Title: Jespersen v. Minnesota Mining and Manufacturing Co.

State: illinois

Issuer: Illinois Supreme Court

Document:

Jespersen v. 3M, No. 83728 (6/18/98) 
 
 
              Docket No. 83728--Agenda 16--March 1998. 
       VICTOR R. JESPERSEN, Appellant, v. MINNESOTA MINING AND 
                  MANUFACTURING COMPANY, Appellee. 
                    Opinion filed June 18, 1998. 
 
          JUSTICE HEIPLE delivered the opinion of the court: 
          It has long been recognized that contracts of indefinite duration are 
       generally terminable at the will of the parties.[fn1]  This case involves a twist 
       on that general rule: where the parties specifically provide that their contract 
       may be terminated for enumerated instances of material breach, is the contract 
       indefinite as to duration and terminable at will, or is it terminable only for 
       cause? The courts below held that such a contract is terminable at will. We 
       affirm.[fn2] 
          This case is before the court on review from an order granting a 
       motion to dismiss the plaintiff's complaint for failure to state a cause of action 
       for breach of contract. 735 ILCS 5/2--615 (West 1994). In reviewing such a 
       case, all well-pleaded facts and all reasonable inferences from them are 
       admitted as true and interpreted in the light most favorable to the nonmoving 
       party. In re Chicago Flood Litigation, 176 Ill. 2d 179, 189 (1997); Mt. Zion 
       State Bank & Trust v. Consolidated Communications, Inc.,  169 Ill. 2d 110 , 115 
       (1995). In his attempt to state a cause of action for breach of contract, the 
       plaintiff has alleged as follows. In 1978, Victor R. Jespersen (the plaintiff) 
       entered into a sales distribution agreement (the agreement) with Trim-Line, 
       Inc. (Trim-Line), a manufacturer of auto body trim, moldings and decoration. 
       Under the agreement, Jespersen became the exclusive distributor of Trim-Line 
       products in the Chicago area. 
          Subsequently, Minnesota Mining and Manufacturing Company (3M) 
       purchased Trim-Line. In 1991, 3M instituted a plan to dissolve Trim-Line and 
       to merge that business into 3M's Automotive Trades Division. 3M sent a letter 
       to Jespersen, and all Trim-Line distributors, terminating the agreement. 
          Jespersen and two other terminated distributors filed a class action 
       complaint in the circuit court of Cook County, alleging that 3M breached the 
       agreement by terminating it. After much procedural wrangling, the circuit 
       court dismissed Jespersen's third-amended complaint for failure to state a 
       cause of action (735 ILCS 5/2--615(a) (West 1994)) on the grounds that the 
       agreement (1) was of indefinite duration and thus terminable at will and (2) 
       expressly granted 3M the right to cancel a distributor's right to use the Trim- 
       Line name. 
          Jespersen appealed and argued that the agreement included specific 
       termination events and thus could be terminated only for cause. The appellate 
       court rejected this argument and affirmed with one dissent. 288 Ill. App. 3d 
       889. The appellate court held that the agreement was indefinite in duration and 
       thus terminable at will. We allowed leave to appeal. 
          May 3M terminate its agreement with Jespersen absent Jespersen's 
       breach or default? The answer to this question, of course, depends upon the 
       terms of the contract.  The agreement here provides that it "shall continue in 
       force indefinitely" unless terminated in the manner provided in article IV. 
       Contracts of indefinite duration are terminable at the will of either party. 
       Duldulao, 115 Ill. 2d  at 489; Joliet Bottling, 254 Ill.  at 219. An agreement 
       without a fixed duration but which provides that it is terminable only for cause 
       or upon the occurrence of a specific event is in one sense of indefinite 
       duration, but is nonetheless terminable only upon the occurrence of the 
       specified event and not at will. See, e.g., R.J.N. Corp. v. Connelly Food 
       Products, Inc., 175 Ill. App. 3d 655, 660 (1988); Dawson v. W.&H. Voortman, 
       Ltd.,  853 F. Supp. 1038 , 1042 (N.D. Ill. 1994) (applying Illinois law). The 
       agreement here addressed termination as follows: 
                    "4.01 Trim-Line's Right To Terminate 
                    Trim-Line may, upon not less than thirty (30) days 
                      notice to the Distributor, terminate this agreement for any of 
                      the following reasons: 
                    (a) Distributor's failure to reasonably promote Trim- 
                      Line's products ***. 
                    (b) Distributor's breach of any term or condition of this 
                      agreement. 
                    (c) Distributor's failure to make payment ***. 
                    (d) The death, bankruptcy, or insolvency of Distributor 
                      ***. 
                    (e) The sale *** or transfer *** of all or any part of the 
                      Distributor's rights under this contract without the written 
                      approval and consent of Trim-Line. 
                    4.02 Distributor's Right To Terminate 
                    Distributor may terminate this agreement upon thirty 
                      (30) days written notice to Trim-Line." 
       This termination provision is not sufficient to take this agreement of indefinite 
       duration out of the general rule of at-will termination for two reasons. First, 
       the language of the termination provision is permissive and equivocal; a party 
       "may" terminate for the stated grounds--the clear inference being that those 
       grounds are not the sole or exclusive basis for termination. This is in stark 
       contrast to a case in which the parties included an exclusive and specific right 
       to terminate for cause in an contract otherwise of indefinite duration. See, e.g., 
       Lichnovsky v. Ziebart International Corp., 414 Mich. 228, 236,  324 N.W.2d 732 , 737 (1982) ("[t]he inclusion in this agreement of a specific right to 
       terminate for cause *** militates against a construction of the agreement that 
       the licensor can terminate at will"). Second, the termination events are 
       themselves instances of material breach, and any contract is terminable upon 
       the occurrence of a material breach. See, e.g., Trient Partners I Ltd. v. 
       Blockbuster Entertainment Corp., 83 F.3d 704, 709 (5th Cir. 1996) ("[a]n 
       agreement which is otherwise indefinite in duration and terminable at will 
       cannot be converted into an agreement of definite duration by the mere 
       transcription of such universals within the text of the contract") (applying 
       Texas law). Where a contract is indefinite in duration, the delineation of 
       instances of material breach in the context of a permissive and nonexclusive 
       termination provision will not create a contract terminable for cause. 
          The rationale for such a construction is compelling in its sheer 
       simplicity. Where parties have failed to agree on a contract's duration, the 
       contract is construed as terminable at the will of either party because they 
       have not agreed otherwise and it would be inappropriate for a court to step in 
       and substitute its own judgment for the wisdom of the parties. This reflects 
       two important public policies--one general, one specific. First, in general, 
       individuals should be free to order their affairs subject to important 
       qualifications for instances of fraud, duress, or undue influence. Second, 
       perpetual contracts are disfavored. Adkission v. Ozment, 55 Ill. App. 3d 108, 
       112 (1977). "Forever" is a long time and few commercial concerns remain 
       viable for even a decade. Advances in technology, changes in consumer taste 
       and competition mean that once- profitable businesses perish--regularly. 
       Today's fashion will tomorrow or the next day inevitability fall the way of the 
       buggy whip, the eight-track tape and the leisure suit. Men and women of 
       commerce know this intuitively and achieve the flexibility needed to respond 
       to market demands by entering into agreements terminable at-will. 
           Jespersen and 3M enjoyed a long and presumably profitable 
       relationship of thirteen or more years. That one or the other now seeks to 
       terminate that relationship consistent with the bargained-for contractual rights 
       and common law should come as little surprise. These parties are sophisticated 
       and we must presume they knew the law when they entered into this 
       agreement. As we have already acknowledged, the rule that contracts of 
       indefinite duration are terminable at will has long been followed in Illinois 
       (Joliet Bottling, 254 Ill.  at 219; Davis, 208 Ill. at 385), and our courts have 
       applied the rule in a variety of contexts including employment contracts 
       (Duldulao, 115 Ill. 2d at 489), credit card agreements (Garber v. Harris Trust 
       & Savings Bank, 104 Ill. App. 3d 675, 683 (1982)), money market fund 
       accounts (Langendorf v. Irving Trust Co., 244 Ill. App. 3d 70, 79 (1992)), and 
       even sales contracts.[fn3] The parties here expressly drafted a contract that 
       was to last "indefinitely," which our courts have always construed to mean 
       terminable at will. Moreover, the contract expressly granted 3M the right to 
       terminate Jespersen's license to use the Trim-Line trade name, that is to say, 
       terminate the subject matter of the agreement. Finally, Jespersen enjoyed an 
       express, unfettered right to terminate the agreement on proper notice. These 
       facts further bolster our conclusion that the parties to this contract intended 
       their agreement to be terminable at will. 
          In short, where the parties have drafted a contract that is otherwise 
       indefinite in duration and terminable at will, the delineation of instances of 
       material breach in the context of a permissive and nonexclusive termination 
       provision will not alone create a contract terminable for cause. Both parties 
       here enjoyed the right to terminate the agreement at will, which means they 
       could terminate the agreement for any reason or no reason without committing 
       a breach of contract. Accordingly, we affirm the judgments below dismissing 
       the plaintiff's complaint for failure to state a cause of action for breach of 
       contract. 
 
       Affirmed. 
 
                                                                 JUSTICE HARRISON, dissenting: 
          When construing a contract, the court's primary objective is to 
       ascertain and give effect to the intention of the parties (see Martin v. City of 
       O'Fallon, 283 Ill. App. 3d 830, 834 (1996)) as shown by the language used 
       in the agreement (In re Doyle,  144 Ill. 2d 451 , 468 (1991)). If the language 
       of a contract does not address the agreement's duration or specify a 
       cancellation event, the contract is normally construed as terminable at will. 
       See, e.g., Bass v. Prime Cable of Chicago, Inc., 284 Ill. App. 3d 116, 126 
       (1996). The language of the contract in this case, however, does do those 
       things. It specifically provides that the agreement shall continue in force 
       indefinitely unless certain enumerated conditions occur. 
          Where, as here, a contract is terminable upon the occurrence of some 
       event, it is not terminable at will. See First Commodity Traders v. Heinhold 
       Commodities, 766 F.2d 1007, 1012 (7th Cir. 1985) (applying Illinois law). 
       Although the contract before us uses the term "may" in describing Trim-Line's 
       right to terminate and although it includes "breach of any term or condition of 
       this agreement" as one of the terminating events, the same was true in First 
       Commodity Traders, 766 F.2d  at 1012, where the court specifically held that 
       the contract was not terminable at will. 
          A different conclusion was reached in Trient Partners I Ltd. v. 
       Blockbuster Entertainment Corp., 83 F.3d 704, 709 (5th Cir. 1996), cited by 
       the majority. That case, however, applied the law of Texas, not Illinois. If we 
       are going to look to jurisdictions beyond Illinois, where the matter is being 
       litigated, or California, whose law is specified in the contract itself, I do not 
       understand why we should fix on Texas. The law of Texas is certainly no 
       more persuasive than the law of New York, which joins Illinois in holding that 
       the public policy against perpetual contractual commitments is inapplicable to 
       contracts such as this one which provide for termination or cancellation upon 
       the occurrence of specified events. See Payroll Express Corp. v. Aetna 
       Casualty & Surety Co., 659 F.2d 285, 291-92 (2d Cir. 1981); C. Faruki, The 
       Defense of Terminated Dealer Litigation: A Survey of Legal and Strategic 
       Considerations, 46 Ohio St. L.J. 925, 998 n.8 (1985). 
          Flexibility is important to commerce, as the majority observes, but it 
       is not so important that it justifies excusing parties from their valid contractual 
       obligations. Under the terms of the contract here, Trim-Line does not have the 
       right to terminate the agreement at will. The judgment of the appellate court 
       affirming dismissal of Jespersen's complaint should therefore be reversed, and 
       the cause should be remanded to the circuit court for further proceedings. I 
       therefore dissent. 
 
          JUSTICE BILANDIC joins in this dissent. 
 
 
       [fn1] See Duldulao v. Saint Mary of Nazareth Hospital Center,  115 Ill. 2d 482 , 489 (1987); Joliet Bottling Co. v. Joliet Citizens' Brewing Co., 254 Ill. 215, 219 (1912) (because the contract did not fix a time "during which the 
       agreement should continue in force, it was terminable at the will of either 
       party"); Davis v. Fidelity Fire Insurance Co., 208 Ill. 375 (1904); see also 1 
       R. Lord, Williston on Contracts 4:19, at 442-44 (4th ed. 1990). 
 
 
       [fn2] The contract in this case states that it shall be construed in accordance 
       with California law. Throughout the litigation, however, the parties have relied 
       primarily on Illinois law and have not raised the issue of California law. 
       Accordingly, we will construe the contract under Illinois law and offer no 
       opinion on whether a different result would obtain under California law. 
 
 
       [fn3] Under section 2--309 of the Uniform Commercial Code (codified at 810 
       ILCS 5/2--309(2) (West 1994)), a contract which calls for successive 
       performances but is indefinite in duration "may be terminated at any time by 
       either party."