A franchisee opposed an order that had been issued by the Court of Como, requiring it to indemnify its franchisor for damages in connection with the termination of a franchise agreement.
The franchisee's opposition was based solely on a claim for a credit to the value of the sale price of the point of sale furnishings and equipment. The franchisee maintained that the credit had accrued on the basis of a provision of the franchise agreement which stated that "in the event of termination of [the agreement] for any reason... the franchisee expressly undertakes to resell all of the equipment to the franchisor on request".
The franchisee stated that the franchisor's refusal to buy back the equipment on termination of the franchise agreement - which in this case was based on the franchisee's decision not to carry out its activity in competition with surrounding points of sale - was contrary to good faith. It asked the court to:
- determine the amount of credit owed to it;
- order that such credits be offset against the sum for damages; and
- revoke the payment injunction.
Among other things, the franchisor maintained that the franchisee had not challenged the amount of the payment injunction and had failed to undertake correct maintenance of the equipment, which was unusable as a result. Therefore, the franchisor asked the court to:
- reject the franchisee's claim, confirming the payment injunction in full;
- rule that the franchisee was at fault for the termination of the franchise agreement;
- order the franchisee to pay the penalty stipulated in the agreement, plus compensation for damages; and
- declare the payment injunction to be immediately enforceable.
The court granted enforcement of the payment injunction and rejected the franchisee's opposition. It confirmed the payment injunction in favour of the franchisor, but rejected its counterclaim regarding payment of the penalty and damages.
The court held that the provision of the franchise agreement to which the franchisee had referred contained an agreement to an optional right in favour of the franchisor under Article 1331 of the Civil Code. The franchisor was free to decide whether to exercise the option; if it chose to do so, the price was to be calculated according to the terms of the franchise agreement.
The court confirmed that the franchisor had acted lawfully in choosing not to exercise the option, which was for its sole interest, and was not required to justify a decision to the contrary. This excluded the performance of a resale contract between the parties; therefore, the credit claimed by the franchisee did not exist.
The court noted that the franchisor had presented as evidence a letter that it had sent to the franchisee in which it stated that it had no interest in buying back the equipment, as the franchisee's failure to maintain it adequately had rendered it worthless. In contrast, the franchisee (which bore the burden of proof) had not presented evidence that it had fulfilled its obligation to carry out proper maintenance.
The decision confirms the validity of a franchisor's option to buy back the franchisee's point of sale furnishings and equipment on termination of the franchise agreement. This option is often included in franchise agreements, and it is frequently in the franchisor's interest to regain possession of goods that characterise its network and bear its trademarks and other signs. Normally, a franchisor wishes to exercise the option so that it can provide the furnishings and equipment to new franchisees.
However, the court clarified that a provision of this kind does not impose an obligation on the franchisor to repurchase such materials, but merely the option and power to do so. If the franchisor wishes to exercise the option, the franchisee incurs civil liability if it does not fulfil its obligation to sell the furnishings and equipment to the franchisor at the agreed price.
For further information on this topic please contact Marco De Leo or Beatrice Masi at Rinaldi e Associati by telephone (+39 02 7600 8860), fax (+39 02 7600 6944) or email ([email protected] or [email protected]).