Story Case

Louis Forgan employed August Whitaker, secretly, to act as his agent in buying a number of shares of stock of the Northwestern Railway Company. Whitaker contracted to purchase a block of this stock, doing so in his own name. Later the stock depreciated in value and Whitaker refused to take it. As he was insolvent, the vendors could not force him to pay. A year later the vendors learned how Whitaker had been, in fact, acting for Forgan. Can they now hold Forgan for the contract made by Whitaker?

Ruling Court Case. Beebe Vs. Roberts, Volume 12 Wendell, Page 413; Volume 27 American Decisons, Page 132

One Hooley, a factor purporting to act for the plaintiff Beebe, purchased of the defendant twenty-five bales of packed cotton. At the sale the agent did not disclose for whom he acted. The cotton proving worthless, the plaintiff sued the defendant upon the warranty made by him as to its quality. It was contended by the defendant that plaintiff could not sue upon the contract, for he was not a party to it.

The Court, by Sutherland J., decided that "the suit was properly brought in the name of the present plaintiffs. Hooley acted as their factor or agent merely in the purchase of the cotton * * * * when goods are bought by a broker or other agent, and he does not disclose his principal at the time, the prncipal, when discovered, is liable on the contracts which his agent has made for him." Since the principal is liable, when discovered, he can also bring the suit against the third person. Accordingly, the judgment was given for the plaintiff.

Ruling Law. Story Case Answer

The third person may hold the principal upon contracts, even though the third person knew nothing of the principal at the time he entered into the contract. The principal can be held when he is discovered, if it is learned that the contract is really made for his benefit.

In the Story Case, Forgan can be held on the contract made by Whitaker. Forgan is an undisclosed principal, and as soon as he is disclosed the third person has the right to hold either the agent or the one for whom he acts.