Causes of termination in the agency contract
Most disputes arising from an agency contract arise when the contractual relationship comes to an end. Which happens because the commercial agent is entitled to compensation for clientele if it has generated more business for the businessman and it is understood that he will be able to continue benefiting in the future from the work that was done by the agent.
The quantification of compensation for clientele is generally the most controversial issue.
Compensation rights do not accrue until the relationship between the employer and the agent is terminated. This is what we call the termination of the agency contract, and its causes are regulated in Chapter III of the Agency Contract Law, in articles 23 and following.
We analyze the causes of extinction below:
Extinction of the agency contract for a specific period of time
Article 23 of the Agency Contract Law allows the contract to have a fixed duration. In other words, the contract itself establishes an end date for the agency relationship. According to the Law, if the contract does not determine a specific completion date, it will be understood that the agency relationship is indefinite.
The first cause of termination of the agency contract is therefore the expiration of the term that would have been agreed upon. This will occur if, by said date, the parties have not agreed to a renewal of the contractual term to continue the relationship.
On the contrary, if when the termination date arrives, both parties continue the agency relationship without establishing a new termination date, it will be understood that the duration of the contract has become indefinite.
This will occur even if the parties have not signed any contract renewal document, as long as the conduct of both shows a mutual will to continue the agency relationship (article 24 of the Agency Contract Law).
Termination of the agency contract for an indefinite period
Indefinite-term agency contracts are those that have not agreed upon an end date. These contracts may be terminated by decision of either party at any time during the agency relationship.
All communication of the termination of the agency contract must respect the notice period imposed by article 25 of the Agency Contract Law. The period of notice will be one month for each year of validity of the contract, with a maximum of six months.
If the agency contract had been in force for less than one year, the notice period will be one month. Unless otherwise agreed, the end of the notice period will coincide with the last day of the month.
A longer term may be agreed, but never less than the aforementioned. The Law thus imposes greater protection in defense of the agent.
Termination for breach of contract of the agency contract
When one party fails to comply with what was agreed in the agency contract, the other party may request the termination of the contract. You can also request compensation if the breach has caused you any type of damage or loss.
In the termination of the contract due to non-compliance there is no need to comply with the notice period, and it will take effect from the receipt of the notification in the that the will to terminate the contract is communicated.
Our courts require that the cause for termination be based on a serious breach, which significantly affects the non-compliant party. So that small breaches may give rise to other rights, but not to the termination of the contract for this reason and without prior notice.
Termination by declaration of bankruptcy
When one of the contracting parties in a situation of financial difficulty is declared bankrupt for not being able to meet the debts incurred, the other party may request the termination of the contract agency to operate immediately. This is contemplated in article 26 1. B) of the Agency Contract Law.
As occurs in termination due to non-compliance, the party that decides to terminate the contract by declaring bankruptcy of the other contracting party, does not have the obligation to respect a deadline notice. The termination will take effect from the receipt of the notification in which the will to terminate the contract is communicated.
Termination by death
The agency contract will be terminated by death or declaration of death of the agent, as established in article 27 of the Agency Contract Law. In this case, the extinction will operate automatically and from the time of death.
However, the contract will not be terminated by death or declaration of death of the employer. If the agent or the heirs of the deceased employer intend to terminate the agency contract, they must do so always respecting the notice period.
Indemnities after termination
In previous articles such as « Indemnities for ending the agency contract«, or «How quantifying compensation for clientele» we explain in detail the rights of the agent and how to quantify compensation. Fundamentally, the compensation that proceeds is: (I) for clients and (II) for damages.