Financial Aspects

Remuneration

An agent may or may not receive payment for his role.  An agent appointed by contract is usually entitled to payment by its terms. The agent’s remuneration may be by way of commission or by fixed or recurrent payments.

The duties and liabilities of agents apply, regardless of payment and the permanence of the role. The same broad principles apply to persons who are employed as agents on an ongoing basis in return for commission or fees and to those who have occasional and fleeting authority to act on behalf of a principal, whether for payment or on a gratuitous basis.

An agent is entitled to receive fees and remuneration if payment has been agreed.  In a commercial context, it will be presumed that payment is to be made and an agreement to pay may, therefore, be implied. Even where it is no agreement is made or implied, an agent may be entitled to payment in a commercial setting, on the basis of “quantum meruit” restitution.


Entitlement

The appointment contract should set out the terms of any entitlement to remuneration.  There may be a provision for a commission, a flat fee, or retainer. It is a matter of interpretation, as to when the entitlement to the commission is secured.

An agent is entitled to commission where he has earned it in accordance with the terms of the contract.  The agent may be entitled to payments on account of the commission which has accrued to him.

Many disputes arise in relation to the entitlement to a commission, in cases where an agent has been appointed to sell a valuable asset.Most commonly, the agent’s entitlement to commission expressly or impliedly requires that the sale is completed. It may be implied that the principal should not frustrate the agent’s entitlement to commission.

In some cases, it is enough for the agent to introduce a willing and realistic buyer, for his entitlement to arise. In this case, the agent may be entitled to remuneration, even if the principal does not complete with the buyer.

The courts have taken different views of these types of case.  In some circumstances, they have decided that there is an implied duty not to frustrate the earning of commission by refusal to enter a contract with a third party, whom the agent has introduced. In other cases, the agent has been held not to be entitled to damages or commission where the principal refuses to enter or breaches a purchase contract.


Implied Right to Commission

At common law, the default presumption is that the principal must pay commission on business actually acquired by the agent through his efforts. The agent may also be obliged to indemnify the principal against loss sustained through the insolvency of customers introduced by him.

An agent cannot generally claim commission if a customer places an unsolicited order with the principal.  This rule can be modified by trade or custom or by the terms of the contract.

It is a matter of interpretation of the agency agreement, whether an agent is entitled to a commission for a repeat order. The entitlement to commission will more readily arise for repeat orders entered during the contract period, than for those entered after the contract period.

The agent may still be entitled to commission on contracts performed in the course of the agency prior to termination.  The termination of the agency may be a breach of contract.

An agency agreement may provide the agent with sole or exclusive rights in a particular territory.  In this case, the agent will usually be paid commission on all sales emanating from the territory, whether procured by his efforts or otherwise.


Indemnity and Lien

An agent is entitled to be indemnified against expenses and liabilities incurred in the course of his agency. The indemnity is a right to be reimbursed for costs and expenses incurred.

The principal is obliged to indemnify the agent in relation to acts within the scope of his authority. The indemnity does not apply to expenses or liabilities which have been incurred by reason of the agent’s default, which are unlawful or are unnecessary.

An agent has a lien over property including the principal’s papers, as security for payments due by the principal to him. Most agents are entitled to a lien which is limited to the particular property the subject of the transaction but does not extend to property held in relation to other transactions.


Duty to Account

The agent must account to his principal in respect to all transactions entered.  He must keep records and accounts.  If he fails to do so, all presumptions are made against his interests and in favour of the interests of his principal. If he mixes his monies and assets and those of his principal, the remaining property may be presumed to belong to the principal, in the event of a partial loss.

The principal may appoint co-agents, either jointly or severally.  Authority may be given jointly, severally, or jointly and severally. Co-principals may appoint an agent jointly. The agent may account to any of them. He need not account to them separately.

The agent must segregate the principal’s assets from his own. Works and documents relating to the principal’s business must be produced on demand.

An agent who is in breach of duty to his principal is liable for damages to his principal.  Ordinary principles of damages arise.  He is liable for the amount of loss incurred.

An agent who fails to pay over monies on demand received by him on account of the principal may be sued for monies had and received. He may be required to render accounts.


Taking of Accounts

Where the relationship is complex, the matter may be referred by the court to the Examiner or another court officer for the taking of accounts. In accounting to the principal, the agent may deduct proper expenses and costs.

Where an account has been agreed (e.g. by a statement) the principal may take action for an account stated. An account stated refers to the balance due on a running or multi-item account. The agreement may be oral or in writing.

Generally, settled accounts may not be reopened without leave of court. An account stated may involve more than one party, each with an obligation to account to another.  It may be reopened on proof of fraud or undue influence.

Interest is payable in respect of monies received on behalf of the principal, under an implied contract where there has been a default. Interest must be payable where there has been fraud, secret profits, and bribes.


Fiduciary Duties

Fiduciary duties apply in many circumstances of trust, where a person is in a position to take improper advantage of another. An agent owes fiduciary duties to his principal. This encompasses a duty to act in good faith and not to take unfair advantage of his relationship with the principal.

The purpose of fiduciary obligations is to ensure that the agent does not have a conflict of interest and acts in the principal’s best interests. The duties apply automatically, irrespective of what a contract might provide. Fiduciary duties may endure after the agency relationship terminates.

The agent must act in good faith and avoid conflicts of interest. He must not make a secret profit. He must not offer nor accept a bribe.

The agent must account to the principal for all benefits received on the latter’s behalf. This includes any benefit or opportunity which in any way arises from the agency. He must hold it on behalf of the principal and account to the principal for it.


Accounting for Benefits I

If an agent takes advantage of his position and enters a contract for his personal benefit, he must account to his principal for any benefit received.  The obligation applies, even if the principal himself would not and could not have undertaken the contract’s obligations.

If the agent wishes to take up a benefit or opportunity personally, which the principal cannot take up, he must fully disclose the circumstances and obtain informed consent.

The agent cannot make a secret profit.  This applies even if the agent does not have a contract and is not paid.  If he receives any profits, he must account for them to the principal. This may include, for example, a secret commission taken in negotiating a contract.


Accounting for Benefits II

The above mentioned principle also applies where the agent profits from information which he learns in the course of his agency.  He must hold the benefits which he receives, on trust for the principal.

If an agent receives a bribe, he may be dismissed and need not be paid by the principal.  Commission already paid can be recovered.  A third-party contract procured by the bribe can be cancelled. The agent must account for the monies received, and compensation may be payable.

If the agent mixes his assets with those of the principal, the principal may claim the whole of the fund, unless the agent can prove which parts are his.  Where an agent becomes insolvent, the principal’s assets and funds may be recovered, so that they do not fall into the hands of the agent’s creditors.


References and Sources

Irish Sources

Commercial Law, Fidelma White 2nd Ed. Thomson Round Hall, Dublin, 2015.

Commercial Law Michael Forde, 3rd Ed Tottel, Haywards Heath, 2005

 

UK Sources

Principles of the Law of Agency Howard Bennett  2013,

Agency 3e: Law & Principles (3rd Revised Ed)  Munday, Roderick;

Bowstead & Reynolds on Agency, 20th Ed.  Professor Peter G. Watts

The Law of Agency  Friedman