Study On The Rescission Of Commercial Franchise Contracts

A commercial franchise contract is an agreement between the franchisor and the franchisee to use the franchisee’s trade name or trademark,patent,business model,knowhow,know-how and other comprehensive rights.The contract covers many aspects such as storage and supply,site selection and leasing,design and decoration,brand promotion and profit and loss sharing.In combination with the judicial practice and after consulting the relevant cases on the Chinese Judicial Documents website,it was found that the courts in China have different standards for the determination of the same case when hearing cases on the dissolution of commercial franchise contracts,resulting in the phenomenon of different judgments in the same case.According to the decisions on commercial franchise contracts in the past three years,there were vast differences in the causes of action,courts of jurisdiction and trial courts in relation to the cancellation of disputes.This is mainly due to the different understanding of the attributes of commercial franchise contracts.The commercial nature of the contract and its purpose of profit and long-term investment highlight the attributes of a commercial contract.According to the statutory rescission cases handled by the courts in the past three years,the standard for exercising the right of statutory rescission should be whether the purpose of the contract cannot be achieved,which has been explained and reflected in domestic and international legislation,doctrine and jurisprudence.In judicial practice,it is often biased to judge whether the purpose of a franchise contract cannot be fulfilled by merely judging the constituent elements of a statutory discharge case,such as non-performance or delayed performance after a reminder,and should be judged in the context of the physical operation of the store,with the key criteria being whether it affects the fulfilment of the contractual purpose or constitutes a fundamental breach of contract.It is not possible to terminate the contract in the name of the loss of the shop or the New Crown epidemic,where the delay in performance and the period of reminder need to be combined with the preventive and control measures of the New Crown epidemic to make a comprehensive judgment on the performance of both the franchisor and the franchisee and the operation of the shop.According to the commercial franchise contract cancellation adjudication related to the cooling-off period clause in the past three years,it is more controversial whether the court supports the exercise of the right of arbitrary cancellation within a certain period.Article 12 of China’s Commercial Franchise Regulations provides that the franchisee may terminate the franchise contract within a certain period of time after the conclusion of the contract,i.e.the "cooling-off period clause".The purpose of the legislation is to avoid impulsive investment,to compensate for the inequality of information and rights between the two parties and to allow the franchisee to stop losses in a timely manner.These provisions are found in the United Kingdom,Australia and the State of California.In the case of the New Crown epidemic,there have been cases where the termination of the contract was based on the cooling-off period clause,cases where the cooling-off period clause was denied,and cases where the effectiveness of the cooling-off period clause was specifically determined.Therefore,the reasonable period of the cooling-off period should be judged according to the time when the franchise resources are used.the reasonable period before the contract is signed by both parties but before the operation with the franchise resources is carried out and before the franchise is not used to carry out substantial operation should fall within the cooling-off period,during which the franchisee can exercise the right to rescind at will.The property consequences of the termination of a commercial franchise contract include restitution,discount and compensation for damages.For the unexpired commercial franchise royalties and related intellectual property materials need to be returned;for a series of special needs resources such as shop site design,brand consistency decoration,end customer data,online platform and APP application during the operation period are necessary for discount;the operating costs of the physical shop and shop damage according to the actual situation,according to the law for direct or indirect loss compensation.