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

subject Type Homework Help
subject Pages 17
subject Words 4477
subject Authors Roger LeRoy Miller

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page-pf1
in whole or in part.
page-pf2
in whole or in part.
page-pf3
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 concernedthe 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 1.3QUESTIONS (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
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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 Innwhich is a wealthy, a multi-national
corporationfailed 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
page-pf5
in whole or in part.
page-pf6
in whole or in part.
page-pf7
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 franchiseessuch 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.
page-pf8
8 UNIT ONE: BUSINESS ORGANIZATIONS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
17A. Quality control
(Chapter 1Page 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
page-pf9
in whole or in part.
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 concernedthe 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 1.3QUESTIONS (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 Innwhich is a wealthy, a multi-national
corporationfailed 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.
in whole or in part.
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 franchiseessuch 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
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
17A. Quality control
(Chapter 1Page 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

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