Agency may be defined as a relationship between the principal (P) and the agent (A) whereby A has the authority to create a legal relationship between P and the third party (T). The purpose of agency is that two people can enter a valid contract with one another without having to deal with each other personally. Instead, the contract or other transaction is brought about through A who when dealing with T acts or purports to act, on behalf of P. Authority
The concept of authority of A to act for P is central to the decision as to whether agency exists but authority does not mean that P must expressely consent to A acting on P’s behalf. The concept of authority also encompasses circustances where an agency relationship is created without the express consent of P. Scope of agency
Distinguishing agency from other relationships is important because the term ‘agent’ may be used in commerce to describe a party who is in fact not an agent at law. In International Harvester Company of Australia Pty Ltd v Carrigans Hazeldene Pastoral Company (1958) 100 CLR 644 the High Court held that to determine whether a legal agency exists it is necessary to look at the substance of the arrangement between P and A, not just the form of the relationship such as the use of the term agent. The following are some examples only of relationship that may create a legal agency: oEmployee
oPowers of attorneys
An entity that purchases stock for retail may be termed a retail agent but would not be an agent at law. The retail agent in this example if the principle in their own right, as they enter the contract with the wholesaler directly (not via an agent) and they also enter the retail sale directly. Independent contractors also are not normally agents in the first instance. For example, If you were to contract with a buildr as an independent contractor to construct a shed, then the builder is not your agent as they employ their own labourer and acquire matrials for the construction in their own name. They do not enter contracts on your behalf. However, it is important to note that a party may act as an agent in one capacity and not in another. In the previous example, the builders contract may not include landscaping to carry out the work that you have outlined. Giving the building contractor the authority to arrange the landscaping work on your behalf creates an agency agreement for this act with you as principal and the building contractor as your agent. Given that it is the substance rather than the form of the relationship which is critical to the establishment, or otherwise, of an agency relationship, agency must therefore be associated with a specific act that the agent has authority to carry out on behalf of the principal. The High Court in Peterson v Moloney (1951) 84 CLR 91 made it clear that to determine weather an agency existed it was necessary to identify the act which the agent was proported to have authority to perform. It is not a question as to weather the person is an agent, but whether that person was an agent with authority to enter that particular contract or perform that particular act on behalf of the principal. Agency not restricted to contracts
Sometimes it is suggested that an agency can only exists when A has the authority or the capacity to create a contractual relationship between P and T. However, whilst this is the most common form of agency (and is the one we will be concerned with) an agency relationship can exists even though A does not have this power. For example in CML Life Assurance Soc Ltd v P and C Cooperative Assurance Co of Australia Ltd (1931) 46 CLR 41 the High Court accepted that an agency existed between the appalent life insurance company and someone engaged to sillicit applications for life insurance of its behalf, even though that person could not conclude a contract of insurance bwtween the applicant and the company. Capacity of agent and...