diff --git a/lib/coffee_script/grammar.y b/lib/coffee_script/grammar.y
index eecd8530..d3c7b862 100644
--- a/lib/coffee_script/grammar.y
+++ b/lib/coffee_script/grammar.y
@@ -119,8 +119,8 @@ rule
 
   # Assignment within an object literal.
   AssignObj:
-    IDENTIFIER ASSIGN Expression    { result = AssignNode.new(val[0], val[2], :object) }
-  | STRING ASSIGN Expression        { result = AssignNode.new(val[0], val[2], :object) }
+    IDENTIFIER ASSIGN Expression    { result = AssignNode.new(ValueNode.new(val[0]), val[2], :object) }
+  | STRING ASSIGN Expression        { result = AssignNode.new(ValueNode.new(LiteralNode.new(val[0])), val[2], :object) }
   | Comment                           { result = val[0] }
   ;
 
@@ -143,10 +143,10 @@ rule
   | '-' Expression = UMINUS           { result = OpNode.new(val[0], val[1]) }
   | NOT Expression                    { result = OpNode.new(val[0], val[1]) }
   | '~' Expression                    { result = OpNode.new(val[0], val[1]) }
-  | '--' Expression                    { result = OpNode.new(val[0], val[1]) }
-  | '++' Expression                    { result = OpNode.new(val[0], val[1]) }
-  | Expression '--'                    { result = OpNode.new(val[1], val[0], nil, true) }
-  | Expression '++'                    { result = OpNode.new(val[1], val[0], nil, true) }
+  | '--' Expression                   { result = OpNode.new(val[0], val[1]) }
+  | '++' Expression                   { result = OpNode.new(val[0], val[1]) }
+  | Expression '--'                   { result = OpNode.new(val[1], val[0], nil, true) }
+  | Expression '++'                   { result = OpNode.new(val[1], val[0], nil, true) }
 
   | Expression '*' Expression         { result = OpNode.new(val[1], val[0], val[2]) }
   | Expression '/' Expression         { result = OpNode.new(val[1], val[0], val[2]) }
diff --git a/lib/coffee_script/nodes.rb b/lib/coffee_script/nodes.rb
index ff361d19..69b9f6e4 100644
--- a/lib/coffee_script/nodes.rb
+++ b/lib/coffee_script/nodes.rb
@@ -77,16 +77,18 @@ module CoffeeScript
     # If this is the top-level Expressions, wrap everything in a safety closure.
     def root_compile(o={})
       indent = o[:no_wrap] ? '' : TAB
-      code = compile(o.merge(:indent => indent, :scope => Scope.new))
+      code = compile(o.merge(:indent => indent, :scope => Scope.new), o[:no_wrap] ? nil : :code)
       code.gsub!(STRIP_TRAILING_WHITESPACE, '')
       o[:no_wrap] ? code : "(function(){\n#{code}\n})();"
     end
 
     # The extra fancy is to handle pushing down returns and assignments
     # recursively to the final lines of inner statements.
-    def compile(options={})
+    # Variables first defined within the Expressions body have their
+    # declarations pushed up to the top scope.
+    def compile(options={}, parent=nil)
       return root_compile(options) unless options[:scope]
-      code = @expressions.map { |node|
+      compiled = @expressions.map do |node|
         o = super(options)
         if last?(node) && (o[:return] || o[:assign])
           if o[:return]
@@ -99,14 +101,17 @@ module CoffeeScript
             if node.statement? || node.custom_assign?
               "#{o[:indent]}#{node.compile(o)}#{node.line_ending}"
             else
-              "#{o[:indent]}#{AssignNode.new(ValueNode.new(LiteralNode.new(o[:assign])), node).compile(o)};"
+              "#{o[:indent]}#{AssignNode.new(o[:assign], node).compile(o)};"
             end
           end
         else
           o.delete(:return) and o.delete(:assign)
           "#{o[:indent]}#{node.compile(o)}#{node.line_ending}"
         end
-      }.join("\n")
+      end
+      scope = options[:scope]
+      declarations = scope.any_declared? && parent == :code ? "#{options[:indent]}var #{scope.declared_variables.join(', ')};\n" : ''
+      code = declarations + compiled.join("\n")
       write(code)
     end
   end
@@ -338,10 +343,8 @@ module CoffeeScript
 
   # Setting the value of a local variable, or the value of an object property.
   class AssignNode < Node
-    LEADING_VAR  = /\Avar\s+/
     PROTO_ASSIGN = /\A(\S+)\.prototype/
 
-    statement
     custom_return
 
     attr_reader :variable, :value, :context
@@ -356,19 +359,16 @@ module CoffeeScript
 
     def compile(o={})
       o = super(o)
-      name      = @variable.respond_to?(:compile) ? @variable.compile(o) : @variable.to_s
-      last      = @variable.respond_to?(:last) ? @variable.last.to_s : name.to_s
+      name      = @variable.compile(o)
+      last      = @variable.last.to_s
       proto     = name[PROTO_ASSIGN, 1]
-      o         = o.merge(:assign => name, :last_assign => last, :proto_assign => proto)
+      o         = o.merge(:assign => @variable, :last_assign => last, :proto_assign => proto)
       postfix   = o[:return] ? ";\n#{o[:indent]}return #{name}" : ''
-      return write("#{@variable}: #{@value.compile(o)}") if @context == :object
+      return write("#{name}: #{@value.compile(o)}") if @context == :object
       return write("#{name} = #{@value.compile(o)}#{postfix}") if @variable.properties? && !@value.custom_assign?
-      defined   = o[:scope].find(name)
-      def_part  = defined || @variable.properties? || o[:no_wrap] ? "" : "var #{name};\n#{o[:indent]}"
-      return write(def_part + @value.compile(o)) if @value.custom_assign?
-      def_part  = defined || o[:no_wrap] ? name : "var #{name}"
-      val_part  = @value.compile(o).sub(LEADING_VAR, '')
-      write("#{def_part} = #{val_part}#{postfix}")
+      o[:scope].find(name) unless @variable.properties?
+      return write(@value.compile(o)) if @value.custom_assign?
+      write("#{name} = #{@value.compile(o)}#{postfix}")
     end
   end
 
@@ -436,8 +436,8 @@ module CoffeeScript
       o[:indent] += TAB
       o.delete(:assign)
       o.delete(:no_wrap)
-      @params.each {|id| o[:scope].find(id.to_s) }
-      code = @body.compile(o)
+      @params.each {|id| o[:scope].parameter(id.to_s) }
+      code = @body.compile(o, :code)
       write("function(#{@params.join(', ')}) {\n#{code}\n#{indent}}")
     end
   end
@@ -533,20 +533,19 @@ module CoffeeScript
       ivar          = scope.free_variable
       lvar          = scope.free_variable
       rvar          = scope.free_variable
-      name_part     = name_found ? @name : "var #{@name}"
-      index_name    = @index ? (index_found ? @index : "var #{@index}") : nil
-      source_part   = "var #{svar} = #{@source.compile(o)};"
-      for_part      = "var #{ivar}=0, #{lvar}=#{svar}.length; #{ivar}<#{lvar}; #{ivar}++"
-      var_part      = "\n#{o[:indent] + TAB}#{name_part} = #{svar}[#{ivar}];\n"
+      index_name    = @index ? @index : nil
+      source_part   = "#{svar} = #{@source.compile(o)};"
+      for_part      = "#{ivar}=0, #{lvar}=#{svar}.length; #{ivar}<#{lvar}; #{ivar}++"
+      var_part      = "\n#{o[:indent] + TAB}#{@name} = #{svar}[#{ivar}];\n"
       index_part    = @index ? "#{o[:indent] + TAB}#{index_name} = #{ivar};\n" : ''
       body          = @body
       suffix        = ';'
-      set_result    = "var #{rvar} = [];\n#{o[:indent]}"
+      set_result    = "#{rvar} = [];\n#{o[:indent]}"
       save_result   = "#{rvar}[#{ivar}] = "
       return_result = rvar
 
       if o[:return] || o[:assign]
-        return_result = "#{o[:assign]} = #{return_result}" if o[:assign]
+        return_result = "#{o[:assign].compile(o)} = #{return_result}" if o[:assign]
         return_result = "return #{return_result}" if o[:return]
         if @filter
           body = CallNode.new(ValueNode.new(LiteralNode.new(rvar), [AccessorNode.new('push')]), [@body])
diff --git a/lib/coffee_script/scope.rb b/lib/coffee_script/scope.rb
index 8c07785b..5e510b12 100644
--- a/lib/coffee_script/scope.rb
+++ b/lib/coffee_script/scope.rb
@@ -5,7 +5,7 @@ module CoffeeScript
   # whether a variable has been seen before or if it needs to be declared.
   class Scope
 
-    attr_reader :parent, :temp_variable
+    attr_reader :parent, :variables, :temp_variable
 
     # Initialize a scope with its parent, for lookups up the chain.
     def initialize(parent=nil)
@@ -18,10 +18,16 @@ module CoffeeScript
     def find(name, remote=false)
       found = check(name, remote)
       return found if found || remote
-      @variables[name.to_sym] = true
+      @variables[name.to_sym] = :var
       found
     end
 
+    # Define a local variable as originating from a parameter in current scope
+    # -- no var required.
+    def parameter(name)
+      @variables[name.to_sym] = :param
+    end
+
     # Just check to see if a variable has already been declared.
     def check(name, remote=false)
       return true if @variables[name.to_sym]
@@ -36,10 +42,19 @@ module CoffeeScript
     # Find an available, short, name for a compiler-generated variable.
     def free_variable
       @temp_variable.succ! while check(@temp_variable)
-      @variables[@temp_variable.to_sym] = true
+      @variables[@temp_variable.to_sym] = :var
       @temp_variable.dup
     end
 
+    def any_declared?
+      !declared_variables.empty?
+    end
+
+    # Return the list of variables first declared in current scope.
+    def declared_variables
+      @variables.select {|k, v| v == :var }.map {|pair| pair[0].to_s }.sort
+    end
+
   end
 
 end
\ No newline at end of file
diff --git a/test/fixtures/generation/each.js b/test/fixtures/generation/each.js
index 8536f46a..8787ea06 100644
--- a/test/fixtures/generation/each.js
+++ b/test/fixtures/generation/each.js
@@ -3,24 +3,25 @@
   // The cornerstone, an each implementation.
   // Handles objects implementing forEach, arrays, and raw objects.
   _.each = function(obj, iterator, context) {
-    var index = 0;
+    var __a, __b, __c, __d, __e, __f, __g, __h, i, index, item, key;
+    index = 0;
     try {
       if (obj.forEach) {
         obj.forEach(iterator, context);
       } else if (_.isArray(obj) || _.isArguments(obj)) {
-        var __a = obj;
-        var __d = [];
-        for (var __b=0, __c=__a.length; __b<__c; __b++) {
-          var item = __a[__b];
-          var i = __b;
+        __a = obj;
+        __d = [];
+        for (__b=0, __c=__a.length; __b<__c; __b++) {
+          item = __a[__b];
+          i = __b;
           __d[__b] = iterator.call(context, item, i, obj);
         }
         __d;
       } else {
-        var __e = _.keys(obj);
-        var __h = [];
-        for (var __f=0, __g=__e.length; __f<__g; __f++) {
-          var key = __e[__f];
+        __e = _.keys(obj);
+        __h = [];
+        for (__f=0, __g=__e.length; __f<__g; __f++) {
+          key = __e[__f];
           __h[__f] = iterator.call(context, obj[key], key, obj);
         }
         __h;
diff --git a/test/fixtures/generation/each_no_wrap.js b/test/fixtures/generation/each_no_wrap.js
index 5cc80f37..aa88e142 100644
--- a/test/fixtures/generation/each_no_wrap.js
+++ b/test/fixtures/generation/each_no_wrap.js
@@ -2,24 +2,25 @@
 // The cornerstone, an each implementation.
 // Handles objects implementing forEach, arrays, and raw objects.
 _.each = function(obj, iterator, context) {
-  var index = 0;
+  var __a, __b, __c, __d, __e, __f, __g, __h, i, index, item, key;
+  index = 0;
   try {
     if (obj.forEach) {
       obj.forEach(iterator, context);
     } else if (_.isArray(obj) || _.isArguments(obj)) {
-      var __a = obj;
-      var __d = [];
-      for (var __b=0, __c=__a.length; __b<__c; __b++) {
-        var item = __a[__b];
-        var i = __b;
+      __a = obj;
+      __d = [];
+      for (__b=0, __c=__a.length; __b<__c; __b++) {
+        item = __a[__b];
+        i = __b;
         __d[__b] = iterator.call(context, item, i, obj);
       }
       __d;
     } else {
-      var __e = _.keys(obj);
-      var __h = [];
-      for (var __f=0, __g=__e.length; __f<__g; __f++) {
-        var key = __e[__f];
+      __e = _.keys(obj);
+      __h = [];
+      for (__f=0, __g=__e.length; __f<__g; __f++) {
+        key = __e[__f];
         __h[__f] = iterator.call(context, obj[key], key, obj);
       }
       __h;
diff --git a/test/fixtures/generation/inner_comments.js b/test/fixtures/generation/inner_comments.js
index 1b4386d2..123b8cea 100644
--- a/test/fixtures/generation/inner_comments.js
+++ b/test/fixtures/generation/inner_comments.js
@@ -1,12 +1,13 @@
 (function(){
-  var object = {
+  var array, object;
+  object = {
     a: 1,
     // Comments between the elements.
     b: 2,
     // Like this.
     c: 3
   };
-  var array = [1,
+  array = [1,
     // Comments between the elements.
     2,
     // Like this.
diff --git a/test/unit/test_parser.rb b/test/unit/test_parser.rb
index 67bd93f3..fecb1823 100644
--- a/test/unit/test_parser.rb
+++ b/test/unit/test_parser.rb
@@ -24,8 +24,8 @@ class ParserTest < Test::Unit::TestCase
     nodes = @par.parse("{one : 1 \n two : 2}").expressions
     obj = nodes.first.literal
     assert obj.is_a? ObjectNode
-    assert obj.properties.first.variable == "one"
-    assert obj.properties.last.variable == "two"
+    assert obj.properties.first.variable.literal.value == "one"
+    assert obj.properties.last.variable.literal.value == "two"
   end
 
   def test_parsing_an_function_definition
@@ -79,7 +79,7 @@ class ParserTest < Test::Unit::TestCase
 
   def test_no_wrapping_parens_around_statements
     assert_raises(SyntaxError) do
-      @par.parse("(a: 1)").compile
+      @par.parse("(try thing() catch error fail().)").compile
     end
   end