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What is agency?

An agent is a person who has the power to alter the legal position of another person, known

as the principal. Generally, an agent has the power to make contracts on the principal’s

behalf. Once the contract has been made, it is the principal and not the agent who will be

bound by it.

Example

The owner of a painting (the principal) asks an auctioneer (an agent) to sell it at auction.

A third party buys the painting for £500. The contract of sale takes effect between the prin-

cipal and the third party. (The painting which belonged to the principal has been sold to the

third party.) But the contract of sale was actually negotiated and concluded by the agent,

the auctioneer.

Agency is essential to the business world. If every person making a contract had to do so

personally, then the business world would come to a standstill. Without agency, companies

and partnerships could not exist. Agency is also far more common that most people think.

Shop assistants, for example, are agents. The goods which they sell belong not to themselves

but to the owners of the shops in which they work.

As well as having the power to make contracts, agents often also have the power to

receive payment on behalf of their principals. For example, shop assistants have the power

to receive payment for goods sold on their principal’s behalf. If a dishonest shop assistant

Chapter 6

Agency

Figure 6.1 Agency