Third-Party Relations of the Principal and the Agent
Third-Party Relations of the Principal and the Agent
You are vice president of acquisitions for a medium-sized consumer food products company, Bon Vivant Foods, Inc. The company's board of directors has given you authority to negotiate acquisitions of consumer food brands on behalf of Bon Vivant. The board has told you in written and oral instructions that you have the power to acquire any consumer products brand if the acquisition price is not greater than $10,000,000, which is the authority typically held by most vice presidents of acquisitions for businesses like yours. The board's written instructions also indicate, however, that you have no authority to purchase or negotiate the purchase of a cola drink brand. Others in your position in the consumer food industry typically have authority to purchase a cola drink brand for their companies. The board also tells you that the company wants to buy the Eddie's ice cream brand from its owner, Eddie Ghahraman, at a price not greater than $9,000,000. The board is fearful, however, that if Eddie knows the company wants to buy the Eddie's ice cream brand, he will demand a higher price. The board tells you, therefore, not to disclose to Eddie that you are buying for Bon Vivant, and instead to make it appear that you are buying for your own company. They suggest you make up a name for this fictitious company. You decide to use the name Psudeau, Inc.
Assess the risks to you and Bon Vivant. Consider the following questions:
If you make a contract in the name of Bon Vivant to buy a snack-cracker brand for $3,000,000, will Bon Vivant be bound on that contract?
If you make a contract in the name of Bon Vivant to buy a cola brand for $7,500,000, will Bon Vivant be bound on that contract?
If you make a contract in the name of Bon Vivant to buy a canned soup brand for $40,000,000, will Bon Vivant be bound on that contract? Will Bon Vivant be bound on that contract if you present the contract to the board, the board decides to accept the contract, and then the board later rejects the contract as too costly?
Suppose you make a contract for Bon Vivant to purchase the Eddie's ice cream brand for $8,200,000. The contract is signed by Eddie. You sign Psudeau's name and also your own name as agent for Psudeau. Who is liable on that contract?
