During the term of the Chocolate Fish Coffee agreement, can the franchisee lend money to a competitor?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
- (a) Restriction In Term. During the term of this Agreement, neither Franchisee, any Owner, nor any spouse of an Owner (the "Restricted Parties") shall directly or indirectly have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor.
- (b) Restriction Post Term. For two years after this Agreement expires or is terminated for any reason (or, if applicable, for two years after a Transfer), no Restricted Party shall directly or indirectly have any ownership interest in, lend money or provide financial assistance to, provide any services to, or be employed by, any Competitor within five miles of Franchisee's Territory or the territory of any other Chocolate Fish Coffee business operating on the date of termination or transfer, as applicable. If this Agreement is terminated before the Territory is determined, then the area of non-competition will the Development Area and the territory of any other Chocolate Fish Coffee business operating on the date of termination.
- (c) Interpretation. The parties agree that each of the foregoing covenants is independent of any other covenant or provision of this Agreement. If all or any portion of the covenants in this Section is held to be unenforceable or unreasonable by any arbitrator or court, then the parties intend that the arbitrator or court modify such restriction to the extent reasonably necessary to protect the legitimate business interests of Chocolate Fish Franchising. Franchisee agrees that the existence of any claim it may have against Chocolate Fish Franchising shall not constitute a defense to the enforcement by Chocolate Fish Franchising of the covenants of this Section. If a Restricted Party fails to comply with the obligations under this Section during the restrictive period, then the restrictive period will be extended an additional day for each day of noncompliance.
Source: Item 23 — RECEIPTS (FDD pages 41–119)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, franchisees are restricted from lending money or providing financial assistance to competitors during the term of the Franchise Agreement. This restriction applies not only to the franchisee but also to any owner of the franchise and their spouses. This is a standard clause in franchise agreements to protect the franchisor's market position and prevent franchisees from supporting rival businesses.
This restriction is in place for the duration of the agreement. After the agreement expires or is terminated, a similar restriction applies for two years within a five-mile radius of the franchisee's territory or any other Chocolate Fish Coffee business. This post-term restriction ensures that former franchisees do not immediately leverage their knowledge and resources to benefit competing businesses in the same area.
The Franchise Agreement specifies that these covenants are independent, meaning that if any part of the non-compete agreement is deemed unenforceable, the parties intend for the arbitrator or court to modify the restriction to protect Chocolate Fish Coffee's legitimate business interests. Furthermore, any claims the franchisee may have against Chocolate Fish Coffee do not serve as a defense against the enforcement of these non-compete covenants. Non-compliance with these obligations during the restrictive period will extend the period by one day for each day of non-compliance.