Party dealing with him without notice of the restriction is still entitled to rely on his apparent authority. The difficult case is where A, in concluding a transaction that would be within his usual authority as agent, contracts in his own name without disclosing the existence of a principal, so that the third party assumes he is dealing with a principal. In Watteau v. Fenwick & Co35 the doctrine of usual authority was held applicable to such a case also.
H owned a hotel. He sold it to the defendants, who retained him as manager. The licence continued to be held in his name, which remained over the door. The plaintiffs supplied cigars to H, to whom alone they gave credit, believing him to be the owner. They had never heard of the defendants, who had forbidden H to buy cigars on credit. Upon learning that the defendants were the owners of the hotel the plaintiffs sued them for the amount outstanding. The county court judge gave judgment in favour of the plaintiffs and his decision was upheld by the Divisional Court. Once it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies - that 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, as between the principal and the agent, put upon that authority. It is said that it is only so where there has been a holding out of authority which cannot be said where the person supplying the goods knew nothing of the principal. But I do not think so. Otherwise in every case of undisclosed principal, or at least in every case where the fact of there being a principal was undisclosed, the secret limitation of authority would prevail and defeat the action of the person dealing with the agent and then discovering that he was an agent and had a principal.36
Sorrell -v- Finch  2 All ER 371;  AC 728;...
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