Given that there is no specific regulation governinng these  preliminary agreements, they are subject to the general provisions of the Civil Code. However, case law has classified them into two large groups: negotiation documents and precontracts, each with different legal consequences. This judgment is based on and summarises this doctrine in an fairly explanatory way.

Negotiation documents

According to this case-law, negotiation documents are preparatory acts that do not contain the elements that are needed to consider them as being enforceable. The subject matter of the future contract (products or services), the economic conditions (e.g., down-payment, consideration, etc.) and other elements (e.g., exclusivity, duration, territory, etc.) are not specified. Failure to comply with the contents of these negotiation documents may give rise to non-contractual civil liability, in particular if a party acts in bad faith. An action to claim damages on this basis isis subject to a limitation period of 1 year.

Precontracts

By contrast, the Supreme Court states that  a precontract is a draft of the final contract, which contains all its basic elements and requirements. At the time of entering into a precontract, the parties may be unwilling or unable to sign the final contract, but they do undertake to cooperate in order to execute it in the future, thus just postponing its completion. Failure to comply with the terms recorded in a precontract may give rise to contractual liability, which is subject to a limitation period of 5 years.

Which is more convenient?

Considering the above, companies may choose the type of preliminary agreement that is most appropriate in each case. If the intention is merely to initiate a dialogue to enter into negotiations on potential areas of interest, without undertaking obligations on specific matters, preliminary negotiation, the purpose of which will  be to negotiate a potential collaboration between the parties on one or more issues in good faith may be more appropriate. The more one specifies the details of the future agreement, the more it will resemble a precontract.

If, on the other hand, we are perfectly familiar with the legal transaction we are interested in, but are not in a position to directly conclude the final agreement, we may opt for a precontract. In this case, all the essential elements of the final contract must be clearly recorded (product or service, consideration, territory, duration, etc.).

La entrada When does an enforceable agreement exist? aparece primero en Faus Moliner.

In the case of agency contracts, the agent promotes commercial transactions on behalf of the principal in exchange for a commission. Unless a more beneficial contractual provision for the agent exists, the commission accrues upon execution of the commercial transaction promoted by the agent (art. 14 of Law 12/1992). Payment must be made before the last day of the month following the calendar quarter in which the commission accrued (art. 16 of Law 12/1992). Until when may the agent defer claiming the payment of commissions?

Position of the Supreme Court

The Court assumes that the statute of limitations period is 3 years (art. 1967 of the Civil Code) and analyses whether this period is to be calculated as from the date on which the commission is earned (as argued by the principal) or the date of termination of the contract (as argued by the agent). The Civil Code merely states that this period shall be calculated as from the date on which “the relevant services cease to be rendered”. The Court decides favourably to the principal and concludes that the term of the statue of limitations for  each commission starts to run from accrual. To support this thesis, the Court considers agency contracts as continuing performance contracts (where each act of performance fully satisfies the interest of both parties). Furthermore, the judgment states that deferring the beginning of the term of the statue of limitations to the date of termination of the contract would imply extending it excessively, which is contrary to the spirit of the law and the principle of legal certainty.

Conclusion

In light of this judgment, we make the following remarks. Firstly, the agent loses the right to claim the payment of commissions three years after the accrual thereof, unless the statue of limitations period had been interrupted. The statue of limitations period may be interrupted by a judicial or extrajudicial claim or whenever the principal expressly acknowledges the agent’s right. Therefore, it is advisable to check the date of accrual whenever the principal receives a claim for commissions. In the case of commissions older than three years, the prescription period may be used as a defence argument.

Secondly, to provide for greater legal certainty, we believe it is advisable to include an express provision in agency contracts whereby the agent’s rights to commissions expire three years after the date of accrual.

Thirdly, the conclusions of this judgment do not affect the rights of the agent in relation to potential compensations for clientele or damages. These are governed by different rules.  Their statue of limitations period is one year from the date of termination of the contract.

La entrada Further clarity on the term of the statute of limitations for agency fees aparece primero en Faus Moliner.

In recent times we live surrounded by many extraordinary events which have a very significant impact in our lives and in the activity of companies.

In 2019, the crisis of nitrosamines led the Committee for Medicinal Products for Human Use at the European Medicines Agency (EMA) to adopt measures to avoid the presence of nitrosamines in manufacturing processes for active ingredients. As a result, various manufacturers have not been able to meet their obligations to supply and several companies have had to suspend the commercialization of their products.

The so-called Gloria, an east wind storm of very high magnitude had an impact on beaches, promenades and also in agricultural fields, causing a lot of damage and losses. Many suppliers of agricultural products could not meet their commitments.

The cancellation of the Mobile World Congress a few days before its opening, as a result of the fact that many companies had decided not to come has resulted in cancellation of many contracts and important losses.

In light of these events, it is not strange that we ask ourselves if in these cases the rule that applies a party not to meet its obligations or even cancel a contract on the ground of force majeure applies or not.

What does the law say?

In Spain, the Civil Code states, in article 1105 the following: “Other than in cases expressly contemplated in the law and in those cases where the obligation so states, nobody will respond for events that were not foreseeable or which if foreseen were inevitable”.

Anyone, therefore, may get released from responsibility if he cannot fulfil an agreement because of the occurrence of “events that were not possible to foresee or which if foreseen were inevitable”, unless a special law or a signed contract foresees the contrary.

As an example of special laws we may refer to those that govern the electric sector. Suppliers of electricity are obliged to take all necessary measures to guarantee service to end consumers and the law does not allow to consider force majeure “the meteorological events that are common or normal in each  geographical zone, in accordance with available  statistical data”.

The value of contracts

As regards contracts, it is common that they include clauses exonerating parties of responsibility if compliance is not possible  because of force majeure. Frequently, we pay little attention to these clauses which normally appear at the end of the contracts. The first idea that it is important to convey at the present times is that both lawyers and clients should dedicate a little bit more time to force majeure clauses.

Whenever a special event appears the contract will have the force of law between the parties and the manner how force majeure has been defined will be relevant.

When negotiating and drafting this clause, it will be important not to fall under the prohibition of article 1255 of the Civil Code, clauses under which fulfillment of the contract is left to the will of one of the parties are null and void. If the parties agree to include in the clause of force majeure some examples those must always refer to situations that do not depend on the will of the parties.

Clauses under which one party agrees not to claim responsibility in the event of willful misconduct of the other are also null because they are against the equilibrium that must exist in all contracts. On the other hand, as the civil code states, the parties may agree that none of them may get protection from a force majeure clause in order not to comply with its obligations and therefore that liability will exist even if the breach is due to force majeure.

In any event, it is important to recall that the burden of the proof of the existence of force majeure rests with the party that relies on this as an excuse not to fulfill the contract. This same party shall have to prove that there is a cause-effect relationship between the force majeure event and the breach.

What about if a force majeure clause is not included in the contract?

In the contracts where Spanish law applies the existence of force majeure will be determined in accordance with the provisions of the civil code and of the jurisprudence. This leads us to a second idea that is important: more attention should be given to the applicable law clauses, and in contracts which are of special relevance it is important to know well how such applicable law governs issues such as force majeure. This is relevant because the applicable law will be the one under which the force majeure clause will be interpreted if this has been included in a contract.

In Spain, the case-law considers force majeure events those that are independent of the will of the parties and that are not foreseeable or that are inevitable and it allows a party to be released from responsibility if there exists a reasonable cause-effect relationship between the force majeure event and the breach of the contract. It is also necessary that the force majeure event has happened after the contract has been executed.

Individual analysis

Both Spanish jurisprudence and the case law of the European Court of Justice state that this is an area where it is difficult to establish general rules and that in order to determine whether an event was foreseeable or inevitable or not and in order to decide whether there exists a cause-effect relationship between the event and the breach it is necessary to carefully consider all applicable circumstances.

It seems evident that solving discrepancies that may appear in relation with these matters will not be easy. The prove that the conditions that allow one party to rely on force majeure exist will always be difficult and it will force a debate about whether the event was foreseeable or not, if it was preventable or not of if such event is really a valid cause for not fulfilling a contract. For sure these will be cases where a bad settlement may be better that a good case.

La entrada Nitrosamines, storms and climate change, coronavirus… What do the law and the courts say on force majeure? aparece primero en Faus Moliner.

In the contracts for the sale and purchase of goods it is very important to precisely define the rights and obligations of the parties. Where and when risk transfers from seller to buyer, and the allocation of costs, are also relevant matters that should be properly regulated. The lack of clarity regarding such aspects may lead to difficulties in interpreting the contracts and increases the possibilities for misunderstandings and even for costly judicial disputes. Incoterms rules were created as a tool to assist contracting parties on the regulation of the commercial terms applicable to their contracts.

Incoterms are predefined three-letters trade terms (e.g. EXW, DAP) which are available for the parties and ready to be incorporated in their contracts. As soon as they are incorporated in a contract, they are fully applicable between the seller and the purchaser as any other contractual obligation. Incoterms are approved and periodically updated by the ICC.

Incoterms® 2010 vs 2020

Incoterms®2020 include many changes with respect to the 2010 version. On the one hand, their presentation has been enhanced to steer users towards the right Incoterm rule: more emphasis is given to the introduction of the set of rules, guidance notes have been upgraded, and sections have been re-ordered giving delivery and risk more prominence. On the other hand, substantial changes have also been made such as the redenomination of the Incoterm DAT (which is now called DPU), the inclusion of a specific option allowing the carriage to be made directly by the seller or the purchaser (rather than by a third party carrier), or the inclusion of new alternatives  regarding on-board notations.

Tips

If parties want the Incoterms rules to apply to their contract, the safest way to ensure this is to make that intention clear in the contract. It is recommended to use the last available version of the Incoterms (i.e. Incoterms® 2020).

Contracts that include prior Incoterm versions (e.g. Incoterms 2010) remain valid and they will be governed by the Incoterm version chosen by the parties. It is not advisable to alter Incoterm rules, for example by including in the contract matters already regulated by the chosen Incoterm such as the allocation of costs or the terms of the risk transfer, because such alterations may lead to inconsistencies that may be difficult to solve. 

Finally, regarding the relationship between the Incoterms and the contracts ancillary to the sale, it is important to note that the Incoterms are only binding for the seller and the purchaser, and they do not form part of those ancillary contracts such as the carriage or insurance agreements. For this reason it is highly recommended to review the ancillary agreements and ensure that the they are aligned with the chosen Incoterm.

La entrada Incoterms® 2020 aparece primero en Faus Moliner.

On 24 November 2017, the Supreme Court ruled for the first time on how to interpret the direct action foreseen in Spanish Law 9/2013 that any operating carrier has against all companies preceding it in the subcontracting chain (that is, the company initially hiring the transport services and, when applicable, intermediate carriers).

At that time, the doubt was whether the liability of the claimed company was to be limited to the amounts actually owed by such company; or, to the contrary, such liability was not limited in this regard. 

The Supreme Court, after going through the legislative history, the parliamentary debates and the regulations in other countries (especially France and Italy), concluded that the liability of the claimed company is unlimited. Therefore, the claimed company is liable before the operating carrier regardless of whether such company has outstanding debts or not.

In other words, the Supreme Court understood that all the companies preceding the operating carrier in the subcontracting chain are joint and several guarantors of the operating carrier: if the operating carrier does not receive the consideration agreed for the services, such operating carrier shall be entitled to claim against each and every one of the companies preceding it in the subcontracting chain.

In 6 May 2019, almost a year and a half after its first judgment on the matter dated on 24 November 2017, the Supreme Court confirmed its doctrine about the direct action. With this new judgement, the Supreme Court lays down a consolidated case law and shows the path to be followed, unless an unexpected legislative change occurs, for the interpretation of the direct action during the following years.

Protection against the direct action

The direct action, as interpreted by the Supreme Court case law, may oblige companies hiring transport services to pay for such services to companies with which they have no direct contractual relationship, or even to pay twice for the same services. As a protection before such situation, we recommend to exercise utmost caution when drafting transport agreements and to include in such agreements clauses such as the prohibition for the hired carrier to outsource the services entrusted to it.

Alternatively, it can also be regulated in the Agreement that, if the hired company outsources the services to a third party, the payments to be made by the hiring company to the hired one shall be subject to the provision by the latter of sufficient evidence that it has paid all amounts due to the third party.

La entrada The direct action of the operating carrier against the companies preceding it in the subcontracting chain aparece primero en Faus Moliner.

Unlawful conducts

According to the TSL, the acquisition of trade secrets without the consent of the trade secret holder is considered to be unlawful when carried out by (i) unauthorized access to, appropriation of or copy of any document in any format containing the trade secret (or from which the trade secret can be deduced); or (ii) any other conduct which is contrary to honest market practices. Likewise, the use or disclosure of a trade secret is considered unlawful when carried out without the consent of the trade secret holder by a person who acquired the trade secret unlawfully or who is in breach of a confidentiality or similar agreement. Also, according to the TSL, the acquisition, use or disclosure of trade secrets is be considered unlawful when a person, at the time of acquisition, use or disclosure, knew or ought to have known that the trade secret had been obtained from another person who was using or disclosing the trade secret unlawfully. Finally, the marketing of products or services using a trade secret unlawfully obtained is prohibited under the TSL.

Defense of trade secrets

The following claims can be brought against those who have carried out unlawful conducts in connection with trade secrets: (i) infringement declaration; (ii) prohibitory injunction, (iii) delivery of documents containing or goods using the trade secrets, (iv) seizure of the infringing goods; (v) transfer of ownership of the infringing goods, (vi) compensation for damages and (vii) publication of the judgement. The party affected by the infringement has three-year period to exercise these claims.

On the other hand, the TSL includes several rules to protect confidentiality of information that can be considered as trade secret, which is provided or generated in a judicial process. For example, the number of persons having access to documents as well as the number of assistants to the hearings can be restricted. Also, a non-confidential version of the judgement can be published.

Finally, the TSL provides some rules that are applicable in case there is no agreement regulating how the potential ownership and transfer of trade secrets is managed, particularly if carried out by means of contractual licenses.

La entrada A new legal framework for the protection of trade secrets aparece primero en Faus Moliner.

In the context of a supply relationship, the goods delivered by a supplier (either raw materials to be incorporated into a manufacturing process, or finished products to be distributed to other distributors or end customers) must comply with the agreed specifications and be useful for their agreed purpose.

Otherwise, the recipient of such goods may claim against the supplier. But, for how long can the recipient of the goods make such a claim? Is there any rule or doctrine in this regard? In this recent Judgement, the Supreme Court reminds us of some ideas.

Evident and hidden defects

When negotiating a supply contract, the starting point for most suppliers is usually the Spanish Commercial Code which, aiming to speed up trade, foresees very short claim periods counted from delivery date: 4 days for evident or obvious defects and 30 days for hidden ones.

Such short deadlines may leave the recipient of goods unprotected… For example, what happens if, 2 months after an API batch has been delivered, the recipient discovers that it does not meet the agreed specifications and is useless for the manufacturing process? Or if, 1 year after the delivery took place, the distributor realizes that the final product that he has been supplied with cannot be marketed because it does not meet the agreed standards or specifications?

In such cases, it is essential for the supply agreement to set periods which are longer than those provided in the Commercial Code. In this respect, regardless of the negotiation skills or position that the parties may have, it is essential to know the arguments that the recipient of the goods can use to position himself against the application of the Commercial Code and to defend the idea of regulating longer claim periods in the agreement.

Breach of contract

The Supreme Court, in this recent Judgement, talks about one of these arguments. If the goods delivered “have features which are totally different from the agreed ones”, “are totally unfit for the use to which they are intended”, are “unusable” or “their use is completely impossible” there is an actual breach of contract because the delivered goods are different from the agreed ones.

In none of these cases can the goods be considered to be merely defective. Consequently, the period to claim against the supplier should not be limited to the 30-day period set forth in the Commercial Code. In any such case, the period shall be of 5 years, as contemplated for breach of contract cases in the Spanish Civil Code.

In our opinion, judgments like this, reinforcing the doctrine known as aliud pro alio (i.e. delivery of goods different from the ones agreed), can be used as a solid argument to negotiate claim periods in supply contracts that go beyond the 30 days provided in the Commercial Code.

La entrada Useless products…For how long can the recipient of the goods claim against the supplier? aparece primero en Faus Moliner.

In commercial agreements the parties usually include clauses to regulate the consequences of contractual breaches. When this kind of clauses foresee the payment of compensations and penalties by the breaching party, they are called “penalty clauses”. They have a twofold objective: to discourage the breach of the agreement and, in the event such breach occurs, to protect the compliant party.

The Spanish Civil Code allows penalty clauses to be moderated in Court. Therefore, these clauses might not be applied literally in accordance with the provisions contained in the contract. Instead, a Judge can modify its application and scope. Thus, it is crucial to be certain about when a penalty clause inserted in the contract will be applied literally and when it is possible that the Judge moderates the terms of agreed penalties.

Different interpretations

The Spanish Civil Code establishes that a Judge may moderate penalty clauses when the noncompliance foreseen in the contract to which the penalty is linked, is different from the noncompliance that actually took place. This is the case, when, for example, a penalty is established for a total breach and what in fact has occurred is a partial breach. Despite the clarity of the provisions contained in the Civil Code, it is not strange to find Judgements moderating freely agreed penalty clauses, in cases different from the ones allowed in the Civil Code.

In this regard, it is common to find Judgements in which the judge moderates penalties based on, for example, “the need to avoid an unjust enrichment”, or “the will to correct situations in which the penalties are clearly disproportional, and compensation is excessive compared to the actual damage”.

Supreme Court’s position

By means of this Judgement, the Spanish Supreme Court reminds us that penalty clauses may only be moderated when the contractually foreseen breach differs from the actual breach.

In all other cases, even when the payment of the penalty is burdensome for the non-compliant party or when the amount of the penalty is higher than the actual damage suffered by the compliant party, the literal will of the parties -as expressed in the agreement- shall prevail. In this regard, the Supreme Court highlights that, in accordance with the Civil Code, agreements are the law between the parties and they must be honored as such.

The Supreme Court states that the interpretation of the provisions contained in a contract must be done carefully. In particular, the Supreme Court points out that although there are well-intentioned interpretations which might seem reasonable and fair, they are simply unacceptable if not in accordance with the law.

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When hiring transportation services, it is convenient to bear in mind if the carrier who has been hired (“hired carrier”) is the one who actually carries and delivers the goods to the recipient, or if the hired carrier has outsourced the provision of such transportation services to another carrier (“final carrier”).

In case of outsourcing, if the hired carrier does not pay the final carrier, the latter can choose between claiming the payment from the hired carrier or directly from the company who hired the transportation services in the first place. This second possibility is the so-called “direct action”, incorporated to the Spanish legal system in 2013.

Position of the Supreme Court

In this judgement, the Supreme Court has clarified certain matters regarding the direct action, which have generated controversy among the Spanish Courts.

In particular, the Court stated that the company hiring the transportation services in the first place is a real “joint and several guarantor” to the final carrier.

To such effect, if the hiring company receives a claim for payment from the final carrier, such company must pay in full the amount agreed between the hired carrier and the final one, even when the company has adequately and promptly complied with all its obligations vis-à-vis the hired carrier. According to the Court, this is without prejudice of the hiring company’s right -who was forced to pay the final carrier by virtue of the direct action- to claim the corresponding amounts from the hired carrier.

Protection against the direct action

As we can see, the direct action implies a risk for the company hiring the transportation services, in the sense that it might be obliged to pay some amounts to the final carrier whose services it never hired.

It may be the case that the company hiring the transportation services might even have to pay twice for the same service: first pay the hired carrier and then the final carrier who exercises the direct action.

To protect the interests of the hiring company against this risk, certain restrictions can be included in the services agreement entered between such company and the hired carrier, such as a prohibition to subcontract.

Another option would be to establish in the agreement that the hiring company does not have to pay any amount to the hired carrier until it proves that the final carrier has received the corresponding price.

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Supplier payment plans

Supplier payment plans were created so that companies could receive payment on invoices issued to the Autonomous Communities and Local Authorities. In exchange for immediate payment of the principal debt, all suppliers joining this extraordinary financing mechanism agreed to waive their right to receive interest for late payment and compensation for recovery costs owed by the aforementioned Administrations for having failed to meet payment deadlines. In terms of interests, said waiver involved renouncing the right to receive payment of interest, calculated at the Euribor rate plus 8%, on the principal.

“Freely agreed to” waiver

The CJEU analyses whether the creditor’s waiver of the right to interest for late payment and recovery costs contradicts Directive 2011/7/EU. Said Directive establishes that any agreements excluding the right to receive payment for such concepts are clearly abusive. The Court concludes that said waiver is not contrary to Community law, provided that the creditor has agreed to it freely.

The CJEU believes that in order to assess whether consent has been granted freely or not, it is necessary to ensure that the creditor was in fact able to rely on any effective legal remedy to seek payment of the debt in full, had he wished to, (including interest for late payment and recovery costs). According to the CJEU, the Spanish courts are competent to decide on this aspect. Therefore, we will have to wait and see how the Spanish courts rule in terms of whether the creditor was in fact able to rely on any effective legal remedy to seek payment of the debt in full..

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