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Ramada Franchise Systems, Inc. v. Polmere Lodging Corp.

98-2909 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

CONTRACTS; FRAUDULENT INDUCEMENT—One key factor in demonstrating that a statement constitutes a misrepresentation of fact is that the fact must have existed at, or prior to, the time of the misrepresentation; ordinarily, a promise to do something in the future will not suffice.

A hotel signed an agreement with a new franchisor to replace the current franchisor. The hotel went out of business right after the agreement was signed and apparently never operated under the new franchisor’s trade name. The agreement provided for damages in the event that the hotel defaulted. The hotel claimed that the franchisor made fraudulent representations in order to get it to sign the agreement. One key factor in demonstrating that a statement constitutes a misrepresentation of fact is that the fact must have existed at the time of the misrepresentation or at some time prior to the misrepresentation. Accordingly, a promise to do something in the future will not normally suffice. On the other hand, where a promise is given and the promisor knows at the time of promising that it has no intention of fulfilling the promise, the promise will constitute a misstatement of present fact and may support an allegation of fraud. The hotel alleged four misrepresentations. First, it alleged that the franchisor promised that the hotel would achieve revenue equal to that it had attained under its prior trade name. Accordingly to Court, since this promise was made about the future, the franchisor could not have known the statement to be false when made. In addition, even if the franchisor had performed to the best of its capability, it could not have guaranteed this outcome. Second, the hotel alleged that the franchisor promised that there would be no decline in occupancy after the change. Again, the Court held that this promise related to a future event outside of the franchisor’s control, and therefore was not sufficient to support a claim for fraud in the inducement. The hotel also alleged that the franchisor represented that its reservation system was “state of the art,” and that it was not. However, the hotel did not allege any deficiencies or show how the alleged deficiencies led to an injury. Lastly, the hotel alleged that the franchisor promised that if it entered into the agreement, the hotel would have the full support and backing of the franchisor. Again, the hotel failed to point to specific facts describing the franchisee’s failure to provide the hotel with support. Consequently, the hotel’s allegations were entirely insufficient to withstand a motion for summary judgment and the Court held in favor of the franchisor. An issue was raised with respect to liquidated damages. Here, the Court was satisfied that the franchisor was able to demonstrate that, as required by New Jersey law: (1) the damage sustained by it would be difficult to ascertain, and (2) the amount provided in the liquidated damages clause was a “reasonable forecast” of its loss. Lastly, although the agreement provided for interest on recurring fees, the liquidated damages clause contained no interest provision, nor did it refer to the interest provision governing recurring fees. The Court, viewing the agreement as a whole, would not infer an interest provision with respect to liquidated damages.


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