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LEGAL BRIEFS
LENDER CAN’T SEIZE FRANCHISEE’S LIQUOR LICENSE
By Richard Pu, Esq.
A court in Connecticut has held that a liquor license cannot be seized by a
lender to repay a loan by a franchisee. The decision arose when a franchisee
defaulted repaying a lender. The lender invoked a remedy called replevin--where
the lender attempts to seize property belonging to a franchisee to repay a
loan. The property most often targeted by the lender is the equipment and
furniture in th e
shop.
However, the lender isn't really interested in acquiring the property. For
example, the used equipment from a fast food restaurant has a resale value
of less than $20,000. Out of that amount, the lender has to pay for the
removal of the property, its storage and ultimate resale, and attorneys’
fees. After paying for these costs, little if anything is left from the
resale of the property.
So, if the property is not desired for its resale value, why does the lender
attempt to seize it in the first place? Because seizing the property is
meant to deal a blow so hurtful that the franchisee is forced to repay the
loan. And, of course, if the franchisee serves liquor, nothing is more
hurtful than losing the liquor license.
But the court in Connecticut held that a liquor license is not subject to
replevin. The court held that, under Connecticut law, a liquor license is a
privilege, not a piece of property. For that reason, the liquor license was
deemed not subject to the replevin remedy. The holding is consistent with
decisions from other states that intangible property--like bank accounts and
the goodwill of a business--are not subject to replevin either.
The decision is good news for a franchisee unable to repay a lender. It
deprives the lender of a tactic for coercing repayment. In doing so, the
decision somewhat levels the playing field between the lender and the
franchisee and gives the franchisee an opportunity to make good and repay
the loan.
Richard Pu, Esq. is an Affiliate Member of the AFA. Contact Richard at (212)
427-3665 or
richardpu2@aol.com.
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