Sealy

Defendants appeal from a judgment in favor of plaintiff for breach of a franchise agreement. In what apparently is a case of first impression not only in California but the entire nation we consider whether a franchisee’s failure to timely pay some past royalty fees entitles a franchisor to both terminate the franchise agreement and receive an award of over seven years in “future lost royalties.” We conclude the franchisee’s breach was not the “proximate” or “natural and direct” cause of the franchisor’s loss of future royalties in this case. Furthermore, in the circumstances of this case, these damages are “excessive”, “oppressive”, and “disproportionate” to the loss. Accordingly we hold these lost future royalties are not a proper element of contract damages in the circumstances of this case.

Facts and Proceedings Below

Respondent and plaintiff Postal Instant Press, Inc. (PIP) is an internationally known franchisor of printing businesses. In 1979 PIP entered into a 20-year franchise agreement with appellants and defendants, Sue and Steve Sealy (collectively the Sealys). PIP agreed to provide its trademark and certain services to the Sealys in exchange for royalty fees…