Good Faith in Franchising Relationships. Ernst and Barbara Larese ...

[erika]

Good Faith in Franchising Relationships. Ernst and Barbara Larese entered into a ten-year franchise agreement with Creamland Dairies, Inc, in 1974. The agreement provided that the franchisee shall not assign, transfer or sublet this franchise, or any of

Question 2

Principals may be bound by the unauthorized acts of agents if the agent appears to third parties to have the authority to act.
 a. True
  b. False
  Indicate whether the statement is true or false

[dpost18]

Answer to Question 1

Good faith in franchising relationships
The Lareses prevailed. Although the district court ruled that the contract gave the franchisor an unqualified right to refuse to consent to the proposed sale, the court of appeals disagreed. The appellate court held that even though landlords have been given the unqualified right to refuse to allow assignment or subleasing by a tenant, many courts have held that the franchisor franchisee relationship is a special one. The franchisee builds the goodwill of both his own business and that of the franchisor. The franchisee has invested time and money in the franchise and in doing so imposes a duty on franchisors not to act unreasonably but to deal with the franchisee in good faith and in a commercially reasonable manner. The court held that the language of the contract does not give to the franchisor the unqualified right to deny consent (although the court held that by express language clearly called to the franchisee's attention it could have done so). Therefore, the court held that consent must be given. The franchisee should not be forced to choose between losing its investment or remaining in the relationship unwillingly when it has provided a reasonable alternative franchise.

Answer to Question 2

TRUE

[erika]

Thanks for the timely response, appreciate it

[ryhom]

Excellent