In H&R Block Tax Services v. Frankl in, the Court of Appeals concluded (over a strong dissent) that H&R Block had the right to terminate two franchise agreements where those agreements expressly stated that Franklin could terminate at any time but only allowed H&R Block to terminate for cause.
The language of the franchise agreements at issue was as follows:
"The initial terms of this Agreement shall begin on the date hereof and, unless sooner terminated by Block [for cause] as provided in paragraph 6, shall end five years after such date, and shall automatically renew itself for successive five-year terms thereafter (the “renewal terms”); provided, that Franchisee may terminate this Agreement effective at the end of the initial term or any renewal term upon at least 120 days written notice to Block prior to the end of the initial term or renewal term, as the case may be."
H&R Block terminated the Franklin's franchisee agreements and then sought a declaratory judgment from the Court that the language allowed it to terminate the agreements. The District Court disagreed, finding the plain language to allow the franchise agreements to continue in perpetuity and that H&R Block could not terminate without cause.
The Court of Appeals, reviewing the case de novo, and applying Missouri law, found that Missouri law disfavors perpetual contracts, but the contract at issue did not express such an intention. Specifically, the Court relied upon the fact that the agreements did not express an unequivocal intent for the agreements to last forever, relying upon the absence of such phrases as “perpetual”, “everlasting”, “eternally”, or “for all times”. It also noted that the clause in the franchise agreements providing for renewal every five years contradicts an intention that the contract would last forever.
There was a spirited dissent to the opinion of the majority arguing that the plain language of the contract did not provide H&R Block to terminate without cause. The dissent argued that the majority re-wrote the franchise agreements to provide H&R Block with a right it did not bargain to receive. The keys to take away from this case are as follows:
- Make sure the plain language of your contract is clear;
- Contract interpretation by the Courts can be unpredictable and risky;
- Courts and legislatures disfavor perpetual contracts; and
- Do not give a Court the ability to find that the contract is (or is not) perpetual because of poor drafting.