Understanding Contract Provisions

What Are Entirety and Severability Provisions in Contracts?

Have you ever read a legal agreement or a contract and thought – what does this thing say? Or, why in the world is this paragraph in here? Sometimes lawyers place paragraphs or clauses into agreements that don’t make sense to business owners or managers but make perfect sense to attorneys. Some of the classic provisions that fall into this category are Entirety Provisions and Severability Provisions. I’ll go over both of them in this month’s newsletter.

Entire Agreement

The following clauses below are standard “Entire Agreement” provisions that lawyers regularly use in contracts if they want the contract to be indivisible, or that the contract represents the complete and final agreement, thereby protecting the contracting parties. In other words, the contract supersedes any prior agreements the contracting parties might have made with regard to the subject of the contract whether those negotiations or agreements were in writing, spoken over the phone, or in person.

“Indivisible” means that the entire agreement is taken as a whole or entire document and the breach of any of the parts of the agreement are material breaches and can allow the other party to terminate the contract. Here are some samples:

“This agreement is indivisible as to all of the performances to be rendered under it. Breach of any obligation to be performed by _________________ [party] constitutes a breach of the entire agreement and shall give __________________[other party] the right to terminate this agreement.”

Another Example is:

“It is expressly agreed that this contract constitutes a single transaction between the parties, and if the Buyer fails to pay for any shipment within __________________ days after delivery, the Seller will not be obligated to make any further deliveries and the contract is terminated.”

Another Example is:

“The parties hereto acknowledge that this Agreement contains the entire agreement between the parties

and that any prior discussions or written materials are wholly and completely superseded by this agreement.”

Severability of Agreement

Another clause that is regularly put into contracts is a “Severability” clause. This means that if a court finds that one or more of the provisions contained in the agreement are invalid or unlawful, the remaining parts of the contract will not be affected by that one provision being unlawful or illegal. Here are some examples:

“The performance to be rendered under this agreement is divided into 3 sections: Section A-Excavation and Fill; Section B- Road Construction; and Section C- Landscaping and Cleanup. Breach of any one section by a party shall not affect the rights or obligations of the parties as to the other sections.”

Here is Another Example:

“The obligations under this agreement are severable; the failure of the Buyer to accept delivery or pay for any individual shipment, or the failure or refusal of the Seller to deliver any individual shipment, shall not affect the rights and duties of the parties with respect to the other shipments of goods specified in this agreement.”

Conclusion:

As a business owner or manager, understanding the provisions in contracts is vital. Now you know a little bit more about some of the “standard terms” that are contained in most contracts and agreements. I hope this article has been helpful to you. Please let me know if you enjoyed it; until next time.

Utah Business Law – Monthly Newsletter is written by Michael Anderson, MBA, JD, Attorney and Counselor at Law. Mr. Michael Anderson is licensed to practice law in Utah. This newsletter is published as a service of The Ascent Law• 8833 South Redwood Road, Suite C • West Jordan, Utah 84088. This information is for general informational purposes only and does not constitute legal advice. For specific questions you should consult a qualified attorney.