CHAPTER 36: Sole Proprietorships and Franchises1
B11.Refer to Fact Pattern 36-1. Jumbo Juice makes earnings claims to potential investors. For those claims, the franchisor
a.can have a hypothetical basis.
b.must have a reasonable basis.
c.must have an actual basis.
d.can have any or no basis.
B12.Level Fencing Company wants to present information in “disclosure docu¬ments” via the Internet to prospective franchisees. Among other legal re¬quirements with which Level Fencing must comply, prospective franchisees must
a.agree to settle any lawsuits that may arise over the documents.
b.be able to download or save all electronic documents.
c.provide e-mail addresses for Level Fencing to verify users’ authenticity.
d.register with the Federal Trade Commission via Level Fencing’s Web site.
B13.FreezE Yogurt Corporation provides its prospective franchisees with projected earnings figures based on actual data. FreezE Yogurt must also disclose
a.the number and percentage of franchisees that achieved the figures.
b.hypothetical examples of potential earnings.
c.an answer to the entrepreneur’s question, “How much will I make?”
d.none of the choices.
B14.Sashacontracts to buy a franchise from TrustMe Financial Consultants Inc. The contract is silent on the issue of territorial rights. When TrustMe allows a competing franchise to be established near Sasha’soffice, she suffers a significant loss in profits. This is most likely a violation of
b.the ban on certain types of anticompetitive agreements.
c.the Federal Trade Commission’s Franchise Rule.
d.the implied covenant of good faith and fair dealing.
B15.Georgebuys from Haul-U Corporation the exclusive right to use the Haul-U trademark and sell and lease Haul-U-brand productsin a certain area. Their franchise agree¬ment requires George to pay certain administrative expenses. Their agreement may also require George to pay a percentage of the franchisor’s
d.none of the choices.
B16.Rooster Red LLC grants a franchise to Qiana to open and operate a Rooster Red restaurant. Rooster Red will likely charge Qiana
a.an initial fee or lump sum price for the franchise license.
b.a percentage of Qiana’s weekly payroll expense.
c.an amount of Qiana’s monthly overhead savings, if any.
d.none of the choices.
B17.Shop n’ Pay Convenience Stores, Inc., is a franchisor. Tonya operates a Shop n’ Pay fran¬chise. Ulysses is one of Tonya’s employees. As a franchisor, if Shop n’ Pay con¬trols the day-to-day operations of the business to a significant degree, it may be liable for tortious acts by
b.Shop n’ Pay only.
c.Shop n’ Pay and Tonya, but not Ulysses.
d.Shop n’ Pay, Tonya, or Ulysses.
B18.Fletcherbuys a Great Big Burgers, Inc., franchise. Great Big Burgers requires that its fran¬chi¬sees buy its products exclusively for every phase of their op-erations. Be¬cause Fletcher wishes to buy less expensive products, he challenges the re¬quirement. His best argument is probably that the re-quirement violates
a.the implied covenant of good faith and fair dealing.
b.the Federal Trade Commission’s Franchise Rule.
c.federal antitrust laws.
d.Great Big Burgers’s marketing image.
B19.Mix n’ Match Clothing Corporation gives notice to Neely that Mix n’ Match is terminating their franchise arrangement. Winding up the business requires
a.a new franchise agreement.
b.nothing more than closing immediately.
c.Neely’s death, disability, or insolvency.
d.the return of Mix n’ Match’s property.
B20.A franchise agreement between Grid Tools Company and Hometown Hardware, Inc., is silent on a time for termination of the franchise. Grid Tools may
b.terminate at any time.
c.terminate on reasonable notice.
d.terminate on three days notice.
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