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Chapter 40
Franchise and Special Forms of Business
VI. Answers to Critical Legal Thinking Cases
40.1 Agency
control the day-to-day operation of its franchisee and Nasimento. Pursuant to the franchise agreement the
franchisee was required to notify clients that it was an independent contractor. This the franchisee did in
several ways, including having this fact stated on the business card that Nascimento gave to his client
Fernandes. The appellate court held that Nascimento was not the actual or apparent agent of Re/Max at
the time of the accident that injured Fernandes. Just because Nascimento did not carry insurance that
Court of Illinois, 2007)
40.2 Tort Liability
No. The Costa Mesa 7-Eleven franchisee was not an agent of the franchisor, the Southland Corporation.
Also, the doctrine of apparent agency does not apply to the facts of the case. Therefore, Southland is not
liable for the alleged tortious conduct of its franchisee. In the field of franchise agreements, the question
purchase whatever inventory it chose and from whatever supplier it wanted to purchase from. It was the
sole decision of the franchisee to sell clove cigarettes. Southland did not advertise, promote, or
merchandise the clove cigarettes sold at the franchisee’s store. Therefore, the Costa Mesa 7-Eleven
40.3 Trademark
Ramada Inns wins. The court held that Gadsden Motel Company (Gadsden) had infringed on Ramada
Inns’ trademarks and service marks by its unauthorized use of such marks. The franchise agreement
granted Gadsden, the franchisee, a license to use the “Ramada Inns” marks during the course of the
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violation of the Lanham Act. The court of appeals affirmed the trial court’s judgment which awarded
Ramada Inns $47,165 in trademark infringement damages, $29,610 in lost franchise fees for the
six-month “hold over” period, $15,000 for advertising to restore Ramada Inns’ good reputation, and
40.4 Termination of a Franchise
The dealership wins. The court found that Kawasaki USA had wrongfully terminated the franchise held
by Kawasaki Shop of Aurora (Dealer). Illinois franchise law provides that a franchise agreement may not
impose “unreasonable” restrictions on motor vehicle dealers. The court held that the site-control provision
in the franchise agreement that required the franchisor’s written approval before the franchisee could
USA had wrongfully terminated the Dealer and awarded the Dealer $323,690 as compensatory damages
and $79,422 in attorneys’ fees. Kawasaki Shop of Aurora, Inc. v. Kawasaki Motors Corporation, U.S.A.,
544 N.E.2d 457, 1989 Ill. App. Lexis 1442 (Appellate Court of Illinois)
VII. Answer to Ethics Case
40.5 Ethics Case
simply an identification of the licensee as a franchisee of Southland and did not create an agency
relationship. Here, Southland and Campbell were independent contractors of each other. There was no
agency relationship between them. Only Campbell, the franchisee, is liable to the plaintiffs who were
harmed in the automobile accident. Under the facts of this case it seems that Southland is not morally
responsible for the harm caused by the under aged drinker. If Southland, and all other franchisors, were