Watteau v Fenwick

Facts

• The defendants owned a public house but did not appear as owners to the outside world.
• They employed Humble as manager, whose name appeared over the door and on the licence.
• The manager was expressly instructed not to buy any goods for the business except bottled ales and mineral water.
• Contrary to that instruction he bought cigars on credit from the plaintiff.
• The plaintiff dealt with the manager believing him to be the owner, and knew nothing of the defendants or of any restriction.
• On non-payment the plaintiff sued the defendants as undisclosed principals.

Issue

1. Whether an undisclosed principal is bound by a purchase made by his manager in breach of an express private prohibition, where the third party was unaware both of the principal and of the restriction.

Held

• The defendants were liable. Wills J held that once it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies: the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations put upon that authority as between the principal and the agent. Buying cigars was an act of a kind usual for the manager of such a business, and the plaintiff had no notice of the restriction.

Ratio Decidendi

Third parties are entitled to rely on the authority ordinarily attaching to the position in which the principal has placed his agent. A private limitation, unknown to the outsider, cannot cut down that usual authority. The risk of an undisclosed restriction falls on the principal who imposed it, not on the party who dealt in ignorance of it.