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SPAIN: Non-exclusive verbal distribution contract: Unilateral resolution without notice or goodwill indemnity. Repurchase of stocks.

The Court of Appeal of Madrid has issued a judgment on November 28, 2019 (No. 575/2019, rec. 566/2019) on a distribution contract that rejects the compensation for lack of notice, goodwill compensation (clientele) but it condemns to the repurchase of stocks by the manufacturer.

Ignacio ALONSO - 15.06.20
Country expert - IDARB Arbitrator

From 2007 to 2017 the distributor MARCOM MEDIA S.L was dedicated to selling products of the manufacturer's brand WELCH ALLYN INTERNATIONAL VENTURES INC. BRANCH IN SPAIN in the Murcia region.

The Court classified the contract as distribution, even if it was verbal, given that there was its main characteristic, namely, the purchase with resale of products to third parties. However, it was not proven that said contract was exclusive. The distributor distributed products from other competing companies.

Being a verbal contract, the Court declares that the consequences for the resolution cannot be assessed. And although there is no record that the parties have agreed to any duration, it is possible to resolve even without just cause or even without prior failure of the other party.

The parties did not want to collect the contract in writing. For this reason, said contract only obligates to what is expressly agreed between them (articles 1255 and 1258 of the Spanish Civil Code). On the other hand, the Court sees no indication that the parties wanted the unilateral termination of the contract to have to respect a certain period of notice. For this reason, from the simple fact of not having given any prior notice, it is not possible to deduce, without further ado, an obligation to compensate damages, since no obligation or covenant has been breached.

Nor does the Court accept goodwill compensation (clientele), since it does not see any evidence that benefits would continue to be produced as a result of the previous work. Evidence would be, according to the Court, that the distributor reduced the distribution of the brand's products during 2016 by 50% and even more in the first months of 2017, compared to what it had sold in previous years.

The Court has admitted, however, the obligation to repurchase the stock of products held by the distributor despite the fact that said products could still be sold by it. The Court admits that its sale would be more complicated for reasons such as product guarantees, spare parts or others, as it has ceased to be a distributor.

 

TEXT OF THE JUDGEMENT

 

Ignacio Alonso, IDI agency & distribution country expert for Spain

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