In California, what is the implication of the Buona Franchise Agreement's provision for termination upon bankruptcy under federal law?

According to Buona's 2025 Franchise Disclosure Document, a provision in the franchise agreement allows Buona to terminate the agreement if the franchisee declares bankruptcy. However, this provision may not be enforceable in California due to federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.). This means that despite what the franchise agreement says, a federal bankruptcy court might not allow Buona to terminate the agreement solely because the franchisee has filed for bankruptcy.

California law provides further protection to franchisees. California Business and Professions Code Sections 20000 through 20043 grants rights to franchisees regarding termination, transfer, or nonrenewal of a franchise. If any provision in the Buona Franchise Agreement is inconsistent with California law, the law will take precedence. This reinforces that the standard termination clauses in the agreement may not always be enforceable as written in California.

Prospective franchisees in California should be aware that certain standard clauses in the Buona Franchise Agreement, particularly those related to termination upon bankruptcy, covenants not to compete, liquidated damages, mandatory arbitration in Illinois, application of Illinois law, and general releases, may be subject to California law, which could provide greater protection to the franchisee. It is advisable for potential franchisees to consult with legal counsel to fully understand their rights and obligations under both the franchise agreement and California law.