Contractual Liability of Agent and Principal to Third Parties Flashcards
Macmillan Inc. v. Bishopsgate Investment Trust plc (No. 3) [1995]
GENERAL RULE:
Just because an agent is acting for some bad motive or to further his own interests, so long as the act is within the agent’s actual or apparent authority, it does NOT cease to bind the principal.
Seems to establish that provided agent is acting within the scope of his authority, his reason for acting is immaterial.
Here, director (agent) deposited some of company’s shares in a bank as security for a loan - she had actual authority to do this - but was not doing it for the company, rather in furtherance of her own interests.
Nevertheless, Millet J held that the company was bound by this transaction.
(Court’s primary concern here is protection of the third party).
Hambro v. Burnand [1904]
Agent was authorised to write policies of insurance and carry on underwriting business on the principal’s behalf at Lloyds - but acting in his own interests and in abuse of his actual authority, agent underwrote a ‘guarantee policy’ in the name of his principal.
The third party was acting in good faith and had no knowledge of the terms of the agent’s authority.
BUT: the writing of this policy was in the normal course of business at Lloyds, and so therefore, the agent was acting within the scope of his ostensible authority, though defrauding his principal as a result.
Held; principal was bound by this contract.
Reinforces Macmillan Inc. v. Bishopsgate Investment Trust plc (No. 3) - principal will be liable even if agent acting in furtherance of his own interests, provided that act is within the scope of agent’s actual OR OSTENSIBLE authority.
Foxtons Ltd v Thesleff [2005]
Exception to the general rule that agent normally doesn’t become party to the contact between principal and third party:
WHERE AGENT HAS AGREED TO UNDERTAKE A PERSONAL LIABILITY, HE WILL BE SO LIABLE.
In such a case, may be that the contract provides that the agent can be liable, third party can only go after one of the agent or the principal, unless the contract provides that they are to be liable jointly and severally.
Teheran Europe, Ltd. v. S.T. Belton, Ltd. [1968]
There was a line of cases which said that if an agent was acting for a FOREIGN principal, the agent himself became a party to the contract with the third party (thus an exception to the general rule).
BUT, here, C of A overruled this.
Held; no rule to the effect that merely because an agent was acting for a foreign principal, the agent thereby became a party to the contract.
At best, the fact that agent is acting for a foreign principal might be some evidence of an intention that he should become a party to the contract.
But nothing more – just a factor to be taken into account if its contended that the agent is himself a party to the contract.
The Swan [1968]
Agent CAN become party to the contract between the principal and the third party if it can be inferred from the surrounding circumstances that the PARTIED INTENDED THE AGENT TO BE A PARTY TO THE CONTRACT.
Here, person owned a fishing boat - he formed a company - chartered the vessel to his company - then, acting as the company’s agent, entered in a contract to have boat repaired - company failed to pay.
Q: was the owner (and agent) personally liable on this contract?
Held; YES - although he had made this contract as agent for the company, he was regarded as assuming a personal liability on the contract.
Inferred from the fact that the agent was also the owner of the ship, that objectively there would be an intention that he was also a party to the contract.
BRANDON J
“depends upon the intention of the parties - not the subjective intentions but an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended.”
Resolute Maritime Inc. v. Nippon Kaiji Kyokai [1983]
MUSTILL J:
Though Misrepresentation Act 1967, s.2 (1) speaks about liaiblity for a misrepresentation by “another person thereto”, such a misrepresentaiton must be made by someone who is actually party to the contract.
Thus, an Agent will NOT be liable for misrepresentation unless agent is party to the contract with the third party for some other reason (one of the other exceptions)
Here, ship for sale - agent of seller valeud ship but negligently misrepresented value.
Q: could the agent for the sellers of the ship, could be made liable under s.2(1) Misrepresentation Act.
Held; NO – because since s.2(1) says “by another party thereto” – the misrepresentation must be have been made by a party TO THE CONTRACT.
Collen v. Wright (1857)
Established that when an agent makes a contract, the agent is impliedly warranting that he has the authority of the principal to make the contract, and if he doesn’t have the authority, he’s liable on this warranty of authority.
S. Pearson & Son Ltd. v. Dublin Corporation [1907]
H of L accepted that a principal could be liable for the fraud of his agent acting within the scope of his authority.
(But reported cases on this are very rare).
HIH Casualty and General Insurance Ltd. v. Chase Manhattan Bank [2003]
H of L considered whether liability for the fraud of the agent (possible on the basis of S Pearson v Dublin Corporation) could be excluded by contract between the principal and the third party.
Seems odd that third party would want to enter into a contract with principal if the possible fraud of his agent is to be excluded, but that’s what happened here.
H of L held; that it was, in principle, possible for a principal to exclude liability for fraud on the part of his agent, BUT in order to do so, the principal would have to make this very explicitly clear in the contract.
On the facts of this case, held that the attempted exclusion was ineffective.
LORD BINGHAM:
“the language used must be such as will alert a commercial party to the extraordinary bargain he is invited to make.”
