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Law Quarterly Review2004

Undisclosed principals and contractTan Cheng-Han Subject: Agency Keywords: Privity of contract; Undisclosed principals

*L.Q.R. 480 INTRODUCTIONTHE doctrine of the undisclosed principal is a well-known one. Essentially, where a person (the agent) enters into a contract intending to do so on behalf of that person's principal, the principal may as a general rule sue and be sued on the contract even though his existence (and not merely his identity) was unknown to the other party to the contract (the third party). The general principle is framed in the following manner by the Restatement (Second) of Agency (hereinafter Restatement ):1 An undisclosed principal is bound by contracts and conveyances made on his account by an agent acting within his authority, except that the principal is not bound by a contract which is under seal or which is negotiable, or upon a contract which excludes him. Although the historical evidence of the undisclosed principal doctrine is painfully meagre,2 it is clear that the undisclosed principal doctrine dates back to at least the eighteenth century and perhaps even earlier.3 Notwithstanding this, the doctrine is regarded by many scholars as anomalous. This is because the doctrine allows a person who is not ostensibly a party to a contract to sue and be sued on the contract. Sir Frederick Pollock, in a note, wrote thus of the doctrine of the undisclosed principal:4 The plain truth ought never to be forgotten that the whole law as to the rights and liabilities of an undisclosed principal is inconsistent with the elementary doctrines of the law of contract. The right of one person to sue another on a contract not really made with the person suing is unknown to every other legal system except that of England and America.5 Such views are also to be found in judicial pronouncements. For example, in Armstrong v Stokes,6 Blackburn J. said that while it has often been *L.Q.R. 481 doubted whether it was right to hold an undisclosed principal liable to the seller, such doubts came too late as the doctrine was too well settled.7 And in Keighley, Maxsted & Co. v Durant8 Lord Lindley opined that as a contract is constituted by the concurrence of two or more persons and by their agreement to the same terms, there is an anomaly in holding one person bound to another of whom he knows nothing and with whom he did not, in fact, intend to contract.9 To some extent such criticisms are unfair. As stated earlier, the doctrine of the undisclosed principal dates back to at least the eighteenth century. At that time, contract theory had not yet evolved the necessity of actual mental assent; that the creation of contractual rights and duties arose only from the deliberate consensus of the parties, even if on an objective basis.10 From this standpoint, it is clear that the continued applicability of the doctrine of the undisclosed principal notwithstanding the development of the idea of mutual assent stems from the widespread recognition that the strict rules of privity of contract do not apply to the undisclosed principal. The doctrine is therefore no more inconsistent or anomalous than the rule allowing assignees to bring an action in contract.11 They constitute well recognised exceptions to the privity doctrine and need no further justification. In addition, the privity rule itself has been seriously questioned in Darlington Borough Council v Wiltshier Northern Ltd 12 where Steyn L.J. forcefully said that there is no doctrinal, logical or policy reason why the law should deny effectiveness to a contract for the benefit of a third party where that is the expressed intention of the

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parties.13 Nevertheless, this article will explore whether there is a basis for the doctrine that can be rationalised with the privity rule.

ECONOMIC AND COMMERCIAL JUSTIFICATIONS FOR THE UNDISCLOSED PRINCIPAL DOCTRINEWhatever may be said of the ostensibly anomalous nature of the undisclosed principal doctrine, almost every commentator is convinced of the economic and commercial merits of the doctrine. From a historical standpoint, Stoljar makes the point that at the turn of the 18th century trade *L.Q.R. 482 increased significantly both in volume and speed. As commission agents, factors, who were entrusted with the possession of goods for sale, found that it was in their interests to keep the volume of sales as high as possible. This commercial expansion would also tend to make the factor into a more independent and adventurous merchant and factors also began to give credit to purchasers.14 This development made it necessary for principals to intervene where once they would not have had to. Such intervention would be necessary where the factor became bankrupt and could no longer be relied upon to collect the price or turn the proceeds over to the principal. The earliest cases involving the intervention of undisclosed principals were all cases of bankruptcy and these cases established that the goods entrusted to the factor did not cease to be the principal's property, and that the proceeds from the sale did not belong to the estate of the bankrupt agent.15 What is clear from this is that the need for efficient channels of distribution, which are essential to a modern economy, is entirely in accord with the doctrine of the undisclosed principal. In a modern economy, specialist middlemen play an important role in ensuring that producers of goods have access to markets by providing efficient outlets for their goods. Some producers, particularly large manufacturing concerns, may prefer to access the markets themselves but many others will prefer not to do so where the perceived cost to them of direct marketing is greater than what will be incurred when using a middleman. Specialist middlemen obviate the need for such producers to divert resources to distribution activities and allow them to concentrate solely on production. The undisclosed principal doctrine allows producers of goods who use such middlemen as agents (as opposed to selling the goods outright to such persons) and who wish to remain undisclosed for whatever reason the comfort of knowing that their goods or the proceeds of sale from such goods do not form part of the middleman's estate. This facilitates the use of such middlemen which in turn facilitates the ease and growth of trade. The producer of goods could of course be a disclosed principal and it may be that to some it is a matter of indifference one way or the other. However, from the middleman's standpoint, he may prefer the principal to be undisclosed. After all, it falls to the middleman to develop the distribution network. This may involve market research and advertising, and certainly includes the need to secure clients and contacts, all of which may come at substantial cost. In such a context, the middleman may not wish those to whom he sells the goods to discover the identity of his principal(s); indeed he may not even wish such persons to know that there is a principal for fear that his purchasers may try to bypass him in due *L.Q.R. 483 course. The middleman may also on occasion deal in goods that he is the owner of and may not wish to distinguish such transactions from those where he only acts as an agent. As such, the middleman may only be prepared to act as agent if his principal is undisclosed. The principal may be agreeable if the principal considers that the advantages outweigh any risks.16 There are other situations where a principal may wish to remain undisclosed for economic and commercial reasons. Permitting principals to conceal their existence is one way to prevent potentially extortionate behaviour where a vendor who would otherwise be prepared to sell property on certain terms holds out in a bid to extract superior terms because the vendor is aware of the strategic importance of the property in question to the principal, or because the vendor knows that the principal has substantial financial resources.17 While there is nothing illegal with this, it does not exactly facilitate an optimal transfer of property interests and may lead to higher costs that will presumably

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be passed on to third parties such as consumers. An illustration of this may be found in the American case of Senor v Bangor Mills, Inc. 18 In that case, demand for nylon yarn exceeded supply at the time in question. The sole producer of the yarn allocated such supply as there was to members of the trade. The shortage led to the development of a secondary market where some of the purchasers from the manufacturer sold to other users for a profit rather than use the yarn themselves. Senor was such a seller and Bangor Mills, Inc. was a large user of the yarn able to maintain its production level only by frequent purchases from the secondary market. However, its known needs and economic position were such that it was able to make such purchases only by paying prices that were very high even by the standards of the secondary market. It therefore sought to obtain the yarn more cheaply through an intermediary. Principals may also wish to remain undisclosed where there is apprehension that their businesses may be adversely affected in other ways were their existence and identity to be known. Thus, in Soltau v Loewenthal19 the plaintiff who was dealing in rubber did not wish to let it be known that he was doing so, as he wanted to prevent competition by which it was *L.Q.R. 484 thought the business would be endangered, or even destroyed. Unfortunately, the exact reasons for the plaintiff's concern were not set out in the judgment. It is of course entirely possible for undisclosed principals to achieve the same effect without recourse to the law of agency. A manufacturer who wished, for example, to purchase goods without such fact being known to the mercantile community could enter into an agreement with another by which the latter would purchase the goods in question with a view to re-selling them to the manufacturer at an agreed price. In such a situation, the purchaser would not be acting as an agent for the manufacturer but on his own account.20 The purchaser would be obliged under the contract, however, to sell the goods acquired by him to the manufacturer at the price agreed upon. While this is an arrangement that will give rise to the same result as undisclosed agency, one material difference is that the purchaser on his own account would not be a fiduciary of the manufacturer and be subject to all the strict obligations that equity imposes on fiduciaries. Recourse to the law of agency in structuring such business arrangements is therefore an option that is desirable for businesspeople to continue to have. The economic and commercial merits of the undisclosed principal doctrine have led many to suggest that it is best explained simply on the basis of commercial convenience even if its justice is disputable.21 As Lord Lindley said:22 middleman, through whom contracts are made, are common and useful in business transactions, and in the great mass of contracts it is a matter of indifference to either party whether there is an undisclosed principal or not.23 The undisclosed principal doctrine also has the merit of avoiding circuity of action. In Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd24 Diplock L.J. expressed the view that the undisclosed principal doctrine, which was peculiar to English law, could be rationalised as avoiding circuity of action, since the principal could in equity compel the agent to lend his name to an action to enforce the contract against the third party, and would at common law be obliged to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract.25 Indeed, this aspect of the undisclosed principal doctrine has been commended by some continental *L.Q.R. 485 jurists.26 While the avoidance of circuity of action is sometimes put forward as a theoretical basis for the undisclosed principal doctrine, it is doubtful if this is an adequate explanation. In trust cases, a third party who contracts with a trustee is not entitled to sue the beneficiary even though the contract entered into by the trustee was intended for the benefit of the beneficiary.27 If the avoidance of circuity of action was such a powerful consideration, it is difficult to see why it did not operate similarly in the trust context, even given the differences between agency and trusteeship. This is not to deny the merits of avoiding circuity of action; only that it is doubtful that this is the principle rationale for the undisclosed principal doctrine. We have at this juncture arrived (it is hoped) at two incontrovertible conclusions. First,

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the doctrine of the undisclosed principal pre-dates the stricter, albeit objective, requirement for a consensus between the parties to a contract. Thus, it makes no more sense to say that the undisclosed principal doctrine is anomalous when measured by contract principles than it is to say that the doctrine of privity of contract is anomalous because it is inconsistent with the undisclosed principal doctrine. The two co-exist and each recognises the validity of the other. As such, it is submitted respectfully that the judicial and academic pronouncements to the effect that the undisclosed principal doctrine is anomalous vis--vis the privity doctrine overstate the position and there can be no doctrinal objection to the doctrine.28 Secondly, the economic and commercial merits of the undisclosed principal doctrine are beyond dispute. While this of itself does not provide a theoretical basis to reconcile both doctrines, the fact that the undisclosed principal doctrine conforms readily to the needs of society is a strong indicator of its inherent value and correctness. The combination of these two points perhaps makes it unnecessary to agonise further about the theoretical basis of the undisclosed principal doctrine and whether the doctrine can be rationalised in a manner that theoretically accords with the doctrine of privity. This is a task that others have attempted and no theory forwarded thus far has met with universal acceptance.29 Nevertheless, it is the bane of academics to try to search for suitable theories and *L.Q.R. 486 an attempt will be made here to do so. It will be suggested that of the various theories put forward, the idea first advanced by Holmes of equating the identity of the agent with the undisclosed principal,30 although perhaps not perfect, is the most plausible theory thus far put forward. The author will also suggest that in addition, there may be another, simpler basis that can rationalise the apparent anomaly between the doctrines of privity and the undisclosed principal. This will be based on implied contract reasoning and rely on Diplock L.J.'s dictum in Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd31 that ordinarily the third party in a commercial contract is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. If the implied contract basis provides a rational explanation of the undisclosed principal doctrine, there will be no inconsistency between that doctrine and the privity doctrine.

THE NATURE OF THE CONTRACT ENTERED INTOBefore discussing the various theories that may underlie the doctrine of the undisclosed principal, it will be useful first to attempt an understanding of the nature of the contract that is entered into by the agent on behalf of his undisclosed principal. It is clear from the foregoing that the doctrine of the undisclosed principal allows the principal to sue and be sued on the contract even though the principal is not on the face of it a party to the contract. At the same time, the agent may also sue and be sued on the contract. This is unlike disclosed agency where the agent generally drops out of the picture once the contract has been entered into and plays no role thereafter. Where the agent sues on the contract, any damages recovered will be held for the principal since the agent is a fiduciary vis--vis the principal.32 The agent's right to sue, however, generally gives way to the *L.Q.R. 487 principal's right if the principal chooses to intervene on the contract and bring an action in the principal's own name.33 As far as the third party is concerned, where the third party discovers the existence of the undisclosed principal, he may elect to sue the undisclosed principal instead of the agent.34 If he sues one of them and obtains judgment, he can no longer bring a suit against the other on the contract in question.35 This is so even if the third party did not know of the existence of the undisclosed principal.36 As both the agent and the undisclosed principal may sue and be sued on the contract, it has been said that there is an uneasy tension between two organising theories, namely, that the contract is that of the agent and that the contract is that of the principal. 37 It will be suggested here that the undisclosed principal is also a party to the contract entered into by the agent on the undisclosed principal's behalf.38 Indeed, a number of judicial statements in England and America are to the effect that the contract entered into between the third party and the agent on behalf of the undisclosed principal is that

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of the undisclosed principal. Thus, in Keighley, Maxsted & Co. v Durant Lord Lindley expressed the view that the explanation for the doctrine that the undisclosed principal could sue and be sued on the contract entered into by the agent was because the contract was in truth, although not in form, that of the undisclosed principal himself.39 In Gardiner v Heading Scrutton L.J. said: If a party makes a contract in his own name and the other party, the promisee, finds that the promisor has an undisclosed principal, although he never knew of him and *L.Q.R. 488 therefore could not have given credit to him, yet he may sue him, because he has in fact made a contract with him.40 That the contract is that of the undisclosed principal also seems consistent with agency principles in general. An undisclosed principal may only intervene or be liable on a contract that his agent had actual authority to enter into. Where the agent did not have authority the principal is not bound and cannot ratify his agent's act.41 In cases of disclosed agency, where the agent has acted within the scope of his authority it is clear that the acts in question are to be treated in certain respects as if they were acts of the principal. Accordingly, where the agent has entered into a contract with a third party within the scope of his authority, the contract is treated as that of the principal. Similarly, in the case of undisclosed agency, the acts of the undisclosed principal's agent should prima facie be those of the principal in as much as the agent acts within the scope of the agent's actual authority. As Barnett puts it, the undisclosed agency relationship between the agent and the undisclosed principal does not differ from that of the normal agency relationship in which the existence or identity of the principal is disclosed to third parties. Agency is a consensual relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control.42 In undisclosed agency, as the agent has been authorised by the principal to enter into the contract with the third party, the contract should be the principal's since the agent has only acted within the scope of the mandate given to him.43 *L.Q.R. 489 The submission that the undisclosed principal is a party to the contract is consistent with the position that the undisclosed principal may sue and be sued on a contract entered into by his agent where the agent did not have capacity to enter into such a contract himself. If the contract is that of the agent or if the principal is not really a party to the contract entered into by the agent, how can the principal intervene on a contract that would be unenforceable as between the very parties to it? Yet it has been held that the undisclosed principal can intervene even where the agent was a minor.44 The conclusion seems clear; the undisclosed principal is truly a party to the contract. The position is similar for disclosed principals where the rationale appears to be that the agent is a mere instrument and therefore the agent's incapacity is irrelevant.45 Such an explanation is surely equally valid in undisclosed agency. The controversy over whether settlement between the undisclosed principal and his agent prior to the third party discovering the existence of the principal discharges the principal also provides some support for the proposition advanced here that the agreement is truly that of the undisclosed principal. In Armstrong v Stokes46 it was held that where the third party gave credit to an agent, not knowing that the agent acted for a principal, the third party could not claim against the principal where the principal had settled with his agent at a time when the principal's existence was still unknown to the third party. Delivering the judgment of the court, Blackburn J. said that to make the principal pay twice would cause an intolerable hardship. Purely from a practical standpoint, the result in Armstrong v Stokes seems right to this author. In undisclosed agency, it is evident that the third party looks to the credit of the agent until the principal's existence is revealed at which point the third party has an option (indeed a windfall) who to proceed against. It therefore seems fair that as long as the undisclosed principal has, prior to his existence becoming known to the third party, provided his agent with funds to pay the third party, this should discharge the undisclosed principal.47 Indeed, such a position at law will better facilitate the continued anonymity of the principal where this is desired. However, there is considerable unease over the position in Armstrong v Stokes. Thus the Restatement states that an undisclosed principal is not *L.Q.R. 490 discharged from

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liability to the other party by payment to, or settlement of accounts with, the agent, unless he does so in reasonable reliance upon conduct of the other party which is not induced by the agent's misrepresentations and which indicates that the agent has settled the account.48 In Irvine & Co. v Watson & Sons,49 a case concerned with a disclosed principal, Bramwell L.J. referred to Armstrong v Stokes as a remarkable case and doubted whether any distinction should be drawn between disclosed and undisclosed principals.50 Brett L.J. said that if the case of Armstrong v Stokes arose again, the court reserved to itself the right to reconsider it.51 It is suggested that implicit in the unease over Armstrong v Stokes is the idea that the contract is that of the principal. If it is the principal's contract, a position contrary to that taken in Armstrong v Stokes can possibly be justified on the basis that the principal's primary obligation is not discharged simply because he has put his agent in funds. He must ensure that the third party is paid and his obligation will only be discharged if the third party has somehow caused him to believe that his agent has settled with the third party.52 If the contract is not in truth that of the undisclosed principal, it is difficult to see why the principal should continue to be liable when he has given the primary obligor the funds with which to meet the obligation.53 Thus, if the correct position is that stated by Bramwell L.J. in Irvine & Co. v Watson & Sons, the basis for this must be because the contract is regarded as the principal's. What principally causes doubt over such a conclusion are the privity doctrine and the liability of the agent and the agent's right to sue under the contract. As stated previously, the undisclosed principal doctrine pre-dated the privity doctrine, and the undisclosed principal doctrine has never been overruled (indeed it has been recognised as too well settled to be changed54 ). Accordingly, such apparent inconsistency between both doctrines should not be sufficient in itself to give rise to such doubt. Rather, the proper understanding of the undisclosed principle doctrine should be derived from within the law of agency itself. On this basis, there seems little reason why the act of the agent done within the agent's actual authority should not constitute the act of the undisclosed principal thereby making any contract that arises that of the principal. *L.Q.R. 491 On the second possible difficulty with the view that the contract is that of the undisclosed principal, it is submitted that the ability of the agent to derive rights and to be sued under the contract is not inconsistent with the contract being in truth that of the principal. In disclosed agency cases, it is possible for an agent to contract on behalf of his principal and yet in such a manner as to assume personal liability under the contract. As Luxmoore L.J. put it: there is nothing to prevent an agent from entering into a contract on the basis that he is himself to be liable to perform it as well as his principal.55 Whether the principal alone or the principal and the agent are liable under the contract depends on the intention of the parties to be determined from the nature of the contract, its terms and the surrounding circumstances.56 Where the proper interpretation of the contract is that the agent and the principal are both liable and entitled under the contract, this does not render the contract any less the principal's. So too it is submitted that the true basis for the agent's liability in undisclosed agency cases is that the agent has contracted in a manner as to be personally liable.57 Accordingly, the personal liability of the agent does not mean that the contract is not the undisclosed principal's. The fact that the agent contracts personally is also the reason why the agent may sue under the contract even though the contract is in truth the principal's. As part of the commercial rationale for undisclosed agency is to allow the principal's existence to be unknown, it must follow that the principal will want the agent to enter into a contract in a manner that will enable the agent to take all necessary steps to bring about the performance of the obligations under the agreement. In addition, in the event there is a breach on the part of the third party, the principal will want the agent to be in a position to claim damages for wrongful non-performance where it is practical to do so. While it is true that the principal can bring the action in his own name, he may prefer to avoid this where there is a need for his existence to continue to remain unknown, e.g. there are other similar transactions to be entered into with the same party or with other parties

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over a period of time. Accordingly, where an agent contracts on behalf of an undisclosed principal, the contract is one where both on the basis of the agent's authorisation and on a proper interpretation of the contract the agent may sue as well as be sued just as the owner in The Swan58 (who had entered into the contract as agent of the company that had leased the boat) undoubtedly could also have brought an action if the repairs had been conducted unsatisfactorily. As Staughton L.J. said in Welsh Development *L.Q.R. 492 Agency v Export Finance Co. Ltd, the agents for the undisclosed principal were parties to the contract because they were agents who had contracted personally.59 Aside from the above two possible difficulties in the way of the contract being recognised as the undisclosed principal's, it is also said that not only does the disclosure of the principal not interrupt the agent's liability, the principal is not allowed to intervene if the intervention will deprive the third party of the agent's liability. As such, this demonstrates the primary liability of the agent personally to the third party.60 Thus, in O'Herlihy v Hedges61 an undisclosed principal was not entitled to specific performance of a lease entered into between the agent and the owner of the land. The undisclosed principal was not a man of substance and the court held that as the owner had entered into the agreement with the agent, who was a man of substance, an order for specific performance to compel the owner to execute a fresh lease should not be granted in favour of the principal as this would deprive the owner of the benefit of the covenants from the agent. Taking this proposition at face value, it is submitted that such a limitation on the right of the undisclosed principal to intervene does not mean that the undisclosed principal is not generally a party to the contract. If the contract entered into by the agent is one where the inevitable consequence of the undisclosed principal's intervention will be to deprive the third party of rights against the agent, it is submitted that the contract may be regarded as one that impliedly excludes the intervention of the principal.62 This being said, O'Herlihy v Hedges can also be explained in another way. The contract that was entered into could be regarded as one of a personal nature thereby excluding the intervention of another.63 Aside from the solvency of the agent, the agent was also a person skilled in the improvement and cultivation of the land which it appears the owner considered to be a relevant factor when contracting with the agent. In addition, it has been suggested that the notion that the contract is the undisclosed principal's is inconsistent with the distinction drawn in cases involving written memoranda where the agent purports to act on behalf of *L.Q.R. 493 his vendor (not otherwise sufficiently described) and where the agent acts in his own name only. In the former case, there is no enforceable contract since the agent purports to act as agent only, and the vendor is insufficiently described. In the latter case, the vendor as undisclosed principal can intervene and sue. The suggested reason for this is that in the latter case there is a good contract in writing between the purchaser and the agent, and the undisclosed principal, so far from contradicting that contract, relies upon it, as much as would an assignee from the agent.64 It is submitted that the better explanation for this apparent peculiarity lies in the technicalities of the legislation in question requiring certain contracts to be evidenced in writing.65 The legislation requires the memorandum to identify the parties by naming or describing them. The parties in question have to be contractually bound to each other. Thus, where a person clearly contracted as agent and his principal was insufficiently identified, the requirement that there must be at least two identifiable parties to the contract who were bound to each other was not satisfied. In the case of an undisclosed principal, since the agent contracted personally, the contract was enforceable by or against either principal or agent since the existence of the principal only added another party who could be held liable and entitled under the contract, the agent already being liable. The technicalities involved in this area of the law provide no support for the proposition that the contract is that of the agent rather than the undisclosed principal. It is also said that the contract cannot be that of the undisclosed principal as it would be inconsistent with the cases where the courts allow a contract to be enforced by the principal even where the third party would not have dealt with him. The contract must

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therefore be that of the agent to which the undisclosed principal is allowed to intervene.66 The well known cases of Nash v Dix67 and Dyster v Randall68 are cited in support. While it is true that the undisclosed principal doctrine will generally allow a contract to be enforced by the principal even if the third party would not have dealt with him, it is submitted that the true reason for this is based on policy. If it were a good defence to a claim by the undisclosed principal that the third party would not have dealt with him, there would be no certainty in the application of the undisclosed principal doctrine. Every case involving an *L.Q.R. 494 undisclosed principal would be open to the possibility that the third party would assert his complete unwillingness to deal with the principal.69 As such, the cases have instead formulated the more limited proposition that the undisclosed principal cannot intervene where the contract entered into between the third party and the agent involves a personal element on the part of the agent, e.g. the third party engages the agent to paint his portrait. This limitation is necessary to prevent unwarranted injustice to the third party and does not detract from the general proposition that the contract is that of the principal. However, the judgment of Dillon L.J. in Welsh Development Agency v Export Finance Co. Ltd70 may imply that the contract entered into is not truly the undisclosed principal's. In that case an exporter of computer discs received financing from the Export Finance Co. Ltd (Exfinco). Under the agreement between the exporter and the financier, where the exporter entered into a transaction to sell its goods to its overseas buyers, the financier would make a standing offer, subject to qualifications, to buy all such goods from the exporter with the effect that the exporter became the financier's agent with the financier being an undisclosed principal in the sale. The exporter had also created a charge over its book debts in favour of the Welsh Development Agency. When the exporter went into receivership, the Welsh Development Agency claimed that the moneys owed by the overseas buyers were subject to its charge and the receivers that were appointed wrote to the overseas buyers to ask them to pay all outstanding moneys to the receivers instead of to an account under the name of the exporter which was under the exclusive control of the financier. Payment to such an account was a term of the agreement entered into between the exporter and the financier. One of the issues before the court was whether the receivers had interfered with the financier's contractual relations with the overseas buyers to which the exporter as agent was not a party. It was contended that the receivers, by sending the letters to the overseas buyers, procured breaches by those buyers of the contracts between the buyers and the financier. This was because it was alleged that the instructions sent by the receivers caused some of the buyers not to pay.71 Dillon L.J. said that he did not regard the contract between the exporter and the overseas buyer as having the effect of creating a contractual relationship between the undisclosed principal and the overseas buyer that was separate from the subsisting contractual relationship between the agent and the overseas buyer. The financier's right was to intervene and enforce against the overseas buyer the very contract which the agent had made with *L.Q.R. 495 the buyer. While there was a flagrant breach or interference by the receivers with the agreement between the financier and the exporter, there was no interference with a separate contract by the financier to which the exporter was not a party.72 An agent such as a receiver could not by its acts on behalf of its principal (the exporter) commit the tort of interference with contractual relationships where the contract in question was one between its principal and another (here the financier, Exfinco). Accordingly, the financier's counterclaim against the receivers for wrongful interference with the financier's contractual relations should be dismissed as the receivers were acting as agents for the exporter and so could not be liable for wrongfully interfering with any contract previously made by the exporter.73 Although not unequivocal, Dillon L.J.'s statements suggest that in his mind, the contract was that of the agent and the third party with the principal obtaining rights under such contract by reason of the principal's ability to intervene, the implication being that such intervention is different from having substantive rights under the contract itself.74 It is submitted that if this was the approach taken by Dillon L.J., it was unnecessary. In a

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sense, there appears to have been some confusion over the issue because of the manner in which the case was argued. At first instance and at the appeal, it was apparently common ground that if the financier would, apart from the intervention by the receivers, have been entitled to receive payments into the designated accounts from the overseas buyers, the receivers would have been liable for procuring a breach of contract between the overseas buyers and the financier but for their position as receivers. With respect, this was incorrect. The receivers never asked the overseas buyers not to make payment. The instructions were simply to make the payment to them rather than to an earlier designated account. All that took place was a variation of the previous instructions by which payment was to be made.75 Such a variation as to the mode of payment by the overseas buyers could not amount to a breach of contract on the part of the buyers. What it amounted to was a breach of the agreement between the *L.Q.R. 496 exporter and the financier and this was the basis upon which the majority of the court ultimately based their judgment on.76 As such, it is submitted that it would be unsafe to rely on the Exfinco case as authority for the proposition that the contract is that of the agent's rather than the undisclosed principal's, the latter having only a right to intervene. In a sense, such a proposition is problematic as it is unclear what the basis would be for the undisclosed principal to intervene on a contract if he is not really a party to it. Commercial convenience itself cannot provide an adequate justification as there are other instances where the common law does not allow a party to enforce rights under a contract even though it may be commercially convenient to do so.77 Theories based on assignment, trust and benefitburden reasoning are also inadequate as will be discussed later. While it is true that the doctrine of the undisclosed principal has been described as anomalous, the apparent anomaly is much (though not wholly) reduced if the proper understanding of the doctrine is that the undisclosed principal is in truth a party to the contract, a proposition that has ample judicial support, and the agent is liable and entitled only because this is the outcome of a proper interpretation of the contract entered into.

THE LEGAL RATIONALE FOR THE DOCTRINE OF THE UNDISCLOSED PRINCIPALAs a result of the apparent anomaly between the undisclosed principal and privity doctrines, there have been a number of attempts to explain the undisclosed principal doctrine in a manner that resolves the apparent anomaly. One very attractive explanation was that the undisclosed principal doctrine is based on a primitive and highly restricted form of assignment.78 Unfortunately, this explanation has been rejected by the Privy Council in Siu Yin Kwan v Eastern Insurance Co. Ltd. 79 In that case the Privy Council accepted that there are similarities between both branches of the law. Nevertheless, there are also many differences.80 In particular, a contract that provides that it shall not be assignable cannot be assigned. However, such a provision does not preclude an undisclosed principal from intervening.81 *L.Q.R. 497 A somewhat similar argument was put forward by Stoljar. He argues that the criticisms of the assignment theory suggest a slightly different approach. When speaking of assignment one does not mean the word in its usual or voluntary sense, but rather as a special and automatic kind. As such, it would be better not to speak of assignment but to think of the transmission of rights. The contract between the agent and the third party creates not only rights and duties as between them, but further creates transmissible rights and liabilities, that is, transmissible to or even against an undisclosed principal.82 This requires some elaboration. Stoljar considers that in a non-agency situation, offer and acceptance broadly mean that the parties have agreed with each other and for themselves; but in the agency situation, an exchange of offer and acceptance between the agent and third party does not issue into the same final agreement, the reason being that the parties' agreement is expressly not between them, but is designated to be between the principal and third party. This latter contract is not automatically enforceable, for the enforceability depends in turn on whether the agent has kept within

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his actual or apparent authority. In Stoljar's view, what occurs is that there is some immediate and independent contractual relationship between the agent and third party, even though they do not contract for themselves. Where the agent has acted within the scope of his authority, his agreement with the third party merges into the major or designated contract between the principal and third party, at which moment the agent drops out. When the agent acts outside his authority, there must also be some contractual relationship between the agent and third party for without this the principal could never ratify the agent's contract as there would be nothing to ratify.83 It is submitted respectfully that insofar as the transmissible rights theory is premised on the existence of a contract arising between the agent and third party, which is then transmitted to the principal thereby resulting in a contract between the principal and the third party, the theory is unsupportable. There is for one no authority to support the view that there exists in normal agency cases a contract between the agent and the third party. While it is true that a principal is bound only if the agent has acted within his actual authority, or within his apparent authority, the latter being based on estoppel, it is submitted that where the agent was acting within the scope of his authority, a contract would arise immediately between the principal and third party. It is hard to see why there should be a hiatus, however fleeting, between the act of the agent and the consequence of such an act as to require in the interim a mirror contractual relationship between the agent and third party that is subsidiary to that between the principal and *L.Q.R. 498 third party. If the agent has authority, there is a binding contract immediately between the principal and third party; if the agent does not have authority, there is no contract, subject to the doctrine of apparent authority. The analysis is even more difficult to justify when reliance is placed on the principle of ratification. Where the agent does not act within the scope of his actual authority, there is clearly no contract as apparently bargained for. Why should there be a transient contract between the agent and third party that moreover presumably disappears if ratification does not take place within a reasonable time. True it is that a contract does exist between the agent and third party in that the agent warrants that he has authority but that is a different agreement entirely. Where ratification takes place, it operates by fictionally clothing the agent with authority from the outset rather than by effecting the transmission of a valid contract to the principal.84 The principal's act completes that which was missing. The case of Watson v Davies85 relied upon by Stoljar does not support his contention. It merely recognises an instance where the principle in Bolton Partners v Lambert86 is inapplicable, namely where a contract entered into is said to be subject to ratification. Such a phrase would preclude ratification if the third party withdrew prior to ratification, even if ratification could objectively be said to have taken place within a reasonable time. However, some statements of Maugham J. if read too literally appear to support Stoljar's contention. Maugham J. had said that in Bolton Partners v Lambert the decision of the court was founded on the view that there was a contractual relation of some kind which could be turned into a contract with the company through ratification.87 It is submitted, however, that all Maugham J. intended to state was that ratification could only take place where on the face of it the agent and third party had done all acts necessary for the formation of a valid contract, save that there was no such contract as the agent did not have proper authority. Thus, if the agent and the third party were still in the process of negotiation, or there was an essential element absent in the agreement such as consideration, no purported ratification would be effective. Another explanation is that the undisclosed principal should have the benefits and burdens of the contract made on his behalf.88 While the concept of reciprocity as an explanation of the undisclosed principal doctrine is an attractive one, it is unlikely of itself to provide a sufficient *L.Q.R. 499 explanation for the doctrine.89 While it is certainly equitable that a person who obtains benefits should also incur burdens, it begs the question of why the undisclosed principal is a recipient of the benefits in the first place. The benefits-burdens explanation also does not provide a reason why the undisclosed principal should be a party to the contract, or should be allowed to intervene

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on a contract that is in truth made by his agent, depending on which view is taken. Rather it pre-supposes that this is the position and it therefore follows that burdens and benefits should go together. Nevertheless, though insufficient in itself, it may be asserted that it is commercially convenient to allow the undisclosed principal to assert rights under the contract that is made and this being the case the third party should have a corresponding right.90 To the extent that the benefits-burdens explanation depends on the undoubted commercial convenience of the undisclosed principal doctrine, it provides little assistance in the search for a legal rationale that can reconcile and accommodate both the undisclosed principal doctrine and the privity doctrine. A further explanation that has been put forward is that the agent is a trustee for the undisclosed principal.91 Again, this is an attractive proposition and some aspects of the relation between principal and agent are undoubtedly to be accounted for on the basis of trust, or at least of analogous fiduciary duties.92 Nevertheless, the fact remains that the beneficiary of a trust cannot be sued directly by the party that entered into a contract with the trustee. In addition, it has been held in the context of the res judicata doctrine that as against the third party the agent is not a trustee.93 Furthermore, unlike an agency relationship, the trustee is not subject to the control of the beneficiary. The principal is a master which the beneficiary is not. Some commentators suggest that the basis for the undisclosed principal doctrine is to be found in the fiction of equating the identity of the agent with the undisclosed principal.94 On this basis, although the agent enters into the contract with the third party, the contract is actually made with the undisclosed principal. The identity theory thus corresponds with the view advanced in this article that the contract is the undisclosed principal's. There are also judicial statements that support this theory. For example, in Keighley, Maxsted & Co. v Durant 95 Lord Lindley said that as the principal and the authority existed when the contract was made, the agent was only *L.Q.R. 500 the instrument by which the principal acted.96 It is also consistent with the position advanced earlier that the lack of capacity of the agent does not prevent the undisclosed principal from intervening on the contract made,97 which suggests strongly that the agent is merely an alter ego for the principal. In addition, Stoljar states that before the nineteenth century the law of agency presented three quite separate and distinctive histories. One of these related to deeds where the agent had to act strictly as the principal's alter ego or substitute. These rules started the notion that the agent, acting purely as substitute for the principal, was just a sort of automaton or tool, the very idea which fitted the maxim qui facit per alium facit per se. The rules were mainly confined to contracts under seal but also applied in connection with the principal's and agent's legal capacity in that it was immaterial whether the agent had any legal capacity since he contracted as a sort of tool for the principal.98 It is accordingly suggested that it is entirely possible that this distinctive stream of agency law could have influenced the development of the undisclosed principal doctrine. One objection to the identification theory is that it is inconsistent with those incidents where an agent may enforce a contract but not the principal. Thus, where the contract belongs to a class of personal contract that cannot be performed vicariously, the undisclosed principal will not be allowed to intervene. However, this is not necessarily inconsistent with the identification theory. The inability of the principal to intervene can be justified on the basis that the contract entered into expressly or impliedly excludes the existence of any other party to the contract. This is a rule that is applicable in a number of different contexts and includes cases where the contract is one of a personal nature.99 It also includes those cases where the agent contracts in a manner where the description of the agent excludes the possibility of any other party to the contract, e.g. where the agent is described in the contract as owner or proprietor the undisclosed principal cannot intervene.100 Accordingly, it is submitted that there is no reason why the identification theory is inconsistent with these cases. If the contract entered into expressly or impliedly excludes the undisclosed principal's intervention, the contract as entered into must be given effect to.101 Such a contract displaces the general starting

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point that in commercial contracts, the third party is willing to contract with anyone on whose *L.Q.R. 501 behalf the agent may have been authorized to act.102 The principal therefore cannot intervene. The identification theory has also been objected to on the basis that it is inconsistent with the rule that undisclosed principals cannot enforce against the third party any rights created by agents on negotiable instruments.103 However, it is said that the rule can be justified on the ground that negotiable instruments are likely to come into the hands of persons who have no knowledge of the circumstances in which they are issued. Such persons must be able to rely on what appears on the face of the instrument.104 Negotiable instruments also raise specific technical niceties105 and it is therefore suggested that the inability of undisclosed principals to enforce rights created by their agents on negotiable instruments is an inadequate basis to reject the identification theory. Nevertheless, there is perhaps some truth in the criticism of the theory that it has to proceed on the basis of a fiction, which may be a less than satisfactory basis to underlie a legal doctrine106 although it has also to be said that fictions are not exactly unknown to the law.

UNDISCLOSED AGENCY AND IMPLIED CONTRACTSIt is suggested that there is another basis on which the doctrines of the undisclosed principal and privity can be reconciled. The essence may be found in the judgment of Diplock L.J. in Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd where he said:107 a person may enter into a contract through an agent whom he has actually authorised to enter into the contract on his behalf or whom he has led the other party to believe he has so authorised. But we are concerned here only with actual authority. Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other *L.Q.R. 502 party was not so willing. Whether the agent was actually authorised to enter into a particular contract on behalf of a particular principal depends upon what passed between the agent and the principal. (emphasis added) It will be noted that Diplock L.J. draws no distinction between disclosed and undisclosed agency in the sense that in both instances the principal may himself enter into a contract through an agent that is expressly authorised so to act. When the agency is undisclosed (and perhaps also when the principal is unidentified), the principal becomes a party to the contract because the third party is willing to treat as a party to the contract anyone whom the agent has been authorised to act on behalf of. Admittedly, there is a qualitative difference between a willingness to treat someone as a party to a contract and an intention to contract with such a person. Nevertheless, it is submitted that what Diplock L.J. is clearly saying is that when the third party contracts with the agent, although the fact that the agent is acting for a principal is unknown to the third party, the latter agrees implicitly that he is contracting with the agent and the agent's principal, should there be one. The third party therefore impliedly contracts with the agent as well as the agent's undisclosed principal from the outset. This is because in ordinary commercial contracts, it is usually a matter of indifference to the third party whether there is an undisclosed principal or not.108 It is therefore incorrect, to say as Lord Lindley did, that the third party did not intend to contract with the principal.109 As R. Posner puts it (albeit in the context of rescuers), if a court can be reasonably confident both that there would have been a transaction and what its essential terms would have been, it does not hesitate to write a contract between the parties after the fact.110 If this analysis is correct, we are able to say not only that the undisclosed principal doctrine arises out of an autonomous body of law separate from contract111 (which is

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undoubtedly true) but that the doctrine is fully compatible with contractual notions of privity. Seen in this light, the only difference in ascertaining the existence of an agency relationship in disclosed and undisclosed agency is that in undisclosed agency evidence must be adduced to show that the agent was acting for a principal. There is no reason why such evidence cannot be adduced.112 As between unidentified (but disclosed) and undisclosed principals, the difference from an evidentiary standpoint is even less significant. In the former, the third party knows that he is contracting with *L.Q.R. 503 a principal but does not know who the principal is.113 In the latter, the third party knows of the possibility that the agent may be acting for an undisclosed principal and is willing to accept such a person as a party to the contract if indeed the agent was so acting. In both instances, evidence must be led of the identity of the principal. In undisclosed agency, evidence of the nature and scope of the authority must also be established. However, the issue of whether the unidentified principal has authorised the agent and the extent of the authorisation can also be in issue if either the third party or the alleged unidentified principal attempts to disavow the contract. If the foregoing is correct, it raises a wider issue. The position of the disclosed but unidentified principal occupies an intermediate position between that of the fully disclosed principal and the undisclosed principal. It has been suggested that when ascertaining the existence of an agency relationship, there may often practically be little difference between cases involving unidentified and undisclosed principals. The position of the undisclosed principal in this context is only a small extension of the rules for unidentified principals.114 If this is correct, it provides some additional support for the proposition that there should be no fundamental objection to treating the undisclosed principal (similarly to the unidentified principal) as a party to the contract. More importantly, it raises the issue of the extent to which the normal rules of agency should be applicable to unidentified principals. It has been suggested that the undisclosed principal situation and the unidentified principal situation are very close together and that in both situations the appropriate result is reached by regarding both agent and principal as liable and entitled, on the ground that the third party in both situations looks, whether partly or exclusively, to the credit of the agent.115 If this is the better position at law, it will no longer be necessary to use the undisclosed principal rules to make the agent a party to the contract in cases where the said rules are otherwise inappropriate.116 All manner of contracts can be implied in a wide range of circumstances.117 A number of cases involving the implication of contracts arise where a third party seeks the benefit of an exemption clause in a contract *L.Q.R. 504 that he is not a party to.118 Under the strict common law rules relating to privity of contract, the third party would not be entitled to the benefit of such a clause even if it was made expressly for the third party's benefit. However, if the courts imply a separate contract between the third party and one of the other parties to the express contract, the implied contract being on the same terms of the whole of the express contract or part thereof, the position is different. One can therefore see some similarity between such cases and undisclosed agency in that the undisclosed principal also seeks to have the benefit of a contract to which he is not ostensibly a party. In Pyrene Co. Ltd v Scindia Navigation Co. Ltd 119 Devlin J. held that the seller of a fire tender was bound by a limitation clause found in a contract of carriage between the buyer and the carrier. In the circumstances, the shipowner was entitled to limit its liability as against the seller even though the seller was not a party to the contract of carriage. In arriving at the decision, one of the grounds relied on by Devlin J. was that: by delivering the goods alongside [the ship] the seller impliedly invited the shipowner to load them, and the shipowner by lifting the goods impliedly accepted that invitation. The implied contract so created must incorporate the shipowner's usual terms; none other could have been contemplated; the shipowner would not contract for the loading of goods on terms different from those which he offered for the voyage as a whole.120

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In Midland Silicones Ltd v Scruttons Ltd Viscount Simonds said that Pyrene could be supported only upon the facts of the case, which may well have justified the implication of a contract between the parties.121 In commercial transactions, businesspeople often do not state who they are acting for, or even if they are acting for another person. This is a well-known aspect of commercial life. Accordingly, while it may strictly be true that the third party did not know about the existence of the undisclosed principal, the real possibility of such a principal can be said to be within the third party's contemplation and the third party generally enters into the contract on the basis that he is willing to treat such a person, if he exists, as a party to the contract. Thus, the absence of express knowledge of the other person with whom a contract arises, which knowledge is usually present in cases where a contract is implied, does not preclude the implication of a contract between the undisclosed principal and the third party. In addition, it has been suggested earlier that the undisclosed principal doctrine provides important economic benefits. Accordingly, *L.Q.R. 505 implying a contract between the undisclosed principal and the third party advances business efficacy. As the implied contract arises as a result of the agent's actual authority, the implied contract is the contract that the agent has entered into, or a mirror image of that contract. The reasoning employed thus far may provide an explanation why the undisclosed principal cannot ratify a contract entered into by the agent where the agent had no authority whatsoever, or merely exceeded the authority that had been conferred. As the agent was unauthorised, no implied contract arose between the undisclosed principal and the third party at the time the agent contracted personally. The agent was therefore the sole contracting party and to allow ratification subsequently to take place would be inconsistent with the contract entered into with the third party. This is unlike the case where the agent was authorised and the implied contract between the undisclosed principal and the third party arose at the same time as the contract between the agent and the third party. Just as an undisclosed principal cannot intervene where to do so would be inconsistent with the contract entered into by the agent, ratification cannot take place where the agent was unauthorised as it would be inconsistent with the agent being the sole contracting party at the inception of the contract. The relationship between the third party and the agent has crystallised; to allow ratification would be to effect a modification of the existing contractual relationship which will require fresh consideration. In disclosed agency this problem does not arise. The agent purports to act for the principal and is clearly not a party to the contract. Consideration is also unnecessary.

DEFENCES AVAILABLE AGAINST THE UNDISCLOSED PRINCIPALOne final issue, however, requires consideration. Where the undisclosed principal sues the third party, it is a well-established rule that the third party may plead all defences which accrued against the agent, including rights of set-off, before he had reasonable notice that the agent was not acting for himself. This may imply that the contract is that of the agent's in that the principal intervenes on the agent's contract and must therefore do so subject to such defences that the third party has against the agent.122 If, however, the rationale of the above rule is to prevent injustice to the third party or to better facilitate the operation of the undisclosed principal doctrine, the rule may be seen as one of policy123 without indicating one way or the other whether the contract is in truth that of the principal or the agent. Leaving aside for now rights of set-off, it seems logical that the third party may assert against the principal such defences as the third party may *L.Q.R. 506 have against the agent. If the agent made a misrepresentation which induced the third party to enter into the contract, the act of the agent may be attributed to the undisclosed principal so that the third party may plead the misrepresentation as a defence to an action by the principal under the contract. The principal can be said to be bound by such acts of the agent as have given rise to the contract because he is a party to it. Rights of set-off give rise to greater difficulty. In a suit by the undisclosed principal, the

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third party may set off a debt owing to the third party by the agent that arose from a separate and independent transaction. As a matter of policy, it is not difficult to see why this should be so. The third party may have contracted with the agent, e.g. by purchasing raw materials from the agent, on the basis that the agent was already indebted to him.124 If not for such fact, the third party could have purchased the same raw materials from another seller, perhaps on more favourable terms. In this scenario, an undisclosed principal who seeks to intervene on the contract may well be faced with the defence that the third party intended only to contract with the agent because the personality of the agent was important to the third party.125 Generally, where the personality of the contractor is important it will be because the contract is one that requires an element of skill or some other personal attribute. In many such cases, it is difficult from a practical standpoint for the undisclosed principal to perform the contract without the undisclosed principal's existence and identity being revealed. The third party will therefore be able to prevent the undisclosed principal from doing so. In other cases, particularly where the sale of goods is involved, the knowledge of the existence of the undisclosed principal will come much later, if at all. Where I contract for goods from a person because he is already indebted to me, and such person delivers the goods to me on credit terms, there will often be nothing to cause me to believe at the time I take delivery that the other contracting party is merely an agent. No issue of acquiescence therefore arises. Having taken delivery, I may sell the goods for a profit to another person or, if I am a manufacturer purchasing raw materials, use the goods in the manufacturing process. Either way, all that will be left is my debt to such person and his debt to me. It is too late to unwind the transaction.126 If the principal sues on the contract, there are at least three possibilities. The first is that unless the undisclosed principal is estopped from denying the set-off because the principal has led me to believe that the agent was acting as a principal, I am unable to set off the debt owed to me by the agent in a suit by the principal.127 The reliance on estoppel as the basis for the right of set-off seems unfair to the third party. *L.Q.R. 507 It is difficult to see how the third party can rely on a representation from a person that he knows nothing about unless all that is necessary is that the undisclosed principal has authorised the agent not to reveal the principal's existence and to act as if the agent were the principal. However, a set-off can arise even where the principal told the agent to disclose the agency, which the agent failed to do.128 In Cooke & Sons v Eshelby,129 the third party did not have any belief one way or the other whether the other contracting party was acting as agent or principal; the third party knew that they could be one or the other. Since the third party knew that there might have been a principal, the case could have been classified as one involving an unidentified principal and it is arguable that there was therefore no inequity in not shifting the burden of the agent's indebtedness to the principal. On this narrow basis, the result in Cooke & Sons v Eshelby may perhaps be justified even if the reasoning as a whole is not entirely satisfactory.130 A wider interpretation of Cooke & Sons v Eshelby that requires an estoppel as the basis for the right of set-off would cause injustice to the third party who contracted with the agent because he thought the agent was acting as principal and the agent was already indebted to him. Nevertheless, having said this, it is submitted that even the narrow basis on which Cooke & Sons v Eshelby may be justified may be unsatisfactory. This is because even in undisclosed agency, the third party knows of the possibility that the other contracting party may be acting for another. As such, it is submitted that as long as the third party did not have actual knowledge of the existence of a principal (including deliberately turning a blind eye to the obvious), the transaction should be classified as one involving undisclosed agency and rights of set-off should generally be available to the third party without more.131 Courts should not be too ready to find circumstances that ought to have put the third party on inquiry lest this be unduly burdensome to businesspeople. The second possibility is that the undisclosed principal cannot intervene because the contract was entered into with the agent by reason of personal considerations. This seems a logical result. Just as the undisclosed principal in O'Herlihy v Hedges132 could

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not intervene on the contract made by the agent because the owner wished to contract with the agent who could skilfully tend to the land, the undisclosed principal here cannot intervene because the third party only intended to contract with the agent because of the agent's indebtedness to the third party. *L.Q.R. 508 This is fact was the decision in Greer v Downs Supply Co.133 One Godwin, who was indebted to the defendant, asked the defendant to purchase some timber from him. Believing that Godwin was acting as principal, the defendant agreed on the basis that Godwin's debt could be set off against the purchase price of the timber. Godwin was not in fact acting as principal but as agent for the plaintiff who supplied the timber. The price not being paid the plaintiff brought a claim against the defendant. The Court of Appeal held that the claim could not succeed as the defendant entered into the contract for reasons personal to Godwin, namely the debt owed by Godwin to the defendant. As such, the plaintiff could not adopt the contract. However, this approach, though logical, is not entirely satisfactory as it exposes the undisclosed principal to greater risk. If the undisclosed principal is prevented from intervening on the contract entirely, this can be highly inconvenient if the agent becomes insolvent or refuses to claim against the third party. As there will always be a risk that a third party may enter into a contract with the agent of an undisclosed principal because of a debt owed by such agent to the third party, any such result would increase the risk of undisclosed agency for the principal and, to the extent that there are economic benefits from undisclosed agency, undermine its utility. It should therefore be unsurprising that neither of the above two possibilities have commended themselves, particularly the second even though the case for the second is quite compelling. The law favours a third approach that accords to the undisclosed principal the right to sue on the contract subject to any rights that the third party may assert against the agent. Does this suggest that the undisclosed principal merely intervenes on a contract that is not truly his? While this is one possible interpretation, it is submitted that this is not the case. In the personal element cases, the contract is regarded solely as the agent's. As such, the undisclosed principal cannot sue. That the principal can sue in the set-off cases therefore shows that the law does not recognise the contract entered into as the agent's only. It is submitted that the reason why the law allows the principal's intervention in cases where the third party has a claim against the agent is because it causes no injustice to the third party and is a pragmatic approach that balances the rights of all the parties.134 The law therefore treats the contract as one that the undisclosed principal is a party to despite the possibility of a contrary interpretation.

*L.Q.R. 509 CONCLUSIONIt has rightly been said that the generalisation of what was apparently in origin a limited right of intervention into an arm of general agency principle causes serious problems, many of which are in England at least still unsolved.135 Not least of these problems are issues that are fundamental to the area, namely, the juristic basis of the doctrine and the issue of whether the contract is the principal's or that the principal merely intervenes on a contract made by another. In this article, an attempt has been made to set out the basis of the doctrine and to reconcile it with the doctrine of privity in contract. It has been suggested that the basis for allowing the undisclosed principal to enforce rights under the contract entered into by his agent is that the third party is willing to contract not only with the agent but also the principal should the agent have one. Accordingly, since the agent was authorised to enter into the contract on the undisclosed principal's behalf, and the third party is prepared to treat the undisclosed principal as a party to the contract if the agent was acting for such a principal, there is every reason why a contract between the third party and principal should be implied. The position of the undisclosed principal is much stronger than that of the third party who is conferred a benefit under a contract to which he is not a party. In undisclosed agency, the agent acts pursuant to the principal's authorisation. The principal has also provided the consideration for the contract.136 In addition, as the assignment and trust theories have been rejected as

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bases upon which the undisclosed principal can intervene on the contract, it is difficult to see what other rationale exists other than that he is somehow enforcing rights to a contract to which he is a party.137 TAN CHENG-HAN.138 L.Q.R. 2004, 120(Jul), 480-509 _______________________________________________________________________1. 2. 3. Para.186 (American Law Institute, 1958). See also Bowstead and Reynolds on Agency (17th ed., 2000), Art.78. Holmes, The History of Agency in Select Essays in Anglo-American Legal History, Vol.III (1909), p.390. See, for example, the famous case of Scrimshire v Alderton (1743) 2 Stra. 1182. See also S.J. Stoljar, Law of Agency (1961), pp.204-211; W. Mller-Freienfels, The Undisclosed Principal (1953) 16 M.L.R. 308. (1887) 3 L.Q.R. 358 at p.359. See also Holmes, n.2 above; J.B. Ames, Undisclosed Principal--His Rights and Liabilities (1909) 18 Yale L.J. 448; W.D. Lewis, The Liability of the Undisclosed Principal in Contract (1909) 9 Col. L.Rev. 116 at p.118; F.R. Mechem, The Liability of an Undisclosed Principal (1910) 23 Harvard L.Rev. 513 at p.515; B. Geva, Authority of Sale and Privity of Contract: the Proprietary Basis of the Right to the Proceeds of Sale at Common Law (1979) 25 McGill L.J. 2 at p.3. (1872) L.R. 7 Q.B. 598. ibid., at 604. [1901] A.C. 240. ibid., at 261. See also Siu Yin Kwan v Eastern Insurance Co. Ltd [1994] 2 A.C. 199 at 207 where Lord Lloyd of Berwick, delivering the opinion of the Privy Council, said that the doctrine ran counter to fundamental principles of privity of contract. Mller-Freienfels, n.3 above, at p.311; R. Powell, The Law of Agency (2nd ed.), p.153; Bowstead and Reynolds on Agency, para.8-071. See also J. Gordley, The Philosophical Origins of Modern Contract Doctrine (1991), especially Chapters 6 and 7. A.L. Goodhart and C.J. Hamson, Undisclosed Principals in Contract (1932) 4 Camb.L.J. 320 at p.346; W.A. Seavey, The Rationale of Agency (1920) 29 Yale L.J. 859 at p.879; E.J. Weinrib, The Undisclosed Principle of Undisclosed Principals (1975) 21 McGill L.J. 298 at pp.298-299. [1995] 1 W.L.R. 68. ibid., at 76. n.3 above, at pp.206-207. ibid., at pp.206-208 and the cases cited therein. One risk is that where the goods have not been paid for, the purchaser will be entitled in a suit by the principal to all defences including rights of set off that the purchaser may have against the agent provided such defences arose before the purchaser discovered the existence of the undisclosed principal, see Rabone v Williams (1785) 7 T.R. 360n; Sims v Bond (1853) 5 B. & Ad. 389 at 393; Gilbert Browning v Provincial Insurance Co. of Canada (1873) L.R. 5 P.C. 263 at 272; Siu Yin Kwan v Eastern Insurance Co. Ltd, n.9 above, at 207. See also A. Barak, On the Nature of Undisclosed Agency (1976) 2 Tel Aviv U. Studies in Law 45 at p.47; R.E. Barnett, Squaring Undisclosed Agency Law with Contract Theory (1987) 75 Calif.L.Rev. 1969 at pp.1976-1977. 211 F.2d 685 (3d Cir. 1954). 1 N.Y.S. 168 (1888). See, for example, the case of Nash v Dix (1898) 78 L.T. 445.

4. 5.

6. 7. 8. 9.

10.

11.

12. 13. 14. 15. 16.

17.

18. 19. 20.

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21. 22. 23. 24. 25. 26. 27.

Bowstead and Reynolds on Agency, para.8-071; G.H.L. Fridman, Law of Agency (7th ed.), p.254; B.S. Markesinis and R.J.C. Munday, Outline of the Law of Agency (4th ed.), pp.156-157. Keighley, Maxsted & Co. v Durant [1901] A.C. 240 at 261. See also Siu Yiu Kuan v Eastern Insurance Co. Ltd, n.9 above, at 207. See also Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd [1968] 2 Q.B. 545 at 555; Weinrib, n.11 above; Barak, n.17 above; Geva, n.5 above; Barnett, n.17 above. [1964] 2 Q.B. 480. ibid., at 503. See also Keighley, Maxsted & Co. v Durant, n.22 above at 261-262; but cf. Ames, n.5 above. Mller-Freienfels, n.3 above at p.300. Ames, n.5 above, at pp.444-445 equated the relationship of undisclosed principal and agent to that of beneficiary and trustee, and was therefore critical of the notion that the undisclosed principal could be sued directly by the third party. However, it may be that the position in the law of trusts is itself arbitrary. Either option can therefore be chosen rationally and neither is a basis for criticism of the other. Goodhart and Hamson state that the undisclosed principal doctrine is not an anomaly in the sense that his intervention upsets the fundamental principles of contract. They say, however, that it is an anomaly in the sense that the undisclosed principal is allowed to sue and be sued although not a party to the contract on which suit is brought, n.11 above, at p.356. It will be suggested in this article though that the undisclosed principal is in fact a party to the contract with the third party. For a good overview of the various theories that have been advanced, see A. Rochvarg, Ratification and Undisclosed Principals (1989) 34 McGill L.J. 287. The main thrust of the article is that the rule preventing undisclosed principals from ratifying the unauthorised acts of their agents should be reconsidered. Holmes, n.2 above. n.23 above. Allen v F. O'Hearn & Co. [1937] A.C. 213 at 218. The right of an agent acting on behalf of an undisclosed principal to sue the third party was also recognised by Lord Millett in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 A.C. 518 at 581, where he considered that the agent would be treated as suing in respect of the agent's own loss and not the principal's. Probably to similar effect is Allen v F. O'Hearn where it was said at 218 that the supposed agent's rights would be to recover the damage suffered by him on the footing that he had been principal. Clearly where there has been a breach on the part of the third party and the principal's existence is still unknown at the time the suit is brought, any damages sought by the agent would have to be in respect of loss suffered by such agent who is ostensibly the only other contracting party. Is the position different if the principal's existence is revealed? Can the agent in such a case sue to recover damages suffered by the principal and how would such damages be quantified? Generally speaking, a person can only sue to recover damages actually suffered by him. The case of Allen v F. O'Hearn suggests that this is also the case where an agent for a formerly undisclosed principal brings a claim to recover damages caused by a breach on the part of the third party. The Panatown case, while not concerned with agency, also suggests that this is the position. In that case, the majority expressed the view that an exception to the rule that a person could not claim damages for losses suffered by another arises where the failure to recognise such a claim would mean that a breach of contract would go unremedied because the person who could sue did not suffer any loss while the person who did suffer loss had no claim due to the operation of the doctrine of privity. In undisclosed agency, the principal has a claim against the third party and moreover, the cause of action will be similar to that capable of being brought by the agent unlike Panatown where the owner of the property had a cause of action against the contractor even though this cause of action may have been less attractive compared to the cause of action that the employer had against the contractor. On this basis, the majority in Panatown held that the exception did not apply. Accordingly, if the approach in Panatown provides a valid analogy to the question of whether the agent can bring a claim for damages suffered by the undisclosed principal, it would appear that the agent can only sue to recover for loss actually suffered by him and not the loss of the principal. If the undisclosed principal wishes to recover damages for loss suffered by him, he must sue in his own name. Whether the agent can sue to recover damages for loss suffered by the principal, or the principal must do so himself, it is suggested that some objective basis for quantifying the loss must be adopted as the existence of the principal would generally be unknown to the third party when the breach took place. Such an objective basis of assessment would appear to accord with the judgments of Lord Clyde, Lord Goff of Chieveley and Lord Millett in the Panatown case at 535-536, 555-556, and 591-592 respectively.

28.

29.

30. 31. 32.

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33. 34. 35.

Bowstead and Reynolds on Agency, para.9-012; Restatement, para.302, comment c. Priestly v Fernie (1863) 3 H. & C. 977; Kendall v Hamilton (1879) 4 App. Cas. 504 at 513-515; Clarkson, Booker Ltd v Andjel [1964] 2 Q.B. 775. ibid. Cf. L.C. Fowler & Sons Ltd v St Stephens College Board of Governors [1991] 3 N.Z.L.R. 304. See also C. Inc. Plc v L. [2001] 2 Lloyd's Rep. 459 where it was held that where judgment in default had been entered against an agent, the plaintiff would not be debarred from bringing action against the undisclosed principal where the court has exercised its discretion to set aside the default judgment. Priestly v Fernie, n.34 above; Kendall v Hamilton, n.34 above. The position in America appears different, see Restatement, para.210(2) where it is stated that the principal is not discharged by a recovery of judgment against the agent by the other party before knowledge of the identity of the principal. Bowstead and Reynolds on Agency, para.8-071. A number of commentators take the opposite view, see, e.g. Goodhart and Hamson, n.11 above; Seavey, n.11 above. Others such as Mller-Freienfels, n.3 above and Lewis, n.5 above adopt the position that the contract is that of the undisclosed principal. n.8 above at 261. [1928] 2 K.B. 284 at 290. Statements to the same effect may also be found in Said v Butt [1920] 3 K.B. 497 at 500, 503; Maspons y Hermano v Mildred, Goyeneche & Co. (1881-82) L.R. 9 Q.B.D. 530 at 542-543; Matter of Fasano/Harriss Pie Co. 43 B.R. 864 (1984) at 868; Interbras Cayman Co. v Orient Victory Shipping Co. SA 509 F. Supp. 1067 (1981) at 1069; Blanchard v Kronick 277 Mass. 31 (1931) at 33; Haas v Kornbluth 147 N.Y.S. 27 (1914) at 29; Ford v Williams 62 U.S. 287 (Mem.) (1858) at 289. See also Cooke & Sons v Eshelby (1887) 12 App. Cas. 271 although the correctness of this decision is disputable. Even if the decision is correct, it should be limited to its special facts where the agent sometimes dealt on its own account and sometimes on behalf of undisclosed principals. The third party in question admitted that it had no belief one way or the other in the transaction in question. This is discussed further below. Keighley, Maxsted & Co. v Durant, n.8 above. n.17 above, at pp.1980-1981. See also T.A. Street, The Foundations of Legal Liability, Vol.II (1906), pp.477-480. This author agrees with Barnett's proposition that the incidents of undisclosed agency essentially flow from the consensual agreement between the undisclosed principal and the agent, by which is meant that the undisclosed principal has authorised the agent to enter into a contract for the principal's benefit. In addition, Barnett states at pp.1980-1984 that such a relationship will create a triangular flow of rights from the undisclosed principal to the third party, and from the third party to the undisclosed principal through the agent. This consensual flow of rights redistributes the property rights of the undisclosed principal and the third party and whether a third contract is said to exist between them is academic. While Barnett's analysis is attractive, it will be suggested in this article that there is ultimately a contract between the undisclosed principal and the third party and it is this contractual relationship that allows claims to be asserted between these parties. See also Lewis, n.5 above, where the author argues that the liability of the disclosed or undisclosed principal depends on whether the principal has caused the contract to be made. He states though that the basis for the principal's liability is not that the principal has made the promise; the contract is that of the principal as he has through his acts caused another to do or not to do an act for a stipulated benefit. The law should regard the contract as that of the principal (including the undisclosed one) as he was the prime cause of the third party changing his position. Danzinger v Thompson [1944] K.B. 654. See also Mller-Freienfels (1963) Am.J.Comp.L. 272 at pp.278-279; Weinrib, n.11 above, at pp.301-304. See, however, Bowstead and Reynolds on Agency, para.8-076 at n.71 where it is stated that the contract in Danzinger v Thompson was probably one of those binding minors. Bowstead and Reynolds on Agency, paras 2-011 and 2-012; Mller-Freienfels, Law of Agency (1957) 6 Am.J.Comp.L. 165 at pp.180-181; Muller-Freienfels, Legal Relations in the Law of Agency: Power of Agency and Commercial Certainty (1964) 13 Am.J.Comp.L. 193 at p.204; Norwich and Peterborough B.S. v Steed [1993] Ch. 116 at 128. n.6 above. See also Bowstead and Reynolds on Agency, para.8-106; F.M.B. Reynolds, Practical Problems of the Undisclosed Principal Doctrine [1983] C.L.P. 119 at pp.133-135.

36.

37. 38.

39. 40.

41. 42.

43.

44.

45.

46. 47.

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48. 49. 50.

s.208. The comment states that the reasons for the rule stated in this Section are not equally compelling and as a result the American decisions are not uniform. (1880) L.R. 5 Q.B.D. 414. See also Davison v Donaldson (1882) L.R. 9 Q.B.D. 623. ibid., at 417-418. See also Fridman, n.21 above, at pp.266-267; Markesinis and Munday, n.21 above, at p.171; P.F.P. Higgins, The Equity of the Undisclosed Principal (1965) 28 M.L.R. 167 at pp.175178. ibid., at 421. See also Reynolds, n.47 above, at p.135. See also Mller-Freienfels, n.3 above, at pp.312-313; cf. Higgins, n.50 above. Armstrong v Stokes, n.6 above. International Railway Co. v Niagara Parks Commission [1941] A.C. 328 at 342. The Swan [1968] 1 Lloyd's Rep. 5. See also Teheran-Europe Co Ltd v S.T. Belton (Tractors) Ltd, n.23 above. Or perhaps, as Lewis puts it, the agent is estopped from denying the truth of the fact which he has asserted to be true, n.5 above, at p.135. n.56 above (a disclosed agency case). [1992] B.C.L.C. 148 at 191. See also Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd, n.23 above, at 552. Goodhart and Hamson, n.11 above at pp.324-325, 348. (1803) 1 Sch. & Lef. 123. This is discussed further below and it is suggested that this is also a possible explanation for Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch. 1. It is submitted however that the court in O'Herlihy could have refused to grant specific performance on the basis that the undisclosed principal had to intervene on the contract entered into by the agent rather than apply for an order that the owner execute a fresh lease in the principal's favour. If the undisclosed principal could only intervene on the very contract entered into by the agent, this would have had the effect of preserving the owner's rights against the agent. Any difficulty that the principal had against the agent was a separate issue and did not require the court to grant an order of specific performance against the owner so as to bypass the agent who was refusing to give up possession of the property to the principal. It is submitted that regardless of whether the court was correct in the result arrived at, this is the real basis for Collins v Associated Greyhound Racecourses Ltd, ibid. Cf. Goodhart and Hamson, n.11 above, at pp.352-356. Goodhart and Hamson, ibid., at p.326. Namely, s.40 of the Law of Property Act 1925 and its predecessor provision, s.4 of the Statute of Frauds 1677. This has now been replaced with s.2 of the Law of Property (Miscellaneous Provisions) Act 1989. Goodhart and Hamson, n.11 above, at pp.347-348. The learned authors also say that since the language often used is that the undisclosed principal intervenes on the contract, the co