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Mcdonald's Corp. v. Mazur





Appeal from the Circuit Court of Cook County; the Hon. James C. Murray, Judge, presiding. JUSTICE JOHNSON DELIVERED THE OPINION OF THE COURT:

Plaintiff, McDonald's Corporation, filed a complaint in the circuit court of Cook County for declaratory judgment against defendants, Richard Mazur, Benjamin Kramer, Sol Reifler, Ben Borenstein, Dan Cross, Jason Sharps, 3433 23rd Avenue Drive-In, Inc., 3303 North Brady Street Drive-In, Inc., and 2409 11th Street Drive-In, Inc.

The trial court entered an order granting summary judgment for McDonald's, and defendants have appealed. The issue on appeal is whether the trial court erred in ruling that the plaintiff had a right, under the license agreement, to review defendants' corporate records in order to determine stock ownership.

We affirm.

The parties agree that there is no dispute of fact.

On December 8, 1982, McDonald's filed its complaint for declaratory judgment against defendants. The complaint alleged that McDonald's is in the business of operating, franchising and servicing limited menu fast food restaurants known as "McDonald's Restaurants." Plaintiff described itself as a "system" which offers a comprehensive concept for the operation of retail restaurants which serve high-quality uniform food in an atmosphere designed to appeal to a broad cross-section of people. Plaintiff approves individual licensees for a franchise to use the McDonald's name by means of a specific agreement which permits participation in the McDonald's system.

Plaintiff entered into a license agreement with William Barr on April 14, 1965. Under the agreement, Barr was authorized to operate certain McDonald's restaurants. That agreement was subsequently assigned to defendant Mazur and Gary Swanson, in 1968. In 1973, Mazur and Swanson assigned the agreement to the corporate defendants, 3433 22nd Avenue Drive-In, Inc., located in Moline, Illinois, 2409 11th Street Drive-In, Inc., located in Rock Island, Illinois, and 3303 North Brady Street Drive-In, Inc., located in Davenport, Iowa. McDonald's consented to the assignments on the condition that defendant Mazur would remain liable for the covenants of the license agreement. In agreeing to the assignments, McDonald's included the condition that there be no assignment or transfer of the franchise without prior written consent of McDonald's. McDonald's referred to paragraph 14 of the agreement made with William Barr in 1965. That paragraph states:

"14. Agreement Not Assignable. Licensee shall not sell, assign, transfer, convey or encumber this Agreement or any right or interest therein or thereunder, or suffer or permit any such assignment, transfer or encumbrance to occur by operation of law, unless the written consent of the Licensor be first had and obtained. In the event of the death of the Licensee, or if the Licensee is a corporation in the event of the death of a stockholder therein, the Licensor shall not unreasonably withhold its consent to a sale or assignment of Licensee's interest herein, or if Licensee is a corporation, of the decedent's stock in said corporation, to a descendant of decedent, who shall in the sole judgment of Licensor, be capable of performing the duties and obligations of the Licensee hereunder or to a responsible bona fide purchaser acceptable to the Licensor. In the case of any such sale or assignment so consented to by the Licensor, the assignee shall agree in writing with the Licensor to assume and perform all of Licensee's covenants and agreements contained herein.

If Licensee is a corporation, or if with the consent of Licensor, the rights of Licensee hereunder are assigned to a corporation, then and in such event


shall remain the legal and beneficial owners of not less than 51% of the capital stock thereof during the entire term hereof, and, except as expressly provided herein, the assignment, either voluntarily or by operation of law, of more than 49% of said capital stock without the prior express written consent of Licensor to any other person shall constitute a breach of the terms of this Agreement."

Plaintiff's complaint alleged that the corporate defendants are required to produce for inspection by plaintiff all corporate minute books, stock records and other corporate records which show ownership interests in the corporate defendants. Plaintiff asserted that paragraph 12 of the license agreement obligates defendants to produce the records in question for inspection by plaintiff. Paragraph 12 of the license agreement states:

"12. Service Fees. For and during the term of this Agreement, Licensee shall pay semi-monthly to Licensor as service fees and, in consideration of all services to be rendered and facilities to be made available, one and nine tenths (1.9%) percent of the gross sales which Licensee shall receive from the operation of said establishment. On the fifth and sixteenth days of each calendar month Licensee shall render to Licensor a full and complete statement, in such form as Licensor shall require, of all receipts from the operations of said establishment for the preceding semi-monthly period and shall thereupon pay to Licensor the percentage of gross sales from the operation of said establishment for said period as hereinbefore set forth. On or before the twenty-fifth (25th) day of each month, Licensee shall submit to Licensor, a complete operating statement for the previous month in form satisfactory to Licensor. Licensee shall keep and preserve full and complete records of all gross sales in manner and form satisfactory to Licensor and shall submit such other financial data as Licensor may request on the accounting forms and in the manner prescribed by Licensor. The term `gross sales' shall exclude bona fide credits and returns for merchandise and the amounts turned over by Licensee for Retailer's Occupation Tax, Use Tax, Sales Tax, and all other taxes levied by municipal, county, state, and federal governmental bodies on sales of any merchandise and/or services.

Any and all service fees that may be and become due and owing from Licensee shall bear interest from and after the respective due dates thereof at the rate of seven (7%) percent per annum.

The accounts, books, records and tax returns of Licensee, so far as the same pertain to the business transacted under the provisions of this Agreement, shall be open to the inspection, examination and/or audit by Licensor and its authorized representatives at all reasonable times. Any such inspection, examination and/or audit shall be at Licensor's cost and expense unless the same is either necessitated by Licensee's failure to prepare and deliver its statement of gross sales or operating statement, or to keep and preserve records as hereinabove provided, or such inspection discloses that any such statement made and delivered by ...

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