Commission Contract Essentials: Agent & Principal Responsibilities

Understanding the Commission Contract

Commission Contract Fundamentals

A commission contract is a mandate by which the agent (often referred to as the "commission agent" or "broker") undertakes to perform or participate in a commercial contract or act on behalf of another person (the "principal"). This contract is purely commercial and emerges as a means of collaboration between parties, based on mutual trust. In this arrangement, the agent will always act for the account of the principal, but may perform their function either in their own name or on behalf of the client.

Acting in one's own name constitutes indirect representation, because, against a third party, the agent is not directly representing the principal. However, when acting on behalf of the client, direct representation exists. Due to the nature of indirect representation, the commission agent will be bound directly to the third party.

Key Obligations of the Commission Agent

Diligence and Compliance

• Duty of Care: The agent acquires an obligation to act with all due diligence and good care owed to the principal.
• Following Instructions: The agent shall comply with the commission, strictly following the directions given by the principal.
• Discretionary Action: The agent can act at their discretion, having a wide scope of action. However, for actions exceeding €6,000, the agent must seek permission from the principal.
• Subcontracting: The commission agent may contract for assistance, but will always do so at their own risk.

Financial and Reporting Duties

• Prohibited Actions: The commission agent cannot sell goods by installment or lend money to third parties on behalf of the principal.
• Information Duty: The agent must inform the client about the implementation and progress of the commission.
• Liability for Breach: If the agent breaches the commission contract, they will be liable to the principal for damages.

Accountability

This obligation relates to the statement of cash received by the agent. If the agent has extra money, they must return it. If they receive merchandise, they must also deliver it to the principal.

Specific Restrictions and Guarantees

Obligation Guarantee

The commission agent will be responsible for the failure of the third party with whom they contract on behalf of the principal, under certain conditions.

Auto-Contracting Ban (Self-Dealing)

This prohibition applies to the commission agent. Unless otherwise agreed, the broker is not allowed to buy for themselves or for another party what the client has entrusted them to sell. This rule is in place to prevent potential abuse and conflicts of interest.

Principal's Responsibilities in a Commission Agreement

Financial Commitments

• Payment of Commission: The principal must pay the stipulated commission fee to the agent.
• Reimbursement of Expenses: The principal will pay the expenses arising from the commission, unless otherwise agreed.
• Agent's Right of Retention: The agent is entitled to retain goods or funds as security if there is a possibility that the principal may not pay their dues.

Termination of a Commission Contract

Grounds for Contract Termination

• Fulfillment of Term: The contract terminates upon the completion of the agreed-upon term or the successful execution of the commission.
• Breach by Parties: Non-compliance by either party can lead to termination. The principal has the right to cancel the contract without the agent's consent in case of a breach.
• Agent's Incapacity or Death: The contract terminates upon the death or incapacitation of the commission agent.
• Loss of Trust: The contract can be terminated if the principal loses the trust they had placed in the commission agent.