The franchise agreement between J.C., Inc. and McDonald’s Corporation is the subject of this case study. In Lancaster, Ohio, businesses had a franchise arrangement to run McDonald’s restaurants. According to the terms of the agreement, J.C. had to give McDonald’s a set percentage of gross sales each month. The franchise might be canceled by McDonald’s if any payment was more than 30 days overdue. The contract further specified that McDonald’s would not be released from liability for a subsequent violation even if it received a late payment.
An important question in this situation is how fair this is in relation to one of the parties. Mainly, detailed data show that McDonald’s can profit from the deal. Given the terms and conditions of the franchise deal, J.C. may be forced into a relatively disadvantageous arrangement. The rights and responsibilities of the franchisor and franchisee are specified in the franchise agreement. It lays out the main guidelines for franchising relationships. The first term’s duration, renewal terms, and the choice of the franchise site are a few examples of these restrictions (Kubasek et al., 2014). Any geographical rights or protections offered to the franchisee are equally significant.
The parties need to know the terms of renewal and transfer; this problem raises the question of the example of this case. When taking this situation into account, it is crucial to realize that the parties have the ability to cancel the franchise agreement. However, commitments against the competition both during and after the time of the franchise agreement are not part of this agreement. The franchise agreement must include the franchisee’s responsibilities related to establishing and administrating the business and any fees that must be paid (Kubasek et al., 2014). This point was not specified in this agreement as being the deciding factor in whether to grant an extension or not. Franchise agreements frequently list other essential operating needs like promotion, initial and ongoing training, and assistance.
The franchisor’s operation handbook frequently contains more precise information about the relevant standards and requirements. The franchise agreement will also cover various dispute resolution procedures, charges, and the applicable law. For instance, arbitration, lawsuit, and mediation must be considered (Kubasek et al., 2014). A personal guarantee that one or more franchisee owners must sign is a common feature in franchise agreements. In this instance, not all requirements were completed, giving McDonald’s the opportunity for legal maneuvers.
The parameters of the agreement are a provocative question, as it is often left to the discretion of the parties. However, specific state franchise rules can make it illegal for franchisors to demand that franchisees forgo their local franchise laws. Additionally, they could forbid the right to a jury trial or specific kinds of damages. Most significantly, they could also ask permission to file a lawsuit in a jurisdiction other than the franchisee’s home state (Kubasek et al., 2014). Non-compete clauses and waivers may also be subject to restrictions or limitations imposed by specific state laws. In state-specific addenda to the franchise agreement, many franchisors address these concerns as necessary.
Equally intriguing is the question of whether the participants in the licensing agreement are, in this case, bound by an implied or express duty of good faith. The courts have ruled that all transactions, including franchise agreements, are subject to the implicit obligation of reasonable confidence (Kubasek et al., 2014). According to the implied covenant of good faith many courts have adopted, the parties must interact with one another just and reasonably. Neither party may take any action that would deprive the other of the advantages of an agreement as stated in the contract.
Reference
Kubasek, N., Browne, N. M., Barkacs, L., Herron, D., Williamson, C., & Dhooge, L. (2014). Dynamic Business Law (3rd ed.). McGraw-Hill Education.