Why should anyone be concerned about the principles of contract or the principles of agency? Well you should be if you're buying or selling a property in the United Kingdom, using the services and skills of an estate agent, or taking out a mortgage.

So you fully appreciate what a mortgage loan is, right? A mortgage has two sides to it - you, the borrower looking for cash to buy a property, and the lender, providing the cash by which you can purchase the place of your dreams.

No difficulties there. But the process of buying a property and then obtaining a mortgage both involve contracts. Yes they do. You, my friend, and the seller of the property. You and the mortgage loan provider.

At its simplest, a contract requires two sides, with each side bound by a number of legal checks and balances to function.

Thus the principles of contract, and the principles of agency, provide the glue to the whole process.

The principles of contract are quite easy to grasp. In essence, a contract is a legal arrangement which two or more people agree to enter into.

As well as involving two people, a contract implies that something is given by one party and accepted by the other side. Legal obligations are placed on both as a result.

Something tangible must be given - a consideration. In terms of property, a buyer hands over money and the seller parts with his or her property.

But there's much more to a legally binding contract than the numbers involved or the handing over of a consideration.

There are a couple more stipulations that must be met - even before each of the sides gets involved. We are referring to the capacity to enter into a contract in the first instance.

In the UK, that means they must be 18 or over, and be legally able to buy or sell any property. And each side must be mentally sound.

There is another aspect to look at when entering into a contract - and that is utmost good faith.

If one side asks a question of the other side a completely truthful answer is expected in return.

Yes, telling the truth is extremely important when it comes to the buying and selling of property. If you are selling a property then why would you not expect some in depth questions or queries from the buyer's solicitor, for example? There are various areas, such as disputes, environmental and other issues which can have an affect on property.

Replies that turn out to be less than economical with the truth may result in all sorts of legal consequences at some future date. Well worth avoiding at all costs!

Having looked at the principles of contract, it is time to consider the principles of agency, something you should at least think about and understand, too, if possible. That is because, in all likelihood, you are going to have to enlist the expertise of an estate agent, whose purpose is to bring both buyer and seller together.

The principles of agency implies a relationship between an agent and a principal. An agent is a person who acts on behalf of someone else, the principal. In our property scenario, the principal is normally the seller of the property and the agent the estate agent.

The principles of agency make it completely clear that under the law, all actions taken by the agent are deemed to be those of the principal.

Of course, it can be slightly more complicated than that. However, as far as the relationship between the seller of the property and the estate agent is concerned, which surely is what most of us have some experience of, the estate agent's role is that of messenger, passing on offers on a property to the seller.

Compare this to other types of agency where the agent may enjoy more authority to act on the principal's behalf, within certain agreed and predefined margins.

A common example is the relationship that often develops between IFAs (independent financial advisers) and their clients. On occasions IFAs will make independent investment decisions, within agreed parameters, but without seeking permission of the client.

Thus, whether simple, or more complex, all conditions of an agency should be first set down in writing before any action is taken - independently or otherwise - by the agent.

So, when an agent acts on behalf of a client, he or she knows exactly what the limits are right from the start.

Of course, as in many other aspects of everyday life, the principles of agency can become a little bit more complicated.

Such can be the case when actions taken by the principal appear to give the agent authority way above and beyond the agreed limits set out.

This is called aparent authority. The agents actions have become ligitimised through the actions of the principal.

Agents sometimes do step over the boundaries laid down. In such a situation, legal action can be taken by the principal if required.

Or perhaps if the actions of the agent are deemed acceptable, after the event, the principal may in fact ratify the actions. This is known as ratification.

This has been a very short article dealing with the complex areas of the principles of contract and the principles of agency. Both these areas are well worth bearing in mind when either buying or selling property in the UK.

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