The franchise contract is one of the most well-known distribution contracts.
The operation of a business under a franchise is currently very popular and new franchise concepts are emerging regularly.
Although the franchise contract has undeniable advantages for the franchisee, the franchise business can also, in fact, be perilous and the case law of the Cour de cassation has come to provide some protection for the franchisee.
Thus, for some years now, litigation has been developing concerning the cancellation of the franchise contract.
Indeed, the Cour de cassation has accepted in a number of decisions that, in certain circumstances, a franchisee may request the cancellation of the franchise contract on the grounds of “substantial error as to the profitability of the activity undertaken”, the forecasts drawn up by the franchisor being considered to be “excessively optimistic” compared to the actual results of the activity.
In a decision of Cass. com, 10 June 2020, no. 18-21.536, the Commercial Chamber of the French Supreme Court (Cour de Cassation) allowed a franchise contract to be annulled on the basis of an “error on profitability”, noting that the franchisee’s actual results differed sufficiently from the information provided by the franchisor. In this respect, it noted that the poor figures were not due to the franchisee himself. The Court of Appeal was also approved in that it considered that the premises chosen were too large and the rent excessive. It should be noted, however, that the franchisor’s critical assessment of the choice of premises does not in itself lead to a defect in consent.
In a second decision, Cass. com. 24 June 2020, no. 18-15249, the Commercial Chamber of the Court of Cassation now holds as a principle that “the error on the profitability of the concept of a franchise cannot lead to the nullity of the contract on the grounds of a defect in the franchisee’s consent if it does not result from data established and communicated by the franchisor.
This limit seems fortunate, given that the franchisee may be advised by a professional accountant or even by his bank, which accompanies him in his activity. In this case, the Court of Cassation criticised the Court of Appeal for not having investigated, as it was requested to do, “whether the forecast accounts had not been drawn up by the franchisor company, but by Mrs D…. herself, assisted by her chartered accountant”.
These solutions, which are marked by pragmatism, even though they deviate in certain respects from the classic rules of the law of obligations, notably because, by means of the “error on economic profitability”, the “error on value”, which is in principle indifferent, is exceptionally taken into account here, are to be welcomed.