Effective March 11, 1998, Guatemala amended its Commercial Code provisions on agents, distributors, and representatives. Replacing Decree 78-71, Decree 8-98 revises Articles 280 to 291 of Chapter II, Title II, Book I of the Commercial Code. Except as provided in special legislation, the amended provisions also apply to insurance agents, investment brokers, savings and loan agents, and any similar persons. The provisions, however, expressly exempt intellectual property licensing and commercial franchise agreements. Furthermore, agent, distributor and representative contracts entered into before the effective date of the amendments are governed by prior law until their expiration or termination.Definition of agents, distributors, and representatives.
Agents are defined as persons who permanently act with respect to one or more principals in soliciting or making commercial contracts in the name of and for the account of a principal.
A person is a dependant agent if such person acts at the request of and for the account of a principal, is a part of the principal’s enterprise, and has an employment relationship with the principal.
A person is an independent agent if said person conducts business through his own enterprise and is bound to the principal by a commercial agency contract. Independent commercial agents may make contracts in their own name to sell, distribute, promote and place products and services throughout Guatemala, if so agreed with the principal.
Distributors and representatives are persons who, for their own account, sell, distribute, promote, circulate or place goods and services of a domestic or foreign principal to whom they are bound by a distributor or representative agreement.
Activities of agents.
Unless otherwise agreed, agents may engage in other activities and work on behalf of other principals whose products or services do not compete with those of other principals.
If expressly authorized by the principal, an agent may make contracts in the name of the principal, collect money, grant discounts, give credits or change the conditions of contracts or preprinted forms. The agent must transmit to the principal without delay true copies of the orders and offers that he receives and of the contracts that he makes if he is authorized to make these contracts.
An agent is authorized to receive complaints and claims regarding the transactions made though him and must transmit these as soon as possible to the principal. The agent is also authorized to receive bonds securing the performance of the contracts made in the principal’s name.
Relationship between agent and principal.
At any time, a principal may modify the general conditions under which a dependant agent may present and process proposals or the conditions under which the agent may contract. Any modifications shall be binding upon the dependant agent as soon as they are made known to him.
When the agent is not authorized to make contracts on the principal’s behalf, the orders and offers that the agent receives shall be deemed simple proposals, which will not bind the principal until the principal accepts them. A principal may, at its discretion, accept or reject the orders or offers that the agent transmits and shall not be obligated to explain to the agent the reasons for rejecting an offer.
The dependent agent must perform his duties as instructed by the principal and the agent must, at the principal’s request, provide the principal with pertinent information relating to the market or the different transactions made or to be made by the agent.
To the extent not provided in the Commercial Code, the relationship between the principal and an independent agent is governed by the contract between them. For independent agents, any changes in the general conditions of their contract may only be made as agreed by the parties. In any case, the agreement between the independent agent and principal shall not affect contracts made in good faith between the independent agent and third parties.
Agent’s right to commission.
Unless otherwise expressly agreed, the agent shall have the right to a commission based on the value of the transaction and according to the uses and practices of the place of business. The agent is also entitled to a similar commission on transactions made directly by the principal if such agent was granted exclusive status in the territory in which the transaction took effect.
If by deceit or fault of the principal, a transaction procured by the agent is not concluded, the agent is still entitled to his commission. Unless otherwise agreed, if the transaction is not fully or partially concluded between the principal and third party, the agent is entitled to his commission for the portion of the transaction that was completed.
Principal’s right to appoint agents, distributors and representatives.
Except when an exclusive agent, distributor or representative contract exists, a principal may engage as many agents, distributors or representatives for the same geographical area or activity.
Termination of the agent, distributor or representative agreement. Except for “just cause” as described below, an independent agent, distributor or representative agreement may only be terminated by (1) mutual agreement of the parties shown in writing;
- (1) mutual agreement of the parties shown in writing;
- (2) lapse of the term of the agreement, if any, and
- (3) at the option of the agent, provided he gives the principal at least three months’ notice. In this last case, the agent must make an accounting and, if so demanded by the principal, return the merchandise subject to the agreement at a CIF price.
If the contract is terminated in any of the above three circumstances, no party shall bear any liability to the other.
Any of the parties may terminate the contract for “just cause” and may recover damages from the other party. For either party, “just cause” exists when there is
- (1) a breach of the contractual obligations;
- (2) the commission of a crime against the property or person of one of the parties by the other, and
- (3) the refusal of one party to provide reports, make accountings or settle accounts relating to the transactions, in the time and manner agreed to by the parties.
For the principal, “just cause” also exists if
- (1) the agent divulges or informs a third party without due authorization of any secret deed, fact, key, or formula which was confided to him by virtue of the respective contract; and
- (2) there is a reduction in the average sales or placement of goods or services, due to the agent’s negligence or ineptitude, as judicially corroborated. If no negligence or ineptitude is shown, the principal shall be liable for any damages caused by the termination of the contract.
For the agent, distributor or representative, “just cause” also includes an act by the principal that directly or indirectly impedes or tends to impede the agent’s performance of the contract.
The principal may terminate the contract without cause, but must indemnify the agent for any damages caused by the termination.
If the parties cannot agree on the amount of compensation for wrongful termination, a court must determine the amount upon receipt of expert proof. The parties may also agree to arbitrate the issue but, in either the case of arbitration or judicial resolution, the case must be heard in Guatemala.
If one of the parties is ordered to indemnify the other, the judgment or award may make the following pronouncements:
- (1) whether or not general damages (perjuicios) exist and, if so, their amount as justice may require according to the nature and circumstances of the business;
- (2) whether or not special damages (daños) exist and, if so, their amount in the following items:
- a) direct costs and advertising and promotion costs that were incurred because of the contract during the last year;
- b) investments made on account of the contract if these are not recoverable or usable for another purpose;
- c) payments for existing merchandise at the warehouse CIF price, which could not be sold due to the termination or rescission of the contract, provided the merchandise is in good condition. Any merchandise whose deterioration is attributable to the principal shall be deemed in good condition, and
- d) indemnification to which employees or workers are legally entitled and whose dismissal was due to
A principal seeking to engage an agent, distributor or representative in Guatemala should carefully define the precise character of relationship. If engaging an agent, the principal should expressly provide whether the agent is dependent or independent, remembering that dependent agents are employees for purposes of Guatemala law. In the case of independent agents, distributors and representatives, the principal should include, at the very minimum, a term of duration in the contract. In this way, the contract can be safely terminated without the evidentiary complications presented by attempting to use “just cause” as a basis.