In Franchising: State Law Really Does Matter
A recent case highlights a significant advantage New Jersey franchisees have over franchisees in Pennsylvania. In New Jersey, all contracts (including UFOC's) are subject to implied covenants of "good faith" and "fair dealing." This means that a franchisor's conduct in performing its duties under the UFOC (such as training, advertising, etc.) is subject to a higher standard than simply what is written in the UFOC. For example, if a franchisor states that it will use its "best efforts" to obtain an appropriate location for a franchisee, those "best efforts" will be judged on a "good faith and fair dealing" standard. In contrast, Pennsylvania has no "good faith and fair dealing" requirement regarding performance of UFOC obligations (See recent confirming decision in Keshock v. Carousel Sys., Inc., No. 04-758, 2005 WL 1198867). The bottom line is that franchisees and franchisors in Pennsylvania need to take extra care in drafting UFOC's.
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It would seem that New Jersey, not Pennsylvania, franchisors have to take extra care, based on what you wrote. Am I not following?
Absolutely, "good faith and fair dealing" is the bain of New Jersey defense attorneys in contract petitions - its often a convenient way to dodge a summary judgement motion. In some extreme situations, violations of good faith and fair dealing can be treated as a tort with tort style damages. Check out the case "Sons of Thunder".