AN ANALYSIS OF THE RIGHTS AND LIABILITIES OF AN

UNDISCLOSED PRINCIPAL

Submitted By:

Submitted To:

Anubhuti Jain

Mrs. Anjali Thanvi

Roll No. 1195

Semester II
B.A., L.LB (Hons.)

National Law University, Jodhpur

Winter Session
(January - May 2015)

Acknowledgements

I would like to acknowledge the able guidance of Ms. Thanvi and her constant
encouragement. My gratitude to parents for their constant, undemanding, forgiving and
unparalleled love, affection and support . My sister for her endearing presence. The authors,
judges and researchers who through their works planted in me the seed of curiosity, generated
original ideas and enriched my knowledge on this vast area of study. And ultimately, the
almighty, and everyone, directly or indirectly associated with this project, must stand
thanked.

Anubhuti Jain

Research Methodology

The project is the result of extensive research done by the researcher. The research technique
employed is manual study of various articles, cases and books available through web
databases. The ultimate search engine- Google- has also been thoroughly browsed for this
purpose. All the sources-primary and secondary- referred, have been cited or mentioned in
the bibliography and the project is an original work of the student.

Scope of the project

The project will cover the established doctrines of law and the emerging judicial and
legislative concepts with respect to the rights of an undisclosed principal. The cases and
doctrines will be looked at as a whole and with specific focus through the course of the
project.

Table of Contents

Acknowledgements.....................................................................................2
Research Methodology................................................................................3
Scope of the project....................................................................................4
Introduction.................................................................................................6
Rights and Liabilities of an Undisclosed Principal........................................8
Conclusion.................................................................................................13
Bibliography..............................................................................................15

Introduction

Our day- to- day activities, involve, an intermediary who chooses to act on our behalf. In law,
such a person is referred to as an agent.
Section 182 of the Indian Contract Act defines Agent as a person employed to do any act for
another, or to represent another in dealings with third person. It also further states that the
person for whom such act is done, or who is so represented, is called the principal.
Authority is one of the key requirements for a contract of Agency. An agent needs to be
authorized by the Principal to perform the act or be the representative. Section 186 of the
Indian Contract Act clarifies that the authority can be either expressed or implied. Authority
is said to be expressed when it is given by words spoken or written. It is implied when it is to
be inferred from the circumstances of the case.
The extent of an agents authority is so wide as to cover every lawful thing done in order to
complete the assigned task.
However, when the agent deals on his own account without principals consent, the latter can
repudiate the transaction if any material fact was dishonestly concealed or if the dealings
were disadvantageous to him. This can be understood from Section 215 of the Indian

Contract Act.
The dealings of an agent are made, on behalf of the principal, with the third parties. Hence, it
is only just and fair for such third parties to have certain rights and obligations.
Section 226 succinctly lays down that a contract can be enforced against the principal with
the same legal consequences, as if he had himself entered into it. However, he can made
liable for only those acts, which are performed by the agent within his authority. Indian
Contract Act releases the principal from any responsibility when the acts are done in excess
of authority and cannot be separated from the rest of the transaction.
As an Agent performs the transaction for the Principal he can neither personally enforce the
contracts nor can he be personally bound by them. An exception arises in case of
Undisclosed Principal.
An Undisclosed Principal is one who existence is not known to the third party at the time of
contracting. This is not similar to a situation when the principal is not named. The principal
cannot be said to be undisclosed, if he can be identified, even though he was not named.
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.
The project will cover and analyze this doctrine in detail as in Indian and English law.

Rights and Liabilities of an Undisclosed Principal

An Undisclosed Principal is one who existence is not known to the third party at the time of
contracting.
The agent, in such cases, 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.
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:
1. The agent must have actual authority, whether express or implied, to enter into the
contract in question with the third party; and
2. 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.
The principle underlying Section 231was laid down in Keighley, Masted & Co. v. Durant1 :
_

There is an anomaly in holding a person bound to another of whom he knows nothing and
with whom he did not in fact intend to contract. But middlemen through whom contracts are
made are common and useful in business transactions and in the great mass of contract, it is
a matter of indifference to either party whether there is an undisclosed principal or not. If he
exists, it is to say the least extremely convenient that he should be able to sue or sued as
principal and he is only allowed to do so upon terms which excludes injustice.
The right is often stated to be in contradiction with legal principles and present for merely
1 [1901] AC 240, 259.

mercantile convenience. Lord Lloyd observed in Sin Yin Kwan v. Eastern Insurance Co 2.

observed that, the origin of, and theoretical justification for, the doctrine of the undisclosed
principal has been subject of much discussion by academic writers..while its development
may have been anomalous, since it runs counter to fundamental principles of privity of
contract, it is justified on grounds of commercial convenience.
An undisclosed principal cannot interfere in the contract when:
= Third party has performed its part.
= The contract between the agent and the third party provides expressly that there will be no
rights for an undisclosed principal.
= It can be implied fro the terms of the contract or circumstances of the contract that the third
party did not intend to deal with an undisclosed principal.
= Agent did not intend to enter into the contract for the undisclosed principal.
Few examples are:
= A promise by the third party to lend money to the agent personally cannot be enforced by
an undisclosed principal.
= 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.
= Where the landlord is induced by the identity, creditworthiness and reputation of the tenant
2 [1994] 1 All ER 213, 220 (PC).

(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.
= 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.
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.
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.
The Principal can:
= As against the agent: The principal can claim the full benefit of the contract into an age in
his own name.
= As against the third party: Principal is bound by the equities arising between the agent
and the contracting party.
It was held in Premji Trikamdas v. Madhowji Munji3 that while Section 231 gives the
_

principal the right to specific performance of the contract without any qualifications
whatever, the third party has against the principal only the same rights as he would have
against the agent.
Thus, in case one partner enters into contract in his own name, if he is acting as the agent of
the firm, his co-partners, being undisclosed principals, can be sued on the contract, and may
3 (1880) 4 Bom 447.

join as plaintiffs in suing. However, it is difficult to ascertain whether or not the acting
partner was acting on behalf of the firm.4

It was held in Godhanram v. Jaharmull Puglia5 that the principal can either adopt the
_

contract in full or repudiate it altogether. This has been laid down so that the principal does
not just calm the benefit and escape the burden.
The second clause in Section 232 states that if the principal discloses himself before the
contract is completed, the other contracting party may refuse to fulfill the contract if it can
show that the identity of the principal was a determining factor in the materialization of the
contract.
It is essential for this clause that the words discloses himself are construed strictly.

_6

Section 232 of the Indian Contract Act qualifies the general right of the principal to enforce
performance by making it subject to the rights and obligations submitting between the agent
and the other contracting party.
It has been held that the Principal cannot be discharged of all liability and if he represents the
agent as principal, he is bound by that representation and cannot sue the agent in his own
name, at the cost of an innocent third party.
The third party has extensive rights against the principal and agent. It has been wellestablished through George v. Clagget7 that the one who satisfies his contract with the person
_

whom he has contracted ought not to suffer by reason of its afterwards turning out that there
was a concealed principal.

4 Pollock & Mulla, The Indian Contact Act, 1872, Bhadbade Nilima (Ed.), 14th Ed., 2014.
5 (1913) ILR 40 Cal 335.
6 Ibid.
7 (1797) 7 TR 359.

Differences in English and Indian Law

= Liability of Agent and Principal - It is a recognized principle under English law that the
liability of an agent and undisclosed principle is alternative.
Thus, the third party may elect as to whom to sue and is barred from suing one when he has
already chosen to sue the other.
However, under Indian Law, the liability of the agent and principal is joint and severable. The
plaintiff might sue both the principal and the agent in the alternative but he cannot get
judgement against both of them jointly for the amount sued for.
It was held in Bir Bladder Sewak Pande v. Sarju Prasad8 that the plaintiff having obtained
_

judgement against either the principal or the agent cannot sue the other in a second suit.
However, in Raman v. Vairavan9 , suit against the principal was not barred where the first suit
_

against the agent was dismissed on the ground that the plaintiff had given credit to the
principal.
There have been various judgements as to the question of joint liability. While it has been
ruled that only one of them is liable, at the same time it has been held that the liability is joint
and there can be one suit against both with a decree against both of them jointly.
= Knowledge of the third party- Under English law, it is not essential for the third party
who dealt with the agent as a principal to go beyond showing that he believed him to be
principal. The reason to suspect only negates this belief.
However, it is can clearly be drawn from Section 231 and 232 and it has also been reiterated
in various judgements that there must be actual belief that one was dealing with the
principal. Ignorance and doubt are not sufficient indicators for any such belief.
8 (1887) ILR 9 All 681.
9 (1883) ILR 7 Mad 392.

Section 234 limits the right given in Section 233 and formulates a rule of estoppel. The rule
enables the principal to be exempted from his liability. There are two requirements for this:
= The third party should have induced a belief in one of them that he is going to hold the
agent alone liable.
= The belief should have resulted in a course of action which would not have happened
otherwise.
Thus, the liabilities and rights of an undisclosed principal with respect to a third party have
been laid down in the statutes and have evolved through the course of various judgements
and amendments.

Conclusion
The doctrine of undisclosed principal, thus, is as an anomaly introduced by the common law

for reasons of mercantile convenience. The doctrine violates the fundamental principles of
contract. It also frequently operates unjustly to impose unmerited burden on the principal or
to deny the third party merited relief. Thus, the law has to be significantly modified and
scrutinized to produce a possible set of rules in order to avoid injustice and uncertainty in
commercial cases.

Bibliography

Cases
Godhanram v. Jaharmull Puglia11
Keighley, Masted & Co. v. Durant.............................................................................................8
Sin Yin Kwan v. Eastern Insurance Co.......................................................................................9
Treatises
Bir Bladder Sewak Pande v. Sarju Prasad...............................................................................12
Pollock & Mulla, The Indian Contact Act, 1872, Bhadbade Nilima (Ed.), 14th Ed., 2014.....11
Premji Trikamdas v. Madhowji Munji......................................................................................10
Raman v. Vairavan...................................................................................................................12