Agent

Agency Act 2014 defines agent as, ‘a person holding agency of a local or foreign
firm for the whole or any part of Nepal and this also includes a person who works
as a distributor, stockiest, nominee or representative.

Indian Contract Act Section 182 defines agent as, “a person employed to do any
act for another or to represent another in dealings with third person.

Contracts made by agent for Principal

Agency contract: Section 591 states that any person may appoint any other person
as his or her agent to do any act on his or her behalf, except on the matter of his or
her personal ability, to conduct business as his or her agent or carry on any
transaction with a third person on his or her behalf or to represent him or her
to such a person or to establish any type of legal relation with the person
appointing an agent (the principal) and a third person, and if an agent is so
appointed, a contract of agency shall be deemed to have been concluded.

Agency relation acts on two general principles

 Sui juris rule: Whatever a person sui uris( competent to contract) may do
the act by himself/herself he/she may do it by another person, except for
acts involving personal skill and qualification.
 Qui facit alium facit per se: He/she who does anything, does it
himself/herself. This is the fundamental legal maxim of the law of the
agency. It means “he who acts through another does the act himself”.
Whatever a person can do on his/her own the person may get the same done,
or cause to be done, through an agent, subject to the law. Any action done by
the agent is legally considered to be done by the principal himself Section
592(1).

Features of agency Contract

a) Agent is appointed by the Principal.

b) An agent may be appointed by the express or implied way. Registered agents

should register himself/herself through the Nepal Agency Act, 2014.
c) Agent represents the principal.

d) After the appointment or in the representation of the principal, there exists the
relationship between principal and third party through agent.

e) Consideration is not required: In every valid contract, consideration is necessary.

But in context to agency, it is not compulsory to have the consideration.

f) Agency is the exception to privity of contract. (A common law doctrine which

prevents a person who is not a party to a contract from enforcing a term of that
contract, even where the contract was made for the purpose of conferring a benefit
on the third party.)

Contracts made by agent for principal:

Modes of creating agency are as follows:

1. By express agreement
2. By implied agreement
 By estoppel
 By necessity
3. By ratification

1 Agency by express agreement

Normally the authority given by a principal to its agent is an express authority. The
term 'express' refers to a word written or spoken. When an agent is appointed by a
word of mouth or by an agreement in writing an agency arises and therefore, it is
known as express authority.

When a person gives power of attorney to another person, an express agency is

created. Such an attorney enables the agent to act on behalf of the principal in
accordance with terms and conditions mentioned therein.

Power of attorney may be divided into following categories:

a) A general power of attorney: It authorizes an agent to do all dealings. i.e. to act
generally in the business of agency.

b) A special power of attorney: It empowers an agent to execute a single

transaction. For example selling a house or borrowing money on a mortgage.

c) A particular power of attorney: It authorizes an agent to do a single act. For

example to submit a document before the registrar and other institutions.

Agency by implied agreement

The agency created by the conduct, situation or relationship of parties is implied

agency. Whenever a person places another in a situation that the other is
understood to represent or act for him (principal) he becomes an implied agent.

Agencies created under implied authority or agreements are of following kinds:

a) By estoppels: When a person by promise or conduct does any act he is stopped

to deny for that act is the rule of estoppels. Accordingly when a principal puts a
person as an agent in a situation that a person of ordinary prudence deals with him,
the principal is stopped from denying the agent’s act.

This sort of agency arises in any of the following cases:

 When a person is held out as an agent even though he is actually not an

agent.
 When a person is held out as an agent after he ceased to be an agent.

b) By Necessity: In certain circumstances the law confers an authority on one

person to act as agent for another without any regard to the consent of the
principal. Such an agency is called an agency of necessity. The cause behind this is
that sometime one may need to do work being agent of another even in the absence
of express authority. In this situation, the principal is responsible for works of the
agent. For the creation of agency by necessity to arise the following conditions
must be statified:

 There must be real and definite emergency.

 It must be impossible to get the instruction of the principal.

  The agent must be act bonafide and in the interest of the parties concerned.

 The agent must follow the necessary and adequate method according to the
circumstances.

Agency by Ratification

Ratification means the subsequent adoption and acceptance of an act originally

done by a person without instruction or authority of other. So, when a person
adopts or accepts the acts of another, who acted as his agent without his knowledge
and authority then the contract of agency is said to be created by ratification. The
agency in this case is called expost facto agency because of creating subsequent to
the contract.

Obligation of Principal
In reality the duties or obligations of principal's are the rights of the agent. The
agent has certain rights against the principal both under the agency contract and by
operation of law. These rights of the agent are the duties of the principal. These
duties include contractual duties. The obligations of principal in contract of agency
are as follows:

a). To provide remuneration: The principal should provide remuneration

(commission) to the agent at the rate as mentioned in the contract. If not
mentioned, reasonable commission should be provided to the agent.

b) To reimburse money: The principal should reimburse money spent by the

agent for the preservation of goods or performance of contract.

c) To provide indemnity: The principal has to provide indemnity or to made

compensation to the agent in relation to business of the agency.
  Against the consequences of lawful acts done by him in exercise of the
authority conferred to him. However, the principal can reject the act beyond
the authority.

 Against the consequences of act done by him in good faith, though it causes
as injury to the rights of a third party.

 If the principal removes the agent without any reason and serving prior
notice, he must make reasonable compensation available to the agent for any
loss suffered by him.

d) Notice given to against as that to principal: When one serves notice to the
agent, there is no requirement of further notice to the principal. The principal is
also deemed to have been provided notice from the notice given to the agent. The
knowledge of the agent is the knowledge of the principal. The principal cannot get
rid of liability by stating he is not bound by the notice served to the agent.

e) To be responsible: The principal must be responsible for any loss or damage

resulting from the lack of skill or efficiency of the agent if he had knowledge
previously that the agent has no such thing in respect of any matter.

Section 598 of civil code provides obligation of Principal .

Agent may not be removed: (1) Except as otherwise provided in the contract, if an
agent is appointed for any specific period or act, the principal shall not remove the
agent before the expiry of that period or before the completion of that act, except
for a reasonable and sufficient reason.

(2) An agent who is appointed without specifying any certain period or act shall
not be removed without giving a prior notice along with an appropriate reason.

(3) If the principal removes the agent in contravention of sub-section (1) or (2), the
principal shall pay a reasonable compensation to the agent.

Agent and Third Party

The general rule of agency is that a principal is liable to the act done by the third
party. But there are some exceptions to this rule. As per Section 595 of the civil
code the agent in the following circumstances is personally liable for the
transactions done by him or her on behalf of the principal:

(a) If the agent concludes a contract with a third party in relation to any transaction
with provision for personal responsibility,

(b) If any act is done for or on behalf of an undisclosed principal and such a
principal is not disclosed,

(c) If the principal cannot be sued for any reason,

(d) If the contract is concluded in his or her own name,

(e) If any act is done beyond the scope of the contract of agency or authority,

(f) If any misrepresentation or fraud is committed in the course of the transaction,

(g) If the agent is required to be liable personally according to the nature of the
trade,

(h) If the interest of the agent is also involved in the transaction.

(2) Except as otherwise provided for in the contract between the agent and a third
person, nothing shall be deemed to bar the making of any claim by the third person
against the principal merely by the reason that the agent is personally liable
pursuant to sub-section (1), and legal action may also be taken against the principal
for a sum not recovered from the agent.