The Franchise Memorandum

A recent Missouri federal court decision serves as a warning to franchisors to carefully draft guaranty provisions in franchise agreements to ensure they will be effective. In Medicine Shoppe Int’l, Inc. v. Anick, Inc., 2010 U.S. Dist. LEXIS 78431 (E.D. Mo. Aug. 4, 2010), the court dismissed the franchisor’s breach of guaranty claim against the franchisee’s corporate representative who signed the license agreement. That agreement contained a “note,” immediately below the franchisee’s signature block, stating “IF THE LICENSEE IS A CORPORATION OR PARTNERSHIP, EACH OF THE STOCKHOLDERS OR PARTNERS MUST EXECUTE THE FOLLOWING UNDERTAKING. . . . Each of the undersigned agree . . . that they . . . shall be firmly bound by all of the terms, provisions, and conditions of the foregoing.” The court found that the guaranty did “not expressly indicat[e] an obligation on the part of [the signatory] to guarantee [the franchisee’s] performance of the License Agreement or to cure any of [the franchisee’s] defaults under the License Agreement.”

The court also dismissed claims against the franchisee’s signatory for breach of the license agreement, reasoning that he was not a party to the agreement and the guaranty did not make him liable for the breaches.