Question

Mike hires Tom, a general contractor, to renovate his apartment while he is away on vacation. Mike expects Tom to have completed the work by the time he gets back in three weeks. Tom’s team needs asphalt roof shingles to install a new roof but Tom does not have a regular supplier. Assuming he has the authority in Mike’s absence, Tom signs a sales contract on behalf of Mike to obtain the shingles from a third party. The contract allows Mike to make the payment for the shingles over the course of the next three months. When Mike returns, Tom informs him about this contract. Mike neither ratifies nor repudiates the contract. Based on this scenario, which of the following statements is most likely to be true?A. Mike and Tom are bound to honor the contract because they are in a fully disclosed agency relationship.
B. Mike is bound to honor the contract because he did not ratify or repudiate it but reaped its benefits.
C. Mike is not bound to honor the contract because he did not authorize Tom to sign a contract on his behalf.
D. Mike is not bound to honor the contract because he did not expressly ratify the contract.

Answer 1

Answer:

A. Mike and Tom are bound to honor the contract because they are in a fully disclosed agency relationship.

Explanation:

In the scenario, the facts are:

1. Mike expects Tom to have completed the work by the time he gets back in three weeks.

2. Tom’s team needs asphalt roof shingles to install a new roof but Tom does not have a regular supplier.

3. Tom has the authority in Mike’s absence, Tom signs a sales contract on behalf of Mike to obtain the shingles from a third party.

4,Tom informs him about this contract.

5. Mike neither ratifies nor repudiates the contract.

With these facts in place, it is obvious that they are in a fully disclosed agency relationship, and the contract will be honored.