Many contracts contain provisions specifically setting out what happens when things beyond the control of either party render performance under the contract impossible. These are often called force majeure clauses, and are typically meant to cover so-called “Acts of God.” Since contract laws vary from state to state, it is necessary to specify the events or occurrences that would qualify as force majeure or act of god.
Generally, death or illness of one of the parties to a contract is not considered a force majeure. However, under general contract principles of contract, if death or illness renders it impossible for that party to perform their side of the bargain, they are excused.
However, in case of contracts, it is possible to specify what will happen in case either of the parties die or contract some illness that makes the performance of the contract impossible. For example, a contract can have a “hell-or-high-water” clause specifying that payment is to be made no matter what happens.
However, when the contract does not specify what is to happen in case of death or illness of the parties, the contract generally takes either of the two course.
Generally, if it is a seller who cannot perform his/her part of the contract, and a deposit or pre-payment has been paid, the buyer should often get back the money already paid. If the seller’s side has already been partially performed — such as a construction job half completed — the buyer must still pay for the work that was done before the seller’s death or illness cut performance short.
In case a buyer dies or falls ill before making full payment (but after receiving the contracted goods or services), the seller can seek repayment from the deceased buyer’s estate. This is typically done through probate.