San Diego Business Contracts: The Importance of Including Severability Clauses
Sometimes, despite the best efforts of your talented business attorney, a court examines a contract and determines that some provision in the contract is void or unenforceable. This happens sometimes because of a change or clarification in the law or because the parties did not fully understand each other and that vagueness ended up being reflected in the contract language.
A severability clause is a provision in the contract that gives a court permission to modify the contract and take out or change an offending provision without invalidating the entire contract. It is important to have severability clauses in your San Diego business contracts, and here are a few considerations.
San Diego Business Contracts: A Typical Severability Clause
Here is a typical severability clause:
“Severability. If any provision of this CONTRACT shall be determined to be invalid or unenforceable by a court of competent jurisdiction, the remaining provisions of this CONTRACT shall be unaffected thereby and shall continue in full force without being impaired or invalidated in any way.”
As can be seen, this contract clause allows a court to excise an offending provision and allows a court to enforce the remainder of the contract. Without a severability clause, sometimes called a “saving clause,” some courts will declare the whole contract unenforceable.
San Diego Business Contracts: Variations on Severability Clauses
Excising an offending contract provision is often called by judges and lawyers “blue-penciling” (i.e., crossing-out offending provisions). But sometimes the parties would prefer the judge to “red-pencil” which is re-writing the offending provision. But — and yes, this gets complicated — sometimes a statute or case law prevents a judge from red-penciling and the judge can only blue-pencil.
In the end, how you write the severability clause depends on what the parties want. If you want to give the judge more flexibility, then request red-penciling (which the judge will do if allowed). You would modify your clause in this manner:
“Severability. In the event any provision of this Agreement is found to be unenforceable, invalid or illegal by any court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification cannot be satisfactory made, the unenforceable, invalid or illegal provision shall be deemed deleted, and the legality, validity and enforceability of the remaining provisions shall not be affected thereby.”
As can be seen, this version of the severability clause allows a court to either red-pencil or blue-pencil.
San Diego Business Contracts: More Variations and Considerations
As said above, how to write a severability clause depends on the intent of the parties and also depends on the parties’ best guesses as to what provision might be susceptible to severability. If the questionable clause is marginal to the main thrust of the contract — an arbitration provision, for example — then the severability provision is of less importance. However, if the suspect or questionable provision is front and center to the whole contract, such as a personal guaranty clause, for example, then the parties might prefer a severability clause that nullifies the contract. The solution here is a carve out, something like this:
“Limited Severability. Except for the personal guaranty provision, if any provision [language from above]. If the provision that is deemed to be invalid or unenforceable is the personal guaranty provision, the CONTRACT shall be deemed null and void and the parties shall be returned to their original position as if the CONTRACT had never been signed.”
San Diego Business Contracts: Contact San Diego Corporate Law Today
As can be seen, something seemingly as simple as a severability clause is actually quite complex. Every San Diego business needs a good business lawyer to help navigate the complexities. If you would like more information about the need and importance of severability clauses in your business contracts, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.