The Franchise Memorandum

In Honey Dew Assoc. v. Creighton Muscato Enter., Inc., 73 Mass. App. Ct. 846 (Mass. App. Ct. Mar. 23, 2009), the Massachusetts Court of Appeals vacated a judgment against a franchisee for failing to pay advertising fees. The Court found that by signing a newer franchise agreement with an ad fee clause in it, the corporate franchisee had not agreed to pay ad fees for all of its owner’s earlier established locations in the name of other commonly-owned entities.

Specifically, franchisor Honey Dew added a provision in its franchise agreement that the franchisee agreed to contribute to an ad fund if a majority of the franchisees agreed to support it. Critically, the provision contained a clause that made it applicable not only to the shop at issue, but also to any existing locations the franchisee owned, provided that if a different person or entity owned those shops, they also signed off on the new agreement. In this instance, the corporate franchisee only signed on behalf of the company that owned the shop at issue and not on behalf of the companies that owned the pre-existing locations. The court held that the franchisee entity that signed the agreement did not have the power to bind other companies to the agreement, even though they shared the same president. The judgment was vacated with instructions that the contract claims against the franchisee be dismissed.