Under German law, each party to a contract is usually responsible for informing itself about the general market conditions and the resulting risks prior to entering into the contract. As an economically independent entrepreneur, the franchisee must bear its own economic risks that are associated with entering into contracts, as does any other businessperson. However, in order to enable the potential franchisee to realistically assess these risks, the franchisor is obligated to inform the potential franchisee prior to entering into the contract about such circumstances that are known to only the franchisor and about which the franchisor knows or should know may influence the potential franchisee's decision as regards entering into the contract. In franchise law, the franchisor's pre-contractual duty to inform is discussed particularly in connection with the conclusion of franchise agreements. However, the pre-contractual duty to inform applies not only prior to the conclusion of a franchise agreement, but also to the conclusion of any contract that the franchisor enters into with the franchisee. This is because commencing contractual negotiations creates a pre-contractual relationship of trust that gives rise to mutual duties of protection (sections 311(2) and 241(2) of the Civil Code).

In its 23 June 2021 judgment, the Munich Higher Regional Court had to decide whether a franchisor had breached its pre-contractual duty to inform a franchisee in connection with the conclusion of a company purchase agreement.(1)


The franchisor (the defendant) operated a franchise system in the fast-food sector and owned 100% of the shares in a company (the company) that was fully sold to the plaintiff by way of a notarised purchase agreement. The company was to operate a restaurant – not yet in business at the time that the purchase agreement was concluded – as a franchisee in the defendant's franchise system. The parties agreed to pay the purchase price in instalments.

The company had already entered into a franchise agreement with the franchisor prior to the conclusion of the purchase agreement (ie, at the time when it was still wholly owned by the franchisor as parent company and the plaintiff was not yet a managing director). Later, the franchisor terminated the franchise agreement due to non-payment of the franchise fees and discontinuation of business operations.

In the lawsuit, the plaintiff and the purchaser of the company's shares contested the enforcement of the purchase agreement with which the defendant asserted the outstanding purchase price debt. In addition, the plaintiff asserted claims for damages on his part.

He primarily based his claim on the fact that the purchase agreement for the shares in the company should be rescinded due to incorrect pre-contractual information, which should prevent the defendant from demanding payment of the outstanding purchase price. Instead, the plaintiff argued that he had a claim for damages against the defendant on his part. The plaintiff was of the opinion that the franchisor had verbally promised minimum sales figures. Moreover, he stated that the franchisor had also predicted annual sales that would increase annually in an earnings forecast that had been sent to him. However, the projected figures were completely incorrect. The sales had turned out to be significantly lower.

The plaintiff's action was dismissed by the Munich Regional Court.(2) In the appeal proceedings, Munich Higher Regional Court assessed whether the franchisor had breached its pre-contractual duty to inform.


The Munich Higher Regional Court dismissed the appeal. There was no breach of the pre-contractual duty to inform.

The Court first clarified that a clear distinction must be drawn between the individual contractual relationships. The plaintiff contested the claim arising from the notarised purchase agreement to which he – not the company – was a party. He demanded the cancellation of this purchase agreement. In addition, he asserted (at least, primarily) his own claims for damages, not those of the company. All of this is exclusively based on the purchase agreement for the shares in the company, not the franchise agreement. The fact that the purchase agreement was preceded by the conclusion of a franchise agreement between the company and the defendant did not change the fact that the contractual relationships were separate and therefore had to be assessed separately.

This became particularly clear from the fact that the defendant had no duty to inform the company prior to entering into the franchise agreement. This is because at that time, the defendant was still the shareholder (parent) of the company. Also, the franchisor and the company still had identical managing directors, as such, they had the same knowledge.

With regard to the purchase agreement, the Court determined that only an intentional breach of the pre-contractual duty to inform could lead to a cancellation of the purchase agreement. This was because in the case at hand it was disputed whether a quality (earnings potential) of the object of purchase had been agreed upon. However, the Court reasoned that German warranty law, which takes precedence in this respect, required intentional conduct. Consequently, this must also apply to the pre-contractual duty to inform. Otherwise, the warranty law would be undermined.

After taking evidence, the Court could not find an intentional breach of the pre-contractual duty to inform by the defendant. In the course taking evidence, it turned out that the defendant had not presented the actual achievement of a particular level of turnover by the plaintiff as certain. The plaintiff's witness statements were refuted by the defendant's witness statements. The defendant's witness credibly stated that he did not promise or guarantee any sales figures. He also released the internal data only at the plaintiff's insistence and with the explicit remark that the plaintiff could "play around" with the data.

In the course of taking evidence it also emerged that the figures provided by the defendant were not given arbitrarily. The defendant's witness credibly stated that he believed in the figures provided. Therefore, the figures reflected the defendant's expectations, even if they were only estimates.

There was also no breach of the duty to inform derived from the fact that the franchisor had to file for insolvency in 2003 and 2007. Insolvency is not a circumstance requiring disclosure in this respect and it was unlikely to jeopardise the contract's performance. In fact, the franchisor had already faced insolvency five years earlier and had overcome it. Consequently, it was within the plaintiff's sphere of responsibility to inform himself about the franchisor's background, which he could have done via internet searches.

In addition, the purchase agreement contained an unambiguous exclusion of liability in favour of the defendant, which also included any claims for breach of any pre-contractual duty to inform. The exclusion of liability also related – as is customary in company purchase agreements – to information regarding profitability. "Profitability" in this context includes information on sales which are used to determine the profitability. Also, when the defendant sent figures to the plaintiff, it was repeatedly pointed out that they were only an estimate and that no liability was assumed.


The Court ruling illustrates that the franchisor's pre-contractual duty to inform plays a role not only in the conclusion of the franchise agreement, but also in the context of company purchase agreements. It also becomes clear that it is generally the franchisee's responsibility to obtain comprehensive information before entering into the contract. In fact, legal disputes regarding the breach of the pre-contractual duty to inform often result in taking evidence. Therefore, franchisor should clearly state that any figures presented by it are only an estimate. For verifiability, this statement should be made in writing. Otherwise, the franchisor risks being exposed to claims for damages or the rescission of company purchase agreements. Franchisors may also wish to include exemptions from liability with regard to the earning power in company purchase agreements.

For further information on this topic please contact Karsten Metzlaff or Jasmin Schulzweida at Noerr LLP's Hamburg office by telephone (+49 40 300 3970) or email ([email protected] or [email protected]). Alternatively, contact Tom Billing at Noerr LLP's Berlin office by telephone (+49 30 20 94 20 00) or email ([email protected]). The Noerr LLP website can be accessed at


(1) Decision 7 U 6141/19.

(2) Judgment dated 19 September 2019, 29 O 12976/17.