-
-
Brazilian
Agency
-
(COMMERCIAL
REPRESENTATION CONTRACTS)
Courtesy
of
- CARVALHO
DE FREITAS E FERREIRA
- ADVOGADOS
ASSOCIADOS
- Avenida
9 de Julho, 5593 - 9º
andar
- São
Paulo, Brasil, 01407-200
- Tel.:
(11) 3078.6600 –
3066.5999
- Fax:
(11) 3167.4735
-
I.2 –
AGENCY (COMMERCIAL
REPRESENTATION CONTRACTS)
- Terminology
Although
the terms "Commercial
Representation" and
"Agency" are
synonymous in Brazilian
legal language, the former
is the expression adopted
by the prevailing
legislation to define the
activity herein under
study.
- Legislation
Law
4,886 of 12.09.65 governs
agency activity, with the
amendments introduced by
Law 8,420 of 05.08.92. The
new Civil Code (Law 10,406
of 01.10.02) also
regulates the matter, but
this law will only come
into effect as of
01.11.03.
- Concept
The
independent agent activity
is exercised by a legal
entity or natural person,
without an employment
relationship or
relationship of
subordination, which
habitually performs, in a
determinate territory and
in return for
remuneration, on behalf of
one or more persons,
mediation for the
realization of commercial
operations, procuring
proposals or orders to
transmit them to the
represented parties,
practicing or not acts
relating to the execution
of the business. The agent
is not to be confounded
with the
"distributor",
whose activity does not
constitute the
intermediation of
business, but rather, a
resale. In fact, in the
case of distribution, the
distributor, being a
dealer, purchases
determinate products, for
its own account and risk
and resells them to third
parties. The
distributor’s
remuneration is derived
from the margin it earns
between the selling and
resale price of the
product. The agent, on the
other hand, is a true
independent broker, an
intermediary for
conducting determinate
commercial transactions.
Furthermore, the agent
does not have the thing to
be negotiated at its
disposal.
Although
the law permits the
contracting of legal
entity or individual
agents, without any
distinction between the
two, it should be noted
that the contracting of an
individual agent should
preferably be avoided,
owing to the greater risk
of an employment
relationship being
characterized between the
represented party and
agent, which could entail
heavy losses for the
former. In the event such
a relationship is
characterized, the
conditions under which t
he activity is exercised
by the individual agent
will be analyzed, notably
the possible subordination
relationship in the face
of the represented party,
a necessary element for
the characterization of an
employment relationship,
as opposed to the
independence in the
provision of service that
constitutes the marked
characteristic of the
agency activity.
In
short, the agency contract
is a typical contract,
with its own
characteristics, which, if
misinterpreted, could
characterize an employment
relationship.
- Registration
of agent
The
independent agent should
register with the Regional
Council of Agents where it
is located.
Although
the applicable legislation
determines that
remuneration will only be
due to duly registered
agents, jurisprudence was
established in the
Country’s courts in the
sense that such legal
provision is in conflict
with the Federal
Constitution, which
ensures any citizen the
free exercise of the
profession. Moreover,
remuneration for services
rendered by a
non-registered agent
cannot be denied, since
the unjust enrichment of
whomsoever made use
thereof is not admitted
(the represented party).
- Contract
The agency
contract may be written or
verbal. If it is verbal and
any controversy should
arise, it shall be proved by
any evidence admitted by law
(such as correspondence,
accounting entries in the
agent and represented
party’s books, invoices,
examination of precedent
cases during the
representation, and other
possible evidence).
The
contract (obviously,
providing it is a written
document) must necessarily
contain certain clauses.
However, owing to the lack
of foresight of the
applicable legal text, a
contract that contains none
of the clauses in question
may not be considered null,
but will merely lose the
effect of a written
contract, relating to such
clauses agreed verbally,
which will be the subject of
proof.
Following
are the "obligatory"
clauses:
- General
conditions and
requirements for the
agency activity.
- General
or specific indication
of the products or
articles, subject of the
agency activity.
- Certain
or indeterminate agency
term.
Note
that a contract with a
determinate term, once
tacitly or expressly
extended, becomes the
indeterminate term. A
contract that, in 6
months, succeeds another
contract with or without
determination of the
term is also considered
as for an indeterminate
term.
The
expiration of the
contractually provided
term will imply the
extinguishments of the
legal relationship,
without any indemnity
whatsoever for either
party. However, in the
case of a contract for
an indeterminate term
that has been in effect
for more than 6 months,
and only in this type of
contract, the party that
cancels it will be
subject to the
concession of prior
notice of 30 days or to
the payment of a sum
equivalent to 1/3 of the
commissions earned by
the agent in the 3
preceding months, if the
termination is not
founded on just motives,
unless otherwise
guaranteed in the
contract. Note that the
question of indemnity
due in the event of the
termination of any
agency contract will be
analyzed further on.
- Indication
of the zone or zones in
which the agency
activity will be
exercised This is an
essential element of the
contract, since, if this
clause is omitted, the
contract will not be
null, but the agency
activity will be
construed as of a
general scope and
exercisable in any
location. The zone may
be freely determined by
and between the parties,
and may, for example, be
established in
accordance with the
territory (country,
state of the federation,
region, district,
neighborhood), by
category of client etc.;
the zone may be
subsequently
- extended
or restricted subject to
express agreement
between the parties and
provided that this does
not imply any reduction
in the average income
earned by the
representative in the
last 6 months of the
agency contract term, or
in cases wherein the
restriction of the zone
granted with exclusivity
and duly foreseen in the
contract is justified.
Due to
its importance, the
exclusivity clause should
be established in an
extremely clear manner,
avoiding future
controversies between the
parties and, hence, to the
benefit of both the agent
and represented party.
The
exclusivity, in any of the
various forms detailed
further on, may be partial
or total, for a
determinate or
indeterminate term, or
further, unilateral or
reciprocal.
- in this
respect, Exclusivity
relating to a
determinate zone, i.e.,
the territory in which
the agent exercises the
agency activity. The
agent will be entitled
to a commission for the
business conducted in
the zone, regardless of
whether the contract
provides for zone
exclusivity or is
omissive in this
respect, even if such
business is conducted
directly by the
represented party or
through third parties.
Note
that the new Brazilian
Civil Code that will
take effect as of
01.11.03 regulated the
matter in the same
manner, for it
determined that zone
exclusivity is presumed,
i.e., when the contract
is omissive, the
representative will have
the right to
remuneration
corresponding to the
business concluded
within its zone, even if
without its
interference.
- Exclusivity
relating to the
represented party’s
products, which may
cover all or only
certain products of the
represented party.
- Exclusivity
in favor of the agent or
represented party. In
the first case, the
represented party may
not contract out other
agents. The exclusivity
of the agency activity
is not presumed in the
absence of express
agreements. If
exclusivity of the
agency is ensured by a
contractual clause, the
agent becomes the only
person with the right to
procure or conclude
business on behalf of
the represented party in
the territory involved.
Any interference from
third party agents or
the represented party
itself, directly or
through employees, in
the area, will give the
representative the right
to receive commissions
for the business
conducted that area by
such persons. In the
second case, i.e., of
the exclusivity of the
represented party, the
agent may not represent
other parties. In this
case the restriction may
refer to any represented
parties or only to
competitor represented
parties, in relation to
the respective products,
as adjusted in the
contract. In accordance
with the new Civil Code,
unless otherwise
provided in the
contract, a reciprocity
of exclusivity is
presumed, i.e., the
agent may not assume the
responsibility of
dealing with business of
the same kind, from
within its respective
zone, on behalf of other
represented parties and
the represented party
may not appoint, at the
same time, more than one
agent, in the same zone,
with an identical
mission.
In
practice, the following
rules prevail in the
agency contract: only
one agent per zone and
per activity and only
one proponent
(represented party) for
each agent. However, in
accordance with the new
Civil Code, such
reciprocity may be
dismissed by
determination of the
parties.
The
exclusivity clause alone
does not imply violation
of the legislation that
regulates the prevention
and repression of the
economic order
(antitrust law). This
has been the
understanding of the
Administrative Economic
Defense Council - CADE,
throughout its history,
unless the represented
party’s interest in
dominating the market or
excluding competitors is
detected in such
exclusivity.
- Compensation
(commission) and period
for its payment, for the
exercise of the agency
activity, depending on
the actual fulfillment
of the business and
receipt, or not, of the
respective amounts by
the represented party.
Commission payments
shall be made up to the
15th day of the month
subsequent to the
invoice settlement month
and, as a rule, from the
effective date of the
new Civil Code, will
also be due and payable
to the agent when the
business fails to be
consummated on account
of a fact imputable to
the proponent.
- Cases
that justify the
restriction of the zone
granted with
exclusivity.
- Obligations
and responsibilities of
the parties.
- Termination
of the contract –
Indemnity
The
agent shall be entitled
to indemnity whenever
the represented party
unjustifiably terminates
the agency contract. In
the case of a contract
for a determinate term,
indemnification will
occur for the losses and
damages suffered by the
agent, which damages
shall be pre-established
by law at an amount
corresponding to the
average monthly
remuneration earned by
the agent up to the
termination date,
multiplied by half the
months remaining to
complete the contractual
term. When involving a
contract for an
indeterminate term, the
agent will have the
right to receive
indemnification, which
amount shall not be less
than 1/12 the total
remuneration earned
during the period the
agent exercised the
agency activity.
In
regards to the
termination of contracts
executed for an
indeterminate term, the
new Civil Code
determined that either
party may terminate it,
subject to prior notice
of 90 days, provided
that the time elapsed is
compatible with the
nature and volume of the
investment demanded from
the agent. It should be
emphasized that in
agency contracts for
determinate or
indeterminate terms,
part of Brazilian
doctrine understands
that the agent may claim
amounts in excess of the
indemnity amounts
provided for in law and
duly mentioned above, as
long as it evidences
that the unfounded
contractual termination
caused direct damage to
its activity that is not
covered by the
indemnification
established by law.
However, as informed,
this is the opinion of
only part of doctrine,
and not wholly accepted
by the Courts.
In
accordance with the
special law that
disciplines the agency
contract and is still in
force, a justified
contractual termination,
on the part of the
represented party, does
not entail the agent’s
right to receive any
indemnity. For this
purpose, the law
considers the following
as justified causes:
- negligence
of the agent in
performing the
obligations resulting
from the contract;
- the
practice of acts that
result in the
represented party’s
commercial discredit;
- failure
to comply with any
obligations inherent to
the agency contract;
- final
conviction for a crime
considered infamous; or
- force majeure.
The law
does not establish any
indemnity to be paid by the
agent to the represented
party in the cases listed
above. However, in our
understanding, any
represented party that deems
it has been adversely
affected due to an act
practiced by the agent may
claim damages from the
latter, provided they are
duly evidenced, in
accordance with the
Brazilian Civil Code.
It is
important to clarify that,
in the event of a just
motive for the contract’s
termination, by the
represented party, the
latter may, by way of
compensation, withhold
commissions due to the
agent, with the purpose of
recovering the damages
caused by the agent. We wish
to stress that the new Civil
Code regulated the matter of
termination with cause in a
different manner. As of
01.11.03, even if discharged
by cause, the representative
will have the right to
remuneration for the useful
services rendered,
notwithstanding the
represented party having the
right to damages for the
losses suffered. The scope
of the term
"useful" will be a
matter to be interpreted by
our Courts.
On the
other hand, in accordance
with the prevailing law, the
agent will have the right to
terminate the agency
contract with cause and
receive the corresponding
indemnity from the
represented party, if the
latter is responsible for
any of the circumstances
below, since this is an
indirect termination brought
about by the represented
party:
- reduction
of the agent’s scope
of activity, in
non-compliance with the
clauses of the contract;
- direct
or indirect violation of
exclusivity, if this
exclusivity is set forth
in the contract;
- establishment
of abusive prices in
relation to the
agent’s zone, with the
exclusive purpose of
keeping the agent from
undertaking its regular
operations;
- non-payment
of its compensation when
due; or
- force majeure.
Along
the same lines, the
new Civil Code
determines that the
agent has the right to
indemnification if the
represented party,
without cause, ceases
to fulfill proposals
or reduces them in
such a way that they
become anti-economic
to continue the
contract.
In
relation to the causes
of termination
expressed in items 1
and 2 above, note that
the advent of the
Internet brought new
ways for bringing
together potential
interested parties,
both for the agent and
for the represented
party. The development
of electronic commerce
gave rise to the
possibility of the
represented party
operating through its
own websites,
maintaining direct
contact with its
potential clients.
Therefore, this new
means of concluding
transactions may give
rise to disputes on
the part of agents.
Besides
the "obligatory"
clauses indicated above,
the agency contract may
carry
other
clauses, which are freely
negotiable between the
parties, such as:
- penalty
clauses;
- clauses
relating to sub-agents;
and/or
- prohibition
of the agent, unless
expressly authorized by
the represented party,
to grant abatements,
discounts,
postponements, and other
conditions not expressly
authorized by the
represented party, but
provided they do not
infringe Brazilian legal
regulations of a public
order that govern the
agency activity.
Contractual
amendments that
directly or indirectly
imply the reduction of
the average income
earned by the agent
during the last 6
months of the
contract’s term are
prohibited in an
agency relationship.
In accordance with the
prevailing law it is
also forbidden to
include a del credere
clause, i.e., a clause
whereby the agent
assumes the risks of
the transactions it
intermediates, in
relation to the
payment of the price,
becoming the solidary
guarantor of such
payment.
On
the other hand, any
clauses that are in
conflict with the
public order will have
no legal effect, such
as the clauses that
infringe the legal
provisions relating to
the agent’s right to
receive prior notice,
indemnity or
commissions, among
others.
Agency
contracts may contain
a no competition
clause of the agent to
the represented party,
in a given territory,
during a certain
period subsequent to
the termination of the
relationship between
the said parties. This
clause is normal in
these contracts and is
considered valid,
providing that it does
not characterize
violation of the
economic order, on the
part of the
represented party.
However, its validity
will depend on an
examination of the
subjectivity of each
contract, within the
rule of reason
criteria. Thus, the
clause in question may
establish a reasonable
term for no
competition, which
may, in principle, be
of between 2 and 5
years subsequent to
the end of the
contract.
We
wish to point out,
however, that each
case should be
examined on a per se
basis, considering the
product, sector of
activity and
territory, subject of
each contract, with
respect to the law
that regulates abuse
of the economic order
(antitrust law). In
this context, we
clarify that any
clause or act that
evidences the
represented party’s
interest in dominating
the market or
excluding competitors
shall, for its
validity, be submitted
to CADE for approval.
With
respect to the choice
of applicable law for
the agency contract,
the same treatment
reserved for direct
sales shall apply (see
page 8 above).
However, considering
that, in accordance
with Brazilian law, it
is incumbent upon
Brazil’s Common
Courts, before the
Venue court of the
agent’s domicile to
judge the
controversies arising
out of such contracts,
and further
considering certain
precepts of a public
order contained in the
cited law, it is
evident that
indication of a
foreign law to govern
the contract will only
be valid to the extent
it is more favorable
to the agent.
Therefore,
it is important to
emphasize that, as a
safety measure, the
contract should adopt
the written form and
its text be the most
complete and
comprehensive
possible, so as to
clearly evidence the
rights and obligations
of the parties, in
order to avoid future
problems. Note also
that the legislation
applicable to agency
relationships, which
always seeks to
protect the agent,
determines that, in
the event of the
represented party’s
bankruptcy, the sums
owed by it to the
agent relating to the
exercise of the agency
activity, including
commissions, indemnity
and prior notice, will
be considered credits,
of the same nature as
labor credits, which
have preferential
treatment in this
situation.
Agent
actions for claiming
the compensation due
to them and other
legally guaranteed
rights expire in 5
years.
Date Updated: March 27, 2007
|
