Law 75 distributorship legally terminated for continuous late payments

A  supplier terminated a Puerto Rico dealer distributor for among other things failure to pay on time.  The distributor sued under Puerto Rico’s Distributor Dealers Act 75 for termination without cause.  The court found for the  supplier. Kemco Food Distributors v R.L. Schreiber, Inc. Civil No. 15-1955 (PAD) (DPR February 29, 2016.)

Law 75 governs the business relationship between principals and the locally appointed distributors who market their products. It limits the principal’s ability to end the relationship unilaterally except for just cause. Law 75 defines “just cause” to include a dealer’s failure to perform any of the essential conditions of the agreement as well as any action or omission that adversely and substantially affects the interests of the marketing or distribution of the merchandise or service.  Paying for goods on time is generally one of the essential obligations of the dealer’s contract, the non-fulfillment of which has been recognized as just cause for termination under Law 75 unless the facts show that the supplier does not care about late payments.

In this case the distribution contract required the distributor to  remain in good standing with its accounts receivable and show continued commitment to the growth of sales.  This did not happen. At some point the supplier contacted the distributor  via email and telephone, identifying outstanding invoices and requesting payment and the account was subsequently blocked and put on hold repeatedly for failure to timely pay ‘net 30 days’ as required under the agreement.In the end the  terminated the  relationship with the distributor citing   among other things, that the dealer’s appointment had been expressly contingent upon its remaining in good standing with respect to its payment obligations; which the dealer  had failed to do so.