Legal Definitions - undisclosed agency

Undisclosed agency occurs when an individual or entity (the agent) enters into an agreement or transaction with another party (the third party) on behalf of someone else (the principal), but the third party is completely unaware that the agent is acting for anyone other than themselves. In such a situation, the identity of the principal is kept secret from the third party, who believes they are dealing directly and solely with the agent.

Here are a few examples to illustrate this concept:

• Imagine a well-known tech billionaire who wants to purchase a specific piece of land to build a private retreat without attracting media attention or causing the property price to skyrocket. The billionaire (the principal) hires a real estate attorney (the agent) to negotiate and purchase the land. The attorney approaches the landowner (the third party) and makes an offer, presenting themselves as the buyer or representing an anonymous investment group. The landowner, unaware that a famous billionaire is the true buyer, sells the property to the attorney. In this scenario, an undisclosed agency exists because the landowner did not know they were selling to the billionaire through the attorney.

• Consider a large corporation that wishes to acquire a smaller startup company known for its innovative technology. To avoid alerting competitors or inflating the startup's valuation, the large corporation (the principal) instructs a specialized mergers and acquisitions consultant (the agent) to initiate discussions and negotiate the purchase. The consultant contacts the startup's founders (the third party) and presents themselves as an independent investor or a representative of a private equity firm interested in the technology. The startup's founders proceed with negotiations, believing they are dealing with the consultant directly or a generic investment entity, not knowing the true identity of the acquiring corporation. This is an example of an undisclosed agency because the startup was unaware of the ultimate corporate buyer.

• Suppose a famous art collector (the principal) wants to acquire a rare painting being sold privately. To avoid driving up the price due to their reputation or to maintain anonymity, the collector asks their personal assistant (the agent) to contact the seller (the third party). The assistant negotiates the purchase of the painting, presenting themselves as a private individual interested in starting their own collection. The seller completes the transaction with the assistant, never realizing that the painting is actually being bought for a renowned collector. This situation demonstrates an undisclosed agency because the seller was unaware that the assistant was acting on behalf of a famous collector.