When One Party to a Contract Dies
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.