Spain — Is it possible to advance payment of customer indemnity in agency contracts?

Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

In summary and by way of conclusion

The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.