Contractual survivorship clauses

By Steve Blackhurst
July 6, 2006

No business likes to discover that it is a party to a contract that is unclear.  Here is an example:  Company A enters into a one year distribution agreement with Company B.  The contract includes a survivorship clause that defines the specific contractual provisions that remain in effect after the termination of the contract.  The contract also provides for all contract disputes to be resolved by arbitration and for the contract to be governed by Oregon law.  Unfortunately, neither the mandatory arbitration provision nor the choice-of-law provision is included in the list of contractual provisions that survive termination of the contract.

After the contract terminates a dispute develops between the parties.  Each company asks its respective lawyer if arbitration is required or if litigation is possible.  Each also asks if the post-termination dispute is governed by Oregon law or the law of some other state.  Their lawyers research the issues and then tell their respective clients that they cannot give a definitive answer.  The contract is ambiguous on its face so the arbitrator or court has to determine what the parties intended when they did not include the arbitration clause and choice-of-law clause in the list of clauses that survive the contract.  There is case law supporting either possible interpretation of the contract.

Both companies are frustrated and unhappy with the legal system and probably with their lawyers.  The solution:  when drafting a contract with a survivorship clause, make certain that both the dispute resolution provision and the choice-of-law provision survive the termination of the contract.  If, for some reason you client does not want those provisions to survive, say so explicitly in the agreement.

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