The Franchise Memorandum

In Cottman Transmission Systems, LLC v. FVLR Enterprises, LLC, 2009 WL 2488505 (Tex. Ct. App. Aug. 17, 2009), a Texas appellate court affirmed a jury’s finding that Cottman was liable for the lease obligations of its terminated franchisee even though Cottman was not a signatory to the lease. The franchisee and landlord had entered into a 10-year lease that included a lease rider giving Cottman the option to assume the lease upon its termination or expiration. Cottman did not sign either the lease or the rider.  

After Cottman terminated the franchisee for abandonment, the landlord sued Cottman for lost rent and related charges. In response, Cottman argued that it was not a signatory or a party to the lease and, under the statute of frauds, it could not legally be held liable for the amounts due. Cottman also argued that it did not assume the former franchisee’s lease obligations. A jury found otherwise and determined that Cottman was responsible for the terminated franchisee’s lease payments.

The Texas Court of Appeals affirmed the jury’s decision. The appellate court found that subsequent to terminating the franchisee, Cottman had paid one month’s rent on the abandoned franchise; retained a manager to manage the premises; secured water, electricity, and telephone services in its name; entered into service contracts with local vendors; and conducted a Cottman transmission repair business at the premises. Based upon this conduct, the court determined that Cottman had assumed the lease obligations and, under the doctrine of partial performance, was liable to the landlord for unpaid rent and related charges.