CH-8-10 Negligence and Strict Liability – Smith and Robersons Business Law : Book Guide

This Document Contains Chapters 8 to 10 Chapter 8 NEGLIGENCE AND STRICT LIABILITY ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. A statute requiring railroads to fence their tracks is construed as intended solely to prevent animals that stray onto the right of way from being hit by trains. B & A Railroad Co. fails to fence its tracks. Two of Calvin's cows wander onto the track. Nellie is hit by a train. Elsie is poisoned by weeds growing beside the track. For which cows, if any, is B & A Railroad liable to Calvin? Why? Answer: Violation of Statute. The railroad company is liable for Nellie, the cow that was hit by the train, and probably not for Elsie. For a statute to be adopted as the standard of conduct of a reasonable man, the intent of the statute must have been to protect the interest against that particular harm which occurred and against that hazard from which the harm resulted. The intent of this statute was to protect cows from the hazard of the trains, not from poisonous weeds. Third Restatement, Section 14. With respect to Elsie, the facts do not indicate whether the railroad was otherwise negligent towards Elsie or whether Calvin is negligent for allowing his cows to roam freely. 2. Martha invites John to lunch. Martha knows her private road is dangerous to travel, having been heavily eroded by recent rains. She doesn't warn John of the condition, reasonably believing that he will notice the deep ruts and exercise sufficient care. While John is driving, his attention is diverted from the road by the screaming of his child, who has been stung by a bee. He fails to notice the condition of the road, hits a rut, and skids into a tree. If John is not contributorily negligent, is Martha liable to John? Answer: Duty to Invitees. No. A possessor of land who knows of dangerous conditions on his property and fails to warn licensees is liable only if he should expect that they will not discover the danger. Restatement, Second, Torts, Section 342. In this case, it appears that Martha reasonably expected John to notice the dangerous conditions. The situation may be different if he had been invited for dinner and had to travel the road at night. 3. Nathan is run over by a car and left lying in the street. Sam, seeing Nathan's helpless state, places him in his car for the purpose of taking him to the hospital. Sam drives negligently into a ditch, causing additional injury to Nathan. Is Sam liable to Nathan? Answer: Duty of Care. Yes, for the additional injuries. A person who begins a rescue by taking charge of another who is imperiled and unable to protect himself incurs a duty to exercise reasonable care under the circumstances. Furthermore, a person who discontinues aid or protection is under a duty of reasonable care not to leave the other in a worse position. Third Restatement, Section 44. 4. Led Foot drives his car carelessly into another car. The second car contains dynamite, a fact that Led had no way of knowing. The collision causes an explosion which shatters a window of a building half a block away on another street. The flying glass inflicts serious cuts on Sally, who is working at a desk near the window. The explosion also harms Vic, who is walking on the sidewalk near the point of the collision. Toward whom is Led Foot negligent? Answer: Scope of Liability (Proximate Cause) Comment j to Section 29 of the Third Restatement explains that both the risk standard (for negligent conduct) and the foreseeability test (for scope of liability) “exclude liability for harms that were sufficiently unforeseeable at the time of the actor’s tortious conduct that they were not among the risks—potential harms—that made the actor negligent. Negligence limits the requirement of reasonable care to those risks that are foreseeable.” This problem is essentially the same as an example in the text. Led Foot would be liable to Vic because Led Foot should have realized that his negligent driving might result in a collision that would endanger pedestrians nearby. Sally’s harm, however, was beyond the risks posed by Led Foot’s negligent driving and he, accordingly, is not liable to Sally. 5. A statute requires all vessels traveling on the Great Lakes to provide lifeboats. One of Winston Steamship Company's boats is sent out of port without a lifeboat. Perry, a sailor, falls overboard in a storm so heavy that had there been a lifeboat, it could not have been launched. Perry drowns. Is Winston liable to Perry's estate? Answer: Causation. No. For liability to exist there must be negligence and that negligence must be a legal cause of the harm. If the harm would have occurred in the absence of the negligence, the negligence is not a legal cause. A widely applied test for causation in fact is the “but-for” test: A person’s conduct is a cause of an event if the event would not have occurred but for the person’s negligent conduct. That is, conduct is a factual cause of harm when the harm would not have occurred absent the conduct. Third Restatement, Section 26. 6. Lionel is negligently driving an automobile at excessive speed. Reginald’s negligently driven car crosses the center line of the highway and scrapes the side of Lionel’s car, damaging its fenders. As a result, Lionel loses control of his car, which goes into the ditch, wrecking the car and causing personal injuries to Lionel. What can Lionel recover? Answer: Defenses to Negligence. The question here is whether Lionel’s negligent conduct was a contributing factor to the accident. The Third Restatement, Section 463, defines contributory negligence as “conduct on the part of the plaintiff which falls below the standard to which he should conform for his own protection, and which is a legally contributing cause co-operating with the negligence of the defendant in bringing about the plaintiff’s harm.” The Third Restatement’s definition of negligence as the failure of a person to exercise reasonable care under all the circumstances applies to the contributory negligence of the plaintiff. Section 3, Comment b. Here it appears that the plaintiff’s negligence may not be a substantial factor in causing his harm and thus he could collect for both personal injuries and property damage. If, on the other hand, one concluded that the plaintiff was contributorily negligent, he would be totally barred from recovery in those states that still recognize the traditional doctrine but could collect a proportional share of his injuries in those states that have adopted the doctrine of comparative negligence. 7. Ellen, the owner of a baseball park, is under a duty to the entering public to provide a reasonably sufficient number of screened seats to protect those who desire such protection against the risk of being hit by batted balls. Ellen fails to do so. (a)Frank, a customer entering the park, is unable to find a screened seat and, although fully aware of the risk, sits in an unscreened seat. Frank is struck and injured by a batted ball. Is Ellen liable? (b) Gretchen, Frank's wife, has just arrived from Germany and is viewing baseball for the first time. Without asking any questions, she follows Frank to a seat. After the batted ball hits Frank, it caroms into Gretchen, injuring her. Is Ellen liable to Gretchen? Answer: Assumption of Risk. (a) Under the Second Restatement of Torts: No, Frank has voluntarily assumed the risk and, therefore, is not entitled to recover for harm arising out of the assumed risk. Restatement, Second, Torts, Section 496C, Illustration 4. However, the Third Restatement of Torts: Apportionment of Liability has abandoned the doctrine of implied voluntary assumption of risk: it is no longer a defense that the plaintiff was aware of a risk and voluntarily confronted it. But if a plaintiff’s conduct in the face of a known risk is unreasonable, it might constitute contributory negligence, thereby reducing the plaintiff’s recovery under comparative negligence. This new Restatement limits the defense of assumption of risk to express assumption of risk, which consists of a contract between the plaintiff and another person to absolve the other person from liability for future harm. On these facts it would appear that Frank could recover unless his sitting there is contributorily negligent. Ellen would be subject to liability to Gretchen for her failure to satisfy the duty she owed to Gretchen. On these facts, Gretchen has not assumed the risk, because she has no knowledge of the possible risk. Illustration 5, Section 496C, Second Restatement. The same result under the Third Restatement because she would not be considered contributorily negligent. 8. Negligent in failing to give warning of the approach of its train to a crossing, CC Railroad thereby endangers Larry, a blind man who is about to cross. Mildred, a bystander, in a reasonable effort to save Larry, rushes onto the track to push Larry out of danger. Although Mildred acts as carefully as possible, she is struck and injured by the train. a. Can Mildred recover from Larry? b. Can Mildred recover from CC Railroad? Answer: Duty of Care. (a) No. Larry is not liable to Mildred because Larry did not breach a duty owed to Mildred. (b) Yes. Mildred does not assume the risk. A plaintiff’s acceptance of risk is not regarded as voluntary where the defendant’s tortious conduct has forced upon him a choice of courses of conduct, which leaves him no reasonable alternative to taking his chances. As Cardozo said: “Danger invites rescue.” Moreover, it was foreseeable that Mildred would attempt to rescue Larry. Therefore, CC Railroad is liable to Mildred. The same result under the Third Restatement because Mildred would not be considered contributorily negligent. 9. Vance was served liquor while he was an intoxicated patron of the Clear Air Force Station Non-Commissioned Officers' Club. He later injured himself as a result of his intoxication. An Alaska state statute makes it a crime to give or to sell liquor to intoxicated persons. Vance has brought an action seeking damages for the injuries he suffered. Could Vance successfully argue that the United States was negligent per se by its employee's violation of the statute? Answer: Reasonable Person Standard/Violation of Statute. Yes. An unexcused violation of a statute or regulation is negligence in itself, or negligence per se if the court adopts the statute as defining the conduct of a reasonable person. Courts may adopt the requirements of the statute as the standard of conduct if the statute is designed to protect against the type of accident the defendant’s conduct causes and the accident victim is within the class of persons the statute is designed to protect. Third Restatement, Section 14. Applying these criteria to the statute in question, it is clear that all of the requirements are satisfied. The statute unquestionably is designed to protect against personal injuries caused by intoxication. And while the statute’s particular purpose may be to protect third parties from the negligence of an intoxicated consumer, the purpose is also, at least in part, to protect the consumer himself. Vance v. United States, 355 F. Supp. 756 (D. Alaska, 1973). 10. Timothy keeps a pet chimpanzee, which is thoroughly tamed and accustomed to playing with its owner's children. The chimpanzee escapes, despite every precaution to keep it upon its owner's premises. It approaches a group of children. Wanda, the mother of one of the children, erroneously thinking the chimpanzee is about to attack the children, rushes to her child's assistance. In her hurry and excitement, she stumbles and falls, breaking her leg. Can Wanda recover for her personal injuries? Answer: Strict Liability: Keeping Animals. Yes. Owners and possessors of wild animals are subject to strict liability for physical harm caused by such animals, whether they are trespassing or not. Third Restatement, Section 22(b). Accordingly the owner or possessor is liable even if she has exercised reasonable care in attempting to restrain the wild animal. “A wild animal is an animal that belongs to a category of animals that have not been generally domesticated and that are likely, unless restrained, to cause personal injury.” Section 22(b). Moreover, it was foreseeable that a parent or other person would attempt to protect or rescue a child endangered by the chimpanzee. 11. Hawkins slipped and fell on a puddle of water just inside of the automatic door to the H. E. Butt Grocery Company's store. The water had been tracked into the store by customers and blown through the door by a strong wind. The store manager was aware of the puddle and had mopped it up several times earlier in the day. Still, no signs had been placed to warn store patrons of the danger. Hawkins brought an action to recover damages for injuries sustained in the fall. Was the store negligent in its conduct? Answer: Duty to Invitees. Yes. Decision for Hawkins. The grocery store had the duty to use ordinary care to keep its premises in a reasonably safe condition for invitees or to warn them of a hazard. Whether a condition constitutes a danger is a function of reasonableness. That is, if the ordinarily prudent man could foresee that harm was a likely result of a condition, then it is a danger. The store knew or should have known that water was present and continuing to accumulate on the floor, and they negligently failed to remove the water or warn customers of the potential hazard. H.E. Butt Grocery Co. v. Hawkins, 594 S.W. 2d 197 (1980). 12. Escola, a waitress, was injured when a bottle of soda exploded in her hand while she was putting it into the restaurant's cooler. The bottle came from a shipment that had remained under the counter for thirty-six hours after being delivered by the bottling company. The bottler had subjected the bottle to the method of testing for defects commonly used in the industry, and there is no evidence that Escola or anyone else did anything to damage the bottle between its delivery and the explosion. Escola brought an action against the bottler for damages. Since she is unable to show any specific acts of negligence on its part, she seeks to rely on the doctrine of res ipsa loquitur. Should she be able to recover on this theory? Explain. Answer: Res Ipsa Loquitur. Decision for Escola. Res ipsa loquitur permits the jury to infer both negligent conduct and causation from the mere occurrence of certain types of events. This rule applies “when the accident causing the plaintiff's physical harm is a type of accident that ordinarily happens as a result of the negligence of a class of actors of which the defendant is the relevant member.” Third Restatement, Section 17.In the case upon which this problem is based, the court allowed Escola to rely on the doctrine even though the bottle was not in the defendant’s exclusive possession when it exploded, because she had shown that the bottle was not damaged by extraneous force after its delivery by the defendant. With the inference established, the jury may conclude that the bottle must have been defective. Because the bottler’s evidence did not refute this conclusion, Escola is entitled to recover. Escola v. Coca Cola Bottling Co. of Fresno, 24 Cavl.2d 453, 150 P.2d 436 (1944). 13. Hunn injured herself when she slipped and fell on a loose plank while walking down some steps . The night before, while entering the hotel, she had noticed that the steps were dangerous, and although she knew from her earlier stays at the hotel that another exit was available, she chose that morning to leave via the dangerous steps. The hotel was aware of the hazard, as one of the other guests who had fallen that night had reported his accident to the desk clerk then on duty. Still, the hotel did not place cautionary signs on the steps to warn of the danger, and they were not roped off or otherwise excluded from use. Hunn brought an action against the hotel for injuries she sustained as a result of her fall. Should she recover damages? Explain. Answer: Defenses to Negligence/Contributory Negligence & Assumption of Risk. No, Hunn will not recover damages under the Second Restatement. There were other routes the plaintiff could have taken that were lower risk and reasonably convenient. Hunn had a full appreciation of the danger of the steps and voluntarily accepted the risk. Under the Third Restatement of Torts: Apportionment of Liability, however,there is no doctrine of implied voluntary assumption of risk; thus it is not a defense that the plaintiff was aware of a risk and voluntarily confronted it. But if a plaintiff’s conduct in the face of a known risk is unreasonable, it might constitute contributory negligence, thereby reducing the plaintiff’s recovery under comparative negligence. On these facts it would appear that Hunn was contributorily negligent. Consequently, her recovery, will depend on her degree of comparative fault. Hunn v. Windsor Hotel Company, 119 W. Va. 215, 193 S.E. 57 (1937). 14. Fredericks, a hotel owner, had a dog named “Sport” that he had trained as a watchdog. When Vincent Zarek, a guest at the hotel, leaned over to pet the dog, it bit him. Although Sport had never bitten anyone before, Fredericks was aware of the dog's violent tendencies and, therefore, did not allow it to roam around the hotel alone. Vincent brought an action for injuries sustained when the dog bit him. Is Fredericks liable for the actions of his dog? Explain. Answer: Strict Liability/Keeping of Animals. Yes, Fredricks is liable to Zarek. The defendant knew and feared the consequences and vicious propensities of “Sport” and had taken precautions against them. Owners and possessors of domestic animals are subject to strict liability if they knew, or had reason to know, of an animal’s dangerous tendencies abnormal for the animal’s category. Third Restatement, Section 23. Zarek v. Fredericks, 138 F. 2d 689 (C.A. 3d 1943). 15. Two thugs in an alley in Manhattan held up an unidentified man. When the thieves departed with his possessions, the man quickly gave chase. He had almost caught one when the thief managed to force his way into an empty taxicab stopped at a traffic light. The Peerless Transport Company owned the cab. The thief pointed his gun at the driver's head and ordered him to drive on. The driver started to follow the directions while closely pursued by a posse of good citizens, but then suddenly jammed on the brakes and jumped out of the car to safety. The thief also jumped out, but the car traveled on, injuring Mrs. Cordas and her two children. The Cordases then brought an action for damages, claiming that the cab driver was negligent in jumping to safety and leaving the moving vehicle uncontrolled. Was the cab driver negligent? Explain. Answer: Reasonable Person Standard/Emergencies. No. Judgment for Peerless Transport Company. The court stated that the test of actionable negligence is what a reasonably prudent person would have done under like conditions or circumstances. Therefore, to determine if the cab driver was negligent in abandoning his cab, his actions must be compared with what a reasonable person would have done in a similar circumstance. In general, one faced with an emergency is not required to exercise the same mature judgment that is expected of him under circumstances where he has an opportunity for deliberate action. Here, the cab driver was faced with a most frightening experience and made a split-second decision in an attempt to extricate himself from the danger. The court concluded that it could not be said that he had acted unreasonably under the emergency circumstances, and therefore the Cordases are not entitled to recover. Cordas v. Peerless Transportation Co., 27 N.Y.S. 2d 198 (1941). 16. A foul ball struck Marie Uzdavines on the head while she was watching the Metropolitan Baseball Club (“The Mets”) play the Philadelphia Phillies at “The Mets” home stadium in New York. The ball came through a hole in a screen designed to protect spectators sitting behind home plate. The screen contained several holes that had been repaired with baling wire lighter in weight than the wire used in the original screen. Although the manager of the stadium makes no formal inspections of the screen, his employees do try to repair the holes as they find them. Weather conditions, rust deterioration, and baseballs hitting the screen are the chief causes of these holes. The owner of the stadium, the city of New York, leases the stadium to “The Mets” and replaces the entire screen every two years. Uzdavines sued “The Mets” for negligence under the doctrine of res ipsa loquitur. Is this an appropriate case for res ipsa loquitur? Explain. Answer: Res Ipsa Loquitur. Yes. Judgment for Uzdavines. Res ipsa loquitur permits the jury to infer both negligent conduct and causation from the mere occurrence of certain types of events. This rule applies “when the accident causing the plaintiff's physical harm is a type of accident that ordinarily happens as a result of the negligence of a class of actors of which the defendant is the relevant member.” Third Restatement, Section 17. In the case upon which tis problem is based the court ruled as follows: Under res ipsa loquitur, Uzdavines must show that: (1) the event is of a kind that ordinarily does not occur in the absence of someone’s negligence; (2) “The Mets” had exclusive control over the instrumentality (the protective screen) that caused the event; (3) the event was not due to any voluntary action or contribution on her part; and (4) evidence explaining the incident is more readily available to “The Mets” than to her. On these facts it is clear that the first, third, and fourth requirements have been met. To prove that “The Mets” exercised “exclusive control,” Uzdavines need only establish that they exercised “a degree of domination sufficient to identify defendant with probability as the party responsible” for her injuries. Both “The Mets” and the city of New York owed an independent duty to a spectator that requires “The Mets” to exercise strict control of the screen, assuring the public that they may rely on the implied safety of sitting in that area. Since “The Mets” were under a duty to maintain and control the protective screening, the exclusive control requirement of res ipsa loquitur is satisfied and the doctrine applies to this case. Uzdavines v. Metropolitan Baseball Club, Inc., Civil Court of the City of New York, 115 Misc.2d 343, 454 N.Y.S.2d 238 (1982). 17. Two-year-old David Allen was bitten by Joseph Whitehead's dog while he was playing on the porch at the Allen residence. Allen suffered facial cuts, a severed muscle in his left eye, a hole in his left ear, and scarring over his forehead. Through his father, David sued Whitehead, claiming that, as owner, Whitehead is responsible for his dog's actions. Whitehead admitted that (1) the dog was large, was mean-looking, and frequently barked at neighbors; (2) the dog was allowed to roam wild; and (3) the dog frequently chased and barked at cars. He stated, however, that (1) the dog was friendly and often played with his and neighbors' children; (2) he had not received previous complaints about the dog; (3) the dog was neither aggressive nor threatening; and (4) the dog had never bitten anyone before this incident. Is Whitehead liable? Answer: Strict Liability. No. Decision for Whitehead. Owners and possessors of domestic animals are subject to strict liability if they knew, or had reason to know, of an animal’s dangerous tendencies abnormal for the animal’s category. Third Restatement, Section 23. The animal’s dangerous propensity must be the cause of the harm. The evidence shows only that Whitehead's dog was large and mean looking, chased and barked at cars, and frequently barked at neighbors. These facts are not proof that the dog had vicious propensities. Whitehead's previous knowledge of his dog's playfulness with children is not sufficient to prove that he knew or had reason to know that the dog would attack and bite a child. 18. Larry VanEgdom, in an intoxicated state, bought alcoholic beverages from the Hudson Municipal Liquor Store in Hudson, South Dakota. An hour later, VanEgdom, while driving a car, struck and killed Guy William Ludwig, who was stopped on his motorcycle at a stop sign. Lela Walz, as special administrator of Ludwig's estate, brought an action against the city of Hudson, which operated the liquor store, for the wrongful death of Ludwig. Walz alleged that the store employee was negligent in selling intoxicating beverages to VanEgdom when he knew or could have observed that VanEgdom was drunk. Decision? Answer: Violation of Statute. Judgment for Walz. South Dakota forbids the sale of intoxicating beverages to one in a drunken state. Courts may adopt the requirements of the statute as the standard of conduct if the statute is designed to protect against the type of accident the defendant’s conduct causes and the accident victim is within the class of persons the statute is designed to protect. Third Restatement, Section 14. This statute is designed to protect, among others, such individuals as Ludwig from the risk of being killed or injured "as a result of the drunkenness to which the particular sale of alcoholic liquor contributes." This is a standard of care to which reasonably prudent persons are held; violation of the statute is a breach of legal duty and thus is negligence. Walz v. Hudson, Supreme Court of South Dakota, 327 N.W.2d 120 (1982). 19. The MacGilvray Shiras was a ship owned by the Kinsman Transit Company. During the winter months, when Lake Erie was frozen, the ship and others moored at docks on the Buffalo River. As oftentimes happened, one night an ice jam disintegrated upstream, sending large chunks of ice downstream. Chunks of ice began to pile up against the Shiras, which at that time was without power and manned only by a shipman. The ship broke loose when a negligently constructed "deadman" to which one mooring cable was attached pulled out of the ground. The "deadman" was operated by Continental Grain Company. The ship began moving down the S-shaped river stern first and struck another ship, the Tewksbury. The Tewksbury also broke loose from its mooring, and the two ships floated down the river together. Although the crew manning the Michigan Avenue Bridge downstream had been notified of the runaway ships, they failed to raise the bridge in time to avoid a collision because of a mix-up in the shift changeover. As a result, both ships crashed into the bridge and were wedged against the bank of the river. The two vessels substantially dammed the flow of the river, causing ice and water to back up and flood installations as far as three miles upstream. The injured parties brought this action for damages against Kinsman, Continental, and the city of Buffalo. Who, if any, is liable? Answer: Proximate Cause. Judgment for the injured parties. A ship insecurely moored in a fast-flowing river is a known danger to the owners of all ships and structures down the river and to persons upon them. Kinsman and Continental, then, owed a duty of care to all within the foreseeable reach of the ship’s destructive path. Similarly, the city is liable to those who foreseeably could have been injured by its negligent failure to raise the bridge in time to prevent the collision. Finally, although the exact type of harm that occurred was not foreseeable, this does not prevent liability. The damage resulted from the same physical forces whose existence required the exercise of greater care than was displayed and was of the same general type that was foreseeable. 20. Carolyn Falgout accompanied William Wardlaw as a social guest to Wardlaw's brother's camp. After both parties had consumed intoxicating beverages, Falgout walked onto a pier that was then only partially completed. Wardlaw had requested that she not go on the pier. Falgout said, "Don't tell me what to do," and proceeded to walk on the pier. Wardlaw then asked her not to walk past the completed portion of the pier. She ignored his warnings and walked to the pier's end. When returning to the shore, Falgout got her shoe caught between the boards. She fell, hanging by her foot, with her head and arms in the water. Wardlaw rescued Falgout, who had seriously injured her knee and leg. She sued Wardlaw for negligence. Decision? Answer: Duty to Licensee. Judgment for Wardlaw. A possessor of land owes a duty to warn a licensee of dangerous activities and conditions (1) of which the possessor has knowledge or has reason to know and (2) which the licensee does not and is not likely to discover. A licensee who is not warned may recover if the activity or dangerous condition resulted from the possessor’s failure to exercise reasonable care to protect him from the danger. Restatement, Section 342. As a social guest, Falgout was a licensee. Wardlaw’s duty to Falgout was to warn her of the dangerous condition. Wardlaw discharged this duty and, accordingly, is not liable to Falgout. 21. Joseph Yania, coal strip-mine operator, and Boyd Ross visited a coal strip-mining operation owned by John Bigan to discuss a business matter with Bigan. On Bigan’s property there were several cuts and trenches he had dug to remove the coal beneath. While there, Bigan asked the two men to help him pump water from one of these cuts in the earth. This particular cut contained water eight to ten feet deep, with side walls or embankments sixteen to eighteen feet high. The two men agreed, and the process began with Ross and Bigan entering the cut and standing at the point where the pump was located. Yania stood at the top of one of the side walls. Apparently, Bigan taunted Yania into jumping into the water from the top of the side wall. As a result, Yania drowned. His widow brought a negligence action against Bigan. She claims that Bigan was negligent “1) by urging, enticing, taunting and inveigling Yania to jump into the water; 2) by failing to warn Yania of a dangerous condition on the land . . .; [and] 3) by failing to go to Yania’s rescue after he jumped into the water.” Was Bigan negligent? Answer: Duty to Invitees. No. Judgment for Bigan. Taunting and enticement will only constitute actionable negligence if directed “at a child of tender years or a person mentally deficient.” Therefore, Bigan’s taunting of Yania, who was an adult in full possession of his mental faculties, is not negligence. In addition, the owner of the land ordinarily has, at the least, a duty to warn invitees of known or discoverable dangers the owner should realize involve an unreasonable risk of harm to them. This warning is required only if the owner has no reason to believe the invitee will discover the condition or realize the risk of harm. Here, however, the dangers of the water-filled trench were “obvious and apparent to Yania,” who was also a coal strip-mine operator. Accordingly, Bigan is not negligent in failing to warn Yania of the obvious. Finally, despite Bigan’s tauntings, Yania jumped into the water of his own accord. Bigan was not legally responsible, in whole or in part, for placing Yania in his perilous and fatal position. Therefore, although he may have had a moral responsibility, Bigan did not have a legal responsibility to rescue Yania, who died of his own foolhardiness. 22. Old Island Fumigation, Inc. fumigated buildings A and B of a condominium complex using Vikane gas. Buildings A and B, together with building C, form a U shape; buildings B and C have between them an atrium and were thought to be separated by an impenetrable fire wall. Although Old Island evacuated occupants of buildings A and B before the fumigation, the company advised the occupants of building C that they could remain in their dwellings while the other buildings were treated. Several residents of building C became ill shortly after the Vikane gas was released into the adjacent buildings. The hospital admission forms indicate that the cause of their illnesses was sulfuryl fluoride poisoning. Sulfuryl fluoride is the active chemical ingredient of Vikane. Several months after this incident, an architect hired by the fumigation company discovered that the fire wall between buildings B and C was defective and contained a four-foot-by-eighteen-inch open space through which the gas had entered building C. The defect was only visible from a vantage point within the crawl space and had been missed by various building inspectors and by the fumigation company itself during an earlier inspection. The occupants of building C who had been injured by the Vikane fumes sued the fumigator. Explain whether the fumigator is strictly liable. Answer: Strict Liability—Abnormally Dangerous Activity. Old Island Fumigation, Inc., is strictly liable for damages caused to the plaintiffs by its fumigation of the condominium complex. Old Island Fumigation, Inc. v. Barbee, 604 So.2d 1246 (Florida Dist. Court of Appeals, 3rd Dist., 1992). Fumigation is an ultrahazardous activity as it “necessarily involves a risk of serious harm to the person, land, or chattels of others which cannot be eliminated by the exercise of the utmost care, and is not a matter of common usage.” Cities Serv. Co. v. State, 312 So.2d 799 (Fla. 2d DCA 1975) (applying Restatement of Torts § 520 (1938) and Restatement (Second) of Torts § 520 (Tentative Draft No. 10, 1964)) (factors to be considered in determining whether activity is ultrahazardous activity are: whether activity involves high degree of risk of harm to property of others; whether potential harm is likely to be great; whether risk can be eliminated by exercise of reasonable care; whether activity is matter of common usage; whether activity is appropriate to place where conducted; whether activity has substantial value to community); Great Lakes Dredging & Dock Co. v. Sea Gull Operating Corp., 460 So.2d 510 (1984) (same); see also Luthringer v. Moore, 31 Cal.2d 489, 190 P.2d 1 (1948) (fumigation is ultrahazardous activity). Old Island Fumigation is thus liable regardless of the level of care exercised in carrying out this activity. The reason for imposing strict liability upon those who carry on abnormally dangerous activities is that they have for their own purposes created a risk that is not a usual incident of the ordinary life of a community. If the risk ripens into injury, it is immaterial that the harm occurs through the unexpectable action of a human being *** . This is true irrespective of whether the action of the human being which makes the abnormally dangerous activity harmful is innocent, negligent or even reckless. Restatement (Second) of Torts § 522 cmt. a (Tentative Draft No. 10, 1968). ANSWERS TO “TAKING SIDES” PROBLEMS Rebecca S. Dukat arrived at Mockingbird Lanes, a bowling alley in Omaha, Nebraska, at approximately 6:00 p.m. to bowl in her league game. The bowling alley’s parking lot and adjacent sidewalk were covered with snow and ice. Dukat proceeded to walk into the bowling alley on the only sidewalk provided in and out of the building. She testified that she noticed the sidewalk was icy. After bowling three games and drinking three beers, Dukat left the bowling alley at approximately 9:00 p.m. She retraced her steps on the same sidewalk, which was still covered with ice and in a condition that, according to Frank Jameson, general manager of Mockingbird Lanes, was “unacceptable” if the bowling alley was open to customers. As Dukat proceeded along the sidewalk to her car, she slipped, attempted to catch herself by reaching toward a car, and fell. She suffered a fracture of both bones in her left ankle as well as a ruptured ligament. Dukat sued Mockingbird Lanes, seeking damages for her for personal injuries. Mockingbird denied liability for Dukat’s personal injuries. (a) What arguments would support Dukat’s claim for her personal injuries? (b) What arguments would support Mockingbird’s denial of liability for Dukat’s personal injuries? (c) Which side should prevail? Explain. Answer: (a) Dukat could argue that she was an invitee. Therefore, with respect to the condition of the premises, Mockingbird is under a duty to exercise reasonable care to protect her against dangerous conditions she is unlikely to discover. This liability extends not only to those conditions of which the Mockingbird actually knows but also to those of which Mockingbird would discover by the exercise of reasonable care. Accordingly, Dukat could argue that Mockingbird was negligent in failing to keep the sidewalk in a reasonably safe condition, in failing to warn her of a dangerous condition, and in failing to take adequate and reasonable measures to protect her. (b) Mockingbird could argue that because Dukat knew of the dangerous conditions: (1) Dukat was contributorily negligent, and (2) Dukat had assumed the risk of injury. (c) Decision for Leiserv (Mockingbird’s parent company). Under the Second and Third Restatements, Dukat was probably contributorily negligent. It is clear that Dukat knew of the icy condition of the sidewalk as she entered the bowling alley and despite this knowledge may have done things a reasonably careful person might not have done. For example, Dukat drank three beers while she was at the bowling alley and she decided to navigate the same icy path she had come in on without asking the assistance of one of her friends who remained inside the bowling alley. A reasonable person might also have asked management to spread an ice-melting substance on the sidewalk and delayed their departure. If she is contributorily negligent, then her recovery, if any, depends upon the rule followed by the state in which the injury occurred and her degree of fault. Regarding the possible defense of assumption of the risk, under the Second Restatement of Torts she may have voluntarily assumed the risk and, therefore, is not entitled to recover for harm arising out of the assumed risk. However, the Third Restatement of Torts: Apportionment of Liability has abandoned the doctrine of implied voluntary assumption of risk: it is no longer a defense that the plaintiff was aware of a risk and voluntarily confronted it. But if a plaintiff’s conduct in the face of a known risk is unreasonable, it might constitute contributory negligence, thereby reducing the plaintiff’s recovery under comparative negligence. On these facts it would appear that Dukat was contributorily negligent and her recovery, if any, depends upon the rule followed by the state in which the injury occurred and her degree of fault. Dukat v. Leiserv, Inc., Nebraska Court of Appeals, 1998, 578 N.W.2d 486. Chapter 9 INTRODUCTION TO CONTRACTS ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. Owen telephones an order to Hillary's store for certain goods, which Hillary delivers to Owen. Neither party says anything about the price or payment terms. What are the legal obligations of Owen and Hillary? Answer: Implied Contracts. Owen and Hillary’s agreement deals in goods, so the contract falls within the UCC. Omission of a stated price would require payment of a “reasonable” price with full payment being made when possession of the goods is obtained. Since Hillary has fully performed by delivering the goods, Owen is obligated to pay a reasonable price for them. 2. Minth is the owner of the Hiawatha Supper Club, which he leased for two years to Piekarski. During the period of the lease, Piekarski contracted with Puttkammer for the resurfacing of the access and service areas of the supper club. Puttkammer performed the work satisfactorily. Minth knew about the contract and the performance of the work. The work, including labor and materials, had a reasonable value of $2,540, but Puttkammer was never paid because Piekarski went bankrupt. Puttkammer brought an action against Minth to recover the amount owed to him by Piekarski. Will Puttkammer prevail? Explain. Answer: Quasi-Contract. No. Judgment for Minth. In order to establish a cause of action for unjust enrichment, Puttkammer must be able to demonstrate that (1) a benefit was conferred on Minth by Puttkammer; (2) Minth knew of or appreciated the benefit; and (3) Minth accepted or retained the benefit under circumstances making it inequitable for Minth to retain the benefit without paying for its value. Here, the first and second elements have been satisfied but not the third. An action for unjust enrichment is based on the moral principle that one who has received a benefit has the duty to reimburse the other when to retain that benefit would be unjust. But it is not enough that the benefit was conferred and retained; the retention must also be unjust. Here, Puttkammer does not claim or imply that Minth ordered or ratified the work, that he performed the work expecting to be paid by Minth, that he was prejudiced by any misconduct or fault on Minth's part, or that Minth's interests were so intertwined with those of Piekarski that the contract could be said to have been executed on Minth's behalf. Rather, all that Puttkammer has alleged is that Minth knowingly acquiesced in the performance of the work. Puttkammer v. Minth, 83 Wis.2d 686, 266 N.W.2d 361 (1978). 3. Jonathan writes to Willa, stating “I'll pay you $150 if you reseed my lawn.” Willa reseeds Jonathan's lawn as requested. Has a contract been formed? If so, what kind? Answer: Unilateral Contracts. Yes, this is an example of a unilateral contract. Jonathan’s writing to Willa is an offer which is accepted when Willa reseeds the lawn. Jonathan must pay $150 to Willa. 4. Calvin uses fraud to induce Maria to promise to pay money in return for goods he has delivered to her. Has a contract been formed? If so, what kind? What are the rights of Calvin and Maria? Answer: Valid, Void, Voidable and Uniforceable Contracts. This is a voidable contract. A contract has been formed; however, Maria, at her option, may rescind the contract. Calvin has no right to avoid the contract if Maria decides to not rescind. 5. Anna is about to buy a house on a hill. Prior to the purchase she obtains a promise from Betty, the owner of the adjacent property, that Betty will not build any structure that would block Anna's view. In reliance on this promise Anna buys the house. Is Betty's promise binding? Why or why not? Answer: Promissory Estoppel. Betty’s promise is not binding and there is no contract. The essential elements of a contract (mutual assent, consideration, legality & legal capacity) are not all present. However, the doctrine of promissory estoppel may be applicable. If a jury finds that Anna acted reasonably in reliance on Betty’s promise, Betty’s promise will be enforceable. 6. Mary Dobos was admitted to Boca Raton Community Hospital in serious condition with an abdominal aneurysm. The hospital called upon Nursing Care Services, Inc., to provide around-the-clock nursing services for Mrs. Dobos. She received two weeks of in-hospital care, forty-eight hours of postrelease care, and two weeks of at-home care. The total bill was $3,723.90. Mrs. Dobos refused to pay, and Nursing Care Services, Inc., brought an action to recover. Mrs. Dobos maintained that she was not obligated to render payment in that she never signed a written contract, nor did she orally agree to be liable for the services. The necessity for the services, reasonableness of the fee, and competency of the nurses were undisputed. After Mrs. Dobos admitted that she or her daughter authorized the forty-eight hours of postrelease care, the trial court ordered compensation of $248 for that period. It did not allow payment of the balance, and Nursing Care Services, Inc., appealed. Decision? Answer: Quasi-Contract. These circumstances establish a contract implied in law or "quasi contract," which is imposed by law to prevent the unjust enrichment of one party at the expense of another. The principle of quasi contract is frequently applied in the area of work performed or services rendered, although liability is generally imposed only when the person for whose benefit the services were rendered requested them or knowingly and voluntarily accepted their benefits. Emergency aid, however, is an exception. In the present case, the services provided to Mrs. Dobos in the hospital were essential to her health and safety, and she was unable to consent to receiving them. Nursing Care Services, Inc., acted with intent to charge for the services and had no reason to know that Mrs. Dobos would not agree. Given these circumstances, the in-hospital services clearly fall within the emergency aid exception. As for the two weeks of at-home care, Mrs. Dobos knowingly and voluntarily accepted the benefits conferred, and thus obligated herself to pay for the reasonable value of the services. Nursing Care Services, Inc. v. Dobos, 380 So.2d 516, (Fla. 4th DCA 1980). 7. St. Charles Drilling Co. contracted with Osterholt to install a well and water system that would produce a specified quantity of water. The water system failed to meet its warranted capacity, and Osterholt sued for breach of contract. Does the U.C.C. apply to this contract? Answer: Contracts Outside the Code. The U.C.C. does not apply to contracts primarily for services. The test for inclusion is whether the contract's predominant purpose is the rendition of services with goods incidentally involved, or whether it is a sale of goods with labor incidentally involved. In this case the contract to install a water system was a service transaction and, therefore, not within the scope of the U.C.C. for two reasons. First, the parties had no agreement as to what specific component parts were to be installed, but rather the contractor undertook to install a system of indefinite description and of warranted capacity. Second, the language of the contract itself indicated that the arrangement was a service contract rather than a sale of goods. Osterholt v. St. Charles Drilling Co., 500 F.Supp. 529 (1980). 8. Helvey brought suit against the Wabash County REMC (REMC) for breach of implied and express warranties. He alleged that REMC furnished electricity in excess of 135 volts to Helvey’s home, damaging his 110-volt household appliances. This incident occurred more than four years before Helvey brought this suit. In defense, REMC pleads that the Uniform Commercial Code’s Article 2 statute of limitations of four years has passed, thereby barring Helvey’s suit. Helvey argues that providing electrical energy is not a transaction in goods under the UCC but rather a furnishing of services that would make applicable the general contract six-year statute of limitations. Is the contract governed by the UCC? Why? Answer: Uniform Commercial Code. There have been only a few cases addressing whether electricity is considered goods. The courts are divided on the question. In the case upon which this problem was based, the court held that, yes, this contract is governed by the UCC, and therefore, REMC would prevail. The UCC essentially defines goods as tangible personal property. To be within the U.C.C.'s definition of a good, electricity must be (1) a thing, (2) existing, and (3) movable, with (2) and (3) occurring simultaneously. Electricity can be measured in order to establish a purchase price by the amount of current which passes through the meter, thus fulfilling the existing and movable requirements. Also, it is legally considered personal property, subject to ownership, and may be bartered, sold, and, in fact, stolen. Therefore, the sale of electricity is a sale of goods subject to U.C.C.'s Article 2's statute of limitations. Helvey v. Wabash County REMC, Court of Appeals of Indiana, First District, 1972. 151 Ind.App. 176, 278 N.E.2d 608. 9. Jack Duran, president of Colorado Carpet Installation, Inc., began negotiations with Fred and Zuma Palermo for the sale and installation of carpeting, carpet padding, tile, and vinyl floor covering in their home. Duran drew up a written proposal that referred to Colorado Carpet as “the seller” and to the Palermos as the “customer.” The proposal listed the quantity, unit cost, and total price of each item to be installed. The total price of the job was $4,777.75. Although labor was expressly included in this figure, Duran estimated the total labor cost at $926. Mrs. Palermo in writing accepted Duran’s written proposal soon after he submitted it to her. After Colorado Carpet delivered the tile to the Palermo home, however, Mrs. Palermo had a disagreement with Colorado Carpet’s tile man and arranged for another contractor to perform the job. Colorado Carpet brought an action against the Palermos for breach of contract. Does the UCC apply to this contract? Answer: Uniform Commercial Code. The U.C.C. defines "goods" as "all things . . . which are movable at the time of identification to the contract for sale" and defines a "sale" as "the passing of title from the seller to the buyer for a price." In this case, the carpeting and other materials were movable when Colorado Carpet procured them for installation, and the agreement contemplated that title would pass to the Palermos. The contract included, however, not only the sale of goods as defined by the U.C.C., but also the performance of labor or service. Since goods and services are mixed, the primary purpose of the agreement is crucial in determining the nature of the contract. A number of factors point to the conclusion that the primary purpose of the contract was the sale of goods, with labor or service only incidentally involved. The charge for labor was a small percentage of one overall contractual price. Colorado Carpet's proposal referred to the parties as "seller" and "customer." Further, as noted above, the carpeting and other materials meet the U.C.C. definition of "goods." . Colorado Carpet Installation, Inc. v. Palermo, 668 F.2d 1384 (Col. 1983). 10. On November 1, the Kansas City Post Office Employees Credit Union merged with the Kansas City Telephone Credit Union to form the Communications Credit Union (Credit Union). Systems Design and Management Information (SDMI) develops computer software programs for credit unions, using Burroughs (now Unisys) hardware. SDMI and Burroughs together offered to sell to Credit Union both a software package, called the Generic System, and Burroughs hardware. Later in November, a demonstration of the software was held at SDMI’s offices, and the Credit Union agreed to purchase the Generic System software. This agreement was oral. After Credit Union was converted to the SDMI Generic System, major problems with the system immediately became apparent so SDMI filed suit against Credit Union to recover the outstanding contract price for the software. Credit Union counterclaimed for damages based upon breach of contract and negligent and fraudulent misrepresentation. Does the UCC apply to this contract? Answer: Uniform Commercial Code. Judgment for SDMI. We must determine whether the oral agreement between SDMI and Credit Union was for goods or services. The test when dealing with a mixed contract is "not whether they [goods or services] are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved." Prior to entering into an agreement for the Generic System software, Credit Union attended a demonstration of the program at SDMI's place of business. Therefore, we conclude the software was movable at the time of identification to the contract, satisfying that requirement of the definition of goods. SDMI installed the Generic System software on Credit Union's computer and was present to attempt modifications and corrections of the program so the accounting system would run more efficiently. These services are incidental to the sale of the software because, without Credit Union buying the Generic System program, the services would not be necessary. Therefore, the sale of the software is predominant. We hold this software to be goods and subject to the provisions of the U.C.C. 11. Insul-Mark is the marketing arm of Kor-It Sales, Inc. Kor-It manufactures roofing fasteners and Insul-Mark distributes them nationwide. Kor-It contracted with Modern Materials, Inc., to have large volumes of screws coated with a rust-proofing agent. The contract specified that the coated screws must pass a standard industry test and that Kor-It would pay according to the pound and length of the screws coated. Kor-It had received numerous complaints from customers that the coated screws were rusting, and Modern Materials unsuccessfully attempted to remedy the problem. Kor-It terminated its relationship with Modern Materials and brought suit for the deficient coating. Modern Materials counterclaimed for the labor and materials it had furnished to Kor-It. The trial court held that the contract (1) was for performance of a service, (2) not governed by the UCC, (3) governed by the common law of contracts, and (4) therefore, barred by a two-year statute of limitations. Insul-Mark appealed. Decision? Answer: Contracts Outside the Code. The transaction is predominantly for the performance of a service and, therefore, is not governed by the Sales article of the U.C.C. Where a transaction is “mixed,” that is it involves both goods and services, the Sales article of the U.C.C. will apply only where the “predominant thrust” of the transaction is a sale of goods with labor only incidentally involved. This court rejects the “bifurcation” approach, taken by some lower courts, whereby a mixed transaction is viewed as two transactions: one for the sale of goods governed by the U.C.C., and one for the performance of a service governed by the common law. The bifurcation approach is less sensitive to the parties’ expectations than the predominant thrust approach and would not work where an agreement is not readily divisible. Whether the predominant thrust of a transaction is the sale of goods or the performance of a service depends primarily on the language of the contract in light of the situation of the parties and the surrounding circumstances. Also relevant are the final product the purchaser bargained to receive and whether it may be described as a good or a service. Finally, the courts examine the costs involved for the goods and services, and whether the purchaser was charged only for a good or a price based on both goods and services. The agreement between Kor-It and Modern Materials was predominantly for the performance of a service. The performance Kor-It contracted to obtain was the transformation of its screws from a non-coated form to a coated form with enhanced rust-resistance. Modern Materials’ complex multi-step application process was the crucial element completing this transformation. The transfer of the coating material, a good, in the process was incidental to the larger service. This is evidenced by the fact that Kor-It did not involve itself in deciding which coating material Modern Materials would apply to the screws. Furthermore, the pricing method in this transaction reveals that its predominant thrust was the performance of a service: Kor-It was charged by the pound of screws coated rather than by the gallons of coating used. 12. In March, William Tackaberry, a real estate agent for Weichert Co. Realtors, (Weichert) informed Thomas Ryan, a local developer that he knew of property Ryan might be interested in purchasing. Ryan indicated he was interested in knowing more about the property Tackaberry disclosed the property’s identity and the seller’s proposed price. Tackaberry also stated that the purchaser would have to pay Weichert a 10 percent commission. Tackaberry met with the property owner and gathered information concerning the property’s current leases, income, expenses, and development plans. Tackaberry also collected tax and zoning documents relevant to the property. In a face-to-face meeting on April 4, Tackaberry gave Ryan the data he had gathered and presented Ryan with a letter calling for a 10 percent finder’s fee to be paid to Weichert upon “successfully completing and closing of title.” Tackaberry arranged a meeting, held three days later, where Ryan contracted with the owner to buy the land. Ryan refused, however, to pay the 10 percent finder’s fee to Weichert. Weichert sues Ryan for the finder’s fee. To what, if anything, is Weichert entitled to recover? Answer: Quasi-Contract or Restitution. Weichert Co. Realtors is entitled to recover a reasonable finder’s fee from Tackaberry. A contract arises from offer and acceptance, and must be sufficiently definite "that the performance to be rendered by each party can be ascertained with reasonable certainty." Applying that principle, courts have allowed quasi-contractual recovery for services rendered when a party confers a benefit with a reasonable expectation of payment. That type of quasi-contractual recovery is known as quantum meruit ("as much as he deserves"), and entitles the performing party to recoup the reasonable value of services rendered. Though there is insufficient evidence of a mutual agreement (Ryan never expressly assented to the terms of Tackaberry's offer), the parties’ behavior does create a situation of unjust enrichment. Ryan refused to pay the ten-percent finder’s fee, but he nonetheless accepted the benefit of Tackaberry’s efforts. The courts impose a quasi contractual obligation to pay the reasonable value of a benefit conferred in order to avoid unjust enrichment. 13. Max E. Pass, Jr., and his wife, Martha N. Pass, departed in an aircraft owned and operated by Mr. Pass from Plant City, Florida, bound for Clarksville, Tennessee. Somewhere over Alabama the couple encountered turbulence, and Mr. Pass lost control of the aircraft. The plane crashed killing both Mr. and Mrs. Pass. Approximately four and a half months prior to the flight in which he was killed, Mr. Pass had taken his airplane to Shelby Aviation, an aircraft service company, for inspection and service. In servicing the aircraft, Shelby Aviation replaced both rear wing attach point brackets on the plane. Three and one half years after the crash, Max E. Pass, Sr., father of Mr. Pass and administrator of his estate, and Shirley Williams, mother of Mrs. Pass and administratrix of her estate, filed suit against Shelby Aviation. The lawsuit alleged that the rear wing attach point brackets sold and installed by Shelby Aviation were defective because they lacked the bolts necessary to secure them properly to the airplane. The plaintiffs asserted claims against the defendant for breach of express and implied warranties under Article 2 of the Uniform Commercial Code (“UCC”), which governs the sale of goods. Shelby Aviation contended that the transaction with Mr. Pass had been primarily for the sale of services, rather than of goods, and that consequently Article 2 of the UCC did not cover the transaction. Does the UCC apply to this transaction? Explain. Answer: Uniform Commercial Code. No, plaintiffs’ warranty claim dismissed. The problem in “mixed” transactions such as this one is to determine whether Article 2 governs the contract. The test for inclusion or exclusion in the U.C.C. is not whether the contracts are mixed, but granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of services with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom). In order to determine the predominant purpose of a mixed transaction, courts examine the language of the parties’ contract, the nature of the business of the supplier of the goods and services, the reason the parties entered into the contract (i.e. what each bargained to receive), and the respective amounts charged under the contract for goods and for services. In this case, the written document evidencing the transaction is the invoice prepared by Shelby Aviation. In the top left hand corner is a preprinted paragraph that states that the owner is authorizing “the following repair work to be done along with the necessary material.” As a whole, the invoice clearly emphasizes the repair and inspection aspect of the transaction, indicating that the predominant purpose was the sale of service, with the sale of goods incidental to that service. 14. Kasch and his brother owned M.W. Kasch Co. Kasch hired Skebba as a sales representative and over the years promoted him first to account manager, then to customer service manager, field sales manager, vice president of sales, senior vice president of sales and purchasing, and finally to vice president of sales. When M.W. Kasch Co. experienced serious financial problems in 2009, Skebba was approached by another company to leave Kasch and work for them. When Skebba told Kasch he was accepting the new opportunity, Kasch asked what it would take to get him to stay. Skebba told Kasch that he needed security for his retirement and family and would stay if Kasch agreed to pay Skebba $250,000 if one of these three conditions occurred: (1) the company was sold, (2) Skebba was lawfully terminated, or (3) Skebba retired. Kasch agreed to this proposal and promised to have the agreement drawn up. Skebba turned down the job opportunity and stayed with Kasch from December 2009 through 2015 when the company assets were sold. Over the years, Skebba repeatedly but unsuccessfully asked Kasch for a written summary of this agreement. Eventually, Kasch sold the business, receiving $5.1 million dollars for his fifty-one percent share of the business. Upon the sale of the business, Skebba asked Kasch for the $250,000. Kasch refused and denied ever having made such an agreement. Instead, Kasch gave Skebba a severance agreement, which had been drafted by Kasch's lawyers in 2009. This agreement promised two years of salary continuation on the sale of the company, but only if Skebba was not hired by the successor company. The severance agreement also required a set-off against the salary continuation of any sums Skebba earned from any activity during the two years of the severance agreement. Skebba sued Explain whether Skebba is entitled to recover. Answer: Promissory Estoppel. Skebba would not recover in contract, but would recover under the doctrine of promissory estoppel. Skebba v. Kasch, 2006 WI App 232, 724 N.W.2d 408; review denied, 2007 WI 59 (Court of Appeals of Wisconsin, 2006). The jury found there was no contract, but that Kasch had made a promise upon which Skebba relied to his detriment, that the reliance was foreseeable, and that Skebba was damaged in the amount of $250,000. Kasch did not promise to pay Skebba more than Skebba would have earned at the job Skebba turned down. Kasch did not promise that total income to Skebba would be greater than in the turned-down job, no matter how long he remained with Kasch. Kasch only promised that if Skebba stayed, Kasch would pay Skebba $250,000 (the sum Skebba wanted for his retirement), at the time the earliest of three conditions occurred. Kasch sold the business while Skebba was still employed by Kasch. Kasch refused to pay as promised. In this case, Skebba performed in reliance on Kasch's promise to pay $250,000 to him if one of three conditions occurred. Kasch enjoyed the fruits of Skebba's reliance—he kept on a top salesperson to help the company through tough financial times and he avoided the damage that he believed Skebba's leaving could have had on M.W. Kasch's reputation in the industry. Accordingly, to prevent injustice, the equitable remedy for Skebba to receive is Kasch's specific performance: the promised payment of the $250,000. 15. Hannaford is a national grocery chain whose electronic payment processing system was breached by hackers as early as December 7, 2007. The hackers stole up to 4.2 million credit and debit card numbers, expiration dates, and security codes, but did not steal customer names. On February 27, 2008, Visa Inc. notified Hannaford that Hannaford's system had been breached. Hannaford discovered the means of access on March 8, 2008, and contained the breach on March 10, 2008. Hannaford gave notice to certain financial institutions on March 10, 2008. On March 17, 2008, “Hannaford publicly announced for the first time that between December 7, 2007 and March 10, 2008, the security of its information technology systems had been breached, leading to the theft of as many as 4.2 million debit card and credit card numbers belonging to individuals who had made purchases at more than 270 of its stores.” It also announced “that it had already received reports of approximately 1,800 cases of fraud resulting from the theft of those numbers.” A number of affected customers sued Hannaford for breach of implied contract to recover losses arising out of the unauthorized use of their credit and debit card data. Damages sought included the cost of replacement card fees when the issuing bank declined to issue a replacement card to them, fees for accounts overdrawn by fraudulent charges, fees for altering pre-authorized payment arrangements, loss of accumulated reward points, inability to earn reward points during the transition to a new card, emotional distress, time and effort spent reversing unauthorized charges and protecting against further fraud, and the cost of purchasing identity theft/card protection insurance and credit monitoring services. Discuss the validity of their claim that Hannaford had breached an implied contract with its customers. Answer: Implied in Fact Contracts. The customers have made out a claim for an implied contract. Anderson v. Hannaford Bros. Co., 659 F. 3d 151 (Court of Appeals, 1st Circuit 2011). Under Maine law, a “contract includes not only the promises set forth in express words, but, in addition, all such implied provisions as are indispensable to effectuate the intention of the parties and as arise from the language of the contract and the circumstances under which it was made.” The existence of such an implied contract term is determined by the jury, which considers whether the term is indispensable to effectuate the intention of the parties. The district court correctly concluded that a jury could reasonably find an implied contract between Hannaford and its customers that Hannaford would not use the credit card data for other people's purchases, would not sell the data to others, and would take reasonable measures to protect the information. When a customer uses a credit card in a commercial transaction, she intends to provide that data to the merchant only. Ordinarily, a customer does not expect—and certainly does not intend—the merchant to allow unauthorized third-parties to access that data. A jury could reasonably conclude, therefore, that an implicit agreement to safeguard the data is necessary to effectuate the contract. ANSWERS TO “TAKING SIDES” PROBLEMS Richardson hired J. C. Flood Company, a plumbing contractor, to correct a stoppage in the sewer line of her house. The plumbing company’s “snake” device, used to clear the line leading to the main sewer, became caught in the underground line. To release it, the company excavated a portion of the sewer line in Richardson’s backyard. In the process, the company discovered numerous leaks in a rusty, defective water pipe that ran parallel with the sewer line. To meet public regulations, the water pipe, of a type no longer approved for such service, had to be replaced either then or later, when the yard would have to be excavated again. The plumbing company proceeded to repair the water pipe. Though Richardson inspected the company’s work daily and did not express any objection to the extra work involved in replacing the water pipe, she refused to pay any part of the total bill after the company completed the entire operation. J. C. Flood Company then sued Richardson for the costs of labor and material it had furnished. (a) What arguments would support J. C. Flood’s claim for the costs of labor and material it had furnished? (b) What arguments would support Richardson’s refusal to pay the bill? (c) For what, if anything, should Richardson be liable? Explain. Answer: (a) J.C. Flood could argue that (i) Richardson had agreed expressly to the replacement of the water pipe; (ii) Richardson had agreed impliedly to the replacement of the water pipe; (iii) the work was necessary, completed and satisfactorily performed; and (iv) the bill was reasonable in its amount. (b) Richardson could argue that (i) she had never agreed expressly to the replacement of the water pipe; (ii) she had never been informed of the need to replace the water pipe; (iii) the work was unnecessary; and (iv) the bill was not reasonable in its amount. (c) Decision for J.C. Flood. Richardson v. J. C. Flood Company, District of Columbia Court of Appeals, 1963, 190 A.2d 259. Contracts are either expressed or implied: expressed when their terms are stated by the parties, implied when arising from a mutual agreement not set forth in words. An implied contract “may be presumed from the acts and conduct of the parties as a reasonable man would view them under all the circumstances.” Here, Richardson made daily inspections yet failed to object to the replacement of the water pipe until after the work was completed. Although she did not expressly agree to this extra work, her acts and conduct indicate her consent to it. Therefore, she created an implied (in fact) contract obligating her to pay for the reasonable value of the company's services. Chapter 10 MUTUAL ASSENT ANSWERS TO QUESTIONS AND CASE PROBLEMS 1. Ames, seeking business for his lawn maintenance firm, posted the following notice in the meeting room of the Antlers, a local lodge: “To the members of the Antlers—Special this month. I will resod your lawn for two dollars per square foot using Fairway brand sod. This offer expires July 15.” The notice also included Ames's name, address, and signature and specified that the acceptance was to be in writing. Bates, a member of the Antlers, and Cramer, the janitor, read the notice and became interested. Bates wrote a letter to Ames saying he would accept the offer if Ames would use Putting Green brand sod. Ames received this letter July 14 and wrote to Bates saying he would not use Putting Green sod. Bates received Ames's letter on July 16 and promptly wrote Ames that he would accept Fairway sod. Cramer wrote to Ames on July 10, saying he accepted Ames's offer. By July 15, Ames had found more profitable ventures and refused to resod either lawn at the specified price. Bates and Cramer brought an appropriate action against Ames for breach of contract. Decisions on the claims of Bates and Cramer? Answer: Counteroffer. Ames wins both cases. The first letter from Bates was not an acceptance because it did not correspond with the terms of the offer. It was a counteroffer, as it called for Ames to use a different brand sod, and therefore constituted a rejection of the original offer which terminated the original offer. After Ames had rejected the counteroffer, Bates wrote on July 16 an acceptance of the original offer. This failed to form a contract as the original offer had been terminated by (a) the rejection, Restatement, Second, Contacts, §38 and (b) expiration of the time for acceptance as by its terms it expired July 15, Restatement, Second Contracts, §41. Cramer cannot recover because he was not an offeree. The offer was addressed to members of the Antlers. The party making an offer has the right to determine with whom he will contract. It is immaterial whether the offeror had special reasons for contracting with the offeree rather than with someone else. Cramer made an offer to Ames through his letter, which Ames could have accepted, but chose not to. 2. Garvey owned four speedboats named Porpoise, Priscilla, Providence, and Prudence. On April 2, Garvey made written offers to sell the four boats in the order named for $4,200 each to Caldwell, Meens, Smith, and Braxton, respectively, allowing ten days for acceptance. In which, if any, of the following four situations described was a contract formed? (a) Five days later, Caldwell received notice from Garvey that he had contracted to sell Porpoise to Montgomery. The next day, April 8, Caldwell notified Garvey that he accepted Garvey's offer. (b) On the third day, April 5, Meens mailed a rejection to Garvey which reached Garvey on the morning of the sixth day. But at 10:00 A.M. on the fourth day, Meens sent an acceptance by overnight letter to Garvey, who received it at noon on the fifth day. (c) Smith, on April 3, replied that she was interested in buying Providence but declared the price asked appeared slightly excessive and wondered if, perhaps, Garvey would be willing to sell the boat for $3,900. Five days later, having received no reply from Garvey, Smith, by letter, accepted Garvey's offer and enclosed a certified check for $4,200. (d) Braxton was accidentally killed in an automobile accident on April 9. The following day, the executor of Braxton's estate mailed an acceptance of Garvey's offer to Garvey. Answer: Revocation, Rejection. (a) No contract. Where the offeror, after making an offer for sale, sells or contracts to sell the property to another person and the offeree acquires reliable information of this fact, before he has exercised his power of creating a contract by acceptance of the offer, the offer is revoked. Restatement, Second, Contracts, Section 43. (b) A contract was formed on April 6. Rejection by mail or telegram does not destroy the power of acceptance until received by the offeror, but limits the power so that an authorized or unauthorized means of acceptance (this was an authorized means since the contracts fall under the U.C.C.) started after the sending of a prior rejection is only effective if the acceptance is received, as here, by the offeror before he receives the rejection. (c) A contract. A counteroffer by the offeree, relating to the same matter as the offer, is a rejection of the original offer, unless the offeror in his offer or the offeree in his counteroffer manifest a different intention. Restatement, Second, Contracts, § 39. Here, Edward made a mere inquiry regarding the possibility of different terms or, stated somewhat differently, a request for a better offer. Smith inquiry was not a counteroffer since it did not contain a promise. Smith’s subsequent acceptance was therefore effective. (d) No contract. The death of the offeree terminates a revocable offer because it thereby becomes impossible to accept it. Restatement, Second, Contracts, Section 48. A revocable offer can be accepted only by or for the benefit of the person to whom it is made. 3. Alpha Rolling Mill Corporation, by letter dated June 8, offered to sell Brooklyn Railroad Company 2,000 to 5,000 tons of fifty-pound iron rails upon certain specified terms, adding that, if the offer was accepted, Alpha Corporation would expect to be notified prior to June 20. Brooklyn Company, on June 16, by fax, referring to Alpha Corporation's offer of June 8, directed Alpha Corporation to enter an order for 1,200 tons of fifty-pound iron rails on the terms specified. The same day, June 16, Brooklyn Company, by letter to Alpha Corporation, confirmed the fax. On June 18, Alpha Corporation, by fax, declined to fill the order. Brooklyn Company, on June 19, wrote Alpha Corporation: “Please enter an order for 2,000 tons rails as per your letter of the eighth. Please forward written contract. Reply.” In reply to Brooklyn Company's repeated inquiries regarding whether the order for 2,000 tons of rails had been entered, Alpha denied the existence of any contract between Brooklyn Company and itself. Thereafter, Brooklyn Company sued Alpha Corporation for breach of contract. Decision? Answer: Counteroffer. Decision for Alpha Rolling Mill Corporation and against Brooklyn Railroad Company. The offer was for a quantity of between 2,000 to 5,000 tons of iron rails. When the railroad company ordered 1,200 tons, it was not accepting the offer but making a counteroffer. This counteroffer is a rejection of the original offer. After Alpha's refusal to accept the counteroffer, the railroad company attempted to accept 2,000 tons under the original offer. However, the original offer at this time was no longer in existence, having been terminated by the rejection. There was no offer open to the railroad company for acceptance after the rejection, and no contract was formed. 4. On April 8, Burchette received a telephone call from Bleluck, a truck dealer, who told Burchette that a new model truck in which Burchette was interested would arrive in one week. Although Bleluck initially wanted $10,500, the conversation ended after Bleluck agreed to sell and Burchette agreed to purchase the truck for $10,000, with a $1,000 down payment and the balance upon delivery. The next day, Burchette sent Bleluck a check for $1,000, which Bleluck promptly cashed. One week later, when Burchette called Bleluck and inquired about the truck, Bleluck informed Burchette he had several prospects looking at the truck and would not sell for less than $10,500. The following day, Bleluck sent Burchette a properly executed check for $1,000 with the following notation thereon: “Return of down payment on sale of truck.” After notifying Bleluck that she will not cash the check, Burchette sues Bleluck for damages. Should Burchette prevail? Explain. Answer: Definiteness. Decision for Burchette. The agreement made in the course of a telephone conversation between Burchette and truck dealer Bleluck was for the sale by Bleluck to Burchette at an agreed price of $10,000 for a new model truck. The trade description of the truck was known to both parties, as Burchette was interested in it, and dealer Bleluck had apparently ordered the new truck from the manufacturer as he told Burchette that he expected to receive delivery of it in one week. The price was payable $1,000 down, and the balance upon delivery. This is a valid oral contract for the sale of goods by description. Each party manifested to the other over the telephone assent to these terms, and Burchette promptly sent to Bleluck her check for $1,000 which Bleluck cashed. The mutual promises exchanged were definite and certain. Note regarding the statute of frauds: Bleluck 's check for $1,000 payable to Burchette and Bleluck 's notation thereon fulfill all of the requirements of the statute of frauds and make the contract enforceable against Bleluck in that (1) the notation evidences a contract for the sale of goods; (2) the check bears Bleluck 's signature as drawer; and (3) the singular number of "truck" refers to the quantity of one truck. 5. On November 15, I. Sellit, a manufacturer of crystalware, mailed to Benny Buyer a letter stating that Sellit would sell to Buyer 100 crystal “A” goblets at $100 per goblet and that “the offer would remain open for fifteen (15) days.” On November 18, Sellit, noticing the sudden rise in the price of crystal “A” goblets, decided to withdraw her offer to Buyer and so notified Buyer. Buyer chose to ignore Sellit's letter of revocation and gleefully watched as the price of crystal “A” goblets continued to skyrocket. On November 30, Buyer mailed to Sellit a letter accepting Sellit's offer to sell the goblets. The letter was received by Sellit on December 4. Buyer demands delivery of the goblets; what result? Answer: Firm Offers Under the Code. Buyer prevails. Sellit’s offer of Nov. 15, constituted a firm offer–it is a signed writing by a merchant promising to hold open an offer for 3 months or less (15 days in this case) and therefore cannot be revoked prior to Nov. 30. Thus, Sellit’s revocation of Nov. 18, is ineffective and of no legal effect. Buyer accepted Sellit’s offer within the prescribed time period by dispatching his acceptance on November 30. Buyer's use of the mail for sending his acceptance is a reasonable means of acceptance (this is a UCC sale) and thus is effective upon dispatch. 6. On May 1, Melforth Realty Company offered to sell Greenacre to Dallas, Inc., for $1,000,000. The offer was made by a letter sent by overnight delivery and stated that the offer would expire on May 15. Dallas decided to purchase the property and sent a letter by registered first-class mail to Melforth on May 10, accepting the offer. Due to unexplained delays in the postal service, Melforth did not receive the letter until May 22. Melforth wishes to sell Greenacre to another buyer, who is offering $1,200,000 for the tract of land. Has a contract resulted between Melforth and Dallas? Answer: Effective Moment: Acceptance By Dispatch. Under the Restatement, Second, Dallas’ acceptance, via first-class mail, is a reasonable means of acceptance and is effective upon dispatch. Thus, Dallas’ acceptance, mailed on May 10, would have been effective prior to the offer’s termination on May 15. Under the traditional rule the acceptance would have been unauthorized, since it was not the means utilized by the offeror in making the offer, and therefore effective only when received by the offeror, provided it is received within the time period the authorized means would have arrived. Here the offer was not received (May 22) until the offer had already expired (May 15) and it was not received within the time frame that the authorized means (telegraph) would have been received within (probably no later than May 16). Had Melforth stipulated that the acceptance be received by May 15, then the effective moment of acceptance would be upon receipt by Melforth, and there would no contract. 7. Rowe advertised in newspapers of wide circulation and otherwise made known that she would pay $5,000 for a complete set consisting of ten volumes of certain rare books. Ford, not knowing of the offer, gave Rowe all but one volume of the set of rare books as a Christmas present. Ford later learned of the offer, obtained the one remaining book, tendered it to Rowe, and demanded the $5,000. Rowe refused to pay. Is Ford entitled to the $5,000? Answer: Intent. Ford is not entitled to the $5,000, as he did not accept Rowe's offer and therefore no contract was formed. The gift of the nine books by Ford to Rowe was not an acceptance because acceptance requires an intention on the part of the offeree to accept the offer, and since at the time of making the gift Ford had no knowledge of the offer, he did not have and could not have had such intention. Moreover, even if Ford had then known of the offer, his intention at that time was to give the nine books to Rowe as a Christmas present, and not to accept any offer. 8. Scott, manufacturer of a carbonated beverage, entered into a contract with Otis, owner of a baseball park, whereby Otis rented to Scott a large signboard on top of the center field wall. The contract provided that Otis should letter the sign as Scott desired and would change the lettering from time to time within forty-eight hours after receipt of written request from Scott. As directed by Scott, the signboard originally stated in large letters that Scott would pay $1,000 to any ballplayer hitting a home run over the sign. In the first game of the season, Hume, the best hitter in the league, hit one home run over the sign. Scott immediately served written notice on Otis instructing Otis to replace the offer on the signboard with an offer to pay $500 to every pitcher who pitched a no-hit game in the park. A week after receipt of Scott's letter, Otis had not changed the wording on the sign. On that day, Perry, a pitcher for a scheduled game, pitched a no-hit game while Todd, one of his teammates, hit a home run over Scott's sign. Scott refuses to pay any of the three players. What are the rights of Scott, Hume, Perry, and Todd? Answer: Offer/Acceptance. Batter Hume is entitled to recover $1,000 from Scott who by his large signboard on top of the center field wall promised to pay that amount to any hitter who would hit a home run over the signboard. When Hume performed the act requested, a unilateral contract was formed. Pitcher Perry cannot recover from Scott. No offer was publicly made to any pitcher for a no-hit game, nor was any offer made to pitcher Perry. Batter Todd can recover $1,000 from Scott. The offer was not revoked as to Todd. An offer made by advertisement in a newspaper, or by a general notification to the public, or to a number of persons whose identity is unknown to the offeror is revoked by an advertisement or general notice given publicity equal to that given to the offer before a contract has been created by acceptance of the offer. Advertiser Scott may recover a net of $500 from Otis, i.e., the $1000 which Scott has to pay Todd less the $500 which Scott would have had to pay Perry but for Otis’s failure to change the sign. 9. Barnes accepted Clark's offer to sell to him a portion of Clark's coin collection. Clark forgot that his prized $20 gold piece at the time of the offer and acceptance was included in the portion that he offered to sell to Barnes. Clark did not intend to include the gold piece in the sale. Barnes, at the time of inspecting the offered portion of the collection, and prior to accepting the offer, saw the gold piece. Is Barnes entitled to the $20 gold piece? Answer: Objective Standard for Intent. Yes. Mutual assent to the formation of a contract is operative as to the extent it is manifested. If the manifestation is at variance with the mental intent, the objective expression is controlling. It was Clark’s intention to sell that particular portion of the coin collection as a whole unit and the parties mutually assented to this. See City of Everett v. Estate of Sumstad, 631 P.2d 366 (Wash. 1981). This transaction shows no evidence of fraud in the inducement, which would make this it voidable at Clark’s choice. 10. Small, admiring Jasper's watch, asked Jasper where and at what price he had purchased it. Jasper replied: “I bought it at West Watch Shop about two years ago for around $85, but I am not certain as to that.” Small then said: “Those fellows at West are good people and always sell good watches. I'll buy that watch from you.” Jasper replied: “It's a deal.” The next morning Small telephoned Jasper and said he had changed his mind and did not wish to buy the watch. Jasper sued Small for breach of contract. In defense, Small has pleaded that he made no enforceable contract with Jasper (a) because the parties did not agree on the price to be paid for the watch, and (b) because the parties did not agree on the place and time of delivery of the watch to Small. Are either, or both, of these defenses good? Answer: Definiteness of Acceptance. The first defense has merit, especially when combined with the second defense. The second defense will not stand alone, but when coupled with the lack of agreement as to price, it is less likely they intended to form a contract. Small’s comments regarding the watch were not definite and certain. (a) Section 2-305, U.C.C., provides: “Open Price Term. (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price.” From the facts given, it would be difficult to a reasonable price. As to the second argument of time and place for delivery the U.C.C. provides: “2-308. Absence of Specified Place for Delivery. Unless otherwise agreed (a) the place for delivery of goods is the seller’s place of business or if he has none his residence; *** “2-309. Absence of Specific Time Provision; Notice of Termination. (1) The time for shipment or delivery of any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time.” 11. Jeff says to Brenda, “I offer to sell you my PC for $900.” Brenda replies, “If you do not hear otherwise from me by Thursday, I have accepted your offer.” Jeff agrees and does not hear from Brenda by Thursday. Does a contract exist between Jeff and Brenda? Explain. Answer: Silence as Acceptance. Yes, there is a contract. Brenda’s statement to Jeff is a conditional acceptance of his offer. Although silence generally cannot be an acceptance, Brenda’s silence here is evidence that her acceptance is both positive and unequivocal. 12. . On November 19, Hoover Motor Express Company sent to Clements Paper Company a written offer to purchase certain real estate. Sometime in December, Clements authorized Williams to accept. Williams, however, attempted to bargain with Hoover to obtain a better deal, specifically that Clements would retain easements on the property. In a telephone conversation on January 13 of the following year, Williams first told Hoover of his plan to obtain the easements. Hoover replied, “Well, I don’t know if we are ready. We have not decided, we might not want to go through with it.” On January 20, Clements sent a written acceptance of Hoover’s offer. Hoover refused to buy, claiming it had revoked its offer through the January 13 phone conversation. Clements then brought suit to compel the sale or obtain damages. Did Hoover successfully revoke its offer? Answer: Revocation. Yes, the offer was revoked. Express notice of revocation before acceptance of an offer is not required. The offeror may implicitly revoke his offer through acts or communications to the offeree that are inconsistent with its continuance. If the offeree has knowledge of this inconsistent interest before he has accepted then the offer is revoked. Here, Williams knew through the January 13 phone conversation that Hoover “thought they might not go through with it.” This communication by Hoover to Williams effectively revoked its offer. Therefore, Clements’ acceptance on January 20 came too late to bind Hoover to the sale. Hoover Motor Express Co. v. Clements Paper Co., 241 S.W.2d 851 (Tenn. 1951). 13. Walker leased a small lot to Keith for ten years at $1,000 a month, with a right for Keith to extend the lease for another ten-year term under the same terms except as to rent. The renewal option provided: “Rental will be fixed in such amount as shall actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of rental values as of the date of the renewal with rental values at this time reflected by the comparative business conditions of the two periods.” Keith sought to exercise the renewal right and, when the parties were unable to agree on the rent, brought suit against Walker. Who prevails? Why? Answer: Option Contract. Decision for Walker. The renewal option provision did not constitute an option contract or any agreement giving Keith a unilateral right to accept the new contract for a second 10-year period of time. The renewal option was merely an agreement to attempt to negotiate in good faith a new lease agreement for the second 10-year period. If Walker acted reasonably and attempted to negotiate an extension of the lease in good faith, yet despite that effort the parties were unable to agree on the new rent, Walker has no liability. 14. The Brewers contracted to purchase Dower House from McAfee. Then, several weeks before the May 7 settlement date for the purchase of the house, the two parties began to negotiate for the sale of certain items of furniture in the house. On April 30, McAfee sent the Brewers a letter containing a list of the furnishings to be purchased at specified prices; a payment schedule, including a request for a $3,000 payment, due on acceptance; and a clause reading: “If the above is satisfactory, please sign and return one copy with the first payment.” On June 3, the Brewers sent a letter to McAfee stating that enclosed was a $3,000 check; that the original contract had been misplaced and could another be furnished; that they planned to move into Dower House on June 12; and that they wished the red desk to be included in the contract. McAfee then sent a letter dated June 8 to the Brewers, listing the items of furniture purchased. The Brewers moved into Dower House in the middle of June. Soon after they moved in, they tried to contact McAfee at his office to tell him that there had been a misunderstanding relating to their purchase of the listed items. They then refused to pay him any more money, and he brought this action to recover the balance outstanding. Will McAfee be able to collect the additional money from the Brewers? Answer: Mirror Image Rule. Here, McAfee did not indicate in his April 30 letter to the Brewers that a particular manner of acceptance was required. Therefore, the Brewer's letter of June 3, together with the enclosed $3,000 check, the amount due upon acceptance of the contract, manifested their assent to the items listed in the April 30 letter from McAfee. The June 3 letter was both definite and seasonable, and the reference to the red writing desk was not expressed in language making acceptance conditional upon inclusion of the desk. This item, then, was merely a proposal for an addition to the contract as McAfee requested, they did send a letter of their own. This was reasonable under the circumstances since they had misplaced the contract and, therefore, the letter constituted an effective acceptance of McAfee's offer. McAfee v. Brewer, 214 Va. 579, 203 S.E.2d 129 (1974). 15. The Thoelkes were owners of real property located in Orange County, which the Morrisons agreed to purchase. The Morrisons signed a contract for the sale of that property and mailed it to the Thoelkes in Texas on November 26. The next day the Thoelkes executed the contract and placed it in the mail addressed to the Morrisons’ attorney in Florida. After the executed contract was mailed but before it was received in Florida, the Thoelkes called the Morrisons’ attorney in Florida and attempted to repudiate the contract. Does a contract exist between the Thoelkes and the Morrisons? Discuss. Answer: Deposited Acceptance Rule. Yes, a contract exists and thus decision for the Morrison's. Under the deposited acceptance rule, an unqualified offer was accepted when the letter was placed in the mail. The repudiation was ineffective, because a contract came into existence when the letter was mailed, even though it had not been received by the Morrison's attorney. This rule is also known as the "rule in Adams v. Lindsell," because that was the first case in which it was enunciated. Morrison v. Thoelke, 155 So.2d 889 (Fla. App. 1963). 16. Lucy and Zehmer met while having drinks in a restaurant. During the course of their conversation, Lucy apparently offered to buy Zehmer's 471.6-acre farm for $50,000 cash. Although Zehmer claims that he thought the offer was made in jest, he wrote the following on the back of a pad: “We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000, title satisfactory to buyer.” Zehmer then signed the writing and induced his wife Ida to do the same. She claims, however, that she signed only after Zehmer assured her that it was only a joke. Finally, Zehmer claims that he was “high as a Georgia pine” at the time but admits that he was not too drunk to make a valid contract. Decision? Answer: Offers/Objective Standard of Intent/Contractual Capacity. Judgment for Lucy. An agreement or mutual assent is essential to the formation of a valid contract. The mental assent of the parties is not requisite, however, unless one party's undisclosed intentions are not made known to the other party. If they are not, then the words and undisclosed intentions are judged by an objective standard to see if they manifest an intention to agree. Thus Zehmer cannot claim that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement. Zehmer's response to Lucy's offer, therefore, whether made in earnest or in secret jest constituted a binding contract. Zehmer had contractual capacity, because he was able to understand the nature and consequences of his actions. Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954). 17. Lee Calan Imports advertised a used Volvo station wagon for sale in the Chicago Sun-Times. As part of the information for the advertisement, Lee Calan Imports instructed the newspaper to print the price of the car as $1,795. However, due to a mistake made by the newspaper, without any fault on the part of Lee Calan Imports, the printed ad listed the price of the car as $1,095. After reading the ad and then examining the car, O'Brien told a Lee Calan Imports salesman that he wanted to purchase the car for the advertised price of $1,095. Calan Imports refuses to sell the car to O'Brien for $1,095. Is there a contract? If so, for what price? Answer: Offers/Invitations, Offer. No contract. A newspaper ad is an invitation to make an offer, not an offer. Judgment for Lee Calan Imports. “Advertisements are not offers because (1) they do not contain a promise and (2) they leave unexpressed many terms that would be necessary to the making of a contract. In this case, it should be easy to prove that this merchant is not engaging in price inflation, since the price listed was a typographical error on the part of the newspaper.” O'Keefe v. Lee Calan Imports, Inc., 262 N.E. 2d 758, 128 Ill. App.2d 410 (1970). 18. On May 20 cattle rancher Oliver visited his neighbor Southworth, telling him, “I know you're interested in buying the land I'm selling.” Southworth replied, “Yes, I do want to buy that land, especially since it adjoins my property.” Although the two men did not discuss the price, Oliver told Southworth he would determine the value of the property and send that information to him, so that Southworth would have “notice” of what Oliver “wanted for the land.” On June 13, Southworth called Oliver to ask if he still planned to sell the land. Oliver answered, “Yes, and I should have the value of the land determined soon.” On June 17, Oliver sent a letter to Southworth listing a price quotation of $324,000. Southworth then responded to Oliver by letter on June 21, stating that he accepted Oliver's offer. However, on June 24 Oliver wrote back to Southworth, saying “There has never been a firm offer to sell, and there is no enforceable contract between us.” Oliver maintains that a price quotation alone is not an offer. Southworth claims a valid contract has been made. Who wins? Discuss. Answer: Essentials of an Offer/Intent. Southworth is correct, there is a valid and enforceable contract to sell the property. Despite the general rule that a price quotation alone is insufficient to constitute an offer, "there may be circumstances under which a price quotation, when considered together with facts and circumstances, may constitute an offer which, if accepted, will result in a binding contract." Whether Oliver has communicated his intent to enter into a contract must be judged on the basis of what a reasonable person in the position of Southworth has been led to believe. Here, the circumstances surrounding the letter of June 17 (of itself merely a price quotation) made it reasonable that Southworth believed Oliver had made an offer to sell the ranch lands. Southworth v. Oliver, 284 Or. 361, 587 P.2d 994 (1978).. 19. On December 23, Wyman, a lawyer representing First National Bank & Trust (defendant), wrote to Zeller (plaintiff) stating that he had been instructed to offer a building to Zeller at a price of $240,000. Zeller had previously expressed an interest in purchasing the building for $240,000. The letter also set forth details concerning interest rates and loan fees. After receiving the letter, Zeller instructed his attorney, Jamma, to send Wyman a written counteroffer of $230,000 with interest and loan arrangements varying from the terms of the original offer. Jamma sent the written counteroffer as instructed on January 10. On the same day, Jamma telephoned Wyman and informed him of the counteroffer. Subsequently Jamma sent an acceptance of the original offer to Wyman. When Wyman refused to sell the property to him, Zeller brought an action to seek enforcement of the alleged contract. Decision? Answer: Counteroffer. Judgment for First National Bank. In order for an acceptance to create a binding contract, it must comply strictly with the terms of the offer. An acceptance requesting modification or containing terms that vary from those offered constitutes a rejection of the original offer and becomes a counteroffer that must be accepted by the original offeror before a valid, binding contract is formed. Here, in a telephone conversation on January 10, Jamma told Wyman of the $230,000 counteroffer, which operated as a rejection of the original offer and terminated Zeller’s power of acceptance. Finally, it matters not that the counteroffer was communicated orally in response to a written offer. If an offer requires a written acceptance, no other form will do. Here, however, no particular form of response was required, so the oral counteroffer was an effective rejection. As such, it is irrelevant that the written acceptance arrived prior to the written counteroffer since the oral counteroffer preceded them both. 20. First Development Corporation of Kentucky (FDCK) sought to purchase a fifteen-acre parcel of riverfront property owned by Martin Marietta. On May 9, FDCK made an offer to purchase the property for $300,000, which it submitted to Coldwell Banker, Martin Marietta’s real estate agent. This offer was accompanied by an earnest money deposit evidenced by a $1,000 check payable to Coldwell Banker. The deposit was fully refundable if transfer of title to FDCK was not completed for any reason except FDCK’s failure to perform. After this offer expired without being accepted, FDCK asked Don Gilmour, Coldwell Banker’s account agent, to seek a counteroffer. In a letter to Gilmour, dated September 7, Martin Marietta agreed to sell the property for $550,000. The counteroffer stated it was to remain open for thirty days. Gilmour informed Pollitt, president of FDCK, of the counteroffer by telephone on September 7 and sent a copy of the letter to Pollitt, which was received on September 12. . Within days of the expiration of FDCK’s original offer, Bill Harvey, president of Harmony Landing, a development company, initiated direct negotiations with Martin Marietta to purchase the riverfront parcel. These negotiations resulted in a contract being executed on September 21 or 22. During a September 21 phone call, Gilmour advised Pollitt of Harmony Landing’s interest in buying the property, but Pollitt remained noncommittal during the conversation. Later that day, Pollitt, along with his partner and engineer, visited the property and discussed various studies and arrived at a decision to accept the September 7 offer from Martin Marietta. However, Pollitt did not convey this acceptance to Gilmour. Rather, he consulted his attorneys regarding a contract to accept Martin Marietta’s offer. After consulting with his attorneys, Pollitt prepared an acceptance of Martin Marietta’s offer but did not put it in the mail. The next morning, Pollitt placed the acceptance in his office suite’s mail depository. However, after being informed by Gilmour that Martin Marietta had accepted Harmony Landing’s option on the river property, Pollitt retrieved the acceptance and personally delivered it to Gilmour at 4:15 p.m. The acceptance was returned to Pollitt and he subsequently initiated this action for temporary and permanent injunction and specific performance. The district court ruled that the $1,000 check, payable to and in the possession of Coldwell Banker during the period of this controversy was, by operation of law, converted into consideration for a thirty-day irrevocable option in favor of FDCK to purchase the riverfront property in accordance with the terms of Martin Marietta’s letter of September 7. Does a contract exist between Martin Marietta and FDCK? Answer: Revocation/Option Contract/ Acceptance. No. An option contract which is not supported by consideration can be withdrawn at any time before acceptance. The $1,000 deposit accompanying FDCK’s initial offer was not consideration for an option contract. The documentation is explicitly clear that the parties, all of whom were sophisticated businessmen experienced in brokering real estate, were negotiating for an unconditional sale rather than an option agreement. Further, a payment such as this deposit, which is simply an advance toward the purchase price if the sale is ultimately consummated, does not constitute consideration for an irrevocable option. It is clear that there was no monetary consideration to support the option contract here. The next question is whether FDCK had, in fact and in law, accepted the Martin Marietta offer to sell its property before the offer was revoked or withdrawn. An offer must be accepted “before any intimation is received that offer is withdrawn.” An offer is revoked when the offeree learns of acts by the offeror that are inconsistent with the continuance of the offer or that imply that the offer has been revoked. It is clear from his conversations with Gilmour that Pollitt knew that the agreement between Martin Marietta and Harmony Land was a contract to purchase the riverfront property and that the property was no longer available. Under the “mailbox rule” as defined in the Restatement (Second) of Contracts ( 63(a), an acceptance becomes effective when it is “put out of the offeree’s possession.” The rule, simply stated, is that “an offer may be accepted by mailing acceptance, properly stamped and addressed.” The envelope containing FDCK’s acceptance never left Pollitt’s possession as evidenced by Pollitt’s effortless retrieval of the documents from the office mail drop after he became aware of contract in favor of Harmony Land. At that point in time, the envelope had not even been stamp metered. He thereafter hand delivered the envelope to Gilmour at 4:15 p.m. This was approximately one hour and forty-five minutes after he knew the property was off the market. Accordingly, FDCK had not accepted Martin Marietta’s offer to sell the riverfront property before it knew that the land was no longer available. 21. On August 12, Mr. and Mrs. Mitchell, the owners of a small secondhand store, attended Alexander’s Auction, where they bought a used safe for $50. The safe, part of the Sumstad estate, contained a locked inside compartment. Both the auctioneer and the Mitchells knew this fact. Soon after the auction, the Mitchells had the compartment opened by a locksmith, who discovered $32,207 inside. The Everett Police Department impounded the money. The city of Everett brought an action against the Sumstad estate and the Mitchells to determine the owner of the money. Who should receive the money? Why? Answer: Auction Sales. Judgment in favor of the Mitchells—they are entitled to the funds. The subject matter transferred in a sale is determined by the intent of the parties as revealed by the terms of their agreement in light of the surrounding circumstances. The intentions of the parties are revealed by a reasonable interpretation of their words and acts. Any unexpressed intention is irrelevant. In this case, the Mitchells understood that all auction sales were final, and the auctioneer made no statement reserving rights to any contents of the safe to the estate. The reasonable conclusion is that the auctioneer intended to sell the safe and its contents and that the parties mutually assented to such a sale. 22. Irwin Schiff is a self-styled “tax rebel” who has made a career, and substantial profit, out of his tax protest activities. On February 7, Schiff appeared live on CBS News Nightwatch, a late-night program with a viewer participation format. During the broadcast Schiff repeated his assertion that nothing in the Internal Revenue Code stated that an individual was legally required to pay federal income tax. Schiff then challenged, “If anybody calls this show—I have the Code—and cites any section of this Code that says an individual is required to file a tax return, I will pay them $100,000.” Call-in telephone numbers were periodically flashed on the screen. John Newman, an attorney, did not see Schiff’s live appearance on Nightwatch. Newman did, however, see a two-minute videotaped segment, including Schiff’s challenge, which was rebroadcast several hours later on the CBS Morning News. Newman researched the matter that same day, and on the following day, February 9, placed a call using directory assistance to CBS Morning News stating that the call was performance of the consideration requested by Mr. Schiff in exchange for his promise to pay $100,000. When Schiff refused to pay, Newman sued. Should Newman prevail? Explain. Answer: Duration of Offers. No, Newman will not prevail as the offer was no longer open. The offeror is the master of the offer, and it is clear that Schiff by his words “if anybody calls this show...” limited his offer in time to remain open only for the duration of the live Nightwatch broadcast. The CBS Morning News report on Schiff’s offer did not serve to renew or extend the original offer. Newman’s attempted acceptance was therefore untimely, and no contract was formed. 23. The Cornillies listed with a real estate agent a home for sale. Patrick and Anne Giannetti offered $155,000 for the home and submitted a deposit in the amount of $2,500. The Cornillies countered this offer with an offer to sell the house for $160,000. The Giannettis then inquired whether certain equipment and items of furniture could be included with the sale of the house. The Cornillies refused to include the questioned items in the sale. The Giannettis then accepted the $160,000 offer but changed the mortgage amount from $124,000 to $128,000. Is there a binding contract? Explain. Answer: Counteroffer. There is no binding contract. The purported acceptance by the Giannettis was a counteroffer, which operated as a rejection as well as a new offer. Giannetti v. Cornillie, 204 Mich.App. 234, 514 N.W.2d 221 (Court of Appeals of Michigan, 1994). “An offer is a unilateral declaration of intention, and is not a contract. A contract is made when both parties have executed or accepted it, and not before. A counter proposition is not an acceptance.” An acceptance must be “unambiguous and in strict conformance with an offer.” Moreover, “[A] proposal to accept, or an acceptance, upon terms varying from those offered, is a rejection of the offer, and puts an end to the negotiation, unless the party who made the original offer renews it, or assents to the modification suggested.” Thus, “[a]ny material departure from the terms of an offer invalidates the offer as made and results in a counter proposition, which, unless accepted, cannot be enforced.” Before the change, the Giannettis were obligated to buy the property if they obtained a mortgage for $124,000; after the change, no obligation to buy arose unless they obtained a $128,000 mortgage. Thus, the modification changed the contract—by legally widening the door through which the Giannettis could escape the contract—and it was therefore material. ANSWERS TO “TAKING SIDES” PROBLEMS Cushing filed an application with the office of the Adjutant General of the State of New Hampshire for the use of the Portsmouth Armory to hold a dance on the evening of April 29. The application, made on behalf of the Portsmouth Area Clamshell Alliance, was received by the Adjutant General’s office on or about March 30. On March 31 the Adjutant General mailed a signed contract after agreeing to rent the armory for the evening requested. The agreement required acceptance by the renter affixing his signature to the agreement and then returning the copy to the Adjutant General within five days after receipt. Cushing received the contract offer, signed it on behalf of the Alliance, and placed it in the outbox for mailing on April 3. At 6:30 on the evening of April 4, Cushing received a telephone call from the Adjutant General revoking the rental offer. Cushing stated during the conversation that he had already signed and mailed the contract. The Adjutant General sent a written confirmation of the withdrawal on April 5. On April 6 the Adjutant General’s office received by mail from Cushing the signed contract dated April 3 and postmarked April 5. (a) What are the arguments that a binding contract exists? (b) What are the arguments that a contract does not exist or should not exist? (c) What is the proper outcome? Explain. Answer: (a) Cushing claims that he signed the contract and placed it in the outbox for mailing on April 3. Furthermore, it was customary practice for letters to be collected from the outbox daily and then placed in the U.S. mail. Since this occurred before the attempted revocation of the offer by the Adjunct General on April 4, the revocation was ineffective, and the contract is binding and enforceable. An acceptance is effective upon dispatch unless the offer specifically states otherwise, the offeree responds by some unauthorized means, or the acceptance follows a prior rejection. (b) There is no proof that Cushing actually mailed the contract prior to April 4, since the postmark is April 5. If, in fact, Cushing signed and mailed the letter after the call from the Adjunct General on April 4, the revocation is effective. Even if Cushing put the contract in the outbox, there is no evidence that it was actually put into the US mail box prior to the evening of April 4. (c) Judgment for Cushing. Cushing v. Thomson, Supreme Court of New Hampshire, 118 N.H. 292, 386 A.2d 805 (1978). When the parties to a contract are at a distance and the offer is sent by mail, the reply accepting the offer may be sent through the same medium. Moreover, the contract becomes complete and binding when the acceptance is mailed, properly addressed to the party making the offer, and is beyond the sender’s control. Once the offer has been accepted by posting in the mail, the offer cannot be revoked by the offeror. Solution Manual for Smith and Robersons Business Law Richard A. Mann, Barry S. Roberts 9781337094757, 9780357364000, 9780538473637