Legal Question in Business Law in California

I bought a business from a family member that is part of a franchise, however there was no contract involve and they say if we want a contract then they won't sell us the store so we stupidly agreed. My husband and I put in a initial investment by check marking it only as deposit but without thinking to put the name of the franchisor just in case. Business with the family member isn't panning out and they gave us the option to opt out but we lose our $40k which we put down. Also during this whole event they said they gotten us a loan for $250000 which is the price to own the franchise, however, they were charging us 1% per the total loan value of $210,000 which is $2100 a month for interest but we don't own the store it's still under their names. We didn't know that they were charging 1% per month, we thought it was 1% per a 12 month calendar so we were assuming it was $2100 divided by 12. We keep asking them for paper work about the franchise but they wouldn't supply us with anything. We have been asking them to give us our money back because they don't provide us and details of what is going on or how much we have paid off. Now we just want our 40k back but they told us we can't have it back because they will sale the franchise at a lost and we lose the money but nothing is under our nane besides the check we gave them. There is alot of other shady things they did through out the 9 months we dealt with them but it's too long to explain. So my questions will I be able to get my money back when they promised they would return it but it was never in writing? Also can I also name the franchisor in the lawsuit as well?


Asked on 10/21/09, 4:56 pm

2 Answers from Attorneys

It is possible that you can get your money back. It is also possible the only remedy you have is to get the business that you bargained for and try to make it work or sell it. Without knowing exactly what the business is, what the franchise agreement says and a lot of other details, it is not possible to make any kind of prediction about how the case against the family members would turn out. It definitely sounds like you have some rights against them. It's just not clear exactly what they are. As for suing the franchisor, it is doubtful you have any claims against them. The whole point of a franchise is to share your business formula with separate independent business people who will make money off it and send you a cut. So the franchisor doesn't have the expense and more important the liabilities of the business. In some situations you can reach up to the franchisor, but nothing you have said would fit that kind of situation.

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Answered on 10/21/09, 5:08 pm
Kevin B. Murphy Franchise Foundations, APC

Was the franchisor involved in the transaction in any way? If so, you may have a legal leg to stand on. You can always sue the family member to recover your $40k. I suggest running the entire sequence of events by a franchise attorney to get advice.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

www.franchisefoundations.com

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Answered on 11/29/09, 4:13 pm


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