Agency Theory

AGENT: Person employed to act on behalf of another.
PRINCIPAL: Person employing agent on their behalf.
THIRD PARTY: The person with whom the agent brings the principal into legal relationship.
AGENCY defined by the High Court of Australia; “a word used to connote an authority or capacity in one person to create legal relations between a person occupying the position of the principal and third parties” (International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958)

Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to act.

There are situations in which a person acts through another but is deemed to have acted in person. This is possible through the operation of the relationship of principal and agent. Much activity of everyday life is taken through agents; houses are bought and sold through real estate agents, travel is arranged through travel agents ect.
The notion of the agent suggests one person acting on behalf of another but in legal terms it goes somewhat further. The principle can be deemed to act in person because the agent has the authority of the principal. Having said this, an agent is different to a representative in that, the agent is authorised to act on behalf of the principal and able to enter into a transaction which binds the principal.
The agent has a relationship with the principal but also a relationship with the third parties. It is the work of the agent that brings the principal into a legal relationship with the third parties Petersen v Moloney (1951) 84 CLR 91. This means while this is occurring there is no legal relationship between the agent and the third party. The agent is limited to the extent of the principal’s capacity.

The key issue in most cases is whether the principal is bound by the actions of the...