Contract of Agency

Sec 56 of NCA, 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 may 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.
 Cont…
Agent can’t be appointed for completing of
performing personal skill or works.
 Modes of creating agency
1. By express appointment or agreement
2. By implied appointment or agreement
3. By subsequent ratification of an unauthorized
act
4. By operation of law
 1. By express appointment or agreement

 Normally, the authority given by the principal

to his agent is an express authority which
enables the agent to bind the principal by act
done with in the scope of his authority.
 The agent may, in such case, be appointed
either by formal words or by agreement in
writing. The usual form of a written contract
of agency is the ‘power of attorney’.
 2. By implied appointment or agreement

 Implied agencies arise from the conduct,

situation or relationship of parties.
 Whenever a person places another in a
situation in which that other is understood to
represent or to act for him, he become an
implied agent.
 It happens under certain circumstance from the
behavioural conduct of the parties or the
relationship between them.
 Cont…
i. Agency by estoppel: if a person, by his conduct
has knowingly led another to believe that
certain circumstances or facts exist, the other
person, who has acted on that belief, may
create an agent once accepted acts or facts
cannot be rejected again. The agent is based
on the doctrine of estoppel.
 Cont..
ii. Agency by holding out: To “hold out” means
to present or to show up. Agency by holding
out means creation of agency by presenting a
person as agent without actual words to that
effect. This is also a form of “agency by
estoppel”, but here, a person’s positive action
rather than silence leads another to believe in
the existence of agency.
 Cont…
iii. Agency by necessity: under certain circumstances,
a person may be compelled to act as an agent to
the other without requiring the consent of the
principal. Such an agency is called the agency by
necessity. To constitute a valid agency of
necessity , following condition must be satisfied:
a) agent should not be in a position or have any
opportunity to communicated with his principal
within the time available.
 Cont…
b) There should have been actual and definite
commercial necessity.
c) The agent should have acted bona fide and for
the benefit of the principal.
d) The agent should have adopted the most
reasonable and practicable course under the
circumstances.
e) The agent must have been possession of the
goods belonging to his principal.
 3. By subsequent ratification of an unauthorized act

 Agent sometimes perform acts on behalf of the

principal that exceed their authority. In such
cases, the principal for whom the agent claimed
to act may either ignore the transaction or ratify
it. Ratification occurs when the principal approves
the unauthorized act performed by an agent or by
one who has no authority to act as an agent. this
is also known as ex post facto agency. There are
some rules for a valid ratification. They are:
 Cont..
i. The act is done by agency in his own liability
and in the name of the principal.
ii. There should be act that deserves ratification
iii. The principal must have contractual capacity
at the date of contract and at the date
ratification.
iv. Ratifier must communicate his ratification to
the agent.
 Cont..
v. Ratification must not injure a third person.
vi. The act must be lawful and be ratified within
reasonable time.
 4. By operation of law

Sometimes an agency arises by operation of law.

For e.g; BOD of company.
 Classification of Agent
Agent may be classify from two view point.
1. From the point of view of extent of Authority.
2. From the point of view of Nature of work.
 Cont..
1. From the point of view of extent of Authority.
i) General Agent.
ii) Special Agent
iii) Universal Agent.
 Cont..
2. From the point of view of Nature of work.
i) Mercantile Agent:
a) Broker
b) Factor
c) Commission
d) Auctioneer
e) Del Credere
f) Banker
ii) Non Mercantile Agent:
 RIGHTS OF AGENT
Rights of Agent:
1. Right to remuneration
2. Right to lien on principal property.
3. Right to indemnification of costs of incurred
in a lawful act.
 DUTIES OF AGENT
1. Duty to execute mandate: according to sec 59(1)(a) the
first and the foremost duty of every agent is to carry out the
mandate of his principal.
2. Duty to carry out the work with reasonable care, skill and
diligence: according to sec 59(1)(b); In case no condition has
been mentioned in the contract or the principal person has
issued no directive, the agent shall work as entrusted to
him/her in the manner in which it has to be performed
according to the nature of the trade and business and the
laws and practices of the place of transaction, with bona fide
motive, full dedication and necessary skills and efficiency.
 Cont..
3. Duty to render an account(sec59(1)(d): The agent shall
supply or show details of account and record relating to
the agency business when demanded by the principal
person.
4. Duty to act in good faith and in the interest of the
principal.
5. Duty to communicate (sec59(1)(e): In case any
obstruction, obstacle or difficulty arises in the course of
performing work relating to agency, the agent shall notify
the principal person as soon as possible and obtain
necessary directives.
 Principal
 The person who employs an agent in dealing
with third person is called a principal.
 Any person who is competent to contract may
employ an agent.
 Rights of Principal
1. Right to demand an account of a transaction
regarding the agency
2. Right to bind the agent to follow his instruction.
3. Rights to claim compensation for a loss on the
breach of the terms of contract of agency and other
instruction.
4. Right to demand the secret profit, if any, earned as
his agent.
5. Right to revoke the authority of agent if agent
acting unlawfully.
 Cont..
6. Not to make any secret profit beyond the
commission:
7. Not to delegated work to others without
consent of principal.
8. Not to disclose the confidence.
9. Duty not to give up agency(sec 63): with out
appropriate and sufficient reasons, agent should
not leave agency before specified period or
time.
 Duties of Principal
1. Bound to indemnify on lawful acts.
2. Payment of remuneration
3. Bound to indemnify on the acts on good faith
4. Giving lawful instruction.
 Sub - Agent
 A sub agent is a person employed by and acting
under the control of the original agent in the
business of the agency. The relation of sub agent and
original agent is like that of an agent and principal.
 the sub agent should act under the control of the
original agent and according to nature of business or
if contract is concluded with the provision of
subagent, sub agent may appointment with out the
consent of the principal; if not consent of principal is
needed to appoint sub agent.
 Cont..
Section 58 of NCA; In case it is necessary to
appoint, a sub-agent according to the nature
of any trade, business or transaction, or in
case a sub-agent can be appointed according
to provision contained or practice followed in
the contract relating to agency, the agent may,
except when otherwise provided for in the
contract, appoint a sub-agent with the
consent of the principal person.
 Cont..
But an agent, who has been appointed with a
condition to represent the principal
personally, cannot appoint a sub agent in
accordance with the Nepalese contract Act.
 Substitute Agent
 There is no provision of substituted agent in
Contract Act of Nepal.
 Section 194 and 195 of Indian contract Act
define Substitute Agent; A substitute agent is
a person appointed by the agent according to
the express or implied authority of the
principal, to act on behalf of the principal.
 Cont..
 In selection a Substituted agent for his
principal an agent is bound to exercise the
same amount of discretion as man of ordinary
prudence would exercise in his own case; and
if he does this he is not responsible to the
principal for the acts or negligence of the
Substituted agent
Procedures of registration of agency business
in Nepal.
 In Nepal, Agency law is governed by Contract Act, 2056,
Nepal Agency Act, 2014 and Nepal Agency Rule,2019.
Procedures
1. Application: Application has to submitted in the prescribed
manners to director of the Department of commerce.
2. Fees: Rs 5 for application and Rs 100 for registration.
3. Registration: After the application is registered it has to be
checked by concerned authority. If it is found that the
applicant is eligible, the concerned authority will give
permission after taking necessary deposit .
 Cont..
4. Once the agent is registered, it will be valid up to one year. Every
agent must submit the application, along with Rs 20, within the
end of Chaitra every year for renewal the application should be
submitted to the director or controller of the commerce
department.
5. Transfer of Agency Business. Application should be submitted
along with Rs 25 to the director of the commerce department .
6. To summit statement of Account: summit proper account in every
three months in the department of commerce. Mentioning
following things:
(a) Details of the goods received. (b) Details of goods add.(c) Details
of the goods remained .(d) Value of the goods remained.
 Effects of Non registration
1. According to sec 3 of the Agency Act, Every
agency or agent must be registered. Nobody
can work as agent without being registered,
as per sec 8 if the person fails to registered,
he will be liable for the fine of Rs. 1000.
2. If any body disobey the provision of the Act or
Rules, Nepal Government can restrict such
person to act as an agent for 2 years or
impose a fine of Rs. 200.