In the event that a payment to Chatime is later avoided by law, what are the respective rights and obligations of the parties?

According to Chatime's 2025 Franchise Disclosure Document, the guarantor's liability is not discharged if a payment to Chatime is later avoided by law. In such a case, all parties are restored to their original rights and obligations, as if the payment had never occurred. This clause protects Chatime in situations where a payment made by the franchisee's guarantor is later clawed back due to legal reasons such as bankruptcy or fraudulent conveyance.

For a prospective Chatime franchisee, this means that even if a guarantor makes a payment on their behalf, the obligation is not considered fulfilled if the payment is later reversed. Chatime retains the right to pursue the original debt, and the franchisee (or their guarantor) remains liable for the outstanding amount. This provision is designed to prevent franchisees from using legal loopholes to evade their financial responsibilities to Chatime.

This type of clause is relatively common in franchise agreements, as franchisors want to ensure they are protected against potential legal challenges that could impact payments they receive. Franchisees should carefully review the indemnity and guarantee sections of the franchise agreement to understand the full scope of their financial obligations and the potential liabilities of their guarantors. It is advisable to seek legal counsel to fully understand the implications of these clauses.