6-07.VYLENE [impl. covenant to negotiate franchise renewal].doc
enforceable legal obligation on the parties to renew the franchise agreement. The district court relied on the fact that the option to renew provision in the franchise agreement left the central terms of the renewal for future determination by the parties. The franchise agreement provided that Vylene had, upon giving sixty days advance notice in writing to Naugles, a right of first refusal to extend the franchise at the termination of the franchise agreement "on terms and conditions to be negotiated within said sixty (60) days."
Vylene argues that when it paid Naugles the $38,121, it was the intention of the parties that the renewal provision would be enforceable. Vylene maintains that to allow Naugles to accept the $38,121 in October, and then to allow Naugles to take the position in December that the renewal provision was unenforceable would be absurd.
The general rule regarding contracts to agree in the future is stated to be as follows:
"although a promise may be sufficiently definite when it contains an option given to the promisor or promisee, yet if an essential element is reserved for the future agreement of both parties, the promise can give rise to no legal obligation until such future agreement. Since either party by the terms of the promise may refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise."
, quoting, 1 Williston, On Contracts (Rev. Ed.1936) 131, § 45. The court went on to state that "an option agreement which leaves an essential term to future agreement is not enforceable." See (acknowledging that the defense of uncertainty has validity if the uncertainty or incompleteness of the contract prevents the court from ascertaining what to enforce).
In this case, the renewal clause did not establish any essential factors to an extended franchise agreement other than the fact that the extension, if agreed upon, would have been for a duration of eight years. The terms of the renewal clause were too vague to establish an enforceable right to renew.
However, Vylene's payment of the $38,121 in August cured its default, and gave Vylene the right to assume the franchise agreement until the contract expired in December 1995. The franchise agreement clearly stated that the franchisee had the right, upon
Seg. 6, item 7 (2007)