Question

A contract is discharged by operation of law in ___________.

• A. by death of the promisor
• B. by insolvency of a party
• C. by unauthorized alteration
• D. any of the above three

Answer 1

The correct option is D any of the above three

After a contractual relationship has been established between the parties, there are several ways in which a contract can be discharged. This may occur by the actions of the parties, operation of the law or by events outside the control of the parties. A contract may be discharged independently of the wishes of the parties. There are rules of law that will discharge a contract in certain circumstances, such as:

• Merger- A simple contract is discharged by a deed made between the same parties dealing with the same subject matter. The lower form of contract is said to ‘merge’ into the deed.
  
• Bankruptcy- a party to a contract becomes a bankrupt under the Bankruptcy Act 1966 and is released from obligations under the contract and the other party may prove the debt in the bankrupt’s estate.
  
• Material alteration- Where one party to a contract makes a material alteration to the terms of a written contract without the consent of the other party, the party benefiting from the alteration is prevented from maintaining any action under the contract.
  
• Death- In case of contracts, which involve personal skill or ability, the contract is discharged or terminated on the death of the promisor. However, in other contracts, the rights and liabilities of a deceased person shall pass on to the legal representatives of the deceased person.
  
• Insolvency- The insolvent is neither allowed to deal with his property nor to pay any of his creditors. After a person is adjudicated as insolvent, all of his rights and liabilities are transferred to the Assignee, as the case maybe. When he is adjudged as insolvent, he is discharged from all liabilities incurred prior to his adjudication.