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Disclosed and undisclosed agency

Previous: Obligations in agency

Disclosed, undisclosed, unnamed and commission agency

The concepts of disclosed and undisclosed agency have already been briefly mentioned. Undisclosed agency is the usual type of agency, where a third party knows he is working through an agent. In undisclosed agency, a third party does not know whether he is working through an agent or not. According to Cooke & Sons v Eshelby (1887), where an agent sometimes acts for a principal, and sometimes on his own behalf, an agreement should be treated as if it were executed within an undisclosed agency. If no principal is involved and the agent is in truth acting on his own behalf, no issues may arise, but it is for the third party to take the risk that a principal may be involved, and for that third party to enquire as to whether an agent is involved: if the agent lies, the contract will then be void for misrepresentation.

Unnamed agency will be treated as undisclosed agency, as a third party cannot have rights exercisable against an unidentified person, according to The Frost Express [1996]; although some have argued that this rule should be replaced with an agent’s obligation to disclose the identity of his unnamed principal within a reasonable time of being notified of proceedings. ‘Commission agency’ is not usually considered to be a type of agency, as the agent acts on his own behalf, keeping any profits made as a merchant, but also incurring obligations to the goods he sells.

Disclosed agency

In disclosed agency, the agent is entitled to reveal the identity of his principal. This was said in Harper v Vigors Bros (1909). A contract made by an agent within a disclosed agency situation is concluded between the third party and the principal. Once concluded, the agent ‘drops out’, leaving all rights and obligations exercisable between the third party and principal. This will only not be the case where a contract concluded, courtesy of the Contracts (Rights of Third Parties) Act 1999, creates privity between the agent and the third party. It is possible for an agent to have ongoing rights and obligations under the contract. The old rule that foreign principals could not sue or be sued, and that the local agent must sue or be sued, was abolished by Teheran-Europe v ST Belton (Tractors) [1968].

Undisclosed agency

There is opposition to the idea that an agent can work for an undisclosed principal. However, Teheran-Europe v ST Belton (Tractors) [1968] said that the doctrine was justified on the basis of commercial convenience. The doctrine allows principals, who would normally be refused as buyers or charged extraordinarily high prices due to their identity, to use an agent to avoid this issue. A good example would be if a principal owned all of the land in a certain area but for the third party’s land; the third party would know of the value of that land to the principal, so would inflate his price accordingly. The doctrine follows the idea that identity is not usually material to a contract, but there are certain exceptions. When an agent concludes a contract on behalf of an undisclosed principal, the rights and obligations under that contract are between the agent and the third party (the agent does not drop out as in disclosed agency). Although this will change if the principal is revealed.

Undisclosed agency could be mimicked through the use of an agent and the creation of privity, or the use of a merchant, but as agency was developed by the common law long before privity issues were recognised, it is assumed that this is why undisclosed agency exists. A merchant would also makes the ‘principal’ assume greater risk.

Personal contracts

Where identity is material to a contract, the doctrine of undisclosed principle is not allowed. A good example of this would be if you purchased a painting from a popular artist: you would expect the artist to have painted the painting, not an undisclosed principal of that artist (who probably couldn’t paint to save his life). Said v Butt (1920) denied the doctrine so as to disallow a film-reviewer a ticket to the opening night of a show (The Whirligig), where the show’s host didn’t want him present. Albeit rooted in potentially outdated cultural traditions, the case has not been overruled. In Dyster v Randall (1926), it was found that the identity of a purchaser of land was not material to the concluded estate contract.

Agents’ descriptions

The doctrine of undisclosed agency can also be excluded if the agent signs any concluded contract in a way which is incompatible with the doctrine. In Drughorn [1919], it was not incompatible for an agent to describe himself as a charterer, but in Humble v Hunter (1842), an agent calling himself an owner was not compatible with the doctrine: there could be no undisclosed principal.

Revelation

It is possible for an undisclosed principal to reveal himself to a third party. The basic rule is that a third party must not be disadvantaged by the revelation of the principal. Upon revelation, a principal ‘takes over’ the contract, assuming rights and obligations in place of the agent. The agent then drops out. However, the principal may only take over the contract as it was. The difficulty arises if an agent (with undisclosed principal) concludes a contract with a third party, and the consideration provided by the third party is the discharge of the agent’s pre-existing debt. If an undisclosed principal takes over that contract, what happens to the agent’s debt, and can the principal demand money from the third party, as he had to debt to discharge? The rule that a third party should not be disadvantaged by the revelation would suggest that the principal could take over the contract, but could not demand money in lieu of the discharge of debt. However, Greer v Downs Supply Co (1927), took a different approach, denying the existence of an undisclosed principal as the agent’s debt made the agent’s identity material to the contract. It is submitted that although the outcome (of not disadvantaging the third party) is correct, there is no reason why a debt should make identity material; the principal should have been able to take over the contract subject to the debt (i.e. he would have to come to an arrangement with the agent to get the extra money). In Siu Yin Kwan v Eastern Insurance Co [1994], the Privy Council found that an undisclosed principle could still be sued where a debt was owed to the third party, but that agent (company) had been wound up.

Discharging payment obligations

If a third party owes money to, or is owed money by the principal, can paying the agent discharge the obligation to pay? If the agency is disclosed, according to Irvine v Watson (1880), an agent should only be paid by a third party where the principal have given the agent authority to receive that payment. Or else, if the agent doesn’t forward on the payment, the ‘paying’ party will still be liable for the payment. In Armstrong v Stokes (1872), an undisclosed principal was said not be liable to a third party after paying his agent when the agent ran off with the money. This was doubted (obiter) by Irvine v Watson (1880), which said that very rarely should a third party be denied rights against a principal, which given that an agent is controlled by his principal, appears to be the more logical approach.

Alternate liability

Yet another flaw in the law of agency lies in the ‘doctrine of merger’. If both an agent and his principal can be sued on a contract (following the interpretation of the agency agreement), the doctrine of merger, according to RMKRM v MRMVL (1926) requires the third party to decide which of the two he would like to sue, he may not sue both. If judgement is obtained against the elected party, but that judgment cannot be enforced (if the defendant becomes insolvent or disappears, for example), the third party may not then sue the other party. This is what happened in Priestly v Fernie (1863), and seems potentially very damaging to third parties, just because a judgment is binding upon its delivery, as opposed to when it is enforced (usually on the receipt of money). However, it remains the current law.

Agents’ warranties of authority

An agent is a third party to the contract formed between principal and third party, therefore, usually, it would be said that a third party would have to resort to the law of tort and proof of fraud in order to sue the agent. However, agency law imposes a collateral contract between agent and third party upon the conclusion of any contract by that agent. This contract warrants to the third party that the agent has the authority to conclude that contract, and can be sued in contract law if he doesn’t have the required authority, either actual or apparent. This means putting the third party in the same financial position as if the contract had been performed.

This warranty is one of strict liability, so in Yonge v Toynbee (1910), solicitors were in breach of this warranty although they had no idea that their principal had lost the capacity to contract with the third party. The third party must show that the lack of authority caused the loss being sued for however, something which was not proved in Singh v Sardar Investments Ltd [2002]: the third party breach the concluded contract, so it made no difference that the agent didn’t have the authority to conclude the contract. Finally, Nelson v Nelson [1997] confirmed that the warranty imposed extends only to the fact of authority: the warranty did not extend to a warranty by a solicitor that a claim made on behalf of a client was a good claim which would succeed.

Next: Termination of authority

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