Franchising. The performance of the franchisor's site selection obligation and risk prevention.

How the franchisor performs the obligation of site selection depends mainly on the specific agreement of the franchise contract on the site selection.

The People's Court of Nansha District, Guangzhou City, Guangdong Province (2020) Yue 0115 Min Chu Civil Judgment No. 960 found that Article 2, paragraph 1, of the distribution contract involved stipulated that Wang Shilun's monopoly area was Baise, Guangxi, but there was no clear agreement on the obligation of site selection. Although Zhongcheng company as a franchisor, relative to the franchisee, operating experience is more rich, location on the development of production and operation has an important impact. However, after the signing of the contract, Wang Shilun did not submit evidence to prove that he had submitted a site selection request to Zhongcheng Company and Zhongcheng Company did not provide the service. Now Wang Shilun requests the cancellation of the distribution contract involved on the grounds that Zhongcheng Company has not fulfilled its site selection obligation, which the court does not support.

The Shanghai Intellectual Property Court (2021) Shanghai 73 Civil Judgment No. 627 found that: According to the characteristics of the franchise contract, the first thing to do is to choose the address of the franchise store. In view of the fact that the contract involved does not stipulate the obligated party for site selection, and according to common sense, the franchisee will generally open the store in a place convenient for his own life and commuting, so the main obligation of site selection is Jiang Yi. Moyin Company only assists in providing services, that is, to inspect the business circle of Jiang Yi's selected address and provide suggestions and services on whether it conforms to the joining project.

Beijing Dongcheng District People's Court (2018) Beijing 0101 Minchu No. 11778 Civil Judgment found that Article 6.5 of the contract involved clearly stipulates that Party B (the franchisee) shall officially open business within 12 months from the date of signing this contract, And select the business premises according to the requirements of the contract before opening. Therefore, it is the obligation of the plaintiff (franchisee) under the contract to choose the address to start business. The plaintiff requested the termination of the contract because the defendant (franchisor) failed to perform the site selection obligation, which lacked factual and legal basis, and the court did not support it.

Shanghai Pudong New Area People's Court (2020) Shanghai 0115 Civil Judgment No. 42343 of the People's Republic of China found that the plaintiff (franchisee) also claimed that the defendant (franchisee) did not fulfill the obligation of site selection, resulting in its failure to open a shop. The Court believes that according to the agreement of Article 8 of the contract involved, the location of the store is the plaintiff's obligation, and the defendant only needs to assist in the evaluation. According to the context of Annex III to the contract, the person in charge of the store location is also the plaintiff. According to the WeChat chat records submitted by the plaintiff and the legal representative of the defendant, the legal representative of the defendant provided assistance to the plaintiff's site selection and offered site selection suggestions many times. Therefore, the plaintiff's request for the termination of the contract is not valid.

The People's Court of Baiyun District, Guangzhou City, Guangdong Province (2020) Civil Judgment No. 16949 of 0111 Minchu held that according to the agreement in the contract involved that "during the agency period, Party A (franchisor) will provide Party B with store site selection training, opening guidance training and relevant product technical training for employees in the agency area", the contract involved clearly stipulates that the defendant (franchisor) shall bear the site selection training obligation instead of site selection obligation. Therefore, the defendant assumed the obligation of assistance in the performance of the contract involved, that is, to provide site selection advice for the plaintiff's reference, but the decision-making power of the final site selection lies with the plaintiff. During the performance of the contract involved, the defendant provided the location of two shops, which were rejected because the plaintiff was not satisfied. Therefore, the plaintiff claimed that the defendant did not fulfill the obligation of site selection and constituted a breach of contract.

Beijing Chaoyang District People's Court (2017) Beijing 0105 Civil Judgment No. 70756 of the People's Republic of China held that Atibao Company (Franchisor) has the obligation to provide training, guidance and evaluation for Wang Lixin's business site selection according to the agreement of Atibao Company. However, Atibao Company did not directly take the initiative to complete the site selection obligation for Wang Lixin. Wang Lixin approved that only after the site selection was determined did Atibao have the obligation to further guide and train, so the failure of the contract between the two parties to continue to perform was caused by Wang Lixin's unsuccessful site selection, not Atibao's breach of contract. Wang Lixin said that the purpose of the contract could not be achieved due to the failure of Atibao Company to perform its site selection obligations, which was not based on facts.

Beijing Intellectual Property Court (2022) Beijing 73 Civil Judgment No. 3853 held that on September 1, 2021, the letter of intent involved agreed that Mr. Heat Company should complete the site selection within 30 working days after receiving the deposit of Dong Yuwei and Madi's intention. If the site selection is not completed within the specified time, Mr. Heat Company will return the intention payment without interest. Dong Yuwei and Madi paid a deposit of 50000 yuan to Mr. Heat on September 1, 2021. After that, because Mr. Hot Company did not complete the site selection work as agreed in the letter of intent, Dong Yuwei and Ma Di postponed the site selection time of Mr. Hot Company three times on October 9, 2021, November 12, 2021 and January 1, 2022 respectively, but by the expiration date of the fourth extension, that is, April 30, 2022, Mr. Hot Company had not completed the site selection work, therefore, Mr. Heat Company shall refund Dong Yuwei and Madi 50000 yuan intention deposit in accordance with the agreement of the letter of intent.

The Intermediate People's Court of Chengdu City, Sichuan Province (2021) Civil Judgment No. 265 of Sichuan 01 Minchu found that: on November 3, 2020, Qing Liangliang and Zhen Wei Chi signed the "Regional Agency Cooperation Service Agreement", the contract agreed: Zhen Wei Chi company to provide the following services: opening guidance, site selection assessment and so on. The company claims that it has fulfilled its site selection obligations and should refund its site selection costs. In the opinion of the Court, although Zhenweichi Company sent site selection personnel to assist Qing Liangliang in site selection, it has not yet succeeded in site selection and has not issued a site selection evaluation report in accordance with the contract, so its site selection obligation has not been fully fulfilled.

If the franchisor fails to perform the obligation of site selection or assistance in site selection in accordance with the contract, it constitutes a breach of contract, resulting in the termination of the contract, resulting in the return of money, liability for breach of contract, compensation for losses and other consequences.

Beijing Intellectual Property Court (2021) Beijing 73 Civil Judgment No. 4664 held that although Siyou Youth Company (franchisor) also proposed to Gao Sen that it could choose a site in "Shangdi and Asian Games Village", it gave a rough positioning in a larger scope and did not help Gao Sen in choosing a site. Siyou Youth Company failed to effectively fulfill its obligation to assist and guide the site selection, which eventually led to the long-term failure of the site selection after Gao Sen signed the contract, and the purpose of signing the contract involved in the case could not be achieved. Therefore, the actions of the four youth companies constitute a breach of contract, and Gaosen has the right to terminate the deposit contract and the contract involved. In this case, the contract between Gao Sen and Siyou Youth Company was terminated for the reasons of Siyou Youth Company, and Gao Sen, as the franchisee, had the right to request the return of the franchise fees it had paid, and to ask Siyou Youth Company to compensate for its losses.

The People's Court of Hualong District, Puyang City, Henan Province (2012) Hua Fa Min Chu Zi No. 351 Civil Judgment held that after the contract was signed, Nie Ruiying and Nie Zhonghua fulfilled their obligation to pay the advance payment for joining the contract, and the defendant Henan Zhongqi Energy Saving Technology Co., Ltd. failed to fulfill the obligation to select the site within 6 months, resulting in Nie Ruiying and Nie Zhonghua failing to build the store within 6 months (to determine the site and have normal operating conditions), which constituted a breach of contract, therefore, the plaintiff's request to terminate the franchise contract is based on facts and laws, and the court supports the defendant Henan Zhongqi Energy Saving Technology Co., Ltd. to return the advance payment and liquidated damages, and the defendant Puyang Puxin Investment Management Co., Ltd. to bear joint and several liabilities.

The People's Court of Tianhe District, Guangzhou City, Guangdong Province (2020) 0106 Civil Judgment No. 1470 of the People's Republic of China held that the defendant had the obligation to select a site for the plaintiff and find a shop satisfactory to the plaintiff according to the contract involved. Now the defendant has failed to complete the above-mentioned site selection obligation, resulting in the plaintiff being unable to start business due to the failure to determine the shop, resulting in the failure to realize the purpose of the contract. Therefore, the plaintiff's request for the termination of the contract involved in the lawsuit requests the court to support. The contract involved in the case stipulates that the deposit will not be refunded unless the contract is terminated due to the defendant's reasons. Now that the defendant fails to perform the site selection obligation, the defendant shall return the deposit to the plaintiff.

The franchise contract needs to make a clear agreement on the subject of responsibility for the obligation of site selection, and the franchisor should undertake the corresponding obligations within the scope of ability according to the actual situation, so as to avoid the passive deadlock. Because the franchisee has the final decision on the franchise matters, and the site selection involves its practical interests, it is suggested that the contract stipulates that the franchisee shall be the main body of responsibility for the performance of the site selection obligation, and the franchisor shall perform the assistance obligations such as site selection training, guidance and assistance.
 

Regardless of whether the contract stipulates that the franchisor performs the obligation of site selection or assists in site selection, the franchisor shall perform the contractual obligations in a comprehensive and timely manner in accordance with the contract to prevent the liability for breach of contract.

The franchisor shall pay attention to the preservation of relevant materials in the process of fulfilling the obligation of site selection or assisting in site selection, such as site selection record form, notice, chat record, etc. The relevant written materials shall be required to be signed by the franchisee in writing as far as possible, so as to avoid the consequences of not being able to provide evidence in case of dispute.
 

Beijing Intellectual Property Court (2021) Beijing 73 Civil Judgment No. 1474 held that in order to prove that it had been actively assisting Chen Yingwen in site selection, which did not constitute a breach of contract, the following evidence was submitted: 1. A printout of WeChat chat screenshots between Chen Yingwen and employees of One Food and One Company. 2. One Food One Company Staff Da Hui Chao and Hongtong City Shopping Mall Docking Person Xiao Zhituan's WeChat Chat Screenshot Print. Article 5.17 of the contract involved, "Party A sends personnel to Party B for site selection, etc., and Party B is responsible for transportation and accommodation expenses" is the way for One Food Company to evaluate and review the site selection, and does not replace Chen Yingwen to perform the site selection obligation. The evidence in the case shows that after the contract involved was signed, One Food and One Company actively assisted Chen Yingwen in selecting the store address and fulfilled the relevant assistance obligations.

Shanghai Xuhui District People's Court (2019) Shanghai 0104 Civil Judgment No. 14623 at the beginning of the Republic of China held that the WeChat chat records submitted by Shenbo Company to its staff and Gu Xinyi showed that Shenbo Company had recommend Gu Xinyi with some information about the shops to be leased in the agreed business area. Although the "Operation Service Implementation List (Flagship Store)" specifies the obligation of Shenbo Company to help select the site, the final decision on the site of the store is still in Gu Xinyi. Judging from the existing evidence, Shenbo Company has provided Gu Xinyi with some information about the store to be leased in the agreed business area, and later failed to successfully lease the store for various reasons, resulting in the failure to carry out the franchise activities. It is difficult to simply attribute this responsibility to the company.

The franchisor shall, according to the actual situation, agree on the obligation of site selection within the scope of its own ability, and perform it in a timely and comprehensive manner according to the agreement, otherwise it will have consequences such as the termination of the contract and the liability for breach of contract. At the same time, the franchisor should keep the relevant evidence of the performance of the contract, in order to effectively prevent the risk of litigation.