Implied Obligations In Franchise Contract Under American Law

In its simplest terms, a franchise is a license from owner of a trademark or trade name permitting another to sell a product or service under the name or mark. More broadly stated, a franchise has evolved into an elaborate agreement under which the franchisee undertakes to conduct a business or sell a product or service in accordance with methods and procedure prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion and other advisory services. 1At present, those most famous international franchising enterprises include Macdonald's, KFC, Coca-Cola, Holiday Inn. and etc. And in china, those who develop by using franchise include Firs, Manlan, Lining, Quanjude and etc.Franchise relationship is firstly a contract relationship. All the incorporation of a franchise relationship, the rights and obligations of parties, controlling of the franchisor on the franchisee and the franchise rights which franchisee are granted are based on the franchise contract agreed between the franchisor and franchisee.Contract of franchise is a typical contract of adhesion (standard contract). A contract of franchise is commonly incorporated by franchisor and franchisee almost has no influence on it. Taking it or leaving it is his only choice. Therefore, the clauses of a franchise contract are commonly favorable to franchisor and are very unfair to the part of franchisee. Most Franchisees are small businesses and with their hard work and operation, they promote and develop the goodwill of franchisors, and consequently, financially benefit franchisors. Therefore, as the return of their investment of energy and money, it is justified for them to have a reasonable expectation to recover their investment and make profits. Franchisors, sometimes, to the contrary, take advantage of their capital, commerce and experience to arbitrarily make their own business judgement and arrangement without taking consideration of franchisees interests. In the early years of the franchise, courts in west countries pursued the "contract freedom" principle and turned a blind eye to the serious economics damages suffered by franchisees caused by unfair franchise contract. With the development of the franchise, this problem became more serious and obvious and that hurts the enthusiasm of the individual and small or middle-level enterprise investors, and in addition, go against to the equitable principle encouraged by law。In order to solve this problem and realize equity, governments of different countries issued some statutes to protect the interests of franchisees. Among them, as the country with the longest history of franchise, American has the most developed law. Besides some statutes, American courts also developed though a series of cases several rules to restrict the arbitrary action of franchisors. In the practice of franchise cases, American courts sometimes apply implied obligations to franchisors in order to protect the interests of franchisees. For example: requiring "good reason" for termination of franchise contract, implied obligations of fiduciary, unconscionability, implied obligations of good faith and fair dealings, etc. Among them, obligations of fiduciary and unconscionability rule are seldom used because courts believe that the fiduciary is too overburdened to franchisors which will hurt the spirits of them and, as to unconscionability, it only pays attention to the equity when contract is made but not the equity during the going on of the relationship. To be compared, using the implied obligations of good faith and fair dealings is a better way to deal with the franchise relationship. The standard of good faith is requiring the action of franchisors to meet the reasonable expectation of franchisees. And the standard of the reasonable expectation should be objective, and this objective test should accord with the prevalent commercial practices. In another words, this objective test should accord with the reasonable way in commerce. But public interests in efficiency of di...