5 Franchise L.J. 1 (1985-1986)

handle is hein.journals/fchlj5 and id is 1 raw text is: jrachs    I. . *-. -l

The Rescission Remedy for
Franchise Regulation Violations

by Terence McTigue*
Seattle, Washington
Terence McTigue               Donald S. Chisum
The various state statutory schemes regulating the offer and
sale of franchises provide for the delivery of offering cir-
culars to prospective franchisees and may also provide spe-
cific requirements for the registration of franchise offerings.
When a sale of a franchise occurs in violation of these re-
quirements, the statutes give to the franchisee a right to re-
scind the transaction.' The statutes may also provide a right
to recover damages.'
The franchise statutes typically do not provide any details
as to the conditions for exercise of the right by a franchisee,
possible defenses that a franchisor can assert, or the effect of
rescission.' It has been left to the courts to shape the statu-
tory remedy of rescission in light of the common law prin-
ciples on rescission and restitution and the purposes of the
franchise acts. In the limited number of decisions reported,
the courts have split in their views on such issues as whether
equitable defenses (such as waiver and estoppel) apply4 and
whether the franchisee must make a restoration of benefits
received during the term of the franchise.'
*J.D. 1971, University of Washington. Attorney at Law, Bellevue,
Washington.
**A.B. 1966, LL.B. 1968, Stanford University. Professor of Law,
University of Washington, Seattle, Washington.

Donald S. Chisum**
Bellevue, Washington
This article first poses a series of fact patterns illustrating
the various circumstances under which a franchisee might
seek to exercise the right to rescind and the difficulties in ap-
plying a rescission remedy to a franchise. It then discusses
(1) the common law remedy of rescission and restitution as
applied to parties to a contractual relationship and (2) the
body of cases that have dealt with the rescission remedy
under state franchise regulation acts. It concludes with some
comments on the current status of the law of franchise
rescission.
Fact Patterns
An attempted rescission of an unlawful sale of a franchise
may present diverse problems and issues depending on cir-
cumstances such as the length of time between the sale and
the attempted rescission, the amount of time and effort ex-
(continued on page 16)
Elsewhere in This Issue
A Comprehensive Guide to Franchise
Law Journal (1980-85) ..................... pullout section
Termination of Franchise Agreements in
Belgium-Legal Pitfalls .................................. 3
Franchising  Currents  ..........................................  7
(Including: Bottler Wins Treble Damages-Distribu-
tor's Withholding of Payment Violated Massachusetts
Little FTC Act; Service Station Franchisees Settle An-
titrust Dispute After Fourteen Years of Litigation;
FTC Challenges Oklahoma Optometrists' Ban on
Franchises; Modest Georgia Restrictive Covenant En-
forced; Terminated Distributor Recovers $2 Million on
Price-Fixing Claim; Franchisor May Be Held Liable
for Failure to Maintain Franchised Restaurant Facili-
ty; and others.)
Franchising  Bookshelf ......................................  15

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