Commercial contracts

According to the SC Judgment of 21 October 2005, the franchising contract, "franchising", originating in North American law - "franchise agrement" - where it was generated or disseminated to circumvent the "antitrust" prohibition, lacks regulation in our law, although various provisions refer to franchising.

The Spanish legal system lacks a substantive legal regime for the franchise contract, although throughout the 1990s and in the context of the regulation of commerce, this contractual modality has been alluded to fragmentarily, with a more or less broad concept of it. Thus, Article 62.1 of Law 7/1996 of 15 January 1996 on the Regulation of Retail Trade defines it as a contract whereby a company, known as the franchisor, transfers to another company, known as the franchisee, the right to operate its own system for marketing products or services. The aforementioned Law foresees a subsequent regulatory development establishing the conditions for the development of the economic activity that is the object of the franchise, which was carried out through the enactment of the now repealed Royal Decree 2485/1998, of 13 November.

In art. 2 of Royal Decree 201/2010 of 26 February, contains a new legal definition of the franchise contract that is broader than the one reproduced in the Law on the Regulation of Retail Trade by defining it as that which is carried out by virtue of the contract whereby one company, the franchisor, transfers to another, the franchisee, in a specific market, in exchange for a direct or indirect financial consideration, or both, the right to operate a franchise, on a business or commercial activity that the former has previously been carrying out with sufficient experience and success, to market certain types of products or services and which includes at least: the use of a common name or sign or other intellectual or industrial property rights and a uniform presentation of the premises or means of transport covered by the contract, the communication by the franchisor to the franchisee of technical knowledge or know-how, which must be his own, substantial and unique, and the continuous provision by the franchisor to the franchisee of commercial or technical assistance or both during the term of the agreement; all without prejudice to the supervisory powers that may be established contractually.

The SC Judgment of 9 March 2009 states that art. 62.1 of the Law on the Regulation of Retail Trade does no more than define the contract, and in the development carried out by the repealed Royal Decree 2485/1998, of 13 November, no regulation of the contract is contained, but rather the pre-contractual obligation of pre-information, the franchisee's duty of confidentiality and the Register are developed. Therefore, he states that in Spain, the franchise must be considered to be a nominated contract because it is provided for in the legal system, but it is still atypical, because it does not enjoy legal regulation, which has led, as in France, to the Spanish Franchisers' Association having a Code of Ethics, which does not have mandatory effects.

This definition of the franchise contract literally reproduces art. 1.3.b) of Community Regulation 4081/1988, of 30 November, on restrictive clauses of competition exempted from the prohibitions contained in art. 85 of the Treaty on the Functioning of the European Union. This legislation has been replaced by Commission Regulation 2790/1999 of 22 December 1999, in which the scope of application of the block exemptions is no longer made in relation to the franchise contract in particular, but in relation to vertical agreements and concerted practices between undertakings. However, this definition in national and Community legislation has been accepted by the majority of Spanish case law.

Although it adds some additional elements and thus completes this legal definition, its essential content has been shared by the doctrine and case law, with the judgments of the SC of 27 September 1996 , 21 October 1996 , 4 March 1997 and 30 April 1998 , among others, being particularly noteworthy. Of particular interest when it comes to defining the concept and essential elements of the franchise contract is the SC Judgment of 21 October 2005, which systematically sets out the legislation applicable to the contract and a list of the most relevant judgments of Spanish case law on the subject.

It should be noted, however, that the legal definition, as contained in the Spanish legislation reproduced above and in the Community Regulation, seems to contemplate only commercial franchising but not production franchising, in which the franchisee is not only engaged in placing a certain product on the market, but in which a large part of the manufacturing process is carried out in the franchisee's establishment. It cannot be inferred from this that the legislator's intention is to exclude these types of franchising, but rather to emphasise the distribution purpose of the contract, regardless of whether the franchisor is obliged to supply the franchisee with finished products or raw materials for final processing by the latter or whether he limits himself to the transfer of the operating manual so that the entire production process is taken over by the distributor. In no case have production franchises or industrial franchises, which are those used in economic sectors such as restaurants, bars or cafeterias, which are of great importance in terms of this contract both in the national and international market, been considered to be excluded from the scope of application of the Law on the Regulation of Retail Trade and Royal Decree 2485/1998 of 13 November 1998.

On the other hand, the two rules of Spanish law that contain its legal definition do not regulate the legal aspects of the contract, nor its essential content, but deal with this figure from a very specific purpose and which is linked to the provision of rules of good business conduct. In other words, it is more a matter of regulating the distribution market and the protection of the entrepreneurs involved and consumers than of establishing a complete legal regime for the contract. This is the purpose of two regulatory provisions laid down in the aforementioned regulations and in particular in Royal Decree 201/2010 of 26 February: on the one hand, the provision of a register of franchisors and, on the other, the pre-contractual information obligations that the franchisor must provide prior to the formalisation of the contract.

In relation to the first aspect mentioned, the competence for the creation of franchisors' registers is attributed to the Autonomous Communities and their registration will be compulsory provided that they define it as such and have created the mandatory register. For those companies that intend to carry out the franchising activity in the territory of more than one Autonomous Community or are foreign franchisors that are not domiciled in Spain, the creation of the Register of Franchisors under the General Directorate of Commercial Policy of the Ministry of Industry, Tourism and Trade is provided for (art. 5 Royal Decree 201/2010 of 26 February). This is a national public register of an administrative nature that must necessarily be coordinated with the regional registers and whose purpose is specifically defined as providing the market with information and publicity on the operators in this economic sector and the activities they carry out. In coherence with these purposes, art. 7 of Royal Decree 201/2010 of 26 February, determines the information that must necessarily be attached to the application for registration, which essentially refers to the following aspects: identifying details of the franchisor; details relating to the industrial property rights that are the object of the franchise contract, the ownership or licence of use of which must be accredited by the franchisor:

• a) Data referring to the franchisors: name or company name of the franchisor, its address, the details of its registration in the Mercantile Register, where applicable, and the tax identification number or code.
• b) Name of the industrial or intellectual property rights that are the object of the franchise agreement and accreditation of having been granted and in force the ownership or the rights of licence of use of the same, as well as their duration and possible legal appeals filed by the owner or user of the trademark, if any.
• c) Description of the business that is the object of the franchise, with an expression of the number of franchisees that the network has and the number of establishments that comprise it, distinguishing those operated directly by the franchisor from those that operate under the franchise assignment system, with an indication of the municipality and province in which they are located. The length of time that the company has been carrying out the franchising activity shall also be indicated, specifying its own establishments and franchised establishments, as well as the franchisees that have ceased to belong to the network in Spain in the last two years.
• d) In the event that the franchisor is a principal franchisee, the latter must accompany the information related to the following data on his franchisor: name, company name, address, legal form and duration of the principal franchise agreement; and state that he has the contract that accredits the assignment by the original franchisor.
• e) Companies registered through a representative must state that they have the document accrediting this status.

With regard to the franchisor's pre-contractual information obligations to prospective franchisees, articles 62 of the Retail Trade Act and 3 of RD 201/2010 of 26 February 2010, establish in detail the aspects on which information must be provided prior to the conclusion and, obviously, subsequent registration in the corresponding Register. These duties of information are clearly inserted in the aim of protecting future franchisees against abusive behaviour by the franchisor, considering firstly that they may not be experts in the type of contract to be formalised or in the economic sector in which they may operate, as opposed to the professional nature of the latter and, secondly, because the contracts are usually drawn up unilaterally and imposed by the franchisor, without the possibility of negotiation by the franchisees according to the generic concept of general contracting conditions. On this issue, it can be stated that the aforementioned precepts merely reiterate and adapt to the singularities of this contract the pre-contractual information obligations imposed on those who unilaterally draft the content of non-negotiated contracts (see Law 7/1998, of 13 April, on General Contracting Conditions). In short, it is a question of the franchisee having sufficient elements of assessment to be able to take a conscious decision on the possibility of contracting, on the economic activity that this implies and the set of obligations and rights deriving from the contract. The information that must be provided prior to the signing of any franchise contract, pre-contract or delivery of any payment by the future franchisee includes the identification of the franchisor, a description of the economic sector in which it operates, the content and characteristics of the franchise, the structure and extent of the distribution network, as well as the essential elements of the contract defined as the set of rights and obligations deriving from it for the parties.

Apart from the aforementioned regulations in their public-legal and private-legal aspects, the franchise contract lacks a complete and exhaustive legal regime. Therefore, all the rights and obligations of the parties arise from the stipulations agreed in the contract, in accordance with the principle of free will derived from Art. 1255 CC and, where not provided for therein and given the commercial nature of the contract, the general regime on commercial obligations and contracts provided for in Art. 50 and following CCom. It should not be forgotten that, although on the whole it is a sui generis contract, its content is of a complex nature and includes obligations and rights typical of other legally typified contracts. In relation to these aspects and in so far as it is not incompatible with the nature of the contract, the will of the parties will be completed by means of the subsidiary application of the rules governing these contracts to the legal obligations arising from the franchise. Thus, for example, the rules relating to the trademark licensing contract may be applied in relation to the transfer to the franchisee of the use and enjoyment of the franchisor's industrial property rights; those of the sale and purchase contract, in relation to the sale and supply of raw materials or the finished product from the franchisor to the franchisee or those relating to the leasing of services in relation to the obligations of advice, training and technical or professional support from the franchisor to the franchisee, in the start-up of the franchise and its subsequent operation in the market.

On the other hand, and as indicated above, it is a contract of adhesion in which the franchisor drafts its content and imposes it unilaterally on the franchisee according to the concept of general contracting conditions defined in art. 1 of the Law on General Contracting Conditions, which means that this rule will be applied as it falls within its regulatory scope.

It is clear that the commercial distribution activities carried out through the franchise contract are subject to the basic rules for the protection of the freedom of enterprise and the principles of free competition according to the definition of the economic model defined in the Constitution. Therefore, both in relation to the clauses of the contract and to the conduct of the economic operators that sign it in the development of their activities, the franchisor and the franchisee are subject to Law 15/2007, of 3 July, on the Defence of Competition and to Law 3/1991, of 10 January, on Unfair Competition.

This legislation introduces a reference to the Community provisions relating to block exemptions, which have traditionally subsumed franchising, and which implies the direct application to the internal market of Regulation 2790/1999 of 22 December 1999 and Regulation 1/2003 of 16 December 2003.

The purchase and sale of movable things in order to resell them, either in the same form in which they were purchased or in a different form, with the intention of profiting from the resale, shall be commercial.

They shall not be deemed to be commercial:

• 1º. Purchases of goods intended for consumption by the purchaser or the person on whose behalf they are acquired.
• 2º. Sales made by landowners and farmers or stockbreeders of the fruits of the produce of their harvests or livestock, or of the species in which their rents are paid to them.
• 3º. Sales of objects constructed or manufactured by craftsmen in their workshops.
• 4º. The resale made by any non-merchant of the remainder of the goods he has collected for his own consumption.

If the sale is made on samples or on the basis of a quality known in the trade, the buyer may not refuse to take delivery of the goods contracted for, if they conform to the samples or to the quality specified in the contract.

In the event that the buyer refuses to receive them, experts shall be appointed by both parties, who shall decide whether or not the commodities are of good quality.

If the experts declare the goods to be of receipt, the sale shall be deemed consummated, and if not, the contract shall be rescinded, without prejudice to any compensation to which the buyer may be entitled.

In purchases of goods which are not in sight and cannot be classified by a particular quality known in the trade, it shall be understood that the buyer reserves the right to examine them and to freely rescind the contract if the goods do not suit him. The buyer shall also have the right of rescission if by express agreement he has reserved the right to test the contracted goods.

If the seller does not deliver the goods sold within the stipulated time, the buyer may demand performance or rescission of the contract, with compensation, in either case, for the loss incurred by the delay.

In contracts in which it is agreed to deliver a specified quantity of goods within a fixed period of time, the buyer is not bound to receive a part, even under promise to deliver the remainder; but if he accepts partial delivery, the sale is consummated as to the goods received, except for the right of the buyer to demand performance or rescission of the contract for the remainder in accordance with the preceding Article.

The loss or deterioration of the goods before their delivery, by unforeseen accident or without fault of the seller, shall entitle the buyer to rescind the contract, unless the seller has constituted himself as depositary of the goods in accordance with Art. 339, in which case his obligation shall be limited to that arising from the deposit.

If the buyer refuses without just cause to take delivery of the purchased goods, the seller may request performance or rescission of the contract, in the first case depositing the goods in court. The same judicial deposit may be constituted by the seller whenever the buyer delays taking delivery of the goods. The expenses incurred by the deposit are for the account of the party who has given cause for the deposit.

Damage and loss which occurs to the goods when the contract is performed and the seller has the goods at the disposal of the buyer at the place and time agreed upon, shall be for the buyer's account, except in cases of wilful misconduct or negligence of the seller.

Damage and loss suffered by the goods, even in the case of an act of God, shall be for the seller's account in the following cases:

• 1º. If the sale has been made by number, weight or measure, or the thing sold is not certain and determined, with marks and signs identifying it.
• 2º. if by express agreement or by usage of trade, in view of the nature of the thing sold, the purchaser has the right to examine and examine it beforehand.
• 3º. If the contract contains the condition that delivery shall not be made until the thing sold is in the stipulated condition.

If the goods sold perish or deteriorate at the expense of the seller, he shall return to the buyer that part of the price which he has received.

The buyer who at the time of receipt of the goods examines them to his satisfaction shall not be entitled to recourse against the seller on the ground that the goods are defective or defective in quantity or quality.
The buyer has the right of recourse against the seller for defect in the quantity or quality of the goods received wrapped or packed, provided that he brings his action within four days of receipt, and that the damage is not due to an act of God, defect in the goods themselves, or fraud.
In these cases, the buyer may opt for rescission of the contract or for performance in accordance with what has been agreed, but always with compensation for the damage caused by the defects or faults.
The seller may avoid this claim by requiring, at the time of delivery, that the quantity and quality of the goods be acknowledged to the satisfaction of the buyer.

If no time has been stipulated for delivery of the goods sold, the seller must have them at the disposal of the buyer within twenty-four hours of the contract.

The costs of delivery of the goods in commercial sales shall be borne by the seller until they are placed, weighed or measured, at the disposal of the buyer, unless otherwise expressly agreed. Those of their receipt and removal outside the place of delivery shall be for the buyer's account.

When the goods sold are placed at the disposal of the buyer, and the buyer is satisfied, or in the case provided for in Art. 332, the obligation to pay the price in cash or in the instalments agreed with the seller commences for the buyer.
The latter shall be constituted depositary of the effects sold, and shall be bound to their custody and preservation according to the laws of deposit.

As long as the goods sold are in the seller's possession, even if as a deposit, the seller shall have preference over them over any other creditor to obtain payment of the price with the interest due for the delay.

Delay in payment of the price of the thing purchased shall oblige the buyer to pay the legal interest on the amount due to the seller.

The buyer who has not made any claim based on the internal defects of the thing sold, within thirty days after its delivery, loses all action and right to recourse on this ground against the seller.

The sums which, by way of down payment, are delivered in commercial sales are always deemed to be given on account of the price and as proof of ratification of the contract, unless otherwise agreed.

Commercial sales shall not be rescinded on the ground of injury; but the contracting party who has acted with malice or fraud in the contract or in its performance shall be liable for damages, without prejudice to criminal action.

In all commercial sales the seller is bound to evict and make good in favour of the buyer, unless otherwise agreed.