Case Analysis / Legal Updates

Franchise Agreement | Even if the Price Change Procedure Is Not Followed, the Increase Is Not Void Where Implied Consent Exists: A Supreme Court Judgment Setting the Standard for Interpreting Franchise Agreements

The Supreme Court has held that even if a franchisor does not follow the price change procedure set out in a franchise agreement, a price increase does not automatically become void where the franchisee is found to have given implied consent after the fact. (Supreme Court, Judgment of January 29, 2026, 2025 Da 217179)

1. Franchise Agreement | Overview of the Case

Franchise Agreement | Overview of the Case

In this case, which concerned a franchise agreement, the franchisor raised the prices of raw and subsidiary materials (commonly referred to as "material costs") without following the procedure set out in the agreement, and the franchisees brought a claim for the return of unjust enrichment on that ground.

The franchise agreement concluded between the franchisor and the franchisees set out a procedure for changing the supply prices of raw and subsidiary materials.

The relevant clause was structured as follows.

The prices of raw and subsidiary materials shall follow the schedule attached to the agreement.

Provided that, where a price change becomes necessary due to changes in economic conditions, such as rising prices, the franchisor shall present the details of the change, the reasons for the change, and the basis for calculating the price in writing, and the two parties shall decide through consultation.

The franchisees argued that the franchisor raised the prices of raw and subsidiary materials without sufficiently following the above procedure, asserting the following.

  • The price increase violated the procedure set out in the agreement and was therefore void.
  • Accordingly, the increased material costs constituted unjust enrichment.
  • The franchisor was required to return the difference.

The Lower Courts' Determination

The courts of first and second instance, however, did not accept these arguments.

The lower courts acknowledged that there had been a procedural violation in the course of the price increase, but they took the following circumstances into account.

Ultimately, the courts held that the franchisees could be regarded as having given implied consent to the price increase after the fact.

The Supreme Court likewise upheld this determination.

2. Franchise Agreement | The Supreme Court's Determination

In this judgment, the Supreme Court set out the legal principles concerning the interpretation of the price change clause in a franchise agreement and its effect.

Price Change Clause in the Franchise Agreement: Written Presentation and a Consultation Procedure Are Required

The Supreme Court held that in order to change the prices of raw and subsidiary materials, the franchisor must satisfy the requirements set out in the agreement.

That is, the following requirements are necessary.

  • The existence of a need for the price change
  • Presentation of the details of the change and the reasons for the change
  • Presentation of the basis for calculating the price
  • Consultation with the franchisee

In particular, the court ruled that these matters must be presented in writing.

Accordingly, the court held that, where this procedure is not followed, a unilateral price change by the franchisor does not, in principle, take effect against the franchisee.

The Effect of a Procedural Violation: A Price Increase Does Not Immediately Become Void

The Supreme Court, however, held that the mere fact that there was a procedural violation does not automatically render the price increase void.

In this case, the following circumstances were found.

  • The franchisees continued to trade even after the price increase.
  • Trading to which the increased prices were applied continued over a long period.
  • No separate objection was raised to the price increase.

Taking these circumstances together, the court found that the franchisees could be regarded as having impliedly consented to the price increase.

Accordingly, the court held that the lower courts' conclusion that the price increase was not void was justified.

The Need for the Price Increase: Changes in Economic Conditions May Be Considered

The Supreme Court also assessed whether the price increase was justified.

The lower courts held that a need for the price change existed when the rise in the prices of raw and subsidiary materials and the changes in economic conditions at the time of the first and second material cost increases were taken into account.

The Supreme Court likewise accepted this determination.

Claims Regarding POS Usage Fees and Damages: A Legal Basis Was Recognized

The franchisees also asserted unjust enrichment in connection with the imposition of POS usage fees.

The lower courts, however, held that the POS usage fees could be regarded as costs grounded in the contractual relationship, and the Supreme Court upheld this as well.

The franchisees' claim for damages was likewise not recognized.

3. Franchise Agreement | The Legal Standard for a Franchisor's Price Change

Franchise Agreement | The Legal Standard for a Franchisor's Price Change

Where a franchise agreement sets out a price change procedure, the franchisor must comply with it.

The following matters are particularly important.

  • Whether a need for the price change exists
  • Presentation of the basis for calculating the price
  • The consultation procedure with the franchisee
  • Whether written notice was given

Even where a procedural violation exists, however, if the franchisee accepts it and continues to trade, implied consent may be recognized.

Ultimately, the following factors appear likely to be the key issues in future disputes.

Key Points for Assessing the Liability of the Franchisor and the Franchisee

Category

Key Practical Points of Assessment

Materials the Company Should Prepare

Franchisor

Whether a need for the price change exists, and whether a consultation procedure was carried out

Price calculation materials, materials on rising prices, and records of consultation

Franchisee

Whether the price increase was expressly refused, and whether trading was maintained

Written protests, official letters, and trading records

Operational Staff

The method of notifying the price change, and records of the consultation process

Emails, official letters, and meeting records

The Corporation

The reasonableness of the pricing policy, and the fairness of the franchise business

Internal pricing policy, and the contract management system

Legal Response Strategy for Businesses

This judgment is a case that set out an important standard for interpreting the price change clause in a franchise agreement.

In particular, while confirming the principle that a franchisor must comply with the procedure set out in the agreement when changing prices, it made clear that the effect of a price change may be maintained where the franchisee's implied consent is recognized.

In franchise business disputes, judgments are often reached by combining the interpretation of the contract clauses with the actual trading practices, so it is important for both the franchisor and the franchisee to clearly design the structure and procedure for price changes from the stage of concluding the contract.

At Daeryun, attorneys experienced in fair trade matters and corporate matters work together to provide franchise-related legal services, including the drafting of franchise agreements, responding to franchise business disputes, and reviewing fair trade risks.

Area of Assistance

Key Details

Contract Review

Review of the price change clause in the franchise agreement

Dispute Response

Responding to franchise disputes relating to material cost increases

Fair Trade Risk Management

Analysis of whether the Fair Transactions in Franchise Business Act has been violated

Litigation Strategy

Responding to unjust enrichment and damages litigation

Evidence Strategy

Securing the basis for price calculation and records of consultation

If a dispute concerning contract interpretation or pricing policy arises in the course of operating a franchise business, professional legal review is needed from the early stage.

If you need legal assistance with matters such as the drafting of a franchise agreement, you are welcome to book a 🔗fair trade legal consultation with our firm.

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