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Parties A and B signed a contract governed by New York law. There were three "conditions precedent" for the contract to take place.None of these conditions precedent had been fulfilled on the signing date, but the contract gave the parties a customary seven days to "true" these conditions.

Seven days passed and the three conditions precedent remained unfulfilled. There is a "severability" clause in the contract. The text reads "If one or more provisions of this agreement is found unenforceable under applicable law, the balance of the agreement shall be interpreted as if such provision were excluded, and shall be enforceable in accordance with its terms."

Does the lack of fulfillment of the "conditions precedent" mean that there is no contract? Or does "severability" mean that the rest of the contract is enforceable even though the key terms and preconditions have not been met?

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A severability clause means that any clause in the contract which is itself illegal, or which would make the contract illegal, or otherwise cannot be enforced according to the relevant law, is instead excluded from the contract as if it didn't exist.

This is an extremely common clause, especially where the contract is used in the same form across multiple jurisdictions. The law of these jurisdictions may differ e.g. in the ability for consumers to opt out of class action against harmful effects or for companies to provide no guarantee of longevity in a product.

This clause does not change the prerequisites, requirements, rights or obligations under the contract. The conditions must still be met for the remaining terms to have force.

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  • ...unless, I presume, the prerequisite was, or became, illegal? In which case the clause which requires it would be severed?
    – CCTO
    Aug 24, 2020 at 17:45
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    A contract for the sale of a substance, when that sale is illegal, is itself illegal and totally void. There's no need to consider each obligation separately voided. Anything changing hands would be considered a gift, because there is no contract under which its ownership was transferred and thus no cause for its return under some legally unfair use of the contract, and its return could not be enforced by civil suit. @supercat
    – user4657
    Aug 24, 2020 at 21:54
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    @supercat The far more typical scenario would be that you were selling a legal 100kg of a substance X for $10,000 and had a penalty interest clause for late payments of 60% per annum interest, even though usury laws capped penalty interest at 45%. The illegal interest clause could be severed from the otherwise valid contract. Or a contract might say it can only be modified in writing even though such clauses are void as a matter of law in your jurisdiction (as they are in CO). This wouldn't invalidate the larger contract, just this term. But you need an underlying completely legal transaction.
    – ohwilleke
    Aug 24, 2020 at 22:54
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    The contract is still valid if the exchange of substance X is excluded. Jurisdictions might sever that and maintain the rest of the deal, or declare the whole thing void and criminal because $Policy. It might be a really bad deal to pay that much money for that amount of substance Y, but that's the risk taken when entering illegal contracts, no? @supercat
    – user4657
    Aug 24, 2020 at 23:03
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    At that point you'd be looking at a renegotiation of the contract, or an arbitration/civil suit for a judgement on the contract. These things don't happen in a vacuum - both parties would surely be well aware of potential or upcoming changes in regulation, and include terms accordingly (if they have any sense, that is).
    – user4657
    Aug 24, 2020 at 23:12

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