Franchise Agreements & Contract Law Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Franchise Agreements & Contract Law flashcards as text
What is 'constructive termination' in franchise law?
Answer: Actions by the franchisor that make it impossible or impractical for the franchisee to continue operating
Constructive termination occurs when the franchisor's actions—such as encroachment, withholding support, or unilaterally changing key terms—effectively force the franchisee out of business without formal termination.
What is a 'renewal term' in a franchise agreement?
Answer: A new franchise period granted after the initial term expires, often under updated terms
A renewal term allows franchisees to continue operating after the initial term ends, typically requiring them to sign the franchisor's then-current franchise agreement which may contain updated terms.
What is the legal significance of a 'personal guarantee' in a franchise agreement?
Answer: It makes an individual personally liable for the obligations of the franchisee entity
A personal guarantee makes an individual (typically the franchise owner) personally responsible for all financial obligations of the franchisee business entity, even if it operates as an LLC or corporation.
What does 'liquidated damages' mean in a franchise termination clause?
Answer: A pre-agreed amount of compensation payable upon breach or early termination of the agreement
Liquidated damages are a pre-determined compensation amount agreed upon in the contract to address losses from a breach or early termination, avoiding the need to calculate actual damages after the fact.
Under the FTC Franchise Rule, how many calendar days before signing must a franchisor provide the FDD to a prospective franchisee?
Answer: 14 calendar days
The FTC Franchise Rule requires franchisors to provide the FDD at least 14 calendar days before any agreement is signed or any money is paid by the prospective franchisee.
What is 'encroachment' in the context of franchise agreements?
Answer: The franchisor or another franchisee competing in a way that draws customers from an existing franchisee
Encroachment occurs when a franchisor or another franchisee opens a competing outlet that draws customers away from an existing franchisee's location, potentially violating territorial provisions.
What is the purpose of a 'successor agreement' requirement in a franchise agreement?
Answer: It ensures heirs or buyers of the franchise must operate under the then-current standard agreement
A successor agreement requirement ensures that when a franchise transfers to new ownership via sale or inheritance, the new owner must operate under the franchisor's current agreement, maintaining system consistency.