Equity II Notes

Buzz Words:

*Equity is flexible.

*Equity is a remedy, not a cause of action.

*Equitable relief is within the discretion of the chancellor or court

*Fed. R. Civ. P. 65

*equity jurisdiction is invoked when there is no adequate remedy @ law.

*If there is no relief in equity, that doesn’t mean that the party can’t seek relief @ law. 

Equitable Remedies:

Injunction

Quia Timet

Bills of Peace

Bills to Quiet Title or Remove Cloud on Title

Interpleader

Declaratory Judgment

Specific Performance

Equitable Defenses p. 513

Clean Hands

Laches & SoL

Estoppel

Equitable Defenses Peculiar to Specific Performance; Recission & Reformation p. 548

Fraud

Misrepresentation

Concealment

Nondisclosure/Fiduciary Relationship

Mistake

            Mistake as a Ground for Rescission or Reformation

            Mistake as a Defense to Specific Performance

Hardship or Unfairness

Inadequacy of Consideration

Statute of Frauds

Plaintiff’s Default

Should Equitable Relief Be Granted; Ask Yourself:

1)      is there adequate remedy at law – is monetary relief adequate? If so, then no equitable relief.

2)      is equitable relief practicable or feasible?

3)      are there any equitable defenses – Unclean Hands, Laches, Estoppel,    

     etc.?

Under What Circumstances Is The Remedy At Law Inadequate:

1)     when the subject matter is unique (unless damages can be determined – billboard case)

2)     land is unique

3)     trespasses, not vandalism

4)     if damages are speculative

5)     need to bring multiple suits to vindicate your rights

6)     insolvency of a party makes judgment uncollectalbe

7)     irreparable harm resulting from party’s conduct that cannot be compensated

Chapter 4 – The Injunction: A coercive equitable remedy whereby a court issues an in personam order directing a D to do or refrain from doing something. 

*It can be combined with other relief

• Mandatory –requiring performance of a particular act which is remedial in nature
• Prohibitory – prohibiting performance of a particular act
• Negative – cease & desist order that is preventative in nature
• Interlocutory – temporary to preserve the status quo between the parties prior to trial on the merits
• Permanent –(opposite of preliminary) (despite it’s name, a permanent injunction doesn’t necessarily last forever) issued after full hearing on the merits
• Also Temporary Restraining Order or Preliminary Injunction (interlocutory)
• Maintaining Status Quo Pending Disposition of Lawsuit

-                 TRO: maintains status quo pending a hearing on a preliminary injunction

§         Grounds – most commonly the threat of irreparable harm from delay

§         Notice – TRO may be issued on affidavits of the complaining party, w/o notice to opposite party.  Must be a strong showing of reasons why notice and hearing should be dispensed

§         Duration – limited amount of time, such as 10 days

Pg. 279 in text, Fed.R.Civ.P.65: TRO will be granted without notice only if (1) immediate and irreparable harm will result to the applicant before the adverse part can be heard in opposition, and (2) the applicant shows any efforts, if any, to give notice and the reasons supporting his claim that notice should not be required.   

-                 Preliminary injunctions

§         Procedure – issued only after notice and hearing. Usually just after lawsuit is commenced.  Injunction remains in force pending trial. at end of trial, either dissolved or made permanent.

§         Injunction bonds – issued to protect D against harmful grant of preliminary injunction.  Amount is up to court’s discretion.  Bond is intended to cover costs and damages that may be incurred by a party wrongfully enjoined.

• Factors to consider when issuing TRO or preliminary injunction

-                 Whether there is an adequate remedy at law

-                 Extent of threat of irreparable harm if injunction not granted (balanced against c. with the objective of minimizing costs of being mistaken)

-                 Consequences to D if injunction is granted

-                 Probability that P will prevail on merits of case

-                 Interest of general public

Injunction: Overall, court will consider:

a.       Nature of interest to be protected

b.      Relative adequacy to P of the injunction and other remedies

c.       Any unreasonable delay in the P’s bringing suit

d.      Any related misconduct by P

e.       Relative hardship likely to result to P if injunction is denied, and to D if it is granted

f.        Interests of any third persons and the public generally

g.       The practicability of framing and enforcing the order

A. Interlocutory Injunctions

*temporary, not final.

Hughes v. Christofane

• P, the owner of a seafood restaurant that featured topless dancers…P sought a TRO enjoining Cristofane & others from enforcing a town ordinance that prohibited such entertainment in est. serving alcohol…P argued unless the restraining order was issued they would suffer irreparable harm both to their financial interests & their interest in exercising their constitutional rights
• held the loss of revenue constitutes irreparable harm w/in the context of the granting of injunctive relief
• here, P’s have no adequate remedy at law, b/c the passage of time necessary to litigate their claim will result in the irreparable harm they have demonstrated
• P’s demonstrated enforcement may infringe on their 1^st & 14^th rights & this demonstrates an irreparable harm & a likelihood of success on the merits
• D’s only hardship from a TRO would be a return to the status quo before the ordinance became effective, w/ an injury to D’s moral sensibilities only
• case demonstrates five elements necessary to receive TRO, which are listed above.

Abbott Laboratories v. Mead Johnson & Company

• Abbot made an oral electrolyte solution to prevent dehydration in babies…P enjoyed a market monopoly…D then began to make a competitive product virtually identical to Abbot’s…D started promotional campaign to convince doctors to recommend their product over P’s…P sought preliminary injunction against D…
• held that in deciding whether to grant a preliminary injunction, a ct must consider intermediate forms of relief- FLEXIBILITY OF EQUITY
• a party seeking a preliminary injunction must demonstrate:

-                 some likelihood of succeeding on the merits; &

-                 that it has no adequate remedy at law & will suffer irreparable harm if preliminary relief is denied

• once the P meets its threshold burden, the court must consider:

-                 the irreparable harm the nonmoving party will suffer if preliminary relief is granted, balancing that harm against the irreparable harm to the moving party if relief is denied;

-                 the effect on the public interest (nonparties) of granting or denying the injunction; &

-                 the relative weight of these factors, applying a “sliding scale” approach w/ the objective of minimizing the costs of being mistaken

§         here, although the ct found P had shown a likelihood of prevailing on the merits, the other factors favored D - P’s lost sales could be calculated (could be returned in damages), but this approach does not consider lingering adverse effects of D’s campaign, potential for future competition from D or another party that would be more likely due to damage to P’s reputation, effect on the whole infant formula market due to campaign = irreparable harm.

• Sliding Scale Approach – more likely the P will succeed on the merits, the less balance of irreparable harms nee d weight toward the slide

*A party seeking a preliminary injunction in this circuit must est. both possible irreparable injury & either (1) a likelihood of success on the merits or
(2) sufficiently serious questions going to the merits to make them a fair ground for litigation & a balance of hardships tipping decidedly in the movant’s favor

Coyne-Delany Co. v. Capital Development Board

P won a contract for flush valves…they malfunctioned…D then contracted to someone else…P obtained a TRO against opening new bids…P posted a bond of $5,000, even though D requested $50,000…D moved for an award of $56,000 for the wrongfully issued preliminary injunction…Court refused to award damages…D appealed.

Held: A district court may not grant damages for wrongful issuance of a preliminary injunction in excess of the amount of the bond posted by the parety requesting the injunction.

***D should have appealed the bond amount!

                                                               i.      P does not have to pay a wrongfully enjoined D’s damages, but must provide security to show they can pay D’s damages if is determined to be wrongfully enjoined.

                                                             ii.      D is entitled to damages unless there is a good reason for not requiring P to pay.

                                                            iii.      Judge must have good reason not to award damages.  Good faith is not a good reason, bc award is compensatory, not punitive. Good reason=D did not mitigate.

                                                           iv.      A D wrongfully enjoined has no action for damages in the absence of a bond.

                                                             v.      D must protect itself by asking court of appeals to increase bond.

B. Mandatory Injunctions orders a party to perform an affirmative act rather than restraining her from particular conduct.

Vane v. Lord Barnard

P had received a life estate in a castle owned by his father, D, following D’s own life estate. The conveyance prohibited waste. D became mad at P & ordered his workmen to strip the castle. P was granted an injunction against continued waste & ordered D to repair the castle to its prior state.

* When…justice requires that a tort should be specifically repaired, it would seem to be much more feasible for a court of equity itself to undertake the repair of it at the expense of the tortfeasor, than to attempt to compel the latter to repair it…The decree directed the master to see the castle repaired at the defendant’s expense. Whether the decree was ever performed or not does not appear. It is said not to have been performed during the D’s life.

Cooling v. Security Trust Co.

D was a trustee of an estate of which the P’s were beneficiaries…D was also the guardian of the minor children…basically - 

*An equity court may order a mandatory preliminary injunction. – nothing prevents this.

* Here, only by the issuance of a mandatory preliminary injunction could it be assured that a trust asset would not be lost.

United States v. Price

·        D (Price) & others had operated a landfill that was contaminating the local water supply…P sought an injunction requiring D to fund a study of the threat & to provide an alternate water supply to those contaminated…D objected it would be improper to require them to spend significant funds under a preliminary injunction…

·        held a ct may grant a mandatory injunction that requires the D to expend funds prior to the final resolution of the case

·        equity JD is characterized by flexibility & practicality

·        in a situation calling for a mandatory injunction, the D may often be required to spend money to comply

·        it is not the payment of money that is determinative…the issuance of a mandatory injunction depends on application of the basic four-part injunction test…here, P’s relief was not inappropriate

§         TC believed P was trying to transform a claim for damages (asking for $) into an equitable action. 

§         It is not the payment of money that is determinative.  Issuance of MJ depends on application of the 4-part injunction test.  In a situation calling for an MJ, D may often be required to spend money to comply.  P can’t resort to equitable relief for compensation, but it may create an allowable expense if it is preventive.

§         Here, though, TC didn’t abuse discretion by refusing injunction bc

there were other Ds other than D, and some question about D’s

ability to pay the funds.  More practical for P to undertake study

immediately, w/subsequent order for reimbursement

*A court of equity has traditionally had the power to fashion any remedy deemed necessary and appropriate to do justice in the particular case.

*The essence of equity jurisdiction has been the power of the Chancellor to do equity & to mould each decree to the necessities of the particular case. Flexibility rather than rigidity has distinguished it. The qualities of mercy & practicability have made equity the instrument for nice adjustment & reconciliation b/t the public interest and private needs.

*The appropriateness of issuing a mandatory preliminary injunction in a case in which the status quo is a condition not of rest but of action.

Friends for All Children, Inc. v. Lockheed Aircraft Corporation

·        P (Friends) brought tort action on behalf of Vietnamese orphans injured in plane accident…ct granted summary judgment against D…the extent of the liability depended on separate trials for each child…ct granted a mandatory injunction requiring D to pay into a fund from which reasonable expenses of diagnostic examinations would be paid

·        held a ct may grant a mandatory injunction for payment of money when the D’s liability, but not the exact amount, has been determined

§         Equity cannot “take jurisdiction over a legal claim merely to hurry it along by granting final relief at the outset” (Learned Hand).  But here D’s liability has been adjudicated.  Only the amount of liability remains to be determined.

§         Children would suffer irreparable harm.  Funds are remedial in nature, not compensation for past injury.

§         In granting the MJ, the court has to be 1. guided by traditional standards for equitable relief, and 2. minimize the risk that D will be ordered to pay more than P will ultimately be awarded.

·        ct said D must pay money to preserve the status quo – to prevent a further harm

·        issue was not that money was paid out, but what the money was used for

C. Specificity *be specific to (1) prevent confusion & (2) so the appellate court knows what to review.

* Parties must have a clear idea of their rights and duties, and D must be given adequate notice of precisely what conduct is prohibited.

Collins v. Wayne Iron Works

* P (Collins) complained the noise by the operation of the D rendered his dwelling unfit for use as a residence…ct granted an injunction restraining D from the operation of its works “by at any time making noises” w/ its machinery which would thereby render P’s premises unfit for use as a residence by a reasonable & normal person

·        held a ct may not order an injunction, the practical effect of which is to shut down operations of an industrial plant, if it is possible o draft an order which will still give the P the relief he seeks w/o resulting in such a severe effect upon the D’s operational business

§         An injunction should never restrict more than is absolutely necessary to give P relief.

§         Schmidt

§         FRCP Rule 65(d) requires the terms of the injunction be specifically outlined so that D does not risk a contempt citation for violation of the injunction (and so appellate court knows what to review).

·        in this case, a more specific order directing D not to operate the machinery outdoors & restricting the hours of operation

·        injunction must be specific in order for D to understand what he can or can not do, so as not to be in contempt

Schmidt v. Lessard

·        P (Lessard), while involuntarily confined pursuant to a state involuntary commitment statute, brought suit on behalf of herself & others similarly situated, challenging the constitutionality of the statutory scheme…both injunctive & declaratory relief were sought…ct declared the statutory scheme unconstitutional & granted injunctive relief against further enforcement of the statute…ct entered a judgment that merely stated it was to be entered in accordance w/ its opinion…D argued the order was too vague

·        held a ct may not order injunctive relief w/o specifying the details of the terms of the order or describing in detail the acts prohibited

·        Rules 65(d)/Civil Procedure requires the terms of the injunction be specifically outlined

·        purpose is to provide a D w. sufficient specific informations so that it does not risk a contempt citation for violation of the injunction b/c the order is too vague to be understood

*Every order granting an injunction & every restraining order shall set forth its issuance; shall be specific in terms; shall describe in reasonable detail & not be reference to the complaint or other document the act or acts sought to be restrained.

D. Modification or Dissolution(Court issuing injunction generally retains jurisdiction to modify the order as needed.)

* The modification of a decree in a preventive injunction is inherent in the court which granted it, & may be made (a) if, in its discretion judicially exercised, it believes the ends of justice would be served by a modification & (b) where the law, common or statutory , has changed, been modified, or extended, & (c) where there is a change in the controlling facts on which the injunction rested.

Ladner v. Siegel

·        ct granted P an injunction restraining D from operating their garage as a public garage…a year later, same ct modified its decree to state the injunction did not prevent D from using the garage as a private facility for tenants of certain nearby apartment buildings…P was given leave to apply to the ct for an order restraining any operation of the garage which might be shown to be improper

·        held a ct may modify its final decree granting injunctive relief

§         Court has power to modify decree.

§         A change in the law or change of circumstances justifies the modification.

*     Modification is inherent in the ct which granted it & may be made if:

-                 ct believes the ends of justice would be saved by a modification

-                 where the law has changed, been modified or extended

-                 where there is a change in the controlling facts on which the injunction rested

*     injunctive relief does not create a right; it protects the right of the owner

Emergency Hospital of Easton v. Stevens

·        P (Stevens) filed a complaint against D for refusing to allow him to perform surgical operations…P sought an injunction…D answered complaint stating bylaws had been amended to require a physician to receive permission from the directors & staff to operate…ct ruled this amendment was ineffective b/c hospital had not given notice as required by state law…ct then reversed & enjoined D from excluding P from using its facilities…D complied & passed a valid amendment to its bylaws requiring permission of staff & directors in order to perform surgery at its facilities…D claims that in light of the amendment, it was not violating the injunction…ct continued injunction

·        held a change in circumstances does not excuse a party’s violation of an injunctive order

§         Even if conditions upon which an injunction is based change, restrained party cannot violate injunction. They do not have the right to determine for itself whether they must obey that order.  Must seek modification on the basis of the changed circumstances.

*        ct says D is not w/o a remedy – if you have a situation that warrants a change, make your argument, don’t just break the rule

Board of Education of Oklahoma City Public Schools v. Dowell

·        P’s sued D for sponsoring de jure segregation in city schools…later, after several years & changes, ct of appeals held that once issued, an injunction in a segregation case remains in effect until a school district can show “grievous wrong evoked by new & unforeseen conditions & dramatic changes in conditions unforeseen at the time of the decree that impose extreme & unexpectedly oppressive hardships on the obligor

·        held d school desegregation injunction does not remain in effect until the school district can make a clear showing of grievous wrong evoked by new & unforeseen conditions

§         Don’t have to show grievous wrong evoked by new and unforeseen conditions. Enough that schools being operated in constitutional manner, and D unlikely to return to former ways.

§         Cannot sit in audit. Desegregation decrees are intended to be temporary. Must dissolve decree after local authorities comply with constitutional requirements for a reasonable time.

* in some cases, a ct decree may be effective in perpetuity, & such a decree may  not be changed if the purposes of the litigation as incorporated in the decree have not been fully achieved

·        in this case, the ct’s finding the schools were being operated in a constitutional manner…

·        desegregation decrees are intended as temporary measures to remedy past discrimination; the legal justification for displacing local authority in such cases is a constitutional violation by such authorities

·        have to balance the equity

·        injunction should only extend to the problems that need to be fixed

E. Appeal

In Re O’Connell

·        D (O’Connell) had obtained an interlocutory judgment of divorce from P (Mrs. O’Connell) by which he was awarded the home previously occupied by the couple…in a subsequent action, a ct of equity annulled that judgment on the ground it had been obtained through fraud…P applied & was granted an injunction restraining D from entering the home, etc…D appealed from the order granting the injunction & filed a stay bond, but was later found guilty of contempt for continuing to occupy the premises in violation of the injunction…D was sentenced to a fine & imprisonment…D filed a writ claiming he had not violated the injunction b/c his appeal had stayed effectiveness of the ct’s order

·        held the operation of a mandatory injunction is stayed by an appeal

·        unlike a prohibitory injunction, a mandatory’s operation is stayed on appeal

·        here, D was ordered to turn over control of the house to D, & it thus operated to do more than maintain the status quo

·        a prohibitory injunction is not stayed by appeal & its enforcement is always w/in the JD of the ct

Moot Appeals: The case and controversy doctrine of the Constitution requies that a question presented not be merely hypothetical, but definite and concrete, touching the legal relations of parties having adverse legal interests.

Super Tire Engineering Co. v. McCorkle

·        P’s employees were striking…while on strike, they received welfare benefits from D…P sought an injunction against the payment of these benefits & a declaration the welfare regulations were null & void on the ground they violated the federal labor policy of free collective bargaining…the employees ended the strike before a hearing was held on the merits…ct denied on action was now moot…

·        held a suit that seeks both declaratory & injunctive relief rendered is not rendered moot when the conduct against which the injunction is sought ceases

§         Even though strike ended and particular aspect of suit rendered moot, court should have reached issue of the impact of the state welfare benefits program on collective bargaining agreements bc “capable of repetition, yet evading review.” Most strikes don’t last long enough for complete judicial review of the controversies they present. The end of the strike shouldn’t preclude a challenge to the state policies whose impact may continue unabated and unreviewed.

·        when a suit seeks both declaratory relief & an injunction, the ct must still determine the merits of the declaratory request irrespective of the conclusion reached as to injunctive relief

F. Noncoercive Ancillary Remedies: Masters, Receivers, and Accounting

I.                    A receiver is appointed by the court to preserve property which is the subject of litigation from spoliation, waste, or deterioration during the pendency of litigation.

Hurst v. Papierz

·        D (Papierz) appealed a decree which imposed a constructive trust upon the operations of an apartment complex…ct found where D’s had been found to be joint venturers w/ P & had defrauded him, the appointment of a receiver was proper, but the ct erred in appointing an accounting firm to determine sums payable from D’s w/o setting forth a procedure by which evidentiary questions could be adjudicated

·        held a trial ct may not order an accounting that does not set forth a procedure by which evidentiary questions may be adjudicated

§         Court ordered an accounting firm to sort through details, but each party has a right to be heard and must have an opportunity to introduce evidence and cross-examine witnesses.

§         Appointment of receiver, though, was appropriate because Ds had defrauded P and used bad faith in dealing with P.

*        since there are no masters in chancery in the Illinois judicial system, the trial ct. must conduct the accounting & try all the issues

***A case may be referred to a MASTER when the issues involved are lengthy and complex and would require and undue amount of the court’s time.  A master may be appointed to conduct hearings or investigations, to rule on the admissibility of evidence, or to compute damages.  FRCP 53: the order may specify or limit master’s powers and duties.

Chapter 5 – The Declaratory Judgment and Related Remedies

A. Quia Timet Relief *because he fears*

A P seeks equitable relief because he fears that some injury to his property or other rights will occur as a result of some conduct or neglect of the D.  It secures rights against invasion without a requirement that such invasion be imminent or certain.

Fletcher v. Bealey

·        P (Fletcher) made pure white paper using water from the River Irwell…D had a plant up river & had land close to P where he planned to deposit waste from his plant…the waste would, after long storage, give off a green chemical which would be harmful to P’s paper…P sought a bill Quia Timet to restrain D from depositing waste on that site…although no harm had occurred yet, P argued the result was inevitable…D argued they could conduct business so that no appreciable quantity or waste would make its way to the river

·        held a ct will not issue a bill quia timet to prevent a future injury when, in the absence of proof of actual damage, when there is:

§         no proof the feared damage is imminent; or

§         no proof the damage will be either ver substantial or even irreparable

***To grant a bill quia timet, there must be 1. proof that the danger of damage is imminent, or 2. proof that the damage, if it occurs, will be very substantial or irreparable.

**Here, D assured that no waste would enter the river, prevention appeared possible, and there was insufficient evidence of imminent harm to justify the court’s interference.  Plus, it would take some time for sufficient quantity of waste to build up and be detrimental, so P can obtain injunction at that time to prevent damage.

Escrow Agents’ Fidelity Corp. v. Abelman

*P was created to act as the fidelity surety for the trust obligations of licensed escrow agents…P indemnified its member agents against loss of trust obligations due to embezzlement or theft…D embezzled $4 million… P was obligated to pay the money…P sued D seeking relief under quia timet…The trial ct. held that quia timet had been replaced by statutory rights & that it was no longer available.

* held that the equitable relief of quia timet does remain available despite the adoption of statutory remedies.

                                                               i.      TC had held that QT had been replaced by statutory rights so that it was no longer available.

                                                             ii.      QT is used to prevent wrongs or anticipated mischief, especially in real property cases.

                                                            iii.      QT has traditionally been used when a party needs a means for compelling a principal to pay a debt or perform an obligation once the debt has become due and before having to pay the debt itself (surety relationship).

                                                           iv.      The law allows a surety to compel the principal to perform the obligation on a bond when due, but if the principal has absconded with the funds, that doesn’t help much.  A surety may seek QT to prevent the principal from dissipating the funds.

B. Bills of Peace: Intended to effect a joinder of parties and determine the scope of the litigation.  It is sought by a party whose rights may be affected by various actions brought by various parties at different times.

Yuba Consolidated Gold Fields v. Kilkeary

·        P (Yuba) had been dredging the Yuba River for years…45 years later, a series of storms caused unprecedented amount of water to flood the river & break through a wall P had built …the flooding caused tremendous damage…resulted in six actions involving more than 100 claimants bringing suit against P…P filed for a bill of peace seeking to avoid multiplicity of legal actions by determing its liability in one equity suit…bill was dismissed for failure to state a cause of action…

·        held a ct. can issue a bill of peace to join multiple D’s among whom there is a common bond or interest as to the P, even though there is no privity between the individual members of the group such that no legal relation exists between those members

§         Bc there are common questions of law and fact, no need for there to be a community right or interest.

  *   when common questions of law & fact exist, it is not necessary there be a community right or interest in the subject matter among the D’s

*each case “must , as we think, be decided upon its own merits & upon a survey of the real & substantial convenience of all parties, the adequacy of the legal remedy, the situations of the different parties, the points to be contested & the result which would follow if jurisdiction should be assumed or denied.”

C. Bill to Quiet or Remove a Cloud on Title Any equitable action by which a party seeks to vindicate her title to land. 

*P establishes her title by requiring an adverse claimant to either establish her claim or be estopped from asserting it thereafter.

*Cloud ex. Conveyance, judgment, mortgage, or other encumbrance that impairs title.

*Test for judicial relief: Is the title, although valid, rendered unmarketable by the encumbrance? If so, relief should be granted.

Wathen v. Brown

·        P (Brown) held record title to land…D claimed ownership by adverse possession…P filed for quiet title…P based claim on her deed, but failed to allege or prove actual or constructive possession…ct found for P

·        held a record title holder must prove actual or constructive possession in order to quiet title as against a claimant under adverse possession

§         BtoQT is intended to protect the owner of legal title from being disturbed in his possession. Must prove possession.

·        Constructive: when one has legal title to lands that are uncultivated and unoccupied.  Does not apply to lands that are actually occupied by the person claiming adverse possession.

·        P must either allege actual possession or that the lands are vacant and unoccupied.  P failed to do either, instead alleging that D had occupied the land, so court would have had to grant demurrer if D had asked for one.  If possession is held by another, the action is one of ejectment, which is a legal remedy.

·        b/c P failed to allege either actual or constructive possession, the ct did not have JD in equity

D. Interpleader A proceeding in which a party who is ready to perform a duty seeks a determination of to whom that duty is owed.  P seeks to avoid double litigation and possible double payment of one liability.  P deposits the money owed into the court, and the court determines which of the adverse claimants is entitled to receive it.

***Benefits of Interpleader: (1) stops multiple lawsuits (2) the rightful owner (3) nationwide service of process (4) minimal diversity

State Farm Fire & Casualty Co. v. Tashire

·        Greyhound hit a truck, killing 2 passengers & injuring truck driver & 32 others…P (State Farm), insurer of truck driver, brought an interpleader action in federal ct, paying the policy limit into ct & asking the ct to require all claimants to est. their claims against the truck driver in this single proceeding & in no other…Joined as D’s were truck driver, his passenger, Greyhound, bus driver, & all other prospective claimants who had been bus passengers…ct issued injunction requiring all parties to prosecute suits in the sole interpleader action…appeals held that federal interpleader was not available under these circumstances in states such as Oregon, which does not permit direct action suits against the insurance company until judgments are obtained against the insured & the insured may not invoke federal interpleader in such states until claims against the insured are reduced to judgement

·        held a federal district ct, through interpleader JD invoked by insured’s insurance company, may not compel all of the tort P’s in an accident, even those whose claims are not against the insured & could not be satisfied out of the insurance proceeds, to litigate the case in a single forum of the insurance company’s choosing

§         P could invoke interpleader even before the claimants had reduced their claims to judgments, so interpleader was appropriate.

§         But it is not a bill of peace capable of sweeping dozens of lawsuits out of the various state and federal courts in which they were brought into a single interpleader proceeding.  Interpleader statute did not authorize the injunction entered by the court.

§         Court could properly restrain claimants from seeking to enforce against P any judgment obtained against its insured, except in the interpleader proceeding itself.  But to the extent that the court sought to control claimants’ lawsuits against the insured and the other alleged tortfeasors, it exceeded its powers.

I.                    E. The Declaratory Judgment Court declares the rights of the parties.  It is not an order requiring the D to do something.  It is a determination on the merits and, therefore, relitigation of the same issue is precluded.

a.       FRCP 57 provides that the existence of another adequate remedy does not preclude a declaratory judgment where appropriate.

b.      There must be an actual controversy.

* A coercive judgment is enforceable by execution issued against the person or property of the D or by contempt proceedings.

*By a declaratory judgment the court declares the rights of the parties, it does not order the D to perform or do or undo anything. It is, therefore, distinguished from other relief in that as of course, no executory process follows. The D.J. constitutes a determination on the merits, & by virtue of the principle of res judicata precludes a relitigation of the same issue.

Nashville, Chattanooga & St. Louis Ry. V. Wallace

·        P (Nashville) brought suit in st. chancery ct seeking a declaratory judgment against D & other state officials that the state excise tax on the storage of gas was an unconstitutional violation of the Commerce Clause…P appealed

·        held the Supreme Ct may consider an appeal of a case brought under a state declaratory judgment statute

§         There is no reason to find that the controversy is not justiciable merely because P sought a declaratory judgment instead of an injunction.

*     Art. III judicial power extends only to cases & controversies…the ct. may     not consider a case in which a judgment, if rendered, would not terminate the uncertainty or controversy that gave rise to the proceeding

·        here, P claims D’s tax is unconstitutional

·        P’s suit clearly constitutes a case or controversy had it been raised & decided in a suit to enjoin collection of the tax

Chapter 6 – Specific Performance of Contracts : a form of injunctive relief that compels the D to perform his contract with the P. When such an order is granted, the D is directed to carry out the performance required by the contract.

*SP will not be ordered if damages will be adequate to protect the P’s interest.

*If damages are adequate for one part of the performance, the P can still seek SP of the contract as a whole.

*SP will not be denied just b/c a remedy other than damages exists, but such remedy will be considered in exercising the discretion to grant SP. 

*Where damages are speculative or the party cannot pay, the court will grant specific performance.

*also if it is unique, like land – it is unique if there is no adequate way to determine the value of it.

*In determining whether the remedy in damages would be adequate, the following circumstances are significant:

(a) the difficulty of proving damages w/ reasonable certainty, (b)the difficulty of procuring a suitable substitute performance by means of money awarded as damages, & (c) the likelihood that an award of damages could not be collected.

A. Contracts for the Sale or Lease of Property

1. Adequacy of Legal Remedies

Eastern Rolling Mill Co. v. Michlovitz

P had two five-year contracts w/ D in which D agreed to sell to P two kinds of scrap iron. The scrap was to be delivered as it accumulated and accordingly the price would fluctuate. After death of D’s manager, the D’s new Pres. tried to induce P to agree to rescission of the contracts because he objected to the duration & prices of the contract. P & D entered into new contract. Performed for 6 months, but then the D refused to perform anymore. P sought and received SP and D appealed.

*HELD: a court may order SP of a contract that the D is fully able to perform when it would be impossible to make a fair determination of damages.

*Contracts providing for delivery of goods over years are different from those to be immediately executed, b/c the profits depend on the future and cannot be estimated in the present.

* The quantity of scrap iron to be delivered would vary from time to time and the price would fluctuate. It would be too difficult to calculate the damages. The scrap iron was identifiable goods and a sale of part of it to another party would be a breach. 

                                                               i.       Though usually SP in respect to chattels won’t be ordered because damages are sufficient, a court can order SP of a contract when it would be impossible make a fair determination of damages.

Specific Relief for Land: contracts for real estate had traditionally been enforced b/c (1) it is unique and (2) the value of the land is speculative and therefore damages are inadequate.

Kitchen v. Herring

·        D (Herring) contracted to sell P some land…P gave D a personal note payable w/in three months & Pridgen guaranteed it…Pridgen then contracted w/ P to remove timber off the land…D later issued a deed to Pridgen by which P was dispossessed of the property…p sought to enjoin the removal of the timber as well as specific performance of the sales contract…D argued SP can only be ordered to enforce contracts for the sale of land & since the principal value of this property was the timber upon it, SP was not appropriate

·        held a purchaser may obtain SP of a contract for the sale of land when its principal value consists of the natural resources located upon it

·        b/c of the uniqueness of land, cts will order SP of contracts of sale irrespective of the fact the natural resources upon it may constitute its principal value

·        cts will recognize the inherent value of the land itself

·        b/c land is unique, legal remedies for breach of contract of sale are inadequate

·        SP may also be ordered if it is the buyer who has breached the sales contract

                                                             ii.      Contracts for real estate sales are usually SP bc each parcel of land is unique and the value of land is speculative.  Money damages are inadequate.

                                                            iii.      Even though the value of land in this case was largely determined by the timber on it, damages (cost of timberland) are still not sufficient bc land is inherently unique.

Specific Relief for Unique Chattels: usually treated the same as land. Uniqueness depends on all the circumstances.

Van Wagner Advertising Corp. v. S & M Enterprises

·        P (Van Wagner) entered into a 3 year lease for space on the ext. wall of a building on which P was to erect a billboard…P erected a sign & leased it for 3 years…the building owner sold it to D, which then terminated P’s lease…P abandoned the space & sued for SP & damages…ct found P’s lease termination was wrongful, granted damages, but refused SP…

·        held in this case, the decision to grant SP on the uniqueness of the property was not involved

§         Ad space considered a unique chattel.  Though courts usually refer to the physical uniqueness of property as a justification for granting SP, the real test is not uniqueness but the uncertainty of valuation.

§         Valuation is a function of the availability of relevant information – where there is insufficient information about substitute property to calculate an award, uniqueness supports SP.

§         Here value of the unique qualities of the space could be determined with reasonable certainty and without an unacceptable high risk of undercompensation to P.

*     a ct has the discretion in deciding whether to grant SP

·        Issue – is a party that shows property at issue is physically unique – do they deserve SP – ct held no, just b/c physically unique, does not mean deserves SP

·        it would prove too much, then everything would be considered unique & everything unique would have to go to equity ct

Insolvency and the Extension of Equity Jurisdiction

                                                           iv.      Adequate property to pay damages - A court will not refuse to order SP on the ground that an adequate remedy at law for damages exists unless the party objecting to performance can prove he has adequate property from which damages can be paid.

                                                             v.      Remedies under the UCC

1.      If seller becomes insolvent within 10 days of receipt of the first installment and buyer then tenders the remaining purchase price, seller must deliver goods.

2.      Seller may refuse to deliver except for cash.  Where buyer has received goods on credit while insolvent, seller may reclaim the goods within 10 days after receipt, but if misrepresentation of insolvency has been made in writing to seller within three months before delivery, the 10-day limitation does not apply.  Seller’s right to reclaim is subject to the rights of good faith purchasers, and reclamation of goods excludes all other remedies with respect to them.

Specific Performance of Installment Contracts

                                                           vi.      Where contract to sell goods over course of several years is breached, court may order SP bc profits of contract depend on future events and damages cannot be correctly estimated.

                                                          vii.      Unless an installment land contract contains an acceleration clause, the seller has no right to demand full payment, and is only entitled to the installments as they come due.  In case of default, AP typically orders the property to be sold and the proceeds used to pay the debt.    Seller also has the option of foreclosure when buyer fails to perform according to the contract.

Rubinstein v. Rubenstein

·        P & D (cousins) were equal shareholders in two NY corporations; a grocery & a deli…they decided to dissolve their business relationship…they agreed that P would choose which of the businesses he wanted & D would get the other…each deposited $5000 w/ their lawyer to be held in escrow & be forfeited to the other as liquidated damages in case of default…disputes arose & D changed his mind…P sued for SP…lower ct held the liquidated damages was P’s sole remedy

·        held that absent a specific contract clause stating a liquidated damages provision is to be the sole remedy, a liquidated damages clause will not automatically bar SP

·        w/o more, a liquidated damages provision will not preclude a decree of SP

·        In order for SP to be barred, the contract must specifically state the liquidated damages are sole remedy

·        since D was willing to let P have 1^st choice, it was clear the parties’ intent was to terminate the business relationship & SP is the appropriate remedy

Relief For & Against 3^rd Persons

·        Either of the original contracting parties can transfer their rights from a contract &/or some duty of performance.

·        Assignment of rights.  To assign is to transfer your contractual rights or benefit which voids the right in the transferor (assignor) and gives it exclusively in the tranferee (assignee).  The assignment of a contract right gives the assignee a direct right against the promisor under the contract.  Then assignee is the owner of the transferred right.

·        Delegation of duties.  When delegating contractual duties it is not transferring the duties b/c the delegating party remains liable if the party to whom the duties were delegated fails to perform.

·         Rights can be assigned without any delegation of duties, and duties can be delegated with rights retained. What is common is to assign rights and delegate duties at the same time.

·        assignee is seeking SP / vendee assigns rights

·        unless you are in NY, generally, a person who makes or assumes an assignment / that assignee would be held to the terms of the contract

·        the assignee resumes responsibility & benefits of rights under contract

2. Relief for and Against Third Persons

Liabilities of Purchaser’s Assignee

Langel v. Betz

·        P (Langel) contracted to sell Hurwitz property…Hurwitz assigned the contract to Benedict, who in turn assigned it to D…the assignment did not include a delegation of the performance of the assignor’s duties…after obtaining from P an extension of the closing date, D ultimately refuse to perform…P sued for SP…D appealed

·        held a vendor/seller of real estate may not obtain SP of the contract against the assignee of the vendee/buyer, where the assignee obtained an extension of time to close but did not expressly assume the assignor’s duties

§         Mere assignment of contract doesn’t constitute a promise by the assignee to the assignor to assume the performance of the assignor’s duties.  The vendee’s assignee is under no personal duty to the vendor where there is no privity between them, unless the assignee expressly or impliedly binds himself to perform the assignor’s duties.

§         Restatement creates a presumption that the assignment of a contract would constitute both an assignment of rights and delegation of duties.  Does not apply to land contracts.

*       here, D was not bound

·        if an assignee sues for SP, he thereby impliedly binds himself to perform on the principle that he who seeks equity must do equity

·        a suit against the assignee who is not otherwise bound to perform cannot create a duty on the part of the assignee

·        this case is in the minority

Rights and Liabilities of Vendor’s Assignee and Transferee

Walker & Treeholm v. Kee

·        D (Kee) bought land by conveying a house & executing 4 promissory notes…D would receive a warranty deed when all the notes were paid, but if D failed to pay any note, the contract would be voided & D would forfeit possession & all previous payments…seller conveyed 2^nd & 3^rd notes to P & 4^th to a bank…then seller made an assignment for the benefit of creditors, including the lands subject to the contract w/ D…D defaulted on the notes & P sued…P won a judgment against D & over seller’s objections…P then sued to compel SP of the land agreement & to force the sale of the land…D paid rent into ct, which ct held pending future orders…the ct found for P & ordered the land sold

·        held the seller/ vendee does not have the right to require SP of a land contract after transferring the notes which were the consideration for the sale of the land

§         Careful when issue promissory notes.  Here the notes S & C gave to Walker were not just for money.  The notes on their face said they involved land.  So, when Kee defaulted on payments, Walker could redeem them for the attached land interest.  This was in effect a sale and transfer of land, not just an endorsement of paper as promissory notes.

§         In a contract for land, vendor becomes a trustee for the vendee with regard to the land, and the vendee becomes a trustee for the vendor with regard to the purchase money.  Any subsequent purchase for either, with notice, becomes subject to the same equities as the selling party.  The assignees of S & C may have the legal title to the land, but they hold it as trustees for the payment of the notes still due. 

·        in executory contracts for the sale of land when no title deed is executed, the equity doctrine of SP constitutes the equivalent of a vendor’s lien

·        the sellers had the right to require SP, but the notes seller received were not merely promissory notes; they arouse out of the agreement to sell land & are part of an executory contract for the sale of land

·        when seller transferred these notes w/ knowledge of the agreement, they also transferred all the rights which attached to those agreements in the hands of the seller

·        P is entitled to collect Ds rent; P’s rights are terminated only when the debts are paid

3. Devolution on Death – Equitable Conversion Rights Between Vendor and Purchaser

Equitable Conversion

·        doctrine of equitable conversion provides that after a land sale contract has been effectuated, the buyer is considered the owner of the land & the seller is holder of the legal title only as security for the proceeds of the purchase price

·        effectively, the interests the parties had prior to the contract reverse themselves by virtue of contract formation

·        the buyer after contract formation has the real property interest & the seller has a personal property interest

·        equitable conversion is predicated on the maxim that “equity regards that as done which ought to be done”

Taylor v. Kelley

·        P (Taylor) contracted to buy land from D…instead of performing, D sold the land to others…P sought SP…when D explained SP was impossible due to his sale to others, P demanded from D the proceeds of D’s sale to the others, less the amount she was to have paid for the property

·        held if a seller breached his contract by selling the property to someone else, the seller must pay to the original buyer the proceeds of the sale

·        under a contract for sale of land, the buyer is considered the owner in equity & the seller retains the title as security for the purchase money

·        equitable conversion b/c title had not been exchanged

In Re Boyle’s Estate

P failed to pay rent & the owner of the property sued D to collect the rent. P had sold the land to an intervenor, who claimed he was entitled to the rent. For P. Intervenor appeals.

HELD: A vendee of real estate is not entitled to unaccrued rent when the sale contract is wholly executory on the part of the vendor.

*In this case, the contract was not final, therefore, intervenor did not have a right to receive unaccrued rent.

*As to the intervenor, the contract was executory until the P performed. P is entitled to the rents.

4. Risk of Loss, Compensation and Abatement

·        majority rule – risk is on purchaser even though vendor/seller retained possession

·        question arises if vendee is entitled to abatement when vendor collects before physical transfer of property

·        have to determine who bears the risk of loss

·        most cts hold the risk of loss is on the buyer b/c of equitable ownership

·        if the sale of land includes building & you loose the building & that building does not constitute a major portion of land, ct may grant SP

Skelly Oil Co. v. Ashmore

·        P (Skelly) contracted to purchase land from D…prior to closing date, improvements to land were destroyed by fire…D received $10,000 from insurance company for the loss…P sued to compel SP & abatement in the purchase price of $10,000…D appealed

·        held the party in possession of real property does bear the risk of loss (unless otherwise specified) in an executory land sale contract

·        determined old rule was illogical

·        here the vendee had the option of disclaiming the contract or accepting the property w/ abatement for the damage

·        if there is a material alteration, vendor is not required to specifically perform & buyer is entitled to any funds expected into contract

Dixon v. Salvation Army

·        P (Dixon) contracted to purchase real estate from D…before escrow closed & before either title or possession passed from D to P, one of the buildings burned…the building was significantly underinsured…D could no longer deliver property as it had been prior to escrow, minus normal wear & tear, as required by contract…parties were unable to agree on a new price for property…P sought & obtained a ct declaration that the total purchase price should be abated to reflect the loss of value of the building…the order permitted P to seek SP at an abated price…D sought declaration the contract should be rescinded or enforced w/o abatement

·        held SP of a real estate contract at an abated purchase price is not a proper remedy where a material part of the subject property has been destroyed

·        it would be unfair to require either party to accept consideration less than what was bargained for

·        it is better to place the parties in their original position & allow them to make a new bargain

·        where a material part of the subject property is destroyed w/o the fault of either party & neither title nor possession has passed to the purchaser, the seller’s performance is excused & the purchaser is entitled to the return of any consideration paid

·        b/c neither title nor possession had passed, the risk of loss was on D

·        D may not enforce the contract & P may rescind & recover any consideration paid

·        ROL – material difference to property @ no fault of anyone & no conveyance of title, will not force any SP & will require vendor to return any money to vendee

Billy Williams Builders & Developers, Inc. v. Hillerich

·        P (Hillerich) sued D seeking SP of a contract to sell certain real property & damages arising out of the allegedly defective construction of the house on the property & damages for delay in performance…the equity ct ordered SP & transferred the case to the ct of law for decision on damages…P was awarded damages…D appealed, arguing P had been awarded two inconsistent remedies, SP & money damages

·        held a buyer of real property may be awarded both SP as to such title as seller can furnish & the remedy of an abatement of the purchase price for the deficiency of title or quantity or quality of the estate

·        here, D agreed to convey the house & lot, as well as build the house to specifications…therefore the remedies which P sought were not inconsistent & he was not required to elect between them

·        ct can use special masters to oversee the process in order to ensure process completed

·        why is the ct reluctant to force further construction?…due to the complexity of the specific performance…the ct would have to monitor the procedure

B. Contracts to Build or Repair: The court will determine whether to specifically enforce a contract to build or repair by weighing the burden on the court to enforce the contract against the advantages from the enforcement & the harm suffered it denied.

Lane v. Newdigate

·        P (Lane) was an assignee of a lease granted by D for the purpose of erecting mills…the lease included covenants for the supply of water from canals & reservoirs on D’s estate…D was to have the right to use sufficient water for the operation of his collieries, but he was not to interfere w/ P’s supply…when P’s water supply became inadequate, he brought suit seeking to enjoin D from interfering  w/ P’s water supply & also sought an order requiring D to repair certain areas & remove certain locks…

·        held a ct of equity may not order a person to perform repairs

·        while a ct may not directly order a party to perform repairs, it may issue an injunction which will have the effect of ensuring the repairs are made

·        here, the ct may order D not to allow the floodgates & canals, etc, to remain in a state of disrepair

·        D will be restrained from further impeding or obstructing the flow of water so as to interfere w/ P’s manufacturing

·        ct can use powers of contempt to not allow disrepair to occur

Jones v. Parker

P leased space from D in a building that was to be built. D was supposed to furnish heat & lighting. When finished, the D refused to supply heat & lighting. P sought SP and D demurred saying that he contract was too indefinite as to what constituted heat & lighting. P appeals.

*Held that a court may order SP of a construction contract.

*The contract is not too indefinite b/c it can easily be determined what constitutes reasonable heating & lighting. The difference between the parties are not too big as to require a burdensome amount of supervision by the court.

City Stores Co. v. Ammerman

·        in order to get the necessary zoning for a shopping center, D (Ammerman) offered P a place in the center on a favorable rental basis in return for P’s favorable letter to the zoning board…D got the zoning, but refused to accept P as a tenant when he got a better offer from Sears…P sued for specific performance & D defended on the basis that the terms of the option were too indefinite to enforce & that specific performance was an inappropriate remedy

·        held SP is available to enforce an option contract that has many uncertain terms

·        an option contract is enforceable even when important terms are undecided, at least where it is possible to infer these material terms from the surrounding circumstances, such as D’s relationship w/ other tenants regarding the amount of space, renal fees, etc

·        the essence of SP is not the nature of the contract but the inadequacy of legal remedies

·        here, even if it were possible to calculate a precise measure of damages for the breach of a long-term lease contract, money damages could not compensate P for the loss of the advantage s of participating in the shopping center & extending its geographic coverage

·        argument is there is no adequate remedy at law

C. Contracts for Personal Services

RESTATEMENT: (1) A promise to render personal service will not be specifically enforced (2) A promise to render personal service exclusively for one employer will not be enforced by restraining one from working for another if to do so would compel a performance, the continuance of which is undesirable or which would leave the employee w/o other reasonable means of earning a living.

*employer’s need vs. the employer’s right to make a livelihood

*In AL, covenant not to compete are enforceable

*The employee must have a protectable interest

*The contract must be reasonable.

*convenants not to compete are restrictive covenants

De Rivafinoli v. Corsetti

·        D (DeRivafinoli), an opera singer, agreed to perform on tour for P…D further agreed not to perform in any other production w/o P’s permission…P invested considerable time & expense in planning D’s dates…P then learned D had agreed to sing for another party in Cuba on same date…P sought SP of the contract w/ D & an injunction to prevent D from leaving the state…P also sought a writ authorizing the imprisonment of D unless D posted a bond…D was unable to post the bond & was jailed…

·        held a ct of equity will not order specific performance of a contract for personal service before the time specified for the performance to occur

·        a breach of a contract to perform has not occurred until the date scheduled for the performance has arrived

·        SP of a contract will not be ordered if the conditions precedent to performance have not been met

·        here, not only has the time for the performance not yet arrived, but also P has not yet made the initial payment to D…b/c there is no present duty, the ct finds the writ to be premature & thus orders the writ discharged

·        For exclusive service contracts – can’t force to perform exclusively, perform like you want…involuntary servitude

·        alleging P would have sufficient irreparable harm…however, granting SP would be impracticable or not feasible…to do so, would simply not make good sense

* If you are going to come to equity, you must first do equity.

D. Negative Contracts: Covenants not to compete are very usual. But, if the employees refuses to work, SP cannot be granted, b/c that would be forced labor. But, the courts may enforce the covenant not to compete.

Lumley v. Wagner

·        D (Wagner) agreed to sing exclusively at P’s theater…D then made another agreement to sing elsewhere & abandoned P’s contract…D repudiated, claiming P failed to fulfill his pecuniary obligations under the contracts…P sought & was granted an injunction restraining D from performing anywhere else…D appeals, arguing P’s contract was affirmative & that injunctions are only proper as to negative contracts

·        held that where a contract calls for a party to perform exclusively for the other party, a ct can enjoin the party’s performance for any other party

·        although SP of the affirmative portion of the contract could not be ordered, the negative stipulation that D would not perform for anyone else could be specifically enforced

Ticor Title Insurance Co. v. Cohen

D was a title insurance salesman. D worked for P & was in charge of many of P’s big accounts. In this employment contract, there was a noncompete clause which prevented him from engaging in business of title insurance in NY within 180 days following his termination. D received lots of money from P. Then, one of P’s competitor’s hired D & offered to indemnify him by paying him a salary during the six-month period. Prior to resigning, D contacted @ least one of P’s customers to move w/ him. P sought a TRO, which was made permanent for 6 months. D appeals.

*Held that a salesman’s services may be considered sufficiently unique as to provide a basis for injunctive enforcement of a noncompete covenant.

*NY cases assume an irreparable injury in breaches of noncompete clauses, & D’s contract provided for injunctive relief in case of breach. The court’s finding of irreparable injury is supported by evidence.

*To be enforceable, a restrictive convenant must be reasonable in time and geographic area, which requires a court to balance the employer’s legitimate business interest against the employee’s possible loss of his livelihood.

*The law permits contracts in partial restraint of trade if they are reasonable. If the contract is reasonable in time and geographic areas, it may be enforced to:

(1) prevent an employee’s solicitation of disclosure of trade secrets

(2) prevent an employee’s release of confidential information regarding the employer’s customers

Or

(3) prevent harm to the employer b/c the employee’s services are special or unique.

***A salesperson’s services can be considered unique.

**They are unique b/c competition for business is based on personal relationships, potential clients are limited & well-known, PLUS the D negotiated the noncompete clause with counsel, he was not in an inferior bargaining position, and he was paid enough money to satisfy him for 6 months.

Rogers v. Runfola & associates, Inc.

·        P (Rogers) signed a convenant not to compete w/ their employer, D, whereby P’s agreed not to (i) engage in ct reporting in Franklin Co. for 2 years, (ii) solicit D’s clients for a lifetime…P’s sought a declaratory judgment that the covenants not to compete were enforceable…D counterclaim for SP & damages…ct found for P, who promptly started a ct. reporting business

·        held if a covenant not to compete imposes unreasonable restrictions, the ct may enforce it by modifying it to make it less restrictive

·        a covenant not to complete which imposes unreasonable restrictions on an employee is enforceable to the extent necessary to protect the employer’s  legitimate interests

·        a restraint is reasonable if it is no greater than is required to protect the employer, does not impose undue hardship on the employee, & is not injurious to the public

·        cts may fashion a reasonable covenant between parties, considering factors such as whether the employee has:

§         confidential information or trade secrets belonging to the employer, whether

§         the employer seeks to eliminate ordinary competition, whether

§         the restraints bar the employee’s sole means of support

·        here, the covenants are excessively restrictive b/c of the large geographical area involved & b/c of the duration of the lifetime restriction

·        has to be a legitimate interest by employer to protect for contract / convenant to be valid

BDO Seidman v. Hirshberg

P merged with another accounting firm in which D was an employee. D signed an agreement that acknowledged his fiduciary relationship w/ P and that if after his termination within 18 months is he served a former client he would compensate P in the amount of one and one half time the fees. D resigned & took 100 of P’s former client. P sued. D claimed he brought some from outside contacts & some he was not their previous primary accountant. D granted summary judgment b/c provision was overbroad & anti-competitive. P appeals.

*Held: An accounting firm may require its employees to compensate the firm for serving any of its clients w/in 18 months after termination of employment.

*Enforceability of a noncompete clause is reasonable if
(1) it is no greater than is required for the protection of the legitimate interest of the employer (2) does not impose undue hardship on the employee, & (3) is not injurious to the public.

* P has a legitimate interest in protection against D’s competitive use of client relationships which P enabled D to get while working for P. The clause shall not extend to P’s clients which D did not develop a relationship through assignments.

*In addition, those which came just seeking the D’s services & had nothing to do with the P, the P should not get.

*The court should determine which clients on P’s list were properly covered by the noncompete clause & enforce the agreement only on those clients.

*Used to show a protectable interest: (1) trade secrets (2) unique talents of employee (3) client based

Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

P’s worked for D and had a pension plan. P’s were discharged without cause and then went to work with D’s competitor. P’s were told that b/c they violated a provision of their plan b/c they were working for a competitor, then they forfeited their pension plan. P’s brought suit for conversion & breach of contract & sought punitive damages. Ruling for D. P appeals.  

*Held: A court may not enforce a forfeiture for competition clause where the termination of employment is involuntary and without cause.

* A forfeiture for noncompete will not be specifically enforced when the termination of employment is involuntary and without cause.

*Public policy against the forfeiture of employee benefits.

*Where an employer terminates the employment relationship without cause, he destroys both mutuality of obligation and his ability to impose such a forfeiture. 

E. Contracts for Arbitration

Grayson-Robinson Stores, Inc. v. Iris Constr. Corp.

·         P (Iris) had entered a contract w/ D in which P agreed to erect a commercial building as part of a shopping center that would be rented by P to D…the agreement provided for arbitration of nay disputes & empowered the arbitrator to award such relief as he found equitable, including specific performance…P couldn’t obtain mortgage money & argued impossibility before the arbitrators…finding no proof of actual impossibility, P was ordered to proceed w/ the construction…P appeals, arguing that ordering SP of a construction contract was against public policy

·        held a ct of equity can confirm an arbitration award that orders SP of a construction contract

·        there is no universal rule that an equity ct will never enforce a contract that requires building to be done

·        here, the ct is merely confirming an award made pursuant to authority expressly granted to the arbitrators by the contract

·        financial difficulties do not necessarily amount to impossibility

·        P had argued impossibility

Sprinzen v. Nomberg

·        P (Nomberg) was employed by D…P signed contract not to disclose certain info about union members & not to engage in organizing workers w/in a certain geographic area for 5 years after termination…the contract also contained an arbitration clause…P left, went to other Local & D demanded arbitration to compel compliance w/ the terms of the restrictive convenant…arbitrator issued award enjoining P’s employment…D moved to vacate, claiming award was unjust & the arbitrator was partial

·        held a ct may affirm an arbitration award involving restrictive covenants of employment when the parties expressly agree to submit disputes regarding such matters to arbitration

·        the law has adopted a policy of noninterference when parties have consented to arbitration

·        the utility of the arbitration process derives from its autonomy & cts must honor the decision of the parties to have their dispute settled in this manner

·        public policy is issue b/c ct will overturn if this is an issue

·        bottom line – even if arbitrator gets it wrong / too bad

·        P signed the org. agreement

·        still has to be a sense of equity & fairness in the process

*Arbitrators cannot hear anti-trust cases or public school cases

*Arbitrators cannot determine their own jurisdiction

Chapter 7 – Equitable Relief Against Tortious Interference with Land and Chattels

A. Waste

Waste occurs when an occupier of land commits acts harmful to the interest of

          some holder of title, who is entitled to preservation of the property

·        most waste cases, then, involve future interest remainder men suing life tenants for destruction & neglect

·        only waste is committed when it is done on others property, remainder/reversion

3 Types of Waste:

          1) Destructive – affirmative acts of destruction / allows it to fall

                   into disrepair

          2) Permissive – neglecting the property / purposely destroy property

3)     Ameliorative – changing character of land where value actually

increases / actually improve property

Earl Bathurst v. Burden

·        D failed to maintain fish ponds and began constructing which would obstruct P’s view.

·        held a ct of equity can compel a lessee to maintain property properly & enjoin him from erecting buildings which interfere w/ another’s enjoyment of his property

·        a ct of equity may compel a lessee to properly maintain leased property & also restrain him from erecting buildings on it if they impair the lessor’s view

Doherty v. Allman

·        D (Allman) was the long-term lessee of certain property used as corn storage buildings…the reversionary interest in these leases was vested in P…b/c of changes in the neighborhood in which the buildings were located, D wanted to convert the storage buildings into dwellings…P objected to this act as constituting waste & an injunction permanently restraining D from converting the buildings was granted…

·        held a ct of equity may not enjoin a long-term lessee from altering the existing buildings

·        a ct of equity will not enjoin a long-term lessee from modifying existing structures as long as such structures do not result in more than negligible damage to the interest of the reversioner

·        although the changes proposed by D might technically constitute ameliorative waste, the property would, no doubt, be worth more after conversion of the grain storage buildings into dwellings

·        ct can refuse to enjoin waste if such waste improves property, esp. where face of neighborhood is changing dramatically

Travelers Insurance Co. v. 633 Third Associates

P loaned D millions, secured by the D’s office building. D defaulted by missing a payment and failure to pay property taxes. P sued for foreclosure and sought an injunction against distribution of D’s case, alleging waste from failure to pay property taxes. For D. P appeals.

*Held: The failure to pay property taxes may constitute waste.

*A receiver was then appointed. Then, D no longer has possession and control, even it is did have an equity of redemption.

B. Trespass interference w/ one’s property unwanted interference, exclusive possession

·        whereas nuisance actions safeguard the use & enjoyment of property, trespass actions protect the possesory interest in property

·        it is important to understand the distinction between interests protected when considering equity questions addressing these torts

·        uninvited invasion of another’s property

·        metaphysical intrusion of your property

Wheelock v. Noonan

·        D (Noonan) had obtained P’s permission to place a few rocks on P’s vacant lot…this was a license, not a contract, which was to expire in the spring, the time at which D agreed to remove the rocks…during the winter, w/o P’s permission, D placed a huge quantity of rocks on property in violation of the terms of the license…P made repeated demands that D remove them…D promised to do so, but never removed the rocks…P sued & D appeals

·        held an equity ct can order relief when a P can bring an action at law for trespass

·        an equity ct may order relief even though a party may bring an action at law for trespass

·        although equity will not ordinarily interfere to redress a trespass, in a case of continuing trespass for which the remedy at law will be inadequate & will involve repeated actions by the injured party, a ct of equity may order relief

·        remedy at law is inadequate

Hirschberg v. Flusser

·        D (Flusser) in excavating his land for the purpose of building an addition, excavated a portion of P’s adjoining property…when D built his foundation & sidewall on P’s property, causing encroachment…P obtained a judgment entitling him to regain possession of that portion of his property…D did not remove the foundation & wall, &, upon execution of the judgment, the sheriff was unable to remove the encroachment b/c to do so would constitute a trespass & injury to D’s building

·        held equity may issue a mandatory injunction to remove an encroachment when legal title to the property is settled & the remedy at law is inadequate

·        equity may issue an injunction compelling the removal & possible injury to D’s property on the party who built the encroachment, rather than placing the burden of removal on the sheriff

·        can make an order even though would cause damage to building

·        multiple suits in action at law would be inadequate for trespass

Lucy Webb Hayes National Training School v. Geoghegan

·        D (Geoghegan) was a patient at a hospital maintained by P…P determined that D no longer needed hospital care & needed to go to a nursing home…P sought an injunction requiring D to remove his wife from the hospital on grounds D had become a trespasser…D argued that equity should not intervene b/c P had an adequate remedy at law for ejectment

·        held a ct of equity may issue an injunction restraining a continuing trespass despite the availability of the remedy of ejectment

·        a ct of equity may enjoin a continuing trespass b/c an action for ejectment is so cumbersome as to be rarely used

·        here, damages in this case would clearly be inadequate

·        there was a public interest here, preventing person from unnecessarily taking up space at hospital

Peters v. Archambault

·        D’s (Archambualt) predecessor in title erected a house partly on D’s property & partly on the adjoining property belonging to P…the building extended several feet onto P’s property…ct ordered removal of the encroaching part of the building & D appeals

·        held a ct of equity may compel the removal of a structure that substantially encroaches upon the land of another even though the cost of removal is significantly greater than the extent of the injury suffered by the landowner upon whose property the building encroaches

·        in the proper circumstances, ct of equity will compel the removal of a substantial encroachment even though the cost is significantly greater than the extent of the injury suffered by landowner

C. Nuisance interference w/ use & enjoyment of the property of another

·        can be public or private

·        individuals generally can secure relief for private nuisances, but not public nuisances, which must be abated through an action by the State or an arm thereof

·        however, a private individual may bring a public nuisance action when he has sustained a special damage different from that suffered by the public

State of Tennessee v. Feezell

P and others brought suit to enjoin D from carrying out proposal to operate crematory in a rural residential area saying that it would cause discomfort to the community. D demurred. Case dismissed b/c premature. P appeals.

*Held: A court of equity may not enjoin a nuisance which had not yet come into being on the ground that said nuisance will cause mental anguish & lowered property values.

*P failed to show that the injury was imminent and certain to occur.

Campbell v. Seaman

P built an expensive home and landscaped the place a lot. Adjoining the land, D owned a brickyard. In two years, many of P’s trees were destroyed. P brought suit for damages and to restrain the continuance of the alleged nuisance. For P. D appeals.

*Held: A court of equity may restrain a nuisance despite the availability of an action at law for damages in certain circumstances.

*here, (1) the amount of damages would be very difficult to determine (2) the harm is irreparable b/c the plantings cannot be replaced (3) the injunction would prevent a multiplicity of suits b/c the injury is a recurring one.

*balancing the relative hardships on the parties

Tushbant v. Greensfield’s Inc.

P operated a sporting goods store adjacent to D’s restaurant. P sought to enjoin D from operating the restaurant in such a way as to cause its patrons to line up in front of P’s store, which interfered w/ his business. Injunction granted. D appeals.

*Held: A court of equity may restrain a private nuisance at the request of a private party.

*However, in this case, the relief can be awarded w/o burdening the D w/ an injunction. Therefore, the decree is modified to provide that D shall make arrangements to have an employee supervise the lineup of customers.

Danielson v. Local 275, Laborers Intern. Union of North America

Apartment complex was being built by employer. After failing in their attempt to unionize the project, several unions started picketing the site. P representing NLRB sought a preliminary injunction against the D alleging unfair labor practice. It was held that (1) P has reason to believe Ds were engaging in unfair labor practices and (2) the picketing could not be viewed as informational and educational since it was subjecting the employer to harassment. The court would not grant the injunction b/c it did not find irreparable damage and, therefore, concluded that the extraordinary relief of injunction was not appropriate. P appeals.

*Held: A court may issue a temporary injunction when monetary damages will be either inadequate or too difficult to determine.

*The damage can constitute irreparable injury and thereby satisfy the general requirement in equity of irreparable harm.

*It is not necessary to withhold the remedy of injunction until the whole operation is shut down. An injunction may properly issue to maintain the status quo pending determination of whether a particular charge is true. 

Boomer v. Atlantic Cement Co.

·        D (Atlantic) operated a large cement plant…P troubled by the dirt, smoke, & vibration from D’s plant, sought an injunction & damages on the basis of nuisance…the trial ct allowed damages for those injuries that had already occurred but refused to grant an injunction

·        held a ct may not refuse to order an injunction where the economic consequence of that order far outweighs the consequence of the nuisance

·        a ct may order an injunction where the economic consequence of injunction could outweigh the economic consequence of the nuisance, if the injunction is conditional on the payment of permanent damages to P’s compensating them for the harm done

·        the prospect of permanent damages will serve as an incentive for D to find means to abate the nuisance

·        the injunction in this case merely serves the purpose of assuring payment of any damages

·        judgment was reversed

·        ct has to deal w/ closing a business…party must show substantial damage

Sawyer v. Davis

P had been restrained from ringing a bell on the mill by an injunction at the request of D. Although found to be a public nuisance, the legislature passed an act allowing the bell to ring upon issuance of a required license. P obtained a license and brought action to dissolve or modify the injunction.

*Held: An injunction restraining a nuisance may be modified or dissolved when the legislature determines that such a nuisance should be permitted in order to achieve a significant public good.

*Here, the ringing of the bell was necessary to the convenient operation of the mill. The legislature determined that the ringing of the bell outweighed the disturbance. PLUS, D had no vested constitutional rights under the injunction since injunctions are always modifiable.

Spur Industries, Inc. v. Del E. Webb Development Co.

·        D (Spur) est. a cattle feedlot in a remote area…P began a residential development three years later  & this development expanded toward D’s feedlot…eventually the odor & flies around the feedlot rendered the residential properties very difficult to sell & P brought an action to enjoin the feedlot operation…ct found the nuisance was public as well as private & issued a permanent injunction…ct also required P to indemnify D for its losses

·        where a developer brings purchasers to a preexisting nuisance, the developer will be required to compensate the nuisance owner for damages resulting from an injunction

·        injunction was proper b/c portions of the development were damaged by the nuisance of the feedlot

·        but b/c the feedlot was originally lawful & only became a nuisance as the development expanded toward it, it would be inequitable to require D to bear the entire loss

·        two questions – where operation is lawful 1^st, becomes nuisance 2^nd will ct enforce injunction / could enjoin as a public nuisance, since affects such a large area

·        D. Conversion (Equitable Replevin) equitable replevin – unauthorized possession of chattels

·        Conversion is the intentional, wrongful acquiring, altering, damaging, transferring, using, or withholding of the personal property of another.

·        The owner often has a choice of remedies, which include replevin, trespass to chattels(owner recovers damages for dispossession, but chattel has already been recovered or it has been destroyed), and conversion (the owner recovers the value of the chattel plus damages for the dispossession – forced sale of the chattel).

·        replevin is an action to recover personal property that was unlawfully taken

·        replevin may be used when you can’t replace/give back w/ an amount of money

·        doctrine of equitable conversion provides that after a land sale contract has been effectuated, the buyer is considered the owner of the land & the seller is holder of the legal title only as security for the proceeds of the purchase price

·        equitable conversion is predicated on the maxim that “equity regards that as done which ought to be done”

·        w/ respect to option contracts, the majority rule is that equitable conversion occurs when the option is exercised

Burr v. Bloomsburg

·        P (Burr) sued D for recovery of a diamond ring that P’s mother had given P…P had loaned the ring to her brother, D’s husband, who gave P a written receipt stating that on his death he would return the ring to their father’s family…D’s husband later asked P to return the paper, but she refused…16 years later, D’s husband bequeathed the ring to D…P sued seeking equitable replevin to recover the ring from D

·        a ct may enforce the delivery of a specific chattel that has peculiar subjective value to the party seeking delivery…judgment for P

·        this is a case where the market value of an object of a suit does not reflect the emotional or imaginary value of the object to the person seeking recovery – the cts may permit specific performance of a contract involving the chattel

·        in such cases, where the pecuniary value is not readily ascertained & has not been fixed by the parties, pecuniary compensation is an inadequate remedy

·        equity is not limited to specific performance of contract involving special chattels; it can also enforce the surrender of chattels in specie which have been tortiously obtained or wrongfully detained

·        Replevin is a legal remedy for the tortuous taking or retention of personal property, it enables the P to obtain a writ that authorizes the sheriff to seize the property & give it to the P

*Latin phrase: “Pretium affectionis” “The imaginary value put upon a thing by the fancy of the owner in his affection for it.

Chapter 8 – Equitable Defenses

A. The “Clean Hands” Doctrine: One who comes into equity must come with clean hands.

*unclean hands applies if the unclean hand act relates to same matter that you are trying to stop, etc

Carmen v. Fox Film Corp.

·        P (Carmen), a movie actress, signed a contract w/ D while she was a minor…while the contract still had several years to run & before P reached majority, she signed another contract, which called for P’s exclusive services for more money…P represented to the second company she was free to accept this employment…when P reached her majority, she repudiated on D on grounds it was made when she was an infant…D insisted P continue w/ them & threatened the other company if they employed P…they agreed not to employee P & D agreed to indemnify them against any suit P might bring…P brought an action in equity against D (i) to have the contract w/ D declared void; (ii) for an injunction restraining D from interfering w/ her contract rights w/ any person or company; & (iii) for damages

·        held a P who has been guilty of misconduct or wrongdoing toward a D in the transaction for which P brings suit may not be granted relief by a ct of equity

• P entered the K with Keeney while still a minor.  P misled Keeney by telling him she was free to enter into the K at that time.  If the K was valid, P was under a legal and moral obligation to finish her K with D.  Even if the K was voidable b/c she was an infant, she was under a moral obligation to render services.

* P’s hands were not clean.  One must come into equity with clean hands.  Misconduct that bars relief will not necessarily be of a criminal nature or be of a nature that constitutes the basis of a legal action. 

*P’s conduct was such she was not entitled to relief

·        P mislead the other company as to she was free to negotiate

·        if P had sought to enforce contract at law, she could have enforced them…this is an instance where law & equity diverge

·        example where equity ct will make their decisions w/o regard to ct at law

Claire v. Rue de Paris, Inc.

·        P (Claire) brought a shareholder action alleging waste of corporate assets against D…P charged the other officers & directors of D were allowing D’s places of business to sell alcohol on Sundays & to sell watered down drinks…& they were taking money out of the business each week w/o a proper accounting…however, P also took money, food, & beverages from the business….

·        held a ct of equity may not grant relief to a shareholder of a corporation for acts complained of when the shareholder has participated in that act

• It would break the laws of equity and good conscience to allow P relief when he readily admits to doing the very same thing that the other partners of this corporation are doing. 
• when a person participates in the performance of an act, they are estopped to complain thereof in equity

·        P hands were unclean

Seagirt Realty Corp. v. Chazanof

  Facts:  Jacob Landau, sole stockholder of Seagirt, conveyed lands to his son, Alfred, to defraud his creditors.  Alfred held onto the land.  When Landau filed for bankruptcy, he said he owned no property.  Then, Alfred conveyed the land to D at Mr. Landau’s request.  D then conveyed land back to P.  The deed was lost before Jacob recorded it, and so he brought this action on behalf of the P to compel execution of a replacement deed to remove cloud on the title.  Trial court in favor of P.  Appellate court reversed.  P appeals.

Holding:  A court of equity may grant relief to a P with “unclean hands” where important social policy considerations support the need for such relief. 

*The court uses its discretion and balances the equities involved. 

*Here, the court considered the social policy in favor of making land records reflect accurate ownership.

*Despite P past misdeeds, he is the lawful owner of the land and the records should show this. 

*The relief sought here is to protect status of legal ownership.

Note: “Clean Hands” and Collateral Misrepresentations.

*This doctrine only disqualifies a P from relief when P deals unfairly in the very transaction about which he complains.

*Collateral matters are not material.  A misdeed is collateral when the right for which the P seeks protection did not ensue from that misdeed.

B. Laches and the Statute of Limitaions

• Laches: Pg. 524 in book.  The equitable doctrine by which a court denies relief to a claimant who has unreasonably delayed in asserting the claim, when that delay has prejudiced the party against whom relief is sought.
• Statute of Limitations:  Most states have a statute of limitations applying to suits in equity.  However, if delay for a shorter time than the applicable statute period is unreasonable and prejudicial to D, laches may still bar relief. 
• Specific performance will not be granted when the lapse of time renders such relief inequitable in its consequences

Talmash v. Mugleston

Facts:  A K was entered into in 1806 in which the D agreed to sell premises to P.  The last correspondence was in 1815.  The case was brought in 1825 for specific performance of the K. 

Holding:  Mugleston should not have used the statute of limitations as the basis of his defense because the rule of equity that refuses to enforce specific performance of a K does not result from a statute of limitations.  An equitable court is bound to take notice of every public statute for purposes of analogy.  Therefore, it is not necessary to plead the statute.  If the case here is the kind where the court, according to its rules, will refuse specific performance, Mugleston ought to have demurred.  In support of that demurrer, the argument would have been that it appears by the P’s own showing, that, if he were to proceed at law, he could not recover damages, and consequently the court would not assist him.  

Beresovski v. Warszawski

Facts:  A stockholders agreement authorized amending the certificates of incorporation to take care of any illegal provision in the agreement.  Supermajority control was provided in the amendment.  Seeing that such a provision was invalid unless embodied in the certificate of incorporation, Beresovski demanded its amendment.  Warszovski refused.  That was ten years ago.  Therefore, the trial court held it was barred by six year stat of lim governing cases arising out of K.  There is, however, a ten year statute of limitations governing actions in equity. 

 Holding:  The fact that a case arises out of a K does not mean that is the exclusive test to which the statute of limitations apply.

*In determining whether specific performance of a K is available, the most important consideration is absence of an adequate remedy at law. 

*Here, the deprivation of majority control is impossible to measure monetarily.  Therefore, there is no adequate remedy at law and the 10-year statute of limitations must apply.

*catch-all limitation

Environmental Defense Fund, Inc. v. Alexander

·        concerns Tennessee-Tombigbee Waterway…it took thirty years to get underway…an environmental group filed to enjoin the construction…the suit was file in 1976…an amended complaint was filed …by this time D had expended millions, but P did not seek immediate injunctive relief to halt further expenditures…district ct concluded not to reach the issue b/c it was barred by laches…P (Environmental) appeals

·        held that in order to invoke the equitable defense of laches, a D must show that those whom it seeks to bar by invoking laches were or should have been aware of the questionable nature of the action

• Here, the P had adequate knowledge that D expanded the width of the channel beyond its statutorily authorized width.
• On the issue of prejudice, equities must be balanced.  A lot of money had already been spent on the project.  Reshaping the waterway would commit grave waste.  Also, evidence was introduced that a narrower channel would not be economically feasible. 
• The doctrine of laches means some claims of merit will not be heard when a D will be unduly prejudiced in asserting them. 

Addison v. State

Facts:  Addison sold cars.  He was under investigation b/c of supposed fraudulent conduct in relation to these sales.  Pursuant to warrant, his office was searched and documents were seized.  D publicized the raid.  P then filed suit under the Tort Claims Act stating that this action was improper and constituted defamation, abuse of process and conversion.  D moved to dismiss and it was.  Subsequently, P filed this motion.  Superior court granted the D’s demurrer to the action in that court b/c of late filing of the complainant in spite of the fact that the federal court had been timely filed.  P appeals.

Holding:  A court may adapt rules of procedure to serve justice where a technical forfeiture resulting from the application of a statute of limitations would unjustifiably prevent a trial on the merits. 

*Equitable tolling- relieves plaintiff from the bar of a limitations statute when he has acted in good faith in pursuing his legal remedy as long as the D will not be prejudiced thereby.  A court may invoke this when the D has received timely notice and will not be prejudiced by the filing of the action.   

*Application of equitable tolling involves balancing the injustice of barring the P’s claim against the effect on public policy of preventing the filing of state claims. 

*Here, if ET was not applied, P would be denied a case on the merits.  The D had time to prepare a defense b/c it was timely filed in federal ct.  Delay due to the original erroneous choice of forum was minimal. 

**Equitable Tolling: (1) timely notice (2) lack of prejudice (3) reasonable & good-faith conduct on the part of P.

• C. Estoppel: Definition:  A bar that prevents one from asserting a claim or right that contradicts what one has said or done before or what has been legally established as true.  An affirmative defense alleging good-faith reliance on a misleading representation and an injury or detrimental change in position resulting from that reliance.

Barry v. Donnelly

·        P received a painting from famous painter, Murphy…P claimed the painting was a gift at various times…D, Murphy’s daughter, later claimed the painting was merely loaned to P & would ultimately to be returned to the family…evd. supported both views…in 1984, P sought a declaratory judgment the painting was hers either as a gift or by the running of the 5 year statute of limitations on actions to recover property…P then moved for summary judgment, conceding D’s claims that the transaction was a bailment & that P had promised to return the painting even after she claimed ownership…ct granted summary judgment on P’s letter was an act inconsistent w/ the asserted bailment & thus triggered the statute of limitations…D appeals

·        held equitable estoppel does not require actual fraud by the person sought to be estopped

·        the ct granted P summary judgment despite her representations that she would return the painting to D b/c the ct considered these representations to fall short of fraud sufficient to toll the statute of limitations

·        however, conduct short of actual fraud may estop a person from pleading the bar of a statute of limitations

·        equitable estoppel may apply where the aggrieved party reasonably relies on the words & conduct of the other

·        the basic premise for this rule is to prevent someone from lulling another person into a false sense of security to delay that person’s claim beyond the bar of the statute of limitations, & then plead the delay as a defense

·        Here, a fact finder will have to decide if P did promise to give the painting back, and whether, if she did, D relied on that promise in failing to bring suit within the s of l.  Summ. Judg. was inappropriate

·        to est. equitable estoppel, it is not necessary to show actual fraud, but only the person to be estopped has mislead another to his prejudice

Office of Personnel Management v. Richmond

Facts:  Richmond was on disability retirement as a former federal employee.  His disability payments were subject to termination if he was restored to earning capacity (defined as earning 80% of what he was paid prior to retirement.  Prior to ’82, the measuring period for restoration of capacity was two succeeding calendar years.  It was then changed to one calendar year in ’82.  P then had an opportunity to work overtime at his part time job.  He sought advice from an employee of the D, who advised him under the two year rule.  He worked overtime for two years and lost his payments.  P appealed denial of benefits.  It was denied b/c D claimed it could not be estopped from enforcing a statutorily imposed requirement.  Ct of appeals reversed and SC granted cert. 

Holding:  The gov. may not be estopped from enforcing a statutory provision limiting benefits when a claimant loses benefits after relying on erroneous advice of gov employee. 

*Traditionally, equitable estoppel has not been available to private litigants in suits against the government. 

*The Appropriations Clause of the Constitution specifies that only Congress can permit payment of money from the Treasury.  P doesn’t meet stat. requirements of benefits he seeks.  Therefore, the Const. prohibits money to be drawn from the Treasury to pay those benefits. 

*No Ct. decision has ever upheld an estoppel claim against the Gov for payment of money.  The App Cl is an important protection against fraud and corruption.  If Gov could rely on statements of gov agents instead of based on Acts of Congress, the App Cl would be null and void. 

*In cases like this, Congress may only provide relief.  The Cts cannot spend federal funds.      

Chapter 9 – Equitable Defenses Peculiar to Specific Performance; Rescission and Reformation

• A.  Fraud, Misrepresentation, Concealment, and NonDisclosure: 1) A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.  2) A misrepresentation made recklessly without belief in its truth to induce another person to act.  3) Unconscionable dealing; esp., in K law, the unfair use of power arising out of the parties’ relative positions and resulting in unconscionable bargaining. 

Kelly v. Central Pacific Railroad Co.

·        D (RR) offered certain tracts of land for sale to actual occupants of the land…based on P’s false representation that he was a bona fide occupant, D agreed to convey certain land to P…when D learned of deception, it notified P it would not convey the land & returned P’s first payment…P refused to accept & sued for SP, alleging there had been no actual injury since D would have received the same amount of money for the land…P appeals

·        held that in order to defeat a suit for SP of a land sale contract on the ground of fraud, the fraud does not have to produce actual injury

·        although ct of equity will not set aside a contract obtained through fraud unless it actually produces injury, this is not the case of suits for SP

·        a ct may refuse SP of a contract which it would not set aside

·        in order to defeat a suit for SP of a contract to sell land upon the ground of fraud, it is not necessary that the fraud be productive of damage either to the vendor or the 3^rd persons

• it is sufficient for a ct to refuse enforcement if the misrepresentation was intentional & made for the purpose of deceiving the vendor & the vendor relies upon it, was deceived by it, & would not have entered the contract but for the deception… P fraud induced D into a K it would have otherwise not made. 

·        A ct will not condone fraud regardless of whether the person injured was a party to the K. 

Innocent Misrepresentation

• It does not matter if material reps are made w/out knowledge of the real truth or w/out intent to deceive.  A ct of equity will not order SP when the other party has relied to his detriment on the truth of those reps. 
• Trend toward granting rescission in case of innocent misrep:  Tendency to grant relief, particularly in cases where K is unexecuted. 

Concealment 

• Suppression of truth may = false rep:  Silence may not = false rep.  However, suppression of truth may amt to suggestion of falsity.  If either party intends to deceive and conceals a material fact which he should disclose in good faith, it is = to false rep.  If a party fraudulently produces a false impression on the mind of the other party, it does matter whether it was produced by D words or actions or whether it was produced concealment of mat. facts not equally within reach of P.

Fiduciary Relation

• Cardozo’s view of FR:  Conduct permissible in a regular “workaday” world for those acting at arm’s length are forbidden to those in fiduciary relationships.  Trustees are held to a higher standard than the morals of the marketplace.  Honesty is not enough.  Must be held to a higher standard of honor.

Standard Steel Car Co. v. Stamm

·        P was assigned the option to purchase D’s (Stamm) land from Anderson…Anderson had negotiated for the option w/o disclosing his knowledge of the likelihood that a manufacturing plant would be coming to this area…when P tendered payment to D, D refused to convey the land…P’s sued for SP & the lower ct denied relief on basis of Anderson’s concealment…

·        held a ct. of equity may not refuse to order SP of an option contract on the ground of nondisclosure when the information not disclosed was not a present fact but merely a future possibility

·        in order for concealment to be material, the thing concealed must be something which the concealing party was under some legal or equitable duty to disclose. Here, the manufacturing plant was nothing but a rumor P had heard.

• No fiduciary rel btwn P and D.  They worked at arm’s length on a purely business basis.  Not sufficient to deny SP b/c a party has been taken advantage of.  Hard bargains may generally be enforced.

*Implied covenant of Good Faith and Fair Dealing – Just because the equity court will not render an award when there is not good faith and fair dealing, does not mean you cannot get an award in law for damages.

Breach of the Duty of Good Faith

Market Street Associates Ltd. V. Frey

·        P (Market) was a lessee for property from D, the trustee for the trust that owned the property…the lease allowed the lessee to ask the lessor to finance improvements on the premises…if the lessor declined, the lessee could give notice it would purchase property pursuant to a valuation formula contained in the contract…P asked D if it could buy the property…D responded it would sell at market value…P then started discussions regarding financing improvements…D declined to provide the financing …later P notified D it was exercising its option to purchase under the lease option…the contract formula generated a lower price than what D offered to sell for…this was the first time D became aware of the lease option…D offered to negotiate financing for improvements, but P refused…D refused to convey the property…P sued for SP…P appeals

·        held a party may not sue for SP when during the negotiations it failed to inform the other party of its intentions under a clause in the contract that was clearly in its favor

·        there is a duty of good faith in contract performance that prohibits one party from taking deliberate advantage of an oversight by the contract partner concerning rights under the contract

·        by not notifying D of the lease option, it is implied P tried to trick D in violation of the duty of good faith

·        Here, the P never referred to Paragraph 34. After declining to finance improvements, P informed D it would get it somewhere else. D then assumed no further action was necessary.

·        it is not Ps failure to refer to a specific part of the contract that is the problem, but P’s failure to mention what it clearly preferred to do, i.e., purchase the property at the discounted price per the option

Dalton v. Educational Testing Service, Appellant.

Facts:  P took test and scored a lot higher than first time.  Investitgation ensued.  D conclude that a different person took second exam.  P had 5 options after told scores not be released.  He chose to provide additional info, including med record from first test, results from a prepatory course, and verification of presence on test day by witnesses.  D cont’d to question.  P sued.  TC found for P and order results released.  AC say that D must consider the additional info in good faith, but did not have to release score.  P appeals. 

 Holding:  A testing institution does not have to release test scores as a remedy for breach where said institution breaches a K by failing to consider evidence provided by a test-taker regarding his having actually taken test. 

• D did have duty to consider any relevant materials P supplied in investigation. 
• D’s failure to consider the evidence was a breach of its K with P. 
• Cts cannot compel this institution to release scores just like it may not do the same with a university and force it to issue a diploma.  Other remedies for such a breach must be found. 
• P is entitled to SP of D’s promise to consider P’s evidence in good faith.  P can still resort to other of the 5 options as well. 

B. Mistake

*Two types of mistake: (1)unilateral (2)bilateral

(1) mistake may prevent there being any contract at law

(2) It has been suggested that mistake may prevent there being any contract in equity

(3) Mistake may result in erroneous integration of a contract actually made

(4) Mistake such as will be ground for rescission in equity

(5) mistake knowingly induces is equivalent to fraud & hence, ground for rescission

(6) mistake may be such as to bar specific performance

Effects of Mistake in connection with Formation

• Mistake may prevent there being any K at all.  Example:  Two parties Ked for a cargo by Peerless.  There were two ships named Peerless.   Each party understood a different ship.  So, no K. 
• Mistake may result in erroneous integration of a K actually made:  Writing may not reflect actual agreement.  Remedy for this type of mistake is reformation. 
• Mutual mistake as to some essential feature of K may be grounds for rescission. 
• Mistake knowingly made is equivalent to fraud and is grounds for rescission. 
• SP will be denied on less proof than is required for rescission. 

Rescission and Reformation

• Reformation of K corrects an instrument so that it expresses true agreement of parties.  (Reformation, in effect, affirms K and involves effort to enforce it as reformed).
• Rescission abandons a K not intended to be made by party.  It vacates the instrument.  It is only proper when mistake is so material that it goes to foundation of agreement. 
• In cases of unilateral and mutual mistake, relief is appropriate only where mistake upsets very basis of K.

1. Mistake as a Ground for Rescission or Reformation

Rescission

Costello v. Sykes

·        sale of stock where bank employee’s altered worth to hide embezzlement…the parties to the sale were mutually mistaken as to the financial condition of the bank…upon learning the truth, P tendered the stock to D & demanded repayment of purchase price…D (Sykes) refused…P appeals

·        held a ct may not grant rescission of a contract for the sale of the stock b/c of mutual mistake as to the value of the stock

·        as long as the means of information are open to all parties, rescission of a contract for the sale of stocks will not be granted b/c of mutual mistake as to the value of the stock

·        Here, P received the stock that he bought, so mistake did not go to the substance of the K.

·        to grant relief on the basis that the thing contracted for was worth less than both parties had believed would strip contracts of their stability

Panco v. Rogers (important case?)

·        P (Panco), an elderly deaf man w/ little education & wife, entered into an oral agreement to sell their home to D…P & D disagree on amount of consideration…P signed a written agreement prepared by D’s attorney setting consideration at price D contends…when P’s daughter tried to explain to P amount lesser amount, P argued it was a partial payment…P’s asked D to cancel transaction, offered to return his deposit, & pay his attorney’s expenses…D declined & P sought rescission

·        held a ct may not grant rescission of a contract on the basis of unilateral mistake

·        held a ct can refuse to order SP of a contract in which there has been a unilateral mistake if to do so would result in undue hardship to the mistaken party

·        generally, rescission can’t be enforced on account of unilateral mistake where the other party neither shared the mistake nor was guilty of fraud, undue influence, concealment, or bad faith. None of these exist here, so no rescission.

·        where SP is sought, the ct will consider all to the circumstances surrounding the contract

·        a ct must be satisfied the claim is fair, reasonable, & just; & in judging its fairness, the ct will also consider the relationship of the parties

·        where the enforcement of a contract for the sale of land would be harsh, oppressive, or manifestly unjust to one party, SP will not be ordered & the parties will be left to their remedy at law

• Here, factors combine to render SP unjust:  age, lack of ed, deaf, foreign, original mistake in amt of consideration, manner in which K prepared and inadequacy of price.

Volpe v. Schlobohm

·        P (Schlobohm) & D & 3^rd party formed a partnership for the purpose of carrying on a food distributing business…at time of formation P & 3^rd were franchisees of Pepperidge Farms & D was franchisee of Stella D’Oro…P & 3^rd allege their franchisees was contributed as a partnership asset…however, their revenues were deposited in the partnership account & distributed to the partners…D alleged that it was his understanding the Pepperidge franchises were assets, as was his own…the partnership broke down after 3^rd w/drew & took his franchise w/ him…P purchased 3^rd’s interest & D objected he was not given an opportunity to purchase a proportionate share of 3^rd’s interest…P brought suit for rescission from partnership…P was awarded rescission & D was awarded nothing but 30% interest in the property…D appeals

·        held a ct may order rescission upon mutual mistake even though the mistakes of the parties w/ regard to a certain matter are not the same as long as the mistakes relate to the same matter &  parties can be restored to their original positions & the rights of 3^rd parties are unaffected

·        Here, P believed franchises weren’t included as assets & D thought they were. There was no meeting of the minds on inclusion.

Krezinski v. Hay

P brought an action against D & her insurer for damages sustained in an automobile accident caused by D’s negligence. D denied this and set forth a release of all claims which P signed. P said they had relied on a mutual mistake of fact. It was that the P was suffering from a latent but present condition from the accident which turned into seizures. This was not observed by P’s doctor prior to the release. D moved for summary judgment.

HELD: A court may set aside a release if the parties, when they signed the release, relied on a diagnosis that failed to ascertain a then existing but unknown condition caused by the incident that led to the suit.

*Also, the partied relied on the diagnosis as the basis for settlement. 

• Reformation: Theory of an action for reformation:  In reducing an agreement to writing, through MM or mistake of one side and fraud on the other, some provision actually agreed upon was omitted.  Therefore, action is to change the instrument as written to conform K by inserting provision omitted or deleting one inserted by MM.  In reformation, only those provisions agreed upon at formation of agreement can be inserted.  Reformation will not be granted where writing expresses actual agreement.

Mutual of Omaha Insurance Co. v. Russell

·        P (Russell) mistakenly bought a different type of flight insurance policy for what she intended…P was killed on her return flight, 12 days after the policy expired…P’s husband sought reformation…D appeals

·        held reformation may not be granted in a case of unilateral mistake, absent fraud on the part of the other party

• Here, it would be unrealistic to impose a duty on an insurance clerk in airports to interpret all policies.  So, the printed K controls. 

Unilateral Mistake and deceptive conduct:  Where an error is made by one party and the other realizes it and tries to take advantage, it is unnecessary to establish fraud on part of other party to provide equitable relief.  In this situation, deceptive conduct on part of nonmistaken party brings situation close to MM of fact that the remedy of reformation will be available.

Nash v. Kornblum

·        P (Nash) gave a sales est. for fencing tennis cts owned by D…D excepted the proposal…during performance, D asked P to enclose a handball ct…when billed for more, D paid the org. est.…P sued to have the contract reformed…P appeals

·        held a party can may obtain equitable reformation of a written contract that contains an essential term that does not represent the term as originally agreed upon in the oral negotiation

• P claims 2^nd proposal contained an error b/c it doubled the ground linear feet needing two five foot widths of hex where one 10 ft chain link would do. 
• Reformation is available only when P establishes right to relief by clear and convincing evidence.  Must be a certainty of error.  Unil mistake is insufficient absent fraud.  Both parties must have made mistake so that neither’s intentions are expressed in K.  Ref. is only intended to solely state correctly the parties’s mutual intent such as to correct a mistake by the party who wrote K. 
• Here, P’s agent made a clerical mistake in drafting.  D knew that and is taking advantage.  There was an agreement before K was written.  So, no need to prove fraud. 

·        equitable reformation is available only when P est. his right to such relief by clear, positive, & convincing evd.

·        there must be a certainty of error

Rescission and Reformation for Fraud and the Parol Evidence Rule

• Parol evidence rule does not apply to actions to rescind based on fraud:  PER forbid proof of extrinsic evidence to contradict terms of written agreement.  However, when cause of action is brought forth on ground of fraud, evidence of alleged fraudulent misrep is admissible to avoid agreement. 
• Merger clause ineffective:  A merger clause will not save D in fraud action, and P free to show he induced into K by false and fraudulent misrep

Mistake as a Defense to SP

• Mutual mistake:  SP is not available in a case of MM
• Unilateral mistake:  UM under certain circumstances may bar SP

2. Mistake as a Defense to Specific Performance

Mansfield v. Sherman

·        D (Sherman) agreed to sell 2 lots to P…D believed the lots did not contain building sites…by mistake, D agreed to sell one lot which did have a valuable building site…P knew the price was very low for the lot…P brought suit to compel D to convey the lot…D had refused to perform on grounds he had made a mistake as to a material fact & not merely an error in judgment

·        held a ct may refuse to order SP of a land sale contract where there has been a unilateral mistake & enforcement of the contract would cause a harsh & inequitable result

·        A ct may refuse SP where P can seek damages at law for nonconveyance.  Here, P will get damages on proof of valid K and will be fully compensated.

·        a ct of equity will not aid one party to take advantage of the mistake of another party

*must be a material fact!

*The court is looking at the net effect, equity court will not allow something unharsh to happen.

C. Hardship or Unfairness

• Hardship Alone:  If fair at time of creation, SP not denied merely b/c some intervening contingency, which may have been foreseen by both parties, has rendered K disadvantageous. 
• SP may be refused if enforcement would cause unreasonable or disproportionate hardship or if K was induced by sharp practice or misrep.
• Unconscionable Bargain: If ct finds, as matter of law, that a K was unconscionable at time made, ct may refuse to enforce K or any clause therein that was unconscionable.  To determine if uncon: look at commercial setting, purpose and effect of K.

Patel v. Ali

·        D (Ali) contracted to sell P a house they owned jointly…the transaction was delayed…over three years, D’s suffered numerous hardships…P sought SP of the contract & D objected that due to the hardship she would suffer if she were forced to move & P should only receive monetary damages

·        held a ct may decline to grant SP solely b/c the D will suffer undue hardship as a result of a change in circumstances that occurred after the contract was entered

·        D’s hardship clearly exceeds P’s

·        SP is a discretionary remedy, even though it is normally granted for breach of a contract to sell land or buildings…an exception is when hardship would result

·        the normal hardship that justifies ct’s not granting SP is either:

-                 a hardship existing at the time the contract was entered; or

-                 a hardship due in some way to the P

-                 Neither apply here.

·        in exceptional cases, cts have refuse SP: D would suffer extraordinary hardship here. It would cause injustice. 

*unconscionable agreements: unconscionability must have existed @ the time the contract was executed.

*just b/c the court doesn’t grant specific performance of contract, does not mean that the non-breaching party can’t get damages on the legal side.

D. Inadequacy of Consideration

McKinnon v. Benedict

Facts:  P loan D 5K to purchase adjoining parcel of land.  D couldn’t make improvements on land closer to P’s property.  D do it anyway and P get injunction enforcing the restrictive agreement.  D appeals. 

Holding:  A ct may refuse to order SP of a K that is unreasonable or unfair or not based on adequate consideration. 

• Oppressive K’s are not enforced in equity, generally.  The K provided that no improvements be made for 25 years and the only consideration was 5k over seven months.  Therefore, the inadequacy of the consideration is so gross as to bar relief for P.

*Lord Chancellor Northington said “necessitous men are not, truly speaking, free men.”

*Considering all the factors – the inadequacy of the consideration, the small benefit what would be accorded the McKinnons, and the oppressive conditions imposed upon the Benedicts – we conclude that this contract failed to meet the test of reasonableness that is the sine qua non of the enforcement of rights in an action in equity. 

E. Statute of Frauds

• English Statute of Frauds created in 1677.
• It provided that certain K’s had to be in writing to be enforceable. 
• Today:  S of F in most states forbid oral K’s for: 1) transfer of land 2) sale of goods over 500 dollars 3) to marry 4) to act as surety, or 5) to do anything that cannot be completed within one year. 
• S of F in U.S. relating to land K’s:  Statutory provisions relating to land K’s fall into two groups:  those that provide that “no action shall be brought” on a K for the sale of land, and those which declare such K’s “void”. 

1. Satisfaction by a Memorandum in Writing

Mentz v. Newwitter

·        P (Mentz) authorized an auctioneer to sell a certain piece of his land…D bought the land on a bid…the only written record of the sale was a memo made by the auctioneer which did not name the vendor nor give any description by which P could be ID…D refused to go through w/ the sale & P sought to recover the difference between the bid price & what the property resold for…D appeals finding for P

·        held the failure of a writing to show the name of the vendor will render it insufficient as a memo of sale under Statute of Frauds

·        a memo must contain substantially the whole agreement & all of its material terms & conditions in order to satisfy the Statute of Frauds

·        the essentials cannot be parol evd. & it must include the subject matter of the sale, the terms, & the names or descriptions of the parties. Here the vendor not named & this omission was fatal. K void.

*”Every contract…for the sale of any lands…shall be void, unless the contract, or some note or memorandum therof, …be in writing & be subscribed by the party by whom the sale is to be made.”

*”Every instrument required to be signed by any party under the last preceding section, may be subscribed by the agent of such party lawfully authorized.

Oral Rescission or Modification of K’s within S of F

• Oral rescission:  All unperformed duties under an enforceable K may be discharged by oral rescission.  An oral agreement to rescind a K to transfer real property is, however, unenforceable.
• Oral modification:  If a K modifies but not rescind prior K, second K is treated as containing originally agreed terms as modified.  S of F may apply independently of original terms to a K to modify a transfer of real property. 

2. Fraud v. Accident

• A ct will not enforce the Statute if doing so would perpetuate a fraud.  Nor will a ct enforce Statute if failure to comply was due to happenstance unrelated to intent of parties. 

Gilbert v. Gilbert

Facts:  John induced P to marry by saying he leave property to her.  P married in reliance of his reps that that would be his last will.  Soon after marriage, he changed it and left all to his children.  After his death, P say it a breach of agreement and fraud on his part.  Also seek inj of will.  D asserts S of F as defense. 

 Holding:  The mere breach of verbal assurance is not sufficient to support a finding of fraud. 

• The mere wrong in repudiating an agreement that is not in writing and, therefore, not enforceable is not sufficient to show fraud.

*Changing his mind is not fraud.  Must show intent to fraud

Finucane v. Kearney

Facts:  Seller died before he could sign K. One of parties fraudulently prevented the writing to not be finished.  Therefore, demurrer overruled.  Parties intended it to be in writing. Buyer seek SP. 

Holding:  If a seller promises to sign a K and dies before doing so, the K should be enforced anyway. 

3. Justifiable Change of Position

White v. Production Credit Association of Alma

Facts:  P entered into oral agreement with D to finance an irrigation project.  Within five months, D withdrew and P had to look elsewhere for financing.  P was unable to do so b/c he pledged assets to secure the loan from the D.  P brought suit for B of K.  D move for SJ.  P argued that Statute of Frauds not apply b/c he relied on the oral K  to his detriment.  Ct deny SJ and awarded P damages.  D appeals. 

Holding:  Estoppel may be raised to defeat defense of S of F where one has acted to his detriment solely in reliance on an oral argument. 

• P relied on D promise, installed irrigation system, and granted D a security interest in his collateral, to his detriment.  P’s detrimental reliance is sufficient in this case to allow estoppel. 

F. Plaintiff’s Default

1. NonPerformance of Conditions Precedent

• A condition precedent is a condition that must exist to create a duty of performance.

Lord Ranelagh v. Melton

Facts:  D agree to lease lands to P’s assignors (99 yr lease).  Agreement provided that if lessees want to purchase property, must, within 7 yrs, give 3 months notice to the lessor of their intent to do so and tender purchase price before expiration of notice period.  P gave notice, but the 3 month period lapsed and no payment.  Time lapsed and D not convey.  P filed SP.

Holding:  The relationship of vendor and purchaser has not been created btwn parties where an agreement provides that if one party performs a specified act the other party will convey the land. 

• The relationship doesn’t exist until act has been performed as specified. 
• Here, since time fixed by the agreement for payment passed, P’s right to compel is lost. 

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.

Facts:  P leased to P and V.  They assign lease to D.  Modification of lease from 10 yrs to 24.  D not do so either due to inadvertence or negligence.  P demand they leave premises.  D seek relief from forfeiture and P seek repossession.  P won and D appeal.

Holding:  A ct of equity may grant a tenant relief from forfeiture where forfeiture would result from tenant’s own neglect or inadvertence in failing to renew lease w/in prescribed time limit. 

• Has no legal interest, but has equitable interest.  EI is recognized and protected against forfeiture in cases where tenant has, in good faith, made substantial improvements with intention of renewing lease and landlord not harmed by delay in giving notice. 
• If location is lost, D would suffer much loss in customer goodwill.  If a forfeiture were allowed in such a case, the gravity of loss would be out of proportion to gravity of fault.  So, absent prejudice, D is entitled to relief.   

Chapter 10 – Quasi Contract

The Prevention of Unjust Enrichment

• Definition:  (K’s implied in law): An obligation created by law for sake of justice.  An obligation imposed by law b/c some special relationship btwn the parties, or b/c one of them would otherwise be UNJUSTLY ENRICHED.  Not actually a K, but allows P to recover benefits conferred on D.
• Restitution is intended to restore status quo by compelling D to return unjust benefits he received.
• This is done in two possible ways:  1) require D to return specific property (including replevin and ejectment) or 2) awarding injured party money measured by benefit received by D.  This is a “substitionary” method of restitution. 

Chapter 11 – The Constructive Trust and Related Remedies

The Constructive Trust: A Remedial Device: Definition:  A purely remedial institution in which a D is treated as if she were a trustee and compelled to act in accordance with the duties and obligations of a trustee.  Typically, specific restitution of a received benefit in order to prevent unjust enrichment may be ordered under this remedial doctrine. 

Snepp v. United States

Facts:  Snepp wrote a book drawing on his CIA experiences.  As a condition of employment, he said he would not publish anything without first allowing CIA to look over it first.  So, gov bring suit to enforce agreement and create a constructive trust on all profits D might earn from book’s publishing.  DC held he breached position of trust he held in CIA, enjoined any future breach, and created the trust.  C of A upheld inj but not trust.  They state he had 1^st Am right to publish unclassified material.  D appeals. 

Holding:  A constructive trust is an appropriate remedy to prevent a D from realizing the unjust gain that flowed from his breach of trust. 

• A CT is a natural and customary consequence of breach of trust. 
• Here, he can publish with no fear of liability.  If he publishes any unreviewed material in violation of his fiduciary and K obligation, the trust simply requires him to disgorge the benefits of his faithlessness.  So, CT is imposed.

All participants in the study group must always follow the BSL Honor Code.