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.

Key Words: Contract, privity of contract, undisclosed, principal

*
LL.B (Hons), BL, LL.M, Department of Commercial Law, Faculty of Law, Benue
State University, Makurdi. Email:rachelimbwaseh@[Link] Tel: 08022733774
 Benue State University Law Journal. 2019/2020 | 131

Introduction
Generally, the principal is liable to third parties for all
contractual or tortuous acts of his agent done in the discharge or
execution of the terms of the agency and which are within the scope
of his authority, actual or apparent. The principal is answerable to
third parties for contracts entered into by his agent because the agent
is merely intermediary between his principal and the third party.
Whether rights and/or liabilities exist under such a contract will
depend on whether the principal is named, disclosed, undisclosed or
foreign. In the case of undisclosed principal, the identity of the
principal and the fact of the agency are not made known to the third
party at the time of making the contract, that is, both the name of the
principal and his very existence are not disclosed. However, the rule
is that the contract may be enforced by or against the principal
provided the agent’s act was authorized. This article interrogates the
desirability of a stranger to a contract acquiring rights and liabilities
under it via the doctrine of undisclosed principal to digest the
reasoning behind it. The article will also examine the reason behind a
third party electing to proceed against an agent who is just an
intermediary in a contract between the principal and the third party.
The article will also find out if there is a way out of liability for an
agent under the principle of undisclosed principal.

Conceptual Clarifications
It is important to explain the following concepts for clarity.
a. Named Principal: Here the name and identity of the principal
are disclosed to the third party by the agent at the time the
contract is made. In such a situation, there is no contract with the
agent, the principal becomes the right person to be held liable in
the contract and not the agent. The principal shares both rights
and liabilities alone and is the right person to sue and be sued. In
Ologbosere v Ezenwa1, it was held that where the agent acting
within the scope of his authority makes a contract with a third
party on behalf of a disclosed principal, the agent drops out
completely and only the principal can sue and be sued by the

1
(1962) LLR 35
132 | Critique of the Doctrine of undisclosed Principal as an exception …

third party. This means that, the agent is a mere conduit pipe in
the contract and drops off the transaction as he is not a party to it.
In Akin Bojor Bros. v. Crek West Africa Line2 it was held that
where the name of the principal is disclosed by the agent, he is
not personally liable on the contract to the third party.

According to Akanki,3
Where an agent having authority disclosed his
agency, that is, the name or the existence of his
principal is disclosed, only the principal can sue or
be sued on the agent’s act. The agent drops out
and cannot by reason of his agency without more
incure personal liability to the third party.

b. Unnamed Principal: Where an agent enters into a contract but

does not name his principal at the time of the contract, the agent
is not liable on it so long as it is clear that he did not pledge his
personal credit. The agent only makes it known to the third party
at the time of making the contract that he is acting on behalf of a
principal. The agent is not liable in the circumstances. Where in
a contract, a person makes it as an agent for, or on account of, or
on behalf of, or simply for a principal, or where words of that
kind are added after the agent’s signature, he is not personally
liable but the principal. In the case of University of Calabar v.
Ekpo Ephraim and Ors4, it was held that the agent is not liable
where it was known that he was acting for a principal.

This means that, at the disclosure of the fact that there

is a principal on whose behalf the agent acts, his name
or identity need not to be revealed, it suffices if the
third party is aware or ought to know that the person
he is dealing with is acting for another person. It is,
therefore, clear that a disclosed principal may be
named or unnamed.

2
(1970) NCLR 136
3
EO Akanki, Commercial Law in Nigeria (University of Lagos Press 2005) 257
4
(1993) NWLR (pt 271) 551
 Benue State University Law Journal. 2019/2020 | 133

c. Undisclosed Principal: Under this situation, where a contract is

made with a person who is actually an agent but the identity of
the principal and the fact of the agency are not made known to
the third party at the time of making the contract, the undisclosed
principal as well as the agent are, as a rule, bound by the contract
and entitled to enforce it. An undisclosed principal is one of
whose existence, the third party is not aware, so that the third
party does not know that the person he deals with is an agent to
someone else. The rule is that the contract may be enforced by or
against the undisclosed principal provided the agent’s act was
authorized. This rule was expressed in Crompton Richmond &
Co. Inc. v. Salami Alhaji Atanda5 where it was held that when a
party contracts with an agent whom he does not know to be an
agent, the undisclosed principal is generally bound by the
contract and entitled to enforce it. In the case of Yusufu v.
Kopper Int’l6 the Supreme Court of Nigeria held that even where
a director of a company (agent) contracts in his own name but
really on behalf of the company which he did not disclose as his
principal, the other party to the contract can sue the company
(principal) if he/she later discovers the principal.

According to Yagba, Kanyip and Ekwo, whether the

transaction is made with a person who is an agent but is not known to
be such, the third party is entitled to elect who to sue within a
reasonable time of discovering who the real principal is.7 What is
reasonable time is not stated by the learned authors and therefore
may depend on circumstances of each case and is left for the court to
decide. Therefore, the third party has an option to either sue the agent
or the undisclosed principal and until he does so (elect) the third
party can always hold the agent liable under the transaction. In
Crompton’s case8, the plaintiff’s assignee of a contractual right sued
the defendant for damages for non-acceptance of goods ordered

5
(1967) NWLR 383 at 385
6
(1996)30 LRCN 411
7
TAT Yagba, BB Kanyip, SA Ekwo, Elements of Commercial Law. (Tamaza
Publishing Company Ltd 1994) 102.
8
(n, 5)
134 | Critique of the Doctrine of undisclosed Principal as an exception …

through the agent from the assignor, an undisclosed principal. The

issue was whether an undisclosed principal could enforce a contract
against a party with whom his agent had contracted without
disclosing his existence. It was held that, the plaintiff’’s to whom the
undisclosed principal had assigned his rights under the contract were
entitled to sue the defendant for the breach of the contract.
The undisclosed principal also has the right to sue the third
party. However, where the agent expressly describes himself as the
principal, the rule that the principal can enforce a contract where the
agent makes it without disclosing that he is an agent does not apply.
This means that even when the third party discovers that there is an
undisclosed principal but the agent says he is the principal at the time
of contracting, the agent will be held liable and the undisclosed
principal cannot enforce the contract against the third party. It is
submitted here that the agent should always disclose to third party
the fact of agency as a matter of compulsion otherwise he should be
held responsible.
As earlier stated, it may be stressed again that, for the
principal to be bound on the contract to the third party, the acts of the
agent must be authorized. In Labode v. Otubu Custanavo (Nig) Ltd9,
it was held that any unauthorized tortuous or contractual act of the
agent cannot bind the principal. It is equally necessary to point out
that the liability of a principal is not a joint liability with his agent,
but an alternative one. The third party must elect, on discovering the
existence of a principal whether to sue the agent or to proceed
against the principal. Where he elects to sue one, he can no longer
sue the other as was held in Scarf v Jordine. 10 Therefore an election
of one discharges the other.11 Hence recovery of judgment against
the agent will amount to unequivocal election that discharges the
principal. According to Okany 12 if a person dealing with the agent
does not know and ought not from the circumstances to know of the
existence of the principal, but assumes that the agent is acting on his
own behalf, there is said to be undisclosed principal.

9
(2001) FWLR (pt 43) 212
10
(1882)7 App Cas. 345
11
EO Akanki, Commercial Law in Nigeria (University of Lagos Press, 2015) p. 259
12
MC Okany, Nigerian Commercial Law. (African First Publishers Plc 1992) p. 492
 Benue State University Law Journal. 2019/2020 | 135

Privity of Contract
The Privity of Contract is the basic rule of contract which
states that a person who is not a party to a contract cannot derive any
benefit or suffer any disability from it nor can he benefit from an
exemption clause however widely worded.13 According to Akanki,
every person who sues to enforce a simple promise must show that
he has given consideration for it which suggests that only the parties
to a contract can sue on it.14 Where two parties agree to confer a
benefit or to impose an obligation on a third party, that third party
cannot enjoy the benefit by bringing an action on the contract neither
can he be compelled by legal action to discharge the obligation.15
Therefore, the third party who is not privy to the contract, cannot be
legally affected by it. In Dunlop Pneumatic Tyre Co. Ltd v Selfridge
Ltd16 a person sold tyres to Dew & Co. on terms that he would
extract from the customer a similar undertaking. Dew & Co. sold the
tyres to Selfridge who also agreed to observe the restrictions and to
pay Messrs Dunlop the sum of ₤5 for each tyre sold in breach of this
agreement. Selfridge supplied tyres to two other persons below the
listed price and Dunlop sued them for the liquidated damages. The
Court held that Dunlop could not succeed because it was not a party
to contract between Dew & Co. v Selfridge even though the contract
was made for Dunlop’s benefit.
According to Umenweke17 the doctrine of privity means that
a non party to a contract cannot bring an action on the contract as it
is only those who furnished consideration towards the making of the
contract that can bring an action on it. Hence, a contract cannot be
enforced against a stranger to it even if the contract is under seal. In
Incar (Nig) Ltd and Great Nigeria Insurance Co. Ltd v. Chief J.A.O.
Ojomo18 where the respondent was appointed by the first appellant as
a pensions consultant in 1970, his main duty was to advise the first
appellant on personal matters affecting the first appellant’s staff and

13
Adler v Dickson (1955)1 QB 158, Chuba Ikpeazu v. ACB Ltd (1965) NMLR 374.
14
EO Akanki (n, 11) p. 199
15
Price v Easton (1933)4 B & D 433
16
(1915)AC 847 at p. 853
17
Meshach Nnama Umenweke, Jude Uche Okoye, Elizabeth Ama Oji, Commercial
Law and Practices in Nigeria. (NOLIX Educational Publications (Nig.) 2009) p.29
18
(1988)7 NWLR (Part 307) 534
136 | Critique of the Doctrine of undisclosed Principal as an exception …

liaise with the insurance company (the second appellant). The first
appellant terminated the appointment of the respondent and the
respondent sued both first and second appellants. The Court of
Appeal held that the second appellant which is the Insurance
Company cannot be liable in a contract between the respondent and
the first appellant since the insurance company was not a party to the
contract between them.
In the case of Rebold Industries Limited v. Mrs. Olubukola
Magreola and Ors19 the services of the respondent, a firm of
solicitors were retained by Mandela’s Group Ltd for preparation and
engrossment of a deed of sublease between Mandela’s Group Ltd
and the appellant. The sublease was in respect of property situate at
Creek Lane Lagos. It was a term of a sale agreement between
Mandela’s Group Ltd and the appellant that the appellant would be
responsible for the fees legally incurred in preparing the deed of the
sublease. The appellant failed to make good the terms of the
agreement and the respondent took out the writ of summons against
the appellant for the preparation and engrossment of the deed. The
appellant having failed to respond to the summons of the
respondents, a default judgment was entered for the respondent.
After the judgment was delivered, the appellant filed a
motion on notice before the Lagos State High Court challenging the
jurisdiction of the Court on the ground that the respondent lacked the
locus standi. The High Court dismissed the motion on notice.
Aggrieved by the said ruling, the appellant appealed to the Court of
Appeal. The Court of Appeal dismissed the Appeal on the ground
that though the respondent was not party to the deed of sublease, he
has locus standi to sue on a representation made by the appellant on
the deed to pay the respondents’ fees. Dissatisfied, the appellant
appealed to the Supreme Court of Nigeria, which allowed the appeal
and held that there was no privity of contract between the appellant
and the respondent and as such, the respondents lacked the locus
standi to institute the action. This decision is in line with the
principle of privity of contract.

19
(2015)8 NWLR (part 1461) 210.
 Benue State University Law Journal. 2019/2020 | 137

Undisclosed Principal and Privity of Contract

The principle of privity of contract states that only a party to
a contract can benefit and share in the liability under the contract.
There are however instances where the principle of privity of
contract can be evaded to avoid hardship being caused by its strict
application. One of such instances is agency relationships. Under
agency, a person who is an agent can enter into contract with another
person for the benefit of yet another person which is referred to as
the principal.20 So the contract becomes that of the principal and only
him can sue and be sued under the contract. This means that under
Agency, a person who is not a party to a contract acquires rights and
liabilities under it. Therefore once it is certain or undisclosed that the
agent is acting on behalf of another (principal), the principal
becomes liable for the contract. This is an aberration from the spirit
behind privity of contract.
One of the foundational principles of contract law is that
each party must objectively manifest an intention to enter into
contractual relations with the other. Such a meeting of minds can
exist only between the third party and the agent, and still only
objectively, for the agent must at all times intend to act on behalf of
the principal. The agent who fails to disclose his true position should
be personally liable as a party under the contract is consistent with
privity of contract. Only a party to contract can sue or be sued under
this doctrine.21 The value of the privity of contract doctrine has
weakened due to the development of exceptions to the rule.
According to Akanki:
From the view point of commercial men, the
doctrine of privity of contract is quite an
inconvenient one. In modern commercial
transactions, there are many occasions in which a
contract is made for the benefit of a third party
with the exception that the beneficiary should have
full rights to enforce the contract. In most cases

20
Meshach Nnama Umenweke (n 20) p. 66, Ironbar v Cross River Basin and Rural
Development Authority (2003) FWLR (165)375 and First Bank of Nigeria Plc v
Excel Plastic Industry Ltd (2003) FWLR (Pt 160) 1624.
21
Stephen Todd. ‘Privity of Contract’ in John Burrows and Jeremy Finn and Stephen
Todd (eds) Law of Contract in New Zealand (4th ed, Lexis Nexis, 2012) 562.
138 | Critique of the Doctrine of undisclosed Principal as an exception …

the doctrine complicates judicial process by

necessitating double litigation. As a result many
exceptions have evolved.22

A controversial exception to the rule is undisclosed agency.

Unlike disclosed agency, the third party contracts with the agent and
not the undisclosed principal because the third party is unaware of
the undisclosed principal’s existence.23
The general idea of undisclosed agency corrodes the notion
of privity of contract. However, the circumstances placed on the
undisclosed principal’s ability to intervene reflect cohesion to privity
of contract where it may be arbitrary to the third party to have him
barge in or intervene in that contract. Mechem24 states that the
principle of undisclosed agency doubles an anomaly, but even so…as
well settled as any other rule in the law of agency. It is evident that
the law on undisclosed agency does undermine the notion of privity
of contract as the undisclosed principal can in certain circumstances,
intervene in a contract between the agent and the third party.
However, the courts will only undermine the rule and allow
intervention upon terms which exclude injustice,25 this includes
where the contract terms suggest there is no undisclosed principal or
where the personal nature of the agreement means that the privity
between the agent and the third party becomes fundamental to the
contract itself.
According to Krebs:26
Although the rule is anomalous within the
constraints set by the privity of contract doctrine,
it is an exception that will continue to have great
importance within commercial transactions. The
acknowledgment of third party intervention via an

22
EO Akanki (n 14) 200
23
Critically Analyze the Extent to which the Principles of Undisclosed Agency
Undermine the Notion of Privity of Contract.
[Link] Accessed 28th March, 2020.
24
Floyd R. Mechem, ‘The Liability of the Undisclosed Principal’ (2010) (23) (7)
Harvard Law Review. p.515.
25
Keighley Maxsted and Co v Duranct (1901) AC 240 page 262.
26
Thomas Krebs, English and European Perspectives on Contract Commercial Law
(1st edn, Hart Publishing, 2017) 181.
 Benue State University Law Journal. 2019/2020 | 139

undisclosed principal will be bemoaned by

doctrinal purists, but will generally be welcomed
by commercial pragmatists.

The doctrine of undisclosed principal has been disparaged as

being unjust to the third party or clashing with the principle of law of
contract as a person who apparently is not a party to a transaction
may acquire rights and shares in the liabilities contrary to the
doctrine of privity of contract. However, it is justified on grounds of
business efficacy and convenience. This is more so that an
undisclosed principal through his agent acquires the benefit of the
contract.
According to Imhanze,27 growing consumer rights questions
constituted immensely to the shift from the general rule of privity of
contract. There is, therefore, an urgent need for an avenue for redress
to genuinely affected persons who the strict common law
interpretation of privity might have deprived of such. The courts in
Nigeria have also started to recognize this important aspect of
business. Due to current relaxed requirements of modern contract
law in relation to privity of contracts and with the increasingly
complex world of commerce there must be some changes to
accommodate certain exceptions to the general rule and guarantee
restitution to the aggrieved.28 This will no doubt strengthen the world
of commerce. In Alphonsus A. Udo v Government of Akwa Ibom
State & Ors, per Tur, JCA,29 it was held that;
while privity of contract is still good law, the
banking law and transactions are so vital to
international maritime and commercial business
that to apply principles of privity of contract
would destroy initiative and sometimes make
transactions impossible. The principle of privity of
contract has been so watered down over the years

27
Ihuah Imhanze, Only parties to a contract can enforce it; A Review of the
Supreme Court’s Judgment in Rebold Industries Limited v. Mrs. Olubukola
Magrela & Ors (2015)8 NWLR (Part 1461) 210. March (2016) (2) (1) Journal of
Commercial Law. p. 107 - 308
28
Jain S. “Rule of Privity of Contract: Study in English and Indian Context” (July 2,
2014) SSRN: [Link] Accessed 29th March, 2020.
29
(2012) LPELR 197 27 pp 21 - 22
140 | Critique of the Doctrine of undisclosed Principal as an exception …

by remoteness principle and practice of banking

and international commerce that our court must
hesitate before applying them.

Therefore, to evade any injustice that may raise its ugly head
from the sudden appearance or discovery of the principal, certain
circumstances exist under which the third party cannot sue or be sued
by the undisclosed principal.30 First is where the contract entered into
by the agent is personal in nature. Therefore, where there is a
personal element in the contract and the identity of the undisclosed
principal would have made a material difference in the decision of
the third party to enter into the contract, for example, in a contract of
service, principal cannot benefit or be liable as was held in West
Africa Shipping Agency & Anor v Alhaji Kalla31 and Said v Butt32
where someone bought in his name for another person a ticket to
enter theatre to watch a play but the person was not allowed to enter.
It was held that the person could not sue because the personal
identity of the ticket holder was important to the third party who
would have not dealt with the principal.
Secondly, where the terms of the contract or the conduct of
the agent are or is inconsistent with the agency relationship. For
example, where an agent in a contract describes himself as the owner
of the subject matter of the agency. In Humble v. Hunter33 someone
engaged another person to effect a charter party in respect of his
ship. The person without disclosing his agency described himself as
owner of the ship. It was held that the principal could not be sued.
Thirdly, where the contract expressly provides that the agent
is solely bound. That is where the agent expressly states in the
contract that he is the principal and is to be bound by the contract as
in Pabod Suppliers Ltd v. Beredugu,34 the principal will not be sued.

30
EO Akanki, Commercial Law in Nigeria. (University of Lagos Press 2005) p. 259
31
(1978)3 Sc 21 at 28
32
(1920)3 K.B 497
33
(1848)2 Q13. 310
34
(1996)5 NCWR (Pt 448) 307
 Benue State University Law Journal. 2019/2020 | 141

Personal Liability of the Agent

There are instances where though the agent has contracted
on behalf of the principal, he will still be personally liable on the
contract. These include;
a. Where the agent contracted personally. That is, when he
contracted in his own name with or without disclosing the fact of
the agency or identity of the principal. Here, the third party has
the right to sue whether the principal or the agent. In Abdulkarim
Basma v. Gladys Muriel Weeks & Ors35 a solicitor purchased
some real properties in his name for his client. The defendants
who were vendors knew he was an agent but the contract
contained no reference to the principal. It was held that the agent
was bound. Similarly in West African Shipping Agency & Anor
v. Alhaji Kalla36 it was held that if a person contracts in his name
without disclosing the existence of principal he is liable to the
third party even when he is acting for his principal. It was also
held that he will still be liable even after the discovery of the
agency by a contracting party. It is submitted that though the
agent is not disclosed, where it is finally discovered that a
principal exists, the principal should be personally liable unless it
is clear that the agent benefitted personally in the contract.
b. Where the agent acts for a foreign principal. Here, the agent is
personally liable because national laws bind citizens of Nigeria
and foreigners within the country but not those of other countries
as was held In Asafa Foods Factory Ltd v Alraine Nig. Ltd,37
however, this again depends on if the intention is that the
principal be bound, then, the agent will not be liable as was held
in West African Umbrella Limited v Royal Interocean Lines.38
c. Where the principal is fictitious and nonexistent as in Kelner v.
Baxter39 where a person purported to enter into a written contract
on behalf of a company not yet incorporated. The agent was
personally held liable even though he expressed himself as

35
(1947)12 WACA 35
36
(1978)13 Sc 21
37
(2002) FWLR (Pt 125) 756
38
CCHCJ/4/74 p.391
39
(1866) L.R 2C. p174
142 | Critique of the Doctrine of undisclosed Principal as an exception …

contracting for a company. However in Emmanuel Urhobo v

Chief JS Tark40 it was held that if a pre-incorporation contract
was purported to have been made by a company which did not
exist, the contract was a nullity and neither the company when
formed nor the promoter whose signature was added could sue or
be sued in the contract.
d. Where a person purports to contract as an agent but it turns out in
reality that he is the principal himself. In Harper & Co. v. Viger
Bros41 a ship broker entered into a contract with the defendant as
charterers for the supply of a ship but it turned out that the ship
broker was only speculating on freight as agent of the ship
owners were not named and he was in fact the principal.
e. Where the contract is in writing and the agent signs his name
absolutely without qualification. In Gadd v. Houghton,42 it was
held that an agent who signed a contract in writing in his name
without qualification to show that he was acting as agent would
be personally liable. This means that when an agent signs in his
name but for the principal, the agent will not be liable. This
means that where an agent signs his name even though he is
acting for someone, he will be liable. It is again submitted here
that, once it is discovered that the agent is acting for someone,
even if he signs in his name, the principal should be liable unless
where it is established that the agent benefitted personally.
f. Where the contract is by deed and the agent executes the deed in
his own name. In Schalk v. Anthony,43 it was held that the
principal may not sue or be sued on any deed inter-partes, even if
it is expressed to be executed on his behalf, unless he is
described as a party to it and it is executed in his name. The rule
here is rather strict so much so that even if the agent is describe
in the document as agent acting for and on behalf of a named
principal, the agent will still be personally liable. It is submitted
that, this is too strict because if the agent does not personally

40
(1976)11 CCHCJ 2629, 34, 39, 63, 66, 137
41
(1909) 2KB 549
42
(1876)1 Exch. D 357
43
(1818)1 M & S 573
 Benue State University Law Journal. 2019/2020 | 143

benefit, he should not be liable otherwise it will amount to

injustice to him.
g. Where the contract is a negotiable instrument e.g. a bill of
exchange, cheque or promissory note and the agent signs his
signature or endorses or accepts it, he is personally liable
thereon. However, when he signs as a drawer, endorser or
acceptor, adding to the signature words indicating that he signs
not only as agent for the principal but also as agent for a specific
principal, he incurs no liability. It is, therefore, submitted that the
principal must be disclosed under the document for the agent to
escape liability. This also means that, if he signs outside his
limited authority, he will be personally liable.
h. Where the agent purports to act on behalf of a principal who
lacks capacity to execute such a transaction, the agent is liable
personally. It is submitted that this is justified because a person
who lacks capacity to contract also lacks the capacity to appoint
an agent to act for him and therefore he cannot give what he does
not have.
i. Where it is customary for the agent to be liable on the transaction
e.g. liability of an agent in contract of carriage of goods by sea.
In MV “Caroline Maersk” v Nokoy Investment Ltd,44 it was that,
normally an agent is not vicariously liable for the default of his
principal, however, section 16(3) of the Admiralty Jurisdiction
Act creates special liability of the agent in the following terms; a
person who acts as an agent of the owner, charterer, manager or
operator of a ship may be personally liable irrespective of the
liability of his principal for the act, default, omission or
commission of the ship in respect of anything done in Nigeria.
j. Where there is an implied warranty of authority i.e, where the
agent purports to be acting on behalf of the principal but it turns
out that he was acting without authority, he will be personally
liable to the third party for breach of implied warranty of
authority.45

44
(2002) FWLR (pt 113)213
45
Collen v Wright (1857)8 E & B 647
144 | Critique of the Doctrine of undisclosed Principal as an exception …

In Scrimshire v Alderton46 it was found against an

undisclosed principal who had asked a third party to account to him
directly and subsequently pursued the third party for the contract
price after the third party had nevertheless accounted to the agent.
There is no ambiguity however, that the ability to sue on the
contract is commercially acceptable and tuned to the actuality of
modern trade. According to Lang47 the most significant consequence
of the undisclosed principal doctrine is that the agent acquires
personal rights and liabilities and the third party may elect to hold
either the agent or the principal liable on the contract. Similarly,
subject to any adverse consequences for the third party, either the
agent or the principal may enforce the contract against the third party
under undisclosed principal.48 The distinguishing feature of
undisclosed agency is that third party does not know of the
principal’s existence.49 The third party must believe that the agent is
dealing with him or her on the agent’s own behalf. A blunt
significance here is that the agent’s authority must always be actual
(express or implied) and cannot be delusive. It cannot come from a
representation made by the principal to the third party as to the
agent’s power to affect the principal’s legal relations. Clearly, the
third party cannot pretent or proclaim to rely on representations made
by a person of whom he is ignorant. Understanding agency
arrangements require that the agent has the authority to create privity
of contract as between the principal and third party without
disclosing to third parties that he is doing so.50 The undisclosed
principal doctrine does not answer the question of whether privity
immediately exists between the principal and third party because
rights and liabilities between them will arise by operation of law,
without, and sometime against, either’s intentions.51

46
(1743)2 St. 118 93 Er 111
47
Ania Lang, ‘Unexpected Contracts versus Unexpected Remedies: The Conceptual
Basis of the Undisclosed Principal Doctrine’ (2010) (18). Auckland University Law
Review. [Link]>8pdf Accessed: 22nd March, 2020.
48
Siu Yin Kwan v Eastern Insurance Co. Ltd. (1994)2 AC 199 (PC) at 207
49
Ania Lang (n 47)
50
Peter Watts and FMB Reynolds Boustead Leynolds on Agency (19th ed, Sweet
and Maxwell 2010)) 8
51
Martin Schiff ‘The Undisclosed Principal: An Anomaly in the Laws of Agency and
Contract’ (1983) 88 Com LJ 229.
 Benue State University Law Journal. 2019/2020 | 145

The question is on what basis does an undisclosed principal

exercise rights against third parties in the first place? Does the
undisclosed principal intervene on and enforce a contract of the agent
against the third party or is the principal liable and entitled on an
implied contract arising directly between him and the third party?
Lang’s article52 takes the position of an intervention
approach, which posits the contract as being that of the agents and
best neglects the approach of case law and affords the most
appropriate practical consequences. He, however, concludes that
while this has been accepted as better view by the leading
commonwealth agency law texts it has rarely received judicial
recognitions.
It is submitted that the idea of an undisclosed principal,
partaking in the contract that he was not a party to sterms from the
fact that the third party should not suffer injustice even though it is
against the notion of privity of contract. This gives protection to third
party who never knew that the principal exists when he entered into a
contract with agent and therefore if he gets to know that there is a
person behind the transaction (principal), such person should be held
responsible if the third party elects to sue the principal. This supports
the notion ‘Respondent superior’ which means let the superior, in
this case the ‘principal’, answer. It also protects the interest of the
third party against the principal wanting to jump into the contract
from nowhere to benefit. Here too, the third party may elect or
decide to proceed against the agent. It, therefore, means that the
protection given to the third party under the doctrine of undisclosed
principal is in two ways; one where the intervention of the
undisclosed principal will create hardship for the third party, he will
proceed against the agent and secondly, where proceeding against the
agent will also cause hardship to the third party he will proceed
against the principal. It should be pointed out that this choice works
in alternative, not concurrently. Therefore a third party who fails to
recover from the agent cannot turn around and sue the principal and
vice versa.

52
Ania Lang (n, 49)
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Furthermore, the undisclosed principal liability also gives an

advantage to a person who is not a party to a contract as it ascribes
rights to the principal to benefit even when the third party did not
have any knowledge of his existence while contracting. This is
contrary to privity of contract but is accepted for business
conveniences.
It is also not favourable to the agent, especially where the
third party elects not to proceed against the principal but the agent. In
this case the agent will be liable to pay for what he has not benefitted
from while the principal who actually benefits from the contract will
go free. The doctrine in this sense does not protect the agent, but
amounts to an injustice to him. The question here is, where the third
party elects to sue the agent, can the agent thereafter claim against
the principal? In the circumstances, it does appear that the agent may
proceed against the principal by way of evoking a third party
proceeding under relevant rules of court. Therefore, due to the fact
that the principal, though undisclosed, is the beneficiary of the
contract entered into by the agent, if third party elects to sue the
agent and not the principal, when discovered the law should permit
the agent to recover whatever he has paid to the third party from the
principal. This should come under the principal’s duty of indemnity
and reimbursement of the agent for liability and expenses incurred in
the execution of the agency and the only way to do this is by way of
third party proceedings. In this situation the agent will not allow the
case to be determined before claiming reimbursement from the
principal because that will amount to multiplicity of suits which is
not allowed in law. In Alhaji Batule Gafai v United African Company
Ltd,53 the plaintiff agreed to buy a lorry from the defendant and paid
the purchase price. On failure of the defendant to deliver the lorry, he
successfully brought an action against him in a District Court for a
particular sum as consideration. He subsequently brought an action
to the High Court claiming general damages. The defendant pleaded
the District Court’s action. It was contented that the plaintiff had two
actions one for the consideration of the contract which wholly failed
and the other for damages. It was held that if plaintiff is entitled to

53
(1961) All NLR P. 184
 Benue State University Law Journal. 2019/2020 | 147

two separate sources of relief under one action and he proceeds to

enforce one source of relief, he cannot subsequently proceed on the
second source of relief. Where the course of action in the second
action is the same as that for which the plaintiff had obtained
judgment in the first although the relief sought for differs, the second
action is not maintainable. In Serrao v Noel,54 Bowen LJ stated that
“the principle is that, where there is one course of action damages
must be accessed once and for all”.

Recommendations
a. 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.
b. It is also suggested that where the third party eventually finds out
that there is someone behind a transaction other than the agent,
there should be no need for the third party to elect between the
agent and the undisclosed principal. The third party should
proceed straight against the principal alone and not either of
them. This will remove the huddles in electing who should be
sued or should sue and make businessmen transact freely and
without suspicions.
c. Alternatively, the law of privity of contract gives exception by
way of agency and as such even an undisclosed principal who is
not directly involved in a contract benefits and also shares in the
liability of the contract. It is, therefore, submitted that the court
should always insist on compulsory disclosure by the agent to
the third party the fact of contract of agency. Where an agent
does not disclose, he should be personally held liable. This will
prevent injustice being meted on an agent who has not benefitted
from a contract but only makes a representation. It will also
prevent gambling by way of electing who should be sued
between the agent and the principal by third party under the
doctrine of undisclosed principal.

54
(1885)15 QB D 549 at 559
148 | Critique of the Doctrine of undisclosed Principal as an exception …

Conclusion
The right of a principal to sue under the principle of
undisclosed principal depends on whether the third party knows that
the agent dealing with him is doing so on behalf of another person
who is the principal. If the agency is not disclosed, the principal may
sue the third party under the contract even though the third party is
ignorant of his existence. The third party also has the right to elect as
between the agent and the principal who to sue.
This arrangement even though is contrary to the principle of
privity of contract, is considered to be useful for commercial
convenience and to avoid injustice in commercial transactions.
However, the principle of undisclosed principal is more of the third
party protection and an agent may suffer loss in a contract which he
did not benefit from if the third party elects to sue the agent for the
contract.