Principal's liability for an agent's contract occurs if the contract is authorized by which authorities?

• A. Principal is liable if authorized by actual express authorization, actual implied authorization, apparent authority, or ratification
• B. Principal is never liable on contracts formed by agents
• C. The agent is always personally liable on contracts
• D. The principal must always be disclosed to the third party

Answer: (A)

When a principal is bound by an agent, it’s because the agent acted with authority. That authority can come in several ways: actual express authority, where the principal directly says the agent may act or sign; actual implied authority, where the agent reasonably believes they have authority based on the principal’s conduct or the agent’s role; and apparent authority, where the principal’s actions lead a third party to reasonably believe the agent has authority. Ratification also binds the principal when the principal later approves the contract after it’s formed. If none of these exist, the principal isn’t bound by the contract, though the agent might be liable to the third party. Therefore, the correct understanding is that the principal is liable when the contract is authorized by actual express, actual implied, apparent authority, or ratification.