10 Questions
What happens if the agent signs a cheque in his own name without making it clear that he is signing only as an agent?
The agent is presumed to be personally liable.
What is the characteristic of an undisclosed principal?
The principal's existence and identity are unknown to the 3rd party at the time of the contract.
In what situation can the 3rd party take action against the agent or the principal or both?
If the agent's personally liable, under Section 186.
What is the exception to the rule that the agent will not be liable for the contract?
Where the agent agrees to accept personal liability or contracts in such a way as to make himself personally liable.
What happens if the principal is not having sound mind?
The agent will be personally liable.
What is the characteristic of a named principal?
The agent discloses the principal's name to the 3rd party.
What happens if the agent does not disclose his principal's name?
The agent is presumed to be personally liable.
What is the right of the principal in an undisclosed agency?
To sue the contract because the contract is his.
What is the liability of the agent and principal in an undisclosed agency?
The liabilities are joint and several.
What happens if the 3rd party knows about the agent's lack of authority?
The agent will not be liable for the contract.
Study Notes
Ratification of Contracts
- A principal can ratify a contract made by an unauthorized agent if certain conditions are met.
- The principal must have full knowledge of all material facts at the time of ratification.
- The principal must have contractual capacity at the time the contract is made.
- The agent must have expressly acted as an agent for the principal at the time of the contract.
- The principal must be in actual existence when the agent makes the contract.
Apparent/Ostensible Authority
- Arises in two situations: where the principal leads a third party to believe the agent has authority, or where the agent previously had authority but it was terminated without notice to third parties.
- In the first situation, the principal is precluded from denying the agent has authority (estoppel).
- If the third party knew or ought to have known the agent did not have apparent authority, they cannot rely on it.
- Where the agent previously had authority, if the principal terminates it without notice to third parties, the agent may still appear to have authority.
Categories of Principal
Named Principal
- The agent discloses the principal's name or identity to the third party.
- Exceptions: where the agent agrees to accept personal liability or contracts in a way that makes themselves personally liable.
- If the agent signs a document (e.g. a cheque) in their own name without making it clear they are signing as an agent, they may be personally liable.
Disclosed Principal
- The principal's existence is disclosed to the third party by the agent, but their identity is unknown.
- The agent is presumed to be personally liable unless the third party releases them or after discovery of the principal.
- If the principal cannot be sued, the agent will be personally liable.
Undisclosed Principal
- The principal's existence and identity are unknown to the third party at the time of the contract.
- The third party has the right to sue the agent, principal, or both.
- The principal has the right to insist on performance of the contract.
- The agent can sue on the contract because it is theirs.
This quiz covers the principles of contract law, focusing on the requirements for ratification and the principal's capacity to enter into a contract.
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