Franchise Termination. Heating and Air Specialists, Inc, doing ...

[nautica902]

Franchise Termination. Heating and Air Specialists, Inc, doing business as A/C Service Co, marketed heating and air-conditioning products. A/C contracted with Lennox Industries, Inc, to be a franchised dealer of Lennox products. The parties signed a standard franchise contract drafted by Lennox. The contract provided that either party could terminate the agreement with or without cause on thirty days' notice and that the agreement would terminate immediately if A/C opened another facility at a different location. At the time, A/C operated only one location in Arkansas. A few months later, A/C opened a second location in Tulsa, Oklahoma. Lennox's district sales manager gave A/C oral authorization to sell Lennox products in Tulsa, at least on a temporary basis, but nothing was put in writing. Several of Lennox's other dealers in Tulsa complained to Lennox about A/C's presence. Lennox gave A/C notice that it was terminating A/C's Tulsa franchise. Meanwhile, A/C had failed to keep its Lennox account current and owed the franchisor more than 200,000. Citing this delinquency, Lennox notified A/C that unless it paid its account within ten days, Lennox would terminate both franchises. A/C did not pay, and Lennox terminated the franchises. A/C filed a suit in a federal district court against Lennox, alleging in part breach of the franchise agreement for terminating the Tulsa franchise. Should A/C prevail? Explain.

Question 2

Principals have an obligation to reimburse their agents for their normal business expenses related to the agency, unless otherwise agreed.
 a. True
  b. False
  Indicate whether the statement is true or false

[lucas dlamini]

Answer to Question 1

Franchise termination
A jury found in favor of A/C on its breach of contract claims and awarded A/C 40,000 damages on the Tulsa breach of contract (but also awarded Lennox 233,236 on its counterclaim for A/C's outstanding account balance). Lennox (and A/C) appealed to the U.S. Court of Appeals for the Eighth Circuit. Lennox argued that A/C's overdue account gave Lennox the right to cancel their agreement. The court agreed. The court pointed out that A/C's account was not current on the date Lennox withdrew permission for the sale of its products in Tulsa. The court also noted that under the UCC, if a buyer does not pay for goods on time, the seller can cancel the contract. Chronic failure to make timely payments has, in other cases, justified the cancellation of franchise agreements. A/C argued that Lennox had an obligation to provide notice to A/C and an explanation of all of its reasons for cancellation of the Tulsa franchise. The court pointed out that no notice is required under the UCC to cancel a contract for a failure to pay. The reason is obvious; an aggrieved seller dealing with a buyer who is in breach of their contract should not normally be obliged to put the delinquent buyer on notice before terminating future relations. Lennox likewise had no obligation to provide A/C with notification of its reasons for canceling the agreement permitting A/C to purchase products for resale in Tulsa. Thus, . . . Lennox's cancellation of that agreement was proper and A/C's breach of contract claim with regard to Tulsa fails as a matter of law.

Answer to Question 2

TRUE