This case has given rise to a number of disputes involving franchisors, in particular on the grounds of restrictive competition practices (see, for example, Com. 28 Feb. 2024, FS-B, no. 22-10.314).
In this case, the judgment concerns the intuitu personae on the franchisor.
Several contracts were entered into by a franchisee and two companies belonging to a holding company at the head of the Pizza Sprint network: two ten-year franchise contracts and two one-year management lease contracts, renewable annually by tacit agreement.
Subsequently, the head of the network informed the franchisee that the management lease agreements would not be renewed and that the franchise agreements would lapse, due to the indivisibility of the agreements.
When questioned by the franchisee, the Court of Cassation returned to two concepts linked to the franchise contract: intuitu personae and the indivisibility of the franchise contract with the management lease.
Transfer of control of the franchisor permitted despite intuitu personae
In this case, the franchisee criticised the franchisor's ability to transfer the franchise network to which it belonged to the Domino's Pizza group by means of a transfer of control without its prior agreement.
While the Court reiterated that a franchise contract is entered into in consideration of the franchisor's person, it nevertheless considered that the transfer of all the franchisor's shares to a third company and the change in its directors did not imply any change in the legal person in consideration of which the franchisee had entered into the contract, and did not entail any transfer of the franchise contract.
The judgment of 15 May 2024 therefore puts the importance of the franchisor's intuitu personae into perspective by clarifying its scope. According to the Court of Cassation, only the legal entity is taken into account. It does not matter whether the corporate officers are different, or whether all the shares in the franchisor company are transferred, as long as the legal entity has not undergone any change.
In this respect, case law considers that if the legal entity disappears, for example through a merger, the contract can only be transferred to a third party company with the franchisee's agreement (Cass.com., 3 June 2008, no. 06-18.007).
In contrast, the mere transfer of control, unless otherwise stipulated in the franchise agreement, does not require the franchisor to obtain the franchisee's prior consent.
How can this difficulty be avoided?
It is up to the franchisee to anticipate this situation by including, for example, a clause in the franchise agreement requiring the franchisee's prior agreement in the event of a change of control or a change of manager of the franchising company.
Indivisibility of franchise and management lease contracts
The judgment of 15 May 2024 revisits a second important concept in franchise relationships: the indivisibility of contracts.
In this case, the franchisee challenged the Court of Appeal's ruling that the franchise agreements had lapsed because the management lease agreements had not been renewed.
The decision of the Cour de cassation noted that :
- on the one hand, the management lease contract forms the basis of the franchise contract, without which the latter cannot be performed, and the fate of the franchise contract is therefore linked to that of the management lease contract, and notes that this indivisibility between the two contracts is mentioned in the management lease contract; and
- secondly, the termination of each of the two management leases was duly effected by two registered letters with acknowledgement of receipt.
The Court concluded that the lease-management agreement and the franchise agreement were part of the same economic operation and that the termination of the first did not allow the second to continue to be performed, of which the lessee-franchisee was aware.
Consequently, the Court of Appeal was right to rule that the termination of the management lease automatically rendered the franchise agreement null and void.
This ruling is in line with the new article 1186 of the Civil Code, which provides that :
' (...)
Where the performance of several contracts is necessary for the
performance of the same transaction and one of them disappears, the
contracts whose performance is rendered impossible by that
disappearance and those for which the performance of the
disappeared contract was a determining condition of the consent of
a party lapse.
However, a contract may lapse only if the contracting party against
whom it is invoked was aware of the existence of the overall
transaction when he gave his consent".
Furthermore, the fact that the lessor and franchisor are two separate legal entities (albeit belonging to the same group) does not prevent the indivisibility of the contracts.
As a result, the franchisee should remain cautious and be aware of the risks associated with indivisibility: the duration of the franchise agreement is of little importance, as it may be rendered null and void by the non-renewal of the management lease.
Originally published 12 June 2024
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