Contracts involve a legal exchange of promises to complete an action, meet terms or complete an agreement. Parties breach a contract when the person fails to perform the duties assigned by the agreement, but death makes the performance of the duties impossible. While death voids many contracts, there are circumstances where a contract remains in force, even when one party to the agreement dies.
A valid contract has key elements, including the promise to do an action and a formal acceptance of that offer. The contract also requires a consideration, also called an inducement, to complete the action. Some states require a written document and others allow a verbal contract for valid contract agreements. Other required contract elements, including the capacity to contract and the legality of the contract, forbid any contracts made by people without the legal party to commit to the action. For example, a non-owner cannot sell another person's car. The action also must not violate the law or the contract is void. Barriers to complete the contract include revoking the contract, signing a contract with ambiguous terms, lack of formal details in the contract and incapacity or death of the person offering the contract.
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Federal, state and local laws typically void a contract when the any of the principle signers die. There are exceptions, however, to the general rule of voiding contracts when a party to the agreement dies. A contract with the option in place to void the agreement with the death of a party qualifies as a voidable contract and some states mandate other contract signers or the receiving party to the contract file a legal action to officially void the contract for agreements.
Certain conditions specified in a person's will create a contract commitment, even after the person dies. A donation or endowment paid over time, for instance, create a contract after death when the contract specifies the donation continues from the estate after death. Other contracts for donations after death include charitable and pooled-charitable trusts where people loan personal funds for use by non-profit agencies during their lifetime. These funds then convert to gifts to the non-profit organization upon the donor's death.
Escrow contracts signed to purchase or sell real property typically fail to close due to the death of one of the contract signers. When a buyer signs the purchase contract and also signs the official escrow closing documents and any applicable loan paperwork, the seller has a legal contract to force the estate to close the escrow. The buyer's heirs must then deal with the property as part of the estate of the dead person and clear the name of the deceased from the official property title before registering the new owner. The county registrar or assessor typically handles this procedure or the probate court in transactions using the court to settle an estate.
Any contracts signed by the deceased and another living person continue in force after the co-signer's death. This includes mortgages on real property where more than one borrower accepts the responsibility for the loan. The co-signers must contact county officials to transfer ownership on the property and also notify the lender to obtain official paperwork to file to remove the name of the deceased from the loan. The documentation required by the lenders and county officials varies, but typically the co-signer must document the death with an official death certificate.
- LexisNexis Contracts Capsule Summary - Chapter 12
- Iowa State University: CALT: Installment Contract Sale of Farmland Ruled Void; Roger McEowen; June, 2006
- LA Writer - Ohio Laws and Rules: 4123.82 Contract Indemnifying or Insuring Employer Void
- Vida Capital, Inc.: Glossary
- State of Wisconsin: General Provisions Relating to Fraudulent Conveyances and Contracts
- NOLO: How Joint Owners Can Transfer Survivorship Property After Death
- NOLO: Pooled Charitable Trust
- NOLO: The Charitable Trust