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What is a Divisible Contract

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What is performance of a “divisible contract”?

A divisible contract is one that has multiple parts or is divided up into segments. Each segment exists and can be completed independently. That is, each segment has duties that require completion. An installment contract is an example of a divisible contract. Each installment has duties or obligations that must be completed. Performance of one segment does not relieve a party from the obligation to perform the other segments. Further, breach of one segment does not excuse performance of the other segments by the parties.

  • Example: I enter into a road construction contract that has three separate and distinct duties of completion. I complete the first phase by constructing a specific stretch of road that entitles me to compensation. I have significant delays in constructing the second stretch of road. I have materially breached this divisible portion of the contract. I still have the duty to complete and be compensated for the third divisible contract.

Discussion: Do you agree that the breach of any phase of a divisible contract should not constitute breach of the entire contract? Why or why not?

Practice Question: Clark’s construction company wins the bid to build a large commercial building for the city. The contract is broken into multiple, divisible pieces. Clark completes the first phase consisting of laying the building foundation, which simultaneously working on the second phase. This second phase regards constructing a parking garage beside the building. Clark has some serious difficulties and is unable to complete this phase on schedule. What is Clark’s legal status with regard to the third phase of the contract?

Proposed Answer
  • A divisible contract is one under which the obligations and performance of the terms of the contract are divided into different separate segments. These segments may be independent from each other and stand to be performed separately. Parties may include in the terms how such duties must be performed. A party may be required to perform one obligation at a time until all obligations are completed according to the terms under the contract. Failure to perform one part of the obligations (or stage of a divisible contract) may be a breach. A breach of one stage does not relieve a party from obligations to perform the remaining stages. In this situation, Clark is still obligated under the contract to complete the third phase of the contract. Clark could be liable for breach of the second phase of the contract. In practice, these types of contracts include language that deals with situations in which a party fails to fulfill one part of the divisible contract. These provisions generally provide the contracting party the option of cancelling the remaining stages of the agreement.

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