Commission Agency Contracts in Kuwaiti Law — Rules & Obligations

Concept of Commission Agency

Commission agency is a contract whereby the agent undertakes to perform a legal transaction in their own name but on account of the principal, for a fee (commission). Key features:

• The agent deals with third parties in their own name, not the principal's
• Third parties do not know of the principal and have no direct relationship with them
• The agent acquires rights and bears obligations toward third parties
• The internal relationship between agent and principal is governed by the agency contract

Commission Agency vs. Ordinary Agency vs. Brokerage

Elements of the Contract

1. Consent: Mutual agreement between agent and principal on the commission agency and its terms
2. Subject matter: The legal transaction the agent is to perform (purchasing goods, selling products, entering a contract)
3. Cause: A lawful motive for the contract
4. Capacity: Both agent and principal must have legal capacity for the relevant transaction

Commission Agent's Obligations

• Performance: Execute the assigned task with the diligence of a prudent person, following the principal's instructions
• Notification: Inform the principal of all information relating to execution
• Asset preservation: Safeguard goods and funds in their custody
• Account rendering: Provide a detailed account of transactions conducted on the principal's behalf
• Staying within authority: Follow the principal's instructions without exceeding the mandate
• No self-dealing: Not buying for themselves goods they are commissioned to sell, or selling to themselves goods they are commissioned to buy

Principal's Obligations

• Pay commission: Pay the agreed fee upon task completion
• Reimburse expenses: Reimburse the agent for expenses incurred in executing the agency
• Compensate damages: Compensate the agent for damages suffered due to execution without the agent's fault
• Accept delivery: Receive goods the agent purchased on their behalf on time

Del Credere Guarantee

The del credere clause is a distinctive feature of commission agency:

• Concept: An agreement whereby the agent guarantees to the principal that third parties will perform their obligations
• Effect: The agent becomes a guarantor for payment or contract performance by third parties
• Additional commission: The agent earns an extra commission for providing this guarantee
• Nature: The guarantee is an accessory obligation linked to the agency contract

Agent's Relationship with Third Parties

• Toward third parties: The agent is the contractual party — acquiring rights and bearing obligations directly
• Toward the principal: Obligated to transfer the contract's effects and render account
• No direct link: No direct relationship between principal and third party unless the principal's identity is disclosed
• Right of retention: The agent may retain the principal's goods as security for commission and expenses

Termination

• Completion of the assigned task
• Expiry of the agreed term
• Revocation by the principal — with compensation if without legitimate cause
• Resignation by the agent — with reasonable notice to the principal
• Death of the agent or loss of capacity (being personal in nature)
• Bankruptcy of either party

Frequently Asked Questions

May a commission agent buy for themselves goods they are commissioned to sell?

Generally no, as this creates a conflict of interest. However, it is permitted if the principal expressly authorizes it or if the sale is at the published market price.

What is the difference between commission and brokerage?

A commission agent concludes the contract in their own name and bears liability toward third parties, while a broker merely introduces the parties without concluding the contract or bearing responsibility for its performance.

May the principal claim directly against the third party?

Generally no, since the principal is not a party to the contract with the third party. Exceptionally, this is allowed if the agent becomes bankrupt or if the principal's identity is disclosed with their consent.