RELATIONSHIP WITH THIRD   PARTY; UNDISCLOSED PRINCIPAL

CONTENTS

1.0      Introduction

2.0      Objectives

• Main content
• The Doctrine of Undisclosed Principal
• Personal Liability of the Agent
• Torts Committed By Agents
• Crimes Committed By Agents

4.0      Conclusion

5.0      Summary

6.0      Tutor-Marked Assignment

7.0      References/Further Readings

INTRODUCTION

This unit is meant to deal with the agency situation  where  the principal is  not  disclosed by the agent while dealing with a third  party albeit  on behalf  of the  principal.  This  is also known  as Undisclosed  Agency. Up to  this  point,  the   law  of  agency  in  respect   of third parties  seems relatively consistent  in  that it involves  representations  made  by the principal to the third party. The consistency vanishes at the realm of undisclosed principal. In this instance, the existence of an agency is not disclosed.

OBJECTIVES

The main objective of this unit is to bring to the knowledge of the student  the  consequences of agreement entered on behalf of an undisclosed  principal  by  an  agent with a third party. It is also meant to look into  the  rights,  obligations,  liabilities  and duties of all the parties concerned in this type of contract.

MAIN CONTENT 

The following illustration explains this nature of agency.  Ayo  believes  the  contract  is with Chime and is unaware that Chime is acting for Olu. Olu is entitled to intervene and enforce the contract. This is the subject that will be dealt with in this unit.

The Doctrine of Undisclosed Principal 

An  undisclosed  principal  is  one  whose  existence  and  identity  are unknown to the third party at the time of entering into a contract with an agent.

Under the doctrine of undisclosed principal, it is permissible, in appropriate circumstances for such principal on whose behalf a contract has been entered into by  an  agent to  sue and be sued on the contract. Although  it is a well settled  principle of law,  the doctrine  has been described as an anomaly  in  the  sense  that  it  offends  the doctrine  of privity  of contract and it is in this respect that it is often regarded as  an  exception  to  the  doctrine of privity of contract rule.

EXCEPTIONS

The rights and liabilities of the principal on contracts negotiated by the agent  on  his behalf are subject to certain general exceptions. These are:

1. No principal can validly sue or be sued in respect of any contract purported to have been entered into on his behalf by the agent unless with his consent or authority.
2. At common law, no principal may sue or be sued on any deed, even if  it  was expressed to  have  been  executed  on  his  behalf unless he  was described  as a party thereto and it was executed in his name.
3. Where the contract in question is a  negotiable  instrument,  for example a bill of exchange, cheque or promissory note, the principal is not liable unless his signature appears on it. He needs to sign by himself to be liable.
4. Where the principal is a foreign principal, there is a presumption that the intention was to bind the agent and not the foreign principal. This may,  however, be  contradicted  by clear terms  of the   contract   itself   or   circumstantial evidence from the surrounding circumstances of the case
5. The rights  and  liabilities  of  the  principal   may  be  expressly excluded  by a term of the contract itself or impliedly by a custom, or usage of the particular trade, business or profession to which the agent belongs or in which he operates. This is subject to the provision that these are not inconsistent  with  the  express term of the contract and not reasonable or unlawful.

SELF ASSESSMENT EXERCISE 1

The Doctrine of undisclosed principal is absolute. Discuss.

Personal Liability of the Agent

In situations where the principal cannot be  sued  on  a  contract  entered  into  on  his  behalf by the agent, the question may arise as to whether the third party can sue the agent who negotiated the contract.

The common law rule is expressed in the maxim “QUI PER ALIUM FACIT  PER SEIPSAM FACERE VIDETUR” which means “he who does an act through another is deemed in law to do it himself. That is why a person cannot escape  liability  merely because he has done what he did through an agent. However, an agent  may  also  personally liable in some circumstances. These circumstances are:

Where the Agent Contracts Personally

In this situation,  the  agent  will  be  held  liable  if  he  enters  into  the contract in his  name instead of in the name of his principal, with or without disclosing the fact of his agency or the identity of his principal. It is generally presumed that he intended to contract personally. 

In Calder v. Dobell (1871) L.R 6 C.P. 486 a broker contracted in his own  name  to purchase goods from the  plaintiff,  having  previously disclosed  to him that he was an agent of the defendant. In an action for the price of the goods, it was argued for the defendant that there is a distinction between the case where one  party  was  not  aware when entering into the contract that the other  was  acting  as an agent  and the case where he was aware of that fact but  nevertheless  the  contract  was entered into by the agent in his own way.  It was  submitted that the principal could be sued in the former case but not  in the latter. This argument was rejected by the Court of Common Pleas  which unanimously held that the plaintiff was entitled to sue the defendant on the contract.

See; West African Shipping Agency (Nig.) Ltd & Anor v. Kalla  (1978)3  S.C.  21. Jammal engineering (Nig.) Ltd. v. Nigeria Ports Authority & Ors CCHCJ/1/731.

Where the Principal is Foreign 

The general rule is that where an agent contracts on behalf of a foreign principal, there is a presumption that the intention was to bind the agent and not the principal. The practical consideration concerns the necessity to avoid the difficulties arising from the foreign element present in such circumstances. However, there would be no presumption  where  the intention to bind the principal was clear from the contract itself or  from  the surrounding circumstances of the particular case.

Where the Principal is Fictitious or Non-Existent 

In cases where an agent professes to contract on behalf of a fictitious or non-existent principal, he ma y sometimes be presumed to have intended to be bound by the terms of such contract.

The leading judicial authority on this point  is Kelner  v. Baxter  &  Ors (Supra)  where  an agent purported to enter into a written contract on behalf of a company not yet incorporated. It was held that the agent was personally liable on the contract, even if he expressed himself as contracting for the future company.

Where the Principal is Not Avowed

Where a person professes to contract as an agent and it subsequently established or revealed that he is in  fact  the  real  principal  and  that he was merely acting for himself, he is personally liable on the contract.

This situation is however, not an instance of undisclosed principal in  the sense that the  fact of agency and the existence of the principal are acknowledged but what was not known or apparent is the fact that the principal and the purported agent are one and the same person.

It is important to state here that there is no general principle of law prohibiting a person from acting as both as an agent and the principal in one and the same transaction.  The  only proviso is that where the identity of the principal is immaterial to the other contracting party, the agent would be entitled to sue and be sued on the contract.

Where the Contract is in Writing

The  question  whether  an  agent,  who  on   behalf   of   his   principal, purportedly   enters into a written contract other than a deed or negotiable instrument is  personally liable thereon depends on a number  of  factors. He will be personally liable  if he  signs his name absolutely and without qualification.

For such an agent to escape liability, the document so signed must unequivocally show that he contracted as agent and did not undertake any personal responsibility.

In Gadd v. Houghton (1876)1 Exq. D. 357, Mellish, L.J , had this to say on the matter:

“When a man signs a document in his own name, he is prima facie a contracting party and liable and there must be something  very  strong  on the face of the instrument to show that liability does not attach to him.”

For this rule to be applicable, it will not be sufficient that the person should have described himself in the relevant document as an agent, director, secretary, accountant, broker, or words of similar nature. If it is stated in the document that he signs the same  “as  agent for” or “on behalf of” a simply “for” a principal or words of that  kind,  he  escapes liability unless it was clearly evident from the body of the docum ent that he intended to bind himself.

See West African Shipping Agency (Nig.) Ltd & Anor v. Alhaji Kala (Supra)

Where the Contract is a Deed

In cases where an agent appends his signature to a deed or document under seal and executes it in his own name, he is personally liable even if he is  described  in  the  document or deed as an agent acting for and on behalf of a named principal.

This rule is strict and operates even if that agent subsequently executes the document or deed on behalf of his principal. In Schalfk v. Anthony (1813)1 M.B. & S 573,  a shipmaster, executed by deed, a charter party in his own name describing himself as the agent of the ship-owner. It was  held  that  notwithstanding  that  description,  the shipowner, as principal, was not entitled to sue for the freight but only the ship-master because the owner was not a party to the deed.

This  principle  is  premised  on  the  rule  that  no  one  can  add  to   or contradict  the  terms of a deed. To escape  liability,  however,  the  agent must  have  executed  the  deed as the principle’s deed. In such instance, the agent will not incur personal liability.

Where the Contract is a Negotiable Instrument

Where an agent signs his own name on an ordinary bill of exchange, a cheque or promissory note, or endorses or accepts such an instrument b y signing his own  name, he  is personally liable on the instrument notwithstanding that he added to his signature words describing himself as an agent or as filing a representative character.

Where he signs as drawer, endorser or acceptor,  adding  to  his  signature  words indicating that he signs not only as agent for a principal but also as agent for a specified principal, he will incur no personal liability.

Where the agent signs per pro (per  procuration)  he  can  only  bind  his  principal  for acts within his limited authority or  capacity.  He  will however be personally liable for  any excess.

He will equally be liable if he signs in a trade name if he signs in his own name.

Where There is Implied Warranty of Authority

Where an agent purports to act on behalf of a principal,  and  it  turns out that he was  acting without authority or in excess of his authority, the principal cannot be held responsible in the absence of ratification by him. The agent alone is responsible irrespective of whether he knew, or ought to have  known,  or inadvertently thought that  he had the authority he was  supposed  to  have  professed.  For  responsibility  to  be placed on the agent, the law requires that the third party should have relied on  the warranty of the agent in entering into the contract. Therefore, the agent will not be  liable if the third party knows or was aware of  the  fact  that the agent was mistaken as to his own authority.

It has been duly  acknowledged  that  this  principle  is  a  well  established exception  to the general rule that an action for damages will not lie against a person who honestly makes a misrepresentation which misleads another see: Starkey v. Bank of England (1903) A.C.114: Mcneal V Hawes (1923)2 K.B.539.

It is however pertinent to point out that in most cases, the basic understanding of the agent’s warranty is that the agent has his principal’s authority to  enter  into  the  transaction in question. He is not however understood thereby, to warrant that  his  principal is solvent or will  perform  the  transaction  entered  into.  On  the  other  hand  the law would not allow implied warranty in some instances. These are:

1. Where the assertion of representation  is  one  of  law  as  distinct from one of fact;
2. Where the    principal    subsequently    and   effectively    ratifies    the   said transaction; and
3. Where the third party knows or ought to know that the agent had no authority.

SELF ASSESSMENT EXERCISE 2

State and discuss the various situations under which an agent will  personally  incur  liability for contracts entered into on behalf of a principal with a third party.

Torts Committed by Agents

Under this doctrine, a principal is held  answerable  for  torts  committed by his  agent  in the course of executing the terms of his agency. The matter does not only affect the vicarious responsibility of the principal  for  such  acts  and  omission  but  also  the personal responsibility of the agent himself. Thus,  a  third  party  injured  by  the  wrongful  act  or omission of an agent may proceed  against the principal  vicariously, and or the agent directly, as the perpetrator of the wrongful act.

The liability of the principal for a wrongful act of his agent is under the common law founded on the doctrine of “RESPONDENT SUPERIOR” which  means  “Let  the Principal Be Answerable.”

Under  the  law,  several  rationale  of  vicarious  liability  have  been suggested in tort cases. Some of these have been imported into the principal-agency relationship. Some of these are:

1. that the master (principal) has a  fictitious  control  over  the behaviour of his  servant (agent);
2. that the master (principal) has selected his servant (agent) and trusted him and should therefore suffer for his wrongs, rather than an innocent stranger or third
3. that it is a privilege granted by law for a person (principal) to be allowed to employ another (agent) and that for that privilege there should be a corresponding responsibility;
4. those tort   losses   are   placed   upon   the   employer    (principal) because he is better able to prevent them through careful hiring and better able to bear them.

Liability of the Principal

The liability of the principal under the doctrine of respondent superior is strict and the principal is so responsible notwithstanding his exercise of due care and diligence in selecting the agent or supervising him or probing the act or omission concerned. The principal is only liable  in contract for things done or actions taken within the actual (real) or ostensible (apparent) authority of the agent. 

In tort, he is liable for all wrongs committed by the agent whether within his actual or ostensible authority or not. In Construction Industry Co. Ltd v. Bank of North (1968 ) N.C.L.R. 194, a driver waiting to be served at a petrol station, struck a match on his cigarette. This action set a petrol station ablaze. It  was  held  that  his  employer (principal) was liable for the damage caused thereby. 

However, to make the  principal  liable,  the  act of the  agent  must have been committed in the course of the agent’s employment. Thus, where it was established that  the agent  was on a frolic of his own, it was held that the agent was not in the course of his employment and therefore the principal was not liable.

See: Navarro v. Moregrand Ltd. & Anor (1951)2 T.L.R. 674.

 

The principal will also be held liable in the following circumstances.

1. where he authorized the wrongful acts

See: Pan Brothers Ltd. v. Landed Property Ltd & Anor (1982)2 All N.L.R. 22 Adesuloye v. Martin & Anor (1978)10-12 CCHCJ 345.

1. where the principal ratified the wrongful acts

See: Inoma Russel v. Niger Construcion Coy (1987)3 N.W.L.R. 298. c) where there is a misrepresentation by agent.

See: Imersel Chemical Co. Ltd. v. National Bank of Nigeria (1974)4 E.C.S.L.R. 355.

Liability of the Agent

In situations where a third party suffers a loss, damage or injury as a result  of  the wrongful act or omission of the agent, the latter remains liable to him personally. The agent is liable directly as the perpetrator of the wrongful act or omission and jointly with his principal. His liability exists notwithstanding that he was acting with the express authority or instruction or order of the principal or for the benefits of the principal.

In Baschet v. London Illustrated Standard Co. (1900)1 Ch. D. 73. It was held that an author whose copyright has been infringed was entitled to recover separate damages against every infringer, whether principal, agent or servant.

Unless the action of the agent is ratified by the principal, the agent  will be personally liable. The same applies to a situation where the agent departs from the scope of his employment.

EXCEPTIONS

1. If the wrongful act or omission  complained  of  will  not  be tortuous as regard his principal who has ratified it.
2. If the wrongful act or omission complained of requires a specific state of mind at the time of its commission, and he did not have that state of mind at the time, e.g. innocent misrepresentation.
3. If the agent is personally immuned from suit on the wrongful act or omission complained of even though the principal may remain liable.

Who May Be Sued

The third party m y sue either  the  agent  or  the  principal  separately  or  both  jointly  since they are both generally  jointly  and  severally  liable.  Any  judgment  obtained against either of them bars any further action against the other.

However,  section  8(1)(a)  of  the  Civil  Liability  (Miscellaneous  Provisions  Act)  of 1961  has overruled  this common  law position  as it forbids  judgments  obtained  against  a party from standing as bar to an action against  any other  person  who  is  liable  as  a joint tort-feasor in respect of the same damage.

SELF ASSESSMENT EXERCISE

Distinguish between the liability of an agent and a principal to a third party in tort.

Crimes Committed by Agents

It is pertinent to state from the onset that crimes committed by agents in the course of executing the terms of their agency have a dual aspect. In the first place, it refers to the personal responsibility of the  agents  and the  principal  respectively.  Secondly,  it  refers to the vicarious responsibility of the principal for the crimes committed by the agents.

Personal Responsibility of Principal and Agent

The general rule relating to crimes committed by an agent is that  as the perpetrator  of  any act or omission constituting a crime, he is personally  responsible  whether  such  crime was committed in the course of his employed or not. Therefore, to be criminally responsible for such an act or omission, the prosecution must prove as against the agent,  all the essential elements or ingredients of criminality.  The  agent  must  be proved to have:

1. attained the age of criminal
2. been in possession of the relevant  mens  rea  (i.e.  the  criminal intent) of  the particular crime or offence at the time of its commission or omission and
3. performed the    actus     reus     e    perpetrated    the    act    or    omission constituting the particular offence or crime.

In Mandillas and Caraberis & Anor v. Inspector General of Police (1958)3 F.S.C. 20,  the second defendant was the Area Manager of  the  first  defendant  company,  from whose workshop two lorries, the subject- matter of the prosecution were allegedly stolen.  The  prosecution  submitted  that  the  second  defendant,  being  the  Area  Manager for the shop, were in  personal  possession  of  the  lorries.  He  must  therefore, be held criminally responsible for any offence committed in relation to the lorries. Ademola F.C.J., delivering the judgement of the Supreme Court held that, whatever the position of a manager may  be  in  cases  of  absolute  liability,  he  could  not  be convicted of an offence involving mens rea except in respect  of  his  own  act  or omission.

Vicarious Responsibility of Principal 

The general rule in common law is that the principal is not ordinarily vicariously responsible for a crime committed by his agent in the course of his employment. This principle of law has raised the issue of when a statute should be considered as having created a strict liability offence. 

The general test that has been applied is whether  the duty or  offence created is or has been rendered absolute thereby. If it has or is, the principal is in the same vein made responsible, whether he has expressly delegated his duty under the statute to his agent or not and regardless of any intent, knowledge or mens rea. In Gammon Hong Kong Ltd & Ors. v.  Att.  General  of  Hong   Kong   (1984)3   W.L.R.   437   the   Judicial committee of the privy council set out the law relating to vicarious responsibility  of a principal  where crime is committed as follows:

• that there is a presumption of law that mens rea is required before a person can be held guilty of a criminal offence.
• that the presumption is particularly strong where the offence is truly criminal in character.
• that the  presumption  applies  to  statutory  offences  and   can   be displaced  only if this is clearly or by necessary implication the effect of the statute.
• that the only situation in which the presumption can be displaced is  where  the  statute is concerned with social concern and public safety is such an issue.
• that even where a statute is concerned with  such  an  issue,  the presumption of mens rea stands unless it can also be shown that the creation of strict liability is effective to promote the object of the statute by encouraging greater vigilance to prevent the commission of the prohibited act. 

SELF ASSESSMENT EXERCISE 4

Under what conditions  will  a  principal  be  held  liable  for  crimes committed by his agent while contracting with a third party?

CONCLUSION

This unit deals with the doctrine of undisclosed  principal  in  an agency relationship  and  its recognized exceptions. Learners have been exposed to rudiments of this doctrine as applicable both under the common law and statute.

SUMMARY

At this point of this unit you should be able to  know  the basic  concepts of  agency  as  they relate to the doctrine of undisclosed principal in general.

TUTOR-MARKED ASSIGNMENT

1. The doctrine of undisclosed principal in an agency relationship is without exceptions. Discuss.
2. In what instance would an agent be personally liable for contracts entered on behalf of a principal with a third
3. The distinction between the liability of an agent and that of  his principal  to a third party in tort is very remote Discuss?
4. Discuss the  basic  factors  to  be  considered  before  a  principal could be held liable for crimes committed by his agent

REFERENCES/FURTHER READINGS

Kingsley Igweike, (1993). “Nigeria Commercial Law: Agency.” Jos, Nigeria: FAB Educational Books.

Markesinis and Munday, (1986). “An Outline of Agency.” 2nd Edition. Pollock and Maitland. “The History of English Law,” Vol. 11.

Sir William Holdsworth, “A History of English Law,” Vol. IV.

Walker,    D.W.   (1980).    “The    Oxford    Companion    to   Law.”   London: Butterworths.

American Restatements, Second, Agency, Article.

Friedman,    G.H.L.   (1984).    Law    of    Agency,    7th      Edition.    London: Butterworths.