Executive Summary: Key Legal and Evidentiary Issues

• The court examined whether Chooch's breached the Franchise Agreement by failing to provide Stacy with the in-store training it allegedly promised.
   
• Justice Valente found that 257 breached the Franchise Agreement through repeated operational failures documented across six audits and three notices of default.
   
• A central evidentiary dispute concerned the meaning of "Franchise Assets" under the Voluntary Surrender Agreement, particularly whether that term included the Restaurant's local goodwill.
   
• Credibility findings shaped much of the outcome, with the court preferring Darren's testimony over Stacy's on the disputed training and coercion allegations.
   
• Sandra's claim in conversion against Chooch's succeeded despite the absence of clear evidence on the value of the secured assets.
   
• Ultimately, the court declined to find Chooch's or Darren liable in conversion for taking operational control of the Restaurant itself.
   

Facts of the case

The plaintiff, 2572966 Ontario Inc. ("257"), was formerly the franchisee operating a "Wings Up!" chicken wing restaurant in Kitchener, Ontario, under a franchise agreement with the defendant Chooch's Inc. ("Chooch's") [the agreed facts identify the Franchise Agreement as dated August 28, 2017, while the relief sought in the claim refers to a Franchise Agreement dated July 10, 2017]. Stacy Todd Miller ("Stacy") was the principal of 257 and had worked at the restaurant since 2003 under two prior franchisees before assuming ownership through 257 in 2017. His mother, the plaintiff Sandra Lee Miller ("Sandra"), guaranteed the bank financing used to purchase the business and held a registered security interest over 257's personal property. The defendant Darren Czarnogorski ("Darren") was and remains president of Chooch's.

To fund the $195,000 purchase of the restaurant from the prior franchisee, 257 borrowed $235,200 from TD Bank under two loans, secured by a general security agreement ("GSA") over all of 257's assets, with Sandra as personal guarantor. Between September 2018 and March 2019, Chooch's issued three notices of default to 257 following a series of unannounced operational audits that recorded declining scores and repeated cleanliness, food-safety, and staffing deficiencies. Stacy and Darren signed a "Sale of Wings Up! Kitchener" agreement contemplating a sale of the restaurant [the agreed facts place the signing at the January 30, 2019 meeting between Stacy and Darren, while the court's later reasoning refers to "the January 31, 2019, document"], and a prospective purchaser, Karik Patel, agreed to buy it for $145,000 through his corporation. Because 257's TD Bank debt exceeded that purchase price by approximately $90,000, the parties instead executed a Voluntary Surrender Agreement on May 16-17, 2019, under which 257 surrendered its franchise rights to Chooch's in exchange for an initial $5,000 payment and a further $15,000 once liens on the "Franchise Assets" were discharged. Chooch's ultimately paid only $10,000 in total to 257, took operational control of the restaurant, and later sold it to Mr. Patel's corporation for $145,000. TD Bank subsequently declined to negotiate a discharge with Chooch's and instead sold its debt, in the amount of $235,231.84, to Sandra, who took an assignment of the GSA.

Policy and legislative provisions at issue

The case turned substantially on the interpretation of the Franchise Agreement and the Voluntary Surrender Agreement. Section 5.1 of the Franchise Agreement required Chooch's to provide at least two weeks of training "covering all phases of the System" before the restaurant opened, while section 5.2 permitted, but did not require, continuing advice on matters such as inventory and accounting. Article 8.1 and the "Agreed Terms" obliged 257 to operate the restaurant diligently, efficiently, and to Chooch's quality standards, with section 17.1 giving Chooch's a right to terminate for uncured breaches. The Voluntary Surrender Agreement's section 3 provided for renunciation of the franchise in exchange for payment of $5,000 upon signing and a further $15,000 once "all liens and encumbrances" against the "Franchise Assets" were discharged, but the agreement did not define that term with precision. Sections 17.3 and 17.4(b) of the Franchise Agreement were also engaged, the latter expressly excluding "goodwill" or "growing concern value" from any purchase price payable by Chooch's on termination. Sandra additionally invoked section 2(2) of the Mercantile Law Amendment Act, R.S.O. 1990, c. M.10, seeking indemnification as a guarantor who had paid out the secured debt. The Arthur Wishart Act (Franchise Disclosure), 2000, was raised in connection with the statutory duty of fair dealing owed between franchisor and franchisee.

Reasoning and analysis

Justice Valente found that Stacy had waived the two-week in-store training contemplated by section 5.1, preferring Darren's evidence over Stacy's due to inconsistencies in Stacy's testimony, including his shifting account of who at Chooch's had promised training and his claim to be "old fashioned" about correspondence despite documented email exchanges with a regional manager. Even had a breach occurred, the court found no causal connection between any training deficiency and 257's subsequent operational failures, given Stacy's fourteen years of prior experience. The court concluded that 257 did breach the Franchise Agreement, pointing to a sustained pattern of failed audits, unremedied notices of default, and unresolved food-safety issues, and held that Chooch's and Darren had not acted in bad faith in seeking to end the relationship, since a franchisor is not obliged to prioritize a franchisee's interests over its own. On the meaning of "Franchise Assets" in the Voluntary Surrender Agreement, the court applied the contractual interpretation principles from Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, and Weyerhaeuser Company Limited v. Ontario (A.G.), 2017 ONCA 1007, and concluded that the term excluded local goodwill, reasoning that section 17.4(b) of the Franchise Agreement excluded goodwill from any purchase-price calculation and that it would be commercially unreasonable for 257 to receive more on surrender than it would have received on ordinary termination. The court therefore found the Voluntary Surrender Agreement frustrated once TD Bank declined to negotiate a discharge, and directed that the termination provisions of sections 17.3 and 17.4 of the Franchise Agreement apply nunc pro tunc, inviting further submissions if the parties could not agree on their application. Because Chooch's remained entitled to terminate the Franchise Agreement, the court found no conversion liability arising from Chooch's assumption of operational control of the restaurant. However, the court found Chooch's liable in conversion to Sandra for using and ultimately disposing of the secured equipment, chattels, and fixtures without accounting to her, while declining to award her compensation for goodwill, which the court found had no value given the restaurant's months of non-operation. Citing Martin v. Goldfarb (1998), 41 O.R. (3d), and Westmount-Keele Limited v. Nicholas C. Tibollo Professional Corporation, 2025 ONCA 401, the court exercised its discretion to assess damages notwithstanding the absence of direct evidence on asset value, relying on the 2017 purchase price allocation and Darren's own settlement offers to the bank.

Ruling and overall outcome

All of 257's claims were dismissed, including its claims for breach of contract, misrepresentation, and conversion. Sandra's claims largely failed as well, with the court rejecting her indemnification claim under the Mercantile Law Amendment Act and her claim for goodwill-related losses, and confirming that Chooch's remained entitled to rely on the termination provisions of the Franchise Agreement. Sandra succeeded, however, on her conversion claim relating to the secured equipment, chattels, and fixtures used and disposed of by Chooch's, and the court assessed her damages at $25,000, payable by Chooch's, plus pre-judgment interest at the rate prescribed by the Courts of Justice Act, R.S.O. 1990, c. C.43, running from the date the statement of claim was issued. The court left the application of the Franchise Agreement's termination provisions to be resolved by the parties, with a further court attendance available if needed, and deferred the issue of costs pending written or oral submissions.