You have entered into a franchise agreement but today the terms are not as idyllic as they were when originally announced during the negotiation and recruitment phases. You want to exit the franchise and denounce the contract. What solutions are available to you? As the franchisee can you choose to prosecute the franchisor for defaulting on precontractual information? PICOVSHI lawyers give some incite in the following piece.
The obligation of precontractual information of the franchisor
Article L330-3 of Commerce Code for the precontractual information borne by the franchisor. It states that, “any person who provides any other person’s trade name, brand, or a sign, in demanding from the company an engagement of exclusivity or of quasi-exclusivity to exercise their activity is held, prior to the signing of any contract in the common interests of the two parties, to supply to the other party the document giving sincere information, allowing them to engage knowingly in the contract.”
It appears in this article that the obligation of precontractual information of the franchisor occurs if two cumulative conditions are met together:
- The provision of a trade name, mark, or sign.
- A line of exclusivity or quasi-exclusivity (of activity or supply)
The article L330-3 of Commercial Code also specifies that the preliminary information document (le document d’information préalable or “DIP”) should contain the information relative to, “the length of service and the experience of the enterprise, the state and development prospects of the concerned market, the importance of a network of operators, the duration, the conditions of renewal, and the termination and the cession of the contract and the exclusive field.”
The article R330-1 of Commercial Code lists in more detail all of the information to be mentioned in the document. For example:
- The address of the company’s headquarters and the nature of its activities with the indication of its legal form and the identity of the manager if it be physical person or officers or if it be a juridical person: if so, the amount of capital;
- The address of the bank of the enterprise. This information can be limited to the five principal banking domiciles;
- The date of the establishment of the enterprise with one reminder of the principal stages of its development and including that of the network of its operators, if any, and any indication to assess the professional experience gained by the operator or by the leaders.
- One presentation of the network of operators
- An indication of the length of the proposed contract, the conditions of renewal, the termination, and any exclusive fields…
This document should be communicated to the franchisee a minimum of 20 days before the conclusion of the franchise agreement.
The franchisor also has an obligation to sincerity in the communication of the required information, however all of the documents voluntarily submitted to the franchisee, do not fall under the scope of those required.
What sanctions in case of default of precontractual information by the franchisor?
Failure to comply with precontractual information can bring about the nullity of the contract and therefore the liability of the franchisor may be subject to significant financial consequences such as restitution of the right to enter, collected royalties…
However, the courts maintain a condition for the cancellation of the contract saying that the consent of the franchisee must have been flawed.
In this sense, the Commercial Chamber of the Court of Cassation, by the Prodim judgment made on March 20, 2007, thus recalled that the franchisor’s failure in his duty to precontractual information was not sufficient to cancel the franchise agreement, because one could not infer that, “a lack of consent of the franchisee alone relieves the franchisor of his obligation to precontractual information.”
Recall that the consent of the assuming party, is one of the essential conditions at the validation of a contract stated by article 1108 of Civil Code. Article 1109 of Civil Code states thus that the consent is not valid if it was given by mistake or extorted by force or fraud.
Thus the Court of Appeals of Paris, by their decision on January 19, 2011 SARL Lina’s c/SAS L&Sud judged that, “because the information of the history of the network is partial and that the provisional budget is highly unrealistic, the franchise agreement should be cancelled for the breach of article L. 330-3 of Commercial Code.” It is considered that the omission and the retention of essential information involving the sustainability and the exploitation of the concepts should be considered fraud according to article 1116 of Civil Code committed against the franchisee who has been misguided by false and misleading information.
As the franchisee there exists solutions when you believe you have been deceived by the franchisor via the communication of information prior to the conclusion of the franchise agreement. PICOSVCHI lawyers, experienced in franchise law, have many options and will adapt to your situation to fulfill your needs.
