A sad tale of woe crossed my desk. Seems that, a couple of months ago, an unsuspecting entrepreneur from Mexico bought into a U.S. franchise to import products to Mexico. She sent her 25 percent deposit (many thousands of dollars) to reserve the franchise for her city, but the franchisor cannot get the documents that she requires to import the franchisor’s products. According to the agreement she signed, the 25 percent is nonrefundable . . . but can she recover anyway because the mistake was not her fault?
The short and obvious answer is: It depends.
Franchises are strange and furry creatures. They involve a lot of regulation and disclosure to establish them. They also require a certain degree of rigor in creating the business model to ensure consistency in the franchise results. Whether or not “Melinda” can recover her money depends on the actual wording of the franchise agreement. It also depends on the laws of the state that governs her agreement (often called “governing law” or “jurisdiction”).
Contract principles generally provide that if there’s a problem or mistake that the parties weren’t aware of at the time they signed the agreement, it’s not fair for one or the other to be SOL. Courts may allow the contract to be “rescinded”–like a “do-over” in kickball. Everyone goes back to where they were when they started–no lost points, no gained advantage. But now you have to factor in the cost of an attorney to bring this claim for you.
Because franchise laws vary from state to state, it’s always advisable to consult an attorney who specializes in franchises in the state where the agreement is decided. And do it BEFORE you sign the paperwork, so that you know the risks of getting involved in this venture, and what your recourse will be if problems arise.
This entry was posted on Tuesday, December 9th, 2008 at 9:18 am and is filed under Horror Stories, Litigation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.Leave a Reply
