Contract formationGood faith in negotiating
Is there an obligation to use good faith when negotiating a contract?
Yes. Under Spanish legislation, there is an obligation to negotiate a contract in good faith. This is based on article 7 of the Spanish Civil Code, which states that the exercise of any right must be made according to the standards of good faith. This principle obliges parties to behave in an honest and diligent way when negotiating the terms of a contract.
If a party fails to comply with the good-faith principle by unilaterally terminating negotiations in an unfair manner, the counterparty may have a claim against the terminating party for the loss that it may have suffered arising from termination of the negotiations (culpa in contrahendo). The good-faith expectations of the non-infringing party and the ‘reasonable’ outcome from the negotiation process are crucial elements to qualify a potential court claim against the party acting or negotiating in bad faith. The claimant will need to prove the bad faith of the counterparty and the link between the behaviour and the damage suffered.‘Battle of the forms’ disputes
How are ‘battle of the forms’ disputes resolved in your jurisdiction?
Although the Civil Code and Mercantile Code remain silent on this point, it is generally accepted by the Spanish courts that, unless there is any contrary evidence, the last set of terms to be provided prior to the acceptance or performance of the contract will govern the contract. So the ‘last shot’ doctrine, as established by the Vienna Convention on Sale of Goods, will in principle prevail, unless the initial supplier rejects the new set of terms presented by the counterparty.
Where parties do business together on the same terms on a regular basis over a period of time, there may be evidence of a ‘course of dealing’, as a result of which the terms normally used between them will be considered the ‘agreed’ terms of their contracts. This may enable a supplier to argue that their terms should apply and prevail even if a buyer subsequently attempts to introduce new terms of purchase or terms that substantially modify the standard terms that have governed their relationship over time.
In some situations, a supplier dealing on standard terms may incorporate a provision which stipulates that the supplier’s contract terms will prevail over the buyer’s. The clause would read, for example:
The acceptance by supplier of your order is subject to supplier’s terms and conditions of sale.
This wording would be, in principle, enforceable under Spanish law and would allow a supplier to impose its own terms, waiving the standard terms of the buyer. In addition, this clause may discourage some buyers from responding with their own terms on the basis that they are unlikely to be accepted. Such a ‘prevail clause’ will not be effective where the supplier has subsequently agreed to accept the buyer’s terms or the buyer expressly refuses to accept the supplier’s terms.Language requirements
Is there a legal requirement to draft the contract in the local language?
There is no legal requirement to draft a contract in the local language. However, if the parties to the contract are Spanish entities or nationals, it is highly recommended to draft the agreement in Spanish. In all events, a contract written in another language other than Spanish will require an official translation to be validly invoked in court.Online contracts
Is it possible to agree a B2B contract online?
Yes, it is possible to enter into a contract online.
Under Spanish legislation, a contract does not need to be in any particular form to be legally binding. As long as the basic elements of a contract exist (concurrence of wills of the parties (offer and acceptance), purpose, and cause of the contract), it does not matter if the contract is formalised on paper or online.
The Law of Services of the Information Society and Electronic Commerce establishes that for the celebration of contracts by electronic means the previous agreement of the parts will not be necessary. Whenever the law requires the written form for a contract, this requirement will be considered fulfilled if an electronic means is used.
The aforementioned principle of freedom of form shall not apply in relation to contracts relating to family and inheritance law and those in which the law requires the intervention of jurisdictional bodies, public notaries, land registrars and mercantile or public authorities.
The key issue when making contracts online is to ensure that the terms are properly incorporated into the contract, namely, that the party accepting the terms has an opportunity to read them before accepting the contract.
There are no specific evidentiary requirements and courts are free to evaluate the evidence on a case-by-case basis if the other party questions the existence or content of the contract. Therefore, depending on the risk assessment to be made in each case, different means can be used, such as a link to the terms with a tickbox to show acceptance, different levels of electronic signature, time stamping, trusted third parties and such like.
Statutory controls and implied termsControls on freedom to agree terms
Are there any statutory or other controls on parties’ freedom to agree terms in contracts between commercial parties in your jurisdiction?
Spanish law is based on the principle of freedom to contract, provided that the terms agreed are not contrary to mandatory laws, morals or public policy. Some statutory controls apply when a party is attempting to exclude or limit its liability. For instance, a party cannot exclude its liability for loss caused by fraud. There are also statutory limits that apply to certain specific types of relationships (for example, commercial agency relationships or employment relationships).Standard form contracts
Are standard form contracts treated differently?
Standard form contracts are subject to Law 7/1998 of 13 April on General Conditions of Contract (the Act on General Conditions of Contract). For general terms to be validly incorporated, the counterparty must have had the opportunity to know of their existence and their content prior to concluding the contract.
Any clause included in standard terms might be considered abusive (even in B2B relationships) if it is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties. The risk of any of such clauses being considered abusive will depend on the circumstances of each case.Implied terms
What terms are implied by law into the contract? Is it possible to exclude these in a commercial relationship?
Certain terms may be implied into a contract by law - for instance, title to the property of the seller, conformity of the goods supplied with the description made or satisfactory quality.
Implied terms may be excluded in a commercial relationship by an agreement between the parties. If the exclusion forms part of a set of standard terms, the Act on General Conditions of Contract will apply. As such, any exclusion might be considered abusive (even in B2B relationships) if it is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties. The risk of clauses being considered abusive will depend on the circumstances of each case.Vienna Convention
Is your jurisdiction a signatory to the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention)?
Yes. Spain ratified and adhered to the Vienna Convention on 24 July 1990. It came into effect on 1 August 1991.Good faith in entering and peforming
Is there an obligation to use good faith when entering and performing a contract?
There is an implied duty to use good faith when entering and performing a contract. This is based on article 7 of the Civil Code, which states that the exercise of any right must be made according to the standards of good faith. This principle obliges parties to behave in an honest and diligent manner when entering and performing a contract.
Limiting liabilityProhibition on exclusions and limitations
What liabilities cannot be excluded or limited by a supplier in a contract?
Clauses excluding or limiting liability are generally those more heavily negotiated. Under Spanish legislation, in a B2B context, a party can never exclude its liability for death or personal injury caused by negligence, or damage arising from fraud or wilful misconduct.
Under Spanish legislation, the non-breaching party of an agreement may claim from the breaching party a compensation for the damage suffered. Damages will compensate both the damage effectively suffered and the loss of profit. Only damage directly related to the breach is covered; indirect damage is excluded. Courts are less eager to grant compensation for loss of profit.
Suppliers will generally try to exclude or limit their liability for loss of profit.Financial caps
Are there any statutory controls on using financial caps to limit liability for breach of contract?
In general terms, there are no statutory controls on using financial caps to limit liability for breach of contract. However, if the financial cap to limit liability is included in a set of general terms, the Act on General Conditions of Contract will apply. Consequently, the cap might be considered abusive if the established limit is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties. Whether a financial cap to limit liability for breach of contract is considered abusive will depend on the circumstances of each case.Indemnities
Are there any statutory controls on indemnities used to cover liability risks in contracts?
There are no statutory controls on indemnities used to cover liability risks in contracts. However, if the indemnity is drafted in such a way that it enables one party to avoid its liability with regard to the other and the same is included in a set of standard terms, the Act on General Conditions of Contract will apply. Consequently, the indemnity might be considered abusive if the established limit is contrary to the principle of good faith and creates a significant imbalance between the rights and obligations of the parties.Liquidated damages
Are liquidated damages clauses enforceable and commonly used in your jurisdiction?
Spanish legislation does not recognise the concept of ‘liquidated damages’. Instead, article 1,152 and following of the Spanish Civil Code provide for the concept of the ‘penalty’. By virtue of a penalty clause, the parties agree in their contract on the payment of a fixed amount to be paid if the contract, or a specific obligation of the contract, is breached. This will avoid the non-breaching party having to prove the damage effectively suffered before the court. Penalty clauses are generally agreed for those cases where the damage arising from the breach might be difficult to quantify (for instance, confidentiality obligations or non-competition obligations).
Unless otherwise agreed, the penalty paid shall substitute the obligation to compensate for the damage caused. If, in addition to the penalty, the parties would like to maintain the right to claim for damages, this will need to be expressly provided for in the contract.
Likewise, unless expressly agreed, the debtor of the obligation will not be exempted from complying with the agreed obligation by paying the penalty. The creditor of the obligation may not claim fulfilment of the obligation and payment of the penalty at the same time unless such right has been expressly agreed in the contract.
The judge may equitably amend the penalty whenever the main obligation has been breached only in part by the debtor, or the obligation has been complied with but in an irregular manner.
The nullity of the penalty shall not affect the validity of the main obligation. However, the nullity of the main obligation will render the penalty null.
Payment termsStatutory time limits on payments
Are there statutory time limits for paying invoices? Is it possible to agree a different payment period?
There are statutory time limits for paying invoices.
If the contract is silent on the period to pay an invoice, payment must be made 30 calendar days from receipt of the goods or services (whenever there is no verification or acceptance of the goods); or from verification or acceptance of the goods or services (when the parties have agreed on verification or acceptance of the goods or services).
Any verification or acceptance period must be no longer than 30 calendar days from the date of receipt of the goods or services.
If the contract contains an express payment term, the payment period can be up to 60 calendar days, unless such an extension to the payment period is ‘grossly unfair’ to the supplier.
To determine whether a term is ‘grossly unfair,’ it is necessary to consider:
- whether there has been any deviation from good commercial practice contrary to good faith and fair dealing;
- the nature of the product or service; and
- whether the customer has any objective reason to deviate from the statutory period.
Moreover, the payment term for fresh products and perishable food products shall never exceed 30 calendar days from the receipt of the supplier’s invoice.Late payment interest
Is statutory interest charged on late payments? Is it possible to agree a different rate of interest?
Yes, statutory interest can be charged by a supplier. Statutory interest on the late payment may be charged from the day following the payment date. The Spanish statutory rate is set during the first semester of 2019 at 8 per cent. In the past, this reference rate has always been ranged between 8 and 8.1 per cent.
Parties may contract out of the statutory interest rate by inserting an express contractual interest rate in their contract as long as it is higher than the statutory rate and is not considered abusive (according to the circumstances to determine whether a term is ‘grossly unfair’ mentioned in question 14).
If a contract is silent as to the interest rate then the statutory rate will apply.
In many cases, suppliers are reluctant to charge interest on late payments because they do not want to damage the ongoing commercial relationship with the customer. However, the applicable Spanish regulations expressly prohibit (and declare null and void) any provision or practice that is contrary to the requirements to demand interest charged on late payments or that excludes the payment of such interest.Civil penalties
What are the civil penalties for failing to comply with statutory interest rate or late payment of invoices?
There are no civil penalties but the supplier may claim fixed compensation to cover the costs of recovering the debt. This fixed cost is €40 per invoice.
The supplier is also entitled to claim reasonable compensation for any costs exceeding the fixed compensation and incurred due to the customer’s late payment, for example, to cover expenses such as instructing a lawyer or employing a debt-collection agency.
Do special rules apply to termination of a supply contract that will be implied by law into a contract? Can these terms be excluded or limited by including appropriate language in the contract?
A commercial contract will generally include some circumstances in which either party will have the right to terminate.
In addition to these contractual rights, under Spanish law, if one of the parties breaches its contractual obligations and the breach is sufficiently serious, the non-breaching party shall have the right to terminate the contract on the basis of article 1,124 of the Spanish Civil Code (this article entitles the non-breaching party to either request specific performance of the contract or terminate it, and in both cases, entitles the non-breaching party to request compensation for the losses and damages suffered due to the breach of contract). It must be a serious breach of the contract, for example, where a supplier refuses to perform its obligations and abandons the contract or a customer refuses to pay any invoices. Whether a breach is sufficiently serious to terminate a contract will be a question of fact and the relevant circumstances of the case.
It is not possible to exclude the right to terminate the contract, even if this is expressly set forth in the contract. This is because settled law has established that no contractual party can be bound indefinitely.Notice period
If a contract does not include a notice period to terminate a contract, how is it calculated?
If a contract does not include a notice period to terminate it (and it is not a definite-term agreement), the contract shall be deemed to be an agreement of indefinite term. According to the Spanish Supreme Court, a contractual party to an indefinite term agreement cannot be bound indefinitely; it may terminate the relationship provided it gives the counterparty a reasonable advanced termination notice. The reasonableness of the advanced termination notice will mainly depend on the circumstances of the case (how long the relationship has lasted, whether the buyer is economically dependent on the supplier, etc). Quite often, Spanish courts have held that a reasonable termination notice is equivalent to at least one month per year of term of the contract, following the same notice period as established for agency contracts in accordance with Law 12/1992.
If the customer is found to be economically dependent on the supplier and the contract does not foresee a notice to terminate, article 16.3a) of the Unfair Competition Act requires that the supplier must give at least six months’ notice to the customer.Automatic termination on insolvency
Will a commercial contract terminate automatically on insolvency of the other party?
No. Under Spanish Law, there is no right to terminate a commercial contract on the insolvency of the other party. Similarly, no person may be excused from the performance of obligations under the contract simply as a result of insolvency or financial difficulty. In fact, article 61.2 of the Spanish Insolvency Act (Law 22/2003 of 9 July) prohibits clauses entitling either party to a reciprocal agreement to terminate if the other party becomes insolvent. This type of clause is considered null and void.
Although the declaration opening the insolvency proceedings does not in itself affect the validity of contracts with reciprocal obligations pending fulfilment, if one of the parties breaches its contractual obligations, the non-breaching party may terminate the contract on the basis of article 1124 of the Civil Code (which entitles the non-breaching party to request specific performance of the contract or terminate it, and in both cases, entitles the non-breaching party to request compensation for the losses and damages suffered due to the breach of contract).Termination for financial distress
Are there restrictions on terminating a contract if the other party is in financial distress?
There are no general law restrictions on terminating a contract if the other party is in financial distress. Such situation will be governed by the provisions of the contract, and a party will be permitted to terminate for financial distress if this is provided for in the contract.Force majeure
Is force majeure recognised in your jurisdiction? What are the consequences of a force majeure event?
Yes, force majeure operates as a matter of law. The definition and effects are included in article 1105 of the Civil Code and are implied into any contract. Parties may expand the definition of force majeure events and widen its application in a contract.
A force majeure event releases the affected party from liability and relieves the party from the duty of partly or fully complying with its contractual obligation. It can also suspend the execution of an obligation or allow an extension of time to perform the same.
For a force majeure event to relieve a party from having to comply with its contractual obligations, the event must meet the following three criteria: externality - the situation that leads to the non-performance of the obligation must be beyond the control of the party alleging the force majeure event; unpredictability - the party must not be able to foresee the occurrence of the event (if the event is foreseeable, the party must be prepared for it); and irresistibility - the consequences of the event could not be avoided.
The burden of proof lies with the party wishing to be discharged from its contractual obligations.
Subcontracting, assignment and third-party rightsSubcontracting without consent
May a supplier subcontract its obligations under the contract without seeking consent from the other party?
If a contract is silent on the issue of consent, a party may subcontract without recourse to the counterparty; there is no need to notify or obtain consent from the counterparty in respect of the subcontracting.Statutory rules
Are there any statutory rules that apply to subcontracting in your jurisdiction?
There are no statutory rules. The parties are free to agree in their contract whether consent or notice is required. Sometimes a party may insist on a list of approved subcontractors that may be used when required.Assignment of rights and obligations
May a party assign its rights and obligations under the contract without seeking the other party’s consent?
No. The assignment of the rights and obligations under a supply contract may not be assigned without seeking the other party’s consent. The consent may already be included in the agreement. If not, it will be necessary to obtain authorisation from the counterparty.
What statutory controls apply to the assignment of rights or obligations under a supply contract?
Receivables arising from a supply contract may be assigned in favour of a third party. The creditor must inform the debtor of the assignment. If no notice is served, the debtor would be released from its obligations if it pays the initial creditor.Enforcement by third party
How may a third party enforce a term of the contract?
Under Spanish legislation, a contract only binds its parties. Thus, no third party may enforce the term of a contract.
What are the limitation periods for breach of contract claims? Is it possible to agree a shorter limitation period?
The limitation period for actions for breach of contract is, in general, five years starting from the date the action can be brought (article 1964 of the Civil Code). However, under articles 1,152 and 1,255 of the Civil Code, ‘the contracting parties may establish any covenants, clauses, and conditions deemed convenient, provided that they are not contrary to the laws, morals, or public policy.’ Therefore, it is possible to agree on a shorter limitation period for breach of contract claims.Choice-of-law clauses
Do your courts recognise and respect choice-of-law clauses stipulating a foreign law?
Yes, parties may freely elect to use a foreign governing law in their contract. However, some mandatory laws will apply to the contract if one of the parties is a Spanish company, even though Spanish law does not govern the contract. For example, in a B2B context, if one of the parties is a Spanish company, some of the provisions of commercial agency law are mandatory and may apply regardless of the choice of foreign governing law.
Do your courts recognise and respect choice-of-jurisdiction clauses stipulating a foreign jurisdiction?
Parties may freely select a foreign jurisdiction. Ideally, the choice of governing law and jurisdiction should coincide, for example, Spanish law and Spanish jurisdiction. Although it is possible for the chosen governing law to be different from the jurisdiction, this will cause practical difficulties and significantly increase the cost and complexity of any dispute.Efficiency of local legal system
How efficient and cost-effective is the local legal system in dealing with commercial disputes?
The Spanish courts are experienced in dealing with commercial matters. The average time of court proceedings in Spain is as follows:
- courts of first instance: nine to 12 months in Barcelona; 15 to 18 months in Madrid;
- courts of appeal: approximately 12 months in Barcelona and 24 months in Madrid; and
- Supreme Court: three to five years. Not all cases may be appealed before the Supreme Court.
The costs and expenses that court proceedings entail depend on a number of factors such as the amount of the claim and the court in which it is pursued. Likewise, either local or state taxes shall apply. Generally speaking, compared with other jurisdictions, litigation in Spain is cheap.New York Convention
Is your jurisdiction a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards? Which arbitration rules are commonly used in your jurisdiction?
Spain is a signatory to the New York Convention.
The international arbitration rules most commonly used in Spain are those of:
- the International Chamber of Commerce;
- the London Court of International Arbitration;
- the Stockholm Chamber of Commerce; and
- the American Arbitration Association.
Also, the national arbitration rules frequently used are those of:
- the Barcelona Arbitration Court;
- the Civil and Mercantile Arbitration Court; and
- the Madrid Arbitration Court.
Ad hoc arbitration is very unusual in Spain.
What remedies may a court or other adjudicator grant? Are punitive damages awarded for a breach of contract claim in your jurisdiction?
The most common remedy is financial damages to compensate a party for its loss and put it in a position as if the contract had been performed. Damages are the most commonly pursued remedy and may be awarded by a court or any other adjudicator.
A court may also order specific performance of a contract or issue an injunction. The Spanish courts are, as a rule, reluctant to request specific performance of a contract in the context of commercial contracts, and these remedies are a matter for the court’s discretion and will not be granted where the court considers damages to be an adequate remedy in the circumstances.
Punitive damages are not recognised in the Spanish legal system.
Update and trendsRecent developments
Are there any other current developments or emerging trends that should be noted?No updates at this time.