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TRAUMANN v. SOUTHLAND CORP.

July 19, 1993

PETER TRAUMANN and MARSHA TRAUMANN, Plaintiffs,
v.
THE SOUTHLAND CORPORATION, a Texas Corporation; et al., Defendants.


SMITH


The opinion of the court was delivered by: FERN M. SMITH

BACKGROUND

 In late August or early September of 1991, Peter and Marsha Traumann ("the Traumanns"), a married couple, wrote to the Southland Corporation ("Southland") to enquire about applying for a franchise of a 7-Eleven store in California. Southland sent the Traumanns application materials to fill out. The Traumanns did so, and thus began the application process for a ten year franchise of a 7-Eleven store.

 On October 21, 1991, the Traumanns met with Michael Sweet ("Sweet"), a Field Consultant for Southland. Sweet was assigned to the Traumanns by Southland, and was responsible for overseeing their progress through the qualification process.

 At this first meeting, Sweet presented the Traumanns with several documents and charts created by Southland which summarize the information a prospective franchisee needs to know about the Southland system. The Traumanns received "Flip Book I" and "Flip Book II" which are given to all franchise applicants. Flip Book I outlines the requirements for certification as a Southland franchisee: franchisees must successfully complete all aspects of the formalized four week training program, and they must also complete all other requirements for qualification, including certification, which occurs upon successful completion of the entire training program. Flip Book II contains more detailed cautionary language regarding disqualification and certification:

 
If 7-Eleven discontinues your attendance or does not certify you or revokes your certification, which it may do, 7-Eleven will refund, without interest:
 
* The down payment (less any amount due 7-Eleven);
 
* The franchise fee.

 The Traumanns moved forward with the certification process following their meeting with Sweet. As part of the qualification process, applicants participate in an introductory 100 hour In-Store program, take a psychological and personality test, submit a business plan, tender their franchise fee, sign a franchise agreement and, finally, participate in four weeks of store operations training before taking possession of their own store. During this time, applicants are in constant touch with their Field Consultant.

 In the course of the qualification process, the Traumanns received sample copies of the Franchise Agreement. All such copies contain explicit language in Paragraph 3, which states in part:

 
7-Eleven at any time may discontinue training, may decline to certify, or may revoke the certification of any participant who fails to evidence an understanding of the training satisfactory to 7-Eleven, or otherwise by acts or omissions, at any time prior to the Effective Date, is, in any way unsatisfactory to 7-Eleven.

 The "Effective Date" referred to in Paragraph 3 is defined in the Agreement as "the date [the] Franchisee first opens the store for business under the Agreement."

 Shortly after the meeting, Sweet received a memo from Chaplin indicating that the Traumanns had been approved to proceed with the qualification process to take over an existing franchise in Petaluma, California. Sweet called the Traumanns to relay the good news. The substance of Sweet's phone call is disputed by the parties. Southland claims that Sweet notified the Traumanns that they had received a "Go," and that they had been approved for the Petaluma Store, up to that point in the process. Plaintiffs claim that Sweet told them during this phone call that they had been accepted, the store was theirs, and that the only ones who could back out of the deal now were the Traumanns themselves. According to Southland, Sweet merely informed the Traumanns that they had reached an important and necessary juncture in their qualification process, with many important steps still to come.

 At this time, the Traumanns again reviewed a copy of the Franchise Agreement. They asked Sweet to clarify the Agreement language which described Southland's right to disqualify potential franchisees. The Traumanns claim that Sweet told them not to worry about the disqualification provision, that the training was just a "formality," and that if either of them failed the training, Southland would franchise the passing spouse and allow the other one to re-take the training. Sweet claims that he did reassure them that he felt sure they would pass, but did not promise that they could re-take the course. Sweet notes that he understood Mr. Traumann to be concerned about the bookkeeping aspects of the store training, and that they never discussed the possibility that the Traumanns might be disqualified during training for subjective reasons, such as attitude or an inability to work with others.

 On February 28, 1992, the Traumanns went to the Southland offices and signed the Franchise Agreement. At the time the Traumanns signed the Agreement, Assistant Secretary Jerry Hook's signature was already on several of the contract pages. Included was a financing agreement, also signed by Jerry Hook, ...


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