A Kansas appellate court concluded that a franchisor was entitled to enforce one clause of its franchise agreement despite its alleged breach of an unrelated clause in Hendrix v. Sheridan, 2018 WL 2272588 (Kan. Ct. App. May 18, 2018). Franchisee Ronald Hendrix and franchisor Sheridan’s Franchise Systems (SFS) were parties to a franchise agreement that granted Hendrix the right to operate a Sheridan’s Frozen Custard franchise. The franchise agreement allowed SFS to purchase the restaurant upon termination or expiration of the agreement. The dispute between the parties began when Hendrix brought suit against SFS for misuse of advertising fund contributions. During the course of the dispute, Hendrix allowed his franchise agreement to expire, and SFS subsequently sought specific performance of its purchase option. The trial court found that SFS was entitled to take over the restaurant, and Hendrix appealed.

Hendrix relied on an “unclean hands” argument, contending that SFS should not have been allowed to exercise its right to purchase the restaurant because it had breached the franchise agreement by using advertising funds for unauthorized purposes. The appellate court determined that the district court did not abuse its discretion in finding a lack of evidence to support application of the unclean hands doctrine, as SFS’s actions related to the advertising fund were incidental to the purpose of the franchise relationship, and Hendrix knowingly allowed the franchise agreement to expire. The court also rejected Hendrix’s argument that SFS was not permitted to exercise the purchase option if he had cause to terminate the agreement, finding no support for that position in the agreement’s termination provisions.