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И.Г.

Федотова
Н.В. Старосельская

The Anglo-AmericAn
legAl concepTs
And legAl Terminology

Part 1

2015
Авторы

ФЕДОТОВА Ирина Григорьевна


СТАРОСЕЛЬСКАЯ Наталья Викторовна

Научный консультант
декан международно-правового факультета МГИМО(У) МИД России,
доктор юридических наук, профессор
Г. П. ТОЛСТОПЯТЕНКО

© Федотова Ирина Григорьевна


© Старосельская Наталья Викторовна
2015.
3

От авторов

Среди самых выдающихся явлений англоязычной культуры


одно из первых мест, бесспорно, принадлежит англо-
саксонской системе права.

Не поддавшись влиянию римского права и базируясь не на


абстрактно сформулированных нормативных актах, а на
судебной практике, англо-саксонская правовая система
поставила во главу угла Прецедент, вобравший в себя и
исторический опыт Англии, и многообразие жизненных
коллизий ее граждан, и многовековую мудрость поколений,
искавших ответа на извечный вопрос, что справедливо, а что
нет, противопоставив его мертвой схоластике искусственно
созданного закона.

Однако содержание требует формы. Трудно себе


представить более идеальный сплав формы и содержания,
чем английский язык и англо-саксонская система права.
Отличаясь лексическим богатством и грамматической
стройностью, семантической точностью и стилистической
гибкостью, английский язык сыграл важную роль в
оформлении англо-саксонской правовой системы, являясь
ее естественной «средой обитания», в которой неизбежно
стираются границы между экстралингвистическими и
собственно языковыми фактами, образуя единое жизненное
пространство, столь благоприятное для демократического
развития общества.
4

ПРЕДИСЛОВИЕ
Настоящее учебное пособие, являющееся одновременно и рабочей тетрадью, представ-
ляет собой своего рода продолжение учебного комплекса «Юридические понятия и катего-
рии в английском языке»1.

Цель пособия - предоставить студентам, изучающим профессиональный аспект англий-


ского языка, возможность ознакомиться с основными институтами англо-американского
гражданского права на более полной и глубокой основе, что является неотъемлемой частью
подготовки обучаемых к осуществлению профессиональной деятельности в области права
на английском языке.

Владение навыками перевода текстов специального характера относится к числу наиваж-


нейших компетенций юриста-международника. При этом необходимо особо отметить, что
перевод как вид деятельности в любой области знаний и, в частности, в юриспруденции,
имеющей отношение к разным системам права, предполагает:
а) свободное владение языком оригинала и совершенное владение языком оформления;
б) профессиональное владение специальной юридической терминологией;
в) наличие соответствующей компетенции в области сравнительного правоведения.

В этой связи основной акцент при обучении переводу на данном этапе делается на пра-
вильности передаваемой информации с языка оригинала, что возможно при условии вла-
дения знаниями терминологической системы данной области, лексико-грамматическими
особенностями текстов подъязыка права, а также при широком привлечении экстралинг-
вистических профессиональных и общих фоновых знаний.

При осуществлении письменно-письменного перевода происходит переработка профес-


сиональной информации средствами другого языка, что в свою очередь ведет к значитель-
ному углублению и расширению профессиональных знаний.

Для контроля за пониманием содержания юридических текстов наряду с письменно-


письменным переводом используется и письменно-устный перевод, т.е. устный перевод с
листа. Значительные объемы письменно-устного перевода способствуют быстрому асси-
милированию английского текста, быстрой переработке информации средствами родного
языка, что ведет к качественным сдвигам в развитии навыка свободного чтения профессио-
нальной литературы на английском языке.
1
И.Г.Федотова, Г.П.Толстопятенко «Юридические понятия и категории в английском языке» (учебное по-
собие). Издательство «Феникс+», 2008 г.
И.Г.Федотова, Г.П.Толстопятенко «Юридические понятия и категории в английском языке» (толковый
словарь). Издательство «Феникс+», 2008 г.
И.Г.Федотова, Н.В.Старосельская, И.В.Резник, Г.П.Толстопятенко «Теория и практика устного и письмен-
ного юридического перевода». Издательство «Феникс+», 2008 г.
5

Владение специальной юридической терминологией играет решающую роль при пере-


воде текстов профессионального характера. Глоссарии, сопровождающие каждую из тем,
представленных в учебном пособии, предусматривают как дальнейшее наращивание терми-
нологического тезауруса по изучаемым темам, так и совершенствование уже накопленных
знаний базовой терминологии, содержащейся в толковом словаре «Юридические понятия
и категории в английском языке». Глоссарии построены по принципу учебного словаря со-
четаемости английского языка в области юридической лексики.

Каждая тема также оснащена аппаратом упражнений, направленных на закрепление зна-


ний специальной терминологии. Упражнения снабжены «ключами».

В каждую из глав учебного пособия включены дополнительные материалы, служащие ба-


зой как для дальнейшего совершенствования навыков перевода, так и для параллельного
изучения англо-американской правовой системы на языке оригинала.

Еще одним видом работы, столь необходимым для будущей профессиональной дея-
тельности юристов-международников, является обучение написанию информационно-
аналитических справок по заданной теме в рамках профессии. В учебное пособие включены
схемы, дающие капсульное содержание всех изучаемых институтов гражданского права, к
которым разработаны вопросы, служащие планом для написания справок.

Текстовой материал для учебного пособия подобран из аутентичных источников.


6

ОГЛАВЛЕНИЕ

От авторов................................................................................................................................. 3
.
Предисловие............................................................................................................................ 4

Chapter 1.
The Law of Contracts.......................................................................................................... 7
Chapter 2.
Agency. ...................................................................................................................................... 42
Chapter 3.
Sales............................................................................................................................................ 62
Chapter 4.
Real Property.......................................................................................................................... 87
Chapter 5.
Commercial Paper................................................................................................................ 113
Chapter 6.
Business Organizations..................................................................................................... 136
Chapter 7.
Trusts.......................................................................................................................................... 172
Chapter 8.
Bankruptcy. ............................................................................................................................. 187
Chapter 9.
Civil Procedure...................................................................................................................... 211
Chapter 10.
Intellectual Property. .......................................................................................................... 256
Chapter 11.
Securities Regulation.......................................................................................................... 279
Chapter 12.
Taxation..................................................................................................................................... 302

Key............................................................................................................................................... 327
1
Chapter 1 7

The Law of Contracts

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of “Юридические понятия и
категории в английском языке. Толковый словарь».

I. FORMATION OF A CONTRACT

NATURE OF CONTRACTS

A contract is an agreement, express or implied, to do or not to do a particular thing.

1. Elements of a Legal Contract: A legal contract usually contains the following elements:
(i) Two or more competent parties;
(ii) Mutual consent;
(iii) Consideration;
(iv) Proper subject matter; and
(v) Mutuality of obligation.

2. Classification of Contracts: Contracts may be classified according to type of formation, per-


formance, or enforceability.
a. Formation: Contracts may be formed either expressly or impliedly.
(1) Express contracts: An express contract is one in which the terms are stated in words,
either oral or written.
(2) Implied contracts: Contracts may be implied in fact or implied in law.
(a) Implied in fact: An implied in fact contract is one in which the terms and ex-
istence are manifested by conduct rather than words.
1) Example: A customer goes into a market, selects a can of beans and takes
them to the check-out stand, hands over his money, receives his change, if
any, and leaves with the beans. Although no words were spoken, a contract
was made.
(b) Implied in law or quasi-contract: When there is no contract as such, but one
party may be unjustly enriched due to goods or services provided by another, the
law will imply a contract for a reasonable value of the goods or services supplied.
The Law of Contracts
8 Chapter 1

b. Performance
(1) Unilateral contract: A unilateral contract is one in which a promise is given by one
party in return for the other’s performance or forbearance of an act.

(2) Bilateral contract: A bilateral contract is formed when one party makes a promise
in return for the promise of the other party, and the mutual promises are binding.

(3) Executed contract: An executed contract is one in which the objects of the contract
have been fully performed.

(4) Executory contract: An executory contract is one in which something remains to be


done by either or both of the parties before the contract is executed.

c. Enforceability
(1) Void contract: A void contract is a nullity and cannot be enforced by either party
(e.g., an illegal matter).

(2) Voidable contract: A voidable contract may be either avoided or enforced at the op-
tion of at least one of the parties, such as a minor’s right in a contract the minor made
with an adult.

(3) Unenforceable contract: An unenforceable contract is one that cannot be enforced


because of some legal technicality, such as the failure to file an action within the time
prescribed by law.

(4) Unconscionable contract: A court may refuse to enforce a contract because it is


unconscionably unfair, usually where there is an absence of meaningful choice on the
part of one of the parties and unreasonable contract terms favoring the other.

THE OFFER

An offer is a proposal, made by words or acts, to enter into an agreement, which proposal, when ac-
cepted, becomes a contract.
1. Requirements of a Legal Offer: To be legally sufficient, an offer must meet the following
criteria:
a. Intent: The words or acts must show a present contractual intent.
b. Certainty: The terms must be sufficiently clear and complete so that the court can
determine what the parties intended.
c. Communication: The offer must be communicated to the other party.

The Law of Contracts


Chapter 1 9

2. Parties to Offer: The party making the offer is the offeror and the one to whom it is made
is the offeree.

3. Duration of Offer: A communicated offer continues until it lapses or expires, becomes il-
legal or impossible, is revoked, is rejected, or is accepted by the offeree.

a. Lapse: An offer lapses or expires in accordance with its terms or when a reasonable
time has passed.
(1) Specified time: If a time is specified in the offer, and it is not accepted by such
time, the offer expires.
(2) Reasonable time: What is a reasonable time depends upon the nature of the
offer, usages of the business, and circumstances of the case.

4. Operation of law
(1) Illegal: If the subject matter of the offer becomes illegal, the offer is revoked by
operation of law.

(2) Destruction of the subject matter: Destruction of the subject matter prior to accept-
ance revokes the offer.

(3) Death or insanity: Death or insanity of the offeror prior to acceptance revokes the
offer since there would be no offeror capable of contracting.
(a) Offeree: Death or insanity of the offeree also revokes the offer since there is
no one able to accept.
(b) Death after acceptance: Death of either party after acceptance is usually imma-
terial since the contract has been formed. The contract then becomes an obligation
of the estate.

5. Revocation: Generally, an offer can be revoked by the offeror at any time before it is ac-
cepted, even though the offer states a period of time during which it will remain open.

(1) Exceptions: There are some exceptions to the general rule on revocation.

(a) Option: An option is really a separate contract agreeing to keep an offer open
for a specified period of time, for which separate consideration is paid.
(b) Unilateral contract: In a unilateral contract, since acceptance is by an act,
after there has been substantial performance by the offeree, the offer cannot be
revoked.

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10 Chapter 1

(2) Communication: The general rule is that a revocation must actually be received by
the offeree before it is effective.

(a) Minority rule: There is a minority rule followed in a few states that a revoca-
tion is effective when put into transmission.
(b) Public offer: An offer made to the general public may usually be revoked in
the same manner in which it was made (e.g., an offer made on a television pro-
gram to all viewers may be revoked on the television program).

6. Rejection: A rejection is an express refusal to accept an offer.

(1) When effective: A rejection is not effective until actually received by the of-
feror.
(2) Counter-offer: A counter-offer has the same effect as a rejection and revokes
the original offer.

THE ACCEPTANCE
An offer must be accepted in order for a contract to be formed.

1. Form of Acceptance: Acceptance is an expressed or communicated overt act by the of-


feree indicating acceptance of the offer.
2. Who May Accept: The right to accept an offer can only be exercised by the person or
persons to whom the offer was made.
3. Knowledge of Offer: An offer cannot be accepted unless the acceptor knows that the
offer exists.
4. Identical Offers: Identical offers that cross in the mail do not create a contract, as there
are two offers but no acceptance.
5. Acceptance Must Be Unqualified: Acceptance of offers must be unqualified, without
changing any of the terms, unless it falls within one of the U.C.C. exceptions.
6. Acceptance by Silence: In a bilateral contract, silence ordinarily cannot be acceptance
even though the offer so states.
7. Effective Time of Acceptance: Acceptance of a bilateral contract is effective when it is
placed in the regular course of transmission.
8. Manner of Acceptance: The offer may specify the manner of acceptance required, or if
no prescribed method is stated, any reasonable means may be used.
9. Acceptance After Rejection: Occasionally an offeree will send a rejection of an offer,
then have a change of mind and try to accept, in which case it depends upon which is
received first by the offeror.

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Chapter 1 11

II. CONSIDERATION

NECESSITY FOR CONSIDERATION


In addition to intent manifested by an offer and an acceptance, most contracts require the element
of consideration.

1. Consideration Defined: Consideration is something of value which is a benefit to one party or


a detriment to the other.
2. An Act as Consideration: In a unilateral contract, a promise is given in consideration for an act
to be performed by the other party.
3. A Promise as Consideration: In a bilateral contract, the promise of one party is the considera-
tion for the promise of the other party.
4. Adequacy of Consideration: Generally, as long as the consideration has some value, however
slight, it will be sufficient, as the parties, not the court, make the bargain and determine
value.
5. Doing What One Is Bound to Do: Promising to do or doing what one is already legally bound
to do is no consideration. Thus, a peace officer on duty is unable to collect a reward for the
capture of a criminal.
6. Past Consideration: Past consideration is something that has been done in the past without ex-
pectation of obtaining something in return and thus cannot be used to sustain a new promise.
7. Moral Obligation: Absent a statute to the contrary, a moral obligation (what one ought to do)
is merely a promise to make a gift, and is not consideration.

CONSIDERATION EXCUSED

The requirement of consideration is often criticized and modern law tends to relax the requirement
and has evolved several exceptions to the rule.

Promissory Estoppel: Where a promisee reasonably acts on the promise of another expected
to induce action or forbearance by the promisee and an injustice would result if the promise
were not enforced, the courts may allow the contract even though no formal consideration ex-
ists, under the doctrine of promissory estoppel.

The Law of Contracts


12 Chapter 1

III. REALITY OF CONSENT


The mutual assent necessary for a contract is lacking if a party is induced to make the agreement
through mutual mistake, fraud, duress, or undue influence.

1. Mutual Mistake as to Existence or Identity of the Subject Matter: If both parties are mistaken
about a material fact involving the nature of the contract, the identity of the person with
whom made, or the existence or identity of the subject matter, such mistake prevents forma-
tion of a binding agreement.

2. Fraud Defined: Fraud is an intentional misrepresentation of a material fact to induce another


party acting in reliance thereon to give up a legal right or something of value, when such other
party is deceived thereby and does act upon it to his legal injury.

3. Duress: Duress consists of compelling compliance through fear, and when used to obtain
consent to a contract makes the agreement voidable.

a. Threats of force and violence: Duress at common law was threat of violence and bodily
harm, and contracts now made under such conditions are unenforceable.

b. Threat of criminal prosecution: The threat of pursuing a criminal prosecution against a


person constitutes duress and cannot be used to form a binding contract.

4. Undue Influence: Undue influence is the unlawful control of one person over another so as
to substitute the dominant party’s will for that of the dominated person. Where done to the
extent that the dominated person had no real choice, the contract lacks reality of consent.

a. Confidential relationship: Where a confidential or fiduciary relationship exists between


the parties, most states will look to the fairness of the contract and require less proof to
establish undue influence.
(1) Example: Persistent nagging of a husband by his wife to procure the transfer of
property was held to be undue influence.

b. Mere persuasion: Undue influence cases are difficult. If an agreement were made un-
der the influence of mere persuasion but was done as a matter of free choice, it would
be binding, unless enough influence were applied to cause the person to agree to some-
thing other than that which was desired.

The Law of Contracts


Chapter 1 13

IV. CAPACITY OF THE PARTIES

A. INTRODUCTION

One of the requirements of a binding contract is that the parties thereto have the legal capacity
to contract. Thus, where a party is incompetent because of minority, insanity, intoxication, or
statutory disability, the contract made may be avoided.

B. MINORS

At common law, anyone under twenty-one years of age was considered a minor; however, today
most states have enacted statutes reducing this age to eighteen for contract purposes.

1. Minor’s Right to Avoid a Contract: The general rule is that a minor can avoid a con-
tract made during minority, provided the minor disaffirms it while a minor or within
a reasonable time after attaining majority.

a. Adult is bound: Until a minor avoids the contract, an adult party is bound by an
agreement made with the minor.

2. Contracts for Necessaries: A minor is liable for the reasonable value of necessaries
actually furnished him by another person upon the minor’s request.

a. Necessaries: Necessaries have been defined as those things necessary for life,
such as food, clothing, shelter, medical aid, tools of a trade, and certain educa-
tion that are not being provided to the minor, and to the extent compatible with
his age, need, financial, and social status in life.

3. Contracts Minor Cannot Avoid: A minor cannot avoid a contract if he ratifies it when
he becomes an adult or if it is a contract made binding on minors by statute.

4. Misrepresentation of Age: Most states hold that the fact that a minor misrepresents his
age will not deprive him of the right to disaffirm his contract.

a. Estoppel: Many states hold that where the minor lies and obtains and retains
property as a result thereof, the minor will not be allowed to disaffirm the con-
tract on the theory of estoppel—that he will not be permitted to take advantage
of his own fraud.

The Law of Contracts


14 Chapter 1

C. INTOXICATED PERSONS

A person who was so intoxicated or under the influence of drugs at the time she made a contract that
she was not aware of what she was doing, to the extent that she did not comprehend the nature and
effect of the transaction, may treat the agreement as voidable.

D. PERSONS OF UNSOUND MIND

A person of unsound mind who is so mentally deranged at the time of making a contract that he is
unable to understand the consequences of what is being done, may treat the contract as voidable.

1. Test for Insanity: Mere mental incompetence does not deprive a person of contractual
ability, but the test for contracts is that the mental incapacity must amount to an ina-
bility to understand the nature of the act and to appreciate its possible consequences.

E. ALIENS

Aliens who are lawfully in this country normally enjoy the same contract rights as citzens, with a few
exceptions.

V. LEGALITY OF SUBJECT MATTER

As a general rule, contracts which involve a violation of the law, or are against public policy, are un-
enforceable.

A. ILLEGALITY
When the subject matter of a contract is contrary to law or involves criminal activity, the
agreement is unenforceable.
1. Gambling and Lotteries: Contracts involving gambling or lotteries are either against
the law or public policy and cannot be enforced in court.
2. Partial Illegality: When part of the consideration for a contract is illegal and part is legal,
the legal part can be enforced if the contract is divisible. However, if the contract is inte-
grated so that the parts cannot be separated, the entire agreement is unenforceable.

B. PUBLIC POLICY
Agreements which may not violate the law, but which are against public policy as determined
by statutes, court decisions, and public attitudes cannot be enforced in the courts.
1. Legal Gambling: Even where gambling is legal, it is usually against public policy to use
the courts for enforcement.

The Law of Contracts


Chapter 1 15

2. Restraint of Marriage or Remarriage: Agreements which restrain marriage or remar-


riage are generally against public policy.

C. AGREEMENT TO COMMIT A TORT


An agreement to commit a tort (a wrongful act not arising out of a contract) is illegal.

D. AGREEMENT INTERFERING WITH DUTY


An agreement which is against the public interest because it interferes with a public or private
duty is illegal.

1. Public Duty: Public duty refers to those activities concerning public officials and gov-
ernmental operations. Attempts to corrupt or interfere with the duties owed to the pub-
lic are unenforceable.
2. Private Duty: An agreement that interferes with a privately owed duty, such as fiduciary
responsibility, secret commissions, and salary kick-backs, is illegal and unenforceable.

E. EXCULPATORY AGREEMENTS
A provision in a contract which relieves a party of liability for personal negligence is not favored
by the law. It is strictly construed against the party relying on it, and often it is declared illegal
or against public policy by state laws.

1. Public Interest: Where the public interest is involved, exculpatory clauses are usually
held to be against public policy.
2. Private Agreement: Where no public interest is involved and there is no gross neg-
ligence, fraud, willful injury, employer-employee relationship, or violation of the law,
courts will generally enforce private exculpatory agreements.

F. SUNDAY LAWS
Many states have enacted Sunday laws (also called “blue laws”) which make certain contracts
made on Sunday unenforceable.

G. DISCRIMINATION CONTRACTS
Contracts which discriminate because of race, religion, color, or national origin in the sale or
rental of property, and in the use of public accommodations and facilities are illegal.

H. PROMISES NOT TO COMPETE


A promise by a seller of a business not to compete is generally enforceable, if it is necessary and
is reasonable in time and area.

I. USURY
Definition: Usury means an illegal contract for a loan carrying an excessive rate of interest.

The Law of Contracts


16 Chapter 1

J. UNCONSCIONABLE CONTRACTS
U.C.C. section 2-302 provides that courts may refuse to enforce an unconscionable contract
or an unconscionable clause in an agreement, particularly where the parties have unequal
bargaining power.

VI. THE STATUTE OF FRAUDS (WRITINGS)

THE STATUTE OF FRAUDS

1. In General: Most contracts are valid whether they are oral or in writing. However, some
contract situations are deemed so important that they are required to be proved by written
evidence, which must be signed by the person who denies the existence of the agreement.
2. Historical Background: The original Statute of Frauds was passed in England by Parlia-
ment in 1677. It had nothing to do with the law of fraud, but was “An Act for the Prevention
of Frauds and Perjuries” which hoped to keep contracting parties honest by requiring them
to put certain types of agreements in writing.
3. Modern Application: Although the rules of the Statute of Frauds are considered by many
scholars to be anachronisms that have outlived their purpose, and the original statute was
repealed in England in 1954, nevertheless it remains law throughout the United States.

VII. INTERPRETATION OF CONTRACTS


When the parties cannot agree as to the meaning of the terms of their contract and litigate the issue, the
court applies certain principles of construction and interpretation of the agreement.

A. INTERPRETATION AND CONSTRUCTION PRINCIPLES

1. Intention of the parties: The purpose of interpretation is to determine and give effect to the
mutual intention of the parties.
a. Reasonable meaning: The court will prefer a reasonable and effective meaning over
one that would be unreasonable and ineffective.
b. Objective standard: An objective standard, the expressed intent rather than a secret
or hidden one, is followed.

2. Interpretation as a Whole: A contract must be read and interpreted as a whole (i.e., in its
entirety) so as to give effect to all its parts.

3. Written and Printed Terms: When a contract is partly written and partly printed, the
written part prevails if there is a conflict, and if an amount is expressed in conflicting
words and figures, the words prevail. For example, “One Hundred and Fifty Dollars
(1.50)”—the correct sum would be one hundred and fifty dollars.

The Law of Contracts


Chapter 1 17

4. Usage and Custom: Usage and custom prevailing in the community may be used to
explain the meaning of language in a contract.

5. Party Causing Uncertainty: Language in a contract that is uncertain or ambiguous will


be interpreted most strongly against the preparer who caused the confusion.

a. Insurance contracts: Insurance contracts capable of more than one interpretation


are construed against the insurance company because they prepare the policy and
the law favors the coverage for losses to which the insurance policy relates.
b. Adhesion contracts: In “adhesion” contracts, those between unequal parties where
the more powerful party presents a “take-it-or-leave-it” position on a onesided
agreement, the courts will usually imply a covenant of good faith and fair dealing
that will not permit either party to do anything that might destroy or injure the
other’s right to receive the fruits of the contract.

B. THE PAROL EVIDENCE RULE


The parol evidence rule states that oral testimony is not admissible to vary the terms of a writ-
ten contract when such testimony relates to oral statements made prior to the signing of the
contract or at the same time the contract was made.

1. Rationale: After all preliminary negotiations, when a contract is reduced to writing it is


logical to assume that the document contains all the terms agreed to by the parties.

2. Exceptions: There are several exceptions to the parol evidence rule.


a. Ambiguity: When words or provisions of a written contract are ambiguous (ca-
pable of more than one meaning), oral evidence may be offered to explain the
ambiguity.
b. Mistake, fraud, duress, undue influence, illegality or lack of capacity: Mistakes,
lack of capacity, and lack of reality of consent obviously would not appear in the
body of a written contract. Such impediments could only be established by oral
evidence, which is permitted for such purpose.
c. Incomplete contract: When a written contract is obviously incomplete on its face,
oral testimony is admissible to supply the missing terms.

(1) Example: A contract with an architect to design a factory building which


did not specify on its face the maximum cost or any details of construction
was incomplete, and the court permitted oral evidence as to the size and
cost of the factory.
(2) Example: A promise not to compete contract contained a provision “with-
in a twenty-five mile radius of the city ___________,” and the court per-
mitted oral evidence to fill in the blank.

The Law of Contracts


18 Chapter 1

d. Condition precedent: If the parties to a written contract orally agree that the
contract is not to be effective unless a certain event occurs, oral testimony can be
introduced to show this condition precedent, since the party is not really trying to
vary the terms of the written contract but merely showing that it never took effect.
e. Later oral changes and additions: The parol evidence rule applies only to oral
provisions made before or at the time of signing the written agreement; it does
not apply to later changes, modifications, or additions. However, other provi-
sions such as the Statute of Frauds or lack of consideration might be applicable.
f. Consideration: Many instruments may recite that consideration has been paid,
when it has not in fact, or there may be a recitation of nominal payment when
it was actually much larger. In such cases, the courts will usually allow oral evi-
dence to show the true consideration paid.

VIII. TERMINATION OF CONTRACTS

Most contracts are terminated by performance of the parties; however, some may be ended by other
acts of the parties, by impossibility of performance, or by operation of law.

A. PERFORMANCE

1. Payment: When payment is called for in a contract, performance is completed by pay-


ment of money.

2. Time: Where the time of performance is stated in the contract and is clear and unam-
biguous, performance should be made on that date.

a. Reasonable delay: When no time is specified in the contract, the party has a rea-
sonable time to perform, and where the nature of the contract is such that time is
not an important factor, reasonable delay is permitted.
b. “Time is of the essence”: Where an express clause in the contract makes “time of
the essence” or the nature of the contract itself is such that time is obviously an
important factor, e.g., mercantile and speculation agreements, failure to perform
on time is actionable.

3. Substantial Performance: While actual performance is required in most cases to dis-


charge a contract obligation, some agreements (e.g., building construction) are not so
simple to perform. In such cases the doctrine of substantial performance is followed,
which allows recovery where the party has substantially performed, subject to an offset
for any nominal, trifling, or technical departures from the letter of the contract.

The Law of Contracts


Chapter 1 19

4. Performance to Satisfaction

a. Satisfaction of promisee: When one party to an agreement contracts to “person-


ally satisfy” the promisee, the test applied by the courts depends upon the subject
matter of the contract.
(1) Personal taste or fancy: Where the contract involves personal taste, skill,
or fancy, the promisee has the final word and may be subjectively arbitrary,
although good faith is required.
(2) Mechanical utility: Where the subject matter of the contract concerns
operative fitness or mechanical utility, the courts will apply an objective
standard and hold that if a reasonable person would be satisfied with the
performance, the promisor can recover.

b. Satisfaction of third party: Some contracts may contain a condition that comple-
tion depends upon the satisfaction of a third party (e.g., an architect’s satisfaction
that a building construction contract has been performed properly, and in such
cases the courts apply an objective test, allowing recovery if the certificate of ap-
proval is unnecessary or is withheld due to bad faith, fraud, or mistake.

B. ACTS OF THE PARTIES

1. By Conditions in the Contract: Many contracts have conditions—express or implied—


that control performance, and such conditions may be concurrent, precedent, or sub-
sequent.

a. Condition concurrent: Conditions concurrent require that performance take


place at the same time (e.g., a sale of goods with payment and delivery to occur
simultaneously) so that neither party can demand that the other perform first,
and one cannot sue the other without first having offered to perform.

b. Condition precedent: A condition precedent is one that must occur before a


duty of immediate performance arises under a contract. For example, an insur-
ance policy may require notice of loss within a certain time period after occur-
rence of the loss. Failure to give such precedent notice may excuse the insurer
from liability.

c. Condition subsequent: A condition subsequent is one that terminates an existing


duty of performance of the contract, such as a condition that an action be brought
against an insurance company within twelve months of the loss or recovery would
be barred.

The Law of Contracts


20 Chapter 1

2. Mutual Release: Parties to a contract may mutually agree to rescind, return the con-
sideration, and place each other in their original positions, except that such mutual
rescission of a contract to sell land would have to be in writing.

3. Novation: Novation is the abandoning of an old contract and substituting a new one in
its place. Novation is accomplished by the one who is entitled to receive performance
agreeing to release the person who is bound to perform and substituting a third person
who agrees to make such performance.

4. Accord and Satisfaction: An accord is an agreement to substitute performance in sat-


isfaction of an original obligation, and when the accord is accepted and carried out,
there is an accord and satisfaction which discharges the contract.

5. Prevention or Waiver: When a party to a contract prevents the other from performing,
or a party waives performance by the other, such performance is excused.

a. Example: A painter contracted to paint a barn but was ordered to stop before the
job was completed; therefore, his performance was excused because he was pre-
vented from doing so by the other party.
b. Example: A landlord waives the right to receive rental payments on time by ac-
cepting them late without objection; reinstatement of the requirement would re-
quire timely notice to the tenant.

6. Anticipatory Breach: Contracts are not actually broken until the time for performance
has arrived and is not met; however, there may be a total breach by repudiation, which
is referred to as anticipatory breach.

C. IMPOSSIBILITY
If performance of a contract was physically impossible at the time of making the contract and
this fact was not known to the parties, performance is excused.

D. OPERATION OF LAW
Contracts may be discharged by operation of law when the law has made the subject matter of
the agreement unlawful, against public policy, unenforceable, or excuses performance.

The Law of Contracts


Chapter 1 21

IX. CONTRACT REMEDIES

When a contract has been breached or wrongfully terminated, the injured party may be entitled to
money damages, and in some cases, to equitable relief.

A. DAMAGES
1. Compensatory Damages: “Compensatory damages” refers to that sum of money that
will be just compensation for the losses suffered.

a. Contemplated damages: The injured party can only recover those damages that
would have been contemplated by the parties at the time the contract was made.

(1) Unusual or unforeseeable damages: Unusual or unexpected damages re-


sulting from facts not reasonably foreseen at the time the contract was made
are not recoverable.

b. Determination: The amount of damages is a question of fact for the jury, or if no


jury, for the judge to determine.

2. Nominal Damages: If the plaintiff wins the case but is unable to prove a loss, the court
may award nominal damages {e.g., one dollar) plus court costs.

3. Actual Damages: The general rule of money damages is the difference between the con-
tract price and what has to be paid to get the contract performed.

4. Punitive Damages: Exemplary damages (to set an example) or punitive damages (to
punish) may be awarded in certain cases to discourage wrongful conduct.

5. Liquidated Damages: Parties may stipulate in advance that a certain amount of dam-
ages will be paid to the injured party in the event of default as liquidated damages,
provided that actual damages would be difficult to ascertain and the amount set is not
so excessive as to consiitute a penalty or forfeiture.

6. Duty to Minimize or Mitigate Damages: The injured party is generally obligated to


minimize or mitigate damages by taking any reasonable measures to reduce the amount
of the loss.

B. EQUITABLE RELIEF
These are times when the plaintiff in an action is not interested in money damages but desires
relief in the form of a court order for equitable relief, such as specific performance of the con-
The Law of Contracts
22 Chapter 1

tract, reformation or rescission of the agreement, or an injunction requiring the other party
either to do or not to do something.

1. Specific Performance: Specific performance is an order of the court for the parties to
carry out the specific terms of the contract and, since refusal to obey a court order can
lead to imprisonment for contempt of court, such decrees are granted only when cer-
tain conditions are met.
2. Rescission: Rescission is the unmaking of a contract by court order, and may be had for
illegality, commercial frustration, fraud, undue influence, duress, innocent misrepre-
sentation, mistake, insanity, intoxication, failure of consideration, substantial breach,
or other reason where one party is no longer able to perform.

X. THIRD PARTIES

Third parties get involved in the contracts made by others, either as beneficiaries or through
assignment.

A. THIRD PARTY BENEFICIARIES


Contracts often are made between parties for the express purpose of benefiting a third party.
This third party then can enforce the contract only if it was made expressly for his benefit,
and subject to any defense against the original contracting parties. Such beneficiaries may be
donee, creditor, or incidental beneficiaries.

B. ASSIGNMENTS
An assignment is the transfer by one party, the assignor, of some or all of his rights under a
contract to a person not a party to the contract, the assignee.

The Law of Contracts


Chapter 1 23

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. ........................................................
contractual relationship / privity of contract ........................................................
........................................................
2. ........................................................
to draw up / draft a contract
to make / conclude / enter into ........................................................
to perform ........................................................
to terminate / discharge / rescind / avoid / ........................................................
cancel / repudiate / set aside / breach
to challenge / dispute / contest / attack ........................................................
to comply with the provisions of ........................................................
........................................................
conclusion of a contract
(non)performance of / failure to perform ........................................................
termination / discharge / rescission / ........................................................
avoidance / cancellation / repudiation /
........................................................
breach of
(non)compliance with the provisions of ........................................................
........................................................

3. ........................................................
a contract provides ........................................................
stipulates ........................................................
specifies
sets forth ........................................................
........................................................
........................................................
provisions of a contract
stipulations of ........................................................
specifications of ........................................................
........................................................
4. ........................................................
unilateral, bilateral contract ........................................................
........................................................
express, implied implied-in-fact ........................................................
implied-in-law ........................................................
executed, executory ........................................................
........................................................
(un)enforceable, (in)valid, voidable,
........................................................
void, (il)legal, (un)lawful
........................................................
(in)divisible, severable, entire, installment ........................................................
........................................................
adhesion, unconscionable, “as is”
........................................................
wagering, usurious ........................................................

fraudulent, fictitious ........................................................

The Law of Contracts


24 Chapter 1

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

5. ........................................................
binding offer ........................................................
firm ........................................................
counteroffer ........................................................
........................................................
duration of an offer ........................................................
lapse/expiration of ........................................................
........................................................
to make an offer ........................................................
to communicate ........................................................
to accept ........................................................
to revoke/withdraw ........................................................
to reject ........................................................
........................................................
to keep an offer open ........................................................
to hold an offer open ........................................................
........................................................
6. ........................................................
(un)qualified acceptance ........................................................
grumbling ........................................................
........................................................
silence as acceptance ........................................................
........................................................
7. ........................................................
nominal consideration ........................................................
valuable ........................................................
adequate ........................................................
fair ........................................................
sufficient ........................................................
past ........................................................
mutual (quid pro quo) ........................................................
........................................................
want of consideration ........................................................
failure of ........................................................
........................................................
be supported by consideration ........................................................
founded on ........................................................
........................................................

The Law of Contracts


Chapter 1 25

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

8. ........................................................
condition present ........................................................
subsequent ........................................................
concurrent ........................................................
........................................................
express condition ........................................................
Implied ........................................................
........................................................
Compare: warranty ........................................................
collateral terms ........................................................
........................................................
........................................................
9. ........................................................
liquidated/stipulated damages ........................................................
compensatory/actual ........................................................
nominal ........................................................
punitive/exemplary ........................................................
consequential ........................................................
incidental ........................................................
double/treble ........................................................
........................................................
to recover damages ........................................................
to measure/ assess ........................................................
to mitigate/ minimize ........................................................
to award ........................................................
to collect ........................................................
........................................................
to sue for damages / to file a suit for damages ........................................................
........................................................
10. ........................................................
to bear liability ........................................................
to incur ........................................................
to impose ........................................................
to relieve from ........................................................
to exempt from ........................................................
to free from ........................................................
to discharge from ........................................................
........................................................

The Law of Contracts


26 Chapter 1

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

contract liability
........................................................
tort
........................................................
limited
........................................................
strict
........................................................
vicarious
........................................................
joint and several
........................................................
........................................................
extent of liability
........................................................
........................................................
to be liable
........................................................
to hold somebody liable
........................................................
........................................................
11.
........................................................
tender of delivery
........................................................
of performance
........................................................
of payment
........................................................
........................................................
legal tender
........................................................
perfect
........................................................
........................................................
on tender of documents
........................................................
........................................................
12.
........................................................
to assign / transfer / convey rights (under a contract)
........................................................
assigner / assignee
........................................................
........................................................
13.
........................................................
to seek remedy / relief / redress
........................................................
to be entitled to
........................................................
to grant
........................................................
........................................................
equitable relief
........................................................
........................................................
14.
........................................................
to contravene the law
........................................................
to contradict
........................................................
to conflict with
........................................................
to be against
........................................................

The Law of Contracts


Chapter 1 27

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

15.
statute of Frauds ........................................................

of Limitations ........................................................
........................................................
16. ........................................................
promissory estoppel ........................................................
........................................................
17.
........................................................
exculpatory clause
........................................................
18. ........................................................
specific performance ........................................................
........................................................
19.
........................................................
unjust enrichment
........................................................
........................................................
20.
........................................................
circumstances excusing performance:
........................................................
impossibility
........................................................
impracticability
........................................................
frustration
........................................................
novation
........................................................
accord and satisfaction
........................................................
waiver
........................................................
alteration
........................................................
........................................................
21.
........................................................
defenses to a contract enforcement:
........................................................
mistake (unilateral, mutual)
........................................................
duress, undue influence, misrepresentation
........................................................
fraud in the factum/in the inducement
........................................................
concealment of a material fact
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

The Law of Contracts


28 Chapter 1

Exercise 1
From the list of terms that follows, select the one that matches each definition.

______1. Any agreement that is enforceable in a court of law.


______2. A contract in which the terms are stated or expressed by the parties.
______3. The refusal by an offeree of an offer.
______4. A proposal made by an offeror.
______5. A contract containing two promises, one made by each party.
______6. Good; having legal effect.
______7. Approve; confirm.
______8. The assent to the terms of an offer.
______9. Occurs when one person retains money, property, or other benefit
which in equity and justice belongs to another.
______10. Carried out or performed.
______11. The legal name for a minor.
______12. A contract that cannot be enforced for some legal reason.
______13. To get out of a voidable contract (select two answers).
______14. Not good; having no legal effect.
______15. The taking back of an offer by an offeror before it has been accepted.
______16. One who makes an offer.
______17. Capable of being disaffirmed or voided.
______18. A contract in which the terms are not stated by the parties.
______19. A response to an offer in which the terms of the original offer are changed.
______20. Legal competency.
______21. A contract containing one promise in exchange for an act.
______22. That which is yet to be executed or performed.
______23. One to whom an offer is made.
______24. Restore an injured person to his original position prior to a loss.
______25. A contract that arises from the conduct of the parties rather than
from their express statements.
______26. Nothing; as though it had not occurred.
______27. Full age; adulthood.

a. acceptance b. avoid c. bilateral contract


d. capacity e. contract f. counteroffer
g. contract implied in fact h. disaffirm i. executed
j. executory k. express contract I. implied contract
m. infant n. majority o. nullity
p. offer q. offeree r. offeror
s. ratify t. rejection u. restitution
v. revocation w. unenforceable contract
x. unilateral contract y. unjust enrichment z. valid
aa. void bb. voidable
The Law of Contracts
Chapter 1 29

Exercise 2
From the list of terms that follows, select the one that matches each definition.

______1. The giving up of a legal right.
______2. Standard language used commonly in documents of the same type.
______3. One who makes a promise.
______4. The overcoming of a person’s free will by misusing a position of trust and taking ad-
vantage of the other person who is relying on the trust relationship.
______5. The overcoming of a person’s free will by the use of threat or physical harm.
______6. A clause that is used in a contract to escape legal responsibility.
______7. A contract that is drawn by one party to that party’s benefit and must be accepted,
as is, on a take-it-or-leave-it basis if a contract is to result.
______8. A misrepresentation of a material, existing fact, knowingly made, that causes some-
one reasonably relying on it to suffer damages.
______9. So harshly one-sided and unfair that the court’s conscience is shocked.
______10. One to whom a promise is made.
______11. Certain contracts must be in writing to be enforceable.
______12. An exchange of benefits and detriments by the parties to an agreement.
______13. The announcement, before the time for performance, by a party to a contract that
he or she is not going to perform.
______14.The transfer of a right from one person to another.
______15. The failure of a party to a contract to carry out the terms of the contract.
______16. Compensation in money for loss or injury.
______17. Discharging of a contract by doing that which one agreed to do under the terms
of the contract.
______18. An order by the court ordering a breaching party to do that which he or she agreed
to do under the terms of the contract.
______19. Laws that set forth time limits for bringing legal actions.

a. statutes of limitations b. anticipatory breach c. performance


d. assignment e. specific performance f. damages
g. breach of contract h. detriment i. boilerplate
j. undue influence k. promisor I. duress
m. exculpatory clause n. adhesion contract o. fraud
p. unconscionable q. promisee r. consideration
s. statute of frauds

The Law of Contracts


30 Chapter 1

Exercise 3
Complete this text with words or expressions from the box.

accepted agreement breach consideration contractual liability


damages express implied intention obligations offer reward
signed stated sue terms under seal verbally voided writing

A contract can be defined as ‘an 1)_____________between two or more


parties to create legal 2)_____________ between them’. Some contracts
are made 3)‘_____________‘: in other words, they are 4)_____________
and sealed (stamped) by the parties involved. Most contracts are made
5)_____________or in 6)_____________. The essential elements of a con-
tract are: (a) that an 7)_____________made by one party should be
8)_____________by the other; (b) 9)_____________(the price in money,
goods or some other 10)_____________, paid by one party in exchange
for another party agreeing to do something); (c) the 11)_____________
to create legal relations. The 12) _____________ of a contract may be
13)_____________ (clearly stated) or 14)_____________(not clear-
ly 15)_____________ in the contract, but generally understood). A
16)_____________of contract by one party of their 17)_____________ en-
titles the other party to 18)_____________for 19)_____________ or, in some
cases, to seek specific performance. In such circumstances, the contract
may be 20)_____________(in other words, it becomes invalid).



The Law of Contracts


Chapter 1 31

Exercise 4
Complete the texts using the words in the box.

agreement breach capacity consideration damages fraud illegal


obligation oral performance property signed terms

What is a contract?
It is an agreement that creates a binding (1)______________________
upon the parties. The essentials of a contract are as follows: mu-
tual (2)____________________ ; a legal (3)_________________ ,
which in most instances need not be financial; parties who have le-
gal (4) ______________________ to make a contract; absence
of (5) ______________or duress; and a subject matter that is not (6)
______________or against public policy.

What form does a contract take?


In general, contracts may be either (7) ____________ or written. Certain
types of contracts, however, in order to be enforceable, must be written
and (8) ______________________. These include contracts involving the
sale and transfer of (9)___________________.

How does a contract end?


In case of a (10) _______________ of contract, the injured party may go
to court to sue for financial compensation (or (11) _________________),
or for rescission, for injunction, or for specific performance if finan-
cial compensation would not compensate for the breach. Specific (12)
______________________ of a contract is the right by one contracting
party to have the other contracting party perform the contract according
to the precise (13)_________________agreed.

The Law of Contracts


32 Chapter 1

Translate the following into Russian.

FRAUD

If a person enters into a contract as a result of the intentional misrepresentation or deceit of the
other party to the contract, there is no meeting of the minds, no agreement, and hence no legal ob-
ligation. In most cases of mistake, both parties are innocent of wrongdoing—the minds simply did
not meet. In the case of fraud, however, the minds not only do not meet, but one party is guilty of
deceptive, dishonest conduct.

Five Requirements for a Finding of Fraud


(all five must be present)
(1) Misrepresentation of a material fact,
(2) made knowingly,
(3) with intent to defraud,
(4) justifiably relied upon,
(5) causing injury to the other party.

1. MISREPRESENTATION OF A MATERIAL FACT


To prove a case of fraud, the misrepresentation must concern a fact, and a fact
that is material.

Examples: Misrepresentations of Material Facts


1. A painting is by a specified artist.
2. An air conditioner will adequately cool a certain-size room.
3. An automobile will pass state inspection.
4. Turkey poults are healthy and free from disease.
Matters pertaining to value and matters asserted as opinion are generally not
factual in nature and are not grounds for fraud.

As stated concerning incidental mistakes, the parties to a contract usually have different percep-
tions of the value of the chattel, land, or other object being bought or sold. Moreover, it is customary
for the seller to “huff and puff” and to exaggerate the value of his/her goods, and many buyers, in
turn, seek to diminish or deprecate the value of the goods in order to lower the price. Opinions are, of
course, statements of judgment, not of fact, and do not constitute grounds for fraud.
There is, however, one major exception to this principle: an “opinion” by an expert—for example,
a physician, a lawyer, an engineer, a financial advisor—or one claiming to be an expert may be the
basis for fraud. The law treats the expert as a master of the facts; his/her judgments are to be relied on
as skilled—and factual.
The Law of Contracts
Chapter 1 33

2. MADE KNOWINGLY
The party misrepresenting the material fact must do so knowingly.

Scienter is the legal word for “guilty knowledge.”


Nonlawyers frequently believe that they can claim ignorance of the falsity of a
statement and thus defeat a claim for fraud. However, scienter goes beyond ac-
tual knowledge—it includes careless indifference to the truth, a lack of belief by
the declarer in his/her statements. Whether scienter is present is a auestion for a
properly instructed jury, and juries can be cynical about persons who “unintention-
ally” lie to gain an advantage.

3. WITH INTENT TO DEFRAUD


The misrepresentation of a material fact must be made with intent to defraud. Obviously, every
defrauding party will claim he/she had no intention to deceive, that the falsehood was innocent and
not willful. Unfortunately for such persons, the intent to defraud is presumed if the false statement is
made knowingly—if scienter is present.

4. JUSTIFIABLY RELIED UPON


The party to whom the misrepresentation was made must rely on it. This requirement is of the
greatest importance. If the seller lies, knowingly and intentionally, and the buyer recognizes (or should
recognize) the lie, but buys anyway, there is no fraud. Thus, if the salesman says, “This pesticide will
kill beetles on roses,” but the container has a clear statement that the product will kill aphids and slugs
but not beetles, an argument can be made that there is no reliance. (Some recent cases, however, have
held that reliance is justified under these circumstances, and hence there may be fraud.)

5. CAUSING INJURY TO THE OTHER PARTY


The party to whom the misrepresentation was made must have suffered injury as a result. Fre-
quently, however, the false statement or concealment does not cause injury. In this case, there is no
fraud.

CONSEQUENCES OF FRAUD

In the case of fraud, the defrauded party can rescind the contract. However, he/she has an alterna-
tive remedy: to affirm the contract and bring an action in tort to recover damages for the deceit. For
example, if a seller misrepresents the expired mileage of a second-hand automobile by turning back
the odometer, the buyer may rescind the contract. Alternatively, she may keep the automobile and
recover damages for the lessened value of the automobile.
Fraud is a grave offense in the eyes of the law. In any case where it can be proved, the victim has a
real advantage over the perpetrator. Our analysis of business torts and crimes points out that not only
is fraud a tort, it is also a crime. If the fraud is particularly aggravated, malicious, or oppressive, it can
give rise to punitive damages.

The Law of Contracts


34 Chapter 1

INNOCENT (NONFRAUDULENT) MISREPRESENTATION

Misrepresentation that lacks element 2 (knowing) and element 3 (intent to defraud) will result in a
contract voidable by the innocent party.
Unlike fraud, however, innocent misrepresentation is not a tort and does not give rise to a claim
for damages. The only remedy available to the plaintiff is rescission of the contract.

Example: Innocent Misrepresentation

Alice bought a rug for $1,000 at auction and was given a certificate stating that the rug was a genu-
ine Aubusson. Shortly thereafter, Alice sold the rug, as an Aubusson, to Betty, whose insurance agent
called in an appraiser. The expert pronounced the rug a fake worth at most $200.
Since Alice had been assured that the rug was an Aubusson and had innocently misrepresented
it as such, with no intent to defraud, Betty could not win damages. The contract, however, could be
rescinded; Betty returned the rug and Alice refunded the money.

UNDUE INFLUENCE
A contract entered into as a result of undue influence, although having the form and shape of an
agreement, is not enforceable over the objection of the victim.

Undue influence occurs when one party takes advantage of another by


reason of a superior position in a close or confidential relationship.

There are many confidential relationships that may give rise to undue influence, in which the
dominant party exercises control over the dominated person’s will for the former’s benefit. Attorney
and client, doctor and patient, clergyman and parishioner, trustee and beneficiary, principal and
agent, husband and wife (or wife and husband), guardian and ward—these are examples of such re-
lationships. In each case, the person occupying a superior position, that is, one of trust, should be
acting in the interest of the other person; hence any contract that is in reality for the former’s benefit,
and not for the latter’s, is presumed to be tainted with undue influence and therefore voidable.

Examples: Undue Influence


A client wins a large judgment in a lawsuit and then lends a portion of the award to her attorney.
A dying patient deeds over valuable property to his doctor.
A husband, hospitalized because of a serious illness, signs insurance releases for the sole benefit of
his wife, and upon her advice.
All these transactions would be suspect.

To overcome suspicion, the party in a position of trust should make full disclosure of his private in-
terest and potential gain (in writing or before independent witnesses) to the other party, and if possible
should assist him/her in obtaining independent advice concerning any proposed contract or gift.
The Law of Contracts
Chapter 1 35

DURESS

A contract that is in valid form and to all appearances is an agreement may be voided because of
duress.

Duress is coercion, either physical or mental, that deprives a person of free will
and leaves that person with no reasonable alternative other than to accept the
contract terms as imposed on him/her.

A contract made at gunpoint or under other compelling physical force is simply void. No mental
condition of agreement ever existed.
The more typical case of duress arises out of mental coercion. A contract made under mental coer-
cion is voidable. Such coercion may come about by threats—a kind of blackmail. However, the threat
must be improper or wrongful. A threat to sue in civil court on a just debt, thereby inducing a promise
to pay, is not duress.
Five kinds of threats are generally considered duress in contract law:
(1) Threat of physical violence or harm to the individual or to his/her family or property.
(2) Threat of criminal prosecution.
(3) Threat of a lawsuit, but only if the threat is made with actual knowledge that the suit would be
without any basis.
(4) Threat of personal or family social disgrace.
(5) Threat of economic loss if the party claiming duress can show that the loss may occur because
of actions of the one accused of coercion. Note: It is not wrong to threaten suit to recover a valid
debt or even a supposedly valid debt.

UNCONSCIONABILITY

A contract in valid form may be voided because of gross inequality in the respective positions of
the parties during the contract process. “Unconscionable” describes special situations in which an
overbearing party in a superior position (e.g., a merchant) imposes outrageously unfair terms on some
other party (e.g., a consumer) through fine print and “fast talk.” (UCC 2-302 covers unconscionable
sales contracts.) An adhesion contract, for example, often is unconscionable because it is a standardized
agreement tendered to a consumer on a “take it or leave it” basis, leaving him/her no opportunity to
bargain or to obtain the desired goods or services without signing the printed form.
Unconscionability is not an “easy out” from contract obligations. The burden of proof is high; the
law imposes a heavy duty to resist such high-handed, aggressive tactics before entering into the con-
tract. Moreover, even if a court finds part of the contract to be unconscionable, the court may enforce
the rest of the contract; the court even may choose to enforce the unconscionable clause, but limit its
application so as to avoid an unconscionable result. UCC 2-302 thereby grants judges wide-ranging
remedial discretion.
The Law of Contracts
36 Chapter 1

DISCHARGE

Discharge is a general legal term describing the termination or completion of a contract. This word
is much broader than “performance,” which denotes only one of several ways in which a contract is
brought to an end.

DISCHARGE BY PERFORMANCE
When a contract is performed by both parties, it is said to be discharged by performance. By “per-
formance” is meant substantial performance, not necessarily performance to the very last detail. To
determine whether the essential parts of the contract have been performed, one must usually look at the
main provisions of the contract; if these have been achieved, the contract has been substantially per-
formed. Thus, if a contract to build a house and to grade and prepare the lot and lawn is fulfilled except
for grading the lot, the contract is “performed,” but the cost of completing the work can be subtracted
from the agreed-upon price. On the other hand, if the contract is not substantially performed, that is, if
the house itself is not completed, the contractor can recover, not on his unperformed express contract,
but only in quasi contract for the quantum meruit of his limited performance. Of course, the contractor
is responsible for his unperformed express contract. Moreover, in many states, a contractor who will-
fully departs from the contract cannot recover even in quantum meruit.

CONDITIONS

Conditions are events whose occurrence or nonoccurrence changes, limits, precludes, gives rise to,
or terminates a contractual obligation. Conditions are distinguished from promises. There is breach of
contract liability for broken promises, but with non-completed conditions, there simply is no contract
(rather than a breached contract).
There are a number of ways to classify conditions: by formation, there are (1) express conditions and
(2) implied conditions; by timing, there are (1) conditions precedent, (2) conditions concurrent, and (3)
conditions subsequent.

• EXPRESS CONDITIONS
Express conditions are conditions that the contracting parties deliberately create as such in making
the contract. Usually, such phrases as “under the following conditions,” “on condition that,” “of the
essence,” and “subject to” are used to describe the agreed-upon essentials of the contract. In making
a contract, each party should carefully state as essentials or conditions the things that must be done in
order to call forth his/her obligation to perform.

• IMPLIED CONDITIONS
Most contracts, whether oral or written, contain implied conditions, some implied in fact or by the
nature of the agreement, others implied by law (constructive).

The Law of Contracts


Chapter 1 37

• CONDITIONS PRECEDENT, CONCURRENT, AND SUBSEQUENT

A condition precedent is one that must he complied with, or must occur, before the other party be-
comes obligated for his/her performance.

Conditions concurrent require that performance by both parties take place at the same time. Most
conditions fall within the concurrent category: the deed will be delivered when the price is paid or
tendered, or the bank will make a mortgage loan when the buyer presents proof of credit.

A condition subsequent may abolish liability or obligation: for example, a clause that the seller will
be liable for defective goods provided that the buyer gives notice within 30 days of delivery that the
goods are defective. Failure to give such notice absolves the seller of any obligation for the defective
goods.

DISCHARGE BY BREACH

If one party to a contract fails in a material way to perform, the other party has no obligation on
the contract—the contract is discharged by breach. Bear in mind, however, that if the contract is
substantially performed it is not materially breached. Also, remember that, even when the contract
is not substantially performed, the nonbreaching party is responsible for value received (quantum
meruit) in quasi contract. This value received may be subtracted from damages recovered from the
breaching party.

DISCHARGE BY ANTICIPATORY BREACH


If one of the parties to a contract clearly states or implies that he/she cannot or will not perform as
agreed, the other party does not have to sit idly by and await the due date of performance before de-
claring the contract breached and therefore discharged. Such a statement of nonperformance creates
an anticipatory breach. Anticipatory breach may be implied by some clear, unambiguous action on
the part of one of the parties: sale of goods under contract to the other party to some other person; fail-
ure to commence construction of a residence within several days or weeks of the date of completion.
When breach appears probable, but is not certain, the innocent party should demand assurance
from the other party that the contract will be performed. For sales contracts, if no assurance is given
within a reasonable time (no more than 30 days), repudiation has occurred.

Basic Principle of Anticipatory Breach

An anticipatory breach occurs if one party to a contract clearly states or implies that he/
she cannot or will not perform as agreed, even though the time of performance has not yet
arrived.

The Law of Contracts


38 Chapter 1

DISCHARGE BY AGREEMENT OF THE PARTIES

• MUTUAL RESCISSION
Since a contract comes into being by mutual agreement, it can be ended at any time by mutual
agreement or mutual rescission. Mutual rescission is a contract to end a contract. If the contract is
wholly executory, the mutual rescission requires no additional consideration.
Parties may orally agree to end a written agreement, regardless of the formality with which the
written contract was made. Indeed, most courts hold that a written agreement providing "This con-
tract shall not be modified except in writing, duly executed by a corporate officer of each of the par-
ties hereto" may nevertheless be orally cancelled provided that the parties effecting the cancellation
have the authority to do so.

• ACCORD AND SATISFACTION


Accord and satisfaction discharge a contract in that the parties agree to substitute a new perform-
ance in place of, and in satisfaction of, an existing obligation. An essential element is acceptance
of the new performance, frequently the doing of an act, as full satisfaction for an obligation to pay
money. The accord is the agreement to accept the substitution; the performance of the accord is the
satisfaction.
Acceptance of a new performance in satisfaction of an existing obligation discharges the old obli-
gation and operates as an accord and satisfaction.

• RELEASE
Another type of discharge of contract by agreement of the parties is a release. A release is an
agreement by one party to excuse the other party from performance of his contract. If A and B have
a contract, and A is unable to perform or is in breach of contract, he may obtain a release from B by
the payment of consideration, usually money, although anything of value will support the discharge.
A release is valuable protection when a person has, or may have, breached a contract and wishes to
avoid any possibility of suit.
In the case of claimed breaches by both parties, with claims and counterclaims by the contracting
parties, mutual releases should be obtained in order to ensure the full discharge of the contract by
both parties.

• WAIVER
Section 1-107 of the Uniform Commercial Code provides that "Any claim or right arising out of an
alleged breach can be discharged in whole or in part without consideration by a written waiver or renun-
ciation signed and delivered by the aggrieved party." A waiver is the voluntary relinquishment of a party's
rights in a contract. A waiver may result in acceptance of defective or incomplete performance.
One should be careful, therefore, to object to incomplete performance and to serve notice that
one's rights are not being waived when additional time is granted for performance or a defaulting
party is afforded an opportunity for correction.

The Law of Contracts


Chapter 1 39

DISCHARGE BY OPERATION OF LAW

Four categories of occurrences will operate to discharge a contract as a matter of law: subsequent
illegality, impossibility, bankruptcy, and the statute of limitations.

• SUBSEQUENT ILLEGALITY
Subsequent illegality is a rather narrow category of discharge. The principle applies to contracts
that are legal when made, but become illegal by the subsequent passage of a statute. "The example
usually given pertains to alcoholic beverages; contracts to buy and sell become illegal by reason of the
passage of prohibition laws.
A very real, but also narrow, subsequent illegality occurs with the declaration of war. Statutes mak-
ing "trading with the enemy" illegal would nullify any executory contract requiring commerce with
the enemy or even with a neutral if the "enemy" could be shown to benefit. There is a distinction, how-
ever, between executed and executory contracts: if the enemy had delivered goods or licensed patent
rights (an executed contract as to him) but money was owing or not yet paid (an executory contract as
to the buyer or licensee), payment would be suspended until the cessation of hostilities. After the war
was over, the former "enemy" could collect!

• IMPOSSIBILITY
If performance becomes "impossible", the contract is discharged by operation of law. There are a
number of occurrences that may render performance impossible:
• In a personal service contract (e.g., services of a professional such as a lawyer or teacher), the
death or incapacitating illness of the performer.
• Destruction of the subject matter of the contract (the property or goods being bought or sold).
• A law or administrative act of government (such as environmental controls prohibiting disposal
of wastes or regulating the chemical or toxic content in goods to be manufactured and sold under
a contract) that makes performance illegal.
• Acts of God (natural occurrences such as floods or hurricanes that render performance impos-
sible).
"Acts of God" are frequently addressed in contract provisions called force majeure clauses. These
clauses may excuse nonperformance (or permit delayed performance) because of a force majeure, that
is, a superior force operating beyond the control of either party to the contract.

• BANKRUPTCY
The Bankruptcy Act provides that certain contracts are discharged by compliance with the act
(see Chapter 13). After a proceeding in a bankruptcy court, the debtor is released from all contractual
obligations to his/her creditors.

• STATUTE OF LIMITATIONS
It should be emphasized that, if the promise to perform is renewed following the period of limita-
tion, the contract obligation is revived.
The Law of Contracts
40 Chapter 1

Write in English a summary of the Chapter making use


of the suggested plan that follows.
Назовите основные виды договоров по англо-американскому праву и дайте их краткую
сравнительную характеристику в пределах каждого вида, желательно проиллюстрировав
примерами. Кратко охарактеризуйте отношения между оферентом, адресатом оферты и
акцептантом. Разъясните разницу между акцептом и контрофертой. Дайте определение
понятия «цессия» и назовите участников договора цессии.

The Law of Contracts


Chapter 1 41

The Law of Contracts


2
42 Chapter 2

Agency

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of “Юридические понятия и
категории в английском языке. Толковый словарь».

A. NATURE OF AGENCY

Agency is a fiduciary legal relationship where one person represents another in dealing with third
persons.

1. Parties to an Agency: Agency is a relationship based upon an express or implied agreement that
one person (the agent) is authorized to act under the control of and for another (the principal)
in making agreements with third persons.

2. Agency Distinguished from Similar Relationships: Since an agency involves responsibility of the
principal for acts of the agent, it needs to be distinguished from other similar relationships.

a. Ordinary employee distinguished: An ordinary employee is one who is not hired to represent
an employer in dealing with third persons.
b. Independent contractor: An independent contractor is a person who contracts to do some-
thing according to his own methods and not subject to the control of the employer except as
to results.
c. Real estate brokers: In many cases, a real estate broker is merely a middleman who seeks to
locate a buyer or seller for his client. The broker is not a true agent because he has no author-
ity to make a contract with third persons that will be binding upon his client.
d. Bailee: A bailment exists when personal property is delivered to another under an agreement
to return the property or deliver it to a third person. The person receiving the property (the
bailee) is not an agent as he has no authority to contract on behalf of the owner-bailor.

B. CREATION OF AN AGENCY

An agency can be created by agreement, by conduct of the parties, by estoppel, by ratification, or by


operation of law.

1. Capacity of the Parties

a. Capacity of the principal: A principal may be anyone with the legal capacity to make contracts.
b. Capacity of the agent: Anyone who understands the legal importance of contracts, even a
minor, may serve as an agent.
Agency
Chapter 2 43

2. Creation of Agency by Agreement: Most agencies are created by contractual agreement wherein
the principal expressly authorizes the agent to act.

3. Agency Created by the Conduct of the Parties, or Implied Agency: An implied agency is an actual
agency created by inferences or deductions made from the words or conduct of the principal
and the agent.

4. Creation of Agency by Estoppel: Agency by estoppel (apparent authority) is created when a prin-
cipal, by words, actions, or lack thereof, causes a third person to believe reasonably that an
agency relationship exists or that an agent has the authority to act where no actual authority
exists.

5. Agency Created by Ratification: When the principal accepts benefits from the acts of a purported
agent, even when unauthorized, an agency may be created by ratification.

6. Agency by Operation of Law: An agency implied by operation of law is one created by statute,
necessity, or public policy.

C. TERMINATION OF AGENCY

An agency may be terminated by acts of the parties or by operation of law.

1. Termination by Act of the Parties

a. Mutual agreement: Agencies are created by mutual agreement and may be terminated in the
same manner.
b. Expiration of the contract: An agency created for a specific time or a specified purpose is
terminated upon expiration of that time or the completion of the purpose.
c. Revocation of authority: A principal may at any time revoke the authority of the agent, with
or without cause, by giving reasonable notice.
d. Revocation by the agent: The agent may also renounce her power, with or without cause, by
giving reasonable notice to the principal. However, she may be liable for damages if she re-
voked without cause when the contract was for a definite period or specific purpose.
e. Revocation by option: An option in an agency agreement may provide that either party may
terminate by giving a specified notice or paying a set amount to the other.

2. Termination by Operation of Law

a. Death of the principal: In most states, death of the principal immediately terminates the agency.

b. Death of agent: The authority of the agent terminates immediately upon the agent's death.

c. Mental incompetency: Mental incompetency of either the principal or agent generally terminates
the agency.

d. Bankruptcy: Bankruptcy of the principal terminates the agency if the agent has received notice.

e. Impossibility: An agency terminates when it becomes objectively impossible to perform. Examples


of impossibility are:

Agency
44 Chapter 2

1. Change in the law that makes performance illegal or criminal;


2. Destruction of the subject matter of the agency; and
3. Death or insanity of the third person in the transaction.

f. War: When the outbreak of war places principal and agent in the position of alien enemies, the
agency is terminated, or at least suspended until peace is restored.

g. Change in business conditions: An unusual and unanticipated change in the value or of business
conditions of such a nature that an agent could reasonably infer the principal would not desire the
transaction to be completed, may terminate the agency.
(1) Example: Broker engaged to sell land at a certain price, but due to oil discovery, land greatly
increases in value.

3. Notice Required to Terminate

a. Notice to agent: The general rule is that an agent's authority continues until he has notice of any
change or termination.
b. Notice to third persons: Authority of the agent, actual or apparent, continues until such time as
the third person receives notice from the principal or some other source that the agent's authority
has terminated.

D. IRREVOCABLE AGENCY

An agency coupled with an interest (one given as security for a debt or obligation) in the subject matter of
the agency is irrevocable and the agency cannot be terminated unilaterally by the principal, nor by death,
insanity, or bankruptcy.

1. Example: An agent advances money to her principal for purchase of a business with a condition
that the agent be employed as manager until the money advanced has been repaid. This is a "power
coupled with an interest" in the subject matter and cannot be revoked until the debt is paid.

RELATIONSHIP BETWEEN PRINCIPAL AND AGENT


A. DUTIES OF THE AGENT

An agent is a fiduciary and owes a duty of trust, good faith and candor to the principal.

1. Duty of Care: The agent owes a duty to use reasonable care, diligence and skill in his work.

2. Duty of Good Conduct: The agent must conduct herself in such a manner as to keep the principal or
business free from discredit or disrepute.
a. Example: A waitress serving as a "call girl" would violate this duty.

3. Duty to Give Information: The agent must keep the principal informed of all facts concerning the
business, so that the principal can protect his interests.

Agency
Chapter 2 45

4. Duty to Keep and Render Accounts: The agent must account for all property and money of the prin-
cipal coming into the agent's possession.

5. Duty to Act Only as Authorized: The agent must act only in accord with the lawful instructions and
authority given her by the principal.

6. Duty Not to Attempt the Impossible or the Impracticable: The agent should not subject her principal
to the risk or expense if it reasonably appears to be either impossible or impracticable to accomplish
the objects of the principal and the agent is unable to communicate with the principal.

7. Duty to Obey: The agent must obey all reasonable and lawful directions given by the principal, and
disobedience is cause for terminating the agency.

8. Duty of Loyalty: The agent must be loyal and faithful to the principal.

a. Secret profits or advantages: The agent cannot obtain any secret profit or advantage from the
agency relationship, and the principal may recover any items, proceeds, or profits so acquired by
the agent plus any damages thereby caused, often including punitive awards.

b. Personal interest: The agent cannot enter into any agency transaction in which he has a personal
interest, irrespective of the fairness of the transaction or the adequacy of the price, without making
full disclosure and obtaining the consent of the principal.

c. Competing: An agent must not compete with her principal in the subject matter of the agency.

d. Conflict of interest: An agent must not represent anyone whose interest conflicts with that of the
principal.

e. Commingling: An agent has a duty to act only in the principal's name and not to appear as owner
of the principal's property nor to commingle it with that of the agent.

(1) Example: An attorney must not put money collected for a client in the attorney's own
personal bank account.

9. Duty After Termination: When an agent's authority has been terminated she has a duty to cease to act
as agent for the principal.

B. DUTIES OF THE PRINCIPAL

1. Duty to Perform the Contract: The principal has the duty to perform the contract made with his
agent.

2. Duty Not to Interfere with the Agent's work: The principal cannot unreasonably interfere with the
agent's work.

3. Duty to Give the Agent Information: The principal has the duty to inform the agent of all risks and
dangers in connection with the performance of his duty, and to furnish such information as is pro-
vided in their agreement or by the custom of the business.

Agency
46 Chapter 2

4. Duty to Keep and Render Accounts: The principal has the duty to keep and render accounts in
connection with the agency business, in accordance with their agreement, custom of the business,
method of compensation, and other relevant factors.

5. Duty of Good Conduct: The principal must conduct himself in such a manner as not to harm the
agent's reputation nor make it impossible for the agent to perform the employment and keep his
self-respect.
a. Example: The agent does not have to put up with physical and verbal abuses and insults from
the principal.

6. Duty to Indemnify: The principal has a duty to indemnify the agent for any losses or damages suf-
fered without the agent's fault while carrying out the agency business.

7. Duty to Compensate: The principal has a duty to pay the agent any agreed salary, or, if no sum was
set, whatever is customary or reasonable under the circumstances.

8. Duty Not to Terminate: The principal has a duty not to repudiate or terminate the agency relation-
ship in violation of the employment contract.

AGENCY RELATIONSHIP WITH THIRD PARTIES


A. LIABILITY OF PRINCIPAL FOR AGENT'S CONTRACTS

A principal is liable to third persons on contracts made by the agent for the principal within the scope
of the agent's authority.

1. Authority of the Agent: The authority given to the agent by the principal may be either actual
or apparent.

a. Actual authority: Actual authority is the express or implied authority the principal intention-
ally confers on the agent.

(1) Express authority: Express authority is the actual authority given the agent in words—
oral or written.
(2) Implied authority: Implied authority is the actual authority of the agent which is in-
ferred from the words or conduct of the principal.

b. Apparent authority: Apparent, or ostensible, authority, is that which the principal either in-
tentionally or negligently allows a third person to believe the agent possesses.

2. Disclosed Principal: Where a principal is named in the contract and not excluded by its terms,
and the existence of the agency appears, the authorized contract made by the agent is that of
the disclosed principal.

3. Undisclosed Principal: Where an agent enters into a contract on behalf of his principal without
disclosing to the third party that he is acting as an agent, the transaction is for an undisclosed
principal.

Agency
Chapter 2 47

B. LIABILITY OF PRINCIPAL FOR AGENT'S TORTS

1. Doctrine of Respondeat Superior: The doctrine of respondeat superior (let the superior respond)
makes the principal, or employer, liable for the torts and wrongful acts of an agent or employee
committed within the scope of the agency or employment.

2. Intentional Torts: The principal or employer is liable for the malicious or intentional acts of the
agent or employee done within the scope of employment or connected with the employment.

3. Fraud: Generally, the principal is liable for fraudulent representations of a type normally inci-
dent to the employment.

C. LIABILITY OF THIRD PERSON TO PRINCIPAL

A third person can be liable to the principal in contract or in tort.

1. Liability in Contract: Third persons contracting with an agent for a disclosed principal are liable
on the contract to the principal as though it was made directly with the principal.

2. Liability in Tort: Third persons are liable in tort to a principal for injuries committed by them
to a principal's property or interest in the hands of an agent just as if they were dealing directly
with the principal whether known or undisclosed.

D. LIABILITY OF AGENT TO THIRD PERSON

Under certain circumstances an agent may become personally liable to a third person.

1. Torts: An agent, like any other tortfeasor, is personally responsible for any wrongful act com-
mitted by him, regardless of the respondeat superior liability of his principal.

2. Contract Made in the Name of Agent.

a. Undisclosed agency and undisclosed principal: When the agent's name appears alone on the
contract without identity of the principal or statement of the fact of agency, the agent is per-
sonally liable.
b. Disclosed agency and partially disclosed principal: Most states hold that when an agent signs
a contract as an agent, but does not identify the principal, the agent becomes liable on the
contract unless otherwise agreed.
c. Nonexistent principal: When an agent purports to make a contract for a nonexistent principal,
the agent is bound by the agreement.

3. Warranty of Authority: Every agent warrants that he is authorized by the principal to do what he
is doing; if the act is unauthorized, then the agent is personally liable unless it is later ratified by
the principal.

4. Incompetency of Principal: Most states hold that the agent does not warrant the competency of
the principal to make contracts.

Agency
48 Chapter 2

5. Wrongful Receipt of Money: An agent is liable to a third person for the wrongful receipt of
money from the third person.

E. LIABILITY OF THIRD PERSON TO AGENT

1. Contract Liability: When an agent makes a contract with a third person on behalf of a disclosed
principal, usually neither the agent nor the third person has an action against the other on the
agreement.

2. Tort Liability: The third person is liable for fraudulent or other wrongful acts causing injury to
the agent.

3. Agent as Assignee: If the principal assigns or otherwise transfers her rights or claims to the
agent, the agent then acquires the rights of the principal to bring an action against the third
person.

4. Agent's Action for Injury to Principal's Property: An agent in possession of his principal's prop-
erty has an interest in such property and may maintain an action against a third person who
disturbs his possession or unlawfully injures the property.

Agency
Chapter 2 49

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. ........................................................
Latin: Delegatus non potest delegare. ........................................................
Qui facit per alium facit per se. ........................................................
Respondeat Superior. ........................................................
Scienter. ........................................................
........................................................
2. ........................................................
........................................................
agency by estoppel ........................................................
coupled with an interest ........................................................
by ratification ........................................................
of necessity ........................................................
........................................................
actual agency ........................................................
general ........................................................
exclusive ........................................................
express ........................................................
implied ........................................................
undisclosed ........................................................
irrevocable ........................................................
........................................................
3. ........................................................
creation of agency: ........................................................
by express contract or consensual agreement ........................................................
by conduct of the parties ........................................................
by ratification ........................................................
by estoppel ........................................................
by operation of law ........................................................
........................................................
4. ........................................................
agency implied by by statute ........................................................
law is created: by necessity ........................................................
by public policy ........................................................
........................................................
5. ........................................................
fiduciary relationship: ........................................................
agent – principal ........................................................
independent contractor ........................................................

Agency
50 Chapter 2

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

6. ........................................................
employment contract: ........................................................
employer – employee (master – servant) ........................................................
scope of employment ........................................................
course of ........................................................
........................................................
to act within/outside the scope of employment ........................................................
to deviate from the course of ........................................................
........................................................
7. ........................................................
actual (express, implied) authority ........................................................
apparent ........................................................
ostensible ........................................................
inherent ........................................................
scope of authority ........................................................
want of ........................................................
to revoke authority ........................................................
to renounce ........................................................
to clothe smb with ........................................................
........................................................
........................................................
to authorize smb to do smth ........................................................
authorized act ........................................................
........................................................
8. ........................................................
classes of agents: agent by necessity ........................................................
general agent ........................................................
special agent ........................................................
del credere agent ........................................................
commission agent ........................................................
real estate agent ........................................................
exclusive agent ........................................................
transfer agent ........................................................
gratuitous agent ........................................................
factor ........................................................
broker ........................................................
auctioneer ........................................................
........................................................

Agency
Chapter 2 51

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

9. ........................................................
duties of the agent: duty of care ........................................................
duty to give information ........................................................
duty to keep and render accounts ........................................................
duty to act only as authorized ........................................................
duty to obey ........................................................
duty of loyalty ........................................................
to act for / on behalf of the principal ........................................................
to act to the principal’s interests / benefit ........................................................
not to act to the principal’s detriment ........................................................
to represent the principal in dealings with third persons ........................................................
not to obtain secret profits or advantages ........................................................
not to compete with the principal ........................................................
not to commingle ........................................................
to avoid personal interest or conflict of interest ........................................................
........................................................
10. ........................................................
failure of the agent to perform his duties can result in: ........................................................
........................................................
discharge ........................................................
forfeiture of compensation ........................................................
liability for damages ........................................................
........................................................
11. ........................................................
agency commission ........................................................
fee ........................................................
........................................................
12. ........................................................
classes of principals: disclosed ........................................................
partially disclosed ........................................................
undisclosed ........................................................
........................................................
13. ........................................................
duties of the principal: ........................................................
duty to perform the contract ........................................................
duty not to interfere with the agent’s work ........................................................
duty to give information ........................................................
duty to keep and render accounts ........................................................

Agency
52 Chapter 2

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
duty of good conduct
........................................................
duty to indemnify damages
........................................................
duty to compensate
........................................................
duty to reimburse expenses
........................................................
duty not to terminate
........................................................
........................................................
14.
........................................................
termination of the agency:
........................................................
........................................................
by mutual consent
........................................................
by revocation
........................................................
by renunciation
........................................................
by death of either the principal or the agent
........................................................
........................................................
due to impossibility to carry out the agent’s authority
........................................................
........................................................
in case of the destruction of the subject-matter
in case of principal`s bankruptcy ........................................................
........................................................
15. ........................................................
power of attorney ........................................................
........................................................
16. ........................................................
malfeasance ........................................................
misfeasance ........................................................
nonfeasance ........................................................
........................................................
17. ........................................................
typical torts: negligent acts ........................................................
deceit ........................................................
assault and battery ........................................................
trespass and conversion ........................................................
........................................................
18. ........................................................
frolic and defour ........................................................
........................................................
........................................................
........................................................

Agency
Chapter 2 53

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

1. A rule of law that makes principals and employers responsible for the torts of their agents
and servants committed within the scope of their authority or employment.
2. To charge; to lay the responsibility or blame.
3. Liability that is imputed to principals and employers because of the wrongdoings of
their agents and employees.
4. A relationship that exists when one person is authorized to act under the control of an-
other person.
5. A factor who sells consigned goods on credit and who guarantees to the consignor that
the buyer will pay for the goods.
6. A bailee to whom goods are consigned for sale.
7. One who is authorized to act for another.
8. One who authorizes another to act on his or her behalf.
9. One who performs services under the direction and control of another (select two an-
swers).
10. One who performs services for another but who is not under the other's control.
11. An agent who is authorized to conduct all of a principal's activity in connection with a
particular business.
12. An agent who is authorized to carry out a single transaction or to perform a specified
act.
13. Authority that is given explicitly.
14. A formal writing that authorizes an agent to act for a principal.
15. Authority to perform incidental functions that are reasonably and customarily neces-
sary to enable an agent to accomplish the overall purpose of the agency.
16. Authority that comes about when a principal, through some act, makes it appear that
an agent has authority when none actually exists (select two answers).
17. The failure to do an act that ought to be done.
18. A relationship that occurs when someone performs an act on behalf of another with-
out authority to do so, but the other person later approves of the act.
19. The process of delivering goods to a bailee, called a factor, who attempts to sell them
and who may return those that are unsold.
20. One who is not known by a third party to be a principal for an agent.
21. The doing of an act that ought not to be done.
22. In agency law, one who deals with an agent in making a contract with an agent's
principal.
23. An agent who is authorized to act under a power of attorney.
24. The improper doing of an act.


a. agency b. agency by estoppel c. agency by ratification
d. agent e. apparent authority f. attorney in fact
h. consignment j. del credere agent k. employee
m. express authority n. factor o. general agent
p. implied authority q. impute r. independent contractor
s. malfeasance u. misfeasance v. nonfeasance
w. power of attorney x. principal y. respondeat superior
z. servant aa. special agent bb. third party
cc. undisclosed principal dd. vicarious liability

Agency
54 Chapter 2

Exercise 2
Below are seven agency relationships in the columns labelled Terms (1) and Terms (2). Match
the principals from Terms (1) with the agents from Terms (2). Finally, match each term with its
definition in the columns labelled Definitions (1) and Definitions (2).

Terms (1) Terms (2) Definitions (1) Definitions (2)

attorney beneficiary one that hires others to perform a a person entitled to receive under
service or engage in an activity in the terms of a will
exchange for compensation
executor client an officer appointed by the share- a person who by reason of incapac-
holders to represent their interests ity is under the control of another

trustee employee an individual who, by legal ap- a person who serves others
pointment or by the effect of a
written law, is given custody of
both the property and the person
of one who is unable to manage
his own affairs, such as a child or
mentally-disabled person
master heir an individual or entity (as a corpo- a person hired by another to per-
ration) having control or authority form a service especially for wages
over another or salary and who is under the
other's control
guardian servant a person specifically appointed a person or entity named or other-
by a testator to administer the wise entitled to receive the princi-
will ensuring that final wishes pal or income or both from a trust
are respected (i.e. that the will is
properly 'executed')
corporate director stockholder a person authorized to act on a person who buys the services of
another's behalf as a lawyer another, in this case legal services

employer ward a natural or legal person to whom an owner of corporate stock


property is committed to be
administered for the benefit of a
beneficiary (as a person or chari-
table organization)

Agency
Chapter 2 55

Translate the following into Russian.

AGENCY
A. EMPLOYMENT RELATIONSHIPS. (1) Agency is present when one person, the agent, acts
for and under the control of another person, the principal. An agent transacts business with third
persons for the principal. (2) In the master-servant (employer-employee) relationship, the servant
performs physical acts for the master. Generally, the law of agency applies to the master-servant case
as well as the principal-agent relationship.
B. A PROFESSIONAL AGENT is in business for himself and serves many different principals:
i.e., attorneys, factors, brokers, auctioneers.
C. AN INDEPENDENT CONTRACTOR agrees to produce a stipulated result and he is not un-
der the control of his employer. Generally, a principal is liable for the acts of his agent, if such acts are
within the scope of the agency. In most cases an employer is not liable for the acts of his independent
contractor. The control test is the most important criterion for distinguishing agent or servant from
independent contractor.

APPOINTMENT OF AGENT
A. WHO MAY APPOINT AGENTS. Any person competent to act for himself may act through an
agent. (1) MINORS AND INSANE PERSONS may appoint agents, but the appointments and the con-
tracts negotiated by their agents are voidable at the election of such principals. (2) MARRIED WOMEN
may appoint agents pursuant to their statutory powers to contract. (3) BUSINESS ORGANIZATIONS
(corporations, partnerships, etc.) with capacity to contract, may appoint agents.(4) UNINCORPORAT-
ED ASSOCIATIONS may not appoint agents, but the members of the group who authorize an appoint-
ment may be treated as principals.
B. CAPACITY TO ACT AS AGENT. Any person capable of performing the act in question may serve
as an agent even though he does not have full capacity to contract for himself: i.e., a minor may be an
agent and negotiate a binding contract for his principal.
C. FORM OF APPOINTMENT. (1) GENERALLY, an agent may be appointed orally or in writing,
expressly or impliedly, with or without consideration. A formal written appointment of an agent is known
as a power of attorney, the agent being an attorney in fact. (2) A power of attorney is required under the
law of many states in certain transactions conducted by agents: i.e., if the agent is to sign a deed convey-
ing a real property interest of the principal, the agent must possess a power of attorney.
D. AGENCY BY RATIFICATION. Ratification is the subsequent approval by one person of an act
which another, without authority, has assumed to do for him while purporting to act as his agent. Ratifica-
tion may be express or implied: i.e., an intention to ratify is implied when a person accepts the benefits
of an unauthorized act.
E. THE ESSENTIALS OF RATIFICATION. (1) The ratifier must have been in existence and compe-
tent to act at the time the unauthorized act was done. (2) The ratifier must have been identified. (3) The
person acting must have purported to act as agent of the ratifier. (4) The ratifier must have full knowledge
of all material facts at the time he ratifies. (5) The third person must not have withdrawn from transaction
before attempted ratification. (6) Third persons' rights must not have intervened. (7) The unauthorized
transaction must be entirely ratified.
Agency
56 Chapter 2

PRINCIPAL AND AGENT

A. AGENT'S DUTIES.

(1) AN AGENT MUST BE LOYAL, which includes the duty not to:

(a) divulge the principal's business secrets;


(b) buy from or sell to self without the principal's consent;
(c) serve two principals in the same transaction without their consent;
(d) compete with his principal.

(2) AN AGENT MUST EXERCISE ORDINARY CARE AND SKILL which includes the
duty: (a) of a collecting agent to collect only in money unless otherwise authorized; (b) to check the
credit standing of a credit buyer or borrower; (c) to remit collections by ordinary means unless other-
wise instructed; (d) to perform his duties personally where discretion is involved. A professional agent
must possess and exercise the degree of care and skill used by similar agents in the locality.

(3) AN AGENT MUST OBEY INSTRUCTIONS, except in emergency, and relay to the principal
all notices and pertinent knowledge.

(4) AN AGENT IS ACCOUNTABLE for his principal's money and property and must refrain
from commingling the principal's property with his own.

B. PRINCIPAL'S DUTIES.

(1) To compensate his agent pursuant to contract. If no express compensation is agreed upon,
agent is entitled to reasonable compensation unless it is clear his services are gratuitous.
(2) A principal owes a duty to reimburse and indemnify his agent for expenditures properly
made in the course of the agency.

C. FAILURE OF AGENT TO FULFILL DUTIES.

(1) If an agent commits a material breach of a duty, he may:


(a) be discharged;
(b) forfeit his compensation;
(c) be held liable to the principal in damages.

Agency
Chapter 2 57

PRINCIPAL AND THIRD PERSON

A. AUTHORITY OF AGENT. (1) EXPRESS AUTHORITY is expressly conferred, orally or in


writing, on the agent by the principal. (2) IMPLIED AUTHORITY is the authority to do those acts
which are reasonably necessary to accomplish the objective of the agency. Implied authority is meas-
ured by the justified belief of the agent in light of: (a) the contract or appointment; (b) nature of the
agency; (c) customs and usages of trade; (d) previous dealings; (e) circumstances of the case. (3) AP-
PARENT AUTHORITY, also called ostensible authority or authority by estoppel, exists where a
person by his conduct leads others to believe that another is his agent. In such cases the principal is
estopped to deny the agency even though, in fact, it does not exist. Apparent authority is measured
by the justified belief of the third person. (4) THE ELEMENTS OF ESTOPPEL INCLUDE: (a) the
representation by the principal of a certain fact; (b) intention of principal to induce action by third
party; (c) reasonable reliance by third person upon principal's representation; (d) injury resulting to
third party.
B. DISCLOSED PRINCIPAL. A principal is disclosed when the existence of the agency and the
identity of the principal is revealed to the third person. (1) In cases of disclosed principal, the princi-
pal is liable to the third party on the contract if the agent had authority and the contract was properly
executed. (2) The third party is liable on the contract to the principal.
C. UNDISCLOSED PRINCIPAL. Agent does not disclose to third party existence and identity
of principal. (1) In an undisclosed principal transaction, the third party upon learning of the principal
may in most cases elect to hold either the agent or the principal, not both. Election is indicated by
words or acts of the third person showing whom he intends to hold. (2) Generally, the undisclosed
principal has the right to take over and enforce contracts negotiated for him by his agent. (3) The un-
disclosed principal is not liable to the third party: (a) upon a sealed or negotiable instrument signed
in the agent's name alone; (b) if before his identity is disclosed, he pays in good faith his agent for the
benefit of the third party. Similarly, a third party paying the agent of an undisclosed principal before
disclosure is not liable to the principal. (4) An undisclosed principal is not liable and may not sue upon
his agent's contract to perform personal services.
D. SPECIAL TRANSACTIONS. (1) Generally, the principal is liable: (a) for representations of his
agent in the regular course of the transaction; (b) on usual warranties of a selling agent. (2) Mere au-
thority to sell does not confer authority to collect, but a selling agent who has possession of the goods
and who makes delivery has implied authority to collect the purchase price. (3) An agent's authority
to make a loan does not imply authority to accept payment unless the principal leaves the borrower's
negotiable instrument in the hands of the agent. (4) An agent's authority to pledge his principal's credit
or sign his principal's name to negotiable instruments is not implied unless such acts are essential to
the accomplishment of the agency.
E. NOTICE AND KNOWLEDGE. Acquired by agent while acting within his authority binds the
principal. Exceptions: This rule does not apply if the agent is acting fraudulently, or is under a duty to
someone else not to disclose the information.
F. TORT LIABILITY OF PRINCIPAL. A principal is liable to injured third persons for the torts
committed by his agent while within the scope of employment. Typical torts committed by agents
include negligent acts, deceit; assault and battery, trespass and conversion. (1) The principal's liability
applies even though the wrong: (a) is committed willfully, (b) violated the principal's instructions;
provided the wrongful act is related to the carrying out of the employment. (2) The principal may ex-
pressly or impliedly ratify the torts of his agent. If the principal ratifies an unauthorized transaction,
he must ratify it in its entirety, including any torts. (3) The liability of the principal or employer for the
torts of the agent or employee is joint and several: they may be joined in the same action or they may
each be sued in a separate action.

Agency
58 Chapter 2

AGENT AND THIRD PERSON

A. LIABILITY ON AUTHORIZED CONTRACTS.


(1) AN AGENT OF A DISCLOSED PRINCIPAL is not liable and may not sue the third person
upon the principal's contract, unless: (a) the agent has personally made himself a party to the con-
tract; (b) has a special interest or property in the contract: i.e., an auctioneer or a commission mer-
chant who has sold goods for his principal may sue to collect the sale price of the goods.
(2) AN AGENT OF AN UNDISCLOSED PRINCIPAL is personally liable to the third person,
and the latter is liable to the agent for breach of the contract. However, the right of the principal to sue
on the contract is superior to that of agent.

B. LIABILITY OF AGENT ON UNAUTHORIZED CONTRACTS. An agent of a disclosed


principal impliedly warrants to the third party: (a) his authority to represent his principal in the trans-
action and to make the contract; (b) the existence and competency of his principal. These warranties
do not exist in the undisclosed principal case. (1) If lack of authority exists in the disclosed principal
case, most courts hold the agent is not liable on the contract itself, but is liable either: (a) for breach
of warranty of his authority, (b) in a tort action, for deceit if the agent fraudulently misrepresented his
authority. (2) An agent is not liable to the third person for breach of warranty of authority if: (a) the
principal ratifies the unauthorized contract; (b) the principal will not be bound on the contract even
if the agent possessed the authority to negotiate it; (c) the third party knows of the lack of authority;
(d) the agent makes a full disclosure of the uncertainty of his authority.

C. TORT LIABILITY.
(1) An agent is liable to third persons for his torts even though the torts are committed within the
scope of his employment and regardless of whether his principal is also liable.
(2) Generally, an agent is not liable to a third person for injury resulting from the agent's failure to
perform a duty owed to the principal: i.e., B employs A, a C.P.A., to prepare an audit of B's business,
and C makes a loan to B on the strength of the audit statements. Upon failure of B to repay the loan,
A is not liable to C for ordinary negligence in making the audit, but A is liable to C if his negligence
is gross and of such a degree that it could support an inference of fraud.
(3) The third person is liable to the agent for any tort committed.

Agency
Chapter 2 59

TERMINATION OF AGENCY

A. METHODS OF TERMINATION.
(1) TERMINATION BY ACT OF THE PARTIES occurs whenever the relationship is ended by:
(a) mutual agreement; (b) accomplishment of the purpose of the agency; c) expiration of the time
agreed upon for the agency; (d) reasonable notice of termination given by either party to the other in
case of an agency at will (i.e., an agency created for an indefinite period); (e) act of either party before
designated time for termination as stated in the agency contract; however the principal may not re-
voke an agency coupled with an interest. If termination breaches the agency contract, the breaching
party may be liable in damages to the other party.
(2) TERMINATION BY OPERATION OF LAW occurs whenever the agency is ended by: (a)
death, insanity, or bankruptcy of either party; (b) subsequent illegality; (c) destruction of the subject
matter.

B. AGENCY COUPLED WITH AN INTEREST. This type of agency is irrevocable by the prin-
cipal during his lifetime and is not terminated by the death of either party. It exists when the agent has
some property interest or estate in the subject matter of the agency, not merely in the agency itself: i.e.,
an agency coupled with an interest arises in the case of a lender who has been given stocks, bonds, or
other securities as collateral which he may sell upon default by the borrower.

C . NOTICE OF TERMINATION.
(1) If the agency terminates by an act of the parties, it is the duty of the principal to give notice of
the termination to all third parties who know of the agency. Third persons who have previously relied
upon the agency by dealing with the agent are entitled to actual notice, oral or in writing. Other per-
sons who merely know of the agency are bound by public notice, such as newspaper publicity, in the
location involved. No notice of termination is necessary as to third persons who did not learn of the
agency until after it was in fact terminated.
(2) If the agency is terminated by operation of law due to death, insanity, or bankruptcy, no notice
is required. In other operation of law terminations, the duty to notify is similar to termination due to
acts of parties.

Agency
60 Chapter 2

Write in English a summary of the Chapter making use of


the suggested plan that follows.

Дайте определение агентского договора. В чем отличие агентского договора от договора


между нанимателем и наемным работником, с одной стороны, и договором, заключенным
с независимым подрядчиком, с другой? Кратко охарактеризуйте отношения между прин-
ципалом и агентом. Что означает понятие «неназванный принципал»? Каковы обязанности
агента в отношении принципала и принципала в отношении агента?

Agency
Chapter 2 61

Agency
3
62 Chapter 3

Sales

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

A. SUBJECT MATTER — WHAT GOODS CAN BE SOLD

1. “Goods” Defined: “Goods” include all tangible chattels—basically anything that is movable at
the time it is identified to the contract of sale. Excluded by this definition are transactions in-
volving real property (but crops are included, see below); transactions in paper rights (e.g., prom-
issory notes, stocks or bonds); the sale of services (e.g., a membership in a health spa); and the sale of
intangibles (e.g., insurance).
a. “Goods” attached to realty: As discussed above, Article 2 does not apply to the sale of
land itself or any interest therein. However, it does apply to the sale of certain kinds of
property attached to land, if severed and sold apart from the land:
(1) Crops: Growing crops, whether natural to the land itself (“fructus naturales”)
or cultivated (“fructus industriales”) are within the scope of Article 2.

(2) Minerals, structures severed by seller: Minerals, ice or water, or any structure
on the land, if to be severed by the seller, are covered by Article 2. If not, the con-
tract is not subject to Article 2.

(a) Timber: Under the original Code provision, standing timber also fell under
this “seller’s severance” rule. However, the provision has now been revised,
so that timber is treated the same as “growing crops” above (i.e., it does not
matter whether the seller or the buyer is to sever the timber; either way Ar-
ticle 2 applies). However, not all states have adopted this change.
(3) Fixtures: Anything else attached to the land which can be removed without
material harm thereto (“fixtures”) is covered by Article 2, whether it is to be
severed by buyer or seller or some third person.

b. Must be in existence: The one major limitation on what can be “goods” is that goods
must be presently in existence. Thus, for example, goods to be specially manufactured,
Sales
Chapter 3 63

or a work of art to be created, become subject to Article 2 only when actually created or
manufactured.
(1) Unborn young—in existence: “Goods” also include the unborn young of animals.

2. Nonexistent or Destroyed Goods: Where the parties purport to make a present sale of identi-
fied, specific goods, but unknown to them the goods have been totally destroyed or otherwise are
nonexistent, the contract is void from the outset.

3. Damaged and Deteriorated Goods: If the goods are damaged or have deteriorated but are not
totally destroyed at time of sale, then slightly different rules apply: The contract is not void;
rather, the buyer has the option to void the sale.

4. Fungible Goods
Definition: “Fungible” goods are those in which each unit by its very nature, or by mer-
cantile usage, is the commercial equivalent of every other unit.

5. Services: Although contracts to perform services are not transactions in goods, many courts
will apply Article 2 to such contracts, either on a Restatement of Contract basis or “by analogy”
to Article 2.

6. Service Contracts Including Goods: If a contract involves the sale of both goods and services,
does Article 2 apply? For example, if a contractor agrees to install roofing as part of the con-
struction contract, or a hospital supplies blood to a patient as part of an operation, does Article
2 apply? In deciding such cases, the courts tend to ask whether the sale of goods aspect predomi-
nates over the sale of services aspect. The courts apply the U.C.C. only if the sale of goods is the
predominant factor.

B. “SALE” VS. OTHER ARRANGEMENTS


“Sale” Defined: A “sale” is a contract under which title to goods passes from a seller to a buyer
for a consideration called a price.

C. FORMATION-OFFER AND ACCEPTANCE

In General: The requirements of offer and acceptance applicable to ordinary contracts are of
course applicable to sales contracts. A sales contract need take no specific form. Under the
U.C.C. the manner in which a contract is formed is not limited to an oral or a written agree-
ment. Instead, the Code focuses on the element of agreement between the parties and provides
that a sales contract can be formed in any manner sufficient to show an agreement, including
conduct by both parties that recognizes the existence of such a contract.

Sales
64 Chapter 3

TYPES OF SALES

1. Cash sales, where payment must be made before the buyer has a right to receive the goods;

2. “Sale or return” and “sale on approval,” each of which gives the buyer a right to return the goods;
and

3. Auction sales.

A. CASH SALE TRANSACTIONS


Definitions: A “cash sale” is a bargain in which payment of the purchase price is a condition
precedent to the buyer’s right to receive the goods from the seller (e.g., an over-the-counter
sale in a retail store). (If the buyer has somehow obtained possession without paying for the
goods, the seller may reclaim the goods).
Compare—credit sales: In contrast, a sale on credit is one where the buyer has the
right to possess, use, and dispose of the goods after delivery even though the buyer has
not yet paid for them. The buyer’s agreement is to pay at a later date, and if payment is
not forthcoming, the seller merely has a right of action against the buyer for the amount
owed, but this in no way limits the buyer’s title or rights in the goods themselves.

B. “SALE OR RETURN” AND “SALE ON APPROVAL” TRANSACTIONS

Defitions
a. “Sale or return”: If a buyer has the right to return delivered goods ordered primarily
for resale, even though the goods conform to the contract, the transaction is a “sale or
return.” (This is also frequently called a “consignment.”)

(1) Example: Dealer orders special goods from Wholesaler to fill a customer or-
der; the terms of sale specify that Dealer may return the goods within 30 days if
unsold.

b. “Sale on approval”: If a buyer has the right to return delivered goods ordered primarily
for buyer’s own use, even though the goods conform to the contract, the transaction is a
“sale on approval.”

(1) Example: Consumer bought a television set from Big Department Store,
which has a sales policy of allowing the customer to return merchandise for
full refund within one week of purchase, even if there is nothing wrong with the
goods. Such a sale is a “sale on approval.”

Sales
Chapter 3 65

C. AUCTION SALES
1. When Title Passes: Sale of goods at auction is complete when the auctioneer announces its
completion by the fall of the hammer or in another customary manner.
2. Withdrawal of Goods by Auctioneer: Auctions can be held either “with reserve” or “without
reserve.” These terms relate to whether the seller is bound to accept any bids made at the
auction, or whether, if the seller is dissatisfied with the bids, the goods may be taken off the
bidding block and withdrawn from the sale.
a. Definitions: An auction sale “with reserve” means the seller has reserved the right to
reject all bids and withdraw the goods from sale at any time and for any reason. At an
auction “without reserve,” the right of withdrawal does not exist, and the seller is bound
to accept the highest good faith bid received once the auction begins.

WARRANTIES

A. WARRANTY OF TITLE

1. What Is Warranted by the Warranty of Title: The U.C.C. provides an automatic warranty
that the seller will convey good title to the goods and that the transfer is rightful. The seller also
warrants that the goods will be delivered free of any claim of the seller’s creditors of which the
buyer has no knowledge.
2. No Warranty of Quiet Possession: Note that the U.C.C. does not create a warranty as to “quiet
possession” (freedom from all lawsuits or threats thereof), even though such a warranty was
part of the warranty of title under the Sales Act and common law rules. Instead, the warranty
of title under the U.C.C. is breached only when someone makes a nonfrivolous claim to supe-
rior title. The seller is not responsible for colorless claims of superior title.

B. EXPRESS WARRANTIES

Statement of Fact or Promise


Form of warranty: A statement of fact or promise made by the seller to the buyer in the course
of negotiations that relates to the goods and is “part of the basis of the bargain” creates an express
warranty that the goods will conform to the statement or promise made.

C. IMPLIED WARRANTIES

1. Warranty of Merchantability: In every mercantile contract of sale where it is not expressly dis-
claimed, the law implies a warranty that the goods shall be of “merchantable” quality.
Standard of merchantable quality: The U.C.C. establishes a six-part definition of merchant-
ability. Goods must meet at least all six standards (and any others the courts add to the mer-
chantability definition). The standards are:
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66 Chapter 3

(1) Contract description: The goods must be capable of passing without objection in the trade
under the contract description.
If the contract says that the object sold is a “car,” it had better have an engine inside; ev-
eryone thinks of cars as having engines. The courts have said that the standard means
that goods must be readily saleable and useable.

(2) Fungible goods: “Fungible goods” are those that can be interchanged without comment
(like grain commingled in a grain elevator); the owner does not care whether the original
goods are returned as long as a like quantity is delivered. In the case of fungible goods, to be
“merchantable” the goods must be of “fair average quality’; i.e., the bulk (not the whole) of the
goods must hover around the middle belt of quality.

(3) Fit for ordinary purpose: To be merchantable, goods must also be “fit for the ordinary pur-
poses for which such goods are used.”
This is by far the most important standard of “merchan­tability”: The goods must do
what is normally expected of such goods. Actually, this is typically the only warranty that the
buyer needs; a warranty that the goods will work.
(a) Comment: Buyers would be more disturbed when the warranty of merchantabil-
ity is disclaimed if they understood that by doing so the seller is disclaiming the
most basic responsibility, i.e., that the goods will work.

(4) Variations within normal limits: It is also required that the goods “run within the variations
permitted by the agreement, of even kind, quality, and quantity within each unit and among all
units involved.”

(5) Adequately contained, packaged, and labeled: Goods must also be “adequately contained,
packaged, and labeled as the agreement may require.” Some items are expected to be la-
beled (e.g., medicine); others are not (e.g., bowling balls). Some items are expected to be
packaged (e.g., fine china); others are not (e.g., automobiles). Section 2-314(2)(e) applies
only where the nature of the goods and of the transaction require a certain type of container,
package, or label.

(6) Conforms to label: Finally, goods to be merchantable must conform to the promises or af-
firmations of fact made on the container or label.

2. Implied Warranty of Fitness for a Particular Purpose: If a seller has reason to know of the particular use
of goods contemplated by the buyer, and is also aware that the buyer is relying on the seller’s judgment
to select suitable goods, then an implied warranty of fitness for that particular use or purpose arises,
unless specifically excluded by the seller.

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Chapter 3 67

a. Objective test: The seller must only have “reason to know” of the buyer’s particular purpose
and reliance on the seller. Actual knowledge is not required; thus, this is an objective test (i.e.,
would a reasonable person in the seller’s position have known?).
b. Meaning of “particular purpose”: Since the implied warranty of merchantability provides that
the goods will fulfill their ordinary purpose, that coverage is not part of this warranty. Instead
the implied warranty of fitness for a particular purpose means that the goods will do some-
thing different from their ordinary purpose.
1.Example: Buyer needed to paint the outside of her house and went to the paint store
and told this to Seller, who sold Buyer paint. The paint was for interior use only and
easily washed off the outside of the house over the following winter. The paint was
useful as interior paint (i.e., was fit for its ordinary purpose), but since it did not fulfill
Buyer’s particular purpose (exterior paint), the seller breached the implied warranty
that it would do so.
2.Note: In this example, the buyer told the seller of the particular purpose. If the buyer
had not done so, but instead had merely asked the seller for paint, the sale of paint only
suitable for interior use would not have led to seller liability.

3. Implied “Warranty of Wholesomeness”: When the goods sold are either foods or beverages, a special
implied warranty arises that the goods are fit for human consumption or are “wholesome.” Doctrin-
ally, there is no such implied warranty as “fitness for human consumption” or “wholesomeness”;
rather, the foodstuff cases are technically under the “merchantability” and “fitness for particular
purpose” warranties of U.C.C. sections 2-314 and 2-315. The implied warranty of merchantability
specifically covers goods to be consumed on the premises or elsewhere.

4. Implied Warranties in Non-Sales Transactions: The implied warranties above nominally apply only
in contracts subject to Article 2, i.e., contracts for the sale of goods. Even so, some courts have implied
the same types of warranties in non-sales transactions, particularly where necessary to protect con-
sumers whose positions are analogous to those of buyers.

D. DISCLAIMER OF WARRANTY

Disclaimers of Warranties—In General: The most troublesome area of warranty jurisprudence has
been the extent to which the seller can lawfully exclude, modify, or disclaim express or implied war-
ranties. The U.C.C. contains an elaborate section that deals with the subject [U.C.C. §2-316], but
that still leaves certain questions unanswered. At the outset, it should be understood that courts ev-
erywhere have manifested extreme hostility to warranty disclaimers. The cases on the subject are
buyer-oriented to a substantial degree, and the rules that have evolved must be gauged in the light of
this prevalent judicial attitude.
a. Disclaiming express warranties: “Words or conduct relevant to the creation of an express
warranty and words or conduct tending to negate or limit warranty shall be construed
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68 Chapter 3

wherever reasonable as consistent with each other; but subject to the provisions of this
Article on parol or extrinsic evidence (section. 2-202), negation or limitation is inopera-
tive to the extent that such construction is unreasonable.”
b. Disclaiming implied warranties: Because implied warranties arise apart from any agreement
of the parties, the parties are given greater latitude to limit or disclaim liability arising there-
from. Subsections (2) and (3) of U.C.C. section 2-316 list four ways that implied (but not
express) warranties can be disclaimed.
1. By specific language: The seller may rely on clauses in the sales contract that disclaim
liability for implied warranties. However, the U.C.C. imposes certain requirements for
disclaiming the two basic implied warranties, merchantability and fitness for particular
purpose.
2. “As is” or similar language: Another method of exclusion for implied (but not express)
warranties is the “as is” disclaimer. If the goods are sold “as is” or “with all faults” (or
similar language that in common understanding calls the buyer’s attention to the fact
that the goods are not warranted), no implied warranties of any kind arise. Such language
is sufficient by itself to alert the buyer that seller is assuming no risk and all implied
warranties are excluded.
3. Buyer’s examination of the goods: If the buyer either examines the goods or the seller
demands that buyer examine the goods and the buyer does not do so, there are no im-
plied warranties as to anything the buyer should have found. Thus, implied warranties
with respect to patent defects may be waived by the buyer’s inspection of the goods prior
to sale.
4. Custom or usage: The U.C.C. specifically recognizes that implied warranties may be
excluded or modified by course of dealing or performance between the parties or by
custom and usage in the trade generally. Thus, if the parties understand (or should
understand as a matter of their prior dealings or common sense) that no implied war-
ranties are part of the transaction, none arise.

E. REMEDIES FOR BREACH OF WARRANTY

1. Before Acceptance: If a breach of warranty occurs prior to acceptance of the goods, the
breach is treated like any other failure to perform the contract. The buyer may reject the
goods for this reason, demand specific performance, cover, or measure damages according to
various U.C.C. formulas.
2. After Acceptance: Once the buyer has accepted the goods, the U.C.C. provides that the
buyer may recover any loss in value of the goods because of the breach plus consequential and
incidental damages where proper. In appropriate circumstances, the buyer may revoke ac-
ceptance and recover damages.

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Chapter 3 69

PERFORMANCE OF THE CONTRACT

A. PERFORMANCE BY SELLER

1. Shipment by Seller
a. Types of contracts: Sales contracts frequently require the seller to ship goods by carrier to the
buyer. The seller’s obligations with respect to the shipment depend on whether the contract
involved is a “shipment contract” or a “destination contract.” A shipment contract is one that
requires the seller to deliver the goods to a carrier at the place of shipment, after which, seller’s
responsibility with respect to the goods ceases. (The buyer would bear the risk of damage in
transit.) A destination contract, on the other hand, obligates the seller to deliver the goods to a
particular destination before the seller will be deemed to have discharged all contractual obliga-
tions (and, thus, the seller would have the risk of damages in transit to the destination).

b. Commercial shipment terms: Commercial contracts are often made in abbreviated terms indi-
cated by mercantile symbols. This is particularly true in the area of shipment, where particu-
lar terms—F.O.B., F.A.S., or C.I.F.— are widely used by those in business to indicate whether
they intend a particular contract to be a shipment contract or a destination contract.

(1) F.O.B.: The letters “F.O.B.” stand for “free on board.”


(a) F.O.B. point of shipment: If the term is merely F.O.B. point of shipment (e.g., “F.O.B.
seller’s factory”), then the seller is required only to bear the risk and expense of putting
the goods into the possession of the carrier; the seller does not bear the expense or risks
of loading.
(b) F.O.B. car, etc.: If, however, the contract term is “F.O.B. Car 4029, Union R.R. De-
pot, Los Angeles,” or a similar term having reference to the vehicle of transportation,
then the seller is clearly obligated to bear the expense and risk of having the goods
loaded on board.
(c) F.O.B. point of destination: Where the contract provides that the seller is to ship the
goods F.O.B. destination, this means that the seller must arrange to transport the goods
to the point of destination at the seller’s own expense and risk.

(2) F.A.S.: The letters “F.A.S.” mean “free alongside” and are generally used in maritime ship-
ping contracts. They are intended to denote that the seller is to deliver the goods free of ex-
pense to the buyer alongside (on the dock next to) the vessel on which they are to be loaded,
and is to obtain a receipt therefor in exchange for which the carrier is obligated to issue a bill
of lading. The buyer bears the expense of loading onto the vessel.
(3) C.I.F. and C. & F.: The letters “C.I.F.” stand for “cost, insurance, and freight.” The letters
“C. & F.” stand for “cost and freight.” Both are almost exclusively maritime shipment terms.
Under a “C.I.F.” contract, the price agreed to be paid by the buyer includes (i) the cost of
the goods, (ii) all freight charges to the named destination, and (iii) appropriate insurance

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70 Chapter 3

of safe delivery for the shipment. Under a “C. & F.” contract, the price does not include the
insurance but it does include the freight.
(4) Ex ship: When a seller agrees to deliver “ex ship,” the commercial understanding of the
term is that no particular ship is intended. Rather, it means that the seller is to bear full risk
and expense until the goods leave the ship’s tackle (i.e., are unloaded). The seller is required
to discharge all liens arising out of the carriage and furnish the buyer with such documents
as required to enable the buyer to take possession of the goods.
(5) No arrival, no sale: This term is used to keep the risk of loss during carriage on the seller,
but to absolve the seller from liability to the buyer for damages if for some reason, not due to
the seller’s fault, the goods either do not arrive or arrive in such a damaged or deteriorated
condition that they no longer conform to the contract standard.

2. Tender of Delivery: In cases where the goods have been shipped by the seller to the buyer, as
well as in cases where delivery is to be made directly to the buyer by the seller without the need
for carrier transportation, the seller must offer (“tender”) the goods to the buyer to discharge
the seller’s duties under the sales contract. Of course, the seller need not make actual delivery
where the buyer is unwilling to take the goods; the seller need only tender the goods, not force
them on the buyer.

B. PERFORMANCE BY BUYER

1. Facilitating Receipt of Goods: The buyer’s first duty is to furnish facilities reasonably suited
to the receipt of the goods.
2. Right to Inspection of Goods: Unless the parties agree otherwise, the buyer has the right to
inspect the goods before payment or acceptance.

a. Exercising right of inspection


(1) Time: Inspection must be made within a reasonable time after receipt of the goods, or
the right is lost. What is reasonable depends on all of the circumstances of the trans-
action, including the nature of the goods, marketability, usage of trade, and the like.
Inspection must be made at a reasonable hour.
(2) Place: Under the U.C.C., the buyer is permitted to make the inspection at any rea-
sonable place. Furthermore, if the parties by contract fix a place for inspection, it is
presumed to be exclusive; but if for some reason the goods cannot be inspected there,
inspection can be had at any reasonable place unless the place fixed was clearly in-
tended as an indispensable condition, failure of which avoids the contract.
(3) Right to test and sample: If visual inspection is not sufficient to determine whether the
goods conform, the buyer has the right to test a reasonable amount of the goods, and
to use and consume the same in such tests, as long as these actions are reasonable.
(4) Expense:Under the U.C.C., expenses of inspection must be borne by the buyer, but
may be recovered from the seller if the goods do not conform and are rejected.
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Chapter 3 71

3. Acceptance of Goods: The buyer’s basic duty is to “accept and pay for” the goods.
a. What constitutes acceptance: Acceptance may occur by words or conduct of the buyer
signifying approval of the goods delivered.

4. Payment: The second part of the buyer’s basic duty under any sales contract is to pay for the
goods.
a. Time of payment: Unless credit has been arranged, the buyer must tender payment as
a condition concurrent to the seller’s obligation to tender delivery of the goods to the
buyer. Payment is due at the time of delivery.
b. Manner of payment: Payment is sufficient when made in any manner reasonable in the
ordinary course of business, unless the seller demands payment in legal tender and gives
the buyer an extension of time necessary to procure the legal tender. This means that,
in the usual case, payment by check is sufficient.
c. Method of payment: Payment normally is in money, but this is not essential. The parties
can agree on any form of consideration.

5. Rejection: If the goods that the seller delivers do not conform to the contract, the buyer is
entitled to reject them if the buyer follows certain formalities.
(Note: The following discussion deals with a rightful rejection of goods by the buyer. If the
buyer does not have the right to reject, but does so anyway, then of course the rejection
is wrongful, and entitles the seller to invoke the remedies.)

6. Revocation of Acceptance: Once the buyer has made a technical “acceptance” of the goods,
it is too late to reject them, although the buyer may sue for damages caused by the breach. Sup-
pose, however, that after acceptance, the buyer discovers something seriously wrong with the
goods. May the buyer rescind the contract and get back any payment made? Yes, but the remedy
is now called “revocation of acceptance.”

DOCUMENTS OF TITLE

A. INTRODUCTION
1. Possession of Documents Equals Ownership of Goods: The ownership of goods is frequent-
ly evidenced by documents of title that arise from the shipment and/or storage of goods.
Such documents are more than mere conveyances of title such as bills of sale or assignments.
Rather, if negotiable, they are deemed to represent the goods themselves. Therefore, possession
of the documents is, to varying degrees, the equivalent of ownership of the goods. Since it
is easier to hold, transfer, and keep track of papers rather than the goods themselves, such
documents of title are popular in the commercial world.
2. Applicable Law: Article 7 of the U.C.C. is devoted entirely to documents of title. It replaces
comparable provisions of the Uniform Sales Act, the Uniform Bill of Lading Act, and the

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72 Chapter 3

Uniform Warehouse Receipts Act. Federal law (most importantly, the Federal Bill of Lading
Act) governs the interstate shipment of goods, and thus Article 7 of the U.C.C. is limited
in effect to intrastate shipments. However, federal law does not differ dramatically from the
rules of Article 7.

B. BILLS OF LADING
1. Definition: A bill of lading is a document issued by a carrier to the shipper (bailor) of goods.
It lists the goods received by the carrier, states the agreed destination for the goods, and the
terms under which the carrier undertakes to deliver them. Bills of lading may be either ne-
gotiable or nonnegotiable.
2. Meaning of “Negotiable”: The word “negotiable” means that the parties have put the piece
of paper in such a form that they intend transferees of the paper to take it free from the nor-
mal defenses that would otherwise transfer with it (i.e., mistaken delivery, fraud, breach of
the underlying contract, etc.).
3. Other Terminology in Article 7
a. “Shipper”: The shipper is the person who delivers the goods to the carrier for ship-
ment (i.e., the bailor). Do not confuse the shipper with the carrier, who transports the
goods.
b.“Consign”: To consign is to “send” something to another. Hence, the shipper is the
consignor, and the person to whom the goods are to be delivered is the consignee.
c.“Issuer”: The issuer of the document of title is the person who creates it and hands it
to another. Typically, the issuer will be the carrier (or if the document is a “warehouse
receipt,” the warehouseman).
4. Nonnegotiable Bills (“Straight Bills”): Under federal law, a nonnegotiable bill of lading (i.e.,
one that travels with its defenses) is called a “straight bill.” A straight bill of lading is one
stating that the goods are consigned to a specified person (e.g., “consigned to the XYZ Co.”),
but not to that person’s order. Under such a bill, the carrier is contractually obligated to de-
liver the goods to the named consignee only. A straight bill is nothing more than a receipt for
the goods and a contract for their carriage.
5. Negotiable Bills: A negotiable bill is a bill of lading that is more than a mere receipt for the
goods and a contract for their carriage. Rather, the carrier undertakes to deliver the goods
to whomever is legally in possession of the bill. The person who is in legal possession of a
negotiable bill is entitled to possession of the goods described in the bill, and for this reason,
legal possession of the bill is tantamount to ownership of the goods. Accordingly, negotiable
bills are effective “documents of title.”

C. WAREHOUSE RECEIPTS

1. Definitions: A warehouse receipt is a document issued by a warehouseman, acknowledging


receipt and storage of the goods identified in the document. The receipt usually also speci-

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Chapter 3 73

fies the date of receipt, the rate being charged for storage, and the like. Such receipts may
be negotiable or nonnegotiable.

2. Purpose of Warehouse Receipts: Warehouse receipts are used to finance the sale of mer-
chandise held in storage. Sometimes, the storage is at the warehouseman’s premises, and
at other times it is on the owner’s premises in what is called a “field warehouse.” Field
warehousing is widely practiced as a security device.

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74 Chapter 3

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1.
........................................................
goods/commodities/merchandise/chattels
........................................................
........................................................
2.
identified/ascertained goods ........................................................
specific ........................................................
fungible/generic
future ........................................................
existing ........................................................
(non)conforming ........................................................
perishable
merchantable/marketable ........................................................
defective/faulty ........................................................
damaged
........................................................
destroyed
deteriorated ........................................................
consumer ........................................................
........................................................
an article of goods
an item of ........................................................
a unit of ........................................................
........................................................
shipment of goods ........................................................
consignment of ........................................................
quiet enjoyment of
........................................................
to purchase goods ........................................................
to deal in
........................................................
to examine/inspect
to stop in transit ........................................................
to accept ........................................................
to reject
........................................................
to ship/consign/dispatch/forward
to dispose of ........................................................
to (un)load ........................................................
to appropriate to the contract
to retain ........................................................
........................................................
goods in a deliverable state ........................................................
inherent vice in the goods
........................................................
3. ........................................................
sale by auction
........................................................
by sample
by description ........................................................
on approval/sale or return ........................................................
on credit
........................................................
by installments
........................................................
........................................................

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Chapter 3 75

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

bulk sale
........................................................
retail
private ........................................................
public ........................................................

wholesale ........................................................
resale ........................................................
........................................................
4.
express warranty ........................................................
implied ........................................................
manufacturer’s
........................................................
warranty of title ........................................................
of merchantability ........................................................
of fitness for a particular purpose
........................................................
........................................................
breach of warranty ........................................................
disclaimer of
........................................................
Compare: condition ........................................................
........................................................
5. ........................................................
good/perfect title ........................................................
defective
........................................................
voidable
void ........................................................
........................................................
........................................................
6.
buyer=vendee/purchaser ........................................................
seller=vendor ........................................................

a bona fide purchaser (BFP) ........................................................


vendor’s liability ........................................................
vendor’s lien ........................................................
7. ........................................................
bailment ........................................................
bailor
........................................................
bailee
........................................................
8. ........................................................
custody: to have the custody of smth
........................................................
to have smth in one’s custody
........................................................
........................................................

........................................................
........................................................

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76 Chapter 3

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
9.
payment by a letter of credit (L/C) ........................................................
by check ........................................................
for collection
by installments ........................................................
in advance ........................................................
........................................................
deferred payment
delinquent ........................................................
........................................................
downpayment
........................................................
default in payment ........................................................
........................................................
to make payment
........................................................
to effect
........................................................
10. ........................................................
shipment contract
destination ........................................................
........................................................
contract of affreightment = ........................................................
of carriage of goods by sea
........................................................
F.O.B. (free on board): ........................................................
a) F.O.B. point of shipment
........................................................
b) F.O.B. car, etc.
c) F.O.B. point of destination ........................................................
........................................................
F.A.S. (free alongside)
........................................................
C.I.F. (cost, insurance, freight)
Ex ship/Ex works ........................................................
No arrival, no sale ........................................................
COD (collect on delivery)
........................................................
11. ........................................................
lien syn. distress ........................................................
distraint
detention ........................................................
retention ........................................................
attachment
........................................................
........................................................
subject to lien ........................................................
........................................................
12.
document of title ........................................................
bill of lading ........................................................
warehouse receipt
bill of sale ........................................................
invoice ........................................................

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Chapter 3 77

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
13.
consignment ........................................................
consignor ........................................................
consignee
........................................................
14. ........................................................
auction with reserve ........................................................
without reserve
........................................................
15. ........................................................
bid
........................................................
to make a bid
bidder ........................................................
........................................................
16.
........................................................
common carrier
........................................................
17. to charter a vessel/charterer/charter-party ........................................................

18. freight ........................................................


........................................................
19. shipmaster ........................................................
20. conspicuous place ........................................................
........................................................
21. puffing
........................................................
22. ........................................................
mutuum = a loan of goods, on the agreement that the ........................................................
borrower may consume them, returning to the
........................................................
lender an equivalent in kind and quantity
........................................................
23. cover ........................................................

24. set-off ........................................................


........................................................
25. usage of trade ........................................................
26. ........................................................
course of dealing ........................................................
of performance
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

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78 Chapter 3

Exercise 1
From the list of terms that follows, __1. Offeror.
__2. Correct.
select the one that matches each __3. A contract under which title to goods is to pass
definition. at a future time.
__4. Personal property that is physically attached
to real property and becomes part of the real
a. auction sale property.
__5. An auction in which an auctioneer may with-
b. auction without reserve
draw the goods without accepting the high-
c. auction with reserve est bid.
__6. Goods that are not yet in existence or under
d. bailee anyone's control.
__7. Goods that are in accordance with the obliga-
e. bailment tions under the contract.
f. goods __ 8. Anything that is movable.
__ 9. An auction in which the auctioneer must sell
i. bidder the goods to the highest bidder.
__10. Free on board (no delivery charges)
j. bill of sale to the place of shipment.
__11. A contract that requires the seller to
k. bulk transfer
deliver goods to a destination.
l. chose in action __12. A signed writing evidencing the transfer of
personal property from one person to an-
m. conforming goods other.
__13. The relationship that exists when possession
n. contract to sell
(but not ownership) of personal property is
o. cover transferred to another for a specific purpose.
__14. A sale of property to the highest bidder.
p. cure __15. Free on board (no delivery charges) to the
place of destination.
q. destination contract __16. An express warranty given for consumer
t. express warranty goods under which the seller must repair or
replace without cost to the buyer defective
u. fixture goods or refund the purchase price.
__17. Evidence of the right to property but not the
v. f.o.b.the place of destination property itself.
__18. A statement of fact or promise that goods
w. f.o.b.the place of shipment
have certain qualities.
x. full warranty __19. The person to whom personal property is de-
livered under a contract of bailment.
y. fungible goods __ 20. Goods such as grain or oil, of which any unit
is the same as any like unit.
z. future goods __ 21. A transfer not in the ordinary course of busi-
ness, but in bulk of a major part of the mate-
rials, supplies, merchandise, or other inven-
tory of an enterprise.
__22. The right of a buyer, after breach by a seller,
to purchase similar goods from some­one
else.

Sales
Chapter 3 79

Exercise 2
From the list of terms that follows, __1. Ownership.
select the one that matches each __2. A loan of goods, on the agreement that the
definition. bor­rower may consume them, returning to the
lender an equivalent in kind and quantity.
a. chattels __3. A law in every state that governs different
b. warranty of title types of commercial transactions.
__4. A contract to sell "all the goods a company
c. identified goods manufactures" or "all the crops a farmer
d. implied warranty grows".
f. limited warranty __5. An implied warranty, given by merchants in
all sales unless excluded, that goods are fit for
g. merchant the ordinary purpose for which such goods
i. mutuum are used.
__6. An express warranty given for consumer goods
j. nonconforming goods
that is less than a full warranty.
k. output contract __7. A sale of goods that are primarily for resale and
1. personal property may be returned even though they conform to
the contract.
m. personalty __8. Anything that is the subject of ownership other
n. requirement contract than real property (select three answers).
o. risk of loss __9. A guarantee that title is good, that the transfer
is rightful, and that no unknown liens on the
p. sale goods exist.
q. sale on approval __10. The passing of title from the seller to the
r. sale or return buyer for a price.
__11. A warranty that is imposed by law rather
s. shipment contract than given voluntarily.
u. title __12. An implied warranty, given when a buyer relies
on any seller's skill and judgment in select­ing
x. Uniform Commercial Code
goods , that they will be fit for a particular
y. warranty of fitness for a particular purpose purpose.
z. warranty of merchantability __13. Goods that are not the same as those called
for under the contract.
__14. A contract under which the seller turns the
goods over to a carrier for delivery to a buyer.
__15. Goods that have been selected as the subject
matter of a contract.
__16. A sale of goods that are for the buyer's use
rather than for resale, and which may be
returned even though they conform to the
contract.
__17.Responsibility in case of damage or
destruction.
__18. A contract to buy "all the fuel(or other goods)
needed for one year".
__19. A person who sells goods of the kind sold in
the ordinary course of business, or who
has knowledge of skills peculiar to those
goods.

Sales
80 Chapter 3

Translate the following into Russian.

ARTICLE 2 OF THE UNIFORM COMMERCIAL CODE


Article 2 of the UCC deals specifically with contracts for the sale of per­sonal property or movables,
that is, chattels (goods). In many cases the code does not change the common law of contracts, but
merely restates or expands that law as it applies to sales. In other cases, although Article 2 is drawn
only for the sales contracts of personal property, the courts have tended to extend the code's prin-
ciples to contracts generally, not just sales contracts.

Sales contracts are singled out for special treatment in Article 2 of the UCC. However, much of Ar-
ticle 2 is the same as the common law or merely expands upon the general law of con­tracts. In addi-
tion, mucn of the general law of contracts is applic­able to contracts of sale.

PRINCIPAL CHANGES FOR SALES CONTRACTS IN ARTICLE 2

HIGHER STANDARDS FOR MERCHANTS

Article 2 imposes higher standards of conduct on merchants than on nonmerchants. Section 2-104(1)
defines a merchant as one "who deals in goods of the kind or otherwise by his occupation holds himself
out as having knowledge or skill peculiar to the practices or goods involved in the transaction...."
A number of provisions of the code implement the higher standards for merchants. For example:
(a) Section 2-103(l)(b): Every contract imposes on the parties an oblig­ation of "good faith." "Good
faith" in the case of a merchant means both "honesty" and the observance of "reasonable commercial
standards of fair dealing in the trade."
(b) Section 2-201(2): A written confirmation from one merchant to the other of an oral agreement
satisfies the Statute of Frauds unless the recip­ient, within 10 days, objects in writing.
(c) Section 2-205: A written firm offer of a merchant to buy or sell goods is irrevocable even without
consideration, for up to 3 months.
(d) Section 2-207(2): Between merchants, an acceptance may vary the offer, without being treated
as a rejection, unless (i) the offer prohibits such varying, (ii) the proposed terms materially alter the
offer, or (iii) the offeror objects within a reasonable time. Section 207(1) provides that, as to nonmer-
chants, an acceptance with new terms is an acceptance of the offer as made, not a rejection.
(e) Sections 2-312(3) and 2-314(1): These provide for implied war­ranties of merchantability and
ownership by merchants.

STATUTE OF FRAUDS

Under the UCC, an agreement for the sale of goods for $500 or more is subject to the Statute of
Frauds. The requirement that the principal terms of the agreement be stated is satisfied if there is
"some writing sufficient to indicate that a contract for sale has been made between the parties," but

Sales
Chapter 3 81

the contract is not enforceable for any quantity of goods beyond that shown in the writing. A refer-
ence to price is not required.

GREATER FLEXIBILITY
In general, more relaxed, flexible rules are permitted in the creation of sales contracts to carry out the
intent of the parties. For example, the common law requires agreement on price before a contract
can be said to have been formed. Under the code, a contract for the sale of goods may be silent about
price, permitting the parties to set as a price whatev­er is "reasonable" at the time of delivery of goods.
A clause permitting either party to fix the price is enforceable under the code, requiring the party set-
ting the price to act in good faith.

INTERPRETATION OF THE AGREEMENT


To interpret a contract a jury or court tries to determine the intention of the parties. Article 2 of the
code sets out certain criteria for determin­ing the meaning of a sales contract. These principles, devel-
oped from the common law of contracts, are that intent is shown by (a) "the course of performance
accepted or acquiesced in without objection" [Section 2- 208(1)] and (b) "a sequence of previous
conduct between the parties ... as establishing a common basis of understanding for interpreting their
expressions and other conduct," and (c) "practice or method of dealing ... in a place, vocation or
trade...." These rules of interpretation, although specifically for sales contracts, are widely used by the
courts to determine the meaning of any contract.
Caution: As stated previously, Article 2 of the code is limited to sales of personal property (movables or
chattels). It does not cover sales of real estate, nor does it apply to contracts for services or for employ-
ment. If personal property is conveyed along with real estate, or if the contract calls for both services
and sales (such as supplying and installing auto­mobile parts, or supplying blood for a blood transfu-
sion), the courts attempt to determine whether the predominant factor, or primary pur­pose, of the
contract is to supply services (not covered by the code) or goods (covered by the code). This primary
purpose, of course, is shown by the intent of the parties, the nature of the transaction, the terms of the
contract, and the like. Thus the sale of a residence, including furniture and lawn equipment, would
not be covered by the code; a blood trans­fusion has been held by some courts to be covered by the
code, although other courts disagree. However, a vaccination is generally con­sidered a sale of vaccine
and hence a transaction under the code!

NONSALES TRANSACTIONS

Before sales transactions can be fully understood, it is necessary to understand nonsales transactions.
The law sets up three important cate­gories of nonsales: bailments, leases, and gifts.

BAILMENT

A bailment is a transfer of possession, care and/or control of personal property by the owner or possessor
(bailor) to another (bailee) for a limited time for a special purpose. Bailments include temporary con­veyance
of goods for storage, repair, cleaning, and other such transfers of possession of chattels without trans-
fer of title or ownership.
Sales
82 Chapter 3

LEASE

A lease is a transfer of rights of possession by the owner (lessor) of real or personal property to another
(lessee) for that person's use during a period of time for an agreed-upon consideration (rent). First proposed
in 1987, UCC Article 2A applies many general UCC principles (course of dealings, trade usages,
etc.) to the leasing of goods and has been adopt­ed by every state except Connecticut and Louisiana.

GIFT

A gift is a transfer of title by the owner of goods (donor) to another person (donee) without consider-
ation. Whereas an executory (promised) gift is not an enforceable agreement, a fully executed (com­
pleted) gift will not be legally disturbed. An executed gift requires (a) delivery, (b) donor's intent to
make a gift, and (c) donee's acceptance.

DEFINITION OF A SALE

Both the code (Section 2-106) and the common law agree that a sale of goods is the transfer of title
from a seller to a buyer for a consideration known as the price.

TRANSFER OF TITLE

One of the cornerstone principles of the common law is that a seller can transfer only
the title (rights) that he/she has. If the seller has no title (e.g., a thief) or has a defective
title (e.g., subject to mortgage or lien) he/she transfers merely these limited rights, even
though the parties may call the transaction a "sale."

The code, however, recognizes three exceptions to the common law, three circumstances in which a
buyer may obtain a better title than the seller has had:

(1) A person with a voidable title (i.e., title received by a buyer subject to cancellation by the
seller) can pass a good title to a bona fide purchas­er (a purchaser who has no knowledge of
defect).
(2) A person who in good faith buys goods from a retailer in the regular course of the retailer's
business will get a good title even though the retailer has transferred a prior interest to others.
(3) A person who in good faith buys goods from a dealer in such goods obtains a good title even
though the goods in question may have been entrusted to the dealer by others.

In the first circumstance the seller's right to cancel under the code gen­erally occurs because of some
kind of fraud practiced by the buyer: giv­ing a bad check, for example, or making some false repre-
sentation. The buyer, thus in possession and with color (appearance) of title, can trans­fer title to a
good-faith purchaser. The original seller who trusted the original buyer can sue only the buyer with
whom he/she dealt.
The other two code exceptions to the common law rule against a buyer acquiring a good title from

Sales
Chapter 3 83

a seller having a less than perfect title involve dealers in goods. In the first, the dealer may have previ-
ously sold or com­mitted the goods to another person, for example, on "layaway"; in the second, the
goods were entrusted to the dealer or merchant for a special purpose—e.g., repair or storage (as in a
bailment)—and the bona fide purchaser reasonably believes the dealer or merchant to be the right-
ful owner. In both of these dealer situations, the real owner's only remedy is against the dealer, not
against the innocent buyer from the dealer.

The common law provided that a seller could convey no more than he/she owned. The
UCC permits three exceptions:

(1) A person with a voidable title can pass a good title to a bona fide purchaser.

(2) A person may get a good title from a retailer who has already sold the goods to
others.

(3) A person may get a good title from a dealer in goods even though the dealer is
holding the goods for someone else.

RISK OF LOSS

Before the widespread adoption of the Uniform Commercial Code, the risk of loss of goods in the pro-
cess of being sold and delivered hinged on the answer to the question, "Who had title at the time of loss?"
Thus, if goods were lost during the process of delivery, that is, on the high seas, or were stolen from a
warehouse, or were damaged while in rail cars, legal questions of title at the moment of loss or damage
determined the liability for repair or replacement.

Under the code, buyer and seller are expected to deal with the problem of potential loss,
before or in the course of delivery, by contract provisions.

If there are no contract provisions, the code establishes general princi­ples for determining risk of
loss, depending on whether the contract of sale and delivery is a "shipment extract" or a "destination
contract".

Sales
84 Chapter 3

Sales
Chapter 3 85

Write in English a summary of the Chapter making use of


the suggested plan that follows.

Дайте определение договора продажи товаров согласно статье 2 Единообразного торгово-


го кодекса. Что включает в себя понятие «товар» (“goods”)? В чем отличие договора продажи
от договора товарообмена? На каких условиях может осуществляться продажа товаров? Про-
ведите различие между товаром с индивидуальными признаками, индивидуализированным
товаром, неиндивидуализированным товаром и товаром, определенным общими родовыми
признаками. Назовите основные из известных вам гарантий, презюмируемых договором
продажи, и разъясните их смысл.

Sales
86 Chapter 3

Sales
4
Chapter 4 87

Real Property

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

Real property is land, those things intended to be attached permanently thereto, and interests in its
ownership, use, and possession.

A. ESTATES IN REAL PROPERTY


1. Freehold Estates: Estates in real property are classified as freehold or leasehold. Other interests
in land include easements, licenses, and condominiums. Freehold estates include fee simple es-
tates and life estates.

a. Fee simple estate:Fee simple estate is the greatest interest one can own and gives all rights in
the land to the owner.
(1) Fee simple determinable: Fee simple determinable is a fee simple which will end auto-
matically when some specified action occurs. Such provisions are strictly construed.
(a) Example: Land is granted to a church “so long as the premises are used for
church purposes.” This means that the property would automatically revert to
the grantor or his heirs if it ceased to be used for church purposes.
(b) Rationale: This is still a fee simple because it might last forever.

(2) Fee simple subject to a condition subsequent: Fee simple may be grant­ed subject to a
condition subsequent, which does not provide for automatic ter­mination, but reserves
to the grantor the right of repossession upon the occur­rence of some event.
(a) Example: Land is granted with the provision, “but if liquor is ever sold on the
premises, the grantor has the right to reenter.” This means that if liquor were ever
sold on the land, the grantor or his heirs would have the power to reenter and
terminate the estate.
(b) Rationale: This is a fee simple because it could last forever—even upon the hap-
pening of the condition—unless the grantor exercises his power of reentry.

b. Life estates: A life estate is one whose duration is for one or more human lives as specified in
the granting instrument.
Real Property
88 Chapter 4

(1) Life estate for life of grantee: The typical life estate is one to the grantee “for life,”
which creates an estate that terminates upon the death of the grantee, the life tenant.
(a) Reversionary interest: Upon the death of the life tenant, the prop­erty reverts to
the grantor or her heirs, and is called a reversionary interest.
(b) Remainder: The grantor of a life estate may designate some other party to take
upon the death of the life tenant, and such person is called a re­mainderman, and
the estate so received is a remainder.

(2) Life estate for the life of another (pur autre vie): Where the life estate is measured by
the life of someone other than the grantee, it is classified as a life estate for the life of
another (pur autre vie).
(a) Example: Land granted to Able “for the life of Baker,” in which case Able or her
heirs would own the estate for as long as Baker lived.

(3) Defeasible life estates: Life estates, like fees simple, can be determin­able or subject to
a condition subsequent.

(4) Dower and curtesy: In some states the common law rules of dower and curtesy create
what amounts to a life estate in a spouse in the real property owned by the couple dur-
ing marriage. The dower right is usually a one-third in­terest to the surviving wife and
the curtesy right gives an entire interest to the surviving husband.

2. Leasehold Estates: Leasehold estates are discussed under landlord and tenant law infra.

3. Easements: An easement is a right of limited use or enjoyment of the land of another in a speci-
fied manner and may be created by agreement or by operation of law.

a. Easement by deed: Easements may be granted expressly, or by an excep­tion or reservation


included in the deed transferring title to the property, or they may be granted in a separate
instrument.

(1) Example: The grantor of land may reserve a right of way over the granted land, or he
might expressly grant such a right of way easement to another.

(2) Appurtenant easement: Appurtenant easements are those relating to adjoining land.
The land benefitting from the easement is called the dominant tenement, while the
land giving up the right is the servient tenement.
(a) Run with land: Appurtenant easements run with the land and are transferred with
the dominant estate to subsequent owners.
(3) Easement in gross: Easements in gross are not tied to adjoining land, but are granted
to persons and entities for some specific purpose.

Real Property
Chapter 4 89

(a) Example: The grant of rights of way to utility companies for power poles is usu-
ally an easement in gross.
(b) Personal: At common law, easements in gross were considered personal and
were not transferable. However, most states now permit such transfers, particu-
larly when the easement is of a commercial nature.

(4) Easement by prescription: An easement by prescription is similar to ti­tle by adverse


possession and is obtained by the actual, open, and notorious ease­ment use of the land
of another continuously for the period of time set forth in the state’s statute of limita-
tions.

(5) Easement by implication: Easements by implication are those implied by operation of


law and are based upon the presumed intent of the parties.

(6) Easement by necessity: An easement by necessity may be implied from the convey-
ance of land if it would be «necessary» for the enjoyment of the granted land or of the
retained land.

B. LEASEHOLD TENANCIES

When the owner of property gives up possession of the property to another, the owner becomes the
landlord and the party in possession is the tenant. This is accomplished by an agreement called a
lease, with the landlord owner being the lessor and the tenant the lessee. Leases may be express or
implied and do not have to be written unless the period stated is more than one year.

Leasehold tenancies are estates for years, periodic tenancy, tenancy at will, and tenancy at suf-
ferance.

1. Estate for Years: An estate for years is one for a definite fixed period of time.
a. Termination: An estate for years is usually terminated by a definite date stated in the
lease, or under contract law. It may be ended by:
(i) A mutual agreement of the parties at any time;
(ii) A condition stated in the lease;
(iii) Operation of law, such as bankruptcy; or
(iv) Merger if the lessee acquires fee simple title to the property.

2. Periodic Tenancy: A periodic tenancy is one for a definite period of time, usu­ally month to
month, which automatically renews in the absence of notice to the contrary.

3. Tenancy at Will: A tenancy at will is one that may be terminated by either party at any time.
However, most states require that notice be given for termination.

Real Property
90 Chapter 4

4. Tenancy at Sufferance: A tenancy at sufferance occurs when a tenant contin­ues to occupy the
premises after the lease has expired and remains at the sufferance of the landlord. However,
most states provide that such a leasehold impliedly becomes a pe­riodic tenancy.

C. JOINT OWNERSHIP OF REAL PROPERTY

Real property may be held by co-owners as joint tenants, tenants in common, tenants by the entire-
ties, and as community property.

1. Joint Tenants: Two or more persons holding one and the same interest, accruing by one and
the same conveyance, commencing at one and the same time, and held by one and the same
undivided possession.

2. Tenants in Common: Two or more persons holding an undivided interest in property, with each
owner’s, interests going to his or her heirs on death rather than to the surviving co-owners.

3. Tenancy by the Entirety: A tenancy by the entirety is similar to a joint tenancy except that it
can be created only by a husband and wife.

a. Survivorship: The most important characteristic of tenancy by the entirety is that upon
the death of either spouse, the surviving spouse takes the entire estate (as in a joint
tenancy).
b. Termination: Tenancy by the entirety cannot be unilaterally terminated by either spouse,
but only by death, divorce, or mutual agreement.

4. Community Property: Although about half of the states still recog­nize tenancy by the entirety,
it is not used in the community property states, because it has been held to be fundamentally
inconsistent with the community property sys­tem.

D. ACQUIRING TITLE TO REAL PROPERTY

1. Title by Original Occupancy: Most governments permit private ownership of land, and free
transfer thereof by the owner. In the United States, original title was ac­quired by grant or
patent from the government under its homestead laws or by land grants from countries that
had held the land at one time.

2. Voluntary Transfer of Title by Owner: Owners of land may transfer title thereto by sale, trade,
or gift to private owners, and by dedication to a public agency. Most voluntary transfers are
negotiated through licensed real estate brokers employed by written agreements.

Real Property
Chapter 4 91

3. Involuntary Transfer by Operation of Law: Title to land may be acquired by the purchaser at
a sale conducted by proper legal authority in accordance with the law.

4. Title by Adverse Possession: Title to real property is acquired by adverse pos­session when a
person takes actual possession of the land of another and remains there openly and notori-
ously for the period of time set by the statute of limitations of the state where the land is
located.

5. Title by Will or Descent: Real property may be transferred by the owner through a will, effec-
tive upon the owner's death. If the decedent leaves no will, any land in the estate will pass to
his heirs through the laws of descent effective in the state of the decedent's residence at the
time of death.

6. Transfer of Land by Action of Nature: Natural action through water flow or floods may take
property from one owner and deposit it upon adjacent land.

Real Property
92 Chapter 4

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1.
........................................................
real property
realty ........................................................
real estate ........................................................
immovable property
........................................................
2. ........................................................
personal property ........................................................
personalty
chattels ........................................................
chattels personal ........................................................
movable property
........................................................
3. ........................................................
(in)tangible property ........................................................
(in)corporeal
........................................................
4. ........................................................
choses in action ........................................................
In possession
........................................................
5. ........................................................
right to property ........................................................
interest in
title to ........................................................
........................................................
6.
........................................................
to acquire a title
to transfer ........................................................
to divest ........................................................
........................................................
7.
absolute title ........................................................
clear/good/perfect ........................................................
defective
merchantable/marketable ........................................................
legal ........................................................
equitable ........................................................
defeasible
prima facie ........................................................
worthier ........................................................
........................................................
8.
abstract of title ........................................................
chain of ........................................................
perfection of
........................................................
colour of
document of ........................................................
grant of ........................................................
........................................................
........................................................

Real Property
Chapter 4 93

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
9.
title by adverse possession ........................................................
by prescription ........................................................
by deed
by descent/succession ........................................................
by operation of law ........................................................
by accretion ........................................................
by accession
........................................................
10. ........................................................
to own property
........................................................
to possess
to dispose of ........................................................
to devise ........................................................
to bequeath
........................................................
11. ........................................................
abandoned property ........................................................
lost
mislaid ........................................................
mortgaged ........................................................
public ........................................................
private
individual ........................................................
future/after-acquired ........................................................
commercial
........................................................
joint
taxable ........................................................
trust ........................................................
escheat/heirless
........................................................
12. ........................................................
lien on property ........................................................
encumbrance on/upon
receiving of stolen ........................................................
value of ........................................................
attachment of ........................................................
enjoyment of
forfeiture of ........................................................
........................................................
13.
........................................................
freehold estate
leasehold ........................................................
life ........................................................
........................................................
privity of estate
........................................................
........................................................
........................................................
........................................................

Real Property
94 Chapter 4

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
14.
fee simple ........................................................
simple absolute ........................................................
tail (tail mail, tail female)
simple conditional ........................................................
simple defeasible ........................................................
simple determinable ........................................................
conditional fee ........................................................
defeasible ........................................................
determinable
........................................................
15. ........................................................
joint tenancy ........................................................
periodic
........................................................
hold-over
........................................................
tenancy in common ........................................................
at will
at sufferance ........................................................
for years ........................................................
from year to year ........................................................
by the entirety
per (pur) autre vie ........................................................
in partnership ........................................................
........................................................
16.
servient tenement ........................................................
dominant ........................................................
........................................................
17.
permanent fixture(s) ........................................................
domestic ........................................................
trade
........................................................
removal of fixture(s) ........................................................
........................................................
18.
appurtenant easement ........................................................
equitable ........................................................
implied
........................................................
negative
private ........................................................
public ........................................................
quasi
........................................................
express
constructive ........................................................
........................................................
........................................................
........................................................

Real Property
Chapter 4 95

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

easement by prescription
........................................................
in gross
of access ........................................................
of convenience ........................................................
of necessity
........................................................
19. ........................................................
termination of easement by release ........................................................
by merger
by estoppel ........................................................
by end of necessity ........................................................
by abandonment
........................................................
by the occurrence of condition
........................................................
20. ........................................................
assumption of mortgage
........................................................
subject to
........................................................
21. ........................................................
equity of redemption
right of ........................................................
........................................................
22. ........................................................
quitclaim deed
warranty ........................................................
........................................................
deed of conveyance
........................................................
23. ........................................................
intestate succession ........................................................
legal
........................................................
testamentary
hereditary ........................................................
........................................................
laws of succession/descent
........................................................
24. ........................................................
heir ........................................................
devisee
legatee ........................................................
........................................................
25.
........................................................
devise
legacy/bequest ........................................................
........................................................
hereditaments
........................................................

26. ........................................................
eminent domain ........................................................
private
public ........................................................
........................................................

Real Property
96 Chapter 4

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

27.
future interests for the grantor: ........................................................
- reversion ........................................................
- possibility of reverter ........................................................
- right of entry
........................................................
........................................................
28. ........................................................
future interests for the grantee:
- remainder (vested, contingent) ........................................................
- executory interest ........................................................
........................................................
29.
actions to recover property: ........................................................
- replevin ........................................................
- detinue
- trover ........................................................
- trespass ........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
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Real Property
Chapter 4 97

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

1. ______ Ownership interest.


2. ______The largest estate that one can own in land, giving the holder the absolute ownership
and power of disposition during life and descending to the owner's heirs at death (select
three answers).
3. ______ A freehold estate that restricts ownership of real property to a particular family
bloodline.
4. ______ A freehold estate restricting ownership to men in the family line.
5. ______ Come to an end.
6. ______ An estate that can be lost or defeated.
7. ______ An estate limited in duration to either the life of the owner or the life of another person.
8. ______ A right to the future enjoyment of property that one originally owned.
9. ______ Destruction, alteration, or deterioration of a premises other than from natural causes or
from normal use.
10. ______ An estate in which the holder owns the land for life or forever.
11. ______ An estate in real property that is capable of coming to an end automatically because of
the happening of some event (select two answers).
12. ______ Go back.
13. ______ An estate with a condition that terminates ownership on the happening of a future act
or event only if legal action is taken.
14. ______ An interest that takes effect after another estate is ended.
15. ______ The owner of a life estate.
16. ______ An estate that is less than a freehold estate.
17. ______ An interest in property due to the possibility that an event will occur causing the
property to revert to the grantor.
18. ______ The ground and anything that is permanently attached to it.
19. ______ An estate that a person holds for the duration of the life of another person.

a. waste l. fee simple estate


b. defeasible fee m. fee simple subject to a condition subsequent
c. determinable fee n. fee tail estate
d. determine o. freehold estate
e. estate p. leasehold estate
f. estate pur autre vie q. life estate
g. estate tail mail r. life tenant
h. fee s. possibility of reverter
i. fee simple absolute t. real property
k. fee simple determinable v. reversionary interest
w. revert
x. remainder interest

Real Property
98 Chapter 4

Exercise 2
From the list of legal terms that follows, select the one that matches each definition.

1. ______ Property (other than a gift or inheritance) acquired by a husband or wife during marriage
that belongs to both spouses equally.
2. ______ Two or more owners of real property.
3. ______ To collect a sum of money by putting into effect the judgment of a court.
4. ______ Equal interest in property by all owners.
5. ______ All owners of property receiving title from the same instrument.
6. ______ Separate, individual, and independent.
7. ______ The division of land held by joint tenants or tenants in common into distinct portions so
that they may hold them separately.
8. ______ The part of a condominium or cooperative apartment building that is owned as tenants
in common by all the unit owners.
9. ______ Two or more persons holding one and the same interest, accruing by one and the same
conveyance, commencing at one and the same time, and held by one and the same
undivided possession.
10. ______ Ownership in which each person has an interest in partnership property and is a co-
owner of such property.
11. ______ A parcel of real property, portions of which are owned separately in fee simple by
individual owners, and the remainder of which is owned as tenants in common by all the
unit owners.
12. ______ Owned by more than one person (select two answers).
13. ______ All owners of property taking title at the same time.
14. ______ The estate owned by joint tenants (select two answers).
15. ______ A fee simple ownership of a unit of real property in which the owner can exercise the
right of possession for only an interval, such as a week or two, each year (select two
answers).
16. ______ A type of joint tenancy held by a husband and a wife that offers protection against
attachment and that cannot be terminated by one spouse alone.
17. ______ Two or more persons holding an undivided interest in property, with each owner's
interests going to his or her heirs on death rather than to each surviving co-owners.
18. ______ Equal rights to possession of the entire property by all owners.

a. common areas
b. community property l. joint tenancy with the right of survivorship
c. concurrent ownership m. joint tenants
d. condominium n. levy on execution
e. unity of title o. partition
f. unity of time p. unity of interest
g. co-ownership q. several
h. co-tenants s. tenancy in partnership
i. unity of possession t. tenants in common
j. interval ownership u. timesharing
k. joint tenancy v. tenancy by the entirety

Real Property
Chapter 4 99

Exercise 3
From the list of legal terms that follows, select the one that matches each definition.

1. ______ A formal written instrument used to transfer title of real property from one person to
another (select two answers).
2. ______ A mark or impression, originally made with wax, or any extrinsic item, the words "seal",
or "L.S." placed next to a party's signature.
3. ______ The act of taking or seizing property by the use of a writ, summons, or other judicial
order and bringing it into the custody of the court.
4. ______ One who borrows money and gives a mortgage - that is, pledges property - to the lender
as security for the loan.
5. ______ A sale of property at public auction conducted by a sheriff.
6. ______ Valued possessions with sentimental value passed down through generations within a
family.
7. ______ Title to real property obtained by taking actual possession of it openly, notoriously,
exclusively, under a claim of right, and continuously for a period of time set by statute.
8. ______ Any gradual addition to the soil made by nature, such as gradual accumulation of soil to
land next to a stream caused by the action of water (select two answers).
9. ______ Something capable of being inherited or transferred by legal succession.
10. ______ A claim, lien, charge, or liability attached to and binding real property.
11. ______ One who lends money and takes back a mortgage as security for the loan.
12. ______ One who appears to be the owner of real property according to the records at the
Registry of Deeds.
13. ______ A sale of real property that terminates all rights of the mortgagor in the property
covered by the mortgage.
14. ______ A deed to real property in which the grantor transfers only his interest, if any, in the
property and gives no warranty of title.
15. ______ A large piece of land.
16. ______ The addition of previous occupants' possession to one's own possession to meet the
statutory period for adverse possession.
17. ______ A deed containing warranties under which the grantor guarantees the property to be
free from all encumbrances and to defend the title against the claims of all persons.

a. accretion k. tract of land


b. adverse possession l. seal
c. alluvion m. mortgagee
d. attachment n. foreclosure sale
e. heirlooms o. mortgagor
f. conveyance p. record owner
g. deed q. sheriff's sale
h. hereditaments r. tacking
i. encumbrance s. general warranty deed
j. quitclaim deed

Real Property
100 Chapter 4

Exercise 4
From the list of legal terms that follows, select the one that matches each definition.

1. ______ Assurance (usually in the form of a pledge or deposit) given by a debtor to a creditor to
make sure a debt is paid.
2. ______ The right of a mortgagor to redeem the property any time before the completion of a
foreclosure proceeding by paying the amount of the debt, interest, and costs.
3. ______ A claim or charge on the property for the payment of a debt.
4. ______ A statutory right to redeem the property even after a foreclosure sale.
5. ______ An agreement by a new owner of real property to pay the former owner's mortgage.
6. ______ A clause in a mortgage or note that causes the entire balance of the loan to become due
when a default occurs.
7. ______ A conveyance of real property for the purpose of securing a debt.
8. ______ A court designed to do what is just and fair.
9. ______ A failure to perform a legal duty.
10. ______ To shut out, bar, or terminate.
11. ______ The transfer of a mortgagee's interest in a mortgage to another person.
12. ______ An instrument used in some states that replaces a mortgage, by which the legal title to
real property is placed in a trustee to secure the repayment of a debt.
13. ______ A judgment for the amount remaining due on the mortgage after the foreclosure sale.
14. ______ An examination of all recorded instruments that affect the title to a particular parcel of
property for the past fifty or more years.
15. ______ An arrangement for completing a real estate transaction by placing the papers and
money on a conditional basis with an agent until the title is clear, and all instruments are
recorded.
16. ______ The power of the government to take property for a public purpose.
17. ______ The process of taking private property for public use through the power of eminent
domain.
18. ______ Title that is free from any outstanding mortgages, liens, or other encumbrances of
record.
19. ______ A series of successive conveyances of real property.
20. ______ A condensed history of the title to a particular locus.

a. acceleration clause k. mortgage assumption


b. court of equity l. right of redemption
c. deed of trust m. security
d. default n. abstract of title
e. deficiency judgment o. chain of title
f. equity of redemption p. clear title
g. to foreclose q. condemnation
h. lien r. eminent domain
i. mortgage s. escrow
j. mortgage assignment t. title search

Real Property
Chapter 4 101

Exercise 5
From the list of legal terms that follows, select the one that matches each definition.

1. ______ Land that bears the burden of a restriction or easement.


2. ______ Land that is benefited by a restriction or easement.
3. ______ An easement created by long-continued use of another's property openly, notoriously,
continuously, and adversely.
4. ______ The right to use the land of another for a particular purpose (select two answers).
5. ______ An easement that is indispensable to the enjoyment of the dominant estate.
6. ______ A special type of easement that allows the dominant tenement to remove something,
such as sand, gravel, or timber from the servient property.
7. ______ An easement that benefits a particular tract of land.
8. ______ An easement that is not attached to any parcel of land but is merely a personal right to
use the land of another.
9. ______ A contract granting the use of certain real property by its owner to another for a
specified period in return for the payment of rent.
10. ______ A person who owns real property and who rents it to another under a lease (select two
answers).
11. ______ A person who has temporary possession of and interest in real property of another
under a lease (select two answers).
12. ______ An estate in real property for a definite or fixed period of time no matter how long or
how short.
13. ______ An estate in real property that continues for successive periods until one of the parties
terminates it by giving notice to the other party (select two answers).
14. ______ The right of a tenant to the possession of the rented property and to be undisturbed in
that possession.
15. ______ The legal action used by landlords to evict tenants.
16. ______ An estate in real property for an indefinite period of time.
17. ______ A tenant who wrongfully remains in possession of the premises after a tenancy has
expired (select two answers).
18. ______ The act of depriving a person of the possession of real property either by reentry or by
legal process.

a. ejectment m. tenant
b. eviction n. tenant at sufferance
c. holdover tenant o. dominant estate
d. landlord p. easement
e. lease q. easement appurtenant
f. lessee r. easement of necessity
g. lessor s. easement by prescription
h. periodic tenancy t. easement in gross
i. quiet enjoyment u. profit a prendre
j. tenancy at will v. right of way
k. tenancy for years w. servient estate
l. tenancy from year to year
Real Property
102 Chapter 4

Exercise 6
Imagine that you want to buy a property. Below are the different stages that you will normally (and
ideally) go through. Complete the gaps with words and expressions from the box.

a. alterations b. appoint c.asking d. authority e.balance f.bound g.boundaries


h.clauses i. completion j.confirmation k.contract l.covenants m.deposit n.disclose
o.disputes p. fees q. offer r. ownership s. planning permission t. plans u. possession
v. preservation w. Registry x.restrictions y. signing z. stamp aa. structural bb. survey
cc. surveyor dd.title deed

1. You make an _________ on the _________ price (the price that the seller is asking for the house), which
is accepted by the seller.

2. You _________ a solicitor to help you make your purchase.

3. Your solicitor receives _________ of your accepted offer, and also any necessary details from the estate
agent.

4. The seller's solicitor sends your solicitor a draft _________. This is checked to make sure there are no unu-
sual _________.

5. At the same time, the seller's solicitor sends your solicitor the seller's _________. This is carefully checked for
any _________ that might apply to _________ of the property. At the same time, the seller should make your
solicitor aware of any problems with the property (for example, _________ with his / her neighbours, any ap-
proved or unapproved _________ that he / she has made to the property, relevant information on _________
adjoining other properties and public land, _________or _________ orders that may restrict development of
the property, whether you will need to get _________ before making changes to the property, etc).

6. If the contract is approved, copies of it are prepared for _________ by both you and the seller.

7. Before you do this, however, your solicitor should ask the local _________ (for example, the local town
council) to _________ any information it has on _________ for the area around the property you are buying
(for example, there may be plans to build an airport at the end of your back garden, or a motorway across your
lawn at the front).

8. At the same time, you should ask for a _________ of the property by a chartered _________. He / she will
tell you if there are any problems with the property (for example, rising damp, dry rot, unsound _________
features, etc).

9. If you are happy with everything, you now sign the contract: you are now legally _________ to buy the
property (you cannot pull out of the agreement, unless further checks by your solicitor produce unfavourable
information that has been kept secret from you; for example, he / she may discover that the property details the
seller has provided are not accurate).

10. Your solicitor arranges a _________ date with the seller's solicitor - this is the date when you will take of-
ficial _________ of the property - and both you and the seller exchange contracts through your solicitors. Your
title deeds are prepared.

11. You pay your solicitor his _________, the money for the property (assuming you have already paid a
_________ on the property, you will now need to pay the outstanding _________), the relevant duty and
Land _________ fees.

12. You get your copy of the deeds and the key to the front door. Congratulations, and welcome to your new
home!
Real Property
Chapter 4 103

Exercise 7
From the list of words that follows, select the one that matches each definition in Russian.

1. арендодатель
2. арендатор, съемщик, наниматель
3. должник по закладной, залогодатель
4. кредитор по закладной, залогодержатель
5. лицо, принявшее на себя обязательства; должник по обязательству; дебитор
6. лицо, по отношению к которому принято обязательство; кредитор по обязательству
7. плательщик
8. получатель платежа, ремитент
9. патентовладелец, держатель патента
10. лицо, передающее право другому лицу; цедент (2 варианта)
11. правопреемник, цессионарий (2 варианта)
12. лицо, передающее вещь в зависимое держание; депонент
13. лицо, осуществляющее зависимое держание; зависимый держатель; ответственный храни-
тель; депозитарий
14. грузоотправитель
15. грузополучатель
16. индоссант (лицо, делающее передаточную надпись на обороте векселя)
17. индоссат (лицо, в чью пользу сделана передаточная надпись на векселе)
18. даритель
19. лицо, получающее дар
20. страховщик
21. страхователь; застрахованный
22. оферент
23. адресат оферты
24. залогодатель
25. залогодержатель
26. учредитель доверительной собственности
27. доверительный собственник
28. лицо, чьи права или требования переходят к другому лицу в результате суброгации (т.е. за-
мены одной стороны на другую)
29. лицо, к которому переходят права или требования другого лица в результате суброгации

a. pledger p. mortgagor/er
b. transferee q. obligor
c. insured r. payee
d. lessor s. assignee
e. obligee t. bailor
f. patentee u. consignee
g. assignor v. endorser(indorser)
h. consignor w. grantor
i. endorsee( indorsee) x. offeree
j. insurer y. transferor
k. offeror/er z. subrogee
l. pledgee aa. trustor
m. trustee bb. grantee
n. subrogor cc. bailee
o. lessee dd. payor/er
ee. mortgagee
Real Property
104 Chapter 4

Translate the following into Russian.

I. ESTATES IN LAND

A. PRESENT POSSESSORY ESTATES

1. In General
An estate in land is an interest that is or may become possessory. Land may be subject to ownership
by two or more persons holding separate and distinct estates. At any given time, only one possessory
estate may exist. Interests which may become possessory at some future time are called future inter-
ests. Freehold estates give possession through legal title or a right to hold. Nonfreehold estates give
mere possession.

2. Fee Simple Absolute


A fee simple (absolute) is the most extensive estate with a potentially infinite duration. "Fee" indicates
an estate of inheritance. "Simple" signifies that there are no restrictions on the estate with respect to
inheritance.

3. Fee Simple Determinable


A fee simple determinable is a fee simple estate created to continue until some specified event occurs.
The estate terminates automatically. Practically all American states recognize the fee simple deter-
minable.

a. Distinguished from Fee Simple Subject to Condition Subsequent


The principal difference between the two is this: in the determinable fee the estate automatically
comes to an end when the stated event happens, whereas in the fee simple subject to condition
subsequent the termination of the estate is not automatic but must be terminated by the entry or
exercise of the reserved power by the grantor (or his successor in interest).

b. Creation of Fee Simple Determinable


The typical words for creating a determinable fee are:
(1) "so long as",
(2) "during",
(3) "until",
(4) "while".

4. Fee Simple Subject To A Condition Subsequent


A fee simple subject to a condition subsequent is a fee simple estate that may be terminated upon the
happening of a named event by the grantor or his successors in interest. The estate continues until the

Real Property
Chapter 4 105

grantor or the future interest holder exercises his right of entry or power of termination. The majority
of American states recognize this type of estate.

a. Mode of Creating
A fee simple on condition subsequent is generally introduced by such phrases as:
(1) "on condition that",
(2) "subject to the condition that",
(3) "but if".

5. Fee Simple Subject To Executory Interest


A fee simple subject to executory interest is a fee simple estate, where upon the happening of a named
event, ownership is to pass from the grantee to one other than the grantor. The future interest created
in the third party is an executory interest.

6. Fee Tail
At common law, a fee tail was usually created by the words, "to В and the heirs of his body". Inherit-
ance was restricted to lineal descendants of the grantee.

7. Life Estate
A life estate is a freehold estate where the duration is measured by the life or lives of one or more hu-
man beings.

B. FUTURE INTERESTS

Reversion
A reversion is the estate remaining in a grantor who has conveyed a lesser estate than that owned by
the grantor.

Remainders
A remainder is a future interest created in a third person which is intended to take after the natural
termination of a preceding estate. It must be created as part of the same grant which created a prior
possessory estate, and the preceding estate must be smaller than a fee simple.

Types of remainders
Remainders are divided into two classes: vested remainders and contingent remainders.

Vested remainders: A vested remainder is a remainder created in an ascertained and exist-


ing person that is not subject to any condition precedent except the normal termination
of the preceding estate.

Real Property
106 Chapter 4

Contingent remainders: A contingent remainder is any remainder which is created in favor


of an ascertained person but (a) is subject to a condition precedent, or (b) is created in fa-
vor of an unborn person, or (c) is created in favor of an existing but unascertained person.

Rule Against Perpetuities


Definition: No interest is good unless it must vest, if at all, not later than twenty-one years after some
life in being at the creation of the interest.

C. CONCURRENT ESTATES

1. Joint Tenancy
A joint tenancy is a form of co-ownership where each tenant owns an undivided interest in the whole
estate. Its distinguishing feature is the right of survivorship which means that upon the death of one
joint tenant, the survivor or survivors own the whole of the property and nothing passes to the heirs
of the decedent.

a. Creation: At common law, four unities are required to create a joint tenancy:
(1) Unity of time (interests vested at the same time);
(2) Unity of title (interests acquired by the same instrument);
(3) Unity of interest (interests of the same type and duration);
(4) Unity of possession (interests give identical rights of enjoyment).
b. Requirements:
(1) Joint tenancy is always created by deed or by will, never by descent.
(2) In joint tenancy there must always be two or more grantees or devisees.

2. Tenancy by the Entirety


A tenancy by the entirety is a form of co-ownership similar to a joint tenancy based upon the com-
mon law concept of unity of husband and wife. Tenancy by the entirety is a species of joint tenancy and
like in joint tenancy each spouse owns the whole estate and not a fractional part thereof.

a. Right of survivorship: The doctrine of survivorship operates in a tenancy by the entirety so


that the survivor takes the whole estate, and the heirs receive nothing.
b. Unities: Five unities are essential in a tenancy by the entirety:
(1) Time,
(2) Title,
(3) Interest,
(4) Possession,
(5) Person (i.e., unity of husband and wife).

Real Property
Chapter 4 107

3. Tenancy in Common
A tenancy in common is a concurrent estate in which co-tenants each own an undivided, separate
and distinct share of the property. It is important to note that a tenant in common does not own the
whole property as in a joint tenancy. Each tenant can dispose of her undivided fractional part or any
portion thereof, either by deed or will. The only "unity" is that of possession inasmuch as each tenant
is entitled to possession of the whole estate.

a. No right of survivorship: Upon the death intestate of a tenant in common her interest de-
scends to her heirs. There is no right of survivorship.
b. Destruction:
(1) Partition: A tenancy in common may be destroyed by partition.
(2) Merger: A tenancy in common is destroyed by merger when the entire title vests in one
person, either by purchase or otherwise.

II. LANDLORD AND TENANT


TYPES OF LEASEHOLD ESTATES

1. Tenancies for a Term (or Tenancy for Years): This type of tenancy has a fixed duration which is
set forth in the lease, e.g., "for six months" or "for two years". It ends automatically at the expira-
tion of the term unless the parties agree to renew it.
2. Periodic Tenancies: A tenancy from period to period is a continuing tenancy and not the incep-
tion of a new tenancy at the beginning of each rental period.
3. Tenancy At Will: A tenancy at will is an estate in land that is terminable at the will of either the
landlord or the tenant. At common law this estate could be terminated by either party without
advance notice.
4. Tenancies At Sufferance: This type of tenancy arises when a tenant wrongfully remains in pos-
session after the expiration of a lawful tenancy (i.e. "holds over").

FIXTURES

A fixture is a chattel which has become real property. An article of personal property may become
a fixture (a) without any physical attachment to the land other than the fact that it rests thereon of
its own weight (e.g., a prefabricated house is moved onto Blackacre and is set on a pre-constructed
cement foundation); or (b) by being set in and annexed to the soil itself (e.g., a fence post placed in
a hole in the ground); or (c) by being on the land (e.g., a house is already an accession to or a fixture
on Blackacre and a pre-constructed window frame is fitted and attached to the house or a table is
built in a room of the house).

Real Property
108 Chapter 4

ADVERSE POSSESSION

1. Application of Statute of Limitations


The doctrine of adverse possession is based on statutes of limitations for recovery of real prop-
erty. Statutes of limitation operate not only to bar one's right to recover real property held ad-
versely by another for a specified period of time, but also they operate to vest the disseisor (i.e.,
the adverse possessor) with a perfect title as if there had been a conveyance by deed.

2. Requirements
In order to hold real property adversely, one's possession must be:
a. actual and exclusive (meaning sole physical occupancy),
b. hostile and adverse (meaning not permissive),
c. open and notorious (meaning not secret or clandestine but occupying as an owner
would occupy, for the whole world to see),
d. continuous (meaning without interruption for the statutory period whether it be 5,
7, 10, 15 or 20 years),
e. peaceable (meaning no physical eviction or eviction by court action).

III. NON-POSSESSORY INTERESTS IN LAND

EASEMENTS AND PROFITS

1. Profit-a-Prendre Defined

A profit is the right of one person to go onto the land in possession of another and take therefrom
either some part of the land itself or some product of the land. For example, A has the right to enter
Blackacre which is in the possession of B, and take off oil, gravel, marble, stone or grass, trees, shrub-
bery, or fish.
a. The distinguishing element between an easement and a profit is this: whereas an easement
gives its owner only the right to enter or use the land of another (with no right to take anything
from such land), a profit on the other hand gives its owner the right to take either the soil itself or
some product of the land.
b. A profit is an interest in land and requires compliance with the Statute of Frauds.
c. A profit is a non-possessory interest in land. It should be distinguished from the possessory
interest in owning the soil or minerals beneath the surface.

2. Easements

An easement is the right of one person to go onto the land in possession of another and make a limited
use thereof. For example, A has a right to enter or walk across Blackacre which is in the possession of
Real Property
Chapter 4 109

B.
a. Easements (or profits) are classified as follows:
(1) easements appurtenant and
(2) easements in gross.

3. Types of Easements

a. Easements (or profits) may thus be created as follows:


(1) by express provision in a deed or will;
(2) by implication - which arises from the circumstances surrounding the dividing
by the owner of a piece of land into two pieces and conveying one of such pieces
to another. Easements by implication include:
(a) easements of necessity and
(b) easements created by conveyances in reference to a plat depicting streets,
parks and other places thereon;
(3) by prescription - which arises by adverse use of the servient tenement by the
dominant tenant for the period of the statute of limitations. To mature such an
easement, the use must be (as with adverse possession): (a) adverse as distinct
from permissive, (b) open and notorious, (c) continuous and without interrup-
tion, and (d) for the statutory period;
(4) by estoppel;
(5) by eminent domain.

IV. MORTGAGES

Definition

A mortgage is an interest in land created by a written instrument providing security for the perform-
ance of a duty or the payment of a debt.

Parties Involved in Transaction

The mortgagor creates the mortgage. He is the "landowner" and debtor. The mortgagee is the creditor
(e.g., bank) and the holder of the mortgage.

Conveyance of Encumbered Property

a. "Subject to" Mortgage


In a conveyance of land "subject to" a mortgage, the grantee is not personally liable (i.e., in
personam) for the mortgage debt. However, if she doesn't pay the debt, the mortgage may be

Real Property
110 Chapter 4

foreclosed and she (the grantee) will lose the land.


b. ''Assumption" of Mortgage
In a sale of land in which the purchaser "assumes" the mortgage, the purchaser or grantee is
personally liable for the mortgage debt and is subject to a deficiency judgment in the event that
a foreclosure sale does not satisfy the debt.

c. Assignments
Mortgages are assignable. Both the mortgage (i.e., the security), and the note (i.e., the debt),
are transferrable.

Equity of Redemption

The term equity of redemption refers to the interest of the mortgagor in a title jurisdiction after default.
It was in this situation that the mortgagor needed the aid of equity to provide relief from the convey-
ance which at law had become absolute in the mortgagee.

Foreclosure

Modern Day Application


In most jurisdictions today, foreclosure is the method by which the security (i.e the mortgaged
property), or proceeds from the sale thereof, is applied to the satisfaction of the debt or obliga-
tion.

Real Property
Chapter 4 111

Write in English a summary of the Chapter making use of


the suggested plan that follows.

Проследите различие между фригольдом и лизгольдом как двумя группами прав собственно-
сти на недвижимость. Чем совместное владение общей собственностью отличается от долево-
го владения общей собственностью? Назовите известные вам формы общности прав супругов
на недвижимость и дайте их краткую сравнительную характеристику. Кратко охарактеризуйте
значение сервитута в отношении доминантной недвижимости и сервиентной.

Real Property
112 Chapter 4

Real Property
5
Chapter 5 113

Commercial Paper

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

A. NATURE OF COMMERCIAL PAPER

Modern business depends upon a large variety of commercial paper that is readily transferable with
a minimum risk.

1. Modern Commercial Paper: The most common types of modern commercial paper are:
a. Instruments payable in money or goods;
b. Receipts for and promises to deliver goods;
c. Instruments creating rights in real and personal property; and
d. Documents of title in goods.

2. Transferability: Commercial documents may be transferred in the following ways:


a. Assignment:
b. Negotiation;
c. Sale and delivery of goods; and
d. Deeding of real property.

3. Assignment and Negotiation Compared


a. Transfer by assignment: When one takes an assignment of commercial paper, she ac-
quires all the rights of the assignor, but is also subjected to existing defenses.
b. Transfer by negotiation: When a negotiable instrument is transferred by negotiation,
practically all defenses are cut off and the holder obtains good title.

B. TYPES OF COMMERCIAL PAPER

1. Promissory Notes: A promissory note is a two party note, written by one party (the maker)
promising to pay money to the other party (the payee) and must meet the following require-
ments:

Commercial Paper
114 Chapter 5

a. It must be a written unconditional promise;


b. To pay a sum certain in money;
c. Payable on demand or at a stated future time;
d. Payable to the order of someone, or to bearer, whoever has possession.

2.Drafts: A draft, or bill of exchange, is an unconditional order by one party (the drawer) on an-
other party (the drawee) to pay a certain sum of money on demand or at a stated time to a third
party (the payee) and is three party paper.

3. Checks: A check is a draft drawn on a bank and payable on demand.


a. Cashier's check: A cashier's check is drawn by a bank on itself ordering itself to pay a
sum certain to the depositor or to the person designated by him.
b. Certified check: A certified check is a personal check of the bank's depositor which the
bank has certified that the depositor has such amount on deposit.
c. Bank draft: A bank draft is a check drawn by one bank upon another bank in which the
first bank has money on deposit.
d. Certificate of deposit: A certificate of deposit is a written acknowledgment by a bank of
receipt of money by a depositor and a promise to pay the holder of the certificate the
amount deposited when the certificate, properly indorsed, is surrendered.

Commercial Paper
Chapter 5 115

C. PARTIES TO COMMERCIAL PAPER

1. Promissory Note: A promissory note has two original parties, the maker and the payee.
a. Maker: The maker is the party who promises to pay the money.
b. Payee: The payee is the party entitled to receive the money.

2. Draft and Chek: The draft and check have three original parties, the drawer, the drawee, and
the payee.
a. Drawer: The drawer is the person who executes the instrument, who is sometimes called
the signer of a check, and who promises to pay if the paper is not paid by the drawee.
b. Drawee: The drawee is the person, or institution, usually a bank in case of a check, to
whom the order to pay is directed.
c. Payee: The payee is the party entitled to payment.

3. Indorser: An indorser is a party who transfers a negotiable instrument by signing his name,
usually on the back, and delivering it to another person. In the case of a check, the first indorser
would be the payee.

4. Indorsee: The indorsee is the person to whom the indorsement is made and who may also
become the indorser by indorsing and negotiating the instrument to another indorsee.

5. Bearer: The bearer is the person who has possession of an instrument payable to bearer or
indorsed in blank.

6. Holder: The holder is the person who has possession of the instrument issued or indorsed to
him or to his order, or to bearer, or indorsed in blank.
a. Holder for value: A holder for value is a holder who gave consideration for the instru-
ment.
b. Holder in due course: A holder in due course is a person who becomes a holder for value,
in good faith, and without notice of any defense to the instrument.

7. Accommodation Party: An accommodation party is a person who signs the instrument for the
purpose of lending his name to another party to it, and he may be a co-maker or an indorser.

8. Guarantor: A guarantor is a person who signs the instrument adding a statement that she will
pay the instrument under certain conditions.

Commercial Paper
116 Chapter 5

D. DOCUMENTS OF TITLE

Documents of title to goods developed in order that paper representing the title to such goods could be
transferred between parties rather than the cumbersome actual transfer of possession of the goods.

1. In General: "Document of title" includes bill of lading, dock warrant, dock receipt, warehouse
receipt, and any other document which in the regular course of business or financing is treated
as adequately evidencing that the person entitled under the document has the right to receive,
hold, and dispose of the document and the goods it covers. It must represent that it was issued
by a bailee, carrier or warehouseman, and must purport to cover goods in the bailee's possession
which are identified.
a. Bill of lading: A bill of lading is a document evidencing the receipt of goods for ship-
ment issued by a person engaged in the business of transporting or forwarding goods,
and includes an airbill.
b. Warehouse receipt: A warehouse receipt is a receipt issued by a person engaged in the
business of storing goods for hire.
(1) Warehouseman: A warehouseman is a person engaged in the business of storing
goods for hire.
c. "Straight" bill of lading: A straight bill of lading is nonnegotiable and names the buyer as
consignee, in which case the carrier will deliver the goods to the buyer without requir-
ing the surrender of the bill of lading.

2. Negotiation of Documents of Title: Documents of title may be either negotiable or nonnego-


tiable.
a. Negotiability: A bill of lading, warehouse receipt, or other document of title is negotia-
ble only if its terms contain words of negotiability, such as the goods are to be delivered
to "bearer" or to the "order of"' a named person.
(1) Nonnegotiable: A document with no words of negotiability which contains only a
statement that the goods are consigned to "Bill Buyer" would make the document
of title nonnegotiable.
(a) Assignability: Nonnegotiable documents can be assigned, but an assignee
only acquires the rights of an assignor and takes subject to any defenses avail-
able against the assignor.
b. Transfer of negotiable document
(1) "Order" document: An "order" document is negotiated by indorsement and deliv-
ery of the document.
(a) Indorsement in blank: An indorsement in blank, where the indorser signs
only his name, converts the document to "bearer" paper.
(b) Special indorsement: If the indorsement states that the goods are to be de-
livered to a certain person, it is a special indorsement and cannot be negoti-
ated further without that person's signature.

Commercial Paper
Chapter 5 117

(2) "Bearer" document: A bearer document is negotiated by delivery alone, and this
could be done by a finder or a thief.

c. Warranties on negotiation of documents: The person negotiating or transferring a docu-


ment of title for value warrants to the immediate purchaser that:
(1) The document is genuine;
(2) He has no knowledge of any fact that would impair its validity or worth; and
(3) His negotiation or transfer is rightful and fully effective with respect to the docu-
ment and goods it represents.

E. NEGOTIABILITY

Negotiable instruments are contracts for the payment of money which must, however, meet certain
formal requirements in order to be negotiable.

1. Requirements of Negotiability: Any writing to be a negotiable instrument under the U.C.C.


must:
(i) Be signed by the maker or drawer; and
(ii) Contain an unconditional promise or order to pay a sum certain in money and no other
promise, order, obligation or power given by the maker or drawer except as authorized
by the U.C.C.; and
(iii) Be payable on demand or at a definite time; and
(iv) Be payable to order or to bearer.

2. Writing and Signature: To be negotiable, an instrument must be in writing and signed.


a. Writing: Writing includes typing, printing, and engraving, and may be in ink or pencil.
b. Signature: A signature may be in one's own handwriting, printed, engraved, or stamped,
and may consist of initials, figures, or a mark. It need not be at the end but must appear
somewhere on the instrument or a paper attached to the instrument.

3. Promise or Order
a. Promissory note: A promissory note must contain a promise to pay money.
b. Draft or check: A draft or check must contain an order to pay money.

4. Unconditional Promise or Order: Negotiability requires that the promise or order must not
be conditional.

5. Sum Certain: To be negotiable, the instrument must call for the payment of a sum certain.

Commercial Paper
118 Chapter 5

6. In Money: To be negotiable, the instrument must call for payment in money, which is the
legal medium of exchange at the time the instrument was made (i.e., currency, current funds,
or foreign currency).

7. Time of Payment: To be negotiable, the instrument must be payable on demand or at a definite


time.

8. Order or Bearer: To be negotiable, the instrument must be made payable to order or to bearer.

9. Designation of Parties: Each party to an instrument must be designated with certainty and the
position she occupies on the instrument must be indicated. However, the use of an assumed
or trade name is sufficient identification.

10. Additional Recitals: Many instruments contain additional recitals which may or may not
affect negotiability.

F. TRANSFER OF NEGOTIABLE INSTRUMENTS

A negotiable instrument may be transferred from one person to another by negotiation or by an as-
signment.

1. Assignment: In the assignment of a negotiable instrument, the assignee gets only the title of
the assignor subject to all defenses against it. The instrument is assigned when it is an order
instrument and has been transferred without an indorsement.
2. Negotiation: Negotiation of a negotiable instrument may be by delivery or by indorsement
and delivery.
3. Holder in Due Course (H.D.C.): A holder in due course is a bona fide purchaser of the instru-
ment for value without notice of any defect in the instrument or wrongdoing in connection with
it, and who takes the instrument free from all personal defenses.

G. PRESENTMENT AND DISCHARGE

The liability of the maker or indorser of a draft or check is secondary, which requires that the condi-
tions precedent of presentment and notice of dishonor be met before the maker or indorser is required
to pay to discharge the instrument.

1. Presentment: Presentment is a demand for payment or acceptance made upon the maker, ac-
ceptor, drawee, or other payor by the holder.

Commercial Paper
Chapter 5 119

2. Notice of Dishonor: An instrument is dishonored when presentment has been made properly
and payment or acceptance is refused, whereupon the holder has an immediate right of re-
course against drawers and indorsers upon giving them prompt notice of dishonor.

3. Protest: A protest is a formal presentment and notice of dishonor.

4. Presentment and Notice Not Required


a. Waiver: Presentment and notice of dishonor may be waived by the express or implied
agreement of the secondary party.
b. Excused: Presentment and notice of dishonor may be excused when the holder is un-
able through due diligence to locate the person who is to make payment.

H. DISCHARGE OF PARTIES

A party to a negotiable instrument may be discharged individually or by some act which discharges
all of the parties to the instrument at one time.

1. Payment or Satisfaction: The most common method of discharging a party who is liable on
an instrument is for that party to make payment or satisfaction to the holder of the instru-
ment.

2. Tender of Payment: Although tender of payment does not discharge the obligation if not ac-
cepted, it does discharge all subsequent liability for interest, costs and attorney's fees.

3. Cancellation and Renunciation: If a holder desires to allow a party who is liable on an instru-
ment to be discharged from liability, the holder may discharge the party (even without con-
sideration) by cancellation or renunciation of the instrument.

4. Reacquisition: When an instrument is returned to or reacquired by a prior party, the reacquir-


er may cancel any indorsement that is not necessary to his title, and any intervening party is
discharged as against the reacquired instrument except as to holders in due course.

5. Other Reasons for Discharge: There are several other reasons for discharge, which have been
previously itemized and which are set forth in U.C.C. section 3-601(1) (including impair-
ment of collateral, material alteration, check certification, and unexcused delay in present-
ment, notice, or protest).

Commercial Paper
120 Chapter 5

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1.
........................................................
negotiability
negotiation ........................................................
Negotiable Instruments Law (NIL) ........................................................

2. ........................................................
commercial paper: ........................................................
promissory note ........................................................
bill of exchange (draft)
certificate of deposit ........................................................
check (cheque) ........................................................
........................................................
3.
promissory note maker ........................................................
payee ........................................................
........................................................
4.
bill of exchange=draft ........................................................
........................................................
drawer drawee payee
........................................................
5. ........................................................
to draw a bill ........................................................
to make out
to (dis)honor ........................................................
to discount ........................................................
to be liable on
........................................................
to note
to endorse (indorse) ........................................................
to protest ........................................................
to negotiate
........................................................
to present
to surrender ........................................................
........................................................
6.
foreign bill ........................................................
inland ........................................................
treasury ........................................................
overdue
accommodation ........................................................
accepted ........................................................
outstanding
........................................................
7. ........................................................
to issue a check ........................................................
to make out
........................................................
to write out
to pay by ........................................................
to stop ........................................................
to cancel
to (dis)honor ........................................................
to sign ........................................................

Commercial Paper
Chapter 5 121

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

to process ........................................................
to alter
to cash ........................................................
to present ........................................................
........................................................
8.
undated check ........................................................
antedated ........................................................
postdated
bank ........................................................
bearer ........................................................
cashier’s ........................................................
teller’s
certified ........................................................
crossed ........................................................
outstanding ........................................................
stale
traveller’s ........................................................
forged ........................................................
bad
........................................................
escrow
........................................................
9. ........................................................
a check bounces
........................................................
10. ........................................................
documents of title: ........................................................
bill of lading
dock warrant ........................................................
warehouse receipt ........................................................
dock receipt ........................................................
11. ........................................................
bona fide purchaser ........................................................
offer
........................................................
mortgage
error ........................................................
........................................................
12.
to make payment ........................................................
to effect ........................................................
to defer ........................................................
to enforce
to suspend ........................................................
to stop ........................................................
to present for ........................................................
to withhold
........................................................
13. ........................................................
delinquent payment
........................................................
down
advance ........................................................

Commercial Paper
122 Chapter 5

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
14.
tender of payment ........................................................
........................................................
15.
........................................................
payment in cash
by check ........................................................
in full ........................................................
in part
by installments ........................................................
on a loan ........................................................
against documents ........................................................
by draft
by/from a letter of credit (L/C) ........................................................
in arrears ........................................................
in kind
........................................................
........................................................
16. ........................................................
payable to order
........................................................
to bearer
........................................................
17. ........................................................
fictitious payee
imposter ........................................................
........................................................
........................................................
blank endorsement
special ........................................................
restrictive ........................................................
qualified
........................................................
18. ........................................................
endorsement ........................................................
........................................................
endorser endorsee
........................................................
19. ........................................................
to settle a debt
to extinguish ........................................................
to discharge ........................................................
........................................................
20.
to debit from an account ........................................................
to credit to ........................................................
to charge to
........................................................
21. ........................................................
an order document ........................................................
a bearer
........................................................
........................................................

Commercial Paper
Chapter 5 123

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

22. ........................................................
acceleration clause
........................................................
extension
........................................................
23. ........................................................
to mature
maturity date ........................................................
........................................................
24. ........................................................
to remit money
remitter ........................................................
........................................................
25.
........................................................
subrogation
........................................................
subrogor subrogee ........................................................
........................................................
26.
to raise a defense ........................................................
to assert ........................................................
to be subject to
........................................................
27. ........................................................
real/absolute/universal defenses ........................................................
personal/limited
........................................................
28. ........................................................
holder in due course (HDC)
........................................................
29. ........................................................
overdraft ........................................................
........................................................
30.
allonge ........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

Commercial Paper
124 Chapter 5

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

1. ______ A person who draws a draft.


2. ______ A person named in a draft who is ordered to pay money to the payee.
3. ______ A person named in a note or a draft to whom payment is to be made.
4. ______ A person who promises to pay money to another on a note.
5. ______ An instrument that requires the endorsement of the payee and delivery to be negotiated.
6. ______ A person who is in possession of a negotiable instrument that is payable to bearer, or in cash, or that has been
indorsed in blank.
7. ______ A person who is in possession of a negotiable instrument that has been issued or indorsed to that person's order
or to bearer.
8. ______ A holder who has taken a negotiable instrument for value, in good faith, and without any knowledge that it is
overdue or that anyone has any claims or defenses to it.
9. ______ A person to whom a negotiable instrument is transferred by endorsement.
10. ______ A drawee of a draft who signs it on the face, agreeing to pay it.
11. ______ A written instrument by which one person orders another person to pay money to a third person (select two
answers).
12. ______ A defense that can be used against a holder but not against a holder in due course of a negotiable instrument
(select two answers).
13. ______ To refuse to accept or pay a negotiable instrument when it is presented.
14. ______ A draft that is drawn on a bank and is payable on demand.
15. ______ A check that has been accepted, and thus guaranteed, by the bank on which it was drawn and has been
marked to indicate such acceptance.
16. ______ An endorsement that specifies no particular endorsee and may consist of a mere signature.
17. ______ An endorsement that limits the liability of the endorser.
18. ______ A paper firmly affixed to a negotiable instrument for the writing of endorsements.
19. ______ An instrument that requires no endorsement of the payee to be negotiated.
20. ______ A document issued by a transportation company evidencing the receipt of goods for shipment.
21. ______ The signature of an endorser, usually on the back of an instrument, for the purpose of transferring an instru-
ment to another.
22. ______ A written promise by one party to pay a sum of money to another party (select two answers).
23. ______ An endorsement that specifies the person to whom or to whose order it makes the instrument payable.
24. ______ An instrument that is given by a bank to acknowledge the receipt of money by a depositor.
25. ______ The transfer of an instrument in such form that the transferee becomes a holder.
26. ______ An endorsement that purports to prohibit further transfer of the instrument.
27. ______ A defense that is good against everyone, including a holder in due course of a negotiable instrument (select
three answers).
28. ______ A note that is to be paid in multiple payments during a certain period.

a. absolute defense r. drawee


b. restrictive endorsement s. drawer
c. acceptor t. promissory note
d. allonge u. special endorsement
e. bearer v. holder
f. bearer paper w. holder in due course
g. bill of exchange x. endorsee
h. bill of lading y. endorsement
i. blank endorsement z. installment note
j. certificate of deposit aa. universal defense
k. certified check bb. personal defense
1. check cc. maker
m. limited defense dd. negotiation
n. qualified endorsement ее. note
o. dishonor ff. order paper
p. real defense gg. payee
q. draft
Commercial Paper
Chapter 5 125

Exercise 2
Complete the texts using the words in the box.

consideration lien material terms forgery HDC


overdue for value conforming honestly defenses
in good faith dishonored

I. Requirements for a HDC


For a holder to be a negotiable instrument's HDC:
the instrument when issued or negotiated to the holder must not bear evidence of (1)________or
alteration or other irregularities or incompleteness calling into question the instrument's authentic-
ity; and the holder must take the instrument a) (2)______________b)(3)______________, and c)
without notice that it is (4)______________, has been (5)______________or altered, contains an
unauthorized signature, or has certain (6)______________or claims against it.

II. Taking for value


A holder takes an instrument "for value" to the extent that the agreed-upon (7)______________has
been performed, or he/she acquires a security interest or (8)______________on the instrument.
"Value" does not arise, however, from security interests or liens obtained via legal proceedings, such
as deficiency judgments.

III. Good faith


A person takes an instrument in good faith if he/she acts (9)______________. The test is sub-
jective: Did the holder actually believe that the instrument was regular (genuine, authorized) and
(10)______________with the law? It is usually irrelevant that a reasonable person (the objective
test) might have acted differently.

IV. Absence of notice


Most disputes about (11)______________status concern alleged notice of a claim or defense;
whether "value" was given is generally easy to determine, and good faith is usually assumed.
"Notice" includes both what the holder actually knew and what he/she should have known from all
the facts and circumstances. Under this objective test, obvious forgeries, alterations, or blanks in
(12)______________are themselves sufficient to suggest potential claims and defenses to the in-
strument; hence nothing else is necessary to show notice.

Commercial Paper
126 Chapter 5

Translate the following into Russian.

ARTICLE 3 OF THE UCC


Definition of an Instrument
An instrument is a writing containing an unconditional promise to pay or order to pay a sum certain
on demand or at a definite time. There are four principal types of Article 3 instruments:
1. Note: an instrument that is a written promise to pay money, signed by a person making the
promise (§3-104(e)), who is called the maker (§3-103(a)(5)).
2. Draft: an instrument that is an order to pay money rather than a promise (§3-104(e)). The
person who issues the order is the drawer (§3-103(a)(3)), and the person ordered to pay is the
drawee (§3-103(a)(2)). Notably, a draft orders payment (§3-104(e)).
3. Check: a draft that is drawn on a bank, as drawee, and that is payable on demand
(§3-104(f)).
4. Certificate of Deposit: an instrument containing an acknowledgment by a bank that a sum of
money has been received by the bank and a promise by the bank to repay the sum of money
(§3-104(j)).

REQUISITES OF NEGOTIABILITY
A negotiable instrument is a writing that satisfies the elements listed in §3-104(a). The writing must:
1. be signed by the maker or drawer;
2. contain an unconditional promise or order to pay a sum certain in money and may not contain
any other promise, obligation, or power given by the maker or drawer except as authorized
under Article 3;
3. be payable on demand or at a definite time; and
4. be payable to order or to bearer.

LIABILITY FROM A NEGOTIABLE INSTRUMENT


Liability on an Instrument
Contractual liability on the instrument requires the person's signature and delivery of the instrument
(§§3-201; 3-301). The following rules apply:
• §3-401(a): No person is liable on an instrument unless her signature appears thereon.
• §3-402(a): If a person signs in a representative capacity, the represented person is liable on the
instrument to the extent provided by contract law.
• §1-201(14): Delivery is defined as a "voluntary transfer of possession."
A drawer of a draft or an indorser (someone who is not a maker or drawer but who signs the instru-
ment) of any instrument is "secondarily" liable on the instrument when three conditions are met:
1. presentment;
2. dishonor; and
3. notice of dishonor (§§3-415; 3-501, 3-502, 3-503).

Commercial Paper
Chapter 5 127

Warranties
Unlike contractual liability on an instrument that requires a party's signature, a transferor of an in-
strument impliedly makes by her mere transfer certain warranties. §3-416 provides transfer warran-
ties that run in favor of an immediate transferee. Provided a person transferred the instrument and
received consideration, the transferor makes the following warranties to an immediate transferee:
1. warrantor is a person entitled to enforce the instrument;
2. all signatures on the instrument are genuine or authorized;
3. the instrument has not been altered;
4. no defense of any party is good against the warrantor; and
5. the warrantor has no knowledge of any insolvency proceeding instituted with respect to the
maker, acceptor, or drawer.
§3-417(a) also provides for presentment warranties that are made by any person who presents an un-
accepted draft for payment or acceptance and also by any prior transferor. These warranties run only
to the drawee who pays or accepts the draft in good faith and are as follows:
1. warrantor has good title to the instrument or is authorized to obtain payment or acceptance
on behalf of one who has good title;
2. the instrument has not been altered; and
3. the warrantor has no knowledge that the signature of the drawer of the draft is unauthor-
ized.
The breach of either §3-416 or §3-417 triggers all applicable rules of law governing remedies for
breach of warranty including rescission and an action for damages.

Discharge on an Instrument
§3-602(a): Discharge occurs when payment is (1) made by or for the party claiming discharge and
(2) to the holder.

NEGOTIATION OF ARTICLE 3 INSTRUMENTS


Negotiation
Only a holder or someone who claims through a holder can enforce an instrument (§3-301). A person
can become a holder of an instrument (defined as anyone in possession of an instrument payable to her
or payable to bearer, §1-201(20)) when the instrument is issued to that person or through a special form
of transfer called negotiation (§3-201 Comment 1). §3-201 provides that negotiation of an instrument is
a transfer of the instrument in such form that the transferee becomes a holder. The form of negotiation
depends on whether the instrument is order paper (payable to order) or bearer paper (payable to bearer).
• §3-201(b) provides that if the instrument is payable to order, it is negotiated by delivery with any
necessary indorsement.
• §3-201(b) provides that if the instrument is payable to bearer, it is negotiated solely by transfer of
possession.
The requirements of §3-201 are applicable not only on the first transfer, but on subsequent transfers as
well. §3-204 indicates that a valid indorsement must be written by or on behalf of the holder and on the
instrument.

Commercial Paper
128 Chapter 5

HOLDER IN DUE COURSE


Rights of a Holder in Due Course
§3-305 provides that a transferee who has holder in due course status takes the instrument free of
claims of third parties and most defenses to the instrument's enforcement.

Attaining Holder in Due Course Status


§3-302 lists five elements required for a person to achieve holder in due course status. A holder in
due course is a holder who takes the instrument for value, in good faith, and without notice that it is
overdue or has been dishonored or of any defense against or claim to it on the part of any person.

Limitations on Holder in Due Course


§3-305(a)(l) provides that real defenses may still be asserted against a transferee, including a holder
in due course. Real defenses include the following:
1. infancy, to the extent that it is a defense to a simple contract;
2. other incapacity, or duress, or illegality of the transaction so as to render the obligation of the
party a nullity;
3. misrepresentation or fraud that has induced the party to sign without knowledge or a reason-
able opportunity to learn of the instrument's character or essential terms; and
4. discharge in insolvency proceedings.
§3-305 further limits holder in due course rights by implying that the holder in due course is subject
to most personal defenses.

Shelter Principle
Pursuant to §3-203(b) and the shelter principle, a holder in due course may transfer her rights. Thus,
a transferee, while not a holder in due course in her own right, may still enjoy holder in due course
status.

ARTICLE 4 OF THE UCC


Check Collection
There are a number of methods by which a payee or holder of a check may obtain payment. These
include:
• Presentment by owner of check. Payee or holder may present the check to the payor bank for
payment. Payment will be for cash or deposit.
• Direct presentment between banks. This occurs where the holder has an account in a separate
bank than that of the payor bank (the drawer's bank). The holder's bank, or depositary bank,
acts as the holder's agent in receiving payment from the payor bank. The depositary bank is
also known as the collecting bank. The depositary bank may present the item directly to the
payor bank for payment.
Typically, the depositary bank will give provisional credit for the item (§4-214). It may, however, dis-
honor the item by returning it.

Commercial Paper
Chapter 5 129

Final Payment
Only a payor bank, the drawee of a check, may make final payment. Final payment simply means the
payor bank becomes accountable for the item; that is, the bank is strictly liable for the item. §4-215
lists methods of final payment. These include:
1. payment in cash;
2. settlement without a right to revoke because of statute, rule, or agreement; and
3. provisional settlement and a failure to revoke the settlement in a manner consistent with
statute, rule, or agreement.

Warranties
A payor bank receives certain presentment warranties under §4-208 and may receive damages for
breach of these warranties. They include:
1. a warranty against alteration;
2. the warrantor is a person entitled to enforce the item; and
3. the warrantor has no knowledge that signatures are unauthorized.
A collecting bank may recover from a previous transferor also based on the transfer warranties of
§4-207. These include:
1. the warrantor is entitled to enforce the instrument;
2. all signatures are authorized; and
3. no item has been altered.

Payor Bank and Its Customers


The payor bank owes two duties to its customers: (1) pay properly payable items; and (2) dishonor
items that are not properly payable. According to §4-402, a payor bank is liable to its customers for
damages proximately caused by wrongful dishonor.

Stopping Payment on a Check


Under §4-403, a drawer has the right to order the payor bank to dishonor an item when it is presented
for payment. If the payor bank pays the item anyway, it is an improper payment and the customer may
recover damages suffered, unless one of the exceptions of §4-407 applies (§4-403 Comment 7).

Check Fraud
Only properly payable checks may be charged to the customer's account (§4-401). Thus, forged
checks are not properly payable and must be recredited to the customer's account.
• The payor bank may recover its losses for forged indorsements and alterations by using the
presentment warranties of §4-208. These warranties are made by "each customer or collect-
ing bank who received payment or acceptance of an item and each prior customer and col-
lecting bank."
• A party who is liable to a payor bank for breach of §4-208 may, in turn, use the transfer war-
ranties of §4-207 to recover from an earlier collecting bank. This is based on the assumption
that the party ultimately responsible for the loss is the depositary-collecting bank.

Commercial Paper
130 Chapter 5

• A customer whose failure to exercise ordinary care substantially contributes to an alteration


of an instrument or to the making of a forged signature on an instrument is precluded from
asserting the alteration or forgery against a bank who, in good faith, pays the instrument
(§3-406 (a)).
• If the bank asserting the preclusion fails to exercise ordinary care in paying the instrument
and that failure substantially contributes to loss, the loss is allocated between the customer
and the bank, according to the extent to which the failure of each to exercise ordinary care
contributed to the loss (§3-406 (b)).

Imposters: Fictitious Payees


If an imposter induces the issuer of an instrument to issue an instrument by impersonating the payee,
an indorsement of the check by the imposter in the name of the payee is effective as the indorsement
of the payee in favor of a bank that, in good faith, pays the instrument (§3-404 (a)).
If a person identified as payee of an instrument is a fictitious person, any person in possession of the
instrument is its holder and an indorsement by that person in the name of the payee is effective as an
indorsement of the payee in favor of the bank who, in good faith, pays the check (§3-404 (b)).
In the case of either an imposter or fictitious payee, if the bank paying the instrument fails to exercise
ordinary care in paying the instrument and that failure substantially contributes to loss resulting from
payment of the instrument, the customer may recover from the bank that failed to exercise ordinary
care to the extent the failure to exercise ordinary care contributed to the loss (§3-404(d)).

Fraudulent Indorsement by Employee


If an employer entrusts an employee with responsibility with respect to an instrument and an employ-
ee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement
of the person to whom the instrument is payable if it is made in the name of that person. If the bank
paying the instrument fails to exercise ordinary care in paying the instrument and that failure substan-
tially contributes to loss resulting from the fraud, the employer bearing the loss may recover from the
bank failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to
the loss (§3-405(b)).

Commercial Paper
Chapter 5 131

Commercial Paper
132 Chapter 5

Commercial Paper
Chapter 5 133

Commercial Paper
134 Chapter 5

Write in English a summary of the Chapter making use of


the suggested plan that follows.

Дайте краткую сравнительную характеристику основных видов оборотных документов,


перечисленных в статье 3 Единообразного торгового кодекса. Каким требованиям должен
соответствовать документ, чтобы быть оборотоспособным? В чем отличие цессии векселя от
его индоссирования? Разъясните понятие “dishonored bill”.

Commercial Paper
Chapter 5 135

Commercial Paper
6
136 Chapter 6

Business Organizations

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

Persons entering business may choose to operate as a sole proprietor, as a partner, or through a cor-
porate entity. An individual in business as a sole proprietor may use his or her own name or adopt a
fictitious one, has complete control of the operation, and receives all of the profits. A partnership is
an agreement between two or more persons or entities to carry on a business together for profit. A
corporation is an artificial legal being, created under law and given certain powers; it is treated as a
separate legal entity and differs from the shareholders, who are its owners.

PARTNERSHIPS

A. NATURE OF PARTNERSHIPS

Partnership law is similar to the law of agency in many respects, in that a partner is considered the
agent of all co-partners for certain purposes, the acts of a partner within the scope of the partnership
relation may be imputed to the other partners, and the agency concept of fiduciary responsibility ap-
plies to partnerships.

Partnerships Distinguished from Other Arrangements: Under the Uniform Partnership Act (U.P.A.)
definition, a partnership is an association of two or more persons to carry on as co-owners a business
for profit.

a. Essential elements of a partnership: The essential elements of a partnership are:


(i) A community of interest in a business; and
(ii) A sharing of profits and losses.
b. Distinguished from agency: Partners are co-owners, and while an agent may sometimes re-
ceive a share of profits as compensation, he is not an owner of the business.
Business Organizations
Chapter 6 137

c. Distinguished from unincorporated associations:Most unincorporated associations, such as


social clubs, fraternal organizations, and political parties, are formed for nonprofit purpos-
es, whereas a partnership is an association of co-owners for profit.
d. Distinguished from joint venture: Joint venture is similar to partnership in that its members
associate together as co-owners of a business enterprise, agreeing to share profits and losses.
However, the difference is that a joint venture is for a single transaction or series of transac-
tions, while a partnership contemplates a continuing business.
e. Distinguished from cooperative: A cooperative is a union of individuals formed to prosecute a
common productive enterprise, sharing profits in accordance with the capital or labor con-
tributed by each. In the absence of statutory control, the rights and liabilities of the members
are the same as in an unincorporated association.
f. Distinguished from limited partnership: A limited partnership is an arrangement created by
statute for investment purposes. A limited partnership requires one or more general partners
who manage the business, and one or more limited partners who are merely investors.

B. CREATION OF PARTNERSHIPS

Partnerships may be created by agreement or by estoppel.

1. Partnership by Agreement: Since a partnership is a voluntary association of two or more


persons, it is usually based upon the agreement of the partners, and a contract, express or
implied, is essential to formation.
2. Partnership by Estoppel: As between partners, an agreement is required. However, parties
who are not partners may be bound as partners by estoppel in their dealings with third par-
ties.

C. PARTNERSHIP PROPERTY

It is frequently necessary to distinguish between property belonging to the partnership firm and prop-
erty belonging to the individual partners in order to ascertain the rights ot the partners and of the
creditors. The primary test is whether or not the partners intended to devote it to partnership pur-
poses.
What Constitutes Partnership Property: All property originally brought into the partnership
or subsequently acquired, by purchase or otherwise, on account of the partnership, is partner-
ship property.

D. POWERS OF PARTNERS
1. Management of the Business: All partners have equal rights in the management and conduct
of the partnership business.

Business Organizations
138 Chapter 6

2. Power of an Individual Partner: Each individual partner is an agent of the partnership for the
purpose of conducting partnership business.
a. Express authority: Each partner-agent has that express authority given under the part-
nership agreement or by a majority vote of the partners.
b. Implied authority: Each partner has implied authority to do those acts customarily done
in that type of partnership and which are usual for such businesses.

E. RIGHTS OF PARTNERS

1. Share of Profits: Profits and losses are shared equally by the partners unless their agreement
specifies some other ratio.
2. Contributions: Contributions consist of the initial capital investments of the partners in the
business and any later advances made by a partner to the partnership property.
3. Reimbursement: Each partner is entitled to indemnification or reimbursement for all ex-
penses and personal liabilities reasonably incurred in furtherance of the partnership business
or for the preservation of the business or property.
4. Partnership Books: Since each partner has an equal right to management, each partner also
has at all times access to and may inspect and copy the partnership books.
5. Information: Each partner has the right to demand and the duty to disclose any information
that might affect the partnership business to all the other partners or their legal representa-
tives.
6. Right to an Account: A partner cannot sue another partner on an obligation due from the part-
nership, such as an expense or loan reimbursement, without the consent of the other partners.
The appropriate remedy for an aggrieved partner is an equity suit for an accounting.

F. DUTIES OF PARTNERS

1. Accountability: In addition to the duty to provide full and true information to the other part-
ners, each partner must account to the partnership for any benefit or profits made by her
without consent of the other partners if it was in any transaction connected with the partner-
ship business.
2. Full Time and Energy: Unless agreed to the contrary, each partner is required to give her full
time, skill, and energy to the partnership business.
3. Reasonable Care: Partners are required to exercise reasonable care in the conduct of the part-
nership business and may be liable for any loss resulting from the failure to use such care.
4. Obedience: Each partner has a contractual obligation to carry out the terms of the partnership
agreement and must indemnify the partnership for any loss resulting from any breach made
of the agreement.

Business Organizations
Chapter 6 139

G. LIABILITIES OF PARTNERS

1. Tort Liability: The partnership is liable for any wrongful act or omission committed by any
partner in the authorized conduct of the ordinary course of the partnership business.
a. Joint and several liability: Tort liability of partners is joint and several, whether commit-
ted by an individual partner or an agent employee of the business. This means that the
partners may be sued individually or jointly.
b. Personal or unauthorized act: If a partner commits an act outside the scope of the
partnership business or his authority to act, such partner would be liable to the injured
third person even though the partnership would not be liable.
2. Contractual Liability: Authorized contracts made by a partner for the partnership business
become the obligation of the partnership, even though the agreement may have been made
in the name of the individual rather than that of the partnership.
a. Joint liability: Contract liability, absent a statute to the contrary, is joint, and suit is filed
either against the partnership or against all of the individual partners, jointly.

H. DISSOLUTION AND WINDING UP

1. Dissolution: Dissolution is that point in time when the partners cease to carry on business
together.
2. Winding Up: Dissolution is not the final termination of the partnership, but is the start of the
process of winding up any business necessary to settle the partnership affairs and to render
a final accounting.

I. CAUSES OF DISSOLUTION

A partnership may be dissolved either with or without violation of the original agreement, because of
some supervening cause, or by court order.

1. Dissolution Without Violation of Agreement


a. Termination of term or undertaking: When the agreement provides for termination
upon a certain date or the happening of a particular event, such occurrence dissolves
the partnership.
b. Partnership at will: A partnership at will, one with no set time or purpose, can be dis-
solved at any time at the will of any partner, by giving notice to the other partners.
c. Mutual agreement: A partnership can be dissolved at any time by the unanimous mu-
tual agreement of the partners.

Business Organizations
140 Chapter 6

2. Dissolution in Violation of Agreement: Because of the highly personal nature of a partner-


ship and the agency liability connected with such arrangement, any partner may dissolve the
partnership at any time. However, if a partner wrongfully breaches the agreement in forcing
a dissolution, the partner is subject to liability for damages.

3. Supervening Causes for Dissolution


a. Illegality: If the purpose of the business becomes illegal under the law, the partnership
is dissolved.
b. Bankruptcy: An adjudication of bankruptcy or insolvency of the partnership, or of one
of the partners, dissolves the partnership.
c. Death: Death of any one of the partners dissolves the partnership.
d. War: If partners are the respective citizens of different nations in a state of war or armed
conflict against each other, the partnership is dissolved. However, the dissolution would
not affect contracts made before the hostilities commenced.

4. Order or Decree of Court: A court may order or decree the dissolution of a partnership upon
the showing of proper cause, which may be based upon any of the following grounds:
a. Equitable cause: Where the circumstances render it just and equitable, e.g., a business
that is losing money, a court may order dissolution.
b. Misconduct: Misconduct of a partner to the extent that it is injurious to the partner-
ship or to the other partners, e.g., misappropriation of partnership funds by one of the
partners is also a ground for dissolution.
c. Incapacity: Incapacity of a partner to discharge his duties (e.g., because of insanity) is
also a proper ground.
d. Dissension: Dissension among the partners may allow for dissolution where it is so seri-
ous that they cannot reasonably conduct business.

J. DISTRIBUTION

When the winding up process has been completed and the assets liquidated, the final step before ter-
mination is the distribution, first to the creditors and then to the partners, of the remaining assets.

CORPORATIONS

A. NATURE OF CORPORATIONS
A corporation is a distinct legal entity with an existence separate from its shareholder owners.
1. Corporation as a "Person": A corporation is a legal "person" within the meaning of the Due
Process Clause of the fifth amendment and the Equal Protection Clause of the fourteenth
amendment to the Constitution of the United States.

Business Organizations
Chapter 6 141

2. Corporation as a Criminal: A corporation can be prosecuted as a criminal when the sentence


can be a fine rather than mandatory imprisonment.
3. Corporation as a "Citizen": A corporation is not a "citizen" under the Privileges and Immuni-
ties Clause of the fourteenth amendment, but is a citizen for purposes of determining diver-
sity of citizenship for federal jurisdiction in a lawsuit to which the corporation is a party.
4. "Piercing the Corporate Veil": Although a corporation is an entity separate and distinct
from the shareholder owners, this "veil" may be disregarded under certain circumstances
("pierced"). Personal liability may then be imposed on those using the entity as a cover for
any wrongdoing.

B. CLASSIFICATION OF CORPORATIONS

Corporations may be classified as to existence, type, and location.

1. Existence of Corporations: Corporations may exist de jure, de facto, or by estoppel.


a. De jure corporation: A de jure corporation is one that exists through compliance with
the statutes authorizing its creation.
b. De facto corporation: A de facto corporation is one that exists for practical purposes
but which may be challenged by the state for failure to comply with some provision of
the incorporation law.
c. Corporation by estoppel: An association may become a corporation by estoppel if it
represents itself to be a corporation, for it cannot thereafter escape liability by denying
its existence.

2. Types of Corporations
a. Private stock corporations: Private stock corporations are those organized for private
purposes under general business corporation statutes.
b. Public corporations: Public corporations are created by the people, or government for
public purposes, such as cities, counties, and school districts.
c. Nonprofit corporations: Nonprofit corporations are non-stock corporations formed for
religious, charitable, social, educational, or cemetery purposes on a nonprofit basis.
d. Close corporations: Close corporations are private stock corporations where the stock
is usually not sold publicly and may be held by one person, a family, or a small group.
e. Professional corporations: All states now permit corporations to be organized for the
purpose of conducting a profession. However, professional people cannot avoid per-
sonal liability by incorporation.

3. Location of Corporations: Corporations may be either domestic or foreign.


a. Domestic corporation: A domestic corporation is one created by the laws of a state or
country in which it does business.

Business Organizations
142 Chapter 6

b. Foreign corporation: A foreign corporation is one created in a state or country other


than the one in which it is "doing business."

C. FORMATION OF A CORPORATION

1. Promoters: Large corporations are usually planned and formed by promoters.


a. Fiduciary responsibility: Promoters are fiduciaries and owe a duty of good faith, fair
dealing and full disclosure to the corporation.
b. Promoters' contracts: Corporations are not bound by the contracts of their promoters.
Since the agreements were made before the corporations came into existence, they are
not binding on the corporations unless they are adopted or ratified after the corpora-
tions come into existence.
c. Liability of promoters: Contracts made by a promoter before a corporation is formed
remain the personal responsibility of the promoter unless subsequently ratified by a
proper corporate resolution.
d. Preincorporation stock subscriptions: Promoters may get persons to agree to purchase
stock in a corporation to be effective after the corporation is formed.

2. Articles of Incorporation: Corporate existence begins in most states with the filing of articles
of incorporation with the proper state authority, usually the secretary of state.
a. Certificate of incorporation: Some states do not recognize the existence of a corporation
until a certificate of incorporation has been issued by the state.
b. Contents of articles of incorporation: Each state's incorporation statutes prescribe the
required contents for articles issued in that state, which generally include:
(1) Name of the corporation;
(2) Period of duration, usually perpetual;
(3) Purpose for which organized;
(4) Number of shares of stock authorized to be issued and the par value of each share
or a statement that stock is without par value;
(5) Classes of shares, and the preferences, rights, and limitations of each class;
(6) Address of the initial office and of the transfer agent;
(7) Number of directors on the original board and the names and addresses of the
original directors;
(8) Name and address of each incorporator, usually a minimum of three.
c. Bylaws: The bylaws are the rules adopted by the corporation to regulate and govern its
own affairs.

Business Organizations
Chapter 6 143

D. TERMINATION OF A CORPORATION

Corporations may be terminated by reorganization or dissolution.

1. Reorganization: Corporations may be reorganized by merger, consolidation or sale of as-


sets.
a. Merger: Merger is the absorption of one corporation by another. For example, ABC
Corp. buys out XYZ Corp. and merges XYZ into ABC, with ABC continuing as the
surviving corporation and XYZ going out of existence.
b. Consolidation: Where there is a consolidation, two or more corporations cease to ex-
ist and a new one is formed, or ABC Corp. and XYZ Corp. combine into a new LMN
Corp. which emerges as a result of the consolidation and both ABC and XYZ now
cease to exist.
c. Sale of assets: If one corporation purchases all of the assets of another, there is no
change in the legal existence of either. The buying corporation has acquired the physi-
cal assets, but normally is not liable for the debts and liabilities of the transferor unless
they are expressly assumed or it is a mere continuation of the former corporation.

2. Dissolution: Dissolution of a corporation may be by voluntary or involuntary action.


a. Voluntary: Shareholders may vote to dissolve the corporation voluntarily; the percent-
age majority necessary is controlled by statute, articles, or bylaws, and usually varies
from fifty percent to two-thirds.
b. Involuntary: Involuntary, or forced dissolution, may be caused by the creditors, by the
petition of the required number of shareholders, or by state action.

3. Winding Up
a. Voluntary dissolution: Each state has a procedure for voluntary dissolution which usu-
ally requires the filing of a notice of the intent to dissolve and the filing of a certificate
to that effect, followed by the winding up of all old business transactions, payment of
creditors, and distribution of any remaining assets to the shareholders.
b. Involuntary dissolution: The court decrees dissolution and orders the winding up by the
directors under court supervision.

E. CORPORATE MANAGEMENT

Management of a corporation is accomplished through the shareholders, directors, and officers.

1. Shareholders: A shareholder, or stockholder, is one who has membership in a corporation by


ownership of one or more shares of stock.
Business Organizations
144 Chapter 6

a. Managerial power: The shareholder has no direct management power, but engages in
some indirect management in the form of voting at shareholders' meetings for the fol-
lowing:
(1) Election or removal of directors;
(2) Adoption of bylaws;
(3) Shareholders' resolutions;
(4) Approval of changes in the articles of incorporation;
(5) Approval of transactions beyond the normal business of the corporation.
b. Shareholders' meetings: Shareholders must act at regular or special meetings, unless
they give unanimous consent to other types of action.

2. Directors: The management of a corporation is usually entrusted to a board of directors, the


number of whom is stated in the articles of incorporation. A minimum of three is required
in most states.

3. Officers: The actual everyday operations of a corporation are carried out by its officers, who
usually are designated by statute and normally include a president, vice-president, secretary,
and treasurer.

Business Organizations
Chapter 6 145

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. ........................................................
Uniform Partnership Act (UPA)
Revised Uniform Partnership Act (RUPA) ........................................................
........................................................
........................................................
2.
partnership by agreement ........................................................
by estoppel ........................................................
at will
for term ........................................................
for a single transaction ........................................................
........................................................
3.
partnership agreement ........................................................
debts ........................................................
assets ........................................................
liabilities
property ........................................................
books and records ........................................................
goodwill
........................................................
4. ........................................................
general (GP) partnership ........................................................
limited (LP)
limited liability (LLP) ........................................................
commercial/trading ........................................................
professional/non-trading ........................................................
special
........................................................
5. ........................................................
tenancy in partnership ........................................................
Interest in
........................................................
composition of a partnership ........................................................
dissolution of
........................................................
winding up of
termination of ........................................................
expiration of ........................................................

6. ........................................................
general partner ........................................................
limited ........................................................
nominal/ostensible
secret ........................................................
silent/sleeping/dormant ........................................................
........................................................
7. ........................................................
admission of a partner ........................................................
withdrawal of
........................................................
expulsion of
........................................................

Business Organizations
146 Chapter 6

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

8.
........................................................
piercing the corporate veil doctrine
ultra vires ........................................................
alter ego ........................................................
........................................................
9.
to invoke a doctrine ........................................................
under ........................................................

10. ........................................................
to establish a corporation ........................................................
to set up ........................................................
to create
to start/launch ........................................................
to run ........................................................
to manage
........................................................
to acquire
to take over ........................................................
to dissolve ........................................................
to challenge the existence of
........................................................
to incorporate
to register ........................................................
........................................................
11.
de jure corporation ........................................................
de facto ........................................................
by estoppel ........................................................
private
public ........................................................
nonprofit ........................................................
close(d) ........................................................
charitable/eleemosynary
shell ........................................................
parent ........................................................
subsidiary
........................................................
utility
domestic ........................................................
foreign ........................................................
C corporation
S corporation ........................................................
........................................................
........................................................

12. ........................................................
constituent documents: ........................................................
memorandum of association ........................................................
articles of association/incorporation
certificate of incorporation ........................................................
bylaws ........................................................
........................................................
13. promoters
incorporators ........................................................

Business Organizations
Chapter 6 147

Glossary of Terms Give Russian equivalents.


Make use of "Юрид. пон. и
катег. в англ. яз. Толковый словарь".

........................................................
14. ........................................................
termination
........................................................
reorganization dissolution ........................................................
........................................................
merger sale of assets voluntary involuntary
consolidation ........................................................
........................................................
15.
takeover ........................................................
........................................................
friendly hostile ........................................................
16. ........................................................
to do business ........................................................
to transact
........................................................
17. ........................................................
joint stock company ........................................................
limited liability
........................................................
acquiring
target ........................................................
........................................................
18.
regular meeting ........................................................
special ........................................................
........................................................
19.
straight voting ........................................................
cumulative ........................................................
........................................................
20.
voting by proxy ........................................................
by class or series shares ........................................................
........................................................
21.
direct action ........................................................
derivative ........................................................
class
........................................................
22. ........................................................
to raise capital ........................................................
to accumulate
to attract ........................................................
to borrow ........................................................
to invest
........................................................
to put up
to contribute ........................................................
........................................................
........................................................

Business Organizations
148 Chapter 6

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

23. ........................................................
authorized/registered/charter capital ........................................................
issued
loaned ........................................................
borrowed ........................................................
stock/equity/share
........................................................
paid-in/up
working/circulating ........................................................
fixed ........................................................
starting
........................................................
risk/venture
........................................................
24. ........................................................
return on capital
........................................................
25. equity securities ........................................................
........................................................
debt securities
........................................................
debenture bond ........................................................
(long term unsecured) (long term secured)
........................................................
26. ........................................................
authorized share ........................................................
issued
........................................................
bearer
bonus ........................................................
cumulative ........................................................
ordinary
preferred ........................................................
listed ........................................................
mutual fund ........................................................
outstanding
redeemable ........................................................
split ........................................................
treasury
........................................................
27. ........................................................
to allot shares ........................................................
to acquire
........................................................
to own/hold
to convert ........................................................
to deposit ........................................................
to issue/float
to subscribe for ........................................................
to trade (in) ........................................................
to deal in ........................................................
to transfer
........................................................
28 . ........................................................
block of shares
........................................................

Business Organizations
Chapter 6 149

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

29.
........................................................
par value of shares ........................................................
no par ........................................................
book
market ........................................................
fair=intrinsic ........................................................
........................................................
30.
........................................................
stock dividend ........................................................
cash ........................................................
31. ........................................................
to declare dividend ........................................................
to determine
........................................................
32. ........................................................
........................................................
major shareholder
........................................................
controlling
minority ........................................................
........................................................
33.
........................................................
corporate capital ........................................................
charter ........................................................
debt
earnings/income ........................................................
fund ........................................................
tax
........................................................
34. ........................................................
........................................................
to acquire a right
........................................................
to exercise/enjoy
to transfer/assign/convey ........................................................
to waive ........................................................
to forfeit
to deprive of ........................................................
to deny ........................................................
to reserve/retain ........................................................
to infringe/violate/invade
to injure/prejudice ........................................................
to confer/grant ........................................................
to vest with
........................................................
to expand
to diminish/limit ........................................................
to assert/claim ........................................................
to alienate
........................................................
to dispose of
to ascertain ........................................................

Business Organizations
150 Chapter 6

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

35. ........................................................
........................................................
preemptive right of shareholders
........................................................
36. ........................................................
stock ledger = stock book=
........................................................
shareholder register = shareholder records
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

Business Organizations
Chapter 6 151

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

a. partnership _____1. Stock that has a superior right to dividends and capi-
tal when the corporation is dissolved.
b. limited liability company (LLC) _____2. A partner in name only, who has no real interest in the
partnership (select two answers).
c. limited liability partnership (LLP) _____3. A form of business that is owned and operated by one
person.
d. limited partner _____4. A general partnership in which only the partnership,
and not the individual partners, is liable for the tort
e. limited partnership (LP) liabilities of the partnership.
_____5. People who are designated by its members to manage
f. liquidate a limited liability company.
_____6. A partner who takes an active part in the business but
g. managers is not known to the public as a partner.
_____7. A partner who invests money or other property in the
h. members business but who is not liable for the debts or obliga-
tions of the partnership.
i. nominal partner _____8. Liability that has no bounds.
_____9. A document that evidences ownership of stock in a
j. operation agreement corporation.
_____10. An association of two or more persons to carry on as
k. ostensible partner co-owners a business for profit.
_____11. Partners who may be known to the public as part-
m. preferred stock ners, but who take no active part in the business.
_____12. A corporation governed by Subchapter S of the In-
n. promoters ternal Revenue Code in which the income of the cor-
poration is taxed directly to the shareholders rather
o. S corporation than the corporation itself.
_____13. Turn into cash.
r. secret partner _____14. A partnership formed by two or more persons having
as members one or more general partners and one or
s. shareholders
more limited partners.
_____15. Owners of a limited liability company.
t. silent partner
_____16. A period of time during which partnership assets are
liquidated, debts are paid, an accounting is made,
u. sole proprietorship
and any remaining assets are distributed among the
partners.
v. stock certificate
_____17. People who own shares in a corporation. (select two
answers)
w. stockholders
_____18. A non-partnership form of business organisation
x. ultra vires act that has the tax benefits of a partnership and the lim-
ited liability benefits of a corporation.
y. unlimited liability _____19. A corporate act committed outside of the corpora-
tion's authority.
z. winding-up period _____20. An agreement that sets forth the rights and obliga-
tions of the members and establishes the rules for op-
erating a limited liability company.
_____21. People who begin a corporation by obtaining inves-
tors and taking charge up to the time of the corpora-
tion's existence.

Business Organizations
152 Chapter 6

Exercise 2
Complete the text using the words from the box.

jointly and severally liable sleeping partner partnership


limited partner members general partner
exemption Partnership Agreement partners
duration Limited Liability Partnership capital
grounds LLP expelled from

A common form of structure for certain kinds of business, for example accoun-
tants, solicitors, and architects, is a (1)_______________. This needs to have at
least two (2) _______________ and normally a maximum of twenty. There is an
(3) _______________ on size for some types of firm, such as solicitors and accoun-
tants. All the (4) _______________ may be (5) _______________ for all the debts
of the business. The relationship between the partners is usually drafted in the (6)
_______________. This can set out the (7) _______________ of the partnership, its
name and business, how profits, losses, and running costs are to be shared, how much
(8) _______________ each partner is to contribute, what rules will apply to the capi-
tal, what (9) _______________ will lead to a partner being (10) _______________
the company, what restrictions are imposed on partners, and so on.

It's also possible to have a (11) _______________ , or (12) _______________ , which


has a legal identity separate from its members. In this sense it resembles a limited com-
pany. It's possible for all the partners except one, known as the (13) ______________,
to be a (14) _______________ . A (15) _______________ may have a share in the
business but doesn't work in it. An individual is therefore able to invest capital in an
LLP without risking any further liability. LLPs must be registered.

Business Organizations
Chapter 6 153

Exercise 3
From the list of legal terms that follows, select the one that matches each definition.

a. certificate of incorporation _____1. Profits distributed to the stockholders of a corpo-


ration.
b. "blue-sky" laws _____2. An arrangement in which the owner of a trade-
mark, tradename, or copyright licenses others,
c. C corporation under special conditions or limitations, to use the
trademark, tradename, or copyright in purveying
goods or services.
f. close corporation _____3. A legal entity created under state law with the
power to conduct its affairs as though it were a
g. common stock natural person.
_____4. A document that gives authority to an organiza-
h. corporation tion to do business as a corporation.
_____5. Taxes on a corporation's income and on dividends
earned by the stockholders.
i. joint venture
_____6. People who are elected by stockholders to manage
a corporation.
j. de facto corporation _____7. A corporation that is organized in a state other
than in which it is operating.
k. de jure corporation _____8. People who organize a corporation by filing ar-
ticles of organization with the state government.
l. directors _____9. State laws designed to protect the public from the
sale of worthless stocks.
_____10. A partner who manages the business and is per-
m. dividends
sonally liable for its debts and obligations.
_____11. A corporation that is established in strict compli-
n. domestic corporation ance with the law.
_____12. A relationship in which two or more people com-
p. double taxation bine their labour or property for a single business
undertaking.
q. eleemosynary corporation _____13. A corporation governed by Subchapter C of the
IRC and that pays corporate taxes on its income.
_____14. A partnership in which the parties carry on a busi-
r. foreign corporation ness for the joint benefit and profit of all partners.
_____15. A corporation that is created for charitable be-
s. franchise nevolent purposes.
_____16. A corporation with a defect in its establishment,
v. general partner but that must be recognized as a valid corporation
unless set aside by the state.
_____17. A corporation that has restrictions on the transfer
w. general partnership (GP)
of shares.
_____18. A corporation that is organized in the state in
x. incorporators which it is operating.
_____19. Stock with no preferences but that gives the own-
er the right to vote.

Business Organizations
154 Chapter 6

Exercise 4
Complete the text using the words from the box.

bankruptcy corporations creditors issue liability


losses partnership registered shares sole trader
financial premises capital prospectus files

TYPES OF BUSINESS
The simplest form of business is the individual proprietorship or (1)_______________ : for ex-
ample, a shop (US = store) or a taxi owned by a single person. If several individuals wish to go into
business together they can form a (2) _______________ ; partners generally contribute equal capi-
tal, have equal authority in management, and share profits or (3) _______________. In many coun-
tries, lawyers, doctors and accountants are not allowed to form companies, but only partnerships with
unlimited (4) _______________ for debts — which should make them act responsibly.
But a partnership is not a legal entity separate from its owners; like sole traders, partners have un-
limited liability: in the case of (5) _______________ , a partner with a personal fortune can lose it
all. Consequently, the majority of businesses are limited companies (US = (6) _______________ ),
in which investors are only liable for the amount of capital they have invested. If a limited company
goes bankrupt, its assets are sold (liquidated) to pay the debts; if the assets do not cover the debts, they
remain unpaid (i.e. (7) _______________ do not get their money back.)
In Britain, most smaller enterprises are private limited companies which cannot offer (8)
_______________ to the public; their owners can only raise capital from friends or from banks and
other venture capital institutions. A successful, growing British business can apply to the Stock Ex-
change to become a public limited company; if accepted, it can publish a (9) _______________
and offer its shares for sale on the open stock market. In America, there is no legal distinction be-
tween private and public limited corporations, but the equivalent of a public limited company is one
(10)_______________ by the Securities and Exchange Commission.

FOUNDING A COMPANY
Founders of companies have to write a Memorandum of Association (in the US, a Certificate of
Incorporation), which states the company's name, purpose, registered office or premises and autho-
rised share (11) _______________ .
(12) _______________ (always with an 's' at the end) — is the technical term for the place in
which a company does its business: an office, a shop, a workshop, a factory, a warehouse, etc. Au-
thorised share capital means the maximum amount of a particular type of share the company can
(13)_______________.
Founders also write Articles of Association (US = Bylaws), which set out the rights and duties of
directors and different classes of shareholders. Companies' memoranda and articles of association,
and annual (14) _______________ statements are sent to the registrar of companies, where they
may be inspected by the public. (A company that (15) _______________ its financial statements
late is almost certainly in trouble.) In Britain, founders can buy a ready-made "off-the-shelf" com-
pany from an agent, that is, a company formed and held specifically for later resale; the buyer then
changes the name, memorandum, and so on.

Business Organizations
Chapter 6 155

Exercise 5
Complete the text by using the words in the box below.

agreements borrow corporations court debts dividends


employee legal legislation liability limited objectives
partnership profits property registered( 2) shareholders
sole trader (sole proprietor) sue

A company is a (1)_______________ entity, allowed by (2) _______________ , which permits a


group of people, as (3) _______________ , to create an organization, which can then focus on pur-
suing set (4) _______________ . It is empowered with legal rights which are usually only reserved
for individuals, such as the right to (5) _______________ and be sued, own (6) _______________,
hire (7) _______________ or loan and (8) _______________ , money. The primary advantage
of a company structure is that it provides the shareholders with a right to participate in the (9)
_______________ , a proportionate distribution of profits made in the form of a money payment to
shareholders, without any personal (10) _______________.

There are various forms of legal business entities ranging from the (11) _______________ , who
alone bears the risk and responsibility of running business, taking the profits, but as such not forming
any association in law and thus not regulated by special rules of law, to the (12) _______________
company with (13) _______________ liability and to multinational (14) _______________ .

In a (15) _______________ , members "associate", forming collectively an association in which


they all participate in management and sharing (16) _______________ bearing the liability for the
firm's (17) _______________ and being sued jointly and severally in relation to the firm's contracts
or tortuous acts.

Limited-liability companies, or corporations, unlike partnerships, are formed not sim-


ply by (18) _______________ entered into between their first members; they must also be (19)
_______________ at a public office or (20) _______________ designated by law or otherwise
obtain official acknowledgement of their existence.

Business Organizations
156 Chapter 6

Translate the following into Russian.

PARTNERSHIPS

A. INTRODUCTION
Uniform Partnership Act (U.P.A.), adopted in nearly all states, defines a partnership as "an associa-
tion of two or more persons to carry on as co-owners a business for profit."

B. CHARACTERISTICS
(1) Mutual agency in that partners act as agents for one another within the scope of the firm's
business.
(2) Unlimited personal liability of each partner for the firm's obligations.
(3) No general recognition of the partnership as a legal entity.
(4) Formation of a partnership by simple agreement or acts of the parties.
(5) Dissolution of the partnership if a partner ceases to be a partner.

C. ADVANTAGES OF THE PARTNERSHIP


(1) Informality and economy of organization.
(2) Freedom from special governmental regulations and taxes.

D. CLASSES OF PARTNERSHIPS
Partnerships may be either general or special. In addition, the limited partnership is authorized by the
Uniform Limited Partnership Act, adopted in most states.
(1) A GENERAL PARTNERSHIP is one organized to carry on a business over a period of
years, and the partners have unlimited liability to firm creditors.
(2) A SPECIAL PARTNERSHIP is known as a Joint adventure. It is usually limited to a single
transaction and is subject to the law of partnership.
(3) A LIMITED PARTNERSHIP is one in which the liability of one or more, but not all, of the
partners to firm creditors is limited to his capital contribution. A limited partner is usually
liable as a general partner if: (a) his name appears in the firm name; (b) he takes part in the
management of the firm; (c) the firm fails to comply with the statutory requirements.

A. FORMALITIES
No formalities; the intent of the parties as evidenced by their agreement and acts is controlling.
(1) A written instrument containing the terms of a partnership agreement is called articles of
partnership.
(2) Typical provisions relate to:
(a) names of partners;
(b) name of firm;
(c) description of business;
(d ) duration of partnership;
(e) capital contributions;
(f) salaries;

Business Organizations
Chapter 6 157

(g) place of business;


(h) sharing of profits and loss;
(i) duties of partners;
(j) accounting and records;
(k settling disputes;
(I) dissolution.

B. TESTS FOR PARTNERSHIP


(1) The principal tests of the existence of a partnership, in addition to the elements contained in the
U.P.A. definition of a partnership, are:
(a) sharing of profits and/or losses of a business;
(b) common ownership of property;
(c) voice in the management of the business.

(2) Presence of any of these facts in a case is prima facie but not conclusive evidence of a partnership.
For example, no inference of partnership shall be drawn if profits are received:
(a) in payment as a debt by installment or otherwise;
(b) as wages by an employee or rent to a landlord;
(c) as interest on a loan;
(d) as an annuity to a widow or representative of a deceased partner;
(e) as the consideration for the sale of the good will of a business or other property.

C. WHO MAY BE PARTNERS


Any natural person with the capacity to contract. NOTE: A partnership may become a member of
another partnership.
(1) MINORS and persons with mental disability may be members of a partnership, but they
have the right to disaffirm the partnership contract and individual liability to firm creditors.
Most courts hold that the minor cannot withdraw his capital if injury to partnership credi-
tors will result, nor will the adult partners be required to reimburse the minor for loss of his
capital.
(2) MARRIED WOMEN. Capacity to be a partner depends on the statutes of the state.
(3) CORPORATIONS. Generally cannot be a partner unless its charter or statutes approve. A
corporation may be a party to a Joint venture.
(4) TRUSTS, ESTATES OR UNINCORPORATED ASSOCIATIONS cannot become mem-
ber of partnership.

PARTNERSHIP PROPERTY

Determining what property belongs to the partnership is especially important when the firm and the
partners are insolvent, because partnership creditors have first claim on partnership property and
individual creditors have first claim on individual property.

A. INTENTION
(l)The test of whether property is firm property is whether the partners intend it shall so be. Under
the intention test partnership property includes: (a) contributions to capital; (b) the business itself,
including the firm name and good will; (c) other property intended by the partners to be firm property.
(2) Intention is determined from such circumstances as: (a) acts and declarations of the partners; (b)
purchase of the property from partnership funds; (c) use of the property by the firm; (d) payment for
improvements thereon out of firm assets; (e) payment of taxes and insurance thereon by the firm.
Business Organizations
158 Chapter 6

B. TITLE
Both at common law and under the U.P.A., partnership may hold title to personal property in the
firm name. Contrary to the common law rule, the U.P.A. permits the partnership to take and convey
title to real property in the firm name, rather than being required to hold and convey title in the name
of one or more of the partners.

C. RIGHTS IN PARTNERSHIP PROPERTY


(1) Under the U.P.A., each partner has the right to possess partnership property and to have it used
for partnership purposes. This co-ownership is called tenancy in partnership, and the incidents of
such a tenancy are listed in the U.P. A., Sec. 25, including the concept that a deceased partner's inter-
est in the firm assets, including real property, is treated as personal property in the estate. (2) Under
the U.P.A. a partner may assign his partnership interest without dissolving the firm. The assignee is
entitled to receive the profits share of the assigning partner but may not interfere in the management
of the firm. (3) Under the U.P.A. a judgment creditor of an individual partner may obtain a charging
order from a court and obtain satisfaction of judgment out of partner's interest.

PARTNERS' RELATIONS TO ONE ANOTHER

A. AGREEMENT
The partnership agreement may define, within limits, the rights, duties, and powers of the partners.
The agreement may not relieve the partners of the: (a) fiduciary duty they owe each other; (b) indi-
vidual liability they owe to third persons.

B. RIGHTS
(Unless the partnership agreement provides otherwise).
(1) EQUAL SHARING OF THE PROFITS, SURPLUS AND LOSSES is the rule, in the ab-
sence of agreement, even though the partners have contributed unequal amounts of capital
or services. If the agreement provides for an unequal sharing of profits but fails to specify
how losses are to be shared, then losses are shared in the same proportion as profits. No right
to salary or wages for a partner exists in the absence of agreement, but a surviving partner is
entitled to reasonable compensation for his services in winding up the partnership affairs.
(2) EQUAL VOICE IN THE MANAGEMENT is the rule unless the agreement provides oth-
erwise; each partner having one vote regardless of his capital contribution. Routine deci-
sions may be made by a majority vote, but unanimous agreement is needed for fundamental
changes in the partnership, such as: (a) changing the nature or location of the business; (b)
reducing or increasing the capital of the partners; (c) admitting new members to the firm.
(3) THE RIGHT OF INSPECTION AND INFORMATION includes the right to have the
firm books kept at its place of business where a partner may make copies or extracts.
(4) RIGHT OF CONTRIBUTION with interest against his partners for any payments of capi-
tal or advances, and a partner is entitled to be indemnified if he pays firm obligations out of
his personal estate.
(5) RIGHT TO AN ACCOUNTING AS TO PARTNERSHIP AFFAIRS if:
(a) the right exists under the agreement;
(b) it is just and reasonable;
(c) a partner has received a secret profit;
(d) the firm is dissolved.

Business Organizations
Chapter 6 159

C. DUTIES
(1) LOYALTY. A fiduciary relationship of trust and confidence exists between partners. A part-
ner may not:
(a) make a personal or secret profit at the expense of the other partners;
(b) conduct a competing business without the consent of the other partners;
(c) sell to or buy from himself for the firm without consent;
(d) permit his personal interest to conflict with that of the partnership.
(2) OTHER RESPONSIBILITIES OF A PARTNER include the duty to:
(a) use reasonable care and skill, but he is not liable for an honest mistake or error of
judgment;
(b) devote time to the business;
(c) disclose information pertinent to the partnership;
(d) comply with the partnership agreement.

D. REMEDIES
Dissolution, accounting, winding up partnership.

PARTNERS AND THIRD PERSONS

A. PARTNERS
AS AGENTS. A mutual agency relationship exists among partners empowering each partner to bind
the firm, himself, and his partners to third persons on transactions within the scope of the business.
A partner's authority, like that of an agent, may be:
(1) EXPRESS. The authority of partners may be expressly granted, or limited, in the partner-
ship agreement and such an agreement binds the partners' interests and also third parties
who have notice of it. A partner must be authorized by all the partners to:
(a) make an assignment for the benefit of creditors or petition the firm into bankruptcy;
(b) dispose of assets essential to carrying on the business;
(c) confess a judgment;
(d) bind the firm as guarantor or surety unless necessary for the benefit of the partner-
ship;
(e) submit a partnership claim to arbitration;
(f) do anything that would make it impossible to continue the business.

(2) IMPLIED. Unless third parties have notice of a partnership agreement to the contrary,
partners generally have authority to:
(a) borrow money in the name of the firm and pledge or mortgage partnership assets as
security;
(b) sign or indorse negotiable instruments in the name of the partnership;
(c) make sales, purchase goods,receive payments, pay firm debts;
(d) contract for services;
(e) perform all other acts essential to the normal operation of the partnership business.
NOTE: In a trading partnership (one engaged primarily in buying and selling goods), a part-
ner has greater implied powers, including the power to borrow money, execute negotiable
paper, and obligate the firm's assets. A nontrading partnership is engaged primarily in ren-
dering services, such as a firm engaged in practicing a profession. Generally, a partner in a
non-trading firm does not possess the implied power to borrow money or engage in related
transactions.

Business Organizations
160 Chapter 6

(3) APPARENT AUTHORITY. The U.P.A. provides that if a person holds himself out, or per-
mits himself to be held out as a partner, third persons justifiably relying on such holding out
and incurring injury may hold him liable as though he were in fact a partner.

B. LIABILITY FOR WRONGFUL ACTS


(1) A partnership and the partners are liable to injured third parties for the torts of a partner
committed within the scope and in the course of the partnership business: i.e., if a partner
induces a third person to enter into a contract with the partnership by fraud, both the part-
nership and the partners will be liable.
(2) A partnership, since it is not a legal entity, cannot be held criminally liable for the criminal
acts of a partner, and the other partners are not liable unless they have participated in the
criminal acts. However, certain criminal statutes, such as those requiring a license before
engaging in certain transactions, place liability upon the firm itself where a partner violates
the statute while acting in behalf of partnership.

C. LIABILITY OF NEW PARTNER


Not liable beyond his capital contribution for debts of old partnership, unless, as part of agreement,
he assumes liability.

PARTNERSHIP DISSOLUTION

A. DEFINITION
Dissolution results when any partner ceases to be a member of the firm or the membership of the firm
changes for any reason. The closing of a partnership business is a three-step process:
(1) dissolution;
(2) winding up;
(3) termination.
After dissolution of the partnership, the business may be carried on by a new partnership, a corpora-
tion, or a proprietorship.

B. CAUSES OF DISSOLUTION
(1) DISSOLUTION BY ACT OF PARTIES WITHOUT VIOLATION OF THE AGREE-
MENT occurs by:
(a) the expiration of the term of the partnership or completion of the undertaking agreed
upon;
(b) the will of any partner, if it is a partnership at will;
(c) mutual agreement;
(d) the expulsion of a partner as provided for in the agreement.

(2) DISSOLUTION VIOLATION. A partner may withdraw and thus dissolve the partnership
even though in so doing he violates the partnership agreement and may be held liable for the
breach.

(3) DISSOLUTION BY OPERATION OF LAW occurs by:


(a) death of a partner;
(b) bankruptcy of any partner or the partnership;
(c) war when the war is between nations to which the different partners owe allegiance;
d) any event which makes business of the partnership unlawful.
Business Organizations
Chapter 6 161

(4) COURT DECREE. A court of equity may, upon application by a partner, order disolution
whenever there is a showing of:
(a) insanity;
(b) incapacity,
(c) misconduct;
(d) failure of the business;
(e) material violation of the partnership agreement;
(f) circumstances that equitably call for dissolution.

C. EFFECT OF DISSOLUTION

(1) Generally, dissolution terminates all authority of the partners to bind the firm, except on
transactions relating to the winding up of the affairs of the partnership, including unfinished
business: i.e., partners in a dissolved retail firm could sell and liquidate the stock of mer-
chandise on hand but usually would have no authority to contract for new merchandise.
(2) The dissolution of the partnership does not of itself discharge the existing liability of
any partner.

D. NOTICE OF DISSOLUTION
(1) NOTICE TO PARTNERS. If dissolution results from an act of a partner, notice to the oth-
er partners is necessary unless the act is self-evident. If a partner withdraws without notice
to the partners, he is bound as between them upon contracts created for the firm. The U.P.A.
provides that where dissolution is caused by the act, death, or bankruptcy of a partner, each
partner is liable for his share of any liability created by subsequent contracts, unless the con-
tracting partner knew of dissolution caused by the act, death, or bankruptcy.
(2) NOTICE TO THIRD PERSONS. If dissolution is caused by the act of a partner or the
agreement of the partners, notice to third persons is necessary. Those who have dealt with
the firm are entitled to actual notice. As to others who merely know of the partnership, pub-
lic notice is sufficient. Until proper notice is given, a partner may bind the other partners on
contracts within the scope of the business. Notice of a dissolution caused by operation of law
or court decree is not necessary at common law, but the U.P.A. requires notice in such cases,
except where a partner becomes bankrupt or the partnership has become illegal.

E. WINDING-UP PROCESS
(1) All partners have the right to participate in the winding up of the partnership affairs unless
circumstances require the exclusion of a partner.
(2) Winding up includes:
(a) completing transactions unfinished on dissolution;
(b) auditing partnership accounts;
(c) collecting moneys due;
(d) selling the partnership property;
(e) other acts necessary to liquidate and distribute the partnership assets.

F. DISTRIBUTION OF ASSETS
(l)The U.P.A. declares the order of distribution of the assets of a partnership to be:
(a) firm debts;
(b) advances of partners;
(c) capital of partners;
(d) profits of partners.

Business Organizations
162 Chapter 6

(2) If both the partnership and the partners are insolvent, the following rules of priority prevail:
(a) firm creditors have priority over individual creditors against firm assets;
(b) individual creditors have priority over firm creditors against individual assets.

CORPORATIONS

A. NATURE
(1) A corporation is a legal entity, created under authority of state law and existing separate and
distinct from its members or shareholders.
(2) As a legal person, the corporation may, in its own name:
(a) contract;
(b) sue and be sued;
(c) own, buy and sell property;
(d) enjoy protection afforded persons (but not citizens) by the federal constitution.
(3) Courts disregard the separateness of the legal entity of a corporation and its stockholders
in cases where the corporate device is used as a cloak for wrongdoing. On this basis, parent
corporations have been held liable for the acts and debts of their subsidiaries.

(4) The principal advantages of the corporate form of doing business are:
(a) limited liability of its stockholders;
(b) continuous existence;
(c) centralized management;
(d) ability to raise large sums of capital.

B. CLASSIFICATIONS
(1) Corporations may be broadly classified as:
(a) private corporations for profit;
(b) private corporations not for profit;
(c) governmental or public corporations.

(2) AN ELEEMOSYNARY CORPORATION is one organized for charitable or benevolent


purposes.

(3) A HOLDING COMPANY is a corporation which holds the stock of all the constituent
corporations in an organization.

(4) A SUBSIDIARY is a corporation the stock of which is owned by the parent corporation.

(5) A MERGER results when one corporation absorbs another and continues to operate while
a consolidation occurs when a new corporation is formed to take over the assets of old cor-
porations.

(6) A corporation is domestic in state or country where it secures its articles of incorporation,
foreign in other states and countries.

CORPORATIONS — THEIR CREATION AND ORGANIZATION

A. INCORPORATION
Each state has a general corporation law under which corporations may be chartered. Usually, filing
Business Organizations
Chapter 6 163

of approved articles of incorporation with the proper state administrative official, typically the Sec-
retary of State, brings a corporation into existence. The articles are filed by the incorporators. The
state corporation laws fix the qualifications of incorporators, such as the minimum number (typi-
cally three), citizenship, and residence. To be an incorporator one must be a natural person with full
capacity to contract; thus a minor may not be an incorporator, nor may a corporation.

B. ARTICLES
The articles set out the basic structure of the corporation.
(1) Name and address of corporation.
(2) Purpose.
(3) Capital stock structure, including amount of paid-in capital with which the corporation will
begin business.
(4) Duration.
(5) Information about directors, in some states.
(6) Names and addresses of incorporators. State corporation laws vary in their requirements.
The Model Business Corporation Act, a uniform law designed to standardize the law of cor-
porations, has been adopted, with modifications, in only a few states.

C. DE JURE AND DE FACTO CORPORATIONS


(1)A corporation de jure is one organized in accordance with all of the material provisions of
the corporation law.

(2) A de facto corporation results if:


(a) a valid corporation statute exists;
(b) a good faith attempt has been made to organize a corporation under the statute;
(c) business has been transacted as a corporation.

(3) Only the state may question the legality of a de facto corporation. Third persons cannot
avoid their contracts with the corporation by setting up its de facto status, and the stock-
holders generally have limited liability. If the corporation has less than de facto status, it will
be treated as a partnership and the participants therein held as partners.

D. BYLAWS
(1) After filing the articles, the incorporators hold an organization meeting at which stockhold-
ers adopt bylaws relating to:
(a) officers and their election, duties, and powers;
(b) stock certificates;
(c) fiscal year;
(d) contracts of the corporation;
(e) stockholders' meetings;
(f) directors' meetings;
(g) amending bylaws.

(2) The bylaws, to be enforceable, must not:


(a) violate the statutes of the state;
(b) be in conflict with the articles;
(c) violate vested rights of stockholders.

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164 Chapter 6

E. PROMOTERS
(1) Functions of promoters include:
(a )obtaining stock subscriptions;
(b)arranging incorporation;
(c) performing duties incidental to the corporation's organization.

(2) A promoter is not an agent of the proposed corporation.

(3) The corporation is not liable on promoters contracts, but it may make itself liable on the
theory of:
(a) ratification;
(b) adoption;
(c) continuing offer;
(d) novation.
Most courts follow the adoption theory. The promoter continues liable on pre-incorporation
contracts unless released.
(4) Generally, the corporation is not liable to the promoter for his expenses and services unless
it subsequently accepts them.

CORPORATE POWERS

A. CLASSIFICATION
(1) EXPRESS POWERS are those expressly stated in the articles of incorporation and stat-
utes.

(2) IMPLIED POWERS are those the corporation possesses in order to carry out its express
powers.

(3) INCIDENTAL POWERS are those necessary for the functioning of corporations and usu-
ally include the power to:
(a) sue and be sued;
(b) make contracts;
(c) buy, sell, and hold property;
(d) use a seal;
(e) borrow money;
(f) issue bonds;
(g) adopt bylaws;
(h) appoint officers, directors, and agents;
(I) execute negotiable instruments;
(j) issue bonds;
(k) acquire its own stock subject to legal limitations.

B. ULTRA VIRES ACTS


Any act is ultra vires which is beyond the lawful powers of the corporation. Persons dealing with cor-
porations are charged with notice of its powers in view of its articles being filed in the public records.

C. EFFECT OF ULTRA VIRES CONTRACTS


(1) If the contract is fully executed, courts will not interfere in behalf of either party.
(2) If the contract is wholly executory, the contract is not enforceable by either party.
Business Organizations
Chapter 6 165

(3) If the contract has been fully executed by only one of the parties, most courts permit such
party to sue the other party for breach of contract. Some courts view the ultra vires contract
as void and permit no such suit on the contract; but if the person who has performed has giv-
en something of value, he is entitled to recover it or its reasonable value in quasi-contract.

D. REMEDIES FOR ULTRA VIRES ACTS


(1) A stockholder may secure a court order restraining the corporation from entering into an
ultra vires transaction.
(2) The corporation or a stockholder acting for the corporation may sue the persons responsible
for losses caused the corporation by the ultra vires act.
(3)The Attorney General of the state may bring an action to revoke the charter of the corpora-
tion for flagrant or repeated violations.

CORPORATE STOCK

A. INTRODUCTION
Capital of a corporation is obtained by issuing stock, a type of intangible personal property. Autho-
rized capital stock is the amount of stock a corporation is permitted to issue by its articles. Issued
stock is stock actually issued. Treasury stock is stock which has been issued as fully paid and reac-
quired by the corporation but not cancelled. Ownership of stock is evidenced by certificates. Security
issues are regulated by state "blue-sky laws" and, if sold interstate, certain federal laws.

B. KINDS OF STOCK
(1) COMMON STOCK generally possesses neither privileges nor priorities over other kinds
of stock. Common stock may be divided into voting and nonvoting classes and designated
par value: i.e., its nominal price will be stated in the articles; or no par value, its price to be
determined by the directors or, in some cases, by the stockholders.

(2) PREFERRED STOCK is usually assigned certain preferences as to dividends and as to as-
sets on dissolution. It may be cumulative preferred or noncumulative preferred, and it may
be participating or nonparticipating. Normally without voting rights, preferred stockholders
may in certain instances possess the right to vote.

C. STOCK SUBSCRIPTIONS
(1) Generally, a pre-incorporation subscription agreement is held to be an offer which may be
revoked prior to the creation of the corporation and acceptance of the offer.

(2) A subscription to buy the stock of an existing corporation is an offer and a contract results
upon acceptance by the corporation.

D. TRANSFER OF STOCK
Governed by Article 8 of the UCC, adopted by most states.

RIGHTS AND LIABILITIES OF STOCKHOLDERS

A. RIGHTS
(1) VOTING RIGHTS. A stockholder is ordinarily entitled to one vote for each share of stock
with voting rights. Votes may be cast in person or by proxy (an authorized agent). Cumulative
Business Organizations
166 Chapter 6

voting in the election of directors is authorized by some states. Under this plan, a stockholder
may cast all of his votes, number of shares owned multiplied by the number of directors to
be elected, for one director, or he may distribute them as he wishes. Various types of voting
trusts or agreements are permitted. Stockholder meetings are governed by state statutes and
the bylaws of the corporation.

(2) DIVIDENDS. Declared at the discretion of the directors, subject to state statutes designed
to protect creditors and stockholders with preferences. Generally, state statutes require a
surplus before dividends can be paid, the type of surplus required depending upon the form
of dividend: cash, stock or property. Stockholders of record at the time of declaration are
entitled to the dividend, subject to agreement or stock exchange rules where a transfer of the
stock is involved.

(3) INSPECTION. A stockholder's right to inspect the books is regulated by statutes requiring
good faith and inspection at a reasonable time and place.

(4) PREEMPTIVE RIGHTS. Permit a stockholder to maintain his relative interest in the cor-
poration by giving him the right to purchase new shares in proportion to his old holdings.
Also, if the capital stock is decreased, each stockholder's holdings must be decreased pro-
rata.

(5) LIMITED RIGHT TO SUE. Generally, a stockholder has no right to sue in his own name
to recover on a claim belonging to the corporation. If the management of the corporation
wrongfully refuses to bring suit, a stockholder may bring a derivative suit. Minority stock-
holders may bring suit in certain cases.

(6) SHARE IN DISTRIBUTION OF ASSETS after dissolution.

B. LIABILITY
Generally, the liability of a stockholder is limited to his capital investment. Stockholders may be liable:
(a) on their subscription contracts;
(b) for having received stock for overvalued property or services (watered stock);
(c )for having received illegal dividends.

CORPORATION MANAGEMENT

A. STOCKHOLDERS
(1) Elect members of the board of directors.
(2) Approve unusual and extraordinary transactions or fundamental changes.

B. DIRECTORS
Management is vested in the board of directors. The directors:

(1) Establish the basic policies of the corporation.


(2) Occupy a fiduciary relationship to the corporation and stockholders.
(3) Must act as a board and not individually.
(4) Hold meetings and conduct business in accordance with the articles, bylaws and state statutes.
Business Organizations
Chapter 6 167

C. OFFICERS
State statutes usually provide that every corporation shall have a president, secretary, and trea-
surer and such other officers as the bylaws provide.
(1) Officers are appointed by the board of directors.
(2) Receive their authority from the bylaws and directors.
(3) Carry on the day-to-day operations of the corporation.
(4) Occupy a fiduciary relationship with the corporation and stockholders.
(5) Must use ordinary care and skill in the handling of corporate business. The principles of
agency law apply in determining authority and liability of employees of a corporation.

DISSOLUTION OF A CORPORATION

A. METHODS

(1) VOLUNTARY DISSOLUTION results from:


(a) expiration of the time limit specified in the charter;
(b) surrendering of the charter to the state.

(2) INVOLUNTARY DISSOLUTION results from:


(a) quo warranto action by the state Attorney General for forfeiture of the charter;
(b) action brought by stockholder group.

(3) FORFEITURE of a corporation charter may be based on:


(a) misuse;
(b) nonuse;
(c) nonpayment of taxes;
(d) failure to file reports required by law.

Business Organizations
168 Chapter 6

Business Organizations
Дайте краткую сравнительную характеристику двух наиболее распространенных форм ведения предпринимательской
деятельности – корпораций и товариществ. Прокомментируйте приведенную ниже классификацию корпораций. Как
Chapter 6

корпорации начинают свою деятельность и как прекращают? Разъясните разницу между понятиями “поглощение” и
“слияние”. Кратко охарактеризуйте основные виды товариществ, а также права и обязанности участников товариществ
(партнеров).
the suggested plan that follows.
Write in English a summary of the Chapter making use of
169

Business Organizations
170 Chapter 6

Business Organizations
Chapter 6 171

Business Organizations
7
172 Chapter 7

Trusts

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

INTRODUCTION TO TRUST TERMS AND CONCEPTS


A. Definition of trust: A trust is a fiduciary relationship in which one or more persons hold property
subject to equitable duties to deal with the property for the benefit of other persons.

B. Split title: The concept of a trust is that of split title: one person, the trustee, holds legal title to par-
ticular property for the benefit of another person, the beneficiary, who is said to hold equitable title.

C. Legal/equitable interests: The interest of the trustee, or title-holder, is said to be legal, while that
of the beneficiary is equitable.

D. Uses for trusts: The trust form is adaptable to numerous situations:


1. It is a means of holding and disposing of property.
Example: S desires to transfer Blackacre to her children who are minors, but does not want
them to control legal title until they are sui juris. She therefore transfers title to a trustee to
hold and manage the property until her youngest child reaches age 21, at which time the
property is to be conveyed to her children.
2. It is also a mode of relief against persons who are holding title to property in circumstances in
which it is unjust for them to keep it.
Example: A fraudulently induces B to convey Blackacre to him. Although A then holds legal
title, the property justly belongs to B. A court will declare A a constructive trustee for B.

E. Definitions of trust elements:


1. Settlor: The settlor is the person who creates a trust.
2. Trust property: The property interest held by the trustee is the trust property. It may also be
called the corpus, res or subject matter of the trust.
3. Trustee: The trustee is the person who holds title to the trust property.

Trusts
Chapter 7 173

4. Beneficiary: The beneficiary (or cestui que trust) is the person for whose benefit the trustee
holds the trust property.
5. Terms of the trust: Terms of the trust are those duties and powers of the trustees and rights of
the beneficiary intended by the settlor at the time of creating the trust.
Example: A transfers property to B with the instruction that B is to pay the income to C dur-
ing C's life. B has the duty to pay the income to C and C has an enforceable right to such
income.

F. Trust classifications: A trust is classified on the basis of:


1. the intent manifested by its creator;
2. the duties imposed upon the trustee; (i.e., whether it is active or passive); and
3. the method by which it is created.

G. Classification as to intent: Trusts are classified as to intent as follows:


1. express trusts, which fall into two categories:
a. private trusts, and
b. charitable trusts;
2. resulting trusts;
3. constructive trusts.
4. Trusts compared: An express trust requires an overt manifestation of an intention by the sett-
lor (trustor) to create a trust. By contrast, a resulting trust is similar to an express trust except
that the intention to create it is inferred from the circumstances.
a. Constructive trust: A constructive trust is a remedy imposed when property is obtained
by fraud, duress or undue influence. It is used to divest title from a person who is not
legally entitled to it and convey title to the person who should have it.
Example 1: X induces T to devise property to X through undue influence exerted on T by
X. When undue influence is established, the court will declare a constructive trust over
the property for the benefit of T's rightful heirs.
Example 2: If a person murders his testator and through that act receives title to property,
the murderer holds the property in constructive trust for those who would otherwise
take the property.
b. Terminology used: The term express trust is used when it is necessary to contrast a
formal trust with a resulting trust or a constructive trust. The term private trust is used
when it is necessary to contrast an express trust for private purposes with an express
charitable trust.

H. Active and passive trusts: An active trust is one in which the trustee has some affirmative duty to
perform, (e.g. to collect rents and distribute the income to the beneficiaries). A passive trust is one in
which the trustee is the mere title-holder and has no duties with respect to the trust res.

Trusts
174 Chapter 7

PRIVATE EXPRESS TRUSTS

I. GENERALLY
Elements: Every private express trust consists of four distinct elements:

(1) an intention of the settlor to create a trust;


(2) a res or subject matter;
(3) a trustee;
(4) a beneficiary or cestui que trust.

II. INTENTION TO CREATE A TRUST


Overt manifestation of intent: It is essential to the creation of an express trust that the settlor overtly
manifest an intention to create a trust. The settlor must intend to impose enforceable duties on a
trustee to deal with property for the benefit of another.

III. THE SUBJECT MATTER OF THE TRUST


Generally: An essential element of every trust is the trust property or res.

1. Requirements: The trust property, both at the time of creation and throughout the existence
of the trust, must normally be in existence, and must be definite or definitely ascertainable.
2. Voluntarily transferable: At the time of the creation of the trust the trust property must be
voluntarily transferable by the owner.
3. Expectancy: A mere expectancy, such as the interest of a person who expects to receive prop-
erty as a devisee under a will, cannot be held in trust.

IV. THE TRUSTEE


Who may serve as trustee: Any person who has the capacity to take, hold and administer property for
his own use may take, hold and administer property in trust.

1. Infants and insane persons: Infants and insane persons can take and hold property in trust,
but since their contracts are voidable they cannot properly administer a trust and will usually
be removed as trustee.
2. Non-residents: Non-residents of the state in which the trust is to be administered may be
trustees. In some states, however, courts have discretion pursuant to statute, to refuse to con-
firm the appointment of a non-resident as testamentary trustee.
3. Corporations: The extent to which a corporation may act as trustee will depend upon the
statutes of the jurisdiction of its incorporation and the purposes for which it is incorporated.
Non-domiciliary corporations are often disqualified.
4. Governmental body: The United States or a state may take and hold property as trustee. But
because of the doctrine of Sovereign Immunity, under which a government cannot be sued
without its consent, the trust is unenforceable against the government in the absence of a
Trusts
Chapter 7 175

statute or special act of the legislature and/or unless special courts (e.g., U.S. Court of Fed-
eral Claims) have been established to handle claims against the government.
5. Partnership: A partnership may serve as a trustee to the extent it is recognized as an entity by
the applicable law of the jurisdiction.

THE BENEFICIARY
A. Ascertainable identity: In every private trust there must be a specifically named beneficiary
or a beneficiary so described that his identity can be ascertained when the trust is created or
within the period of the Rule Against Perpetuities.

B. Who may be a beneficiary: A beneficiary may be:


1. Natural person: A natural person who has capacity to take and hold legal title to prop-
erty has capacity to be the beneficiary of a trust.
2. Aliens: Aliens may be beneficiaries of a trust unless restricted by special rules of the
jurisdiction. In some states it is held that although an alien may take title to land the
state may bring a proceeding to forfeit the land to the state. In such states the equitable
interest of an alien trust beneficiary could also be forfeited. The question of the consti-
tutionality of state statutes restricting the rights of aliens to inherit has been frequently
raised in other contexts.
3. Corporations: Corporations may be beneficiaries of a trust to the extent they are empow-
ered to take and hold legal title to property. A corporation not yet organized may be the
beneficiary of a trust to the extent it could be if in existence and if it is certain to come
into existence within the period of the Rule Against Perpetuities.

CHARITABLE TRUSTS

A. Six elements: A charitable trust is a public trust and must have six distinct elements to be
valid: (1) an intention of the settlor to create a trust; (2) a trustee to administer the trust; (3)
a res or subject matter; (4) a charitable purpose expressly designated; (5) a definite class to
be benefited; and (6) indefinite beneficiaries (within the defined class) who actually receive
the benefit.
B. Comparison to private trusts: The requirement of: (1) the intention, (2) the trustee; and
(3) the res, are the same in a charitable trust as in a private trust.

DOCTRINE OF CY PRES

A. Definition: If a settlor establishes a trust for a charitable purpose and evinces both a general
charitable intent and an intent to apply the fund to particular charities and it becomes im-
possible or impracticable to accomplish the latter, the equity court may order that the trust

Trusts
176 Chapter 7

fund be applied to another charity "as near as may be" to the particular ones designated by
the settlor. This is the doctrine of judicial cy pres and is applied only in charitable trusts.
B. Common law "prerogative" cy pres: Common law recognized "prerogative" cy pres in addition
to judicial cy pres. This doctrine allowed the crown to apply the property of a failed charitable
trust to any other charitable purpose it might select regardless of how close it was to the set-
tlor's specific purpose. This doctrine is not accepted in the United States.
Differences: In "prerogative" cy pres it is not necessary that there be a finding of general
charitable intent or that the property be applied to a purpose like the particular one
designated by the settlor. Both are necessary for judicial cy pres.

RESULTING TRUSTS

GENERAL PRINCIPLES
A. Definition: A resulting trust arises when: (1) property is disposed of (2) under circumstances
that raise an unrebutted inference (3) that the transferor does not intend the transferee to
have the beneficial interest therein and (4) such beneficial interest is not disposed of other-
wise. In such cases the person holding the beneficial interest is not entitled to it; the interest
therefore "results" to the transferor. The person having legal title holds it in a "resulting trust"
for such transferor.
B. Purpose: The resulting trust attempts to do with the property what it is presumed the transferor
would have wanted had he anticipated the situation.
C. Elements: A resulting trust is similar to an express private trust except that the intention is
inferred from the circumstances instead of being expressed, and has the following four ele-
ments: (1) an inferred intention to create the trust; (2) a trustee; (3) a trust res; and (4) a ben-
eficiary.
D. Distinguished from constructive trust: A resulting trust should be distinguished from a con-
structive trust. A constructive trust is not based on the settlor's intent, but is rather an attempt
by the court to correct fraud. A resulting trust is based on the settlor's presumed or implied
intent.

CONSTRUCTIVE TRUSTS

GENERALLY
Nature of constructive trust as remedy: The constructive trust is a remedy created by courts of equity to
obtain title from a person who ought not to have it, and force him to convey it to the one who should
have it.
1. Not intent-enforcing: The constructive trust is not "intent-enforcing." It is "fraud rectifying."
2. Created by court orders: A constructive trust is created by the court's decree that a wrong-doer
holds property as a constructive trustee.

Trusts
Chapter 7 177

Example: T by fraud induces C to convey C's Blackacre to T for no consideration. T holds legal
title to Blackacre and C has only a cause of action against T. T can cut off C's equity by sell-
ing and conveying Blackacre to a bona fide purchaser. If C sues T in equity prior to any such
conveyance the equity court will enter a decree that T is holding title to Blackacre as a con-
structive trustee for C. The constructive trust comes into existence when the court of equity
makes its decree. Because such a "construed" trust is always dry or passive, the court orders
legal title transferred to the injured party.

CREATION AND
TERMINATION OF TRUSTS

METHODS OF CREATING TRUSTS


Introduction: A trust may be created in any of the following ways:
1. declaration of trust;
2. transfer in trust, either
a. inter vivos or
b. by will;
3. exercise of a power of appointment;
4. contractual agreement;
5. statute.
The method used for creating the trust will depend upon the relationship of the settlor to the property
interest which is to constitute the trust res.

TERMINATION OF TRUSTS
Termination regardless of consent: The trust will be terminated in the following instances whether or
not the settlor, trustee or beneficiaries consent:
1. upon the expiration of the period for which the trust was created;
2. upon the fulfillment of the condition upon which the trust is to terminate;
3. when the purposes for which the trust was created become impossible or illegal; and
4. when the continuance of the trust would defeat the purpose for which the trust was created.

Trusts
178 Chapter 7

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. trustor=settlor=donor=transferor=grantor ........................................................
trustee
beneficiary= cestui que trust = cestui ........................................................
........................................................
2. to set up a trust
........................................................
to establish
to create ........................................................
to declare ........................................................
to administer
to modify ........................................................
to revoke ........................................................
to terminate ........................................................
to defeat
to set aside ........................................................
to validate ........................................................
to enforce ........................................................
to hold in trust for smb ........................................................
a trust fails ........................................................
........................................................
3.
declaration of trust ........................................................
breach of ........................................................
validity of
failure of ........................................................
........................................................
........................................................
corpus of a trust
principal of ........................................................
........................................................
4. ........................................................
testamentary = by will trust
inter-vivos=living ........................................................
revocable ........................................................
irrevocable
........................................................
active
passive=dry ........................................................
express ........................................................
implied
constructive ........................................................
resulting ........................................................
private ........................................................
charitable=public
Totten=savings bank=tentative ........................................................
spendthrift ........................................................
honorary ........................................................
precatory
executory ........................................................
void ........................................................
discretionary
........................................................
special
shifting ........................................................

Trusts
Chapter 7 179

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
5.
........................................................
trust property/subject-matter/res/corpus
agreement ........................................................
company ........................................................
deed
........................................................
estate
fund ........................................................
receipt ........................................................
benefits
purpose ........................................................
........................................................
6. ........................................................
ascertainable trust property
transferable ........................................................
........................................................
delivery of trust property
........................................................
segregation of
alienation of ........................................................
........................................................
........................................................
to satisfy claims from trust property
to subject trust property to execution ........................................................
........................................................
7.
trustee by deed ........................................................
ex maleficio ........................................................
in bankruptcy ........................................................

........................................................
8. ........................................................
acting trustee
........................................................
bare
de facto ........................................................
involuntary ........................................................
nominal
........................................................
public
quasi ........................................................
successor ........................................................
testamentary
........................................................
9. ........................................................
to appoint a trustee ........................................................
to designate
to remove ........................................................
to act as ........................................................
........................................................
appointment of a trustee
designation of ........................................................
removal of ........................................................
........................................................

Trusts
180 Chapter 7

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

10. ........................................................
interest under trust may be:
........................................................
beneficial
determinable ........................................................
for years ........................................................
for life
........................................................
of indefinite duration
future ........................................................
contingent ........................................................
vested
subject to condition precedent ........................................................
subject to condition subsequent ........................................................
........................................................
11.
trustee’s duties and powers: ........................................................
to post a faithful performance bond ........................................................
to perform personally
........................................................
to account to beneficiaries
to exercise reasonable care ........................................................
to satisfy the reasonably prudent trustee standard ........................................................
to preserve principal and income
........................................................
to diversify risks
not to engage in self-dealing ........................................................
........................................................
12.
by operation of law ........................................................
by application of ........................................................
by implication of ........................................................
by the act of
........................................................
13. ........................................................
to be contrary to public policy/law
........................................................
to be against
to contradict ........................................................
to contravene ........................................................
to conflict with
........................................................
14. ........................................................
to allocate benefits ........................................................
to apportion
to distribute ........................................................
........................................................
15. ........................................................
Rule against perpetuities
........................................................
16. ........................................................
cy pres doctrine
........................................................
17. ........................................................
probate court ........................................................
........................................................

Trusts
Chapter 7 181

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

a. beneficial title 1. A trust that is created by the settlor when he or she is alive(2
b. beneficiary answers).
c. charitable trust 2. A trust established for charitable purposes.
3. Full, absolute ownership.
d. constructive trust 4. An express trust that arises from the use of polite, noncom-
e. cestui que trust manding language by a testator in a will.
f. conveyance in trust 5. A person who establishes a trust (4 answers).
g. cy pres doctrine 6. An implied trust that arises in favour of the payor when
property is transferred to one person after being paid for by
h. declaration of trust another person.
i. implied trust 7. A written declaration by a settlor that he is holding legal title
j. irrevocable trust to property as trustee for the benefit of another person.
k. legal title 8. The right to beneficial enjoyment (2 answers).
9. The body, principal sum, or capital of a trust (5 answers).
1. pour-over trust 10. An implied trust that arises in favour of one who is defraud-
m. precatory trust ed when title to property is obtained by fraud.
n. corpus 11. As near as possible.
o. discretionary trust 12. A trust designed to provide a fund for the maintenance of
a beneficiary and at the same time to secure it against the
p. equitable title beneficiary's improvidence or incapacity.
q. donor 13. A trust that allows the trustee to decide how much will be
r. grantor given to each beneficiary at the trustee's discretion.
s. trust fund 14. A bank account in the name of the depositor as trustee for
another person.
t. settlor 15. A provision in a will leaving a bequest or devise to the trust-
u. trustor ee of an existing living trust.
v. trust principal 16. An instrument that creates a living trust (2 answers).
w. trust property 17. A trust that arises by implication of law from the conduct
of the parties.
x. resulting trust 18. A trust that is created by will and that comes into existence
y. spendthrift trust only on the death of the testator.
z. trust res 19. A transfer of legal title to property by the settlor to a trustee
aa. testamentary trust to hold for the benefit of a beneficiary.
20. One for whose benefit a trust is created ( 2 answers).
bb. Totten trust 21. A trust that may not be rescinded or changed by the settlor
cc. trust deed at any time during his lifetime.
dd. trust indenture
ee. living trust
ff. inter vivos trust

Trusts
182 Chapter 7

Exercise 2
Complete the text using the words from the box.

bailment trustee fiduciary relationship bailee legal title


bailor beneficiaries intangible assets res ownership interests
inter vivos trust property trust by will settlor securities

A trust is a (1) ____________________ with respect to specific property, to which the trustee holds
the (2) ____________________ for the benefit of one or more persons, who hold equitable title as
(3) ____________________ . Thus, two forms of (4) ____________________ - legal and equi-
table - exist in the same property at the same time.

The (5) ____________________ (sometimes called the trustor, donor, transferor, or grantor) is the
person who creates the (6) ____________________ or by (7) ____________________ transfer.

The (8) ____________________ is a natural or legal person who holds legal title to the trust prop-
erty.

The (9) ____________________ (the subject-matter or (10) ____________________) is the in-


terest the trustee holds for the beneficiaries. It may consist of real or personal property, or both.
The most common subject matter today is (11) ____________________ in the form of (12)
____________________.

A beneficiary (cestui que trust or simply cestui) is a person for whose benefit the property is held by
the trustee.

Where the owner of tangible personal property gives possession but not title to another, the relation-
ship is one of (13) ____________________ . The (14) ____________________ retains both legal
and equitable title; the (15) ____________________ merely has the right of possession. In a trust,
legal title is in the trustee; the settlor does not retain title.

Trusts
Chapter 7 183

Translate the following into Russian.

TRUSTS DISTINGUISHED FROM SIMILAR RELATIONSHIPS

1. Similar arrays of rights and responsibilities, including fiduciary duties and obligations, may
also be found in a variety of other relationships that are, in varying degrees, somewhat simi-
lar to trusts but which lack one or more of the essential characteristics of a trust. It is often
difficult to ascertain whether the parties involved did or did not intend to create a relation-
ship that is known in the law as a trust, for it is neither conclusive that the parties intended
a trust because they used trust terminology nor conclusive that they have not created a trust
merely because trust terminology was not used.

2. Bailment: Where the owner of tangible personal property gives possession but not title to
another, the relationship is one of bailment. If the property owner hands over a chattel to
another in order to benefit the owner or a third party, this may come close to a trust but may
actually constitute some other form of relationship. Example: A hands her diamond bracelet
to B, telling B to "give this bracelet to my daughter D when she returns from Europe." Is this
a trust or a bailment or something else (such as an agency)?
a. Guides for distinguishing: A court will first attempt to determine whether the owner
intended to pass title as well as possession in assessing whether the recipient is a trustee
or bailee. If the owner's intention is unclear, an important factor is whether the owner's
purposes in delivering the chattel could have been effected by a transfer merely of pos-
session.
b. Principal differences between bailment and trust
(1) Nature of the property: A bailment pertains to chattels only (although a compa-
rable interest in land might be a leasehold); a trust may exist with respect to real
or personal property, whether tangible or intangible.
(2) Title: The bailor retains both legal and equitable title; the baiiee merely has a
right to possession. In a trust, legal title is in the trustee; the settlor does not re-
tain title (unless it is an equitable interest as beneficiary, or unless she also serves
as trustee and thereby takes title in her fiduciary capacity—a transaction, how-
ever, that would obviously raise no bailment question).
(3) Transferees: Since a bailee has no title to the chattel, he cannot ordinarily con-
vey title to another; i.e., even a sale to a bona fide purchaser would not cut off the
bailor's interest under common law principles. (The Uniform Commercial Code
changes this rule in certain situations.)
A wrongful sale of the trust res by a trustee to a bona fide purchaser, however, usu-
ally does cut off the equitable interests of the beneficiaries; under common law
principles the transfer of legal title to a bona fide purchaser cuts off latent (hid-
den) "equities."
Trusts
184 Chapter 7

(4) Income: Rents, issues, and profits from the trust res belong to the beneficiary,
whereas the rents, issues, and profits from bailed chattels ordinarily belong to the
bailor.
(5) Remedies: The rights between bailor and bailee are usually enforced at law, al-
though if unique chattels are involved, equitable relief may be appropriate and
available. The duties of a trustee are enforced in equity.

3. Agency: An agency often appears very similar to a trust, and the duties and obligations of an
agent holding property for a principal are similar to those of a trustee.
a. Distinguishing from trust: There are, however, various distinctions between an agency
relationship with regard to property and a trust relationship. These distinctions are of
significance both as possible consequences of the distinction and as possible aids in
understanding and identifying which relationship is involved.
(1) Title: A trustee has title to the trust property; an agent may or may not hold title
on behalf of the principal but the holding of title is not an element of an agency
as such.
(2) Control: An agent is subject to the control of the principal, but a trustee is not
subject to the control of either the beneficiaries (although they have power to en-
force the trust) or the settlor as such (although the settlor's reservation of powers
of revocation, amendment, or direction may give her effective control, or some
measure of control, over the trustee).
(3) Powers: An agent's authority is limited to what is granted by the principal and
tends to be quite strictly construed. In addition to powers expressly granted by the
terms of the instrument, a trustee's powers tend to be rather broadly construed;
unless limited by the settlor or by law, a trustee generally has powers necessary or
appropriate to carry out the purposes of the trust.
(4) Liability: An agent acting within the scope of his authority (and who discloses the
agency) normally incurs no personal liability; rather, the principal alone is liable
for any contracts or debts thus incurred by the agent. A trustee is ordinarily per-
sonally liable to third parties for his acts on behalf of the trust, even when acting
properly; he cannot subject the beneficiary or settlor to these liabilities without
their consent or participation but does have a right of reimbursement or exonera-
tion from the trust estate for liabilities properly incurred.
(5) Termination: An agent's power terminates on the death or (in the absence of a
"durable power of attorney" statute) incapacity of the principal; a trustee's power
does not.
b. Example: X delivers $25,000 to Y to distribute to certain of X's relatives. Y fails to do so
prior to X's death. If Y is only an agent, the $25,000 belongs to X's estate and Y no lon-
ger has power to make distribution among the relatives. If Y is a trustee, the distribution
is to be made despite X's death.

Trusts
Chapter 7 185

Write in English a summary of the Chapter making use of


the suggested plan that follows.

Назовите основные виды доверительной собственности по англо-американскому праву


и дайте их краткую характеристику. Кратко охарактеризуйте отношения между учредителем
доверительной собственности, доверительным собственником и бенефициаром. В чем от-
личие правоотношений в рамках доверительной собственности от правоотношений в рам-
ках договора зависимого держания/ответственного хранения?

Trusts
186 Chapter 7

Trusts
8
Chapter 8 187

Bankruptcy

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

Bankruptcy is designed to relieve the honest debtor of his debts and to provide him the opportunity
for a fresh start financially.
Creditors also benefit from the establishment of a forum in which there will be either an orderly liq-
uidation of the debtor's estate or a judicially scrutinized plan to repay creditors partially or fully over a
period of time. Unsecured creditors are protected from acts such as selective repayment of particular
creditors shortly before bankruptcy and fraudulent transfers of the debtor's property; secured credi-
tors are ensured that their interest in collateral will be adequately protected under statutorily defined
circumstances.

LEGISLATIVE HISTORY

Bankruptcy Act: Article 1, section 8 of the United States Constitution empowers Congress to enact
uniform laws on bankruptcy. Under this grant of authority, Congress passed the Bankruptcy Act of
1898, which was amended substantially by the Chandler Act of 1938. The bankruptcy court's jurisdic-
tion, called summary jurisdiction, was limited to the debtor, his property, and the administration of
the bankruptcy case. Therefore, the bankruptcy court had no jurisdiction over property in the posses-
sion of a third person who had an adverse claim to the property unless the third party consented to the
bankruptcy court's jurisdiction. Thus, much litigation involving property outside of the bankruptcy
court's in rem jurisdiction could occur only in the United States district court, under its plenary juris-
diction, or in the various state courts.

Bankruptcy Code: The 1978 Bankruptcy Reform Act repealed the Bankruptcy Act of 1898, and it cre-
ated the Bankruptcy Code, which became effective on October 1, 1979. The Bankruptcy Code made
sweeping substantive revisions to the bankruptcy laws that had developed under the Bankruptcy Act.
In addition, the bankruptcy court's jurisdiction was substantially expanded to enable the bankruptcy
judge to hear practically all matters arising in or related to the bankruptcy case, thereby eliminating
some of the logistical problems of litigation under the Bankruptcy Act. (Thus, under the Bankruptcy

Bankruptcy
188 Chapter 8

Code, the distinction between summary and plenary jurisdiction is an obsolete concept.) Further-
more, changes were made to separate the bankruptcy judge's judicial functions from those relating
purely to administration of the case.

ORGANIZATION OF THE BANKRUPTCY CODE

1. Chapters 1, 3, and 5: Chapters 1, 3, and 5 of the Bankruptcy Code contain general rules,
definitions, and eligibility requirements for bankruptcy relief, as well as provisions about the
commencement of a case, the administration of cases, the debtor, the estate and its officers,
the trustee's powers to avoid certain transfers and recover property for the estate's benefit,
creditors, claims, the automatic stay, adequate protection, and certain administrative pow-
ers of a trustee or a debtor in possession. All three chapters apply to cases under Chapters 7,
11, 12, and 13.

2. Chapter 7: The liquidation provisions of the Bankruptcy Code are contained in Chapter
7, which contemplates an orderly procedure by which the trustee collects the assets of the
debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the
debtor's right to retain certain (exempt) property and the rights of secured parties in their
collateral.

3. Chapter 13: Chapter 13 provides a method by which an individual with regular income may
repay all or a portion of her indebtedness over a period of time, pursuant to a plan proposed
by the debtor and confirmed by the court.

4. Chapter 11: Chapter 11 consolidates the business rehabilitation chapters of the Bankruptcy
Act (Chapters X, XI, and XII) into one chapter and designates it reorganization. Ordinarily,
this chapter concerns a commercial debtor who desires to continue operating a business and
to repay creditors concurrently through an acceptable plan of reorganization confirmed by
the court.

Note: The Supreme Court recently held that a consumer debtor also may qualify for Chapter
11 relief.

5. Chapter 12: Chapter 12 provides relief for debtors who are family farmers with regular an-
nual income, allowing them to continue to operate their farms. It allows the family farmer
access to the bankruptcy court through a speedier, simpler, and less expensive procedure
than under Chapter 11, and with higher debt limitations than those of Chapter 13.

Bankruptcy
Chapter 8 189

PARTICIPANTS IN THE BANKRUPTCY CASE

1. Bankruptcy Judge: For many years, under the Bankruptcy Act, the judicial officer in the
case was called the "referee"; however, this terminology is now obsolete. The judicial officer
is referred to as the "bankruptcy judge."

2. Debtor: Under the Bankruptcy Act, the person about whom a bankruptcy case was com-
menced was called the "bankrupt." That term is not used under the Bankruptcy Code; such
a person is called a "debtor."

3. Debtor in Possession: In a Chapter 11 case, the debtor is called a "debtor in possession" unless
a trustee has been appointed.

4. Trustee: The trustee is the official representative of the estate and, as such, exercises statutory
powers principally for the benefit of the unsecured creditors.

5. Unsecured Creditor: An unsecured creditor is an entity holding a claim against the debtor that
is not secured by collateral.

6. Secured Creditor: A secured creditor is an entity holding a claim against the debtor that is
secured by a lien on property of the estate or that is subject to setoff.
Frequently, bankruptcy litigation involves a contest between a secured creditor and the
trustee (as the champion of the unsecured creditors) concerning the validity, extent, or prior-
ity of an alleged security interest.

7. Creditors' Committee: In a Chapter 11 case, a committee of unsecured creditors is appointed


by the United States trustee. The committee usually consists of those willing persons hold-
ing the seven largest unsecured claims against the debtor (although there may be additional
committees of creditors or equity security holders appointed). A creditors' committee can
be particularly helpful in consulting with the debtor in possession or with a trustee, and also
in participating in the formulation of an acceptable plan of reorganization. Sometimes, in a
large Chapter 7 case, the unsecured creditors will elect a creditors' committee consisting of
between three and eleven unsecured creditors to consult with the trustee about the adminis-
tration of the estate.

8. Equity Security Holder: An equity security holder is a holder of a share or similar security
in a debtor corporation, a holder of a warrant or a right to buy or sell a security in a debtor
corporation (but not a right to convert), or a limited partner holding an interest in a limited
partnership debtor.

Bankruptcy
190 Chapter 8

9. Professional Persons: Professional persons {e.g., attorneys, accountants, appraisers, and auc-
tioneers) often are hired by the trustee, the debtor, or a creditors' committee. Their expertise
usually plays an important role in a bankruptcy case, and their employment and compensa-
tion must be approved by the court.

10. United States Trustee: The United States trustee assumes many of the administrative re-
sponsibilities previously performed by the court, including the appointment and supervision
of bankruptcy trustees, thereby helping to separate the administrative and judicial functions
in bankruptcy cases. The United States trustee is appointed by the Attorney General to a
term of five years.

TERMINOLOGY

There are a number of terms that appear frequently throughout the Code; an understanding of their
bankruptcy definition is helpful.

1. Person: Individuals, corporations, and partnerships are persons, but governmental units are
not.

2. Entity: An entity is a more comprehensive term than a person and includes, additionally,
trusts, estates, governmental units, and the United States trustee.

3. Insider: An insider is defined in terms of whether the debtor is an individual, a corporation,


or a partnership.
a. Individual debtor: With respect to an individual debtor, the following persons are insid-
ers: relatives, general partners, relatives of general partners, a partnership where the
debtor is a general partner, and a corporation where the debtor is an officer, a director,
or a person in control.
b. Corporate debtor: With respect to a corporate debtor, the following persons are insid-
ers: directors, officers, persons in control, general partners of the debtor, relatives of any
of the above, and a partnership where the debtor is a general partner.
c. Partnership debtor: With respect to a partnership debtor, the following persons are in-
siders: general partners in or of the debtor, persons in control, relatives of any of the
above, and a partnership where the debtor is a general partner.

4. Claim: A claim is a right to payment, even if it is unliquidated, unmatured, disputed, or con-


tingent. It also includes the "right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment." The concept of a claim is significant in determining
which debts are discharged and who shares in distribution.

Bankruptcy
Chapter 8 191

5. Debt: A debt is defined as "liability on a claim" and the discharge of debts in bankruptcy is the
legal means of providing the debtor with a fresh start.

6. Consumer Debt: A consumer debt is one "incurred by an individual primarily for a personal,
family, or household purpose."

7. Insolvent: An entity is insolvent when its debts total more than the aggregate value of all of
its property, excluding property fraudulently transferred and exempt property. In the case of
a partnership, the excess of the nonexempt personal assets of each general partner over his
nonpartnership debts is included.

8. Transfer: A transfer is any voluntary or involuntary disposition of property or an interest in


property, including, for example, the debtor's conveyance of a security interest or a mort-
gage, the fixing of a lien on property of the debtor by judicial process, or even a foreclosure
sale of collateral securing a debt.

VOLUNTARY CASE

1. Filing the Petition: A voluntary case is commenced when an eligible debtor files a petition un-
der Chapter 7, 11, 12, or 13. At that time, the appropriate filing fee should be paid, except
under special circumstances where the court approves an individual's application to pay the
fee in installments. The filing of a voluntary petition statutorily constitutes an order for relief
under a particular chapter.

2. Schedules To Be Filed: In addition to filing the bankruptcy petition, a debtor under any chap-
ter of the Code (except Chapter 9—Municipality) must file a list of creditors and their ad-
dresses, a schedule of assets and liabilities, a schedule of current income and current expen-
ditures, a statement of the debtor's financial affairs, and a schedule of executory contracts
and unexpired leases.

3. Automatic Stay: When a bankruptcy petition is filed, commencing a voluntary or an involun-


tary case, the automatic stay becomes effective against all entities (including a governmen-
tal unit) to protect the debtor, his property, and the property of the bankruptcy estate from
creditors, while the debtor is granted a respite. The stay is a statutory injunction and helps
to ensure an orderly administration of the case and an evenhanded treatment of creditors
so that the creditors' shares in the ultimate distribution will not depend upon a race to the
courthouse.

Bankruptcy
192 Chapter 8

INVOLUNTARY CASE

1. Eligibility: An involuntary petition may be filed only under Chapter 7 or Chapter 11 (not
under Chapter 12 or Chapter 13) against a person who qualifies as a debtor under the ap-
plicable chapter.
a. Exceptions: An involuntary petition may not be filed against (i) a farmer, (ii) a family
farmer, or (iii) a nonprofit or charitable corporation.

2. Filing the Petition


a. Petitioning entities: An involuntary case may be commenced against a debtor by the
filing of a petition by the following entities:
(1) Three or more creditors: Where there are at least twelve creditors (excluding the
debtor's insiders and employees, and transferees of voidable transfers) holding
claims against the debtor that are neither contingent as to liability nor the subject
of a bona fide dispute, then three or more of these entities may file an involuntary
petition provided that at least $5,000 of their claims, in the aggregate, are unse-
cured, noncontingent, and undisputed.
(a) Example: Debtor has twenty creditors, and three of them file an involun-
tary petition against Debtor. The petitioning creditors hold noncontingent
unsecured claims totaling $8,000. However, the claims of two of the peti-
tioning creditors are the subject of a bona fide dispute arising from Debtor's
cross-claims in state court. Therefore, those two creditors do not qualify
under section 303(b)(1), and the involuntary petition will be dismissed.
(2) One or more creditors: Where there are fewer than twelve creditors (excluding the
debtor's insiders and employees, and transferees of voidable transfers) holding
noncontingent, undisputed claims against the debtor, one or more of these entities
may file an involuntary petition provided that at least $5,000 of their claims, in
the aggregate, are unsecured, noncontingent, and undisputed.

ABSTENTION

Dismissal or Suspension: The bankruptcy court may (at any time) abstain from hearing an entire
case by dismissing it or by suspending all proceedings, if it finds that abstention would better serve
the interests of creditors and the debtor. Abstention may also be proper if there is a foreign proceed-
ing pending and abstention would facilitate an efficient and economical administration of the estate.
Notice and a hearing are required.

Example: Debtor, an insolvent corporation, is the subject of a state court receivership. The
receiver has been granted possession of Debtor's property and is about to conclude a liqui-
dation after four years of administration and the expenditure of hundreds of thousands of

Bankruptcy
Chapter 8 193

dollars by the parties in interest and their attorneys. Even though a significant number of
Debtor's creditors will be paid in full if the state court liquidation proceeds, a few adamant
creditors file an involuntary Chapter 7 petition against Debtor. Here, abstention and dis-
missal of the case will be in the best interests of the creditors and Debtor.

SECTION 341 MEETING OF CREDITORS

Time and Place: Ordinarily, within twenty to forty days after the order for relief, a meeting of creditors
is held at the courthouse or at another location within the district, designated by the United States
trustee for the convenience of the parties in interest. This meeting, which had been known under the
Bankruptcy Act as the "first meeting of creditors," is referred to under the Code as the "section 341
meeting of creditors."

TRUSTEE

1. Role and Capacity: The trustee is the official representative of the estate. The trustee's duties
are set by statute. Besides various administrative powers the trustee has the authority to initi-
ate and defend lawsuits.

2. Eligibility: A disinterested individual or corporation is eligible to serve as a trustee. An indi-


vidual must be competent to perform the required responsibilities, and a corporation must
be authorized by its charter or bylaws to serve as a trustee. In a Chapter 7, 12, or 13 case, the
trustee also must reside or have an office in the judicial district where the bankruptcy case is
pending or in the adjacent district.

3. Duties of Trustee: The duties of a trustee vary according to the chapter under which he is serv-
ing, although many of the basic functions overlap.

a. Chapter 7: The primary responsibilities of a Chapter 7 trustee are to:


(i) Locate and take possession of property of the estate;
(ii) Convert the property to cash,
(iii) Make distributions to claimants in the order prescribed by the Code;
(iv) Close the estate expeditiously.

Other duties: Additional duties of a Chapter 7 trustee are to:


(a) Account for all property received;
(b) Monitor the debtor's performance of his intentions regarding collateral securing
consumer debts;
(c) Investigate the debtor's financial affairs;

Bankruptcy
194 Chapter 8

(d) Examine proofs of claims and object to the allowance of any improper claims;
(e) Object to the debtor's discharge if circumstances warrant;
(f) Provide information requested by parties in interest about the estate and the ad-
ministration of the estate;
(g) File periodic financial reports, including a statement of receipts and disburse-
ments with the court, the United States trustee, and the appropriate taxing au-
thorities —if the trustee is operating the debtor's business;
(h) Prepare and file with the court and the United States trustee, a final report and
account concerning the case.

b. Chapter 11: A Chapter 11 trustee, appointed to replace a debtor in possession, ordi-


narily is authorized to operate the debtor's business and is charged with the following
responsibilities;
(1) To account for all property received, to examine proofs of claims and object to
improper ones, to provide information to parties in interest about the estate or its
administration, to file periodic financial reports with the court, the United States
trustee, and taxing authorities, and to prepare and file a final report and account.
(2) To file any document required under section 521(1) i.e., a list of creditors, sched-
ule of assets and liabilities, schedule of current income and expenditures, and a
statement of the debtor's financial affairs) that has not been filed by the debtor.
(3) To investigate the debtor's conduct, financial condition, and business operations,
as well as the advisability of continuing the debtor's business,
(4) To file a report of the investigation relating any facts evidencing fraud, dishonesty,
incompetence, misconduct, or mismanagement, and to send a copy of the find-
ings to any creditors' committee or equity security holders' committee,
(5) To file a Chapter 11 plan as soon as feasible, or recommend conversion of the
case to another chapter.
(6) To provide information, if available, to the taxing authorities concerning any year
for which the debtor failed to file a return,
(7) After a plan has been confirmed, to file any required reports.

c. Chapter 13: A Chapter 13 trustee has the following duties:


(1) To account for all property received, to monitor debtor's performance of his inten-
tions regarding collateral securing consumer debts, to investigate debtor's finan-
cial affairs, to examine proofs of claims and object to improper ones, to object to
debtor's discharge if circumstances warrant, to provide information to the parties
in interest about the estate and its administration, and to prepare and file a final
report and account.
(2) To testify at any hearing regarding (i) valuation of property on which there is a lien,
(ii) confirmation of a Chapter 13 plan, or (iii) post-confirmation modification of
a plan.

Bankruptcy
Chapter 8 195

(3) To furnish nonlegal advice to the debtor, and to assist the debtor in implementing
the plan.
(4) To ensure that the debtor begins making the payments proposed by the plan within
thirty days after the filing of the plan.
(5) If the debtor is engaged in business, to investigate the debtor's conduct, financial
condition, and business operations, as well as the advisability of continuing the
debtor's business; and to file a report of the investigation relating any facts evi-
dencing fraud, dishonesty, incompetence, misconduct, or mismanagement.
(6) Ordinarily, to disburse the payments to creditors under a confirmed plan.

d. Chapter 12: The duties of a Chapter 12 trustee are similar to those of a Chapter 13 trust-
ee as long as the debtor continues to be a debtor in possession. However, if a Chapter
12 debtor is removed from possession, the trustee is charged with many of the duties of
a Chapter 11 trustee including operation of the debtor's farm.

4. Liability of Trustee: As a fiduciary of the estate, a trustee may be held personally liable for
breach of duties.
a. Intent: Some jurisdictions hold trustees personally liable for either intentional or
negligent violations of their fiduciary duties. Other jurisdictions impose personal
liability only for intentional violations of the trustee's duties.

5. Powers of Trustee: The bankruptcy trustee, as the representative of the estate, is entrusted
with a variety of administrative powers that he may use when appropriate. Included among
them are the powers to:
a. File a proof of claim on behalf of a creditor who has not timely filed his claim.
b. Operate the debtor's business (i) in a Chapter 11 case, unless ordered otherwise; (ii)
sometimes in a Chapter 7 case, for a short period prior to liquidation, if the court per-
mits; or (iii) in a Chapter 12 case where the debtor in possession has been removed by
the court.
c. Deposit or invest money of the estate.
d. Employ professional persons, such as attorneys, accountants, auctioneers, or appraisers.
e. Avoid certain transfers and liens, and thereby enlarge the estate for the benefit of credi-
tors.
f. Use, sell, or lease property of the estate.
g. Obtain credit.
h. Assume or reject executory contracts or unexpired leases.
i. Demand utility services for the estate.
j. Abandon property of the estate.
k. Waive a debtor corporation's attorney-client privilege concerning communications made
by former officers and directors to the debtor's attorney before the bankruptcy petition
was filed.

Bankruptcy
196 Chapter 8

6. Removal of Trustee: A trustee (other than the United States trustee) or an examiner may be
removed by the court for cause. "Cause" generally involves the trustee's misconduct, incom-
petence, or conflict of interest. Notice and a hearing are required.

EXAMINER

1. Role and Capacity: In a Chapter 11 case in which a trustee has not been appointed, the court
sometimes will order the appointment of an examiner. The examiner is appointed prior to
confirmation of a plan to investigate any charges of fraud, dishonesty, incompetence, or mis-
management on the part of the debtor's present or former management. The debtor in pos-
session retains her property and continues to operate the business.

2. Duties of Examiner: An examiner's duties include the following:


a. To investigate the debtor's conduct, financial condition, and business operations, as well as
the advisability of continuing the debtor's business.
b. To file a report of the investigation relating any facts evidencing fraud, dishonesty, in-
competence, misconduct, or mismanagement, and to send a copy of the findings to
any creditors' committee or equity security holders' committee.
c. Any other responsibilities of a trustee that the judge directs the debtor in possession not
to perform.

3. Examiner May Not Serve as Trustee or Professional Person: An examiner in a particular


Chapter 11 case may not serve as the trustee (if one is appointed) or be employed as a profes-
sional person by the trustee in the same case.

PROFESSIONAL PERSONS

1. Role and Capacity: A trustee (or a debtor in possession), with court approval, may hire pro-
fessional persons (e.g., attorneys or accountants) to perform services with respect to the
bankruptcy estate.
2. Eligibility: Professional persons must be disinterested persons who do not have an interest ad-
verse to the estate. Court approval must be obtained prior to performing services; otherwise,
the professional's application for compensation may be denied by the court.
a. Examples — professional persons: The following persons are examples of those who
have been held to be professional persons:
(1) Attorneys and accountants.
(2) Auctioneers.
(3) Appraisers.

Bankruptcy
Chapter 8 197

(4) Executives and officers of the debtor in possession.


(5) Consulting firms.
(6) Collection agencies.

b. Approval before hiring: It is of the utmost importance that judicial approval to hire a
professional be obtained before she begins to perform services, since many courts will
not grant approval retroactively unless there are extraordinary circumstances. There-
fore, the failure to apply for approval first is likely to result in denial of any compensa-
tion to the professional, even if her services have benefited the estate.

UNITED STATES TRUSTEE

1. Appointment and Term: For each of twenty-one regions throughout the nation, the Attorney
General appoints one United States trustee for a five-year term. Where necessary, he also
may appoint assistant United States trustees.

2. Administrative Duties: The United States trustee performs numerous administrative func-
tions under the supervision of the Attorney General. Some of these duties are as follows:
a. To establish and supervise a panel of private trustees to serve in Chapter 7 cases.
b. To appoint an interim trustee from the private panel in a Chapter 7 case, to appoint a
trustee or an examiner in a Chapter 11 case when the court orders such appointment to
be made and either to appoint a standing trustee for Chapter 12 or Chapter 13 cases or,
instead, to appoint a trustee for a particular case under Chapter 12 or Chapter 13.
c. In a Chapter 11 case, to appoint and monitor creditors' committees and equity security
holders' committees.
d. To convene and preside at the section 341 meeting of creditors and, when appropriate, to
examine the debtor at that meeting.
e. When necessary, to serve as the trustee in a case under Chapter 7, 12, or 13, but not in a
Chapter 11 case.
f. To supervise the administration of bankruptcy cases and trustees.
g. To monitor applications for the employment of professional persons and their applications
for compensation.
h. To monitor plans filed in cases under Chapter 11, 12, and 13, and, when appropriate, to
file with the court comments regarding such plans.
i. To monitor Chapter 11 disclosure statements and, when appropriate, file comments with
the court.
j. To monitor the progress of bankruptcy cases and take actions that are necessary to avoid
undue delay.

Bankruptcy
198 Chapter 8

k. To take appropriate action to ensure that the debtor timely files all necessary reports,
schedules, and fees.
l. To inform the United States attorney about crimes that may have been committed under
federal law.
m. To deposit or invest money received as the trustee in bankruptcy cases.
n. To make any reports or to perform other duties prescribed by the Attorney.

3. Standing: The Bankruptcy Code grants the United States trustee the right to appear and be
heard with respect to any issue in a bankruptcy case.

Bankruptcy
Chapter 8 199

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. ........................................................
Bankruptcy Act
Bankruptcy Code ........................................................
........................................................
2.
........................................................
bankruptcy proceedings
court ........................................................
petition ........................................................
trustee
case ........................................................
costs ........................................................
assets/estate ........................................................
judge
........................................................
3. ........................................................
voluntary bankruptcy ........................................................
involuntary
........................................................
4. ........................................................
discharge in bankruptcy
........................................................
receiver in
referee in ........................................................
trustee in ........................................................
composition in
........................................................
5. ........................................................
act of bankruptcy ........................................................
of insolvency
........................................................
6. ........................................................
to commence bankruptcy proceedings ........................................................
to institute
to begin ........................................................
........................................................
7.
........................................................
to appoint a trustee in bankruptcy
to remove ........................................................
........................................................
8.
United States trustee ........................................................
interim ........................................................
standing ........................................................
outside
........................................................
trustee in liquidation ........................................................
........................................................
9.
eligibility of a trustee ........................................................
qualifications of ........................................................
........................................................
........................................................

Bankruptcy
200 Chapter 8

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

10. ........................................................
to file a (bankruptcy) petition ........................................................
to dismiss
........................................................
with prejudice without prejudice ........................................................
........................................................
11.
voluntary petition ........................................................
involuntary ........................................................
joint
........................................................
12. ........................................................
to file a case ........................................................
to commence
to administer ........................................................
to hear ........................................................
to abstain from hearing ........................................................
........................................................
a case is pending ........................................................
........................................................
13.
liquidated claim ........................................................
unliquidated ........................................................
matured
........................................................
disputed
contingent ........................................................
adverse ........................................................
enforceable
counter ........................................................
false=fraudulent ........................................................
secured ........................................................
unfounded
........................................................
a claim against bankrupt estate ........................................................
........................................................
14.
to file a claim against smb ........................................................
to lodge ........................................................
to submit
........................................................
to assert
to allow ........................................................
to settle ........................................................
to withdraw
........................................................
15. ........................................................
to owe a debt ........................................................
to repay
to settle ........................................................
to cancel ........................................................
to pay off
........................................................
to write off
Bankruptcy
Chapter 8 201

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

to discharge ........................................................
to extinguish
........................................................
to collect
to be burdened with ........................................................
........................................................
16.
........................................................
adjustment of a debt
admission of ........................................................
satisfaction of ........................................................
settlement of
default on ........................................................
........................................................
17. ........................................................
a debt is due
becomes due ........................................................
matures ........................................................
is owed
........................................................
18. ........................................................
bona fide debt ........................................................
discharged
........................................................
bad
overdue ........................................................
secured ........................................................
matured
outstanding ........................................................
liquidated ........................................................
........................................................
19.
bona fide debtor ........................................................
eligible ........................................................
........................................................
debtor in possession
to relieve a debtor of debts ........................................................
........................................................
20.
........................................................
general creditor (s)
judgment ........................................................
junior ........................................................
preferred
secured ........................................................
first priority ........................................................
senior ........................................................
21. ........................................................
........................................................
creditor of estate
........................................................
creditor’s bill
creditors' committee ........................................................
fair treatment of creditors ........................................................
........................................................

Bankruptcy
202 Chapter 8

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

22. ........................................................
interest in property ........................................................
transfer of
disposition of ........................................................
encumbrance on ........................................................
execution against ........................................................
lien on
attachment of ........................................................
valuation of ........................................................
........................................................
23.
bankruptcy estate ........................................................
property of the ........................................................
officer of the
........................................................
to close the estate ........................................................

24. ........................................................
to pass a law ........................................................
to enact ........................................................
to repeal
to set aside ........................................................
........................................................
25.
........................................................
chapter 7 – “liquidation”=”straight bankruptcy”
........................................................
........................................................
chapter 11 - “reorganization”
........................................................
chapter 12 - “ family farmer debt adjustment” ........................................................
........................................................
chapter 13 -“ rehabilitation” = “adjustment of debts
of individuals” ........................................................
........................................................
26. ........................................................
repayment plan
wage earner’s ........................................................
........................................................
to confirm a plan
........................................................
the plan is subject to court approval
........................................................
27. ........................................................
filing fee
........................................................
to pay the filing fee by installments
........................................................
28. ........................................................
automatic stay order
automatic suspension ........................................................
........................................................
order for relief ........................................................
........................................................

Bankruptcy
Chapter 8 203

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

........................................................
29. ........................................................
examiner
........................................................
30. ........................................................
professional person ........................................................
31. ........................................................
collecting agency ........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

Bankruptcy
204 Chapter 8

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.

a. adjustment of debts of _____ 1. People to whom money is owed.


_____ 2. A right to payment.
individuals
_____ 3. The legal process by which the assets of a debtor are sold to
b. assets pay off creditors so that the debtor can make a fresh start
c. automatic stay financially.
_____ 4. Items of property that are excepted from bankruptcy pro-
d. automatic suspension
ceedings and may be retained by the debtor.
e. bankrupt _____ 5. Creditors who hold mortgages and other liens.
f. bankruptcy _____ 6. A self-operating postponement of collection proceedings
against a debtor (select two answers).
g. Chapter 7 bankruptcy _____ 7. A bankruptcy proceeding that is initiated by the debtor.
h. Chapter 11 bankruptcy _____ 8. The state of a person (including a business) who is unable to
i. Chapter 12 bankruptcy pay debts as they become due.
_____ 9. A proceeding designed to liquidate a debtor's property, pay
j. Chapter 13 bankruptcy off his or her creditors, and discharge the debtor from most
k. claim debts (select three answers).
_____10. Divided proportionately.
l. creditors
_____11. A person appointed by a bankruptcy court to hold the debt-
m. debtor or's assets in trust for the benefit of creditors.
n. debtor-in-possession _____ 12. Convert to cash.
_____ 13. A method for businesses to reorganize their financial af-
o. discharge in bankruptcy
fairs, keep their assets, and remain in business (select two
p. exemptions answers).
q. family farmer debt adjustment _____ 14. A method for family farmers to adjust their financial af-
fairs while continuing to operate their farms (select two an-
r. homestead exemption swers).
s. involuntary bankruptcy _____ 15. Property.
t. liquidate _____ 16. A bankruptcy proceeding that is initiated by one or more
creditors.
u. liquidation _____ 17. One who owes a debt to another.
v. order for relief _____ 18. Another name for a debtor in Chapters 11, 12, and 13
cases.
w. preferences
_____ 19. Transfers made by a debtor to creditors, before a bank-
x. proof of claim ruptcy proceeding, enabling them to receive a greater per-
y. prorated centage of their claim than they would have otherwise re-
ceived.
z. reorganization
_____ 20. A method by which an individual with regular income can
aa. secured creditors pay his or her debts from future income over an extended
bb. straight bankruptcy period of time (select two answers).
_____ 21. A plan for the installment payments of outstanding debts
cc. trustee in bankruptcy under a Chapter 13 bankruptcy.
dd. voluntary bankruptcy _____ 22. In bankruptcy, the exemption of one's residence to the ex-
ee. wage earner's plan tent of $7,500.
_____ 23. The acceptance of a case by a bankruptcy court.
_____ 24. A signed, written statement setting forth a creditor's claim
together with the basis for it.
_____ 25. A release of a debtor from all debts that were proved in a
bankruptcy proceeding.

Bankruptcy
Chapter 8 205

Exercise 2
Complete the text by using the words in the box.

Bankruptcy Code exempts discharge uniform to satisfy


statutory amount "straight" bankruptcy voluntary priority of claims
bankruptcy courts administers regular source of income
involuntary creditors reorganization of business debts

The Constitution empowers Congress to make (1)__________________laws on bankruptcy.


Thus bankruptcy is governed by federal law, with a system of US (2)__________________.

The (3)__________________has three main alternatives: Chapter 7 (Liquidation), Chap-


ter 11 (Business Reorganization), and Chapter 13 (Adjustment of an Individual's Debts). Peti-
tions for bankruptcy may be (4)__________________(filed by the debtor) for all three chapters or
(5)__________________(filed by creditors) for Chapters 7 and 11.

Chapter 7 is the traditional, (6)__________________. Chapter 11 involves a


(7)__________________ , with a plan requiring the approval of the bankruptcy judge and most
(8)__________________Chapter 13 permits individuals with a (9)__________________, and
debts not exceeding a (10)__________________, to seek court approval of a payment plan lasting
up to 5 years.

The Bankruptcy Code (11)__________________ certain property, or amounts of property, from


being used (12)__________________creditors' claims.

A court-appointed trustee (13)__________________the debtor's property ("the estate") and dis-


tributes the debtor's nonexempt property according to the (14) __________________outlined in
the Bankruptcy Code.

The Bankruptcy Code prohibits the (15)__________________of certain debts and also allows
the bankruptcy judge to deny discharges because of the debtor's misconduct.

Bankruptcy
206 Chapter 8

Translate the following into Russian.

CHAPTER 7 BANKRUPTCY— AN OVERVIEW


To correctly and safely file your own Chapter 7 bankruptcy, you'll need to learn a few legal con-
cepts and pick up a little legal terminology. Here are a few basics.

What Is Chapter 7 Bankruptcy?


Chapter 7 bankruptcy refers to the chapter of federal statutes that contains the bankruptcy laws.
Chapter 7 bankruptcy is sometimes called "straight" or "liquidation" bankruptcy. By filing for Chap-
ter 7 bankruptcy, you ask the court to erase your debts forever. In exchange, you might have to give up
some of your property. Most people, however, don't lose anything.

Bankruptcy Forms and Filing


To file for Chapter 7 bankruptcy, you must fill in several forms that require detailed information
about your finances. You then take or mail your papers to a local bankruptcy court. You may pay the
filing fee all at once or in installments. If you cannot afford the filing fee, you may be eligible to have
it waived.

If you need to file immediately, you can prepare and file just two forms, as long as you file the rest
within 15 days. This might be a good idea if a creditor has started a wage garnishment or has threat-
ened to take other property to satisfy a debt.

Effects of Filing and the Automatic Stay


Filing for bankruptcy puts into effect something called the automatic stay. The automatic stay is
a court order that immediately stops your creditors from trying to collect what you owe them. The
automatic stay does not, however, stop the government from criminally prosecuting you, your obliga-
tion to keep paying child support and alimony, or the IRS from auditing you, issuing a tax deficiency
notice, demanding your tax returns, assessing taxes against you or demanding payment after an as-
sessment.

The automatic stay is sometimes lifted as to a particular creditor to allow that creditor to proceed
with a repossession or foreclosure, or to permit court proceedings that don't involve assets the bank-
ruptcy court might want to take. Before the automatic stay is lifted for any creditor, you must get
formal notice and the chance to object in court.

When you file for bankruptcy, everything you own or are entitled to receive as of that date is col-
lectively called your bankruptcy estate. Your bankruptcy estate becomes subject to the bankruptcy
court's authority, although your property remains in your possession. Until your bankruptcy case
ends, the bankruptcy court assumes legal control of the debts you owe and your bankruptcy estate.
You have control of property and income you acquire after you file for bankruptcy, with a few excep-
tions, including property or money you were entitled to receive when you filed, as well as proceeds
from a marital settlement agreement, life insurance policy or an inheritance distribution that you
become entitled to receive within the six-month period immediately following your filing date.

Bankruptcy
Chapter 8 207

Effect of Bankruptcy on Debts and Contracts


Your debts will fall into two main categories:

• Secured debts. A debt is secured if you've pledged property as collateral. Common examples
are mortgages, car loans and home equity loans. Secured debts are also created when a credi-
tor fixes a lien—or legal claim—on property. Typical examples include judgment liens, tax
liens and mechanics' liens. The person or institution owed a secured debt is referred to as a
secured creditor. In bankruptcy, your personal liability for a secured debt will be wiped out,
unless you choose to "reaffirm" the debt or the debt is nondischargeable. If your personal li-
ability is eliminated, the creditor's right to collect the collateral or the lien, however, remains
unless there is a legal way to wipe out the lien.

• Unsecured debts. These consist of any debts that are not secured. Anyone owed an unsecured
debt is an unsecured creditor. All unsecured debts you owe at the time you file will be wiped
out in bankruptcy, unless they are nondischargeable.

Note About Contracts: If you've signed a contract that is still in force or a lease that hasn't expired,
it may be canceled unless it will produce assets for your creditors.

Exemptions
On your bankruptcy papers, you must list your exempt property—that is, property that by law can-
not be taken from you to pay your creditors. What qualifies as exempt varies from state to state. It usu-
ally includes basic items such as clothing, household furnishings, unspent Social Security payments
and perhaps part of the value of a car or house.
Any nonexempt property may be taken or sold to pay your unsecured creditors. Used personal
property often isn't bothered with, however, because the expense of court time, storage and selling the
items usually exceeds the amount the sale will bring in.

Bankruptcy Trustee
A court-appointed person called a bankruptcy trustee oversees your case. The trustee sees that
your unsecured creditors are paid as much as possible. The trustee is paid a percentage of the assets
recovered for the creditors, so he carefully examines your bankruptcy papers. The trustee looks for
nonexempt property that can be taken from you to pay your creditors. He also looks for problems in
your documents—such as an undervaluation of your property or an overstatement of your expenses.

If the trustee believes that the correct information would produce more money for your unsecured
creditors, he may pressure you to change your papers. If he thinks the problem would make you in-
eligible for Chapter 7 bankruptcy, he might even ask the bankruptcy court to dismiss your bankruptcy
case. If you carefully follow the instructions in this kit and are honest in your bankruptcy papers, you
need not worry that the trustee will take such drastic steps.

Creditors' Meeting
Approximately a month after you file your papers, you'll go to court for a creditors' meeting, so
named because creditors are invited to attend and ask you questions about the information in your
bankruptcy papers. In most parts of the country they usually don't, however, unless they want to chal-

Bankruptcy
208 Chapter 8

lenge the dischargeability of a debt or an exemption you claimed. Most creditor's meetings last about
five minutes.

The trustee will, however, ask you questions about your bankruptcy papers and will try to identify
any nonexempt property that can be taken from you. If you've been honest with your creditors and
in your bankruptcy papers, the creditors' meeting should go smoothly. A typical creditors' meeting
lasts five minutes.

Ending Your Bankruptcy


If you change your mind after you file for bankruptcy, you can ask the court to dismiss your case. If
your case is dismissed, your creditors are free to go after you for payments; it's as though your bank-
ruptcy was never started. A court generally will dismiss a Chapter 7 bankruptcy case as long as the
dismissal isn't unfair to your creditors. Usually, you can file again if you want to.
On the other hand, if you go through the entire bankruptcy process, the court will grant you a
discharge. At the end of the bankruptcy process, your debts that qualify for cancellation are wiped
out—discharged—by the court. If you complete your bankruptcy and are granted a discharge, you
can't file for Chapter 7 bankruptcy again for another six years from the date of your filing.

Bankruptcy
Chapter 8 209

Write in English a summary of the Chapter making use of


the suggested plan that follows.
Дайте определение понятия “банкротство” по англо-американскому праву. В чем разли-
чие между понятиями “банкрот” и “должник” в контексте Закона о банкротствах и Кодекса
о несостоятельности? Кратко охарактеризуйте основные этапы конкурсного производства.
Какие функции выполняет управляющий конкурсной массой? Кто может войти в состав
комитета необеспеченных кредиторов? Назовите и кратко охарактеризуйте известные вам
виды конкурсного производства в рамках Федерального кодекса о несостоятельности.

Bankruptcy
210 Chapter 8

Bankruptcy
9
Chapter 9 211

Civil Procedure

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

Types of Jurisdiction

a. In personam jurisdiction: In personam jurisdiction permits a court to enter a judgment that is


personally binding on the defendant, either ordering her to do or refrain from doing a certain
act (equitable or injunctive relief) or decreeing that the plaintiff may collect a certain amount
of damages from the defendant (legal relief).

b. In rem jurisdiction: In rem jurisdiction permits a court to adjudicate the rights of all claimants
to a specific piece of property, as in a condemnation proceeding. This authority originated
from a state's power to determine controversies regarding real property within its borders:
"The well-being of every community requires that the title to real estate therein shall be se-
cure, and that there be convenient and certain methods of determining any unsettled ques-
tions respecting it."

c. Quasi in rem jurisdiction: Quasi in rem jurisdiction formerly included cases of two types. The
first category included cases involving disputes related to property under the court's control
(such as actions for specific performance of a contract to purchase land). This type of quasi
in rem jurisdiction continues to provide a constitutional basis for exercise of jurisdiction.
The second category of cases involved essentially personal disputes where the court lacked
personal jurisdiction over the defendant, but had jurisdiction over property belonging to the
defendant. That property would be seized by the plaintiff and used to satisfy the claim if the
plaintiff prevailed. The use of this second category of quasi in rem jurisdiction to provide a
basis for exercise of jurisdiction over nonresident defendants has been severely limited.

VENUE
1. Introduction: Venue is a statutory limitation on the geographical location of litigation. It must
be considered in addition to questions of statutory authorization for exercise of jurisdiction
and the constitutionality of that exercise of jurisdiction.

Civil Procedure
212 Chapter 9

a. Federal system: Venue statutes in the federal system limit the federal districts in which
suit may be brought.

b. State courts: Venue statutes in state court systems usually limit the counties in which
suit may be brought.

2. Purpose: Venue limitations are designed to prevent the plaintiff from suing where it would be
burdensome for the defendant to appear and defend.

3. Federal Venue Limitations: Most suits in federal courts are considered transitory actions sub-
ject to the following venue rules; although some cases may be considered local actions sub-
ject to special venue rules. Generally, for most federal question and diversity cases, venue is
proper where all of the defendants reside or where the claim arose. For diversity cases only,
venue is also proper where all of the plaintiffs reside.

a. Defendant's residence: Venue may be brought in the district in which all defendants
reside when federal subject matter jurisdiction is based on diversity of citizenship or
federal question. If defendants reside in different districts of the same state, the action
can be brought in any such district.

b. Plaintiffs' residence: When the federal court's subject matter jurisdiction is based only
on diversity of citizenship, venue is proper in the district where all plaintiffs reside.

FORUM NON CONVENIENS

1. Introduction: Even when jurisdiction and venue are proper, courts may decline to exercise
jurisdiction on the ground that the location the plaintiff selected for the case is grossly in-
convenient. This ancient common law doctrine was endorsed by the Supreme Court as a
matter of federal common law in Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947), and is recog-
nized in almost all state courts.

2. Present Use

a. Federal courts: When the inconvenience problem can be solved by transfer to another
federal district, the court may not dismiss; but if the proper forum is in another coun-
try, the federal court can dismiss.
b. State courts: When the more convenient court is not within the state and transfer is
therefore not possible, forum non conveniens remains an important device.

Civil Procedure
Chapter 9 213

NOTICE

1. Introduction: In addition to personal jurisdiction and venue, one should be alert to problems
of notice. Notice is not a substitute for these other factors, but is essential to a valid judg-
ment.

2. Constitutional Requirements: Due process requires that reasonable efforts to provide notice be
made with regard to persons whose interests are to be determined.

Posted notice: Notice by posting on the defendant's residence may not be sufficient.

Constructive notice: In some instances where a person cannot be located after reasonable
efforts, published or other constructive notice will suffice.

Personal delivery: Personal delivery of the notice (ordinarily the summons and complaint)
is the traditional method of giving notice.

HISTORY OF PLEADING

1. Common Law Pleadings: The original common law courts could grant relief only in accor-
dance with certain recognized forms of action, each representing a particular theory of sub-
stantive law (e.g., trespass, case, trover, assumpsit, etc.) and pleadings had to be drawn in
terms of one of these recognized forms. Thus, the plaintiff was forced to fit the out-of-court
transaction of which he was complaining into the mold of one of the forms. Amendments to
change the form of action were not allowed, so once a plaintiff chose a particular form, he
could recover—if at all—only under the substantive theory of law represented by the form;
i.e., if the plaintiff chose trespass, but the facts established trover, the plaintiff could not re-
cover.

2. Code Pleading: The New York Code of 1848 (known as the Field Code) originated code
pleading. This code, or adaptations thereof, was subsequently adopted in most states, and is
still retained in several today. It incorporates several important departures from common law
pleading rules.

Single form of action: Unlike the rigid common law forms, the fundamental requirement
of code pleading is that the plaintiff's complaint be in the form of a statement of facts
showing a right to a remedy. This has been described as abolishing the forms of action
and providing for one form of action.

Civil Procedure
214 Chapter 9

COMPLAINT

1. In General: In most jurisdictions, a civil action is commenced by the filing of the plaintiff's
complaint. (In New York, the action is commenced by service of process; and the com-
plaint can be filed thereafter.)

2. Form: The essential parts of the complaint are: the caption, jurisdictional allegations, body,
prayer for relief, and subscription.

a. Caption: The complaint must set forth:

(i) The name of the court;


(ii) The number assigned to the action (stamped by the clerk when the action is
filed);
(iii) A designation of the pleading (e.g., "Complaint for Damages"); and
(iv) The names of the parties.

b. Jurisdictional allegations: In federal court, the complaint must contain allegations


showing the ground (or grounds) upon which the subject matter jurisdiction of the fed-
eral court is invoked. Since federal courts are courts of limited jurisdiction, a complaint
that fails to set forth the jurisdictional grounds must be dismissed unless the ground
can be supplied by amendment.

c. Body: The complaint must also contain a statement of the facts upon which recovery is
sought. In code pleading states, this requires a "statement of the (ultimate) facts con-
stituting the cause of action"; while under the Federal Rules there must be a "short and
plain statement of the claim showing that the pleader is entitled to relief"

d. Prayer for relief: A complaint must also contain a prayer for relief, i.e., a statement of
the relief sought.

(1) In default cases: If the defendant defaults by failing to defend, the relief granted
cannot exceed what is prayed for in the complaint or differ from it in kind (e.g.,
an injunction when the prayer was only for damages).

(2) In contested cases: In a contested case, the plaintiff is not limited to the relief
prayed for in the complaint. The court may award any relief to which a party is
entitled under the pleadings and proof—even if different from or greater than that
prayed for in the complaint.

Civil Procedure
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e. Subscription: The complaint must be signed by the attorney (or by the party him-
self, where he is acting as his own counsel).

CHALLENGES TO COMPLAINT

1. In General: Before responding to the factual allegations in the plaintiff's complaint (by ad-
mitting or denying them, or setting forth some defense or offset thereto), a defendant may
challenge the legal sufficiency of the complaint.

2. Common Law: At common law, defects in the pleadings could be raised by a demurrer. There
were two kinds of demurrer:

a. General demurrer: A general demurrer challenged the substantive sufficiency of the cause
or causes in the complaint. It did not specifically state the reason for demurring, but
asked the court to pause (demur) and look at the complaint to see if it stated a valid
case. Otherwise, why prolong the proceeding? This is still the basic idea of a general
demurrer.

b. Special demurrer: This common law demurrer specially stated a matter to be scruti-
nized in the complaint—eg., incapacity of plaintiff, allegations that were too vague,
etc. Hence, the special demurrer challenged matters of form.

3. State Practice: The Field Code, as adopted in states such as California, preserved the demur-
rer. In other states, such as New York, a motion to dismiss or (when the objection is that the
pleading is vague) a motion to make more definite and certain is used instead. However, the
functions of these challenges are similar.

a. Demurrer: A demurrer is a pleading filed by one party for the purpose of challenging the
legal sufficiency of the other party's pleading.

(1) Pleadings subject to demurrer: The most frequent use of the demurrer is to chal-
lenge the plaintiff's complaint. However, the plaintiff may demur to an affirma-
tive defense, counterclaim, or cross-complaint filed by the defendant.

(2) Grounds for demurrer: The grounds for demurrer usually include the follow-
ing:

(a) Lack of jurisdiction over the subject of the action (note that lack of personal
jurisdiction must be challenged by a motion to quash; a demurrer consti-
tutes a "general appearance" and waives the defect);

Civil Procedure
216 Chapter 9

(b) Plaintiff lacks legal capacity to sue;

(c) Another action is pending between the same parties for the same cause;

(d) Defect or misjoinder of parties;

(e) Failure to state facts sufficient to constitute a cause of action— the "general
demurrer";

(f) Complaint is uncertain (ambiguous, unintelligible); and

(g) In an action upon a contract, inability to ascertain whether the contract is


oral or written.

b. Motion to strike: The only other challenge usually permitted against the form or con-
tents of a pleading is a motion to strike, which normally lies to reach defects not sub-
ject to demurrer. Filing a motion to strike extends the time within which to answer the
complaint. This enables the defendant to obtain a court order striking improper alle-
gations from the complaint before being obliged to answer them.

ANSWER

1. In General: The function of the answer is to put at issue the factual allegations in the com-
plaint. The answer accomplishes this by denying the allegations of the claim and/or by set-
ting forth some affirmative defense ("new matter") that avoids the effect of the plaintiff's
allegations.

2. Denials: To put at issue the allegations of the complaint, the defendant's answer must con-
tain effective denials. Allegations not denied are deemed admitted.

Form
(1) General denials: A single "general" denial will controvert all of the allegations in the
complaint (e.g., "D denies each and all of the allegations in P's complaint"). In most
jurisdictions, this is no longer good practice.

(2) Specific denials: Anything less than a general denial can be considered a "specific" or
"qualified" denial.

3. Affirmative Defenses: In addition to or in lieu of a denial, the defendant in her answer must
plead any defenses or objections that constitute "new matter" or an affirmative defense. Such

Civil Procedure
Chapter 9 217

matter is not in issue (and hence may not be introduced in evidence at trial) under a simple
denial.

COUNTERCLAIMS AND CROSS-CLAIMS

Federal Practice

a. Counterclaims: As part of her answer, the defendant may set forth by way of counterclaim any
claims that she has against the plaintiff. Such claims need not be related to the claims set forth
in the complaint.

(1) Subject matter jurisdiction

(a) Compulsory counterclaim: If the counterclaim is compulsory (i.e., based on the


same transaction or occurrence as the plaintiff's claim); it is deemed "ancillary"
to the plaintiff's claim, and no independent jurisdictional grounds are required to
support it.

(b) Permissive counterclaim: However if the counterclaim is merely permissive, it


must be based on some independent ground of federal jurisdiction (e.g., if plain-
tiff's claim is based on a federal question, defendant's counterclaim would have to
be based on some federal question or on diversity).

(2) Venue: Counterclaims have no effect on venue. The venue statutes regulate where
the "action may be brought"; and this refers solely to where the plaintiff files his com-
plaint.

(3) Pleading: The sufficiency of a counterclaim is tested by the same rules of pleading ap-
plicable to a complaint.

b. Cross-claims: In federal court actions, the defendant may set forth in the answer any claims
that she has against a codefendant that relate to the "transaction or occurrence" or to any
property that is the subject of the plaintiff's complaint. Such cross-claims are not compulsory,
however.

Example: P sues D1 and D2, claiming they were jointly negligent in causing his injuries.
Either defendant may cross-claim against the other on any claim arising out of the
same accident.

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218 Chapter 9

AMENDED AND SUPPLEMENTAL PLEADINGS

In General: Since it is the basic function of pleadings to define the issues in controversy (and
thus limit the proof at trial), the rules allowing amendments and supplements to plead-
ings are of vital importance. The problem is the extent to which a party, by amending or
supplementing pleadings, can alter or expand his case from that originally set forth in the
complaint or answer. As will be seen, this depends to a significant degree on the stage of the
proceedings at which an amendment is sought.

JOINDER OF PARTIES

1. In General: Determining which parties are to be joined as plaintiffs or defendants requires a


consideration of the rules of compulsory and permissive joinder. Compulsory joinder rules
cover parties who must be joined ("indispensable parties") and those who should be joined if
possible ("conditionally necessary parties"). The rules of permissive joinder apply to parties
who may be joined ("proper parties").

2. Permissive Joinder: At common law and under the early codes, a plaintiff's joinder options
were limited. Under the Federal Rules and modern codes, however, a plaintiff may join any-
one involved in the transaction that is the subject matter of the suit.

3. Compulsory Joinder: Joinder is required for any person who has a material interest in the case
and whose absence would result in substantial prejudice to the absentee or to other parties
before the court.

4. Impleader: Impleader is a procedure that permits the defendant to bring into the lawsuit a
third person who is or may be liable for all or part of plaintiff's claim against the defendant.

5. Intervention: Intervention is a procedure whereby a nonparty, upon timely application, may


become a party in a lawsuit in order to protect her interests in that action. Whether inter-
vention is allowed depends upon a balancing of two conflicting policies, (i) that the plaintiff
should be allowed to be "master of his action," in the sense of joining such parties with him
or against him as he wishes; and (ii) that other interested parties and the court have an inter-
est in avoiding multiplicity of litigation or inconsistency of result, which may require over-
riding the plaintiff's choice of parties.

Civil Procedure
Chapter 9 219

DISCOVERY

Procedural rules make available several modes of discovery:

(i) Depositions;

(ii) Interrogatories;

(iii) Requests for admissions;

(iv) Requests for production and inspection; and

(v) Physical or mental examination.

History of Discovery

a. Common law: Under common law procedure, the pleadings were to disclose factual conten-
tions and information to the adversary parties. Neither party could compel the other to dis-
close information that might support his case, even such crucial information as the identity
of an eyewitness. A party was not compelled to reveal in advance the evidence he would pres-
ent at trial; nor were third parties required to make disclosures except pursuant to a subpoena
requiring their attendance at trial.

b. Equity: In early equity practice, a bill in equity could be used to compel the adversary to
disclose information; and such bills frequently were accompanied by interrogatories which
the defendant was required to answer under oath. In addition, parties or witnesses could be
required to appear for depositions where interrogation through written questions could be
conducted. Since answers to interrogatories and depositions were a part of the record on
which the decision was made, they were really part of the trial and not merely preparatory
discovery. Live testimony was usually not allowed at the hearing, so cases were decided on the
basis of the material developed through discovery.

c. Code procedure: Nineteenth-century reforms merged the bill of discovery into legal proceed-
ings, but did not significantly enlarge its availability. Thus, heavy reliance on the pleadings
continued.

d. Federal Rules: Ultimately, the Federal Rules made pretrial discovery an integral part of the
process of defining the issues for trial. Similar discovery procedures have now been adopted
in almost every state. However, increasing difficulty with abuse of discovery has led to tight-
ening of discovery rules, as in the 1983 elimination from Rule 26(a) of a provision generally
Civil Procedure
220 Chapter 9

making frequency of use of discovery methods unlimited and the addition to Rule 26(b)(1)
of a grant of authority to the court to limit discovery. At the same time, a new Rule 26(g) cre-
ated obligations and sanctions applicable to discovery filings parallel to those for pleadings
under revised Rule 11.

BASIC DISCOVERY DEVICES

1. Depositions: A deposition is an examination of a witness under oath in the presence of a


court reporter. All parties have a right to be represented by counsel at a deposition; and
counsel may examine and cross-examine the witness. The examination may be held in the
presence of a judge if the witness is recalcitrant.

2. Interrogatories: Interrogatories are written questions from one party to another party re-
quiring written responses.

3. Requests for Admission


Device to eliminate issues: A request for an admission imposes a duty on the party served
to acknowledge the existence of facts that are not in doubt and that should not be nec-
essary to prove at trial.

4. Requests for Inspection of Documents and Other Things

Materials discoverable: A party is entitled to inspect and copy a variety of items in the pos-
session of any other party, including documents, photographs, maps, records (however
kept), and correspondence.
Computerized information: Included among the things that are properly subject to
inspection is information stored on computers.

5. Medical Examinations

a. Court action required: Where the physical or mental condition of a party is in issue,
the court on motion may order that party to submit to examination by experts in the
service of other parties.

b. Condition must be in issue: The condition that is the subject of the examination must
be raised directly by the pleadings or by the factual contentions of the parties through
discovery; and the court-ordered examination must be limited to such conditions.

c. Examining physician: While the court normally will order that an examination be con-
ducted by the physician selected by the examining party, it may decide that the exami-

Civil Procedure
Chapter 9 221

nation should be conducted by a physician of its own choosing where reasonable objec-
tion is made to the choice of the examining party. The court has the power to appoint
an "impartial examiner." Such appointments are not uncommon.

d. Place of examination: The examination ordinarily will be ordered at the place selected
by the examining party; but the court can have the examination conducted elsewhere
to diminish the burden on the examinee.

e. Examination procedures: If the information sought to be obtained is important, the


court may permit an examination procedure that is novel or even painful, as long as it
is reasonably safe. The examinee has been held entided to the presence of counsel at a
physical examination, but not at a psychiatric examination.

TRIAL
A. RIGHT TO TRIAL BY JURY

1. Source of Right

a. Federal courts

(1) Federal Constitution: The seventh amendment of the United States Constitu-
tion provides: "In suits at common law, where the value in controversy shall ex-
ceed twenty dollars, the right of trial by the jury shall be preserved."

(2) Legislation: In matters not covered by this constitutional provision, there may
also be a statutory right to trial by jury where Congress has so provided.

b. State courts

(1) No federal constitutional right: The right to trial by jury in civil cases is not a basic
right of due process protected by the fourteenth amendment. Hence, the Federal
Constitution does not assure such a right in state court proceedings.

(2) Federal legislation: However, there may be a right to a jury trial in state court ac-
tions involving matters governed by federal law, where Congress has so provided.
Example: State court civil action based on claim under Federal Employers Li-
ability Act.

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222 Chapter 9

(3) State constitutions: Also, most state constitutions have provisions similar to the
seventh amendment that apply to civil actions in state courts.

2. Cases Where Right Exists

a. Basic historical test: The constitutional provisions guaranteeing a right to jury trial
preserve this right only as it existed when the provision was adopted. For reasons of
cost, and because of disputes as to the desirability of a jury trial, there has been no
consensus on extending the right to all civil matters. Accordingly, the historical test for
the right to jury trial is whether the claim involved is "legal" or equitable" as such terms
were understood in 1791 (the year in which the seventh amendment became effec-
tive). The right to jury trial was observed in the English law courts but not in Chancery,
where the system of equity was administered.

b. Present standards for right to jury trial

(1) Counterparts to actions at law—right to jury: Modern actions that are counter-
parts to actions at law, such as personal injury claims or claims to recover dam-
ages for breach of contract, are triable to a jury.

(2) Counterparts to suits in equity—no right: However, there is no right to a jury in


actions that are counterparts to suits in equity—e.g., actions to foreclose mort-
gages or to enjoin misconduct.

B. SELECTION OF THE JURY

1. Summons of the Venire: Trial juries are selected from a larger panel of citizens, commonly
known as the venire. Prospective jurors ("veniremen") are summoned by the court.

Historical method of selection: In earlier times, the clerk or jury commissioner selected
veniremen by personal contact; the officer of the court was charged with identifying
citizens of good repute to serve as jurors.

(1) The "key man": Members of the clergy and other professional people known
favorably to the clerk or commissioner would frequently be asked to serve as "key
men" to identify appropriate prospective jurors.

(2) Talesmen: If the court were short of veniremen, the clerk or commissioner might
go into the corridors of the courthouse for willing volunteers, known as "tales-
men."

Civil Procedure
Chapter 9 223

2. Qualifications of Prospective Jurors

a. Exclusions: Statutes generally provide that certain classes of citizens shall be excluded
from juries. Categories typically excluded include minors, felons, aliens, and illiter-
ates.

b. Exemptions: Other classes of persons may be exempt from service if they so request—
e.g., members of the armed forces, peace officers, judges.

c. Excuses: A prospective juror may be excused for good cause, such as extraordinary fi-
nancial loss from service.

3. Number of Jurors Required

a. Typical size of venire: The venire usually consists of two or three times the number of
persons who will be selected to serve as jurors.

b. Traditional jury of twelve: Common law juries were composed of twelve members, and
for some time it was assumed that this number was required in federal courts by the
seventh amendment.

c. Twelve not required by due process: The common law requirement of twelve jurors has
now been held not to be required by the Due Process Clause. However, due process
requires at least six jurors in a criminal case.

(1) Civil cases: The minimum number of jurors required in federal civil cases has
not been finally resolved. Local district rules providing for six-member juries in
civil cases have been upheld—on the rationale that the outcome of the verdict is
not likely to be affected substantially by the number of jurors (at least as between
twelve and six).

(2) State practice: Since the U.S. Constitution does not require states to provide
jury trials at all, the number of jurors in state civil trials depends entirely on state
law. Many states have long used juries with fewer than twelve members in civil
cases, particularly where the amount in controversy is small.

4. Voir Dire Examination of Jurors: After the venire has been screened by the court for per-
sons who should be excluded, exempt, or excused, the prospective jurors are generally
subject to further interrogation about their possible biases. This examination is known
as voir dire.

Civil Procedure
224 Chapter 9

a. Challenge for cause: A party may challenge a prospective juror if it appears that the
juror has a financial stake in the case or in similar litigation, if members of the juror's
immediate family have such an interest, or if there is other sufficient reason to believe
that the juror may be unable to render impartial service. There is no limit to the number
of challenges for cause.

b. Peremptory challenge: Each "side" is also entitled to a limited number of challenges


without a showing of cause—i.e., a peremptory challenge.

C. DISQUALIFICATION OF JUDGE

Grounds for Disqualification: The judge assigned to a trial proceeding may be disqualified if
her impartiality might reasonably be questioned. Bases for disqualification would therefore
include the following.

a. Personal bias: Where the judge has a personal bias or personal prejudice concerning a
party, she may be disqualified.
b. Personal knowledge of the facts: Where the judge has personal knowledge of disputed
evidentiary facts, she may be disqualified.
c. Previous involvement as lawyer: Where the judge served as counsel in connection with
the controversy, or a lawyer with whom she practiced so served during the period of
their association, she may be disqualified.
d. Financial interest: A judge may be disqualified where she knows that she, her spouse,
or her minor child has a financial stake in the controversy or an interest that could be
substantially affected by the outcome.
e. Family relationship: If the judge's spouse (or a relative of the judge or the judge's spouse)
is a party, an officer of a party, or a lawyer for a party or is known to have a financial
interest, or is likely to be a material witness, she may be disqualified.
f. Disqualification must be based on matters outside courtroom: The judge's adverse reac-
tion or hostility to the parties or the evidence generally is not a basis for disqualifica-
tion.

D. ORDER OF TRIAL

1. Right to Speak First and Last

a. General rule: Ordinarily, the party opening and closing each phase of a trial is the party
who has the burden of proof with respect to the principal issues. This usually will be
the plaintiff—but it may be the defendant if the plaintiff`s prima facie case has been
established by the pleadings and pretrial order.

Civil Procedure
Chapter 9 225

b. Discretion of court: The decision to accord the right to speak first and last is ultimately
one for the discretion of the trial judge.

2. Stages of Jury Trial: The normal sequence of a civil jury trial is as follows:

(i) Opening statement of plaintiff;


(ii) Opening statement of defendant;
(iii) Presentation of direct evidence by plaintiff, with cross-examination of each witness by
defendant followed by re-direct and re-cross-examination (plaintiff rests);
(iv) Presentation of direct evidence by the defendant, with cross-examination, re-direct
and re-cross-examination (defendant rests);
(v) Presentation of rebuttal evidence by plaintiff;
(vi) Presentation of rebuttal evidence by defendant;
(vii) Argument of plaintiff to jury;
(viii) Argument of defendant to jury;
(ix) Final closing argument of plaintiff to jury;
(x) Instructions to jury by judge;
(xi) Verdict of jury.

3. Nonjury Trial: The order of a nonjury trial is essentially the same up to the point at which all
evidence has been presented. Prior to the presentation of argument, or in the course of argu-
ment, the parties may propose specific findings of fact and conclusions of law to the court. At
the close of arguments, the judge will render his decision, which will take the form of specific
findings of fact and conclusions of law.

E. PRESENTATION OF EVIDENCE

1. Control Over Presentation: Ordinarily, presentation of the evidence at trial is the responsi-
bility of the parties and their counsel, subject to control by the court. Even so, most juris-
dictions acknowledge the discretionary power of the trial judge to call witnesses on his own
motion.

2. Rules of Evidence: Proceedings in federal court are governed by the Federal Rules of Evi-
dence. In some respects, these rules incorporate provisions of state law (e.g., what privileges
are recognized). Some states, like California, have evidence codes, while others rely in vary-
ing degrees on common law rules.

3. Burden of Producing Evidence: The plaintiff must produce some evidence tending to prove
each element of the prima facie case. If the plaintiff fails to do so, the defendant is entitled to
a dismissal or a directed verdict at the close of the plaintiffs evidence. Similarly, if a defense

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226 Chapter 9

is to be considered by the trier of fact, the defendant must produce some evidence tending
to prove each element of his defense. Note: A party may be relieved of this burden by the
adversary's admissions in pleadings, discovery proceedings, or at pretrial.

F. ARGUMENT TO JURY

1. Time for Argument: In federal and most state courts, counsel's argument to the jury takes
place at the close of the evidence and before the jury is instructed by the judge (so that the
last words the jurors hear are those of the judge, rather than the impassioned pleas of coun-
sel).

2. Right to Argue: Counsel have an absolute right to argument in a jury trial.

3. Control of Argument by Court: However, the trial judge in his discretion may control the
duration and manner of argument.

4. Limitations on Argument: In arguing to the jury, counsel is subject to the following con-
straints:

a. Comment must be based on the evidence, and counsel may not distort the facts or as-
sume facts not in evidence.

b. Argument must be within the limits of the substantive law governing the action. Thus,
for example, counsel may not argue for the use of an improper method of calculating
damages (e.g., to "punish" a defendant in an ordinary negligence case).

c. Counsel may not appeal to the passions or prejudices of the jurors. However, less restraint
is imposed on counsel where the dispute is one fraught with emotion (such as a defa-
mation trial).

G. INSTRUCTIONS TO JURY

1. In General: Before a case is submitted to the jury for a verdict, the trial judge instructs the
jury on certain relevant matters.

2. Issues of Fact: The jury's role is to decide issues of fact identified by the judge in the instruc-
tions, whereas the judge must decide questions of law (such as the meaning of statutes and
documents).

Civil Procedure
Chapter 9 227

a. "Law" vs. "fact": Issues of law can be said to be general and to pertain to interpretation
of the controlling law, while issues of fact are specific and pertain to past events. How-
ever, the boundary between the two may be unclear at times— in which case the matter
must be resolved by reference to historic policy regarding the role of the jury.

b. Jury decides disputed facts only: There is an issue of fact for the jury only where there is
a genuine dispute about past events or the interpretation of those events.

3. Burden of Persuasion

a. Assigning the burden: The judge must explain to the jury which party has the burden
of persuasion in regard to each issue of fact that the jury must decide. The burden of
persuasion will generally be assigned to the party having the burden of producing the
evidence in regard to that issue; but this may not be the case if there is an applicable
legal presumption.

b. Degree of persuasion

(1) Preponderance of the evidence: In a civil case, the trier of fact usually must be
persuaded that a fact is more probable than not in order to resolve an issue in
favor of the party bearing the burden of persuasion.

(2) Clear and convincing proof: In regard to issues of fraud, duress, or undue influ-
ence, however, the trier of fact generally is instructed to find for the party having
the burden of persuasion only if the evidence is "clear and convincing."

4. Comment on the Evidence

a. Majority rule: In most courts, the judge is allowed to comment on the quality of proof
which bears on issues that the jury must decide, provided she informs the jury that it is
the final decision maker.

b. Minority rule: Some states do not permit any comment on the evidence, on the ground
that a judge's comments are too likely to prejudice the jury.

H. JURY DELIBERATION AND VERDICT

Types of Verdicts: Verdicts may take several forms, depending upon the form of jury instruc-
tions.
a. General verdict: The most common and traditional form of verdict is the general verdict, in
which the jury simply makes a decision in favor of one party or the other. Such a verdict im-

Civil Procedure
228 Chapter 9

plies a finding in favor of the prevailing party on every material issue of fact submitted to the
jury.

b. Special verdict: A special verdict consists of the jury's answers to specific factual ques-
tions that it is instructed to decide. In this situation, the jury does not decide directly
which party should prevail on the law. Instead, the special verdicts should resolve all
the material issues so the court can enter judgment thereon.

c. General verdict with special interrogatories: The trial judge may combine the two fore-
going forms of verdict by instructing the jury to return a general decision as to which
party should prevail on the law, while simultaneously answering specific questions of
fact posed by the evidence.

APPELLATE PROCEDURE

Filing of Appeal: An appeal is commenced by filing a notice of appeal. The notice is filed in the
appellate court or trial court, depending on the specific court rules. The notice of appeal is a
written statement that the appellant invokes the jurisdiction of the appellate court to review
a specified judgment from the court below. Formality in the notice is not essential; and the
instrument will be liberally construed to prevent waiver.

Time Limits
a. Federal courts: In federal court, a notice of appeal in a civil case must be filed within
thirty days after entry of judgment (or within sixty days, if the United States is a party).
The trial judge may extend this period for not more than thirty days, upon a showing
of excusable neglect.

b. State practice: State time limits for noticing an appeal vary. In California, the notice
must be filed within sixty days after notice of entry of judgment or 180 days after actual
entry, whichever is later. The court has no power to extend the time.

c. Limits affect jurisdiction: The time limits for an appeal are jurisdictional and ordinarily
cannot be waived.

Appeal Bonds
a. Costs: To perfect an appeal, the appellant generally must file a bond to secure the pay-
ment of his adversary's costs on appeal in the event the judgment is affirmed.
b. Supersedeas: If the appellant wishes to stay execution of the judgment pending appeal, he must
normally assure that the judgment will be satisfied if it is ultimately affirmed. This assurance is
given in the form of a supersedeas bond, which is generally executed by a surety company.

Civil Procedure
Chapter 9 229

SCOPE OF APPELLATE REVIEW

1. In General: Appellate review must be sufficiently broad to assure that the trial court properly
applied the controlling substantive law and that the procedure conformed to the applicable
standards. However, appellate review does not extend to retrying the facts or supplanting the
trial judge's decision in matters committed to her discretion.

2. Findings of Fact Subject to Limited Review: It is not the function of an appellate court to
make factual determinations; yet, the appellate court must examine factual determinations
to assure that the trial court has not rested its decision on insupportable factual assump-
tions.

Civil Procedure
230 Chapter 9

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

1. ........................................................
subject matter jurisdiction
personal (in personam) ........................................................
in rem ........................................................
quasi in rem
........................................................
territorial
ancillary ........................................................
appellate ........................................................
concurrent
diversity ........................................................
federal question ........................................................
limited / special ........................................................
original
pendent ........................................................
summary ........................................................
........................................................
immunity from jurisdiction
........................................................
to exercise jurisdiction ........................................................
to fall within
........................................................
to expand
to consent to ........................................................
to object to ........................................................

2. ........................................................
venue ........................................................
........................................................
3.
plaintiff defendant ........................................................
petitioner ........................................................
complainant ........................................................
claimant
........................................................
4. ........................................................
to go to court
........................................................
to appear in
to attend ........................................................
to bring a case before ........................................................
to refer to
to file an action with ........................................................
to appeal to ........................................................
........................................................
court of (in) the first instance
of the last resort ........................................................
of review ........................................................
of claims ........................................................
5. ........................................................
process ........................................................
........................................................
........................................................

Civil Procedure
Chapter 9 231

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

personal service of process ........................................................


substituted
constructive ........................................................
........................................................
to serve process on/upon smb
........................................................
6. ........................................................
to lodge a complaint against smb ........................................................
to file
to bring ........................................................
........................................................
parts of the complaint caption ........................................................
jurisdictional allegations
body ........................................................
prayer for relief ........................................................
subscription ........................................................
7. ........................................................
cause of action lies ........................................................
accrues
........................................................
exists
arises ........................................................
........................................................
to state a cause of action
........................................................
8. ........................................................
to plead ........................................................
pleading rules
........................................................
affirmative pleadings ........................................................
amended ........................................................
code
defective ........................................................
responsive ........................................................
supplemental
........................................................
original
........................................................
pleadings in the alternative ........................................................

basic pleadings complaint (by plaintiff) ........................................................


answer/counterclaim (by defendant) ........................................................
reply (by plaintiff) ........................................................
9. ........................................................
amount in controversy/in dispute ........................................................
due
........................................................
jurisdictional amount ........................................................
........................................................
........................................................
........................................................

Civil Procedure
232 Chapter 9

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

10. ........................................................
voluntary apperance
compulsory ........................................................
limited / special ........................................................
general
........................................................
11. ........................................................
affidavit deposition ........................................................
affiant deponent
........................................................
12. ........................................................
forum state ........................................................
shopping
non conveniens ........................................................
........................................................
lex fori ........................................................
13. ........................................................
to admit allegations ........................................................
to deny
........................................................
14. ........................................................
general demurrer ........................................................
special
........................................................
to file a demurrer ........................................................
to sustain / grant ........................................................
to overrule / deny
........................................................
15. ........................................................
motion to strike ........................................................
for a more definite statement
for a judgment on the pleadings ........................................................
for a summary judgment ........................................................
for a directed verdict
........................................................
for a non-suit
for a judgment n.o.v. (non obstante veredicto) ........................................................
for a new suit ........................................................
........................................................
to file a motion ........................................................
to move ........................................................
moving party
........................................................
16. ........................................................
to initiate a case ........................................................
to transfer
to remove ........................................................
to remand ........................................................
to present
........................................................
to reopen
........................................................

Civil Procedure
Chapter 9 233

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

to conduct ........................................................
to decide
to dismiss ........................................................
(with prejudice / without prejudice)
........................................................
........................................................
diversity case
........................................................
17. ........................................................
counter claim ........................................................
cross
........................................................
frivolous
grounded ........................................................
unfounded ........................................................

to have a claim against smb ........................................................


........................................................
18. ........................................................
affirmative defense
dilatory ........................................................
good ........................................................
good faith
........................................................
meritorious
valid ........................................................
........................................................
to raise a defense
........................................................
to set up
to assert ........................................................
........................................................
defense of insanity
of laches ........................................................
of necessity ........................................................
of duress ........................................................
of minority
of privilege ........................................................
........................................................
19.
........................................................
impleader
interpleader ........................................................
intervention ........................................................
........................................................
20.
continuance ........................................................
to grant continuance ........................................................

21. ........................................................
accommodation party ........................................................
adverse ........................................................
aggrieved / injured
innocent ........................................................
defaulting ........................................................
proper
........................................................

Civil Procedure
234 Chapter 9

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

necessary ........................................................
indispensable
moving ........................................................
third ........................................................
........................................................
party to a lawsuit
to a litigation ........................................................
to a trial ........................................................
in interest
at fault ........................................................
to be charged ........................................................
........................................................
joinder of parties
........................................................
22. ........................................................
discovery = disclosure (Gr. Br.) ........................................................
basic discovery devices deposition ........................................................
interrogatories ........................................................
requests for admission
........................................................
requests for inspection
medical examination ........................................................
........................................................
23.
summons subpoena ........................................................
to be summoned subpoena duces tecum ........................................................
to be subpoenaed ........................................................

24. ........................................................
direct evidence ........................................................
circumstantial ........................................................
conclusive
clear and convincing ........................................................
documentary ........................................................
hearsay
........................................................
irrelevant
sworn ........................................................
newly discovered ........................................................
prima facie
rebutting ........................................................
........................................................
rules of evidence ........................................................
relevance of
admissibilty of ........................................................
preponderance of ........................................................
........................................................
evidence beyond a reasonable doubt
........................................................
25. ........................................................
adversary trial
........................................................
bench
jury ........................................................

Civil Procedure
Chapter 9 235

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

due process ........................................................


fair and impartial
speedy ........................................................
........................................................
trial de novo
........................................................
on the merits
by jury ........................................................
........................................................
trial docket / list
........................................................
to go to trial ........................................................
to set a case for ........................................................
to hold
to stand ........................................................
........................................................
26. ........................................................
jury panel
charge ........................................................
deliberation ........................................................
........................................................
instructions to the jury
........................................................
27. prospective juror ........................................................

to challenge a juror ........................................................


........................................................
28. ........................................................
general verdict
special ........................................................
directed ........................................................
final ........................................................
unanimous
........................................................
to reach a verdict ........................................................
to return
........................................................
to render
to impeach ........................................................
........................................................
29.
declaratory judgment ........................................................
default ........................................................
deficiency ........................................................
final
interlocutory ........................................................
summary ........................................................
........................................................
to render a judgment
to deliver ........................................................
to enter ........................................................
to give
........................................................
to reverse
to set aside ........................................................

Civil Procedure
236 Chapter 9

Glossary of Terms
Give Russian equivalents.
Make use of "Юридические понятия и
категории в английском языке.
Толковый словарь".

to overturn ........................................................
to affirm
to reinstate ........................................................
to uphold ........................................................
to modify
........................................................
to vacate
........................................................
30. ........................................................
appeal
appeal bond ........................................................
appeals court ........................................................
appellant ........................................................
appellee
........................................................
31. ........................................................
review by appeal ........................................................
by certification
by certiorari ........................................................
........................................................
32.
........................................................
writ of additur
of attachment ........................................................
of certiorari ........................................................
of error coram nobis
of execution ........................................................
of mandamus ........................................................
of prohibition ........................................................
of habeas corpus
of quo warranto ........................................................
of remittitur ........................................................
of restitution ........................................................
33. ........................................................
conditional sentence ........................................................
death
........................................................
life
suspended ........................................................
........................................................
concurrent sentences
consecutive ........................................................
cumulative ........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................

Civil Procedure
Chapter 9 237

Exercise 1
From the list of legal terms that follows, select the one that matches each definition.
_____1. A formal document containing a short and plain statement of the claim indicating that the plaintiff is
entitled to relief and containing a demand for the relief sought (select two answers).
_____2. The written statements of claims and defenses used by the parties in the lawsuit.
_____3. A formal notice to the defendant that a lawsuit has begun and that the defendant must file an answer
within the number of days set by state law or lose the case by default.
_____4. The act of taking a person's property and bringing it into the custody of the law so that it may be applied
toward the defendant's debt if the plaintiff wins the case.
_____5. A person who signs an affidavit (select two answers).
_____6. A claim that one has against the property of another (select two answers).
_____7. The ground on which the suit is maintained.
_____8. A number assigned to each case by the clerk of court.
_____9. A written statement sworn under oath before a notary public as being true to the affiant's knowledge,
information, and belief.
_____10. The means of compelling the defendant in an action to appear in court.
_____11. The delivering of summons or other legal documents to the people who are required to receive them.
_____12. References to defendants whose names are unknown.
_____13. A written order of court, returnable to the same, commanding the performance or nonperformance of
an act.
_____14. The clause in the complaint stating the damages claimed by the plaintiff.
_____15. A dismissal in which the plaintiff is allowed to correct the error and bring another action on the same
claim.
_____16. A claim that the defendant has against the plaintiff.
_____17. A defense that admits the plaintiff's allegations but introduces another factor that avoids liability (select
two answers).
_____18. The main pleading filed by the defendant in a lawsuit in response to the plaintiff`s complaint.
_____19. The plaintiff`s answer to the defendant's counterclaim.
_____20. Methods that allow each party to obtain information from the other party and from witnesses about a
case before going to court.
_____21. A form of discovery in a civil action in which parties are given a series of written questions to be an-
swered under oath.
_____22. The testimony of a witness, given under oath but not in open court, and later reduced to writing.
_____23. An order commanding a person to appear and testify in a legal action (select two answers).
_____24. A person authorized to administer oaths, attest and certify documents, take acknowledgements, and
perform other official acts.
_____25. The giving of false testimony under oath.
_____26. Word for word.

a. ad damnum n. answer aa. interrogatories


b. affiant o. verbatim bb. subpoena ad testificandum
c. affidavit p. lien cc. writ
d. attachment q.subpoena dd. perjury
e. cause of action r. pleadings ee. reply
f. complaint s. process
g. discovery t. dismissal without prejudice
h. declaration u. service of process
i. deponent v. deposition
j. counterclaim w. summons
k. docket number x. affirmative defense
l. Doe defendants y. confession and avoidance
m. encumbrance z. notary public

Civil Procedure
238 Chapter 9

Exercise 2
From the list of legal terms that follows, select the one that matches each definition.
_____ 1. Members of a jury.
_____ 2. A challenge of a juror for which no reason need be given.
_____ 3. The large group of people from which a jury is selected for a trial (select four answers).
_____ 4. Impartial, unbiased, and disinterested.
_____ 5. The ordinary jury of six or twelve people used for a trial of a civil or criminal action.
_____ 6. Additional jurors impaneled in case of sickness or removal of any of the regular jurors.
_____ 7. To speak the truth. The examination of jurors by the court to see that they stand indifferent.
_____ 8. A trial without a jury (select two answers).
_____ 9. A group of people selected according to law and sworn to determine the facts in a case.
_____ 10. To call or to put in question.
_____ 11. A hearing before the judge prior to a trial, attended by the attorneys, for the purpose of speeding up
the trial.
_____ 12. Abbreviation meaning "certiorari denied".
_____ 13. A bond often required as security to guarantee the cost of an appeal, especially in civil cases.
_____ 14. A deadlocked jury; one that cannot agree.
_____ 15. Tangible items that are introduced in evidence.
_____ 16. Two or more sentences imposed on a defendant to be served one after another (select two answers).
_____ 17. Determining finally by a court.
_____ 18. Two or more sentences imposed on a defendant to be served at the same time.
_____ 19. A court decision based on the evidence and facts introduced.
_____ 20. The changing of a sentence to one that is less severe.
_____ 21. An order of a court of equity to do or refrain from doing a particular act.
_____ 22. A sentence that is given formally, but is not actually served.
_____ 23. The decision of a jury.
_____ 24. Actual objects that have a bearing on the case, such as an item of clothing, a weapon found at the scene
of a crime, a photograph, chart, or model.
_____ 25. The judgment of the court imposing punishment when the defendant is found guilty in a criminal case.
_____ 26. A conditional release from prison allowing the person to serve the remainder of a sentence outside of
prison under specific terms.
_____ 27. Instructions to a jury on matters of law.
_____ 28. A written order to the sheriff to enforce a judgment of the court.

a. jury charge n. jury panel aa. judgment on the merits


b. alternate jurors o. jury pool bb. commutation of sentence
c. array p. appeal bond cc. hung jury
d. bench trial q. adjudicating dd. injunction
e. cert. den. r. sentence ee. cumulative sentences
f. challenge s. parole ff. verdict
g. jury waived trial t. peremptory challenge gg. writ of execution
h. consecutive sentences u. petit jury
i. suspended sentence v. pretrial hearing
j. real evidence w. exhibits
k. indifferent x. concurrent sentences
l. jurors y. venire
m.jury z. voir dire

Civil Procedure
Chapter 9 239

Exercise 3
Complete the text by using the words in the box below.

claim conclusions burden of proof remand affirms


factual disputes preponderance of the evidence appellate court
issue a new judgment well founded in law interprets the law
beyond a reasonable doubt reverse jury verdict trial judge

In a jury trial, the jury decides(l)_______________, while the judge (2)_______________and in-
structs the jury on the law.

The plaintiff generally has the (3)_______________(persuasion). In civil cases he/she need only
have a (4)_______________in his/her favor; criminal cases require that the prosecution produce
proof of guilt (5)_______________.

A trial judge can overturn a (6)_______________, but to do so requires much more than simply a
belief that the jury drew wrong factual (7)_______________.

An appeal does not entail a new trial. The (8)_______________must consider the law as a whole;
its function is to furnish future guidance, not simply resolve an individual dispute.

An appellate court usually (9)_______________the lower court's judgment. However, if the appeal
is (10)_______________, not merely a (11)_______________that the facts are different from what
was decided by the jury or (12)_______________, an appeals court may (13)_______________,
instruct the lower court to (14)_______________, or (15)_______________for further proceed-
ings.

Civil Procedure
240 Chapter 9

Exercise 4
Complete the text by using the words in the box below.

sanctions summary judgment witnesses testimony fines pretrial settlement


obtain information narrow the issues discovery access to evidence withholding
default judgment noncompliance surprise order

Before there is a trial, each party is entitled to (1)_______________from other parties and from oth-
er potential (2)_______________. These pretrial procedures are known as (3)_______________.

Ordinarily, the discovery process requires little, if any, direct judicial involvement. However, courts can
(4)_______________parties to comply with discovery requirements. If (5)_______________con-
tinues, courts can issue an array of (6)_______________, including not just (7)_______________
but - in extreme cases - (e.g., a corporate defendant's deliberate policy of (8)_______________
important evidence) - a (9)_______________for the other party.

Discovery may serve several purposes:

A. By providing parties with (10)_______________that might otherwise be hidden, it pre-


vents (11) _______________at the trial.

B. It may (12) _______________at trial (i.e., some questions may be resolved).

C. It preserves witnesses' (13)_______________prior to trial (important when witnesses may


be unavailable at trial, their memories may fade, or their testimony may change).

D. It may place the case in a posture suitable for (14)_______________.

E. It may lead to a (15)_______________ , as opposing parties come to see their strengths and
weaknesses.

Civil Procedure
Chapter 9 241

Exercise 5
Translate into Russian the following Latin and French terms in law.

1. ab initio (Lat.)
from the beginning (Eng.)

2. additur (Lat.)
it is increased (Eng.)

3. alter ego (Lat.)


the other self (Eng).

4. bona fide (Lat.)


in good faith (Eng.)

5. caveat emptor (Lat.)


let the buyer beware (Eng.)

6. certiorari (Lat.)
to be informed of; to be made certain in regard to (Eng.)

7. coram nobis (Lat.)


before us; in our presence (Eng.)

8. cy pres (Fr.)
as near; so near (Eng.)

9. de facto (Lat.)
existing in fact (Eng.)

10. de jure (Lat.)


as a matter of law (Eng.)

11. de novo (Lat.)


anew, as if the first had never taken place (Eng.)

12. del credere (Lat.)


of belief or trust (Eng.)

Civil Procedure
242 Chapter 9

13. e.g. = exempli gratia (Lat.)


for example (Eng.)

14. ex parte (Lat.)


by or for one party (Eng.)

15. ex post facto (Lat.)


after the event (Eng.)

16. forum non conveniens (Lat.)


an inconvenient court (Eng.)

17. i.e. = id est (Lat.)


that is (Eng.)

18. in personam (Lat.)


against the person (Eng.)

19. in re (Lat.)
in the matter of (Eng.)

20. in rem (Lat.)


against the thing (Eng.)

21. inter alia (Lat.)


among other things (Eng.)

22. inter vivos (Lat.)


between the living (Eng.)

23. ipso facto (Lat.)


by the fact itself (Eng.)

24. locus sigilli (Lat.)


place of the seal (Eng.)

25. mandamus (Lat.)


we command (Eng.)

26. nudum pactum (Lat.)


a promise without consideration (Eng.)

Civil Procedure
Chapter 9 243

27. obiter dicta (Lat.)


statements made in passing (Eng.)

28. per capita (Lat.)


by the heads or polls; according to the number of indi-
viduals (Eng.)

29. per se (Lat.)


through itself ; by means of itself (Eng.)

30. prima facie (Lat.)


at first sight (Eng.)

31. quantum meruit (Lat.)


as much as one deserves (Eng.)

32. quasi-in-rem (Lat.)


as if against the thing (Eng.)

33. quid pro quo (Lat.)


something for something (Eng.)

34. ratio decidendi (Lat.)


the reason for decision (Eng.)

35. remittitur (Lat.)


reduction (Eng.)

36. res (Lat.)


thing (Eng.)

37. res judicata (Lat.)


a matter adjudged (Eng.)

38. Respondeat Superior (Lat.)


let the superior answer (Eng.)

39. subpoena (Lat.)


under penalty (Eng.)

Civil Procedure
244 Chapter 9

40. subpoena duces tecum (Lat.)


under penalty you shall bring it with you (Eng.)

41. ultra vires (Lat.)


in excess of powers (Eng.)

42. viz. = videlicet (Lat.)


namely (Eng.)

43. voir dire (Fr.)


to tell the truth (Eng.)

Civil Procedure
Chapter 9 245

Translate the following into Russian.

FEDERAL RULES OF CIVIL PROCEDURE

I. SCOPE OF RULES — plaint. The court may allow a summons to


ONE FORM OF ACTION be amended.

Rule 1. Scope and Purpose of Rules (b) Issuance. Upon or after filing the com-
These rules govern the procedure in the United plaint, the plaintiff may present a sum-
States district courts in all suits of a civil nature mons to the clerk for signature and seal. If
whether cognizable as cases at law or in equity or the summons is in proper form, the clerk
in admiralty, with the exceptions stated in Rule shall sign, seal, and issue it to the plaintiff
81. They shall be construed and administered to for service on the defendant. A summons,
secure the just, speedy, and inexpensive deter- or a copy of the summons if addressed to
mination of every action. multiple defendants, shall be issued for
each defendant to be served.
Rule 2. One Form of Action
There shall be one form of action to be known (c) Service with Complaint; by Whom
as "civil action." Made.
(1) A summons shall be served together
II. COMMENCEMENT OF ACTION; with a copy of the complaint. The
SERVICE OF PROCESS, PLEAD- plaintiff is responsible for service of a
INGS, MOTIONS, AND ORDERS summons and complaint within the
time allowed under subdivision (m)
Rule 3. Commencement of Action and shall furnish the person effecting
A civil action is commenced by filing a com- service with the necessary copies of
plaint with the court. the summons and complaint.

Rule 4. Summons III. PLEADINGS AND MOTIONS


(a) Form. The summons shall be signed by
the clerk, bear the seal of the court, iden- Rule 7. Pleadings Allowed; Form of Motions
tify the court and the parties, be directed (a) Pleadings. There shall be a complaint and
to the defendant, and state the name and an answer; a reply to a counterclaim de-
address of the plaintiff's attorney or, if un- nominated as such; an answer to a cross-
represented, of the plaintiff. It shall also claim, if the answer contains a cross-claim;
state the time within which the defendant a third-party complaint, if a person who
must appear and defend, and notify the was not an original party is summoned un-
defendant that failure to do so will result der the provisions of Rule 14; and a third-
in a judgment by default against the defen- party answer, if a third-party complaint is
dant for the relief demanded in the com- served. No other pleading shall be allowed,
Civil Procedure
246 Chapter 9

except that the court may order a reply to far as practicable to a statement of a sin-
an answer or a third-party answer. gle set of circumstances; and a paragraph
may be referred to by number in all suc-
(b) Motions and Other Papers ceeding pleadings. Each claim founded
(1) An application to the court for an upon a separate transaction or occurrence
order shall be by motion which, un- and each defense other than denials shall
less made during a hearing or trial, be stated in a separate count or defense
shall be made in writing, shall state whenever a separation facilitates the clear
with particularity the grounds there- presentation of the matters set forth.
for, and shall set forth the relief or or-
der sought. The requirement of writ- Rule 13. Counterclaim and Cross-Claim
ing is fulfilled if the motion is stated (a) Compulsory Counterclaims. A plead-
in a written notice of the hearing of ing shall state as a counterclaim any claim
the motion. which at the time of serving the pleading
(2) The rules applicable to captions and the pleader has against any opposing party,
other matters of form of pleadings if it arises out of the transaction or occur-
apply to all motions and other pa- rence that is the subject matter of the op-
pers provided for by these rules. posing party's claim and does not require
(3) All motions shall be signed in accor- for its adjudication the presence of third
dance with Rule 11. parties of whom the court cannot acquire
jurisdiction. But the pleader need not state
(c) Demurrers, Pleas, etc., Abolished. De- the claim if (1) at the time the action was
murrers, pleas, and exceptions for insuf- commenced the claim was the subject of
ficiency of a pleading shall not be used. another pending action, or (2) the oppos-
ing party brought suit upon the claim by
Rule 10. Form of Pleadings attachment or other process by which the
(a) Caption; Names of Parties. Every plead- court did not acquire jurisdiction to render
ing shall contain a caption setting forth a personal judgment on that claim, and
the name of the court, the title of the ac- the pleader is not stating any counterclaim
tion, the file number, and a designation as under this Rule 13.
in Rule 7(a). In the complaint the title of
the action shall include the names of all (b) Permissive Counterclaims. A pleading
the parties, but in other pleadings it is suf- may state as a counterclaim any claim
ficient to state the name of the first party against an opposing party not arising out
on each side with an appropriate indica- of the transaction or occurrence that is
tion of other parties. the subject matter of the opposing party's
claim.
(b) Paragraphs; Separate Statements. All
averments of claim or defense shall be (c) Counterclaim Exceeding Opposing
made in numbered paragraphs, the con- Claim. A counterclaim may or may not di-
tents of each of which shall be limited as minish or defeat the recovery sought by the

Civil Procedure
Chapter 9 247

opposing party. It may claim relief exceed- nal action may be made parties to a coun-
ing in amount or different in kind from terclaim or cross-claim in accordance with
that sought in the pleading of the opposing the provisions of Rules 19 and 20.
party.
(i) Separate Trials; Separate Judgments. If the
(d) Counterclaim Against the United States. court orders separate trials as provided in
These rules shall not be construed to en- Rule 42(b), judgment on a counterclaim
large beyond the limits now fixed by law or cross-claim may be rendered in accor-
the right to assert counterclaims or to claim dance with the terms of Rule 54(b) when
credits against the United States or an of- the court has jurisdiction so to do, even if
ficer or agency thereof. the claims of the opposing party have been
dismissed or otherwise disposed of.
(e) Counterclaim Maturing or Acquired After
Pleading. A claim which either matured or
was acquired by the pleader after serving a IV. PARTIES
pleading may, with the permission of the
court, be presented as a counterclaim by Rule 17. Parties Plaintiff and Defendant;
supplemental pleading. Capacity
(a) Real party in interest. Every action shall
(f) Omitted Counterclaim. When a pleader be prosecuted in the name of the real
fails to set up a counterclaim through over- party in interest. An executor, administra-
sight, inadvertence, or excusable neglect, tor, guardian, bailee, trustee of an express
or when justice requires, the pleader may trust, a party with whom or in whose name
by leave of court set up the counterclaim by a contract has been made for the benefit
amendment. of another, or a party authorized by statute
may sue in that person's own name without
(g) Cross-Claim Against Co-Party. A plead- joining the party for whose benefit the ac-
ing may state as a cross-claim any claim tion is brought; and when a statute of the
by one party against a co-party arising out United States so provides, an action for the
of the transaction or occurrence that is the use or benefit of another shall be brought
subject matter either of the original action in the name of the United States. No ac-
or of a counterclaim therein or relating to tion shall be dismissed on the ground that
any property that is the subject matter of it is not prosecuted in the name of the real
the original action. Such cross-claim may party in interest until a reasonable time
include a claim that the party against whom has been allowed after objection for ratifi-
it is asserted is or may be liable to the cross- cation of commencement of the action by,
claimant for all or part of a claim asserted in or joinder or substitution of, the real part
the action against the cross-claimant. in interest; and such ratification, joinder
or substitution shall have the same effect
(h) Joinder of Additional Parties. Persons as if the action had been commenced in
other than those made parties to the origi- the name of the real party in interest.

Civil Procedure
248 Chapter 9

(b) Capacity to sue or be sued. The capacity one or more defendants according to their
of an individual, other than one acting in respective liabilities.
a representative capacity, to sue or be sued
shall be determined by the law of the indi- (b) Separate Trials. The court may make
vidual's domicile. The capacity of a corpo- such orders as will prevent a party from
ration to sue or be sued shall be determined being embarrassed, delayed, or put to ex-
by the law under which it was organized. pense by the inclusion of a party against
whom the party asserts no claim and who
Rule 18. Joinder of Claims and Remedies asserts no claim against the party, and may
(a) Joinder of Claims. A party asserting a order separate trials or make other orders
claim to relief as an original claim, coun- to prevent delay or prejudice.
terclaim, cross-claim, or third-party
claim, may join, either as independent or Rule 21. Misjoinder and Non-Joinder of Par-
as alternate claims, as many claims, legal, ties
equitable, or maritime, as the party has Misjoinder of parties is not ground for dismissal
against an opposing party. Rule 20. Per- of an action. Parties may be dropped or added by
missive Joinder of Parties order of the court on motion of any party or of
its own initiative at any stage of the action and
(a) Permissive Joinder. All persons may join on such terms as are just. Any claim against a
in one action as plaintiffs if they assert any party may be severed and proceeded with sepa-
right to relief jointly, severally, or in the rately.
alternative in respect of or arising out of
the same transaction, occurrence, or se- Rule 22. Interpleader
ries of transactions or occurrences and if (1) Persons having claims against the plaintiff
any question of law or fact common to all may be joined as defendants and required to
these persons will arise in the action. All interplead when their claims are such that
persons (and any vessel, cargo or other the plaintiff is or may be exposed to double
property subject to admiralty process in or multiple liability. It is not ground for ob-
rem) may be joined in one action as de- jection to the joinder that the claims of the
fendants if there is asserted against them several claimants or the titles on which their
jointly, severally, or in the alternative, any claims depend do not have a common origin
right to relief in respect of or arising out of or are not identical but are adverse to and in-
the same transaction, occurrence, or se- dependent of one another, or that the plaintiff
ries of transactions or occurrences and if avers that the plaintiff is not liable in whole or
any question of law or fact common to all in part to any or all of the claimants. A de-
defendants will arise in the action. A plain- fendant exposed to similar liability may ob-
tiff or defendant need not be interested in tain such interpleader by way of cross-claim
obtaining or defending against all the re- or counterclaim. The provisions of this rule
lief demanded. Judgment may be given for supplement and do not in any way limit the
one or more of the plaintiffs according to joinder of parties permitted in Rule 20.
their respective rights to relief, and against

Civil Procedure
Chapter 9 249

Rule 23. Class Actions Rule 24. Intervention


(a) Prerequisites to a Class Action. One or (a) Intervention of Right. Upon timely appli-
more members of a class may sue or be cation anyone shall be permitted to inter-
sued as representative parties on behalf of vene in an action:
all only if (1) the class is so numerous that (1) when a statute of the United States
joinder of all members is impracticable, (2) confers an unconditional right to in-
there are questions of law or fact common tervene; or
to the class, (3) the claims or defenses of (2) when the applicant claims an inter-
the representative parties are typical of the est relating to the property or trans-
claims or defenses of the class, and (4) the action which is the subject of the
representative parties will fairly and ade- action and the applicant is so situ-
quately protect the interests of the class. ated that the disposition of the ac-
tion may as a practical matter impair
Rule 23.1. Derivative Actions by Shareholders or impede the applicant's ability to
In a derivative action brought by one or more protect that interest, unless the ap-
shareholders or members to enforce a right of a plicant's interest is adequately repre-
corporation or of an unincorporated association, sented by existing parties.
the corporation or association having failed to en-
force a right which may properly be asserted by it, V. DEPOSITIONS AND DISCOVERY
the complaint shall be verified and shall allege (1)
that the plaintiff was a shareholder or member at Rule 26. General Provisions Governing Discov-
the time of the transaction of which the plaintiff ery; Duty of Disclosure
complains or that the plaintiff's share or member- (a) Required Disclosures; Methods to Dis-
ship thereafter devolved on the plaintiff by opera- cover Additional Matter.
tion of law, and (2) that the action is not a col- 1) Initial Disclosures. Except in cat-
lusive one to confer jurisdiction on a court of the egories of proceedings specified in
United States which it would not otherwise have. Rule 26(a)(1)(E), or to the extent
The complaint shall also allege with particularity otherwise stipulated or directed by
the efforts, if any, made by the plaintiff to obtain order, a party must, without awaiting
the action the plaintiff desires from the directors a discovery request, provide to other
or comparable authority and, if necessary, from parties:
the shareholders or members, and the reasons for (A) the name and, if known, the ad-
the plaintiff's failure to obtain the action or for dress and telephone number of each
not making the effort. The derivative action may individual likely to have discover-
not be maintained if it appears that the plaintiff able information that the disclosing
does not fairly and adequately represent the in- party may use to support its claims or
terests of the shareholders or members similarly defenses, unless solely for impeach-
situated in enforcing the right of the corporation ment, identifying the subjects of the
or association. information;
(B) a copy of, or a description by cate-
gory and location of, all documents,

Civil Procedure
250 Chapter 9

data compilations, and tangible tion. The notice shall state the time
things that are in the possession, and place for taking the deposition
custody, or control of the party and and the name and address of each
that the disclosing party may use to person to be examined, if known,
support its claims or defenses, unless and, if the name is not known, a gen-
solely for impeachment; eral description sufficient to identify
the person or the particular class or
(C) a computation of any category of group to which the person belongs.
damages claimed by the disclosing If a subpoena duces tecum is to be
party, making available for inspec- served on the person to be examined,
tion and copying as under Rule 34 the designation of the materials to be
the documents or other evidentiary produced as set forth in the subpoe-
material, not privileged or protected na shall be attached to, or included
from disclosure, on which such com- in, the notice.
putation is based, including materi-
als bearing on the nature and extent Rule 31. Depositions Upon Written Questions
of injuries suffered. (a) Serving Questions; Notice.
(1) A party may take the testimony of
Rule 30. Depositions Upon Oral Examination any person, including a party, by
(a) When Depositions May Be Taken; When deposition upon written questions
Leave Required. without leave of court except as pro-
(1) A party may take the testimony of vided in paragraph (2). The atten-
any person, including a party, by de- dance of witnesses may be compelled
position upon oral examination with- by the use of subpoena as provided in
out leave of court except as provided Rule 45.
in paragraph (2). The attendance of (2) A party must obtain leave of court,
witnesses may be compelled by sub- which shall be granted to the extent
poena as provided in Rule 45. consistent with the principles stated
(2) A party must obtain leave of court, in Rule 26(b)(2), if the person to be
which shall be granted to the extent examined is confined in prison.
consistent with the principles stated
in rule 26(b)(2), if the person to be Rule 33. Interrogatories to Parties
examined is confined in prison. (a) Availability. Without leave of court or writ-
(b) Notice of Examination: General Require- ten stipulation, any party may serve upon
ments; Method of Recording; Production any other party written interrogatories, not
of Documents and Things; Deposition of exceeding 25 in number including all dis-
Organization; Deposition by Telephone. crete subparts, to be answered by the party
(1) A party desiring to take the deposi- served or, if the party served is a public or
tion of any person upon oral exami- private corporation or a partnership or as-
nation shall give reasonable notice in sociation or governmental agency, by any
writing to every other party to the ac- officer or agent, who shall furnish such in-

Civil Procedure
Chapter 9 251

formation as is available to the party. Leave sary, by the respondent through detection
to serve additional interrogatories shall be devices into reasonably usable form), or to
granted to the extent consistent with the inspect and copy, test, or sample any tan-
principles of Rule 26(b)(2). Without leave gible things which constitute or contain
of court or written stipulation, interroga- matters within the scope of Rule 26(b)
tories may not be served before the time and which are in the possession, custody
specified in Rule 26(d). or control of the party upon whom the re-
(b) Answers and Objections. quest is served; or (2) to permit entry upon
(1) Each interrogatory shall be an- designated land or other property in the
swered separately and fully in writing possession or control of the party upon
under oath, unless it is objected to, whom the request is served for the purpose
in which event the objecting party of inspection and measuring, surveying,
shall state the reasons for objection photographing, testing, or sampling the
and shall answer to the extent the in- property or any designated object or op-
terrogatory is not objectionable. eration thereof within the scope of Rule
(2) The answers are to be signed by the 26(b).
person making them, and the objec-
tions signed by the attorney making Rule 35. Physical and Mental Examination of
them. Persons
(3) The party upon whom the interrog- (a) Order for Examination. When the mental
atories have been served shall serve a or physical condition (including the blood
copy of the answers, and objections group) of a party or of a person in the cus-
if any, within 30 days after the ser- tody or under the legal control of a party is
vice of the interrogatories. A shorter in controversy, the court in which the ac-
or longer time may be directed by tion is pending may order the party to sub-
the court or, in the absence of such mit to a physical or mental examination by
an order, agreed to in writing by the a suitably licensed or certified examiner or
parties subject to Rule 29. to produce for examination the person in
the party's custody or legal control. The or-
Rule 34. Production of Documents and Things der may be made only on motion for good
and Entry Upon Land for Inspection and Other cause shown and upon notice to the person
Purposes to be examined and to all parties and shall
(a) Scope. Any party may serve on any other specify the time, place, manner, conditions,
party a request (1) to produce and permit and scope of the examination and the per-
the party making the request, or someone son or persons by whom it is to be made.
acting on the requestor's behalf, to inspect
and copy, any designated documents (in-
cluding writings, drawings, graphs, charts, Rule 36. Requests for Admission
photographs, phonorecords, and other a) Request for Admission. A party may serve
data compilations from which informa- upon any other party a written request for
tion can be obtained, translated, if neces- the admission, for purposes of the pend-

Civil Procedure
252 Chapter 9

ing action only, of the truth of any matters all actions not triable of right by a jury the
within the scope of Rule 26(b)(1) set forth court upon motion or of its own initiative
in the request that relate to statements or may try any issue with an advisory jury or,
opinions of fact or of the application of except in actions against the United States
law to fact, including the genuineness of when a statute of the United States pro-
any documents described in the request. vides for trial without a jury, the court, with
Copies of documents shall be served with the consent of both parties, may order a
the request unless they have been or are trial with a jury whose verdict has the same
otherwise furnished or made available for effect as if trial by jury had been a matter of
inspection and copying. Without leave of right.
court or written stipulation, requests for
admission may not be served before the Rule 42. Consolidation; Separate Trials
time specified in Rule 26(d). (a) Consolidation. When actions involving a
common question of law or fact are pending
Rule 39. Trial by Jury or by the Court before the court, it may order a joint hear-
(a) By Jury. When trial by jury has been de- ing or trial of any or all the matters in issue
manded as provided in Rule 38, the ac- in the actions; it may order all the actions
tion shall be designated upon the docket consolidated; and it may make such orders
as a jury action. The trial of all issues so concerning proceedings therein as may tend
demanded shall be by jury, unless (1) the to avoid unnecessary costs or delay.
parties or their attorneys of record, by (b) Separate Trials. The court, in furtherance
written stipulation filed with the court or of convenience or to avoid prejudice, or
by an oral stipulation made in open court when separate trials will be conducive to
and entered in the record, consent to trial expedition and economy, may order a sep-
by the court sitting without a jury or (2) arate trial of any claim, cross-claim, coun-
the court upon motion or of its own ini- terclaim, or third-party claim, or of any
tiative finds that a right of trial by jury of separate issue or of any number of claims,
some or all of those issues does not exist cross-claims, counterclaims, third-party
under the Constitution or statutes of the claims, or issues, always preserving invio-
United States. late the right of trial by jury as declared by
the Seventh Amendment to the Constitu-
(b) By the Court. Issues not demanded for tion or as given by a statute of the United
trial by jury as provided in Rule 38 shall States.
be tried by the court; but, notwithstanding
the failure of a party to demand a jury in Rule 43. Taking of Testimony
an action in which such a demand might (a) Form. In every trial, the testimony of wit-
have been made of right, the court in its nesses shall be taken in open court, unless
discretion upon motion may order a trial a federal law, these rules, the Federal Rules
by a jury of any or all issues. of Evidence, or other rules adopted by the
Supreme Court provide otherwise. The
(c) Advisory Jury and Trial by Consent. In court may, for good cause shown in com-

Civil Procedure
Chapter 9 253

pelling circumstances and upon appropri- tion or after service of a motion for sum-
ate safeguards, permit presentation of tes- mary judgment by the adverse party, move
timony in open court by contemporaneous with or without supporting affidavits for
transmission from a different location. a summary judgment in the party's favor
upon all or any part thereof.
Rule 47. Selection of Jurors (b) For Defending Party. A party against
(a) Examination of Jurors. The court may whom a claim, counterclaim, or cross-
permit the parties or their attorneys to con- claim is asserted or a declaratory judgment
duct the examination of prospective jurors is sought may, at any time, move with or
or may itself conduct the examination. In without supporting affidavits for a sum-
the latter event, the court shall permit the mary judgment in the party's favor as to all
parties or their attorneys to supplement or any part thereof.
the examination by such further inquiry as
it deems proper or shall itself submit to the
prospective jurors such additional ques-
tions of the parties or their attorneys as it
deems proper.

Rule 51. Instructions to Jury: Objection


At the close of the evidence or at such earlier
time during the trial as the court reasonably di-
rects, any party may file written requests that the
court instruct the jury on the law as set forth in
the requests. The court shall inform counsel of
its proposed action upon the requests prior to
their arguments to the jury. The court, at its elec-
tion, may instruct the jury before or after argu-
ment, or both. No party may assign as error the
giving or the failure to give an instruction unless
that party objects thereto before the jury retires
to consider its verdict, stating distinctly the mat-
ter objected to and the grounds of the objection.
Opportunity shall be given to make the objec-
tion out of the hearing of the jury.

Rule 56. Summary Judgment


(a) For Claimant. A party seeking to recov-
er upon a claim, counterclaim, or cross-
claim or to obtain a declaratory judgment
may, at any time after the expiration of 20
days from the commencement of the ac-

Civil Procedure
254 Chapter 9

Write in English a summary of the Chapter making use of


the suggested plan that follows.
В чем отличие гражданских дел от уголовных? С чего начинается гражданское судопроиз-
водство? Назовите стороны в гражданском процессе и разъясните правила, в соответствии с
которыми они могут быть соединены в целях проведения судебного разбирательства. Какие
состязательные бумаги разрешены согласно федеральному правилу 7(а)? Кратко охаракте-
ризуйте основные способы исследования доказательств по делу. Какие виды судов вам из-
вестны?

Civil Procedure
Chapter 9 255

Civil Procedure
10
256 Chapter 10

Intellectual Property

C h a p t er

Translate the following paying special attention to the highlighted


words and word combinations. Make use of «Юридические понятия и
категории в английском языке. Толковый словарь».

PATENTS

UTILITY PATENTS

A. The nature of a utility patent: A utility patent gives its holder a 17-year monopoly in an inven-
tion. Patents are only available for those inventions that are nonobvious, novel and useful. If
the Patent and Trademark Office (PTO) grants a patent, this creates a legal presumption that
the invention meets these criteria, but a patent may be challenged in court, either through a
declaratory judgment action or as a defense in an infringement suit.

B. The non-obvious standard: Section 103 of the Patent Act provides that an invention is not
patentable if, at the time it was made, it would have been obvious to a person having ordinary
skill in the pertinent art. To make this determination, a court must ascertain: (1) the scope
and content of the prior art; (2) the differences between the pertinent prior art and the inven-
tion; and (3) the ordinary level of skill in the pertinent art.

1. The prior art: The person with ordinary skill in the art, from whose perspective the
obviousness determination is made, is presumed to have knowledge of all the relevant
prior art existing when the invention was made. As a general rule, to be included as
"prior art," information must have been available to the public. However, information
in a patent application that was on file in the PTO when the invention was made will
also be considered, if the application ultimately was granted.

2. Subsidiary considerations: In determining obviousness, a court may also consider evi-


dence regarding: (1) the commercial success of the invention; (2) the length of time
that the need for the invention had been felt before the invention was made; and (3) the
level of acquiescence of others to the patent.

Intellectual Property
Chapter 10 257

C. The novelty standard and the statutory bars: The novelty standard and closely related statu-
tory bars are set forth in section 102 of the Patent Act.

1. Subsection 102(a): Subsection 102(a) says that a patent must be denied if "the invention
was known by others in this country, or patented or described in a printed publication in
this or a foreign country, before the invention thereof by the applicant for patent.. .". The
focus is on the actions of persons other than the inventor/applicant prior to the date
the inventor/applicant made the invention.

D. The usefulness standard: An invention will be "useful" if there is a current, significant, ben-
eficial use for the invention or, in the case of a process, the product of the process.

E. Infringement: Persons may be liable: (1) for directly infringing a patent; (2) for inducing
another to infringe a patent; (3) for contributory infringement; (4) for importing, selling or
using a product made abroad through a process protected by a U.S. process patent; or (5)
for manufacturing or selling certain components of a patented invention to be assembled
abroad.

F. Remedies for patent infringement: Both damages and injunctions are available for patent
infringement. In the case of damages, the defendant must have received actual notice of
the patent or constructive notice by virtue of the patentee's properly marking the patented
invention with the words "patented" or "pat.," along with the patent number.

TRADEMARK LAW

I. THE NATURE OF TRADEMARK LAW

A. The purpose of trademarks: Trademark law is designed to protect the consumer good will
that merchants develop through the use of trademarks by preventing defendants from using
similar marks to confuse consumers into thinking that their goods come from the original
mark owner, thus cashing in on the original owner's good reputation and consumer loyalty.

II. TYPES OF MARKS

A. Trademarks: A trademark is a word, name, symbol or device or any combination thereof,


which is used to identify and distinguish the goods of one person from good