Matching the contract with the characteristics of the partnership – Commission vs. Agency vs. Brokerage

5 mai 2020

We often face the confusion of clients regarding the type of contract to be used in carrying out their business, so that it fits perfectly with the expectations of the partnership. Because, although similar, each type of contract has its own particularities, we wish to clarify the legal aspects regarding the commission contract, the agency contract, and the brokerage contract.

These contracts are considered by the Romanian Civil Code to be “named contracts”, the essential content being expressly regulated by legal, imperative, or supplementary norms. Therefore:

Commission Contract

Agency Contract

Brokerage Contract

The commission contract is the mandate that has as object the purchase or sale of goods or the provision of services on behalf of the principal and in the name of the consignee, who purchases professionally, in exchange for a remuneration called commission.

*Variety of the mandate contract = to be completed with the provisions of the mandate contract

Through the agency contract, the principal shall steadily empower the agent either to negotiate or both to negotiate and conclude contracts, in the name and on behalf of the principal, in exchange for remuneration, in one or more specified regions.

The brokerage is the contract by which the broker undertakes to put the client in touch with a third party, in order to conclude an agreement.

We can see that the object and the name of the parties differ from the definitions of the contracts. In an attempt to frame the fact situation in a certain type of contract, first of all, we must consider its object, what the contracting parties must actually achieve. In order to understand the position within each contract, we show below the definitions of the parties and the obligations of each.

Commission Contract

Agency Contract

Brokerage Contract

Principal = the party entrusting a mandate to the consignee in order to purchase or sell goods or provide services on his behalf, but in the name of the consignee.

The principal must have the capacity to conclude the agreements which are concluded with the third party by the consignee.

Principal = the party entrusting a mandate to the agent, steadily, either to negotiate or both to negotiate and conclude contracts, in his name and on his behalf.

The principal must have the capacity to conclude the agreements which are concluded with the third party by the agent.

Broker = the party who puts in touch the client with a third party, in order to conclude a contract. It is not necessary for the broker to have the capacity to conclude the contract with the third party by himself or the training to initiate negotiations with him on behalf of the client. The only action he performs is to put the contracting parties in touch.

Obligations = the specific obligations of the attorney in fact to which are added the obligations for the commission contract, namely: the payment of the consignee’s remuneration (commission); reimbursement of expenses incurred by the consignee.

Obligations = to forward to the agent all the data, information, and tools necessary for the execution of the agency contract; to pay the remuneration to the agent; to act with loyalty and good faith in the relations with the agent.

Obligations = to intermediate the conclusion of a contract; to communicate to the third party all the information regarding the advantages and the opportunity of concluding the intermediated contract, provided that it does not culpably prejudice the interests of the client.

Consignee = the party who receives a mandate from the principal to purchase or sell goods or provide services on behalf of the principal, but in his name.

Agent = the party who receives a mandate from the principal to either steadily negotiate or both to negotiate and conclude contracts, in the name and on behalf of the principal.

Client = the party requesting the services of the broker to be put in touch with a third party in order to conclude a contract.

Obligations = the specific obligations of the mandate to which are added the obligations for the commission contract, namely: to execute the mandate entrusted by the principal; to conclude the contracts in good faith and with the diligence of a professional; to provide the services in compliance with the instructions of the principal.

Obligations = to fulfill the obligations deriving to the mandate received from the principal; to communicate to the principal the information of interest to his business; to fulfill the mandate in conditions as advantageous as possible for the principal; to follow the reasonable instructions received from the principal; to keep records of the operations performed on behalf of the principal; to keep the goods received from the principal under appropriate conditions.

*both the agent and the principal have the quality of professionals, within the legal meaning of the Romanian Civil Code.

Obligations = to pay the due remuneration to the broker; to reimburse to the broker the expenses incurred in fulfilling the object of the brokerage contract; to communicate to the broker the conclusion of the intermediated contract.

The commission contract is related to the agency contract and, at the same time, to the mandate contract. Moreover, art. 2.095 of the Romanian Civil Code stipulates that the provisions regarding the agency contract are supplemented with the provisions regarding the commission contract, insofar as the latter are compatible. If the agent also has the power to represent the principal at the conclusion of contracts, then the agency contract rules shall be completed accordingly with those regarding the mandate with representation contract.

The brokerage contract is a “soft” alternative of the agency contract, considering that the broker does not have the capacity to conclude contracts with the third party, but he has the quality of representing the parties or only one of them and the only operation he performs is to put the client in touch with the third party creating the connections for future partnerships between the client and the third party.