DISCHARGE OF AN AGREEMENT BY OPERATION OF LAW

Introduction

The Indian Contract Act, 1872 is an important act which plays a major role when it comes to any types of contract made between two or more parties. It contains detailed provisions regarding the legal effects of the contract, punishment for violation of the contracts, when a contract gets discharged etc.  This is a very old act which was in existence even before India getting independence. It makes a legal effect to the contracts which are made between the parties. It limits the parties from making unnecessary legal contracts.

Discharge of contract

Discharge simply means to cancel or terminate something. So discharge of contract means to terminate the contract. The Indian Contract Act contains detailed provisions regarding the discharge of contract. There are various ways by which a contract gets discharged. Some of the ways by which the contract gets discharged are by performance, by breach, by lapse of time, by frustration, by supervening impossibility, by operation of law and many more.

By operation of law

One of the ways by which the contract gets discharged is by operation of law. The contract is said to be discharged by operation of law when the contractual duties of the parties are terminated due to the involvement of the law. The term operation of law refers to the components of the law that are automatically given.

While termination by operation of law implies that the duties or obligations have been ended as a result of the contract’s termination, discharge signifies that an individual or party has been released or emancipated from certain obligations. For example, when someone files for bankruptcy, any debt that a person has is discharged by law when they apply for bankruptcy. This does not indicate that the obligation to return the money was completed or cancelled, but rather that the individual is no longer legally obligated to pay their creditors. In a nutshell, the debt has been cancelled by law.

A contract gets terminated by operation of law in case of death, insolvency, material alteration, merger, lapse of time, loss of evidence of the contract and many more like ways like that.

Death:

If the contract involves the personal skills or ability of the promisor, the contract gets discharged or terminated on the death of the promisor.

For example 1: A, a singer made a contract with B to sing at the concert organised by B. but, while going for the concert, A met with an accident and unfortunately he died. In this situation, the contract gets discharged due to the death of the promisor, because it involves the personal skills of the promisor.

Example 2:  A and B agreed to marry each other. But before the date of marriage, A met with an accident and died. Here, the contract gets discharged by operation of law.

Insolvency

When a person is declared insolvent, he/she is released from all the liabilities incurred previously to the date of his/her declaration. With certain exceptions, the insolvent’s rights and obligations are transferred to an officer of the court known as the Official Assignee/Receiver. So, the contract also gets discharged by operation of law, if a person is declared insolvent by the court.

Material alteration

When one party to the contract makes any material alteration to the contract without the consent of the other, then the other party can avoid the contract  and the contract gets discharged by operation of law.

For example: If ‘A’ and ‘B’ entered into a contract to share the profit of their company in 5: 5 ratio. But, Later ‘A’ without the consent of the ‘B’ altered the contract and made it 3: 5 ratio. Here, the contract gets discharged by operation of law, as ‘A’ did the alteration without the consent of the ‘B’.

Merger of rights

Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract. In such a case, the contract may be discharged.

For example: ‘A’ was a tenant at ‘B’s house. So, here ‘A’ is having inferior rights over ‘B’s house. But later ‘A’ bought that house of ‘B’. Now ‘A’ has superior right over the house. Here, the previous contract gets discharged by operation of law as ‘A’s rights are changed from inferior to superior.

Lapse of time

A contract gets cancelled due to lapse of time. The Indian Limitation Act, 1963 talks about a particular time period by which the contract gets discharged. If the aggrieved party fails in filing the complaint within that stipulated time period, then the contract gets discharged by lapse of time.

For example: A owes rs.50,000 to B and the contract was that he will pay it in every instalments for the next 2 years. But he failed in paying even one instalment. B, later got busy and didn’t ask A about the money. After many years, he filed the complaint but it was discharged due to the lapse of time.

Loss of evidence of the contract

In the event that the only proof of the contract’s existence is lost, the contract is dismissed by operation of law.

Conclusion

The Indian Contract Act, 1872 talks about various types of contract and also how it gets discharged. The various ways by which the contract gets discharged are by performance, by breach, by lapse of time, by frustration, by supervening impossibility, by operation of law etc.

The discharge of contract by operation of law is mentioned in this article which takes place by various ways like death, insolvency, merger, material alteration, lapse of time, loss of evidence of the contract. The concepts discharge of contract by the operation of law and lapse of time both are technical and clarified by nature. They as legal terminologies are transparent enough for a common individual to understand them. Both these types of discharge of contract hold significance with respect to day-to-day activities. 

Reference

Discharge of contract by operation of law and lapse of time – iPleaders

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