Contract Law: Ratification and Principal's Capacity

Study Notes

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.

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.

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.

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.

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.