It is not always possible for a person to do everything by himself. Due to the complexities of modern business; it becomes necessary to delegate some of the acts to be performed by another person. Such another person is called an agent. The person to whom the act is done, or who is represented of that work is called the principal. The contract, which creates the relationship of principal and agent, is called a contract of agent or agency.

E.g. 'A' appoints 'B' to sell his land on his behalf. Here 'A' is principal and 'B' is his agent. The relationship between 'A' and 'B' is called contract of agency.

The Nepal Contract Act, 2056 has defined the term 'Contract of agency' in section 56 as "any person may appoint any other person as his agent to do any thing on his behalf, except the something connecting with his personal skill, or to conduct business as his agent or any transaction with a third person on his behalf or to represent himself to such person, or 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".

Section 182 of the Indian Contract Act, 1872 defines that "an agent is a person employed to do any act for another 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 the agency is a 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 the principal and the third parties. The Acts of the agent bind his principal to third person. So, the function of the agent, as to bring his principal in to contractual relationship with the third party, creates the relation between principal and third party. The agent has power to make the principal answerable to the third party for his conduct.

General Rules of Agency

 There are two important general rules regarding agency,

• Whatever a person competent to contract may do by himself, he may do through an agent except for acts involving personal skill and qualification. For example, a person cannot marry through an agent, can not paint a picture through an agent etc.
• "He who does through another, does by himself. "In other words, the acts of the agent are, for all legal purposes, the acts of the principal.