The Franchise Memorandum

A federal court in New York granted a franchisor summary judgment, invalidating its purported supply agreement with a food manufacturer and wholesaler. Bonchon v. LKRG Provisions & Holdings, LLC d/b/a Frontier Food Group, 2021 WL 5042858 (S.D.N.Y. Oct. 29, 2021). Franchisor Bonchon entered into discussions to have its distributors purchase certain food and ingredients from manufacturer Frontier Food Group. The parties signed a document, sent by Frontier to Bonchon, describing annual volumes to be delivered, prices, and amount of product per case. Bonchon’s distributors placed initial orders, but Bonchon elected to cease purchasing products from Frontier, even though Frontier had already begun production. Bonchon sought a declaratory judgment that it had not entered into a binding agreement with Frontier; Frontier counterclaimed for breach of contract to recover the losses it suffered from selling the products to a third party.

The court held that the parties’ actions reflected no intent to be bound by the document they signed, awarded Bochon declaratory judgment, and dismissed Frontier’s counterclaim. The document’s prefatory language described it as an “offer” and not a “binding agreement.” It lacked certain material terms, such as the quantity of goods to be purchased by Bonchon. It also failed to make clear whether purchases from Frontier were to be made by Bonchon, its distributors, or its franchisees, and additionally lacked certain other terms that ordinarily would be included in a contract between sophisticated parties. These missing terms, along with the parties’ course of dealings, weighed in favor of the conclusion that no binding agreement was formed.