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You had a contract with someone and that person died

Contract and pen, with faint image of hands shaking overlaid on top

If you had a contract with someone and the person died, what happens? That’s what I’ll be discussing in this post. Normally, the mere fact that one party to the contract died does not affect whether it is enforceable. In other words, the contract remains enforceable (unless an exception applies). The obvious complication is that the deceased person’s estate may have to go through probate. If the deceased person had a trust, you may have to deal with the trustee of that trust.

That being said, 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.” Here are some of the issues that can come up:

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. (Laches means that you just waited too long to go to court and enforce the agreement. The lesson is: Don’t wait if you think you have a legal claim. See a lawyer ASAP.)

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.

The Lesson: Be Proactive.

If you had a contract with someone and that person died, you should contact a lawyer right away. Don’t just assume that everything will be okay. If you wait, the money could get paid out of the deceased person’s estate and you’ll be left holding the bag.

Conclusion.

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. We’re happy to help you. Give us a call at 602-443-4888. Or send us a note to paul@magellanlawfirm.com.

This blog post was not intended as legal advice. Every situation is different. If you want legal advice, please contact us. We will have you sign an agreement establishing a lawyer-client relationship.