FRANCE: The purchaser of a franchisee's buisness may not be held liable merely because of a termination of a distribution agreement.

Didier FERRIER | FRANCE | 2007-11-20

Didier FERRIER

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That is particularly the case for large sales outlets because of the limits on commercial facilities imposed by the urban trade rules.
Thus, a franchisor seeks, by means of clauses banning reaffiliation and noncompetition clauses, to dissuade the franchisee from being affiliates with a competing network or carring on a similar activity, as well as, by means of intuitu personae, approval an preemption clauses, to prevent competitors from purchasing the franchised business.
In the case at hand (Order of 2007 May, 15 of the Cour de Cassation’s Commercial Chamber), a competing trade name purchased the franchisee’s business and, consequently, the franchise and procurement agreements were terminated before term.
The franchisor accused its competitor, the transferee of the business, of being a party of the unfair termination of the franchise and procurement agreements attached to the transferred business, of which the latter was perfectly aware.
The lower court noted, on the one hand, that the franchisor was hable to exercise its preemption right but that it had let the transaction take place and, on the other, that the competitor, the transferee of the business, had made no errors in purchasing the business from the moment that, in the terms of the transfer agreement, the former franchisee, i.e., the transferor, agreed to personally see to the risks incourred subsequent to any wrongful terminations, before term, of the franchise and procurement agreements in progress.
The Cour de Cassation approved the solution: ‘the fair purchase of a business carried out in compliance with the franchisor’s preemption right is not an error that could make the purchaser a party to the transferor’s termination, even if it be wrongful, of the franchise agreement.’
That decision is a message encouraging drafters of franchise or procurement agreements, as well as of business transfer agreements, to be careful in dealing with the conditions for mantaining or, on the contrary, questioning relations between the transferred party and the transferor, i.e., here between the franchisor and the franchisee.

 

 

Didier FERRIER, IDI Country Expert for France.

 

 

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