Exclusion nullification in unsigned franchise contract

On 17 February 2015 (ECLI:NL:GHARL:2015:1180), the Arnhem-Leeuwarden Court of Appeal assessed a judgment of the District Court. At issue was that a franchisee claimed the annulment of the franchise agreement on the grounds of error due to an incorrect forecast.

However, the franchisor invoked a provision in the franchise agreement stating that the franchisee could only invoke annulment in respect of the prognosis provided within a period of one year. However, the franchise agreement with this expiry clause was not signed by the parties.

The franchisor and the franchisee had entered into a letter of intent (also known as a pre-agreement) in which they laid down their intention to cooperate in the relationship of franchisor and franchisee. In addition, the franchisee was provided with a draft of the franchise contract, which was not yet provided with the personal details of the franchisee. The draft stipulated, among other things, that the possibility of annulment by the franchisee due to incorrect provision of information lapses after one year. The franchisee had also provided the franchise contract with the personal details of the franchisee and made it available in duplicate to the franchisee for signature. However, signing never took place. The franchisee indicates that he considered certain agreements objectionable, but did not specifically indicate the cancellation clause as the reason for refusing to sign. After the opening of the franchisee’s business, the parties have conducted business with each other in accordance with the content and scope of the franchise agreement.

The court ruled in the first instance that, since the franchise agreement had not been signed, the cancellation clause with regard to the annulment did not apply. The Court sees it differently. The Court finds that the franchisor could have trusted that the franchisee agreed to the franchise contract, with the exception of the terms and conditions disputed by him. However, the cancellation clause was not mentioned by the franchisee as a provision that he could not agree with. The forfeiture clause therefore applies, according to the Court of Appeal.

The franchisee had also argued that the cancellation clause should be regarded as a “general condition” and should therefore be regarded as an unreasonably onerous general condition. The Court of Appeal ruled that the cancellation clause is included as standard in all franchise agreements and that it is not a core clause. Therefore, although the cancellation clause can be qualified as a “general condition”, the condition is not unreasonably onerous. In the first place, the franchisee has acted in the course of his business. In that case there will be a presumption that a general condition is unreasonably onerous. Moreover, even if the franchisee did not act in the course of his business, the law does not consider a general condition to be unreasonably onerous in advance in the event of a cancellation clause for annulment beyond a period of one year. The Court considers that the franchisee will appeal for annulment after approximately three years. Because the parties agree that annulment must be invoked within one year, the franchisee cannot invoke the annulment of the franchise agreement due to error in entering into the franchise agreement in connection with the forecast issued. The franchisee is in the wrong.

A big misunderstanding is sometimes that if no contract has been signed, there is no agreement. This ruling shows once again that even if no contract has been signed, the provisions of that contact can still apply. If there are objections to a submitted contract, but the collaboration actually starts, it may be advisable to record well documented any objections to the signing of the contract.

Mr AW Dolphijn – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Would you like to respond? Mail to dolphijn@ludwigvandam.nl