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Spain Agents and Distributors

Issues related to trading with Spain, such as importing regulations, documentation requirements, custom information, etc.

Spain Agents and Distributors

Postby bridgat » Mon Nov 17, 2008 1:38 am

There are various forms of representation agreements available in Spain which might be used to penetrate the market:

Distribution Agreements

Spanish law does not specifically regulate distribution contracts, although court cases have defined the rights and obligations of the parties in certain cases. In addition, the recent enactment of legislation that regulates agency contracts is influencing all distribution contracts.

There are three basic categories of distribution agreements:

1. Commercial Concessions or Exclusive Distribution Agreements:
The supplier not only agrees to provide its products to a select number of distributors within a specific territory but also not to sell those products itself within the territory of the exclusive distributor(s).

2. Sole Distribution Agreement: Includes the provisions in the above mentioned Exclusive Distributor Agreement, but reserves to the distributor the right to supply certain products to users in the territory of concession.

3. Authorized distribution agreements under the selective distribution system: In this case the distributors are carefully selected according to their ability to handle technically complex products and to retain a certain image or brand name.

In general, distribution contracts establish a commercial relationship between the supplier and the distributor, who then resells the products to retailers. The distribution contract should contain conditions regarding the sale of goods, licensing of industrial property, markets or territory, advertising, financing and servicing, among others. The main features of distribution contracts may be summarized as follows:

(1) The distributor obtains the merchandise from the supplier "in its own name and interest", and assumes the risk of the transaction for later re-sale at a profit.

(2) The relationship between the supplier and the distributor is a legal relationship within a specific time period.

(3) The distribution contract may obligate the parties to future purchases and sales.

Ordinary clauses of a distribution contract may cover any subject to which the parties agree provided that the clauses are not contrary to the laws of Spain, morality, or public order. The standard clauses of a distribution contract often include:

(1) The territory covered by the distribution contract and the indication of any exclusive character of this territory.

(2) Limits to third party purchases.

(3) Minimum volume of sales and subsequent modifications.

(4) A pricing system and modifications: periods, pricing, percentage basis, promotions, notifications, and the effective dates of new prices.

(5) The party responsible for executing advertising and financing.

(6) The duration and extension of the contract and conditions for its rejection and termination.
(7) Conditions for the repurchase of products.

(8) Notification of the parties.

(9) A dispute resolution mechanism that can include commercial arbitration, under Spanish or foreign decision, and which is subject to any legislation with which the contracts or the parties may have minimum contacts. The contract may also contain a damages clause governing the amount of compensation paid to the parties in the case of annulment or cancellation.

Regarding termination, the courts distinguish between two types of contracts: those for a specific period and those that are indefinite.

Contracts for a specified period will terminate with the expiration of the agreed period, while contracts for an indefinite term may be terminated at any time unilaterally. No express provision establishes the length of the notice period in cases of unilateral termination. However, Law 12/92 on agency contracts (discussed below) provides the period for notification which is one month per year of the term of the contract, up to a maximum of six months.

Spain's courts recognize the right of the distributor to indemnity after the party terminates the contract if the following conditions are met:

(1) The distributor must have increased the customer base, either in the number of clients or in the volume of sales.

(2) The supplier or a new distributor takes advantage of the opportunities obtained by the dismissed distributor.

After meeting both conditions, the courts sustain the right of the distributor to claim compensation for goodwill, without distinguishing between definite and indefinite duration contracts.

Agency Agreements:

Law 12/92, of 27 May 1992, regulates Agency Agreements, implementing the principles of the European Union Directive 86/653. This law establishes that a commercial agency contract is an agreement in which a person or a company is bound with another (the principal). The purpose of this union is to advance the principal's business, or to advance and conclude transactions on the principal's behalf, without assuming the risk of such transactions.

This law establishes:

(1) The independence of the agent.

(2) The agent's payment.

(3) The relationship between the parties.

One main feature of the law establishes a contract in which mutual confidence is essential. The duty of loyalty and good faith govern the agreement and violation may cause the termination of the contract.

Law 12/92 requires that the rights and obligations derived from the agency contract must be upheld by the agent or agent's assistants. The law prohibits the assignment of obligation to a third party (sub-agent) without the consent of the principal. Similarly, the law requires prior consent by the principal if the agent wants to represent goods or services, which are similar or identical, from other companies. Except in the case of conflict, or an agreement to the contrary, the agent may act freely on behalf of other suppliers.
Beyond the basic obligations to act loyally and in good faith, the agent must:

* promote the products and, if empowered to do so, conclude the transactions;
* inform the principal supplier of all matters relating to the agency, especially the financial aspects of all parties with whom there are pending transactions;
* obey the principal's instructions and company policies (for example, prices, delivery dates, procedure for claims);
* receive any claims by third parties regarding defective merchandise in the merchant's name; and
* maintain independent accounting for each principal represented.

Beyond the same basic obligations of loyalty and good faith, the principal supplier must:

* provide books, catalogues, price lists and other needed literature;
* make payments on time and as agreed;
* give the agent the information required for the performance of the agency contract;
* inform the agent with reasonable notice of the acceptance, refusal, or the lack of performance of each deal obtained by the agent. The agent has the power to judicially request the accounting books of the principal.

An agent's compensation may consist of a fixed amount, a commission, or a combination of both. This law recognizes the right of the agent to receive a commission for transactions concluded through him or her. Additionally, it also recognizes the right of the agent for any other transaction taking place during the term of the contract with any of its clients, even if the agent has not intervened in the operation. Moreover, the agent has the right to receive a commission for all the transactions concluded within three months after the termination of the contract.

The Agency Law establishes that commissions are generated the moment the transaction takes place. The supplier must pay the commissions by the end of each quarter of the year. The supplier is not responsible for paying commissions on unfinished operations which have resulted from actions beyond the principal's control. The agent's compensation does not include reimbursement for expenses, unless expressly agreed otherwise.

The agency law distinguishes between contracts for a specific period and those that are indefinite. Contracts for a specified period terminate with the expiration of the agreed period, while contracts for an indefinite term may be terminated at any time unilaterally, with prior written notice. Notice of the termination is one month per year of the term of the contract, up to a maximum of six months.

The law also establishes those cases that do not require prior notification:

* non-performance of contract duties;
* bankruptcy or receivership of any of the parties;
* death of the agent

The law establishes that an agent can claim indemnity under the following conditions:

(1) If the agent has increased the customer base, either in the number of clients or in the volume of sales.

(2) The supplier continues to benefit from the opportunities obtained by the dismissed agent.

The agent is not entitled to any indemnity or compensation when:

* the principal terminates the contract because of the agent's breach;
* the agent disclaims the contract, unless he or she can prove that the cause is due to the principal;
* the principal disclaims the contract based on old age, incapacity or illness of the agent; and
* with the consent of the principal, the agent has assigned the rights and obligations of the agency to a third party.

Finally, the law establishes that jurisdiction for all legal actions derived from the agency contract is the legal responsibility of the agent.

Commission Agency Agreements:

Commission Agency Agreements are mandates under which an authorized agent (commission agent) undertakes to perform or participate in a commercial act or agreement for the account of another (the principal). Commission agents may act in two capacities:

In their own name, i.e., they are not direct representatives and they acquire rights against the contracting third parties and vice versa.

On behalf of their principal. This gives rise to the effects of direct representation and, accordingly, the principal acquires rights against third parties and vice versa.

The obligations of commission agents are as follows:

* To defend the interests of their principals as if such interests were their own and to perform their engagement personally. Commission agents may delegate their duties if they have authority to do so and may use employees under their responsibility.

* To account for amounts that they have received as commission and to reimburse any excess amount. They are required to return any unsold merchandise.

In general, commission agents are not liable to their principal for the performance by third parties of the related agreements, although this risk is secured by a commission del credere under which commission agents are held personally liable for the performance by third parties of their obligations.

Unless their principal consents, commission agents are barred from buying for their own account or for the account of another the goods that they have been instructed to sell, and from selling the goods that they have been instructed to buy.

The main similarity between an Agency Agreement and a Commission Agency Agreement is that, in both cases, an individual or legal entity undertakes to pay another compensation for arranging an opportunity for the former to conclude a legal transaction with a third party or for acting as the former's intermediary in concluding that transaction.

The main differences are that Agency Agreements involve an ongoing engagement, whereas Commission Agency Agreements involve occasional engagements. In addition, a Commission Agent seeks to facilitate the conclusion of an agreement but does not ultimately represent either party. The Commission Agent brings the parties together so that they can conclude an agreement but, in fact, is not party to that agreement, whereas an agent represents one of the parties.

In all cases, U.S. firms should take into consideration that Spain is a participating country in the European Monetary Union and that, in general, companies will benefit in greater transparency in agent/distributor commissions throughout Europe, simplification of compensation plans and greater transparency in reporting revenues to national tax authorities. Contracts signed prior to 1999 will still be valid (no contract can be broken by either party due to the introduction of the Euro). After January 1st, 2001, old contracts are also valid, but the Peseta value will be converted into Euros, at the corresponding conversion rate. This will not affect other details on contracts, such as interest rates, duration, etc.
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