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Divisible Contracts

Terms:

Divisible Contract:
A contract in which the parties’ performances are divided into individual matching pairs of duties to perform so that failure to perform on one element of the contract does not necessarily put the promisor in breach of the entire contract.


A divisible contract is a contract in which the parties’ performances are divided into matching pairs of duties to perform that the parties consider equal. Divisible contracts are similar in concept to installment contracts. For example:

Sunshine and Squeeze Me enter into a contract under which: Sunshine will ship Squeeze Me one thousand bushels of Navel oranges in the first month and Squeeze Me Will pay $5 per bushel; Sunshine will ship one thousand bushels of Valencia oranges in the second month and Squeeze Me will pay $6 per bushel; Sunshine will ship one thousand bushels of Blood oranges the third month and Squeeze Me will pay $7 per bushel; Sunshine will ship one thousand bushels of grapefruits in the fourth month and Squeeze Me will pay $8 per bushel. In the fifth month, Sunshine will send Navel oranges again and the cycle will continue for a period of two years. This is a divisible contract because we can apportion Sunshine’s and Squeeze Me’s performances into matching pairs which the parties treat as equal and matching.

The rule with divisible contracts is that a party that performs one or more parts of the contract is entitled to collect the contract price for those parts even if he breaches other parts of the contract. 

To put this rule into the context of our last example, if Sunshine ships the Navel oranges in the first month and the Valencia oranges in the second month but ships lemons in the third month, it has breached the part of the contract that requires it to send Blood oranges in the third month. However, according to the rule, because it has performed on the first two months of the contract, it is entitled to collect the contract price for the Navel and Valencia oranges, even though it breached its duty to ship Blood oranges at the beginning of the third month.