Breach of Contract by a Franchisor: What Are Your Legal Remedies?

What should a franchisee do when a franchisor breaches a contract in the Philippines?

In the Philippines, franchising is a popular business model that allows entrepreneurs to operate under an established brand. However, like any business relationship, it is not immune to disputes, particularly when one party fails to meet their contractual obligations. When a franchisor breaches a contract, the franchisee has several legal remedies available to them.

Understanding a Breach of Contract

A breach of contract occurs when one party fails to perform their obligations as outlined in the agreement. In a franchising context, this could involve the franchisor failing to provide support, training, or the proprietary materials necessary to operate the franchise. It could also involve the franchisor engaging in unfair practices, such as opening competing franchises too close to the franchisee’s location or not upholding the quality standards of the brand.

Legal Remedies for Franchisees

When a breach of contract occurs, the franchisee may pursue the following legal remedies:

1. Demand for Specific Performance
   The franchisee may demand that the franchisor fulfill their contractual obligations. This remedy is applicable when monetary compensation is insufficient to address the breach, such as when the franchisee requires specific materials or training that only the franchisor can provide.

2. Rescission of the Contract
   In cases of significant breaches, the franchisee may choose to rescind the contract. This means that both parties are returned to their pre-contractual positions, effectively undoing the agreement. This remedy is often sought when the breach is so severe that continuing the franchise relationship is no longer viable.

3. Damages
   The franchisee may claim damages to compensate for any losses incurred due to the franchisor’s breach. This can include lost profits, additional expenses, or other financial harm directly resulting from the breach. In the Philippines, damages can be compensatory, moral, or even exemplary, depending on the nature of the breach and its impact on the franchisee.

4. Injunction
   An injunction is a court order that requires the franchisor to either do something (mandatory injunction) or refrain from doing something (prohibitory injunction). For example, a franchisee may seek an injunction to prevent the franchisor from opening a competing franchise in violation of the contract.

Legal Process and Considerations

Before pursuing any of these remedies, it is essential for the franchisee to review the terms of the franchise agreement, as it may contain specific dispute resolution procedures, such as mediation or arbitration. Additionally, Philippine law emphasizes the importance of exhausting all possible remedies within the contract before escalating the matter to the courts.

Consulting with a legal professional specializing in franchising is crucial to understand the best course of action. A lawyer can provide guidance on the likelihood of success in pursuing a claim, the appropriate remedy, and the potential costs involved.

Conclusion

Franchisees in the Philippines have several legal remedies available if a franchisor breaches their contract. The choice of remedy depends on the nature of the breach and the terms of the franchise agreement. It is advisable for franchisees to seek legal counsel to ensure they take the appropriate steps to protect their business interests.