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The subjects are:
• Partnership/Agency
• Civil Procedure
• Contracts
• Secured Transactions
• Trusts
• Evidence
Wild Card
• Constitutional Law
• Property
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Partnership/Agency
High Priority
• General Partnership Requirements
• Authority of Partnership
• Personal Liability of Partners
• Rights and Duties of Partners
• Limited Partnership/Limited Liability Partnership
• Dissolution/Withdrawal
• Actual/Apparent Authority
• Vicarious Liability
• Independent Contractor/Employee
• Agency Relationship
• Contracts and Agent Liability
• Ratification – Agent Contract
Priority
• Winding Up/Termination
• Rights of Inspect Records
• Control/Management of a LP
• Right to Partnership Property
• Transfer of Ownership Interest
1. Nature of Partnership
Partnership law is based on the law of contracts and agency. Partnerships are governed by the
Revised Uniform Partnership Act (RUPA) but partners are free to agree to abide by different
rules, through a partnership agreement. However, certain RUPA provisions cannot be waived
(e.g., duty of loyalty, right of a court to expel a partner).
2. Formation of a Partnership
The parties’ intent may be implied from their conduct. For proof of a partnership existence, the
courts look to the intent of the parties.
❖ Bar Professors’ Tip: A partnership at will is one between partners that has no definite
duration or purpose to achieve. A partnership at will allows a partner to leave at any
time, absent an otherwise agreement, upon a partner giving notice of his withdrawal
from the partnership to the other partners. A partnership at will may be dissolved upon
the disassociation of a partner. Once a partner disassociates, the partnership enters into
what is known as a winding up phrase that requires the partnership’s business to come to
an end.
❖ Bar Professors’ Tip: A partnership is the association of two or more persons to carry
on as co-owners a business for profit whether or not the persons intend to form a
partnership. A business is a series of acts directed toward an end. Where intent cannot
be directly ascertained, it must be established from all of the facts, circumstances,
actions, and conduct of the parties. Absent an agreement to the contrary, a difference
arising as to a matter in the ordinary course of business of a partnership may be decided
by a majority of the partners. An act outside of the ordinary course of business requires
the consent of all partners.
3. Property of a Partnership
Partnership capital can be property or money contributed by each partner. Partnership property
is everything the partnership owns.
A partner shares equally in the partnership profits and must contribute to losses in proportion
to his share of his profits, absent an agreement.
Each partner has a transferable interest in the partnership, which consists of his share of
partnership profits, losses and distributions.
His interests (profits, not in regard to the operation of property) are treated as personal property
and can be assignable.
❖ Bar Professors’ Tip: Generally, a person may become a partner only with the consent
of all the partners. Thus, a partner does not have the unilateral power to make someone a
partner by transferring his partnership interest to them. An assignee does not acquire
the right to inspect books or conduct management business.
Absent an agreement, all partners have equal rights in the management of the partnership
business. There is no right for remuneration for services rendered to the partnership absent an
agreement.
All partnership books and information must be kept at the CEO’s office. Each partner has a right
to inspect the books and copy the books.
A partnership may sue or be sued in its own name. A partnership can bring an action against a
partner for breach of agreement. A partner can bring an action against the partnership.
B. Fiduciary Duties
• Duty of Loyalty
• Duty of Care
The duty of care requires no negligent, reckless or unlawful conduct or intentional misconduct.
A. Law of Agency
For partnerships, agency law applies. Each partner is an agent of the partnership.
An act performed by any partner, either with actual or apparent authority, will bind the
partnership.
B. Apparent Authority
Knowledge means subjective knowledge – what the person actually knew. What the person
should have known is irrelevant.
❖ Bar Professors’ Tip: An act outside the ordinary course of business of a partnership
may be undertaken only with the consent of all of the partners.
❖ Bar Professors’ Tip: Hiring an employee to perform services in the partnership
business is clearly a matter within the ordinary course of business. Each partner has the
authority to bind the partnership by employment of persons whose services are
reasonably necessary for carrying on the business.
❖ Bar Professors’ Tip: A general partner has the ability to bind the partnership when
the partner is carrying on in the ordinary course of business. A partner has actual
authority were the other partners or the partnership agreement specifically gives the
partner the authority to act in a specific manner. A partner has implied authority to act
in ways that are in the ordinary course of the business or that are incidental to the
express authority of the partner.
❖ Bar Professors’ Tip: Apparent authority is not authority at all. Rather, it is a third
party’s perception of the authority of a partner. It exists when a third party reasonably
and without knowledge believes that a partner has authority to act in the manner in
which he is acting. Where apparent authority exists, the partnership is bound to the third
party.
C. Actual Authority
In actual authority, the partner will be bound. Actual authority is the authority a partner
reasonably believes he has based on the communications between the partnership and the
partner.
❖ Bar Professors’ Tip: In a general partnership, the partners have the authority to
conduct business reasonably related to the scope of their duties. When they act outside
the scope, the other partners can ratify their otherwise unpermitted actions by
unanimous vote. When a general partner acts within the scope of their duties, they bind
other general partners, meaning they are personally liable.
D. Fraud
Where one partner, acting within the scope of partnership business, defrauds a third party, the
partnership will be liable.
When the action is outside the scope of the partnership, the partnership is not liable.
A partnership is liable if a partner misapplies the money or property of a third person received
by him within the scope of his apparent authority.
7. Liability of Partners
A. Civil Liability
A partnership is liable for all contracts entered into by a partner in the scope of the partnership
or with authority of the partnership.
A partnership is liable for all torts in the ordinary course of partnership business.
The liability is joint and several for all obligations of the partnership. Each partner is personally
and individually liable for the entire amount of partnership obligations, with the right of
contribution and indemnification.
There is liability for an outgoing partner – until 90 days after filing notice of the dissociation of
the partner.
❖ Bar Professors’ Tip: All partners are jointly and severally liable for all obligations of
the partnership. Under agency law, when an agent acts without authority, a third party
can recover from the agent.
❖ Bar Professors’ Tip: Under the Uniform Partnership Act, a judgment against a
partnership is not, by itself, a judgment against a partner. Consequently, a judgment
against a partnership may not be satisfied out of the partner’s separate assets unless
there is also a judgment against the partner.
❖ Bar Professors’ Tip: A creditor of an individual partner who wants to pursue a
partner’s financial interest in the partnership must first reduce his claim to a judgment.
A creditor of an individual partner who has reduced his claim to a judgment may seek a
charging order against that partner’s financial interest in the partnership. The partner’s
financial interest is called the transferable interest in the partnership and is the partner’s
share of profits and losses and the right to receive distributions. This financial interest is
the only interest of a partnership that can be pursued by a creditor of an individual
partner.
B. Criminal Liability
8. Terminating a Partnership
A. Dissociation
Upon a partner’s dissociation, his right to participate in management ceases and a partner’s
fiduciary duties terminates.
A partnership must buy out/purchase the partner’s interest and must indemnify the partner.
❖ Bar Professors’ Tip: In a general partnership, a general partner may dissociate from
the partnership at any time for any reason in an at-will partnership. When they
dissociate, they are still liable for any predissociation obligations, however, they lose
their fiduciary duties and can compete with the company.
A partnership can be bound by an act of a dissociated partner undertaken within one (1) year
after dissociation if: the act would have bound the partnership before dissociation; the other
party to the transaction reasonably believed the dissociated partner was still a partner; and did
not have notice of the dissociation.
A dissociated partner can be liable for obligations incurred by the partnership within 1 year
after, if:
• When entering the transaction, the other party reasonably believed the
dissociated partner was still a partner; and
• Did not have notice of the partner’s dissociation.
The partner can file his dissolution with the State within 90 days of his dissolution.
D. Dissolution
A partnership is dissolved and its business must be wound up when any of the following occurs:
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A third party will be deemed to know 90 days after a statement of dissolution, if any, is filed.
F. Distribution of Assets
Partnership creditors have priority over individual partners’ creditors with regard to partnership
assets and parity with separate creditors as to separate property.
9. Limited Partnerships
Limited liability partnerships are comprised of one (1) or more general partners and one (1) or
more limited partners.
The liability of a limited partner for partnership debts is generally limited to the capital that she
contributes to the partnership.
A. Formation
A limited partnership must maintain an office with records of the certificate, partnership
agreement, and tax returns for the three (3) most current years.
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❖ Bar Professors’ Tip: Remember that a limited partnership is a creature of statute and
can only exist in compliance with the statute.
❖ Bar Professors’ Tip: Despite being labeled a limited partnership, it is not a limited
partnership because it lacks a general partner. There is no limited partnership until a
general partner signs the partnership agreement. A limited partnership must include a
general partner who has signed the initial certificate of Limited Partnership filed with
the Secretary of State.
❖ Bar Professors’ Tip: Limited liability partnerships have limited liability after the
point of formation and continuing so long as the LLP status attaches to the partnership.
The policy behind limiting liability only after the point of formation is to ensure that
general partnerships do not incur significant debts and obligations and then escape from
these obligations by simply converting to an LLP at any time.
B. Name of Partnership
The name of the partnership may contain the name of any partner.
The limited partnership must contain words, “Limited Partnership,” or “limited” – LP or Ltd.
The limited partnership must be distinguishable from any other entity’s name.
A person may be both a general partner and a limited partner. When a partner acts as a general
partner, he is subject to the obligations, duties and restrictions of a general partner and those of
a limited partner when he acts as a limited partner.
D. Liability of Partners
A general partner of a limited partnership is jointly and severally liable for all obligations of the
limited partnership.
A limited partner is not personally liable, even if the limited partner participates in the
management and control of the limited partnership.
E. Rights of Partners
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A general partner also has all of the rights of a partner in a regular partnership, including the
right to manage the partnership and the right to receive information.
F. Duties of Partners
• General Partners
A general partner owes limited fiduciary duties of care and loyalty, similar to a partner in a
general partnership.
A general partner does not violate the duty of loyalty merely because the general partner’s
conduct furthers his own interests.
• Limited Partners
There is no fiduciary duty to the limited partnership solely by reason of being a limited partner.
However, to the extent a limited partner has management duties under the partnership
agreement, he owes the duties of loyalty and care.
A person who erroneously believes that she is a limited partner will be bound as a general
partner to any third party who believed that the partner was a general partner:
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H. Dissociation
• Limited Partners
Upon dissociation, the limited partner has no further rights as a limited partner.
• General Partners
o The act would have bound the limited partnership before the dissociation; or
o Less than two (2) years have passed since the partner has been dissociated
and the other party does not have notice and reasonably believes he is a
general partner.
• Dissolution
A limited partnership can be administratively dissolved by the Department of State for failure to
pay fees or file records. The limited partnership can be judicially dissolved or it can be internally
dissolved.
A limited partnership continues only for the purpose of winding up its activities.
• Distribution of Assets
o First to creditors;
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o Distribution.
If the assets of the limited partnership are insufficient, the general partners must contribute to
satisfy the obligations of the partnership.
K. Annual Report
A limited partnership must renew certificates of authority by filing a report with the Department
of State and paying a fee.
• Conversion
For a limited partnership to convert, all general partners must consent as well as the limited
partners who own a majority of the rights to receive distributions.
• Merger
A merger in a limited partnership must be approved by all general partners and those limited
partners who own a majority of the rights to receive distributions.
The major advantage of operating as a limited liability partnership is that the partners are not
personally liable for the limited liability partnership’s obligations.
A limited liability partnership must be named and end with words: “Registered Limited Liability
Partnership” or LL Partnership or RLLP or LLP.
15
Civil Procedure
High Priority
• Subject Matter Jurisdiction
o Supplemental
o Diversity of Citizenship
o Federal Questions
• Personal Jurisdiction
• Service of Process
• Venue
• Erie Doctrine/Supremacy Clause
• TRO
• Amending Pleadings/Relation Back
• Counterclaims
• Attorney Work Product
• Motions
o Summary Judgment
o To Dismiss/Matter of Law
• Issue Preclusion – Estoppel
• Final Judgment Rule
• Claim Preclusion – Res Judicata
Priority
• Class Action Requirements
• Impleader (Third Party)
• Joinder of Parties
• Permissive Joinder of Parties
• Preliminary Injunction
• Removal
• Rule 11
o Sanctions
o Representations to Court
• Pretrial Conferences
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The court’s authority to hear and decide a case. Jurisdiction can be challenged at any time.
• Federal Question
District Courts may hear any case arising under a federal constitution, statute or treaty.
• Diversity
Under diversity jurisdiction, District Courts may hear cases between citizens of different states,
provided that the amount in controversy is at least $75,000. Diversity must be complete.
• Supplemental
A federal court has subject matter jurisdiction claims that could not otherwise be brought in
federal court if they are related to other claims where federal subject matter jurisdiction exists.
The test is whether the claims form part of the same case or controversy.
• Removal
The defendant may remove a state court case to federal court if the plaintiff could have originally
filed the case in federal court.
❖ Bar Professors’ Tip: An action filed in state court may be removed to the federal court
of the district where the state action is pending if the district court has original
jurisdiction over the action. For example, the federal court would have jurisdiction over a
state tort action only if the requirements of diversity are met.
❖ Bar Professors’ Tip: To remove a case from state to federal court, the defendant must
file a notice of removal with the federal district court, give written notice of that filing to
all adverse parties, and file a copy of the notice of removal with the state court. Once the
state court has a copy of the notice of removal, the case is removed and the state court
can take no further action in the case.
17
❖ Bar Professors’ Tip: Removal of a case from state to federal court is proper only when
the civil action that is removed is within the original jurisdiction of the federal court.
B. Personal Jurisdiction
A defendant must have adequate notice and opportunity to be heard and minimum contacts
with the state for personal jurisdiction.
• Minimum Contacts
A federal court may not assert jurisdiction over a defendant unless the defendant has at least
minimum contacts with the state.
The U.S. Supreme Court has held that service upon a nonresident who is physically but
temporarily present in the state is sufficient to confer personal jurisdiction (Burnham).
❖ Bar Professors’ Tip: In order to obtain personal jurisdiction over the party, a federal
court must satisfy both the personal jurisdiction rules of the state in which it sits as well
as satisfy constitutional requirements under the Fourteenth Amendment. A federal court
can obtain personal jurisdiction under the constitution by consent, residency, personal
service or minimum contacts analysis. Minimum contacts requires that the defendant
have sufficient purposeful minimum contacts with the forum state and that some sort of
liability is foreseeable, and that those minimum contacts give rise to the claim at hand,
and that asserting personal jurisdiction would not offend traditional notions of fair play
and substantial justice. If the court cannot show that the contacts with the forum state
gave rise to the claim, the court can also attempt to show that the defendant had
substantial business with the forum state and that it should be subject to general
jurisdiction in the state. This requires a strong showing that the business is essentially at
home in the forum state.
State long arm statutes provide that a person submits to jurisdiction in that state by engaging in
specified conduct to allow for jurisdiction, e.g., transacts business within the state, commits a
tort within the state, owns or uses real property in the state.
Factors taken into consideration under the “transacts business” clause requires that the
nonresident defendant or corporation must
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The court obtains full jurisdiction under the long arm statute.
Challenges to personal jurisdiction must be raised by a certain time and may be deemed waived
under certain circumstances.
An appearance in the action is not a waiver of the right to raise an objection to personal
jurisdiction. A defendant must challenge personal jurisdiction by motion or by answer to the
complaint – it must be the first pleading and be asserted in a timely manner.
• In Rem Jurisdiction
In some circumstances, a court lacking personal jurisdiction over a defendant may properly take
action affecting the defendant pursuant to its in rem power. The court may take action with
regard to real property located within the state, such as partition. Due process requirements are
necessary with notice and an opportunity to be heard.
The plaintiff has 90 days after filing his complaint to effect service of summons to the defendant.
There are three (3) methods of service: Defendant’s waiver of service, personal hand-to-hand
delivery to the defendant or to someone authorized by law to accept service, any other method
allowed under the law of the state.
• Service
The plaintiff has the option of sending defendant, by mail or other reliable means, a written
notice of the lawsuit, a copy of the complaint and a request to waive service of process.
Defendant has an affirmative duty to comply.
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❖ Bar Professors’ Tip: The federal rules permit service of process on a foreign
corporation outside of the United States by any means directed by the court (e.g., by
email) as long as it is not prohibited by international agreement.
A. Venue
There are three (3) general grounds for establishing proper venue:
Actions against corporations are where the corporation transacts substantial business or has its
principal place of business and in any district of the state of incorporation.
❖ Bar Professors’ Tip: Venue is not whether the court has the power to hear the case,
like subject matter jurisdiction, but whether the court is the proper court to hear the
case. Venue is proper in the jurisdiction where the defendant is domiciled or where a
substantial amount of the events that give rise to the action occurred.
Even if venue is proper in a district, the court may transfer the case to another district where
venue is proper if there is a compelling reason the case should be heard in the transferee district,
e.g., all the witnesses are located there. The defendant has the burden when requesting a
transfer on forum non conveniens grounds. The defendant may not move to dismiss the case
because of forum non conveniens.
C. Transfer
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If venue is improper, the court may either transfer the case to a district where venue is proper or
dismiss the case.
In diversity of citizenship cases, the federal court shall apply the substantive law of the state in
which it sits and shall apply federal law on matters of procedure. Erie; 28 USC §1652.
Some procedural matters have been held to be substantive for Erie purposes, e.g., tolling of the
statute of limitations, burden of proof, conflict of laws.
Federal common law is created by federal judges, which differentiates it from statutory based
laws. The decisions made by these federal judges, regarding a specific legal issue, are binding
within that court and lower federal courts within the same jurisdiction. The goal is to set
uniformity and predictability with federal laws.
The Supreme Court has ruled, in Erie, that there is no federal general common law. The federal
courts, while sitting in diversity jurisdiction, will not create law to judge state law cases. Instead,
the prior decisions of the state judges will be followed by the federal judges. However, when it is
an area of federal jurisdiction, the federal judges will follow federal common law. Federal
judicial decisions are binding in areas such as maritime, antitrust, bankruptcy. The Supreme
Court, and lower federal courts, can establish law where Congress has been silent. The Supreme
Court, in Exxon, established federal common law which placed strict limits on maritime punitive
damage awards.
When Congress acts, the statutes will preempt prior federal judicial decisions.
4. Pretrial Procedures
A party may seek a preliminary injunction or a temporary restraining order to restrain a party
from engaging in some action while the case is pending.
• Preliminary Injunction
A preliminary injunction is sought by a party prior to a trial on the merits of the complaint. A
preliminary injunction may not be issued without notice to the adverse party.
21
In extraordinary cases where irreparable harm may occur before notice and opportunity to be
heard can be afforded to the opposing party, the court may issue a temporary restraining order.
The TRO expires at the time after entry—not to exceed 14 days—that the court sets, unless the
court, for good cause, extends it or the adverse party consents to a longer extension. The reasons
for an extension must be entered in the record.
• Complaint
A complaint must give the defendant fair notice of all claims, the factual basis for each and the
legal basis for each. The complaint must include jurisdiction, allegation of facts, right to relief,
and relief requested. The plaintiff must assert in a single complaint all claims arising out of one
transaction or occurrence and the plaintiff may assert multiple claims or theories of recovery in
a single complaint against the defendant, even if the claims do not all arise out of the same
transaction or occurrence.
• Notice Pleading
The federal courts use notice pleading which requires statements consisting of general
allegations.
Fraud, mistake and any denial of capacity need to be pleaded specifically and the relevant facts
explained. Time, place, conditions precedent, and application of foreign laws shall be specified.
Any special damages such as lost wages, medical expenses and lost profits should also be
specified in the complaint. Affirmative defenses must be specifically pleaded.
• Signing of Pleadings
All pleadings must be signed by the attorney of record. Rule 11 provides sanctions for pleadings
in which the attorney failed to make a reasonable inquiry prior to filing.
• Answer
22
The defendant must respond to the complaint by filing an answer within 21 days. If the
defendant waived service, he has 60 days to respond. Affirmative defenses must be expressly
pleaded. The defendant has 21 days after service to amend the answer without leave of court if
no responsive pleading has been served.
A party may assert a Rule 12(b) motion before answering the complaint.
• Challenges to Pleadings
The pleadings may be challenged by way of a FRCP 12(b)(6) Motion to Dismiss for failure to
state a claim upon which relief can be granted. A Motion to Dismiss is a judgment on the
pleadings. It puts in issue whether the law allows the specific claim or defense such as improper
jurisdiction, venue, service of process or that the statute of limitations has run. The motion
states that it is clear that the plaintiff will never prevail regardless of the facts proven at trial. All
of the factual allegations in the complaint will be accepted as true. The motion will be granted
only if it appears beyond a reasonable doubt that the plaintiff could prove no facts consistent
with the complaint that would entitle the plaintiff to the relief requested.
FRCP 12(b) defenses: defenses subject to the consolidation and waiver provisions are
• Amended Pleadings
A pleading may be amended as a matter of right, without leave of court only before a response
pleading is served; and if the pleading is one to which no responsive pleading is permitted and
the action has not yet been placed on the trial calendar, the pleading may be amended at any
time within 21 days after it is served. Otherwise, pleadings may be amended only by leave of
court or with the written consent of the adverse party.
An amendment adding a new claim or defense relates back if it arises out of the same
transaction or occurrence. An amendment adding a new party relates back only if it arises out of
the same transaction or occurrence and the party to be brought in by amendment has, within the
time allowed by the statute of limitations, received such notice of the action that he will not be
prejudiced in maintaining his defense on the merits and knew or should have known that, but
for a mistake concerning the identity of the proper party, the action would have been brought
23
against him. An amendment adding a new party does not relate back if the amendment was
necessitated by inexcusable neglect, or was the result of a conscious decision, strategy or tactic.
If the defendant does not respond to the complaint, the plaintiff is entitled to a default
judgment. The defendant must be served only if he has made an appearance. The court enters a
default judgment and if damages are ascertainable, the amount will be decided. If not, a hearing
will be had for damages. Federal law protects members of the military against entry of default
judgment. A defendant can move to vacate the default judgment, e.g., for lack of personal
jurisdiction and the default would be void. A motion to vacate the default must be made in a
reasonable time.
❖ Bar Professors’ Tip: A default judgment is entitled to preclusive effect, subject only to
the requirement that the rendering court had subject matter and personal jurisdiction
over the defendant and that the defendant had notice of the action and an opportunity to
appear and defend himself.
An attorney must certify that to the best of his knowledge, information and belief, that all
pleadings:
All pleadings must be signed by the attorney of record. Rule 11 provides sanctions for pleadings
in which the attorney failed to make a reasonable inquiry prior to filing. Sanctions may be
imposed against parties, attorneys, law firms and may consist of monetary or nonmonetary
directives, including payment of expenses and attorneys’ fees.
• Parties
Every action must be prosecuted in the name of the real party in interest. Both parties must
have capacity to sue or be sued.
FRCP 19 allows certain persons needed for just adjudication to be joined as parties, if feasible. A
person must be joined if he is subject to service of process. Joinder is necessary if, in the
person’s absence, complete relief cannot be accorded among those who are already parties.
Joinder is necessary if the person claims an interest relating to the subject of the action and
24
must be a party to adequately protect his interests. Also required are those who must be a party
to protect the interests of those who are already parties. A lawsuit can be dismissed if a person
cannot be made a party and the action cannot in equity and good conscience proceed without
that person.
❖ Bar Professors’ Tip: The FRCP state that the joinder of persons needed for just
adjudication authorizes joinder of defendants over plaintiff’s objection only when: the
court cannot accord complete relief among existing parties, if the absent person is not
joined; or the absent person claims an interest in the action that would, as a practical
matter be impaired or impeded if that person is not joined; or the person’s absence may
leave any of the parties subject to a risk of multiple liability or inconsistent obligations.
Where any of these criteria is met, courts commonly refer to the absent party as a
necessary party and will join that party, even over the plaintiff’s objection.
FRCP 20 allows persons to join in an action as parties if they have claims arising from the same
transaction or occurrence, involving some common question of law or fact with the original
lawsuit.
❖ Bar Professors’ Tip: In governing permissive joinder of parties, it permits the plaintiff
to join multiple defendants under two conditions: (1) any right to relief is asserted
against the defendants jointly, severally, or in the alternative, with respect to or arising
out of the same transaction; and (2) any question of law or fact common to all
defendants arising in the action.
❖ Bar Professors’ Tip: In determining whether claims arise out of the same transaction
or occurrence, courts often employ the logical relationship test, under all logically related
events entitling a person to institute a legal action against another generally are regarded
as comprising a transaction or occurrence.
• Impleader
Impleader is a procedural device in which one party joins a third party into a lawsuit because
that third party is liable to an original defendant.
• Interpleader
Interpleader allows a plaintiff or a defendant to initiate a lawsuit in order to compel two or more
other parties to litigate a dispute. An interpleader action originates when the plaintiff holds
property on behalf of another, but does not know to whom the property should be transferred. It
is often used to resolve disputes arising under insurance contracts or bank account inheritance.
• Intervention
A federal court can permit a party to intervene in an action if the party has an interest in the
litigation and wants to be a party to the litigation. Courts often permit interested parties to join
25
the litigation to promote judicial economy and prevent a person or entity from being subjected
to multiple lawsuits regarding the same issue. However, the court can decide to allow the
intervention or deny it.
❖ Bar Professors’ Tip: Intervention as a matter of right is different. A party has the
right to intervene when their interest in the litigation is so strong that their rights are
going to impact the outcome of the litigation. Moreover, no other party to the lawsuit is
protecting their interest and the result of the lawsuit will decide their fate with regard to
their interest. The court cannot deny such a party the right to join.
A pleading may be amended to add a new plaintiff or defendant, subject to the statute of
limitations. The court has broad authority to order the substitution of a new party for an original
party when an original party dies, becomes incompetent or transfers all interest in the subject
matter.
• Class Actions
A case may be certified as a class action only when all 4 elements are present:
In addition, the case may proceed as a class action if, and only if, the case fits within one or more
of the following three categories:
• Claims
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Federal Rule 18 permits a party to join as many claims as the party has against an opposing
party. There is no requirement that the claims be transactionally related.
❖ Bar Professors’ Tip: The Federal Rules provide that two or more plaintiffs may join
their claims in a single lawsuit if the plaintiffs assert any right to relief jointly, severally,
or in the alternative with respect to or arising out of the same transactions, occurrence or
series of transactions or law and fact common to all plaintiffs.
• Supplemental Jurisdiction
A federal court has subject matter jurisdiction on claims that could not otherwise be brought in
federal court if they are related to other claims where federal subject matter jurisdiction exists.
The test is whether the claims form part of the same case or controversy. In diversity actions, the
federal court may take claims that are unrelated to the same case or controversy.
❖ Bar Professors’ Tip: Where a federal court already has jurisdiction over some claims,
the supplemental jurisdiction statute authorizes district courts to hear claims that could
not otherwise be heard in federal court if those claims are so related to the primary
claims in the action that they form part of the same case or controversy under the
constitution.
❖ Bar Professors’ Tip: In determining whether or not the primary claim and the
supplemental claim are so related most courts apply the common nucleus of operative
facts test, stating that the state and federal claims must derive from a common nucleus of
operative fact to be part of the same case for constitutional purposes.
❖ Bar Professors’ Tip: The district court has the discretion to decline to exercise
supplemental jurisdiction in these areas: (1) the claim raises a novel or complex issue of
state law; (2) the claim substantially predominates over the claim or claims over which
the district court has original jurisdiction; (3) the district court has dismissed all claims
over which it has original jurisdiction; and (4) there may be exceptional circumstances
and compelling reasons for declining jurisdiction.
• Counterclaims
Counterclaims are causes of actions made by the defendant against the plaintiff. There are two
(2) types of counterclaims:
❖ Bar Professors’ Tip: A claim for relief brought by a defendant against a plaintiff is
called a counterclaim. Counterclaims are governed by the federal rules and requires a
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defendant to bring a counterclaim against the plaintiff if the claim arises out of the same
transaction or occurrence as the plaintiff’s claim against the defendant.
• Crossclaims
Crossclaims are those which are made against other co-defendants. Crossclaims must arise
from the same transaction or occurrence as the plaintiff’s claims against the defendants.
Crossclaims are never compulsory.
• Timing
Absent a court order, discovery may proceed at any speed and in any order after the required
initial discovery conference.
• What is Discoverable/Disclosures
Information may be subject to discovery even though it would not be admissible at trial.
Information sought to be discovered must be relevant and lead to the discovery of admissible
evidence.
Privileges apply, e.g., attorney client and attorney’s work product are not discoverable.
A party has a duty to disclose without request certain basic information within 14 days of the
initial discovery conference. This includes witnesses with discoverable information that the
disclosing party may use, documents and other tangible thing the party may rely upon, any
computation of damages and anticipated expert testimony.
❖ Bar Professors’ Tip: A party may obtain discovery regarding any matter, not
privileged, that is relevant to a claim or defense in the action. Relevant information is
discoverable even if it would be inadmissible at trial, so long as the discovery appears
reasonably calculated to lead to the discovery of admissible evidence.
• Experts
Expert witnesses expected to be called at trial can be inquired of including their subject matter,
substance of opinions and grounds thereto. They may be deposed, but ex parte contact is
improper.
• E-Discovery
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The Rules require parties to discuss the discovery and preservation of electronically stored data
and to report to the court on those discussions. Electronically stored information need not be
produced if the responding party identifies it as from a source not reasonably accessible because
of undue burden or cost. On a motion to compel or for a protective order, that party must show
to the court’s satisfaction that its assertion is justified.
A requesting party may specify the form or forms for producing electronically stored
information, and the responding party must use that form unless its objects. The court will
determine if the objection is valid. If the request does not specify the form for producing
electronically stored information, the responding party may use any form in which the
information is maintained or a form that is reasonable usable by the requesting party. FRCP
37(d) creates a safe harbor that would forbid sanctions against parties who lost information in
the ordinary course of operating an electronic information system. The party would had to have
taken reasonable steps to save the information, however, after it became clear that it would be
discoverable in the litigation.
• Types of Discovery
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The parties may agree to settlement or some alternative dispute resolution, e.g., mediation,
arbitration.
The court may hold pretrial conferences as necessary to expedite the trial and foster settlement.
As soon as practicable, the parties meet for a discovery plan. The parties must submit to the
court a proposed discovery plan addressing the timing and form of required disclosures,
discovery and any orders required of the court. The court may hold a scheduling conference,
limiting the time for joinder, motions and discovery. An order may also include dates for pretrial
conferences, a trial date and other appropriate matters.
A final pretrial conference, if any, is held as close to the time of trial as reasonable and is for the
purpose of formulating a plan for trial. After the pretrial conference, an order must be entered
that controls the subsequent course of events in the case. The final pretrial conference order is a
blueprint for the trial, usually listing witnesses to be called, evidence to be presented, factual and
legal issues needing resolution, etc.
5. Jury Trial
Rule 38 requires a party who wants a jury trial to file a written demand within fourteen (14) days
after filing of the pleading or it will be waived.
The Seventh Amendment preserves the right to a jury trial in federal courts in issues of fact, but
not in equity cases.
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In federal civil cases, a jury must have at least six and not more than 12 jurors. There is no
provision for alternative jurors. The verdict must be unanimous unless the parties agree to the
contrary.
Jury selection is called voir dire. Peremptory challenge is a challenge to a prospective juror for
which no reason needs to be given. There are constitutional restrictions on the exercise of
peremptory challenges. It cannot be based upon race or gender. In a civil case, each party gets
three (3) peremptory challenges. For challenge for cause, there is no limit. For cause includes,
bias, incapacity, qualifications.
At the close of the evidence, a party may file proposed instructions. Counsel can object to
proposed instructions prior to the jury retiring for deliberations. The judge then issues formal
instructions to the jury before jury deliberations.
6. Motions
A. Pretrial Motions
After the pleadings are closed—but early enough not to delay trial—a party may move for
judgment on the pleadings.
A party may move for a more definite statement of a pleading to which a responsive pleading is
allowed but which is so vague or ambiguous that the party cannot reasonably prepare a
response. The motion must be made before filing a responsive pleading and must point out the
defects complained of and the details desired. If the court orders a more definite statement and
the order is not obeyed within 14 days after notice of the order or within the time the court sets,
the court may strike the pleading or issue any other appropriate order.
o Motion to Strike
The court may strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous matter. The court may act on its own or on motion made by a party
either before responding to the pleading or, if a response is not allowed, within 21 days after
being served with the pleading.
o Motion to Dismiss
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A motion that challenges the pleadings. It may be challenged by way of a Rule 12 Motion to
Dismiss for failure to state a claim upon which relief can be granted. It is a judgment on the
pleadings. It puts in issue whether the law allows the specific claim or defense such as improper
jurisdiction, venue, service of process or that the statute of limitations has run. It is clear that
plaintiff will never prevail regardless of the facts proven at trial. All of the factual allegations in
the complaint will be accepted as true. The motion will be granted only if it appears beyond a
reasonable doubt that the plaintiff could prove no facts consistent with the complaint that would
entitle the plaintiff to the relief requested.
A Summary Judgment motion states that there is no genuine issues of material fact and the
moving party is entitled to a judgment as a matter of law. The party opposing the motion must
affirmatively show that the case involves a genuine issue of fact. The court considers admissible
evidence only.
This is a consolidated Judgment Notwithstanding the Verdict and Directed Verdict, which now
is obsolete. FRCP 50.
Either party may move for Judgment as a Matter of Law. It is a procedural devise when one
party has failed to produce even enough evidence to submit the case to the jury. It is considered
a delayed Summary Judgment motion.
The issue is whether the evidence is sufficient to submit the case to the jury. A motion for
Judgment as a Matter of Law should be denied unless it can be said, as a matter of law, that
there is no evidence or reasonable inference therefrom to sustain a verdict on behalf of the party
opposing the motion. The trial judge does not weight the evidence or the credibility of witnesses.
If all reasonable people would arrive at the same conclusion on the evidence presented, the court
will grant the motion.
The burden is on the moving party. A motion for Judgment as a Matter of Law admits the truth
of the evidence offered by the opposing party and all inferences therefrom. All evidence is
interpreted against the moving party and favorably towards the opposing party.
No later than 28 days after the entry of judgment, the movant may file a renewed motion for
Judgment as a Matter of Law and may include an alternative or joint request for a new trial
under. In ruling on the renewed motion, the court may:
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granting or denying the motion for a new trial. Conditionally granting the motion for a new trial
does not affect the judgment's finality.
Any motion for a new trial under Rule 59 by a party against whom judgment as a matter of law is
rendered must be filed no later than 28 days after the entry of the judgment.
If the court denies the motion for Judgment as a Matter of Law, the prevailing party may, as
appellee, assert grounds entitling it to a new trial should the appellate court conclude that the
trial court erred in denying the motion. If the appellate court reverses the judgment, it may
order a new trial, direct the trial court to determine whether a new trial should be granted, or
direct the entry of judgment.
C. Post-Trial Motions
It must be brought within a reasonable time. Motions based on mistake, excusable neglect,
irregularity, fraud or newly discovered evidence must be filed within one (1) year.
On motion and just terms, the court may relieve a party or its legal representative from a final
judgment, order, or proceeding for the following reasons:
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The grounds for a new trial include irregularity in the proceedings, misconduct, excessive or
inadequate damages (remittitur, additur), newly discovered evidence (that could not be
discovered earlier), errors of law. A motion for a new trial must be filed no later than 28 days
after the entry of judgment.
• Defaults: When a party against whom a judgment for affirmative relief is sought
has failed to plead or otherwise defend, and that failure is shown by affidavit or
otherwise, the clerk must enter the party's default. A default judgment can be
entered by the clerk or the judge. The court may set aside an entry of default for
good cause, and it may set aside a default judgment.
• Involuntary Dismissals: On the defendant’s motion, a court may order an
involuntary dismissal against a plaintiff for failure to prosecute, comply with the
Federal Rules, or comply with a court order. An involuntary dismissal is with
prejudice.
• Voluntary Dismissals: Actions may be dismissed voluntarily by the plaintiff,
but the defendant may object if there is a counterclaim. The dismissal is as a
matter of right, unless the defendant has served an answer or motion for
summary judgment. The dismissal is without prejudice unless specified and the
plaintiff may refile.
Jury deliberations are held in private. The jury only considers the evidence presented in the
courtroom. Juries decide questions of fact.
After deliberations, the jury foreman reads the verdict, which must be unanimous. A party can
poll the jury requesting that each juror affirm the verdict.
• Verdicts
o General Verdict: The jury finds for the plaintiff or the defendant and gives
the amount of damages or relief due.
o Special Verdict: The jury is asked to make a finding on all material
conclusions of fact and the court applies the law. The procedure is to submit
to the jury a series of questions regarding each ultimate fact. The court then
makes legal conclusions based on those facts.
o General Verdict with Special Interrogatories: The jury is asked to give
a general verdict and also to answer specific questions concerning certain
ultimate facts in the case. The purpose is to ensure that the jury properly
considered the important issues.
• Challenges to Verdicts
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In a nonjury trial, the judge may enter a judgment as a matter of law against a party on any issue
whenever there are sufficient facts to resolve the issue, provided that the party has been fully
heard on the issue. If the issue is dispositive of a claim or defense, the judge may enter judgment
as a matter of law against a party on that claim or defense. Because the judge is acting as the
trier of fact, he decides issues of disputed facts and he may consider the credibility of witnesses.
The judgment must be supported by findings of fact and conclusions of law.
When litigation has concluded and the result is reflected in a valid and final judgment, the
judgment is binding and conclusive between the parties. It is also binding on persons in privity
with the parties. The same transaction or occurrence may not serve as the basis for the second
lawsuit.
❖ Bar Professors’ Tip: Claim preclusion bars the litigation of an entire claim where (1)
the party asserting the claim was a party or in privity with a party in a prior litigation;
and (2) the prior litigation arose out of the same transaction and occurrence as the
current claim. It is not necessary for a claim to have been actually litigated for it to be
barred in the subsequent suit.
Restriction on relitigation of specific issues between parties. As with res judicata, collateral
estoppel cannot be used against someone who was not a party to the previous action.
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❖ Bar Professors’ Tip: Issue preclusion or collateral estoppel bars the relitigation of an
issue if (1) the issue was actually litigated; (2) necessary to the judgment; and (3) the
party against whom preclusion is being sought had the same or similar interests in the
prior suit.
• Discretionary Review: The appellate court, in its discretion, may allow review
of interlocutory decisions that are of substantial importance, or to prevent the
possibility of irreparable harm.
• Extraordinary Writs: Only available when no other form of review is available
and justice requires a writ be issued.
o Writ of Mandamus: Directs the district court to take some action that is
required by law.
o Writ of Prohibition: Orders the district court to refrain from taking some
action that is contrary to law.
❖ Bar Professors’ Tip: A party may appeal only from a final judgment. A final judgment
is a controlling and dispositive order that ends the litigation on the merits and leaves
nothing for the court to do but execute on the judgment.
• Procedures
District Court decisions are reviewed by the U.S. Circuit Court of Appeals as of right. The U.S.
Supreme Court review is sought by appeal (review as of right) or by writ of certiorari
(discretionary review).
• Standard of Review
The alleged error must have been raised below in the trial court proceeding.
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Contracts
High Priority
• UCC Article 2 – Sale of Goods
• Formation of a Contract
• Mail Box Rule
• Consideration
• Pre-Existing Duty Rule – Modification of a Contract
• Statute of Frauds – Signing
• UCC Acceptance and Revocation of Goods
• Warranty of Title
• Expectation, Consequential and Punitive Damages
• Sellers and Buyers Remedies
Priority
• Misrepresentation
• Parol Evidence Rule
• Condition Precedent
• Material/Minor Breach
• Anticipatory Repudiation
• Express Warranty
• Assignment of Rights/Delegation of Duties
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1. Applicable Law
Start your analysis by indicating what the applicable law is based on the facts presented.
A. UCC-sale of goods
B. Common Law-services
C. Hybrid-services or goods? Use the predominant purpose test.
2. Formation
A. Offer
An offer contains (1) the intent to enter a present contract, that is (2) communicated to an
identified offeree, that contains the (3) essential terms of the contract.
• Offer Termination: Offer may terminate within the (1) language of the offer
itself; (2) Revocation by offerror via statement or contrary conduct; (3) Rejection
by offerree. Any additional terms by offerree that vary from the original offer
violates the mirror image rule where any proposed acceptance by offeree will be
considered a rejection and a counter-offer from the offeree.
• Offers That Do Not Terminate: (1) Option contract (offerror promises to
keep offer open and consideration paid by offeree); (2) Detrimental
Reliance/Promissory Estoppel where offeree detrimentally, foreseeably, and
reasonably relies upon offer; (3) Start of Performance in a unilateral contract
where the contract becomes irrevocable to allow a reasonable time to complete
performance; (4) UCC Firm offer for time stated, or a reasonable time not to
exceed three months.
❖ Bar Professors’ Tip: Generally, advertisements are considered an invitation to
negotiate and not an actual offer. The only exception is where there is specific language
which indicates how to complete the sale, such as a store advertisement stating first
come, first served.
B. Acceptance
Only parties to whom an offer has been addressed may accept. Whether there has been a valid
acceptance depends on what law governs the contract.
• Common law: Follows the mirror image rule, which states that acceptance must
be identical to the offer; otherwise, no contract is formed.
• UCC: A contract is formed even if the acceptance contains additional or different
terms; whether the terms become part of the contract depends on the status of
the parties:
o If one of the parties is not a merchant, the terms of the offer control.
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o If both parties are merchants, additional terms become part of the contract
unless (i) they materially alter the contract; (ii) the offer expressly limits
acceptance to the terms of the offer; or (iii) the offeror objects to the terms
within a reasonable time.
o If the offer and acceptance contain conflicting terms, a court may treat the
conflicting term like additional terms.
• The Mailbox Rule: Under the Mailbox Rule, acceptance is effective upon
dispatch, not receipt. A rejection of the offer is effective only upon receipt. The
UCC acknowledges the mailbox rule, but relaxes the common law's treatment by
requiring that acceptance need only be made in a reasonable manner by a
reasonable medium.
C. Consideration
• Common Law: If one of the parties has a pre-existing legal duty to perform,
and then attempts to modify the contract, the modification is not enforceable
unless:
o New or different consideration is given;
o The promise ratifies a voidable obligation (e.g., a promise to pay a debt barred
by the statute of limitations);
o The promise is made to a third party; or
o There is an honest dispute as to whether a duty is owed.
• UCC: A modification can be enforceable without consideration if it was sought in
good faith. The pre-existing legal duty rule does not apply.
• Promissory Estoppel: If one party makes a promise that will foreseeably be
relied upon and there is such reliance, the contract may be enforced to the extent
necessary to remedy the detrimental reliance despite the lack of consideration.
Promissory estoppel may also be used to defeat a Statute of Frauds defense.
• Material Benefit Rule: Some states recognize an exception to the past
consideration limitation in cases in which the promise is made after receipt of a
significant benefit. The material benefit rule states that a promise not supported
by consideration may be enforceable if it is made in recognition of a benefit
previously received by the promisor from the promise.
❖ Bar Professors’ Tip: For the material benefit rule, a promise made in recognition of a
benefit previously received by the promisor from the promisee is binding to the extent
necessary to prevent injustice. A promise is not binding, however, if the promisee
conferred the benefit as a gift or for other reasons the promisor has not been unjustly
enriched; or to the extent the value of the promise is disproportional to the benefit.
❖ Bar Professors’ Tip: The promise to forbear or abandon the prosecution of a legal
claim is valuable consideration, even if it is uncertain, as long as the party making the
promise has an honest subjective belief in the claim’s merit.
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3. Type of Contracts
A. Option
An option contract is when an offer contains a promise by the offeror that it will be held open for
a stated period and will be irrevocable for the stated period, if supported by consideration.
B. Divisibility
A contract is divisible if: (i) the performance of each party is divided into two or more parts
under the contract; (ii) the number of parts due from each party is the same; and (iii) the
performance of each part by one party is agreed on as the equivalent of the corresponding part
from the other party.
C. Output
An output contract (like a requirement contract) is an “exclusive dealing” contract under the
UCC, and such contracts impose an implied obligation by the seller to use their best efforts to
supply the goods and by the buyer to use their best efforts to promise their sale.
D. Requirement
Requirement contracts are contracts in which the seller promises to supply all the goods or
services that a buyer needs during a specific period at a set price and where the buyer promises
to obtain the goods or services exclusively from the seller.
4. Formation Defenses
A. Statute of Frauds
❖ Bar Professors’ Tip: Note that “the contract” need not be in writing; there need only
be some written and signed proof.
❖ Bar Professors’ Tip: A contract that is for a specified term beyond one (1) year and
cannot be performed in less than one (1) year is subject to the Statute of Frauds (SOF).
The Statute requires the agreement to be in writing, signed by the party against whom
enforcement will be sought. A writing can be in more than one document as long as it is
clear that it is referring to the essential terms of the agreement, and the signature can be
by any method that indicates the party sought to be bound, such as a company seal or
letterhead.
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agreements for the sale of goods for $500 or more, except where: (i) the
agreement is for specially manufactured goods; (ii) the agreement is between
merchants and one sent a confirmatory memo; (iii) a party admits the contract in
court or in pleadings; (iv) part payment or acceptance has been made, which
makes the contract enforceable to that extent; (v) Any promises to answer for the
debts of another must be in writing and signed by the parties charged.
B. Unconscionability
A contract may be voidable where its clauses are extremely one-sided or unfair when made; such
as contracts with risk-shifting provisions, hidden disclaimers of warranty, contracts of adhesion.
C. Mistake
• Unilateral: The contract will be enforced unless the other party knew or should
have known of the mistake.
❖ Bar Professors’ Tip: In a construction bid essay, look for a sub-contractor to make a
mistake on its bid. If the general contractor knew or should have known the mistake
(e.g., the bid was much lower than any other bid), the sub-contractor’s bid will be
unenforceable as against the general contractor. The bid will be enforceable between the
general contractor and the company soliciting the bid.
D. Ambiguity
If the contract has an ambiguous term, the result depends on the parties’ awareness of the
ambiguity. If neither party is aware, no contract is formed unless both parties happened to
intend the same meaning. If both parties are aware, no contract is formed unless both parties
intended the same meaning.
E. Parol Evidence Rule
Look for an ambiguity in the contract. It renders any evidence of prior or contemporaneous
understanding of the parties inadmissible if offered to contradict or modify terms of a written
agreement; the rule does not exclude evidence offered to prove fraud, duress, mistake,
misrepresentation, illegality. Look for integration of the contract.
❖ Bar Professors’ Tip: Post-contract negotiations are not covered by the parol evidence
rule.
❖ Bar Professors’ Tip: Contracts entered into by fraud, mistake, etc., are not covered by
the parol evidence rule.
❖ Bar Professors’ Tip: Contracts often contain boilerplate language called the “merger
clause” or “integration clause,” which states that the contract itself is the final word on
what the parties have agreed to. The merger clause will state that the contract that it is
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part of captures the “entire agreement” between the parties, e.g., “This is the parties’
entire agreement on this matter, superseding all previous negotiations or agreements.”
F. Misrepresentation, Fraud
A party under a contract commits fraud or misrepresentation if the person: (1) made a false
statement about a material fact; (2) made it within the knowledge that it was false or did not
know if it was true or not; (3) made the fact to induce the other party into entering into the
contract; and (4) there was reliance on the party of the party and they were harmed.
A person can have a cause of action for fraud when there is (1) active concealment of a latent
defect in the property; (2) an affirmative lie; or (3) silence when there is a duty to speak.
Scienter must be proved and there must be justifiable reliance, causation and damages.
G. Capacity
• Mental illness;
• Undue Influence;
• Duress;
• Infancy (a minor can void a contract, but the adult cannot void the contract; a
minor can ratify at age 18; there is a necessaries exception).
H. Duress
Duress occurs when a person is influenced to sign a contract under pressure. Duress can be
applied when a contract is made or when a contract was modified. Typical examples of duress
include threats to personal liberty, threats of actual violence, and excessive economic pressure.
Duress is determined not by the nature of the pressure though, but by the state of mind induced
in the victim. If a person signs a contract under duress, the contract is void.
I. Undue Influence
Where it is established that a plaintiff was induced to enter into a contract or transaction by the
undue influence of the defendant, the contract may be rendered voidable. If undue influence is
proved in a contract, the plaintiff is entitled to set aside the contract against the defendant, and
the remedy is rescission.
Undue influence is said to exist if an inordinate amount of pressure is placed upon a party to
enter into a contract against their best interests. Undue influence is usually only claimed in the
event that the party is in a relationship wherein another person is able to influence their
decisions. A presumption of undue influence can be established if the party in the superior
position influenced the dependent party to agree to a contract that benefited the superior party.
❖ Bar Professors’ Tip: Other relationships in which undue influence may arise include
attorney-client relationships, doctor-patient relationships, and the relationships between
the beneficiaries of a trust and the individual responsible for managing the trust.
❖ Bar Professors’ Tip: Undue influence cannot be invoked by a party simply because
they are in a detrimental contract.
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J. Illegality
An illegal contract is one that is made for an illegal purpose, and for that reason, violates the
law. A contract can be deemed illegal even if the performance under the contract would not
otherwise violate the law. There are certain activities that might not be prohibited by law, but
would still be discouraged by the public. Such activities could also deem a contract illegal. The
illegality itself must relate to the contract, whether it be what is included in the contract or how
the contract was entered into. If a court determines that the contract is illegal, it becomes void.
5. Modification
The general rule is that unilaterally-beneficial modifications are unenforceable due to lack of
consideration. However, an exception to the general rule is when the modification is “fair and
equitable” in light of circumstances not anticipated by the parties when the contract was made.
A. Common Law
Under common law, the preexisting duty rule requires new or different consideration for a
contract modification.
B. UCC
Under the UCC, no consideration is needed for a written or an oral modification made in good
faith.
C. Statute of Frauds
A third-party beneficiary is a person who is not a party to the bargain and who gives no
consideration to support it, but who will benefit by a contract performance.
B. Rights
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Generally, a creditor or donee beneficiary (but not an incidental beneficiary) can enforce the
contract against the promisor directly, but is subject to any defense that the promisor could have
raised against the promisee.
C. Vesting
The rights of a creditor beneficiary or donee beneficiary will vest when the beneficiary (1)
assents to the contract, (2) brings suit to enforce the contract, or (3) materially changes position
in justifiable reliance on the contract.
❖ Bar Professors’ Tip: Once the rights of an intended beneficiary have vested, the
parties may no longer modify or rescind the contract. Until a third party’s rights vest, the
parties to the contract may rescind, modify, or novate their bargain.
7. Assignment/Delegation
Any contractual right may be assigned and any contractual duty may be delegated unless the
duty involves personal judgment or skill or unless the contract says otherwise.
8. Warranties
A. Merchantability
This warrants that the goods are fit for the ordinary purpose for which goods are sold.
B. Fitness for a Particular Purpose
Fitness for a particular purpose arises when the seller has reason to know the particular purpose
for which the goods are to be used and the buyer is relying on the seller’s skill to select suitable
goods.
C. Express
An express warranty is any affirmation of fact, promise, or description which is part of the basis
of the bargain.
D. Implied Warranty of Title
Disclaimers are only good for implied warranties. It must be in writing and must be
conspicuous. “As Is” or “With Faults” is sufficient. A seller cannot disclaim express warranties.
9. Performance
A. Conditions
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An event (other than the passage of time) that must occur or fail to occur, unless excused, before
performance comes due (a condition precedent) or that will release a party from an existing duty
to perform (a condition subsequent).
B. Discharge
• Impossibility
• Impracticability
• Frustration of Purpose
Frustration of purpose can excuse a party’s performance and requires: (i) a supervening event;
(ii) that was not reasonably foreseeable at the time of entering into the contract; (iii) that
completely or almost completely destroys the purpose of the contract; and (iv) the purpose was
understood by both parties. Frustration is not an argument that performance is impossible, but
that it is pointless.
❖ Bar Professors’ Tip: Frustration of purpose occurs when the claim is, that with his
goal no longer obtainable, the promisor should be excused on a theory of frustration
from the duty to perform his own obligations.
❖ Bar Professors’ Tip: A party seeking to establish frustration must allege and prove
that the after-arising event was neither foreseen nor reasonably foreseeable at the
formation stage.
C. Breach
A breach occurs when there is an absolute duty to perform and the duty has not been performed
or has been performed inadequately or improperly.
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minor one. However, the seller has a right to cure if there is time left under
the contract to perform and the seller gives notice of the intent to cure and
does cure; and after the time for performance has passed if the seller had
grounds to believe that the nonconforming goods would be acceptable but the
buyer rejects the goods.
D. Anticipatory Repudiation
One party unequivocally indicates he will not perform; the aggrieved party can suspend
performance and immediately sue for damages. The party can ask for assurances.
E. Demand for Assurances
A demand for assurances is available to both buyer and seller. If reasonable grounds for
insecurity arise as to performance, the party may in writing, demand adequate assurance of due
performance. Until he receives it, he may suspend his own performance.
F. Accord and Satisfaction
To constitute an accord and satisfaction, there must have been a genuine dispute that is settled
by a meeting of the minds with an intent to compromise. Where there is an actual controversy,
an accord and satisfaction may be used to settle it. The new contract is substituted for the old
contract which is now discharged. All of the elements of a valid contract must be presented.
G. Novation
Novation is the substitution of a new contract for an old one. The new agreement extinguishes
the rights and obligations that were in effect under the old agreement.
A novation ordinarily arises when a new individual assumes an obligation to pay that was
incurred by the original party to the contract. In the case of a novation, the original debtor is
totally released from the obligation, which is transferred to someone else. A novation also takes
place when the original parties continue their obligation to one another, but a new agreement is
substituted for the old one.
10. Remedies
A. Quasi Contract
A quasi contract is a contract that is created by the court when no such official contract exists
between the parties, and there is a dispute with regard to payment for goods or services
provided. Courts create quasi contracts to prevent a party from being unjustly enriched.
• Unjust Enrichment
Unjust enrichment is used to describe a situation where one party benefits at the other party’s
expense. Unjust enrichment is usually used to describe benefits that are received, but which
have not been earned, and should not be kept. Those who are declared unjustly enriched are
required by law to pay the other party restitution.
• Quantum Meruit
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The law infers a promise to pay a reasonable amount for labor and materials furnished, even in
the absence of a legally enforceable agreement between the parties.
B. Risk of Loss/F.O.B.
Risk of loss refers to the liability of a carrier, borrower or user of property or goods, or an
insurance company to compensate if there is damage or loss to the property. Risk of loss law
determines whether the buyer or seller is financially responsible for the loss.
At common law, the risk of loss for shipped goods falls upon the person or party who had
"technical title" at the time the goods were damaged or destroyed.
The UCC allocates the risk of loss where the contract authorizes the seller to ship the goods by
carrier (a) if it does not require him to deliver them at a particular destination, the risk of loss
passes to the buyer when the goods are duly delivered to the carrier; but (b) if it does require
him to deliver them at a particular destination and the goods are tendered while in the
possession of the carrier, the risk of loss passes to the buyer when the goods are so tendered as
to enable the buyer to take delivery.
Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes
to the buyer: (a) on his receipt of a negotiable document of title covering the goods; or (b) on
acknowledgement by the bailee of the buyer's right to possession of the goods; or (c) after his
receipt of a non-negotiable document of title or other written direction to deliver.
The risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant;
otherwise the risk passes to the buyer on tender of delivery.
❖ Bar Professors’ Tip: The parties are free to contract any risk of loss issues that may be
contrary to the UCC or common law.
C. Legal
• Expectancy Interest: This is the default remedy, unless the damages are too
vague. It is used to put the party into the position it would have been in had the
contract been performed.
• Compensatory: Actual, consequential, incidental.
• Restitutionary: Value of benefits conferred onto breaching party.
• Reliance: Based on promissory estoppel.
• Rescission: Puts the parties back in the same position before the contract was
formed.
D. Equitable
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The nonbreaching party has a duty to mitigate damages, generally by seeking substitute
performance.
F. Punitive Damages
Punitive damages are usually not awarded in contractual actions, but look for something so
outrageous that the court would make an exception for, e.g., fraud.
❖ Bar Professors’ Tip: The goal of the damage remedy at law is to compensate the
aggrieved party, not to inflict a punishment upon the party in breach.
❖ Bar Professors’ Tip: Look for an egregious situation where punitive damages may be
had.
G. Liquidated Damages
Secured Transactions
High Priority
• All types of Collateral
• Perfection/Attachment
• Purchase Money Security Interest (PMSI)
• Sale of Collateral
• Buyer in the Ordinary Course of Business
Priority
• Deficiency Judgments
• Right of Redemption for Debtor
• Financing Statements
• After-Acquired Property
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2. Security Interest
A security interest is an enforceable legal claim against a borrower for the specific collateral
pledged for the repayment of a loan or other obligation. A security interest is created by a
contractual agreement.
❖ Bar Professors’ Tip: A security interest is an interest that one party, the secured
party, has in the non-real property, known as collateral, of another, the debtor. The
security interest is created to provide collateral on a loan or other items of value provided
by the secured party to the debtor.
❖ Bar Professors’ Tip: A security interest is created when a proper security agreement is
executed and when attachment occurs.
A security agreement is property executed when there is a contract that:
3. Collateral
The UCC divides personal property or goods into different classes: consumer goods, equipment,
inventory, general intangibles, farm products and fixtures.
Tangible personal property is classified by the debtor’s intended use.
The UCC tangible collateral categories are inventory, equipment, consumer goods, farm
products, manufactured homes, and the proceeds therefrom. The UCC intangible collateral
categories include instruments, documents of title, chattel paper, accounts, deposit accounts,
investment property, commercial tort claims, letter of credit rights, policy of insurance, and
general intangibles.
❖ Bar Professors’ Tip: Goods are defined as all things that are moveable at the time of
the transaction.
❖ Bar Professors’ Tip: Inventory is defined under the UCC as goods that a company
uses or consumes in performing its business. Personal and consumer goods are goods
purchased primarily for use by consumers in their home for personal use. Equipment is
defined as goods other than consumer goods or inventory; items/machinery used in
helping the company run its business and are not for sale.
❖ Bar Professors’ Tip: Article 9 looks to the substance of the transaction, not the form,
e.g., even if a transaction is not called a loan, if it has the substance of a loan, then it falls
under Article 9.
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❖ Bar Professors’ Tip: Whether a transaction in the form of a lease actually creates a
true lease or a security interest depends on the economic realities of the transaction, not
on the form of the transaction or the supposed intent of the parties.
❖ Bar Professors’ Tip: The UCC identifies certain situations in which a transaction
creates a security interest, not a lease. For example, the UCC states that a transaction in
the form of a lease creates a security interest if lease payments must be made for the full
term of the lease and are not subject to termination, and the lessee has an option to
“become the owner of the goods…for nominal additional consideration” at the conclusion
of the lease agreement. It is immaterial to the UCC if the lease agreement provides for
title to remain in the creditor’s name, it is still a security interest.
4. Attachment
Attachment gives the creditor rights against the debtor, the collateral, and third parties who
know of the secured interest. This requires a security agreement, the debtor to have rights in the
collateral and value given by the creditor.
A. After Acquired Property
After acquired property is a valid clause that may appear in contracts, in which a lender takes a
security interest in “all property that the debtor acquires after consummation of the loan
agreement.” Such a clause is intended to extend the protection of the creditor to include assets
that the debtor purchases or otherwise acquires after the loan or debt is incurred.
❖ Bar Professors’ Tip: The collateral can be for both present and future acquired
collateral, but if the collateral covers future acquired property it must be expressly stated
in the security agreement.
❖ Bar Professors’ Tip: One of the elements of an enforceable and attached security
interest is that the debtor has rights in the collateral. If goods have not been delivered,
then the debtor has no rights in the collateral and the secured party has no secured
interest. For example, if a debtor has a contract with a supplier for 100 bags of sugar
every month; the debtor has no rights to the undelivered portion of the contract, and
thus, the secured party has no secured interest in the undelivered items. The debtor must
have acquired the item for a secured party to claim.
❖ Bar Professors’ Tip: After acquired property is a frequently tested area on the bar
exam.
B. Consignment
An Article 9 consignment means a transaction in which a person delivers goods to a merchant
for the purpose of sale and the merchant: (i) deals in goods of that kind under a name other than
the name of the person making delivery; (ii) is not an auctioneer; and (iii) is not generally
known by its creditors to be substantially engaged in selling the goods of others. With respect to
each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery; the
goods are not consumer goods immediately before delivery; and the transaction does not create
a security interest that secures an obligation.
❖ Bar Professors’ Tip: The consignment become part of the debtor’s inventory.
Therefore, the creditor can seize the consigned goods from the debtor.
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C. Reservation of Title
Under the UCC, a retention or reservation of title by a seller of goods notwithstanding shipment
or delivery to the buyer is “limited in effect to a reservation of a security interest.” If the creditor
had not retained possession or filed a financing statement with respect to it, the security interest
is unperfected.
❖ Bar Professors’ Tip: This occurs when the creditor retains title until the debtor pays
the full contract price.
❖ Bar Professors’ Tip: Title passes to the buyer at the time and place at which the seller
completes his performance with reference to the physical delivery of the goods, despite
any reservation of a security interest.
5. Perfection
Perfection protects the creditor’s secured interest against other secured interests, most
transferees for value and the bankruptcy trustee. Perfection may be achieved by attachment
plus one of the following: possession, control, filing (in the debtor’s principle state of business),
or title certificate.
❖ Bar Professors’ Tip: Rules of perfection determine priority among secured parties,
general creditors, and lien creditors. A secured party perfects its interest when, after the
interest attaches, the secured party files a financing statement, obtains control or
possession over the collateral, or through automatic perfection by operation of law. A
financing statement must contain a description of the property, the parties to the
security agreement, and be authorized by the debtor.
❖ Bar Professors’ Tip: A security interest in a deposit account is perfected only if the
secured party has control of the account. Demand accounts are deposit accounts under
the UCC. A creditor only has control of a deposit account if the secured party is the bank
with which the deposit account is maintained; the bank where the account is held has
agreed in writing to follow the instructions of the secured party; or the secured party
becomes the bank’s customer with respect to the account.
A. Financial Statement
A financial statement must be
❖ Bar Professors’ Tip: The proper filing of a financing statement acts as constructive
notice to the world that the secured party has a collateral interest in the property.
B. Defective Filings
For the financing statement to be effective, it must contain three pieces of information: the
name of the debtor; the name of the secured party and an indication of the collateral.
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If the filing of the UCC-1 is defective because the information in the statement is seriously
misleading or the filing is made in the wrong county or office, the filing fails to perfect the
security interest. This means that other creditors who have liens on the collateral may have a
right to the collateral that is superior to that of the secured creditor.
❖ Bar Professors’ Tip: Minor errors do not render a financing statement ineffective,
unless those errors make the financing statement “seriously misleading.”
❖ Bar Professors’ Tip: Under the UCC, a financing statement sufficiently states the
name of a registered organization only if the financing statement provides the name of
the organization that is “indicated on the public record” that “shows the debtor to have
been organized.”
❖ Bar Professors’ Tip: Where the debtor is a registered organization such as a
corporation, the financing statement must use the official registered corporate name of
the debtor. A financing statement that provides only the debtor’s trade name does not
sufficiently provide the name of the debtor and can be seriously misleading unless it can
be found in a records search.
❖ Bar Professors’ Tip: The UCC provides a safe harbor that deals with this issue. Even
where the debtor’s name is incorrect on the financing statement, “if a search of the
records in the filing office under the debtor’s correct name, using the filing office’s
standard search logic, if any, would disclose a financing statement that otherwise fails to
provide the name of the debtor…the name provided does not make the financing
statement seriously misleading.”
❖ Bar Professors’ Tip: Look for similar names, inverted names or the name of the
debtor instead of the business. The analysis should revolve around whether a third party
would be able to find the filing.
C. Loss of Perfection
The filing of a financing statement is effective for five (5) years. At the conclusion of five years,
the perfection of the security interest terminates unless a continuation statement has been
filed. The continuation statement is a statement by the secured party that identifies the original
financing statement by its file number and declares that it is still effective.
Perfection is lost if the collateral is removed to another state unless a creditor files a financing
statement in the new state within four (4) months after removal. Regarding motor vehicles,
perfection is lost if a new title is issued and the lien is not stated on the title.
D. Fixtures
Fixture filing must be made in the register of deeds in the county where the property is located.
A security interest in fixtures has priority over any real estate interest that arises subsequent to
the perfection of the security interest by fixture filing.
E. 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 (e.g., tires on a car). A secured interest in
goods that is created and perfected before the goods become accessions continues after the
goods become accessions.
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❖ Bar Professors’ Tip: When the collateral of one creditor becomes united with the
collateral of another, each creditor’s collateral is an accession to the other creditor’s
collateral, and the two items of collateral are regarded as “the whole.” 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 that creditor’s security agreement.”
❖ Bar Professors’ Tip: The priority rules governing accessions are normally the same as
the rules for other collateral. However, Article 9 makes an exception when there is an
applicable certificate-of-title statute. A security interest in an accession is subordinate to
a security interest in the whole which is perfect by compliance with the requirements of a
certificate-of-title statute.
F. Vehicles
Some states have an added requirement of perfection by noting a secured interest on the
vehicle’s certificate-of-title.
❖ Bar Professors’ Tip: Where a motor vehicle certificate-of-title statute calls for
perfection by notation of the certificate of title, the filing of a financing statement will not
perfect an interest in a vehicle.
B. PMSI Financing
A PMSI is a security interest or claim on property that enables a lender who provides financing
for the acquisition of goods or equipment to obtain priority ranking ahead of other secured
creditors. A PMSI allows lenders to repossess goods that have been purchased with funds
borrowed from them. A PMSI most often arises in the context of commercial lending.
In the case of equipment, the lender must also perfect (i.e., take additional steps with regard to a
security interest to make it effective against third parties) its PMSI by filing a UCC financing
statement either before or within 20 days after the debtor receives possession of the equipment.
Inventory requires an extra step; the purchase money lender must give notice to all prior
secured parties of the intention to acquire a purchase money security interest in the inventory
before the debtor takes possession.
A PMSI enjoys preferential priority over other secured parties.
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7. Priority
The basic rule is first in time to perfect is first in right to collect (unless for the 20-day grace
period for a PMSI).
A. Creditors
Perfected attached creditors are given priority over lien creditors once they obtain perfection. As
to any other perfected creditor, the first to successfully file and achieve perfection are given
priority. Lien creditors are afforded priority over general creditors as the result of either a
judicial order or statutory right. General creditors are lawful claimants whose debt is not
secured by collateral. As such, their rights are subordinate to any secured creditor. Buyers in the
Ordinary Course are generally not subject to perfected security interests.
❖ Bar Professors’ Tip: A construction loan has a super priority over any fixtures
attached to the land or the improvements. The bank must note on its mortgage that it is a
construction mortgage.
❖ Bar Professors’ Tip: A judicial lien creditor that obtains a valid judgment prior to a
security party perfecting its security interest will take priority.
B. Fixtures
The general rule under Article 9 for priority in fixtures is that a security interest in the fixture
will be subordinate to a conflicting interest of an encumbrancer or owner of the related real
property other than the debtor.
Exceptions include: if perfected by a fixture filing before the interest of the encumbrancer or
owner is of record; before the goods become fixtures, the security interest is perfected and the
fixtures are readily removable; the conflicting interest is a lien on the real property obtained by
legal or equitable proceedings after the security interest was perfected.
8. Exceptions to Priority
• The goods are consumer goods in both the buyer’s and seller’s hands;
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• The buyer is a bona fide purchaser without notice of the security interest; and
• The security interest was not perfected by filing. Perfection will be lost.
❖ Bar Professors’ Tip: The buyer must take in good faith; the buyer must pay actual
value for the goods; the buyer must take unaware that the sale violates the security
interest of another; and the transaction is one where the collateral is a consumer good in
the hands of both the buyer and the seller.
❖ Bar Professors’ Tip: A secured creditor has a right to all proceeds from the sale of the
secured goods for which it has a security interest. When the proceeds are cash or are
traceable, then the security interest persists on the proceeds of the sale of the collateral.
❖ Bar Professors’ Tip: If a retailer filed a UCC-1 financing statement, the buyer would
not be able to use the garage sale exception because the buyer would be deemed to have
notice of the security interest by virtue of the public filing.
10. Rights and Duties of Secured Party Having Possession or Control of the
Collateral
A. Duty of Care
A secured party shall use reasonable care in the custody and preservation of the collateral in the
secured party's possession. In the case of chattel paper or an instrument, reasonable care
includes taking necessary steps to preserve his rights against prior parties.
❖ Bar Professors’ Tip: The debtor cannot alter, modify, damage or sell the secured
collateral. Once he has been made aware, the creditor can exercise the right of
repossession and strict foreclosure, even if the debtor is current on his payments.
B. Expenses, Risks, Duties and Rights
If a secured party has possession of the collateral: reasonable expenses, including the cost of
insurance and payment of taxes or other charges, incurred in the custody, preservation, use, or
operation of the collateral are chargeable to the debtor and are secured by the collateral; the risk
of accidental loss or damage is on the debtor to the extent of a deficiency in any effective
insurance coverage; the secured party shall keep the collateral identifiable, but fungible
collateral may be commingled; and the secured party may use or operate the collateral: for the
purpose of preserving the collateral or its value; as permitted by an order of a court having
competent jurisdiction; or except in the case of consumer goods, in the manner and to the extent
agreed by the debtor.
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11. Remedies
A default is defined by the security agreement. When a debtor defaults on a security agreement,
the secured party may take steps necessary to collect on its rights in the collateral in which it
took a security interest. The secured party is entitled to take possession of the collateral
property, either as payment for the debt defaulted on and owed, or to sell the collateral in a
commercially reasonable manner to satisfy the debt owed.
❖ Bar Professors’ Tip: Upon default, a secured party may repossess collateral without
notice to the debtor, so long as it does not breach the peace. Once the property is
repossessed, however, the secured party must send proper notice to the debtor, any
secondary obligor, other secured parties, and creditors prior to distribution (selling the
collateral). Notice must be provided within a reasonable time prior to the sale of
collateral; generally, 10 days or more prior to sale has been found reasonable. Failure to
properly notify may result in adverse consequences for the secured party; they may be
estopped from seeking a deficiency against the debtor, the deficiency may be reduced, or
they may be liable to suit on behalf of the debtor or other creditors with interest in the
collateral for damages or even to enjoin the sale if it has not already occurred. In all other
respects, the sale of collateral after default must be commercially reasonable.
A. Self Help/Repossession
An attached creditor has the right of repossession, even without judicial process; self help is
authorized. If the interest is perfected, the right is also good against third party transferees. The
creditor is given a limited privilege against the tort of trespass to enter onto the debtor’s
property, but it must be reasonable as to time and extent, and not involve a breach of the peace.
The creditor then may retain the collateral, known as strict foreclosure. Unless the affirmative
consent of the debtor is achieved for a partial strict foreclosure, the creditor must waive any
deficiency against the debtor if using this remedy.
❖ Bar Professors’ Tip: Upon default, a secured party may disable large equipment
without liability as long as the secured party does not breach the peace in order to
disable the equipment (e.g., disabling software on a machine).
❖ Bar Professors’ Tip: If the debtor files for bankruptcy protection, then any attempt to
recover or disable the collateral must immediately stop due to the automatic stay
provided by bankruptcy.
B. Accounts Receivable
In cases of accounts receivable, the secured party has the right to make a demand on the parties
owing the debtor and whom the secured party has a collateral interest in the accounts
receivable. Once a demand has been reasonably made to the parties owing the debtor, under
accounts receivable that has been sold to the secured party, they must comply with the lawful
demand.
❖ Bar Professors’ Tip: Article 9 allows a secured party with a perfected security interest
to collect from a subsequent debtor of the original debtor.
❖ Bar Professors’ Tip: The secured party can demand that the parties who owe money
to the debtor pay the secured party directly, bypassing the debtor.
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C. Foreclosure
After default, a secured party may reduce a claim to judgment, foreclose, or otherwise enforce
the claim, security interest, or agricultural lien by any available judicial procedure.
A sale pursuant to an execution is a foreclosure of the security interest or agricultural lien by
judicial procedure.
D. Sale
Written notice within a reasonable time must be given to the debtor if the creditor repossesses,
and unless objected to, a disposition sale of the collateral is held. Reasonable time is considered
ten (10) days or more.
❖ Bar Professors’ Tip: Under the UCC, every aspect of a disposition must be
commercially reasonable. The UCC sets out specific standards governing the disposition
of collateral.
❖ Bar Professors’ Tip: Look for issues regarding notice to the debtor and other
creditors.
Notice to the debtor must be written, date, time and place, debtor’s name, creditor’s name, item.
If not, the debtor may be able to get relief from a deficiency judgment.
❖ Bar Professors’ Tip: The UCC requires a secured party to provide notice to the debtor
before disposing of collateral. A proper notice must describe the intended disposition
and must be sent within a reasonable time before the disposition.
The sale must be commercial reasonable. Courts will consider: sufficiency of the advertising; if
the collateral had a limited market, whether people in that market were contacted; whether the
collateral needed cleaning or repair; and if the sale was by public auction, the convenience of
time and place.
❖ Bar Professors’ Tip: The secured party may purchase the collateral only if the secured
party buys it at a public disposition; or at a private disposition only if the collateral is of a
kind that is customarily sold on a recognized market or the subject of widely distributed
standard price quotations.
The debtor can seek reversal, damages, and/or non-payment of deficiency judgment. Although
ordinarily the secured party may recover a deficiency remaining after disposition, the secured
party’s noncompliance with the UCC on recovery of a deficiency in a consumer good transaction
is left to the court to determine. Courts follow two (2) approaches in consumer transactions.
Under the “absolute bar” rule, the creditor’s non-compliance bars recovery of any deficiency.
Under the “rebuttable presumption” rule, the creditor’s noncompliance results in a presumption
that a complying disposition would have realized an amount of proceeds sufficient to cover the
entire debt and expenses, but the creditor is given the opportunity to rebut this presumption by
proving that even a complying sale would have realized less than the full amount due.
❖ Bar Professors’ Tip: The secured party is liable for actual damages caused by failing
to comply with the UCC rules for notice of disposition and a commercial reasonable
disposition.
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❖ Bar Professors’ Tip: Damages are “those reasonably calculated to put an eligible
claimant in the position that it would have occupied had no violation occurred.”
❖ Bar Professors’ Tip: Where the collateral is consumer goods, the debtor is guaranteed
a minimum recovery of “statutory damages” in an amount not less that the credit service
charge plus 10% of the principle amount of the loan.
❖ Bar Professors’ Tip: When a secured party is disposing of collateral improperly, a
court “may order or restrain disposition on appropriate terms and conditions,” e.g., the
court may void the sale.
The creditor must conduct a lien search.
The proceeds from the sale must be used first for repossession and disposition sale expenses,
and then disbursed to creditors with interests senior to the creditor conducting the sale, and
junior interests take after him. The collateral may be sold with a senior interest still attached to
the item. Any remainder is given to the debtor.
When a secured party with priority disposes of collateral, the proceeds of that disposition are
applied in the following order:
❖ Bar Professors’ Tip: A secured party’s disposition of collateral after a debtor’s default
transfers the debtor’s rights in the collateral to any transferee for value and also
discharged the secured party’s interest in the collateral and “any subordinate security
interest.”
❖ Bar Professors’ Tip: Any junior party is free to foreclose on the collateral. But the
senior security interest would not be discharged by such a foreclosure. The secured
interest would attach to the proceeds of the sale. Moreover, the interest would follow the
collateral to whomever bought it.
Redemption can only occur before the collateral is disposed of, or subject to a contract for sale.
❖ Bar Professors’ Tip: The redemption right is usually extinguished by a proper
disposition of collateral.
❖ Bar Professors’ Tip: A debtor has a right to redeem repossessed collateral by paying
all amounts owed along with the secured party’s repossession expenses when there is an
improper sale.
Trusts
High Priority
• Elements of a Trust
• Revocable/Irrevocable Trust
• Pour Over Trust – Will Provision
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• Discretionary Trust
• Rights of Creditors
• Spendthrift Trust
• Cy Pres Doctrine
• Termination of a Trust
• Trustee’s Rights and Duties
• Self-Dealing/Duty of Loyalty
• Conflict/Impartiality
• Prudent Investment
• Duties to the Settlor
• Beneficiary of a Trust
• Power of Appointment
• Class Gifts
Priority
• Charitable Trust
• Support Trust
• Provisions Against Marriage
• Modification of a Trust
1. Definition of a Trust
A trust is a fiduciary relationship in which 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.
2. Types of Trusts
An express trust arises from the expressed intention of the owner of property to create the
relationship with respect to the property.
B. Charitable Trust
A charitable trust must have a purpose considered to benefit the public. The class to be
benefited may be limited, but may not be so narrow as to only benefit a few individuals whom
the settlor wishes to aid personally. Beneficiaries of a charitable trust must be indefinite.
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The rules governing charitable trusts differ from those applicable to private trusts in 3 important
ways:
• A charitable trust must have indefinite beneficiaries;
• It may be perpetual; and
• The cy pres doctrine applies.
Courts consider the community at large as the beneficiaries of a charitable trust, and a particular
individual eligible for its benefits has no standing to enforce its terms. The duty of enforcement
is on the state’s attorney general.
C. Honorary Trust
An honorary trust is commonly established for the benefit of pets or for the maintenance of
burial places.
Under the common law, because there is no human beneficiary to enforce an honorary trust, the
trustee is “on his honor” to carry out its terms.
Most jurisdictions will void the trust for the rule against perpetuities if its duration may be more
than a human life in being + 21 years.
The statute of frauds applies. The trust will continue for as long as the animal is alive.
D. Discretionary Trust
The trustee has the discretion to make distributions. The trustee must follow whatever
directions were given by the settlor and must try to honor the intent of the settlor. The
beneficiary usually cannot make the trustee order a distribution. A court will order the trustee to
make a distribution only if there is a clear abuse of discretion.
❖ Bar Professors’ Tip: A discretionary trust is created when the settlor provides
instructions to the trustee to disburse funds based on the trustee’s discretion. While the
trustee has wide discretion in determining asset distribution, the trustee must act in
good faith when making distributions. A trustee can be held to abuse of discretion based
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on personal resentment of the beneficiary or other unreasonable reasons. In this way, the
trustee can violate the trust instrument, which controls the trustee’s action at all times.
E. Mandatory Trust
When the trustee has to make mandatory distributions as per the trust document.
F. Support Trust
A support trust provides for the beneficiary’s support, like housing, food, tuition, etc. The trustee
has no right to provide for luxuries; and the support can be mandatory or discretionary.
3. Trusts Arising As a Matter of Law
Constructive and resulting trusts are passive trusts. Once the court has declared such a trust to
exist, the trustee’s role is to convey legal title to the beneficiary.
The trustee must also account for profits taken from the property or fair rental value of his use
of it from the time of the occurrences raising the implied trust.
B. Resulting Trust
A resulting trust arises from the presumed intention of the owner of the property and is by
operation of the law. A resulting trust is from a failed express trust when the trusts purpose is
satisfied but the trust cannot find beneficiaries, the trust becomes illegal, etc.
A resulting trust arises where a settlor has conveyed property to a trustee under an express trust
and
o The trust is void or unenforceable; or
o The beneficiary is dead or cannot be located.
A resulting trust may also apply on the failure of a charitable trust where cy pres is inapplicable.
The express trust terminates and the settlor becomes the beneficiary of the resulting trust.
A resulting trust will not be implied where:
o The trust instrument specifically or implicitly provides for disposition of trust
property when the trust has failed or been completed;
o The settlor was given consideration for his original transfer in the trust;
o The settlor created the trust for an illegal purpose; or
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A resulting trust in favor of the settlor also arises when the trust purpose is fully satisfied and
some trust property remains. There could be a resulting trust of part of the corpus even before
the trust is terminated if it is clear that there is excess trust corpus.
A purchase money resulting trust is presumed whenever the beneficiary furnishes the
consideration (usually money) for the acquisition of real or personal property but, with the
beneficiary’s consent, the title is taken in the name of the trustee.
The consideration paid by the beneficiary must be for the purchase of the property.
The consideration (or obligation to pay) must be supplied at or before the time the trustee takes
title.
The burden is on the beneficiary, or the party claiming to be the beneficiary of a resulting trust,
to prove by clear and convincing evidence that he supplied the consideration.
Once the beneficiary proves that he supplied the consideration, a resulting trust is presumed,
but the trustee can rebut by showing that no trust was intended. Recitals as to who paid
consideration are not conclusive.
Exceptions:
• There is no trust presumption where the parties are closely related. A gift is
presumed rather than a trust. It is a rebuttable presumption.
• There is no trust if title is taken for an unlawful purpose.
• There is no trust if the transferee obtained title wrongfully; it may be a
constructive trust.
• Where the beneficiary supplies only part of the consideration, the resulting trust
in his favor is only for a pro rata portion of the property.
C. Constructive Trust
Constructive trusts are used to prevent unjust enrichment and by operation of the law.
The trust arises either where there is no valid express declaration of trust, or when no trust was
even intended.
The statute of frauds is inapplicable.
It is not really a trust, but an equitable remedy. It is to prevent wrongful conduct and or unjust
enrichment. The wronged party gets back his property and the trustee’s sole duty is to return
title to the beneficiary. Look for theft, embezzlement, conversion, misrepresentation, mistake,
fraud or duress. The trust is retroactive to the date the trustee took title or to the time of the
wrong doing.
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The constructive trustee’s only duty is to convey the property to the person who would have
owned it but for the wrongful conduct.
Proof of the facts necessary to establish a constructive trust must be made by clear and
convincing evidence.
• Fraudulent promise;
• Breach of promise by one in a confidential relationship;
• Breach of promise by the decedent’s devisee or heir to hold property for the
benefit of a third person;
• Breach of promise by the decedent to devise property to one rendering services in
reliance; or breach of promise to the debtor by the buyer at the foreclosure sale to
hold the property for the debtor, causing the debtor to forgo bidding at the sale.
The burden of proof is on the party seeking the constructive trust to establish facts relied upon
by clear and convincing evidence.
4. Validity of the Express Private Trust
A. Intent
Did the settlor have the requisite intent to create a trust? A settlor may manifest intent with
words and conduct. Look for precatory language (e.g., I hope, I wish). Precatory language will
not satisfy intent.
B. Identifiable Trust Corpus
The trust corpus is the property that is in existence and transferred to the trust or to the trustee.
Where there is no trust property, the trust fails because the trustee has no property to manage. A
future interest may be held in trust, but an interest not yet in legal existence (i.e., a mere
expectancy) cannot be held in trust. Future profits from an existing contract can be a trust res.
The trust res must be existing property that the settlor has the power to convey, including
intangibles (e.g., promissory notes) in which the settlor has an assignable interest.
The res must be identifiable and segregated, but the res may be a fractional or undivided interest
in specific property.
C. Ascertainable Beneficiaries
For a private trust, the beneficiaries must be ascertained and capable to take title.
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For a charitable trust, there are no ascertainable beneficiaries. The benefits go to the public and
the attorney general enforces the trust.
For an honorary trust, there are no ascertainable beneficiaries.
D. Proper Purpose
There must be a proper purpose for the trust. The trust must be legal and not contrary to public
policy.
A trust purpose is invalid if it is:
• Illegal;
• Contrary to public policy;
• Impossible to achieve; or
• Intended to defraud the settlor’s creditors based on illegal consideration.
❖ Bar Professors’ Tip: Terms of a trust will not be upheld if they are against public
policy. An example would be a trust term contingent on someone marrying another
individual of a certain race or nationality. Such discriminating terms cannot be enforced
by the court while simultaneously complying with the constitution.
Under the Uniform Rule against Perpetuities, a nonvested property interest in a trust is invalid
unless
• When the interest is created it is certain to vest or terminate within the common
law period (21 years after death of life in being); or
• It actually vests or terminates within 360 years after its creation.
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A present intention to create a trust is essential to the existence of an express trust. Intent may
be manifested by written or spoken words or by the conduct of the seller.
An oral trust of personal property is valid, but a trust must be written if real property is involved
or the trust is created by a will instrument (the Statute of Wills applies).
Communication of intent to the beneficiaries is not necessary. Delivery of the deed to the trustee
is sufficient.
The settlor’s intent must be that the trust take effect immediately, not at some future time;
although a future interest can be trust property.
Precatory expressions do not create a trust. This inference can be overcome by
A trust will not fail because the trustee dies, refuses to accept the appointment or resigns. The
court can appoint a successor trustee unless it is clear that the settlor intended the trust to
continue only so long as a particular trustee served.
The absence of a trustee may cause an attempted inter vivos trust to fail for lack of delivery.
A person accepts a trusteeship by substantially complying with the acceptance terms in the trust
instrument or by accepting delivery of trust property, by exercising powers or by performing
duties as trustee or by indicating acceptance.
The settlor must intend to impose enforceable duties on the trustee.
Anyone who has capacity to acquire and hold property for his own benefit and has capacity to
administer the trust may be a trustee.
A trustee is entitled to reasonable compensation and reimbursement.
D. A Definite Beneficiary
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A trust cannot exist without someone to enforce it. A beneficiary is necessary to the validity of
every trust except charitable and honorary trusts.
A qualified beneficiary is a living beneficiary who, on the date the beneficiary’s qualification is
determined is:
• A current beneficiary; or
• A first line remainderman (e.g., one who would become eligible to receive
distributions upon a triggering event).
Any person capable of taking and holding title to property can be a beneficiary of a private trust.
Acceptance by the beneficiary is required, but can take place after a valid trust is created. A
beneficiary can also renounce his share of the trust.
Beneficiaries may be “definite” even though not yet ascertained (e.g., unborn children).
Beneficiaries must be ascertainable by the time their interests are to come into enjoyment. If a
private trust exists for the benefit of a class, the class must be reasonably definite.
If a trust fails for a lack of beneficiaries, a resulting trust in favor of the settlor or his successors
is presumed.
E. The Same Person is Not the Sole Trustee and Sole Beneficiary
The settlor cannot be the sole trustee and the sole beneficiary of the trust. If the sole trustee and
sole beneficiary are the same, title merges and the trust terminates.
6. Manner of Creation
A trust can be created by inter vivos transfer, by inter vivos declaration of trust, or by will
(testamentary trust).
A present declaration or transfer of trust is required. A trust can be created either by a person
declaring himself trustee for another or by the transfer of property to another as the trustee.
The present intent required must be manifested by conduct (delivery) or words (declaring
oneself trustee).
Delivery means placing the trust property out of the settlor’s control (unless the settlor serves as
trustee).
Failure to name a trustee or a promise to name a trustee in the future may be evidence of a lack
of present intent and prevents delivery of the res.
Some states do not require a writing for a trust of personal property. Oral trusts must be
established by clear and convincing evidence. For a trust of land, a writing is required for the
statute of frauds.
Most states allow extrinsic evidence where an ambiguity appears on the face of the writing.
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• Revocable/Irrevocable Trust
Most states allow for the settlor to make a revocable trust, which is a trust that may be amended
or terminated during the settlor's lifetime. Since the trust may be altered at any time until the
settlor's death, it is considered part of the grantor's estate and is subject to taxation. The
property is passed on to the beneficiaries only after the settlor's death, and the revocable trust
then becomes irrevocable. The settlor may make an irrevocable trust that cannot be amended or
terminated.
❖ Bar Professors’ Tip: A trustee of a revocable trust must act at the sole discretion of
the settlor. A trustee of an irrevocable trust must act for the benefit of the beneficiaries of
the trust. The settlor of a revocable trust retains the power to revoke, amend or otherwise
make decisions concerning the trust property even if his directions contradict the terms
of the trust.
• Testamentary Trusts
Trust intent and the essential terms of the trust (trust res, beneficiaries and trust purpose) must
be ascertained in the will, from facts having independent legal significance or from the exercise
of a power of appointment created by the will.
A testamentary trust must comply with the Statute of Wills (writing, signed by testator, two (2)
witnesses in the presence of each other).
Also, look for “Pour Over Wills” in which the property of the will is poured into the trust.
❖ Bar Professors’ Tip: A person may bequeath assets to a trust created during the
testator’s lifetime, by the testator or another, so long as the trust is identified in the
testator’s will and its terms are incorporated in a writing executed before or concurrently
with the execution of the testator’s will. Under these acts, a devise is valid even if the
trust is revocable or amendable, and, even if the trust is amended after the testator’s will
was executed. The terms of the amendment will govern the distribution of the assets
bequeathed to the trust. It makes no difference that the amendment was made by
someone other than the testator. Thus, a person could pour their estate over to another’s
trust and the amendments to that trust would govern the disposition of the estate.
• Secret Trust
A secret trust is when the trust instrument makes no mention of a beneficiary in the trust.
Extrinsic evidence is used.
Where a will makes a gift that is absolute on its face, but was in fact made in reliance on the
beneficiary’s promise to hold the property in trust for another, the intended trust beneficiary
may present extrinsic evidence of the promise.
If the promise can be proven by clear and convincing evidence, a constructive trust will be
imposed on the property in favor of the intended trust beneficiary.
• Semi-Secret Trust
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Most states have elective share statutes that require a percentage of the decedent’s property to
pass within the family and to the surviving spouse. Thus, a settlor cannot pass property through
a trust that would deny a spouse his elective share.
❖ Bar Professors’ Tip: The elective estate was created to protect the interest of the
surviving spouses from being intentionally disinherited from the probate estate. Under
the Uniform Trust Code (UTC), a spouse that conveys property to a revocable trust in an
attempt to prevent his or her surviving spouse from inheriting such property will be
unsuccessful because the UTC includes property held in trust as part of the elective
estate/share that the surviving spouse may choose to take.
C. Amending a Trust
D. Future Interest
A trust beneficiary can hold either a vested interest or a contingent interest in assets held in a
trust. The type of trust interest the beneficiary holds is dependent upon the terms the grantor
put in place for the trust when it was created. That interest can be a current or future equitable
interest or a future contingent interest. Equitable interests are considered vested, which means
that the beneficiary owns something that cannot be taken away from him even though he might
not have access to it yet.
A contingent interest is prospective and dependent upon some other occurrence to determine
whether a beneficiary is entitled to anything under the trust. If the contingent interest in a trust
is speculative and can be canceled, it is not vested or considered a property interest.
❖ Bar Professors’ Tip: A trust can expressly provide for the distribution of property
upon a specified event, such as a death. Some courts hold that if the person who was
designated to get the remaining principle predecease testator, and there is no provision
to the contrary, a trust will terminate and revert back to the testator’s estate. However,
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other courts hold being a remainder beneficiary gives that person a future interest in the
property.
E. Class Gifts
If a gift is made to a class of persons, such as a named person’s children, the class closes (i.e.,
additional persons may no longer join the class) when the named person dies or the gift
becomes possessory.
In states that have adopted the Uniform Probate Code, if a gift is made in trust to a class of
persons described as children, a deceased child’s descendants take the deceased child’s share by
representation.
7. Administration
A. Trustee
The trustee can properly exercise only such powers as are expressly or impliedly conferred upon
him:
❖ Bar Professors’ Tip: In executing his duties as trustee; the trustee has several implied
duties, which are those the trustee must necessarily possess if he is to execute the terms
of the trust. For instance, a trustee who must invest the trust res has an implied duty to
enter into contracts, because if he did not, there would be no point in granting him
investment authority. Likewise, a trustee of real property must repair the property.
The trustee must be of legal age, competence, and have capacity to enter into contracts.
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The trustee has a duty to administer the trust in good faith and in a prudent manner. If the
trustee has special skills he will be held to a higher standard. If there is more than one
beneficiary, the trustee must act impartially.
o Duty to Perform Personally
The trustee must personally perform functions that a reasonably prudent person would not
delegate.
o Duty of Loyalty
A trustee cannot enter into any transaction in which he is dealing with the trust in his individual
capacity. A trustee owes a duty of undivided loyalty to the trust and its beneficiary.
▪ A trustee cannot buy or sell trust assets even if the price is a fair one;
▪ A trustee may not sell property of one trust to another trust of which she
is also a trustee;
▪ A trustee may not borrow trust funds nor loan her personal funds to the
trust (except in emergency situations to protect the trust) and any interest
paid on such a loan must be returned to the trust;
▪ A trustee cannot use trust assets to secure a personal loan;
▪ A trustee cannot personally gain through her position as trustee;
▪ A corporate trustee cannot invest in its own stock as a trust investment;
but can retain the stock if it is part of the original trust res and passes the
prudent investor standard.
❖ Bar Professors’ Tip: A trustee owes a duty of utmost good faith and undivided loyally
to both the trust itself and to its beneficiaries. Included in this is the duty to protect trust
property by properly investing its assets and managing the trust in a way that a
reasonable trustee in that position would manage.
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The trustee cannot buy or sell trust assets, borrow trust funds or make loans to the trust, use
trust assets to secure a personal loan, or personally gain through her position as a trustee.
▪ Self-dealing is an automatic wrong, so the only issue is damages
(surcharge, profits, losses, interest, and removal).
▪ The defenses to self-dealing are consent or ratification.
❖ Bar Professors’ Tip: It is a fundamental trust concept that trustees have a duty of
loyalty to trust beneficiaries. The duty of loyalty includes the duty not to engage in self-
dealing, such as purchasing from the trust without court approval. The prohibition on
self-dealing applies even if the purchase price is fair and reasonable.
o Duty to Report
A trustee must:
▪ Provide the beneficiaries with the names and address of advisors;
▪ Respond to the beneficiaries’ requests for information and provide a copy
of the trust instrument; and
▪ If the trust is irrevocable, furnish an annual accounting.
A trustee may not commingle trust property with his own property or that of another trust.
The trust must also earmark trust property by labeling it as trust, rather than individually owned
property.
A trustee must keep records of trust administration.
o Duty to Enforce Claims and Defend Trust from Attack
A trustee has a duty to enforce claims of the trust and to defend the trust.
o Duty to Preserve Trust Property and Make it Productive
The power to invest is normally implied from the duty to make trust property productive. The
trustee is expected to take actions to lease land, collect claims, invest money, etc.
A trustee’s investment responsibilities are governed by the Uniform Prudent Investor Act
(UPIA). The UPIA only applies if there is no contrary provision in the trust instrument.
Under the UPIA, a trustee owes that beneficiaries a duty to invest assets prudently. In assessing
whether a trustee has breached this duty, the act requires
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A trustee must exercise reasonable care, skill and caution when investing and managing trust
assets.
A trustee must act exclusively for the beneficiary when investing and managing trust assets. If
there is more than one beneficiary, the trustee must act impartially.
For a fiduciary obligation question: Ask:
▪ Was the act one that the trustee was authorized to perform by the
instrument, by state law, or by implication?
▪ If the act was proper to perform, did the trustee do so with the
appropriate care, skill and caution?
Investment decisions must be evaluated in the context of the entire trust portfolio (corpus) and
as part of an overall investment strategy that has risk and return objectives reasonably suited to
the particular trust.
The UPIA permits a trustee to invest in any kind of property or any type of investment provided
she acts prudently. No particular type of investment is inherently imprudent.
The trustee must take into account
▪ General economic conditions;
▪ Possible effect of inflation/deflation;
▪ Expected tax consequences of investment decisions or strategies;
▪ The role that each investment plays within the overall trust portfolio;
▪ Etc.
A trustee must diversify the investments of the trust unless he reasonably determines that the
purpose of the trust is better served without diversification.
❖ Bar Professors’ Tip: Compliance with UPIA is determined at the time of the trustee
decision or action and not in hindsight.
The trustee must observe the statutory standards in dealing with the trust assets that would be
observed by a prudent trustee dealing with the property of another (and must take into account
both probable income and the safety and preservation of the principal).
▪ A trustee with special skills or expertise is held to a higher standard.
▪ Prudence is determined at the time the investment was made.
• Liability of Trustee
If the trustee commits a breach of his trust duties, the court may
o Enforce specific performance of the trustee duties;
o Enjoin the trustee from committing a breach of trust;
o Compel the trustee to pay money or restore property; or
o Suspend the trustee.
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If the trustee commits a breach of trust, he is liable to the beneficiaries for the greater of:
o The amount necessary to restore the trust property and distributions to what
they would have been absent the breach; or
o The trustee’s profit from the breach.
The statute of limitations does not begin to run against the trustee unless:
o The trustee repudiates the trust;
o The trust disclosure statement reports the conduct;
o The trustee gives a limitation notice; or
o The trust relation terminates.
The trustee is not liable for a breach if he acted in reasonable reliance on the terms of the trust
or if the beneficiary consented to the conduct, released the trustee from liability or ratified the
transaction. The beneficiary must not be improperly induced into ratifying the behavior.
Exculpatory clauses are void if there is bad faith/reckless indifference or if there is a trustee
abuse of fiduciary or confidential relationship with the settlor.
The trustee can be liable to third parties on contract or in tort in his representative capacity. The
trustee can be liable personally, if he failed to reveal his representative capacity.
• Removal
The basic factor considered is whether the trustee’s continuation in office would be detrimental
to the trust.
A trustee can disclaim or refuse appointment or resign within 30 days notice.
A trustee can be held personally liable, if sued. The beneficiary can collect from the trust.
A beneficiary or successor trustee can set aside transactions that are breaches of trust if the
property is not in the hands of a bona fide purchaser.
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A knowing participant in a breach of trust is liable for the resulting loss to the trust estate.
The beneficiary cannot bring a lawsuit, only the trustee can. The beneficiary can bring a lawsuit
in equity to compel the trustee to sue the third party. Exceptions: Where the trustee participated
in the breach, has left the jurisdiction and no successor trustee is appointed, or trustee fails to
sue the third person liable in tort or in contract.
B. Beneficiaries
• Transferrable Interest
A beneficiary’s interest is freely transferrable. The beneficiary may voluntarily assign his right to
income or principal, but the transferee takes the interest subject to all conditions and limitations
that would have applied but for the transfer.
• Slayer Statute
The beneficiary is passed over if there is a murder conviction of the settlor by the beneficiary.
A killer forfeits his interest.
A conviction of murder in any degree is conclusive evidence that the killing was unlawful and
intentional. If there is no conviction, the court may determine by the greater weight of the
evidence whether the killing was unlawful and intentional.
• Lapse
If a beneficiary of a future interest fails to survive the distribution and leaves surviving
descendants, the surviving descendants take the deceased beneficiary’s interest, per stirpes.
• Spendthrift Trust
An insolvent trust beneficiary’s creditors may levy on his beneficiary interest. The interest is
subject to judicial sale.
A spendthrift trust precludes the beneficiary from voluntarily or involuntarily transferring his
interest in the trust, and his creditors are precluded from reaching it to satisfy their claims.
Although a spendthrift trust is a restraint on alienation, most courts uphold spendthrift
restrictions.
The trust cannot be used to shield beneficiary from:
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C. Creditors
• Settlor’s Creditors
If fraud is present, creditors can reach the trust assets; absent fraud, creditors can reach only
what settlor has retained.
• Beneficiary’s Creditors
• Spendthrift Trust
8. Trust Administration
The Uniform Principal and Income Act (UP&IA) applies to trusts and estates, unless the trust
instrument says otherwise.
The Act gives the trustee an adjustment power to reallocate investment portfolio return. This
adjustment power authorizes the trustee to characterize items such as capital gains, stock
dividends, etc. as income if the trustee deems it appropriate or necessary to carry out the trust
purposes.
There is a duty of fairness to all beneficiaries.
The allocation rules follow traditional accounting rules, e.g., net rental income is income and the
proceeds of sale of a trust asset are principal.
B. Allocation of Receipts and Expenses between Income and Principal
Accounts
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• Allocation of Receipts
Money received from an entity such as a corporation (e.g., cash dividends) is income.
All property other than money received from an entity is principal.
The proceeds from a life insurance policy are principal.
For oil, gas, mineral lease and water rights payments, receipts = 10% income, 90% principal.
• Allocation of Expenses
The following expenses are charged against income: 1/2 of regular compensation of trustee and
advisors, 1/2 expenses of accounting, judicial; the entire cost of ordinary expenses and insurance
premiums covering the loss of a principal asset.
The following expenses are charged against principal: 1/2 compensation of trustee and advisors,
1/2 expenses of accounting, judicial, payments on principal of a trust debt; expenses of a
proceeding that concerns primarily an interest is principal; estate taxes, disbursements, etc.
9. Modifications and Termination of Trust
A trust will terminate automatically upon the expiration of the term specified in the instrument
or when all of the purposes of the trust have been accomplished or have become unlawful,
contrary to public policy or impossible to achieve.
A settlor cannot revoke or amend a trust unless the terms expressly state that it is revocable.
A trustee can terminate a trust if the trust property is less than $50,000 and the amount is
insufficient to justify the cost of administration, as long as the trustee provides the beneficiary
with notice.
The trustee can combine several trusts into one trust or divide one trust into several trusts. No
consent is needed, just notice to the beneficiaries.
A trustee or beneficiary may ask the court to modify an irrevocable trust if:
• The purposes of the trust have been fulfilled or have become illegal, impossible,
wasteful, or impracticable to fulfill;
• Because of circumstances not anticipated by the settlor, compliance with the terms of
the trust would defeat or substantially impair a material purpose; or
• A material purpose no longer exists.
The court may also modify an irrevocable trust if compliance with the trust terms is not in the
best interests of the beneficiary or the court can modify an uneconomic trust.
The court can reform the terms of a trust to reflect the settlor’s intent if a mistake in the terms is
shown by clear and convincing evidence.
After the settlor’s death, the trustee and beneficiaries may, by unanimous agreement, modify the
terms of an irrevocable trust. If the settlor and all beneficiaries consent, an irrevocable trust can
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be terminated even though it is a discretionary trust or spendthrift trust. The trustee’s consent is
not required.
If the settlor is dead, a trust may be terminated upon the consent of all beneficiaries only if the
termination would not interfere with a material purpose of the settlor. Spendthrift trusts cannot
be terminated by agreement of the beneficiaries.
10. A Trust as a Will Substitute
A settlor may make certain inter vivos transfers without the formalities of a will.
The test for distinguishing a trust from a will is whether the transfer creates some present gift,
even if that gift is of a future interest subject to divestment.
A. Revocable Inter Vivos Trusts
A revocable trust may be used for convenient management of assets, to pay for the possibility of
incapacity, to avoid probate costs and delays, to permit secrecy as to beneficiaries and assets,
and to allow the settlor to choose the applicable state law.
In some states a valid inter vivos trust does not become invalid because the settlor retains the
power to:
Under the Uniform Testamentary Additions to Trusts Act, a settlor can make gifts by will to a
trust, even an amendable and revocable trust, established during his lifetime. The trust must
have been established before or at the same time as the will, and may remain unfunded during
the settlor’s lifetime. The trust must be clearly identified from language in the will.
B. Life Insurance Trusts
Life insurance and similar death benefits may be paid into an unfunded revocable trust whose
only purpose is to receive those funds upon the settlor’s death.
C. Totten Trust Bank Accounts
In a Totten trust, a bank account depositor declares himself trustee of the account for a person
who is to receive the money in the account during his lifetime.
These accounts are not trusts because they do not separate legal and equitable title, nor do they
need the formal requirements of a will.
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A Totten trust is revocable by: the withdrawal of funds; any lifetime act manifesting the intent to
revoke; and a specific contradictory provision in a will. It does not protect funds in the account
from creditors’ claims, and it terminates if the beneficiary predeceases the depositor.
D. Uniform Transfer to Minors Act
The Uniform Transfer to Minors Act (“UTMA”) provides a procedure for making gifts to minors
who have no legal capacity to manage or sell property, under which property may be transferred
to a person as custodian for a minor. A custodianship is not a trust. The custodian does not hold
legal title to the custodial property; legal title is in the minor, subject to the custodian’s statutory
power.
11. Durable Health Care Power of Attorney
A durable health care power of attorney (POA) gives the designee the power to make all health
care decisions for the designor. A designee acting on the designor’s behalf under the POA is not
liable for her actions if these actions are taken in good faith.
The designee has express actual authority under the durable health care POA to make decisions
if the designor lacks capacity to make decisions for himself.
Evidence
High Priority
• Relevance/Probative Value
• Bad Acts/Character and Routine
• Impeachment Standards
• Hearsay/Exceptions/Non-Hearsay
• Confrontation Clause – 6th Amendment
Priority
• Best Evidence Rule
• Remedial Measures
• Refreshing Recollection
• Lay/Expert Testimony
• Physician-Patient Privilege
• Statement by a Party Opponent
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1. Relevancy
The condition for admitting evidence must be relevance. Relevance includes probative and
material evidence.
Otherwise relevant evidence may be excluded if its probative value is substantially outweighed
by the danger of:
• Unfair prejudice;
• Waste of time;
• Confusion.
• Character-related evidence;
• Habit and custom;
• Subsequent remedial measures;
• Payment of medical and related expenses;
• Settlements and plea bargains;
• Liability insurance.
B. Similar Occurrences
Evidence concerning the same time, event or person other than the evidence involved in the
instant case is inadmissible with some exceptions:
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• Settlement Offers
Settlement offers are inadmissible to prove liability. Admissions made in connection with
settlement offers are inadmissible, except to impeach or to show bias. Offers to plead guilty for a
criminal offense are also inadmissible.
Offers to pay medical or similar expenses are inadmissible to prove a defendant’s liability.
Admissions coupled with offers to pay may be severed and may be admissible.
• Liability Insurance
Evidence of liability insurance or lack thereof is inadmissible to prove the defendant was
negligent or that the defendant can pay a judgment. It is admissible for impeachment purposes,
to prove an agency relationship between a witness and a defendant, or to show ownership,
control or bias of a witness.
❖ Bar Professors’ Tip: If you see a liability insurance question, look for the underlying
reason for admissibility. It is probably an ownership or control issue and thus,
admissible.
2. Character Evidence
Character evidence is evidence that shows that a person has a particular disposition and acted in
accordance with that disposition at the time in question. Character evidence is inadmissible for
the purposes of proving action in conformity therewith on a particular occasion. These are the
exceptions to character evidence inadmissibility:
A. Criminal Cases
A defendant in a criminal case could use evidence of character in the following ways:
• Entrapment/First Aggressor
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If the defendant offers evidence of his good character by reputation or opinion evidence, the
prosecution may rebut. The introduced character trait has to relate to the charge. Rebuttal is
limited to reputation and opinion evidence but the prosecution could ask questions of specific
acts about the defendant.
The defense may use reputation, opinion or specific acts to prove the bad character of the victim
and the prosecution may so rebut. The prosecution could offer evidence of the victim’s good
character as well as the defendant’s character for violence.
Reputation and opinion evidence are inadmissible against the defendant in sexual assault cases
but specific acts of sexual behavior by the victim are admissible in the following circumstances:
o To protect the defendant’s constitutional rights;
o To prove the victim consented;
o To prove that a person, other than the defendant, is the source of the semen,
injuries or other physical evidence of the sexual assault.
B. Civil Cases
Character evidence in civil cases is usually inadmissible to prove conduct in conformity with the
character. Character evidence is admissible and could be proven by reputation, opinion, or
specific acts, in cases where character is an essential element of the claim or defense, e.g.,
defamation.
• Mimic PO
Past conduct is admissible against a defendant to establish an element of a present crime; past
conduct is admissible to prove the defendant’s: motive, intent, lack of mistake, identity,
common plan or scheme, preparation, and opportunity.
The evidence may not be offered in the prosecution’s case-in-chief but may be offered in rebuttal
if the specific trait to be proven is at issue.
• Sexual Misconduct
In a case alleging sexual assault or child molestation, prior specific sexual misconduct of the
defendant is admissible as part of the prosecution’s case in chief or any relevant purpose
including the defendant’s propensity to commit the crime.
D. Proving Character
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Specific instances of conduct may also be used as proof when a person’s character or character
trait is an essential element of a charge, claim or defense.
3. Authentication of Writings
A. Authentication
After determining relevancy, a writing must be authenticated before it is admitted into evidence.
A foundation is laid to allow a finding of what the writing purports to be.
B. Ancient Documents Rule
This rule allows a document to be authenticated by evidence that was prepared before January 1,
1998, and whose authenticity is established. The common law rule is thirty years.
❖ Bar Professors’ Tip: The Supreme Court adopted the new Ancient Document Rule in
2017. Prior to the new rule adoption, the document to be authenticated had to be at least
20 years.
C. Self-Authenticating Documents
These are documents that are self-proving and require no authentication, e.g., official
publications, certified copies of public records, documents accompanied by a certificate or
authentication, commercial paper, material in newspapers or magazines, trade inscriptions on
business materials.
The Supreme Court, in 2017, adopted the following certified electronic records
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To prove the content of a writing, recording (audio or video), or photo. the proponent must offer
the original, subject to some exceptions. The best evidence rule applies to legally operative
documents, writings offered to prove an event, or when the testimony is reliant on the writing
and not on personal knowledge.
If there is no original, then copies or oral testimony is admissible after it is proven the original is
unavailable. Duplicates are admissible as originals in federal court unless the authenticity is
challenged.
The best evidence rule does not apply to prove the writing existed or that a statement was made;
or when facts to be proven exist independently of any legally operative writing or when the
evidence is collateral to the litigated issue.
❖ Bar Professors’ Tip: This is a popular issue because many students do not understand
the best evidence rule. Only discuss the best evidence rule when the writing or document
is at issue.
4. Witnesses
A. Competency
Witnesses are presumed to be competent if they have personal knowledge, take an oath to testify
truthfully, and are sworn in.
B. Personal Knowledge
A witness may testify to a matter only if evidence is introduced sufficient to support a finding
that the witness has personal knowledge of the matter. Evidence to prove personal knowledge
may consist of the witness’s own testimony.
C. The Dead Man’s Statute
A dead man’s statute states that a party could not testify about personal communications or
specific transactions against the estate of a dead person if he has an interest in the outcome of
the litigation. Exceptions: testifying as to what happened after the death of the deceased and
whether the estate opens the door to the testimony.
D. Impeachment
Any matter that tends to prove or disprove the credibility of a witness is relevant for
impeachment purposes. Evidence that is introduced for impeachment purposes does not run
against the Hearsay Rule. Under the Federal Rules of Evidence, one can impeach one’s own
witness. At common law, one may not impeach his own witness.
❖ Bar Professors’ Tip: The Federal Rules have abandoned the common-law rule
prohibiting impeachment of one’s own witness. FRE §607 says that “the credibility of a
witness may be attacked by any party, including the party calling the witness.”
E. Methods of Impeachment
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Statements made by a party at some other time that conflict or are inconsistent with a material
part of his testimony can be used to impeach the witness.
• Bias
A party can show that a witness has an interest in the outcome of the proceedings. The interest
can be personal, financial or penal. First, the witness must be asked on cross-examination about
the facts that show bias. If the witness admits to it, then it is within the judge’s discretion to
allow extrinsic evidence to prove the bias.
• Defective Capacity
A witness may be impeached by illustrating the witness’ lack of perception, intoxication, good
eyesight, hearing, loss of memory, etc.
• Character Evidence
A party could, using character traits for untruthfulness, impeach a witness using reputation or
opinion evidence.
o Bad Acts
A party could impeach a witness using prior unconvicted bad acts relating to the truthfulness of
the witness. The inquiry must be based on good faith questioning. If the witness denies any of
the untruthful bad acts, the inquiry stops completely and no other witness can testify to
contradict the witness’ denial. No extrinsic evidence is allowed.
❖ Bar Professors’ Tip: A court may, in its discretion, admit evidence relating to a prior
bad act if it is offered during cross-examination of the witness being impeached and is
probable of untruthfulness, e.g., giving a false name, false occupation or a false excuse
for being absent from work.
o Convictions
▪ Felonies
A witness can be impeached using past convictions if the conviction is less than ten (10) years
old and the court determines that its probative value is outweighed by its prejudicial effect.
❖ Bar Professors’ Tip: In a criminal case, the prosecution may impeach the defendant-
witness with a felony conviction, not involving dishonesty, only if the trial judge
determines its probative value outweighs the danger of unfair prejudice.
▪ Untruthfulness
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A witness may be impeached using conviction of crimes involving dishonesty and false
statement, no matter if it is a felony or misdemeanor. The conviction must be less than ten (10)
years old. The judge has no discretion to exclude such evidence for prejudicial effect.
❖ Bar Professors’ Tip: Character evidence is generally inadmissible to prove action in
conformity with the character trait. However, when a person testifies as a witness, that
person’s credibility becomes a material issue; a witness’ credibility thus may be attacked
through impeachment by showing the witness has an untruthful character.
❖ Bar Professors’ Tip: The Federal Rules expressly prohibits the use of extrinsic
evidence to impeach a witness’ character for truthfulness. Specific instances of the
conduct of a witness, for the purpose of attacking or supporting the witness character for
truthfulness may not be proved by extrinsic evidence. Thus, although a witness may be
cross-examined about a prior alleged lie, if he refuses to admit to lying, he may not be
contradicted with extrinsic evidence.
When the credibility of the witness has been weakened by impeachment, the attorney can
rehabilitate the witness by showing a witness’ good character or by introducing prior consistent
statements, if necessary.
G. Direct and Cross Examination
Direct examination is the first questioning of a witness in a trial. Leading questions are not
permitted on direct examination. Leading questions are those questions that suggest to the
witness the questioner’s desired answer. Leading questions are ordinarily limited to
• Cross Examination
• Direct Examination, if it is a
o Hostile Witness;
o Adverse Party; or
o Witness Identified with the Adverse Party.
The scope of cross examination is generally limited to the scope of direct examination and the
credibility of witnesses.
❖ Bar Professors’ Tip: Redirect examination is generally limited to those aspects of the
witness’ testimony that was first brought out during cross examination, and similarly, re-
cross is generally limited to matters newly brought up on redirect examination.
A witness’ memory can be enhanced by showing the witness a document that describes the
relevant event. The document is not admitted into evidence, it is just a way to jog the witness’
memory. The document must be related to the subject matter and shown to the adverse party.
The adverse party can cross examine the witness on the writing.
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Past recollection recorded is considered an exception to the hearsay rule. If a witness’ memory
cannot be revived, a party may introduce a memo that the witness made at or near the time of
the event. The writing is not admissible – it must be read to the jury.
5. Opinion Testimony
A lay person acting as a witness may state an opinion or to give inferences when testifying; first
hand knowledge is required. Lay opinions are allowed to give:
• Opinions or inferences that are rationally based on perceptions; and that are
helpful to the jury; and not based on specialized knowledge.
• Testimony to prove character when evidence of character is admissible.
❖ Bar Professors’ Tip: A lay person can testify about the speed of a car.
B. Experts’ Opinion
o First-hand knowledge;
o Observation of other witnesses and evidence; or
o A hypothetical posed by counsel.
An opinion can be based on otherwise inadmissible evidence if it is of the type reasonably relied
upon by experts in the field. But it cannot be disclosed to the jury unless:
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• The court finds the helpfulness to the jury substantially outweighs the
prejudicial effect; or
• The adversary inquiries into it on cross-examination.
An expert is not required to explain the basis of his opinion on direct but can be asked about the
underlying facts or data on cross examination.
❖ Bar Professors’ Tip: Expert testimony will be most appropriate when it involves the
interpretation of facts of a sort that lay persons are not usually called upon to evaluate.
Expert testimony is permissible even if it addresses the ultimate issue in the case. In a criminal
case, the expert cannot render an opinion as to the mental state of a defendant.
6. Privileges
A. Attorney Client
The attorney client privilege is the client’s right to refuse to disclose and to prevent any other
person from disclosing confidential communications between himself and his attorney. It
continues after the representation ends. There must be a confidential communication. If a third
party is listening or the client waives it by allowing someone to listen; it breaks the confidential
communication. The client has to seek out the advice of the attorney; being made during
consultation.
❖ Bar Professors’ Tip: Look for a scenario where the attorney-client conversation is
overheard or the client wants a family member or friend to listen. This will break the
confidentiality.
B. Physician-Patient Privilege
The right of a physician to refuse to testify in a trial or other legal proceeding about any
statement made to him/her by a patient, on the basis that any communication between the
doctor and the patient is confidential.
C. Marriage Communication
This privilege allows a witness spouse to refuse to testify about confidential communications
made during the marriage. Either spouse has the privilege. Even after a divorce, a spouse
cannot testify as to matters learned during the marriage.
❖ Bar Professors’ Tip: Look for an overheard conversation to break the confidentiality.
D. Spousal Immunity
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This privilege is only used in criminal cases. No confidential communication is needed. After
divorce, the spouse could testify as to matters learned before and during marriage. In federal
criminal courts, the witness spouse has the privilege.
7. Judicial Notice
The court may take judicial notice of any fact that is beyond reasonable dispute because it is
either: generally known within the community or capable of accurate and ready determination
by the use of sources whose accuracy cannot reasonably be questioned.
The effect of the judge taking judicial notice varies whether the case is civil or criminal. If the
case is civil, the jury must treat the judicially-noticed fact as being established. If the case is
criminal, the jury is free to find the non-existence of the judicially-noticed fact.
❖ Bar Professors’ Tip: The only Federal Rule dealing with judicial notice, FRE §201,
deals solely with notice of adjudicative facts, not legislative facts or law. Adjudicative
facts are those facts which relate to the particular event under litigation. Adjudicative
facts are the only type of judicial notice that is likely to be tested on the UBE.
❖ Bar Professors’ Tip: Appellate courts will only reverse if the error may have made a
difference to the outcome. An error that is unlikely to have a difference to the outcome is
called harmless and will not be grounds for reversal.
The judge rules on matters of law, while the jury rules on matters of fact.
The court must decide any preliminary question about whether a witness is qualified, a privilege
exists, or evidence is admissible. Ordinarily, the court determines whether the proponent has
fulfilled the factual conditions for admitting other evidence of the content of a writing,
recording, or photograph But in a jury trial, the jury determines any issue about whether: an
asserted writing, recording, or photograph ever existed; another one produced at the trial or
hearing is the original; or other evidence of content accurately reflects the content.
9. Hearsay
A. Definition
Hearsay is an out of court statement offered to prove the truth of the matter contained in that
statement. A “statement” includes oral or written assertions, and non-verbal conduct intended
by its maker to be an assertion. If the statement is hearsay and there are no exceptions, the
statement is excluded.
The truth of the matter is a crucial component of the hearsay rule. Collateral testimony is not for
the truth of the matter.
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• Verbal acts or legally operative facts are not hearsay, e.g., words of a contract,
defamatory words.
• Statements offered to show their effect on the hearer are not hearsay, e.g., to
prove knowledge of any danger in a negligence injury.
• Statements offered as circumstantial evidence of declarant’s state of mind are not
hearsay, e.g., evidence of knowledge, insanity.
❖ Bar Professors’ Tip: In deciding whether evidence is hearsay, ask whether we are
relying on the declarant’s credibility. For example, does it matter whether the declarant
is telling the truth? If not, the evidence is not hearsay.
• Admissions
o Admission of Party-Opponent
An admission is a statement made or act done that amounts to a prior acknowledgement by one
of the parties to an action of one of the relevant facts. This includes an adoptive admission in the
statement of another.
o Silence
o Vicarious Admissions
▪ Co-parties: No.
▪ Principle/Agent: Yes.
▪ Partners: Yes.
▪ Employees: Possibly.
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Legally operative words are words which have legal significance aside from their truth. The issue
is whether the words were spoken. This includes tortious, e.g., slander, and transactional words,
e.g., to prove intent, offer and acceptance.
C. Hearsay Exceptions – Availability Immaterial
Comments made concurrently with the sense impression of an event that is not necessarily
exciting may be admissible.
There is little time for a calculated misstatement, and the contemporaneous nature of the
statement makes it reliable.
• Excited Utterance
An out of court statement, relating to a startling event, made while under the stress of the
excitement from the event is admissible; before the declarant had the time to reflect.
If a witness’ memory cannot be revived, a party may introduce a memo/writing that the witness
made at or near the time of the event. The writing is not admissible; it must be read to the jury.
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• Business Records
Any writing or record made of any act or transaction is admissible in evidence as proof of that
act or transaction.
o Must be a business;
o The entry is to be made in the regular course of business;
o There must be personal knowledge (of entrant or person with the duty to
transmit to the entrant);
o The entry made near time of event;
o The authenticity of the record must be established;
o The custodian must testify that the record is a business record or certify in
writing it is a business record.
❖ Bar Professors’ Tip: Watch for hearsay within hearsay. When you see a statement
made by a witness in the official report, there must be a way to have that statement
qualify as a hearsay exception or it will be excluded despite the report qualifying as a
hearsay exception.
A public record that is diligently searched and has not been found is admissible to prove the
matter was not recorded or that the matter did not occur.
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o Judgments
▪ Certified Copy;
▪ Prior Criminal Conviction: Felony Conviction Admissible;
▪ Prior Criminal Acquitted: Excluded;
▪ Judgment in Former Civil Case: Inadmissible.
This rule allows a document to be authenticated by evidence that was prepared before January 1,
1998, and whose authenticity is established. Any authenticated document is admissible as are
statements in any document affecting an interest in property, regardless of age.
• Learned Treatises
❖ Bar Professors’ Tip: The bar examiners like to test this point in Learned Treatise;
they will give you a situation in which portions of a learned treatise are properly read to
the jury and then asks you whether the jury can “examine the book” or take the book
with them into the jury room. The answer is no – the only use the jury can make of the
treatise is to hear it being read to them and then be interpreted by an expert witness.
• Reputation
• Family Records
Family records contained in family bibles, jewelry engravings, tombstone engravings, etc. are
admissible.
• Market Reports
Market reports and other published compilations are admissible if generally used and relied
upon by the public.
• Former Testimony
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• Dying Declaration
❖ Bar Professors’ Tip: There is a difference between the Federal Rules v. traditional
rule which required death and a homicide prosecution.
❖ Bar Professors’ Tip: The declarant need not in fact be dead by the time the evidence is
offered. The declarant must, of course, be unavailable, since this is one of the
“unavailability required” exceptions – but if the declarant recovers from his life-
threatening condition, and then, says, “I plead the 5th Amendment” or moves beyond the
court’s subpoena power, the exception can apply.
A statement of a person, now unavailable, against that person’s pecuniary, proprietary or penal
interest when made.
The declarant must have had personal knowledge of the facts, and must have been aware that
the statement was against his interest when he made it.
Statements concerning births, marriages, divorces, relationships, etc. are admissible provided
that:
Statements are admissible when offered against a party who has engaged or acquiesced in
wrongdoing that intentionally procured the declarant’s unavailability.
Hearsay within hearsay is not excluded by the rule against hearsay if each part of the combined
statements conforms with an exception to the rule.
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❖ Bar Professors’ Tip: Watch for hearsay within hearsay, where each hearsay must fit
under an exception, e.g., a police report with a witness statement.
F. Exception
A catchall exception permits the admission of evidence that is trustworthy and 1) whether the
statement was made under oath; 2) if the time lapse between the event and the statement was
short; and 3) the motivation of the declarant to speak truthfully.
Constitutional Law
High Priority
• State Action
• State Immunity 10th Amendment
• 5th Amendment Taking
• 14th Amendment Equal Protection
• 1st Amendment Freedom of Speech
Priority
• Due Process
A. Case or Controversy
Under Article III, section 2 of the Constitution, the jurisdiction of the federal courts is limited to
cases or controversies.
• Standing
Keep in mind that standing is a prerequisite for every case; if the plaintiff does not have it, it
does not matter how worthwhile his claim is; the case must be dismissed.
Standing exists only if the action challenged has caused, or is immediately likely to cause, an
injury to the party seeking review.
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As a general rule, taxpayers do not have standing. But taxpayers do have standing for religious
cases.
A plaintiff lacks standing to assert the rights of a third party. There are a few exceptions:
o If there is a special relationship between the plaintiff and the third party, such
as a physician and a patient;
o If the party is unable to bring a lawsuit on his own behalf, e.g., a minor;
o An association has standing to assert a claim on behalf of its members, if the
member has standing, the interest is germane to the association and neither
the claim asserted nor the relief sought requires participation by the
individual members of the lawsuit.
❖ Bar Professors’ Tip: The key concept behind the law of standing is simple: the
litigant must show that he has suffered an injury in fact. At its broadest level, the
standing requirement means that the plaintiff must show that he has himself been
injured in some way by the conduct that he complains of.
• Mootness
If the controversy has already been resolved, the case will be dismissed as moot, unless the
injury is capable of repetition.
• Ripeness
The controversy must also be ripe for decision. A case is not ripe if there is no real present or
future threat of harm.
• Political Question
The court can only review legal questions, not political acts which are within Presidential or
Congressional discretion and are decided by one of the other branches of government.
Article III, section 2 of the Constitution states that the Supreme Court has both original and
appellate jurisdiction.
Congress can control the appellate jurisdiction of the Supreme Court. The only thing it could not
do is change the Supreme Court’s original jurisdiction (e.g., where an Ambassador, a state, or
the United States itself is a party).
Remember the means by which a case can reach the Supreme Court. This depends on two
factors: whether the source of the case is a federal court or the highest court of a state, and
whether Supreme Court review is sought by appeal (review as of right) or by writ of certiorari
(discretionary review). The scope of discretionary review is far wider than a review as of right,
which means that every case subject to review as of right is within its discretionary review, but
not vice versa.
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Congress has the power to create courts inferior to the Supreme Court, and, as a result, Congress
can control the jurisdiction of those lower federal courts, as long as it stays within the
boundaries of Article III.
The 11th Amendment limits a federal court’s jurisdiction by not allowing a citizen to sue his
resident state or any other state in federal court without the state’s consent. Exceptions: The
11th Amendment does not preclude lawsuits against state officials for abuse of power in
enforcing an unconstitutional state statute. The 11th Amendment does not bar the lawsuit of one
state by another state or the federal government. Individuals are not precluded from suing state
subdivisions, e.g., cities, counties, towns.
Article I, Section 1 states that all granted legislative power shall be vested in the Congress of the
United States. The legislative powers are the powers to make laws, conduct investigations and
other things “necessary and proper” to the enactment of the legislation.
A. Taxing and Spending Power
The Welfare Clause gives Congress the power to tax and spend for the general welfare. Any
federal legislation reasonably related to this power will be valid. Congress may require states to
comply with certain conditions in order to qualify for the funds.
B. Commerce Power
Article I, Section 8, Clause 3 states that Congress can regulate three (3) categories of activities
involving interstate commerce: channels of interstate commerce, instrumentalities of interstate
commerce, and activities “substantially affecting” commerce. In determining whether Congress
can regulate an activity, you need only determine that the activity is commercial, and the activity
substantially affects interstate commerce. If both are true, then the statute is valid under the
Commerce Clause.
❖ Bar Professors’ Tip: Anytime you have an UBE questions in which Congress is doing
something, first ask yourself, “Can what Congress is doing be justified as an exercise of
the Commerce Power.” Most of the time, the answer will be yes.
A. Foreign Policy
• Treaties
Under the Supremacy Clause of the Constitution, the President has the power to make treaties
with foreign nations and it is effective when ratified by the Senate by a two-thirds vote. If a
federal law conflicts with a treaty, the one that was enacted last prevails.
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❖ Bar Professors’ Tip: The President has the power to enter into a treaty with foreign
nations, but only if two-thirds of the Senate approves. Additionally, the court has held
that the Constitution implicitly gives the President, as an adjunct of his foreign affairs
power, the right to enter into an executive agreement with a foreign nation, without first
getting express congressional consent.
• Executive Agreements
Similar to a treaty but no ratification is needed and it does not prevail over conflicting federal
laws or the Constitution. It does prevail over conflicting state laws.
❖ Bar Professors’ Tip: You will see questions in which the President issues an executive
order that directs some part of the Executive branch (typically a federal agency) to do
something. If the facts tell you that there is no congressional statute on point, you should
assume that the order is constitutional.
• Commander in Chief
The President has the power to deploy military forces without a formal declaration of war. The
President can send troops, but the legislature declares war.
B. Domestic Power
• Appointment Power
The President has the power to appoint Ambassadors, Supreme Court Justices and other officers
of the United States. Congress may appoint inferior officers to the President, judiciary and heads
of departments.
• Removal Power
The President may remove any executive appointee without cause. The President must have
cause to remove officers performing judicial or quasi-judicial functions.
• Executive Privilege
The President has the absolute privilege to refuse to disclose information unless an important
interest would be served in doing so.
• Pardon Power
The President has the power to pardon those convicted of federal crimes, except impeachment.
The President, Vice President and other officers of the United States may be removed from
office on impeachment grounds by being convicted of treason, bribery or other high crimes and
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misdemeanors. The House of Representatives may impeach, but the Senate has the power to
hold the trial and must vote by a 2/3rds majority.
4. Federalism and State Power
The Supremacy Clause provides that that the Constitution is the supreme law of the land. Any
federal law will supersede any state law that is in direct conflict with it. Congress can preempt a
state law if it states that the federal law is exclusive on that particular state issue. There also
could be an implied preemption.
If relevant federal legislation exists, then your analysis falls under the Supremacy Clause. There
are two questions you have to ask:
Congress has complete power over interstate commerce. This does not mean that a state cannot
place any burden on interstate commerce; it just cannot unduly burden interstate commerce.
If the purpose of the state regulation is to discriminate against commerce from another state,
the law is invalid.
Exception: If the state is a market participant, the discrimination is allowed. A state, acting as a
market participant, may favor its own citizens in receiving benefits from the government or in
dealing with a state owned business.
A balancing test is used to determine a non-discriminatory intent. Is the burden on interstate
commerce outweighed by legitimate interests of the state in protecting its citizens, taking into
account less burdensome alternatives? Also, the regulation must be nondiscriminatory, unless
the state has no reasonable, non-discriminatory alternatives in its effort to protect health and
safety.
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❖ Bar Professors’ Tip: The Dormant Commerce Clause involves not federal power to act
but the restrictions on state power that are inherent in the Commerce Clause. There is no
actual Dormant Commerce Clause found in the Constitution. Rather, the restrictions on
state action have been inferred by the Supreme Court from the Commerce Clause.
❖ Bar Professors’ Tip: The Dormant Commerce Clause means that because Congress
has been given power over interstate commerce, states cannot discriminate against
interstate commerce nor can they unduly burden interstate commerce, even in the
absence of federal legislation regulating the activity.
❖ Bar Professors’ Tip: It is important to note that promoting the economic interest of
its own citizens at the expense of out-of-state citizens is not a legitimate state objective.
C. Contracts Clause
Article I, Section 10, the Contracts Clause, or “Obligations of Contracts” Clause, prohibits states
from passing any law which impairs the obligations of contracts. The contract must have existed
when the statute was passed. States can regulate contract formation prospectively.
D. Eleventh Amendment
The important thing to remember about the Eleventh Amendment is how narrow it is. It forbids
most actions in federal court for damages against states, when the claim is based on past
conduct and where the damages will be payable from state funds. That is all it does.
E. Tenth Amendment
The Tenth Amendment reserves to the states all powers that are not granted to the federal
government by the Constitution, except for those powers that states are constitutionally
forbidden from exercising.
❖ Bar Professors’ Tip: The Tenth Amendment helps to define the concept of federalism,
and the relationship between federal and state governments. As federal activity has
increased, so too has the problem of reconciling state and national interests as they apply
to the Federal powers to tax, to police, and to regulations such as wage and hour laws,
disclosure of personal information in recordkeeping systems, etc.
F. Thirteenth Amendment
The Thirteenth Amendment outlaws any “badges or incidents” of slavery. It gives Congress the
power to prohibit virtually any types of discrimination.
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The thing to remember about the Thirteenth Amendment is that it is the only constitutional
provision explicitly limiting private acts by individuals. No state action is required.
❖ Bar Professors’ Tip: Contrast the Thirteenth Amendment with the Fourteenth
Amendment, which also prohibits discrimination under its Equal Protection Clause but
only limits state action – not private action.
G. Determining the Validity of Statutes
• The law must be enacted within the state powers (e.g., police powers);
• The police powers are the most common source of state authority. State
legislation is enacted under the police powers if it involves the public health,
safety, welfare or morals;
• It must not violate any person’s Constitutional rights.
❖ Bar Professors’ Tip: The two most frequent ways in which a state statute can violate
the Constitution involve due process and equal protection.
It is important to keep these two clauses separate in your mind, because one of them has a
practical effect, it actually prohibits things, and the other does not.
This voids state enactments which clearly infringe on the privileges of national citizenship. The
protection is limited to the fundamental rights of all citizens, namely the right to travel freely
from state to state, to petition Congress for redress of grievances, to vote for national officers, to
assemble peaceably, and to discuss matters of national legislation.
❖ Bar Professors’ Tip: If you see “Privileges and Immunities Clause of the Fourteenth
Amendment” as a possible answer for invalidating a state statute, you can be pretty sure
it is just a distractor.
This clause prevents states from discriminating against out-of-state citizens and residents in
matters concerning “essential activities” (e.g., pursuing one’s livelihood, owning property) and
“basic rights” (e.g., medical care, court access), unless the discrimination is closely related to a
substantial state purpose (e.g., protecting natural resources by the state) and there are no less
restrictive means available to achieve the purpose.
❖ Bar Professors’ Tip: It is important to remember that this provision does not protect
corporations or aliens – just out-of-state U.S. citizens.
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A. Government Action
The Constitution only applies to state actions and not private actions. The 14th Amendment can
be used to prohibit private acts of racial discrimination without the requirement of a state
action. A state action can be found in the actions of private individuals when the private activity
performs a public function or there is state involvement in the private act.
B. Incorporation of the Bill of Rights
The Bill of Rights applies directly to the federal government and not the states. But the 14th
Amendment incorporates the Bill of Rights except: 2nd Amendment right to bear arms; 3rd
Amendment not to have soldiers quartered in one’s home; 5th Amendment right to a grand jury
indictment in criminal cases; 7th Amendment right to a jury trial in civil cases; 8th Amendment
right against excessive fines.
C. Due Process
Both federal and state governments are subject to due process constraints. The Due Process
Clause, as well as the Equal Protection Clause of the 14th Amendment, protects the rights of
persons, corporations and aliens.
❖ Bar Professors’ Tip: When the challenged action is being taken by the Federal
government, be sure to pick a choice that mentions the 5th Amendment Due Process
Clause, not the 14th Amendment Due Process Clause.
This addresses the fairness of the procedure used to deprive someone of a significant interest,
typically in property, but also in life (e.g., capital punishment) or liberty (e.g., incarceration).
❖ Bar Professors’ Tip: In general, when you are dealing with procedural due process,
you will ask if notice and a hearing are necessary when a right is removed.
❖ Bar Professors’ Tip: The most common “property” question on the UBE involves
government jobs. People typically do not have a property right in continued public
employment; unless something in the facts of a question suggests otherwise (tenure or a
contract provision requiring that an employee can only be fired for “cause”).
❖ Bar Professors’ Tip: Note that a person’s mere expectations of maintaining benefits
or a job are not enough to make their expectations into a property right. There must be a
law, whether federal, state, or local, under which the person has a legitimate claim to the
benefits.
o Fundamental Rights
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Substantive due process becomes an issue when state action subsequently interferes with a
fundamental right.
If the right interfered with is fundamental, a statute must meet the same “strict scrutiny” test as
in the equal protection law or it will not be upheld.
If the right is not fundamental, the statute is subject to the same rational relation test as in the
equal protection law. Remember, that only personal rights are considered “fundamental” under
substantive due process: First Amendment rights (in general; but note that laws as to the right
to vote, restrictions as to age, residence, and citizenship are valid); the right of privacy
(contraception, procreation, marriage, abortion); and the right to interstate (and probably
international) travel. Note that abortion does not require strict scrutiny; it is only an undue
burden test.
If the impaired right is fundamental, then the burden of persuasion is on the government to
defend its action. If the right is non-fundamental, then the burden of persuasion is on the
person attacking the government’s action.
❖ Bar Professors’ Tip: If there is no fundamental right involved, it is unlikely that the
governmental action will be struck down as a substantive due process violation. Any
“economic” or “social welfare” action will likely be upheld.
❖ Bar Professors’ Tip: 95% of the battle in analyzing a substantive due process problem
is deciding whether the right in question is fundamental or not. Once you know that, you
pretty much know how the case will come out – if the right is not fundamental, there is
always certainly no substantive due process problem; if the right is fundamental then
strict scrutiny will result in the measure being invalidated. As you prepare for the UBE,
it is worth devoting some significant mental effort to remembering which rights are
fundamental.
D. Takings Clause
Under the Takings Clause of the 5th Amendment, the government may take private property for
public use if it pays the owner just compensation. Also look for no reasonable economic
viability. There is no taking if the value of the property has been decreased or if the taking is
temporary.
7. Equal Protection
Equal protection violations occur under the 14th Amendment when persons similarly situated
are treated differently. Equal protection differs from substantive due process in that substantive
due process applies to laws affecting all persons with respect to the activity, whereas equal
protection is triggered when a law affects only some persons or specific groups with respect to
the activity.
The equal protection clause applies only to government action (also called “state action,” even
when applied to federal action), not to actions taken by purely private parties and in which
government played no substantial role.
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❖ Bar Professors’ Tip: On the UBE, you will have to be able to decide which activities
constitute state action and which do not. If a state or federal government is enacting a
law (which is usually the case in UBE questions), then you have state action.
❖ Bar Professors’ Tip: If a private individual or group of individuals is involved, you
need to look for two things. First, ask yourself if there is a significant “nexus” of
government involvement (i.e., whether the government encourages or benefits from the
private conduct). Second, ask yourself if the private conduct has a “public function” that
is normally exclusively reserved to the state. If you answer either question “yes,” then
there is state action.
Where discrimination is the issue, remember that, in order for a statute to be held invalid, it
must be found to be discriminatory in one of the following ways: it must be discriminatory on its
face, or be facially neutral but unequally administered, or have an impermissible motive – the
intent to discriminate. The statute will not be found invalid if the discrimination results merely
from its impact.
❖ Bar Professors’ Tip: Given these requirements, if you are faced with a newly enacted
statute but you are not told anything about its background, it can be held invalid only
because it is invalid on its face (since it has not been applied, evenly or unevenly, and
since you know of no improper motive).
A. Levels of Scrutiny
• Strict Scrutiny
o Freedom of Association;
o Interstate Travel (look for residency requirements as conditions to receipt
of welfare benefits, medical care, or voting rights – vital governmental
services only – not tuition reduction or the right to a divorce);
o Privacy (marriage, procreation);
o Voting (requirements other than age, residency, and citizenship).
Where a classification involves these fundamental rights, it is subject to strict scrutiny; the
compelling interest test. It must be necessary to promote a compelling governmental interest.
This is pretty much the “death knell” for a statute, since laws almost never survive this test.
You should keep one element in mind when considering a problem where alienage (non-
citizenship) is the basis of the classification. A state needs only a rational basis for
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discriminating against non-citizens in the context of essential state functions. A state can
require the state police, public school teachers, probation officers, and others to be U.S. citizens.
❖ Bar Professors’ Tip: The most important thing to remember about strict scrutiny of
suspect classifications is that strict scrutiny will only be applied where the differential
treatment of the class is intentional on the part of the government. If the government
enacts a statute or regulation that merely has the unintended incidental effect of
burdening a group, e.g., African-Americans more than Caucasians, the court will not use
strict scrutiny.
❖ Bar Professors’ Tip: The rule that unintended disparate effects on one racial or ethnic
group does not trigger strict scrutiny seems to be the most frequently tested aspect of
suspect classifications on the UBE.
• Intermediate Scrutiny
o Gender;
o Legitimacy;
o Undocumented Alien Children.
Under intermediate scrutiny, a law must be substantially related to an important state interest
in order to be valid.
This level of scrutiny will be applied to everything else. When faced with an equal protection
question, you should methodically run through the suspect and quasi-suspect categories, and, if
the classification you are examining does not fit one of those classifications, then it is subject to
the rational relation test.
If there is a set of facts that would make the law a reasonable way to achieve a legitimate
governmental purpose, the law is valid. Given that test, if you correctly identify that a statute
should be reviewed under this test, the statute should almost certainly be upheld.
All purely economic and social legislation is usually subject to the rational relation test. So are
some classifications you might be tempted to classify as suspect or quasi-suspect; classifications
based on poverty/wealth, age, and mental retardation, for instance, are subject only to the
rational relation test.
A. Burden of Persuasion
If the validity of a statute will be determined by the rational relation test, the plaintiff, the one
whose rights have ostensibly been violated, bears the burden of persuasion.
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If the validity of the state is determined by intermediate scrutiny, the government always has the
burden of persuasion and the government’s actual purpose for the law is used in the analysis.
If the validity of the statute is determined by the strict scrutiny test, once the right has been
shown to be impacted, the government bears the burden of proving that the statute is valid.
A. Freedom of Speech
Congress shall not abridge the freedom of speech. Courts will apply the strict scrutiny review.
Freedom of speech is subject to some regulation: speech content and time, place, and manner.
As shown by case law, these types of language are not considered to be speech protected by the
First Amendment.
Since none of these constitute speech, they do not get First Amendment protection; as long as a
statute contains narrow and definite standards, such speech can be prohibited without meeting
the compelling interest test.
Government action can prohibit advocacy of illegal conduct if it meets the “clear and present
danger” test from Brandenberg v. Ohio: if (1) the advocacy is intended to produce or incite
imminent illegal action, and (2) the advocacy is likely to produce or incite such action. It can
then be prohibited.
• Commercial Speech
The thing to remember about commercial speech is that, although its somewhat protected, it can
be subject to greater regulation than non-commercial speech (e.g., it is permissible to prohibit
misleading ads).
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In order to determine if commercial speech is lawful, a three (3) part test is used:
If you determine that the speech in a given fact pattern is constitutionally protected, do not stop
there; constitutionally protected speech is subject to reasonable time, place and manner
regulations.
o Must be neutral as to the content of the speech, both on its face and as
applied (the speech must be “content-neutral”);
o Must further a significant government interest not capable of
accomplishment by less restrictive means (e.g., maintaining traffic flow);
and
o Must allow for adequate alternative channels for communicating the
information.
❖ Bar Professors’ Tip: UBE questions will sometimes involve an attempt by a group or
an individual to obtain a permit or license, as required by an ordinance or regulation,
before that group or individual can speak or demonstrate. Be sure to apply the three-part
test in this situation.
Note that the ordinance or regulation must set out the grounds for denying a permit in narrow
and specific language which curtails the discretion of local officials (if it does not, the ordinance
or regulation is probably overbroad).
❖ Bar Professors’ Tip: Note the difference between public forums, limited public
forums (libraries, schools) and private property (which has no First Amendment
protection).
B. Freedom of Association
Although not mentioned in the First Amendment, the Supreme Court has held that freedom of
association derives by implication from the First Amendment. Freedom of association prohibits
laws that prohibit or punish group memberships. If the law does prohibit associations, look for
strict scrutiny review.
C. Freedom of Religion
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Under the First Amendment, the government can neither outlaw or seriously burden a person’s
pursuit of religion (the “Free Exercise Clause”), nor endorse or support a particular religion
(“the Establishment Clause”).
The Free Exercise Clause prohibits the government from interfering in a person’s religious
practices or forms of worship as long as the person is sincere in those beliefs and regardless of
whether the religion is traditional.
❖ Bar Professors’ Tip: In general, when a law burdens the free exercise of religion, you
have to perform a balancing test to determine if the statute is valid. Weigh the
magnitude of the burden against the strength of the state interest, taking into account
whether there are less burdensome means of accomplishing the state’s goal.
The court cannot investigate the reasonableness of a person’s religious views. Note that, in
applying the balancing test, strength of state interest vs. magnitude of burden on free exercise,
the court can determine how important a particular practice is to the exercise of a religion.
The Free Exercise Clause can be overridden by an important or compelling state interest, e.g.,
polygamy, taxes, blue laws, use of drugs.
In general, any government action must conform with the following test, from Lemon v.
Kurtzman:
There is a potential Establishment Clause problem any time the government helps out private,
religious schools, even if that help is the same as given to public schools. There are two specific
guidelines: first, the aid must be for secular (non-religious) instruction; second, aid to post-
secondary schools (e.g., colleges) is more likely to be upheld than aid to elementary or secondary
schools, because there is a less perceived risk of religious indoctrination of college-age people.
❖ Bar Professors’ Tip: Watch for the “no fostering of excessive government
entanglement” element of the Lemon v. Kurtzman test. Where any kind of government
aid to a parochial school would require that the government keep close surveillance on
how the funds are dispensed (e.g., grants for salaries of teachers of secular subjects only),
the entanglement required to monitor such a program – even though it would otherwise
be constitutional – would make the grant impermissible.
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A. Vagueness
C. Prior Restraints
A prior restraint is a governmental action that prohibits speech before it takes place. These
actions are presumptively invalid, due, generally, to their vagueness or to their placing too much
discretion in the hands of the public officials, i.e., those responsible for granting licenses to hold
demonstrations.
Prior restraints can be valid where the mere existence of the communication is proven to create
some special harm to society (e.g., prohibiting publication of planned army movements in
wartime would be valid).
❖ Bar Professors’ Tip: In the licensing situation, you should apply the time, place and
manner standards for public demonstrations for further analysis.
D. Ex Post Facto
Ex post facto refers to laws adopted after an act is committed making it illegal although it was
legal when done, or increases the penalty for a crime after it is committed. Such laws are
specifically prohibited by the U.S. Constitution, Article I, Section 9. If a state legislature or
Congress enact new rules of proof or longer sentences, those new rules or sentences do not apply
to crimes committed before the new law was adopted.
Property
High Priority
• Formation Tenancy/Leasehold
• Landlord/Tenant Rights and Duties
• Subleases v. Assignments
• Warranties on Titles and Home Builders
• Types of Deeds
• Bona Fide Purchasers and Shelter Rule
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Priority
• Title Chain
• Adverse Possession
• All Easements
• Mortgages/Foreclosure
A. Fee Simple
A fee simple is a present estate of potentially infinite duration. Fee simples may be non-
defeasible (absolute) or defeasible.
A fee simple absolute is an interest in land that has no restrictions and has a potentially
indefinite duration. It can be freely devisable (can pass by will), descendible (can pass by
intestacy) and alienable (transferable during the holder's lifetime). A fee simple absolute is
presumed in the absence of express contrary intent.
A defeasible fee simple is an estate that may terminate upon a certain event. All defeasible fee
simples have an accompanying future interest in favor of either the grantor (reverter) or a third
person (remainder). It terminates upon the happening of a stated event and automatically
reverts to the grantor.
This is an estate in which the grantor reserves the right to terminate the estate upon the
happening of a stated event. The estate does not automatically terminate – the grantor must
take some action.
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If a fee simple estate terminates upon the happening of a stated event (because it is
determinable or subject to a condition subsequent) and then passes to a third party rather than
reverting to the grantor or giving the grantor a right to terminate, the third party has an
executory interest.
B. Life Estate
A life estate is an estate that lasts for as long as the possessor lives. As soon as the possessor
dies, the estate either reverts back to the grantor or to a third party. It may be created by
operation of law or by conveyance. The usual life estate is measured by the life of the grantee,
e.g., “to B for life.” It can be a life estate pur autre vie (life of another), e.g., “to B for the life of
C.”
A life tenant is entitled to any ordinary uses and profits of the land, but cannot do anything that
injures the interests of a remainderman or reversioner. A future interest holder may sue for
damages or to enjoin such acts.
A life tenant is obligated to preserve the land and structures in a reasonable state of repair, pay
interest on mortgages (not principal), pay ordinary taxes, pay special assessments for public
improvement of short duration.
• Permissive Waste: Occurs when a life tenant fails to protect or preserve the
land.
• Ameliorative Waste: Change that benefits the property economically. At
common law it was actionable. Today, a life tenant may alter or demolish existing
buildings if the market value of the future interest is not diminished and either
the remaindermen do not object or if there is a substantial and permanent
change in the neighborhood conditions.
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A person can renounce a life estate. The future interest is accelerated so that it becomes
immediately possessory.
2. Future Interests
Future interests gives its holder the right or possibility of future possession of an estate. It is a
present, legally protected right in property.
❖ Bar Professors’ Tip: As a general rule concerning the grantor’s future interest: a
possibility of reverter only follows a fee simple determinable; a right of entry only follows
a fee simple subject to a condition subsequent; and a reversion only follows a life estate.
❖ Bar Professors’ Tip: For remainders: remainders only follow life estates – never a fee
interest; remainders never cut short a prior estate; remainders are always created at the
same time and with the same instrument as the present interest that precedes it; there is
never a gap between a life estate and a remainder; if there is a gap between a life estate
and a future interest, the interest is executory (either springing or shifting), not a
remainder.
❖ Bar Professors’ Tip: For the rule against perpetuities; the only future interests subject
to the rule are executory interests, open class remainders, and contingent remainders.
The rule does not apply to reversions, possibilities of reverter, rights of entry, vested
remainders, and charitable trusts.
A future interest in a grantor is a reversionary interest. All reversionary interests are vested, and
thus not subject to the rule against perpetuities There are three types:
• Reversion
A reversion is an automatic transfer of an interest in property back to the grantor. This arises
when the estate of a grantee terminates in a manner other than by a condition.
• Possibility of Reverter
A possibility of reverter always deals with a fee simple determinable estate. A possibility of
reverter exists if there is a condition for the use of the property.
• Right of Reentry
A right of reentry arises when a condition is broken and is in conjunction with a fee simple
subject to a condition subsequent.
• Remainder Interests
Where provisions have been made in the grant for transfer of the estate to a third person upon
termination of the present life estate, the third person has a future interest known as
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o Vested Remainder
A vested remainder is a remainder created in ascertained persons and not subject to a condition
subsequent. The remainderman has a right to immediate possession upon normal termination
of the preceding estate.
▪ “To A for life, then to B.” A has the life estate, B has a vested
remainder in fee simple.
A future interest which must vest if a prior possessory interest terminates in time.
▪ Vested Remainder Subject to Open (Divestment)
This applies when a gift is created in a class of persons (usually children) and at least one
member of the class takes a vested remainder at the time the gift is created. The vested
remainder is subject to open if more people could later join the class. It is a future interest which
is certain to vest in someone but there is a chance that persons that are not ascertainable may
also take and share in the estate.
o Contingent Remainder
Contingent remainders will be contingent only if the grantee of the remainder is unascertainable
or the potential future interest must satisfy some condition precedent before the interest will
vest. Contingent remainders are those created in unborn or unascertained persons, or subject to
a condition precedent. A condition is precedent if it must be satisfied before the remainderman
has a right to possession.
▪ A conveys “to B for life, then to C and his heirs if C marries D.” C’s
remainder is contingent because he must marry D before he can take
possession.
• Executory Interest
An executory interest is a future interest created in a third party that is not a remainder.
Executory interests are the future interests that cut short preceding estates or follow a gap after
them. Executory interests are future interests in third parties that either divest a transferee’s
preceding freehold estate (“shifting interests”) or follow a gap in possession or cut short a
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grantor’s estate (“springing interests”). Executory interests are not considered vested and are
subject to the rule against perpetuities.
❖ Bar Professors’ Tip: Remember that if the future interest does not follow the natural
termination of the preceding estate, it must be an executory interest. Only an executory
interest can follow a fee simple estate.
o Shifting
In a grant from A “to B for life, then to C and his heirs, but if C predeceases B, then to D and his
heirs,” D has a shifting executory interest because it divests a transferee’s preceding estate. A
shifting executory interest causes possession to cut short or shift from one grantee to another.
o Springing
In a grant from A “to B and his heirs when B marries C,” B has a springing executory interest
because it divests the grantor’s estate. The grantor has a reversion, but it springs to a third party
at a later time.
The rule against perpetuities states that a future interest is void if there is any possibility that
the interest will not vest within 21 years of some life in being at the creation of the interest.
The time the interest is created and the perpetuities period begins to run depends on the
instrument and the interest created. The key is when the interest could possibly vest – not when
it is likely to vest or even when it did. An interest vests for purposes of the rule when it becomes
possessory or an indefeasibly vested remainder or a vested remainder subject to total
divestment.
❖ Bar Professors’ Tip: Examine the grant as of the time of its creation and be sure that
if the interest vests it will be within the period of the rule (life in being + 21 years). If
there is any possibility that it could vest beyond the period, it is void.
❖ Bar Professors’ Tip: The rule applies only to contingent remainders, executory
interests, vested remainders subject to open, and in most states, options to purchase.
The grantor’s interests (reversions, possibilities of reverter, rights of entry) are safe from
the rule – do not consider them.
The effect of violating the rule: destroys only the offending interest.
D. Restraint on Alienation
• Disabling Restraints;
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• Forfeiture Restraints;
• Promissory Restraints.
3. Concurrent Estates
A. Joint Tenancy
Co-ownership in which the tenant owners own an undivided interest in the whole estate. Each
joint tenant has the right to possess the whole estate. When one of the joint tenants dies, the
remaining interest automatically goes to the surviving tenant. A joint tenancy cannot be passed
to heirs. A joint tenancy can be terminated by a sale, partition or a mortgage of the property.
Under a lien theory, a mortgage by one tenant does not sever the tenancy. Under the title theory
jurisdiction, a mortgage by one tenant does sever the tenancy.
B. Tenancy in Common
Concurrent ownership where each tenant owns a separate share of the property but has an equal
right to possess the whole regardless of the actual share owned. Each tenant may pass his
interest in the property.
❖ Bar Professors’ Tip: There is no right of survivorship for a tenancy in common. When
the respective shares of tenants in common are not specified, they are presumed to hold
equal shares.
Co-ownership of property similar to joint tenancy but solely based on a husband and wife
ownership. The tenancy can be terminated by a transfer of the property, death of a spouse or
divorce. The death of the spouse turns the interest into a fee simple to the surviving spouse.
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❖ Bar Professors’ Tip: A tenancy by the entirety can only be terminated by a divorce, an
annulment, or an agreement to partition. Mere separation will not suffice. Once the
couple is divorced, the property is held as tenants in common. A tenant by the entirety
cannot unilaterally have an interest partitioned, even by the court.
4. Non-Freehold Estates
An interest that lasts for a fixed period of time as set forth in a lease. An estate for years is
terminated automatically at the expiration of the lease or upon surrender by the leaseholder.
B. Periodic Tenancy
A tenancy for a fixed duration and continues for succeeding periods until either party gives
notice of termination. If no notice is given, the tenancy extends for another duration period.
Notice must equal the length of the rental period except for an annual lease.
C. Tenancy At Will
No stated duration. If either party wishes to terminate the tenancy, no notice is required.
D. Holdover Tenant
Continues in possession after the termination of the tenancy. The landlord can allow the tenant
to stay on the premises or evict him.
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❖ Bar Professors’ Tip: In general, at common law, the landlord made no implied
warranties that the premises were or would remain in any particular state of repair.
❖ Bar Professors’ Tip: The landlord at common law had a duty to disclose (but not
repair) latent defects which the tenant would not reasonably be able to discover.
❖ Bar Professors’ Tip: A tenant may surrender his residence to the landlord by
notifying the landlord in writing; leaving the keys for the landlord; and moving out of the
dwelling. The landlord may accept the surrender, in writing, or sue for damages. The
landlord must mitigate damages.
❖ Bar Professors’ Tip: In general, there are no covenants in a commercial lease. Courts
follow the contract terms.
C. Fixtures
A fixture is a chattel that has been so affixed to land that it has ceased being personal property
and has become part of the realty. If the fixture is a trade fixture, it is removable by the tenant.
Modern law allows for all fixtures to be removed as long as the premises can be returned to its
former condition.
• Assignment: When a tenant transfers the entire term of a lease and retains no
interest in the lease. If the assignee assumes all of the promises in the original
lease, there is privity of contract between the landlord and assignee, and the
original tenant is not liable for any non-payment of rent.
❖ Bar Professors’ Tip: Unless there is a lease provision to the contrary, the interests of
landlords, tenants for years, and periodic tenants are freely transferrable. The transfer of
a tenancy at will or at sufferance is valid between the parties, but is not enforceable
against the landlord.
• Sublease: A tenant transfers less than the entire leasehold. The sublessee has
created no legal relationship between the landlord and himself and is therefore
not liable to pay rent to the landlord. There is no privity of estate with the
landlord.
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A. Easements
An easement is the right of a person to go onto the land of another to make limited use of the
property.
• Classifications
o Easement Appurtenant
An easement appurtenant is created to benefit another tract of land, the use of which is incident
to the ownership of the land. There are two parcels of land that are involved in an easement
appurtenant, the dominant estate (whose owner is benefited by the easement) and servient
estate (the land that is burdened by the easement).
o Easement in Gross
Easement in gross is an easement benefiting a particular person and not a particular piece of
land (e.g., a billboard).
o Affirmative Easements
An affirmative easement is an easement that forces the owner of the servient estate to permit
certain actions by the easement holder.
o Negative Easements
A negative easement is an easement that prohibits the owner of the servient estate from doing
something.
• Creation
An easement created by express grant is when one grants land to another. These easements are
subject to the statute of frauds and therefore must be in writing and signed by the party
charged. If the easement is oral, a license is created and not an easement.
.
o Creation by Implication
▪ At the time of the conveyance, one part of the land is being used for
the benefit of the other party;
▪ The use is apparent;
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o Creation by Necessity
An easement by necessity is created if the owner of a tract of land divides the tract into two lots
and deprives one lot access to a public road. An easement by necessity is implied only when
land is divided. The necessity must exist when the land is severed. The easement is implied only
over the portion that, when divided is denied access to a public roadway. An easement by
necessity cannot be implied over land that was never owned by the common grantor of the
dominant and servient tenements. The owner of the servient piece of land has the right to
locate the easement by necessity as long as the location is reasonable.
o Creation by Prescription
An easement by prescription is created by an adverse use of the servient estate by the dominant
estate. An easement by prescription requires:
▪ Adverse Use;
▪ Continuous Use for the Statutory Period of Time;
▪ Open and Notorious Use;
▪ No Interruption of Use.
Easements may be acquired by the government using its power of "eminent domain” in a
condemnation proceeding in the courts.
• Duration
An easement does not convey the unlimited right to use the covered property. The rights of the
easement owner are measured by the purpose and character of the easement. The use of the
easement is limited to the use that is reasonably necessary and convenient for the intended
purpose of the easement. An easement owner may not materially increase the burden or impose
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new burdens on the underlying landowner. The dominant tenant may not use the easement for a
use that is different in character from the authorized use.
The remedy for abuse of an easement is an injunction against the abuse and/or monetary
damages for past misuse. An extinguishing of an easement is usually not granted since the
easement runs with the land.
• Termination
o Estoppel
When the servient estate reasonably relies on the conduct of the owner of the dominant estate
and uses his servient estate in a manner inconsistent with the existence of the easement and it
would be inequitable to use the easement further.
o Ceases
Once a necessity is over, the easement that was created due to necessity ceases.
o Destruction of Property
o Condemnation
Most jurisdictions allow compensation for lost value when there is a condemnation proceeding.
o Abandonment
If the dominant tenant intends to abandon the use of the easement, the easement is terminated.
Non-use of the easement does not terminate an easement. There must be non-use and intent to
abandon.
o Merger
When both dominant and servient estates merge into a single possession, the easement is
terminated.
Covenants serve to bind future owners of land who are not parties to the original contract by
enforcing promises against successors in interest of the original parties. These promises are
enforced as covenants at law and in equity as equitable servitudes. Covenants at law could be
affirmative or negative. Affirmative covenants are promises to do something, whereas negative
covenant are promises not to do something.
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Both the benefits and burdens placed on the land must pass to succeeding landholders.
Must be intended by the covenantor and covenantee to run with the land. The language clearly
states the intent of the promise to run with the land.
o Writing
There must be a writing to satisfy the statute of frauds. In case of negative equitable servitudes,
it will be binding on all parcels of land even without a writing if there is a common scheme of
development and the owner had notice.
o Privity:
Vertical (relationship between successors) and Horizontal (common grantor) privity is required.
o Damages:
o Notice:
o Damages:
C. Profits
D. Licenses
A license permits one person to come onto the land without being a trespasser, e.g., a football
ticket. It is considered a privilege and is revocable at the will of the licensor, unless coupled with
an interest, e.g., being asked to leave a football game if intoxicated.
E. Adverse Possession
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• Hostile;
• Actual;
• Open and Notorious;
• Exclusive;
• Continuous for the Statutory Period of Time.
o Look for tacking.
7. Conveyance of Title
A. The Deed
• Elements of a Deed
The statute of frauds requires that contracts for the sale of land be in writing and signed by the
grantor. The elements of a deed are:
o Signature of the grantor;
o Consideration;
o Identification of the buyer and the seller;
o Description of the property;
o Grantor’s intent to deliver the deed;
o Acceptance of the deed by the grantee.
• Types of Deeds
o Warranty Deed
A deed that expressly guarantees the grantor’s good clear title and contains covenants
concerning the quality of title including
▪ Warranties of Seisin;
▪ Quiet Enjoyment;
▪ Right to Convey;
▪ Freedom of Encumbrances;
▪ Defenses of Title Against All Claims.
❖ Bar Professors’ Tip: Under the common law, the covenant against encumbrances is a
present covenant and it is breached if there is an encumbrance at the time of the
conveyance. Further, the covenant does not run with the land. However, some states do
not follow the common law rule and allows a remote grantee to sue on the covenant
against encumbrances. But even in those states, a remote grantee with notice of an
easement may not sue on the theory that with such notice the grantee never relied on the
covenant or bargained for a reduction in the purchase price to take account of the
easement.
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❖ Bar Professors’ Tip: Similarly, the covenant of seisin is also a present covenant and a
remote grantee cannot sue the original grantor. However, some states do allow the
remote grantee to sue the original grantor for breach of that covenant.
❖ Bar Professors’ Tip: A homeowner may bring a lawsuit against a homebuilder within
the first year following new construction of a home for breach of the warranty of
habitability, e.g., the basement floods because of a defective construction.
The grantor covenants to warrant and defend the title against claims and demands of only the
grantor and all persons claiming by and under him.
o Quitclaim Deed
Conveys a complete interest or claim in real property, but neither warrants nor professes that
the title is valid.
❖ Bar Professors’ Tip: A wild deed is a recorded deed that is not in the chain of title
because a previous instrument connected to the chain of title was not recorded. A wild
deed will not provide constructive notice to later purchasers of the property, because
subsequent bona fide purchasers cannot reasonably be expected to locate the deed while
investigating the chain of title to the property. A wild deed is also known as a thin air
deed.
B. Part Performance
Under part performance, an oral contract to sell land is enforceable in equity despite the statute
of frauds. Part performance accepted by the court: payment of all or part of the purchase price
and either delivery of possession of the land to the buyer; or via the construction of permanent
and valuable improvements by the buyer.
C. Equitable Conversion
The purchaser is the equitable owner of the land and not the seller, even though he may still
have legal title to the land. If the property is destroyed during the executory period (after the
contract is signed and before closing) but before the closing, and neither party is at fault, the risk
of loss is on the buyer and he must pay the contract price.
A minority of statutes follow the Uniform Vendor and Purchaser Risk Act. The risk of loss is on
the seller during the executory period unless the buyer has actually taken possession of the
property or has legal title to the property at the time the property is destroyed.
❖ Bar Professors’ Tip: The doctrine of equitable conversion splits title to the property
when a real estate contract is signed. Buyer obtains equitable title and the seller retains
legal tittle as trustee to secure payment of the purchase price. When equitable conversion
applies, the seller’s legal title is considered personal property, and the buyer’s equitable
title is considered real property.
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D. Marketable Title
Property contracts come with an implied assurance of marketable title. If the seller fails to
deliver marketable title, the buyer may rescind the contract.
The seller is only obligated to tender marketable title on the closing date and the purchaser may
not rescind the contract before the time of performance. If the buyer becomes aware that the
title is unmarketable, he must notify the seller and allow him reasonable time to cure the defect.
If the seller fails to cure the defect within a reasonable time, the buyer may rescind the contract.
The buyer may also sue for damages for the breach of specific performance or a reduction of the
purchase price.
Defects that make the title unmarketable are encumbrances, encroachments, easements,
mortgages or liens, restrictive covenants, land subject to claims of adverse possession.
E. Recording Statutes
❖ Bar Professors’ Tip: Some UBE questions do not specify the type of recording statute
but rather gives the actual statutory language. Decide first which of the three categories
applies in this question. Race-notice is the most popular. Then focus on the statutory
treatment of a subsequent party’s filing position and the effect of notice, if any.
Recording statutes gives constructive notice of ownership of property by recording it with the
county clerk’s office. Recording statutes apply to deeds and mortgages. Recording statutes come
into play when two parties claim to be the titleholder of the property. Look for a bona fide
purchaser who takes without notice and pays valuable consideration. There are three types of
recording statutes:
• Notice Statutes
The last bona fide purchaser of the property for value has title to the property. A bona fide
purchaser for value is a person who tenders value for property and is without notice that there is
a previous buyer of the same piece of property.
• Race-Notice Statutes
The first bona fide purchaser for value who records has title to the piece of property.
• Race Statutes
To be a bona fide purchaser (BFP), the subsequent party must give value and have no actual,
inquiry, or constructive notice of the prior conveyance at the time of her transaction.
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• Notice
o Inquiry Notice
There is a duty upon the purchaser to physically examine the premises. Inquiry notice arises
from facts discernible through visual inspection of the premises or the applicable recorded
instruments. Some jurisdictions equate constructive and inquiry notice.
o Actual Notice
Actual notice is when the purchaser has notice that there is a prior claim of ownership of the
property. The burden of proving actual notice is on the claimant of the unrecorded instrument.
o Constructive Notice
Constructive notice is when a person should have known, as a reasonable person would have,
even if he has no actual knowledge. A person is deemed to have facts that he would have
discovered had he made the usual and proper inquiries.
❖ Bar Professors’ Tip: Under the shelter doctrine, when a BFP acquires title free of a
prior encumbrance, he can convey that title to a subsequent purchaser free of that
encumbrance. In order to ensure that the BFP has an unlimited right to alienate his land
in the future, the shelter doctrine applies even when the subsequent purchaser has actual
notice of the prior, unrecorded encumbrance.
8. Land Use
A. Zoning
The state may enact statutes to reasonably control the use of land for the protection of the
health, safety, morals and welfare of its citizens. A state, through its enabling act, has zoning
powers. All zoning ordinances must be authorized by the state's legislature and will be held valid
unless they are arbitrary and unreasonable, having no substantial relation to the public health,
safety, morals or general welfare. Zoning ordinances must be enacted with notice or there will be
a violation of due process and the ordinance will be held unconstitutional.
❖ Bar Professors’ Tip: Look for Nonconforming Use, Special Use Permit, Variance and
Taking.
B. Eminent Domain
Eminent domain allows the federal and state governments to take title to private property
against the owner's will. The taking must be for public use and reasonable compensation must
be paid to the owner for the property. Compensation is usually fair market value of the taking.
C. Support
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All landowners must maintain support for the benefit of adjacent lands. If an excavator is
negligent in causing improved land to cave-in, he is liable for any damages. Strict liability
attaches to an excavator if his actions would have caused the cave-in of the property in its
natural state.
• Right to Lateral Support
o Subjacent Support
D. Waste
Waste is a commission or omission by one in possession of land. There are three types of waste
on land.
• Voluntary Waste
Voluntary waste is an affirmative, willful action by one in possession of land via the stripping of
its value. Voluntary waste is a deliberate destructive act.
• Permissive Waste
• Ameliorative Waste
E. Right to Airspace
Freedom from excessive noise. There is no obligation or right to preserve one’s view.
F. Right to Exclude
• Trespass;
• Private Nuisance;
• Continuing Trespass;
• Ejectment or Unlawful Detainer.
A. Mortgages
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Mortgages have been tested with more frequency. A mortgage is an interest in land created in an
instrument providing security for the performance of a duty or the payment of a debt. The
mortgage must be signed and in writing to satisfy the statute of frauds. The parties to a
mortgage are the mortgagor (who is the debtor) and the mortgagee (who is the lender, e.g., a
bank). If the mortgagor does not pay the mortgage debt on time, the mortgagee may claim title
to the property or sell the property and keep the proceeds to satisfy the debt. Any obligation
capable of being reduced to its monetary equivalent may be secured by a mortgage.
• Lien Theory
Under the lien theory, a mortgage does not create a title or estate, but is merely a lien on the
property. The mortgagor retains all rights to the property until he is adjudged to be in default.
• Title Theory
Under the title theory, the mortgagor essentially conveys a determinable fee to the mortgagee.
The satisfaction of the obligation underlying the mortgage restores title to the mortgagor. Upon
the mortgagor’s default, the mortgagee is entitled to immediate possession of the property.
• Requirements of a Mortgage
o Writing
A mortgage, as any agreement involving real property, must be in writing to satisfy the statute of
frauds.
o Consideration
o Capacity
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As with other conveyances of an interest in land, the mortgagor must have the power and
capacity to mortgage the land.
• Types of Mortgages
A purchase money mortgage is a mortgage that a buyer gives the seller when the property is
conveyed to secure the unpaid balance of the purchase price.
o Equitable Mortgage
An equitable mortgage is a mortgage where property is posted as security for a loan and the deed
is transferred to a creditor to be reconvened if the debt is not paid.
o Recourse Mortgage
This is a mortgage where the mortgagor is personally liable to the mortgagee for any deficiency
in the event of a foreclosure.
o Non-Recourse Mortgage
This is a mortgage where the mortgagor is not personally liable to the mortgagee for any
deficiency in the event of a foreclosure.
When a buyer takes property subject to the mortgage, the buyer is not personally liable for the
mortgage debt. If the mortgage is not paid, the mortgagee may foreclose on the property.
When a buyer takes property and assumes the mortgage of the seller, he is personally liable for
the debt. The mortgagee may therefore hold either the buyer or the seller liable for the full debt.
If, however, the mortgagee holds the seller liable, the buyer will be liable to the seller since he
assumed the debt.
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• Payment
If the debt is paid in full, the mortgage is satisfied and the mortgage note is
terminated.
• Merger
If the mortgagor and the mortgagee merge their interests, the mortgage is
terminated.
Mortgagees frequently insert a due-on-sale clause in the mortgage instrument, which is a type of
acceleration clause allowing the mortgagee, at its option, to declare the entire debt due and
payable upon transfer of the mortgagor’s interest.
• Foreclosure
Foreclosure is an equitable remedy when the mortgagor defaults on the mortgage. Foreclosure is
a process by which the mortgagor’s interest in the property is terminated. A foreclosure of the
mortgaged property will allow the mortgagee to sell the property and use the proceeds from the
sale to pay the debt. The right to foreclose is considered inherent in the relationship of
mortgagor and mortgagee.
o Default
The mortgagee may not terminate the rights of the mortgagor and takes possession of the
property until after the mortgagor has defaulted on his obligations. A default is defined in the
mortgagor instrument (e.g., failure to make one or more payments of the installment loan
secured by the mortgage).
o Acceleration
An acceleration clause in a mortgage instrument provides that the entire outstanding debt
becomes due when a default occurs. If the mortgagee properly accelerates the loan, the
mortgagor must then pay the full amount to redeem the property.
o Pre-foreclosure Remedies
After a default, but prior to a foreclosure sale, the mortgagee has the right to enter the property
to protect it from waste and, where appropriate, to ensure its continued productivity.
• Types of Foreclosures
There are two methods of foreclosure: judicial foreclosure and non-judicial foreclosure.
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o Judicial
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to
foreclose, is used when no power of sale is present in the mortgage.
Judicial foreclosure requires that all the normal litigation requirements be met. A petition to
foreclose must set forth the basis for the alleged breach or default and be filed in the county
where the property is located.
In a foreclosure proceeding, an order determining the amount due and ordering the sale of the
mortgaged property must also adjudicate any defenses to foreclosure, otherwise, it is an
interlocutory order.
Once a lender obtains a judgment of foreclosure, the county sheriff auctions the property to the
highest bidder. After the sheriff’s sale of the property, the court holds a hearing to approve the
sale and transfer legal ownership to the new buyer.
o Non-Judicial
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage.
This clause pre-authorizes the sale of property to pay off the balance on a loan in the event of
default.
If the power of sale clause specifies the time, place, and terms of sale, then the specified
procedure must be followed.
• Power of Sale
Before initiating foreclosure proceedings, the mortgagee must provide the mortgagor notice of
intent to foreclose via that power, setting forth the nature of the mortgagor’s breaches and
defaults, the action that would be required to cure those breaches of defaults, and the time
period within which those cures could be made. The notice must be sent by certified mail,
addressed to the mortgagor at his last known address.
• Deficiency Judgment
In a mortgage transaction not involving the mortgagor’s homestead, the mortgagor will be liable
for any deficiency between the amount obtained by the mortgagee from the sale and the amount
of the indebtedness, interest, and the costs associated with the sale. In a foreclosure, the
property is sold and the proceeds are used to satisfy the debt. If the proceeds are insufficient to
satisfy the debt, the mortgagee may bring a personal action against the mortgagor for the
deficiency.
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o Redemption in Equity
Redemption in equity allows the mortgagor to redeem the mortgaged property if he pays off the
entire mortgage before the foreclosure sale.
o Statutory Redemption
Statutory redemption allows the mortgagor to redeem the mortgaged property if the mortgage is
paid in full within the statutory period of time, which could range from six months to one year.
If there are multiple mortgages on a piece of property, the first mortgage is called the senior
mortgage and all subsequent mortgages are called junior mortgages. In the event of a
foreclosure initiated by the senior mortgagor, only junior mortgages that are named in the
foreclosure may collect to satisfy their debt. If a junior mortgage is not named in the foreclosure
action, it must wait until other debts are paid before its debt can be satisfied.
D. Mortgage Substitutes
• Absolute Deed
o No Reconveyance Clause
In some cases, a grantor conveys title unconditionally (an absolute deed) without any clause
regarding reconveyance of the property.
The grantor may make a separate agreement with the grantee to reconvey the property upon the
satisfaction of some obligation. In this case, the deed and separate agreement may be construed
as a mortgage by the court. The intention of the parties will be determinative.
Every interest which purports to be an absolute or qualified conveyance of real estate or any
interest therein, but is intended to be defeasible or serve as security for the payment of money, is
deemed to be a mortgage.
The majority rule says that parol evidence is admissible to prove that the absolute deed was
intended to be a mortgage securing the obligation.
o Option to Repurchase
The grantor may convey land by absolute deed and contemporaneously execute a written
agreement with the grantee that the grantee will reconvey upon performance of some condition.
If the written agreement is ambiguous, the transaction might be construed as a conveyance with
an option to repurchase, or it could be interpreted as a security agreement and therefore a
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mortgage. Parol evidence is admissible to show that the conveyance was intended to be a
mortgage.
If a court determines that the transaction was intended to serve as security for an obligation, all
incidents of a mortgage will attach, including the equity of redemption.
An installment land contract is an agreement whereby the buyer of land pays the purchase price
to the seller in installments, usually over a period of several years. Although the buyer may
immediately take possession, the seller does not transfer title until the buyer pays the entire
purchase price. Upon default, the buyer is subject to immediate dispossession, has no right of
redemption, and does not enjoy the procedural protections of foreclosure under a power of sale
or judicial action.
Any person who performs or furnishes labor, services or materials pursuant to an express or
implied contract with the owner of real property has a lien on that property for debts owed for
such labor, services, or materials.
An action to enforce the lien must be brought no later than one (1) year after the date the claim
of lien was recorded.
B. Judgment Liens
A judgment lien is an interest in real property only. It entitles a judgment creditor to have the
debtor’s property sold under execution in order to satisfy the debt.
At any time after entry of a final judgment, the judgment creditor may subpoena the judgment
debtor to appear to answer questions concerning the judge debtor’s assets.
C. Attachment
An attachment occurs when a creditor that is suing a debtor petitions for the prejudgment
seizure of property in the debtor’s possession to satisfy an anticipated money judgment.
For an order of attachment to be issued, the defendant must have been served with notice that
an order of attachment of property is requested and that he may object to the issuance of such
an order within five (5) days of receipt.
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