Kreisman Law Offices Professional Corporation
On Dec. 17, 2007, Rico Industries entered into an agreement with TLC Group Inc., in which TLC would serve as Rico’s exclusive sales representative to Wal-Mart.
Rico, an Illinois corporation that specializes in production of novelty and sports-affiliated merchandise, entered into the agreement, specifying that any change, cancellation or termination of the agreement must be mutually agreed by both TLC and Rico in writing.
Rico claimed that it was not represented by an attorney during the negotiations and drafting of the contract. Further, Rico claimed that in the drafting of the contract, the entire length of which was under one page, there were no other conditions in which the contract could be terminated.
On Sept. 24, 2012, Rico sent a letter to TLC informing it that it wished to terminate the contract. Rico believed that it was allowed to terminate the contract unilaterally. The letter to TLC contended that the provision requiring dual approval of any change created a “perpetual contract” and would be unenforceable in court.
That same day Rico filed a complaint for declaratory judgment. Rico sought to have the court determine that Rico had the right to unilaterally terminate the contract; also it alleged it was owed commissions from TLC.
TLC challenged the second half of the complaint as to the commissions alleged due as improperly added to the declaratory judgment action. The trial court dismissed the section of Rico’s complaint claiming unpaid commissions. The trial court also ruled that the agreement was not a perpetual contract and that the termination clause would be honored because it created an “objective event.” Rico appealed from the trial judge’s orders.
First, the appellate court restated that perpetual contracts were against public policy and would not be honored. The court then set about determining if the contract between TLC and Rico was a legitimate one or one that was perpetual and unenforceable. TLC argued that the mutual agreement of the parties was an objective event, which limited the term of the contract. The court did not agree with that interpretation.
The appellate court found that the “indefinite duration” was the central problem with a perpetual contract. The agreement between TLC and Rico, if the termination clause was upheld, would bind Rico to TLC unless TLC chose to release it from the contract.
If the contract’s terminating event is unforeseeable and may never occur, it looks like a perpetual contract. The appellate panel stated that the central argument in this case rested on a case that was not cited by either party, Donahue v. Rockford Showcase & Fixture Co., 87 Ill.App.2d 47 (1967). The court in this case found that the dicta in the Donahue case referred to language barring “mutual-agreement only” termination clauses, but the contract in Donahue involved a secondary condition which prevented it from being a perpetual contract.
The court in Donahue specified that it was this second objective condition which rescued the contract from being against public policy as a perpetual contract.
Accordingly, the appellate court reversed the decision of the trial judge as to whether the termination clause was enforceable and remanded the case for further proceedings regarding the outcome of the termination.
Rico Industries, Inc. v. TLC Group, Inc., No. 2014 IL App (1st) 131522.
Kreisman Law Offices has been handling business litigation matters, contract disputes and commercial litigation for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Rosemont, Wilmette, Mount Prospect, Rolling Meadows, Palatine, Bridgeview, Blue Island, Calumet Park, Calumet City, Harvey, Palos Heights, Summit, LaGrange, Western Springs and Westchester, Ill.
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