The Original Great American Chocolate Chip Cookie Company, Incorporated v. River Valley Cookies, Limited

Facts

P sold D a franchise to operate a Cookie Company store in a shopping mall in Aurora, Illinois. D used borrowed money to invest $125,000 to $130,000 in fixtures and other improvements. The agreement defines 'material breaches' to include, among other things, 'failing to maintain and operate the Cookie System Facility in a good, clean, wholesome manner and in strict compliance with the standards then and from time to time prescribed by' P; selling any product not authorized by the Cookie Company; failing to pay any service fee within 10 days after it is due; failing to pay any of the company's invoices within that period; underreporting gross sales (on which P's royalty from its franchisees royalty is based) by 1 percent or more; or failing to maintain certain insurance coverage. A material breach entitles P to terminate the franchise if the breach 'is not totally remedied and cured within five (5) days after written notice of such event is sent to' the franchisee. Any three breaches, whether or not material, entitle the company to terminate the franchise within a 12-month period without giving the franchisee notice or an opportunity to cure. D repeatedly failed to furnish insurance certificates indicating that P was an additional insured. D paid four invoices (aggregating either $13,000 or $30,000--the record is unclear) more than 10 days after they were due, which meant more than 20 or more than 40 days after billing. D made five other late payments. Seven times they sent P checks that bounced. They flunked several inspections by the company's representatives, who found oozing cheesecake, undercooked and misshapen cookies, runny brownies, chewing gum stuck to counters, and ignorant and improperly dressed employees. An independent auditor found that in a three-year period, D had underreported their gross sales by more than $40,000 (a nontrivial 2.8 percent of the total--almost three times the allowed margin of error); the result was to deprive the Cookie Company of almost $3,000 in royalties. P terminated the franchise but D continued to sell cookies under the company's trademark, using batter purchased elsewhere after their supply of P batter ran out. P sued D to enjoin their violating the Trademark Act, 15 U.S.C. §§ 1051 et seq., and moved for a preliminary injunction. D counterclaimed, charging that their franchise had been terminated in violation both of the franchise agreement and of the Illinois Franchise Disclosure Act, Ill. Rev. Stat. ch. 121 1/2, P 1719, and moving for a preliminary injunction directing P to restore their franchise. P has offered to let them assign the franchise, for a consideration that presumably would enable the D to recover most, perhaps all, of their investment--or more, for that matter. But they claim not to have sufficient other income to make the payments required to service the loan until the assignment is complete, and they fear that in the Interim the loan will be called and they will lose their home and the other assets that they pledged--two houses, and a retirement fund, of Mrs. Sigel's father--as collateral for it. P gave D an opportunity to assign the franchise back in August 1990, and again in October of that year (the suit was not brought until February 1991). Illinois like other states requires, as a matter of common law, that each party to a contract act with good faith, and some Illinois cases say that the test for good faith 'seems to center on a determination of commercial reasonability.' The district court granted D's motion and denied that of P. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

© 2007-2025 ABN Study Partner.