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U.S.A.: Appellate Court reverses lower court's finding that franchise agreement was renewable in perpetuity.

In H&R Block Tax Services LLC v. Franklin, 691 F.3d 941 (8th Cir. 2012), the United States Court of Appeals for the Eighth Circuit reversed a trial court holding that Block was required to continue performing its obligations under certain franchise agreements in perpetuity.

Carl ZWISLER - 16.09.13
Country expert

The franchise agreements at issue, which were governed by Missouri law, contained an initial term of five years and provided that the agreement 'shall automatically renew itself for successive five-year terms.' They further provided that the franchisee could elect not to renew if it gave Block 120 days' notice, but were silent as to any right of Block not to renew. After the agreements had been in effect for thirty-five years, Block sought a declaratory judgment that it could decline to renew the agreements for another term. On cross-motions for summary judgment, the trial court held that Block had 'clearly implicated' that it intended to remain in the franchise relationship until the franchisee elected to end it, no matter how long that might be, or until Block terminated the franchise agreements for cause. The court found that the language of the agreements contained an unequivocal expression of the parties' intent to form a perpetually enforceable contract.

The court of appeals reversed, finding that the Missouri Supreme Court had set the bar high to construe a contract to allow one party to coerce the other to continue performing in perpetuity. To support such a holding under Missouri law, the Eighth Circuit held 'there must be an unequivocal expression that the contract last forever.' The parties disagreed about whether such an unequivocal expression might require language such as 'everlasting,' 'eternally,' or 'for all time,' or whether it could be implied from other parts of the contract.

In resolving the dispute, the Eighth Circuit observed that the only Missouri case in which an unequivocal expression had been found involved a contract that contained the word 'perpetually.' It then reasoned that the automatic renewal clause in the Block franchise agreement contradicted an intention that the contract would last forever, because a contract that lasts forever would not need to be renewed. Thus, the court construed the franchise agreements to allow Block, as well as the franchisee, to elect not to renew the relationship.

 

Carl Zwisler, IDI franchising Country Expert for U.S.A. and Maisa Jean Frank Gray Plant Mooty.

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