Zapatha v. Dairy Mart, Inc.

381 Mass. 284, 408 N.E.2d 1370 (1980).

One-Sentence Takeaway: A contract provision allowing termination without cause is not per se unconscionable.

SUMMARY

Facts: Zapatha (P) was involved in a franchise agreement with Dairy Mart (D) that provided that the agreement could be terminated without cause. After several years Dairy Mart presented Zapatha with a new franchise agreement. Zapatha refused to sign and Dairy Mart terminated the original agreement.

The plaintiff sued for breach of contract and asserted that the provision in the agreement that provided for termination without cause was unconscionable. Plaintiff alleged that the defendant’s conduct had been unfair and deceptive. The trial court held that the termination provision was unconscionable and that the UCC contract law provisions were applicable. Dairy Mart appealed.

Issue: Is a termination clause in a franchise agreement that provides that the agreement may be terminated without cause prima facie invalid due to unconscionability?

Holding and Rule: No. A termination clause in a franchise agreement that provides that the agreement may be terminated without cause is not prima facie invalid due to unconscionability.

Public Policy: To find that a termination clause is oppressive merely because it does not require cause for termination would establish a barrier to the use of termination at will clauses in contracts.

Zapatha was an experienced businessman who understood the clause in the agreement when he signed it. There is no evidence that there was an absence of any honesty in fact by Dairy Mart. There is no showing that Dairy Mart usurped funds to which Zapatha was reasonably entitled. From the facts, Dairy Mart lawfully terminated the agreement.

Disposition: Reversed.