Does Carls Jr. have discretion over how to apply payments from a franchisee to their debts?
Carls_Jr Franchise · 2025 FDDAnswer from 2025 FDD Document
Notwithstanding any designation by Franchisee, CJR shall have sole discretion to apply any payments by Franchisee to any of its past due indebtedness for royalty fees, advertising contributions, purchases from CJR or its affiliates, interest or any other indebtedness. CJR has the right to accept payment from any other entity as payment by Franchisee. Acceptance of that payment by CJR will not result in that other entity being substituted for Franchisee.
Source: Item 22 — CONTRACTS (FDD pages 75–76)
What This Means (2025 FDD)
According to the 2025 Carls Jr. Franchise Disclosure Document, Carls Jr. has broad discretion in applying payments received from franchisees to outstanding debts. Specifically, Carls Jr. can apply payments to any past due indebtedness, including royalty fees, advertising contributions, purchases from Carls Jr. or its affiliates, interest, or any other form of debt. This is regardless of any specific designation the franchisee might attempt to make regarding the payment's allocation.
This provision means that if a Carls Jr. franchisee has multiple outstanding debts, Carls Jr. has the authority to decide which debt the payment will cover. For example, if a franchisee owes both royalty fees and advertising contributions, Carls Jr. can choose to apply the payment to either of these debts, irrespective of the franchisee's preference. This discretion can impact a franchisee's financial planning and debt management strategies.
Furthermore, the FDD states that Carls Jr. can accept payments from another entity on behalf of the franchisee without that entity being substituted for the franchisee. This provides Carls Jr. with flexibility in accepting payments, but it also clarifies that the franchisee remains responsible for the debt even if a third party makes a payment. This policy is fairly standard in franchising, as it protects the franchisor's right to collect debts efficiently while maintaining the contractual relationship with the franchisee.