Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 17

Defenses. Thomas and Heidi Klutz, who did business as Hit Enterprises, LLC, obtained a franchise from Kahala Franchise Corp. to operate a Samurai Sam's Teriyaki Grill restaurant in Vancouver, Washington. Their agreement allowed them to transfer the franchise only on Kahala's approval. Six years later, the Klutzes sold the restaurant to William Thorbecke and Regina Norby-Thorbecke for $170,000. The Thorbeckes signed a promissory note to the Klutzes for $110,000 of the price. At the time, the Klutzes claimed that they also had the right to sell the franchise to the Thorbeckes. They advised the Thorbeckes, however, to operate the restaurant under the Klutzes' franchise agreement to avoid paying a $5,000 transfer fee to Kahala. When Kahala learned of the deal, the franchisor told the Thorbeckes to stop using the Samurai Sam's name and filed a suit in a Washington state court against the Klutzes. The Thorbeckes stopped paying on the note, and the Klutzes filed a claim against them for the unpaid amount. In defense, the Thorbeckes asserted breach of contract and fraud. Are the Thorbeckes' defenses effective against the Klutzes? Explain. [ Kahala Franchise Corp. v. Hit Enterprises, LLC, 159 Wash.App. 1013 (2011)]