agency and partnership clause

Other than in an agency or partnership contracts, agency clauses and partnership clauses are usually included in commercial contracts to deny the existence of a partnership or agency, rather than to admit them. Even in agreements for agencies and partnerships, the scope of the authority of each person should be clearly defined – and delimited, so as to set out clearly the scope of authority.

Agency and Partnership Legal Relationships

There are several reasons for this:

1. Two or more businesses may intend to enter a joint venture which does not expose one another’s assets to liability for the acts, omissions and breach of contract of the joint venture. Partnership law in the UK renders each partner jointly and severally liable for the debts of the partnership. This means that all of the assets of each partner are available to judgment creditors to enforce an adverse judgment;
2. An agency relationship includes one whereby one person is authorised to act on behalf of another, and legally bind them. That other is known as the “principal”. The principal is primarily liable for the contracts entered into on its behalf by the agent. The agent is not liable under the contracts entered into for the principal when it does so with authority.

Scope of Authority of an Agent

Also, if an agency clause is to be agreed granting a person authority, the principal would be well advised to set out precisely the scope and limits of the authority of the agent.

Example: Agency Clause

The terms of basic agency clause could be in appropriate circumstances:

[Agent] has authority to enter into contracts with companies in [Sector] for [widgets] up to a value of £1,000, with a monthly maximum of £5,000, and not further or otherwise;

[Agent] will inform [Principal] in writing of all such contracts and prospective contracts in writing within 14 days of the end of each calendar month.

Example: No Partnership or Agency Clause

Alternatively, where businesses wish to make it clear in joint ventures and business partnership agreements that they do not wish to form a legal partnership or agency, the following agency and partnership clause may be suitable:

This agreement shall not constitute or imply any partnership, joint venture, agency, fiduciary relationship or other relationship between the Parties, other than the rights and obligations expressly set out in this agreement. Neither Party shall make or hold itself out as having authority to make any commitments on behalf of the other party.