Legal Blog

Big Mouth

In our first issue of August 1996, we reported on the case of Yellow Submarine Deli Inc. v. AGF Hospitality Inc. (1995), 106 Man. R. (2d) 51 (Man. Q.B.).

A lawyer had been acting for a franchisor on a dispute with its franchisee. As a result of alleged breaches of the franchise agreement, the lawyer wrote a letter to the franchisee terminating the franchise agreement. The lawyer also wrote to the franchisee’s subfranchisees informing them that the main franchise agreement had been terminated and that the subfranchisees should pay all future franchise payments directly to the franchisor. Of course, all payments dried up and the franchisee was put out of business. Ultimately, the franchisor also went bankrupt and the only one left for the franchisee to sue was the lawyer.

The trial judge held the lawyer liable for inducing breach of contract based on the letter that the lawyer had sent, on instructions from his client, to the subfranchisees. The lawyer was ordered to pay damages of $48,000. The lawyer appealed.

Redemption

The Manitoba Court of Appeal in an as yet unreported 1997 judgment reversed the trial judge. It held that it did not matter whether the franchise had been validly terminated; what was important was whether the lawyer intended to induce a breach of contract. “For him to have intent, he would have to have known not only that the subfranchisees had legally-binding agreements with AGF (the franchisee), but also that these agreements remained in full force and effect at the time of his letter of inducement.”

The court held that as far as the lawyer was concerned, the cancellation of the main franchise was valid and, as a result, there was no further contract between the subfranchisees and the franchisee. Accordingly, how could the lawyer be attempting to induce a breach of a contract that he thought was no longer in existence? The court made it clear that had the lawyer known that there was no factual basis for terminating the main franchisee agreement, the result would have been different.