I’ve recently been thinking about the concept of “survival.” It crops up in contracts in three ways, and in each of those contexts it’s either unnecessary or inferior to an alternative approach. I discuss each of these three contexts below.
Survival of Claims
Sometimes an agreement will specify that any claims that arise before an agreement terminates will survive termination. The wording of such provisions varies, but here’s an example from a supply agreement:
17. . Termination of this agreement will not relieve either party of any claims against it that arise under this agreement before the agreement is terminated.
But such provisions state the obvious—terminating a contract because of breach doesn’t preclude the injured party from filing a claim for damages. See, for example, 2 E. Allan Farnsworth, Farnsworth on Contracts § 8.15 (2d ed. 2001) (“If the injured party chooses to terminate the contract, it is said to treat the breach as total. The injured party’s claim for damages for total breach takes the place of its remaining substantive rights under the contract.”)
Sometimes having the parties agree to that which is settled law can be helpful, in that the parties won’t necessarily know what the law is. But that claims survive termination is sufficiently fundamental a notion that stating it in a contract seems odd.
Survival of Provisions
The default rule is that a party’s rights and obligations under a given contract only last as long as the contract. That’s why it’s unnecessary tack onto all contract rights and obligations the phrase during the term of this agreement.
But what if you want a given right or obligation—such as Acme’s obligation to keep certain information confidential or not to compete—to continue after the agreement terminates? You should say so. One way drafters accomplish this is by saying that the provision in question will survive termination of the agreement. But I prefer to be more direct and say that a given right or obligation will apply during the term of this agreement and [thereafter] [the following two years].
It’s standard not to include a timeframe in the boilerplate provisions that would come into play if one party sues the other after the agreement has been terminated. These include provisions relating to jurisdiction, governing law, and notices. (They’re best phrased as language of policy and language of obligation used to express conditions rather than language of obligation or language of discretion, so strictly speaking they don’t constitute rights or obligations. See MSCD chapter 3.) But sometimes you’ll see a catch-all such as this: The provisions of this General Provisions Article will survive termination or expiration of this agreement. It’s not necessary to say that boilerplate survives termination—if a party is able to bring a claim after the agreement terminates, then the rules governing how a claim is to be handled perforce apply to that claim and don’t fall by the wayside.
Survival of Representations
Invariably, the principal language of obligation used in indemnification provisions (such as The Seller shall indemnify the Buyer Indemnitees against all Indemnifiable Losses arising out of ….) does not specify a time frame for that obligation. As such, it’s an exception to the notion, described above, that you should be explicit if you want an obligation to continue after an agreement terminates.
One can do without a timeframe in this context because the issue of when you can bring a claim for indemnification should be addressed elsewhere in indemnification provisions. Usually, an agreement will speak in terms of how long the indemnifying party’s representations survive. It’s commonplace for agreements to specify that most representations survive for a limited time (perhaps a year) while others survive until the applicable statutes of limitations expire and still others survive indefinitely.
While it’s entirely standard to refer in this manner to survival of representations, I find it unhelpful to do so.
For one thing, it’s too oblique for my liking—you should use legal jargon in a contract only if no clearer alternative presents itself. And furthermore, referring to survival of representations addresses only one of the potential bases of a claim for indemnification—for instance, it doesn’t serve to put time limits on when you can bring a claim for indemnification for breach by the indemnifying party of any of its obligations. That’s why I prefer to instead address this topic, head-on and more broadly, in a section entitled “Time Limitations.” Here’s an example (it would be followed by a subsection addressing time limits on claims by the Buyer):
8.1 . (a) If the Closing occurs, the Seller will have no liability with respect to any representation made by it in, or any obligation to be performed or complied with by it before the Closing Date under, this agreement (other than those representations of the Seller contained in section 2.14 [Environmental Matters], section 2.16 [Tax Matters], and section 2.19 [Employment Benefits]) unless by midnight at the beginning of the date one year after the Closing Date any Buyer Indemnitee notifies the Seller of a claim with respect thereto, specifying the factual basis of that claim in reasonable detail. If the Closing occurs, the Seller will have no liability with respect to any representation contained in section 14 [Environmental Matters], section 2.16 [Tax Matters], and section 22.19 [Employment Benefits] unless on or before expiration of the applicable statute of limitations any Buyer Indemnitee notifies the Seller of a claim with respect thereto, specifying the factual basis of that claim in reasonable detail.
I won’t claim to have come up with this idea. I cribbed it a few years ago from an article by—if I recall correctly—Richard Climan of Cooley Godward in a Practicing Law Institute course handbook.
If when drafting a contract you’re tempted to refer to survival of something, first consider the alternatives.