ANSWERS TO PROBLEMS
1. Parker, the owner of certain unimproved real estate in Chicago, employed Adams, a real estate
agent, to sell the property for a price of $250,000 or more and agreed to pay Adams a
commission of 6 percent for making a sale. Adams negotiated with Turner, who was interested in
the property and willing to pay as much as $280,000 for it. Adams made an agreement with
Turner that if Adams could obtain Parker’s signature to a contract to sell the property to Turner
for $250,000, Turner would pay Adams a bonus of $10,000. Adams prepared and Parker and
Turner signed a contract for the sale of the property to Turner for $250,000. Turner refuses to
pay Adams the $10,000 as promised. Parker refuses to pay Adams the 6 percent commission. In
an action by Adams against Parker and Turner, what is the judgment?
Answer: Fiduciary Duty. Decision against Adams on both actions. Adams owes an overriding duty
of utmost loyalty and good faith to Parker, his principal. An agent has a fiduciary duty to act
2. Perry employed Alice to sell a parcel of real estate at a fixed price without knowledge that David
had previously employed Alice to purchase the same property for him. Perry gave Alice no
discretion as to price or terms, and Alice entered into a contract of sale with David on the exact
terms authorized by Perry. After accepting a partial payment, Perry discovered that Alice was
employed by David and brought an action to rescind. David resisted on the ground that Perry
had suffered no damage because Alice had been given no discretion and the sale was made on
the exact basis authorized by Perry. Discuss whether Perry will prevail.
Answer: Fiduciary Duty. Decision in favor of Perry. Although Alice had no discretion as to price
or terms with respect to the sale of Perry’s real estate she was representing two principals; she was
3. Packer owned and operated a fruit cannery in Southton, Illinois. He stored a substantial amount
of finished canned goods in a warehouse in East St. Louis, Illinois, owned and operated by
Alden, in order to have goods readily available for the St. Louis market. On March 1, he had
10,000 cans of peaches and 5,000 cans of apples in storage with Alden. On the day named, he
borrowed $5,000 from Alden, giving Alden his promissory note for this amount due June 1,
together with a letter authorizing Alden, in the event the note was not paid at maturity, to sell
any or all of his goods in storage, pay the indebtedness, and account to him for any surplus.
Packer died on June 2 without having paid the note. On June 8, Alden told Taylor, a wholesale
food distributor, that he had for sale, as agent of the owner, 10,000 cans of peaches and 5,000
cans of apples. Taylor said he would take the peaches and would decide later about the apples. A
contract for the sale of 10,000 cans of peaches for $6,000 was thereupon signed “Alden, agent
for Packer, seller; Taylor, buyer.” Both Alden and Taylor knew of the death of Packer. Delivery
of the peaches and payment were made on June 10. On June 11, Alden and Taylor signed a
similar contract covering the 5,000 cans of apples, delivery and payment to be made June 30.
On June 23, Packer’s executor, having learned of these contracts, wrote Alden and Taylor stating
that Alden had no authority to make the contracts, demanding that Taylor return the peaches,
and directing Alden not to deliver the apples. Discuss the correctness of the contentions of
Packer’s executor.
Answer: Termination of Agency: Death. Packer’s executor is incorrect as to the first contract for
the sale of the peaches, but correct as to the second contract for the sale of the apples. A power
given as security “is a power to affect the legal relations of its creator that is created in the form
of a manifestation of actual authority and held for the benefit of the holder or a third person.”
4. Western Rivers Fly Fisher (Western) operates under license of the U.S. Forest Service as an
“outfitter,” a corporation in the business of arranging fishing expeditions on the Green River,
Utah. Michael D. Petragallo, is licensed by the Forest Service as a guide to conduct fishing
expeditions but cannot do so by himself, because the Forest Service licenses only outfitters to
float patrons down the Green River. Western and several other licensed outfitters contact
Petragallo to guide clients on fishing trips. Because the Forest Service licenses only outfitters to
sponsor fishing expeditions, every guide must display on the boat and vehicle he uses the
insignia of the outfitter sponsoring the particular trip. Petragallo may agree or refuse to take
individuals Western refers to him, and Western does not restrict him from guiding expeditions for
other outfitters. Western pays Petragallo a certain sum per fishing trip and does not make any
deductions from his compensation. Petragallo’s responsibilities include transporting patrons to
the Green River, using his own boat for fishing trips, providing food and overnight needs for
patrons, assisting patrons in fly fishing, and transporting them from the river to their vehicles.
Robert McMaster contacted Western and arranged for a fishing trip for himself and two others.
Jaeger, was a member of McMaster’s fishing party. McMaster paid Western, which set the price
for the trip, planned the itinerary for the McMaster party, rented fishing rods to them, and
arranged for Petragallo to be their guide. When Petragallo met the McMaster party, he
answered affirmatively when Jaeger asked him if he worked for Western. While driving the
McMaster party back to town at the conclusion of the fishing trip, Petragallo lost control of his
vehicle, injuring Jaeger, who brought suit against Western, Petragallo, and others. Western
claims that because Petragallo is an independent contractor and was never its employee, it is
not liable for Petragallo’s acts in causing Jaeger’s injuries. Is Petragallo an independent
contractor? Explain.
Answer: Other Legal Relationships: Employment vs. Independent Contractor. The facts in this
case provide evidence for both conclusions (independent contractor and employee), and therefore
is not a case for summary judgment.
On the one hand, the facts suggest Petragallo is an independent contractor. Western engages
Petragallo to guide particular fishing trips, for a set sum, allowing him to conduct the trips in his
own discretion. Petragallo may even choose to refuse to guide patrons Western has referred to
him. Western’s actions appear to involve setting up the parameters of a fishing trip and place
5. Palmer made a valid contract with Ames under which Ames was to sell Palmer’s goods on
commission from January 1 to June 30. Ames made satisfactory sales up to May 15 and was
about to close an unusually large order when Palmer suddenly and without notice revoked
Ames’s authority to sell. Can Ames continue to sell Palmer’s goods during the unexpired term of
her contract?
Answer: Termination of Agency: Revocation of Authority. No. A principal may revoke an agent’s
authority at any time by notifying the agent. Restatement, Section 3.10. If, however, such
6. Piedmont Electric Co. gave a list of delinquent accounts to Alexander, an employee, with
instructions to discontinue electric service to delinquent customers. Among those listed was
Todd Hatchery, which was then in the process of hatching chickens in a large, electrically heated
incubator. Todd Hatchery told Alexander that it did not consider its account delinquent, but
Alexander nevertheless cut the wires leading to the hatchery. Subsequently, Todd Hatchery
recovered a judgment of $5,000 in an action brought against Alexander for the loss resulting
from the interruption of the incubation process. Alexander has paid the judgment and brings a
cause of action against Piedmont Electric Co. What may he recover? Explain.
Answer: Duties of Principal to Agent: Indemnification/Reimbursement. Judgment for Alexander.
In general, a principal has an obligation to indemnify an agent whenever the agent makes a
7. In October 2009, Black, the owner of the Grand Opera House, and Harvey entered into a
written agreement to lease the opera house to Harvey for five years at a rental of $300,000 a
year. Harvey engaged Day as manager of the theater at a salary of $1,175 per week plus 10
percent of the profits. One of Day’s duties was to determine the amounts of money taken in each
night and, after deducting expenses, to divide the profits between Harvey and the manager of the
particular attraction playing at the theater. In September 2014 Day went to Black and offered to
rent the opera house from Black at a rental of $375,000 per year, whereupon Black entered into
a lease with Day for five years at this figure. When Harvey learned of and objected to this
transaction, Day offered to assign the lease to him for $600,000 per year. Harvey refused and
brought an appropriate action against Day. Should Harvey recover? If so, on what basis and to
what relief is he entitled?
Answer: Fiduciary Duty. Decree in favor of Harvey. An agent owes the principal a duty of loyalty
which includes an obligation not to compete. During the agency relationship an agent must not
8. Timothy retains Cynthia, an attorney, to bring a lawsuit upon a valid claim against Vincent.
Recently enacted legislation has shortened the statute of limitations for this type of legal action.
Cynthia fails to make herself aware of this new statute. Consequently, she files the complaint
after the statute of limitations has run. As a result, the lawsuit is dismissed. What rights, if any,
does Timothy have against Cynthia?
Answer: Duties of Agent to Principal: Duty of Diligence. Judgment would be for Timothy
assuming that a lawyer acting reasonably would have had opportunity to discover the revised
9. Wilson engages Ruth to sell Wilson’s antique walnut chest to Harold for $2,500. The next day,
Ruth learns that Sandy is willing to pay $3,000 for Wilson’s chest. Ruth nevertheless sells the
chest to Harold. Wilson then discovers these facts. What are Wilson’s rights, if any, against
Ruth?
Answer: Duty to Inform. An agent has a duty to use reasonable effort to provide the principal with
facts that the agent knows, has reason to know, or should know if: (1) the agent knows, or has
10. Morris is a salesperson for Acme, Inc., a manufacturer of household appliances. Morris receives
a commission on all sales made and no further compensation. He drives his own automobile,
pays his own expenses, and calls on whom he pleases. While driving to make a call on a
potential customer, Morris negligently collides with Hudson. Hudson sues Acme and Morris.
Who should be held liable?
Answer: Nature of Agency. A principal is liable for the torts committed by an employee within the
scope of his employment but ordinarily is not liable for torts committed by an independent
11. Sierra Pacific Industries purchased various areas of timber and six other pieces of real property,
including a ten-acre parcel on which five duplexes and two single-family units were located.
Sierra Pacific requested the assistance of Joseph Carter, a licensed real estate broker, in selling
the nontimberland properties. It commissioned him to sell the property for an asking price of
$850,000, of which Sierra Pacific would receive $800,000 and Carter would receive $50,000 as
a commission. Unable to find a prospective buyer, Carter finally sold the property to his
daughter and son-in-law for $850,000 and retained the $50,000 commission without informing
Sierra Pacific of his relationship to the buyers. After learning of these facts, Sierra Pacific
brought an action against Carter. To what relief, if any, is Sierra Pacific entitled?
Answer: Fiduciary Duty of Agent. Sierra Pacific is entitled to relief based on Carter’s breach of his
fiduciary duty. An agent has a duty not to deal with the principal as or on behalf of an adverse
party in a transaction connected with the agency relationship. Restatement, Section 8.03. An
12. Murphy, while a guest at a motel operated by the Betsy-Len Motor Hotel Corporation, sustained
injuries from a fall allegedly caused by negligence in maintaining the premises. At that time,
Betsy-Len was under a license agreement with Holiday Inns, Inc. The license contained
provisions permitting Holiday Inns to regulate the architectural style of the buildings as well as
the type and style of the furnishings and equipment. The contract, however, did not grant
Holiday Inns the power to control the day-to-day operations of Betsy-Len’s motel, to fix
customer rates, or to demand a share of the profits. Betsy-Len could hire and fire its employees,
determine wages and working conditions, supervise the employee work routine, and discipline
its employees. In return, Betsy-Len used the trade name “Holiday Inns” and paid a fee for use of
the license and Holiday Inns’ national advertising. Murphy sued Holiday Inns, claiming
Betsy-Len was its agent. Is Murphy correct?
Answer: Creation of Agency. Decision for Holiday Inns. No. Betsy-Len is not the agent of
Holiday Inns. At issue is whether the terms of the license agreement satisfied the level of control
13. Tube Art was involved in moving a reader board sign to a new location. Tube Art’s service
manager and another employee went to the proposed site and took photographs and
measurements. Later, a Tube Art employee laid out the exact size and location for the excavation
by marking a four-by-four square on the asphalt surface with yellow paint. The dimensions of
the hole, including its depth of six feet, were indicated with spray paint inside the square. After
the layout was painted on the asphalt, Tube Art engaged a backhoe operator, Richard F.
Redford, to dig the hole. Redford began digging in the early evening hours at the location
designated by Tube Art. At approximately 9:30 P.M., the bucket of Redford’s backhoe struck a
small natural gas pipeline. After examining the pipe and finding no indication of a break or leak,
he concluded that the line was not in use and left the site. Shortly before 2:00 A.M. on the
following day, an explosion and fire occurred in the building serviced by that gas pipeline. As a
result, two people in the building were killed, and most of its contents were destroyed. Massey
and his associates, as tenants of the building, brought an action against Tube Art and Richard
Redford for the total destruction of their property. Will the plaintiffs prevail? Explain.
Answer: Other Legal Relationships: Employment vs. Independent Contractor. Yes, Massey will
prevail. A number of factors may be taken into account in determining whether one who performs
14. Brian Hanson sustained a paralyzing injury while playing in a lacrosse match between Ohio
State University and Ashland University. Hanson had interceded in a fight between one of his
teammates and an Ashland player, William Kynast. Hanson grabbed Kynast in a bear hug, but
Kynast threw Hanson off his back. Hanson’s head struck the ground, resulting in serious
injuries. An ambulance was summoned, and after several delays, Hanson was transported to a
local hospital where he underwent surgery. Doctors determined that Hanson suffered a
compression fracture of his sixth spinal vertebrae. Hanson, now an incomplete quadriplegic,
subsequently filed suit against Ashland University, maintaining that because Kynast was acting
as the agent of Ashland, the university was therefore liable for Kynast’s alleged wrongful acts .
Was Kynast an agent of Ashland?
Answer: Creation of Agency. No. The relationship of principal and agent exists only when one
party exercises the right of control over the actions of another and those actions are directed
15. Tony Wilson was a member of Troop 392 of the Boy Scouts of America (BSA) and of the St. Louis
Area Council (Council). Tony went on a trip with the troop to Fort Leonard Wood, Missouri.
Five adult volunteer leaders accompanied the troop. The troop stayed in a building that had
thirty-foot aluminum pipes stacked next to it. At approximately 10:00 p.m., Tony and other
scouts were outside the building, and the leaders were inside. Tony and two other scouts picked
up a pipe and raised it so that it came into contact with 7200-volt power lines that ran over the
building. All three scouts were electrocuted, and Tony died.
His parents brought a suit for wrongful death against the Council, claiming that the volunteer
leaders were agents or servants of the Council and that it was vicariously liable for their
negligence. The Council filed a motion for summary judgment, arguing as follows: the BSA
chartered local councils in certain areas, and councils in turn granted charters to local sponsors
such as schools, churches, or civic organizations. Local councils did not administer the scouting
program for the sponsor, did not select volunteers, did not prescribe training for volunteers, and
did not direct or control the activities of troops. Troops were not required to get permission from
local councils before participating in an activity. Are the troop leaders agents of the Council?
Explain.
Answer: Other Legal Relationships: Employment vs. Independent Contractor. No. Under the
doctrine of respondeat superior an employer is liable for those negligent acts or omissions of his
employee which are committed within the scope of his employment. Liability based on
respondeat superior requires some evidence that a master-servant relationship existed between
the parties. The test to determine if respondeat superior applies to a tort is whether the person
16. Harvey Hilgendorf was a licensed real estate broker acting as the agent of the Hagues in the
sale of eighty acres of farmland. The Hagues, however, terminated Hilgendorf’s agency before
the expiration of the listing contract when they encountered financial difficulties and decided to
liquidate their entire holdings of land at one time. Hilgendorf brought this action for breach of
the listing contract. The Hagues maintain that Hilgendorf’s duty of loyalty required him to give
up the listing contract. Are the Hagues correct in their assertion?
Answer: Termination of Agency by Revocation. No, the Hagues are not correct. Judgment for
Hilgendorf. Since agency is a consensual relationship, a principal has the power to terminate an
17. Hunter Farms contracted with Petrolia Grain & Feed Company, a Canadian company, to
purchase a large supply of the farm herbicide Sencor from Petrolia for resale. Petrolia learned
from the U.S. Customs Service that the import duty for the Sencor would be 5 percent but that
the final rate could be determined only upon an inspection of the Sencor at the time of
importation. Petrolia forwarded this information to Hunter. Meanwhile, Hunter employed F. W.
Myers & Company, an import broker, to assist in moving the herbicide through customs. When
customs later determined that certain chemicals in the herbicide, not listed on its label, would
increase the customs duty from $30,000 to $128,000, Myers paid the additional amount under
protest and turned to Hunter for indemnification. Hunter refused to pay Myers, claiming that
Myers breached its duty of care as an import broker in failing to inform Hunter that the 5
percent duty rate was subject to increase. Myers brought an action against Hunter, arguing that
it was not employed to give advice to Hunter on matters of importation. Explain whether Myers
had the duty to inform Hunter.
Answer: Duty of Diligence/Duty to Inform. Myers must show that the customs of the industry or
profession is that importers bear no special duty to advise the importer unless requested to do so.
They essentially draft papers to facilitate the process. Finally, Myers needs to prove that he had
no information regarding the increased duty and thus had fulfilled his duty of disclosure to
Hunter.
ANSWERS TO “TAKING SIDES” PROBLEMS
Western Rivers Fly Fisher (Western) operates under license of the U.S. Forest Service as an
“outfitter,” a corporation in the business of arranging fishing expeditions on the Green River in
Utah. Michael D. Petragallo is licensed by the Forest Service as a guide to conduct fishing
expeditions but cannot do so by himself, because the Forest Service licenses only outfitters to float
patrons down the Green River. Western and several other licensed outfitters contact Petragallo to
guide clients on fishing trips. Because the Forest Service licenses only outfitters to sponsor fishing
expeditions, every guide must display on the boat and vehicle he uses the insignia of the outfitter
sponsoring the particular trip. Petragallo may agree or refuse to take individuals Western refers to
him, and Western does not restrict him from guiding expeditions for other outfitters. Western pays
Petragallo a certain sum per fishing trip and does not make any deductions from his compensation.
Petragallo’s responsibilities include transporting patrons to the Green River, using his own boat for
fishing trips, providing food and overnight needs for patrons, assisting patrons in fly fishing, and
transporting them from the river to their vehicles.
Robert McMaster contacted Western and arranged for a fishing trip for him and two others. Jaeger
was a member of McMaster’s fishing party. McMaster paid Western, which set the price for the trip,
planned the itinerary for the McMaster party, rented fishing rods to them, and arranged for
Petragallo to be their guide. When Petragallo met the McMaster party, he answered affirmatively
when the plaintiff asked him if he worked for Western. Petragallo provided his own vehicle and boat
and supplied the food, equipment, and gasoline for the trip. Both the vehicle and the boat had signs
bearing Western’s identification and logo. While driving the McMaster party back to town at the
conclusion of the fishing trip, Petragallo lost control of his vehicle and got into an accident, injuring
Jaeger.
(a) What arguments could Jaeger make for claiming that Petragallo was an employee of
Western?
(b) What arguments could Western make for claiming that Petragallo was an independent
contactor?
(c) Which side should prevail?
ANSWER:
(a) Jaeger argues that Petragallo was Western’s employee, and, thus, Western is
liable for Petragallo’s actions. Jaeger could argue that Western has control
