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The Agency Agreement in Costa Rica

Andrea Hulbert's picture
Published: 29/07/19 - Country: Costa Rica
Area:
Economic:

An agency contract is not defined in the law; it has been defined by doctrine and case law as: “…. a lasting and stable collaboration for a principal (merchant, entrepreneur or businessman) to develop his activity, through a representative agent in a certain area…” (Second Chamber of the Supreme Court of Justice of Costa Rica, Judgment No. 00220 issued at 9:20 hrs, on July 26, 1996). The merchant, entrepreneur or businessman is usually known as the principal (the bracketed words do not belong to the original).

An agency agreement is executed by a person, referred to as the agent, who is authorized to act for or on behalf of another (Black’s Law Dictionary, Eight Edition, Bryan a. Garner, Editor in Chief, Thomson West, 2004, page 68), called the principal, to negotiate business for the sale of services and products in the local market. It is characterized by being a stable collaboration agreement. In some cases, the agent may have the authority to sell on behalf of the principal; in other cases, he would not have such power. The most common agency agreements are: travel, insurance, automobile and general commercial contracts.

The Agent is independent and autonomous, and acts for the purpose of transacting business in the name and on behalf of the principal. The Agent sends the purchase order to or requests the approval of the principal; once the latter has accepted the terms, the contract shall be executed between the principal and the client. The Agent is not a party to the contract; therefore, no risk or responsibility is assumed. The remuneration of the agent is usually a commission for the promoted and formalized contract (Labour Court of San José, Section I, Judgment No. 00008-2006, 08:40 hrs, January 1st., 2006. This resolution compares the Commission Agent and the Commerce Agent).

With regard to the characteristics of the Agency Agreement, national case law has said: 

"... the agency, on the other hand, implies a lasting and stable collaboration for a businessman to develop his activity, through an agent, and in a certain territory. Now, some characteristics of the agency contract, are:

  1. It is a contract of duration: the agent does not assume the charge of a single contract, but of all those that it can promote and execute in the assigned area, in the name and on behalf of the principal, as long as the contract subsists,
  2. It is a contract between businessmen or merchants: the professionalism of the agent, will be characterized by making the agency his habitual economic activity;
  3. It is a contract whose purpose is to promote or conclude contracts in the name and on behalf of the principal. In this way, the agent, sometimes, is limited to looking for customers; approaching them in order that they may enter into contracts directly with the principal; while in other occasions, when he has a power of representation, he may execute contracts with third parties on behalf of the represented principal; and
  4. The remuneration of the agent depends generally on the results of his performance for and on behalf of the principal. Another characteristic is what doctrine has defined as (…) a (double exclusive agreement), where: "... the agent assumes the obligation not to work for the competition of the principal, and the principal shall not appoint any other agents in the territory of the agent, even preventing its products from being introduced into the agent’s exclusive territory and activity... ". (Second Chamber of the Supreme Court of Justice, Judgment No. 00237, of February 27, 2015. Free translation. Emphasis added; the bracketed words in bold letters are the name given by the author of this article).

The following resolution talks about the agency agreement, payment methods, subordination, and the independence of the agent:

"... the form of payment in an agency contract, depends, in general, on the results of the agent's work, so it cannot be seen as a distinctive sign of “workforce or labour relation” … in Clause Four of the agency contract, “the payment” is set by "commissions" for the sale, maintenance, collection of renewal of the … products. In the same sense, the existence in the agency contract of a series of obligations for the agent cannot be considered as a legal subordination, which is an element of the labour contract, the existence of the agency contract with obligation for the agent tend to (…), ensure the customer’s trust, the protection of the products and, the patrimony of the principal in front of the clients that executed a contract through the agent’s work. This is the reason why the obligations of the agents include, among others, providing its services under the conditions and according to the guidelines of the principal…” (Second Chamber of the Supreme Court of Justice, Judgment No. 00263, of March 13, 2013. Free translation. Emphasis added).

 Main characteristics of the AGENT:

  1. The agent is a professional merchant with autonomy.
  2. The agent usually owns an establishment.
  3. The agent acts for and on behalf of the principal.
  4. The agent is an intermediary.
  5. The purpose of the contract is to promote and/or finalize contracts in the name and on behalf of the principal. Usually, the agent is limited to the search for clients and bring then to the principal.
  6. The contract is perfect when the principal accepts the order of the client sent by the agent.
  7. The relationship with the principal is continuous and stable; usually based on the stipulations of the contract.
  8. The agent is not a party to the contracts he promotes; he takes no responsibility or risk.
  9. The agent’s remuneration is normally a commission subject to the results of its work.
  10. The agent can have a power to act in the name of the principal.
  11. Generally, the agent will have a territory and exclusivity in such area.

 (Second Chamber of the Supreme Court of Justice of Costa Rica, Judgment No. 00263, issued at 10:30 hrs, on March, 13, 2013; Judgment No. 01477, issued at 10:10 hrs, on December 20, 2013; Labour Court of San José, Section I, Judgment No. 00008-2006, 08:40 hrs, January 1st., 2006. This resolution compares the Commission Agent and the Commerce Agent).

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Andrea Hulbert's picture

Mrs. Hulbert has 25 years of professional practice in commercial dispute resolution. She is the founding partner and director of Hulbert Volio Montero Law Firm; with vast experience on national and international law, with special emphasis on complex cases.

Specialist in Civil and Commercial Liability, International expert in Oral Litigation, and anticorruption, Arbitrator and Mediator. With more than 100 training courses and conferences in different areas of the law, with special emphasis on domestic and international commercial arbitration, international judicial cooperation and international commercial contracts.