The franchise agreement between Charlie and PHOCCI is a standard form contract drafted by PHOCCI’s lawyers that also contains the following terms:
a)This Agreement and the rights conferred upon the franchisee hereunder shall automatically terminate forthwith upon the happening of any of the following events: (i) if the franchisee is delinquent in making royalty or marketing service fund payments to the company for a period in excess of two (2) weeks; (ii) if the franchisee ceases or takes any steps to cease the operation of the franchised business.
b)This Agreement constitutes the entire agreement between the parties, and supersedes all previous agreements and understandings between the parties in any way relating the subject matter hereof. It is expressly understood and agreed that the Company has made no representations, inducements, warranties, or promises whether direct, indirect, collateral, oral, or otherwise concerning this Agreement, the matters herein, the business licensed hereunder, or concerning any other matter that are not embodied herein.
Later that month, the premises at 727 Smokey Mountain Way in Oil Springs, Ontario opened its doors for business in the operation of the Priority Home and Office Computer Care franchise.
Within a few months of opening his business, it becomes apparent to Charlie that the financial projections provided by Nell Madison were inaccurate; Charlie’s sales are much lower and his costs are much higher than anticipated, resulting in a severe cash-flow problem and an inability to keep up with the weekly royalty and marketing fund payments specified under the franchise agreement. Charlie is soon delinquent in making both royalty and marketing service fund payments for a period in excess of two weeks.
Charlie contacts Nell Madison to request some additional time to pay the overdue royalty and marketing service fund payments. After Nell consults with management at PHOCCI, she lets Charlie know he has “some additional time” to pay the overdue balances.
Unfortunately the extra time provided does not help Charlie Martin and he continues to miss weekly royalty and marketing fund payments – falling further and further behind.
PHOCCI sends Charlie a letter demanding payment of the outstanding amounts (plus interest) and threatens legal action.
Feeling desperate, Charlie contacts his lawyer for the first time. Charlie was advised by his lawyer that he could cease the operation of the franchised business immediately and that after cessation he could operate a computer service business offering the same type of services as he had offered under the PHOCCI franchise. His lawyer also advised him to neither retain nor show any connection at all to PHOCCI.
This is what Charlie does – he ceases all connections to PHOCCI and continues operation of his business. Within a short period of time he starts to see a small profit and believes the future for his business is bright.
1.Charlie Martin has got himself into a “real mess”! To avoid this “real mess”, what specific suggestions would you have provided to Charlie Martin prior to him entering into the franchise agreement with PHOCCI?
2.Provide a good explanation of a standard form contract and why it might be used in situations such as these.
3.Was there a valid contract between Charlie Martin and PHOCCI? Explain with specific reference to the necessary elements required to make a valid contract why you feel there is a valid contract or there is not a valid contract.
4.Assuming there was a valid contract, was the contract breached by either party? Explain. What type of breach occurred? What are the rights and obligations of each party when this type of breach occurs?
5.In order to succeed in an action for breach of contract, what must the plaintiff demonstrate to the courts and to what degree must they demonstrate this?
6.Is there a valid contract between Charlie Martin and his younger sibling? Explain.
7.How would the courts view the promise by Nell Madison (PHOCCI) to give Charlie Martin “extra time” to pay the overdue accounts? Explain fully. (6 Marks)
8.How would a judge view the “Entire Agreement” clause?
9.What suggestions can you provide that would assist both Charlie Martin and PHOCCI avoid litigation?