Question: Can a franchisor impose penalties on a franchisee if such penalties are not included in the signed contract?

In the Philippines, the relationship between franchisor and franchisee is primarily governed by the terms and conditions set forth in their contract. The Franchise Agreement is a binding legal document that outlines the rights and obligations of both parties. As a general rule, any action or penalty imposed by either party must be expressly provided for within the contract.

Contractual Obligations and Penalties

The principle of "pacta sunt servanda," which means "agreements must be kept," is a cornerstone of contract law. Under this principle, the terms stipulated in the contract must be honored by both parties. Therefore, any penalty that a franchisor wishes to impose must be clearly outlined in the Franchise Agreement. If the penalty is not included in the contract, the franchisor generally does not have the legal authority to unilaterally impose such a penalty.

Implications of Unilateral Penalties

If a franchisor attempts to impose a penalty that is not specified in the contract, it may be considered a breach of contract. The franchisee could have grounds to challenge the penalty, either through negotiation, arbitration (if provided for in the contract), or by taking legal action. The imposition of unauthorized penalties could also damage the business relationship and could potentially lead to legal disputes.

Legal Recourse for Franchisees

A franchisee who finds themselves being penalized without contractual basis has several options:

Review the Contract: The first step is to carefully review the Franchise Agreement to confirm that the penalty is not stipulated.
Negotiation: The franchisee can attempt to negotiate with the franchisor to resolve the issue amicably.
Legal Consultation: If negotiations fail, consulting with a lawyer who specializes in franchise law is advisable. They can provide guidance on how to challenge the penalty.
Filing a Case: If necessary, the franchisee may file a legal case to seek relief from the unauthorized penalty. The court will evaluate whether the penalty is enforceable based on the terms of the contract and applicable laws.

Conclusion

In summary, a franchisor in the Philippines cannot legally impose penalties on a franchisee if those penalties are not clearly stated in the Franchise Agreement. Such actions could be challenged as a breach of contract, and franchisees have the right to seek legal redress. It is crucial for both franchisors and franchisees to adhere strictly to the terms of their contract to avoid legal disputes and maintain a healthy business relationship.