Del credere

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A del credere (Italian for belief or trust) agent, in English law, is one who, selling goods for his principal on credit, undertakes for an additional commission to sell only to persons who are absolutely solvent. His position is thus that of a surety who is liable to his principal should the vendee make default. The agreement between him and his principal need not be reduced to or evidenced by writing, for his undertaking is not a guarantee within the Statute of Frauds (29 Car 2 c 3). A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract for example, if the buyer refuses to take delivery.

In the case of United States v. Masonite Corp., 316 U.S. 265 (1942), the U.S. Supreme Court evaluated the antitrust status of use of a del credere agency business structure. Such an arrangement often may, as it did in the Masonite case, involve the principal’s fixing the price at which the agent sells the goods that the principal supplies it. The Supreme Court held that, although the parties’ agency agreement could be assumed genuine rather than sham, id. at 277, use of del credere agency does not necessarily insulate the firms from antitrust liability.[1]

The Court observed that the label the parties used for their agreement was not significant, because the Court “has quite consistently refused to allow the form into which the parties chose to cast the transaction to govern.” Id. at 278. Moreover, although the contract may be useful “in allocating risks between the parties and determining their rights inter se, its terms do not necessarily control when the rights of others intervene,” such as those of creditors or the public. Id. at 276-77. Because the arrangement had the purpose of fixing competitors’ prices it was held illegal under Sherman Act § 1. The holding in Masonite thus seems to overrule partially the Supreme Court's earlier holding in United States v. General Electric Co., 272 U.S. 476 (1926).

  1. ^ The Court said, “We assume in this case that the agreements constituted the appellees as del credere agents of Masonite. But that circumstance does not prevent the arrangement from running afoul of the Sherman Act.” Masonite, 316 U.S. at 277.

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