When One Party to a Contract Dies

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When One Party to a Contract Dies

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If one party to a contract dies, the deceased person’s estate can usually simply enforce the agreement the same as if the original party to the contract were still alive. However, things can get even more complicated when dealing with family. For example, let’s say that one person loans money to another, such as when a parent loans money to a child. Is the contract still enforceable even when one party to a contract dies? Being a lawyer, my answer is, “It depends.”

For purposes of this post, I’m going to assume that there once was a valid contract. In other words, I’m not going to analyze the requirements to form a valid contract (such as offer, acceptance, lack of valid defenses, etc.). And I’m not going to analyze whether it was required to have been in writing (such as for a contract to transfer real property). However, I will discus some of the trickier issues that can arise when a person who is part of a contract (in other words, a “party to the contract”) dies.

Statute of Limitations Issues. A statute of limitations is a statute that limits the amount of time within which you can bring a legal action to enforce a contract. In Arizona, for example, a legal action to enforce a written contract signed in Arizona must be brought within six years of the breach. See A.R.S. 12-548. But what happens when we are dealing with family members?

Imagine this example: A parent loaned money to a child 10 years ago, and the parties signed a written loan agreement. The loan agreement stated the amount that was due and the interest rate. However, it did not provide a due date. The parent just died. Is the contract enforceable by the parent’s estate? Probably yes, unless some other defense applied, such as laches.

How about if the contract required periodic payments, plus an optional acceleration clause on the due date of each matured but unpaid installment? In that event, the six-year period would begin to run on the due date of each matured but unpaid installment. As to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause. Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 930 P.2d 1007, 233 Ariz. Adv. Rep. 47, 1996 Ariz. App. LEXIS 281 (Ariz. Ct. App. 1996).

Discovery Rule. This is the rule that a claim accrues when the plaintiff knew or should have known by exercise of reasonable diligence that the plaintiff had been injured. Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 898 P.2d 964, 193 Ariz. Adv. Rep. 3, 1995 Ariz. LEXIS 55 (Ariz. 1995). The important inquiry in applying the discovery rule is whether the plaintiff’s injury or the conduct causing the injury is difficult for the plaintiff to detect. Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 898 P.2d 964, 193 Ariz. Adv. Rep. 3, 1995 Ariz. LEXIS 55 (Ariz. 1995).

Dead Man’s Statute. Arizona’s “Dead Man’s Statute” provides that “neither party shall be allowed to testify against the other as to any transaction with or statement by the testator…unless called to testify thereto by the opposite party, or required to testify thereto by the court.” A.R.S. § 12–2251. While most other states have eliminated their Dead Man’s Statutes, Arizona still has such a statute. However, it is discretionary. Personally, I have raised the Arizona Dead Man’s Statute multiple times over the years. In the context of a dispute over a written promissory note, the issue might be whether the debtor made payments that he claims should have reduced the debt. Verbal discussions with the deceased person over whether there was an agreement that payments or services (such as repairing the deceased person’s roof) were to be applied to the amount owing on the debt would usually fall within the Dead Man’s Statute. However, I have yet to witness a probate judge or commissioner actually keep evidence out based on the statute. Similarly, such discussions also typically fall within the definition of hearsay, but such hearsay statements are usually allowed in as freely as the shirttail relatives that often attend probate hearings.

This is by no means an exhaustive discussion. If you are trying to enforcement a contract against a deceased person’s estate (or if you are in charge of an estate involving such a situation), you really need an attorney.

If you have had any experience involving the enforcement of a contract when one of the parties has died, please share below.

 


10 Comments

WilliamDer

June 24, 2016at 4:50 am

Great, thanks for sharing this post.Really looking forward to read more. Much obliged. Clewell

    Paul Deloughery

    June 29, 2016at 10:13 am

    Thank you for the feedback. Paul Deloughery

Simone

July 14, 2016at 10:32 am

My father signed a contract with Just Energy. He has since passed away. My mother sold the house to me. Am I legally responsible to continue paying on this bogus contract? How do I get out of it without paying a penalty?

    Paul Deloughery

    July 21, 2016at 2:04 pm

    An attorney would need to read the contract. What state is the house in?

Christine

August 10, 2016at 10:58 am

My significant other’s father, who is deceased, may or may not have had a verbal contract with an excavation company and another fellow who wanted to plant hay on the farm. According to the invoice, the work was done in 2010. My significant other’s father has been dead now for 3 years. No written contract has ever been found regarding the issue. The excavation company is now bringing his children to court for payment. The company will not provide his children with the written contract, only invoices and bills. His daughter is the executor of the estate and even she is unable to get any information from the company except bills and invoices.
The attorney who is working with my significant other and his siblings is also a close friend of the excavation company owner and keeps telling the kids to just ‘pay the amount and deal with it’. He also says that they don’t have a leg to stand on in court because the owner of the excavation company has a lot of money for attorneys and, quite frankly, me nor my significant other or his siblings have that sort of money. He’s stated his friendship will be affected with the owner of the company and so on and so forth. (Mind you, the attorney is not hired, but my significant others uncle and he is doing this out of favour). We simply don’t have the $15,000 to pay this company and nor have we found any single records of any contracts. If the contract made was a verbal contract, dead men tell no tales and none of the kids have any knowledge of a verbal contract ever being made nor were present if said contract ever existed.
With no written contract, are the kids still responsible for paying this company??

    Paul Deloughery

    August 12, 2016at 11:09 am

    Thanks for writing. Contact a lawyer in the state where your father lived. Assuming we’re talking about Arizona, any claims are barred two years after the person’s death. I think most states have a similar rule. (But don’t quote me on that.) If the father lived in Arizona, give us a shout at 602-443-4888. Otherwise, contact an attorney in the correct state. Good luck!

Trina

September 14, 2016at 4:24 am

In my divorce agreement in Oklahoma in 2004, my ex-husband agreed to pay my father, a Texas resident, $15,000. My father passed away in March 2016 in Texas. My father never received any compensation. Is the contract still enforceable? My ex-husband still lives in Oklahoma and I live in Texas.

    Paul Deloughery

    September 19, 2016at 4:06 pm

    Thanks for the question. However, you need to contact an Oklahoma attorney to enforce the divorce agreement. I would guess (but don’t quote me because I’m not an Oklahoma attorney) that you can get your legal fees tacked onto the agreement if you need to hire a lawyer to enforce it. Good luck.

S RODRIGUEZ

September 30, 2016at 3:04 pm

MY DAUGHTER GOT A RENT TO OWN HOUSE THE MAN DIED 2 MOS LATER IS THIS THE CONTRACT STILL VALID

    Paul Deloughery

    October 15, 2016at 1:52 pm

    You need to see an attorney about this. It’s hard to say without looking at the documentation.

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