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Concept
Principal (commercial law)
Summary
In commercial law, a principal is a person, legal or natural, who authorizes an agent to act to create one or more legal relationships with a third party. This branch of law is called agency and relies on the common law proposition qui facit per alium, facit per se (from Latin: "he who acts through another, acts personally").
It is a parallel concept to vicarious liability (in which one person is held liable for the acts or omissions of another) in criminal law or torts.
In a busy commercial world, the smooth flow of trade depends on the use of agents. This may be because in business entities such as:
sole traders, their ability to conduct business will always be limited unless other people are used to work on their behalf;
a partnership, the natural persons who are involved cannot be present to conduct business in multiple locations simultaneously, so they must rely on others to make agreements or deliver services on their behalf; or
a corporation is only a legal entity or fictitious legal person and so can only act through the agency of human beings to get anything done.
In the majority of cases, it is impossible for agents to seek specific authority for every deal or detail within a deal. Agents must, of necessity, be allowed some degree of discretion in the conduct of routine transactions. But, for the purposes of ascribing legal responsibility to the principal, when the agent acts with actual or apparent authority, all the agent's knowledge will be imputed to the principal. If principals were allowed to hide behind their agents' own ignorance, mistakes or failures to communicate, a principal could, by using an agent, achieve a better result than if they acted personally. For example, if the particular deal turned out well, the principal could adopt the transaction. But, if it turned out badly, the principal could disavow it. Indeed, if not for imputation, there would be a perverse incentive to conduct business through agents rather than personally.
Official source
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