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Asked about 1 year ago - Pensacola, FL
FlagI have a lengthy very lopsided franchise contract that truly contradicts most of what I was verbally led to believe. In addition claims were made as to what my potential income would be, but I agreed to sign a statement that said I had not been told claims of income. (I was told that this was to say they weren't telling me "I'd be a millionaire".) Do I have any grounds to fight or would it be too difficult and costly since nothing is in writing?
As a franchise attorney, I recommend you show the contract, and more importantly in this case, the FDD Franchise Disclosure Document that accompanied it, to an attorney for review and analysis given what happened. The changes to the FTC Franchise Rule make it an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act for any franchise company to:
"Disclaim or require a prospective franchisee to waive reliance on any representation made in the disclosure document or in its exhibits or amendments."
So, if Item 19 of the FDD says they "elect" not to give any financial performance representations, and these were in fact given as you allege, the integration clause of the franchise contract, if asserted by the franchisor, would fall within the above.
In addition, Florida has a Franchise and Dealership Statute. Under the statute:
"It is unlawful, when selling or establishing a franchise or distributorship, for any person:
1. Intentionally to misrepresent the prospects or chances for success of a proposed or existing franchise or distributorship;
2. Intentionally to misrepresent, by failure to disclose or otherwise, the known required total investment for such franchise or distributorship; or ..."
If applicable misrepresentations were made, the statute further provides:
"Any person, who shows in a civil court of law a violation of this section may receive a judgment for all moneys invested in such franchise or distributorship. Upon such a showing, the court may award any person bringing said action reasonable attorney's fees and shall award such person reasonable costs incurred in bringing the action, and execution shall thereupon issue."
Look's like you have some good ammunition, but again a full review of everything by a franchise attorney is the best, next step forward.
Kevin B. Murphy, B.S., M.B.A., J.D.
Attorney at Law & Franchise Expert
Director of Operations - Mr. Franchise
FRANCHISE FOUNDATIONS APC
Mr. Murphy raises arguements that you need to have evaluated by an attorney. I note that you made no reference to the franchisor's Franchise Disclosure Document. Did you in fact receive one, as that may be crucial? While the comments about the effect of the "integration" clause or "parole evidence" clause are in general correct, without a thorough analysis by an experienced franchise lawyer, none of us can give you a well reasoned opinion as to your rights or the difficulty and cost in seeking to enforce them.
I agree with my colleague that your lengthy agreement probably contains a "parole evidence" clause that precludes consideration of oral statements or representations. And no document like this would make any representations about your potential income.
It sounds like you signed this agreement without reading it, or you would have known BEFORE signing that it didn't reflect the parties' oral communications. It also sounds like you didn't have your own lawyer reviewing this document and negotiating the terms before you committed to it.
In general, your rights are defined by that document, unless you've got some argument about being fraudulently induced to enter into that agreement.
If you want to discuss the exact language of the document you signed and the circumstances surrounding that transaction, see your own lawyer.
The written agreement will likely govern the relationship with the franchisor as a general rule. However, if you were verbally given earnings claims and the FDD did not have an Item 19 disclosure, or the claims were different than the Item 19 disclosure in the FDD, there may be an action against the franchisor. You appear to be in FL and FL has a franchise law that may apply and may provide you with a private right of action against the franchisor for misrepresentation of your chances for success, among other things. Of course, the fact that you signed a document indicating that you had not been told claims of income will make proof of your claims very difficult. If successful, you could receive a return of all monies paid.
My recommendation is to speak with the Attorney General's office in Tallahassee, specifically the division responsible for overseeing franchise fraud and misrepresentation. If they are unhelpful, you may want to consult a franchise attorney who represents franchisees.
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