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# What is the doctrine of undisclosed principal?

Published in Agency Law 3 mins read

The doctrine of undisclosed principal is a distinctive principle in common law that permits a principal to enforce and be held liable on a contract made by their agent, even when the other party to the contract (the third party) was entirely unaware of the principal's existence. This doctrine is considered anomalous in the common law, as it appears to contradict fundamental principles of contract law, which typically require direct privity between contracting parties.

How it Works

When an agent enters into a contract with a third party without revealing that they are acting on behalf of someone else, the third party believes they are contracting solely with the agent. However, the doctrine of undisclosed principal allows the unrevealed principal to step into the shoes of the agent and either sue the third party to enforce the contract or be sued by the third party once their existence is discovered.

Here's a breakdown of the parties involved:

  • Principal: The party for whom the agent is acting. Their identity, and even their existence, is not disclosed to the third party at the time the contract is formed.
  • Agent: The party who directly negotiates and signs the contract with the third party. They act on behalf of the principal but do not reveal this fact.
  • Third Party: The party who enters into the contract with the agent, believing the agent is the sole principal in the transaction.

Key Aspects and Implications

  • Direct Link Despite Anonymity: The doctrine effectively creates a direct contractual relationship between the undisclosed principal and the third party, even though the third party was initially unaware of the principal's involvement.
  • Deviation from Contractual Norms: Its nature as an "anomaly" stems from the fact that it allows a party not explicitly part of the initial agreement, and whose existence was unknown, to become central to its enforcement.
  • Strategic Utility: Businesses sometimes utilize this doctrine when secrecy is paramount, such as acquiring multiple parcels of land for a large development without escalating prices prematurely.
  • Third Party's Choice: Once the third party discovers the existence of the undisclosed principal, they generally have the right to choose whether to hold the agent or the principal liable for the contract's performance.

Practical Scenario

Consider a situation where a collector (the principal) wishes to acquire a rare antique from a seller (the third party) but wants to avoid revealing their identity, perhaps to prevent price inflation or maintain privacy. The collector instructs an agent to purchase the antique. The agent approaches the seller, negotiates the terms, and signs the contract for the purchase, without ever mentioning the collector. Under the doctrine of undisclosed principal, the collector can later reveal themselves as the true buyer and demand delivery of the antique from the seller, or conversely, the seller, upon discovering the collector, could seek payment directly from the collector if the agent fails to pay.

Summary of Roles in an Undisclosed Principal Scenario

Role Initial Knowledge (Third Party's View) Legal Status (Undisclosed Principal Doctrine)
Agent The apparent contracting party Acts on behalf of the principal; can be held personally liable
Principal Unknown The true party to the contract; can sue and be sued
Third Party Contracts with the Agent Can enforce against the Agent or, upon discovery, the Principal

This doctrine, while seemingly counter-intuitive to standard contract principles, plays a vital role in enabling certain commercial transactions while managing confidentiality.