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.
Agents must, of necessity, be allowed some degree of discretion in the conduct of routine transactions.
Since the purpose of the law is to offer protection to Third Parties who have acted in good faith, it is reasonable to allow them to believe that, in most cases, the agents have fulfilled this duty.
Borrowing parallel concepts from Tort and Equity, this means that the principal owes the Third Party a duty of care to ensure that the agent is honest and efficient, and that a principal is estopped from denying that an agent was authorised to act as they did.
This involves duties: In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either the commission or fee as agreed, or a reasonable fee if none were previously agreed on.
[2][1] The principal can void contracts negotiated by an agent that breached his or her fiduciary duty.