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Full Case Name: Bekah v. Three for One Pizza (2003)
This court decision was among the earliest reported franchise disclosure decisions after the passage of Ontario’s franchise legislation, the Arthur Wishart Act (Franchise Disclosure), 2000.
It was the first Ontario decision that defined the term “franchise agreement” under the Act to include an agreement of purchase and sale.
The franchisor required that the franchisee purchase the store through a conventional purchase and sale agreement before entering into a franchise agreement. By structuring the transaction this way, the franchisor attempted to circumvent the disclosure requirements that the Act imposes on franchisors.
After the parties signed the purchase and sale agreement – before the purchase transaction closed and before the full franchise agreement was signed – the purchaser discovered problems with the franchise. He asked to cancel (rescind) the purchase and get his purchase money back.
The franchisor objected and took the position that the buyer was required to first close the purchase transaction, sign the franchise agreement, and only then attempt to rescind the purchase.
The Ontario Superior Court of Justice agreed with the purchaser. It held that the purchase and sale agreement was a “franchise agreement” under the meaning of the Act, and that the purchaser was entitled to rescind the purchase without having to close the transaction and without signing the full franchise agreement.
This court decision was very influential in the early years of the development of franchise disclosure law in Ontario. The case had a significant impact on how franchise lawyers and franchisors structured sale and resale transactions – by making sure that franchisors provide a fulsome disclosure package before the parties sign any binding agreement relating to the sale, even an agreement of purchase and sale.Back
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