INTRODUCTION

What is agency?

The idea that one person can transact on behalf of another is essential to modern business practice. The person on whose behalf an action is done is known as the principal, the person doing the act is known as the agent. In this chapter, for the sake of ease of expression, the principal will be referred to with the feminine pronoun, the agent with the masculine, and the third party with the neutral pronoun (‘it’). So, in the typical case, a male agent will be transacting on behalf of a female principal with a third party that is a juristic person.

The core idea is that the agent acts, but this act is attributed to the principal; the act is treated as if the principal had done it herself. If Peter is Alice's agent, and he makes an offer to buy some whisky from Teldi Ltd on Alice's behalf, then the contract which would result from Teldi's acceptance is one between Alice and Teldi. Peter made the offer but it is treated as if it was made by Alice.

Many of the materials which discuss agency do so in terms that suggest that all agents do is conclude contracts on behalf of their principals. However, it is clear that agents can also perform other juridical acts on their principals’ behalf: they can transfer property, appeal decisions of courts or tribunals, and make or accept payments.

Many European systems have a broader notion of agency. They recognise that agents may carry out acts in the principal's name which are attributed to the latter. They call this direct agency. However, they also recognise a second category: indirect agency. In indirect agency, the agent acts in his own name but does so for the principal's benefit. Crudely put, the result is that acts done are attributed to the agent but agency rules regulate the relationship between principal and agent.

This means that, as far as the rest of the world is concerned, the principal has no part in the transaction. However, the agent will have a duty to communicate the benefit of the transaction to the principal and the principal will have a duty to indemnify the agent for any expenses associated with it.