Question

Santosh operates a successful fast-food franchise called “Santosh’s Food”. Tasty Pty Ltd is keen to open a ‘Santosh’s Food’ outlet in the Melbourne suburb of Bundoora. The parties reach an agreement that Tasty Pty Ltd will operate a Santosh’s Food restaurant in Bundoora for a period of five (5) years. The agreement contains the following terms:

9. Santosh promises that he will not open another Santosh’s Food franchise within the Bundoora area during the franchise period (that is, five (5) years)

13.   Tasty Pty Ltd promises that it will operate the restaurant strictly in accordance with the laws and regulations set out in the Health Act.

One year after the restaurant opened, Tasty Pty Ltd was charged and found guilty of breaching the Health Act. Santosh immediately cancelled the remainder of the Franchise agreement and opened another Santosh’s Food franchise in Bundoora. Santosh decided to operate this new franchise himself.

Advise Tasty Pty Ltd whether it has an action for breach of contract against Santosh, and (if so) what the appropriate remedies might be. Give reasons for your answer. Assume that your answer is not affected by the Franchising Code of Conduct.

Answer 1

Answer:-

In the law of contracts, contractual terms, which can either be expressed or implied, are binding to all the parties involved (Kelly, et. al., 2020).

Generally, a breach of contract refers to a legal cause of action alongside being a category of civil wrong arising from failure by one or more parties to a contract to abide by the set terms and conditions during the signing of the agreement (Clarkson & Miller, 2020). Any breach of contractual terms may result into remedies or termination of the contract. The 41 US Code s.6503 provides for termination of a contract in the event of breach or violation of required contract terms.

In the present case, Tasty Pty Ltd breached one of the contractual terms laid down during the signing of the initial agreement. The breached contractual term was to operate the franchise restaurant strictly in accordance with the laws and regulations set out in the Health Act. Since Tasty Pty Ltd was found guilty for contravening the Health Act, it implies that there was a breach of the contractual terms; hence, Santosh had the rights to terminate the contract. With the assumption that the contract is not under Franchising Code of Conduct; thus, guided by contract law, the 41 US Code s.6503 provides for termination of a contract in the event of breach or violation of required contract terms.

In the case of Bruening Rock Products, Inc. v. Hawkeye International Trucks, the courts held that the contract was breached and plaintiff had a legal cause and was awarded for damages. By terminating the contract, Santosh had the right to open up a new restaurant as the initial contract no longer existed. Therefore, Tasty Pty Ltd does not have any action for breach of contract against Santosh since the company had already breached the contractual terms of the initial contract rendering it inexistence.

References

Clarkson, K. W., & Miller, R. L. (2020). Business law: Text and cases. Cengage Learning.

Kelly, D., Hammer, R., Denoncourt, J., & Hendy, J. (2020). Business law. Routledge.

Case Laws

Bruening Rock Products, Inc. v. Hawkeye International Trucks, No. 14-1215 (July 22, 2015)

Statutes

41 US Code s.6503