Tropical Vittles, LLC, hires Sophie to act as its agent to buy a ten-acre tract of land from Rico for $1,000 per acre. Tropical Vittles does not want Rico to know that it is the principal or that Sophie is its agent. Tropical Vittles wants the land for a new fast-food restaurant, and believes that Rico may not sell the land for that purpose or may demand a premium price. Sophie makes the purchase, signing only her name to the contract as the buyer and not disclosing to Rico the agency relationship. The transfer of the deed is to occur on May 1. Rico learns of Tropical Vittles's identity on April 15. Can Rico legally refuse to deed the property on May 1? Explain.

Question

What will be an ideal response?

Answer 1

Generally, no. Although the identity of the principal in this problem was not disclosed, the principal still retains the usual contractual rights of a principal. Therefore, if the agent contracted with the third-party seller within the scope of the agent's authority, the principal and the third-party seller are bound in contract.

There are three possible exceptions to the general rule. If a third-party seller expressly excludes undisclosed principals from a contract with an agent, if a principal's identity is undisclosed for the purpose of defrauding the third-party seller, or if the agent's performance is personal to the contract, the third-party seller can legally refuse to perform. Because none of these exceptions appears to apply here, however, the third-party seller's refusal to deed the property on the contract date would constitute a breach.