Agency, in law, the relationship that exists when one person or party (the principal) engages another (the agent) to act for hime.g.,to do his work, to sell his goods, to manage his business. The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. The competent agent is legally capable of acting for this principal vis--vis the third party. Hence, the process of concluding acontractthrough an agent involves a twofold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, thereby imposing certain duties on the representative (diligence, accounting, good faith, etc.). The two relationships need not be in full conformity. Thus, an agent's effective powers in dealing with outsiders may extend to transactions that he is under a duty to his principal not to undertake, leading to a situation characterized as "apparent authority."