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What are the types of principal?
Principals are categorized based upon whether their identity is disclosed to third parties with whom the agent interacts on their behalf.
- Disclosed Principal – A disclosed principal’s identity is known to third parties dealing with the agent.
- Partially-disclosed Principal – A partially-disclosed principal is known by third-parties to exist, but her exact identity is unknown. This type of relationship exists when there is some benefit to the principal to remain anonymous to third parties interacting with the agent.
- Undisclosed Principal – The existence of an undisclosed principal is unknown to a third party. The third party believes that she is interacting only with the agent.
These categorizations of principal are important in determining the rights and duties of the principal, agent, and third party.
Discussion: How do you feel about the ability of an agent to act on behalf of a undisclosed and partially-disclosed principal? Is this fair to a third party? Why or why not?
Practice Question: Winston is a special agent of ABC Corp hired to negotiate the purchase of intellectual property. He seeks to purchase a premium domain name from Alice. Alice is unaware that Winston wants to buy the domain name for some third party, but does not know that he works for ABC. What type of agent is Winston? How would it affect Winston’s status if Alice found out that he works for ABC? What if she did not know he was buying the domain name for a principal?
- Winston’s relationship with Alice is that of a partially-disclosed agent. As such, he has the authority to bind the principal – ABC. If Alice were aware of Winston’s status as agent of ABC, he would be a disclosed agent. If Alice thought Winston was buying the domain for himself, he would be an undisclosed agent.