G&L, Inc., owns and operates a fast food restaurant under a franchise agreement with Foodco, Inc., a large national franchisor. Eighty percent of all Foodco Restaurants are owned by franchisees. The Foodco restaurants uniformly use the same name, building design, colors, signs, advertising, promotions, employee work apparel, menus, and prices. The strategy stated in the franchise materials is that the public must believe that Foodco is "a chain that sells a product across the nation." Foodco requires G&L to follow standardized methods of operation, deal exclusively with the franchisor for supplies, and pay a stated percentage of sales for the franchise license. A customer injured on the premises through G&L's negligence discovered that G&L is behind in its debts and carries inadequate

liability insurance. Which of the following is a true statement about Foodco's possible liability to the injured customer?

A. Foodco, as the franchisor, is not liable in the absence of an actual agency relationship between it and G&L, the franchisee.
B. A franchise agreement usually creates a principal-agent relationship, making the franchisor liable for torts of the franchisee that occur in the course of business.
C. The theory of agency by estoppel rather than express agency is a plausible basis for finding an agency relationship resulting in liability of the franchisor for the actions of the franchisee.
D. If an express, implied, or apparent agency relationship exists between the franchisee and the franchisor, the principal franchisor has a duty to indemnify the agent franchisee for tort liability incurred within the course and scope of the relationship.

Answer: C. The theory of agency by estoppel rather than express agency is a plausible basis for finding an agency relationship resulting in liability of the franchisor for the actions of the franchisee.