• 
FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
SENATE 
Senate Bill No. 1328 
INTRODUCED BY HON. MANNY VILLAR 
EXPLANATORY NOTE 
The Constitution, Article 2, Section 20 provides: 
Section 20. The State recognizes the indispensable role of the 
private sector, encourages private enterprise, and provides incentives to 
needed investments. 
Franchise businesses represent a large and growing segment of the country's 
retail and service businesses and are rapidly replacing more traditional forms of small 
business ownership in our economy. 
Franchise businesses involve a joint enterprise between the franchisor and 
franchisees, in which each party has a vested interest in the franchised business. Most 
prospective franchisees lack bargaining power 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. 
Many franchises 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. 
Franchisees may suffer substantial financial losses when the franchisor does not 
provide truthful or complete information regarding the franchise opportunity, or where 
the franchisor does not act in good faith in the performance of the franchise agreement. 
EXisting laws have not evolved suffiCiently to protect franchisees adequately 
from fraudulent or unfair practices in the sale and operation of franchise businesses, 
and significant contractual and procedural restrictions have denied franchisees 
adequate legal recourse to protect their interests in such businesses. 
A franchisee's freedom to contract is greatly limited by the disparity of bargaining 
power, lack of consistent legal standards, and other factors described above. This bill is 
necessary to restore freedom to contract, and to remove restrictive barriers impeding 
entry into industries and markets dominated by franchise systems. 


FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
SENATE 
Senate Bill No. 1328 
INTRODUCEiD BY HON. MANNY VILLAR 
, : j 
p ,i 
AN ACT ESTABLISHING MINIMUM STANDARDS OF FAIR CONDUCT IN 
FRANCHISE SALES AND FRANCHISE BUSINESS RELATIONSHIPS 
Be it enacted by the Senate 'and House of Representatives ofthe Philippines in 
Congress assembled: 
SECTION 1. 
Short Title. 
This Act shall be known as the "Small Business 
Franchise Act." 
SECTION 2. Purpose. The purpose of this Act is to promote fair and equitable 
franchise agreements, to estab1ish uniform standards of conduct in franchise 
relationships and to create uniform private remedies for violations of pertinent laws. 
SECTION 3. Definitions. For purposes of this Act: 
(1) 
The term "good faith" means honesty in fact and the observance of 
reasonable standards of fair dealing in the trade. 
(2) 
The terms "material" and "material fact" includes: 
(A) 
any fact, circumstance, or set of conditions which a 
reasonable franchisee or a reasonable prospective franchisee would 
consider important in making a significant decision relating to entering 
into, remaining in, or abandoning a franchise relationship; and 
(B) 
any fact, circumstance, or set of conditions which has, or 
may have any signifipant financial impact on a franchisor, franchisee or a 
prospective franchisee. 
(3) 
The term "offer" or "offering" means any effort to offer or dispose of, 
or solicitation of an offer to buy, a franchise or interest in a franchise for value. 
2 


(4) 
The term "outlet" means a point of sale, temporary or permanent, 
fixed or mobile, from which goods or services are offered for sale. 
(5) 
The term "person" means an individual or any other legal or 
commercial entity. 
(6) 
The term "subfranchise" means a contract or an agreement by 
which a person pays a franchisor for the right to sell, negotiate the sale, or 
provide service franchises. 
(7) 
The term "subfranchisor" means a person who is granted a 
subfranchise. 
(8) 
The term "trade secret" means information, including a formula, 
pattern, compilation, program, device, method, technique, or process that: 
(A) 
derives independent economic value, actual or potential, 
from not being generally known to, and not being readily ascertainable by 
proper means by, other persons who can obtain economic value from its 
disclosure or use; and 
(8) 
is the subject of efforts that are reasonable under the 
circumstances to maintain its secrecy. 
SECTION 4. Franchise Sales Practices. 
(a) 
IN GENERAL - In connection with the advertising, offering, sale or 
promotion of nay franchise, it shall be unlawful for any person: 
(1) 
to employ a device, scheme, or artifice to defraud; 
(2) 
to engage in an act, practice, course of business or pattern 
on conduct which operates or is intended to operate as a fraud upon 
prospective franchisee; 
(3) 
to obtain property, or assist others to obtain property, by 
making an untrue statement of a material fact or any failure to state a 
material fact; 
3 


(4) 
to discriminate among prospective franchisees on the basis 
of race, color, sexual orientation, sex, religion, disability, national origin, or 
age-
(A) in' the solicitation, offering or sale of any franchise 
opportunity; or 
(6) in the selection of any site or location for a franchise 
business. 
(b) 
MISRPRESENTATION IN REQUIRED DISCLOSURE 
In 
connection with any disclosure document, notice, or report required by any law, 
it shall be unlawful for any franchisor, subfranchisor, or franchise broker, either 
directly or indirectly through another person 
(i) • 
to make an untrue statement of material fact; 
(ii) 
to fail to state a material fact; or 
(iii) 
to fail to state any fact which would render any 
required statement or disclosure either untrue or misleading. 
(6) 
to fail to furnish any prospective franchisee with-
(iv) 
all information required to be disclosed by law 
and at the'time and in the manner required; and 
(v) 
a written statement specifying prominently 
whether the franchise agreement involved contains a right to 
renew such agreement; or 
(C) 
to make any claim or representation to a prospective 
franchisee whether ~rally or in writing, which 
is inconsistent with or 
contradicts such disclosure document. 
SECTION 5. Unfair Franchise Practices. 
(a) 
DECEPTIVE AND 
DISCRIMINATORY PRACTICES 
In 
connection with the performance, enforcement, renewal, or termination of any 
franchise agreement, it shall be unlawful for a franchisor or subfranchisor, either 
directly or indirectly through another person -
4 


(1) 
to engage in an act, practice, course of business, pattern of 
conduct which operates as a fraud upon any person; 
(2) 
to discriminate among franchisees on the basis of sexual 
orientation, rex, religion, disability, national origin, or age; 
(3) 
to hinder, prohibit, or penalize (or threaten to hinder, 
prohibit, or penalize), directly or indirectly, the free association of 
franchisees for any lawful purpose, including the formation of or 
participation in any trade association made up of franchisees or of 
associations of franchises; or 
(4) 
to 
discriminate 
against 
a 
franchisee 
by 
imposing 
requirements not imposed on other similarly situated franchisees or 
otherwise retaliate, directly or indirectly, against any franchise for 
membership or participation in a franchisee association. 
(c) 
TERMINATION WITHOUT GOOD CAUSE 
(1) 
It shall be unlawful for a franchisor, either directly or 
indirectly through an affiliate or another person, to terminate a franchise 
agreement prior to its expiration without good cause for such termination. 
(2) 
For purposes of this subsection, good cause shall exist only 
where-
(A) (i) the franchisee fails to comply with a material provision of the 
• 
franchise agreement after receiving notice that specifies the precise basis for 
the default, each material term of the franchise agreement with which the 
franchise is not in compliance, and a 3D-day period to cure the default; and 
(ii) 
if the nature if the default is such that it cannot be cured 
through reasonably diligent conduct, the franchisee fails to initiate within 
3D days, and diligently pursue substantial continuing action to cure the 
default; 
(B) 
the franchise, without the requirement of notice and 
opportunity to cure-
5 


(i), 
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 
franchisee shall not be considered abandonment by the 
franchisee; 
(ii) 
is 
convicted 
of 
a 
felony, 
for 
which 
imprisonment of 1 year or more can be imposed, which 
• 
substantially impairs the good will associated with the 
franchisor's trade mark, service mark, trade name, logotype, 
advertising, or other commercial symbol; 
(iii) 
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 
(iv) 
operates 
the 
business 
licensed 
by 
the 
franchise agreement in a manner that creates an imminent 
danger to public health or safety; or 
(C) 
the franchisor withdraws from the marketing area of the 
business licensed by the franchise agreement and pays the franchisee 
reasonable compensation for damages incurred from the shortened term 
of the agreement and agrees in writing not to enforce any contractual 
prohibition against the franchisee continuing to engage in the business at 
the franchised location. 
(c) 
POST-TERM RESTRICTIONS ON COMPETITION. 
(1) 
A franchisor shall not prohibit, or enforce a prohibition 
against, any a franchisee from engaging in any business at any location 
after expiration of a franchise agreement. 
6 


(2) 
Nothing in this sUbsection shall be interpreted to prohibit 
enforcement of any provision of a franchise contract obligating a franchisee 
after expiration or termination of a franchise: 
(A) tei cease or refrain from using a trademark, trade 
secret, or other intellectual property owned by the franchisor or 
its affiliate, except that the existence of language in the franchise 
agreement purporting to determine ownership of a trademark, 
trade secret, or other intellectual property shall not be binding 
upon any court or forum for purposes of this paragraph, but 
maybe considered by such court or forum as evidence of such 
ownership; 
(B) to alter the appearance of the business premises so 
that it is not' substantially similar to the standard design, decor 
criteria, or motif in use by other franchisees using the same 
name or trademarks within the proximate trade or market area of 
the business; or 
(C) to modify the manner or mode of business operations 
so as to avoid any substantial confusion with the manner or 
mode of operations which are unique to the franchisor and 
commonly in practice by other franchisees using the same name 
or trademarks within the proximate trade or market area of the 
business. 
SECTION 6. Standards of Conduct. 
(a) DUTY OF GOOD FAITH 
(1) 
A franchise contract imposes on each party thereto a duty to act in 
good faith in its performance and enforcement. 
(2) 
As used in this subsection, a duty of good faith shall-
(A) 
obligate a party to a franchise to do nothing that will have the 
effect of destroying or 'injuring the right of the other party to obtain and 
7 


receive the expected fruits of the contract and to do everything requires 
under the contract to accomplish such purpose; and 
(8) 
require honesty of fact and observe of reasonable standards 
of fair dealing in the trade. 
(3) 
No provision of any franchise agreement, express or implied, shall 
be interpreted or enforced in such a way as to obfuscate a party's duty to act 
reasonably and in good faith with the other, or otherwise allow a disparate result 
in the franchise relationship. 
(b) DUTY TO DUE CARE 
(1) 
A franchise agreement imposes on the franchisor a duty of due 
care, unless a franchisor represents that it has greater skill of knowledge in its 
undertaking with its franchisees, or conspicuously disclaims that it has skill or 
knowledge, the franchisor is required to exercise the skill and knowledge 
normally possessed by the franchisors in good standing in the same or similar 
types of business. 
(2) 
For purposes of this subsection-
(A)the term "skill or knowledge" means something more than the mere 
, 
minimum level of skill or knowledge required of any person engaging in a 
service or business and involves a special level of expertise-
(i) 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 use and experience with the goods or services or the 
operating system of such business; 
(ii) which is the result of experience in organizing a 
franchise system and in providing training, assistance and 
services to franchisees; and 
8 


(iii) which a prospective franchisee would expect in 
reasonable reliance on the written and oral commitments and 
representations of the franchisor; and 
(8)a franchisor shall be permitted to show that it contracted for, hired 
or purchased the expertise necessary to comply with the requirements of this 
subsection and that such expertise was incorporated in the franchise or 
communicated or provided to the franchise. 
(3) 
The requirement of this subsection may not be waived by 
agreement or by conduct, but the franchisor may limit in writing the nature and 
scope of its skills and knowledge, and of its undertaking with a prospective 
franchise, provided that no inconsistent representation, whether written or oral, is 
made to the prospective franchisee irrespective of any merger or integration 
clause in the franchise agreement. 
(c) LIMITED FIDUCIARY DUTY 
• 
(1) Without regard to whether a fiduciary duty is imposed generally on the 
franchisor by virtue of a franchise agreement, the franchisor owes a fiduciary duty to 
its franchisees and is obligated to exercise the highest standard of care for 
franchisee interests where the franchisor-
(A) 
undertakes to 
perform 
bookkeeping, 
collection, 
payroll, 
or 
accounting services on behalf of the franchisee; or 
(8) 
administers, controls or supervises (either directly 0 through any 
subsidiary or affiliate) any advertising, marketing, or promotional fund or 
program to which franchisees are required to, or routinely, contribute. 
(2)A franchisor that administers or supervises the administration of any fund 
or program described in paragraph 
(1 )(8) shall--
(A) 
keep all money contributed to such fund or program in a 
separate account; 
9 


(8) 
provide an independent certified audit of such fund within 60 
days following the close of the franchisor's fiscal year, which include full 
disclosure of all fees, expenses, or other payments form the account to the 
• 
franchisor or to any subsidiary, affiliate, or other entity controlled in whole or 
in part by the franchisor; and 
(C) 
disclose the source and amount of, and deliver to such fund 
or program, any discount, rebate, compensation, or payment of any kind 
from any person or entity with whom such fund or program transacts. 
(3) While not limiting the ability of any court to identify other circumstances for 
which a fiduciary duty may also exist, this subsection does not create or extend a 
fiduciary duty by implication to other aspects of a franchise. 
SECTION 7. Procedural Fairness 
(a) It shall be unlawful for any franchisor, either directly or indirectly through 
another person to: 
(1) 
require any term or condition in a franchise agreement, or in any 
agreement ancillary or collateral to a franchise, which directly or indirectly 
violates any provision of this Act; or 
(2) 
require a franchisee to assent to any disclaimer, waiver, release, 
stipulation or other provision which would purport: 
(A) 
to relieve any person from a duty imposed by this Act, 
except as part of a settlement of a bona fide dispute; or 
(8) 
to protect any person against any liability to which he would 
otherwise be subject under this Act by reason of willful misfeasance, bad 
faith, or gross negligence in the performance of duties, or by reason of 
reckless disregard of obligations and duties under the franchise agreement; 
or 
(3) 
require a franchisee to assent to any waiver, release, stipulation, or 
other provision, either as part of any agreement or document relating to the 
operation of a franchise business, in any agreement or document relating to the 
10 


termination, cancellation, forfeiture, repurchase, or resale of a franchise 
business or as a condition for permitting a franchisee to leave the franchise 
system, which would purport to prevent the franchisee from making any oral or 
written statement relating to the franchise business, to the operation of the 
franchise system or to the franchisee's experience with the franchise business. 
(b)Any condition, stipulation, provision, or term of any franchise agreement, 
or any agreement ancillary or collateral to a franchise, which would purport to waive 
or restrict any right granted under this Act shall be void an unenforceable. 
(c) No stipulation or provision of a franchise agreement, or of an agreement 
ancillary or collateral to a franchise, shall: 
(1) 
deprive a franchisee of the application and benefits of this Act or of 
any other relevant law; 
(2) 
deprive a franchisee of the right to commence an action (or, if the 
franchise provides for arbitration, initiate an arbitration) against the franchisor 
for violation of this Act, or for breach of the franchise agreement, or of any 
agreement or stipulation ancillary or collateral to the franchise; 
(d) Compliance with this Act or with an applicable law is not waived, excused, 
or avoided, and evidence of violation of this Act or of such law shall not be 
excluded, by virtue of an integration clause, any provision of a franchise agreement, 
or an agreement ancillary or collateral to a franchise, the parol evidence rule, or any 
other rule of evidence purporting to exclude consideration of matters outside the 
franchise agreement. 
SECTION 8. Transfer of a Franchise. 
(a) IN GENERAL- A franchisee may assign an interest in a franchised 
business or in a franchise to a transferee provided the transferee satisfies the 
reasonable qualifications then generally applied by the franchisor in determining 
whether or not a current franchisee is eligible for renewal. If the franchisor does not 
renew a significant number if its franchisees, then the transferee may be required to 
satisfy the reasonable conditions generally applied to new franchisees. 
For the 
II 


purpose of this section, a reasonable current qualification for a new franchisee is a 
qualification based upon a legitimate business reason. If the proposed transferee 
does not meet the reasonable current qualifications of the franchisor, the franchisor 
may refuse to permit the transfer, provided that the refusal of the franchisor to 
consent to the transfer is not arbitrary or capricious and the franchisor states the 
grounds for its refusal in writing to the franchisee. 
(b) NOTICE OF PROPOSED TRANSFER 
A franchisee shall give a 
franchisor not less than 30 days written notice of a proposed transfer of a 
transferable interest, and on request shall provide in writing the ownership interests 
of all persons holding or claiming an equitable or beneficial interest in the franchise 
subsequent to the transfer or the franchise, as appropriate. 
(c) CONSENT TO PROp,OSED TRANSFER - A transfer by a franchisee is 
deemed to have been approved 30 days after the franchisee submits the request for 
permission to transfer the franchise involved unless, within that time the franchisor 
refuses to consent the transfer as evidenced in writing in accordance with 
subsection (a). A statement of the grounds for refusal to consent to the transfer is 
privileged against a claim of defamation. 
(d) CONDITIONS OF TRANSFER 
(1) 
PERMISSIBLE CONDITIONS -
A franchisor may require as a 
condition of a transfer that: 
(A) 
the transferee successfully complete a reasonable training 
program; 
(8) 
a reasonable transfer fee be paid to reimburse the franchisor 
for the franchisor's reasonable and actual expenses directly attributed to the 
transfer; 
(C) 
the franchisee payor make reasonable provision to pay any 
amount due the franchisor or the franchisor's affiliate; or 
(D) 
the financial terms of the transfer at the time of the transfer, 
comply with the franchisor's current financial requirements for franchisees. 
12 


(2) 
IMPERMISSIBL.E CONDITIONS - A franchisor may not condition 
its consent to a transfer described in paragraph (1) on-
(A) 
a franchisee's forgoing existing rights other than those 
contained in the franchise agreement; 
(B) 
a franchisee's entering into a release of claims broader in 
scope than a counterpart release of claims offered by the franchisor to the 
franchisee; or 
(C) 
requiring the franchisee or transferee to make, or agree to 
make, capital improvements, reinvestments, or purchases in an amount 
greater than the franchisor could have reasonable required under the terms 
if the franchisee's existing franchise agreement. 
(e) ASSIGNMENT - A franchisee may assign the franchisee's interest in the 
franchise for the unexpired term of the franchise agreement, and a franchisor shall 
not require the franchisee or the transferee to enter into a franchise agreement that 
has different material terms or financial requirements as a condition of the transfer. 
(f) CONSENT TO PUBLIC OFFERING - A franchisor may not withhold its 
consent to a franchisee's making a public offering of its securities without good 
cause if the franchisee, or the owner of the franchisee's interest in the franchise, 
retains control over more than 25 percent of the voting power as the franchisee. 
(g) CONSENT TO POOLING INTERESTS, OR TO SALE OR EXCHANGE -
A franchisor may not withhold its consent to a pooling of interests, to a sale or 
exchange of assets or securities, or to any other business consolidation amongst its 
existing franchisees, provided the constituents are each in material compliance with 
their respective obligations to the franchisor. 
(h) NONINTERFERENCE 
The following occurrences shall not be 
considered transfers requiring the consent of the franchisor under a franchise 
agreement, and a franchisor shall not impose any fees, payments, or charges in 
excess of a franchisor's cost to review the relevant matter: 
13 


(1) 
The succession of ownership or management of a franchise upon 
the death or disability of a franchisee, or of an owner of a franchise, to the 
surviving spouse, heir, or partner active in the management of the franchise 
unless the successor objectively fails to meet within 1 year or the then current 
reasonable qualifications of the franchisor for franchisees. 
(2) 
Incorporation of a proprietorship franchisee, provided that the 
franchisor may require a personal guarantee by the franchisee of obligations 
related to the franchise. 
(3) 
A transfer within an existing ownership group of a franchise 
provided that more than 50 percent of the franchise is held by persons who 
meet the franchisor's reasonable current qualifications, the franchisor may 
refuse to authorize the transfer. 
(4) 
A transfer of less than a controlling interest in the franchise to the 
franchisee's spouse or child or children, provided that more than 50 percent of 
the entire franchise is held by those who meet the franchisor's reasonable 
current qualifications. If less than 50 percent of the franchise would be owned 
by persons who objectively meet the franchisor's reasonable current 
qualifications, the franchisor may refuse to authorize the transfer. 
(5) 
A grant or retention of a security interest in the franchised business 
or its assets, or an ownership interest in the franchisee, if the security 
agreement establishes an obligation on the part of the secured party 
enforceable by the franchisor to give the franchisor simultaneously with notice 
to the franchisee, notice of the secured party's intent to foreclose on the 
collateral, and a reasonable opportunity to redeem the interest of the secured 
party and recover the secured party's interest in the franchise or franchised 
business by satisfying the secured obligation. 
(6) 
A franchisor may not exercise any purported right of first refusal or 
right to purchase with regard to any franchise, or interest or assets of a 
14 


franchise, upon the happening of any event described in paragraph (5) through 
(5). 
(i) EFFECT OF CERTAIN COVENANTS 
(1) IN GENERAL - After the transfer of a transferor's complete interest in a 
franchise, a franchisor may not enforce against the transferor any covenant of the 
franchise purporting to prohibit the transferor from engaging in any lawful 
occupation or enterprise. 
(2) EXCEPTION - This subsection shall not limit the franchisor from enforcing 
a contractual covenant against the transferor not to exploit the franchisor's trade 
secrets or intellectual property rights (including protection of trade dress) except by 
agreement with the franchisor. 
SECTION 9. 
Transfer for Franchise by Franchisor. 
A Franchisor shall not 
transfer, by sale or otherwise, its interest in a franchise unless: 
(1)the franchisor provides, not less than 30 days before the effective date of 
transfer, notice to every franchisee of the intent to transfer the franchisor's interest 
in the franchise or substantially all of the franchises held by the franchisor; 
(2)such notice is accompanied by a complete description of the business 
and financial terms of the proposed transfer or transfers; and 
(3)upon the transfer, the entity assuming the franchisor's obligations has the 
business experience and financial means to perform all the franchisor's obligations 
in the ordinary course of the business. 
SECTION 10. Independent Sourcing of Goods and Services. 
(a) IN GENERAL -
Except as provided in the subsection (e) a franchisor, 
either directly or indirectly through any affiliate, officer, employee, agent, 
representative or attorney, shall not prohibit or restrict a franchisee from obtaining 
equipment, fixtures, supplies,' goods, or services used in the establishment or 
operation of the franchised business from sources of the franchisee's choosing, 
except that such goods or services may be required to meet reasonable established 
uniform system-wide quality standards promulgated or enforced by the franChisor. 
15 


(b) APPROVED VENDORS - Without limiting the rights of the franchisee 
under sUbsection (a), I the franchisor approves vendors of equipment, fixtures, 
supplies, goods, or services used in the establishment or operation 
of the 
franchised business, the franchisor shall provide and continuously update an 
inclusive list of approved vendors and shall promptly and objectively evaluate and 
respond to reasonable requests by franchisees for approval of competitive sources 
, 
of supply. The franchisor shall approve not fewer than 2 vendors for each piece of 
equipment, each fixture, each supply, good, or service. 
(c) BENEFITS - A franchisor, and its affiliates, shall fully disclose whether or 
not it receives any rebates, commissions, payments, or other benefits from vendors 
as a result of the purchase of goods or services by franchisees. All such rebates, 
commissions, payments, and other benefits shall be distributed directly to such 
franchisees. 
(d) REPORTING - A franchisor shall report not less frequently than annually, 
using generally accepted accounting principles, the amount of revenue and profit it 
earns from the sale of equipment, fixtures, supplies, goods, or services to the 
franchisees of the franchisor. 
(e) EXCEPTION - Subsection (a) does not apply to reasonable quantities of 
equipment, fixtures, supplies, goods, or services, including display and sample 
items, that the franchisor required the franchisee to obtain from the franchisor or its 
affiliate, but only if the equipment, fixtures, supplies, goods, or services are central 
to the franchised business an incorporate a trade secret, patent, or copyright owned 
by the franchisor or its affiliate .. 
SECTION 11. Encroachment 
(a) 
IN GENERAL - The franchisor may not place, or license another 
to place, 1 or more new outlets· for a franchised business in unreasonable proximity 
to an established outlet of a similar kind of franchised business, if-
(1) the intent or probable effect of establishing the new outlets is to 
cause a diminution of gross sales by the established outlet of more than 5 
16 


percent in the 12 months immediately following establishment of the new 
outlet; and 
(2) the established outlet-
• 
(A) 
offers goods or services identified by the same trademark as 
those offered form the new outlet; or 
(B) 
has premises that are identified by the same trademark as 
the new outlet. 
(b) 
EXCEPTION -
This section shall not apply with respect to an 
established outlet if, before a new outlet described in subsection (a) opens for 
business, a franchisor offers in writing to each franchisee of the franchisor of an 
established outlet to pay to the franchisee involved an amount equal to 50 percent 
of the gross sales (net of sales taxes, returns, and allowances) of the new outlet for 
the 1 st 24 months of operation of the new outlet if the sales of the established outlet 
decline by more than 5 percent in the 12 months immediately following 
establishment of the new outlet as a consequence of the opening of the new outlet. 
(c)BURDEN OF PROOF - A franchisor shall have the burden of proof to 
show that, or the extent to which, a decline in sales of an established outlet 
described in subsection (a) occurred for reasons other than the opening of the new 
outlet for goods or services concerned-
(1) 
if the franchisor makes a written offer under sUbsection (b); or 
(2) 
in an action or proceeding brought under section 12. 
SECTION 12. Right of Action 
(a) IN GENERAL - A party to a franchise who is injured by a violation or 
threatened violation of this Act, shall have a right of action for recession and 
restitution, as well as for all damages and injunctive relief, including costs of 
litigation and reasonable attorney's feed and expert witness fees, against any 
person found to be liable for such violation. 
(b) LIABILITY -
Every person who directly or indirectly controls a person 
liable under subsection (a), every partner in a firm so liable, every principal 
17 


executive officer or director of a corporation so liable, every person occupying a 
similar status or performing similar functions and every employee of a person so 
liable who materially aids in the act or transaction constituting the violation is also 
liable jointly and severally with 'and to the same extent as such person, unless the 
person who would otherwise be liable hereunder had no knowledge of or 
reasonable grounds to know the existence of the facts by reason of which the 
liability is alleged to exist. 
(c) ALTERNATIVE DISPUTE RESOLUTION - Except as otherwise provided 
in subsection (d), nothing contained in this Act shall be construed to limit the right of 
a franchisor and a franchisee to engage in arbitration, mediation, or other 
nonjudicial resolution of a dispute, either in advance of after a dispute arises, 
provided that the standards and protections applied in any binding nonjudicial 
procedure agreed to by the parties are not less than the requirements set forth in 
this Act. 
(d) STATUTE OF LIMITATIONS - No action may be commended pursuant 
to this section or this Act more than-
(1) 
5 years after the date on which the violation occurs; 
(2) 
3 years after the date on which the violation is discovered or should 
have been discovered through exercise of reasonable diligence. 
(e)VENUE - A franchisee may commence a civil action, or arbitration 
proceedings, to enforce any prOVision of this Act within the jurisdiction wherein the 
applicable franchise business is located. 
(f) CUMULATIVE RIGHT - The private rights provided for in this section are 
in addition to and not in lieu of other rights ore remedies created by existing laws. 
SECTION 13. Scope and Applicability. 
(a) 
PROSPECTIVE APPLICATION - Except as provided in subsection 
(b), the requirements of this Act shall apply to franchise agreements entered into, 
amended, exchanged, transferred, assigned, or renewed after the date of 
enactment of this Act. 
18 


(b) 
DELAYED EFi!=ECT - The requirements of section 3 of this Act 
shall take effect 90 days after the date of enactment of this Act and shall apply only 
to actions, practices, disclosures, and statements occurring on or after such date. 
SECTION 14. Separability Clause. If any provision or part hereof, is held invalid 
or unconstitutional, the remainder of the law or the provision not otherwise affected 
shall remain valid and subsisting. 
SECTION 15. 
Repealing Clause. Any law, presidential decree or issuance, 
executive order, letter of instruction, administrative order, rule or regulation contrary to 
or inconsistent with the provision of this Act is hereby repealed, modified or amended 
accordingly. 
SECTION 16. Effectivity Clause. This Act shall take effect fifteen (15) days after 
its publication in at least two (2) nevyspapers of general circulation. 
Approved, 
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