Bar Exam Rule Statements

Non-Compete

Non-competes ancillary to a business sale are enforceable if reasonable in (1) duration, (2) geographic scope, and (3) scope of restricted activity; courts may blue-pencil/reform overbroad term

Parole Evidence Rule

PER bars extrinsic evidence that contradicts a fully integrated writing; a partially integrated writing may be supplemented by consistent additional terms and may allow for evidence to explain ambiguities.

Common Law Parol Evidence

The common-law parol evidence rule prevents parties to a written agreement from introducing extrinsic evidence of a prior agreement that contradicts the terms of the writing.  The parol evidence rule applies only to integrated agreements.  Whether an agreement is integrated depends on the intent of the parties.  Under the common-law four-corners rule, the court may look only within the writing itself for evidence of intent.

A warranty of fitness

A warranty of fitness or suitability is implied in almost all jurisdictions in a contract for the sale of a newly constructed residence.  Under this warranty, the seller asserts that he used adequate materials and workmanship for the residence and that it is suitable for living. The implied warranty generally covers latent construction defects or problems that do not manifest themselves until after the sale.  The buyer has a duty to reasonably inspect the residence for patent defects but is not required to employ an expert home inspector. Generally, a suit for breach of the implied warranty may be brought against builders, developers, and contractors within a reasonable time after discovery of the defect.

Surrendering a lease

When a tenant unjustifiably abandons the leasehold, the tenant is treated as having made an offer to surrender under the lease.  If the landlord accepts this offer, the lease is terminated, and the tenant is not liable for any future rent.  A landlord’s retaking possession of the premises along with the landlord’s re-renting to a third party for a longer term or higher rent, or making alterations to the premises, may be treated as acceptance of the tenant’s offer unless the landlord notifies the tenant otherwise.  If the landlord does not accept the tenant’s offer and notifies the tenant of such, then the landlord can continue to enforce the lease and is entitled to rent. 

LLC Derivative Actions

Members of an LLC have a right to maintain a derivative action against the manager of the LLC for mismanagement.  In order to bring a derivative action, the member must make a written demand that the manager bring the action unless the demand would be futile.  In their complaint, members must also state the efforts they have made to prompt the manager's action or provide reasons for not doing so.

Partnerships

In order to form a partnership, at least two persons must intend to carry on a business for profit as co-owners, but it is not necessary that such persons have the specific intent to form a partnership.  If there is a sharing of the profits, it is presumed to be a partnership, and persons who share in the profits are partners.  However, this presumption of partnership can be rebutted.  Further, sharing profits as a form of wages or compensation does not create a presumption that the arrangement is a partnership.

Issue Preclusion

An issue is precluded from re-litigation if it has been necessarily determined and if the party against the issue decided was in the first litigation. To determine if it was necessarily determined, the courts will look to these elements: (i) the issue sought to be precluded must be the same as that involved in the prior action; (ii) the issue must have been actually litigated in the prior action; (iii) the issue must have been determined by a valid and binding final judgment; and (iv) the determination of the issue must have been essential to the prior judgment.

Under issue preclusion, only the party against whom the issue is decided against must be present in both litigations.

implied warranty of merchantability

In a sale of goods involving a merchant, it is presumed that the goods are fit for ordinary purposes for what it is sold and are generally acceptable.

Special Meeting Notice for Directors

Directors are entitled for notice of a special meeting. The default rule for notice is at least 2 days before the meeting and it should state the date, time, place of the meeting. The director may waive notice by attending the special meeting if they do not promptly object to lack of notice.

Quorum for a board of directors

To have quorum in aboard meeting, the default is that a majority of directors are there. That number can be adjusted through the articles of incorporation. A director must be present at time to take votes, and this can be through the phone or virtually as long as all persons involved can hear and speak to one another.

Parent Company Self Dealing

If a parent corporation causes its subsidiary to participate in a business transaction that prefers the parent at the expense of the subsidiary, it can involve self-dealing and a breach of loyalty. A parent corporation that engages in a conflict-of-interest transaction with its own corporation, also known as “self-dealing,” has violated the duty of loyalty unless the transaction is protected under the safe-harbor rule. The business judgment rule does not apply in a conflict-of-interest transaction. There are three safe harbors by which a conflict-of-interest transaction may enjoy protection: (i) disclosure of all material facts to, and approval by a majority of, the board of directors without a conflicting interest; (ii) disclosure of all material facts to, and approval by a majority of, the votes entitled to be cast by the shareholders without a conflicting interest; and (iii) fairness of the transaction to the corporation at the time of commencement. The fairness test looks at the substance and procedure of the transaction.

Usurpation of corporate opportunity

A director may violate his duty of loyalty by usurping a corporate opportunity rather than first offering the opportunity to the corporation.  In determining whether the opportunity is one that must first be offered to the corporation, courts have applied the “interest or expectancy” test or the “line of business” test.  Under the “interest or expectancy” test, the key is whether the corporation has an existing interest or an expectancy arising from an existing right in the opportunity.  An expectancy can also exist when the corporation is actively seeking a similar opportunity.  Under the broader “line of business” test, the key is whether the opportunity is within the corporation’s current or prospective line of business.  Whether an opportunity satisfies this test frequently turns on how expansively the corporation’s line of business is characterized. 

Duty to Invitees

Approximately half of all jurisdictions continue to follow traditional rules that provide that the standard of care owed to land entrants depends on the status of the land entrant as an invitee, a licensee, or a trespasser.  A public invitee is someone invited to enter or remain on the land for the purposes for which the land is held open to the public.  A land possessor owes an invitee the duty of reasonable care, including the duty to use reasonable care to inspect the property, discover unreasonably dangerous conditions, and protect the invitee from them.

Courts in the other half of jurisdictions (as well as the Third Restatement) require that a standard of reasonable care applies to all land entrants except trespassers, abolishing the distinction between invitees and licensees.

Joint Tenancy v. Tenancy in Common

In most states, there is a presumption that a conveyance to two or more persons creates a tenancy in common rather than a joint tenancy. This presumption can be rebutted if the language of the conveyance indicate an intention to create a joint tenancy.

BFPs and mortgages

Typically, a bona fide purchaser does not buy subject to a mortgage they have no notice for. Notice can be actual, by inquiry or constructive. Grantees are held to have constructive notice of all prior conveyances that were properly recorded.

Doctrine of Equitable Conversion

Under the doctrine of equitable conversion, when one of the contracting parties dies prior to the performance date of the contract, the seller's interest may be treated as personal property and the buyer's interest may be treated as a real property interest for purposes of distributing in the property pursuant to either's will. When the seller has devised his real property interests, the proceeds from the sale of the property under contract are treated as personal property that passes to the devisee of the seller's personal property.

Involuntary Manslaughter

Involuntary manslaughter is an unintentional homicide that is either committed with criminal negligence or committed while the defendant is engaged in an unlawful act.  Criminal negligence is a grossly negligent action that puts another person at a significant risk of serious bodily injury or death.  It requires more than ordinary tort negligence, but less than the conduct required for depraved-heart murder.

Duress

A defendant can claim the duress defense when a third party's unlawful threat causes the defendant to reasonably believe that the only way to avoid death or serious bodily injury to himself or another is to violate the law, and the defendant violates the law.

Common Law Burglary

Common-law burglary is the breaking and entering of the dwelling of another at nighttime with the specific intent to commit a felony therein.“Breaking” is generally accomplished by using force to create an opening into a dwelling, but slight force, such as pushing open a window that was ajar, satisfies this element.  “Entering” occurs when any portion of the defendant’s body crosses into the dwelling without permission through the opening created by the breaking.

Larceny

Larceny is the trespassory taking and carrying away of the personal property of another with the intent to permanently deprive that person of the property. When an initial taking was trespassory but there was no intent at the time to permanently deprive the person of the property, then the continuing trespass rule serves to deem the original trespass “continuing” so that it coincides with later-acquired criminal intent.

Embezzlement

Embezzlement is the fraudulent conversion of the property of another by a person who is in lawful possession of the property. Conversion is the inappropriate use of property, held pursuant to a trust agreement, which causes a serious interference with the owner’s rights to the property.

Receiving Stolen Property

To be guilty of receiving stolen property, the defendant must receive control of stolen property, know that the property is stolen, and intend to permanently deprive the owner of the property. Property that is unlawfully obtained through larceny, embezzlement, or false pretense is stolen property. The act of receiving the property must coincide with the recipient's knowledge that the property is stolen. Some jurisdictions require that the defendant have actual, subjective knowledge that the property has been stolen. Other jurisdictions permit the defendant’s knowledge to be inferred from facts that would alert a reasonable person to unlawful acquisition of the property.

Sentence Increasing

Any fact, other than a prior conviction, that can be used to increase a sentence beyond the statutorily prescribed maximum must be (1) charged in an indictment, (2) submitted to a jury, and (3) established beyond a reasonable doubt.

Double Jeopardy

If a defendant's conduct may be prosecuted as two or more crimes, then the Blockburger test is applied to determine whether the crimes constitute the same offense for double jeopardy purposes.  Under this test, each crime must require the proof of an element that the other does not for each to be considered as a separate offense

Impleader

Under Federal Rule of Civil Procedure (FRCP) 14, a defendant in an ongoing lawsuit acting as a third-party plaintiff (TPP) may generally implead a nonparty as a third-party defendant (TPD) on the basis that the TPD is liable, in whole or part, for the original claim. The impleaded claim—called a third-party complaint—must relate to the original claim against the TPP. The court is always free to dismiss the claim against the TPD if justice so requires.

Bulge Provision

Under the "bulge provision," a federal court has personal jurisdiction over a party who is served with process within a U.S. judicial district and not more than 100 miles from where the summons was issued, even if state law would otherwise not permit such service.  However, this rule applies only to third-party defendants joined under FRCP 14 and required parties joined under FRCP 19.

Partial Final Order

Generally, any order or decision adjudicating fewer than all of the claims or the rights and liabilities of fewer than all of the parties is not a final order. Consequently, it generally may not be appealed until all issues have been adjudicated. However, if a suit has multiple claims or parties, then the district court may direct entry of a final judgment as to one or more claims or parties if the court determines that there is no just reason to delay.

State Action

The constitution generally protects against state action, which encompasses actions by federal as well as local governments. This can also apply to a private person’s actions if the private person is carrying out traditional governmental functions or significant state involvement such as running primary elections or governing a company town.

Section 5 of the 14 amendment

Section 5 of the fourteenth amendment allows congress to enforce equal protection rights and non-discriminatory law. To do so there must be congruence and proportionality between the injury to be prevent and the means adopted to achieve the end. But this power does not stretch to prohibit a law that does not violate the constitution.