License Agreements and Franchise Agreements under the New Quebec Civil Code

1994-01-01

LICENSEAGREEMENTSANDFRANCHISEAGREEMENTSUNDERTHENEWCIVIL
CODEOFQUEBEC

by
HuguesG.Richard*
LEGERROBICRICHARD,Lawyers
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
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thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.:(514)9876242-Fax:(514)8457874
www.robic.ca-info@robic.com
SYNOPSIS
Thepurposeofthisarticleistosummarizetheeffectofthecomingintoforce
ofthenewCivilCodeofQuebecontheapplicationandinterpretationof
licensingandfranchisingcontractsinasmuchasthesecontractscanbe
consideredas”contractsofadhesion”.Article1379defineswhatistobe
understoodasa”contractofadhesion”.Articles1435,1436and1437
respectivelystatethatinacontractofadhesion:-anexternalclauseisnullif,
atthetimeofformationofthecontract,itwasnotexpresslybroughttothe
attentionoftheadheringparty-aclausewhichisillegibleor
incomprehensibletoareasonablepersonisnulliftheadheringpartysuffers
injurytherefrom-anabusiveclauseisnull,ortheobligationarisingfromitmay
bereduced.
Theauthordealswiththeconditionsunderwhichalicenseorfranchise
agreementcanbeconsideredasa”contractofadhesion”andifso,what
aretheconsequencesforthepartiestotheagreement.
INTRODUCTION
TheCivilCodeofQuebecproceedsfromalegislativeintenttoreduceinto
oneinstrumenttheprivatelawofQuebec.TheCivilCodeofQuebec(aswell
asitspredecessor,theCivilCodeofLowerCanada)isapracticaland
accessiblecodeanddoesnotcontainanystatementofphilosophical
principle:itonlycodifiesthepositiveprivatelaw.ThenewCivilCodeofthe
provinceofQuebeccameintoforceonJanuary1st,1994.Itistheresultofa
longprocessofrevisionwhichstartedmanydecadesago.Therevision

©LEGERROBICRICHARD,1994.*LawyerandTrademarkAgent,HuguesG.RichardisaseniorpartnerwiththelawfirmLEGER
ROBICRICHARD,g.p.andofthepatent&trademarkagencyfirmROBIC,g.p.

purportstorejuvenatethecodeandamongotherthings,adaptittothe
evolutionofcaselaw.
ContractsareamongthemanysubjectmattersdealtwithbytheCivilCode.
Therearemanyclassesofcontracts.Article1378saysthatcontractsmaybe
dividedintocontractsofadhesionandcontractsbymutualagreement,
synallagmaticandunilateralcontracts,onerousandgratuitouscontracts,
commutativeandaleatorycontracts,andcontractsofinstantaneous
performanceorofsuccessiveperformance;theymayalsobeconsumer
contracts.
Ourfocuswillbeoncontractsofadhesionwhicharedefinedatarticle1379
asacontractinwhichtheessentialstipulationswereimposedordrawnupby
oneoftheparties,onhisbehalforuponhisinstructions,andwerenot
negotiable.
Itwillbeimmediatelyunderstoodthatmanylicenseagreementsand
franchiseagreementsareofthatnaturesinceinmostcases,theessential
stipulationsintheseagreementswereimposedordrawnupbythelicensoror
thefranchisor,onhisbehalforuponhisinstructions.Furthermore,mostof
thesestipulationswerenotnegotiable,
Itfollowsfromthissituationthattheinterpretationandapplicationofsuch
licenseagreementsorfranchiseagreementswillbegovernedbyruleswhich
differfromrulesapplicabletonormalcontractswhichthecodedefinesas
“contractbymutualagreement”.
Obviouslynotalllicenseagreementsorallfranchiseagreementswillfallunder
thecategoryofcontractsofadhesionbutforthepurposeofthisarticle,we
willonlybedealingwithlicenseagreementsandfranchiseagreementswhich
dofallinthecategoryofcontractsofadhesion.
EXTERNALCLAUSE
Asageneralprincipleoflaw,article1435statesthatanexternalclause
referredtoinacontractisbindingontheparties.Anexternalclauseisa
clausewhichisreferredtoinacontractasformingpartofthecontractbut
whichisnotassuchspelledoutinthecontract.Itisaclauseincludedinthe
contractbyreference.
Inalicenseagreementorafranchiseagreement,suchanexternalclausewill
beconsiderednullif,atthetimeoftheexecutionoftheagreement,itwas
notexpresslybroughttotheattentionofthelicenseeorthefranchisee,unless

thelicensororthefranchisorprovesthatthelicenseeorfranchiseeotherwise
knewofit.
Itwouldseemtobeinsufficientforthelicensororfranchisortoprovethatthe
provisionscontainedintheexternalclauseareacurrentpracticeinthe
trade.
Itwouldhoweverseemsufficientforthelicensororfranchisortoprovethatin
othersimilarcircumstances,thelicenseeorfranchiseewasmadeawareof
theprovisionscontainedintheexternalclause.
Therefore,article1435createsapresumptionofnullityofanexternalclause
whichisrebuttablebythelicensororthefranchisor.Itisthereforeimportant
thatproperstepsbetakenatthetimeoftheexecutionofthecontractto
bringtheattentionoftheprospectivelicenseeorfranchiseetotheprovisions
oftheexternalclauseandtoobtainaspecificacknowledgementfromthe
licenseeorthefranchiseethathisorherattentionwasexpresslybroughtto
theexistenceofthisexternalclause.Thecodedoesnotprovideforany
specialmeansforrebuttingthisnullitypresumptionbutwecansuspectthat
thespecificexecutionoftheexternalclausewithappropriatewordingtothe
effectthatthelicenseeorfranchiseehastakencognizanceofthecontentof
thisexternalclauseshouldsuffice.
ILLEGIBLEORINCOMPREHENSIBLECLAUSES
Article1436statesthataclauseinacontractwhichisillegibleor
incomprehensibletoareasonablepersonisnullifthepersonsuffersinjury
therefrom.Tobenefitfromthisnullitypresumption,thelicenseeorfranchisee
hasfirsttoestablishthatithassufferedinjury.Thecodedoesnotindicatethe
levelofinjurywhichhastobeestablished.Oncethisinjuryhasbeen
established,thepresumptionofnullityarises.Thepresumptionofnullitycan
howeverberebuttedbythelicensororthefranchisorifitprovesthatan
adequateexplanationofthenatureandscopeoftheclausewasgivento
theprospectivelicenseeorfranchisee.
Again,thecodedoesnotgiveanyindicationastothekindofproofwhichis
requiredfromthelicensororfranchisor.Itistobenotedthatnothinginthe
codesaysthattheexplanationofthenatureandscopeoftheclausehasto
comefromthelicensororthefranchisor.Theseexplanationscouldcome
fromthelegaladvisorofthelicenseeorfranchisee.Itwouldthereforeseem
tobeagoodpracticetoinsistonthelicenseeorthefranchiseebeing
representedbylegalcounselwhenexecutingtheagreement.Onewayof
provingthatanadequateexplanationofthenatureandscopeoftheclause
wasgiven,wouldbetoprovidetotheprospectivelicenseeorfranchisee

beforetheexecutionoftheagreement,adequatedocumentation
explainingtheworkingofthelicenseorthefranchise.
Anillegibleclauseisoneforinstancewhichiswritteninsuchsmallcharacters
thatitispermittedtowonderiftheauthordidnotwishittoremainunread.
Anincomprehensibleclausecouldbeonewhichiswritteninsuchabstruse
languagethatitseemslikelythattheauthordidnotwanttheclausetobe
understoodbypeopleofnormalintelligence.
Thisprovisionofthecodeshouldbeanencouragementforlawyerstodraft
contractswhicharemoretothepointandlessconvoluted.
ABUSIVECLAUSE
Article1437providesthatanabusiveclauseinacontractofadhesionisnull,
ortheobligationarisingfromit,maybereduced.Aclausewouldbeabusive
inalicenseorfranchiseagreementifitwasexcessivelyandunreasonably
detrimentaltothelicenseeorfranchiseeandwouldthereforenotbeingood
faith;inparticular,willbeconsideredabusive,aclausewhichsodepartsfrom
thefundamentalobligationsarisingfromtherulesnormallygoverningthe
contractthatitchangesthenatureofthecontract.Inthecontextofa
licenseorfranchiseagreement,aclausewillbeconsideredabusiveiffor
instance,thecourtcancometotheconclusionthatthelicenseeorthe
franchiseeisbeingexploitedbythelicensororthefranchisor.Thecode
imposesonthelicensororthefranchisortheobligationtoactingoodfaith
andnottoexploitwithexcessanunbalancedeconomicrelationship.When
abuseisshowntoexist,thecourtcaneitherdeclaretheclausetobenullor
reducetheobligationsarisingfromit.
CONCLUSION
Thetopicdealthereinisjustbutoneofthenumerousaspectsoftherevision
oftheCivilCodetouchinguponareasofconcernfortheintellectualproperty
practitioners.

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