Contracts cannot last forever. To ensure that the rights and obligations created by contracts are drawn to a proper conclusion, parties often give contracts a definite expiration date or make them subject to unilateral termination.
Survival of Contractual Commitments after Termination
If any one thing concerning termination seems obvious, it is that it has the effect of ending rights and obligations. That said, contract termination can be legally complex. Despite the obvious conclusion that termination affects contractual rights, the moment in time that certain commitments become unenforceable is not always clear.
For example, if contracting parties agree to arbitrate disputes arising from the contract, is the agreement to arbitrate still enforceable after the contract has expired by its’ terms? As another example, if one party agrees to indemnify and to hold harmless another for losses incurred in connection with a contract, are those obligations no longer enforceable simply because the contract has concluded? In each of these cases, to hold that obligations can never be enforced after termination would seem inconsistent with the purpose of the contract: to create an enforceable right or obligation in connection with its performance. Consequently, courts have concluded that some contractual commitments “survive” expiration or termination of the contract.
Survival (or Savings) Clauses
Ultimately, determining whether a particular right or obligation “survives” contract termination (i.e., whether it continues to be enforceable) requires an inquiry into the intent of the parties. Because judicial determinations regarding the intent of the parties and the survival of commitments can be somewhat subjective, sometimes contracting parties wisely use “survival” clauses to avoid uncertainty concerning the extent of post-contractual obligations.
Given this background, “survival” (or “savings”) clauses can play in an important role in contract enforcement. Survival clauses are frequently used specifically in connection with the following types of commitments:
- Confidentiality obligations
- Terms governing intellectual property rights
- Restrictive covenants, such as non-compete agreements
- Limitations of liability and indemnity provisions
- Choice of law and forum provisions
- Representations and warranties
As suggested above, generally, survival clauses establish or clarify which contractual commitments last beyond a contract’s termination date. Often, the purpose is to remove any doubt that a given commitment binds a party even after termination. On the other side of this coin, survival clauses are sometimes used to establish when certain post-termination obligations conclude. In that sense, they can function similarly to a statute of limitations, limiting the time during which certain claims can be made following termination of the contract. In some cases, the interpretation and application of survival clauses can be surprising.
Conclusion
Without question, survival clauses are evidence of the parties’ intent about the continued effect of commitments post-contract. Nevertheless, parties do not always use survival clauses, and Courts have found that certain commitments not referenced within survival clauses can continue to be enforceable after termination.
This dynamic begs the question, what types of contractual commitments “survive” and are enforceable after a contract concludes? In some cases, courts have provided clear answers—although this varies between jurisdictions. In others, the law may not be entirely clear. Notwithstanding, judicial opinions and statutes offer principles that guide determinations about post-termination survival. I intend to discuss principles that apply to that analysis in a subsequent blog.
