Is the Buona Franchise Agreement provision for termination upon bankruptcy always enforceable under federal law?

According to Buona's 2025 Franchise Disclosure Document, the enforceability of the franchise agreement's termination provision upon the franchisee's bankruptcy is not absolute and may be subject to federal bankruptcy law. Specifically, the FDD indicates that such provisions "may not be enforceable under federal bankruptcy law (11. U.S.C. Section 101 et. seq.)." This statement appears in Item 22, which covers contracts, and is reiterated in addenda for franchisees in Maryland and California.

For a prospective Buona franchisee, this means that if they were to file for bankruptcy, the franchisor's right to automatically terminate the franchise agreement might be challenged in court under federal bankruptcy statutes. Bankruptcy law is designed to provide some protection to debtors, and certain contractual rights that would otherwise be enforceable may be limited or nullified in a bankruptcy proceeding. The specific circumstances of the bankruptcy case, the franchisee's financial situation, and the relevant provisions of the Bankruptcy Code would all be factors in determining whether the termination clause is enforceable.

This disclosure serves as a warning to potential franchisees, advising them to seek legal counsel to fully understand their rights and obligations in the event of bankruptcy. It is a common practice for franchise agreements to include termination clauses related to bankruptcy, but it is equally common for franchisors to acknowledge that these clauses are not always ironclad due to federal law. Franchisees should be aware that while the franchise agreement may state one thing, the actual legal outcome in a bankruptcy situation can be complex and fact-dependent.

Therefore, it is crucial for prospective Buona franchisees to consult with an attorney experienced in both franchise law and bankruptcy law to assess the potential risks and protections available to them. This will allow them to make informed decisions and plan accordingly, understanding that the termination clause's enforceability is not guaranteed.