Contract of agency

Agent and its types

Agent is a person who acts on behalf of principal. They are the person or thing that takes an active role or produces a specified effect on contract. Agent is a person who has the authorization to act for another through employment, by contract or apparent authority. The importance is that the agent can bind the principal by contract or create liability if he causes injury while in the scope of the agency.

Sub-agent

According to sec. 58(1) of Nepal Contract Act, 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. A person whose duties as an agent are delegated to him or her by another agent is called as sub-agent or a person who works for or under the supervision of an agent.

Substitute Agent

A substituted 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 in the business of the agency. A substituted agent is only named by the agent but is under the control of the principal. It acts independently for his principal. There is a contractual relationship between the substituted agent and the principal. An agent is not liable for the acts of the substituted agent.

Co-agent

The co-agent acquires equal rights as the original agent at the same time are called co-agent.

Rights and duties of an agent

Rights:

Right to receive remuneration:The agent has full right to receive the remuneration and commission of his work. The agent is entitled to receive the agreed remuneration from the principal. Once agent complete the work which is assigned by the principal he/she has right to claim for remuneration.

Right to retain money: The agent who is working on the behalf of the principal has right to claim for the expenditure incurred in the course of agency business.

  • Advances
  • Expenses
  • Dues

Right to lien: The agent has right to keep principals goods or other properties until an obligation made by the principal is not discharged.

Right to indemnification against the consequences of lawful acts: An agent enjoys a right to claim indemnification for any loss suffered by him in spite of all lawful acts done in exercise of his authority. But an agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part the business which he has misconduct. For example, Krishna employs Hari to beat Shyam and agrees to indemnify him against all consequences of the act. Hari beats Shyam. Since the act is illegal, as an agent Hari cannot get any indemnification from Krishna.

Right to indemnification against the consequences of the acts done in good faith: An agent has the right to be indemnified against the consequences of an act done in good faiths though it turns out to be injurious to the rights of the third person. For example, Krishna, at the request of Hari, sells goods in the possession of Hari. Actually, Hari has no right to dispose of it. Krishna(Hari's agent) does not know this and hands over the proceed of sale. Later, Shyam the true owner of the goods after that Shyamsue to Krishna and recover the goods and cost, since the act is done in good faith Hari is liable to indemnify Krishna.

Right to indemnification for injury due to principal’s neglect: The agent has the right to be compensated for injuries sustained by him due to principal neglect or want of skill.

Right to claim compensation in case of removal without any reason: If the principal removes the agent without a reason then the agent has the right to indemnification. If an agent is approved for a specific period or work the principal must not remove him prior to that period or work.

Right to stoppage of goods in transit: If the principal has become insolvent to pay for the goods by that has brought by an agent or incurring a personal liability for the price then an agent has right to stop goods in transit to the principal.

Duties:

  • To follow the principal’s direction.
  • To act with reasonable skill and diligence.
  • To render proper account.
  • To communicate to the principal in difficult condition.
  • Not to deal on his own account.
  • To pay sum.
  • Not to Set up adverse title.
  • Not to delegate his authority.
  • Not to earn secret profit.
  • Not to use agency information against principal.
  • Not to disclose confidence.
  • To take reasonable step.

Liabilities of Agent:

  • Actually, agents bind over principal to his activities but there are some situations where agent comes across personal liability. Those situations are as follows;
  • Terms of contract of agency may create personal liability to the agent.
  • The tradition which is in operation in that particular type of business. May also create personal liability to the agent.
  • If the agent does not behave in his capacity as agent and thus runs the transaction in his own way, personal liability arises.
  • When the agent acts for foreign principal, agent is personally liable.
  • Pretending agent is personally liable.
  • When the agent acts for the principal who has not come into existence, agent is personally liable.
  • In case where principal cannot be sued, Customer sues agent and thus agent is personally liable.
  • When agency is coupled with interest then also agent is personally liable.

Rights and duties of principal:

They are the person who employs an agent in dealing with the third person. He/she authorizes an agent to act to create one or more legal relationships with a third party. Since it is a special contract between agent and principal it must be satisfied with all essential element of the valid contract. Therefore principal must be competent in the eye of law.

Rights

  • Rights to demand accounts of agency
  • Right to demand secret profit earned by agent
  • Right to receive compensation
  • Right to revoke the agent’s authority

Duties

  1. To pay remuneration: If the activities perform the activities according to the principal's instruction, the principal duty is to pay remuneration to the agent.
  2. To pay an amount for expenses: In connection to the agency business, the agent may incur many sorts of expenses for his/her principal. the principal duty is to reimburse such expenses.
  3. To pay indemnity: The principal must indemnify the agent in the following condition:
  • Loss against consequences of lawful acts.
  • Loss against consequences of acts done in good faith.
  • Loss due to neglect.
  • In case of removal without any reason.

Termination of contract of agency

  1. Terminationofagency by the operation of law. The following are the condition where the agency is terminated by the operation of law.
    • By the expiry of time: At the time of contract, agency may get formed for a particular time. In such a case after expiry of that agreed time, termination of agency takes place.
    • By the fulfillment of object: During contract of agency may be found for a particular objective or to do a particular work. In such case termination of agency takes place only after completion of that work.
    • By the death or insanity of either party: Whenever principal or agent come across death or fatuity, agency contract gets terminated.
    • By the insolvency of Principal: Principal should be able to made contract. When principal becomes insolvent, He refrains capacity to contract and termination of agency takes place. But the act is silent with regard to insolvency of agent. As minor also can act as agent, it can be conformed that insolvent person may act as agent.
    • By the destruction of subject matter: When subject matter of contract gets destructed, agency contract comes to an end.
    • By principal – Alien Enemy: When the principal is alien and war breaks out between the countries, then principal becomes alien enemy and agency contract gets terminated.
    • By the liquidation of company: On account of legal entity company may act either as principal or agent. Whatever the status may be, if company enters into liquidation, termination of agency takes place.
    • By the termination of Sub-agency: Whenever man agency gets terminated on account of any reason, sub-agency also goes off.

    Termination of agency by the act of Parties. The following are the situations where the agency is terminated by the act of parties.

    • By the termination of agency by the Principal: Principal can terminate the contract of agency by giving notice to agent. By doing so if agent comes across any suffering. Principal has to compensate the agent.
    • By the termination of agency by the Agent: Agent also can terminate the agency contract by giving notice to principal but by doing so if principal comes across any suffering, agent has to compensate.
    • By the termination of agency by both the parties to the contract: By means of mutual understanding between principal and agent, the contract of agency may come to an end.
    • By the performance of the contract: an agency contract terminates by the performance of work by both the parties mentioned in the contract.

Procedure to registration agency business in Nepal

To carry out business activities, there were not the separate provision in Nepal before 1992 BS.

In 1992 B.S. Rana Prime Minister issued an ordinance (Istihar) in its regards.

In B.S. 2014, The Agency Act had been enacted and enforced. To make very clear provision regarding agency, prevailing contract Act, 2056 has included the provisions regarding agency in chapter 8 of the Act.

Major Provisions of agency Act, 2014

  1. Definition of Agent and Registered Agent:
  2. Registration and its procedures
  3. Renewal
  4. Submission of the statements
  5. Transfer of agency
  6. Punishment and effect of non-registration
  • Economic fine up to 1000 Rs. Non-registration case
  • Fine up to Rs. 500 in case of breach of the terms and conditions while agent agreed at the time of agency registration
  • Fine up to Rs. 200 for breach of the other provisions of the Act.

Reference:

Ghai, K. (n.d.). yourarticlelibrary. Retrieved from http://www.yourarticlelibrary.com/essay/law-essay/law-meaning-features-sources-and-types-of-law/40363/

Shrestha, R. P. (2007). Business Law. Kathmandu: M.K.Books.

Akrani, G. (2011, 09 2). kalyan-city. Retrieved from http://kalyan-city.blogspot.com/: http://kalyan-city.blogspot.com/2011/02/what-is-cheque-definition-kinds-and.html

Bragg, S. (2011). accountingtools. Retrieved from www.accountingtools.com: http://www.accountingtools.com/questions-and-answers/what-is-a-bill-of-exchange.html

, W. (2016). businessdictionary. Retrieved from businessdictionary.com: http://www.businessdictionary.com/definition/implied-condition.html

Reuters, T. (2016). findlaw. Retrieved from findlaw.com: http://consumer.findlaw.com/consumer-transactions/what-are-express-and-implied-warranties.html

Business Law, Ram Prasad Shrestha Books, Bhotahity, Kathmandu,2013;M.K

Agent and its types:

  • Sub-agent
  • Substitute Agent
  • Co-agent

 

 

Rights and duties of an agent

Rights:

  • Right to receive remuneration
  • Right to retain money
  • Right to lien
  • Right to indemnification against the consequences of lawful acts
  • Right to indemnification against the consequences of the acts done in good faith
  • Right to indemnification for injury due to principal’s neglect
  • Right to claim compensation in case of removal without any reason
  • Right to stoppage of goods in transit

 

 

Duties:

  • To follow the principal’s direction
  • To act with reasonable skill and diligence
  • To render proper account
  • To communicate to the principal in difficult condition
  • Not to deal on his own account
  • To pay sum
  • Not to Set up adverse title
  • Not to delegate his authority
  • Not to earn secret profit
  • Not to use agency information against principal
  • Not to disclose confidence
  • To take reasonable step

 

Rights and duties of principal

Rights

  • Rights to demand accounts of agency
  • Right to demand secret profit earned by agent
  • Right to receive compensation
  • Right to revoke the agent’s authority

Duties

  • To pay remuneration
  • To pay amount for expenses
  • To pay indemnity:

 

Termination of contract of agency

  •  By the expiry of time
  • By the fulfillment of object
  • By the insolvency of Principal
  • By the destruction of subject matter
  • By the liquidation of company
  • By the termination of Sub-agency
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