Agents, Business Owners and Estoppel

Editorial Committee of the Cambridge Law Journal

Agents, Business Owners and EstoppelAuthor(s): Andrew TettenbornSource: The Cambridge Law Journal, Vol. 57, No. 2 (Jul., 1998), pp. 274-283Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4508456 .

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CaniOrEdge Lass} Jtvurnnl, S7(2), July 1998. pp. 27a283 PrinieS in Creat Brtain

SHORTER ARTICLE

AGENTS, BUSINESS OWNERS AND ESTOPPEL

ANDREW TETTENBORN*

INTRODUCTION

THE purpose of this article is simple, if hackneyed. In it I wish to take a hardly perennial of agency iaw, Watteau v. Eenwicksl and to suggest whyespite the rather mixed press it has received2 it is not only correct, but can be justified entirely in accordance with accepted principles.

The case will need no introduction for agency lawyers.3 For others, the facts in short compass were these. A publican called Humble, keeper of the Victoria Hotel at Stockton-on-Tees, sold out to Fenwick, a firm of brewers, but stayed on as manager. He continued to run the business on Fenwick's behalf. The change in ownership was not publicised, and to all external appearances matters continued as before. Fenwick, whose business included the supply of most of the consumables used in the hotel, understandably instructed Humble that he was not to order them from anyone else. Humble in breach of this instruction ordered some £22 worth of cigars, in his own name, from a tobacconist named Watteau. Although the goods were no doubt used for the purposes of the business, they were not paid for. Having found out about Fenwlck's interest in the hotel, Watteau sued them for the price of the cigars and succeeded before

* Bracton Professor of Law, University of Exeter. ' [1893] 1 Q.B. 346. There are few similar cases in the reports. Ezlmxnds v. BashelZ & Jonebv

(1865) L.R. I Q.B. 97, dealt with below, is one: another is Kinahan v. Purry [1910] 2 K.B. 389, a first instance decision reversed by the Court of Appeal on other grounds (see [l911J 1 K.B. 459).

2 Reaction at the -time of the decision was hostile: Pollock (1893) 9 L.Q.R. 11 l and Note ( 1893) 7 Harv. L.R. 49. Later, more sympathetic, comments c3n be found in Hamson & Goodhart (1932) 4 C.L.J. 320, 326 and Wright (1935) 13 Can.B.R. 1 l6, 120; see too Montrose (1939) 17 Can.B.R. 693, which is more e4uivocal, and Hornby t196}] C.L.J. 239 (inimical). Collier [1985] C.L.J. 363 regards the decision as eminently just but difEcult to explain. stoljars Agency (l961), p. 55, approved of itF as did the American writer Seavey: Agenc+ (1964), p. 107. Bowstead & Reynolds, Agency, 16th ed. §8478 are less certain.

3 It has, indeed, already been discussed at length twice in this Journal: see Hamson & Goodhart (l 932) 4 C.L.J. 320 and Hornby 11961] C.L.J. 239.

274



C.L.J. Agents, Business Owners and Estoppel 275

Lord Coleridge C.J. and Wills J. in the Divisional Court.4 One reason given for this decision was that Fenwick fell to be treated as sleeping partners and thus liable for partnership debts. This is now generally regarded as untenable,5 and nothing more need be said of it. The other reason-the subject of this article- was that, by putting Humble in the position of manager, Fenwick were liable on the principles of agency law for anything done by him within the usual scope of a manager's authority, something that clearly included the purchase of tobacco. Given that on the evidence Watteau had no notice of Humble's lack of actual authority, which the evidence clearly indicatedS there was, it was said, no reason why Fenwick should not be liable to pay

The difficulty with this argument as a matter of agency law is well-rehearsed and can be dealt with quite quickly.6 The agency doctrine invoked by Wills J. in the Divisional Court was that of ostensible authority, and the entirely orthodox principle that where A is held out by P as having authority to deal on his behalf, a third party T with whom A deals will not be affected by any restrictions on A's authority of which he is ignorant. In such circumstances P is estopped from denying that A acted outwith his autherity. But in Watteau v. Fenwick there was no such holding out. Humble ordered the goods concerned in his own name, not that of Fenwick; it was Humble's credit and his alone, that Watteau relied on. Indeed, Watteau had no inkling of Fenwick's involvement at all until a good deal later, when the matter came to litigation.

Now, as a matter of agency law, it is suggested that this point is unanswerable. In the absence of either actual authority from Fenwick, or any belief on Watteauss part that he was dealing with an agent at all, there cannot be any case for holding Fenwick liable for Humble's purchases on the basis that Hllmble acted, or should be treated as having actedS on their behalf.7

Admittedly, attempts have been made to get round this point,

4 VVhich at the time heard appeals from the county courts. The action started life in the Middlesbrough County Court.

5 This is because s. S of the Partnership Act 1890 makes it clear that transactions entered into by one partner for the benefit of the partnership business do not bind the other partners unless the other party knew or believed the person he was dealing with to be a partner. Thc point is covered in Pollock (1903) 9 L.Q.R. 111 and Hornby [1961] C.L.J. 239. 244.

6 t iS wellexpressed by Hornby at [1961] C.L.J. 239. 7 There is also a further point, namely, that. had Fenwick suffered loss because the cigars

supplied were defective, there is no way they could have sued for breach of contract. The purchase had not been made with their authority: nor would it have been open to them to ratify it. because of the rule in Keighlel Mv.rsted & (^o. v. Dlarant [1901] A.C. 240. To make someone pay for goods and then tell him that }ze has no cause for complaint if they prove substslndard or dangerous might be regarded as adding insult to injury. The point is well expressed in Markesinis & Munday. Outline of Agenc.) 2nd ed., at p. 28.



276 The Cambridge Law Journal [1 998]

and they ought to be mentioned here. One such argument attempting to justify the reasoning in Watteau, which can be called the "apparent ownership" argument, runs as follows.8 Although belief in the existence of a principal is normally necessary in apparent authority situations, there is one case where it is not: namely where P, an owner of property, clothes someone else (A) with the indicia of title to that property and A subsequently disposes of that property to T, a bona fide purchaser. Here T gets a good title on the basis that P is precluded from setting up his own interest in the goods concerned. Instances of ownership being transferred in this way are actually rather rare,9

but a perfectly straightforward example of this process at work is the rule whereby an owner of goods subject to a hire or hire- purchase agreement is precluded from denying the hirer's ability to create a va]id lien over those goods for example for repairs.'° Now (the argument goes), cannot Watteau v. Fenwick be regarded as an analogous case, involving apparent ownership of not (say) a car but a business?

Although this is an ingenious contention, it is submitted that it is ultimately unsound. The cases on apparent ownership all concern the validity of disposals of property, rather than the creation of liability in the owner of it; and whatever would have been the situation in Watteau v. Fenwick had Humble purported to dispose of the hotel's stock in trade, this was not the point in issue (even though it is true that, in a loose sense, Humble had acted as though he were pledging the credit of the business he was runnning). There is therefore an obvious difference between the two situations.ll Furthermore it is suggested that this distinction is a highly pertinent one. Where disposals of property are concerned, the only way of giving the innocent third party what he bargained for and had every reason to expect i.e. a property interest good against the world is by allowing him to succeed whether or not he knew of the existence of the actual owner. But this is not so in the case of creating liabilities. Where, as in the Watleaa v. Fenwick situation, the third party deals with the would-be "agent" without any belief as to whether there is a principal behind him, he gets exactly what he bargained for even

8 See Conant (1968) 47 lKeb.L.R. 678, 687488. 9 This is because of the very restrictive attitude of the common law towards estoppel binding

owners. But such cases do arise. E.stern Distributors v. Goldring [1957] 2 Q.B. 600 and PzckarcS v. Sears (l837) 6 A. & E. 469 are two examples: another. slightly more recondite, is the position of the mercantile agent, who even at common law was able to pass a good title by way of sale quite independently of the various Factors Acts.

'° E.g., Green v. All Motor.s [I9l7] I K.B. 625; Tuppenden v. Arts [1964] 2 Q.B. 185. " AsS indeed, was observed by Hornby: [1961] C.L.J. 239, 245.




if he cannot sue the "principal": namely, the liability of the

"agent" on the contract. Thus there is no question but that in

Watteau v. Fenwick Watteau could have sued Humble for the price of the cigars. The fact that Humble was no doubt judgment-

proof12 is beside the point: this is a risk run by anyone who gives credit to the uncreditworthy. If so, there is no need to provide an

extra right of action against the "principal" as well: as a matter

of agency law, justice is done by letting the loss lie where it falls.

The second attempt to rescue Watteau v. Fenwick as an

agency doctrine, or something similar, has been by drawing the

analogy of vicarious liability in tort,13 where of course the victim's

knowledge of the existence of the principal/employer has always been irrelevant, and in addition there has never been any difficulty about holding the employer liable for acts he not only did not

authorise, but indeed strictly prohibited.14 But this again has its

difficulties. True, one cannot simply dismiss the point by saying that vicarious liability is a tort doctrine and that the law of

agency is largely about contract: that is just classification for

classification's sake. However, it is suggested that there is a

fundamental reason for distinguishing the two situations. In so far

as it is possible at all to find an intellectual justification for

vicarious liability in tort, it is the overriding imperative of

ensuring that accident victims actually receive reparation: other

considerations, such as whether the plaintiff actually expected to

be compensated by the employer, or otherwise relied on his

existence as a potential provider of damages, take second place. But no such argument applies to consensual transactions which

form the subject-matter of the overwhelming majority of agency litigation. Businessmen who voluntarily extend credit to those who

turn out to be men of straw are generally left to bear the risk

themselves, and (normally at least) need no extra protection.15 And, as if that were not enough, there is also a further point concerned with the rules of vicarious liability themselves. It is

sometimes forgotten that in those torts that are concerned with

purely financial interests and thus come closest to contractual

liability, namely deceit and negligent misrepresentation, the rules

of vicarious liability are modified so as to bring them into line

effectively with agency principles. There is clear authority in the

We are not told why Watteau chose to proceed against Fenwick rather than Humble, but this is a fair inference. Treitel, Law of Contract, 9th ed., p. 634. See Limpus v. London General Ombinus Co. (1862) 1 H. & C. 862 and the progeny which that case has spawned. As observed by Montrose: see (1939) 17 Can.B.R. 693.



278 The Cambridge Law Journal [1998]

House of Lordsl6 (as regards deceit) and the Privy Councill7 (concerning negligent misrepresentation) that an employer will not be vicariously liable for a statement by his employee unless the statement concerned was made with the actual or ostensible authority of the former. In other words, the rule in Limpus v. London General Omnibus Co., 18 with the expanded liability it entails in respect of unauthorised acts, simply does not apply here at all. In view of these developments, it would be curious to say the least, were the law of agency to be modified to encompass a larger liability in such situations.

A NEW APPROACH? So far so good. Nevertheless, when all is said and done, there remains a very plausible case for making the defendant liable in the sort of situation exemplified by the Watteau decision. True it is that Watteau was not led to believe that Fenwick would be liable as Humble's principals: as far as the report indicates, he was entirely unaware of their existence. Nevertheless, the goods were ordered for, and doubtless used in, Fenwick's business; and more importantly, by putting Humble in the position where, to all appearances, he owned the hotel business, Fenwick had led Watteau to belleve that the resources of that business whoever they belonged twould be available to meet his claim.'9 At least to that extent, Watteau had a reasonable claim to have been misled to his disadvantage.

If Watteau ought to have had a claim, is there any way in which this can be justified on orthodox legal principles? It is submitted that there is, provided one gets away from the idea that the law of agency has anything to do with it. The key to the problem, it is suggested is estoppel, but not the kind of estoppel involved in ostensible authority.20 The problem is, of course, to identify the relevant representation by Fenwick, given that it was not a statement that Humble was their agent.

16 Lloyd v. Crace, Smith & Co. [lgl2] A.C. 716. '' Kooragang Investnlent Properry v. Ric/1zlrcf.son & Wrelh 11982] A.C. 462. 18 (1862) I H. & C. 862. '9 Compare the argument that, as ; matter of the relative merits of the parties, there should be no difference between a person held out as the agent of the owner of a business and a someone made to look like the owner himself: on the equities, the case for holding the owner liable in the latter case is if anything a fortiori to the former. See Stoijar, Agenc, p. 55. This perhaps exp}ains why the principle ln Watteau has fallen on less stony ground in the United States, where it was indeed specifically incorporated in the Restutetelenr of Agency, § 194. 20 It might be thought th3t this point had been seen by Flamson & Goodhart. who refer ((1932) 4 C.L.J. 320, 336) to the case as one of "pure estoppel by conduct". However, the effect is spoilt by the previous paragraph, where they re8ard the case as one of agency created by estoppel.




It is tentatively suggested that the key to the difficulty is this.

On a proper analysis, what Fenwick represented by leaving Humble

in charge was not that Humble was Fenwicks agent, but rather

that Humble and the owner of the Yictoria Hotel (whoever that

migXtt be) were one and the same person. By putting someone in

charge of their business in such a way that he seemed to be the

proprietor of it, they gave Watteau the impression that they, as

owners of the hotel, were not a distinct legal entity from the

person Watteau did business with Viewed in this way, everything

falls into place. There is no doubt that this representation was

relied on (since it is inconceivable that Watteau would have

contracted with Humble personally had they known he was a

mere manager). If so, Fenwick should not later have been allowed

to resile from it and assert their separate identity, and hence were

rightly held liable on the contract.2' bJot only does this reasoning provide a neat way out of the

Walle" v. Fenwick problem. In addition, it is submitted that

powerful support for it can be found in a 1994 decision in tlle

Court Of Appeal, namely, Lease Management Services Ltd. v.

Purnell,22 unfortunately reported less prominently than it deserves.

Purnell approached Canon (South West) Ltd. in Exeter with a

wiew to hiring a Canon photocopier. Canon provided a

demonslralion model which performed impeccably, and assured

Purnell thal the production model would be just as good. PurnelJ

duly tcsok delivery of a machine of the requisite type. Unfortunately

this one failed to live up to expectations, whereupon Purnell

rejected il and refused to pay the hire. At this point a problem

arose. The lease agreement signed by Purnell, while headed

i'Canon (South West)' and liberally laced throughout with the

Canon trade mark, indicated in minute print that the lessor was

in facl " Lease Management Services Ltd., trading as Canon

(South West) Finance", a Surrey finance company with no

connection whatever with Canon. Lease Management sued Purnell

for breach of contract. In answer to Purnell's contention that the

machine would not do what Canon had said it would, and hence

that the contract could be rescinded, Lease Management retorted

that this was no concern of theirs. They asserteduite

correctly -- that any representations had been made by Canon

(South West) and not by them: that Canon had had no actual

21 This explanation also has the advantage of satisQctorily explaining why Fenwick should be

liable to pay for the cigars despite the fact that they would have had no right to sue had

they been defeclive. The estoppel is imposed simply for the protection of the third party,

Fenwick. 2Z (1994) 13 Trading Law Rep. 337 (also at The Times 1 April 1994).




authority to warrant or represent anything on their behalf; and

furthermore that since Purnell had understandably thought all

along that they had been dealing with Canon and not with

themselves, no question of ostensible authority could arise.

The Court of Appeal accepted that Canon could indeed not

bind Lease Management as a matter of ostensible authority or

otherwise as a matter of agency law. They nevertheless decided for

Purnell. This they did on the basis that by using a lease agreement which suggested, except to someone reading it "with the finest of

toothcombs",23 that the lessor was not a separate entity from

Canon, Lease Management were estopped from asserting that they were in fact a distinct operation. Nicholls V.-C. in particular was

at pains to distinguish the two kinds of estoppel involved, that

concerned with apparent authority and the more general version; and he specifically pointed out that the unavailability of the

former did not rule out reliance on the latter.24

Oddly enough, Watteau v. Fenwick was not mentioned in any of the judgments in PurnelVs case.25 Nevertheless, it is submitted

that the parallel between the two decisions is very close. The issue

in Purnell was whether Canon's statement could be attributed to

Lease Management, despite the fact that Canon had had neither

actual nor ostensible authority to make them, in the same way that the court in Watteau had to decide whether in similar

circumstances Humble's agreement was binding on Fenwick. The

decision in Purnell, reached as it was on the basis that Purnell

had been duped into believing that Canon rather than Lease

Management were the actual lessors, not only demolishes the

agency reasoning in Watteau's case but gives the correct reason

for the actual result there. In short, it provides a neat way of

reconciling Watteau v. Fenwick with orthodoxy.

Other Authorities

Cases applying or even discussing the principle in Watteau v.

Fenwick are, as is well known, not common.26 But the above

Per Nicholls V.-C. at pp. 338-339. See at pp. 341-342. The report does not state whether the earlier case was cited in argument. It "has not sired a line of authority": Bingham J. in The Rhodian River [1984] 1 Lloyd's Rep. 373, 379. There is one first instance decision on apparently similar facts in which it was followed: Kinaham v. Parry [1910] 2 K.B. 389. But the Court of Appeal took a different view of the fact situation and allowed the appeal for other reasons (see [1911] 1 K.B. 459). The decision has been disapproved twice in Canada, in McLaughlin v. Gentles (1919) 51 D.L.R. 383 and Sign-O-Lite Plastics v. Metropolitan Life lnsurance Co. (1990) 73 D.L.R. (4th) 541. In Australia, Isaacs J. said obiter in the High Court that "I am at present not prepared to assent to it": International Paper v. Spicer (1906) 4 C.L.R. 739.




explanation means that at least one which has hitherto given trouble can now be put in its proper setting, namely Edmunds v.

Bushell & Jones.21 Here, it will be remembered, a milliner named

Jones traded as Bushell & Co. and employed Bushell to run the

business under that name. In breach of specific instructions from

Jones not to do so, Bushell accepted a bill drawn on Bushell &

Co. in the name of the firm, which ended up in the hands of

Edmunds. The decision of the Court of Queen's Bench was that

Jones was liable on the bill, despite his contenton that in accepting it Bushell had acted without authority. The reasons given, which

(in so far as anything is clear from them) seem to have been

based on the proposition that Bushell had apparent authority from Jones to put his name to the bill, are clearly insupportable: since Edmunds did not know of Jones's existence, he clearly could

not have relied on any representation as to BushelPs authority to

do anything. Nevertheless, out of the characters in. this sorry tale

it is hard to sympathise with anyone other than Edmunds. Jones

having held out Bushell as proprietor of a business bearing the

name Bushell & Co.,28 the belief of Edmunds and the other

parties to the bill that the funds of the business would be

available to meet it on maturity was entirely reasonable: indeed, it

is difficult to see what else they could or should have done to

protect themselves. And if the case is viewed as one based not on

agency but on estoppel, any difficulty in reaching this result

evaporates. The result in the case is correct, and can be

straightforwardly justified on the basis that Jones was estopped from asserting that Bushell and the owner of the business were

not the same person. Not only can the theory advanced above make sense of

Edmunds v. Bushell: it can also elucidate at least two decisions

where Watteau v. Fenwick was not applied. One is the only recent English decision discussing it, namely

The Rhodian River.29 Two one-ship companies, Rhodian River Co.

and Rhodian Sailor Co., owned eponymous vessels. Brokers

instructed by Sailor agreed to charter the Rhodian Sailor to the

defendants, but by mistake purported to contract on behalf of

River, from whom they had no authority. The Rhodian Sailor

sank. The charterers, who had a claim for breach of contract but

found that Sailor had no assets, proceeded against River by

arresting the vessel of that name. River argued that they had no

27 (1865) L.R. 1 Q.B. 97 28 We are not told who this curious situation arose: but no doubt it was because the business

had been developed by Bushell and associated with his name. 29 [1984] 1 Lloyd's Rep. 373.




contract with the charterers, and sought rectification of the charter

to substitute the name Rhodian Sailor for Rhodian River. The

charterers argued, somewhat desperately, that River were bound

by the charter under the principle in Watteau v. Fenwick: but

Bingham J. had no difficulty in disagreeing and granting rectification, mentioning for good measure that he was somewhat

puzzled by the earlier decision.30 Now, this result must be right: the charterers had contracted with someone they knew to be an

agent, and who had neither actual nor ostensible authority to

bind Rhodian River. From this it followed that Watteau v.

Fenwick, which concerned a person allowed by the owner of a

business to contract as principal, was simply not in point. More

importantly, the above analysis based on estoppel will yield the

same result. River, to whom it was sought to attach contractual

liability, had not been responsible for misleading the charterers in

any way: the confusion was due to the act of brokers to whom

they had given no authority whatever. Furthermore, although the

charterers had been led by the brokers to believe that River

owned the Rhodian Sailor, they had in no way acted to their

detriment on this belief. Had they known the truth they would

have insisted on contracting with Sailor, and hence been left with

a worthless claim in any event.

The other is the old Canadian case of McLaughlin v. Gentles.21

C, a member of a syndicate of businessmen, was appointed to

buy goods on their behalf subject to a limit of $200. In his own

name he bought goods for the syndicate from McLaughlin in

excess of that limit. No doubt because C was judgment-proof,

McLaughlin sued the other members of the syndicate, relying on

Watteau v. Fenwick; but his action failed, the Supreme Court of

Ontario declining to follow the earlier decision. It is suggested that, whatever the status of Watteau v. Fenwick, this result was

entirely correct. Unlike the situation in Watteau, there was no

placing of C in apparent charge of a business; nor was any belief

whatever induced in McLaughlin as to C's connection or identity with anyone. There was therefore no reason not to apply to him

the general rule that the doctrine of the undisclosed principal cannot be invoked by a third party in the absence of prior actual

authority to enter into the contract concerned.

The one decision whose result does seem open to some

question, if the view taken above of Watteau v. Fenwick is correct, is that of the British Columbia Court of Appeal in Sign-O-Lite

' Ibid. at p.379. 1 (1919) 51 D.L.R. 383.




Plastics v. Melropolitan Life Insurance Co., 32 where three other Canadian judges flatly refused to follow the case. Baxter Group Ltd*, which owned a shopping centre, sold out to an insurance company, but with the buyer's concurrence they continued to manage it and act, to alI appearances, as if they were still the owners. Later they contracted, contrary to instructions, to lease a large illuminated sign from Sign-O-Lite. The contract was broken, and Sign-O-Lite sued the insurance company for damages. Having discussed Watteau v. Fenvick and concluded that it had been wrongly decided, the court held that no action lay against the company, Sign-O-Lite's only remedy being against Baxter Group. Now, as a matter of agency law this must be correct, for the reasons stated above. Nevertheless, there is no doubt that Sign-O- Lite were misled. The fact that the owners of the mall were now a separate entity from Baxter Group was kept from them, and as a result they contracted with Baxter Group uzhen they would not otherwise have done so. It is hard to see why justice did not demand that the owners should be liable, on the basis that they were precluded from setting up their own separate identity.

CONCLUS10N

Watteau v. Fenwick is hardly the most practically important of decisions in commercial law. The decline of the unincorporated one-man business as a significant force, and its corollary that virtually all contracts of any importance are now clearly concluded by agents rather than principals on their own behalf, have seen to that. Nevertlleless, the issues raised by it can still arise in practice witness the Purnell decision referred to in this article and the matter remains of considerable doctrinal interest If this article has helped to dispel some of the fog that surrounds the principles in that case, it will not have been entirely in vain.

3? (l990) 73 D.L.R. (4th) 541.



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Agents, Business Owners and Estoppel