Define Divisible Contract: Everything You Need to Know
To define divisible contract, it is a contract in which the duties to be performed by the participating parties are divided into matching pairs.3 min read
To define a divisible contract, it is a contract in which the duties to be performed by the participating parties are divided into matching pairs such that both parties consider the duties to be equal. The duties in each pair exist and can be performed independently. An example of a divisible contract is an installment contract. The performance of a segment does not preclude the obligation of the other party from performing the other segments.
For instance, Alekra and Manning enter into a contract where the performance of each is as follows:
- In the first month, Alekra will ship 1,000 pounds of building materials to Manning and Manning will pay Alekra $5 per pound.
- In the second month, Alekra will ship 1,000 pounds of wiring materials to Manning and Manning will pay Alekra $6 per pound.
- In the third month, Alekra will ship 1,000 pounds of roofing materials to Manning and Manning will pay Alekra $7 per pound.
- In the fourth month, Alekra will ship 1,000 pounds of fencing materials to Manning and Manning will pay Alekra $8 per pound.
- In the fifth month, Alekra ships building materials and the cycle keeps on going for a period of three years.
Such a contract is divisible since the performances of Alekra and Manning can be apportioned into equal pairs. More importantly, the agreement treats each pair as equal and matching. It should be noted that in divisible contracts, the party that carries out one or more sections of the contract is entitled to collect the agreed-upon amount for those parts, even if other sections of the contract are breached.
In the above example, if Alekra ships building materials in the first month, wiring materials in the second month, and PVC materials in the third month, it has breached the section of the contract that obligates it to send roofing materials on the third month. However, since Alekra has performed the part of the contract that covers the first two months, it is entitled by law to collect the contracted price for the building and wiring materials, though it breached the section of the contract covering the third month.
A contract is severable if, by its purpose and nature, it is susceptible to apportionment and division, and has multiple parts that are not dependent on each other and not intended by both parties to be so. Such a contract is one where it is established that individual partial performance on one side is exchangeable with individual partial performance on the other. Failure to carry out one of the partial parts does not stop recovery for the performance of another. Various consequences are applicable once a particular contract is said to be divisible.
If the exchangeable performances can be divided into a corresponding pair of partial performance, such that individual parts of the corresponding pairs is regarded by both parties as equivalent, then performance of a partial pair by one party forces the other party to perform the corresponding partial pair, just as it would be if the contract contained only that particular pair of performances.
Divisible Contracts Are Still Single Contracts
Consequently, if one party breaches part of the divisible contract, that party is not barred from obtaining any and all considerations allocated to the contract section that was performed. However, this doesn't mean that the pairs of corresponding parts are treated as separate contracts since divisible contracts are still single contracts. As such, the customary rules governing the formation and execution of contracts are applicable.
Performances Are Not Exchangeable Under Two Contracts
If two separate contracts exist between the two parties, the performance of one party in the first contract is not exchangeable with the performance of the other party in the second contract. Also, the failure of one party to perform the duties under one contract has no effect on the obligation of the other party to perform its duties stipulated in the second contract.
If there are uncured material failures by both parties, either party may claim compensation(s) for the parts already performed; however, either party cannot enforce that contract on any of the other pairs of the corresponding part. These rules provide that contracts which are induced by fraud are rendered voidable, thus allowing aggrieved parties to defend themselves against lawsuits that try to enforce the terms of the agreement.
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