Termination of Franchise Agreement

Definition

Termination is defined as the fact of breaking the effects of a contract on a given date.
Termination applies to contracts with successive performance, i.e. contracts in which the performance of obligations is continuous, and contracts with staggered performance.
The franchise contract constitutes a contract with successive performance.

Types of termination

There are three types of termination

    :

  • amicable termination: the parties agree to terminate the effects of the contract on a given date. Amicable termination is expressly provided for in Article 1134 paragraph 2 of the Civil Code under the terms of which agreements legally formed between the parties “may only be revoked with their mutual consent, or for causes that the law allows“.

    • judicial

  • termination: it is pronounced by the judge at the request of one of the parties. A party requests the termination of the contract when it considers that the other party has committed a breach of its contractual obligations. The application for judicial termination is based on Article 1184 of the Civil Code.
  • unilateral termination ipso jure by virtue of the termination clause: the parties may provide for a clause in the contract under the terms of which they decide that the contract will be terminated ipso jure – without the intervention of the judge – in the event of non-performance by one of them of its obligations. The clause then avoids recourse to judicial resolution for non-performance.

The implementation of the termination clause implies that the debtor of the obligation has been given prior notice to perform its obligation. Failing performance within the time limit set for the debtor, the contract will be terminated ipso jure.

Termination by operation of law may also be immediate  when the seriousness of the conduct of one of the parties justifies it. In this case, the decision to unilaterally terminate the contract will be notified to the debtor of the obligation who will have no time to perform.

This type of clause is frequently stipulated in franchise agreements in order to allow franchisors to break the contract in the event of non-performance by the franchisee of its contractual obligations.

Unilateral termination may also be triggered by events other than those related to the non-performance of the contract, such as changes affecting the form and control of the contracting company or any circumstances likely to upset the intuitu personae.

We regularly write articles on the subject of the termination of franchise agreements or distribution contracts. You can find them in the section “the life of the franchisor”, by selecting in the drop-down menu “create, improve, develop, defend your distribution network”, then “termination of the distribution contract“.

Effects

Termination of a contract does not nullify what has been performed. The contract disappears for the future but not for the past.

Termination is therefore to be distinguished from termination which results in retroactive annulment of the contract and therefore the restoration of the parties to the state in which they were before the conclusion of the contract.