Most Common Rules (General) Flashcards
Federal Courts: Subject Matter Jurisdiction
Federal district courts have limited subject matter jurisdiction and may hear only actions that involve federal questions or diversity of citizenship where the amount in controversy exceeds $75,000.
Shared citizenship between any plaintiff and any defendant destroys diversity jurisdiction.
A corporation is a citizen of both the state of its incorporation and of the state where it has its principal place of business.
A permanent resident is a citizen of the state where she is domiciled.
Federal Courts: Proper Venue
Venue determines the judicial district in which a lawsuit may be filed or commenced. Venue is proper in a judicial district where:
(1) Any defendant resides, if all the defendants reside in the same state; (2) A substantial part of events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject matter of the action is located; or (3) If there is no district anywhere in the US that satisfies (1) or (2), a judicial district in which any defendant is subject to personal jurisdiction.
Federal Courts: Personal Jurisdiction
A court must have personal jurisdiction in order to adjudicate the rights and liabilities of a defendant. If any of the traditional bases are satisfied, the court will have personal jurisdiction:
(1) Domicile
(2) Physical Presence
(3) Consent
(4) Waiver
If none of the traditional bases are satisfied, personal jurisdiction may still be obtained using a state long arm statute. (Requires Constitutional due process)
Divorce: Division and Distribution of Property
Under the equitable distribution approach, courts take a 2-step approach whereby they:
(1) Categorize the property as separate or marital; then (2) Determine an equitable distribution of the marital property between the spouses.
Separate property includes:
(1) Property acquired by either spouse before marriage. (2) Property acquired by a spouse during marriage by gift, bequest, devise, or descent. (3) Property acquired by either spouse using the proceeds of separate property. (4) Passive appreciation of separate property
Marital property generally includes all property acquired during marriage that is not separate property.
Distribution:
Once the court categorizes the property as either separate or marital, the court will then equitably distribute the marital property between both spouses- afforded significant discretion.
Initial Child Custody & Modification
Generally, courts determine child custody based on the best interests of the child. A parent’s misconduct generally may not be considered unless it causes significant harm to the child. Courts consider multiple factors to determine what custody order will serve the child’s best interests.
Modification:
In order to modify a child custody order, the parent must show that:
(1) Circumstances have substantially changed; and
(2) The modification would be in the child’s best interest.
The state that issued the child custody order has continuing exclusive jurisdiction to modify the order so long as that state remains the residence of any party involved.
Divorce: Jurisdiction
Jurisdiction over marital actions is vested solely in the state courts.
Under the full faith and credit clause, a divorce validly granted in one state is entitled to full faith and credit in other states. Generally, a divorce is valid and must be recognized by other states if the petitioning party:
(1) was domiciled in the state that granted the divorce and; (2) Provided adequate notice of the proceeding to the other spouse.
Under the concept of divisible divorce, a distinction is made between the marriage and the marital property. A state does not have jurisdiction to divide marital property that is located in another state in the absence of personal jurisdiction over the defendant spouse.
Requirements for Valid Will
A will is valid if the specific formalities provided by state law are met. Generally, these formalities require a valid will to be:
(1) In writing (2) Signed by the testator (3) Signed by at least two witnesses
Codicil:
A codicil is a supplement or addition to a will that is made after a will is executed. A codicil can explain, modify, amend, or revoke provisions of an existing will. A codicil must satisfy the same formalities as a will to be valid.
General mechanics of Article 9
Article 9 of the UCC applies to ANY transaction intended to create a security interest in personal property or fixtures. A security interest gives a creditor the right to sell a debtor’s property in order to satisfy a debt.
Generally, in an Article 9 transaction, personal property or fixtures secure the payment of a debt or insure performance of a contract obligation with the property serving as collateral.
There are three main parties to an Article 9 transaction:
(1) Secured Party. The secured party is the creditor who possesses the benefit of (2) Debtor. The debtor is the party who has an ownership interest or other sufficient interest in the personal property securing the obligation. (3) Obligor. The obligor is the party held responsible for the underlying obligation (usually also the debtor, but could be a type of guarantor).
Article 9: Collateral
Collateral refers to the property in which a security interest is created, and it extends to identifiable proceeds from the property that serves as collateral. Article 9 defines different types of collateral as follows:
(1) Goods. Goods are all things that are movable when a security interest attaches. (2) Consumer Goods. Consumer goods are goods that are used mainly for personal, family, or household purposes. (3) Inventory. Inventory includes goods that are kept by a person for sale or lease (does not include goods that are only being held for repair). (4) Accounts. A security interest in a debtor’s “accounts” covers any right to payment of a monetary obligation, whether or not earned by performance, for property that has been or is to be sold. A secured party can collect directly from the person who owes the debtor if the debtor defaults.
Article 9: Attachment
Attachment is essentially how a security interest is created. Once a security interest attaches, it becomes enforceable.
A valid attachment requires that:
(1) There is a valid security agreement memorializing the security interest; (2) The debtor possesses rights in collateral; AND (3) The creditor extends value to the debtor (almost any consideration will suffice).
Article 9: Perfection
Once the security interest attaches, it is enforceable. Perfection of the interest only enhances the secured party’s rights to the property serving as collateral. Note, if the security interest does not attach, then it CANNOT be perfected no matter what the creditor does.
3 different methods in which a security interest may be perfected:
(1) Filing. The filing of a “financing statement” or the security agreement with the state is the primary method of perfection.
(2) Taking Possession. A secured party may perfect a security interest in negotiable documents, goods, instruments, or money by taking mere possession of such items.
(3) Automatic Perfection: only for: purchase-money security interest in consumer goods; AND an assignment of accounts which does NOT by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts.
Article 9: Purchase Money Security Interest
Generally, PMSIs have priority over prior perfected security interests if the PMSI is properly executed.
A PMSI is either:
(1) A security interest held by the seller of collateral to secure payment of all or part of the price; OR
(2) A security interest of a person that gives value to a debtor so that the debtor may acquire rights in or the use of collateral.
Article 9: Priority Rules
A perfected security interest has priority over a conflicting unperfected security interest in the same collateral.
Between multiple perfected creditors, the first to file obtains priority (even if a party files before they perfect)
Lien creditors possess virtually the same status as perfected secured creditors. Accordingly, if a party becomes a lien creditor before a secured party files or perfects, the lien creditor will enjoy priority over that party.
Exception: Buyers in the ordinary course of business
Buyers in the ordinary course of business are protected even though their interest in the property is created after the attachment or perfection of a security interest. Buyers in the ordinary course of business take the collateral free of the security interest created by the seller. A buyer in the ordinary course of business is a person who:
(1) in good faith and without knowledge that the sale to him is in violation of the security interest of a 3rd party;
(2) buys in the ordinary course from a person in the business of selling goods of that kind.
Corporations: Duty of Care
Directors and officers owe the corporation a fiduciary duty of care. Thus duty includes:
(1) The duty to take reasonable steps to monitor the corporation’s management;
(2) The duty to be satisfied that proposals are in the corporation’s best interests;
(3) The duty to disclose material information to the board; AND
(4) The duty to make reasonably informed decisions.
(a) In making such decisions, directors and officers may rely on information from others whom they reasonably believe are reliable.
Corporations: Business Judgement Rule
In suits alleging that a director or officer violated his duty of care owed to the corporation, courts will apply the business judgment rule. Under this rule, a court will NOT second guess the decisions of a director/officer so long as the decisions are made:
(1) In good faith;
(2) With the care an ordinarily prudent person in a like position would exercise
under similar circumstances; AND
(3) In a manner the director/officer reasonably believes to be in the best interests
of the corporation.
