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Blow, blow, thou winter wind. Thou art not so unkind as man's ingratitude.
You may have seen this poetic reference in here before. It's a regular customer in here, and in franchising in general. And no. It is not the only poetic reference that I know, so there. Why are we so wintry these days? Why not happier? Hopefully, this will make you happier. That's what it is intended to do if you are a franchisor.
In my experience, most franchisors bend over backwards to help franchisees who are in trouble. No one wants a franchisee to fail. It's bad for business. It's bad for the UFOC. It's bad for the reputation. Failed franchisees instigate lawsuits and bad mouth the system. Besides, when you get down to it, people who franchise businesses thrive on being able to tout their franchisees' successes. There simply is no reason not to try to help, even to an extent that a franchisor may not be required to help under the terms of the franchise agreement. Franchise agreements never provide that a franchisor has an obligation to continue in a franchise relationship when a franchisee is not performing his side of the bargain. The law of every state in the union is that a person who is not performing a contract has no call on the performance of the opposite party. Too many franchisee lawyers try to get around that obvious maxim by claiming that the problem is one of fraud and that on that count the franchisee's non performance ought to be excused. Most courts, absent evidence of real hard core fraud, dismiss that approach under a doctrine of "economic injury", which says, in essence, that if an injury is cognizable in contract it must be brought in a contract mode and not in a tort mode. Part of the reasoning involves the fact that in almost every case a breach of contract does not carry any liability for punitive or exemplary damages, while tort claims do. (This is some tricky talk for a mere bartender, ain't it?) But franchisors, in the main, usually go farther than they must to make a relationship work. If nothing else, good sense mandates that you do that.
Which brings us to specific application of this principle. Acky Bach, your good and faithful franchisee, is not paying his royalties or sending in his reports. I don't know why they don't send in the reports, at least, when they don't pay. Franchisees ought to know instinctively that in times of trouble you comply at least with what you are capable of complying with. But no. They rarely do. If they don't pay, they don't report either. Right? And so, being the person or people that you are, you send out default notices and write or call to find out what the matter is and to ask for some dialogue targeted at straightening out whatever the problem may be. And the problem could be any number of things, some having to do directly with the franchise relation and some having to do with things like road construction completely cutting his store off from his normal traffic flow. In any event, he asks for and receives some consideration and assistance and you don't terminate him and make him do all the post termination things called for in the franchise agreement. You even let him sign a note for past arrearages or arrange that an add-on payment will begin in a few months to catch the arrearages up. And you keep on providing the usual franchise support. He gets "well", but later on he decides not to pay the arrearage, or decides to join in a suit that someone else is fomenting, claiming that his past difficulties are due to your not having provided the support that you promised, or, God forbid, something worse. And you are sitting there saying 'Son of a *****, after all I did to try to help that guy, he turns around and tries to do this to me!'
You can prevent this from ever happening! Here's how. Whenever you are faced with an extra-contractual need for assistance and decide you want to provide that assistance because a franchisee is in trouble and needs that extra help, get some insurance for it. You can do this by using a memorandum agreement in which the difficulty is described; what you are going to do to try to help is set out; there is an acknowledgment by the franchisee that you are not the cause of the problem and that his contract is still in force, fully enforceable and that he has no right to refuse to perform his obligations under it; that if there are any claims that he may have, known or unknown, he waives them; and that he ratifies and fully reaffirms the contract. How this is worded depends upon the particular facts you are dealing with and the state in which the franchisee resides. (Some states require that releases of unknown claims must be stated in a specific form.)
By doing this in this manner, you have done the right thing which you were willing to do anyway, even if it was not required by your franchise agreement, and you have pre-empted any claim for anything that happened before the date of the Ratification and Reaffirmation Agreement. That, my friend, is Justice!
Copyright 1997 - 2008 || Richard A. Solomon
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 | Licensing, Technology Transfers, |