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Contract Liability: The Principal
Updated 1/4/2024 PG
A principal may authorize an agent to enter into contracts on the principal’s behalf. This could be as weighty as purchasing a business or as trivial as ordering bike tires. If one of the parties to the contract defaults, who is liable? Let’s first consider the potential consequences to the principal. A principal may be liable for a contract entered into by an agent if any of the four following “contractual bases” are present: (1) actual authority; (2) apparent authority; (3) ratification; or (4) estoppel.
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