Contract of Agency

Contract of Agency

Definition:  

                        A contract of agency is one that creates a legal  relationship between the principal and an agent. The person who has been delegated the authority to act on behalf of another is called ' an agent', and the person who authorizes another to carry out some responsibility is called ' a principal'.

Nepal Agency Act 2014 states " An agent is one who works for any domestic or foreign business firm all over Nepal or in any part of the kingdom of Nepal, and the term "agent" may mean a distributor , stockiest, nominee or a representative."

Thus agency is a relationship where one agree to represent of other to do some act on behalf of other.

Procedures of Registration of agency business in Nepal               

In Nepal, the law of agency is governed by two act, namely, Agency act 2014 and Rules 2019 and Contract Act 2056. Agency act 20145 and Rules 2019 are relating to the procedures of registration, renewal and punishment. The procedure for registering an agency in Nepal is as follow:

a) Application: Any person willing to take agency is required to submit application to the director/ Controller of the dept. of commerce for the registration of agency. The application should contain the name and address of agent and he/ she should make commitment to furnish description of transaction within every three month with fee for registration.

b) Registration: On receiving application, the controller makes the necessary investigation  and register the agency.

Modes of Creating Agency:

1) By express agreement:  Normally, the authority given by principal to his agent is an express authority. It is the most usual and natural way to appoint an agent, by executing the 

formal power of attorney in a written stamped and signed document.

2) By Implied Agreement:  In implied agreement agency arises under certain circumstances from the behavioural conduct of the parties or relationship between them. The circumstances are as follows:

a) Agency by estoppel:  If a person represents by words or conduct that the another person is his agent and third party reasonably believes on such representation and enters into an agreement, the person who represent. So, is bound by the act of other, this is known as agency by estoppel.

b) Agency by holding Out: Like wise agency by estoppel the agency is created but in holding out ' the principal himself holds out the words that somebody is his agent and there is holding out.

c) Agency by necessity: In certain urgent circumstances the law confers an authority on a person to act as an agent for the benefit of another. Such agency is called an agency of necessity. In such case, the agent must act in good faith and to protect and preserve the interest of the principle.

'X' a transporter, carries Meat product of 'Y' from Nuwakot to Kathmandu. Because of strike, 'X' sold all meat product in 'Kakani', otherwise, there was a danger of damage of all the product. In such case 'Y' can't sue against 'X' because of want of authority. Here 'X' is treated as an agent of 'Y' by necessity.

3) By Ratification: Where an agent does an act for his principal without consent or knowledge, and the act is accepted by the principal after wards , it is called agency by ratification. Thus, the act of performing and the act of ratifying by the principal may create an agency. Such types of agency occurs in two ways:

i) The person acting on behalf other has no authority and enters an agreement on behalf of principal and if the transaction is adopted by principal.

ii) The agent when he exceeds his authority and enters an agreement on behalf of principal, and the principal accept the transaction.

For e.g: A is a insurance agent of B. 'B' is a business man. 'A' insures the goods of B without consent of 'B'. If 'B' ratifies the act of 'A', the policy of insurance is valid with retrospective effect.

Note: rules regarding valid ratification is also the important question.

4. By Operation of law: In some certain circumstances an agency is created by operation of law.

- when a company is formed as a legal person it cannot run itself. It's promoters run its business. They are its agent or representative by operation of law. The company is responsible for their acts.

- a partner is an agent of a business firm for the purpose of running the business. Thus the act of the partner performed to carry out the firm's business binds the firm legally.

- a carrier of goods acting as an agent, the carrier is created as an agency by operation of law.

 Write down the rights and duties of an Agent.

# Duties:

i)Duty to obey lawful directions of principal or customs:  An agent must follow all the lawful instruction given by the principal. In the absence of such instruction, the agent has to act in accordance with the customs of the business.

ii) Duty to render an account : an agent is bound to render proper account of the transaction done by him/herself on demand of principal.

iii) To carry out the work with reasonable care, skill, and diligence.

iv) Duty to act in good faith and is the interest of the principal.

v) Duty to communicate with principal.

vi) Not to make any secret profit beyond the commission.

vii) Not to delegate work or authority given by the principal.

ix) Duty to protect and pursue the interest of the principal in particular circumstances.

# Rights:

i) Right to receive remuneration.

ii) Right to retain money.

iii) Right of lien: Except otherwise agreed, an agent has a right to retain goods, papers or other property of the principal received by him/her until the rightful/agreed amount of commission/ payment is recovered.

iv) Right to indemnification of cost incurred in a lawful act.

v) Right to receive compensation of loss.