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February 6, 2007 “Termination” and “Expiration”

During a recent in-house seminar, a participant took issue with one of my sample provisions, namely This agreement terminates on August 23, 2007. The participant argued that termination entails one or more parties’ ending a contract sooner than it otherwise would have ended; he said that in this case the correct word to use would have been expires.

At the time, I said something noncommittal and moved on. I’ll now take the opportunity to explain why I’d leave my sample provision as is. (To those seminar participants who ask awkward questions, thank you!)

One can readily find in legal reference works instances of termination used to refer to any means by which a contract comes to an end. Consider, for example, the following, which is from 17A Am. Jur. 2d. Contracts § 524: “A contract may be discharged by performance in accordance with its terms; in fact, this is the normal termination of every contract. A contract may also be terminated by the expiration of the time during which it is to remain operative.” In this passage, expiration is considered a form of termination rather than something distinct from termination.

This understanding of the relationship between termination and expiration can be found outside the realm of contracts. For example, the heading of 4 N.Y. Jur. 2d Appellate Review § 650 is “Expiration or other termination of order appealed from.” Again, expiration is just one form of termination.

On the other hand, it’s even easier to find contract language suggesting that expiration doesn’t constitute a form of termination. To select an example at random, a contract filed last week on the SEC’s EDGAR system contains the following: “All such charges and expenses shall be promptly settled between the Parties at the Closing or upon termination or expiration of further proceedings under this Agreement.” If expiration constituted a form of termination, logic would require that one omit “or expiration.” Innumerable similar examples come readily to hand. But that doesn’t mean you should emulate them.

The definitions of termination and terminate in Black’s Law Dictionary are consistent with the notion that termination includes expiration. Termination is defined as meaning “The act of ending something” and “The end of something in time or existence.” In other words, termination is both something you do and something that can simply happen. To the same effect, terminate is defined as meaning “To put an end to; to bring to an end” and “To end; to conclude.”

Interestingly, the definition of termination in Black’s contains a link to Corpus Juris Secundum Contracts § 422, which states that “The word ‘termination’ generally refers to an ending, usually before the end of the anticipated term of the contract.” But the one case that it cites for this proposition itself quotes the sixth edition of Black’s—the current edition is the eight—as stating that termination generally “refers to an ending, usually before the end of the anticipated term of the … contract.” It’s reasonable to conclude that the editorial staff of Black’s subsequently eliminated that limitation on the meaning of termination because they decided that it wasn’t warranted.

But a cardinal rule in drafting is to avoid, to the extent possible, relying on a court to construe a word in a particular way. So even if you, like me, consider that termination is best thought of as including expiration, it would be reckless to leave the matter open to question in a contract. In this regard, the provision the seminar participant questioned—This agreement terminates on August 23, 2007—poses no problem, in that there is no possible confusion as to its meaning. And if you use termination in this context, it follows that if elsewhere in the same contract you specify the consequences of termination, those consequences apply not only if the parties take steps to terminate the contract, but also if the contract expires.

But why not use expires in the provision in question instead of terminates? Because not only would it be unnecessary to do so, it would also lumber you with having to use elsewhere in the contract more ponderous constructions such as When this agreement expires or is terminated [or otherwise terminates] rather than just When this agreement terminates. (Note that using instead When this agreement is terminated would suggest that the stated consequences only apply if the parties terminate the agreement as opposed to letting it expire.)

By the way, one can dismiss out of hand the usage terminates and expires, as in This agreement will terminate and expire upon cessation of commercial operation of the Plant. Depending on the meaning of termination that you prefer, terminates and expires entails either inconsistency or redundancy.

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