Boulder Business Lawyers Offer Some Considerations For Severability Clauses
Often times, contracts, including LLC operating agreements, contain severability or savings clauses. These clauses tend to state something along the lines of: “if any term of this contract is found to be invalid, illegal, or unenforceable, such term shall be excluded and all other terms shall remain in full force and effect.” The obvious reasoning behind such a clause is to “save” the remainder of the contract if some parts are found to be void–put simply, to not throw the baby out with the bathwater.
However, although severability clauses are typically boilerplate in many contracts, careful consideration should be given to the language of the clause and its effect. For instance, what if the terms or provision severed are so integral to the contract that that remaining contract is materially different from the original bargain? Would you still want the remaining terms enforced without the voided term?
Severability Clauses in Colorado
Under Colorado law, a court will typically interpret a contract so as to effectuate the intentions of the parties at the time the contract was signed. The intention of the parties is determined by the language of the contract. Thus, if a contract has a severability or savings clause, terms or provisions deemed by the court to be void or unenforceable will be severed and the validity of the agreement will be upheld.
However, as mentioned above, what if severing the terms materially changes the original bargain and you don’t want the remainder enforced? The good news is there may be a limit to how far a court will apply a severability clause in Colorado. For instance, in Daugherty v. Encana Oil & Gas (USA), Inc., 2011 WL 2791338 the District Court of Colorado, when reviewing the validity of an arbitration clause, noted that it would apply the severability clause but would refrain from severing terms or provisions from the contract where those terms and provisions so “permeate the contract to such an extent as to affect its enforceability entirely.” Fair warning–this pronouncement should not be relied upon in eliminating a severability clause in your contract or drafting a boilerplate clause without careful considerations of its language and effect. Best practice still remains to include a severability or savings clause–but just be attentive to its purpose.
Boulder Business Lawyers of LaszloLaw
The Boulder business lawyers of LaszloLaw counsel established and startup businesses on a variety of legal needs, including business formation, risk management, contract drafting, and litigation matters. Contact the Boulder business lawyers of LaszloLaw today online or at 303-926-0410 to discuss your legal needs.