Law of Agency: Contracts Concluded through Agents

Contracts Concluded with the Agent acting within their Actual Authority

It is necessary to distinguish between disclosed and undisclosed principals, as will soon become apparent.

Disclosed Principal

There is generally no difficulty here: the agent is rarely involved with the contract between the principal and the third party. But there are some circumstances where the agent may sue and be liable to be sued.

a) Contract under seal

If the agent executes the deed in their own name they incur liability, even if they are described as an agent. But in the commercial contexts, deeds are rare.

b) Contracts not under seal

For the agent to incur liability under a normal contract, the question is one of construction. Rarely the interpretation will incur liability for the agent, due to the (obvious) intentions of the parties. Inclusion about their remuneration doesn't affect this.

            i) Written Contracts: the wording of the document

Particular emphasis is placed on the terms of the contract if it is written, especially those surrounding any signature. Where an agent signs as himself, he is personally liable. He cannot adduce evidence of fact (i.e. the agency) to which the contract doesn't refer: Parker v Winlow. Even if the contract acknowledges the agency, but says it is between the agent and the third party, the agent will be liable under it: The Virgo. Therefore, an agent won't be personally liable if the contract a) says he is signing for someone else, and b) doesn't say he is a party to the contract; Gadd v Houghton. 

          ii) Foreign Principals

There used to be a strong presumption favouring an agent's personal liability where his principal was foreign. This has now substantially weakened. It is just one circumstances to take into account in interpreting the conract: Teheran Europe v ST Belton. It is indeed easier for to sue someone in your own jurisdiction, so it would make the contract easier for everyone if the agent was in the position to sue and be sued. Where the contract involves an extension of credit to an overseas principal, there is a stronger inference that the agent intended to be liable too.

c) Consequences of the Agent's Personal Liability 

Liability is joint and several - the third party must sue either the agent or the principal, not both. There is uncertainty however, whether the basis for this is the doctrine of merger or the doctrine of election. In the former case, the third party's judgment against the two potential defendants merges into one liability, and one judgment: RMKRM v MRMVL. The consequence is that when you have obtained judgment, you can't sue the other even if the first party becomes bankrupt: Priestly v Fernie. if It is the latter, then the third party makes an unequivocal choice. But it's hard to argue he chose one defendant over the over when he hasn't received compensation from the judgment. Difficulty is also caused by undisclosed principal's - if the third party sues the agent, it can hardly be said he made a choice when he didn't know about the principal.
It is clear that commencing proceedings is insufficient to erase the other party's liability: Clarkson, Booker v Andjel. 

Undisclosed Principal (UDP)

In this case the third party isn't aware the principal exists, and believes the agent is in fact the principal. This is different to where he knows agency exists but doesn't know who the principal is - that is an unnamed principal, but disclosed. English Law approves of undisclosed principals by citing their commercial convenience - what that is nowadays is unclear, as it is a C19th principle.

The position of the UDP is also unclear - are they an exception to the privity rule, or are they the other party to the contract lacking certain rights a disclosed principal has? Analogies with assignment would support the first approach, but it would appear that although unarticulated, most judgments proceed on the later approach. But regardless, the question is one of the exceptions to and limitations upon their rights and liabilities when they are undisclosed.

a) Limitations on the UDP's right to sue the third party

            i) The Third Party Pays The Agent

The third party receives a good discharge of their debt if they pay the agent before the principal is revealed. The reason why is unclear. The C19th notion that it is estoppel based is fictional - there would need to be a representation, and how can the principal make a representation when his existence is unknown? A better basis would relate to Watteau v Fennick - apparent authority. But an even better view would simply be that the ability of an agent to give good discharge is a rule of agency law in which estoppel plays no part.

         ii) Undisclosed Principal is subject to any equities arising before their existence is revealed

All defences and equities the third party acquires as against the agent (before the principal was revealed) may be used against the principal: Browning v Provincial Insurance. The underlying reasoning in this case is that a third party should not be worse off because of the principal being revealed. This reflects the law of assignment, which ensures that assignment doesn't operate to the debtor's prejudice (as assignment may happen at any moment).
The existence of this rule leads some to argue that the underlying nature of the undisclosed principal is assignment (as mentioned above), with the contract arising between the agent and third party with the agent effectively assigning it to the principal. But conventional assignee's can't be sued, unlike the UDP. It is better to proceed by way of analogy with assignment rather than equating it with agency. The Privy Council in Siu Yin Kwan v Eastern Insurance made clear that an UDP can intervene in a non-assignable contract.

A scenario can arise where the third party contracted with the agent because the agent owed them money. The third party wanted to generate a set off to discharge the agent's debt. The set off defence can be used against the principal as well: Rabone v Williams. Considerable difficulty was created by the House of Lords decision Cooke v Eshelby. The third party set off their debt to the agent through this contract, but the UDP sued for the funds. The House of Lords prevented the third party using the set off defence. The HL invoked estoppel. A better explanation would be that the third party knew the agent contracted sometimes as an agent, and others as principal - he should have checked. That would make this a disclosed principal case.

In this instance, Cooke is 1) Not actually an UDP case due to the agent's ambiguous status 2) Can be explained by being inventive with estoppel like with Watteau v Fennick - it's artificial but achieves the correct result. Or 3) Cooke is wrong, but, it is a HL decision, so only the Supreme Court could declare this.

b) Excluding an undisclosed principal from intervening in the contract

            i) The contract terms are inconsistent with the agent being an agent

The UDP can't intervene where the contract is incompatible with their existence: HL Drughorn v Transatlantic. This construction is rare however, otherwise the commercial convenience English law identifies with UDPs would be defeated: Teheran Europe v ST Belton per Diplock J. Lord Lloyd cautioned against courts too readily excluding UDPs, otherwise the commercial convenience Diplock J identified would be jeopardised: Siu Yin Kawn v Eastern Insurance. 

What can prevent the UDP intervening is if the agent is described as the 'owner'. This would put them at the top of the property hierarchy: Humble v Hunter. There are 2 other examples of the UDP being excluded by wording, but this is very rare:

Insurance rules preclude the existence of an undisclosed principal: UK Steamship v Nevill

Where an UDP has relied on a misrepresentation their agent did not rely upon, they cannot rescind: Collins v Greyhound Racecourses. They could not do this otherwise the third party's rights against the agent would be denied.

A court won't grant specific performance to an UDP whose agent misrepresented that he was contracting as principal: Archer v Stone. 

            ii) Identity of the other contracting party is material 

If the contract is genuinely personal (such as painting a portrait) then the principle is simply common sense. However, that aside, there are doubts about the existence and scope of such an exclusionary rule.

In favour of such a rule existing is analogy with formation mistakes in contract law. In Boulton v Jones for example, it was held to be a fundamental mistake where A thought he was contracting with B who owed him money, so he could set off the debt, but was in fact contracting with C (NB not an agency case, but a similar idea could apply in this area of the law).

There are a series of cases which cause difficult in this area of the law:

Said v Butt - McCardie J emphasised the  personal nature of the first night viewing at a play, and referring to cases such as Boulton v Jones held no contract to exist.

Greer v Downs - In this Court of Appeal decision, the facts were parallel to Boulton. Held the contract was between A and B - C could not intervene. But here the exclusionary identity rule was not even required, as A was protected by the 'subject to equities' rule - the defence of set off would have been available against C. The result is right, but the reasoning is questionable.

Dyster v Randall - a first instance decision by Lawrence J which has caused notable difficulty. Decided a year before Greer, in which Lawrence (then LJ) was present. Land was sold to an agent with an UDP, who the vendor would not have sold to directly. It was held not to be a personal contract, distinguishing it from Said v Butt, and the agent could have easily bought for himself and assigned the contract anyway.

Dyster was not mentioned in Greer. So what's the difference? I would say Greer is wrong in invoking the exclusionary identity rule rather than using the subject to equities rule. In which case Said is a personal contract, and Dyster isn't, so both are correct. Unfortunately however, Greer is a Court of Appeal decision, and the other two are first instance.

c) Limitations on the third party's right to sue the undisclosed principal

The Principals liability is subject to 2 qualifications, Merger and Election (as mentioned above), or

The Principal Settles with the Agent Before His Existence Is Revealed

Payments by the UDP to the agent operate on the same basis as settlement when a disclosed principal pays his agent, relying on a representation from the third party that he will accept payment in this manner.
As the third party contracted on the creditworthiness of the agent alone, he bears the risk: Armstrong v Stokes. But there are 2 weaknesses to this authority: i) It concerned brokers who dealt sometimes as principals and sometimes as agents - arguably not a UDP case at all (like Cooke v Eshelby), so anything with regards to UDPs could be strictly obiter. ii) The later case of Irvine v Watson in the Court of Appeal (whereas Armstrong was first instance) although concerning disclosed principals, remarked that Blackburn J went too far and that the third party should only prejudiced in circumstances giving rise to an estoppel. But this is stupid, as they don't know the principal exists. Certainly doesn't overrule Armstrong and is very definitely obiter. Again this decision (Irvine) really came about when all the C19th courts were thinking in terms of estoppel, so is not very useful to us.

Agent Acting Outside Actual Authority or Authority of Necessity

As Between Agent and Principal 

Unless the principal ratifies, the agent is liable to the principal for breach of contract. But if within the scope of the agent's authority, the third party can hold the principal to the contract.

As Between Agent and Third Party

        i) Liability on the Contract

It is exceptional for an agent to be liable on a contract when the principal is disclosed, but it is the general rule when the principal is undisclosed.

       ii) Liability for Breach of Warranty of Authority

An agent is viewed as warranting to the third party that he has actual authority. This gives rise to a collateral contract on which the agent is liable for any loss caused to the third party should the agent lack authority. This is a case of strict liability: Yonge v Toynbee. In this case the agents (solicitors) didn't know their client had gone insane, but they were still held liable for all costs incurred in proceedings.
The damages are measured by the loss caused - the standard contract measure; the position they would have been in, minus the position they are in: Firbank's Executors v Humphreys. If the resulting contract would have been worthless to the third party anyway (for example because they committed a repudiatory breach) then the third party can't claim any damages: Singh v Sardar Investments. The agent also doesn't warrant the principal's character/solvency/business plan etc, just their own authority. These are things the third party must consider on their own: Nelson v Nelson. 

       iii) Liability in Tort

A possibility is to sue in the tort of deceit or negligent misstatement. But suing for breaching a warrant of authority is an adequate remedy with a higher chance of success.