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:
- 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.
- 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.
- 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.
- 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
- 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:
- Where the assertion of representation is one of law as distinct from one of fact;
- Where the principal subsequently and effectively ratifies the said transaction; and
- 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:
- that the master (principal) has a fictitious control over the behaviour of his servant (agent);
- 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
- 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;
- 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.
- 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.
- 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
- If the wrongful act or omission complained of will not be tortuous as regard his principal who has ratified it.
- 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.
- 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:
- attained the age of criminal
- 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
- 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
- The doctrine of undisclosed principal in an agency relationship is without exceptions. Discuss.
- In what instance would an agent be personally liable for contracts entered on behalf of a principal with a third
- The distinction between the liability of an agent and that of his principal to a third party in tort is very remote Discuss?
- 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.