Agency contract in Spain

Spain - The termination of the fixed-term agency contract.

Lawyer Roger Bordas Segura. Piero Viganego Abogados y Consultores

The Spanish courts have ruled that an extended fixed-term agency contract continues to be a fixed-term contract even if such extensions have been accepted.

We can cite the Judgement of the Spanish Tribunal Supremo of 03/06/2015, which states the following:

"(...) A contract of an initial duration of six months, which may be tacitly extended by successive six-month periods up to a maximum of 18 months, is a fixed-term contract and not indefinite, as the appellant maintains, merely because the first extension has been granted. It does not fall within the scope of application of either articles 24.2 ni 25.1 y 2 LCA (...)'.

Recently the Court of Appeal of Madrid (in Spanish, 'Audiencia Provincial') issued a Judgment dated 28/10/2022 recalling this criterion of the Spanish Supreme Court.

We can also quote the Judgment of the Barcelona’s High Court dated 04/07/2019, which says the following:

"(...) The conversion into an indefinite-term contract should only refer to cases where a fixed-term contract expires without a new fixed-term contract being agreed. To hold otherwise would go against the principle of party autonomy. (...)'.

Law 12/92 does not provide for the right of the principal to terminate a fixed term agency contract early with notice, unless there is a breach of contract by the Agent, which is not the case.

In fact, Article 24.1 of Law 12/92 states that the fixed-term agency contract will terminate only upon expiry of the agreed term. Article 25 of the Spanish Law 12/92 provides for the Principal's right to terminate an agency contract without just cause by giving notice, but this article only refers to open-ended contracts.

In cases where the Principal terminates a fixed-term agency contract before its expiry without just cause, Spanish doctrine provides for the Agent's right to claim damages under common law (Spanish Civil Code, Articles 1101, 1106 and 1124).

This compensation would include the emerging damages as well as the loss of profit (lucro cesante), always with criteria of foreseeability and reasonableness.

We can cite the following rulings in this respect:

Barcelona Provincial Court 19/12/2012

"(...) As regards compensation under the provisions governing breach of contract, articles 1101 and 1124 of the Civil Code, the plaintiff seeks the loss of profit corresponding to the profit forecasts for the time, almost three years, that remained to complete the four years established in the contract.

It should be noted that compensation for customers and damages are compatible, both based on specific regulations and on the basis of common law for breach (SSTS 3/3/2011 and 11/11/2011) and also that compensation for customers represents a compensatory compensation that must be distinguished from compensation for damages arising from breach, The latter means that while only the clients obtained by the Agent will be taken into account for the calculation of the compensation for clientele, for the loss of profits, all those received, whatever their source, must be taken into account, in this case, even the clients from the defendant, those belonging to the second group (...)". )".

That compensation must be paid seems obvious. The agency contract, according to arts. 23 and 24, can be agreed for a fixed term and in this case it will be terminated on expiry of the agreed term. The law does not refer to the regime of non-performance due to non-compliance with the term, unlike other specific indemnity issues, especially for contracts of indefinite duration, which it does deal with. It is therefore necessary to refer to the general rules of the Civil Code and specifically to Art. 1101 et seq. and especially to Art. 1106, which provides for compensation for the value of the profit lost. If the contract was to have a fixed duration, four years, and a correlative expectation of profits, it is clear that the interruption of the flow of profits due to the termination of the contract has meant a patrimonial loss for the party who has suffered the consequences and has not been guilty of the rupture. It is necessary to return to the unchanged statement in the judgement that this party was the plaintiff, which is therefore entitled to be compensated for the legal effect of the breach and because, as we have also said, the other party, the one who breached the tenor of the contract, understood this to be so by showing its willingness to compensate the plaintiff (...).

Audiencia Provincial Burgos 31/07/2020

"(... ) Article 29 of the Law on Agency Contracts provides for compensation for damages which, independently of the compensation for clientele, the Agent may receive in contracts of indefinite duration or without a term, but in the case, such as the present one, where the contract is for a fixed duration subject to an agreed term, it is obvious that in the event of breach of the term due to unilateral, early and unjustified termination by the principal employer, the Agent has the right to receive compensation for damages, it is obvious that in the event of breach of the term due to unilateral, early and unjustified termination by the principal, the Agent is entitled to receive as loss of profit the commissions he would have received during the period of time remaining before the expiry of the agreed term (...)".

Audiencia Provincial Asturias 01/07/2008

"(...) The judgment under appeal is correct when it assumes that since it is an agency contract for a fixed term (art. 25 of the CCA), neither art. 25 on notice nor art. 29, both of the CCA, are applicable to the case of unilateral termination of an agency contract for an indefinite term, and this is correct because the Law does not contemplate the case of unilateral termination of the contract agreed for a fixed term before the end of the agreed term.

If this is the case, the consequences of such conduct must be resolved by resorting to the general rules of contracts for the case of contravention of the agreement (articles 1.101 et seq. and 1.124 C.C.), in this sense F.1 and sgts. of 22-6-2007 and those cited therein and SAP Bizkaia Sect. 5 of 20-4-2004, Zaragoza Sect. 4 of 14-4-2003 and Cordoba Sect. 3 of 7-1-2003) (...)".

Valencia’s High Court 05/02/2001

"(...) This does not prevent compensation for damages for breach of contract in cases not foreseen in the Agency Law, such as the case analysed of unilateral termination of the fixed-term contract without just cause by the contracting company, based on the general criteria contemplated in articles 1.101 and concordant articles of the Civil Code. In such a way that the compensation criterion proposed in the claim can be accepted as the minimum monthly amounts that the plaintiffs would have received as a fixed commission until the normal termination of the contract, at a rate of 90,000 pesetas per month (...)".

Barcelona’s High Court 08/06/2012

"(...) must give rise to the compensation corresponding to the damages that are proven to have accrued due to the early termination of the contract which had already been extended for one more year (until 1/6/2009) and which the defendant terminated early (...)".

(...) The question to be resolved in this appeal focuses on the determination of the years and damages derived from the early termination of the contract (art. 1101 and 1124 of the Cc), and that in accordance with the provisions of article 1106 of the Civil Code, must include not only the value of the losses suffered but also that of the profit not obtained (...)".

Audiencia Provincial Madrid 15/11/2017

"Although the precept refers to contracts of indefinite duration, the principle contained therein would also be applicable to fixed-term contracts when they do not end on time, but are denounced or terminated early and unjustifiably by the employer, since the situation created is the same, and in any case, if this precept were not applied, the same result would be reached by applying the general rules of contractual liability (articles 1.101 and following of the Civil Code) (...)".

High Court of Madrid 10/06/2009

"(...) With regard to compensation for damages, this is regulated in articles 29 and 30 LCA, the former stating: "Without prejudice to compensation for clientele, the employer who unilaterally terminates the agency contract of indefinite duration, shall be obliged to compensate the damages which, where appropriate, the early termination has caused the Agent, provided that this does not allow the repayment of the expenses which the Agent, instructed by the employer, has incurred for the execution of the contract". The rule refers only to a contract of indefinite duration, but in the present case it is a fixed-term contract insofar as the initial duration was agreed for three months and subsequently for one year in the event of extension, and the fact is that after the initial period had expired, the relationship continued for another month, sufficient time to understand that the contract was tacitly extended for one year, as established.

As the contract is for a fixed term, the aforementioned rule is not applicable to the case and, therefore, the determination of damages will not be conditional on demonstrating that the termination of the contract did not allow him to amortise the expenses incurred for the execution of the business, i.e. the investments made at his own expense, but that in addition to claiming for this specific damage, he may opt to obtain compensation for loss of profit in accordance with the provisions of Article 1. 107 CC , insofar as the expectation of profit had the specific duration of one year, which was frustrated by the unilateral will of the defendant.

In accordance with the foregoing, and taking into consideration that during the previous three months he had a regular income each month from fixed fees and commissions of approximately €2. 500, we consider the calculation made by the plaintiff to be correct, setting that figure multiplied by three monthly payments as the profit lost due to the early termination, which leads us to partially uphold the appeal, so that the total amount of the sentence must be increased by €7,500, so that added to the €1,710.14 set in the decision appealed against, the amount to be paid by the defendant is €9,210.14 (...)".

Conclusion

In accordance with the above-mentioned Spanish doctrine, it is clear that the Spanis Agent would be entitled to damages for the early termination of the fixed-term agency contract, and this compensation should also include 'lost profit', calculated in a r

The Court of Appeal of Madrid orders payment to a marketing agency even when clients cancel

It is common for companies to subcontract marketing agencies to attract customers on their behalf, with the precaution of adding a clause to the outsourcing contract stipulating that if any client cancels within a certain period (normally between three and six months) the agency must reimburse the commission.

However, the Provincial Court of Madrid has limited the practical legal effect of this clause by clarifying that for it to be applicable, the subcontracting company must be able to prove that the client did not cancel for any cause attributable to the company.

So if a customer cancels due to a delayed installation or poor service, the company must pay the agency and cannot apply the content of the clause. However, if the company can prove that the cancelation was not due to any reason attributable to itself, the clause will continue to apply and there will be no obligation to pay the agency.