| An undisclosed principal generally refers to a principal person whose existence is unknown to the third party with whom the agent deals and so, in the eyes of the third party, the agent is the principal. Common law doctrine on undisclosed principals confers rights and imposes liabilities on the undisclosed principal, notwithstanding that he is not made a party to the relevant contract. This doctrine is an exception to the general rule that only a party to a contract may sue and be sued thereon. The rules under this particular doctrine may be illustrated by considering the respective relationships between the principal and the agent, the principal and the third party, and the agent and the third party. |
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Undisclosed principal and agent |
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The rights and duties between the principal and the agent in an undisclosed principal situation are basically the same as in a disclosed principal situation, as discussed in Sections 5 and 6. The agent is to be treated as a trustee for the undisclosed principal of any goods or payments received or any benefit that he derives from the contract with the third party and is liable to account to the principal for such goods, payment or benefit, as in the case of the disclosed principal. |
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Undisclosed principal and third party |
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Before the undisclosed principal may enforce any right or be liable for any obligation under a contract apparently made between the agent and the third party, two pre-conditions have to be met: |
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The agent must have actual authority, whether express or implied, to enter into the contract in question with the third party; and |
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The agent on entering into the contract with the third party must have intended to act on behalf of the undisclosed principal, not for his own benefit. |
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The rules governing the rights and liabilities between the undisclosed principal and the third party are as follows:
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| a. |
Generally, an undisclosed principal can sue and be sued by the third party under the contract subject to exceptions mentioned in paragraph (d) below. |
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| b. |
An undisclosed principal remains liable to a third party for the price of goods sold or services provided under the contract made in the agent's name with the third party. The undisclosed principal's liability will not be discharged even if he has made payment to the agent with instruction that the agent pays over the same to the third party, if the agent fails to pay the third party as instructed. |
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| c. |
Where the existence and identity of the principal is disclosed and where the third party is to take action for recovery of any amount payable to him under the contract, the third party can elect to sue either the undisclosed principal, or the agent. |
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| d. |
There are cases when an undisclosed principal may not sue or be sued by the third party under the contract made between the agent in the agent's name and the third party. A major category is where the identity of the party in a contract is material. The following are examples of such cases: |
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| i. |
A promise by the third party to lend money to the agent personally cannot be enforced by an undisclosed principal. |
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| ii. |
A contract involving a strictly personal skill or service cannot be performed by an undisclosed principal. For example, a contract for a picture painted by a named painter or a concert performance by a named artist cannot be performed by an undisclosed principal, as such performance involves the personal identity and skill of the agent which induces the third party to enter into the relevant contract with the agent. |
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| iii. |
Where the landlord is induced by the identity, creditworthiness and reputation of the tenant (who is in fact an agent) to enter into a tenancy agreement with him, an undisclosed principal may not be able to replace the agent as tenant under the tenancy. |
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| iv. |
If the undisclosed principal or agent is aware that the third party will not contract with the undisclosed principal for whatever reasons, the undisclosed principal cannot make use of an agent to procure the contract with the third party. |
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3. |
Agent and third party |
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| a. |
An agent who enters into a contract with a third party, without disclosing that he is in fact entering into the contract on behalf of a principal, will be treated as the principal by the third party. Hence, he may sue or be sued by the third party under the contract so long as the principal remains concealed. |
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| b. |
When the existence and identity of the principal is disclosed, the third party is entitled to elect (choose) whether to sue the principal or the agent. If the third party elects to sue and obtains judgment against the principal, the third party will not be entitled to sue the agent, even if the third party cannot recover any damages from the principal. |
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| c. |
If, in respect of the contract, the undisclosed principal himself sues the third party or settles with the third party, then the agent cannot sue the third party under the contract. |
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