Chapter 3: Contract of Agency

April 20, 2022April 22, 2022 Study Notes NepalPosted in 3rd YearTagged agency, bbs 3rd year, DUTIES OF AN AGENT, study notes nepal, types of agent

Table of Contents

Very Short Question Answer

1. State any two essentials of agency.

A contract between two parties amounts a contract of agency if it fulfills the following at essentials:

Universal declaration of the principal to be bound by the act of his agent.
Intention of the agent to act on behalf of the principal

2. Who is agent?

Agent is a person appointed by the principal to act for and on behalf of him as his representative while dealing with third persons. He is an employee of another and acts for this employer.

3. Who is a del-credere agent?

A del-credere agent is one who in consideration of an extra remuneration, guarantees his principal that the person with whom he enters into a contract shall perform his obligation and if not, he shall be personally liable to his principal for loss caused to him.

4. Define the agency by estoppel.

If a person represents a certain set of circumstances and leads willfully another person to believe that a certain state of affairs exists and induces him to act on that belief, he cannot alter his previous position and is prohibited from denying subsequently whatever he had stated before.

5. When agency becomes irrevocable?

Where agency cannot be terminated by revocation by the principal, agency is termed as irrevocable agency. An agency becomes irrevocable in the following cases:

Where agency is coupled with Interest
Where agent has incurred personal liability
Where the agent has partly exercised the authority

Short Question Answer

1. What do you mean by Agency by Ratification? Explain the conditions for a valid ratification.

AGENCY BY RATIFICATION

A person or agent may act on behalf of another without knowledge and authority or by exceeding authority given of that other, if the other subsequently ratify the transaction or adopts the benefit and liabilities there of, that known as agency by ratification. This may occurs in two ways:

The person acting on behalf other has no authority and enters an agreement on behalf of principal and the principal adopts the transaction.
The agent when he exceeds his authority and enters an agreement on behalf of principal, and the principal accept the transaction. In either case, if ratification duly made, places the parties in exactly the same position in which they would have been authority at the time of contract was made.

REQUISITES (RULES) OF VALID RATIFICATION

The principal must be named: The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of contract. ‘A’ was authorized by ‘B’ to purchase a vehicle from ‘C’ for 5 lakhs. ‘A’ exceeding his authority purchased another car for 10 lakhs on his own name. ‘B’ is not liable to pay the price.
Ratification must be by the person for whom the act is done: The other person than the person for whom the act is done, cannot ratify the transition and claim for benefits. The person to whom or on behalf of whom the act is done only that person can ratify the transaction.
Ratification must be by a person competent to have authorized the transaction: If, at the time of the act was done, the principal was not competent to authorized the transaction, the principal cannot by ratify the act subsequently. If an act is done on behalf of minor, he cannot ratify the act after becoming a major.
Ratification must be by a person existing at the date of the act done: The person, not existing at the date of the act done, cannot ratify the transaction.
Ratification must be by a person with full knowledge of material facts or with intent to take the risk of any irregularity: Where the principal has adopted or ratified the contract of an agent but without knowledge of the material facts or irregularity, he will not be bound by such contract. The principal must have full knowledge of all the material facts and circumstances in which the contract was done.
Ratification must be of the entire transaction and cannot be limited to one part of it: It is not open to the principal to ratify a part and refuse to another part of an integral whole. If an act is adopted, it will be held to have been adopted the whole.
Void or illegal contract cannot be ratified by the principal: By ratification a void or illegal contract cannot be made an enforceable and such acts cannot be ratified.

2. Describe the procedure of registration and effect of non-registration of agency in Nepal.

PROCEDURES OF REGISTRATION OF AGENCY BUSINESS

In Nepal, the law relating to agency is regulated by Agency Act 2014 and Agency regulations 2019, and the contract Act 2056. Provisions relating to registration of agency and effect of non-registration as well as renewal of agency are provided by e Act and Regulations. Similarly, the contract Act-2056 deals with the rights and duties of agent and principal, their liabilities and modes of termination of agency the etc.

A person if he wants to act as an agent he has to registered his name in the concerned government office. To that effect he has to apply to the Commerce Department of Nepal government to register his name stating particulars in the form of schedule registration fee. 1 of Nepal agency rules, 2019 along with Rs. 1000 as

When an application is submitted then under section 4(2) of the act the concerned officer shall have to examine the application and decide that whether or not register the name as an agent. If his name is to be registered the officer shall ask to submit deposit s prescribed and can make an agreement in different paper; and his name should be registered as an agent. If his name is not to be registered such notice should be given to him along with the application fee.

Agency shall be valid for one year only and is to be renewed with in the month of Baisakh of each fiscal year with a prescribed amount.

EFFECT OF NON-REGISTRATION

A person intending to act as an agent necessarily registered his name and no one can be an agent without being registered. Under section 8 of the Agency Act 2014 if a person is found doing agency business without registering his name he should be fined by up to Rs. 1000.

3. Highlight the nature of agency and explain the rights and duties of agent.

Agency is a comprehensive word, which is used to describe a relation that arises where one man is appointed to act as the representative of another. Contract of agency is understood in English law as the employment of one person by another in order to bring the latter into legal relations with a third party.

RIGHTS OF AN AGENT

There are numbers of right which an agent has against his principal and third parties. These rights are as follows:

Right of lien: Where agent is not paid lawful charges, remunerations or expenses by his principal and if goods of principal are under his control, he can retain the goods until the lawful charges are paid to him by principal. This right last till the lawful charges are fully satisfied.
Right to receive remuneration: If it is provided or not in the contract of agency, he has right to receive reasonable remuneration for his work for principal, provided that such has not done voluntarily or without intention to received remuneration.
Right to indemnity: If there is any loss of agent while acting on behalf of principal, he has right to indemnify form principal.
Right of compensation: The agent has right to be compensated for injuries sustained by him by neglect or want of skill on the part of the principal or by defective goods.

DUTIES OF AN AGENT

Agent owes a number of duties to his principal which vary in degree according to the nature of agency and circumstances of a case. These duties are as follows:

Duty to follow instructions: The first and foremost duty of an agent is to act strictly within the scope to the authority conferred upon him and to carry out the instructions of the principal; for example. Lilley V. Doubleday, 1881: Where the principal instructed the agent to keep the goods at a particular place (warehouse) but the agent selected another place equally good for the purpose at a lower rent. The goods were destroyed by fire and loss occurred without agent’s neglect. It was held that since the agent has not carried out the instructions of the principal he is liable for all losses.
Duty to take reasonable care, skill and diligence: Agent is always bound to act with reasonable care, skill and diligence as he possesses and to make compensation to his principal in respect of the direct consequence of his neglect or want of skill or misconduct. Further, he must act in good faith without intention to cause harm to principal.
Duty to follow custom: Where, however, the principal has not given any instruction, it is the duty of the agent to follow the customs prevailing in the same kind of business at the place where the agent conducts his business.
Duty to communicate: In cases of difficulty, it will be also the agent’s duty to communicate the principal and obtain his instructions while carrying the business of agency.
Duty to keep and render separate and, correct accounts: An agent must keep the money and property of the principal separate. He must keep true and correct accounts of all his transactions on behalf of his principal and to be prepared, all times, to produce them to his principal. U/S 59(1) (b) of NCA, 2056, an agent is bound to render proper accounts to his principal on demand.
Duty to protect and preserve the interests of the principal in case of his death or insolvency: At the time of death or insolvency, the agent must act to protect and preserve the interest of his principal.
Duty not to use information obtained in the course of the agency against principal: An agent can not use any information about principal obtained in the course of his business which may use against the principal. If he does so he will be liable for damages.
Duty not to make secret profit from agency: An agent, if he makes secret profit from agency, the principal can demand all the profits form the agent.

4. Define agent and explain the various types of agent.

In a contract of agency there are two parties, namely, agent and principal. The Agent is a person who is appointed by the principal as his representative to acts. for or on behalf him in dealing with third persons. In short, the person who is appointed or who represents or act for or on behalf or other is called as an agent. The agent within the limit of authority acts on behalf of the principal and binds him. or brings the principal in a contractual relation with third persons. The principal is liable for the act of agent to the third persons.

KINDS OF AGENT

Agent can be classified into different types under different basis which are as follows:

On the basis of limit of authority of an agent. There are three types of agent.

Specific agent: A specific agent is one who is appointed to perform a particular act or to represent in some particular transaction. If ‘A’ is appointed by ‘p’ as an agent to sell his house, ‘A’ is a specific agent. b. General agent: a general agent is one who has authority to do all acts connected with a particular trade, business or employment. For example, the manager of a firm has an implied authority to bind his principal by doing anything necessary for carrying on the business of the firm or which falls within the ordinary scope of the business.
Universal agent: A universal agent is one whose authority to act for the principal is unlimited. He has authority to bind his principal by any act which he does, provided that the act is legal and enforceable by law.
On the basis of nature of business which the agent has to perform: Agents are of two types:
Mercantile agent: If the act of agent is mercantile in nature, i.e. relating to trade and commerce is called as mercantile agent. There are different types of mercantile agent. They are:
Factor: The agent to whom goods are entrusted for the purpose of selling them. He has authority to do such things as are usual and necessary in the course of such business.
Auctioneer: An auctioneer is an agent appointed by a seller to sell his . goods by public auction for commission. He is primarily the agent of the seller, but after the sale, he becomes the agent of the purchaser also.
Broker: A broker is an agent who is employed to buy or sell goods on behalf of another. He is appointed to bring about a contractual relation between the principal and the third parties.
Commission: An agent who acts on behalf of another for commission of his act or service.
Del -credere agent: An agent who, in extra commission, guarantees his principal that the person with whom he enters into contract on behalf of the principal, shall perform their obligations otherwise he will be liable. He is surety also.
Non-mercantile agent: Agent who acts other than the acts of mercantile in nature. These includes attorneys. Solicitors, insurance agent, clearing and forwarding agent and wife etc.

5. Who is a sub-agent? When may an agent appoint a sub-agent?

MEANING OF SUB-AGENT

Agent is a person appointed by the principal to act for and on behalf him as his representative while dealing with third persons in the business of agency. Similarly the term sub-agent refers a person employed or appointed by and acting under the control of original agent in the business of agency. If ‘A’ who is an agent of ‘P’ to purchase a houses for ‘P’. ‘A’ instead of finding house and dealing with third person appoints ‘A1’ to find out and make a deal to purchase of house for ‘P’. ‘A’ is an agent and ‘A1’ is a sob-agent, who acts under control of ‘A’. The relation of ‘A’ & ‘A1’ is as like principal and agent. The original agent is liable for the act of sub agent and there is no privity of contract between the principal and sub-agent.

CASES WHERE AGENT MAY APPOINT SUB-AGENT

Though the maxim states a delegated cannot further delegate; but there are certain exceptions to this rule: or in certain cases delegation of authority by agent is valid these cases are:

Where the act which the agent is expected to do are ministerial acts, not involving any personal skill or confidence, the agent may delegate authority to sub-agent.
Where the custom of trade permits delegation, it can be done.
Where the principal knows that the agent intends to delegate his authority and there is no objection to such delegation, the agent may delegate authority to sub-agent.
Where the nature of authority is such that it necessitates execution by a deputy, delegation may be made to the sub-agent.
In an unforeseen emergency, the agent can always delegate. vi. . When custom or usages of trade permits delegation of authority by agent, sub – agent may be appointed.
Where the principal authorizes the agent to appoint sub-agent.
If agency is made for trust confidence and personal skill and ability in such the agent can not delegate his authority to sub agent.

6. How an agency is created? Show the difference between a subagent and a substituted agent.

There are various ways or modes by which the relationship of principle and agent may arise:

By express agreement: Normally, the authority given by principal to his agent is an express authority. In such a case, the agent may be appointed either by words spoken or written; Example: power of attorney.
By implied agreement: Implied agency arises from the conduct, situation or relationship of the parties. It may be inferred form circumstances of the case; and things spoken or written or the ordinary course of dealing may be accounted as circumstances of the case.

Implies agency may arise form different cases:

Agency by estoppel: If a person represents by words or conduct that the another person is his agent and third party reasonably believes on such representation and enters into an agreement, the person who represents so, is bound by the act of other, this is known as the agency by estoppel. ‘A’ by phone sates, ‘B’ is his agent believing that ‘C’ delivers his car to ‘B’. Afterwards ‘A’ cannot say ‘B’ is not his agent and not bound to pay the price though B was not his agent. In this case of agency by estoppel, the third party must act is good faith and must rely on a representation of the agent’s authority to act as an agent.
Agency by holding out: This may arise from the relation of employer and employee. A manager of a company is an agent of the company.
Agency by necessity: In certain urgent circumstances the law confers an authority on a person to act as an agent for the benefit of another. Such agency is called an agency of necessity. In such case, the agent must act in good faith and to protect and preserve the interest of the principle. ‘A’ a common carrier, carries dairy product of ‘B’ from Kathmandu to Narayanghat. Because of landslide, the carrier sold all dairy product at Muglin Bazar, otherwise, there was a danger of damage of all the goods. In such case ‘B’ cannot sue against ‘A’ because of want of authority. Here ‘A’ is treated an agent of ‘B’ by necessity.
Partner-ship: In partnership one partner is treated as an agent of other though there was no actual authority
Agency by ratification: Even if the agent enters into a contract without the authority of the principal, the principal may subsequently ratify, i.e. adopt the benefits and liabilities of a contract made on the principal’s behalf. It may occurs in two ways. Firstly, when a person acts one behalf of another without authority, adopts the transaction and, secondly, when a person is an agent of another but he exceeds his authority and acts on behalf of another, and he adopts the transaction. In both cases, if act is done on behalf of him and if he adopts the transaction, there is an agency relationship between the parties.
Agency by operation of law: Sometimes the law treates certain persons as an agent of others, for examples, when a company is formed, its promoters are its agent by operation of law. a partner is agent of others’ partner in the partnership firm. A son becomes an agent after the death of his father for his acts etc.

MEANING OF SUB AGENT AND SUBSTITUTED AGENT

A sub agent is a person employed by and acting under the control of the original agent in the business of agency. Example: if ‘A’ who is an agent of ‘P’ appoints ‘A1’ to act in the business of agency is called sub-agent. Whereas, a substituted agent is a person who is named by the original agent by express or implied authority of the principal to act for and under the control of the principal.

DIFFERENCE BETWEEN SUB AGENT AND SUBSTITUTED AGENT

Basis	Sub agent	Substituted agent
Definition	A sub agent is a person employed by and acting under the control of the original agent in the business of agency	.A substituted agent is a person who is named by agent on an express or implied authority form the principal to act for the principal.
Under control of	A sub agent dies his work under the control of the agent.	A substituted agent works under the instructions of the principal.
Privities of contract	There is no privity of contract between a sub agent and the principal.	There is privity of contract between the substituted agent and principal.
Right to sue	The principal can not sue to the subagent and the sub- agent can not sue the principal directly.	Substituted agent can sue directly to principal and principal also to do so.
Responsibility of act done	The agent is responsible to the principal for the act of the sub agent.	The substituted agent is responsible to his act to the principal.
Agency relation	Sub-agent is not an agent of principal.	Substituted agent is the agent of principal.
Principal’s liability	Principal is not bound by the act of sub-agent.	Principal is bound by the act of substituted agent.

7. What is agency? Explain the procedures of registration of agency in Nepal.

American Restatement Defines agency “as the relationship which exist between two persons, one of whom expressly or impliedly consents that the other should represent him or act on his behalf and the other of whom similarly consents to represent the former of so to act. Thus, agency is a relationship where one agrees to represent of other to do some act on behalf of other. Who appoints the other known as principle and, who is appointed by principle known as agent.”

ESSENTIALS OF RELATIONSHIP OF AGENCY

There are three essentials relationship of agency:

Agreement between the principle and the agent.
Declaration to be bound by the acts of another.
Intention of the agent to act on behalf of the principal.

RULES OF AGENCY

There are two important rules of agency:

Whatever a person can do personally, he can do through an agent.
He who acts through another acts by himself. PROCEDURES OF REGISTRATION OF AGENCY BUSINESS IN NEPAL

In Nepal, the law of agency is governed by two Acts, namely, Agency Act, 2014 and Rules 2019, and contract Act, 2056. Agency Act, 2014 and Rules, 2019 are relating to the procedures of registration, renewal and punishment for non registration of agency. The procedures of registration are follows:

Application: Any person willing to take agency is required to submit application to the director cum controller to the department of commerce for the registration of agency. The application must contained the name and address of the principal, the nature and area of transaction, the name and address of agent. Commitment to furnish description of transaction within every three month with fee for registration.
Registration: On receiving application, the director-cum-controller after necessary investigation registers the agency. Such registration has to be renewed before expiry of the month of Chaitra of every year.

Long Question Answer

1. “Delegatus non-potest delegare”. Comment and state the circumstances where an agent delegate his authority with difference between sub-agent and substituted agent.

The general rule of agency that ‘Delegatus non potest delegare’, which means a person having delegated authority cannot delegate that authority to another, Therefore, an agent is not entitled to delegate his authority to another without the consent of his principal. The reason behind this rule is that an agent is employed by the principal because he is known to the principal and he does have trust and confidence on the agent and it is unreasonable to say that the same trust and confidence shall apply to other person than the ager who is not known to the principal. An agency being a contract depending upon personal skill, trust and confidence, agent cannot delegate his authority though he has to perform the business of agency by himself: Further the delegation may lead to the non performance of contract or its obligations. Where the original agent delegates his authority, the person so appointed may be either sub-agent or substituted agent.

CIRCUMSTANCES WHERE AN AGENT CAN DELEGATE HIS AUTHORITY

An agent may appointed a sub-agent and delegated his authority in the given conditions:

Where the business of agency is such for its performance no personal skill or confidence required, i.e., the acts supposed to be performed by the agent are of ministerial in nature.
Where the nature of work is such that necessitates the execution by a deputy..
Where customs or usage of trade permits to appoint sub-agent.
Where the principal is aware of the intention of agent to appoint a sub-agent but does not object to it.
Where the contract expressly authorizes the agent to appoint sub-agent.
Where there is an unforeseen emergency.
Where the principal permits for the appointment of a sub-agent.

DIFFERENCE BETWEEN SUB AGENT AND SUBSTITUTED AGENT

The main difference between sub agent and substituted agent are as follows:

Basis	Sub agent	Substituted agent
Definition	A sub agent is a person employed by and acting under the control of the original agent in the business of agency	.A substituted agent is a person who is named by agent on an express or implied authority form the principal to act for the principal.
Under control of	A sub agent dies his work under the control of the agent.	A substituted agent works under the instructions of the principal.
Privities of contract	There is no privity of contract between a sub agent and the principal.	There is privity of contract between the substituted agent and principal.
Right to sue	The principal can not sue to the subagent and the sub- agent can not sue the principal directly.	Substituted agent can sue directly to principal and principal also to do so.
Responsibility of act done	The agent is responsible to the principal for the act of the sub agent.	The substituted agent is responsible to his act to the principal.
Agency relation	Sub-agent is not an agent of principal.	Substituted agent is the agent of principal.
Principal’s liability	Principal is not bound by the act of sub-agent.	Principal is bound by the act of substituted agent.

2. Give the meaning of agency and describe the situation where an agency is terminated.

Agency is a relation existing between two parties where one represents another or acts for another. It refers an appointment of one by another to act on behalf of his. representative while dealing with third persons. Such relation or appointment or representation is made under a contract that is called as agency contract. In this contract a person agrees to act on behalf of another as his representative in dealing with third persons. In an agency there are two parties, namely, Agent and Principal where agent acts on behalf of the principal as his representative.

TERMINATION OF AGENCY

The parties by an agreement can create a contract of agency, similarly, by an agreement they can terminate it. If agency is made for some specific purpose and for a fixed time period, the agency terminates when purposes are achieved or time is lapse. There are various modes in which the agency can be terminated.

MODES OF TERMINATION OF AGENCY

By performance: If agency is made for certain purpose or purposes, on the completion of the business or achievement of the purposes, the agency is terminated.
By the expiry of time fixed: If time is fixed for the agency, whether or not purposes are fulfilled, the agency is terminated after the expiry of time fixed.
By the destruction of the subject matter of the agency: If the subject matter for which the agency was created, destroyed, it terminates the contract of agency.
By the happening of any event rendering the agency unlawful: If subsequent to the contract, law change in such a way which invalidated the transaction then the agency also terminates.
By the bankruptcy of the principal: After the bankruptcy of principal if agent acts on behalf of principal he will be liable for that not the principal. After the. insolvency, the contract of Agency terminates.
By death or lunacy of the principal or agent, and in case of company by its dissolution: Death or lunacy of the principal or agent terminates the contract of agency.
By renunciation by the agent: If agent quites the business, then it terminates the contrast of agency.
By revocation by the principal: If principal revokes his authority then agent’s authority ends or terminates such can be done only by giving a notice to the agent.

AGENCY WHICH CANNOT BE REVOKED, OR IRREVOCABLE AGENCY

When an agency cannot be terminated or put to an end, it is said to be an irrevocable agency. An agency is irrevocable in the following cases:

Where the agency is coupled with interest: An agency is to be said as coupled with interest when it is created for securing some benefit to the agent over and above his remuneration as an agent. Where the agent has himself an interest in the property which forms the subject matter of the agency is irrevocable; for example: ‘A’ is a debtor and ‘B’ is a creditor. ‘A’ appoints ‘B’ an agent to sell his land and pay himself his money which he had given to ‘A’ as debt. ‘A’ cannot revoke his authority nor can it be terminated by his insanity or death.
Where the agent has incurred a personal liability: Where an agent incurs a personal liability, the agency becomes irrevocable.
Where the agent has partly exercised the authority: The principal cannot revoke the authority given to his agent after the authority has been partly exercised; so far as regards such acts and obligations, as arise from acts already done in the agency.