The pernicious probable doctrine in commercial agency matters

The Supreme Court of Justice (SCJ) has repeatedly considered that there cannot be a commercial agency contract, whenever plaintiff and defendant articulate their business through purchase operations for resale. This position, erroneous in our opinion, has had two harmful effects: to become causa simulandi of alleged contracts of simple supply for distribution and to hinder, or in fact make impossible, the materialization of justice in favor of commercial agents. To the extent that the position of the CSJ does not necessarily follow from the regulation of the agency contract and that the same has had the usual effects, it is time for the CSJ to change its probable doctrine.

Article 1317 of the Code of Commerce (CCo.) defines the commercial agency contract as a business, by virtue of which, "a merchant assumes (...) the task of promoting or exploiting business (...), as representative or agent of a national or foreign entrepreneur or as manufacturer or distributor of one or several products of the same". From this definition, it is easy to understand that the economic function of the referred business will be that, on the one hand, the agent opens a market in favor of the agent, and, on the other hand, the agent obtains a remuneration from the agent or from the business in the form of a percentage of the profit (art. 1322 of the CCo.).

Considering that the benefit of the agent lasts even after the termination of the contract, in the form of good will and clientele in his favor based on the agent's management, the CCo. included two benefits of compensatory and indemnifying content in favor of the latter and at the expense of the former, the commercial severance and the equitable indemnity respectively, caused with the termination of the business (art. 1324). The existence of such benefits has given rise to the fact that, since 1971, businessmen have avoided entering into agency contracts, agreeing to businesses which they call in a varied, but always convoluted manner (i.e. "framework agreement of collaboration, business alliance and mutual benefit" or similar things).

Now, insofar as the CCo. does not strictly define the operational means through which the business must be executed (i.e. delivery of products on consignment, intermediation, purchase for resale, among others) and that reality prevails over legal forms, we consider that the agency contract must be understood as agreed, regardless of the means used to execute it or the name given to the agreement, when the economic function referred to is performed.

Unfortunately, the CSJ has assumed a more restrictive position on the matter, based on an excessive exegesis. Thus, the CSJ considers that the inclusion of the regulation of the agency agreement, among the mandates and the use of the word "order" in its definition exclude that the agreement exists to the extent that the agent buys the products of the agency to resell them, without considering the possibility that such purchase operations for resale are part of a business framework that implies the obligation of the agent to open a market in favor of the agency. This position is clearly unfair and is not a necessary consequence of our legislation.

In practice, agents usually have enough economic muscle and recognition in their own markets so that potential agents in other branches want to contract with them at all costs. This situation has allowed the agents to impose the type of contract to be entered into and the clauses to be included, without the agents being aware, in principle, of the negative effect that these may have in relation to their interests.

In view of the CSJ's position, it is usual to find that the principals impose to the agents the execution of a supposed contract of simple supply for distribution, executed through purchase operations for resale. In practice, such contracts are commonly simulations that seek to avoid the materialization of an agency contract, as they include clauses that exceed the proper of a contract of simple consideration as is the supply contract (i.e. billing and customer goals in charge of the agent, power of visit and audit in favor of the agent, obligation to operate under the trade names of the agent, possibility of giving orders to the agent, duty to report the customer database and its evolution to the agent, as well as to deliver it complete at the end of the contract, among others).

The strict application of the criterion of the CSJ ends up forcibly considering that, in such cases, there is no agency contract, thus protecting the anti-legal abuse of the agent, while encouraging this type of operations with a causa simulant, and leaving the agent unprotected. In view of the above, it is necessary to conclude that it is time for the Supreme Court to reconsider its position and change its probable doctrine.