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Elements of a battery
- 1. Intent
- 2. Harmful or offensive contact
- 3. With person or something closely connected
Illusory promise- unenforceable due to lack of consideration
If when a contract is being formed one of the parties doesn't incur legal detriment b/c he retains unlimited discretion as towhether or not to perform
i.e. 2 parties enter in a option K, where A has the power to revoke at any time, at his own will and pleasure
When the cause of action arises from an activity that occurred outside of IL
Apply the long arm statute- substantial contacts
The long arm statute requires foreign corporations
to have substantial contacts with the state. Corporation must engage in continuous and systematic business in IL.
Service on a corporation or entity
- 1. By leaving a copy of the process with its RA or any office or agent of the corporation
- 2. Service typically made by Sheriff
- 3. Court may allow a person over 18 who is not a party to lawsuit to effecuate service
- 4. When def is located outside of IL, person over 19 who is not a pary may serve entite
- 5. Service by mail is only allowed in small claim cases
How to object to lack of PJ or improper service?
Make a special appearance. This way, the def doesnt submit to the court's jx but just appears to address the matter. Must raise his jx argument immediately or it is waived
Merchants- modifying K
once a written contract is established, parties may modify the terms of the contract without producing additional consideration.
Standing to seek redress in federal court
a party must allege a direct injury. "Direct injury" means that the challenged action has caused the plaintiff "injury in fact," economic or otherwise.
Congress has the power to regulate commerce "among the several states." Congress may regulate "channels" of interstate commerce (highways, waterways, and air traffic), instrumentalities of interstate commerce (cars, trucks, ships, airplanes, etc.) and activities that "substantially affect" interstate commerce. Under this cumulative effect doctrine," Congress has the power to regulate any activity which has any direct or indirect effect on interstate commerce.
if a state law is in conflict with a valid federal law, the state law is void
Congressional taxing and spending power
Congress is authorized to spend for the general welfare and to condition receipt of federal funds on state compliance with federal regulations.
Dormant Commerce Clause
Where Congress has not enacted legislation, the states are free to regulate local transactions affecting interstate commerce subject to certain limitations.
Dormant Commerce Clause standard
Strict scrutiny- If a state law discriminates on its face between in-state and out-of-state economic actors, the state must show that: 1) the regulation serves a compelling state interest and 2) the regulation is narrowly tailored to serve that interest.
Privileges and Immunities Clause
prohibits states from discriminating against non-residents based upon the fact that they do not reside in the state, with respect to rights and activities that are fundamental to the national union.
i.e. A fee or tax on pursuing a trade or business is covered under this clause
IL Spousal Award
A sum of money that the court deems reasonable for the proper support of the surviving spouse "in a manner suited to the condition in life of the surviving spouse and to the condition of the estate" for a period of 9 months after the death of the decedent.
Minimum spousal award is $10,000, plus an additional sum of not less than $5,000 for each dependent child (minor or adult) residing with the surviving spouse at the time of the decedent's death.
A surviving spouse has the absolute right to renounce a will.
If decedent was only surivived by spouse, then surviving spouse takes statutory 1/2 share.
If decedent was survived by wife and descendants, then surviving spouse gets only 1/3 share.
Pretermitted Heir statutes
Statutes that permit children omitted from a decedent's will to take their intestate shares.
IL does not have such a statute. If child is omitted from will, then he gets nothing, unless the will doesnt dispose of all decedents property. Then child could get statutory share thru intestacy
Illinois Slayer Statute
Persons who intentionally and unjustifiably cause the death of another are disqualified from inheriting either by intestacy or by will from their victims.
Slayer will be treated as if he predeaceased the decedent and the slayers share will pass to the residuary.
If the slayer is a descendant of the decedent, then his share may be protected by the anti-lapse statute and pass to his heirs.
money or property given as a gift by a decedent to one of his descendants while still alive with the intention that the amount that the recipient inherits under the law from the person's intestate estate will be reduced proportionately.
Under IL law, in order for a gift to be treated as an advancement, there must exist a contemporaneous writing by the decedent or an acknowledgment in writing by the heir.
- Wherethe value of an heir's advancement exceeds his or her intestate share, the heir will not be required to repay the excess, but he or she will not receive any additional amount from the estate. Instead, the remaining estate will be distributed among those heirs who have not yet
- received their legal share.
Rule if a decedent is not survived by anyone but long lost relatives like cousins
Under IL law, if a decedent is not survived by a spouse, issue, parents, siblings or their descendants, or grandparents or their descendants, or great-grandparents or their descendants, then the entire estate goes in equal parts to the decedent's nearest kindred of the same degree.
So, if my only surviving kin was my fathers cousin and my mothers counsin's daughter, my fathers cousin is closest to kin in degrees than my mothers cousin's daughter, so my fathers cousin will take.
The grounds for contest of a valid will
- 1) lack of testamentary capacity
- 2) undue influence
- 3) fraud and
- 4) mistake
Who can contest a will as invalid?
- Any interested person - that is, he or she
- must have a pecuniary interest in the matter.
Mistake of facts outside the will- still going to be upheld
Sometimes the mistake is regarding facts outside of the will that induce the testator to dispose of property in a certain manner, e.g. a mistake in the value of one's property, mistake that someone is dead, etc. The provisions of a will are not set aside for this type of mistake.
Mistake in fact of the will- can be contested
a mistake in the will itself, such as an erroneous identification of a beneficiary or the testator's mistaken belief that the document signed was other than a will.
- A will may not be reformed for mistake in the
- factum (as a K will). However, if the mistake goes to
- the testator's testamentary capacity, the will may be held invalid.
Suspicion of fraud or undue influence
An heir who objects to the provisions of a will on the basis of fraud or undue influence should contest the probate of the will.
- However, where the claim is that a person or persons prevented the execution of a will by wrongful conduct, the plaintiff's appropriate claim is an action in
- tort against the wrongdoers or an action to impose a constructive trust
Can extrinsic evidence be used to prove testators intent in a will?
- Under IL law, unless a will is ambiguous, extrinsic evidence to explain or contradict its terms is inadmissible, even if the will contains legal language that was not likely to have been understood by the
- testator or that was contrary to the testator's intent expressed orally.
Accordingly, testator's oral statement regarding how his estate should be distributed is inadmissible. Rather, the court must look only at the will itself in order to ascertain the testator's intent.
Beneficiary of stock/securities
Generally, the beneficiary of securities is entitled to any increase in value that is a result of a merger or sale of the original corporation.
The beneficiary would not be entitled to any additional stock received by the testator as a result of a dividend-reinvestment program.
Adeemed by extinction
Generally, a specific gift of real or personal property is adeemed by extinction (i.e., it fails) when the property specifically bequeathed or devised is no longer in the testatrix's estate at the time of her death.
However, if the testatrix transfers before her death only a portion of the property devised, the devisee would still be entitled to the testatrix's remaining ownership interest in that property.
Lapse and Anti-lapse
- Generally, a devise or bequest lapses if the beneficiary dies before the testator and the property will become
- part of the testator's residuary estate.
- IL has enacted an "anti-lapse" statute that states that, unless otherwise expressly provided in the will, if
- a devisee or legatee who is a descendant of the testator predeceases the testator, then the descendants of the deceased devisee takes the testamentary gift on a per stirpes basis.
- A testator may indicate in the will the order in which the devises are to be satisfied after debts and expenses are paid. If the will says nothing to the contrary shares abate in the following order:
- (1) intestate property,
- (2) residuary devises,
- (3) general devises, and
- (4) specific devises.
Class gift exception:
Generally, only members who are living at the time of the testators death can take.
However, if the deceased member of the class is a descendant of the testator and is survived by descendants, then those descendants would take the deceased class member's share per stirpes.
- In order to make a valid will in the state of Illinois, a person must have testamentary capacity:
- 1) be at least 18 years of age; and
- 2) be of sound mind and memory.
If a witness or a spouse stands to benefit under the will, it must be ascertained whether or not the benefit under the will is greater than any benefit the witness or spouse would have received if the will had not been created.
- i.e. two interested witnesses secretary and the office manager devised $25,000 from the businessman's will.
- Since they are not related to the businessman, they are getting a benefit since if the will was created they wouldnt take at all.
Mutual wills are separate wills executed by two or more people, with reciprocal provisions for the distribution of assets.
a joint will is a single document executed by two or more testators that is intended to serve as the will of each and every person who signed it.
Joint and Mutual wills
In IL, the presumption is that they do not automatically create contracts. Thus, these wills are generally irrevocable.
In order to prove that they are binding contracts and thus irrevocable upon death, party must have clear and convincing evidence.
An out of court statement offered to prove the truth of the matter asserted in that staement
Whats a statement?
1) an oral or written assertion, or 2) non-verbal conduct intended as an assertion.
Offered for proof of the matter asserted?
- Three step approach
- 1) find the statement
- 2) ask what it is offered to prove
- 3) given what its offered to prove will jury be misled if the out
- of court speaker was misled?
Out of court statements not considered hearsay
- 1) independent legal significance (words of contract, adverse possession or defamation)
- 2) Effect on the listener or reader (prove notice in negligence cases)
- 3) circumstantial evidence of declarant's state of mind.
- 1. Admission of party opponent-
- (A) made by the party in an individual
- (B) party manifested that it believed to be true
- (C) made by a person whom the party authorized to make a statement on the subject
- (D) was made by the party’s agent or employee on a matter within the scope of that relationship and while it existed; or
- (E) was made by the party’s coconspirator during and in furtherance of the conspiracy.
- 2. Prior statement given under
- oath at trial or depo (b/c subject to cross) if:
- a. inconsistent
- b. consistent statement offered to rebut
- c. statement of identification of a person made after perceiving the person.
Judicial and Extrajudicial admissions
Formal judicial admissions are conclusive.
Informal judicial admissions made during testimony and extrajudicial (evidentiary) admissions are not conclusive and can be explained
A party may make an admission by expressly or impliedly adopting or acquiecing in the statement of another.
Adoption by silence
If a reasonable person would have responded and a party remains silent in the face of accusatory statements, his silence may be considered an implied admission.
- Silence is treated as an admission only if:
- 1) the party heard and understood the statement
- 2) the party was capable of denying
- 3) a reasonable person would have denied
- Statement by 1) authorized spokesperson of a party
- or 2) employee of party concerning matter within scope of employment and made during employment relationship
An admission mad during the course and in furtherance of the conspiracy are not hearsay
After a partnership is shown to exist, an admission of one partner relating to matters within the scope of the partnership business is binding upon her co-partners.
Hearsay exceptions - Delarant Unavailable
- Former Testimony
- Statements against interest
- dying declarations
- statements of personal or family history
- statements offered against party procuring declarant's unavailability
When is a declarant unavailable?
- 1) exempt from testifying due to privilege
- 2) refuses to testify
- 3) lack of memory
- 4) death or physical or mental illness
- 5) absent
Exception: Former Testimony
Testimony given by a person in earlier proceeding or depo is admissible if the party against whom the testimony is now offered had an opportunity to examine that person and the motive to conduct that exam was similar to the motive the party has now. or
2) in a civil case, the party agaisnt whom the testimony is now offered was not present in the earlier proceeding but has a close privity type relationship with someone who was a party to that earlier proceeding and who had an opportunity and a similar motive to examine the witness. Declarant must be unavailable
Declaration against interest
a statement against the penal, pecuniary or property interest of declarant or would have subjected declarant to criminal liability. If the statement is offered to exculpate accused, there must be corroborating evidence to admit the statement.
Declaration against interest vs Party Admission
Admission: Statement of a party. Declaration against interest: Can be made by anyone. Must be against interest when made.
- In a homicide prosecution or a civil action, a statement made by an unavailable declarant if:
- 1) declarant believed his death was imminent
- (need not actuall die)
- 2) the statement concerned the cause or circumstances of what he believed to be his impending death
Statements of personal or family history
Admissible to prove declarant is a member of the family in question provided that the declarant is a member of the family in question or intimately associated with it, and the statements are based on the declarant's personal knowledg of the facts of her knowledge of family's reputation
Statements offered against party procuring declarant's unavailability
admissible when offered against a party who has engaged or acquiesced in wrongdoing that intentionally procured the declarant's unavailability
Hearsay Exceptions - Declarant's availability immaterial
- Peter Piper Picked An Elephant But Didnt Find A Vehicle w/ Large Room Made Just to Drive OffPresent State of mind
- present sense impression
- past recollection recorded
- absence of public record
- excited utterances
- business records
- declaration of physical condition
- family records
- ancient documents
- vital statistics
- learned treatises
- market reports
- documents affecting property interests
- official records
State of mind
statement of then existing state of mind, emotion, sensation or physical conditon (usually introduced to establish intent)
Statement made while under stress of excitement of startling event.
Present Sense impression
Statement made concurrently with perception of event described.
Present Bodily Condition
A spontaneous declaration of present bodily condition is admissible as an exception to the hearsay rule even though not made to a physician.
Past bodily condition
Admissible if to assist diagnosis or treatment. Includes declarations about the cause of source of the condition if pertinent to diagnosis
CL doctrine that governs when one person wants another to act for them- so agent acting for a principal
It is a fiduciary relationship that requires two different people
Consequences of Agency Relationship
- a. there will be duties b/t principal and the agent
- b. the agent Is able to bind the principal In K
- c. the principal may be liable for the tortious actions of the agent
- d. knowledge of the agent Is Imputed to the principal
Creation of Agency
- In order for an agency relationship to be formed, there must be mutual assent to the relationship. There must be:
- 1. manifestation of the principals desire
- 2. consent of the agent
No compensation req'd
Burden of proof for existence of agency relationship
the question whether you have an agency relationship Is a question of fact and the burden of proof Is on the party asserting the relationship
Presumption of Agency in Motor Vehicle Operation
At common law, the owner of a motor vehicle is not presumed to be the principal for the person driving their car
A number of states, however, have enacted statutes which says that the driver Is actually the agent of the owner
Principal has to have sufficient capacity and competence enough to enter a agency relationship- a minor cant be a principal
Agents requires minimal mental capacity-minors generally can be agents
IL law provides that any person who has capacity to effect his own transactions has capacity to appoint an agent to act on his behalf.
i.e. father with capacity can ask minor son to go and act on his behalf.
It further provides that anybody with a minimum mental capacity may serve as an agent, including both minors and those with some mental incompetencies
Types of Principals
- 1. dissclosed
- 2. undisclosed and
- 3. partially disclosed
If principal is disclosed at the time of the transaction, then the third party has notice that the agent is acting for a principal and has notice of the principal's identity. So the principal will be liable
If the third party has no knowledge of the existence or identity of a principal, the principal is uhndisclosed. The agent will be liable for any problems because 3rd party had no clue that the principal existed.
The 3rd party can then elect to go after the principal or the agent.
Partially Disclosed Principal
if the agent says they are acting on behalf of someone but never says who, this is the same as if the agent did not disclose the agent.
The agent will be liable for any problems because 3rd party had no clue of the principal's identity. The 3rd party can then elect to go after the principal or the agent.
a person who acts generally on a principals behalf for all of his endeavors
employed by a principal specifically for one transaction or one type of transaction
i.e. like a realtor
Principal contracts with Agent to perform an act, but Agent needs more help in completing it. Agent therefore contracts with his own agent to aid in the work.
Whether Subagent is responsible to the principal?
Agent now becomes the principal over teh subagents.
Initial principals are principals over the subagent only if he agrees to hire the subagents or if he has knowledge that subagents may be req'd.
Duties of Principal to Agent
- Absent an agreement to the contrary, the principal is obligated to his agent to:
- a. compensate the agent for services rendered
- b. reimburse the agent for reasonable expenses
- c. Indemnify and exonerate the agent for any liability that results from good-faith performance
- d. cooperate with the agent In the performance of his duties and
- e. exercise due care toward the agent
Duties of Agent to Principal
- 1. Duty of Care
- 2. Duty of Loyalty
- 3. Duty to Account
- 4. Duty of Candor
- 5. Dual Agency Rule
Duty of Care
- Absent an agreement to the contrary, the agent has a duty to:
- (1) perform the contract and render services with reasonable care
- (2) obey the principal In all reasonable directions
- (3) act with care, competence and diligence
- (4) indemnify the principal against loss caused by the agents wrongful behavior or failure to act with reasonable care
Duty of Loyalty
No self-dealing: you shouldn’t steal or take from principal for your own use. It's the agent acting for his own benefit
you shouldn’t steal or take from principal for your own use. It's the agent acting for his own benefit
Usurpation of Business Opportunity
When you take over something that is someone else's.
An agent may not usurp a business opportunity belonging to the principal or the agent may be punished.
The remedy for usurpation is regurgitation- give it back.
When is agent not req'd to offer business opportunity to principal?
An agent is not required to offer a business opportunity to the principal when the business opportunity Is not closely related to the agency relationship at all and the agent reasonably believes that the principal would not have been interested in it.
Duty of Confidentiality
agent may not use confidential Info that they obtained for the principal for the detriment of the principal.
- This duty of an agent terminates as soon as the
- agency is terminated.
If you want the agent to be quiet after the relationship ends, then this will prohibit the agent from disclosing the Info even after for some time
Duty Not to Compete
This duty is during the agency relationship. The employee cant take away from the employers business by soliciting customers or key employees. This terminates upon termination of the relationship.
Most employers have employees sign a noncompete agreement- must be reasonable in time or scope of the courts may step inl
Duty to Account
duty to account for all money and property I spent of yours
Duty of Candor
duty to disclose all relevant Info to the principal
Dual Agency Rule
cant serve two principals, unless everyone consents
Principal’s Remedies for an Agent’s Breach of Fiduciary Duties
Authority of the Agent
Generally, an agent, acting within the scope of his authority, may bind his principal on the contract
has very broad authority to enter Into Ks
has only limited authority to enter Into Ks
created by a manifestation of the principal to the agent to act for the principal
i.e. X tells A to go buy a book for him. A has actual authority
Implied Actual Authority
An agent has actual authority to take actions designated or implied in the principal’s manifestations and actions that are necessary or incidental to achieving the principal’s objectives as the agents understand them.
i.e. X tells A to go buy a book for him. A is at the bookstore and finds that there is a supplement req'd for the book. A has implied actual authority to buy supplement
where the principal directly ask the agent to act on his behalf
i.e. Sell my house for me.
Inherent in a grant of express authority is the principal’s consent to any actions that are Implied
i.e. if principal directs agent to sell his house, the agent has teh inherent authority to place a "for sale" sign in the window
Includes authority to do anything necessary to accomplish the express authority requested
(1) when agent has some actual authority but went ahead and exceeded it. 3rd party can raise this argument and say I had no clue because It appeared as though agent had apparent authority or
(2) when the agent has no authority to begin with, but the 3rd party had reasonable belief that the agent was acting on the principals behalf
For a third party’s apparent authority belief to be reasonable?
The belief has to be reasonable and traceable to a manifestation of the principal. Mere representation is not enough
llinois third party apparent authority rule
Doesn’t have to assert that they relied on the representation to their detriment- just have to argue apparent authority
Estoppel to Deny Existence of Agency Relationship
(1) 3rd party has to rely to their detriment- It has to look like an agency relationship and 3rd party relied to detriment AND
(2) principal had to have opportunity to step in and they didn’t
Respondeat Superior- employer-employee
Imposes vicarious or strict liability upon a principal for the torts his agent committed in the course of agency.
the employee and employer will be jointly and severally liable for the damage caused by the employee's tortious conduct.
Factors used to determine whether an agent is a servant (employee) or an independent contractor
- (a) look to see how much control the principal exerts over agent-hours
- (b) do they get paid by hours (EE) or project (IC)
- (c) Is agent engaged In distinct business- like a licensed profession
- (d) who supplies the tools
- (e) do the agent have one principal (EE) or multiple ones (IC)
An employee acts within the scope of his employment when?
Performing tasks assigned by the employer or engaging in a course of conduct subject to the employers control
Not within scope of employment, so principals arent liable- agent veers from scope of employment. Acts that are not foreseeable or anticipated
***Note*** an EE may reenter the scope of his employment after leaving a frolic
Is ER liable for torts committed by EEs on way to/from work?
Normally, torts committed on the way to or from work is not within scope of employment unless the ER provides the EE with the vehicle and ER maintains control over it
Within scope of employment, so principals are still liable for any stops or detours that can be anticipated by the EE. mere detours are ok- bathroom stops, food stops, etc
Exam tip for scope of employment:
- (1) if the person is an employee. If so, ask
- (2) if the person is acting within the scope of employment- is it a frolic or a detour? detour= ER liable
- (3) If it is a frolic, ask whether or not the employee has reentered the scope of employment. no? EE not liable
Principal liability for Agents Intentional Torts
A principal will only be liable for an agent’s intentional torts when it is within the scope of employment and for the interest of the employer.
i.e. This is usually seen with bouncers, bill collectors, security guards.
Generally, principals arent responsible for the tortuous conduct of IC
Exceptions: Inherently dangerous activities (like blasting or demolition), nondelegable duties and negligent selection of a contractor
The knowledge of an agent is imputed to his principal if the agent has a duty to speak to his principal about the specific term of knowledge.
Knowledge Is not Imputed when the agent Is acting adversely to the principal and for his own benefit
Termination of Agency Relationship
Termination will occur naturally when the purpose for the agency relationship has ended.
Either party can terminate at any time. However, if there is a term fixed in the K, then the party could be in breach.
death or incapacity of the principal or thea gent automatically terminates the agency
How to have an effective termination of agency relationship?
Principal must notify the agent of the termiantion unless, the agency naturally expires or term end. The notification need not be expressed. If it is objectively reasonable that the agent should have knew the relationship was over, then termination effective.
To terminate agents apparent authority, the principal must notify all 3rd partyes with whom the agent has dealt.
When can you not terminate an agency relationship at will?
(1)When the agency is coupled with an interest- basically when the agent has an interest in the subject matter of the agency or
(2) the agent has a power given for security- when the agency was created for the purpose of payment of a debt owed by the principal to the agent
An association of two or more persons (could be individual or entity) who agree to carry on as co-owners of a business for a profit
General Partnership Liability
General partnerships are characterized as unlimited liability for all of its partners.
- Liable for:
- (a) contracts entered In
- (b) tort liability
General Partners Rights
General partners have the right to co-manage. They can actually be involved in the day to day.
They have the right to vote on matters.
General partnerships can be formed: orally, in a written instrument, or by default (de facto partnership)
- A partnership may be formed:
- (1) orally
- (2) at will
- (3) for a term- 20 years, 5 years, etc
When determining if a partnership is formed, courts will took towards?
- (1) Intent of the parties
- (2) what the parties did
- (3) how the parties referred to themselves
Who can enter a partnership?
- A “person” who can enter into a partnership
- includes: need two people
- (1) Individual or
- (2) another entity
A person entering into a partnership must have capacity to enter Into Ks- not minors or people lacking capacity
An entity entering into a partnership must be a lawful entity
- If you have agreed to split profits, then you are presumed to be a partnership
- ---This is rebuttable.
- Not all such payments amount to partnership. One such
- exception is if a creditor agrees to be paid from the profits. He will still be deemed a creditor.
Sharing of Gross Returns/gross revenue/gross income
This doesn’t have the same affect as sharing profits. If you split profits you look like a partnership. If you split revenue, sales, receipts, income, then you aren’t a partnership.
As the parties are working on the project, do they all seem to have the same control or say so. do It look like they co-manage. If all appear to have control, then partnership may be assumed
All have equal control
Partnership by Estoppel
Even absent the existence of a partnership, if a venture represents to a third party as a partnership to their reliance then the 3rd party will try to stop them from denying partnership because they appeared or acted as one
Power of Partners
Every partner has the authority to bind the partnership-actual and apparent authority
You may limit this authority with actual authority but not apparent unless you communicate this to the 3rd parties
Statement of Partnership Authority
Limits each partners authority- may say our partners may not have the power to deal with transactions in real estate unless all parties sign
Notice to one partner is notice to all
Nature of Liability
All partners are liable jointly and severally for all obligations- torts or contract.
so you may sue any partner and he will be on the hook for 100% and then he may seek contribution from other partners
A partner is entitled to contribution from all other partners and he would then just be on the hook for his entitled share.
If a partner Is Insolvent, the parties will just have to make up for this.
Incoming Partners Liability
- An incoming partner are generally not personally liable
- for pre-existing liabilities
Exception: unless incoming partner assumes those liabilities
Outgoing Partners Liability
As an outgoing partner if you are leaving the partnership, you are still liable for all acts that occurred before you left- you cant leave a sinking ship
Under the RUPA, the partnership agreement may not?
- a. cant eliminate partners fiduciary duties
- b. unreasonably restrict access to books and records
- c. cant vary the right of the court to expel parties or the partnership
Partners Contributions and Shares
A general partnership begins by partners joining and contributing something.
- Valid contributions to the partnership include:
- --any kind of property- real or personal
- b. cash
- c. land
- d. Intellectual prop
- e. licenses, etc
The value of the property contributed to the partnership has a bearing on the claim the partners have on the partnership.
What are exiting partners entitled to?
- Each partner is entitled to when you leave:
- (1) get all of your contributions back; cashing out of the partnership
- (2) share In the profits
If the partnership agreement is silent as to losses, they follow the profits
Rights of Partners
- Rights that partners have include:
- (1) management and control
- (2) Indemnified by agent for expenses
- (3) Interest on loans If you make a loan
- (4) reasonable compensation for services performed during winding up
- (5) right to demand an accounting to prove If the money Is being split accurately
Property Rights of a Partner
- The property rights of a partner are limited to:
- (a) Interest In the partnership
(b) my right to participate In the management
- A partner is not a co-owner of partnership property
- and has no interest in repayment
Transfer of partnership rights
Cant transfer your Interest to someone else
A partner’s only transferable interest is the financial piece of your ownership share- so the profits you will receive or the losses you have to pay.
Any other transfer results In a dissolution of the partnership relationship
Duty of Care
- owe a duty of care to the partnership. Cant sue each other for simple negligence (like spilling something on the floor). However, no one takes the risk of a partner's gross negligence
- Duty of Loyalty- includes the duties:
- (1) cant self deal
- (2) cant compete
- (3) cant usurp business opportunities
(4) duty of candor
(5) account and allow an Inspection
- A person can become a member of a partnership via either:
- a. partnership agreement or
- b. the consent of all the other partners
When a new member is admitted to the partnership his liability is limited to obligations after he entered, unless he expressly assumes otherwise
Property Originally Brought in becomes partnership property. Property Subsequently Acquired, unless some contrary, is all property of the partnership
- A partner may dissociatet he withdrawal of the partner from the partnership. A party may dissociate for ANY reason and always have this power. If you contracted
- to a term, that may be a breach, but you still can dissociate.
The partnership will still continue on though as long as there are two or more people
Events of Dissociation
- A partner is dissociated from a partnership upon the occurrence of any of the following:
- (1) the partner express Intention to withdraw
- (2) under the partnership agreement- If It says anytime a partner does X, he can be dissociated
- (3) anytime a partner Is expelled- partners agree to let go this partner
- (4) If partner declares bankruptcy or Insolvent
- (5) the death of a partner
Close Corporation Number of Shareholders
Generally they only have few shareholders who are also active in management of the corp. However, there is no precise limit on the number of shareholders
Restrictions on stock transfers in corporations
These are common in closely held corporations and should be included in either the articles of incorporation, the bylaws, or an agreement to which the corporation is a party. Generally, the validity will be upheld if they are adopted for a lawful purpose
Can shareholders enter into agreement on matters usually in the discretion of the board?
- In general, shareholders of a corporation may not enter into an agreement to determine matters that are usually in the discretion of the board (such as officer salaries or payment of dividends). However, in closely held corps, shareholders are permitted to enter into enforceable agreements controlling such matters as long as certain
- requirements are met.
One such requirement is that the agreement must cause no harm to those outside the corporation, such as creditors.
Terminating a closely held corporation
Pursuant to Illinois law, the articles of incorp of a closely held corp must provide for termination upon at least a 2/3 vote
Cant change this req'mt in bylaws or articles
How should closely held corps note remedys for deadlock situations?
Closely held corp are more likely than other types of corp to suffer from deadlock of shareholders or directors. Therefore, incorporators often include provisions in the articles to deal with these potential problems.
For example, the articles may provide for a remedy, like buyout or dissolution upon some contingency, in the event of irreconcilable conflict. However, any such option must be noted conspicuously on the shares.
Is it req'd for a corp to have a particular group of officers listed in the bylaws or articles? i.e one president, one secretary, one treasurer, etc.
The corp need only have the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws
The authority of treasurer of a corp?
The treasurer of a corporation generally has implied authority to undertake responsibility for the corporate treasury. This includes receiving and keeping the revenues of the corporation and disbursing corporate funds when authorized.
However, the treasurer of a corporation does not have implied authority to bind the corporation to a loan agreement. He would need explicit authority
How can the board remove an officer of a corp?
- The board of a corp may exercise its judgment and
- remove an officer when the board determines such removal is in the best interest of the corporation. They may do so with or without cause. The officer's right, if any, to sue the corporation for breach of contract is not
*Note* election or appointment to an office does not of itself create contract rights between the officer and the corp.
The business judgment rule
A director will be protected against a claim that he breached his duty of care to the corp if he made a good-faith error in business judgment.
The rule provides that the director is permitted to rely on info, opinions, reports, or records presented or prepared or under the supervision of the president or officer in charge of the books of account, or certified by an independent public accountant.
Where the business judgment rule doesnt protect a director?
Specifically, the business judgment rule does not protect a director who exercised inexcusable lack of attention, diligence, or good faith. Moreover, if the director has special knowledge concerning the matter in question, he will not be justified in relying upon the records
When is a director held responsible for the negligence of another?
In certain cases, the director or officer of a corporation may be responsible for the negligence of others. A director or officer can be liable for damages caused when he negligently selected or supervised subordinates.
Usually, a director or officer is not liable for the negligence of a person at his own level of responsibility. However, he may be liable if he participated in the negligence of the other director/officer, or if he was negligent in not discovering and correcting the problem.
What can corps do after filing dissolution?
After dissolution, the corporation's existence continues to allow the corporation to prosecute and defend suits. The corporation is also permitted to do things such as settle its affairs, dispose of property, and make appropriate distributions to creditors and shareholders. This is generally referred to as "winding up."
Procedure for voluntary dissolution
When the shareholders of a corporation want to voluntarily dissolve the corporation, they can provide unanimous written consent to the dissolution, and then they need not vote. They must then execute and file a statement of dissolution with the secretary of state.
Courts do not usually get involved. Once the appropriate paperwork is filed and the corporation is dissolved, the corporation continues to exist only for a few limited purposes, such as winding up the corporate affairs.
Upon filing a viluntary dissolution, the corp must?
Cease doing business (except business that is necessary to wind up the corp's affairs). The corporate existence continues until the secretary of state issues the certificate of dissolution.
De Jure Corp.
A de jure corporation is one which has been organized in compliance with the mandatory statutory requirements of the state in which the corporation is incorporated
De Facto Corp.
A de facto corp is created if the incorporators made a good-faith, colorable attempt to comply with the incorporation statute, and if the corporate principals acted in good faith as if they were a corporation.
De facto status protects directors and shareholders from liability, except in a direct action by the state.
IL req'mts for piercing the corp. veil?
- In IL, there are two requirements for piercing the corpveil in order to hold shareholders or affiliated corporations liable:
- (1) pl must prove that there is such unity of interest and ownership that separate entities do not, in fact, exist.
- (2) pl must prove that allowing separate corporate existence would sanction fraud or promote injustice.
How to get preemptive rights in IL
IL law- Unless the articles of incorporation specifically give shareholders preemptive rights, they have none
What is common stockholders guaranteed?
Common stock is the residual. Thus, common stock holders are entitled to all thats left once the preferrred stockholders and creditors get their share. Therefore, common stockholders has greatest potential for higher return.
If a lot is left in residual, they get it
Provisions for dividends in the articles will be?
The articles or bylaws may provide that a preferred stock dividend is mandatory whenever there are sufficient earnings to pay the dividend. If this provision is included in the articles or bylaws, it will be enforceable. Therefore, even if the board of directors unanimously votes against a dividend, the preferred shareholders are entitled to it
The rights of shareholders?
- In general, shareholders have the following rights:
- (1) dividend rights (the right to a current return on their investment)
- (2) voting rights (the right to a voice in management ) &
- (3)liquidation rights (the right to a share of the corporate assets at the end of the corporation's existence).
All shares have equal rights unless otherwise provided in the articles
Can you divide classes and restrict voting rights?
common stock can be divided into classes, some of which have voting rights and some of which do not. Moreover, common stock classes may allow for some classes to have limited voting rights in the election of directors.
Can directors revoke a dividend?
once the board of directors has declared a valid and lawful dividend, it cannot be revoked without shareholder consent. However, if funds are not legally available to pay the dividend, if the declaration was conditional, or if it had not yet been disclosed to shareholders, it may be revoked
IL- Corp's defense to request to inspect records?
Illinois law provides that a corp may raise as a defense to a shareholder's request to inspect corporate records that the shareholder's purpose for inspection is to sell the info obtained or that the shareholder's intent is to use the records for a purpose other than in the shareholder's interest as a stockholder
How to amend articles of incorp?
Illinois law requires a two-thirds vote of each class or series entitled to vote and of the total votes cast in order to pass an amendment to the articles of incorporation.
The articles may specify otherwise, but they cannot require less than a majority of the shares of each class or series entitled to vote on the amendment.
When is an amendment effective?
When a corporation properly files an amendment to the articles with the secretary of state, the amendment becomes effective on the date the secretary of state issues a certificate of amendment.
How can an assignee be admitted as a member of LLC?
In general, a limited liability company may admit initial and subsequent members only with the consent of all the members. An assignee, however, may be admitted upon approval by a majority in interest of the remaining members.
Control of a LLC lies with whom?
Absent an operating agreement or a controlling provision in the articles of organization providing to the contrary, control of a limited liability company lies with the members in proportion to their equity in a limited liability company, the LLC, at the time a vote is taken
A unilateral contract is created when the offeror requests acceptance of the offer by the performance of an act.
The offer is accepted only when the offeree performs the requested act. An offer is revoked upon the death of the offeror.
What is Anticipatory Repudiation
Generally, if there is reason for a party to anticipate the other party's breach prior to the breach, then the doctrine of anticipatory repudiation provides the aggrieved party the option to secure the same remedies that would be available for a breach of contract claim.
The party is given the option to immediately treat the anticipatory repudiation as a breach and be entitled to the same rights and remedies.
How to establish anticipatory repudiation
Anticipatory repudiation may be established by a party's definitive statement indicating that he will commit a breach of contract, or by a party's voluntary or affirmative act that renders the party unable to perform or apparently unable to perform.
If there are reasonable grounds for a contracting party to believe that the other party is unwilling or unable to perform, the other party may make a demand for adequate assurance of performance. UCC says demand is to be in writing, while Rest. says it doesnt have to.
Tort of public disclosure of private facts
This form of invasion of privacy consists of the defendant's unreasonable public disclosure of private facts about the plaintiff.
Removing the appellate jurisdiction of the USSC
Congress cannot remove the appellate jurisdiction of the US Supreme Court in a way that thwarts the essential constitutional role of the Court. The Constitution grants the Supreme Court appellate jurisdiction "as to law and fact, with such exceptions, and under such regulations as the Congress shall make."
Cases where Congress cant remove USSC appellate jx
The power of Congress to affect Supreme Court appellate jurisdiction is limited to the extent that Congress cannot deny the Court jurisdiction of a class of cases that involve equal protection (or other constitutional) claims, such as the racial claims.
War Powers Clause of Article I, Section 8
Congress has very broad authority to initiate whatever measures it deems necessary to provide for the national defense in peacetime as well as in wartime. Congress has the power to initiate wage, price, and rent control of the civilian economy during wartime.
Appointment of executive officers
Congress may not, by itself, appoint executive officers. Under Article III, the president appoints ambassadors, Supreme Court judges, and all other officers of the United States. Congress may vest the appointment of "inferior officers" in the president, the federal courts, or department heads, but Congress has no power to appoint officers or "inferior officers" itself.
Congress' power to investigate
The power of Congress to investigate is co-extensive with its power to regulate. The only limits on this power involve separation of powers (Congress may not usurp the functions of the federal courts) and individual rights such as self-incrimination, First Amendment rights such as privacy and freedom of association, and due process.
Bills of Attainder
a legislative act that inflicts punishment without a judicial trial upon named individuals or an easily ascertainable group for past conduct.
US Constitution bars both federal and state legislatures from passing these bills
The establishment clause prohibits the government from providing assistance to religion in a manner that has a nonsecular purpose, has a principal or primary effect of advancing religion, and results in excessive government entanglement with religion.
A tax exemption that applied to religious groups among other nonprofit organizations would be upheld, but a tax exemption that applied solely to religious groups would be invalidated.
Discrimination against Aliens
Most state or local government regulations that intentionally discriminate against aliens will be struck down unless necessary to advance a compelling government interest.
However, when the government's discrimination against aliens involves the right to participate in the processes of government (voting, holding elective office) or to hold positions where broad public policy is executed or formulated (police officers, school teachers, probation officers), then the discrimination against aliens need only be rationally related to a legitimate government interest.
Receiving stolen property
receiving possession and control of personal property, known to be stolen by another person, with the intent to permanently deprive the owner of his interest in the property
Def's right to confront witnesses against him
6th amd guarantees a def the right to confront the witnesses against him. If two def are tried together and one defendant gives a confession that implicates the other, the confession may not be admitted into evidence if the confessing defendant has not subjected himself to cross-examination.
Thus, if admitting one def's confession implicating the other, then the confessing def has to be at trial so that implicated def may cross examine him.
A show-up, like any other identification procedure, will be considered valid unless it is unnecessarily suggestive and likely to produce an irreparable, mistaken identification. If there is no indication that the show-up was unduly suggestive--the defendant wasn't, for example, handcuffed or forced to pose in an incriminating position-- then the identification is admissible as evidence.
Admission of prior convictions
FRE permits the admission of prior convictions for purposes of impeaching any witness if dishonesty or false statements were an element of the crime involved (like perjury).
If 10 or more years have passed since the later of the conviction or witness's release from confinement for that conviction, then the conviction is only admissible if the court determines the evidence is more probative than prejudicial.
Subsequent Remedial Measures
If a defendant takes action after injuring the plaintiff to reduce the chance of further injury to others, the plaintiff may not introduce those actions as circumstantial evidence of fault.
**Note** even entering into a rehab center after being involved in an accident is considered SRM and cant be admitted into evidence.
Shifting vs Springing Executory Interest
Both shifting and springing uses pass title to a third party upon the occurrence of a designated event or condition, but a shifting use cuts off an interest conveyed to a grantee, whereas a springing use cuts off an interest retained by the grantor.
Doctrine of Merger
Provides that any covenants relating to title in a contract for property merges with and are superseded by the covenants of title contained in the deed. The effect of this doctrine is that the nature of the deed controls the grantee's rights and remedies against the grantor for defects in title which come to the grantee's attention after the deed has been delivered and accepted.
Implied covenant of marketable title
The implied covenant of marketable title relates to the land sale contract (not the deed) and is superseded by the doctrine of merger when the deed is accepted.
Bona Fide Purchasers
A mortgagee who extends credit to the mortgagor is generally considered to have "paid value" for her interest in the real property. Thus, as long as the mortgagee had no actual, inquiry, or constructive notice of a prior interest, the recording act will protect the mortgagee's subsequently created interest in the real property.
Pure Notice Jx
You only have to be a subsequent bona fide purchaser. Recording first doesnt matter. Just need to have paid value and not had any notice of prior BFP's
The analysis of a problem concerning a negotiable instrument
- 1. what Is the nature of the Instrument?
- 2. who Is the pl and what are his rights- is the pl a holder In due course
- 3. who Is the def and what Is the nature of his liability
- 4. what Is the def's defense
Types of Negotiable Instruments
- Note-a two party Instrument In which the maker promises to pay the payee a sum of money
- i.e. a promissory note where person writing the note is Maker
- Draft- a 3 party Instrument In which the drawer orders the drawee to pay a sum of money
- to the payee
- i.e. a check where person who writes it is Drawer and Bank is the Drawee being ordered to give funds to 3rd party Payee.
To be negotiable, an instrument must:
- 1. Be a signed writing
- 2. Contain an unconditional promise or order
- 3. Pay a fixed amount of money with or without interest or other charges
- 4. Be payable to order or to bearer at the time it either is issued or first comes into possession of a holder
- 5. Be payable on demand or at a definite time; and
- 6. Contain no undertaking or instruction given by the maker or drawer except as authorized by The Code
Negotiable Instrument: Signed Writing
- (1) can be made manually, mechanically, or by any use of a name, mark or symbol used with present intent to authenticate. There can be no oral Instruments
- (2) writing the name of another person without authority is forgery but It constitutes the signature of the forger
Negotiable Instrument: Unconditional Promise or Order
- A promise or order is not unconditional if it contains:
- (a) an expressed condition to payment
- (b) If It states that It Is subject to or governed by another writing
- (c) If It states that rights or obligations with respect to It are In another writing
- If a check or note said, “I promise to pay to the order of Kathy $100 in accordance with the terms of my will” or “subject to the terms of our contract dated March 1, 2010,” this would be invalid
Reference to another writing alone doesnt make a promise or order conditional.
- A note which says “I promise to pay you $100 as required by our contract for some service would be permissible. It merely recognizes where the money is coming from; it does not make the payment subject to some other writing.
Negotiable Instrument: pay a fixed amount of money
Interest may be stated as a fixed or variable amount of money or as a fixed or variable rate
- An interest rate of prime +3% is calculable at any time because the prime interest rate is always available and known
- The instrument must be payable in money, and only money, and the amount due must be ascertainable from the instrument
Negotiable Instrument: payable to bearer
- An instrument is payable to bearer (possessor) if it:
- (a) states that its payable to bearer or order to bearer
- (b) If it doesn’t state a payee
- (c) If It states that Its payable to cash
- (d) if it Indicates that Its not payable to an Identified person
- **Note** anybody who bears the instrument will be able to collect, including a thief.
Negotiable Instrument: payable to order
An instrument is payable to order if It Is payable to the order of an Identified person or to an Identified person or his order
- An instrument may be made payable to multiple payees:
- (a) If an instrument is made payable to two or more persons alternatively (X or Y), its payable to any of them and It may be negotiated, discharged or enforced by any of them in possession of it
(b) If an instrument is made payable to two or more persons jointly (X&Y): Its payable to all of them and It may be negotiated,discharged or enforced only by consent of all.
c) If an instrument is ambiguous (there is no conjunction- and/or) It will be payable alternatively
Negotiable Instrument: payable on demand
an instrument Is payable on demand If Its states that Its payable on demand or at site or It doesn’t state anytime for payment
Negotiable Instrument: payable at definite time
- An instrument is payable at a definite time if its payable:
- (a) at a fixed date or dates
- (b) at the end of a definite period of time
- (c) at a time readily ascertainable at the time of issue, even if subject to rights or prepayments or extensions
An instrument that is payable only upon the happening of an event doesnt apply cuz the happening of the event isnt definite.
- A farmer enters into a note made payable to a bank, in which the farmer promises to pay the bank $10,000 on October 1, 2015. Farmer knows that if there is any trouble with his crop, he will not have the funds to pay off the note. The UCC permits the note to say “Farmer promises to pay $10,000 on October 1, 2015, provided, however, that if my crop fails to come in that fall, I get an additional year or until October1, 2016.” This is permissible under the Code.
Negotiable Instrument: contain no undertaking or instruction
- A negotiable instrument may not state any instruction by the person promising or ordering payment to do anything besides pay money. Exceptions:
- (a) a power to maintain or protect collateral
- (b) an authorization or power to confess judgment
- (c) a promise or provision waiving benefit of any law intended for obligors protection
Commercial Paper: Negotiation
A voluntary or Involuntary transfer of possession of an Instrument by a person other than then the Issuer to a person who thereby becomes Its holder
Payable to bearer (no identified person): then It may be negotiated by transfer possession alone
Payable to an identified person: then negotiation requires transfer possession of the Instrument and Indorsement by the holder
Commercial Paper: Transfer
If a transferor purports to transfer less than the entire instrument then negotiation doesn’t occur and transferee obtains only the rights of a partial assigning
Commercial Paper: Indorsements
A blank indorsement needs just the signature of the transferor written on the back of the Instrument
Example: s/ Paul Payee- the instrument becomes bearer paper and the transferee can further negotiate by delivery alone.
A special indorsement needs the signature of the transferor that also names the transferee and directs payment to him
Example: Pay Tom Transferee. s/ Paul Payee- the instrument becomes order paper and the transferee’s indorsement is necessary for further negotiation
**Note** if check not indorsed, transferee can force transferor to or take him to court. If blank indorsement, transferee can write name in to convert to specific indorsement
One made by a person other than the holder. Such an indorsement Is extraneous to the chain of title and has no effect on the manner In which the Instrument may be negotiated- just holds other person liable
i.e. if X indorses a check over to Y and Y request that X's wife A sign the check for security.
Rescission for Illegality or Incapacity
If a minor or Incapacitated person negotiates an Instrument, It Is effective to transfer the Instrument notwithstanding the Incapacity.
However, the Incapacitated person may still disaffirm In an appropriate case, but cant rescind as to a subsequent holder In due course
- Wayne has a 16 year old babysitter. Wayne pays the babysitter with a check, andshe wishes to take that check and buy something with it. She indorses the checkas a minor over to a salesman. She now changes her mind and wishes to void thecontract. This is permissible. If the salesman still has the check, she canrescind it and the salesman would return the check. However, under the UCC, ifthe salesman negotiates the check to someone else before the babysitter changesher mind, she could still rescind, but could not get her check back. Herability to get the check back is cut off once it is transferred to an innocentthird party
Persons entitled to enforce a negotiable instrument
- 1. the holder or a holder In due course
- 2. a non-holder In possession of Instrument who has the rights of a holder- shelter rule
- 3. a person not In possession who Is nonetheless entitled to enforce the Instrument- If It was lost or stolen
Prevents the possessor of an Instrument from being a holder- It breaks the chain In title and no one Is a holder afterward
*Note* Forger becomes liable as if he signed his own name
If the person identified as the payee is not intended to have any interest in the instrument, or is a fictitious person, an Indorsement of the Instrument by any person In the name of the payee Is effective as the Indorsement of the payee In favor of the person who In good faiths pays the Instrument or takes It for value or collection
- An employee regularly draws a check payable to “John Smith or order,” representing to his employer that a business debt is owed to Smith. The employee then “forges” the name of John Smith as an indorsement and transfers the check to X. If the regular rules of forged indorsements applied, X would not be a holder in due course because a necessary indorsement was forged. However, under § 3-404(b), the indorsement is effective even though it was forged.
Commercial Paper: Impostor
when a person impersonates the payee and induces the drawer or maker to issue an instrument to the imposter payable to the name of the impersonated person, an indorsement by anyone in the name of payee is effective in favor of the person who in good faith pays the instrument or takes it for value or collection
- Larry’s Lawn Service does landscaping work regularly for Company, and is owed $5,000 per month. One day, John decides to impersonate Larry and enters the Company requesting the monthly check. John is an imposter.John is successful, and Company issues him a check. The loss is put on the Company, the check will be enforceable and John’s forgery of Larry’s name on the check will not break the chain of title if the check is later negotiated to an innocent third party.
Holder In Due Course
- A holder who Is a good faith purchaser (like a BFP). Must takes the instrument:
- 1. for value- for promise of a performance or payment/security for a current claim, in exchange for something
- 2. in good faith
- 3. w/o notice that it's overdue or has been dishonored or has an uncured default of payment on another instrument
- 4. w/o notice of forgery
- 5. w/o notice of any defenses
3 situations where person will not acquire rights of a holder in due course
- 1. by legal process or purchase In an execution, bankruptcy or creditor sale
- 2. by purchase as part of a bulk transaction that Is not In the transferor's ordinary course of business- If you buy someone's business and this Is Included, you are not a holder In due course
- 3. as successor In Interest to an estate or other organization- you can purchase It from an estate and Is not a holder In due course
The “Umbrella” or“Shelter” Doctrine
EXAMPLE:Same facts as the hypothetical, butthis time John did not know there was any problem with Jane and her customer.John becomes a holder in due course. John later decides to sell the note tosomeone else, Henry. Henry knows Jane and knew of the problem she was havingwith her customer. Even though John did not know of the problem and took theinstrument as a holder in due course, Henry has superior knowledge and knowsthere is a problem. John sells the check to Henry. Henry will now take thecheck as a holder in due course, because he knew of the problem with the instrument.
A transferee of an instrument obtains any right of the transferor to enforce it, including any right as a holder indue course. John had due course rights. Regardless of whether Henry knows of Jane's act, Henry has purchased John's rights and takes his holder in due course rights under the shelter rule.
Non-Holders in Possession
A non-holder who is in possession of an Instrument and has the right to enforce It Includes a person who acquired rights to be a holder under the shelter rule
Persons Not in Possession
: John is a holder in due course of an instrument. A thief takes the instrument from John and is never heard from again. John is not a holder, because the instrument has been stolen and is gone.
- Another type of non-holder who may enforce an instrument is a person enforcing a lost or stolen instrument. Person is entitled to enforce the instrument if:
- 1. person was In possession and entitled to enforce It when loss of possession occurred.
- 2. the lost of possession was not the result of a voluntary transfer or a lawful seizure AND
- 3. the person cant reasonably obtain possession of the Instrument
Commercial Paper: Liability & Signatures
person Is not liable on an Instrument unless the person signed It or a legit agent signs for you
Commercial Paper: Representative Liability
when a rep signs either her name or the represented persons name on an Instrument, the represented person Is bound to the extent that she would be bound If the signature was on a simple K
Commercial Paper: Careless Agent rule
If a rep signs her name to an instrument as an authorized signature of the represented person, then the rep will be held liable on the instrument to a third party holding it in due course if there is no way for 3rd party to know that rep was signing on behalf of represented person
Unauthorized Signatures or Outright Forgery
this doesn’t operate as a signature of the person whose name was signed but It does operates as the signature of the person signing It
Liability of the Maker of a Note
- The liability of the maker generally called primary liability and means that there are no conditions to her liability
- i.e. you can always go after the maker
- If the issuer signed an incompleteinstrument he Is obliged to pay the Instrument to Its terms when completed.
- i.e. if blank check, once person fills it in, Maker liable
- When words or numbers are added to an incomplete instrument without authority of the signer alteration of the Incomplete Instrument has occurred
Liability of the Drawer of a Draft
The liability of the drawer:Is secondary liability which means the drawer willonly be liable where the bank refuses to pay
- Wayne takes out his checkbook and writes out, “Pay to the order of Paul Payee $100”and signs it. Remember, this is a three-party instrument. Wayne is ordering his bank to pay Paul Payee this money out of his funds.
Liability of the Drawee of a Draft/Acceptor
initially the drawee on a draft has no liability to the payee or subsequent holder (bank has to make sure money is in his account first). If the drawee chooses to accept or certify the check they become primarily liable at that point
Commercial Paper: Transfer Warranties
- The transferor of a negotiable instrument who receives consideration warrants to his immediate transferee that:
- a. transferor entitled to enforce it
- b. signatures are authentic
- c. Instrument not altered
- d. its not subject to a defense or recoupment
- e. the transferor has no knowledge of any Insolvency proceeding dealing with the instrument at all
- A thief breaks into Mary’s house, takes her checkbook,and forges a check in her name, or takes her letterhead and forges a promissorynote in her name. The thief then takes the note and passes this on to someoneelse, who believes they are a holder in due course. The purchaser cannot seekan action against the thief as a holder in due course, because the chain oftitle was breached and he was not a holder in due course. However, thepurchaser can claim that the thief violated transfer warranties that the notewould be good and authorized.
Any indorser of an instrument Is secondarily liable and becomes liable If the maker or bank doesn’t pay
- Matt Maker executes a note payable to Paul Payee for$10,000, on demand. Paul indorses the note to A, who indorses the note to B,who indorses the note to C, who indorses the note to D. D decides to hold thenote until it becomes due. D then approaches Matt and demands payment on thenote. Matt Maker is insolvent and informs D of such. D now has a string ofindorses – Paul, A, B, and C. D can go to C, inform him of Matt’s dishonor,give him notice of the note’s dishonor, and demand payment. D can do this allalong the chain to Paul. If there is any forgery in the chain, the transferwarranties will step in and offer the same protection and liability
How may an indorser may disclaim
An indorser may disclaim liability on her Indorsement by giving a qualified Indorsement
EXAMPLE: Without recourses/Paul Payee
Commercial Paper: AccommodationParties
An accommodationparty is one who signs commercial paper that is issued for value simply to lend his credit to some other parties to the Instrument. He is liable In whatever capacity he signed the Instrument
- Matt Maker wants to borrow money from Paul Payee and signs a promissory note to Paul Payee for $10,000. Paul, knowing Matt’sfinancial troubles, would feel safer if Matt’s wealthy Uncle Lou was involved in this deal. This can be done by having Uncle Lou signing on the back of the note as an indorser. He would be an accommodation indorser. He could also sign on the front of the note, and would then become an accommodation maker. Lou would be liable in whatever capacity he signed – if as an accommodation maker, he would be primarily liable; if as an accommodation indorser, he would be secondarily liable.
Presentment- when the holder presents the Instrument to the person required to pay
Presentment for payment Is a particular type of demand on the party who ought to pay the Instrument- that Is the maker of the note or the drawee of a draft.
A presentment must be made on or after the date of Instrument If the date is stated or within a reasonable time.
Presentment may be made at the place of payment of the Instrument and must be at such place If the Instrument Is payable at a bank
Party to whom the presentment is made has the right to require:
- 1. that the Instrument be exhibited
- 2. Identificationof the party presenting
- 3. assigned receipt on the Instrument or surrender upon full payment.
When can presentment be waived
- Presentment can be waived or excused if:
- 1. A party cant be found with due diligence,
- 2. maker has repudiated or
- 3. presentment Is not req'd or is waived
- The person who presents and obtains payment on adraft warrants to the drawee that:
- 1. warrantor Is a person entitled to enforce the draft- only one that applies to the maker of a note
- 2. draft not altered
- 3. no knowledge that signature of drawer Is unauthorized.
Dishonorand Notice of Dishonor
Dishonor occurs when a proper presentment for payment is made and payment is refused.
Notice of dishonor must be given to all the relevant parties once the Instrument has been dishonored
Commercial Paper: Burdens of Proof for Validity of Signatures
The authenticity of and authority to make each signature on an instrument Is admitted. the burden Is Initially on the pl to prove signatures are unauthentic
Commercial Papers: Burden shifts from Pl to Def when
If the validity of signatures is admitted or proved and the pl proves that he Is entitled to seek enforcement of the Instrument, the burden shifts to the def to prove a defenseor claims In recoupment
Holder in Due Course Status
If a defense or claim in recoupment to the obligation sued upon is proved, the party claiming to be a holder In due course has the burden of establishing that status
Commercial Paper: Adverse Claims
A person taking an Instrument Is subject to claims of property or possessory rights to Instrument or Its proceeds Including a claim to rescind the negotiation and to recover the Instrument or Its proceeds
A person who was wrongfully deprived of possession by a thief might have a conversion claim against a thief or subsequent transferees of the Instrument
A claim in recoupment is a claim of the obligor against the original payee on the Instrument If the claim arose from the transaction that gave rise to the transaction
- Recall the earlier hypothetical with Jane and her buyer of services. The customer wanted to purchase something from Jane, but Jane did not provide it. The customer gave Jane a check for $50, but Jane did not fulfill her end of the bargain. The buyer can assert a defense. It could be a simple contract defense, or a claim in recoupment.
Commercial Paper: General Defenses
most ordinary contract or other defenses can be raised but not against a holder In due course
- holder in due course takes free of all defenses except the so-called “real defenses,” which are:
- 1. Infancy- minor
- 2. physical duress, lack of legal capacity or Illegality
- 3. fraud In the factum- fraud that Induces the party to sign the Instrument with no knowledge or reasonable chance to learn of the its character or essential terms.
- 4. discharge and Insolvency proceedings
An alteration Is an unauthorized change In an Instrument that purports to modify a party's obligation or an unauthorized addition to an Incomplete Instrument relating to the party's obligation- adding zeros or changing names.
An alteration discharges a liable party except as a holder In due course who may enforce It according to Its original tender
What is holder's option when Maker dishonor note due to alteration
When a note has been dishonored by the maker due to alteration, the holder can pursue the person who indorsed or for transfer warranties
*Note* A person whose negligence substantially contributed to an alteration is precluded from raising the defense against a person who In good faith paid the instrument or took It for value or collection
Commercial Paper: Forgery as a Defense
This is a defense even against a person who In good faith pays the Instrument or takes It for value. Comparative neg applies here as well
Defenses of Accommodation Parties: Derivative Defenses
In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against the person entitled to enforce the instrument any defense or claim In recoupment that the accommodated party could assert.
Except the defenses of discharge of Insolvency, Infancy and lack of legal capacity.
- Wayne wants to make a note payable to the order of Paul Payee. Paul Payee says that Wayne is not financially stable enough and demands that Wayne’s wealthy Uncle Lou sign as an accommodation indorser. If Wayne has a defense against Paul and Paul goes after Uncle Lou for payment, Lou can step into the shoes of Wayne and assert any defense Wayne would have against Paul.
If the due date of an instrument is extended, the its modified, or the value of collateral is impaired by a person entitled to enforce the instrument and as a result, an accommodation party suffers a loss to with respect to Its right of recourse against an accommodated party, the accommodation party obligation Is discharged to the extent of the lost.
- Same facts as above, but Uncle Lou is an accommodation maker, and Wayne’s deal with Paul involved Wayne giving Paul some kind of collateral to secure the note. Wayne comes to Paul to ask for the collateral for a brief period to use it. Paul gives it to Wayne, who absconds with it. Wayne has impaired the value of the collateral that Paul had. Uncle Lou, as accommodation co-maker, can raise a defense against Paul as a result of this.
Certificate of Deposits
CDs are low-risk investments suitable for cash you don’t need for months or years.