Does the bankruptcy of a Lees Famous Recipe franchisee relieve the guarantor of their liability?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
Each Guarantor consents and agrees that:
or any other person as a condition of liability.
(1) Guarantor's liability under this undertaking will be direct and independent of the liability of, and will be joint and several with, you and the other Guarantors of you;
(2) Guarantor will make any payment or perform any obligation required under the Franchise Agreement upon demand if you fail to do so;
(3) Guarantor's liability hereunder will not be diminished or relieved by bankruptcy, insolvency or reorganization of you or any assignee or successor;
(4) Guarantor's liability will not be diminished, relieved or otherwise affected by any extension of time or credit which we may grant to you, including the acceptance of any partial payment or performance, or the compromise or release of any claims;
(5) We may proceed against Guarantor and you jointly and severally, or we may, at our option, proceed against Guarantor, without having commenced any action, or having obtained any judgment against you or any other Guarantor; and
(6) Guarantor will pay all reasonable attorneys' fees and all costs and other expenses we incur in enforcing this Guaranty against Guarantor or any negotiations relative to the obligations hereby guaranteed.
(7) As of the Effective Date, at least one Guarantor satisfies the Guarantor Net Worth Threshold (defined below) and agrees that, at all times during the term of the Agreement, at least one Guarantor will satisfy the Guarantor Net Worth Threshold.
The "Guarantor Net Worth Threshold" means the minimum net worth (i.e., total assets less total liabilities, each as calculated in accordance with U.S. generally accepted accounting principles) that we require at least one Guarantor to satisfy under this Guaranty and the Agreement, as such minimum net worth is periodically modified by us in accordance with the following paragraph.
Guarantors agree to provide us on an annual basis financial statements or other documents that we reasonably specify, certified by you or Guarantors in the manner that we specify, demonstrating Guarantors' compliance with such Guarantor Net Worth Threshold requirement.
Source: Item 23 — RECEIPTS (FDD pages 70–287)
What This Means (2025 FDD)
According to the 2025 FDD, a guarantor's liability for a Lees Famous Recipe franchise is not diminished or relieved by the bankruptcy, insolvency, or reorganization of the franchisee. This means that even if the franchisee declares bankruptcy, the guarantor remains responsible for fulfilling the obligations under the Franchise Agreement. This provision protects Lees Famous Recipe by ensuring that there is a party responsible for the financial obligations of the franchise, regardless of the franchisee's financial status.
The guarantor's obligations are direct and independent of the franchisee's, and are joint and several with the franchisee and any other guarantors. Lees Famous Recipe can demand payment or performance from the guarantor if the franchisee fails to meet their obligations. The franchisor can pursue action against the guarantor without first pursuing action or obtaining judgment against the franchisee.
Furthermore, the guarantor's liability is not affected by any extensions of time or credit that Lees Famous Recipe may grant to the franchisee, including accepting partial payments or compromising claims. The guarantor is also responsible for paying all reasonable attorney's fees and costs incurred by Lees Famous Recipe in enforcing the guaranty. At least one guarantor must satisfy a minimum net worth threshold, and must provide annual financial statements to Lees Famous Recipe to demonstrate compliance with this requirement.
This arrangement is typical in franchising, as franchisors seek to minimize their financial risk by requiring a guarantee from individuals or entities with sufficient assets. Prospective franchisees should carefully consider the implications of providing a guarantee, as it can expose them to significant financial risk if the franchise fails.