Agency – Law

A legal arrangement known as Agency occurs when one party, referred to as the principal, gives another party, referred to as the agent, permission to act on their behalf in order to establish legal relationships with third parties. Under this arrangement, the agent can act as the principal’s representative in a variety of situations, including business dealings and court cases.

Meaning and General Rules of Agency

• Complexities of modern business it becomes necessary to delegate of authority to carry out any Business transaction.
• An agreement made between Agent and Principal is called the contract of Agency which establish the legal relationship between principal and third party.
• Set of rules and regulation Which are related to create agency, to establish legal relation between principal and third party as well as rights and duties of Agent and Principal is called the law of agency.
• E.g. ‘A’ appoints ‘B’ to sell his land for ‘C’ on his behalf. By this case ‘A’ is principal and ‘B’ is his agent. The relationship between ‘A’ and ‘B’ is called agency

Definition of Agency

According to Section 591 of GCC 2074 has defined the term ‘Contract of agency’ as Contract relating to agency shall be deemed to have been concluded on following condition;

• Any person may appoint any other person as his agent to do any work on his behalf, except any task connecting with his personal skill,
• To carryout business as his agent
• Make any transaction with a third person on his behalf
• To represent himself to third person,
• Establish specific legal relation between principal and third person.
• Section 182 of Indian Contact Act 1872 defines that “An agent is a person employed to do or to represent another in dealings with third person. The person for whom such act is done or who is so represented is called the principal”.
• Above said definitions signify that; Agency means legal relationship between the Principal and Agent for doing any work on behalf of the principal except the work relating to his personal capacity. The function of an agent is to bring about contractual relations between principal and third parties.

Characteristics of Contract of Agency

• Appointment of the agent: The agent is appointed on the wish of principal.
• Mode of appointment: May be express or implied.
• Binding Nature: Work of agent binds to principal and third person.
• No need of consideration: Absence of consideration does not affect the validity of contract of agency.
• Good faith: Agency is based on good faith of Principal and Agent.
• Delegation of Authority: Delegates the authority to agent to do any work for him or on his behalf.
• Purpose of Agency: To establish legal relationship between the principal and third person.

Modes of creating an Agency

Agency by express agreement

• General power of attorney
• Special power of attorney
• Particular power of attorney

Agency by implied form

• Agency by Estopple
• Agency by holding out 
• Agency by necessity 
• Agency by ratification

Rules and essentials elements of Valid Ratification

• The agent must act on behalf of the principal,
• Principal must be in existence at the time of ratification,
• The principal must have contractual capacity,
• The principal must have full knowledge of material facts or ratification,
• Whole transaction must be ratified,
• Ratification must be done within a reasonable time.
• Act to be ratified should not be void or illegal,
• Ratification must not injure to third party.
• Act to be ratified must be within power of principal,
• Ratification may be expressed or implied,
• Ratification must be communicated to the concerned party.

Classification of Agent

From the view point of agents’ authority:

• General Agent: A general agent is one who is employed to do all acts connected with a particular business or employment.
• Special Agent: A special agent is one who is employed to do particular act on behalf of principal or particular transaction.
• Universal Agent: A universal agent is said to be one whose authority is unlimited.

From the view point of the nature of work:

• Mercantile Agent: A mercantile agent is one who has authority either to sell goods or to buy goods or to reimburse money through security of goods.
• Factor: A factor is a mercantile agent who enjoys wide discretionary power in relation to the sale of goods.

• Commission agent: A commission agent is a mercantile agent who buys or sells goods, on behalf of principal according to terms of agreement, by his own name and who receives commission for his work.
• Broker: He is employed to make contract for purchase and sale of goods. He is not entrusted with possession of goods. He simply acts as a connecting link and brings the two parties together to bargain.
• Non-mercantile agent: They include Advocates, Attorneys, and Insurance Agent etc.

Right and duties of Agent

Rights of Agent

• Right to retain money
• Right to receive remuneration
• Right to lien of property
• Right to claim Compensation
• Right to stoppage of goods in transit

Duties of Agent

• To conduct the business of agency according to instructions of the principal
• To follow customs of trade in the absence of instructions
• To render proper accounts to the principal
• To communicate with the principal, in case of difficulty
• Not to deal on his own account
• To pay all sums received for principal
• Not to delegate his authority and responsibility
• Not to make secret profit
• Not disclose Confidence
• Not to set up adverse title
• Act in good faith and in interest of principal

Right and duties of Principal

Rights of Principal

• Right to revoke agent
• Right to instruct for agent
• Right to claim compensation
• Right to demand secret profit

Duties of Principal

• To provide remuneration
• To pay necessary expenses
• To provide indemnity
• To give reasonable compensation

Delegation of Authority by Agent

• Delegation of authority means to given authority for conducting certain task to another person from the authority holders.
• The appointment of an agent is a form of delegation of authority.
• Generally the delegated authority can not be delegated again to the other person without consent of principal.
• This principle is based on the well known maxim of Roman law ‘delegatus nonpotest delegare’ means one can not delegate the delegated authority to someone else.
• Exceptions of the General Rule: Where principal has expressly permitted for delegation of power.
  Where principal has impliedly, by his conduct allowed such delegation of authority. For example where of the principal knows that the agent intends to delegate his authority but doesn’t object to it.
  Where ordinary custom of trade sub-agent may be employed. For example Stock exchange member brokers generally appoint clerks to transact business on behalf of their client.
  Where very nature of agency makes if necessary to appoints sub-agent

Sub-agent

• A person who is appointed by and acting under the control of original agent is called the sub-agent. Sub-agent is appointed under exceptional rules of non-delegation of authority.
• Section 593 of GCC 2074 has incorporated provisions in regarding to appoint the sub- agent
• On the appointment of sub-agent, original agent acts as principal for sub-agent.
• Principal is not direct liable for works of sub-agent.
• Original agent is fully liable for principal, third party and sub agent.
• Original agent can not appoint the sub-agent if task is personal natural

Substitute agent

• If an original agent appoints an agent, for his replacement, is known substitute agent.
• General Civil Code 2074 has not incorporated any specific provision about appointment of substitute agent.
• After appointing such substitute agent then original agent walk out of the scene.
• The original agent must act with reasonable care in selecting a substituted agent.
• If substitute agent makes negligence, original agent becomes liable to principal for the negligence of substitute agent.

Personal Responsibility of Original Agent

• The original agent must act with reasonable care in selecting Sub-agent and substitute -agent.
• Both Sub-agent and Substitute-agent are appointed by original Agent. Principal does not liable for the works of sub -agent.
• Generally, Original Agent liable for the negligence of sub and substitute agent who are selected by him.
• If Agent makes the selection of sub-agent carelessly and appointed substitute-agent without pre-consent of principal; original agent liable for work of sub-agent and substitute-agent toward principal.

Termination of Agency

• An agency is not a permanent entity. It may be terminated in same manner as any other contract.
• The termination of agency implies the end of relationship of principal and agent. When power of attorney is withdrawn by principal, the agency is said to be terminated.
• This may take place mainly by the act of parties and the operation of law.
• The Nepal Agency Act, 2014 has no clear provisions in this regard but Section 597 of General Civil Code 2074 has mentioned provisions about termination of contract of agency.

Termination of Agency by Acts of Parties

• By mutual agreement
• By Revocation
• By renunciation
• By completion of work

Termination of Agency by Operation of Law

• By expiry of time
• By death or insanity
• By insolvency of principal
• By destruction of the subject matter
• By dissolution of company
• Principal and agent becomes alien enemy
• By change of law

Frequently Asked Questions (FAQ)

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