These words are particularly relevant in relation to the franchise contracts in question, which were cancelled by the Max Company, on the orders of Mr. Max. These are agreements that are supposed to be long-term. They aroused great reliance on the franchisees themselves. It is clear that their cancellation is liable to harm them to an enormous extent, and even to degrade their business activity. Against this background, the franchisor must carefully examine whether it indeed has an interest that can justify the cancellation step. This is the mitzva of the increased duty of good faith that applies in these circumstances. Violation of this may lead to the loss of the counterparty's investments and the negation of profits that it expected to earn, after it has spent the heavy expenses required to operate the branches.
- How does the increased duty of good faith affect the exercise of the power of cancellation in relation to franchise contracts of the type at hand? In the circumstances of the case, there is no need to present the picture as a whole. It is sufficient to focus our gaze on two important derivatives: one is the duty to give reasons; and the second is the duty to examine that there is indeed a proper factual basis for the requested cancellation.
- How's the obligation to give reasons?
Section 8 of the Contracts Law (Remedies for Breach of Contract), 5731-1970 (hereinafter: the Remedies Law) establishes the method of cancellation, and suffices with stating that "the cancellation of the contract shall be by the victim's notice to the breacher within a reasonable time after he becomes aware of the breach; ...". And what about the reason for the cancellation? There is no general obligation to give reasoning. It is not found in section 8 of the Law, nor is it derived from the general law (Friedman and Cohen, at p. 350). At the same time, there may be situations in which reasoning is indeed required, and the lack of reasoning will affect the validity of the cancellation. Friedman and Cohen note that "it seems to us that this result is possible, in those cases where the requirement of reasoning is not unfounded, when the other party who requested the reasoning could not have known the reason for the cancellation" (ibid., at p. 351).