Settlement Flashcards
Payment by THIRD PARTY, then agent goes insolvent/absconds before passing money on to principal??
Has third party fulfilled his duty to pay the principal, or does principal have any rights?
Answer to this question depends entirely on the authority of the agent.
If the agent has authority (actual, implied, usual or ostensible) to receive the payment from the third party, on behalf of the principal, then the third party is DISCHARGED from paying the principal, by having paid the agent.
Thyus, if the agent becomes insolvent or absconds with the money before he passes the money to the principal, it’s not the third party’s problem.
But, if agent had no authority to take that money, third party still owes money to principal.
Payment by PRINCIPAL to agent, then agent goes insolvent/absconds before passing money on to third party??
Where it is the PRINCIPAL who pays the agent money which is due to a third party, and the agent then either becomes insolvent or absconds with the money, is the principal still liable?
General answer is YES – principal is still liable – mere fact that he’s settled with the agent doesn’t discharge the principal from his duties to third party/
This is subject to an exception.
Heald v. Kenworthy (1855)
(1) Generally, a principal is not discharged of his obligations to pay the third party, just because he has paid or settled with the agent.
(2) BUT - EXCEPTION:
Where the principal is induced by the conduct of the creditor (the third party) to reasonably believe that the agent has paid or discharged the debt, or that the creditor has elected to look to the agent alone for payment of the debt…
…and then in consequence of that belief, settles or pays the agent, the creditor (third party) cannot deny…
THE CREDITOR CANNOT DENY, AS BETWEEN HIMSELF AND THE PRINCIPAL, THAT THE DEBAT HAS BEEN PAID OR DISCHARGED OR THAT HE HAS DECIDED TO GIVE EXCLUSIVE CREDIT TO THE AGENT, SO AS TO DISCHARGE THE PRINCIPAL
Sometimes referred to as “THE EXCLUSIVE CREDIT” rule. – where third party leads principal to think that he is only looking to the agent for payment.
Irvine & Co. v. Watson & Sons (1880)
Case which shows the exclusive credit rule.
A employed an agent (oil broker) to buy oil.
The agent bought some oil from a supplier, telling him that he was acting for a principal (thus a disclosed principal) - cash on delivery.
Supplier delivered the oil , without being paid by the agent.
A, not knowing that the agent hadn’t paid the supplier, paid the agent. -
The agent then went insolvent, with supplier still not being paid.
The supplier sued A, the principal, for the price of the oil.
Held; here the third party (the supplier), has not done anything to lead the principal to think that he had given exclusive credit to the agent.
Davison v. Donaldson (1882)
Another case on exclusive credit.
Contract to supply stools to ships - stools sold to person described as the ‘managing owner’ of the ship.
The supplier of these stools demanded payment from the managing owner, but wasn’t actually paid.
The managing owner’s principal settled accounts with the agent 3 months after the goods were supplied, and again two years later.
Then the agent became bankrupt.
Notwithstanding the long delay, it was held again that there was no conduct on the part of the supplier to prevent him suing the principal.
Armstrong v. Stokes (1872)
Suggested that where an undisclosed principal settles with / pays his agent at a time when the third party still does not know that the agent acted for a principal, the principal is discharged of any duty to pay the principal.
Here, agent that sometimes acted as principals in own right.
Agent regularly bought cloth from the third party cloth producer on credit.
The cloth producer never enquired whether the agents were acting for themselves or not.
Stopped paying and went insolvent.
The cloth producer then discovered that this cloth had been bought for an undisclosed principal, on a commission basis, and had been sent on to another party after it had been bleached.
This other party had paid the agent for the cloth before the agent had become insolvent.
Held; in these circumstances, the principal was not liable to pay again.
