When signing the franchise agreement, prospective franchisees usually form a business entity to own and operate the franchise. But, who can sign the franchise agreement on behalf of the franchise business entity?
The recent case of Extremely Clean Cleaning Services, LLC,
Alisia Burks v. CAAT, Inc.[i]
ponders this question. In this case, co-plaintiff Alisia Burk (“Ms. Burk”),
a prospective franchise formed the business entity Extremely Clean Cleaning
Services, LLC to be the franchisee business entity. Defendant CAAT, Inc. was
the franchisor. Burk’s mother Kearl Ash
(“Ms. Ash”) signed the franchise agreement on behalf of business entity
Extremely Clean Cleaning Services, LLC; however, Ms. Ash, Ms. Burk’s mother did
not have any ownership interest in the franchise.
Immediately post the signing of the franchise agreement, Ms. Burk registered a complaint about her mother Ms. Ash signing the franchise agreement saying Ms. Ash did not have authority to the sign the franchise agreement on the franchisee’s behalf. Irrespective of the complaint about the signing, Ms. Burk opened and operated the franchise. After three years of business, Ms. Burk abandons the franchise asserting that the franchise agreement was not properly signed.
Ratification means the adoption of that which was done for and in the name of another without authority. It is in the nature of a cure for [lack of] authorization. When ratification takes place, the act stands as an authorized one, and makes the whole act, transaction, or contract well from the beginning. Ratification is a question of fact, and ordinarily may be inferred from the conduct of the parties. The acts, words, silence, dealings, and knowledge of the principal, as well as many other facts and circumstances, may be shown as evidence tending to warrant the inference or finding of the ultimate fact of ratification. Knowingly accepting benefits of unauthorized employment amounts to a ratification of such contract of employment and is in the nature of estoppel to deny the authority to make such contract. Ratification by a corporation may be shown by conduct, without any formal action of its board of directors.Indiana Law
Was there a binding franchise agreement, even though Ms. Ash did not have authority to sign the franchise agreement on the franchisee’s behalf. Does the subsequent three years operation of the franchise business ratify or translate to affirmation and enforceability of the franchise agreement?
The court remanded the case for the more factual determinations. It is possible that irrespective of the improper signing of the franchise agreement, the franchisee’s act of operating the franchise business resulted in a binding franchise agreement. The inverse may also be true.
[i] Business Franchise Guide – Explanations, Laws, cases, rulings, new developments, Extremely Clean Cleaning Services, LLC, Alisia Burks, Plaintiffs v. CAAT, Inc., an Ohio Corporation, Anago Cleaning Systems, Inc., a Florida Corporation, Anago Franchising, Inc., a Florida Corporation, Albertson Family Janitorial Holdings, Inc., an Ohio Corporation, Curt Albertson, an individual, Corey Albertson, an individual, Teresa Albertson, an individual, David R. Povlitz, Defendants., U.S. District Court, S.D. Indiana, ¶16,372, (Feb. 25, 2019)