Limitations to the Undisclosed Agency Essay

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Limitations to the doctrine of undisclosed agency The justification for the doctrine of the undisclosed principal has been the subject of much discussion. It is generally accepted that although it runs against the fundamental principles of privity of contract, the undisclosed principal rules are justified on grounds of commercial convenience. Generally, in commercial law, the assumption is that buyers and sellers are willing to buy/sell to anyone. Contracts are not personal and business people are not concerned about the identity of the other contracting party. As Lord Lloyd said in Siu Yin Kwan v Eastern Insurance, an undisclosed principal can sue and be sued on a contract made by an agent on his behalf, if it was within the scope of the agent’s actual authority, unless there are special circumstances. It is important to bear in mind that the initial contract is between the agent and the third party. The undisclosed principal intervenes in an existing contract. This contradicts the fundamental principle of contract law that there needs to be agreement between the parties. There are, therefore, limitations to the doctrine of the undisclosed principal. There needs to be, because it might be unfair to a third party who thought he was dealing only with the other party ot then find out that that other party was in fact the agent of a principal. 1) Personal Considerations The general rule is that an undisclosed principal cannot intervene if the agent’s contract is of a personal nature, that is, where the third party relied on the skill, solvency or other personal characteristics of the agent and which cannot be vicariously performed (Collins v Associated Greyhound Racecourses Ltd). Difficulty has been caused by cases where the third party is not relying on the agent’s positive attribute but is objecting to the undisclosed principal’s negative attribute. Said v

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