Libby-Broadway Drive-In, Inc. v. McDonalds System, Inc - Case Study Example

Libby-Broadway Drive-In, Inc. v. McDonald's System, Inc. 391 N.E. 2d 1979 Ill.App. Lexis 2698 (Ill. App FACTS OF THE CASE: Franchise Agreement: Libby-Broadway Drive-In, Inc. (Libby) is a corporation licensed to operate a McDonald's fast-food franchise restaurant by the McDonald's System, Inc. (McDonald's). Libby was granted a license to operate a McDonald's in Cleveland, Ohio, and was granted an exclusive territory in which McDonald's could not grant another franchise. The area was described as "bound on the north by the south side of Miles Avenue, on the west and south side by Turney Road, on the east by Warrensville Center Road.

" In December 1976, McDonald's granted a franchise to another franchisee to operate a McDonald's restaurant on the west side of Turney Road. Libby sued McDonald's, alleging a breach of the franchise agreement. Is McDonald's liable for breaching the franchise agreement with Libby Why or why notANSWER: No. McDonald's is not liable for breach of the franchise agreement because the agreement is unenforceable. Generally, a breach of contract cannot be committed if the contract is unenforceable. A contract or agreement that is unenforceable is one that contains the essential requisites of a valid contract.

However, it cannot be enforced because it lacks requirement set forth by law. In this case, the agreement is unenforceable because it was not made in the form required by the Statute of Fraud which is applicable law in this case. Said law provides that "agreement which cannot be performed within a period of one year should be in writing and signed by the party to be charged of the its performance" in order to be enforceable. The substance of the case, as quoted from this case is that "if the plaintiffs would give up their options and would sell the other restaurant, McDonald's would provide them with two franchises of comparable size, location, and profit".

The performance of the act required to be done by the plaintiff cannot be performed in one year, thus, the performance of the obligation of McDonald's cannot also be performed within one year because the performance of the latter's obligation depends on the performance of the act required from the plaintiff. Therefore, the said agreement should have been reduced into writing as required by the Statute of Law. Secondly, a contract of lease is also required in the agreement on the property where the franchise is to be established.

In the case, the plaintiff alleged an oral contract for a franchise of a "comparable location" indicating that they contemplated similar to the 8230 Euclid location which is a lease. The Statute of Fraud also provides that a contract of lease for a period of more than one year should be in writing to be enforceable. And since the contract of lease in the franchise agreement was made orally, again the contract is unenforceable and breach of contract is inherently impossible. Lastly, granting that the franchise agreement is enforceable, the exclusive territory given to the plaintiffs was defined as "bound on the north by the south side of Miles Avenue, on the west and south side by Turney Road, on the east by Warrensville Center Road".

The franchise given to the third party was located at west side of Turney Road, in which reading between the lines, is far from the description of the exclusive territory granted to the plaintiffs. Wherefore, MacDonald's did not breach the exclusive territory provision of the contract.