## Facts

- Elaine and Mr. Zapatha became Dairy Mart franchisees after Dairy Mart described the franchise as stable and gave promotional materials about franchise advantages.
- On November 8, 1973, the parties executed a limited franchise and license agreement on a nonnegotiable form.
- The agreement provided that after the first 12 months either party could terminate without cause on 90 days’ written notice.
- If Dairy Mart terminated without cause, it was required to repurchase the franchisees’ saleable merchandise under a stated formula.
- A Dairy Mart representative read and explained the agreement, including the termination provision, and suggested legal review; the Zapathas declined.
- The Zapathas operated within the Dairy Mart system and later refused to sign a new, more detailed agreement proposed by Dairy Mart in 1977 that contained less favorable terms.
- In January 1978, Dairy Mart gave written notice terminating the existing agreement pursuant to the no-cause termination clause.
- For purposes of review, it was accepted that Dairy Mart terminated solely because the Zapathas refused to sign the new agreement.

## Issues

1. Whether a mutual clause permitting either party to terminate a franchise without cause upon 90 days’ notice was unconscionable at the time of contracting.
2. Whether terminating under the express no-cause clause, motivated by the franchisees’ refusal to sign a new agreement, breached the implied duty of good faith.
3. Whether terminating pursuant to the clause constituted an unfair or deceptive act or practice under Mass. Gen. Laws ch. 93A.

## Decision

- The Supreme Judicial Court reversed the trial court and dissolved the restriction requiring “good cause” for termination.
- The court held the 90-day no-cause termination clause was not unconscionable.
- The court held Dairy Mart did not breach the duty of good faith by exercising an express termination right in accordance with the agreement.
- The court held Dairy Mart’s conduct did not amount to an unfair or deceptive act or practice under chapter 93A on these facts.

## Legal Principles

- Unconscionability is assessed in light of the commercial setting and needs at the time of contracting; a term is unconscionable only if it is so one-sided as to be unconscionable under those circumstances.
- A clearly disclosed, mutual termination-at-will clause with reasonable notice is not unconscionable merely because it favors the franchisor in practice.
- The implied duty of good faith limits dishonest conduct or abuse of contractual discretion but does not negate a clear, express right to terminate without cause when exercised as the contract specifies.
- Enforcement of an express contractual termination right, without deception or sharp practice and with compliance with agreed notice and repurchase obligations, does not by itself constitute an unfair or deceptive act under Mass. Gen. Laws ch. 93A.

## Conclusion

The court enforced the franchise agreement as written, holding that a mutual 90-day termination-without-cause clause was valid and that Dairy Mart’s use of that clause—after the franchisees declined a new agreement—did not violate unconscionability doctrine, the implied duty of good faith, or chapter 93A.


Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 408 N.E.2d 1370 (1980)