In California, what is the implication of the Buona Franchise Agreement providing for termination upon bankruptcy?
Buona Franchise · 2025 FDDAnswer from 2025 FDD Document
California Business and Professions Code Sections 20000 through 20043 provide rights to the franchisee concerning termination, transfer, or nonrenewal of a franchise. If the Franchise Agreement contains a provision that is inconsistent with the law, the law will control.
The Franchise Agreement provides for termination upon bankruptcy. This provision may not be enforceable under
federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, the Franchise Agreement contains a provision that allows Buona to terminate the agreement if the franchisee declares bankruptcy. However, for franchisees in California, this provision may not be enforceable due to federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.).
This means that despite what the Franchise Agreement says, federal law might protect a Buona franchisee in California from having their franchise terminated solely due to bankruptcy. Federal bankruptcy law could override the termination clause in the agreement, potentially allowing the franchisee to reorganize their finances and continue operating the franchise.
Prospective franchisees in California should be aware of this potential conflict between the Franchise Agreement and federal law. It is advisable to consult with a legal professional to fully understand their rights and obligations in the event of bankruptcy. This is particularly important given that the FDD also states that any language in the Franchise Agreement or any amendment that contradicts the California Franchise Investment Law and the California Franchise Relations Act will be superseded by these laws.