Application of Law in the Trial of Disputes over Commercial Franchise Contracts
2018-08-26 1595
- Document
Number:No.49
[2011] of the Higher People’s Court of Beijing Municipality
- Area of Law: Contract
- Level of Authority: Local Judicial Documents
- Date issued:02-24-2011
- Effective Date:02-24-2011
- Issuing Authority: Higher People's
Court of Beijing Municipality
- Status: Effective
Notice of the Higher
People's Court of Beijing Municipality on Issuing the Guiding Opinions of the
Higher People's Court of Beijing Municipality on Several Issues Concerning the
Application of Law in the Trial of Disputes over Commercial Franchise Contracts
(February 24, 2011, No.49 [2011] of the Higher People's Court of Beijing
Municipality)
The No.1 Intermediate People's Court and the No.2 Intermediate People's Court
of Beijing Municipality; and the people's courts of all districts and counties:
The Guiding Opinions of the Higher People's Court of Beijing Municipality on
Several Issues Concerning the Application of Law in the Trial of Disputes about
Commercial Franchise Contracts, which were deliberated and adopted at the 1st
meeting of the Judicial Committee of the Higher People's Court of Beijing
Municipality on February 14, 2011, are hereby issued to you for your earnest
compliance and implementation. If you have any problem, please report it to the
No.3 Civil Tribunal of the Higher People's Court without delay. For any
discrepancy between any opinions mentioned in these Guiding Opinions and any
law, regulation or judicial interpretation, the said law, regulation or
judicial interpretation shall prevail.
Guiding Opinions of the Higher People's Court of Beijing Municipality on
Several Issues Concerning the Application of Law in the Trial of Disputes about
Commercial Franchise Contracts
To properly handle disputes about commercial franchise contracts and unify the
standards for trying and deciding such cases, in light of the judicial
practices, these Guiding Opinions are formulated pursuant to the General
Principles of the Civil Law of the People's Republic of China, the Contract Law
of the People's Republic of China, the Regulation on the Administration of
Commercial Franchises and other relevant laws and administrative regulations.
Article 1 The term “commercial franchise” (hereinafter referred to as “franchise”)
refers to business operations by which an enterprise owning a registered
trademark, logo, patent or any other business resource (hereinafter referred to
as “franchiser”) confers the said business resource to any other business
operator (hereinafter referred to as “franchisee”) by means of contract, and
the franchisee undertakes business operations under the uniform business model
as stipulated by the contract and pays franchise fees to the franchiser.
The basic features of franchise are that: 1. the franchiser owns a registered
trademark, logo, patent or any other business resource; 2. the franchisee uses
the franchiser's business resource under a specific business model upon the
franchiser's authorization; and 3. the franchisee pays franchise fees to the
franchiser.
Article 2 Business resources include registered trademarks, logos, patents,
names, trade secrets, overall business images with unique features,
unregistered trademarks which have been firstly used and formed certain
influence, and other business resources that may form certain advantages in
market competition.
A franchiser owns a business resource as long as it acquires the business
resource by original acquisition or transfer, or it acquires the exclusive
right to use the business resource, including the right to sub-license the
business resource.
Article 3 The nature of a franchise contract shall be determined mainly on the
basis of the content of the contract as agreed on by both parties. Generally,
neither the contract name nor a clause similar to “this contract is not a
franchise contract” changes the nature of the contract.
If there is any discrepancy between the actual performance of a contract and
the corresponding stipulation thereof, the actual performance shall be deemed
as a variation of the stipulation, and can be used as a basis for determining
the nature of the contract along with other stipulations of the contract.
Article 4 Where one party concerned to a contract registers and operates
business in the name of a branch office or affiliate company of the other
party, if the party concerned claims that the contract is not a franchise
contract on that ground, the nature of the contract shall be determined by
comprehensively considering the stipulations and actual performance of the
contract.
Article 5 The parties concerned may stipulate the franchise cost by directly
setting forth the amount thereof in the franchise contract or in the form of
reward points of payments for goods, a percentage of profits, training
expenses, etc.
Where a franchise contract stipulates that the franchisee shall pay franchise
fees for business resources to the franchisor in a lump sum and also stipulates
that the franchisee shall pay franchise fees for business resources to the
franchisor by installments at a certain proportion of its operating income,
such stipulations are valid.
Article 6 To engage in franchise operations, the franchisor and the franchisee
shall conclude a written franchise contract.
Where the franchisor permits the franchisee to operate the franchised business
but it fails to do it in a written form, generally it does not affect the
effect of the franchise contract.
Article 7 The franchisor shall handle the filing formalities at the commerce
department within 15 days after the franchise contract is established for the
first time.
The franchisor's failure to handle the filing formalities at the commerce
department within the prescribed time generally does not affect the effect of
the franchise contract.
Article 8 To operate the franchised business, the franchisor shall own at least
two direct-sale stores which have been running for over a year. The franchise
contract will not become null due to the franchisor's failure to meet the said
condition.
The direct-sale stores owned by the franchisor refer to direct-sale
institutions by which the franchiser uses its business resources to directly
operate the franchised business.
Article 9 No entity, other than an enterprise, or individual may operate the
franchised business as a franchisor. A franchise contract concluded by an
entity other than an enterprise or individual shall be null.
Article 10 Where any law or administrative regulation has clearly provided that
it needs to obtain approval to offer a franchised product or service or that it
needs to satisfy any other specific condition to operate the franchised
business, the franchise contract concluded by the franchisor and the franchisee
shall be null if it avoids the restriction of the said provision, unless the
franchisor or the franchisee has satisfied the said specific condition before
the dispute arises.
Article 11 In case the business resource has an unrenewable legal term period,
or has a renewable legal term period but is not renewed within the prescribed
time limit, if the term of the franchise contract concluded by both parties
exceeds the said legal term period, the part concluded beyond the legal term
shall be null.
Article 12 In case the business resource is cancelled or declared invalid, the
franchisor or the franchisee can rescind the franchise contract by law.
After the actual performance of the contract, if a party concerned claims for
rescinding the franchise contract on the ground that the relevant business
resource has been cancelled or declared invalid, the claim shall not be upheld,
unless the franchisor has maliciously caused damage to the franchisee and shall
pay damages or undertake other legal responsibilities for that.
Article 13 Where a party concerned to a franchise contract fails to perform the
contract as agreed and makes it difficult to realize the fundamental purpose of
the contract, the opposite party may rescind the contract under Article 94 or
96 of the Contract Law of the People's Republic of China.
The fundamental purpose is that the franchisee uses the franchisor's business
resource under the guidance of the franchisor and operates the franchised
business by a specific business mode.
Unless it is otherwise agreed on by the parties concerned, whether the
franchisee makes profits is not the fundamental purpose of a franchise
contract.
Article 14 Generally, the advertisements, brochures and other materials used by
the franchisor in the course of promoting the franchised business shall be
deemed as an invitation to offer. In particular, the explanations and promises
made by the franchisor on the franchised business can also be deemed as
elements of the contract if they have a significant impact on the conclusion of
the franchise contract, and the franchisor shall take the liability for breach
of contract if going against them.
Article 15 Whether the franchisor has practiced any fraud shall be determined
by comprehensively considering the relevance of the information concealed,
false information provided or business resource exaggerated by the franchisor
for the purpose of the contract, its deviation from the true information, its
impact on the conclusion and performance of the franchise contract, etc.
If the information or business resource directly related to the essential
contents of the franchised business as concealed, falsified or exaggerated by
the franchisor in the conclusion of contract is sufficient to lead the
franchisee into signing the franchise contract, the franchisee may request for
canceling or rescinding the contract.
Article 16 Where the franchisor conceals any information about any major
change, provides any false information or exaggerates the business resource,
which substantively affects the franchisee's operation of the franchised
business, the franchisee may request for canceling or rescinding the contract.
Where the franchisor conceals any lawsuit, arbitration or administrative
penalty which may directly affect the franchisee's decision to sign the
franchise contract or may significantly affects the franchisee's realization of
the purpose of the franchise contract, or provides any false information
thereabout, the franchisee may rescind the contract according to law.
Article 17 Where the business license of either party concerned to a franchise
contract is revoked during the contractual limit of time of the contract, which
makes it unable to fulfill the contractual obligations, the other party may
rescind the contract.
Where either party which is unable to fulfill the contractual obligations due
to revocation of its business license conceals the fact and thus causes any
loss to the opposite party, it shall pay damages or undertake other legal
responsibilities for that.
Article 18 If the franchisor and the franchisee have stipulated in the
franchise contract or otherwise agreed to that the franchisee may unilaterally
rescind the contract within a certain time limit after the contract is
concluded, such stipulation shall be valid.
Even if the franchisor and the franchisee have not stipulated in the franchise
contract that the franchisee may unilaterally rescind the contract within a
certain time limit after the contract is concluded, the franchisee is still
entitled to unilaterally rescind the contract within a reasonable period of
time after the contract is concluded, unless it has already actually used the
business resource concerned.
Article 19 If the franchisee requests for returning the franchise fees that
have already been paid when the franchise contract has not yet been
established, has not come into force or is null due to the franchisor's fault
or when the performance of the franchise contract is terminated due to the
franchisee's fault, the amount of refund, the proportion and how to refund
shall be reasonably determined by comprehensively considering factors such as
the conclusion and performance of the contract, the actual operating period and
the extent of fault of both parties.
Article 20 If the franchise contract is completely fulfilled, or the conditions
for refund are satisfied even if it is not completely fulfilled, the franchisor
shall refund the deposit or performance bond to the franchisee, unless the
deposit or performance bond has been used to offset the franchise fees or any
other debt of the franchisee.
If it is the franchisor's fault or it is not the franchisee's fault that has
caused the failure of the franchise contract, or caused the contract to be
nullified, cancelled or rescinded, the franchisor shall refund the deposit or
performance bond to the franchisee.
In case the franchisor and the franchisee have clearly stipulated that the
deposit or performance bond is earnest money, the Contract Law of the People's
Republic of China and other relevant laws and administrative regulations are
applicable.
Article 21 If a franchise contract has not yet been established, or has been
nullified, cancelled or rescinded, unless it has been otherwise agreed on by
the parties concerned, the franchisee shall stop using the relevant business
resource which it has been permitted to use by the franchisor, and the franchisor
may also request the franchisee to return or destroy the power of attorney,
franchised use permit, franchised logo, technical data, tablet and other
documents or materials related to the business resource.
If the franchisee is unable to return the above-mentioned documents or
materials, it shall pay for the franchisor's losses resulting therefrom.
However, the franchisee is permitted to not return those normally consumed by
the franchisee in the course of operating the franchised business and does not
have to pay for damages.
Article 22 If a franchise contract has not been established, has not come into
force, has been nullified, cancelled or rescinded, the products or equipments
provided by the franchisor to the franchisee shall be returned completely or at
a discount, except for those normally consumed in the course of operating the
franchised business.
Article 23 If a franchise contract has not been established, has not come into
force, or has been nullified, cancelled or rescinded, the innocent party may
request the faulty party to compensate for its actual losses resulting from the
conclusion and performance of the contract. In light of the actual
circumstances, the party in fault can be ordered to compensate for the losses
suffered by the innocent party for being deprived of the opportunity to
conclude contracts or gain other profits.
Article 24 Where a franchise contract is terminated because it has not been
established, or has been nullified, cancelled or rescinded, or it is determined
that it is not a franchise contract, the parties concerned shall fulfill the
due diligence obligations with regard to confidentiality and safe keeping, etc.
according to the contractual stipulations. Either party which violates the
obligations and causes any loss to the opposite party shall compensate for
damage or undertake other legal responsibilities.
Article 25 Where either party claims that the franchise contract has not been
established, has not come into force or has been nullified or should be
rescinded or revoked while the other party claims for its continuation, the
parties concerned shall, before it is determined whether the contract has
beenestablished, has not come into force or has been nullified or should be
rescinded or revoked, be notified to incorporate the franchise fees, products
or equipments and business resource into its claim, unless the party concerned
insists on handling those matters separately.