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ANSWERS TO PROBLEMS
1. Alice was Peter’s traveling salesperson and was authorized to collect accounts. Before the
agreed termination of the agency, Peter wrongfully discharged Alice. Peter did not notify
anyone of Alice’s termination. Alice then called on Tom, an old customer, and collected an
account from Tom. She also called on Laura, a new prospect, as Peter’s agent, secured a large
order, collected the price of the order, sent the order to Peter, and disappeared with the
collections. Peter delivered the goods to Laura per the order.
(a) What result if Peter sues Tom for his account?
(b) What result if Peter sues Laura for the agreed price of the goods?
Answer: Effect of Termination of Agency upon Authority.
(a) Decision for Tom. Under the Second Restatement, Peter wrongfully terminated the agency. In
such cases, the principal, in order to protect himself against possible future liability for the acts of
his former agent, must give notice to third persons of the termination of the agency. Where, as
here, a third person (Tom) has previously dealt on credit with Peter through his agent, Alice, Peter
2. Paula instructed Alvin, her agent, to purchase a quantity of hides. Alvin ordered the hides from
Ted in his own (Alvin’s) name and delivered the hides to Paula. Ted, learning later that Paula
was the principal, sends the bill to Paula, who refuses to pay Ted. Ted sues Paula and Alvin.
What are Ted’s rights against Paula and Alvin?
Answer: Undisclosed Principal. Second Restatement: Ted is entitled to recover the price either
from Alvin or Paula, but not both of them. Upon learning of the undisclosed principal, Ted may
treat Alvin as the agent and hold the principal (Paula) liable or he may disregard Paula and hold
Alvin with whom he contracted liable as a principal. Ted may bring suit against Alvin and Paula,
3. Stan sold goods to Bill in good faith, believing him to be a principal. Bill in fact was acting as
agent for Nancy and within the scope of his authority. The goods were charged to Bill, and, on
his refusal to pay, Stan sued Bill for the purchase price. While this action was pending, Stan
learned of Bill’s relationship with Nancy. Nevertheless, thirty days after learning of that
relationship, Stan obtained judgment against Bill and had an execution issued that was never
satisfied. Three months after the judgment was made, Stan sued Nancy for the purchase price of
the goods. Is Nancy liable? Explain.
Answer: Undisclosed Principal. Second Restatement: No, Nancy is not liable to Stan, but is liable
to Bill for reimbursement if Bill pays any or all of the judgment. If Stan had obtained his
judgment against Bill before he learned that Nancy was an undisclosed principal, clearly he could
proceed against Nancy upon learning of the relationship. Although his action against Bill was
4. Green Grocery Company employed Jones as its manager. Jones was given authority by Green to
purchase supplies and goods for resale and had conducted business for several years with
Brown Distributing Company. Although her purchases previously had been limited to groceries,
Jones contacted Brown and had it deliver a color television set to her house, informing Brown
the set was to be used in promotional advertising to increase Green’s business. The advertising
did not develop, and Jones disappeared from the area, taking the television set with her. Brown
now seeks to recover the purchase price of the set from Green . Will Brown prevail? Explain.
Answer: Actual Implied Authority. No, Green will prevail. Generally, an agent has implied
authority to make reasonable and necessary purchases for his principal, who is bound by the act
of the agent within the scope of apparent authority. Payment of bills for merchandise sold to an
5. Stone was the agent authorized to sell stock of the Turner Company at $10 per share and was
authorized in case of sale to fill in the blanks in the certificates with the name of the purchaser,
the number of shares, and the date of sale. He sold 100 shares to Barrie, and without the
knowledge or consent of the company and without reporting to the company, he indorsed the
back of the certificate as follows:
“It is hereby agreed that Turner Company shall, at the end of three years after the date,
repurchase the stock at $13 per share on thirty days' notice. Turner Company, by Stone.”
After three years, demand was made on Turner Company to repurchase. The company refused the
demand and repudiated the agreement on the ground that the agent had no authority to make the
agreement for repurchase. Is Turner Company liable to Barrie? Explain.
Answer: Types of Authority. No, Turner Company is not liable. The agent was employed to sell
shares of stock. He had no express authority to repurchase stock. There is no implied authority
6. Helper, a delivery boy for Gunn, delivered two heavy packages of groceries to Reed’s porch. As
instructed by Gunn, Helper rang the bell to let Reed know the groceries had arrived. Mrs. Reed
came to the door and asked Helper if he would deliver the groceries into the kitchen because
the bags were heavy. Helper did so, and on leaving he observed Mrs. Reed having difficulty in
moving a cabinet in the dining room. He undertook to assist her, but being more interested in
watching Mrs. Reed than in noting the course of the cabinet, he failed to observe a small,
valuable antique table, which he smashed into with the cabinet and totally destroyed. Does
Reed have a cause of action against Gunn for the value of the destroyed antique?
Answer: Tort Liability of the Principal. No. Gunn is liable for the negligent acts of his employee
7. Driver picked up Friend to accompany him on an out-of-town delivery for his employer, Speedy
Service. A “No Riders” sign was prominently displayed on the windshield of the truck, and
Driver violated specific instructions of his employer by permitting an unauthorized person to
ride in the vehicle. While discussing a planned fishing trip with Friend, Driver ran a red light
and collided with an automobile driven by Motorist. Both Friend and Motorist were injured. Is
Speedy Service liable to either Friend or Motorist for the injuries they sustained?
Answer: Tort Liability of the Principal. Speedy Service is liable to Motorist, but is not liable to
Friend.
Driver was making a delivery within the course of his employment and his negligent act of
running the red light will make his employer responsible for the injuries sustained by Motorist.
The mere fact that the driver had an unauthorized passenger does not of itself render the servant
8. Cook’s Department Store advertises that it maintains a barber shop in its store and that the shop
is managed by Hunter, a Cook’s employee. Actually, Hunter is not an employee of the store but
merely rents space in the store. While shaving Jordan in the barber shop, Hunter negligently
puts a deep gash, requiring ten stitches, into one of Jordan’s ears. Should Jordan be entitled to
collect damages from Cook’s Department Store?
Answer: Apparent Authority. Yes. By advertising that it maintained a barber shop in its store in
charge of Hunter, Cook's Department Store has caused third persons reasonably to believe that
9. The following contract was executed on August 22:
Ray agrees to sell and Shaw, the representative of Todd and acting on his behalf,
agrees to buy 10,000 pounds of 0.32 15/8 stainless steel strip type 410.
(signed) Ray (signed) Shaw
On August 26, Ray informs Shaw and Todd that the contract was in reality signed by him as agent
for Upson. What are the rights of Ray, Shaw, Todd, and Upson in the event of a breach of the
contract?
Answer: Undisclosed Principal. Ray, Todd and Upson are bound by the contract but Shaw is not.
10. Harris, owner of certain land known as Red Bank, mailed a letter to Byron, a real estate broker
in City X, stating, “I have been thinking of selling Red Bank. I have never met you, but a friend
has advised me that you are an industrious and honest real estate broker. I therefore employ
you to find a purchaser for Red Bank at a price of $350,000.” Ten days after receiving the
letter, Byron mailed the following reply to Harris: “Acting pursuant to your recent letter
requesting me to find a purchaser for Red Bank, this is to advise that I have sold the property to
Sims for $350,000. I enclose your copy of the contract of sale signed by Sims. Your name was
signed to the contract by me as your agent.” Is Harris obligated to convey Red Bank to Sims?
Answer: Types of Authority. No. There is no actual authority. Byron was not authorized by the
letter to Harris to effect a sale of Red Bank. He was merely authorized to find a buyer. The
11. While crossing a public highway in the city, Joel was struck by a horse-drawn cart driven by
Morison’s agent. The agent was traveling between Burton Crescent Mews and Finchley on his
employer’s business and was not supposed to go into the city at all. Apparently, the agent was
on a detour to visit a friend when the accident occurred. Joel brought this action against
Morison for the injuries he sustained as a result of the agent’s negligence. Morison argues that
he is not liable for his agent’s negligence because the agent had strayed from his assigned path.
Who is correct?
Answer: Respondeat Superior. Joel is correct. Under the doctrine of respondeat superior, the
principal is liable for his agent's negligence only if the agent was acting in the course of his
12. Serges is the owner of a retail meat marketing business. Without authority his managing agent
borrowed $3,500 from David, on Serges’s behalf, for use in Serges’s business. Serges paid $200
on the alleged loan and on several other occasions told David that the full balance owed would
eventually be paid. He then disclaimed liability on the debt, asserting that he had not
authorized his agent to enter into the loan agreement. Should David succeed in an action to
collect on the loan?
Answer: Ratification. Yes, judgment for David. Serge's partial payment and his promise to pay off
13. Sherwood negligently ran into the rear of Austen’s car, which was stopped at a stoplight. As a
result, Austen received bodily injuries and her car was damaged. Sherwood, arts editor for the
Mississippi Press Register, was en route from a concert he had covered for the newspaper.
When the accident occurred, he was on his way to spend the night at a friend’s house. Austen
sued Sherwood and—under the doctrine of respondeat superior—Sherwood’s employer, the
Mississippi Press Register. Who is liable? Explain.
Answer: Respondeat Superior. Sherwood is liable, but the Mississippi Press Register is not. Under
the doctrine of respondeat superior, the negligent acts of an employee on his way to and from
14. Aretta J. Parkinson owned a two-hundred-acre farm in a state that requires written authority for
an agent to sell land. Prior to her death on December 23, Parkinson deeded a one-eighth
undivided interest in the farm to each of her eight children as tenants in common. On January
15 of the following year, one of the daughters, Roma Funk, approached Barbara Bradshaw
about selling the Parkinson farm to the Bradshaws. They orally agreed to a selling price of
$800,000. After this meeting, Funk contacted Bryant Hansen, a real estate broker, to assist her
in completing the transaction. Hansen prepared an earnest money agreement that was signed
by the Bradshaws but by none of the Parkinson children. Hansen also prepared warranty
deeds, which were signed by three of the children. Several of the children subsequently refused
to convey their interests in the farm to the Bradshaws. Explain whether the Bradshaws can get
specific performance of the oral contract of sale, based on the defendants’ ratification of the
oral contract by their knowledge of and failure to repudiate it.
Answer: Ratification No, implied ratification is not allowed in this case. Ratification of an agent's
unauthorized conduct may be express or implied. It is imperative, though, that the principal have
15. Raymond Zukaitis was a physician practicing medicine in Douglas County, Nebraska. Aetna
issued a policy of professional liability insurance to Zukaitis through its agent, the Ed Larsen
Insurance Agency. The policy covered the period from August 31, 2012, through August of the
following year. On August 7, 2014, Dr. Zukaitis received a written notification of a claim for
malpractice that occurred on September 27, 2012. Dr. Zukaitis notified the Ed Larsen
Insurance Agency immediately and forwarded the written claim to them. The claim was then
mistakenly referred to St. Paul Fire and Marine Insurance Company, the company that
currently insured Dr. Zukaitis. Apparently without notice to Dr. Zukaitis, the agency contract
between Larsen and Aetna had been canceled on August 1, 2013, and St. Paul had replaced
Aetna as the insurance carrier. However, when St. Paul discovered it was not the carrier on the
date of the alleged wrongdoing, it notified Aetna and withdrew from Dr. Zukaitis’s defense.
Aetna also refused to represent Dr. Zukaitis, contending that it was relieved of its obligation to
Dr. Zukaitis because he had not notified Aetna immediately of the claim. Dr. Zukaitis then
secured his own attorney to defend against the malpractice claim and brought this action
against Aetna to recover attorney’s fees and other expenses incurred in the defense. Should Dr.
Zukaitis succeed? Explain.
Answer: Effect of Termination of Agency upon Authority. Yes, judgment for Dr. Zukaitis. Aetna is
responsible for the defense of Dr. Zukaitis. The notice given by Dr. Zukaitis to Larsen, the agent
of Aetna, constitutes notice to Aetna and obligates it to carry out the terms of its insurance
16. Chris Zulliger was a chef at the Plaza Restaurant in the Snowbird Ski Resort in Utah. The
restaurant is located at the base of a mountain. As a chef for the Plaza, Zulliger was instructed
by his supervisor and the restaurant manager to make periodic trips to inspect the Mid-Gad
Restaurant, which was located halfway up the mountain. Because skiing helped its employees
to get to work, Snowbird preferred that its employees know how to ski and gave them ski passes
as part of their compensation. One day prior to beginning work at the Plaza,, Zulliger went
skiing. The restaurant manager asked Zulliger to stop at the Mid-Gad before beginning work
that day, and Zulliger stopped at the Mid-Gad during his first run and inspected the kitchen. He
then skied four runs before heading down the mountain to begin work. On the last run, Zulliger
decided to take a route often taken by Snowbird employees. About midway down, Zulliger
decided to jump off a crest on the side of an intermediate run. Because of the drop, a skier
above the crest cannot see whether there are skiers below, and Zulliger ran into Margaret
Clover, who was below the crest. The jump was well known to Snowbird; the resort’s ski patrol
often instructed people not to jump, and there was a sign instructing skiers to take it slow at
that point. Clover sued Zulliger and, under the doctrine of respondeat superior, Snowbird,
claiming that Zulliger had been acting within the scope of his employment. Who is liable?
Explain.
Answer: Tort Liability of the Principal. Zulliger is liable. In addition, Snowbird may be held liable
if Zulliger was acting within the course of employment. . Under the circumstances of the instant
17. Rubin was driving on one of the city’s streets when he inadvertently obstructed the path of a
taxicab, causing the cab to come into contact with his vehicle. Angered by the Rubin’s sudden
blocking of his traffic lane, the taxi driver exited his cab, approached Rubin, and struck him
about the head and shoulders with a metal pipe. Rubin filed suit against the cab driver to
recover for bodily injuries resulting from the altercation. He also sued the Yellow Cab
Company, asserting that the company was vicariously liable under the doctrine of respondeat
superior. Is the Yellow Cab Company liable? Explain.
Answer: Tort Liability of the Principal. Judgment for Yellow Cab affirmed. It is well established
that an employer may be held vicariously liable under the doctrine of respondeat superior for the
negligent, willful, malicious, or criminal acts of its employees where such acts are committed in
18. Van D. Costas, Inc. (Costas) entered into a contract to remodel the entrance of the Magic
Moment Restaurant owned by Seascape Restaurants, Inc. Rosenberg, part owner and president
of Seascape, signed the contract on a line under which was typed “Jeff Rosenberg, The Magic
Moment.” When a dispute arose over the performance and payment of the contract, Costas
brought suit against Rosenberg for breach of contract. Rosenberg contended that he had no
personal liability for the contract and that only Seascape, the owner of the restaurant, was
liable. Costas claimed that Rosenberg signed for an undisclosed principal and, therefore, was
individually liable. Explain whether Rosenberg is liable on the contract.
Answer: Unidentified (Partially Disclosed) Principal Yes, Rosenberg is individually liable. To
avoid personal liability, an agent must disclose both that he is acting as an agent and the identity
19. Virginia and her husband Ronnie Hulbert were involved in an accident in Mobile County when
their automobile collided with another automobile driven by Dr. Murray’s nanny. The nanny’s
regular duties of employment included housekeeping, supervising the children, and taking the
children places that they needed to go. At the time of the collision, the nanny was driving her
own car and was following Dr. Murray and her family to Florida from Louisiana to accompany
Dr. Murray’s family on their vacation. One of Dr. Murray’s daughters was in the automobile
driven by the nanny. Virginia Hulbert sued Dr. Murray under the doctrine of respondeat
superior, alleging that the nanny was acting within the scope of her employment when the
automobile accident occurred. Should she be able to recover from Dr. Murray? Explain.
Answer: Respondeat Superior. Yes. To recover from a tortfeasor’s employer on the theory of
respondeat superior, the plaintiff must show by substantial evidence that the employee’s act was
within the scope or course of the employee’s employment. An act is within an employee’s scope
ANSWERS TO “TAKING SIDES” PROBLEMS
Sonenberg Company managed Westchester Manor Apartments through its
on-site property manager, Judith. Manor Associates Limited Partnership, whose
general partner is Westchester Manor, Ltd., owned the complex. The entry sign
to the property did not reveal the owner’s name but did disclose that Sonenberg
managed the property. Judith contacted Redi-Floors and requested a proposal
for installing carpet in several of the units. In preparing the proposal,
Redi-Floors con*rmed that Sonenberg was the managing company and that
Judith was its on-site property manager. Sonenberg did not inform Redi-Floors of
the owner’s identity. Judith and her assistant orally ordered the carpet, and
Redi-Floors installed the carpet. Redi-Floors sent invoices to the complex and
received checks from “Westchester Manor Apartments.” Believing that
Sonenberg owned the complex, Redi-Floors did not learn of the true owner’s
identity until after the work had been completed when a dispute arose
concerning the payment of some of its invoices.
(a) What arguments would support Redi-Floors in recovering on the outstanding invoices
from both Sonenberg and Manor Associates?
(b) What arguments would limit Redi-Floors to recovering on the outstanding invoices from
either Sonenberg or Manor Associates?
(c) Explain what the outcome would be under (i) the Second Restatement and (ii) the Third
Restatement.
ANSWER:
(a) Redi-Floors could argue that that Sonenberg never disclosed the name of
Manor Associates Limited Partnership to Redi-Floors. Accordingly,
Sonenberg acted for an undisclosed principal and upon discovery the
