In a recent decision by the Court of Appeals for the Third Circuit, the court held that the express language of the franchise agreement will govern over any previously agreed upon terms and conditions.
In
Travelodge Hotels, Inc. v Honeysuckle Enterprises, Inc., the franchisee had previously owned and operated an independent hotel in Branson, Missouri. During discussions with Travelodge, it indicated that it would convert to a Travelodge franchise if it could be assured that such conversion would result in a fifteen percent increase in business. Sales representatives of Travelodge provided Honeysuckle with a “Monthly Lost Business Summary Report” indicating that Travelodge was unable to fulfill 13,000 reservations in Honeysuckle’s market. The franchisee and the sales representatives from Travelodge calculated that 5,400 of those reservations would have amounted to a fifteen percent increase in the franchisee’s business.
Honeysuckle subsequently entered into a license agreement with Travelodge. Although Honeysuckle negotiated three changes from the original license agreement, the final agreement did not include any reference to the condition regarding increased sales. In contrast, the license agreement expressly disavowed any express or implied covenants or warranties that were not otherwise stated in the agreement. The license agreement also contained language that the franchisee acknowledge that no salesperson made any promise or provided information about projected sales, revenues, income, etc.
After entering into the license agreement, the franchisee failed to pay the required royalty payments. Travelodge filed suit in the United States District Court for the district of New Jersey seeking outstanding fees as well as liquidated damages. Honeysuckle filed a breach of contract counterclaim, as well as a claim that it was fraudulently induced to enter into the license agreement by Travelodge producing the “Monthly Lost Business Summary Report”, indicating that Honeysuckle would increase its business by at least fifteen percent. Honeysuckle also produced evidence that the report inaccurately reported the number of room requests. Notwithstanding, the District Court entered judgment in favor of Travelodge.
In affirming the District Court’s decision, the Court of Appeals held that if the franchisee believed that Travelodge had guaranteed the fifteen percent increase in business, it would have insisted that such term be included as one of the negotiated changes to the license agreement and would not have signed an agreement that expressly negated any such guarantee. In addition, the court held that any purported reliance by Honeysuckle on Travelodge’s statements were refuted by the multiple acknowledgments contained in the agreement that no Travelodge representative made any representations about sales and profits.
