At international level, many companies decide to market their products abroad. To this end, manufacturers decide to enter into a contractual relationship with the relevant distribution company to (re)sell the products in question in a given country. In this type of cases, the manufacturer and distributor parties usually enter into a distribution contract in order to regulate the distribution relationship and their respective rights and obligations. However, the parties may sometimes agree on the content of the distribution relationship orally, which may lead to certain difficulties in the future in case of eventual breaches by one of the parties or in the event that the parties decide to terminate the contractual relationship.
In those situations, in which a distribution contract has not been entered into between the parties in writing, it is necessary to consider whether there are documents from which the existence of a distribution contract can be inferred. In this sense, it is convenient to point out that any contract can be verbal or written (as it can be inferred from article 1.278 of the Spanish Civil Code); in the case of a verbal contract, the same is articulated around the facts and acts of the parties for the duration of the commercial relationship, and therefore it is appropriate to adhere to the content of possible previous documents related to the distribution relationship or acts that make it possible to determine which are the existing agreements between the parties within the commercial relationship.
In view of the foregoing, in the event that one or both parties consider terminating the distribution relationship, the provisions of the relevant written distribution agreement for contractual termination purposes should be followed and, failing that, the agreements between the parties resulting from pre-existing documents or acts. In the event that the parties are considering the termination of the distribution contract and there is no written contract, a termination agreement (preferably in writing) should be formalised in which the terms of the end of the contractual relationship are precisely stated, with special emphasis on the existence or not of a customer transfer agreement and the determination of the governing law and the competent jurisdiction for the purposes of contractual interpretation and the resolution of any disputes that may arise between the parties.
In such cases, where there is no written distribution contract, the question of the applicable law is of particular interest: if there is no written contract, it must be determined on the basis of which documentation or proceedings the applicable law can be determined for the purposes of terminating the contract. And if it is not possible to determine in such a way the choice of the applicable law by the parties, the solution to such a situation is to establish as applicable the law that the parties decide to agree on for contractual termination purposes and, in the absence of agreement, the law of the country in which the permanent residence of the distributor is located, in accordance with the provisions of Article 4.1 f) of Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).
From the above it can be concluded that the existence of a written distribution agreement greatly facilitates its interpretation and the determination of its scope, since it is possible to verify in such a case the agreements reached between the parties on different aspects (distribution territory, transfer of customers, intellectual property, contractual termination, applicable law, competent jurisdiction, etc.).
The uncertainty that oral contracts can create is evident, as the door is left open for each of the contracting parties to interpret the contractual relationship and the terms thereof in a different way.
Albert Zúñiga Carulla
Vilá Abogados
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17th February 2023
