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Under Uruguayan Law there is no regulation for Distribution Agreements other than those
for specific tax and social welfare purposes2. Therefore, Distribution Agreements are regulated by
the general principles of Civil and Commercial Law. Furthermore, the use and practice generally
observed in commercial trade and the location where the contract is to be performed are usually
taken into account by our courts when deciding relevant cases.
Distribution Agreements in Uruguay are generally entered into as a written contract by the
parties, often establishing a term date and prior notice periods in case of anticipatory termination by
either party. The written contract will act as the law between the parties3. Oral agreements are also
enforceable in Uruguay. However, if a party to a contract challenges the existence of an unwritten
Distribution Agreement, the party seeking to enforce the agreement will have to submit evidence
before the court to establish the existence of an oral contract. In fact, in the enforcement of oral
agreements the plaintiff will first need to prove the existence of the commercial relationship, second
the essential terms of such relationship and third the breach of the agreement.
In case a just cause for termination arises, such as a material breach of the contract, the
agreement can be terminated without prior notice or indemnification, subject to a conclusive
evidence of the just cause.
On the other hand, termination is considered abusive and subject to indemnification when
one or some of the following circumstances occur: (a) absence of a just cause; (b) notification of
termination is not given on time; and /or (c) termination is done in bad faith.
I.
Abusive Termination
Doctor in Law and Social Sciences -University of the Republic, Uruguay- 1996. Admitted to practice in Uruguay 1997. LL.M in
International Legal Studies -Washington College of Law, American University, USA- 1999. Partner @ Reyes Rius, Montevideo.
2
Law 14.625 January 4, 1977.
3
Article 1291 of the Uruguayan Civil Code assimilates Contract Law to General Law.
Termination is considered to be done in bad faith when for example: (i) the profit loss or
damages caused to the other party are not taken into consideration; (ii) business or moral principles
are affected; (ii) done with illegitimate purposes, etc.
A typical case of bad faith is when Supplier congratulates Distributor for its recent
achievements and encourages further investments into the business to be done, but few months later
gives notice of termination. In such cases our Jurisprudence had ruled that Distributor holds a
legitimate expectation of maintaining the relationship for an extended period of time and that the
Supplier acted with bad faith, so Distributor will be entitled to compensation for the damages
caused by Supplier.
II.
Quantity of Damages
In terms of damages awarded for abusive termination, compensation is usually limited to the
loss suffered by the innocent party as a result of the termination, including expected profits and
compensation for investment which has not been recouped. While the quantity of damages will be
determined by the Courts in each case, the following are some of the elements and factors generally
considered:
III.
Conclusion
The Principle of good faith is established by article 1291 of the Uruguayan Civil Code.