A del credere agent only becomes liable to pay the principal after the buyer defaults on payment. If the principal (seller) is unable to collect for some other reason. A del credere agent is an agent who in consideration of an extra remuneration guarantees to his principal the performance of the contract by th other party. This commission is called del credere commission. He occupies the position of a guarantor as well as of an agent. A Del credere agent is appointed generally when the principal deals with person about whom he knows nothing.

Example: A company hires a del credere agent to sell their products to retailers. The agent guarantees that the retailers will pay for the products on time, even if they sell them on credit to their customers. If a retailer fails to pay, the del credere agent is responsible for the payment. In return for this guarantee, the agent receives a higher commission for sales.

Mr. X appoints Y to sell the goods in the market on the terms that Y has to undertake the guarantee of the credit, which is extended to the buyer, i.e., if the buyer makes any default in the payment of the money. The Y would be liable to the extent of that amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment.

In the present case, there is the principal-agent relationship between Mr. X and Y as Mr. X appoints Y to sell the goods in the market on the condition that if any credit is extended to the buyer, then Y has to take responsibility for the same. If the buyer cannot repay the amount, then Y has to correct the default and pay the amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment. So, this is the case of the Del Credere Agency.

Advantages of Del Credere Agency

The different advantages related to the del credere agency are as follows:

• From the seller’s perspective, the agent would be responsible for the seller up to the amount of the default amount if the buyer were to default in making a payment. Therefore, in the event of a buyer default payment, the seller will receive payment from the agent..
• In the Del Credere agency, the agent is only responsible for the payment to the principal if the buyer fails to make the required payment; other problems that can develop between the buyer and seller are not covered by this responsibility. Therefore, the agent benefits from this.
• In exchange for taking on the additional risk, the agent will receive additional compensation from the seller on top of the standard sum he would have received had he not taken on the additional risk. The del credere commission, which is the additional sales commission that makes up this additional payment, is often how it is received..

Disadvantages of Del Credere Agency

The disadvantages related to the del credere agency are as follows:

• According to the seller, a Del Credere agency only makes the agent responsible for the payment to the principal if the buyer fails to make the required payment; any other problems between the buyer and seller are not covered by this responsibility. Therefore, the seller won’t be able to reclaim the money from the agent in the event that a dispute emerges between the buyer and seller.
• Additionally, the seller must pay the agent an additional sum in addition to the standard fee, which he could have done if the agent hadn’t taken on the additional risk. Therefore, in situations where there hasn’t been a default, the seller is required to give the agent the additional commission

Case Laws:

In P. Krishna Bhatta v Mundila Ganpathi Bhatta AIR 1955 Mad 648, J. Ramaswami explained the concept as “where he said that in legal terms and phraseology, any person who acts for another cannot be called an agent. If such a thing happens, a servant rendering his services to his master; or a person tilling anothers field or a person working in somebody elses shop or factory would be considered as their agent.”

In Syed Abdul Khader v Rami Reddy (1979) 2 SCC 601 the Supreme Court held that “the expression agency is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and a third party”.

Important Points about Del Credere Agency

The different important points related to the del credere agency are as follows:

In a Del Credere agency, the agent is only held responsible for the principal’s payment if the buyer fails to do so. In the event that any other problems develop between the buyer and the vendor, the same is not liable. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible.

The seller must pay the agent extra for taking on the extra risk in the form of insurance services; hence, the agent will get both the regular commission for sales and the additional commission for providing the insurance services. This additional payment typically takes the form of the Del Credere commission, which is an additional sales commission.

The nature of the Del Credere agency is such that it puts the agent in the agency in the situation wherein he has the responsibility in connection with the seller and the buyer and of product or service under consideration.

Conclusion

As a result, in the case of the Del Credere Agency, there is a principal-agent relationship between the seller and the agent under the transaction, wherein the agent, in addition to acting as a salesperson on the seller’s behalf, also fulfills the role of an insurance company by taking on an additional risk in the event that the buyer defaults on the payment of the purchase price. To the extent of that sum, the agent would be accountable to the seller.

The agent, however, is not responsible for any other problems that can emerge between the buyer and the seller and only becomes responsible for the payment to the principal if the buyer misses a payment deadline. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible. Additionally, the seller must pay the agent an additional fee known as the Del Credere commission in exchange for the agent taking on the additional risk in the form of insurance services.