Harold Brown on Franchising…nothing has changed in nearly 30 years!

“Does any principle in our law have more universal application than the doctrine that courts will not enforce transactions in which the relative positions of the parties are such that one has unconscionably taken advantage of the necessities of the other?…The law is not so primitive that it sanctions every injustice except brute force and downright fraud.  More specifically, the courts generally refuse to lend themselves to the enforcement of a ‘bargain’ in which one party has unjustly taken advantage of the economic necessities of the other.” – Justice Felix Frankfurter  (November 15, 1882 – February 22, 1965)

It would be difficult to find a business relationship to which such standards are more applicable than franchising.  Although hundreds of different industries use franchising, certain common denominators exist.  Variations are minor and do not affect the overall picture.  The basic problem is a marked, intentional, and constantly emphasized disparity in the parties’ positions.  The franchisor combines the roles of father, teacher, and drill sergeant, while the franchisee becomes son, pupil, and buck private.  At the core of the relationship is the franchisor’s contractual control over every aspect of the franchisee’s business.  Franchisors claim that so long as a franchisee has had an opportunity to study the agreement, perhaps with the advice of counsel, he should be bound by its terms.  – Harold Brown

Taken from Franchising by Harold Brown First Edition 1981

Fly on the Wall – Follow Up Conversation with R.B & Glen

Glen: R.B., we got people who are complaining that they don’t need to take delivery on all of the equipment in the package at the onset.  They claim they need to “ramp-up” from their homes until they are ready to move into a full-fledged office space.

R.B.: No problem.  Just tell them you’ll hold the equipment free of charge until they have a year or so under their belts.

Glen: But I don’t want to have to warehouse all this crap in the meantime!

R.B.: Glen, Glen, you don’t have to.  They don’t have to know when you buy it.  Just don’t give them any serial numbers.  Look at it this way, if they’re going to fail, they’ll do it in the first 18 months or so and then you don’t have to buy the equipment at all!

Glen: And what if we they demand the equipment?

R.B.: They won’t, they don’t want it, nor can they do anything with it anyway.  We’ll break the financing into two tranches and when they take delivery on it, you can charge them another fee, get them to sign another document (solidifying your position in UCC 2a) and voila, you now have the money to buy the equipment twice!

Glen: Brilliant!  Double the money for the same stuff!  Brilliant!