Agency and Partnership Bar Practice Exam

An undisclosed principal is characterized by the fact that the third parties involved in a transaction are unaware of the principal's existence. This means that when an agent is acting on behalf of the undisclosed principal, the third parties believe that the agent is acting solely on their own behalf, without knowledge of any underlying principal.

This concept is crucial because it influences the rights and liabilities of the parties involved in a transaction. The undisclosed principal can still be bound by the actions of the agent if those actions fall within the scope of the agent's authority, but the principal's rights may be limited until they are revealed. Thus, option B accurately captures the essence of what an undisclosed principal is and how they operate within the framework of agency law.

Other choices do not correctly define the nature of an undisclosed principal. Full transparency describes a different concept entirely, while revealing identity after a transaction pertains more to undisclosed principals in a different context, and knowing solely agents can involve different dynamics and does not encompass the fundamental definition of an undisclosed principal.