Agency is an area of commercial law dealing with a contractual or quasi-contractual tripartite 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 of Principal and Agent reflect commercial needs and legal realities. In any business of size, it is not possible for one person to travel everywhere to negotiate all the transactions necessary to maintain or grow the business. These problems are increased if the business is a corporation, because it is then a fictitious legal person and, as such, it can only act through human agents. Hence, independent people are contracted by businesses to buy and sell goods and services on behalf of those businesses. When agreements are made, the Principal is liable under the contract(s) made by the Agent. So long as the Agent has done what he or she was instructed to do, the result is the same as if the Principal had done it directly.

If the issue is considered from the view of innocent Third Parties, they are approached by a person who is clearly identified as acting for another. They deal with that person in good faith, relying on the representation of authority. Indeed, in a busy commercial world, it would not be cost-effective to check that everyone who is represented as having the authority to act for another actually has that authority. Deals are done at face value in the majority of routine situations. If it should later appear that the alleged agent was acting without the consent of the Principal, the Agent will usually be held liable. Any other decision would be unduly disruptive to the usual flow of trade. This commercial necessity has led to the creation of a body of law that applies in any situation, commercial or otherwise, where one person is seen to be acting for another.

Brief statement of legal principles

There are three broad classes of Agent: