INDUCTION MOOT 2015

MOOT COURT SOCIETY, CAMPUS LAW CENTRE

IN THE HONBLE TRIAL COURT

ORDINARY ORIGINAL JURISDICTION
CIVIL SUIT NO. __ OF 2015

Medha .......... Plaintiff

V.
JustFalafs India Inc. .................................... Defendant

MEMORANDUM ON BEHALF OF THE PLAINTIFF

TABLE OF CONTENTS

INDEX OF AUTHORITIES....................................................................................................... III

Statement of Jurisdiction.............................................................................................................IV
Statement of Facts........................................................................................................................ V
Statement of Issues .....................................................................................................................VI
Summary of Arguments........................................................................................................... - 7 Arguments Advanced............................................................................................................... - 8 Prayer ..................................................................................................................................... - 13 -

II

INDEX OF AUTHORITIES
Cases
1. Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade
Agreemen (1977) 3 SCC 227
2. Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 535
3. Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 545
4. American Honda Motor Company, Inc. v. Richard Lundgren, Inc. 45 Mass. App. Ct.
410, 415, 699 N.E. 2d 11 (1998)
5. Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) FCA 242
6. Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 460
7. John M. Lee et al. v. Flintkote Company 593 F.2d 1275 (D.C. Cir. 1979)
8. Himachal Joint Venture vs Panilpina World Transport FAO (OS) 123/2008
9. Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291,
1986 U.S. App. 26657

Books
1. R.K. Bangia, Indian Contracts Act, 14th Edition
2. Chitty on Contracts, 28th Edition
Others
1. OECD, Competition Policy and Vertical Restraints: Franchising Agreements

Statutes
1. Indian Contract Act, 1872
2. Code of Civil Procdure, 1908

III

STATEMENT OF JURISDICTION

The Plaintiff humbly submits this memorandum before this Honourable Court, invoking
its civil jurisdiction under Section 9 of Civil Procedure Code. The Plaintiff also invokes
Order 39, Rule 2 of Civil Procedure Code empowering the honourable court to grant an
injunction in civil matters.

IV

STATEMENT OF FACTS
JustFalafs India Inc. (from here on, referred to as JFIC) is a company which licenses
JustFalafs, a chain of fast food restaurants, which primarily sells Falafels, a fast food of
Middle Eastern origin.

Medha Kumar started negotiating with JustFalafs India Inc. two years earlier, to own a
JustFalafs restaurant franchise in Delhi. During this period, JustFalafs India Inc. wrote a
letter to Medha, expressly stating If you sign a franchise agreement with us, we will give
you a right of first refusal on any new franchises within 10 kilometres of your store.

Later, Medha signed the agreement to own a JustFalafs franchise. One part of this
agreement required JFIC to not license a JustFalafs franchise within 5 Km of the
JustFalafs restaurant that Medha owned. Now, after 2 years, after becoming a popular and
established brand, JFIC awarded a franchise to a Shalini, in the vicinity of Medhas
restaurant, and without first offering it to Medha.

This new restaurant is at a distance of 4 Km from Medhas restaurant if one is to consider

direct distance between these two restaurants, as if they were two points joined by a straight
line. Whereas if one were to drive form one restaurant to another, the distance comes to 5.2
Km. There is a straight road connecting both the restaurants, but due to this road being oneway, one has to travel more, bringing the distance to 5.2 Km just mentioned. This had
become a point of contention between Medha and JFIC. Medha wrote to JFIC stating that as
per the agreement, JFIC cannot grant a license for another JustFalafs restaurant within
direct radius of 5 Km. JFIC replied to this letter insisting that the 5 Km area means 5 Km by
driving distance and not by radius. JFIC pointed to a franchise brochure which it had sent to
Medha during negotiations, and specifically invoked this text from the brochure Every
franchise is protected by our 5 Km guarantee. A customer would have to drive at least 5 Km
away from your restaurant before they can find another JustFalafs.

Medha has knocked the door of this Honble Court, pleading that it enjoin JFIC from granting
the franchise to Shalini and to get a declaratory judgement that she has a 10 Km right of first
refusal on future franchises.

STATEMENT OF ISSUES
The following issues are presented before the court in the instant matter-

1. WHETHER

THE PLAINTIFF ENTERED INTO A VALID CONTRACT

2. WHETHER THE DEFENDANT WAS IN BREACH OF THE CONTRACT

2.1. WHETHER THE TERRITORIAL EXCLUSIVITY GRANTED TO THE PLAINTIFF WAS IN
TERMS OF RADIUS, OR DRIVING DISTANCE

2.2. WHETHER THE LETTER SENT BY THE DEFENDANT PROMISING RIGHT OF REFUSAL
WAS A LETTER OF INTENT, AND IF SO, WAS IT BINDING

3. WHETHER THE PLAINTIFF SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING

OF NEW FRANCHISE

VI

SUMMARY OF ARGUMENTS
1. THE PLAINTIFF ENTERED INTO A VALID CONTRACT:
The Plaintiff submits that the agreement between the Plaintiff and the Defendant was not an
agreement in restraint of trade and falls very well within the limits of Section 27 of the
Indian Contract Act, 1872, as the Plaintiff who was selling Falafels, had paid for the franchise
license and expected certain assistance from the Defendant, and the exclusivity guaranteed to
Medha was reasonable in reference to the interests of the parties concerned and also to the
interests of the public. Thus, the franchise agreement between the two parties was a valid
contract.

2. THE DEFENDANT WAS IN BREACH OF CONTRACT:

It is humbly submitted that the Defendant is in breach of the contract through awarding of
franchise to Shalini. This submission is twofold: Firstly, The Defendant acted on its own
whim by interpreting the territorial exclusivity meant to be as per driving distance, which is
arbitrary and illogical at best. Secondly, the letter sent by the Defendant to the Plaintiff
promising right of first refusal had all the elements of a letter of intent. Thus, by acting
against the said intent, the Defendant violated the terms of the contract. Accordingly, the
Honble Court should give a declaratory judgement granting the Petitioner the right of first
refusal around 10 Km, in the future.

3. THE PLAINTIFF SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING OF

FRANCHISE TO SHALINI:

It is submitted to the Honble Court that the Petitioners circumstances and Defendants
actions are enough to satisfy the court to grant the Petitioner a temporary injunction under
Order 39 Rule 2 of the Civil Procedure Code, against awarding of the franchise to Shalini
by the Defendant. This assertion is true considering the fact that the Petitioners restaurant is
in danger of being alienated by a new competitor in the vicinity.

ARGUMENTS ADVANCED
1. THE PLAINTIFF ENTERED INTO A VALID CONTRACT:
The Plaintiff submits that the agreement signed between the Plaintiff and the Defendant was
valid. One issue that comes forth is the one, requiring the Defendant to not grant a license to
anyone, within 5 Km of the Petitioners restaurant. Franchise owners paying generous sums
to own a franchise receive certain considerations from Franchisors, which would protect their
interest, in terms of profitability and value. The clauses which restrict competition by giving
the franchisee territorial exclusivity, can be considered, in the circumstances, to be
indispensable in that prospective franchisees would probably be unwilling to undertake the
necessary investment and to pay a substantial initial fee to enter the franchise system if they
were not provided with some protection against competition from other franchisees and from
the franchisor in the allotted territory1

Restraint was reasonable:-

The Section 27 of the Indian Contract Act states that every agreement by which anyone is
restrained from exercising a lawful profession, trade or business of any kind, is to that extent
void2. This statement has to be taken in the light of landmark SC Judgement on the case
Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreement3,
the Supreme Court observed that exclusive dealership agreements did not restrict distribution
in any area or prevent competition and in this regard, there was no evidence that the
Agreement had restricted, distorted or prevented competition. It has been held that when the
restraint is reasonable in reference to the interests of the parties concerned and also to
the interests of the public, the agreement will not be void4.

----------------------------------1

OECD, Competition Policy and Vertical Restraints: Franchising Agreements

R.K. Bangia, Indian Contracts Act, 14th edition

Tata Engineering and Locomotive Co. Ltd. v. The Registrar of Restrictive Trade Agreemen (1977) 3 SCC 227

Nordenfelt v. Maxim Nordenfelt Guns and Ammunitions Co Ltd (1894) A.C. 535

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Further, In Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company5, negative restriction on
trade has been pacified. The Honble Supreme Court observed that since the negative
restriction is operative only during the period of franchise, it is not hit by section 27 of the
Indian Contract Act so as to be termed in restraint of trade.

2. THE DEFENDANT WAS IN BREACH OF CONTRACT:

It has been submitted before the Court that the Plaintiff and the Defendant entered into a valid
contract.

2.1 THE TERRITORIAL EXCLUSIVITY GRANTED WAS IN TERMS OF RADIUS:

The Defendant has, after gaining foothold in the market in two years, presumed that the
exclusive territory guaranteed to the plaintiff was 5 Kms driving distance. This presumption
on part of the Defendant is illogical and arbitrary. The fact that a direct road from the
Plaintiffs restaurant to the new restaurant being one way for the time being, stretched the
driving distance beyond 5 Km is preposterous and mocks the spirit of the contract.

Moreover, the brochure presented by the Defendant where it is written that Every franchise
is protected by our 5 Km guarantee. A customer would have to drive at least 5 Kms away
from your restaurant before they can find another JustFalafs, is shady and unclear at best.
Nowhere does it express what would have to drive at least 5 Kms means. This is a general
informative statement just to give an indication to the franchise owners that territorial
protection is part of the agreement. The same agreement that the Defendant has so clearly
violated.
American Honda Motor Company, Inc. v. Richard Lundgren, Inc.6 is a case where the
Court of Appeals for the First Circuit, in Massachussets, USA gave due consideration to the
issue between selection of radius or drive time. The Honble Court observed that in the

---------------------------------------------------------5

Gujarat Bottling Co Pvt. Ltd. V. Coca Cola Company, (1995 )5 SCC 545

American Honda Motor Company, Inc. v. Richard Lundgren, Inc. 45 Mass. App. Ct. 410, 415, 699 N.E. 2d 11

(1998)

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absence of any clear criteria for calculating the RMA (Relevant Market Area), the best
driving route, and even more so the driving time, may vary with weather, season and
commuter patterns; and each customer becomes a separate, debatable calculation..
Further, it added that the same drive time may translate to different geographic distances,
depending on topography, before finding radius a more reasonable option.

Having established the violation of territorial exclusivity by the Defendant, the petitioner
would plead the Court to note several foreign judgements where the party violating the
territorial exclusivity clause in the franchise agreement, were found liable. Haviv
Holdings Pty Limited v Howards Storage World Pty Ltd7, Agribrands Purina Canada
Inc. v. Kasamekas8. The Court of Appeals for the District of Columbia Circuit, in John
M. Lee et al. v. Flintkote Company9 held that extra-contractual evidence proffered by
appellants in an effort to support their position was either irrelevant or barred by the
parol evidence rule. This negates the relevance of brochure sent to the Plaintiff by the
Defendant, if for the sake of argument, we believe it specified driving distance as a measure
of territorial exclusivity.

2.2 THE LETTER SENT BY THE DEFENDANT PROMISING RIGHT OF REFUSAL WAS A LETTER OF
INTENT AND WAS BINDING:

There are a number of elements that must be in place in order for a letter of intent to be
legally binding. These include:

certainty as to key terms;

consideration (the 'price' paid under the contract in return for performance by the
other party of its obligations); and

a mutual intention to enter into a binding legal contract.

-----------------------------------------7

Haviv Holdings Pty Limited v Howards Storage World Pty Ltd (2009) FCA 242

Agribrands Purina Canada Inc. v. Kasamekas (2011) ONCA 460

John M. Lee et al. v. Flintkote Company 593 F.2d 1275 (D.C. Cir. 1979)

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The Defendant, in its letter, clearly specified what it was offering (Right of First Refusal
around 10 Kms of Plaintiffs restaurant). The Plaintiff had paid the consideration in way of
franchise fee for the contract to take effect. The wording of the Defendants letter clearly
expressed intention to enter into a contract.
Further, in the case of Himachal Joint Venture vs Panilpina World Transport10, Honble
Justice G. S. Sistani adjudged that Execution commences when claimant took steps which
ultimately led to signing of the contract. Letter of intent was prior to the signing of
the contract. Hence, contract would relate back to the date of letter of intent. Even if
we assume for a second that the Defendant never intended to give the Plaintiff, the Right of
First Refusal, the fact that it let the matter sit idle for 2 years, and let the Plaintiff believe she
was holding the Right of First Refusal, throws the Defendant in a very bad light, even
amounting to fraud. Anyway, the jurisdictions that have considered the issue have held that
an agreement to negotiate in good faith, if otherwise meeting the requisites of a contract, is an
enforceable contract11.

Chitty

on Contracts12

exchanged letters of intent,

observes
the

that
terms

where
of

parties

to

such letters may,

transaction
of

course,

negative contractual intention; but, on the other hand, where the language does not
negative contractual intention, it is open to the courts to hold that the parties are bound by the
document; and the courts will, in particular, be inclined to do so where the parties have acted
on the document for a long period of time or have expended considerable sums of money in
reliance on it. Be that as it may." As in this case, there was no negative contractual intention,
the letter of intention has a binding force.

Thus, the Plaintiff should get a declaratory judgement that she has a 10 Kms Right of First
Refusal on future franchises.

-----------------------10

Himachal Joint Venture vs Panilpina World Transport FAO (OS) 123/2008

11

Channel Home Centers, Division of Grace Retail Corp. v. Grossman 795 F.2d 291, 1986 U.S. App. 26657

12

Chitty on Contracts (para 2.115 in Vol. 1, 28th Edn.)

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3. THE PLAINTIFF

SHOULD BE GRANTED INJUNCTION AGAINST THE AWARDING OF

FRANCHISE TO SHALINI:

It is well within the power of the Honble Court to grant the Petitioner a temporary
injunction under Order 39 Rule 2 of the Civil Procedure Code, against awarding of the
franchise to Shalini by the Defendant. This assertion is true considering the fact that the
Petitioners restaurant is in danger of being alienated by a new competitor in the vicinity. The
assertion is threefold: Firstly, the Petitioner has established earlier that the Defendant is in
breach of contract, and liable to damages for encroaching territorial exclusivity as is generally
held. Secondly, the impending loss of revenue that the Petitioner is likely to suffer as a result
of the Defendants conduct is going to be considerable. Thirdly, as the new, franchise has
been awarded in close vicinity of Medhas, Shalini is also not in a great position. In light of
these assertions, it is the petitioners humble request to the Honble Court, that temporary
injunction be granted to the Plaintiff, against the new franchise.

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PRAYER
In the light of arguments advanced and authorities cited, the Plaintiff humbly submits that
the Honble Court may be pleased to adjudge and declare that:

1. The Defendant was in breach of contract by violating territorial exclusivity

of Medhas restaurant, and not giving her the Right of First Refusal
2. The Defendant should rescind the awarding of franchise to Shalini
3. The Petitioner should be given a 10 Km Right of First Refusal from here on
till expiry of franchise agreement

Any other order as it deems fit in the interest of equity, justice and good
conscience.

For This Act of Kindness, the Petitioner Shall Duty Bound Forever Pray.

Sd/(Counsel for the Plaintiff)

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