Key Takeaways

  • A severable contract (also called divisible contract) is one where separate promises or parts can be enforced independently, so a breach in one section does not invalidate the entire agreement.
  • Severability is often ensured through a severability clause, which allows a court to strike out unenforceable provisions while keeping the rest intact.
  • Courts apply tools such as the blue pencil test to determine whether a contract remains valid when a portion is removed.
  • The distinction between divisible and indivisible contracts is based on whether obligations and consideration can be split into separate, enforceable pairs.
  • Severable contracts are common in installment sales, service agreements with multiple tasks, and supply contracts with separate items or shipments.
  • Businesses benefit from severable contracts because they preserve enforceability and reduce the risk that a single invalid term undermines the entire deal.

What Is a Severable Contract?

A severable contract contains several separate agreements, such as for different pieces of equipment, shipments, or sales, that are formed between the same parties. If a breach of one of the severable contracts occurs, this will not count as a breach of the overall contract or the other agreements. Breaching one part of the contract doesn't give the other party an excuse to fail to honor the terms of any other contracts or agreements that were not breached.

To be considered severable, the contract must include at least two promises. Both promises must be able to be enforced independently from one another. Failing to deliver on one of the promises made in the contract doesn't result in a breach of the whole contract. Other names for severable contracts include several contracts and divisible contracts.

If a contract can be divided on either side, it may be considered severable. It must correspond with the consideration on both sides, such as a contract for one party to perform certain labor tasks in exchange for payment from the other party.

For example, Jones Widgets has a contract with Hearty Hardware for 100 rolls of plastic, 12 space heaters, 2,000 pounds of screws, and a pallet of roofing tiles. The contract outlines the price for each product. Jones Widgets stops producing screws, so the company is not able to deliver on that portion of the contract, but the other items outlined in the contract would still be enforced between the two parties.

When a contract can remain in effect, despite having several voided provisions, it is considered severable. A contract must pass the “blue pencil test,” which means that any phrase or term stricken from the contract cannot alter the original purpose of the contract. After making edits, the terms and language in the contract must be grammatically correct and make sense. If these requirements no longer apply, the contract is not considered to have become severable.

If the parties involved in the contractual agreement don't believe that all actions being performed together are essential to the overall purpose, the contract can become severable.

Severability Clauses in Contracts

A severability clause, sometimes called a “partial invalidity” clause, is a common feature in severable contracts. Its purpose is to ensure that if one provision of the contract is found invalid or unenforceable by a court, the rest of the contract remains effective. For example, an overly broad non-compete provision might be struck down, but the rest of the employment contract would continue to bind the parties.

Without such a clause, there is a risk that the entire agreement could be invalidated if even a single term is unenforceable. Courts may still apply severability principles even if a clause is not explicitly included, but having one written into the contract strengthens the parties’ intent and provides more certainty

Divisible and Indivisible Contracts

A divisible contract involves performances by both parties that have been divided into pairs of required duties. These pairs must be matching and considered equal by both parties. In concept, a divisible contract is similar to an installment contract. For example, if a convenience store orders its candy, chips, and soda that are sold in the store in three clauses, this may be considered a divisible contract. If the store hired a vendor to supply the candy, chips, and soda in one clause, this would be considered an indivisible contract.

When determining whether a contract is indivisible or divisible, the first step is looking at the terms of consideration. If the consideration is provided in a lump sum format, this contract is usually classified as indivisible. However, when the consideration includes line items or separate clauses for all exchanged items, the contract may be severable. When a contract contains clauses that are legal and illegal, a court can only enforce the legal clauses, even in severable contracts. During a legal proceeding, a court will often use the blue pencil test to create a severable contract.

In another example, two companies called Squeezers and Sun's Rays enter into a contract. The terms outline:

  • Sun's Rays will ship 100 bushels of navel oranges in month one at a price of $10 per bushel
  • Sun's Rays will ship 100 bushels of limes in month two at a price of $11 per bushel
  • Sun's Rays will ship 100 bushels of blood oranges in month three at a price of $12 per bushel
  • Sun's Rays will ship 100 bushels of lemons month four at the price of $12 per bushel

In the fifth month, the shipment of navel oranges will take place and the cycle will continue. The term of this contract is three years. This would be considered a divisible contract because the performances of both parties can be split into matching pairs. Both parties would view their performance requirements as matching and equal.

Legal Tests for Severability

Courts use different approaches to determine if a contract is severable:

  • Blue Pencil Test: A judge may literally “strike out” the unenforceable provisions, leaving the remainder intact, provided the contract still makes grammatical and legal sense.
  • Intent of the Parties: Courts examine whether the parties intended each promise or obligation to stand on its own or whether the entire agreement was meant to be treated as a single whole.
  • Consideration Analysis: If each part of the contract has its own corresponding consideration (such as itemized payments), it is more likely to be deemed severable

Common Examples of Severable Contracts

Severable contracts appear in many commercial contexts:

  • Supply Agreements: A contract for multiple products with separate pricing terms—such as raw materials or different goods—where each product can be enforced independently.
  • Installment Sales: Agreements to deliver goods or services in recurring installments with payments tied to each delivery.
  • Service Contracts: Employment or consulting contracts in which obligations are divided into distinct tasks or projects, each supported by its own compensation.
  • Licensing Agreements: Intellectual property licenses that apply to different territories or uses, which may be severable if one jurisdiction deems a clause invalid.

These examples illustrate how severable contracts minimize risk: one breach or voided term does not jeopardize the entire arrangement.

Benefits and Risks of Severable Contracts

Benefits:

  • Preserve enforceability even if one clause is invalid.
  • Provide flexibility in multi-part agreements.
  • Encourage continued performance by both parties despite partial breaches.

Risks:

  • Overuse of severability may encourage sloppy drafting.
  • A poorly worded clause may cause disputes about what remains enforceable.
  • In some cases, courts may refuse to apply severability if doing so changes the essence of the agreement.

Because enforceability can vary depending on state law and how the contract is drafted, businesses should consult legal counsel when including severability clauses.

Frequently Asked Questions

1. What is the purpose of a severability clause?

It ensures that if one provision of a contract is invalid, the rest of the agreement remains enforceable.

2. How do courts decide if a contract is severable?

Courts look at the intent of the parties, the structure of consideration, and may apply the blue pencil test to remove invalid terms.

3. Can all contracts be severable?

No. Some agreements are indivisible if obligations and consideration cannot be separated without altering the core purpose of the deal.

4. What happens if a severability clause is not included?

Courts may still uphold the valid portions, but the absence of a clause increases the risk that the entire agreement could be invalidated.

5. In what industries are severable contracts most common?

They are frequently used in supply, service, installment sale, and licensing agreements where obligations and payments can be itemized.

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