Like personal relationships, some breaches of franchise agreements are more material than others. The Restatement (Second) of Contracts Section 241 looks first at the injured party to determine its expectation damages and whether it can be adequately compensated and then at the consequences to the defaulting party. Unlike personal relationships, however, the courts are sometimes required to determine when and whether a party in material breach is permitted an opportunity to cure. The Pennsylvania Supreme Court recently decided a case of first impression of whether a breach of a franchise agreement may justify immediate termination, even if the contract includes an express provision granting an opportunity to cure.
Franchise agreements generally contain express language granting the opportunity to cure some defaults, while expressly denying the opportunity to cure other defaults. The material defaults that often are not allowed to be cured are commission of a crime, intentional underreporting of revenues or fraudulent underpayment of franchise royalties, misbranding or other conduct that impairs the good will of the franchiser. In LJL Transportation Inc. v. Pilot Air Freight Corp. , the Pennsylvania Supreme Court held that Pennsylvania law permits immediate termination of a franchise agreement if there is a material breach so serious that “it goes directly to the heart and essence of the contract, rendering the breach incurable.”
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