26 Oct ANALOG APPLICATION OF THE LAW OF AGENCY CONTRACT TO THE DISTRIBUTION CONTRACT
The distribution contract does not have a specific regulation that, as with the agency contract, regulates its peculiarities and its own aspects, so in many cases, the courts apply this specific law of agency contracts to distribution contracts by means of analogy.
Agency contracts lay does not apply in both cases because, although the contracts are similar, its structure, functions, responsibilities and rights are quite different, and depending on each situation, the agency contract can be applied to contracts of distributors or not. So, we will review these situations to try to offer a better perspective than at first sight results from the distribution contract.
The distribution contract is that contract in which the company agrees with the distributor the delivery of a good for resale in a certain area, it is not so much a contract as in the case of the agency contract, but rather a collaboration between the parties.
Differences between the agency contract and the distribution contract are important, and we can differentiate the responsibility of both: the agent does not assume the responsibility while the distributor does; the term of non-competition once the contract has expired: for the distributor the maximum term is one year, while for the agent it can be up to two years; or exclusivity: the agent has to develop his functions exclusively, while the distributor will abide by the provisions of his contract (if it contains an exclusivity clause or not). Both figures interweave, and it is in this same framework that the law of agency contracts can be applied to distribution contracts.
In the case of “contracts end compensation” we will have to be in the specific case, we cannot automatically establish the right to compensation of the agency contract to the distribution contract.
Some of the analogical applications of the agency contract law that the courts have recognized to distribution contracts are in matters related to forewarning, prescription, exclusivity or compensation for customers.
One of the most controversial has been compensation for customers. This compensation is only included in the law that regulates the agency contract and not in the Civil Code or the Commercial Code, so we would not apply it, but there are occasions when thanks to the analogical application of the law can enervate this right after the end of the relationship between company and distributor. For them, it is necessary that we have an exclusive distribution contract, a figure between the generic distribution contract and the agency contract, because although it continues to assume the risks of resale, it works exclusively for a single company.
The distribution company may opt for this compensation for clients provided that the work has been developed exclusively, the commercial relationship has been terminated due to the unilateral will of the company and that the distributor or distribution company has significantly increased the company’s customers, or the same preexisting customers has significantly increased the volume of sales.
Following this same line of doctrine, the Supreme Court, although not directly applying Article 28 of the LCA (law on the agency contract) provides that it is necessary that the same requirements that are required for the appreciation of this compensation in the case of commercial agents (unilateral decision of the company to terminate the business relationship and have significantly expanded the company’s customers) and that there is no default by the distribution company.
The STS grants compensation for customers to the distribution contract because “it is combined with the analog application of art. 28 of the Law 12/1992, of May 27, on the Legal System of the Agency Contract, due to the great similarity or identity of the ratio between the agency agreement and the distribution agreement on the basis of the contribution of new clients or the increase in operations by the agent or the concessionaire, which according to art. 4.1 CC allows the integration of distribution contracts, which, as is common practice even in cases of undisputed economic importance and durability of the relationship, would have been verbally agreed or, having been documented, would not contain any provision on the liquidation of the relationships between the parties upon termination of the contract, given the lack of legal regulation of the distribution contract. “
Another jurisprudential stream, however, grants the distributor compensation for customers to the distributor, but not for the analogical application of the LCA, but for the theory of unjust enrichment provided that it is demonstrated that the effort derived from the distributor’s work has repercussions on an economic benefit to the company.
The STS confirms, like numerous previously published judgments, this analogical application of the LCA and quantifies said compensation based on net income (gross profit – operating expenses – expenses generated as salaries, taxes, rents …)
This Judgment also confirms the analogical application of the notice in case of termination of the commercial relationship, and in the event of not having a pact in this sense, the ACL that provides compensation in case of lack of notice will be applied analogically when, in a contract of Exclusive distribution that has operated for a long period when the employment relationship is terminated without a prior notice (usually 1 month for each year of the contract validity with a maximum of 6 months and a minimum of 1 month). The basis of the analog application of the LCA in this case is based on the fact that the notice is a requirement of good faith with which the rights themselves and the loyalty that should prevail in commercial relations must be exercised. Thus, the STS establishes that: “although in itself the resolution of the contractual relationship was reasonable in response to the legitimate interests of the principal in the face of an ostensible decrease in the billing of its distributor, however, the lack of notice, which allowed the distributor to redirect its commercial activity, was a violation of the duties of loyalty and good faith in the development of the contractual relationship. “
There are times when this compensation is set as compensation for loss of earnings, thus, in this same Judgment of 2013, the amount of lost profits is determined equivalent to the benefit that the distributor failed to obtain during the period of notice that, in response to the long term of the contract (20 years), should have been at least six months, by analogy of Article 25 LCA.
Finally, Supreme Court also imposes the obligation on the company to repurchase the stock of the products that the distributor kept in deposit in the absence of an agreement to the contrary and in accordance with good faith. Thus, this sentence would complement the first additional provision of the LCA by which the company is obliged to repurchase the goods in stock from the distributor, establishing three requirements:
- That the distributor is required to have a certain stock of products for the execution of its distribution contract
- That the contractual relationship that unites the company and the distributor is durable and exclusive (minimum 5 years)
- That there has not been enough notice at the time of finalizing the contractual relationship to manage the sale of said stock in advance.
The quantification of this compensation says the Judgment, will be made with respect to the purchase price of the distributor and not with respect to the sale price.
Until, as provided by the first additional provision of the LCA, there is no own law on the distribution contract we have to address the specific case, as it cannot be applied automatically, under the principle of analogy, the Law of the Agency contract to the distribution contract, so we recommend that in any conflictive situation you put yourself in the hands of a professional, and in NAVARRO LLIMA ABOGADOS we are specialized in mercantile matters and conflicts between companies so we will help you to assert your right.