1. Prescott, who owned an appliance repair shop, was at a cocktail party when he saw Dresden, one of his competitors. Approaching Dresden, Prescott said, “I’m glad to run into you. I was hoping that we could discuss the possibility of going into partnership instead of competing with each other.” Dresden responded, “I wouldn’t go into business with you because you’re the most incompetent person I’ve ever known.”Audit, a customer of Prescott’s, overheard the conversation. As a result, the following day, Audit cancelled a contract which she had with Prescott.

If Prescott asserts a claim against Dresden for defamation, Prescott will be successful if

(A) Dresden knew or should have known that the statement was defamatory when he made it.

(B) Dresden knew or should have known that the statement was false when he made it.

(C) Dresden knew or should have known that the statement would be overheard when he made it.

(D) Dresden knew or should have known that harm would result from the statement.