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MCDONALD'S CORP. v. ROBERT A. MAKIN

December 10, 1986

McDONALD'S CORPORATION, a Delaware Corporation, Plaintiff,
v.
ROBERT A. MAKIN, INC., a New York corporation; ROBERT A. MAKIN, and CAROL MAKIN, Defendants



The opinion of the court was delivered by: CURTIN

John T. Curtin, United States District Judge.

 Plaintiff McDonald's Corporation [McDonald's] is a Delaware corporation engaged in the business of developing and franchising restaurants. On November 22, 1971, McDonald's entered into an agreement with Robert A. Makin to franchise a restaurant at 4987 North Transit Road, Clarence, New York. Robert A. Makin, Inc., and Carol Makin subsequently became parties to the agreement through an assignment and an amendment, respectively. Jurisdiction over this action is conferred on this court by 28 U.S.C. § 1332.

 The franchise agreement between the defendants and the plaintiff provides, inter alia, for monthly payments to be made by the defendants to the plaintiff (Item 1, Exh. A-2, para. 12, Exh. A-3, Art. III, § 2), and provides for termination of the license at plaintiff's option if "Licensee defaults in the payment of any indebtedness to Licensor" (Item 1, Exh. A-2, para. 16, Exh. A-3, Art. XI, XIV).

 Plaintiff presently moves for summary judgment on its first and third causes of action. The first cause of action alleges breach of contract by the defendants [Makins] and seeks a declaration that the franchise contract is terminated and a determination of the rights and obligations of the parties upon said termination. The third cause of action seeks recovery of amounts owed to plaintiff by defendants pursuant to the franchise contract.

 I. Plaintiff's Motion for Summary Judgment on the Third Cause of Action

 Pursuant to the agreement entered into in 1971, the Makins are required to pay to McDonald's, as license and lease fees, a percentage of gross sales of the franchised restaurant. Since October, 1985, the Makins have failed to pay amounts due to McDonald's under the franchise agreement (Item 1, Exhs. A-2 and A-3). As of the end of January, 1986, the amount due and unpaid is $40,129.48. On four occasions, through January, 1986, McDonald's sent notices to the Makins advising them of their obligations and demanding payment (Item 6, para. 8 and Exhs. 1-4). In addition, Ross H. Stoltz, McDonald's Field Service Manager for the Makins' region, had discussions on January 29, 1986, and February 5, 1986, with Carol Makin, in which he advised her of the serious nature of the defaults and demanded payment (Item 6, Stoltz Affidavit). However, the Makins still failed to make any payments.

 Accordingly, plaintiff seeks to recover judgment jointly and severally against each defendant for $40,129.48 and for additional amounts to be computed upon examination of defendants' books and records, plus interest as provided in the franchise contract (Item 1, Exh. A-2, para. 12). Plaintiff also seeks costs and expenses of litigation, including attorney's fees as provided in the contract, with interest at the legal rate.

 Defendants freely admit that, beginning in October, 1985, they have refused to make monthly payments to plaintiff as required under the franchise agreement (Item 19, para. 6). They contend, however, that such payments are not due and owing for the reasons set forth in the amended answer. These reasons consist of various alleged breaches of contract by the plaintiff which are set forth as "affirmative defenses and counterclaims." Defendants' Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment contains four points specifically alleging acts by the plaintiff said to constitute an illegal combination in restraint of trade, discrimination among franchisees in violation of Illinois law, breach of a contractual duty not to deprive defendants of the benefits of the franchise contract, and tortious interference with defendants' pre-contractual relations.

 Plaintiff argues, in response, that none of defendants' four affirmative defenses or counterclaims excuses their admitted failure to pay franchise fees. Defendants cannot, plaintiff argues, at once suspend franchise payments and continue possession and operation of the franchise property. I agree.

 The franchise agreement obligates the defendants to pay monthly fees to plaintiff for the franchise. Nowhere do the defendants deny their failure to pay these fees since October, 1985. Yet, defendants have maintained possession and operation of the franchise property. At oral argument, counsel for defendants contended that McDonald's conduct, as alleged by defendants' "affirmative defenses and counterclaims" above, caused defendants' inability to make the payments. Defendants' counterclaims do not allege that McDonald's conduct caused the non-payment; moreover, defendants contend that most of McDonald's alleged illegal conduct began 7-14 years ago, over which time defendants regularly made the monthly fee payments (Item 19, paras. 26, 28, 30, 33, and 36 -- alleging illegal conduct by plaintiff beginning in 1972-79). In any event, it should be clear to all concerned that

 
it is against the law as well as sound morals to permit a party to a contract to repudiate the contract or his obligation under it, and at the same time retain the consideration that he has received.

 Maguire v. Campagnoli and Co., 17 N.Y.S.2d 129, 131-32 (Sup. Ct. 1939); see also Stauss v. Title Guarantee and Trust Co., 284 N.Y. 41, 29 N.E.2d 462 (1940); E.T.C. Corp. v. Title Guarantee and Trust Co., 271 N.Y. 124, 2 N.E.2d 284 (1936).

 Defendants' counterclaims will, of course, be adjudicated in their own right; however, the alleged wrongs of plaintiff do not constitute affirmative defenses to defendants' non-payment of franchise fees. The defendants may not use their counterclaims to avoid judgment for the amounts already due under the franchise agreement. See Petroleo Brasileiro, S.A., Petrobras v. Ameropan Oil Corp., 372 F. Supp. 503, 507 (E.D.N.Y. 1974). The failure of ...


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