What happens if a law limits the franchisee's ability to pay liquidated damages to Cinnaholic?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee acknowledges that its obligation to pay Franchisor liquidated damages is in addition to, not in lieu of, Franchisee's obligations to pay other amounts due to Franchisor under this Agreement up to the date of termination and to strictly comply with any other post-termination obligations required hereunder. Should any valid, applicable law or regulation of a competent governmental authority having jurisdiction over this Agreement limit Franchisee's ability to pay, and Franchisor's ability to receive, such liquidated damages, Franchisee shall be liable to Franchisor for any and all damages which it incurs, now or in the future, as a result of Franchisee's default under this Agreement.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, if a law or regulation limits a franchisee's ability to pay liquidated damages, and Cinnaholic's ability to receive them, the franchisee is liable to Cinnaholic for all damages Cinnaholic incurs due to the franchisee's default under the Franchise Agreement. This means that even if a specific liquidated damages clause is unenforceable due to legal restrictions, the franchisee could still be responsible for covering Cinnaholic's actual losses resulting from the franchisee's breach of contract.
This provision aims to protect Cinnaholic's interests in the event of a franchisee's default, ensuring that Cinnaholic can recover damages even if the pre-agreed liquidated damages are not fully collectible. The FDD specifies that the obligation to pay liquidated damages is in addition to other amounts owed to Cinnaholic up to the termination date and compliance with post-termination obligations. This reinforces that Cinnaholic intends to pursue full compensation for losses incurred due to a franchisee's default.
For a prospective Cinnaholic franchisee, this clause highlights the importance of understanding the potential financial consequences of defaulting on the Franchise Agreement. While liquidated damages might be capped or limited by law, the franchisee could still be liable for a potentially larger amount if Cinnaholic's actual damages exceed the liquidated damages amount. Franchisees should consult with legal counsel to fully understand their obligations and potential liabilities under the agreement, especially concerning termination and damages.