Burger King Corp. v. Family Dining, Inc.

Brief Fact Summary.

Plaintiff and Defendant entered into an exclusive territorial agreement in which Defendant was required to build a Burger King restaurant each year for the next ten year. If Defendant complied with the agreement, Defendant would be entitled to exclusivity of management in the Bucks and Montgomery Counties in Pennsylvania for 90 years. Defendant did not satisfy the development schedule. Plaintiff brought suit.

Synopsis of Rule of Law.

If an essential part of the consideration of the promisor’s performance incudes a condition of performance in a contractual agreement involves extreme forfeiture or penalty, the condition may be excused without reason.

Facts.

Burger King Corp., Plaintiff, and Family Dining, Defendant, began an exclusive territorial agreement relationship, which provided that in the event that Defendant opened one Burger King restaurant each year for the next ten years and agreed to manage the restaurants in accordance with the Burger King franchise agreement, Defendant would enjoy exclusivity of management in Bucks and Montgomery Counties in Pennsylvania for 90 years. Defendant opened its first three restaurants in time and complied with the agreement. Thereafter, Defendant began to experience problems with its next two restaurants. Defendant contacted James McLamore, Burger King’s founder, the problems. McLamore still believed Defendant had “substantially met” its obligations under the territorial agreement, even though Defendant was delayed nineteen month, pursuant to the agreement. Further, McLamore stated that the development schedule state in the agreement was mainly to encourage development by Defendant, which would result in a profit for both Plaintiff and Defendant, rather than setting a requirement for development each year. Similarly, McLamore gave Defendant the same response when it experience problems developing its sixth restaurant. Further, Defendant opened its seventh and eighth stores faster than scheduled. At that time, Plaintiff had significantly expanded in its size and operations, and Defendant stopped working directly with McLamore in regards to the terms of the agreement. When Defendant did not open the eighth restaurant on time, Defendant received a letter from Plaintiff. The letter stated Defendant breached the territorial agreement with Plaintiff, and Plaintiff was revoking its exclusive territorial agreement. Plaintiff and Defendant unsuccessful negotiated to resolve this issue. Also, during this time, Plaintiff established and opened its ninth and tenth restaurants. Plaintiff filed an action seeking a declaratory judgment requesting that the court determine whether the territorial agreement with Defendant had been terminated when Defendant failed to satisfy with the development schedule. Defendant motioned to dismissed the complain alleging the agreement would result in a forfeiture by Defendant. 

Issue.

Whether an essential part of the consideration of the promisor’s performance incudes a condition of performance in a contractual agreement involves extreme forfeiture or penalty, the condition may be excused without reason.

Held.

Yes, an essential part of the consideration of the promisor’s performance incudes a condition of performance in a contractual agreement involves extreme forfeiture or penalty, the condition may be excused without reason.

Discussion.

If an essential part of the consideration of the promisor’s performance incudes a condition of performance in a contractual agreement involves extreme forfeiture or penalty, the condition may be excused without reason. If a contract contains language that does not result in a duty or obligation, but modify or limit a promisee’s right to enforce a promise, those words are deemed to be conditions. Here, the development schedule that required Defendant to open ten restaurants does not create a duty for Defendant, but rather, constitutes a condition for Defendant to obtain exclusive management in the Bucks and Montgomery Counties in Pennsylvania for 90 years. Further, the court noted that this condition is excusable because Plaintiff never considered strict compliance to the development schedule. As noted through McLamore’s actions, McLamore thought Defendant had significantly met its obligations under the contract. Also, even if Plaintiff changed its mind, wanting strict compliance to the development contract, Plainitff is required to give Defendant notice within reasonable time to allow Defendant to comply with the change. Plaintiff did not provide Defendant any notice. Rather, Plaintiff just sent Defendant a letter indicating that indicated the agreement was terminated for noncompliance, which is insufficient to constitute notice to correct performance. Lastly, Defendant will lose a substantial amount of the money and value it bargained for under the contract by terminating the agreement. Therefore, terminating the agreement from Defendant will result in a forfeiture to Defendant, and strict compliance to the development schedule should be excused. Defendant’s motion to dismiss is granted.