Differences between an Agency Agreement and a Distribution Agreement

The role of an agency agreement and distribution agreement are fundamental in the selling of products, but not everyone knows the difference between them and according to the jurisprudential criteria, the differences between the two contracts are important. So, to understand what the Agency and Distribution Agreements are, we must first define each type of agreement.

What is an Agency Agreement?

It is a legal contract by which an agent (natural or legal person) is legally bound to a first-party on a continuous or stable basis, for payment in return. This contract consists of exclusively carrying out business deals or transactions, as an independent intermediary, without assuming, unless otherwise agreed, the risk of the operations.

Additionally, this contract is defined and regulated by the Agency Agreement Law. The jurisprudence throughout these years has been defining and limiting the agreement and solving the most problematic questions. The most important issue is client compensation since this not mentioned in any of the cases of termination of an agency agreement.

What is a Distribution Agreement?

The doctrine defines the Distribution Agreement as one in which the supplier or manufacturer agrees with the distributor to deliver goods to resell in a certain area.

It is important to note that this contract requires a joint partnership of two businesses to distribute a product. This co-operation is exclusive, authorised and done through the supplier’s franchises or methods of business.

According to the ruling of the A.P. of Madrid on the 13th of September 2006, the Distribution Agreement is a commercial contract of partnership between companies. It is an atypical contract and lacks specific legal regulation. Thus, its legal system is determined by the parties’ freedom of choice.

In this way, it will be applied in a supplementary manner that is established in the regulations (both civil and commercial) In the absence of this, Agency Agreement Law could be applied by analogy. This is a recurring jurisprudential issue, as there is no unified jurisprudence on analogical application.

Differences between the Agency and Distribution Agreements

One of the most important differences is the lack of regulation in the Distribution Agreements compared to Agency Agreements. The ruling 130/ 15th of March 2011, based on the doctrine and jurisprudence, indicates that the most notable differences in these two contracts are:

1. The distributor is the one who buys and resells the supplier’s products for their account and under their name. The profit is represented by the so-called profit or commercial margin.
2. On the other hand, the Agent is defined as someone that promotes and completes the sale of the goods in the name of the “principal,” for payment in return.

On this basis, there can be no automatic analogical application of LCA in Distribution Agreements for customer compensation.

Accordingly, the ruling 647/ 5th of November 2013 notes the same differences as the Supreme Court Judgment on the 15th of March. The main point is that the differences between the two contracts cannot be resolved by applying the Agency Agreement Law analogically.  The analogy should only be applied when there is a reason that supports it in these agreements.

The onus probandi is particularly important because, like in the Agency Agreements, it is the distributor’s responsibility. In other words, it is the distributor’s role to prove that he has created their own client base. So, the possibility of receiving compensation can be significant and the Agency Agreement Law can be applied by analogy.

Finally, we can conclude:

Both doctrine and jurisprudence have been shaping the agreements and so we find ourselves with two very different contracts, as they have (1) different purposes and (2) different regulations.

Additionally, as the Courts pointed out, the Distribution Agreements are an atypical contract that lacks specific legal regulation. On the contrary, Agency Agreements are regulated by the Agency Agreement Law.

Following what is mentioned above, jurisprudence has come to debate whether the LCA can be automatically applied by analogy to the Distribution Agreement. But we can conclude with the reviewed sentences that this compensation could not be applied automatically.

Finally, we must say that these are two different contracts and the differences must be taken into consideration when deciding to use one or the other.

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