Agency: liability of the agent at contract

Question 1

Undisclosed principal

Answer 1

An agent who enters into a contract on behalf of an undisclosed principal becomes a party to the contract.

Thus, when the agent does not inform a third party of the identity or the existence of the principal, the agent becomes liable to the third party on the contract.

Question 2

Partially disclosed principal

Answer 2

Unless the agent and the third party agree otherwise, an agent who enters into a contract on behalf of a partially disclosed principal—i.e., disclosed as to her existence but not her identity—becomes a party to the contract.

Question 3

Election of remedies doctrine

Answer 3

Once the third party discovers the existence of a previously undisclosed (but not a partially disclosed) principal, the election of remedies doctrine requires the third party to choose to hold liable either the principal or the agent.

If the agent acted with authority to bind the principal, however, the agent has a claim for recompense against the principal.

Question 4

Warranty of authority

Answer 4

An agent or actor purporting to be an agent for a principal gives an implied warranty of authority to a third person with whom the agent enters into a contract on the principal’s behalf.

If the agent or actor lacks the power to bind the principal, then a breach of the implied warranty has occurred, and the agent is liable to the third party for breach.