The essential elements of the agency contract.
In order to identify the essential elements of the agency contract, i.e. those elements that are so characterising that they are indispensable to qualify the relationship as such, it is certainly appropriate to start from the definitions of agent that are provided to us by the legal system.
This passage, which at first glance would appear to be almost elementary, becomes much more complex when confronted with reality: the "notion"of agency provided to us by Article 1742 of the Civil Code, is partly at variance with that to which this rule has conformed,[1] that is dictated by the European Directive 86/653on the coordination of the laws of the Member States relating to self-employed commercial agents.
Article 1(2) of Directive 86/653 states that:
"For the purposes of this Directive, 'commercial agent' means a person who, as an independent intermediary, is permanently entrusted with negotiating for another person, hereinafter referred to as 'principal', the sale or purchase of goods, or with negotiating and concluding such transactions in the name of and on behalf of the principal."
Already from a first reading of the rule, it can be deduced that the elements characterising the commercial agent are essentially three, namely:
- independence in the conduct of their business activities;
- the continuity of the relationship with the principal;
- the business of buying and selling goods.
This certainty is (probably) immediately undermined by reading the notion (not so much of agent as of agency contract) that is provided to us by Art. 1742 of the Civil Code:
"With an agency contract, one party permanently undertakes the task of promoting, on behalf of the other, for remuneration, the conclusion of contracts in a specified area. "
In this case the elements (characterising the contract) are essentially:
- the stability of the assignment;
- the promotion of contracts;
- the area.
From an initial analysis, one realises that the most significant differences between the two definitions consist, firstly, in the concept of promotion (the directive, refers to the sale of goods, whereas the civil code, to the promotion of contracts) and, secondly, in the concept of area, which is only present in the notion proposed to us by Article 1742 of the Civil Code.
In fact, unlike the directive, in the context of which the provision for a territorial scope constitutes a mere contingency (possibly relevant from the point of view of indirect commissions, pursuant to Article 7 of the directive itself), Article 1742 of the Civil Code defines an agent as a person entrusted with the promotion of business in a given area.
Below we will analyse the elements provided by the two definitions, briefly comparing them, starting with the concept of zone, which is certainly the one that creates the most doubts and conflicting interpretations.
1. The area
The Court of Justice has repeatedly confirmed that it is sufficient for a person to fulfil the three conditions laid down in Article 1(2) of the directive in order to qualify as a commercial agent, irrespective of the manner in which that person carries out his activity (and provided that he does not fall within the exclusion hypotheses of Articles 1(3) and 2(1) thereof).[2]
Although a strict application of this orientation would lead to the conclusion that zoning is not one of the necessary requirements of the agency contract, one certainly cannot overlook the fact that Art. 1742 expressly calls for such a concept within the definition.
In line with this, there is an orientation of the most authoritative doctrine,[3] according to which, the inclusion of the concept of 'area' within the national legislation would represent an essential characteristic of the relationship, so much so that there could be no agency contract without the fixing of a specific territory reserved to the agent (or the same could be identified indirectly[4]).
But what is meant by zone and to what extent can this concept be extended (important, never confuse the concept of zone with that of exclusivity)?
- Read also: Area exclusivity in the agency contract.
Normally the zone is identified in the contract by reference to a geographical extension, however case law does not regard the requirement of the zone being determined with excessive rigidity, since it may be implicitly inferred from the reference to the territorial scope in which the parties unquestionably operate.[5]
As an alternative to the zone, case law has held that the concept of group of persons/clients, referred to in Article 7 of the Directive and Article 1748(3) of the Civil Code, in the context of indirect commissions also falls within this concept.[6]
It was even ruled out (albeit in an earlier judgment) that a contract limiting the scope of action of the agent to the promotion of sales to a single customer could be qualified as an agency.[7]
Part of the best doctrine (with which we associate ourselves) considers, however, that the conflict between the definition of Art. 1742(1) of the Civil Code and the directive would probably be surmountable through a "corrective" interpretation[8] of the rule in question, treating the reference to the area as a descriptive element of the normal situation and not instead as an essential and indispensable requirement of an agency contract.[9]
2. Independence (and conduct of business on the principal's premises)
As analysed above, the legislation includes independence among the essential requirements of the agency relationship.
Indeed, when analysing this requirement, it must be borne in mind that the agent's independence does not cease to exist only in the most blatant case in which the relationship presents the characteristics of subordination, but there are other numerous circumstances of interdependence, certainly more grey and, therefore, even more difficult to identify, which may in any event undermine the agent's autonomy, and, therefore, the configurability of this contractual case.
- Read also: The agency contract and the employment relationship: distinguishing criteria and evaluation parameters.
One thinks of the case, which is far from rare, of the agent carrying out his promotion activities at the principal's premises (where, for instance, in the automotive sector, it is even the norm for the agent to carry out his activities at the dealer-preprincipal's premises).
The question arises as to whether the status of agent is compatible with the pursuit of economic activity within the premises of the principal, given that neither the civil law nor any other provision of Directive 86/653 expressly makes the status of 'commercial agent' conditional on the person concerned pursuing economic activity outside the premises of the principal's establishment.
The European Court of Justice has ruled out that the protection granted by the directive can a priori be excluded for persons who exercise their activity at the principal's premises,[10] on the assumption that subjecting the status of agent to conditions additional to those laid down in Article 1(2) of the directive would limit the scope of that protection and thus undermine the attainment of the objective pursued by it.
It will be necessary to verify each case on a case-by-case basis and to analyse whether the exercise of the promotion activity at the principal's place of business actually affects the agent's independence and, therefore, to understand whether, due to his physical presence at the principal's place of business, the agent is in fact in a position that prevents him from exercising his activity in an independent manner, both from the point of view of the organisation of his work and from the point of view of the economic risks associated with it (even trivially due to a reduction in the expenses incurred by the agent himself, being hinged within the principal's commercial reality).
Italian jurisprudence has also come to the same conclusion, starting from the assumption that the agent's main obligation (i.e. the promotion of contracts) can be performed, depending on the type of organisation the agent uses and the business sector in which it operates, in the most varied ways;[11] "The main 'discriminating factor' for the existence of an agency relationship is and remains the actual existence or lack of decision-making autonomy and entrepreneurial risk on the part of the agent.
3. Continuity of activity
One of the elements characterising the agent's activity, and distinguishing it from other intermediaries (e.g. brokers, business brokers), is that the agent undertakes to engage in business promotion on an ongoing basis.
- Read also: What is the difference between an agency contract and a business intermediary?
This obligation, which translates, on the one hand, into an attempt to conclude as much business for the principal as possible and, on the other hand, into stability in the frequentation of customers, a strengthening of loyalty and a numerical expansion of the customer base itself, has not been expressly included among the main requirements within the civil law framework (not even Article 1746(1), entitled the agent's obligations, makes express reference thereto).
Italian jurisprudence has overcome this 'loophole' by making continuity of activity one of the essential requirements of the relationship, to the extent that an agent has been held to be in breach for having only occasionally taken care of customer contact activities, even though he had nevertheless concluded several deals, even of considerable size.[12]
That being said, it very frequently happens that the activity of promotion, although carried out continuously and independently, is carried out alongside another activity, which may take on an ancillary or even a principal character.
What happens in such cases?
3.1. Agency contract and ancillary activity
Article 2(2) of Directive 86/653 grants Member States the option of providing that the directive does not apply to persons performing the "activities of commercial agents considered ancillary under the law of those Member States. "
In our legal system there is no specific provision on the subject, with the consequence that the characteristic content of the agency contract may be accompanied by accessory obligations for the agent, which do not distort the contract and maintain a merely instrumental relevance with respect to the agent's main obligation (think of the classic example of a commercial agent who also performs the activity of area manager).[13]
- Read also: Agent and/or Area Manager? A brief overview.
The case law of the European Court of Justice has also come to the conclusion that Article 1(2) of Directive 86/653 must be interpreted as meaning that a commercial agent may not be excluded from the benefit of that protection where the contract linking him to the principal provides for the performance of tasks other than those related to the activity of commercial agent, provided that that circumstance does not have the effect, having regard to all the circumstances of the case (nature of the tasks performed, proportion of those tasks, method of determining remuneration, existence of the economic risk incurred), of preventing the principal from carrying out his principal agency activity in an independent manner.[14]
The same principle also applies in the case where the agency contract is performed cumulatively (and thus with a separate relationship to the contract itself), through the performance of an activity of a different nature which binds them to the principal. Also in this case, the agency relationship will enjoy the protections of the directive, as long as the cumulative activity does not impair the independence of the principal activity.[15]
3.2. Ancillary agency activities to the main contract
The case where the sales promotion activity (even on a continuous basis) is ancillary to a different main relationship is different.
In that case, the discipline to be referred to, and which will govern the entire contract, will be that of the prevailing activity.[16]
From a practical point of view, the application of this principle is far from easy. One thinks of the classic distribution contract, which confers within it (and not in an ancillary or even unconnected contract) the power on the dealer to carry out, in certain cases and situations, an (ancillary) activity of intermediation and not pure resale.
In such a case, according to a long-standing ruling of legitimacy, if the activity of resale is prevalent over that of agency, the latter cannot in any event be attributed to the agency contract, but may at most be classified as business procuring.[17]
4. Sale of goods
The last essential requirement of an agency contract is that the agent promotes the sale or purchase of goods on behalf of the principal.
A first difference from civil law is the fact that the latter does not only cover the buying and selling of goods, but includes the much broader circumstance of brokering any type of contract (cf. Art. 1742 of the Civil Code).
The promotion and sale of services of all kinds (telecommunications, telephone, subscriptions of all kinds, etc.) undoubtedly fall within the 'Italian' notion of agent.
The conformity of our legislation with the European directive has been sanctioned by the European Court of Justice, which has clarified that when a member state in implementing the directive extends its scope of application to include the brokering of service contracts, these national rules must also be interpreted in accordance with the directive.[18]
There is, however, also at the level of European jurisprudence, a tendency towards a broad interpretation of the concept of both 'sale' and 'goods', this in favour of a broadening of the protection afforded to commercial agents, otherwise precluded by a more strict approach.
With regard to the interpretation of the concept of 'goods', the case law of the Court has held that it must be understood to mean all goods that are pecuniarily valuable and as such capable of constituting the subject matter of commercial transactions.[19]
With reference to the notion of 'sale', according to a commonly recognised definition, it consists of an agreement whereby a person assigns to another person, in return for payment of a price, his property rights in a tangible or intangible asset belonging to him.[20]
On the basis of these assumptions, the Court held that the supply of a computer program to a customer by electronic means in return for payment of a price also falls within the concept of 'sale' within the meaning of Directive 86/653 where that supply is accompanied by the grant of a perpetual licence to use the same computer program.[21]
[1] The first paragraph of Article 1742 of the Civil Code was initially added under Article 1, Legislative Decree No 303 of 10.9.1991 and subsequently replaced under Article 1, Legislative Decree No 65 of 15.2.1999.
[2] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 23.
[3] Baldi - Venice, The Agency Contract, p. 71.
[4] Cass. Civ. No. 20322, 2013, Cass. Civ. No. 2732, 1998.
[5] Cass. civ. no. 9063, 1994, Cass. civ. no. 2720, 1981
[6] Cass. Civ. no. 1916, 1993.
[7] Cass. Civ. no. 1916, 1993.
[8] Since the national court may not disapply a domestic rule that is contrary to a directive, it must interpret it in conformity with the directive itself, with the result that it will be obliged to prefer, among several possible interpretations of that rule, the one that is compatible with the directive itself (cf. Marleasing of 13.1990, Case C-106-/89).
[9] Bortolotti, Distribution Contracts, p. 102.
[10] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 28.
[11] Cass. Civ. No. 2853, 2001.
[12] Cass. Civ. No. 10130, 1995.
[13] Cass. Civ. No. 111, 1996.
[14] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 48-50.
[15] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 47.
[16] Bortolotti, Distribution Contracts, p. 131.
[17] Cass. Civ. 2382, 1987.
[18] Judgment 16.3.2006, Case C-3/04.
[19] In this sense, judgment of 26 October 2006, Commission v Greece, C-65/05, EU:C:2006:673, point 23 and case law cited therein.
[20]Judgment 3.7.2012, UsedSoft, Case C-128/11, EU:C:2012:407, point 42.
[21] Judgment of 16 September 2021, The Software Incubator Ltd, Case C-410/19.
