The Court of Cassation rules on the indivisibility of franchise and management lease contracts, affecting franchise contract validity.
Extract
[...] One cannot fail to highlight the potential risk that this arrangement ran in terms of restrictive competition practices, particularly significant imbalance and brutal break of established commercial relationships. The recognition of indivisibility also raises questions in the case of a participatory franchise, which is still under the spotlight (Cass. com March 2024, n°22-13.764). Could we consider that franchise and company contracts are indivisible? Perhaps no less than that of location-gérance and franchise in this case. The termination of the franchise contract may it lead to the caducity of the company contract? [...]
[...] This reasoning is orthodox and inscribes itself in a certain jurisprudential lineage. The orthodoxy of the reasoning The reasoning of the commercial chamber, severe for the franchisee, is however orthodox. Since 2013, the Court of Cassation had refused that a company could invoke a change of control in order to escape a distribution contract, because 'due to the principle of autonomy of the legal person, the latter remains unchanged in the event of a transfer of the entirety of the shares or actions of a company or a change of its directors' (Cass. [...]
[...] Furthermore, the change of control of a company, which is frequently named 'internal takeover' does not operate a transfer of the contract; the solution having been entirely different in the case of a contract transfer under article 1216 of the Civil Code, or in the case of a transmission of assets . The internal takeover does not lead to change in the legal person in consideration of which the franchisee has engaged'. A societary logic, and not substantial, whereby internal changes to the legal person are, in principle, indifferent to the co-contractors seems thus privileged by the High Jurisdiction. Theintuitu personae would be preserved because the person of the contracting party would not have changed. [...]
[...] This ruling is in line with the new Article 1186 of the Civil Code, which states that 'when the execution of several contracts is necessary for the realization of the same operation and one of them disappears, the contracts whose execution is rendered impossible by this disappearance and those for which the execution of the disappeared contract was a determining condition of a party's consent are rendered void.' Moreover, indivisibility has recently been highlighted in financial leasing contracts by a ruling of January (No. 22-20.466). If the solution adopted is classic, all the more so since indivisibility was conventional in this case, it is nonetheless criticizable. A criticizable solution The solution is criticizable on many grounds. [...]
[...] In SARL and joint-stock companies, it is unlikely due to the limitation of societary nullities (if we assimilate them to caducity, which is not at all obvious). Could we then admit a right of withdrawal in this case? Nothing is less certain. This risk is all the greater because nothing prevents doubling the participatory franchise with a location-gérance, the franchisee being then triply bound by each contract rupture, which can then rebound on the other two. Nevertheless, this adds to the franchisee's dependence, to such an extent that one can doubt whether the technique corresponds well to the spirit of the franchise. [...]
