From: Modern Business Law, Third Edition, Dunfee et al. (McGraw-Hill)
Desperate Air Corporation (DAC) flies routes along the U.S. East Coast. DAC acquired a number of hotels and undeveloped properties five years ago as part of a short-lived diversification strategy. DAC has recently experienced substantial losses, has a negative cash flow, and bankruptcy looms as a possibility unless high labor costs can be reduced and consumer confidence restored.
Benton Williams has just been brought in as CEO to revitalize DAC. Williams began by cutting back on middle management positions and by placing a one-year moratorium on hiring MBAs. Middle managers terminated by DAC and other airlines have had a tough time finding equivalent jobs.
DAC owns a large underdeveloped ocean front property on the east coast of Florida. Williams directed George Nash, DAC's Vice President of Real Estate, to find a buyer for the property in order to generate badly needed cash. After some effort, Nash identified Fledgling industries, a relatively new developer of retirement villas as a good prospect. Fledgling is interested in finding a property on which it could build a complex of high rise retirement condos featuring elaborate walking trails and outside recreational facilities.
DAC had conducted a full environment audit of the property 6 months previously and had discovered no problems with the property. A copy of the report was given to the Fledgling representative who also walked over the property and discovered no problems. The representative asked "Anything I should know about?" Nash replied, "No problems."
As the negotiations progressed with Fledgling, a long time friend at the firm who told him that there was some highly toxic waste on the property approached Nash. The friend said that she learned about it through the rumor mill at the firm and that she had
