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Dairy Queen franchise agreements from 1940s illustrate the merits of sunset clauses to limit the term of a contract

A contract without a “sunset clause” might become a millstone for one of the parties. For example, the Dairy Queen restaurant chain is still having to deal with franchised restaurants under contracts signed in the 1940s that restrict the chain’s ability to impose uniform standards far more than modern-day contracts do. See Martha Neil, Decades-old contract lets historic Dairy Queen apply ‘rogue ice-cream rules’ (ABAJournal.com 2015).

Of course, even a sunset clause might not help if the contract has an “evergreen” automatic-extension clause and the opt-out date rolls by unnoticed:

  • A client of mine once agreed to give a  steep pricing discount to a particular customer for (if memory serves) five years. (I hadn’t been involved in that deal.)
  • The agreement also provided that the the discount would be automatically extended for another five years if my client didn’t opt out when the first five-year period was expiring.
  • Sure enough, no one in the client’s organization noticed that the five-year discount period was ending. As a result, the client didn’t send the customer a notice that the client was opting out of the pricing commitment.

As a result, the client had to honor the steeply-discounted pricing for that customer for another five years — this, even though the client had raised its prices significantly for the rest of its customer base.

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