Businesses wishing to market their products in Puerto Rico must be aware of two important laws that regulate the commercial relationship between a principal and a distributor- Laws 75 and 21. These were enacted to protect Puerto Rico distributors, dealers and sales representatives from a manufacturer’s arbitrary termination or impairment of their commercial relationship. Both laws are liberally interpreted in favour of those who carry out distribution activities; affording locals injunctive relief and carry stiff penalties for principals that do not comply. Whether a business is considering establishing or terminating a distributorship, sales relationship or even a franchise, it must take into consideration these statutes.
Law 75 protects local “dealers” from a manufacturer’s arbitrary termination or ending their commercial relationship with the Puerto Rican distributors who had prior thereto developed a market for their products. Accordingly, a manufacturer cannot terminate its agreement with a dealer except for “just cause.”
Law 21’s motive is to protect sales representatives who fall short of compliance with dealership status under Law 75. It protects Puerto Rico sales representatives from arbitrary terminations after they create a market for their principals. A sales representative under Law 21 is as “an independent entrepreneur who establishes a sales representation contract of an exclusive nature, with a principal or grantor, and who is assigned a specific territory or market, within the Commonwealth of Puerto Rico.”
A “sales representation contract is an “agreement established between a sales representative and a principal, through which ․ the party of the first part commits himself to making a reasonable effort and due diligence in the creation or expansion of a market which is favorable for the products that the principal sells, directed at capturing clientele to offer it a product or service marketed by him in Puerto Rico, and the party of the second part is bound to comply with the commitments that may result from the sales representative’s efforts and coordination and to pay the previously-accorded commission or remuneration.
Law 21, provides a sales representative with a provisional remedy pending litigation to continue in all its terms, the relation established by the sales representative agreement and/or to abstain to conduct any act or omission in prejudice thereof.
A dealer’s contract under Law 75 is defined as a “relationship established between a dealer and a principal or grantor whereby and irrespectively of the manner in which the parties may call, characterize or execute such relationship, the former actually and effectively takes charge of the distribution of a merchandise, or of the rendering of a service, by concession or franchise, on the market of Puerto Rico. The `established relationship’ between dealer and principal is bounded by the distribution agreement, and therefore the Act only protects against detriments to contractually acquired rights. Law 75, applies broadly to virtually all distribution relationships where a dealer has effectively in his charge in Puerto Rico the distribution, agency, concession or representation of a given merchandise or service.
Act 75 prohibits termination, impairment or non-renewal of a dealer’s contract without “just cause,” regardless of any contract provision permitting termination. Just cause is akin to nonperformance of the essential obligations of the contract including actions or omission that adversely and substantially affects the interests of the principal in promoting the marketing or distribution of the merchandise or service. Remedies under the law may include recovery of damages, cost of inventory, goodwill, and five years of profits.