It is well-settled that Law 75 creates, as a matter of public policy, an indefinite dealer-principal relationship unless the principal proves just cause to end it. By the same token, a provision in a dealer’s contract stipulating an expiration date is unenforceable for the principal must also have just cause not to renew the agreement. In those circumstances, Law 75 prevails over the terms of the contract.
Are there instances where liberty of contract can be reconciled with Law 75’s interests to preserve the relationship indefinitely absent just cause? Yes, at least where the dealer is solely responsible for the termination, according to Nike International v Athletic Sales, Inc., 689 F. Supp. 1235 (D.P.R. 1988). There, the principal argued that the distribution agreement ended on its own terms when the dealer failed to comply with a clear and unambiguous provision requiring prior notice of intent to renew it before its expiration. The dealer argued that the provision in the agreement was unenforceable as contrary to public policy in Law 75 which requires just cause for the principal to refuse to renew the agreement when it expires. The court rejected the dealer’s argument, reasoning that the provision was not offensive either to Law 75 or the Civil Code as the termination of the relationship was exclusively the dealer’s fault for failing to follow the clear terms of the agreement to renew it. In an often-quoted phrase, the court held “…the legislature did not intend that Law 75 be a safe-haven for dealers to avoid the express terms of the contracts to which they willingly subscribed, as is the case of the renewal notice requirement found in the instant contract.”
Nike stands for the proposition that Law 75 does not invalidate mutual contractual provisions specifying the manner in which the dealer must notify its intent to continue the relationship. Thus, Law 75 penalizes the principal when it acts unilaterally or subjectively to terminate the relationship without just cause, but Law 75 is not implicated when the termination is the dealer’s fault.
