Chapter Fourteen | Agency

Introduction

Agency is an important area of the law that involves a special relationship between two parties: a principal and the person, who represents the principal, termed the agent.  In the Restatement (Third) of Agency, agency is defined as a “fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.”  In essence, the agent “steps into the shoes” of the principal in a business transaction.
 
The principal hires an agent to act on his or her behalf who is subject to the principal’s instructions and control.  The agent is the individual authorized to act for and on behalf of a principal.  This legal arrangement creates a fiduciary relationship (a relationship of trust and confidence) in which the agent has the duty to act primarily for the principal’s benefit.  For example, a fiduciary relationship exists between the client (the principal) and an attorney (the agent); or the owner of a piece of property (the principal) and a rental or sales agent (the agent).
 
Each state enacts its own laws concerning agency, many of which are similar in scope and import.   However, some differences do exist.  The application of agency law is especially important for U.S. interests doing business in other countries.  Numerous American businesses are entering international markets through joint ventures or foreign direct investment activities.  To avoid problems that arise from language differences and unfamiliarity with foreign laws and customs, many U.S. companies hire agents who are knowledgeable in these matters resulting in smoother operation of the business in the foreign market.

Creating The Agency Relationship

The extent of the authority in an agency relationship may be governed by an express agreement between the parties or may be implied from the circumstances of the agency.  Like any contractual relationship, an agency relationship can only be created for a legal purpose. Further, the formation of an agency must meet two requirements: The principal must not be a minor or be incompetent; likewise, the agent cannot be a minor or be incompetent.  If these basic requirements are met, an agency relationship may be created in any of four ways: 1) by agreement; 2) by implied authority; 3) by estoppel (called apparent agency) or 4) by ratification. The agency contract is not required to be found in writing, unless a provision of the Statute of Frauds stipulates that the contract must be written—for example, a real estate broker’s contract to sell real property. The contract need not follow any special format, or even involve payment to the agent.

Agency By Agreement

The relationship that is created pursuant to a written or oral contract is termed an agency by agreement or an express agency, under which the principal gives the agent the authority to act on his or her behalf.  If the principal does not hire an additional party to carry out the same or similar duties, the principal and agent have formed an exclusive agency contract.
A specific legal document, called a power of attorney, gives an agent the power to sign legal documents on behalf of the principal.  A power of attorney creates an agency relationship.  A power of attorney may be general or special.  A general power of attorney is very broad in the authority it gives to the agent.  A special power of attorney gives an agent limited powers to act in specific ways for specific purposes or for a specified period of time as enumerated in the document creating the agency relationship.  The agent is called an attorney-in-fact, although the agent does not have to be an attorney.
 
A special type of a power of attorney, called a “medical power of attorney” or “advance directive,” is commonly used in relation to health care matters.  If the principal is unable to make health-related decisions, the agent will have the legal power to act on his or her behalf.

Agency By Implied Authority

An agency relationship can also be created by the conduct of the parties, similar to the creation of an implied-in-fact contract.  The specific circumstances surrounding the relationship determine the extent to which an agent may conduct business on behalf of the principal.  In general, an agency by implied authority may not conflict with an agency by agreement.  Courts will permit an agent to receive payments owed to the principal, hire and discharge employees, buy equipment and supplies, and enter into contracts.  Case law demonstrates how far various courts will allow implied authority to stretch.  If the express agency does not provide sufficient details to cover the many contingencies that might arise during the course of the agency relationship, the agent is said to possess certain implied authority to act on behalf of the principal.  This implied authority is referred to as incidental authority.  In addition, under certain circumstances where the agent is unable to contact the principal for specific instructions, the agent has implied emergency authority to take “all reasonable actions to protect the principal’s property and rights.”
 

Case Study

Helene A. Gordon Et Al, v. Andrew Tobias

Supreme Court Of Connecticut, 262 CONN. 844; 817 A.2D 683 (2003)

Overview:
Plaintiff landowners filed an action to quiet title on the subject property in their favor. The Superior Court in the Judicial District of New Haven (Connecticut) entered judgment for the landowners after finding that payments made to the original mortgagee on the property constituted payment to defendant assignee, and consequently discharged the landowners’ obligation under the mortgage. The assignee appealed.
 
The landowners purchased a condominium subject to a mortgage in favor of the original mortgagee. The mortgage was later assigned, but the landowners continued to make payments to the original mortgagee. The original mortgagee received full payment from the landowners but continued to make periodic payments to the assignee until the original mortgagee’s president died, after which the assignee refused to release the mortgage. On appeal, the assignee claimed that there was insufficient evidence in the record to support the trial court’s finding that the original mortgagee was an agent of the assignee for the purposes of collecting payments on the mortgage that he held on the subject property. The supreme court held that the trial court properly found that the mortgagee had apparent authority to collect the mortgage payment due on the mortgage held by the assignee. The assignee collected payments for more than two years knowing that the loan had matured, yet he neither objected to nor demanded full payment on the amount due. Rather, the assignee requested invocation of a higher interest rate to provide the landowners incentive to pay off the loan.

 
Outcome:
The trial court’s judgment was affirmed.
 
Regarding whether the agency relationship that was created was an implied agency, the court stated, “Implied authority is actual authority circumstantially proved. It is the authority which the principal intended his agent to possess. . . Implied authority is a fact to be proven by deductions or inferences from the manifestations of consent of the principal and from the acts of the principal and [the] agent.” Connecticut National Bank v. Giacomi, 242 Conn. 17, 70, 699 A.2d 101 (1997). The court found that the defendant had authorized Mutual to collect monthly payments on the note secured by the mortgage on the plaintiffs’ property and remit those payments to him. The court stated, “Apparent authority is that semblance of authority which a principal, through his own acts or inadvertences, causes or allows third persons to believe his agent possesses. . . Consequently, apparent authority is to be determined, not by the agent’s own acts, but by the acts of the agent’s principal. . . The issue of apparent authority is one of fact to be determined based on two criteria. . . First, it must appear from the principal’s conduct that the principal held the agent out as possessing sufficient authority to embrace the act in question, or knowingly permitted [the agent] to act as having such authority. . . Second, the party dealing with the agent must have, acting in good faith, reasonably believed, under all the circumstances, that the agent had the necessary authority to bind the principal to the agent’s action”  Tomlinson v. Board of Education, 226 Conn. 704, 734-35, 629 A.2d 333 (1993).

Agency By Estoppel (Apparent Agency)

Agency by estoppel or apparent agency arises when the principal creates the “appearance of an agency” that in actuality does not exist in fact.  When an apparent agency is created, the principal will be estopped from denying the existence of the agency relationship and will be bound to any contracts entered by the apparent agent while acting within the scope of the apparent agency.
 

Case Study

Robert M. Bailey v. Richard Worton D/B/A Worton Asphalt & Paving

752 SO.2D 470 (2000)

Procedural Posture:
Appellant developer appealed from ruling of the DeSoto County (Mississippi) Chancery Court deeming appellee’s construction lien enforceable against appellant on grounds appellant’s agent had the apparent authority to act for appellant in dealings with appellee.
 
Overview:
Appellant developer, Bailey, hired general contractor Ray and Associates to build and sell a house on appellant’s property (with the proceeds divided between them); in the course of building the house, the contractor hired appellee, Worton – an asphalt company – to pave the driveway. When financial problems resulted in the contractor being unable to pay appellee for services rendered, appellee (Worton) sought and was granted a construction lien on appellant’s property. Appellant objected, arguing he had not entered into any agreement with appellee, but to no avail in trial court. On appeal, the state intermediate appellate court affirmed; the court reasoned that application of three-prong test for an agent’s apparent authority – acts or conduct of the principal indicating the agent’s authority, reliance thereon by a third person, and a change of position by the third person to his detriment – showed that contractor, Ray Associates, appeared to be acting on appellant’s behalf, and thus his (Ray’s) contract with appellee bound appellant.

 
Outcome:
Judgment affirmed; application of three-prong test governing apparent authority by an agent established that appellant was bound by agent’s agreement with appellee, and thus was liable for payment.
 
The court noted, looking at the facts in a light most favorable to the decision of the court below, it is not unreasonable to conclude that Worton relied on Ray and no one else because of her apparent authority. So far as third persons are concerned, the apparent powers of an agent are his real powers. The power of an agent to bind his principal is not limited to the authority actually conferred upon the agent, but the principal is bound if the conduct of the principal is such that persons of reasonable prudence, ordinarily familiar with business practices, dealing with the agent might rightfully believe the agent to have the power he assumes to have. The agent’s authority as to those with whom he deals is what it reasonably appears to be. Where the relationship of principal and agent exists, if the principal places his agent in a position where he appears, with reasonable certainty, to be acting for the principal, and his acts are within the apparent scope of his authority, such acts bind the principal. On principles of estoppel, a principal, having clothed an agent with semblance of authority, will not be permitted, after others have been led to act in reliance on appearances thus produce, to deny, to the prejudice of such others, what he has theretofore tacitly affirmed as to the agent’s powers. Where an agent, with the knowledge and consent of his principal, holds himself out as having certain powers and transacts business with a third person, the principal is estopped from denying the authority of the agent. Under Mississippi agency law, a principal is bound by the actions of its agent within the scope of that agent’s real or apparent authority. Finding no error, we affirm the judgment of the chancellor.

Agency By Ratification

In a case where a person misrepresents him or herself to be an agent when in fact he or she is not, and the purported principal later accepts the benefits of or ratifies the unauthorized acts, the principal is said to have ratified the agency relationship.  The ratification is tantamount to the principal authorizing the agent’s acts on the principal’s behalf in the first instance.  In order for ratification to occur, the principal must have complete knowledge of the agent’s action.  In addition, at the time the agent’s unauthorized acts occur, the third party with whom the agent dealt must know of the existence of the principal.

Duties Created by the Agency Relationship

Extensive case law on the subject and the Restatement 3rd of Agency recognize that an agency relationship creates duties, or legal obligations, on the part of both the principal and the agent.  If either the principal or the agent breaches the agency agreement, the non-breaching party can sue to enforce these duties, seek monetary damages for breach of the agreement, or seek suitable remedies in a Court of Equity.

Duties Of An Agent To A Principal

An agent owes certain duties to the principal.  The duties of the agent to the principal may be set forth in the agency agreement itself or may be implied by law.  On the most basic level, the agent has a duty to notify the principal of information that the agent learns from a third party or from another source that will help effect the purposes of the relationship.  This is known as the duty of notification.
 
An agent owes the principal certain duties of performance in which the agent must meet the standards of “reasonable care, skill, competence, and diligence.”  An agent who does not perform his or her express duties, or who fails to exercise the standard of care, diligence, and skill, or who acts in a negligent or intentional manner will be liable to the principal for breach of the agency contract.
 
The primary duty the agent owes the principal arises from the agent’s fiduciary duty to act loyally for the principal’s benefit in all matters connected to the agency relationship and not to act adversely to the interests of the principal.
An agent might breach this duty of loyalty by acting in the following ways:
  • Undisclosed self-dealing;
  • Usurping an obligation that belongs to the principal;
  • Competing with the principal without the consent of the principal during the course of the agency relationship;
  • Improperly disclosing or misusing confidential information;
  • Engaging in a dual agency relationship without consent of all parties.
In normal circumstances, the agent owes a duty to the principal to maintain a complete and accurate record of all transactions undertaken on behalf of the principal.  This is referred to as the duty of accountability, which encompasses the following:
  • Keeping records of all property and money received and expended during the course of the agency relationship;
  • Maintaining a separate account (no commingling) for the principal; and
  • Using the property of the principal is a manner authorized by the agency contract.
If an agent breaches the agency agreement, the principal may seek monetary damages, including asking a court to impose a constructive trust on any profits the agent earned as a breach of the duty of loyalty.  A principal may also seek to rescind a transaction entered into with third parties because of the breach of loyalty by an agent.
 

Case Summary

Carl Shen v. Leo A. Daly Company

222 F.3D 472 (2000)
Carl Shen, was a former employee and designated agent of Leo A. Daly Company’s (Daly) Republic of China (Taiwan) office. When Daly refused to pay taxes assessed by the Taiwanese government, the government restricted Shen’s travel, forbidding him from leaving the country. Shen then sued Daly on multiple theories of liability for damages and injunctive relief. Shen prevailed in part in the district court. Both he and Daly appeal the judgment. We affirm in part and reverse in part.
 
BACKGROUND
Shen, a United States citizen with dual Taiwanese citizenship moved to Taiwan in 1989 to become managing director of Daly’s operation there. To conduct business in Taiwan, Daly was required to designate a “responsible person,” or legal representative in the country, and Shen was so designated. In November 1992, Daly decided to withdraw from Taiwan because of business setbacks. As a result, Daly terminated Shen, but Shen chose to remain in Taiwan. Daly, however, failed to remove Shen as its responsible person and failed to inform Shen that he was still registered as the company agent.
 
In December 1993, Shen received a notice from the Taiwan Tax Authority that it wanted to audit Daly’s 1992 Taiwan tax returns. Shen, in turn, notified Daly’s accounting firm in Taiwan and informed them he was concerned he could be held responsible for any deficiency because his “chop,” the Taiwanese equivalent of a signature, was affixed to the returns. Daly responded that it was “inconceivable” any tax could be owed because Daly had suffered large losses in Taiwan. In January 1994 through mid-October 1995, Shen requested Daly to indemnify him should the Taiwan Tax Authority impose the tax liability on him directly, to resolve the tax dispute and remove him as the responsible person. In May 1994, the Taiwan Tax Authority assessed a tax liability of approximately $80,000 against Daly for 1991 and 1992. Daly did not appeal the assessment, and it became final in June 1995. In October 1995, the Taiwan Ministry of Finance and the Bureau of Entry and Exit forbid Shen from leaving the country until resolution of the Daly tax issue. Daly’s attempt to extricate Shen through diplomatic channels failed. Shen sued for a declaratory judgment in Taiwan to remove himself as Daly’s responsible person. Although the court recognized Shen was no longer an employee of Daly, it denied relief because Daly had not replaced him as the responsible person. The Ministry of Finance also denied an appeal by Shen.
 
In 1997, Shen sued Daly in the United States District Court for the District of Nebraska. He requested a preliminary injunction to force Daly to pay the taxes. The district court entered such an injunction on December 31, 1997. We assume Daly then paid the taxes because Taiwan lifted the travel restriction. The district court held a bench trial in February 1999 on the issue of a permanent injunction and damages. The district court found a violation of the implied covenant of good faith and fair dealing and granted a permanent injunction. Shen was also awarded attorney’s fees and $4,760 in damages on his contractual claims. Both sides now appeal and we affirm in part and reverse in part.
 
The district court held that Daly breached the implied covenant of good faith and fair dealing based on the agency relationship between Daly and Shen. We agree. Under Nebraska law, whether a person is an agent is a question of fact. The existence of an agency relationship does not depend on the terminology the parties use to characterize their relationship, but depends on the facts underlying the relationship. An agency relationship can be implied from words, conduct or circumstances that evidence an intent to create on. For example, under agency principles, an agent can be given apparent or ostensible authority to act if the “alleged principal affirmatively, intentionally, or by lack of ordinary care causes third persons to act upon the apparent authority.” That is what happened in this case. After Daly terminated Shen in December 1992, Daly did not remove Shen as its responsible person. 
 
A principal and an agent are in a fiduciary relationship. Because of the fiduciary relationship, the principal owes the agent a duty of good faith and fair dealing in the incidents of their relationship. Moreover, “‘[c]orrelative with the duties of the agent to serve loyally and obediently are the principal’s duties of compensation, indemnity, and protection.’ ” Daly breached its duty as a fiduciary in the following ways:  (1) Daly did not pay the tax when it was assessed; (2) it chose not to appeal the assessment through proper channels; and (3) Daly did not find a replacement for Shen as responsible person.

Duties Of A Principal To An Agent

The principal likewise owes duties to an agent arising either from the agency contract or which are implied by law.  These duties include:
  • A duty to cooperate and to deal with the agent fairly and in good faith;
  • A duty to provide the agent with information about risks of physical harm or pecuniary loss that the principal knows, has reason to know, or should know are present in the agent’s work, but which are unknown to the agent.
  • A duty to compensate the agent for services provided either according to the terms of the agency contract or, in the absence of an express agreement, a customary fee ordinarily paid, reflecting the reasonable value of the agent’s services based on a theory of quantum meruit;
  • A duty to reimburse the agent for all expenses, provided they were authorized by the principal, were incurred “within the scope of the agency relationship,” and were necessary to carry out the purpose of the agency relationship;
  • A duty to indemnify the agent for any losses the agent might suffer because of the actions of the principal.

Principal And Agent – Liability To Third Parties

Liability For Contracts

A major purpose of the agency relationship is to provide a principal with the means to conduct or perhaps expand their business dealings.  An agent is authorized to contact third parties on behalf of their principal, enter into contracts on behalf of the principal with third parties, and figuratively put the principal in several places at one time.
 
While generally a principal who authorizes an agent to enter into a contract with a third party is liable on the contract, the agent may be held liable on the contract under certain circumstances, depending upon whether the agency is classified as fully disclosed, partially disclosed, or undisclosed.  The status of the principal will determine the extent of any liability.
A disclosed principal is one whose identity a third party knows at the time he or she enters into an agreement; i.e., the third party knows the agent with whom he or she is dealing is acting on behalf of a known principal.  A disclosed principal operates in a fully disclosed agency.  In a fully disclosed agency, the contract is between the principal and the third party; thus, the fully disclosed principal and not the agent is liable on the contract unless the agent has guaranteed that the principal will perform on the contract in what is sometimes known as a suretyship.
 
A partially disclosed principal is an individual whose identity is unknown to the third party at the time an agreement is reached; however, the third party does know the agent is representing some principal.  A partially disclosed principal operates in a partially disclosed agency.  Under Section 321 of the Restatement (Second) of Agency, in a partially disclosed agency, both the principal and the agent are liable on third-party contracts.  In this case, the third party is relying on the reputation, integrity and credit of the agent because the principal is unidentified.  If an agent is required to “pay on the contract,” the agent can seek indemnification from the principal.
 
An undisclosed principal operates in an agency relationship when a third party is unaware of either the existence of the agency or the identity of the principal.  An undisclosed principal operates in an undisclosed agency.  In an undisclosed agency, both the principal and the agent are liable on the contract with a third party.  In essence, by not divulging that he or she is acting as an agent, the agent has become a principal to the contract.  The third party is essentially relying exclusively on the reputation and credit of the agent in entering into the contract.  However, should an agent be held liable and be required to “pay on the contract,” the agent can seek indemnification from the principal.

Tort Liability

In general, the principal and the agent are each personally liable for their own tortuous conduct.  However, a principal may be held liable for the negligent or intentional acts their agent if the actions of the agent are committed within the scope of the agent’s employment under a doctrine known as Respondeat Superior, providing for what is termed as vicarious liability.
The following are factors a court will employ in order to determine whether an agent’s conduct occurred “within the scope of employment”:
  • Was the act specifically requested or authorized by the principal?
  • Was the act the kind of act that the agent was employed to perform?
  • Did the act occur substantially within the time period of employment authorized by the principal?
  • Did the act take place substantially within the location of employment authorized by the principal?
  • Was the agent “advancing the principal’s purpose” when the act took place?
In analyzing these factors, Restatement Third of Agency Sec. 7.07 provides the following practical guidelines:
“the extent of control that the agent and the principal have agreed the principal may exercise over details of the work; whether the agent is engaged in a distinct occupation or business; whether the type of work done by the agent is customarily done under a principal’s direction or without supervision; the skill required in the agent’s occupation; whether the agent or the principal supplies the tools and other instrumentalities required for the work and the place in which to perform it; the length of time during which the agent is engaged by a principal; whether the agent is paid by the job or by the time worked; whether the agent’s work is part of the principal’s regular business; whether the principal and the agent believe that they are creating an employment relationship; and whether the principal is or is not in business.  Also relevant is the extent of control that the principal has exercised in practice over the details of the agent’s work.”
Example
Joe, a mechanic for ABC Transmissions, owned by Mr. Carville, goes to Bob’s house on behalf of Mr. Carville to pick up Bob’s car and return it to the shop.  On the way back to the shop, Joe stops at a bar, has two drinks and then hits another car parked legally in the bar’s parking lot.  Bob sues ABC Transmissions and Joe for damages to his car.  Are either or both ABC Transmissions and Bob liable?
Example
Joe, while on a sales trip to South Dakota for his employer, ABC Transmission, gets into a car accident when he stops at Mount Rushmore to sightsee.   Might either or both ABC Transmissions liable under these circumstances?  Might a court apply what is known as the “frolic and detour” doctrine to determine liability?  

Criminal Liability

A principal is not generally liable for the criminal conduct of an agent for such crimes as murder, robbery, bribery, etc.  It may be too difficult or even impossible to prove the requisite intent (“mens rea”) on the part of a principal.  Several exceptions exist.  If a principal participates directly in an agent’s crime, or if a principal knows or has reason to know his agent or employee is violating a law, the principal may incur criminal liability as an abettor to the criminal activity.  Several environmental statutes or actions under the Foreign Corrupt Practices Act have provided for the criminal responsibility of “responsible parties” under limited circumstances as a matter of public policy.

Termination Of An Agency Relationship

The agency relationship may end in two ways, by agreement or by operation of law.

Termination by Agreement

Either a principal or an agent may terminate the agency relationship. Termination may occur mutually by agreement; upon notice by either the principal or the agent to the other party; upon expiration (lapse) of the time period stated in the agency agreement time; or upon completion of the purpose of the agency relationship.  When the relationship is terminated, the principal should provide actual notice to all third parties who dealt with the agent that the termination has occurred.  Constructive notice may be provided to other parties by placing appropriate advertisements in publications located where the agency relationship operated; or otherwise providing notice to “the world” that the agency relationship was terminated by appropriate means.

Termination By Operation Of Law

An agency relationship may also be terminated by operation of law.  Circumstances include the death of either the principal or agent; insanity of either the principal or the agent; bankruptcy of the principal; impossibility of performance of the agency relationship (such as through a change in the law; absence of qualification through a failure to obtain a regulatory-type license required to perform duties or the revocation of a required regulatory license; or the loss or destruction of the subject matter of the relationship); and the outbreak of war, where the principal or agent is located in a nation at war and where the agent’s country terminates the agency relationship between the parties.
 
Certain types of agency relationships created for the benefit of an agent are termed “an agency coupled with an interest.”  An “agency coupled with an interest” typically occurs in a security interest to secure a loan.  The principal may not legally terminate the agency relationship during the term of the agency relationship without the consent of the agent if the agent has provided the security (funding) to effectuate the loan.  Should the principal terminate the agency unlawfully, the principal may be required to pay damages to an agent that has been wrongfully terminated.
 

Ethical Considerations

Limiting Compensation
 
In the arena of sports, agents are often limited in their compensation to an amount determined by the League’s collective bargaining agreement. At the same time, a lawyer’s compensation may be four to five times higher. Should a collective bargaining agreement between players and their sports league have the ability to limit the compensation of a sports agent who is not a party to that agreement?
 
Dancing
Maria Aripova runs a dance studio and frequently acts as an agent for booking recitals in the field of modern dance. She has two “up-and-coming” dancers in her studio. Should Maria be permitted to represent both dancers at the same time even though their interest may be quite different and even adverse on occasion? Upon what showing?
 

Questions

  1. How is an agency relationship created?
  2. Explain the legal principle of agency by estoppel.
  3. What are the duties of a principal to an agent? An agent to a principal?
  4. Under what circumstances might an agent be liable to a third party?
  5. What is the difference between a disclosed and undisclosed principal?
  6. Describe how an agency relationship may terminate or be terminated?
  7. Give an example of an “agency coupled with an interest.”
  8. Research Questions
  9. What is an independent contractor?
  10. What is CERCLA?
  11. What are the two most important aspects of the Foreign Corrupt Practices Act?

Chapter Five | Contracts Overview

Definition Of A Contract

A contract may best be defined as an enforceable promise. A contract may be oral or it may be in writing. Professor Williston, a remarkable teacher and legal scholar of contracts in the last century, noted: “A contract is a promise, or a set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.” A promise is an undertaking that something either will or will not happen in the future. The term “contract” may also used by both laymen and lawyers to refer to a document in which the terms of a specific agreement are written.

Every contract involves at least two parties: the offeror (the party who makes an offer) and the offeree (the party to whom the offer is made). The offeror promises to do or to refrain from doing something.

Requirements of a Valid Contract

This discussion of contracts is not meant to be exhaustive. Rather, this text discusses contracts in the larger context of the legal, social, and regulatory environment of business from a managerial standpoint.

The following are the four basic elements of a valid contract:

  • An agreement, consisting of an offer and an accep­tance. Whether by words or actions, or a combination of both, the parties must form or come to an agreement. An essential prerequisite to the formation of a contract is the mutual manifestation of assent (agreement) to the same terms. This is sometimes called the “meeting of the minds” or “consensus ad idem” in Latin.
  • Consideration is defined as “something bar­gained for in return for a promise.” Today, courts focus especially on the concept of bargain in deciding if a particular promise should be enforced.
  • Legal capacity of the parties. Both the offeror and the offeree must have the contrac­tual capacity to enter into a contract. Contractual capacity may involve issues such as age (so called minors’ contracts) and mental state (e.g., persons suffering from senility or Alzheimer’s disease), and may involve issues such as fraud, undue influence, or duress.
  • Legal purpose. A contract cannot be formed for an illegal or immoral purpose, cannot violate a statute, or be in violation of “public policy.”

In addition, there are two “outside” factors that may make a contract unenforceable should one of the parties seek its enforcement in a court:

The Statute of Frauds requires that certain types of contracts must be in writing to be enforceable.

The Statute of Limitations prescribes the time period during which a party must sue for breach of contract or to enforce contractual rights.

Classifications of Contracts

Express Contract

An express contract is one in which all of the essential terms of the agreement are found in words, either orally or in writing. A brief word about oral contracts is appropriate. Strictly speaking, most contracts are not required to be in writing, unless the Statute of Frauds applies. However, attempting to enforce an oral contract may provide basic proof prob­lems for the litigants and for a court. Oral proof is valuable and probative, and in many cases, may be the only proof available. However, if parties’ oral testimony conflicts, in the absence of written proof, a court may be required to decide a dispute on the basis of credibility, or believability of witness­es. The words of humorist Will Rogers are quite appropriate: “An oral contract is not worth the paper it’s printed on!”

Implied Contract (Implied In Fact)

The following four steps generally establish an implied in fact contract:

  • Plaintiff furnished some service, goods, or property to the defendant;
  • Plaintiff expected to be paid for the service, goods, or property;
  • Defendant knew or should have known that payment was expected; and
  • Defendant had the opportunity to reject the service, property, or goods and did not do so.

Example
An implied in fact contract is created by conduct, rather than words. An implied in fact contract exists where facts and circumstances indicate that a contract or an agreement has been entered into. Every morning for a month, Freddy Glotz opens his front door and notices that the Ace Milk Company has delivered four bottles of milk. Freddy brings the full bottles into the kitchen, uses their contents, and leaves the empty bottles at the door. At the end of a one-month period, Freddy receives a bill for $120, representing $1 for each bottle of milk. Freddy refus­es to pay the bill stating that “no contract was entered into because I had never promised to pay for the milk.” Evaluate. Was there an express contract? Was there an implied contract? What could Glotz have done so that no implied contract would be found by a court?

The following case discusses the creation of an implied in fact contract and the obligation of the defendant, Caton, to pay for a service, despite the fact that he claimed he had no intention to do so. Pay close attention why the court inferred Caton’s promise to pay for the wall. This is also an important case relating to silence as the basis of creating an obligation in the area of contract law.

 

Case Summary

Day v. Caton

119 Mass. 513 (1876)

Background and Facts

Plaintiff Day owned a vacant lot that was next to defendant Caton’s vacant lot. Day decided to build a brick wall between the adjoining lots. The evidence indicated that Caton knew the wall was being built. Caton claimed that there was no express agreement between him and Day to pay for a portion of the wall, and that his silence and subsequent “use” of the wall did not raise an implied promise to pay anything for it. In the trial court, the jury found for the plaintiff, Day. Caton appealed the decision of the trial court to the Supreme Judicial Court of Massachusetts in order to have the judgment overruled.

DEVENS, Judge

The ruling that a promise to pay for the wall would not be implied from the fact that the plaintiff, with the defendant’s knowledge, built the wall, and that the defendant used it, was substantially in accordance with the request of the defendant, is conceded to have been correct.
The defendant, however, contends that the presiding judge incorrectly ruled that such promise might be inferred from the fact that the plaintiff undertook and completed the building of the wall with the expectation that the defendant would pay him for it, the defendant having reason to know that the plaintiff was acting with that expectation, and allowed him thus to act without objection.

The fact that the plaintiff expected to be paid for the work would certainly not be sufficient of itself to establish the existence of a contract, when the question between the parties was whether one was made. It must be shown that in some manner the party sought to be charged assented to it. If a party, however, voluntarily accepts and avails himself of valuable services rendered for his benefit, when he has the option whether to accept or reject them, even if there is no distinct proof that they were rendered by his authority or request, a promise to pay for them may be inferred. His knowledge that they were valuable, and his exercise of the option to avail himself of them, justify this inference. And when one stands by in silence, and sees valuable services rendered upon his real estate by the erection of a structure (of which he must necessarily avail himself afterwards in his proper use thereof), such silence, accom­pa­nied with the knowledge on his part that the party rendering services expects payment therefore, may fairly be treated as evidence of an acceptance of it, and as tending to show an agreement to pay for it.

* * * * *

If silence may be interpreted as assent where a proposition is made to one which he is bound to deny or admit, so also it may be if he is silent in the face of facts which fairly call upon him to speak.

If a person sees a laborer day-after-day at work in his field doing services, which must of necessity insure to his benefit, knowing that the laborer expected pay for his work when it was perfectly easy to notify him if his services were not wanted, even if a request were not expressly proved, such a request, either previous to or contemporane­ous with the performance of the services, might fairly be inferred. But if the fact was merely brought to his attention upon a single occasion and casually, if he had little opportunity to notify the other that he did not desire the work and should not pay for it, or could only do so at the expense of much time and trouble, the same inference might not be made. The circumstances of each case would necessarily determine whether silence with knowledge that another was doing valuable work for his benefit and with the expectation of payment indicated that consent which would give rise to the inference of a contract. The question would be one for the jury, and to them it was properly submitted in the case before us by the presiding judge.

Implied In Law (Also Called Quasi-Contract)

An implied in law contract is not a true contract created by the parties, but is an obligation imposed on the parties in equity in order to “do justice” and to avoid unjust enrichment. A quasi-contract may be created where one person confers a benefit on another who retains the benefit, and where it would be unjust not to require that person to pay at least something for the benefit. Recovery is generally based on the reasonable value of the services received by the defendant – in some cases, not including the profit of the person conferring the benefit. This remedy is termed quantum meruit.

Example

While Ma and Pa Ferg are on a week’s vacation in Hoboken, the EZ Roofing Company puts a new roof on the Ferg’s home. When the Ferg’s return home, they receive a bill for $2,500.0­0. When they refuse to pay the bill, the EZ Roofing Company brings suit against the Ferg’s based on a quasi-contract. Evaluate. Has there been unjust enrichment? What else would be required? 

Bilateral and Unilateral Contracts

A contract is unilateral if the offer can be accepted by the performance of an act. A contract is bilateral if both parties, the offeror and the offeree, have made mutual promises and are bound to fulfill obligations towards each other. For example, in a typical sales contract, the seller has promised to deliver and the buyer has promised to pay the price. In a bilateral contract, each party is both the promisor and promisee, having made mutual promises.

Example

Heller says to Teston, “If you cut my lawn next Wednes­day, I promise to pay you $10.” Heller has made a promise but has not asked Teston for a return promise. Heller has requested Teston to perform an act, not to make a promise or commitment to do so. Heller has thus made an offer for a unilateral contract that arises when and if Teston performs the act called for. However, if Teston fails to cut the lawn, he is not in breach of contract since he made no promise to do so.

Suppose Heller had said to Teston, “I promise to pay you $10 if you promise to cut my lawn each week this summer.” In this case, Heller’s offer requests Teston to make a commitment or promise to cut the lawn. A bilateral contract arises when the requisite return promise is made by Teston. deliver and the buyer has promised to pay the price. In a bilateral contract, each party is both the promisor and promisee, having made mutual promises.

Executory Contracts

A contract that has been fully performed by both the promisor and promisee is termed an executed contract. A contract that has not yet been full performed by either party is said to be executory. A contract that has been partially performed by one of the parties is called a partially executed contract.

Void and Voidable Contracts

A void contract is one that has no legal significance and results in no legal obligation upon the part of either a promisor or promisee. A void contract generally cannot be enforced by a court. A contract to commit a crime or a tort or a contract that violates “public policy” is an example of a void contract. A voidable contract is a contract in which at least one of the parties has the power to avoid his or her legal duty established in the contract by disaffirming the contract. In essence, one of the parties has the option or right to remove him or herself from the agreement with no negative legal consequences. If a party decides not to elect to remove him or herself from the contract, the contract will continue in full force.

Examples of voidable contracts may include agreements entered into by a minor, or a contract entered into as a result of fraud, mutual mistake, duress, or undue influence.

Unenforceable Contracts

An unenforceable contract arises when a court is legally constrained from enforcing a contract because of some extrin­sic factor not connected with the elements of a valid con­tract discussed above. For example, an otherwise valid contract may not be enforced by the courts because of the operation of the Statute of Frauds or the Statute of Limitations. Whether or not a contract is unenforceable is usually determined at a very early stage of a case, as a “threshold question,” through a motion for a summary judgment, or through a motion to dismiss a lawsuit filed by one of the parties.

Unconscionable Contracts

Under the early common law, courts would regularly enforce contracts entered into by parties under a principle known as freedom of contract—even contracts that appeared to be onesided, unfair, oppressive, burdensome, or unconscionable. This principle was embodied in the concept of “caveat emptor,” translated as “let the buyer beware.”

The modern basis for unconscionability appears in the Uniform Commercial Code, Section 2302, which attempted to change the essential relationship between the parties from “caveat emp­tor” to “caveat venditor,” or “let the seller beware!” The purpose of the doctrine of unconscionability is twofold: “prevention of oppression (sometimes called substantive unconscionability) and unfair surprise (procedural unconscionability).” It should be noted that in fashioning Section 2302, the writers of the Uniform Commercial Code intentionally failed to provide a precise definition of the term “unconscionable” in the belief that to do so might be to limit and defeat the purposes of the rule.

Williams v. Walker-Thomas is one of the seminal cases in the area of unconscionability. Judge Skelly Wright added much to the understand­ing and development of this difficult concept and to interpreting the reaches of Section 2-302.

Read Williams v. Walker-Thomas carefully.

 

Case Summary

Williams v. Walker – Thomas Furniture Store

198 A. 2d 914 (D.C. App. 1964)

J. Skelly Wright, Circuit Judge:

Appellee, Walker-Thomas Furniture Company, operates a retail furniture store in the District of Columbia. During the period from 1957 to 1962 each appellant in these cases purchased a number of household items from Walker-Thomas, for which payment was to be made in installments. The terms of each purchase were contained in a printed form contract which set forth the value of the purchased item and purported to lease the item to appellant for a stipulated monthly rent payment. The contract then provided, in substance, that title would remain in Walker-Thomas until the total of all the monthly payments made equaled the stated value of the item, at which time appellants could take title. In the event of a default in the payment of any monthly installment, Walker-Thomas could repossess the item. 
The contract further provided that “the amount of each periodical installment payment to be made by [purchaser] to the Company under this present lease shall be inclusive of and not in addition to the amount of each installment payment to be made by [purchaser] under such prior leases, bills or accounts; and all payments now and hereafter made by [purchaser] shall be credited pro rata on all outstanding leases, bills and accounts due the Company by [purchaser] at the time each such payment is made.” (Emphasis added.) The effect of this rather obscure provision was to keep a balance due on every item purchased until the balance due on all items, whenever purchased, was liquidated. As a result, the debt incurred at the time of purchase of each item was secured by the right to repossess all the items previously purchased by the same purchaser, and each new item purchased automatically became subject to a security interest arising out of the previous dealings. 
On May 12, 1962, appellant Thorne purchased an item described as a Daveno, three tables, and two lamps, having total stated value of $391.10. Shortly thereafter, he defaulted on his monthly payments and appellee sought to replevy all the items purchased since the first transaction in 1958. Similarly, on April 17, 1962, appellant Williams bought a stereo set of stated value of $514.95. She too defaulted shortly thereafter, and appellee sought to replevy all the items purchased since December, 1957. The Court of General Sessions granted judgment for appellee. The District of Columbia Court of Appeals affirmed, and we granted appellants’ motion for leave to appeal to this court.

Appellants’ principal contention, rejected by both the trial and the appellate courts below, is that these contracts, or at least some of them, are unconscionable and, hence, not enforceable. In its opinion in Williams v. Walker-Thomas Furniture Company, 198 A.2d 914, 916 (1964), the District of Columbia Court of Appeals explained its rejection of this contention as follows:

“Appellant’s second argument presents a more serious question. The record reveals that prior to the last purchase appellant had reduced the balance in her account to $164. The last purchase, a stereo set, raised the balance due to $678. Significantly, at the time of this and the preceding purchases, appellee was aware of appellant’s financial position. The reverse side of the stereo contract listed the name of appellant’s social worker and her $218 monthly stipend from the government. Nevertheless, with full knowledge that appellant had to feed, clothe and support both herself and seven children on this amount, appellee sold her a $514 stereo set.”
    “We cannot condemn too strongly appellee’s conduct. It raises serious questions of sharp practice and irresponsible business dealings. A review of the legislation in the District of Columbia affecting retail sales and the pertinent decisions of the highest court in this jurisdiction disclose, however, no ground upon which this court can declare the contracts in question contrary to public policy. We note that were the Maryland Retail Installment Sales Act, Art. 83 §§ 128-153, or its equivalent, in force in the District of Columbia, we could grant appellant appropriate relief. We think Congress should consider corrective legislation to protect the public from such exploitive contracts as were utilized in the case at bar.”

We do not agree that the court lacked the power to refuse enforcement to contracts found to be unconscionable. In other jurisdictions, it has been held as a matter of common law that unconscionable contracts are not enforceable. While no decision of this court so holding has been found, the notion that an unconscionable bargain should not be given full enforcement is by no means novel. In Scott v. United States, 79 U.S. (12 Wall.) 443, 445, 20 L. Ed. 438 (1870), the Supreme Court stated:

“* * * If a contract be unreasonable and unconscionable, but not void for fraud, a court of law will give to the party who sues for its breach damages, not according to its letter, but only such as he is equitably entitled to. * * *”

Since we have never adopted or rejected such a rule, the question here presented is actually one of first impression. 
Congress has recently enacted the Uniform Commercial Code, which specifically provides that the court may refuse to enforce a contract which it finds to be unconscionable at the time it was made. 28 D.C.CODE § 2-302 (Supp. IV 1965). The enactment of this section, which occurred subsequent to the contracts here in suit, does not mean that the common law of the District of Columbia was otherwise at the time of enactment, nor does it preclude the court from adopting a similar rule in the exercise of its powers to develop the common law for the District of Columbia. In fact, in view of the absence of prior authority on the point, we consider the congressional adoption of § 2-302 persuasive authority for following the rationale of the cases from which the section is explicitly derived. Accordingly, we hold that where the element of unconscionability is present at the time a contract is made, the contract should not be enforced. 
Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.  Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration.

Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Ordinarily, one who signs an agreement without full knowledge of its terms might be held to assume the risk that he has entered a one-sided bargain. But when a party of little bargaining power, and hence little real choice, signs a commercially unreasonable contract with little or no knowledge of its terms, it is hardly likely that his consent, or even an objective manifestation of his consent, was ever given to all the terms. In such a case the usual rule that the terms of the agreement are not to be questioned should be abandoned and the court should consider whether the terms of the contract are so unfair that enforcement should be withheld. 
In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied. The terms are to be considered “in the light of the general commercial background and the commercial needs of the particular trade or case.” Corbin suggests the test as being whether the terms are “so extreme as to appear unconscionable according to the mores and business practices of the time and place.” 1 CORBIN. We think this formulation correctly states the test to be applied in those cases where no meaningful choice was exercised upon entering the contract. 
Because the trial court and the appellate court did not feel that enforcement could be refused, no findings were made on the possible unconscionability of the contracts in these cases. Since the record is not sufficient for our deciding the issue as a matter of law, the cases must be remanded to the trial court for further proceedings.
 So ordered.

Generally, four major factors appear in the cases that have dealt with the question of unconscionability. These factors originated in Williams v. Walker-Thomas.

They include:

  • The absence of meaningful choice (that is, a condition that may be found in a tradi­tional “take it or leave it” or “boilerplate” contract);
  • Great inequality of bargaining power (where there is only one or a very few sellers available in the market­place);
  • The inclusion of terms that would cause unfair surprise, hardship, or oppression (e.g., penalty clauses, clauses which severely limit remedies, a “confession of judgment” claus­e); or
  • Circumstances where race, literacy, language, ethnicity, economic circumstances, or education are significant factors in determining the nature of the bargain, and the relationship between the parties.

In the case of Jones v. Star Credit (Supreme Court of NY, 1969), the court extended the concept of unconscionability to the price term of the contract. Jones v. Star Credit involved welfare recipients who purchased a freezer for $900 from “Your Shop at Home Service.” The contract was later assigned to the Star Credit Corporation, the defendant in this action.

According to Judge Wachler, the freezer had a maximum value of $300, but it ended up costing $1,234.80 after interest and other “add on” charges such as interest, credit life insurance, and credit property insurance were included in the contract. The court analyzed the contract under Section 2-302 of the Uniform Commercial Code and found it to be unconscionable as a matter of law.

Now, read Wille v. Southwestern Bell. Pay special attention to the expanded list of “unconscionable factors” noted by the court. Can you suggest any others for consideration? Do you agree with the inclusion of all of these factors? What is the most important factor? Consider this question: Why were Mrs. Williams and Mr. and Mrs. Jones successful in claiming unconscionability and Mr. Wille was not?

Case Summary

Wille v. Southwestern Bell Telephone Company

219 Kas. 755 (1976)

Background and Facts

The plaintiff, an operator of a heating and air conditioning business, sued the telephone company to recover damages caused by the omission of his ad from the yellow pages of the telephone directory. The contract for the ad contained a provision limiting the liability of the telephone company to the cost of the ad. The plaintiff contended that this provision was unconscionable. The lower court found for the defendant the plaintiff appealed.

HARMAN, J.

Appellant asserts unconscionability of contract in two respects: the party’s unequal bargaining power and the form of the contract and the circumstances of its execution.

American Courts have traditionally taken the view that competent adults may make contracts on their own terms, provided they are neither illegal nor contrary to public policy, and that in the absence of fraud, mistake, or duress, a party who has fairly and voluntarily entered into such a contract is bound thereby, notwithstanding it was unwise or disadvantageous to him. Gradually, however, this principle of “freedom of contract” has been qualified by the Courts as they were confronted by contracts so one-sided that no fair-minded person would view them as tolerable. An early definition of uncon­scionability was provided by Lord Chancellor Hardwicke, in the case of Chesterfield v. Jensen (1750).

* * * “A contract that such as no man in his senses and not under delusion would make on one hand, and as no honest and fair man would accept on the other; which are unequitable and unconscientious bargains; and of such even the Common Law has taken notice.”

* * * This doctrine received its greatest impetus when it was enacted as a part of the Uniform Commercial Code but the writers did not define the limits or parameters of the doctrine. Perhaps this was the real intent of the drafters of the code. To define is to limit its applica­tion and to limit its application is to defeat its purpose.

* * * The basic test is whether in the light of general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract. The principle is one of the prevention of oppression and unfair surprise, and not of disturbance of allocation of risks because of superior bargaining power.

* * * One type of situation is that involving unfair surprise: where there has naturally actually been no assent to the terms of the contract. Contracts involving unfair surprise are similar to contracts of adhesion. Most often these contracts involve a party whose circumstances, perhaps his inexperience or igno­rance, when compared with the circumstances of the other party, make his knowing assent to the fine print terms fictional. Courts have often found an absence of a meaningful bargain. The other situation is that involv­ing oppression: where, although there has been actual assent, the agreement, surrounding facts, and the relative bargaining positions of the parties indicate the possibility of gross overreaching on the part of the person with the superior bargaining power. The economic position of the parties is such that one becomes vulnera­ble to a grossly unequal bargain.

* * * These factors include: 1) the use of printed form or boilerplate contracts drawn skillfully by the party in the strongest economic position, which establish industry-wide standards offered on a take-it-or-leave-it basis to the party in a weaker economic position, 2) a significant cost-price disparity or excessive price, 3) a denial of basic rights and remedies to a buyer of consumer goods, 4) the inclusion of penalty clauses, 5) the circumstances surrounding the execution of the contract, including its commercial setting, its purposes and actual effect, 6) the hiding of clauses which are disadvantageous to one party in a mass of fine print trivia or in places which are incon­spicuous to the party signing the contract, 7) phrasing clauses in language that is incomprehensible to a layman or that divert his attention from the problems raised by them or the rights given up through them, 8) an overall imbalance in the obligations and rights imposed by the bargain, 9) exploitation of the underprivi­leged, unsophisticated, uneducated and the illiterate, and 10) inequality of bargaining or economic power.

Important in this case is the concept of inequality of bargaining power. The UCC does not require that there be complete inequality of bargaining power or that the agreement be equally beneficial to both parties.

* * * At least some element of deception or substantive unfairness must presumably be shown.

The cases seem to support the view that there must be additional factors such as deceptive bargaining conduct as well as unequal bargaining power to render the contract unconscionable. In summary, the doctrine of unconscionability is used by the courts to police the excesses of certain parties who abuse their right to contract freely. It is directed against one-sided, oppressive and unfairly surprising contracts, and not against the consequences per se of uneven bargaining power or even a simple old-fashioned bad bargain.
Williston on Contracts states: “Parties should be entitled to contract on their own terms without the indulgence of paternalism by courts in the alleviation of one side or another from the effects of a bad bargain. Also, they should be permitted to enter into contracts that actually may be unreasonable or which may lead to hardship on one side. It is only where it turns out that one side or the other is to be penalized by the enforce­ment of the contract so unconscionable that no decent, fair-minded person would view the ensuing result without being possessed of a profound sense of injustice, that equity will deny the use of its good offices in the enforcement of such unconscionability.”

The inequality of bargaining power between the parties here is more apparent than real. There are many other modes of advertising to which the businessman may turn if the contract offered him by the telephone company is not attractive. We find in the record no basis for a conclusion that the application of the Limitation of Liability Clause could lead to a result so unreasonable as to shock the conscience. The language of the chal­lenged paragraph is not couched in confusing terms designed to capitalize on carelessness but is clear and concise. Appellant was an experienced businessman and for at least thirteen years had used the yellow pages. In his business, it is reasonable to assume he as a seller and serviceman had become familiar with printed form contracts that are frequently used in connection with the sale and servicing of heating and air condition­ing equipment and their attendant warranties and limita­tions of liability. Each case of this type must necessarily rest upon its own facts but after examining the terms of the contract, the manner of its execution and the knowledge and experience of the appellant, we think the contract was neither unconscionable or inequi­table so as to deny its enforcement.

AFFIRMED.

A final note on remedies for unconscionability. Should a court conclude that a contract is unconscionable (note that unconscionability is a matter of law to be decided by the judge), it may:

  • Refuse to enforce the contract;
  • Enforce the contract without the unconscionable clause; or
  • Limit the operation of the unconscionable clause.

 

Ethical Considerations

Private Contract Rights

Is it fair for the courts to interfere with the private contract rights of individuals?

 

Questions

  • What is the definition of a “merchant” under the Uniform Commercial Code?
  • What is the definition of “good faith” under the Uniform Commercial Code?
  • What is the definition of a “good” under the Uniform Commercial Code?

Day v. Caton

  • What does it mean to have a judgment overruled?
  • Why was the defendant’s silence construed as an agreement to pay?
  • Who normally decides questions of fact in contract cases? Who decides questions of law?

Williams v. Walker-Thomas

  • What is an installment note? A revolving charge? A pro rata payment?
  • What particular characteristics of Mrs. Williams were important to the court in determining if the contract was unconscionable?
  • What remedies are available to a court in a case where it finds a contract to have been unconscionable?

Wille v. Southwestern Bell

  • What early view of unconscionability was cited by Judge Harman?
  • What test did the court apply?
  • Of the circumstances cited in the case, which was most important to the court in arriving at its decision?
  • Why did Mr. Wille lose and Mrs. Williams and Mr. and Mrs. Jones win?
  • What is a “limitation of liability” clause?

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