According to lawyers for Chippewa Valley Ethanol Company (“CVEC”),
In Minnesota, for the last half century, contracting parties understood that one way to make a contract last for a reasonable time, and thereafter become terminable at will, was to make the duration of the contract ‘indefinite.’
CVEC cites an old case standing for the proposition that “the general rule [is] that a contract having no definite duration, expressed or which may be implied, is terminable by either party at will upon reasonable notice to the other.”
Notice the little puzzle nestled in there: “a contract having no definite duration expressed is terminable by either party.” If a contract expressly provides that it is of indefinite duration, is that a contract “having no definite duration expressed”? The contract definitely addresses the issue of duration but it does not include any fixed term (any duration, that is).
“Frankly, the law of indefinite duration contracts is in disarray,” the lawyers for CVEC conceded in their petition to the Minnesota Supreme Court for review of the Court of Appeals decision that they lost.
To us, the ultimate question here is whether Minnesota law will countenance (and enforce, if necessary) a contract that is expressly indefinite.
The [intermediate Court of Appeals’] decision, fundamentally, stands for the proposition that Minnesota will enforce the intent of the parties and will afford equitable relief in certain— and unique—situations where such relief is warranted. These principals [sic] are bedrock principles in Minnesota contract law and the District Court and Appeals Court decisions do nothing more than apply that law to a factual situation where CVEC’s behavior is so outside the bounds of good faith that it is called a “scorpion” by the trial court—a determination that is left unchallenged.
Many may find binding a party to a “perpetual” contract worrisome but lawyers know that such agreements are actually common — in the case, for example, of a perpetual license to use a particular product, patented technology, brand-name, etc. Further, as GPC argues forcefully in its unsuccessful opposition to CVEC’s petition for Supreme Court review, CVEC and GPC’s businesses are deeply enmeshed, practically and even physically.
The agreement provides that “[i]t is the intent of the parties that this agreement shall continue indefinitely until either terminated by the terms of this agreement, or by the mutual agreement of both parties.” But then the agreement does not appear to include any clear “terms of termination” (at least insofar as CVEC is concerned)(it seems that GPC can essentially terminate the agreement if CVEC defaults on its obligations (Section 5)).
Furthermore, agreement further provides, “It is the intention of both parties to begin this three year operating agreement at the date of LLC ethanol plant start up.” The Grain Handling Agreement does not include a definition of “this three year operating agreement.” It seems to be referring to itself. So, is it perpetual or not? In context, this provision appears to mean that there is an agreed upon initial price, subject to renegotiation in three years, but the text still obscures the contract terms.
We will not predict the outcome of the case before the Minnesota Supreme Court (just yet, anyhow) but, regardless, applaud the Court for taking the case to impose clarity in an area of the law that apparently needs it.