The Agency Contract, what is it and what is it for.
The Agency Contract is regulated in Law 12/1992 of the 27th of May, which was promulgated due to the obvious necessity of differentiating the Agent from other similar figures that, still today, can cause confusion.
Article 2 of this law defines the Agency Contract as the one by which “a natural or legal person, referred to as an Agent, undertakes, on a continuous or stable basis and in return for remuneration, to promote acts or transactions in trade for hire or reward, or to promote and terminate them for the account and on behalf of others, as an independent intermediary, without assuming, unless otherwise agreed, the risk of such operations”.
Given this definition, we can conclude that the rule is applicable to any type of agency contract. However, it should be taken in mind that all figures with specific regulations (e.g. insurance agents) are expressly excluded, as it is required by the first paragraph of article 3.
Equally, the Agency Law has mandatory basis, entailing that the parties’ agreements should adapt to all its legal provisions, unless the Law establishes the non-obligatory nature of any of its clauses.
For further enlightenment, it is convenient to highlight the principle ideas that define the Agency contract:
Contract’s purpose.
The agency contract should be understood within the frame of commerce distribution, because the pursued purpose is the distribution of certain products or services of an entrepreneur on behalf of an agent, that will act on its representation.
On this basis, it is not a surprise that duty of loyalty from the Agent with the entrepreneur is demanded, engaging itself to act with good will, and with the diligence of an orderly entrepreneur, as well as assuming the duty of no competence (even after the concluded contract, if agreed, and up to a maximum of two years). Likewise, a duty of information is required, the Agent must provide its client with all the information that it has in connection with the acts that it is demanded to conclude.
Agent’s independence.
The agent is an independent intermediary which, unless otherwise agreed, will not assume the risk and venture of the transactions made, and that should organize its professional activity and spent time in it according to his own criteria. On the contrary, travel agents or dependent trade representatives, or anyone carrying out the activity as a result of an employment relationship, shall not be considered agents.
As a consequence of its independence, the Agent can act on its behalf and in name of various entrepreneurs as longs as there is not an exclusive agreement in favour of one of them, which is very common, particularly in view of a particular area.
Freedom of form.
It does not require any special formalities, although the interested party may require the other party to provide such formalities as it may deem appropriate, such as being formalized in writing in order to obtain greater certainty for its effectiveness.
Bilateral contract and consecutive nature.
It is a “bilateral” contract, since it contains liabilities for both parties and, moreover, it is celebrated on behalf of maintaining a long term relationship in time (“of consecutive nature”), this characteristic allows differentiating it from other similar figures, such as commission or arbitration. On behalf this last concept, if they do not set a term of the contract, it will be considered indefinite.
If the parties have fixed a specified period of time, the minimum period of notice to request the termination of the contract must be taken into account, which, according to article 25, shall be one month for each year of the contract’s validity. If a period of less than one year has been agreed, the minimum period of notice of one month must also be respected.
Onerous and result contract.
The services performed by the Agent are remunerated. For it, those acting as such have different ways of receiving their fees: a) through a fixed amount, b) through a commission, which will depend on the acts promoted and/or concluded, or c) through a combination of the two previous forms.
The right of remuneration shall not arise until the actual promotion of the business or conclusion of the contract entrusted to the Agent, once the third party with whom the contract is concluded has complied with it. This aspect is relevant, as it allows differentiating the agency from other contracts such as mediation or commission.
Commissions may continue to be earned after the end of the contract if the Agent concludes any of its transactions later, and always within a maximum period of three months from the end of the contract.
Compensation of the Agent upon termination of contract.
1) Provision is made for the possibility that, taking into account the circumstances of each case (in particular the remuneration of the service), the Agent may be entitled to an allowance for customers paid to the employer, or significantly increased transactions with pre-existing customers.
The amount of this indemnity may not exceed the average annual amount of remuneration received during the last 5 years, or during the total duration of the contract if it is lower.
2) Upon termination of the contract, the Agent shall have the right to have the costs which it has incurred for the performance of the contract, or which it has incurred in accordance with the employer’s instructions, paid by way of damages, provided that they had not previously been written off.
However, it is expressly specified that, in the following cases, the Agent shall lose any right to compensation:
1.When the contract is terminated because of breach, in whole or in part, of the obligations in charge of the Agent, whether they have of a legal or contractual nature.
2.When the contract is terminated by unilateral Agent’s claim and if it is not related to circumstances attributable to the entrepreneur.
3.When rights and obligations have been given to a third party in which the Agent was holder by virtue of the Agency Contract.
Legal Area at Devesa & Calvo Abogados