Agency is an area of commercial law dealing with a contractual or quasi-contractual tripartite, or non-contractual set of relationships when an agent is authorized to act on behalf of another (called the Principal) to create a legal relationship with a Third Party. Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

• Agents and Principals;
• Agents and the Third Parties with whom they deal on their Principals' behalf; and
• Principals and the Third Parties when the Agents purport to deal on their behalf.

The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in Criminal law or Tort for the acts or omissions of another.

The concepts

The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.

Brief statement of legal principles

There are three broad classes of agent:

1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client.
2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and
3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.

Authority

For these purposes, the principal , or be deemed to give, the agent authority to act.

• Actual authority:

arises where the principal's words or conduct reasonably cause the agent to believe that he or she has been authorized to act. This may be express in the form of a contract or implied because what is said or done make it reasonably necessary for the person to assume the powers of an agent. If it is clear that the principal gave actual authority to agent, all the agent's actions falling within the scope of the authority given will bind the principal. This will be the result even if, having actual authority; the agent in fact acts fraudulently for his own benefit unless the Third Party was aware of the agent's personal agenda. If there is no contract but the principal's words or conduct reasonably led the Third Party to believe that the agent was authorized to act, or if what the agent proposes to do is incidental and reasonably necessary to accomplish an actually authorized transaction or a transaction that usually accompanies it, then the principal will be bound.