Contract of agency

1. Legal Environment for Business in Nepal
19 December 2016
Saroj Shrestha 1

2. Agency Contract is also one of the Specific
contract.
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 principal’ is called ‘an agent’,
and the ‘person who authorizes another to carry
out some responsibility on his behalf is called ‘a
Principal’.
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3.  The Rana rulers had arranged an ordinance
“Istihar” like an Act to manage and control
activities relating to agency, in 1992 B.S.
 It was active until the Agency Act, 2014 BS came
into force.
 Now, Contract Act, 2056, Chapter 8, Section 56 to
64 provide provisions in this regard.
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4.  Sec 56 of Contract Act, 2056 defines ‘Contract
of Agency’ that “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.”
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5. Sec 2 (a) of Nepal Agency Act, 2014 defines ‘agent’
that , “An agent is one who works for any domestic or
foreign business firm all over Nepal or in any part of
Nepal and the term ‘agent’ may mean a distributor,
stockist, nominee or a representative.
The Indian Contract Act, 1872 defines ‘agent’ that “an
agent is a person employed to do an act for another
or to represent another in dealings with third persons.
The person for whom such an act is done, or who is
represented, is called the principal.”
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6.  There should be an appointment of an agent by
the principal or a contract between them.
 The principal should delegate authority to the
agent to act for him
 The principal is responsible for the act done by the
agent
 The object of the appointment of an agent must be
to establish a legal relationship between the
principal and third party
 Consideration is not necessary in a contract of
agency
 The relationship of agency must be based on
confidence and good faith between the principal
and the agent 6

7.  The law of agency is based on the principal –
‘Whatever a person can do, he may do so through
his agent’ . There are three important points
relating to a contract of agency:
 The person who is adult and healthy may become
an agent
 The person who is not an adult may also become
an agent but he would not be responsible for the
act.
 There is not necessary consideration in the
contract of agency, it may be gratuitous and non-
gratuitous.
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8.  The principal must be competent to conclude
contract but the agent may or may not be
competent.
GENERAL RULSES OF AGENCY
1. Whatever a person can do (except
personal act), he may do so through an
agent.
1. One, who has an act done through
another, done it by himself. (sec. 57 of
Contract Act, 2056)
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9.  Commercial Agent
1. Factors: The person to whom bills of lading or
other documents of title are consigned for sale by
merchant residing at a distance and sale is in the
agent’s name. It has right possession, right of lien
and insurable interest.
2. Broker: The person who makes bargains for
another and receives commission. He can sale
goods in his own name or principal’s name.
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10. 3. Commission agent: The person buys goods from
foreign market. He is in the position of
independent purchaser.
4. Del credere agent: The person receives extra
remuneration for guaranteeing to his principal that
third person performs his obligation. If not done
becomes responsible.
5. Auctioneers: The person who sells goods by
auction to the highest bidder in public competition.
He has authority to warrant goods sold and can
deliver goods only on receipt of the price.
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11. 6. Bankers: The bankers also is an agent of
customers for buying and selling securities,
collecting cheques, dividents, bills and notes on
behalf of the customer. The Banker has right of
lien and provides services of self custody.
7. Indenters: Indenters acts for commission on
purchase of sale or a purchase on behalf of
principal with a merchant abroad.
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12.  Non commercial Agent
1. Law Agents (Advocate or Barrister)
2. Attorney agents
3. Wife
Based on Authority of Agent:
1. Special agents: Appointed for specific
transaction.
2. General agents: Anything within the authority
given
3. Universal agents: Anything without limitation all
over the world.
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13. 13Saroj Shrestha
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Thank you !