CFC Franchise Agreements & Contract Law 2

Question 1

What is 'constructive termination' in franchise law?

Accepted Answer

Actions by the franchisor that make it impossible or impractical for the franchisee to continue operating

Answer

A formal written termination letter provided by the franchisor

Answer

Termination that occurs automatically when the franchise term expires

Answer

A mutual agreement between franchisor and franchisee to end the relationship

Question 2

What is a 'renewal term' in a franchise agreement?

Accepted Answer

A new franchise period granted after the initial term expires, often under updated terms

Answer

The automatic extension of the franchise agreement without renegotiation

Answer

A period during which the franchisee can return the franchise to the franchisor

Answer

A mandatory performance review period assessed by the franchisor every five years

Question 3

What is the legal significance of a 'personal guarantee' in a franchise agreement?

Accepted Answer

It makes an individual personally liable for the obligations of the franchisee entity

Answer

It guarantees the franchisor will personally support the franchisee's business

Answer

It ensures the franchisee will personally operate the franchise rather than using managers

Answer

It provides personal insurance coverage against franchise system failures

Question 4

What does 'liquidated damages' mean in a franchise termination clause?

Accepted Answer

A pre-agreed amount of compensation payable upon breach or early termination of the agreement

Answer

Damages calculated by a court after a franchise dispute is litigated

Answer

The cost of liquidating a franchisee's physical assets upon business closure

Answer

Penalties assessed by regulators for violations of franchise disclosure laws

Question 5

Under the FTC Franchise Rule, how many calendar days before signing must a franchisor provide the FDD to a prospective franchisee?

Accepted Answer

14 calendar days

Answer

7 calendar days

Answer

10 calendar days

Answer

21 calendar days

Question 6

What is 'encroachment' in the context of franchise agreements?

Accepted Answer

The franchisor or another franchisee competing in a way that draws customers from an existing franchisee

Answer

A franchisee operating outside their approved territory boundaries

Answer

An unauthorized modification of the franchise system's trademarks

Answer

A supplier selling directly to consumers within franchise territories

Question 7

What is the purpose of a 'successor agreement' requirement in a franchise agreement?

Accepted Answer

It ensures heirs or buyers of the franchise must operate under the then-current standard agreement

Answer

It requires the franchisor to provide a new agreement if they significantly change their system

Answer

It obligates the franchisee to develop additional units as successor locations

Answer

It protects the franchisee's right to pass the business to a family member without transfer fees