Disclosed, Unidentified (Partially Disclosed), and Undisclosed Principals

Agency is often tested along with Partnerships on the bar exam. On the UBE, a Partnerships essay is  likely to contain some issues involving agency since each partner is deemed an agent of the partnership for the purpose of carrying out the business. One distinction that comes up often on the exam is the distinction between disclosed principals, unidentified principals (formerly called partially disclosed principals) and undisclosed principals.

If a principal authorizes an agent to act for the principal, the principal will be liable to third parties who enter into a contract with the agent for which the agent was authorized. Things get a bit more complicated, though, when determining the agent's liability (as opposed to the principal's liability) on such contracts.

The agent's liability will depend on whether the principal was disclosed. A disclosed principal is one whose existence and identity is known to the third party contracting with the agent. If the principal is disclosed, then the principal is liable for contracts entered into by the agent, but the agent is generally not liable. Watch for exceptions, though. An agent will be liable even if the principal is disclosed if the parties to the contract intended the agent to be liable (for example, under a theory of implied warranty).

An unidentified (formerly called partially disclosed) principal is one whose existence is known but whose identity is not known. In contrast, an undisclosed principal is one whose identity and existence are both unknown. In either case, there will be liability both for the principal and for the agent when an agent enters into a contract on the principal's behalf. Some courts will require that the third party elect prior to judgment which party (agent or principal) he wishes to hold liable.

Also important is determining whether the agent, the principal, or both, can sue the third party on contracts entered into by the agent on the principal's behalf. In a disclosed principal situation, only the principal may enforce the contract and hold the third party liable. If the principal is unidentified or undisclosed, either the principal or the agent may enforce the contract against the third party. 

If the agent enforces the contract, the principal is still entitled to all the rights and benefits under the contract. After all, the principal was the party to the contract; the agent was merely acting on behalf of the principal.