Simplified Query: What can be done if a franchise agreement was made with a party not recognized by the franchisor?
In the Philippines, franchise agreements involve a franchisor granting a franchisee the right to operate a business under the franchisor's brand and system. However, issues arise when a franchise agreement is signed with an entity or individual who is not recognized by the actual franchisor. This scenario can lead to potential legal disputes due to misrepresentation or fraud.
When entering into a franchise agreement, it is imperative that the franchisee ensures the legitimacy and authorization of the franchisor or the intermediary through whom they are dealing. This verification can be done by directly contacting the parent company or checking their official website for listed authorized franchisors.
If a franchisee discovers that they have entered into a contract with a party not recognized by the franchisor, several legal remedies are available:
Rescission of Contract: The franchisee can seek to rescind the contract on the grounds of misrepresentation. Under Philippine law, if consent to a contract is given through mistake, violence, intimidation, undue influence, or fraud, such a contract is voidable. In this case, the franchisee can argue that the contract was entered into based on incorrect information provided by the other party.
Recovery of Damages: The franchisee may also claim damages if they have suffered losses due to entering the franchise agreement under false pretenses. Damages could include any fees paid, costs incurred in preparing the business, and other financial losses directly resulting from the fraudulent agreement.
Criminal Charges: If the actions of the unrecognized party constitute fraud, criminal charges may be filed against them. Fraudulent misrepresentation is a criminal offense under the Revised Penal Code of the Philippines, and the franchisee can file a complaint with law enforcement authorities.
Civil Litigation: Apart from criminal proceedings, civil litigation can be initiated to recover damages and any profits made by the unauthorized franchisor.
Mediation and Arbitration: Before taking legal action, it might be advisable to consider mediation or arbitration, especially if these were stipulated as preferred dispute resolution mechanisms in the franchise agreement. These alternative dispute resolution methods can offer a less adversarial and more cost-effective solution.
Franchisees are advised to seek legal counsel to explore these options thoroughly and choose the best course of action based on the specifics of their case. Legal advice is crucial to ensure that rights are adequately protected and that actions align with Philippine law.
In conclusion, dealing with a fraudulent franchise agreement requires a careful legal approach to address the misrepresentation effectively and minimize potential losses. Ensuring thorough due diligence before signing any franchise agreement can prevent such issues from arising in the first place.