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Well, it’s been a while for a Boilerplate Blurb, but here is one that cuts to the chase (pun intended). The severability (aka savings) clause is used to keep a contract and its various provisions intact if parts of it are deemed illegal or unenforceable in a court.  Why? With written agreements being so long today, and business deals operating as ongoing transactions it is clear that sometimes something once was legal when first drafted may become illegal or unenforceable as time goes on.  However, is that one reason to throw out the whole contract?  Probably not.  Therefore, a severability clause will be used to save parts of the agreement even if other provisions are rendered inoperable, and they read something like this:

If any provision of this Agreement is declared invalid by a court of proper jurisdiction, the provision is affected only to the extent of the invalidity, so that the remainder of that provision and all remaining provisions of this Agreement will continue in full force and effect.

However, sometimes some parts of a contract are so essential the purpose of the contract that if they are voided the severability clause states that the whole contract should be voided.  Finally, it should be noted in many legal jurisdictions, such a clause shall not be applied if it fundamentally alters the contract.

Since it is legislative season here in Hawaii, you should also know that when drafting legislation we attorneys like to use a severability clauses to save laws should the be deemed unconstitutional. This represents another facet of the interplay between the judicial and legislative branches.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

As a transactions attorney that drafts agreements for businesses I have found that explaining what certain clauses do is beneficial to the client and organization.  Therefore, today’s Law in the Brief covers Act 139.   Also lookout in the future I will be doing little posts on boilerplate language to help you understand what is going into an agreement.

General Overview

This new law aims to help consumers by regulating the language used for contracts with automatic renewal clauses.  Act 139: Relating to Contracts, requires the following:

  • use of clear and conspicuous disclosure of automatic renewal clauses and cancellation procedures for all consumer contracts and offers with an automatic renewal provision and additional disclosure for contracts with a specified term of twelve months or more.

This new law will be assigned a number under Chapter 481 of the Hawaii Revised Statutes, which is the Fair Trade Regulations chapter.  Specifically, it will be under Part I, the Unfair Practices Act.  Currently, there are about eleven states that have enacted similar disclosure requirements at the inception and immediately prior to the renewal of the contract type of laws.

The Rationale

The lawmakers hope is that with the use of “clear and conspicuous” language (as defined by the Federal Trade Commission’s standard) that this gives consumers a change to be fully apprised of the situation.  Namely, that there is an automatic renewal clause and what steps they have to take in order to stop the contract from renewal.
Basically, this is an attempt to shift the burden back to the entity issuing the contract so that consumers may not be bound to a contract for a period longer than they anticipated or finding themselves stuck with something they do not want.

Exemptions

Act 139 applies to almost everyone selling things to people under a consumer contract that is for a specific term of more than one month and contains n automatic renewal clause for a term of more than one month.  However, there are some exemptions made to certain entities:
  1. Financial Institutions, for the activities regulated under under Chapter 412);
  2. Insurers, for the activities regulated under their respective chapters, as follows:
  3. Insurance companies(Chapters 431);
  4. Mutual benefit societies (Chapter 432);
  5. HMOs (Chapter 432).

Last Word

If you are an organization that does not fall under the exemption you will need to take a look at your agreements and your processes of notification. While, the law is in effect, the substantive portion does not go into effect until next year, July 1, 2012.  Therefore, it gives you some time to review.  So consider the following questions
  1. Do you let the consumer know what the terms of automatic renewal are?
  2. Is it clear and conspicuous in the agreement?
  3. Do you have a system that monitors contracts and sends out notices when their term is almost up?
These are some of the things to think about and have an attorney conduct a legal audit and review of all your contracts so you can update them.  By the way, if you don’t know what “clear and conspicious” means in terms of written agreements this is the definition:
  1. means in larger type than the surrounding text;
  2. in contrasting type, font, or color to the surrounding text of the same size; or
  3. set off from the surrounding text of the same size by symbols or other marks in a manner that clearly calls attention to the language.

If you liked this post or any of my other series please “Subscribe” to this blawg to receive e-mail updates.  I would recommend subscribing, as I will be doing the Boilerplate Blurbs (explaining regularly used clauses) sporadically.  In addition, follow me on Twitter and “Like” me on Facebook.

If you need to contact me directly, please e-mail me at Ryankhew@hawaiiesquire.com.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.