CARLOS DEL REY AND LA GRANDE ENCHILADA FRANCHISE

LAW CASE STUDY Name: Institution: Date CARLOS DEL REY AND LA GRANDE ENCHILADA FRANCHISE Introduction Carlos Del Rey decided to open a Mexican fast-food restaurant and signed a franchise contract with a national chain called La Grande Enchilada. The contract required the franchisee to strictly follow the franchisor`s operating manual and stated that failure to do so would be grounds for terminating the franchise contract. The manual set forth detailed operating procedures and safety standards, and provided that a La Grande Enchilada representative would inspect the restaurant monthly to ensure compliance. Nine months after Del Rey began operating his restaurant, a spark from the grill ignited an oily towel in the kitchen. No one was injured, but by the time firefighters were able to put out the fire, the kitchen had sustained extensive damage. The cook told the fire department that the towel was "about a foot and a half from the grill" when it caught fire. This was in compliance with the franchisor`s manual that required towels be placed at least one foot from the grills. The next day, La Grande Enchilada gave Del Rey notice that the franchise would be terminated in thirty days for failure to follow the prescribed safety procedures. 1. What type of franchise was Del Rey`s La Grande Enchilada restaurant? A franchise is an arrangement where the owner of a copyright, trademark or a trade name allows a group, a company or an individual to use their copyright licenses, trade name or trademark in the selling of goods and services ( Kurtz, 2011 pp.102). The person who buys the copyright or the trademark is a franchisee while the seller is a franchisor. In this case, Carlos Del Rey is the franchisee while La Grande Enchilada is the franchisor. There are three types of franchise namely, distributorship, chain-style business operation and manufacturing arrangement. The franchise type here is chain-style business operation, a type that mostly involves service-providing companies. This is because the franchisor (la Grande enchilada) provides inspection and maintenance service to Carlos Del Rey. The franchise allows operation is because Carlos Del Rey is allowed to operate under prescribed methods by the la Grande Enchilada and follow certain standards of performance where a towel has to be about a foot and a half from the grill if they will operate the business together. It also authorizes safety measures to be followed failure to which the contract shall be terminated. The contract requires the franchise to obtain services only from the franchisor and in this case, the maintenance is only by franchisor representatives. 2. If Del Rey operates the restaurant as a sole proprietorship, who bears the loss for the damaged kitchen? Explain. If Del Rey is a sole proprietor, the loss shall be upon La Grande Enchilida because the damage caused was in the terms of franchisor that the towel should be about a foot and a half from the grill upon which they will bear the loss. If the towel did not comply with the terms, then the Del Rey would have catered for the loss. 3. Assume that Del Rey files a lawsuit against La Grande Enchilada, claiming that his franchise was wrongfully terminated. What is the main factor a court would consider in determining whether the franchise was wrongfully terminated? In franchise contract, the termination of the contract is determined by the agreement of the two parties. In most cases, the contracts begin with short trial periods so that they can evaluate and decide whether they can do business together ( Cross& Miller, pp 275 2012). The termination of contract may be due to death, breach of the contract, disability or failure to meet certain standards. However, notice of termination should be made prior to the termination date so that the franchisee may be allowed enough time to wind up the business. Wrongful termination occurs when a franchisee terminates the contract, which usually has adverse effects on the business because he is the owner of copyright license, trade name or trademarks. Wrongful termination favors the franchisor over the franchisee. If Del Rey files a lawsuit against La Grande Enchilada, claiming that his franchise was wrongfully terminated the main factor that the court shall consider is the grounds on which they agreed to terminate the terms. The law requires parties to act within the agreement signed or verbally agreed failure to which they will have breached the contract. 4....