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 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.

• The franchisees continued to trade even after the price increase.
• There was no immediate objection to the price increase.
• The increased prices were in fact applied throughout the course of trading.

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.

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 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 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.

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.

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.

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.