Sales Rep Agreement at Will

Since Termination Contingent upon

Mutual Consent of the Parties

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Not an “Objective Event”

             In December 2007 Rico Industries contracted with TLC Group Inc. to act as its exclusive sale representative to Wal-Mart stores.  The written agreement between Rico and TLC, which occupied 2/3 of one page, included this provision:

"Any change to, cancellation of, or termination of this Agreement shall be made in writing by TLC Group and Rico.  Any change to, cancellation of, or termination of this Agreement shall be null and void unless TLC Group and Rico mutually agree in writing to do so.”

             In September 2012 Rico wrote TLC advising of its desire to terminate the agreement. A letter to this effect declared that the termination provision was null and void because under it, conceivably, Rico could be required to work with TLC forever.  TLC disagreed, rejecting the request to terminate, and Rico brought an action in the Cook County Circuit Court for declaratory judgment.  TLC counterclaimed, alleging, inter alia, that it was entitled to an accounting because after the September 2012 letter Rico stopped paying commissions.

             Cook County Judge Larsen issued a judgment on the pleadings in favor of TLC, ruling that the termination provision created an “objective event” – the mutual agreement of the parties – that would terminate the contract.

             The First District Appellate Court reversed, relying on Jespersen v Minnesota Mining & Manufacturing Co., 183 Ill 2d 290 (1998).  Jespersen also involved a sales representative and ruled that contracts of indefinite duration are generally terminable at the will of the parties. The Supreme Court reasoned that a contract that provides for termination for cause militates against a construction that a licensor can terminate at will.  In that case the termination provision enumerated various circumstances, e.g., the rep’s breach of the agreement, in which the company could terminate the agreement. The Supreme Court however, found that each of the circumstances were grounds for material breach in any contract.  “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 court stated.

             The appellate court found that the termination provision in the Rico-TLC agreement contained no such enumeration of material breaches. Instead, the contract could be terminated only upon the written agreement of the parties.  Drawing upon its own precedent, the court noted that a contract in effect “for as long as the [rep] serve’s the company’s customers” was not an “objective event” the occurrence of which would terminate the contract, making it one of a specific duration.

             In reversing, the district court held that sales representative agreements that are terminable only upon the mutual agreement of the parties are contracts of indefinite duration and, thus, terminable at will.”    

 Rico Industries Inc. v. TLC Group, Inc. 2014 IL App (1st) 131522, February 7, 2014.

http://www.state.il.us/court/Opinions/AppellateCourt/2014/1stDistrict/1131522.pdf

 

3/19/14

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