In recent years, the investment promotion and franchise industry has become more and more popular, and all kinds of brand chain stores are located in all corners of the city. A well-known hot pot chain brand also recently announced that it will implement the franchise model. However, with the popularity of joining, some unscrupulous businesses have also taken the opportunity to mix in the routines of ignorant entrepreneurs. So, what are the legal risks in joining, and how should entrepreneurs avoid pitfalls?
Be wary of overlord clauses in franchise contracts
After many years of hard work, Mr. Wang came up with the idea of starting his own business, and after investigation, he thought that the KTV industry had a good prospect, so he joined a KTV brand after discussing with a few friends. Mr. Wang signed the "Franchise Contract" with the KTV brand, which is a standard contract provided by the brand, and the brand did not explain the content of the contract to Mr. Wang at the time of signing, and directly agreed in the contract that "if the franchisee withdraws, the franchise-related fees will not be refunded". Mr. Wang was worried that he was not doing well, so he informed the other party of his concerns, and the docking staff told him that "if you don't join, you can withdraw at any time, and the relevant fees can also be refunded, so you don't have to worry", and said that you will give away beer if you join now. As a result, Mr. Wang signed a "Franchise Contract" with the KTV brand. Due to the inability to reach an agreement with the partner, Mr. Wang still failed to open the store after half a year, so he proposed to the KTV brand to withdraw from the franchise and asked the other party to return the franchise fee. However, the brand informed that because the contract has stipulated that if you withdraw from the franchise at this time, not only will the relevant fees not be refunded, but you will also need to bear liquidated damages. At this time, Mr. Wang realized that he had been tricked, so he sued the KTV brand to the court, demanding that it return the relevant franchise fee.
After the trial, the court held that the relevant provisions in the contract signed between Mr. Wang and the KTV brand franchisee were standard clauses, which were pre-drafted by the brand owner for repeated use and were not negotiated with the other party when the contract was concluded. At the beginning of the contract, the brand did not provide a reasonable explanation of the relevant terms and conditions involving Mr. Wang's material interests. The clause of "no refund of the franchise fee under any circumstances" undoubtedly increased Mr. Wang's contractual obligations and was obviously unfair. In this regard, both the Civil Code of the Mainland and the Law on the Protection of Consumer Rights and Interests clearly stipulate that if standard clauses are used to conclude a contract, the party providing the standard clauses shall follow the principle of fairness to determine the rights and obligations between the parties, and take reasonable measures to remind the other party to pay attention to the clauses that have a significant interest in the other party, such as exempting or reducing its liability, and explain the clauses in accordance with the requirements of the other party. If the party providing the standard clause fails to perform the obligation of reminder or explanation, resulting in the other party not paying attention to or understanding the clause in which it has a material interest, the other party may claim that the clause does not become the content of the contract.
In other words, for matters involving the major interests of consumers, business operators should make reasonable reminders to make consumers aware of the existence of these clauses; In addition, the standard terms provided by the operator shall follow the principle of fairness. Even if the business operator fulfills the duty of reminder, if it violates the principle of fairness and seriously harms the rights and interests of consumers, such clauses shall be invalid.
Article 497 of the Civil Code stipulates that a standard clause shall be invalid under any of the following circumstances: (1) it has the invalid circumstances provided for in Section 3 of Chapter 6 of Part I of this Law and Article 506 of this Law; (2) The party providing the standard clauses unreasonably exempts or reduces its liability, increases the liability of the other party, or restricts the main rights of the other party; (3) The party providing the standard clauses excludes the main rights of the other party. In the end, the court ruled that the KTV brand should refund the franchise fee to Mr. Wang.
In addition, some brands may also set up some contractual traps, such as not agreeing on a cooling-off period or agreeing on a very short contract cooling-off period, so as to restrict the franchisee from unilaterally terminating the contract. Article 12 of the Regulations on the Administration of Commercial Franchises stipulates that the franchisor and the franchisee shall stipulate in the franchise contract that the franchisee may unilaterally terminate the contract within a certain period of time after the conclusion of the franchise contract. This is the so-called "cooling-off period" clause, which is based on the law to protect the interests of the franchisee, considering that the franchisee may not have a full understanding of the franchised industry, requiring the brand to give the franchisee a certain period of time to consider whether to continue to engage in franchising, if the franchisee decides not to engage in franchising, the contract can be unilaterally terminated at any time within this period.
In the above case, the franchise contract signed between Mr. Wang and the KTV brand owner was a franchise contract, and it was obviously unreasonable for the brand owner to prevent Mr. Wang from unilaterally terminating the contract without stipulating a cooling-off period.
Judge reminds
When signing a franchise contract, entrepreneurs often ignore some contract traps because of lack of experience or lack of careful review, and fall into a passive situation in the follow-up rights protection. In the process of joining, the franchisee should carefully review the relevant terms and content, and make as clear, detailed, standardized and quantifiable provisions as possible on the contract, especially for the key contract terms or terms that are more likely to be disputed, including the franchisee's store location, decoration requirements, relevant license handling, opening conditions, deposit return, commission and distribution of operating profits between the two parties, liability for breach of contract, etc., to prevent possible disputes. It is worth noting that regardless of whether the contract stipulates a cooling-off period, the investor can terminate the contract within a certain period of time, but the period set by the cooling-off period should not be too long.
Be wary of sales scams in the name of franchise
Ms. Liu considered joining a coffee brand, and although the brand was not well-known, the very low franchise fee was still tempting, and after thinking about it for a while, she signed a contract with the merchant. The merchant said that to join the coffee brand, he would have to buy the brand's related machinery and equipment, and Ms. Liu spent a huge amount of money to buy a coffee machine in order to open a store. After that, Ms. Liu could no longer contact the brand, and it was then that she realized that the price of the machine was much higher than that of similar coffee machines.
Cases like Ms. Liu's are not uncommon. At present, there are some informal brands on the market that may sell goods in the name of joining, using a very low threshold to attract investors, and fooling the other party to buy machinery and equipment several times higher than the market price in the process of signing the contract, and flee after getting the money.
In order to persuade investors to join, some brands put a lot of advertisements on TV, the Internet, and newspapers. "Invest 50,000 yuan, return 500,000 yuan", "15,000 joining, return to capital in two months, and send a full set of equipment"...... Some merchants even promise investors that as long as they join now, the profit return will reach 30% to 50%. Based on the exaggerated publicity of the merchant, the investor will find that the actual situation is completely different from the promise of the merchant after signing the contract to join, and then it has become a fact to be deceived.
Some unscrupulous merchants may also use the franchise method to carry out pyramid schemes. They attract investors by establishing a franchise chain network and promising high profits. When investors visit and learn more about it, they will find that the branch is not its direct store, but other franchise stores. These franchisees gain certain benefits by attracting other investors to join, and continue to develop their downlines. There are also companies that claim to be internationally renowned brands or have an international background to attract investors, but this is not the case.
In the conclusion of the franchise contract, in order to attract customers, the franchisor often has a certain amount of exaggeration in the publicity process. If the franchisor's false publicity is sufficient to cause the franchisee to make a decision to join, the franchisee may terminate the franchise contract. The Civil Code and the Regulations on the Administration of Commercial Franchises provide for this situation. Articles 146 and 147 of the Civil Code stipulate that civil juristic acts carried out by the actor and the counterpart with false expressions of intent are invalid. The effectiveness of civil juristic acts concealed by false expressions of intent is to be handled in accordance with the relevant legal provisions. The perpetrator has the right to request that the people's court or arbitration institution revoke a civil juristic act based on a major misunderstanding. Articles 148 and 149 stipulate that where one party uses fraudulent means to cause the other party to carry out a civil juristic act contrary to its true intentions, the defrauded party has the right to request the people's court or arbitration institution to revoke it. Where a third party commits a fraudulent act, causing one party to carry out a civil juristic act contrary to its true intentions, and the other party knows or should know about the fraudulent act, the defrauded party has the right to request the people's court or arbitration institution to revoke it. Article 23 of the Regulations on the Administration of Commercial Franchises also stipulates that if the franchisor conceals relevant information or provides false information, the franchisee may terminate the franchise contract.
Judge reminds
If the merchant's false publicity behavior is enough to cause the investor to make a decision to join, the investor can terminate the franchise contract. Before making an investment decision, investors should have a certain understanding and prediction of the corresponding consequences and market risks, always remain rational, avoid investment impulses, screen useful information in the market, and conduct necessary investigation and verification of the industry, market share, and operation of the franchised brand before investing. No matter how the brand advertises, investors must go to the physical store for inspection. The franchisor shall carry out business activities legally and standardly, and strictly abide by the contract to fulfill its obligations. In the promotion of joining the investment, it is necessary to state truthfully, and do not exaggerate or ambiguous publicity or false publicity. The franchisor should operate with heart and build its own brand, and must not be lucky and defraud short-term benefits by fraud.
Be wary of franchised brands failing to deliver on their promises
A children's clothing brand signed a franchise contract with Mr. He, granting him the franchise rights of the company's children's clothing brands, and providing technical guidance including store site selection, store operation, item procurement, operation and management, etc. After the contract was signed, Mr. He paid the brand franchise fee, security deposit and other expenses, but the subsequent store opening process was not smooth, the brand party was perfunctory, did not provide a suitable store address, and many promises in the contract could not be fulfilled. Later, the brand directly became unable to supply, which affected the normal operation of Mr. He's store until it was finally closed.
If the purpose of the contract cannot be achieved due to the breach of contract by the brand owner, the investor can claim to terminate the contract. Article 562 of the Civil Code stipulates that the parties may terminate the contract if they reach a consensus through consultation. The parties may agree on the grounds for one party to terminate the contract; The person who has the right to terminate the contract may terminate the contract if the cause of termination occurs. Article 563 of the Civil Code stipulates that the parties may terminate the contract under any of the following circumstances: (1) the purpose of the contract cannot be achieved due to force majeure; (2) Before the expiration of the performance period, one of the parties clearly indicates or shows by its own conduct that it will not perform the main debt; (3) One of the parties delays the performance of the main debt and fails to perform it within a reasonable period of time after being reminded; (4) One of the parties delays the performance of its obligations or has other breaches of contract, resulting in the inability to achieve the purpose of the contract; (5) Other circumstances provided for by law.
In actual cases, in order to expand the scale of business in the short term, some brands pay too much attention to franchise fees and the number of directly operated stores in the early stage, while ignoring the follow-up quality services, which is also an important reason why some brands fail to fulfill their corresponding contractual obligations.
Judge reminds
At the beginning of signing the contract, the investor should pay attention to preserving the corresponding evidence and improve its litigation ability, especially the ability to present evidence, such as the proof of payment of the license fee, the quantity of the goods, the price list and the receipt of the receipt, the proof of product quality problems, and the communication records in the original carrier. The paper advertisements provided by the brand must be retained, and the content of the brand's commitment must be written into the contract as much as possible, and if the other party refuses, special attention should be paid to whether the merchant has the ability to perform the contract in the future. In the event of a dispute, the two parties should first settle it through negotiation, and if the negotiation fails, they can file a lawsuit in the people's court.
This article appeared in the 14th edition of Beijing Daily on May 15, 2024
Contributed by: Shijingshan Court
Editor: Ren Bingyu Guo Jin
Review: Wang Fang