Contract of Agency

A contract of agency is an agreement made between an agent and a principal under which the agent is required to carry out the principal's instructions. For a variety of tasks and objectives, an agent may be chosen. An agency is a legal connection that is founded on an express or implied contract, just like other types of legal relationships.

According to Sec. 56 of Nepal Contract Act, 2056, ‘Any person may appoint any other person as his/her agent to do anything on his/her behalf, except something connected with his/her personal skills or to conduct business as his/her agent of any transaction with a third person on his behalf or to represent himself to such person, or to establish any kind of legal relation with the person appointing an agent and a third person, and in case an agent is so appointed, a contract relating to agency shall be deemed to have been concluded.

'A contract by which a person employs another person to undertake any act for himself or to represent him in dealing with the third party, is a contract of agency,' states Section 182 of the Indian Contract Act, 1872.

"An agent is a person who works for any domestic or foreign commercial firm throughout Nepal or in any region of Nepal," according to Section 2(a) of the Nepal Agency Act, 2014. "The term agent may indicate a distributor, stockist, nominee, or a representative."

Example:

• X hires Y to make purchases for him. Here, Y is an agent and X is a principle. This is an agency contract.

Features or Essentials of Contract of Agency

Similar to a contract of indemnification and guarantee and a contract of bailment, a contract of agency is a particular contract. A person designates another in this agreement to perform in his or her place. These are the key components of an agency contract:

• Representation:
  • When speaking with other parties, an agent always speaks on behalf of his or her principal. An agent has a duty of care to the employer of his work.
• The delegation of authority:
  • In a contract of agency, the principal grants the agent the right to act on the principal's behalf. The contract of agency actually begins when the principal selects the agent and delegated authority.
• Contractual capacity:
  • In the eyes of the law, the principal and the agent must both be competent. If they are minors, have unsound minds, or are otherwise ineligible under the law, they are not complete.
• Consideration is not required under the agency contract:
  • A legitimate consideration is not required. For instance, the woman can unthinkingly assume the position of his husband.
• Purpose:
  • The principal may designate an agent for any purposes they choose. For instance, negotiating with a customer, purchasing and selling items, and depositing money in a bank. However, for a purpose to be legitimate, it must not violate the legislation now in effect.

Nature of agent:

• The principle appoints the agent.
• The power was delegated by the principal.
• Responsibility of the principal.
• The goal of the contract is to establish a legal connection between the primary and the third party.
• No consideration is required.
• Either an express or an inferred contract.

Features or essentials of contract of agency

Modes of creating agency:

• Agency by express agreement
• Agency by Implied authority
• Agency by estoppels
• Agency by holding out
• Agency by necessity
• Agency by ratification
• Agency by Operation of law

Rules of valid ratification:

• Act done on behalf of another person
• Existence of principal
• Express or implied ratification
• Knowledge of subject matter to the principal is essential
• No partial ratification
• Contractual capacity
• Ratification within reasonable time
• Only lawful acts may be ratified
• Ratification of acts which is within the power of the principal
• No damage to the third party
• Communication of ratification

Sub-agent, substituted agent and co-agent

• Sub-agent:
  • According to section 58(1) of the Nepal Contract Act, the agent may, unless otherwise provided for in the contract, appoint a sub-agent with the consent of the principal person if the nature of any trade, business, or transaction requires it or if a sub-agent can be appointed based on a provision contained in or practice followed in the contract relating to agency.
  • According to the Indian Contract Act, a sub-agent is a person who works for and conducts business on behalf of the principal agent.
• Subsitute Agent:
  • A substituted agent is a person chosen by the agent to carry out the principal's direct or inferred instructions in the course of the agency's activity.
• Co-agent:
  • Co-agents are those who obtain the same rights as the original agent concurrently.

Rights and duties of an agent

Rights:

• The right to compensation.
• The right to keep money:
  • Advances
  • Expenses
  • Dues
• Right to lien.
• Right to compensation for damage caused by legal actions.
• Right to compensation for damage resulting from actions taken in good faith.
• Right to compensation for harm brought on by the principal's negligence.
• Right to compensation in the event of unjustified removal.
• Right to halt the movement of commodities.

Duties:

• Must adhere to the teacher's instructions.
• Must exercise reasonable diligence and competence.
• To create an accurate account.
• To inform the principal about the challenging situation.
• Not to act on his own behalf.
• Paying a sum.
• Not to establish a negative title not to transfer his authority.
• Not to obtain an illicit profit.
• Not using agency information against the principal not disclosing confidential information.
• To take a prudent action.

Rights and duties of principal

Rights:

• Rights to request agency accounts
• Right to demand an agent's secret profit
• The right to recompense
• Possibility to revoke the agent's power

Duties:

• To provide compensation.
• To cover the cost of costs.
• Paying indemnity:
  • Loss resulting from legal actions' repercussions.
  • Loss due to the results of actions taken in good faith.
  • Neglect-related loss.

Termination of contract of agency

• By acts of the Party:
  • By mutual agreement
  • By revocation
  • By renunciation
  • By completion or performance
• By operation of law:
  • By expiry of time
  • By death or insanity
  • By insolvency
  • By destruction of subject matter
  • Due to becoming alien enemy
  • By change of law
  • By dissolution of the company

Procedure for registering agency business in Nepal

In Nepal prior to 1992 BC, there was no special provision for doing business activity.

1992 saw the issuance of an ordinance (Istihar) in this regard by Prime Minister B.S. Rana.

The Agency Act had been passed and put into effect in B.S. 2014. The provisions governing agency are provided in Chapter 8 of the Prevailing Contract Act of 2056 in order to make them very explicit.

Major Provisions of agency Act, 2014:

• Definition of Agent and Registered Agent:
• Registration and its procedures
• Renewal
• Submission of the statements
• Transfer of agency
• Punishment and effect of non-registration:
  • Economic fine up to 1000 Rs. Non-registration case
  • Fine up to Rs. 500 in case of breach of the terms and conditions while agent agreed in the time of agency registration
  • Fine up to Rs. 200 for breach of the other provisions of the Act.

Reference:

• Collins Dictionary of Law © W.J. Stewart, 2006
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