Hidden Representation in Agency Law: Liability, Doctrine, and Doctrinal Limits

Introduction

In the law of agency, the presence or absence of disclosure plays a determinative role in allocating rights and liabilities between principals, agents, and third parties. Among the least understood yet most practically significant scenarios is that of the hidden or undisclosed principal—a situation in which an agent enters into a transaction without revealing that they act on behalf of another, or where the principal's identity remains unknown. This legal configuration, known as hidden representation, gives rise to a number of doctrinal tensions in agency and contract law, particularly regarding consent, authority, liability, and fairness in commercial dealings.

This article examines the legal foundations, consequences, and limits of hidden representation, situating the doctrine within both the common law tradition and modern statutory codifications such as the Restatement (Third) of Agency and the Uniform Commercial Code (UCC).

I. The Structure of Hidden Representation

Under the traditional agency framework, a principal is liable for the acts of an agent when those acts fall within the scope of actual or apparent authority. In cases of disclosed or partially disclosed principals, the third party is aware—at least to some degree—that the agent is acting on behalf of another. Hidden representation, however, is characterized by the agent’s failure to disclose both the fact and the identity of the principal.

The Restatement (Third) of Agency § 1.04(2)(c)–(d) distinguishes between disclosed, partially disclosed, and undisclosed principals. In the context of hidden representation, the principal is undisclosed, and the third party believes they are transacting directly with the agent as principal. Despite this, agency law allows an undisclosed principal to enforce the contract and, conversely, be held liable for it if the agent was acting with actual authority. The critical element is not disclosure, but the presence of authority—an approach that prioritizes the internal relationship between agent and principal over external notice to third parties.

II. Liability of the Hidden Principal

The modern rule, reflected in Restatement (Third) of Agency § 6.03, holds that an undisclosed principal is liable on a contract made by an agent acting within actual authority, even if the third party had no knowledge of the principal's existence. Courts have long justified this rule on grounds of commercial efficiency: it protects the principal’s ability to remain anonymous in sensitive transactions while ensuring that third parties are not deprived of contractual remedies merely because they were unaware of the principal's involvement.

In Atlantic Salmon A/S v. Curran, 829 N.E.2d 587 (Mass. App. Ct. 2005), the Massachusetts Appeals Court upheld the liability of an undisclosed principal whose agent entered into a commercial contract under his own name. Although the third party believed they were dealing solely with the agent, the principal was held liable once the agent’s authority was established.

However, the undisclosed principal's liability is not without limits. If the agent lacks actual authority, or if the agent acts fraudulently or outside the bounds of a legitimate agency relationship, courts will not bind the principal. Moreover, the principal is subject to any defenses the third party could have asserted against the agent, a rule codified in Restatement § 6.04.

III. Liability of the Agent

Perhaps the most controversial feature of hidden representation is that it renders the agent personally liable on the contract. This stands in sharp contrast to cases involving disclosed principals, where the agent is typically shielded from liability.

As explained in Restatement § 6.02, an agent who enters into a contract without disclosing the principal is presumed to be a party to the agreement. Courts have reasoned that because the third party relies solely on the agent’s credit and reputation, the agent cannot later deflect liability by revealing a previously unknown principal. Only when the principal's existence is revealed before performance, and the third party assents to dealing with the principal instead, can the agent be released from liability.

This dual liability regime allows the third party, upon discovering the principal, to choose whether to sue the agent or the principal—but not both. This election becomes binding once the third party obtains a judgment or accepts performance from one of the parties with knowledge of the other's involvement.

IV. Apparent Authority and Its Inapplicability

In contrast to disclosed agency relationships, hidden representation precludes the application of apparent authority. As the Restatement makes clear in § 2.03 cmt. e, apparent authority arises from manifestations by the principal to the third party. If the third party is unaware of the principal’s existence, no such manifestation can occur. Accordingly, courts require that liability in hidden agency cases be grounded strictly in actual authority—either express or implied—not on outward signs or representations.

This doctrinal limit reflects a broader tension within agency law: the desire to protect third-party expectations versus the need to maintain coherent rules about consent and authority. Hidden representation strains this balance by limiting the third party’s awareness while still enforcing contracts against them.

V. Practical Consequences and Strategic Use

Hidden representation is frequently employed in commercial transactions where anonymity is essential—for instance, when corporations or high-profile individuals seek to purchase property or make investments without public scrutiny. In such contexts, the use of agents shields principals from market distortions and premature disclosures.

Yet this strategic anonymity comes at a legal cost. Because the third party may assert any defense available against the agent, including fraud, misrepresentation, or breach of warranty, the undisclosed principal inherits the risk of the agent's conduct. In some jurisdictions, courts may even refuse to enforce the contract on public policy grounds if the concealment of the principal served a fraudulent or deceptive purpose.

VI. Doctrinal and Normative Concerns

The doctrine of hidden representation raises unresolved questions about fairness, transparency, and contractual intent. If consent is a cornerstone of contract law, does it not matter that the third party consented to transact with the agent, not the principal? Similarly, should a principal be able to benefit from a contract negotiated in secret, without assuming full responsibility for its execution?

These tensions suggest the need for doctrinal refinement. Some scholars have argued that undisclosed principals should not be allowed to enforce contracts unless the third party expressly consents upon learning the principal’s identity. Others advocate for stricter liability regimes for agents, to discourage strategic concealment.

Conclusion

Hidden representation in agency law reflects a deep interplay between authority, consent, and commercial pragmatism. While the law has developed robust rules to manage the liabilities of agents and principals in such cases, the doctrine continues to pose difficult normative questions. Courts must carefully weigh the benefits of transactional efficiency and strategic anonymity against the demands of fairness, disclosure, and mutual assent. In doing so, they shape the contours of modern agency law and its ongoing evolution in an increasingly complex commercial world.