Quite often the purchase/resell commercial relationships between a manufacturer and its retailors is carried out without signing a contract, but with subsequent orders: the manufacturer receives it, then he sends the products, the retailor pays and then he resells to the final customer.
In Spain, as it is known, there is not a “distribution contracts Act”, but courts have accepted a certain analogy with the agency agreement. In a certain way, courts say that agency and distribution are not the same sort of agreements, though some consequences of the agency can apply by analogy to the distribution. This is, for example, goodwill compensation (clientele) in case of contract termination.
Therefore, it is quite usual that when a company continuously buys products from a manufacturer to resell them, its intention is to consider this a “distribution contract”. And why? Mainly because of the goodwill compensation (clientele): this compensation does not apply to the supply contracts, but it is possible in a distribution agreement precisely because of that analogy. And if the manufacturer-retailor relationship has lasted several years, the amount of this compensation can be of some importance (until the annual average of gross margins over the past five years).
But beware, because not all the continuous supply contracts can be considered to be a “distribution contract”. You should ask for advice in each particular case. In Spain, a distribution contract requires something more than a series of purchase and resale of products. The following list will help you to verify whether a particular commercial relationship is closer to a continuous supply agreement or to a distribution one with the possibility, in this case, of claiming the mentioned goodwill compensation:
- In a supply agreement products are purchased for resale. Its purpose is the resale with a margin without any further conditions.
- These agreements are usually a succession of orders, with delivery conditions (billing and payment) normally agreed.
- The distribution agreement, however, involves a “more intense” in the business relationship that does not exist in the mere succession of sales transactions.
- The distribution agreement involves the mutual cooperation between manufacturer and distributor for distributing a product and is intended to be stable over the time.
- The distribution agreement gives greater trade integration of the reseller in the distribution network of the manufacturer, and the manufacturer influences more the commercial management of the distributor than with a mere reseller.
- In the distribution contracts there are usually additional conditions relating to the purchase and resale agreements not limited to the pricing and payment conditions. These may be, amongst others, covenants on minimum periodic purchases, volume discounts, resale areas, exclusivity, prohibition for the sale of competing products, support obligations to end customers, repurchase of non-resold goods.
- The distribution contracts can also provide other agreements relating to the operation of the business relationship: investments by the distributor, how to place orders, goods transportation, storage and maintenance of stocks, covenants not to compete, compensation for non-compliance, payments and guarantees to ensure compliance, etc .;
- Finally, distribution contracts usually include agreements for the use of the manufacturer’s trademark (license) with the obligation for the on manufacturer to advertise or to provide special labelling or packaging, etc. and a certain uniformity for distributors (obligations related to the affixing of the trademark, harmonized image, etc.).
In conclusion: if you want to end a relationship of this kind whose nature is unclear, you should analyse the above list to, at least, have an initial idea of what can be claimed or not. In any case, unfortunately this is not an automatic list and it is wise to ask for specific and expert advice before taking any decision.
Note. In preparing this post I have followed some judgments of Spanish courts which may be useful to consult if you want additional information: AP Salamanca 330/2001 of 29 June; TS (Civil Chamber, Section 1) 70/2004 of 5 February; TS 332/2009 of May 18; AP Madrid (Section 11th) 736/2010 of 30 September; AP 553/2010 of 5 October Barcelona; AP Zamora (Section 1) 100/2015 of June 8.