Agency versus other forms of distribution
As was also briefly touched upon in the chapter 'Definition agency agreement', there are a number of similarities and differences between agency and the main other form of resale, namely distribution. A number of these similarities and differences will be highlighted below. We will also discuss and compare the possibility of distribution through a commission agent.
Agency versus distribution
In the case of distribution, the supplier sells and delivers certain products or services to the distributor, subject to certain conditions, subject to which conditions the distributor may subsequently resell those products or services.
The above means that the distributor purchases from the supplier and becomes the owner. As a result, onward delivery of the products and/or the provision of the services takes place at the distributor's own risk and expense and the distributor enters into agreements with his customers in his own name.[1]
Similarities
Both agency and distribution are partnerships through which a supplier of a product or service engages the assistance from an intermediary in the sale of his product or service. Agents or distributors are often engaged because of their specific knowledge about a particular country or region and the network they operate there.
Agency and distribution are both of a long-term nature. The agent acts as an intermediary in the formation of multiple agreements for the principal. A distributor does not buy from the supplier on a once-only basis, but over a longer period of time.
Differences
The main difference between agency and distribution, is that the distributor buys a product from the supplier and thus becomes the owner of that product, whereas the agent never becomes the owner of the product. The agent merely acts as an intermediary in the formation of the purchase agreement, but does not become a party to it. As a result, the distributor runs seller’s risks, whereas the agent does not.
Another difference between the two forms of partnership is that agency is governed by a specific legal regime, namely the Agency Law. The agency agreement is therefore a ‘nominate contract’. The distribution agreement, on the other hand, is not governed by any specific statutory rules. The distribution agreement is a so-called innominate contract.
The law does not grant the distributor a right to goodwill indemnity, whereas it does so in the case of the agent. This is due to the fact that the distributor builds his own customer base and the agent does not. If a supplier terminates his partnership with a distributor, the distributor will try to offer a substitute product to his customers. In many cases, the supplier will not have the customer data anyway.
Agency versus commission agent
The commission agent is the person who acts as an intermediary in the formation of contracts for another party’s account (the principal). In doing so, the commission agent acts in his own name and therefore becomes a party to the agreement with the customer. The customer with whom the commission agent concludes the contract does not know that the commission agent is acting for the principal’s account.[2]
Similarities
Both the agent and the commission agent are intermediaries. They act as intermediaries in the formation of contracts for another party’s account (the principal).
Like the agent, the commission agent receives a commission from the principal on sales made through his intermediary activities.
Differences
The commission agent acts in his own name. Therefore, the customer does not know that a principal is involved. In the case of agency, however, it is clear to the customer that the agent is not the seller, but that the principal is.
The commission agent himself becomes a party to the agreement with the customer. The agent does not become a party to it.
The law does not grant the commission agent a right to goodwill indemnity at the end of the commission contract.
Schematic differences agent - commission agent - distributor
