Jespersen v. Minnesota Min. and Mfg. Co.

• Decision Date: 18 June 1998
• Docket Number: No. 83728,83728
• Citation: 183 Ill.2d 290,233 Ill.Dec. 306,700 N.E.2d 1014
• Parties: , 233 Ill.Dec. 306 Victor R. JESPERSEN, Appellant, v. MINNESOTA MINING AND MANUFACTURING COMPANY, Appellee.
• Court: Illinois Supreme Court

Page 1014

700 N.E.2d 1014

183 Ill.2d 290, 233 Ill.Dec. 306

Victor R. JESPERSEN, Appellant, v. MINNESOTA MINING AND MANUFACTURING COMPANY, Appellee.

No. 83728.

Supreme Court of Illinois.

June 18, 1998.

Rehearing Denied Oct. 5, 1998.

Kathleen K. Cirrincione, Keith L. Davidson, Chicago, Michele E. Sibley, Pretzekl & Stouffer, Chtd., Chicago, for Victor K. Jespersen.

Richard C. Godfrey and J. Robert Robertson, Kirkland & Ellis, Chicago, for Minnesota Min. and Mfg. Co.

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. ¹ 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. ²

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, 223 Ill.Dec. 532, 680 N.E.2d 265 (1997); Mt. Zion State Bank & Trust v. Consolidated Communications, Inc., 169 Ill.2d 110, 115, 214 Ill.Dec. 156, 660 N.E.2d 863 (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, 224 Ill.Dec. 85, 681 N.E.2d 67. 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, 106 Ill.Dec. 8, 505 N.E.2d 314; Joliet Bottling, 254 Ill. at 219, 98 N.E. 263. 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, 125 Ill.Dec. 108, 529 N.E.2d 1184 (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 a 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. Adkisson v. Ozment, 55 Ill.App.3d 108, 112, 12 Ill.Dec. 790, 370 N.E.2d 594 (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 onceprofitable 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, 98 N.E. 263; Davis, 208 Ill. at 385, 70 N.E. 359), and our courts have applied the rule in a variety of contexts including employment contracts (Duldulao, 115 Ill. 2d at 489, 106 Ill.Dec. 8, 505 N.E.2d 314), credit card agreements (Garber v. Harris Trust & Savings Bank, 104 Ill.App.3d 675, 683, 60 Ill.Dec. 410, 432 N.E.2d 1309 (1982)), money market fund accounts (Langendorf v. Irving Trust Co., 244 Ill.App.3d 70, 79, 184 Ill.Dec. 822, 614 N.E.2d 23 (1992)), and even sales contracts. ³ 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...