Dubois v. Échange E-Biz Inc., J.E. 2009-765

On April 28, 2007, Martine Dubois (the plaintiff) consulted the brochure of the defendant company, Échange E-Biz Inc., which described the advantages of purchasing a franchise in the e-commerce industry. The brochure advertised annual gross profits of $76,596. The required initial investment was $65,000, of which $25,000 was payable upon signing the franchise agreement. The balance was to be financed by E-Biz Inc. On May 15, the plaintiff met with Mr. De Blois, president of E-Biz Inc., who insisted on selling to her the outlet located on Saint-Hubert Street. He stated that it was profitable because it already had a regular and established clientele. Mr. De Blois also handed to the plaintiff a document indicating the sales of another outlet which gave her the impression that her initial investment would be returned within the first year of operation.

At their second meeting, the plaintiff received a draft of the franchise agreement. On June 15, she signed the agreement and paid the $25,000 deposit. Around the same time, Mr. De Blois suggested that the plaintiff visit Mr. Charles Blouin from BDC in order to finance the balance of the franchise fees, a sum of $40,000. He warned her not to mention to the BDC representative that she was purchasing a specific E-Biz Inc. outlet, but rather to indicate that she was purchasing a new franchise.

On June 17, the plaintiff met with Mr. Gauthier, vice-president of E-Biz Inc., for the preparation of a business plan as well as a balance sheet for her financing request. The business plan indicated sales figures of $430,000 in the first year, and that sales would increase by 30% each trimester.

When the plaintiff took possession of her E-Biz Inc. outlet, she noticed that there was almost no commercial activity in the area, that the sales projected by the defendant company were in no way based on any real activity, and that the E-Biz Inc. concept was failing. To mitigate her damages, the plaintiff closed her E-Biz Inc. outlet, fired her employee, terminated her supplier accounts and claimed the annulment of the franchise agreement. Claiming that the officers of the defendant company presented fraudulent information, the plaintiff sought the recission of the agreement, the reimbursement of her initial deposit, damages of $16,400, as well as indemnity representing moral damages. The defendant’s contention was that the plaintiff’s lack of success was due to her failure to dedicate the required time and effort which other franchisees dedicated. E-Biz Inc. relied on the franchise agreement provision which specified that the franchisee accepted the inherent risks of that type of business and that there was no guarantee of profitability. Finally, the defendant claimed the balance of the franchise fee, a sum of $40,000.

Decision

The plaintiff was at fault for relying on the defendant company’s written and oral declarations pertaining to the profitability of an E-Biz Inc. franchise. Believing that the sales figures presented by the officers of the defendant company were accurate and plausible, the plaintiff felt that it was an interesting business opportunity. The fact that she was not diligent (she did not seek professional advice in order to verify the accuracy of the sales figures) did not excuse the officers who presented sales figures as being attainable while their experience indicated the contrary.

The officers misled the plaintiff by providing her with purely fictional figures and by making false representations with respect to the E-Biz Inc. franchise network. Moreover, even if there was an absence of fraud, by enforcing the franchise agreement literally and, more specifically, in reliance on subsection 33.8, the Court could find that there was no enforceable obligation between the parties, since the plaintiff did not receive an original copy of the agreement.

In addition, given that the agreement was null and void by reason of fraud, the defendant could not rely on the clause which provided that the franchisee would acknowledge that its business would not be profitable. To decide otherwise would make it easy for a party at fault to escape the effects of the agreement’s nullity by simply relying on clauses of the null contract. Furthermore, even if the franchisee had to acknowledge that there was no guarantee of profitability, it would be in a context where she was in possession of a viable business with sales figures fluctuating based on unpredictable factors, such as those pertaining to the franchisee’s efforts. Such an acknowledgement would not protect the franchisor in the event that it omitted to state the fact that the business was not fundamentally profitable.

In this case, the officers of E-Biz Inc. committed a personal, extra-contractual fault by making false representations to the plaintiff prior to signing the franchise agreement. E-Biz Inc.’s liability resulted from the faults of its officers, who were considered mandataries pursuant to section 2164 and subsequent sections of the Civil Code of Québec. The defendant company and the two officers were held severally liable to reimburse the sum of $7,422 for the plaintiff’s commercial activities, $2,500 for disturbances and annoyances suffered, $2,500 for moral damages, and her initial deposit of $25,000.