the principal previously permitted the agent to exceed their express or implied authority and knows that the third party is aware of this, the principal is bound through apparent authority. — Power of Position Apparent authority may be established through an agent's title or position. Indeed, it is somewhat common for a third party to argue that an agent's title or position, which was given to them by the principal, created a reasonable belief in the third party that the agent was authorized to act for the principal in ways that are typical of someone who holds that title or position. So, when the agent is in a position that customarily carries with it certain responsibilities, the principal is liable AGENCY NOTES 15 for the agent's acts that come within these customary responsibilities.When Agent Has No Actual Authority Generally, if an agent did not have any actual authority when they entered a contract for a principal, the principal will not be bound by the agent's acts. However, there are certain situations in which the principal may be bound. — Unilateral Agent Representations A principal generally will not be bound when the principal does nothing to hold the agent out as having authority and the only statement of authority comes from the purported agent's claim they have authority. Apparent authority is based on the principal's manifestations to a third party. Thus, apparent authority cannot be created by the mere representations of an agent or other actor.Impostors Where the principal negligently permits an impostor to be in a position to appear to have agency authority, the principal will be held liable for the impostor's actions undertaken with such authority. In other words, we'll have an agency by estoppel-the principal will be estopped from denying the imposter was their agent. — Lingering Apparent Authority Remember, apparent authority can exist even when actual authority does not. Similarly, apparent authority can linger after actual authority ends.Notice May Be Necessary Where an agent's actual authority has terminated, he will have apparent authority to act on the principal's behalf as to all third parties with whom the principal knows he dealt unless and until the third parties receive either actual or constructive notice of the termination. — Writing Manifesting Authority Where an agent's actual authority has been terminated but third parties rely on a written authority of the agent, AGENCY NOTES 17 the agent's apparent authority is not considered to be terminated—unless the principal recovers the written authority. — Death or Incompetency The majority view is that death or incompetency of the principal does not automatically terminate the agent's apparent authority. z Inherent Authority (Inherent Agency Power) Inherent authority is derived solely from the agency relationship and results in the principal being bound even though the agent had no actual or apparent authority to perform the particular act. This occurs because courts wish to protect innocent third parties rather than a principal who gave some actual authority to the agent. Examples of inherent authority include: — Respondeat Superior Under the doctrine of their employee committed within the scope of employment. — Conduct Similar to that Authorized Where an agent exceeds their actual authority (that is, violates orders), but the conduct is similar to acts authorized, the principal will be held liable. c. Improper Disposition of Goods The principal will be held liable for the disposition of their goods by an agent possessing them if the agent was given some indicia of ownership, or if the goods disposed of were sold by an agent who is a dealer in the particular goods.

What are the rules of construction for wills?

When there is no evidence of the testator's intent, the courts resort to the following rules of construction: • The fact that the testator left a will, especially if it has a residuary clause, indicates an intent not to die intestate. Therefore, favor the construction that avoids intestacy • Among two or more contradictory provisions in a will, the last one prevails • The will is construed as a whole, not from isolated parts out of context • Words are given their ordinary and grammatical meaning unless it is clear from the will that the testator intended otherwise • Technical words are given their technical meaning unless it is clear from the will that the testator intended otherwise • Attempt to give effect to all words the testator included in the will

What is modern law for when SS and descendants take in intestate succession?

a. Descendants Also Survive In most states, if the decedent leaves descendants as well as a surviving spouse, the spouse takes one-third or one-half of the estate. Some states give the surviving spouse a specific dollar amount plus one-third or one-half of the estate. In states adopting the Uniform Probate Code ("UPC"), the surviving spouse takes the entire estate if the decedent is survived by descendants, all of whom are descendants of the surviving spouse, and the surviving spouse has no other surviving descendant. Note that "descendants" and "issue" are synonymous. b. No Descendants Survive In most states, if the decedent is survived by a spouse but no descendants, the surviving spouse takes the entire estate. In UPC states, however, the spouse takes the entire estate only if the decedent is not survived by descendants or parents.