Note on Principals by Legum

The principal:

The principal is a person or entity that gives authority to another person/entity or allows that other person/entity, called an agent, to act on his behalf in relation to third parties. For example, in the case of Agbemashior and Others v State Insurance Corporation and Others , the plaintiffs allowed and authorized the third defendant, an insurance claims agent, to act on their behalf in claiming compensation against the State Insurance Corporation. By allowing the third defendant to act on their behalf in relation to the State Insurance Corporation (a third party), the plaintiffs became principals.

Categorization of Principals:

Principals are often classified based on the knowledge third parties have about the principal’s existence or identity. Principals are either disclosed, undisclosed, or partially disclosed.

Disclosed Principal:

A principal is a disclosed principal when the third party has notice of the principal’s existence and identity and knows that the agent is acting on behalf of the principal. The third-party may know about the principal’s existence and identity through words or by the conduct of the agent.

Partially Disclosed Principal:

A principal is partially disclosed when the third party is aware that the agent is acting on behalf of a principal, but the third party does not know the identity of the principal.

Undisclosed Principal:

A principal is undisclosed if the third party is dealing with the agent with the full belief that the agent is acting on his own behalf. Thus, the third party is neither aware of the existence nor identity of the principal.

How the Principal Gives Authority to the Agent

1. By Agreement with the Agent:

A principal may expressly agree with the agent that the agent should represent the principal deal with third parties. See the cases of Agbemashior and Others v State Insurance Corporation and Others , E Sfeir & Co v National Insurance Company of New Zealand, Ltd Per Glyndova , Adams v Morgan, Chaudhry v Prabhakar, Yasuda Fire and Marine Insurance Company Europe Ltd v Orion Marine Insurance Underwriters Ltd.

When the agency is created by such an agreement, the agent has actual authority.

2. By Representing to Third Parties that the Agent has the Authority to Act on his Behalf:

Sometimes, the principal may give an agent the authority to act on his behalf by representing to third parties that the agent has the authority to act on his behalf. If the third party relies on the principal’s representations and alters his position based on such representation, the principal is deemed to have given the agent the authority to act on his behalf and would be estopped from denying that the agent had authority. See the cases of Freeman & Lockyer v Buckhurst Park Properties Ltd , Commodore v Fruit Supply (Ghana) Ltd, and Buama v Oppong.

3. By Operation of Law:

Sometimes, and in the absence of an express agreement with the agent or the principal’s representations to third parties that the agent has the authority to act on behalf of the principal, an agent may obtain the authority to act on behalf of the principal out of necessity or by the operation of the law. For instance, where a person’s cargo is in danger of perishing, the shipmaster may be allowed to sell off the cargo to prevent such. In the case of China Pacific S.A. v Food Corporation of India (Winson) , the plaintiffs were salvors (persons who salvage a ship or its cargo) and the defendants were importers of wheat and owned cargo aboard the Winson. When the Winson got stranded while carrying the cargo, the shipmaster entered into an agreement with the plaintiffs to salvage the cargo by storing it in their warehouses. The plaintiffs brought an action against the defendants to recover an amount of $110,982 as (additional) payment for their services. Inter alia, the court held that the actions of the plaintiffs were necessary to protect the cargo from deterioration, and the defendants were liable to pay.

4. By Ratifying the Acts of an Agent Initially done without Authority:

An agent may act on behalf of a principal without actual or apparent authority and retrospectively get such authority when the principal ratifies the acts of the agent. In the case of Bolton Partners v Lambert, an agent of the plaintiff accepted an offer from the defendant without actual authority. Before ratification of the acceptance by the plaintiff, the defendant withdrew the offer. The plaintiffs subsequently ratified the acceptance and demanded specific performance. The defendant contended that the offer was withdrawn before the plaintiff’s actual acceptance of it, but the court held that ratification of the agent’s acceptance had a retrospective effect.

Duties of Principals:

The principal has the following duties:

1. Remunerate (non-gratuitous) agents.

2. To reimburse agents for their expenses incurred in carrying out the principal’s instructions (see Adams v Morgan).

3. Good faith and fair dealing.