C.B. Management, Inc., had a franchise agreement with McDonald’s Corp. to operate McDonald’s restaurants in Cleveland, Ohio. The agreement required C.B. to make monthly payments of certain percentages of the gross sales to McDonald’s. If any payment was more than thirty days late, McDonald’s had the right to terminate the franchise. The agreement also stated that even if McDonald’s accepted a late payment, that would not “constitute a waiver of any subsequent breach.” McDonald’s sometimes accepted C.B.’s late payments, but when C.B. defaulted on the payments in July 2010, McDonald’s gave notice of thirty days to comply or surrender possession of the restaurants. C.B. missed the deadline. McDonald’s demanded that C.B. vacate the restaurants, but C.B. refused. McDonald’s alleged that C.B. had violated the franchise agreement. C.B. claimed that McDonald’s had breached the implied covenant of good faith and fair dealing. Which party should prevail, and why?
Who is the franchisor? (Answer choices: McDonald’s or C.B. Management, Inc.)
Who is the franchisee? (Answer choices: McDonald’s or C.B. Management, Inc.)
In a franchise relationship, the ______ (Answer choices: franchisee or franchisor) is economically dependent on ______ (Answer choices: franchisee or franchisor) business system.
The franchise relationship is defined by the ____ (Answer choices: contract, agency, or friendship) between the franchisor and the franchisee.
Did C.B. Management, Inc.’s failure to make a payment due more than thirty days earlier constitute a breach of the franchise contract?
(Yes or no?)
Why?
(Answer choices: A. the contract provided McDonald's could terminate the contract when a payment was more than 30 days late B. the contract provided that McDonald's could terminate the contract, but since they didn't terminate in the past they waived the right to terminate C. the contract provided that McDonald's could terminate the contract, but since they didn't terminate in the past they breached the implied covenant of fair dealing)
Did the contract provide that the acceptance of a late payment waived McDonald's right to terminate for late payments? (Answer choices: yes or no)
What does an implied covenant of good faith and fair dealing require? That the parties act _____ (Answer choices: reasonably or arbitrarily) and in good faith in fulfilling their contractual duties.
Did McDonald's act of accepting late payments in the past transform McDonald's right to terminate into a discretionary decision governed by the standard of good faith and fair dealing in the future?
(Yes or no)
Why? Which one of these reasons is not correct? (Answer choices: A. the terms of the agreement control this issue B. the actions of the parties control this issue C. McDonald's exercised privileges expressly reserved in the agreement)
A court would likely find for _____ (McDonald’s or C.B. Management, Inc.)
WHAT IF THE FACTS WERE DIFFERENT?
What if McDonald's had accepted late payments and there was no agreement “that acceptance would not constitute a waiver of any subsequent breach”? Would C.B. Management, Inc., prevail on its claim? Possibly, if C.B. Management, Inc., could show that McDonald's _____ (Answer choices: reasonably or arbitrarily) terminated the franchise.
