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Burger King Corp. v. Family Dining, Inc. - 426 F. Supp. 485 (E.D. Pa. 1977)

Rule:

Where words in a contract raise no duty in and of themselves but rather modify or limit the promisees' right to enforce the promise such words are considered to be a condition. Whether words constitute a condition or a promise is a matter of the intention of the parties to be ascertained from a reasonable construction of the language used, considered in light of the surrounding circumstances.

Moreover and more important, even though a suit for declaratory relief can be characterized as neither legal nor equitable, United States Fidelity & Guaranty Co. v. Koch, 102 F.2d 288, 290 (3d Cir. 1939), giving strict effect to the termination provision involves divesting Family Dining of exclusivity, which, in the Court's view, would amount to a forfeiture. As a result the Court will not ignore considerations of fairness and believes that equitable principles, as well, ought to govern the outcome of this suit.

Facts:

Plaintiff Burger King Corporation was a Florida corporation engaged in franchising the well-known Burger King Restaurants. By 1963, however, Burger King began to experience significant growth. It was also at this time that Burger King's relationship with defendant Family Dining, Inc., was created. Family Dining was a Pennsylvania corporation founded by Carl Ferris and which at the present time operates ten Burger King Restaurants. In accordance with the Territorial Agreement Burger King agreed that Family Dining would be its sole licensee, and thus have an "exclusive territory," in Bucks and Montgomery Counties provided Family Dining operated each Restaurant pursuant to Burger King license agreements and maintained a specified rate of development. Pillsburry Company acquired Burger King. During this time, several delays happened in developing the stores under Family Dining and acquiring approval of the real estate locations of the stores. Paszat was given responsibility for Family during and it appears that he provided Ferris with the first clear indication that Burger King considered the Territorial Agreement terminated in his letter. The parties attempted to negotiate their differences with no success. Burger King notified Family Dining that a franchise agreement had to be entered for the additional Restaurant without which Family Dining would be infringing Burger King's trademarks. Burger King filed a complaint seeking to enjoin the use of Burger King trademarks by Family Dining at the Warminster Restaurant. Subsequently, the parties reached an agreement on terms under which the Burger King trademarks could be used at the Warminster Restaurant. Pursuant to the agreement Burger King filed an amended complaint seeking the instant declaratory relief. In bringing this suit Burger King maintains that the Territorial Agreement is a divisible contract. Burger King relies on the opening language of Article I of the Territorial Agreement which provides that "[for] a period of one year, beginning on the date hereof, Company will not operate or license . . ." It is thus argued that since Family Dining clearly failed to perform its promises the Court must, in accordance with the express language of Article II, declare the contract terminated. Burger King further argues that because Family Dining did not earn exclusivity beyond the ninth year. Family Dining argued that the termination provision should be found inoperative because otherwise it would result in a forfeiture to Family Dining.

Issue:

Was Family Dining required to strictly comply with the development rate provision of the contract and hence, liable to Burger King for its failure to comply?

Answer:

No.

Conclusion:

The Court concluded that Burger King was not entitled to have the condition protecting its promise strictly enforced. The Court considered the development rate a condition subsequent, not a promise, which operated to divest Family Dining of exclusivity. A careful reading of the agreement indicates that it raised no duties in Family Dining. Both Article I and Article II contain language that referred to 90 years of exclusivity subject to limitation. Moreover, the Court excused the satisfaction of the condition as enforcing the contract strictly would amount to forfeiture. The Court observed that Burger King did not act as if the exact compliance was critical. The evidence presented showed that Burger King considered the performance of Family Dining as substantial compliance. Also, there was no evidence that the failure to fulfill the time feature of this inducement was the result of any intentional or negligent conduct on the part of Family Dining. In any event if Family Dining were forced to forfeit the right of exclusivity it would lose something of incalculable value based on its investment of time and money developing the area. On the contrary, the injury caused to Burger King by the delay was relatively modest and within definable limits. Thus, a termination of the Territorial Agreement would result in an extreme forfeiture to Family Dining.

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