Facts common to all Tracing problems

1. Facts common to all Tracing problems • Scum manages a trust fund for his mother which contains the following: • 100 shares Microsoft at $30/share • 100 shares of Exxon at $50/share • 100 shares of Walmart at $60/share • Scum embezzles from Mom in each problem so we know that there are GROUNDS for a constructive trust. The key is to find out whether there is an identifiable asset. • Scum maintains his own checking account which, at the beginning of each problem, has $10,000 in it. • Due to financial difficulties, after the actions identified in each problem, Scum eventually goes bankrupt making a damage judgment essentially not worth it. • Each transaction in each problem occurs in chronological order on a different day with the balance immediately being recorded.

2. Constructive trusts & tracing through exchanges • Direct Exchange - P can trace through direct exchanges • Exchanges & Commingling If D commingles P’s stolen cash with his own, P must use the tracing fictions/presumptions: • D spends his own $ first • New $ lawfully acquired is Ds unless D manifests intent to replenish P’s $ • D invests P’s $ first 1 & 3 can be used at P’s election to maximize P’s recovery although can only use in “real time.” 2 must be used as it is stated. • Use of these presumptions with the ledger system will illustrate the lowest intermediate balance rule (without consciously applying it) • LIB rule – If total balance of account falls below the value of the stolen item deposited in the account, the lowest balance prior to the next deposit of P’s $ (or an adjudication) limits what P can get for that particular property

3. Tracing into swelled assets • If D is bankrupt & P can trace into assets that are now worth more that what P lost, court will limit P to amount that she actually lost • Equitable lien – device that secures a monetary judgment in the amount of loss by creating a security interest in specific property. Gives holder of the lien the right to force a sale and have the proceeds of the sale applied to pay of the security interest. • P can force D to sell the property and give her the amount of her losses. The remainder goes back into the bankruptcy estate for unsecured creditors. • Can be especially useful even absent bankruptcy if there is one property (real estate) and multiple victims (Paolini) • If D is NOT bankrupt P can trace into assets and keep the entire amount.

4. On an exam • It is fine to use a ledger to illustrate your work on an essay question (assuming a bank account is involved). • You don’t need to use columns with lines (you can simply create rows of numbers with tabs if you are working on computer). Alternatively, computer users can just use a bluebook for a problem like this if it makes them more comfortable. • Show your work out to the side of the ledger – i.e., indicate the purpose of the deposits/withdrawals and the presumptions you use. • Don’t just write “presumption #1” without telling me what that means somewhere in the answer. That doesn’t let me know that you understand what is going on. • On a multiple choice question, you simply have to do the work and see which answer it matches with