Contract Law: Ratification and Principal's Capacity

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.