Effect of Contracts

The effect of a contract made by an agent varies according to the circumstances under which the agent contracted.  Where the agent contracts as agent for a named principal, the general rule is that the agent will incur neither rights nor liabilities under the contract.  It is, of course, vital that the other party is fully aware of the agent’s status which will mean making it clear who the principal is as well as, for example, adding the words “As Agents Only” after the signature. Where the Agent Contracts as agent for an un-named Principal, because he has expressly contracted as agent, he cannot be personally liable on the contract. It should be noted that the agent will, however, be held personally liable if he does not quite clearly show on the face of the contract that he is merely an agent. In this situation the third party may elect to sue either him or his principal. Therefore, the agent must ensure that his position as agent is clear. Descriptive terms such as ‘broker’ or ‘manager’ are not sufficient of themselves to protect him from personally liability.  Eventually, of course, the agent has to name his principal within a reasonable time if he hopes to escape being held personally liable. Where the agent contracts as agent for an undisclosed Principal the situation is quite different, because the third party is not aware when entering into the contract that the person with whom he negotiates is in fact an agent. The third party is contracting with the agent as if the agent were principal. However, there are cases where the position adopted by the agent is not inconsistent with the intervention of an undisclosed principal. In the case of a charter party the term “charterer” is a very different term from the term “owner” or “proprietor. A charterer may be – and prima facie* is – entering into a contract; and although rights of ownership or rights akin to ownership may be given under a charter party, the charter party is a contract for the hiring or use of the vessel. In these circumstances it is in accordance with ordinary business common sense and custom that charterers should be able to contract as agents for undisclosed principals who may come in and take the benefit of the charter party. It will probably be only in exceptional cases that the undisclosed principal’s intervention will be held inconsistent with the terms of the contract and possibly only in cases where the agent can be construed to have contracted as owners of the property. Unless the contract is a personal contract the principal can only be prevented from intervening if the agent has expressly denied that he is acting on his behalf. There have been some interesting developments in respect of this issue. The starting point is that it is established that an undisclosed principal can sue and be sued on a contract made with his authority by an agent who intended, when contracting, to act on his principal’s behalf. There are situations where the principal cannot intervene, where the contract is such that intervention on it should not be permitted. These situations will be rare in commercial cases. Nineteenth-century cases relied on the parole evidence rule and tended to hold that if the principal was inconsistent with the description given in a written contract, he could not intervene. The principal’s rights and liabilities were considered additional to and not instead of those of the agent. Thus, there is the restriction that a principal cannot intervene or be sued where the contract contains an express, or in unusual situations implied, term that the agent is the only party to it.