When it comes to a principal who uses an agent to act on their behalf to sign a Calgary commercial property contract, certain rules of liability apply to govern the principal.
And there are 2 different conditions which apply depending on whether the principal is a:
• Disclosed Principal, or a
• Undisclosed Principal
Let’s look at each situation separately.
Disclosed Principal
A “disclosed principal” occurs when an agent acting on behalf of a principal does so where the principal is actually named. The agent who possesses the authority to sign a contract on the principal’s behalf does so, and in this situation, the principal assumes liability for the contract performance.
The agent however, must act on behalf of the principal and must have either the authority provided directly by the principal, or by the conduct of the principal which gives the indication that the agent has the authority to act on the principal’s behalf.
However, should the agent act independently outside of the apparent or indicated authority provided by the principal, the agent would likely be responsible for assuming any liability. If this situation occurs, the principal can provide confirmation for the agent to proceed and would then re-assume liability.
Additionally, where an agent is acting on behalf of a principal, 3 conditions must be satisfied including:
• The agent must declare they are acting on behalf of the named principal
• The agent must have a “competent” principal, and
• The Principal must be legally able to complete the requirements of the contract
Undisclosed Principal
This situation occurs when the principal is not disclosed. The general rule of law is that the third party who is dealing with the agent believes that the agent is acting on their own behalf.
Should the third party learn that an undisclosed principal exists, the third party may be entitled to sue the principal after the contract was signed, and providing the agent was acting under the authority provided by the undisclosed principal acted within the scope if its actual authority.
However, there is one important legal exception where this situation may not apply.
The important gist of this is simply that you should always ask whether the person you are dealing with is acting as a principal or as an agent to clarify the legal situation.
