Update (June 8, 2018): Minnesota Litigator is proud of its accurate predictions but we also own our botched predictions. We got a recent prediction way wrong.
In Glacial Plains Co-op v. Chippewa Valley Ethanol Company, the primary case described in earlier posts, below, the issue was whether a contract that expressly provided that it had “indefinite” duration should be construed as being a contract without any end time (i.e., a perpetual contract) or whether it should be deemed “terminable by either party after a reasonable amount of time.”
The Court continued, “the use of the word ‘indefinitely’ creates uncertainty as to whether the contract is meant to be of indefinite duration or perpetual duration.” Because of the policy against perpetual duration and the view that the language in the contract was ambiguous, the Court found that the contract that provided expressly for an indefinite duration could be terminated by either side “after a reasonable period of time.”
(Though we predicted the decision wrong, we think the decision is right, though a bit confusing as written. We’d propose a slight revision, “the use of the word ‘indefinitely’ creates uncertainty as to whether the temporal term of the contract is (a) ‘infinite,’ that is, intending no end-date ever, or (b) ‘undefined,’ that is, not including an end-date but not foreclosing one either.”)
Finding the contract terminable after a reasonable amount of time, the next question was what’s “a reasonable amount of time”?
The Supreme Court dodged answered that question: “A ‘reasonable time’ is determined…by the individualized circumstances surrounding each case.” So good luck figuring that out. Best to avoid the issue by hashing out a term of a contract or making it crystal clear that the parties intend for the contract to have no end date ever.
Practice pointer: Although the Minnesota Supreme Court went out of its way to say that it is not requiring the use of a “magic word” — PERPETUAL — you probably want to use such a word if you are drafting an agreement that you wish to have no end.
If you simply agree, “I will pay you $X and, in return, you shall permit me to do/to use something ‘indefinitely,'” your days might very well be numbered.
Update (May 11, 2018) (under the headline “Minnesota Supreme Court Considering (Again) Whether Courts Should Impose Ends on Contracts of “Indefinite Duration”?”): Here we go again. As in the original posts, below, we come across another sophisticated business arguing that a contract giving it no right of termination must be understood to mean that it has a right of termination.
In the latest case, a St. Paul business, Cinema Ballroom, negotiated an open-ended deal with the neighboring property owner for use of a nearby parking lot during certain hours on certain days. The lease provided, “This lease shall terminate when [Cinema Ballroom] notifies [Neighboring Property Owner] in writing.”
Neighboring property owner went out of business and “Turk Trust LLC” bought the neighboring property out of foreclosure. So the question is whether Turk Trust must honor this lease until the end of time or until Cinema Ballroom terminates the lease, whichever comes first?
Cinema Ballroom won at the trial court, lost at the court of appeals, and recently successfully petitioned the Minnesota Supreme Court for review. Turk’s response seemed weak. Turk did not defend the Court of Appeals result in opposing the Supreme Court’s review so much as it claimed that the case did not fit the Supreme Court’s selection criteria. That was a brave gambit that did not pay off.
Consistent with our prediction in the earlier Glacial Plains case, we will predict that the party arguing for a judicially imposed termination date on a commercial agreement that does not include one will fail this time, as well.
[Query whether the lease has an infinite term as to the lease payment amount, as well as the time period? Presumably, Turk cannot simply jack up the price to make Cinema Ballroom walk away from the lease. Did Turk’s predecessor-in-interest, Sweeney’s Dry Cleaner, give Cinema Ballroom an unbelievably sweet deal? Did Turk just blow it by buying real property subject to an indefinite lease (subject only to the lessee’s whim)?
Update (January 12, 2018): If a contract expressly says it is indefinite, does that mean that the contract is terminable “after a reasonable amount of time”? This is the appellant’s position in the case described below, which appellant argued before the Minnesota Supreme Court this week.
In our original post, below, we held off on predicting the outcome of the appeal. We will go out on a limb. Based on the argument, the appellant, CVEC, we predict, will lose. “Forever” or “indefinitely” just aren’t synonyms for “for a reasonable amount of time.”
There is a more difficult and thornier issue in the case, though. The trial court ordered “specific performance” of obligations under the contract for the breaching party. This remedy was clearly troubling to several of the justices. We will have to wait and see how they solve that puzzle…
Original post (September 8, 2017): 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, the agreement further provides, “It is the intention of both parties to begin this three-year operating agreement at the date of LLC ethanol plant startup.” 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.