Legal liability of the franchisee and the franchisor

One of the consequences of concluding a commercial concession agreement is the possible occurrence of liability. This risk also needs to be considered when building the model. The law proposes a model under which the franchisor (rightholder) will be held liable in any case, but the size and procedure depends on specific conditions. You can read about what liability is provided for the franchisor and franchisee in our article.

Contents: 

• General model of liability in the franchise agreement
• Drafting a franchise agreement based on liability clauses
• Liability of the franchisor in case of improper provision of services to the franchisee to clients
• Liability of the franchisee in the sale of low-quality goods to customers

By entering into a franchise / commercial concession agreement, two persons become bound by certain obligations. Responsibility is derived from this connection. This article deals with civil liability, including to consumers. The franchise agreement does not in any way affect the criminal law or administrative responsibility, where the person who committed the act will be guilty.

General liability model in a franchise agreement

General provisions on liability in the presence of a commercial concession agreement are established by Art. 1034 of the Civil Code of the Russian Federation.

It establishes two types of responsibility

• Subsidiary. In this situation, the lender must first go to the franchisee, if he can not fulfill the obligation, franchisor will be responsible. Subsidiary liability is provided for claims about non-conformity of the quality of goods;
• Solidary. This model assumes that the lender can make a claim to both the franchisor and the franchisee, both in whole and in part. Joint and several liability arises when claims are made against the franchisee as a manufacturer of products.

Despite the fact that the copyright holder and the user are two different legal entities or individual entrepreneurs, the law binds them with responsibility. 

Drafting a contract based on liability clauses 

Since the law imposes responsibility for the non-conformity of the quality of goods / services / works, it is possible to introduce into the contract a condition on the conformity of the quality of goods. Art. 1031 of the Civil Code of the Russian Federation provides for the obligation of the copyright holder (franchisor) to control the quality of goods. The courts confirm that the responsibility of the copyright holder directly follows from his duty to control the quality of goods. Therefore, even if the contract contains such a condition, the franchisor must still ensure the quality of the goods during the execution itself. If he sees violations in the quality of goods, he has the right to sue the franchisee (А60-59795 / 2017).

The next problem in determining responsibility is the qualification of the contract. The described liability model corresponds to a commercial concession agreement, which is concluded when granting rights to a trademark. If this element is absent, which happens often, agency agreements, agreements for the provision of services are concluded, or a network with branches is created. You can read more about this in the article "Drafting a Franchise Agreement". In this case, civil liability will be determined by other rules.  

Liability of the franchisor in case of improper provision of services to the franchisee to clients

Based on judicial practice, for improper provision of services, the franchisor and the franchisee bear subsidiary liability. That is, for example, if you came to a restaurant and the service was provided to you inappropriately, then you can make a claim specifically to this restaurant (legal entity or individual entrepreneur). If the restaurant does not have enough funds to meet your requirements, only then can you sue the franchisor.

Liability of the franchisee in the sale of low-quality goods to customers 

Based on judicial practice,if franchisee selling goods of inadequate quality, the franchisor and the franchisee are jointly and severally liable. For example, you ordered food delivery to your home, it turned out to be of inadequate quality. Then you can make demands on both a specific point (user) and the whole network (copyright holder).

Thus, before defining the liabilty of the franchisor and the franchisee, you need to pay attention to the following criteria: what is the essence of the claim, product or service, whether the franchisee will be able to compensate for losses on his own. If there is a requirement for the franchisee as a manufacturer of goods, then he and the copyright holder will be liable on equal terms (joint liability). If the claim is about a poor-quality product, then the liability is joint and several, if about the improper provision of services - subsidiary. If you have any questions, please contact A4 Law Firm lawyers.