Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 6

FACTS Stonhard, Inc., makes epoxy and urethane flooring and installs it in industrial and commercial buildings. Marvin Sussman entered into a contract with Stonhard to install flooring at Blue Ridge Farms, LLC, a food-manufacturing facility in Brooklyn, New York. Sussman did not disclose that he was acting as an agent for the facility's owner, Blue Ridge Foods, LLC. When Stonhard was not paid for the work, the flooring contractor filed a suit in a New York state court against the facility, its owner, and Sussman to recover damages for breach of contract. Stonhard filed a motion for summary judgment against the defendants, offering in support of the motion evidence of the contract entered into with Sussman. The court denied Stonhard's motion and dismissed the complaint against Sussman. Stonhard appealed.
ISSUE When an individual who enters into a contract is acting as an agent for a partially disclosed principal, is the agent personally liable on the contract?
DECISION Yes. A state intermediate appellate court reversed the lower court's dismissal of Stonhard's complaint and issued a summary judgment in the plaintiff's favor.
REASON The evidence of the parties' contract indicated that Sussman "at best" was acting as an agent for a partially disclosed principal (or he was acting as an agent for an undisclosed principal). In that capacity, Sussman was personally liable on the contract with Stonhard. An agent who contracts on behalf of a disclosed principal is generally not liable for a breach of the contract. But the other party to the contract must have known the principal's identity and must have known that the agent was contracting for the principal. Actual "knowledge of the real principal is the test."
In this case, Stonhard provided "documentary evidence" that it had contracted with Sussman of Blue Ridge Farms to install flooring at the Blue Ridge Farms facility. The evidence also showed that Sussman did not disclose that he was acting as an agent for Blue Ridge Foods. In other words, among these parties, the evidence indicated that the agency relationship was known, but the identity of the principal was undisclosed. Thus, "at best" Sussman acted as an agent for a partially disclosed principal in contracting with Stonhard. As an agent for a partially disclosed or undisclosed principal, Sussman was personally liable on the contract.
FOR CRITICAL ANALYS IS-Legal Environment Consideration The court ruled that Sussman was personally liable on the contract with Stonhard. Is the principal, Blue Ridge Foods, also liable? Explain.