Let's assume the following case. That is, Mr. A quit his job and decided to use his retirement money to take over and run a famous bakery located in a good commercial area. He decided that it would be more stable to take over and run a famous bakery with a secured customer base rather than take the risk of opening a new store.
However, after about two months of operating the acquired bakery, the transferor happened to find out that a new bakery had opened nearby. Furthermore, that person was running the business while boasting about his experience in the bakery he had transferred to Mr. A.
Mr. A feels very wronged, thinking that if he had known this would happen, he would not have paid the key money to take over the store. What can Mr. A do in this case?
Provisions on non-competition of business transferors under the Commercial Act
Such cases frequently occur in the real world of business in connection with the transfer of stores, but there are many cases where people are helpless because they are unaware of the relevant legal provisions. However, in the above case, Mr. A can obtain relief by utilizing the provision of the Commercial Act on the prohibition of competition by business transferors.
Article 41 (Prohibition of Competition by Business Transferor)
① In the event of a transfer of business, unless otherwise agreed, the transferor shall not conduct the same type of business in the same special city, metropolitan city, city, or county or in an adjacent special city, metropolitan city, city, or county for 10 years.
② When the transferor agrees not to engage in the same type of business, the agreement is effective only in the same special city, metropolitan city, city, or county and the adjacent special city, metropolitan city, city, or county for a period not exceeding 20 years.
Actions that Mr. A can take
Therefore, in the above case, Mr. A can demand that the person who transferred the bakery to him cease operating the newly opened bakery in accordance with the above commercial law provisions. In court, this is done in the form of filing a lawsuit for a non-compete injunction and a non-compete lawsuit.
However, with regard to Article 41 of the Commercial Act, there are several points of caution as follows, so it is necessary to consult with a legal expert before concluding a transfer contract or a key money contract.
1) First, protection is not provided in cases where a store or furniture is simply handed over, but protection is provided in cases where the existing business name, phone number, and business partner (customer) list are comprehensively handed over.
2) If you are permitted to operate a store of the same type of business, you will not be protected by the above provision. This is because the above provision applies when there is no agreement between the parties.
3) In addition, the regional scope that can prohibit the operation of stores of the same type of business is the same city, county, or district and neighboring cities, counties, or districts. Therefore, it is impossible to prevent the opening of new stores in areas outside of neighboring cities, counties, or districts.
In addition, if you plan to expand your business by using the name of the acquired store to run a franchise business or open a second store, you need to obtain an agreement that the existing owner will not use the name or trademark and will not engage in the same business regardless of the geographical scope. If the acquired trademark is not registered, it is advisable to register it with the Patent Office promptly.
conclusion
It is not uncommon for a transferor who has transferred a store to open a store of the same type nearby. Considering that the transferor has been in the business for a long time, this phenomenon can be seen as inevitable. Therefore, the person transferring the store must be well aware of this and take care of all matters when signing the contract to prevent unexpected losses.
Attorney Sunjin Kim has been mediating franchise disputes based on coexistence for the past 10 years and is working to restore the franchise to its original state. KLF handles nearly 100 franchise lawsuits every year and is Korea's top franchise-specialized law firm that serves as an advisor to several franchise companies.
KLF Franchise Law Firm Room 205, 2nd floor, 151 Seochojungang-ro, Seocho-gu, Seoul 02-738-9600
