The Franchise Memorandum

A federal court in Illinois has granted summary judgment to franchisor Hardee’s on its claim for money damages against a franchisee, rejecting the defense that the franchisee’s failure to pay should be excused by bad economic conditions. Hardee's Food Systems, Inc. v. Shree Krishna Foods, L.L.C., 2011 U.S. Dist. LEXIS 40542 (C.D. Ill. Apr. 14, 2011). The case arose after the franchisee defaulted under its franchise agreements by failing to pay amounts due, and Hardee’s terminated the agreements. The parties subsequently entered into a temporary license agreement under which the franchisee acknowledged a $749,808.04 debt to Hardee’s and released all claims under the franchise agreements. The franchisee failed to meet its obligations under the temporary license agreement.  

The court granted Hardee’s all amounts owed up to the date the temporary license agreement was signed. The court rejected the franchisee's claim that it was coerced into signing the temporary license agreement by financial duress. The court held that in order to show economic duress sufficient to relieve it of its obligations, the franchisee would have to show that it was prevented from exercising its free will by a wrongful act of Hardee’s. The court held that while the franchisee’s hopes for success may have been dashed by the economic downturn in 2008, that was not a defense to its contract obligations. The court also rejected the franchisee’s claim that Hardee’s prior breach of the franchise agreements excused the franchisee's breach, as that defense was waived under the temporary license agreement.