Discharge by Operation of law and by Lapse of time

Discharge by operation of law and by lapse of time
Discharge by operation of law and by lapse of time

It is well known that a valid contract puts certain obligations on the contracting parties and they are liable to fulfill these promises. When these promises are performed, the contract is said to be discharged. Thus, discharge of a contract means that the parties are no more liable under the contract and their rights and obligations come to an end. The most desirable method of discharge of a contract is to complete its performance. However, there are other modes also by which a contract gets discharged. One of such modes is “discharge by operation of law” wherein independent of the wishes of the parties, a contract gets terminated by virtue of law. Let us find out more about the cases that discharge a contract by the operation of law.

Cases of Discharge by operation of law

In the following cases, a contract can be discharged by operation of law:

1. Death of the Promisor

In the case of contracts that involve the personal skill or ability of the promisor, the agreement comes to an end on the death of the promisor. In other kinds of contracts, the rights and obligations of the deceased party are automatically passed on to his heirs or legal representatives.

2. Insolvency

If a person is declared insolvent by an Insolvency Court, he shall be discharged from his liabilities existing at that point in time. All his liabilities are transferred to the Official Receiver or Assignee, depending on the case. Therefore, if a promisor is declared insolvent, he is discharged from his future obligations pertaining to the contract.

3. Merger

Law comes into play when inferior rights get merged into superior rights. That is to say, when an inferior right belonging to a party in a contract gets merged into a superior right accruing to the same party, the earlier contract gets terminated. Suppose A had taken a property on lease from B. But subsequently, he acquires that very property from B. Now, since A becomes the owner of the property, the earlier contract of lease is discharged and stands terminated.

4. Material alteration

Any material alterations to a contract usually require the consent of both parties. However, in a written contract, if one party makes some material alterations in the terms and conditions of the contract without seeking the approval of the other party, the contract stands discharged and comes to an end.

Here, a material alteration is one that has a significant impact on the rights, liabilities, or position of parties to the contract. On the other hand, immaterial alterations to a contract such as rectifying clerical errors or the spelling of a name do not affect the validity of the contract.

Discharge by lapse of time

In addition to discharge by operation of law, another mode that terminates the duties of contracting parties through the involvement of law is “discharge by lapse of time”. Normally, there is a stipulated time period within which the parties to a contract are bound to fulfill their obligations. If a contract is not completed within the time stipulated, it also results in a breach of contract. And the affected party may file a lawsuit against the defaulter to recover damages for any loss caused to him.

Now, if the promisor fails to perform his obligations as per the time limit of the contract, the rights and privileges concerning such contract can only be enforced under the law within a certain time frame known as the ‘period of limitation‘. This means that there is a certain time limit within which lawsuits can be filed against the promisor. If no action is taken by the promisee within this period of limitation, he shall be deprived of his remedy at law. Hence, we can say that the contract will be terminated. 

The Limitation Act, 1963 specifies the period of limitation for various contracts. For example, the period of limitation for exercising the right to reclaim an immovable property is twelve years, and the period of limitation for exercising the right to recover a debt is three years. The contractual rights cannot be enforced after the limitation period has expired. In other words, if a debt is not paid and the creditor does not file a suit against the buyer for recovery of the amount within three years after its payment has become due, it becomes time-barred and is discharged owing to the passage of time.

Conclusion

There are several ways to discharge a contract, such as in a positive way, through its performance, or in a negative way, such as through breach. A contract can also be terminated by operation of law, which includes the insolvency or death of the promisor, as well as merger and a court judgement. In addition, the Limitation Act of 1963 establishes a time limit for the enforcement of contractual obligations. The contract is discharged and the promisee is deprived of his legal recourse if the contract is not completed and no legal action is taken by the promisee within the period of limitation.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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