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San Diego Business Contracts: Can You Have a Perpetual Contract?

Under California law, the simple answer is, “Yes, you can have a perpetual contract.” The more complicated answer is, “Yes, if that is what the parties agree to and they express that intent unambiguously in the contract.” An experienced San Diego corporate attorney can help draft your business contracts to reflect what you and your contracting partners want with respect to termination.

Perpetual contracts are rare, but not as rare as one might think. Of course, many contracts have specific terms — such as “[u]nless renewed, this Agreement shall have a term of one year.” Other contracts are expressly written to be terminable “at-will.” “At-will” simply means that either party can terminate at any time for any reason or for no reason. Usually, some sort of notice period is required — 14 days or six months or whatever is agreed to. Many contracts are written such that termination can only be “for cause.” A “for-cause” provision would be something like this: “This Agreement can be terminated by either party for cause with 30-days written notice.” Under that provision, two conditions are needed — cause for termination and notice.

In practical and legal effect, a “for-cause” termination provision is considered a type of perpetual contract. A good example of such a clause comes from the case of Zee Medical Distributor Association, Inc. v. Zee Medical, 94 Cal. Rptr. 2d 829 (Cal. App. 1st Dist. 2000). In that case, the parties entered into written distribution agreements that had no specific terms or termination dates. Rather, the contracts stated that the agreements could be terminated only for certain causes and conditions as defined by the agreements. The plaintiff in that case argued that, since the agreements did not have express terms of duration, the agreements were terminable at will. The Court of Appeals disagreed and upheld the agreements as written. The court stated that California law allowed the enforcement of contracts having a “… term of duration of indefinite length and without specific limitation, tied not to the calendar but to the conduct of the contracting parties.” The court enforced the contracts as written.

California courts will also enforce contracts that have no termination provisions at all; that is, no term, no termination date ,and no “for-cause” termination. The only method of one-sided termination is impossibility or the expiration/failure of the purpose of the agreement. The classic case example here is Consolidated Theatres, Inc. v. Theatrical Stage Employees Union, 69 Cal.2d 713 (Cal. Supreme Court 1968). In that case, the contract was a union contract signed in 1931 with respect to wages and working conditions for stagehands for live stage performances in certain San Francisco movie theaters. The contract provided for continued performance without any sort of termination date, term, or “for-cause” method of ending the contract. In its decision, our Supreme Court affirmed the idea of a perpetual contract, but, at the same time, the court acknowledged that time and reality could provide for termination not otherwise set out in the contract. In that case, by the mid-1960s, the occupation of “stagehand” was no longer an occupation. When the contract was terminated, the stagehands sued for breach of contract. But the court affirmed the termination of the contract. The court held that the 1931 contract “was impliedly conditioned as to duration upon the continued possibility of live stage presentations…” With the disappearance of those live stage performances, the court held that all obligations under the contract were thereby terminated.

Contact San Diego Corporate Law

For more information, contact Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard focuses his practice on business law, transactional, and corporate matters, and he proudly provides legal services to business owners in San Diego and the surrounding communities. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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