Which act constitutes termination of a contract by operation of law?

• A. Performance of duties.
• B. Bankruptcy of either party.
• C. Mutual rescission.
• D. Impossibility of performance due to earthquake.

Answer: (B)

Discharge by operation of law happens when a legal event automatically ends the contract’s duties, without any action by the parties. Bankruptcy fits this because once a party is bankrupt, their contractual obligations are released or suspended under bankruptcy law, ending the agreement’s enforceability by legal status alone.

Discharge by performance occurs when the parties actually complete what was promised. Mutual rescission is an agreement to cancel the contract, which is a voluntary end, not a legal status change. Impossibility of performance due to an earthquake can end a contract, but that’s typically viewed as discharge for impossibility rather than a discharge by operation of law.