Sometimes a contract that lacks a renewal or extension clause will expire while the principals to the agreement continue to do business together in the same fashion. However, it is not legally possible to revive an expired contract — in the eyes of the law, once a contract has expired, it no longer exists. And operating under an expired contract may lead to a substantial breach if it continues.
Courts have typically taken one of the following three approaches when parties continue to perform under an expired contract:
- The contract and all its terms continue to exist for a reasonable time period beyond the express termination date. The definition of “reasonable time period” varies by jurisdiction.
- The contract is found to be expired and the parties have entered into an implied-in-fact contract. An implied-in-fact contract is an agreement that the parties have not explicitly entered into, but is implied by their behavior.
- There is no longer a contract between the parties. Even if a court determines that no contract exists between the parties, one party may recover from the other by claiming there is a contract implied-in law. A contract implied-in-law is really not a contract at all, but a rule of law that requires one party to compensate another for services rendered.
If both parties wish to continue under the same provisions as the expired contract, they can execute a new agreement with a new term, which can then be backdated to fill the lapse between the old and new agreements.
To avoid situations where contracts lapse, you can create agreements with an automatic extension clause. This clause will automatically extend a contract for increments of time agreed upon by both parties. Either party may decline to renew the contract simply by informing the other party of their intent not to renew before the initial term ends.
Business litigation is complex. Skilled representation is necessary. Williams Mestaz, L.L.P., is a law firm with decades of experience in commercial litigation, including business divorce, aviation, and high stakes litigation. Contact us at (602) 256-9400 and schedule a time to meet with us today.