This Agreement shall come into effect on the date of the last signature of this Agreement and shall continue in force indefinitely unless terminated in accordance with clause [X] below.
This clause specifies the effective duration of the agreement. It sets out:
1) The agreement will come into force as soon as it has been signed by both parties. The date of the last signature marks the start date.
2) The agreement will then continue indefinitely with no fixed end date. There is no predetermined termination after a specified period of time.
3) However, the agreement can still be terminated earlier in accordance with a termination provision in clause [X] referenced in the term clause. Clause [X] will specify the circumstances in which termination is permitted and the process to be followed.
4) If no termination provision is included or termination does not occur per the terms of clause [X], the agreement will remain in effect for an unlimited duration.
In short, this type of clause aims to:
1) Provide certainty as to exactly when contractual obligations and rights will become legally binding, even if signature dates for the two parties differ.
2) Establish an indefinite term as the default duration to avoid the agreement terminating automatically after a fixed initial period. Especially for long-term agreements, indefinite terms with termination rights are common.
3) Give flexibility for the agreement to still come to an earlier end by referring to a separate termination clause. This allows for arrangements to be made in advance for permissible grounds and procedures to terminate if required.
4) Require positive action - following the agreed termination clause procedures - for the agreement to be ended. Without termination actively occurring as specified, the indefinite term will persist.
So the purpose of a clause like this is to document precisely when the agreement becomes effective while keeping it in force for potentially an unlimited duration unless and until one of the parties positively acts to terminate it through the mechanisms permitted in clause [X].
An indefinite term with termination rights essentially aims for maximum potential longevity and security of the agreement but with flexibility for ending it when circumstances demand.
Early commercial contracts typically specified a fixed term, after which the agreement would automatically terminate.
They provided certainty but little flexibility. As commercial relationships became more sophisticated, fixed terms became problematic. They failed to reflect the potential for long-term cooperation or the need to end agreements as circumstances change.
Through the 19th and 20th centuries, indefinite terms grew popular as a solution. They avoided arbitrary cut-off points, allowing beneficial arrangements to continue uninterrupted as long as parties wished. However, without provisions for termination by notice, indefinite terms could also effectively lock parties into agreements permanently. initial wariness around indefinite terms declined as termination rights became standard inclusions.
Courts also initially viewed indefinite terms as creating "perpetual" contracts that could bind parties indefinitely. This contradicted the principle that only temporary contractual relationships were enforceable. Case law emerged upholding indefinite terms when paired with reasonable notice periods for termination, e.g. allowing reasonable time to make alternative arrangements. Indefinite duration came to be seen as merely implying terminability within a "reasonable" time.
In response, contract drafters began pairing indefinite terms with express termination clauses stipulating: permitted grounds for termination (e.g material breach); required form of notice; and periods of notice that were presumptively "reasonable". These curtailed uncertainty while enabling flexibility. Certain standard forms of termination clause developed, e.g. allowing termination "without cause" on 30-90 days' notice.
Today, an indefinite term with tailored termination rights is commonplace in long-term commercial agreements. Some standardization of notice periods, termination grounds, and procedures exists across industries and contract types but provisions remain highly customized to suit specific parties and relationships. Termination "for convenience" or "without cause" on notice is also now widely accepted, counter to historical skepticism about potentially "perpetual" contracts.
In summary, an initial tension between fixed terms providing certainty and indefinite terms enabling flexibility was resolved through standard inclusion of termination clauses. They allow potentially unlimited duration while protecting against either party being locked in permanently. The historical trend reflects a recognition that contracts often endure for the long term, underpinning ongoing commercial dealings, but must also provide an exit when relationships or situations change.
The level of termination rights stipulated depends on the nature of the contract and bargain reached between parties, but their pairing with indefinite terms is now deeply ingrained as good contractual practice.