## Facts

- Bonanza Restaurant Company (Bonanza) operated a restaurant franchise system.
- Robert E. Wink entered arrangements tied to four Bonanza restaurants in which each restaurant was to be assigned to a separate new operator who would run the location as franchisee.
- On November 6, 2006, the parties executed (1) four new franchise agreements with the incoming franchisees and (2) related consent-to-assignment agreements in which Wink provided a personal guaranty.
- Under the franchise agreements, the franchisees owed Bonanza ongoing royalties calculated from restaurant sales.
- Wink’s guaranty stated he would unconditionally and personally guarantee the assignees’ performance of their obligations under the new franchise agreements, but it limited his guaranty obligations to a one-year “Guaranty Period” from the effective date of each new franchise agreement.
- The guaranty also provided that if the Guaranty Period did not end before expiration or termination of a franchise agreement, the guaranty would survive expiration or termination and would be subject to the assignee’s post-termination obligations.
- In October 2007, the restaurants ceased operating (one on October 17, and the remaining three on October 21).
- Bonanza terminated all four franchise agreements on October 21, 2007, relying on contract provisions treating failure to actively operate the restaurant as a default permitting termination.
- Bonanza sent demand letters to Wink over time (from late October 2007 through August 2009), seeking payment under the guaranties; Wink did not pay.
- On October 15, 2010, Bonanza sued Wink for breach of contract, seeking $1,319,899.83, described as largely lost future royalties it claimed it would have received under the franchise agreements.
- The franchise agreements included a contractual limitations clause providing a two-year period for actions “arising out of or relating to” the agreements, but the clause contained an exception whose wording created a dispute about what limitations period applied.
- The parties filed cross-motions for summary judgment: Wink argued the case was time-barred and, alternatively, that the contracts did not permit recovery of lost future royalties from him; Bonanza sought summary judgment on Wink’s liability.

## Issues

1. Whether Bonanza’s suit against Wink was time-barred by the franchise agreements’ contractual limitations clause, or timely under Delaware’s three-year statute of limitations, 10 Del. C. § 8106.
2. Whether the guaranties and the franchise agreements’ post-termination provisions allowed Bonanza to recover lost future royalties from Wink after the restaurants permanently closed and the franchise agreements were terminated.
3. Whether either party was entitled to summary judgment on liability and damages given the contract language and undisputed timeline.

## Decision

- The court held the action was timely under the three-year statute of limitations in 10 Del. C. § 8106 and rejected Wink’s time-bar argument.
- The court determined the restaurant closings constituted a default that triggered the guaranties.
- The court granted Wink’s motion for summary judgment on damages, concluding Bonanza could not recover lost future royalties from Wink under the guaranty and the contracts’ post-termination terms.
- The court denied Bonanza’s motion for summary judgment.

## Legal Principles

- A contract may shorten the time to sue, but the shortened period must be reasonable and clearly stated; where a drafted exception is silent or unclear as to the applicable period, the default statutory limitations period may apply.
- When contract language is ambiguous, Delaware courts may construe the ambiguity against the drafter, especially where the drafting choice creates uncertainty about a material term such as the time to bring suit.
- Under Delaware law, a breach-of-contract claim generally accrues when the wrongful act occurs and damages are sustained; in this dispute, the restaurant closures (and resulting defaults/termination) started the limitations clock.
- A guaranty is interpreted according to its written terms; the scope of a guarantor’s liability depends on the guaranty’s limits, including any stated time limitation and any survival language tied to specified post-termination duties.
- Even where a franchisor may seek lost future royalties in some circumstances, recovery depends on the parties’ agreements; where the guaranty survives only as to defined post-termination obligations and those obligations do not provide for future royalties, the guarantor is not liable for that future-royalty stream.
- On summary judgment, the court enforces unambiguous contract terms as written; where the material contract language resolves the damages question, the court may decide the issue as a matter of law.

## Conclusion

The Delaware Superior Court ruled that Bonanza filed within the applicable three-year limitations period, but it entered summary judgment for Wink on the claimed $1.3 million in lost future royalties because the one-year, limited guaranty and the referenced post-termination obligations did not provide for recovery of future royalties from Wink after the restaurants closed and the franchise agreements were terminated.


Bonanza Restaurant Co. v. Wink, 2012 WL 1415512 (2012)