Also known as: disclosed principals · identified principal
Written by attorneys — see sources below.
A principal in an agency relationship for whom an agent acts when the third party has notice both of the agency and of the principal's identity at the time of the transaction. The principal becomes a party to the authorized contract made by the agent.
Destiny Davis, a freelance engineer, met with a sales manager at Titan Hardware to order servers. She stated during negotiations that she was placing the order for her client QuantumRetail Inc. Titan accepted the order after hearing the name. QuantumRetail Inc. qualifies as a disclosed principal and faces direct liability on the contract.
Farmers sold grain to Warren, an elevator operator. Cargill had financed Warren and directed its grain purchases. The court found that Cargill was the disclosed principal of Warren because the farmers knew Warren acted for Cargill. Cargill therefore shared liability with Warren on the farmers' contracts.
In 1964 Lloyd Hill, who operated Warren Grain & Seed Co. in Warren, Minnesota, with his son Gary Hill, applied for financing from Cargill, Inc. Cargill officials from the Moorhead regional office investigated Warren's operations and recommended financing. Warren and Cargill then entered a security agreement providing open-account financing up to an initial limit of $175,000 that was later raised to $300,000 in 1967, $750,000 in 1972, and $1,250,000 in 1976. The agreements gave Cargill a right of first refusal to purchase market grain, required Warren to furnish annual financial statements, granted Cargill access to Warren's books, and required Cargill's consent before Warren could make capital improvements or repairs exceeding $5,000, become a guarantor on another's debt, encumber assets, declare dividends, or sell and purchase stock. Cargill officials visited Warren shortly after the agreement, examined financial records, and periodically reminded Warren to implement recommended improvements. A 1970 memo to the Cargill official in charge of the Warren account stated that the organization needed very strong paternal guidance. In 1970 and 1971 Warren acted as Cargill's agent in contracts for Bounty 208 wheat seed and sunflower seed, with Cargill named as the contracting party and paying farmers directly. Warren shipped 90 percent of its cash grain to Cargill. As Warren's indebtedness exceeded its credit line, Cargill contacted Warren daily, maintained a daily debit position, and in 1976 opened a bank account in Warren's name funded by drafts drawn on Cargill. In early 1977 an audit revealed Warren was $4 million in debt with deliberately falsified financial statements. Cargill refused further financing and sent an official to supervise the elevator, including disbursement of funds. Warren ceased operations owing Cargill $3.6 million and owing the 86 plaintiff farmers approximately $2 million. The farmers sued Cargill and Warren in Marshall County District Court in 1977. The case was bifurcated, with damages determined by the court in the first phase and liability tried to a jury in the second phase. The jury found that Cargill's conduct from 1973 to 1977 had made it Warren's principal with respect to the purchase and sale of grain and seed grain and the storage of grain. The court ruled that Cargill was a disclosed principal and entered judgment for the plaintiffs. Cargill appealed.
View caseA principal is disclosed when the third party receives notice at the time of the transaction both that the agent acts for a principal and of that principal's specific identity. Notice of the principal's existence alone produces only partial disclosure.
No. The classification turns on what the third party is told at the time of contracting, not on the agent's later choice of email or signature. Explicit statements identifying the principal control.
A disclosed principal is a party to the contract and is subject to liability on it when the agent acts within authority. The agent ordinarily drops out of the transaction.
Prior oral statements that identify the principal satisfy the notice requirement even if later drafts name only the agent or leave the buyer line blank. The earlier actual notice remains effective at the time of the transaction.