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
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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
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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. 445
The 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 Principal
Cooke v. Eshelby (1887) 12 App. Cas. 271(HL)
A firm of brokers sold some cotton to a third party
without disclosing that they were acting as agents. The
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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 lacking
The 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 346
Humble 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 2004
ARTICLE 2.2.4(Agency undisclosed)
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(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
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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
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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.