It is well known that distribution agreements lack specific regulation in our legal system, which has led to courts filling in the gaps by analogously resorting to Law 12/1992 on Agency contracts (Ley del Contrato de Agencia, hereinafter “LCA”), given that both agents and distributors share the role of placing the provider’s products on the market. However, this similarity does not hide some key differences. With regards to agency, the agent acts in name and on behalf of the principal and economically depends upon him, as such his stability is linked to the continuation of that relationship.
Precisely because of that dependence, article 25 of the LCA was made to include the obligation of the principal, in the case in which he wished to terminate an indefinite agency contract, to do so via written prior notice of one month for each year the contract was in force, with a minimum of one year and a maximum of six. If he were to not adhere to said timeframe, article 29 allows the agent to claim for compensation for the damages produced by the impossibility of recuperating the investments made.
However, the Supreme Court clarified in its recent Judgement on the 20th of May (ECLI:ES:TS:2025:2220) that the direct application of these precepts to distribution contracts is not appropriate, whose termination is governed first and foremost by good faith.
The Supreme Court judgement 801/2025 resolves the dispute between LA VERDOSA (winery) and CAVINSA (distributor) regarding a verbal exclusive wine distribution contract in Madrid between 2012 and 2016. The provider terminated the contract with only a month of prior notice, which lead to a claim being filed by the distributor, who claimed for compensation for damages. However, the recent judgement has rejected the compensation claimed on the grounds of lack of notice and denies the automatic application of the agency contracts’ regulation onto distribution contracts.
The Chamber recalls that, although they are similar, distribution and agency are not interchangeable: a distributor buys and resells independently, assuming the risks and prices, whilst an agent works for somebody else. Therefore, the High Court rejects the mimetic application of the LCA’s compensation system except for ‘similar reasoning’, that is, only when there are comparable circumstances that justify the transposition of the rules. As such, the previsions set out in articles 25 and 29 of the LCA are merely indicative references, not legal imperatives for the principal.
The Supreme Court reiterates that prior notice in indefinite distribution contracts comes from the principal of contractual good faith, not from any specific rule. Therefore, only when the termination occurs unexpectedly and deprives the other party of a reasonable margin or reaction, is it understood that the aggrieved party must be compensated.
The High Court has reiterated the need for a case-by-case analysis to decide if the termination of the distribution contract is contrary to good faith analysing, among other things, how long the relationship lasted, its exclusivity and the economic dependency of the distributor on the principal.
The judgement gives a clear warning: “The mere absence of prior notice, or of reasonable prior notice, does not lead to the automatic awarding of compensation, but the action must be eligible to be qualified as being contrary to the rules of good faith and that it causes damage”. This obliges the distributor to prove a credible consequential damage or loss of profit, which has arisen from the surprising nature of the termination of the contract.
With regards to quantifying damages, the chamber suggests the use of the average monthly profits of the distributor applied to the notice period that is deemed appropriate as a ‘reasonable and correct’ way to quantify the loss of profit where the damage is plausible and based on reliable accounting information. However, it insists that this is only applicable if there is a breach of good faith and proof of damage, and that rudimentary compensation merely based on simple tables of months per year is not permitted.
In conclusion, agency contract legislation continues to be a valuable reference when calculating reasonable prior notice. However, the judgement makes it clear that this criterion cannot be applied automatically: good faith and proof of real damage are the real keys to responsibility when it comes to terminating a distribution contract. With this, the Supreme Court has drawn a balanced line between the need to protect the distributor against unexpected disruption and the supplier’s freedom to reorganise its commercial network, always within the parameters of contractual loyalty.
Álex Santolaria
Vilá Abogados
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13th June 2025
