MEE Subject

Question 1

Elements of Negotiability

Answer 1

1. In writing
2. Signed by maker or drawer
3. Unconditional promise or order to pay
4. Fixed Amount
5. In Money
6. No other undertaking or instruction
7. Payable on demand or at a definite time
8. Contains word of negotiability

Question 2

Elements of HDC

Answer 2

1. Negotiable Instrument
2. Holder
3. Authenticity not apparently questioned
4. Holder Must Pay value
5. Good Faith
6. Without notice at time of instrument acquisition
   Burden is on person claiming holder in due course rights.

Question 3

Shelter Rule?

Answer 3

The transfer of an instrument vests in the transferee the rights that the transferor had.
Exception: A person who was a party to fraud or illegality affecting the instrument cannot get HDC rights by shelter.

Question 4

Rights of Holder in Due Course

Answer 4

Subject to Real Defenses

1. Infancy
2. Duress which voids obligation
3. Lack of legal capacity making obligation void
4. Illegality making obligation void
5. Fraud in the execution (also called fraud in the factum) (a) signer lacked knowledge of the instrument’s character or essential terms and (b) signed lacked reasonable opportunity to learn of the instrument’s character or essential terms.
6. Discharge of Involvency
7. Omission of Required Consumer Protection Language
8. Statute of Limitations: (a) note is six years, (b) unaccepted draft, earlier of three years after dishonor or 10 years after issue
9. Payment to former holder, unless there was notice given of the transfer
10. Alteration
11. Unauthorized Signatures & Forgeries

Protected from “Personal Defenses”

1. Failure of consideration
2. Breach of warranty
3. Fraud in the inducement

Question 5

Accommodation Party Liability?

Answer 5

1. Liable in capacity in which accommodation party signs.
2. May include express language limiting the contract to guarantee of collection only.
3. Entitled to reimbursement from accommodated party.

Question 6

Contract Liability of Indorser

Answer 6

1. Disclaimer Allowed. Example: Paul Parson, indorses the check “without recourse, Paul Parsons.” This indorsement prevents Paul from incurring the contract liability of an indorser; the indorsement is effective merely to pass title.
2. Order of Liability: Indorsers are liable to each in the order of their signatures. You can sue prior indorsers for payment, and liable to later indorsers.
3. Secondary Liability: Indorsers liable only after three conditions are first satisfied: (1) presentment (must do within 30 days), (2) dishonor, and (3) notice of dishonor (must be within 30 days).

Question 7

Contract Liability of Maker

Answer 7

Primary liability, maker must pay instrument when it is due according to its terms at the time it was issued.
Defenses: Maker may raise defenses; effectiveness depends on status of holder.

Question 8

Contract Liability of Drawer

Answer 8

No Disclaimer: Drawer may not disclaim liability on a check but may disclaim liability on other drafts.
Secondary Liability: Drawer liable only after two conditions are first satisfied: (1) presentment and (2) dishonor

Question 9

Not Properly Payable Liability

Answer 9

An altered check is not properly payable. Example: Dave issues a check for $100 to Paula. Paula expertly alters the check so it reads $1,000 and cashes the check. Dave may recover against his bank because this check was not properly payable.
Defense: Negligence.

Question 10

Forgery Who’s Liable?

Answer 10

Forged Maker

1. Maker not liable
2. Forger is liable

Forged Drawer

1. Alleged Drawer is not liable
2. Drawee bank must recredit alleged drawer’s account, unless drawee bank has a defense. Defenses: (1) Drawer’s negligence substantially contributed to forgery (2) customer must inspect bank statement and cancel checks timely (within 1 year, unless bank can prove that delay somehow prevented the bank from catching and recovering from forger).
3. Bank unable to pass on loss unless breach of presentment warranty

Forged Indorser

1. Bearer Paper: irrelevant since indorsement not necessary to negotiate bearer paper
2. Not properly payable and drawer may demand account is recredited.
3. Exception: (1) if maker or drawer deemed negligent, then estopped from denying validity. (2) if employer / employee is entrusted then the indorsement is effective and payee is estopped.

Question 11

Alteration

Answer 11

1. Effect on HDC: (a) may enforce original amount and (b) may enforce as completed if left blank.
2. Effect on non-HDC: (a) fraudulently made=total discharge of obligor. (b) not fraudulently made, liable on original amount

Question 12

What does it take to form a corporation?

Answer 12

1. People (one or more incorporator, can be person or entity)
2. Paper (articles of incorporation, need corporate name, name and address of each incorporator, name and address of each director, name of registered agent, purpose and capital structure)
3. Act (deliver articles to state and pay fee)

Question 13

Right to Business Records in a Limited Partnership:

Answer 13

Every limited partner has the right to obtain from a general partner, upon reasonable demand, full information respecting the business and financial condition of the limited partnership and other information concerning the limited partnership’s affairs. Under RULPA, information that does not relate to the state of the business or financial condition of the limited partnership need only be provided if it is reasonable.

Question 14

Liability of Limited Partners:

Answer 14

Generally, a limited partner is not personally liable beyond her contribution for the obligations of the limited partnership. However, a limited partner is liable beyond her contribution if she participates in the control of the business and the person dealing with the limited partnership reasonably believes, based on the limited partner’s conduct, that the limited partner is a general partner. RULPA allows a limited partner to take part in extraordinary partnership affairs without being found to have participated in control of the business.

Question 15

General Partnership Formation:

Answer 15

A partnership is formed when two or more people associate to carry on as co-owners of a business for profit. Sharing profits is a key element, unless the share is to repay a debt, as compensation, or the like. Further, there are no formalities to becoming a general partnership.

Question 16

Actual/Apparent Authority and Binding Partnership:

Answer 16

Generally, the acts of a partner will bind the partnership if the partner acted within the ordinary course of the partnership’s business and with actual or apparent authority. Actual authority can be express (i.e., contained within the agreement between the parties) or implied from the actions of the principal. Apparent authority arises when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.

Question 17

Partnership Liability:

Answer 17

Partners are jointly and severally liable for the obligations of a partnership. These liabilities include contracts made by a partner in the scope of the partnership business and on any other contracts expressly authorized by the partners. To seek recovery against the partners of a general partnership, the plaintiff must bring an action against, and serve, the partners individually and against the partnership. A judgment will not personally bind a partner who has not been served.

Question 18

Partnership Property:

Answer 18

Generally, property that is titled in the partnership name is deemed to be partnership property; a partner has no interest in partnership property. A partner has a right to use partnership property only for partnership purposes.

Question 19

Attach Partner’s Partnerships Assets:

Answer 19

Once a judgment is issued against a partner, the creditor can charge (i.e., attach) the transferable interest of the partner to satisfy the judgment. The charging order then becomes a lien on the partner’s transferable interest in the partnership.

Question 20

Transferability of Partnership Interest and Management:

Answer 20

A partner has a transferable interest in the partnership, which consists of his share of the profits and losses and the right to receive distributions. Because a partner’s transferable interest is considered personalty, it may be transferred by her voluntarily or involuntarily at any time. However, a partner cannot transfer his interest in management and other rights. The transferable interest can be transferred to a third party, and upon transfer of such rights, the transferee is entitled to receive distributions to which the transferring partner would have been entitled. The transferee does not, however, become a partner by virtue of the transfer, and therefor has no right to interfere in the management of the partnership or to inspect the partnership books and records.
o Force a Dissolution and Winding Up: The transferee of a partner’s transferable interest can ask the court for a judicial decree that it is equitable to wind up the partnership only if: (i) the term specified in the partnership agreement has expired, or (ii) it is a partnership at will.

Question 21

Limited Partnership Formation:

Answer 21

A limited partnership is comprised of at least one general partner and at least one limited partner. A certificate of limited partnership must be filed with the secretary of state and must be signed by all general partners.

Question 22

Partnership Dissociation:

Answer 22

A partner is dissociated from the partnership upon notice of the partner’s express will to withdraw as a partner. The partner can dissociate at any time; however, he will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term of the partnership agreement. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation and is not entitled to wind up the affairs of the partnership.

Question 23

Repercussions to the Partnership Due to Wrongful Dissociation:

Answer 23

A partnership dissolves and must be wound up upon a partner’s intent to withdraw from an at-will partnership, even if the dissociation is wrongful. However, at any time after the dissolution of a partnership and before the winding up of the partnership’s business is completed, the partners may decide by unanimous vote to continue the partnership business. Wrongfully dissociating partners may not take part in the vote. If the partners vote to waive the dissolution, the partnership must purchase the dissociating partner’s interest. Damages for wrongful dissociation reduce the amount due to the dissociated partner. In a partnership for a definite term of particular undertaking, a partner’s wrongful dissociation causes a dissolution and winding up only if, within 90 days, at least half of the remaining partners decided to wind up the business.

Question 24

Rightfully Dissociated Partner:

Answer 24

A rightfully dissociating partner is not liable for damages to the partnership and may take part in winding up the partnership’s affairs. As noted above, the partners can decide to continue the partnership by unanimous vote, but since the rightfully dissociated partner can vote on the matter, unanimous vote is unlikely.

Question 25

Dissociating Partner’s Liability on Partnership’s Debts After Dissolution:

Answer 25

A partnership is bound by a partner’s act after dissolution if the act was appropriate to winding up the partnership. Each partner is jointly and severally liable for partnership obligations.

Question 26

Holder in Due Course:
o Take Free of Personal Defenses.
o Value:

Answer 26

One who is the (i) holder (possession and must be payable either to bearer or to person in possession) of a (ii) negotiable instrument, (iii) exchanged for value; (iv) in good faith; and (v) without notice of certain claims or defenses (e.g., that the instrument is overdue or has been dishonored, contains an authorized signature or has been altered, that there is a claim to the instrument, or that any party has a defense of claim in recoupment on the instrument.)
o Take Free of Personal Defenses. A HDC takes free of personal defenses.
o Value: Value includes any of the following: (i) performance of the agreed consideration; (ii) acquisition by the holder of a lien or security interest in the instrument other than a lien obtained by judicial proceeding; (iii) taking the instrument as payment of or security for an antecedent debt; (iv) trading a negotiable instrument for another instrument; or (v) giving the instrument in exchange for the incurring of an irrevocable obligation to a third person by the person taking the instrument.

Question 27

Negotiable Instrument:
o Checks:
o Subject to All Contract Defenses.

Answer 27

An instrument (i) In writing, (ii) signed by maker or drawer, and (iii) an unconditional promise or order to pay.
o Checks: are negotiable instruments.
o Subject to All Contract Defenses.

Question 28

Accommodation Party:

Answer 28

An accommodation party is liable on the instrument in the capacity in which she signs, even where the taker is aware of the accommodation. Under the UCC, a discharge of an obligated party does not discharge the obligation of an indorser or accommodation party having right of recourse against the obligated party.

Question 29

Accord and Satisfaction:

o Exception:

Answer 29

An accord and satisfaction is the acceptance of a proposed settlement of a debt. Under the UCC, when a claim is subject to dispute, the claim can be discharged in full if the person against whom the claim is asserted in good faith tenders an instrument that conspicuously states that it is tendered in full satisfaction of the claim (e.g., if the memo line says “payment in full”) and the claimant obtains payment of the instrument.
o Exception: Under some circumstances, the UCC provides that an accord and satisfaction can be avoided if the satisfaction was obtained inadvertently (e.g., where a creditor did not realize that it was intended to fully satisfy the claim) by tendering repayment within 90 days after receiving payment. However, if payment was not obtained inadvertently, the accord and satisfaction cannot be avoided. A payment will not be considered to be inadvertent if it was obtained by the claimed or an agent of the claimant with direct responsibility for the disputed claim, with knowledge that the instrument was tendered in full satisfaction.

Question 30

Forgery Defense

o Entrusting Indorsement, Whether Fraudulent or Not:

Answer 30

Forger is a real defense and may be asserted against both HDC and non-HDC’s. The general rule is that a person is not liable on an instrument unless that person or her agent signed the instrument, and therefore, an unauthorized signature is wholly ineffective as to the signature of the person whose name is signed. The exception to the rule is that a person whose failure to exercise ordinary care substantially contributes to a forged signature on an instrument is precluded from asserting forgery as a defense to avoid liability.
o Entrusting Indorsement, Whether Fraudulent or Not: If an employer entrusts an employee with responsibility with respect to an instrument and the employee makes a fraudulent indorsement on the instrument, the indorsement is effective (although a person who takes the instrument and fails to exercise ordinary care may be held liable to the extent of the loss caused by the failure).

Question 31

Drawer Liability:

Answer 31

A drawer has secondary liability. As a general rule, if a check is dishonored, the drawer is obligated to pay the holder, the person with possession of the instrument with a right to enforce it, according to the check’s terms when the drawer signed.

Question 32

Negotiation:

Answer 32

Negotiation of an instrument payable to an identified person is accomplished by transferring possession of the instrument along with the identified person’s indorsement.

Question 33

Drawee Liability:

Answer 33

The drawee of a draft has no liability on a check drawn on the bank until the drawee signs or accepts it.

Question 34

Transfer Warranties:

Answer 34

When a person transfers an instrument for consideration, she warrants that: (i) she is entitled to enforce it, (ii) signatures are authentic and authorized, (iii) it was not altered, (iv) no defenses or claims are good against her, and (v) she has no knowledge of any insolvency proceedings.

Question 35

Fraud In The Inducement Defense:
o Value:
o Fraud in the Factum:

Answer 35

The drawer of a check is liable to pay a holder of the check according to its terms at the time is was issued after the holder presents the check for payment and it is dishonored. A holder is a person in possession of an instrument with a right to enforce it. If the instrument is payable to an identified person, that person becomes a holder as soon as he gets possession of the instrument. If an employer signed a check due to employee’s fraud (e.g., employee included it among other checks), then he may assert the defense of fraud in the inducement. However, since fraud in the inducement is a personal defense, it cannot be asserted against an HDC. An HDC is a holder who take a negotiable instrument for value, in god faith, and without notice of any unauthorized signatures or potential claims or defenses to the instrument.
o Value: When a negotiable instrument is transferred for a promise of performance or a promise to give value in the future, the promisor gives value only to the extent that the promise has been performed or value has been given.
o Fraud in the Factum: This is a real defense and exists when a party is fraudulently induced to sign an instrument without a reasonable opportunity to learn its character or terms.

Question 36

Rights of HDC with respect to a dishonored check:

Answer 36

In the event of dishonor, both a check’s drawer and its indorser become liable on the instrument. An indorser can limit his liability by qualifying his indorsement with the words “without recourse.”

Question 37

Holder:

Answer 37

A holder is a person in possession of the instrument with a right to enforce it (i.e., takes title).

Question 38

Presentment Warranty:

Answer 38

When an unaccepted check is presented for payment, the person who obtains payment and all prior transferors warrant that (i) they are entitled to enforce it, (ii) it was not altered, and (iii) they have no knowledge that the drawer’s signature is unauthorized. Presentment warranties are made to anyone who in good faith pays or accepts.

Question 39

Negotiation of a Bearer Instrument:

Answer 39

A bearer instrument is negotiated (i.e., properly transferred) by deliver alone and thus may be enforced by anyone in possession.

Question 40

Indorser or Drawer Liability:

Answer 40

An indorser or drawer is not liable on the draft unless (i) the instrument is presented, (ii) it is dishonored (i.e., not paid), and (iii) the indorser is given notice of dishonor.

Question 41

Fundamental Corporate Change: 
o	Fundamental Corporate Changes: 
o	Approval:
o	Notice of a Meeting:
	Violation of Properly Called Meeting: 
o	Proxy: 
	Revocation:
o	Vote Required Set Out in the Article or Bylaws:
o	Shareholders on Record:

Answer 41

Before undertaking a fundamental change in the corporation, directors must seek approval from the shareholders.
o Fundamental Corporate Changes: Dissolution.
o Approval: A fundamental corporate change requires approval at a properly called meeting at which a quorum is present of a majority of all of the shares entitled to be voted on the matter, or at least that the votes cast in favor of the proposal exceed the votes cast against the proposal. Unless the articles provide otherwise, a quorum requires at least a majority of the shares entitled to be voted on the matter.
o Notice of a Meeting: Shareholders must be given at least 10 days written notice of the meeting at which a vote will be taken on the fundamental corporate change. The notice must state the date, time, place and purpose of the meeting. However, defects in the notice may be waived if a shareholder attends a meeting and votes, despite the defective notice, unless he attends solely for the purpose of objecting to the improper notice.
 Violation of Properly Called Meeting: Any action is voidable by a person who received improper notice and did not waive the defect.
o Proxy: A proxy can be appointed only be a signed writing or an authorized electronic transmission.
 Revocation: Proxies generally are revocable unless they say that they are irrevocable and are coupled with an interest (situations in which the proxy holder essentially pays for the right to be a proxy, such as where the proxy holder has purchased the underlying shares from the owner of record). Proxies may be revoked by a subsequent instrument or by the shareholder of record showing up to vote in person.
o Vote Required Set Out in the Article or Bylaws: The vote required for approval may be set in the articles of incorporation or the bylaws, but when the two conflict, the articles of incorporation control.
o Shareholders on Record: Only shareholders of record on the record date may vote at a shareholders’ meeting.

Question 42

Controlling Shareholders’ Duties to Minority Shareholders:

Answer 42

A controlling shareholder must refrain from using his control to obtain a special advantage or to cause the corporation to take action that unfairly prejudices the minority shareholders. This would include a duty to disclose material information to the minority shareholders.

Question 43

Director’s Fiduciary Duties: 
o	Duty of Care:
	Business Judgment Rule:
o	Duty of Loyalty: 
	Defenses to Conflict of Interest Claim: 
	Articles Limiting Director Liability

Answer 43

o Duty of Care: A director is a fiduciary of his corporation and owed the corporation a duty: (i) to act in good faith, (ii) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and (iii) in a manner the director believes is in the best interest of the corporation. Other states hold a director liable if they acted with gross negligence, recklessly, with the intent to harm the organization or knowingly.
 Business Judgment Rule: A director who meets this standard of conduct is protected from personal liability for decisions regarding the corporation, and anyone who challenges a decision of the board has the burden of proving that the statutory standard was not met. At common law, this is known as the business judgment rule. Directors generally are entitled to rely on the reports of professional persons within their areas of expertise and corporate officers and employees whom the director reasonably believes to be reliable and competent.
o Duty of Loyalty: Directors of a corporation owe the corporation a duty of loyalty which generally prevents the directors from profiting at the expense of the corporation.
 Defenses to Conflict of Interest Claim: Generally, the law provides three defenses against a conflict of interest claim. The director cannot be held liable if his corporation enters into a transaction in which the director has personal interests if: (i) the director discloses all material facts to the board and a majority of the independent directors approve the transaction; (ii) the director discloses all material facts to the shareholders who then approve the transaction; or (iii) the transaction is fair to the corporation.
 Articles Limiting Director Liability: A corporation’s articles of incorporation may limit or eliminate directors’ personal liability for money damages to the shareholders or corporation for actions taken, except to the extent that the director received a benefit to which he was not entitled, intentionally inflicted harm on the corporation or its shareholders, approved unlawful distributions, or intentionally committed a crime.

Question 44

Direct vs. Derivative Suit:
o Demand Before Derivative Suit:
o Direct Actions:
 Suit to Compel a Dividend:

Answer 44

Direct actions may be filed when the harm done is personal to the plaintiff. Derivative actions are used when a member is attempting to recover for a wrong done to the LLC.
o Demand Before Derivative Suit: Before bringing a derivative action, shareholders are required to first make a demand on the board to resolve the issue, unless the demand would be futile.
o Direct Actions: There is no similar demand requirement for a direct action. A suit to compel the payment of dividends falls under this type of action.
 Suit to Compel a Dividend: As a general rule, although we talk of a dividend as one of the rights of being a shareholder, a shareholder has no right to receive a dividend until it is declared by the board of directors. The decision whether to declare a dividend is left to the sound discretion of the board. If the directors decide in good faith not to declare a dividend, the courts will not disturb that decision.

Question 45

Personal Liability of An LLC:

Answer 45

Generally, members of an LLC are not personally liable for the obligations of an LLC. However, like shareholders of a corporation, personal liability may be imposed on the members if there are grounds for piercing the LLC veil of limited liability. Grounds for piercing an LLC are similar to the ground for piercing a corporation (e.g., piercing may be proper where the LLC is the alter ego of one or more shareholders, where the LLC was undercapitalized at its inception, or where the LLC was formed to commit fraud), but a court will generally not pierce an LLC for lack of formality (e.g., failure to hold meetings, etc.), because the statutes require less formalities in an LLC than in a corporation.

Question 46

Inspect Books and Corporate Records:

Answer 46

Shareholders generally have a right to inspect their corporation’s books and records for a proper purpose—i.e., a purpose related to their status as shareholders. To exercise that right, a shareholder must give the corporation five days’ written notice stating the reason why he wants to inspect the records.

Question 47

Corporate Existence:
o Liability of a Person Who Enters Into a Contract on Behalf of a Corporation Before it is Formed:
o Novation:
o De Jure Corporation:

Answer 47

Corporate existence begins when the articles of incorporation are filed by the secretary of state or other designated government official, or on a later date designated in the articles.
o Liability of a Person Who Enters Into a Contract on Behalf of a Corporation Before it is Formed: Persons who act on behalf of a corporation knowing that there was no incorporation are liable for liabilities created by so doing. Thus, there are two prerequisites to liability: action on behalf of the corporation and knowledge that the corporation has not yet been formed.
o Novation:
o De Jure Corporation:

Question 48

Jurisdiction Over Granting a Divorce:

Answer 48

To establish jurisdiction over a divorce action, one of the parties must be a bona fide resident of the jurisdiction where the action is brought. States may set a minimum durational residency requirement, such as 90 days or one year, before the action can be filed.

Question 49

Jurisdiction Over Division of Marital Property:

o Constitutional Due Process:

Answer 49

Generally, a court cannot determine property rights or rights to support unless it has jurisdiction over both parties. However, if the state has sufficient minimum contacts with the defendant and the property, so that it would not offend the traditional notions of fair play and substantial justice, a court can adjudicate the parties’ rights to that martial property.
o Constitutional Due Process: To be constitutional under the Due Process Clause, the exercise of personal jurisdiction over a defendant must be statutorily authorized, and the defendant must have minimum contacts with the jurisdiction such that the exercise of personal jurisdiction over him would be fair and reasonable. The contacts cannot be accidental; rather, they must be purposeful. The contacts must show that the defendant could reasonably anticipate being haled into the state court. Furthermore, when the state statute authorizes specific jurisdiction (i.e., personal jurisdiction for the cause of action only) based on a contact with the state, a lesser showing of contacts is permissible, given the close connection between the contact and the cause of action. Additionally, as part of the “fair play and substantial justice” analysis, a court will look to the state’s interest in the case. Finally, notice must be provided to the defendant.

Question 50

No Fault Divorce & Consent Required for a Divorce:

Answer 50

Most states now offer “no-fault” divorces that provide for the dissolution of a marriage without regard to marital fault, generally upon a showing that the marriage is irretrievably broken and that the parties have been living separate and apart for a specified period of time.

Question 51

Split of Property In Divorce:
o Marital Property:
o Fault Generally Not Given Weight:

Answer 51

The courts will have the authority to order an equitable distribution of all marital property, no matter how title is held.
o Marital Property: All assets acquired during marriage, including pensions, are deemed marital property, unless acquired through gift, bequest, devise, or descent. If property is acquired before marriage, but paid for after marriage with marital funds, most courts will apportion the property between separate and marital interests in proportion to the contribution of separate and marital funds used to pay for the property. Most courts hold that marital property continues to accrue until the final divorce decree is entered, rather than ending upon the date of separation. However, for property acquired before marriage, but appreciated at the time of marriage is still individual property.
o Fault Generally Not Given Weight: Marital fault is generally not a factor in the division of property, although some courts will consider it to the extent it led to a dissipation of assets.

Question 52

Rejecting a Settlement Agreement:

Answer 52

When a divorce settlement agreement is challenged prior to the final divorce decree, the court generally has the discretion to reject the agreement, accept the agreement, or accept it with modifications. The determination is made on a case-by-case basis, depending upon the facts presented. A spouse’s fraud, duress, or coercive behavior provides a basis for setting aside a settlement agreement that is unconscionable. Additionally, both spouses are required to make a full and fair disclosure in order for the agreement to be enforceable.

Question 53

Mediator Misconduct:

Answer 53

A mediator is required to be impartial, to disclose any potential conflicts of interest, to explain the medication process, to recognize and control the situation (e.g., domestic violence) that would result in unfairness or prejudice to one of the parties, and may not coerce a party to make a decision.

Question 54

Spousal Maintenance: 
o	Professional License or Degree Not Distributable Property:
	Exception, Equitable Distribution:
o	Marital Fault Not Given Any Weight.
o	Modification:
o	Permanent Period Alimony: 
o	Rehabilitative Alimony:

Answer 54

Spousal maintenance is awarded to provide for persons whose economic dependency has resulted from the marital relationship. The court has wide discretion in awarding as much spousal support as is necessary for the maintenance of the party who requests it. Factors to be considered by the court in determining the amount of support include: (i) the standard of living during the marriage; (ii) the duration of the marriage; (iii) the age and physical and emotional condition of both parties; (iv) the financial resources of the parties, including the assets and income of each party; (v) the contribution of each party to the marriage, including services rendered in education and career building of the other party; (vi) the time needed to obtain education or training to enable either party to find appropriate employment; and (vii) the ability of the spouse from whom spousal maintenance is sought to meet his own needs while also paying maintenance. Marital fault is generally not considered in determining spousal support.
o Professional License or Degree Not Distributable Property: Because a professional license or degree is generally not distributable property, many jurisdictions will compensate supporting spouses for their contribution during the other spouse’s training or education by awarding maintenance on a theory of unjust enrichment, quasi-contract, or reimbursement spousal support.
 Exception, Equitable Distribution: A growing minority of states hold that a license or degree is subject to equitable distribution. When courts distribute a license or degree, it awards a percentage of its value to the other spouse—usually in the form of additional marital property. If there is insufficient property for this remedy, the spouse may be awarded her percentage in a lump sum or series of payments.
o Marital Fault Not Given Any Weight.
o Modification: The grounds for modifying a spousal support award are a substantial and material change in circumstances affecting the needs of the recipient spouse or the ability to pay of the obligor spouse. A court may take into account legal obligations to a new spouse and children in determining whether there has been a change in circumstances that warrants modification of a support award. However, in most states, a stepparent relationship does not create legal support obligations. Moreover, a change in circumstances that is anticipated may not serve as a basis for modification of a support order.
o Permanent Period Alimony: Permanent periodic alimony is paid regularly to provide for a spouse who has neither the resources nor the ability to be self-sustaining. It is usually granted only in the case of a long-term marriage.
o Rehabilitative Alimony: Rehabilitative alimony consists of periodic payments for a limited period of time to enable a spouse to gain the skills or education necessary to become self-supporting (or, in some states, find appropriate employment).

Question 55

Adoption Reversal:

Answer 55

An adoption creates a new and permanent legal relationship between a child and the adoptive parents. While all of the parties to the adoption must consent, consent cannot be withdrawn after a decree of adoption is entered.

Question 56

Child Custody:
o Visitation:
o Full Faith and Credit and Modification:
o Modification.

Answer 56

The standard applied in awarding custody is the best interest of the child. Courts often consider factors such as the wishes of the parents; the wishes of the child; the interaction and interrelationship of the child with the parents, siblings, and others who affect the best interest; the child’s adjustment to home, school, and community; and the mental and physical health of the individuals involved. There is no gender preference. If after considering all relevant factors, the court is left to decide between two qualified parents, the person who has been the primary caretaker will likely be awarded custody.
o Visitation: The strong public policy to promote the relationship between the child and both parents requires that when an award of physical custody is made to one parent, the other parent is given reasonable visitation rights. Once custody is decided, the parties generally agree to a visitation schedule, or if unable to agree, the court will impose one.
o Full Faith and Credit and Modification:Under the federal parental Kidnapping Prevention Act, a state may not modify a custody order if one of the parties continues to reside in the issuing state and, under the state’s laws, the court continues to have and does not decline jurisdiction. Under the Supremacy Clause of the US Constitution, the federal law prevails over any contrary state law. Similarly, under the Uniform Child Custody Jurisdiction and Enforcement Act, which has been adopted by nearly every state, the court that made the initial custody determination has continuing, exclusive jurisdiction over the matter until that court determines that: neither the child nor the parents continue to reside in the state, or the child no longer has a significant connection with the state and substantial evidence relating to the child’s care, protection, training, and personal relationships is no longer available in the state.
o Modification. Material changes might warrant a modification, if jurisdiction isn’t an issue. Again, the standard is BIC.

Question 57

Child Support:
o Modification of Support:
o Full Faith and Credit:
o Not Your Child:

Answer 57

A contract entered into waiving support for a child is unenforceable. Nonmarital children have the same right to child support as marital children. The general rule is that both parents equally share the duty to support their children. The amount of support ordered is usually based on need and ability to pay. Most states have adopted child support guidelines that dictate a formula for the court to use based on the number of children, their ages, special needs, and parents’ incomes. In most states, the court may deviate from the guidelines, but must make findings of fat justifying the deviation.
o Modification of Support: Child support is modifiable based on a substantial change in circumstances affecting the needs of the children or the ability of the parents to pay. However, most states hold that past-due installments of support cannot be retroactively modified—any modification made by the court will apply only as to future payments. In modifying the child support, the court will consider material changes in (i) employment, (ii) growth of the children, (iii) income, (iv) inflation, (v) retirement, and (vi) disabling illness in deciding whether modification is warranted. Generally, an obligor’s self-induced reduction in income cannot be used to obtain a downward modification of support unless it is made in good faith.
o Full Faith and Credit: Under the Full Faith and Credit for Child Support Orders Act, full faith and credit must be given to another court’s child support order if: the court had jurisdiction over the matter and the parties, and the parties had reasonable notice and an opportunity to be heard.
o Not Your Child: Traditionally, courts have been extremely reluctant to terminate an established parent-child relationship and have relied on a wide range of equitable and procedural principles to avoid doing so. Some courts have cited the child’s best interest as justification for denying a petition to disestablish paternity. However, in recent years, a number of courts have placed greater emphasis on the interests of erroneously identified fathers, and there is a trend toward the enactment of paternity disestablishment legislation. Under a legislative or judicial standard that permits paternity disestablishment without regard to the child’s relational and financial interests, a court could appropriately accept blood tests, enter a finding of nonpaternity, and terminate the obligation.

Question 58

Educational Support Based on Contingency:

Answer 58

Many courts have ordered continuing child support past the age of 18 if the child remains a full-time student. However, all parents—whether married or divorced—may terminate this additional support to employable children who disobey reasonable parental requests.

Question 59

Which State Law Governs:

Answer 59

In the determining the enforceability of a premarital agreement, either the law of the state with the most significant relationship to the parties and the transaction or the law of the state where the agreement was executed will be applied. To determine which state has the most significant relationship, courts look at the specific contacts with each jurisdiction and consider several policy-oriented principles, including the justified expectations of the parties and the interests of the jurisdictions involved.

Question 60

Premarital Agreement:
o Voluntary:
o Destitute and Unconscionability At Time of Divorce:
o Child Custody Agreement in a Premarital Agreement:

Answer 60

A premarital agreement is unenforceable if the party against whom enforcement is sought proves (i) that she did not act voluntarily, or (ii) that the agreement was unconscionable when executed and, before execution, the party was not provided fair disclosure of the other party’s finances, did not waive such disclosure in writing, and did not have adequate knowledge of the other party’s property or financial obligations.
o Voluntary: Courts will generally consider an agreement voluntary when it is entered into without fraud, duress, or overreaching.
o Destitute and Unconscionability At Time of Divorce: A court may choose not to enforce provisions of premarital agreements that would result in a spouse being left a pauper or eligible for public assistance.
o Child Custody Agreement in a Premarital Agreement: The traditional rule is that a premarital agreement cannot bind a court in deciding matters relating to minor children, whether in the nature of custody or support. In all decisions relating to custody of a child, the paramount concern is the best interest of the child.

Question 61

Children of Unwed Parents:

o Adoption:

Answer 61

Unwed parents have rights to raise their own children. If an unwed father of a nonmarital child is a part of the “family unit” that includes the child, the relationship between the father and child will be protected by due process, as long as the unmarried father has demonstrated a full commitment to the responsibilities of parenthood by participating in the rearing of his child.
o Adoption: How much voice will be given to an unmarried father of a child up for adoption depends on how actively involved the father has been in that child’s life to date. Such factors as whether the father admitted paternity, lived with the mother and cared for the child, or visited the child regularly if he did not live with them, and paid child support will all be weighed in deciding whether an unmarried father can veto a prospective adoption.

Question 62

Separation Agreement:

o Not Biological Father:

Answer 62

A separation agreement is an agreement entered into during the marriage, prior to the issuance of the divorce decree, in which the parties may resolve economic issues. Separation agreements are governed by general contract principles. A separation agreement may be invalidated, in whole or in part, based on unconscionability or fraud. Most states required full and fair disclosure by both parties in order for the agreement to be enforceable. Representation by independent counsel can help lessen the risk that the agreement will be overturned.
o Not Biological Father: In some states, a wife’s failure to tell her husband that he might not be her child’s biological father may be considered a misrepresentation that could support a finding of fraud.

Question 63

Common Law Marriage:

o Full Faith and Credit:

Answer 63

To enter into a valid common law marriage, a couple must: (i) exchange consents; (ii) cohabit; and (iii) hold themselves out as living together as husband and wife. Each party’s consent must be a present agreement that the couple is married.
o Full Faith and Credit: Common law marriage has been abolished in most states. However, if a valid common law marriage is formed under the laws of one state, it will be regarded as a valid marriage in all states, even though those states may have abolished common law marriages.

Question 64

Procedure of Motion Post-Judgment JMOL:

o Timing:

Answer 64

The requirement that a motion for a judgment as a matter of law be made at the close of all the evidence has been eliminated, so long as the motion was made at some point during the trial. A party is limited to the grounds raised in the initial JMOL in the latter JMOL.
o Timing: The party also must make the renewed motion for JMOL within 28 days of the judgment.

Question 65

Substantive Granting of a JMOL:

Answer 65

To grant a motion for JMOL or a renewed motion for JMOL, the court must find that a reasonable jury would not have a legally sufficient basis to find for the party on the issue. The court must view the evidence in the light most favorable to the nonmoving party and without considering the credibility of witnesses.

Question 66

Appeal Judgment:
o Circumvention of Final Judgment Rule Through Appellate Writs of Mandamus and Prohibition Is Allowed:
o Collateral Claim or Issue:
o Interlocutory Appeals:

Answer 66

Ordinarily, only a final order—one that disposes of the whole case (i.e., all claims and all parties) on the merits—is appealable. However, under the Federal Rules, when multiple claims or multiple parties are involved in an action, the court may enter a final judgment as to fewer than all of the claims or parties on (i) an express determination that there is no just reason for delay, and (ii) an express direction for the entry of judgment. Unless the trial judge makes such an express determination, the order determining the merits of fewer than all of the claims or dismissing fewer than all of the parties is not a final judgment and is not appealable.
o Circumvention of Final Judgment Rule Through Appellate Writs of Mandamus and Prohibition Is Allowed: Mandamus commands a trial judge to act, and prohibition commands the judge to refrain from acting. The writs are available only if an appeal will be insufficient to correct a problem and the trial court’s actions constitute a serious abuse of power that must be immediately corrected.
o Collateral Claim or Issue: Additionally, if the claim or issue is separable from and collateral to the main suit and is too important to require deferring appellate review, it may be classified as a judgment in a separate (“collateral”) proceeding and thus be appealable.
o Interlocutory Appeals: Under the Interlocutory Appeals Act, review is discretionary and may be available when: (i) the trial judge certifies that the interlocutory order involves a controlling question of law, as to which there is substantial ground for difference of opinion, and immediate appeal from the order may materially advance the ultimate termination of the litigation, and (ii) the court of appeals then agrees to allow the appeal.

Question 67

New Trial, Generally:

o New Trial, Juror Bias:

Answer 67

Generally, a new trial may be granted because of some serious error that occurred during the trial (e.g., an error in the admission of evidence, error in instructing the jury, the verdict is excessive, etc.). In theory, a new trial could be granted if the jury’s verdict is a clear miscarriage of justice, but the judge may not replace the jury verdict with the verdict he would have reached.
o New Trial, Juror Bias: Granting a new trial for juror bias is the same standard as granting a new trial, generally, i.e., because of some serious error that occurred during trial.

Question 68

Permissive Joinder:

Answer 68

Under Rule 20 (permissive joinder), parties may be joined as plaintiffs or be joined as defendants, whenever: (i) some claim is made by each plaintiff and against each defendant relating to or arising out of the same series of occurrences; and (ii) there is a question of law or fact common to all the parties. The policy is to permit the adjudication of all claims arising out of a single transaction.

Question 69

Party Joinder: 
o	Prong (i) Party Should be Joined:

Answer 69

The determination of whether a party must be joined is a three-step process: (i) whether the party should be joined; (ii) if the party should be joined, whether it is feasible to join the party (e.g., determine if the joinder of the party would destroy venue or jurisdiction); and (iii) if the party should be joined and joinder is feasible, whether the party must be joined (i.e., whether the court must dismiss the action or whether it can proceed without the absent party, looking at such factors as the prejudice to both the present and absent parties, whether the judgment can be shaped to avoid such prejudice, whether the judgment will be adequate without the absent party, and whether the plaintiff will be deprived of an adequate remedy if the action were to be dismissed (e.g., no other forum is available to hear the case)).
o	Prong (i) Party Should be Joined: A party should be joined if: (i) complete relief cannot be given to the existing parties in his absence; (ii) the disposition in the party’s absence may impair the absent party’s ability to protect her interest in the controversy; or (iii) the party’s absence would expose existing parties to a substantial risk of double or inconsistent obligations.

Question 70

Counterclaim:

Answer 70

A defendant may assert any counterclaims he may have even if there is no relationship between it and the plaintiff’s claim. Such a counterclaim is permissive. If the counterclaim arises out of the same transaction or occurrence as the plaintiff’s claim, it is a compulsory counterclaim and must be pleaded or it is barred.

Question 71

Cross-claim:

o Federal Jurisdiction:

Answer 71

Under the federal rules, co-parties may assert cross-claims against each other that arise out of the same transaction or occurrence as the main action.
o Federal Jurisdiction: If a cross-claim is properly asserted in federal court, the court has supplemental jurisdiction because it arises from the same transaction or occurrence.

Question 72

Subject Matter Jurisdiction:

Answer 72

o Federal Question: For federal question jurisdiction to be proper, the case must arise under the Constitution, laws or treaties of the US. Whether a case “arises under” federal law is determined from the plaintiff’s well-pleaded complaint, but the plaintiff cannot anticipate a potential defense that is based on federal law in order to provide the court with federal question jurisdiction.
o Diversity of Citizenship: requires complete diversity of citizenship (i.e., no single plaintiff may be of the same state citizenship as any defendant) and an amount in controversy of more than $75,000. An individual is a citizen of the state in which she is presently domiciled with the intent to remain permanently. A corporation is considered to be a citizen of any U.S. state and foreign country in which it is incorporated and the one U.S. state or foreign country in which it has a principal place of business.
 Alien: An alien admitted to permanent residency in the US is deemed to be a citizen of the state in which she is domiciled.
o Supplemental Jurisdiction: A federal court has supplemental jurisdiction over claims that arise from the same nucleus of common fact as the claim that invoked federal subject matter jurisdiction. By definition, a compulsory counterclaim meets this definition.
 Restrictions: First, the addition of a plaintiff by means of supplemental jurisdiction cannot destroy complete diversity. Second, although there is some dispute how the statute should be interpreted, 28 USC s. 1367(b) possibly prohibits the use of supplemental jurisdiction in diversity cases for claims by plaintiffs against impleaded parties, compulsorily joined parties, permissively joined parties, and intervening parties. Additionally, claims by compulsorily joined plaintiffs or by plaintiffs seeking to intervene may not be heard under the court’s supplement jurisdiction.
o Domestic Relations: Generally, federal courts will not take jurisdiction over actions involving the issuance of a divorce decree, alimony, or a child custody decree. The exception is very narrow—the case must relate to the issuance of such a decree. If the case is for money damages arising out of a breach of contract related to the decree, then federal courts will take it.

Question 73

Personal Jurisdiction:

Answer 73

For a federal court to have personal jurisdiction over a particular defendant, there must be a state statute authorizing personal jurisdiction (because a federal district court must analyze the personal jurisdiction issue as if it were a state court in the jurisdiction), and the exercise of such jurisdiction must be constitutional.
o Constitutional: For the exercise of personal jurisdiction to be constitutional, the nonresident defendant must either have conducted continuous and systematic activity within the state such that it is considered to be “doing business” within the state, thereby subjecting itself to personal jurisdiction for all causes of action (“general jurisdiction”) or have sufficient minimum contacts with the state that the exercise of personal jurisdiction over it for the instant cause of action only would be fair and reasonable (“specific jurisdiction”)—in other words, whether defendant had purposeful contacts with the forum such that he could reasonably anticipate being haled into court in the forum state.

Question 74

Service of Process:

Answer 74

Under the Federal Rules, service of a copy of the summons and complaint (“process”) must be made by a nonparty who is at least 18 years old. Generally, service must be made (i) personally; (ii) by leaving the process at the defendant’s usual place of abode with one of suitable age and discretion residing therein; (iii) by serving the defendant’s authorized agent; or (iv) as permitted under state law.
o Foreign Service of Process: Federal Rule 4 permits the court to authorize alternative methods of service in appropriate cases. Under Rule 4, service on a foreign corporation may be made (i) in accordance with international treaty; if there is no treaty, service on a corporation may be made: (ii) in accordance with the foreign country’s laws, (iii) as the foreign authority directs in response to a letter request for guidance, (iv) by having the clerk mail process to the defendant, with a signed receipt requested; or, most importantly, (v) by any other means not prohibited by international agreement as court may order.
o Notice: Rule 4 specifically requires that the method of service ordered must provide the defendant with notice of the action.
o Defense: Insufficient process and insufficient service of process (along with lack of personal jurisdiction and improper venue), must be raised at the first opportunity, i.e., when, in response to the plaintiff’s complaint, the defendant first files a motion to dismiss or an answers, or else the defense is waived. The waivable defenses may be joined with other defenses, but they cannot be omitted completely.

Question 75

Which State Law Applies in Diversity Case:

Answer 75

The federal district court in a diversity case must apply the conflict of laws rules of the state in which it sits.
o Most Significant Relationship Approach: Seeks to identify the state with the most significant relationship to the issue at hand and then apply that state’s law. The court will look at the specific contacts with each jurisdiction and evaluate their relative importance. The court will also consider policy principles, such as the needs of the interstate or international system, the relevant policies of the forum and other interested jurisdictions, whether the application of a specific law will further its basic policies, and whether application of a particular law will aid certainty, predictability, and uniformity of results.
 Tort Cases: In determining which state has the most significant relationship to both the occurrence and the parties, the court in tort cases will take these specific contacts into account: the place of injury; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation, and place of business of the parties, and the place where the relationship, if any, between the parties is centered.

Question 76

Removal to Federal Court Process:

Answer 76

The first step is to file a notice with the federal district court and division in which the action is pending, and copies of the notice should be sent to the opposing parties and to the state court. This notice must be filed within 30 days after the defendant obtains by service or other state methods, a copy of the complaint, and it must contain the grounds for removal (e.g., that diversity exists or that a federal question has been presented). If the ground for removal is that diversity exists, the action cannot be removed from state court after one year has passed since its filing. Furthermore, all defendants must join in the removal.

Question 77

Priority of Interests:

Answer 77

Generally, a perfected security interest prevails over an unperfected security interest in the same collateral. In the case of conflicting perfected security interests, the party that files or perfects first has priority.

Question 78

Perfecting a Security Interest:

Answer 78

The UCC provides for perfection by simple “notice” filing for all kinds of collateral except deposit accounts and money. For collateral other than real estate, a financing statement is filed centrally with the secretary of state.
o Financing Statement Validity: The financing statement must contain (i) the name and mailing address of the debtor, (ii) the name and address of the secured party, and (iii) an indication of the collateral covered by the financing statement. The financing statement must not contain any seriously misleading errors for it to be effective.
 Seriously Misleading Names: If the debtor is a registered corporation, the debtor’s name will be considered seriously misleading and, thus, the filing will not be effective, if it does not match the name under which the debtor was organized. Also, use of the debtor’s trade name will invalidate the filing.
• Safe Harbor Provision: However, an incorrect name will not be treated as seriously misleading under a “safe harbor” provision if the financing statement would be discovered in a filing office search under the debtor’s correct name.
o Automatic Perfection: Perfection may occur automatically, without filing, in the case of a security interest in a small-scale assignment of an account or payment intangible.
o Consumer Goods Perfection: Purchase Money Security Interest (PMSIs) in consumer goods are automatically perfected upon attachment. A PMSI arises when a creditor sells goods to a debtor on credit, retaining a security interest in the goods for the purchase price.
o Buyers Take Goods Subject to Perfected Security Interests: Generally, buyers take gods subject to any perfected security interests.
 Exception—Buyers in the Ordinary Course: A BIOC buys goods in the ordinary course of business from a seller engaged in the business of selling goods of that kind. A BIOC takes free of nonpossessory security interests created by his seller unless he knows the sale violates a security agreement. A consumer who buys goods from another consumer, before a financing statement has been filed and without knowledge of the interest, takes the goods free of even a perfected PMSI.

Question 79

Account:

Answer 79

A right to payment for goods and services.

Question 80

Deposit Account:

Answer 80

A security agreement for a nonconsumer deposit account is evidenced by control. The bank in which the nonconsumer deposit account is maintained automatically has control over a deposit account. Other means of gaining control over a nonconsumer deposit account are: (i) putting a deposit account in the secured party’s name; or (ii) 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 the debtor’s consent. A security interest may be perfected by filing as to all kinds of collateral except deposit accounts and money. Generally, a perfected security interest prevails over an unperfected security interest.

Question 81

Equipment:

Answer 81

Goods that are not consumer goods, farm products, or inventory and equipment.
o Statutory Requirement: A security interest in a motor vehicle isn’t perfected absent a notation on the vehicle’s certificate of title.

Question 82

Inventory:

Answer 82

Inventory includes supplies used in manufacturing, and goods used held for sale or lease.
o Perfection: Either filing a financing statement or possession.

Question 83

Consumer Goods:

Answer 83

Consumer goods are those used or bought for personal, family, or household purposes.
o PMSI Perfection: Only PMSIs in consumer goods are automatically perfected upon attachment. Therefore, PMSIs in inventory don’t automatically perfect.

Question 84

Lease:

Answer 84

If a transaction is characterized as a lease but is intended to have effect as security, it will be governed by Article 9 as a security interest. Whether a lease of a good is intended for security, rather than a “true” lease, depends on the economic realities of the transaction. A transaction will be deemed to create a security interest rather than a lease if the rental obligation is not terminable by the lessee and, at the end of the lease, the lessee has an option to purchase the gods for no or nominal consideration.

Question 85

After-Acquired:

Answer 85

When a security agreement contains an after-acquired property clause, the security interest will attach to the specified collateral when the debtor acquires an interest in it.

Question 86

Seller’s Security Interest:

Answer 86

When a seller delivers goods to a buyer and attempts to reserve title in the delivered goods until they are paid for, the seller’s interest will be treated only as a security interest.

Question 87

Repossession:

Answer 87

Upon default of the debtor, a party with an enforceable security interest may repossess any collateral that secures the debt. A security is not enforceable unless it has attached.

Question 88

Attachment:

Answer 88

A security interest attaches in collateral once the following three requirements coexist: (i) the secured party gives value; (ii) the parties agree to create a security interest, which may be evidenced by an authenticated security agreement describing the collateral; and (iii) the debtor obtains rights in the collateral.
o Rights to Collateral: Generally, rights to collateral only arise once the collateral is delivered.

Question 89

Determining Collateral Type:

Answer 89

Whether goods qualify as inventory or another type of collateral is determined by their primary use at the time of attachment.

Question 90

Collateral Sale Extinguishes Secured Party Interest:

Answer 90

If a secured party sells the collateral after default by the debtor, its security interest and all subordinate security interest in the collateral that was sold are discharged—absent bad faith on the part of the purchaser.

Question 91

Prior Perfected Security Interest vs. Judicial Liens:

Answer 91

A prior perfected security interest in collateral trumps a judicial lien.

Question 92

Physical Attachment of Goods to Other Goods In Which Another Creditor Has a Security Interest:

Answer 92

o Accessions: When goods are physically united with other goods in such a manner that the identity of the original goods is not lost, the goods become accessions. A security interest in goods that is created and perfected before the goods become accessions continues after the goods become accessions. When collateral of one creditor becomes united with the collateral of another creditor, each creditor’s collateral is an “accession” to the other creditor’s collateral, and the two items of collateral together are regarded as “the whole.”
 Applied to Whole or Not: Whether either creditor’s security interest applies to “the whole,” or applies only to its original collateral, turns on the description of the collateral in the creditor’s security agreement.
 Priority: The priority rules governing accessions are normally the same as the rules for other collateral.

Question 93

PMSI:

Answer 93

A PMSI arises when (i) a creditor sells the goods to the debtor on credit, retaining a security interest in the goods for all or part of the purchase price; or (ii) a creditor advances funds that are used by the debtor to purchase the goods.
o PMSI v. Prior Perfected Security Interest: A PMSI in equipment that is perfected when the debtor takes possession of the collateral prevails over a conflicting perfected interest in the same equipment, even if the conflicting interest is earlier in time.

Question 94

Trustee Duties:

Answer 94

A trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title.

Question 95

Merger of Title:

Answer 95

A trust terminates when the sole trustee is also the sole beneficiary.

Question 96

Revocability of Trust and Amending:

Answer 96

In states that have adopted the Uniform Trust Code, an inter vivos trust is revocable unless it is expressly made irrevocable, but the majority of states provide that an inter vivos trust is irrevocable unless the instrument expressly provides otherwise. The power to revoke includes the power to amend.

Question 97

Pour Over Provision / Adding to Assets:

Answer 97

Include a pour-over provision. A pour-over gift is a testamentary gift to a trust created during the testator’s lifetime, with the testamentary assets to be administered and distributed as part of that trust. To create a valid pour-over gift, the trust must be in existence or must be executed at the time of the will’s execution. However, under the prevailing view, property may be bequeathed to a trustee of a trust established or to be established during the testator’s lifetime; i.e., the trust may be established after the will’s execution but before the testator’s death. The gift is to the trust as it exists at the testator’s death, including amendments to the trust made after the will was executed. There is no requirement that the trust and will be executed by the same person.

Question 98

Construing of a Trust:

Answer 98

Courts will construe the words of a trust to effect the settlor’s intent.

Question 99

Termination of a Trust:

Answer 99

Upon termination of a trust, the trustee must distribute the property in accordance with the terms of the trust. If the named beneficiary is no longer in existence and the settlor did not provide what should be done with the property in such event, a resulting trust arises in which the settlor is the beneficiary. The trustee’s only duty is to convey the property back to the settlor or his estate. However, if the settlor had a general charitable intent, the court will exercise its cy pres power and direct that the trust property be applied to another charitable purpose as close as possible to the original one, rather than permit the trust to fail and become a resulting trust.

Question 100

• Modification of a Trust:
o Under Beneficiary’s Direction:
o Changes Circumstances:
o Charitable Trust:

Answer 100

o Under Beneficiary’s Direction: Most jurisdiction follow the Claflin doctrine, which provides that a trust may be modified by the beneficiaries only if all beneficiaries consent and the modification will not interfere with a material purpose of the trust.
o Changes Circumstances: At common law, a court may authorize or direct a trustee to deviate from the administrative terms of a trust (including permitting acts that are forbidden by the trust instrument) if the settlor did not know or anticipate the new circumstances and compliance with the terms of the trust would defeat or substantially impair accomplishment of the trust purposes. Usually, the doctrine of changed circumstances cannot be used to change the beneficial rights of the beneficiaries. However, courts will strain to find an implied power of invasion in the trust instrument. Many states give the court the power to invade principal for an income beneficiary if the court finds that support of the income beneficiary was the primary purpose of the trust.
o Charitable Trust: If a charitable purpose becomes impossible or impracticable and the settlor had a general charitable intent, the court will apply cy pres and order that the trust property be applied to another charitable purpose as close as possible to the original one, rather than have the trust fail. If the specified charitable use is no longer possible, the court must decide whether the settlor intended the trust to fail or would have wished the property devoted to a similar use. Under the UTC< general charitable intent is conclusively presumed. Therefore, in UTC states, cy pres will be applied in every case of an impossible or impracticable charitable trust interest unless the settlor specifically provides for a substitute taker in the event of this type of problem.

Question 101

Trust to Class of Persons:

Answer 101

When a gift is made to a class of persons, such as to someone’s children, the class “closes” (i.e., the maximum membership of the class is determined) when some member of the class can call for a distribution of her share of the class gift. When possession and enjoyment are postponed, as where the gift follows a life estate, the class remains open until the time fixed for distribution (e.g., death of the life tenant).Class gifts include all class members born or adopted before the class closes.

Question 102

Disclaiming Beneficial Interest:

Answer 102

A beneficiary of a trust has the right, within a reasonable time after learning of the trust, to disclaim the beneficial interest, absent some act of expressed or implied acceptance. Upon disclaimer, any interest that otherwise would pass to that person under the trust passes as though the disclaiming party predeceased the life tenant. In most states, a disclaimer is not effective unless it is in writing and is filed within nine months of the decedent’s death.

Question 103

Discretionary Trust vs. Support Trust:

Answer 103

In a discretionary trust, the trustee is given discretion whether to apply or withhold payments of income or principal to a beneficiary. This discretion actually limits the rights of the beneficiary to the amounts the trustee decides to give her. The beneficiary cannot interfere with the exercise of the trustee’s discretion unless the trustee abuses his power. Further, before the trustee exercises his discretion to make payments to the beneficiary, the beneficiary’s interest is not assignable and cannot be reached by creditors. Because the beneficiary has no right to payment that he can enforce against the trustee, there is nothing for the creditors to reach. The creditors’ rights are not greater than those of the beneficiary. If the trustee decides to make payments to the beneficiary and she has notice of an assignment or attachment by creditors, the trustee must pay the creditors directly (unless the trust has a spendthrift restriction). On the other hand, a support trust is one where the trustee is required to pay or apply so much of the income or principal as is necessary for the beneficiary’s support.

Question 104

Power of Appointment (General and Specific): 
o	General Power of Appointment: 
o	Special Power of Appointment:
o	Present Exercisable Power:
o	Testamentary Power:

Answer 104

A power of appointment is an authority created in the donee enabling the donee to designate, within the limits prescribed by the donor of the power, the persons who shall take certain property and the manner in which they shall take it.
o	General Power of Appointment: A general power of appointment is exercisable in favor of the donee, her estate, her creditors, or the creditors of her estate.
o	Special Power of Appointment: A special power of appointment, on the other hand, is exercisable in favor of a specified class of persons that does not include the donee, her estate, her creditors, or the creditors in her estate.
o	Present Exercisable Power: A present exercisable power is exercisable by the donee during her lifetime.
o	Testamentary Power: A testamentary power is one that is exercisable only by the donee’s will.

Question 105

Trustee’s Fiduciary Duties:
o	Duty of Loyalty:
o	Duty to Invest Prudently: 
o	Duty to Diversify:
	Settlor’s Directive Absolution: 
o	Duty of Care:
o	Duty to Exercise Her Powers in Accordance with the Terms of the Trust:

Answer 105

o Duty of Loyalty: Under the UPIA, a trustee must act exclusively for the beneficiary when investing and managing trust assets, or he is acting imprudently. Absent court approval or a contrary trust provision, a trustee breaches this duty when he enters into any transaction in which he is dealing with the trust in his individual capacity (self-dealing). A transaction in which the trustee invests trust assets in a corporation of which the trustee is a principal shareholder is considered self-dealing. Also, a trustee may not purchase any property owned by the trust even if she pays full value. No fraud or bad faith need be shown by the beneficiaries, and no excuse can be offered by the trustee to justify the transaction. If a prohibited transaction takes place, the beneficiaries may: (i) set aside the transaction, (ii) recover the profit made by the trustee, or (iii) ratify the transaction.
o Duty to Invest Prudently: Under the UPIA, a trustee must invest and manage trust assets as a prudent investor would. No particular type of investment is inherently imprudent, because a trustee may invest in any type of investment with the standards of the Act. These standards require the trustee to consider the following circumstances (among others) in making investment decisions: (i) general economic conditions; (ii) the role that each investment plays within the overall trust portfolio; (iii) the expected total return from income and the appreciation of capital; and (iv) needs for liquidity, regularity of income, and preservation or appreciation of capital.
o Duty to Diversify: Under the UPIA, a trustee must diversify the investments of the trust unless he reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversification.
 Settlor’s Directive Absolution: When a trust is revocable, a trustee may be absolved from liability when it acted in accordance with the settlor’s directives because the settlor may be treated as the effective owner.
o Duty of Care: Under the UPIA, a trustee must invest and manage trust assets as a prudent investor would, taking into account the purposes, terms, and distribution requirements of the trust. To satisfy this objective standard of prudence, the trustee must exercise reasonable care, skill, and caution.
o Duty to Exercise Her Powers in Accordance with the Terms of the Trust: A trustee has a fiduciary duty to exercise her powers in accordance with the terms of the trust; failure to do so constitutes a breach of trust. Exercise of a discretionary power, even when the trustee is given “absolute” or “uncontrolled” discretion, is subject to judicial review to prevent abuse of the trustee’s discretion.

Question 106

Specific Bequest:

Answer 106

A specific bequest is a gift of property that is particularly designated and is to be satisfied only by the receipt of the particular property described.
o Increases: Any increases to specific gifts occurring after the testator’s death pass to the specific beneficiary because the beneficiary is deemed to own the property form the time of the testator’s death. Different rules apply to increases occurring before the testator’s death. Most states follow the common law rule, under which a specific bequest of stock includes any additional shares produced by a stock split, but does not include shares produced by a stock dividend. However, under the UPC and by statute in several non-UC states, a specific bequest of stock also includes shares produced by a stock dividend.

Question 107

Integration: 
o	Codicil:
o	Doctrine of Dependent Relative Revocation:
o	Extrinsic Evidence: 
o	Document That Isn’t Present:

Answer 107

“Integration” of a will is the process of embodying several sheets of paper or documents into a single, entire will, validated by a single action of execution. Under the doctrine of integration, all of the pages that were intended to be part of a will and were present at the time the testator and witnesses signed the last page comprise the decedent’s will. The pages need not be stapled together, and the testator and witnesses need not sign each page. A presumption of integration arises when there is an internal coherence by provisions running from one page to the next.
o Codicil: A codicil is a later testamentary instrument that amends, alters, or modifies a previously executed will. It need not be a separate document; a codicil may appear on the same piece of paper as the will it amends.
o Doctrine of Dependent Relative Revocation: Under the doctrine of dependent relative revocation, a court may disregard a revocation if it determines that the act of revocation was premised on a mistake of law or fact and would not have occurred but for the testator’s mistaken belief that another disposition of his property was valid. If the other disposition is ineffective for some reason, the revocation accompanying the attempted disposition also fails, and the will or provision remains in force. The disposition that results from disregarding the revocation must come closer to effectuating what the testator tried, but failed, to do than would be intestate distribution.
o Extrinsic Evidence: Extrinsic evidence is not admissible in most courts to who that a provision contained in the will is not what the testator intended. Absent evidence of fraud, duress, or suspicious circumstances, it is presumed that the testator understood and approved the terms of the will when he signed it.
o Document That Isn’t Present: In most states, a document that is not present when the will is executed may be incorporated into the will by reference and considered part of the will if: it was in existence at the time the will was executed, the will sufficiently describes the document, and the will manifests an intent to incorporate the document. In addition, for the disposition of items of personal property, many states and the UPC dispense with the requirement that document be in existence at the time the will is executed if the writing is signed by the testator and the items and devisees are described with reasonable certainty.

Question 108

Handwritten & Holographic Will:

Answer 108

A handwritten ill does not mean that it is a holographic will. A holographic will is an unattested will entirely in the testator’s handwriting.

Question 109

Life Insurance Proceeds:

Answer 109

Life insurance proceeds are a nonprobate asset and pass to the beneficiary outside of the estate. A life insurance policy is a contract, and the disposition of the proceeds is governed by the terms of the contract. Most life insurance policies provide that a change in beneficiaries can be made only by notifying the company during the owner’s lifetime. A will cannot change the beneficiary designation unless the terms of the contract permit it.

Question 110

Adopted Children & Non-marital Children:

Answer 110

For purposes of intestate succession, an adopted child is treated the same as a natural child of his adopting parents. Furthermore, all states permit a nonmarital child to inherit from his mother, and most states also permit inheritance from his father if paternity is established.

Question 111

Disclaimers:

Answer 111

A beneficiary may disclaim an interest that otherwise would pass to her from the decedent’s estate, with the consequence that the interest passes as though the disclaimant predeceased the decedent. The gift may be saved in favor of the disclaimant’s surviving descendants if she falls within the purview of the jurisdiction anti-lapse statute; otherwise, the gift fails and becomes part of the residuary estate.

Question 112

Anti-lapse Statute:

Answer 112

A typical anti-lapse statute provides that the surviving descendants take by substitution only when the predeceasing beneficiary is a descendant of the testator. Others take by substitution only when the predeceasing beneficiary is a descendant beneficiary of the testator. Other states and the UPC extend the application of the statute to any predeceasing beneficiary who is the testator’s stepchild, grandparent, or descendant of the testator’s grandparent. A few states’ anti-lapse statutes are even broader, applying to any relative of the testator or any beneficiary at all.

Question 113

Ademption:

Answer 113

Under the doctrine of ademption, when specifically bequeathed property is not in the testator’s estate at death (e.g., it was destroyed, sold, given away, or lost), the bequest is adeemed; i.e., it fails. Although most courts decide the ademption issue solely on the basis of an objective test—whether the specifically bequeathed property is a part of the testator’s estate at her death—and do not consider the testator’s intent, many states and the UPC have softened the ademption rule in certain circumstances.

Question 114

Satisfaction:

Answer 114

An inter vivos gift made subsequent to a will’s execution is generally deemed to be in satisfaction of the gift in the will if the testator intended the gift to be in satisfaction. However, states that follow the UPC approach do not consider a transfer to be in satisfaction unless the testator so provides in her will or in a contemporaneous writing, or unless the devisee acknowledges in writing that the gift is one in satisfaction.

Question 115

Abatement:

Answer 115

Abatement is the process of reducing testamentary gifts where estate assets are insufficient to satisfy all bequests and devises. The testator may set out an order of abatement in her will, but if she does not, in most jurisdictions estates abate in the following order: (i) property passing by intestacy; (ii) the residuary estate; (iii) general legacies, which abate pro rate; and (iv) specific devises and bequests.

Question 116

Undue Influence:
o Presumption:
o Invalidity:

Answer 116

A will is invalid if it is obtained through the exercise of undue influence. Influence is not undue unless the free will of the testator is destroyed and the resulting testamentary disposition reflects the desires, not of the testator, but of the party exerting undue influence. To establish undue influence, the contestants, who have the burden of proof, must establish that: (i) influence was exerted on the testator, (ii) the effect of the influence was to overpower the mind and free will of the testator, and (iii) the product of the influence was a will that would not have been executed but for the influence. The beneficiary’s mere opportunity to exert influence, the testator’s mere susceptibility to influence due to age, and the mere fact that the will makes an unnatural disposition that favors a stranger over blood kindred, by themselves, are insufficient to establish undue influence.
o Presumption: A presumption of undue influence arises when: (i) a confidential relationship existed between the testator and the beneficiary who was alleged to have exercised undue influence, (ii) the beneficiary participated in procuring or drafting the will, and (iii) the provisions of the will appear to be unnatural and favor the person who allegedly exercised undue influence. Once these elements appear, the burden shifts to the proponent of the will to prove that it was not induced by her undue influence.
o Invalidity: A will is void if its execution is procured by undue influence. If only a part of the will was so procured, only that part is void, and the remainder of the will is given effect.

Question 117

Fraud:
o Fraud in the Execution:
o Fraud in the Inducement:

Answer 117

Where the execution of a will or the inclusion therein of a particular gift is the result of fraud, the will or the particular gift is invalid. A finding of fraud requires a showing that the testator has been willfully deceived as to the character or content of an instrument, as to the extrinsic facts that would induce the will or a particular disposition, or with respect to facts material to a disposition. Fraud invalidates a will only if the testator was in fact deceived by and acted in reliance on the misrepresentation; i.e., the testator would not have made the will or gift had he known the true facts.
o Fraud in the Execution: Fraud in the execution occurs when there is a misrepresentation as to the nature of the contents of the instrument.
o Fraud in the Inducement: Fraud in the inducement occurs when the testator intends to execute the instrument as his will and to include the particular contents of that instrument, but he is fraudulently induced into making this will, or some particular gift therein, by misrepresentations as to facts which influence his motivation.

Question 118

Intestate Succession:
o Per Capita with Representation:
o Per Capita with Generational Level Scheme:

Answer 118

Intestate succession is the statutory method of distributing assets that are not disposed of by will. If a decedent’s will is denied probate (e.g., due to a successful will contest), his entire estate passes by intestacy. If there is no surviving spouse, the entire estate passes to the decedent’s children and descendants of deceased children. If no children, to the decedent’s parents. If no parents, then to the descendants of the decedent’s parents, i.e., the decedent’s brothers and sisters and the issue of deceased brothers and sisters.
o Per Capita with Representation: In most states, the issue take per capita with representation; i.e., the property is divided into equal shares at the first generational level at which there are living takers, with the shares of each deceased person at that level passing to his issue by right of representation.
o Per Capita with Generational Level Scheme: Under this scheme, the initial division of shares is made at the first generational level at which there are living takers, but the shares of deceased person at that level are combined and then divided equally among the takers at the next generational level.

Question 119

Partial Invalidity:

Answer 119

If the will is partially invalid, a testator’s residuary estate (i.e., the portion of the estate that has not otherwise been particularly devised or bequeathed) is bequeathed to two or more beneficiaries and one of the beneficiaries’ shares lapses (i.e., fails), that share does not pass to the remaining beneficiaries, but instead “falls out of the will” and passes by intestacy. However, most states have replaced this rule by statute, under which the lapsed share passes to the other residuary beneficiaries in proportion to their interests in the residue.

Question 120

Power of Appointment:

Answer 120

A general power of appointment is one exercisable in favor of the donee herself, her estate, her creditors, or the creditors of her estate. A presently exercisable power may be exercised by the donee during her lifetime; a testamentary power is exercisable only by the donee’s will. In most states, a presently exercisable power of appointment is also exercisable by the donee’s will unless the donor has expressly limited exercise of the power to the donee’s lifetime. The majority rule is that a residuary clause, by itself, does not exercise any power of appointment held by the testator as donee. However, if the residuary clause includes a “blanket” exercise of the power (e.g., “all the rest, residue, and remainder of my estates, including any property over which I may have a power of appointment”), it will be given effect unless the donor called for an appointment by an instrument specifically referring to the power.