Which situation is a typical example of termination by operation of law due to debtor inabilty to perform (e.g., bankruptcy)?

• A. Minor
• B. Bankruptcy
• C. Fraud
• D. Accord & satisfaction

Answer: (B)

When a contract ends automatically because a party can’t perform due to circumstances outside their control, that is termination by operation of law. Bankruptcy is the clear example of this. When someone files for bankruptcy, their ability to fulfill contracts is interrupted by the bankruptcy process—obligations can be discharged or contracts can be rejected under bankruptcy law—so the contract is treated as terminated by law, even without the other party’s consent. This isn’t about a party choosing to end the deal or about a minor’s capacity, or about deceit or a voluntary settlement. A minor’s contracts can be voided or avoided by the minor, fraud concerns a breach that requires remedy, and accord and satisfaction is a voluntary settlement that changes or releases obligations by agreement, not an automatic legal termination due to the debtor’s incapacity.