Question

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?

1. Who is the franchisor? (Answer choices: McDonald’s or C.B. Management, Inc.)
2. Who is the franchisee? (Answer choices: McDonald’s or C.B. Management, Inc.)
3. In a franchise relationship, the ______ (Answer choices: franchisee or franchisor) is economically dependent on D. 4. ______ (Answer choices: franchisee or franchisor) business system.
5. The franchise relationship is defined by the ____ (Answer choices: contract, agency, or friendship) between the franchisor and the franchisee.

Answer 1

1. McDonald's

2. C.B. Management, Inc.

3. Franchisee

4. Franchisor

5. Contract

Step-by-step explanation:

Requirement 1:

Before going to franchisor or franchisee, we have to define the franchising. Franchising is a marketing concept for expanding business by an organization by adopting a strategy.

A franchisor is a person or an organization that allows another third party to use the franchisor's license to establish a business in different regions or areas. In this case, since C.B. Management, Inc. took the license from the McDonald's company; therefore, McDonald's is the franchisor.

Requirement 2:

In a franchising business, there are two parties, one is the franchisor, and the other one is a franchisee. We have already discussed the franchisor in requirement 1.

A franchisee is a person or an organization that is operating the franchise business. Franchisee generally buys the right in the form of a license from the franchisor to continue its operation. It can use the franchisor's business trademark, goods, and another significant market brand.

Requirement 3 & 4:

Since in a franchising business, there are two parties - franchisor and franchisee, there is an extensive relationship between both of them. The franchisee can get the right to use the product of the franchisor's business if the franchisor grants the license. Similarly, there is an economic relationship between these two parties. The franchisee is dependent economically on the franchisor business because if the franchisor does not agree with the terms and conditions, there will be a misunderstanding. Therefore, the franchisee has to wait for the franchisor's business decision.

Requirement 5:

The contract is the valid legal form of principle that defines many business ventures. Therefore, agency or friendship cannot be the answer for this relationship. Friendship cannot describe the logical way of business; on the other hand, the franchisee cannot be an agent of the franchisor's business. Without a contract, either written or oral, no company is formed. Therefore, franchising business must have a mutual agreement to establish the franchise business between the franchisee and the franchisor.

Answer 2

1. McDonald's

2. C.B. Management, Inc.

3. Franchisee

4. Franchisor

5. Contract

Step-by-step explanation:

Requirement 1:

Before going to franchisor or franchisee, we have to define the franchising. Franchising is a marketing concept for expanding business by an organization by adopting a strategy.

A franchisor is a person or an organization that allows another third party to use the franchisor's license to establish a business in different regions or areas. In this case, since C.B. Management, Inc. took the license from the McDonald's company; therefore, McDonald's is the franchisor.

Requirement 2:

In a franchising business, there are two parties, one is the franchisor, and the other one is a franchisee. We have already discussed the franchisor in requirement 1.

A franchisee is a person or an organization that is operating the franchise business. Franchisee generally buys the right in the form of a license from the franchisor to continue its operation. It can use the franchisor's business trademark, goods, and another significant market brand.

Requirement 3 & 4:

Since in a franchising business, there are two parties - franchisor and franchisee, there is an extensive relationship between both of them. The franchisee can get the right to use the product of the franchisor's business if the franchisor grants the license. Similarly, there is an economic relationship between these two parties. The franchisee is dependent economically on the franchisor business because if the franchisor does not agree with the terms and conditions, there will be a misunderstanding. Therefore, the franchisee has to wait for the franchisor's business decision.

Requirement 5:

The contract is the valid legal form of principle that defines many business ventures. Therefore, agency or friendship cannot be the answer for this relationship. Friendship cannot describe the logical way of business; on the other hand, the franchisee cannot be an agent of the franchisor's business. Without a contract, either written or oral, no company is formed. Therefore, franchising business must have a mutual agreement to establish the franchise business between the franchisee and the franchisor.