Where a person contracts as agent for a principal

the contract is the contract of the principal and not

that of the agent; prima facie at common law the
only person who may sue is the principal, and the
only person who can be sued is the principal.
(Montgomerie v United Kingdom Mutual Steamship
Association [1891] 1 QB 370, Wright J.

In Montgomerie v United Kingdom Mutual Steamship

Association (1891), the plaintiffs, owners of the shares in
the steamship, brought an action to recover loss under a
policy of insurance granted by the defendants. The facts
of the case can be summarised as follows.

The defendants, the insurance association, were to pay

losses to the plaintiffs in certain events, as they became
members. The issue arose when the plaintiffs brought an
action on their own behalf, not as members, against the
insurance association. They claimed the amount of loss
that happened to the steamship couple of years before.

Issue:

Whether the plaintiffs were entitled to bring an action

against the defendant insurance association?

Held:

The court found that as a general rule when a person

makes a contract as an agent this contract is the contract
for principal. Thus, the only person who could bring an
action is the principal as he/she bears rights and liabilities
deriving from the contract.

Although, there are a number of exceptions to this rule.

For example, an agent may be added as a party to the
contract and designated as the party to be sued. Another
exception can be related to a foreign principal.

In the present case, the court concluded that the action

brought by the plaintiffs in their names was not
maintainable since according to the terms of the policy,
defendant insurance association could not be held liable to
the plaintiffs. The defendants were liable only to the firm,
described as a member, and not to an agent.

Yeung Kai Yung v Hong Kong and Shanghai Banking

Corpn [1981] AC 787

The administrator of a church mission in Hong Kong was

the registered holder of 12,557 shares in a Hong Kong
bank. The certificates for the shares were stolen from the
administrator without his knowledge and some time later
a firm of stockbrokers presented the certificates to the
bank together with ‘duly completed transfer deeds’, under
cover letters signed in the firm’s name requesting the
bank to give effect to the transfers in favour of one W and
to issue certificates in W’s name.

The bank was required by statute to register valid share

transfers on request, but having received the documents
from the stockbrokers it failed to check the transferor’s
signature against the specimen signature of the
administrator who held such shares.

New certificates were issued to W, who had forged the

administrator’s signature, and who later sold the shares.
The stockbrokers had acted in good faith throughout the
transaction and were ignorant of the forgeries. The
administrator later proved the forgeries and obtained
judgment against the bank, which in turn obtained
judgment against the stockbrokers for an indemnity in
respect of its liability to the administrator, on the basis
that the stockbrokers’ request in their letters amounted to
an implied warranty that the documents presented by
them were genuine.

The stockbrokers appealed to the Hong Kong Court of

Appeal, which affirmed that judgment. The stockbrokers
appealed to the Privy Council, contending (i) that the
person who had requested the bank to effect the transfers
was in fact W rather than the stockbrokers who had
merely acted as a conduit pipe, (ii) that the principle of a
warranty or promise of indemnity arising out of a request
to do an act which although not itself manifestly tortious
nevertheless injured a third party did not apply when the
request was made by an agent or if the person doing the
act was himself guilty of default, (iii) that the assertion in
their covering letters that they were forwarding ‘duly
completed transfer deeds’ did not amount to a
warranty, express or implied, by the stockbrokers that the
transfer deeds were genuine, and (iv) that, independently
of contract, the bank owed a duty of care to the
administrator and by virtue of its failure to check the
signatures on the transfer deeds was liable as a joint
tortfeasor: Held the appeal would be dismissed for the
following reasons.

(1) The stockbrokers were personally responsible for

whatever consequences the law attached to the making of
the request contained in their letters and the bank’s
compliance with that request because notwithstanding
that they were written on behalf of W there was nothing in
the letters or their unqualified signature to suggest that
the request being made was exclusively W’s.

In any event the stockbrokers were liable for their

engagements on behalf of W unless they could
show that they had expressly or impliedly
negatived their personal liability, since there was
no rule of law that if a principal was liable his agent
was absolved from liability.

(2) The principle of law that a person doing an act at the

request of another was entitled to an indemnity if the act
was not apparently illegal in itself and was done without
default but nevertheless injured a third party was a broad
principle not limited to a request made by a party for his
own benefit.

Default on the part of the person doing the act negating

the application of the principle only arose in the event of
dishonesty, lack of good faith or failure to comply with the
request and did not extend to such oversights as the bank
may have committed.
Accordingly, the principle applied to the request made by
the stockbrokers who, in the circumstances, had promised
to indemnify the bank if by acting on the request the bank
caused damage to a third party, and the bank by acting on
the request had accepted that promise which therefore
became a contractual indemnity.

(3) Whether a warranty was to be implied where none was

expressed was a question of fact dependent on the
circumstances, but where a stockbroker himself
requested, albeit on the instructions and for the benefit of
another, the registration of a share transfer which a
company was under an administrative duty to effect if the
documents were genuine, the sound and expeditious
conduct of business required that the company
(stockbrokers) should be entitled to rely on the
documents submitted.

In the circumstances, therefore, there was implied in the

stockbrokers’ request a warranty that the transfer deeds
were genuine and they were in breach of that warranty. In
any event there was a strong case for construing the
words ‘duly completed’ in the stockbrokers’ letters
as an express warranty that the transfer deeds had
been properly completed and were genuine.

Lloyd v Grace Smith & Co [1912] AC 716

A principal is liable for fraud of his agent acting within the
scope of his authority, whether the fraud is committed for
the benefit of P or for the benefit of A.
A clerk, who was a representative for the solicitor’s firm
dishonestly transferred a widow’s cottage & mortgage to
his name, disposed of it and gave a receipt in the firm’s
name.
Held: the firm was responsible for the fraud committed by
their representatives in the course of his employment.

Armstrong v Strain [1952] 1 KB 232

The necessary knowledge for the tort of deceit could not

be found by adding the innocent mind of a principal, who
knew facts which showed what his agent said to be untrue
but did not know what the agent was saying, to the
innocent mind of the agent who did not know that what he
was saying was untrue.

Devlin J said: ‘A man may be said to know a fact when

once he has been told it and pigeon-holed it somewhere in
his brain where it is more or less accessible in case of
need. In another sense of the word a man knows a fact
only when he is fully conscious of it. For an action of deceit
there must be knowledge in the narrower sense, and
conscious knowledge of falsity must always amount to
wickedness and dishonesty. When Judges say, therefore,
that wickedness and dishonesty must be present, they are
not requiring a new ingredient for the tort of deceit so
much as describing the sort of knowledge which is
necessary.’

Debenhams Ltd v Perkins [1925] 133 LT 252

Where an action for goods sold is brought against a wife
on a bill containing a number of items, and judgment is
obtained against her on all items purchased after a certain
date on the ground that since that date she has been
acting as principal by reason of her having separated from
her husband on that date, proceedings may subsequently
be taken against the husband as principal for the items
purchased prior to that date, since there are two distinct
causes of action, and there has been no election by suing
the wife to judgment on the whole or part of one
undivided debt.
Drew v Nunn [1879] 4 QBD 661
The plaintiff was a tradesman, and the defendant had
given his wife authority to deal with the plaintiff, and had
held her out as his agent and as entitled to pledge his
credit. Afterwards, the defendant became insane, and
whilst his malady lasted, his wife ordered goods from the
plaintiff, who accordingly supplied them. At the time of
supplying the goods the plaintiff was unaware that the
defendant had become insane. The defendant afterwards
recovered his reason, and then refused to pay for the
goods supplied to his wife by the plaintiff:-

Held, that the defendant was liable for the price of

the goods.

Facts: the defendant had been present when some of the

goods were ordered by his wife, and also had paid for
some of them. The defendant became ill in 1873, and in
the month of November he instructed his agent to pay all
his income to his wife, and empowered her to draw
cheques upon his bankers. He became insane in
December, and was confined in an asylum until April,
1877.

Whilst the defendant was in the asylum, his wife ordered

goods from the plaintiff, who supplied them to her upon
credit. The plaintiff was ignorant that the defendant was
insane and had been placed under restraint in an asylum,
and he did not know that the defendant's income was paid
to his wife. In April, 1877, the defendant recovered the use
of his reason, and in the June following revoked any
authority which he might have given to his wife either to
act as his agent or to pledge his credit.

Mellor, J., refused to ask the jury whether the income of

the defendant's wife during his confinement in the asylum
was sufficient to maintain her, and directed the jury that
the plaintiff was entitled to recover, if what the
defendant's wife did was according to the course pursued
whilst the defendant lived with her. The jury found a
verdict for the plaintiff.
Appeal: The direction of Mellor, J., was right. Insanity does
not revoke an authority to pledge the credit of the person
becoming insane, if the person giving credit is unaware
that it has supervened. The defendant had so conducted
himself that the plaintiff was entitled to assume that the
defendant's wife was authorized to act as his agent.

UNDISCLOSED AGENCY

Siu Yin Kwan v. Eastern Insurance Co., [1994] 2 AC

199, 207,
For an insurance of a ship, shipping agents insured in their
own name and the employees of the ship against various
liabilities. Ordinarily it would have been the ship-owner
who insures against these liabilities. There was an
employer (P) but the existence of him was not made
known to the insurers. The insurers (T) knew the shipping
agents didn’t own the ship but thought it was possible that
the agents might employ the crew. The ship sank and two
employees drowned.

The employer went into liquidation and the family of the

crew that drowned sued the insurance company because
the employer was insolvent. They could only sue the
insurance company if the employer himself can sue the
insurance company directly.

Privy Council – it would have been open to P to

make a claim even though P was an undisclosed
principal therefore since it would have been possible for P
to sue despite him being an undisclosed P, it was also
possible for the crewmember’s estate to sue the insurance
company direct.

Judge of first instance had concluded that at the time they

put the insurance in place, had thought it was possible for
A to be the employer but they were not really concerned
about the identity of the principal (employer), they knew
the A was reliable and was not bothered.

The finding of the trial judge that the identity of employer

did not matter to the T was a relevant part of the decision.

Is it different if the identity of P would matter to T? It may

well be. It is open to T in that event, in the contract to
insist that the contract is meant to be with the principal
and no one else.

Apparent authority – the idea that the agent will be

operating under an apparent authority does not work here
because it is to do with representation and if T doesn’t
know about P’s position then there cannot be a
representation to that effect.

United Kingdom Mutual Steamship Assurance

Association v Nevill [1887] 19 QBD 11

T, the manager and part owner of a ship became a

member of a mutual insurance association, and took out a
policy with such association in respect of the ship. The
articles of association gave power to the committee, in
order to provide funds for the business of the association
from time to time to direct sums to be paid by the
members rateably. By the policy which was made by the
association under their seal, the association agreed with T,
that the members thereof should according to the articles
of association pay and make good losses and damages to
the ship occasioned by the risks insured against, liable
only to the extent of so much of the funds as they were
able to recover from the members liable for the same and
which were applicable for the purpose of paying claims
under the policy.

Certain contributions to the funds of the association

having, in accordance with the articles, become payable
by T in respect of the ship, and T being bankrupt, the
association sued N, another part-owner of the ship, for
such contributions as an undisclosed principal of T:

Held the effect of the articles of association and the policy

being that the liability for such contributions was imposed
on members only, N not being a member of the
association, could not be sued for such contributions as an
undisclosed principal of T.

What did Lord Lloyd (Siu Yin Kwan v Eastern

Insurance Co Ltd [1994] 2 AC 199) mean when he
justified the doctrine of the undisclosed principal by
reference to considerations of commercial
convenience?

It is common in business for principals to wish to conceal

their involvement in adeal so as not to alert rivals or to
affect the price. The desire for concealment of the
principal may come from the agent, who wishes to protect
his or her own businessby preventing a third party from
dealing directly with the principal. More generally, the
doctrine fits in with a model of business relations that
dominates contract law in which it is assumed that
transactions are impersonal and that business people are
not concerned about the identity of the party with whom
they are dealing.

Rolls-Royce Power Engineering plc & Anor v Ricardo

Consulting Engineers Ltd Ltd [2003] EWHC 2871.

The second claimant (Allen) had been since 1977 a wholly

owned subsidiary of the first claimant (RRPE) (both
companies had had several names during this period). In
May 1989 RRPE and its subsidiaries were acquired by the
Rolls-Royce group.

The business arrangement between Allen and RRPE was

covered by a first management agreement dated 29
January 1982 and a second management agreement
dated 9 October 1992. Broadly the effect of these
agreements was that RRPE carried on its business through
the agency of Allen.

The present litigation arose out of the development of a

diesel aero engine, which started in 1993. Allen took the
lead in the development of the engine. The production and
sale of the engine was carried out by RRPE. In November
2000 there was a catastrophic failure of one of the
engines. The cause was a fatigue failure of a connecting
rod. There were further catastrophic failures of other
engines.

The defendant (Ricardo) had been engaged to undertake

work in connection with the development of the engines
and the claimants contended that the defects in the
engines arose out of deficiencies in the work done by
Ricardo.

It was accepted that there were two relevant contracts, a

concept design contract and a definitive design contract
though there were differing views as to how exactly these
contracts came into existence. Both contracts had been
negotiated between Allen and Ricardo.

A substantial difficulty facing the claimants (assuming

Ricardo in fact to have been at fault) was that all the loss
had been suffered by RRPE but that the contracts with
Ricardo had been made by Allen. The claimants sought to
answer this difficulty by arguing that Allen had contracted
as an agent for an undisclosed principal, RRPE.

Held – (1) The definitive design contract (DDC) was made

by the acceptance by conduct by Allen in letting Ricardo
get on with the work the subject of the DDC proposal
contained in a letter from Ricardo dated 31 August 1994.

(2) Ricardo knew that Allen was a wholly owned subsidiary

of RRPE and that both were members of the Rolls-Royce
group but there was no evidence that anyone at Ricardo
knew of the management arrangement between Allen and
RRPE.
(3) It was not established that Allen intended at the time
the DDC was made to enter into it on behalf of RRPE.

(4) The evidence was that Ricardo was not willing to

contract with anyone other than Allen. The DDC was not
an ordinary commercial contract and depended on good
personal relationships between the individuals acting on
behalf of the contracting parties.

(5) Accordingly RRPE was not an undisclosed principal to

the DDC.

(6) In the circumstances although Ricardo owed a duty of

care to Allen, it did not owe a duty of care to RRPE.

(7) The effect of the incorporation of conditions into the

DDC was that contributory negligence was not available to
Ricardo as a defence to an action by Allen for breach of
contract.

(8) As a result of the second management agreement

Allen did not owe RRPE a duty of care.

(9) Allen could not recover from Ricardo the losses, which
RRPE had suffered as a result of the failure of the engines.

DYSTER V RANDALL & SONS [1926] CH 932

In February 1924, the plaintiff became bankrupt. In May

1925, he procured C to enter into an agreement with the
defendants to purchase from them on his behalf two plots
of freehold land. In accordance with the arrangement
between the plaintiff and C, C did not disclose to the
defendants that he was acting as the agent of the plaintiff.
Before the purchase had been completed the plaintiff took
possession and proceeded to build two bungalows on the
land. In July 1925, the defendants discovered that these
building operations were going on, and they wrote to C,
pointing out that no plans had been submitted of the
buildings as provided for by the agreement. C then
explained that he was acting as agent for the plaintiff, and
at his request the agreement was cancelled. In an action
by the plaintiff for specific performance of the contract,
Held: (i) mere non-disclosure as to a person actually
entitled to the benefit of a contract for the sale of real
estate did not amount to misrepresentation as to the
identity of that person, even though the contracting party
knew that, if the disclosure were made, the other party
would not enter into the contract, provided that, as in the
present case, the contract was not one in which any
personal qualifications possessed by the contracting party
formed a material ingredient;

(ii) the trustee in bankruptcy not having intervened to

claim the benefit of the agreement, this after-acquired
property continued in the plaintiff who could maintain an
action in relation to it, and, moreover, the transaction,
being bona fide and for value, was valid against the
trustee under s 47 of the Bankruptcy Act, 1914, and in the
circumstances the vendors would be certain to be able to
retain the purchase money against the trustee in
bankruptcy;

(iii) the principle that a plaintiff who has committed a

breach of an essential term of the contract could not
obtain specific performance did not apply because the
failure to submit plans, which, when produced, the
defendants admitted to be unexceptionable, was a non-
essential or trivial breach; and, therefore, the plaintiff was
entitled to a decree for specific performance of the
agreement.

Cooke & Sons v Eshelby [1887] 12 App Cas 271:

Where an agent makes a contract for the sale of
goods in his own name for an undisclosed principal,
and the principal sues the buyer upon the contract,
the buyer cannot avail himself of a set off due from
the agent, unless in making the contract he has
been induced by the conduct of the principal to
believe, and did in fact believe, that the agent was
acting on his own account.

L & Co, a firm of brokers, sold cotton to the appellants in

their own name, while in reality they were acting for an
undisclosed principal. The appellants knew that L & Co
dealt sometimes as brokers and sometimes as principals
on their own account, and did not inquire in which
capacity they were acting in the transaction. In an action
by the principal's trustee in bankruptcy for the price of the
cotton, the appellants claimed the right to set off a debt
due to them from L & Co on general a count.

Held: as the appellants chose to purchase without inquiry

they had no right to set off the debt due to them from L &
Co.

Per LORD WATSON: A broker who effects a sale in his own

name with an intimation, express or implied, that he is
selling as an agent, does not sell the goods as his own,
and in such a case the purchaser has no reasonable
grounds for believing that the agent is the real party with
whom he has contracted.

In order to constitute a valid defence within the rule

in George v Clagett (1797) the plea should show that the
contract was made by a person whom plaintiff had
intrusted with possession of the goods; that the person
sold them as his own goods in his own name as principal
with authority of plaintiff, and defendant dealt with him as,
and believed him to be, the principal in the transaction,
and that before defendant was undeceived the set-off
accrued. It is not necessary in such a plea to negative
‘means of knowledge’ that the seller was dealing as an
agent.

To account for goods sold and delivered defendants

pleaded that the goods were sold and delivered to them
by S, then agent of plaintiffs, and intrusted by them with
possession of the goods as apparent owner thereof; that S
sold the goods in his own name and as his own goods with
consent of plaintiffs; that at the time of sale defendants
believed S to be owner of the goods and did not know
plaintiffs were owners of them or interested therein, or
that S was agent.

And that before defendants knew plaintiffs were owners of

the goods, or S was agent in the sale thereof, S became
indebted to defendants, etc, claiming a set-off. Replication
that, before sale by S, defendants had means of knowing
he was merely apparent owner of the goods, that same
were intrusted to him as agent, and that S was agent, and
as such sold the goods to defendants: Held (1) the plea
was good; (2) the replication was no answer to it.

If a factor, who sells under a del credere commission, sells

goods as his own, and the buyer knows nothing of any
principal, the buyer may set off any demand he may have
on the factor against the demand for the goods made by
the principal [George v Clagett (1797)]

Clarkson, Booker Ltd v Andjel [1964] 2 QB 775

(merger and election)
The plaintiffs supplied to the defendant goods and
services to the value of £728 7s. 6d. The defendant did
not disclose that in contracting for the supply of the goods
and services he was acting other than as principal. The
plaintiffs had, prior to the transaction in question, done
business of a similar nature with the[1964] 3 WLR 466 at
467defendant on several occasions, always as principal.
Subsequently, the plaintiffs were informed by P. Ltd. that
the defendant had acted solely as their agent in the
transaction. On July 26, 1962, the plaintiffs' solicitors
wrote to both the defendant and P. Ltd., in each case
threatening proceedings unless the amount due was
forthcoming. Payment was not made, and, on August 3,
1962, the plaintiffs' solicitors wrote to P. Ltd. stating that
they had been instructed to proceed to “obtain judgment”
against them. On September 4, 1962, the plaintiffs issued
a writ against P. Ltd., which was duly served.
Subsequently they were informed that P. Ltd. were
insolvent and about to be put into liquidation. They
accordingly did not proceed further with their action
against P. Ltd., but their solicitors wrote again to the
defendant(‘s solicitors) holding the defendant liable and
stating that they had been instructed to commence
proceedings against him. On December 13, 1962, the
plaintiffs issued a writ against the defendant, and on
January 14, 1964, judgment was given in their favour. The
defendant appealed, contending that the plaintiffs had
elected to adopt P. Ltd. as liable as principals in respect of
the transaction and were thereby precluded from
maintaining their claim against him. It was conceded by
the plaintiffs for the purposes of the appeal that the
defendant had in fact acted as agent for P. Ltd. in respect
of the transaction.

Held , that the institution of proceedings against either

agent or principal did not amount as a matter of law to a
binding election so as to bar proceedings against the
other, but whether in any particular case there had been
such an election was a question of fact to be considered in
the light of all the circumstances, the institution of
proceedings against one being, in other than exceptional
circumstances, strong evidence of an election such as, if
not rebutted, would preclude subsequent proceedings
against the other that in order to constitute an election
the decision to institute proceedings must have
been taken with full knowledge of all the relevant
facts and must have been a truly unequivocal act,
any conclusion as to that being based on a review
of all the relevant circumstances and the context in
which the decision was taken; that, while the plaintiffs
had had knowledge of all the relevant facts, in the
circumstances, having regard particularly to the fact that
it was the defendant to whom the plaintiffs had given
credit, as they had done over previous transactions, and
to whom they had, down to the letters of July 26, 1962,
looked for payment, and that they had not at any time
withdrawn their threat to take proceedings against him so
that he had not in any way been prejudiced by the course
which they had taken or in any sense lulled into a false
sense of security, the plaintiffs had not by the mere
institution of proceedings against P. Ltd., made such an
unequivocal election as to debar them from taking the
present proceedings against the defendant.