Abdul signed a franchise agreement with franchisor Sierra Chocolate to operate a Sierra Chocolate franchise location in California. In the franchise agreement, there were several provisions that restricted business operations, including provisions that Abdul purchase all candy products from Sierra Chocolate and that Abdul not carry other food products and that Abdul would not own or operate any other food business within five mile of the franchise location . The franchise agreement had another provision that required Abdul to represent and warrant that he did not own an interest in any other food business that would violate the restriction. The franchise agreement also contained a termination provision that allowed Sierra to terminate the agreement if Abdul breached any promise in the agreement or if Abdul made any material misrepresentation in connection with the acquisition of the franchise.
After opening the store, Abdul had problems making a profit. He began to make his own candy, using recipes that used less expensive ingredients than those used by Sierra, so that he could sell the candy at a higher profit. Sierra began to receive complaints from customers about the quality of the candy that they purchased at Abdul’s store and, after investigating, found that Abdul was making his own candy and that he was selling this candy not only at his Sierra store but also at a bakery that he co-owned with his parents, and which was located down two blocks from the franchise store.
Answer the following questions:
1. Explain whether Sierra would be allowed to terminate the franchise agreement under the California Franchise Relations Act, Business and Professions Code §§ 20000-20043 based upon Abdul’s candy making and based upon his co-ownership of the bakery, and include in your answer the specific statute that would apply and whether or not Sierra would be required to give notice and an opportunity to cure. [10 points possible]
2. If Abdul were to claim that, before he had purchased the franchise, Sierra representatives had made false claims about the amount of profit he would earn, which aspect of the disclosure document required by the FTC Franchise Rule may be important and what information in that document would be important in analyzing his claim? [5 points possible]
homework will be graded based upon how completely and accurately you describe and apply the statutory requirements, using proper spelling, grammar and sentence structure. You can review the California statutes from the link on the Course Resources section, and should also review the California Department of Corporations publication Look Before You Leap – A Guide to Buying a Franchise, and Federal Trade Commission publication Buying a Franchise: A Consumer Guide, both linked above, to help provide information for your answers.
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