SW Legal Educational Publishing

State Statutes May Limit Existing Franchise Location Agreements
Description Appeals court upheld decision that a state statute, passed after a franchise agreement was signed that limited franchisee's right to move locations, did not violate the Contracts Clause of the Constitution.
Topic Business Organization
Key Words Franchises, Contracts Clause, Location Agreements
C A S E   S U M M A R Y
Facts Chrysler's 1988 franchise contract with a dealer prohibited it from changing locations without approval from Chrysler. A 1993 Wisconsin statute allows a state agency to determine if such moves should be allowed, regardless of the wishes of the parent company. In 1995, the dealer asked Chrysler if it could move to another address in the same town. Chrysler refused; the dealer appealed to the state agency. Chrysler sued to enjoin the dealer from moving and challenged the statute as invalid under the Contracts Clause of the Constitution, which prohibits states from impairing the obligation of contracts. District court held for the dealer; Chrysler appealed.
Decision Affirmed. The Wisconsin law does not violate the Contracts Clause, which cannot be read literally. Even at the time the contract was made, the franchisor should have foreseen the possibility of the statute that was passed later. The fact that the statute makes contracts more costly to one of the parties does not violate the Contracts Clause. Of great, if not controlling, importance in deciding whether a law violates the Contracts Clause is the foreseeability of the law when the original contract was made.
Citation Chrysler Corp. v. Kolosso Auto Sales, Inc., 148 F.3d 892 (7th Cir., 1998)

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