The Faithless Franchisor : Rethinking Good Faith in Franchising

The rapid expansion of franchising requires that the courts, and the law in general, adapt to new circumstances, including the franchise parties’ rightful expectations. Franchisees and franchisors may not act in the spirit of the contract, and the traditional approach under contract damages law often fails to remedy that situation. For example, how can a franchisee or franchisor recover in the event of actions that are not prohibited by the contract, but that nevertheless run counter to a party’s natural (and probable) expectations? These and other issues are addressed in the context of a “Fairness in Franchising” rule.Currently, remedies for disgruntled parties to franchise agreements are limited to those available for the breach of an express contract provision, and they certainly do not allow for an award of punitive damages. However, legal remedies for bad faith in franchising agreements already exist. For example, at common law, tort damages may be awarded in a cause of action for “bad faith.” The allowance of a tort cause of action for bad faith could deter wrongful acts by parties inducing franchise purchases, by would-be fraudsters (whether franchisors or franchisees) throughout the course of a franchise relationship, and otherwise by free-riding franchisees or through the opportunistic behaviors on the part of franchisors after an agreement has been executed. A standard test for franchising good faith and fair dealing will leave courts better able to not simply deal with bad acts, but also to encourage the franchise parties’ appropriate and mutually beneficial actions while they are reaching and then implementing their contracts