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?

Question

Micah Shepherd

Business

12 October, 05:04

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?

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Answers (1)

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Camden Clay · Answer 1

McDonald's will prevail.

Explanation:

First of all, in a franchise agreement, the the franchisee is economically dependent on the franchisor's business system. Their relationship is defined by the contract. C. B.'s failure to make timely payments did constitute a breach of the franchise contract. So McDonald's had the right to terminate the agreement, since the payments were more than 30 days late.

The contract didn't provide that the acceptance of a late payment waived McDonald's right to terminate for late payments. And the implied covenant of good faith and fair dealing requires that both parties act reasonably. McDonald's previous acceptance of late payments didn't affect their contract rights.