Key aspects of a Distribution Agreement

Before focusing on the key aspects of a distribution contract we must answer the following question:

What is the distribution contract?

The distribution contract is a collaboration contract between two businessmen or companies, in order to ensure their presence in a territory and distribute the products or services of one of them, using of the commercial network of the other.

We must emphasize that the distribution contract is an atypical contract, since it lacks specific legal regulation, so that its legal regime will be determined by what is agreed by the parties and supplementary as established in the Code of Commerce and the Civil Code, and failing that, by the norms that regulate the agency contract and that are applicable in a similar way.

The doctrine defines said contract as one in which the manufacturer or producer agrees with a third party (distributor) to deliver a good so that it can be resold in a certain area

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What is the legal nature of the distribution contract?

As we have already mentioned, the distribution contract does not have a specific regulation. The essential and differentiating note of this type of contract with respect to others lies in its negotiation cause, since all distribution contracts, whatever their modality, are aimed in economic traffic at performing an identical function, which is none other that favor the commercialization of products or services through distributors, who are usually legal entities independent of the manufacturing company.

In addition, the doctrine indicates that although said contracts may have different modalities, they have a common structure that is fundamentally characterized by:

1. They are collaboration contracts between independent entrepreneurs, which are generally entered into between a manufacturer or producer and several merchants, in order to implement a sales network for their products or services.
2. As we have already mentioned, this is an atypical contract, since it lacks regulation, as happens for example with the agency contract.
3. They are commercial contracts, as highlighted by the doctrine, the relationship between the parties is not a sporadic relationship, this relationship requires a large investment by the distributor, which needs time to be amortized, so they are long-term contracts continuous and usually adherence.
4. They are onerous contracts, since the distributor obtains a commercial margin from the manufacturer or producer, the latter benefiting from the extension and distribution of their product

They are contracts based on trust or intuitu personae contracts, which also entail a transfer of rights over intangible assets such as the use of the brand or signs or logos.

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Contents or basic agreements of the distribution contract

Distribution contracts are usually made up of clauses on the product, territory and exclusivity, in which the parties determine the specific products that will be distributed, as well as the delimitation of the territory in which the distributor can make the sale of the same, in addition and in the vast majority of cases the distribution system is exclusive.

There are also clauses on the minimum volume of sales, normally aimed at forcing the distributor to achieve a minimum of sales for a specific period of time; or on the conditions of supply, detailing in them the obligations of the manufacturer when supplying the orders, as well as the conditions of sale, payment and the prices of the products. For its part, the distributor assumes the costs of organizing sales, as well as promotions and fairs intended to publicize the product.

Obtain the conditions of supply, detailing in them the obligations of the manufacturer when supplying the orders , as well as the conditions of sale, payment and the prices of the products. For its part, the distributor assumes the costs of organizing sales, as well as promotions and fairs intended to publicize the product.

Distribution agreements often contain non-compete clauses, whereby the distributor agrees not to sell identical or similar competing products in its distribution territory.

The clauses on confidentiality and industrial property are also part of the distribution contracts, detailing the obligations between the parties to maintain the confidentiality of the information that they know because of the contract; in addition to stipulating the rights and obligations regarding the use of the brand, trade name, logos and other industrial property rights belonging to the manufacturer.

It is common to include clauses on the early termination of the contract, listing the cases in which the parties can terminate the contract, as well as the notice period. On the other hand, the parties can agree to compensation for clientele at the end of the contract, as well as the submission for the resolution of disputes to arbitration or to the jurisdiction of the courts.

Regarding the termination of the distribution contract, in the case of fixed-term contracts these are usually extinguished by the expiration of the term agreed between the parties. Likewise, there is the possibility that the parties agree to extensions of the contract, so that the duration of the contract will continue to be valid. In the cases of contracts of indefinite duration, the Supreme Court has reiterated in its jurisprudence, that the parties may terminate the contract by means of a unilateral declaration of withdrawal, observing in any case the requirements of good faith, said unilateral declaration will produce the extinction effects of the contract from the reception of the same

In conclusion, it should be noted that the distribution contract is one of the collaboration contracts most used by companies in international trade, since it is an effective solution and involves few costs when establishing commercial networks.

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