Legal Definitions - Severable contract

A severable contract is an agreement that can be logically divided into separate, independent parts. This means that if one part of the contract becomes unenforceable, is breached, or cannot be completed, the other distinct parts can still remain valid and enforceable.

The concept of a severable contract is important for two main reasons:

• It allows a party who has performed only a portion of a contract to potentially recover payment for the completed, severable parts, even if the entire contract isn't fulfilled.
• It enables courts to strike down an illegal or problematic clause within a contract without invalidating the entire agreement, preserving the rest of the contract's terms.

Here are some examples to illustrate how a severable contract works:

• Example 1: Multi-Phase Service Agreement

  Imagine a small business hires a web development agency to perform three distinct services: first, to design a new company logo; second, to build a new e-commerce website; and third, to provide ongoing monthly website maintenance for one year. Each service is priced separately in the contract. If the agency successfully designs the logo and builds the website, but then fails to provide the agreed-upon monthly maintenance, the contract might be considered severable. In this case, the business would likely still be obligated to pay for the completed logo design and website development, even though the maintenance portion of the agreement was breached. The failure of one part does not nullify the obligation for the completed, distinct parts.

• Example 2: Combined Goods and Installation Contract

  Consider a homeowner who contracts with a company to purchase and install custom-built bookshelves in their study, and also to repaint the entire interior of their house. The contract specifies separate costs for the bookshelves (including installation) and for the painting service. If the company perfectly installs the bookshelves but then performs a very poor quality painting job that constitutes a breach of contract, a court might find the contract severable. The homeowner would still be required to pay for the bookshelves and their installation, as that part of the contract was fulfilled, but they would not owe for the unsatisfactory painting work and might even be entitled to damages for the breach related to the painting.

• Example 3: Employment Contract with an Unenforceable Clause

  An executive signs an employment agreement that includes standard terms like salary, job duties, and benefits, but also contains a non-compete clause that prohibits them from working for any competitor in the entire country for five years after leaving the company. If a court later determines that this non-compete clause is excessively broad and therefore unenforceable under state law (perhaps it's against public policy because it unfairly restricts the executive's ability to earn a living), the contract might be deemed severable. In such a scenario, the court would strike down only the unenforceable non-compete clause, allowing the rest of the employment contract—including the executive's salary, duties, and benefits—to remain fully valid and binding. This prevents the entire employment relationship from being invalidated due to one problematic provision.