How can a principal avoid a contract entered into by an agent acting within the terms of the agency agreement?

The correct answer reflects the principle of agency and the obligations it entails for the principal when an agent acts within their authority. When an agent is functioning within the bounds of the agency agreement, any contract entered into typically binds the principal. This means that the principal is legally obligated to honor the contract because the agent was acting on behalf of the principal and had the authority to do so.

To elaborate, if an agent operates within the terms of their authority, the principal has a responsibility to uphold any agreements made by that agent. This is rooted in the concept that an agent is seen as an extension of the principal, and thus the contracts they form are essentially contracts created by the principal. Therefore, the principal cannot simply avoid or reject these contracts because doing so would undermine the agency relationship and the trust inherent in that relationship.

In contrast, the other choices present scenarios that do not align with the governing principles of agency law as accurately. An undisclosed principal rule may allow certain rights for non-disclosed principals concerning liability, however, this does not apply if the agent is acting within their authority. The option regarding retrospective termination of the agency may imply actions that impact future agreements but does not negate the binding nature of existing contracts. Lastly, refusal to ratify a