Trade Name Lending Agreement
This is an agreement in which one party grants another party permission to conduct business using their own trade name. A trade name lending agreement is sometimes also called a signboard lending agreement.
When a trade name lending agreement is entered into, another company will conduct business using the company's trade name. In such cases, the party that lent the trade name must bear responsibility for the actions of the party that borrowed the trade name. This responsibility is called trade name lending liability (Article 14 of the Commercial Code, Article 9 of the Companies Act).
※When trade name lending liability is at issue, it does not simply mean that a trademark license was granted.
In the case of a franchise, one must be especially careful not to fall into this trade name lending situation. Specifically, if a franchisor (franchise headquarters business) allows a franchisee (franchise store) to use a name that incorporates the franchisor's trade name, cases may arise where the headquarters business must take responsibility for the transactions of the franchisee.
For example, in the 'Cherokee Used Car Sales Contract Case' (Kobe District Court, Amagasaki Branch, 2000 (Wa) No. 652), the trade name of the headquarters business was 'U-Pohs Co., Ltd.' and the name of the franchisee was 'U-Pohs Amagasaki Store'.
In this case, the franchisee had an obligation to purchase cars from customers and repay the car loans to the credit card company (Nippon Shinpan) on behalf of the customers, but the business hit a dead end and they became unable to repay the car loans to the credit card company. For this reason, the customers filed a lawsuit against U-Pohs Amagasaki Store and U-Pohs Co., Ltd., seeking a refund of the fees paid and the car prices.
In this trial, although U-Pohs Co., Ltd. was not involved in the transaction, a judgment was issued stating that U-Pohs Co., Ltd. must pay the fees and car prices received by U-Pohs Amagasaki Store (Judgment Text).
For this reason, franchise stores should be made to use a name different from that of the headquarters business.
For example, Skylark Restaurants Co., Ltd. currently operates the 'Gusto' and 'Bamiyan' chains, but I believe they used to operate a restaurant chain called 'Skylark'. Using store names like 'Gusto' and 'Bamiyan' instead of 'Skylark' is also meaningful in terms of avoiding trade name lending.
・Article 9 of the Companies Act: Liability of a company that has granted permission to use its own trade name
(Liability of a company that has granted permission to use its own trade name)
Article 9: A company that has granted permission to another person to use its own trade name to conduct business or operations shall be jointly and severally liable with such other person to perform the obligations arising from transactions with a person who has entered into such transactions with the other person under the misapprehension that the company is the one conducting such business.
・Article 14 of the Commercial Code: Liability of a merchant who has granted permission to use their own trade name
(Liability of a merchant who has granted permission to use their own trade name)
Article 14: A merchant who has granted permission to another person to use their own trade name to conduct operations or business shall be jointly and severally liable with such other person to perform the obligations arising from transactions with a person who has entered into such transactions with the other person under the misapprehension that the merchant is the one conducting such operations.
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