Undisclosed Agency: P, A, and TP

This article discusses undisclosed agency and whether an undisclosed principal can be legally bonded with a third party by an agent who had limited authority. It covers the rule of law, application, and conclusion. The subject is Foundation Business Law, and the course code is not mentioned. The college/university is not mentioned.

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Undisclosed Agency: P, A, and TP
Issue
The undisclosed agency, whether an undisclosed principal can be legally bonded with a
third party by an agent who had limited authority.
Rule of law
In common law, the term undisclosed principal denotes a person or corporation principal
whose existence is only known by the agent, but not the third party who forms the agreement
with the agent. The lack of the information about the principal causes the transacting third party
to believe that the person he is contracting with is the owner or the principal. The rules that apply
to doctrine on undisclosed principals in common law imposes liabilities while still conferring the
right to the undisclosed principals, notwithstanding that the principals remain in the privity of the
contracts between the agents and the third parties. One of the earliest cases in applying this
authority was the case of Humble v Hunter.1 However, this case provides exceptional situations
where the doctrine would not apply which would be discussed later. Another authority is the case
of Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd where the court ruled that both the third
party and the principal can sue each other in an undisclosed agency.2 In this case, the plaintiff
was a foreign Persian company who used its agent to enter into a sale agreement for the purchase
of compressors from the defendant. The compressor turned out to be defective hence it came out
to sue the defendant for damages.3
1 Humble V Hunter (1846) 12 QB 310.
2 Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886.
3 Ibid.

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The principles do not shield the agent from liabilities even when it comes to the
knowledge of the third party that the agent was acting on the expense of an existing principal.4
However, the law cannot allow the third party to sue both of them, and the judgment would only
apply to the party he/she chooses to sue.5 Another rule within this doctrine is that the fact that the
principal exists does not exonerate the agent from the prospects of contractual liability. The
elements for the application of this doctrine were summarized in the ruling of Siu Yin Kwan v
Eastern Insurance Co.6 For one, Lord Lloyd affirmed that there is nothing prohibits the
undisclosed principal to be sued or to sue.7 However, the agent must be acting within the
authority which would manifest the intention to bind the principal.8 The same reasoning was
upheld in Keighley Maxted and Co. v. Durant that agent who exceeds his/her authority would be
acting on his/her own but not that of his principal.9 In Cooke & Sons v Eshelby, it was held that
the third party should always ask when unsure to have information whether the agent has the
authority; if the agent lies, he/she can be sued under misrepresentation.10 Additional elements that
should be present is that nothing prevents the third party from bringing the same defense he had
on the agent to the arguments against the principal.11 Also, where both the third party and the
agent manifests an intention to prevent any external evidence, the intervention of the principal
would be illegal in law.12
There are still situations when these rules would not apply. For instance, in a transaction
that is clear that the agent intended to be in his own authority rather than that of his/her principal,
4 Marco Loos and Odavia Bueno Diaz, Principles of European Law: Mandate Contracts (OUP
Oxford, 2013) 139.
5 Ibid.
6 Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199.
7 Ibid.
8 Ibid.
9 Keighley Maxsted & Co v Durant & Co [1901] AC 240.
10 Cooke & Sons v Eshelby [1887] 12 App. 271.
11 Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199.
12 Ibid 207.

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the principal intervention would not be admitted. An authority for this rule is the ruling in
Humble v Hunter.13 In this decision, the agent contracted as the principal or ‘owner.’14 Also, the
doctrine cannot be called where the contract required the agent’s skills, identity, or his/her
reputation. An authority for such a situation is the case of Said v Butt.15 This was a case where
the principal was prohibited from entering a theater, and he asked the agent to buy the ticket in
his (agent) name.16 As the identity and reputation of the people who were buying the tickets was
a crucial requirement, the principal could not intervene.17 Again, where the principal lacks the
capacity to contract, it cannot purport to have authorized the agent to form the contract.18 An
example of such a situation regards pre-incorporation contracts. In an agent forms a contract on
behalf of a corporation that is not incorporated, the law will not allow the company to intervene
when the claim is elected by the third party. Lastly, where an agent has a defense on the agent’s
misconducts, the principal’s entry to the suit would be barred.19 An example of such
circumstances is where the agent defrauds the third party.
Application
On application, the first step is identifying the agency relationship that exists between ‘A’
and ‘P’. The rationale for the identification of any agency relationship can be derived from the
comments of Finn LJ in South Sydney District Rugby League Football Club Ltd v. News Ltd that
agency can be ascertained by an analysis of the parties’ contract, express words, the course of
dealings or trade practices.20 Since the ‘P’ had already instructed ‘A’ to do something on his
behalf, there is an agency relationship. The second step would be identifying the authority. For
13 Humble V Hunter (1846) 12 QB 310.
14 Ibid.
15 Said V Butt (1920) 3 KB 497.
16 Ibid.
17 Ibid.
18 Lee Roach, Card and James’ Business Law (Oxford University Press, 3rd ed, 2014) 170.
19 Ibid.
20 South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR.

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actual authority, the Australian Full federal court in Poulet Frais Pty Ltd v. The Silver Company
Pty Ltd stated that the authority is a matter of what the parties expressly say.21 Therefore, ‘A’ had
actual authority to only purchase a jewelry with a price not exceeding $50,000. Exceeding this
price was out of the authority granted. In Keighley Maxted and Co. v. Durant, the court found
that any agent who exceeded the limit of the amount authorized for purchases was acting on his
own authority but not that of his principal. 22 Therefore, “TP” cannot sue “P” because ‘A’ was not
within his authority.
Conclusion
When ‘A’ exceeded the required amount of $50,000, she was not acting on the actual
authority of the principal. ‘TP’ would not be able to sue ‘P’.
(i) What if “A” disclosed the agency relationship with “P”
Disclosed authority focuses more on the knowledge of the third parties, a manifestation
of the principals, and the reliance of the third parties on the manifested authority. For instance, in
actual authority, as described, above, the agent must have express authority, but an additional
requirement is that the third parties must be reasonably informed about any limitation to the
authority. For instance, in Ireland v Livingstone, despite that the principal (Livingston) had
ordered the agent (Ireland) to procure sugar in tons 500 plus or minus, the principal could not
deny the authority when the agent procured 400 tons.23 Therefore, in actual authority where the
‘TP’ did not know that ‘A’ authority was limited to $50,000, ‘P’ would still be liable for not
informing ‘TP
Similarly, in usual authority, the principal is still liable because the agent is deemed to be
acting within the duties of his/her position. For instance, in Watteau v Fenwick, Humble was
21 Poulet Frais Pty Ltd v The Silver Company Pty Ltd (2005) 2005 FCAFC.
22 Keighley Maxsted & Co v Durant & Co [1901] AC 240.
23 Ireland v Livingstone [1872] LR 5 HL 395.

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previously the owner of a pub before being employed to work as house manager at Fenwick.
When a dispute arose from a contract between Humble and Watteau, the court ruled that despite
the fact that Humble did not have the actual authority, having had the knowledge of a pub
manager had the actual authority when working for Fenwick.24 On the application of this rule to
‘P’ and ‘TP’, the position that ‘A’ has been employed may show that she had the usual authority
to bind ‘P’ with ‘TP.’ Therefore, application of this authority would still leave ‘P’ liable to ‘TP.’
Lastly, apparent authority works where three elements are present. The manifestation of
principal’s authority on the agent through their previous dealings, the third party’s reliance on the
manifested authority, and the third party’s proof that he/she relied on the manifestation to change
contractual position. On application of these rules would require the previous dealings between
‘P’ and ‘TP’ through ‘A’. If there would be such a connection, ‘P’ would be liable.
Conclusion: in, either way, the disclosed authority would leave ‘P’ liable.
(ii) Could A be liable to TP in the circumstances set out in (i)?
No, ‘A’ would not be liable as because disclosed authority focuses more on the third
party’s reliance on the disclosed authority. ‘P’ had not informed ‘TP’ earlier on the limitation of
the authority of ‘A’ which could have prevented the reliance. Therefore, ‘A’ would not have been
liable. It is ‘P’ who would be liable.
(iii) Could “P” sue the “TP” in case “TP” refused to honor the contract with “A”
An analysis of the limitation to the application of the rules of undisclosed principal
discussed above shows that nothing can stop ‘P’ from ratifying the contract made by ‘A’ with
‘TP.’ As mentioned above, the principal would be barred from intervening where the contract
expressly excludes him, where he lacks contractual capacity, where the third party demonstrates
that skills, identity or personality were crucial to the validity of the contract, and where any
24 Watteau v Fenwick (1893) 1893 QB 1.

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person in the third party’s position holds against the agent.25 For instance, in Bolton Partners v
Lambert, the contract formed between the third party and principal’s agent was ratified to permit
the principal to sue for damages.26 As per the facts provided, ‘P’ can ratify ‘A’ contract with ‘TP’,
and the contract would be as valid as though it was made directly with ‘P’.
25 Roach, above n 18, 200.
26 Bolton Partners v Lambert [1889] 41 Ch D 295.

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Bibliography
Loos, Marco and Odavia Bueno Diaz, Principles of European Law: Mandate Contracts (OUP
Oxford, 2013)
Roach, Lee, Card and James’ Business Law (Oxford University Press, 3rd ed, 2014)
Bolton Partners v Lambert [1889] 41 Ch D 295
Cooke & Sons v Eshelby [1887] 12 App. 271
Humble V Hunter (1846) 12 QB 310
Ireland v Livingstone [1872] LR 5 HL 395
Keighley Maxsted & Co v Durant & Co [1901] AC 240
Poulet Frais Pty Ltd v The Silver Company Pty Ltd (2005) 2005 FCAFC
Said V Butt (1920) 3 KB 497
Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR
Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886
Watteau v Fenwick (1893) 1893 QB 1