Keighley Maxted and Co. v. Durant

Keighley Maxted & Co. v. Durant

 [1901] AC 240

(Undisclosed Principle)

FACTS:

K & Co authorized Roberts, a corn merchant, to buy wheat on a joint account for himself and them at a certain price. Roberts, on his own behalf and without authority of anybody else, bought wheat at a higher price than the authorized one, from Durant. The intention that he was acting for K& Co. as well as himself was not disclosed by Roberts to Durant. K & Co, however, later agreed with Roberts to buy the wheat at that (high) price but eventually failed to do so. Durant resold it at a loss and sued them for loss.

Durant – Plaintiff at court of 1^st instance

Roberts – appellant in Court of appeal, respondent in House of Lords.

K & Co – appellant in House of Lords.

ISSUE:

Whether a contract made by a man purporting and professing to act on his own behalf alone, and not on behalf of a principal, but having an undisclosed intention to give the benefit of the contract to a third party, can be ratified by that third party, so as to render him able to sue or liable to be sued on the contract.

HELD:

Day J. and a special jury ( favoured K& Co. and Durant)

It dismissed the action against the appellants (K& Co.) on the ground that there was no ratification in law of the contract, and gave judgment against Roberts for the amount claimed.

COURT OF APPEAL (favoured Robert)

It reversed the decision as regards the appellants, and ordered a new trial on the ground that there was evidence for the jury that Roberts contracted on behalf of himself and the appellants.

*It, for the first time, asserted the proposition that a contract made by a man in his own name, intending it to be on behalf of a third party who has not authorized it but keeping his intention secret, can be ratified by that third party so as to make himself able to sue or liable to be sued on the contract.

HOUSE OF LORDS

Contentions

Appellants

1. There is absolutely no authority in English law for the proposition, *marked, by court of appeal.
2. A contract made by an agent in his own name (as the present contract was) does not require and cannot receive any ratification: it is complete in itself.
3. The contract in the present case being complete, no third party could be introduced into it except by a new contract, and no new contract is here made or alleged.

Respondents

1. There are authorities in English law in favour of the proposition (Foster v. Bates, judgment of Collins L.J., notes to Armory v. Delamirie).
2. If the agent intends to make the contract on behalf of a principal, though he does not express the intention, the contract may be ratified by the principal so as to bind him.

Opinion of Individual judges (They all concurred)

Earl of Halsbury  L.C

He found the *marked observation of the court of appeal as contrary to all principles and disagreed with the observation of the court of appeal and suggested for reversal of the ruling of the court of appeal.

Lord Macnaghten  (favoured Appellant)

He was of the same opinion as Earl of Halsbury. He pointed that “civil obligations are not to be created by, or founded upon, undisclosed intentions.”On the point of lack of authority, he quoted the observation of James L., “The clearer a thing is, the more difficult it is to find any express authority or any dictum exactly to the point.”

Lord Shand

He was also of the same opinion. He found the evidences for the respondents (buying on behalf of K & Co.) unsatisfactory and observed that there was no evidence that the appellants, by any communication, conduct or dealing with the respondents, ratified or adopted their contract with Roberts. He said that the result of such judgment of the court of appeal is to give one of two contracting parties in his option, merely from what was passing in his own mind and not disclosed, the power of saying the contract was his alone, or a contract in which others were bound with him.

Lord James of Hereford

He also agreed to the same.He observed that D contracted with Roberts alone and he knew of no disclosed principal other than Roberts, and there was no undisclosed principal. He pointed out the fact that an undisclosed principal must exist at the time of the contract and such principal cannot be brought into life after the contract has been made without any recognition of his existence.

Lord Davey

He also allowed the appeal and made a crucial point that “the rule which permits an undisclosed principal to sue and be sued on a contract to which he is not a party, though well settled, is itself an anomaly, and to extend it to the case of a person who accepts the benefit of an undisclosed intention of a party to the contract would, in my opinion, be adding another anomaly to the law, and not correcting an anomaly”.

Lord Brampton

Considering the facts of the case, he observed that there is a contract between Roberts and Durant simply, to which it was never avowedly contemplated that Keighleys should be parties.he allowed the appeal.

Lord Robertson

He held that “unless the contract made by the unauthorized agent purports or professes … to have been entered into on behalf of another … then that contract made by the unauthorized agent was not capable of being ratified by a stranger to it.” He also observed that there is no room for ratification until the credit of another than the agent has been pledged to the third party. Thus he allowed the appeal.

Lord Lindley

There is an anomaly in holding a person bound to another of whom he knows nothing and with whom he did not in fact intend to contract. He said, “what Roberts intended was never disclosed to Durant & Co., and cannot be inferred from the nature of the transaction itself. His intention, therefore, cannot be allowed to affect the rights of the parties”.

 

LAW POINT

Undisclosed principal and ratification

A contract made by a person intending to contract on behalf of a third party, but without his authority, cannot be ratified by the third party so as to render him able to sue or liable to be sued on the contract, where the person who made the contract did not profess at the time of making it to be acting on behalf of a principal.