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VIRGINIA HOME FOR BOYS AND GIRLS V. WILLIAM RAY PHILLIPS, ET AL

This case involves a dispute between a devisee under a Will and a relative of the testatrix claiming under an oral agreement. The Virginia Supreme Court applied the Virginia Statute of Frauds [Virginia Code § 11-2] and the "Dead Man’s Statute [Virginia Code § 8.01-397] to the facts of this case.

In an appellate proceeding the facts of the case are stated in the light most favorable to the prevailing party at trial. William Ray Phillips [Phillips] grew up in Sussex County. He lived with his parents near the farm of his uncle and aunt, Wayland and Margaret Council. At the age of ten, Phillips moved to the Council home and lived with them. He helped with farm work until he graduated from high school. The Councils had no children and Phillips was described by another relative as like a son to them.

In 1977, Wayland Council asked Phillips to come to the farm to discuss a proposal. During the conference at the kitchen table, Wayland Council proposed that Phillips move to the farm. The Councils proposed to sell Phillips a parcel of land on which he could build a home for his family. Phillips would work on the farm and assist his uncle until the uncle’s retirement in 1980.

After the uncle’s retirement, Phillips would take over the farming operation, pay rent to the Councils for the land, machinery and farm equipment and a wage to Wayland for any farm work he performed. Phillips was also asked to be available for any business or personal help the Councils might need in their later years. In return for Phillips help, the Councils would leave him their assets real and personal when the survivor among them died.

This agreement was entirely oral and no written record of it ever existed. No one else was present at the meeting between the Councils and Phillips.

Phillips sold his existing home and moved to the farm near the Council’s. He performed the agreement outlined above

In 1982, Wayland Council died and his wife probated her husband’s Will. At the clerk’s office, Margaret Council informed Phillips that her will was exactly the same as her husbands. [In estate planning this type of will is often called a mirror will.]

After Wayland’s death, his widow, Margaret, became angry, very eccentric, and very reclusive. In 1992, she gave Phillips a general durable financial power of attorney, but revoked it in 1996. She also changed her Will and informed Phillips that there were changes in her estate plan. Margaret died on April 6, 2005.

Margaret Council’s Will was admitted to probate and except for a few household furnishings, all of her real and personal property was bequeathed to the Virginia Home for Boys in Richmond, Inc.

Phillips filed a complaint in the circuit court naming the Virginia Home and the Executrix of Margaret Council’s Will as defendants. He sought imposition of a trust on Margaret’s assets and specific performance of the parol agreement he made with the Councils in 1977. [A parole contact is one that is not in writing.] Phillips did not contest the validity of Margaret Council’s second Will that was admitted to probate nor her testamentary capacity to sign the second Will.

The circuit court heard the evidence, reviewed the briefs and arguments of counsel and by a memorandum opinion ruled in Phillips’ favor. The trial court found that his part performance of the parol agreement was sufficient to take the case out of the Statute of Frauds and the existence of the agreement between the Council’s and Phillips was sufficiently corroborated by circumstantial evidence. The trial court issued an order directing transfer to Phillips all the net personal estate and real property of Margaret Council.

On appeal, the Virginia Supreme Court analyzed the Virginia Statute of Frauds and the Dead Man’s Statute and reversed the lower court.

The Virginia Statute of Frauds’s is found in the Code of Virginia § 11-2 and provides in pertinent part:

Code § 11-2 When written evidence required to maintain action.

Unless a promise, contract, agreement, representation, assurance, or ratification, or some memorandum or note thereof, is in writing and signed by the party to be charged or his agent, no action shall be brought in any of the following cases:

6. Upon the contract for the sale of real estate, or for the lease thereof for more than a year; ...

This section has been repeatedly been held applicable to oral contracts to devise real estate.

A parol contract to devise land may be taken out of the Statute of Frauds by evidence of part performance on the promisee’s part. To prevail, the promisee must establish: (1) that the parol agreement relied on is "certain and definite in its terms," (2) that his acts of part performance were done "in pursuance of the agreement proved," and (3) that the agreement has been "so far executed that a refusal of full execution would operate a fraud" upon him. [Clark v. Atkins, 188 VA 668, 674-675 (1949)]

The Virginia Home contended that Phillips’ evidence did not take the case out of the Statute of Frauds because he failed to show proof of an agreement.

Phillips contended that circumstantial evidence abundantly corroborates the existence of an agreement.

Virginia’s Dead Man Statue is found at Virginia Code § 8.01-397 and provides in part:

Corroboration required and evidence receivable when one party incapable of testifying. In an action by or against a person who, from any cause, is incapable of testifying, or by or against the committee, trustee, executor, administrator or heir, or other representative of the persona so incapable of testifying, no judgment or decree shall be rendered in favor of an adverse or interested party founded on his uncorroborated testimony.

At common law, when one party who would have been a party to the litigation died, the other party to the litigation was disqualified as a witness in his own behalf on the ground of self-interest. The Dead Man’s Statute substituted the more flexible requirement that the testimony of the surviving litigant-witness be corroborated by an independent witness..

The Virginia Supreme Court noted that it is well established that corroboration may be shown by circumstantial evidence, and that not every point must be corroborated but need only serve to strengthen the surviving litigant-witness’ account. Nevertheless, one essential requirement is implicit in all Virginia cases: evidence, to be corroborative must be independent of the surviving litigant-witness. It may come from any other competent witness or legal source, but it must not come from the interested party.

The Virginia Home argued that the trial record is devoid of any independent evidence substantiating the agreement with Phillips. Without independent evidence at trial substantiating the agreement between Phillips and the Council’s, Phillips could not meet the exception to the Statute of Frauds and his claim to the proceeds of Margaret Council’s estate was denied.

The moral of this story:

To avoid this result, Phillips or the Council’s could have put their agreement in writing. Sometimes a little legal help and advice can go a long way to ensuring the result originally intended by the parties.

RECENT ESTATE CASES FROM THE VIRGINIA SUPREME COURT

The first case is Antisdel v Ashby, et al. In this case a young man, Peter Antisdel, was being treated for acne and anxiety like symptoms with medication. In 2003, he died from a self-inflicted gun shot wound.

In 2005 his mother, Bea Antisdel, sought appointment as the administrator of Peter’s estate for the purpose of pursuing a wrongful death action against the pharmaceutical companies and the treating physicians. Accordingly, the clerk of the circuit court entered an order appointing Bea Antisdel as the administrator of her son’s estate under Code of Virginia 8.01-50 et seq.

Ms. Antisdel filed and subsequently withdrew two separate cases. In 2006 she filed a third cause of action which is the subject of this appeal. In the third case Ms. Antisdel asserted survival claims for personal injuries suffered by Peter during his lifetime. Ms. Antisdel alleged that her son suffered severe physical and mental harm because of certain undisclosed side effects and interactions of the several prescription medications he took.

The defendants asserted that Ms.Antisdel lacked standing to bring a personal injury survival claim because the order appointing her as administrator limited her appointment to the initiation of a wrongful death action under Code § 8.01-50.

S 64.1-75.1 of the Code of Virginia allows a circuit court clerk to appoint an administrator for the purpose of asserting both a wrongful death action and a survival action in the alternative. Although the plaintiff may plead both types of actions in the alternative, the Plaintiff may recover under only one of the two causes of action for the same injury.

Ms. Antisdel did not seek this type of dual appointment and the Virginia Supreme Court refused to amend her appointment to allow her to plead and pursue both types of claims. This decision by the Virginia Supreme Court precluded Ms. Antisdel from pursuing the doctors involved with her son’s care on a survival action. A footnote in the court’s decision indicates that she was able to reach a settlement with several of the pharmaceutical companies

Although this case involves a procedural issue the resolution of which involves statutory interpretation by the Virginia Supreme Court, the decision stands as a reminder to personal injury attorneys and attorneys who administer estates that it is wise for an administrator to seek appointment to pursue a wrongful death action and a survival action in appropriate cases.

CONTRACTS - THE MADOFF DEFENSE

The Bernard Madoff Ponzi scheme will continue to give rise to litigation that will continue for many years to come. Equally clear is the fact that most of this litigation will involve attempts by the victims of the scheme to recover the money they lost. The recent New York case, Sassower v Blumenfeld 878 N.Y.S.2d 602 (Sup. Ct. May 1, 2009) may be a harbinger of cases in which the Madoff scheme, while only peripherally involved, is nevertheless invoked by desperate defendants in mitigation of damages in peripheral litigation. In fact, Sassower may well make the beginning of an attempt to establish a variation the traditional impossibility of performance defense, a variation that may be called the "Madoff Defense."

Sassower was an action for declaratory judgment brought by Michael and Lauren Sassower against the defendant, David Blumenfeld, seeking a ruling that the Sassowers were entitled to retain a deposit paid by Blumenfeld for the purchase of real property.

The Sassowers entered into an agreement with Blumenfeld on November 18, 2008, whereby Blumenfeld was to purchase real property, consisting of a residence and other improvements located in New Hartford, N. Y. For $1.8 million, with a deposit of $180,000 to be paid on the signing of the contract and the balance to be paid at closing. The deposit was paid and was held in escrow by the Sassowers' attorney.

The contract provided that the closing was to take place on December 12, 2008 but that the purchaser, upon giving the seller five business days' notice, had a right to one or more adjournments of the closing date and that in no event could the closing date be adjourned beyond December 31, 2008. The contract also provided that should the purchaser willfully default, the seller's sole remedy would be to retain the down payment as liquidated damages.

Prior to the scheduled closing date, the Sassowers signed the deed and transfer tax documents. On December 10, Blumenfeld requested an adjournment of the closing date until December 19. Then, Blumenfeld, in a letter dated December 24, 2008, announced the termination of the contract and asked that Sassower's counsel release the $180,000 down payment from escrow.

The Sassowers moved for summary judgment on the basis that they were ready and willing to perform but that the closing did not take place as scheduled due to Blumenfeld's wrongful termination of the contract. Blumenfeld, in opposing the motion, asserted that on December 11, 2008, without any warning, he learned that he had lost nearly all of his assets as a result of the fraudulent scheme of Bernard Madoff. He further stated that as a result of Madoff's crimes, his ability to close pursuant tot he contract terms was rendered impossible.

While acknowledging that defenses such as impossibility-of-performance were recognized under the common law, the court noted that such defenses would have been applied narrowly, due in part to the judicial recognition that one purpose of contract law is to allocate risks that affect performance, with performance to be excused only in extreme cases Citing case law the Sassower court st forth the principles that impossibility excuses...performance only when the destruction of the subject matter fo the contract or means of performance makes performance objectively impossible and that the impossibility must result from an unanticipated event that could not have been guarded against in the contract.

The court dismissed Blumenfeld's impossibility-of-performance defense and granted the Sassowers' motion for summary judgment. At the same time, the court did not completely shut the door on the defense in other situations:

At bar, therefore, that the defendant may have been the victim of an unfortunate fraud which impacted on his assets and finances wold not excuse his performance under the contract of sale. Furthermore, even assuming that the defendant could raise impossibility as a defense to non-performance based on a change in financial condition occasioned by the actions of Bernard Madoff, he has utterly failed to provide any detains as to the amounts lost, the nature of his lost investments, or the actual state of his current finances and assets.

The Madoff defense may not be dead on arrival. To be successfully asserted may require the type of information the court outlined in its opinion.

Lender Must Return Debtor's Vehicle

Theodore entered into an installment contract with a corporate creditor for the purchase of a new automobile. A few years later, he defaulted on his installment payments, and the creditor repossessed the vehicle. Not long after that, Theodore filed for bankruptcy in federal bankruptcy court.

Needing his car to commute to work, he requested that the creditor return the vehicle to his bankruptcy estate. When the creditor refused to return the vehicle, absent what it deemed “adequate protection” of its interests, Theodore moved for sanctions under a Bankruptcy Code provision, claiming that the creditor had willfully violated the automatic “stay” provision in the Bankruptcy Code. The stay provision forbids a creditor from committing any act to obtain possession of property from the bankruptcy estate, or to “exercise control” over the property of the estate, once the debtor has filed for bankruptcy.

In Theodore’s case, the creditor could not be said to have acted to obtain possession of the vehicle after the bankruptcy filing, because it already possessed the car at that point. Thus, one issue was whether it could be said to have “exercised control” over the vehicle by simply keeping it and refusing to return it to the debtor, as opposed to selling or doing something else with it.

A federal appellate court answered this question in the affirmative. It held that, upon the request of a debtor that has filed for bankruptcy, a creditor must first return an asset in which the debtor has an interest to his or her bankruptcy estate and then, if necessary, seek adequate protection of its interests in the bankruptcy court. To hold that “exercising control” over an asset refers only to selling or otherwise destroying the asset would not be logical, given the central goal of reorganization bankruptcy. That goal is is to gather together all of the debtor’s property in the bankruptcy estate, so that the debtor may rehabilitate his or her credit and pay off his or her debts. This applies to all property, even property (such as Theodore’s car) that is lawfully seized before the filing of a bankruptcy petition.

The court essentially ruled that the creditor’s position had put things in the wrong order. Instead of being permitted to hang on to the vehicle until it felt satisfied that its interests would be protected, the creditor had to first return the asset to the bankruptcy estate. Then, if the debtor failed to show that he could adequately protect the creditor’s interests, the bankruptcy court was empowered to condition the right of the estate to keep possession of the asset on the provision of certain specified adequate protections to the creditor.

Some other considerations also weighed in favor of placing the onus on the creditor, rather than on Theodore, to seek relief from the court if it believed that its interests were not adequately protected. First, the whole purpose of reorganization bankruptcy, be it corporate or personal, and of the stay in particular, is to allow the debtor to regain his financial foothold and repay his or her creditors. Properly implemented, a stay allows a debtor free use of his or her assets while the court works with both the debtor and the creditors to establish a rehabilitation and repayment plan. In theory at least, these assets generate money that could contribute to paying down the debtor’s obligations. In Theodore’s case, if his car remained in the hands of the creditor, it could hamper him from going to work (or, in other cases, from finding work), which is crucial for getting the funds necessary to pay off his debts.

Second, allowing a creditor to maintain possession of an asset until it decides on its own that adequate protection is in place, or until the debtor moves for the asset’s return, gives the creditor an unfair bargaining advantage over other secured creditors.

Finally, requiring the debtor, rather than the creditor, to bear the costs of seeking court relief hurts not only the debtor but all of the debtor’s other creditors by draining the value of the bankruptcy estate. The court reasoned that it makes more sense for all creditors to move before the court in a consolidated proceeding to have their assets adequately protected than for a debtor to file multiple motions piecemeal in an attempt to recover assets that may be scattered among many creditors.

Life Insurance Policy Rescinded

A business executive was answering questions for an application for a $3 million life insurance policy that named as the beneficiary a company he had started with others. He answered in the negative when asked the common question as to whether he “engaged in auto, motorcycle or boat racing, parachuting, skin or scuba diving, skydiving, or hang gliding or other hazardous avocation or hobby.” In fact, on about 20 occasions, the executive had gone heli-skiing, which involves skiing down remote mountain trails after being dropped off by a helicopter. Only three months after the policy was issued, the executive was killed in an avalanche while heli-skiing. The tragedy for his survivors and former business partners was compounded in the courtroom when a federal appeals court upheld the life insurer's rescission of the life insurance policy on the ground of a misrepresentation on the application. A reasonable person in the position of the life insurance policy applicant would have known that his heli-skiing avocation constituted a hazardous activity, as that term was used in the application. The applicant clearly was aware of the heightened avalanche risks associated with heli-skiing, as compared to resort skiing. He had routinely signed waivers to that effect whenever he engaged a company that made arrangements for such excursions. It was hardly necessary for the insurer to point out, in making this argument, that heli-skiing commonly involves rescue and survival training and the use of specialized lights and breathing devices meant to increase one's chances of surviving an avalanche. About three weeks after the executive had completed the insurance application by telephone, an underwriter making calls for the insurer called him with some follow-up questions, including the same inquiry about “any hazardous activities.” This time, the executive mentioned in the conversation that he enjoyed skiing and golf, among other things, but still there was no mention of heli-skiing. Nor did the executive show any concerns or confusion over what the term “hazardous activities” meant. The beneficiary under the rescinded policy unsuccessfully sought to use this exchange to argue that the life insurer was chargeable with knowledge of the insured's concealment of his heli-skiing avocation, and thus was precluded from seeking rescission. The court ruled that the insured's “skiing” statement, when combined with the negative responses to the general question of whether he engaged in hazardous activities, would not have put a prudent underwriter on notice of the need to investigate further. Otherwise, any report by an applicant of a generally low-hazard recreational activity, such as wrestling, juggling, or fishing, would unreasonably require the insurer to investigate the myriad possible “extreme” variants of such activities. Instead, to make an insurer legally chargeable with knowledge of an undisclosed fact, generally it must be shown that it had knowledge of evidence indicating that the applicant was not truthful in answering a particular application question. In this case, there was no such “red flag” that might have allowed the policy beneficiary to avoid the consequences of the executive's untruthfulness.

FDIC INSURANCE UPDATE

In October 2008, Congress increased the basic limit on federal deposit insurance coverage from $100,000 to $250,000. The limit is scheduled to return to $100,000 on January 1, 2014. The temporary limit now in effect has not changed the fact that a customer has various means by which to effectively raise the applicable limit for the customer's collection of deposits at any one institution. The basic limit applies separately to different ownership categories. A single account in one name is insured up to $250,000; a joint account for two or more people is insured up to the same limit, per owner; certain retirement accounts, such as IRAs, are covered up to the limit; and deposits meant to pass on to named beneficiaries on the death of the owner can be protected up to $250,000 for each named beneficiary. This last category of deposits is a revocable trust account. There also are other recent changes that favor depositors in insured institutions. For example, it used to be that the only beneficiaries under a revocable trust account who qualified for additional deposit insurance coverage were the account owner's spouse, child, grandchild, parent, or sibling. Now an account owner can name almost any beneficiary, such as a more distant relative, a friend, or a charitable organization, and each beneficiary will still benefit from the additional coverage.

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