Académique Documents
Professionnel Documents
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TABLE OF CONTENTS
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BUSINESS ORGANIZATIONS
Professor E. Christopher Johnson, Jr., Hilary Term 2011
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AGENCY LAW
1. What is an Agency?
a. The relationship arises when one person (“principal”) manifests assent to another person
(“agent”) that the agent shall act on the principal’s behalf and subject to the principal’s
control, and the agent manifests assent or otherwise consents so to act. See Restatement
Third of Agency (RTA) §1.01.
i. Manifestations—oral, written, conduct or actions.
b. Whether a relationship is characterized as agency in an agreement between parties or in
the context of industry or popular usage is not controlling. RTA §1.02.
2. Who are the Players?
a. Agent—person, who by mutual assent, acts on behalf of another and subject to the
other’s control.
b. Principal—person for whom that agent acts.
c. Third Party—person with whom the agent contracts on behalf of the principal.
3. Principal Liability—Contracts and Transaction with Third Parties—The Agent must have
authority to change the legal position of the Principal. There are four types of authority that bind
the principal.
a. Actual Authority—present if the principal’s words (written or spoken) or conduct would
lead a reasonable person in the Agent’s position to believe that the Principal had
authorized him to so act. See RTA 2.01, 2.02, 3.01.
i. Express—the literal words or actions of the grant of authority by principal to
agent.
ii. Implied/Incidental—acts usual and incidental to the act directly authorized,
including acts reasonably necessary or generally considered appropriate to
accomplish the agency.
iii. Limiting Actual Authority—talk to the agent (see Hayes v. National Service
Industries).
b. Apparent Authority—words or conduct of the principal would lead a reasonable person
in the Third Party’s position to believe that the Principal had authorized the agent to so
act. See RTA 2.03. (The focus is on the principal’s actions that lead a third person to
reasonably believe the agent has authority to act.)
i. NOTE—everything at some point must trace back to the principal because it’s the
communication between the Third Party and the Principal that is at issue.
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agree to let the agent off the hook, then the agent won’t be a party to the
contract.
b. Undisclosed Principal—the third party doesn’t even know that a principal exists. The
third party thinks the agent is the principal and not acting for a principal.
i. When an agent is acting with actual authority makes a contract on behalf of an
undisclosed principal, the Principal is bound by the contract (is a party), and
unless they agree otherwise, the agent and the third party are parties to the
contract, and the principal (if a party) and the third party have the same rights,
liabilities, and defenses against each other as if the principal personally made
the contract – subject to 6.05-6.09 though. See RTA §6.03.
ii. Look to authority (go through the steps above). If there is the proper authority
BOTH the Principal and Agent are bound by the contract.
c. Agent’s Implied Warranty of Authority—RTA §6.10, someone purports to make a
contract with third party but lack ability to bind, then they may have some liability.
d. Termination of Agent’s Power §3.06
i. Actual Authority
1. Death of Principal or Agent
2. Lack of capacity of principal
3. Agreement
4. Manifestation of principal to agent
ii. Apparent Authority
1. When no longer reasonable for third party to rely on agent
a. Ex. public firing of employee
2. Manifestation by principal to third party
5. Tort Liability—a principal is liable where there is a master/servant (employer/employee)
relationship and the servant is acting within the scope of their employment.
a. Master/Servant (Employer/Employee) Relationship
i. Doctrine of Respondeat Superior—P can be liable even though P is not
personally negligent. If A is negligent and injures TP, the doctrine of respondeat
superior will impose liability on P – even though P did nothing wrong. P’s
liability is “vicarious” or “secondary,” and does not depend on P’s being
negligent. Only applies to principal-and-agent relationships called
Master/Servant
ii. Control Requirement—Master must have control over the details of the job (day-
to-day performance of the agent’s task, but not necessarily every move the
servant must make).
1. Difference Between a Servant and an Agent—The difference is the
amount of control. Not all agents are servants (and not all principals are
masters). But all servants are agents (and all masters are principals).
Not all employees are servants; the master has to have control over the
day-to-day performance of an employee in order to be a servant.
2. Factors for Determining if Agent is a Servant
a. If you have significant control over the person, the person is
most likely a servant.
b. The higher level of skill, the less control is being exercised.
c. The length of time the person is employed—the shorter time the
person works for you, it is likely they are an agent, but not
necessarily a servant.
iii. Scope of Employment—the master is liable for the torts of a servant ONLY if the
tort was committed within the scope of employment, see RSA §219. Commuting
is not within scope of employment.
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Note: Agency law is not just a sole proprietorship issue; every legal form has agents.
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FINANCIAL STATEMENTS
1. Balance Sheet: Describes a specific time. Provides a snap shot in time- it is conservative
a. What is on the Balance Sheet?
i. Assets = cash, property
ii. Liabilities = loans, accounts payable, bank notes
iii. Shareholder’s/Owner’s Equity (what’s leftover) = A – L
iv. A= L + Owner’s Equity
v. So if Asset goes up and Liability stays the same then OE has to go up
2. Income Statement: Tracks the income the business is experiencing. It covers a specific period
of time (year, month, a week, etc…).
a. What is on an Income Statement?
i. Revenues = sales
ii. Expenses = cost of goods sold, administration
iii. Profits = are an account devise and tax devise – doesn’t represent real movement.
iv. Losses = account devise and tax devise – doesn’t represent real movement.
b. Formula: Sales – COGS (cost of goods sold) – Salaries – Other Expenses – Depreciation
= Profits Before Tax – Taxes = Net Income
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c. Matching Concept (accrual basis) = match our expenses with our revenues. What do we
mean by this?
i. If we spend $50,000 on a brand new machine that will last for 10 years. My cash
assets have gone down by $50,000, but I won’t use it all up on one year
(depreciation). To match revenue with expense for the year – each side $5,000.
ii. Example: revenue of $20,000 and expenses of $5,000 for general expenses and
$5,000 for the machine. How much have I made for the year (profit for the year)
$10,000. Can’t go spend b/c technically you are still $45,000 in the hole for the
machine. On paper they have money, but they don’t physically have the cash.
3. Cash-Flow Statement: Money coming in and going out.
a. The cash flow statement covers a period of time, normally the same period of time as the
income statement.
b. It’s important to add this to both the income statement and the balance sheet.
c. Formula: Cash Flow = Profit After Taxes + Depreciation – Investment
4. What is the most important statement to a creditor?
a. Cash flow statement, so you know if they are able to pay.
b. Also, a balance sheet to see what the assets of the company are.
5. What is the most important statement to an investor?
a. The income statement – to see what the profits are. As an individual investor you are
more interested in what your share will be worth.
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PARTNERSHIP LAW
1. Partnership—an association of two or more persons to carry on as co-owners of a business for
profit, see RUPA §101(6).
a. Persons—“persons” in the partnership means any separate entity. For example, a
corporation can be a partner is a partnership.
b. Distinction Between RUPA and UPA
i. RUPA §201—A partnership is “an entity distinct from its partners.”
ii. UPA—Generally embraces an “aggregate theory,” i.e., it considers a partnership
not as a separate legal person but rather is merely the aggregate of its partners.
iii. NOTE—Not one or the other is correct; there are certain circumstances where a
partnership is treated as a separate legal entity and other circumstances where a
partnership will be treated as an aggregate of the partners.
2. Formation of a Partnership (RUPA §202)
a. No formal agreement or filing is required; where there is an association of two or more
persons and no filing, the default is a partnership. Intention is irrelevant.
b. The partnership may be by express agreement of the parties or based on facts and
circumstances.
c. The right to a share of profits creates a rebuttable presumption that the person receiving
the share is a partner in the business.
d. But if the profits were received as payment of wages, of a debt, of rent, of an annuity or
other retirement or health benefit, etc., then no inference is drawn, i.e., not necessarily a
partner in a business.
3. Three Primary Sources of Partnership Law
a. Partnership Agreement—the first place to look is the partnership agreement. If there is
no partnership agreement, look to the state statute, see RUPA §103.
b. Statute (RUPA)—only applies if the partners have not agreed to the contrary. The
statutes “provide default rules, not immutable prescriptions,” and thus provide great
flexibility.
c. Common Law and Equity—fills in the gaps in the statutes
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c. An example of where recourse is used is where a partner knows he doesn’t have authority
to act, but he acts anyway and because the third party thinks the partner has authority
(apparent), now the partnership is bound. The partners will have recourse against the
partner who acted without authorization.
8. Fiduciary Duties
a. What are fiduciary duties?
i. Fiduciary duties were developed by judges, as part of the common law.
ii. RUPA attempts to codify these fiduciary duties and then allows the partners to
modify them in their partnership agreements (to a certain extent).
iii. These duties are owed to both the partners and the partnership itself.
b. What duties do partners owe each other and to the partnership?
i. Duty of Loyalty—RUPA §404(b) – Partners owe a duty of loyalty to one
another. A partner’s duty of loyalty is limited to the following:
1. To account to the partnership and hold for it as trustee any property,
profit, or benefit derived by the partner in the conduct and winding up of
the partnership business or derived from a use by the partner of
partnership property, including the appropriation of a partnership
opportunity;
2. To refrain from dealing with the partnership on behalf of a party having
an interest adverse to the partnership; and
a. Example: We’d like to sue your law firm. Will you represent
us? No, you cannot do this.
3. To refrain from competing with the partnership.
ii. Duty of Care—RUPA §404(c) – Partners owe a duty of care to one another.
1. A partner’s duty of care to the partnership and other partners in the
conduct and winding up of the partnership business is limited to
refraining from engaging in grossly negligent or reckless conduct,
intentional misconduct, or a knowing violation of law.
iii. Duty of Good Faith and Fair Dealing—RUPA §404(d) – A partner owes the
partnership a duty of good faith and fair dealing.
1. A partner shall discharge the duties consistently with the obligation of
good faith and fair dealing.
c. How are opportunities to the partnership handled?
i. If there is a conflict, the partner MUST disclose as long as it is within the scope
of the partnership. Failure to do so is a breach of the duty of loyalty.
ii. If a partner learned of an opportunity because of his position (i.e. being the face
of the partnership), he must disclose to the partnership and not take advantage of
the opportunity for himself. To do so would be a breach of the duty of loyalty.
d. Which of the duties can be eliminated completely? Which can be modified but not
eliminated? How can they be modified?
i. Duty of Loyalty
1. The duty of loyalty may not be eliminated. RUPA §103(b)(3).
2. HOWEVER, the partnership agreement may identify specific types or
categories of activities that don’t violate the duty of loyalty, as long as it
is not manifestly unreasonable; or, after full agreement by all, may
authorize or ratify a specific act or transaction that would ordinarily
violate the duty of loyalty.
ii. Duty of Care
1. The duty of care may not be eliminated, but it may be reduced.
2. The duty of care may not be unreasonably reduced. RUPA §103(b)(4).
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i. RUPA §§ 601 and 803 provide that a buyout is triggered ONLY IF dissolution is
not triggered. If the partnership is not dissolved, the partnership may continue
and the leaving partner can be bought out.
c. DISSOLUTION
i. Terminology
1. Dissolution: Partners cease doing business together. This is the starting
process for winding up the partnership.
2. Winding Up: After dissolution, this is the process of getting together all
the assets, wrapping up the current affairs of the partnership, paying off
the creditors, and distributing the remaining assets.
3. Termination: The partnership is terminated after all partnership affairs
are wound up; the end of the partnership.
ii. RUPA §801 – When Does Dissociation Cause Dissolution of a Partnership?
Has dissolution been triggered?
1. A partnership is dissolved, and its business must be wound up, only upon
the occurrence of any of the following events:
a. In a partnership at will, or
i. Dissociation in a partnership at will automatically
triggers dissolution. RUPA §801(1).
1. General Rule: Since there is automatic
dissolution where someone dissociates in a
partnership at will, there will never be a buyout.
2. Exception: Dissolution won’t be automatic if
the partners (including the one that is leaving)
agree otherwise.
b. In a partnership for a definite term or particular undertaking, IF
at least half of the remaining partners express a will to wind up
the partnership WITHIN 90 days after the partner’s dissociation,
or
i. Why not just carry out the term or undertaking? If a key
partner dies or leaves, the other partners should be able
to decide if the partnership should go on. If you have
one rainmaker and five pencils, how will the pencils
carry on?
c. An event agreed to in the partnership agreement resulting in the
winding up of the partnership business; or
i. For instance: Dissolution is triggered when a term or
undertaking is completed.
d. An event that makes it unlawful for all or substantially all of the
business of the partnership to be continued, but a cure of
illegality within 90 days after notice to the partnership of the
event is effective retroactively to the date of the event, or
e. On application by a partner, a judicial determination that:
i. The economic purpose of the partnership is likely to be
unreasonably frustrated OR
ii. Another partner has engaged in conduct that makes it
unreasonably practicable to carry on the business in the
partnership with that partner OR
iii. Conforming to the partnership agreement is not
reasonably practicable.
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3. If the partnership has no assets, the inside and outside creditors can
collect the unpaid balance of their claims from the partners, equally: “A
partner shall contribute to the partnership an amount equal to any excess
of the charges over the credits in the partner’s account but excluding
from the calculation any charges attributable to an obligation for which a
partner is not personally liable under §306.” RUPA §807(b).
4. Unless partners agree to the contrary
a. They share responsibility not only for the losses from operation
of the partnership business but also for partners’ losses from
investments in the partnership. RUPA §401(b);
b. The amount of each partner’s loss from her investment in the
partnership is determined from her partnership account, a
bookkeeping device, which keeps track of how much a partner
puts into the partnership, how much she has taken out of the
partnership, and her share of the partnership’s profits and losses.
RUPA §§401(a), 807(a)-(b);
c. When the partnership is dissolved, the partnership is legally
obligated to pay each partner an amount measured by the balance
in her partnership account. §807(b). Summarizing §401, the
amount in each partner’s account will be:
i. The value of each partner’s investment in the partnership
of money or property, but no credit for the value of a
partner’s labor;
ii. Minus any distributions to the partner – remember,
profits can be either retained or disbursed;
iii. Plus an equal share of whatever the value remains in the
partnership after paying both creditors and the above
amounts. If there are insufficient partnership funds to
cover the amounts above, this loss will be divided
equally among the partners’ accounts.
d. It is possible that, at the time of dissolution, a partner will have a
negative balance in his account. For example, this could occur if
a partner, relative to the other partners, has contributed little
property or money, but has received relatively large
distributions, and the partnership has suffered large losses. Such
a partner will have to contribute additional funds to the
partnership in the amount of the negative balance. §807(b).
Only this will ensure that the other partners – such as those who
received no distribution – are dealt with fairly.
v. Termination—the partnership is terminate when ADD FROM SLIDES
d. BUYOUT
i. When will the partnership buyout the departing partner? If dissolution is
not triggered, then the partnership or partners will buyout the departing partner.
ii. Buyout Amount: The buyout price of a dissociated partnership interest is the
amount that would have been distributable to that partner after winding up the
partnership business if sold or liquidated on the date of dissociation. RUPA
§701(b).
1. It is the GREATER OF the liquidation value OR the value as a going
concern, i.e., the value of what he owns on the date he leaves.
a. Liquidation is the value of the assets itself.
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CORPORATION LAW
1. What is a Corporation?
a. A corporation is whatever the relevant state law says it is. Corporations are creations of
state legislature.
b. A corporation is a separate legal entity.
c. A corporation’s owners (called shareholders) are generally NOT personally liable for the
debts of the corporation.
2. What are the Four Sources of Corporation Law?
a. State Statute (MBCA)
i. Each state has its own general corporation statute. More than half of the states
have modeled theirs after the MBCA. In addition to the MBCA, Delaware
corporation law is centrally important.
b. Articles of Incorporation / Bylaws
i. A corporation’s articles of incorporation or by-laws are in important source of
corporate law. On some matters, the articles and bylaws will be the most
important sources of corporate law.
c. Case Law
i. Cases interpret and apply the provisions in corporate statutes and in corporation’s
articles and bylaws.
ii. Cases fill gaps in the law-resolve problems not covered or not fully covered by
statutes, articles or bylaws.
1. Most important judicial gap filing involves the fiduciary duties of
directors, officers and shareholders
d. Federal Securities Law
i. There is no general federal corporation statute, important federal statutes that
govern certain corporate activities.
3. How is a Corporation Formed?
a. To form a corporation, you MUST file the articles of incorporation with the state.
i. A corporation does not exist until the articles of incorporation are properly
executed and filed with the appropriate state agent or agency.
ii. The articles of incorporation are a public document (somewhat like a contract
between the corporation and the state).
iii. In order to change the articles of incorporation, you have to get approval from
both the shareholders and the board of directors.
iv. The articles of incorporation always trump the bylaws.
b. Most corporations also file bylaws.
i. These are a more formal and secondary document.
ii. The bylaws are private documents (somewhat like a contract between the
shareholders).
iii. Bylaws are much easier to change than the articles of incorporation because the
board of directors all have the power to change the bylaws.
iv. Bylaws do NOT have to be filed with the state.
4. What is the difference between authorized and outstanding shares?
a. Authorized Shares—This number represents the number of shares that can or may be
authorized by the corporation.
b. Issued and Outstanding Shares—These are the shares that have actually been issued by
the corporation.
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5. What types of Stock can a Corporation Issue? Both represent an equity interest in the corp.
a. Preferred Stock—Preferred stock is given some sort of preferential treatment.
i. Preferred shareholders are usually given dividend preference; rights upon
liquidation
b. Common Stock—This class of stock does not enjoy special treatment.
i. If the articles of incorporation are silent, there would only be one class of shares,
common stock.
6. What is Par Value?
a. The minimum price for which a corporation can issue its shares.
i. State corporation statutes that provide for par value stock also provide for
keeping two separate funds or accounts:
1. Stated Capital Account—This account includes the aggregate par value
of all issued shares of par value stock.
a. Ex. If a corporation issues 50 shares of $1,000 par value stock,
then its stated capital would be $50,000.
i. A corporation cannot sell their stock for less than the par
value. However, a shareholder can sell their stock for
whatever price they want.
2. Capital Surplus Account: If a corporation has funds for its issuance in
excess of par, the excess amount goes into the capital surplus account.
a. Ex. If a corporation received $99,000 for its issuance of 50
shares of $1,000 stock, its stated capital would be $50,000 and
its capital surplus would be $49,000.
3. Dividends or Distributions—may only be made out of “surplus.”
7. Consideration for Stock
a. The board of directors can authorize shares to be issued for consideration consisting of
any tangible or intangible property or benefit to the corporation.
i. Ex. Cash, promissory notes, services performed, contracts for services to be
performed, or other securities of the corporation.
1. The board of directors must determine that the consideration received for
the shares is adequate.
8. State of Incorporation
a. By incorporating in a particular state, the laws of that state will then become the default
rules that govern the internal affairs of the corporation.
i. If you operate in another jurisdiction, then you can also be held to the laws of
that jurisdiction.
1. Particularly if you commit a tort in that jurisdiction.
9. Contracting Pre-Incorporation
a. In corporate law, a promoter is someone acting on behalf of a corporation that is not yet
formed.
i. A promoter is generally held liable for any liabilities created when they know
that the corporation has not yet filed any articles of incorporation with the state.
In other words, all persons purporting to act on behalf of a corporation not yet
formed are jointly and severally liable for all liabilities created while so acting.
1. The corporation will only be liable if it takes some action to adopt the
promoter’s contract (like ratification or estoppel).
2. Make sure you go through an agency analysis to determine what type of
authority the promoter had or didn’t have.
10. Shareholder Liability
a. General Rule: Shareholders are not personally liable for the debts of the corporation.
However, there are two judicial exceptions to this rule.
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b. Exceptions
i. Piercing the Corporate Veil—ONLY GRAB THE OFFENDING
SHAREHOLDER(S). The decision to disregard the corporate entity may not rest
on a single factor, but must involve a number of factors. In addition, it must
present an element of injustice or fundamental unfairness. No single factor is
important – look at all factors and decide if the corporate veil should be pierced –
(S.N.U.F.F.I.N.A.)
1. Siphoning of corporate funds;
2. Non-payment of dividends;
3. Undercapitalization;
a. The shareholders do not initially fund or maintain the
corporation. Idea of not providing enough capital, property, or
cash for the corporation to be able to stand on its own.
4. Failure to observe corporate formalities;
5. The fact that the corporation is merely a façade for the operations of the
dominant stockholders;
6. Insolvency of the debtor corporation at the time of incorporation;
7. Non-functioning of other officers or directors;
8. Absence of corporate records.
ii. Enterprise Liability—This is when a group of owners have separated out a
single business into a bunch of separate corporations. You want to go after the
assets some of the brother/sister corporations have (not after the owners!) All of
the other corporations are considered as a single business, and the judgment
creditor can go after any of them.
11. What does Ultra Vires Mean?
a. Ultra vires—An action outside the proper authority or purposes of a corporation or
corporate officer. Latin for “beyond the power.”
i. Anything that is illegal is ultra vires.
b. Intra vires—pertains to an action within the proper authority or stated purposes of a
corporation or corporate officer.
i. Black’s Law dictionary defines intra vires as of or referring to an action taken
within a corporation’s or person’s scope of authority.
12. Functions and Powers of the Board of Directors
a. Players involved in a Corporation: Football team analogy:
i. Owners = Shareholders
1. The shareholders elect the board of directors and vote on major corporate
actions or fundamental changes.
a. They are NOT agents.
ii. Coaches = Board of Directors
1. The directors manage the business, set policy, and select other officers
and other agents. Essentially, the directors make the business decisions.
a. They are (like) principals, NOT agents.
iii. Players = Officers / Agents
1. The officers / agents execute the board’s decisions and manage the day-
to-day operations of the business. They have the power to bind the
principal upon either actual or apparent authority.
a. Officers are agents of the corporation.
iv. Team = Principal
13. Requirements for Board of Director Action
a. Notice of Meeting MBCA § 8.22
i. Regular Meeting: Regular meetings do not require notice.
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ii. Special Meeting: A special meeting requires at least 2 days of notice prior to the
meeting (unless the articles of incorporation provide for a longer or shorter time).
1. The notice requires the time, date, and place of the meeting. The purpose
of the meeting is NOT required in the notice.
2. The notice can be either written or oral (if oral is reasonable).
b. Waiver of Notice MBCA § 8.23
i. A director may waive any notice requirement. Typically, a waiver must be in
writing and filed with the minutes or corporate records.
1. However, if a director shows up at a meeting or participates in a meeting
which he wasn’t given notice of, this could also constitute a waiver
unless the director promptly objects to the meeting.
c. Quorum and Voting MBCA § 8.24
i. This means a majority of the directors.
1. Ex. If there are 15 directors, quorum would be 8.
a. If the bylaws say that there have to be 15 directors, and three of
them die, quorum would still be 8 because the bylaws have fixed
the number of directors at 15.
b. To be present at a meeting, all directors must be able to
simultaneously hear each other during the meeting.
i. If a director leaves during a meeting, the board cannot
take action if the number is reduced to less than quorum.
c. A majority of those present must approve a particular proposal to
constitute valid board action (if quorum is 8, need 5 votes)
i. A board member CANNOT be present by proxy (that
only applies to shareholder voting).
14. Requirements for SHAREHOLDER Voting
a. Proxy
i. A shareholder may vote his shares in person, or by proxy.
1. A proxy is generally revocable, but you can make it irrevocable if you
follow these three requirements (W.C.I.)
a. The proxy is in writing;
b. The proxy is coupled with an interest; and
c. The proxy states that it is irrevocable.
b. Quorum
i. Shareholder voting differs from director voting because it only requires more yes
votes than no votes in order to constitute shareholder action.
c. Record Date
i. This date determines who is entitled to vote at a meeting. Record date may not be
more than 70 days before a meeting. However, it can be less if all the
shareholders waive their right to notice.
d. Cumulative Voting: You can accumulate your votes and split them up any way you
want. Applies to the election of directors. If a corporation wants to allow cumulative
voting it MUST say so in the articles of incorporation. If the articles of incorporation are
silent, the default is straight voting.
i. Formula for Cumulative Voting
1. [(NxS)/(D+1)] + “1” = by adding the “1” this breaks the tie.
a. N = the number of directors the shareholder wants to elect.
b. S = total number of shares voting.
c. D = total number of directors to be chosen at the election.
2. Example: we want to elect 9 directors. How many do you think Propp
wants to elect, 4.
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b. Focusing on getting information into hands of potential investors so they can make
informed decisions
3. Primary Objectives
a. Disclosure of information to public
b. Prevent misrepresentation, deceit, fraud, etc, in sale of securities
4. Registration requirement
a. Required to file registration statement with SEC
b. Statement is designed to provide material information about the company that will be
offering and selling securities
i. Section 5
c. Cannot sell stock until the registration document is finalized
d. No standard form, specific to the company
5. Investment Contract
a. An investment of money in a common enterprise, the investor expecting to derive a profit
from the investment, and profit, if any, to be derived solely or substantially from the
efforts of persons other than the investor
i. Section 2(a)(1)
ii. Is subject to registration requirement
b. SEC v. Edwards
i. Facts
1. Were purchasing pay phones
ii. Analysis
1. Subject to 33 Act because the people purchasing the pay phones were not
actually responsible for upkeep etc
2. Was an investment K situation
3. They were just going to sit back and collect the profits
4. Doesn t matter what type of return you are getting
c. What is the four-part test to determine whether a “scheme” involves an investment
contract?
i. TEST: A security scheme (or an investment contract) in which someone:
1. Invests money
2. In a common enterprise
3. With the Profits to come
4. Solely from the efforts of others.
d. Does it matter if you offer an investor a fixed rate of return or a variable rate of return?
i. No, the Supreme Court didn’t find it necessary to distinguish between the two for
purposes of the test (the test to determine whether a particular scheme is an
investment contract). You still need to file with the SEC!!! They are all
securities!!!
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OVERVIEW
Jurisdiction: Literally means power. For a court’s judgment to be a valid binding decision, need two
doctrinal powers:
1. Personal jurisdiction: power over the person in the case
2. Subject Matter jurisdiction: power to hear the subject matter of suit
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PERSONAL JURISDICTION
1. The power of a given court to issue a judgment that is binding on a person or affects his property.
a. In Personam Jurisdiction—Power over the person.
b. Pure In Rem Jurisdiction—Power over a party’s property. Settles questions of
ownership and control of the property as against the whole world.
i. No longer valid because of Shaffer.
c. Quasi In Rem—Power over person through power over person’s property; i.e. settle
personal dispute between parties but only up to the value of the property located in that
state.
i. No longer valid because of Shaffer.
2. Sources of Law
a. Constitutional Law
i. Article III—Federal Subject Matter Jurisdiction
ii. Article IV—Full Faith and Credit Clause
1. Requires judgments to be respected and enforced in other states only if
the original court rendering the judgment had jurisdiction
iii. Article VI—Supremacy Clause
iv. Due Process Clauses
1. 5th Amendment for Federal courts
2. 14th Amendment for State courts
b. Statutes (1331, 1332, 1391, 1367, 1404, 1406, 1631, 1446, 1447)
c. Federal Rules of Civil Procedure
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3. Establishing Personal Jurisdiction Over An In-State Defendant (Is it there?) (see Pennoyer)
a. Domicile (defendant is there indefinitely)
i. Look at where the person is registered to vote
ii. Where they have a drivers license
iii. Where they have bank accounts, pay personal taxes
iv. Where they are employed
1. Only applied to individuals (NOT corporations)
b. Transient Jurisdiction (Tag)—party served with process while voluntarily in state
(ONLY individuals (see Burnham)
i. Example: case where wife served husband with process while he was in
California to visit the kids.
c. Quasi in Rem (but only to extent that property is attached pre-suit)
i. Overruled via Shaffer.
d. Consent (cannot be obtained through fraud, overreaching, or bad faith)
i. Defendant consents to bring there (Example: forum-selection clause)
e. Waiver
i. Party fails to properly object to the assertion of personal jurisdiction
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NOTICE
1. After establishing Personal Jurisdiction, you must give…
a. Notice—notice “reasonably calculated,” under all the circumstances, to notify the
defendant of the action
i. This is the constitutionally minimum standard of notice
ii. Examples (?) paper, email
2. The Mullane Case
The Due Process clause requires that deprivation of life, liberty or property by
adjudication be preceded by notice and the “opportunity to be heard”
Even if there is otherwise a proper basis for jurisdiction, a court cannot exercise
jurisdiction over a person without providing proper notice
Actual notice will NOT cure a defective service
3. RULE 4 (applied to Federal Courts)—sets the procedure for notifying a defendant that a
federal civil lawsuit has been filed against him through service of process (Proper service is a
prerequisite for the exercise of personal jurisdiction, but does not, by itself, confer personal
jurisdiction; must separately determine whether there is personal jurisdiction, subject matter
jurisdiction, and venue).
a. Once you file the summons and complaint, you have 120 days to serve the defendant
b. Rule 4(A)(C) Summons
i. Form of summons is standardized in Federal Court
ii. Summons and complaint must be served together on the defendant after the
complaint is filed
iii. The plaintiff is responsible for preparing the summons in the appropriate form
and for achieving effective service on the defendant
iv. Process server may be any adult who is over the age of 18 and is not a party to
the suit
c. Rule 4(D) Waiver
i. The plaintiff’s request that the defendant waive service must be in writing. The
request must be addressed directly to the defendant and include a copy of the
complaint.
ii. The defendant must be provided with at least 30 days to return the waiver (60
days if outside the U.S.)
iii. Does not apply to U.S.; agencies, corporations, or officers of the U.S.; other
governmental entities; infants or incompetents.
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_____________________________________________________________________________________
SUBJECT MATTER JURISDICTION
Plaintiff may file in Federal Court only if the case falls within limited parameters of federal
subject matter authority
Subject Matter Jurisdiction must exist for the court to render a binding, enforceable judgment
No Full Faith and Credit unless the court has subject matter jurisdiction over the controversy
Federal Courts are courts of limited jurisdiction
Subject Matter Jurisdiction can never be waived
Subject Matter Jurisdiction can be raised at any time
Article III, Section 2 is where you get your constitutional “ticket” to get into Federal Court
o Two ways to “get the ticket”
Federal Question Jurisdiction (28 U.S.C. § 1331)
Diversity Jurisdiction (28 U.S.C. § 1332)
1. Federal Question Jurisdiction (28 U.S.C. § 1331)—The district courts shall have original
jurisdiction of all civil actions “arising under” the Constitution, laws, or treatises of the United
States (citizenship of the parties/amount in controversy are not issues)
a. The Creation Test
i. When your federal question is based on § 1331
ii. Your lawsuit is created by federal law
1. Example: your U.S. Constitutional right was violated
b. The Federal Ingredients Test—When your lawsuit doesn’t arise under a federal law or
federal treaty. It is a state law claim, but somewhere in the mix are federal ingredients.
i. Narrow Exception—federal court has federal question jurisdiction over state law
claim if it…
1. Necessarily raises a stated federal issue,
2. Which is actually disputed and substantial
ii. See Grable & Sons Case
1. The suit was an action to quiet title, which was a state law claim, but in
order to resolve the issue, the court had to use a federal law.
c. The Well-Pleaded Complaint Rule (see Mottley Case)—applies to both tests above…
i. The Federal Question Jurisdiction requires that there be some significant issue of
federal law that is an essential element of the plaintiff’s “well-pleaded”
complaint.
ii. The federal court will examine only so much of the complaint as is well pleaded
– confined to its essential element – to decide whether there is federal question
jurisdiction.
iii. A suit “arises under” federal law only when the plaintiff’s statement (complaint)
of his own cause of action shows that it is based upon federal law.
iv. Plaintiff cannot invoke original jurisdiction of a federal court by either
anticipating a federal defense or otherwise importing a federal question into his
complaint that is not essential to his case.
1. Potential of federal question not enough.
d. Key Questions in Determining if There is Federal Question Jurisdiction
i. Is there a federal issue?
ii. Is the federal issue an essential part of the plaintiff’s well-pleaded claim?
iii. If federal law is not the basis for the plaintiff’s claim, is the federal issue
sufficiently important to resolve the dispute?
1. Exceptions
a. Divorce Exception
b. Probate Exception
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2. Diversity Jurisdiction (28 U.S.C. § 1332)—there must be complete diversity among the parties
(see Strawbridge v. Curtis).
a. Amount in controversy exceeds $75,000, exclusive of interest and costs, AND
b. The suit must be between…
i. Citizens of different states
1. US Citizen (State A) v. US Citizen (State B)
ii. Citizens of a state and citizens of a foreign state
1. US Citizen v. Foreign (Defendant from Canada)…and vice versa
iii. Citizens of different states and in which citizens of a foreign state are also
parties
1. Aliens cannot sue aliens in Federal Court
2. US (and Foreign) v. US (and Foreign)
a. MI + Canada v. CO + Canada = OK
b. MI + Canada v. Canada = NOT OK
iv. A foreign state as plaintiff and citizens of a state or of different states
1. Foreign State v. US Citizen
c. Subject Matter Jurisdiction is Based on Citizenship
i. Individual (citizen + domiciled)—an individual’s domicile is determined by the
place of a person’s true, fixed, and permanent home and principal establishment
and to which he has the intention of returning (see Mas v. Perry).
1. Residence does not equal domicile
2. A domicile can be changed by the person
a. Physically moving, and
b. Intending to stay there indefinitely (to make the state one’s new
home)
i. Does NOT require proof of intent to remain permanently
ii. “Vague possibility” of eventually going elsewhere does
not defeat finding of domicile in new state of residence
ii. Corporation—a corporation’s citizenship is determined by…
1. State of Incorporation, AND
a. A corporation can have more than one state of incorporation
2. Principal Place of Business
a. A corporation can only have one principal place of business
b. NOTE—corporations can have dual citizenship
c. Principal Place of Business is determined by…
i. Nerve Center Test—look to where executive and
administrative functions are controlled; the corporation’s
operating headquarters.
3. How is the citizenship of partnerships or unincorporated associations
determined?
a. Based on the citizenship of each partner
b. Considered citizens of every state in which one or more partners
is a citizen
c. Courts must consider citizenship of all partners, whether general
or limited.
iii. Aliens
1. 1988 Amendment—for purposes of §1332(a), an alien admitted to the
US for permanent residence is deemed a citizen of the state in which the
alien is domiciled.
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1. Are the claims so related that they form part of the same case or
controversy? Do they arise from the same transaction or occurrence?
2. If no, THEN NO supplemental jurisdiction
3. If yes, proceed to 1367(b)
g. Step Two: 28 U.S.C. §1367(b)
i. Courts have original jurisdiction over claims that are based on diversity
jurisdiction, so you must look at 1367(b) when the original claim gets its ticket
through diversity jurisdiction.
1. If you claim is based on federal question jurisdiction, you don’t even
have to look at this step
ii. If the claim is seeking to be joined by a defendant, the claim will be allowed
iii. Four Steps you must look at to determine if the claim will be allowed “DPJD”
1. Is the first claim (anchor claim) based on diversity jurisdiction?
2. Is the claim that you are seeking to join being filed by a plaintiff?
3. Is the claim seeking to be joined by Rule 14 or Rule 20?
a. Against a party joined
i. If the claim is being joined against (i.e. across the “v”)
parties joined, the claim won’t be allowed
ii. If the claim is joined by parties joined, then it will be
allowed (and ignore amount in controversy requirement)
4. Does the claim destroy diversity jurisdiction?
iv. If the claim is not excluded by 1367(b), then it will be allowed
h. Step Three: 28 U.S.C. §1367(c)
i. Even if the proposed supplemental claim passes the tests laid out in 1367(a) and
(b), the Federal Court may still decline to exercise jurisdiction where…
1. The supplemental claim raises novel or complex issues of state law
2. The supplemental claim substantially predominates over the federal
claim
3. The court has dismissed all federal claims, OR
4. For other compelling reasons
NOTE—Anchor Claim (claim with a ticket); Orphan Claim (claim without a ticket)
4. Removal Jurisdiction (28 U.S.C. §1441(a))
a. Removal can only be from state to Federal Court. Can’t remove from Federal to state
court.
i. Only original defendants can remove
ii. All defendants must agree to the removal
iii. Any civil action brought in state court over which the federal courts have original
jurisdiction may be removed to Federal Court by the defendant, only to the
Federal District Court and division of that district where the state action is
pending
iv. Exception: The Home State Defendant Rule
1. If the lawsuit is filed in the home state of the defendant, the defendant
cannot remove (cannot agree to remove with other defendants).
a. Only applies to Diversity Jurisdiction
b. Does not apply to Federal Question Jurisdiction
v. Exception: The One Year Rule
1. If one defendant who defeats diversity jurisdiction settles with the
plaintiff and is gone from the case, the other defendant has one year to
remove the case to Federal Court (from the time of filing, or however
much time is left)
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VENUE
Venue brings you to the courthouse steps
Can be waived and can consent
Venue is purely statutory
The touchstone for venue is convenience for the parties and the court
1. 28 U.S.C. 1391 provides for two general alternatives and a “fall back” provision and
provides that venue lies;
a. Where any defendant resides, if all defendants reside in the same state; or
i. This test can be used whether there is one defendant, or more than one defendant
b. Where a substantial part of the events or omissions occurred, or a substantial part
of property is located
i. Always apply BOTH of these tests on the exam.
ii. If you can establish venue under one of these two tests, you should still mention
the fall back provision but you don’t have to go through the analysis.
c. “Fall Back” Provision
i. In diversity cases, its wherever you can establish PJ over the defendant at the
time the lawsuit is commenced.
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ii. In other cases, the plaintiff may sue in any judicial district where any of the
defendants reside
1. Only go to the fall back provision if you can’t establish venue under one
of the two tests.
2. Only use this alternative if no venue anywhere in the country
a. Ex. Action took place in international waters and both
defendants are not from the same state.
3. Transfer Provisions
a. 28 U.S.C. 1404—For the convenience of the parties and witnesses, in the interest of
justice, a district court may transfer any civil action to any other district or division where
it might have been brought
i. Plaintiffs AND defendants can transfer
ii. If there is a transfer like this, the law runs with the case
1. Ex. If the suit is filed in Mississippi, and then transferred to
Pennsylvania, Mississippi law will apply in the Pennsylvania court
b. 28 U.S.C. 1406—A district court in which a case of improper venue filed may dismiss
the case or, if it be in the interest of justice, transfer the case to ANY district in which it
could have been brought.
c. 28 U.S.C. 1631—Provides that when venue is proper but jurisdiction is lacking, a court
without jurisdiction can transfer the case to any other court in which the action could
have been brought at the time it was originally filed
i. Can also do “in the interests of justice”
ii. Date of filing is retroactive to date of filing in original court
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_____________________________________________________________________________________
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_____________________________________________________________________________________
PLEADINGS
1. The Complaint
a. Requirements (FRCP 8)
i. Statement of Subject Matter Jurisdiction
1. Short, plain statement providing grounds for court’s jurisdiction
ii. Statement of the Claim
1. Short, plaint statement of claim showing pleader entitled to relief
a. Detailed factual allegations are not required, but the Rule does
call for sufficient factual matter, accepted as true, to “state a
claim to relief that is plausible on its face.”
iii. Demand for Judgment
1. Relief the pleader seeks (usually money)
b. Special Pleading Requirements (FRCP 9)
i. In all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity
1. Ensures that the defendant has fair notice of the claim
2. Helps safeguard the defendant against spurious accusations
2. Defendant’s Respons e
a. Pre-Answer Motion to Dismiss
i. Defendant has 21 days to do this
1. Motion for More Definite Statement
2. Motion for Judgment on the Pleadings
3. Motion to Strike
b. Answer
i. The defendant must respond to all of the numbered paragraphs in the complaint
ii. He can do these things;
1. Admit the allegation
2. Deny the allegation
3. Say that you don’t have enough information to form a belief as to the
truth (this will be deemed a denial)
4. The defendant can also make an affirmative defense
a. Affirmative defenses must be pled in a party’s first responsive
pleading, or else are waived
b. An affirmative defense is an assertion by the defendant, that if
true, defeats the plaintiff’s claim
c. The defendant has the burden of proving an affirmative defense
i. Examples: accord and satisfaction, assumption of risk,
duress, fraud, illegality, res judicata, statute of frauds,
statute of limitations, waiver, release…
c. Rule 12 Defenses
i. Under Rule 12(b), all legal and factual defenses must be asserted in first
responsive pleading (Answer, unless amended under Rule 15). However, seven
defenses may alternatively be made by motion
1. Lack of SMJ
2. Lack of PJ
3. Improper Venue
4. Insufficiency of Process
a. Something is wrong with the paperwork
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9. Rule 11
a. Substance of Rule
i. This rule is basically designed to protect against frivolous lawsuits.
ii. Applies to both parties and lawyers
iii. The rule usually only applies to written documents
1. However, there are times when it can apply to verbal statements
a. Ex. A lawyer submits a claim, but after it is submitted he finds
evidence contrary to what the claim stated. If he still argues that
point, knowing that it is false, he can be subject to Rule 11
sanctions
iv. The standard is not what the lawyer actually believed that mattered, but what he
should have believed as a competent attorney after performing a reasonable
inquiry
b. Procedural Requirements
i. Signature—Every pleading must be signed by the attorney, or if the party is not
represented by an attorney, must be signed by the party
ii. Representations to the Court—By presenting a pleading to the court, the attorney
or party is certifying that;
1. The suit is not being filed for any improper purpose
2. The claims asserted are supported by law, or there are reasonable
grounds to establish new law
3. There is evidence to support the claim
4. Denials have evidentiary support or there is a lack of information to
make a proper defense
iii. Sanctions
1. Currently it is not mandatory that sanctions be given
2. A party against whom a Rule 11 motion is made has a 21 day “safe
harbor” period in which he can withdraw or modify the pleading in order
to avoid the sanction
3. Normally, if sanctions are given, they will be for attorney’s fees
10. Joinder
a. Joinder of Claims by Plaintiff (FRCP 18) aka Permissive Joinder
i. Plaintiff can join any and all claims against a defendant
ii. Claims DON’T have to be related
iii. There is no Compulsory Joinder
iv. The claims must satisfy;
1. PJ
2. SMJ
3. Venue
v. This rule allows joining 2 claims even when 1 must be decided before the other
b. Counterclaims (FRCP 13) aka Joinder by Defendant
i. This kind of claim goes back “across the v”
ii. There are 2 types of counterclaims;
1. Compulsory (Rule 13(a))
a. Arises from the same transaction or occurrence that gave rise to
the plaintiff’s complaint (has an automatic ticket to defend
against the claim – P consents to PJ)
i. Must be asserted or it is waived (use it or lose it!)
ii. Must satisfy PJ and SMJ, but NOT Venue
iii. SMJ is present because SCNOOF
1. Exceptions
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a. Immature Claims
b. Lawsuits pending in another court
2. Permissive (Rule 13(b))
a. Does not arise from the same transaction or occurrence that gave
rise to the plaintiff’s complaint, or fall into one of the exceptions
noted in Rule 13(a).
i. Defendant can bring in same lawsuit or in a separate
action
ii. Must satisfy PJ and SMJ; There is a split of authority on
the need to satisfy Venue
1. Defendant would have to have either a federal
question or diversity jurisdiction in order to
satisfy SMJ
b. Federal Courts have supplemental jurisdiction over compulsory
counterclaims, but permissive counterclaims require their own
jurisdictional basis
c. Cross Claims (FRCP 13)
i. A claim that is filed against a party who is on the same side of the V
1. Ex. Plaintiff sues 2 defendants and then one of the defendants sues the
other
ii. Claim is against a co-party
iii. Unlike compulsory counterclaims, cross claims are always permissive
iv. There is no such thing as a compulsory cross-claim
1. Must arise out of the same transaction or occurrence as original action
2. Can be brought only if at least one cross claim defendant is already a
party to the action
3. Must meet requirements of SMJ and PJ, but NOT Venue
d. Limitations Under 28 U.S.C. 1367(b)
i. Courts have jurisdiction over claims that are based on diversity jurisdiction, but
not over claims by plaintiffs against persons made parties under Rule 14 or 20
e. Joinder of Parties
i. By Plaintiff (FRCP 20)
1. Two requirements;
a. Persons joined must have claims that arise out of the same
transaction or occurrence, or series of transactions or
occurrences; AND
b. All parties joined must have at least 1 question of law or fact in
common
ii. Limitations Under 28 U.S.C. 1367(b)
1. Courts don’t have supplemental jurisdiction over claims by plaintiffs
against persons made parties under Rule 20
f. Third Party Joinder (FRCP 14)
i. Defendant is seeking “indemnification”
ii. A party who seeks to join another defendant to the lawsuit is called a “3rd party
plaintiff” (Impleader)
iii. Person joined is called a “3rd party defendant”
iv. Someone is asserting a claim against someone NOT already a party to the suit
v. Defendant must draft a 3rd party complaint and serve the 3rd party with process to
bring into the suit
1. Defendant (3rd party plaintiff) isn’t saying, “It’s him, not me,” but rather,
“if me, then he owes me.”
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1. 28 U.S.C. §1367
a. Step One: 28 U.S.C. §1367(a) “SCNOOF”
i. Does the jurisdictionally insufficient claim arise out of the same common
nucleus of operative fact?
1. Are the claims so related that they form part of the same case or
controversy? Do they arise from the same transaction or occurrence?
2. If no, THEN NO supplemental jurisdiction
3. If yes, proceed to 1367(b)
b. Step Two: 28 U.S.C. §1367(b)
i. Courts have original jurisdiction over claims that are based on diversity
jurisdiction, so you must look at 1367(b) when the original claim gets its ticket
through diversity jurisdiction.
1. If you claim is based on federal question jurisdiction, you don’t even
have to look at this step
ii. If the claim is seeking to be joined by a defendant, the claim will be allowed
iii. Four Steps you must look at to determine if the claim will be allowed “DPJD”
1. Is the first claim (anchor claim) based on diversity jurisdiction?
2. Is the claim that you are seeking to join being filed by a plaintiff?
3. Is the claim being brought against parties joined under FRCP 14, 19,
20, 24?
a. Against a party joined
i. If the claim is being joined against (i.e. across the “v”)
parties joined, the claim won’t be allowed
ii. If the claim is joined by parties joined, then it will be
allowed (and ignore amount in controversy requirement)
4. Does the claim destroy diversity jurisdiction?
iv. If the claim is not excluded by 1367(b), then it will be allowed
c. Step Three: 28 U.S.C. §1367(c)
i. Even if the proposed supplemental claim passes the tests laid out in 1367(a) and
(b), the Federal Court may still decline to exercise jurisdiction where…
1. The supplemental claim raises novel or complex issues of state law
2. The supplemental claim substantially predominates over the federal
claim
3. The court has dismissed all federal claims, OR
4. For other compelling reasons
JOINDER
11. Joinder of Claims by Plaintiff (FRCP 18—Permissive Joinder)
a. Plaintiff can join any and all claims against a defendant, even if the claims are unrelated.
b. FRCP 18 is permissive; you don’t HAVE to bring the claims (there is no Compulsory
Joinder)
c. The claims must satisfy;
i. PJ, SMJ, and Venue
d. This rule allows joining 2 claims even when 1 must be decided before the other
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b. Once these rules are met, you must find PJ, SMJ, and Venue
16. Third Party Joinder (FRCP 14—Impleader)
a. Defendant is seeking “indemnification” or “contribution”
b. Claim must be “derivative” and has to arise out of the same nucleus of facts (SCNOOF)
c. FRCP 14 is always permissive
d. Person seeking to join another defendant is called a “3rd party plaintiff” (Impleader)
e. Person joined is called a “3rd party defendant”
f. Someone is asserting a claim against someone NOT already a party to the suit
g. Defendant must draft a 3rd party complaint and serve the 3rd party with process to bring
into the suit
i. Defendant (3rd party plaintiff) isn’t saying, “It’s him, not me,” but rather, “if me,
then he owes me.”
h. Must satisfy PJ and SMJ, but NOT Venue
i. Once in the case…
i. 3rd party defendant can file claims against defendant
ii. 3rd party defendant can file claims against plaintiff
1. Any defense that the 3rd party plaintiff (original defendant) has to
Plaintiff’s claims.
2. Any claim arising out of the same transaction or occurrence as
Plaintiff’s original claims in the action.
iii. Plaintiff can file claims against the 3rd party that arise out of the same transaction
or occurrence.
17. When facing a Joinder problem on the EXAM, go through the two-step analysis
a. Step One—are the joinder rules satisfied?
b. Step Two—is there PJ, SMJ, (and sometimes Venue)?
i. If SMJ is only met through Supplemental Jurisdiction, do 1367 analysis
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i. Venue rules apply to class actions in same way that they apply in conventional
litigation, EXCEPT:
1. Where venue is based on residence, and case involves defendant class,
only residence of class reps are examined, not residence of entire class
o. Class Actions Must Satisfy SMJ:
i. Diversity Jurisdiction:
1. Looks only at citizenship of class reps, which must be diverse from
opposing party
a. EXXON: As long as one named plaintiff satisfies the amount in
controversy, court can use supplemental jurisdiction to hear
claims of other plaintiff class members that do not satisfy the
amount in controversy
ii. Federal Question Jurisdiction
1. Normal application
p. Class Action Fairness Act (2005) (CAFA)
i. Federal Court has SMJ over class actions involving state law claims where
1. There are 100 or more class members
2. The aggregate amount in controversy is in excess of $5 Million, AND
3. There is “minimal” diversity (ex. at least 1 defendant and 1 plaintiff
class member are diverse from each other)
q. Class Action Requirements for Settlement
i. Requirements for Rule 23(a) must still be met when the goal is settlement
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DISCOVERY
1. Provides parties with the opportunity to discover facts and evidence that support and / or detract
from claims and defenses asserted in the lawsuit
2. Discovery period usually lasts 3 months to 1 year (but can be extended)
3. Rule 16(b): Scheduling Order
a. Includes dates and deadlines for:
i. Litigation, including deadlines for amending pleadings
ii. Adding parties
iii. Completion of discovery, and
iv. Filing motions
b. Must be entered as soon as practicable, but no later than 90 days after appearance of
defendant and within 120 days of service of Complaint
4. Rule 26(b): Scope of Discovery
a. Parties can obtain discovery regarding any non-privileged matter that is relevant to the
claim or defense of any party
i. “Relevant” means having any tendency to make the existence of any fact that is
of consequence to the determination of the action more or less probable, see FRE
401.
ii. To be relevant, information need not be admissible at trial, but must be
reasonably calculated to lead to the discovery of admissible evidence
5. Privilege
a. Parties cannot discover information that is protected by a privilege
b. For policy reasons, protection applies even if information sought is relevant to the
litigation
c. Common Privileges:
i. Attorney – Client
ii. Physician – Patient
iii. 5th Amendment
iv. Accountant – Client
v. Clergy – Counseled
d. General Requirements for Privilege:
i. Communication must have been made with an expectation of confidentiality
ii. Confidentiality has not been waived by disclosure to persons outside of the
relationship
e. Privileges can be Waived:
i. Only by the holder of the privilege (or his agent)
ii. By disclosure to 3rd parties
6. Rule 26(b)(2)(C): Limitation
a. Use of discovery methods can be limited by the court if:
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ii. These only deal with specific facts from the case (not the law)
iii. These are binding (but only in that particular suit)
iv. These are only applicable to parties!!!
v. Person being asked to admit has 4 options:
1. Admit
2. Deny
3. Give reasons why can’t admit or deny
4. Object
a. If you fail to timely respond, that will constitute an admission
8. Common Objections
a. Overbroad
b. Vague and ambiguous
c. Overly burdensome and oppressive
d. Privileged information
e. Attorney work product
f. “Neither relevant nor reasonably calculated to lead to the discovery of admissible
evidence”
9. Spoliation
a. The destruction or material alteration of evidence OR the failure to preserve property for
another’s use as evidence
b. Duty to prevent spoliation begins the moment litigation is foreseeable
c. Even if a party doesn’t have control over the evidence, they still have an obligation to
give the opposing party notice of evidence
d. Courts have discretion in choosing sanctions for spoliation
e. In determining a sanction, a court must look at:
i. Level of culpable conduct
ii. Degree of prejudice to the other party
iii. Any other appropriate circumstances necessary to level the evidentiary field and
deter future like conduct
f. Enforcement Mechanisms
i. Rule 37
ii. Rule 26(g)
10. Work Product Doctrine
a. Rule 26(b)(3): Trial preparation and work product materials are protected from discovery
and need not be produced except when the information contained in such materials is not
reasonably available from any other source
i. Doctrine only applies to parties and their agents
ii. Only applies to written materials
iii. This is a qualified protection
1. Under the right circumstances, this information might be discoverable
iv. To avoid application of the doctrine, a party must show
1. That there is no reasonable alternative source for the same or
substantially equivalent information
AND
2. That the party has a substantial need for the information
v. Exceptions
1. Attorney’s mental impressions and legal evaluations
2. Party and witness statements are discoverable by the person making the
statement
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1. Summary Judgment (Rule 56)—Provides for dismissal with prejudice of claim or defense that
is factually unsupportable prior to trial of case
a. Summary Judgment is Granted When:
i. After an adequate period for discovery
ii. The non-moving party is unable to show that a genuine issue exists as to any
material fact, and
iii. As a result, the moving party is entitled to judgment as a matter of law
b. Burdens of Proof
i. Burden of Persuasion
1. The ultimate burden of proving claim or defense by a preponderance of
the evidence
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2. Jury Trials
a. 7th Amendment preserves right to jury trial in all civil matters where jury trial was
historically permitted (can be expanded by an act of Congress, but cannot be
diminished).
i. Does not apply to the states.
b. Jury trials are permitted for actions at law, not equitable actions
c. Rule of Thumb
i. Actions at law seek money damages (jury trial—substitutionary remedy) and
equitable actions ask the court to do or not to do something (judge trial—specific
relief)
1. Exceptions—replevin and ejectment each get jury trials.
d. Trial Process
i. Rule 38—must make timely jury demand, or right to jury trial is waived
ii. Impaneling of Jury
1. Voir Dire
a. Judge looks to see if any juror might be biased
2. Challenges for Cause
a. Challenging the ability of a juror to provide fair services
b. These are unlimited
3. Peremptory Challenges
a. Allow a lawyer to strike a juror without stating a reason
b. A judge can only excuse a juror for good cause
iii. Opening Statements
iv. Plaintiff’s Case
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APPEALS
1. Appeal is available only from an adverse judgment – i.e., the judgment appealed from must have
caused actual harm to the litigant (30 days to file appeal)
2. Can’t appeal from judgments that are moot (where circumstances have changes in such a way that
relief is no longer possible).
3. Doctrine of Waiver—a litigant must raise the issue to be appealed from in the trial court, or the
right to appeal that issue will be waived.
a. Exceptions—Change in the law; plain-error rule
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4. 28 USC § 1291—appeals as of right can be taken from “final decisions” of the district courts
a. Final Decision—a judicial order that both conclusively resolves some important aspect
of a case and, under most circumstances, results in the termination of the litigation.
b. The “Final Judgment” Rule—litigants must wait until a final judgment in the trial court
before they can appeal decisions that they believe were erroneous and adversely affected
the outcome of the case.
5. Rule 54(b) – Allows for “piece-meal” final judgments
a. When there is more than one claim, trial court can direct final judgment as to one or
more, but fewer than all, the claims upon making an express determination that there is
no just reason for delay and upon an express direction for the entry of final judgment.
6. Exception to Final Judgment Rule
a. Collateral Order Doctrine—a decision is appealable under 28 USC § 1291 if it…
i. Is conclusive of the issue presented;
ii. Resolves important questions completely separate from the merits; and
iii. Is “effectively unreviewable” on appeal from final judgment because the party’s
rights cannot be “adequately vindicated” if the decision is not immediately
appealable.
7. Interlocutory Order—one that is not final, does not dispose of the litigation
a. Example—discovery orders, orders denying SJ, evidentiary rulings
b. 28 USC § 1292(a)—interlocutory orders concerning injunctions, receivership (court
appoints someone to run company), or admiralty are immediately appealable “as of
right.”
c. 28 USC § 1292(b)—a district court can certify an interlocutory order for appeal when it
determines that…
i. The order involves controlling questions of law as to which there is substantial
ground for difference of opinion; AND
ii. Immediate appeal from the order may materially advance the ultimate
termination of the litigation.
iii. Once certified, the appellate may or may not take the appeal, at its discretion. It
must then apply and be accepted for review by the court of appeals.
8. Mandamus—petition for writ of mandamus is filed with the appellate court and seeks an order
requiring the district court judge to do or refrain from doing something
a. Petition must allege that judge has either abused his discretion or refused to do his duty
b. Mandamus is to be invoked only in extraordinary circumstances
9. Standards of Review
a. De Novo Standard (questions of law)
i. Least deferential standard – trial court decision is accorded no deference.
ii. Appellate court applies its own independent judgment in determining the
meaning and content of the law.
b. Abuse of Discretion Standard (discretionary decisions by district court)
i. Applies to issues where exercise of trial court judgment is premised on precise
contours of pending case.
ii. District court will not be reversed unless it has made an error of law or clear error
of judgment
c. Clearly Erroneous Standard (findings of fact by the judge)
i. Finding is “clearly erroneous” when the reviewing court on the entire evidence is
left with the definite and firm conviction that a mistake has been made.
ii. Where there are two permissible views of the evidence, the fact-finder’s choice
between them cannot be clearly erroneous.
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d. Substantial Evidence Standard (findings of fact by the jury) Most deferential standard
i. Factual determinations must be upheld unless no rational juror could have so
determined
ii. Evidence must be viewed in a light most favorable to the jury’s findings.
e. Harmless Error Rule
i. Appellate court may not reverse unless error upon which reversal is based
materially contributed to the adverse part of the judgment from which the
appellant is appealing.
ii. 28 USC § 2111—federal courts are forbidden to reverse for errors or defects that
do not affect the substantial rights of the parties.
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Although the Constitution does not expressly so provide, appellate jurisdiction includes the power to hear
appeals regarding the constitutionality of:
1. Acts of Branches of Federal Government (Legislative and Executive)
2. State Statutes
3. Judgments of State Courts: including…
a. Civil Cases (see Martin v. Hunter’s Lessee)
b. Criminal Cases (see Cohens v. Virginia)
4. Review Actions of State Officials (see Cooper v. Aaron)
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i. Substantively Realizable Rule: rule takes into account subjectively that facts and
circumstances of each individual case
1. Substantively Realizable Application For the Constitution: a formalized
rule would limit the enumerated powers as code, not ends. Allows for
implied powers as means.
2. Sacrifices Efficiency, difficult to understand and apply.
ii. Formally Realizable Rule: easy “bright-line” rule to understand and administer
1. Sacrifices Due Process, the fairness of the application of justice
2. Ex. Political Question Rule
2. CONGRESSIONAL REGULATION: Under the “exceptions and regulations” of Article III,
Congress may limit the Supreme Court’s appellate jurisdiction (see McCardle).
a. Limitations to Congressional Regulation:
i. Congress may eliminate certain avenues for the federal judicial review, but not
all—since this would destroy the Court’s essential role in the constitutional plan.
ii. Although Congress may eliminate the Court’s review of certain cases within the
federal judicial power, it must permit jurisdiction to remain in some lower
federal court.
iii. If Congress were to deny all Supreme Court review of an alleged violation of
constitutional rights—or go even further and deny a hearing before any federal
judge on such a claim—this would violate due process of law.
3. JUSTICIABILITY: Article III, “case or controversy” requirement must be satisfied. Certain cases
of which the court cannot, or should not hear.
a. Political Questions: if a case presents a “political question” rather than a justiciable
controversy, the Court will not decide the question (on the basis of separation of powers).
Final determination of such questions is left to the political branches “Formal
Realizable Rule” rule, easy to understand and administer.
i. Criteria Determination (see Baker v. Carr)
1. Textually, OR
a. A “textually demonstrable” constitutional commitment of the
issue to the political branches (see Nixon v. United States);
i. Interpretation of Constitution’s text to find such
commitment.
2. Prudential
a. Lack of any manageable standards for judicial resolution;
i. But, just because there are no manageable standards in a
particular case, does not mean that a standard might
emerge at a later date (see Vieth v. Jubelirer)
ii. Courts have created standards in Due Process cases.
b. Need for finality in the action of the political branches;
c. Respect the decisions of coordinate political branches;
d. Need to avoid embarrassment through differing announcements
(foreign affairs and diplomatic concerns);
e. Difficulty or impossibility of devising effective judicial remedies
ii. Examples of Political Questions:
1. Impeachment: Article I, Section 3, Clause 6: the “Senate shall have the
sole power to try all impeachments” (see Nixon v. United States)
b. Advisory Opinions: the Court will not render an advisory opinion to Congress or the
President on the constitutionality of some contemplated action or legislation because such
an opinion does not involve a “case or controversy.”
i. State Courts: may issue advisory opinions, depends on law of the state.
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c. Standing: The doctrine of standing concerns both the “case and controversy”
requirement of Article III and “prudential principles of judicial self-restraint.” The
second concern, which is a judicially self-imposed “policy limitation,” is “not always
clearly distinguished from the constitutional limitation.”
i. Constitutional Standing Requirements: minimum for Article III “Case or
Controversy”. These elements are REQUIRED
1. (Judicially Cognizable) Injury: has or will be (imminently) directly
and personally injured by the allegedly unlawful government action; the
injury need not be economic. The injury must be “distinct and
palpable,” (concrete/definite/discrete) not stigmatic
“abstract/conjectural/hypothetical.”
a. Economic Injuries: measured/quantified in terms of money.
b. Non-Economic Injuries: Mental suffering, etc. if they are proven
with sufficient specificity.
c. Constitutional Violations (Equal Protection Clause): Injury is the
failure to be accorded equal treatment under the law.
d. Congress Can Create Categorical Injuries by Statute: see Lujan
case on p.1568.
e. Violations to Common Law Rights: injuries to rights in tort,
contract, property (negligence can suffice for injury).
f. Chance or Opportunity: see Regents of the University of
California v. Bakke, injury caused from the deprivation, on
grounds of race, of the chance to compete for every place in the
entering class.
2. Causation: causal connection between the injury and the alleged conduct
complained of. The injury must be “fairly” traceable to the challenged
action. (Pragmatic, but-for)
3. Redressability: a decision in P’s favor must be capable of eliminating
the grievance. Relief must be “likely to follow” from favorable decision,
in whole or in part.
ii. Prudential Standing Elements: some degree of discretion
1. No Third-Party Standing: only the injured person is permitted to claim
a violation of constitutional (statutory) right. (General Rule)
a. EXCEPTIONS
i. Close Relationship W/Third Party Unlikely to Sue:
1. Where Litigant Must Have Suffered an ‘Injury
in Fact’: thus giving a “sufficiently concrete
interest” in the outcome of the issue in dispute is
analogous.
2. Close Relationship with Third Party: where
there exists some relation. Ex. Abortion doctor
sues restrictions, claim of injury is decrease in
income; doctor may also sue on behalf of
patients.
3. Third Party Unlikely to Sue: a claimant may
assert rights of third party where it is difficult or
impossible to vindicate his own rights.
ii. Associations: association, as well as one or more
members. NAACP v. Alabama (1957), case involving
the asking of the membership list. The association can
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d. Mootness: a matter is moot if further legal proceedings with regard to it can have no
effect, or events have placed it beyond the reach of the law (examples: settlement, change
in the law that resolves the issue, death of a party).
i. EXCEPTIONS (the 4 C’s)
1. Voluntary Cessation: where D is acting wrongfully, but ceases to engage
in such conduct once litigation has been threatened or commenced (only
moot if action can NEVER occur again). No reasonable likelihood that
the offending conduct will be repeated of restarted D bears burden
(see Grant for standard)
a. Example: Pollution
2. Capable of Repetition, Yet Evading Review: the person will frequently
be faced with a particular situation, but will likely cease to be in that
position when the court can provide a remedy for them in the time that it
takes for the justice system to address situation
a. Example: Pregnancy (see Roe v. Wade)
b. Capable of repetition is a factual decision
3. Class Action Representatives: a case will not become moot even if the
named plaintiff ceases to belong to the class that is seeking a remedy.
4. Collateral Injury: some injuries last after the wrong has ended
a. Example: a criminal conviction continues after release
e. Ripeness: a claim is not ripe for adjudication if it rests upon contingent future
events/injury that may not occur as anticipated, or indeed may not occur at all.
i. Criteria to seek pre-enforcement review of a (often criminal) law
1. Hardship to the parties of withholding court consideration, and
a. Article III Issue
i. More hardship = more likely to review
ii. Certain enforcement = sufficient hardship
iii. History of non-enforcement > statement of intent to
enforce
2. The fitness of the issues for judicial decision (Suitability)
a. Legal Issues—More likely to be Ripe (will hear)
i. Example: Is this a category of protected speech
(obscene)?
b. Factual Issues—More likely NOT to be Ripe (will not hear)
i. Example: Have the elements (like Actus Reus and Mens
Rea) been met.
f. Prerequisites Before Federal Court (Supreme Court) Will Review State Decisions
i. Final Decision: until decision in final, no federal review
1. General Rule: it disposes of ALL parties and ALL issues in the state
court
a. Exceptions (not addressed in this class)
ii. Issue of Federal Law: will not review state decisions that only involve issues of
state law. The final arbiter of state law in the state supreme court
1. Exceptions: Bush v. Gore?
iii. Federal Issue Must Have Been Preserved: the federal issue must have been
raised in the state court and preserved on the record. Cannot raise a federal law
issue for the first time on certiorari review.
iv. Court will not review state law decision that rests upon ADEQUATE and
INDEPENDENT State law grounds:
1. Adequate: state law adequate to resolve a suit if nothing that might
happen on federal court review will change the outcome (no matter what
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the Supreme Court does, the decision cannot change the outcome of the
case).
2. Independent: meaning of state law does not depend on some analogous
federal law.
a. Example: State construes due process to have more protection
than federal due process.
3. Presumption is State law is not adequate or independent (see Michigan v.
Long).
g. Federal Abstention: Two Circumstances Where Federal Courts Will Abstain from
Exercising Jurisdiction (DISCRETIONARY DOCTRINES)
i. Pullman Abstention: federal courts abstain from exercising jurisdiction where
resolution of a constitutional issue turns on an unsettled question of state law.
(Inverse of adequate and independent state law grounds)
1. In Pullman, the Court abstained because no Texas appellate court had
passed upon the legality of the regulation under Texas law. (Let state
courts have the first crack at this issue court not sure if there are
adequate and independent state law grounds).
a. Particularly CRIMINAL LAW questions
ii. Younger Abstention: federal courts abstain from issuing declaratory injunctive
relief in regard to pending state court proceedings.
1. Federalism dictates that federal law accord due respect to the states and
their laws and proceedings. Violation of federalism principles if court
issued injunction. Raise the federal claims during state proceedings, and
appeal to the federal courts on certiorari.
2. Extraordinary Hardships (not just possible jail time) for federal courts to
intervene (one will lose federal protected right unless the federal court
intervenes right NOW).
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has done, President must have troops sent back home in 60 days (90 days if necessary for
safety issues).
i. President’s Response: “I’m the Commander in Chief, and Congress cannot limit
that power.”
4. HOW DO WE LIMIT PRESIDENTIAL POWER?
a. Formalist Interpretation of Executive Power: Presidential power, if any, to issue the
order must stem from either the constitution itself or by act/statute passed by Congress
authorizing power to president.
i. In Youngstown, the constitution limits executive functions in the lawmaking
process to the recommending of laws he thinks wise and the vetoing of laws he
thinks are bad.
b. Functional Interpretation (Purely Domestic Matters): generally rule, the starting and
ending point of analysis when purely domestic matters are involved. If foreign affairs,
look beyond Youngstown.
i. Jackson’s Concurrence in Youngstown, President acting with or without approval
of Congress (CONTROLLING FOR PURPOSES OF EXAM)
1. The Youngstown Categorical Approach (Three Part Approach)
a. Did President acted with the express or implied approval of
Congress?
i. If yes, presidential power is at its maximum = strong
presumption of constitutionality.
ii. The only way it is unconstitutional, if we conclude that
what the president did was outside the realm of federal
power all together.
b. President acted in the face of Congressional silence, i.e. the
“zone of twilight.”
i. Constitutionality dependent on fact and circumstance
(had Congress acquiesced to the presidential action)
1. Look to: what kinds of laws or action has
Congress taken in the past when the President
has done this or something like this
c. President acts in a way that is contradictive to the express of
implied will of Congress (i.e. does opposite of what Congress
said he could do).
i. President’s authority is at its absolute minimum.
ii. Only way it is constitutional…
1. President had authority to do this on his own,
AND
2. Congress has NO authority over the matter
whatsoever (an area in which the president
acting alone has the authority to act)
c. Foreign Affairs: the President alone has the power to speak or listen as a representative
of the nation. He makes treaties with the advice and consent of the Senate.
i. Curtiss-Wright Approach: the power to make decision regarding international
affairs was vested in the President, especially in areas that could lead to
embarrassment of, or security issues for the nation. President is the “sole organ
of the nation in its external relations, and its sole representative with foreign
nations.”
1. Executive dealing with international relations is not necessarily
constrained by the constitution. Why? Powers inherent in a national
sovereign.
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DORMANT COMMERCE CLAUSE DOCTRINE (also known as the Negative Commerce Clause):
Key issue is state discrimination against interstate commerce. EXAM PURPOSES: Answer starts
with: This question raises an issue under the dormant commerce clause doctrine (judicial creation,
stemming from the commerce power). Under DCCD, the dominant inquiry is state discrimination against
interstate commerce.
1. Historically: distinguish categorical approaches [do NOT need to know for exam purposes]
a. Commerce v. Police Power (not formally realizable)
b. Local v. National Concern (need for nationally uniform rule belongs to Congress)
c. Direct v. Indirect Regulation of Commerce (Congress cannot regulate indirect)
2. Present Functional Analysis: Does the State discriminate against interstate commerce?
a. YES, State regulations (1) facially or (2) purposely (motivations) or effectually
discriminate. Burden on Challenger to show discrimination, if there is discrimination, the
burden shifts to the State to show validity. Regulations that purposely or facially
discriminate are virtually per se illegal.
i. Strict Scrutiny: State burden to overcome presumption of invalidity:
1. Does State law serve a legitimate (compelling?) government interest?
a. What Is Legitimate? Saving lives, protecting children from
obscenity, etc. (more specific claims than just health, safety, and
welfare concerns)
i. Economic Protectionism is never a legitimate interest
2. Can that interest be accomplished by a less discriminatory alternative
that adequately protects the state’s interest?
a. This is practically where the analysis fails for the State.
ii. ASIDE: Reciprocal Laws are facially discriminatory; however…
1. Direct subsidization of domestic industry is allowable
a. Unless net-effect is a tariff on out-of-staters.
2. Tax-credit is not allowable.
a. Economically have the same effect of subsidy
b. NO, State regulation only incidentally restricts interstate commerce (Example: like the
regulation of containers in which an item of commerce can be marketed, regardless of
where it is produced)
i. Pike Balancing Test: do the state benefits outweigh the burdens on interstate
commerce?
1. Burden does NOT shift to State; it stays with the Challenger.
a. Is the restriction motivated by a legitimate government interest?
i. Economic Protectionism is never a legitimate
government interest
ii. Challenger must negate any legitimate state interest
b. If the burden on interstate commerce is clearly excessive in
relation to the local benefit of the law…
i. Burden still Challenger to show that it is excessive.
2. WILL MOST LIKELY SURVIVE SCRUTINY
a. Somewhat nebulous test; Scalia, J., “it’s like judging whether a
line is longer than a rock is heavy.”
3. EXCEPTIONS to Dormant Commerce Clause Doctrine
a. Congressional Authorization: if Congress gives States permission to discriminate
against interstate commerce, then States can discriminate against interstate commerce
(see Prudential)
i. May have to figure out whether Congress has the authority to make that federal
law under the Commerce Clause, i.e. go through the standard commerce clause
analysis…
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PRIVILEGES AND IMMUNITIES OF STATE CITIZENSHIP: Art. IV, §2, ch.1: no state can deprive
any citizen of another state of the privileges and immunities of citizenship in that state (i.e. it bars
Michigan from discriminating against persons from another state, solely because they are a citizen of
another state, and depriving them privileges and immunities attached to Michigan State citizenship;
generally, Michigan must extend those to citizens of all other states)
1. One state may not discriminate against citizens of another state in regard to…
a. Exercise of fundamental rights
b. Certain economic activities, such as employment or pursuing a trade of business
2. Applies to citizens; narrower than persons
3. Two-Part Test
a. Does state or local law impact a protected privilege or immunity of state citizenship?
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STATE TAXING POWER: same general considerations applicable to state regulation of commerce apply
to taxation. Pursuant to the commerce clause, Congress has complete power to authorize or forbid state
taxation affecting interstate commerce. If Congress has not acted, look to see whether the tax
discriminates against interstate commerce. If it does, it’s invalid. If it doesn’t, assess whether the burden
on interstate commerce outweighs the benefit to the state.
a. Four-Part Complete Auto Test:
a. The tax is applied to an activity with a substantial nexus between the activity and the the
taxing state
i. “B has a factory in the state, or an office or B has employees in the state or a
server” this tends not to be a huge problem
1. Exceptions—no substantial nexus found if the taxpayer does not have a
regular and continuous physical presence in the state.
b. The tax must be fairly apportioned
i. Want to avoid multiple taxes and make sure whatever slice of tax pie is attributed
to MI doesn’t also get attributed to some other state. This usually involves an
apportionment formula
1. Apportionment Formula (Combination of 3 Factors) compare with
nation-wide factors.
a. In-state income or sales (10%)
b. In-state property (8%)
c. In-state payroll (12%)
c. The tax does not discriminate against out-of-staters.
i. Look to inquiries like in standard DCCD Model
1. Does the tax law facially discriminate? Discrimination e.g, out-of-staters
have to pay more than in-staters, law struck down
2. Facially Neutral—but tax’s purpose or effect is discriminatory, law
struck down.
3. Be on the look out for taxing in-staters and out-staters at different rate
(out-of-staters at a greater tax base, discriminatory)
d. And the tax is reasonably related to the services provided by the state and the tax [value
in exchange for the tax]
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i. Tax needs fair relation to the services the state provides to the taxpayer (this is a
throw away), court’s ought to just get rid of it, e.g., the business uses the state’s
roads and the taxpayers pay for the roads so the tax is fairly related to the
services provided by the state
1. Access to services (police/roads), value received for taxes
STATE ACTION: the language of the 13th, 14th, and 15th Amendments restricts only governmental
action. “State action” includes more than action taken by the legislative, executive, judicial, and
administrative branches of the federal and state governments and their subdivisions; it also includes
certain actions taken by ostensibly private individuals or organizations. [§1 of 14th “No State shall…]
“When is it fair to say that some private actor has done something that makes him effectively an actor on
behalf of the state?”
1. Easy Cases—prosecutors, mayors, legislative action…
2. Acts of Government Agents—state action includes conduct of government officials acting in
their official capacity (“under the color of law”) even though law may forbid the specific action
they take.
3. “Public/Government” Functions—activities undertaken by private individuals or organization
that are ones “traditionally the exclusive prerogative of the State.” [Court recognizes ONLY 3]
a. Elections: conducting elections is traditionally an exclusive state function, and racial
discrimination by groups with effective control over the selection of candidates is
invalidated.
i. Primaries—a political party cannot exclude individuals based on race from
voting in primary elections from which the party nominee for the general election
is chosen (see Allenwright)
ii. Pre-Primaries—county political groups cannot exclude individual based on race
from a preprimary election when the winner almost always runs unopposed in the
party primary and general election (see Terry)
b. Running Towns (Functional Equivalent): company towns that have “all the
characteristics of any other American town,” and while the town’s streets are privately
owned, they are the functional equivalent of public streets (see Marsh).
c. Public Parks: operation of a park is usually deemed a governmental function, so
generally the operation of a park will constitute “state action” under the “public function”
doctrine. Therefore, even if the park is being operated by private persons, it must still
obey constitutional constraints (i.e., it can’t be operated for white only, see Evans v.
Newton)
4. State Involvement and Encouragement (Entanglement)—government is not constitutionally
required to outlaw private discrimination (merely permitting private conduct to occur is not
enough for “state action”). The state must compel or significantly participate in the private
conduct (some sort of affirmative act by the state approving the private action; it is not enough
that the state permits the conduct to occur).
a. Judicial Enforcement of Private Discrimination: if state courts enforce racial
discrimination of private individuals (like, racial restrictive covenants) then there is “state
action” (see Shelley).
i. What if the court refuses to act? (Court disposes of the case) Arguably yes; one
side wins, one side loses.
b. Government/State Policy Approval of Private Conduct: the purpose of state
constitutional amendments that repeal racial antidiscrimination laws is seen as
encouraging racial discrimination; b/c discriminators were freed from any official
censure as a matter of basic state policy (see Reitman, failure to prohibit housing
discrimination, the state “encourages” housing discrimination)
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c. Official Acts: State action may be found in the absence of an unconstitutional statute or
ordinance if it appears that the state sanctions constitutional violations by its own officers
i. Discriminatory Law Enforcement—Example: sit-in demonstrators, police invoke
trespass and breach of peace laws to enforce local custom of racial segregation in
the absence of statute or ordinance (see Lombard v. Louisiana)
ii. Apparent Legal Authority—even if a state forbids officers from acting in a
certain way, the forbidden action may still constitute state action if the state puts
the actor in a position to commit the unconstitutional act
iii. Public Defenders—PDs do not act for the state when representing indigent client.
Therefore, negligence or malpractice is not a denial of due process (see Polk
County v. Dodson)
d. “Symbiotic” Relationship: a relationship b/t state and private actor that is mutually
beneficial/jointly involved in some enterprise and there is also a financial relationship b/t
the two. State action found where private discriminator was a lessee of public property
(restaurant operated as an “integral part” of public parking structure, see Burton)
i. However, where private discriminator on private property with private
membership access, allowed to discriminate (see below, Mooselodge).
e. Administration of Private Trust by Public Officials: state action exists where city
personnel maintain a park that discriminates under a private trust (see Evans)
f. Entwinement of State and Private Entities: state action may arise from the fact that the
state is so "entangled" or "entwined" with a private actor that even though the state might
not directly benefit from the private actor's conduct, the conduct will still be treated as
state action. This is true where the state and the private party act together to carry out the
action being challenged.
i. Example—NCAA is a voluntary association of public and private universities
that establishes rules for its members regarding collegiate sports. NCAA urged
member college to suspend coach for recruiting violations; coach cannot
successfully sue the NCAA for violating his constitutional rights b/c no state
action (see NCAA v. Tarkanian).
5. Limits of Doctrine (No State Action)—
a. Shopping Centers—while similar to the business district of an ordinary town, it is not the
functional equivalent of a municipality b/c it does not possess all of the attributes of a
town
b. Heavy Regulated Businesses/Monopoly Businesses—a heavily regulated company that
had been granted a monopoly by the state was held not to have engaged in state action
i. Example: Jackson, the supplying of utility service is not traditionally the
exclusive province of the state.
ii. Nursing Home—operated by private corporation did not exercise state action
when it discharged Medicaid patients, even though its operations were
extensively regulated by the government (see Blum)
iii. Running a School—operated by private corporation did not exercise state action
when it discharged teacher even though the school had contracts with the state to
educate or care for many of its students and received almost all of funding from
the government (see Rendell-Baker)
c. Licensing and Provision of Essential Services—granting a liquor license and providing
essential services (police, fire, water, power, etc.) to a private club that imposes
restriction on its members and guest are not sufficient to constitute state action
(Mooselodge). Licensing—similarly, the fact that the state has licensed a private person
is generally not enough to convert the private person’s conduct into state action.
d. Congressional Grant of Corporate Charter and Exclusive Name—is not sufficient to
constitute state action (see San Fran Arts & Athletics, Inc.)
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e. No Gov’t Duty to Protect Individuals from Harm by Private Persons—the mere refusal of
gov’t agents to protect V from harm by a private person will not result in a finding that
the harm was attributable to state action, at least when state law does not give V a right to
gov’t protection (see DeShany, gov’t not responsible for harm on child by father, even
though gov’t social worker had reason to believe the child was being abused and did
nothing).
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PROCEDURAL DUE PROCESS: (5th and) 14th Amendments: “No…State [shall] deprive any person of
life, liberty, or property, without due process of law.”
1. Liberty—the right to be free of physical restraints imposed by government in both the
noncriminal and criminal context. Includes the right to contract and to engage in gainful
employment (see Board of Regents v. Roth, refusing to rehire Roth did not violate due process).
a. Defamation by Government—includes the right to be free from defamation by a
government official, when such defamation is made public and occurs in connection with
denial of some significant tangible interest.
i. Defamation resulting only in damage to one’s reputation is NOT a denial of
“protected” liberty (see Paul v. Davis)
ii. Defamation resulting in mere loss of public employment w/o publicity is NOT a
denial of “liberty” (see Bishop v. Wood).
2. Property—more than ownership of realty, chattels, or money. It also includes “entitlements”—
i.e. “interests already acquired in specific benefits.” There must be a legitimate claim to the
benefit under applicable local, state, or federal law/statute (unilateral expectation will not suffice)
a. What entitlements? Contract/Rule/Regulation/Policy/Longstanding government practice
can create an entitlement
i. Examples
1. Public Education (when school attendance is required)
2. Continued Welfare (government) Benefits (if applicant meets statutory
criteria)
ii. Non-Examples
1. To defeat entitlement, put it in writing/the contract/policy (“at-will”
employment)
2. No property interest in having police enforce a (mandatory) restraining
order when state law preserved the traditional discretion of law
enforcement officials to take other factors into account (see Castle Rock
v. Gonzales).
3. Deprivation—requires more than mere negligent conduct by government officials, even though
such conduct causes injury (liability for negligently inflicted harm is categorically beneath the
threshold of constitutional due process)
a. Deprivation exists only if the government’s conduct “shocks the conscience”
i. Court does not want to “constitutionalize” tort law/remedies.
b. Ex. Fleeing suspect inadvertently killed during police chase (see County of Sacramento v.
Lewis)
i. Government official was “re”-acting to the situation, i.e. no time for deliberation.
1. But what if there is time for officials to ponder the consequences of their
action? If there is time, then the Court might find room for something
less than “conscience shocking”, i.e. gross negligence/recklessness to
constitute deprivation.
ii. Why bring Due Process with Tort Claim? Sovereign/Official Immunity hurdle.
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exists, does not convert the individual into a state officer, and
thus make that person a state subject to sovereignty immunity.
INDEMNIFACTION IS VOLUNTARY
d. CRITICAL—Political Subdivisions of the State ARE NOT THE STATE
i. Generally, cities, school boards, municipalities, counties do NOT get sovereign
immunity, but see Exception Below
e. EXCEPTIONS, SUBDIVISIONS—“Follow the Money”
i. Pennhurst State School & Hospital v. Halderman, funding for county program at
issue came from the State Treasury.
f. Normally counties do not get sovereign immunity, but when the state has to pay
any judgment against the county, extend the benefit of immunity to the county
itself.
g. IF JUDGEMENT AGAINST SUBDIVISION MUST BE PAID DIRECTLY BY
STATE, SUIT WILL BE BARRED.
4. Ex Parte Young (1908)—CRITICAL DECISION, state officials can be sued in an action for
prospective injunctive relief (equitable relief) or for monetary relief (legal relief) provided that
it comes from the officer, not the state treasury. The State of Minnesota has created an
unconstitutional state law (tariff law), violation of 14th Amendment Equal Protection; sue the
Attorney General for injunctive relief.
a. To Get Injunction—Substantial likelihood of success on the merits to get injunctive relief
b. Stripping Doctrine—when a state official attempts to enforce an unconstitutional state
law, that person is stripped of authority to act on behalf of the state, i.e. not acting as a
state official, but only acting in individual capacity.
c. Make it possible for individuals to challenge unconstitutional state laws.
d. SCOPES OF RELIEF (Edelman v. Jordan)—past monetary dues (i.e. DAMAGES) are
NOT recoverable from the State, only prospective relief.
i. Ancillary Relief Doctrine: if state is going to have to pay money for prospective
relief, that is okay. But, past due/retrospective dues are not recoverable.
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Conditional Spending
1. Dole Requirements
Executive Model
1. Start with Youngstown Approach
a. Start with Category 1, then to 3, then to 2
2. If foreign affairs or diplomatic matters
a. Also apply Curtiss-Wright Analysis
i. Y1, do need to mention
ii. Y3, will not tip the scales in favor of constitutionality
iii. Y2, will most likely tip scale in favor of constitutionality
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WATCH OUT FOR…State passes law that discriminates against interstate commerce…
Analyzes whether state law survives commerce clause review? Still apply dormant commerce
clause doctrine analysis
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PROCEDURAL DUE PROCESS: (5th and) 14th Amendments: “No…State [shall] deprive any person of
life, liberty, or property, without due process of law.” This situation occurs when the government is going
after one person (not a group, for group see Substantive Due Process)
5. Life—simply means life.
6. Liberty—the right to be free of physical restraints imposed by government in both the
noncriminal and criminal context. Includes the right to contract and to engage in gainful
employment (see Board of Regents v. Roth, refusing to rehire Roth did not violate due process).
b. Prison, Involuntary Commitment to Mental Institution
c. Defamation by Government—includes the right to be free from defamation by a
government official, when such defamation is made public and occurs in connection with
denial of some significant tangible interest.
i. Defamation resulting only in damage to one’s reputation is NOT a denial of
“protected” liberty (see Paul v. Davis)
ii. Defamation resulting in mere loss of public employment w/o publicity is NOT a
denial of “liberty” (see Bishop v. Wood).
e. Affirmative ability to “do stuff” (George Carlin-esque)
7. Property—more than ownership of realty, chattels, or money. It also includes “entitlements”—
i.e. “interests already acquired in specific benefits.” There must be a legitimate claim to the
benefit under applicable local, state, or federal law/statute (unilateral expectation will not suffice)
b. What entitlements? Contract/Rule/Regulation/Policy/Longstanding government practice
can create an entitlement
i. Examples
1. Public Education (when school attendance is required)
2. Continued Welfare (government) Benefits (if applicant meets statutory
criteria)
ii. Non-Examples
1. To defeat entitlement, put it in writing/the contract/policy (“at-will”
employment)
2. No property interest in having police enforce a (mandatory) restraining
order when state law preserved the traditional discretion of law
enforcement officials to take other factors into account (see Castle Rock
v. Gonzales).
8. Deprivation—requires more than mere negligent conduct by government officials, even though
such conduct causes injury (liability for negligently inflicted harm is categorically beneath the
threshold of constitutional due process)
c. Deprivation exists only if the government’s conduct “shocks the conscience”
i. Court does not want to “constitutionalize” tort law/remedies.
d. Ex. Fleeing suspect inadvertently killed during police chase (see County of Sacramento v.
Lewis)
i. Government official was “re”-acting to the situation, i.e. no time for deliberation.
1. But what if there is time for officials to ponder the consequences of their
action? If there is time, then the Court might find room for something
less than “conscience shocking”, i.e. gross negligence/recklessness to
constitute deprivation.
ii. Why bring Due Process with Tort Claim? Sovereign/Official Immunity hurdle.
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[Pregnancy]___[Viability]____[Birth]__________________[Accident]_______[Death]
LIBERAL THOUGHT (State’s interest does not have the same force in all cases, must
balance the State interest with the quality of life)
[Birth]_________________________________________[Accident]
/ \
[Viability] \
/ \
[Pregnancy] [Death]
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CHALLENGER has initial burden of proof for prima facie case, then…
Strict Scrutiny: burden of proof shifts over to the government, and the government has to show that there
is a compelling reason for the law and that it has means narrowly tailored to achieving the compelling
interest [law presumed invalid]
Rational Basis Scrutiny: burden of proof remains with the challenger to show that government has no
legitimate interest or the means were not rationally related to achieving the interest [law presumed valid]
- Legitimate Interest: Within the state’s police (safety, public health, welfare, public morals)
- Rationally Related: law arguably furthers the legitimate interest [not arbitrary and
capricious]
Plaintiff has initial burden to establish prima facie case (an arguable claim, pass summary judgment for
civil case, “laugh test”). Plaintiff must also show that a right exists.
MUST TALK ABOUT MICHAEL H. and GLUCKSBERG IF FACED WITH SUBSTANTIVE DUE
PROCESS QUESTION ON THE EXAM [How do you define a fundamental right? Broadly or
narrowly?]
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Gender Discrimination Test (Craig v. Born case): substantially related to important government interest;
alternative exceedingly persuasive justification for the law
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FREEDOM OF SPEECH—intent to convey a particularized message was present, and the likelihood
was great that the message would be understood by those who viewed it (“message intended; message
received”)
RAY’S OVERVIEW OF SPEECH
a. Content-Based Regulation
i. General Rule—If government is trying to regulate (intended or designed)
content of speech = strict scrutiny
1. Two Types of Content
a. Subject (government regulating based on the large category)
i. Subject: War
b. Viewpoint (instead a category of speech and the government has
chosen a side, punishing the other side)
i. Viewpoint 1: war effectively resolves disputes
ii. Viewpoint 2: war is ineffective at resolving disputes
c. Government has more leeway in regulating subject content
b. If not Content-Based Intermediate Scrutiny
i. Regulating the TIME, PLACE, or MANNER in which you speak
1. HOWEVER, Place may be the Content…changing the location of the
speech changes the content of the speech (the message trying to be
conveyed is not the same)
a. Ex. Prohibiting speech/protesting near a political convention
ii. Regulating Symbolic Speech/Conduct (O’Brien Regulations)
iii. Regulating Obscene Speech
iv. Regulating Commercial Speech
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APPROACH TO FREE SPEECH FOR EXAM
1. Is it speech? Yes, it will always be speech on the exam
2. Look for applicability of vagueness and/or overbreadth doctrines
3. Does the regulation prohibit speech? Or is it just moving it around (i.e. time/place/manner)?
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FREEDOM OF EXPRESSION & ASSOCIATION—there is no right of association enumerated in the
Constitution. The Court has afforded constitutional protection to different kinds of associational rights.
NO FUNDAMENTAL RIGHT TO HANG OUT WITH PEOPLE.
1. Association for First Amendment Purposes
a. If people associate for First Amendment purposes (speech or assembly), the Court may
recognize a fundamental freedom of expressive association.
b. The right is not absolute, and may be abridged to advance a compelling government
interest.
2. Right Not to Associate, or Be Associated With, Certain Ideas—The court has recognized a
right not to be associated with certain ideas or speech.
a. Cases
i. Right of public school students to refuse to salute the flag (see West Virginia
State Bd. of Educ. v. Barnette)
ii. The right to speak and the right to refrain from speaking are complementary
components of the broader concept of ‘individual freedom of mind’ (see Wooley
v. Maynard)
1. License plates
b. Public Accommodations Law—force groups to accept others for membership and
participation in “open, recreational event” implicates right to not associate with certain
ideas
i. Hurley v. Irish-American Gay Lesbian and Bisexual Group of Boston
1. Parade Permit Boston created a limited public forum, private speech
2. Public Accommodations Law prohibits discrimination
3. Speaker won, public accommodation law lost
c. Compelled Monetary Subsidies—government forces you to contribute money for
speech you do not agree with (pg.1011)
i. Union Dues—may be compelled to pay service fees to union (for labor
management, etc.) (see Abood v. Detroit Bd. of Educ.)
1. CANNOT be spent to advance political views opposed by a union
member (unless established rebate system)
ii. Bar Dues
iii. Mandatory Student Activity Fees
3. Political Association—fundamental, unenumerated right, gathering for political purposes, mainly
joining a political party.
a. Restriction/Punishment for Joining Party—strict scrutiny
b. Right to Become a Candidate—strict scrutiny
4. Intimate Association and Expressive Association (penumbral rights)
a. Intimate—small group (form of social association)
i. TEST: To qualify, the group has to be…
1. Relatively small;
2. High degree of selectivity in membership;
3. Exclusive in its operation, seclusion from others in critical aspects.
a. I.e., no open meetings/media
ii. Example: Detroit Athletic Club
1. Issue: public accommodations law
a. Right of intimate association abridged city needs compelling
interest
b. Expressive—Fundamental Right, i.e. strict scrutiny. Forced membership may change the
group’s message, abridging their freedom of expressive association.
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FREEDOM OF RELIGION—the First Amendment says that, “Congress [or State] shall make no laws
respecting an establishment of religion, or prohibiting the free exercise thereof…”
ESTABLISHMENT CLAUSE—liberty, free from government/religion
1. Establishment Clause Tests—most used to least used
When Government Acts to Prefer or Advance Religion Over Non-Religion
i. The Lemon Test—when government acts to prefer or advance religion over non-
religion (see Lemon v. Kurtzman), if law fails one part, then there is an
establishment.
1. The law must have a (predominantly) secular (non-religious) legislative
purpose; (i.e. can also have a religious purpose)
BUT, if the purpose is predominantly religious, violates
establishment clause (see McCreary County v. ACLU)
2. Its principal or primary effect must be one that neither advance nor
inhibits religion;
Secondary effect may be to advance religion. When government
acts, it must treat religion like any other institution, i.e. cannot
discriminate against religion
3. It must not foster an excessive government entanglement with religion.
ii. The Lynch (Endorsement) Modification of Lemon—does government aid
endorse religion (see Lynch v. Donnelly), goes to “purpose and effect” prongs of
Lemon Test.
1. Whether a reasonable observer would perceive that the government is,
by purpose or effect, endorsing religion.
a. Reasonable person familiar with the full history and context of
government action
2. It must not foster an excessive government entanglement with religion.
iii. Historical Test—
1. Was the practice historically deemed permissible?
a. Issue: Christian practices v. Buddhist practices at time of
constitution ratification?
Government Money/Aid to Religion Test
i. Neutrality, i.e. “Add Other Stuff” Doctrine give money to secular group in
addition to religious group
ii. Whenever you have money going from government to religion, what makes
it constitutional is “indirection”
1. Indirection means…government give money to private individuals, not
to the churches, and have the private individuals give the money to the
church [breaks chain of causation].
Religion in Schools
i. Coercion Test—Compelled student prayer in coercive setting violates
establishment clause????
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CONTRACTS I OUTLINE
Professor Mara Kent, Michaelmas Term 2009
LEGAL AUTHORITIES
1. Primary: Federal and State Constitutions, Common Law/precedent, StatutesUCC (state-by-
state in 1953) uniform statute that States could adopt (parts or entirety) for handling particular
issues in commercial law, Article II sale of goods (pg. xxxi).
2. Secondary (NOT LAW): (A) Restatement I (1932), Restatement II (1979), helpful and highly
persuasive for guidance to decide an issue, but judges are not bound. Rest II does not take
“precedent” over Rest I, the two mostly have the same definitions, w/some new developments.
(B) Treatises are a compiled work on a particular area of law.
3. Uniform Commercial Code (UCC) ARTICLE II: deals with the sale of goods (personal, not real,
property, i.e. chattels).
a. Goods defined in UCC §2-105(1): “Goods…means all things (including specially
manufactured goods) which are movable at the time of identification to the contract
for sale other than the money in which the price is to be paid, investment securities
(Article 8) and things in action (intangible property, like insurance policies). ‘Goods’
also includes the unborn young of animals and growing crops and other identified things
attached to realty as described in the section of goods to be severed from realty (Section
2-107)
TYPES OF CONTRACTS:
1. Formal: Contracts under seal (wax), the recognizance, the negotiable instrument (promissory
notes, and drafts) not the subject of this course!
2. Informal (have the requirements been met?): Unilateral and Bilateral
3. Bilateral: Promise for a promise
4. Unilateral: promise for an act
5. Social Contracts: typically not litigated, unless business relationship with social contract
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Auctions
1. With Reserve (Presumed)
b. Bidder Makes the Offer
c. Auctioneer can accept or not
2. Without Reserve
d. Auctioneer Makes the Offer
e. Item cannot be withdrawn after the first bid is received
3. In either type, bidders may withdraw their bid
4. UCC says Ringers cannot be used w/o notice. If they are:
f. Buyer can avoid sale, OR
g. Take the item at the last good faith bid
5. If a bid is made while the hammer is falling, the auctioneer may reopen bidding
OFFER OPTIONS
1. Option: an option sets the time for lapse, and the offeror has the ability to make it revocable
prior to acceptance.
a. Example: no consideration/acceptance to keep promise (keep offer open during time
frame) (see Dickerson v. Dodds)
2. Option Contract: means that the offeree has given (even nominal) consideration to the offeror
(an extra payment, or some other form of value) in return for a promise to keep the offer open and
irrevocable for a period of time.
a. A rejection or counteroffer by the offeree does not necessarily terminate the offer.
b. Promise to give consideration creates an option K
3. UCC §2-205: Firm “Merchant” Offer, for goods, if all elements are met then apply UCC, if not,
apply Common Law.
3. Offer—must be communicated, committed, definite
4. Goods (buy or sell)—moveable at the time of identification
5. By a Merchant—someone who deals with the kind of goods or by occupation has
knowledge or skill peculiar to the goods involved in the transaction.
6. Signed (symbol with intention to authenticate) Writing (print, typing, or any other
reduction to tangible form)
7. Gives Assurances—“offer is firm,” or “offer not to be revoked.”
8. CONSEQUENCES: offer is irrevocable, for lack of consideration, for specified time in
offer, or reasonable time if not specified, but neither will exceed 3 months (after 3
months option, revocable by the offeror)
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ACCEPTANCE: Acceptance fixes the terms of the contract to those agreed upon in the offer. Once
acceptance, a party cannot unilaterally change terms of offer. Acceptance is a manifestation of assent by
the offeree to the terms thereof in a manner invited/required by the offer.
REQUIREMENTS (Elements):
1. ACT or PROMISE
a. Responsive to the Terms of the Offer: i.e. act called for, act given
i. Common Law acceptance is the mirror-image of the offer,
ii. UCC §2-207”Battle of the Forms” Page 18 of this Outline
b. Absolute and Unequivocal: “I accept” (look at the verb)
c. Communicated to the Offeror: this is the offeree’s manifestation of assent
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MODE OF ACCEPTANCE:
Rest. 2d §50: Acceptance of Offer Defined
i. Manifestation of Assent: Objective Standard, accept offer in whatever manner that is required by
the offeror.
a. Unambiguous: manner indicated by the language of contract
b. Ambiguous (Suggested, but not exclusive): manner reasonable in the circumstances
Ambiguity will generally be construed against the drafting party.
i. Suggested, Not Exclusive: Acceptance by a manner and medium reasonable
under the circumstances. Particular method, or anything faster than suggested.
Offer sent by overnight express reasonable = overnight express or faster, not
standard mail. Notification of shipment is not enough, requires notification of
acceptance.
ii. No Method Specified: Acceptance that is reasonable under the circumstances.
c. UCC§2-206:
i. Acceptance by Performance: requires at least part of what the offer requests be performed or
tendered and includes acceptance by a performance that operates as a return promise.
a. Unilateral Contract: performance is mandatory for acceptance; failure to complete act
does not breach the contract
i. Partial Performance: contract is formed when the offeree begins or completes
performance (see Machiondo v. Scheck); preparation for performance is not
sufficient.
1. When there has been partial performance, contract is now regarded as
being a contract with conditions or an option contract (see above in the
OFFER section of Outline); the condition is the full performance by the
offeree. No breach if failure to complete performance.
ii. Acceptance by Promise: requires that the offeree complete every act essential to the making of
the promise. (Bilateral Contract)
a. Bilateral Contract: Contract is formed once the promise is made/communicated.
Completion of contract requires every act promised to be performed. Performance/partial
performance w/o communication, NO contract. Breach if failure to complete the act.
i. In the case of doubt, an offer invites the formation of a bilateral contract (see
Davis v. Jacoby) Restatement ONE Presumption
iii. Silence as Acceptance: generally, silence/inaction does not constitute acceptance
1. Rest. 2d §69: Acceptance by Silence or Exercise of Dominion
(1) When offeree fails to reply to offer, silence/inaction is acceptance only when:
a. Benefit is received, knowing that the other party expects compensation (see
Day v. Caton, the built wall).
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INDEFINITENESS
1. Common Law: generally, where there is uncertainty or ambiguity about price or quantity, courts
are reluctant to intervene and provide a remedy.
2. UCC Provisions: §2-204(3), contracts still exists when (1) parties intended to make contract, and
(2) there is a reasonably certain basis for giving an appropriate remedy
a. 1-205: Course of Dealings
b. 2-208: Course of Performance
c. 2-305: Open Price Term (reasonable price)
d. ?: Time (reasonable time)
e. 2-308: Place of Delivery (seller’s place of business)
TENDER: an unconditional offer to perform coupled with the demonstrated ability to carry out the offer
of performance and to produce the subject matter of the tender; i.e. showing the money, giving not
necessarily required (Common Law Check or cashier’s check not sufficient, except under the UCC).
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CONSIDERATION: explicitly bargained for benefit to the promisor OR an explicitly bargained for
detriment to the promisee that has legal value; quid pro quo (bargained for exchange, and have legal
value)
1. Traditional Consideration: Rest.2d §71 Quid Pro Quo
a. Sufficiency/Legal Value: means that the offered consideration must be something that
has value in the eyes of the law
i. The Following Have NO Legal Value
1. Love and affection and conjuring have no value in the eyes of the law.
2. No value for doing the obvious; idea must be new.
3. Teaching is an act that is of value (not claiming a right in what is being
taught)
b. Adequacy: refers to the quantity of the amounts exchanged; courts typically do not
inquire into the adequacy of consideration.
i. Exception 1—if subject mater is fungible for like fungible. Fungible—
something that is capable of being interchanged, e.g. wheat for wheat, apples for
apples (degrees in quality of some good is not capable of interchange, court will
not step in).
3. The exchange of the same currency is fungible; time value in context
may make same currency infungible as well.
a. Historical value of currency makes it infungible.
b. Acceptability of coins v. paper, may make infungible.
i. Exception 2: before decreeing specific performance with respect with land (in
equity power of the court), conveyance of land for $1 = courts intervene.
b. Want of Consideration: no consideration to begin with (love/affection, no legal value)
c. Failure of Consideration: consideration is recited but never carried out (i.e. breach of
contract)
i. Example: “I’ll sell you my car for $500”, but you never pay.
d. Nominal Consideration: “in name only”; consideration must be bargained for.
Generally, nominal consideration is not truly bargained for.
e. Forbearance as Consideration: to forebear the legal right to do something, to sue on a
valid claim has value in the eyes of the law; an invalid claim has value provided that…
i. Person has honest and reasonable belief in validity of the claim, there will be
consideration.
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prevented by cover. Not limited to merchants; applies to all transaction for the sale of
goods. Cover—Defined as a “good faith substitute”
i. Non-Accepted/Rejected Goods
1. §2-712: If Cover
a. Cover Price – Contract Price = Recovery (+ §2-715)
2. §2-713: If NO Cover
a. Market Price (at the time of breach) – Contract Price = Recovery
3. PLUS §2-715
a. Incidental and consequential damages. HOWEVER, Buyer’s
failure to attempt to cover in good faith may bar collection of
these damages (unable to cover despite effort allows for §2-713)
ii. Accepted Goods
1. §2-714
a. Value of Goods Promised – Value of Goods Received
2. PLUS §2-715
a. Incidental and consequential damages. HOWEVER, Buyer’s
failure to attempt to cover in good faith may bar collection of
these damages
b. Seller’s Remedies
i. §2-706
1. Contract Price – Lower Resale Price = Recovery
ii. §2-708
1. Contract Price – Lower Market Price (at the time of breach) = Recovery
5. RESTITUTION
a. Implied-In-Law/Quasi-Contract—arises in situations where on party has the benefit of
money, property, or services of another, and it would be unjust to allow that party to keep
the benefit without paying for it. Where this unjust enrichment occurs, the law presumes
a promise of restitution.
i. Quantum Meruit: the value of service rendered to another
ii. Quantum Valebant: the value of property delivered to another
iii. Money Had and Received: money held by one person but belonging to another
b. Restitution for Breach of Contract—see Restitution Interest above in Section 2(c).
i. Rest.2d §371: Measure of a Restitution Interest
1. If a sum of money is awarded to protect a party’s restitution interest, it
may as justice requires be measured by either…
a. The reasonable value to the other party of what he received in
terms of what it would have cost him to obtain it from a person
in the claimant’s position, OR
b. The extent to which the other party’s property has been increased
in value or his other interest advanced.
ii. Compare reliance interest with restitution interest and pick the one that is bigger
c. The Breaching Plaintiff—the breacher can get restitution, value of services received.
d. Does Not Fit Within Statute of Frauds—see below
6. EQUITABLE REMEDIES
a. Specific Performance—where remedy at law is inadequate (i.e. damages), typically see
in cases over the sale of land
i. Majority Rule—For buyer and seller
ii. Minority Rule—Only for the buyer to seek specific performance
iii. Usually not appropriate for goods
1. Exceptions
a. Goods are unique AND the remedy at law would be inadequate
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STATUTE OF FRAUDS:
1. Questions to Ask
a. Does contract fall within Statute of Frauds?
i. No—oral contract is enforceable
ii. Yes—go to question 2
b. Is the writing requirement satisfied?
i. Yes—contract is enforceable
ii. No—go to question 3
c. Is there an exception to the Statute of Frauds that applies?
i. Yes—contract is enforceable
ii. No—contact is NOT enforceable
2. Must be in “Writing”: requires that certain types of contracts be evidenced and memorialized in
writing (reduction to tangible form), or at least evidenced by a signed, written
instrument/memorandum of essential terms. [Except for UCC Requirements, see below]
a. Must Contain (Common Law)
i. Signature of the “party to be charge” (usually D, the party being sued)
1. May be handwritten, typed, or printed, and if so intended, a party’s
initials will suffice
ii. Indication that the contract has been made
iii. Identification of the parties to the contract
iv. A reasonable description of the subject matter of the contract
v. All essential terms of the contract
1. The terms and conditions of the agreement; AND
2. In many states, a recital of the consideration
3. EXCEPT as to goods, only quantity is required
b. Must Contain (UCC)
i. Quantity
ii. An indication the contract has been made
iii. Signed by the party to be charged
3. Types of Contracts that Must Be Memorialized in Writing
a. Executor/Administrator Contracts—contract by an executor or administrator to answer
for the debts of a decedent and payable out of the executor/administrator’s own personal
assets must generally be in writing.
i. Ex. D dies leaving $500 debt to C. A (the administrator of D’s estate) promises
C that he will pay D’s debt out of his own pocket must be in writing.
b. Suretyship Contracts (Promise to Pay the Debt of Another)—promises made to
another person’s creditor to “answer for” (be responsible for) that person’s debt must be
in writing. However, if an oral suretyship promise is made to the debtor, it is
enforceable. [Contract between surety and creditor]
i. Requirements
1. There must be a debt
2. Promise must be to pay the debt of another, not an original promise
a. The Statute applies only to promise to be secondarily liable for a
third party’s obligation
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CONTRACTS II OUTLINE
Professor Mara Kent, Hilary Term 2010
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INTERPRETATION: Approaches to determine if evidence will be let in to interpret terms already in the
contract. If interpretation of an integrated writing requires the introduction of outside/extrinsic
evidence…
1. The Two-Step Approach (Non-Goods) [Most Popular View]
a. Proffer evidence to the Judge to demonstrate that the writing (or a term) is ambiguous;
b. If the Judge agrees that there’s an ambiguity, introduce evidence into the record to
explain the ambiguity.
i. See Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968)
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CONDITIONS
DEFINITIONS
1. Condition—a fact or event that is not certain to occur, which either activates or discharges a duty
a. Linked to a party’s duty
b. If condition is NOT fulfilled, the other party no longer has a duty to perform (forfeiture)
i. There will be a forfeiture, so you cannot enforce the contract
1. Forfeiture means loosing the agreed upon exchange
ii. Note: Courts do not like forfeitures
c. Key Words: “When”, “While”, “If”, “As soon as”
2. Promise (Covenant)—a contractual undertaking, the breach of which will give rise to liability in
damages or equitable relief
a. If promise is breached, the breacher can be sued for damages or equitable relief
i. Contract is still enforceable (i.e. not forfeited)
b. Key Words: “Shall”, “Will”, “Promise”
3. Promissory Condition—a promise that a fact or event will occur. The condition component
means that no duty arises unless that fact or event occurs (Ex. Problem 141, 142, 162(c))
a. If promissory condition is NOT fulfilled
i. Can sue for damages, AND
ii. Other party’s duty doesn’t rise (excuses the other party’s performance).
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TIMING OF CONDITIONS
1. Condition Precedent—fact or event which activates a duty
a. Ex. “If it rains tomorrow, I’ll pay you $500.”
i. ‘Rain Tomorrow’ is the fact/event.
ii. ‘Pay you $500’ is the duty that will be activated if the fact/event occurs
b. Event must occur before performance is due
c. Plaintiff has the burden to prove that the fact/event occurred
2. Condition Subsequent—fact or event which discharges a duty
a. Ex. “I’ll pay you $500, but if it rains tomorrow, I won’t”
i. ‘Rain Tomorrow’ is the fact/event
ii. ‘Pay you $500’ is the duty that will be discharged if the fact/event occurs
b. The performance obligation id due but will cease to exist upon the occurrence of the
specified event
c. Defendant has the burden to prove the fact/event occurred/didn’t occur.
3. Concurrent Condition—where the parties have entered into a bilateral contract and haven’t said
who is to go/perform first
a. Often when transaction involves both a good and money.
b. It’s possible for the parties to perform at the same time
c. If the condition is not precedent or subsequent then you assume performance can happen
at the same time
i. Remember: bilateral contract acceptance by promise (promise for promise)
TYPES OF CONDITIONS
1. Express Condition—if the parties have expressed intent in the contract that performance is
dependent upon the occurrence or nonoccurrence of an event not certain to occur (satisfied by
complete performance).
a. Words Often Triggering Condition: (IPOW SWAA)
i. “If” “So that”
ii. “Provided that” “While”
iii. “On condition” “As soon as”
iv. “When” “After”
b. Look at the intent of the parties and a reasonable construction of the language in the
contract, in light of the surrounding circumstances (see Jones Associates v. Eastside)
i. Language “linked” to a duty
c. Howard Guidelines/Factors: is it a promise or a condition? Use the following;
i. Generally, legal policy opposed to forfeitures (arising from conditions)
ii. Ambiguity is construed against the drafter
iii. When it is doubtful whether words create promise or a condition precedent, they
will be construed as creating a promise.
iv. The provisions of a contract will not be construed as conditions precedent in the
absence of language plainly requiring such construction (IPOW SWAA above).
v. “Expressio Unius Est Exclusio Alterius”—expression of one thing is the
exclusion of another
d. Satisfaction Clauses (Conditions of Satisfaction) (see Chodos v. West Publishing)
i. If the subject matter of the contract is commercial, then use objective standard
(if impractical to use objective, then you can use subjective standard)
1. Objective Standard—would a reasonable person be satisfied
ii. If the subject matter of the contract is personal, then use subjective standard
1. Subjective Standard—were they in good faith not satisfied by the work
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EXCUSE DOCTRINES
1. Doctrines that may excuse a fact or event from occurring
a. Is there an excuse for why there was a material breach of a constructive condition OR
why an express condition wasn’t satisfied
b. There are 6 total excuses for conditions
2. Prevention and Cooperation
a. You have a duty to cooperate and may not prevent other party from fulfilling their
obligation
b. IF you get in the way and the other party cannot perform, that other parties’ non-
performance may be excused because of this excuse
c. Sullivan v. Bullock—B was remodeling S’s house, B worker came into house while S
wasn’t there (she said not to do that) and so S wouldn’t let B back in to finish
remodeling.
i. S never made it an express condition. So Court interpreted it as a constructive
condition
ii. Because S didn’t cooperate with B, B couldn’t substantially perform (what’s
required of CC), causing the breach
iii. The material breach is excused because S prevented B from going back in to
finish remodeling.
c. Failure to cooperate can operate as an excuse of why there was material breach
i. Must act in good faith
1. Cannot do anything in bad faith from letting the other party finish their
work
2. While courts impose good faith obligation on employers, employers have
power to fire an employee for good reason, bad reason, or no reason at
all because most employees are employed on an at will status.
3. Extreme or Disproportionate Forfeiture
a. A condition may be excused without other reason if its requirement…
i. Involves extreme forfeiture (Rest.1)/ disproportionate forfeiture (Rest.2), AND
ii. Its existence or occurrence is not an essential (Rest.1)/ not material (Rest.2) part
of the contract.
b. NOTE: extreme forfeiture is NOT enough to excuse a condition, you also must show that
the performance of the condition was not a material part of the agreed exchange (this is
hard to prove)
i. Ex. Burger King v. Family Dining—even though express condition isn’t
satisfied, Family Dining was excused because if they were even 1 day late it
would mean losing 90-year lease. The condition was building in certain time
frame. They were behind and losing such lease is considered extreme forfeiture
AND building behind schedule is not essential because of other factors (i.e. FD
opened 8 other BKs and last 2 were built even if way off schedule)
4. Public Policy
a. When there’s no actual law being violated, plaintiff may seek recovery under violation of
public policy.
b. RATIONALE:
i. Competent parties are free to make contracts
ii. Conditions should be enforced in the absence of a constitutional provision or
state which makes a contract illegal
iii. Courts will excuse a party from fulfilling their duty if the express condition
violates public policy
c. Inman v. Clyde Hall Drilling—employment contract gave less time to bring claim than
the Statute of Limitations. The court held the clause in contract isn’t against public
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policy because employee/plaintiff still had the right to sue under the contract. The court
also says its up to the legislature to decide if such clauses violate public policy.
i. Reasonableness—having 6 months to file claim is reasonable but 1 week
probably is not so in that case such a clause would violate public policy.
WAIVER ESTOPPEL
Where a person voluntarily relinquishes a Where a person is precluded form asserting a
known right to insist on the fulfillment of a known right.
condition on w/his duty of performance
depends.
Immaterial conditions may be waived. Immaterial conditions may be estopped.
Material conditions may NOT be waived. Material conditions may be estopped.
a. Example of Estoppel—if you do not bring issue in complaint, cannot bring later
b. Example of Waiver—??? BK Case
c. Material Conditions (CANNOT WAIVE BUT CAN BE ESTOPPED)
i. Examples
3. Real Estate Contracts—having a clear and marketable title
4. Insurance Contracts—the occurrence of the casualty
a. Ex. Fire insurance company, cannot waive the occurrence of the
casualty (the fire)
5. Contract for the sale of anything—payment of purchase price
d. Immaterial Conditions
i. Examples
1. Giving notice within a certain amount of time, i.e. 30 days.
2. Payment by or within a particular time.
3. Furnishing an architect’s certificate as a condition precedent to progress
payments
e. Non-Waiver Clause—you may waive your non-waiver clause but in order to reinstate
the contract provisions (if you want to reinstate the non-waiver clause) you must give
notice to the other party
i. Moe v. John Deere Co.—Moe always made late payments. Deere allowed these
for a while (waiving the non-waiver clause) but later repossessed the tractor. The
court held because they’ve accepted late payments in the past, they should’ve
given notice to Moe before repossessing it (reinstating the non-waiver clause)
1. Minority Rule—exceptions to late payments does not waive non-waiver
2. Majority Rule—exceptions to late payments may constitute a waiver of
non-waiver clause (see John Deere Case).
f. Think of it this way: what did you do after what I did, did you rely on my statement?
i. Did the party waive the condition?
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= WAIVER = ELECTION
Fact /Event
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NOTE: Go to Step 5 ONLY IF Pr and Pe want to CHANGE THE CONTRACT to the detriment of TPB!!!
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a. Material reliance
b. Brings suit, OR
c. Assents per Pr or Pe request
2. The Restatement 2 Changes
a. Labeling some parties (particularly in business dealings) ‘donee’ doesn’t sound correct.
b. So Rest.2d changed lingo
i. Rest.1 – intended beneficiaries: credit beneficiary v. donee beneficiaries
ii. Rest.2 – intended beneficiaries: “debt” v. “gift” beneficiaries
c. Changes didn’t stick, WE’LL USE Rest.1 Language
3. Historical Development of Beneficiary Rights
a. The general English rule was that third party could NOT sue because he was not a party
of the contract between the promisee and promisor [No privity of contract]
i. The third party was merely a beneficiary of the trust
b. Lawrence v. Fox (1859)—allowed third party to rule without an express trust agreement
i. Step 2: H (Pe) intended to provide benefit to L (TP)
Fox Holly
so L is the intended beneficiary (Pr) (Pe)
ii. Step 3: the promise is enforceable because there is
suit
consideration H owes L
iii. Step 4: legal obligation exists between H (Pe) and L Lawrence $300
(TPB) so L is a creditor beneficiary. (TP)
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4. Novation
a. Definition:
i. A new or substituted contract
ii. All three parties must agree [to substitute one person for another], but not at the
same time.
iii. Novation NEVER IMPLIED
iv. Court don’t presume novations lightly
1. L (TP) grunts at Fox (Pr) promising to pay L for Holly’s (Pe) debt on H’s
behalf grunt insufficient for a novation.
2. Inquiry knowledge or just knowing about it insufficient for novation
3. Podium (Pr) expressly calls Law School (TP) and tells them he has
promised to make speech on Chalk’s (Pe) behalf. Law School accepts
sufficient for novation.
a. Law school can only sue Podium, as Chalk is released
b. COME BACK AFTER DELEGATION
b. Absent a Novation:
i. If you’re a creditor beneficiary you can go sue either Pr or Pe.
ii. If you’re a donee beneficiary you can sue ONLY Pe.
5. Expanding the Use of TPB Concept
a. Blair v. Anderson (1974)
i. Step 2: Gov (Pe) intended to provide benefit to Fed Promise to
prisoner (TP) so Fed prisoner is an intended hold fed
State of DE prisoner US Fed
beneficiary (Pr) Gov (Pe)
ii. Step 3: the promise between the Pr and Pe is
enforceable because there is a valid contract suit Yes intent
iii. Step 4: there is a legal obligation between Gov (Pe) to benefit
and Fed prisoner (TPB), which is the right of Fed Prisoner
(TP)
protection, so Fed prisoner is a creditor beneficiary.
1. [If you’re a creditor beneficiary you can
go sue either Pr or Pe]
iv. THUS, Fed prisoner can sue State of Delaware
b. Bain v. Gillispie (1984) Promise to call Big 10
i. Step 2: Big 10 (Pe) did NOT intend to provide benefit a good game Conference
Bain ∏ (Pe)
to G (TP) so G is an incidental beneficiary (Pr)
1. While there is an indirect benefit to G, the
suit NO intent
Court said there was NO intent to benefit G to benefit
ii. THUS, G is only an incidental beneficiary, and he Gillispie ∆
CANNOT sue because he has no right under the (TP)
Pr/Pe promise
6. Rights of the Parties
a. To discuss parties’ rights you ask two questions
i. May Pr or Pe change their contract to the detriment of the TPB?
1. But, to answer Q1, you must first ask…
ii. When do the TPB’s rights vest?
b. Promisor’s Defenses (three categories, last one is omitted for this class)
i. Category 1 Defense—defenses that the Pr would have against Pe that Pr wants
to also try and use against TPB
1. Sub Category A:
a. If the defense/claim arises out of the original contract that
created the TPB then Pr can use the defense against the TPB
(like SOF)
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b. Ex. 1:
i. Between Pr and Pe is an oral promise to sell a piece of
property, where Pr is to pay price to TPB. TPB isn’t
paid, so he sues Pr.
ii. Pr claims the defense that the promise for the sale of
property was oral, should have been in writing (for SOF)
iii. This is a Category 1, subcategory A Defense—the
defense arises out of the original contract that created the
TPB.
iv. THUS, Pr’s defense is valid.
c. Ex. 2
i. Pr promised Pe that it would provide her with insurance
to benefit TP, at the request of Pe’s employer, TP,
making TP intended TPB. Also, since legal obligation
between Pe and TP TPB is Creditor-Beneficiary.
ii. Pe stops making payments to Pr, then TPB sent notice of
claim but Pr said policy lapsed because Pe didn’t make
payments
iii. Pr asserts a Category 1 Defense
1. Because defense arose out of the very contract
that it was in with Pe, which created TPB, it’s a
valid defense by Pr against TPB.
2. Subcategory B:
a. If the defense/claim does NOT arise out of the original contract
that created the TPB then Pr CANNOT use the defense
against the TPB.
i. Ex.
1. Between Pr and Pe is an oral promise (K1) to
sell a piece of property, where Pr is to pay price
to TPB. Also between Pr and Pe is a written
contract (K2) for sale of a boat where Pr is to
just pay Pe. TPB isn’t paid, so he sues Pr.
2. Pr wants to use a defense that arose out of K2.
3. Pr CANNOT use the defense against the TPB
because it is not a valid defense.
ii. Category 2 Defense—defense/claim that Pr has against the TPB him/herself.
1. Q: may Pr use defense/claim against the TPB?
2. A: YES, Pr always has a valid defense against TPB!
3. A TPB’s right against the Pr is subject to any defense/claim arising
from his own conduct or agreement
a. No matter where claim arose, Pr can use the defense against the
TPB.
i. Doesn’t matter whether claim arose from TPB contract
or another contract
b. Ex. 1 (like Fox Case)
i. Pr promises Pe to pay $300 to TPB on valid contract
with Pr. When TPB sues Pr, Pr wants to use as a defense
the fact that Pr already paid TPB
ii. Valid defense because Pr already paid and it’s Pr directly
against the TPB.
c. Ex. 2—Same situation above, ADD:
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** if obligor has reasonable grounds for insecurity UCC 2-609 allows him to
demand adequate assurances.
d. Result of Assignment
i. Once assignor (A) assigns the right, A has NO further interest in the right.
ii. Because assignor’s interest has been transferred to assignee.
e. Gift Assignments—occurs when there’s no obligation between the assignor and assignee
– assignor simply assigning his right out of kindness.
i. Analysis Rest.2d §332 (Step 3 “4 Horsemen”):
1. Step 1. Ask: is the assignment a gift (gratuitous) assignment?
a. If there is no consideration between assignor and assignee/no
security for satisfaction of preexisting debt it’s a gift.
2. Step 2. Ask: is the gift assignment revocable?
a. Gift assignments are revocable if any of these apply:
i. Assignor dies/incapacitated;
ii. There is a subsequent assignment by the assignor; or
iii. There is not notification from assignor received by
assignee or obligor.
3. Step 3. Ask: is the gift assignment irrevocable?
a. Irrevocable when there is…
i. A (symbolic) writing that’s signed, sealed and delivered
(i.e. passbook to a savings account this is evidence
that you assign right if you give it to assignee);
ii. A payment or satisfaction of obligation to the assignee;
iii. A suit or judgment for the assignee; or
iv. A new contract by novation.
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iii. 2nd Check for source of money: When are AAC dealing with Money Rights
enforceable?
1. If the source of the money is from
a. Land (money rights from sale of land) AAC effective
(Article 9 NOT apply)
b. Services AAC NOT effective (Article 9 applies)
c. Goods AAC NOT effective (because the right to money has
been earned) (under either A2 or A9)
i. Discuss money being earned under both A2 & A9, but
for EXAM CONCLUSION PURPOSES we always
ASSUME the money has been EARNED.
d. Wages, Insurance Policy, Bank Account, Realty AAC
Effective, unless bad faith (Article
9 NOT apply) Assigned K
j. Setoff and Recoupment (Defenses obligor has against the (obligor) (assignor)
assignor)
i. Recoupment – defenses arising from the assigned Assignment K
K
1. Valid defense for obligor to use against (assignee)
assignee
ii. Setoff – defenses NOT arising from the assiged K
1. May only be used if the defense “accrued”
before the assignee gave notice to the 12/12/68
(obligor) (assignor)
obligor.
i. K COA “accrues” when there is a 12/13/68
breach Notice
12/13/68
2. Once notice is given, if COA accrues after
that notice it won’t be a valid defense. (assignee)
st
3. Example (Seattle 1 National Bank Case)
a. breach occurs 1/3/69
b. b/c breach occurred after notice CANNOT use setoff as a
valid defense
k. Waiver of Defense Clauses
i. “Obligor agrees not to use any defense against the assignee which the obligor has
against the assignor”
ii. These are INVALID because
1. Against public policy
2. A9 permits them but they are prohibited by a J’s statute
l. Modifications
Assigned K
i. Can the Obligor and Assignor change the (obligor) (assignor)
“assigned contract” once there has been an
assignment? Assignment K
1. 9-405 (a): YES
a. If in Goof Faith
(assignee)
2. Consequences (but be careful b/c it…)
a. gives the assignee corresponding
rights under the K as modified AND
b. the modification may be breached by the assignor’s agreement
w/the assignee.
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c. Example
i. John made maps and sold them Assigned K
to Auto at $5k/map. John Auto
Maps for $
John
borrowed $30k from Bank and (obligor) (assignor)
assigned the Auto pmts to the Right 2$ from maps
Assignment K
bank towards the loan they
gave him. The quality o/his Bank
maps weren’t as good as Auto (assignee)
anticipated so instead o/$5k,
they gave him $4k. Bank protested the change. Is bank
bound by the modification?
1. Yes, b/c no evidence John wasn’t acting in GF
m. Warranties of the Assignor – A warranty is a K action,
Assigned K
thus if you breach a warranty, you breach a K. (obligor) (assignor)
i. Three warranties of the assignor (to the assignee)
(Rest.2d §333) Assignment K
1. Won’t defeat or impair the value of the
assignment (good faith)
(assignee)
2. The right actually exists
3. The writing is genuine
ii. NOTE – assignor does NOT warrant that the obligor is solvent or that obligor
will perform.
n. Pure Delegation of Duties
i. Terminology B (POD)
Duty
A (delegator)
1. Identification of Parties
a. Person Owed Duty (POD) – person to whom duty owed Delegation of
b. Delegator – person who originally has the duty but delegates Duty
it to another
c. Delegatee – person to whom duty is delegated C (delegatee)
2. Example: A owes a duty to B (i.e. to paint B’s house), and A delegates
the duty to C.
i. Performance by C (delegatee) will be the performance of
A (delegator), BUT
ii. Non-performance by C (delegatee) is a breach by A
(delegator).
ii. When Are Duties Delegable?
1. Ask: May the delegator (A) delegate the duty to perform to the
delegate (C)?
a. Yes, if the duty is commercial, performance is capable of
objective evaluation
i. (UNLESS anti-delegation clause).
b. No, if the duty is personal, aesthetic, performance is not capable
of objective evaluation
i. (UNLESS POD waives non-delegability/grants
novation)
iii. Validity of the Delegation
1. Delegation is valid
a. where the duty being delegated is of a commercial nature,
b. where the duty being delegated is of a personal nature but there
is a novation.
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owed)
1. The TPB K is always a creditor beneficiary (c-
b) K, thus
2. Both delegator and delegatee are liable to B
(UNLESS there’s a novation).
a. B can sue either A or C (if novaiton
can sue only Pr (C))
C (assignee/
delegatee) (Pr)
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2. Langel v. Betz – court doesn’t follow rule and the ∆ did not have duty to
buy the land. Still good law b/c rule comes from Restatement w/is
suggestion and not authoritative source.
ii. Example
1. A has a K w/B to paint B’s house for $1000 and A “assigns the K” to C.
2. This means NOT ONLY that 1) A has assigned to C the right to receive
from B the $1000, BUT ALSO 2) A has delegated to C the duty to paint
B’s house, that is:
a. $1000 only due when house painted
b. If C fails to paint the house, A is still liable to do so UNLESS B
releases A by novation.
3. May the right be assigned?
a. YES, rights are freely assignable, generally, UNLESS
i. AAC or personal (check RII or UCC).
4. May the duty be delegated?
a. YES, painting a house is commercial and performance is capable
of objective evaluation (unless there is an ADC).
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AVOIDANCE OF CONTRACT DOCTRINES
1. MISTAKE—an unintentional act or omission arising from ignorance, surprise, or misplaced
confidence. The mistake must be material, meaning it is so substantial and fundamental as to
defeat the object of the parties.
a. Mutual Mistake
i. Both parties, at the time of contracting, are mistaken about the same basic
assumption or vital fact upon which they based their bargain.
ii. Both parties must be equally innocent as to the mistake
1. Each having the same knowledge or lack of knowledge about the mistake
iii. Categories of Mutual Mistake:
1. Mistake in Expression (Misunderstanding)
a. “Pure” mutual mistake no mutual assent set contract aside
i. “Ships passing in the night” (Raffles Case).
2. Court-Allocated Mistake
a. Mistake regarding the existence or identity of the subject matter
set contract aside (see Cow Case)
b. Mistake in value of the subject matter do NOT set contract
aside (see Rock Case)
i. Because there’s assumption of a risk when parties
contract for something that they don’t know the value of.
c. Mistake in operation of the subject matter set contract aside
i. NOT in casebook
3. “Cow” v. “Rock”
a. Cow – neither party aware that the cow is barren mutual
mistake in the existence or identity contract set aside
b. Rock – rock found, neither the jeweler nor the seller know what
it was mutual mistake in value contract NOT set aside
i. Parties both assumed a risk
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g. Duty to Investigate
i. Split of authority – trend is to place a minimal duty on the buyer
ii. But if there’s intentional, willful fraud court will want to benefit the
nonfraudulent party, whoever (buyer/seller) it turns out to be.
h. Innocent Misrepresentation
i. A buyer of land (relying on innocent misrepresentation) is barred from recovery
only if the buyer’s acts in failing to discover defects were wholly irrational,
preposterous, or in bad faith.
i. Punitive Damages
i. Fraud suits carry the possibility of substantial punitive damages.
ii. Need intentional conduct that is “malicious, oppressive, or gross”.
j. Example of Material Misrepresentation
i. Navy guy’s writ of habeas corpus (seeking rescission of his enlistment contract)
would probably be granted b/c navy made a material misrepresentation which
induced John to enlist.
4. UNDUE INFLUENCE—brainwashing.
a. A combination of the victim’s weakness AND another party’s taking advantage of those
weaknesses.
b. Weakness can be from:
i. Illness
ii. Age
iii. Immaturity (apart from age)
iv. Trauma (death of child/spouse)
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v. Substance Abuse
c. Confidential/Fiduciary Relationship
i. The existence o/a confidential relation requires the dominant party “to exercise
the utmost good faith and to refrain from obtaining any advantage at the expense
of the confiding party” – Kase
1. Old lady who sold house at super low int. rt. had actually advised an
attorney but insisted on rt.
d. Odorizzi Case
i. Not duress because no wrongful act, not fraud because no misrepresentation of
facts, not mistake, because no mistake in fact or law, correct cause of action
for plaintiff is “undue influence” because of over persuasion.
1. Doesn’t matter if plaintiff was actually guilty.
e. Factors of Over-Persuasion (Don’t need all):
i. Discussion of the transaction at an unusual or inappropriate time
ii. Consummation of the transaction in an unusual place
iii. Insistence demand that the business be finished at once
iv. Extreme emphasis on untoward consequences of delay
v. The use of multiple persuaders by the dominant side against a single servient
party
vi. Absence of 3rd party advisers to the servient party
vii. Statements that there is no time to consult attorney or financial advisors
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Four Factors – if all are met, contract Problem 128 – Rex is a mentally ill and
can be set aside for mental infirmity… walked into Patty’s dance studio wanting
lessons so he can compete in the Olympics.
1. How necessary is the contract? Dance lessons aren’t a necessity – not like
contract for food, clothing, shelter, etc.
2. How fair is the contract? Not fair, because Patty knows Olympics don’t
have a dance category.
3. Did the other side know or should Yes, Patty should know something is up
have known of the incompetence? because of #2 and because he’s extra-friendly.
4. How great is the hardship if the Not great at all because the dance lessons
disaffirmance is allowed? didn’t even start.
c. Guardianship
i. NOT ON EXAM!
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d. Intoxication
i. To get out of a contract you entered into while drunk, you
1. Must have extreme intoxication, AND
2. Must immediately disaffirm contract when you come to.
ii. I.e. ‘a few drinks w/buddies’ probably not indicative of extreme intoxication.
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ADDITIONAL NOTES:
Predominant Purpose Test: when you have both goods and service in the same (hybrid) transaction, do
you apply the common law or UCC? Ask yourself what is the predominant purpose of the transaction
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TYPES OF CRIMES:
1. Felonies: Crimes punishable by death or more than one year in prison
2. Misdemeanors: Crimes punishable by fine and/or one year or less in jail
3. Malum in Se: Crimes that are bad “in-and-of-themselves” (common law crimes)
4. Malum Prohibitum: Crimes that are bad “because we say so” (mostly governed by statute, include
strict liability offenses)
PURPOSES OF THE CRIMINAL LAW: The general purpose of the criminal law is to maintain an
acceptable degree of social order by requiring adherence to certain commonly agreed upon standards of
conduct. We attempt to do this through various means. Among the more important ones are:
1. Specific Deterrence – punishment to specifically to deter an individual from breaking the law
in the future;
2. General Deterrence – punishment to generally deter other members of society from engaging
in similar behavior;
3. Incapacitation – physically or otherwise preventing individuals from perpetrating future
crimes (i.e. prison, the death penalty, etc.);
4. Retribution – giving an individual who has broken the law his or her “just desserts,” in part
because morally this is the right thing to do, and in part to limit vigilantism;
5. Rehabilitation – changing the behavior of those who have broken the law so that they will not
commit more crimes when they are released.
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THEORIES OF PUNISHMENT:
1. Retributivism/Deontological Reasoning (Immanuel Kant):
a. A convicted defendant is punished simply because he deserves it; “Just Desserts
Theory,” he is morally responsible.
b. Assigns punishment on a proportional basis so that higher severity crimes receive a
more severe punishment than less severe crimes
c. Distinguish between Jus Talionis: “Eye for an eye”
d. Problem: Does not account for convict’s criminal history
i. CASES: see Coker v. Georgia, the death penalty is disproportional to the
crime of rape, thus cruel and unusual punishment (8th Amendment)
2. Utilitarianism/Consequentialism (Jeremy Bentham):
a. A convicted defendant’s punishment is justifiable based on the benefit to society.
The benefit to society must outweigh the harm.
b. Punishment is based on the deterrence of future crime
i. Specific Deterrence: deter individual
ii. General Deterrence: deter society/community at large
c. Rehabilitation: treat, aid, and teach D skills to succeed in society, D won’t have to
turn to crime in the future.
d. Problem: Requires determination of punishment that looks to the future to see if the
end result will be best for society.
i. CASES: see Regina v. Dudley and Stephens, general deterrence to society
(sailors in particular) to not engage in similar actions, the cannibalism at sea.
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CRIMES OF HOMICIDE: The unlawful taking of a person’s life by another…Setting the chain of
events in motion is sufficient (see People v. Lewis, V, instead of waiting to bleed out, slashed his own
throat after being mortally wounded by D). Causation key = mens rea caused actus reus.
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MODEL PENAL CODE HOMICIDE CRIMES: a person is guilty of criminal homicide is he purposely,
knowingly, recklessly or negligently cause the death of another human being.
1. Murder: §210.2
a. Elements
i. Purposefully, OR
1. The conscious object is to cause (engage in conduct) death
ii. Knowingly, OR
2. Actor is aware and practically certain conduct will cause death
iii. Recklessly
1. Conscious disregard a substantial and unjustifiable risk of death,
manifesting an extreme indifference to the value of human life, AND
2. A gross deviation from the standard of conduct that a law-abiding person
would observe in the actor’s situation
3. The Code also provides for felony-murder by setting forth that extreme
recklessness (and, thus, murder) is presumed of the homicide occurs
while D is engaged in, or is an accomplice in, the commission/attempted
commission, or flight from one of the dangerous felonies specified in
statute (robbery, arson, burglary, kidnapping, felonious escape, or rape)
2. Manslaughter: §210.3
b. Elements
i. Recklessly, OR
1. Conscious of a substantial and unjustifiable risk of death, not under
circumstances manifesting extreme indifference to human life.
2. Gross deviation from that of a law-abiding person in D’s situation
ii. Extreme Mental or Emotional Disturbance
1. Killing while under the influence of an extreme mental or emotional
disturbance (Subjective)
2. Reasonable explanation or excuse Reasonable to a person in the
actor’s situation under the circumstances as he believed them to be.
(Objective/Subjective)
3. Negligent Homicide: §210.2
c. Unaware of a substantial and unjustifiable risk of death but a reasonable person would
have been so aware/should have known.
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6. The woman must physically resist the attacker, by crying out or otherwise expressing her
unwillingness to the act. Otherwise, she is considered as having consented to the act.
7. General Mens Rea general intent offense, morally blameworthy state of mind that woman did
not consent
a. Possible Defense: Reasonable belief that woman consented
STATUTORY RAPE: (originated upon statute of Parliament) involving the penetration of a female child
or young woman, under the age of consent, by a man (penetration same as in common law). The age of
consent is determined by statute. Even if consented to, sexual penetration of the minor violates the law.
(1) Consent/lack thereof irrelevant, (2) Force/lack thereof irrelevant. [Prosecutor only had to prove
penetration and under age of consent] [TREATED MUCH LIKE STRICT LIABILITY}
1. Mistake of Fact: the majority rule is that mistake of fact (age) is NOT a defense to statutory rape.
RAPE SHIELD LAW: Seeks to protect victims from being cross-examined about irrelevant, oftentimes
embarrassing, personal information. A court may hold a special “in camera” hearing to determine
whether the testimony is relevant and constitutionally required to be admitted weight the inflammatory
or prejudicial nature and the probative value.
CRIMINAL SEXUAL CONDUCT (CSC) STATUTES: if no intent, infer intent into statute
1. Sexual Penetration: penetration is used in the act, any type of penetration is sufficient (CSC 1, 3)
2. Sexual Contact: intimate parts of the victim are touched with the intention of using the touching
as a form of sexual gratification (CSC 2, 4).
3. For Exam Purposes: Statutes will be provided for exams
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ASSAULT (TWO TYPES) AND BATTERY
Battery Elements
1. Mens Rea
a. An intent to injure, or offend (General Intent), OR
b. The person must have acted with gross negligence regardless of intent
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2. Actus Reus
a. There must be a nonconsensual and unlawful
b. Harmful or offense contact
i. Offensive contact is usually judged by an objective (reasonable person) standard.
c. Caused by the defendant. An instrument may be used.
3. Simple Battery: no lasting physical injury
4. Aggravated Battery: significant injury
Assault Elements
1. First Type of Assault (Attempted Battery, all attempts crimes are specific intent)
a. Conduct by D, was unlawful
b. With intent to cause harmful or offensive contact (Specific Intent)
c. Present ability
d. Apprehension by the victim is NOT required
e. The attempt must come very close to completion (attempted battery)
2. Second (Frightening) Type of Assault: (Reasonable Apprehension)
a. The person intends to frighten another person, that is, to put that person in
apprehension of an immediate battery (Specific Intent)
b. The person does become apprehensive, that is, does become fearful of an immediate
battery, AND
c. The apprehension is a reasonable one for the victim to make under all of the
circumstances
OTHER ASSAULT CRIMES
1. (Felonious?) Assault: assault or A/B with gun, revolver, pistol, knife, iron bar, club, brass
knuckles, or other dangerous weapon w/o intent to murder or GBH.
2. Assault with Intent to GBH: assault or A/B with intent to do GBH less than murder.
3. Assault with Intent to Murder: assault or A/B with the intent to commit the crime of murder.
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KIDNAPPING
ELEMENTS
1. Forcible Movement Type
a. The victim is moved from one place to another (substantial inference),
b. This is done through force, fraud, deception or threats,
c. The movement is against the victim’s will or against a victim who is unable to give
lawful consent, AND
d. The movement is done without lawful authority
2. Secret Confinement Type
a. The victim is secretly confined or imprisoned
i. Duration: more than practical joke, substantial interference
b. This is done through force, fraud, deception or threats
c. The confinement or imprisonment is against the victim’s will or done against a victim
who is otherwise unable to give consent, AND
d. The confinement is done without lawful authority.
3. Mens Rea: (General Intent) determined by the language of the statute or as determine by a
construction given by the courts. In many jurisdictions motive or intent may be immaterial D
knows V does not want confinement
4. Incidental Rule
a. If the movement is merely incidental to the commission of another crime, then it is not
kidnapping
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BURGLARY: a breaking and entering of a dwelling house of another at night with the intent to commit
a felony therein. (Offense against habitation)
COMMON LAW ELEMENTS
1. Actus Reus
a. Breaking: there must be any breaking any force, no matter how slight, to create or
enlarge an opening to gain entry
i. Constructive Breaking: fraud or deception is equivalent to breaking for purposes
of common law burglary, or exceeding limited consent.
b. Entering: the entry of any instrument used to facilitate the commission of the felony
inside, or the entry of any part of the culprit’s body, no matter how slight, is a sufficient
entry
i. Exception: an instrument used for breaking which accidentally enters the
dwelling is NOT an entry (not to facilitate the commission of the felony)
c. Of a Dwelling House: a structure used for human habitation. Owner or person with right
to use the property need not be present.
i. Temporary Dwellings: like summer cottages, are considered dwellings.
ii. What is NOT a Dwelling: A new home with no one occupying it, an abandoned
home, a business building is not a dwelling.
iii. CURTILAGE: dwelling includes outbuildings (capable of human habitation) in
curtilage the space surrounding a dwelling house that is within a fenced area
that surrounds a dwellings house, or within an area that might ordinarily be
expected to be fenced (an imaginary fence is sufficient). Thus, any breaking of a
building within the curtilage counts.
d. Of Another: A person cannot be convicted of breaking into a home which that person
either uses as a dwelling or has the right to use as a dwelling.
i. Inner-Door Doctrine: within a specific building, multiple people may have right
to possession of a specified area. Common use area: living room, cannot enter
into someone’s bedroom: Exclusive use.
e. In the Nighttime: after dusk but before dawn, a dwelling house is more vulnerable at
night.
2. Mens Rea (Specific Intent Crime)
a. With the Intent to Commit a Felony Therein: the breaking and entering must be done
with the intent to commit a particular felony. Neither the felony nor any act towards the
felony need be proven, as long as there is a breaking and entering and sufficient evidence
to prove the intent to commit a felony.
i. The intent must be formed before the entering, if no intent = trespassing. I.e.
Concurrence
HOME INVASION: any person who breaks and enters a dwelling with the intent to commit a felony or
a larceny therein, or the entry of dwelling without permission with intent to commit a felony or larceny
therein (home invasion accounts for the lack of “breaking” into dwelling)
1. First-Degree: home invasion when either (1) another person is lawfully present in the dwelling,
or (2) person is armed with a dangerous weapon.
2. Second-Degree: home invasion that is not in the first-degree
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ii. If someone recklessly burns his own home, and the fire spreads to another
person’s house, the crime is arson if the arsonist recklessly disregarded a high
risk of burning will occur, the risk to another house.
iii. If a landlord burns his house while rented to another, it is arson since it is not his
dwelling house.
b. Some part of the dwelling house must be burned (or charred)
i. The burning does not have to be completely consume the premises or even cause
an open fire. Any charring or evidence of combustion of any part of the structure
is sufficient (something permanently attached to the house)
1. Smoke Damage is NOT sufficient
ii. The burning of clothing or other items inside the house, if it does not affect the
structure, is not sufficient for arson.
2. Mens Rea:
a. The defendant must have acted maliciously intends to burn the dwelling of another or
if he acts under such circumstances that there is an obvious, plain and strong likelihood
that the fire started will result in the burning of the dwelling house, i.e., reckless
disregard (knowledge of the risk being taken).
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PROPERTY CRIMES
LARCENY (Specific Intent Crime)
Common Law Elements
1. The trespassory (lacking permission, lying, mistake) [no transfer of title, just possession]
2. Taking (obtaining possession)
a. Effective taking of property, interfering with other person’s rightful possession.
3. And carrying away (asportation)
4. Of personal property
5. In the possession of another
6. With the intent to steal (permanently deprive the possessor of) the property at time of the
trespassory taking/possession
a. If the intent was to borrow, joyriding = no larceny (see People v. Brown)
7. To convert the property to the use of someone other than the owner.
Third Extension—Intentionally Keeping Property Given by Mistake: rightful possession due to the fact
that the person did not know that they were given something by mistake until after the fact. One must
have knowledge at the time of taking of mistake (see Cooper v. Commonwealth).
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Continuing Trespass Doctrine: trespassory taking (possession by fraud), trespass continues until one
forms the intent to permanently deprive, at which time larceny committed (see State v. Coombs).
EMBEZZLEMENT
Common Law Elements
1. Conversion
a. Acts that seriously interferes with the owner’s rights and so constitutes a conversion
i. Examples: using it up, selling it, pledging it, giving it away, delivering it to one
not entitled to it, inflicting serious damage to it, claiming it against the owner,
unreasonably withholding possession of it from the owner.
ii. Not Conversion: slight damage, slight movement
2. Of personal property
3. Of another
4. The defendant receives lawful possession of property (not trespassory, like in larceny)
a. Possession of money or goods if one is “authorized to dispose of such money or goods at
his discretion.”
5. That person is in trust relationship as to that property
6. With the intent to use that property in a manner inconsistent with that position of trust (such as
with the intent to permanently deprive)
CONSOLIDATED (MODERN CRIME OF) “THEFT”: MPC combines all theft crimes into one for
charging purposes, then at trial can prosecute under different sections of the crime
THEFT is the offense which encompasses larceny/false pretenses/embezzlement.
MPC §223.1
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GENERAL PRINICIPLES
NECESSITY OF AN ACT: there must be an act that has occurred in order for it to be prosecuted. Every
crime needs an act. Even crimes in waiting, solicitation; situation created to set stage for future crime.
FAILURE TO ACT: failure to act in absence of other factors is not criminal, unless you have a legal
responsibility to act (satisfy/constitute the actus reus element).
1. Statute imposes a duty to care
2. Where one stands in a certain status relationship to another
i. Immediate family members, dependant care giving relationship
3. Where one has assumed a contractual duty to care for another
4. Where one has voluntary assumed the care of another and so secluded the helpless person as to
prevent others from rendering aid.
5. Creating peril (Example: hit and run).
Examples:
1. Parents have a legal duty, not just a moral obligation, to care for their children
a. No legal responsibility or guardianship after the child is an adult
2. Owner of an automobile, who knows that it is being operated contrary to the law, is said to have
given implied consent to that act, and is thus liable for the consequences.
3. Employer/Superior is not liable for unknown acts committed by his employee, unless committed
under order or direction of the employer/superior.
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Dangerous Proximity Test: an act in order to be a criminal attempt, must be immediately, not
remotely, connected with and directly tending to the commission of an offense. The test says that the
defendant must have done everything he could have done to produce the given result. – or there is a
physical proximity and indispensable element (see Rizzo) “dangerously close to success” [Favors
Defendant, harder for the Prosecutor to prove]
MPC “Substantial Step” Test: defendant must have performed an act that strongly corroborates his
criminal purpose. “Purposely does or omits to do anything which, under the circumstances as he
believes them to be…Section 2: substantial step that is strongly corroborative of the actor’s criminal
purpose, examples of this section seem to be mere preparation.
1. Courts may adopt MPC, but employ their own version of what constitutes a substantial step.
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SOLICITATION (can merge into an attempted crime, conspiracy, or the crime solicited if completed)
1. The requesting, commanding, hiring, asking, or encouraging
2. Another person
3. To commit a crime
a. Must be specific about the crime solicited
4. With the specific intent that the other person commits the crime solicited, asked in such a way as
to order the crime to be committed.
MPC: (1) no limitation on crimes to be solicited, (2) if D fails to effectively communicate solicitation,
still guilty conduct designed to effect such communication. (Ex. Email sent, but never read).
Once the crime is committed, the crime of solicitation merges with the crime the person who
solicited the commission of the crime is guilty as an accessory to the crime and can be convicted of
the crime. Solicitation is a common law misdemeanor regardless of the grade of the offense solicited.
Withdrawal: persuade the person not to do the act, convince them not to do the act
CONSPIRACY (does NOT merge into other crimes under common law, merge does occur under MPC)
READ DRESSLER 29.07
1. An agreement (mutual understanding, writing NOT required)
2. Between two or more “criminal minds” persons (Plurality)
a. MPC: Unilateral agreement, Under Cover not a “criminal mind,” but under MPC, it
would still be a conspiracy (agree that one or more of them will engage in conduct).
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Co-conspirator need not know all of the other parties involved in the conspiracy; D must understand that
the plan or scheme is unlawful, and knowingly and intentionally joins that plan. Co-conspirators do not
need to know of every contingency of the agreement, but just that each co-conspirator knows the general
scope of the unlawful agreement and shares that general purpose (see Rosado-Ferandez and Kotteakos)
Pinkerton Rule: once a conspiracy is charged, each of the co-conspirators can be charged, convicted and
sentenced for the conspiracy. In addition, each of the co-conspirators can be convicted and sentenced for
each crime committed by a co-conspirator if such crime is reasonably foreseeable in furtherance of the
conspiracy to be a consequence of the criminal agreement. MPC rejects Pinkerton Liability
Withdrawal Under Common Law: affirmative step to withdraw that is reasonably likely to communicate
with the other members inconsistent with the purpose of the conspiracy relieves D from being charged
with substantive crimes (before those crimes are committed)
What is a affirmative step?
Withdrawal Under MPC: affirmative defense (after conspiring to commit a crime) thwart the success of
the conspiracy, under the circumstances manifesting a complete and voluntary renunciation of his
criminal purpose
What constitutes “thwarting”?
ACCOMPLICE LIABILITY (Aiding and Abetting): like attempt, it is not a “separate crime”
1. Common Law: WILL NOT BE TESTED ON FOR THE EXAM???
a. Principal in the First Degree: the person who actually commits the crime
b. Principal in the Second Degree: someone who is present and who assists in the
commission of the crime
i. Under Common Law, both kinds of principals had to specifically intend the
commission of the crime
c. Accessory Before the Fact: someone who planned or otherwise assisted in a crime but
ho was not present (or constructively present) at the commission of the crime.
i. Under Common Law, limited death penalty only to principals and does NOT
extend to accessories.
d. Accessory After the Fact: someone who assists a felon after the crime has been
committed.
i. Under Common Law, punished as any accessory (no distinction b/t time)
ii. Under Statute, accessory after the fact is less culpable than the offender or
someone who has assisted in the commission of the crime.
1. Accessory after the fact must have had knowledge that the felon he
assisted had committed the crime in order to be guilty.
2. Modern Classification USE FOR EXAM PURPOSES UNLESS TOLD OTHERWISE
a. “Principal” (and “aider and abettor”) Today = CL Principal in
First/Second/Accessory Before the Fact…
b. “Accessory After the Fact” = common law accessory after the fact
i. 18 U.S.C. §3: pg. 244
3. Accomplice Liability ELEMENTS (Statutes):
a. First, some crime has been committed
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b. Actus Reus: the giving of any aid (physical/psychological) (see above in 2(b)(i))
assisting the perpetration of a particular crime (there is no general crime of “aiding and
abetting”)
i. Failing to act when you have a legal duty to act = assist
c. Mens Rea: with the purpose of promoting or facilitating the commission of the offense
[MPC 2.06(3)(a)]
i. Common Law Mens Rea: the person rendering the aid had the specific intent or
purpose of either committing or of encouraging or facilitating commission of the
offense charged at the time of giving aid or assistance.
4. Charging/Prosecution/Conviction/Sentencing
a. A prosecutor does NOT have to distinguish between the person who commits the crime
(principal) and an accessory to the crime. BOTH are charged simply with the
commission of the crime
b. Unlike conspiracy (where an agreement is required), the accomplice (where no
agreement is required) is charged only with the crime committed and if convicted,
punished only for that crime.
5. Examples:
i. D1 rapes a waitress in a crowded bar
1. Guilty of Rape
ii. D2, his friend, sees him having trouble and helps hold the V down
1. Guilty of Rape (Accessory During the Fact)
a. Obviously intended the rape to continue
b. Acted to assist in the perpetration of the crime
iii. D3, doesn’t know any of the parties, but cheers them on
1. Guilty of Rape (Accessory During the Fact)
a. Intended that they continue
b. Acted by encouraging (psychological assistance) them to
continue
iv. D4, another customer, is enjoying the “show,” but stays silent
1. Not Guilty
a. Intended that they continue
b. No Overt Act
v. D5, drunk standing outside, unaware of what’s happening. When a Police
Officer walks by, hears the commotion, and asks him what is going on, he
replies, “nothing.” The police officer believes him and continues down the
street.
1. Not Guilty
a. No Intent
b. Acted by assisting in avoiding detection by the Police
vi. D6, the bartender/manager, does nothing, and says nothing. Statute requires him
to control rowdy patrons.
1. Not Clear
a. Intent is Not Clear (Did he want them to continue, or was he
afraid to intervene?)
b. Legal Duty, acted by failing to act when required to do so
vii. D7, bar owner, was at home.
1. Probably Not Guilty
a. No Intent (Unless he knew about it beforehand)
b. No Overt Act (Unless he knew about it before hand, and staying
away was an act)
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viii. D8 arrived after the crime, was informed of the crime, and then drove the
perpetrators to Canada.
1. Guilty as an Accomplice After the Fact to Rape
a. Knew that they had committed the crime
b. Assisted them in evading capture and prosecution
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VARIOUS MENS REA ISSUES
CONCURRENCE BETWEEN ACTUS REUS AND MENS REA—see notes on pg. 1 of this outline.
LEGAL REQUIREMENT FOR PROSECUTION…but,
1. Public Policy may require that this doctrine be ignored (rules should not be applied in a social
vacuum)
TRANSFERRED INTENT: the common law, as well as current law does not allow for new crimes to be
created by combining the mens rea of one crime with the actus reus of another. Some crimes are,
however, a blend of two crimes (there already exist crimes which are composed of the elements of two
different crimes).
1. Intent follows the act
2. Count your victims
a. Example: A shoots at B (with intent to kill), misses and kills C
i. Intent to shoot B transfers to C
ii. Guilty of Murder
1. Attempted Murder of B merges with the Murder of C
2. Guilty of Assault (with intent to murder/kill) on A
3. MENTAL STATE WAS THE SAME, apples and apples
b. Non-Example: A wants to steal (larceny) property, accidentally sets fire to property.
i. A is not Guilty of arson, because he did not intentionally/maliciously burn the
property
ii. A is not Guilty of larceny, not taking of the property.
iii. Apples and Oranges
MOTIVE: an internal state which cause a person to act (NOT the same as intent or mens rea). It is rather
the precedent or previously existing or co-existing conditions which draw one into action. Motive is not
usually an element of a crime although the legislature is given great discretion to determine the elements
of any criminal provision. Motive can help/assist in determining a person’s intention.
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INSANITY: generally, the kind and degree of mental abnormality that we as a society believe is
sufficiently severe that D should not be held criminal responsible for his acts.
1. Not Guilty by Reason of Insanity (NGRI): When defendant has been given an insanity
judgment the courts are able to confine him to a mental hospital until either he has regained sanity
or is no longer a danger to society or himself. At times he may be incarcerated for a longer period
of time in a hospital than he would have been if was convicted.
a. M’Naghten (“Right-Wrong”) Standard: a cognitive standard, at the time of committing
the act, the defendant suffered from mental disease or defect…
i. He didn’t know the nature and quality of his acts, OR
ii. D appreciated actions but didn’t know what he did was wrong.
b. Irresistible Impulse/Volitional Test: Due to mental illness defendant is unable to control
his actions or conform his conduct to the law (additional prong, not an individual/stand-
alone test) [Lacked Free Will]
c. MPC/ALI Standard: two-prong test, either has to be the “result of mental illness”
i. Whether D at the time of the crime was “substantially unable” to “appreciate the
wrongfulness of his conduct” (basically the M’Naghten Rule, but less stringent),
OR
ii. Whether D was “substantially unable to conform his conduct to the requirements
of the law”; i.e. understand that his action was wrong, but unable to control his
actions (basically the Irresistible Impulse Rule).
1. Must emanate from a mental illness or defect (not just repeated criminal
or anti-social behavior)
d. The Durham/Product Test: D in a criminal case is not responsible if his unlawful act was
the product of a mental disease or mental defect [“But-for” test, difficult to establish the
causal link between disease/defect and action]
i. Mental Disease: capable of improving or deteriorating.
ii. Mental Defect: not considered capable of either improving or deteriorating and
which may be either congenital, result of injury, or residual effect of a physical or
mental disease.
iii. Extension of Rule Campbell Case: D could be found NGRI if his motivation
was the result of such mental disease, regardless of whether or not the sanctions
of the criminal law as a deterrent
iv. MAYBE MULTIPLE CHOICE/ WILL NOT BE AN ESSAY
e. Insanity Defense Reform Act of 1984: emerged after the attempted assassination of
President Ronald Reagan.
i. Limited to whether D was “unable to appreciate the nature and quality or the
wrongfulness of his acts” at the time of offense), i.e. NO volitional prong (easier
than M’Naghten rule, but no irresistible impulse component)
1. Burden of D to prove insanity by clear and convincing evidence
2. Limits expert witness testimony to only right-wrong analysis, no
opinions on ultimate issue of the accused’s sanity.
f. Burden of Proof: who must prove insanity or sanity, and by what standard of proof?
i. Federal: according to the Insanity Defense Reform Act of 1984, burden on D to
prove insanity by clear and convincing evidence
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MISTAKE/IGNORANCE OF LAW/FACT
Mistake of Law: the general rule is that mistake or ignorance of law is no excuse (is not a defense)
1. Exceptions (see Dressler)
a. Fair Notice:
i. Engrained is our concept of Due Process is the requirement of notice. Notice is
sometimes essential so that the citizen has the chance to defend the charges
1. Whether D had actual knowledge of law, or showing of probability of
such knowledge
b. Reasonable-Reliance Doctrine:
i. Reliance of interpretation of statute or law officially made by body legally
charged with enforcing or interpreting such statute of law.
ii. D’s own misreading of law—even if in good faith—not included as a basis for
mistake of law defense
2. Failure of Proof Claims
a. D claims that because of a mistake of law, he did not have requisite mens rea
i. When the statute requires proof of knowledge of the law/element, knowledge of
which is required for violation
1. Failure to show that knowledge = no mens rea
a. Examples: statutes including “willful” language (i.e. specific
intent), knowledge of law and conscious violation of law.
i. “Voluntary, intentional violation of a known legal duty”
(see Cheek v. US).
b. “A different law” mistake
Mistake of Fact: may be a defense to negate the mental element of the crime,
1. Rules vary depending on whether the offense is
a. Specific Intent – honest/good faith/bona fide belief (does not have to be reasonable)
b. General Intent—honest and reasonable mistake
c. Strict Liability –mistake of fact is NOT available as a defense
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CONSENT:
1. General Rule, victim’s consent does not necessarily provide a defense to D.
a. However, may be relevant for professional sports and crimes that require they be
committed against the will/consent of the victim.
2. Consent cannot be considered a defense in situations where a duel is fought, playing Russian
roulette or to kill another in a mutual suicide pact.
Assisted suicide: legal in Oregon as well as a few other countries. It requires the consent of a person who
is suffering and near death, and wishes to have their life terminated. It is illegal in most states.
CONDONATION BY THE VICTIM: a common law precept that prohibits the private settlement of
criminal cases. Conduct of the victim does not extinguish criminality.
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DURESS/COMPULSION: duress is a defense to every crime except murder. Duress justifies illegal
conduct if the elements are met. Duress occurs when a person coerces another person to commit a crime.
The duress defense may be used when the following circumstances occur (may be b/t two equal evils)
1. There is a threat of immediate infliction, upon the defendant, of death or bodily harm; AND
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2. The Δ has a well-grounded fear that the threat will be carried out; AND
3. The Δ lacks a reasonable opportunity to otherwise avert the threatened harm.
Sometimes courts mention additional elements of the duress defense
1. The situations must have arisen without the fault of negligence of the Δ;
2. The threat must be present, imminent and impending when the crime committed under duress
is carried out.
Prison Escape Cases Additional Elements:
1. Was there time to complain to the authorities or to the courts?
2. Did Δ immediately report to the proper authorities when he or she had attainted a position of
safety from the immediate threat? (U.S. v Haney)
Class Elements: USE FOR EXAM PURPOSES (Human Force, like threats)
1. Threat to kill or seriously injure unless person commits offense
2. Person reasonably believed threat is genuine
3. Threat present and imminent
4. No reasonable escape alternative
5. Clean hands (i.e. did not substantially contribute to the creation of the emergency)
3rd Person Protection: is recognizable when the Δ is protecting a child or other family member or another
person who is used to coerce the Δ into action instead of threatening the Δ directly. The Haney case
establishes the defense as applicable to a third person when D acted so as to preserve the life of the third
person.
MPC on Duress §2.09: affirmative defense if coerced to do so by the use of, or threat to use, unlawful
force against his person or the person of another.
• Unavailable if the actor recklessly or negligently placed himself in the situation.
• Unavailable for woman acting under the command of her husband.
NECESSITY (“Choice of Evils” Defense): the necessity defense is also called the choice of evils
defense. The defense of necessity is used when physical/natural forces beyond the defendant’s control
cause the danger. “Necessity” justifies illegal conduct if the elements are met. With origins in common
law, the elements of necessity are set out in the Toops case…
Class Elements:
1. Imminent danger (significant evil)
2. No adequate alternative
3. Harm caused not disproportionate to harm avoided (lesser of 2 evils)
4. Good faith belief that action was necessary (to prevent greater harm)
5. Belief objectively reasonable (under all the circumstances)
6. Clean hands (i.e. did not substantially contribute to the creation of the emergency)
Additional Notes:
• Civil disobedience is NOT a necessity defense
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IMPERFECT PRIVILEGE DOCTRINE: when D cannot quite prove one element of the crime/defense,
lessen the crime to a lower crime to give D a break.
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JUSTIFICATION DEFENSES
POLICE OFFICERS AND OTHER STATE ACTORS
1. Crime Prevention
a. The right of police officer to prevent or stop criminal activity
b. The right of a private citizens to prevent or stop criminal activity
2. Deadly Force—force that is (reasonably) likely to cause death or serious bodily harm.
3. Non-Deadly Force—force that is not (reasonably) likely to cause death. It does not become
deadly force even if someone dies as a result of it.
Common Law: almost unlimited authority for either police or private citizen to use deadly force in
pursuit of crime prevention (probably b/c felonies in common law carried a punishment of death)
DEFENSES OF HABITATION AND PROPERTY: the concept of a person’s habitation as one’s “castle”
runs throughout the law and the privilege of defending the habitation must not be confused with the
privilege of defending property which stands upon a much lower level.
1. Habitation—extends beyond actually residence, but the occupation as a substitute home or
habitation, like a hotel/motel, or even as a guest in the home of another (right to peaceful
occupancy within domicile) [Deadly force for burglary???]
a. Deadly Force—when D reasonably believes that the entry is attempted or made for the
purpose of assaulting or offering personal violence to any person, dwelling, or being
therein (State v. Mitcheson).
b. Look at statutes for subtle variations
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2. Personal Property (Majority Rule)—a private citizen cannot use deadly force in defense of only
personal property (see Commonwealth v. Emmons).
a. Trap-Guns: are unlawful when person not actually present (People v. Ceballos).
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TOTAL DEFENSES
SELF-DEFENSE
Elements:
1. At the time of the crime, D must have a honest belief that he was in danger of death or serious
bodily harm; [Subjective Standard]
2. The belief at the time must have been that this harm was imminent and immediate; AND
3. A reasonable person (in D’s circumstances) would have believed himself to be in imminent
danger of death or serious bodily harm at the time of the killing [Objective Standard]
Retreat Jurisdictions—some jurisdictions require that D must have been able to retreat in complete safety
and know at the time of the attack that D could retreat in complete safety.
• Castle Exception: do not require retreat if D is attacked in her own home by either a stranger or
co-inhabitant [has been extended to include D’s curtilage and place of business]
• Majority View: no duty to retreat
When D is Initial Aggressor w/Non-deadly Force, or Non-aggressor—D may respond with deadly force
if the above elements have been met.
When D is the Unjustified Aggressor w/ Deadly Force—when D assaults another with deadly force, and
the person threatened responds with deadly force, D cannot use the defense of self-defense if D kills his
attacker…
• UNLESS D withdraws from the fight in good faith and clearly informed the other person of
desire to end fight. If the other person continues assault or resumes at a later time, D may use
deadly force if the above elements are met.
Proportionality—was the use necessary and proportional for protection (i.e. not excessive)
DEFENSE OF OTHERS
Modern Elements—D may defend another (including strangers) with deadly force if…
1. D reasonably believes that the other person to be in immediate danger of death or serious bodily
harm; AND
2. D didn’t know that person may have lost the right of self-defense (allows for reasonable mistake)
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ENTRAPMENT:
1. Subjective Standard—used by most states, in federal courts, as well as US Supreme Court
a. Government induces crime (i.e. creates a special incentive for D to commit the crime)
b. D was predisposed to commit the crime before government inducement (i.e. D’s
willingness to commit the offense prior to contact with government)
i. Examples:
c. Burden of Proof
i. On D to show inducement, if met then…
ii. On P to show predisposition
2. Objective Standard—minority view, used in California (see People v. Barraza)
a. Looks solely at police misconduct/inducement (i.e. were the actions of the police so
outrageous as to cause or incite an average hypothetical citizen to commit the offense)
i. Overbearing conduct (more than just simple lies)
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FOURTH AMENDMENT—“The right of the people to be secure in their persons, houses, papers, and
effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but
upon probable cause, supported by Oath or affirmation, and particularly describing the place to be
searched, and the persons or things to be seized.”
SEIZURES
1. Four General Types of Contacts—and burdens of proof
a. “Consensual” Contact—does not implicate the Fourth Amendment
b. Brief (Terry) Stop—requires reasonable suspicion
c. Full Blown Arrest/Search—requires probable cause and warrant or warrant exception
d. Administrative/Special Needs Seizure—must be “reasonable”
2. At What Point Does a Seizure Occur? A seizure is a point is time, not a continuing process.
a. Factual Application:
i. A seizure occurs when a police officer accosts/uses physical force against an
individual or exhibits a show of authority submitted to by the suspect, either of
which restrains his freedom to walk away (see Terry v. Ohio; California v.
Hodari D.).
ii. A seizure occurs if a reasonable (presumed innocent) person would not feel free
to decline the officer’s request or otherwise terminate the encounter (see Florida
v. Bostick).
1. When an individual voluntarily places himself in confined quarters,
restricted movement argument is not successful.
2. No seizure where there is no application of force, no intimidating
movement, no overwhelming show of force, no brandishing of weapons,
no blocking of exits, no threat, no command, not even an authoritative
tone of voice (see United States v. Drayton).
b. Totality of the Circumstances—judgment of the case will not be based on only one
element of the situation. Judgment must be based on the totality of the circumstances
[Write this on the EXAM]
3. Seizures Short of an Arrest
a. “Stop-and-Frisk” (See Terry v. Ohio)
i. Reasonable Suspicion Burden of Proof—the officer must have specific and
articulable facts, which taken together with the rational inference from those
facts, reasonably warrant the intrusion.
ii. TERRY BALANCING TEST —for each type of intrusion, the court must weigh the
governmental interest against the degree of the intrusion.
1. Government Interest—(justifies the intrusion at is inception, i.e. crime
prevention, officer safety, etc.). Must have reasonable suspicion…
a. To support the stop, there must be reasonable suspicion that
crime is afoot.
b. To support the frisk, the office must also have specific and
articulable facts that the suspect is armed and dangerous.
2. Degree of Intrusion—every amount of the intrusion must be related to
the government interest.
a. The intrusion is permissible if it is limited in scope to one
reasonably designed to recover weapons.
b. What Factual Situations Will Provide an Officer with Reasonable Suspicion?
i. United States v. Cortez (Terry reasonableness/totality of the circumstances)—the
reasonableness of the Terry standard must be based on the totality of the
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ii. Arrest—there must be “substantial probability” that a crime has been committed
and that the person to be arrested committed it.
b. Factors to Consider When Making the Determination that the Degree of Intrusion
Requires Probable Cause:
i. Was there forcible movement (forcible movement = arrest)?
ii. What was the length of detention?
1. Who was responsible for the delay (police of defendant)?
2. Were the police diligently pursuing their investigation during the period
of delay (prolonged detention = arrest)?
c. Tips and Informants (Hearsay Evidence)
i. The Aguilar Two-Prong Test (see Spinelli v. United States)
1. Basis of Knowledge—how did the informant get this information?
2. Veracity—how truthful is the information?
a. What is the reliability of the information?
i. Were there predictive details?
ii. How was the tip corroborated?
b. How credible is the informant?
3. Retained by some states
ii. Totality of the Circumstances (see Illinois v. Gates)—the court, in making a
practical, common-sense decision, should consider the following in determining
whether there is a fair probability that contraband or evidence of a crime will be
found in a particular place…
1. Basis of the knowledge; veracity; corroboration of details; predictive
details of the tip.
2. No one factor is entitled to any more weight than another.
3. Applicable for reasonable suspicion cases (see Alabama v. White).
iii. An anonymous tip alone seldom demonstrates the informant’s basis of knowledge
or veracity. I.e. need some type of corroboration (see Florida v. J.L.).
7. Arrest Warrants
a. When, and under what circumstances, do the police need to obtain an arrest
warrant before they may arrest someone for a crime?
i. Only when the police seek to enter a private place.
b. Challenging Validity of the Warrant—where the defendant makes a substantial
preliminary showing that a false statement knowingly and intentionally, or with reckless
disregard for the truth, was included by the affiant in the warrant affidavit, the 4th
Amendment requires that a hearing be held (see Franks v. Delaware).
i. If, by a preponderance of the evidence, defendant shows false statement, info set
aside, and if remaining content is insufficient for probable cause, warrant voided
and evidence excluded.
c. Warrantless Arrests in Public Places
i. Based on probable cause, an officer can make an arrest for a felony committed in
a public place, regardless of whether it took place in his presence, without a
warrant (see United States v. Watson).
ii. If the officer has probable cause by way of witnessing a misdemeanor, he may
make a warrantless arrest even if there is no breach of the peace (see Atwater v.
City of Lago Vista).
d. Warrantless Arrests in the Home
i. Absent exigent circumstances, the police cannot go into someone’s home even if
they have probable cause without a warrant (see Payton v. City of New
York).
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8. Exigent Circumstances
a. There are four types of exigent circumstances which will allow a police officer to
enter a home without a warrant to effectuate an arrest (officer must still have
probable cause) (see Minnesota v. Olson)
i. Hot Pursuit of a Fleeing Felon
ii. Destruction of Evidence
iii. Danger of Suspect’s Escape
iv. Danger to Police Officers or Others
1. This pertains to the gravity of the offense and the likelihood that the
suspect is armed.
b. Factual Application
i. Steagold v. United States—in the absence of exigent circumstances or consent,
the police must have a search warrant to enter a third person’s home looking for
someone else, even if they have an arrest warrant.
1. It is the third party that would challenge the search, not the arrestee.
ii. Warden v. Hayden—the 4th Amendment does not require that police officers
delay in the course of an investigation if to do so would gravely endanger their
lives or the lives of others.
iii. United States v. Santana—if the defendant is one foot outside the door and one
foot in the house and runs in the house, this represents an exigent circumstance
because the perpetrator could be going inside to destroy evidence (also hot
pursuit).
iv. Welsh v. Wisconsin—an important factor to be considered when determining
whether any exigency exists is the gravity of the underlying offense for which the
arrest is being made.
v. Vale v. Louisiana—an arrest made on the street does not provide its own exigent
circumstances so as to justify a warrantless search of the arrestee’s house.
vi. Mincey v Arizona—a homicide is insufficient to provide exigent circumstances.
vii. Brigham City v Stuart—officers who make a warrantless entry of a home to
provide emergency aid must have an objectively reasonable basis to believe that
an occupant is seriously injured or imminently threatened (i.e. danger to others).
c. Warrantless Seizure of the Premises Under Exigent Circumstances (Secure the
Scene)
i. Segura v. United States—the warrantless entry of a home and a 19-hour
occupation of it is permissible in order to prevent the destruction or removal of
evidence while a warrant is being secured.
ii. Illinois v. MacArthur—the warrantless seizure of a person and their premises by
prohibiting free access to an occupant while waiting for a search warrant allowed
as reasonable, especially when there is a risk of evidence destruction.
d. Knock-and-Announce Rule
i. Richards v. Wisconsin—the common law recognizes a police officer’s authority
to break open a dwelling but generally indicates that he must first “knock and
announce” his presence. A blanket exception for drug offenses is unreasonable.
1. No-Knock Rule—the police must have a reasonable suspicion that
knocking and announcing their presence, under the particular
circumstances, would be dangerous or futile, or that it would inhibit the
effective investigation of the crime by destruction of evidence.
ii. United States v. Banks—reasonableness of wait depends on the circumstances. If
there is a possibility that evidence will be destroyed, 15-20 seconds is a
reasonable wait.
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SEARCES
1. Protected Areas and Interests—what a person seeks to preserve as private, even in an area
accessible to the public, may be constitutionally protected (see Katz v. United States, privacy in
private conversation in a public telephone booth).
a. Two-Prong Reasonable Expectation of Privacy Test
i. Does the defendant have a subjective expectation of privacy?
ii. Is society ready to recognize that expectation as reasonable or legitimate?
b. Open Fields—no expectation of privacy attaches to an open field. This is not a
significant enough intrusion of the 4th Amendment to constitute a violation (see Oliver v.
United States).
c. Curtilage—courts have extended 4th Amendment protections to “curtilage”—the land
immediately surrounding and associated with the home.
i. Curtilage Factors—(1) proximity of area claimed to be curtilage to the home, (2)
whether the area is included within an enclosure surrounding the home, (3) the
nature of the uses to which the area is put, and (4) the steps taken by the resident
to protect the area from observation by people passing by (see United States v.
Dunn)
d. Trash—there is no reasonable expectation of privacy in the trash that is discarded at the
curb (see California v. Greenwood).
e. Luggage—no expectation of privacy attaches to the jostling of luggage because it is a
common occurrence during travel. However, physical manipulation of soft-sided
luggage violates the 4th Amendment because individuals have a subjective expectation of
privacy in their personal effects (see Bond v. United States).
2. Sense Enhancement/Utilization of Technology in Searches
a. Dog Sniffing—dog sniffing does not violate the 4th Amendment because they do not
involve a search (see Illinois v. Caballes and United States v. Place).
b. Helicopters—any member of the public could legally have been flying over curtilage
(see Florida v. Riley).
c. Electronic Beepers/Tracking—nothing in the 4th Amendment prohibited the police from
augmenting the sensory faculties bestowed upon them at birth with such enhancement as
science and technology afforded them in this case (see United States v. Knotts).
i. The use of electronic beepers may result in a 4th Amendment search if it reveals
information concerning a containers movement within a private home.
Especially if this information could not be obtained by visual surveillance alone
(see United States v. Karo).
d. Satellite Technology—surveillance of private property by using highly sophisticated
surveillance equipment not generally available to the public, such as satellite technology,
might be constitutionally proscribed absent a warrant (see Dow Chemical v. United
States).
e. Thermal Imaging—obtaining information about the interior of a private home by way of
sense enhancing technology that could not have otherwise been obtained constitutes a
search. Especially when the technology used is not in the general public use (see Kyllo v.
United States).
3. Search Warrants
a. Assuming the police conduct amounts to a search, what restrictions does the 4th
Amendment impose?
i. Probable cause, unless there is an exception to the warrant requirement
b. Issuance of Search Warrants:
i. Requires the approval of a neutral and detached magistrate; the warrant must
particularly describe the place to be searched and persons/things to be seized
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g. School Searches
i. Ordinarily a search of a student by a school official will be justified at its
inception when there are reasonable grounds for suspecting that a search will
turn up evidence that the student has violated or is violating either the law or the
rules of the school (see New Jersey v. TLO).
ii. Strip search without supporting evidence exceeds TLO’s scope requirement (see
Safford v. Redding).
h. Drug Testing
i. The routine drug testing of candidates for public office is NOT a permissible
special needs search because this is not a compelling enough government interest
(see Chandler v. Miller)
1. No indication that there was a significant drug problem among those
running for public office (symbolic need v. special need)
ii. Random drug testing of railroad employees is reasonable because of the safety
sensitive nature of the job (see Skinner v. Railway)
iii. The suspicion-less drug testing of employees who apply for promotion to
positions involving interdiction of drugs or carrying a firearm; the special need is
prevention of the promotion of drug users to positions where they might carry
weapons and endanger the citizenry (see National Treasury v. Von Raab).
iv. Upheld random drug testing involving high school students participating in any
extracurricular activity, despite evidence of (see Board of Education v. Earls).
1. Government Interest—keeping drugs out of schools; making sure other
students are free from harm.
i. Regulatory Searches
i. In “closely regulated” businesses, such as automobile junkyards, warrantless
searches are permissible (see New York v. Burger).
j. Vehicle Checkpoints
i. Checkpoints for the purpose of checking alien status are permissible so long as
the checkpoints are not individualized, minimal discretion, and are conducted
according to neutralized criteria (see U.S. v. Martinez-Fuerte).
1. The court wants the police to have somebody other than the cops at the
checkpoint decide who to stop.
ii. Checkpoints for the purposes of checking licenses and registrations are
unreasonable if they involve too much officer discretion (see Delaware v.
Prouse).
iii. In the situation of sobriety checkpoints, the intrusion upon the motorist is slight.
The program sufficiently limits the officer’s discretion because sobriety
checkpoints are selected according to established guidelines. The program
addresses the serious concern of drunk driving and there is support in the record
for the proposition that these checkpoints are among the most reasonable
alternatives for dealing with the problem (see Michigan State Police v. Sitz).
iv. City-operated vehicle checkpoints, complete with drug dogs, undertaken to
interdict unlawful drugs, violated the Fourth Amendment because “primary
purpose was to detect evidence of ordinary criminal wrongdoing” (see
Indianapolis v. Edmond).
v. Informational checkpoints are reasonable under the 4th Amendment because the
checkpoint’s primary law enforcement interest was not to determine whether a
vehicle’s occupants were committing a crime but rather to ask the occupants as
members of the public for their help in providing information about a crime that
was committed by others (see Illinois v. Lidster).
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vii. Knock and Announce Violations (NO)—The rule does not bar the admission of
evidence discovered after a knock and announce violation (see Hudson v
Michigan).
1. The Exclusionary Rule has never been applied except where its
deterrence benefits outweigh its substantial social costs.
2. In this case, the social costs are considerable. In addition to the grave
adverse consequence that exclusion of relevant evidence entails,
imposing a massive remedy for a knock and announce violation would
generate a constant flood of alleged failures to observe the rule. This
would amount to a get out of jail free card to many defendants.
3. Standing—as a general rule, only those person whose personal Fourth Amendment rights were
violated by the police have standing to challenge the violation. “Suppression of the product of a
4th Amendment violation can be successfully urged only by those whose rights were violated by
the search itself, not by those who are aggrieved solely by the introduction of damaging
evidence” (see Alderman v. US).
a. Question of Standing
i. Whether the movant’s own 4th Amendment rights were intruded upon by police.
ii. Did this defendant have a legitimate expectation of privacy in the area searched?
b. Question of Search
i. Whether activity of police intruded upon anyone’s 4th Amendment rights.
ii. Did anyone have a legitimate expectation of privacy?
c. Standing Factors
i. Test for “Grey Areas” (see Minnesota v. Carter)
1. What was the purpose of the search?
2. How much time was involved in the search?
3. What was the previous relationship between the offender and the third
person?
4. What was the degree of acceptance into the premises?
d. Factual Application
i. Passenger Expectation of Privacy in a Car—a person may not successfully
challenge a search unless his own rights were violated; a mere passenger has no
legitimate expectation of privacy in a car (passenger status may change
depending on the circumstances).
1. The fact that you are the target of the investigation, merely present on the
premises, or claiming ownership of the seized property does not confer
standing (see Rakas v. Illinois).
2. A passenger in an illegally seized automobile may challenge the
constitutionality of the seizure (see Brendlin v. California).
ii. Guest Expectation of Privacy in Another’s Home
1. Overnight Guest—have standing to challenge the violation (see
Minnesota v. Olson).
2. Merely Present with Consent of Owner—may not claim the protections
of the 4th Amendment (see Minnesota v. Carter).
iii. Third Person’s Possessory Interest in Seized Property—a person may not
successfully challenge a search merely on the basis that he has a possessory
interest in the property seized during the search (see Rawlings v. Kentucky).
iv. Third Party Searches—the court’s supervisory power cannot be used to prohibit
admission of evidence from a third-party search when Defendant lacked the
necessary standing to contest the search (see US v. Payner).
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4. Private Searches
a. Actions of private persons (as opposed to State actors) while acting as agents or
instruments of the government may be subject to the exclusionary rule.
i. Totality of the Circumstances
1. Motive of the private actor;
2. Any compensation that the private actor receives from the government;
3. The advice, direction, and level of participation by the government.
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ELECTRONIC SURVEILLANCE
1. Title III: 18 U.S.C. 2510 – Addresses the federal statutory authorization for wire, oral, or
electronic communications.
a. Search Definition:
i. Attempts to obtain nonconsensual communications when both parties do not
know that they are being recorded.
b. Requirements:
i. Title III requires a warrant to engage in this type of activity.
ii. Title III requires electronic devices to invade a reasonable expectation of privacy
in order to be triggered.
c. Exceptions:
i. Consent.
d. Factual Application
i. Berger v. New York—Wiretapping is a search and seizure for 4th Amendment
purposes.
ii. Dalia v. United States—Those considering the surveillance legislation
understood that by authorizing electronic inception of oral communications in
addition to wire communications, they were necessarily authorizing covert
entries.
iii. Hoffa v. United States—When a person voluntarily speaks to another person, that
person assumes the risk that the listener will not keep the information conveyed
confidential.
1. There is no legitimate expectation of privacy in what you willingly
convey to others.
iv. United States v. White – Undercover Agents—No Constitutional difference
between informant testifying at trial about what he heard a defendant say versus
recording the conversation or carrying a device that enables agents to listen at a
separate location.
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FIFTH AMENDMENT
1. Interrogations and Confessions
a. Constitutional Limitations
i. Due Process Clauses of the 14th and 5th Amendments
1. “No state shall deprive a person of life, liberty, or property, without due
process of law.”
a. If you obtain a confession from a suspect by denying them due
process of law, the confession was involuntarily obtained.
2. Prohibits the use of involuntary confessions in court.
ii. 5th Amendment Privilege against compelled Self-Incrimination
1. “No person shall be compelled in a criminal case to be a witness against
himself…”
a. This clause was interpreted in Miranda to require advice of
rights otherwise statements will be suppressed, even if voluntary.
iii. 6th Amendment Right to Counsel
1. “In all criminal prosecutions, the accused shall have the Assistance of
Counsel for his defence.”
b. Voluntariness
i. Historical Approach
1. Untrustworthiness Test
a. Did the police violate the suspect’s rights so badly, that the court
cannot rely on the veracity of the confession?
i. Was the suspect subjected to “third degree” physical
compulsion?
ii. Did the suspect receive a psychological beat down?
b. Was the suspect compelled to confess to something that was not
true?
2. Police Methods Test
a. Confines the analysis to whether or not the police violated the
suspect’s due process rights.
ii. Totality of the Circumstances Analysis:
1. No single factor will be controlling, just go through the analysis and
come up with the best conclusion you can. The court is always split in
this area.
2. Take into Consideration
a. The objective characteristics of the accused;
b. Circumstances of the interrogation and the resulting confession;
c. Whether or not the defendant was deprived of basic needs;
i. Food, water, heat, etc.
d. Subjective characteristics that may be relevant.
i. Age, intelligence, emotional and mental ability, gender,
experience with the justice system, physical capabilities,
etc.
iii. Factual Application:
1. Arizona v. Fulminante
a. The defendant’s confession was invalidated as not voluntarily
because a paid government informer offered to protect the
defendant prisoner from a perceived threat of physical harm in
exchange for his confession.
b. This case decided that physical violence was not necessary for a
suspect’s confession to be involuntary, a threat is enough.
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2. Frazier v. Cupp
a. The fact that police misrepresent statements that other parties
have made is, while relevant, insufficient to make an otherwise
voluntary confession inadmissible.
b. If the police lie in order to get a confession, that will not be
enough to have a defendant’s confession held inadmissible
c. Trickery and deceit is just one factor in the voluntariness test
3. Colorado v. Connelly
a. Coercive police activity is a necessary predicate to the finding
that a confession is not voluntary within the meaning of the due
process clauses.
b. Absent police conduct causally related to the confession, there is
no violation.
4. Mincey v. Arizona
a. The defendant was in intensive care in the hospital and told the
police he didn’t want to talk. They basically forced him to make
a statement (which he had to write because he couldn’t speak).
b. Statements which are deemed involuntary violate due process
and thus cannot be used for impeachment purposes.
5. Miller v. Fenton
a. What kind of trickery may the police employ after the suspect
has waived his rights?
b. The Court held that the defendant had made his confession
voluntarily, even though the police interrogator had made several
misrepresentations and even lied to Mr. Miller in order to get the
confession.
i. In order to analyze this type of fact pattern on the exam,
evaluate the totality of the circumstances and draw a
conclusion.
1. There is no bright line rule.
iv. Problems with the Voluntariness Test:
1. Vagueness;
2. Proof problems;
3. Discretion and local pressures;
4. The U.S. Supreme Court can only review a small portion of the cases.
v. Even though we have Miranda now, voluntariness is still used to review
confessions. A suspect may not be in custody and therefore, Miranda will not
apply.
2. Miranda v. Arizona
a. Represents the 5th Amendment’s Application to Custodial Interrogations.
i. Created a blanket assumption that inherent compulsion results when a defendant
is taken into custody and subjected to police interrogation.
1. Where you have custodial interrogation, there is a police dominated
atmosphere. There is an implicit message that you are not leaving unless
you talk. A confession given under circumstances of inherent compulsion
is essentially the defendant being compelled to incriminate himself.
2. The prosecution may not use statements, whether exculpatory or
inculpatory, stemming from custodial interrogation of the defendant
unless it demonstrates the use of procedural safeguards effective to
secure the privilege against self-incrimination.
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ii. Miranda warnings are not required when a suspect is arrested, they are
ONLY required before interrogation commences.
1. Advice of Rights:
a. This is an absolute prerequisite in overcoming the inherent
pressures of the interrogation atmosphere. The courts are not
going to stop to check and see if the suspect knew his rights.
b. A warning is a clear-cut fact, either it was there or it was not.
The result of a failure to warn is an exclusion of the confession
period.
i. Right to remain silent;
ii. If you choose to speak, anything you say can and will be
used against you in a court of law;
iii. Right to an attorney during questioning.
iv. Attorneys will be provided to those who cannot afford
them.
2. The only way to Waive your rights is with a KIV waiver:
a. Knowing, intelligent, and voluntary. This is the standard that the
prosecution must meet to show that the defendant waived his
rights.
i. “First, the relinquishment of the right must have been
voluntary in the sense that it was the product of a free
and deliberate choice rather than intimidation, coercion
or deception. Second, the waiver must have been made
with the full awareness both of the nature of the right
being abandoned and the consequences of the decision to
abandon it.” See Johnson v. Zerbst.
b. Aftermath of the Miranda Decision:
i. Michigan v. Tucker—Violating Miranda does not always result in a
constitutional due process violation. The court in Tucker did not see Miranda as a
constitutional rule, but rather as a “prophylactic” rule.
ii. New York v. Quarles—Carved out a “public safety exception” to the Miranda
rule. There is a public policy allowing officers to act to prevent further danger to
the public.
1. Questions must be reasonably related to the concern for public safety;
2. This is an objective determination;
3. Both the statement and any derivative evidence will be admissible.
iii. Oregon v. Elstad (1987)—Because Miranda was not a “core” constitutional
right, it is not entitled to the “fruit of the poisonous tree” doctrine, which operates
to exclude the fruits of illegal searches.
1. Miranda has its own exclusionary rule.
2. If law enforcement officers in administering the prophylactic Miranda
procedures make errors, they should not breed the same irremediable
consequences as police infringement of the 5th Amendment itself.
c. 18 U.S.C. 3501—This was a congressional attempt to override the court’s decision in
Miranda and was extensively fought over in Dickerson v. United States.
i. The statute provided that the admissibility of a custodial suspect’s statement
should turn only on whether or not the statement was voluntarily made.
d. Dickerson v. United States (This case represents a territorial war between the court and
the legislature over the reach of the Miranda decision).
i. The Supreme Court stated that because Miranda is a constitutional rule, the
legislature has no power to statutorily overrule it.
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ii. Miranda warnings are constitutional enough that they apply to the States.
1. However, they are not so constitutional that fruit of the poisonous tree
will flow from them.
e. When is Miranda triggered?
i. Miranda Custody Test:
1. As stated by the Court in Miranda, “By custodial interrogation, we mean
questioning initiated by law enforcement officers after a person has been
taken into custody or otherwise deprived of his freedom of action in any
significant way.”
2. A person is “in custody” for purposes of receiving Miranda warnings if
“there is a ‘formal arrest or restraint on freedom of movement’ of the
degree associated with a formal arrest.” California v. Beheler, 463 U.S.
1121, 1125 (1983) (per curiam) (quoting Oregon v. Mathiason, 429 U.S.
492, 495 (1977)).
a. In these circumstances the suspect will feel compelled to respond
to police questioning.
i. NOTE: Just because a suspect is put into handcuffs does
not necessarily mean that he is in custody.
ii. You have to look at the Totality of the Circumstances.
3. Factual Application
a. Orozco v. Texas—Miranda warnings are required prior to
custodial interrogation regardless of the location.
i. Even though the suspect was at his home, the
interrogation took place at 4 am and the Court concluded
that a “police-dominated atmosphere” existed; therefore
the suspect was in custody.
b. Minnesota v. Murphy—Meeting with a probation officer
resulting in subsequent questioning does not constitute custodial
interrogation.
c. Yarborough v. Alvarado—Custody is determined based upon
how a reasonable person in the suspect’s situation would have
perceived his circumstances.
i. Subjective concerns such as age or experience do not
come into play.
ii. This is an objective test.
1. Use the totality of the circumstances.
2. Subjective characteristics of the suspect are not
relevant.
iii. Use this test to determine if a person is in custody.
d. Beckwith v. United States—“Focus” can exist in the absence of
“custody.”
i. Therefore, Miranda warnings are not required.
ii. The Court concluded that the suspect was not in custody
because he was at home, and the facts didn’t show that
he was compelled to confess.
ii. Miranda Interrogation Test:
1. Was there some activity initiated by law enforcement officers, which
resulted in questioning of the suspect?
a. Direct questioning by the Police.
2. Factual Application
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2. Invoking the right to counsel carries the implied message that the
defendant needs help and cannot proceed on his own.
ii. Oregon v. Bradshaw—A comment or inquiry made by the defendant that can be
fairly said to represent a desire to open up a generalized discussion relating
directly or indirectly to the investigation constitutes initiating further
communication under the Edwards rule. “What’s going to happen to me now?”
1. This is an application of the Edwards rule.
2. There must be a new set of Miranda warnings at this point.
iii. Arizona v. Roberson—Extends the Edwards rule to bar police-initiated
interrogation regarding offenses unrelated to the subject of the original
interrogation.
1. This rule applies only while the suspect is still in custody.
iv. Minnick v. Mississippi—Once a suspect in custody invokes his right to counsel,
the police must not only permit the suspect to consult with an attorney but they
may not re-initiate questioning unless counsel is present.
1. Unless further conversation is initiated by the defendant.
v. Maryland v. Shatzer—police can wait 14 days before re-initiating interrogation
after an Edwards invocation.
d. Application of Miranda
i. When required?
1. Custody and interrogation
ii. Warnings and Waiver?
1. Incantation of warnings
2. KIV waiver
3. When has D waived his rights?
iii. What if D invokes one of his rights?
e. Limitations and Exceptions to the Miranda:
i. Public Safety Exception
1. New York v. Quarles—Overriding considerations of public safety justify
an officer’s failure to provide Miranda warnings.
a. Not every statement would be admissible.
b. The question by the police must relate to the public safety
concern.
i. Fruit of the poisonous tree would be admissible under
this exception.
ii. Here the Police asked the suspect where the gun was
located.
ii. Fruit of the Poisonous Tree
1. Missouri v. Seibert—The second statement obtained from a suspect after
an initial Miranda violation and a subsequent Miranda warning may be
admissible.
a. Seibert Test: Did the delivery of Miranda warnings really advise
the suspect that he could invoke them?
i. Factors to Consider in the Determination:
1. The level of detail involved in the incriminating
statement; (The more detail, the more likely that
the statement will be thrown out.)
2. The timing and location;
3. The continuity of police personnel;
4. The continuity of the first and second
statements.
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5. Grand Juries
a. Generally speaking the Grand Jury serves two functions:
i. The Sword—Grand juries are investigative in nature.
1. I.E. the grand jury has the power to issue subpoenas and to compel
individuals to testify.
ii. The Shield—The grand jury is also the body that sits between the prosecutor and
the accused and thus, operates as a check on the prosecution.
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1. They make sure that the prosecutor only brings charges in those cases
that are supported by probable cause.
b. A Grand Jury Proceeding is a Secret Proceeding:
i. There is no judge present, the accused has no right to be present nor does he have
a 6th Amendment right to counsel.
ii. The ordinary rules of evidence do not apply
1. I.E. Hearsay is admissible and the exclusionary rule is not applicable.
c. 5th Amendment:
i. “No person shall be held to answer for a capital or otherwise infamous offense,
unless on a presentment or indictment of a grand jury.”
d. Factual Application:
i. United States v. Williams—In light of the grand jury’s accusatory nature, there is
no obligation on the government’s part to present to the grand jury material
exculpatory (evidence tending to disprove guilt) evidence.
1. This is not a constitutional requirement though.
e. Grand Jury Privileges:
i. Self Incrimination;
1. Hoffman v. United States—To sustain the privilege, it need only be
evident from the implications of the question, in the setting in which it is
asked, that a responsive answer to the question or an explanation of why
it cannot be answered might be dangerous because injurious disclosure
could result.
a. Answers that would provide a link in the chain of evidence are
protected under this privilege.
ii. Immunity;
1. The type of immunity at play depends on the jurisdiction.
a. Transactional Immunity—This an absolute bar to prosecution
for the offense to which that testimony relates.
i. You can’t be prosecuted for the subject matter that you
testify to.
b. Derivative use/ Use Immunity—This is a bar to the use of the
testimony in a prosecution, however you can still prosecute.
i. The prosecutor just cannot use the derivative evidence.
c. Factual Application:
i. Kastigar v. United States—Statutory grant of immunity
co-extensive with 5th Amendment protection is sufficient
to compel testimony over the 5th Amendment privilege.
1. Test: Independent Source Doctrine:
a. So long as the prosecution has an
independent, legitimate source for the
disputed evidence, it is coming in.
6. Double Jeopardy
a. General Rule: The prosecution only gets one bite at the apple.
b. 5th Amendment: “No person shall be subject for the same offense to be twice put in
jeopardy of life or limb.”
i. This is considered a fundamental right and is thus applicable to the states
via the 14th Amendment.
1. Allowing re-prosecution involves a danger that eventually someone will
be convicted merely by being worn down.
a. There is a public policy in avoiding governmental oppression.
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SIXTH AMENDMENT—“In all criminal prosecutions, the accused shall enjoy the right to a speedy and
public trial, by an impartial jury… and to be informed of the nature and causes of the accusation; to be
confronted with the witnesses against him; to have a compulsory process for obtaining witnesses in his
favor; and to have the assistance of counsel for his defense.”
1. Right to Counsel
a. Factual Application
i. Betts v. Brady—In 1942, the right to counsel was not considered so fundamental
that that the Supreme Court could require the states to provide defendants with
counsel in criminal prosecutions.
1. The only instances where counsel would be provided were capital
offenses or cases with special circumstances.
ii. Gideon v. Wainwright—This case rejected the Betts holding. The 6th Amendment
Right to Counsel protection is now applicable to the states through the 14th
Amendment Due Process Clause so long as the defendant has been charged with
a felony.
1. Any potential punishment of more than 1 year is a felony.
2. Any potential punishment of less than 1 year is a misdemeanor.
iii. Argersinger v. Hamlin—Absent a knowing and intelligent waiver, no person may
be imprisoned for any offense, whether classified as petty, misdemeanor, or
felony unless counsel represented him.
1. If the punishment for any offense is incarceration, the defendant has a
right to counsel.
iv. Scott v. Illinois—The 6th and 14th Amendments require that no indigent criminal
defendant be sentenced to a term of imprisonment unless the state has afforded
him the right to the assistance of appointed counsel in his defense.
1. If the defendant is not sentenced to a term of imprisonment the protection
does not attach.
v. Alabama v. Shelton—A suspended sentence triggers the 6th Amendment “term of
imprisonment” rule announced in Argersinger and Scott.
vi. Review
1. All felony cases
2. Misdemeanors only if D sentenced to a term of imprisonment.
b. 5th Amendment Right to Counsel v. 6th Amendment Right to Counsel—The 5th
Amendment right attaches whenever a suspect is taken into custody and subjected to
police interrogation. The right to counsel attaches to dispel the inherent compulsion that
results from such an atmosphere.
i. The 5th Amendment is triggered by custodial interrogation.
ii. The 6th Amendment is triggered by AJCP.
iii. The 6th Amendment right attaches when adversarial criminal judicial proceedings
(ACJP) have commenced against the defendant.
1. Adversarial Judicial Criminal Proceedings
a. Formal charge;
b. Indictment;
c. Information;
d. Arraignment;
e. Preliminary Hearing.
i. If one of these 5 has occurred, then the 6th Amendment is
triggered.
c. Massiah v. United States—The petitioner in this case was denied the basic protections of
the right to counsel when there was used against him at trial evidence of his own
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incriminating words, which federal agents had deliberately elicited from him after he had
been indicted, and in the absence of counsel.
i. This was not a 5th Amendment Miranda issue because the petitioner was not
subjected to custodial interrogation, was not in a police dominated atmosphere,
and was not speaking to a known state actor.
ii. This case implicates the 6th Amendment because there was police activity aimed
at eliciting incriminating statements post indictment and without counsel.
1. Triggering event: Adversarial criminal judicial proceedings
2. Coupled with: Deliberate elicitation of incriminating statements.
d. Deliberate Elicitation
i. Brewer v. Williams—The right to counsel means that a person is entitled to the
help of a lawyer at or after the time that ACJP have been initiated against him.
1. Any incriminating statements made by the defendant that are deliberately
elicited by the police post ACJP have commenced have to be excluded.
a. Exception: affirmative KIV waiver.
ii. United States v. Henry—Conduct that is less than purposeful may result in
deliberate elicitation.
1. If the police engage in conversations designed to draw out
incriminating information there is deliberate elicitation.
a. The agent in this case was a “mouth piece.”
iii. Kuhlman v. Wilson—placing a police agent in a jail cell with a person against
whom formal charges have been brought violates the 6th Amendment.
1. The violation occurs when the informant takes some action that goes
beyond merely listening that is designed to deliberately elicit
incriminating remarks.
a. The agent in this case was merely a “listening post.”
iv. Maine v. Moulton—Incriminating statements pertaining to pending charges are
inadmissible at the trial of those charges.
1. Notwithstanding the fact that the police were also investigating other
crimes, if, in obtaining the evidence, the state violated the 6th
Amendment by knowingly circumventing the accused’s right to the
assistance of trial.
a. 6th Amendment protection is offense specific.
i. Thus, if the police obtain statements pertaining to an
offense for which ACJP has not commenced, the
statements pertaining to that other offense are coming in.
1. Ex. If a suspect is arrested for robbery,
indicted, and then released on bond, and then
the police approach him to question him about
his involvement in a rape, the 6th Amendment is
not triggered because it is not about the same
offense.
e. Interrogation
i. Resumption of Interrogation
1. Montejo v. Louisiana
a. A criminal suspect does not invoke his right to counsel under the
6th Amendment sufficient to block further interrogation unless
specifically invoked to the police.
b. After AJCP, a defendant has the right to counsel in the 6th
Amendment for all critical stages of an investigation, and
custodial interrogation is one of those.
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2. Two-Prong Test
a. Counsel’s performance must fall below an objective standard
of reasonableness;
i. This is a totality of the circumstances test concerning the
prevailing professional norms [e.g, ABA standards].
ii. Strong presumption that counsel’s conduct falls within
the wide range of reasonable professional assistance.
1. Attorney may make strategic decisions.
b. The defendant must be able to affirmatively prove the
deficient performance prejudiced the defense.
i. The defendant must establish that there is a reasonable
probability that, but for the attorney’s poor performance,
the result of the proceeding would have been different.
1. Reasonable Probability—a probability sufficient
to undermine the confidence in the outcome.
iii. United States v. Cronic—Rejection of the “inferential approach” to effective
assistance of counsel claims for inexperienced attorney.
1. Presume if…
a. Denial of counsel—the accused is denied counsel at a critical
stage of his trial.
i. Constructive denial?
b. An attorney completely fails to oppose the prosecution’s case
there will be a presumption of prejudice.
iv. Bell v. Cone—Counsel’s failure to present mitigating evidence or to make a
closing argument at a capital sentencing proceeding was properly held not to be
ineffective.
1. The attorney must completely fail to oppose the prosecution’s case to
obtain presumption of prejudice stated in Cronic.
v. Florida v. Nixon—Counsel’s failure to obtain the defendant’s express consent to
a strategy of conceding guilt in a capital trial does not automatically render
counsel’s performance deficient.
1. Not the functional equivalent of entering a guilty plea for the defendant.
vi. Nix v. Whiteside—A lawyer is immunized from a Sixth Amendment “verdict” of
inadequate representation if she acts in conformity with recognized ethical rules.
1. An attorney may make the decision to be ethical even if it puts the client
in a worse position.
3. Right to Jury Trial—“In all criminal prosecutions, the accused shall enjoy the right to a speedy
and public trial, by an impartial jury of the State and district wherein the crime shall have been
committed….”
a. Factual Application:
i. Duncan v. Louisiana—“Trial by jury in criminal cases is fundamental to the
American scheme of criminal justice.”
1. A jury must be provided for any non-petty offense.
a. This means a potential penalty of greater than 6 months.
2. It serves as a check on the arbitrary power of government.
ii. Williams v. Florida—A 6-person jury in a criminal trial will be sufficient to
satisfy the 6th Amendment.
iii. Apodaca v. Oregon—The verdict in a criminal trial does not have to be
unanimous unless it is a capital case.
1. However, the verdict must be at least 9 to 3.
2. Verdicts in a 6-person jury must be unanimous.
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4. Right to a Speedy Trial—“In all criminal prosecutions, the accused shall enjoy the right to a
speedy and public trial….”
a. Factual Application:
i. Barker v. Wingo—The right to a speedy trial “is generically different from any of
the other rights enshrined in the Constitution for the protection of the accused.”
1. A defendant being denied his right to a speedy trial will result in a bar to
prosecution and a dismissal of the indictment.
a. I.E. The defendant is never going to trial.
2. To evaluate whether a defendant’s right to a speedy trial has been
violated, look to the totality of circumstances:
a. What was the length of delay?
i. There must be some trigger for this prong.
b. What was the reason for the delay?
c. Did the defendant assert his right?
d. Did prejudice to the defendant result?
ii. Doggett v. United States
1. Applying the Barker Balancing Test:
a. The prolonged period between indictment and arrest (6 years)
will increase that the possibility that the defense will be
impaired.
i. Excessive delay presumptively prejudices the defendant
without concrete proof of prejudice.
iii. United States v. Lovasco—Overturned a lower court’s ruling that the defendant’s
rights were violated where he established actual prejudice (witnesses died during
period of delay). The government’s explanation for the 18-month delay from the
crime to the arrest was a desire to continue investigation notwithstanding the
presence of sufficient evidence to support the charge.
1. This case decided that a defendant has no constitutional right to a speedy
arrest.
a. General investigative delay is not going to cut it.
b. Speedy Trial Act of 1974
i. Establishes specific time limits within which the trial and certain other steps must
commence in a federal prosecution.
1. There are excludable delays.
a. In Michigan, trial must commence within 180 days or else the
defendant will get bonded out.
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CLASSIFYING REMEDIES—remedies can be categorized by their function (what they do) or by their
form (how they are worded). [Substitutionary Relief (damages/money) v. Specific Relief (injunction)]
1. Compensatory Remedies—designed to compensate the plaintiffs for the harm they have
suffered.
2. Preventative Remedies—designed to prevent harm before it happens, so that the issue of
compensation never arises.
a. Coercive Remedies
i. Injunction—a personal command from a court to litigants, ordering them to do or
to refrain from doing some specific thing.
ii. Specific Performance Decree—ordering defendants to perform their contract
(specialized form of injunction).
iii. Other—writs of mandamus, prohibition, and habeas corpus (legal remedies)
b. Declaratory Remedies—authoritatively resolve disputes about the parties’ rights, but
they do not end in a personal command to a defendant (like a court deciding which party
owns a disputed piece of property).
3. Restitutionary Remedies—designed to restore to the plaintiff all that the defendant gained at the
plaintiff’s expense, thereby preventing unjust enrichment.
4. Punitive Remedies—designed to punish wrongdoers.
5. Ancillary Remedies—designed in aid of other remedies (e.g., costs and attorneys’ fees)
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if the contract had been performed (compensating the expectancy interest); or, restore the
defendant to the position the defendant occupied before the contract.
i. Expectancy Interest—the value of the plaintiff’s entitlement under the contract.
ii. Reliance Interest—includes the expenditures made in reasonable reliance on the
contract.
iii. Restitution Interest—prevent unjust enrichment
b. Occasional (one-time) Buyer v. Dealer (inexhaustible supply)—dealer gets the
presumption that there would be another sale. See Neri v. Retail Marine Corp.
5. Special/Consequential Damages—those damages that naturally and proximately result to the
injured party from the defendant’s wrongful act (also, secondary or derivative losses arising from
circumstances that are particular to the parties). These must be specifically plead and proven.
a. The Meinrath (Direct-Damages) Rule—all damages for delay in the payment of money
owing upon contract are provided for in the allowance of interest, which is in the nature
of damages for withholding money that is due (i.e., no special damages; only money plus
any interest).
i. Exception—Note 4 (pg. 62), State Farm v. Campbell, involving insurers and bad-
faith refusal to settle. The insured has no claim merely for failure to pay or delay
in payment. But if the insurer refuses or delays in bad faith, knowing that it is
liable, plaintiff can sue not only for interest but also for consequential damages,
including emotional distress, and for punitive damages.
b. The Spring Motors Rule—commercial buyer seeking consequential damages from
commercial seller and others in distributive chain is governed by the UCC, not common
law rules/tort law (including strict liability and negligence).
i. Don’t need privity to recover for direct economic loss. Parties are free to waive
consequential damages; disclaimers of consequential damages in a case dealing
with consumer goods are prima facie unconstitutional.
ii. Equitable Discovery Rule—tolls the statute of limitations until the date that the
injury is discovered. Does NOT apply to the UCC; statute of limitations starts to
run from the date of delivery.
c. Contracts Case—cases involving contracts between parties of equal bargaining power
should be reigned in closely because the parties can plan for loss in a contract; must be
reasonably contemplated at the of the contract formation.
i. Contracts Cases Dealing with Property Damage—special damages are awarded
to compensate the plaintiff for harms or losses resulting in consequence of harm
to the very thing to which the plaintiff is entitled.
d. Torts Case—different from contracts because a tort is not anticipated. So long as there
is causation, compensatory damages open more widely.
i. Personal Injury Cases—special damages are economic loss, including –
1. Time loss (lost wages, loss of earning capacity);
2. Medical expenditures and other expenses incurred; and,
3. Pain and suffering and other non-economic losses.
e. Hostility/Skepticism Towards Consequential Damages in—
i. In Contracts – Parties could have planned for contingencies
ii. Too speculative, too remote
6. Limitations of Compensatory Damages—“Many rules limit damages, often in ways that limit
plaintiff to less than her rightful position. These limits are closely related to distinctions between
[general] and [special] damages. The primary tools for restricting recovery of [special] damages
are (1) contractual limitations on remedies, and (2) rules about avoidable consequences,
remoteness, and uncertainty.”
a. Liquidated-Damages Clause— Generally speaking, parties are free to enter into
contracts that limit or specify damages in the event of breach. The parties’ freedom of
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5. Some states have completely abolished the rule and give the defendant a
dollar for dollar credit for any collateral source funds (legislative
enactment instead of judicial decision)
e. Economic Harm Rule—this rule says that physical harm torts require physical harm to
plaintiff for recovery of any incidental economic losses—i.e., plaintiff cannot recover in
tort for pure (or indirect) economic harm unless the applicable tort theory is aimed at
preventing pure economic harm (e.g., fraud; attorney malpractice). Sometimes,
formalistic application of the rule would have anomalous consequences, and thus are
exceptions to the rule. See, e.g., Pruiit (toxic tort causing physical harm to marine
wildlife only).
i. In order to recover economic harm in tort setting, plaintiff must show personal
injury or property damage, and may not recover for purely economic losses.
ii. Pruitt Case—Defendant negligently dumped in lake; court cut off liability at
waters edge, but gave fisherman recovery for economic loss by holding that they
had a “constructive” property interest in the fish that were killed.
iii. Note—intentional and reckless tortfeasors are liable for a broader range of
consequences vs. negligence (as conduct gets worse, culpability for harm
increases)
iv. Other Application of Economic Harm Rule—commercial entity sues another
commercial entity for economic harm; the rule prevents him from recovery in
tort, and forces him to look at the UCC for a way to recover for economic loss
(this is a majority view; the minority says that the plaintiff can sue in tort)
1. Accompanying Property Damage? If a component part does damage to
the rest of the product in which it is installed, that is property damage
and recoverable in tort.
v. Exception to the Rule—professional malpractice cases because in most cases like
this, there is never any physical impact/injury
vi. Evra Case—plaintiff sues bank for economic loss for negligently failing to do a
wire transfer because they lost the fax; court denied relief stating that the bank
should’ve been put on notice prior of the special circumstances—a general
foreseeability of potential harm from losing faxes is not enough to recover
special damages and the result should be born by the party who was better able
to avert the damage but failed to do so.
f. Proximate Cause/Foreseeability
i. Tort—Proximate cause is a limitation on the scope of liability often couched in
terms of either general foreseeability, or the scope of harms defendant risked.
1. Note that in the context of economic torts (including statutory torts like
RICO violations and securities fraud) the proximate cause limitation has
recently been couched in terms of directness—e.g., only direct victims of
a securities fraud can recover.
2. Note also that in the securities fraud context, even the direct victim might
encounter a proximate cause issue, dubbed “loss causation”—e.g.,
there’s no “loss causation” when a fraud induces a purchase of stock, the
value of which goes down for some unrelated reason.
ii. Contract—The same type of limitation on the scope of liability in contract is
often couched in terms of specific foreseeability.
iii. Note—Some cases blur the distinction between tort and contact. See, e.g., Evra.
Our book says that perhaps the relevant distinction is between wrongs that cause
personal injury versus those that cause economic loss.
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3. With dignitary torts, they are incapable of proof. Proof of the tort itself is
generally enough to warrant damages. Plaintiff is entitled to damages for
intangible harms.
4. Measurement for tort/dignitary tort intangible harms
a. Measure intangible harms by a reasonable amount in light of the
evidence or an amount that would fairly compensate the plaintiff.
b. Absent actual harm you may recover substantial damages for
dignitary harm
c. For constitutional violation nominal damages absent proof of
actual damages
5. Examples
a. Defamation
i. Presumed damages upon proof of the defamatory
statement
b. Battery, Assault
c. False Imprisonment
d. Invasion of Privacy
e. Malicious Prosecution
f. Intentional Infliction of Emotional Distress (must prove damages
here though)
iii. Defamation Damages: Constitutional Limitations (substantive limitation)
1. Elements: Defamatory Statement, of Concerning, A Publication
a. Common law: Upon proof of those things, jury could award
damages- reputation damage could be presumed by proof of
these elements. (presumed damages after proof)
b. Now we have limitations on when jury can presume reputation
i. NY Times: Public officials and public figures may
recover presumed damages only upon proof of actual
malice (knowingly false statement) or actual harm by
clear and convincing evidence. Common law malice
(speaker/writer attempt to “destroy” the other person) for
punitive damages.
ii. Gertz: Private person in matter of public concern may
recover punitive or presumed damages with only proof
upon actual malice. Recover actual damage by showing
negligence, falsity, and actual injury (includes out of
pocket loss; humiliation; emotional distress)
iii. Dun: Private person with matter of private concern. No
actual malice necessary. Always presumed damages.
Prove common law elements of defamation.
k. Adjustments to Damages
i. Jury instruction protect awards
ii. Remittitur
1. Grant of a motion for a new trial on the issue of damages conditioned
upon the plaintiff’s refusal to accept a lesser amount
2. Standard for if the jury gave too much: If it was a result of passion or
prejudice on the part of the jury and if they acted contrary to the law. Do
the facts support the award.
3. If the judge offers a lower recovery amount. If you do not accept, you
get a new trial as to damages.
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v. Jury Instructions—even with meticulous guidance, juries may still get angry and
just throw money out there (cannot guarantee a “good” result)
1. The only way to ensure against unpredictability and run-away nature is
to adopt a “hard-ratio cap” = 1:1 (only applies to federal maritime cases)
vi. Punitive damages are not available against municipalities
vii. Tort reform: elevating burden of proof, placing caps on awards (including ratio
caps)
viii. Real value is the threat of punitives; they’re seldom paid in full (remitted)
b. Vicarious Liability (easily part of punitive damages exam essay)—Should principal
be liable for punitive damages as a result of his agent’s acts?
i. Restatement 2d – Yes, if (1) principal ratifies or approves of the agent’s acts; (2)
the principal was reckless in employing the unfit employee; or, (3) agent
employed in managerial capacity and acting within the scope of employment
c. Tort Reform
i. Elevated burden of proof for plaintiff = clear and convincing evidence
1. Colorado requires proof beyond a reasonable doubt
ii. Caps—adoption of ratio caps; typical range is 3:1 or 2:1. Since State Farm,
number of states have adopted ratio caps. Does that defeat the purpose of
punitive damages?
d. Problem of punitive damages in Repetitive/Mass Tort cases
i. Issue – if you are a defendant hit for punitives over and over again, is there some
point at which it becomes an unconstitutional deprivation of property?
ii. 3rd Circuit said “no,” but a majority believes that there is a limit; no one has given
one
e. Punitive Damages and Class Actions—FRCP 23(b)(3) and 23(b)(1)(B)
i. FRCP 23(b)(3) – common questions of law/fact predominate over claims of
individual causes of action (if yes, plus commonality, numerosity, and typicality,
them more efficient to certify a class and solve the issue all at once, assuming
that too many do not opt out)
ii. Situations where this can work – accidents that were catastrophic events and
many people were simultaneously hurt (toxic tort, etc.)
iii. FRCP 23(b)(1)(B) – to get certified, you have to prove to the court that you have
limited funds
f. Use of state funds
i. Some state tort reform acts have made a share of punitive damages payable to the
state.
ii. Raises issues of unconstitutional taking of property.
g. Requirement of underlying compensatory damages—Assume compensatory damages
are a necessary prerequisite to punitive damages. Some jurisdictions require proof of
defendant’s financial wherewithal; jury cannot determine number without understanding
of the defendant’s financial situation (Never admission in compensatory trial, but fair
game for punitive).
2. The Due Process Clause of the Constitution is the source of the most notable modern day
limitation on punitives because it applies to all claims—federal and state. There are actually two
limits to consider here.
a. The procedures used to award punitives must comply with due process. For example, it
would violate D’s due process rights to instruct a jury to award a sum aimed at punishing
D directly for harms D caused to persons who are not parties to the lawsuit. See Philip
Morris.
i. Procedural due process issues: Exacting jury instructions; de novo review by
trial court; de novo review by appellate court.
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b. The amount awarded also must comply with due process. More specifically, the amount
awarded cannot be grossly excessive. A judge reviewing a verdict for gross
excessiveness is supposed to conduct that review de novo, and consider three guideposts:
reprehensibility, proportionality, and penalties authorized in comparable cases.
3. Constitutional Limitations on Punitive Damages—BMW, Inc. v. Gore established three
“guideposts” in determining whether punitive damages are reasonable. State Farm v. Campbell
expounded upon these considerations.
a. Degree of Reprehensibility—the most important indicium of the reasonableness of a
punitive damages award is the degree of reprehensibility of the defendant’s conduct.
i. Considerations—whether the harm caused was physical as opposed to economic;
the tortious conduct evinced an indifference to or a reckless disregard of the
health or safety of others; the target of the conduct had financial vulnerability;
the conduct involved repeated actions or was an isolated incident; and the harm
was the result of intentional malice, trickery, or deceit, or mere accident.
ii. Limits—due process do not permit courts, in the calculation of punitive damages,
to adjudicate the merits of other parties’ hypothetical claims against a defendant
under the guise of the reprehensibility analysis (i.e., out-of-state conduct is not
allowed)
b. Ratio Between Harm, or Potential Harm, to the Plaintiff and Punitive Damages—
few awards exceeding a single-digit ratio between punitive and compensatory damages,
to a significant degree, will satisfy due process. Single-digit multipliers are more likely
to comport with due process, while still achieving the State’s goals of deterrence and
retribution.
i. For Exam (potential ratios)
1. 9:1 allowed if compensatory damages are reasonable.
2. Double digit ratio is okay if compensatory damages are nominal but
conduct is outrageous
3. If the plaintiff has received large compensatory award, ratio of 1:1 will
satisfy due process
c. Disparity Between Punitive Damages and Civil/Criminal Penalties for Comparable
Misconduct—look to State law to see what remedy/fines they impose in a similar setting.
Punitive damages are not a substitute for the criminal process, and the remote possibility
of a criminal sanction does not automatically sustain punitive damages award.
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INJUNCTIVE RELIEF—remedy in the form of an in personam court order, which directs the defendant
to act, or to refrain from acting in a specified way, and it is enforceable by the contempt power.
1. In personam—not limited by the jurisdiction of the court; can require defendant to do something
out of the court. If you had a legal remedy it is limited to the jurisdiction of that court.
a. Generally, to get equitable relief, the plaintiff must show that there is an imminent
threat of irreparable harm that money damages cannot remedy (equity will not act
if there is an adequate legal remedy)
2. Types of Injunctions
a. Preventive/Preliminary Injunctions—factors to consider are ripeness, scope (must be
as narrow as possible), contempt, and mootness.
b. Reparative/Permanent Injunctions—already a trial on the merits, but need more than
money; can have a companion action for compensatory damages.
i. Harm has already occurred, but we enjoin additional harm.
c. Structural Injunctions—school desegregation cases, housing disputes, etc.
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give the notice and the reasons supporting his claim that notice should
not be required
ii. Generally there is no record because there is no hearing and they are so
immediate. They are generally not appeal.
1. EXCEPTIONS
a. Find that the TRO will function like an ultimate decision on the
merits (Carroll)
i. Carroll v. President: Ex parte TRO to stop the White
supremacists from rallying. It restrained them for 10
days from holding rallies or meetings. A trial extended
the restraint for 10 additional months. If the TRO is not
available to be looked at there would be no way to look
at it. The problem is that it is a 1st amendment right
violation, so you must have notice and due process.
Therefore since it is a restraint on speech, you cannot
have an ex parte proceeding.
b. Find that the TRO is really a preliminary injunction (Sampson)
i. Sampson v. Murray: TRO said she could continue
employment until it was decided at a trial. It is over the
10-day limit, it would go on until the trial. Cannot make
it unappealable and of an unlimited time period. No due
process for the defendant. It is acting like a preliminary
injunction here, therefore it should be treated like it and
should be appealable.
iii. May be granted without written or oral notice to the adverse party or its attorney
if:
1. It clearly appears from facts in affidavit or verified complaint that
immediate and irreparable injury, loss or damage will result to the
applicant before the adverse party can be heard, and
2. Attorney certifies to the court in writing efforts, which have been made
to give notice and reasons that notice should not be required.
3. TRO not to exceed 10 days
iv. Fed R. Civ P 65(b)
1. (1) Issuing Without Notice. The court may issue a temporary restraining
order without written or oral notice to the adverse party or its attorney
only if:
a. (A) specific facts in an affidavit or a verified complaint clearly
show that immediate and irreparable injury, loss, or damage will
result to the movant before the adverse party can be heard in
opposition; and
b. (B) the movant's attorney certifies in writing any efforts made to
give notice and the reasons why it should not be required.
10. Structural Injunctions
a. Structural Injunctions: a series of orders, which attempts to remodel an existing social
or political institution to bring it into conformity with constitutional demands.
b. A long series of preventative and reparative injunctions in a single case presenting a
complex fact situation; each individual order is part of a continuing attack on a larger
problem
i. Particularly social problem
1. EX: School segregation cases/ jail cases
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1
Side note on restitution v. tort claim: compensation of plaintiff’s damages and disgorgement of
defendant’s profits are alternative remedies for the underlying tort.
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iii. When you get an accounting for profits and you’re in fear that D might become
insolvent, you should ask the court for a CT (if D doesn’t, it doesn’t matter but if
he does and there is no CT, P loses and attorney can be liable for malpractice)
b. Equitable Liens—is a specific, equitable remedy that might apply when a benefit
defendant unjustly obtained can be traced into property held by defendant. The remedy
takes the form of a money judgment in the amount of the benefit, secured by a lien
against the property into which the benefit is traced.
c. Subrogation—(substituting one party’s rights for another’s) is an equitable remedy that
usually applies when (1) plaintiff, the “subrogee,” pays a debt that was owed to someone,
the “subrogor”; (2) the person who owed the debt, the “obligor,” was primarily liable,
and plaintiff was not; and (3) plaintiff did not make the payment voluntarily. When the
remedy applies, plaintiff is “subrogated” to the rights of the subrogor.
i. Example—Insurance co steps in your shoes and sues with your rights
d. Replevin and Ejectment—specific, legal, and restitutionary remedies that allow the
plaintiff to recover possession of property from some in possession whose rights are
inferior to plaintiff’s.
i. Replevin—the remedy when plaintiff seeks to recover possession of a chattel.
ii. Ejectment/Quiet Title—remedy when plaintiff seeks to recover possession of real
property.
e. Trover—instead of getting back item, you get value of item taken instead.
f. Indemnity
i. Ex. manufacturing defect: all parties in chain of distribution are strictly liable; if
Kroger is liable for finger in tuna, they can argue indemnity from tuna company.
ii. As opposed to contribution, you’re saying in indemnity that your not even a
tortfeasor and you had to pay wrongfully
g. Contribution (interplay with joint and several liability)
i. Each defendant is severally liable for actual percentage of fault and each is
jointly liable for the whole so plaintiff can hold each liable for the whole
ii. Under contribution, defendant who paid more than his share can get contribution
from joint tortfeasor.
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ANCILLARY REMEDIES
1. Attorney’s Fees
a. American Rule—90% of cases, each side pays their own lawyer.
b. Fee Shifting—judges can use “fee shifting” to control vexing litigation
c. Reasonableness of Fees—reasonable number of attorney hours multiplied by a
reasonable hourly rate (factors for “reasonable”—look to PR), see Lodestar.
d. Relationship between damages covered and attorney’s fees—court said this should
only be one factor; in civil rights cases, the benefits are much more than actual award
could be and no one would take the case if they had to work on a contingent fee basis for
all the work they had to do.
i. Many personal injury tort plaintiff’s couldn’t litigate if there wasn’t contingent
fee arrangements (plaintiff’s lawyers have incentive to settle a case quickly)
ii. Defendant’s lawyers in a personal injury tort case are paid by the hour and have
an incentive to drag out the case.
e. The majority of fee shifting situations favors plaintiffs because business/defendants have
litigation costs built in as a cost of doing business (can spread the cost to consumers), and
it’s more common for plaintiff to be a one-time player that will be devastated by legal
fees.
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f.
Exceptions to American Rule
i. Civil rights cases (statutory exceptions);
ii. Contempt of court;
iii. Family law (divorce);
iv. Bad faith litigation;
v. Contract exception;
vi. Common-fund exception;
1. Where a case creates a common fund in which others will share, plaintiff
and attorney are entitled to fees from the fund; attorney files for fess ex
post; sliding scale fee structure works well, but it’s not about the lowest
bid but the most competent legal representation for the most reasonable
fee.
vii. Risk of non-payment
1. If case is more consuming than originally thought, some states allow the
attorney to file for an enhancement (not in federal system). Henke says
this is bad because assessing risk is what contingent fees are all about.
2. Contempt
B) Contempt:
1. Civil Compensatory:
• Ancillary to an injunction: injunction was issued & party continues to engage in proscribed
conduct (Ex: injunction to prevent patent infringement; D does it anyway, P seeks damages
in civil contempt)
• B/c ancillary to injunctions, there is no jury trial on the issue of damages; must show by
CCE to judge
• Minority of states reject this rule and P must file a new action for a jury trial on the issue of
damages; now std. is preponderance of the evidence (better)
3. Criminal Contempt:
• Fixed and determined fine or jail sentence; probably prosecuted by a representative of the
state
• Beyond a reasonable doubt std and right to a jury trial
• Issue: Is this coercive civil contempt or criminal contempt?
- Look at the nature of the sanction, not the judge’s intent
- If it has a criminal component to it, we should err on the side of calling it
criminal for the protections it affords D (jury trial; higher burden)
• Collateral Bar Rule – cant attack an injunction after the fact, you must attack the validity of
the order before you defy it
- preemption issue (injunction violating the 1st Amendment)
- not applicable in civil contempt cases, only in criminal contempt
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EVIDENCE OUTLINE
Professor Anthony Flores, Michaelmas Term 2010
Major Areas: 1) Relevance, 2) Witness & Character, and 3) Hearsay
Minor Areas: 1) Authentication, 2) Best Evidence Rule, and 3) Privileges
OVERVIEW
1. Evidence Definition: the body of law regulating the admissibility of what is offered as proof
into the record of a legal proceeding (see Black’s Law Dictionary).
2. Types of Evidence
a. Testimonial—witness questioning and answering under oath (credibility)
b. Tangible Physical Evidence—exhibits
i. Real evidence – actual items involved in the case
ii. Demonstrative – items created for trial to help clarify testimony
c. Direct: evidence which, if believed, resolves a matter in issue
i. Example: I saw John hit his wife.
d. Circumstantial: evidence which, even if believed, does not resolve the matter at issue
unless additional reasoning is used to reach the proposition to which the evidence is
directed.
i. Examples: Character Evidence and Habit Evidence
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5. Limiting Instruction (Rule 105)—The court may decide to allow evidence with a limiting
instruction. A “limiting instruction” is when the judge tells the jury to use the evidence for only
certain reasons.
6. Erroneous Ruling (Rule 103)—an erroneous ruling is not an error unless it is a plain error
(obvious); or…
a. It affects a substantial right of the party AND
b. Party made a timely and specific objection AND
c. Party offered proof (told the court what the evidence was) AND
d. Make sure that the objection, offer, and ruling are on the record.
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RELEVANCE—OVERVIEW
1. Definition (Rule 401)—Relevant evidence means evidence having any tendency to make the
existence of any fact that is of consequence to the determination of the action more or less
probable than it would be without the evidence.
a. Fact that is of consequence—whether a fact is of consequence to a case turns upon the
requirements of the underlying substantive law.
b. Probative—to have probative value, evidence need not by itself prove the fact at issue.
i. Example: evidence of tops to women’s pantyhose found in defendant’s room
tends to identify defendant as perpetrator (see People v. Adamson).
3. Relevant Evidence May Still Be Excluded (Rule 403): Evidence may be relevant but still
excluded if its probative value is substantially outweighed by the danger of the following
counterweights…
a. Unfair Prejudice—evidence that would distort the fact-finding function of the trial by
allowing the jury to draw inferences that are improper, based on emotion.
i. Example: naming Defendant’s prior conviction crime was unfairly prejudicial
when element of present crime required only prior conviction known; offer to
stipulate is important for consideration (see Old Chief v. United States).
b. Confusion of Issues/Misleading the Jury
c. Waste of Time/Needless Presentation of Cumulative Evidence/Considerations of
Undue Delay
d. BALANCING TEST – “Probative v Prejudicial” (where the probative value and
countervailing factors are close, the judge should admit the evidence)
i. First, judge must determine whether the evidence has any probative value under
Rule 401.
ii. Second, judge will estimate the strength of the probative value.
iii. Third, judge then determines the strength of any counterweights under Rule 403.
iv. It is only when the probative value is substantially outweighed by the 403
counterweights that the evidence is inadmissible.
e. Evidence will NOT be excluded because of unfair surprise. The other side might be
granted a continuance if there is an unfair surprise. Never pick unfair surprise as an
answer as to why evidence should be excluded.
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c. Specific act evidence (the way a person has demonstrated a particular character trait
through that person’s actions on particular occasions)
2. Character Evidence Generally Inadmissible 404(a)—character evidence is evidence of a
person’s “propensity” to act in conformity with a particular character trait.
a. Exceptions (only apply in criminal cases?)
i. The “Mercy” Rule 404(a)(1)—the defense may raise a good character trait of the
defendant that is “pertinent” to the charge of the defendant at issue in the case.
1. E.g., D’s propensity for peacefulness in an assault case.
2. Under Rule 405(a), witnesses can only testify as to their knowledge of
the defendant’s reputation or their opinion of the defendant’s relevant
character trait.
a. But not as to any of the defendant’s specific act that form the
basis of their testimony.
ii. Rule 404(a)(2)—the defense may raise a bad character trait of the victim that is
“pertinent” to the charge of defense at issue
1. E.g., victim’s propensity for violence in an assault charge/self-defense
case.
b. Defendant must be the first one to “open the door” on character
i. 405(a)—Prosecutor can…
1. Cross-examine the defense witness by asking whether he has heard about
specific bad acts of the defendant that rebut the positive character
testimony
a. Must be in “food” (good) faith and may require a showing of
proof
2. Call their own witnesses to testify that the defendant has a bad reputation
for the trait in the question
ii. Prosecutor CANNOT ask about details of these acts nor imply that those acts are
true because to do so would create issues that are collateral to the testimony.
3. Other Crimes, Wrongs, or Acts Used for Non-Propensity Purposes 404(b)—past or
subsequent crimes, wrongs, or acts of a person can be used, in either a civil or criminal case, to
prove something other than character or propensity of that person.
a. “MIAMI COP”
i. Motive
ii. Identity (modus operandi, signature crimes)
iii. Absence of Mistake/Accident
iv. Mistake/Accident
v. Intent
vi. Common Plan or Scheme (modus operandi)
vii. Opportunity
viii. Preparation
b. The court determines the criteria for “other crimes” evidence
i. Must be relevant
ii. The evidence is relevant for a proper purpose other than showing the character or
disposition of the defendant (MIAMI COP);
iii. The proof that the acts were committed by the defendant by a preponderance of
the evidence;
iv. The probative value of the evidence is not substantially outweighed by the danger
of prejudice, misleading the jury, confusing the issues, or undue delay.
v. Upon request, court may provide a limiting instruction to the jury.
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WITNESSES
OVERVIEW/QUALIFICATION OF A FACT WITNESSES
1. Leading Questions (Rule 611(c))—question suggests the answer, allowing the answer to be
either yes or no. Allowed when questioning adverse/hostile party.
a. Allowed on direct examination when witness is hostile/adverse; preliminary or
undisputed, collateral matters; child witness; forgetful witness.
2. Cross-Examination (Rule 611(b))—limited to the subject matter of the direct examination and
matters affecting credibility of the witness.
3. Objections (Rule 611(a))—
a. Narrative—“anything else you would like to say” [don’t want them to ramble]
b. Asked and Answered—can you tell the jury just one more time what happened”
c. Non responsive—“I didn’t do anything, but Jenny got a gun”
d. Cumulative—“did you also see D shoot (after 3 witnesses)?” [Adding anything new?]
i. Maybe okay if testimony is corroborative
e. Assuming Facts Not in Evidence—when you saw D leave with a gun, probably in a hurry,
did you tell your son?”
f. Misstate Evidence/Misleading—expedite
4. General Rule of Competency (Rule 601)—every person is competent to be a witness unless
these rules provide otherwise. But in civil cases, state law governs the witness’s competency
regarding a claim or defense for which state law supplies the rule of decision.
5. Mentally Incapacitated Witnesses—whether it be substance abuse/medical/psychological
infirmity, individuals may be permitted to testify, provided the judge determines that the
individual is not so impaired that he cannot understand what the truth is and generally can
remember and explain events (see United States v. Roach).
a. Incompetent to stand trial does not mean incompetent to testify.
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6. Child Witnesses—there is no statutory threshold age below which a child is not permitted to
testify.
a. Generally, to be component, a child witness must be able to tell the difference between
truth, appreciate the duty to tell the truth, and a lie and be able to remember and
coherently narrate events (see Wheeler v. United States).
b. Issue—suggestibility
7. Previously Hypnotized Witnesses—viability of these individuals is not clearly defined by courts
or rules, NO PER SE RULE (see Rock v. Arkansas).
a. There are concerns about suggestibility and confabulation with unsubstantiated dreams.
Criminal defendants have been given some constitutional protection to use this kind of
testimony, but not necessarily available to a non-criminal defendant witness
8. Witness’s Religious Beliefs (Rule 610)—witness’s religious beliefs, or lack thereof, cannot be
used to attack or bolster general credibility.
a. But, may be used to possibly expose a particular bias (see Firemen’s Fund Insurance
Company v. Thien).
9. Judges as Witnesses (Rule 605)—presiding judge may not testify as a witness at the trial. A
party need not object to preserve the issue (if going to testify, judge should disqualify himself).
10. Jurors as Witnesses (Rule 606)— a juror cannot testify at trial via Rule 606(b) or internal
influences (mental process, insane delusions, boredom, headache, etc.),
a. Inquiry into the Validity of a Verdict/Indictment—(see Tanner v. United States) a juror
may testify about whether…
i. Extraneous prejudicial information was improperly brought to the jury’s attention
ii. An outside influence was improperly brought to bear on any juror (e.g. bribe,
threats, personal viewing of non-admitted evidence, bailiff statement);
iii. Clerical error (a mistake was made in entering the verdict on the verdict form).
b. Issue—co-juror threat (internal or external)
11. State’s Dead Man Statutes—diversity-based federal trials will recognize state “Dead Man”
statutes. Most often, these prohibit the testimony of a party or interested witness concerning any
tort, contract, transaction or communication with a decedent even though relevant to the lawsuit.
States will occasionally allow such testimony if it is corroborated.
12. Oath or Affirmation Requirement (Rule 603)—witnesses must be willing to declare that they
will testify truthfully by oath or affirmation. The witness simply needs to recognize the
importance of telling the truth (see United States v. Fowler).
13. Personal Knowledge Requirement (Rule 602)—generally, a witness can testify only to the
extent of their personal knowledge – that is, the extent to which they actually perceived (see/hear)
something first hand in the case (see McCrary-El v. Shaw) [LINKED WITH RULE 701]
a. Without Personal Knowledge Objections: Foundation, Speculation
b. Not for Rule 703 – Expert Witnesses (allowed to speculate)
14. Writing Used to Refresh a Witness’s Memory (Rule 612)—(see Doty v. Elias), this rule gives
an adverse party certain options when a witness uses a writing to refresh memory;
a. While testifying; OR
b. Before testifying, if the court decides that justice requires the party to have those options.
c. Witness MUST testify from memory, they cannot read the writing to the jury.
15. Recorded Recollection (Rule 803(5))—when recollection can’t be refreshed, hearsay exception
IMPEACHMENT OF A WITNESS
1. FRE 607—any party may attack a witness’s credibility.
a. Impeaching a Party’s Own Witness—a party cannot call adverse witnesses on direct
examination solely to impeach them with a prior inconsistent statement because such a
statement used this way would constitute inadmissible hearsay (see United States v.
Morlang).
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2. Bolstering a Witness’s Credibility—a party may not “bolster,” or vouch for, the credibility of a
witness by putting on a second witness to testify that the first witness is a truthful person and is
telling the truth (see United States v. Rosario-Diaz).
a. Can only bolster AFTER the witness’s credibility has been attacked.
3. Character and Credibility
a. Rule 404(a)
b. Rule 404(b)
4. Witness’s Character for Truthfulness (Rule 608)—still use “probative v. prejudicial” test
a. Rule 608(a)—allows either party to attack the character for truthfulness of any witness
who takes the stand; allows a party to offer a second witness to testify that the first
witness has a bad reputation for being untruthful, or in the opinion of the second witness,
that the first witness has a bad character for truthfulness (see United States v. Whitmore).
i. To offer reputation evidence, a party must establish that the character witness is
qualified by having acquaintance with…
1. The witness;
2. His “community”;
3. The circles in which he has moved, as to speak with authority of the
terms in which generally the witness is regarded.
ii. Once attacked, the witness’s character can be bolstered
b. Rule 608(b)—while not using extrinsic evidence, a lawyer can cross-examine the witness
about specific instances of conduct to test the credibility of a witness (however, lawyer
stuck with the answer) (see Whitmore II). [Also see at Rule 403(a)]
i. To ask about instances, counsel need only have “reasonable basis for asking
questions which tend to incriminate or degrade the witness,” and in possession of
some facts which support a genuine belief that the witness committed the offense
or degrading act.
5. Prior Convictions (Rule 609)—if a specific instance of conduct – showing the bad character for
truthfulness of a testifying witness – is a criminal conviction of that witness, then Rule 609 often
allows extrinsic evidence of that conviction to attack truthfulness.
a. Rule 609(a)(1)—conviction must be a felony (punishable by more than one year); OR
i. Balancing Test—probative value outweighs the prejudicial effect; look at
impeachment value of the prior crime; remoteness of the crime; degree to which
the witness’s credibility is an issue in the case; importance of criminal
defendant’s testimony; similarity between past crime and present issue.
b. Rule 609 (a)(2)—crime of dishonesty or false statement (e.g. perjury, fraud).
i. Admissible regardless of balancing test, regardless of whether the crime is a
felony/misdemeanor (see Hayes).
c. Rule 609(b)—if the time between conviction or release from confinement and the
testimony is more than ten years, cannot be used, unless, in the interests of justice, the
court determines the probative value substantially outweighs the prejudicial effect
(opposite of regular 403 test).
6. Prior Inconsistent Statement (Rule 613)—allows an attorney to show that the witness’s story is
inconsistent, saying different things at different times, and is therefore not trustworthy.
a. Rule 613(b)—if attorney is going to submit the prior inconsistent statement into
evidence, the attorney must give the witness an opportunity to explain or deny the prior
inconsistent statement at some point in the trial (see Young).
7. Bias—even if a witness is not a “liar” by nature, nor has changed their story, an attorney may
show that the witness has a specific incentive or reason to lie – such as a personal or economic
bias in the case (see United States v. Abel).
a. Must still survive Balancing Test
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3. Bias
OPINION TESTIMONY
1. Lay Opinion Testimony (Rule 701)—lay opinion testimony is allowed only when it is rationally
based upon the witness’s first-hand knowledge of perception, and is helpful to a clear
understanding that her testimony or to the determination of a fact issue. CANNOT be based on
specialized scientific or technical knowledge, only about certain matters that he actually
witnessed or perceived first hand. (See also Rule 602: Personal Knowledge)
a. Examples: opinion about age, speed and other measurements, physical state such as
intoxication or injury, personal emotions, sensory descriptions, land or personal services
values, sanity of testator, identification of voice or handwriting samples, or for
authentication purposes, etc.
2. Expert Opinion Testimony (Rule 702)—if a witness is a qualified expert in a legitimate
scientific, technical, or other specialized knowledge area that would be helpful to the fact finder
to better understand the factual issues in a case, then the witness can offer expert opinion
testimony; these opinions need not be based on personal perception.
a. Daubert Two-Prong Test for Reliability—overruled the old Frye test (scientific
evidence was admissible if it was based on a scientific technique generally accepted as
reliable within the scientific community); Judge as a “gate-keeper”
i. First, a court must determine whether the experts’ testimony reflects “scientific
knowledge”
1. Whether their findings are “derived by the scientific method”
2. Whether their work product amounts to “good science"
ii. Second, the expert testimony is “relevant to the task at hand (i.e., that it logically
advances a material aspect of the proposing party’s case) to assist the trier-of-fact
to understand or determine a fact in issue.”
iii. Factors for Determining Whether to Admit Expert Testimony
1. Whether the theory or technique employed by the expert is generally
accepted in the scientific community.
2. Whether it’s been subjected to peer review and publication
3. Whether it can be and has been tested, and
4. Whether the known or potential rate of error is acceptable
iv. The test is NOT the correctness of the expert’s conclusion, but the soundness of
his methodology.
v. Issues—what is the particular field the person purported to be an expert in? Is
there a problem with the field itself?
b. Qualification—preliminary question of fact under Rule 104(a)
c. Basis of Expert Opinion (Rule 703)—an expert witness can reasonably rely upon any
evidence, even inadmissible evidence, in order to arrive at her expert opinion, as long as
other experts in the field typically rely on such evidence when rendering an opinion.
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HEARSAY
OVERVIEW
1. Hearsay Risks
a. Perception (Misperception)—how well did the witness see/hear/perceive the event?
b. Recollection (Faulty Memory)—how well does the witness recall the event?
c. Narration (Ambiguity)—how well can the witness relate/explain the event? Does the
event make sense? Is the story logical/possible?
d. Sincerity (Bias)—does the witness have a reason to lie? Is the witness lying?
2. Hearsay (Rule 801)—a statement, other than one made by the declarant while testifying at the
trial or hearing (i.e. out-of-this-court), offered into evidence to prove the truth of the matter
asserted (i.e. what one person hears another person say) Exclusionary Rule
a. Statement—means (1) a person’s oral or written assertion, or (2) nonverbal conduct, if
the person intended it as an assertion.
i. Assertion—something someone says or does in order to communicate a fact or
opinion in the hope or expectation that it will be accepted as true or accurate
(photographs, films, videotape, typically not an assertion) (utterance is NOT an
assertion).
1. Direct—“the blue car hit the red car”
2. Indirect—“no one uses their signal light”
3. Hidden—“that car is hot” (temperature or stolen?)
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ii. Prior Consistent Statement (Rule 801(d)(1)(B)—Is consistent with the declarant’s
testimony and is offered to rebut an express or implied charge that the declarant
recently fabricated it or acted from a recent improper influence or motive in
testifying (see Tome v. United States); or
1. Must establish when the motive for fabrication occurred. Cannot
introduce out-of-court statements made after alleged motive to fabricate
arose.
iii. Prior Statement of Identification (Rule 801(d)(1)(c)—Identifies a person as
someone the declarant perceived earlier (see United States v. Lewis).
1. Admissible regardless of whether there has been accurate in-court
identification.
2. Rationale: Witness is available for cross-examination
b. An Opposing Party’s Statement (“Admission of a Party Opponent”)—the statement
is offered against an opposing party and…
i. Was made by the party in an individual or representative capacity (Jewel v. CSX
Transportation, Inc.);
ii. Is one the party manifested that is adopted or believed to be true;
1. United States v. Morgan, government manifested its belief in the truth of
the “reliable” informant’s statements in a sworn affidavit.
iii. Was made by a person whom the party authorized to make a statement on the
subject;
1. Kirk v. Raymark Industries, expert witnesses employed by the opposing
party are not agents of the opposing party, and cannot be authorized to
make a statement on behalf of the party.
iv. Was made by the party’s agent or employee on a manner within the scope of that
relationship and while existed; or
1. Mahlandt v. Wild Canid Survival & Research Center, Inc.
v. Was made by the party’s co-conspirator during and in furtherance of the
conspiracy.
1. Bourjaily v. United States—Rule 104 allows the court to use any
evidence relevant to 801, preponderance of evidence of conspiracy.
4. Hearsay Within Hearsay (Rule 805)—every level of hearsay has to be addressed
a. Can “strike” or “redact” portions of hearsay to only address one level.
HEARSAY EXCEPTIONS
1. Rule 803 – Availability of Declarant Immaterial (strong exceptions)
a. Present Sense Impression—if a declarant is simultaneously describing or explaining an
event or condition when perceiving it, or immediately thereafter, the statement is
admissible. Timing is critical; such a statement is reliable because the Declarant has little
or no time to fabricate (Schindler v. Seiler).
i. “Immediately thereafter” “slight lapse of time”
b. Excited Utterance—if a declarant makes a statement under the stress of a startling event
or condition, caused by, and relating to, the event or condition, the statement is
admissible (City of Dallas v. Donovan)
i. Not confined to statements describing or explaining the startling event itself
ii. Factors
1. How exciting was the event
2. Period of time between the event and the statement
3. Whether the statement was in response to a question
4. Whether declarant was bystander or participant to the event
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4. Remaining Exceptions
a. Records of Vital Statistics (e.g. birth, marriage, death certificates)
b. Absence of Public Record or Entry (record should be there, but is not, evidence to
show that the record did not exist)
c. Records of Religious Organizations
d. Marriage, Baptismal, and Similar Certificates
e. Family Records
f. Records of Documents Affecting an Interest in Property
g. Statements in Documents Affecting an Interest in Property
h. Statements in Ancient Documents (at least 20 years old and authenticity established)
i. Market Reports and Similar Commercial Publications
j. Learned Treatises
k. Reputation Concerning Personal or Family History
l. Reputation Concerning Boundaries or General History
m. Reputation as to Character
n. Judgment of Previous Conviction
o. Judgment as to Personal, Family or General History or Boundaries
AUTHENTICATION—the process of proving that a particular piece of evidence is what the proponent of
the evidence claims it to be.
1. Requirement of Authentication or Identification (Rule 901)—applies only to tangible exhibits.
Party seeking to admit the exhibit must demonstrate to the court that there is reasonable
probability that the evidence is what its proponent claims.
a. Basic Requirements
i. Authentication is a condition precedent to admissibility;
ii. This condition is satisfied by evidence which supports the finding; and,
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iii. The finding must be that the matter in question is what the proponent claims it to
be.
2. “Chain of Custody”—for exhibits that are easily interchangeable, and thus difficult to identify,
chain of custody will be used to show that the item seized from the defendant can be fully
accounted for at all times, fro the time of seizure, up to the moment it is introduced at trial.
a. Chain of custody often goes only to weight, rather than admissibility, especially when an
exhibit is easily identifiable.
3. Writings and Other Documents—if a witness is familiar with the handwriting of the person
who wrote, or signed, the document, then the witness can authenticate it (and need not be an
expert). If the witness recognizes “distinctive characteristics” about the writing, such as its
contents, substance, or other distinctive markings, it can be used to authenticate the writing.
a. MUST be authenticated by someone with personal knowledge about, and sufficient
familiarity with, the document, and/or someone who recognizes certain “distinctive
characteristics” within the document that allows the witness to sufficiently identify the
document.
4. Voice Identification and Telephone Conversations—can be authenticated by someone hearing
the voice or making or receiving the telephone call who is familiar with the voice or who has
made or received a telephone call at or from a certain telephone number, see Espinoza.
5. Photographs—authenticated similar to writings. Foundation depends on how the photo will be
used at trial…
a. Demonstrative evidence—(to help clarify the testimony of a witness) the witness merely
needs to state that the photo is a “fair and accurate” depiction of the scene about which he
is testifying at the time and date in question (photo is not evidence, only the testimony of
the witness)
b. Evidence Itself—if no witness can establish that photo is a fair and accurate
representation, more substantial foundation needed.
6. Internet and E-Mail Evidence—as long as a witness with knowledge can testify about the
email, and/or can identify distinctive characteristics about the message, the email can be
authenticated. Lack of trustworthiness goes to the weight the jury should give the evidence, not
to its authenticity.
7. Self-Authenticating Exhibits—do not require extrinsic evidence of authenticity as a condition
precedent to admissibility. These are self-authenticating documents because there is such a low
probability of forgery existing in these instances that it is a rule of practical efficiency to think of
the foundation as already existing with the document itself.
8. Demonstrative Evidence—Evidence that appeals to the senses—e.g., photographs, charts,
graphs, objects (i.e., a gun), maps, models, simulations, animations, displays, day-in-the-life
videos, experiments, re-enactments, etc.
a. Computers
i. Animations—a computer generated exhibit that is used as a visual aid to illustrate
an opinion that has been developed without using the computer.
1. Foundation—visual aid does not require a showing that the exhibit was
produced by a scientific or technologically valid method
ii. Simulations—a computer generated exhibit created when information is fed into
a computer that is programmed to analyze the data and draw a conclusion.
1. Foundation—before admitting a simulation, in which the computer has
been used to analyze data, the courts require proof of the validity of
scientific principles and data.
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i. Presence of Third Party—usually destroys the privilege, except when the third
person was present as the attorney’s client’s representative to further the
rendition of legal service or facilitate the transmission of communications.
e. To Facilitate Legal Services—protects not only the giving of professional advice to
those who can act on it but also the giving of information to the lawyer to enable him to
give sound and informed advice (see United States v. Rowe).
2. Spousal
a. Adverse Testimonial Privilege (only in criminal cases)—allows a witness spouse to
refuse to take the stand and testify against the other spouse as to any matters.
b. Martial Communication Privilege (both criminal and civil)—requires that the words
or acts are (1) intended as communication to the other spouse, (2) made during a valid
marriage, unless the couple had irreconcilably separated, and (3) made to the other
spouse in confidence.
3. Self-Incrimination
a. The Fifth Amendment provides, “No person shall . . . be compelled in any criminal case
to be a witness against himself . . . .” But also applies in civil cases; applies only to
individuals, not corporations, and only narrowly to testimonial evidence.
i. Applies not only to oral testimony, but can also apply to written records and
reports, especially if they are not private.
4. Waiver of Privilege
a. Crime-Fraud Exception—if a client communication to an attorney is to enable the client
to commit a crime or fraud, the A/C privilege is considered waived by the client.
b. Failure to Assert the Privilege
c. Waiver by Voluntary Disclosure
d. Waiver by Putting the Protected Information at Issue
e. Waiver in a Federal Proceeding or to a Federal Office or Agency
_____________________________________________________________________________________
JUDICIAL NOTICE
1. Rule 201—limited to adjudicative facts (those of which the jury will consider) that are easy to
prove (not of a questionable issue).
a. Adjudicative Facts—are facts that are decided by a jury in a jury case or by the judge in
a bench trial and which would normally be proved by evidence if judicial notice were not
taken (take notice of a street and the way in runs, or that a particular date relates to a
particular day).
i. Judicial notice will only be taken when . . . , and the adjudicative facts must be
either…
1. A matter of general knowledge in the jurisdiction; or,
2. Capable of ready determination by sources whose accuracy cannot
reasonably be questioned.
ii. Civil Case—once judicial notice is taken, it is conclusive, meaning it is to be
considered established as though proved or as if the parties had stipulated to its
truth.
1. E.g., a court can take notice of the fact that banks send customers
monthly statements and those statements inform their customers to
whom their money was paid and in what amounts (see Kaggen v. IRS).
iii. Criminal Case—while conclusive in a civil case, the jury is not bound to accept
the judicially noticed fact and may disregard it if it so chooses (see United States
v. Jones).
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2. Legislative Facts—background facts used by the court to arrive at a legal decision, such as social
science propositions.
a. Not regulated by Rule 201.
3. Evaluative Facts—common information, concepts, and understandings in society, such as people
are late for appointments are more likely to speed.
a. Not regulated by Rule 201.
4. Facts within Personal Knowledge of the Judge—a trial judge is prohibited from relying on his
personal experience to support the taking of judicial notice (see United States v. Lewis).
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d. Effect of Agency Rules—agency rules have the force and effect of law so long as they
are constitutional, were promulgated in a procedurally proper manner, and do not stray
beyond the authority conferred by the legislature (i.e., they are not ultra vires).
e. Appointment—all officers of the U.S. must be appointed by the President with the
advice and consent of the Senate. Congress may vest (confer power) the appointment of
inferior offices in the President alone, the courts, or the heads of departments. U.S.
Const. Art. II, §2.
f. Wyeth v. Levine—dealing with the effect of agency “proclamations” on state law.
Agency will be given some deference where technical expertise is involved. Scope of
agency authority defined by the enabling statutes. History of agency regulatory action or
“longstanding” interpretation is a factor, but not dispositive.
3. Types of Agencies
a. Agencies Fall Within Two Structural Categories
i. Independent Agencies (Multi-Member Commissions, e.g., ICC, SEC, FTC):
1. “Independent” refers to an agency that is insulated from presidential
control in one or more ways. The question is whether the removal
restrictions are of such a nature that they impede the President’s ability
to perform his constitutional duty.
2. There is a statutory limit on the President’s power to remove the head (or
members) of the agency.
3. No more than a simple majority of these members may come from one
political party.
4. The members of the group have fixed, staggered terms, so that their
terms do not expire at the same time.
5. The members can only be removed by the president for “cause” (e.g.,
inefficiency, neglect of duty, or malfeasance in office); this is a primary
characteristic – insulation from arbitrary and executive control. This is
unlike most executive officials, who serve at the pleasure of the
President.
ii. President’s Executive (Dept./Cabinet) Agencies (Single-Head Agencies):
1. Most administrative agencies of the executive branch (e.g., Dept. of
Labor and Agriculture) are headed by a single individual appointed by
the President.
2. The President has the power to remove heads of agency/department from
office without cause; they are subject to the discretion and control of the
President.
b. Regulatory v. Non-Regulatory Agencies
i. Regulatory Agencies—Regulatory agencies are usually vested with
comprehensive jurisdiction to regulate a wide spectrum of economic activities of
specific industries.
1. Two important regulatory functions are the protection of public
health/safety (EPA and OSHA) and the regulation of commerce and
trade, which is a traditional “economic” regulation involving regulating
entry, prices, production costs, or other aspects of business and industry.
2. Examples of Regulatory Agencies:
a. Interstate Commerce Commission (ICC) – first independent
regulatory commission created by Congress.
b. The Big Seven – Federal Trade Commission (FTC), Federal
Power Commission (FPC), Federal Communications
Commission (FCC), Securities and Exchange Commission
(SEC), National Labor Relations Board (NLRB), and Civil
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DELEGATION OF POWERS
1. Introduction
a. An administrative agency is a creature of statute. All authority pursuant to which an
agency may act ultimately must be grounded in an express grant from Congress.
i. The constitutional limits on Congress’s authority to delegate certain types of
power to administrative agencies make up the delegation/non-delegation
doctrine.
b. The statute is the source of agency authority as well as its limits. If an agency act is
within the statutory limits (vires) its action is valid; if it is outside them (ultra vires), it is
invalid/unlawful.
c. Delegation and Limitations—focus on rulemaking authority (rules made by agency
have the effect of a statute), enforcement authority, and adjudicatory authority of an
agency (formal proceedings have adjudicatory effect).
2. Legislative Power [Rulemaking]
a. Introduction
i. The lawmaking power is entrusted in the Congress; however, Congress (the
legislature) has delegated significant powers of lawmaking to agencies.
1. The foundation of representative government is in the legislature as the
lawmaking organ of the polity.
ii. Statutes delegate “quasi-legislative” power, meaning the power to make rules
that have a legal effect on people’s everyday conduct.
iii. Constitutional Test: Congress can delegate quasi-legislative power as long as it
gives the agency (or official) an “intelligible principle” to follow in exercising
that power.
iv. Congress’ delegation of legislative power to administrative agencies does not
violate Separation of Powers.
b. Separation and Delegation
i. In classic constitutional theory, the separation-of-powers notion requires that
each branch of government stay separate and exercise only the authority given to
them by the Constitution.
ii. Syllogism
1. Major Premise—Congress cannot constitutionally delegate legislative
power.
2. Minor Premise—It is essential that certain powers be delegated to
administrative officers and regulatory commissions
3. Conclusion—Therefore, the powers thus delegated are not legislative
powers. They are instead “administrative” or “quasi-legislative” powers.
iii. More Realistic Approach: The law has shifted from an unworkable rule
prohibiting any delegation of legislative power to one prohibiting excessive
delegation.
c. Unconstitutional Delegations: Courts have found delegation of legislative power to an
agency as unconstitutional (out of bounds for delegation) only twice –
i. Panama Refining Co. v. Ryan—Section 9(c) of the National Industrial Recovery
Act empowered the President to prohibit the transportation in interstate
commerce of “hot oil.” The delegation was invalid. The statute contained only
the bare delegation: Congress had not stated whether or in what circumstances or
under what conditions the President was to exercise the prohibitory authority.
Congress had not set up a standard for the President’s action. Instead, it gave the
President an unlimited authority to lay down the prohibition or not, as he might
see fit.
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(FOIA). FOIA contains exemptions from disclosure but they may not apply to the
acquired information.
2. Investigations—most agencies have broad authority to conduct investigations. Investigations
generally seek to determine whether violations of the statutory framework have occurred. In
conducting an investigation, this does not mean, however, that the agency must have a
particularized belief that a violation has occurred.
a. May investigate if . . .
i. “Suspicion” that law is being violated;
ii. “Assurance” that the law is not being violated.
b. Once investigation begins . . .
i. Investigatory authority broadly construed;
ii. Stringent limitations on authority of subject to destroy records (Sarbanes-Oxley
(18 U.S.C. §1519)).
iii. Criminal penalties if records destroyed during or in contemplation of
investigation
c. Voluntary Disclosure—obtaining information during an investigation through simply
requesting and receiving the necessary documents and testimony. Sometimes an agency
has no choice but to get information this way; the agency lacks the statutory authority to
compel disclosure.
i. Effects of Voluntary Disclosure on Attorney-Client Privilege and Work Product
Doctrine
1. No Selective Waiver – a party waives ACP and WPD, as to third-party
civil litigants, by releasing privileged materials to federal agencies in the
course of the agencies’ investigation (1st, 3rd, 6th , and D.C. Circuits: there
is also no selective waiver in healthcare cases).
2. Selective Waiver in All Situations
3. Some Selective Waiver – selective waiver is permissible in situations
where the government agrees to a confidential order (8th Circuit).
d. Compulsory Disclosure—occurs where the agency seeks information through a
mandatory process. The particular methods available to an agency depend upon the
authority in the statute. Nothing in the APA provides the substantive authority to compel
disclosure. Compulsive methods range from on-site visits (including searches,
inspections, and examinations), and the compelling of testimony or documents (usually
pursuant to a subpoena).
i. INSPECTIONS, EXAMINATIONS, & SEARCHES
1. Administrative Warrants—the standard for obtaining an administrative
warrant is different from that needed for a criminal warrant.
Administrative warrants are based on reasonableness and public interest
(no need to have specific knowledge of one particular dwelling to satisfy
probable cause). Camara v. Municipal Court of the City and County of
San Francisco.
a. Balancing-Test—compare the governmental interest that
allegedly justifies official intrusion upon the constitutionally
protected interests of the private citizen.
i. Government interest = public health, safety, aesthetics
2. Scope of Administrative Warrants—the warrant must be narrowly
tailored (particularity requirement). If an administrative agency wants a
more intensive inspection warrant (like going to closets/drawers), then
there must be more specific evidence described in the application. A
right of inspection is not unlimited. The warrant must specifically
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have actual knowledge of the rules’ existence bind all persons to whom such regulations
apply. Contradictory information supplied by a federal official does not alter the strict
language of a properly published rule or regulation.
d. States: Most states have specified a central state office for the filing of all state
regulations and have provided for their periodic compilation and publication. But no
state follows federal approach of daily publication of agency rules and regulations.
e. Federal Crop Insurance Corp. v. Merrill – Erroneous Information: Publication is
everything! If the government publishes it, you are deemed to know about it, even if
knowing about it is ridiculous.
6. Estoppel
a. General Rule: Erroneous or unauthorized advice given by an agency official that
contradicts a binding regulation is usually insufficient grounds upon which to sustain a
case of estoppel against the government.
b. Office of Personnel Management v. Richmond – Estoppel in Favor of the Government:
Equitable estoppel is not available to private litigants in suits against the government,
especially those cases seeking money, implicating the Appropriations Clause. If you
could sue the government every time the agency gave out misinformation, it would clog
the court system and would be chaos.
c. A Different View on Estoppel (Since the Richmond Case):
i. Brandt v. Hickel: Estoppel should be invoked against the government where the
erroneous advice was in the form of a crucial misstatement in an official
decision.
1. This is the more modern trend – granting estoppel; move toward being
more reasonable and not so harsh with people.
ii. Gilmore v. Lujan: Appellant must demonstrate affirmative misconduct on the
part of the government that goes beyond mere failure to inform or assist.
7. Rulemaking Procedure
a. Federal APA §553 – Procedural Obligations of Informal Rulemaking: Defines the
procedural obligations applicable to most rulemaking proceedings; has been driving
administrative law in our country since 1946.
b. Notice: Notice of proposed rulemaking must be published in the Federal Register, unless
relevant parties have actual notice. [5 USC §553(b)]
i. The notice shall include –
1. A statement of time, place, and nature of public rulemaking proceedings;
2. Reference to the legal authority under which rule is proposed;
3. Either the terms or substance of the proposed rule or a description of the
subjects and issues involved.
ii. Exceptions to the Notice Rule
1. Interpretive and procedural rules (non-legislative rules), a well as
general statements of policy, are exempt from the requirement of
publication.
2. Good Cause Exception: Situations where the agency finds it
“impracticable, unnecessary, or contrary to the public interest” (i.e.
inconvenient or unnecessary) are exempt from notice and comment
period.
c. Notice-and-Comment Procedures: Parties have a right to participate through
submission of written pleadings, with or without the opportunity to advocate their
position or introduce evidence orally. More formal procedures are available only if the
“rules are required to be made on the record after opportunity for an agency hearing.” [5
USC §553(c)]
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i. Why do you have this “comment” period? Procedural due process – have to give
notice and opportunity for people to be heard. People are heard through
commenting, which meets the procedural due process requirement.
ii. Generally, you have to have oral hearing, but not always. There is no particular
order for comment.
d. Publication: Publication or service of a substantive rule must ordinarily be
accomplished 30 days prior to its effective date.
e. APA is Both a Ceiling and a Floor: In reviewing procedures offered by an agency
under the APA, courts are ordinarily not free to impose procedural requirements beyond
those specified in the APA. Nor may agencies offer less than the procedural minimums
expressed therein. But an agency is free (without judicial coercion) to offer more than
the minimum procedural requirements if it so chooses.
f. What happens if §553 requirements are not met? The agency rule is struck down for
violating §553 and is treated as invalid; previous rule will be reinstated.
g. What if the notice of the proposed rulemaking doesn’t cover what the rule actually
ends up being?
i. Logical Outgrowth Test: Does the promulgated rule look as if it is a logical
outgrowth of the noticed subject?
ii. Example: Sugar content in cereal was subject to notice and rule ended up
deciding how much sugar could go into milk. This fails logical outgrowth test.
h. Jifry v. FAA – Exception to Notice and Comment (Good Cause Exception): APA
requires an agency to publish general notice of proposed rule-making and afford an
interested person to participate. Plaintiff claimed that FAA violated this rule because
there was no notice and comment. The Good Cause Exception excuses notice in
emergency situations OR where delay could result in serious harm.
i. Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council –
LEADING CASE, a Must Know! If agency has followed APA, they have done their
part. There are minimal standards and as long as those minimal standards are followed,
that is good enough. The minimum procedures are through 553 of the APA. Under
certain circumstances, the court can impose greater requirements than those required
through the APA. These circumstances are below. It’s not the court’s job to step in and
make additional requirements to the APA (restriction against Courts imposing
rulemaking procedures beyond those required by statute).
i. Holding: The agency provided proper procedures and didn’t need to do anything
else. The APA expresses the maximum procedural requirements that Congress
was willing to have the judiciary place upon agencies. While agencies are free to
offer greater procedural opportunities, the courts are not free to insist that they
do.
1. Exceptions may exist when . . .
a. The agency is deciding a controversy involving a small number
of person, each exceptionally affected upon individual grounds;
b. The agency makes a “totally unjustified departure from settled
agency procedures of long standing;”
c. Constitutional due process may require more procedural
opportunities than those specified in the APA; or
d. Exceptionally compelling circumstances exist.
j. Formal v. Informal Rulemaking
i. Informal: §553 of APA
ii. Formal: Begins with §553(c) and then covers §556 and §557 of the APA
iii. RULE: Although a statute does not have to quote section 553 to require formal
rulemaking, there must be a clear expression of congressional intent to do so.
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Otherwise, the courts will assume that Congress intended the agency to conduct
informal rulemaking. The rationale is that formal rulemaking is a costly process
that does not add much to the agency’s ability to make good decisions.
iv. United States v. Florida East Coast Railway – “After Hearing” is Not
Synonymous with “On the Record.” Unless a statute dictates that rules be
adopted after a hearing “on the record,” no formal hearing is required. Terms
like “must hold public hearing” are not sufficient – it needs to say “on the
record.”
k. Prejudgment—Although prejudgment bias constitutes grounds for disqualification of the
decision-maker when quasi-adjudicative procedures are mandated, neutrality and
detached objectivity are not strictly insisted upon in quasi-legislative proceedings.
i. Rule: Public opinion from an agency official does not constitute a basis for
disqualification of rulemaking proceeding on the matter.
ii. Exception: Official is only disqualified upon clear & convincing evidence that
he has an unalterably closed mind on matters critical to disposition of the
rulemaking.
iii. Rationale: Agency officials are not like judges; they are like legislators whose
opinions and views should be considered and encouraged.
iv. Association of National Advertisers v. FTC – Agency Official’s Public
Expression of Opinion on the Issue
1. Administrative action under APA is either adjudication or rulemaking; it
cannot be a hybrid. The nature of the proceeding in this case is
rulemaking because it is directed to all members of an affected industry
and is based on legislative fact. Administrators in rulemaking
proceedings must be impartial, but this does not mean they must be
uninformed or without opinions. A rulemaker may not be disqualified
unless there is a clear and convincing showing that he has an unalterably
closed mind on matters critical to the disposition of the rulemaking. P
did not make such a showing in this case.
l. Additional Procedures – Regulatory Flexibility Act (RFA)
i. Major Rules = cost-benefit analysis. Rules affecting small business, apply RFA.
ii. §604 – Final Regulatory Flexibility Analysis: When an agency promulgates a
final rule under §553 (after publishing general notice of proposed rulemaking, or
promulgates a final interpretive rule involving the internal revenue laws of the
U.S. described in 603(a)), the agency shall prepare a final regulatory flexibility
analysis.
iii. The Remedies that Exist For Agency’s Failure to Enforce/Issue a RFA are…
1. Remand the rule back to the agency, and
2. Defer enforcement of the rule against small entities unless the courts find
that continued enforcement of the rule is in the public interest.
8. Rules Versus Orders
a. Two Fundamental Questions when Dealing with a Rule v. Order Problem:
i. Does the agency have a choice between proceeding by rulemaking or
adjudication?
ii. Must the agency announce a new rule/law prospectively by rulemaking power
and restrict particular rights only through adjudicatory proceedings?
b. General Information
i. An agency can choose to proceed by rulemaking or adjudication if the agency
has authority to do both.
ii. Agency cannot adopt a rule in adjudication that would be an order or a principle.
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iii. Agency cannot promulgate a new rule in adjudicatory process without complying
with the APA.
iv. When a case is adjudicated, it is considered precedent.
c. NLRB v. Wyman-Gordon Co. – Rulemaking Through Adjudication
i. Agency must use rulemaking procedures to issue new/binding rule; cannot adopt
a rule for future application in adjudication, but can announce a new principle.
ii. While an agency may set forth principles in an adjudication (comparable to res
judicata), it cannot make substantive rules in an adjudication.
9. Negotiated Rulemaking—Courts like negotiated rulemaking; they are not going to stop it. The
problem with it, though, is getting everyone to agree. [NOT ON EXAM]
a. USA Group Loan Services v. Riley – Negotiated Rulemaking:
i. Facts: Congress required D to enter into “negotiated rulemaking” process before
promulgating any final rules. Negotiations were over the form and substance of
the regulations. Ps disagreed with proposed provisions, and P and D went into
negotiation. One of D’s officials promised to abide by any consensus reached
unless there were compelling reasons to depart. At one point, D made an offer
that P rejected, so D revoked the offer.
ii. Holding: The purpose of the negotiated rulemaking process is to reduce judicial
challenge to regulations by encouraging the parties to compromise on their
differences prior to the formal rulemaking procedure. It is unclear that D could
lawfully agree to be bound by the consensus results of the negotiations. It is not
bad faith for negotiator to revoke an unaccepted offer.
10. Rulemaking and the Internet
a. Section 206 of the E Government Act of 2002: There are numerous benefits to
negotiated rulemaking (e.g., reduction of judicial challenge, more expeditious rule
implementation, more economical process), and these can be enhanced by agencies that
post their advanced notices of proposed rulemaking on the Internet, allowing the public to
comment on or question the proposed rules.
b. The Good and The Bad
i. In terms of moving toward a democracy, the internet is great.
ii. In terms of what you want others to see, including what you complain about, it’s
not so great because it will be all over the internet. You have to be careful.
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iii. The right to present evidence (both testimonial, typically under oath, and
documentary) and argument;
iv. The right to confront and cross-examine adverse witnesses;
v. The right to counsel, although the state need not furnish counsel in all cases;
vi. A decision resting on the legal rules and evidence adduced at the hearing, shown
by a statement of the reasons for the decision and the evidence relied on; and
vii. An impartial decisionmaker.
viii. Note—these (above) are the essential rights safeguarded in a judicial-type trial.
d. Brookpark Entertainment, Inc. v. Taft—a state cannot give its citizens the right to
deprive an owner of his property rights. Liquor licenses are property, which means
licensee must be afforded due process before revoking the license.
i. The fact that liquor licenses can be transferred, sold, and renewed shows that
they have pecuniary value to their holders – legal entitlement, and therefore, right
to a hearing before revocation.
ii. OVERRULED SMITH.
e. Exception to Goldberg—Immigration
i. U.S. citizenship entitles you to certain benefits. An alien seeking initial
admission to the U.S. acquires a privilege and has no constitutional rights
regarding his application. Once an alien gains admission, his constitutional
rights change; he then is entitled to a fair hearing when threatened with
deportation
f. Goss v. Lopez – (Hearing for School Suspension) Education is a property right, which
means due process must be given BEFORE (pre-hearing) depriving someone of
education. The level of procedural due process will vary with the punishment –
something less than a full evidentiary hearing may be sufficient for a relatively brief
suspension of 10 days or less.
i. There need not be an opportunity for representation by counsel, to confront or
cross-examine witnesses, or other ingredients of a formal hearing, at least for a
relatively brief suspension such as 10 days.
ii. Note, Though: A student whose presence poses a continuing danger to persons
or property, or even an ongoing threat of disrupting the academic process, may
be removed immediately, but then a hearing should follow as soon as possible.
g. Mathews v. Eldridge – Narrowing the Hearing Requirement—Evidentiary hearing is
NOT required BEFORE the termination of disability benefits.
i. Mathews Factors: To determine the extent of the procedures required, balance
the following factors –
1. The private interest that will be affected by the official action;
a. How is the timing of the hearing going to affect the person losing
the benefit, and in what magnitude will the claimant be affected.
b. Pre-termination hearing verses post-termination hearing.
2. The risk of an erroneous deprivation from the procedure used and the
likely reduction of that risk by requiring more or different procedures;
a. How effective these additional procedures would be and
3. The government’s interest (fiscal and administrative) in using the
required procedures as opposed to different procedures.
a. Look at fiscal and administrative burdens that the additional or
substitute procedure requirement would entail; cost-benefit
approach.
b. Note that if monetary benefits are involved (not welfare), a pre-
termination hearing is NOT required.
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ii. Note—The ruling in Matthews held that a PRE-termination hearing may not be
required when the Mathew balancing factors are applied. It did NOT hold that
no hearing is required, since claimants do have a statutory right to be heard.
Court held that a post-termination hearing met the requirements of due process
based on the balancing test.
h. Hamdi v. Rumsfeld – (Application of the Mathews Balancing Test)
i. The Court must weigh the governmental interest in confining enemy-combatants
against the individual liberty rights of the detainee. After due consideration, it is
not necessary to provide initial due process hearings for captures, but those who
must be detained further are entitled to further proceedings. The detainee must
have an opportunity to demonstrate that the government's factual assertions are
untrue.
1. Facts and circumstances are highly determinative in balancing test – the
private interest (freedom) and the risk of error (high) outweighed the
government interest (national security). He has a right to dispute (a
hearing).
2. The court held a citizen-detainee seeking to challenge his classification
as an enemy combatant must receive notice of the factual basis for his
classification before a neutral decision maker.
5. Narrowing Scope of Property and Liberty Interests
a. Property Interests—more than abstract need, desire, or unilateral expectation. Must
equal legitimate claim of entitlement and must not be discretionary; a benefit is not a
protected entitlement if government officials may grant or deny it in their discretion.
i. Examples
1. Applicants for disability benefits that are nondiscretionary, statutorily
mandated, should be afforded due process to such property entitlements.
See Cushman v. Shinseki.
2. Statutes cannot be interpreted literally (sometimes). Police officers are
afforded the discretion to enforcement a restraining order (deep rooted
and historical discretion given to police officers regarding arrests and
enforcement decisions). See Town of Castle Rock v. Gonzales.
b. Liberty Interests
i. Denial of tenure or employment itself does not meet the test; it does not violate
liberty rights. To be actionable, defendants’ conduct must be so stigmatizing that
it crossed defamation line to infringement on liberty interest. See Hedrich v.
Board of Regents.
ii. Disciplinary segregation in prison can trigger due process protections, based
upon length of confinement and conditions of confinement. Must exceed
discretionary confinement in duration or degree of restriction (substantial or
unusually harsh).
6. Waiver—having notice but failure to request a hearing results in waiver, thus allowing
assessment of civil penalties without a hearing. See National Independent Coal Operators v.
Kleppe (no opportunity for a hearing was requested even though the opportunity existed. No
request means effective waiver of their right to a formal finding of fact).
a. No formal decision or findings of fact without a hearing!
7. Postponed Hearings—where de novo opportunity for judicial review exists, an evidentiary
hearing at the administrative level may not be required. Hearing need not be held at any
particular phase of the proceedings as long as a hearing occurs before the order is finalized.
a. Where only “property rights” are involved, mere postponement of the opportunity to be
heard is not a denial of due process.
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ii. Procedural due process requires notice and an opportunity to be heard. Section
554(b) of the APA provides that parties entitled to notice of any agency hearing
shall be timely informed of the matters of fact and law asserted. This means that
an agency must give the party charged a clear statement of the theory on which
the agency will proceed with the case. An agency cannot change theories
without providing reasonable notice, and especially cannot raise a related charge
after the hearing record is closed.
iii. Note—When you are “charged” with something, you are given notice.
2. Nature of Hearing
a. Formal Adjudication: Formal agency adjudication closely resembles a trial-type
hearing before a judge sitting without a jury.
b. Public Hearing: Ordinarily, due process requires a public hearing if formal adjudication
is mandated. However, a private hearing may be offered if necessary to protect the
interests of the affected individual.
i. There is strong policy favoring public trials for both agencies and courts.
ii. Note—Neither federal nor state constitution created a public right of access to a
professional disciplinary hearing, and no common law right of access to
professional disciplinary hearing exists.
c. Test For Whether There is a Constitutionally Based Public Right of Access:
i. Whether the place and process have historically been opened to the press and the
general public AND
ii. Whether public access plays a significant positive role in the functioning of the
particular process in question.
d. There is no public right of access to professional disciplinary hearings conducted
pursuant to state law. See Johnson Newspaper Corp. v. Melino (hearing on whether to
close a hearing involving a dentist who was a licensed professional under state law.
i. There is no historical basis for an open professional disciplinary hearing and
there is no showing that the public played a significant role in the licensing or
policing of professionals. Further, there is possibility of irreparable harm from
unfounded accusations.
e. Two-Part test to determine whether access is mandatory
i. Whether there is a public right of access under the Federal of State Constitution
ii. Whether there is a common-law right of access grounded in public policy
3. Counsel
a. Right to Representation by Counsel—An individual is ordinarily entitled to the
opportunity to retain an attorney. APA §555(b). However, this general rule does not
entitle a party in an agency proceeding to counsel provided at public expense.
i. Generally—In administrative hearings, you are entitled to counsel, but you are
NOT entitled to counsel paid for by the government.
ii. Investigatory Proceedings—There is no right to representation by an attorney in
investigatory proceedings that are non-criminal in nature.
iii. Representation by Non-Attorneys—Although licensed attorneys are free to
practice before almost all federal agencies, administrative practice is not limited
to lawyers. Several agencies allow non-lawyer practitioners to appear before
them. For example, the Interstate Commerce Commission administers an
examination, the successful completion of which allows non-lawyer
transportation practitioners to practice before the agency.
b. Statutory Provision—Statutes that prohibit the presence of counsel in certain contexts
have survived constitutional challenge.
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1. To answer this question, the reviewing judge should first look to the
governing legislation. Three additional sub-questions must be
answered…
a. Is Judicial Review SPECIFICALLY PROVIDED for? If yes,
review must be given.
b. Is Judicial Review SPECIFICALLY DENIED in the state? If
yes, review is not available UNLESS the claim is that –
i. There is a constitutional issue; OR
ii. The agency acted illegally, unconstitutionally; OR
iii. The agency acted in excess of its jurisdiction.
c. Is the statute or legislative authority SILENT on the issue of
judicial review? If yes, there is a presumption that review is
allowed, and the agency must make a clear showing that review
should not be available.
i. Note: There is no presumption that review is precluded.
ii. What is the scope of review?
1. If the statute states what the judicial process is (within the statute), that is
the ONLY judicial process you get and you MUST follow it.
2. Where a statute provides procedures for judicial review, a court must
follow those procedures. The court has no options in such a situation.
a. Statutory review procedures must be followed exactly in any
proceeding. This means the review action must be brought –
i. In the court (place) specified by statute;
ii. Within the time specified in the statute;
iii. In the form specified in the statute.
2. Statutory Silence
a. Non-Statutory Review—Even where the legislature has not explicitly provided for
judicial review (which it usually does), the absence of statutory authority for review has
usually not been interpreted by the courts as constituting preclusion of review.
b. Presumption of Availability of Judicial Review—Statutory silence DOES NOT
preclude judicial review. When personal rights are created by statute, silence as to
judicial review is not to be construed as a denial of judicial relief, particularly when the
matter is of a type typically resolved in the courts. See Stark v. Wickard
i. Purpose of Case—Final agency action is presumed reviewable under §702.
ii. Judicial review of a final agency action by an aggrieved person will not be cut off
unless there is persuasive reason to believe that such was the purpose of
Congress.
3. Statutory Preclusion
a. Narrow Construction—Preclusion statutes are narrowly construed as a general rule.
b. APA §702—“A person suffering a legal wrong because of agency action, or adversely
affected or aggrieved by agency action within the meaning of the relevant statute, is
entitled to judicial review thereof.” APA §§701 and 706 allow any person adversely
affected by an agency action to obtain judicial review, so long as the challenged action is
a final action.
i. Presumption—There is always a presumption for judicial review because it is
favorable, but if the statute precludes it, then the decision is not reviewable.
c. Exceptions
i. §701(a) limits application of the entire APA to situations in which…
1. Judicial review is precluded by statute (an intent by Congress to prohibit
judicial review); or,
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the law. These are objectives the legislature probably desired when it
established the agency.
iii. Disadvantages: Referring questions to administrative agencies that the courts
must ultimately review may only consume unnecessary time and money, and lead
to less efficient and less economical decision-making.
d. Discretionary Refusal to Exercise Jurisdiction—Even if there is no statute requiring
exhaustion of administrative remedies, the courts can use their discretion under the
primary jurisdiction doctrine to decline to hear a suit until administrative remedies have
been exhausted. See Farmers Insurance Exchange v. Superior Court.
7. Exhaustion of Administrative Remedies
a. Definition: No one is entitled to judicial review (relief) for a supposed injury or
threatened injury until the prescribed administrative remedy has been exhausted. Stated
differently, a party may ordinarily NOT seek judicial review of administrative agency
action until she has first utilized all her appellate opportunities within the agency, i.e.
exhausted all administrative remedies.
i. If a statute or regulation says you must exhaust your administrative remedies,
then you must exhaust your administrative remedies FIRST.
b. Rationale—Several policy considerations should inform a court’s decision whether to
impose a judicial exhaustion requirement in a given case –
i. Avoidance of Premature Adjudication: Like a trial court, the agency has been
established to apply the statute in the first instance. It is usually desirable to
allow the agency the first opportunity to develop the facts and apply the law.
ii. Administrative Efficiency: It is ordinarily more efficient to allow the agency to
proceed without interruption than to allow judicial review at the various
intermediate steps.
iii. Improved Review: allowing the agency to develop a factual record and to apply
its expertise enhances judicial review. The judiciary can more efficiently deploy
its resources by reviewing the agency record rather than compiling its own
independent findings of fact.
iv. Judicial Efficiency: A party who is forced to exhaust her administrative remedies
may choose not to appeal an adverse judgment. Judicial interference in the
administrative process would also weaken the agencies by encouraging parties to
ignore those procedures.
c. Exceptions to the Exhaustion Rule—If the statute is silent about exhausting
administrative remedies, exhaustion may be avoided where . . .
i. Delay unduly prejudices judicial remedy;
ii. Substantial doubt exists about whether the remedy is available at agency (clear
futility of exhausting administrative remedies);
1. In order to prevail on a claim of futility, the plaintiff must show more
than that she doubts that an appeal would result in a different decision;
she must show that it is certain that her claim will be denied on appeal
(i.e., must be anchored in demonstrable reality). See Portela-Gonzales v.
Secretary of the Navy.
iii. A clear and objectively verifiable administrative taint exists.
d. APA §704, Actions Reviewable (codification of Exhaustion Rule)—Except as
otherwise expressly required by statute, agency action otherwise final is final for the
purposes of this section whether or not there has been presented or determined an
application for a declaratory order, for any form of reconsideration, or, unless the agency
otherwise requires by rule and provides that the action meanwhile is inoperative, for an
appeal to superior agency authority.
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b. Substantial Evidence—The rule provides that substantial evidence is more than a mere
scintilla. It is such relevant evidence as a reasonable mind might accept as adequate to
support a conclusion; it really just means some reasonable basis. See Universal Camera
Corp. v. NLRB.
i. As has been discussed, formal rulemaking and formal adjudication subject to
APA §§556 and 557 are subject to the substantial evidence test. APA
§706(2)(E).
c. Arbitrary and Capricious (informal rulemaking under §553 only)
i. Scope of Review Without a Record—Ask whether the decision was based on
consideration of all the factors and was there a clear error in judgment. See
Citizens to Preserve Overton Park v. Volpe.
1. Essentially, there has to be something unexplainable about the agency’s
decision, whether it be the failure to explain the contrary evidence or the
consideration of improper facts, etc.
a. NOTE—Apply substantial evidence if it is rulemaking and you
have a record of review.
2. Generally, an agency decision will be considered arbitrary and capricious
if the agency had relied on factors which Congress had not intended it to
consider, entirely failed to consider an important aspect of the problem,
offered an explanation for its decision that runs counter to evidence
before the agency or is so implausible that it could not be ascribed to be a
difference in view or the product of agency expertise.
d. Agency Delay APA §706—The reviewing court shall (1) compel agency action
unlawfully withheld or unreasonably delayed…
i. A court MAY NOT impose deadlines for agency action when it determines the
delays are caused by inefficiency. See Heckler v. Day.
e. Doctrine of Statutory Deference—deference to an agency’s interpretation of its
enabling statute.
i. The Chevron Rule—if a statute is unambiguous the statute governs; if, however,
Congress’ silence or ambiguity has left a gap for the agency to fill, courts must
defer to the agency’s interpretation so long as it is a permissible/reasonable
construction of the statute.
1. Deference applies only when an agency has been delegated authority to
make rules having the force and effect of law (and its regulation/
promulgated rule carries the force and effect of law). It will not be given
for interpretive rules, opinion letters, memorandums, etc. See US v.
Mead.
a. For informal agency action, use Skidmore deference.
f. Doctrine of Regulatory Deference—deference to an agency’s interpretation of its own
regulations.
i. When an instructive interpretive memorandum presents a reasonable
interpretation of the regulatory regime or the regulatory scheme, a court will
defer to the interpretation unless it is “plainly erroneous or inconsistent with the
regulation[s].” See Coeur Alaska.
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PROPERTY I OUTLINE
Professor David Finnegan, Michaelmas Term 2009
ACQUISITION OF PROPERTY:
FIRST POSSESSION: the most fundamental rule for determining ownership is that the first person to
take possession of a thing owns it (rule of capture); “First in time, first in right”
1. Acquisition by Capture: Under the general rule, whoever is prior in time wins, i.e., the first to
capture resources is entitled to them.
a. Wild Animals (Ferae Naturae): One must (1) manifest unequivocal intent to appropriate,
(2) deprive animal of its liberty, (3) reduce it within your certain control. Pursuit is
insufficient (see Pierson v. Post).
i. Constructive Possession: despite first in time possession, courts rule in favor of
the landowner for possession, rationale soli; i.e., the land was owned “first”, not
the person hunting animal (second).
ii. Wounded or Trapped Animals: if a wild animal has been mortally wounded or
trapped so that capture is practically certain, it is treated as captured. Generally,
a captor must acquire physical control over the animal absent a custom to the
contrary (see Ghen v. Rich).
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c. Abandoned Property: the finder obtains both possession and title if he exercises control
over the property with intent to assert ownership.
d. Other Terms:
i. Action of Replevin (chattel)/Action of Ejectment (real): return goods/land
ii. Action of Trover (chattel)/Action for Trespass (real): money damages
2. Acquisition by Adverse Possession: If the landowner does not bring an action of ejectment
within the statutory period, owner is barred from bringing the action. The doctrine rewards
productive use of land. Adverse possessor has the burden of proof to show all requirements have
been met, while the owner just needs to show that one is not satisfied.
a. REQUIREMENTS
i. Actual Entry: there must be actual entry, where the possessor uses the land as the
owner would (depends on the type of land)
1. Constructive Adverse Possession (UNDER COLOR OF TITLE): if
entry is only on part of the land, under defective written document,
possession extends to all the land in document when requirements met.
ii. Exclusive Possession: possessor cannot share possession with the owner or
anyone else, except as would be natural for the use of land.
iii. Open and Notorious Possession: the possessor must occupy the property in an
open, notorious, and visible manner so as to give reasonable notice to the owner
that the possessor is claiming dominion adverse to the owner’s rights (true owner
should know if making an inspection of land).
1. Minor (Boundary) Encroachment: no presumption of knowledge, actual
knowledge required of true owner for open/notorious possession of
minor encroachment (see Mannillo v. Gorski).
iv. Adverse/Hostile and Under a Claim of Right/Title: occupying the land without
the consent/permission of the true owner.
1. Under Mistake of Claim of Title: as long as the above elements are met,
there is sufficient support for a claim of title by adverse possession.
2. Tests for Hostility: DISCUSS ALL FOR EXAM PURPOSES
a. Objective Test: Possessor’s state of mind is irrelevant, as long as
possessor uses the land as the owner would without permission
(MAJORITY RULE)
b. Good Faith Test (Subjective): Possessor has a mistaken but a
“good-faith” belief that he has title to the land.
c. Aggressive Trespass Test: Possessor acts with the
purpose/intention of taking title with the knowledge that the
property belongs to another.
v. Continuous, Uninterrupted Possession: continuous when it is made without a
break in the essential attitude of mind.
1. Seasonal Use: a person can be in continuous possession when taking
possession only during a particular season, if seasonal possession is how
the average owner would use the property (see Howard v. Kunto).
2. Tacking: an adverse possessor can tack onto his own period of
possession to any period of adverse possession by predecessors in
interest, provided there is privity of estate between possessors.
a. Privity of Estate: a possessor voluntarily (free from duress)
transferred to subsequent possessor either an estate in land or
physical possession, doesn’t require contract.
b. ADDITIONAL CONCEPTS OF ADVERSE POSSESSION
i. Disabilities: if the true owner is under a disability at the time of an adverse
entry, the statue of limitations is tolled (extended) until the disability ends.
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However, only the initial disability at the time of entry tolls the statute; a
different disability arising after entry does not count.
1. Examples of Disability: a minor, mental incapacity, imprisonment
2. Typical Statute: the owner or his successor in interest has (21) years to
bring an action or (10) years after the removal of the disability
(whichever period is longer).
ii. Adverse Possession Against the Government: under common law rules, adverse
possession does not run against the government–local, state, or federal.
iii. Adverse Possession of Chattels: the requirements of adverse possession of
chattels are the same as land, expect the statute of limitations is shorter.
However, AP of land is open and notorious, while AP of chattels seldom is.
1. Discovery Rule (Due Diligence Rule): statute of limitations does not
begin to run on the owner of stolen goods as long as the owner continues
to use due diligence in looking for them. The cause of action accrues
when the owner first knows, or reasonably should know through the
exercise of due diligence, when the goods were dispossessed (see
O’Keeffe v. Snyder).
a. Burden to Prove Due Diligence Rests on the Owner.
2. New York Rule: the statute of limitations for replevin does not begin to
run until the owner makes a demand from purchaser, and the purchaser
refuses.
3. Acquisition of Chattel By Theft: title is void ab initio, cannot transfer
title to good faith buyer if chattel was stolen (buyer’s only hope of
winning is to rely on adverse possession).
4. Acquisition of Chattel by Fraud: the person acquires possession of
chattel from another by fraud, that person has voidable title. That person
can sell the chattel to a good faith purchaser, where the buyer now has a
good title (no need for a claim of adverse possession); gift of chattel only
transfers voidable title.
3. Acquisition by Gift: a gift is the voluntary transfer of property without consideration.
i. Donatio Causa Mortis: gift made in contemplation of immediately approaching
death. The requirements for a gift are strictly enforced in gifts causa mortis
(because donor could have executed a will instead)
1. The gift is revoked if the donor recovers from the illness that prompts the
gift.
2. Redelivery required when donee is already in possession of gift
ii. Donatio Inter Vivos: gift made during the donor’s life under no threat of
impending death. Once made, gift is irrevocable (unlike a will, where one can
change their mind)
1. Gift inter vivos of a future/remainder interest puts limits on the rights of
the owner in possessory/life estate (see “waste” below)
b. ELEMENTS: INTENT/DELIVERY/ACCEPTANCE
i. Donative Intent: the donor must intend to pass title presently, and not merely to
transfer possession. Doesn’t need to be express, inferred from acts and
circumstances. (Practically speaking, the more unequivocal of intent, the more
relaxed courts are on the other elements).
1. Gift by Promise: a promise to give property in the future is NOT a gift.
A gratuitous promise is not enforceable for the lack of consideration.
ii. Delivery: requires some act giving up dominion and passing control to the
donee.
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1. Actual Manual Delivery: typically, when the gift is easily moveable and
capable of manual delivery, no exceptions.
2. Constructive Delivery: the handing over of the means of obtaining
possession and control (e.g. a key), or in some other way relinquishing
dominion and control. This is permitted when actual manual delivery is
impossible or impracticable (due to size or weight) (Ex. Key to a
lockbox, password to account).
3. Symbolic Delivery: the handing over of some object that represents the
thing given (e.g. instrument in writing). This is permitted when actual
manual delivery is impossible or impracticable (Also applicable for gifts
of future/remainder interests).
iii. Acceptance: the donee must accept the gift, but where the gift is of intrinsic
value (beneficial) to the donee, acceptance is presumed.
c. CANNOT give up real property on an ORAL disclaimer (Statute of Frauds)
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i. Created by the Statute de Donis Conditionalibus (1285), with the purpose to keep
the land within the family for succeeding generations.
ii. Nature of Estates: the estate endures as long as descendants of the original
grantee are alive, and is inheritable only by the grantee’s descendants.
iii. When Fee Tail Ends: accompanied by future interest, either Reversion of grantor
or Remainder in some other grantee.
iv. Modern Law: all but 4 states in US have abolished the fee tail. Those that do
have it, courts construe it as a fee simple, fee simple absolute, or fee simple
subject to conditions if no children.
c. The Life Estate: This estate will end at the death of a person/life tenant. Any language
that O intends to convey to A for length of A’s life.
i. Alienability of Life Estate: a life tenant can transfer whatever estate he has.
1. Duration: A can only convey a life estate to someone else per autre
vie—thus, B has right to possess so long as A is alive; if A dies, reverts
to O.
ii. Waste: Relevant whenever two or more persons have rights to possess property at
the same time (concurrently) or consecutively. The central idea is that A should
not be able to use the property in a manner that unreasonably interferes with the
expectations of B.
1. Affirmative (Voluntary) Waste: liability from injurious acts that have
more than trivial effects. This occurs when the life tenant destroys
property or exploits the natural resources.
a. Injurious: substantially reduces the value of the property
b. EXCEPTION
i. The life tenant can alter or demolish a structure,
provided the value of the remainder is not diminished by
these actions.
2. Permissive (Involuntary) Waste: Arising from the failure to act
(question of negligence).
iii. Future Interest (at End of Life Estate): Reversion or Remainder, law presumes
reversion if O does not specify any remainder interest.
iv. TRUST: most life estates are created in chattel, NOT land, primarily in cash.
Create a trust, life estate in you, with remainder future interest in heirs.
d. Terms of Years: limited duration
i. Leasehold Estate (nonfreehold estate): estate of limited duration; ends on a fixed
calendar date. Ex. O conveys to A for 5 years. O conveys to A for 1 week.
ii. Future Interest: Reversion to landlord, or remainder future right to possess to
someone else.
FUTURE INTERESTS
1. INTERESTS RETAINED BY THE TRANSFEROR (common law rule future interest may NOT
be transferred by will or by inter vivos conveyance, see Mahrenholz case. Majority Rule—
possibility of reverter/right of entry ARE transferable inter vivos.)
a. Reversion: the interest remaining in the grantor, or in the successor in interest of a
testator, who transfers a vested estate of a lesser quantum than that of the vested estate
he has (LE, FT, TofY). Once reversion is created, it is transferable inter vivos.
i. Example, Guaranteed to Become Possessory: O conveys land “to A for life”; at
A’s death, O or O’s successor in interest will be entitled to possession.
ii. Example, Possession NOT Certain: O conveys land “to A for life, then to B if B
survives A.” If B dies before A, reversion to O. If A dies before B, reversion to
O TERMINATES.
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b. Possibility of Reverter: an interest remaining in the transferor or his heirs when a fee
simple determinable is created.
c. Right of Entry (Power of Termination): a right of entry arises in a grantor when he
creates an estate subject to condition subsequent and retains the power to cut short the
estate
2. INTERESTS CREATED IN THE TRANSFEREE
a. Remainder: an interest created in a grantee that is capable of becoming a present
possessory interest estate upon the natural expiration of a prior estate.
i. Vested Remainder: a remainder is vested if Two –Prong Test met…
1. It is given to an ascertained person (by name), AND
2. It is NOT subject to a condition precedent (pres-SEE-dint). O conveys
land “to A for life, then to B in fee simple/fee tail/TofY” creates a vested
remainder in B.
a. Indefeasibly Vested: the remainder is certain of becoming
possessory in the future and cannot be divested (permanently
retain the estate)
i. Example: “to A for life, then to B and her heirs”; B or
B’s successor in interest is certain to take possession
upon A’s death.
b. Vested Subject to Open: O “to A for life, then to A’s kids.”
Kids interest is CR/FSA (O, reversion). If A has child X
(ascertainable = VR/FSA/SO), reversion terminates, but subject
to open b/c remainder is in a “class” which X belongs, but more
may belong in the future. When A dies, no member can be
added to class.
c. Vested Subject to Complete Divestment: “to A for life, then to
B, but if B does not survive A, then to C.”
i. B’s interest is VR/FSA/SCD. C does NOT have a
remainder, but a vesting executory interest in FSA.
ii. Steadfast Rule: if the first interest is a vested remainder,
the next future interest is an executory interest.
3. When the remainder is vested, the reversion in O terminates,
transferability of vested remainder does not change the label when
conveyed.
ii. Contingent Remainder: a remainder is contingent if (1) it is given to an
unascertained person, OR (2) it is made contingent upon some event occurring
other than the natural termination of the preceding estates.
1. Presently Unascertained Person: a person not yet born or one who cannot
be determined until the happening of an event.
a. Example: “to A for life, then to the heirs of B”; the remainder is
contingent because the heirs of B cannot be ascertained until B
dies.
2. Condition Precedent: an express condition set forth in the instrument
which must happen before the remainder becomes possessory (part of the
clause granting the remainder)
a. Example: O conveys land “to A for life, then to B if B survives
A, then to C.” B’s interest is a CR/FS. C’s interest is CR/FS
i. Steadfast Rule: If the first interest is a contingent
remainder in fee simple, then the second interest is also a
contingent remainder.
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b. Example, NOT Condition: “to A for life, and in the event of A’s
death, then to B and his heirs”; the natural termination of a
preceding estate is not a condition.
b. Executory Interests: an executory interest is a future interest in a transferee that must,
in order to become possessory end artificially (future interest, only possessory by
artificially divesting or cutting short an interest),
1. Divest or cut short some interest in another transferee if a certain event
occurs (this is known as a shifting executory interest), OR
a. Example: O conveys land “To A and his heirs, but if B
graduates from Law School, then to B and his heirs.” FSA in A
does not have a natural termination point, B interest only
possessory by divesting the interest of A (A’s interest is FS
subject to EL).
2. Divest the transferor in the future (this is known as a springing
executory interest)
i. Modern Executory Interest: fee simple subject to an executory limitation. Type
of future interest that only becomes possessory by cutting short a prior interest
that does not terminate naturally.
a. Example: O conveys “to A and his heirs, but if A dies w/o issue, then to
B.”
i. A has a FSA subject to EL (A’s interest will not terminate
naturally). If condition occurs (A’s death w/o issue), right to
possess is artificially cut short. B’s interest is an EI/FS
b. Example: O conveys “to A for life, then to B and her heirs, but if B dies
under the age of 21, to C and her heirs.”
i. B’s interest is VR/FS/SCD. C’s interest is EI/FSA.
c. LOOK AT EXAMPLES IN NOTES FOR MORE.
ii. Trust: a trust is a fiduciary relationship in which one person (the trustee) holds
legal title to property (res) subject to equitable rights in beneficiaries. It is
basically a device whereby one person manages property for the benefit of
others. A person who creates the trust is the settlor.
a. Settlor takes asset and contributes it to a trust. Take title to asset and
split it apart into (1) legal title, and (2) equitable title.
i. Equitable Title (future interests held by beneficiaries, “to A for
life, then to A’s kids)
ii. Legal Title (held by trustee in FSA, owes duties to beneficiaries
in management of the asset.)
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1. One instrument
2. Creates a life estate in land in A, and
3. Purports to create a remainder in persons described as A’s heirs (or heirs of A’s
body), and
4. The life estate and remainder are both legal or both equitable
a. Example: O conveys “to A for life, then to A’s heirs.” The Rule in Shelley’s Case gives
A a vested remainder in fee simple. A’s life estate then merges into the remainder,
leaving A with a fee simple in possession. The land is immediately alienable by A and
not tied up for A’s lifetime.
3. Doctrine of Worthier Title
a. Example: O conveys “to A for life, then to O’s heirs.” In the absence of the Worthier
Title Doctrine, there is a contingent remainder in favor of O’s unascertained heirs. Under
the Worthier Title Doctrine, however, no such remainder exists. Rather, O has a
reversion.
4. The Rule Against Perpetuities (RAP): is a rule that strikes down contingent interest that might
vest too remotely.
a. COMMON LAW RULE: no interest is good unless it must vest, if at all, not later than 21
years after some life in being (a “validating life”) at the creation of the interest. Rule of
Logical Proof must vest during lifetime of Lives in Being, or 21 years after the death
of the last person in the Lives in Being.
i. Interest: Applies to Contingent Remainders, Executory Interests, Vested
Remainders Subject to Open (“Class Gifts”). Does not apply to any present
possessory estate, or future interests in the grantor (reversion, etc.).
ii. Vesting:
1. Contingent Future Interests condition precedent is satisfied.
a. By Will: time starts when testator dies.
b. By Deed: times starts at time of conveyance
2. Executory Interest: when the holder obtains right to possess.
3. Class Gifts: When the class closes, certain no additional member will be
added to the class
iii. Validating Life: Any person who can affect the vesting of the interest and who is
alive at the creation of the interest can be a validating life, provided that the
claimant can prove the interest will vest or fail within 21 years of the person’s
death.
1. A child is a being from the time of conception, if later born alive.
2. Usual Suspects: those identified as part of the conveyance
iv. FIVE-STEP APPROACH TO RAP
1. Identify the interests that are created
2. Vest? When in time will that contingent future interest vest (what
event)
3. Identify the Lives in Being (which of the LIB can affect vest)
4. Produce a child
5. Kill ALL the Lives in Being
a. Example: O conveys “to A for life, then to A’s first child to
reach 21.” A is the validating life. You can prove that any child
of A will reach 21 within 21 years of A’s death [the remainder
must vest or terminate within this period remainder is valid]
i. A = LE, 1st Kid = CR/FS, O = Reversion
ii. Event that must occur is, first child of A must turn 21.
iii. Lives in Being A and O. Which can affect the
vesting? A
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the surviving joint tenant (if A dies, B has 100% interest in property) Interest in JT is NOT
inheritable or devisable, but ARE alienable inter vivos severs JT into a TIC.
a. To Create a Joint Tenancy: express language “to A and B jointly (with right of
survivorship)” (careful, look at fn. 4 on pg.277)
i. Under Common Law, O could not create a joint tenant with himself and A
b. Under Common Law, Four Unities to Joint Tenancy
i. Time: the interest of each joint tenant must be acquired or vest at the same time.
ii. Title: all joint tenants must acquire title by the same instrument or by a joint
adverse possession.
iii. Interest: all must have equal undivided shares and identical interests measured
by duration
iv. Possession: each must have a right to possession of the whole. One joint tenant
can voluntarily give exclusive possession to the other joint tenant.
c. Sever Joint Tenancy: A joint tenant can unilaterally sever the joint tenancy by conveying
his interest to a third party (including himself) as a tenant in common, in order to dispose
of interest by will (devisable interest).
i. Mortgage: some jurisdictions consider it analogous to a judgment lien, not a
conveyance of interest. [A mortgage is only a lien and does not destroy the unity
of title] MAJORITY VIEW
1. Common Law, “Title Theory of Mortgages”: mortgagor transfers title to
mortgagee until the debt is repaid, at which point it transfers back to the
mortgagor
2. Does Mortgage Lien Survive When Joint Tenant Dies? NO, the other
joint tenants do not inherit the mortgage lien taken by one of the other
joint tenants. The other cotenants are not successors to the interests of
the dead cotenant (MAJORITY VIEW)
a. Burden on Mortgagee: Just have all cotenants sign the loan after
a title search, that way it can survive.
ii. Lease: functional equivalent of a lien (does not sever joint tenancy). Lease
cannot impair the rights of the other joint tenants (i.e. the right to possess). The
lessee of the land now shares the same rights to the other joint tenants (if lessee
refused entry to other joint tenant = ouster).
1. JOINT TENANT CANNOT UNITLATERALLY TERMINATE THE
LEASE
d. Joint Tenancy Bank Accounts: NOT DISCUSSED IN CLASS
i. “True Joint Tenancy”: present gift of partial sum deposited in addition to
survivorship rights to the whole sum in the account
ii. “Payable-On-Death”: make a gift only of survivorship rights
iii. “Convenience”: power to draw on the account but no survivorship rights.
6. Tenancy by the Entirety: created only between a married couple. It is like the joint tenancy in
that four unities (plus a fifth—unity of marriage) are required, and the surviving tenant has the
right of survivorship. (Abolished in many jurisdictions, ½ States)
a. Termination in Three Ways
i. Death, if Wife/Husband dies
ii. If both agree to convey away the interest (cannot unilaterally convey or mortgage
one’s interest in the TBE, see Sawada). Effectively, it is a shield against
creditors.
iii. Divorce
b. Can Federal Government Seize Interest of One Tenant?
i. Split decisions, some courts say government might have right to survivorship of
one tenant, others say no.
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TRANSFERS OF LAND:
THE CONTRACT OF THE SALE: typically includes the subject matter (specifics of land), price, method
of earnest money payment, and establishing the date for closing (contract is fully performed at closing).
During “executory” phase (seller still in possession of property) of the contract, there will be a (1)
physical inspection of the land, (2) inspection of title, (3) financing (mortgage loan).
1. The Statute of Frauds: enacted in 1677 under the title “An Act for the Prevention of Frauds and
Perjuries.” Sought to make people more secure in their property and their contracts by making
deceitful claims unenforceable.
a. First, except for leases for less than three years, no interest in land could be created or
transferred except by an instrument in writing signed by the party to be bound thereby
(i.e. the defendant; could be buyer or seller)…writing must, at the minimum, state the
price and describe the real estate [Sections 1 & 3].
b. Second, NO action shall be brought “upon any contract or sales of lands…or any interest
in or concerning them…unless the agreement upon which such action shall be brought or
some memorandum or note thereof shall be in writing, and signed by the party to be
charged therewith.” [Section 4]
c. EXCEPTION to Statute of Frauds: distinction not always clear…
i. Part Performance: allow specific performance of oral agreements when
particular acts have been performed by one of the parties to the agreement, not
expected to see unless there was a contract. [Evidentiary Question]
1. Originated in equity in suits for specific performance and in most
jurisdictions does not apply to actions at law for damages
2. What Acts Necessary/Sufficient? Buyer taking possession, paying most
or all of purchase price, and/or making substantial/valuable
improvements
ii. Estoppel: applies when unconscionable injury would result from denying
enforcement of the oral contract after one party has been induced by the other
seriously to change his position in reliance on the contract (i.e. detrimental
reliance).
2. Marketable Title = “title that is free from reasonable doubt, and a title is doubtful and
unmarketable if it exposes the party holding it to the hazard of litigation after closing (creating a
just apprehension of its validity in the mind of a reasonable, prudent and intelligent person)
“Buy title, not a lawsuit.” But parties can negotiate around quality.
a. The defect that the purchaser complains of must be of a substantial character and one
from which he may suffer injury.
b. Parties are free to negotiate over the quality of the title (no negotiations, courts presume
“marketable title” as described above).
c. “Abstract of Title”: a report summarizing title history. Examples: liens, leases, lesser
estates, outstanding mortgage lien.
i. Existence of Restrictions: Private restrictions, generally unmarketable (unless
contract around default rule). Public restrictions, marketable.
ii. Violation of Restrictions: always makes title unmarketable.
3. Equitable Conversion: if there is a specifically enforceable contract for the sale of land, equity
regards as done that which ought to be done.
a. Risk of Loss (Default Rule): courts typically place the risk of loss on the buyer; buyer
obtains equitable title interest while seller retains legal title. Expectation of legal title on
the buyer (?), absent provision allocating the risk of loss.
i. Modern View: risk of loss assigned to the party that retains possession during
executory phase (NOT the MAJORITY view for most jurisdictions).
b. Example: property burns down during executory phase (occurring between contract and
closing).
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4. The Duty to Disclose “Defects”: where a (physical) condition which has been created or known
by the seller that materially impairs the value of the contract and is peculiarly within the
knowledge of the seller or unlikely to be discovered by a reasonable, prudent purchaser
exercising due care with respect to the subject transaction, nondisclosure constitutes basis for
rescission as a matter of equity.
a. “Material”: the defect must be “material” to be actionable. [Two tests]
i. An objective test of whether a reasonable person would attach importance to it in
deciding to buy (majority view), or
ii. A subjective test of whether the defect “affects the value or desirability of the
property to the buyer.”
b. Doctrine of Caveat Emptor: strict rule of “buyer beware”
i. Tort Claims: affirmative misrepresentations, active concealment
c. Statutes: many states have enacted statutes for the seller to deliver a written statement
disclosing facts about the property to the buyer.
i. Many have anti-stigma statutes; murders, etc. on property do not need be
included in disclosure of defects
5. Merger Doctrine: at closing the contract is deemed fully performed, i.e. no longer a contract.
Any express or implied contractual warranties/conditions are terminated at closing by merger.
The buyer has no recourse for contract-like issues post-closing. [Now in disfavor in most
jurisdictions] [Default Rule, can be negotiated around]
a. Limitations:
i. Only applied to conditions/warranties that relate to title quality, does NOT affect
causes of action that relate to physical quality of the property.
1. Example: disclosure requirement; pre-closing buyer finds defect; buyer
can sue for non-disclosure on recission. Post-closing, disclosure
obligation is not terminated b/c it goes to physical quality, NOT title
quality…but, sue for damages.
6. The Implied Warranty of Quality: arises post-closing.
a. Subsequent purchasers who suffer purely economic damages from latent defects
manifested within a reasonable time may maintain an action in implied warranty without
privity, but NOT in negligence (there was no duty of care for negligence, as well as the
fact that the negligence caused purely economic damages).
i. I.e., recovery barred by contract law because of privity of contract, and barred by
tort law, because it is purely economic loss. Thus, the only recovery available is
through an action in implied warranty.
b. Limitations: (1) must be a latent defect, (2) reasonable time, not an arbitrary time frame
(may depend on the structure and its use), (3) causation (damage caused by defect), and
(4) there was a duty inherent to perform workmanlike manner and in accordance with
accepted standards.
i. Uniform Land Transaction Act: Six-year statute of limitations between the time
of the first possessor and finding the defect. Has NOT been enacted by ANY
state, but may be influential on court decisions.
7. The Deed: contains all the essential elements required in order for an instrument to be a
conveyance: grantor, grantee, words of “grant,” description of land involved, signature of the
grantor, and in some jurisdictions, attestation or acknowledgment (consideration is customary to
presume that the grantee is a bona fide purchaser, and protection against unrecorded instruments).
a. Forgery and Fraud: forged deed is void. Deed procured by fraud is voidable by the
grantor in an action against the grantee, but a subsequent bona fide purchaser from the
grantee who is unaware of the fraud prevails over the grantor.
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grantor held title [Typically contains same six covenants as general warranty deed]. SEE
illustration on p.515.
d. Quitclaim Deed: contains no warranties/covenants of title of any kind. It merely
conveys whatever title the grantor has, if any, and if the grantee of a quitclaim deed takes
nothing by the deed, the grantee cannot sue the grantor.
8. Estoppel by Deed: when a grantor conveys property to grantee, but does not actually own the
property, and the grantor warrants title to the land, if the grantor subsequently acquires title to that
land, the title automatically passes to the grantee [typically does NOT extend to cases involving
quitclaim deeds unless the deed represents that the grantor had title].
9. Delivery: “an act that evinces an intent to be immediately bound by the transfer.” To be
effective, the deed must be delivered with the intent that it be presently operative. Typically an
issue concerning donative transactions.
a. Attestation of public (municipal) official creates presumption of delivery
i. But, if the deed is on its face unconditional, official cannot provide oral
testimony about any conditions of the deed.
b. If one party delivers deed to a third party (deposited into escrow) with the intention that
the deed be recorded upon their death, then the deed acts as a will and must conform to
the Statute of Wills (unless grantor has the present intent to pass title and forever part
with all lawful right and power to retake or repossess the deed).
i. Delivery Without Handing Over: if the grantor intends to pass title or future
interest to the grantee now, there has been a delivery even though possession may
be postponed until the grantor’s death.
c. Revocable Trusts: unlike a revocable deed, revocable trusts are valid in all states.
i. In equity, to create a valid trust (revocable or irrevocable), the grantor need only
manifest an intent to create a trust and, if land is involved, sign a written
instrument to satisfy the Statute of Frauds. Delivery of a declaration of trust is
not required if the grantor is the trustee.
1. A grantor can make himself a trustee, giving himself legal title, and has
retained the power of revocation. Make the grantee a beneficiary of the
trust to avoid probate.
10. Mortgages: when buyer of real property loans money, they mortgage their house as a form of
security for the lender in case the mortgagors default on payments.
a. TITLE THEORY
b. LIEN THEORY
c. Equity of Redemption: the interest the mortgagor has in the property, the right of the
borrower to pay off debt before foreclosure.
d. Statutory Right of Redemption: right of defaulting borrower even after foreclosure to
recover title, i.e. create a window of time for borrower to pay off debt to recover title.
Winning bidder from foreclosure holds title with quiet enjoyment only after period.
e. Foreclosure: when a mortgagor defaults on payments, the mortgagee can bring a sale of
foreclosure.
i. Judicial Proceedings (Traditional Approach): judicial order and judicial sale.
The price is ordinarily not challengeable (unless it shocks the conscience of the
court), and the amount realized is applied to the debt. [Why go this route?
Deficiency judgments may require judicial sale.]
ii. Deed of Trust: distinct from power of sale. Equitable principles vary. Generally
the mortgagee is empowered to conduct the sale without going to court.
iii. (Private) Power of Sale: more efficient sale exercised by the mortgagee. Courts
may scrutinize the sale more closely to assure that the mortgagee acted fairly, and
may deny deficiency judgment.
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1. Fiduciary Duties: Mortgagee Must Act with Good Faith and Due
Diligence (Commercially Reasonable Duty)
a. Bad Faith: there must be an intentional disregard of duty or a
purpose to injure
b. Due Diligence: whether a reasonable person in the [lender’s]
place would have adjourned the sale, or taken other measures to
receive a fair price [Protect the mortgagors equity]
2. Damages
a. Bad Faith: Fair Market Value – Foreclosure Sale Price
b. Due Diligence: Fair Price – Foreclosure Sale Price
c. Fair Market Value > Fair Price
iv. ADDITIONAL NOTES:
1. Multiple Mortgages: “First in time, first in right.” When a mortgagor
has multiple mortgages, the foreclosure auction proceeds go to the first
mortgagee, remainder (if there is any) goes to the second mortgagee.
f. Deficiency Judgment: when the property is sold, if the sale price is less than what is
owed, the mortgagee may recover a judgment of deficiency to satisfy the debt of the
mortgagor.
i. Antideficiency Statutes: many states have enacted legislation designed to protect
some borrowers from deficiency judgments. [Common form—asset used to get
loan is the residence, by statute, mortgagees unable to bring deficiency
judgment?]
g. Equity: Fair Market Value – Mortgage Debt = Equity
h. Land Sale Contract (Contract for Deed): Mortgage Substitute—buyer pays-off purchase
price over time in installments (principle + interest), where buyer has right to possess
now, and continue to possess while making payments, and the seller holds onto legal title
until debt settled (see also in Waldorf)
i. After specified default period, seller can terminate contract. Hold onto title and
the land. However, when the buyer has made substantial improvements to the
land, such that he has acquired an equitable interest in the land, the seller must
go to court and bring an action of foreclosure, i.e. treat buyer as mortgagor and
the seller as the mortgagee (Property Law trumps Contract Law). Remaining
debt paid to seller at foreclosure, and remainder from sale price goes to the buyer
1. Does not apply to cases where the buyer has not made substantial
payments, or where the buyer absconds from the property
TITLE ASSURANCE:
1. The Recording System: established a system of public recordation of land titles, and preserved
in a secured place important documents that, in private hands, may be easily lost or misplaced.
The recording acts generally do not affect the validity of a deed or other instrument.
a. Common Law—first in time, first in right, unless a person can qualify for protection
under the applicable recording act. Has been modified by recording statutes in vastly
every jurisdiction.
b. Bona Fide Purchaser for Value (BPV)—to be a BPV, must meet the following two…
i. Subsequent grantee must be a purchaser; parts with good and valuable
consideration in exchange for land (i.e. not donees, devisees, heirs). Amount of
consideration must be more than nominal.
ii. Bona Fide—take title without notice of prior conveyance [see notes below on
notice]
iii. IF B is not a Bona Fide Purchaser common law rule applies
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2. Types of Recording Acts: Under the recording acts, a subsequent bona fide purchaser for value
is protected against prior unrecorded interests.
a. Race Statute—as between successive purchasers of the same land, the person who wins
the race to record prevails [Notice is irrelevant]
i. Ex. 1—O A, but A does not record. Then O subsequently B for a valuable
consideration. B knows of the deed to A. B records his deed from O to B. B
prevails over A, and B owns the land.
b. Notice Statute—if the subsequent purchaser had notice of a prior unrecorded instrument,
the purchaser could NOT prevail over the prior grantee [i.e. recording of deed by A puts
B on notice of conveyance] About ½ States adopt Notice Statutes
i. Ex. 2—Assume facts in Ex. 1, but B has no knowledge of A’s deed, B prevails
over A even if B does not record the deed from O to B.
ii. Shelter Rule—a person who takes from a bona fide purchaser protected by the
recording act has the same rights as his grantor.
1. Ex. 3—Assume facts in Ex. 2, A now records his deed. Thereafter C
wants to purchase from B. C, searching title, would find A’s deed on
record, and from facts off the record finds out that B had no notice of A’s
deed. If B had no notice, B prevails over A, and C can buy from B, and
thus prevail over A.
a. If C does not record, and A then conveys to D, D prevails over
C. However, if C records deed before conveyance to D, puts D
on notice, C prevails.
c. Race-Notice Statute—(other ½ of States have adopted Race-Notice) a subsequent
purchaser is protected against prior unrecorded instruments only if the subsequent
purchaser…(First BPV to record)
i. Is without notice of prior instrument, AND
ii. Records before the prior instrument is recorded.
1. Ex. 4—O A, no record; then O B, BPV, no record
a. Who wins at this point? A, common law first in time
b. If A records before B, who wins? A
c. If B records before A, who wins? B
3. Acknowledgment of Recorded Deed: must be before a notary public.
4. Types of Notice:
a. Actual Notice—one is personally aware of a conflicting interest in real property, often
due to another’s possession of the property
b. Constructive Notice—two types
i. Record Notice—notice one has based on properly recorded instruments
ii. Inquiry Notice—facts that would cause a reasonable person to make inquiry into
the possible existence of an interest in real property (courts read into statutes
some inquiry notice)
1. Contents of deed or any other instrument, consider the legal implications
of any document that has been placed on the record (see Harper)
2. Actual possession always is constructive notice; such possession, when
open, visible and exclusive, will put upon inquiry those acquiring any
title to or a lien upon the land so occupied (see Waldorf).
5. Marketable Title Acts: the purpose of these acts is to limit title searches to a reasonable period
of time, typically the last 30 or 40 years. Under a marketable title act, all claimants of interests in
land, to be safe, must file a notice of claim every 30 to 40 years after the recording of their
instruments of acquisition. [Acts do not require a person seeking their benefits to be a bona fide
purchaser for value].
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ACQUISITION BY CREATION
GENERAL PRINCIPLES OF INTELLECTUAL PROPERTY:
• Competition depends on imitation
• As a result, the quality of the machines may rise and their prices fall
o Competition encourages innovation
Common Law: general rule—in absence of some recognized right at common law, or under the statutes,
a man’s property is limited to the chattels that embody his invention. Others may imitate these at their
pleasure (see Cheney Brothers Case)
• Supreme Court created a sort of common law patent or copyright for reasons of justice in regard
to news between competitors (see INS. V. AP).
o Not extended to dress patterns (see Cheney Brothers Case)
Legislation: the absence of property rights can dampen production, but recognition of them can create
costly monopoly power. Difficult trade-offs have to be made, and—with regard to property in ideas and
information in particular—they are made, in the main, by Congress through legislation. [Federal statutes
typically cover patent and copyrights, while trademarks are subject to overlapping protection]
1. Patents—are granted for novel, useful, and nonobvious processes or products. Once issued,
patents last for a period of 20 years from the date of the application. Patent are not renewable,
and when they expire, the process or product enters the public domain
2. Copyrights—protect the expression of ideas (not the ideas themselves) in books and articles,
music, artistic work, and so on. Protection begins once the work in question is set down in a
tangible medium, and it last for a long time (in the ordinary case, 70 years after death of creator).
Like patents, copyrights must be novel.
3. Trademarks—words and symbols indicating the source of a product or service; owners of marks
are protected against use of similar marks by others when such use would result in confusion.
They are lost when abandoned (and also when the mark becomes generic, like with aspirin).
4. Protection of Trade Secrets—still province of state law.
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PROPERTY II OUTLINE
Professor David Finnegan, Hilary Term 2010
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iii. Myers v. East Ohio Gas Co., leases that clearly and unambiguously terminate at
the will of only one party are to be controlled by their express terms. But
ambiguous leases (those which do not clearly state whether they are terminable at
the will of one or both parties) are subject to a rebuttable presumption that they
are at the will of both
e. Conveyances: T’s conveyance of possessory interest with sublease/assignment
terminates tenancy at will. L’s conveyance of reversion, terminates tenancy at will.
4. The Tenancy at Sufferance: Holdovers: arises when a tenant remains in possession (holds
over) after termination of the tenancy.
a. Common law gives the landlord essentially two options—eviction (plus damages), or
consent (express or implied) to the creation of a new tenancy.
i. When a tenant continues in possession after the termination of his lease, the
landlord can evict him, treat him as a trespasser, or hold him as a tenant.
1. “Once a landlord elects to treat a tenant as a trespasser and refuses to
extend the lease on a month-to-month basis, but fails to pursue his
remedy of ejecting the tenant, and accepts monthly checks of rent due, he
in effect agrees to an extension of the lease on a month-to-month basis”
(see Crechale & Polles, Inc. v. Smith).
b. In most jurisdictions, holding over gives rise to a periodic tenancy (in the other
jurisdictions, it results in a term). The periodic tenancy is measured by the way rent is
computed, up to a maximum period of one year (see Restatement, Property 2d.).
i. Courts dislike lengthy terms/periods for holdovers (in favor of the tenant)
THE LEASE: Leases give rise to the landlord-tenant relationship, which carries with it certain
incidents—certain rights and duties and liabilities and remedies—that do not attach to other relationships.
1. Conveyance v. Contract: a lease transfers a possessory interest in land, so it is a conveyance
that creates property rights. But it is also the case that leases usually contain a number of
promises—such as a promise by the tenant to pay rent or a promise by the landlord to provide
utilities—so the lease is a contract, too, thus creating contract rights.
a. Though leaseholds eventually came to be recognized as interests in land, they were and
still are classified, like contractual interests, as personal property (“chattels real”).
b. Key Distinguishing Feature: Conveyance of right to possess…
i. Intention of the parties
ii. The number of restrictions
iii. Exclusivity of possession
iv. Degree of control retained by the granting party
v. Presence or absence of incidental services
2. The Statute of Frauds: commonly, the American statutes provide that lease for more than one
year must be in writing. All but a few jurisdictions permit oral leases for a term of one year or
less than a year; those that do not usually hold that entry under an oral lease plus payment of rent
creates a periodic tenancy that is not subject to the Statute.
a. Independent Statute of Frauds enacted in almost all jurisdictions for Leases
3. Bargaining Power: a lease contemplates a continuing relationship between landlord and tenant.
Landlords typically use form leases—standardized documents offered to all tenants on a take-it-
or-leave-it basis, with no negotiation over terms. Competition among landlords result in standard
terms, limiting any unequal bargaining power.
a. The underlying problem is not form leases by monopoly power (where the buyer has no
good alternatives and is thus put in a position compelling the buyer to agree to terms with
the seller that would be bettered in a competitive market).
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2. American (Minority) Rule—the landlord is not bound to put the tenant into actual possession,
but is bound only to put him in legal possession, so that no obstacle in the form of superior right
of possession will be interposed to prevent the tenant from obtaining actual possession of the
demised premises (unless the landlord has expressly contracted such a covenant).
a. Remedy: against the wrongdoer/third party and not against the landlord.
SUBLEASES AND ASSIGNMENTS: original tenant on the hook for rent absent express release from
the landlord for either of these subsequent transfers of possession (privity of contract)
1. Distinction (Ambiguity)
a. Formalistic Approach/Common Law
i. An assignment arises when the lessee transfers his entire interest under the
lease—when, that is, he transfers the right to possession for the remaining
duration of the term. Privity of estate2 now between landlord and new tenant.
1. Right of reentry in the instrument of transfer does not make it a sublease
(majority of jurisdictions)
ii. A sublease arises when the lessee transfers anything less than his entire interest.
Privity of estate remains with the original tenant and the landlord [original tenant
retains right of reversion]
1. Ex. If two years remain on the lease and the lessee transfers for a term of
one year.
2. Assumption of Loss (Release): sub-tenant assumes duties/responsibilities
of the original lease L and T1 now have privity of contract
b. Modern (Extreme Minority) Rule: ascertain the intention of the parties. Actual words
used are not conclusive but they may be persuasive (see Ernst v. Conditt).
c. Examples:
i. L T sublet to T1, back rent. L sues T under POK and POE
ii. L T assigns to T1, back rent. L sues T under POK, sues T1 under POE
d. Privity of Estate: a possessor voluntarily (free from duress) transferred to subsequent
possessor either an estate in land or physical possession, doesn’t require contract.
[Relationship where landlord creates leasehold estate and transfer the estate to the tenant
handing over the right to possess and the tenant takes possession privity of estate
now exists]
i. A mutual or successive relationship to the same right in property, as between
grantor and grantee or landlord and tenant
1. Landlord can get rent from anyone with whom the landlord is in privity
of estate
2. Consent to Assign/Sublet (Commercial Only)
a. Common Law/Majority Rule: the lessor may arbitrarily refuse to approve a proposed
assignee no matter how suitable the assignee appears to be and no matter how
unreasonable the lessor’s objections absent an explicit reasonableness clause.
b. Modern View/Minority Rule: consent may be withheld only where the lessor has a
commercially reasonable objection to the assignment, even in the absence of a provision
in the lease stating that consent to assignment will not be unreasonably withheld.
i. What is Reasonable? Financial responsibility of proposed assignee, suitability of
the use for the particular property, legality of the proposed use, need for
alteration of the premises, and nature of the occupancy (i.e. office, factory, clinic)
2
Privity of Estate: a possessor voluntarily (free from duress) transferred to subsequent possessor either an estate in land or
physical possession, doesn’t require contract. [Relationship where landlord creates leasehold estate and transfer the estate to the
tenant handing over the right to possess and the tenant takes possession privity of estate now exists] A mutual or
successive relationship to the same right in property, as between grantor and grantee or landlord and tenant
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ii. What is Unreasonable? Denying consent solely on the basis of personal taste,
convenience or sensibility, or in order for the landlord to charge a higher rent
than originally contracted for.
THE TENANT WHO DEFAULTS
1. The Tenant Breaches but Retains Possession (Reclaiming Property)
a. Common Law: a landlord may rightfully use self-help to retake leased premises from a
tenant in possession without incurring liability for wrongful eviction provided two
conditions are met;
i. The landlord is legally entitled to possession (e.g. holdover tenant, tenant
breaches a lease containing a reentry clause, AND
ii. The landlord’s means of reentry are peaceable.
b. Modern View: judicial proceedings, including the summary proceedings provided in
those states’ unlawful detainer statutes, are the exclusive remedy by which a landlord
may remove a tenant claiming possession.
i. “The only lawful means to dispossess a tenant adversely to a landlord’s claim of
breach of a written lease is by resort to the judicial process” (see Berg v. Wiley).
2. The Tenant Who Has Abandoned Possession: abandonment of the leased property by the
tenant occurs when he vacates the leased property without justification and without any present
intention of returning and he defaults in the payment of rent.
a. Common Law—(based on principles of property law) a landlord is under no duty to
mitigate damages caused by a defaulting tenant
i. Remedies: the landlord may…
1. Terminate lease
2. Obtain another tenant while holding original tenant liable for deficiency
in rent
3. Permitting the premises to remain vacant while collecting the agreed-
upon rent from the original tenant
b. Modern (Majority) Rule—(based on principles of contract law) a landlord has an
obligation to make a reasonable effort to mitigate damages when the tenant has
abandoned the property before seeking a remedy.
i. Standard: burden on the landlord (minority view) to show that he used
reasonable diligence in attempting to re-let the premises
1. Factors in Considering Reasonable Diligence—whether the landlord,
personally or though an agency, offered or showed the apartment to any
prospective tenant, or advertised it in local newspapers
a. In mitigating damages, the landlord need not accept less than fair
market value or “substantially alter his obligation as established
in the pre-existing lease.”
ii. Failure to Mitigate: (variation) in some jurisdictions the landlord is not entitled
to any back rent after the time of abandonment, in others landlord can recover the
difference between original rent and a lower rent.
3. Surrender of the Premises
a. Surrender terminates a lease, provided that the landlord accepts the tenant’s offer.
i. Express Offer and Express Acceptance—the lease is unambiguously terminated.
ii. Implied Offer and Implied Acceptance—generally turns on the intent of the
landlord in retaking possession, without regard to whether the tenant is on notice
that any reletting is on the tenant’s account.
1. Under the intent test, one considers whether the landlord’s actions are
inconsistent with or repugnant to continuation of the original lease.
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no duty to render the premises habitable unless there was an express covenant in
the written lease.
1. Common Law Exceptions: duty to disclose latent defect, maintain
common areas, abate nuisances, undertake carefully any repairs
ii. Modern View: an implied warranty exists in the lease, whether oral or written,
that the landlord will deliver over and maintain, throughout the period of the
tenancy, premises that are safe, clean, and fit for human habitation (covering all
latent and patent defects in the essential facilities of the residential unit).
1. Tenant must show that the landlord (1) had notice of the previously
unknown defect and failed, within a reasonable time, to repair it,
and (2) the defect, affecting habitability, existed during the time for
which rent was withheld.
2. Breach of Warranty—first look to any relevant local or municipal
housing code and violations of those codes (minor violations not a
breach). Then inquire whether the claimed defect has an impact on the
safety or health of the tenant.
a. In most jurisdictions, a tenant cannot waive warranty of
habitability either by express provision in the lease or implied by
the surrounding circumstances
iii. Measuring Damages: difference between the value of the dwelling as warranted
and the value of the dwelling as it exists in its defective condition + damages for
discomfort and annoyance arising from the landlord’s breach.
1. Punitive Damages:
d. Retaliatory Eviction—most jurisdictions today forbid retaliatory action by landlords
renting residential space.
2. Tenant’s Duties; Landlord’s Rights and Remedies
a. Affirmative Waste—duty breached if a tenant makes “such a change as to affect a vital
and substantial portion of the premises; as would change its characteristic appearance; the
fundamental purpose of the erection; or the uses contemplated, or a change of such a
nature, as would affect the very realty itself, extraordinary in scope and effect, or unusual
in expenditure.
b. Duty to Repair (Permissive Waste)—tenant has an implied duty to make minor repairs.
The duty was to make such repairs as would keep the building windtight and watertight,
thus preserving the property in substantially the same condition as at the commencement
of the term, ordinary wear excepted
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LAND USE CONTROLS
PRIVATE LAND USE CONTROLS: THE LAW OF SERVITUDES
1. Easements—an easement is a grant of an interest in land that entitles a person to use land
possessed by another.
a. Definitions
i. Affirmative Easement—gives a neighbor the right to enter or perform an act on
the land of another (servient land).
1. DEFAULT RULE: no negative easements
ii. Negative Easement—the owner of a negative easement can prevent a servient
landowner from doing some act on the servient land. Imposes some kind of
restriction on a land-user.
iii. Easement Appurtenant—an easement attached to and benefiting a dominant
estate in the use of another tract of land and burdening a servient estate. [It can be
tied back to a particular plot of land]
1. An easement appurtenant is attached to the dominant tenement and
ordinarily passes to any subsequent owner of the tenement. If the
easement is personal, however, it will pass to subsequent owners.
2. Easements appurtenant run with the land and are therefore passed when
the property is transferred.
iv. Easement in Gross—an easement that is a personal right of its holder to a use of
another's land and that is not dependent on ownership of a dominant estate
1. In cases of ambiguity, easements appurtenant are favored over easements
in gross
2. An easement in gross CANNOT be IMPLIED.
v. Profit—a profit is the right to enter land belonging to someone else AND to take
something off another’s lands that is part or product of the land (e.g. timber). A
grant of a profit implies an easement to go onto the land and remove the subject
matter
vi. License (Contractual Right, i.e. NOT a servitude)—a license is a permission to
go on another’s land (e.g. plumber/repair). It can be written or oral and in
generally revocable at the licensor’s will unless it is coupled with an interest or
estoppel applies, and nontransferable by the licensee. B/c of confusion with
easements in gross, courts prefer licenses (see Holbrook v. Taylor).
b. Creation of Easements—an easement can be created by any of the following
i. Express Written Grant—an easement must be in writing signed by the grantor to
satisfy the Statute of Frauds. If a grantor gives oral permission to enter the land,
a license is created.
1. Exceptions—fraud, part performance, and estoppel/irrevocable license;
easements by implication or prescription; and easements lasting less than
one year.
ii. Reservation—allows a grantor’s whole interest in the property to pass to the
grantee, but revests a newly created interest in the grantor (or third party).
1. Third Party Reservation (see Willard v. First Church of Christ,
Scientist)
a. Common Law (Majority) Rule—cannot reserve an interest in
property to a stranger to the title (i.e. a third party).
b. Modern View—can reserve an interest in property in a third party
i. TEST: look to the intent of the grantor
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c. Assignment
i. Easement Appurtenant—unless personal, easements appurtenant are freely
assignable and are transferred along with the transfer of the dominant tenement.
So too, the burden is transferred along with the servient land.
ii. Easement In Gross—the old rule held that benefits of easements in gross were
not assignable or inheritable. Today this rule is no longer followed in most
jurisdictions, especially with respect to commercial easements (those with
primarily economic benefits), which are assignable.
1. Commercial Easements—freely transferable
2. Noncommercial Easements—transferable ONLY if the parties so
intended.
iii. EXCEPTIONS to Assignability
1. Recreational Easements—(easements for hunting, fishing, boating, and
camping) restricting their assignability appears to rest on the courts’
conclusion that they are intended to be personal and on the fear of
burdening the servient land beyond the original contemplation of the
parties.
iv. Profits—profits have always been freely transferable.
d. Scope of Easements—Two separate issues are raised by consideration of the scope of an
easement: (1) How extensively and intensively may the easement holder use the
easement, and (2) To what degree may the servient estate owner use or interfere with the
easement?
i. Parties’ Intentions Control: The parties’ intentions control the scope of any
easement, but intentions are not always easy to identify. Other factors,
considered below, are thus used to help infer intentions.
ii. How easement was created:
1. Easement by Grant: The scope of easements by grant is governed by the
express language of the grant, to the extent that is or can dispose of the
matter.
2. Easements Implied from Prior Use: The scope of easements implied
from prior use is whatever was within the reasonable contemplation of
the parties at the time of the division.
3. Easements Implied by Necessity: The scope of an easement implied by
necessity is identical to the necessity.
4. Easements by Prescription: The scope of prescriptive easements is
generally confined to the particular use that produced the easement by
prescription.
iii. Change in location of easement: Easements with a specified location are
permanently fixed, unless both parties agree to a change; but some modifications,
within that location, may be made if they do not increase the burden on the
servient estate.
iv. Enlargement of the dominant estate: An easement, however created, cannot be
used for the benefit of land that is not part of the dominant estate. A landowner
who attempts to do so will usually be enjoined, though when the equities favor it
courts may award damages and impose a judicially created servitude on the
enlarged dominant estate to ensure that the use of the easement will not impose
an unreasonable burden on the servient estate.
v. Division of an Easement’s Benefit: The benefit of an easement may not be
divided if it will produce an unintended increase in the burden on the servient
estate.
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i. In order to have abandoned property and not be held liable for responsibilities for
the property, a property holder must have voluntarily relinquished all right, title,
claim, and possession with the intention of terminating his ownership, but
without vesting it in any other person and with the intention of not reclaiming
further possession or resuming ownership, possession or enjoyment
6. Common Interest Communities (Developments)—distinctive feature is the obligation that
binds the owners of individual lots or unites to contribute to the support of common property or
other facilities, or to support the activities of an association, whether or not the owner uses the
common property or facilities, or agrees to join the association (Rest.3d Property).
a. Condominiums—provide separate ownership in fee simple of one unit in a development,
with the common areas (hallways, elevators) owned by all of the unit owners as tenants in
common.
i. Creation of Condominiums—a condominium is usually created by a declaration
of master deed, which in many states must be recorded. All unit owners are
members of a membership association
ii. CREATION AND VALIDITY OF USE RESTRICTIONS (two types)
1. Restrictions set forth in the declaration or master deed of the
condominium project.
a. Very strong presumption of validity and should be upheld even if
they exhibit some degree of unreasonableness (i.e. notice of
recorded master deed is key to presumption).
b. Non-enforcement would be proper only is such restrictions were
arbitrary or in violation of public policy or some fundamental
constitutional right or impose a burden on the use of affected
land that far outweighs any benefit.
2. Rules/restrictions promulgated by the governing board of the condo
owners association
a. Subjected to “Reasonableness Test”: uphold restrictions unless
unreasonable
i. Reasonableness requires balancing the utility of the
purpose served by the restraint against the harm that is
likely to flow from its enforcement (Rest.3d).
iii. When an association determines that a unit owner has violated a use restriction,
the association must do so in good faith, not in an arbitrary or capricious
manner, and its enforcement procedures must be fair and applied uniformly.
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b. “Coming to the Nuisance” Doctrine—moving into the vicinity of the nuisance does not
completely bar a suit for damages or injunctive relief, but it is a “relevant factor.”
c. FOUR RULES/(Outcomes)
i. Abate the activity in question by granting the plaintiff injunctive relief (see
Morgan and Estancias);
ii. Let the activity continue if the defendant pays damages (see Boomer);
iii. Let the activity continue by denying all relief;
iv. Abate the activity if the plaintiff pays damages (see Spur)
6. What Courts Have Recognized as Nuisances
a. Cases
i. Air Pollution/Nauseating Gases and Odors (see Morgan v. High Penn Oil Co.)
ii. Noise Pollution (see Estancias Dallas Corp. v. Schultz).
iii. Dirt/Smoke/Vibrations (see Boomer v. Atlantic Cement Co.)
iv. Odor/Unhealthy Flies (see Spur Industries, Inc. v. Del E. Webb Development
Co.)
b. Fear and Loathing—some courts have held that apprehension about criminal activity
and declining property values are sufficient for nuisance
c. Light and Air—generally speaking, nuisance law protects ordinary uses, not abnormally
sensitive ones.
i. Ex. Defendant’s trees block plaintiff’s solar panels, nuisance? May be nuisance
if gravity of the harm outweighs the utility of the defendant’s conduct.
d. Spite (and Spam)—courts commonly find nuisance liability in instances where a
landowner builds a structure or no use whatsoever other than to vex a neighbor.
e. Plain old ugly—most court hold that unsightliness alone is not a nuisance (unless spite is
the only motive).
7. Environmental Controls—nuisance litigation is ill-suited to other than small-scale, incidental,
localized, scientifically uncomplicated pollution problems.
LEGISLATIVE LAND USE CONTROLS: THE LAW OF ZONING—“regulation of land use by a
municipality subject to a comprehensive plan.”
1. Authority—Police Power—zoning is an exercise of the police power—essentially, the power of
government to protect public health, safety, welfare, and morals. Generally speaking, the police
power is held to reside in the state, but in the case of zoning all states have adopted enabling acts
that delegate zoning authority to local governments (see The Standard Act below).
a. Constitutional Standard—zoning laws have presumption of validity, thus the zoning
laws are essentially subject to rational basis review—the law must have a rational
(reasonable) relationship to the legitimate government interest (i.e. police power) [and
like nuisance law, taken in consideration of the surrounding circumstances and the
locality]
i. Meaning, the zoning law cannot be arbitrary and capricious.
ii. Burden on the challenger.
b. Takings Clause—a zoning regulation that takes property without compensation is a
taking, the remedy for which is an injunction or damages [not the same as an ordinance
that is void as violating due process]
i. Zoning ordinances are routinely upheld in the face of takings allegations,
especially if they are controlling nuisance-like conditions or so long as they leave
the property owner with some reasonable use.
2. The Standard (State Zoning Enabling) Act—empowers municipalities to “regulate and restrict
the height, number of stories, and size of buildings and other structures, the percentage of lat that
may be occupied, the size of yards, courts, and other open spaces, the density of population, and
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the location and use of buildings, structures, and land for trade, industry, residence, or other
purposes.
a. Legislature Council, Executive Mayor
b. Comprehensive Plan—(statement of the local government’s objectives and standards for
development) the regulations must be made in accordance with a comprehensive plan and
designed to lessen congestion in streets; secure safety from fire, panic, and other dangers;
to promote health and the general welfare; to provide adequate light and air; to prevent
the overcrowding of land; to avid undue concentration of population; to facilitate the
adequate provision of transportation, water, sewerage, schools, parks, and other public
requirements.
i. Only about half of the states require comprehensive plans, and sometimes only in
the weakest of terms. Why? It’s hard to predict the future, allowing for some
flexibility.
1. Zoning nowadays is more reactive than proactive, responding piece by
piece to changing conditions, unanticipated demands, and specific
proposals.
c. Ordinance/Map
i. Adopted by local legislature
d. Administrative Framework
i. Zoning (Planning) Commission—body of experts to advice council for plan and
drafting ordinance
ii. Board of Zoning Appeals (Board of Adjustment)—hears appeals on the
enforcement of ordinance/zoning regulations; appeal from board to state court
1. The legislative body cannot delegate to a local board a discretion which
is not limited by legislative standards. It cannot give a zoning board
discretionary authority to approve or disapprove applications for permits
as a board thinks best serves the public interest without establishing
standards to limit and guide a board.
3. The Nonconforming Use—a nonconforming use is one in existence when the zoning ordinance
is passed, that is allowed in the newly zoned area. A lawful nonconforming use establishes in the
property owner a vested property right that cannot be abrogated or destroyed, unless it is a
nuisance, it is abandoned, or it is extinguished by eminent domain.
a. PA Northwestern Distributors, Inc. v. Zoning Hearing Board—the amortization
(“phase-out” period) and discontinuance of a lawful pre-existing nonconforming use is
per se confiscatory, i.e. it is a “taking” (depriving P of the lawful use of its property).
i. Policy Considerations—If municipalities were free to amortize nonconforming
uses out of existence, future economic development could be seriously
compromised.
b. Majority Rule, “Balancing Test” (PA Northwestern Distributors Concurrence)—weigh
any circumstance bearing upon a balancing of public gain against private loss, including
the length of the amortization period in relation to the nature of the nonconforming use
(important—years, not just months), length of time in relation to the investment, and the
degree of offensiveness of the nonconforming use in view of the character of the
surrounding neighborhood.
c. Expansion of use to meet regular, market demand--protected
4. Achieving Flexibility in Zoning
a. Variances—a variance (municipal permission) allowing a nonconforming use may be
granted where an ordinance restrictions cause an owner practical difficulty or
unnecessary hardship, to engage in the prohibited conduct. A variance runs with the land
and may have conditions attached.
i. Elements
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ADDITIONAL NOTES
ULTRA VIRES—EXCEEDING SCOPE OF DELEGATED AUTHORITY
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EMINENT DOMAIN AND REGULATORY TAKINGS—it has long been accepted that a sovereign
cannot take the property of A for the sole purpose of transferring it to another private party B, even though
A is paid just compensation. A State may transfer property from one private party to another if future
“use by the public” is the purpose (not mechanics) of the taking.
1. “Public Use”—the Fifth Amendment prohibits a taking of land “for public use” without just
compensation.
a. Rule—the Supreme Court has broadly interpreted “public use” to mean the taking must
be for a public purpose (i.e. it must benefit the public, not a particular class of identifiable
individuals) (see Kelo v. City of New London).
i. Example—“Urban Renewal,” the government exercises eminent domain and then
transfers title to a private redeveloper to develop according to an urban renewal
plan. It has been upheld under a rational basis approach as being for a public
purpose.
1. Some states apply strict scrutiny or per se standards to such government
acts.
2. What is a “Taking”? (Easy case Condemnation Action to Take Title—if the government
takes title to the land, it must pay for it).
a. Regulatory Takings—several tests have been developed to determine whether a
government regulation under its police power that goes too far and affects the use and
value of the land is a taking.
i. Threshold Question: can the government regulate? Regulate pursuant to the
government’s police power, and upheld if not arbitrary and capricious,
UNLESS…
b. Categorical Rules/Per Se Tests
i. Permanent Physical Occupation or Invasion Test—any permanent physical
occupation or invasion by the government (or by a third party with government
authorization) is a per se taking and must be paid for (see Loretto v.
Teleprompter Manhattan CATV Corp.) [principles of trespass and right to
exclude at work in this rule]
1. Applies even if the occupation affects only relatively insubstantial
amounts of space and do not seriously interfere with the landowner's use
of the rest of his land.
2. Temporary invasion, not per se taking, but subject to ah-hoc factual
inquiry to balance the factors.
3. Degree of occupation/invasion relevant to the amount of compensation.
ii. Deprivation of ALL Economical/Productive Use of Land Test—If the regulation
deprives land of all economically beneficial or productive use, it is a per se
taking. The fact that the regulation was enacted before the purchase (despite
notice) does not foreclose a takings claim (see Palazzolo v. Rhode Island). A
regulation that destroys all economic value for only a limited time not a per se
takings (see Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning
Agency).
c. Rule of Reason (when the regulation does not deprive land of all economic use)
i. Multifactor Balance Test—(see Penn Central) not a per se rule—matter of
degree…
1. Factors to Balance
a. Diminution in value of the land (economic/market impact)
[diminution alone cannot establish taking 90% in Hadacheck
diminution is not a taking]
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EXACTION—exactions are local government measures that require developers to provide goods and
services or pay fees as a condition to getting project approval.
1. See note 1 on page 1057
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SECURED TRANSACTIONS
Professor Jose Bartolomei, Michaelmas Term 2011
INTRODUCTION—The Uniform Commercial Code (UCC) provides a priority scheme to creditors and
awards those creditors that provide notice and punishes those that are secretive. Perfection of the security
interest is the ultimate goal of any creditor taking an interest in the debtor’s collateral. Creditors with
perfected security interests beat out bankruptcy trustees and win over non-bona fide purchasers [BFPs].
1. Basic Definitions
a. Lien: An interest in the debtor’s property given by the law to protect a creditor.
b. Consensual Lien: If a debtor voluntarily grants an interest in his property, a consensual
lien is created.
c. Mortgage: Consensual lien in the debtor’s real property.
d. Security Interest: Consensual lien in the debtor’s personal property or fixtures
(governed by Article 9).
e. Judicial Lien: An involuntary lien imposed against the debtor’s property that arises
from judicial proceedings.
f. Statutory Lien: An involuntary lien imposed by either statute or the common law in
favor of certain creditors the law deems worthy of protection.
g. Mechanic’s Lien: A statutory lien in favor of those who perform construction work.
h. Federal Tax Lien: If you don’t pay your taxes, the federal government files for this
statutory lien that reaches all of the taxpayer’s property.
i. Strong Arm Clause, §544(a) of the Bankruptcy Code: As of the date of filing of the
bankruptcy petition, the trustee is conclusively presumed to occupy the legal position of a
judicial lien creditor who has levied on all of the bankrupt’s property.
i. Secured creditors whose security interests are unperfected at this moment lose
the right to claim the collateral.
ii. Secured creditors whose security interests are perfected at this moment will
survive the attack of the bankruptcy trustee.
2. Bankruptcy—the United States Constitution states that Congress shall pass laws pertaining to
bankruptcy; the result is the Bankruptcy Reform Act of 1978, 11 U.S.C. §§101 et seq.
a. Four Types of Bankruptcy—Chapter 7, Straight Bankruptcy (a pure liquidation
proceeding); Chapter 11, Reorganization Proceeding for Businesses; Chapter 12,
Reorganization Proceeding for Farmers; Chapter 13, Debt Repayment Plan for
Individuals.
b. Commencement—to commence a bankruptcy, the debtor (voluntary bankruptcy) or the
debtor’s creditors (involuntary bankruptcy) file a petition with the bankruptcy court.
THE SCOPE OF ARTICLE 9—UCC Article 9 sets out a comprehensive set of rules governing secured
transactions in personal property. The article states what a debtor and creditor must do to make the
transaction effective (attachment or creation); what the creditor must do to give notice making the
transaction effective against other parties (perfection); who wins when collateral is in contest (priority);
and, what a creditor may and may not do to repossess the collateral and sell it to get paid (default).
1. Security Interest Defined (See UCC §1-201(35))—A security interest is an interest in personal
property and fixtures which secures payment or performance of an obligation.
a. Note: Real estate is excluded.
b. SI includes any interest of a consignor and a buyer of accounts (credit card receivables),
chattel paper (automobile lease contracts), a payment intangible, or a promissory note in
a transaction, agricultural lien that is subject to Article 9.
c. A sale of accounts is subject to A9 because when sold, there is an ostensible ownership
issue (creditors don’t know).
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2. UCC §9-109
a. (a) [tells use what is subject to Article 9]
i. Security interests are consensual (contract)
ii. Scope applies to a transaction that creates a SI in personal property or fixtures,
agricultural lien, sale of accounts, chattel paper, payment intangibles, promissory
notes, and a consignment.
iii. Article 9 “Debtor” defined in §9-102(a)(28)
iv. Outright sales are covered under Article 9 (OC4) to avoid secret sales and give
other creditors notice through perfecting interest (file FS)
b. (c) and (d) [tells us what removes us out of Article 9]
i. Collateral you receive non-consensually is not a security interest, including, but
not limited to, statutes, liens other than agricultural, and assignments
(garnishments).
3. Consignment §9-102(20)—a true consignment is neither a sale nor a security device; it is a
marketing procedure by which the owner of goods (consignor) sends (consigns) goods to a
retailer (consignee) for sale to the public. Essentially, the consignee is a bailee with the ability to
sell the bailor’s goods. Class Example—selling Air Jordans
a. Benefits—consignor retains control over the terms of the retail sale, and there is no
requirement that the consignor file a notice anywhere announcing that a consignment is
going on.
b. Problem—the retailer appears to be the unfettered owner of goods in inventory that
actually belongs to someone else. The retailer’s other creditors may wish to extend credit
with the inventory as collateral, but there is no place they can go to check whether some
or all of the inventory is actually held on consignment.
i. Some consignments are actually sales on credit (i.e., secured transactions)
disguised as consignments in order to escape the filing requirements.
1. If the retailer must pay for goods whether or not they are able to resell
them, this is not a true consignment.
c. Where the consignee is generally known by its creditors to be substantially engaged in
selling the goods of others, the §9-102(a)(20)(A)(iii) definition of "consignor" is not
met, and Article 9 does not require the consignors to do anything to protect their
interests, leaving the matter to other law. The common law generally allowed a true
consignor to retrieve its goods from the claims of the consignee's creditors. See Ludwigh
v. American Woolen Co.
4. Leases (§1-203)—are not covered by Article 9 unless the so-called lease is actually a disguised
attempt to create a security interest in leased property that is being sold to the “lessee.”
a. True Lease Compared with Secured Interest—whether the transaction is a true lease
or a disguised sale on credit depends on the facts of each case, but a sale on credit will be
presumed if
i. The lessee has no right to terminate the lease, and
ii. Either the lessee has an option to purchase for no or nominal consideration or
iii. The goods will have no economic value at the end of the lease term.
b. Protective Filing—a lessor who is unsure whether the transaction is a true lease or a
disguised sale may file a financing statement to guarantee priority if appropriate, without
conceding that Article 9 applies.
i. 9-505’s “Safe Harbor”—this section affords the option of filing of a financing
statement with appropriate changes of terminology but without affecting the
substantive question of classification of the transaction. Comment 2.
c. ADD NOTES FROM CASEBOOK PGS. 22-23
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f.
Real Estate (Lease or rents thereunder) (§9-109(d)(11))—except for fixtures, Article 9
does not cover real estate security interests; you cannot take a security interest in real
property. [probably not on exam]
i. Exception: You can take a SI in a promissory note/mortgage where the note is
sold or a SI is given to you in the note to secure X’s obligation to you.
1. Article 9 covers the security interest in the promissory note even though
the note is secured by a real-property mortgage.
2. File a FS. If X doesn’t pay you, you take the notes and direct payment
straight to you instead of X.
3. §9-203(g): If you attach (take a right in the collateral) in the promissory
note, you automatically attach in the supporting obligation (mortgage)
even if it is real property.
4. §9-308(e): If you are perfected in the original collateral (the note), you
are perfected in the supporting obligation.
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THE CREATION OF A SECURITY INTEREST There are two things that must be done in order for a
security interest to become effective: Attachment and Perfection
1. Classifying the Collateral—proper classification of the type of collateral involved is necessary
for application of the appropriate Article 9 rule. Classification of collateral is to be determined as
of the time of the creation of the security interest. Classification does not change because of a
later change in the manner in which the collateral is used. See In re Troupe. The borrower’s
stated intent regarding that use of the collateral, if affirmatively made, can control the
determination of what the collateral is for Article 9 purposes. Absent a clear statement from the
borrower to that effect, we look to the actual use of the collateral to determine what Article 9
category it falls into.
a. Tangible Collateral/“Goods”—“goods” include things that are moveable and includes
unborn young of animals, crops, timber to be cut, fixtures, and computer software
embedded in goods.
i. Four Types of Goods
1. “Consumer Goods” §9-102(a)(23)—goods used or bought primarily for
personal, family or household purposes.
2. “Inventory” §9-102(a)(48)—includes goods held for sale or lease to
other in the ordinary course of business. It also includes raw materials
and materials used up or consumed in a business (e.g., pencils).
Consumed in a short period of time
3. “Farm Products” §9-102(a)(34)—goods that are used or produced in
farming operations3 and that are in the possession of a farmer-debtor.
4. “Equipment” §9-102(a)(33)—includes goods used in a business when
they are fixed assts or have, as identifiable units, a relatively long use
period [anything that does not fit in the other three types]
b. Quasi-Tangible Collateral—these are legal rights often represented by a writing.
i. Five Types of Quasi-Tangible
1. “Instruments” §9-102(a)(47)—include UCC Article 3 negotiable and
nonnegotiable instruments (e.g., checks, promissory notes, etc.)
a. Promissory Notes
3
Farming operation means raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or
aquacultural operation.
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PLACE OF PERFECTION —MULTISTATE TRANSACTIONS—UCC § 9-301 deals with the problems
of multistate transactions and removal of collateral from one state to another.
1. General Choice of Law Rule—Debtor’s Location Governs Perfection—the law of the state
where the debtor is located generally governs perfection. When there is doubt as to whether or
where to file, a wise attorney will file a financing statement in every place arguably relevant to
the transaction.
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d. Secured Creditor—a creditor with an attached security interest in the debtor’s collateral
is a secured creditor.
e. Perfected Secured Creditor—a creditor who has taken the steps necessary to perfect the
security interest is both perfected and secured.
f. Statutory Lien Holder—this is a creditor who has an automatic statutory or common
law lien (e.g., landlord, mechanic, etc.)
g. Buyers of Property—note that a good faith buyer of the collateral is often favored over
the debtor’s creditors.
2. Priority With Unperfected Creditors (§9-317)
a. Unperfected Creditor v. Other Unperfected Creditor (First to Attach)—where there
are two conflicting security interests in collateral, neither of which has been perfected,
the order of attachment determines priority.
b. Unperfected Creditor v. Perfected Creditor/Judicial Lien Creditor/Statutory Lien
Holder—a perfected creditor/JLC/SLH has priority over an unperfected creditor. This
rule applies regardless of which creditor’s interest attached first and regardless of the
perfected creditor’s knowledge of the other’s interest.
3. Priority Among Perfected Creditors (§9-322(a)(1)-(3))
a. General Rule—First to File or Perfect—as between two perfected security interests,
priority goes to the creditor who either filed first or perfected first (except as modified by
the special rules below). Knowledge of another creditor’s interest and time of attachment
is irrelevant.
b. New Debtors—if two different debtors, each of whom have given creditors security
interests in their collateral, merge into a “new debtor,” the original security interest
continue in the new debtor without the need for a new security agreement or financing
statement, and the usual rules of priority apply.
4. Priority Among Perfected Creditors—Special Rules for Purchase Money Security Interests
a. Introduction—a PMSI may have “super-priority” status, beating out claims against
previously perfected security interests.
b. Consumer Goods—where the collateral is consumer goods, no further steps are required
for a PMSI therein to prevail over prior or later interests.
c. §9-324(a) Non-inventory, Non-livestock PMSIs—a PMSI in such collateral has priority
over conflicting security interests in the collateral and its identifiable proceeds if the
PMSI is perfected when the debtor takes possession of the collateral or FS filed within 20
days thereafter (thus, 20 days after it is identified as collateral).
d. §9-324(b) PMSI in Inventory (and Livestock)—a PMSI in inventory (and livestock)
has superpriority over an earlier perfected interest if . . .
i. The PMSI is perfected at the time the debtor receives possession of the inventory;
1. Perfection may be achieved by possession.
2. Constructive possession by the debtor is sufficient.
ii. The PMSI creditor gives written notification to all holders of competing security
interest which has UCC-1 financing statements on file when the PMSI creditor
files its UCC-1;
iii. The competing secured creditor receives the notification within five years before
the debtor receives possession of the inventory; and,
1. Debtor must receive actual possession of the inventory.
2. 6 months for livestock
iv. The notification states “that the person giving the notice has or expects to
acquire a PMSI in inventory of the debtor, describing such inventory by item or
type.”
e. Conflicting PMSIs in Same Collateral—if more than one creditor has PMSI super-
priority in the debtor’s goods, a seller taking a partial security interest in the goods sold
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has priority over a lender who lends money to the debtor for a down payment on the
goods. See §9-324(g). [vender beats lender]
f. Consignments in Inventory—have to follow PMSI rules of 9-324(b). See §9-103(d).
CONTROL AND PRIORITY—the 1999 revision of Article 9 makes much of the ideas of control as a
means of perfection. Taking the steps for control gives the world some notice at least that the creditor has
legal rights in the intangible property that must be respected.
1. §9-328 Control Over Investment Property—a security interest in investment property is taken
in two ways: the filing of a financing statement and/or taking of control over the investment
property, with the latter trumping the former (see §9-328(1)).
a. Sub-Definitions
i. Certificated Security, §8-102(a)(4), security represented by a certificate.
1. E.g., stock, bonds (represented by paper)
ii. Uncertificated Security, §8-102(a)(18), security not represented by a certificate.
1. E.g.,
iii. Securities Entitlement, §8-102(a)(17), the rights and property interest of an
entitlements holder with respect to a financial asset specified in Part 5 of Art. 8.
1. E.g., IRA account holder, brokerage account.
b. Control is the primary method for perfecting a security interest in investment property.
Filing is a distant second. See 9-328(1).
i. Priority Control Trumps Filing.
c. § 8-106 Control (Prof wants to test this, but currently unable to think of question)
i. Certificated Security
1. Held by the debtor, “control” requires that the certificate be “delivered”
to the secured party. §8-106(b)
a. Delivery, 8-301(a)
2. If the certificate is in bearer form, the secured party need only gain actual
or constructive possession.
3. If the certificate is in “registered form,” meaning that it specifies the
debtor as the person entitled under it, the secured party must gain actual
or constructive possession AND must also either obtain the debtor’s
indorsement (i.e., signature) on the certificate OR having the certificate
registered with the issuer in the secured party’s name. §8-106(b)(1) and
(2).
a. This last step might occur, for example, if the debtor surrenders
the certificate to the issuer and it is reissued showing the secured
party as the entitled person.
ii. Uncertificated Security
1. Held directly by the debtor, “control” is established by “delivery” to the
secured party. § 8-106(c)(1).
a. “Delivery” in this context means that the issuer of the security
has registered the secured party on its books as the owner of the
security. §8-301(b).
2. Control can also be achieved for an uncertificated security without
delivery only if the issuer agrees to comply with the secured party’s
orders without the further consent of the debtor. §8-106(c)(2).
iii. Securities Entitlements
1. Are held through a security intermediary, usually a broker (think Charles
Swab/Raymond James)
2. A secured party can acquire “control” of security entitlement either by
becoming the entitlement holder on the books of the broker, OR by
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having the broker agree to comply with the secured party’s orders
without further consent from the debtor. §8-106(d)(1) and (2).
iv. LOOK AT WHALEY PROBLEM 74 (to walk through most of this and more)
2. §9-327 Control Over Deposit Accounts—banks often take a security interest in the deposit
account of a commercial borrower as a way to trigger control upon default.
a. Control §9-104—a secured party has control of a deposit account if . . .
i. The secured party is the bank with which the deposit account is maintained;
ii. The debtor, secured party, and bank have agreed in an authenticated record that
the bank will comply with instructions originated by the secured party directing
disposition of the funds in the deposit account without further consent by the
debtor; or,
iii. The secured party becomes the bank’s customer with respect to the deposit
account.
b. Priority §9-327—depends on how you control
i. When secured party becomes customer to the account, you have priority over the
bank.
3. §9-329 Control Over Letters of Credit Rights
a. Control §9-107—a secured party has control of a letter-of-credit right to the extent of
any right to payment or performance by the issuer or nominated person if the issuer or
nominated person has consented to an assignment of proceeds of the letter of credit.
b. Effect of Control v. Non-Control—secured party with control prevails over secured
party without control. Priority determined by time of obtaining control. §9-329
4. If more than one creditor has control, the first creditor to gain control has priority. §9-328(2)
a. Exceptions
i. A securities intermediary has super-priority over all other creditors with an
interest in a securities account, even those who have control. §9-328(3)
ii. A depository bank holding a deposit account has a superior right of setoff in the
deposit account for debts owed to it by the depositor, and prevails over another
creditor having control over the deposit account, unless the creditor obtained
control by putting the account in its own name, in which case it prevails over the
bank’s right of setoff. §9-327(4)
BUYERS
1. General Rule—a buyer of collateral covered by a perfected security interest generally takes the
collateral subject to the security interest.
a. Exceptions
i. §9-320 & 1-201(b)(9) Buyers in Ordinary Course of Business—means “a
person who in good faith and without knowledge that the sale to him is in
violation of the ownership rights or security interest of the third party in the
goods buys in the ordinary course from a person in the business of selling goods
of that kind.”
ii. List of Qualifications
1. Buyer buys “goods”, §9-201(a)(44)
2. Person must be a buyer in the ordinary course of the seller’s business
(i.e., buying the seller’s inventory in the routine/customary/usual way);
a. Seller is not a pawnbroker
3. Who does not buy in bulk (that is, does not buy an entire inventoried
business) and does not take the interest as security for or in total or
partial satisfaction of a preexisting debt (that is, the buyer must give
some form of “new” value);
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4. Who buys from one in the business of selling goods of that kind (that is,
cars from a car dealer, i.e., inventory);
5. Who buys in good faith and without knowledge that this purchase is in
violation of others’ ownership rights or security interests;
6. Who does not buy farm products from a person engaged in farming
operations;
7. The seller’s creditor must part with possession;
8. The competing security interest must be one “created by the buyer’s
seller.”
iii. Possession Requirement—only a buyer that takes possession of the goods or
has a right to recover the goods from the seller under Article 2 may be a buyer in
ordinary course of business.
1. Includes “constructive possession.” See In re Western Iowa Limestone
(where there is a completed sale, the goods can be identified under the
contract, and the agreement in the bill of sale between the seller and the
buyer allows the goods to remain on the seller’s premises until resold).
iv. Garage-Sale Exception, §9-320(b), if a buyer purchases a goods at a garage sale
and does not have knowledge of the seller’s unpaid interest in the goods, then
buyer wins priority battle.
2. Waiver—priority can be lost where the secured party’s failure to enforce the security agreement
is found to constitute a waiver (e.g., permitting the debtor to sell the collateral without obtaining
the consent of the secured party). See Clovis National Bank v. Thomas.
LEASES
1. § 9-321(c) and § 2A-307.
a. Summary of 2A-307
i. Creditor of a lessee takes subject to a lease
ii. Creditors of a lessor takes subject to lease, unless the creditor holds a lien that
attached to the goods before the lease became enforceable.
iii. Lessee takes subject to security interest of secured creditor, but see 9-321, 9-323
and 9-317 for exceptions.
b. See Whaley Problem 89 (and remember how determining whether a “lease” is a true
lease or disguised security interest per 1-203 may affect the relative priority between the
purported lessee, lessor and the party claiming a security interest).
i. KNOW THIS PROBLEM
ARTICLE 2 CLAIMANTS (WILL MOST LIKELY BE ON EXAM)
1. Article 2 Security Interests—under certain circumstances, Article 2 creates possessory “security
interests” in favor of buyers and sellers of goods (e.g., when buyer rejects defective goods
tendered by the seller). Possession alone is the means of perfection for such interests. (no
security agreement or financing statement is required).
a. 11 U.S.C. §546(c) recognizes the right to reclamation that a seller may have under
applicable nonbankruptcy law. A seller may reclaim goods it has sold to an insolvent
debtor if it establishes…
i. That it has a statutory or common law right to reclaim the goods;
ii. That the goods were sold in the ordinary course of the seller’s business;
iii. That the debtor was insolvent at the time the goods were received; and,
iv. That tit made a written demand for reclamation within the statutory time limit
after the debtor received the goods.
b. The reclaiming seller has the burden of establishing each element of §546(c) by a
preponderance of the evidence. The seller seeking reclamation under §546(c) must prove
that it sold the goods in the ordinary course of business and it made a written demand
within ten days of the receipt of the goods.
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c. Pursuant to UCC §2-702(3), the seller’s right to reclamation is subject to the rights
of a good faith purchaser from the buyer.
i. A creditor with a security interest in after-acquired property who acted in good
faith and for value, which includes acquiring rights “as security for or in total or
partial satisfaction of a pre-existing claims, is a good faith purchaser to whose
claim that of a reclaiming seller is subject.
1. The secured creditor with a floating lien remains a good faith purchaser
even if it terminates funding with knowledge that sums are owed to third
parties, as long as the decision concerning the funding was commercially
reasonable.
2. I.e., Article 2 seller loses priority battle to a secured creditor with a perfected security
interest (considered a good faith purchaser)
FIXTURES
1. Note the extra filing requirements for a “fixture filing” in section 9-502(b) on top of the 9-
502(a) requirements.
a. The FS needs to indicate that it covers fixtures.
b. The FS needs to indicate that it is to be filed in the real property records of the state (this
is usually the county recorder of deeds for the location of the real estate).
c. The FS needs to provide a property description of the real estate to which the fixture is
attached.
d. Finally, if the debtor does not have an interest of record in the real estate, the FS needs to
provide the name of the record owner.
2. Recall that 9-501(a)(1)(B) directs that a financing statement filed to evidence a security interest in
a fixture (a “fixture filing”) be made in the county real estate recording office where the fixture is
located.
a. If a secured party takes a security interest in goods that it expects to become fixtures,
prudence dictates that the secured party make dual filings, both a financing statement
sufficient to perfect a security interest in the goods in their nonaffixed form and a fixture
filing in the county in which the real estate is located.
b. Bottom line: File everywhere!
3. Priority of a security interest in goods that are or become fixtures: 9-334. [Probably NOT of
Exam]
a. General Rule: 9-334(c) – A security interest in fixtures is subordinate to a conflicting
interest of a real estate mortgagee or owner (other than the debtor).
b. There are a number of exceptions to this rule that we (may) care about.
i. First in time, 9-344(e)(1)
ii. PMSI, 9-334(d)
1. Exception to exception – construction mortgage, 9-334(h)
iii. Readily Removable goods, 9-334(e)(2)
iv. Lien Creditor, 9-334(e)(3)
v. Manufactured Home, 9-334(e)(4)
vi. Consent, Disclaimer, Right to Remove, 9-334(f)
IRS v. Secured Creditor
1. The federal tax laws encourage the IRS to file a public notice of its lien by providing that the lien
is invalid as against certain interests that arise before the filing of the public notice is made.
a. Protected parties include those holding a “security interest” under federal tax law. For
purposes of federal tax law, a “security interest” is a properly perfected security
interest. Internal Revenue Code 26 U.S.C. § 6323(h)(1)
2. Even if an Article 9 secured party has properly perfected before notice of the federal tax lien is
filed, it will not prevail over the government unless its security interest is choate (“KOH-it”).
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3. A security interest is choate, or “complete” for federal tax law purposes once it is properly
perfected and we can identify the…
a. The identity of the secured party.
b. The amount of the lien; and
c. The property to which it attaches.
4. This is a fairly easy analysis for a properly perfected security interest in present property, but
what about our two problematic friends, the after-acquired clause and the future advances
clause?
a. Can we, with regard to an after-acquired property clause, identify the property
b. Can we, with regard to a future advances clause, identify the amount of the lien?
5. The Tax Lien Act contains two important exceptions to the choatness doctrine.
a. 26 U.S.C. § 6323(c) Provision for After Acquired Collateral.
i. For after-acquired collateral to be prior to an intervening tax lien, the following
elements must be met:
1. A written security agreement exists before the tax lien is filed;
2. The security interest is perfected before the tax lien is filed;
3. The secured party makes the loan in the ordinary course of its business;
4. The debtor acquires the collateral in the ordinary course of business;
5. The loan that is secured by the after-acquired collateral is made before
the 46th day from the tax lien filing; and
6. The debtor acquires the collateral before the 46th day from the tax lien
filing.
ii. *Important Note: If the secured party knows of the tax lien before the 45-day
window, the window closes at the point the secured party obtains that knowledge
(or has notice of the lien). Knowledge = IRS wins.
b. 26 U.S.C. § 6323(d) Provision for Future Advances.
i. A secured party has priority over a filed tax lien as to a future advance made after
the tax lien notice is filed by the IRS if:
1. The security interest is perfected at the time of the tax lien filing;
2. The future advance is made before the 46th day from the tax lien filing;
and
3. The secured party is without actual knowledge of the tax lien when it
makes the advance.
4. The property being sought by both parties is covered by a security
agreement entered into before the tax lien filing; and
5. The debtor owns the property at the time of the tax lien filing.
RIGHTS TO PROCEEDS
1. Perfection in proceeds of collateral continues automatically if the security interest in the original
collateral was perfected by any method - 9-315(c).
a. But it LAPSES on the 21st day after attachment of the security interest to the proceeds
unless one of the conditions in 9-315(d) is satisfied.
i. Those conditions are…
1. The proceeds are identifiable cash proceeds (9-315(d)(2)).
a. Note that this poses problems for the lender. If the proceeds
become commingled with other funds, the secured party may
lose its security interest in them entirely because of an inability
to identify them.
b. Article 9 recognizes this and allows a secure party to use
equitable tracing principles, notably the lowest intermediate-
balance rule, to identify the amount of commingled proceeds to
which its security interest attaches.
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iii. If the Rancher instead bought a tractor with the money in the account, the Bank’s
temporary security interest in the tractor as proceeds of proceeds would lapse.
The financing statement does not cover “equipment”. The Bank would have to
take steps within the 20-day period to perfect in the tractor.
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DEFAULT
1. Definition—default is not defined in the UCC. When the debtor is unable to meet the obligations
set under the security agreement, there is a default. Thus, default is defined by the terms of the
parties’ security agreement.
a. §9-601(c)—the remedies afforded to a secured creditor under Article 9 are cumulative,
meaning that the creditor can choose his or her poison in which way they wish to exercise
their repossession and/or foreclosure rights.
i. These cumulative rights can also be exercised simultaneously.
1. For example, a creditor may conduct an Article 9 foreclosure sale or
repossessed collateral without forfeiting its right to bring a simultaneous
or subsequent in personam action against the debtor.
2. But see Comment 5 to 9-601 for a recognition of non-Article 9
limitations on the simultaneous exercise of remedies (including good
faith).
ii. Three Basic Remedies—(1) retention of the collateral, (2) sale of the collateral,
and (3) an action for the debt.
2. Acceleration—means that all the amounts due under the loan – the amounts borrowed – are due
NOW! The right to “accelerate” a loan often comes hand-in-hand with the claim of a default by
the lender. §1-309. Clauses permitting acceleration of the entire debt on the happening of an
event or “at will” or when the creditor feels “insecure” are permitted if exercised in good faith.
a. Pre-mature acceleration—See Klingbiel v. Commercial Credit Corp.
3. Pre-Default Duties of the Lender
a. “Time is of the essence” Clause
i. The creditor waives right to collect timely by routinely accepting late payments
(§2-208 – waiver on express clause by reliance), but may reinstate the clause
provided there is adequate and fair notice that the creditor is going to insist on
payment on time. §2-209(5).
REPOSSESSION
1. In General—upon default, the creditor may use court proceedings to collect the debt or “self-
help” to repossess the collateral. No notice is required before repossession.
a. Self-Help—§9-609(b) allows a secured creditor to “self-help” as long as it does not
breach the peace.
i. Breach the Peace—a disturbance of public order by an act of violence, or by any
act likely to produce violence, or which by causing consternation/protest and
alarm, disturbs the peace and quiet of the community. See Hilliman v. Cobado.
1. The duty to not breach the peace is nondelegable and not transferable
(i.e., a secured creditor is responsible for the acts of an independent
contractor hired to repossess the collateral when the IC breaches the
peace), See Williamson v. Fowler Toyota.
2. Once the peace has been breached, the creditor should retreat, but may
return later to try and repossess.
3. CANNOT BE WAIVED, §9-602(6).
b. Non-collateral in repossession—if there are non-collateral items in the car that is
repossessed, what happens? No clear answer. Reasonableness still comes into play.
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FORECLOSURE SALES
1. Introduction—once a secured party has declared a default (and possibly accelerated the loan
balance), the secured party can repossess the collateral in a peaceable manner. Upon
repossession, the secured party can elect to foreclose on the collateral, meaning that it can force a
sale of the collateral through “commercially reasonable means.”
2. §9-610
a. After default, as secured party may sell, lease, license, or otherwise dispose of any or all
of the collateral in its present condition or following any commercially reasonable
preparation or processing.
b. Every aspect of a disposition of collateral, including the method, manner, time, place, and
other terms, must be commercially reasonable. If commercially reasonable, a secured
party may dispose of collateral by public or private proceeding, by one or more contracts,
as a unit or in parcels, and at any time and place and on any terms.
3. What is “commercially reasonable” in a UCC foreclosure sale?
a. §9-627(a)—the fact that a greater amount could have been obtained by a collection,
enforcement, disposition, or acceptance at a different time or in a different method from
that selected by the secured party is not of itself sufficient to preclude the secured party
from establishing that the collection, enforcement, disposition, or acceptance was made in
a commercially reasonable manner.
i. The price obtained by the foreclosure sale, by itself, is not a per se indication that
the sale was done in a commercially unreasonable manner (creates a basis for
second-guessing the secured party’s procedures).
b. §9-627(b)—a sale of collateral is made in a commercially reasonable manner if the
disposition is made:
i. in the usual manner on any recognized market (e.g., a stock exchange);
ii. at the price current in any recognized market at the time of the disposition; or,
iii. otherwise in conformity with reasonable commercial practices among dealers in
the type of property that was subject of the disposition.
iv. Note—Comment 3 to 9-627: “[N]one of the specific methods of disposition
specified in subsection (b) is required or excusive.”
c. §9-627(c)—a sale of collateral is made in a commercially reasonable manner if it has
been blessed by a . . .
i. Court;
ii. Bona fide creditors’ committee;
iii. A representative of creditors; or,
iv. An assignee for the benefit of the creditors.
d. In the eye of the beholder, but some factors come into play
i. Publication—did you create enough of a market for the collateral?
ii. Notice—was proper notice given to required parties (and maybe even to some
non-required parties) to give them enough time to act?
iii. Sale has to occur within a reasonable time
iv. Public v. Private Sales
e. R&J of Tennessee v. Blankenship-Melton Factors
i. The type of collateral involved;
ii. The condition of the collateral;
iii. The number of bids solicited;
iv. The time and place of sale;
1. If s secured party holds collateral for a long period of time without
disposing of it, and if there is no good reason for not making a prompt
disposition, the secured party may be determined not to have acted in a
commercially reasonable manner.
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have sent an authenticated notice of their interests to the repossessing creditor or who
have filed a financing statement. 9-621(a).
i. Those notified have 20 days in which to object and force the creditor to sell the
collateral. 9-620(d)(1).
c. 9-620(e) and (f)—Consumer Good Exception—where the collateral is consumer goods
and the debtor has repaid at least 60% of the principal debt, the creditor must resell the
collateral within 90 days of repossession (or within a longer period agreed to by the
debtor) and turn over any excess to the debtor.
i. This debtor’s right to resale may be waived only after default.
d. Strict foreclosure in partial satisfaction of the debt—a creditor wishing to retain
collateral in partial satisfaction of the debt must also acquire the debtor’s consent in an
authenticated record.
i. This remedy is only available for collateral that is not consumer goods.
e. No such thing as a constructive strict foreclosure (see Comment 5 to 9-620).
2. §9-623 Redemption—prior to resale, the debtor may redeem the collateral by tendering the debt
owed at the time of redemption plus expenses of repossession.
a. No waiver prior to default—a debtor cannot waive the right of redemption prior to
default.
b. No redemption after any of the following events . . .
i. Secured party has collected the collateral under 9-607.
ii. A secured party has sold collateral or entered into a contract for its sale under 9-
610; or,
iii. Secured party has accepted in full or partial satisfaction of the obligation per 9-
622.
c. Who can deem?
i. A debtor; a secondary obligor (surety); or, any other secured party/lienholder. 9-
623(a).
d. 9-623(b)—in order to redeem collateral, the redeemer must …
i. Fulfill all obligations secured by the collateral; and,
ii. Reasonable expenses and attorney’s fees (of allowed by the contract and state
law) of the secured party.
LIABILITY OF A BANK FOR SCREWING UP THE FORECLOSURE SALE—There are many ways
that a secured party can screw up.
1. Pre-Disposition Remedies
a. §9-625(a)—if it is established that a secured party is not proceeding in accordance with
this article, a court may order or restrain collection, enforcement, or disposition of
collateral on appropriate terms and conditions.
i. Essentially, this is a grant of an injunction against the secured party (need
irreparable harm).
ii. Also, putting the debtor in their rightful position.
2. Post-Disposition Remedies
a. §9-625(b)—a person is laible for damages in the amount of any loss caused by a failure
to comply with this article. Loss caused by a failure to comply may include loss resulting
from the debtor’s inability to obtain, or increased costs of, alternative financing.
i. Note—this is not limited to failures in foreclosure sales; it also applies to not
filing termination statements, screwing up financing statements, etc.
b. DOES NOT displace the injured party’s remedies under tort law.
i. Examples—trespass to chattel, conversion (look to FMV)
c. Can also seek punitive damages
3. Consumer Penalty
a. §9-625(c)—adds certain penalties to consumer transactions
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BANKRUPTCY
1. All federal bankruptcy laws are found in Title 11 of the United States Code
a. Different Chapters
i. Chapter 1, 3, 5—Administration of bankruptcy estate
ii. Chapter 7—Liquidation (or “I give up, sell my stuff”)
iii. Chapter 11—Corporate (and sometimes individuals) reorganization (or “let’s try
a new plan”)
iv. Chapter 13—Individual reorganization (or “can we work this out over three
years”)
v. Other Notables
1. Chapter 9—municipal reorganization
2. Chapter 12—reorganization of farmer or farming business
3. Chapter 15—recognition of a foreign bankruptcy case.
2. Important Bankruptcy Provisions
a. Automatic Stay, 11 USC 362—a petition filed under this title operates as a stay. There
is an automatic stay so creditors are stopped from all trying to grab something. Ways to
modify the automatic stay, see 11 USC 362(d).
i. Applies to all collection and enforcement actions, including foreclosure
proceedings, cash sweeps, lawsuits, etc.
1. Knowledge of the stay is not required.
2. Willful violations of the stay by creditor after notice, call for (punitive)
damages.
3. Inadvertent violation, call for an “undoing” of the action.
b. Lifting the Stay—creditor can seek a lifting of the stay
i. Standards, 11 USC 362(d)(1) [creditor must file a motion, burden of proof on the
creditor]
1. For cause; or
a. Meaning the debtor is destroying the collateral or using it in such
a way that it can quickly depreciate in value.
2. The debtor does not have equity in the collateral AND the collateral is
not necessary for an effective reorganization (obviously does not apply
to Chapter 7).
a. Lack of equity means a valuation fight.
ii. Creditor seeking relief must file a motion. The burden of proof is on the creditor
to show that either “cause” exists to lift the stay, or that the debtor lack equity.
c. Powers of the Trustee, 11 USC 544
i. The trustee as hypothetical judicial lien holder.
1. Trustee shall have the rights and power of, or may avoid any transfer of
property of the debtor or any obligation incurred by the debtor that is
voidable by a creditor that extends credit to the debtor and that obtains a
judicial lien on all property on which a creditor could have obtained a
judicial lien.
ii. Why is this important?
1. A security interest in subordinate to the right of a person that becomes a
lien creditor before the earlier of the time:
a. The security interest is perfected; or,
b. One of the conditions specified in §203 is met and a financing
statement covering the collateral is filed.
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iii. §9-317 provides that a lien creditor takes priority over an unperfected security
interest. Therefore, the trustee can assert its status as a lien creditor under state
law to avoid unperfected security interest.
d. Preferences, 11 U.S.C. 547(b)—The trustee may avoid any transfer of an interest of the
debtor in property
i. To or for the benefit of a creditor;
ii. For or on account of an antecedent debt owed by the debtor before such transfer
was made (i.e., on behalf of a debt);
iii. Made while the debtor was insolvent (debtor is broke);
1. Insolvency presumed.
iv. Made on or within 90 days BEFORE the date of the filing of the petition; or,
v. Between 90 days and one year BEFORE the date of the filing of the petition, if
such creditor at the time of such transfer was an insider (basically someone
related to the debtor); and
vi. That enables such creditor to receive more than such creditor would receive if-
1. The case were a case under chapter 7 of this title;
2. The transfer had not been made;
3. Such creditor receive payment of such debt to the extent provide by the
provisions of this title.
vii. What does it mean?
1. It means that you look at the period 9 days prior to the petition or filing
date and look for any transfers of the debtor’s property that were made to
creditors.
2. Those transfers, if they were made while the debtor was insolvent, on
account of an antecedent debtor, and provided the creditor with more
than it would have gotten in a Chapter 7 liquidation, are preferential.
3. Defenses—defenses for the creditor who has been charged with receiving a preference:
a. Payments were made in a Contemporaneous Exchange, 11 USC 547(c)(1)
b. Payments were made in the Ordinary Course of Business, 11 USC 547(c)(2)
i. Look at prior payments to see if trustee’s power to avoid is negated.
c. New value was provided to the debtor after the allegedly preferential payment, 11
USC 547(c)(4) (if at the end of the transfer history, the creditor provides something that
the debtor does not repay, may offset that amount against preferential liability)
i. Allows you to offset the new value against the preference liability.
4. Fraudulent Transfers, 11 USC 548—the trustee may avoid (undo) any transfer of an interest of
the debtor in property (i.e. a security interest) or any obligation incurred by the debtor that was
made or incurred on or within 2 years BEFORE the date of the filing of the petition, if the debtor,
a. Made such transfer with actual intent to hinder, delay, or defraud any entity; or,
b. Received less than a reasonably equivalent value in exchange for such transfer and . . .
i. Was in solvent on the date of such transfer; or,
ii. Was engaged in a business or transaction for which any property remaining with
the debtor was an unreasonably small capital; or,
iii. Intended to incur debts that would be beyond the debtor’s ability to pay as such
debts matured.
Breakdown of Code Provisions
1. 9-600s—Default and Foreclosure
2. 9-500s—Filing Requirements
3. 9-400s—stuff you don’t care about
4. 9-300s—Perfection and Priority
5. 9-200s—Attachment and Some Other Stuff
6. 9-100s—Definitions and Scope
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INTRODUCTION
1. Constitutional Authority
a. Article 1, §8, clause 1—“power to lay and collect taxes, duties, imposts, and excises . . .
All duties, imposts, and excises shall be uniform throughout the United States.”
b. Article 1, §2, clause 3; §9, clause 4
i. “Direct” taxes must be apportioned among the several states in accordance with
their respective populations.
1. This became a problem because if it is not based on population, it cannot
be uniform. To fix this, Congress passed the 16th Amendment, which
removed the population requirement.
c. 16th Amendment—“Congress shall have the power to lay and collect taxes on incomes,
from whatever source derived, without apportionment among the several states and
without regard to any census or enumeration.”
i. The 16th Amendment voids Article 1, §2, cl.3; §9, cl.4.
ii. The source of congressional power to tax is now vested in the 16th Amendment.
2. Other Sources of Authority
a. Internal Revenue Code (IRC; sometimes referred to as the “Code”)
i. The Code is binding on courts, taxpayers, and the government. Courts can of
course interpret the Code broadly or narrowly.
ii. The Code covers income taxes, estate and gift taxes, employment taxes, alcohol,
tobacco, and procedure and administration of the Internal Revenue Service and
the U.S. Tax Court.
iii. Subtitle A: Covers income taxes, including individual and corporate income
taxes – we will focus on individual taxes.
b. Treasury Regulations
i. Part of the Code of Federal Regulations (CFR) promulgated by the Department
of Treasury. (Published in Title 26 of the CFR §1.0-1 et seq.)
ii. A court MAY invalidate a Treasury Regulation if it contradicts the plain meaning
of the Code. However, this occurs very rarely, and the courts generally give
great deference to Treasury Regulations.
c. Revenue Rulings
i. The National Officer of the IRS publishes official interpretations of the IRC
(called Revenue Rulings) for the information and guidance of taxpayers and their
representatives.
ii. Revenue Rulings have less precedential value than Treasury Regulations.
iii. Courts are NOT bound to follow Revenue Rulings and may rule that a Revenue
Ruling is not consistent with the IRC. Generally, however, the courts find
Revenue Rulings quite persuasive and give them deference.
iv. Taxpayers are entitled to rely on a Revenue Ruling to the extent that the facts and
circumstances concerning the taxpayer’s situation are substantially the same as
those set out in the Revenue Ruling.
v. These deal with substantive tax issues.
d. Revenue Procedure
i. An official statement of the IRS on a procedural matter affecting the rights and
duties of taxpayers; it’s like a Revenue Ruling, but it is on procedural terms, i.e.
like what date you have to file taxes.
ii. Issued to promote the IRS’s uniform application of the tax laws.
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4
The price a willing buyer would pay a willing seller, with neither under a compulsion to buy or sell, and both
having reasonable knowledge of relevant facts. Treas. Reg. §20.2031-1(b).
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for being a good performer and is therefore includible in gross income; fair
market value of the trip. See McCann v. U.S.
9. Compensating an Employee with Property
a. “[I]f property is transferred by an employer to an employee or if property is transferred to
an independent contractor, as compensation for services, for an amount less than its fair
market value, then regardless of whether the transfer is in the form of a sale or exchange,
the difference between the amount paid for the property and the amount of its fair
market value at the time of transfer is compensation and shall be included in the
gross income of the employee or independent contractor.” Treas. Reg. §1.61-2(d)(2).
i. The government is worried about bargain sales here between the employer and
the employee. Between employer-employee, the difference of what you pay
and the fair market value is compensation.
b. Hypo: You work for a car company. The company allows you to buy a $30,000 car for
$1,000 rather than just giving it to you. You have a $29,000 accession to wealth, which
is compensation that is includible in gross income.
10. Barter Exchanges
a. Rev. Rul. 79-24:
i. Hypo: Lawyer provided legal services to a plumber, who in return provided
plumbing services to the lawyer.
ii. Hypo: Landlord received art work from an artist. In exchange the landlord
provided the artist with six months rent free use of an apartment.
iii. Treas. Reg. §1.61-2(d)(1), discussed in a prior slide, provides that if services are
paid for other than in money, the fair market value of the property or services
taken in payment must be included in gross income. If the services were
rendered at a stipulated price, such price will be presumed to be the fair
market value in the absence of evidence to the contrary.
iv. The IRS says that when you have a barter exchange, the fair market value of the
property or services is included in your gross income. If it is at a stipulated price,
it goes back to the fair market value.
v. What result to the lawyer, plumber, landlord, and artist?
1. The fair market value of the services received by the lawyer and the
plumber are includable in their gross incomes under Section 61 of the
Code.
2. The fair market value of the work of art and the six months fair rental
value of the apartment are includable in the gross incomes of the
apartment-owner and the artist under Section 61 of the Code.
11. Imputed Income
a. Suppose that once you pass the bar, you start your own business. Typically, a new
business owner would pay $1,500 to an attorney to assist him or her with the formation of
a corporation. Because you’re a lawyer, you do all the legal work yourself. Do you
have gross income equal to the value of the legal services you saved?
i. We DO NOT tax imputed income and it is not includable in gross income. If
you do all of the legal work for yourself to start your firm and you save
money from hiring someone else, “sweat equity” is not gross income to you
12. Bargain Purchases
a. General Rule—the purchase of property for less than its value does not, of itself, give
rise to the realization of taxable income.
i. If the original buyer subsequently sales or exchanges the item at a higher price,
then the difference would be accounted for in gross income (FMV minus Bargain
Purchase = gross income)
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b. What if Marcella got the bargain purchase on E-bay rather than from her
employer? The difference between the purchase price and the fair value is not gross
income right away. You have a $100 basis in this item and if you resell it for $500, you
have to include the gain (when you sell or exchange it) = $500 - $100 = $400. This is
assuming the purchase is truly arm’s length.
13. Realization
a. When does realization occur?
i. A taxpayer does NOT include the appreciation (i.e. the difference between the
fair market value of the property and the price you paid for it, i.e. basis, which
we’ll discuss later) of property in gross income, so long as the taxpayer
continues to own it (with some very minor exceptions that are far beyond the
scope of this class).
ii. A taxpayer takes the appreciation into account when he or she sells or
exchanges the property (with some exceptions which we’ll discuss later). In
other words, the taxpayer has not “realized” a gain, until sale or exchange.
b. Why do we adopt the “realization” requirement?
i. Measuring the appreciation in all of the property of every taxpayer every year
would present enormous administrative problems for taxpayers and the IRS.
ii. The taxpayer may not have cash to pay the taxes on the appreciation, in which
case the taxpayer would be forced to sell assets to raise cash to pay the tax.
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in the year in which the funds or other property are misappropriated. Whether
the transfer of legal title occurs or not, the individual has increased his or her
wealth. Loans are distinguishable since they must be repaid over a certain
period; misappropriated funds might never be detected and recovered. In this
case, James (D) gained control over the embezzled funds. Thus, in the applicable
years, he should have reported this income on his taxes.
4. Advance Payments and Security Deposits
a. Advance Payments—advance payments are immediately includible in income.
i. If a landlord receives 3 years of rent upfront, all three years of it generally
constitute gross income in the year it is received regardless of the period covered
(or the taxpayer’s method of accounting). Reg. §1.61-8(b).
b. Security Deposits—security deposits are not immediately includible in income.
i. Security deposits are tantamount to a loan situation because the landlord may
have to pay that amount back; it is not earned yet. Security deposits are more
like a loan because the taxpayer does not have complete dominion over it; the
taxpayer may have to return it.
c. Test—Security Deposit OR Advance Payment? Who ultimately has control over the
disposition of that money? If the customer still has ultimate control over the money, it is
a security deposit rather than an advance payment. Commissioner v. Indianapolis Power
and Light Company.
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c. Adjusted Basis:
i. Section 1011: The adjusted basis for determining the gain or loss from the sale
or other disposition of property, whenever acquired, shall be the basis, adjusted
as provided in section 1016.
ii. In other words: Adjusted Basis = the cost of the property sold or exchanged
reflecting any recovery of his/her investment or any additional investment
made in the property. It’s the basis with adjustments.
iii. Example 1: Jackie purchases a home for $150,000 and subsequently added a
room to the home at a cost of $25,000. What is Jackie’s adjusted basis?
1. She needs to adjust her basis positive.
2. Adjusted Basis = the cost of the property reflecting adjustments. Here
the adjusted basis is $150,000 + 25,000 = $175,000.
iv. Example 2: Assume the same facts as Example 1, but a small greenhouse
attached to the house was completely destroyed in a hailstorm and Jackie
recovered $10,000 from her insurance company for the destruction of the
greenhouse. Instead of investing the $10,000 in repairing the greenhouse, she
used the $10,000 to take a cruise. What is Jackie’s adjusted basis?
1. She must adjust her basis downward.
2. $175,000 – 10,000 = $165,000.
5. Impact of Liabilities
a. Two Ways You Can Borrow Money
i. Recourse Debt—a debt is a recourse if the lender may look to the debtor to
personally satisfy the debt; in other words, the lender can come after you
personally and make you repay it.
1. Student loans are recourse loans. Most loans are recourse.
ii. Non-Recourse Debt—a debt is non-recourse if the lender may only look to the
security given to satisfy the debt
1. Typically comes up in real estate transactions. They cannot come after
you individually but they can foreclose on your property. The lender
gets whatever collateral you put up.
b. Example 1: Julie purchases a tract of unimproved land from Paul for $100,000 and
borrows the $100,000 from the bank. Assume that Julie gives the bank a recourse
promissory note for $100,000 secured by a mortgage on the land. What is Julie’s basis
(cost) in the land?
i. Basis/Cost: $100,000. We assume that she will eventually pay it.
ii. Would it make a difference if the seller was also the lender, e.g. a land
contract?
1. No, Julie’s basis in the property is still $100,000.
iii. Would it make a difference if the note was non-recourse?
1. No, both types of debt should be accorded the same treatment.
c. Problem: Clare, a professional artist, owes Liz $10,000 in legal fees. Liz has agreed to
accept one of Clare’s paintings as partial payment on Clare’s account. Clare would
normally sell a painting of the size and quality selected by Liz for between $5,000 to
$6,000. Clare and Liz agree that the painting should be valued at $5,500 for purposes of
satisfying a portion of the fees owed by Clare to Liz. Clare’s account balance is therefore
reduced to $4,500. Five years later when Clare’s painting has significantly increased in
value, Liz sells the painting for $10,000. What are the tax consequences to Liz of the
receipt and eventual sale of the painting?
i. Steps to Coming up with the Answer:
1. Step 1 (barter exchange): How much, if any, must Liz report in gross
income upon the exchange?
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relationship and it is hard to get around that. There is nothing in the Section that
provides for some sort of de minimus exception
ii. Gifts from Associates—They are not technically her employer. This is a better
case for a gift then from Lucille. Since there is no employer-employee
relationship, 102(c) does not apply. So now you have to see if there is a detached
and disinterested generosity. We do not have a bright-line test.
1. When he has done things like this on an exam before, he awarded points
to people for knowing what the rule is and then analyzing it and making
a strong argument.
iii. Gifts from Clients—This is NOT gross income. Lucille is least like a gift. The
client is most like a gift. Carol is not actually working for the client, so 102(c)
will not apply. Now, you have to see if the gift was given to Carol out of a
detached and disinterested generosity. You have to take the factors of the
situation in. If it is done during a holiday verses on a normal occasion, it looks
more so like a gift.
d. Reasonableness—You are a blackjack dealer and someone gives you $10,000. This is
not the reasonable toke. Whatever goes beyond reasonableness becomes a detached and
disinterested generosity; therefore, it is a gift.
e. Duberstein Test—Where there is consideration on both sides, there is not truly detached
and disinterested generosity – so, it is not a gift, but compensation instead.
i. Example of Consideration on both sides: Render services in exchange for
bequeath.
3. Basis of Property Received by Gift [KNOW]
a. General Rule (Section 1015): The donor’s basis becomes the donee’s basis. This is true
where you are determining a gain (gifts of appreciated property).
b. Example: Ben purchases a share of stock for $200 and gives the stock to Jen when the
stock is worth $400 per share.
i. First, no gain is realized because a gift is not a realization event – there is not a
sale or exchange, so there is no tax consequence to Ben.
ii. Second, under 1015(a), Jen takes a $200 basis in the stock. This is commonly
referred to as transferred basis. Ben’s $200 basis transfers to Jen. Transferred
Basis Rule assures that the $200 gain at the time the stock is made a gift is still
subject to tax later on.
iii. Exception does not apply here because the basis is not greater than FMV.
c. Exception (Section 1015): The exception applies where you are determining a loss –
where property has gone down in value. In this case, if the basis is greater than the FMV
at the time the gift is made, the FMV becomes the donee’s basis (basis in excess of fair
market value).
d. Example: Ben purchases stock for $200 and gives it to Jen when it’s worth $100. The
value of the stock has declined, and the stock has an inherent loss of $100 at the time of
the gift. What happens if Jen sells the stock for $100?
i. The general rule is that Ben’s basis transfers over to Jen except for at the time of
the gift if the basis is greater than FMV. Jen’s basis is $100 under §1015 for
purposes of determining loss, as Ben’s (the donor’s) basis exceeded the FMV of
the stock at the time of the gift.
ii. In other words, Ben cannot transfer over his loss to Jen. Congress is concerned
that if we just let the general rule be the rule with no exceptions, shifting of tax
losses would occur.
4. Gift of Property – Basis in Excess of Fair Market Value: This will be on exam because of its
difficulty.
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a. General Rules—Under 1015(a), a taxpayer may use a gift to shift income, but the
taxpayer may not use a gift to shift losses.
i. Example 1: Ben buys Jay Low stock for $200. When its value is $100, he gives
it to Jennifer. The value further declines to $75, and Jennifer then sells it for that
amount. What is Jennifer’s gain or loss?
1. Remember, Ben’s adjusted basis was $200 (the basis with no
adjustments because there are no adjustments to stock). The stock value
on the date of the gift was FMV $100. This is a situation where basis is
greater than fair market value – think of the exception. Jennifer then sold
the stock for $75. The amount realized is $75 and the adjusted basis is
$100. Therefore then is a loss of $25.
ii. Example 2: Same facts as above, except that the stock’s value increases to $300,
and Jennifer thereupon sells it for that amount. What is Jennifer’s gain or loss?
1. So, we know our amount realized is $300. The adjusted basis (go back
to §1015 – the general rule is the transfer basis. We apply the exception
when (1) basis is greater than fair market value PLUS (2) you have to
determine a loss.) The exception does not apply here because basis does
not equal more than fair market value and if you use the lower fair
market value ($100) you do not have a loss. So, instead you use the
general rule and transfer over the adjusted basis ($200). $300 - $200 =
$100.
2. You cannot determine Jennifer’s adjusted basis until the time of sale (if it
is going to be a loss or not).
iii. Example 3: Same facts as above, but the stock increases in value to $125,
whereupon Jennifer sells it for that amount. What is Jennifer’s gain or loss?
1. The amount realized is $125. If we were to use $100 as the adjusted
basis, we would have a $25 gain. You created a gain here, but you only
use the exception when you’ve created a loss, so let’s try to use $200 for
the adjusted basis. Here, we’ve created a loss of $75. Regulations would
say that you cannot use either rule here – since that is the case, you have
a NO GAIN/NO LOSS situation here. You will fall into this zone where
you cannot apply either the general rule or the exception and therefore,
you don’t report anything!
b. Anytime you have Amount Realized below the FMV, you have a loss.
c. Anytime your Amount Realized is greater than the Adjusted Basis, you have a gain.
d. Anytime you have adjusted basis greater than fair market value at the time of gift and the
AMOUNT REALIZED is some number between (or equal to) adjusted basis and FMV at
the time of gift, you have no gain/no loss situation.
5. Basis of Property Received by Bequest of Inheritance:
a. Section 1014. Basis of Property Acquired From a Decedent—General Rule: The
FMV of the property at the date of the decedent’s death becomes the donee’s (the person
the bequest or inheritance is going to) adjusted basis.
i. This is referred to as a “stepped-up basis.”
1. Best illustrated by way of example: Taxpayer dies owning land worth
$1,000,000 at the date of taxpayer’s death. Taxpayer purchased the land
many years earlier for $10,000. Taxpayer’s heirs take a basis equal to
the FMV at death, or $1,000,000. So the heirs’ basis is stepped up from
taxpayer’s $10,000 basis to $1,000,000.
6. Statutory Limitations on Gift Exclusion—While the gift or inheritance is excluded, income
from it is NOT excluded; for instance, dividends from the property must be included in your
income.
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LIFE INSURANCE
1. Section 101. Certain Death Benefits—Gross income DOES NOT include amounts received
(whether in a single sum or otherwise) under a life insurance contract, if such amounts are
paid by reason of the death of the insured. There are exceptions, though.
2. Term Life Insurance v. Whole Life Insurance:
a. Term Life Insurance: Usually on a term of one year; you pay $1000 a year to be
covered for $1 million dollars. If you die during the year, your beneficiaries get the $1
million. If you don’t, you don’t get the $1000 back and you have to pay $1000 for the
next year too.
i. The distinction between term and whole life insurance is not important to our
class. However, here is a simple explanation: Suppose taxpayer can purchase a
$1,000,000 life insurance policy for an annual premium of $1,000. This is term
life insurance. If taxpayer dies during the year, taxpayer’s beneficiary gets
$1,000,000. If taxpayer does not die, the insurance company makes $1,000.
b. Whole Life Insurance: If the policy was whole life, taxpayer would pay $1,000 per year
for term life insurance coverage PLUS an additional amount to be invested (i.e. whole
life is simply term insurance plus a savings component). For instance, taxpayer’s
premium may be $3,000 for a whole life policy. $1,000 of the $3,000 is used to pay for
life insurance coverage. The remaining $2,000 of the $3,000 premium is invested,
typically in mutual funds. Under the Code, the amounts invested are not subject to
taxation while the life insurance company holds them. Eventually, the additional
amounts accumulate into something called “cash surrender value,” meaning taxpayer can
surrender the life insurance policy and have the cash surrender value returned to him or
her. So a whole life insurance policy has two elements, (1) term life coverage, and (2) a
savings/investment vehicle. In any event, if taxpayer dies, whether it’s term or whole life
is irrelevant, as the proceeds are tax-free to the beneficiary.
c. The point is, proceeds are proceeds and they are excludible from gross income.
3. Interest Income – Section 101(c): The base amount or proceeds are excludible but the interests
are includible.
a. Example: Assume the ordinary life insurance policy in Problem 2 had provided that the
insurance proceeds of $40,000 would not be paid upon death. Instead, the insurance
company would hold the proceeds for 18 months following the insured’s death and then
pay to the beneficiary a total of $47,500. What tax consequences to Mary when she
receives the $47,500?
i. The $7,500 is includible (taxable) because it amounts really to interest.
ANNUITIES
1. Annuity Defined—An annuity is simply a series of payments over a period of time. Normally,
you think of an annuity being paid annually, but it does not have to be. It can be paid monthly.
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iii. Exclusion ratio will be 35%, which is $350 (this is the amount that we exclude).
If we exclude $350, then we have to include $1,000 - $350 = $650.
4. Early Death
a. What happens if the annuitant dies before his or her life expectancy and hasn’t
gotten back all of the money that he or she originally invested?
i. Section 72(b)(3): The amount of un-recovered investment shall be allowed as a
deduction to the annuitant for his last taxable year.
ii. Section 72(b)(4): Un-recovered Investment = the original investment in the
contract MINUS the aggregate amounts you’ve received under the contract.
b. Example Three: What tax consequences in Example Two if George dies after three
payments have been made by Friendly?
i. $350 of each payment is excluded. If he has only gotten 3 payments, he has not
received his investment in the contract back yet, which was $10,000. His
deduction will be: Investment in the Contract – Aggregate Amount Returned to
him that had been excluded = $10,000 – (3 X $350) = $8,950. This represents
the amount of after-tax dollars that George never got and this is the un-recovered
investment and the amount his estate gets. The $8,950 is the deduction.
c. FYI: You buy an annuity if you think you are going to live a long time. You buy
insurance if you don’t think you will.
5. Outliving Life Expectancy
a. What happens if the annuitant outlives his or her life expectancy under Table V, in
which case the annuitant has fully recovered his or her initial investment tax-free?
i. Everything you get beyond your life expectancy is taxable; it is includible in
income.
b. Example Four: Assume the facts of Example Two and that George is still living 30
years from now? How will the next 1,000 payments he receives be taxed?
i. He has outlived his life expectancy, so the next $1,000 payment is all taxable (all
includible) because he has already recovered all of his initial investment. It is all
interest or profit.
DISCHARGE OF INDEBTEDNESS
1. Definition – Compare and Contrast
a. Discharge of Indebtedness: Forgiveness of all or part of a loan.
b. Loans (debt) v. Forgiveness of Loans (discharge of indebtedness)
i. Loan proceeds DO NOT represent an accession to wealth (even though your
assets may go up in value but you still have to pay it back) and are thus NOT
gross income because there is an obligation to repay them. For instance,
suppose you borrow $10,000:
1. Assets – Liabilities = Equity (Net Worth)
a. Before loan: Assets ($0) – Liabilities ($0) = Net Worth ($0)
b. After loan: Assets ($10,000) – Liabilities ($10,000) = Net Worth
($0).
ii. Forgiveness of all or part of the loan DOES generate income
1. Assets – Liabilities = Equity (Net Worth)
a. After loan: Assets ($10,000) – Liabilities ($10,000) = $0
b. After forgiveness: Assets ($10,000) – Liabilities ($0) = $10,000.
c. WHEN YOUR DEBT IS FORGIVEN, YOU BECOME WEALTHIER. NOW, YOU
HAVE TO INCLUDE THE AMOUNT OF THE DISCHARGED DEBT IN YOUR
GROSS INCOME.
i. (Argue that cancellation of debt was a gift)
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i. the debt of a purchaser of property to the seller of such property which arose out
of the purchase of such property is reduced,
ii. such reduction does not occur –
1. in a title 11 case, or
2. when the purchaser is insolvent, and
iii. but for this paragraph, such reduction would be treated as income to the
purchaser from the discharge of indebtedness, then such reduction shall be
treated as a purchase price adjustment.
6. Performance of Services for Discharge of Indebtedness
a. Treas. Reg. §1.61-12(a). In general. The discharge of indebtedness, in whole or in part,
may result in the realization of income. If, for example, an individual performs services
for a creditor, who in consideration thereof cancels the debt, the debtor realizes income
in the amount of the debt as compensation for services. A taxpayer may realize
income by the payment or purchase of his obligations at less than their face value . .
i. Compensation trumps discharge of debt and it is called compensation. This is
because the insolvency exception does not apply to compensation. We would all
be working tax-free if done otherwise.
ii. In other words, if you perform services to your creditor in exchange for
discharge of your debt, you realize gross income in the form of compensation and
not discharge of indebtedness.
7. Gain Realized on Transactions Involving Discharge of Indebtedness
a. Section 108 DOES NOT exclude gain from dealings in property [61(a)(3) income]
when an insolvent taxpayer transfers appreciated property to a creditor in satisfaction of a
debt.
b. If you have a discharge of indebtedness and gain from an exchange, the insolvency
exception applies ONLY to discharge of indebtedness income and NOT to gain.
There is no insolvency exception for gains and dealings in property. You have to do
a bifurcated analysis in these types of situations – gain must be separated from
indebtedness.
c. Gehl v. Commissioner (KNOW)
i. Facts: Taxpayers owed a huge debt to a company. On two occasions, they
exchanged land in satisfaction of parts of the debt and paid some cash. The
company forgave the rest of the debt. Taxpayers included none of this on their
returns as income. They argued that it was excluded because they were still
insolvent.
ii. Holding/Reasoning: The transferring of deeds is partial satisfaction of a
recourse debt are considered to be sales or exchanges for purposes of Section
1001. Just because they didn’t receive any cash doesn’t mean that there was no
amount realized. While Section 108, which grants an exclusion to insolvent
taxpayers only as to income from discharge of indebtedness, clearly applies to
the forgiven balance of the debt, the land transfers are not within the scope of
§108. Therefore, the gain should have been included in gross income.
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DEPRECIATION
1. How do you know what is depreciable and what is not?
a. Some capital expenditures are depreciable and some are not.
b. Section 167 – Depreciation
i. In order to be depreciable and get a depreciation deduction for it, the two
requirements must exist—
1. Property must be subject to exhaustion, wear, and tear; and,
2. One of the following:
a. The property must be held for trade or business purposes; or,
b. The property must be held for the production of income.
c. Which of the following are depreciable, if any –
i. Taxpayer’s personal residence? They are subject to wear and tear but you are
NOT using it for trade or business. Primary motivation is personal (to live there).
ii. Stock held for the production of income? Stock is not subject to wear and tear or
exhaustion; therefore, it is not depreciable.
iii. Inventory held in a trade or business? You are constantly buying this and selling
this; therefore, it is not depreciable.
1. Example: John Deere Tractors – it is depreciable to the farmer but not to
you. It is inventory to someone and an asset to someone else.
iv. Land held in a trade or business? Land does not wear out. Land will always be
there.
v. A building, such as a warehouse, used in a trade or business? Buildings wear
out. So, when you buy a building, you typically buy it in the land that it is
situated. How do you determine what is depreciable? You have to allocate part
of the purchase price to the building (which is depreciable) and part of the
purchase price to the land (which is not depreciable). You get a write-off with
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respect to the building but not with respect to the land. You have to sell the land
to get the benefit.
vi. Works of art, assuming such artwork is used in the taxpayer’s trade or business?
Even though they wear out, they are not depreciable. Paintings are around for a
long time. Works of art are not depreciable because there is not a real
determinable life for such things.
2. Is Land Depreciable?
a. Land is NOT depreciable because it does not wear and tear.
b. Taxpayer may write-off or recover the cost of land when he sells/exchanges it.
3. Depreciation Groups
a. Tangible Personal Property (i.e., ovens, desks, trucks, tractors)
b. Real Property (i.e., buildings)
c. Intangible Property (i.e., goodwill, going concern value, customers lists)
d. All other depreciable/amortizable assts
4. What you need to know before Calculating Depreciation
a. Section 168 – Depreciation of Tangible Property: To properly calculate depreciation
of tangible property, you need to know three things (after you have these things, you can
go to the proper depreciation table and make your calculations) . . .
i. Recovery Period (e.g. 5-year, 7-year, etc.);
ii. Depreciation Method (e.g. straight-line or 200% double-declining balance); and,
iii. Convention (e.g. half-year, mid-quarter, mid-month).
b. What is the Recovery Period? Once we’ve decided that the property is depreciable, we
need to decide how long the depreciation period lasts – the period of time which we will
depreciate the asset.
i. Recovery Periods Under IRC §168(a) MACRS
1. Nonresidential real property = 39-year recovery period; i.e. the taxpayer
will depreciate its cost over 39 years. Deductions will be written off
slowly for 39 years.
2. Residential rental property = 27.5-year recovery period.
a. An example would be an apartment or duplex.
3. The taxpayer must generally classify property other than “nonresidential
real property” and “residential rental property” within one of six
recovery periods: 3, 5, 7, 10, 15, and 20.
a. For purposes of this class, we are generally going to use the 5-
year recovery period and by saying that on the exam, you will
get that point. 5 years is generally for personal property (not
personal use property); we are talking about personal property
that is not fixed to lands – trucks, computers
ii. 5-year and 7-year classes are most common and most important.
c. Depreciation Methods—The applicable depreciation method is going to be the 200%
declining balance method UNLESS we are dealing with non-residential real property or
residential rental property; then, we will deal with the straight-line method.
i. 200% Declining Balance Method a.k.a. Double-Declining Balance
1. Used for personal property (distinguished from real estate)
2. Permits larger depreciation deductions in early years of the recovery
period than in later years, i.e. the deductions are “front-loaded.”
3. Congress recognizes that property does not wear out at an even rate. To
stimulate the economy, Congress authorizes this accelerated method of
recovery.
4. This method automatically switches to straight-line for the 1st taxable
year for which using the straight-line method with respect to the adjusted
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basis as of the beginning of such year will yield a larger allowance. The
tables do the switching for you.
ii. Straight-Line Method—Straight-line method allows depreciation on non-
residential real property AND residential rental property.
1. Under the straight-line method, Cost of the Asset/Years in Recovery
Period = Annual Depreciation Allowance
d. Conventions—Convention will tell you when the property was placed in service.
i. Three Kinds of Conventions
1. Mid-Month Convention—Non-Residential Real Property AND
Residential Rental Property
a. Treats all property placed in service during any month (or
disposed of during any month) as placed in service (or disposed
of) on the mid-point of such month.
2. Half-Year Convention—ALL OTHER CLASSES OF PROPERTY – The
general rule:
a. Deemed placed in service (or disposed of) on the mid-point of
the tax year. So, in the first year, you get half of what would
depreciate in a year.
b. There is an exception to this rule, though.
3. Mid-Quarter Convention
a. Anti-Abuse Provision: If the depreciable properties placed in
service (other than nonresidential real and residential rental
property) during the last three months of the year have an
aggregate bases exceeding 40% all depreciable properties placed
in service that year, then the mid-quarter convention applies
instead of the half-year convention.
b. The last three months of the year are October, November, and
December – so watch for 4th Quarter purchases. By the way,
September 30th is NOT in the fourth quarter; it is in the third
quarter.
5. Calculating the Depreciation Deduction—Once you know your recovery period, method, and
convention, then you can calculate depreciation. You ALSO NEED TO KNOW the adjusted
basis, which is the starting point of depreciation.
a. You cannot depreciate more than the adjusted basis of the property.
b. Four Steps to Compute Depreciation Deductions
i. Determine the adjusted basis of the property
ii. Determine the applicable recovery period
iii. Determine the applicable depreciation method
iv. Determine the applicable convention.
c. Multiply the cost by % from table to give you how much you depreciate for that year.
You do not have to adjust the basis when you move to the next year; the table adjusts it
for you. At the end, you should have depreciated the entire cost and your adjusted basis
should be $0 – fully depreciated.
d. Basis must generally be reduced by the depreciation claimed.
6. Section 179 Bonus Depreciation
a. General Rule—allows taxpayer to expense cost of acquisition of certain depreciable
business assets. Despite the general rule that no current deduction is allowable for costs
incurred in acquiring an asset with a useful life extending substantially beyond the tax
year, §179 authorizes taxpayers to expense (i.e. currently deduct) the cost of
acquisition of “Section 179 property” up to a set limit/max ($500K for 2010).
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b. Section 179 property is generally tangible personal property acquired by purchase for
use in the active conduct of a trade or business (the mere production of income is
insufficient).
i. Obviously, this means that §179 cannot be used against real estate.
c. Section 179 is elective.
d. Limits
i. Cannot be greater than the basis in the property
ii. Cannot be greater than gross income form the business
iii. If taxpayer spends more than $2M on tangible personal property, bonus amount
reduced $1 for each $1 spent over $2M.
e. Other Bonus Depreciation
i. 100% in 2010, was 50% for certain personal property
ii. don’t worry about this for this course, and know that Congress will change bonus
and extra bonus depreciation regularly as “stimulus.”
7. Sequence for Taking Deductions
a. First, the taxpayer takes the §179 deduction (described below), if they are eligible and
they elect to take it.
b. If there is still adjusted basis left over, then the taxpayer can take out their regular
depreciation deductions as well – this is where you need to know the recovery period,
method, and convention.
i. Example—(Assuming property is 5-year category) $1M basis, $500K bonus
depreciation = $500K basis for regular depreciation. $500K X 20% = $100K.
Total depreciation = $500K + $100K. Adjusted basis = $1M – $600K = $400K.
LOSSES
1. Section 165—General Rule: A taxpayer can take a deduction for any loss sustained during the
taxable year IF it is not already compensated for by insurance.
2. Limitations on Losses of Individuals: If you are an individual, the deduction allowed for loss
during the taxable year is LIMITED to:
a. Losses incurred in a trade or business;
b. Losses incurred in any transaction entered into FOR PROFIT, even if it’s not connected
to a trade or business.
3. Personal Losses—Generally, personal losses are NOT deductible losses.
4. Example: Taxpayer buys stock for $100, and later sells it for $80. Is the loss on the sale
deductible under §165? Yes, this is a deductible loss because it is a loss that is not covered by
insurance and was incurred in a transaction entered into for profit.
5. Example: Taxpayer buys his personal residence for $200,000 and then later sells it for $195,000.
Is the $5,000 loss allowed under §165? This is a personal loss and therefore is not a deductible
loss.
6. Conversion of Personal Use Property to Income Producing Property
a. If the taxpayer converts personal use property to business or profit-seeking use, how does
the taxpayer calculate adjusted basis for purposes of determining loss?
i. Adjusted basis (for loss purposes) = lesser of (the lower of the two):
1. FMV at time of conversion; and,
a. Use also for calculating loss?
2. Basis at the time of conversion.
a. Use also for calculating gain?
b. What is the policy rationale for this “lesser of” rule?
i. The rule is easier to understand if you understand the rationale behind it.
ii. Example: Personal use property you paid for 100K (this is the adjusted basis)
and the fair market value at the time of the conversion was 80K. How much
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decline in value occurred during the time you owned the property? $20K loss –
this is personal and therefore is not deductible. Let’s say after conversion,
though, it goes down to $50K. Therefore you have a 30K loss and that is what is
deductible. Applying the lesser of rule: AR = 50 and the AB is 80. The AB at
the time of conversion is 80 and FMV that is lower, so here it is 80.
7. Cowles v. Commissioner: Cowles lived in real property for personal use for many years and then
when they went to sell it, they decided to see if anyone would want to rent it but they weren’t
getting good offers, so they just sold it at a loss. Cowles tried to argue that once he attempted to
rent it, it became a transaction for profit.
a. Holding/Reasoning—The court said that the Cowles have to actually rent it out. An
attempt is not enough. Once there is a tenant in there, the conversion occurs. This was
still personal use property and there was no conversion here.
8. Amount of Deduction Business Loss
a. The basis for determining the amount of the deduction for any loss shall be the adjusted
basis.
b. Example—Taxpayer sustains an uninsured loss to business or investment property that
has a value of $100,000 and adjusted basis of only $60,000. What is the deductible loss?
LIMITATIONS ON DEDUCTIONS
1. Section 267(a)(1) Loss Rule—to prevent the deduction of artificial losses, Congress enacted
§267(a)(1), which denies a deduction for any loss incurred on the sale or exchange of property
“directly or indirectly” between certain related persons. §267(b) has the list of relationships that
will trigger the disallowance rule.
a. Related Persons
i. Family members (brother, sister, spouse, descendants, ancestors)
1. Example: Father-Daughter Relationship—this relationship will negate
the deduction of any loss incurred by the father on the sale of stock to his
daughter.
2. Example: Grandfather-Granddaughter Relationship—Three years ago,
Dennis purchased 100 shares of XYZ stock for $30,000. This year
Dennis sold the stock to his granddaughter Christina for $20,000. May
Dennis deduct the loss realized on the sale of stock?
a. Answer—No, Dennis may not recognize any loss on the sale
because of his relationship to the person he sold the stock to.
ii. Certain corporations, partnerships, and trust in which the taxpayer has an interest.
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iv. Unexpected;
1. The event must be one that is ordinarily unanticipated that occurs
without the intent of the one who suffers the loss.
v. Unusual in Nature.
1. The event must be one that is extraordinary and nonrecurring, one that
does not commonly occur during the activity in which the taxpayer was
engaged when the destruction or damage occurred, and one that does not
commonly occur in the ordinary course of day-to-day living of the
taxpayer.
2. Theft—with respect to theft losses, the regulations provide that “theft” includes, but is not
necessarily limited to, larceny, embezzlement, and robbery. See Reg. §1.165-8(d). The Service
has ruled that the illegal taking of property done with criminal intent constitutes a theft loss, even
though the act may not fall within the technical statutory definition of “theft” under state law.
a. Theft covers a broad field of illegality including “any criminal appropriation of another’s
property to use of the taker, particularly including theft by swindling, false pretenses, and
any other form of guile.”
b. Proof—the taxpayer needs only to prove that his loss resulted from a taking of property
that is illegal under the law of the state where it occurred and that the taking was done
with criminal intent.
i. The taxpayer need not prove who stole the property in question; it is sufficient
that the reasonable inferences from the evidence point to theft rather than
mysterious disappearance.
3. Timing of Loss
a. Casualty Loss—is deductible in the year sustained.
b. Theft—is deductible in the year discovered.
4. Amount of Loss
a. Casualty Loss—the amount of casualty loss is the lesser of (1) the adjusted basis of the
property; and (2) the difference between the FMV of the property before and after (the
amount of the decline in value).
b. Theft—the value after is presumed to be zero, and the “lesser of” rule becomes simply
the lesser of basis or value.
c. Reimbursements—the amount of loss must be reduced by any reimbursements received,
and, pursuant to §165(h)(1), further reduced by $100; and, only to the extent that the loss
exceeds 10% of adjusted gross income.
5. Insurance Coverage—to obtain a §165(c)(3) deduction, a taxpayer is required to file an
insurance claim if he has obtained insurance coverage (but is not required to obtain the insurance
coverage to begin with).
BAD DEBTS
1. Section 166
a. General Rule: Any debt that becomes worthless within the taxable year is allowed a
deduction (wholly or partially worthless debts).
i. A bad debt must also have the following:
1. It has to be bona fide – it has to have a bona fide debtor/creditor
relationship based on a valid, enforceable obligation to pay a fixed or
determinate sum of money.
2. Watch out for debts between family members – these are disguised as
gifts.
a. Where the relationship is a close one, it will be presumed,
subject to rebuttal, that a gift and not a loan was intended.
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i. Yes – Paul signed a note and we can say it’s a bona fide debt. If they never had
an IOU or interest then it would probably be a gift.
ii. Is it business or non-business?
1. Peter would prefer it to be a business; however, it isn’t because he didn’t
loan the money in the course of his own business. Therefore, it is not a
debt incurred in a trade or business and therefore a non-business loan
treated as a short-term capital loss.
b. Under what circumstances, if any, could Paul claim a deduction for the amount of the
debt his customer owes to him?
i. Let’s say he is a cash basis person – doesn’t include until he receives payment.
He never included the 250K in his business before and can’t now – however, if
he was an accrual method payer and he had included this amount in his income
already, … In either case he would get it – in either case the net result is zero!!!
_____________________________________________________________________________________
TAX-FREE/DEFERRED TRANSACTIONS
1. § 121—Sale of Principal Residence—taxpayers may exclude up to $250,000 ($500,000 with
respect to certain joint returns) of the gain on the sale or exchange of a qualifying principal
residence. Taxpayer must own and use the property as a principal residence “for periods
aggregating 2 years or more” during the five-year period (prorate for less than 2 years).
a. Factors—where you’re registered to vote; car registration; driver’s license; bank
accounts; mail delivery.
2. § 1031(a) Like-Kind Exchanges—no gain or loss is recognized when property held for
productive use in a trade or business or for investment is exchanged solely for property of “like-
kind” to be held for productive use in a trade or business or for investment. [Mandatory]
a. Recognized to the extent of boot received. But never more than gain realized.
i. Boot = cash, nonlike kind property, debt relief
b. The minute you get cash, like kind exchanges does not apply
c. Exceptions
i. Stocks, bonds, notes, etc.
3. § 1033 Involuntary Conversion—taxpayer can void gain when property is compulsorily or
involuntarily converted as a result of destruction, theft, seizure, or requisition or condemnation or
threat or imminence thereof. [Only applies to gains, NOT losses]
a. Example—your house burns down, you should get the FMV from insurance to rebuild
the house and not pay tax on it.
b. (a)(1): applies to situations in which property is directly converted into qualified
replacement property
-non-recognition is mandatory
c. (a)(2): applies where property is first converted into money or nonqualified property and
subsequently replaced with qualified property.
-non-recognition is optional
d. Three-Part Test
i. Must have been involuntarily converted
ii. Property must be replaced within 2 years of conversion
iii. Replacement property must be similar or related in service or use (Liant test)
e. Gain is deferred to the extent investment is continues…
i. Amount Realized – Cost of Replacement = Gain Realized.
_____________________________________________________________________________________
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Step One: Divide into sales/disposition of property v. other sources of income (i.e., wages, bonuses,
prizes, etc.).
o Other sources of income - ordinary income, regular tax rates will apply.
o For sales or other dispositions of property, continue.
Step Two: Calculate gain or loss realized (AR – AB = gain or loss realized).
o Is gain or loss recognized? If yes, continue.
Step Three: Divide gain/losses into three categories based on the character of the property:
• (1) Capital assets - sale or exchange or property that is not:
• inventory
• real property – lots held for sale to customers (Bynum)
• depreciable property used in a trade or business
• real property – land used in a trade or business
• accounts receivable
• supplies
• (2) § 1231 property, “hotchpot”
• depreciable property used in a trade or business and held for more than one year
• real property (land) used in a trade or business and held for more than one year
• (3) Ordinary
• basically, it’s the things that are exceptions to capital assets and everything else that
aren’t capital assets (short term capital assets)
Step Five: If installment method is applicable, determine amount of gain reported this year
• applies if there is a payment made in a year subsequent to the year of disposition
• does not apply to losses, gain from inventory, § 1245 recapture
Step Six: Net the amount of section 1231/hotchpot (determine if net gains/losses should be ordinary or
capital).
• if net loss => all ordinary loss
• if net gain => all long-term capital gain
Step Seven: Divide into long term capital gains and losses and short term capital gains and losses
• determine net amount in each group
• if one is a loss and the other is a gain, add together net amounts - if both are losses or
both are gains, do not net amounts
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Ordinary Capital
gain
gain - taxed at regular rates
- long term - taxed at reduced rate
- short term - taxed at regular rates
loss
- long and short term
loss - no limitation on loss deduction
- limited to $3,000
- use short-term first
- carry forward excess, retaining character
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employee compensation contact with respect to prizes and awards held in escrow or trust-
type arrangements (see also retirement programs, excluding 401Ks)
d. Other Timing Concepts
i. Claim of Right Doctrine—gross income includes funds/property coming within
the taxpayer’s control that he is free to do with as he wants and that he claims is
his (even if he may have to repay it later. See North American Oil.
ii. Prepaid Items—gross income includes advance payments. See Indianapolis
Power & Light.
e. Deductions—deduct when paid. No constructive payment doctrine.
i. Remember, look back to IRC 162 requirements of costs associated with a
business.
2. Accrual Method of Accounting—Under the accrual method, the earning of income, rather than
the receipt of it, is the critical event for inclusion purposes; and the fixing of the obligation to pay,
not the payment itself, is the critical event for deduction purposes.
a. The All Events Test—
i. An item of income is includible in gross income when . . .
1. Right to receive income is fixed; and,
a. The Earliest Of Rule—all the events that fix the right to receive
income occur when the first one of these events occur . . .
i. The required performance occurs;
ii. Payment is due; or,
iii. Payment is made.
2. Amount can be determined with reasonable accuracy.
ii. An expense is deductible when . . .
1. All events occur which establish the fact of liability;
a. Liability must be . . .
i. “Fixed and certain”;
1. FYI—a liability that is contingent upon the
occurrence of future events is not “fixed” for tax
purposes. You have to wait until they are fixed.
ii. “Unconditional”; or,
iii. “Absolute.”
2. The amount can be determined with reasonable accuracy; and,
3. Economic performance has occurred with respect to the liability.
3. Annual Accounting Issues
a. Options
i. Take a deduction in the year discover not entitled to income; or,
ii. Compute tax without deduction, but get credit for having paid tax on money not
entitled to.
b. Claim of Right (IRC 1341(a))
i. Applicable if . . .
1. Included amount in income because it appeared that the taxpayer had a
right to the income AND subsequently determine taxpayer did not have a
right.
ii. If you qualify under claim of right, than you can choose either credit OR
deduction (best of both worlds). Otherwise, you get a deduction the following
year.
c. Tax Benefit Rule—applicable when taxpayer claimed a deduction which turned out to be
wrong, followed by recovery of amount deducted.
i. Include the amount in income when you have recovery from something you
deducted;
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Gross Income
– Above-the-Line Deductions
= Adjusted Gross Income
– Standard or Itemized Deductions
– Exemptions
= Taxable Income
x Rates (Ordinary, Capital, AMT)
= Gross Tax
– Tax Credits
– Prepayments
= Net Tax
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TAXATION
CALCULATING DEPRECIATION
STEP-BY-STEP
Steps:
Bonus Depreciation
Step 1: Did the taxpayer elect section 179 bonus depreciation (generally $500,000)? If so,
determine amount allowed.
- if basis is less than $500,000, bonus amount cannot be more than basis
- if income from business is less than $500,000, bonus amount cannot be more than
income
MACRS Depreciation
Step 3: Recover remaining adjusted basis (amount determined under Step 2) under MACRS.
- select the correct percentage from the chart based on the class life and year at
issue
- multiply the TOTAL amount to be depreciated under MACRS (note: this
number never changes and will be the number determined in Step 2) by the
percentage from the sheet
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Example: The taxpayer purchased a copy machine for $600,000 for use in her business. A copy
machine is five year property. She earned $1,000,000 from her business. Taxpayer elected bonus
depreciation.
Step 4: $500,000 (bonus depr) + $20,000 (MACRS) = $520,000 for year one
$32,000 for year two
$19,200 for year three, etc.
► REAL PROPERTY
Steps:
Step 1: Select the correct chart:
- residential or non-residential real property?
- elect out of MACRS?
Step 2: Using the month the asset was placed in service, select the percentage for the year in
issue.
Step 3: Depreciation = (cost of the property) x (the percentage).
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Example: The taxpayer purchased a shopping center on October 1 for $300,000 for use in his business.
Steps:
Step 1: Allocate the cost of the asset ratably over 15 years (divide by 180
months).
Step 2: Determine how many months the taxpayer had the asset during the year.
Step 3: Amortization for year = (amount per month) x (number of months).
Example: The taxpayer purchased a client list on November 1 for $36,000 for use in his business.
The cost of the asset is recovered ratably over its useful life.
Steps:
Depreciation = cost of the asset/ its useful life.
Example: The taxpayer purchased a five-year fire insurance policy for his business. The cost of the
policy is $5,000.
Depreciation = $5,000/5
= $1,000 each year
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TORTS I OUTLINE
Professor Mark Dotson, Michaelmas Term 2009
2. Assault: Defendant (1) intended/desired to (2) inflict/cause a battery, the harmful or offensive
touching of P or a third person, OR (3) put P or third person in apprehension of an imminent battery,
(4) not consented to, and (5) plaintiff was aware of the assault at the time of the assault.
a. Intent: same as battery, measured by “desire or belief in substantial certainty.”
i. Transferred Intent Doctrine: Applicable.
b. Cause a Battery: A harmful or offensive touching (see above).
OR
c. Causing a (Reasonable) Apprehension of an Imminent Battery: (see Western Union)
i. To be imminent: D generally needs to have the actual or apparent ability to inflict
touching.
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1. Example: D says, “I’m going to shoot you,” and points unloaded gun at P =
assault.
ii. Test for Apprehension: Subjective (?)
iii. Fear is not required
iv. D may be liable when arousing the apprehension of harm from someone else.
d. Awareness: P must be aware of the assault at the time thereof.
e. Without Consent
3. False Imprisonment: Defendant (1) intentionally caused the (2) confinement/restraining of the
plaintiff, (3) against their will (no consent), (4) that was unlawful, and (5) P was aware.
a. Intent: D purposely caused the action that restrained the other person, measured by the
“desire or belief in substantial certainty” test.
i. Transferred Intent Doctrine: Applicable.
b. Confinement: must be some specific area in which P is completely confined by D’s acts,
requires P be restricted to a limited area w/o knowledge of a reasonable means of escape.
i. There is no confinement if reasonable means of escape are available and known to P.
(P under no duty to search for a means of escape or run risk of harm to
person/property).
ii. Threats alone (i.e. words) to person/immediate family/property may be sufficient for
FI.
c. Against Their Will (No Consent): if the person consents to the confinement, no FI (see
Hardy v. LaBelle, P said she would have stayed anyway = no FI).
d. Unlawfulness: lawfulness of confinement may not be FI…
i. Legal Authority w/o Lawful Confinement: see Enright v. Groves, police make an
unlawful arrest of P FI.
e. Awareness: There is no confinement unless P knows that he is confined at the time of
confinement or is harmed by the confinement (see Parvi v. City of Kingston)
4. Intentional Infliction of Emotional Distress: One who (1) intentionally, or (2) recklessly, by (3)
extreme or outrageous conduct, (4) causes (5) severe emotional distress to another person, (6) without
their consent.
a. Intentionally: D purposely caused the emotional distress or knew with substantial certainty
that emotional distress would result from conduct. (See Taylor v. Vallenlunga, P’s father
beaten in front of her, D did not know P was there).
i. Transferred Intent Doctrine: NOT Applicable.
b. Recklessly: Where D acts in deliberate/conscious disregard of a high probability that his
actions will cause emotional distress (essentially “substantial certainty”).
c. Extreme or Outrageous Conduct: conduct that must exceed “all bounds of decent behavior
which could be tolerated by society.” Words alone may be a sufficient act. (See State
Rubbish Collectors Ass’n v. Siliznoff, Rubbish made threats of future harm to Siliznoff, words
= outrageous). Legitimize claim, HARD ELEMENT TO PROVE IN COURT.
i. Objective Standard
ii. Totality of the Circumstances
d. Causation: the conduct must have directly caused distress.
e. Severe Emotional Distress: must be more than a reasonable person in society could be
expected to endure/tolerate. (See Harris v. Jones, P had a speech impediment, D made fun of
P, not severe)
i. Mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities,
NOT SEVERE.
ii. Exacerbation of pre-existing condition may not be severe.
f. Without Consent
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TORTS TO PROPERTY
1. Trespass to Land: D’s volitional movement of some part of his body or sets in motion a force
resulting in the (1) intentional/desire, to (2) interference with (intrude onto) (3) the exclusive rights to
possess land of another’s (4) that was not consented to.
a. Intentional: D must act with the desire to do the act that causes intrusion, or knew with
substantially certain that his actions would cause entry.
i. Transferred Intent Doctrine: Applicable.
ii. Mistake does not negate, Court Presumes Harm
b. Interfering With: may be by personal entry onto land or by causing some third person or
thing to enter.
i. Particles or Substance: when air pollutants accumulate on land and there is actual and
substantial damage = TRESPASS. If not, then maybe NUISANCE (See Bradley v.
American Smelting and Refining Co.)
ii. Failure to Leave Land/Remove Property, after permission to remain has expired (See
Rogers v. Board of Road Commissioners, D failed to remove snow fence posts).
c. Exclusive Right to Possess Land of Another: P must have “actual possession” or “right to
immediate possession” of land.
i. Airspace: P’s land extends upwards (See Herrin v. Sutherland, D fired shotgun blast
over P’s property).
ii. Limitations: Commercial airplanes. No trespass, may still have action of nuisance.
d. Without Consent:
i. With the consent of the person then in possession of the land, if the actor fails to
remove object after the consent has been effectively terminated liable, OR
ii. If the actor fails to remove it after the privilege has been terminated, by the
accomplishment of its purpose or otherwise.
2. Trespass to Chattels: D’s volitional movement, or force set in motion, that (1) intent/desire, to (2)
interfere (dispossession of, or intermeddling with) (3) the exclusive right to possess the chattel of
another (4) that caused (5) actual damage.
a. Intentional: D intended to deal with the chattel in the manner in which he did deal with the
chattel.
i. Transferred Intent Doctrine: Applicable.
b. Using (Dispossession Of): conduct amounting to D’s assertion of a proprietary interest over
the interest of the rightful owner
i. Example: theft of the chattel, joyriding
OR
c. Intermeddling With: intentionally bringing about contact with the chattel (not actual
physical contact, see CompuServe)
i. Example: throwing a stone at a car, beating another’s animal.
d. The Chattel of Another: actual possession or right to immediate possession (same as
trespass to land)
e. Caused: must have been legally caused by D’s intentional act.
i. Dispossession of chattel;
ii. Impaired it as to its condition, quality, or value;
iii. Deprived of the use for a substantial time;
iv. Injury to the possessor;
v. Harm to some person or thing in which the possessor has a legally protected interest.
f. Actual Damages: ARE REQUIRED, liable for the harm that results from the trespass. Pay
for the damage
g. Without Consent
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3. Conversion (of Chattel): D’s volitional movement, or force set in motion, with (1) intent/desire, to
(2) exercise dominion or control over a chattel, that (3) so seriously interferes with the exclusive right
of another, to the extent that the law is going to (4) required to pay full value of the chattel (buy the
chattel), that was (5) not consented to (Rest.2d §222A).
a. Intent: D intended to deal with the chattel in the manner in which he did deal with the
chattel. (Meant to do what D did)
i. Transferred Intent Doctrine: Applicable.
b. Exercise of Dominion or Control Over: invasion required is greater than that required for
trespass to chattels.
i. Substantial Dispossession: possession by fraud, theft
ii. Destroying/Altering: intentionally running over pet
iii. Using: violating the terms of the bailment
iv. Buying/Receiving Stolen Goods: from a thief
v. Selling/Disposing of Stolen Goods: bailee wrongfully sells the chattel
vi. Misdelivering Chattel: delivery to a wrong person by mistake so that the chattel is
lost.
vii. Refusing to Return/Surrender Chattel on Demand
1. EXCEPTION: investigate claimant’s right to chattel.
c. Substantially Interferes with the Exclusive Right of Another: (factors influencing
conversion)
i. Extent and Duration: two types
1. Of dominion or control;
2. Of resulting interference
ii. Actor’s Intent Inconsistent with Other’s Right to Control
iii. Actor’s Good Faith: cannot obtain title by theft
iv. Harm to the Chattel: not required, but maybe important
v. Inconvenience/Expense Caused to the Other
d. Require to Pay Full Value of Chattel/Damages: equal to the fair market value of the chattel
at time of conversion, i.e. “BUY” the chattel.
e. Without Consent
______________________________________________________________________________
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2. Self-Defense:
a. Existence of Privilege: anyone is privileged to use reasonable force (under the facts and
circumstances) to defend himself against a threatened intentional tort on the part of
another.
b. Retaliation: privilege does not extend to retaliation; when the threat ends, the privilege
terminates. Even if you are the aggressor, when you retreat you can now use self-defense
against the person you initially threatened.
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c. Reasonable Belief: privilege exists when D reasonably believes that the force is
necessary to protect against threat.
d. Provocation: insults, verbal threats, or opprobrious language does not justify the
exercise of self-defense.
e. Amount of Force: limited to the use of force that is threatened, or reasonably appears to
be necessary for protection against threat.
i. SERIOUS FORCE: used only when D has a reasonable apprehension of loss of
life or GBH.
f. Retreat: is not required unless the situation calls for Serious Force, and only then if it is
possible to do so without increasing the danger. Do NOT have to retreat before defending
yourself
g. Injury to Third Party (Transferred Intent): A defending himself against B injures C.
Self-defense holds, unless there is some form of negligence
3. Defense of Others: Similar to that of Self-Defense, the closer questions concern reasonableness
of force in the circumstances
a. Reasonable Mistake (Mistake of Fact): D is privileged to use reasonable force to
defend another even when he is mistaken in his belief that intervention is necessary, so
long as his mistake was reasonable.
4. Defense of Property: Involves attempting to stop someone from interfering with property
a. Only reasonable force, under the circumstances, may be used to prevent intrusion of land
or chattels (D may not use deadly force)
i. May Use Reasonable, Nondeadly Force If:
1. Intrusion by P is not privileged;
2. D reasonably believes force is necessary to prevent or terminate the
intrusion; AND
3. D, prior to the use of force, makes a demand that the intruder desist or
leave (unless demand is futile).
4. Serious Force (deadly or serious bodily harm) is NEVER appropriate for
defense of property alone
a. UNLESS, the defender finds himself in a situation where self-
defense requires it in the course of defending the property
5. Recovery of Property (Recapture of Chattel): Involves the recovery of property from one
unauthorized to take it.
a. Elements
i. Possession of the Property was Obtained Wrongly
1. Does not include property obtained properly and retained wrongly
ii. Property Owner in Fresh/Hot Pursuit (time starts on knowledge of
dispossession)
1. The longer the time period, the less the privilege
2. When the privilege expires, a suit must be brought
iii. Only Reasonable Force Under the Circumstances
1. The greater the value of chattel, the more force
a. More than reasonable, A/B of D
2. Serious Force may only be used in Self-Defense
iv. D Must Have Superior Right to Possession of the Property
1. Need not be the owner, only the legal possessor
v. D Must Demand the Return of the Property
1. Unless, such a demand would clearly be futile
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NEGLIGENCE
ELEMENTS OF CAUSE OF ACTION (Breach of Duty, Caused Damages)
1. A duty to use reasonable care, requiring the actor to conform to a certain standard of conduct for
the protection of others against unreasonable risks.
2. A failure to conform to the required standard; commonly called breach of duty. These two
elements make up what the courts usually have called negligence.
3. Causation—a reasonably close causal connection between the conduct and the resulting injury.
Two Types: Causation in Fact and Proximate Causation.
4. Actual loss or damage resulting to the interests of another.
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c. Physician/Surgeon: in the area of medical diagnosis, treatment, and the like, the duty of
care is generally formulated as that degree of reasonable care and skill expected of
members of the medical profession under the same or similar circumstances.
i. Expert Witness Testimony: required when the negligence is a matter beyond the
findings of a layperson [Battle of the Experts]
1. Locality (Minority) Rule: the conduct of members of the medical
profession is to be measured by the standard of conduct of other
members of the medical profession in the same locality or the same
community (typically, urban v. rural) substandard treatment
a. National Certification = National Standard
2. Dotson’s Class Rule: Similar Community in Similar Circumstances,
except when dealing with someone who deals with national certification.
ii. Informed Consent: physician has a duty to full disclosure (inform) a patient of
his options/alternatives and their attendant material risks. (Duty to inform,
causation, injury)
1. Material Risk: a risk that would be likely to affect the patient’s decision.
A reasonable person would attach significance to.
2. Causation: requires that the (subjective) patient would have chosen no
treatment, or a different course of treatment, had the alternatives and
material risks of each been known to him.
3. Injury: causes injury to P
4. Privilege: Physician may have privilege if full disclosure would be
detrimental to the patient’s best interest.
iii. Fiduciary Duty: physician has a duty to disclose personal interests unrelated to
the patient’s health, whether research or economic, that may affect the
physician’s professional judgment.
3. Aggravated Negligence: degrees of care, degrees of negligence, “willful, wanton, and reckless
conduct”
a. Automobile Statutes: the driver of an automobile is liable only for some form of
aggravated misconduct to one who is riding as a guest in a car.
RULES OF LAW: courts need to exercise caution in framing standards of behavior that amounts to rules
of law when there is no background of experience out of which the standards have emerged. In the
default of the guide of customary conduct, what is suitable for the traveler caught in a situation where the
ordinary safeguards fail him is for the jury.
1. Common Law
2. Statutory Law
3. And those Standards of Care
VIOLATIONS OF STATUTE: where a statute or municipal ordinance imposes upon any person a
specific duty for the protection or benefit of others, if he neglects to perform that duty he is liable to those
for whose protection or benefit it was imposed for any injuries of the character which the statute or
ordinance/regulation was designed to prevent, and which were proximately produced by such neglect.
Statute must FIT to the facts of the case and the circumstances. [Legislation articulates prohibitions on
actions for reasonable persons to accept; look into legislative history before incorporating/ determining
the fitness of the regulation before applying in civil cases]
1. Negligence Per Se: violation of a statute constitutes conclusive evidence of negligence (i.e.
negligence per se).
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2. Applicability of Statute:
a. Class Harm Test/Threshold Questions: Violation results in an injury, whether P belongs
to the class that the statute was intended to protect, and whether P’s injury is of a type
that the statute was designed to prevent?
b. Applicability Absent Common Law Duty (Criminal Statutes)—should be considered in
deciding whether to apply negligence per se. Courts use the statute to determine whether
D breached his common law duty of care. Courts are reluctant to create a new duty.
i. Example: at common law, there is generally no duty to protect another from the
criminal acts of a third party or to come to the aid of another person in distress.
3. Effect of Statute: to omit, willfully or heedlessly, the safeguards prescribed by law is to fall
short of the standard of diligence to which those who live in organized society are under a duty to
conform. Both P and D can argue that a statute establishes negligence and contributory
negligence.
a. Rebuttable Presumption of Negligence—offer an excuse to rebut the presumption that
you were negligent (no excuse = negligent). Jury decides whether excuse is justified.
b. Negligence Per Se—any violation of statute = negligence, do not care why violated.
Judge decides whether excuse is justified.
c. Evidence of Negligence—violation only evidence of negligence, which the jury may
accept or reject as it sees fit.
d. Dotson Rule—if considering an excuse, do not treat the violation of negligence per se. If
not entertaining an excuse (whether judge or jury) it is negligence per se.
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have caused it. Where one’s actions alone would have caused the injury, even though multiple
actions resulted in the injury. SUBSTANTIAL FACTOR TEST, goals: deter and compensate.
a. Example: A’s fire joins with B’s fire, burns C’s property. But-for A’s actions, C would
not have been injured, But-for B’s actions, C would not have been injured.
b. Fires (Majority) Rule: If one fire is set, and it unites with another fire, there is joint and
several liability, even though either fire would have destroyed P’s property.
c. Distinguish From JOINTLY ENGAGED TORTFEASORS
d. Distinguish from Contributory Negligence
4. Problems in Determining Which Party Caused the Harm: Where there are two or more
tortfeasors with “concert of action”, whereby the conduct of one of them caused the injury of P,
but the exact source of the injury is unknown, all the tortfeasors are liable. Shift burden to Ds to
prove they did not cause injury. Extraordinary circumstances must exist to shift the burden of
proving causation.
a. Example: Two Ds fire guns at the direction of P. P is injured by one shot. Both shooters
are liable (see Summers).
b. Enterprise Liability: If P could establish by a preponderance of the evidence that the
harm/injury caused was manufactured by one of the defendants, the burden of proof as to
causation would shift to all the defendants.
i. This theory of liability applies to industries composed of a small number of units
ii. Market-Share Liability: Liability can be imposed upon manufacturers in
accordance with their share of the national market, notwithstanding P’s inability
to identify the manufacturer particularly at fault for her injuries.
PROXIMATE/LEGAL CAUSE (liable for proximate results, not for remote damages)
1. Proximate Cause: any cause which in the natural and continuous sequence, unbroken by an
efficient intervening cause, produces the result complained of and without which the result would
not have occurred. [Proximate cause does not necessarily involve matters that are temporal in
proximity or time] There will never be any CORRECT answer, only the answer the court gives.
Do you want the D to “stay in the game”? Yes, then not proximate. SEE NOTE 5 on pg. 294
a. Need only be a cause which sets off a foreseeable sequence of consequences, unbroken
by any superseding cause, and which is a substantial factor in producing the particular
injury.
i. Example: D negligently sets fire, damages P’s property, and adjoining property
of P2. D is liable to first property damage, and depending on jurisdiction the
adjoining property, but that is it.
2. Unforeseeable Consequences (not the manner in which it was brought about):
a. Egg Shell (Thin Skull) Rule: take the victim as you find her.
i. Pre-Existing Conditions: D is liable in damages for the aggravation of P’s pre-
existing illness. Court finds pre-existing conditions are reasonably foreseeable.
b. Directly Traceable/Hindsight Test: If the act would or might probably cause damage,
the fact that the damage it in fact cause is not the exact kind of damage one would expect
is immaterial, so long as the damage is in fact directly traceable to the negligent act (see
Polemis).
i. Similar to a but-for causation test
c. Foreseeability Test/Prominent Test (always apply unless told otherwise): Was the
type of injury foreseeable?
i. Type v. Severity v. Manner
1. Type of harm must be foreseeable
2. Severity and Manner need NOT be foreseeable
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DUTY OF CARE: “relationships, always a question of law.” Courts recognize that a general duty is
owed to avoid creating an unreasonable risk of physical harm to others when engaging in affirmative acts.
1. Privity of Contract:
a. Nonfeasance: in general, when there is only the promise and the breach, only the
contract action will lie, and no tort action can be maintained.
i. EXCEPTIONS
1. Public Utility/Common Carriers: undertaken the duty of serving the
public, becomes liable in tort when it fails to do so, whether or not it has
made a contract.
b. Misfeasance: when D misperforms the contract, the possibility of recovery in tort is
greatly augmented. Most distinguish b/t mere preparation and performance.
i. Duty to perform contract does NOT extend to possible, indefinite beneficiaries of
the contract being performed (see Rensselaer Water Case).
ii. Attorney Duty: the duties or obligations inherent in an attorney-client
relationship will not be presumed to flow to a third party and will not be
presumed to arise by implication when the effect of such a presumption would be
tantamount to a prohibited or improbable employment, absent the clearest
exposition of facts from which such an employment may be fairly and rationally
inferred.
2. General Principles for Duty
a. Duty Defined—A person engaging in affirmative conduct that has the potential to
physically harm others, that person has a duty to use reasonable care to avoid harm
(misfeasance)
i. Thus, affirmative conductphysical harm DUTY
b. Generally, duty is negatively defined (“there is no duty…”)
3. Failure to Act: there is no general duty to go to the rescue of/assist a person who is in peril
[“With purely moral obligations the law does not deal.”]. Nonfeasance—A person does not owe
a duty for a failure to act unless he meets one of the following exceptions.
a. EXCEPTIONS: when D is a master or invitor, or when the injury resulted from use of an
instrumentality under the control of D, there may be a legal obligation to take positive
steps to rescue.
i. Volunteers – attempting a rescue creates a relationship
1. A volunteer is under a duty to not make things worse.
2. A gratuitous promise to volunteer/rescue does not create a relationship
(unless the promise makes a contract)
ii. Prior Innocent Conduct – if innocent conduct creates a mess, the creator is
responsible for cleaning it up
1. Thus, if a car innocently knocks down a pole, the driver must move it or
be liable for injuries caused by the pole being in the road.
2. However, if the innocent conduct does not create the danger, the person
is not liable
a. Trucker drives over weakened bridge, making it even weaker, no
duty to warn other motorists.
iii. When D Assumes a Responsibility to Act
1. (Some Detrimental Reliance) Babysitter
iv. Relationship Can Create a Duty to Act
1. When the D is an invitor or master and injury resulted from use of an
instrumentality under the control of D.
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DEFENSES
1. Plaintiff’s Conduct
a. Contributory Negligence (5 jurisdiction still use this)
i. If negligence on the part of P contributed to the injury, then P can recover
nothing (all-or-nothing) [Question of Fact]
ii. An affirmative defense which must be raised in D’s Answer to the Complaint
1. D must prove by Preponderance of the Evidence
iii. Requires—Duty/Breach/Cause/Damages (represented by the injury being sued
for in the first place)
iv. NOT a Defense to an Intentional Torts, Strict Liability
v. EXCEPTIONS
1. Seat Belts/Motorcycle Helmets
a. Negligence in not wearing; does not cause the injury.
b. An anticipatory avoidable consequence,
c. Recovery limited to damages that would have been sustained if
wearing
2. Last Clear Chance Rule
a. If D has the last clear chance to avoid the harm, and negligently
fails to do so, then P may recover
b. Comparative Fault (Negligence)—alternative policy (but still technically falls under the
category of contributory negligence)
i. Jurisdictions (burden on D to prove) COMPARE TO INDIVIDUAL Ds
1. Pure Comparative—P’s damages are reduced in proportion to the
percentage negligence attributed to him
a. Example: if P is 90% responsible, P can only recover only 10%
in damages.
2. Modified Comparative—P recovers only remaining proportion in
damages, if P’s negligence either…
a. Does not exceed D’s negligence (i.e. 50% or less); OR
b. Is less than D’s negligence (i.e. 49% or less), compare to
individual defendants [CLASS/DOTSON RULE]
c. Assumption of the Risk—Rare that P assumed the risk
i. P assumes the risk of D’s negligence
1. Example: Race Car Drivers assume the risk of negligence of other
drivers going unsafe speeds
ii. Express Assumption (see Seigneur v. NFI, Inc.)
1. P signs a release form (contractual concept)
2. Articulate with clarity the waiver.
3. Three Exceptions—When public interest renders express assumption
unenforceable
a. Does not apply to intentional or reckless conduct
b. Ineffective when bargaining power is unequal
i. Example: necessary services like education, innkeepers,
public utilities, etc.
c. When transaction involves the public interest
4. Courts may ignore for public policy reasons
iii. Implied Assumption
1. Primary—D is not negligent, either b/c he owed no duty to P or b/c he
did not breach the duty owed.
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TORTS II OUTLINE
Professor Mark Dotson, Hilary Term 2010
DAMAGES
TYPES OF DAMAGES: proof of damages is an essential part of the plaintiff’s causes of action in
negligence and strict liability.
1. Nominal Damages: these consist of a small sum of money awarded to the plaintiff in order to
vindicate rights, make the judgment available as a matter of record in order to prevent the
defendant from acquiring prescriptive rights, and carry a part of the costs of the action. The
amount of the award, so long as it is trivial, is unimportant [rarely awarded]
a. Nominal damages to vindicate a technical right cannot be recovered in a negligence
action if no actual damage has occurred (see pg. 132)
2. Compensatory Damages: these are intended to represent the closest possible financial
equivalent of the loss or harm suffered by the plaintiff, to make the plaintiff whole again, to
restore the plaintiff to the position the plaintiff was in before the tort occurred [but also
discourages/deters future similar conduct]
3. Punitive Damages: these are an additional sum, over and above the compensation of the
plaintiff, awarded in order to punish the defendant, as well as specific and general deterrence [see
more below on page 2 of this outline].
PERSONAL INJURIES: there are five cardinal elements of damages: past physical and mental pain,
future physical and mental pain, future medical expenses, loss of earning capacity, and permanent
disability and disfigurement (see Anderson v. Sears, Roebuck & Co.). Plaintiff entitled to be present in
court unless conduct is disruptive (see Cary v. Oneok, Inc.).
1. Economic Injury (Special Damages): expert witness testimony just a guide
a. Medical Expenses: the plaintiff is compensated for reasonable medical expenses.
Medical expenses may include bills for hospitals, doctors (including psychiatrists),
physical therapists, nurses, medications, x-rays, wheelchairs, crutches, braces, and travel
expenses.
i. Past Expenses: these are proved at trial by submitting the bills into evidence or
through testimony
ii. Future Expenses: these must be proved by expert testimony establishing the
anticipated need and predicted cost.
iii. Limitations: Plaintiff will be able to recover unless the costs incurred were not
related to the tortious injury, were unnecessary (unreasonable), or excessively
high (higher than reasonable).
b. Increased Risk of Illness/Disease: if P has no physical illness or disease but negligent
exposure increased risk of contracting disease in future, P may recover for the increased
risk itself.
c. Lost Wages: if the plaintiff was employed at a fixed wage at the time of injury, the
wages lost during the time of injury are relatively easy to calculate.
d. Loss/Impairment Future Earning Capacity: if the injury is one from which the
plaintiff does not recover and reenter the workforce, the measure of damages will include
loss of earning capacity.
i. What Must Be Proven
1. The jury must be persuaded that the injury is permanent
2. Expert testimony needed to assist the jury in estimating what the plaintiff
would have earned during their lifetime (life expectancy tables).
a. The jury can rely on tables of life expectancy only as a general
guideline in determining how long P was expected to live, as
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PUNITIVE DAMAGES
1. The facts warranting punitive damages must be established by clear and convincing evidence
rather than a preponderance of the evidence standard
2. Common Law Standard for Recovery—must show malice “willful misconduct, wantonness,
recklessness, or want of care indicative of indifference to consequences”
a. Some jurisdictions require compensatory damages for punitive damages to be sought
i. Does not apply to intentional tort of trespass cases
b. Need at least nominal damages before seeking punitive damages
c. Establish financial condition of the defendant to seek punitive damages (but not
admissible during liability phase of trial) [Bifurcation]
3. No fundamental right to punitive damages
a. State Farm Mutual Automobile Ins. Co. v. Campbell 538 U.S. 408 (2003): the Due
Process Clause of the 14th Amendment prohibits the imposition of grossly excessive or
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LIMITATIONS ON DAMAGES
1. Judicial Control of Amounts Recovered: an award of damages will be deemed excessive or
inadequate if it falls outside the range of fair and reasonable compensation OR results from
passion or prejudice, OR if it is so large that it “shocks the judicial conscience” (see Richardson
v. Chapman).
a. If the judicial review of the verdict concludes that the award was grossly
excessive/inadequate, the judge(s) must then decide whether to set aside the verdict and
grant a new trial on both liability and damages, or to allow the liability portion to stand
and to grant a new trial on damages alone.
b. Remittitur: excessive…conditioned upon refusal of P to accept lesser amount
c. Additur: inadequate…conditioned upon D’s refusal to pay a larger sum
d. “Maximum Recovery Rule” (KNOW): this rule directs the trial judge to determine
whether the verdict of the jury exceeds the maximum amount which the jury could
reasonably find and if it does, the trial judge may then reduce the verdict to the highest
amount that the jury could properly have awarded.
2. Legislative Control of Amounts Recovered (i.e. Caps): about half of the state legislatures have
passed laws that in some way limit the amount of damages recoverable. Many are applicable
only to particular types of claims (e.g. medical malpractice claims, claims against the
government).
3. “Collateral-Source Rule” (KNOW): prevents defendant from introducing evidence of collateral
payments/benefits for purposes of offsetting its liability; exclude evidence of payments received
by an injured party from sources collateral to the wrongdoer, such as private insurance or
government benefits. Recoveries from collateral sources “do not redound to the benefit of a
tortfeasor, even though double recovery for the same damage by the injured party may result”
(see Montgomery Ward & Co., Inc. v. Anderson).
a. Rationale: 1. Aversion to rules that benefit wrongdoers, 2. Contractual subrogation
typical in insurance agreements or created by common or statutory law, 3. Encourages
purchasing of insurance, and 4. Full amount better reflects real losses.
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b. When benefits are conferred upon the plaintiff gratuitously (a gift) by a third party, as
when a plaintiff is nursed without charge by the spouse, the prevailing rule is that
plaintiff is entitled to recover the reasonable value of the services from the defendant
i. Minority Rule—no recovery for gift, only recovery when plaintiff charged for
services.
4. Duty to Mitigate (Doctrine of Avoidable Consequences) (KNOW):
a. Avoiding Permanence of Injury: the plaintiff in a personal injury case cannot claim
damages for what would otherwise be a permanent injury if the permanency of the injury
could have been avoided by submitting to treatment by a physician, including possible
surgery, when a reasonable person would do so under the same circumstances (see
Zimmerman v. Ausland).
i. Factors to Consider Whether Treatment Would Be Reasonable
1. Risk involved (i.e. the hazardous nature of the operation)
2. Probability of success
3. Expenditure of money or effort required
4. Religious Beliefs (factor to consider for DOTSON)
5. (Possibly also the pain involved)
ii. Other Factors (when not surgery)
1. Follow doctors instructions
2. Take medication
3. Don’t work
b. Finding Employment—substantially similar work
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COMPENSATION SYSTEMS AS SUBSTITUTES FOR TORT LAW
TYPES OF NO-FAULT INJURIES
1. Workers’ Compensation (Employment Injuries)—Mandatory workers’ compensation laws
grant the employer immunity from liability for (work-related) injuries assuming employer’s
conduct doesn’t fall within one of the statutory exceptions, and allow employees to recover for all
claims for personal injuries arising out of and in the course of their employment, regardless of
fault. These statutes provide the exclusive remedy for an employee against the employer.
a. Generally, courts consider whether the injury may reasonably be regarded as an incident
of employment rather than whether the injury was specifically foreseeable (see Burns v.
Merritt Eng’g Co.).
b. The worker can usually still sue a third party in tort, as well as sue their employer for
intentional torts, acts/omissions that are “intentional, malicious, and in willful and wanton
disregard of the duty to protect the health of employees” [Exception] (see Blankenship v.
Cincinnati Milacron Chemicals, Inc.).
c. Dual Capacity Doctrine [KNOW FOR EXAM]—one can sue employer if they act in a
non-employer role.
i. Ex. Defective Apple computer causes injury (Apple = manufacturer) when
working for Apple (Apple = employer).
1. Get WC and sue for product liability
ii. Discussed at length in class, so probably need to know for the exam
d. Defenses—if lawsuit brought against employer in the first place
i. If employee intentionally hurts herself, no recovery
2. Automobile Accident Injuries (“No-Fault” Auto Insurance)—no fault means that when it
comes to auto accidents, you are precluded from turning to the courts to seek recovery for
damages unless it involves a threshold harm (serious bodily injury), turn to you insurance
company for money.
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a. Forms of “No-Fault”
i. Add-On: owners required to purchase certain coverages…lost wages and
medical insurance. No limitation on access to courts…probably the most
prevalent form.
ii. Modified: insurance is optional, access to courts allowed only is threshold
amount is reached
iii. Pure: insurance is required…access to courts only allowed where injury
involves a serious bodily injury/impairment. Best described as “Your Fault”
insurance
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WRONGFUL DEATH & SURVIVOR STATUTES
1. Wrongful Death, Distinguished from Survivor: Most states have two types of statutes taking
effect when personal injury victim dies. Survival statute governs whether the victim’s own right
of recovery continues after death. Wrongful death statute governs the right of victim’s survivors
(e.g. spouse & children) to recover.
a. Wrongful Death Statutes: when death has been wrongful, most states have statutes
allowing a defined group of people to recover their pecuniary loss. Typically spouse or
children can recover. If no spouse or children, often parents can recover (stepchildren
usually are not considered beneficiaries).
i. Recovery
1. Loss of Financial Support: even accounts for the trickle-down effect,
example, an uncle promising to pay for your education.
2. Loss of Companionship: includes the loss of society, comfort, and
companionship the family suffers (extends to minors, see Selders v.
Armentrout).
3. Reasonable Funeral Expenses: in circumstances where the decedent’s
dependents have either paid for the funeral or are liable for its payment
ii. Beneficiaries (Varies depending on jurisdiction)
1. Spouse: the cases have been consistent in refusing to extend the
definition of spouse to unmarried cohabitants.
2. Domestic Partnership: several jurisdictions have made wrongful death
benefits available to domestic partners.
iii. Tort Law
1. Derivative claim
2. Still must prove the loss, whether it be financial or companionship
3. Almost half of the statutes have caps on speculative damages
4. Little over half the states allow punitive damages for wrongful death
b. Survival Statutes: Survival statute in most states says that when an accident victim dies,
his estate may sue for those elements of damages that the victim himself could have sued
for had he lived. Thus, these typically allow suing for pain and suffering, lost earnings
prior to death, actual medical expenses, etc. (see Murphy v. Martin Oil Co.)
i. Common Law: all rights and tort liabilities terminated upon death. Thus, if
victim or tortfeasor died prior to suit, no cause of action could be brought.
Because of this harsh result, states have enacted survival statutes.
ii. Instantaneous Death: in many states, if death is instantaneous, there is no survival
action because all damages are sustained after death. But might be able to
recover for pain and suffering pre-death (the conscious awareness of impending
death).
iii. Recovery: diminished if a beneficiary was contributorily negligent
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STATUTE OF LIMITATIONS AND REPOSE
1. Statute of Limitations: period of time for the plaintiff to bring an action (statute at the benefit of
the defendant) typically start to runs at the time of the injury/negligent conduct.
a. Discovery of Injury: if P does not discover his injury until long after D’s negligent act
occurred, the statute of limitations may not start to run until P discovered (or ought to
have discovered) the injury [with reasonable diligence]
b. Medical Malpractice—SOL for medical malpractice typically one (1) year
i. Discovery (Majority) Rule—a cause of action for medical malpractice does not
accrue until the injured party discovers or should have discovered the injury
ii. Limitation (Statute of Repose): cap the time period at 5 years from the event that
gave rise to the cause of action.
2. Statute of Repose: limits potential liability by limiting the time during which a cause of action
can arise (not dependent on any type of injury/harm)
a. Product Liability: starts to run when product is made available for sale
b. Professional Services: starts to run when the service was rendered
3. Tolling—tolling may also stop the running of time if P is a minor or incompetent or D
fraudulently conceals the presence of a cause of action
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IMMUNITIES (affirmative defenses)—requires compelling societal justifications
1. Inter-Spousal Immunity—at common law, inter-spousal immunity prevented suits by one
spouse against the other for personal injury (they were considered one single entity).
a. Abolition of Rule—over half of the states have completely abolished this immunity (see
Freehe v. Freehe).
2. Parent-Child Immunity—at common law, there is immunity that bars suit by child against
parents or vice versa. Many states have abolished this rule as well (see Renko v. McLean).
a. Availability of liability insurance affects whether or not immunity is recognized
b. Child can sue the parents when the child has reached the age of majority
3. Charities—at common law, charitable organizations, as well as educational and religious ones,
receive immunity—compelling reasons: (1) diversion of funds outside the donor’s intent, (2) law
should not hold non-profit entities vicariously liable, (3) beneficiary assumed the risks, (4)
donations to charities would greatly diminish should charities be held liable.
a. Abolition of Rule—more than 30 states have abolished charitable immunity and others
have cut back on it (these organizations can purchase liability insurance).
b. Abernathy v. Sisters of St. Mary’s—non-government charitable institutions are liable for
their own negligence and the negligence of their employees.
4. Employer Immunity—SEE WORKER COMPENSATION NOTES
5. State and Local Governments—immunity may be waived
a. Public Duty—police officers do not owe a duty to any single individual, but to society in
general (see Riss)
i. But, duty created with 911 emergency response system AND operator responded
that help was on the way (caller now relies on police). Both factors create the
duty.
b. Congress abrogates (overrides) State sovereign immunity, SEE MORE BELOW
i. Four Requirements (only addressed 2):
1. Plain Statement Rule—Whether Congress has “unequivocally
expressed its intent to abrogate the immunity”
a. Ex. “In any suit under this law, the state shall not bring
sovereign immunity”
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VICARIOUS LIABILITY (holding another liable regardless of any involvement or fault because of a
relationship with the individual that may be at fault, GO FOR THE DEEPER POCKETS)
1. Respondeat Superior Doctrine—“look to the person higher up”
a. Employer-Employee: employer’s vicarious liability may extend to willful and malicious
torts of an employee as well as negligent conduct of the employee while working within
the course/scope of employment
i. Course/Scope of Employment—when employee is performing services for which
he has been employed, or when he is doing anything which is reasonably
incidental to his employment [courts have been liberal in this aspect]
1. “Going-and-Coming Rule”—doctrine does not include an employee’s
daily commute
a. EXCEPTION (Minority): when an employee endangers others
with a risk arising from or related to work, then the employer is
liable
i. Test: general foreseeability
ii. Ex. Employee exposed to dangerous chemicals at work,
gets into accident on ride home. (See Bussard v.
Minimed, Inc.)
1. What if the employee was fired from work, and
gets into an accident because he was frustrated
and upset?
2. “Slight-Deviation Rule”—was the slight deviation (detour) fairly
foreseen/sufficiently related to the employment to fall within the scope,
or a substantial deviation (frolic) from or an abandonment of the
employment.
a. FACTORS (not exhaustive):
i. The employee’s intent (was it to further the employer’s
business purpose)
ii. Nature, time, and place of the deviation
iii. The time consumed in the deviation
iv. The work for which the employee was hired
v. The incidental acts reasonably expected by the employer
vi. The freedom allowed the employee in performing his job
responsibilities
b. Court inclined that the employee was working with scope
because more money now available to the plaintiff
2. Independent Contractors—one performing a certain service for another according to his own
methods and manner, free from control and direction of his employer in all matters connected
with the performance of the service except as to the result thereof.
a. No General Liability—one who hires an independent contractor is not generally liable for
the torts of that person (see Murrel v. Goertz).
i. Distinguish—different theories for going after the principal as well as the
independent contractor: the negligence in hiring/retention and based on the duty
being non-delegable.
b. EXCEPTIONS
i. Absolute Duties—there are some duties deemed so important that the person
doing them will not be allowed to delegate them to anyone (see Maloney v. Rath,
D, driver, hit P because brakes were negligently repaired by X. Driver could not
delegate to X the duty to keep her brakes in good working order).
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PRODUCT DEFECTS: it is not the product that caused the injury, but the defect.
Restatement Second of Torts, § 402 (a) [with Dotson modifications]
1. One who sells any product in a defective condition unreasonably dangerous to the user or
consumer or to his property is subject to liability for physical harm thereby caused to the ultimate
user or consumer, or to his property, if
a. the seller is engaged in the business of selling such a product
2. The rule stated in Subsection (1) applies although
a. the seller has exercised all possible care in the preparation and sale of his product (i.e.
Strict Liability)
Comments:
f. Business of selling. The rule stated in this Section applies to any person engaged in the business of
selling products for use or consumption. It therefore applies to any manufacturer of such a product, to any
wholesale or retail dealer or distributor, and to the operator of a restaurant. It is not necessary that the
seller be engaged solely in the business of selling such products. Thus the rule applies to the owner of a
motion picture theatre who sells popcorn or ice cream, either for consumption on the premises or in
packages to be taken home. The rule does not, however, apply to the occasional seller of food or other
such products who is not engaged in that activity as a part of his business.
g. Defective condition. The rule stated in this Section applies only where the product is, at the time it
leaves the seller's hands, in a condition not contemplated by the ultimate consumer, which will be
unreasonably dangerous to him. The seller is not liable when he delivers the product in a safe condition,
and subsequent mishandling or other causes make it harmful by the time it is consumed. The burden of
proof that the product was in a defective condition at the time that it left the hands of the particular seller
is upon the injured plaintiff; and unless evidence can be produced which will support the conclusion that
it was then defective, the burden is not sustained.
Safe condition at the time of delivery by the seller will, however, include proper packaging, necessary
sterilization, and other precautions required to permit the product to remain safe for a normal length
of time when handled in a normal manner.
i. Unreasonably dangerous. The rule stated in this Section applies only where the defective condition of
the product makes it unreasonably dangerous to the user or consumer. Many products cannot possibly be
made entirely safe for all consumption, and any food or drug necessarily involves some risk of harm, if
only from over-consumption. Ordinary sugar is a deadly poison to diabetics, and castor oil found use
under Mussolini as an instrument of torture. That is not what is meant by “unreasonably dangerous” in
this Section. The article sold must be dangerous to an extent beyond that which would be contemplated by
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the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its
characteristics. Good whiskey is not unreasonably dangerous merely because it will make some people
drunk, and is especially dangerous to alcoholics; but bad whiskey, containing a dangerous amount of fuel
oil, is unreasonably dangerous. Good tobacco is not unreasonably dangerous merely because the effects of
smoking may be harmful; but tobacco containing something like marijuana may be unreasonably
dangerous. Good butter is not unreasonably dangerous merely because, if such be the case, it deposits
cholesterol in the arteries and leads to heart attacks; but bad butter, contaminated with poisonous fish oil,
is unreasonably dangerous.
j. Where warning is given, the seller may reasonably assume that it will be read and heeded; and a product
bearing such a warning, which is safe for use if it is followed, is not in defective condition, nor is it
unreasonably dangerous.
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b. “State of the Art” in Warning Cases (Knowledge): Evidence that the particular risk
was known by the application of scientific knowledge at the time of manufacture and/or
distribution.
c. Methods to make the liability “Strict”
i. If Defect Warning: Hold everyone in chain of distribution liable regardless of
negligence
ii. Ask only is risk was known and whether it was warned of adequately
iii. Ask only if risk presented itself regardless of whether the science was aware…
d. Allergic Reactions/Hypersensitivity—goes to the central question when to warn?
i. Look at the numbers as a starting point; how many people are affected?
ii. How serious are the reactions?
e. Learned Intermediary (Minority) Rule—MacDonald v. Ortho Pharmaceutical. If the
prescribing physician is acting as a learned intermediary between the manufacturer and
the consumer, then the manufacturer’s duty is to warn the doctor, rather than the patient,
although the manufacturer is directly liable to the patient for a breach of such a duty [not
limited to just doctors]
i. Policy—Learned intermediary might know the individual using the product
better than the manufacturer. Impracticable to warn the user directly.
ii. LIFE-STYLE EXCEPTION: a peculiar characteristic that may create a common
law duty on the manufacturer to warn the user of the product
1. “Lifestyle Drugs”, not medically required (consumer is the one making
the choice).
a. Ex. Birth-control
iii. Advertising Directly to the Consumer manufacturers have now changed the
landscape for the learned intermediary rule
1. Doctors are now dispensers, NOT learned intermediary
f. Rebuttable Presumption—that had an adequate warning been provided, the plaintiff
would have heeded the warning.
i. Rebut—had the injured party not even read the warning
ii. Adequacy is for the jury to decide
g. SEE 402(a) comment j. Where warning is given, the seller may reasonably assume that it
will be read and heeded; and a product bearing such a warning, which is safe for use if it
is followed, is not in defective condition, nor is it unreasonably dangerous.
ADDITIONAL NOTES
JUST BECAUSE YOU HAVE REASONABLY AND ADEQUATELY WARNED
DOES NOT MEAN THAT YOU MIGHT NOT BE LIABLE FOR PRODUCT DEFECT
DESIGN ISSUE, IF YOU COULD HAVE MADE THE PRODUCT SAFER.
Typical evidentiary tool in DESIGN and WARNING cases –Introduce evidence of prior
accidents involving the allegedly defect product but ONLY if the prior accidents are
substantially similar to the instant case
PUNITIVE DAMAGES: Wonderful tool for establishing malice as well
4. Subsequent Remedial Measures (KNOW)—measures taken after an event, that if previously
taken would have made the event less likely to occur
a. Federal Rule of Evidence 407—evidence of subsequent remedial measures is NOT
admissible to prove negligence of culpable conduct in connection with the event.
i. May be admissible if offered for another purpose:
1. Proving ownership, control or feasibility of precautionary measure, if
controverted, or impeachment.
5. Proof
a. Friedman v. GM, do not know if the condition existed before or after the accident.
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i. If the statement is false, but so outrageous that no one will believe it, then there is
NO action for defamation
PRIVILEGES—privilege to make false statements about someone that are defamatory and that may be
made with ill will or malice and not be held liable for the statements
1. Absolute Privilege
a. Judicial Privilege—judges and attorneys has absolute immunity for defamatory words
published in the course of judicial proceedings. The statements must relate to the subject
matter being discussed. Pleadings and witnesses are also protected.
b. Legislative Proceedings—similar privilege is applied to members of Congress and state
legislatures in the performance of their legislative functions. Statements must be related
to the business of the legislature. Also applies to hearings of the legislative body and to
witnesses testifying at those hearings.
c. Federal Public Officials—absolute immunity from suit for defamation as long as the
publication took place with the scope of the official’s office or employment.
d. State Public Officials—also have absolute immunity in the discharge of their official
duties.
2. Qualified Privilege—only lies when…
a. D reasonably believes the accuracy of the information conveyed (even though it is
defamatory); AND
b. D reasonably conveys the information
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PRIVACY
TYPES OF INVASION OF PRIVACY
1. Commercial Appropriation of One’s Name or Likeness (Right of Publicity)
a. Rule—one who appropriates to his own use or benefit the name of likeness of another is
subject to liability to the other for invasion of his privacy
i. Dittmar Elements
1. D used P’s name or likeness;
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2. Use of P’s name or likeness was for D’s own purposes or benefit,
commercially or otherwise;
3. P suffered damages;
4. D caused the damages incurred.
2. Intrusion into One’s Seclusion
a. Rule—physical intrusion upon seclusion or solitude has been recognized as a distinct
form of invasion of privacy [objectively reasonable expectation of privacy?]
i. Intrusion into private place
ii. Method objectively unreasonable
iii. Eavesdropping is invasion; telephone harassment is invasion; taping a phone
conversation is invasion.
iv. Workplace—one lacks a reasonable expectation of complete privacy at the
workplace because the conversation may be overheard by coworkers—but may
have a claim of invasion of privacy by intrusion based on a television reporter’s
covert videotaping of that conversation.
3. “Public Disclosure about Private Facts” that are (A) Highly Offensive to a Reasonable
Person, and (B) Are Not of Legitimate Concern to the Public
a. Rule—disclosure of an embarrassing private fact to only one or just a few person does
not amount to an invasion of privacy. One who intentionally seeks publicity, or puts
himself in the public eye, has not right to complain of publicity that reasonably bears on
his public activity
i. Private Facts (not already in the public)
b. Breach of Confidence
4. “False Light” Invasion of Privacy (similar to defamation)
a. Rule—the media has published false facts or misconstrued the facts about the victim that
causes the public to view the victim in a false light (either better or worse); the statements
must be of public concern, interpreted by a reasonable person as being highly offensive.
i. Malice Required—P must prove that D knew of the falsity or acted with reckless
disregard of it.
ii. Objectively unreasonable false light
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MISREPRESENTATION—instead of recission, sue for damages to recover economic loss.
COMMON LAW ELEMENTS
1. Material Misrepresentation
2. Fraud (lying), Negligence (duty + negligence)
3. Made with intent to have P rely
4. Reasonable reliance
5. Harm = pecuniary loss/economic damages
CONCEALMENT AND NONDISCLOSURE (common law no duty to disclose)
1. Common Law—no duty to disclose
2. Modern Rule (see Griffith v. Byers Constr. Co. of Kansas, Inc.) Where a vendor has knowledge
of a material defect in property which is not within the fair and reasonable reach of the vendee
and which he could not discover by the exercise of reasonable diligence, the silence and failure of
the vender to disclose the defect in the property constitutes actionable fraudulent concealment
a. Material Defect—the defect is material if a reasonable person would attach importance in
determining his choice of action in the transaction in question.
b. Relationship Between Parties—a fiduciary duty, or superior status of the defendant can
create the duty to disclose material defects
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BASIS OF LIABILITY
1. Fraud/Deceit (see Rest.2d Torts)—a misrepresentation is fraudulent if the maker…
a. At time of misrepresentation, defendant lied and knew it.
i. Unreasonableness may be strong evidence that the defendant’s belief did not
in fact exist.
ii. Bad motive (distinguished from intent to mislead) is not essential to the tort
of deceit.
b. Contributory negligence does not bar recovery when the misrepresentation is
intentional
2. Negligent Misrepresentation—an action for damages for negligent (unreasonable)
misrepresentation will lie where the speaker owes a duty to give correct information.
a. To Determine if a Duty Exists—
i. Was there a serious pre-existing legal relationship (privity)
ii. Was the defendant in the superior position to discern the accuracy of the
information conveyed
iii. Did defendant know specifically how…???
b. Example
i. No duty on book publishers to investigate the accuracy of the contents of the
books it publishes (see Winter v. G.P. Putnam’s Sons)
3. Innocent Misrepresentation—essentially strict liability
a. Majority Rule—no liability for innocent misrepresentation in a tort claim, but would
still have a claim in contract law
b. Minority Rule—an innocent misrepresentation may be actionable if the declarant has
the means of knowing, ought to know, or has the duty of knowing the truth (see
Richard v. A. Waldman and Sons, Inc.).
4. Reliance
a. Rule—a plaintiff cannot recover for misrepresentation unless his reliance upon the
misrepresentation was justifiable. Where the falsity of a statement could have been
discovered through ordinary care is to be determined in light of the intelligence and
experience of the misled individual (see Williams v. Rank & Son Buick, Inc.).
i. Duty on plaintiff to investigate??? “Reasonable” discovery
ii. Reasonableness determined on interest of promoting recovery in case
5. Opinion
a. Rule—actionable misrepresentation must be of an existing fact, not a statement of
opinion. Opinion is not substantial enough for one to reasonably rely upon. Only
statements of fact will induce a reasonable person to rely, thus, only misstatements of
fact are actionable.
i. If the statement is not clear/ambiguous/vague plaintiff should have done
his homework and due diligence
ii. Courts more likely to find in favor of the plaintiff when a fiduciary is
involved or there is considerable disparity in the bargaining position.
6. Law
a. Rule—usually a representation as to matters of law made by a party on one side of a
transaction could not be relied upon by a party on the other side (see Sorenson v.
Gardner) [unless they come from experts, like lawyers].
i. I.e., seek your own advice…
ii. In Sorenson, statement went to the condition of the building, not what the
law required, thus actionable.
7. Prediction and Intention
a. Prediction Rule—Negligent misrepresentation or deceit must be based on an
“existing” (present or past) fact, not on a prediction of a future fact. However, if one
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can show that D intended to create the impression that the intended future act is a
present fact in the mind of some party then it is actionable (see McElrath v.
Electric Investment Co.).
i. Prediction similar to a promise
b. Intention Rule—Deceit requires a misstatement of an existing fact, but the promise
to do something, with the present intent to do the contrary is as clear a case of
misrepresentation or fraud as can be made, and the proof of such fraud will not be
precluded by the SOF (see Burgdorfer v. Thielemann).
i. Awareness of defendant that the statement was inaccurate
c. Examples
i. “I will paint your house tomorrow” (with no intention of painting). The
failure to paint house actionable
ii. “When I paint your house, it will go up in value.” The house doesn’t go up
in value actionable???
8. Damages—burden on plaintiff to calculate harm, or provide basis to calculate the harm.
a. Two Types of Damages for Misrepresentation
i. Expectation Damages
1. Value of what was promised – value of what was received
2. Example:
a. Cost of new car – the value of the present car
ii. “Out of Pocket Expenses”
1. What paid for the item – value of what received
iii. Replacement Damages
b. A court is more inclined to award damages in cases of fraud (amount sensitive when
it comes to lower misrepresentations negligence of innocent misrepresentations)
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Difference between a person’s ability to control disposition and use of property during life and after
death
1. During life, a person can do whatever they want with their property.
2. After death, you are more restricted on how you can handle your property.
3. After death you cannot use your property in a manner that violates public policy.
a. Illegal uses of property
b. Uses that amount to waste
i. Example 1—Woman’s will said to tear down the house. By doing this, it
dissipated significantly the value of the property and she gave no good reason
for wanting to do so. The court held that it violated public policy because it
was a waste of money that could go to the estate (see Eyerman).
ii. Example 2—The courts have also held that directing someone to dump their
money into the ocean was a waste; thus, violating public policy.
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If the donor recovers, there must be redelivery when the donee is already in possession of
the gift.
i. CANNOT give up real property on an ORAL disclaimer (Statute of Frauds)
c. In re Van Wormer’s Estate—the decedent suffered from depression and killed himself.
Even though it took several months for him to kill himself, he never recovered from the
depression and the court counted his gifts as gifts causa mortis. Gifts causa mortis can
overrule a will.
2. What Does NOT Go Into the Estate? (aka non-probate property)
a. Life Insurance Policy—If the death benefit is payable to someone other than the deceased
or the estate, it is not part of the probate estate.
b. Joint Tenancy with Survivorship Rights—Your right extinguishes when you die, and it
goes to the other person. It never enters the estate because the decedent’s interest is gone
the moment he dies.
c. Inter Vivos Trusts—Where you put your property in a trust but retain the right to revoke,
a gift has not been made. Because you have the right to revoke, you have a reverter
interest and the thought is that once you die, your right to revoke is extinguished and
therefore the property is erased from your probate estate for probate purposes.
d. Retirement Account—If you designate another person (not your estate) as a beneficiary,
it won’t end up in the probate estate.
e. Inter Vivos Gifts—Anything you give away during your life is not part of the probate
estate because you no longer own it when you die.
Payment of Claims—Order of Priority Expenses (§3805) MEMORIZE
1. If estate is insufficient to pay all claims and allowances in full, the personal representative shall
make payment in the following order of priority
a. Costs and expenses of administration
b. Reasonable funeral and burial expenses
c. Homestead allowance
d. Family allowance
e. Exempt property
f. Debts and taxes with priority under federal law, including but not limited to, medical
assistance payment that are subject to adjustment or recovery from an estate under the
social security act (e.g., unpaid federal income taxes)
g. Reasonable and necessary medical and hospital expenses of the decedent’s last illness,
including a compensation of persons attending the decedent.
h. Debts and taxes with priority under the other laws of this state.
i. All other claims (credit card bill, heating bill, etc.).
2. To figure the distributable estate, you take the total assets and subtract all of these expenses. The
amount that is left over is the distributable to be disbursed in accordance with the will or the rules
of intestacy.
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INTESTACY
When Does Intestacy Come Into Play? (§2101)
1. Any part of a decedent’s estate not effectively disposed of by will passes by intestate succession
to the decedent’s heirs as prescribed in this act, except as modified by the decedent’s will.
Situations Where Intestacy is Applied
1. No will
2. Will that doesn’t pass all the property
3. Some part of the will is deemed ineffective
4. Negative bequest
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c. Per Capita with Each Generation (Michigan Default Rule)—a scheme of representation
whereby all takers of an estate in a generation are treated equally, regardless from whom
they are descended or how many siblings they have.
i. All takers in a level are treated equally.
ii. Recombine after the first level.
NUMBER OF Total of (1) actual Total of (1) actual Total of (1) actual
PRIMARY survivors in the root survivors in the root survivors in the root
SHARES IN ROOT generation plus (2) generation plus (2) generation plus (2)
GENERATION predeceased persons predeceased persons predeceased persons
who left surviving who left surviving who left surviving
descendants descendants descendants
RECOMBINE
“UNUSED” No No Yes
PRIMARY
SHARES?
Intestacy Summary—NOTE: Heirs are those who are entitled to another’s real property by intestate
succession.
1. Surviving spouse takes first
2. Descendants (kids, grandkids, etc) take second
3. If none of them, then parents and their descendants (brother/sister).
4. If no parents and their descendants, then grandparents and their descendants.
5. If none of them, then it goes to the State.
a. In-laws get nothing under intestacy.
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iv. NOTE: When the widow dies, the property goes back
into the husband’s estate.
b. Where Decedent was TESTATE – EPIC 2202(2):
i. A surviving spouse may elect
1. Take what they would get in the will (abide by the terms of the will);
OR
2. Dower rights (if the surviving spouse is a female); OR
3. Forced share—A forced share is a share of the estate, set aside by law,
for the surviving spouse, regardless of what the will provides. It
“forces” the estate to give something to the surviving spouse.
a. Formula for Forced Share:
i. Forced Share = ½ (Intestate Share from EPIC 2102) –
½ (Value of Non-Probate Property Received from the
Decedent).
b. NOTE on Forced Shares:
i. The forced share is NOT available in community
property states. In community property states, each
spouse has an immediate half interest in the property
that cannot be alienated by the other spouse.
Therefore, the concept of a forced share doesn’t
make sense.
ii. Policy Concept—Marriage is a partnership and
anything that accrues during the partnership belongs
to both of them (marital property, half and half. Th e
separate property goes to the person who owned it
before the marriage.
iii. Common Law—Under the common law, any property
acquired by marriage belongs to who earned it and
received it. The spouse won’t have rights to it unless
it is titled in their name.
1. If the marriage was short, community
property won’t get you much, but with
common law, you get to elect all the property
and not just what was acquired during the
marriage.
2. After-Marri ed Spous e (Omitted Spouse) – 2301
a. What is an after-married spouse?
i. An after-married spouse is a spouse that married the testator after a valid will
had already been executed.
ii. The presumption is that the after-married spouse was not left out of the will
intentionally, so protections are provided.
b. How do you calculate the after-married spouse’s share?
i. First, take out everything that was left to the decedent’s descendants who
were born before the testator married the surviving spouse and who is not the
surviving spouse’s child.
ii. The surviving spouse then gets what she would have received had the decedent
died intestate.
c. Exception: The above calculation does not take place and the will is honored as
written if:
i. From the will or other evidence, it appears that the will was made in
contemplation of the testator’s marriage to the surviving spouse;
ii. The will expresses the intention that it is to be effective notwithstanding a
subsequent marriage; or
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iii. The testator provided for the spouse by transfer outside the will, and the
intent that the transfer be a substitute for a testamentary provision is shown
by the testator’s statements or is reasonably inferred from the amount of the
transfer or other evidence.
2. Waiver – 2205
a. A spouse may waive a share under intestate succession, homestead allowance,
election, dower, exempt property, or family allowance. (Ex. Pre-nup, Post-nup)
b. It must:
i. Be a written contract, agreement, or waiver
ii. Signed by the party waiving his rights
iii. After full disclosure
c. A waiver of “all rights” includes:
i. All rights to homestead allowance, election, dower, exempt property, and
family allowance and is a renunciation of all benefits that would pass by
intestate succession or by virtue of a will executed before the waiver.
d. The waiver may be made before or after the marriage.
e. Only spouses may waive their rights; children cannot.
Protection for After-born/After-adopted Children – 2302
1. Purpose: Allows for a child, who is born after the will is drawn up, but before the testator
dies to be accounted for.
2. Eligible Chi ldren:
a. Children born after the will was executed
b. Children adopted after the will was executed
c. Children that weren’t left anything because the parent thought they were dead at the
time they created their will
3. Chi ldren that are screwed and who are going to be ticked:
a. Children that were alive when the parent executed their will who were not mentioned
or who were intentionally omitted.
4. Key Qu estion: How many children were around when the will was executed:
a. If No Children When Will Was Executed:
i. If no child was living when the will was executed, the child takes the intestate
share the child would have received had the testator died intestate.
ii. UNLESS:
1. The will provides all or a substantial portion of the estate to the other
parent AND parent survives the testator AND is entitled to take
under the will, i.e. not an ex-spouse or a slayer.
2. The presumption is that the parent will provide for the child.
b. If 1 or More Children When Executed:
i. If testator had one or more living children at the time the will was executed,
and the will devised property or an interest in property to one or more of the
then-living children, an omitted after-born or after-adopted child is entitled
to a share of what the provided-for children received, AS LONG AS:
1. The omitted child’s share is limited to devises made to the testator’s
then- living children in the will;
2. An equal share of the estate is given to each child;
3. The interest granted is feasibly of the same character, whether
equitable or legal, present or future, as that devised to the testator’s
then-living children under the will.
5. Exceptions: This rule does not apply where any of the following exist:
a. The omission of the after-born/after-adopted child was intentional.
b. The after-born/after-adopted child was provided for outside the will, in a way where it
appears that it was a substitute for being in the will.
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c. If the will leaves everything to the spouse, and nothing to the children, the after-born
child will get nothing, because it is presumed that the surviving parent will take care
of the child.
d. If the testator left nothing to the already-born children, it is assumed that testator did
not want to leave anything to the after-born children either.
Extrinsic Evidence
1. The Courts are very reluctant to look outside the will to determine intent.
2. Permissible Uses of Extrinsic Evidence
a. Demonstrate or rebut proper execution
b. Demonstrate lack of testamentary capacity
c. Demonstrate lack of testamentary intent
d. Demonstrate the existence of undue influence, fraud, mistake, duress or revocation
e. Demonstrate the existence of an ambiguity
f. Clear up an ambiguity (may include evidence of testator’s own statements as to his
intent)
g. Demonstrate testator’s intent as to the effect of a writing (will? revocation?
revival?)
h. Rebut a presumed intent (may include evidence of testator’s own statements as to his
intent)
i. Rebut a presumption other than intent.
3. 1-4 Are Will Challenges that can’t be answered by just looking at the will.
4. 5-6 Deal with Ambiguity
a. Latent – When you can’t tell that it is an ambiguity just by looking at the will.
b. Patent – When you can tell on the will’s face that there is an ambiguity in the
document.
5. 8-9 Deal with Presumptions
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WILLS
Introduction
1. Definition—An instrument or declaration by which one directs the disposition of one’s
property after death.
a. A will is, by definition, ambulatory, or subject to change until the death of the
testator.
2. Testamentary Intent
a. In order for a person to make a will, the person (testator) must have two things:
i. Intent for the document to be their will
ii. A plan of distribution
Types of Wi lls Allowed in Michigan
1. Formal Wi ll—Each state has different requirements for a formal will, but the requirements
for a valid formal will in Michigan are listed below.
2. Codicil—A supplement to a will that adds or deletes provisions or otherwise changes the
will.
3. Holographic Wil l
a. A will wholly or in substantial part handwritten by the testator.
b. This is not a formal will.
c. Requirements for a Holographic Will:
i. Testamentary Capacity
ii. Doesn’t have to be witnessed
iii. Material portions must be in the testator’s own handwriting
iv. Must be signed by the testator
1. Can’t be signed by another in the testator’s conscious presence.
v. Must be dated
4. Self-Proving Wi ll—A will whose due execution is recited in an affidavit contained in or
appended to the will itself and signed before a notary public by the testator and the attesting
witnesses.
5. Pour-Over Wi ll—A will that allows a residuary clause to transfer everything to another
document.
6. Joint Will—The wills of more than one person (usually husband and wife) executed in a
single physical document signed by both. Mutual wills, on the other hand, are separate wills
that contain reciprocal or identical provisions for disposition of each testator’s property.
7. Living Wil l—Not a will at all, but an instrument directing that the signer’s life shall not be
prolonged by extraordinary medical procedures when there is no expectation of recovery.
8. Conditional Wil l—A will that is intended to be operative only on the occurrence of a
specified condition or event, failing which it is of no effect (standard is “clear and
unambiguous”).
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2. For a court to declare a will invalid for this reason, they have to find
that the testator’s beliefs are so unfounded and bizarre as to be
explainable only as the product of a mental illness.
a. Ex. A person thinks their daughter has been possessed by
aliens, so they disinherit her.
4. Fraud—Intentional deception of the testator by another in such a manner as to affect the
terms of the testator’s will.
a. Fraud in the Inducement: A misrepresentation to the testator as to facts that serve as
an inducement for the execution of the will or the inclusion of certain provisions.
b. Fraud in the Execution: This concerns deception as to the nature or contents of the
document the testator signs.
i. Elements of Fraud
1. A statement that is false;
2. The statement is known to be false;
3. The statement is material;
4. Made with the intent to deceive;
5. Actually does deceive the testator;
6. Causes the testator to act in reliance
ii. NOTE: Courts will go to great lengths to prevent fraud.
iii. NOTE: The person challenging the will has the burden of proof the entire
time.
5. Mistake—An inadvertent, usually self-induced misconception of fact or law that has an
effect on the testator’s will.
a. Mistake in the Inducement: This occurs when the testator is mistaken about some
matter of fact or law and is thereby induced to execute a will in a certain way.
b. Mistake in the Execution: This exists if the testator is mistaken as to the nature of
content of the document executed.
c. NOTE: The court is unlikely to fix a mistake.
6. Undue Influe nce—An act that has the effect of overcoming the testator’s free will in the
execution of a testamentary instrument.
a. Three Factor Test
i. The existence of a confidential or fiduciary relationship between the grantor
and a fiduciary;
ii. The fiduciary benefits from the transaction;
iii. The fiduciary had an opportunity to influence the grantor’s decision in the
transaction.
1. If you can prove these three factors, you can create a presumption of
undue influence and shift the burden of proof to the proponent of the
will.
b. Seven Factors to see if Undue Influence was Exerted
i. Procurement – participation by the beneficiary in the preparation of the will.
ii. Lack of independent advice
iii. Secrecy or haste
iv. Change in attitude toward others
v. Change in the decedent’s plan of disposition of property
vi. An unnatural or unjust gift
vii. Susceptibility to influence
7. Burden of Proof– EPIC 3407
a. The proponent must show…
i. The person died
ii. The right venue
iii. Prima facie proof of due execution
1. You just have to show that the will has met the statutory
requirements.
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i. Elements
1. The writing has to be in existence when the will is executed;
2. The will provision must describe the thing being incorporated in clear
and definite terms; and
3. The language in the will must show the testator’s intent to incorporate.
5. Written List of Tangible Personal Property
a. The incorporation of a document that distributes an item of personal property.
i. Elements:
1. The list is handwritten OR typed with a signature at the end;
2. The list has to describe items and devisees with reasonable certainty;
and
3. There has to be some reference in the will to the list, but not the same
type of description needed by incorporation by reference.
6. Facts of Independent Significance
a. A doctrine that gives testamentary effect to facts or circumstances that are not a part of
the executed will.
i. A will can dispose of property by reference to acts and events that have
significance apart from its effect on dispositions made by the will.
1. Ex. Bill leaves his estate to Bernice, and in so doing he refers to a list of
poetry books that he wants Bernice to have. It is a list of books he has
acquired, regularly kept for his tax or insurance records and too lengthy
and detailed to insert verbatim into the will. While the list already exists,
Bill intends to add or change it as he acquires or disposes of poetry
books. Because the list has an independent, non-testamentary purpose, it
may validly be included in Bill’s overall testamentary plan despite being
changed (or even created anew) after execution of the will.
Doctrines of Change
1. Ademption by Extinction
a. The nullification of a bequest of property because it no longer is in the testator’s
estate at the time of death.
i. Only applies to specific devises.
1. Ex. You devise a necklace to your daughter, but then you sell it
before you die.
a. EPIC 2606: A devisee can get the value to the extent that
it’s gone. We presume that ademption was not intended.
b. NOTE: There are three examples of what the devisee is entitled to in the Murray
outline.
2. Ademption by Satisfaction
a. The abrogation of a bequest by an inter vivos gift made by the testator to the legatee.
i. Usually only applies to general devises.
ii. Property the testator gave in his lifetime to a person is treated as a
satisfaction of a devise only if:
1. The will provides for a deduction of the gift;
2. The testator declared in a contemporaneous writing that the gift is in
the satisfaction of the devise or that its value is to be deducted from
the value of the devise; or
3. The devisee acknowledges in writing that the gift is in satisfaction of
the devise or that its value is to be deducted from the value of the
devise.
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3. Exoneration / Non-Exoneration
a. The payment of encumbrances on certain property in the estate out of other estate
assets.
i. Exoneration treats a mortgage or other such liens merely as debts of the
testator, to be paid like other debts; thus it applies only if the lien was a
personal obligation of the testator.
1. EPIC 2607: If a specific devise or a transfer has a mortgage or other
security interest on it, the obligation passes on to the devisee, without
the right of exoneration, regardless of a general directive in the will to
pay debts.
4. Accretion / Accession
a. Additions to or increases in the value of the bequeathed property that accrue before
the death of the testator or before distribution to the beneficiary.
i. This only applies to specific devises.
1. Usually the devisee will acquire the additional stocks or securities if
they accrued as a result of company action such as a stock split.
5. Lapse / Anti-Lapse
a. The termination of a testamentary gift because the beneficiary pre-deceased the
testator or is unable or unwilling to accept the gift.
i. This arises in a situation where a devisee dies before the testator or did not
survive the testator by 120 hours.
ii. Today there is a presumption that the testator would want the devise to go
to the devisee’s descendants in the event that the devise predeceased the
testator.
1. Analysis:
a. Did the devisee predecease the testator?
b. Did the testator provide in his will for an alternate devisee?
c. Is the devisee either the grandparent of the testator, a
descendant of the testator’s grandparents, or the testator’s
step-child?
d. Did the predeceased devisee leave a surviving descendant?
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TRUSTS
1. Basics
a. Transfer of property with duties attached and the settler identifies beneficiaries and
those people receive the benefits of the trust
b. Important people
i. Settlor – Creates the trust
ii. Trustee – Runs the trust
iii. Res/Principal – The stuff in the trust
1. Res has 2 values
a. Face value
b. Income value
iv. Beneficiaries – People who benefit from the trust
c. Elements of a Valid Trust
i. Competent Settlor and Trustee
1. Same as for a will starting in 2010
ii. Clear and Unequivocal Intent to Create a Trust
1. The settler must intend to:
a. Create a trust
b. Impose duties on the trustee
iii. Ascertainable Res
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g. Beneficiari es
i. The beneficiaries must be identifiable
ii. If a trust fails because of indefiniteness or beneficiary not identifiable then we
get a resulting trust. This is a right of reversion back to the settler. If the
settler has died, then the property goes to his estate.
iii. Spicer – She told her sister to “dispose of as already agreed between us.” If
extrinsic evidence (testimony of doctor and maid) had sufficiently identified
the beneficiary agreed up and the terms of the benefits agreed upon, that
evidence and the precatory language together would have been enough to
establish a testamentary intent. The precatory language standing alone
imposes nothing more than an undefined moral obligation. (Precatory = the
opposite of mandatory – “I hope you will…”) Here we had no duties, no
beneficiary and not intent to create a trust. So the trustee gets fee simple
ownership.
iv. Haskell – “I give my nephew $500 and the rest I leave in trust for him to
dispose of as he pleases.” The attempted trust fails for uncertainty and
indefiniteness.
v. Moss – Caroline’s will said that the residue of her estate should go to the
person who has given her the best care in her declining days. She let her
attorney pick who that person was. This was ok. A trust is not invalidated
by the fact that the trustee is vested with discretion. It is enough that the
testator uses language which is sufficiently clear to enable the court by
extrinsic evidence to identify the beneficiary. And the duty here was to pick
the beneficiary.
h. Trustee
i. It must be a competent trustee
ii. If not, the court will appoint one.
i. Transfer of Ascertainable Trust Res to Trust
i. There must be:
1. An effective transfer
2. An actual interest (not an expectancy)
ii. Declaration of Trust
1. When you declare yourself to be the trustee of your trust.
2. If the owner of property declares himself trustee of the property, a
trust may be created without a transfer of title to the property.
3. He can also revoke it in any way he wants (even orally) and it doesn’t
need to be in the way that is mentioned in the trust. It would be
stupid to make him send himself a letter or call himself.
j. Settlor’s Retentio n of Power – Illusory Trust
i. Trust is void if the settler has retained too much control over the trust.
ii. Too much control = Illusory (and the court doesn’t like illusory trusts)
iii. Test: Did he intend to divest himself of ownership of his property?
iv. Newman – Three days before his death, the decedent created a trust and he
transferred to the trustees everything he owned. But he retained the right to
revoke and amend the trust, he got the income for life, and everything the
trustee did had to be okayed in writing by the settler. The court said he held
too much power. What bothered the court was that the trustee had to put
everything in writing and it had to be okayed by the settler. The settler
basically still had complete control over all the property.
v. Farkas – Had bought bonds in his name, but named someone else as the
beneficiary. The Court said this was no illusory because the beneficiary did
have some rights even though they could be defeated.
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**Unless the court determines that denying access would defeat the purpose of the trust
*****If you have a spendthrift and a discretionary then creditors are going to be out of luck except for the
very rare exception of when it would defeat the purpose of the trust.
4. Termi nation
o. ****Note: Private trusts are not allowed to go on and on – they must end.
p. Express Terms
i. There is something in the trust that provides an actual ending.
1. Ex: When the beneficiary reaches the age of 18, the principal will be
paid out.
q. Settlor as Sol e Ben eficiary
i. If you are the sole beneficiary and the settler, even though you didn’t retain
the right to revoke the trust, the trust may still be revoked because there is no
one else to complain.
ii. Woodruff – The trust can only be revoked with the written consent and
approval of the trustee. The settler could revoke without the written consent
and approval of the trustee because she was the settler and sole beneficiary.
r. Mistake, Chal lenges, Etc.
s. By Agree m ent Between the Settlor and All Beneficiaries
i. Underhill – Even though the daughter had no kids at the time, she still could
have kids because she is alive. Therefore, all the beneficiaries cannot agree
and the trust cannot be terminated.
ii. Remember: It reverts back to the settler if there are no beneficiaries.
t. Material Purpos e
i. If the settler is dead and all the beneficiaries agree to terminate the trust, the
Court will not allow it if there is a material purpose for having the trust.
ii. Claflin - Settlor died and the son didn’t want to wait for payments. He
wanted all the money now. Even though all the beneficiaries (just the one
son) agreed, the court said there was a purpose for having the trust, so it
denied his request to terminate the trust. The purpose was not let this kid
have the money. This is sufficient for keeping the money tied up in trust.
u. Execution
i. Ask: Are there duties for the trustee to perform?
1. If no, then it is a dry trust and the court will terminate (execute) the
trust.
ii. Bellows – The Aunt’s will left stuff to the daughter in trust to be held by the
wife. The Court held that the aunt’s trust was passive because the trust
imposed no duties on the trustee and therefore the daughter was entitled to
absolute title. The father’s will left a trust to be used by the wife to support
the daughter. This was not dry because the wife had duties.
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ii. The duty is mandatory and failure to perform is a breach of duty, which is
actionable.
iii. For someone to be on the hook as a trustee, they have to affirmatively
accept the designation as trustee. If they do not, it goes to the successor
trustee or someone will go to court and have a trustee designated.
1. There are a set of fiduciary duties that attach to the trustee under
common law – EPIC 1212:
a. Duty of Loyalty (no self-dealing/1214)
b. Duty of Care
c. Duty to Segregate the Assets
d. Duty of Impartiality
e. Duty of Provide Accountings
b. Duty to Segregate the Assets
i. Defined: Commingling refers to the mixing together of trust and personal
assets, either inadvertently or intentionally blurring the lines of ownership;
this must be avoided and it is the duty of the trustee to avoid this.
ii. If you com mingle and there is any loss to the beneficiaries, even where you
were careful and prudent, you owe the loss to the beneficiaries.
1. Note that if you have a corporate trustee, they can commingle small
trusts for investments because they are careful enough about the
accounting, so this is an exception to the general rule.
c. The Duty of Loyalty (and Impartiality)
i. Defined: The duty of loyalty and impartiality is the duty to act for, and only
for, the good of the trust and its beneficiaries and not in the trustee’s own
personal interest or that of any third person.
ii. Inherent in the Trustee’s Duties of Loyalty: There is a prohibition against
self-dealing and other forms of conflict of interest.
iii. Summary: You can’t make a transaction with the trust you represent.
1. PROBLEM: One of the assets of a trust is a Dali painting. Trustee is
a collector of fine, contemporary art. He wishes to purchase the
painting from the trust, and will pay 5% over fair market share. If he
purchases the painting, will be breach his fiduciary duty?
2. If he buys it, he violates his duty of loyalty to not self-deal.
iv. Your own personal interest has to be ignored.
d. The Duty of Care—This means that you are going to use the care that a normal,
prudent person would use in caring for the trust’s assets. You are going to use general
standards of acceptable behavior when dealing with the trust.
e. The Duty to Provide Accountings
i. Defined: The trustee has the duty to keep the beneficiaries informed of
pertinent facts relating to the management and condition of the trust. At the
termination of the trust, as well as periodically during its existence, the
trustee has a duty to render an account of trust transactions.
f. Del egation of Duti es
i. Common Law: Trustees may delegate some powers, but have no power to
delegate others.
1. Can Delegate: Ministerial Acts/Duties, like painting building; your
ability to delegate is in part based on your duties and in part on your
expertise. As long as you are reasonable in selecting and employing
the person you hire, you can delegate.
2. Cannot Delegate: Discretionary Acts/Powers, like deciding whether
to purchase or sell building, or to choose who is more worthy of
beneficiary income.
ii. EPIC 1510: Trustee may delegate investment and management functions.
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1. You can do this as long as you exercise reasonable care, skill, and
caution in picking the agent and reviewing/monitoring their
performance. If you are, the statute says that you as the trustee are
not liable for any actions made by the agent as long as you
periodically check on agent.
a. The agent has a duty to the trust to apply reasonable care.
iii. Sometimes the settlor expressly says you can delegate, but courts will construe
this narrowly.
g. Prudent Investor Standard
i. Prudent Investor Standard: Would a prudent person investing the money of
another have made the investment?
ii. EPIC 1503 – Portfolio Approach
1. Look at the portfolio as a whole and as a part of an overall
investment strategy having risk and return objectives reasonably
suited to the fiduciary estate. (Grandparent or a 3-year-old child?)
iii. Specific Things The Trustee Can Consider Under the Portfolio Approach
1. General economic conditions
2. Effect of inflation or deflation
3. Expected tax consequences
4. The role each investment plays within the overall portfolio
5. The expected total return from income and appreciation of capital
6. The need for regularity of income
7. Other resources of the beneficiaries
8. Any special value an asset has to the beneficiary
iv. PROBLEM: Trustee invested $100,000 in JIB. For several years, the stock
paid good dividends and appreciated in value. After an outbreak of mad cow
disease ad reports of E. Coli contamination in a Seattle location, the value of
the stock dropped dramatically. Is the trustee liable for making an improper
investment?
1. Hindsight is allowed; the trustee won’t be liable for this. If they
followed the correct standard, they won’t be liable as long as they did
it prudently.
7. Trustee’s Powers
a. EPIC 7816 – without authorization, trustee may exercise all of the following…
i. Powers conferred by terms of the trust
ii. Powers over the trust property that an unmarried competent owner has over
individually owned property
iii. Exercise of power is subject to fiduciary duties.
8. Trustee’s Liability to Beneficiaries—when trustee breaches a duty.
a. Remedies—
i. Restore the value of the trust property or trust distributions had the breach
not occurred OR profit the trustee made by reason of the breach, which ever
is larger (EPIC 7902)
ii. Specific performance; Removal as trustee;
9. Trustee’s Liability to Third Parties [Common Law (fully liable) v. Statutory]
a. EPIC 7910
i. A trustee is not personally liable on a contract entered into in the trustee’s
fiduciary capacity in the course of administration of the trust estate unless the
trustee fails to reveal the trustee’s representative capacity and identity the trust
estate in the contract.
ii. Trustee is personally liable for an obligation arising from ownership or
control of trust estate property or for a tort committed in the course of
administration only if the trustee is personally at fault.
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ELDER LAW
Three areas of concern to elderly clients
1. Personal Autonomy – The ability to make your own decisions without someone else
interfering.
a. Incapacitation if clear and convincing evidence of both incapacitated individual and
need for appointment.
2. Medical/Healthcare
3. Financing
Trifecta of Documents
1. Will (trust)
2. Durable Power of Attorney (DPOA)
3. Advance Health Care Directive (AHCD)
Power of Attorney (deals with financial and legal)
1. “Nondurabl e” takes effect immediately and remains in effect until revoked or until the
principal becomes mentally incompetent or dire.
2. “Durabl e” allows the agent to act on the principal’s behalf, even if the principal becomes
incapacitated. (taking out loans, etc. This is very different from a DPOA for HCD. Know
when you would want which)
3. “Springi ng” becomes effective at a future time. It “springs up” upon the happenings of a
specific event identified in the Power of Attorney
4. Can be revoked by the principal at anytime and is automatically revoked upon the principal’s
death.
o Good Faith exception if lacking actual knowledge of the principal’s death
5. Negative: Can become a license to steal – so choose carefully.
Advance Health Care Directive
1. Deals with “pulling the plug”
2. 2 documents
a. Living Will
i. A statement of intent saying, “if I can’t tell you what I want, then pull the
plug.”
b. DPOA for Health Care Decisions
i. Appoints a representative to make the decisions.
ii. The representative is called the “patient advocate” or “surrogate.”
3. Must be 18 and of sound mind
What if a patient doesn’t have one of these documents and is in a coma?
1. Go to Court and be named a guardian/conservator
a. Guardian
i. Can make daily life decisions for “the ward.”
1. Ex: Where she lives, who her doctors are, etc.
b. Cons ervator
i. Can make decisions about the ward’s assets and property.
Guardianship – 5306
1. What you must prove to get a guardianship
a. The individual must be capacitated (lacking sufficient understanding or capacity to
make or communicate informed decisions)
b. The appointment is necessary as a means of providing continuing care and
supervision of the incapacitated individual.
2. The Court will grant only those powers that are necessary.
3. To end the guardianship the Court must determine it is no longer necessary.
Conservator – 5401 (basically controls finances)
1. You can ask that one be appointed for you, or one can petition to be one
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2. Requirem ents
a. The individual is unable to manage property and business affairs effectively.
b. The individual has property that will be wasted or dissipated unless proper
management is provided.
Financial Issues
1. Biggest Cost
a. Long Term Care Facility
b. Prescription Drugs
2. Three Options for Covering thes e Costs
a. 2 Government Programs
i. Medicare – if you’ve worked long enough you get it
ii. Medicaid – if you are poor enough you get it
b. Long Term Car Insurance
i. Usually covers a monetary amount per day or length of time
Medicare (medical assistance for the aged)
1. Have to work 40 quarters (10 years).
2. If you are eligible for Social Security, you are eligible for Medicare (65-years-old)
3. Basic program comes in two parts:
a. Covers up to 150 days in a hospital and only the first 60 days are fully covered
b. Covers up to 100 days in a nursing home (won’t cover long term care) as long as:
i. Receiving skilled nursing care; and
ii. Leading to improved care
c. Outpatient Care
i. Monthly fee of $96
d. Prescription Coverage
i. Get private insurance and then they help reimburse you
Medicaid (medical assistance for the poor and disabled)
• This is a welfare program.
• “Must be poor in income and assets”
o Poor in income (less than $750/month)
o Poor in assets (less than $2,000)
Your house and 1 car are excluded in calculation of assets
• Covers long term care
o You can be in a nursing home forever and have it paid by the government
Income Protection
• Social Security
o 3 Programs
Old Age
• Eligible if you have worked 10 years
Disability
Supplemental Security Inco me
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Estate Tax
A tax is imposed on the total net value of the decedent’s estate as of the date of death. The tax rate is
graduated, increasing from 18% to 35% (2011 rates).
Two Planning Tools for Reducing the Federal Estate Tax
• Maximize the use of the unified credit of married couples
• Use of marital deduction to eliminate tax for first spouse to die.
Available Tax Credit
• 2009 – If your tax is less than $1,455,800 (estates up to 3.5 million), then you don’t pay
anything in death tax.
• 2010 – Estate Tax Repealed
• 2011 – If your tax is less than $345,800 (estates up to 1 million), then you don’t pay
anything in death tax. [Unified Credit—1,730, 800; Value excluded (tentative tax)—5M] Net
taxable estate of 5M = no taxes paid
Federal Gift Tax
• We don’t want people to give stuff away during their lifetime to avoid the estate tax, so we
tax gifts!
Three Tools Used to Minimize the Gift Tax
• Make excluded gifts regularly
o $13,000 per donee, per year is tax free
o Direct payments for education and medical expenses of another are tax-free if the
payments are made directly to the vendor.
o Charitable gifts are always tax-free
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