Believe it or not, franchisors can have more to fear than simply disputes with franchisees. Sometimes, in the litigious world in which we live, franchisors are confronted with litigation filed by people they have never heard of, relatives, and even “friends” of the franchisee.
Consider this scenario: the franchisor receives legal papers in the mail. He or she looks quizzically at the name of the Plaintiff and pulls the franchise agreement out of the file cabinet, flipping to the signature page. The “franchisee” who signed the franchise agreement is not the same person who filed the claim.
How can this be? Strangely enough, friends and relatives who claim “sweat equity” in the franchise, or who loaned money to the franchisee to purchase the franchise have decided they are entitled to damages for (fill in one of numerous claims here). Luckily for the franchisor, fundamentals of corporate law enter the picture at this point and, with a few exceptions, result in dismissal of the case. This is due to the general rule that litigation is limited to the parties who actually signed the franchise agreement.