::this post ID is 13315::::in categories of ..Legal Corner..::

Beware of misrepresentations in franchise agreements

bright picture of man with crossed fingersThe Quebec Court of Appeal found in favour of food-service franchise system Presse Café after one of its franchisees, Pierre Demarais, won a trial regarding misrepresentations in the franchise agreement in a lower court.

In March 2008, Demarais made an offer on a Presse Café franchise in Montreal, but after reviewing the financial records, he withdrew his offer. The franchisor presented a business opportunity with a Café Vienne franchise, but did not disclose the income from previous years because it considered the data unreliable. It then told Demarais he could expect the franchise to make $800 per day. Demarais entered that agreement in July 2008, but shortly thereafter realized the business would not meet those expectations.

Demarais took the franchisor to court over misrepresentations in the franchise agreement. The trial judge held Presse Café liable for Demarais’ losses even though he should have pressed the franchisor for the financial records. The court said since the franchisor failed to disclose the information and made representations that were faulty and fraudulent, it misled Demarais into entering the agreement.

In January 2009, Presse Café and Demarais entered a new agreement where the franchisee agreed not to waive claims for misrepresentation if the franchisor did not sue for unpaid royalties. Since Demarais followed through with a lawsuit, Presse Café appealed the lower court’s decision. The Quebec Court of Appeal analyzed this agreement and reviewed the applicable laws and found it expressed the franchisee’s implied intent to confirm the validity of the franchise agreement, so he could not claim nullity. The court subtracted $56,000 from the first trial’s amount due. Presse Café was ordered to pay Demarais $6,772.50 to refund his franchise fees.

McCarthy Tetrault lawyers Martin Thiboutot and Sandra Fournier warn franchisees to analyze the scope of contemplated agreements taking into account additional grounds for claims, and to always check financial records first.

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