What Are Divisible Contracts?
Divisible contracts are contracts in which each party's performances are divided into matching pairs of duties.3 min read
Divisible contracts are contracts in which each party's performances are divided into matching pairs of duties. This is done so that a failure for the performance of one aspect of the contract will not necessarily result in a breach of the entire contract. These concepts are similar to the concept of an installment contract.
Example of a Divisible Contract
An example of a divisible contract would be a smoothie company that utilizes contracts with vendors to secure their orders for fresh fruit. The contract is created between the company and the vendors and is as follows:
- For the first month, the company will purchase 500 bushels of Gala apples at a rate of $7 per bushel.
- In month two, the company will require a shipment of 500 bushels of Fuji apples at a rate of $8 per bushel.
- In month three, they will receive 500 bushels of Pink Lady apples at $9 per bushel.
- In month four, they will receive 500 bushels of Honeycrisp at $10 a bushel.
- After that, the same cycle continues throughout the next three years.
This agreement would be considered a divisible contract because each performance is set in matching parts between both parties to the contract. If the vendor supplying the fruit were to accidentally ship the customer pomegranates in the third month instead of the apples, they would have breached the contract. However, since they had successfully performed the first three months of the contract, they will be entitled to payment for that since the breach did not occur until the delivery in month four.
A divisible contact can also be used for companies that order multiple products from one vendor such as a convenience store that may order chips, snacks, candy, and soda all from one vendor but separated to make the contract divisible.
Severable and Indivisible Contracts
A contract is severable if it is unenforceable and remains in effect even though the provisions of it have been voided. For an altered contract to still be in effect, the portion that has been stricken by the court must not alter the original purpose of the contract. Additionally, the contract must still be grammatically correct even after the portions have been edited.
If these conditions are not met, the contract will be deemed severable. A severable contract can also be formed if the parties that are entering into the contract do not consider it vital to perform obligations together.
An indivisible contract is formed in situations such as when a store hires a vendor to provide them with a variety of products, for example, snacks, candy, and soda, in one clause. Typically, these types of contracts will have everything considered in a lump sum instead of divided.
A contract can contain both illegal and legal clauses, and if the contract goes to court, they will attempt to enforce the legal portions of the contract if the contract is already considered severable. A severable contract can also be created from actions that occur if the contract goes to court.
You can also include a severance clause in the original contract which states that if any contractual cause could be considered illegal, then the phrase can be stricken from the contract as long as it does not deviate the contract from its original purpose.
A divisible contract is similar to other contracts that are entered into by the same parties and are similar in terms though they act independently from each other.
Changes In Washington Practice Report Divisible And Indivisible Contract
There has been a new section of Contract Law added that deals with both indivisible and divisible contacts. The new section states that the contracts can be divisible or indivisible depending on what the intent of the parties is. For example, a fisher may agree to share the proceeds of a fishing venture and have each venture separate which would make the contract divisible. If the contract was created to cover the entire fishing season that would be an indivisible contract
The difference between indivisible and divisible contracts has also been brought up during discussions of plea bargains in the criminal court system where the court ruled that the original intent of the contract will determine which type of contract is formed.
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