Distributing a brand: what the maker owes you and what you owe it

They are Articles 1439 to 1444 of the Civil Code of 2020: the definition of the concession or distribution contract, its default rules and each side’s obligations.

Concessionaires or distributors and grantors under a concession or distribution contract governed by the Puerto Rico Civil Code.

• The concessionaire disposes of its resources and provides its services in its own name and on its own account: it does not act on the grantor’s account.Verified against the official source
• Absent agreement to the contrary, the concession covers all the products manufactured or supplied by the grantor, including new models.Verified against the official source
• Absent agreement to the contrary, the concessionaire may not designate sub-concessionaires and neither party may assign the contract.Verified against the official source
• The concessionaire must buy the products and spare parts covered by the concession exclusively from the grantor.Verified against the official source

• The contract stating the territory or zone of influence and whether the concession is exclusive: Article 1440 leaves both options open.
• The record of the sales targets communicated: Article 1442(d) requires the grantor to communicate them as agreed.
• The grantor’s authorisation, if you are going to commercialise other products under Article 1444.

1. 1

   Step 1: What it is, and how it differs from agency

   Article 1439: the concessionaire or distributor binds itself to dispose of its resources, in its own name and on its own account, and to provide its services to commercialise the products supplied by the grantor. The agent promotes the principal’s business; the concessionaire buys and resells on its own account. That is the difference that changes everything else.

2. 2

   Step 2: Exclusivity is not built in

   Article 1440: the concession may or may not be exclusive, within the agreed territory or zone of influence. If you want it, it must be agreed; the Code does not presume it.

3. 3

   Step 3: Three rules that apply if the contract is silent

   Article 1441, absent agreement to the contrary: the concession covers all the products manufactured or supplied by the grantor, including new models; the concessionaire may not designate sub-concessionaires; and neither party may assign the contract. The first favours the concessionaire, the other two tie it down.

4. 4

   Step 4: How you are paid

   Article 1442(a): the retribution may consist of the agreed fixed sum, or a commission or a margin on the price of the units sold to third parties. Three forms, and the Code fixes no amount or percentage for any.

5. 5

   Step 5: Delivery and free warranty: the grantor pays

   Article 1442(b): pay the concessionaire the expenses it incurs to provide delivery or free-warranty services. And Article 1443(b) confirms it from the other side: the concessionaire pays the expenses of its activity, save those incurred to provide those same services. The two articles agree.

6. 6

   Step 6: Enough product and communicated targets

   Subsections (c) and (d): supply the concessionaire, per the payment, financing and warranty conventions, the products in the quantity that lets it adequately meet the sales expectations; and communicate, as agreed, the determination of sales targets.

7. 7

   Step 7: Exclusivity with a written caveat

   Subsection (e): respect the territory or zone of influence ceded exclusively, though it may be agreed that the grantor make certain direct or special sales. The Code permits that agreement and does not say what counts as a direct or special sale: that is defined in the contract, not in the statute.

8. 8

   Step 8: Information, marks and spare parts

   Subsections (f), (g) and (h): provide the technical information, manuals and staff training needed; provide, for a reasonable period, the spare parts for the products covered; and allow the use of marks, trade signs and other distinctive elements. The Code does not say how long that "reasonable period" is.

9. 9

   Step 9: Buying only from the grantor, selling only in your zone

   Article 1443(a) and (d): buy the products and spare parts covered by the concession exclusively from the grantor, and commercialise them exclusively in the agreed territory or zone of influence. Both exclusivities run against the concessionaire.

10. 10

    Step 10: Inventory, premises, service and the grantor’s systems

    Article 1443(c), (e), (f), (g) and (h): keep the agreed inventory or a quantity sufficient to ensure business continuity; have the necessary premises, installations and equipment; provide the agreed delivery and maintenance services; adopt the sales, advertising and accounting systems the grantor sets; and train its staff per the grantor’s standards.

11. 11

    Step 11: What else you may sell

    Article 1444: the concessionaire may sell any product the grantor delivered to it by way of payment, and commercialise other products it has authorised. Two distinct cases: what was received as payment needs no separate authorisation; anything else does.

12. 12

    Step 12: What this guide does not cover

    The chapter’s third section — resolution, rescission with prior notice and inventory buy-back, and the clause preserving the special distribution statutes — is not in this guide. And the Code does not name those special statutes: we did not read them for this guide, so none is named here.

The contract runs between grantor and concessionaire; the Code names no agency for this chapter. Non-performance claims are decided by the Court of First Instance. The chapter itself warns that its provisions do not impair the concessionaire’s or distributor’s rights under the special statutes applicable to distribution contracts, without naming them.

• Taking exclusivity for granted: Article 1440 leaves it as an option, not a rule.
• Naming sub-concessionaires without having agreed it: by default Article 1441(b) forbids it.
• Assigning the contract without an agreement permitting it: by default neither party may.
• Forgetting that, absent agreement, the concession also covers new models.
• Buying the concession’s products or spare parts from a third party.
• Selling outside the agreed territory or zone of influence.
• Charging the concessionaire for delivery or free-warranty expenses, which Article 1442(b) puts on the grantor.
• Commercialising other products without the authorisation Article 1444 requires.
• Assuming exclusivity bars every sale by the grantor: it may be agreed that it make certain direct or special sales.
• Looking in these articles for a margin or percentage: they carry none.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

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