Duty of care of the financing bank with regard to forecast and franchise agreement
On 16 March 2016, the District Court of Rotterdam, ECLI:NL:RBROT:2016:1769, rendered a judgment on the question to what extent the
bank could have provided financing to a franchisee for entering into a franchise agreement and operating the
Franchise formula.
The bank had provided financing to the franchisee for operating a franchise formula under a franchise agreement with the franchisor. Because the franchisee fails to meet its payment obligations to the bank, the bank has demanded the financing provided. The franchisee accuses the bank of violating its banking duty of care. The court ruled that the banking duty of care serves to protect borrowers against their own rashness and lack of insight. The extent of this duty of care depends on the circumstances of the case, such as the expertise and experience of the borrower and the complexity and risks of the credit product. If a lender has failed in its duty of care, this may lead, among other things, to Article 6:248(2) of the Dutch Civil Code preventing the claim for (full) repayment of the credit taken out.
The franchisee points to a number of circumstances that would cause the bank to breach its duty of care, including the existence of the franchise agreement. However, the court is of the opinion that the nature and content of the franchise agreement does not mean that the bank has a more far-reaching duty of care than described above. The nature and content of the franchise agreement were irrelevant here, as it would concern a regular financing agreement whereby the risks for the franchisee were clear.
It does not appear from the judgment that the franchisor had provided the franchisee with a prognosis and furthermore it does not appear whether the bank also took a prognosis into account in its decision to provide the financing. It is not inconceivable that in that case the bank should (also) have protected the franchisee against its own rashness and lack of insight. If the prognosis was unsound, and the bank (seen
her expertise), the franchisee might have been more successful in defending the bank. Perhaps a parallel can be drawn here between the banking duty of care and the duty of care that under certain circumstances is also imposed on a franchisor.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice.
Do you want to respond? Go to dolphijn@ludwigvandam.nl
Other messages
Franchise arbitration: too high a threshold? – mr. M. Munnik
When entering into an agreement, it is possible for the parties - contrary to the law - to designate a competent court. This also applies to the franchise agreement. Of this possibility
Franchise appeal for error due to incorrect forecasts and lack of support rejected – dated April 25, 2019 – mr. K. Bastian
The Court of Appeal of 's-Hertogenbosch ruled (ECLI:NL:GHSHE:2019:697) on the question whether the mere fact that forecasts did not materialize justifies the conclusion that the franchisee has been shortchanged...
Article De Nationale Franchise Gids: “Increasing protection against recruiting franchisees” – dated 2 April 2019 – mr. AW Dolphin
It is becoming increasingly apparent that recruited franchisees can be protected on the basis of the Acquisition Fraud Act.
The Franchise Association and Franchise Binding – Contracting 2019, No. 1
A contribution on common provisions in franchise agreements that require a franchisee to be a member of a franchisee's association.
Deception in recruiting a franchisee?
A ruling on whether the franchisor had made a misrepresentation when recruiting a franchisee.
Franchisor liable for forecasts from third parties – dated March 6, 2019 – mr. M. Munnik
According to settled case law, a franchisor acts unlawfully towards its franchisee when a franchisor independently conducts research in a careless manner and as a result...