The commercial agency agreement: concept, types, obligations and termination
The commercial agency agreement is a consensual and non-formal contract, governed by Articles 244 to 280 of the Commercial Code, whereby one party, the agent, undertakes to carry out, on behalf and for the account of another, the principal, one or more commercial transactions.
In other words, it is a commercial intermediary agreement in which the agent acts on behalf of the principal in return for receiving remuneration for the services provided.
Analogies and differences between the commercial agency agreement and other legal arrangements
It is important to distinguish the commercial agency agreement from other similar legal arrangements, as in practice they may give rise to confusion:
1. Civil mandate agreement
The civil mandate agreement is governed by Articles 1,709 to 1,739 of the Civil Code. One of the most significant differences is that, unless otherwise agreed, it is gratuitous, whereas the commercial agency agreement is, as a general rule, remunerated.
Furthermore, pursuant to Article 244 of the Commercial Code, the agency arrangement necessarily requires that the mandate relate to an act or transaction of a commercial nature, and that at least one of the parties has the status of a trader or commercial intermediary.
2. Contract for services
In contracts for services, the existence of a definite price for the performance of the agreed subject matter is essential.
By contrast, in the commercial agency agreement, as provided in Article 277 of the Commercial Code, the agent’s remuneration does not constitute an essential element, as it is even possible to agree an agency arrangement without remuneration. Where it is onerous, the agent will only be entitled to receive payment once the subject matter of the contract has been performed, that is, once the result constituting the agency task has been achieved.
3. Consignment agreement
Under a consignment agreement, the accipiens (the party receiving the goods for sale) is granted exclusive power of disposal over the goods and may transfer them to third parties in their own name.
Under this agreement, the accipiens assumes the risks relating to the goods while they remain in their possession and undertakes to pay the tradens a price agreed in advance for the goods sold or, failing that, to return any unsold goods within the agreed period. Furthermore, they are free to sell on such terms as they consider appropriate.
By contrast, in the commercial agency agreement, the goods are not transferred to the agent, as they act on behalf of the principal and do not acquire an exclusive power of disposal. Pursuant to Article 266 of the Commercial Code, the agent must comply with the instructions received, and under Article 270 they require the principal’s authorisation to sell for cash or on credit, unlike in a consignment agreement.
Types of commercial agency agreement
Within commercial agency agreements, these may be classified, on the one hand, according to their scope and, on the other, according to their outward effect and relationship with third parties.
According to their scope, the agency arrangement
- Imperative: The principal stipulates in the contract, in a specific and detailed manner, all the terms relating to the performance of the agreement.
Indicative: In this case, the principal sets only certain terms for the performance of the agreement and, in respect of matters not covered, the agent will act in accordance with commercial practice and their professional judgement. - Discretionary: The principal places full trust in the agent and grants them authority to carry out the terms of the contract as if the business were their own.
According to their outward effect and relationship with third parties
- In their own name: The agent is authorised to contract with third parties as if the business were their own and is therefore not obliged to disclose the identity of the principal. Consequently, as provided in Article 266 of the Commercial Code, third parties shall have no direct right of action against the principal, nor shall the principal have such a right against them.
- In the name of the principal: The agent acts on behalf and in the name of the principal and must disclose this capacity to the third parties with whom they contract, as provided in Article 247 of the Commercial Code. Consequently, third parties do have a direct right of action against the principal, and the principal likewise against them.
Formation of the commercial agency agreement
As regards form, since it is a consensual contract, it is sufficient for the parties to express their consent, whether expressly or tacitly. Therefore, it may be concluded in writing or orally, although for reasons of legal certainty it is advisable to formalise it in writing.
Article 249 of the Commercial Code provides that the agency shall be deemed to have been tacitly accepted when the agent carries out any act relating to the mandate.
If the agent declines the mandate, they must notify the principal by the fastest possible means and confirm it by the next available post following the day of receipt, in accordance with Article 248 of the Commercial Code.
As regards its subject matter, the agency may relate to any commercial act or transaction carried out on behalf of another. In practice, transport agency and sales agency arrangements are common.
Lease of property and obligations in the commercial agency agreement
Obligations of the agent
The Commercial Code, unless otherwise agreed, sets out various obligations, among which the following are particularly noteworthy:
- Not to delegate the performance of the contract to another person without the authorisation or consent of the principal.
- To perform the contract in accordance with the principal’s instructions, consulting them on any matters not provided for in the agreement and, if this is not possible, acting in accordance with prudence and commercial practice.
- Not to sell for cash or on credit without the principal’s authorisation. To keep the principal informed of all circumstances and negotiations that may influence the successful outcome of the transaction.
- To comply with the provisions laid down in laws and regulations in respect of the transaction entrusted to them.
- To diligently safeguard the principal’s interests, which includes, among other things, collecting without delay any debts owed to them, not applying the funds received to a purpose other than that agreed, and not entering into transactions on more onerous terms without prior authorisation.
- To render an account of the management carried out, providing the principal with a detailed statement of the transactions performed and the sums received.
In the event of a breach of these obligations, the agent shall be liable to the principal for any loss and damage caused by their conduct.
Obligations of the principal
Among the principal’s obligations, the following are particularly noteworthy:
- To pay the agent the agreed fee or remuneration (commission) or, in the absence of agreement, the amount due to them, as provided in the Commercial Code, in accordance with the usage and commercial practice of the place where the commission is carried out.
- To provide the agent with the funds necessary for the performance of the commission.
- To reimburse the expenses incurred and disbursed by the agent in the performance of the contract, provided that such expenses are duly justified.
Termination of the commercial agency agreement
In commercial agency agreements, the general grounds for the extinction of obligations apply. In particular:
- The expiry of the agreed term, where the agency has been concluded for a fixed period.
- The fulfilment of the mandate, where the agency relates to one or more specific transactions.
- The subsequent impossibility of carrying out the subject matter of the contract.
On the other hand, more specifically, Article 279 of the Commercial Code provides that the principal may revoke the agency at any time, provided that notice is given to the agent. However, the principal shall remain bound by the consequences of any acts carried out before such revocation has been notified.
Conclusion
Although the commercial agency agreement is a common feature in legal practice, its proper configuration is essential to ensure legal certainty and to avoid disputes. Clearly defining the obligations, the scope of the mandate and the manner of dealing with third parties is key to safeguarding the parties’ interests.
At Devesa Abogados, we have highly specialised professionals in contract law, capable of ensuring the proper drafting, review and supervision of this type of agreement, providing our clients with the legal support required in their commercial dealings.
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