Undisclosed Agency: P, A, and TP

Foundation Business Law
Foundation Business Law
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Foundation Business Law 1
Issue
The undisclosed agency, whether an undisclosed principal can be legally bonded with a
third party by an agent who had limited authority.
Rule of law
In common law, the term undisclosed principal denotes a person or corporation principal
whose existence is only known by the agent, but not the third party who forms the agreement
with the agent. The lack of the information about the principal causes the transacting third party
to believe that the person he is contracting with is the owner or the principal. The rules that apply
to doctrine on undisclosed principals in common law imposes liabilities while still conferring the
right to the undisclosed principals, notwithstanding that the principals remain in the privity of the
contracts between the agents and the third parties. One of the earliest cases in applying this
authority was the case of Humble v Hunter.1 However, this case provides exceptional situations
where the doctrine would not apply which would be discussed later. Another authority is the case
of Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd where the court ruled that both the third
party and the principal can sue each other in an undisclosed agency.2 In this case, the plaintiff
was a foreign Persian company who used its agent to enter into a sale agreement for the purchase
of compressors from the defendant. The compressor turned out to be defective hence it came out
to sue the defendant for damages.3
1 Humble V Hunter (1846) 12 QB 310.
2 Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd (1968) 2 All ER 886.
3 Ibid.

Foundation Business Law 2
The principles do not shield the agent from liabilities even when it comes to the
knowledge of the third party that the agent was acting on the expense of an existing principal.4
However, the law cannot allow the third party to sue both of them, and the judgment would only
apply to the party he/she chooses to sue.5 Another rule within this doctrine is that the fact that the
principal exists does not exonerate the agent from the prospects of contractual liability. The
elements for the application of this doctrine were summarized in the ruling of Siu Yin Kwan v
Eastern Insurance Co.6 For one, Lord Lloyd affirmed that there is nothing prohibits the
undisclosed principal to be sued or to sue.7 However, the agent must be acting within the
authority which would manifest the intention to bind the principal.8 The same reasoning was
upheld in Keighley Maxted and Co. v. Durant that agent who exceeds his/her authority would be
acting on his/her own but not that of his principal.9 In Cooke & Sons v Eshelby, it was held that
the third party should always ask when unsure to have information whether the agent has the
authority; if the agent lies, he/she can be sued under misrepresentation.10 Additional elements that
should be present is that nothing prevents the third party from bringing the same defense he had
on the agent to the arguments against the principal.11 Also, where both the third party and the
agent manifests an intention to prevent any external evidence, the intervention of the principal
would be illegal in law.12
There are still situations when these rules would not apply. For instance, in a transaction
that is clear that the agent intended to be in his own authority rather than that of his/her principal,
4 Marco Loos and Odavia Bueno Diaz, Principles of European Law: Mandate Contracts (OUP
Oxford, 2013) 139.
5 Ibid.
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.