Understanding Agency Relationship in Business Law

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note
No. of Words

1BUSINESS LAW
Introduction
Agency is a region of the law of contract that involves a fiduciary relationship between the
agent and the principal. Agency represents the relationship that exists between the principal
and the agent where the agent is empowered to act on behalf of the principal. The relationship
of agency is formed between the principal and the agent authorising the agent to enter into
contractual relationship with a third party on the behalf of the principal. The acts done by the
agent in the furtherance of the authority conferred upon him by virtue of the agency are
binding upon the principal.
Agency is said to be formed when a person being the principal authorises another person
being the agent to act on his behalf or represent him in dealing with a third party. Under the
law of contract, agency is formed when the principal empowers the agent to enter into a
contract with a third party under the name of the principal. There exists a tripartite
relationship in an agency between the agent, the principal and the third party, where a
contractual relationship is created between the principal and the third party by the agent on
behalf of the principal. An agency may be created either by the express consent of the
principal and the agent or by the implied conduct of the principal and agent which resembles
an agency. Thus the main characteristics of the agency lies in the consent of the agent and
the principle to such a relationship and the right of the agent to bind the principle by his
actions. The same can be illustrated with the case of Hely-Hutchinson v Brayhead Ltd [1968]
1 QB 549.
In the present times, the complexity of the commercial transactions and the
globalisation of the businesses demands for the formation of agencies. This is because it
is practically impossible for the principle to be physically present during all the transactions.

2BUSINESS LAW
This paper will strive to analyse the agency relationship in the context of the authority that is
conferred upon an agent.
Main Body
Discussion on the Relationship based on the Authority
The law of agency governs the relationship between the principal and the agent. The main
concern of the law of agency lies in the authority or to be more precise, the extent to which
the authority outspreads that has been entrusted upon the agent by the principal. The agent is
conferred with an authority to act on behalf of the principal and bind the principal by his acts.
However, the question arises with respect to the extent of authority that has been conferred.
For an agency to form, both the principal and the agent must extend their consent to the
formation of the agency. Consent of both the parties to the agency is necessary to form the
agency. The agent acting within the scope of the authority conferred upon him will bind the
principal by the contractual obligations that the agent has agreed upon by the agent with the
third party. Under the law of agency, the authority conferred upon the agent can be of two
kinds. It can be either actual or apparent authority (Tumbat and Grayson 2016).
Consent
In the law of agency, actual authority implies the authority conferred upon the agent by
virtue of the agents consent to such an authority to be conferred. There are two kinds of
actual authority. The principal may either extend express authority or he may impliedly
confer authority upon the agent. The authority of the agent emerges with the consent of the
principal and the existence of the authority is dependent upon the existence of the consent.
The agent is empowered to act within the scope of the authority he has been conferred with
by the principal. The acts of the agent which are within the scope of the authority extended by
the principal will bind the principal to the third party. In case the acts of the agent has been