Briefly explain an undisclosed agency. What are the liabilities involved in such an agency?

What will be an ideal response?

An undisclosed agency occurs when a third party is unaware of the existence of an agency. The principal is called an undisclosed principal. Undisclosed agencies are lawful. They are often used when the principal feels that the terms of the contract would be changed if his or her identity were known. For example, a wealthy party may use an undisclosed agency to purchase property if she thinks that the seller would raise the price of the property if her identity were revealed. In an undisclosed agency, both the principal and the agent are liable on the contract with the third party. This is because the agent, by not divulging that he or she is acting as an agent, becomes a principal to the contract. The third party relies on the reputation and credit of the agent in entering into the contract. If the principal fails to perform the contract, the third party can recover against the principal or the agent. If the agent is made to pay the contract, he or she can recover indemnification from the principal.