Contract of agency

Agent and its types

A person who represents the principal as an agent. They are the entity that actively participates in a contract or has the intended outcome. A person who is given the power to act on behalf of another by employment, a contract, or apparent authority is known as an agent. The key is that the agent can legally bind the principal or expose himself to liability if he injures someone while acting within the bounds of his employment.

• Sub-agent
  • According to section 58(1) of the Nepal Contract Act, the agent may, unless otherwise provided for in the contract, appoint a sub-agent with the consent of the principal person if the nature of any trade, business, or transaction requires it or if a sub-agent can be appointed based on a provision contained in or practice followed in the contract relating to agency. A sub-agent is a person who works for or is overseen by an agent and has been given the authority to perform the tasks of an agent by another agent.
• Substitute Agent
  • A substituted agent is a person chosen by the agent to carry out the principal's direct or inferred instructions in the course of the agency's activity. A substituted agent is controlled by the principal but is only named by the agent. For his principal, it functions independently. The principal and the substituted agent are parties to a written agreement. The actions of a substitute agent are not subject to an agent's liability.
• Co-agent
  • Co-agents are those who obtain the same rights as the original agent concurrently.

Rights and duties of an agent

Rights:

• Right to receive remuneration:
  • The agent is fully entitled to obtain payment and commission for his services. The principal must pay the agent the agreed-upon compensation. Agents have the right to request compensation once they have completed the work that has been allocated to them by the principal.
• Right to retain money:
  • The agent working for the principal is entitled to reimbursement for expenses spent while performing agency duties.
  • Advances
  • Expenses
  • Dues
• Right to lien:
  • Until a principal's obligation is satisfied, the agent has the right to keep the principal's goods or other properties.
• Right to indemnification against the consequences of lawful acts:
  • An agent has the right to sue for compensation for any losses he incurs, even if they were caused by legal actions taken while acting in the course of their official duties. However, an agent who commits misconduct in the agency's business is not entitled to compensation for that portion of the business in which he has committed misconduct. For instance, Krishna hires Hari to beat Shyam and promises to hold him harmless from any fallout. Shyam loses to Hari. Since the deed was unlawful, Hari, acting as Krishna's agent, is not entitled to any compensation.
• Right to indemnification against the consequences of the acts done in good faith:
  • When an act performed by an agent in good faith results in a violation of a third party's rights, the agent has the right to compensation for such damages. As an illustration, Krishna sells Hari's possessions at Hari's request. Actually, Hari is not allowed to get rid of it. As Krishna (Hari's agent) is unaware of this, he distributes the selling proceeds. When Shyam, the rightful owner of the goods, sues Krishna to reclaim the items and related costs, Hari is obligated to hold Krishna harmless because the deed was done in good faith.
• Right to indemnification for injury due to principal’s neglect:
  • The agent is entitled to compensation for any harm he sustains as a result of the principal's negligence or lack of skill.
• Right to claim compensation in case of removal without any reason:
  • The agent is entitled to compensation if the principal fires the agent without cause. If an agent has been approved for a specified timeframe or job, the principal cannot fire him before that timeframe or job.
• Right to stoppage of goods in transit:
  • An agent has the right to halt the delivery of goods to the principle if the principal has become unable to pay for the items brought by the agency or has incurred a personal liability for the cost.

Duties:

• Should adhere to the teacher's instructions.
• Must exercise reasonable diligence and competence.
• To accurately account for.
• To convey a challenging situation to the principal.
• Not to handle matters on his own.
• Pay an amount.
• Not to Create a Negative Title
• Not to transfer his power.
• Not to make an unnoticed profit.
• Not to turn agency data against the principal.
• To maintain confidentiality.
• To move in a prudent manner.

Liabilities of Agent:

• Although agents bind the principal to his actions, there are several circumstances in which an agent may be held personally liable. The following are those instances:
• The terms of the agency agreement may subject the agent to personal liability.
• The custom that is being practiced in that specific industry. may also subject the agent to personal liability.
• Personal liability occurs if the agent fails to perform in his capacity as agent and manages the transaction in his own way.
• When acting on behalf of a foreign principal, the agent is held personally responsible.
• The pretender is held directly responsible.
• When an agent acts on behalf of a principle who is not yet real, that agent is held personally responsible.

Rights and duties of principal:

They are the ones who use an agent to communicate with the third party. In order to establish one or more legal connections with third parties, he or she gives an agent permission to act. Given that it is a unique contract between an agent and a principal, all requirements for a legally binding contract must be met. As a result, the principal needs to be qualified in legal terms.

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:

• Paying compensation: The principal's responsibility is to compensate the agent if the actions are carried out in accordance with the principal's instructions.
• To cover costs with a sum: The agent's principal may be responsible for a variety of expenses related to the agency operation. The primary responsibility is to refund such costs.
• Paying indemnity: The following circumstances require the principal to hold the agent harmless:
  • Loss as a result of legal actions.
  • Loss as a result of actions taken in good faith.
  • Neglect-related loss.
  • If someone is removed for no apparent cause.

Termination of contract of agency

Termination of agency 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:
  • An agency may be constituted for a specific period of time when a contract is signed. In such a scenario, the agency ends when the predetermined period of time has passed.
• By the fulfillment of object:
  • An agency contract may be discovered to accomplish a certain goal or to carry out a specific task. In this situation, the agency is only terminated after the task is finished.
• 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:
  • Contracts should be made by the principal. When the principal becomes bankrupt, he loses his ability to enter into contracts, and the agency is terminated. However, the statute makes no mention of the agent's insolvency. As a minor can also function as an agent, it follows that an insolvent person can also do so.
• By the destruction of subject matter:
  • The agency agreement expires when the contract's subject content is destroyed.
• By principal – Alien Enemy:
  • When a conflict breaks out between two countries and the principal is an outsider, the principal becomes the alien enemy, and the agency contract is dissolved.
• By the liquidation of company:
  • Due to its legal status, a company may operate as both a principal and an agent. No matter the situation, the agency is terminated if the company goes into liquidation.
• By the termination of Sub-agency:
  • Every time a man agency is discontinued for any reason, the sub-agency likewise ends.
• By the termination of agency by the Principal:
  • The Principal may end the agency relationship by giving notice to the agent. Agent will do this if they encounter any misery. Agent must get payment from the principal.

Termination of agency by the act of Parties: The following are instances in which a party's action terminates an agency.

• By the termination of agency by the Agent:
• Agent may also end the agency agreement by giving notice to the principle, but if the principal suffers as a result, agent must make up for it.
• By the termination of agency by both the parties to the contract:
• The agency agreement may be terminated by mutual consent between the principal and the agent.
• By the performance of the contract:
• An agency contract expires when both parties named in the contract have completed their work.

Procedure to registration agency business in Nepal

In Nepal prior to 1992 BC, there was no special provision for doing business activity.

1992 saw the issuance of an ordinance (Istihar) in this regard by Prime Minister B.S. Rana.

The Agency Act had been passed and put into effect in B.S. 2014. The provisions governing agency are provided in Chapter 8 of the Prevailing Contract Act of 2056 in order to make them very explicit.

Major Provisions of agency Act, 2014

• Definition of Agent and Registered Agent:
• Registration and its procedures
• Renewal
• Submission of the statements
• Transfer of agency
• 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.

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