LakesideResort hires Micheline to act as its agent to buy a 1,000-acre waterfront tract of land from Nabil for $1,000 per acre. Lakeside does not want Nabil to know that it is the principal or that Micheline is its agent. Lakeside wants the land for a
new marina, and believes that Nabil may not sell the land for that purpose or may demand a premium price. Micheline makes the purchase, signing only her name on the contract as the buyer and not disclosing to Nabil the agency relationship. Lakeside gives Micheline the amount to pay for the land, but she absconds with the funds. Nabil soon learns of Lakeside'sidentity. Can Nabil enforce the contract against Lakeside? Against Micheline?
As a general rule, an undisclosed principal is liable for an agent's dishonesty after an authorized contract has been made. In this problem, the principal's payment to its agent was not a payment to the third-party seller, and thus under the general rule, the principal must bear the loss of the funds with which the agent ab¬sconded. Because the contract was within the scope of the agent's authority, the third-party seller can hold the principal to the contract.
In addition, when a third person contracts with an agent for a fully undisclosed principal, the agent becomes personally liable on the contract. Therefore, in this problem, once the principal's identity is revealed, the third-party seller can elect to hold ei¬ther the agent or the principal li¬able. Generally, an election to hold one party liable releases the other party from liabil¬ity. Filing a suit against both parties is not an election, but when the suit is at the point of being reduced to a judgment, however, the successful; third-party seller may have to choose the party from whom to recover.
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