The Danger of a Promissory Note in the Purchase of Franchise
Osler, a leading Canadian law firm, has an article on a recent case mine, entitled "Does the Arthur Wishart Act Change the Law of Set-off in Ontario?"
"This case could also potentially change the manner in which franchisors must allocate funds received from franchisees to various categories of debt.
Additionally, while not mentioned in the decision, the plaintiffs can be expected to raise the issue of whether the two-year rescission period had expired, as the note was dated July 31, 2002 and the notice of rescission delivered on August 13, 2004."
The Osler case brief unfortunately misses the key facts, and the grounds upon which the Judge denied summary judgment on promissory note.
Tupperware purported to revoke the franchise, and then calculated how much good will was owing according to a formula.
The good will was then allocated to the trade debt and not the promissory note.
The argument was that Tupperware never explained to the Court, for almost 3 years, why they set-off of the good will payment against the trade debt rather than the promissory note.
The legal issue in question was whether the promissory note had been paid - since a franchisor owes a duty of good faith in the performance of the contract to the franchisee.
That statutory duty might have required them to pay off the promissory note with the proceeds from the good will payment.
But there was no evidence before the Court about how and why Tupperware exercised their discretion.
No evidence - no summary judgment.
Tupperware has sought leave to appeal, will keep you posted.
