Many franchise contracts contain clauses that must indemnify the franchisor against the conduct of the franchisee. Not infrequently, such a clause is so general and rigid in nature that the franchisee must, after all, be responsible for matters that simply cannot be held against him. An example of this is guaranteeing any liability that arises directly between the consumer and the franchisee. Such a provision is generally too far-reaching. This scope may, for example, relate to product liability. If the franchisee sells a defective product to the consumer, this does not automatically mean that the franchisee has to guarantee that it is faulty.
It is true that the franchisee can be held liable directly by the consumer, but on the basis of product liability the producer and/or supplier of the product in question is indeed (further) liable for the faulty product delivered. This may be the franchisor or a supplier designated by the franchisor. In practice, the franchisor’s liability may be aggravated by the fact that the franchisee simply had to purchase the product in question from the franchisor or from a supplier designated by the franchisor under an exclusive purchasing provision. In that case, the franchisee therefore had no choice with regard to purchasing the product. Under those circumstances, the franchisor is the one who has to pay for the problem, or the supplier indicated by the franchisor.
The franchisor and franchisee must realize in advance that indemnification clauses must be careful and nuanced in nature and ideally also contain a certain degree of two-sidedness. This makes invoking it much more realistic under concrete circumstances and is therefore much more workable for the franchise practice. Next time, we will look more closely at indemnification clauses related to non-achieved operating forecasts.
Ludwig & Van Dam franchise attorneys, franchise legal advice