In California, what is the implication if the Buona Franchise Agreement provides for termination upon bankruptcy?

According to Buona's 2025 Franchise Disclosure Document, a provision in the franchise agreement allows for termination upon the franchisee's bankruptcy. However, this provision may not be enforceable under federal bankruptcy law, specifically 11 U.S.C.A. Sec. 101 et seq. This means that despite what the franchise agreement says, federal law might protect a franchisee from having their franchise terminated solely due to bankruptcy.

California Business and Professions Code Sections 20000 through 20043 also provide rights to the franchisee concerning termination, transfer, or nonrenewal of a franchise. If any provision in the Franchise Agreement is inconsistent with California law, the law will take precedence. This is particularly important for prospective franchisees in California, as it ensures that state laws protect their rights, even if the franchise agreement attempts to limit those rights.

Prospective Buona franchisees in California should be aware that certain aspects of the franchise agreement, such as those related to termination upon bankruptcy, covenants not to compete, liquidated damages, and governing law, may be subject to California law, potentially overriding the terms outlined in the agreement. It is advisable for potential franchisees to seek legal counsel to fully understand their rights and protections under both federal and California law.