The Principals Obligation to Pay Commision to His Agent

Before we discuss our task – “The principal’s obligation to pay commission to his agent depends on the kinds of agent”, we must first understand the terms.

An agency relationship is defined under the common law as follows:

Agency is the fiduciary relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.

(i) The one for whom action is taken is the principal.

(ii) The one who is to act is the agent.

In simple, we can say that:

Agent

A person who acts within the scope of authority conferred by principal binds the principal in the obligations she creates against third parties.

Principal

A person who grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party.

Commission

Indemnity of the principal to the agent who has acted within the scope of the actual authority given during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal’s business.

Rules make provisions which include the following:

If there is no agreement as to remuneration (which as a matter of good practice there should be) the agent is entitled to remuneration customarily allowed to agents for the type of goods involved in the area where the agent carries on his activities. If there is no such customary practice, the agent is entitled to reasonable remuneration.

Where remuneration is wholly or partly commission based, there are general rules dealing with entitlement to commission payments, commission on transactions concluded after the end of the agency contract, apportionment of commission between old and new agents, and when commission becomes due.

The principal must provide statements of commission quarterly and the agent must be provided with all available information which he needs to check the amount of commission due to him.

Kinds of Agent

Agents are classified in various ways according to the point of view adopted. From the viewpoint of the authority they have, they can be classified as special agents, general agents and universal agents. They are classified as mercantile or commercial agents and non-mercantile or non-commercial agents. There are different various types of kind agents are as follows.

(a.) Sub-Agent:

A sub-agent, according to section 191, is a person whom the original agent employs in the business of the agency and who under the control of the original agent. Thus the relation of the sub-agent to the original agent is, as between themselves, that of the agent and the principal.

Sub-agency denotes delegation of power by an agent to a person appointed by him as sub-agent, meaning that the agent himself is delegate of his principal. According to this, a person to whom powers have been delegate cannot delegate them to another. Section 190 of the Act. contains this principle. Generally, an agent cannot lawfully employ another to perform acts, which he has expressly. But, if by the ordinary custom of trade, a sub-agent may be employed, the agent may to do so.

Illustration:

A tells B to buy something, but B assigned his friend to buy it for him. A is the principal, B is the agent and C is the agent of B, which is sub-agent. The agent is the principal of the sub-agent both to the principal and the third party.

Discussion:

There is no obligation for principal to pay commission to the sub-agent, but to agent that he employed. The principle must pay commission to his agent if the agent’s agent (sub-agent) has acted within the scope of the actual authority given to the agent by principal during the course of the relationship. In the case of appointment without authority, the principle is not bounded by the acts of the sub-agent, nor is the sub-agent liable to the principal in term of Section 193. In case of proper appointment, the agent is responsible to the principal for the acts of the sub-agent. Thus, a commission agent for the sale of goods who makes a proper employment of a sub-agent for selling his principal’s goods is liable to the principal for the fraudulent disposition of the goods by sub-agent within the course of his employment.

(b.) Substituted Agent:

Substituted agents are different from sub-agents. Section 194 provides that substituted agents are not sub-agents but are in fact agents of the principal. Suppose an agent has an implied authority to name another person to act for the principal in the business of the agency, and he has named another person accordingly. In the circumstances, such a named person is not a sub-agent he is an agent of the principal for such part of the business of the agency as has been entrusted to him.

Illustration:

A directs B who is a solicitor to sell his estate by auction and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. An auctioneer is an agent who has been entrusted to sell the goods of the principal by public auction to the highest bidder. In such a situation, C is not sub-agent, but is A’s agent for the sale.

Discussion:

The principle must pay commission to his agent amount of commission agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship. There will be no obligation for principal toward the action of agent who acted beyond the authority given or against the legal requirements.

(c.) Special Agents:

A special agent is also known as a specific or particular agent such as selling or buying of goods or house etc. Such agent appointed to perform a particular work or to represents his principal in particular transaction only. As soon as the said period lapses, the agency stands terminated. Specific agents have a limited authority and as soon as the entrusted to him is performed, his authority also comes to an end. A special agent cannot bind his principal in any act other than for which he is specially appointed. If he does anything outside his authority, his principal cannot be bound by it. The third parties that deal with a special agent must ascertain the extent of the authority he has.

Illustration:

A asks B to buy something for him within an hour, and B has become the agent of A. As soon as B done buying or an hour passed, B is no longer agent to A.

Discussion:

The principle must pay commission to his agent amount of commission agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship. In case of agent acted beyond his authority given, principal is not bind by his acts and it is no obligation for principal to pay his agent.

(d.) General agents:

This type of agents has a general authority to do everything in the course of his agency and he has to perform all the acts in the interest of his principal. Thus, a general agent is one that has authority to do all acts connected with the business of his principal. General agents have an implied authority to bind his principal by doing various acts necessary for carrying on the business of his principal. The authority of a general agent is continuous until it is terminated by principal.

Illustration:

A manager of a branch shop of a firm. Sufficiently wide powers are vested in him to affect the business deals, enter into trade bargains, to make purchases and also payments of the purchases, to receive money on behalf of his principal.

Discussion:

The principle must pay commission to his agent amount of commission agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship until the agent is terminated. There will be no obligation for principal toward the action of agent who acted beyond the authority given or against the legal requirements.

(e.) Universal Agent:

A universal agent has a universal or an unlimited power to act on behalf of his principal. A universal agent is one whose authority is unlimited and can bind the principal by any of his act provided that they are legal & principal himself can perform that legally. A universal agent is practically substituted for his principal for all those transactions wherein his principal cannot participate.

Illustration:

A person who left his country for a long time, he may appoint his son, wife or friend as his universal agent to act on his behalf in his absence.

Discussion:

The principle must pay commission to his agent amount of commission agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship until the agent is terminated. There will be no obligation for principal toward the action of agent who acted beyond the authority given or against the legal requirements.

(f.) Co-Agents:

When a principal appoints two or more persons a agents jointly or severally, such agents are known as co-agents. Their authority is joint when nothing is mentioned about the exercise of their authority. It implies that all co-agents concur in the exercise of their authority unless their authority is fixed. But when their authority is several, any one of the co-agents can act without the concurrence of other.

Illustration:

A manager appoint 2 labour agencies at a same time, he can choose to appoint the labour agencies to find the same kinds of labour required or he can specifically ask labour agency A to get a clerk and labour agency B to get an accountant.

Discussion:

The principle must indemnify his agent which agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship until the agent is terminated. There will be no obligation for principal toward the action of agent who acted beyond the authority given or against the legal requirements.

(f.) Auctioneers:

An auctioneers is a mercantile agent who is appointed to sell goods on behalf of the principal i.e., seller and for this function, an auctioneer get a reward in the form of a commission. An auctioneer conducts auction on behalf of a seller, as he is primarily the agent of the seller. However, after the sale, he also becomes of the purchaser who gives the highest bid. An auctioneer has no authority to self-the goods of his principal by private contract or contracts.

Illustration:

A is selling to whoever offers the highest price. A is to be said as auctioneers.

Discussion:

As discussed earlier, auctioneers are also a kind of agent. So, the principle must indemnify his agent which agreed upon the employment if the agent has acted within the scope of the actual authority given to the agent by principal during the course of the relationship until the agent is terminated. There will be no obligation for principal toward the action of agent who acted beyond the authority given or against the legal requirements.

Besides the above mentioned agents, there are other types of agents also such as brokers, bankers, clearing agents, forwarding agents, underwriter, estate agent, etc. They also play an important role and perform various functions for and on behalf of their principals.