Disclosed Principal: Everything You Need to Know
A disclosed principal is when a party receives notice that there is an agent acting for the principal and has been given notice of the principal's identity.3 min read
A disclosed principal is when a party receives notice that there is an agent who is acting for the principal and has been given notice of the principal's identity.
Overview of a Disclosed Principal
The principal's existence and identity are made known to the third party through words or performance of an authorized act.
In the event the principal's identity is unknown and the third party has gleaned enough information to infer their identity, then the principal is considered to be disclosed. In this situation, the principal is liable to the third party; the agent is not.
A contract or agreement between an agent and a third party is considered to be a contract between the principal and the third party.
Although the agent is not a party to the contract, in the event the contract is breached by the principal, the agent cannot be held personally liable for any damages resulting from the breach.
In a legal situation, the court focuses on protecting the third party's interests who are handling the assets of the principal.
Overview of an Undisclosed Principal
In the case of an undisclosed principal, their existence and identity have not been made known to the third party through words or the performance of an authorized act.
An undisclosed principal is a situation when the third party has no notice the agent is acting for the principal. The principal, in this case, authorizes the agent to act and is liable to the third party unless a side agreement is made between the third party and the agent.
Overview of a Partially Disclosed Principal
A partially disclosed principal occurs when the third party is notified that the agent is acting for the principal but does not know the identity. Partially disclosed agents differ from disclosed and undisclosed agents because, in this situation, the partially disclosed agent remains liable to the third party as long as the third party believes the agent is the actual party.
An agent can be either an employee or someone not involved in the company who is hired and placed in the role of carrying out tasks or acting on its behalf.
Having an agent promotes efficiency and the option to work with those who can share their expertise on behalf of a company.
The downside is, when working with agents, there is the possibility of liability. In some situations, the principal is in more of a position to be held liable. This depends on the type of principal in place; disclosed principal, partially disclosed principal, or undisclosed principal.
In an agency relationship, a principal assigns legal authority to an agent, who in turn works on behalf of the principal when dealing with a third party. The principal also obtains the consent of the agent that they agree to be subject to the control of the principal.
The role of the agent is to act in the best interests of the principal. Their acts and deeds bind the principal, making the principal liable for acts or consequences authorized by the agent.
Agent's Duties to the Principal
- Loyalty - An agent acts solely for the benefit of the principal, not in the interest of the third party or of the agent. An agent cannot profit monetarily as an individual without permission of the principal. All information or knowledge acquired in the course of the agent acting in their role is confidential.
- Obedience - Following all laws and instructions provided by the principal is a responsibility of the agent.
- Accounting - All property and money that is either paid or received on behalf of the principal must be accounted for by the agent. This includes any gifts received from third persons.
- Performance - Agents agree to use reasonable diligence and skill in performing any assigned task in its entirety.
- Notification - All matters pertaining to the agency/company that come to the attention of the agent must be related to the principal.
Principal's Duties to the Agent
- Compensation - Agent services requested by a principal must be compensated for in a timely manner.
- Reimbursement - Monies paid by the agent in the performance of their duties are reimbursed.
- Indemnification - The agent is compensated or indemnified for liabilities associated with authorized acts on behalf of the principal.
- Cooperation - A principal cooperates with and assists the agent.
- Safe working conditions - The principal provides safe working premises, conditions, and equipment.
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