In the United States, several states
have so-called relationship statutes governing commercial relationships in the
distribution and franchise areas. These statutes often require just cause for
the termination or modification of such relationships. From the point of view
of manufacturers and franchisors, it is tantamount to operating with a
straitjacket even when the parties have executed written contracts intended to
give manufacturers and franchisors great leeway in dealing with their
distributors and franchisees.
Rico’s Act 75 of June 24, 1964 is one such statute. It specifically prohibits
any conduct detrimental to such relationships or any conduct, be it an act or
omission, without ‘just cause’. See 10 LPRA section 278a. ‘Just cause’ is
defined as the failure to comply with any essential obligation of the
distribution or franchise agreement; or any act or omission, on the part of the
distributor or franchisee, which substantially and detrimentally affects the
distribution or the development of the market.
when the distribution or franchise contracts provide for a fixed term and
non-renewal, Act 75 supersedes such contract terms by always requiring just
cause not to renew. This means that a manufacturer or franchisor would be
obligated to renew the contract unless it can prove just cause. Puerto Rico is,
thus, an evergreen jurisdiction.
types of conduct which require just cause include any act of impairment of the
relationship such as contravening exclusivity rights; unreasonably refusing to
supply product; and unreasonably and unilaterally modifying the terms of
payment. See 10 LPRA section 278a-
Act 75 creates certain presumptions that the statute has been violated, such
as, when a manufacturer or franchisor unreasonably and unilaterally modifies
the shipping or payment terms.
75 clearly establishes that the manufacturer or franchisor would not have just
cause to impose rules of conduct or sales goals upon a distributor or
franchisee unless such rules or goals are reasonable in view of the conditions
of the Puerto Rico market at the time of their breach. The statute also limits
what a manufacturer or franchisor may do to restrict transfer of ownership
interest or control over the franchisee. Only when the failure to comply with
such restrictions could detrimentally and substantially impact the distribution
or development of the market, may a manufacturer or franchisor claim that just
cause exists for the restrictions.
sum, Act 75 and statutes like it restrict the freedom of contract to a
substantial degree and, thus, manufacturers and franchisors would be well
advised to inquire about such statutes prior to doing business in any U.S.
* * * * *
By Rossell M. Barrios-Amy
Admitted in the Commonwealth of Puerto Rico,
U.S. District Court for the District of Puerto Rico,
U.S. Court of
Appeals, First Circuit
District of Columbia,
U.S. Supreme Court
Shareholder of Goldman
Antonetti & Córdova, P.S.C.