978-1285770178 Solution Manual BL ComLaw 1e SM-Ch01

in whole or in part.

the franchised business involves the sale of goods, Article 2 of the Uniform Commercial Code

imposed disclosure requirements on franchisors so that franchisees can better evaluate the

risks and benefits of an investment. When Congress enacted the Petroleum Marketing

Practices Act in 1979, it did not intend to preempt state laws governing franchise relationships in

the petroleum industry. Rather, it focused on the two aspects of franchising in that industry with

which it was most concerned—the termination of and the failure to renew franchise

Given the Court’s reasoning on the issue of constructive termination, would the

franchisees have been likely to succeed in a suit against the franchisor for “constructive

nonrenewal” of the franchise agreement? Why or why not? Probably not. In fact, one of

the issues in this case—not included in the excerpt of the Court’s opinion given in the text—

involved this question. The federal district court held for the franchisees on this issue, but the

has in fact accepted a new franchise agreement.”

CASE 1.3—QUESTIONS (PAGE 12)

THE LEGAL ENVIRONMENT DIMENSION

THE ECONOMIC DIMENSION

A jury awarded HAI $12 million in punitive damages. The state court reduced this to $1

million, but the appellate court reinstated the original award. What is the purpose of

4 UNIT ONE: BUSINESS ORGANIZATIONS

in whole or in part.

punitive damages? Did Holiday Inn’s conduct warrant the $12 million punitive damages

future conduct. Yes, Holiday Inn’s conduct supported the increased amount of punitive

damages. The harm to HAI was substantial. Holiday Inn—which is a wealthy, a multi-national

corporation—failed to disclose significant information to House with whom it had worked for

decades on a basis of good faith and trust. Holiday Inn caused House to spend $3 million on a

hotel that he believed would be granted an extended franchise when a denial of the extension

AT THE END OF THE CHAPTER

1A. Type of franchise

This is a chain–style business operation. Taco Bell, Burger King, and McDonald’s restaurants

are other examples of chain-style business operations.

3A. Wrongful termination

The franchisor’s good faith and fair dealing in terminating the franchise would be the chief factor

that a court would consider in determining if the termination was wrongful.

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

All franchisors should be required by law to provide complete estimates of the

profitability of a prospective franchise based on the experiences of their existing

in whole or in part.

if the disclosure document did not violate the FTC franchise rule, the franchisees could still sue

franchise contracts are silent on the issue of territorial rights or state that the franchise is

nonexclusive. When a dispute arises over the issue of territorial rights, the implied covenant of

good faith and fair dealing often comes into play. If the franchise contract does not grant the

franchisee exclusive rights to a certain area and the franchisor allows a competing franchise to

be established nearby, the franchisee may suffer a significant loss of profits. In this

location.” Arguably, a significant loss of profits may be a ground for a court to hold that the

establishment of close, competitive franchisees violates the implied covenant of good faith and

fair dealing. But when a contract expressly allows a franchisor to enter into dealership

agreements “ay any location,” a franchisor who exercises that right does not change the

competitive circumstances of its franchisees—such events are contemplated by the contract.

In this problem, the court would most likely apply the principles noted above to deny

Kejzar an injunction and any other relief. In the actual case on which this problem is based, the

court denied the franchisee’s request for an injunction, and a state intermediate appellate court

affirmed the denial.

GTO may recover if they can prove that their allegations are true.

8 UNIT ONE: BUSINESS ORGANIZATIONS

in whole or in part.

1–7A. Quality control

(Chapter 1—Page 8)

Yes, Liberty can be held liable for the statements in its franchisees’ ads. The validity of a

provision permitting the franchisor to establish and enforce certain quality standards is

unquestioned. The franchisor has a legitimate interest in maintaining the quality of the product

or service to protect its name and reputation. If a franchisor exercises too much control over the

operations of its franchisees, however, the franchisor risks potential liability. A franchisor may

occasionally be held liable under the doctrine of respondeat superior for the tortious acts of a

misleading or deceptive ads.

In the actual case on which this problem is based, the court issued a judgment in

California’s favor. Liberty appealed. A state intermediate appellate court affirmed. “Liberty

retained the right to control, and in fact did seek to control, its franchisees’ advertising and other

marketing activities beyond that necessary to protect its marks and goodwill.”

The appellate court reasoned that the judgment against Travel Center was appropriate

because it did not respond to Vilardo’s complaint. Similarly, there are time limits and other

requirements for responding or objecting to a party’s request for admissions, motions, and other

filings that Sheets ignored. This failure to respond, or at least to timely object, worked to

Sheets’s disadvantage. For example, the subject matter of the request for admissions was

As for the ethics of the situation, carelessness, apathy, and ignorance can be caused by

or lead to unethical behavior. It seems likely that Sheets’s carelessness in regard to his client’s

funds, his apathy with respect to Vilardo’s complaint, and his ignorance of the requirements and

consequences led to his failure to do what needed to be done and resulted in his liability.

(b) The appellate court ruled against Sheets on this argument “[i]n view of the fact that