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THIRTEENTH CONGkESS OF THE REPUBLIC) 
First Regular Session ( ,  
OF THE PHILIPPINES 
'04 
R'JI -3 i";m 
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EXPLANATORY NOTE 
Introduced by Senator Miriam Defensor Santiago 
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investments. 
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Franchise businesses involve a joint enterprise between the hanchisor and franchisees, in 
which each party has I vested interest in the franchised business. Most prospective franchisees 
lack bargaining powe?, and generally invest substantial amounts to obtain a franchise business 
when they are unfamiliar with operating,a business, with the business being franchised, and with 
industry practices in franchising. 
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Many franchisees reflect a profound imbalance of contractual power in favor of the 
franchisor, and fail to give due regard to the legitimate business interests of the franchisee, as a 
result of the franchisor reserving pervasive contractual rights over the franchise relationship. 
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Franchisees rniy suffer substantial financial losses when the franchisor does not provide 
truthful or complete itlformation regarding the franchise opportunity, or where the franchisor 
does not act in good faith in the performance of the franchise agreement. 
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THIRTEENTH 
SS OF THE REPUBLIC) 
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First Regular Session 
create uniform private 
S E N A T E  
S.B.No. 
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remedies for violations ofpertinent laws. 
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Introduced by Senator Miriam Defensor Santiago 
(1) “good 
AN ACT 
ESTABLISHING MINIMUM STANDARDS OF FAIR CONDUCT IN 
FRANCHISE SALES AND FRANCHISE BUSINESS RELATIONSHIPS 
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faith” means honesty in fact and the obsedance of reasonable standards 
Act.” 
SECTION 1. bhort Title. - This Act shall be known as the “Small Business Franchise 
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(B) any fact, circumstance, or set of conditions which has, or may have, 
any sighcant financial impact on a franchisor, franchisee or a prospective 
franchisee. 
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of an offer to buy, a franchise or interest in a franchise for, value. 
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or 
(6) “sub-franchise” means a contract or an agreement 
franchisor for.the right o sell, negotiate the sale, or provide service 
by which a person pays a 
franchises. 
(1) IN GENERAL - In connection with the advertising, offering, sale, or 


(2) 
with any disclosure 
(ii) in the selection of any site or location for a franchise business. 
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MISREPRESENTATIONS IN REQUIRED D ISCLOSURE - In connection 
document, notice, 01; 
report required by any law, it shall be unlawful for any 
I )to fail to state a material fact; or 
C) to fail to statelany fact which would render 
disclosu e either untrue or misleading; 
any required statement or 
disclosure 
SECTION 5. 
(1) 
the performance, 
document. 
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Unfair Franchise Practices. - 
DECEPTIVE AND DISCRIMINATORY PRACTICES - In connection with 
enforcement, renewal,# or termination of any frdchise agreement, it shall be 


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through 
IA) It shall be unlawhl for a franchisor, $ither directly or indirectly 
an affiliate or another person, to terminate a~franchise agreement prior to 
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default; 
(ii) the franchisee, without the requirement of notice and 
gpportunity to cure - 
(a) voluntarily abandons the business licensed by the 
franchise agreement, except that loss or termination of a leasehold 
for the business prior to the term of a franchise agreement by 
reason of eminent domain, foreclosure sale, natural disaster, or 
other termination not the fault of the hanchisee shall not be 
considered abandonment by the franchisee; 


@) is convicted of a felony, for which imprisonment of one 
(1) year or more can be imposed, which substantially impairs the 
good will associated with the franchisor's trademark, service mark, 
trade name, logo type, advertising, or other commercial symbol; 
(c) is repeatedly in default of the same material provision of 
the franchise agreement, where the enforcement of such provision 
is substantially similar to enforcement of that provision with other 
franchisees; or 
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(d) operates the business licensed by the franchise 
agreement ,in a manner that creates ah imminent danger to public 
health or safety; or 
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(iii) the franchisor withdraws from, the marketing are of the 
siness licensed 'by the franchise agreement and pays the reasonable 
mpensation for damages incurred from the shortened term of the 
reement and agrees in writing not to enforce any contractual prohibition 
ainst the franchisee continuing to engjge in the business at the 
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lnchised location. 
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-TERM RESTRICTIONS ON COMPETITION - 
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) A franchisor shall not prohibit, or enforce a prohibition against, any 
franchisee from engaging in any business at any location after expiration of a 
franchise agreement. 
k) Nothing in this sub-section shall be interpreted to prohibit enforcement 
of any provision of a franchise contract obligating a franchisee after the expiration 
or termi ation of a franchise - 
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(i) to cease or refrain from using a trademark, trade secret, or other 
i tellectual property owner by the franchisor or its affiliate, except that the 
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I existence of language in the franchise agreement purporting to determine 


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(2) DUTY 
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franchise relationship. 
OF DUE CARE - 
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Unless 
underta 
knowle 
normal 
of busii 
(a) which is the result of acquired learning and aptitude 
developed by special training and experience in the business to be 
licensed under the franchise agreement, or the result of extensive 
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use and experience with the goods 
system of such business; 
@) which is the result of ac 
developed by special training and ex 
licensed under the franchise agreemc 
use and experience with the goods 
system of such business; 
(c) which a prospective f 
services or the operating 
red learning and aptitude 
ence in the business to be 
or the result of extensive 
services of the operating 
:hisee would expect in 
reasonable reliance on the written and oral commitments and 
representatives of the franchisor. 
(ii) A franchisor shall be permitted to show that it contracted for, 
cd, or purchased the expertise necessary to comply with the 
pirements of this sub-section and that such expertise was incorporated 
the franchise er communicated or provided to the franchisee. 


(i) undertakes to perform bookkeeping, collection, payroll, or 
accounting services on behalf of the franchisee; or 
(ii) administers, controls, or supervises (either directly or through 
any subsidiary or affiliate) any advertising,, marketing, or promotional 
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(i) keep all moneys contributed to $uch fund or program in a 
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separate account; 
(ii) provide an independent certified audit of such fund within sixty 
160) days following the close of the franchisor's fiscal year, which shall 


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termination, 
or as a 
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create 01 extend fiduciary duty by implication to other aspects of a franchise. 
cancellation,, forfeiture, repurchase, or resale of a franchise business 
condition for permitting a franchisee to leave: the franchise system, which 
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an integration clause, 
collateral to a franchise, 
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any provision of a franchise agreement, or an agreement ancillary or 
the parol evidence rule, or any other rule of evidence purporting to 
or in a franchise to a transferee provided the transferee satisfies the reasonable qualifications then 
franchisees. For the 
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purpose of this section, a reasonable current qualification for a new 
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permit the transfer, 
arbitrary or capricious 
franchisee. 
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provided that the refusal of the franchisor to consent to the transfer is not 
and the franchisor states the grounds for its refusal in writing to the 
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on request shall provide 
equitable or beneficial 
appropriate. 
its con; 
in writing the ownership interests of all persons holding or claiming an 
interest in the franchise subsequent to the transfer or the franchisee, as 
consent to the transfer as evidenced in Writing in accordance with dub-section (1). A statement 
(ii) a reasonable transfer fee be paid to reimburse the franchisor for 
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(6) 
consent to a franchisee’s 
(A) The succession of ownership or management of a franchise upon the 
CONSENT TO PUBLIC OFFERING - A franchisor may not withhold its 
m aking a public o ffering o fits s ecurities without good c ause i f t he 
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spouse, heir, or partner active in the management of the franchise unless the 


percent (50%) of the franchise would be owned by persons who objectively meet 
authorize the transfer. 
would 
current 
be owned by persons who objectively meet the franchisor’s reasonable 
qualifications, ,the :franchisor may refuse to aukhohorize the transfer. 
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opportunity 
party’s 
obligation. 
to redeem the interest of the secured party and recover the secured 
interest in the franchise or franchised businkss by satisfying the secured 
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(1 )EXCEPTION- This sub-section shall not limit the franchisor from 
enforcing a contractual ~ covenant against the transferor not to exploit the 
franchis r’s trade s ecrets:o r intellectual property rights (including protection o f 
trade adhress) except by agreement with the franchisor. 
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SECTION 9. Transfer of Franchise by Franchisor - A franchisor shall not transfer, by 
sale or otherwise, its in erest in a franchise unless - 
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(1) the ranchisor provides, n ot 1 ess than thirty ( 30) days b efore the effectivity 
date of the transfer, no ice to every franchisee of the intent to transfer the franchisor’s interest in 
the franchise or of sub tantially all of the franchises by the franchisor; 
(2) such notice is accompanied by a complete description of the business and 
financial terms of the p oposed transfer or transfers; and 
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(3) upon the transfer, the entity assuming the franchisor’s obligations has the 
business experience and financial means to perform all of the franchisor’s obligations in the 
ordinary course of bus1 ess. 
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SECTION 10. kdependent Sourcing of Goods and Services. 
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(4) 
using generally accepted 
(i) offers goods or services identified by the same trademark as 
those offered from the new outlet; or 
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REPORTING - A franchisor shall r eport not 1 ess frequently than annually, 
accounting principles, the amount of revenue and profit it earns from 
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dew outlet. 
(ii) has premises that are identified by the same trademark as the 
equipment, fixtures, 
incorporate a trade secret, 
SECTION 1 1. 
supplies, goods, or services are central to the franchised business and 
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patent, or copyright owned by the franchisor or its affiliate. 
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Encroachment. - 
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(2) EXClEPTION - This, section shall not apply with respect to an established 
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SECTION 12. 
iB) in an action or proceeding brought under section 12. 
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Right ofAction. - 
threatened violation of 
as for all damages and 
fees and expert witness 
(2) 
under subsection (l), 
this Act, shall have a right of action for rescission and restitution, as well 
injunctive relief, including costs of litigation and reasonable attorney's 
fees, against any person found to be liable for such violation. 
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LIABILITY - Every person who directly or indirectly controls a person liable 
every partner in a firm so liable, every principal executive officer or 
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franchisor and a franchisee 
a dispute, either in 
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to engage in arbitration, mediation, or other non-judicial resolution of 
advance of after a dispute arises, provided that /he standards and protections 
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this section or this Act 
ore than - 
(1) PROSPECTIVE APPLICATION - Except as provided in subsection (b), the 
SECTION 1 4. 
unconstitutional, the 
valid and subsisting. 
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SepambiZity Clause. - If any provision or p 4 thereof, i s h eld invalid or 
remainder of the law of the provision not othkrwise affected shall remain 
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SECTION 15. kepealing Clause. - Any law, presidential decree or i ssuance, executive 
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order, letter of instruc ion, administrative order, rule or regulation contrary to, or inconsistent 
with, the provisions of khis Act is hereby repealed, modified, or amended accordingly. 
SECTION 16. 'ffectivity Clause.,- This Act shall take effect fifteen (15) days after its 
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publication in at least tyo (2) newspapers of general circulation. 
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Approved. 
FN: 1423