THE PRE-CONTRACT OBLIGATIONS REGARDING THE FRANCHISING AGREEMENT

390 Challenges of the Knowledge Society. Private Law THE PRE-CONTRACT OBLIGATIONS REGARDING THE FRANCHISING AGREEMENT DAN-ALEXANDRU SITARU* Abstract The current paper puts into context the Government Ordinance no. 52/1997 regarding franchising with the new concepts of the Civil Code. Thus, under the old Civil Code there were no specific regulations that could be applied to a pre-contractual obligation of the parties. During any negotiation, because the parties sent each other a series of offers, counter offers, and in the end decided whether to agree or not, some parts of a professional secret, know-how, or any other important information for one or both might be revealed to the other. Under international laws, such as the one in France, or by using internationally established unwritten law, such as the Franchising Model Contract by the International Chamber of Commerce and Arbitration in Paris, such a disclosure of important or secret information is protected from future unauthorized usage by any party or affiliate if the contract is not signed. In the view of the new Civil Code, this stage in the development of an agreement, not yet binding, is now regulated and protected. Keywords: franchising, franchisor, franchisee, business model, professional secret Introduction The new civil code did not also include to its regulations the franchising agreement. Despite the same includes most of the civil and commercial agreements, the franchising agreement remains specifically regulated by the Govern Ordinance no. 52/1997 regarding the legal treatment of the franchising. Under the law the franchising is a trading system based on continued collaboration between individuals or legal entities that are financially independent, by which a person named franchisor grants another person named beneficiary the right to operate or to develop a business, a product, a technology, or a service1. By encompassing the particularities set by the lawmaker the franchising may be comprehensively defined as the economic and legal operation by which a professional trader, the franchisor, being an individual or a legal entity, who is holding the title over tangible and/or intangible assets and the title over a successful business, allows another person or several persons, the franchisees (beneficiaries), to manufacture goods or trade them under their mark, using the knowhow developed by the same, within a franchise network wherein the parties are independent from a legal perspective, but are operating the franchisable concept in a homogenous and collective manner. As we stated in previous works2 the conclusion of the franchising agreement involves going through three stages. The first of them, which also represents the subject matter of our study, is the pre-contract stage. The same is followed by the contract or proper stage, and after the expiry of the term set by the parties, or as result of a unilateral termination or of a cessation by fault of the agreement, respectively, for a period of maximum 5 years, the parties are bound by certain specific * Lecturer, Ph.D., Faculty of Law, “NicolaeTitulescu” University, Bucharest () The Govern Ordinance no. 52/1997 regarding the legal treatment of the franchising, published with the Official Journal of Romania (“MonitorulOficial al României”), part I, no. 224 of the 30/08/1997, approved as modified by the Law no. 79/1998 (O.J. part I no. 147 of the 13/04/1998) and republished, with the texts being given a new numbering, with the Official Journal, part I, no. 180 of the 14/05/1998. 2 Dan-Alexandru Sitaru, Contractul de franciză în dreptul intern şi comparat (The Franchising Agreement within the Domestic and Compared Law), Ed. Lumina Lex, 2007, Bucharest. 1 Dan-Alexandru Sitaru 391 obligations such as the non-competition one. Such period subsequent to the cessation of the effects of the agreement is the post-contract stage. Contents 1. The contents of the pre-contract stage Based on the franchisor’s right to choose and select their beneficiaries, they need to first conduct a market survey, choose the franchising method and form they shall apply within the new territory, check the competence and the professionalism of the potential future partners, all in accordance with the already existing franchising network, or in order to create a new one. For such issues to be possible to apply the franchisor needs to know the economic, social, and legal situation within the contemplated geographical area according to their requirements and with their economic interest. However, quite often, the franchisor would approach a beneficiary precisely in order to be able to enter a market where, on their own and directly, they could not have access. Broadly, the pre-contract period consists of determining such elements, which are of essence for developing a franchising network3, and which confer the importance and the necessity for such period. Such period is one of high legal importance as regards the rights and the obligations of the parties, being the stage of essence the future franchising agreement shall be built upon. This is the period when the information exchange occurs that shall, on one hand, allow the franchisor choose the best partner to entrust with the secret of the franchisable concept, and on the other hand allow the potential beneficiary (we shall call them so as they only gain the legal status of a beneficiary at the time the agreement is signed) check the reliability, the profitability, and the accuracy of the franchise network they are going to join, assess whether they could materially and professionally meet the requirements imposed by the franchisor, etc. Summarising, both parties need to examine the convenience of the business they wish to conclude, and following the negotiations become convinced that they are making a choice being fully aware, i.e. to lawfully form their consent4. 2. The obligation to inform The key element during this phase is the one of the mutual obligation to inform. It arises from the article 2 paragraph 1 in the G.O. no. 52/1997, wherein it is stated that the purpose of the precontract phase is to allow the parties to form a decision to collaborate. It is common for all the franchise types and methods set out, being an obligation with a general nature. We shall discuss such obligation, and we shall examine its legal nature, its contents, and its penalty, each in its turn. 2.1. The legal nature of the obligation The New Civil Code sets within the article 1,183 paragraph 1 that the parties have the freedom to initiate, carry on, and break the negotiations, and they may not be held liable for the failure of the same. Therefore, any legal act is preceded by a negotiation wherein the elements of the offer are debated and may be agreed upon or not by the parties involved. A significant part of such 3 For the definition of the franchising network please refer to Stanciu. D. Cărpenaru, Tratat de drept comercial român (Romania (...truncated)