Who is the principal and other points when concluding an agency agreement

Bookmarked: 0

Who is the principal? Description and definition of the concept.

A principal is a person who participates in a transaction for his own account, as well as one who gives authority to another person to act as an agent.

Everyday life confronts people with different, often unexpected situations, when a person, due to the influence of various circumstances (protracted illness, excessive workload, being outside the required locality, lack of time or necessary knowledge in the required area), is not able to independently participate in business relationships with other people or organizations. Similar situations sometimes happen among legal entities. In such cases, a person or organization is free to exercise the right granted by law to use the services of an agent and draw up an unusual, special type of business agreement called an agency agreement. Let's take a closer look.

Concept

An agency agreement is a special type of agreement.

Its definition, as well as the main conditions that must be included in the contract, can be gleaned from the Civil Code of the Russian Federation (second part, articles 1005–1011)

.

The essence of an agency agreement is the performance by an agent (a third party) of some actions on your behalf or on his behalf (if you wish to indicate so in the agreement) at your expense.

For example, you need to sell an apartment that is located in another city, you do not have time to fly there, look for a buyer, or enter into negotiations.

In this case, you can enter into an agency agreement with any individual or organization providing such services - an agent.

The contract must specify what exactly you ask the agent to do on your behalf (find a buyer, negotiate with him, conclude an agreement).

Rights and obligations of the parties

The main responsibility of an agent is the timely execution of orders entrusted to him. In addition, he must submit reports on the work done at certain intervals, if this is specified in the contract. If it specifies any special conditions, for example, maintaining secrecy or restrictions on working with competitors, then their fulfillment is also mandatory for the contractor.

The customer, in turn, undertakes to provide the authorized person with the information necessary for the work. And of course, pay directly for the agent’s work and those expenses associated with the assignment.

image from matryxconsulting.com.au

Civil law provides for the possibility of restrictions on the activities of the principal in agency relationships - this is done in order to protect the interests of the agents. Thus, in an agreement, according to the law, it is possible to prohibit the customer from collaborating with the agent’s competitors or from engaging in a similar type of activity (Article 1006 of the Civil Code).

I would like to note that the final responsibility lies with the principal. Of course, in the event of incompetent execution of the order, the principal can recover from the contractor in court, but the first demand will be from the customer.

Terms

To make it more convenient for you to understand the terminology used in the Code and our article, we will try to define the main terms.

Agent

An agent is a performer under an agency agreement, a person who will perform the actions entrusted to him.

An agent can be either an individual or a legal entity.

Sometimes, if required by law or regulation, the agent must have licenses or special permits.

For example, if you instruct an agent to build a house, he must have SRO approvals

.

Principal

The principal is, in fact, you.

The principal is the person in whose interests the agent acts.

The principal is the so-called main manager or customer of the agent’s services.

The principal bears great risks, because all the obligations that the agent formalizes for him will become his obligations in the future.

Agent's commission

An agent's fee is a fee for the services of an agent.

This amount is usually reflected in contracts as a separate line; it is not included in the agent’s expenses for executing your order. This is his bonus.

Subagency agreement

A subagency agreement, subagent, is an agreement that an agent can enter into by transferring your business to another person - a subagent.

This sometimes happens when an agent - a fairly large company with a well-known reputation - enters into an agency agreement, and attracts other performers - subagents - to carry out small and various other tasks.

If it is critical for you that the order is carried out by the agent, you can indicate in the agency agreement that work with a subagent is prohibited.

In any case, the agent remains responsible to you for all activities and actions that the subagent will perform.

Power of attorney

A power of attorney is a document that lists all of the powers you have granted the agent.

A power of attorney is a mandatory element of an agency agreement.

It must be drawn up, even despite the existence of an agency agreement.

The power of attorney can indicate the right to delegate the execution of an order if you agree to involve a subagent in your order.

Unilateral termination by the principal

To terminate the agency agreement, the principal only needs to go through a few steps:

Sample notification

The notice requires the agent to provide the following information:

• First, the principal enters passport and contact information. Below are the agent's initials;
• the name of the document is written in the center, for example “Notice of termination of the agency agreement”;
• details of the agency agreement and additional identification information are indicated;
• the body of the document specifies the grounds for termination of the contract;
• at the end there is a date after which the contract terminates;
• The date and place of the notification is written below;
• The full names of the principal and agent are written down at the bottom left;
• The document must include space for the date and signature of the agent.

you can here.

Positive points

The positive aspects of the agreement include saving effort and time, because you do not have to go to various authorities on your own, stand in queues, run to banks and notaries.

The entire process is already carried out by the agent.

If you do not want to advertise your achievements, rights to land or other resources, you can enter into an agreement in which the agent will act on his own behalf, and not on your behalf.

Then in all databases he will appear as a tenant, landlord or in another status.

Agency agreement options

When drawing up a contract, it is extremely necessary to be extremely careful about the nuances with contract options. The Code provides the opportunity to choose one of two options for its design:

• The first necessarily states that the agent’s actions are dictated by the will of his principal.
• According to the design of the contents of the second, the agent acts exclusively on his own behalf.

Of course, for principals it is much preferable to use the first version of the contract, because in such cases all the actions of the agent are aimed at fulfilling the interests of the principal, since in this case all the consequences and responsibility for the transactions concluded by the hired agent will be valid in relation to the principal himself. These conditions must be specified when drawing up the contract, otherwise unpleasant situations may arise later. Because if the agreement states that the agent acts on his own behalf, that is, the agreement is drawn up on behalf of the agent, then when concluding a transaction, for example, on the sale of an apartment, he has the right to receive money from the buyer in accordance with the contents of the agency agreement take it for yourself.

Usually the first type of agency agreement is concluded, the second is resorted to in extremely rare cases when the principal does not want to face the consequences. For example, if the agent’s tasks include building a road, which involves the necessary additional formalization of relations with those who own the plots of land through which it will pass, and the principal does not want to enter into an additional type of relationship, for example, rental or other, with the owners of plots of land, then an agent can do this for him, acting not on behalf of the principal, but on his own. In this case, when drawing up lease agreements with landowners, the tenant will not be the principal, but his agent.

In this case, regardless of the type of agreement chosen by the principal, the principal will pay the rent, since in drawing up the lease agreement the agent acted on behalf of the principal.

Negative points

Of course, the agent’s work needs to be monitored and constantly checked.

Unfortunately, it is not always possible to trust and be confident in the correctness of his actions.

After all, you will have consequences.

For example, you can hire an agent to build a house, bathhouse or road.

After completion of the work and delivery of the object, ownership of the constructed object will be registered in your name.

This means that all the risks in terms of compliance of the structure with GOSTs

and other requirements will be assigned to you.

After all, you accepted the work from the agent and paid for it.

Of course, if it turns out that the agent is incompetent and abusive in carrying out your instructions, it is possible to initiate legal proceedings with various demands for compensation, etc.

But the point remains that they will collect it from you first, and only then can you claim recourse.

Obligations of the principal as a party to the agency agreement

In the event that the actions performed by the agent entail the emergence of rights and obligations not for him, but for the principal, their relationship is regulated by the provisions of Chapter. 49 of the Civil Code of the Russian Federation, which defines the rules for applying the agency agreement (Article 1011 of the Civil Code of the Russian Federation).

According to the provisions of Art. 975 of the Civil Code of the Russian Federation, the principal (aka the principal) is obliged (unless otherwise established by the provisions of the concluded agreement):

1. Reimburse the costs incurred by the contractor in the course of performing the task assigned to him.
2. Provide the contractor with the means necessary to complete the task.
3. Accept the result of the work performed by the performer.

Who are the participants in the bank guarantee?

A bank guarantee (BG) is a way to ensure the fulfillment of one party’s obligations to another. Such a document guarantees the payment of a certain amount to the customer if the terms of the contract are fulfilled improperly or not fulfilled at all.

Such a document protects the interests of all parties to the transaction, but first of all, the party that orders work and services or acts as a supplier, lender or borrower.

Example

A private company wins a tender for a state order for the processing, procurement and transportation of wood in the West Siberian region.

To ensure the fulfillment of the contract, Lespromkhoz provides the customer with a bank guarantee issued by Sberbank, under which it undertakes to fulfill its obligations in full and on time.

In case of failure to fulfill the terms of the agreement, the bank must pay the state the guarantee amount to compensate for the costs.

Who is who in this example? The beneficiary here is the customer – the federal authorities. Principal – . The guarantor is Sberbank.

Now the official definitions.

Principal is a person who applies to the bank for a guarantee and undertakes obligations to fulfill the contract.

The beneficiary is the creditor for the obligations established by the bank guarantee document. The party to whom the principal is obliged to provide the work or services provided for in the contract.

Guarantor – a bank or credit institution. The party that provides payment of monetary compensation upon the occurrence of a warranty claim.

Simplified scheme for providing a bank guarantee
In the specialized literature, the terms “ultimate beneficiary” and “applicant” are sometimes found. These concepts relate to a slightly different area of ​​economic relations.

An applicant is a person who needs funds to bring a commercial project to life.

The final beneficiary is the beneficiary, the consumer of the results of such a project.

The initiator of the bank guarantee is the principal. But he does not always apply for this document, which is called “from a good life.” Often this is the only way to get a profitable and long-term government order.

The principal bears all the costs of paying the bank commission and acts as an applicant when drawing up the document. He is considered a debtor for obligations until they are fulfilled.

To issue a guarantee, the principal must meet certain criteria set by the bank. Financial institutions study the company's status, accounting, history, and documentation.

The beneficiary is the main beneficiary of the bank guarantee. He has the right to demand payment of the entire amount if the principal does not fulfill what he promised under the terms of the contract.

The bank will examine the documents provided by the customer and satisfy his request (or not if it finds inconsistencies in the documents).

The guarantor (bank) receives a mandatory remuneration from the principal in the form of a commission for its actions. If the credit institution had to pay the entire amount under the guarantee or part of it, it has the right to recover compensation from the principal.

In 2015, the requirements for issuing bank guarantees to ensure the execution of contracts, especially government contracts, became more stringent. The list of organizations that have the right to issue such a document has been significantly reduced. All banks with permission to issue banknotes are included in a special register. If you want to study it, visit the Ministry of Finance website and download the corresponding document.

In addition, all warranty obligations are also entered into the state register. This confirms the authenticity of the guarantee.

The main advantages of a bank guarantee:

• the customer receives additional insurance in case the contractor refuses or fails to comply with the terms of the contract;
• the principal saves money - he does not need to freeze funds in the account to secure the contract;
• the contractor also gets the opportunity to participate in an arbitrary number of tenders;
• The guarantee is issued quickly, especially if you act through a broker (we’ll talk about this below).

Potential partners have more confidence in performers who act under a guarantee. A guarantee document is a kind of incentive to fulfill one’s duties on time and in the proper form.

Transactions with a bank guarantee open up excellent commercial prospects for private companies - this is an additional advantage when participating in serious tenders and projects.

Agent and principal are friends and enemies

The agent and the principal are both friends and enemies, since the terms of the contract determine which of them risks being left with tax and other problems.
The very design of the contract has some distortions in the discretionary regulation, allowing for use in a way that is inconvenient for the principal or abuse of his trust. It is generally accepted that an agency agreement based on a “commission” scheme is quite harmless, but the principal in an agency agreement is the principal (directly translated from Latin - in a general, non-legal sense). If he makes the mistake of considering the agreement a “formality,” he may end up in situations that he could not initially anticipate.

An agency agreement is the embodiment of freedom of will in a strict system of contracts. The principal can entrust the agent with any legal and factual actions. Options for adverse consequences if conditions are unclear:

• The risk of the court applying rules on the actual relations of the parties. This is due to the fact that the agency agreement often covers other actual relationships (for example, in the absence of permission to sublease from the tenant). There is a wide variety of options: sublease, contracting, leasing and others. On the other hand, there are cases when contracts for the provision of legal services were qualified by the courts as agency agreements. Sometimes construction contracts are recognized as mixed, with elements of agency (if subcontractors are allowed to be involved, for example).
• The possibility of arbitrary actions of the agent, entailing unpredictable consequences for the principal: expenses, unnecessary transactions, and so on.

Economic theory of principal-agent in legal embodiment

A principal who does not set clear goals and conditions in the contract may receive performance that he did not want.

The first thing to avoid is the amorphous nature of the agent's obligations. As mentioned above, the agreement will be valid when determining the powers of the agent in the most general form, up to the simple right to conclude transactions on behalf of the principal - such cases have occurred in judicial practice (Resolution of the Federal Antimonopoly Service of the Moscow Region dated 02/21/2013 No. F05-58/13). The principal's order must be specific and consistent with the purpose of the contractual structure. Setting deadlines, despite the absence of a requirement in the law, will make it possible to carry out subsequent control.

The second thing that can negate the effectiveness of the contract is the establishment of an agency fee in a fixed amount. By combining both “wrong” conditions, we get not entrepreneurial cooperation, but an “employee”. An agent who has the authority to do “anything” and receives a predetermined remuneration may do nothing or create the appearance of activity (provide reports on activities that he did not actually conduct, “conclude” contracts with companies that do not actually conduct activities, etc.). d.). Such a situation would exactly fall into the terminologically similar economic theory of principal-agent, which considers a complex problem: how to make hired management, working for a salary and not interested in the effectiveness of their activities, work effectively?

The best approach is:

• Clearly defining the agent’s responsibilities, setting goals, requiring approval of an action plan and cost estimate.
• Setting remuneration as a percentage of effective performance results. Option – a percentage of the amounts of concluded transactions. In any case, the remuneration must be well definable and calculable on the basis of documents (reports). The wording “percentage of profit” is an example of an indefinite condition regarding the amount of remuneration.

An example of the correct approach to determining obligations, which helped to detect the agent’s dishonesty and influenced the outcome of the case, can be seen in the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated April 8, 2014 No. 17984/13.