Contract liability of Agents and principals

Question 1

Disclosed Principal with Actual Authority (Express or Implied)

Answer 1

the principal only is liable to the third party.

Question 2

Disclosed Principal with Apparent Authority

Answer 2

There must always be a disclosed principal under apparent authority because the authority exists due to the principal holding out someone as an agent.
In this situation, the principal only is liable to the third party, but the agent is also liable to the principal for acting as an agent without express or implied authority.

Question 3

Apparent Authority—Even if the agent lacks express or implied authority (both being types of “actual authority”), the principal may still be liable for contracts negotiated by the agent if:

Answer 3

Principal held agent out as principal’s agent; that is, a third party reasonably believed that the agent worked for the principal and had the authority to enter into contracts;
Agent acted within scope of apparent authority; and
Third party reasonably relied on the appearance in entering into a contract.

Question 4

Liability of Disclosed Principal—Agent has no Actual or Apparent Authority

Answer 4

In this situation, the agent only is liable to the third party; the principal has NO liability.

Question 5

Partially disclosed principals

Answer 5

If an agent is acting for a principal under actual authority, but does not identify the principal, then both the principal and the agent are liable to the third party. Real estate agents disclose that they are acting for a buyer but do not want the seller to know who the buyer is because the seller might increase the price if the buyer is a wealthy individual or a developer. The agent’s principal would be unable to obtain a fair price for the property if the seller knew his or her identity.

Question 6

Undisclosed Principals

Answer 6

If an agent with actual authority does not disclose to the third party the fact that he or she is acting on behalf of a principal, and the third party believes the agent is acting on his or her own behalf, the agent and principal are both personally liable on the contract. However, the agent can identify the principal (unless there was an agreement of confidentiality), and the third party can choose to pursue the principal for any damages. The agent is entitled to reimbursement from the principal if the agent has to pay the third party any damages.

Question 7

Be sure to distinguish between the third party’s right to enforce the contract and the liability of the agent and principal to the third party.

Answer 7

In the undisclosed principal situation, the agent is functionally a party to the contract and may enforce it against the third party.
If the agent reveals the identity of the principal or the principal decides to disclose his or her identity, then the principal can enforce the contract against the third party.
The principal could face two situations under which the third party can refuse to perform for the previously undisclosed principal.
If the third party has already performed the contract for the agent, then the third party is not required to perform the same contract again for the principal.
If the contract is the type that cannot typically be assigned (e.g., it calls for personal service by the agent). If the third party’s decision was based on the agent’s personal credit standing, judgment, or skill, and those factors were the bases for the third party contracting with the agent, then the third party can refuse to perform.