Story Case

Henry Watson, a salesman for Charles Knowlin, purchased a lot of goods in his (Watson's) own name, intending secretly to sell them to another if the occasion permitted. He later became frightened at his own conduct and informed Knowlin that he had purchased this lot of goods at a reduced price for Knowlin. Knowlin wrote the vendor of the goods to ship them to Knowlin's warehouse. The vendor, however, had determined to keep the goods if there was a legal way to do this. Knowlin brought suit on this contract, which he alleged was made by his agent and ratified. What are Knowlin's rights?

Ruling Court Case. Durant Vs. Keightly, Moxster & Co., Volume 1 British Ruling Cases 351, Same Case, Volume, 1901 Appeal Cases, 240

Roberts, a corn merchant residing at Wakefield, was authorized by Keightly, Moxster & Company, to buy wheat jointly for himself and them at a certain price, within a certain time. Roberts failed to make the purchase at the authorized price by the 11th of May, which was the last day on which he was authorized to buy. Two days later, without any authority from Keightly and Company, he made a contract with Durant to buy wheat at a higher price. The contract was made in the name of Roberts, although he, at the time, intended that it should be for the benefit of Keightly and Company and himself jointly. However, not a word was said to Durant that it was being bought for Keightly and Company. So far as they knew and had reason to believe, Roberts was buying the wheat on his own account and solely for himself. The following day, Roberts informed Keightly and Company what he had done, they approved the transaction and said that they would stand by the transaction as they had originally agreed, even though it was done without their authority. Durant, on the day set for performance, tendered the wheat; Keightly and Company, and Roberts as well refused to accept it. Durant then discovered that Roberts secretly intended to purchase it for Keightly and Company, and that the latter had approved the transaction. They thereupon sued Keightly and Company for the resulting damages.

Keightly and Company contended that they could not ratify the contract because Roberts was not acting as agent when he made the transaction; but that he was acting for himself, and that his secret intention is immaterial.

Decision: A person is not permitted to ratify an act which was not done by one as agent. The agent must disclose to the third person that he is acting as agent. Otherwise, no one can thereafter take advantage of that contract by ratification. In this case, Roberts did not acquaint Durant with the fact that he was acting or intended to act for Keightly and Company. Consequently, Keightly and Company is not in a position to ratify the act. Any attempt to do so is futile.

Lord Shand said in part: "The question which arises on this state of the facts is whether, where a person, who has avowedly made a contract for himself (1) without a suggestion that he is acting to any extent for another (an undisclosed principal), and (2) without any authority to act for another, can effectually bind a third party as principal, or as a joint obligant with himself, to the person with whom he contracts, by the fact that in his own mind merely he made a contract in the hope and expectation that his contract would be ratified or shared by the person as to whom he entertained that hope and expectation. I am clearly of opinion, with all respect to the majority of the court of appeals, that he cannot. The only contract actually made is by the person himself and for himself, and it seems to me to be conclusive against the argument for Durant, that if their reasoning were sound, it would be in his power, on an averment of what was passing in his own mind, to make the contract afterwards either one for himself only, as in fact it was, or one affecting or binding on another, as a contracting party, even although he had no authority for this. The result would be 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. That, I think, he certainly cannot do in any case where he had no authority, when he made the contract, to bind anyone but himself.

The House of Lords gave judgment for Keightly, Moxster & Company.

Ruling Law. Story Case Answer

"We have just seen that the principal cannot ratify an act unless he was in existence at the time the act was done. Further, a person may not ratify an act, unless that act was intended for the benefit of the person ratifying it, when it was done. That is to say, if A goes out and contracts to buy cotton for B, or for himself, C, who happens along, cannot ratify the contract and make it his own. This same rule applies even though the agent intended that it should be for a particular person, unless, at the time, he informs the third person, with whom he deals, that he is acting as agent. This doctrine was firmly established in the case of Durant vs. Keightly, Moxster & Company, which was decided by the House of Lords of England, after a most careful consideration of the principals involved.

In the Story Case, Knowlin could not compel a delivery of the goods because Watson did not make the contract for him or as his agent. To enable Knowlin to receive the benefit of the contract it would have been necessary for Watson to have made the contract for Knowlin. At least he must have informed the third person that he was acting, not for himself but as an agent for another.