Analysis of the agency agreement

Apr, 28 2021

Agency agreement is most often used in the commercial activity and is a fairly common form. When drafting the contract, it is necessary to carefully treat each item, attentively analyze all the essential terms and conditions.

The concept of an agency agreement

On the basis of the agency agreement, the first person, referred to as the agent, undertakes for the agreed payment to do the following:

  • perform legal activities, according to the instructions of the second person – the principal;
  • conduct other activities independently, but at the expense of the principal;
  • legally act on behalf of and at the expense of the principal.

The most significant requirement of the contract is the fact that for an action performed by an agent with 3 parties on its own behalf, but at the expense of the principal, a specified agent is considered the owner of obligations and rights, regardless of the fact that the principal must enter into a free relationship with the 3rd party to comply with the agreement. But in the document, when a legal transaction is concluded on behalf of the principal, all obligations and rights will be carried out by him.

Form of a legal agreement

Lawyers have developed many types of agency contracts, for example:

  • real estate sales services;
  • cargo transportation services;
  • sale of products;
  • payment acceptance services;
  • to attract customers.

Each variety is applied to a specific type of service, with the inclusion of unique terms and conditions that must be strictly observed.

The agency agreement is considered a novelty of the Russian legislation. The purpose of such a contract is the possibility of consolidating civil relations with the subsequent granting of the intermediary (representative) the right to perform both legally significant actions and actions of an actual nature.

Types of agency contracts

When an agent acts on his own behalf, but solely at the expense of the principal, as soon as the legal fact occurs, the agent assigns his rights to the principal. This is a significant specificity of the contract being concluded, when the agent acts in favor of the principal, but he will not have any legal and responsible relations, which is why the assignment is caused. 

The outcome may be different if the agency agreement stipulates that the agent acts on behalf of the principal. In similar variants, the principal has established obligations and rights in relation to third party.

An agency contract is usually concluded between professional subjects of the economic market, which excludes the existence of fiduciary, personal-trust relations between the parties who signed it, in contrast to the contract of assignment. Moreover, the agency contract is always paid, which causes the principal to pay the agent a fee in the amount and in the manner prescribed by the agency contract.

If the agency contract does not provide for a condition on the amount of the agent’s remuneration, the remuneration is subject to payment in the amount of the price that, under comparable circumstances, is usually charged for similar work or services. In this case, the agency fee is payable within a week from the moment when the agent has submitted a report on the work done to the principal.

Subject of the agency agreement

Another feature of the agency agreement is the fact that it may provide for a condition on the restriction of specific actions of the agent or principal, for example:

  • the principal’s obligation not to enter into similar agency agreements with other agents operating in the territory specified in the agreement;
  • the principal’s obligation to refrain from carrying out independent activities in a certain territory, similar to the activities that are the subject of the agency agreement;
  • the agent’s obligation not to enter into similar agency contracts with other principals, which must be executed in the territory that fully or partially coincides with the territory specified in the contract;
  • the agent’s obligation to sell goods, perform work or provide services to a certain category of buyers (customers) or within a certain territory.

Reporting documentation for agency contracts

The main obligation of the agent during the performance of its work is to prepare and send reports on the results of the activities performed on the dates provided for in the agreement. The reports submitted by the agent can be supported by practical evidence of the expenses spent by the agent, which are compensated by the principal, for example: 

  • cash receipts;
  • payment orders;
  • other documents.

If the principal has any objections on the basis of the reports received by him, he can present them to the agent no later than 30 days from the date of submission of the report.

Sub-agency agreement

The agency agreement determines the ability of the acting agent to enter into a sub-agency contract at his own risk to fulfill all the requirements of the original document itself. In such cases, the agent will independently assume obligations for the created activities of the subagent, as well as be responsible for them to the principal. In addition, according to the existing general regulations, the subagent has no possibility and no alternative to enter into agreements acting on behalf of the principal.

Therefore, the agency agreement, as a rule, contains the following terms and conditions

  • the condition about the subject;
  • term of performance of contractual obligations; 
  • amount of remuneration; 
  • terms and procedure for sending reports by the agent; 
  • terms and form of acceptance of performance by the principal; 
  • rights and obligations of the agent / principal;
  • restrictions on the rights of the agent / principal.

Termination of the agreement

The agency contract may be terminated on the following grounds

  • refusal of one of the parties to perform the contract concluded without determining the expiration date of its validity;
  • recognition of the agent as incompetent, partially capable or missing;
  • recognition of an individual entrepreneur who is an agent as insolvent (bankrupt).

Such an agreement is considered one of the most common in the field of delegating specific actions and responsibilities to another individual in the field of conducting business. 

The non-rigid structure of the document allows the participants to lay down in it the obligation to perform precisely known and specified legal, real actions in favor of and at the expense of the person who is the principal (direct customer), as well as with the use of his financial resources. This concept helps to delegate the implementation of specific actions to third persons with minimal costs in an extremely efficient and high-quality way.

The need to analyze the agency contract in the realities of doing business is already becoming an integral element of the daily functioning of a modern company. The evaluation of the document in this regard is no exception.

Preliminary professional legal assessment is carried out at the initiative of the parties. 

The analysis of the agency contract helps to avoid negative consequences, the occurrence of which is quite predictable when the contract is concluded on unprofitable and even fraudulent terms that are not profitable for the customer.

In addition, many Russian citizens and functioning companies do not pay enough attention to the legislative regulation of the contractual relations. Therefore, there are often significant risks of making mistakes during the conclusion of the transaction because the rules may become outdated by this time, not used in practice, which in turn will lead to the recognition of the document as invalid. It is the expert who has the specific task of preventing such situations.

Potential risks identified in the process of conducting a legal assessment of agreements may include the following: 

  • the contract does not contain essential conditions, and therefore it will be considered not concluded;
  • the contract contains provisions that contradict the current legislation;
  • the contract contains provisions that infringe on the rights and interests of the client;
  • the contract contains controversial or vague language that may lead to legal disputes later.

A properly prepared document is the key to effective achievement of the intended goals by economic entities. In addition, it will protect the participant from illegal claims and accusations from counterparties, thus, it is guaranteed to help avoid any problems that are associated with the performance of obligations in the future.

The most significant tasks of the legal assessment of the agency agreement: 

  • check it for compliance with the requirements of the civil legislation of Russia;
  • analysis of current judicial practice on emerging disputes related to the relevant legal relationship;
  • clarification of legal issues on the terms contained in the analyzed document;
  • search for items that strongly infringe on the interests and rights of participants, in addition, entailing some negative consequences;
  • inclusion of provisions that create legitimate protection of the interests and rights of interested parties.

Legal assessment is a necessary and important stage of entering into a deal, which provides a significant reduction in the risks of undesirable consequences, such as invalidation, entailing the possibility of legal disputes, as well as additional financial costs, reputational risks, loss of a counterparty and other unpleasant problems.

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