Distribution contracts in Panama

• Published date: 04 January 2022
• Author: Rita de la Guardia
• Law Firm: Blogs Alemán, Cordero, Galindo & Lee

The distribution contract or atypical contract of mercantile nature is a

bilateral agreement that establishes the conditions by means of which

a party (distributor) commits to another party (supplier) to buy and

distribute its products, during a determined or indefinite period of

time in a specific territory, and resell them in the distributor's area or

country.

Typically, as a fundamental part of this contract, the distributor

undertakes not to sell or distribute commercially competing products

and, if it does so, it must face the consequences of such

non-compliance.

In Panama, this type of agreement is relevant due to the country's

position as a hub for Latin American and global trade.

In fact, through Cabinet Decree No. 344 of October 31, 1969, issued by

the Provisional Government Board, the representation, agency, and/ or

distribution of products or services of foreign and national

manufacturers or firms in the Republic of Panama was regulated.

This decree established almost absolute protection in favor of agents,

distributors, and/or representatives.

Basically, if the manufacturer canceled, revoked, modified or refused

to extend the relationship, without any of the just causes listed in

Article 69 of Decree No. 344 - among them: fraud or breach of trust in

the actions conferred to the agent, representative or distributor,

regardless of the criminal sanction or compensation for damages or

prejudices or the ineptitude or negligence of the representative,

The distribution contract is a common alternative for

foreign companies seeking to open a market in Panama.

Distribution

contracts in

Panama

resident agent and/or distributor - the displaced agent, distributor

and/or representative was entitled to obtain compensation for

damages and prejudices equivalent to the amount of the average gross

profits obtained by him during the relationship or part of it, taking into

account the time of the relationship.

However, 20 years later, specifically on August 2, 1989, the Supreme

Court of Justice declared that Decree No. 344 was unconstitutional,

among other reasons, for establishing privileges, infringing the

principle of legal equality before the law, and violating the principle of

due process of law. Therefore, such legal body ceased to exist.

As a direct consequence of the decision of the Supreme Court of

Justice, the figures of agency, distribution and representation were left

without express regulation in the Panamanian legislation, and thus,

subject to the general rules of contracting established by the common

law.

In this regard, being now unnamed contracts, it is now applicable to

agency, representation and/or distribution contracts the principle of

autonomy of will contained in Article 1106 of the Civil Code, according

to which "the contracting parties may establish the agreements,

clauses and conditions they deem convenient, provided that they are

not contrary to law, morality or public order".

Author: Rita de la Guardia

Visit: www.focusalcogal.com