Commission Agreement

A commission agreement means an agreement that someone in their own name but on behalf of another buys or sells movable property. The person who has undertaken the assignment is called the commission agent, the one for whose account the sale or purchase is to take place is called the principal, and the act itself is called commission. The commission agent therefore acts in the principal’s interest and must follow their instructions. This means that the commission agent does not become the owner of the current property, but it belongs to the principal until a sale or other transfer takes place. Commission relationships are common in many industries. For example, one might ask whether a car dealership that is a reseller for various manufacturers is to be considered as a commission agent. The decisive factor is whether the car dealership sells the cars for its own account or for the manufacturer’s account. Such a situation can create problems, for example regarding ownership of the cars if the car dealership were to go bankrupt. For a relationship to be considered a commission relationship, the following five criteria must be met:

• There must be an assignment.
• The assignment must be carried out on behalf of another
• The assignment must be carried out in one’s own name.
• The assignment must involve sale or purchase.
• The object must be movable property.