Shoreline Communications, Inc. v. Norwich Taxi, LLC

• Decision Date: 28 May 2002
• Docket Number: (AC 21896)
• Citation: 70 Conn. App. 60,797 A.2d 1165
• Court: Connecticut Court of Appeals
• Parties: SHORELINE COMMUNICATIONS, INC. v. NORWICH TAXI, LLC

70 Conn. App. 60

797 A.2d 1165

SHORELINE COMMUNICATIONS, INC. v. NORWICH TAXI, LLC

(AC 21896)

Appellate Court of Connecticut.

Argued February 19, 2002.

Officially released May 28, 2002.

Foti, Mihalakos and Peters, JS. Lloyd L. Langhammer, with whom, on the brief, was Amy M. Stone, for the appellant (defendant).

James F. Spallone, for the appellee (plaintiff).

Opinion

PETERS, J.

This appeal concerns the rights of an assignee to terminate a license agreement when it discovers, after the assignment, that it had been mistaken in its assumption that the licensed property would suit its commercial needs. The trial court held that the assignee had assumed the risk of its unilateral mistake because it had failed to inspect the licensor's premises before assuming the license agreement. Having assumed the risk, the assignee was obligated to pay license fees during the unexpired term of the license agreement. We agree and affirm the judgment of the trial court.

The plaintiff, Shoreline Communications, Inc., the owner of a radio communications tower, sued the defendant, Norwich Taxi, LLC, to recover unpaid license fees due under a license agreement with the defendant's assignor, Eagle Cab Corporation (Eagle). Eagle had assigned its contractual rights to use space on the tower to the defendant, which unconditionally assumed Eagle's obligations to the plaintiff. The defendant declined to pay the license fees once it became evident that, contrary to its expectations, its equipment could not make profitable use of the tower space. Characterizing the defendant's disappointment as a unilateral mistake, the court held that the defendant's mistake did not authorize its unilateral rescission of the license agreement.¹ Accordingly, the court rendered judgment in favor of the plaintiff, awarding it damages in the amount of $12,600 for the unpaid license fees, as well as interest of $273.92 and costs. The defendant has appealed.

The trial court's memorandum of decision recites the relevant facts, which are undisputed. On October 30, 1997, the plaintiff and Eagle entered into a five year license agreement that enabled Eagle to use its radio equipment at a designated space on the plaintiffs radio transmission tower in order to pursue its taxicab business. The license agreement granted Eagle the right to use the space without restriction to any particular usage. In return, Eagle undertook to pay stipulated monthly payments to the plaintiff. Eagle encountered no problems in its use of the transmission tower and promptly made license payments as they became due.

On May 20, 1999, Eagle assigned the license agreement to the defendant. Without reserving any additional rights, the defendant informed the plaintiff that it had assumed the rights and obligations stated in the license agreement. As assignee, it made payments to the plaintiff until the end of October of that year.

Between May, 1999, and October, 1999, the defendant made a good faith effort to install its radio equipment on the plaintiffs tower. Because Eagle's installation had encountered no difficulties, the defendant had not anticipated that its own installation would be problematic.

At the time of the assignment, the defendant did not know whether it could use Eagle's equipment but it did know that its own taxicab service differed from Eagle's because its service area was wider and its business was conducted at a location further away from the plaintiffs tower. Despite this uncertainty, the defendant unconditionally assumed the rights and duties set out in the license agreement. From May to October, 1999, the defendant attempted, unsuccessfully, to use the tower space. It discovered that its use of the plaintiffs tower space would have required the services of two different telephone companies, with unacceptable uncertainties about prompt detection and remediation of transmission failures.

When these facts came to light, the defendant informed the plaintiff that the licensing agreement was terminated. The plaintiff promptly replied that the defendant had no right to terminate the agreement unilaterally. The plaintiff reminded the defendant of the provision of the agreement that required the payment of license fees until the expiration of the agreement on October 31, 2002. It demanded prompt payment of the fees already overdue. Nevertheless, the defendant stopped making payments as of November 1, 1999.

At the time when the defendant assumed liability under the licensing agreement, it had taken no steps to ascertain whether installation of its equipment would be feasible. The defendant assumed that Eagle's favorable experience with Eagle's equipment would carry over to the defendant's own operations. Despite known differences between its business operations and that of Eagle, the defendant did not avail itself of the opportunity to arrange for a preassignment inspection of the tower space.²

On the basis of these findings of fact, the court concluded that, as a matter of law, the defendant had failed to establish that its mistaken assumptions entitled it to terminate the license agreement without the assent of the plaintiff. Relying on 1 Restatement (Second), Contracts §§ 153 and 154, pp. 394, 402 (1981),³ the court held that the defendant had assumed the risk of a misfit between the plaintiffs tower space and the defendant's equipment. It had assumed that risk, the court held, because prior to becoming Eagle's assignee, it had relied on Eagle's experience without ascertaining whether its own greater needs might encounter difficulties that Eagle had not experienced.

The defendant challenges the court's conclusion on three grounds. Conceding that it made a unilateral mistake, the defendant maintains that the mistake terminated the licensing agreement because (1) it did not bear the risk of that mistake, (2) enforcement of an agreement that is of no benefit to the defendant is unconscionable and (3) prompt repudiation of the agreement did not injure the plaintiff because it could be restored to the rights it had before the assignment.

Because the claims that the defendant has raised challenge the trial court's conclusions of law, our review is plenary. See Pequonnock Yacht Club, Inc. v. Bridgeport, 259 Conn. 592, 598, 790 A.2d 1178 (2002); Olson v. Accessory Controls & Equipment Corp., 254 Conn. 145, 156, 757 A.2d 14 (2000); Hunnicutt v. Commissioner of Correction, 67 Conn. App. 65, 68, 787 A.2d 22 (2001). We conclude that none of these claims is persuasive.

I THE RISK OF UNILATERAL MISTAKE

The defendant argues that it falls within various exceptions to the general rule that a unilateral mistake is not a viable basis for rescission of a bilateral contract. The defendant maintains that it did not assume the risk of incompatibility between its equipment and the plaintiffs tower because it had no reason to expect any such incompatibility and, therefore, was acting in good faith when it delayed its inquiry into such matters to a time subsequent to the assignment. We do not agree that, under the circumstances of this case, the defendant was entitled unilaterally to set aside its contract obligation to pay license fees.

As the trial court noted, the principles governing the law of mistake are set out in 1 Restatement (Second), supra, §§ 153 and 154. Under § 153, a unilateral mistake may make a contract voidable if the mistaken party "does not bear the risk of the mistake under the rule stated in § 154 ...." 1 Restatement (Second), supra, § 153, p. 394. Under § 154, "A party bears the risk of a mistake when ... (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient...." 1 Restatement (Second), supra, § 154, pp. 402-403.

The court, in its careful and comprehensive memorandum of decision, concluded that the defendant bore the risk of its unilateral mistake because, when it assumed the licensing agreement, it was aware of significant differences between its own planned operations and that of Eagle. Relying on § 154 of the Restatement (Second) of Contracts, the court held that, because of this awareness, the defendant bore the risk of mistake when it nonetheless undertook to become an assignee, without conditioning its assigned duties in any way.

The defendant argues, to the contrary, that its knowledge of these differences was insufficient to assign the risk of loss to it because, relying on Eagle's favorable experience, it was entitled to assume that its operations would likewise be able to make use of the plaintiffs tower site. The defendant maintains that it did not have the kind of "limited knowledge" that would require it to bear the risk of its mistake. It was not, therefore, "consciously" aware of treating "[its] limited knowledge as sufficient...."

One difficulty with the defendant's view of the law of mistake is that its argument rests entirely on the defendant's subjective state of mind at the time of the assignment. The defendant concedes that its position finds no support in the terms of the license agreement. The agreement did not make a licensee's obligation to pay license fees contingent on the licensee's ability to make profitable use of the designated space on the plaintiffs radio tower. Neither in writing nor orally did the plaintiff undertake any contractual obligation other than to make tower space available.

Apart from the agreement, the plaintiff had no reason to anticipate an assignment of any kind and consequently had no reason to anticipate the difficulties that an assignee might encounter. The plaintiffs operations bore no resemblance to a business such as the construction business, in which unilateral mistakes are known to occur as a result of the pressure of last minute preparation of competitive bids. See, e.g., Geremia v. Boyarsky, 107 Conn. 387, 388-89, 140 A. 749 (1928); Regional School District...