Solid and strategic commercial relationships depend, to a great extent, on suitable contractual agreements. Among these fundamental instruments is the Agency-Representation or Distribution Agreement, which plays an important role in the promotion and marketing of goods and services in the legal context of El Salvador.
In practice, consultations are received on this figure regarding its operation, operation, restrictions and protections, rights, among others, both on the side of the principal, as well as the local distributor. As a result of the above, this article seeks to provide a general framework of these contracts, and their importance in the legal framework of El Salvador.
The Regulatory Framework of agency-representation or distribution contracts in El Salvador
In this regard, the legislation applicable to agency-representation or distribution agreements in El Salvador is mainly set forth in articles 392 to 399-B of the Code of Commerce of El Salvador (hereinafter the “Code”).
The essence of this type of contract lies in the fact that the representative agent or distributor is the natural or legal person who, on a continuous basis, with or without legal representation and by means of a contract, has been appointed by a principal for the agency-representation or distribution of certain products or services in the country.
In line with the code, agency-representation or distribution agreements are consensual bilateral agreements that do not require specific formalities for their existence, validity and binding nature.In essence, they take shape once both parties have reached an agreement on the terms and conditions that will govern their relationship.
Evidence and Recognition of Agency-Representation or Distribution Contracts
On the other hand, the code establishes different ways in which the parties to an agreement can corroborate the existence of a contractual relationship. Contractual agreements, whether public or attaining such status, constitute the typical documents evidencing that both parties have entered commercial commitments. For example, invoices, correspondence between the parties, testimonies, financial records, and other means recognized by law, including electronic communications exchanged between the parties, also confirm the existence of a contractual relationship, especially when a written agreement has not been formalized, giving rise to an oral agreement.
In this regard, article 966 of the Salvadoran Code of Commerce, and as has been recognized by jurisprudence, the commercial agreements that are formalized through correspondence between the parties are perfected from the moment in which the sender receives the acceptance of the terms offered by the addressee.
Liability and exclusivity of the distributor
Pursuant to article 392 of the Code, when the distributor acts on instructions from the principal, he is not liable for the latter’s non-compliance. His liability is strictly limited to compliance with the instructions received.
Regarding exclusivity, Salvadoran commercial legislation establishes that the agency-representation or distribution contract may be exclusive or adopt another modality agreed upon by the parties.
In case of omission, the non-exclusivity of the contract is presumed. This exclusivity may be undermined for various reasons, including direct sales by the principal or the express mention of non-exclusivity in the correspondence exchanged between the parties.
Distributor’s rights and grounds for termination
In the absence of a specific agreement, the distributor is entitled to a commission proportional to the turnover achieved with its intervention, following local practices. If the principal breaches the contract, the distributor retains the right to claim the full commission.
If the distributor has exclusivity in a defined area, it is also entitled to commissions for similar transactions carried out by the principal or its representatives in that area, even if the distributor does not participate directly.
The Law regulates the causes of termination, being that either party may terminate the contract with at least three months’ notice, which must be in writing. In the event of termination, the distributor is entitled to the outstanding commissions generated during the term of the contract. In addition, if the principal terminates, modifies, or denies renewal without just cause, the distributor is entitled to compensation for damages suffered.
Applicable Law and Jurisdiction Considerations
The code establishes that disputes arising from the agency-representation or distribution contract must be brought before the competent courts of the distributor’s domicile. However, jurisprudential interpretation has extended this scope in cases of international contracts.
In this regard, the Constitutional Chamber of the Supreme Court of Justice of El Salvador has highlighted the importance of party autonomy and freedom of contract in international contracts. Although Salvadoran law regulates the jurisdiction of Salvadoran courts, the parties may expressly choose, by the principle of party autonomy, another forum and applicable law in the contract, provided they comply with certain requirements.
In the legal environment of El Salvador, agency-representation or distribution contracts act as essential tools to establish and consolidate commercial ties, facilitating both the entry into new markets and defining the responsibilities, rights and terms of the parties involved. By accurately understanding the legal and jurisprudential provisions surrounding these contracts, companies can establish and strengthen successful business relationships.