[1] Where the basic nature of a contract entered into with a franchiser includes an investment contract for the store directly operated by the franchiser or the relevant store conversion into a franchise store in the future, whether the other party who consulted with the franchiser to enter into the contract constitutes a " prospective franchisee" under Article 2 subparagraph 4 of the former Act on Fair Transactions in Franchise Business (affirmative in principle)

[2] The concept of a franchise agreement subject to the Fair Transactions in Franchise Business Act

[3] Requirements for a prospective franchisee to become a franchise fee

[1] Article 2 subparagraph 4 of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013) / [2] Article 2 subparagraph 1, 3, and 5 of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013) / [3] Article 2 subparagraph 6 (e) of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013)

[2] Supreme Court Decision 95Do2608 delivered on February 23, 1996 (Gong1996Sang, 1175)

[Defendant-Appellant] Defendant 1 and 1 other (Attorney Kim Li-gu et al., Counsel for defendant-appellant)

Fair Trade Commission (Law Firm spring, Attorneys Kim Min-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Nu31239 decided November 19, 2015

1. The part of the lower judgment against the Defendant regarding the Defendant’s corrective order under paragraph (2) is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined.

1. As to the ground of appeal as to whether a prospective franchisee is a prospective franchisee (whether the corrective order of this case is lawful)

A. Article 2 Subparag. 4 of the former Fair Transactions in Franchise Business Act (amended by Act No. 12094, Aug. 13, 2013; hereinafter “Franchising Business Act”) provides that “A prospective franchisee” shall be construed as “a person who consultss or consultss with a franchiser or a master franchisee with intent to conclude a franchise agreement.” In addition, Article 7(2) of the Franchising Business Act provides that a franchisor shall not receive franchise fees from a prospective franchisee or enter into a franchise agreement with a prospective franchisee if the franchisor fails to provide a franchise disclosure statement registered. In addition, Article 9(1) of the Franchising Business Act provides that a franchisor shall not provide a prospective franchisee with false or exaggerated information or omit important matters in providing a prospective franchisee with information. Meanwhile, Article 2 Subparag. 6(e) of the Franchis Business Act provides that “A prospective franchisee shall acquire a franchise license or pay a franchise fee to maintain the franchise agreement, irrespective of the name or form of payment.”

As can be seen, the Franchise Business Act provides for all prices paid by a prospective franchisee for the acquisition of a franchise license before the prospective franchisee finally acquires the franchise license, along with that, protects prospective franchisees by stipulating that a franchisor is obligated to provide an information disclosure statement in advance at the time of receipt of franchise fees from a prospective franchisee even before entering into a franchise agreement. In light of the purport of these provisions, even if the basic nature of a franchise agreement entered into with a franchiser is an investment contract for a store directly operated by a franchiser, if the basic nature of the agreement entered into with a franchisor is included in the content of the agreement converting the relevant store into a franchise store in the future, barring any special circumstance, the other party who consulted with a franchiser to enter into the agreement falls under the “ prospective franchisee”, i.e., a person who consults or consults with a franchiser or a regional headquarters to enter into a franchise agreement, barring any special circumstance.

B. Review of the reasoning of the lower judgment and the record reveals the following facts and circumstances.

(1) On November 30, 2012, the Plaintiff, a franchisor, who runs a franchise business related to food and beverage using the business mark, entered into the instant contract with Nonparty 1, stating that ① Nonparty 1 shall pay the Plaintiff an investment cost of KRW 190 million, and ② the Plaintiff shall pay the Plaintiff the remainder of the sales after deducting certain amount, such as expenses, royalties, etc., from the sales amount.

(2) On November 16, 2012, prior to the conclusion of the instant contract, the Plaintiff sent the e-mail stating that “The profits and losses incurred from the operation of the headquarters at its head office for one year shall belong to investors. It may be operated directly upon mutual agreement to convert into two years.” At the same time, the Plaintiff provided data that the monthly sales amount of KRW 25 million to KRW 30 million to KRW 30 million, and operating income amount to KRW 4320,000 to KRW 6220,000 (hereinafter “the instant data”).

(3) The Plaintiff consulted with Nonparty 1 on the basis of the above e-mail, and the contract of this case also included a special stipulation that “The period of entrusted operation of the store of this case may be extended under the consultation between the Plaintiff and Nonparty 1, with the aim of operating the store as a franchisee for two years after the opening point of the store of this case.”

(4) In light of the above details and terms of the contract, the Plaintiff and Nonparty 1 wished to grant Nonparty 1 the right to operate the franchise store of this case after one year after the opening of the contract, on the premise that the Plaintiff would be entitled to the right to operate the franchise store of this case. However, it appears that the Plaintiff had to hold an additional consultation on the specific contents, scope, etc. of the franchise business, such as the type and scope of

C. Examining the above facts and circumstances in light of the legal principles as seen earlier, regardless of whether the instant contract constitutes a franchise agreement, Nonparty 1 constitutes “ prospective franchisees” as defined in Article 2 subparag. 4 of the Franchise Business Act, barring any other special circumstances. Nonparty 1 cannot be deemed a prospective franchisee only when he/she newly starts consultations or consultations with the Plaintiff to convert the instant store into a franchise agreement for a period of two years after the opening of the store.

Therefore, as long as Nonparty 1 can be seen as a prospective franchisee, the lower court should have deliberated on whether the content of expected sales, etc. recorded in the instant data provided by Nonparty 1, a prospective franchisee, constitutes “false or exaggerated information” as provided by Article 9(1) of the Franchise Business Act.

D. Nevertheless, on the grounds indicated in its reasoning, the lower court determined that the part of Article 9(1) of the Franchise Business Act, which ordered the prohibition of the act of violating Article 9(2) of the Franchise Business Act, was unlawful by providing an exaggerated information to the prospective franchisee during the instant disposition, on the grounds that Nonparty 1 is not a prospective franchisee. In so determining, the lower court erred by misapprehending the legal doctrine on prospective franchisees under the Franchise Business Act, which led to the failure to exhaust all necessary deliberations, thereby adversely affecting

2. As to the legitimacy of the corrective order of this case

A. As to the ground of appeal on whether a franchise agreement constitutes a franchise agreement

(1) Article 2 Subparag. 1 of the Franchise Business Act defines “franchise business” as “a franchise business that allows franchisees to use his/her own trademark or other business marks and sell goods or services in accordance with certain quality standards or business methods, and supports, educates, and controls business management, business activities, etc., and franchisees pay franchise fees to a franchiser in return for the use of business marks, the support for and training on business management, business activities, etc.” In addition, Article 2 Subparag. 3 of the Franchise Business Act provides that “franchises” as “business entities that have been granted a franchise license from a franchiser in relation to a franchise business” and “franchises” as “a contractual right under which a franchise business entity may operate a franchise store in relation to a franchise business of a franchiser.”

In full view of the provisions of the relevant laws, franchise agreements subject to the Franchise Business Act can be seen as agreements on continuous business relations between the franchisor and the franchisee, each of which is an independent merchant (see Supreme Court Decision 95Do2608, Feb. 23, 1996). A franchisee basically manages a franchise store based on the support and management guidance of the franchisor.

(2) The lower court determined that the instant contract cannot be deemed as constituting a franchise agreement under the Franchise Business Act, on the grounds that (i) the instant contract explicitly states that the Plaintiff has the right to operate the instant store; (ii) Nonparty 1 did not participate in the operation of the instant store; and (iii) the instant contract does not provide for the important contents of the franchise agreement, such as the type and scope of the business mark that the Plaintiff permitted or provided to Nonparty 1, and the details of business support, education

(3) Examining the aforementioned legal principles and records, the lower court’s reasoning was partially inappropriate, but its conclusion that the instant contract did not constitute a franchise agreement is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on the concept of a franchise agreement under the Franchise Business Act

B. As to the ground of appeal on whether the franchise fee constitutes a franchise fee

In order to become a franchise fee, the amount paid by a prospective franchisee must be “to acquire or maintain a franchise license” (see Article 2 subparagraph 6 (e) of the Franchise Business Act).

Examining the following circumstances revealed by the facts and records as seen earlier, namely, ① the money paid by Nonparty 1 to the Plaintiff constitutes investment funds under the instant contract, taking the form of investment in direct management store operation; ② Nonparty 1 does not necessarily assume the obligation to enter into the instant franchise agreement with respect to the instant store when 2 years have elapsed since the opening of the instant contract pursuant to the instant contract; ③ the instant agreement does not have the basic content of the elements of the franchise agreement. Examining the following facts in light of the aforementioned legal principles, it is difficult to view that Nonparty 1 paid the money that Nonparty 1 paid to the Plaintiff to acquire the right to operate a franchise store, solely on the fact that the instant store is expected to be converted into a franchise store in the future. Accordingly, the Defendant’s ground of appeal on this part is rejected.

C. Therefore, insofar as the instant franchise agreement does not fall under the instant franchise agreement, and the money paid by Nonparty 1 to the Plaintiff does not fall under the franchise fee, it is difficult to view that the Plaintiff violated Article 7(2) of the Franchise Business Act by entering into a franchise agreement or receiving franchise fees from a prospective franchisee without providing an information disclosure statement. Therefore, the lower court erred in determining that Nonparty 1 is not a prospective franchisee. However, the lower court’s conclusion that the part of the corrective order related to the violation of Article 7(2) of the Franchise Business Act in the instant disposition was unlawful is justifiable. In so doing, it did not err by misapprehending the legal doctrine on the concept of the franchise fee under the Franchise Business Act and the interpretation and application of

3. Conclusion

Therefore, the part of the judgment of the court below against the defendant regarding correction order Paragraph 2 is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The remaining grounds of appeal are dismissed. It is so decided as per Disposition by the assent of all participating Justices on

Justices Kwon Soon-il (Presiding Justice)