Question

Iris represents Drew, an eccentric billionaire who lives alone on a Pacific Island. Although Drew passes away on May 1st, this fact is not revealed until June 1st. On May 15th, Iris enters into a contract with Peggy on behalf of Drew. What is the legal liability, if any, of Iris to Peggy?

a. Iris is liable for a breach of actual warranty of authority.
b. Iris is liable for a breach of implied warranty of authority.
c. Peggy may enforce the contract since Drew's death was unknown, thus Iris has no liability.
d. Peggy may enforce the contract against Iris since she represented a nonexistent principal.

Answer 1

Iris likely does not hold liability to Peggy for entering a contract on behalf of Drew after Drew's death, as she unknowingly acted without authority. The contract is deemed void because the principal was deceased, nullifying the obligations of all parties.

Step-by-step explanation:

The question pertains to the liability that arises when an agent enters into a contract on behalf of a principal who, unknown to the agent, has passed away. In this scenario, Iris entered into a contract with Peggy on behalf of Drew after Drew had died. The key issue here is whether Iris had the authority to act on behalf of Drew at the time of entering the contract.

Option (a), stating that Iris is liable for a breach of actual warranty of authority, implies that Iris explicitly assured Peggy that she had the authority to contract when in fact she did not. Option (b) suggests Iris is liable for a breach of implied warranty of authority, which means that by acting on behalf of Drew, Iris implied that she had the requisite authority. However, the mere fact that Iris did not know of Drew's death, and therefore believed she had authority, would likely exclude her from liability for a breach of implied warranty of authority. Option (c), which states that Peggy may enforce the contract since Drew's death was unknown, thus Iris has no liability, assumes that the contract remains valid despite the principal's death, which is legally incorrect. Lastly, option (d) suggests Peggy may enforce the contract against Iris since she represented a nonexistent principal, yet typically, contracts entered into on behalf of a deceased principal are generally considered to be void, not binding on the agent personally.

Considering these points, Iris most likely does not hold liability to Peggy, assuming Iris acted in good faith and had no knowledge of Drew's death. Probably, the contract would be deemed void due to the principal's death prior to the contract being entered into, which would nullify the contractual obligations of all parties involved.