Franchisees as Third-Party Beneficiaries to Franchisor's Agreements with Other Franchisees or Vendors

• Pages: 287-301
• Date: 01 July 2024
• Author: Emily I. Bohan,Hannah M. Leiendecker
• Subject Matter: Derecho Público y Administrativo

287

Franchisees as Third-Party Beneficiaries

to Franchisor’s Agreements with Other

Franchisees or Vendors

Emily I. Bohan & Hannah M. Leiendecker*

I. Introduction

Third-party beneficiary rights can significantly impact

the outcome of a franchise law case. In many circum-

stances, whether a party is a third-party beneficiary can

determine whether a dispute has any remedy at all. In

franchise law in particular, third-party beneficiary rights

are critical because franchisors enter into contracts with

a variety of parties—including franchisees, vendors, or

suppliers—that will impact the franchise system gen-

erally. Thus, the franchisors contracts will, in many

instances, impact current and potential franchisees even

though they had no direct involvement in the contract.

When relationships go awry, because each franchise is

individually owned and operated, the only remedy avail-

able to franchisees may stem from them asserting third-

party beneficiary rights in the contracts signed by their

franchisor.

This article examines the conditions under which franchisees enjoy third-

party beneficiary rights to agreements that have been entered into between

their franchisors and other franchisees or vendors. As expected, many cases

hold that an unequivocal statement in the contract that a party clearly is an

intended third-party beneficiary is required for a party to enjoy such rights.

These rights are useful in a range of situations, including to establish stand-

ing to bring suit by or against a party as well as to determine liability for

activities ranging from the purchase of goods to recruiting and hiring activ-

ities. While a simple clear clause in the contract stating party “X” is an

intended third-party beneficiary is simple enough, in practice courts’ inter-

pretations of those clauses can vary, particularly state to state. Moreover,

sometimes those interpretations present more of an evidentiary issue, where

*Emily Bohan (ebohan@kimandlahey.com) is an attorney in the Greenville, S.C. office of

Kim Lahey & Killough. Hannah M. Leiendecker (hannah.leiendecker@faegredrinker.com) is

an attorney at Faegre Drinker, practicing in the Minneapolis office.

Ms. Bohan

Ms. Leiendecker

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