ITALY: recent judgment on franchise agreements.

Silvia BORTOLOTTI | ITALY | 2012-07-16


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The Tribunal of Palermo recently issued an interesting judgment (of September 2, 2011) concerning the termination of a franchise agreement.

The facts were the following.

In 1998 the parties entered into a franchise agreement.
Article 14.1 of the contract granted the franchisor the right to immediately terminate the contract in case of breach by the franchisee of some contractual obligations specifically mentioned therein, including the franchisee’s obligation to pay the products within 90 days following the invoice date. Some time after the signing of the contract, the franchisee commenced not to respect the payment terms contractually agreed. In a first period the franchisor accepted delayed payments by the franchisee; the latter accumulated a substantial debt exposure, which was then partially reduced (but not completely eliminated) by the franchisee, in accordance with a repayment plan signed by the parties on 22/6/2004.

With letter of 14/7/2004 the franchisor terminated the contractual relationship with immediate effect, in accordance with Article 14.1 of the contract, invoking the failure by the franchisee to respect the payment terms contractually agreed.

The franchisee contested the termination.
The Court, quoting a judgment of the Supreme Court on this aspect (Cass. No. 3964 of 18/3/2003), stated that the fact that the franchisor had tolerated in several occasions the franchisee’s breach of the contract, by accepting delayed payments was certainly in conformity with the general principles of solidarity, fairness and good faith provided by the Italian Constitution and by the Italian civil code.

However, such tolerance could not justify the breach of the contractual payment’s obligation by the franchisee and could not be regarded as a waiver of the franchisor’s right to terminate the contract, nor as an implicit consent by the franchisor to modify the payment terms contractually agreed. The Court therefore confirmed the validity and effectiveness of the franchisor’s termination and condemned the franchisee to pay the outstanding sums due to the franchisor.

Silvia Bortolotti, Council Member and Secretary General IDI.

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