Agency, election and merger

1196303 Inc v Glen Grove Suites Inc., 2015 ONCA 580:

[80]       Election and merger are separate, albeit related, concepts. Election refers to a decision to pursue either the agent or the principal for a single cause of action. Once a plaintiff has definitively elected to sue either principal or agent, he or she may not later choose to pursue the other party. Whether a party has elected is a question of fact, and is often difficult to prove. Merger, by contrast, occurs once judgment has been granted against either agent or principal. Once judgment is given against one, the cause of action against the other disappears, having "merged" in the judgment. The underlying rationale is again that there is only one cause of action. See Cameron Harvey and Darcy MacPherson, Agency Law Primer, 4th ed. (Toronto: Thomson Reuters, 2009), at pp. 111-15; Peter Watts and F.M.B. Reynolds, Bowstead & Reynolds on Agency, 20th ed. (London: Sweet and Maxwell, 2014), at 8-115.

[81]       However, when an agent contracts with a third party on behalf of a disclosed principal, the agent may bind itself personally as well as binding the principal. As Justice Brandon stated in Bridges & Salmon v. Owner of The Swan, [1968] 1 Lloyd's Rep. 5 (U.K.H.C. Prob. Div.), at p. 12, the question of whether both agent and principal are liable on the contract depends on the objective intention of the contracting parties:

That intention is to be gathered from (1) the nature of the contract, (2) its terms and (3) the surrounding circumstances.… The intention for which the Court looks is not the subjective intention of [agent] or of [the third party]. Their subjective intentions may differ. The intention for which the Court looks is an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended.

See also Q.N.S. Paper Co. v. Chartwell Shipping Ltd., [1989] 2 S.C.R. 683, at p. 698.