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Montana v. American Suzuki Motor Corp.

A-3775-97T2 (N.J. Super. App. Div. 1999) (Unpublished)

FRANCHISES; TERMINATION—The Franchise Practices Act does not protect a franchisee who deliberately disregards reasonable contract requirements after multiple warnings and opportunities to cure, and an unambiguous integration clause in the agreement can bar evidence that the franchisor did not consider the requirement to be important.

A used car business owner became an authorized franchise dealer, giving it the right to sell and service the manufacturer’s automobiles, perform warranty work, and obtain genuine parts. The franchise agreement required that the dealer maintain financial records in accordance with commonly accepted accounting principles and that the dealer provide monthly financial reports on the manufacturer’s forms. When the dealer signed its initial six month agreement (which could be extended for a three year period assuming satisfactory compliance with the agreement), it also delivered a letter acknowledging the requirement that it file monthly statements. The dealer did not submit any financial statements during the six month initial period. Nonetheless, the manufacturer extended the agreement for an additional six months and then offered to extend the agreement for an additional year, but reminded the dealer of its failure to provide financial statements and the importance that the manufacturer placed on that condition within the agreement. Even though the dealer did not submit financial statements during that year, the manufacturer offered another one year extension, still insisting upon receiving the financial reports. The dealer, however, insisted on a three year extension and, consequently, no further agreement was reached. At that point, the manufacturer began the process of terminating the franchise agreement in accordance with the Franchise Practices Act. Initially, the dealer was able to obtain an injunction prohibiting the manufacturer from terminating the franchise, but when the lower court received an expert’s report concluding that the dealer had not been in substantial compliance with the financial reporting requirements in the agreement, the injunction was lifted. Ultimately, the Court found that the franchise agreement contained an unambiguous integration clause that precluded admission of parol evidence, which the dealer had hoped to overcome and thereby present evidence that the manufacturer had previously admitted that the financial information was not important. Therefore, disallowing that testimony, and relying solely on the agreement, the Court found that because the Franchise Practices Act does not protect from severance of franchise those who deliberately disregard reasonable requirements set forth in a franchise agreement, the dealer, having been afforded numerous opportunities to comply with the financial reporting requirements and failing to do so, gave the manufacturer sufficient grounds to terminate the franchise arrangement.


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