An agency contract is mostly between two parties, the principal from one part and the agent from the other. Agents act on behalf of principals and are known to third parties.
However, principals may opt to be undisclosed for certain reasons.
In some instances the principal may prefer not to disclose his identity to third parties who deal with an agent.
Take as an example, if a large and known company wants to acquire a plot of land for new project.
In such instances, if it were known that (X company) is planning to buy such land, mostly the owners of the land would probably expect a higher price than if an ordinary person or small company was interested.
Company X would be even more likely to pay more than its normal value for such land, and the owners would think that X would be willing to pay a high price to complete the deal.
To avoid the extra cost, X company is likely to finish the deal through several or one agent each purporting to be buying personally for himself and not as an agent.
In such case, X company is an undisclosed principal.
When the principal is undisclosed, the third party who deals with the agent believes the agent is acting personally, and accordingly expects the agent to be a party to the contract.
Therefore, the agent is held liable on contracts entered into on behalf of an undisclosed principal.
The agent is also permitted to sue on such contract as a party to it.
Of course, whenever an agent is found liable on a debt that is rightly incurred on behalf of the undisclosed principal, the agent may in turn recover from the principal.
The right of indemnification protects the agent in all instances except when the principal is unable to reimburse the agent due to certain circumstances, as insolvency.
Legally speaking, since the agency contract was made for his behalf, an undisclosed principal can enforce such contract.
Moreover, if the third party becomes aware of the identity of the undisclosed principal, he/she may elect to sue the principal directly rather than the agent.
The third party can’t, of course, recover from both the principal and the agent. However, in case the third party elects to sue the agent, the principal is then required to indemnify the agent.
The author is a legal firstname.lastname@example.org