An agency is created when a party authorises another to act on its behalf when entering into a legal relationship with a third party. An agent will not usually be liable on a contract made on behalf of his principal if the agent acts within the scope of his authority and the party with whom the agent is dealing is made aware of the agency and the identity of the principal. Only the principal can sue or be sued.
By contrast, if the agency remains undisclosed, the agent will be personally liable on the contract and, if he acted within the scope of his authority, so too will the principal. When the third party discovers the existence of the agency, it can choose whether to enforce the contract against the agent or the principal.
Does an agent who, in the course of making a contract with a third party, carelessly misrepresents the name of his principal attract liability for breach of warranty of authority or personal liability on the contract? The amount at stake in Knight Frank LLP v Du Haney [2011] EWCA Civ 404; [2011] PLSCS 108 was £70,500, which was the cost of a development appraisal commissioned on behalf of either “Morecambe Investment Ltd” or “Morecombe Investments Ltd”, a company that did not exist.
The individual who commissioned the appraisal made it very clear that he was acting as an agent and was not contracting as a principal in his own right. In particular, he added the words “as agent” when signing letters prepared by Knight Frank in the name of “Morecombe Investments Ltd”. Unfortunately, it subsequently transpired that he represented “Morecambe Investment Co Ltd”, a company that is or was registered in the
The Court of Appeal ruled that the only warranties given by the agent were as to the fact of his agency and that he was authorised to act on behalf of his principal since this is something peculiarly within the agent’s knowledge. However, the agent had not warranted the precise accuracy of the name of his principal in the sense that he had effectively guaranteed that the name supplied was correct in every particular.
Knight Frank had justifiably relied on the representation that the person with whom it was dealing was authorised to act on behalf of the entity that was purchasing the site, but had not been induced to prepare the development appraisal because it believed that it was contracting with either “Morecombe Investments Ltd” or “Morecambe Investment Ltd”. The precise name or location of the principal had not been important to them and, if it had been, it could have made enquiries to confirm the position.
Consequently, the individual who commissioned the development appraisal was not liable for the firm’s professional fees. It is not clear why the firm chose not to pursue Morecambe Investment Co Ltd. However, the decision highlights the importance of investigating the nature, identity and creditworthiness of parties in business relationships and of avoiding misnomers arising out of typographical errors or changes in corporate names.
Allyson Colby is a property law consultant
