Brazil: Distribution Or A Simple Supply For Resale Under The Brazilian Law

Last Updated: 12 December 2012
Article by Cláudio Mattos

Quite commonly, relationships for the simple supply of goods for mere resale are classified as a distribution agreement, although both legal transactions have different scope, purpose, parameters and effects. 

Frequently, drafts addressing the subject omit the parties' intended legal concept in the contractual relationship. In other cases, the similarity of such relationship is convenient to one of the parties, to the detriment of the other party's interests.  

Although in an agreement the scope is defined as the supply of goods (whose destination may be a mere resale by the purchaser), the existence of certain conditions may entail the construction that the case concerns a "distribution agreement".

Theoretically, in agreements for supply of goods (whose destination may be a mere resale by purchaser), the parties define the scope as solely the purchase and sale (supply) of a certain good  by seller ("Supplier") to the other party ("Purchaser"), and such supply may be performed once, occasionally, as well as continuously, upon issuance from time to time of orders/purchase orders throughout effectiveness of the agreement defined by the parties, whereas the resale to third parties is scantly provided for or regulated in the instrument, where not omitted.

It should be noted that the mere continuity of the relationship/agreed scope for the period agreed by the parties, as well as the destination of the good that may be given by the Purchaser does not rule out the nature of a supply agreement.

Any use or resale of goods by Purchaser, for the offer of derivative goods or even services, such as   support and technical assistance, may contribute to classify the relationship as a mere supply, rather than distribution.

To the same effect, relationships of this nature on a continued basis may entail or in fact represent, a distribution, in the event Supplier holds or keeps a certain interference, even in indirect manner, on the resale of the goods acquired by purchaser/distributor, including as to purchaser's resale area, performance, form of promotion and prices charged to third parties.

Under the civil standpoint, we are of the opinion that the "distribution" concept entails more responsibilities to the parties, including in view of the higher "dependence" of the other party, the "purchaser-distributor", resulting from the required performance and agreed targets intended to promote the good to be distributed in a certain territory, further to the possible interference by seller in relation to the form of resale of its goods by "purchaser-distributor".

The opinion above is corroborated by the legal provisions in the Civil Code, which regulate the distribution relationship.

The Civil Code regulates distribution, establishing certain provisions which impose certain responsibilities on Supplier, including the definition of the geographic area where distributor carries out its activities, the grant or not of exclusivity (including in relation to the area/territory, as in case of omission the distributor will be entitled to a remuneration corresponding to the transactions performed by third parties within its area), and the grant of a term of at least 90 days (which may be the object of a review in case of a litigation by distributor) for termination of an agreement for undetermined term.

Further to the examples above, article 718 of the Civil Code provides that on terminations without cause, the distributor will be entitled to the remuneration due until then, including on pending transactions, further to the indemnification provided for in special law.

The special law which theoretically may be applied on the concrete case, is Law no. 6.729/79. However, the doctrine and jurisprudence have no unanimous opinion on use thereof (some authors even hold the opinion that the "special law referred to in article 718 is Law no. 4.886/65, which regulates sales agency).

This is so because Law no.  6.729/79 is intended to regulate a unique legal relationship in a peculiar and specific market and further, the Civil Code mentions a special law which may regulate the subject.

Lastly, the potential confusion between a distribution and a supply for mere resale will continue to permeate certain agreements, including in view of the frequent omission of elements representing one legal transaction or the other.

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