A P&A agreement permits the agent to create legal relations (for example a lease agreement) binding a third party financier with the end-user customer. The law’s flexibility with regard to its rules concerning agency permits an exception to the basic legal principle of “privity of contract” that is, parties to a contract cannot confer rights or impose obligations in respect of the contract upon anyone but themselves. Under a P&A structure on the other hand the agent has specific authority conferred upon him by the agreement to create legal relations between its principal and a prospective customer. The act of introducing those parties in no way binds them to the transaction. In a general sense an agent is a person who introduces parties that may wish to transact business. The legal effect of a P&A agreement can appear unclear because commercial practice often gives a different meaning to the word “agent”, as compared to what the law understands the meaning of “agent” to be. A P&A agreement offers the customer the right to use the goods by way of lease from a financier, the P&A agreement’s principal. For example, a customer may not be able to afford to acquire the goods, or it may better manage its working capital by not expending its cash.
The P&A structure permits a sale of goods where a transaction might not otherwise be possible. The financing of lease contracts by way principal and agent (“P&A”) agreement is a common commercial technique to enhance the supply of business equipment in Australia.
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