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Know Your Franchise Agreement: The Third-Party Beneficiary Clause
This article begins a feature that periodically will examine a specific section or clause in the Uniform Franchise Offering Circular (UFOC).
In a UFOC, a typical third-party beneficiary clause reads like this: “No third-party beneficiaries. Nothing in this Agreement is intended, nor will be deemed, to confer rights or remedies upon any person or legal entity not a party to this Agreement.”
Applicable Law
In most states, persons who are intended to be the beneficiaries of contract performance may enforce the contract even though they are not parties to the agreement. For example, if a furniture maker agrees to manufacture a custom dining room table as a wedding gift contracted for and paid for by a distant relative, the newlywed couple may often sue as third-party beneficiaries if the table is not delivered or is inferior.
In franchising, each franchisee often makes promises that would appear to be of benefit to other franchisees in the system. For example, franchisees may all agree in their franchise agreements to only provide services in their exclusive territory or to only provide specified services. Also, many franchise agreements prohibit franchisees from forwarding advertisements to individuals outside of their designated exclusive territory. Such promises appear to be intended to benefit both the franchise system in general and all other franchisees in the system in particular.
Some contracts may contain clauses or other language specifying that there are no third-party beneficiaries to the contract. Courts will often enforce this language. In the situation described above, this would disallow any franchisee from directly suing another franchisee that has engaged in advertising and services in the franchisee's exclusive territory.
The Author's Opinion
As with many franchise agreement terms, franchisors often add provisions that seek to strip rights from franchisees. In the area of third-party beneficiaries, these clauses may state that nothing in this agreement is designed to provide third-party beneficiary rights to franchisees or any other persons. Unfortunately, this may create a system in which the franchisee has no right to enforce key aspects and provisions of the system that he or she has to comply with but that other franchisees may ignore. When a neighboring franchisee is invading a franchisee's exclusive territory, this may be a bitter pill to swallow.
Peter C. Lagarias [email protected]
This article begins a feature that periodically will examine a specific section or clause in the Uniform Franchise Offering Circular (UFOC).
In a UFOC, a typical third-party beneficiary clause reads like this: “No third-party beneficiaries. Nothing in this Agreement is intended, nor will be deemed, to confer rights or remedies upon any person or legal entity not a party to this Agreement.”
Applicable Law
In most states, persons who are intended to be the beneficiaries of contract performance may enforce the contract even though they are not parties to the agreement. For example, if a furniture maker agrees to manufacture a custom dining room table as a wedding gift contracted for and paid for by a distant relative, the newlywed couple may often sue as third-party beneficiaries if the table is not delivered or is inferior.
In franchising, each franchisee often makes promises that would appear to be of benefit to other franchisees in the system. For example, franchisees may all agree in their franchise agreements to only provide services in their exclusive territory or to only provide specified services. Also, many franchise agreements prohibit franchisees from forwarding advertisements to individuals outside of their designated exclusive territory. Such promises appear to be intended to benefit both the franchise system in general and all other franchisees in the system in particular.
Some contracts may contain clauses or other language specifying that there are no third-party beneficiaries to the contract. Courts will often enforce this language. In the situation described above, this would disallow any franchisee from directly suing another franchisee that has engaged in advertising and services in the franchisee's exclusive territory.
The Author's Opinion
As with many franchise agreement terms, franchisors often add provisions that seek to strip rights from franchisees. In the area of third-party beneficiaries, these clauses may state that nothing in this agreement is designed to provide third-party beneficiary rights to franchisees or any other persons. Unfortunately, this may create a system in which the franchisee has no right to enforce key aspects and provisions of the system that he or she has to comply with but that other franchisees may ignore. When a neighboring franchisee is invading a franchisee's exclusive territory, this may be a bitter pill to swallow.
Peter C. Lagarias [email protected]
Overview of Regulatory Guidance Governing the Use of AI Systems In the Workplace
Businesses have long embraced the use of computer technology in the workplace as a means of improving efficiency and productivity of their operations. In recent years, businesses have incorporated artificial intelligence and other automated and algorithmic technologies into their computer systems. This article provides an overview of the federal regulatory guidance and the state and local rules in place so far and suggests ways in which employers may wish to address these developments with policies and practices to reduce legal risk.
Is Google Search Dead? How AI Is Reshaping Search and SEO
This two-part article dives into the massive shifts AI is bringing to Google Search and SEO and why traditional searches are no longer part of the solution for marketers. It’s not theoretical, it’s happening, and firms that adapt will come out ahead.
While Federal Legislation Flounders, State Privacy Laws for Children and Teens Gain Momentum
For decades, the Children’s Online Privacy Protection Act has been the only law to expressly address privacy for minors’ information other than student data. In the absence of more robust federal requirements, states are stepping in to regulate not only the processing of all minors’ data, but also online platforms used by teens and children.
Revolutionizing Workplace Design: A Perspective from Gray Reed
In an era where the workplace is constantly evolving, law firms face unique challenges and opportunities in facilities management, real estate, and design. Across the industry, firms are reevaluating their office spaces to adapt to hybrid work models, prioritize collaboration, and enhance employee experience. Trends such as flexible seating, technology-driven planning, and the creation of multifunctional spaces are shaping the future of law firm offices.
From DeepSeek to Distillation: Protecting IP In An AI World
Protection against unauthorized model distillation is an emerging issue within the longstanding theme of safeguarding intellectual property. This article examines the legal protections available under the current legal framework and explore why patents may serve as a crucial safeguard against unauthorized distillation.