Every day we look at a contract. We either write it, we read someone else’s contract and try to understand it, or someone reads our contracts for the same reasons. Part of the frustrating reality of a contract is that it is almost impossible to write one of any complexity at all and have any two people agree on what every part of it means. This article is about the dumbest of all contract provisions. Not dumb because some can’t be more destructive, but because this one is ubiquitous, and usually no one knows it is there.
I have often asked young lawyers to draft a contract. That is done by telling them the important terms, hoping always you haven’t left some out, and believing the draftsman will have the good sense to ask questions about things that don’t make sense or seem incomplete.
When a lawyer prepares a fairly simple contract, he or she uses a data bank of documents contained in the computer. Without exception we all believe the contract ought to appear hefty enough to be learned, and hopefully to elicit a transfer of money from client to lawyer. The real contract may take only several paragraphs, but often that’s not considered long enough to be well received. That’s when we get dangerous.
The tail end of the contract will come from a computer data bank. One of the paragraphs in that bank is called a “severance clause.” The severance clause says that if any paragraph in the contract is found by a court to be unenforceable, all other paragraphs remain valid and enforceable. That provision makes good sense in the abstract; it makes absolutely no sense in practice.
I have litigated a contract within the last few weeks that contained an employment provision for the seller of a business. In that case a man sold his business with an agreement for the buyer to leave the seller on the payroll for some period of time. His ability to get a continuing salary was important to the agreement. A court found the employment provision to be unenforceable because it was not sufficiently specific. The severance clause required that paragraph to be separated from all others and the balance of the contract was required to be enforced. Yet without the employment provision, the seller would never have sold his business, or at least not for the same price.
The examples of the effect of this clause are too numerous for this article, but one other might be helpful. Real estate is often sold with the understanding that the transaction is an “as is” sale. In this example, the Seller has negotiated a sale price assuming that he would not be expected to do additional work on the property. If a court were to find the “as is” provision of the contract to be unenforceable, (which could happen because of a Johnson V. Davis violation), there is a good chance the seller would not want to perform the contract. A severance in such a contract may be exactly opposite of what the parties intend.
The severance clause is contained in every computer bank of forms. The clause would almost always result in a distorted agreement if an important part of the contract were found to be illegal or unenforceable.
Understand how every provision in a contract will affect those you represent. Do not blindly incorporate something that does not belong and that may serve only to confuse.