Notes on distributorship

Under a distribution agreement, the middleman purchases the products from a supplier or
manufacturer at a whole sale price, takes title to the products, and enters into an agreement to sell the
products to a customer. The distributor makes profit or loss. In either case, the profit or loss is his or
hers.

A distributorship or distribution agreement doesn’t create an agency relationship. A distributor is

independent from the supplier. Actions of the distributor do not bind the supplier. Consequently, under
a distribution agreement, the supplier doesn’t necessarily have to supervise the distributor since the
supplier or manufacturer is not responsible for the distributor’s actions - the supplier has limited control
over the distributor.

However, the supplier may be liable to third parties for quality of the products.

Revision questions
Qn. 1

Ford Corporation Ltd, a leading motor-vehicle manufacturing company in the UK, wants to appoint
M.M.Motors Ltd, of Kampala as its sales agent for its products in Uganda. The appointment will initially
be for a period of 5 years subject to renewal if the market for the company’s products remains
profitable in this country and subject to the agent satisfactorily performing its part of the agreement.
The agent will use its best endeavors to promote the sale of the company’s products in Uganda and will
be paid a commission of 25% on the sales made by the agent.

1. Advise the parties as to how the agency can be created and on the terms and conditions that
should be incorporated in the agency agreement.

2. Draft a suitable agency agreement for the parties.

2. If Ford Corporation Ltd appointed another agent or sold its products directly in Uganda, what
remedies, if any, would be available to M.M. Motors?

3. What would happen if;

- Ford Corporation Ltd, cease to carry on business during the subsistence of the agency agreement,
owing to economic difficulties?

- Ford corporation Ltd’s factory was destroyed by a mysterious fire?

- For Corporation Ltd’s manufacturing license was cancelled by UK government during the subsistence of
the agency.
Qn. 2

John Mubiru is a Ugandan resident of Japan. He owns two residential properties in Naguru, Kampala. In
2007 he instructed his sister Jane Namuli who lives in Kampala to sell the two properties. Mubiru is not
interested in coming back to Uganda. Namuli offered to sell the properties to Valley Estates (U) Ltd. The
letter stated in part;

“I’m pleased to inform you that the seller has agreed to sell to you two properties described above. Pay
to me the full price of Shs. 100M, which will remain in trust for the seller.”

On August 1, 2007 valley Estates (U) Ltd, paid to Namuli the sum of Shs. 100m but Mubiru has to date
refused to sign a sale agreement or transfer instrument. Valley Estates (U) Ltd believes that there was a
sale of the two properties in its favour.

1. Discuss the legal issues involved

2. Advise the parties on their legal rights/remedies

In a related incident, John Mubiru instructed Crane Estate Agents of Kampala to find a purchaser for his
land and building situated at plot 2 Jinja road, the minimum price being 200m. The estate agents found
Peter Byansi who agreed to buy the property at the said price and paid a deposit of Shs.120m to the
agents. This information was emailed to Mubiru who replied that he had sold and executed a transfer of
the property to Bob Kasiita, a Uganda resident in Egypt.

Crane Estate Agents have refused to release the certificate of title in respect of the property and they
are insisting on being paid their commission. They have in fact retained Shs.20m out of the monies paid
by Byansi as their commission. Byansi is annoyed by the state of affairs.

Advise the parties involved on their legal rights and obligations.