What does operation of law mean is a common question among those unfamiliar with how assets are passed from one party to another through legal means. Essentially, all contracts operate as legally binding agreements. This means that by law, the parties must abide by the contract or else they will be in breach. Such asset transfers include the following types of legal documents:

  1. Wills and estates
  2. Business contracts
  3. Real estate contracts

Transfer Through Operation of Law

When wanting to transfer assets that are owned by two or more owners, there are certain requirements, depending on the law in the particular state you live in. Some examples of this type of ownership include:

  1. Joint Tenants with Right of Survivorship
  2. Joint Tenants in Common
  3. Intestate Death

Joint Tenants with Right of Survivorship involve the ownership over real estate by two or more people. If John and Rose own a home equally, and want to operate the asset as joint tenants with Right of Survivorship, then when either John or Rose die, the other will take 100% ownership over the property.

If John and Rose own the property as Joint Tenants in Common, they each own the home with 50% interest. If Rose dies, then her 50% interest will be passed onto her estate and not John.

Intestate death refers to dying without a will. For example, let’s assume that John and Rose are married. If Rose dies intestate, her assets will pass on to John, her husband. However, some states provide that when Rose dies intestate, only a portion will go to her husband. The remaining assets might go to their children, Rose’s siblings, or other family members depending on the state laws.

Contract Termination Through Operation of Law

Contracts can be terminated in a number of ways, including a termination by either party or through operation of law. Such examples of when the contract might be terminated include the following:

  1. If the person making or receiving the offer dies or becomes incapacitated
  2. Illegalities, i.e., illegal or fraudulent acts identified in the contract itself
  3. Contracts that might be deemed unenforceable, i.e., lack of legal capacity, etc.
  4. Subject matter that is otherwise destroyed

If either party dies or becomes incapacitated after signing the contract but before performance occurs, the contract will automatically terminate. Similarly, if the contract is deemed unenforceable, it will be void altogether. This might occur if the parties didn’t abide by all elements required when entering into the contract. Such elements include an offer, acceptance, consideration, mutual assent, and legal capacity. Therefore, if the parties are not legally capable of entering into a contract, the contract might be unenforceable. Examples of legal incapacity include if the parties are under the age of 18, mentally incompetent, or under the influence of drugs or alcohol.

Furthermore, if the parties can’t prove consideration, the contract will be void and unenforceable. Mutual assent must occur between the parties. If one of the parties was forced, threatened or coerced in any way, then the contract will be unenforceable.

If the subject matter itself is destroyed, the contract will be automatically terminated. For example, let’s assume that John and Rose entered into a contract to sell John’s car to Rose for $500. After they signed the contract, but before they performed under the agreement, John’s car was destroyed by a fire. This means that the contract is automatically terminated, since at no fault of either party, the car was destroyed.

Termination of Principal/Agent Contract

Any contract entered into between a principal and agent might be terminated if one of the following circumstances arises:

  1. Partial performance under the agreement
  2. For cause
  3. Express contract permitting termination

If the agent only partially performs his duties under the agreement, the principal can terminate the contract for future performance.

If the principal/agent contract is entered into for a specific duration, and the principal has a valid reason, he can revoke the agreement before the expiration date on the contract. If the contract isn’t for a fixed term, but rather continuous with no end date, the principal can terminate the agreement with reasonable notice for any reason. This means that the principal doesn’t have to continue the principal/agent relationship if he chooses to end it. But he must give the agent reasonable notice of such termination. Lastly, if the agent has some sort of interest in the subject matter of the agreement, the contract can be revoked only if there is an express provision in the contract allowing termination.

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