ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 32
AGENCY FORMATION AND DUTIES
32-1A. Employee versus independent contractor
The court surmised that “the significant factors supporting Island’s contention that Aymes was
an employee include Island’s right to control the means of CSALIB’s creation and Island’s right
to assign other projects. The significant factors supporting Aymes’s argument that he was an
independent contractor include: the level of skill needed to create CSALIB; the decision of Island
not to offer him benefits; and his payment of his own social security taxes.” Regarding other
32-2A. Agency relationship
The hospital was held liable because the hospital’s acts, including providing emergency–room
treatment, implied that the doctors were the hospital’s agents. Thus, a relationship of principal-
agent was found to exist despite the hospital’s internal treatment of the doctors as
nonemployees for tax and accounting purposes.
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 32
32-3A. Agent’s duties
The court held that Howard’s instruction did not give Arthur the right to give the property away.
32-4A. Principal’s duties
The question of whether Landers had a duty to compensate Tarver rested on the issue of
whether Tarver was the “selling agent” in this case. If so, by their contract terms, Tarver would
be entitled to her commission. The appellate court affirmed the trial court’s holding that Tarver
was the selling agent and entitled to her commission as stipulated by the contract. Lacking any
written definition of what constituted the “selling agent” in the sales conducted through the real
32-5A. Employee versus independent contractor
Peirson is correct. The court found Webster to be an employee of L.M.T. and not an inde-
pendent contractor. The court held that one of the most significant factors in determining
32-6A. Principal’s duties to agent
No. Douglas had breached his fiduciary duty to Aztec, and for this reason, Aztec was not
required to fulfill its earlier promise. The court cited the Restatement (Second) of Agency,
Section 469, which reads, in part: “An agent is entitled to no compensation for conduct which is
32-7A. Agent’s duties to principal
The court held Smith Bell liable for the wind damage. Smith Bell appealed to the Vermont
Supreme Court, which affirmed the judgment of the lower court. The state supreme court
explained that Crane “had supervised and consulted with the listing agent, Ms. Bennett,
inspected the property, and conveyed certain information concerning the house to Carter.
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 32 B-3
Hence, the trial court’s threshold finding that Crane had operated as an agent of Smith Bell was
thus amply supported by the evidence.” The court recognized that “the knowledge of an agent
acting within the scope of his or her authority is chargeable to the principal, regardless of
whether that knowledge is actually communicated” and “regardless of the source.” The court
32–8A. Independent contractors
The Arizona Supreme Court held that Frausto’s status as an independent contractor or an
employee was an issue of fact for the jury to decide. The court sent the case back to the lower
courts to analyze the relationship in more detail. There are a number of factors for a court to
evaluate in determining a person’s status as an independent contractor or an employee. These
include the following:
1. The extent of control exercised by the master over details of the work and the
degree of supervision.
32-9A. Agency formation
The court held that Ford Motor could be sued in the jurisdiction in which the suit was filed, on
the basis that Ford Credit operated as the defendant’s agent there. Ford Motor appealed to the
Missouri Supreme Court, which reversed this determination. The state supreme court explained,
“A corporation does not become an agent of another corporation merely because a majority of
its voting shares is held by the other. Therefore, an agency relationship between a parent and
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 32
32-10A. A QUESTION OF ETHICS
1. One of the factors that a court will consider in determining whether agency by
estoppel can be found is whether the plaintiff had an independent relationship with the physician
prior to entering the hospital. Brackens stated in an affidavit that she had never met Dr. Taras
or Dr. Tobes before she was admitted to the hospital. Also, as this question indicated, Brackens
2. A basic ethical precept underlying the law is that persons should be held responsible
for their actions (or lack of action). In regard to agency law, this precept is expressed in the
concept of agency by estoppel. If a party has reason to believe from the principal’s conduct that
3. The same reasoning applies here as in the answer to question 2 above. It would be
unfair to hold a person liable for an action if that person was in no way responsible for the