Liabilities of the Principal in Undisclosed Agency: P, A, and TP

Business Law
Business Law
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Business Law 1
Issue
The liabilities of the principal in the undisclosed agency. In particular, can the
undisclosed principal be liable of actions of an agent who exceed the limit of the actual
authority?
Rule of law
The concept of undisclosed Principal operates in situations where the third party to who
the agent is contracting with has neither the knowledge of the agency nor the knowledge of the
principal’s identity. Despite the lack of disclosure, most of the principles that apply to a general
agency relationship still apply to the undisclosed principal. For instance, an agent can bind the
principal to third parties, and both the third parties and the principals can sue each other. Also, in
case the agent pays the third party while acting within the authority, the agent has an entitlement
of an indemnity from the principal.
The authority for an undisclosed agency can be derived from the ruling of Teheran-
Europe Co Ltd v S T Belton (Tractors) Ltd.1 The case concerned a dispute where the claimant, a
Persian company used its agent to purchase compressors from the defendant, ST Belton. The
issue arose after the claimant finding that the compressors were defective and they came out to
sue for damages.2The ruling did not only confirm that undisclosed principals can sue or be sued,
but it also confirmed that an undisclosed principal can contract from anywherean .3
Before, the undisclosed principal benefits from the agency, the law require that he/she
must reveal himself, and then ratify the agent’s contract. Once a contract has been ratified, it
operates as though it was made between the principal and the third party. In Bolton Partners v
1 Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886.
2 Ibid.
3 Ibid.

Business Law 2
Lambert, the court ruled that a contract ratified by the claimants made the contract binding to the
defendant.4 After the undisclosed principal reveals him/herself, the third party gets an option to
sue either the agent or the principal if there was a breach on the contract. However, the third
party cannot sue both.5
The rules that apply in the concept of undisclosed principal were summarized in Siu Yin
Kwan v Eastern Insurance Co.6 The rules affirmed that both the third party can use the principal
and vice versa.7 The rules require that the agent to be acting as per the authority granted by the
principal.8 Exceeding the rules will shield the principal from the third party as it will refute the
intention of the agent to bind the principal. For instance, in Keighley Maxted and Co. v. Durant,
the court ruled that when the agent exceeded the amount allowed for wheat, he was acting on his
own authority.9 Again in Cooke & Sons v Eshelby, it was ruled that it is upon the third parties to
ask for information about the principal if they are unsure. Where the agent lies about the agent, it
should be held that such agents have no intention to bring their principal to the contract.10
Additionally, if a third party had a defense in support of the proof of liabilities of the
agent, the same defense can be used when the principal is revealed.11 The principles would not be
called if the intentions of both the third party and the agent intend not to include evidence from
the principal.12
4 Bolton Partners v Lambert [1889] 41 Ch D 295.
5 Marco Loos and Odavia Bueno Diaz, Principles of European Law: Mandate Contracts (OUP
Oxford, 2013) 139.
6 Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199.
7 Ibid.
8 Ibid.
9 Keighley Maxsted & Co v Durant & Co [1901] AC 240.
10 Cooke & Sons v Eshelby [1887] 12 App. 271.
11 Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199.
12 Ibid 207.