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GUIDE TO IRANIAN MARKET

   Agency is of fundamental importance to all business. Persons engaged in international trade, in most cases enter into contracts and transactions through their agents and representatives. Working with and within the Islamic Republic of Iran is no exception to this rule. Even for transacting the sale of certain goods such as machinery and equipment, foreign companies are required to have a registered agent in Iran.

How is agency defined in Iranian law?
What are the features of these concepts in the law?
In which ways is an agency created?
Which types of agency are foreseen by Iranian commercial law?
What about the payment of the agency expenses and the agent's fees?
When is an agent entitled to receive fees?
What duties does the agent have to the principal?
Are there specific obligations to be observed by a broker or a commission agent?
What are the duties of the principal to the agent?
When is an agent liable for any loss caused to the principal?
What liabilities does the principal owe a third person?
Who is responsible for the agent's torts?
Is an agent allowed to delegate his representation?
When is an agency terminated?

How is agency defined in Iranian law?

   It covers a broad field of representation. Essentially, agency is regarded as a legal relationship in which one person (the agent) represents another (the principal) and is authorized to act on his behalf. According to Article 656 of the Iranian Civil Code "Agency is a contract whereby one of the two parties appoints the other party as his representative to perform something."
BROKERS, COMMISSION AGENTS, and COMMERCIAL DEPUTIES are the major types of representation in the area of trade agency which have been specified in the Iranian Commercial Code.

What are the features of these concepts in the law?

A BROKER is a person who acts for a fee as intermediary in conducting transactions, or finds a transacting party for a person who intends to do business.
A COMMISSION AGENT is a person who though he performs transactions in his own name, in fact acts for a principal in return for a fee.
A COMMERCIAL DEPUTY is a person who has been assigned by the director of the firm to act as his representative in performing the business operations of the firm or one of its branch offices, with his signature binding on the firm.

In which ways is an agency created?

   There are several methods of creating an agency, e.g.by express appointment, implication, ratification, etc.
Article 658 of the Civil Code stipulates that agency is effected by any word or act which is indicative of representation. Therefore, an agency may be created by writing either under or without seal, or verbally. As for ratification, an agency is creates when the principal's assent is given either to an act done by someone who had no previous authority to act, or to an act that exceeded the prior authority granted to an agent.

Which types of agency are foreseen by Iranian commercial law?

   Respecting the scope of authority given by the principal to the agent, the agency may be general and for all the affairs of the principal, or limited to the performance of a specific matter or matters (Article 660 of the Civil Code).The usual types of agency created by contracts (or letters of power of attorney) are that of: SPECIAL AGENT for acting only on a particular occasion
or for a specific purpose; GENERAL AGENT for doing anything within certain limits specified by the agency contract; UNIVERSAL AGENT who has unlimited powers to act for the principal; DEL CREDERE AGENT who undertakes the additional liability of guaranteeing his principal against the default of those with whom business is conducted.

What about the payment of the agency expenses and the agent's fees?

   The principal must pay the whole of the expenditure incurred by the agent for performance of his agency, and also the remuneration of the agent, unless other arrangements have been made in the agency contract. Basically, the fee of the agent
is subject to mutual agreement. If there has been no agreement on the fee or its amount, local custom and practice shall prevail.

When is an agent entitled to receive fees?

    Generally speaking, it is subject to the agreement between the parties.
However, in the absence of an agreement, agents such as a broker or commission agent, can not demand for their remuneration unless the transaction is concluded through agency. When a transaction is conditional, the agent shall be entitled to his fee only after the realization of the stated conditions. If the deal is canceled, either by the mutual consent of the parties or by a legal option, the agent shall have the right to his fee provided the cancellation is not the result of his own actions.

What duties does the agent have to the principal?

   When the agent is appointed by contract, the terms of the contract determine his duties. However, there are some fundamental rules and obligations which should be observed by the agent. An agent is a trustee, and the nature of his trust requires a high degree of loyalty. A breach of this trust may be considered criminal.
The agent can not execute a matter which is beyond his authority. The agent, in his operations and activities, must bear in mind the interests of his principal and give to him full accounting of the period of his mission.

Are there specific obligations to be observed by a broker or a commission agent?

   Yes, there are. The broker must inform both parties of the details of the transactions in complete honesty and in full integrity, even though he acts on behalf of one party. If the broker has either a personal share or interest in the deal, he must notify the party who is unaware of the fact, otherwise he shall be liable for possible damages suffered. A commission agent has no right to a commission fee if he has acted in bad faith, particularly if he has charged a price higher than the purchase price, or a price lower than what has been actually sold.
Despite the above-mentioned duties, the broker is not responsible for the value or quality of the merchandise transacted unless his fault is duly established. The broker is not responsible for the financial ability of the persons for whom he acts as an agent, nor is he liable for the performance of the transaction done through him. However, when the contracting parties or one of them has undertaken a transaction on the basis of a promise made by the broker, the broker shall be liable. As for a commission agent, he is also not responsible for payments or performance of other undertakings by the other party to the contract, unless he has personally guaranteed the other contracting party, or he is considered as liable by local commercial practice.

What are the duties of the principal to the agent?

   These responsibilities are defined according to the terms of the agency contract. However, as a primary obligation, the principal must execute all the undertakings which the agent has accepted within the limits of his authority. The principal must compensate the agent for his services, and indemnify him for expenses or losses incurred not due to the agent's fault, if the agent was acting within the scope of his authority.

When is an agent liable for any loss caused to the principal?

   Agents are liable to the principals for damages resulting from exceeding authority, or committing faults, misconduct and negligence in connection with the performance of their agency duties.

What liabilities does the principal owe a third person?

   The agent is a representative and extension of the principal. So, where an agent acts for a principal and the fact is known to the person with whom he is dealing, no liability exists between the agent and such person. The relation is entirely between the person and the principal. However, if the agent does not act within the authority granted by the principal, he can not bind the principal to the deal, and he himself will be responsible to the third person.

Who is responsible for the agent's torts?

   The principal will be responsible if the tort is committed within the scope of the agency. Otherwise, when an agent commits a tort that injures a third party, he personally shall be liable.

Is an agent allowed to delegate his representation?

   According to Article 672 of the Civil Code an agent cannot appoint a sub-agent without the express or implicit authorization of the principal. If an agent, lacking the right of delegation, hands over to a third person the execution of the matter for which he is empowered, both of the agent and the third person shall be responsible to the principal for the losses which they are known to have caused.

When is an agency terminated?

   Agency is a revocable contract under Iranian law. The principal and agent relationship may be ended in the following instances: dismissal by the principal, resignation of the agent, death or insanity of the principal or the agent.
An agency may also be terminated by an order of law, the bankruptcy of a principal, or the destruction of the subject matter of the agency. Regarding the dismissal by the principal, he may dismiss the agent whenever he wishes to do so, unless the agency itself or the indismissibility of the agent, have been laid down as a part of an irrevocable contract, such as sale.

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