I noticed that Corporate Counsel has published another article by Eric Fishman, a partner at Pillsbury. (This time his co-author is one of his partners, Robert James.) It’s entitled Drafting a Better Severability Clause; go here for a copy. (Go here and here for my posts about two other articles by Mr. Fishman.)
This most recent article provides basic but helpful background information on severability provisions. In terms of substance, what caught my eye was the discussion of how you deal with the fact that “the invalidity of one key provision can result in an exchange materially different from the bargain initially struck.” My interim severability language (here) says in effect that the parties intend that if adjusting a provision would mess with the basic deal, the entire contract should be held unenforceable. By contrast, the provision included in the Corporate Counsel article states that “the Party adversely impacted shall be entitled to compensation for such adverse impact.” I’d be interested to hear what you think of those two different approaches. (And isn’t the word “compensation” an odd choice?)
Beyond that, I have two general observations:
First, one point of the marketplace of ideas is that through informed debate, you can build on the other guy’s ideas. And it helps consumers in the marketplace of ideas if you do so—it makes it easier for them to assess what you’re offering. So why not, for example, allude to how one’s analysis compares to some aspect of the analysis of severability in Negotiating and Drafting Contract Boilerplate?
And second, the language used in the provision proposed in the Corporate Counsel article is hard-core traditional legalese. There’s no reason for it. I’m not going to critique this article in detail, as it would take too long and be too boring, but it did inspire me to do this post about use of the word serious in contracts.
6 thoughts on “A New Article on Severability Provisions”
Thinking about specific situations where this might apply, I came up with non-competition provisions. Those could be struck down. Example 1: employee non-compete. Example 2: provision in verical marketing agreement that corsses anti-trust lines.
So now comes the defeated defendant and says, “OK, in the alternative, I’m entitled to equitable compensation, which is the monopoly profit I would have earned if you had enforced this illegal agreement.” Really? I could maybe see a reimbursement for costs reasonably incurred. But not contract damages.
Agreed. The idea of being getting “compensation” for an unenforceable provision seems odd. It’s unenforceable!
Also agreed. But there’s a problem with your approach which distinguishes between provisions the invalidation of which “messes with the basic deal” and provisions the invalidation of which doesn’t “mess with the basic deal.” If that’s meant to be an objective standard, it falls short.
It’s not meant to be objective. It couldn’t be.
I assume this is the language we are discussing:
“But if modifying or disregarding the unenforceable provision would result in failure of an essential purpose of this agreement, the entire agreement is to be held unenforceable. The parties acknowledge that enforcement of section Y as written is an essential purpose of this agreement.”
That language solves the objectivity problem as to section Y but leaves it to a judge to decide whether the invalidation of any other provision would result in the failure of “an essential purpose” of the agreement, where the agreement nowhere specifies all its purposes that are “essential.”
I thought leaving things for courts to decide was a drafting failure, and that writing things so that cases don’t arise was an important goal.
Am I right that you are saying that the best one can do in this situation is to specify provisions the invalidation of which will invalidate the whole, and the rest is unavoidably litigation fodder?
Thank you for prodding me to think a bit more about this.
I guess you have a choice between saying that enforcement of sections X, Y, and Z is AN essential purpose and saying that it’s THE ONLY essential purpose. The more specific, the better, but if a transaction has enough moving parts, you might want to leave open the possibility of arguing that a provision other than those specified is essential.