Benue State University, Makurdi

Critique of the Doctrine of Undisclosed Principal as an Exception to the Rule of Privity of Contract

Rachel Nwasolu Imbwaseh*

Abstract

The principle of privity of contract precludes third parties from bearing burdens or obtaining benefits under a contract which they are not party to. However, under agency, an undisclosed principal shares in the rights and liabilities arising from a contract entered into by an agent and a third party even though the identity and existence of the principal may not be known to the third party at the time of making the contract. A third party, after discovering the fact of the agency, has to elect to sue either the principal or the agent. An agent could, therefore, be liable on a contract which he has not benefitted if the third party elects to sue him. This would occasion injustice to the agent. Using the doctrinal method which involves the analysis of cases and scholarly works on the subject, this article has examined the doctrines of undisclosed principal and privity of contract and found that the former is an erosion of the latter. The undisclosed principal has been accepted for commercial convenience even though it is more of a third party protection device particularly, against the agent who does not usually benefit from the contract but acts on another’s behalf. Although the agent has a right to indemnity by the principal, such might be defeated if the agent has to wait and claim from the principal after the conclusion of the third party’s case against him. As such, this article recommends that the principal’s duty of indemnity should be enforced by the agent claiming against the principal through third party proceedings under relevant rules of court whenever the agent is sued by the third party. Alternatively, the court should insist on compulsory disclosure of the fact of the agency by the agent to third party at the time of making the contract to avoid the problems that would arise when the principal is subsequently discovered.

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