The commission merchant contract under the Bulgarian Commerce Act
Under a commission merchant contract the commission merchant undertakes, for a commission, to perform on his own behalf and on the account of the principal one or more transactions. It is one of the transactions listed in Art. 1 (1) CA. The legal framework can be found in Art. 348-360 CA. The provisions on the contract of mandate shall apply mutatis mutandis to the relationship between the principal and the commission merchant, unless otherwise provided in this Chapter. Subject of the commission contract can be one or several transactions, the law does not provide for restrictions, other than the conditions that they need to be lawful and specified in the contract or at least determinable. Based on commission contracts, rights and obligations under the executive transaction are initially considered as borne by the commissioner as Art. 349 CA states that they are the commissioner’s rights, even if the third party knows that the transaction is concluded at the expense of the principal.
Rights and obligations of the parties to the contract
Obligations of the commissioner:
- to conclude the transaction subject to commission contract, such that they are obliged to conclude it in accordance with the transaction type, taking into account the price specified by the principal and in view of the other conditions specified in the commission contract (they can be related to the quantity of the goods, whether the goods should be sold in installments or in cash). In this regard, the commissioner is required to also perform additional instructions given by the principal, but no additional wishes of the principal, under which the new obligations arise for the commissioner;
- to perform the mandate with due diligence in accordance with Art. 350 CA. In order to fulfill this obligation, it is assumed that the commissioner should study the market and conclude a deal at the most favorable terms for the principal, where, the legislature states, the advantage belongs to the principal;
- to transfer the rights and obligations associated with the concluded transaction;
- the commission agent who guarantees the third party obligations is jointly liable as a debtor for the execution thereof, and may claim particular consideration;
- ‘del credere’ obligation (Art. 354 CA) – the commission merchant contract could stipulate that the commissioner guarantees to the principal the obligation of the third party. In such cases they are jointly and severally liable with the third party and are entitled to separate compensation;
- the commissioner must inspect the goods immediately after receipt, and should they ascertain any defects or losses they must notify forthwith the principal thereof (Art. 350 (3) CA). The commissioner must provide the necessary evidence regarding the third party;
- to notify the principal in the event of default by the third party, as well as to provide evidence to the principal in order for them to lodge their claims against the third party.
- obligation to notify the principal and to provide evidence for future claims in the event that third parties have impacted the subject of the transaction executed; It is possible to oblige the commissioner to insure goods obtained by the third party or provided by the principal.
Should the commissioner fail to perform the mandate or deviates therefrom, the principal has several options:
● not recognise the transaction executed on their account, such that it remains valid, but it binds the commissioner and the third party may demand performance.
● in case of deviation from the agreed contract, the commissioner is obliged to immediately notify the principal and if the principal does not oppose the transaction, it is considered to have been approved.
● to claim compensation from the commissioner for the damages suffered as a result of the failure to perform the commission contract, the amount of compensation shall be determined in accordance with the general rules of the OCA.
● to recognise the transaction, even though it deviates from what was previously agreed;
The principal may not refuse to recognise the transaction, where:
● in the event that the deviation was in his interest and the commissioner could not ask for new instructions or did ask, but did not receive a timely response;
● when the commissioner has sold the property at a lower price, respectively bought it at a higher price and said that they accept the difference;
● when the commissioner found that he could not conclude the transaction at the price determined by the principal and by closing the deal they effectively protected the interests of the principal.
Obligations of the principal:
1. to accept the results of the transaction executed, if performed by the commissioner in accordance with the agreement under the commission contract. Should they refuse to accept such results, or to recognise the performance of the commissioner’s obligation, they shall owe the respective compensation;
2. to pay the expenses incurred by the commissioner with due diligence in relation to the execution of the mandate;
3. to pay the respective remuneration to the commissioner. It may be stipulated in the contract as percentage of the price thereunder, as lump sum, or, if nothing has been agreed, the customary sum. Chargeability of the remuneration arises after the commissioner has concluded the transaction and has reported or is ready to be report thereto.
Where the contract contains a ‘del credere’ clause, the principal must always pay additional remuneration, regardless of whether it has been agreed by the parties or not.
In order to secure the claims of the commissioner regarding his remuneration and recover the costs incurred, Art. 357 CA entitles the commissioner to a pledge on the movable property acquired by them by third parties on account of the principal, or which the principal has delivered to the principal.
In Art. 358 CA, the legislature has provided the commissioner with the option to conclude the mandate with themselves instead of a third party. Such conclusion is only possible for sales contracts and only where the goods covered by the transaction have stock or market price. In addition, the principal must not have explicitly excluded this opportunity in the contract.
The commissioner may enter into the executive deal on credit, i.e. arrange a deferred payment by the third party according to Art. 353 CA. In this case, a commissioner authorised to conclude a transaction on credit shall be liable before the principal for the performance of the obligations by the third party, provided he was or should have been aware that the third party was unable to pay.