Contract Liability - Liability of the Parties

Question 1

What is principal’s liability to 3rd party in contract?

Answer 1

Principal = liable to 3rd party on k entered into by their agent if the agent had valid authority to act

Question 2

What does the agent’s liability to 3rd parties depend on?

Answer 2

Agent’s liability to third party on contract depends on whether the principal was disclosed versus unidentified/undisclosed

Question 3

What is a disclosed principal ?

Answer 3

“disclosed principal” - existence AND identity is known to third party

Question 4

What is an unidentified principal?

Answer 4

“unidentified principal” = one whose existence is known but whose identity is withheld

Question 5

What is an undisclosed principal?

Answer 5

“undisclosed principle” = neither identity nor existence is disclosed

Question 6

What is agent’s liability to 3rd party where principal is disclosed?

Answer 6

In general –> disclosed principal is always liable on k, and agent is generally NOT liable

Exception:

1. parties k intended agent to be liable;
2. implied warranty that principal w contractual capacity exists + that he had authority to K for principal

Question 7

What is agent’s liability to 3rd party where principal is undisclosed or unidentified?

Answer 7

There is liability for BOTH the agent and principal

Question 8

If principal is undisclosed or unidentified, and 3rd party sues - may they sue both agent and principal?

Answer 8

Maj of courts permit suit against both principal and agent, but upon objection of either party, 3rd party must elect prior to judgment which party to hold liable

Question 9

If principal is undisclosed or unidentified, and 3rd party obtains judgment against agent without knowledge of principal’s identity - can he later sue principal?

Answer 9

Yes, if judgment is not satisfied

Question 10

If principal is disclosed, may agent enforce K against 3rd party?

Answer 10

No.

If principal is disclosed, only the principal, and not the agent may enforce K and hold 3rd party liable

Question 11

If principal is unidentified or undisclosed, may agent enforce K against 3rd party?

Answer 11

If principal is unidentified or undisclosed EITHER principal or agent may enforce K and hold 3rd party liable

NOTE –> if agent enforces K against 3rd party, principal is entitled to all of the rights and benefits thereunder

Question 12

Under what circumstances may principal NOT enforce contract against 3rd party?

Answer 12

Principal CANNOT enforce K against 3rd party if:

1. there has been an affirmative fraudulent misrepresentation of principal’s identity; OR
2. there is an unforeseen increased burden to the 3rd party due to the fact that performance is due to principal and not to agent