Franchising & Distribution Law Blog

In H & R Block Tax Services LLC v. Franklin, the Eighth Circuit reversed a district court’s finding that the parties’ franchise agreements were perpetual and, thus, not terminable by the franchisor without cause. The franchisor sought to terminate agreements relating to the operation of two H & R Block franchises in California. The franchise agreements, which provided for the application of Missouri law, expressly provided that the franchisor could terminate for cause, but only expressly provided for termination at any time by the franchisee. Because the agreements did not provide that the franchisor could terminate at any time, the district court found that the contract was perpetual until the franchisee elected to terminate the agreements or they were terminated for cause.

Reversing the decision of the district court, the Eighth Circuit held that a franchise agreement is only perpetual under Missouri law when the contract unequivocally expresses the parties’ intent that the contract be perpetually enforceable. A court will not find that intent from ambiguous, implied terms. With regard to the H & R Block franchise agreements, the Eighth Circuit concluded that the contractual provision providing for automatic renewal indicated an intention that it not be perpetual because, if it were, there would be no need to have it renewed. Judge Smith filed a dissenting opinion in the case, however, and agreed with the district court’s finding that the franchise agreements were perpetual.

Certainly, the Eighth Circuit’s decision is a reminder that the language selected by parties can have important ramifications on whether a contract is terminable at will or could be found to be perpetual. To read more about perpetual contracts, click here.