Breaking a signed agreement

Can you break an agreement once you’ve signed? Manzoor Ishani explains

If you sign a five-year contract with someone, it means you have a five-year contract doesn't it? I mean you'd think that if a bloke was given life for killing someone, he'd be in prison for life wouldn't you? But, as we know, life doesn't mean life and in the case of a franchise agreement, five years doesn't mean five years - in certain cases.Once a franchisor and a franchisee sign a franchise agreement they are inextricably locked in for the duration of the franchise agreement - is that really the case? Or can the agreement come to an end before it has been allowed to run its full course?

Once a franchisor and a franchisee sign a franchise agreement they are inextricably locked in for the duration of the franchise agreement - is that really the case? Or can the agreement come to an end before it has been allowed to run its full course?

There is no legislation that will force both parties to continue under the terms of a franchise agreement if one of them refuses to do so. Although there exists in equity the doctrine of specific performance, whereby a court can order performance of a particular contract, such an order is usually only made when it is not possible to award damages for breach of contract or where damages would be an inappropriate remedy.When a franchisor and a franchisee enter into a franchise agreement, it is potentially a double-edged sword for both parties. Most franchise agreements are for a fixed term. From the franchisee's point of view, they are unlikely to make an investment in a franchised business if the terms of the franchise agreement are such that it can be terminated by the franchisor simply serving notice on him.

When a franchisor and a franchisee enter into a franchise agreement, it is potentially a double-edged sword for both parties. Most franchise agreements are for a fixed term. From the franchisee's point of view, they are unlikely to make an investment in a franchised business if the terms of the franchise agreement are such that it can be terminated by the franchisor simply serving notice on him.Most franchisors enter into franchise agreements with the intention of cultivating a long-term relationship. with the franchisee. It cannot help a franchisor with planning if they have no idea how long a franchisee will stay if all they have to do is leave by simply serving their notice.

Most franchisors enter into franchise agreements with the intention of cultivating a long-term relationship. with the franchisee. It cannot help a franchisor with planning if they have no idea how long a franchisee will stay if all they have to do is leave by simply serving their notice.In being granted a franchise agreement for a fixed term, both the franchisor and franchisee have the comfort of knowing that each is bound to the other for the duration of that term and each is therefore able to plan his business strategy accordingly.

In being granted a franchise agreement for a fixed term, both the franchisor and franchisee have the comfort of knowing that each is bound to the other for the duration of that term and each is therefore able to plan his business strategy accordingly.So far so good, but what happens when neither franchisor nor franchisee are able to carry out their obligations because of intervening circumstances beyond their control?

So far so good, but what happens when neither franchisor nor franchisee are able to carry out their obligations because of intervening circumstances beyond their control?Here's an example. We have a franchise concept that involves a chemical process as a part of the service the franchisee is required to provide for its customers. New health and safety regulations now make it illegal for the franchisee to use the proprietary chemical (supplied by the franchisor), yet there is no alternative product, so the franchisee can no longer conduct its business.

Here's an example. We have a franchise concept that involves a chemical process as a part of the service the franchisee is required to provide for its customers. New health and safety regulations now make it illegal for the franchisee to use the proprietary chemical (supplied by the franchisor), yet there is no alternative product, so the franchisee can no longer conduct its business.Does the franchise agreement stay alive or can the agreement be lawfully terminated (even if it is expressed to be for a fixed term) thereby releasing each party from its respective obligations under the agreement? In these circumstances the common law Doctrine of Frustration could be invoked to bring the franchise agreement to an end.

Does the franchise agreement stay alive or can the agreement be lawfully terminated (even if it is expressed to be for a fixed term) thereby releasing each party from its respective obligations under the agreement? In these circumstances the common law Doctrine of Frustration could be invoked to bring the franchise agreement to an end.The exact legal theory upon which the Doctrine of Frustration is based has been the subject of much debate over the years with no fewer than five theories being advanced at one time or another. It is not possible to classify the circumstances to which the Doctrine of Frustration applies but it is safe to say that the courts will apply the Doctrine and hold a contract to be frustrated, and therefore incapable of performance, if they consider that there has been such a change in the circumstances that to insist on the performance of the contract would alter the fundamental nature of it. The Doctrine of Frustration will usually come into play if the contract is silent as to what is to happen in given circumstances. It has really been invented by the courts to supplement the defects of an actual contract.

The exact legal theory upon which the Doctrine of Frustration is based has been the subject of much debate over the years with no fewer than five theories being advanced at one time or another. It is not possible to classify the circumstances to which the Doctrine of Frustration applies but it is safe to say that the courts will apply the Doctrine and hold a contract to be frustrated, and therefore incapable of performance, if they consider that there has been such a change in the circumstances that to insist on the performance of the contract would alter the fundamental nature of it. The Doctrine of Frustration will usually come into play if the contract is silent as to what is to happen in given circumstances. It has really been invented by the courts to supplement the defects of an actual contract.Any termination of a franchise agreement must be in the form and manner provided for in the franchise agreement if it is to be effective and be upheld by the courts. Where the franchise agreement is not for a fixed term and there is no specific provision for notice to terminate, the law requires notice to be of reasonable length and sufficiently clear and unambiguous in its terms if it is to constitute a valid notice.

Any termination of a franchise agreement must be in the form and manner provided for in the franchise agreement if it is to be effective and be upheld by the courts. Where the franchise agreement is not for a fixed term and there is no specific provision for notice to terminate, the law requires notice to be of reasonable length and sufficiently clear and unambiguous in its terms if it is to constitute a valid notice.Where the party to whom notice is to be given goes bankrupt (or if it is a company, goes into liquidation), the requirement to give notice does not disappear. In these circumstances, notice needs to be given to that party's trustee in bankruptcy (or the liquidator as the case may be) in the same way as it would have been given to the bankrupt party had he been in a position to continue performing his obligations under the franchise agreement. However, in the case of the franchisee, where the franchisee's bankruptcy makes him unfit to perform his duties, the franchise agreement will be terminated.

Where the party to whom notice is to be given goes bankrupt (or if it is a company, goes into liquidation), the requirement to give notice does not disappear. In these circumstances, notice needs to be given to that party's trustee in bankruptcy (or the liquidator as the case may be) in the same way as it would have been given to the bankrupt party had he been in a position to continue performing his obligations under the franchise agreement. However, in the case of the franchisee, where the franchisee's bankruptcy makes him unfit to perform his duties, the franchise agreement will be terminated.

Both franchisors and franchisees should satisfy themselves at the outset that the franchise agreement not only makes adequate provision for its termination under certain foreseeable circumstances, but also contains clear provisions regarding the service of any notice of termination and its receipt by the other party

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