Agency

Agency

Ratification

Where the agent is acting without authority, if the principal wants to enforce the contract against the third party, he can ratify the contract. Apparent authority

Summers v. Saloman (1857) 26 L.J.K.B. 301

The defendant employed his nephew as manager to run his jewellery shop in Sussex and regularly paid for jewellery which the nephew ordered from the plaintiff for resale in his shop. The nephew left the shop and the agency was terminated. He went to London, obtained goods from the plaintiff in the defendant's name and then absconded with them. The defendant was held liable to pay for the goods.

Crompton J:

`As soon as you have given the agent authority to pledge your credit, you render yourself liable to parties who have acted upon notice of such authority until you find the means of giving them notice that the authority is determined'.

Coleridge J:

`The question is not what was the actual relation between the defendant and his nephew, but whether the defendant had not so conducted himself as to make the plaintiff suppose the nephew to be the defendant's general agent."Daun v. Simmins (1879) 41 L.T. 783

The principal, who had employed the agent to manage a tied house (a pub which is owned by a particular beer company and which only sells that company's products) which was in his name, expressly prohibited the agent from purchasing spirits from X. The agent ignored his principal's instructions, purchased spirits from X and then failed to pay for them. In an action by X against the principal it was held that the latter should not be liable for the unauthorised acts of the agent since the third party dealing with the agent was a person involved in the trade and should have known that the house was tied and therefore not allowed to purchase spirits from elsewhere.1. Undisclosed principal

...the law can be summarised shortly as follows. (1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principals behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principals right to sue, and his liability to be sued. : Lord Lloyd in Siu Yin Kwan v. Eastern Insurance Co. Ltd. [1994] 1 All E.R. 213, 220 (Privy Council).

Where the personal element is strikingly present in the contract made with the agent, the undisclosed principal may not intervene.Said v. Butt [1920] 3 K.B. 497

Butt, who was the managing director of a theatre, had for some time been involved in a dispute with Said. Twice Saids personal application for a ticket had been refused. Therefore, he employed Pollock as his agent to acquire a ticket for him without disclosing his name. On his arrival at the performance, Said was refused admittance and in consequence he brought an action against Butt for breach of contract. McCardie J (proceeding upon the assumption that the contract in cases of undisclosed agency is concluded between the principal and the third party) held that this contract was affected by mistake as to the identity of the contracting party and Said's action therefore failed. An undisclosed principal cannot be prevented from intervening on his agent's contract merely because the third party would not have contracted, had he known that the principal was in fact being represented by the agent.Dyster v. Randall [1926] Ch. 932

Dyster knew that Randall would not agree under any circumstances to sell certain land to him. He therefore employed an agent to negotiate the purchase of the property without revealing the fact that he was acting for a principal. Upon discovering that the agent had been acting for Dyster, Randall sought to resist performance of the contract on the grounds that he had been deceived by the agent. The court held that the contract could be enforced by Dyster. It was not a personal contract and the identity of the real purchaser consequently was not a material ingredient.Nash v. Dix (1898) 78 L.T. 445The defendants sought to resist the plaintiffs claim for specific performance of a contract to sell a Congregational chapel on the grounds that the plaintiff was secretly acting as agent for a committee of Roman Catholics, whose earlier and more direct overtures had already been rejected by the defendant seller. The plaintiff had contracted to purchase the chapel on the understanding that the Roman Catholic committee would in turn buy it from him at 100 profit.North J:

`The fact that (the plaintiff) knew that the defendants would have been reluctant to sell to a person who was buying as agent for the Roman Catholics, did not touch the case if he were buying, not as agent for the Roman Catholics, but on his own account.Off-setting Debt due from Agent against Claim by PrincipalCooke v. Eshelby (1887) 12 App. Cas. 271(HL)

A firm of brokers sold some cotton to a third party without disclosing that theywere acting as agents. The third party knew that the brokers sometimes dealt on their own account and sometimes acted as agents. However, in this specific transaction he had no particular belief whether they made this contract on their own account or for a principal. When the undisclosed principal sued for the purchaseprice, the third party sought unsuccessfully to set off against this claim other moneys owed to him by the brokers.

Since in this case the third party was unable to establish that the conduct of the principal had induced him to believe that the agentwas selling on his own account, he was held to have no right of setoff.

2. Where both authority and profession are lackingThe third party cannot sue the principal. The doctrine of apparent authority is not available against undisclosed principal since the undisclosed principal by definition does not make representation.Watteau v Fenwick [1893] 1 QB 346Humble sold out to Fenwick, a firm of brewers, but stayed on as manager. He continued to run the business on Fenwick's behalf. The change in ownership was not publicised, and to all external appearances matters continued as before. Fenwick, whose business included the supply of most of the consumables instructed Humble that he was not to order them from anyone else. Humble in breach of this instruction ordered some cigars, in his own name, from Watteau. Watteau believed that Humble was buying for himself. The cigars were ordered for, and used in, Fenwick's business. The goods were not paid for. Having found out about Fenwick's interest in the hotel, Watteau sued them for the price of the cigars. Held Fenwick liable on the ground that Humble had acted within the authority usually given to agents of this kind.

UNIDROIT Principles of International Commercial Contracts 2004ARTICLE 2.2.4(Agency undisclosed)

(1) Where an agent acts within the scope of its authority and the third party neither knew nor ought to have known that the agent was acting as an agent, the acts of the agent shall affect only the relations between the agent and the third party.

(2) However, where such an agent, when contracting with the third party on behalf of a business, represents itself to be the owner of that business, the third party, upon discovery of the real owner of the business, may exercise also against the latter the rights it has against the agent.a. How best to explain?

i. Agency with usual (apparent) authority

By putting Humble in the position of manager, Fenwick were liable on the principles of agency law for anything done by him within the usual scope of a manager's authority, something that clearly included the purchase of cigars.

ii. Analogy with "apparent ownership"Where P, an owner of property, clothes someone else (A) with the indicia of title to that property and A subsequently disposes of that property to T, a bona fide purchaser, T gets a good title on the basis that P is precluded from setting up his own interest in the goods concerned. Apparent ownership of not (say) a car but a business? The distinction between the disposals of property and the creation of liability is a highly pertinent one. Where disposals of property are concerned, the only way of giving the innocent third party what he bargained for and had every reason to expect i.e. a property interest good against the world is by allowing him to succeed whether or not he knew of the existence of the actual owner. But this is not so in the case of creating liabilities. Where, as in the Watteau v. Fenwick situation, a third party deals with a person without any belief as to whether there is a principal behind him, he gets exactly what he bargained for even if he cannot sue the "principal": namely, the liability of the person with whom he dealt with.iii. Analogy with vicarious liability in tort

In vicarious liability in tort, the victim's knowledge of the existence of the principal/employer is irrelevant and there is no difficulty about holding the employer liable for acts he not only did not authorise but prohibited. Should an undisclosed principal be vicariously liable on contracts made by an agent where they are contracts which a person would ordinarily make in the position which the principal has allowed him to assume?

Justification for vicarious liability in tort is the overriding imperative of ensuring that accident victims actually receive reparation. But no such argument applies to consensual transactions which form the subject-matter of agency litigation. Businessmen who voluntarily extend credit to those who turn out to be men of straw are generally left to bear the risk themselves. iv. Estoppel

What Fenwick represented by leaving Humble in charge was not that Humble was Fenwick's agent, but rather that Humble and the owner of the business were one and the same person. Fenwick had led Watteau to believe that the resources of that business would be available to meet his claim. Fenwick should not later have been allowed to resile from that representation and assert their separate identity and hence were rightly held liable on the contract. Hynes, Agency, partnership, and the LLC (2nd ed, 2001) 148

The result in Watteau is appealing but the basis of liability is troubling because it seems too broad. The arrangement established by Fenwick sent a misleading signal to persons who deal with Humble, a signal of apparent ownership of the tavern and all of its assets. Fenwick should be responsible for that and thus should be estopped from denying Humbles ownership under these circumstances, allowing Watteau to execute against the tavern and its assets after obtaining a judgment against Humble.PAGE 1