Reference no: EM13909188

Consider the following hypothetical case of Williams v. Gooden:

Professor Williams, a geologist, has agreed to purchase Gooden's farm for a price of $4000 per acre, which corresponds to the price of good quality farmland in the vicinity. However, Williams, on the basis of his own geological studies, is convinced that Gooden's farm contains valuable mineral deposits, which make the property worth $52,000 per acre. Williams' true motive is discovered by Gooden before Williams takes possession, and Gooden refuses to hand over the property. Williams sues for breach of contract. Gooden defends on the ground that Williams had a duty to disclose the results of his studies.

(a) True, False, or Uncertain. The Court should permit Gooden to breach the contract because he did not have full information when he made the agreement. Explain your answer.

(b) Would your answer to (a) change if Williams was not a professor of geology, but, in fact, a professor of geometry who knew little of minerals and soil? Explain your answer.

(2) Consider the case of Taylor v. Caldwell (1863):

Taylor v. Caldwell
King's Bench, 3 B. & S. 826, 122 Eng.Rep. 309 (1863) Blackburn, J.

In this case the plaintiffs and defendants had, on May 27th, 1861, entered into a contract by which the defendants agreed to let the plaintiffs have the use of The Surrey Gardens and Music Hall on four days then to come, viz., June 17th, July 15th, August 5th, and August 19th, for the purpose of giving a series of four grand concerts, and day and night fetes, at the Gardens and Hall on those days respectively; and the plaintiffs agreed to take the Gardens and Hall on those days, and pay £100 for each day.

The parties inaccurately call this a "letting," and the money to be paid, a "rent"; but the whole agreement is such as to show that the defendants were to retain the possession of the Hall and Gardens so that there was to be no demise of them, and that the contract was merely to give the plaintiffs the use of them on those days. Nothing, however, in our opinion, depends on this. The agreement then proceeds to set out various stipulations between the parties as to what each was to supply for these concerts and entertainments, and as to the manner in which they should be carried on. The effect of the whole is to show that the existence of the Music Hall in the SurreyGardens in a state fit for a concert was essential for the fulfillment of the contract, such entertainments as the parties contemplated in their agreement could not be given without it.

After the making of the agreement, and before the first day on which a concert was to be given, the Hall was destroyed by fire. This destruction, we must take it on the evidence, was without the fault of either party, and was so complete that in consequence the concerts could not be given as intended. And the question we have to decide is whether, under these circumstances, the loss which the plaintiffs have sustained is to fall upon the defendants. [The plaintiffs sought damages in the amount of moneys spent for advertising and other preparations for the concerts.] The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stipulation with reference to it, so that the answer to the question must depend upon the general rules of law applicable to such a contract.

There seems no doubt that where there is a positive contract to do a thing, not in itself unlawful, the contractor must perform it or pay damages for not doing it, although in consequence of unforseen accidents the performance of his contract has become unexpectedly burdensome or even impossible. The law is so laid down in 1 Roll.Abr. 450, Condition (G), and in the note (2) to Walton v. Waterhouse (2 Wms.Saund. 421a, 6th Ed.) and is recognized as the general rule by all the judges in the much discussed case of Hall v. Wright (E.B. & E. 746). But this rule is only applicable when the contract is positive and absolute, and not subject to any condition either express or implied; and there are authorities which, as we think, establish the principle that where, from the nature of the contract, it appears that the parties must from the beginning have known that it could not be fulfilled unless when the time for the fulfillment of the contract arrived some particular specified thing continued to exist, so that, when entering into the contract, they must have contemplated such continuing existence as the foundation of what was to be done; there, in the absence of any express or implied warranty that the thing shall exist, the contract is not to be construed as a positive contract, but as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.

There seems little doubt that this implication tends to further the great object of making the legal construction such as to fulfill the intention of those who entered into the contract. For in the course of affairs men in making such contracts in general would, if it were brought to their minds, say that there should be such a condition. . . In the present case, looking at the whole contract, we find that the parties contracted on the basis of the continued existence of the Music Hall at the time when the concerts were to be given, that being essential to their performance.

We think, therefore, that the Music Hall having ceased to exist, without fault of either party, both parties are excused, the plaintiffs from taking the gardens and paying the money, the defendants from performing their promise to give the use of the Hall and Gardens and other things. Consequently the rule must be absolute to enter the verdict for the defendants.

True, False or Uncertain. The decision by the Court in this case will lead to a socially optimal allocation of resources. Explain your answer.

(3) Assume New York State accident law is governed by a rule of simple negligence. SplishSplashWaterPark in Riverhead, New York must decide how many inspections of their new ride, Dragon's Den, to undertake. The ride is described on their website in the following way:

               Inspections per day                       Profits                                  Accident Probability        

Once	$185,000	0.50
Twice	$170,000	0.35
Three	$120,000	0.30
After Each Ride	$50,000	0.05
Continuously	$30,000	0.00

[Dragon's Den is] the breathtaking answer to those on a quest for maximum thrills. You'll catapult through mysterious darkness and then plummet into the mist-shrouded abyss of the dragon...only to vanish from sight! You won't believe it until you encounter it face to face. The Dragon's Den has a height restriction of 48" tall.

Splish Splash must decide how many inspections of Dragon's Den they should run each day. More inspections are costly because fewer customers can participate and the line is longer to get onto the ride. This causes Splish Splash to generate less revenue (fewer people come back to the amusement park). The profits associated with each level of inspections are provided in the table below, along with the probability of an accident associated with each quantity of inspections:

Inspections per day Profits Accident Probability
Once $185,000 0.50
Twice $170,000 0.35
Three $120,000 0.30
After Each Ride $50,000 0.05
Continuously $30,000 0.00

If an accident occurs, $200,000 in damages to persons and property will occur.

(a) Under a rule of strict liability, how many inspections are likely to result? Show work.

(b) What are the expected net profits for each level of care under a perfectly applied simple negligence rule? Show work.

(c) Respond to the following statement by a concerned SuffolkCounty legislator as an economist: "No one should ever be hurt from a day of fun on amusement park rides." Explain your answer.

Now assume New York passes a law that puts a damage cap on lawsuits so that victims cannot receive more than $90,000 in total damages if injured. The judge continues to use expected accidents losses (based on $200,000 in actual harm and the probabilities of accidents given in the chart) to set the reasonable level of care.

(d) How many inspections would result under a strict liability rule with this cap on
damages? Show work.

(e) How many inspections would result under a perfectly applied negligence rule with this cap on damages? Show work. Do your answers to (d) and (e) differ? If not, why not? If so, why?

Now assume that in addition to the cap on damages,the water park believes that only 30% of those who are injured will use the legal system to recover damages.

(f) How many inspections would the firm choose to undertake under a strict liability rule? Show work.

(g) How many inspections would the firm choose to undertake under a perfectly applied negligence rule? Show work. Do your answers to (f) and (g) differ? If not, why not? If so, why?

(4) Clay was hired by the City of Newport Beach and is working as a lifeguard. The beach is filled with hot-looking spring breakers and Clay is enjoying the view. He is also trying to pay attention to the swimmers and surfers, but that is awfully difficult given how smokin' Chrissy and Taylor look, tanning near his lifeguard stand. Meanwhile, Grant and Chase are partying and decide to go surfing, even though they aren't in very good condition.

While Grant and Chase are surfing, a huge wave overtakes them, pushing them toward the ocean floor. Unfortunately, because Clay has his eyes on Chrissy, he doesn't notice the swimming disaster. Finally, a hysterical Sasha alerts him to the accident. Clay races toward the ocean and pulls Chase and Grant to safety. Unfortunately, both men suffer injuries by the time they are saved. Chase was deprived of oxygen for too long and suffers some brain injuries (which are actually difficult to detect given his pre-injury cognitive abilities). Medical experts determine that the costs of physical and emotional harm to Chase and his family at $500,000. Grant is more fortunate. He simply suffers scrapes and bruises and a broken ankle. Medical experts value the damage to Grant at $25,000.

Chase and Granteach sue the City of Newport Beach for damages.

During the trial, the facts of the case come out. Experts testify that had Clay not been distracted by hotties on the beach, he would have pulled Chase and Grant out of the water 4 minutes earlier, which would have reduced the probability of injury to Chase from 10% to 4%, and reduced the probability of injuries to Grant from 6% to 5%. Mr. Flanagan, a leader in the lifeguard industry, testifies that the City of Newport Beach could have ensured that Clay would have gotten to the swimmerson time if the City had held an extensive one-week lifeguard training course prior to spring break. Such a course would have cost the City of Newport Beach $30,000 to organize.

At the trial, it is also revealed that Chase and Grant were partying before they went surfing. Grant drank a lot of liquor and Chase was smoking pot.Substance use experts testify that if Chase had not been smoking marijuana, the probability of injury to Chase would have been reduced from 10% to 3%. If Grant had not been drinking, the probability of injury to Grant would have been reduced from 6% to 2%. However, not partyingwould have reduced spring break enjoyment to Chase by $3000 and spring break enjoyment to Grant by $2000.

If the City of Newport Beach had given Clay a training course andChase and Grant had not gotten wasted, then the probability of injury to each would have been 0.01.

(a) How much will the City of Newport Beach have to compensate Chase under a rule of Strict Liability? What about Grant? Show all work.

(b) How much will the City of Newport Beach have to compensate Chase under a rule of Strict Liability with a defense of Dual Contributory negligence? What about Grant? Show your work.

(c) How much will the City of Newport Beach have to compensate Chase under a perfectly applied rule of negligence with a defense of contributory negligence? What about Grant? Show your work.

(5) Let w be the marginal cost of precaution, x be the level of precaution, p(x) be the probability of an accident, and A be the harm if there is an accident. Assume unilateral precaution.

True, False, or Uncertain.If accidents costs do not vary with precaution, the efficient level of precaution (x*) will be less than if accidents costs declined with increased precaution. Explain your answer.

(6) Consider the case of Perez v. John Deere Construction Equipment Company (2005)

Perez v. John Deere Construction Equipment Co.
Court of Appeal of California,
Fifth Appellate District (Calif. 2005)

Plaintiff began working for Kercher Harvesting, Inc. as a mechanic's assistant in 1989 and left in 1996. Plaintiff was rehired by Kercher as a mechanic and resumed working on October 27, 1998. The following morning, plaintiff and mechanic's assistant Angel Mendoza were assigned to check on a group of seven cotton pickers to make sure they were performing properly and ready for the day's operation. The cotton pickers were lined up in a row at the end of a field located in the Five Points area of Fresno Co., California. When plaintiff arrived at the field, he began checking the first cotton picker, a two-row, John Deere Model 9910 and then started it. When Mendoza arrived, he started the second machine. Plaintiff engaged the picking head on the cotton picker, left the cab to get in front of the cotton picker, observed the moving parts of the head, and determined an adjustment was needed. Plaintiff testified that, to adjust a pressure plate door, he positioned himself between the stalk lifters and stood on the waffle plate or shoe. In this position, plaintiff was exposed to the moving parts where the cotton plants entered the picker. Plaintiff testified that a safety decal was on the machine and he did not ignore the danger of the moving spindles. Plaintiff testified that he made the adjustments and when he was getting down, his right foot slipped and was caught in the moving spindles. Once he was caught in the head, plaintiff looked at the picture in the safety decal that was in front of him and "I remember just picturing, just saying to myself, not in a million years I would picture me, myself- that that would be me in that picture."

When Mendoza noticed plaintiff was caught, plaintiff's right leg had been pulled into the machine up to the knee. By the time Mendoza turned off the engine, the upper portion of plaintiff's thigh had been pulled into the cotton picker. Plaintiff estimated that he was stuck for about two and a half hours before he was freed and flown by helicopter to a hospital. The injuries to plaintiff's leg were severe and a psychiatrist opined that plaintiff would be on medication for depression for a long time.

Plaintiff supported his contention that the cotton picker should have had an emergency shutoff switch by presenting the testimony of Danny Willard. Willard was in business with his father and, at one time, they operated 16 John Deere cotton pickers. After one of their employees, Kenneth Smith, became entangled in the head of a cotton picker, Willard modified the cotton pickers in 1979 or 1980 by installing two toggle switches that allowed someone on the ground in front of the machine to shut it off. The switch was wired to an injector pump, and it took about two seconds for the machine to stop after the switch was flipped. Willard testified that, at that time, the cost of installing the switches was a little over $15 and took approximately 15 minutes....

At trial, Deere's employee expert Copley testified. [S]urvey data collected showed that cotton pickers were operated an average of approximately 425 hours per year for 20 years and that Deere knew about 11 entanglement incidents involving model 9910 cotton pickers. Based on these figures, Copley calculated the total number of hours model 9910 cotton pickers were used at over 48 million hours and stated, "it comes out something like 4.4 million hours per accident."

The following exchange occurred between Deere's lawyer and Copley at the trial:

Q: "So if we were to start today, statistically based on everything we know, and we took those seven machines and we ran them every year, like Mr. Kercher has, it would be sometime in [the year] 3480 before we'd expect another accident?

A: "That's what that says."

Q: "And if we go back in time, it would be back to 600 A.D.?"

"[Plaintiff's Counsel]: Objection."

"The Court: The objection is sustained."

The Court ruled in favor of Deere in this case. Explain whether this outcome leads to an efficient allocation of resources.

(7) Consider the following hypothetical:

On February 25, 2001, Jeterwent to a restaurant in Dix Hills. He found a marked parking space at the edge of the pavement of the parking lot of the restaurant. However, because there was no curb at the edge of the parking lot, Jeter drove his car a few feet beyond the edge of the pavement onto a flat, grassy area. He left the car and went into the restaurant. After dining, Jeter returned to his car. In attempting to drive out of the parking lot, however, he noticed for the first time that his car was stuck on something. Upon inspection, Jeter discovered that he had inadvertently parked the car atop the anchored end of an unmarked electrical wire, which supported an electrical pole owned and maintained by the New York Power Company, and that his car was hung on the wire.

As good economists, we want to set a legal standard of care in this case that will induce an efficient allocation of resources.

Suppose we know that the New York Power Company (NYPCo)can maintain the electrical pole more regularly to reduce the probability that there would be live wires near people's cars. This would cost approximately $5000. Moreover, motorists like Jeter can take action to reduce the probability of an accident. If they see electrical wires on the ground, they can pay $100 (in monetary and time costs) to ensure that the wire is removed. If NYPCo does not maintain the electrical pole and motorists do not call to have a live wire removed, then the probability of an accident is 0.10. If NYPCo does maintain the pole, then the probability of an accident falls to 0.02. If motorists ensure that professionals remove live wires, the probability of an accident falls to 0.015. If NYPCo maintain the pole and motorists ensure that professionals remove any live wires, the probability of an accident falls to 0.005.

Suppose if there are accidents, physical, emotional, and property damages amount to $250,000.

(a) What is the efficient outcome? Show your work.

(b) Under a rule of strict liability, what would the outcome be? Would it be efficient? Show your work.

(c) Under a perfectly applied rule of negligence with a defense of contributory negligence, what would the outcome be? Is this efficient? Show your work.

(8) Consider the following case:

Callis v. Scripto-Tokai Corporation
358 Ill. App. 3d 975 514 (2005)

Susan Calles purchased an Aim 'n Flame lighting rod in March 1998. The lighting rod, shaped like a gun, produced a flame at the end of its barrel when one pulled the trigger. Susan used the rod to light a grill she used for cooking almost every day. On March 31, 1998, Susan put her three-year-old daughters Jillian and Jenna to bed. She left them in the care of their oldest sister Amanda, while Susan took her five-year-old daughter to a store. When they returned about half an hour later, Susan saw fire trucks around her house. She found Amanda and Jenna outside, and then she saw Jillian sitting up in an ambulance. She accompanied her daughters to the hospital. Jillian died in the hospital a few weeks later.

An investigator found the remains of an Aim 'n Flame lighting rod in Jillian and Jenna's bedroom, where the fire started. The investigator concluded from the available evidence, including interviews with the children, that Jenna used the Aim 'n Flame to start the fire.

Jillian's estate sued Tokai Corporation, which designed and sold the Aim 'n Flame lighting rod, and Tokai's subsidiary Scripto-Tokai Corporation, which distributed the lighting rod. The estate also sued Jillian's doctor, Richard Fox, and LoyolaUniversityMedicalCenter, where Fox treated Jillian. Fox and Loyola filed a cross-claim against Tokai and Scripto-Tokai. The estate, Fox and Loyola sought to recover on theories of strict liability and negligence, with both theories premised on defective design and failure to warn.

Tokai and Scripto-Tokai moved for summary judgment, claiming that Illinois law imposes no duty to make products child-resistant. The rod worked exactly as Susan, the consumer, expected it to work, and therefore she could not show a design defect. Also, Tokai and Scripto-Tokai argued that they had no duty to warn Susan of the dangers because Susan already knew of the open and obvious dangers of the Aim 'n Flame.

In her deposition Susan testified that she knew lighters could be dangerous in the hands of children. She instructed all of her children about the dangers of fire and lighters like the lighting rod. She stored the lighter on the top shelf of her kitchen cabinet so that her children could not reach it. She acknowledged that the children could get on to the counter, and from there they might be able to reach the lighting rods on the top shelf. Susan did not remember whether she had read the warnings that came with the rod, which instructed purchasers to keep the rod away from children. She admitted that the rod worked just as she expected it to work.

Jillian's estate presented affidavits from experts who said that, with technology available long before Susan bought the Aim 'n Flame, Tokai could have designed a child-resistant lighting rod, and producing the child-resistant rod would cost only a few cents more than producing the rod without child-resistant features. In the experts' opinions, the proposed features would almost certainly have prevented Jenna from using the lighting rod to start the fire. One of the experts opined that Tokai did not include sufficient warnings with the rod. The label should have warned that small children may be able to operate the lighter, and it should have borne a more conspicuous danger symbol.

An expert found reports of "at least 200 incidents" involving accidental fires started with Tokai's Aim 'n Flame. Children had used the Aim 'n Flame or a similar lighting rod to start about 250 fires before September 1998. More than three-fourths of the incidents involved fires started by children less than five years old. Cigarette lighters, which mostly use mechanisms similar to the lighting rod, have a long history of peril.

"From 1980 through 1985, an estimated 750 persons were injured and 120 people died each year in residential fires started by children playing with lighters. [Citation.]Estimated costs of these fires was between 300 and 375 million dollars. [Citation.] In 1988 through 1990, the number of injuries caused annually by children playing with lighters increased to 1,100, and the number of deaths rose to 150. [Citation.] Children three to four years old caused most of the fires. [Citation.] Prior to 1989, a child under the age of five was burned to death every day by a fire started with a disposable lighter.

An estimated 80 to 105 deaths per year would be avoided by the implementation of childproof lighters. [Citation.] Approximately 205-270 million dollars in potential damages would be saved by manufacturing childproof lighters. [Citation.] Estimates of manufacturing costs for initially producing childproof lighters approached 50 million dollars. [Citation.] In 1993, manufacturers were expected to see a one to five percent increase in production costs and a one to five cent increase in per-unit cost." Robins v. Kroger Co., 80 S.W.3d 641, 645-46 (Tex. App. 2002).

Another study found:

"5,800 residential structural fires, 170 deaths, and 1,190 injuries occur each year because of children under 5 playing with lighters. The annual cost of children playing with lighters has been estimated at $300 million to $375 million." Annotation, Products Liability: Lighters and Lighter Fluid, 14 A.L.R.5th 47, 56, §2(a) (1993).

The trial court held that Tokai and Scripto-Tokai "neither owed nor breached any duty imposed upon them by law," and therefore the court entered summary judgment for Tokai and Scripto-Tokai on all counts against them in the estate's complaint and in the cross-complaint Fox and Loyola filed. Later the court added a finding of no just reason to delay appeal from the summary judgment order.

True, False, or Uncertain. The socially optimal outcome will be induced if the Judge holdsthe company liable for damages. Explain your answer.

(9) Consider the following case:

Helling v. Carey

84 Wash.2d 514, 519 P.2d 981 (Was. 1974)

HUNTER, ASSOCIATE JUSTICE. This case arises from a malpractice action instituted by the plaintiff (petitioner), Barbara Helling.The plaintiff suffers from primary open angle glaucoma. Primary open angle glaucoma is essentially a condition of the eye in which there is an interference in the ease with which the nourishing fluids can flow out of the eye. Such a condition results in pressure gradually rising above the normal level to such an extent that damage is produced to the optic nerve and its fibers with resultant loss in vision.... The disease usually has few symptoms and, in the absence of a pressure test, is often undetected until the damage has become extensive and irreversible.

The defendants (respondents), Dr. Thomas F. Carey and Dr. Robert C. Laughlin, are partners who practice the medical specialty of ophthalmology. Ophthalmology involves the diagnosis and treatment of defects and diseases of the eye.

The plaintiff first consulted the defendants for myopia, nearsightedness, in 1959. At that time she was fitted with contact lenses. [She consulted the defendants several times over the next nine years.] Until the October 1968 consultation, the defendants considered the plaintiff's visual problems to be related solely to complications associated with contact lenses. On that occasion, the defendant, Dr. Carey, tested the plaintiff's eye pressure and field of vision for the first time. This test indicated that the plaintiff had glaucoma. The plaintiff...was then 32 years of age.

Thereafter, in August of 1969, after consulting other physicians, the plaintiff filed a complaint against the defendants alleging, among other things, that she sustained severe and permanent damage to her eyes as a proximate result of the defendants' negligence. During trial, the testimony of the medical experts for both the plaintiff and the defendants established that the standards of the profession for that specialty in the same or similar circumstances do not require routine pressure tests for glaucoma upon patients under 40 years of age. The reason the pressure test for glaucoma is not given as a regular practice to patients under the age of 40 is that the disease rarely occurs in this age group. Testimony indicated, however, that the standards of the profession do require pressure tests if the patient's complaints and symptoms reveal to the physician that glaucoma should be suspected.

The trial court entered judgment for the defendants following a defense verdict. The plaintiff thereupon appealed to the Court of Appeals, which affirmed the judgment of the trail court....

We find this to be a unique case.... The issue is whether the defendants' compliance with the standard of the profession of ophthalmology, which does not require the giving of a routine pressure test to persons under 40 years of age, should insulate them from liability under the facts in this case where the plaintiff has lost a substantial amount of her vision due to the failure of the defendants to timely give the pressure test to the plaintiff.

The incidence of glaucoma in one out of 25,000 persons under the age of 40 may appear quite minimal. However, that one person, the plaintiff in this instance, is entitled to the same protection as afforded persons over 40, essential for timely detection of the evidence of glaucoma where it can be arrested to avoid the grave and devastating result of this disease. The test is a simple pressure test, relatively inexpensive. There is no judgment factor involved, and there is no doubt that by giving the test the evidence of glaucoma can be detected. The giving of the test is harmless if the physical condition of the eye permits. The testimony indicates that although the condition of the plaintiff's eye might have at times prevented the defendants from administering the pressure test, there is an absence of evidence in the record that the test could not have been timely given....

Under the facts of this case reasonable prudence required the timely giving of the pressure test to this plaintiff. The precaution of giving this test is to detect the incidence of glaucoma to patients under 40 years of age is so imperative that irrespective of its disregard by the standards of the ophthalmology profession, it is the duty of the courts to say what is required to protect patients under 40 from the damaging results of glaucoma.

We therefore hold, as a matter of law, that the reasonable standard that should have been followed under the undisputed facts of this case was the timely giving of this simple, harmless pressure test to this plaintiff and that, in failing to do so, the defendants were negligent, which proximately resulted in the blindness sustained by the plaintiff for which the defendants are liable.

Suppose that a tonometry test, which will detect glaucoma, costs $30 to administer. Suppose further that the average jury verdict for total or legal blindness for the period 1973-1977 was $598,500. Given that the likelihood of glaucoma in a person under 40 is "one in 25,000," should the doctor be held liable for damages? What if a more educated expert testified that the likelihood of glaucoma for a person under 40 is one in 23,000 and the true cost of the latest tonometry test is $25? Explain your answer.