Trusts, Corps, P'ship...

Question 1

Creditors & Trusts

Answer 1

Pour-over: creditors can’t reach as long as trust created at or before time of will

Support: trustee pays income or principal as nec’y to support B. Creditors can’t reach unless they provided necessity direct to B

Discretionary: trustee has complete discretion. Creditors can collect to extent trustee releases payments to B

Spendthrift: expressly limits B’s ability to alienate his equitable interest (this is DEFAULT rule in NY unless trust instrument says otherwise). Can’t be reached by creditors. Can’t use this when settlor IS beneficiary. Unreachable by creditors or in bankruptcy.

Question 2

Revocable vs Irrevocable Trusts

Answer 2

NY assumes trust is irrevocable unless otherwise stated.

Revocation by default only reqs any action showing settlor’s intent to revoke.

Question 3

NY’s Rule Against Suspension of the Absolute Power of Alienation

Answer 3

Deems void estates in which conveying interest suspends power of alienation for too long.

There must be person in being who could join in conveying the estate in fee simple w/in the life in being + 21 yrs. Reqs only that it COULD occur, not that it does.

Question 4

Private Express Trusts

Answer 4

1. Settlor intends to make gift in trust (goes to 3d party and not beneficiary, unlike a straight gift)
2. and must contain some trust property (“res”)
3. Valid trust purpose
4. w/ ascertainable beneficiaries (unborn kids ok - also, charitable trusts don’t need identifiable Bs)

Question 5

Inter vivos trusts

Answer 5

Must be in writing, signed by settlor & one trustee, and either notarized or signed in presence of two signing witnesses.

Question 6

Totten trust

Answer 6

Not a real trust but the term for a bank acct in a depositor’s name as “trustee” for named beneficiary.

Can be revoked by any lifetime act manifesting intent OR by will. If B predeceases depositor, it’s automatically revoked.

Question 7

Charitable Trusts

Answer 7

Trust w/ stated charitable purpose existing for benefit of community at large or class of persons w/ varying membership. State Ag is only one with power to challenge it.

Ex: poverty, education or religion, promoting good health, gov’t or municipal purposes.

*NOT subject to RAP.

Cy pres doctrine: if original purpose of trust can’t happen, ct may modify to achieve next-best result based on settlor’s intentions.

Question 8

Trustee’s Duties

Answer 8

Act reasonably AND in good faith. Duties of loyalty and impartiality amongst Bs. Must also acct to Bs for balance in the trust.

“Portfolio theory” = trustee just needs to diversify assets.

Question 9

Termination of Trusts

Answer 9

Unfulfilled purpose: Claflin doctrine says trustee can block premature termination by Bs if there is unfulfilled material purpose.

By will: NY allows revocation of trust by will as long as it was revocable in the 1st place.

Ct order: if purpose has become impossible.

Question 10

Modification of Trusts

Answer 10

NY: grantor must expressly reserve right to modify or terminate trust; otherwise, consent of all Bs is nec’y and it can’t interfere w/ primary purpose of trust.

Consent can’t come from guardian of minor B.

Question 11

Duty of Loyalty - Corporate Board/Officers

Answer 11

Conflict of interest transactions OR taking corporate opportunity OR directly competing with corporation.

“Curing” conflict of interest = majority of shares OR disinterested directors OR all disinterested directors. Alternatively, ct may examine for “total fairness” and excuse breach then.

Question 12

M&A

Answer 12

Mergers req: 1) each board approves, 2) shareholders all approve, 3) plan of merger filed w/ state.

Sale of all assets reqs: shareholder approval + board approval.

Question 13

Shareholder Duties

Answer 13

None. Except in case of controlling shareholder, who owes fid duty not to act oppressively to minority shareholders or in a way that defeats their reasonable expectations.

This duty is triggered when controlling shareholder sells out to someone else, wants to eliminate other shareholders, or is receiving a distribution denied to other shareholders.

Question 14

Piercing Corporate Veil

Answer 14

Corporate limited liability can be disregarded when nec’y to “prevent fraud or achieve equity.”

Look for: 1) excessive domination by shareholders, 2) SHs carrying on biz for personal gain, 3) disregard of formalities, 4) corporation being used to perpetrate a fraud/crime.

Question 15

Duty of Care - Corporate Board/Officers

Answer 15

D/O must act w/ knowledge and skill or reasonably prudent person. BUT…

Biz judgment rule: presumes director believed his actions were in best interest of the company absent a demonstrable conflict of interest or bad faith.

Question 16

Partnerships - Lawsuits

Answer 16

P’ship is separate legal entity that can sue or be sued on its own, but partners are liable after p’ship assets expended.

Generally, P can’t sue p’ship or other Ps (and vice versa) on matters relating to p’ship biz. Instead…

“Accounting” = can be brought when p’ship wrapping up, of P is wronged. Divides up p’ship property.

Question 17

Unanimous Consent by Ps

Answer 17

Req’d to:

1. Admit new P
2. Dispose of biz good will
3. Do anything that would make it impossible to carry on biz
4. Confess a judgment

Question 18

Agent’s Duties

Answer 18

1) Reasonable care (use reasonable skill/diligence; don’t usurp opportunity; no financial gain; notify principal)
2) Loyalty
3) Obediance

Question 19

Agent K Liability

Answer 19

Only if principal is disclosed and a party to the K

Agent will be personally liable if principal is partially or not disclosed.

Question 20

Termination of Agency Relationship

Answer 20

1. Expiration of agreed or reasonable time
2. Revocation by either party, effective upon notice to other party
3. Death of either party - automatic termination
4. Principal’s loss of capacity - automatic after ct adjudication unless durable power of atty

Question 21

Perfecting Security Interests

Answer 21

1. Filing financing statement (must have debtor and secured party’s names, and identify collateral – filed under debtor’s name so this must be right)
2. Possession over collateral
3. Control over collateral
4. Automatic perfection (PMSI in consumer goods)

Question 22

Attachment of Security Interests

Answer 22

1. Value given by secured party
2. Debtor has rights in collateral
3. Debtor authenticates security agreement that describes collateral OR SP has possession/control

Question 23

Priority Rules - Secured Transactions

Answer 23

• Secured party > unsecured creditor
• Judicial lienholder > unperfected SP, but takes subject to perfected security interests
• Later buyer takes free of UNperfected security interest as long as: 1) gives value, 2) receives delivery, 3) w/out knowledge
• Buyer in Ordinary Course of Biz (BOCB) takes free even of perfected security interest even if he knows it exists. Reqs: buying goods, in ordinary course of biz, from merchant, in good faith.

Question 24

“Negotiable instruments” - Comm Paper

Answer 24

Art 3 applies only to negotiable instruments. Negotiability reqs:

1) writing signed by maker/drawer
2) w/ *unconditional promise
3) to pay sum certain
4) to order or to bearer
5) payable on demand or at definite time, AND
6) w/ no other promise or obligation

Question 25

Holder in Due Course

Answer 25

To gain full protections of Art 3, one must obtain status as a HiDC. This reqs:

1. take the instrument as holder
2. for value
3. in good faith, AND
4. without notice of certain infirmities w/ instrument

HiDC only subject to real defenses!!

Question 26

Real vs. Personal Defenses - Comm Paper

Answer 26

Real defenses are only ones against HiDC: infancy, SoL, illegality, duress, incapacity, fraud, discharge in bankruptcy.

Prsonal defenses are all other K defenses, which are *only available against ordinary holder but NOT a HiDC.