Is a franchise agreement a contract of utmost good faith?
The franchisee argued that, at common law, the franchise relationship is one of utmost good faith and that such a duty applies to pre-contractual negotiations, continues to operate for the duration of the franchise agreement and transcends the four corners of the agreement. In addition, the franchisee took the position that, in light of this duty of utmost good faith, the franchisor’s alleged post-contractual bad faith was the basis for rescission. Justice Joyal held that the weight of Canadian authority supports the notion that the typical franchise relationship is not one of utmost good faith. Rather, like that of every relationship governed by contract, the parties to a franchise owe one another a duty to act in “simple good faith.” The court also confirmed that the franchisor does not owe a fiduciary duty to the franchisee. Justice Joyal went on to note that if the franchise relationship is simply that of parties to a commercial agreement, bad faith allegations are simply allegatio
