Home » Agents, Contracts, PG's Thoughts (such as they are) » How to Read a Book Contract – Agency Clause

How to Read a Book Contract – Agency Clause

13 June 2011

An agency clause may be inserted into a publishing contract between an author and a publisher. In essence, a typical agency clause provides that the agent may receive royalty payments on behalf of the author and has authority to act in the name of the author with respect to the contract.

Here’s an example:

All sums of money due to the Author under this Agreement shall be paid to the Author’s agent, Annie Agent, of 321 Applesauce Avenue, New York, NY 10023, U.S.A. (hereinafter called “the Agent”) and receipt by the Agent shall be a good and valid discharge of all such indebtedness and the Agent is hereby empowered by the Author to act on the Author’s behalf in all matters arising in any way out of this Agreement.   For services rendered and to be rendered the Author does hereby irrevocably assign and transfer to the Agent the sum of 15% (fifteen percent) as an agency coupled with an interest out of all monies due and coming due to and for the account of the Author under this Agreement.

To understand this beast, you need a teensy bit of legal background info. (I promise this won’t hurt too much.)

Since the agent doesn’t usually sign the publishing contract, the agent is a Third Party Beneficiary of the contract.

The classic Third Party Beneficiary example is a life insurance policy. Grandpa George buys a life insurance policy for $100,000 from Cornpone Mutual when he’s only Pa George. He names his three chillun, Bo, Lucille and Little George, as the beneficiaries. (Hint)

Grandpa George pays all the premiums on time, but gets careless around the hay baler one day and goes to meet his Maker. In pieces. The chillun tell Cornpone Mutual it’s time to pay up, but Cornpone says its policies do not cover hay baler accidents.

The parties to the life insurance policy are Grandpa George and Cornpone Mutual. The chillun never signed anything. Indeed, if they were under 18 at the time the policy was purchased, they were legally unable to enter into contracts.

The usual rule is that only parties to a contract can sue for enforcement or damages. This raises a problem. Grandpa George was a good man, so there are very few lawyers in the place where he has gone. There is also no email and Fedex guys who take packages there never return.

The children were named in the insurance policy, however. Although they didn’t sign, they are Third Party Beneficiaries so they can sue Cornpone Mutual in their own names.

Outside of a few clearly-defined fields, Third Party Beneficiaries are quite rare in the business world. When Passive Guy was practicing law, he would negotiate dozens of contracts with nary a Third Party Beneficiary in sight. The standard practice was to have everybody sign the contract if they had any rights under the contract.

However, in the wild and wacky world of publishing, agents are Third-Party Beneficiaries to a lot of publishing contracts. As will become clear during our discussion, Passive Guy thinks Agency Clauses only benefit the agent and can cause problems for both the author (obviously) and the publisher (don’t know if they’ve thought much about this).

So, in general terms, what does the presence of an agent as third-party beneficiary to a publishing contract mean? This is a weird area of the law, filled with lovely Latin phrases, serving primarily to fill out the semester in a Contracts Law class (which is one reason to have everybody sign the contract). PG will boil it down into fundamentals as they relate to an Agency Clause.

  1. If one or both of the parties to a contract violate the terms of the contract to the detriment of the Agent, the Agent can sue to enforce the contract.
  2. The Agent’s rights are subject to the terms of the contract.
  3. The Author and Publisher have obligations to the Agent to perform under the terms of the contract.

Isn’t this fun? Don’t you wish you could be a Third Party Beneficiary too?

Before we go further, let me make clear that Passive Guy is not anybody’s lawyer anymore. As much as he may love and admire you, PG is not your lawyer. Most publishing contracts will have a clause saying New York law applies to the interpretation of the contract. PG is not a New York lawyer either. Any legal discussions will be general in nature and New York or other state or federal laws may conflict with PG’s generalities. Hire your own lawyer if you want legal advice.

So, let’s start dissecting the Agency Clause so see where we have some wiggle room. Some agents just use an Agency Clause without a separate Agency Agreement between the Author and Agent. Our analysis will assume this is the case. If there’s a separate Agency Agreement, things can become much more complicated.

Passive Guy wants you to see this clause through PG’s magic contract vision glasses.

What does Passive Guy’s super-power vision see here?

1. Purple highlights – Unsurprisingly, the Agency Clause is about money only. Potential benefits or compensation other than money are not covered by this clause. Something that could be easily converted to money or is a money equivalent – a Visa gift card, for example – might be covered. PG is assuming “money” is not a defined term in the Publishing Contract. (For you persnickety types, super-power vision is not perfect. The purple “an” is a mistake.)

2. Blue highlights – Only money payable to the Author is covered. Money payable to other people or entities is not covered. The assignment clause, if any, in the Publishing Contract would make for interesting reading.

3. Yellow highlights – The Agent is authorized to act on Author’s behalf. In the oh-so-ever-humble opinion of PG, this gives rise to the classic obligations that an agent owes to a principal. These include always acting in the principal’s best interests, disclosing conflicts of interest, etc., etc.

Arising in any way out of the Agreement is broad.

For services rendered and to be rendered is interesting in light of the Ralph Vicinanza agency matter discussed previously. This implies an ongoing stream of services and is specifically worded as consideration for the ongoing 15% agency fee. If no more services will be rendered, there’s an argument no more agency fee should be paid.

4. Green highlights – PG never likes irrevocable agreements where one party is providing services to the other. The services may start out just fine, but if they go bad, you want to be able to stop paying for them.

If this is the only written description of the Agent’s agreement with the Author, then no term – time period – for the agency exists. It’s not one year or five years or a hundred years. Generally speaking, an agency agreement that doesn’t have a term is revocable at will by the principal.

Agency coupled with an interest is an agency in which the agent has an interest in the property regarding which he or she is acting on the principal’s behalf. PG has another post on this ominous-sounding term coming out tomorrow, but, for our discussion today, essentially, it means the same thing as irrevocable. It’s a belt-and-suspenders approach to try to keep the Author from revoking the agency agreement. Absent a separate document actually describing the interest of the agent, it probably doesn’t add much.

5. Red highlights – Payments to the Author under other agreements, even other agreements with this particular Publisher, are not covered by the Agency clause.

So, putting all this together, what do we have?

Following are a few (but not nearly all) possibilities:

1. The Agent is empowered to act on the Author’s behalf respecting this Agreement, but nothing prohibits the Author or someone else – an attorney or agent – from also acting on behalf of the Author. The Agent doesn’t have an exclusive right.

2. All the Agent’s rights are tied to this specific Publishing Contract. New or separate agreements are not included. If the original agreement includes options for additional books in a series, PG thinks there is a good argument that if the Author insists on a separate agreement for subsequent books, the Agency Clause in the first agreement would not necessarily give the Agent a commission on subsequent books. (Again, we’re not dealing with situations in which there is a separate Agency Agreement.)

3. Since everybody is bound by the Publishing Contract, if that Contract has an out-of-print clause, the Publisher can declare the book out of print and enter into a separate agreement with the Author for something like an enhanced and revised version of the original book. There will likely be many other clauses in the Publishing Contract that allow the Publisher to effectively terminate the commercial life of a particular book.

4. If the Author receives an ebook amendment or rider to the original contract, and the Author no longer desires to use the Agent’s services, the Author might want to insist on a separate Publishing Contract for the ebook. Under the terms of the Agency Clause, the ebook contract might not be commissionable.

5. PG is sure the attorney who first came up with the for services rendered and to be rendered language thought he/she had done a cool thing in providing for future consideration from the agent for future commissions. However, if future services by the Agent are not satisfactory to the Author and the Author terminates the relationship for that reason, this contract language strengthens Author’s argument that the Agent’s commissions should end.

6. If the Author gives the Agent specific instructions, preferably in writing, about what the Author wants the Agent to do or not to do respecting the Publishing Contract, PG believes the Agent cannot act contrary to the Author’s instructions unless the Author asks the Agent to do something illegal or totally ridiculous.

7. If there is a fight between the Agent and the Author based on the Agency Clause, PG thinks it quite likely the Publisher would be dragged into ensuing litigation, particularly if the fight was about a separate contract between the Author and the Publisher for which no commissions were payable. PG wonders why a Publisher would open itself up to this possibility when the Agency Clause provides no discernable (at least to PG) benefit to the Publisher.

Passive Guy will close this very lengthy post by admitting puzzlement and worry.

When PG heard these Agency Clauses described before he saw one, he expected to find a serious lock-down legal provision. Instead, there appear to be lots of holes in the one used to illustrate this post. Others PG has received for his Contract Collection (Thank You!) are almost identical.

The reason PG worries is whenever it appears too easy to get out of what’s supposed to be a tight contract, PG fears he has missed something big or obvious.

Since we have a large number of informed publishing veterans visiting The Passive Voice, let me know if I’m really off-base in my analysis.

 

Agents, Contracts, PG's Thoughts (such as they are)

18 Comments to “How to Read a Book Contract – Agency Clause”

  1. I realize that this isn’t specifically covered in the post (which all makes sense to my admittedly novice mind) but I’m wondering how judges handle such things like the inter-reaction between two completely different contracts like an agency agreement and a publishing contract.

    Additionally, since the agent is a third party beneficiary, does that mean if the lawyer and the publisher decide to change the terms of the contract (to say, cut the agent out entirely or even just change the wording on some other unrelated clause) that the agent can sue to prevent it?

    • Jean – A judge would try to make the agency agreement and the publishing contract work together if at all possible.

      Classic third-party beneficiary law says that the agreement is irrevocable without the consent of all three parties. However, if the terms of the agreement permit one or both parties to terminate under certain conditions – an out-of-print provision is an example – the publisher can act under that contract. Nothing in third-party beneficiary law says the publisher and the author can’t make a separate contract relating to something not specifically mentioned in the first contract.

      This is not one of the simpler areas of the law.

      • So even though the agent hasn’t signed off on the contract their approval is required to make any changes? and yet this clause gives your agent the right to approve changes without your consent?

        The insanity of that conclusion is so mind numbingly terrifying I need you to tell me I’m wrong.

        • Jean – The basic law relating to third-party beneficiaries is that, although they have not signed the contract, the parties who have signed the contract cannot revoke it by themselves.

          The specific language of the Agency Clause gives the agent the right “to act on the Author’s behalf in all matters arising in any way out of this Agreement.”

          None of this happens if you don’t sign an agreement that includes this clause or you sign one with a much different agency clause.

  2. Thanks for doing this. Unfortunately, I still don’t have magic contract vision. In fact, I don’t even have adequate color vision. What’s purple and what’s blue, and what’s green and what’s yellow? Sometimes green and red are confusing but the red is dark here so I think I can discern that, at least.

    May I suggest that the next time you want to give color cues, you should replace purple and green with orange and grey.

  3. I’m not a US lawyer, but it’s the things this clause doesn’t do that concern me.

    I would want to add a term to this clause that states the publisher will send a copy of all paperwork to me.

    Otherwise, all the paperwork including royalty statements will be sent to my agent. And I am concerned that makes it easy for my agent to screw me.

    I’d also be concerned with the content of this agreement with regard to any books sold under an option. There is an implication that such books may be subject to the 15% agency fee.

    Frankly, my personal inclination is that the agency agreement should be separate from the publishing agreements.

    • Thomas E – One of the purposes of the agency clause is so the publisher has authorization from the author to send all reports and checks to the agent for handling.

      My understanding is that the agents typically sell this to authors on the basis that this is part of the agent’s service in handling all the paperwork and business details. If the author wants a copy of the royalty statement, he/she asks for it from the agent.

      An agency agreement is a different beast than an agency clause and much longer.

      I’m just explaining my understanding of how this works, not endorsing this as a good way of doing business.

  4. Thanks for the contract translation, PG. Could you explain more about “agent is hereby empowered to act on the author’s behalf in all matters arising in any way out of this agreement”? Does this mean the agent can make decisions about your book without asking you?

    • Livia – That is exactly what it means.

      You may be a brain scientist, but the business of making agreements with your publisher is too complicated for you to worry your pretty little head about.

      In the real world, an agency agreement usually places strict limits on what the agent is authorized to do without the principal’s express approval. Not so in the literary world.

  5. Lest these lines be underappreciated:

    “Grandpa George was a good man, so there are very few lawyers in the place where he has gone. There is also no email and Fedex guys who take packages there never return.”

    Nice work, as always (both in humor and legal analysis), PG!

  6. I really appreciate all your posts about reading and understanding contracts; they’re very enlightening!

    In a post about a week ago you said something along the lines of “you can’t get screwed by a contract you don’t sign.” I’m wondering if it’s possible to refuse to sign an agency contract but still be represented by an agent? Or can an author request certain clauses be removed from the contract? I worry that a lot of authors are so happy to have an interested agent they don’t think twice about signing potentially damaging contracts. Is there any way around it besides hiring a lawyer or going straight to the publisher?

    • Kat – I think I may have been paraphrasing the advice of Dean Wesley Smith or Kristine Kathryn Rusch, who are worried about a lot of the contracts they’re seeing. Kris talks about mutually-satisfactory business relationships she has had with several agents based on a handshake, with no written contract.

      That said, if an agent tells you he/she needs a signed contract, you will probably have a difficult time obtaining representation without such a contract. In that case, you need to have an attorney review the contract before (not after) you sign it. A reasonable agent will be willing to make some changes in the contract as recommended by your attorney.

      If any agent manifests a “take it or leave it” attitude toward their contract, I would have substantial concerns about the health of a long-term relationship with that agent.

  7. In 1962, H. Beam Piper had all his checks and royalty statements sent to his agent by the publisher. Sadly, none of these checks were cashed because the agent had died suddenly. Before the agent’s estate could sort this out, the destitute author inferred that none of his work had sold, and he committed suicide.

    Thus I think the author should stipulate that s/he be CC’ed on any written communications.

  8. Publishers Lunch had a news headline this morning that the UK agents’ association has decided agents publishing their client’s backlists is not a conflict of interest. Did you notice this one? If yes, do you have a link, and what are your thoughts?

  9. Cornpone Mutual. I’m snorting out loud with laughter at work.

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