Does Hardees have the right to apply payments from a franchisee to any past due indebtedness, regardless of the franchisee's designation?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
No payment by Franchisee or acceptance by HR of any monies under this Agreement for a lesser amount than due shall be treated as anything other than a partial payment on account. Franchisee's payment of a lesser amount than due with an endorsement, statement or accompanying letter to the effect that payment of the lesser amount constitutes full payment shall be given no effect and HR may accept the partial payment without prejudice to any rights or remedies it may have against Franchisee. Acceptance of payments by HR other than as set forth in this Agreement shall not constitute a waiver of HR's right to demand payment in accordance with the requirements of this Agreement or a waiver by HR of any other remedies or rights available to it pursuant to this Agreement or under applicable law. Notwithstanding any designation by Franchisee, HR shall have sole discretion to apply any payments by Franchisee to any of its past due indebtedness for royalty fees, advertising contributions, purchases from HR or its affiliates, interest or any other indebtedness. HR has the right to accept payment from any other entity as payment by Franchisee. Acceptance of that payment by HR will not result in that other entity being substituted for Franchisee.
Source: Item 22 — Contracts (FDD page 85)
What This Means (2025 FDD)
According to Hardees' 2025 Franchise Disclosure Document, Hardees retains significant discretion over how franchisee payments are applied. Specifically, Hardees has the authority to allocate payments from a franchisee towards any outstanding debts, irrespective of any specific instructions or designations the franchisee might provide with the payment. This includes debts related to royalty fees, advertising contributions, purchases from Hardees or its affiliates, interest, or any other form of indebtedness.
This provision in the franchise agreement means that a Hardees franchisee cannot ensure that their payments are applied to specific invoices or types of debt. Hardees has the sole discretion to decide where the money is allocated, which could impact how a franchisee manages their financial obligations to the company. For example, a franchisee might intend a payment to cover current royalty fees, but Hardees could instead apply it to older, outstanding advertising contributions or interest charges.
Furthermore, the FDD states that Hardees' acceptance of a payment that is less than the full amount due will not be considered as full satisfaction of the debt. Hardees can still pursue further collection efforts for the remaining balance, regardless of any statement from the franchisee suggesting the payment should be considered final. This reinforces Hardees' right to manage and control the application of payments to the franchisee's outstanding debts.
This type of clause is relatively common in franchise agreements, as it protects the franchisor's financial interests and provides flexibility in managing accounts receivable. However, it's crucial for prospective Hardees franchisees to understand this provision and maintain open communication with Hardees regarding their account status to avoid potential misunderstandings or disputes over payment allocations.