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
Does a franchisee have to accept a new model franchise agreement?
On 31 March 2017, the District Court of Rotterdam, ECLI:NL:RBROT:2017:2457, ruled in interlocutory proceedings on the question whether franchisor Bram Ladage had complied with the franchise agreement with its franchisee.
Mandatory (market-based) purchase prices for franchisees
To what extent can a franchisor change agreements about the (market) purchase prices of the goods that the franchisees are obliged to purchase?
Director’s liability of a franchisee after failing to rely on an unsound prognosis.
On 11 July 2017, the Court of Appeal of 's-Hertogenbosch made a decision on whether the franchisor could successfully sue the director of a BV for non-compliance with the
Liability accountant for prepared prognosis?
In a judgment of the Court of Appeal of 's-Hertogenbosch of 11 July 2017, ECLI:NL:GHSHE:2017:3153, it was discussed that franchisees accused the franchisor's accountant of being liable
How far does the bank’s duty of care extend?
Some time ago the question was raised in case law what the position of the bank is in the triangular relationship franchisor – bank – franchisee.
Burden of proof reversal in forecasting as misleading advertising?
In an interlocutory judgment of 15 June 2017, the District Court of Zeeland-West-Brabant, ECLI:NL:RBZWB:2017:3833, ruled on a claim for (among other things) suspension of the non-compete clause.