Under agency law, undisclosed principals arise when a third party has no notice that the principal exists, but the undisclosed principal has authorized an agent to act on the principal’s behalf. The agent does not represent that they are forming the contract on a principal’s behalf to the third party.
According to Rest. (3d) of Agency § 2.06, the law will sometimes hold an undisclosed principal liable for certain unauthorized transactions when:
- A third party has made a “detrimental change in position”
- The principal had notice of the agent’s conduct
- The conduct might induce third parties to change their positions, and
- The principal did not take reasonable steps to notify third parties of the facts.
[Last updated in October of 2021 by the Wex Definitions Team]