Undisclosed principal: Difference between revisions

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-A legal conundrum most relevant in the context of agency orders for securities and derivatives placed with a [[broker-dealer]] by an asset manager in bulk on behalf of several clients. Typically the agent will place the order first, and advise the [[executing broker]] of the identity of the principals to whom the securities should be allocated later in the day.
+{{a|brokerage|}}{{Agencydisclosurescenarios}}
+An [[undisclosed principal]] is a {{tag|principal}} whose identity the {{tag|agent}} has not revealed. A [[principal]] you don’t know is a principal you can’t ''sue''.
-The question arises: who is liable for those executed transactions in the mean time? The [[broker]] doesn't know who the principal is, so can hardly take up matters with it directly. On the other hand, asset managers who act as agent will hotly deny any kind of liability, appealing to their regulatory status, meagre capitalisation, or sheer importance as a valued client in intimating that this ought to be the [[broker]]'s problem.  So much bunk - all of these reasons.
+It does not — or at any rate, ''ought'' not — apply where an [[agent]] has neglected to mention the agency relationship altogether. An [[agent]] who has failed to reveal he is an agent at all (regardless for whom) — call that fellow an “[[undisclosed agent]]” — is, in [[Amwell J|this commentator]]’s contrarian opinion, better known as a “[[principal]]”. Or a ''liar''. but the law takes a kinder view, about which you can read a lot more [[undisclosed agent|here]].
-An undisclosed principal is a {{tag|principal}} for whom an {{tag|agent}} acts where the agent does not reveal the {{tag|principal}}'s identity.  It is not - or ought not -  apply where an agent has neglected to mention the agency relationship altogether. An [[agent]] who has failed to reveal he is an agent at all (regardless for whom) - call that fellow an [[undisclosed agent]] — is in this commentator’s contrarian opinion better known as a [[principal]]. Or a liar.
+Back to a [[disclosed agency]] with an [[undisclosed principal]]. Where an [[agent]] strikes a bargain without revealing its [[principal]]’s identity, it puts its counterparty at a disadvantage, since the counterparty does not, and cannot, know against whom it should seek to enforce the bargain. Here the [[agent]] cannot escape responsibility if the [[principal]] fails.
-{{quote|
+The [[common law]]’s rather practical response is to make the [[agent]] ''de facto'' personally responsible for performance of the [[contract]] on behalf of its [[undisclosed principal]]. It is the agent’s problem to sort it out with its own client.
-''It is unquestionably the general rule of our law that an [[undisclosed principal]], when subsequently discovered, may, at the election of the other party, if exercised within a reasonable time, be held upon all simple [[non-negotiable]] contracts made in his behalf by his duly authorized {{tag|agent}}, although the contract was originally made with the {{tag|agent}} in entire ignorance of the {{tag|principal}}.''
-::Mechem on Agency, 2nd Ed., § 1731 }}
-Where an agent strikes a bargain without revealing its principal’s identity, it puts the counterparty at a disadvantage, since the counterparty does not, and cannot, know against whom it should seek to enforce the bargain.
+:''It is unquestionably the general rule of our law that an [[undisclosed principal]], when subsequently discovered, may, at the election of the other party, if exercised within a reasonable time, be held upon all simple [[non-negotiable]] contracts made in his behalf by his duly authorized {{tag|agent}}, although the contract was originally made with the {{tag|agent}} in entire ignorance of the {{tag|principal}}.''
+::Mechem on Agency, 2nd Ed., § 1731
-The common law’s rather practical response is to make the agent ''de facto'' personally responsible for performance of the contract on behalf of its undisclosed principal. This is correctly described  as still being an agency obligation, but un unconditional one: It must unconditionally obliged to perform the contract on behalf of its undisclosed principal and then make its own arrangements with the principal for reimbursement of moneys paid out (or received) on its behalf. The agent’s other remedy is to disclose the principal and invite the agent to take matters up with it directly.
+This is correctly described as still being an agency obligation, but an unconditional one: The [[agent]] must, unconditionally, perform the contract on behalf of its undisclosed principal and then make its own arrangements with the principal for reimbursement of moneys paid out (or received) on its behalf. The agent’s other remedy is to disclose the principal and invite the agent to take matters up with it directly — but even in this case the counterparty may elect to require the agent to perform the bargain.
-See also
+===Unallocated trades===
-*{{tag|agent}}
+{{unallocatedtrades}}
-*{{tag|principal}}
-*[[Undisclosed agent]]