Legal Updates

A wide limitation of competition in a franchise agreement may be unenforceable due to contradicting public policy

August 7, 2018

A group of franchisees of an animals' products chain store has canceled their franchise agreements after their stores failed to show the profits they thought they were supposed to yield, but the chain claimed that under the franchise agreement, in such as case, the franchisees could not open competing stores.
The Court held that representations regarding the future are not misrepresentations if the person making the representations believed that they were reasonable when he gave them. In this case, there were no fraudulent representations regarding the future and therefore the agreement could not have been cancelled due to the representations regarding expected profitability. A contract, including a franchise contract, in which one of the parties dictates the contract's contents by means of a predetermined formula in respect of which no negotiations are held, may be considered a standard contract and in such a case conditions that deprive the other party shall not be enforced. A provision in a franchise agreement that prohibits competing with the chain indefinitely and without the possibility of competing in a different geographic location is a depriving condition that is not enforced both because it is a standard contract and because such a condition contradicts public policy.