5/2/2007 Revision 0.1 Author: Philip Larson Virginia Remedies: Outline Disclaimer: These notes and outlines are provided asii without any warranty as to their correctness, completeness, or quality. They are not meant to be a substitute for your own efforts. You may copy and forward this document as long as you do not alter its contents. Corporate Acquisitions: Outline Philip Larson Page 2 Table of Contents 1. Law and Econ I: OUTLINE ....................................................Error! Bookmark not defined. Corporate Acquisitions: Outline Philip Larson Page 3 1. Virginia Remedies -Cummings Demurrer Similar to a 12b6 motion, this is a common law civil procedure motion filed by D in response to a complaint, prior to an answer attacking the legal sufficiency of the complaint essentially arguing that certain elements are missing from the claim. Demurrers are decided by The judge not the jury. The judge may sustain or overrule the demurrer with prejudice or without prejudice. If the demurrer is sustained, 30 days to fix it. If overruled, 30 days to file an answer. Demurrers must be In writing and may be amended in writing. What is a remedy? A procedural device at law or equity for administering justice to a person for a disfavored act by another. 8 Types of Remedies Substitution, punitive, nominal, restitution, declarative, coercive, specific, ancillary Substitution Money as compensation for losses (actual loss, dignitary losses and pain/suffering) Punitive Money payments in addition to compensation. Nominal Trivial amount of money awarded for legally cognizable but not compensable injuries. Restitution Money produced by D’s misuse of P’s resources that is given to P because D has less right to it. Declarative Before losses have occurred, but after an opposing set of views have ripened, a declaratory suit may be brought to get a declaratory judgment Coercive Civil contempt of court may give a recalcitrant loser a set of increasing penalties to get the person to acquiesce to the court’s view. Specific Remedies which respond in kind to a deprivation including specific performance, injunction, detinue (return of property), and ejectment (ejecting from a piece of real estate, for instance) Ancillary Receiverships, constructive trusts, liens, and writs of possession; major things the chancellor can do to help the case along that do not result in a final order. Indivisible claims If a transaction is represented by a single indivisible contract (e.g. unconditional acceleration provision) it may not be split into separate parts. If the K is divisible, it may give rise to more than one cause of action that can be proceeded upon separately. Judgment on merits of one case on indivisible K will bar recovery in the others based on res judicata. Rule 1:6 Got rid of the “Same Evidence” test for res judicata and moved to a “same transaction” test. Causes of action arising from “the same conduct, transaction” are barred. “A party whose claim for relief arising from identified conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be forever barred from prosecuting any second or subsequent civil action against the same opposing party or parties on any claim or cause of action that arises from that same conduct, transaction or occurrence, whether or not the legal theory or rights asserted in the second or subsequent action were raised in the prior lawsuit, and regardless of the legal elements or the evidence upon which any claims in the prior proceeding depended, or the particular remedies sought. A claim for relief pursuant to this rule includes those set forth in a complaint, counterclaim, cross-claim or third-party pleading.” Current state of res judicata If it is the same transaction, you have to bring all of your causes of action in the first suit. 5 Maxims of Equity 1) Equity aids the vigilant, not those who slumber on their fights; 2) One who comes into equity must come with clean hands, 3) one who seeks equity must do equity, 4) equity will not suffer a wrong to be without a remedy, 5) equity regards substance rather than form Misjoinder of contract and tort Got rid of this in 1977. Now you can bring both claims in the same court. Why did people care if they proceeded in law or in equity? Jury trial. They want a jury trial. Why is specific performance important in real estate? In real estate, when a seller goes back on a deal to sell to a higher bidder the buyer’s damages are illusory. They want specific performance. However, while you typically get specific performance in real estate that is getting eroded because of the prevalence of cookie cutter houses. Recoupment D demands deduction from the amount awarded to P a sum due the D from the P in the transaction which was the subject of the lawsuit. Example: Laura Landlord sues Tillie Tenant for nonpayment of rent, Tenant is entitled to deduct a deposit made at the commencement of Corporate Acquisitions: Outline Philip Larson Page 4 the lease, or an amount Landlord received from re-renting the apartment before the lease expired. A recoupment is not the same as an "offset" (setoff) which can be money owed from any matter, including outside the lawsuit. Setoff a claim by D that P owes D money which should be subtracted from the amount of damages claimed by P. By claiming a setoff D does not necessarily deny the P's original demand, but he/she claims the right to prove the P owes him/her an amount of money from some other transaction and that the amount should be deducted from the P's claim. Counterclaim a retaliatory claim by D against P in a lawsuit included in the D's answer and intending to offsse and/or reduce the amount of the P's original claim against the D. What is the pivotal date of whether English common law applies? 1607 (4th year of the reign of James I) conversion a civil wrong (tort) in which one converts another's property to his/her own use, which is a fancy way of saying "steals." Equitable conversion Equitable conversion is a doctrine of the law of real property under which a purchaser of real property becomes the equitable owner of title to the property at the time he/she signs a contract binding him/her to purchase the land at a later date. The seller retains legal title of the property prior to the date of conveyance, but this land interest is considered personal property (a right to the payment of money, rather than a right to the property). The risk of loss is then transferred to the buyer — if a house on the property burns down after the contract has been signed, but before the deed is conveyed, the buyer will nevertheless have to pay the agreed-upon purchase price for the land. Equitable conversion means the buyer has… An equitable interest and the seller retains legal title but this becomes an interest in personalty which amounts to simply a right for monetary payment. Risk of loss is typically transferred to buyer. Equitable estoppel A type of estoppel that bars a person from adopting a position in court that contradicts his or her past statements or actions when that contradictory stance would be unfair to another person who relied on the original position. For example, if a landlord agrees to allow a tenant to pay the rent ten days late for six months, it would be unfair to allow the landlord to bring a court action in the fourth month to evict the tenant for being a week late with the rent. The landlord would be estopped from asserting his right to evict the tenant for late payment of rent. Also known as estoppel in pais. where a court will not grant a judgment or other legal relief to a party who has not acted fairly; for example, by having made false representations or concealing material facts from the other party. This illustrates the legal maxim: "he who seeks equity, must do equity” and the clean hands doctrine. Do you have to show actual fraud for equitable estoppel? No. Elements of equitable estoppel 1) representation or concealment of a material fact, 2) knowing the truth, 3) other party did not know the truth, 4) intent that third party rely on the representation (or gross negligence), 5) 3rd party relied on the representation, 6) damages. What is the leading case in VA on equitable estoppel? Heath v. Valentine. Promissory estoppel A type of estoppel that prevents a person who made a promise from reneging (even if there is no consideration) when someone else has reasonably relied on the promise and will suffer a loss if the promise is broken Is promissory estoppel valid in VA? No. Establishing equitable estoppel To establish equitable estoppel, it is not necessary to show actual fraud, but only that the person to be estopped has misled another to his prejudice or that the innocent party acted in reliance upon the conduct or misstatement by the person to be estopped. Elements necessary to establish equitable estoppel, absent a showing of fraud or deception, are a representation, reliance, a change of position, and detriment. What happens if P is lazy? Equity will aid the vigilant. What if the P has done something unfair? One who seeks equity must do equity; one who comes into equity must come with clean hands. Elements of prescriptive easement 1) Adverse, 2) Claim of Right, 3) Exclusive, 4) Continuous, 5) w/the knowledge (potentially Corporate Acquisitions: Outline Philip Larson Page 5 constructive) and acquiescence of owner, 6) for 20 years. Assignment the act of transferring an interest in property or a some right (such as contract benefits) to another. It is used commonly by lawyers, accountants, business people, title companies and others dealing with property. General rule of assignment in VA Contract payments may be assigned to a third party by oral statements, or by their acts and conduct. Equitable assignment To constitute an equitable assignment of a K payment obligation, there must be an assignment of the fund or some definite portion of it. Since equity disregards mere form, no words or acts are necessary to effect an equitable assignment. The intention of the assignor is the controlling consideration. What maxim is important in assignments? Equity disregards mere form. For equitable assignment to occur Assignor must not retain control over the fund or property assigned, any authority to collect, or any form of revocation. Rescission the cancellation of a contract by mutual agreement of the parties. This is an equitable remedy and is discretionary. This is done to bring the parties as far as possible to the position they were before they entered into a contract (the "status quo ante"). To rescind a K you must have Mutual mistake; it cannot be a unilateral mistake. What else will get you rescission? Fraud. Commissioner’s may only be appointed… After an answer is filed. If commissioner is appointed before the answer, it is trying to force discovery. Commissinoer cannot be used as a discovery device. Must parties agree to have a commissioner appointed? Under New Rule 3:23, judge may appoint a commissioner if 1) parties agree, or 2) judge finds good cause to do so. This for the most part means that a judge may appoint a commissioner over the objections of the parties. Constructive fraud If a party innocently misrepresents a material fact by mistake, the effect is the same as if he made the representation with scienter. It is just constructive fraud. when the circumstances show that someone's actions gives him/her an unfair advantage over another by unfair means (lying or not telling a buyer about defects in a product, for example), the court may decide from the methods used and the result that it should treat the situation as if there was actual fraud even if all the technical elements of fraud have not been proven. Does constructive fraud require fraudulent intent? No. Constructive fraud can be proved by a showing of breach of legal duty (like using the trust funds held for another in an investment in one's own business) without direct proof of fraud or fraudulent intent. What is the difference in damages between constructive and actual fraud? In actual fraud, you can get punitive damages. In constructive fraud, you can’t get punitive damages. Actual fraud 1) an individual intentionally makes an untrue representation about a material fact 2) the untrue representation is believed by the victim; 3) the victim relies upon and acts upon the untrue representation; 4) the victim suffers damages as a result of relying upon the untrue representation. Easement the right to use the real property of another for a specific purpose. The easement is itself a real property interest, but legal title to the underlying land is retained by the original owner for all other purposes. Prescriptive easement A "prescriptive easement" can be claimed after continuous and open use by the non-owner against the rights of the property owner for a statutory number of years (typically five). an easement upon another's real property acquired by continued use without permission of the owner for a period provided by state law to establish the easement. The problems with prescriptive easements are that they do not show up on title reports, and the exact location and/or use of the easement is not always clear and occasionally moves by practice or erosion. Easement of necessity Courts will find an easement to do equity (fairness), including giving access to a "landloccked piece of property (sometimes called an "easement of necessity") How do you object to a Commissioner’s report? File an exception. What types of procedural devices should we look for on the exam? 1) file an exception to a Commissioner’s report, 2) file a demurrer claiming that P has not established all elements of a claim, 3) file an answer. If seller of real estate refuses to sell what To recover more than nominal damages the vendee must prove that the vendor voluntarily Corporate Acquisitions: Outline Philip Larson Page 6 do you have to show to get damages beyond just a return of purchase money? disabled himself from making the conveyance, or that he is able to make good conveyance and willfully refuses to do so. Direct (or consequential) damages Direct damages are those that arise ‘naturally’ or ‘ordinarily’ from a breach of contract. They are damages which in the ordinary course of human experience can be expected to result from a breach. Are punitive damages available in breach of K? The general rule is that damages for breach of K are limited to the pecuniary loss sustained and does not allow recovery of exemplary damages. Punitive damages in torts? Punitive damages are sometimes awarded in tort to punish the wrongdoer and to deter similar conduct. By contrast, damages for breach of K are limited to losses reasonably foreseeable when K was made. Why do lawyers try to turn every breach of K into a tort case? Punitive damages in tort. What is the main component determining if you have to go with constructive fraud If you don’t know whether there was scienter or intent to fraud. What are the elements of a preliminary injunction? 1) likelihood of success, 2) irreparable injury, 3) harm to D doesn’t outweigh harm to P, 4) conforms with public policy What equitable maxims are relevant for a preliminary injunction? Equity will balance; one who seeks equity must do equity. Constructive trust when a person has title to property and/or takes possession of it under circumstances in which he/she is holding it for another, even though there is no formal trust document or agreement, the court may determine that the holder of the title holds it as constructive trustee for the benefit of the intended owner. This may occur through fraud, breach of faith, ignorance, or inadvertence. Specific performance in equity… Is not a matter of right but rests in the sound discretion of the court or chancellor. What did Snyder stand for? A lease with a mandatory acceleration of rent required lessor to include a claim for future rent in its initial action to avoid res judicata. However, if there is no mandatory acceleration clause… P could probably go after each payment individually. At common law, set-offs typically had to be… Liquidated debt. You couldn’t offset unliquidated debt. Today, you can… Counterclaim for a liquidated or unliquidated debt (even if unrelated). However, set-offs typically have to be germane to the issue. This is different than federal law. Therefore, in courts may entertain please of set-off where Both sides are in the nature of debts. A demand for unliquidated damages cannot be set-off against an ascertained demand, nor can demands for unliquidated damages be set off against each other When is a debt liquidated? A demand is not liquidated, even if it appears that something is due, unless it also appears how much is due. If there is a genuine controversy as to what is due, it is unlieuidated. At common law, what is the mutuality requirement for set-off? Setoffs required that the debts be mutual, that is, owing between the same parties. Therefore, partnership debts and debts due to individual partners could not be set off against each other. This is no longer good law. Rule 3.9 Counterclaims A D may plead a counterclaim any cause of action whether or not it grows out of any transaction mentioned in the complaint, whether or not it is for liquidated damages, and whether or not it is in tort or contract. Rule 3.9 Counterclaim/Set-off Pursuant to Rule 3.9 there is no requirement in Va that a debt be liquidated in order to be raised as a set-off in a counterclaim. Cross-bill in equity A cross-bill is an aggressive pleading, with its subject matter restricted to that which is germane to the original bill. Rule 3:10 Sets out a germaneness requirement for cross-claims among D’s. This is different than the federal rules of civil procedure. “A defendant may, at that defendant's option, plead as a cross-claim any cause of action that such defendant has or may have against one or more other defendants growing out of any matter pled in the complaint.” What are the common law elements of recoupment in VA? 1) Recoupment must arise out of the same transaction, 2) amount need not be liquidated, 3) no recovery over the amount, 4) right to recoupment must be shown by a plea, 5) purely Corporate Acquisitions: Outline Philip Larson Page 7 equitable defenses cannot be set up. Dexter-Portland. Is common law recoupment still valid (these elements) in VA? No. You can get recovery over the amount. Does spousal support involve a legal duty that arises from a contract or “transaction” that would allow recoupment? If spousal support payments are overturned in the appellate court, you can’t get recoupment because spousal support does not arise out of contract. Pleading equitable defenses Under Virginia, D may file a pleading alleging any matter which would entitle him to relief in equity against the obligation of the K (in a breach of K case). If D’s recoupment amount exceeds P’s claim, D can get the excess. Rule: 8.01-422 says that you can raise equitable defenses like unconscionability and estoppel to breach of contract claims. What is a set-off? A counterclaim arising from an independent claim the D has against P. Recoupment is the right of D to have P’s monetary claim reduced by reason of some claim D has against P arising out of the very K giving rise to P’s claim. Can you nonsuit a friend of yours? Yes, if there is an accident you can nonsuit one D and bring a claim against another D. However, if there is a cross-claim between two D’s then P may not nonsuit one of the D’s unless the other D allows it. What is an example of when rescission of K will fail? If the P sits on his rights (e.g. contract to build a house…waits for them to finish the house and then rescinds – are they going to rip down the house?); An application to rescind a K must be made with due diligence which depends on the facts. one who seeks equity must do equity. Are orders for nonsuits appealable? Not normally. However, when the judge accidentally nonsuited a D without notice to other D’s that had cross-claims, equity allows it to be appealable. Rule 1:4(k) – equitable defenses now Basically, legal and equitable defenses can be raised to any pleading. A party asserting a claim, counterclaim, cross-claim, or defense may plead alternative facts against alternative parties if they arise out of the same transaction. Legal vs. equitable title in ejectment Generally, the party having legal title must prevail against the holder of mere equitable title. Therefore, if someone is defrauded and therefore has equitable title and another innocent party buys property and has legal title, the legal title wins. To eject, the ejector must have legal title. Does a litigant have a constitutional right to trial by jury in equity? No, no constitutional right and no statutory right. What kind of remedy is injunction? It is an extraordinary remedy available only in equity. You must show 1) likelihood of success, 2) irreparable injury, 3) harm to D doesn’t outweigh harm to P, 4) conforms with public policy. collateral source rule is a rule of evidence that prohibits the admission at trial of evidence that a victim's damages were compensated from some other source of compensation. For example, in a personal injury action, evidence that the Plaintiff's medical bills were paid by medical insurance are not admissible. The collateral source doctrine has come under attack by "tort reform" advocates. They argue that if the Plaintiff's injuries and damages have already been compensated it is unfair and duplicative to allow an award of damages against the tortfeasor. Doctrine of “virtual representation” A contingent beneficiary (that do not have vested interests) can be represented by another contingent beneficiary where their interests are sufficiently similar to ensure adequate representation. They are not “necessary parties.” Maxim: Equity will treat as done… That which ought to be done. Can equity rewrite a K? Equity has jurisdiction to reform an instrument if it does not express the intent of the parties. Equity should give effect to the true intent of the parties despite the contrary intent reflected in writing. One must come into equity with clean hands This does not require suitors to have led blameless lives. The misconduct relied on must relate directly to the matter in litigation. It cannot be remotely or indirectly related. Equity aids only the vigilant One who seeks equity must do equity. Equity will not assist one who has slept too long on his rights to the prejudice of another. No rigid rule can be laid down as to what delay will constitute laches – depends on the circumstances. He who seeks equity must do equity. Enjoined from cutting off P’s water supply. Why do you always include a general Equity can mold the pleadings – equity will be more lenient with the remedy if the facts Corporate Acquisitions: Outline Philip Larson Page 8 prayer for relief? justify a remedy. When SOL has expired, Chancellor’s have done the right thing under a theory of equity under a general prayer for relief. In Virginia, can a P recover more than he sues for? (The Hook Rule) No. P may not recover more than he sues for. He can recover less. This is the Hook Rule. If a D defaults by not filing an answer, can he challenge damages? General rule is that a jury fixing unliquidated damages after defeault, D may not make any defense to the action but may introduce evidence to mitigate damages. Peppercorn Rule A court typically will not concern itself with the amount of consideration as long as there is some consideration and the parties are on equal footing. What about a family that agrees to give caregivers $1500 for their time and energy that is challenged by trustee? Typically, you would argue no consideration. However, in Va. equity may allow this. “A Court of equity looks with favor upon family settlements and is not meticulous in seeking to discover legal complications. Exception to peppercorn rule Where consideration is unconscionable because it is so inadequate that it shocks the conscience of the court, the chancellor should scrutinize the transaction for actual or constructive fraud or duress. When a third party gets money from someone old, infirm, ill and nearly blind? Courts of equity will look to adequacy of consideration to see if there is undue influence or fraud. Fraud must be proved by… Clear and convincing evidence Duress must be proved by… Clear and convincing evidence. Is specific performance a matter of right? No, it is in the sound discretion of the court. Estoppel in pais Same as equitable estoppel. Basically means that a person who induces another by his statements or actions to believe a certain state of facts and rely on them in good faith and acts upon the belief to their detriment, the person making the statement cannot later the existence of a different state of facts. Therefore, it requires 1) representation or concealment of material facts, 2) knowledge of true state of facts, 3) intent that other party act on it, 4) other party must believe the representation, 5) other party was induced to act, 6) resulting in injury. Difference between promissory estoppel and equitable estoppel. The difference between the two, equitable estoppel involves a reliance on a factual assertion (most times a lie) and not a promise. Classic case of equitable estoppel Wife, after filing for divorce, let husband back into the house and told him he need not file an answer. This deceit calls for an equitable extension of time to file an answer. Mutuality requirement for estoppel General rule is that a party cannot take inconsistent positions in successive suits. However, this does not apply to a prior proceeding in which the parties are not the same as those in the action in which estoppel is being asserted. Mutuality required to support estoppel is absent. Typically, to grant rescission the court must Be able to restore parties to the position they had before entering the K. This general rule is not strictly enforced when… There is fraud. Otherwise, this would be a loophole to escape the consequences of a fraudulent act. (e.g. husband lies to divorcee about accounts and claims equitable estoppel because he has paid spousal support, wife has taken the house, and they can’t be brought back to the status quo ante – court says it doesn’t matter; one must come into equity with clean hands). In attempting to find a K unconscionable, it is important to remember that The law presumes that every adult party who executes an agreement is mentally competent to enter into a K. Laches Equity aids the vigilant, not the negligent. Laches is an equitable defense, or doctrine, in an action at law. The person invoking laches is asserting that an opposing party has "slept on its rights", and that, as a result of this delay, that other party is no longer entitled to its original claim. Put another way, failure to assert one’s rights in a timely manner can result in claims being barred by laches. Laches is a form of estoppel for delay. This typically requires that the party invoking the doctrine have changed its position as a result of the delay Another definition of constructive fraud Constructive fraud is a breach of legal or equitable duty which, irrespective of the moral guilt of the fraud feasor, the law declares fraudulent because of its tendency to deceive others, to violate public or private confidence, or to injure public interests. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud. Does laches apply in a situation where the claim is made within the SOL? No. Does laches apply in Va.? No. It does apply in DC. Equity will not enforce specific Free of fraud, misrepresentation and mistake. Corporate Acquisitions: Outline Philip Larson Page 9 performance of a K unless it be equitable and… To be a mutual mistake the mistake must be Common to both contracting parties. Parol evidence is not enough to show what one of the parties thought. Can parol evidence be used to show mutual-mistake of thought? No, not if it conflicts with the written commitment. Can you get equitable relief for a mistake of law? Generally no, unless there are exceptional circumstances (e.g. Pillow and his wife thought he could write off alimony in his taxes. Both parties were mistaken but there was no equitable relief for husband). Court appointment of commissioners (Rule 3:23) New Rule 3:23 says Commissioners in chancery can be appointed when 1) parties agree, or 2) court finds good cause to do so. Code empowers every court of equity to appoint commissioners needed for the convenient dispatch of the business of the court. Appointing a commissioner should be done… After pleadings and proof are sufficient to show the propriety of doing an accounting. Appointment should not be a substitute for discovery. How is the commissioner kept in check? The court can enter a decree directing the Commissioner to pay back the money under threat of contempt. However, if the court enters a judgment rather than a decree, he can’t find the Commissioner in contempt. To get the money you would have to go through the standard process for enforcing the judgment. Can you appoint a commissioner prior to D filing an answer? No. This deprives D of benefit of an answer. The order is premature. Accounting should not be ordered in any case unless it is necessary for the proceedings. What if the commissioner is tainted? If one of the parties gives the commissioner money, or there is some other “taint” that causes suspicion of improper influence, a motion to set aside the commissioner’s report may be granted. General receivers May be appointed by court to hold all moneys paid under judgment and pay out or dispose of the moneys as the court orders or decrees. Receivers keep property safe and secure while legal rights are thrashed out in court. Does a receiver make legal decisions? No, but he does control the property. Receivers conserve the property. Active vs. Passive receivers In an antitrust case, a receiver is appointed and manages the corporation. This is active. Passive receivers simply hold the property. Who decides whether to appoint a receiver? Appointment of a receiver rests in the sound discretion of the court but it should be cautiously exercised (because it is expensive). When can a court of equity appoint a receiver in a corporation? Generally it can only do this if there is proof of insolvency, fraud, waste or improper conduct. The appointment of the receiver does not affect vested rights of third parties or modify the priority of existing liens. What if you object to who is appointed as receiver? Court has discretion to appoint whoever they want as receiver. In corporations, courts are loathe to replace board members as long as they are uninterested. A party may rescind a K for Actual fraud or constructive fraud. Actual fraud you may even get punitive damages. Rescission is the counterpart of Specific performance and both are at the sound discretion of the court. Equity aids the vigilant, not the negligent in both cases. Inexcusable delays will prevent ability to rescind. Rescission for breach of K Rescission will not be granted for breach of a contract which is not of such substantial character as to defeat the object of the parties in making the contract, or where the remedy at law is plain, adequate and complete. (e.g. purchase of theatre K rescinded for not providing lessor theatre tickets? No.) Example of a constructive trust Lady induced to buy property by Guy who promises not to drink and promises to work the land in exchange for being a remainderman of the land. (Rule: Whenever the legal title to property, real or personal, has been obtained through actual fraud, misrepresentations, concealments, or through undue influence, duress, taking advantage of one's weakness or necessities, or through any other similar circumstances which render it unconscientious for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one who is truly and equitably entitled to the same, although he may never perhaps have had any legal estate therein.) Court’s refusal to grant specific performance A man who calls for specific performance must be able to show that his conduct has been clear, honorable and fair. It is a principle in equity that the court must see its way very clearly before it will decree specific performance, and that it must be satisfied as to the integrity and good faith of the party seeking its interference. Corporate Acquisitions: Outline Philip Larson Page 10 Equitable remedy of reformation of K is available in two situations: 1) where there is mutual mistake of fact (not of law), or 2) there is a unilateral mistake accompanied by fraud or misrepresentation of the other party. (guy whose lawyer screwed up and promised ex-wife 100% instead of 50% was not a mutual mistake, it was a unilateral mistake) To set aside a K based on undue influence there must be… 1) great weakness of mind concurs with gross inadequacy of consideration and circumstances of suspicion, the transaction will be presumed to be brought about by undue influence, 2) where one person stands in a relation of special confidence towards another Pleading in the alternative A party asserting either a claim, counterclaim, cross-claim, or third-party claim or a defense may plead alternative facts and theories of recovery against alternative parties, provided that such claims, defenses, or demands for relief so joined arise out of the same transaction or occurrence. Indemnity Indemnification is a promise, usually as a contract provision, protecting one party from financial loss. Indemnification is a type of insurance, which protects one party at the expense of the other. Indemnification can either by direct payment or reimbursement for the loss. Indemnification clauses cannot usually be enforced for intentional tortious conduct of the protected party. Surety A surety is a person who agrees to be responsible for the debt or obligation of another. Additionally, The situation in which a surety is most typically required is when the ability of the primary obligor or to perform its obligations under a contract is in question, or when there is some public or private interest which requires protection from the consequences of the principal's default or delinquency. In most common law jurisdictions, a contract of suretyship is subject to the statute of frauds (or its equivalent local laws) and is only enforceable if memorialized by a writing signed by the surety. Subrogation If the surety is required to pay or perform due to the principal's failure to do so, the law will usually give the surety a right of subrogation, allowing him to recover the cost to him of making payment or performance on the principal's behalf, even in the absence of an express agreement to that effect between the surety and the principal. Surety vs. indemnity Surety is a tripartite agreement between principal obligor, his oblige and a surety where surety makes a direct promise to perform the obligation in the event the principal obligor fails to perform. An indemnity is a bilateral agreement between indemnitor and an indemnitee in which indemnitor promises to reimburse his indemnitee for loss suffered or to save him from liability. The indemnitor makes no promise to perform the obligation and has no privity with any third parties. May an indemnitee recover reasonable attorney’s fees and expenses of litigation? Yes, if it is in the K. In a situation with multiple wrongdoers can you settle with one and proceed against the others? Yes. At common law you couldn’t, but now you can. At common law releasing one would have released them all. Schiflet v. Eller A car accident occurred prior to 1979 law allowing you to settle with one wrongdoer and go after the rest. Court said that P could not go after D2 after settling with D1 because the substantive rights of D2 cannot be impaired retroactively. Ex-post facto laws are… Unconstitutional. Equitable subrogation Surety can gain the rights of the insured through equitable subrogration. He stands in privity to third parties as if he were the insured party. Equitable subrogation allows an insurer who paid defense costs to be placed in the insured's position to pursue full recovery from another insurer that is primarily responsible for the loss. Subrogation of employer in worker’s compensation cases If employee settles with the negligent party he effectively kills the subrogation rights of the employer and the workers compensation commission. Therefore, he lost his future compensation from employer. Your sole remedy against the employer is through workers compensation insurance. If there is another party that might be liable, you can’t settle without consent of workers’ compensation group because they have subrogation rights. Guaranty vs. Surety A contract of guaranty is different than surety. Guaranty is a secondary obligation and surety is a primary obligation. Contract of the guarantor is his own separate undertaking, in which the principal does not join. The guarantor contracts to pay, if, by the use of due diligence, the debt can’t be made by principal debtor. A surety undertakes directly for payment and is Corporate Acquisitions: Outline Philip Larson Page 11 responsible at once if debtor makes default. In other words… Guaranty will pay if debtor can’t while surety pays if debtor doesn’t. Surety is insurer of the debt, guarantor is insurer of the solvency of the debtor. When debtor defaults, what happens in surety vs. guaranty? Surety is assumed to know Maxim: equity deals in substance… Not in form. Contract implied in law A contract which is implied in law is also called a quasi-contract, because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. Quantum meruit “as much as he has deserved” means that in a contract in law where someone provides services mistakingly to D and D is aware and doesn’t say anything, D owes P the “reasonable value of services.” What is a quasi-contract? A contract implied in law to prevent unjust enrichment. What are the elements of a quasicontract? 1) benefit conferred on D by P, 2) knowledge of D of the conferring of the benefit, 3) acceptance or retention of the benefit that would render it inequitable for D to retain benefit without paying its value. Assumpsit vs. quasicontracat In a situation where someone overused an easement there was always a tort but often it would result in nominal damages. Under these theories, if P could show that there was an express or implied contract, he could waive the tort and bring an action in assumpsit for the benefit the D had gained through unjust enrichment. Lesson from Sonoma Development Negative easements prohibiting construction within 3 feet of property line was upheld. Cavalier development company had to tear down the house rather than pay just compensation. This was a harsh result. Restrictive covenants Are upheld in Virginia. You can get injunctions to prevent people from breaking them. Injunctions are pure equity remedies and the elements are: 1) substantial likelihood that you will prevail in the case, 2) you will suffer irreparable injury, 3) threatened injury outweighs whatever damage the proposed injunction would cause opposing party, and 4) showing that the injunction would not violate public policy. Note on injuctions and equitable maxims Equity will balance the interests of the parties. What does “balancing the equities” mean? Court will not interfere with a mandatory injunction without taking into consideration the comparative convenience and inconvenience it would cause to the parties. If the injury done is capable of being fully compensated while the inconvenience to other party of granting the injunction would be serious the court will not impose it… Injunction in equity is in the Sound discretion of the court. It won’t be awarded if injury to D is greater than benefit to P if P can be adequately compensated in damages. Local 333B and ignoring injunctions Though an injunction is granted erroneously, it is the duty of the parties to obey it. Their remedy is appeal. They may be punished by the court for their contempt if they violate it. Can you conspire to induce a breach a K? Yes. The common law recognizes a cause of action against those who conspire to induce the breach of a contract, even when one of the alleged conspirators is a party to the contract. What about efficient breach? Who knows…but in VA, if you conspire to induce someone to breach a noncompete agreement or another contract that “willfully and maliciously injuring another in his reputation, trade, business or profession” you may be liable for conspiring to breach a K. Elements of tortious interference w/K Damages vs. specific performance There is a bias against specific performance but in some cases damages are very hard to measure. In realty, specific performance is usually granted although this is getting eroded with cookie cutter houses. Realty Typically specific performance but it is getting eroded. Sale of goods Typically damages. Personal contracts (e.g. opera singer) Generally won’t enforce these. Limited to damages. § 8.2-716. Buyer's right to specific performance Specific performance may be decreed where the goods are unique or in other proper circumstances. Note: the maxim that specific performance is inappropriate where damages are recoverable and adequate still exists in Va. Does equity override efficiency? If P’s breach their duties, they are not entitled to specific performance. “he who asks equity must do equity” and “he who comes into equity must come with clean hands.” Uncertainty of value This can be a factor in deciding whether to grant damages or specific performance. “a court Corporate Acquisitions: Outline Philip Larson Page 12 may specifically enforce a K to deliver stock where the stock is not readily purchasable in the market and its pecuniary value is uncertain and not easily ascertainable. Look for the most complete and adequate remedy. Can parol contracts be specifically enforced? In some circumstances, yes. The parol agreement must be definite. Additionally, if the services are peculiar (e.g. taking care of a dying man, clearing bed bugs, etc.) that it is impossible to estimate the value, specific performance may be granted. What are the damages for a seller refusing to give up property to a buyer? The measure of damages for failure of the seller to convey as agreed is the purchase money plus interest from date of payment. If the seller willfully refuses to sell or voluntarily makes it impossible to convey, he is liable for lost profits too. Contempt willful failure to obey an order of the court can lead to fines and jail time. Criminal contempt involving imprisonment of more than six months Include a right to jury trial Civil contempt sanctions Penalties designed to compel future compliance do not get a jury trial nor proof beyond a reasonable doubt. Criminal vs. civil contempt Civil contempt is if the sanction is meant to benefit the complainant. Criminal contempt is if it is punitive to vindicate the authority of the court. Civil imprisonment vs. criminal imprisonment for contempt. In civil, the confinement may be indefinite until he complies with an affirmative command of the court (e.g. return property, pay alimony, etc.) but he holds the “keys” in his own pocket. In criminal, the imprisonment is for an act of disobedience and the D has no key to shorten the term by promising not to repeat the offense. In contempt cases, look at… Whether D has the keys to his own freedom. If not, it is criminal and he gets a right to jury if imprisioned for more than 6 months. If he does, it is civil and he gets no jury trial. What if decree does not have a command, it merely allocates rights? You cannot be in contempt if the decree does not command you to do anything. There must be an express command or prohibition that is violated to be guilty of contempt. Local 333B rule Even if you believe the order to be invalid, you must follow it and your remedy is to appeal. EXAM: Jurisdiction of equity to force a sale to enforce a judgment lien Jurisdiction to enforce a judgment lien is in equity. If it appears that the rents and profits of the real estate subject ot the lien will not satisfy the judgment in five years, the court may have it sold to discharge the judgment. Upset bid A recorded bid placed after a foreclosure sale has ended that is higher than the highest bid received at the actual foreclosure sale. Sometimes a court will accept an upset bid if… The property doesn’t get fair value, there seems to be impropriety, or equity simply demands it. Can the judge appoint a special commissioner to execute instruments on behalf of an unwilling party? Yes. It has the full weight as if it were executed by the actual party. Secured interests overview… 1) can’t show preferences, 2) secured interests have priority over general creditors, 3) secured interests must attach and be perfected. § 55-80 Void Fraudulent Conveyances Any conveyance with “intent to delay, hinder or defraud creditors” is void. § 5581 Voluntary Conveyances If you transfer something while insolvent for no consideration, this is a voidable preference or fraudulent conveyance. EXAM: if something looks like a creditor is moving assets around talk about… 1) fraudulent conveyance (intent to delay, hinder or defraud creditors), and 2) lack of consideration. Dominion and control exception to voluntary conveyances If you have an interest in an estate, you can typically disclaim it. However, if you exhibit dominion and control over the estate, by signing contracts, etc., you get rid of your right to disclaim and creditors can come after you. SOL for a constructive trust A constructive trust is an equitable remedy and therefore is not subject to the statute of limitations. Defense of Laches A successful defense of laches has two elements: an unreasonable and unexplained delay by one party, and prejudice to the other party resulting from the delay. Fieri facias Fieri facias is a writ of execution after judgment obtained in action of debt or damages. It is addressed to the sheriff, and commands him to make good the amount out of the goods of the person against whom judgment has been obtained. Typically, a judgment creditor will record a fi. fa. with the land records of the locality in which the debtor is believed to own real property. The fieri facias acts as an encumbrance preventing the property from being sold without satisfying the judgment. Corporate Acquisitions: Outline Philip Larson Page 13 Lis pendens A written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property. The lis pendens (or notice of pending action) is filed with the clerk of the court, certified that it has been filed, and then recorded with the County Recorder. This gives notice to the defendant who owns real estate that there is a claim on the property, and the recording informs the general public (and particularly anyone interested in buying or financing the property) that there is this potential claim against it. An accounting is a Remedy in equity. If you don’t agree with the Commissioner’s report, you file an exception. EXAM: If there is no fiduciary duty… You cannot get an accounting. EXAM: if there is a commissioner you should talk about… 1) filing exceptions, Exceptions are… Basically special demurrers in which a party points out an error in the Commissioner’s report. The part not excepted to will be taken to be admitted. Accounting and fiduciaries An accounting in equity may be had against any fiduciary…for receiving more than comes to his just share or proportion. What happens if I lose a note saying you owe me money? You can still maintain a civil action. Equity can enforce the payment. Resulting trust a trust implied by law (as determined by a court) that a person who holds title or possession was intended by agreement (implied by the circumstances) with the intended owner to hold the property for the intended owner. Thus, the holder is considered a trustee of a resulting trust for the proper owner as beneficiary. Although a legal fiction, the resulting trust forces the holder to honor the intention and prevents unjust enrichment. (e.g. A goes on vacation gives $100k to B telling them to buy property if it becomes available and B puts title in his name. Constructive trust when a person has title to property and/or takes possession of it under circumstances in which he/she is holding it for another, even though there is no formal trust document or agreement. The court may determine that the holder of the title holds it as constructive trustee for the benefit of the intended owner. This may occur through fraud, breach of faith, ignorance or inadvertence. (e.g. when persons agree that the proceeds of a venture are joint property and one acquires an interest adverse to the other equity will convey the proper interest) Express trust an entity created by affirmative intention to hold assets for the benefit of certain persons or entities Can express trusts be created by parol? Yes. Does a resulting trust require an express declaration? No. Its existence depends on an equitable presumption of intention of the party providing the purchase money. Doctor’s practice – example of constructive trust D1 and D2 have partnership. D1took advantage of D2’s medical situation. Court imposed a constructive trust in favor of D2 for ½ the profits. D1 breached his duty of good faith and loyalty. Does a constructive trust require intention of the parties? No, according to Osheroff a constructive trust is created by operation of law and is independent of the intention of the parties. It can arise from a breach in fiduciary duty as well as from actual fraud or unconscionable conduct amounting to constructive fraud. Can a constructive trust be imposed on an innocent person’s stuff? Yes, the innocent need not be a wrongdoer. (e.g. husband fails to keep a promise, the newer beneficiary is blameless and may be named a constructive trustee of the policy proceeds to prevent unjust enrichment. Mechanics lien Mechanics when doing repairs get a lien for the just and reasonable charges and retain possession of the property until the charges are paid. The lien goes up to $500. What types of statutory liens are there? Attorney’s liens and mechanics liens and others… TO be valid a lien must 1) attach, and 2) be perfected. Perfection serves as notice to the world that the property is encumbered. Perfection is to be construed strictly What is strict construction? It is the rule from American Standard Homes that perfection of security interests in Virginia are to be strictly construed. Does the Chancellor have the power to relocate an easement in a court of equity? No. The parties either have to agree on a new one or clear way for the old one. Positive “affirmative” easements Convey privileges on the part of one person or owner of the land (dominant tract) to use the land of another (servient tract) in a particular manner or for a particular purpose. Corporate Acquisitions: Outline Philip Larson Page 14 Negative easements (aka ‘servitudes’) Legal right to object to a use of the servient tract by its owner inconsistent with the terms of the easement. Negative easements have been described as consisting solely of “veto power” Is there a valid action for ejectment? Yes. You can only bring the action if you have a right in the property. Can you bring an equitable defense to an ejectment action at law? Yes. To establish negligence and get damages you have to show: 1) a duty existed, 2) prove the duty was breached, and 3) prove damages. If you prove negligence are the damages direct or circumstantial? Direct damages are compensable. Circumstantial damages are too unrelated to be compensable. Punitive damages in breach of K? No, as a general rule damages for breach of K are limited to pecuniary loss. The theory is compensation not punishment. Limited to losses reasonably foreseeable when K is made. Tort actions have punitive? Yes, to further protect P’s interests, punitive damages may be awarded to punish the wrongdoer and deter similar conduct. Direct damages “Direct damages are damages claimed and/or awarded in a lawsuit which were caused as a direct foreseeable result of wrongdoing. Direct damages arise ‘naturally’ or ‘ordinarily’ from a breach of K. They are damages which in the ordinary course of human experience can be expected to result from a breach. Consequential damages Seems like in VA this is the opposite of direct. Exemplary damages Punitive damages. In the sale of goods when a buyer fails to perform the seller may… Sue for the purchase money of the goods delivered or retain the goods as his own and sue for damages. What is a lost volume seller? A lost volume seller is a term that arises in the law of contracts to describe a party whose capacity to produce the items sold is sufficient to meet the demands of all customers who seek to buy those items. Therefore, the failure to make one sale reduces the seller's profits by the amount of that one sale. Damages for a lost volume seller are… Lost profits. It doesn’t make sense to allow lost profits if it is not a lost volume seller because the seller could sell the retained goods and get the profit and also get a judgment award from the nonperforming D. This would be a windfall. In a breach of warranty action for a faulty copier, what are damages? Party must present evidence of the FMV of the existing goods and what they would have been if they had been as warranted. The difference in valuations is the measure of damages. Damages for misappropriation of trade secrets and for breach of confidentiality provision in K are… The same in Va. Damages can include both the actual loss cuased by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. If P can’t prove that damages exceed this amount, P can get… Reasonable royalty for the misappropriation of the trade secret. Damages when D willfully refuses to convey real property to purchaser P. Under Williams v. Snider, you can get lost profits. The “Track Record” rule for lost profits A new business’ profits are “too speculative” to be included in damages. Va Code’s take on the “Track Record” Basically overruled it saying “Damages for lost rofits of a new or unestablished business may be recoverable upon proper proof. The party shall not be deemed to have failed to prove lost profits because the new or unestablished business has no history of profits. Whether damages are direct or consequential is… A matter of law for decision by the court. Consequential damages are damage, loss or injury that does not flow directly from the act of the party, but only from some of the consequences or results of such act. To sue for economic loss there must be Privity. You can’t go directly after subcontractors. In a suit for breach of warranty, there must be Privity of K. You can’t go directly after the subcontractors. Rule limiting to recovery of economic losses Applies in product-liability cases where the product only “injures itself”. This also applies in a real estate situation (e.g. house pool floods but no person is injured) When may consequential damages be granted to P? When there are special facts known to the D at the time of the K that would give notice to him that a breach of the K would result in an otherwise unexpected loss. If the special circumstances are communicated to D, damages based on breach might reasonably be presumed to be contemplated by the parties. If damages are contemplated by both parties… They are recoverable, even if consequential. Corporate Acquisitions: Outline Philip Larson Page 15 Can you contract to limit your damages? Yes. If you are on equal bargaining power, you can bargain for zero direct or consequential damages of breach. However, you can’t contract to limit… Damages for consumer injuries. This would be unconscionable. (e.g. guy buys Ford and is severely injured by problem with Ford cars). Why can’t you contract to limit damages for consumer injury? Small print, unequal bargaining power, contrary to public policy, sophistication of parties. EXAM: when you get a damages question, be sure to talk about direct vs. consequential and the foreseeability of the damages. A new definition of consequential damages Arise from the intervention of special circumstances not ordinarily predictable. Consequential damages are compensable only if it is determined that the special circumstances were within the contemplateion of the contracting parties at the time of contracting. What does “in the contemplation of the parties” mean? Contemplation includes both that which is actually foreseen and that which is reasonably foreseeable. Who decides whether damages are direct or consequential? The court. Who decides whether special circumstances were in the contemplation of the parties? Jury. Duty to mitigate damages You have a duty to mitigate damages. What must you show to get punitive damages (for nuisance)? Evidence that D’s acts were “willful or wanton” and “malicious”. The Truck case didn’t constitute this because they made efforts to reduce the nuisance. Are lost profits typically direct or consequential? Typically consequential. However, Williams v. Snider gives lost profits when seller willfully withholds property from buyer. Assignment An assignment is a transfer of a right or obligation under a contract, but every transfer does not constitute an assignment. As a general rule the contract payment obligation arising under a contract may be assigned to a third party; the assignment or transfer may be made to appear by oral statements of the parties, or by their acts and conduct. Equitable assignment For an equitable assignment of a contract payment obligation to occur, the assignor must not retain any control over the fund or property assigned, any authority to collect, or any form of revocation. In Va, can P recover more than the amount sued for? No. Conspiracy to induce breach of K? While punitive damages are not available for breach of K, they are available for conspiracy to induce breach of K. The standard for punitive damages is at the discretion of the jury. What is the limit on punitive damages in Va? $350k. If damages are uncertain, contingent or speculative… They cannot be recovered. Burden is on P to prove the damage “within a reasonable degree of certainty.” When damage is caused by multiple sources? It is for a jury to determine from the evidence what part is attributable to D and what part other persons. Burden is on P to show the amount of damages attributable to each cause. What is the standard of proof required when damage is result of multiple causes? Reasonable certainty. Statutory conspiracy vs. common law conspiracy Under statutory conspiracy in Va, you can get treble damages and attorney’s fees. Under common law, you can’t get this stuff. Can you get double recovery? No. In the US you have to pay your own attorney’s fees except when: 1) contract, 2) statute, 3) fraud (at discretion of court), 4) trustee from estate, 5) false imprisonment. General rule on attorney’s fees Generally, attorney’s fees should not be allowed in a breach of K unless specifically contracted for or are fixed by statute. Fraud getting you attorney’s fees In a fraud suit, chancellor can use his discretion to award attorney’s fees to defrauded party. Bershader – also stands for the fact that Va allows negative easements. If there is no clause in a K discussing Recover a fee for the reasonable value of the services rendered (quantum meruit) . Corporate Acquisitions: Outline Philip Larson Page 16 compensation, a lawyer is entitled to Factors to determine the reasonable value of services rendered include 1) amount and character of services, 2) responsibility imposed, 3) skill and experience called for, 4) character and standing in their profession as attorneys, 5) whether fee is absolute or contingent, 6) etc. When does statute of limitations begin to run? Typically, SOL runs at the time the right of action accrued. However, if there is a continuation of services the SOL doesn’t begin until termination of the undertaking Is a 10% legal fee on a contingent recovery excessive? No. However, if they get to be 50%+ of the award… The courts will begin to strike them down as unreasonable. Can court award attorney’s fees in divorce cases? Yes, at court’s discretion. Wide discretion. Common fund doctrine If one creditor sues for himself and others for their common benefit, those that derive benefit shall bear the proportion of the expense and not throw the whole burden on one. If the other creditors have their own lawyer, they do not have to contribute in Va. An attorney working for a contingent fee that is discharged is allowed to get Compensatin for the reasonable value of services rendered at time of discharge. What is Tortious Interference w/K One who intentionally and improperly interferes with the performance of a K between another and a third person by inducing the third party not to perform is subject to liability to the other for the pecuniary loss. EXAM: elements of tortious interference with contract 1) existence of a valid K or business expectancy, 2) knowledge of the relationship or expectancy on the part of the interferor, 3) intentional interference inducing breach, 4) resulting damage. Can a cause of action for conspiracy to breach a K be brought against a party to the K? Yes. Is malice required for tortious interference of K? No, although knowledge of the business relationship and intent to disrupt it are requirements. Statutory conspiracy to injure a business Any two or more people who mutually undertake to willfully and maliciously injure another in his reputation, trade, business or profession are guilty of misdemeanor. What are damages for the statutory conspiracy to injure a business? Treble damages, attorney’s fees. Intracorporate immunity doctrine Because at least two ppl must be present to form a conspiracy, a corporation cannot conspire with itself. A corporation is a legal entity that can only act through its agents, officers and employees. Therefore, a conspiracy between a corporation and the agents of the corporation acting in the scope of their employment is a legal impossibility. Can you get a conspiracy claim for officers of the same corporation? Not under the intracorporate immunity doctrine unless they are acting outside the scope of their employment. “Personal stake” rule Under this exception to the intracorporate immunity doctrine, the corporate agents can conspire if they have interests other than those as a fiduciary of the company. Tortious interference with K elements 1) existence of business relationship or expectancy, 2) D’s knowledge of relationship, 3) reasonable certainty that absent D’s intentional conduct, P would have continued in relationship, 4) damage to P. Covenants not to compete are Strictly construed in Va. If there are multiple interpretations, the one most favorable to the employee is taken. Factors to look at in a non-compete 1) is it no greater than is necessary to protect the employer in some legitimate business interest? 2) is it unduly harsh and oppressive in curtailing employee’s legitimate interest in earning a livelihood, 3) is it reasonable from standpoint of sound public policy? Self-dealing in the corporation Director cannot directly or indirectly acquire personal advantage or make any profit for himself at the expense of the corporation. He has a fiduciary duty to the corporation. Business judgment rule Limits power of courts in reviewing the internal management of corporate affairs. They won’t question the judgment. Directors are presumed to have acted properly and in good faith in the exercise of their business judgment. Types of things directors get in trouble for 1) excessive compensation, 2) related party transactions (self-dealing) without showing entire fairness, 3) not paying dividends in closely held corporations. Corporate Acquisitions: Outline Philip Larson Page 17 What is one remedy that exists in Va when directors abuse their powers? Liquidation of the company. Are courts generally reluctant to order liquidation? Yes. However, under the statute the remedy is “exclusive” and does not allow the trial court to fashion equitable remedies. How does respondeat superior work? P meets burden of producing prima facie case by showing an employer/employee relationship. This triggers presumption of liability and imposes on D burden of rebuttal by proof that employee departed from this relationship (acting “outside scope of employment”) Negligent hiring? Simmons test in Va accepts the idea that an employer may be liable for negligently placing an unfit person in an employment situation involving an unreasonable risk of harm to others. Protecting against criminal acts of 3rd parties In Va, a business owner is ordinarily under NO DUTY to protect against criminal acts of 3rd parties also on the premises. Constructive trusts in equity Constructive trusts have been said to arise through the application of the doctrine of estoppel, or under the broad doctrine that equity regards and treats as done what in good conscience ought to be done. Their forms and varieties are practically without limit, being raised by courts of equity whenever it becomes necessary to prevent a failure of justice. What is a court’s power regarding rescission? The decision in a suit for rescission, the counterpart of a suit for specific performance, is addressed to the sound discretion of the trial court. Ordinarily, rescission will not be granted for breach of a contract that is not of such substantial character as to defeat the object of the parties in making the contract. Should you rescind a K if it is not performed exactly? No, ordinarily, rescission will not be granted for breach of a contract that is not of such substantial character as to defeat the object of the parties in making the contract. Are constructive trusts only based off the intention of the parties? No, constructive trusts arise, independently of the intention of the parties, by construction of law; being fastened upon the conscience of him who has the legal estate, in order to prevent what otherwise would be a fraud. They occur not only where property has been acquired by fraud or improper means, but also where it has been fairly and properly acquired, but it is contrary to the principles of equity that it should be retained, at least for the acquirer's own benefit. Can a constructive trust be created by parol evidence? Yes, A constructive trust may be proved by parol evidence, provided the evidence is clear and convincing. How do you set aside a K for undue influence? To set aside a deed or contract on the basis of undue influence requires a showing that the free agency of the contracting party has been destroyed. Because undue influence is a species of fraud, the person seeking to set aside a contract must prove undue influence by clear and convincing evidence. When do you presume undue influence? A presumption of undue influence arises if 1) weakness of mind, 2) grossly inadequate consideration, or 3) suspicious circumstances exist, and a fiduciary or confidential relationship are established by clear and convincing evidence. What must you show for common law conspiracy to injure a business? To recover in an action for statutory conspiracy to harm a business, a plaintiff must prove a combination of two or more persons for the purpose of willfully and maliciously injuring another in his reputation, trade, business or profession What is the C/L conspiracy to injure a business? The common law recognizes a cause of action against those who conspire to induce the breach of a contract, even when one of the alleged conspirators is a party to the contract. Difference between constructive fraud and actual fraud? Scienter. Also, you can get attorney’s fees for actual fraud but not constructive. Injunction An injunction is an extraordinary remedy available in equity. To get a preliminary injunction, P must show 1) a substantial likelihood of success, 2) irreparable harm if the injunction is not granted, 3) that the harm to P if it is not granted is not outweighed by the harm to D if it is granted, and 4) that the injunction would conform to public policy. One who comes into equity must come with clean hands. One who seeks equity must do equity. This does not mean that P’s have to live blameless lives. Their wrongdoing has to relate to the subject matter at hand. Collateral source rule Corporate Acquisitions: Outline Philip Larson Page 18 Prohibits admission of trial evidence that a victim’s damages were compensated from some other source. This has come under attack by “tort reform” advocates. However, if you have paid premiums on multiple insurance policies, you should be able to recover from both of them. Constructive trusts Equity will treat as done that which ought to be done. Equity can “mold the pleadings” – ask for a general prayer for relief. Equity will treat as done that which ought to be done. Hook’s Rule: P could not recover more than he sues for. However, this is no longer the rule in Va. Peppercorn rule – a court typically will not look to the amount of consideration as long as there is some consideration and the parties were on equal footing. However, a court of equity can rescind a K if consideration is grossly inadequate or unconscionable so that it shocks the conscience of the court. -family settlement exception – the court of equity looks with favor upon family settlements. -Undue influence exception – if there is undue influence or fraud, the court will look to the adequacy of the consideration. You must show fraud or duress by clear and convincing evidence. To set aside a K based on undue influence there must be 1) great weakness of mind, 2) or a special confidence that was abused. Fraud – the standard of review for fraud is clear and convincing evidence. Similar to duress. Equitable estoppel – when someone induces another by their statements or actions to believe a certain state of facts and the other believes the statement and relies on the statement in good faith to their detriment, a court may say that the initial party is estopped from taking a contrary position later. The elements require 1) a representation or concealment of material fact, 2) Promissory estoppel – there is no promissory estoppel in Va. promissory estoppel requires D to make a promise to P, without consideration, that P relies on to his detriment. Equitable estoppel requires a statement or conduct that implies a certain state of the world. Equitable estoppel – while the party cannot take inconsistent positions in successive suits with the same party, they may do this for other parties. Estoppel requires mutuality. Status quo ante – to grant a rescission, the court typically must be able to restore the parties to the position they were in prior to entering into the K. Rescission is an extreme remedy and is disfavored in situations where the breach has not frustrated the overriding purpose of the K. Equity aids the vigilant but not those who sleep on their rights. You can not gamble with other people’s money. However, you can rescind a K and not restore the status quo ante in situations where there is fraud. One who seeks equity must do equity. You must come into equity with clean hands. Laches – an equitable defense asserting that the other party has slept on their rights. Failure to assert one’s rights in a timely manner can result in a claim being barred by laches. Laches is a form of estoppel based on an unreasonable delay. Equity aids the vigilant, not one who sleeps on their rights. Constructive fraud – a breach of a legal or equitable duty which the law declares fraudulent because of its tendency to deceive others. Constructive fraud does not require scienter or intent to defraud. It merely requires 1) a statement or action, 2) Specific performance – equity will not enforce specific performance where there is fraud, mistake, or undue influence. It is in the sound discretion of the court. One who seeks equity must do equity. Therefore, the party calling for specific performance must show that their conduct has been clear, honorable and fair. Rescission – is the counterpart to specific performance and is also in the sound discretion of the court. It is an extreme remedy and is disfavored in situations where the overriding purpose of the K has not been frustrated. Recission may be warranted if there is fraud or mutual mistake. You can rescind for both actual fraud and constructive fraud. Rescission will not be granted for breach of K that is not of such substantial character to defeat the object of the parties in making the contract, or where the remedy at law is plain, adequate and complete. Mutual mistake – must be a mistake of fact between both parties. A mistake of law does not count. Parol evidence cannot be used to show mutual mistake of thought. Appointment of Commissioners – New Rule 3:23 says that a court may appoint a Commissioner when 1) the parties agree, or 2) the court finds good cause to do so. Appointment should typically be done after pleadings (after demurrers and an answer have been filed) once there is enough evidence to show the necessity of an accounting. Appointment prior to this becomes a substitute for discovery which should not happen. Receivers – may be appointed by the court to hold all moneys paid under judgment and pay out or dispose of the money as the court decrees. Receivers keep property safe while legal rights are thrashed out in court. There are passive and active receivers. A receiver does not make legal decisions. Appointment of a receiver rests in the sound discretion of the court but should be cautiously exercised because they are expensive. The court has the discretion to appoint whoever they want as receiver. Reformation of K: K’s may be reformed to reflect the true intention of the parties if there is a mutual mistake of fact or a unilateral mistake accompanied by fraud. Corporate Acquisitions: Outline Philip Larson Page 19 Indemnification, Surety, etc. – Indemnification is a promise protecting one party from financial loss. It is a type of insurance protecting one party at the expense of another. Indemnification clauses typically are not enforced for intentional tortious conduct of the protected party. A surety is a person who agrees to be responsible for the debt or obligation of another. It is a tripartite agreement between the principal obligor, his oblige and the surety where the surety makes a direct promise to perform in the event the principal obligor fails. The obligee can come after either the obligor or the surety to satisfy his damages. In indemnification, the obligee can’t go directly after the indemnity because there is no privity. An indemnitor makes no promise to perform and has no privity with third parties. Subrogation – if a surety is required to pay or perform due to principal’s failure to do so, the law will give the surety a right of subrogation allowing him to recover the cost to him of making payment even if there is no express agreement about this. Guaranty – a guaranty is different than a surety. It is a secondary obligation whereas surety is a primary obligation. Contract of guarantor is his own separate undertaking, which the principal does not join in. Guarantor contracts to pay the debt if it can’t be made by the principal debtor.