Distributor Legal Agreements

An often controversial question is whether a distribution agreement – with a termination clause – is a comprehensive and integrated agreement, or whether it should be allowed to explain what it means. Usually, the distribution contract contains a rather enigmatic termination clause – perhaps something like: «The manufacturer reserves the right to terminate distribution at any time with a notice period.» The manufacturer did well. The distributor then responds to a dispute by stating that, during the negotiations and through the relationship, the parties understood that the producer could terminate it at any time for any reason, but that the parties had actually considered a long-term relationship that the producer would not terminate, except for a good reason. The legal question that often needs to be resolved is whether this evidence is admissible. If, according to the decision, the court considers the distribution agreement to be a complete and integrated handwriting and that the termination clause is clear, it should apply the Parol rule of evidence to exclude oral evidence. On the other hand, experience has shown us that the courts often find that the parties never intended to make the agreement the full integrated document and that they will accept parol evidence in such a situation. There is no clear way to deal with it, but if you represent the manufacturer, you need to go a little overboard to write your distribution agreements on this point. You can expressly state that the parties agree that the distribution agreement is a complete written and integrated agreement and that nothing else is legally binding on the parties. They may also provide clarification and expressly conclude that the parties agree that no cause of termination should be demonstrated. Admittedly, this can lead to problems in negotiating the agreement and in your relationship with the distributor. This is a trade compromise that really cannot be avoided. Management must take an entrepreneurial risk and decide whether it wants to «liberate lawyers» to draft an agreement that means what it says, or whether they want to take a soft step on some of the key redundancy issues and hope for the best in the event of a subsequent dispute. In a seminar we attended, a lawyer from a very large company told an interesting story.

The company had always entered into oral distribution agreements on the basis of a handshake. It decided to write an agreement to commemorate the exact relationship with its distributors. The lawyer said the exercise was very bad. Distributors (and even some people in the company) interpreted the company`s desire for a written agreement as a sign of mistrust; whereas, for many years, the parties have built their relationship on feelings of mutual trust. The company implicitly rejected the idea of a written agreement because it simply did not work for it. Note, however, that in this situation, the parties involved have already had a long history of oral collusion on the basis of a handshake. This is a different situation from a cleaner slate.