On 31 December 2012, Smith Lemaiyan, appointed Aggrey Mchuzi as his money-lending agent. In January 2013, Aggrey Mchuzi without Smith Lemaiyan’s authority advanced Sh.100,000 to Jimmy Cheney without disclosing to Jimmy Cheney that lie was Smith Lemaiyan’s agent. Jimmy Cheney has since refused to refund the Sh.1 00,000 advanced to him. Analyse the legal principles applicable in the above case and advise Smith Lernaiyan, Aggrey Mchuzi and Jimmy Cheney on their liability.

Legal principle applicable in the case

  • Smith Lemaiyan is an undisclosed principal.
  • Jimmy Cheney is a third party.
  • Since Aggrey Mchuzi (the agent), has contracted/lent money in his own name, he is liable to jimmy Cheney personally.
  • If the third party (Jimmy Cheney) comes to know of the principal before obtaining judgement against the agent, he may sue either the principal or the agent or both.
  • The principal may intervene and sue the third party for- non-performance of the contract.
  • If the principal discloses himself before the contract is completed, the third party may refuse to fulfil the contract, if he can show that he could not have entered into the contract, if he had known who the principal was.
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