4Relationship between the principal and the third party

4.1Principal’s liabilities to the third party

4.1.1Agent acts without authority

Commerford v Britanic Assurance (1908)

The agent of the defendant insurance company (P) represented to the plaintiff (T) that a certain policy would pay out £75 in the case of her husband’s death. This was true. He further represented that if the husband died from an accident – as opposed to disease – the policy would pay out £150. This was untrue and the agent had no authority (actual or apparent) to make this statement. That representation was not ratified. After her husband died in a drowning accident the plaintiff sued the principal insurance company for £150.

Held as the agent had no authority to make the statement and it had not been ratified the principal insurance company were not liable to the plaintiff.

4.1.2Principal settles with agent

Wyatt v Marquis of Hertford (1802)

A third party, who was owed money by the principal, took a security offered by the agent. He gave the agent a receipt as if for the payment, although none had been made. When the principal saw the receipt he paid the agent, mistakenly thinking that the agent had paid the third party. Presently the third party sued the principal for the (still unpaid) debt.

Held the action failed because the third party was estopped by his conduct of issuing a receipt. This led the principal, believing that the debt had been discharged, to settle with his agent.

Irvine v Watson (1880)

The agent ordered some oil from the third party. It was delivered and the third party did not require prepayment. This was unusual in the trade, but there was no trade custom that there should be prepayment. The principal settled with the agent, who later became insolvent. The third party remained unpaid and sued the principal.

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Held the rule that a principal may be exonerated is based upon estoppel and not simply that it is unjust for the principal to pay twice. Here the principal was liable as the third party had made no representation that the debt had been settled by the agent. In particular, although delivering the oil before payment was unusual, there was no trade custom as such, consequently delivery did not amount to a representation that payment had been made.

4.2Principal’s rights towards the third party

4.2.1Third party settles with agent

Linck v Jameson (1885)

A broker (A) sold goods to a third party, who paid the broker. The broker absconded without paying over the money to his principal. The principal brought an action for price against the third party.

Held the agent had no authority (actual or apparent) to receive payment. Further, the mere fact that the principal had authorised the agent to receive payments on previous occasions did not amount to apparent authority. The third party was still liable to the principal.

Butwick v Grant (1924)

Butwick (P) employed Chait (A) to sell sports coats to Grant (T). Grant ordered 63 and they were later delivered with an invoice in the name of Butwick. Chait collected payment from Grant and gave him a receipt. However, Chait got into financial difficulty and could not hand the money on to his principal, Butwick, though he had intended to do so. Butwick sued Grant for the price of the goods, the issue being whether the agent had authority to collect the money.

Held authority to sell does not necessarily imply authority to receive payment for the goods: Grant would have to pay Butwick.

Hine Bros v SS Insurance Syndicate (1895) CA

An insurance broker (A) was authorised to receive payments only in cash. This was in accordance with trade custom. The broker took a payment from a third party by bill of exchange and then become insolvent. The principal sued the third party for the payment.

Held the third party was still liable to the principal because: (i) the agent had no authority to take a bill of exchange; and (ii) there was no trade custom that payment may be made by bill of exchange.

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5Doctrine of undisclosed principal

5.1General rule

Curtis v Williamson (1874)

Boulton, appearing to act on his own behalf, purchased some gunpowder from the plaintiffs. Later, the plaintiffs discovered that Boulton was acting on behalf of an undisclosed principal – the defendant mine owners. Then Boulton filed a petition of liquidation and the plaintiffs filed an affidavit in those proceedings in an attempt to recover the debt owed for the gunpowder. However, the plaintiffs then changed their mind and sued the defendant principal.

Held once an undisclosed principal is discovered the third party may elect to sue that principal. Secondly, the filing of the affidavit against the agent did not prevent the action against the principal.

Sui Yin Kwan v Eastern Insurance (1994) PC

A company called Axelson (UP) owned the ship Osprey. They asked their shipping agents, Richstone (A), to insure the ship, including personal injury to the crew. Richstone did this in their own name – which is normal. The Osprey, while moored in Repulse Bay, Hong Kong, was hit by typhoon Ellen. Many of the crew were lost and relatives of two of them sued Axelson for negligence and got judgment. They were awarded $HK1 million. However, Axelson had already gone into liquidation, so the relatives stepped into the shoes of Axelson and sued the insurance company (T). The insurance company argued that they had only dealt with Richstone, and knew nothing of Axelson, the undisclosed principal.

Held the doctrine of undisclosed principal applied: where an agent acts within his actual authority the undisclosed principal may intervene and acquire the rights/liabilities of the agent. Here, the agents acted within their actual authority and so the relatives could recover from the insurance company.

Note

See Hallady [1994] LMCLQ 174.

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Boyter v Thomson (1995) HL (SC)

Thomson (P), a private seller, sold a cabin cruiser through a commercial agent to Boyter (T). Boyter knew nothing of the agency and thought that the agent was the owner. The cruiser proved not to be of merchantable quality and, upon discovering the agency, Boyter sued Thomson under s 14 of the Sale of Goods Act (see below, 9.4). Section 14(5) provides that where an agent sells goods the principal shall be liable under s 14(2) and (3) in the normal way, provided that the principal sells in the course of a business, or if he does not, the buyer knows this or reasonable steps have been taken to bring this to his attention. As this was a case of undisclosed principal Boyter had no way of knowing that Thompson was a private seller. In reply Thomson argued that s 14(5) did not apply to cases of undisclosed principal.

Held s 14(5) applied to cases of undisclosed principal and Thomson was liable to Boyter for breach of contract.

5.2Exceptions to the general rule

5.2.1Express terms of the contract

UK Insurance Association v Nevill (1887)

Nevill (P) and Tully (A) were part-owners of a ship. Tully was a member of the UK Insurance Association (T) and he insured the ship with them; Nevill was unknown to the Association. The Association’s rules stated that only members were liable for premiums. Presently, Tully went bankrupt and the Association sought the premium from Nevill.

Held the terms of UK Insurance Association expressly excluded an undisclosed principal. Therefore Nevill was not liable for the premium.

5.2.2Implied terms of the contract

(Grace) Humble v Hunter (1848)

Grace Hunter was the owner of the ship Ann. She tried to sue upon a contract (charterparty) signed by her son (A): ‘CJ Humble Esq owner of the good ship or vessel called the Ann’.

Held an undisclosed principal could not come forward to assume rights or liabilities on the contract when (impliedly) excluded by the terms of that contract. Here, the agent (the principal’s son) had described himself as the owner of the ship.

5.2.3Personality of the principal

Archer v Stone (1898)

Before signing a contract to sell a house, the seller (T) asked the agent if he was acting for a particular principal. The agent replied that he was not.

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Doctrine of undisclosed principal

This was untrue and a misrepresentation. When the truth was discovered the seller refused to go ahead with the sale. The purchaser (undisclosed principal) brought an action for specific performance.

Held the action failed because of the misrepresentation.

Nash v Dix (1898)

Trustees were selling a former chapel building. They refused an offer on behalf of a Roman Catholic committee because the committee intended to use the building as a Roman Catholic place of worship. The committee then asked the manager of a mineral water company to buy the building and offered to buy it from him at a £100 profit. The trustees, who believed that the manager wanted the building for his company, agreed to sell the building to the manager. The manager had been aware of their mistake, but he said nothing. Upon discovering the truth, the trustees refused to complete the sale and the manager brought an action for specific performance.

Held granting specific performance, the manager was buying for himself, with a view to reselling. There was no agency arrangement and so the identity of the probable sub-buyers (the committee) was irrelevant to that sale.

Said v Butt (1920)

Said (P) wished to attend the opening night of the play Whirligig at the Palace Theatre, London. However, at the time he was in dispute with the theatre owners and he knew that the theatre would not knowingly admit him on such an important evening. So Said employed Pollock (A) to purchase a ticket on his behalf without revealing the agency. In due course, Said went along to the opening night but was refused entry to the theatre by Butt (the theatre’s managing director) who spotted him in the foyer. Said sued Butt; the issue for the court was whether a binding contract existed between the theatre and Said.

Held there was no contract. McCardie J emphasised the specific importance of a first night; accordingly, the management would be particular as to who attended.

Dyster v Randall (1926)

Dyster (P) wished to purchase some land owned by Randall, who distrusted Dyster. That land was for sale but Randall would not sell it to Dyster and Dyster knew this. So Dyster employed Crossley (A) to buy the land without revealing the agency. When Randall discovered the truth, he sought to renege on the contract. Dyster brought an action for specific performance.

Held the agent’s silence did not amount to a misrepresentation. This was not a personal contract and so the identity of the purchaser was irrelevant. Specific performance granted.

5.3Set-off and the undisclosed principal

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Rabone v Williams (1785)

An agent, acting for an undisclosed principal sold the defendant some goods. The defendant was owed money by the agent. Subsequently, the principal intervened on the contract to sue the defendant for the price of the goods. The defendant argued that he should be able to set off the debt owed by the agent against his liability to the principal.

Held where the agent delivers goods in his own name, thus concealing the agency, the purchaser contracts with the agent and enjoys the right of set-off against the agent. If the real principal intervenes on the contract, the purchaser’s right of set-off on the contract remains. The defendant may have his set-off against the real principal.

Cooke v Eskelby (1887)

A firm of brokers (A) owed money to Cooke (T). Sometimes the brokers sold goods on behalf of a principal and sometimes on their own behalf; this was known to Cooke. On one occasion the brokers sold some cotton to Cooke; in this instance the brokers were acting for an undisclosed principal. When the real principal intervened on the contract to sue the defendant for the price of the goods, Cooke argued that he should be able to set off the debt owed by the brokers against his liability to the real principal.

Held the set-off was not effective against the real principal. The doctrine which allows a set-off against an agent to be effective against his (undisclosed) principal is based upon estoppel. Consequently, it only operates where the principal has represented to the third party that the agent is the principal. That was not the case here because Cooke was not bothered if the brokers were acting as agent or principal.

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