Relations _ between agent _ and third party ‘Contractual abiity Tortiousliabilty INTRODUCTION Having discussed the fegal relationships between the principal and agent and between the principal and third party, t follows that this chapter moves on to consider the relations between the agent and third party. As discussed in Chapter 3, the typical function of x agent isto affect the legal position of his principal in relation to third parties, This is typically achieved by the agent effecting contractual relations between his principal and a third paty (or third parties To this contract, the agent is usually a stranger and it therefore fallows tht providing all the parties perform thelr abligations there will be no legal relations betwee the agent and thitd party, aside fromany warranty of authority that might be deemed to exit Howaver,thisisnatabsolute and where the parties alto propetly perform their obligations legal relations between the agent and third party may come Into being whieh allow ane party. to sue, orbe sued by, the ather, This chapter discusses the general ruleand also those situations where the agent and third party will acquire a cause of action against the other (as indicated by Figure 8.1) Such lability tends ta arise in contract and/or tort and so this chapter begins by discussing the contractual relationship between the agent and the third party, Contractual liability “The contractual relationship between the agent and thind party, and the extent to which one pparty can be liable tothe other, is complex and depends upon a number of variables, such a5 ‘© whether the principal is disclosed of undisclosed: ‘© whether or nat the principal enists: Scanned with CamScannerCHAPTER & RELATIONS BETWEEN AGENT AND THIRD PARTY Aued penn put 1uaBewasmaag suoieja jf bay eNO Scanned with CamScannerTHE LAW OF AGENCY © whether or not there exists some custom or usage that would indicate that the agent ang third party should be liable to one another; © whether or not a collateral contract exists between the agent and third party, © whether the agent isin breach of his warranty of authority. All of these variables will now be discussed, but itis worth noting at the outset that, in the majority of eases, an agent cannot sue, nor be sued by, a third party. Disclosed principal twill be remembered that, in a typical agency relationship, an agent will effect a con- tract between his principal and a third party, after which the agent will “drop out’ of the transaction, From this, it follows that the general rule is that where an agent effects a contract on behalf of a disclosed principal (named or unnamed), then the contract is between the principal and third party only, and the agent cannot sue the third party, nor can the agent be sued by the third party. FACTS: Duckvrorth worked for Duckworth & Co {the agent) afirm of solicitors, He was defending 2 diem (the principal) wha had been charged with manslaughter. Duckworth ordered a number ‘of photographs from 2 photographer, Wakefield (the third party). These photographs would be used as part of the client's deferce—a fact thet was knawn to Wakefield, Wakefield sought ‘o-obtain the price of the phatographs from Duckworth & Co, Duckworth & Co refused and so Wakefield commenced proceedings against the firm. HELD: Wakefield's action failed. Lord Coleridge J stated that ‘there fs no question that the plain knew thatthe defendants were solicitors acting on behalf of acllent, and that being so... | they were agents acting on behalf of a principal, Prima facie In such a contract the plaintiff would have to have recourseto thepprincipal and not the agent." ‘As Wright J stated, ‘the contract is that of the principal, not that of the agent and prima facie at common law the only person who can sue is the principal and the only person who can be sued is the principal’? This rule generally applies in full where the agent acts within the scope of his actual authority,’ or where the principal ratifies the agent's unauthorized acts, but in other cases, the rule may be modified: -@ Where the agent acts without authority, and the principal dees not ratify the agent's ws” ‘authorized aets, then the third party cannot sue the prinelpal.t 4. [1915] 1 K218,(K 1) 220. 2. Monigareriew United Kingdon Muto Steamship Association [1881] 1 QI S70 (QB) 371, 3. It should be noted thai exceptlonx do exist whlch will prevent a principal fram being party © contract, even if the agent Is acting in an authorized manner—these exceptions are discussed at Pp 146 4, Camnerfor v Hritannde Assurance Co Li (1908) 24 TLR 593 (KB), Scanned with CamScannercota aren ere acer ano ran rary (LEER @ Where the agent has apparent authority only; then the principal ts still liable to the third party, but cannot enforce the contract agatrst the third party, unless he first rati> fies the agent's actions. (© Where the agent acts outside the scope of his actual authority. then he wifl be liable tothe third party for breach of warranty of authority, unless the principal ratifies his GED mac of wananey unauthorized actlans af aahonrtscnsed pte It is worth noting that the application of the general rule to cases invelving unnamed principals has been criticized. Several academics* have contended that Englich law should adopt the position found in the American Restatement of the Law, which pro- vides that, where the agent acts for a disclosed principal but.at the time af the contract, the third party does not know of the principal's identity, then the agent should also ‘be personally liable om the contract, unless otherwise agreed by the agent and third arty. The courts have not chasen to accept this reeommendation, and the Court of ‘Appeal has confirmed that the general rule discussed here applies in cases involving an unnamed principal? Agent party to the contract ‘Despite the general rule noted above, an agent can become personally liable an a con- ‘tract if tt appears that, based on the construction of the contract, it is the objective in- ‘tention of the parties that the agent should be lizble The most obvious way in which ‘this could occur is where the contract expressly states that the agent is to be a party to it, of if it states that the agent is to be liable on the contract, either alongside, or to the -exclusion of, the principal.* However, an agent can still become party toa contract in the absence of an express provision. It should be nated that cases in: this area provide general guidance only, and much turns on the construction of the contract in question, and the circumstances surrounding it, ‘The most significant factor is the language used by the agent when signing the con- ‘tract. As Rix L] has stated, ‘the way in which a party named in a contract signs that ‘contract may be of particular strength in the overall question of whether he is a party ‘to that contract with personal liability under it. The case law reveals the following general principles: © Anagent who signs acontract in is ewn name without any qualification will bea party to thecontract," unless.ther portions of the contract clearly indicate a contrary inten ton, Thus, where an agent signed a.contract of sale in his own name; but the contract stated that the goods were heing sold ‘on account’ of another, the cout held that the ‘agent was not a party to it!” (© The courts will not presume that an agent is not a party to the contract simply because hes described as an agent, manager, broker, or other sirallar description, Thus, no in- tention of avoiding lability will be presumed where the agent signs the contract, but 5, See eg, FMB Reynolds (1983) CLP 119; Peter G Watts, Bowstead & Reynolds om Agency (20th ed, Sheet & Maxreell 2016) [9-018). ‘6, American Law fnslitute, Restatement ofthe Law—Agency (American Law Institute 2006) 602, 7. Ne Vlassopulos Led w Ney Shipping Lid (The Santa Carina [L977] 1 Llayd’s Rep 478 (CA. £8, Bridget. & Salmon Ls v Owner of The Swan (The Swan) (1548) | Lloyds Rep. 9. Montgomerie United Kingdon hfutual Stoaraship Assocation (1991) 1 QB 370 (QR, 10. interrant Shipping Gonbd» Fercometa! Sarl [2003] EWA Civ 812, [2003] ? Lloyd's Rep 430 (46), LU Parkery Winslow (1852) TESB 942. 12, Gadd» Houghtaw (1876) 1 ExD 357. Scanned with CamScanneree THE LAW OF AGENCY appends his signature with the words “as solicitor” of ‘as director’." Such words any likely to be regarded as merely descriptive, as opposed to indicating that the agent ig acting in a representative capacity for another. However, as noted, the words used are merely one factoramong many. ‘© Where the agent signs the contract and indicates that heis acting as am agent, or where the indicates that he is acting on behalf of" or on account of another person, then the presumption will be that he is not contracting personally, and so will not be a party ta the contract, unlessother portions of the contract clearly indicate a contrary intention." Note, this will not apply to agents who-exceute deeds in their own name—such persons ‘wil still be liable even if they state the deed thot they ate acting on behalf of another.” Depending upon the construction ofthe contract, an agent may be party to a contract, and may be sued on it by a third party, but may not have the ability to sue the third party (1.e. he may be liable on the contract, but unable to himself enforce it). The ap- posite is not true—an agent who is not liable on a contract cannot enforce it against a thind party. ‘Merger and electian As noted, where the agent is party to a contract, the third party may have the option of ‘suing the principal or agent—an option that can be extremely useful, especially where -ither the principal or agent has become bankrupt/insolvent, or is protected by an ex- sion clause. In such cases, the liability of the agent and principal is alternate, as indicated by Seruttan LJ: ‘When an agent acts for a disclosed principal, it maybe that the agent makes himself or herself personally liable as well asthe principal. But in such acase the person with whom the eantract ‘is made may not get judgment against both, He may get judgment against the principal or he may get judgment against the agent** Accordingly, in order to prevent double recovery, the third party cannot sue both the principal and agent and must sue one or the other. In practice, this limitation arises in wo ways: 1. If the third party has already obtained judgment against the principal, or the agent, then the third party is disbarred from obtaining judgment against the ather (eg, if judgment is obtained against the principal, the third party cannot then sue the agent),” even if the judgment is not satisfied. This is based on the doctrine cof ‘merger’ which provides that multiple judgments may not arise out of a single obligation, 2. Where judgment has not already been obtained, the third party may elect to hold one party lisble, which then releases the other party from liability (unsurprisingly, this is Known as ‘election’. In order for election to arise, (i) the third party must clearly and unequivacally elect to sue one party; and (ij) the third party must have full knowledge ‘of the facts, including knowing the identity of the principal.” gent ee te ee 13, Burrell Jomes (1819) 3 BAILA, 14. McCalin Gilpin (1881) 6 QD 51 15; Redpath v Wig (1866) 1 Ex 335 (contract signed by the agent ‘a+ agents). 16, Universal Steam Navigation Ge Lid'v | McKelvie c+ Ca (1923) AG-492 (HL) 17, Gada roughton (1896) 1ExD 357.18. Seceg. Youre vSehuler(t883) 11 QBD 651. 18, Appleton v Binks (L604) 4 East 188 120. Debenham's Lid v Perkiste (L925) AIIER Rep 234 (KB) 237. .LGOCrPape(l922}38 TLR 270, 22. Thonison v Davenport (1625) 9 B&C78. Scanned with CamScannerciara weavins erweewAceirano aren (ACA ‘The doctrines of merger and election will not apply where (i) the claims against the principal and agent arise from separate causes of action; (if) the principal and agent are jointly and severally liable om the contract; and (iti) where one-party is not lable at Ieshould be noted that the doctrines of merger and election apply net only to-cases involving a disclosed principal, but also to cases where an agent and undisclosed prin- cipalare both liable asis discussed next, Undisclosed principal Where the principal is undisclosed, then the third party will be under the impres- sion that he is dealing solely with the agent. In such a case, the resulting contract will be between the agent and the third party, and both parties can sue, and be sued, on {it It should be nosed that, in cases involving an undisclosed principal, the principal €29 aneeivdoed can usually intervene and sue, and be sued, on the contract.™ Where the principal Finca sua does intervene, the agent will lose the ability to enforce the contract against the third daseaed tp M6 party-# although the agent will still remain liable tothe third party until such time as the thied party elects whether to sue the agent or the principal. Fictitious or non-existent principal Special consideration must be given to {wo cases. The first is where the principal is fictitious, which usually occurs where the agent purports to act on behalf of another, but is in fact acting on his own behalf (Le. the agent is the principal). The second case ‘occurs where the agent purports to act on behalf of principal that does not yet exist, ‘which tendsto oceur where the promoter of a company actson behalfofa company (or limited libility partnership) that has not yet been incorporated. ‘Agent acts as principal ‘As discussed, an agent who acts for a disclosed principal will not normally be liable ‘on the contract, as 2 contract will exist between the principal and third party, between whom there will be privity. However, is this still the case where the agent purports to act on behalf of another, but is in fact acting on his own behalf? The general rule appears to be that a person who professes to be acting on behalf of another, but is in fact acting on his own behalf, will be personally liable on the contract and can be sued bya third party, as the following case demonstrates, FACTS: Hodgson, purporting to act on behalf of» fir, ordered goods from Rallton. Hadgson had worked forthe fim before, but no longer dd so—e was in fact ordering the geods for himself but used the frm’smame in order to obtain the goods on credit Raion delivered the (goods to Hodgson and billed the fern for payment. However, the firm was insolvent and so Railton commenced peaceedings against Hodgson. 25, Sms v Bond (1833) 5 BBA 389. 124. As both the agent and principal can be liable on the contrac, the doctrine of election can also apply to asaacinvolving an undisclosed principal, 25, Atkinson v Cotesworth (1825) 3 BEC 647, Scanned with CamScannerTHE LAW D beosheluaramy footy leone pth wallet oat darusedat M2 OF AGENCY HELD: Railton succeeded and Hodgson was held liable on the contract, and was therefore obliged to nay for the gonds, | COMMENT: This ease, and the principle it establishes, have been criticized. It has been arqued that an agent who purports to act on behalf af another, but isin fact acting for hime, shoul not unless he undertakes personal lability on the contrac, be lable on the contrac, a5 such | result is ‘contrary tothe principle of abjective interpretation in contract to establish intentions. unknown to the third party.” In such cases, it would appear to be much more approperiat hold theagent liable for breach af warranty of authority, orn tart {Quite why the person incorrectly purporting to act on behalf of anather should be liable on the contract is not entirefy clear. No coherent justificstion has been forth coming, and what justifications have heen offered are rather vague, as evidenced by the following statement of Scruton Lf “Why should not a man who contracts with another, thinking he Is an agent, sue him when hredinds out that he isthe rea principal? There seems to be no reason why he should not, pro- ‘vided the supposed agent has not expresely contracted as agent so as to exclude his lability a principal party'to that contract... I think it isthe law, Iam sure it is justice, It is probebly the lave for that reason? Despite the criticise levelled at Raillon and cases like it* it remains good law, and the general principle is that an agent who purports to act for another, but is in fact acting for himself, can be sued on the contract by a third party. The question that flows from this is whether the opposite is also true, namely can a third party be sued ‘on the contract by the person who was purporting to be acting on behalf of another, bbutwho was in fact acting for himself. 11 would beassumed that the answer would be ‘no a8, unless the contract indicates that an agent is party to the contract, the agent drops out of the transaction, leaving a contract between the principal and third party, between whom there is privity. One would assume that the person purporting to act asagent cannot subsequently enforce the contract as the de facto principal, ot, as Lord Ellenborough stated, ‘where 2 man assigns to himself the character of agent to another whom he names, I am not aware that the law will permit him to shift his situation, and to declare himself the principal, and the other to be a mere creature of straw'2" Despite this, the courts have held that, in a number of cases, the contract can be enforeed against the third party, although it has been argued that such cases provide ‘slender authority’ and making the third party liable on the contract is ‘difficult to justify on principle’. ‘The following case indicates that an agent who falsely claims to be acting on befall of another can enforce the contract against the third party if the third party continues with the contract after becoming aware of the true situation, 26, Peter G Wills, Bosend & Reynafisan Agency {RSth eda, Sweet & Maxwell 2010) (9-091), 27.Gandmer v Heading 1928) 2 KB 284 (CA) 200 24. Sceeg, Jenkins v Hutchinson (1849) 18 QB 744 Care v Jackson (1852) 7 Each 362; Gardiner v Hendlng i928) 2 KB 2844(CA). 29, Bickerton vdurrell 0816) § MEW 285,366, 30. Pete Waits, Bowsiend & Reynolds on Agency (30th edn, Sweet & Maxwell 2014) [9-083] 231 iid, Scanned with CamScannerCHAPTERS RELATIONS BETWEEN AGENT AND THIRD PARTY [mLLGE FACTS: Raynerdescived himself asthe agent of Mest JET Johnson and contracted ta el ity tanmes ofsada ach to Grote on their beball, nc, the soda ath belonged to Rayner himsel. Thirteen tonnes ofthe fifty wore delivered to Grote, who accepted the goods and pallor them in part. Evidence indicated that, atthe time Grote accepted the goo, he knew thatthe goods cially belonged to Rayner (Le. he knew that Rayner wos in fact the pracipa and not an agent. Grote refused to accept the remaining thirty-seven tonnes and so Rayner sued. HELD: The court held that Rayner could sue Grote for is nen-acceptance and nan-payment of ‘the goods Alderson stated that: ‘this contract has heen in part performed, and that part performance accepted by the defen darts with full knowledge thattheplaint lf wasnatthe agent but the eal principal... [Wie think thatthe plainilf nay, ater thet, very propery say that they cannot refuse to complete the contract by recering the remainder ofthe goods and paying the stipulated pricefor them. ‘COMMENT: The reasoning of the cout is open to citi. The simple fact is that Grote ‘contracted to purchase goads from Mess J fT Johnson and, to this contract, Rayner was not 3 ary. No convincing Justification has been advanced explairing why the agent should be able to enforce this contract ta which he is nt a pay, Khas been concerted thatthe decision ‘cannot be justified on arthadax agency principles and is bevtr regawded as an example of a situation where fllawing the true situation coming ta ight, the contract's movatec’sothat the | =p poration these at agent becomes the seller seemangenrom In Rayner, Alderson B was keen to point out that if the identity of the principal was a material factor, then the agent would not be permitted to take over the contract as pal and enforce it. He stated: Jn many ¢ascs, such as, for instance, the case of contracts in which he sill solvency of the person who i named as the principal may reasonably be considered as 2 material ingredient to the contract it is clear that the agent conpot hen shew himself to be thereat principal, and sue in his awa name." From this, it follows that the courts appezr to be more willing to permit the agent to enforce the contract where the identity of the principal js not of impertance (e.g, where the prinejpal is unnamed). ACTS: Schmaltz had entered a charterparty with Avery, the owner of ship, under which the ship would be used to transport goods, The charterparty stated that Schmaltz was octing 2 agent fora freighter, but did not identify wha the febghter was t.e.the pincipal was disclosed, | =p telabieca pen bug unnamed). The chrterprty contained cater aut, which provided tht Shmales | «vestnareanaens lability would cease as soon 2s the cargo had shippad. It transpired that Schmalz was Pek i 52, (1046) 15 MEW 359, 365-6. 33, G Watts, Bowstend cr Reynolds on Agony (eh eda, Swwet & Maxwell 204) {9-094}. 34. Raymer v Gre (1846) 15 MBIW 959,385. Scanned with CamScanneraw THELAW OF AGENCY ‘acting on behalf ofa freighter, and was in fact the freighter himseft. Avery, upen discovering ‘this, refused to takeon board any cargo. Schmaltz sued toenforeethe terms ofthe charterpary | HELD: Schmalte'saction succeeded and he was permitted to enfovce the charterparty Pattesoy | J stated: Inhere is na contradiction of the charterpary ifthe plain cen te considered as filing wo ehsracters, namely those of agent and principal... Wesea no absurdity saying that he ight, fil both characters that he might contract as agent for the freighter whoever that freighter might turn out tobe, andmight still adopt that character of freighter himself if he chase."* | ‘The court was heavily influenced by the fect that the principal was unnamed and Avery did nat ‘seek to enquire who the principal was. Based upon this, the court concluded that Avery was not prejudiced by Schmalke acting as principal an in fect, ary one who ould prove hime rp ‘have been the real freighter and principal, whether solvent or not, might most unquestionably | | shave sued an this charter party, | COMMENT: By allowing Schmaltz to enforce the charterparty, the court arguably acted | in a manner that wes inconsistent with the terms ofthe charterparty itself, given that the charterparty was between Avery and the freighter, and the agent signed the charterparty in such a way 2s to indicate clearly that he was not the freighter. The fact thatthe freighter was unnamed does not mean that Avery did not care who the freighter was, As Munday has comectty: stated the fect that thitd patty is ialiferent to the party with wham he may have contracted does nat necessarily entail thet he fs content to contract with the ‘agent wha, by acting as agent, may have conveyed the impression that he was notin the running to assume the character ofthe principal™ ‘Despite the criticism levelled at Schimaltz, the courts have actually gone further and have held that an agent can enforce a contract against a third party, even where evi dence exists which indicates that the third party would not have contracted had be known that the agent was in fact the principal * Principal does not yetexist An agent may purport to act on behalf of a principal that does not yet exist. This com- ‘monly occurs in the following situation: Cele eka) Lee, Eric, anc! Greg (the directors of ComCorp} decide to set up 2 subsidiary company. The subsidiary wil be called Bastion Ltd and the application for incorporation is duly submitted to the Registrar of Companies. afore the certificate of Incorporation is issued, all three promoters are busy preparing for the commencement of business, Lee rents office space, signing the rental ‘agreement ‘Lee, on behal of Bastian Lic, Eric purchases office supplies, signing the cartract of sale “Eric, the agent of Bastion Ltd’. Greg hires a number ef employees, signing the employment comracisas’Bastion Lid. ————————— 3, (IBSIN 16.08 655, 663, 36, sbi 6s (Patteron ). [37 Roderick Munday, Agency: Law wnd Principles 2d edn, OUP 2013) 329. 3 Harper & Co v Vigers Bes [1909] 2 KB $49 (KB) Scanned with CamScannerCHAPTER 8 RELATIONS BETWEEN AGENT AND THIRD PARTY Ue] ‘The problem that arises is that Lee, Bric, and Greg (the agents) are all purport ing to act, and enter into contracts, on behalf of Bastion Ltd (the principal), but the company does not yet exist and so it has no contractual capacity. Are such pre-incorporation contracts void or, because they are clearly for the benefit of the principal-to-be, are they regarded as valid and enforceable and, if so, who can en- force them? In other words, who is liable where an agent acts on behalf of a prin:

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