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Castle Fabrics contracted to sell fabric to Fortune Manufacturers. After the fabric was delivered, a dispute arose as to it quality. As a result, Fortune refused to pay for the fabric and returned it unused to Castle.
Castle gave Fortune only partial credit for the returned fabric and threatened to sue Fortune if it did not pay the balance due. Fortune refused and produced a credit memorandum from a Castle employee indicating that Fortune would be given full credit for the fabric if it was returned without injury.
Although the regular responsibilities of this employee included sending such memorandums, Castle's general manager had specifically instructed the employee not to send a "full credit" memo to Fortune. By mistake, the employee sent Fortune the wrong memo.
Fortune argued that Castle was responsible for any mistake made by Castle's own employee; thus, Castle must give Fortune full credit for the returned fabric. Castle argued that Castle could not be held responsible for the acts of its employees who disobeyed specific instructions.
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