If an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract;
but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been the principal.
If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil the contract, if he can show that, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract.
Legal Commentary & Landmark Judgments: Section 231
Section 231 regulates the doctrine of the undisclosed principal, allowing an undisclosed principal to intervene and enforce a contract entered into by his agent, while safeguarding the third party's rights of set-off and providing a right of rescission where personal identity was material.
When advising a third party confronted by a surprise undisclosed principal, immediately audit all mutual ledger accounts and unliquidated claims against the agent to plead an equitable set-off under Section 231. Alternatively, establish that personal confidence or counterparty reputation was a condition precedent to invalidate the contract.