I’ve blogged about termination twice previously. In this 2007 post on the AdamsDrafting blog (and in MSCD) I explain why I prefer stating that a contract terminates on a given date rather than expires on that date.
And in this post from January 2012 I discuss the implications of (1) termination of this agreement, (2) this agreement terminates, and (3) this agreement is terminated. I also explain why I use the first formulation if I want to encompass termination by one or more parties and termination by operation of the contract without party action.
Thanks to this blog post by Michael Hayes of the Demorest Law Firm, based in Michigan, it’s time to address termination again.
Michael’s post discusses Holtzman Interests 23, L.L.C. v FFC Sugarloaf, L.L.C., a recent Michigan Court of Appeals opinion (copy here). At issue in this case is whether a provision in one contract (an operating agreement) that refers to “termination” of another contract (a management agreement) applies to nonrenewal of that other contract. The court affirmed the lower court in holding that it did not.
Here’s how the court explained its decision (citations omitted):
As the parties correctly point out, there are three different provisions under which the Management Agreement may be brought to an end: (1) nonrenewal under § 1.3, (2) termination with cause under § 21.1, and (3) termination without cause under § 21.2. However, as the circuit court accurately observed at oral argument, only two of these provisions, § 21.1 and § 21.2, actually use the word “terminate.” Moreover, contrary to plaintiff’s argument, the terms “termination” and “expiration” are not used interchangeably within the Management Agreement. Indeed, as the language of § 21.5(a) of the Management Agreement makes clear, “expiration” of the agreement and “termination” of the agreement are two distinct concepts. Indeed, if the terms expiration and termination were synonymous as plaintiff contends, the drafters of the Management Agreement would not have used the two words disjunctively in § 21.5(a); it would have been sufficient for the drafters to use merely one of the two terms. Stated another way, if expiration were truly synonymous with termination, the word “expiration” in § 21.5(a) would have no meaning and would amount to mere surplusage. It is well settled that a “contract must be construed so as to give effect to every word, clause, and phrase, and a construction should be avoided that would render any part of the contract surplusage or nugatory.” We conclude that the terms “expiration” and “termination” describe two separate and distinct means of bringing the Management Agreement to an end.
Here’s what I deduce from this case.
First, the drafter of the management agreement would have done well to do as I suggest and use termination to apply to both termination by one or more parties and termination by operation of the contract without party action. This dispute shows that if you use two different terms, you’re locked into doing so consistently not only in that contract, but also in other contracts that refer to that contract.
Second, even if the management agreement had not used the word “expiration,” the way to make it clear that the operating agreement applied to all kinds of termination would have been to refer in the operating agreement to “termination in accordance with section 1.3, section 21.1, or section 21.2,” or some such. That’s because section 1.3 of the management agreement used the word “nonrenewal,” meaning that if you’re not specific in the operating agreement, having section 1.3 fall within the scope of a reference to “termination” would require investigating how the management agreement refers to the effect of section 1.3. Although the end result would probably be the same (as long as the management agreement didn’t use the word “expiration”), it would be simpler if you could avoid having to making that leap in deduction.
So don’t use expiration, and consider referring to the appropriate section numbers when you’re referring to the grounds for termination of some other contract.
I often see contracts that use the phrase “termination or expiry” in several places. I sometimes include an interpretation provision that states that termination includes expiry, which avoids the need for this repetitive phrase.
Mark: I avoid the need for the phrase by not using the phrase! Ken
Yes well, in an ideal world we would be able to use whatever phrase we use. But all too often we have to pick and choose which issues are important enough to dig in our heels over, and in Mark’s example, I can easily see how it would be easier to get the other side to agree to a change in an interpretation clause than change their wording throughout the contract. While I generally agree with your point of view Ken, all too often I find myself in the frustrating position of asking for revisions which result in awkward (but understandable) language, simply because the better solution would involve more changes to the other side’s precious contract tthan they are willing to accept. *Sigh*
Jonathan: Sure—when you’re reviewing the other side’s draft, you’re limited in the changes you can make. The focus is on fixing problems, not creating a thing of beauty. Ken
Ken – I think the distinction is that “expire” is an intransitive verb whereas “terminate” is generally (though I concede not exclusively) used in the transitive sense. Thus a contract expires according to its terms, or conversely may be terminated, for example, by action of the parties. Unfortunately I am old enough to have grown up at time when English teachers attached importance to such distinctions and old habits die hard. As a result I use the words “terminate” and “expire” in what I consider to be the correct grammatical sense. I do agree that your suggested fix of using only “terminate” may eliminate the doubt, but I don’t think the doubt arises in the first place if the document is properly drafted and the words “terminate” and “expire” are consistently used in their correct sense.
Andrew: If you look at my 2007 blog post, you’ll see that it’s widely accepted that expiration is a form of termination.
And there’s this from my 2007 post:
Remembering to use consistently a single concept, termination, is easier remember to use consistently two concepts, expiration and termination.
Ken
Are you aware of some magic in the word “termination” (vs “end”)? For example, in a services contract with multiple, renewable service periods, would it be clear to say “this agreement begins on the date fully executed and, unless terminated sooner according to these terms, ends on expiration of the last service period.”?
Alan: That’s an issue that I’ve pondered previously in this post, and I’ll continue to think about it. Ken
While you’re thinking about it, you might consider this solution to the conundrum you saw in the phrase “At the end of this agreement.” You worried, fairly enough, that this might be taken as speaking of the back part of the document rather than a particular time. What about rewriting the phrase to be “When this agreement ends…”? Impossible to confuse that with a reference to a place.
I agree with Vance Koven that “end” is better than “terminate. My reasons are brevity and preference for Anglo-Saxon over Latinate words.
On that head, please think more about your liking “obligation” over “duty.”